As filed with the Securities and Exchange Commission on June 27, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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) 226-3459 (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. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Title of Each Class Aggregate Offering Amount of
of Securities to be Registered Price(1)(2) Registration Fee
- ------------------------------- ------------------ ----------------
Common Stock, par value $.01
per share.................... $34,500,000 $11,897
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(1) Includes $4,500,000 of Common Stock which the Underwriters have the
right to purchase to cover over-allotments.
(2) Estimated solely for the purposes of computing the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933.
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 JUNE 27, 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 will be made to trade the Common Stock on The Nasdaq Stock
market's 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) $ $ $
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(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 and (ii) 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 good stores in small to
mid-sized markets in the southeastern United States. The Company's stores
offer a broad assortment of quality athletic footwear, apparel and equipment
at competitive prices with superior customer service. The Company's stores
offer a core selection of brand name merchandise with an emphasis on 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. The Company'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 it 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.
Specialized 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's management has instilled 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 on a timely basis.
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.
Such training typically includes a two-part program on selling skills and
continuing product/technical training which is conducted through in-store
clinics and video presentations, as well as 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. 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, 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 will selectively open
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 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"
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(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)
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(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 fiscal 1994 through 1996, the Company 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 has opened four
Hibbett Sports stores to date in fiscal 1997, and intends to open 13
additional Hibbett Sports stores, one Sports & Co. superstore and one
Sports Additions store in fiscal 1997 as well as approximately 27 Hibbett
Sports stores in fiscal 1998. 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 like 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, or 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. 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 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 management in the future. The Company does not have
employment or non-competition agreements with its executive officers other
than Mr. Newsome, the President of the Company. None of the Company's
senior management has any experience in managing a public company. See
"Management."
Control of the Company by Certain Shareholders
Upon the closing 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 shareholders for approval which
requires a majority shareholder vote, and, acting together with the
Anderson Shareholders, to determine the outcome of any matter that requires
a two-thirds shareholder 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 Shareholders."
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 been no 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 negotiation between the Company and the Representatives of the
Underwriters. See "Underwriting" for a discussion of factors considered in
determining the initial public offering price. Upon commencement of the
Offering, the Common Stock will be quoted on The Nasdaq National Market, which
stock market 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
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 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 Revolving Loan
Agreement bears interest at a floating rate (7.79% at June 15, 1996) and
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 shareholders and by
new investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
-------------------------- -----------------------------
Average Price
Number Percent Amount Percent PerShare
--------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders...... % $ % $
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. 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 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.................................................... (1,448)
----------- -----------
Total long-term debt........................................................ 30,325
----------- -----------
Stockholders' investment (deficit):
Common Stock, $.01 par value 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>
- -------------
(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 Agreement" 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. 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 operator of full-line sporting goods
retail 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.
Beginning in fiscal 1997, the Company has further accelerated
expansion plans to take advantage of the growth opportunities in its target
markets. The Company plans to open 17 Hibbett Sports stores in fiscal 1997
and approximately 27 Hibbett Sports stores in fiscal 1998. The Company has
opened four Hibbett Sports stores to date in fiscal 1997, and intends to
open 13 additional Hibbett Sports stores, 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. 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, with its
fiscal year ending on the Saturday nearest to January 31 of each 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.
The Company is incorporated under the laws of the state of Alabama.
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>
- ----------------
(1) Includes management fees. See "Certain Transactions--Management
Agreement" 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 $5.2 million, or 35.0%, to
$20.2 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
------------------------------------------------------------------------------
April 30, 1994 July 30, 1994 October 29, 1994 January 28, 1995
-------------- ------------- ---------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net sales.................................... $11,667 $11,260 $12,967 $16,372
Operating income............................. 1,284 758 1,105 1,375
Operating income as percentage of net sales.. 11.0% 6.7% 8.5% 8.4%
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------------------------
April 29, 1995 July 29, 1995 October 28, 1995 February 3, 1996 May 4, 1996
-------------- ------------- ---------------- ---------------- ------------
(14 weeks)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales............... $15,001 $14,355 $15,737 $21,984 $20,251
Operating income........ 1,476 1,055 1,323 1,788(1) 2,429(2)
Operating income as
percentage of net sales 9.8% 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 (i) to fund the opening of approximately 27
Hibbett Sports stores, (ii) to remodel selected existing stores and (iii)
to fund headquarters and distribution center-related capital expenditures.
The Company's principal source of liquidity is its $25 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 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
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.
BUSINESS
General
Hibbett is a leading rapidly-growing operator of full-line sporting
good stores in small to mid-sized markets in the southeastern United
States. The Company's stores offer a broad assortment of quality athletic
footwear, apparel and equipment at competitive prices with superior
customer service. The Company's stores offer a core selection of brand
name merchandise with an emphasis on 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. The Company'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 stores offer a core
selection of quality, brand name merchandise with an emphasis on team and
individual sports. The merchandise mix is 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 it 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.
Specialized 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's management has instilled 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 on a timely basis.
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. Such training typically includes a two-part program on
selling skills and continuing product/technical training which is conducted
through in-store clinics and video presentations, as well as 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. 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.
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 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 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.
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 will selectively open Sports Additions 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 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 at Hibbett Sports stores than it does at the stores of
national chains. 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. store 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 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 footwear and the remainder consisting of caps and limited
apparel. Sports Additions stores offer a broader assortment of athletic
footwear, with a greater emphasis on fashion than the 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 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 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 Louisville Slugger Rollerblade
Asics K-Swiss Russell
Champion Mizuno Spalding
Converse New Era Starter
Columbia New Balance 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 a
Vice President of Merchandising and nine 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 subscribing to 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. The Company has recently begun placing advertising signage
on its trailers. 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 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, recently the Company developed a joint
television commercial with Nike which will run in local television markets.
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
issues/concerns, to provide encouragement and to discuss national, regional
and local trends in the sporting goods sector. Hibbett conducts monthly
meetings at 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 it 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 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, enabling the Company 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, athletic 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 re-evaluate store locations periodically.
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 the date of the
Recapitalization. Many 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 like 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 an adverse effect on the Company's
financial results.
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, most recently as Controller. Prior
to Bruno's, Ms. Fitzgibbon spent six years at Arthur Andersen 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 department manager at Loveman's
department stores for two years and 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
functioned 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
sector.
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.
Prior to his affiliation with Saunders Karp & Co., Mr. Feinberg was 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. 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.
All of the current members of the Board of Directors were
elected pursuant to the Stockholders Agreement. See "Certain
Transactions--Stockholders Agreement."
The Funds and the Anderson Shareholders have agreed to amend
the Stockholders Agreement to allow the Company to, and the Company intends
to, add two independent members to its Board of Directors within 90 days
after the date of this Prospectus. It will be necessary for the Company to
appoint these directors within the 90 day time period in order to maintain
its Nasdaq National Market listing. Failure to appoint such directors
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 is
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.
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 have been 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 (the "1996 Plan") under
which future grants of stock options under the Company's stock option
program will be made. Under the 1996 Plan, 595, 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 Original Plan 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. Under the 1996 Plan, the option exercise price is
determined in the discretion of the Board of Directors or the Compensation
Committee, as applicable. Payment of the option price may be made in the
discretion of the Board of Directors or a committee thereof, as the case
may be, 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
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 such purchase price shall be the
closing price of the Common Stock as reported in the Wall Street Journal.
In the case of the 1996 Plan, the Board of Directors or the Compensation
Committee, as applicable, may impose other restrictions on shares acquired
pursuant to the exercise of an option, including a right of first refusal
in favor of the Company. Under the Original Plan, following completion of
the Company's initial public offering, 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.
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.
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
Assumed Annual
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)(4) 61.77% 1.00 11/01/05
Cathy E. Pryor....... 77,374(2) 19.12% 0.31 8/25/01
<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.
(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.
(4) Consists of options granted as of November 1, 1995 under the Original
Plan pursuant to the terms of the Employment Agreement. See
"--Employment Agreement."
</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 ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable (1)
---- ------------------ -----------------
Michael J. Newsome......
Cathy E. Pryor..........
______________
(1) Based on the fair market value of the Company's Common Stock at the end
of fiscal 1996 ($ 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
shall 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 shall
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.
No other employee of the Company is a party to an employment
agreement with the Company.
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..................... 1,596,049 7%
Michael J. Newsome(3)
451 Industrial Lane
Birmingham, AL 35211..................... 750,000 3%
All Directors and Executive Officers
as a group(4).............................. 19,955,049 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. Megrue, Saunders and Karp disclaim benefical
ownership of such shares.
(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
Sale of Distribution Center
The Company assigned its interest in its former headquarters
and distribution facility to Anderson & Anderson, an entity affiliated with
certain Anderson Shareholders, for $850,000.
Management Agreement
Prior to June 1, 1995, the Company contracted with ANCO
Management Services, Inc. ("ANCO"), an affiliated entity of the Anderson
Shareholders, to obtain certain management services including operating,
planning and financing advice. From June to November 1, 1995, the Company
contracted for such management services with a different affiliated entity,
Anderson & Anderson. Fees for those services amounted to $227,000, $256,000
and $95,000 in fiscal 1994, 1995 and 1996, respectively.
Working Capital Line of Credit
During fiscal 1995, the Company also borrowed funds from ANCO
to meet its 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 during fiscal 1995.
Certain Issuance of Stock to Clyde B. Anderson
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.
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 (together with their permitted transferees, 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 12% 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 discount,
with the yield to maturity compounded annually at 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.
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 shares.
The Stockholders Agreement 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 only be removed
for cause or if persons entitled to designate such directors consents to
removal in writing.
Actions of the Board 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,
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 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 Agreement
On November 1, 1995, the Company entered into an advisory
agreement with Saunders Karp & Co., L.P. (the "Advisor"), 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 the Advisor has agreed to provide certain financial advisory
services to the Company. In consideration for these services, the Advisor
is entitled to receive an annual fee of $200,000, payable quarterly in
advance. The Company paid the Advisor $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 the Advisor for
certain losses arising out of the provision of advisory services and to
reimburse certain of the Advisor's out-of-pocket expenses. In addition, on
November 1, 1995, the Company paid the Advisor 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.
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 the representatives
of the Underwriters, 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 authorized capital stock of the Company consists of
50,000,000 shares of Common Stock.
Common Stock
As of May 4, 1996 there were 23,389,000 shares of Common Stock
outstanding which were held of record by 23 shareholders. 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 shareholders and do not have cumulative
voting rights. 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. Except as otherwise
provided in the Stockholders Agreement, the holders of Common Stock 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.
Indemnification of Officers and Directors
The Company's Amended & Restated Bylaws (the "Bylaws") provide
that the Company must indemnify any person, and such person's heirs and
administrators, who is or was an officer or director of the Company or who
served at the request of the Company as an officer or director of any
corporation of which the Company owns shares or capital stock or of which
the Company is a creditor or which is a subsidiary or affiliate of the
Company (each such entity other than the Company, a "Related Entity"),
against any and all liability and reasonable expenses that may be incurred
by such person in connection with or resulting from any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, whether formal or informal, in which such
person may become involved, as a party or otherwise, by reason of his being
or having been an officer or director of the Company or an officer or
director of a Related Entity, or by reason of any action taken or not taken
by him in such capacity. Pursuant to Section 10-2B-8.51 of the Alabama
Business Corporation Act (the "ABCA"), the Company is required to indemnify
only if such person acted in good faith and, if acting in his official
capacity, in what he reasonably believed to be in the best interests of the
Company or such Related Entity or, if acting in a nonofficial capacity, he
reasonably believed that his conduct was not opposed to the best interests
of the Company or such Related Entity. The Company may not indemnify any
such person in connection with any such action, suit or proceeding asserted
or brought by or in the right of the Company in which such person is
adjudged liable to the Company or in connection with any other proceeding
charging improper personal benefit to such person, whether or not involving
action in his or her official capacity, in which such person is adjudged
liable on the basis that personal benefit was improperly received by such
person, 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 circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper. To the extent that a director
or officer of the Company has been successful on the merits or otherwise in
defense of any proceeding or of any claim, issue or matter in such
proceeding, such person shall be indemnified against reasonable expenses
(including without limitation attorneys' fees) actually and reasonably
incurred by such person in connection therewith, notwithstanding that he
has not been successful on any other claim, issue or matter in any such
action, suit or proceeding.
The Company may advance expenses (including attorneys' fees) incurred
in defending a civil or criminal claim, action, suit or proceeding covered
by the indemnification provisions of the ABCA in advance of the final
disposition thereof upon receipt of a written affirmation by the indemnitee
of his good faith belief that the standards of conduct set forth in Section
10-2B-8.51 of the ABCA have been met, and an undertaking by or on behalf of
the indemnitee to repay such amount unless it is ultimately determined that
he is entitled to indemnification under the ABCA.
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 Balch & Bingham, Birmingham, Alabama.
Certain legal matters relating to the Offering will be passed upon for the
Company by Davis Polk & Wardwell, New York, New York and for the Underwriters
by Latham & Watkins, New York, New York.
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 on Form S-1 (of
which this Prospectus is a part) under the Securities Act with respect to
the Common Stock. This Prospectus does not contain all the information set
forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission.
The Registration Statement and the exhibits and schedules
forming a part thereof can be inspected and copies obtained at the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a
web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission.
<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............
Risk Factors..................
Use of Proceeds...............
Dividend Policy...............
Dilution......................
Capitalization................
Selected Consolidated
Financial Data and
Operating Data..............
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations..................
Business......................
Management....................
Principal Shareholders........
Certain Transactions..........
Shares Eligible for Future
Sale........................
Description of Capital
Stock.......................
Underwriting..................
Legal Matters.................
Experts ......................
Additional Information........
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.
The Bylaws provide that the Company must indemnify any person,
and such person's heirs and administrators, who is or was an officer or
director of the Company or who served at the request of the Company as an
officer or director of any corporation of which the Company owns shares of
capital stock or of which the Company is a creditor or which is a
subsidiary or affiliate of the Company (each such entity other than the
Company, a "Related Entity"), against any and all liability and reasonable
expenses that may be incurred by such person in connection with or
resulting from any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative,
whether formal or informal, in which such person may have become involved,
as a party or otherwise, by reason of being or having been an officer or
director of the Company or an officer or director of a Related Entity, or
by reason of any action taken or not taken in such capacity. Pursuant to
Section 10-2B-8.51 of the Alabama Business Corporation Act (the "ABCA"),
the Company is required to indemnify only if such person acted in good
faith and, if acting in official capacity, in what was reasonably believed
to be the best interests of the Company or such Related Entity or, if
acting in a nonofficial capacity, what was reasonably believed to be
conduct that was not opposed to the best interests of the Company or such
Related Entity. The Company may not indemnify any such person in
connection with any such action, suit or proceeding asserted or brought by
or in the right of the Company in which such person is adjudged liable to
the Company or in connection with any other proceeding charging improper
personal benefit to such person, whether or not involving action in his or
her official capacity, in which such person is adjudged liable on the basis
that personal benefit was improperly received by such person, 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 circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such
court shall deem proper. To the extent that a director or officer of the
Company has been successful on the merits or otherwise in defense of any
proceeding or of any claim, issue or matter in such proceeding, such person
shall be indemnified against reasonable expenses (including without
limitation attorney's fees) actually and reasonably incurred by such person
in connection therewith, notwithstanding that such person has not been
successful on any other claim, issue or matter in any such action, suit or
proceeding.
The Company may advance expenses (including attorney's fees) incurred
in defending a civil or criminal claim, action, suit or proceeding covered
by the indemnification provisions of the ABCA in advance of the final
disposition thereof upon receipt of a written affirmation by the indemnitee
of a good faith belief that the standards of conduct set forth in Section
10-2B-8.51 of the ABCA have been met, and an undertaking by or on behalf of
the indemnitee to repay such amount unless it is ultimately determined that
the indemnitee is entitled to indemnification under the ABCA.
The Company may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Company,
or is or was serving at the request of the Company as a director, officer,
partner, employee or agent of any Related Entity against any liability
asserted by and incurred by such person in any such capacity or arising out
of his or her status as such, whether or not the Company is required or
permitted to indemnify him or her against such liability, under the Bylaws
or the ABCA. The Company intends to purchase directors and officers
liability insurance.
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
4.1* Form of Share Certificate
5.1* Opinion of Balch & Bingham
10.1* Loan and Security Agreement dated as of November 1, 1995
between the Registrant, Hibbett Team Sales, Inc. and Heller
Financial, Inc.
10.2 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
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
10.9 Lease Agreement dated as of February 1, 1996 between QRS
12-14 (AL), Inc. and Sports Wholesale, Inc.
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 Balch & Bingham (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.
(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 Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Birmingham, State of Alabama, on
the 27th day of June, 1996.
Hibbett Sporting Goods, Inc.
By /s/ Michael J. Newsome
-------------------------------------
Michael J. Newsome
President, Chief Operating Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Michael J. Newsome and
Susan Fitzgibbon, and each of them, his or her true and lawful attorneys-
in-fact and agents, with full power of substitution and revocation, for him
or her and in his or her name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to
this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act
and things requisite and necessary to be done as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Michael J. Newsome Principal Executive Officer June 27, 1996
- -------------------------- and Director
Michael J. Newsome
/s/ Susan H. Fitzgibbon Principal Financial Officer, June 27, 1996
- -------------------------- Controller and Principal
Susan Fitzgibbon Accounting Officer
/s/ Clyde B. Anderson Director June 27, 1996
- --------------------------
Clyde B. Anderson
/s/ Thomas A. Saunders, III Director June 27, 1996
- --------------------------
Thomas A. Saunders, III
/s/ F. Barron Fletcher, III Director June 27, 1996
- --------------------------
F. Barron Fletcher, III
/s/ John F. Megrue Director June 27, 1996
- --------------------------
John F. Megrue
/s/ Barry H. Feinberg Director June 27, 1996
- --------------------------
Barry H. Feinberg
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
4.1* Form of Share Certificate
5.1* Opinion of Balch & Bingham
10.1* Loan and Security Agreement dated as of November 1, 1995
between the Registrant, Hibbett Team Sales, Inc. and Heller
Financial, Inc.
10.2 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
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
10.9 Lease Agreement dated as of February 1, 1996 between QRS
12-14 (AL), Inc. and Sports Wholesale, Inc.
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 Balch & Bingham (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.
STOCKHOLDERS AGREEMENT
dated as of
November 1, 1995
by and among
THE SK EQUITY FUND, L.P.,
SK INVESTMENT FUND, L.P.,
THE STOCKHOLDERS listed on
the signature pages hereof
and
HIBBETT SPORTING GOODS, INC.
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
1.1Definitions................................................ 1
ARTICLE 2
CORPORATE GOVERNANCE
2.1Composition of the Board................................... 9
2.2Removal.................................................... 9
2.3Vacancies.................................................. 9
2.4Action by the Board........................................ 10
2.5Conflicting Charter or Bylaw Provisions.................... 10
2.6Corporate Governance....................................... 10
2.7Meetings, Etc.............................................. 11
ARTICLE 3
RESTRICTIONS ON TRANSFER
3.1General.................................................... 12
3.2Legend on Share Certificates............................... 15
3.3Permitted Transferees...................................... 16
3.4The Trusts................................................. 16
ARTICLE 4
RIGHTS TO PARTICIPATE IN A SALE;
RIGHTS TO COMPEL A SALE
4.1Right to Participate in a Sale............................. 17
4.2Right to Compel Participation in Certain Transfers......... 20
4.3Improper Transfer.......................................... 22
ARTICLE 5
REGISTRATION RIGHTS
5.1Demand Registration........................................ 22
5.2Incidental Registration.................................... 25
5.3Holdback Agreements........................................ 27
5.4Registration Procedures.................................... 27
5.5Indemnification by the Company............................. 31
5.6Indemnification by Participating Stockholders.............. 32
5.7Conduct of Indemnification Proceedings..................... 33
5.8Contribution............................................... 34
5.9Participation in Public Offering........................... 35
5.10Other Indemnification..................................... 35
5.11Use of Proceeds........................................... 36
5.12Transfer of Shares While Anderson Subordinated Notes
Outstanding; Call of Callable Shares...................... 36
ARTICLE 6
MISCELLANEOUS
6.1Information................................................ 37
6.2Entire Agreement........................................... 37
6.3Binding Effect; Benefit.................................... 38
6.4Assignability.............................................. 38
6.5Amendment; Waiver; Termination............................. 38
6.6Notices.................................................... 39
6.7Headings................................................... 40
6.8Counterparts............................................... 41
6.9Applicable Law............................................. 41
6.10Specific Enforcement...................................... 41
6.11Consent to Jurisdiction................................... 41
6.12Notice of Ownership Change................................ 41
6.13WAIVER OF JURY TRIAL...................................... 42
STOCKHOLDERS AGREEMENT
AGREEMENT dated as of November 1, 1995 among The SK Equity
Fund, L.P., a Delaware limited partnership (the "Equity Fund"), SK Investment
Fund, L.P., a Delaware limited partnership (the "Investment Fund"), the
Stockholders listed on the signature pages hereof and Hibbett Sporting Goods,
Inc., an Alabama corporation (the "Company").
W I T N E S S E T H:
WHEREAS, pursuant to the Stock Purchase and Redemption
Agreement dated as of [November 1], 1995 (the "Stock Purchase and Redemption
Agreement") by and among the Equity Fund, the Investment Fund, the
Stockholders named therein and the Company, the Equity Fund and the Investment
Fund, concurrently with the execution of this Agreement, are acquiring shares
("Shares") of common stock, par value $0.01 per share ("Common Stock"), of the
Company; and
WHEREAS, the parties hereto desire to enter into this Agreement
to govern certain of their rights, duties and obligations after consummation
of the transactions contemplated by the Securities Purchase and Redemption
Agreement;
NOW, THEREFORE, in consideration of the covenants and
agreements contained herein and in the Securities Purchase and Redemption
Agreement, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. (a) The following terms, as used herein,
have the following meanings:
"Affiliate" means, at any time and with respect to any Person,
any other Person directly or indirectly controlling, controlled by, or under
common control with such Person; provided that no stockholder of the Company
shall be deemed an Affiliate of any other stockholder of the Company solely by
reason of any investment in the Company. For the purpose of this definition,
the term "control" (including with correlative meanings, the terms
"controlling", "controlled by" and "under common control with"), when used
with respect to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract
or otherwise.
"Affiliated Employee Benefit Trust" means any trust that is a
successor to the assets held by a trust established under an employee benefit
plan subject to ERISA or any other trust established directly or indirectly
under such plan or any other such plan having the same sponsor.
"Aggregate Ownership" means, at any time and with respect to
any Stockholder or group of Stockholders, the total number of Shares
"beneficially owned" (as such term is defined in Rule 13d-3 under the Exchange
Act) (without duplication) by such Stockholder or group of Stockholders at
such time, calculated on a Fully Diluted basis and taking into account any
stock dividend, stock split or reverse stock split.
"Anderson Group" means the Anderson Stockholders and their
respective Permitted Transferees.
"Anderson Stockholders" means Charles C. Anderson, Joel R.
Anderson, Charles C. Anderson, Jr., Terrence C. Anderson, Clyde B. Anderson,
Harold M. Anderson, the Trusts, Gerald H. Daugherty, Martin R. Abroms and
Sandra B. Cochran.
"Anderson Subordinated Note" means any Subordinated Note issued
by the Company to any member of the Anderson Group as part of the transaction
contemplated by the Stock Purchase and Redemption Agreement; provided that any
Subordinated Note (or part thereof) shall cease to be an "Anderson
Subordinated Note" upon Transfer thereof to any Person other than a member of
the Anderson Group, and such Subordinated Note (or part thereof) shall not be
deemed an "Anderson Subordinated Note" even if it (or part thereof) is
acquired subsequently to such Transfer by a member of the Anderson Group.
"Board" means the board of directors of the Company.
"Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in either New York City or in the state of
Alabama are authorized by law to close.
"Bylaws" means, with respect to any corporate entity, the
bylaws of such corporate entity, as amended from time to time.
"Callable Shares" means those certain Shares held by members of
the Anderson Group described in Section 2.5 of the Stock Purchase and
Redemption Agreement until such Shares either (i) cease to be "Callable
Shares" pursuant to Section 3.1(e) or (ii) are called by the Company pursuant
to Section 5.12(b).
"Charter" means, with respect to any corporate entity, the
articles of incorporation of such corporate entity, as amended from time to
time.
"Closing Date" has the meaning set forth in the Stock Purchase
and Redemption Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fully Diluted" means, with respect to Common Stock and without
duplication, all outstanding Shares and all Shares issuable in respect of
securities convertible into or exchangeable for Common Stock, options,
warrants and other rights to purchase or subscribe for Common Stock or
securities convertible into or exchangeable for Common Stock; provided that,
to the extent any of the foregoing options, warrants or other rights to
purchase or subscribe for Common Stock are subject to vesting, the Shares
subject to vesting shall be included in the definition of "Fully Diluted" only
upon and to the extent of such vesting.
"Funds" means the Equity Fund and the Investment Fund,
collectively, and their respective Permitted Transferees.
"Initial Public Offering" means the initial sale after the date
hereof of Common Stock pursuant to an effective registration statement under
the Securities Act (other than a registration statement on Form S-8 or any
successor form).
"Majority Anderson Stockholders" means, at any time, the
Anderson Stockholders holding the majority of the total number of Shares at
such time held by the Anderson Group.
"Management Group" means the Management Stockholder and his
Permitted Transferees.
"Management Letter Agreement" means the Letter Agreement dated
as of November 1, 1995 between the Board and Michael J. Newsome.
"Management Stockholder" means Michael J. Newsome.
"Option Plan" has the meaning set forth in the Management
Letter Agreement.
"Original Anderson Shares" means, at any time, the number of
Shares (other than Callable Shares) owned by the Anderson Stockholders
immediately following consummation of the transactions contemplated by this
Agreement and the Stock Purchase and Redemption Agreement, as adjusted for any
subsequent stock split or reverse stock split.
"Other Stockholders" means the Anderson Group and the
Management Group, collectively.
"Permitted Transferee" means:
(i) in the case of any of the Funds (A) any beneficial owner
(as defined in Rule 13d-3 under the Exchange Act) of a general or
limited partnership interest in either Fund (a "Fund Partner"), and
any Affiliated Employee Benefit Trust or a natural person that is an
Affiliate of any Fund Partner (collectively, the "Fund Affiliates"),
(B) the heirs, executors, administrators, testamentary trustees,
legatees or beneficiaries of any of the foregoing persons who are
natural persons covered by clause (A) (collectively, "Fund
Associates"); or (C) a trust, a corporation, a limited liability
company or a partnership, in each case (1) the beneficial ownership
interests of which are held only by Fund Affiliates, Fund Associates,
their spouses or their lineal descendants or (2) which was not formed
for the purpose of taking an investment in the Shares and in which at
least 80% of the beneficial ownership interest is held by Fund
Affiliates, Fund Associates, their spouses or their lineal
descendants;
(ii) in the case of any member of the Anderson Group (A) any
Anderson Stockholder, (B) any spouse or lineal descendant of any
Anderson Stockholder, (C) a Person to whom Shares are transferred
from such Anderson Stockholder by will or the laws of descent and
distribution or (D) a trust, a corporation, a limited liability
company or a partnership, in each case (1) the beneficial ownership
interests of which are held only by members of the Anderson Group or
(2) which was not formed for the purpose of taking an investment in
the Shares and in which at least 80% of the beneficial ownership
interest is held by members of the Anderson Group; and
(iii) in the case of any member of the Management Group (A) any
spouse or lineal descendent of the Management Stockholder, (B) a
Person to whom Shares are transferred from the Management Stockholder
by will or the laws of descent and distribution or (C) any trust that
is for the exclusive benefit of the members of the Management Group;
provided that no Person which carries on an active trade or business that
competes with the business of the Company or any of its subsidiaries may be a
Permitted Transferee of any of the foregoing.
"Person" means an individual, corporation, partnership,
association, trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Public Offering" means an underwritten public offering of
Registrable Stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Registrable Stock" means any Shares (other than Callable
Shares) until (i) a registration statement covering such Shares has been
declared effective by the SEC and such shares have been disposed of pursuant
to such effective registration statement, (ii) such Shares are sold under
circumstances in which all of the applicable conditions of Rule 144 are met or
under which they may be sold pursuant to Rule 144(k) or (iii) such Shares are
otherwise transferred, the Company has delivered a new certificate or other
evidence of ownership for such Shares not bearing the legend required pursuant
to this Agreement and such Shares may be resold without subsequent
registration under the Securities Act.
"Registration Expenses" means (i) all registration and filing
fees, (ii) fees and expenses relating to compliance with securities or blue
sky laws (including reasonable fees and disbursements of counsel in connection
with blue sky qualifications of the Shares), (iii) printing expenses, (iv)
internal expenses of the Company (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), (v) reasonable fees and disbursements of counsel for the Company and
reasonable and customary fees and expenses for independent certified public
accountants retained by the Company (including the expenses of any comfort
letters or costs associated with the delivery by independent certified public
accountants of a comfort letter or comfort letters requested pursuant to
Section 5.4(h)), (vi) the reasonable fees and expenses of any special experts
retained by the Company in connection with such registration, (vii) reasonable
fees and expenses of one counsel for the Stockholders participating in the
offering selected (A) by the Funds, in the case of any offering in which the
Funds participate, or (B) in any other case, by the Other Stockholders holding
the majority of Shares to be sold for the account of all Other Stockholders in
the offering, (viii) fees and expenses in connection with any review of
underwriting arrangements by the National Association of Securities Dealers,
Inc. (the "NASD"), (ix) fees and expenses in connection with listing the
Shares on securities exchanges and (x) fees and disbursements of underwriters
customarily paid by issuers or sellers of securities; but shall not include
any underwriting fees, discounts or commissions attributable to the sale of
Registrable Stock, or any out-of-pocket expenses (except as set forth in
clause (vii) above) of the Stockholders (or the agents who manage their
accounts) or any fees and expenses of underwriter's counsel.
"Rule 144" means Rule 144 and Rule 144A (or any successor
provisions) under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"SK Subordinated Note" means any Subordinated Note issued by
the Company to any of the Funds as part of the transaction contemplated by the
Stock Purchase and Redemption Agreement; provided that any Subordinated Note
(or part thereof) shall cease to be an "SK Subordinated Note" upon Transfer
thereof to any Person other than the Funds, and such Subordinated Note (or
part thereof) shall not be deemed an "SK Subordinated Note" even if it (or part
thereof) is acquired subsequently to such Transfer by the Funds.
"Stockholder" means each Person (other than the Company) who
shall be a party to this Agreement, whether in connection with the execution
and delivery hereof as of the date hereof, pursuant to Section 6.4, or
otherwise, so long as such Person shall (i) beneficially own any Shares or (ii)
have any options, warrants or other rights to purchase or subscribe for Common
Stock or securities convertible into or exchangeable for Common Stock.
"Subordinated Notes" means the Company's 12% Subordinated Notes
due 2002.
"Third Party" means a prospective purchaser of Shares from a
Stockholder where such purchaser is not a Permitted Transferee of such
Stockholder.
"Transfer" means:
(i) in the case of any of the Funds, any sale, assignment or
transfer (but not a pledge or a grant of a participation interest),
and
(ii) in the case of any member of the Anderson Group or the
Management Group, any sale, assignment, transfer, grant of a
participation interest, pledge or any other disposition.
The verb "Transfer" and the words "Transferring" and "Transferred" have
correlative meanings.
"Trusts" means First Anderson Grandchildren's Trust F/B/O
Charles C. Anderson III, First Anderson Grandchildren's Trust F/B/O Lauren A.
Anderson, First Anderson Grandchildren's Trust F/B/O Hayley E. Anderson,
Second Anderson Grandchildren's Trust F/B/O Alexandra R. Anderson, Third
Anderson Grandchildren's Trust F/B/O Taylor Claire Anderson, Fourth Anderson
Grandchildren's Trust F/B/O Carson Caine Anderson, Fifth Anderson
Grandchildren's Trust F/B/O Harold M. Anderson, Jr., Sixth Anderson
Grandchildren's Trust F/B/O Bentley Barbour Anderson, Seventh Anderson
Grandchildren's Trust F/B/O Olivia Barbour Anderson, The Ashley R. Anderson
Trust and Joel R. Anderson II Trust.
(b) The term the "Funds", to the extent any of them shall have
transferred any of its Shares to "Permitted Transferees", shall mean the Funds
and the Permitted Transferees of the Funds, taken together, and any right or
action that may be taken at the election of the Funds may be taken at the
election of the Funds and such Permitted Transferees.
(c) Except as otherwise provided herein, any right or action
that may be taken at the election of the Anderson Group shall be taken by a
designee of the Anderson Group (the "Anderson Designee") on behalf thereof,
such designee being designated by the Majority Anderson Stockholders from time
to time. The initial Anderson Designee will be Clyde B. Anderson. Any change
in the Anderson Designee will become effective upon notice in accordance with
Section 6.6 from the Majority Anderson Stockholders to the Company, the Funds
and the Management Designee.
(d) Except as otherwise provided herein, any right or action
that may be taken at the election of the Management Group shall be taken by a
designee of the Management Group (the "Management Designee") on behalf
thereof, such designee being designated by the holders of the majority of the
Shares held by the members of the Management Group from time to time. The
initial Management Designee will be Michael J. Newsome or, in the event of his
death or incapacity, his successor. Any change in the Management Designee
will become effective upon notice in accordance with Section 6.6 from the
holders of the majority of the Shares held by the members of the Management
Group at the time of such notice to the Company, the Funds and the Anderson
Designee.
(e) The term "Shares" shall include any Callable Shares unless
expressly provided otherwise herein.
(f) Each of the following terms is defined in the Section set
forth opposite such term:
Term Section
Anderson Director 2.1(a)
beneficially own 1.1(a)
Company Acceptance 3.1(c)(i)
Demand Registration 5.1(a)
Excess Number 4.1(a)
Holders 5.1(a)
Incidental Registration 5.1(a)
Indemnified Party 5.7
Indemnifying Party 5.7
Independent Director 2.1(a)
Inspectors 5.4(g)
Maximum Offering Size 5.1(d)
Nominee 2.3(a)
Participating Shares 4.1(a)
Pro Rata Portion 3.1(d)
Purchase Rights 3.5
Purchase Shares 4.1(a)
Records 5.4(g)
Restriction Termination Date 3.1(b)
Section 4.1 Notice 4.1(a)
Section 4.1 Notice Period 4.1(a)
Section 4.1 Pro Rata Portion 4.1(a)
Section 4.1 Sale 4.1(a)
Section 4.1 Sale Price 4.1(a)
Section 4.1 Seller 4.1(a)
Section 4.2 Notice 4.2(a)
Section 4.2 Notice Period 4.2(a)
Section 4.2 Sale 4.2(a)
Section 4.2 Sale Price 4.2(a)
Selling Stockholder 5.1(a)
ARTICLE 2
CORPORATE GOVERNANCE
2.1 Composition of the Board. (a) Initially and then for so
long as the number of Shares held by the Anderson Group equals or exceeds 50%
of the Original Anderson Shares, the Board shall consist of five directors,
three of whom will be designated by the Funds, one of whom will be an officer
of the Company designated by the Board, and one of whom will be designated by
the Anderson Designee (the "Anderson Director"). The initial directors
designated by the Funds are Messrs. John F. Megrue, F. Barron Fletcher, III
and another director to be named by the Funds after the date hereof, the
initial Anderson Director is Mr. Clyde B. Anderson, and the officer of the
Company initially designated by the Board is Mr. Michael J. Newsome. One of
the directors designated by the Funds shall be elected as the Chairman of the
Board. After the number of Shares held by the Anderson Stockholders falls
below 50% of the number of the Original Anderson Shares, all the directors
will be elected in accordance with the Charter of the Company, the Bylaws of
the Company and the applicable provisions of law. The Company will pay each
member of the Board (other than an employee of the Company) an annual fee of
$20,000, which may be waived by a director entitled thereto.
(b) Each Stockholder entitled to vote for the election of
directors to the Board agrees that it will vote its Shares or execute written
consents, as the case may be, and take all other necessary action (including
causing the Company to call a special meeting of stockholders) in order to
ensure that the composition of the Board is as set forth in this Section 2.1.
2.2 Removal. Each Stockholder agrees that if, at any time,
it is then entitled to vote for the removal of directors of the Company, it
will not vote any of its Shares in favor of the removal of any director who
shall have been designated or nominated pursuant to Section 2.1 unless such
removal shall be for cause or the Persons entitled to designate or nominate
such director shall have consented to such removal in writing.
2.3 Vacancies. If, as a result of death, disability,
retirement, resignation, removal (with or without cause) or otherwise, there
shall exist or occur any vacancy on the Board:
(a) the Person or Persons entitled under Section 2.1 to
designate or nominate such director whose death, disability, retirement,
resignation or removal resulted in such vacancy may designate another
individual (the "Nominee") to fill such vacancy and serve as a director of the
Company; and
(b) each Stockholder then entitled to vote for the election of
the Nominee as a director of the Company agrees that it will vote its Shares,
or execute a written consent, as the case may be, in order to ensure that the
Nominee is elected to the Board.
2.4 Action by the Board. (a) A quorum of the Board shall
consist of three directors, of whom at least two must be designees of the
Funds. All actions of the Board shall require the affirmative vote of at
least a majority of the directors present at a duly convened meeting of the
Board at which a quorum is present or the unanimous written consent of the
Board; provided that, in the event there is a vacancy on the Board and an
individual has been nominated to fill such vacancy, the first order of
business shall be to fill such vacancy.
(b) The Board may create executive, compensation and audit
committees, as well as such other committees as it may determine, and each
such committee shall consist of at least three members of the Board. The
Funds shall be entitled to majority representation on each committee created
by the Board and, for so long as provisions of Section 2.1(a) remain in
effect, the Anderson Director shall be a member of each committee, unless his
membership is prohibited under applicable law or creates a conflict of
interest or the appearance of a conflict of interest.
2.5 Conflicting Charter or Bylaw Provisions. Each
Stockholder shall vote its Shares or execute written consents, as the case may
be, and take all other actions necessary, to ensure that the Company's Charter
and Bylaws facilitate and do not at any time conflict with any provision of
this Agreement.
2.6 Corporate Governance. For so long as the number of
Shares held by the Anderson Group equals or exceeds 50% of the Original
Anderson Shares, the Company shall not take any action regarding the following
matters without the affirmative vote of the Board, with the Anderson Director
voting in the affirmative:
(i) any amendment of the Charter or Bylaws of the Company or
any of its subsidiaries;
(ii) any sudden and material change in the line of business of
the Company or any of its subsidiaries from that conducted on the
date hereof;
(iii) except for any payments by the Company to Saunders, Karp &
Co., L.P. pursuant to letter agreements executed on or about the date
hereof, any transaction between the Company or any of its
subsidiaries and (A) an Affiliate of the Company or any of its
subsidiaries, or (B) an officer, director or Stockholder of the
Company or any of its subsidiaries or an Affiliate of any of them,
except any such transaction involving the purchase and sale of
products on commercially reasonable terms in the ordinary course of
business; and
(iv) prior to the completion of the audit of the Company's
financial statements for fiscal 1997, any change of the Company's
auditors.
2.7 Meetings, Etc. (a) The Board shall hold a regularly
scheduled meeting at least once every calendar quarter, at which the Company's
financial statements for the immediately preceding fiscal quarter or fiscal
year, as the case may be, will be discussed.
(b) Mr. Michael J. Newsome's employment with the Company shall
not be terminated except (i) at the Board meeting at which such termination is
on the agenda and about which the Anderson Director has been notified in
accordance with the Company's Bylaws; provided that the vote of the majority
of directors present at such meeting shall constitute a valid action of the
Board regardless of whether the Anderson Director concurs in such action and
(ii) due to his action or failure to act, which action or failure to act, as
determined by the Board in accordance with the preceding clause (i), either
has been or could have been detrimental to the Company or the Funds.
2.8 Issuances of Equity. The Company shall not issue any
Shares (or any options to acquire or warrants or other securities convertible
into or exercisable or exchangeable for Shares) unless such Shares (or such
options to acquire or such securities convertible into or exercisable or
exchangeable for Shares, as the case may be) are issued at fair market value
as determined by the Board in good faith and in its sole discretion; provided
that in no event shall the issuance by the Company of Shares in any Public
Offering be subject to this Section 2.8.
ARTICLE 3
RESTRICTIONS ON TRANSFER
3.1 General. (a) Subject to Section 3.1(e), until the
earlier of the fifth anniversary of the Closing Date and the Initial Public
Offering, no Other Stockholder may, directly or indirectly, Transfer any
Shares owned by such Stockholder to a Third Party (or solicit any offers to
buy or otherwise acquire, or to take a pledge of, any Shares), except as
permitted or required by Articles 3, 4 and 5 of this Agreement.
(b) Subject to Section 3.1(e), after the earlier of the fifth
anniversary of the Closing Date and the Initial Public Offering, no Other
Stockholder may, directly or indirectly, Transfer any Shares owned by such
Stockholder to a Third Party (or solicit any offers to buy or otherwise
acquire, or to take a pledge of, any Shares) except (i) pursuant to Rule 144
or (ii) as otherwise expressly permitted or required by Articles 3, 4 and 5 of
this Agreement (including, but not limited to, pursuant to Section 3.1(c)).
(c) Subject to Section 3.1(e), except as provided in Articles
4 or 5, if, at any time after the fifth anniversary of the Closing Date but
before the Initial Public Offering, any Other Stockholder proposes to Transfer
for value in accordance with Section 3.1(b)(ii) any or all of such Other
Stockholder's Shares to any Third Party, such Other Stockholder shall obtain a
bona fide written offer for such purchase or transfer from such Person and
shall give prompt notice to the Company (a "Notice of Offer") which notice
shall contain (i) a true and complete copy of the offer; (ii) the number of
Shares which such Other Stockholder wishes to sell; and (iii) the proposed
purchase price and all other material terms and conditions of the offer. The
date on which the Notice of Offer is received is referred to hereinafter as
the "Notice Date". Each Notice of Offer shall be deemed an irrevocable offer
to sell, on the terms set forth in such Notice of Offer and herein, all, but
not less than all, of the Shares which such Other Stockholder desires to sell,
and the Company will have the irrevocable and exclusive option, as hereinafter
provided, to buy on the terms set forth in such Notice of Offer all, but not
less than all, of the Shares which such Other Stockholder wishes to sell.
(i) Within 15 Business Days following the Notice Date, the
Company shall notify such Other Stockholder whether the Company
elects to purchase all of such Shares (a "Company Acceptance"). If
such Other Stockholder does not receive the Company Acceptance within
such period, the Company shall be deemed to have declined to purchase
such Shares. The Company Acceptance shall be deemed to be a legal
obligation to purchase from such Other Stockholder all of such Shares
upon the terms specified in the Notice of Offer.
(ii) The purchase price for the Shares sold to the Company
pursuant to this Section 3.1 shall be the purchase price contained in
the Notice of Offer.
(iii) Upon exercise of its right of first refusal, the Company
and such Other Stockholder shall be respectively legally obligated to
consummate the purchase and sale contemplated thereby and shall use
their best efforts to secure any approvals required in connection
therewith; provided, however, that such Other Stockholder shall not
be required to sell less than all of its Shares offered. If the
Company does not exercise its respective right of first refusal
hereunder with respect to all offered Shares within the time
specified for such exercise, such Other Stockholder shall be free,
during a period of six months following the expiration of the period
specified for such exercise, to sell the Shares specified in such
Notice of Offer, but only to the Third Party specified in the Notice
of Offer at a price not less than the price set forth, and on other
terms and conditions substantially similar to those set forth, in such
Notice of Offer.
(iv) The Closing of purchases of such Other Stockholder's
Shares by the Company pursuant to this Section 3.1(c) shall take
place after the termination of the 15 Business Day period following
the Notice Date at 11:00 a.m. at the principal offices of the Company,
or at such other time or place as the parties may agree. At such
closing, such Other Stockholder shall sell to the Company full right,
title and interest in and to the Shares so purchased, free and clear
of all liens, security interests or adverse claims of any kind and
nature and shall deliver to the Company a certificate or certificates
evidencing the Shares sold, in each case duly endorsed for transfer
or accompanied by appropriate stock transfer powers duly endorsed, and
with all necessary transfer tax stamps affixed thereto at the expense
of such Other Stockholder. The Company shall deliver to such Other
Stockholder, in full payment of the purchase price of the Shares
purchased, a federal funds check payable to the order of such Other
Stockholder or wire transfer in immediately available funds in the
amount determined pursuant to Section 3.1(c)(ii).
(v) The Company may, at any time after exercise of its right
of first refusal pursuant to this Section 3.1(c), assign its right to
purchase any or all of the Shares and may designate in the Company
Acceptance any Person or Persons to take title to all or part of the
Shares subject to such option, but this will not relieve the Company
of the obligation to pay the 3.5 purchase price if not paid by the
assignee. Upon such assignment, such Person shall have the
irrevocable commitment to purchase such Shares on the same terms and
subject to the same conditions set forth in this Section 3.1(c).
(d) Without in any way limiting the other provisions of this
Agreement, no Stockholder may Transfer any Shares at any time except in
compliance with applicable federal, state or foreign securities laws.
(e)(i) Notwithstanding any other provision of this Agreement,
no Stockholder may, at any time, directly or indirectly, Transfer any Callable
Shares, except that (A) Callable Shares may be so Transferred pursuant to
Section 4.2 in a Section 4.2 Sale or (B) a Corresponding Number of Callable
Shares may be Transferred by a member of the Anderson Group to another member
of the Anderson Group concurrently with the Transfer of, and to the transferee
of, the corresponding underlying principal amount of Anderson Subordinated
Notes; provided that the Company may call the Callable Shares pursuant to
Section 5.12.
(ii) Upon Transfer of any principal amount of the Anderson
Subordinated Note by any member of the Anderson Group to any Person other than
another member of the Anderson Group, a Corresponding Number of Callable Shares
held by such member of the Anderson Group shall cease to be "Callable Shares"
(regardless whether it is Transferred with the underlying principal amount of
the Anderson Subordinated Note or not) and shall become "Shares" hereunder
subject to all the other provisions of this Agreement; provided that if such
Corresponding Number includes a fraction of a Share, then such a fraction
shall be carried forward and added to a Corresponding Number calculated in
connection with a subsequent Transfer of any principal amount of the Anderson
Subordinated Note by such member of the Anderson Group. Upon consummation of
any Section 4.2 Sale, all "Callable Shares" Transferred in such Section 4.2
Sale shall cease to be "Callable Shares".
For purposes of this clause (ii), "Corresponding Number" means,
with respect to any principal amount of Anderson Subordinated Notes, a number
arrived at by multiplying such principal amount by a fraction, the numerator
of which is the number of Callable Shares outstanding on the Closing Date (as
adjusted to reflect stock splits, reverse stock splits and other combinations
of stock, stock dividends, recapitalizations and other similar transactions)
and the denominator of which is 11,426,000.
3.2 Legend on Share Certificates. (a) In addition to any
other legend that may be required, each certificate for Shares that is issued
to any Stockholder shall bear a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED OR SOLD EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND A RIGHT OF
FIRST REFUSAL GRANTED TO THE COMPANY PURSUANT TO THE STOCKHOLDERS
AGREEMENT DATED AS OF NOVEMBER 1, 1995, COPIES OF WHICH MAY BE
OBTAINED UPON REQUEST FROM THE COMPANY AND ANY SUCCESSOR THERETO.";
provided that in addition to the foregoing legend:
(i) each certificate for Shares held by Michael J. Newsome immediately upon
consummation of the transactions contemplated by the Stock Purchase and
Redemption Agreement shall bear the legend including the following sentence:
"THIS SECURITY IS SUBJECT TO A CALL BY THE COMPANY PURSUANT TO
THE PROVISIONS OF THE MANAGEMENT LETTER AGREEMENT DATED AS OF
NOVEMBER 1, 1995 BETWEEN THE BOARD OF THE COMPANY AND MICHAEL J.
NEWSOME, COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM THE
COMPANY AND ANY SUCCESSOR THERETO.";
(ii) each certificate for Shares issued to any employee of the Company
pursuant to an option award under the Option Plan shall bear the legend
including the following sentence:
"THIS SECURITY IS SUBJECT TO A CALL BY THE COMPANY PURSUANT TO
THE PROVISIONS OF THE COMPANY'S STOCK OPTION PLAN, COPIES OF WHICH
MAY BE OBTAINED UPON REQUEST FROM THE COMPANY AND ANY SUCCESSOR
THERETO"; and
(iii) each certificate for Callable Shares that is issued to any holder of the
Anderson Subordinated Notes shall bear the legend including the following
sentence:
"THIS SECURITY IS ALSO SUBJECT TO A RESTRICTION ON TRANSFER SET
FORTH IN SECTION 3.1(e) OF, AND TO A CALL BY THE COMPANY PURSUANT TO
SECTION 5.12 OF, THE STOCKHOLDERS AGREEMENT DATED AS OF NOVEMBER 1,
1995, COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM THE COMPANY
AND ANY SUCCESSOR THERETO."
(b) If (i) any Shares shall cease to be Registrable Stock, the
Company shall, upon the written request of the holder thereof, issue to such
holder a new certificate evidencing such Shares without the first sentence of
the legend required by Section 3.2(a) endorsed thereon, (ii) any Shares cease
to be subject to the restrictions on transfer set forth in this Agreement, the
Company shall, upon the written request of the holder thereof, issue to such
holder a new certificate evidencing such shares without the second sentence of
the legend required by Section 3.2(a) endorsed thereon and (iii) any Callable
Shares shall cease to be "Callable Shares" in accordance with Section 3.1(e),
the Company shall, upon the written request of the holder thereof, issue to
such holder a new certificate evidencing such Shares with the first sentence
of the legend set forth in Section 3.2(a), if such Shares are then Registrable
Stock, and with the second sentence of the legend set forth in Section 3.2(a),
if such Shares are then subject to any restrictions on transfer set forth in
this Agreement.
3.3 Permitted Transferees. Notwithstanding anything in this
Agreement to the contrary, any Stockholder may at any time transfer any or all
of its Shares (other than Callable Shares, unless such Callable Shares are
Transferred to a member of the Anderson Group together with Anderson
Subordinated Notes in accordance with Section 3.1(e)(i)) to one or more of its
Permitted Transferees without the consent of the Board or any other
Stockholder or group of Stockholders and without compliance with the
provisions of Articles 3, 4 and 5 so long as (i) such Permitted Transferee
shall have agreed in writing to be bound by the terms of this Agreement, and
(ii) the transfer to such Permitted Transferee is not in violation of
applicable federal, state or foreign securities laws.
3.4 The Trusts. Each of the Trusts and its trustees shall
take all necessary action so that the provisions of the relevant trust
documents are not inconsistent or in conflict with the provisions of Articles
3, 4 and 5 and, in the event of any inconsistency or conflict between such
trust documents and this Agreement, the provisions of this Agreement shall
control.
3.5 Preemptive Rights. If at any time the Company shall
propose to (i) issue any Shares or (ii) except as permitted below, enter into
any contract, commitment, agreement, understanding or arrangement of any kind
relating to the issuance of any Shares (including the issuance of options to
acquire and securities convertible into or exchangeable or exercisable for
Shares) (collectively, "Purchase Rights"), each of the Funds, the Anderson
Group and the Management Group shall have the right to purchase the number of
Shares or Purchase Rights, on the same terms as those on which the Company
proposes to issue such Shares or Purchase Rights to Persons that are not
Stockholders, so that, after the issuance of all of such Shares, or the
issuance of such Purchase Rights and the exercise thereof, each of the Funds,
the Anderson Group or the Management Group would, in the aggregate, hold the
same proportional interest of the Fully Diluted Shares as was held by the
Funds, the Anderson Group or the Management Group, as the case may be, prior
to the issuance of such Shares and/or exercise of such Purchase Rights;
provided that the rights of the Stockholders pursuant to this Section 3.5
shall not apply in connection with (i) the issuance of new Shares, options to
purchase such Shares or other Purchase Rights to employees, officers and
directors of the Company or any of its subsidiaries with respect to any
employee benefit plan, incentive award program or other employee compensation
arrangement, plan or program, (ii) the issuance of new Shares or Purchase
Rights as part of or in connection with any debt financing, (iii) the issuance
of new Shares or Purchase Rights in connection with (A) the acquisition,
directly or indirectly, of all or a portion of the outstanding capital stock
of, or substantially all of the assets of, another Person or (B) any merger of
the Company with or into another Person, (iv) any Public Offering or (v) the
conversion, exercise or exchange of, or otherwise as required by the terms of,
outstanding securities of the Company (but excluding any securities issued in
violation of this Agreement).
ARTICLE 4
RIGHTS TO PARTICIPATE IN A SALE;
RIGHTS TO COMPEL A SALE
4.1 Right to Participate in a Sale. (a) If the Funds (the
"Section 4.1 Seller") propose to Transfer any Shares to a Third Party (a
"Section 4.1 Sale"), the Section 4.1 Seller shall provide written notice of
such proposed Section 4.1 Sale to the Other Stockholders ("Section 4.1
Notice"); provided that none of the rights described in this Section 4.1 shall
apply (i) to transfers to Permitted Transferees of the Funds or (ii) to
Transfers in accordance with (A) Article 5 pursuant to a Public Offering or
(B) Rule 144. The Section 4.1 Notice shall identify the number of Shares
subject to the Section 4.1 Sale, the form and amount of the per Share
consideration for which a sale is proposed to be made (the "Section 4.1 Sale
Price") and all other material terms and conditions of the proposed Section 4.1
Sale. Each Other Stockholder shall have the option, exercisable by
irrevocable written notice to the Section 4.1 Seller within 15 days after
receipt of the Section 4.1 Notice (the "Section 4.1 Notice Period"), to
participate in the Section 4.1 Sale for up to the number of Shares (other than
Callable Shares) specified in such notice to the Section 4.1 Seller (the
"Participating Shares"); provided that the Majority Anderson Stockholders
shall have the exclusive right to exercise such option on behalf of the
Anderson Group, and the Anderson Group shall constitute a single participant
in any Section 4.1 Sale solely for purposes of allocating the number of Shares
to be sold in such Section 4.1 Sale among the participants therein; provided
further that if the aggregate number of Shares proposed to be sold in such
Section 4.1 Sale exceeds the number of shares that such Third Party is willing
to purchase (the "Purchase Shares"), then the number of Shares to be sold by
each participant in such Section 4.1 Sale shall be determined as follows: (A)
each participant shall sell in such Section 4.1 Sale not less than the number
of Shares equal to the lesser of (i) its Section 4.1 Pro Rata Portion (as
defined below) of the Purchase Shares and (ii) the sum of the number of its
Participating Shares or, in the case of the Section 4.1 Seller, of the number
of Shares proposed to be sold by it in the Section 4.1 Notice; and (B) if the
number of Purchase Shares exceeds the total number of Shares allocated among
the participants in accordance with the immediately preceding clause (A) (the
"Excess Number"), then each of the participants shall have the right to sell
up to the Excess Number of additional Shares (other than the Callable Shares)
in the following order of priority: first, the Funds, second, the Anderson
Group, and third, the Management Group. "Section 4.1 Pro Rata Portion" means,
with respect to any participant in the Section 4.1 Sale, at the time of any
such Section 4.1 Sale, the proportion (expressed as a percentage) that such
participant's ownership of Shares to be included in such Section 4.1 Sale
bears to all Shares (other than Callable Shares) outstanding at such time.
Each participating Other Stockholder shall deliver to the Section 4.1 Seller
the certificate or certificates representing the Shares of such Other
Stockholder to be included in such Section 4.1 Sale, together with a limited
power-of-attorney authorizing the Section 4.1 Seller to transfer such Shares
pursuant to the terms and conditions set forth in the Section 4.1 Notice.
Delivery of such certificate or certificates representing such Shares and the
limited power-of-attorney authorizing the Section 4.1 Seller to transfer such
Shares shall constitute an irrevocable acceptance of the Section 4.1 Sale by
the Other Stockholder.
(b) The per Share consideration to be paid to the Section 4.1
Seller and each Other Stockholder participating in the Section 4.1 Sale shall
be the Section 4.1 Sale Price, and shall be identical in all respects except
for any rounding or fractional Shares, and all other terms and conditions
relating to the payment of the Section 4.1 Sale Price shall be substantially
identical in all material respects and as set forth in the Section 4.1 Notice.
(c) Promptly after the consummation of the sale of the
Participating Shares of the Other Stockholders pursuant to the Section 4.1
Sale, the Section 4.1 Seller shall notify such Other Stockholders thereof and
shall remit to each of such Other Stockholders at the address set forth in
Section 6.6 the total consideration for the Participating Shares of each such
Other Stockholder transferred pursuant thereto as computed pursuant to Section
4.1(b); provided that if the Anderson Designee, at least one Business Day
prior to the consummation of the Section 4.1 Sale, notifies in writing the
Section 4.1 Seller about the bank account of any member of the Anderson Group
participating in such Section 4.1 Sale to which the consideration due for the
Participating Shares being sold by such member shall be remitted, then it
shall be remitted to such bank account concurrently with the consummation of
such Section 4.1 Sale. In addition, promptly after the consummation of such
Section 4.1 Sale, the Section 4.1 Seller shall furnish such other evidence of
the completion and time of completion of such transfer and the terms thereof
as may be reasonably requested by such Other Stockholders.
(d) If at the termination of the Section 4.1 Notice Period any
Other Stockholder shall not have elected, as provided in Section 4.1(a), to
participate in the Section 4.1 Sale, such Other Stockholder will be deemed to
have waived any and all of its rights under this Section 4.1 with respect to
the sale of any of its Shares pursuant to such Section 4.1 Sale. The Section
4.1 Seller shall have 120 days following such termination of the Section 4.1
Notice Period in which to sell the applicable Shares on substantially the same
terms and conditions as were contained in the Section 4.1 Notice, at a price
not higher than 102% of the price contained in the Section 4.1 Notice.
Promptly after any sale pursuant to this Section 4.1, the Section 4.1 Seller
shall notify the Company of the consummation thereof and shall furnish such
evidence of the completion thereof (including time of completion) of such
transfer and of the terms thereof as the Company may request. If, at the end
of such 120 day period, the Section 4.1 Seller has not completed the sale of
all applicable Shares, the Section 4.1 Seller shall return to the Other
Stockholders the limited power-of-attorney (and all copies thereof) together
with all certificates representing the Shares which such Other Stockholders
delivered for sale pursuant to this Section 4.1, and all the restrictions on
transfer contained in this Agreement with respect to Shares owned by such
Other Stockholders shall again be in effect.
(e) Notwithstanding anything contained in this Section 4.1,
there shall be no liability on the part of the Funds to any Other Stockholder
if the sale of Shares pursuant to this Section 4.1, as proposed by the Section
4.1 Seller in the Section 4.1 Notice, is not consummated for whatever reason.
Any decision as to whether to sell such Shares shall be at the Section 4.1
Seller's sole and absolute discretion.
4.2 Right to Compel Participation in Certain Transfers. (a)
If the Funds should Transfer Shares constituting not less than 100% of the
Funds' Aggregate Ownership to any Third Party (a "Section 4.2 Sale"), the
Funds may, at their option, require all but not less than all the Other
Stockholders to participate in such transfer; provided that the Funds shall
have such an option only for so long as their Aggregate Ownership equals or
exceeds 40% of the Shares outstanding. Not later than 15 days prior to the
proposed date of the Section 4.2 Sale, the Funds shall provide written notice
of the Section 4.2 Sale to the Other Stockholders ("Section 4.2 Notice") and a
copy of the agreement pursuant to which such Shares are proposed to be
transferred (the "Section 4.2 Agreement"). The Section 4.2 Notice shall
identify the transferee, the number of Shares subject to the Section 4.2 Sale,
the form and amount of the per Share consideration for which a transfer is
proposed to be made (the "Section 4.2 Sale Price") and all other material
terms and conditions of the Section 4.2 Sale. Each Other Stockholder shall be
required to participate in the Section 4.2 Sale on the terms and conditions
set forth in the Section 4.2 Notice and to tender all its Shares, as set forth
below. Within 10 days following receipt of the Section 4.2 Notice (the
"Section 4.2 Notice Period"), each of the Other Stockholders shall deliver in
escrow to a representative of the Funds designated in the Section 4.2 Notice
certificates representing all Shares held by such Other Stockholder, duly
endorsed, together with all other documents required to be executed in
connection with such Section 4.2 Sale or, if such delivery is not permitted by
applicable law, an unconditional agreement to deliver such Shares pursuant to
this Section 4.2(a) at the closing for such Section 4.2 Sale against delivery
to such Other Stockholder of the consideration therefor. In the event that an
Other Stockholder should fail to deliver such certificates to the Funds, the
Company shall cause the books and records of the Company to show that such
Shares are bound by the provisions of this Section 4.2(a) and that such Shares
shall be transferred to the Third Party immediately upon surrender for
transfer by the Other Stockholder thereof.
(b) If, at the end of 120 day period following the Section 4.2
Notice, the Funds have not completed the transfer of all the Shares subject to
the Section 4.2 Sale, the Funds shall return to each of the Other Stockholders
all certificates representing Shares that such Other Stockholders delivered
for Transfer pursuant hereto, together with all documents in the possession of
the Funds executed by the Other Stockholders in connection with such proposed
Transfer, and all the restrictions on Transfer contained in this Agreement or
otherwise applicable at such time with respect to Shares owned by the Other
Stockholders shall again be in effect, including, but not limited to,
restrictions applicable to the Callable Shares pursuant to Section 3.1(e).
(c) Promptly after the consummation of the transfer of Shares
by the Funds and the Other Stockholders pursuant to this Section 4.2, the
Funds shall give notice thereof to the Other Stockholders and shall remit to
each of the Other Stockholders who have surrendered their certificates at the
address set forth in Section 6.6 the total consideration for the Shares of
such Other Stockholders transferred pursuant thereto; provided that if the
Anderson Designee, at least one Business Day prior to the consummation of the
Section 4.2 Sale, notifies in writing the Funds about the bank account of any
member of the Anderson Group participating in such Section 4.2 Sale to which
the consideration due for the Shares so transferred by such member shall be
remitted, then it shall be remitted to such bank account concurrently with the
consummation of such Section 4.2 Sale. In addition, promptly after the
consummation of such sale of Shares pursuant to this Section 4.2, the Funds
shall furnish such other evidence of the completion and time of completion of
such transfer and the terms thereof as may be reasonably requested by such
Other Stockholders. The per Share consideration to be paid to the Funds and
the Other Stockholders shall be the Section 4.2 Sale Price, it being
understood and agreed that the consideration to be paid for each Callable
Share shall be equal to such Section 4.2 Sale Price.
(d) Notwithstanding anything contained in this Section 4.2,
there shall be no liability on the part of any Fund to any Other Stockholder
if the sale of Shares pursuant to this Section 4.2, as proposed by the Funds
in the Section 4.2 Notice, is not consummated for whatever reason. Any
decision as to whether to sell Shares shall be at the sole and absolute
discretion of the Funds.
4.3 Improper Transfer. Any attempt to Transfer any Shares
not in compliance with this Agreement shall be null and void and neither the
Company nor any transfer agent shall give any effect in the Company's stock
records to such attempted Transfer.
ARTICLE 5
REGISTRATION RIGHTS
5.1 Demand Registration. (a) At any time, the Funds may
make a written request and, at least 270 days after the Initial Public
Offering, the Majority Anderson Stockholders may make a written request (any
such requesting Person or a group of Persons, as the case may be, a "Selling
Stockholder"; provided that, in case of a request made by the Majority
Anderson Stockholders, the term "Selling Stockholder" means each member of the
Anderson Group who elects to include Registrable Stock in such registration)
that the Company effect the registration under the Securities Act of such
Selling Stockholder's Registrable Stock, and specifying the intended method of
disposition thereof. The Company will promptly give written notice of such
requested registration (a "Demand Registration") at least 30 days prior to the
anticipated filing date of the registration statement relating to such Demand
Registration to all other Stockholders, and thereupon will use its best
efforts to effect, as expeditiously as possible, the registration under the
Securities Act of:
(i) in the case of a request made by the Funds, the
Registrable Stock that the Company has been so requested to register
by the Selling Stockholder, then held by the Selling Stockholder;
(ii) in the case of a request made by the Majority Anderson
Stockholders, the Registrable Stock that the Company has been
requested in writing (not later than ten days after the initial
request by the Majority Anderson Stockholders) to register by the
Anderson Group, then held by the Anderson Group; and
(iii) subject to Sections 5.1(d) and 5.2(b), all other
Registrable Stock that any other Stockholder entitled to request the
Company to effect an Incidental Registration (as such term is defined
in Section 5.2) pursuant to Section 5.2 (all such Stockholders,
together with the Selling Stockholder, the "Holders") has requested
the Company to register by written request received by the Company
within 15 days after the receipt by such Holders of such written
notice given by the Company;
all to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Stock so to be
registered; provided that, subject to Sections 5.1(c) and (e), (i) the Company
shall not be obligated to effect more than one Demand Registration for the
Anderson Group pursuant to this Section 5.1 and (ii) the Company will not be
required to effect more than one Demand Registration in any six-month period;
and provided further that in the case of a Demand Registration made by the
Anderson Group the shares of Registrable Stock required to be registered by
the Anderson Group must have an aggregate fair market value in the reasonable
opinion of the managing underwriter of at least $5,000,000.
Notwithstanding the foregoing, in the event of a request for a
Demand Registration made by the Anderson Stockholders, the Company shall have
the option to either (A) proceed with such Demand Registration pursuant to the
provisions of this Section 5.1 or (B) proceed with a registered primary
offering of Common Stock, in which case, the Anderson Stockholders shall have
the rights set forth in Section 5.2 and such offering shall not constitute a
Demand Registration requested by the Anderson Stockholders pursuant to this
Section 5.1.
Promptly after the expiration of the 15-day period referred to
in Section 5.1(a)(iii), the Company will notify all the Holders to be included
in the Demand Registration of the other Holders and the number of shares of
Registrable Stock requested to be included therein. The Selling Stockholder
requesting a registration under this Section 5.1(a) may, at any time prior to
the effective date of the registration statement relating to such
registration, revoke such request (in case of a Demand Registration made by the
Anderson Group such revocation may only be made by the Majority Anderson
Stockholders), without liability to any of the other Holders, by providing a
written notice to the Company revoking such request, in which case such
request, so revoked, shall not be considered a Demand Registration; provided
that if such registration is so revoked by the Anderson Group, such request
shall constitute a Demand Registration unless the Anderson Group shall pay all
expenses (including all Registration Expenses) in connection with such revoked
registration; provided further that once the Anderson Group has revoked a
Demand Registration pursuant to this sentence, the Anderson Group may not
revoke any future Demand Registration requested by it pursuant to this Section
5.1(a).
(b) The Company will pay all Registration Expenses in
connection with any Demand Registration.
(c) A registration requested pursuant to this Section 5.1
shall not be deemed to have been effected unless the registration statement
relating thereto (i) has become effective under the Securities Act and (ii)
has remained effective for a period of at least 90 days (or such shorter
period in which all Registrable Stock of the Holders included in such
registration has actually been sold thereunder); provided that if after any
registration statement requested pursuant to this Section 5.1 becomes
effective (i) such registration statement is interfered with by any stop
order, injunction or other order or requirement of the SEC or other
governmental agency or court solely due to the actions or omissions to act of
the Company prior to being effective for such 90-day period (or such shorter
period) and (ii) less than 75% of the Registrable Stock included in such
registration has been sold thereunder, such registration statement shall be at
the sole expense of the Company and shall not be considered a Demand
Registration.
(d) If a Demand Registration involves a Public Offering and
the managing underwriter shall advise the Company and the Selling Stockholder
that, in its view, the number of Shares requested to be included in such
registration (including shares of Registrable Stock requested to be included
by the Selling Stockholder, shares of Registrable Stock requested to be
included by other Holders pursuant to Section 5.2 and Common Stock which the
Company proposes to be included which is not Registrable Stock exceeds the
largest number of shares of Common Stock which can be sold without having an
adverse effect on such offering, including the price at which such shares of
Common Stock can be sold (the "Maximum Offering Size"), the Company will
include in such registration, in the priorities listed below, up to the
Maximum Offering Size:
In the case of a Demand Registration made by the Funds:
(A) first, all Registrable Stock requested to be included in
such registration by the Funds and all other Holders (allocated, if
necessary for the offering not to exceed the Maximum Offering Size,
pro rata among the Funds and such other Holders on the basis of the
relative number of shares of Registrable Stock requested to be
included in such registration); and
(B) second, any Common Stock proposed to be registered by the
Company; and
in the case of a Demand Registration made by the Anderson Group:
(A) first, all Registrable Stock requested to be registered by
the Anderson Stockholders (allocated, if necessary for the offering
not to exceed the Maximum Offering Size, pro rata among such Persons
on the basis of the relative number of shares of Registrable Stock
requested to be registered);
(B) second, all Registrable Stock to be included in such
registration by any other Holder (allocated, if necessary for the
offering not to exceed the Maximum Offering Size, pro rata among such
other Holders on the basis of the relative number of shares of
Registrable Stock requested to be included in such registration); and
(C) third, any Common Stock proposed to be registered by the
Company.
(e) If Registrable Stock representing 25% or more of the
number of shares of Registrable Stock requested to be registered by any Person
or Persons making a Demand Registration is not included in any Demand
Registration, then such registration shall be at the sole expense of the
Company and such registration shall not be considered a Demand Registration.
(f) The Company shall not be required to effect registration
pursuant to this Section 5.1 if a majority of the Board determines in good
faith that owing to the business or market conditions or the business or
financial condition of the Company it is inappropriate at such time to
undertake a public offering of Common Stock; provided that the Company may
elect not to effect registration on such grounds only once in any three year
period beginning on the date of such election by the Company, and that within
six months the Company shall effect such registration.
5.2 Incidental Registration. (a) If the Company proposes to
register any of its Common Stock under the Securities Act (other than a
registration (i) on Form S-8 or S-4 or any successor or similar forms, (ii)
relating to Common Stock issuable upon exercise of employee stock options or
in connection with any employee benefit or similar plan of the Company or
(iii) in connection with a direct or indirect acquisition by the Company of
another company), whether or not for sale for its own account, it will each
such time, subject to the provisions of Section 5.2(b), give prompt written
notice at least 15 days prior to the anticipated filing date of the
registration statement relating to such registration to each Stockholder, which
notice shall set forth such Stockholder's rights under this Section 5.2 and
shall offer such Stockholders the opportunity to include in such registration
statement such number of shares of Registrable Stock as each such Stockholder
may request (an "Incidental Registration"); provided that the members of the
Management Group, collectively, shall only have the right to include in the
Initial Public Offering the number of shares of Registrable Stock equal to 50%
of the number of shares of Registrable Stock owned by the Management Group
immediately following the consummation of the transactions contemplated hereby
and by the Stock Purchase and Redemption Agreement; and provided further that,
in the case of any Public Offering (including the Initial Public Offering), if
the managing underwriter advises the Company that, in its view, either (i) no
shares of Registrable Stock owned by any member of the Management Group shall
be included in such Public Offering or (ii) the number of shares of
Registrable Stock owned by the Management Group to be included in such Public
Offering shall be limited, then the Company shall either not include such
shares of Registrable Stock or limit them accordingly, in each case as advised
by such managing underwriter. Upon the written request of any Stockholder
made within 10 days after the receipt of notice from the Company (which request
shall specify the number of shares of Registrable Stock intended to be
disposed of by such Stockholder), the Company will use its best efforts to
effect the registration under the Securities Act of all Registrable Stock
which the Company has been so requested to register by such Stockholders, to
the extent required to permit the disposition of the Registrable Stock so to
be registered; provided that (A) if such registration involves a Public
Offering, all such Stockholders requesting to be included in the Company's
registration must sell their Registrable Stock to the underwriters selected as
provided in Section 5.4(f) on the same terms and conditions as apply to the
Company and (B) if, at any time after giving written notice of its intention
to register any stock pursuant to this Section 5.2(a) and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register such
Registrable Stock, the Company shall give written notice to all such
Stockholders and, thereupon, shall be relieved of its obligation to register
any Registrable Stock in connection with such registration (without prejudice,
however, to rights of the Funds, the Anderson Group or the Management Group
under Section 5.1). No registration effected under this Section 5.2 shall
relieve the Company of its obligations to effect a Demand Registration to the
extent required by Section 5.1. The Company will pay all Registration
Expenses in connection with each registration of Registrable Stock requested
pursuant to this Section 5.2.
(b) If a registration pursuant to this Section 5.2 involves a
Public Offering (other than in the case of a Public Offering requested by the
Funds or the Anderson Group in a Demand Registration, in which case the
provisions with respect to priority of inclusion in such offering set forth
in Section 5.1(d) shall apply) and the managing underwriter advises the
Company that, in its view, the number of shares of Common Stock that the
Company and such Stockholders intend to include in such registration exceeds
the Maximum Offering Size, the Company will include in such registration, in
the following priority, up to the Maximum Offering Size:
(i) first, so much of the Common Stock proposed to be
registered by the Company as would not cause the offering to exceed
the Maximum Offering Size; and
(ii) second, all Registrable Stock requested to be included in
such registration by the Funds, the Anderson Group or the Management
Group pursuant to this Section 5.2 (allocated, if necessary for the
offering not to exceed the Maximum Offering Size, pro rata among such
Stockholders on the basis of the relative number of shares of
Registrable Stock so requested to be included in such registration).
5.3 Holdback Agreements. If any registration of Registrable
Stock shall be in connection with a Public Offering, the Funds and each Other
Stockholder agree not to effect any public sale or distribution, including any
sale pursuant to Rule 144, or any successor provision, under the Securities
Act, of any Shares, and not to effect any such public sale or distribution of
any stock convertible into or exchangeable or exercisable for any Common Stock
of the Company (in each case, other than as part of such Public Offering)
during the 14 days prior to the effective date of such registration statement
(except as part of such registration) or during the period after such
effective date equal to the lesser of (i) such period of time as agreed
between such managing underwriter and the Company and (ii) 180 days.
5.4 Registration Procedures. Whenever Stockholders request
that any Registrable Stock be registered pursuant to Section 5.1 or 5.2, the
Company will, subject to the provisions of such Sections, use its best efforts
to effect the registration and the sale of such Registrable Stock in
accordance with the intended method of disposition thereof as quickly as
practicable, and in connection with any such request:
(a) The Company will as expeditiously as possible prepare and
file with the SEC a registration statement on any form for which the Company
then qualifies or which counsel for the Company shall deem appropriate and
which form shall be available for the sale of the Registrable Stock to be
registered thereunder in accordance with the intended method of distribution
thereof, and use its best efforts to cause such filed registration statement
to become and remain effective for a period of not less than 90 days.
(b) The Company will, prior to filing a registration statement
or prospectus or any amendment or supplement thereto, furnish to the Anderson
Designee, the Funds and each underwriter, if any, of the Registrable Stock
covered by such registration statement copies of such registration statement
or prospectus or amendment or supplement thereto as proposed to be filed, and
thereafter the Company will furnish to each such Stockholder and underwriter,
if any, such number of copies of such registration statement, each amendment
and supplement thereto (in each case including all exhibits thereto and
documents incorporated by reference therein), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such Stockholder or underwriter may reasonably request in order
to facilitate the disposition of the Registrable Stock owned by such
Stockholder.
(c) After the filing of the registration statement, the
Company will promptly notify each Stockholder holding Registrable Stock
covered by such registration statement of any stop order issued or threatened
by the SEC and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered.
(d) The Company will use its best efforts to (i) register or
qualify the Registrable Stock covered by such registration statement under
such other securities or blue sky laws of such jurisdictions in the United
States as any Stockholder holding such Registrable Stock reasonably (in light
of such Stockholder's intended plan of distribution) requests and (ii) cause
such Registrable Stock to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company and do any and all other acts and
things that may be reasonably necessary or advisable to enable such
Stockholder to consummate the disposition of the Registrable Stock owned by
such Stockholder; provided that the Company will not be required to (A)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (B) subject
itself to taxation in any such jurisdiction or (C) consent to general service
of process in any such jurisdiction.
(e) The Company will immediately notify each Stockholder
holding such Registrable Stock, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the occurrence of an
event requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Stock, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading and promptly prepare and make
available to each such Stockholder any such supplement or amendment.
(f) (i) The Funds will have the right, in their sole
discretion, to select an underwriter or underwriters in connection with any
Public Offering resulting from the exercise by it of a Demand Registration and
(ii) the Company will select an underwriter or underwriters in connection with
any other Public Offering. In connection with any Public Offering, the
Company will enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of Registrable
Stock in any such Public Offering.
(g) Upon the execution of confidentiality agreements in form
and substance satisfactory to the Company, the Company will make available for
inspection by any Stockholder and any underwriter participating in any
disposition pursuant to a registration statement being filed by the Company
pursuant to this Section 5.4 and any attorney, accountant or other
professional retained by any such Stockholder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any Inspectors in connection
with such registration statement. Records that the Company determines, in good
faith, to be confidential and that it notifies the Inspectors in writing are
confidential shall not be disclosed by the Inspectors unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in such registration statement, (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) such Records have been made generally available to the
public (other than as a result of a disclosure directly or indirectly by the
Stockholders or the Inspectors). Each Stockholder agrees that information
obtained by it as a result of such inspections shall be deemed confidential and
shall not be used by it as the basis for any market transactions in the
securities of the Company or its Affiliates unless and until such is made
generally available to the public. Each Stockholder further agrees that it
will, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of the
Records deemed confidential.
(h) The Company will furnish to each such Stockholder and to
each such underwriter, if any, a signed counterpart, addressed to each such
Stockholder and underwriter, of (i) an opinion or opinions of counsel to the
Company and (ii) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such
matters of the type customarily covered by opinions or comfort letters, as the
case may be, as a majority of such Stockholders or the managing underwriter
therefor reasonably requests.
(i) The Company shall use its best efforts to effect the
listing of the Registrable Stock on each securities exchange, if any, on which
shares of Common Stock are then listed or will be listed in connection with the
registration of the Registrable Stock, to the extent the Registrable Stock
satisfies the applicable listing requirements of such exchanges.
(j) The Company will otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC, and make available to
its stockholders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
The Company may require each such Stockholder to promptly
furnish in writing to the Company such information regarding the distribution
of the Registrable Stock as the Company may from time to time reasonably
request and such other information as may be legally required in connection
with such registration.
Each such Stockholder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in
Section 5.4(e), such Stockholder will forthwith discontinue disposition of
Registrable Stock pursuant to the registration statement covering such
Registrable Stock until such Stockholder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 5.4(e), and, if so
directed by the Company, such Stockholder will deliver to the Company all
copies, other than any permanent file copies then in such Stockholder's
possession, of the most recent prospectus covering such Registrable Stock at
the time of receipt of such notice. In the event that the Company shall give
such notice, the Company shall extend the period during which such
registration statement shall be maintained effective (including the period
referred to in Section 5.4(a)) by the number of days during the period from
and including the date of the giving of notice pursuant to Section 5.4(e) to
the date when the Company shall make available to such Stockholder a
prospectus supplemented or amended to conform with the requirements of Section
5.4(e).
5.5 Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Stockholder holding Registrable Stock covered
by a registration statement, its officers, directors, partners, employees,
trustees, beneficiaries, representatives and agents, and each Person, if any,
who controls such Stockholder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the fullest extent lawful
from and against any and all losses, claims, damages, liabilities, judgments,
actions and expenses (including, without limitation and as incurred,
reimbursement of all costs of investigating, preparing, pursuing and defending
any claim or action, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, including the reasonable fees and
expenses of counsel to any such indemnified person) directly or indirectly
caused by or arising out of any untrue statement or alleged untrue statement
of a material fact contained in any registration statement (including any
amendment thereto) or any prospectus relating to the Registrable Stock (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or directly or indirectly
caused by or arising out of any omission or alleged omission to state therein
(in the case of the prospectus or any preliminary prospectus, in the light of
the circumstances under which they were made) a material fact required to be
stated therein or necessary to make the statements therein (in the case of the
prospectus or any preliminary prospectus, in the light of circumstances under
which they were made, not misleading, except insofar as such losses, claims,
damages, liabilities, judgments, actions or expenses are caused by any such
untrue statement or omission or alleged untrue statement or omission that is
made in reliance upon and in conformity with information furnished in writing
to the Company by such Stockholder or on such Stockholder's behalf expressly
for use therein; provided that with respect to any untrue statement or
omission or alleged untrue statement or omission made in any preliminary
prospectus or in any prospectus, as the case may be, the indemnity agreement
contained in this paragraph shall not apply to the extent that any such loss,
claim, damage, liability, judgments, actions or expense results from the fact
that a current copy of the prospectus (or, in the case of a prospectus, the
prospectus as amended or supplemented) was not sent or given to the person
asserting any such loss, claim, damage, liability or expense at or prior to
the written confirmation of the sale of the Registrable Stock concerned to
such person if it is determined that the Company has provided such prospectus
(or such amended or supplemented prospectus, as the case may be) and it was
the responsibility of such Stockholder to provide such person with a current
copy of the prospectus (or such amended or supplemented prospectus, as the
case may be) and such current copy of the prospectus (or such amended or
supplemented prospectus, as the case may be) would have cured the defect
giving rise to such loss, claim, damage, liability or expense. The Company
also agrees to indemnify any underwriters of the Registrable Stock, their
officers and directors and each person who controls such underwriters within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act on substantially the same basis as that of the indemnification of the
Stockholders provided in this Section 5.5.
5.6 Indemnification by Participating Stockholders. Each
Stockholder holding Registrable Stock included in any registration statement
agrees, severally but not jointly, to indemnify and hold harmless the Company,
its officers, directors and agents and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to such Stockholder, but only (a) with respect to information
furnished in writing by such Stockholder or on such Stockholder's behalf
expressly for use in any registration statement or prospectus relating to the
Registrable Stock, or any amendment or supplement thereto, or any preliminary
prospectus or (b) to the extent that any loss, claim, damage, liability or
expense described in Section 5.5 results from the fact that a current copy of
the prospectus (or amended or supplemented prospectus, as the case may be) was
not sent or given to the person asserting any such loss, claim, damage,
liability or expense at or prior to the written confirmation of the sale of the
Registrable Stock concerned to such person if it is determined that it was the
responsibility of such Stockholder to provide such person with a current copy
of the prospectus (or such amended or supplemented prospectus, as the case may
be) and such current copy of the prospectus (or such amended or supplemented
prospectus, as the case may be) would have cured the defect giving rise to
such loss, claim, damage, liability or expense. Each such Stockholder also
agrees to indemnify and hold harmless underwriters of the Registrable Stock,
their officers and directors and each person who controls such underwriters
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act on substantially the same basis as that of the indemnification of
the Company provided in this Section 5.6.
5.7 Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
this Article 5, such person (an "Indemnified Party") shall promptly notify
the person against whom such indemnity may be sought (the "Indemnifying
Party") in writing and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such
Indemnified Party, and shall assume the payment of all fees and expenses;
provided that the failure of any Indemnified Party so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of its obligations
hereunder except to the extent that the Indemnifying Party is materially
prejudiced by such failure to notify. In any such proceeding, any Indemnified
Party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the Indemnifying Party and the Indemnified Party shall have
mutually agreed to the retention of such counsel or (ii) in the reasonable
judgment of such Indemnified Party representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that the Indemnifying Party shall not, in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for
the Indemnified Parties, such firm shall be designated in writing by the
Indemnified Parties. The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent, or if there be a final judgment for the plaintiff,
the Indemnifying Party shall indemnify and hold harmless such Indemnified
Parties from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of
any pending or threatened proceeding in respect of which any Indemnified Party
is or could have been a party and indemnity could have been sought hereunder
by such Indemnified Party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability arising out of such
proceeding.
5.8 Contribution. If the indemnification provided for in
this Article 5 is unavailable to the Indemnified Parties in respect of any
losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities or expenses (i) as between the
Company and the Stockholders holding Registrable Stock covered by a
registration statement on the one hand and the underwriters on the other, in
such proportion as is appropriate to reflect the relative benefits received by
the Company and such Stockholders on the one hand and the underwriters on the
other, from the offering of the Registrable Stock, or if such allocation is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits but also the relative fault of the
Company and such Stockholders on the one hand and of such underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations and (ii) as between the Company on the one hand and
each such Stockholder on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of each such Stockholder in
connection with such statements or omissions, as well as any other relevant
equitable considerations. The relative benefits received by the Company and
such Stockholders on the one hand and such underwriters on the other shall be
deemed to be in the same proportion as the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by the Company and such Stockholders bear to the total underwriting
discounts and commissions received by such underwriters, in each case as set
forth in the table on the cover page of the prospectus. The relative fault of
the Company and such Stockholders on the one hand and of such underwriters on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company and such Stockholders or by such underwriters. The relative fault
of the Company on the one hand and of each such Stockholder on the other shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Stockholders agree that it would not be
just and equitable if contribution pursuant to this Section 5.8 were
determined by pro rata allocation (even if the underwriters were treated as
one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages, liabilities or expenses
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 5.8, no underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable Stock
underwritten by it and distributed to the public was offered to the public
exceeds the amount of any damages which such underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission, and no Stockholder shall be required to
contribute any amount in excess of the amount by which the total price at
which the Registrable Stock of such Stockholder was offered to the public
exceeds the amount of any damages which such Stockholder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Each such Stockholder's obligation to
contribute pursuant to this Section 5.8 is several in the proportion that the
proceeds of the offering received by such Stockholder bears to the total
proceeds of the offering received by all such Stockholders and not joint.
5.9 Participation in Public Offering. No Person may
participate in any Public Offering hereunder unless such Person (a) agrees to
sell such Person's securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and the provisions
of this Agreement in respect of registration rights.
5.10 Other Indemnification. Indemnification similar to that
specified herein (with appropriate modifications) shall be given by the
Company and each Stockholder participating therein with respect to any
required registration or other qualification of securities under any federal
or state law or regulation or governmental authority other than the Securities
Act.
5.11 Use of Proceeds. Unless the Funds and the Anderson
Designee agree otherwise, the Company shall apply not less than 50% of the net
proceeds to it from each Public Offering towards repayment at par of any
amounts outstanding, at the time of such Public Offering, under [the Anderson
Subordinated Notes and the SK Subordinated Notes] (pro rata based on the
amounts due to each holder thereof) until no amounts are outstanding under the
Anderson Subordinated Notes and the SK Subordinated Notes.
5.12 Transfer of Shares While Anderson Subordinated Notes
Outstanding; Call of Callable Shares.
(a) For so long as any amounts remain outstanding under the
Anderson Subordinated Notes, no member of the Anderson Group or the Management
Group may Transfer any Shares without the prior written approval of the Funds
(such approval to be granted or refused within 20 Business Days of a written
request therefor). For so long as any amounts remain outstanding under the
Anderson Subordinated Notes, the Funds may not Transfer any Shares without the
prior written approval of the Anderson Designee (such approval to be granted
or refused within 20 Business Days of a written request therefor) unless
concurrently with such Transfer by the Funds, the Company shall redeem all of
the then outstanding Anderson Subordinated Notes at a redemption price equal
to 100% of the principal amount thereof plus accrued and unpaid interest (if
any) to the date of such redemption.
(b) Concurrently with the redemption of the Anderson
Subordinated Notes contemplated by Section 5.12(a), each holder of Callable
Shares shall be unconditionally obligated to sell and deliver to the Company
(free and clear of any lien, security interest or other encumbrance or
restriction (other than as contemplated hereby) and suitably endorsed for
transfer) and the Company shall purchase from each such holder, all but not
less than all of the then outstanding Callable Shares held by such holder at a
call price of $.01 per Callable Share (the "Call Price"). Immediately upon
the redemption of the Anderson Subordinated Notes contemplated by Section
5.12(a) and without any further action and without notice, such Callable Shares
shall be deemed canceled and thereafter the only right of the holders of the
Callable Shares shall be to receive the Call Price for each Callable Share so
held. The Company shall promptly thereafter give notice of such call to each
holder of Callable Shares in accordance with Section 6.6; provided that the
failure to give, or any defect in, such notice shall not affect the validity
of such call. Each notice of call will state the method by which the payment
of the Call Price shall be made.
ARTICLE 6
MISCELLANEOUS
6.1 Information. The Company will deliver to the Anderson
Designee:
(a) as soon as available and in any event no later than 90
days after the end of each fiscal year of the Company, a consolidated balance
sheet of the Company and its subsidiaries as of the end of such fiscal year
and the related consolidated statements of income, cash flow and stockholders
equity for such fiscal year, setting forth in each case in comparative form
the figures for the previous fiscal year, and accompanied by a report thereon
of the Company's auditors; and
(b) as soon as available and in any event no later than 45
days after the end of the first three fiscal quarters of each fiscal year of
the Company, a consolidated balance sheet of the Company and its subsidiaries
as of the end of such fiscal quarter and the related consolidated statements
of income, cash flow and stockholders equity for such fiscal quarter and for
the portion of the Company's fiscal year then ended, setting forth in each
case in comparative form the figures for the corresponding fiscal quarter and
the corresponding portion of the Company's previous fiscal year, all certified
(subject to normal year-end audit adjustments) as to fairness of presentation,
consistency and, except for the absence of footnotes, generally accepted
accounting principles by the president or the chief financial officer of the
Company.
6.2 Entire Agreement. This Agreement and the Securities
Purchase and Redemption Agreement and all other documents and agreements
contemplated thereby constitute the entire agreement among the parties hereto
and supersede all prior agreements and understandings, oral and written, among
the parties hereto with respect to the subject matter hereof.
6.3 Binding Effect; Benefit. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, successors, legal representatives and permitted assigns. Nothing in
this Agreement, expressed or implied, shall be construed to confer on any
Person other than the parties hereto, and their respective heirs, successors,
legal representatives and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
6.4 Assignability. This Agreement shall not be assignable
by any party hereto, except that any Person acquiring Shares who is required
by the terms of this Agreement to become a party hereto shall execute and
deliver to the Company an agreement to be bound by this Agreement and shall
thenceforth be a "Stockholder" hereunder. Any Stockholder who ceases to own
beneficially any Shares shall cease to be bound by the terms hereof (other
than the provisions of Sections 5.5, 5.6, 5.7, 5.8, and 5.10 applicable to
such Stockholder with respect to any offering of Registrable Stock completed
before the date such Stockholder ceased to own any Shares).
6.5 Amendment; Waiver; Termination. (a) No provision of
this Agreement may be waived except by an instrument in writing executed by
the party against whom the waiver is to be effective. No provision of this
Agreement may be amended or otherwise modified except by an instrument in
writing executed by the Company with the approval of the Board and each of the
Funds and the Anderson Designee.
(b) This Agreement shall terminate upon the number of Shares
held by the Anderson Stockholders falling below 50% of the number of the
Original Anderson Shares; provided that this Agreement may be terminated at
any time by written consent of each Fund and the Anderson Designee; and
provided further that Sections 5.5 through 5.8 and 5.10 shall survive such
termination.
6.6 Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile transmissions)
and shall be given,
if to the Other Stockholders to:
Hibbett Sporting Goods, Inc.
131 South 25th Street
Irondale, AL 35211
Attention: Charles C. Anderson
Joel R. Anderson
Charles C. Anderson, Jr.
Terrence C. Anderson
Clyde B. Anderson
Harold M. Anderson
First Anderson Grandchildren's Trust
F/B/O Charles C. Anderson III
First Anderson Grandchildren's Trust
F/B/O Lauren A. Anderson
First Anderson Grandchildren's Trust
F/B/O Hayley E. Anderson
Second Anderson Grandchildren's Trust
F/B/O Alexandra R. Anderson
Third Anderson Grandchildren's Trust
F/B/O Taylor Claire Anderson
Fourth Anderson Grandchildren's Trust
F/B/O Carson Caine Anderson
Fifth Anderson Grandchildren's Trust
F/B/O Harold M. Anderson, Jr.
Sixth Anderson Grandchildren's Trust
F/B/O Bentley Barbour Anderson
Seventh Anderson Grandchildren's Trust
F/B/O Olivia Barbour Anderson
The Ashley R. Anderson Trust
Joel R. Anderson II Trust
Gerald H. Daugherty
Martin R. Abroms
Sandra B. Cochran
Michael J. Newsome
Fax: (205) 956-0164
with a copy to:
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Steven Della Rocca
Fax: (212) 751-4864
and a copy to the Funds at their address listed below.
If to the Company, to:
Hibbett Sporting Goods, Inc.
131 South 25th Street
Irondale, AL 35211
Attention: President
Fax: (205) 956-0614
and a copy to Latham & Watkins and the Funds at their respective
addresses listed herein.
If to the Funds, to:
The SK Equity Fund, L.P.
SK Investment Fund, L.P.
667 Madison Avenue
21st Floor
New York, New York 10021
Attention: John Megrue
Fax: (212) 755-1624
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John J. McCarthy, Jr.
Fax: (212) 450-4800
All notices, requests and other communications shall be deemed received on the
date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to
have been received until the next succeeding business day in the place of
receipt. Any notice, request or other written communication sent by facsimile
transmission shall be confirmed by certified mail, return receipt requested,
posted within one Business Day, or by personal delivery, whether courier or
otherwise, made within two Business Days after the date of such facsimile
transmission.
Any Person who becomes a Stockholder shall provide its address
and fax number to the Company, which shall promptly provide such information
to each other Stockholder.
6.7 Headings. The headings contained in this Agreement are
for convenience only and shall not affect the meaning or interpretation of
this Agreement.
6.8 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument.
6.9 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICTS OF LAW RULES OF SUCH STATE.
6.10 Specific Enforcement. Each party hereto acknowledges
that the remedies at law of the other parties for a breach or threatened
breach of this Agreement would be inadequate and, in recognition of this fact,
any party to this Agreement, in the event of such breach or threatened breach,
in addition to all other remedies which may be available, shall be entitled to
obtain equitable relief in the form of specific performance, a temporary
restraining order, a temporary or permanent injunction or any other equitable
remedy which may then be available.
6.11 Consent to Jurisdiction. Any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or
in connection with, this Agreement or the transactions contemplated hereby may
be brought in the United States District Court for the Southern District of
New York or the Supreme Court of the State of New York, New York County, and
each of the parties hereby submits and consents to the non-exclusive
jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or
proceeding in any such court or that any such suit, action or proceeding which
is brought in any such court has been brought in an inconvenient forum.
Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Each of the Company, the Anderson Stockholders and the Management
Stockholder irrevocably designates, appoints, authorizes and empowers as its
agent for service of process CT Corporation System at its offices currently
located at 1633 Broadway, New York, New York 10019 to accept and acknowledge
for and on behalf of such Pledgor and such Assignor service of any and all
process, notices or other documents that may be served in any suit, action or
proceeding relating to this agreement or the Stock Purchase and Redemption
Agreement in any New York State or Federal court sitting in New York City.
Each Anderson Stockholder hereby agrees to execute such other documents and to
take such other actions as may be reasonably required to effect its submission
to the non-exclusive jurisdiction of New York courts. Without limiting the
foregoing, each party agrees that service of process on such party as provided
in Section 6.6 shall be deemed effective service of process on such party.
6.12 Notice of Ownership Change. Each Anderson Stockholder
agrees to give prompt notice to the Company of any change in the number of
Shares and principal amount of the Subordinated Notes held by such Anderson
Stockholder.
6.13 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of
the day and year first above written.
THE SK EQUITY FUND, L.P.
By SK Partners, L.P., the General Partner
By: /s/ John F. Megrue
Name: John F. Megrue
Title: Attorney-in-fact for Allan W. Karp
SK INVESTMENT FUND, L.P.,
By SK Partners, L.P., the General Partner
By: /s/ John F. Megrue
Name: John F. Megrue
Title: Attorney-in-fact
CHARLES C. ANDERSON
By: /s/ Charles C. Anderson
Charles C. Anderson
JOEL R. ANDERSON
By: /s/ Joel R. Anderson
Joel R. Anderson
CHARLES C. ANDERSON, JR.
By: /s/ Charles C. Anderson, Jr.
Charles C. Anderson, Jr.
TERRENCE C. ANDERSON
By: /s/ Terrence C. Anderson
Terrence C. Anderson
CLYDE B. ANDERSON
By: /s/ Clyde B. Anderson
Clyde B. Anderson
HAROLD M. ANDERSON
By: /s/ Harold M. Anderson
Harold M. Anderson
FIRST ANDERSON GRANDCHILDREN'S TRUST
F/B/O CHARLES C. ANDERSON, III
By: /s/ Jackie Menz
Name Jackie Menz
Trustee AVP and Trust Officer
FIRST ANDERSON GRANDCHILDREN'S TRUST
F/B/O LAUREN A. ANDERSON
By: /s/ Jackie Menz
Name Jackie Menz
Trustee AVP and Trust Officer
FIRST ANDERSON GRANDCHILDREN'S TRUST
F/B/O HAYLEY E. ANDERSON
By: /s/ Jackie Menz
Name Jackie Menz
Trustee AVP and Trust Officer
SECOND ANDERSON GRANDCHILDREN'S TRUST
F/B/O ALEXANDRA R. ANDERSON
By: /s/ Jackie Menz
Name Jackie Menz
Trustee AVP and Trust Officer
THIRD ANDERSON GRANDCHILDREN'S TRUST
F/B/O TAYLOR CLAIRE ANDERSON
By: /s/ Jackie Menz
Name Jackie Menz
Trustee AVP and Trust Officer
FOURTH ANDERSON GRANDCHILDREN'S TRUST
F/B/O CARSON CAINE ANDERSON
By: /s/ Jackie Menz
Name Jackie Menz
Trustee AVP and Trust Officer
FIFTH ANDERSON GRANDCHILDREN'S TRUST
F/B/O HAROLD M. ANDERSON, JR.
By: /s/ Jackie Menz
Name Jackie Menz
Trustee AVP and Trust Officer
SIXTH ANDERSON GRANDCHILDREN'S TRUST
F/B/O BENTLEY BARBOUR ANDERSON
By: /s/ Jackie Menz
Name Jackie Menz
Trustee AVP and Trust Officer
SEVENTH ANDERSON GRANDCHILDREN'S TRUST
F/B/O OLIVIA BARBOUR ANDERSON
By: /s/ Jackie Menz
Name Jackie Menz
Trustee AVP and Trust Officer
THE ASHLEY R. ANDERSON TRUST
By: /s/ Ashley Anderson
Name
Trustee
By: /s/ Jackie Menz
Name Jackie Menz
Trustee AVP and Trust Officer
JOEL R. ANDERSON II TRUST
By: /s/ Ashley Anderson
Name
Trustee
By: /s/ Jackie Menz
Name Jackie Menz
Trustee AVP and Trust Officer
GERALD H. DAUGHERTY
By: /s/ Gerald H. Daugherty
Gerald H. Daugherty
MARTIN R. ABROMS
By: /s/ Martin R. Abroms
Martin R. Abroms
SANDRA B. COCHRAN
By: /s/ Sandra B. Cochran
Sandra B. Cochran
MICHAEL J. NEWSOME
By: /s/ Michael J. Newsome
Michael J. Newsome
HIBBETT SPORTING GOODS, INC.
By: /s/ Michael J. Newsome
Name: Michael J. Newsome
Title: President
HIBBETT SPORTING GOODS, INC.
November 1, 1995
Saunders, Karp & Co., L.P.
667 Madison Avenue
New York, NY 10021
Dear Ladies and Gentlemen:
This letter confirms our understanding that Hibbett Sporting
Goods, Inc. (the "Company") has engaged you (the "Advisor") to provide
financial advisory services to the Company upon the request of the Company
from time to time. These services are to be provided in connection with
ongoing business and financial matters, including operating and cash flow
requirements, corporate liquidity and other ordinary and necessary corporate
finance concerns (including acquisition, advisory and finance matters).
In consideration for the Advisor agreeing to provide such
advisory services, the Company agrees to pay the Advisor an annual fee of
$200,000, payable quarterly in advance on February 1, May 1, August 1 and
November 1 of each year, with such payments commencing on February 1, 1995;
provided that such fee shall be deferred ("Deferred Fee") and shall not be due
and payable hereunder until the date on which (i) all the amounts then
outstanding under the PIK Notes (as defined below) are paid in full and each of
the PIK Notes is canceled and (ii) no amounts are due under the Subordinated
Notes. The Company covenants and agrees and the Advisor accepts and agrees
that any Deferred Fee shall be subordinated and junior in right of payment to
the prior payment and satisfaction in full of other indebtedness of the
Company.
For purposes of this letter agreement, "PIK Notes" shall mean
(i) the $2,500,000 in aggregate principal amount of the Company's 12% Senior
Subordinated SK Bridge Notes due November 2, 2000 issued by the Company to The
SK Equity Fund, L.P. and guaranteed by each of Hibbett Team Sales, Inc. and
Sports Wholesale, Inc. (collectively, the "Guarantors") and (ii) the
$1,625,000 in aggregate principal amount of 12% Senior Subordinated Sellers
Bridge Notes due November 2, 2000 issued by the Company and guaranteed by each
of the Guarantors; and "Subordinated Notes" shall mean the Company's 12%
Subordinated Notes due November 1, 2002 and guaranteed by the Guarantors.
The annual fee is for financial advisory services to be
rendered by the Advisor and its employees and partners and not for any such
services to be rendered by any other person. Any additional services to be
provided by the Advisor, and any additional fee therefor, shall be agreed to
in writing by the parties.
In addition, the Company agrees to reimburse the Advisor
promptly upon request from time to time for all reasonable out-of-pocket
expenses incurred by the Advisor in connection with the services to be
rendered by the Advisor pursuant to its engagement hereunder. The Company also
agrees, upon the request of the Advisor, to reimburse the Advisor on or before
November 1, 1995 for all additional reasonable out-of-pocket expenses incurred
by the Advisor and its affiliates (including without limitation, the fees and
disbursements of counsel) in connection with the agreements entered into by
the Company on or about the date of this letter and the transactions
contemplated therein.
The Company also agrees to indemnify the Advisor and certain
other persons and to limit the Advisor's liability to the Company as set forth
in Schedule I hereto constituting an integral part hereof. The Company's
agreements contained or referred to in this paragraph shall survive any
termination of this agreement.
This letter shall constitute the entire agreement between the
parties hereto and shall not be amended except in writing by the Company and
the Advisor. This agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to the conflicts of law
rules of such state.
If the foregoing accurately describes our agreement with
respect to the foregoing, please so indicate by signing this letter in the
space indicated below.
Very truly yours,
HIBBETT SPORTING GOODS, INC.
By /s/ Michael J. Newsome
----------------------
Name: Michael J. Newsome
Title: President
ACCEPTED AND AGREED:
SAUNDERS, KARP & CO., L.P.
By /s/ Allan Karp
--------------
General Partner
SCHEDULE I
Hibbett Sporting Goods, Inc. (the "Company") will indemnify and
hold harmless Saunders, Karp & Co., L.P. (the "Advisor"), its affiliates and
the respective partners, agents and employees of the Advisor and their
respective affiliates (collectively, the "Advisor Group") from and against any
claims, liabilities, damages, losses and expenses, including reasonable fees
and expenses of counsel, arising out of or in connection with the services
rendered by the Advisor under this agreement, and will reimburse the Advisor
Group for all such fees and expenses, including the reasonable fees and
expenses of counsel, as they are incurred by the Advisor Group in connection
with pending or threatened litigation whether or not the Advisor Group is a
party thereto. The Company will not, however, be responsible for any claims,
liabilities, damages, losses or expenses to the extent that such claims,
liabilities, damages, losses or expenses are determined by judgment of a court
of competent jurisdiction to result primarily from the Advisor Group's gross
negligence or bad faith. The foregoing agreement shall be in addition to any
rights that the Advisor Group may have at common law or otherwise, including,
but not limited to, any right to contribution.
Notwithstanding anything else contained herein, the Company also
agrees that the Advisor Group shall have no liability to the Company in
connection with the services rendered hereunder (whether in tort, contract or
otherwise) for claims, liabilities, damages, losses, or expenses, including
reasonable fees and expenses of counsel, incurred by the Company unless, and
to the extent, they are determined by judgment of a court of competent
jurisdiction to result primarily from the Advisor Group's gross negligence or
bad faith.
If indemnification is to be sought hereunder by a member of the
Advisor Group, then such member shall notify the Company of the commencement
of any action or proceeding in respect thereof; provided, however, that the
failure so to notify the Company shall not relieve the Company from any
liability that it may otherwise have to such indemnified person, except to the
extent the Company shall have been materially prejudiced by such failure.
Following such notification, the Company may elect in writing to assume the
defense of such action or proceeding, and upon such election, it shall not be
liable for any legal costs subsequently incurred by such member (other than
reasonable costs of investigation) in connection therewith, unless (i) the
Company has failed to provide counsel reasonably satisfactory to such member
in a timely manner or (ii) counsel that has been provided by the Company
reasonably determines that its representation of such member would present it
with a conflict of interest. In any litigation or proceeding, the Company
shall not be responsible for the fees and expenses of more than one counsel
for all members of the Advisor Group claiming indemnification hereunder in any
one jurisdiction, unless any of such members has a separate and conflicting
defense with regard to such litigation or proceedings, as reasonably
determined by the counsel that has been provided by the Company. The Company
shall not be liable for any settlement of any litigation or proceeding
effected without its prior written consent, which consent shall not be
unreasonably withheld. Should the Company assume the defense of any action,
the Company shall not, without the Advisor Group's prior written consent,
settle, compromise, consent to the entry of any judgment in or otherwise seek
to terminate such action if such settlement, compromise, consent or
termination imposes obligations on any member of the Advisor Group (through
injunctive relief or otherwise) other than the payment of money.
EMPLOYMENT AND POST-EMPLOYMENT AGREEMENT
EMPLOYMENT AND POST-EMPLOYMENT AGREEMENT dated as of November
1, 1995 by and between Hibbett Sporting Goods, Inc. an Alabama corporation
(the "Company") and Michael J. Newsome ("Executive").
WHEREAS, Executive has been serving as member of the Board of
Directors (the "Board") and President of the Company;
WHEREAS, the Company desires to employ Executive as President
of the Company;
WHEREAS, the Company and Executive desire to enter into an
agreement (the "Agreement") embodying the terms of such employment;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
1. Term of Employment. Subject to the provisions of Section
6 of this Agreement, Executive shall be employed by the Company for a period
of three years commencing on the closing (the "Commencement Date") of the
transactions contemplated by the Stock Purchase and Redemption Agreement dated
as of November 1, 1995 by and among the stockholders referred to therein, the
Company, The SK Equity Fund, L.P. and SK Investment Fund, L.P. (the "Stock
Purchase and Redemption Agreement") and ending on the third anniversary of the
Commencement Date (the "Expiration Date"); provided that this Agreement and
Executive's employment hereunder may be extended upon mutual agreement of the
Company and Executive. The initial three year period of Executive's
employment, together with any extensions of Executive's employment in
accordance with this Section 1 (or, if shorter, the period of Executive's
actual employment hereunder) is referred to herein as the "Employment Term."
2. Position. (a) Executive shall serve as the President of
the Company. In such position, Executive shall have such responsibilities as
are consistent with the scope of his responsibilities immediately prior to the
Commencement Date and shall have such other duties and authority as shall be
determined from time to time by the Board.
(b) During the Employment Term, Executive will devote such
time and efforts to the performance of his duties and responsibilities
hereunder as may reasonably be required to fulfill such duties and
responsibilities (including all of his business time, if necessary) and will
not engage in any other business, profession or occupation for compensation or
otherwise without the prior written consent of the Board. Subject to the
foregoing and to Sections 7 and 8, Executive shall not be precluded from (i)
engaging in charitable activities and (ii) managing his personal investments
and affairs.
3. Base Salary. The Company shall pay Executive an annual
base salary (the "Base Salary") at the initial annual rate of $115,000,
payable in arrears, in regular installments in accordance with the Company's
usual payment practices but not less frequently than monthly during the
Employment Term. Executive's Base Salary shall be increased on February 1,
1996 to $140,000 and on February 1, 1997 to $150,000. Thereafter Executive's
Base Salary shall be increased on each February 1 during the Employment Term by
the product of (i) Executive's Base Salary for the preceding year and (ii) the
sum of (x) 2% and (y) the percentage increase, if any, in the Consumer Price
Index for all Urban Consumers for Alabama, as issued by the Bureau of Labor
Statistics of the U.S. Department of Labor as of the close of the preceding
calendar year.
4. Employee Benefits. During the Employment Term, Executive
shall be entitled to participate on the same basis as other key executives of
the Company in all employee benefit plans and arrangements maintained by the
Company from time to time, including but not limited to paid vacation, any
group health, dental, life, accidental death and dismemberment and disability
insurance and 401(k) plan and profit sharing plan so maintained.
5. Business Expenses. During the Employment Term, the Company
shall reimburse promptly such of Executive's travel, entertainment and other
business expenses as are reasonably and necessarily incurred by Executive in
the performance of his duties hereunder in accordance with the Company's
policies as in effect from time to time. During the Employment Term,
Executive shall be entitled to the use of the automobile currently used by
Executive and to the use of a reasonably comparable replacement automobile;
provided that, the cost of such replacement automobile (all inclusive) shall
not exceed
$ 35,000.
6. Termination. Executive's employment hereunder may be
terminated as provided in this Section 6 by a majority of the Board acting in
good faith.
(a) For Cause by the Company. Executive's employment
hereunder may be terminated by the Company in compliance with the first
paragraph of this Section 6 for "Cause". For purposes of this Section 6(a),
"Cause" shall mean:
(i) (A) conviction of a felony, (B) proven fraud, (C) proven
embezzlement or (D) violation of the covenant not to compete or
confidentiality clauses set forth in Sections 7 and 8 of this
Agreement other than an immaterial violation;
(ii) to the extent not covered by clause (i) of this Section
6(a), (A) Executive's use of illegal drugs, abuse of other
controlled substances or habitual intoxication, (B) an act or acts on
Executive's part constituting a crime involving moral turpitude or a
felony under the laws of the United States or any state thereof or
(C) dishonesty, deceit or breach of fiduciary duty on Executive's
part in the performance of his duties; or
(iii) Executive's refusal to use reasonable efforts to
perform reasonable and lawful actions required by the Board approved
business plan or refusal to follow any specific and reasonable
directions of the Board, in either case after written notice by the
Board of such refusal to Executive and a reasonable opportunity for
Executive to cure such refusal or failure.
If Executive's employment is terminated for Cause, he shall be entitled to
receive his Base Salary through the date of termination. Subject to Section
7(c), all other benefits to which Executive would otherwise be entitled shall
automatically be terminated except to the extent required by law.
(b) Death; Disability. Executive's employment hereunder shall
terminate upon his death and may be terminated by the Company, consistent with
Company policy, if Executive becomes physically or mentally incapacitated and
is therefore unable for a period of six consecutive months or for an aggregate
of six months in any consecutive 24 month period to perform substantially his
duties and responsibilities under this Agreement (such incapacity is
hereinafter referred to as "Disability"). Any question as to the existence of
the Disability of Executive as to which Executive and the Company cannot agree
shall be determined in writing by a qualified independent physician mutually
acceptable to Executive and the Company. Upon termination of Executive's
employment hereunder by the Company due to Executive's Disability, Executive
shall receive his Base Salary through the date on which Executive is first
eligible to receive payment of disability benefits in lieu of Base Salary
under the Company's employee benefit plans as then in effect but in no event
for a period longer than the longer of (x) twelve months and (y) the remainder
of the Employment Term as determined without regard to such termination. Upon
termination of Executive's employment hereunder due to his death, Executive's
estate shall receive Executive's Base Salary through the date of his death.
All other benefits due to Executive or his estate following Executive's
termination for Disability or as a result of his death shall be determined in
accordance with the plans, policies and practices of the Company then in
effect.
(c) Without Cause by the Company and for Good Reason by the
Executive. If Executive's employment is terminated by the Company in
compliance with the first paragraph of this Section 6 without "Cause" (other
than by reason of Disability or death) or by Executive for "Good Reason",
Executive shall continue to receive his Base Salary and the benefits described
in Section 4 of this Agreement other than participation in any plan qualified
under Section 401 of the Internal Revenue Code of 1986, as amended, (or any
excess or supplemental benefit plan under which benefits are determined by
reference to a qualified plan) for the remainder of the Employment Term as
determined without regard to such termination. It is expressly understood and
agreed by the parties hereto that the Company's failure to extend the
Employment Term shall not constitute a termination without Cause or for Good
Reason.
During the period of continued payment provided in this Section
6(c), Executive will be available, consistent with other responsibilities that
he may then have, to answer questions and provide advice to the Company.
Notwithstanding any provision of this Agreement to the contrary, whether or
not Executive is employed by the Company, from and after any breach by
Executive of the provisions of Sections 7 or 8 other than an immaterial
breach, the Company shall cease to have any obligations to make payments to
Executive under this Agreement.
For purposes of this Section 6(c), "Good Reason" shall mean:
(i) a material reduction in Executive's responsibilities,
authorities, duties or title, all as contemplated by Section 2
hereof, after written notice to the Board of such material reduction
and a reasonable opportunity for the Company to cure, provided
however, such reduction by reason of a termination for Cause or
Disability shall not constitute Good Reason; or
(ii) (A) the relocation of the Company's corporate offices
outside of a 200 mile radius of Birmingham, Alabama, if Executive's
office is not also relocated to the new site of the Company's
corporate office or (B) the relocation of Executive, without his
consent, outside of a 200 mile radius of the Company's corporate
office.
(d) Termination by Executive other than for Good Reason. If
Executive terminates his employment with the Company for any reason other than
Good Reason prior to the end of the Employment Term, Executive shall be
entitled to the same payments he would have received if his employment had
been terminated by the Company for Cause. Subject to Section 7(c), all other
obligations of the Company hereunder shall be terminated as of the date
Executive's employment hereunder is terminated.
(e) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section
11(g) hereof. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of employment under
the provision so indicated.
7. Employment and Post-Employment Restrictions. (a)
Executive acknowledges and recognizes the highly competitive nature of the
business of the Company and accordingly agrees as follows: (i) until the date
of termination of Executive's employment hereunder and (ii) during the period
from the date of termination of Executive's employment hereunder through the
later of the date that (x) is two years from the Commencement Date, (y) is (I)
one year after Executive ceases employment with the Company pursuant to
Sections 6(b) or 6(c) thereunder or (II) two years after Executive ceases
employment with the Company pursuant to Sections 6(a) or 6(d) hereunder and (z)
Executive ceases to receive payments pursuant to Section 6 of this Agreement
(the period commencing on the date of termination of Executive's employment
hereunder and ending on the latest of the dates referred to in clauses (x), (y)
and (z) being referred to herein as the "Post-Termination Restriction
Period"), Executive will not enter into the following endeavors: being an
employee, consultant, owner (except for passive investments of not more than
one percent of the outstanding shares of, or any other equity interest in, any
company or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent, representative or
director of any firm or person in the Geographic Area, as hereinafter defined,
which directly competes with a line or lines of business of the Company that
exist now (such line of business as it exists now being the retail sale of
athletic equipment, apparel, footwear and other sporting goods) or at any time
during Executive's employment hereunder (a "Competing Business"); provided
however that the Company and Executive will be reasonable in characterizing
any such additional line of business for purposes of this Section 7 and
provided further that, Executive and the Company shall use all reasonable
efforts to enter into, promptly after the Company commences any such
additional line of business, an amendment to this Section 7 describing such
additional line of business. Notwithstanding the preceding sentence,
Executive may accept employment with and be employed by a firm or person that
has an affiliate engaged in a Competing Business, provided that, Executive
does not enter into the endeavors described above with or on behalf of such
affiliate. The Geographic Area is defined as 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. With respect to each state set forth above this
covenant not to compete is intended as a separate covenant. If any one of
such covenants is declared invalid for any reason, this determination shall
not affect the validity of the remainder of the covenants or any covenant
covering territory other than such state. The other covenants in this Section
7 shall remain in effect as if the provision had been executed without the
invalid covenants. The parties hereby declare that they intend that the
remaining covenants of the provision continue to be effective without any
covenants that have been declared invalid.
(b) Executive hereby agrees that he will not directly or
indirectly induce any employee of the Company or any of its subsidiaries or
affiliates to engage in any activity in which Executive is prohibited from
engaging by Section 7(a) above or to terminate his employment with the Company
or any of its subsidiaries or affiliates, and will not directly or indirectly
employ or offer employment to any person who was employed by the Company or
any of its subsidiaries or affiliates unless such person shall have ceased to
be employed by the Company or any of its subsidiaries or affiliates for a
period of at least six months.
(c) If at any time during the Post-Termination Restriction
Period Executive (i) has not violated the provisions of paragraphs (a) and (b)
above or Section 8 below, (ii) is not and has not been employed for any period
by any person or entity since terminating employment with the Company and
(iii) is not eligible to receive a continuation of benefits pursuant to
Section 6(c) of this Agreement, the Company shall make available to Executive
at his "COBRA expense", as defined below, the health insurance benefits that
are generally available to employees of the Company; provided that if at any
time Executive terminates his coverage under the Company's health insurance
plans, the Company shall have no obligation to make available thereafter
health insurance benefits. The parties expressly acknowledge that, during all
or part of the period during which the Company is obligated to make available
to Executive the health insurance coverage contemplated above, such obligation
may be satisfied by compliance with the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, as set forth in Section 4980B of the
Internal Revenue Code of 1986, as amended and Part 6, Title I of the Employee
Retirement Income Security Act of 1974, as amended ("COBRA"). "COBRA expense"
shall mean the maximum cost to Executive of "continuation coverage",
determined in accordance with COBRA.
8. Confidentiality. Executive agrees that he will not at
any time (whether during or after termination of his employment with the
Company) disclose or use for his own benefit or purposes or the benefit or
purposes of any other person, firm, partnership, joint venture, association,
corporation or other business organization, entity or enterprise other than
the Company and any of its subsidiaries or affiliates, any trade secrets,
information, data, or other confidential information relating to customers,
development programs, costs, marketing, trading, investment, sales activities,
promotion, credit and financial data, financing methods, plans, or the business
and affairs of the Company generally, or of any subsidiary or affiliate of the
Company, provided that the foregoing shall not apply to information which is
not unique to the Company or is known to most others in the industry or the
public other than as a result of Executive's breach of this covenant.
Executive agrees that upon termination of his employment with the Company for
any reason, he will return to the Company immediately all memoranda, books,
papers, plans, information, computer software, printouts and equipment,
letters and other data, and all copies thereof or therefrom, in any way
relating to the business of the Company and its subsidiaries and affiliates,
except that he may retain personal notes, personal notebooks, personal
correspondence and personal diaries. Executive further agrees that he will
not retain or use for his account at any time any tradename, trademark or
other proprietary business designation used or owned in connection with the
business of the Company, its subsidiaries or its affiliates.
9. Specific Performance. It is expressly understood and
agreed that although Executive and the Company consider the restrictions
contained in this Agreement to be reasonable, if a final judicial
determination is made by a court of competent jurisdiction that the time or
territory or any other restriction contained in this Agreement is an
unenforceable restriction against Executive, the provisions of this Agreement
shall not be rendered void but shall be deemed amended to apply as to such
maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any
court of competent jurisdiction finds that any restriction contained in this
Agreement is unenforceable, and such restriction cannot be amended so as to
make it enforceable, such finding shall not affect the enforceability of any
of the other restrictions contained herein. Executive acknowledges and agrees
that the Company's remedies at law for a breach or threatened breach of any of
the provisions of Section 7 or 8 would be inadequate and, in recognition of
this fact, Executive agrees that, in the event of such a breach or threatened
breach, in addition to any remedies at law, the Company, without posting any
bond, shall be entitled to obtain equitable relief in the form of specific
performance, temporary restraining order, temporary or permanent injunction or
any other equitable remedy which may then be available.
10. Continuation of Employment. Unless the parties otherwise
agree in writing, continuation of Executive's employment with the Company
beyond the expiration of the Employment Term shall be deemed an employment at
will and shall not be deemed to extend any of the provisions of this
Agreement, and Executive's employment may thereafter be terminated at will by
Executive or the Company. The Company shall use its best efforts to provide
Executive with notice no later than one month prior to the Expiration Date of
its intention not to extend this Agreement. A failure to give such notice
shall not constitute a breach of this Agreement unless Executive has
requested, after the expiration of the time for giving such notice, notice as
to whether this Agreement will be extended and the Company has failed to
respond to such request within 10 business days.
11. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the state of [Alabama] without regard
to the conflicts of law rules of such state.
(b) Entire Agreement; Amendments. This Agreement contains the
entire understanding of the parties with respect to the employment of
Executive by the Company. There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein and therein.
This Agreement may not be altered, modified, or amended except by written
instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be
considered a waiver of such party's rights or deprive such party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement.
(d) Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable by
Executive and shall be assignable by the Company to its successor or a
purchaser of all or substantially all of its assets and otherwise only with the
consent of Executive.
(f) Successors; Binding Agreement. This Agreement shall inure
to the benefit of and be binding upon personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
(g) Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, or by
prepaid overnight courier addressed to the respective addresses set forth
below or to such other address as the applicable person may have furnished to
the others in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
If to Executive:
Michael J. Newsome
Hibbett Sporting Goods, Inc.
131 South 25th Street
Irondale, AL 35211
With a copy to:
Steven Della Rocca
Latham & Watkins
885 Third Avenue
New York, NY 10022
If to the Company:
Hibbett Sporting Goods, Inc.
131 South 25th Street
Irondale, AL 35211
Attention: Maxine Martin
With a copy to:
Saunders Karp & Co., L.P.
667 Madison Avenue
New York, NY 10022
Attention: John F. Megrue
(h) Headings. The headings of the Sections of this Agreement
are for reference only and shall not affect the contents of this Agreement.
(i) Withholding Taxes. The Company may withhold from any
amounts payable under this Agreement such Federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.
(j) Counterparts; Effectiveness. This Agreement may be signed
in counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other party hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
/s/ Michael J. Newsome
----------------------
Michael J. Newsome
HIBBETT SPORTING GOODS, INC.
By: /s/ John F. Megrue
------------------
Title:
November 1, 1995
Mr. Michael J. Newsome
President
Hibbett Sporting Goods, Inc.
131 South 25th Street
Birmingham, AL 35215
Re: Incentive Compensation Arrangements
Dear Mickey:
We are delighted that you have agreed to continue as President
of Hibbett Sporting Goods, Inc. (the "Company") and look forward to a
productive relationship for the future. Set forth below are (i) your annual
bonus arrangement and (ii) a description of the performance bonus the
Compensation Committee of the Board of Directors of the Company (the "Board")
may in its discretion award to you from time to time. In addition, pursuant
to the Hibbett Sporting Goods, Inc. Stock Option Plan (the "Option Plan"), the
Compensation Committee of the Board will award you options on shares of $.01
par value common stock of the Company ("Common Stock"). The terms of such
award will be set forth in an Option Certificate, as defined in the Option
Plan.
In consideration of the awards and potential awards, set forth
above, and of the "put right" granted to you by the Company, set forth below,
you have agreed to subject the shares (the "Shares") of Common Stock held by
you on October 31, 1995 to the Company's right to call such Shares, as
outlined below:
(i) In the event your employment with the Company is
terminated (x) by the Company for "Cause", as defined in the Employment and
Post-Employment Agreement, dated November 1, 1995 between you and the Company
(the "Employment Agreement") or (y) by you for any reason other than "Good
Reason", as defined in the Employment Agreement, the Company shall have the
right, but not the obligation, to purchase your Shares at a price per share
equal to Book Value Per Share.
"Book Value Per Share" shall mean the quotient obtained by
dividing
(x) the sum of
(A) $21,875,000 and
(B) the excess of
(I) retained earnings at the end of the month immediately
preceding the date of termination of your employment,
determined on a consolidated basis for the Company and its
subsidiaries by the Company (and its independent public
accountants) based on the books and records of the
Company and its subsidiaries and in accordance with
generally accepted accounting practices applied on a
consistent basis over
(II) the retained earnings reported on the "Pro Forma",
as defined in the "Bank Credit Agreement", as defined in
the Subordinated Notes, as defined in the Stockholders
Agreement, dated as of November 1, 1995 by and among the
SK Equity Fund, L.P., SK Investment Fund, L.P., the
Company and the Stockholders listed therein (the
"Stockholders Agreement")
by
(y) 21,875,000.
Such denominator may be adjusted in the sole discretion of the Compensation
Committee of the Board for stock splits, reverse stock splits, stock dividends
or other corporate transactions or events which in the sole discretion of the
Compensation Committee are determined to affect the shares of Common Stock.
(ii) In the event your employment with the Company is
terminated (a) by the Company without Cause, (b) by you with Good Reason or
(c) by reason of your death or Disability, as defined in the Employment
Agreement, the Company shall have the right to purchase and to require you to
sell, and you shall have the right to sell and to require the Company to
purchase, your Shares at a price per share equal to the fair market value of a
share of Common Stock, as determined by the Compensation Committee of the
Board of Directors in its reasonable discretion; provided that, the sum of the
amount paid pursuant to this provision and any amount paid pursuant to a
similar provision contained in the Option Certificate shall equal at least
$750,000. Any valuation of such Shares as to which you and the Company cannot
agree shall be determined in writing by a qualified independent appraiser
mutually acceptable to you and the Company. Any amount payable to you
pursuant to this paragraph (ii) shall be paid in four equal annual
installments commencing on the receipt by the Company of the Shares together
with interest on any unpaid balance at the "Bank Prime Loan" rate, as defined
in the Bank Credit Agreement, on the date of termination of your employment,
compounded annually.
Annual Bonus Arrangement
During the period beginning on the closing of the transactions
contemplated by the Stock Purchase and Redemption Agreement, dated as of
[November 1, 1995], by and among the Funds defined therein, the Stockholders
identified therein and the Company (the "Stock Purchase and Redemption
Agreement") and ending on the third anniversary of such closing, provided that
you are employed by the Company on the last day of each relevant fiscal year,
you shall be entitled to a bonus payable annually in respect of such fiscal
year. Such bonus shall be equal to 2% of "Adjusted Income Before Taxes", as
defined below, if any, for the fiscal year ending January 31, 1996 and 1.69%
of Adjusted Income Before Taxes, if any, for each fiscal year thereafter;
provided that the amount of such bonus in respect of any fiscal year shall not
exceed 100% of your Base Salary, as defined in the Employment Agreement, for
such period. Such bonus shall be determined following the close of each of
the Company's fiscal years and paid to you promptly thereafter.
For this purpose, "Adjusted Income Before Taxes" for any given
period shall mean the sum of (A) net income for such period calculated on a
consolidated basis for the Company and its subsidiaries determined by the
Company (and its independent public accountants) based on the books and
records of the Company and its subsidiaries in accordance with generally
accepted accounting practices applied on a consistent basis, (B) "Income
Taxes", as defined below, (C) the bonus contemplated hereby for such period,
(D) interest accrued in such period on (x) the Subordinated Notes, (y) the
"PIK Notes", as defined in the Subordinated Notes and (z) the "New
Distribution Facility Financing", as defined in the Subordinated Notes,
together in each case with the amortization of any related capitalized
financing costs and (E) the "Management Fee", as defined in the Subordinated
Notes.
"Income Taxes" shall mean all federal, state or local income
taxes as determined by the Company and audited by its independent certified
public accountants.
Performance Bonus
The Compensation Committee will annually establish goals and
objectives for you to accomplish. If you accomplish all such goals and
objectives, the minimum bonus to which you will be entitled will be $20,000.
Your rights and interests hereunder may not be assigned,
encumbered or transferred. The Company shall have the right to deduct from
all payment made hereunder any taxes required by law to be withheld with
respect to such payments. The arrangements hereunder, except the option award
referred to above which is governed by the Option Plan and Option Certificate,
shall be governed by the laws of the State of Alabama.
Hibbett Sporting Goods, Inc.
By: /s/ John F. Megrue
------------------
Chairman of the Board
of Directors
Please acknowledge the
foregoing by signing below
/s/ Michael J. Newsome
- ----------------------
Michael J. Newsome
AGREEMENT NOT TO COMPETE
I.
PARTIES
This Agreement Not to Compete (the "Agreement") is dated this 1st day of
November, 1995, and is made by and among certain Stockholders listed on the
signature pages hereof (the "Stockholders"), HIBBETT SPORTING GOODS, INC., an
Alabama corporation (herein "Company"), SK INVESTMENT FUND, L.P. (the
"Investment Fund") and THE SK EQUITY FUND, L.P. (the "Equity Fund"), in each
case a partnership formed in Delaware, (the Investment Fund and the Equity
Fund are herein collectively referred to as the "Buyers").
II.
RECITALS
A. The Company has as of this date (the "Closing Date") issued to
Buyers certain specified securities, pursuant to the terms, covenants and
conditions set forth in the Stock Purchase and Redemption Agreement entered
into among the Stockholders and others named therein, the Company and the
Buyers relating to the purchase by the Buyers of 17,609,000 shares of, and the
redemption by the Stockholders of 34,220,000 shares of Common Stock of HIBBETT
SPORTING GOODS, INC. dated as of November 1, 1995 (the "Stock Purchase and
Redemption Agreement").
B. In consideration of and as an inducement and a necessary
prerequisite to Buyers' entering into the Stock Purchase and Redemption
Agreement, each Stockholder agrees to undertake and covenant with the Company
and Buyers not to compete with the business of the Company on the terms herein
specified.
NOW, THEREFORE, for valuable consideration received, receipt of which is
hereby acknowledged, the Stockholders, the Company and Buyers agree as follows:
III.
AGREEMENT NOT TO COMPETE
3.1 Covenant. During the Non-Compete Period, as hereinafter defined,
and within the Non-Compete Geographic Limits, as hereinafter defined, each
Stockholder agrees not to enter into the following competitive endeavors:
being an employee, consultant, owner (except for passive investments of not
more than five percent of the outstanding shares of, or any other equity
interest in, any company or entity listed or traded on a national securities
exchange or in an over-the-counter securities market), officer, director,
agent or representative of any individual, corporation, partnership, trust or
other entity or organization (herein a "Person") which is engaged in the
retail sale of athletic equipment, athletic apparel, athletic footwear and
other sporting goods (the "Business"). The Non-Compete Period shall be the
period beginning on the date of this Agreement and ending on the fifth
anniversary of the Closing Date. The Non-Compete Geographic Limits is defined
as 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. With respect to
each state set forth above this covenant not to compete is intended as a
separate covenant. If any one of such covenants is declared invalid for any
reason, this determination shall not affect the validity of the remainder of
the covenants or any covenant covering territory other than such state. The
other covenants in the non-competition provision shall remain in effect as if
the provision had been executed without the invalid covenants. The parties
hereby declare that they intend that the remaining covenants of the provision
continue to be effective without any covenants that have been declared invalid.
3.2 Customer Accounts.
3.2.1 Definition. As used herein, the term "Customer
Accounts" shall mean all accounts of the Company with respect to the Business,
and their affiliates, subsidiaries, licensees, and business associates,
whether now existing or hereafter developed or acquired.
3.2.2 Covenant Not to Solicit. During the Non-Compete
Period, no Stockholder shall, directly or indirectly, for Stockholder or any
other Person, divert, take away, call on, or solicit, or attempt to divert,
take away, call on, or solicit, any of the Customer Accounts of the Business
(including but not limited to those Customer Accounts which such Stockholder
called upon, solicited, or became acquainted with while engaged in the
Business) with respect to a business that is competitive with the Business.
3.3 Solicitation of Employees. During the Non-Compete Period, no
Stockholder shall (a) directly or indirectly, or by action in concert with
others, induce or influence, or seek to induce or influence, any employee or
officer of the Company to engage in any activity in which Stockholder is
prohibited from engaging in by Sections 3.1 or 3.2 above and (b) directly or
indirectly employ or offer employment to any individual who was employed by
the Company or any of its subsidiaries unless such individual has ceased to be
employed by the Company or such subsidiary for a period of at least 6 months
or has been terminated by the Company.
3.4 Reasonableness of Covenants. Each Stockholder expressly
understands and agrees that although the Company and the Buyers consider the
restrictions contained in Sections 3.1, 3.2 and 3.3 to be reasonable, if a
final judicial determination is made by a court of competent jurisdiction that
the time or territory or any other restriction contained in this Agreement is
an unenforceable restriction against such Stockholder, the provisions of this
Agreement shall not be rendered void but shall be deemed amended to apply as
to such maximum time and territory and to such maximum extent as such court
may judicially determine or indicate to be enforceable. Alternatively, if any
court of competent jurisdiction finds that any restriction contained in this
Agreement is unenforceable, and such restriction cannot be amended so as to
make it enforceable, such finding shall not affect the enforceability of any
of the other restrictions contained herein.
3.5 Injunctive Relief and Specific Performance. Each Stockholder
acknowledges and agrees that the Buyer's and the Company's remedies at law for
a breach of any of the provisions of this Article III would be inadequate and,
in recognition of this fact, such Stockholder agrees that, in the event of
such a breach, in addition to any remedies at law, the Company and/or the
Buyer, without posting any bond, shall be entitled to obtain equitable relief
in the form of specific performance, temporary restraining order, temporary or
permanent injunction or any other equitable remedy which may then be
available. Each Stockholder further acknowledges that should such Stockholder
violate any of the provisions of this Agreement, it will be difficult to
determine the amount of damages resulting to the Company, and in addition to
any other remedies which it may have, the Company and/or the Buyers shall be
entitled to temporary and permanent injunctive relief without the necessity of
proving damages.
3.6 Acknowledgment. Each of the Stockholders, Buyers and the Company
acknowledges and agrees that the covenants contained in this Article III have
been negotiated in good faith by the parties hereto, are reasonable and are
not more restrictive or broader than are necessary to protect the interests of
the parties hereto, and would not achieve their intended purpose if they were
on different terms or for periods of time shorter than the periods of time
provided herein or applied in more restrictive geographical areas than are
provided herein. Each party further acknowledges and agrees that the business
of the Company is highly competitive, that neither party would enter into the
Stock Purchase and Redemption Agreement and the transactions contemplated
thereby but for the covenants contained in this Article III and that such
covenants are essential to protect the value of the business of the Company.
Each party agrees further that the transaction of which this Agreement is a
part involves more than $100,000.
IV.
MISCELLANEOUS
4.1 Waiver. The waiver by the Company or Buyers of any default or
breach contained in or secured by this Agreement shall not be construed as a
waiver of any subsequent breach.
4.2 Modification. This Agreement is entered into for the benefit of
the parties hereto and their respective successors and assigns, and cannot be
amended or terminated except in a writing signed by all parties.
4.3 Severability. If any term, provision, covenant or condition of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the provisions shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
4.4 Successors and Assignment. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties and their respective
heirs, successors, representatives and assigns. This Agreement may be
assigned by Buyers to any successor in whole or in part to their respective
interests in the Company.
4.5 Governing Law.
4.5.1 This Agreement shall be governed by and construed in
accordance with the laws of the State of Alabama without regard to principles
of conflict of law.
4.6 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT CONTEMPLATED HEREBY.
4.7 Notice. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile transmission) and
shall be given,
if to Buyers, to:
Saunders Karp & Co., L.P.
667 Madison Avenue
New York, New York 10022
Attention: John F. Megrue
Fax: (212) 755-1624
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John J. McCarthy, Jr.
Fax: (212) 450-4800
if to the Stockholders, to:
Hibbett Sporting Goods, Inc.
131 South 25th Street
Irondale, AL 35211
Attention: Charles C. Anderson, Sr.
Joel R. Anderson
Clyde B. Anderson
Fax: (205) 956-0164
with a copy to:
Latham & Watkins
885 Third Avenue
New York, NY 10022
Attention: Steven Della Rocca
Fax: (212) 751-4864
if to the Company, to:
Hibbett Sporting Goods, Inc.
131 South 25th Street
Irondale, AL 35211
Attention: President
Fax: (205) 956-0164
with a copy to:
Latham & Watkins
885 Third Avenue
New York, NY 10022
Attention: Steven Della Rocca
Fax: (212) 751-4864
and:
Saunders Karp & Co., L.P.
667 Madison Avenue
New York, New York 10022
Attention: John F. Megrue
Fax: (212) 755-1624
All such notices, requests and other communications shall be deemed received
on the date of receipt by the recipient thereof if received prior to 5 p.m. in
the place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to
have been received until the next succeeding business day in the place of
receipt.
4.8 Counterparts. This Agreement may be executed in one or more
counterparts, all of which together shall constitute a single agreement.
V.
EXECUTION
IN WITNESS WHEREOF, the parties have executed this Agreement in one or
more counterparts which, taken together, shall constitute one Agreement.
THE SK EQUITY FUND, L.P.
By SK Partners, L.P., its
General Partner
By: /s/ John F. Megrue
------------------
Name: John F. Megrue
Title: Attorney-in-fact for Allan W. Karp
SK INVESTMENT FUND, L.P.
By SK Partners, L.P., its
General Partner
By: /s/ John F. Megrue
------------------
Name: John F. Megrue
Title: Attorney-in-fact for Allan W. Karp
CHARLES C. ANDERSON
By: /s/ Charles C. Anderson
-----------------------
Charles C. Anderson
JOEL R. ANDERSON
By: /s/ Joel R. Anderson
--------------------
Joel R. Anderson
CLYDE B. ANDERSON
By: /s/ Clyde B. Anderson
---------------------
Clyde B. Anderson
HIBBETT SPORTING GOODS, INC.
By: /s/ Michael J. Newsome
----------------------
Name: Michael J. Newsome
Title: President
HIBBETT SPORTING GOODS, INC.
STOCK OPTION PLAN
(as amended effective as of March 6, 1996)
TABLE OF CONTENTS
Page
SECTION 1. PURPOSE........................................................ 1
SECTION 2. DEFINITIONS.................................................... 1
2.1. Board.................................................... 1
2.2. Change in Control........................................ 1
2.3. Code..................................................... 2
2.4. Committee................................................ 2
2.5. Company.................................................. 2
2.6. Employee................................................. 2
2.7. Exchange Act............................................. 2
2.8. Fair Market Value........................................ 2
2.9. ISO...................................................... 3
2.10. Non-ISO.................................................. 3
2.11. Option................................................... 3
2.12. Option Certificate....................................... 3
2.13. Option Price............................................. 3
2.14. Parent Corporation....................................... 4
2.15. Plan..................................................... 4
2.16. Rule 16b-3............................................... 4
2.17. Stock.................................................... 4
2.18. Subsidiary............................................... 4
2.19. Ten Percent Shareholder.................................. 4
SECTION 3. SHARES RESERVED UNDER THE PLAN........................... 4
SECTION 4. EFFECTIVE DATE........................................... 5
SECTION 5. ADMINISTRATION........................................... 5
SECTION 6. ELIGIBILITY.............................................. 6
SECTION 7. GRANT OF OPTIONS......................................... 6
7.1. Committee Action................................... 6
7.2. $100,000 Limit..................................... 7
SECTION 8. OPTION PRICE............................................. 7
SECTION 9. EXERCISE PERIOD.......................................... 8
SECTION 10. TRANSFERABILITY.......................................... 9
10.1..................................................... 9
10.2..................................................... 9
10.3..................................................... 10
10.4..................................................... 10
SECTION 11. SECURITIES REGISTRATION.................................. 11
SECTION 12. LIFE OF PLAN............................................. 12
SECTION 13. ADJUSTMENT............................................... 12
SECTION 14. SALE OR MERGER OR CHANGE IN CONTROL...................... 13
14.1. Sale or Merger.................................... 13
14.2. Change in Control................................. 14
SECTION 15. AMENDMENT OR TERMINATION................................. 15
SECTION 16. MISCELLANEOUS............................................ 16
16.1. No Shareholder Rights............................. 16
16.2. No Contract of Employment......................... 16
16.3. Other Conditions.................................. 17
16.4. Withholding....................................... 17
16.5. Construction...................................... 17
HIBBETT SPORTING GOODS, INC.
STOCK OPTION PLAN
(as amended effective as of March 6, 1996)
SECTION 1.
PURPOSE
The purpose of this Plan is to promote the interests of the Company and
its shareholders by granting Options to purchase Stock to Employees in order
(1) to provide an additional incentive to each Employee to work to increase
the value of the Company's stock, and (2) to provide each Employee with a
stake in the future of the Company which corresponds to the stake of each of
the Company's shareholders.
SECTION 2.
DEFINITIONS
Each term set forth in this Section 2 shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall
include the singular.
2.1. Board -- means the Board of Directors of the Company.
2.2. Change in Control -- means (a) the acquisition of the power to
direct, or cause the direction of, the management and policies of the Company
by a person (not previously possessing such power), acting alone or in
conjunction with others, whether through the ownership of Stock, by contract
or otherwise, or (b) the acquisition, directly or indirectly, of the power to
vote more than 50% of the outstanding Stock by any person or by two or more
persons acting together. For purposes of this definition, (1) the term
"person" means a natural person, corporation, partnership, joint venture,
trust, government or instrumentality of a government, and (2) customary
agreements with or between underwriters and selling group members with respect
to a bona fide public offering of Stock shall be disregarded.
2.3. Code -- means the Internal Revenue Code of 1986, as amended.
2.4. Committee -- means the committee appointed by the Board to
administer this Plan which at all times shall consist of two or more members
of the Board. At such time as the Company becomes subject to the reporting
requirements under Section 16(b) of the Exchange Act, each member of the
Committee shall be a "disinterested person" within the meaning of Rule 16b-3.
2.5. Company -- means Hibbett Sporting Goods, Inc., an Alabama
corporation, and any successor to such corporation.
2.6. Employee -- means any full-time employee of the Company who the
Committee, acting in its absolute discretion, has determined to be eligible
for the grant of an Option under this Plan.
2.7. Exchange Act -- means the Securities Exchange Act of 1934, as
amended.
2.8. Fair Market Value -- means the fair market value of a share of
Stock as determined pursuant to a valuation or an appraisal of the Stock and
its value per share which is prepared by a qualified independent public
accountant or other person experienced in valuing closely-held businesses and
which is selected by the Board. Such valuation or appraisal shall be deemed
to be the fair market value of the Stock and its value per share; provided,
however, that the Board shall not be obligated to obtain more than one such
independent valuation or appraisal in any calendar year; and, provided
further, that if at any time the Stock is publicly traded on any exchange or
in the over-the-counter market, the closing price on the date of determination
for a share of Stock as reported by The Wall Street Journal or, if The Wall
Street Journal does not report such closing price, such closing price as
reported by a newspaper or trade journal selected by the Committee, shall be
the fair market value of a share of Stock.
2.9. ISO -- means an option granted under this Plan to purchase
Stock which is intended by the Company to satisfy the requirements of Code
Section 422.
2.10. Non-ISO -- means an option granted under this Plan to
purchase Stock which is not intended by the Company to satisfy the
requirements of Code Section 422.
2.11. Option -- means an ISO or a Non-ISO.
2.12. Option Certificate -- means the written certificate or
instrument which sets forth the terms of an Option granted to an Employee or
Director under this Plan.
2.13. Option Price -- means the price which shall be paid to
purchase one share of Stock upon the exercise of an Option granted under this
Plan.
2.14. Parent Corporation -- means any corporation which is a
parent of the Company within the meaning of Section 424(e) of the Code.
2.15. Plan -- means this Hibbett Sporting Goods, Inc. Stock Option
Plan, as amended from time to time.
2.16. Rule 16b-3 -- means the exemption under Rule 16b-3 to
Section 16(b) of the Exchange Act or any successor to such rule.
2.17. Stock -- means the $.01 par value common stock of the
Company.
2.18. Subsidiary -- means a corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) of the Company.
2.19. Ten Percent Shareholder -- means a person who owns (after
taking into account the attribution rules of Code Section 424(d)) more than
ten percent (10%) of the total combined voting power of all classes of stock
of the Company.
SECTION 3.
SHARES RESERVED UNDER THE PLAN
There shall be 1,000,000 shares of Stock reserved for use under this
Plan, and such shares of Stock shall be reserved to the extent that the
Company deems appropriate from authorized but unissued shares of Stock and
from shares of Stock which have been reacquired by the Company. Furthermore,
any shares of Stock subject to an Option which remain unissued after the
cancellation, expiration or exchange of such Option thereafter shall again
become available for use under this Plan.
SECTION 4.
EFFECTIVE DATE
The effective date of this Plan shall be the date it is adopted by the
Board, provided that the shareholders of the Company shall approve this Plan
after the date of its adoption in accordance with Rule 16b-3 and, to the
extent this Plan provides for the issuance of ISOs, the shareholders of the
Company shall approve those portions of this Plan related to the granting of
ISOs within twelve (12) months after the date of adoption. If any Options are
granted under this Plan before the date of such shareholder approval, such
Options automatically shall be granted subject to such approval.
SECTION 5.
ADMINISTRATION
This Plan shall be administered by the Committee. The Board may from
time to time remove members from, or add members to, the Committee. Vacancies
on the Committee shall be filled by the Board. The Committee shall select one
of its members as Chairman and shall hold meetings at such times and places as
it may determine. The Committee acting in its absolute discretion shall
exercise such powers and take such action as expressly called for under this
Plan and, further, the Committee shall have the power to interpret this Plan
and (in the event that the Company becomes subject to the reporting
requirements of Section 16(b) of the Exchange Act, subject to Rule 16b-3) to
take such other action (except to the extent the right to take such action is
expressly and exclusively reserved for the Board or the Company's
shareholders) in the administration and operation of this Plan as the
Committee deems equitable under the circumstances, which action shall be
binding on the Company, on each affected Employee or Director and on each
other person directly or indirectly affected by such action.
SECTION 6.
ELIGIBILITY
Only Employees shall be eligible for the grant of Options under this
Plan.
SECTION 7.
GRANT OF OPTIONS
7.1. Committee Action. The Committee, acting in its absolute
discretion, shall have the right to grant Options to Employees under this Plan
from time to time to purchase shares of Stock and, further, shall have the
right to grant new Options in exchange for outstanding Options which have a
higher or lower Option Price. Each grant of an Option to an Employee shall be
evidenced by an Option Certificate, and each such Option Certificate shall (1)
specify whether the Option is an ISO or Non-ISO and (2) incorporate such other
terms and conditions as the Committee, acting in its absolute discretion,
deems consistent with the terms of this Plan, including (without limitation) a
restriction on the number of shares of Stock subject to the Option which first
become exercisable during any calendar year. If the Committee grants an ISO
and a Non-ISO to an Employee on the same date, the right of the Employee to
exercise one such Option shall not be conditioned on his or her failure to
exercise the other such Option.
7.2. $100,000 Limit. To the extent that the aggregate Fair Market
Value of Stock (determined as of the date the ISO is granted) with respect to
which ISOs first become exercisable in any calendar year exceeds $100,000,
such Options shall be treated as Non-ISOs. The Fair Market Value of the Stock
subject to any other option (determined as of the date such option was
granted) which (1) satisfies the requirements of Section 422 of the Code and
(2) is granted to an Employee under a plan maintained by the Company, a
Subsidiary or a Parent Corporation shall be treated (for purposes of this
$100,000 limitation) as if granted under this Plan. This $100,000 limitation
shall be administered in accordance with the rules under Section 422(d) of the
Code.
SECTION 8.
OPTION PRICE
The Option Price for each share of Stock subject to an Option shall be
no less than the Fair Market Value of a share of Stock on the date the Option
is granted; provided, however, if the Option is an ISO granted to a Ten
Percent Shareholder, the Option Price for each share of Stock subject to such
ISO shall be no less than 110% of the Fair Market Value of a share of Stock on
the date such ISO is granted. The Option Price shall be payable in full upon
the exercise of any Option and, at the discretion of the Committee, an Option
Certificate can provide for the payment of the Option Price either in cash, by
check, or in Stock acceptable to the Committee or in any combination of cash,
check, and Stock acceptable to the Committee. Any payment made in Stock shall
be treated as equal to the Fair Market Value of such Stock on the date the
properly endorsed certificate for such Stock is delivered to the Committee or
its delegate.
SECTION 9.
EXERCISE PERIOD
Each Option granted under this Plan to an Employee shall be exercisable
in whole or in part at such time or times as set forth in the related Option
Certificate, but no Option Certificate shall make an Option granted to an
Employee exercisable before the last day of the six-month period which begins
on the date such Option is granted or after the earlier of
(a) the date such Option is exercised in full,
(b) the date which is the fifth anniversary of the date the
Option is granted, if the Option is an ISO and the Employee is a Ten
Percent Shareholder on the date the Option is granted, or
(c) the date which is the tenth anniversary of the date the
Option is granted, if the Option is (i) a Non-ISO or (ii) an ISO which
is granted to an Employee who is not a Ten Percent Shareholder on the
date the Option is granted.
An Option Certificate may provide for the exercise of an Option granted to an
Employee after the employment of such Employee has terminated for any reason
whatsoever, including death or disability.
SECTION 10.
TRANSFERABILITY
10.1. Except as otherwise set forth in this Section 10, no Option
granted under this Plan shall be transferable by an Employee other than by
will or by the laws of descent and distribution, and such Option shall be
exercisable during the lifetime of an Employee only by such Employee. The
person or persons to whom an Option is transferred by will or by the laws of
descent and distribution thereafter shall be treated as the Employee under
this Plan.
10.2. Upon the voluntary or involuntary termination of employment
of an Employee for any reason, the Company shall repurchase, and such Employee
or his legal representative shall sell, all, but not less than all, of the
Employee's Option and Stock acquired pursuant to Options granted hereunder (to
the extent that such Options are exercisable) pursuant to this Section 10;
provided, however, that in the event that the Stock becomes publicly traded,
any Stock then held by such terminated Employee shall not be subject to the
provisions of this Section 10.2.
10.3. The price at which the Company shall purchase Options
pursuant to Section 10.2 shall be equal to the difference between the Fair
Market Value of the Stock on the effective date of the Employee's termination
and the exercise price for the Options being purchased. The price at which
the Company shall purchase shares of Stock held by the Employee pursuant to
Section 10.2 shall be equal to the Fair Market Value of the shares of Stock
held by the Employee as of the date of termination.
10.4. Within thirty (30) days of the date of the Employee's
termination, the Company shall deliver to the terminated Employee a check in
the amount of the purchase price for the Employee's Stock and Options. Upon
payment by the Company of the purchase price for the Stock and Options, the
terminated Employee or his or her legal representative shall relinquish all
further right, title and interest in and to the Stock and Options and shall
surrender and deliver to the Company all of the certificates representing such
Stock, with appropriate endorsement thereon or duly executed stock powers.
Such Stock and Options shall be free from liens, options, or encumbrances of
any kind. Any Options purchased by the Company pursuant to Section 10.2 shall
be cancelled and such options thereafter shall again become available for use
under this Plan.
SECTION 11.
SECURITIES REGISTRATION
Each Option Certificate shall provide that, upon the receipt of shares
of Stock as a result of the exercise of an Option, the Employee shall, if so
requested by the Company, hold such shares of Stock for investment and not
with a view to resale or distribution to the public and, if so requested by
the Company, shall deliver to the Company a written statement satisfactory to
the Company to that effect. Each Option Certificate also shall provide that,
if so requested by the Company, the Employee shall make a written
representation to the Company that he or she will not sell or offer to sell
any of such Stock unless a registration statement shall be in effect with
respect to such Stock under the Securities Act of 1933, as amended ("1933
Act") and any applicable state securities law or unless he or she shall have
furnished to the Company an opinion, in form and substance satisfactory to the
Company, of legal counsel acceptable to the Company, that such registration is
not required. Certificates representing the Stock transferred upon the
exercise of an Option granted under this Plan may at the discretion of the
Company bear a legend to the effect that such Stock has not been registered
under the 1933 Act or any applicable state securities law and that such Stock
may not be sold or offered for sale in the absence of an effective
registration statement as to such Stock under the 1933 Act and any applicable
state securities law or an opinion, in form and substance satisfactory to the
Company, of legal counsel acceptable to the Company, that such registration is
not required.
SECTION 12.
LIFE OF PLAN
No Option shall be granted under this Plan on or after the earlier of
(1) the tenth anniversary of the effective date of this Plan (as
determined under Section 4 of this Plan), in which event this Plan
thereafter shall continue in effect until all outstanding Options have
been exercised in full or no longer are exercisable, or
(2) the date on which all of the Stock reserved under Section 3
of this Plan has (as a result of the exercise of Options granted under
this Plan) been issued or no longer is available for use under this
Plan, in which event this Plan also shall terminate on such date.
SECTION 13.
ADJUSTMENT
The number of shares of Stock reserved under Section 3 of this Plan, the
number of shares of Stock subject to Options granted under this Plan, and the
Option Price of such Options shall be adjusted by the Committee in an
equitable manner to reflect any change in the capitalization of the Company,
including, but not limited to, such changes as stock dividends or stock
splits. The Committee shall have the right to adjust (in a manner which
satisfies the requirements of Section 424(a) of the Code) the number of shares
of Stock reserved under Section 3 of this Plan, the number of shares of Stock
subject to Options granted under this Plan, and the Option Price of such
Options in the event of any corporate transaction described in Section 424(a)
of the Code which provides for the substitution or assumption of Options. If
any adjustment under this Section 13 would create a fractional share of Stock
or a right to acquire a fractional share of Stock, such fractional share shall
be disregarded and the number of shares of Stock reserved under this Plan and
the number subject to any Options granted under this Plan shall be the next
lower number of shares of Stock, rounding all fractions downward. An
adjustment made under this Section 13 by the Committee shall be conclusive and
binding on all affected persons.
SECTION 14.
SALE OR MERGER OR CHANGE IN CONTROL
14.1. Sale or Merger. If the Company agrees to sell all or
substantially all of its assets for cash or property or for a combination of
cash and property or agrees to any merger, consolidation, reorganization,
division or other corporate transaction in which Stock is converted into
another security or into the right to receive securities or property and such
agreement does not provide for the assumption or substitution of the Options
granted under this Plan, each Option granted to an Employee may, at the
direction and discretion of the Committee, (a) be cancelled unilaterally by
the Company (subject to such conditions, if any, as the Committee deems
appropriate under the circumstances) in exchange for whole shares of Stock
(and cash in lieu of a fractional share) the number of which, if any, shall be
determined by the Committee on a date set by the Committee for this purpose by
dividing (1) the excess of the then Fair Market Value of the Stock then
subject to exercise under such Option (as determined without regard to any
vesting schedule for such Option) over the Option Price of such Stock by (2)
the then Fair Market Value of a share of such Stock, or (b) be cancelled
unilaterally by the Company if the Option Price equals or exceeds the Fair
Market Value of a share of Stock on such date.
14.2. Change in Control. If there is a Change in Control of the
Company or a tender or exchange offer is made for Stock other than by the
Company, the Committee thereafter shall have the right to take such action
with respect to any unexercised Options granted to Employees, or all such
Options, as the Committee deems appropriate under the circumstances to protect
the interest of the Company in maintaining the integrity of such grants under
this Plan, including following the procedures set forth in Section 14.1 for a
sale or merger of the Company. The Committee shall have the right to take
different action under this Section 14.2 with respect to different Employees
or different groups of Employees, as the Committee deems appropriate under the
circumstances. In no event, however, shall the Committee take any action
under this Section 14.2 which would impair the rights of an Employee with
respect to Options theretofore granted to such Employee or which would impair
the value of such Options, without such Employee's consent.
SECTION 15.
AMENDMENT OR TERMINATION
This Plan may be amended by the Committee from time to time to the
extent that the Committee deems necessary or appropriate; provided, however,
that no amendment shall be made which would impair the rights of an Employee
with respect to Options theretofore granted or which would impair the value of
such Options, without such Employee's consent; and, provided further, that (a)
no such amendment shall be made absent the approval of the shareholders of the
Company required under Section 422 of the Code (1) to increase the number of
shares of Stock reserved under Section 3, or (2) to change the class of
employees eligible for Options under Section 6, (b) at such time as the
Company becomes subject to the reporting requirements of Section 16(b) of the
Exchange Act, the Committee shall, in accordance with Rule 16b-3, not amend
this Plan absent the approval of the shareholders of the Company (1) to
increase materially (within the meaning of Rule 16b-3) the benefits accruing
to an Employee or Director under the Plan, (2) to increase materially (within
the meaning of Rule 16b-3) the number of securities which may be issued under
the Plan, or (3) otherwise modify materially (within the meaning of Rule 16b-3)
the requirements as to eligibility for participation in the Plan, and (c) no
provision of this Plan shall be amended more than once every six months if
amending such provision would result in the loss of an exemption under Rule
16b-3. Any amendment which specifically applies to Non-ISOs shall not require
shareholder approval unless such approval is necessary to comply with Section
16 of the Exchange Act. The Committee also may suspend the granting of
Options under this Plan at any time and may terminate this Plan at any time;
provided, however, the Committee shall not have the right unilaterally to
modify, amend or cancel any Option granted before such suspension or
termination unless (1) the Employee consents in writing to such modification,
amendment or cancellation or (2) there is a dissolution or liquidation of the
Company or a transaction described in Section 13 or Section 14 of this Plan.
SECTION 16.
MISCELLANEOUS
16.1. No Shareholder Rights. No Employee shall have any rights as
a shareholder of the Company as a result of the grant of an Option to him or
to her under this Plan or his or her exercise of such Option pending the
actual delivery of Stock subject to such Option to such Employee.
16.2. No Contract of Employment. The grant of an Option to an
Employee under this Plan shall not constitute a contract of employment and
shall not confer on any Employee any rights upon his or her termination of
employment in addition to those rights, if any, expressly set forth in the
Option Certificate which evidences his or her Option.
16.3. Other Conditions. Each Option Certificate may require that
an Employee (as a condition to the exercise of an Option) enter into any
agreement or make such representations prepared by the Company, including any
agreement which restricts the transfer of Stock acquired pursuant to the
exercise of such Option or provides for the repurchase of such Stock by the
Company under certain circumstances.
16.4. Withholding. The exercise of any Option granted under this
Plan shall constitute full and complete consent by an Employee to whatever
action the Committee deems necessary to satisfy the federal and state tax
withholding requirements, if any, which the Committee acting in its discretion
deems applicable to such exercise. The Committee also shall have the right to
provide in an Option Certificate that an Employee may elect to satisfy federal
and state withholding requirements through a reduction in the number of shares
of Stock actually transferred to him or her under this Plan, and if the
Employee is subject to the reporting requirements under Section 16 of the
Exchange Act, any such election and any such reduction shall be effected so as
to satisfy the conditions to the exemption under Rule 16b-3 under the Exchange
Act.
16.5. Construction. This Plan shall be construed under the laws
of the State of Alabama.
HIBBETT SPORTING GOODS, INC.
1996 STOCK OPTION PLAN
April 1, 1996
TABLE OF CONTENTS
Page
SECTION 1. PURPOSE........................................................ 1
SECTION 2. DEFINITIONS.................................................... 1
2.1. Board.................................................... 1
2.2. Book Value Per Share..................................... 1
2.3. Change in Control........................................ 2
2.4. Code..................................................... 3
2.5. Committee................................................ 3
2.6. Company.................................................. 3
2.7. Employee................................................. 3
2.8. Exchange Act............................................. 3
2.9. Fair Market Value........................................ 3
2.10. ISO...................................................... 4
2.11. Non-ISO.................................................. 4
2.12. Option................................................... 4
2.13. Option Agreement......................................... 4
2.14. Option Price............................................. 4
2.15. Parent Corporation....................................... 5
2.16. Plan..................................................... 5
2.17. Rule 16b-3............................................... 5
2.18. Stock.................................................... 5
2.19. Subsidiary............................................... 5
2.20. Ten Percent Shareholder.................................. 5
SECTION 3. SHARES RESERVED UNDER THE PLAN................................. 5
SECTION 4. EFFECTIVE DATE................................................. 6
SECTION 5. ADMINISTRATION................................................. 6
SECTION 6. ELIGIBILITY.................................................... 8
SECTION 7. GRANT OF OPTIONS............................................... 8
7.1. Board Action............................................. 8
7.2. $100,000 Limit........................................... 9
SECTION 8. OPTION PRICE................................................... 9
SECTION 9. EXERCISE PERIOD................................................ 10
SECTION 10. TRANSFERABILITY............................................... 11
10.1................................................................. 11
10.2................................................................. 11
10.3................................................................. 13
SECTION 11. SECURITIES REGISTRATION....................................... 15
SECTION 12. LIFE OF PLAN.................................................. 16
SECTION 13. ADJUSTMENT.................................................... 17
SECTION 14. SALE OR MERGER OR CHANGE IN CONTROL........................... 18
14.1. Sale or Merger........................................... 18
14.2. Change in Control........................................ 18
SECTION 15. AMENDMENT OR TERMINATION...................................... 19
SECTION 16. MISCELLANEOUS................................................. 21
16.1. No Shareholder Rights.................................... 21
16.2. No Contract of Employment................................ 21
16.3. Other Conditions......................................... 21
16.4. Withholding.............................................. 21
16.5. Construction............................................. 22
HIBBETT SPORTING GOODS, INC.
1996 STOCK OPTION PLAN
SECTION 1.
PURPOSE
The purpose of this Plan is to promote the interests of the Company and
its shareholders by granting Options to purchase Stock to Employees in order
(1) to provide an additional incentive to each Employee to work to increase
the value of the Company's stock, and (2) to provide each Employee with a
stake in the future of the Company which corresponds to the stake of each of
the Company's shareholders.
SECTION 2.
DEFINITIONS
Each term set forth in this Section 2 shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall
include the singular.
2.1. Board -- means the Board of Directors of the Company or a
Committee appointed by the Board of Directors of the Company.
2.2. Book Value Per Share -- means the quotient obtained by dividing
(x) the sum of
(A) $21,875,000 and
(B) the excess of
(I) retained earnings at the end of the month
immediately preceding the date of termination of employment,
determined on a consolidated basis for the Company and its
subsidiaries by the Company (and its independent public
accountants) based on the books and records of the Company
and its subsidiaries and in accordance with generally
accepted accounting practices applied on a consistent basis
over
(II) the retained earnings reported on the "Pro
Forma," as defined in the "Bank Credit Agreement," as
defined in the Subordinated Notes, as defined in the
Stockholders Agreement, dated as of November 1, 1995 by and
among the SK Equity Fund, L.P., SK Investment Fund, L.P.,
the Company and the Stockholders listed therein
by
(y) 21,875,000.
Such denominator may be adjusted in the sole discretion of the Board for stock
splits, reverse stock splits, stock dividends or other corporate transactions
or events which in the sole discretion of the Board are determined to affect
the shares of Common Stock. 2.3. Change in Control -- means (a) the
acquisition of the power to direct, or cause the direction of, the management
and policies of the Company by a person (not previously possessing such
power), acting alone or in conjunction with others, whether through the
ownership of Stock, by contract or otherwise, or (b) the acquisition, directly
or indirectly, of the power to vote more than 50% of the outstanding Stock by
any person or by two or more persons acting together. For purposes of this
definition, (1) the term "person" means a natural person, corporation,
partnership, joint venture, trust, government or instrumentality of a
government, and (2) customary agreements with or between underwriters and
selling group members with respect to a bona fide public offering of Stock
shall be disregarded.
2.4. Code -- means the Internal Revenue Code of 1986, as amended.
2.5. Committee -- means a committee appointed by the Board to
administer this Plan which at all times shall consist of two or more members
of the Board. At such time as the Company becomes subject to the reporting
requirements under Section 16(b) of the Exchange Act, each member of the
Committee shall be a "disinterested person" within the meaning of Rule 16b-3.
The Board may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee shall be filled by the Board. The
Committee shall select one of its members as Chairman and shall hold meetings
at such times and places as it may determine.
2.6. Company -- means Hibbett Sporting Goods, Inc., an Alabama
corporation, or any successor to such corporation, and its wholly owned
subsidiaries.
2.7. Employee -- means any full-time employee of the Company who the
Board, acting in its absolute discretion, has determined to be eligible for
the grant of an Option under this Plan.
2.8. Exchange Act -- means the Securities Exchange Act of 1934, as
amended.
2.9. Fair Market Value -- means the fair market value of a share of
Stock as determined pursuant to a valuation or an appraisal of the Stock and
its value per share which is prepared by a qualified independent public
accountant or other person experienced in valuing closely held businesses and
which is selected by the Board. Such valuation or appraisal shall be deemed
to be the fair market value of the Stock and its value per share; provided,
however, that the Board shall not be obligated to obtain more than one such
independent valuation or appraisal in any calendar year; and, provided
further, that if at any time the Stock is publicly traded on any exchange or
in the over-the-counter market, the closing price on the date of determination
for a share of Stock as reported by The Wall Street Journal or, if The Wall
Street Journal does not report such closing price, such closing price as
reported by a newspaper or trade journal selected by the Board, shall be the
fair market value of a share of Stock.
2.10. ISO -- means an option granted under this Plan to purchase
Stock which is intended by the Company to satisfy the requirements of Code
Section 422.
2.11. Non-ISO -- means an option granted under this Plan to
purchase Stock which is not intended by the Company to satisfy the
requirements of Code Section 422.
2.12. Option -- means an ISO or a Non-ISO.
2.13. Option Agreement -- means the written agreement or
instrument which sets forth the terms of an Option granted to an Employee
under this Plan.
2.14. Option Price -- means the price which shall be paid to
purchase one share of Stock upon the exercise of an Option granted under this
Plan.
2.15. Parent Corporation -- means any corporation which is a
parent of the Company within the meaning of Section 424(e) of the Code.
2.16. Plan -- means this Hibbett Sporting Goods, Inc. 1996 Stock
Option Plan, as amended from time to time.
2.17. Rule 16b-3 -- means the exemption under Rule 16b-3 to
Section 16(b) of the Exchange Act or any successor to such rule.
2.18. Stock -- means the $.01 par value common stock of the
Company.
2.19. Subsidiary -- means a corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) of the Company.
2.20. Ten Percent Shareholder -- means a person who owns (after
taking into account the attribution rules of Code Section 424(d)) more than
ten percent (10%) of the total combined voting power of all classes of stock
of the Company.
SECTION 3.
SHARES RESERVED UNDER THE PLAN
There shall be 595,251 shares of Stock reserved for use under this
Plan, and such shares of Stock shall be reserved to the extent that the
Company deems appropriate from authorized but unissued shares of Stock and
from shares of Stock which have been reacquired by the Company. Furthermore,
any shares of Stock subject to an Option which remain unissued after the
cancellation, expiration or exchange of such Option thereafter shall again
become available for use under this Plan.
SECTION 4.
EFFECTIVE DATE
The effective date of this Plan shall be the date it is adopted by the
Board, provided that the shareholders of the Company shall approve this Plan
after the date of its adoption in accordance with Rule 16b-3 and, to the
extent this Plan provides for the issuance of ISOs, the shareholders of the
Company shall approve those portions of this Plan related to the granting of
ISOs within twelve (12) months after the date of adoption. If any Options are
granted under this Plan before the date of such shareholder approval, such
Options automatically shall be granted subject to such approval.
SECTION 5.
ADMINISTRATION
This Plan shall be administered by the Board. The Board acting in its
absolute discretion shall exercise such powers and take such action as
expressly called for under this Plan and, further, the Board shall have the
power to interpret this Plan and (in the event that the Company becomes
subject to the reporting requirements of Section 16(b) of the Exchange Act,
subject to Rule 16b-3) to take such other action (except to the extent the
right to take such action is expressly and exclusively reserved for the Board
or the Company's shareholders) in the administration and operation of this
Plan as the Board deems equitable under the circumstances, which action shall
be binding on the Company, on each affected Employee and on each other person
directly or indirectly affected by such action.
Each member of the Board shall be fully justified in relying or acting
in good faith upon any report made by the independent public accountants of
the Company and upon any other information furnished in connection with the
Plan by any person or persons other than such member. In no event shall any
person who is or has been a member of the Board be liable for any
determination made or other action taken by him or any failure by him to act
in reliance upon any such report or information, if in good faith.
Neither the Board nor any member thereof shall be liable for any act,
omission, interpretation, construction or determination made in connection
with the Plan in good faith, and the members of the Board may be entitled to
indemnification and reimbursement by the Company in respect of any claim,
loss, damage or expense (including attorney's fees) arising therefrom to the
full extent permitted by law and under any directors' and officers' liability
insurance that may be in effect from time to time, in all events as a majority
of the Board then in office may determine from time to time, as evidenced by a
written resolution thereof. In addition, no member of the Board and no
employee of the Company shall be liable for any act or failure to act
hereunder, by any other member or other employee or by any agent to whom
duties in connection with the administration of this Plan have been delegated
or, for any act or failure to act by such member or employee, in all events
except in circumstances involving such member's or employee's bad faith, gross
negligence, intentional fraud or violation of a statute.
SECTION 6.
ELIGIBILITY
Only Employees shall be eligible for the grant of Options under this
Plan.
SECTION 7.
GRANT OF OPTIONS
7.1. Board Action. The Board, acting in its absolute discretion, shall
have the right to grant Options to Employees under this Plan from time to time
to purchase shares of Stock and, further, shall have the right to grant new
Options in exchange for outstanding Options which have a higher or lower
Option Price. Each grant of an Option to an Employee shall be evidenced by an
Option Agreement, and each such Option Agreement shall (1) specify whether the
Option is an ISO or Non-ISO and (2) incorporate such other terms and
conditions as the Board, acting in its absolute discretion, deems consistent
with the terms of this Plan, including (without limitation) a restriction on
the number of shares of Stock subject to the Option which first become
exercisable during any calendar year. If the Board grants an ISO and a
Non-ISO to an Employee on the same date, the right of the Employee to exercise
one such Option shall not be conditioned on his or her failure to exercise the
other such Option.
7.2. $100,000 Limit. To the extent that the aggregate Fair Market
Value of Stock (determined as of the date the ISO is granted) with respect to
which ISOs first become exercisable in any calendar year exceeds $100,000,
such Options shall be treated as Non-ISOs. The Fair Market Value of the Stock
subject to any other option (determined as of the date such option was
granted) which (1) satisfies the requirements of Section 422 of the Code and
(2) is granted to an Employee under a plan maintained by the Company, a
Subsidiary or a Parent Corporation shall be treated (for purposes of this
$100,000 limitation) as if granted under this Plan. This $100,000 limitation
shall be administered in accordance with the rules under Section 422(d) of the
Code.
SECTION 8.
OPTION PRICE
The Option Price for each share of Stock subject to an Option shall be
no less than the Fair Market Value of a share of Stock on the date the Option
is granted; provided, however, if the Option is an ISO granted to a Ten
Percent Shareholder, the Option Price for each share of Stock subject to such
ISO shall be no less than 110% of the Fair Market Value of a share of Stock on
the date such ISO is granted. The Option Price shall be payable in full upon
the exercise of any Option and, at the discretion of the Board, an Option
Agreement can provide for the payment of the Option Price either in cash, by
check, or in Stock acceptable to the Board or in any combination of cash,
check, and Stock acceptable to the Board. Any payment made in Stock shall be
treated as equal to the Fair Market Value of such Stock on the date the
properly endorsed certificate for such Stock is delivered to the Board or its
delegate.
SECTION 9.
EXERCISE PERIOD
Each Option granted under this Plan to an Employee shall be exercisable
in whole or in part at such time or times as set forth in the related Option
Agreement, but no Option Agreement shall make an Option granted to an Employee
exercisable before the last day of the six-month period which begins on the
date such Option is granted or after the earlier of:
(a) the date which is the fifth anniversary of the date the
Option is granted, if the Option is an ISO and the Employee is a Ten
Percent Shareholder on the date the Option is granted; or
(b) the date which is the tenth anniversary of the date the
Option is granted, if the Option is (i) a Non-ISO or (ii) an ISO which
is granted to an Employee who is not a Ten Percent Shareholder on the
date the Option is granted.
An Option Agreement may provide for the exercise of an Option granted to an
Employee after the employment of such Employee has terminated for any reason
whatsoever, including death or disability.
SECTION 10.
TRANSFERABILITY
10.1. Except as otherwise set forth in this Section 10, no Option
granted under this Plan shall be transferable by an Employee other than by
will or by the laws of descent and distribution, and such Option shall be
exercisable during the lifetime of an Employee only by such Employee. The
person or persons to whom an Option is transferred by will or by the laws of
descent and distribution thereafter shall be treated as the Employee under
this Plan.
10.2.(a) Upon the termination of employment of an Employee for any
reason, the Company shall have the right and option to repurchase all, but not
less than all, of the Employee's Options (to the extent that such Options are
exercisable) and Stock acquired pursuant to Options granted hereunder pursuant
to this Section 10. Such right and option shall be exercisable for a period
of ninety (90) days following the date of termination.
(b) The price at which the Company shall purchase the Stock and
Options of the terminated Employee pursuant to this Section 10 shall be as
follows:
(1) For so long as the Company's Stock is not publicly
traded:
(i) the price at which the Company shall purchase
Options shall be equal to the difference between the Book Value
Per Share of the Stock on the effective date of the Employee's
termination and the exercise price for the Options being
purchased; and
(ii) the price at which the Company shall purchase
shares of Stock held by the Employee shall be equal to the Book
Value Per Share of the shares of Stock held by the Employee as of
the date of termination.
(2) In the event that the Company's Stock becomes publicly
traded:
(i) the price at which the Company shall purchase
Options shall be equal to the difference between the Fair Market
Value of the Stock on the effective date of the Employee's
termination and the exercise price for the Options being
purchased; and
(ii) the price at which the Company shall purchase
shares of Stock held by the Employee shall be equal to the Fair
Market Value of the shares of Stock held by the Employee as of the
date of termination.
(c) The closing of the purchase by the Company, if any, shall
take place at the principal office of the Company on a date designated by the
Company. The designated date shall not be more than thirty (30) days after
the date on which the Company exercises its option to repurchase the shares of
Stock owned by the Employee pursuant to this Section 10, unless the purchase
price for the Stock has not yet been determined, in which case the closing
shall occur not more than thirty (30) days following the determination of such
purchase price. At closing, the Company shall deliver to the terminated
Employee or his or her legal representative a check in the amount of the
purchase price for the Employee's Stock and Options. Upon payment by the
Company of the purchase price for the Stock and Options, the terminated
Employee or his or her legal representative shall relinquish all further
right, title and interest in and to the Stock and Options and shall surrender
and deliver to the Company all of the certificates representing such Stock,
with appropriate endorsement thereon or duly executed stock powers. Such
Stock and Options shall be free from liens, options, or encumbrances of any
kind. Any Options purchased by the Company pursuant to Section 10.2 shall be
cancelled and such options thereafter shall again become available for use
under this Plan.
(d) Subject to the provisions of this Plan and the Option
Agreement relating to any Option granted hereunder, in the event that the
Company fails to exercise its option to purchase the Stock of Optionee
acquired pursuant to Options granted pursuant to this Plan as provided for in
Section 10.2 hereof, the Employee shall thereafter be free to sell or
otherwise dispose of some or all of such Stock.
10.3.(a) The Board shall impose such restrictions on any shares of
Stock acquired pursuant to Options under the Plan as it may deem advisable,
including, without limitation, the right of first refusal described below,
restrictions under applicable federal securities law, restrictions imposed by
any stock exchange upon which such shares of Stock may be listed, and
restrictions under any blue sky or state securities laws applicable to such
shares.
(b) If at any time during an Employee's lifetime, following the
acquisition of Stock pursuant to the exercise of an Option granted under this
Plan, the Employee shall desire to sell all or any part of the shares acquired
by Employee pursuant to such Option, the Employee may sell the same only after
offering it to the Company in the following manner:
(1) The Employee shall serve notice upon the Company
stating that the Employee has received a bona fide offer for the
sale of shares of the Stock and setting forth the following
information: (i) the number of shares of the Employee's Stock
proposed to be sold; (ii) the name and address of the person
offering to purchase such Stock; and (iii) the sale price and terms
of payment of such sale. Such notice shall also contain an offer
by the Employee to sell such shares of the Stock to the Company at
the price offered by such bona fide offeror.
(2) For a period of thirty (30) days after receipt of such
notice, the Company shall have the right and option to purchase
all or a portion of the shares of Stock so offered. If the
Company fails to exercise such option with respect to all or a
portion of such shares of Stock, the Employee shall be free to
sell such remaining shares of Stock to the person named in the
aforesaid notice at a price and upon the terms and conditions set
forth in such notice; provided, however, that such disposition
shall be made within thirty (30) days following the termination of
the option of the Company to purchase such shares of Stock.
SECTION 11.
SECURITIES REGISTRATION
Each Option Agreement shall provide that, upon the receipt of shares of
Stock as a result of the exercise of an Option, the Employee shall, if so
requested by the Company, hold such shares of Stock for investment and not
with a view to resale or distribution to the public and, if so requested by
the Company, shall deliver to the Company a written statement satisfactory to
the Company to that effect. Each Option Agreement also shall provide that, if
so requested by the Company, the Employee shall make a written representation
to the Company that he or she will not sell or offer to sell any of such Stock
unless a registration statement shall be in effect with respect to such Stock
under the Securities Act of 1933, as amended ("1933 Act") and any applicable
state securities law or unless he or she shall have furnished to the Company an
opinion, in form and substance satisfactory to the Company, of legal counsel
acceptable to the Company, that such registration is not required.
Certificates representing the Stock transferred upon the exercise of an Option
granted under this Plan may at the discretion of the Company bear a legend to
the effect that such Stock has not been registered under the 1933 Act or any
applicable state securities law and that such Stock may not be sold or offered
for sale in the absence of an effective registration statement as to such
Stock under the 1933 Act and any applicable state securities law or an
opinion, in form and substance satisfactory to the Company, of legal counsel
acceptable to the Company, that such registration is not required.
SECTION 12.
LIFE OF PLAN
No Option shall be granted under this Plan on or after the earlier of
(1) the tenth anniversary of the effective date of this Plan (as
determined under Section 4 of this Plan), in which event this Plan
thereafter shall continue in effect until all outstanding Options have
been exercised in full or no longer are exercisable, or
(2) the date on which all of the Stock reserved under Section 3
of this Plan has (as a result of the exercise of Options granted under
this Plan) been issued or no longer is available for use under this
Plan, in which event this Plan also shall terminate on such date.
SECTION 13.
ADJUSTMENT
The number of shares of Stock reserved under Section 3 of this Plan, the
number of shares of Stock subject to Options granted under this Plan, and the
Option Price of such Options shall be adjusted by the Board in an equitable
manner to reflect any change in the capitalization of the Company, including,
but not limited to, such changes as stock dividends or stock splits. The Board
shall have the right to adjust (in a manner which satisfies the requirements
of Section 424(a) of the Code) the number of shares of Stock reserved under
Section 3 of this Plan, the number of shares of Stock subject to Options
granted under this Plan, and the Option Price of such Options in the event of
any corporate transaction described in Section 424(a) of the Code which
provides for the substitution or assumption of Options. If any adjustment
under this Section 13 would create a fractional share of Stock or a right to
acquire a fractional share of Stock, such fractional share shall be
disregarded and the number of shares of Stock reserved under this Plan and the
number subject to any Options granted under this Plan shall be the next lower
number of shares of Stock, rounding all fractions downward. An adjustment
made under this Section 13 by the Board shall be conclusive and binding on all
affected persons.
SECTION 14.
SALE OR MERGER OR CHANGE IN CONTROL
14.1. Sale or Merger. If the Company agrees to sell all or
substantially all of its assets for cash or property or for a combination of
cash and property or agrees to any merger, consolidation, reorganization,
division or other corporate transaction in which Stock is converted into
another security or into the right to receive securities or property and such
agreement does not provide for the assumption or substitution of the Options
granted under this Plan, each Option granted to an Employee may, at the
direction and discretion of the Board, (a) be cancelled unilaterally by the
Company (subject to such conditions, if any, as the Board deems appropriate
under the circumstances) in exchange for whole shares of Stock (and cash in
lieu of a fractional share) the number of which, if any, shall be determined
by the Board on a date set by the Board for this purpose by dividing (1) the
excess of the then Fair Market Value of the Stock then subject to exercise
under such Option (as determined without regard to any vesting schedule for
such Option) over the Option Price of such Stock by (2) the then Fair Market
Value of a share of such Stock, or (b) be cancelled unilaterally by the
Company if the Option Price equals or exceeds the Fair Market Value of a share
of Stock on such date.
14.2. Change in Control. If there is a Change in Control of the
Company or a tender or exchange offer is made for Stock other than by the
Company, the Board thereafter shall have the right to take such action with
respect to any unexercised Options granted to Employees, or all such Options,
as the Board deems appropriate under the circumstances to protect the interest
of the Company in maintaining the integrity of such grants under this Plan,
including following the procedures set forth in Section 14.1 for a sale or
merger of the Company. The Board shall have the right to take different
action under this Section 14.2 with respect to different Employees or
different groups of Employees, as the Board deems appropriate under the
circumstances. In no event, however, shall the Board take any action under
this Section 14.2 which would impair the rights of an Employee with respect to
Options theretofore granted to such Employee or which would impair the value
of such Options, without such Employee's consent.
SECTION 15.
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent
that the Board deems necessary or appropriate; provided, however, that no
amendment shall be made which would impair the rights of an Employee with
respect to Options theretofore granted or which would impair the value of such
Options, without such Employee's consent; and, provided further, that (a) no
such amendment shall be made absent the approval of the shareholders of the
Company required under Section 422 of the Code (1) to increase the number of
shares of Stock reserved under Section 3, or (2) to change the class of
employees eligible for Options under Section 6, (b) at such time as the
Company becomes subject to the reporting requirements of Section 16(b) of the
Exchange Act, the Board shall, in accordance with Rule 16b-3, not amend this
Plan absent the approval of the shareholders of the Company (1) to increase
materially (within the meaning of Rule 16b-3) the benefits accruing to an
Employee under the Plan, (2) to increase materially (within the meaning of
Rule 16b-3) the number of securities which may be issued under the Plan, or
(3) otherwise modify materially (within the meaning of Rule 16b-3) the
requirements as to eligibility for participation in the Plan, and (c) no
provision of this Plan shall be amended more than once every six months if
amending such provision would result in the loss of an exemption under Rule
16b-3. Any amendment which specifically applies to Non-ISOs shall not require
shareholder approval unless such approval is necessary to comply with Section
16 of the Exchange Act. The Board also may suspend the granting of Options
under this Plan at any time and may terminate this Plan at any time; provided,
however, the Board shall not have the right unilaterally to modify, amend or
cancel any Option granted before such suspension or termination unless (1) the
Employee consents in writing to such modification, amendment or cancellation
or (2) there is a dissolution or liquidation of the Company or a transaction
described in Section 13 or Section 14 of this Plan.
SECTION 16.
MISCELLANEOUS
16.1. No Shareholder Rights. No Employee shall have any rights as
a shareholder of the Company as a result of the grant of an Option to him or
to her under this Plan or his or her exercise of such Option pending the
actual issuance of Stock subject to such Option to such Employee.
16.2. No Contract of Employment. The grant of an Option to an
Employee under this Plan shall not constitute a contract of employment and
shall not confer on any Employee any rights upon his or her termination of
employment in addition to those rights, if any, expressly set forth in the
Option Agreement which evidences his or her Option.
16.3. Other Conditions. Each Option Agreement may require that an
Employee (as a condition to the exercise of an Option) enter into any
agreement or make such representations prepared by the Company, including any
agreement which restricts the transfer of Stock acquired pursuant to the
exercise of such Option or provides for the repurchase of such Stock by the
Company under certain circumstances.
16.4. Withholding. The exercise of any Option granted under this
Plan shall constitute full and complete consent by an Employee to whatever
action the Board deems necessary to satisfy the federal and state tax
withholding requirements, if any, which the Board acting in its discretion
deems applicable to such exercise. The Board also shall have the right to
provide in an Option Agreement that an Employee may elect to satisfy federal
and state withholding requirements through a reduction in the number of shares
of Stock actually transferred to him or her under this Plan, and if the
Employee is subject to the reporting requirements under Section 16 of the
Exchange Act, any such election and any such reduction shall be effected so as
to satisfy the conditions to the exemption under Rule 16b-3 under the Exchange
Act.
16.5. Construction. This Plan shall be construed under the laws
of the State of Alabama.
LEASE AGREEMENT
by and between
QRS 12-14 (AL), INC.,
an Alabama corporation
as LANDLORD
and
SPORTS WHOLESALE, INC.,
an Alabama corporation,
as TENANT
Premises: Birmingham, Alabama
Dated as of: February 1, 1996
TABLE OF CONTENTS
Page
Parties
1. Demise of Premises
2. Certain Definitions
3. Title and Condition
4. Use of Leased Premises; Quiet Enjoyment
5. Term
6. Basic Rent
7. Additional Rent
8. Net Lease; Non-Terminability
9. Payment of Impositions
10. Compliance with Laws and Easement Agreements;
Environmental Matters
11. Liens; Recording and Title
12. Maintenance and Repair
13. Alterations and Improvements
14. Permitted Contests
15. Indemnification
16. Insurance
17. Casualty and Condemnation
18. Termination Events
19. Restoration
20. Procedures Upon Purchase
21. Assignment and Subletting; Prohibition
against Leasehold Financing
22. Events of Default
23. Remedies and Damages Upon Default
24. Notices
25. Estoppel Certificate
26. Surrender
27. No Merger of Title
28. Books and Records
29. Determination of Value
30. Non-Recourse as to Landlord
31. Financing
32. [Intentionally Omitted]
33. [Intentionally Omitted}
34. Tax Treatment; Reporting
35. Right of First Refusal
36. Financing Major Alterations
37. Miscellaneous
EXHIBITS
Exhibit "A" - Premises
Exhibit "B" - Machinery and Equipment
Exhibit "C" - Schedule of Permitted Encumbrances
Exhibit "D" - Rent Schedule
Exhibit "E" - Lease Amendment Form
LEASE AGREEMENT, made as of this 1st day of February, 1996,
between QRS 12-14 (AL), INC., an Alabama corporation ("Landlord"), with an
address c/o W. P. Carey & Co., Inc., 50 Rockefeller Plaza, 2nd Floor, New
York, New York 10020, and SPORTS WHOLESALE, INC. ("Tenant"), an Alabama
corporation with an address at 451 Industrial Lane, Birmingham, Alabama 35211.
In consideration of the rents and provisions herein
stipulated to be paid and performed, Landlord and Tenant hereby covenant and
agree as follows:
1. Demise of Premises. Landlord hereby demises and lets
to Tenant, and Tenant hereby takes and leases from Landlord, for the term and
upon the provisions hereinafter specified, the following described property
(collectively, the "Leased Premises"): (a) Landlord's interest (now or
hereafter acquired) in the premises described in Exhibit "A" hereto, together
with the Appurtenances (collectively, the "Land"); (b) the buildings,
structures and other improvements now or hereafter constructed on the Land
(collectively, the "Improvements"); and (c) the fixtures, machinery, equipment
and other property described in Exhibit "B" hereto (collectively, the
"Equipment").
2. Certain Definitions.
"Acquisition Cost" shall mean $4,700,000.
"Additional Rent" shall mean Additional Rent as
defined in Paragraph 7.
"Alterations" shall mean all changes, additions,
improvements or repairs to, all alterations, reconstructions, renewals,
replacements or removals of and all substitutions or replacements for any of
the Improvements or Equipment, both interior and exterior, structural and
non-structural, and ordinary and extraordinary. Alterations shall exclude all
trade fixtures and equipment which are not necessary to the operation, as
buildings, of the buildings constituting the Leased Premises and which are
readily removable from the Leased Premises without causing damage thereto.
"Applicable Initial Date" shall have the meaning
assigned to such term in Paragraph 29.
"Appurtenances" shall mean all tenements,
hereditaments, easements, rights-of-way, rights, privileges in and to the
Land, including (a) easements over other lands granted by any Easement
Agreement and (b) any streets, ways, alleys, vaults, gores or strips of land
adjoining the Land.
"Assignment" shall mean any assignment of rents and
leases from Landlord to a Lender which (a) encumbers any of the Leased
Premises and (b) secures Landlord's obligation to repay a Loan, as the same may
be amended, supplemented or modified from time to time.
"Basic Rent" shall mean Basic Rent as defined in
Paragraph 6.
"Basic Rent Payment Dates" shall mean the Basic Rent
Payment Dates as defined in Paragraph 6.
"Carey Entity" shall mean any Person set forth in
subparagraphs (ii) through (iv) of Paragraph 30.
"Casualty" shall mean any loss of or damage to any
property (including the Leased Premises) included within or related to the
Leased Premises or arising from the Adjoining Property.
"City" shall mean the City of Birmingham, Alabama.
"Commencement Date" shall mean Commencement Date as
defined in Paragraph 5.
"Condemnation" shall mean a Taking and/or a
Requisition.
"Condemnation Notice" shall mean notice or knowledge
of the institution of or intention to institute any proceeding for
Condemnation.
"Costs" of a Person or associated with a specified
transaction shall mean all reasonable out-of-
pocket costs and expenses incurred by such Person or associated with such
transaction, including without limitation attorneys' fees and expenses, court
costs, brokerage fees, escrow fees, title insurance premiums, recording fees
and transfer taxes, as the circumstances require.
"Covenants" shall mean the covenants and agreements
described on Exhibit "A" to the Guaranty.
"CPI" shall mean CPI as defined in Exhibit "D" hereto.
"Default Termination Amount" shall mean the Default
Termination Amount as defined in Paragraph 23(a)(iii).
"Default Rate" shall mean the Default Rate as defined
in Paragraph 7(a)(iv).
"Easement Agreement" shall mean any conditions,
covenants, restrictions, easements, declarations, licenses and other
agreements listed as Permitted Encumbrances or as may (if consented to by
Tenant) hereafter affect the Leased Premises.
"Environmental Law" shall mean (i) whenever enacted or
promulgated, any applicable federal, state, foreign and local law, statute,
ordinance, rule, regulation, license, permit, authorization, approval,
consent, court order, judgment, decree, injunction, code, requirement or
agreement with any governmental entity, (x) relating to pollution (or the
cleanup thereof), or the protection of air, water vapor, surface water,
groundwater, drinking water supply, land (including land surface or
subsurface), plant, aquatic and animal life from injury caused by a Hazardous
Substance or (y) concerning exposure to, or the use, containment, storage,
recycling, reclamation, reuse, treatment, generation, discharge,
transportation, processing, handling, labeling, production, disposal or
remediation of Hazardous Substances, Hazardous Conditions or Hazardous
Activities, in each case as amended and as now or hereafter in effect, and
(ii) any common law or equitable doctrine (including, without limitation,
injunctive relief and tort doctrines such as negligence, nuisance, trespass
and strict liability) that may impose liability or obligations or injuries or
damages due to or threatened as a result of the presence of, exposure to, or
ingestion of, any Hazardous Substance. The term Environmental Law includes,
without limitation, the federal Comprehensive Environmental Response
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the federal Water Pollution Control Act, the federal
Clean Air Act, the federal Clean Water Act, the federal Resources Conservation
and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments to
RCRA), the federal Solid Waste Disposal Act, the federal Toxic Substance
Control Act, the federal Insecticide, Fungicide and Rodenticide Act, the
federal Occupational Safety and Health Act of 1970, the federal National
Environmental Policy Act and the federal Hazardous Materials Transportation
Act, each as amended and as now or hereafter in effect and any similar state
or local Law.
"Environmental Violation" shall mean (a) any direct or
indirect discharge, disposal, spillage, emission, escape, pumping, pouring,
injection, leaching, release, seepage, filtration or transporting (arising due
to any act or omission occurring prior to expiration or termination of this
Lease) of any Hazardous Substance at, upon, under, onto or within the Leased
Premises, or from the Leased Premises to the environment, in violation of any
Environmental Law or in excess of any reportable quantity established under
any Environmental Law or which would reasonably be expected to result in any
liability to Landlord, Tenant, Lender, any Federal, state or local government
or any other Person for the costs of any removal or remedial action or natural
resources damage or for bodily injury or property damage, (b) any deposit,
storage, dumping, placement or use (arising due to any act or omission
occurring prior to expiration or termination of this Lease) of any Hazardous
Substance at, upon, under or within the Leased Premises in violation of any
Environmental Law or in excess of any reportable quantity established under
any Environmental Law or which would reasonably be expected to result in any
liability to any Federal, state or local government or to any other Person for
the costs of any removal or remedial action or natural resources damage or for
bodily injury or property damage, (c) the abandonment or discarding at any time
prior to expiration or termination of the Term of any barrels, containers or
other receptacles containing any Hazardous Substances in violation of any
Environmental Laws, (d) any activity, occurrence or condition (arising due to
any act or omission occurring prior to expiration or termination of this
Lease) which would reasonably be expected to result in any liability, cost or
expense to Landlord or Lender or any other owner or occupier of the Leased
Premises, or which could reasonably be expected to result in a creation of a
lien on the Leased Premises under any Environmental Law, or (e) any violation
of or noncompliance with any Environmental Law (arising due to any act or
omission occurring prior to expiration or termination of this Lease).
"Equipment" shall mean the Equipment as defined in
Paragraph 1.
"Expiration Date" shall mean the Expiration Date as
defined in Paragraph 5(a).
"Event of Default" shall mean an Event of Default as
defined in Paragraph 22(a).
"Fair Market Value" shall mean the fair market value
of the Leased Premises as of the Relevant Date as affected and encumbered by
this Lease. For all purposes of this Lease, Fair Market Value shall be
determined in accordance with the procedure specified in Paragraph 29. Fair
Market Value shall in no event be less than the Acquisition Cost.
"Fair Market Value Date" shall mean the date when the
Fair Market Value is determined in accordance with Paragraph 29 following a
Casualty, Condemnation or Event of Default, as applicable.
"Federal Funds" shall mean federal or other
immediately available funds which at the time of payment are legal tender for
the payment of public and private debts in the United States of America.
"Guarantor" shall mean Hibbett Sporting Goods, Inc.,
an Alabama corporation.
"Guaranty" shall mean the Guaranty and Suretyship
Agreement dated the date hereof from Guarantor to Landlord, as the same
hereafter be amended with Landlord's consent.
"Hazardous Activity" means any activity, process,
procedure or undertaking which directly or indirectly (i) procures, generates
or creates any Hazardous Substance; (ii) causes or results in (or threatens to
cause or result in) the release, seepage, spill, leak, flow, discharge or
emission of any Hazardous Substance into the environment (including the air,
ground water, watercourses or water systems), (iii) involves the containment
or storage of any Hazardous Substance; or (iv) would cause the Leased Premises
or any portion thereof to become a hazardous waste treatment, recycling,
reclamation, processing, storage or disposal facility within the meaning of any
Environmental Law.
"Hazardous Condition" means any condition which would
support any claim or liability under any Environmental Law, including the
presence of underground storage tanks.
"Hazardous Substance" means (i) any substance,
material, product, petroleum, petroleum product, derivative, compound or
mixture, mineral (including asbestos), chemical, gas, medical waste, or other
pollutant, in each case whether naturally occurring, man-made or the
by-product of any process, that is toxic, harmful or hazardous or acutely
hazardous to the environment or public health or safety or (ii) any substance
supporting a claim under any Environmental Law, whether or not defined as
hazardous as such under any Environmental Law. Hazardous Substances include,
without limitation, any toxic or hazardous waste, pollutant, contaminant,
industrial waste, petroleum or petroleum-derived substances or waste, radon,
radioactive materials, asbestos, asbestos containing materials, urea
formaldehyde foam insulation, lead and polychlorinated biphenyl's.
"Impositions" shall mean the Impositions as defined in
Paragraph 9(a).
"Improvements" shall mean the Improvements as defined
in Paragraph 1.
"Indemnitee" shall mean an Indemnitee as defined in
Paragraph 15.
"Insurance Requirements" shall mean the requirements
of all insurance policies required to be maintained in accordance with this
Lease.
"Land" shall mean the Land as defined in Paragraph 1.
"Law" shall mean any constitution, statute, rule of
law, code, ordinance, order, judgment, decree, injunction, rule, regulation,
requirement or administrative or judicial determination, even if unforeseen or
extraordinary, of every duly constituted governmental authority, court or
agency, now or hereafter enacted or in effect.
"Lease" shall mean this Lease Agreement.
"Lease Year" shall mean, with respect to the first
Lease Year, the period commencing on the Commencement Date and ending at
midnight on the last day of the twelfth (12th) consecutive calendar month
following the month in which the Commencement Date occurred, and each
succeeding twelve (12) month period during the Term.
"Leased Premises" shall mean the Leased Premises as
defined in Paragraph 1.
"Legal Requirements" shall mean the requirements of
all present and future Laws (including but not limited to Environmental Laws
and Laws relating to accessibility to, usability by, and discrimination
against, disabled individuals) and all covenants, restrictions and conditions
now or hereafter of record which may be applicable to Tenant or to any of the
Leased Premises, or to the use, manner of use, occupancy, possession,
operation, maintenance, alteration, repair or restoration of any of the Leased
Premises, even if compliance therewith necessitates structural changes or
improvements or results in interference with the use or enjoyment of any of the
Leased Premises.
"Lender" shall mean any person or entity (and their
respective successors and assigns) which may, after the date hereof, make a
Loan to Landlord or is the holder of any Note.
"Loan" shall mean any loan made by one or more Lenders
to Landlord, which loan is secured by a Mortgage and an Assignment and
evidenced by a Note. For purposes of this Lease, if at any time there is more
than one Loan then "Loan" shall mean the Loan secured by a Mortgage having the
most senior lien priority.
"Major Alterations" shall have the meaning assigned to
such term in paragraph 36 of this Agreement.
"Monetary Obligations" shall mean Rent and all other
sums payable by Tenant under this Lease to Landlord, to any third party on
behalf of Landlord or to any Indemnitee.
"Mortgage" shall mean any mortgage or deed of trust
from Landlord to a Lender which (a) encumbers any of the Leased Premises and
(b) secures Landlord's obligation to repay a Loan, as the same may be amended,
supplemented or modified.
"Net Award" shall mean (a) the entire award payable to
Landlord or Lender by reason of a Condemnation whether pursuant to a judgment
or by agreement or otherwise with respect to the fee interest in the Leased
Premises not reduced by any award for the leasehold estate, or (b) the entire
proceeds of any insurance required under clauses (i), (ii) (to the extent
payable to Landlord or Lender), (iv), (v) or (vi) of Paragraph 16(a), as the
case may be, less any expenses incurred by Landlord and Lender in collecting
such award or proceeds.
"Note" shall mean any promissory note evidencing
Landlord's obligation to repay a Loan, as the same may be amended,
supplemented or modified.
"Partial Casualty" shall mean any Casualty which does
not constitute a Termination Event.
"Partial Condemnation" shall mean any Condemnation
which does not constitute a Termination Event.
"Permitted Encumbrances" shall mean those covenants,
restrictions, reservations, liens, conditions and easements and other
encumbrances, other than any Mortgage or Assignment, listed on Exhibit "C"
hereto (but such listing shall not be deemed to revive any such encumbrances
that have expired or terminated or are otherwise invalid or unenforceable).
"Permitted Transfer" shall mean a Permitted Transfer
as defined in Exhibit A to the Guaranty.
"Person" shall mean an individual, partnership,
association, corporation or other entity.
"Prepayment Premium" shall mean any payment (other
than a payment of principal and/or interest which Landlord is required to make
under a Note or a Mortgage) by reason of any prepayment by Landlord of any
principal due under a Note or Mortgage, and which may be (in lieu of such
prepayment premium or prepayment penalty) a "make whole" clause requiring a
prepayment premium in an amount sufficient to compensate the Lender for the
loss of the benefit of the Loan due to a prepayment. Upon request of Tenant,
Landlord will provide to Tenant documentation setting forth the Prepayment
Premium calculation.
"Present Value" of any amount shall mean such amount
discounted to present value at a rate per annum equal to 9%.
"Prime Rate" shall mean the annual interest rate as
published, from time to time, in the Wall Street Journal as the "Prime Rate"
in its column entitled "Money Rate". The Prime Rate may not be the lowest
rate of interest charged by any "large U.S. money center commercial banks" and
Landlord makes no representations or warranties to that effect. In the event
the Wall Street Journal ceases publication or ceases to publish the "Prime
Rate" as described above, the Prime Rate shall be the average per annum
discount rate (the "Discount Rate") on ninety-one (91) day bills ("Treasury
Bills") issued from time to time by the United States Treasury at its most
recent auction, plus three hundred (300) basis points. If no such 91-day
Treasury Bills are then being issued, the Discount Rate shall be the discount
rate on Treasury Bills then being issued for the period of time closest to
ninety-one (91) days.
"Purchase Agreement" shall mean the Purchase Agreement
dated the date hereof between Landlord and Guarantor, as the same may
hereafter be amended with Landlord's written consent.
"Relevant Amount" shall mean the Termination Amount or
the Default Termination Amount, as the case may be.
"Relevant Date" shall mean (a) the date immediately
prior to the date on which the applicable Condemnation Notice is received, in
the event of a Termination Notice under Paragraph 18 which is occasioned by a
Taking, (b) the date immediately prior to the date on which the applicable
Casualty occurs, in the event of a Termination Notice under Paragraph 18
which is occasioned by a Casualty, (c) the date when Fair Market Value is
redetermined, in the event of a redetermination of Fair Market Value pursuant
to Paragraph 20(c), or (d) the date immediately prior to the Event of Default
giving rise to the need to determine Fair Market Value in the event Landlord
provides Tenant with notice of its intention to require Tenant to make a
termination offer under Paragraph 23(a)(iii).
"Remaining Sum" shall mean Remaining Sum as defined in
Paragraph 19(c).
"Renewal Date" shall mean the Renewal Date as defined
in Paragraph 5(b).
"Rent" shall mean, collectively, Basic Rent and
Additional Rent.
"Requisition" shall mean any temporary requisition or
confiscation of the use or occupancy of any of the Leased Premises by any
governmental authority, civil or military, whether pursuant to an agreement
with such governmental authority in settlement of or under threat of any such
requisition or confiscation, or otherwise.
"Retention Date" shall mean the later of the date on
which the amount of the Remaining Sum is finally determined or the date on
which Landlord's right to the Remaining Sum is finally determined.
"Sale Contract" shall have the meaning assigned to such
term in Paragraph 35.
"Site Assessment" shall mean a Site Assessment as
defined in Paragraph 10(c).
"State" shall mean the State of Alabama.
"Surviving Obligations" shall mean any obligations of
Tenant under this Lease, actual or contingent, which arise on or prior to the
expiration or prior termination of this Lease or which survive such expiration
or termination by their own terms.
"Taking" shall mean (a) any taking or damaging of all
or a portion of any of the Leased Premises (i) in or by condemnation or other
eminent domain proceedings pursuant to any Law, general or special, or (ii) by
reason of any agreement with any condemnor in settlement of or under threat of
any such condemnation or other eminent domain proceeding, or (iii) by any
other means, or (b) any de facto condemnation. The Taking shall be considered
to have taken place as of the later of the date actual physical possession is
taken by the condemnor, or the date on which the right to compensation and
damages accrues under the law applicable to the Leased Premises.
"Term" shall mean the Term as defined in Paragraph 5.
"Termination Amount" shall mean the greater of (a)
Fair Market Value or (b) the sum of the Acquisition Cost and any Prepayment
Premium which Landlord will be required to pay in prepaying any Loan with
proceeds of the Termination Amount.
"Termination Date" shall mean Termination Date as
defined in Paragraph 18(b).
"Termination Event" shall mean a Termination Event as
defined in Paragraph 18(a).
"Termination Notice" shall mean Termination Notice as
defined in Paragraph 18(a).
"Third Party Purchaser" shall have the meaning assigned
to such term in Paragraph 21(f).
"Transfer Agreement" shall mean the Agreement dated as of
the date hereof among Landlord, Tenant, the City and Lawyers Title Insurance
Corporation.
3. Title and Condition.
(a) The Leased Premises are demised and let subject
to (i) the rights of any Persons in possession of the Leased Premises, (ii)
the existing state of title of any of the Leased Premises, including any
Permitted Encumbrances, (iii) any state of facts which an accurate survey or
physical inspection of the Leased Premises might show, (iv) all Legal
Requirements, including any existing violation of any thereof, and (v) the
condition of the Leased Premises as of the commencement of the Term, without
representation or warranty by Landlord. Tenant acknowledges that Landlord
presently owns only an equitable or beneficial interest in the Leased Premises
a more particularly described in the Transfer Agreement.
(b) Tenant acknowledges that the Leased Premises is
in good condition and repair at the inception of this Lease. LANDLORD LEASES
AND TENANT TAKES THE LEASED PREMISES AS IS. TENANT ACKNOWLEDGES THAT LANDLORD
(WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE
AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED
PREMISES, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO (i) ITS FITNESS,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE QUALITY OF THE
MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY DEFECT, LATENT OR
PATENT, (iv) LANDLORD'S TITLE THERETO, (v) VALUE, (vi) COMPLIANCE WITH
SPECIFICATIONS, (vii) LOCATION, (viii) USE, (ix) CONDITION, (x)
MERCHANTABILITY, (xi) QUALITY, (xii) DESCRIPTION, (xiii) DURABILITY (xiv)
OPERATION (xv) THE EXISTENCE OF ANY HAZARDOUS SUBSTANCE, HAZARDOUS CONDITION
OR HAZARDOUS ACTIVITY OR (xvi) COMPLIANCE OF THE LEASED PREMISES WITH ANY LAW
OR LEGAL REQUIREMENT; AND ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY
TENANT. TENANT ACKNOWLEDGES THAT THE LEASED PREMISES IS OF ITS SELECTION AND
TO ITS SPECIFICATIONS AND THAT THE LEASED PREMISES HAS BEEN INSPECTED BY
TENANT AND IS SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN
ANY OF THE LEASED PREMISES OF ANY NATURE, WHETHER LATENT OR PATENT, LANDLORD
SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO OR FOR ANY
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING STRICT LIABILITY IN TORT). THE
PROVISIONS OF THIS PARAGRAPH 3(b) HAVE BEEN NEGOTIATED, AND ARE INTENDED TO
BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD, EXPRESS OR
IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, ARISING PURSUANT TO THE
UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR ARISING
OTHERWISE.
(c) Tenant represents to Landlord that Tenant has
examined the title to the Leased Premises prior to the execution and delivery
of this Lease and has found the same to be satisfactory for the purposes
contemplated hereby. Tenant acknowledges that (i) equitable title to the
Leased Premises is in Landlord as described in the Transfer Agreement and that
Tenant has only the leasehold right of possession and use of Landlord's
interest in the Leased Premises as provided herein, (ii) the Improvements
conform to all material Legal Requirements and all Insurance Requirements,
(iii) all easements necessary or appropriate for the use or operation of the
Leased Premises have been obtained, (iv) all contractors and subcontractors
who have performed work on or supplied materials to the Leased Premises have
been fully paid, and all materials and supplies have been fully paid for,
except as set forth in the Seller/Lessee's Certificate from Tenant to Landlord
dated the date hereof, (v) the Improvements have been fully completed in all
material respects in a workmanlike manner of first class quality, and (vi) all
Equipment necessary or appropriate for the use or operation of the Leased
Premises has been installed and is presently fully operative in all material
respects.
(d) Landlord hereby assigns to Tenant, without
recourse or warranty whatsoever, all warranties, guaranties, indemnities and
similar rights which Landlord may have against any manufacturer, seller,
engineer, contractor or builder in respect of any of the Leased Premises.
Such assignment shall remain in effect until an Event of Default occurs or
until the expiration or earlier termination of this Lease, whereupon such
assignment shall cease and all of said warranties, guaranties, indemnities and
other rights shall automatically revert to Landlord (it being understood,
however, that if the Lease terminates as a result of the purchase of the
Leased Premises by Tenant, such assignment shall remain in effect and all of
said warranties, guaranties, indemnities and other rights shall remain with
Tenant).
(e) Tenant covenants that it will not interfere with
any rights of Landlord under the Transfer Agreement and will not take any
action which would cause the City to fail to convey the Leased Premises to
Landlord.
4. Use of Leased Premises; Quiet Enjoyment.
(a) Tenant may occupy and use the Leased Premises
for a distribution center and office facilities and for no other purpose
unless consented to by Landlord, which consent shall not be unreasonably
withheld so long as the primary use of the Leased Premises is not a hotel,
restaurant, health care facility, heavy manufacturing facility, or a facility
used to store Hazardous Substances. Tenant shall not use or occupy or permit
any of the Leased Premises to be used or occupied, nor do or permit anything
to be done in or on any of the Leased Premises, in a manner which would (i)
violate any Law or Legal Requirement, (ii) make void or voidable or cause any
insurer to cancel any insurance required by this Lease, or make it difficult
or impossible to obtain any such insurance at commercially reasonable rates,
(iii) cause structural injury to any of the Improvements or (iv) constitute a
public or private nuisance or waste.
(b) Subject to the provisions hereof, so long as no
Event of Default has occurred and is continuing, Tenant shall quietly hold,
occupy and enjoy the Leased Premises throughout the Term, without any
hindrance, ejection or molestation by Landlord provided that Landlord or its
agents may enter upon and examine any of the Leased Premises at such
reasonable times and intervals as Landlord may select and upon reasonable
notice to Tenant (except in the case of an emergency, in which no notice shall
be required) for the purpose of inspecting the Leased Premises, verifying
compliance or non-compliance by Tenant with its obligations hereunder and the
existence or non-existence of an Event of Default or event which with the
passage of time and/or notice would constitute an Event of Default, showing
the Leased Premises to prospective Lenders and purchasers and taking such
other action with respect to the Leased Premises as is permitted by any
provision hereof, subject to Paragraph 37(j).
5. Term.
(a) Subject to the provisions hereof, Tenant shall
have and hold the Leased Premises for an initial term (such term, as extended
or renewed in accordance with the provisions hereof, being called the "Term")
commencing on the date hereof (the "Commencement Date") and ending on the last
day of the 180th calendar month next following the date hereof (the
"Expiration Date").
(b) Provided that if, on or prior to the Expiration
Date or any other Renewal Date (as hereinafter defined) this Lease shall not
have been terminated pursuant to any provision hereof, then on the Expiration
Date and on the fifth (5th) and tenth (10th) anniversaries of the Expiration
Date (the Expiration Date and each such anniversary being a "Renewal Date"),
the Term shall be deemed to have been automatically extended for an additional
period of five (5) years, unless Tenant shall notify Landlord in writing in
recordable form at least nine (9) months prior to the next Renewal Date that
Tenant is terminating this Lease as of the next Renewal Date. Any such
extension of the Term shall be subject to all of the provisions of this Lease,
as the same may be amended, supplemented or modified.
(c) If Tenant exercises its option not to extend or
further extend the Term, or if an Event of Default occurs and is continuing,
then Landlord shall have the right during the remainder of the Term then in
effect and, in any event, Landlord shall have the right during the last year
of the Term, to (i) advertise the availability of the Leased Premises for sale
or reletting and to erect upon the Leased Premises signs indicating such
availability and (ii) show the Leased Premises to prospective purchasers or
tenants or their agents at such reasonable times and upon reasonable notice to
Tenant as Landlord may select, subject to Paragraph 37(j).
6. Basic Rent. Tenant shall pay to Landlord, as annual
rent for the Leased Premises during the Term, the amounts determined in
accordance with Exhibit "D" hereto ("Basic Rent"). Basic Rent shall be
payable in quarterly installments, in advance commencing on April 1, 1996 and
continuing on each July 1, October 1, January 1 and April 1 thereafter (each
such day being a "Basic Rent Payment Date"), except that Basic Rent for the
period between the date hereof and April 1, 1996 shall be prorated and paid in
advance on the date hereof. Each such rental payment shall be made, at
Landlord's sole discretion, (a) to Landlord at its address set forth above
and/or to such one or more other Persons (not more than two), at such addresses
and in such proportions as Landlord may direct by fifteen (15) days' prior
written notice to Tenant (in which event Tenant shall give Landlord notice of
each such payment concurrent with the making thereof), and (b) by a check hand
delivered at least five (5) business days before or mailed at least ten (10)
days before the applicable Basic Rent Payment Date, or in Federal Funds.
7. Additional Rent.
(a) Tenant shall pay and discharge, as additional
rent (collectively, "Additional Rent"):
(i) except as otherwise specifically provided
herein, all Costs of Tenant, Landlord and any Carey Entity which are incurred
in connection or associated with (A) the ownership, use, non-use, occupancy,
possession, operation, condition, design, construction, maintenance,
alteration, repair or restoration of any of the Leased Premises, (B) the
performance of any of Tenant's obligations under this Lease, (C) any sale or
other transfer of any of the Leased Premises to Tenant under this Lease, (D)
any Condemnation proceedings, (E) the adjustment, settlement or compromise of
any insurance claims involving or arising from any of the Leased Premises, (F)
the prosecution, defense or settlement of any litigation involving or arising
from any of the Leased Premises, this Lease, or the sale of the Leased
Premises to Landlord, (G) the exercise or enforcement by Landlord, its
successors and assigns, of any of its rights under this Lease, (H) any
amendment to or modification or termination of this Lease made at the request
of Tenant, (I) Costs of Landlord's counsel and reasonable internal Costs of
Landlord incurred in connection with any act undertaken by Landlord (or its
counsel) at the request of Tenant, or incurred in connection with any act of
Landlord performed on behalf of Tenant during continuance of an Event of
Default, or incurred by Landlord (or its counsel) pursuant to the Transfer
Agreement and (J) any other items specifically required to be paid by Tenant
under this Lease;
(ii) after the date all or any portion of any
installment of Basic Rent is due and not paid, an amount equal to five percent
(5%) of the amount of such unpaid installment or portion thereof, but Landlord
shall not impose such late charge unless Basic Rent has not been paid within
five days when due at least three times during the Lease term;
(iii) a sum equal to any additional sums
(including any late charge, default penalties, interest and fees of Lender's
counsel but excluding any principal of a Loan) which are payable by Landlord to
any Lender under any Note by reason of Tenant's late payment or non-payment of
Basic Rent or by reason of an Event of Default; and
(iv) interest at the rate (the "Default Rate")
of five percent (5%) over the Prime Rate per annum on the following sums until
paid in full: (A) all overdue installments of Basic Rent from the respective
due dates thereof, (B) all overdue amounts of Additional Rent relating to
obligations which Landlord shall have paid on behalf of Tenant, from the date
of payment thereof by Landlord, and (C) all other overdue amounts of
Additional Rent, within 5 days following written demand from Landlord to Tenant
for payment of such amount.
(b) Tenant shall pay and discharge (i) any
Additional Rent referred to in Paragraph 7(a)(i) when the same shall become
due, provided that amounts which are billed to Landlord or any third party,
but not to Tenant, shall be paid within five (5) business days after receipt
by Tenant of Landlord's written demand for payment thereof, and (ii) any other
Additional Rent, within five (5) days after receipt by Tenant of Landlord's
written demand for payment thereof.
(c) In no event shall amounts payable under
Paragraph 7(a)(ii), (iii) and (iv) exceed the maximum amount permitted by
applicable Law.
(d) Notwithstanding the foregoing, Tenant shall not
be responsible for payment of any Costs of Landlord or any Carey Entity which
result from acts of Landlord or any Carey Entity constituting gross
negligence, willful misconduct or Landlord's breach of this Lease.
8. Net Lease; Non-Terminability.
(a) This is a net lease and all Monetary Obligations
shall be paid without notice or demand and without set-off, counterclaim,
recoupment, abatement, suspension, deferment, diminution, deduction, reduction
or defense (collectively, a "Set-Off").
(b) Except as otherwise expressly provided herein,
this Lease and the rights of Landlord and the obligations of Tenant hereunder
shall not be affected by any event or for any reason, including the following:
(i) any damage to or theft, loss or destruction of any of the Leased Premises,
(ii) any Condemnation, (iii) Tenant's acquisition of ownership of any of the
Leased Premises other than pursuant to an express provision of this Lease,
(iv) any default on the part of Landlord hereunder or under any Note,
Mortgage, Assignment or any other agreement, (v) any latent or other defect in
any of the Leased Premises, (vi) the breach of any warranty of any seller or
manufacturer of any of the Equipment, (vii) any violation of any provision of
this Lease by Landlord, (viii) the bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution or winding-up of, or other
proceeding affecting Landlord, (ix) the exercise of any remedy, including
foreclosure, under any Mortgage or Assignment, (x) any action with respect to
this Lease (including the disaffirmance hereof) which may be taken by
Landlord, any trustee, receiver or liquidator of Landlord or any court under
the Federal Bankruptcy Code or otherwise, (xi) any interference with Tenant's
use of the Leased Premises, (xii) market or economic changes or (xiii) any
other cause, whether similar or dissimilar to the foregoing, any present or
future Law to the contrary notwithstanding. Nothing herein shall, however,
prevent Tenant from seeking injunctive relief or damages against Landlord if
Landlord breaches its obligations under Paragraph 4(b).
(c) The obligations of Tenant hereunder shall be
separate and independent covenants and agreements, all Monetary Obligations
shall continue to be payable in all events (or, in lieu thereof, Tenant shall
pay amounts equal thereto), and the obligations of Tenant hereunder shall
continue unaffected unless the requirement to pay or perform the same shall
have been terminated pursuant to an express provision of this Lease. The
obligation to pay Rent or amounts equal thereto shall not be affected by any
collection of rents by any governmental body pursuant to a tax lien or
otherwise resulting from Tenant's failure to pay any Imposition, even though
such obligation results in a double payment of Rent. All Rent payable by
Tenant hereunder shall constitute "rent" for all purposes (including Section
502(b)(6) of the Bankruptcy Code).
(d) Except as otherwise expressly provided herein,
Tenant shall have no right and hereby waives all rights which it may have
under any Law (to the extent permitted by applicable law) (i) to quit,
terminate or surrender this Lease or any of the Leased Premises, or (ii) to
any Set-Off of any Monetary Obligations.
9. Payment of Impositions.
(a) Tenant shall, before interest or penalties are
due thereon, pay and discharge all taxes (including real and personal
property, franchise, sales, use or rent taxes), all charges for any easement
or agreement maintained for the benefit of any of the Leased Premises, all
assessments and levies, all permit, inspection and license fees, all rents and
charges for water, sewer, utility and communication services relating to the
any of Leased Premises, all ground rents and all other public charges whether
of a like or different nature, even if unforeseen or extraordinary, imposed
upon or assessed against (i) Tenant, (ii) Tenant's leasehold interest in the
Leased Premises, (iii) any of the Leased Premises, (iv) Landlord as a result
of or arising in respect of the acquisition, ownership, occupancy, leasing,
use, possession or sale of any of the Leased Premises, any activity conducted
on any of the Leased Premises, or the Rent, or (v) any Lender by reason of any
Note, Mortgage, Assignment or other document evidencing or securing a Loan and
which (as to this clause (v)) Landlord has agreed to pay (collectively, the
"Impositions"); provided, that nothing herein shall obligate Tenant to pay (A)
income, excess profits or other taxes of Landlord (or Lender) which are
determined on the basis of Landlord's (or Lender's) net income or net worth
(unless such taxes are in lieu of or a substitute for any other tax,
assessment or other charge upon or with respect to the Leased Premises which,
if it were in effect, would be payable by Tenant under the provisions hereof
or by the terms of such tax, assessment or other charge), (B) any estate,
inheritance, succession, gift or similar tax imposed on Landlord, or (C) any
tax imposed on Landlord in connection with the sale of the Leased Premises to
any Person (excluding transfer or recording taxes payable in connection with a
sale to Tenant of the Leased Premises, which taxes shall be paid by Tenant).
If any Imposition may be paid in installments without interest or penalty,
Tenant shall have the option to pay such Imposition in installments; in such
event, Tenant shall be liable only for those installments which accrue or
become due and payable during the Term. Tenant shall prepare and file all tax
reports required by governmental authorities which relate to the Impositions.
Tenant shall deliver to Landlord (1) copies of all settlements and notices
pertaining to the Impositions which may be issued by any governmental
authority within ten (10) days after Tenant's receipt thereof, (2) receipts
for payment of all taxes required to be paid by Tenant hereunder within thirty
(30) days after the due date thereof and (3) receipts for payment of all other
Impositions within ten (10) days after Landlord's request therefor.
Notwithstanding any provision herein to the contrary, the
Tenant shall be entitled to the benefits of all tax abatements and other
incentives available with respect to the Leased Premises, and the Landlord
agrees to cooperate with the Tenant, at Tenant's expense, in connection with
any filing, report, application or similar action taken by Tenant related
thereto.
(b) Landlord shall have the right at any time (but
only if a Lender so requires or if an Event of Default has occurred and is
continuing) to require Tenant to pay to Landlord an additional monthly sum
(each an "Escrow Payment") sufficient to pay the Escrow Charges (as
hereinafter defined) as they become due. As used herein, "Escrow Charges"
shall mean real estate taxes on the Leased Premises or payments in lieu
thereof and premiums on any insurance required by this Lease. Landlord shall
determine the amount of the Escrow Charges and of each Escrow Payment. As
long as the Escrow Payments are being held by Landlord the Escrow Payments
shall not be commingled with other funds of Landlord or other Persons and
interest thereon shall accrue for the benefit of Tenant from the date such
monies are received and invested until the date such monies are disbursed to
pay Escrow Charges. Landlord shall apply the Escrow Payments to the payment
of the Escrow Charges in such order or priority as Landlord shall determine or
as required by law. If at any time the Escrow Payments theretofore paid to
Landlord shall be insufficient for the payment of the Escrow Charges, Tenant,
within ten (10) days after Landlord's demand therefor, shall pay the amount of
the deficiency to Landlord.
10. Compliance with Laws and Easement Agreements;
Environmental Matters.
(a) Tenant shall, at its expense, comply with and
conform to, and cause any other Person occupying any part of the Leased
Premises to comply with and conform to, all Insurance Requirements and Legal
Requirements (including all applicable Environmental Laws). Subject to
Paragraph 10(g), Tenant shall not at any time (i) cause, permit or suffer to
occur any Environmental Violation or (ii) permit any sublessee, assignee or
other Person occupying the Leased Premises under or through Tenant to cause,
permit or suffer to occur any Environmental Violation.
(b) Tenant, at its sole cost and expense, will at
all times promptly and faithfully abide by, discharge and perform all of the
covenants, conditions and agreements contained in any Easement Agreement on
the part of Landlord or the occupier to be kept and performed thereunder.
Tenant will not alter, modify, amend or terminate any Easement Agreement, give
any consent or approval thereunder, or enter into any new Easement Agreement
without, in each case, the prior written consent of Landlord.
(c) Not more frequently then once every year and at
any other time that, in the opinion of Landlord or Lender, a reasonable basis
exists to believe that an Environmental Violation exists, and upon prior
written notice from Landlord, Tenant shall permit such persons as Landlord may
designate ("Site Reviewers") to visit the Leased Premises and perform, as
agents of Tenant, environmental site investigations and assessments ("Site
Assessments") on the Leased Premises for the purpose of determining whether
there exists on the Leased Premises any Environmental Violation or any
condition which is reasonably likely to result in any Environmental Violation.
Such Site Assessments may include both above and below the ground testing for
Environmental Violations and such other tests as may be necessary, in the
opinion of the Site Reviewers, to conduct the Site Assessments. Tenant shall
supply to the Site Reviewers such available or existing historical and
operational information regarding the Leased Premises as may be reasonably
requested by the Site Reviewers to facilitate the Site Assessments, and shall
make available for meetings with the Site Reviewers appropriate personnel
having knowledge of such matters. The cost of performing and reporting any
Site Assessments shall be paid by Tenant (a) once every three years, or (b)
not more than once per year if a Lender so requests, or (c) if the Site
Assessment discloses an Environmental Violation or any condition which is
reasonably likely to result in an Environmental Violation.
(d) If an Environmental Violation occurs or is found
to exist and, in Landlord's reasonable judgment, the cost of remediation of the
same is likely to exceed $150,000, Tenant shall provide to Landlord, within
ten (10) days after Landlord's request therefor, adequate financial assurances
that Tenant will effect such remediation in accordance with applicable
Environmental Laws. Such financial assurances shall be a bond or letter of
credit reasonably satisfactory to Landlord in form and substance and in an
amount equal to or greater than Landlord's reasonable estimate, based upon a
Site Assessment performed pursuant to Paragraph 10(c), of the anticipated cost
of such remedial action.
(e) Notwithstanding any other provision of this
Lease, if an Environmental Violation occurs or is found to exist and the Term
would otherwise terminate or expire, and Landlord is unable to sell or lease
the Leased Premises due solely to such Environmental Violation, then, at the
option of Landlord, the Term shall be automatically extended beyond the date
of termination or expiration and this Lease shall remain in full force and
effect beyond such date until the earlier to occur of (i) the completion of
all remedial action in accordance with applicable Environmental Laws or (ii)
the date specified in a written notice from Landlord to Tenant terminating this
Lease.
(f) If, after being requested to do so, Tenant fails
to make diligent efforts to correct, or to contest as provided in Section
10(g) below, any Environmental Violation which occurs or is found to exist,
Landlord shall have the right (but no obligation) to take any and all actions
as Landlord shall deem reasonably necessary or advisable in order to cure such
Environmental Violation. In exercising any such rights, Landlord shall use
reasonable efforts to minimize interference with the Tenant's or any
subtenant's business.
(g) Tenant shall notify Landlord within 5 business
days after becoming aware of any Environmental Violation (or alleged
Environmental Violation) or noncompliance with any of the covenants contained
in this Paragraph 10 and shall forward to Landlord within 5 business days
following receipt thereof copies of all orders, reports, notices, permits,
applications or other communications relating to any such violation or
noncompliance.
(h) All future leases, subleases or concession
agreements relating to the Leased Premises entered into by Tenant shall
contain covenants of the other party with respect to Environmental matters
similar to those herein, including a covenant to not at any time cause any
Environmental Violation to occur.
11. Liens; Recording.
(a) Tenant shall not, directly or indirectly, create
or permit to be created or to remain and shall promptly discharge or remove
any lien, levy or encumbrance on any of the Leased Premises or on any Rent or
any other sums payable by Tenant under this Lease, other than any Mortgage or
Assignment, the Permitted Encumbrances and any mortgage, lien, encumbrance or
other charge created by or resulting solely from any act or omission of
Landlord. NOTICE IS HEREBY GIVEN THAT LANDLORD SHALL NOT BE LIABLE FOR ANY
LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO TENANT OR TO
ANYONE HOLDING OR OCCUPYING ANY OF THE LEASED PREMISES THROUGH OR UNDER
TENANT, AND THAT NO MECHANICS' OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR
MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN AND TO ANY OF
THE LEASED PREMISES. LANDLORD MAY AT ANY TIME, AND AT LANDLORD'S REQUEST
TENANT SHALL PROMPTLY, POST ANY NOTICES ON THE LEASED PREMISES REGARDING SUCH
NON-LIABILITY OF LANDLORD.
(b) Tenant shall execute, deliver and record, file
or register (collectively, "record") all such instruments as may be required
or permitted by any present or future Law in order to evidence the respective
interests of Landlord and Tenant in the Leased Premises, and shall cause a
memorandum of this Lease (or, if such a memorandum cannot be recorded, this
Lease), and any supplement hereto or thereto, to be recorded in such manner
and in such places as may be required or permitted by any present or future
Law in order to protect the validity and priority of this Lease.
12. Maintenance and Repair.
(a) Tenant shall at all times maintain the Leased
Premises in as good condition, repair and appearance as they are in on the
date hereof and fit to be used for their intended use in accordance with the
better of the practices generally recognized as then acceptable by other
companies in its industry or observed by Tenant with respect to the other real
properties owned or operated by it, except for ordinary wear and tear and, in
the case of the Equipment, in as good mechanical condition as it was on the
later of the date hereof or the date of its installation, except for ordinary
wear and tear. Tenant shall take every other action reasonably necessary or
appropriate for the preservation and safety of the Leased Premises. Tenant
shall promptly make all Alterations of every kind and nature, whether foreseen
or unforeseen, which may be required to comply with the foregoing requirements
of this Paragraph 12(a). Landlord shall not be required to make any
Alteration, whether foreseen or unforeseen, or to maintain any of the Leased
Premises in any way, and Tenant hereby expressly waives (to the extent
permitted by applicable law) any right which may be provided for in any Law
now or hereafter in effect to make Alterations at the expense of Landlord or to
require Landlord to make Alterations. Any Alteration made by Tenant pursuant
to this Paragraph 12 shall be made in conformity with the provisions of
Paragraph 13.
(b) If any Improvement, now or hereafter
constructed, shall (i) encroach upon any setback or any property, street or
right-of-way adjoining the Leased Premises, (ii) violate the provisions of any
restrictive covenant affecting the Leased Premises, (iii) hinder or obstruct
any easement or right-of-way to which any of the Leased Premises is subject or
(iv) impair the rights of others in, to or under any of the foregoing, Tenant
shall, promptly after receiving notice or otherwise acquiring knowledge
thereof, either (A) obtain from all necessary parties waivers or settlements
of all claims, liabilities and damages resulting from each such encroachment,
violation, hindrance, obstruction or impairment, whether the same shall affect
Landlord, Tenant or both, or (B) take such action as shall be necessary to
remove all such encroachments, hindrances or obstructions and to end all such
violations or impairments, including, if necessary, making Alterations.
13. Alterations and Improvements.
(a) Tenant shall have the right, without having
obtained the prior written consent of Landlord and Lender, to make (i)
Alterations or a series of related Alterations that, as to any such
Alterations or series of related Alterations, do not cost in excess of
$100,000 in the aggregate, and (ii) to install Equipment in the Improvements
or accessions to the Equipment, so long as at the time of construction or
installation of any such Equipment or Alterations no Event of Default exists
and the value and utility of the Leased Premises is not diminished thereby.
If the cost of any Alterations, or series of related Alterations, is in excess
of $100,000, or if an Equipment is installed other than in the manner in
clause (ii) of the immediately preceding sentence, the prior written approval
of Landlord shall be required, such approval not to be unreasonably withheld,
delayed or conditioned. Tenant shall not construct upon the Land any
additional free standing buildings without having first obtained the prior
written consent of Landlord and Lender. The rights granted to Tenant in this
paragraph 13 are in addition to rights of Tenant under Paragraph 36.
(b) If Tenant makes any Alterations pursuant to this
Paragraph 13 or as required by Paragraph 12 or 17 (such Alterations and
actions being hereinafter collectively referred to as "Work"), whether or not
Landlord's consent is required, then (i) the market value of the Leased
Premises shall not be lessened by any such Work or its usefulness impaired,
(ii) all such Work shall be performed by Tenant in a good and workmanlike
manner, (iii) all such Work shall be expeditiously completed in compliance
with all Legal Requirements, (iv) all such Work shall comply with the
Insurance Requirements, (v) if any such Work involves the replacement of
Equipment or parts thereto, all replacement Equipment or parts shall have a
value and useful life equal to the greater of (A) the value and useful life on
the date hereof of the Equipment being replaced or (B) the value and useful
life of the Equipment being replaced immediately prior to the occurrence of
the event which required its replacement, (vi) Tenant shall promptly discharge
or remove all liens filed against any of the Leased Premises arising out of
such Work, (vii) Tenant shall procure and pay for all permits and licenses
required in connection with any such Work, (viii) all such Work shall be the
property of Landlord and shall be subject to this Lease, and Tenant shall
execute and deliver to Landlord any document requested by Landlord evidencing
the assignment to Landlord of all estate, right, title and interest (other
than the leasehold estate created hereby) of Tenant or any other Person
thereto or therein, and (ix) Tenant shall comply, to the extent requested by
Landlord or required by this Lease, with the provisions of Paragraph 19(a),
whether or not such Work involves restoration of the Leased Premises.
14. Permitted Contests. Notwithstanding any other
provision of this Lease, Tenant shall not be required to (a) pay any
Imposition, (b) discharge or remove any lien referred to in Paragraph 11 or 13
or cure any Environmental Violation, (c) take any action with respect to any
encroachment, violation, hindrance, obstruction or impairment referred to in
Paragraph 12(b), or (d) comply with any applicable Legal Requirement or
Insurance Requirement (such non-compliance with the terms hereof being
hereinafter referred to collectively as "Permitted Violations"), so long as no
Event of Default then exists and so long as Tenant shall contest, in good
faith, the existence, amount or validity thereof, the amount of the damages
caused thereby, or the extent of its or Landlord's liability therefor by
appropriate proceedings which shall operate during the pendency thereof to
prevent or stay (i) the collection of, or other realization upon, the
Permitted Violation so contested, (ii) the sale, forfeiture or loss of any of
the Leased Premises or any Rent to satisfy or to pay any damages caused by any
Permitted Violation, (iii) any interference with the use or occupancy of any
of the Leased Premises, (iv) any interference with the payment of any Rent,
(v) the cancellation or increase in the rate of any insurance policy or a
statement by the carrier that coverage will be denied, (vi) the enforcement or
execution of any injunction, order or Legal Requirement with respect to the
Permitted Violation, or (vii) any default (beyond any applicable grace or
notice period) under any Mortgage or other document securing any Loan relating
to such Permitted Violation, or (viii) with respect to the contest of any
Environmental Violation, such contest would not allow any continuing discharge,
leakage or release of any Hazardous Substance. Tenant shall (if the cost of
correcting the Permitted Violation is reasonably expected to exceed $50,000)
provide Landlord security which is satisfactory, in Landlord's reasonable
judgment, to assure that such Permitted Violation is corrected, including all
Costs, interest and penalties that may be incurred or become due in connection
therewith. While any proceedings which comply with the requirements of this
Paragraph 14 are pending and the required security is held by Landlord,
Landlord shall not have the right to correct any Permitted Violation thereby
being contested unless Landlord is required by law to correct such Permitted
Violation and Tenant's contest does not prevent or stay such requirement as to
Landlord. Each such contest shall be promptly and diligently prosecuted by
Tenant to a final conclusion, settlement or compromise, except that Tenant, so
long as the conditions of this Paragraph 14 are at all times complied with,
has the right to attempt to settle or compromise such contest through
negotiations. Tenant shall pay any and all losses, judgments, decrees and
Costs in connection with any such contest and shall, promptly after the final
determination of such contest, fully pay and discharge the amounts which shall
be levied, assessed, charged or imposed or be determined to be payable therein
or in connection therewith, together with all penalties, fines, interest and
Costs thereof or in connection therewith, and perform all acts the performance
of which shall be ordered or decreed as a result thereof. No such contest
shall subject Landlord to the risk of any civil or criminal liability.
Landlord shall cooperate with Tenant, at Tenant's expense,
in connection with the contest of any Permitted Violation, and Landlord shall
execute all documentation reasonably necessary in connection therewith.
15. Indemnification.
(a) Tenant shall pay, protect, indemnify, defend,
save and hold harmless Landlord, Lender and the Carey Entities (each an
"Indemnitee") from and against any and all liabilities, losses, damages
(including punitive damages), penalties, Costs (including attorneys' fees and
costs), causes of action, suits, claims, demands or judgments of any nature
whatsoever, howsoever caused, without regard to the form of action and whether
based on strict liability, negligence or any other theory of recovery at law
or in equity (each a "Claim"), arising from (i) any matter pertaining to the
acquisition, use, non-use, occupancy, operation, condition, design,
construction, maintenance, repair or restoration of the Leased Premises, (ii)
any casualty in any manner arising from the Leased Premises, whether or not
Indemnitee has or should have knowledge or notice of any defect or condition
causing or contributing to said casualty, (iii) any Event of Default, any
contract or agreement to which Tenant is a party, any Legal Requirement or any
Permitted Encumbrance or (iv) any alleged, threatened or actual Environmental
Violation, including (A) liability for response costs and for costs of removal
and remedial action incurred by the United States Government, any state or
local governmental unit or any other Person, or damages from injury to or
destruction or loss of natural resources, including the reasonable costs of
assessing such injury, destruction or loss, incurred pursuant to Section 107
of CERCLA, or any successor section or act or provision of any similar state
or local Law, (B) liability for costs and expenses of abatement, correction or
clean-up, fines, damages, response costs or penalties which arise from the
provisions of any of the other Environmental Laws and (C) liability for
personal injury or property damage arising under any statutory or common-law
tort theory, including damages assessed for the maintenance of a public or
private nuisance or for carrying on of a dangerous activity; provided that
this indemnification, defense and hold harmless agreement shall not apply to
any Claim to the extent arising out of (x) the acts of any Indemnitee
constituting gross negligence, breach of this Lease or willful misconduct or
(y) any Environmental Violation which occurs due to an act or omission of a
party other than Tenant arising or occurring after the date of expiration or
termination of this Lease.
(b) In case any action or proceeding is brought
against any Indemnitee by reason of any such claim, (i) Tenant may, except in
the event of a conflict of interest or a dispute between Tenant and any such
Indemnitee or during the continuance of an Event of Default, retain its own
counsel and defend such action (it being understood that Landlord may employ
counsel of its choice to monitor the defense of any such action) and (ii) such
Indemnitee shall notify Tenant to resist or defend such action or proceeding by
retaining counsel reasonably satisfactory to such Indemnitee (or to the
insurer in the event of, or to the extent of, an insured Claim), and such
Indemnitee will cooperate and assist in the defense of such action or
proceeding if reasonably requested so to do by Tenant.
(c) The obligations of Tenant under this Paragraph
15 shall survive any rejection in bankruptcy of this Lease or any termination
of expiration of this Lease.
16. Insurance.
(a) Tenant shall maintain the following insurance on
or in connection with the Leased Premises:
(i) Insurance against physical loss or damage
to the Improvements and Equipment as provided under a standard fire and
extended coverage property policy including but not limited to flood (if the
Leased Premises is in a flood zone) in amounts not less than the actual
replacement cost of the Improvements and Equipment. Such policies shall
contain replacement cost and agreed amount endorsements and shall contain
deductibles not more than $10,000 per occurrence.
(ii) Commercial general liability insurance
against claims for personal and bodily injury, death or property damage
occurring on, in or as a result of the use of the Leased Premises, in an
amount not less than $15,000,000 per occurrence/annual aggregate including but
not limited to garagekeepers liability, non-owned and hired automobile
liability and all other coverage extensions that are usual and customary for
properties of this size and type provided, however, that the Landlord shall
have the right to require such higher limits as may be reasonable and
customary for properties of this size and type in similar locations.
(iii) Workers' compensation insurance covering
all persons employed by Tenant in connection with any work done on or about
any of the Leased Premises for which claims for death, disease or bodily
injury may be asserted against Landlord, Tenant or any of the Leased Premises
or, in lieu of such Worker's Compensation Insurance, a program of
self-insurance complying with the rules, regulations and requirements of the
appropriate agency of the State.
(iv) If there is ever a boiler contained on the
Leased Premises, comprehensive boiler and machinery insurance on any of the
Equipment or any other equipment on or in the Leased Premises including but
not limited to service interruption, expediting expenses, ammonia
contamination, hazardous clean-up and comprehensive object definition, in an
amount not less than $1,000,000 for damage to property, bodily injury or death
resulting from such covered perils as found in a standard comprehensive boiler
& machinery policy. Such policies may contain a deductible not in excess of
$5,000.
(v) Loss of rents insurance on an actual loss
sustained basis with a period of indemnity not less than one year from the
time of loss. Such insurance shall name Landlord and Lender as "loss payee"
solely with respect to Rent payable to or for the benefit of Landlord under
this Lease.
(vi) During any period in which substantial
Alterations at the Leased Premises are being undertaken, builder's risk
insurance covering the total completed value (on a completed value,
non-reporting basis), replacement cost of work performed and equipment,
supplies and materials furnished in connection with such construction or
repair of Improvements or Equipment, and general liability, worker's
compensation and automobile liability insurance with respect to the
Improvements being constructed, altered or repaired.
(vii) Such other insurance (or other terms with
respect to any insurance required pursuant to this Paragraph 16, including
without limitation amounts of coverage, deductibles, form of mortgagee clause)
on or in connection with any of the Leased Premises as Landlord or Lender may
reasonably require, which at the time is usual and commonly obtained in
connection with properties similar in type of building size, use and location
to the Leased Premises.
(b) The insurance required by Paragraph 16(a) shall
be written by companies which have a Best's rating of A:X or above and are
admitted in, and approved to write insurance policies by, the State Insurance
Department for the State. The insurance policies (i) shall be for such terms
as Landlord may reasonably approve and (ii) shall be in amounts sufficient at
all times to satisfy any coinsurance requirements thereof. The insurance
referred to in Paragraphs 16(a)(i), 16(a)(iv) and 16(a)(vi) shall name
Landlord as the insured owner and sole loss payee (unless Landlord elects to
have Lender designated as sole loss payee). The insurance referred to in
Paragraph 16(a)(ii) shall name Landlord and Lender as additional insureds, and
the insurance referred to in Paragraph 16(a)(v) shall name Landlord as sole
loss payee (unless Landlord elects to have Lender designated as sole loss
payee). If said insurance or any part thereof shall expire, be withdrawn,
become void or voidable for any reason, including a breach of any condition
thereof by Tenant or the failure or impairment of the capital of any insurer,
Tenant shall immediately obtain new or additional insurance reasonably
satisfactory to Landlord.
(c) Each insurance policy referred to in clauses
(i), (iv), (v) and (vi) of Paragraph 16(a) shall contain standard
non-contributory mortgagee clauses in favor of and acceptable to Lender. Each
policy required by any provision of Paragraph 16(a), except clause (iii)
thereof, shall provide that it may not be canceled except after thirty (30)
days' prior notice to Landlord and Lender. Each such policy shall also
provide that any loss otherwise payable thereunder shall be payable
notwithstanding (i) any act or omission of Landlord or Tenant which might,
absent such provision, result in a forfeiture of all or a part of such
insurance payment, (ii) the occupation or use of any of the Leased Premises
for purposes more hazardous than those permitted by the provisions of such
policy, (iii) any foreclosure or other action or proceeding taken by Lender
pursuant to any provision of the Mortgage, Note, Assignment or other document
evidencing or securing the Loan upon the happening of an event of default
therein or (iv) any change in title to or ownership of any of the Leased
Premises.
(d) Tenant shall pay as they become due all premiums
for the insurance required by Paragraph 16(a), shall renew or replace each
policy and deliver to Landlord evidence of the payment of the full premium
therefor or installment then due at least 30 days prior to the expiration date
of such policy, and shall promptly deliver to Landlord duplicate originals of
all policies.
(e) Anything in this Paragraph 16 to the contrary
notwithstanding, any insurance which Tenant is required to obtain pursuant to
Paragraph 16(a) may be carried under a "blanket" or umbrella policy or
policies covering other properties or liabilities of Tenant, provided that
such "blanket" or umbrella policy or policies otherwise comply with the
provisions of this Paragraph 16 and provided further that such policies shall
provide for a reserved amount thereunder with respect to the Leased Premises
so as to assure that the amount of insurance required by this Paragraph 16
will be available notwithstanding any losses with respect to other property
covered by such blanket policies. The amount of the total insurance allocated
to the Leased Premises, which amount shall be not less than the amounts
required pursuant to this Paragraph 16, shall be specified either (i) in each
such "blanket" or umbrella policy or (ii) in a written statement, which Tenant
shall deliver to Landlord, from the insurer thereunder. The original or a
certified copy of each such "blanket" or umbrella policy shall promptly be
delivered to Landlord.
(f) Tenant shall promptly comply with and conform to
(i) all provisions of each insurance policy required by this Paragraph 16 and
(ii) all requirements of the insurers thereunder applicable to Landlord,
Tenant or any of the Leased Premises or to the use, manner of use, occupancy,
possession, operation, maintenance, alteration or repair of any of the Leased
Premises, even if such compliance necessitates Alterations or results in
interference with the use or enjoyment of any of the Leased Premises.
(g) Tenant shall not carry separate insurance
concurrent in form or contributing in the event of a Casualty with that
required in this Paragraph 16 unless (i) Landlord and Lender are included
therein as named insureds, with loss payable as provided herein, and (ii) such
separate insurance complies with the other provisions of this Paragraph 16.
Tenant shall immediately notify Landlord of such separate insurance and shall
deliver to Landlord duplicate originals of the policies therefor.
(h) All policies shall contain effective waivers by
the carrier against all claims for insurance premiums against Landlord and
shall contain full waivers of subrogation against the Landlord and Tenant.
(i) Each insurer is hereby authorized and directed
to make payment under any insurance described in clauses (i), (iv), (v) and
(vi) of Paragraph 16(a), including return of unearned premiums, directly to
Landlord or, if required by the Mortgage, to Lender instead of to Landlord and
Tenant jointly, and Tenant hereby appoints each of Landlord and Lender as
Tenant's attorneys-in-fact to endorse any draft therefor (it being understood,
however, that in all cases other than a payment or adjustment under any
insurance policy in connection with an insured loss, unearned premiums shall
be returned to Tenant).
17. Casualty and Condemnation.
(a) If any Casualty to the Leased Premises occurs,
Tenant shall give Landlord and Lender immediate notice thereof. So long as no
Event of Default exists and is continuing Tenant is hereby authorized (subject
to the next sentence) to adjust, collect and compromise all claims under any
of the insurance policies required by Paragraph 16(a) (except public liability
insurance claims made by Landlord or Lender) and to execute and deliver all
necessary proofs of loss, receipts, vouchers and releases required by the
insurers and Landlord shall join with Tenant therein if the insurers so
require. Any final adjustment, settlement or compromise of any such claim
shall be subject to the prior written approval of Landlord, which shall not be
unreasonably withheld, conditioned or delayed, and Landlord shall have the
right to prosecute or contest, or to require Tenant to prosecute or contest,
any such claim, adjustment, settlement or compromise. If an Event of Default
exists and is continuing, Tenant shall not be entitled to adjust, collect or
compromise any such claim or to participate with Landlord in any adjustment,
collection and compromise of the Net Award payable in connection with a
Casualty. Tenant agrees to sign, upon the request of Landlord, all such
proofs of loss, receipts, vouchers and releases. Each insurer is hereby
authorized and directed to make payment under said policies, including return
of unearned premiums, directly to Landlord or, if required by the Mortgage,
to Lender instead of to Landlord and Tenant jointly, and Tenant hereby
appoints each of Landlord and Lender as Tenant's attorneys-in-fact to endorse
any draft therefor. The rights of Landlord under this Paragraph 17(a) shall
be extended to Lender if and to the extent that any Mortgage so provides.
(b) Tenant, immediately upon receiving a
Condemnation Notice, shall notify Landlord and Lender thereof. So long as no
Event of Default exists and is continuing, Tenant is (subject to the next
sentence), authorized to collect, settle and compromise the amount of any Net
Award and Landlord shall have the right to join with Tenant therein. No
agreement with any condemnor in settlement or under threat of any Condemnation
shall be made by Tenant without the written consent of Landlord which shall
not be unreasonably withheld, conditioned or delayed. If an Event of Default
exists and is continuing, Landlord shall be authorized to collect, settle and
compromise the amount of any Net Award and Tenant shall not be entitled to
participate with Landlord in any Condemnation proceeding or negotiations under
threat thereof or to contest the Condemnation or the amount of the Net Award
therefor (but upon request of Tenant, Tenant shall receive information from
Landlord concerning the status of any such proceeding or negotiations).
Subject to the provisions of this Paragraph 17(b), Tenant hereby irrevocably
assigns to Landlord any award or payment to which Tenant is or may be entitled
by reason of any Condemnation, whether the same shall be paid or payable for
Tenant's leasehold interest hereunder; but nothing in this Lease shall impair
Tenant's right to any award or payment on account of Tenant's trade fixtures,
equipment or other tangible property which is not part of the Equipment,
moving expenses or loss of business, if available, to the extent that and so
long as (i) Tenant shall have the right to make, and does make, a separate
claim therefor against the condemnor and (ii) such claim does not in any way
reduce either the amount of the Net Award or the amount of the award (if any)
otherwise payable for the Condemnation of Tenant's leasehold interest
hereunder. The rights of Landlord under this Paragraph 17(b) shall also be
extended to Lender if and to the extent that any Mortgage so provides.
(c) If any Partial Casualty (whether or not insured
against) or Partial Condemnation shall occur, this Lease shall continue,
notwithstanding such event, and there shall be no abatement or reduction of
any Monetary Obligations. Promptly after such Partial Casualty or Partial
Condemnation, Tenant, as required in Paragraph 12(a), shall commence and
diligently continue to restore the Leased Premises as nearly as possible to
their value, condition and character immediately prior to such event (assuming
the Leased Premises to have been in condition required by this Lease). So
long as no Event of Default exists and is continuing, any Net Award up to and
including $100,000 shall be paid by Landlord to Tenant and Tenant shall
restore the Leased Premises in accordance with the requirements of Paragraph
13(b) of this Lease. Any Net Award in excess of $100,000 shall (unless such
Casualty or Condemnation resulting in the Net Award is a Termination Event) be
made available by Landlord (or Lender, if required by the terms of any
Mortgage) to Tenant for the restoration of any of the Leased Premises pursuant
to and in accordance with the provisions of Paragraph 19 hereof. If any
Casualty or Condemnation which is not a Partial Casualty or Partial
Condemnation shall occur, Tenant shall comply with the terms and conditions of
Paragraph 18. So long as Tenant has maintained the insurance required by this
Lease and the insurer does not refuse to pay insurance proceeds due to any act
or omission of Tenant, Tenant shall not be obligated to commence restoration
of the Leased Premises following an insured Casualty unless the Net Award is
made available to Landlord, and Landlord makes such Net Award available to
Tenant, pursuant to Paragraph 19.
18. Termination Events.
(a) If (i) the entire Leased Premises shall be taken
by a Taking or (ii) any substantial portion of the Leased Premises shall be
taken by a Taking or all or any substantial portion of the Leased Premises
shall be damaged or destroyed by a Casualty and, in such case, Tenant
certifies and covenants to Landlord that it will forever abandon operations at
the Leased Premises as Tenant's primary office and distribution center (each
of the events described in the above clauses (i) and (ii) shall hereinafter be
referred to as a "Termination Event"), then (x) in the case of (i) above,
Tenant shall be obligated, within thirty (30) days after Tenant receives a
Condemnation Notice and (y) in the case of (ii) above, Tenant shall have the
option, within thirty (30) days after Tenant receives a Condemnation Notice or
thirty (30) days after the Casualty, as the case may be, to give to Landlord
written notice of the Tenant's option to terminate this Lease (a "Termination
Notice") in the form described in Paragraph 18(b).
(b) A Termination Notice shall contain (i) notice of
Tenant's intention to terminate this Lease on the first Basic Rent Payment
Date which occurs on a date selected by Tenant which is at least thirty (30)
days, but no more than 180 days, after the Fair Market Value Date (the
"Termination Date"), (ii) a binding and irrevocable offer of Tenant to pay to
Landlord the Termination Amount on the Termination Date and (iii) if the
Termination Event is an event described in Paragraph 18(a)(ii), the
certification and covenants described therein and a certified resolution of
the Board of Directors of Tenant authorizing the same. Promptly upon the
delivery to Landlord of a Termination Notice, Landlord and Tenant shall
commence to determine the Fair Market Value in accordance with Paragraph 29
below.
(c) If Landlord shall reject such offer to terminate
this Lease by written notice to Tenant (a "Rejection"), which Rejection shall
contain the written consent of Lender, not later than thirty (30) days
following the Fair Market Value Date, then this Lease shall terminate on the
Termination Date; provided that, if Tenant has not satisfied all Monetary
Obligations and all other obligations and liabilities under this Lease which
have arisen on or prior to the Termination Date (collectively, "Remaining
Obligations") on the Termination Date, then Landlord may, at its option,
extend the date on which this Lease may terminate to a date which is no later
than the first Basic Rent Payment Date after the Termination Date on which
Tenant has satisfied all Remaining Obligations. Upon such termination (i) all
obligations of Tenant hereunder shall terminate except for any Surviving
Obligations, (ii) Tenant shall immediately vacate and shall have no further
right, title or interest in or to any of the Leased Premises and (iii) the Net
Award shall be retained by Landlord. Notwithstanding anything to the contrary
hereinabove contained, if Tenant shall have received a Rejection and, on the
date when this Lease would otherwise terminate as provided above, Landlord
shall not have received the full amount of the Net Award payable by reason of
the applicable Termination Event, then the date on which this Lease is to
terminate automatically shall be extended to the first Basic Rent Payment Date
after the receipt by Landlord of the full amount of the Net Award provided
that, if Tenant has not satisfied all Remaining Obligations on such date, then
Landlord may, at its option, extend the date on which this Lease may terminate
to a date which is no later than the first Basic Rent Payment Date after such
date on which Tenant has satisfied all such Remaining Obligations.
(d) Unless Tenant shall have received a Rejection
not later than the thirtieth (30th) day following the Fair Market Value Date,
Landlord shall be conclusively presumed to have accepted such offer. If such
offer is accepted by Landlord then, on the Termination Date, Tenant shall pay
to Landlord the Termination Amount and all Remaining Obligations and, if
requested by Tenant, Landlord shall (i) convey to Tenant or its designee the
Leased Premises or the remaining portion thereof, if any, and (ii) pay to or
assign to Tenant Landlord's entire interest in and to the Net Award, all in
accordance with Paragraph 20.
19. Restoration.
(a) In the event of a Casualty or Condemnation
described in Paragraph 18(a)(ii) with respect to which Tenant does not deliver
to Landlord a Termination Notice, Landlord (or Lender if required by any
Mortgage) shall hold any Net Award in excess of $100,000 in a fund (the
"Restoration Fund") and shall make the Restoration Fund available for
restoration only in accordance with the following conditions:
(i) prior to commencement of restoration, (A)
the architects, contracts, contractors, plans and specifications for the
restoration shall have been approved by Landlord, and (B) Landlord and Lender
shall be provided with mechanics' lien insurance (if available) and acceptable
performance and payment bonds which insure satisfactory completion of and
payment for the restoration, are in an amount and form and have a surety
acceptable to Landlord, and name Landlord and Lender as additional dual
obligees;
(ii) at the time of any disbursement, no Event
of Default shall exist and be continuing and no mechanics' or materialmen's
liens shall have been filed against any of the Leased Premises and remain
undischarged;
(iii) disbursements shall be made from time to
time in an amount not exceeding the cost of the work completed since the last
disbursement, upon receipt of (A) satisfactory evidence, including architects'
certificates, of the stage of completion, the estimated total cost of
completion and performance of the work to date in a good and workmanlike
manner in accordance with the contracts, plans and specifications, (B) waivers
of liens, (C) contractors' and subcontractors' disbursement request forms
setting forth the completed work and the cost thereof for which payment is
requested, (D) a satisfactory bringdown of title insurance and (E) other
evidence of cost and payment so that Landlord can verify that the amounts
disbursed from time to time are represented by work that is completed, in
place and free and clear of mechanics' and materialmen's lien claims;
(iv) each request for disbursement shall be
accompanied by a certificate of Tenant, signed by the president or a vice
president of Tenant, describing the work for which payment is requested,
stating the cost incurred in connection therewith, stating that Tenant has not
previously received payment for such work and, upon completion of the work,
also stating that the work has been fully completed and complies with the
applicable requirements of this Lease;
(v) Landlord may retain ten percent (10%) of
the restoration fund until 50% of the restoration is fully completed, at which
time retention shall be reduced to 5%;
(vi) the Restoration Fund shall not be
commingled with Landlord's other funds and shall bear interest at a rate
agreed to by Landlord and Tenant; and
(vii) such other reasonable conditions as
Landlord or Lender may impose.
(b) Prior to commencement of restoration and at any
time during restoration, if the estimated cost of completing the restoration
work free and clear of all liens, as determined by Landlord, exceeds the
amount of the Net Award available for such restoration, the amount of such
excess shall, upon demand by Landlord, be paid by Tenant to Landlord to be
added to the Restoration Fund (or Tenant shall provide Landlord with a letter
of credit in the amount of such excess which can be drawn at any time if
Tenant fails to pay such excess costs within 10 days following notice to
Tenant or if Tenant fails to renew or replace such letter of credit at least
45 days prior to expiration thereof). An amount equal to any sum so added by
Tenant (or any amount drawn under any letter of credit provided by Tenant),
plus an amount equal to any unearned premium comprising the Net Award which was
deposited into the Restoration Fund, plus the amount of any deductible paid by
Tenant into the Restoration fund or for reconstruction costs, which remains in
the Restoration Fund upon completion of restoration shall be refunded to
Tenant. For purposes of determining the source of funds with respect to the
disposition of funds remaining after the completion of restoration, the Net
Award shall be deemed to be disbursed prior to any amount added by Tenant.
(c) If any sum remains in the Restoration Fund after
completion of the restoration and any refund to Tenant pursuant to Paragraph
19(b), such sum (the "Remaining Sum") shall be retained by Landlord (in which
event monthly payments of Basic Rent shall be reduced by the quotient obtained
by dividing such amount by the number of months remaining in the Term) or, if
required by a Note or Mortgage, paid by Landlord to a Lender (in which event
payments of Basic Rent shall be reduced at such times and in such amounts as
Landlord receives a corresponding reduction in payments due to such Lender).
20. Procedures Upon Purchase.
(a) If the Leased Premises is purchased by Tenant
pursuant to any provision of this Lease, Landlord need not convey any better
title thereto than that which was conveyed to Landlord, and Tenant shall
accept such title, subject, however, to the Permitted Encumbrances and to all
other liens, exceptions and restrictions on, against or relating to any of the
Leased Premises consented to by Tenant and to all applicable Laws, but free of
the lien of and security interest created by any Mortgage or Assignment and
liens, exceptions and restrictions on, against or relating to the Leased
Premises which have been created by or resulted solely from acts of Landlord
after the date of this Lease, unless the same are Permitted Encumbrances or
customary utility easements benefiting the Leased Premises or were created
with the concurrence of Tenant or as a result of a default by Tenant under
this Lease.
(b) Upon the date fixed for any such purchase of the
Leased Premises pursuant to any provision of this Lease (any such date the
"Purchase Date"), Tenant shall pay to Landlord, or to any Person to whom
Landlord directs payment, the Relevant Amount therefor specified herein, in
Federal Funds, less any credit of the Net Award received and retained by
Landlord or a Lender allowed against the Relevant Amount, and Landlord shall
deliver to Tenant (i) a statutory warranty deed which describes the premises
being conveyed and conveys the title thereto as provided in Paragraph 20(a),
(ii) such other instruments as shall be necessary to transfer to Tenant or its
designee any other property (or rights to any Net Award not yet received by
Landlord or a Lender) then required to be sold by Landlord to Tenant pursuant
to this Lease and (iii) any Net Award received by Landlord, not credited to
Tenant against the Relevant Amount and required to be delivered by Landlord to
Tenant pursuant to this Lease; provided, that if any Monetary Obligations
remain outstanding on such date, then Landlord may deduct from the Net Award
the amount of such Monetary Obligations; and further provided, that if any
event has occurred prior to the Purchase Date which has subjected any
Indemnitee to any liability related to environmental matters which Tenant is
required to indemnify against pursuant to Paragraph 15 and which is not
covered by insurance, then an amount shall be deducted from the Net Award
which, in Landlord's reasonable judgment, based upon professional advice, is
sufficient to satisfy such liability, which amount shall be deposited in an
escrow account with a financial institution reasonably satisfactory to
Landlord and Tenant pending resolution of such matter. If on the Purchase
Date any Monetary Obligations remain outstanding and no Net Award is payable
to Tenant by Landlord or the amount of such Net Award is less than the amount
of the Monetary Obligations, then Tenant shall pay to Landlord on the Purchase
Date the amount of such Monetary Obligations. Upon the completion of such
purchase, this Lease and all obligations and liabilities of Tenant hereunder
shall terminate, except any Surviving Obligations.
(c) If the completion of such purchase shall be
delayed for more than one year beyond the Applicable Initial Date for reasons
other than acts or omissions of Landlord or its agents or employees (x) Rent
shall continue to be due and payable until completion of such purchase and (y)
at Landlord's sole option, Fair Market Value shall be redetermined and the
Relevant Amount payable by Tenant pursuant to the applicable provision of this
Lease shall be adjusted to reflect such redetermination.
(d) Any prepaid Monetary Obligations paid to
Landlord shall be prorated as of the Purchase Date, and the prorated unapplied
balance shall be deducted from the Relevant Amount due to Landlord; provided,
that no apportionment of any Impositions required to be paid by Tenant under
this Lease shall be made upon any such purchase.
(e) In connection with any purchase by Tenant under
this Lease, Tenant may request Lender to allow Tenant to assume the Loan and
Landlord will consent to such assumption so long as Landlord and any Carey
Entity are released from all liability under the Loan. Upon any such
assumption, Tenant shall pay any assumption fee and the purchase price payable
by Tenant shall be credited with the amount of the obligations (principal and
interest) under the Loan assumed by Tenant.
21. Assignment and Subletting; Prohibition Against
Leasehold Financing.
(a) Tenant may not assign this Lease, voluntarily or
involuntarily, whether by operation of law or otherwise, or sublet any of the
Leased Premises at any time to any other Person without the prior written
consent of Landlord, which consent, in the event of an assignment, may be
withheld by Landlord for any or no reason.
Notwithstanding the foregoing, Tenant shall have the
right to sublet all or any part of the Leased Premises to Hibbett Sporting
Goods, Inc. or any wholly-owned subsidiary of Hibbett without obtaining
Landlord's consent so long as a copy of the sublease is forwarded to Landlord
within 5 business days prior to execution thereof.
If Tenant desires to assign this Lease to a Person and
Landlord does not consent to such assignment, then Tenant shall, not less than
60 days prior to the date on which Tenant desires to assign the Lease, provide
to Landlord the following information with respect to the proposed assignee:
(a) credit data, including audited income statements and balance sheets for
the most recent three years, (b) capital and debt structure, (c) management,
(d) operating history, (e) proposed use of the Leased Premises, and (f) risk
factors associated with the proposed use of the Leased Premises by the
assignee, taking into account factors such as environmental concerns, product
liability and the like. Upon receipt of all of such information, Landlord
shall review the information and Landlord agrees not to unreasonably withhold
its consent to the assignment of the Lease to the proposed assignee if no
Event of Default has occurred and is continuing and if all of the factors
above, when taken into consideration, result in a stronger tenant credit after
such assignment, there will be no violation of any Covenants (after giving
effect to the proposed assignment) and the proposed assignee is any one or
more of the following: an entity which at the time of the proposed assignment
is the record holder of all or at least 75% of the voting stock of Tenant; an
entity which at the time of the proposed assignment is a wholly owned
subsidiary of Tenant or Guarantor; or an entity to whom Tenant shall have sold
all or substantially all of its assets in connection with a sale of assets
which does not otherwise constitute an Event of Default under this Lease.
(b) If Tenant assigns all its rights and interest
under this Lease, the assignee under such assignment shall expressly assume
all the obligations of Tenant hereunder, actual or contingent, including
obligations of Tenant which may have arisen on or prior to the date of such
assignment, by a written instrument delivered to Landlord at the time of such
assignment. Each sublease of any of the Leased Premises shall be subject and
subordinate to the provisions of this Lease. No assignment or sublease made
as permitted by this Paragraph 21 shall affect or reduce any of the
obligations of Tenant hereunder or of Guarantor under the Guaranty or Purchase
Agreement, and all such obligations shall continue in full force and effect as
obligations of a principal and not as obligations of a guarantor, as if no
assignment or sublease had been made. No assignment or sublease shall impose
any additional obligations on Landlord under this Lease.
(c) Tenant shall, within ten (10) days after the
execution and delivery of any assignment or sublease consented to by Landlord
or otherwise permitted hereunder, deliver a duplicate original copy thereof to
Landlord which, in the event of an assignment, shall be in recordable form.
(d) As security for performance of its obligations
under this Lease, Tenant hereby collaterally grants, conveys and assigns to
Landlord all right, title and interest of Tenant in and to all subleases now
in existence or hereinafter entered into for any or all of the Leased
Premises, any and all extensions, modifications and renewals thereof and all
rents, issues and profits therefrom. Landlord hereby grants to Tenant a
license to collect and enjoy all rents and other sums of money payable under
any sublease of any of the Leased Premises, provided, however, that Landlord
shall have the absolute right at any time following occurrence of and during
the continuance of an Event of Default upon notice to Tenant and any
subtenants or at any time to revoke said license and to collect such rents and
sums of money and to apply the same to reduction of Monetary Obligations.
Tenant shall not (with respect to subleases requiring Landlord's consent)
consent to, cause or allow any modification or alteration of any of the terms,
conditions or covenants of any of the subleases or the termination thereof,
without the prior written approval of Landlord, which consent shall not be
unreasonably withheld. Tenant shall not accept any rents under any subleases
more than six (6) months in advance of the accrual thereof nor do nor permit
anything to be done, the doing of which, nor omit or refrain from doing
anything, the omission of which, will or could be a breach of or default in
the terms of any of the subleases.
(e) Tenant shall not have the power to mortgage,
pledge or otherwise encumber its interest under this Lease or any sublease of
the Leased Premises, and any such mortgage, pledge or encumbrance made in
violation of this Paragraph 21 shall be void.
(f) Subject to Paragraph 35, Landlord may sell or
transfer the Leased Premises at any time without Tenant's consent to any third
party (each a "Third Party Purchaser"). In the event of any such transfer,
Tenant shall attorn to any Third Party Purchaser as Landlord so long as such
Third Party Purchaser and Landlord notify Tenant in writing of such transfer.
At the request of Landlord, Tenant will execute such documents confirming the
agreement referred to above.
(g) Notwithstanding anything in this Paragraph 21 to
the contrary, this Lease may be assigned by Tenant without Landlord's written
consent (i) to the surviving corporation in connection with a merger or
consolidation of Tenant, or (ii) to the purchaser of all or substantially all
of the assets of Tenant or Guarantor, in each case only if the merger or sale
of assets is a Permitted Transfer. Notwithstanding anything in this Paragraph
21 to the contrary, this Lease may also be assigned without landlord's prior
written consent to Guarantor.
22. Events of Default.
(a) The occurrence of any one or more of the
following (after expiration of any applicable cure period as provided in
Paragraph 22(b)) shall, at the sole option of Landlord, constitute an "Event
of Default" under this Lease:
(i) a failure by Tenant to make any payment of
any Monetary Obligation when due, regardless of the reason for such failure;
(ii) a failure by Tenant duly to perform and
observe, or a violation or breach of, any other provision hereof not otherwise
specifically mentioned in this Paragraph 22(a);
(iii) any representation or warranty made by
Tenant herein or in any certificate, demand or request made pursuant hereto
was incorrect in any material respect when made;
(iv) a default continues for 60 days beyond any
applicable cure period or at maturity by Tenant in any payment of principal or
interest on any obligations for borrowed money having an outstanding principal
balance of $250,000 or more in the aggregate, or in the performance of any
other provision contained in any instrument under which any such obligation is
created or secured (including the breach of any covenant thereunder), and
either (x) such payment is a payment at maturity or a final payment, or (y)
the effect of such default is to cause such obligation to become due or
accelerated prior to its stated maturity;
(v) a default by Tenant beyond any applicable
cure period in the payment of rent under, or in the performance of any other
material provision of, any other lease or leases that have, in the aggregate,
rental obligations over the terms thereof of $250,000 or more less any amounts
payable from the proceeds of insurance which is not cured within sixty (60)
days following the date of entry of judgment against Tenant;
(vi) a final, non-appealable judgment or
judgments for the payment of money in excess of $250,000 in the aggregate (and
which is not covered by insurance) shall be rendered against Tenant and the
same shall remain undischarged for a period of sixty (60) consecutive days or
such longer period for payment set forth in any such judgment;
(vii) the breach of any Covenant shall occur;
(viii) Tenant shall (A) voluntarily be
adjudicated a bankrupt or insolvent, (B) seek or consent to the appointment of
a receiver or trustee for itself or for the Leased Premises, (C) file a
petition seeking relief under the bankruptcy or other similar laws of the
United States, any state or any jurisdiction, (D) make a general assignment
for the benefit of creditors, or (E) be unable to pay its debts as they
mature;
(ix) a court shall enter an order, judgment or
decree appointing, without the consent of Tenant, a receiver or trustee for it
or for any of the Leased Premises or approving a petition filed against Tenant
which seeks relief under the bankruptcy or other similar laws of the United
States, any state or any jurisdiction, and such order, judgment or decree shall
remain undischarged or unstayed sixty (60) days after it is entered;
(x) the Leased Premises shall have been
vacated or abandoned;
(xi) Tenant shall be liquidated or dissolved or
shall begin proceedings towards its liquidation or dissolution;
(xii) the estate or interest of Tenant in any of
the Leased Premises shall be levied upon or attached in any proceeding and
such estate or interest is about to be sold or transferred or such process
shall not be vacated or discharged within sixty (60) days after it is made;
(xiii) a failure by Tenant to perform or observe,
or a violation or breach of, or a misrepresentation by Tenant under any
document between Tenant and Lender, if such failure, violation, breach or
misrepresentation gives rise to a default beyond any applicable cure period
with respect to any Loan;
(xiv) Tenant shall sell or transfer or enter
into an agreement to sell or transfer all or substantially all of its assets,
or Tenant shall merge with or into another entity, or Tenant shall consolidate
with another entity, or Guarantor shall cease to own 100% of the voting stock
of Tenant, unless in each case such event occurs in connection with a
Permitted Transfer; or
(xv) a default by Guarantor (beyond any
applicable grace or notice period) shall occur under the Guaranty or Purchase
Agreement.
(b) No notice or cure period shall be required in
any one or more of the following events: (A) the occurrence of an Event of
Default under clause (i) (except as otherwise set forth below), (iii), (iv),
(v), (vi), (vii) (viii), (ix), (x), (xi), (xii), (xiii), or (xiv) of Paragraph
22(a); (B) the default consists of a failure to provide any insurance required
by Paragraph 16 or an assignment or sublease entered into in violation of
Paragraph 21; or (C) the default is such that any delay in the exercise of a
remedy by Landlord could reasonably be expected to cause irreparable harm to
Landlord. If the default consists of the failure to pay any Monetary
Obligation under clause (i) of Paragraph 22(a) other than Basic Rent, the
applicable cure period shall be five (5) days from the date on which notice is
received by Tenant, but Landlord shall not be obligated to give notice of, or
allow any cure period for, any such default more than twice within any Lease
Year. If the default consists of a failure to pay Basic Rent, the applicable
cure period shall be five (5) days from the date on which notice is received
by Tenant, but Landlord shall not be required to give such written notice more
than three times during the Term. If the default consists of a default under
clause (ii) of Paragraph 22(a), other than the events specified in clauses (B)
and (C) of the first sentence of this Paragraph 22(b), the applicable cure
period shall be thirty (30) days from the date on which notice is given or, if
the default cannot be cured within such thirty (30) day period and delay in
the exercise of a remedy would not (in Landlord's reasonable judgment) cause
any material adverse harm to Landlord or any of the Leased Premises, the cure
period shall be extended for the period required to cure the default (but such
cure period, including any extension, shall not in the aggregate exceed 120
days), provided that Tenant shall commence to cure the default within the said
thirty-day period and shall actively, diligently and in good faith proceed
with and continue the curing of the default until it shall be fully cured.
A copy of any notice of an Event of Default required
to be given to Tenant under this paragraph 22(b) shall also be given to
Guarantor.
23. Remedies and Damages Upon Default.
(a) If an Event of Default shall have occurred and
is continuing, Landlord shall have the right, at its sole option, then or at
any time thereafter, to exercise its remedies and to collect damages from
Tenant in accordance with this Paragraph 23, subject in all events to
applicable Law, without demand upon or notice to Tenant except as otherwise
provided by applicable Law or in Paragraph 22(b) and this Paragraph 23.
(i) Landlord may give Tenant notice of
Landlord's intention to terminate this Lease on a date specified in such
notice. Upon such date, this Lease, the estate hereby granted and all rights
of Tenant hereunder shall expire and terminate. Upon such termination, Tenant
shall immediately surrender and deliver possession of the Leased Premises to
Landlord in accordance with Paragraph 26. If Tenant does not so surrender and
deliver possession of the Leased Premises, Landlord may re-enter and repossess
the Leased Premises, with or without legal process, by peaceably entering the
Leased Premises and changing locks or by summary proceedings, ejectment or any
other lawful means or procedure. Upon or at any time after taking possession
of the Leased Premises, Landlord may, by peaceable means or legal process,
remove any Persons or property therefrom. Landlord shall be under no
liability for or by reason of any such entry, repossession or removal.
Notwithstanding such entry or repossession, Landlord may (A) exercise the
remedy set forth in and collect the damages permitted by Paragraph 23(a)(iii)
or (B) collect the damages set forth in Paragraph 23(b)(i) or 23(b)(ii).
(ii) After repossession of the Leased Premises
pursuant to clause (i) above, Landlord shall have the right to relet any of
the Leased Premises to such tenant or tenants, for such term or terms, for
such rent, on such conditions and for such uses as Landlord in its sole
discretion may determine, and collect and receive any rents payable by reason
of such reletting. Landlord may make such Alterations in connection with such
reletting as it may deem advisable in its reasonable discretion.
Notwithstanding any such reletting, Landlord may collect the damages set forth
in Paragraph 23(b)(ii).
(iii) Landlord may, upon notice to Tenant,
require Tenant to make an irrevocable offer to terminate this Lease upon
payment to Landlord of an amount (the "Default Termination Amount") specified
in the next sentence. The "Default Termination Amount" shall be the greatest
of (A) the Fair Market Value of the Leased Premises, (B) the sum of the
Acquisition Cost and Prepayment Premium which Landlord will be required to pay
in prepaying any Loan with proceeds of the Default Termination Amount or (C)
an amount equal to the Present Value of the entire Basic Rent from the date of
such purchase to the date on which the Term would expire. Upon such notice to
Tenant, Tenant shall be deemed to have made such offer and shall, if requested
by Landlord, within ten (10) days following such request deposit with Landlord
as payment against the Default Termination Amount the amount described in (B)
above, and Landlord and Tenant shall promptly commence to determine Fair
Market Value. Within thirty (30) days after the Fair Market Value Date,
Landlord shall accept or reject such offer. If Landlord accepts such offer
then, on the tenth (10th) business day after such acceptance, Tenant shall pay
to Landlord the Default Termination Amount and, at the request of Tenant,
Landlord will convey the Leased Premises to Tenant or its designee in
accordance with Paragraph 20. Any rejection by Landlord of such offer shall
have no effect on any other remedy Landlord may have under this Lease.
(iv) Landlord may declare by notice to Tenant
the entire Basic Rent (in the amount of Basic Rent then in effect) for the
remainder of the then current Term to be immediately due and payable. Tenant
shall immediately pay to Landlord all such Basic Rent discounted to its
Present Value, all accrued Rent then due and unpaid, all other Monetary
Obligations which are then due and unpaid and all Monetary Obligations which
arise or become due by reason of such Event of Default (including any Costs of
Landlord). Upon receipt by Landlord of all such accelerated Basic Rent and
Monetary Obligations, this Lease shall remain in full force and effect and
Tenant shall have the right to possession of the Leased Premises from the
date of such receipt by Landlord to the end of the Term, and subject to all
the provisions of this Lease, including the obligation to pay all increases in
Basic Rent and all Monetary Obligations that subsequently become due, except
that no Basic Rent which has been prepaid hereunder shall be due thereafter
during the said Term.
(v) Landlord may exercise all other remedies
available to Landlord at law or equity, including but not limited to the right
to bring an action against Tenant for Monetary Obligations as and when such
Monetary Obligations become due.
(b) The following constitute damages to which
Landlord shall be entitled if Landlord exercises its remedies under Paragraph
23(a)(i) or 23(a)(ii):
(i) If Landlord exercises its remedy under
Paragraph 23(a)(i) but not its remedy under Paragraph 23(a)(ii) (or attempts
to exercise such remedy and is unsuccessful in reletting the Leased Premises)
then, upon written demand from Landlord, Tenant shall pay to Landlord, as
liquidated and agreed final damages for Tenant's default and in lieu of all
current damages beyond the date of such demand (it being agreed that it would
be impracticable or extremely difficult to fix the actual damages), an amount
equal to the present value of the excess, if any, of (A) all Basic Rent from
the date of such demand to the date on which the Term is scheduled to expire
hereunder in the absence of any earlier termination, re-entry or repossession
over (B) the then fair market rental value of the Leased Premises for the same
period. Tenant shall also pay to Landlord all of Landlord's Costs in
connection with the repossession of the Leased Premises and any attempted
reletting thereof, including all brokerage commissions, legal expenses
attorneys' fees, employees' expenses, costs of Alterations and expenses and
preparation for reletting.
(ii) If Landlord exercises its remedy under
Paragraph 23(a)(i) or its remedies under Paragraph 23(a)(i) and 23(a)(ii),
then Tenant shall, until the end of what would have been the Term in the
absence of the termination of the Lease, and whether or not any of the Leased
Premises shall have been relet, be liable to Landlord for, and shall pay to
Landlord, as liquidated and agreed current damages, the Present Value of all
Monetary Obligations which would be payable under this Lease by Tenant in the
absence of such termination less the Present Value of the net proceeds, if
any, of any reletting pursuant to Paragraph 23(a)(ii), after deducting from
such proceeds all of Landlord's Costs (including the items listed in the last
sentence of Paragraph 23(b)(i) hereof) incurred in connection with such
repossessing and reletting; provided, that if Landlord has not relet the
Leased Premises, such Costs of Landlord shall be considered to be Monetary
Obligations payable by Tenant. Tenant shall be and remain liable for all sums
aforesaid, and Landlord may recover such damages from Tenant and institute and
maintain successive actions or legal proceedings against Tenant for the
recovery of such damages. Nothing herein contained shall be deemed to require
Landlord to wait to begin such action or other legal proceedings until the
date when the Term would have expired by its own terms had there been no such
Event of Default.
(c) Notwithstanding anything to the contrary herein
contained, in lieu of or in addition to any of the foregoing remedies and
damages, Landlord may exercise any remedies and collect any damages available
to it at law or in equity. If Landlord is unable to obtain full satisfaction
pursuant to the exercise of any remedy, it may pursue any other remedy which
it has hereunder or at law or in equity.
(d) Landlord shall not be required to mitigate any
of its damages under Paragraph 23(b) unless required to by applicable Law. If
any Law shall validly limit the amount of any damages provided for herein to
an amount which is less than the amount agreed to herein, Landlord shall be
entitled to the maximum amount available under such Law.
(e) No termination of this Lease, repossession or
reletting of the Leased Premises, exercise of any remedy or collection of any
damages pursuant to this Paragraph 23 shall relieve Tenant of any Surviving
Obligations.
(f) WITH RESPECT TO ANY REMEDY OR PROCEEDING OF
LANDLORD HEREUNDER, LANDLORD AND TENANT WAIVES ANY RIGHT TO A TRIAL BY JURY.
(g) Upon the occurrence of any Event of Default,
Landlord shall have the right (but no obligation) to perform any act required
of Tenant hereunder and, if performance of such act requires that Landlord
enter the Leased Premises, Landlord may enter the Leased Premises for such
purpose.
(h) No failure of Landlord (i) to insist at any time
upon the strict performance of any provision of this Lease or (ii) to exercise
any option, right, power or remedy contained in this Lease shall be construed
as a waiver, modification or relinquishment thereof. A receipt by Landlord of
any sum in satisfaction of any Monetary Obligation with knowledge of the
breach of any provision hereof shall not be deemed a waiver of such breach,
and no waiver by Landlord of any provision hereof shall be deemed to have been
made unless expressed in a writing signed by Landlord.
(i) To the extent permitted by applicable law,
Tenant hereby waives and surrenders, for itself and all those claiming under
it, including creditors of all kinds, (i) any right and privilege which it or
any of them may have under any present or future Law to redeem any of the
Leased Premises or to have a continuance of this Lease after termination of
this Lease or of Tenant's right of occupancy or possession pursuant to any
court order or any provision hereof, and (ii) the benefits of any present or
future Law which exempts property from liability for debt or for distress for
rent.
(j) Except as otherwise provided herein, all
remedies are cumulative and concurrent and no remedy is exclusive of any other
remedy. Each remedy may be exercised at any time an Event of Default has
occurred and is continuing and may be exercised from time to time. No remedy
shall be exhausted by any exercise thereof.
24. Notices. All notices, demands, requests, consents,
approvals, offers, statements and other instruments or communications required
or permitted to be given pursuant to the provisions of this Lease shall be in
writing and shall be deemed to have been given for all purposes when delivered
in person or by Federal Express next-day delivery or other reliable 24-hour
delivery service or five (5) business days after being deposited in the United
States mail, by registered or certified mail, return receipt requested,
postage prepaid, addressed to the other party at its address stated above.
For the purposes of this Paragraph, any party may substitute another address
stated above (or substituted by a previous notice) for its address by giving
fifteen (15) days' notice of the new address to the other party, in the manner
provided above.
25. Estoppel Certificate. At any time upon not less than
twenty (20) days' prior written request by either Landlord or Tenant (the
"Requesting Party") to the other party (the "Responding Party"), the
Responding Party shall delivery to the Requesting Party a statement in
writing, executed by an authorized officer of the Responding Party, certifying
(a) that, except as otherwise specified, this Lease is unmodified and in full
force and effect, (b) the dates to which Basic Rent, Additional Rent and all
other Monetary Obligations have been paid, (c) that, to the knowledge of the
signer of such certificate and except as otherwise specified, no default by
either Landlord or Tenant exists hereunder, (d) such other information as the
Requesting Party may reasonably request, and (e) if Tenant is the Responding
Party that, except as otherwise specified, there are no proceedings pending
or, to the knowledge of the signer, threatened, against Tenant before or by an
court or administrative agency which, if adversely decided, would materially
and adversely affect the financial condition and operations of Tenant. Any
such statements by the Responding Party may be relied upon by the Requesting
Party, any Person whom the Requesting Party notifies the Responding Party in
its request for the Certificate is an intended recipient or beneficiary of the
Certificate, any Lender or their assignees and by any prospective purchase or
mortgagee of any of the Leased Premises.
26. Surrender. Upon the expiration or earlier termination
of this Lease, Tenant shall peaceably leave and surrender the Leased Premises
to Landlord in the same condition in which the Leased Premises was at the
commencement of this Lease, except as repaired, rebuilt, restored, altered,
replaced or added to as permitted or required by any provision of this Lease,
and except for ordinary wear and tear (and except for damage due to a Casualty
or Condemnation where the Lease terminates as a result of the purchase by
Tenant of the Leased Premises). Upon such surrender, Tenant shall (a) remove
from the Leased Premises all property which is owned by Tenant or third
parties other than Landlord and (b) repair any damage caused by such removal.
Property not so removed shall become the property of Landlord, and Landlord may
thereafter cause such property to be removed from the Leased Premises. The
reasonable cost of removing and disposing of such property and repairing any
damage to any of the Leased Premises caused by such removal shall be paid by
Tenant to Landlord upon demand. Landlord shall not in any manner or to any
extent be obligated to reimburse Tenant for any such property which becomes
the property of Landlord pursuant to this Paragraph 26.
27. No Merger of Title. There shall be no merger of the
leasehold estate created by this Lease with the fee estate in any of the
Leased Premises by reason of the fact that the same Person may acquire or hold
or own, directly or indirectly, (a) the leasehold estate created hereby or any
part thereof or interest therein and (b) the fee estate in any of the Leased
Premises or any part thereof or interest therein, unless and until all Persons
having any interest in the interests described in (a) and (b) above which are
sought to be merged shall join in a written instrument effecting such merger
and shall duly record the same.
28. Books and Records.
(a) Tenant shall keep adequate records and books of
account with respect to the finances and business of Tenant generally and with
respect to the Leased Premises, in accordance with generally accepted
accounting principles ("GAAP") consistently applied, and shall permit Landlord
and Lender by their respective agents, accountants and attorneys (at
Landlord's expense, unless an Event of Default had occurred and is continuing,
in which event it shall be at Tenant's expense) upon reasonable notice to
Tenant and at reasonable intervals, to visit and inspect the Leased Premises
and examine (and make copies of) the records and books of account and to
discuss the finances and business with the officers of Tenant, at such
reasonable times as may be requested by Landlord. Upon the request of Lender
or Landlord (either telephonically or in writing), Tenant shall provide the
requesting party with copies of any information to which such party would be
entitled in the course of a personal visit.
(b) Tenant shall deliver to Landlord and to Lender
within 120 days of the close of each fiscal year, annual audited financial
statements of Tenant prepared by nationally recognized independent certified
public accountants. Tenant shall also furnish to Landlord within forty-five
(45) days after the end of each of the three remaining quarters unaudited
financial statements of Tenant, certified by Tenant's chief financial officer
or other senior officer of Tenant, and all filings, if any, of Form 10-K, Form
10-Q and other required filings with the Securities and Exchange Commission
pursuant to the provisions of the Securities Exchange Act of 1934, as amended,
or any other Law. All financial statements of Tenant shall be prepared in
accordance with GAAP consistently applied. All annual financial statements
shall include balance sheets, income and expense statements and comparisons to
prior year's performance for the same period, and shall be accompanied (i) by
an opinion of said accountants stating that (A) there are no qualifications as
to the scope of the audit and (B) the audit was performed in accordance with
GAAP and (ii) by the affidavit of the president or a vice president of Tenant,
dated within five (5) days of the delivery of such statement, stating that (C)
the affiant knows of no Event of Default, or other material event which, upon
notice or the passage of time or both, would become an Event of Default, which
has occurred and is continuing hereunder or, if any such material event has
occurred and is continuing, specifying the nature and period of existence
thereof and what action Tenant has taken or proposes to take with respect
thereto and (D) except as otherwise specified in such affidavit, that Tenant
has fulfilled all of its obligations under this Lease which are required to be
fulfilled on or prior to the date of such affidavit.
29. Determination of Value.
(a) Whenever a determination of Fair Market Value is
required pursuant to any provision of this Lease, such Fair Market Value shall
be determined in accordance with the following procedure:
(i) Landlord and Tenant shall endeavor to
agree upon such Fair Market Value within fifteen (15) days after the date (the
"Applicable Initial Date") on which (A) Tenant provides Landlord with notice
of its intention to terminate this Lease and purchase the Leased Premises
pursuant to Paragraph 18, (B) Landlord provides Tenant with notice of its
intention to redetermine Fair Market Value pursuant to Paragraph 20(c), (C)
Landlord provides Tenant with notice of Landlord's intention to require Tenant
to make an offer to terminate this Lease pursuant to Paragraph 23(a)(iii).
Upon reaching such agreement, the parties shall execute an agreement setting
forth the amount of such Fair Market Value.
If the parties shall not have signed such agreement
within fifteen (15) days after the Applicable Initial Date, Landlord and
Tenant shall endeavor to agree upon and appoint a single appraiser. Any such
appraiser's determination of Fair Market Value shall be binding and conclusive.
(ii) If the parties shall not have reached
agreement on Fair Market Value or appointed a single appraiser within thirty
(30) days after the Applicable Initial Date, Tenant shall within fifty (50)
days after the Applicable Initial Date select an appraiser and notify Landlord
in writing of the name, address and qualifications of such appraiser. Within
twenty (20) days following Landlord's receipt of Tenant's notice of the
appraiser selected by Tenant, Landlord shall select an appraiser and notify
Tenant of the name, address and qualifications of such appraiser. Such two
appraisers shall endeavor to agree upon Fair Market Value based on a written
appraisal made by each of them (and given to Landlord by Tenant) as of the
Relevant Date. If such two appraisers shall agree upon a Fair Market Value,
the amount of such Fair Market Value as so agreed shall be binding and
conclusive.
(iii) If such two appraisers shall be unable to
agree upon a Fair Market Value within twenty (20) days after the selection of
an appraiser by Landlord, then such appraisers shall advise Landlord and
Tenant of their respective determination of Fair Market Value and shall select
a third appraiser to make the determination of Fair Market Value. The
selection of the third appraiser shall be binding and conclusive upon Landlord
and Tenant.
(iv) If such two appraisers shall be unable to
agree upon the designation of a third appraiser within ten (10) days after the
expiration of the twenty (20) day period referred to in clause (iii) above, or
if such third appraiser does not make a determination of Fair Market Value
within twenty (20) days after his selection, then such third appraiser or a
substituted third appraiser, as applicable, shall, at the request of either
party hereto, be appointed by the President or Chairman of the American
Arbitration Association in New York, New York. The determination of Fair
Market Value made by the third appraiser appointed pursuant hereto shall be
made within twenty (20) days after such appointment.
(v) If a third appraiser is selected, Fair
Market Value shall be the average of the determination of Fair Market Value
made by the third appraiser and the determination of Fair Market Value made by
the appraiser (selected pursuant to Paragraph 29(a)(ii) hereof) whose
determination of Fair Market Value is nearest to that of the third appraiser.
Such average shall be binding and conclusive upon Landlord and Tenant.
(vi) All appraisers selected or appointed
pursuant to this Paragraph 29(a) shall (A) be independent qualified MAI
appraisers (B) have no right, power or authority to alter or modify the
provisions of this Lease, (C) utilize the definition of Fair Market Value
hereinabove set forth above, and (D) be registered in the State if the State
provides for or requires such registration. The Cost of the procedure
described in this Paragraph 29(a) above shall be borne entirely by Tenant.
(b) If, by virtue of any delay by Tenant or its
agents or employees, Fair Market Value is not determined by the expiration or
termination of the then current Term, then the date on which the Term would
otherwise expire or terminate shall be extended to the date specified for
termination in the particular provision of this Lease pursuant to which the
determination of Fair Market Value is being made.
(c) In determining Fair Market Value, the appraisers
shall add (a) the Present Value of the Rent for the remaining Term (with
assumed increases in the CPI to be determined by the appraisers) and (b) the
Present Value of the Leased Premises as of the end of such Term (assuming that
the fair market value of the Leased Premises as of the end of the Term would be
$4,700,000). The appraisers shall further assume that no default then exists
under the Lease, the Guaranty or the Purchase Agreement; that Tenant has
complied (and will comply) with all provisions of the Lease; that Guarantor
has not violated (and will not violate) any of the Covenants; and that
Guarantor will comply with all other covenants in the Guaranty and Purchase
Agreement.
30. Non-Recourse as to Landlord. Anything contained
herein to the contrary notwithstanding, any claim based on or in respect of
any liability of Landlord under this Lease shall be enforced only against the
Leased Premises and not against any other assets, properties or funds of (i)
Landlord, (ii) any director, officer, general partner, shareholder, limited
partner, beneficiary, employee or agent of Landlord or any general partner of
Landlord or any of its general partners (or any legal representative, heir,
estate, successor or assign of any thereof), (iii) any predecessor or
successor partnership or corporation (or other entity) of Landlord or any of
its general partners, shareholders, officers, directors, employees or agents,
either directly or through Landlord or its general partners, shareholders,
officers, directors, employees or agents or any predecessor or successor
partnership or corporation (or other entity), or (iv) any Person affiliated
with any of the foregoing, or any director, officer, employee or agent of any
thereof; provided, however, that Landlord shall be personally liable to Tenant
for failure by Landlord to apply hazard insurance proceeds as required to be
applied by Landlord pursuant to Paragraph 19 of this Lease.
31. Financing.
(a) Tenant agrees to pay, within three (3) business
days of written demand therefor, attorneys' fees and costs of counsel for
Lender in connection with obtaining the initial Loan (except that when such
attorneys' fees paid by Tenant, when added to attorneys' fees of Landlord's
counsel incurred in connection with negotiation of this Lease paid by Tenant,
exceed $30,000, then Tenant will be responsible only for 60% of such
attorneys' fees). Tenant shall not be obligated to pay any points or other
costs of obtaining the initial Loan, nor shall Tenant be obligated to pay any
cost of obtaining any Loan which refinances the initial Loan. The foregoing
$30,000 limit shall not apply, however, to attorneys' fees and costs incurred
by counsel to the Landlord, Lender or the City which are in any way related to
the Transfer Agreement, 100% of which shall be paid by Tenant and shall be
excluded from the $30,000 in fees referenced above.
(b) If Landlord desires to obtain or refinance any
Loan, Tenant shall agree, upon request of Landlord, to supply any such Lender
with such notices and information as Tenant is required to give to Landlord
hereunder and to extend the rights of Landlord hereunder to any such Lender
and to consent to such financing if such consent is requested by such Lender.
Tenant shall provide any other consent or statement and shall execute any and
all other documents that such Lender reasonably requires in connection with
such financing, including any environmental indemnity agreement not more
onerous than the environmental indemnity set forth in this Lease and
subordination, non-disturbance and attornment agreement, so long as the same
do not materially adversely affect any right, benefit or privilege of Tenant
under this Lease or materially increase Tenant's obligations under this Lease.
Such subordination, nondisturbance and attornment agreement may require Tenant
to confirm that (a) Lender and its assigns will not be liable for any
misrepresentation, act or omission of Landlord and (b) Lender and its assigns
will not be subject to any counterclaim, demand of offset which Tenant may have
against Landlord, and shall require Lender to recognize all of Tenant's rights
under the Lease, including but not limited to all Tenant's rights to receive
advances of the Net Award pursuant to Paragraph 19.
(c) Landlord will request Lender to waive any
requirement (i) for tax and insurance escrows so long as no Event of Default
occurs and is continuing and (ii) that Landlord or Tenant escrow with Lender
any costs of rebuilding the Leased Premises following a Casualty which are in
excess of the Net Award.
32. [Intentionally Omitted].
32. [Intentionally Omitted].
33. Tax Treatment; Reporting. Landlord and Tenant each
acknowledge that each shall treat this transaction as a true lease for state
law purposes and shall report this transaction as a lease for Federal income
tax purposes. For Federal income tax purposes each shall report this Lease as
a true lease with Landlord as the owner of the Leased Premises and Equipment
and Tenant as the lessee of such Leased Premises and Equipment including: (1)
treating Landlord as the owner of the property eligible to claim depreciation
deductions under Section 167 or 168 of the Internal Revenue Code of 1986 (the
"Code") with respect to the Leased Premises and Equipment, (2) Tenant
reporting its Rent payments as rent expense under Section 162 of the Code, and
(3) Landlord reporting the Rent payments as rental income.
35. Right of First Refusal.
(a) Except as otherwise provided in clause (e) of
this Paragraph 35, and provided an Event of Default does not then exist, if
Landlord shall enter into a contract for the sale (the "Sale Contract") of the
Leased Premises with a Third Party Purchaser, Landlord shall give written
notice to Tenant of the Sale Contract, together with a copy of the executed
Sale Contract and the name and business address of the Third Party Purchaser.
For a period of thirty (30) days following receipt of
such notice, Tenant shall have the right and option, exercisable by written
notice to Landlord given within said thirty (30) day period, to elect to
purchase the Leased Premises at the purchase price and upon all the terms and
conditions set forth in such Sale Contract except that no contingencies
contained in such Sale Contract as to environmental assessments, engineering
studies, inspection of the Leased Premises, sale of other property, state of
the title to or encumbrances on the Leased Premises (but subject to Landlord's
obligation to convey title as required by Paragraph 20(a)), or any other
condition or contingency to the Third Party Purchaser's obligation to purchase
the Leased Premises which pertains to the condition of the Leased Premises,
the Third Party Purchaser's ability to take certain action or any other factor
beyond the control of Landlord, shall apply to Tenant's obligation to purchase
the Leased Premises under this Paragraph 35, and Tenant shall be obligated to
purchase the Leased Premises without any such condition or contingency.
If at the expiration of the aforesaid thirty (30) day
period Tenant shall have failed to exercise the aforesaid option, Landlord may
sell the Leased Premises to such Third Party Purchaser upon the terms set
forth in such contract.
(b) Except as otherwise specifically provided herein,
the closing date for any purchase of the Leased Premises by Tenant pursuant to
this Paragraph 35 shall be the earlier to occur of (i) ninety (90) days after
the date of Tenant's notice to Landlord of its intention to purchase the Leased
Premises upon the terms of a contract for sale with a Third Party Purchaser or
(ii) the closing date provided in such Sale Contract. At such closing
Landlord shall convey the Leased Premises to Tenant in accordance with, and
Tenant shall pay to Landlord the purchase price and other consideration set
forth in, the applicable contract.
(c) Tenant shall have the right during the Term to
exercise the foregoing right of first refusal only one time upon each proposed
sale of the Leased Premises prior to the tenth (10th) anniversary of this
Lease; provided, that if, following compliance with the procedure described in
Paragraph 35(a), a Third Party Purchaser does not purchase the Leased
Premises, such event shall not count as an exercise of Tenant's right of first
refusal. Notwithstanding anything to the contrary, if Tenant fails to exercise
the right of first refusal granted pursuant to this Paragraph 35 and the sale
to the Third Party Purchaser is consummated or if this Lease terminates or the
Term expires, such right of first refusal shall terminate and be null and void
and of no further force and effect.
(d) If Tenant does not exercise its right of first
refusal to purchase the Leased Premises and the Leased Premises are
transferred to a Third Party Purchaser, Tenant will attorn to any Third Party
Purchaser as landlord so long as such Third Party Purchaser and landlord
notify Tenant in writing of such transfer. At the request of Landlord, Tenant
will execute such documents confirming the agreement referred to above.
(e) The provisions of this Paragraph 35(a) shall not
apply to or prohibit (i) any mortgaging, subjection to deed of trust or other
hypothecation of Landlord's interest in the Leased Premises, (ii) any sale of
the Leased Premises pursuant to a private power of sale under or judicial
foreclosure of any Mortgage or other security instrument or device to which
Landlord's interest in the Leased Premises is now or hereafter subject, (iii)
any transfer of Landlord's interest in the Leased Premises to a Lender,
beneficiary under deed of trust or other holder of a security interest therein
by deed in lieu of foreclosure, (iv) any transfer of the Leased Premises to
any governmental or quasi-governmental agency with power of condemnation, (v)
any transfer of the Leased Premises to any affiliate of Landlord or to
Corporate Property Associates 12 Incorporated, (vi) any Person to whom
Corporate Property Associates 12 Incorporated sells all or substantially all
of its assets, or (vii) any transfer of the Leased Premises to any of the
successors or assigns of Corporate Property Associates 12 Incorporated any of
the Persons referred to in the foregoing clauses (i) through (iv).
36. Financing Major Alterations.
(a) Should Tenant, during the Term of this Lease, desire to
make Alterations to any of the Leased Premises which are not readily removable
without causing material damage to the Leased Premises and which will cost in
excess of $100,000 ("Major Alterations"), Tenant may, prior to the
commencement of construction of such Major Alterations, request Landlord to
reimburse the costs thereof to Landlord (the "Alteration Cost") to Tenant, to
wit: cost of labor and materials, financing fees, legal fees, survey, title
insurance and other normal and customary loan or construction costs. Such
request shall be accompanied by detailed plans and specifications for the
proposed Major Alterations.
(b) Should Landlord agree to reimburse such costs, Landlord
and Tenant shall enter into good faith negotiations regarding the execution
and delivery of a written agreement of modification of this Lease, which
agreement shall provide for the following:
(i) payment by Landlord to Tenant of the Alteration
Cost within one hundred twenty (120) days of the date of Landlord's agreement
to pay the Alteration Cost, or in installment payments as agreed, or on the
date of completion of the Major Alterations, whichever shall be the later;
(ii) an increase in the annual Basic Rent payable
during the Amortization Period (as hereinafter defined) to an amount
sufficient to amortize the Alteration Cost ("Total Financing") over a period
(the "Amortization Period") which shall be the remainder of the then current
Term and, if Tenant so elects, any additional extension periods provided for
herein (so long as Tenant shall confirm any such extension periods included in
the Amortization Period by a written waiver of its right to give notice of its
intention not to renew this Lease prior to the expiration of such extension
periods), at such rate of interest and upon such other terms as shall be agreed
upon between Landlord and Tenant, but which interest rate shall be at the
actual rate obtained by Landlord, and shall be no higher than the prevailing
interest rate and terms (the "Landlord Rate") for an unsecured loan in a
principal amount equal to the Total Financings obtainable by Landlord; and
(iii) such other changes and amendments to this Lease as
may be necessary and appropriate in view of such payment of the Alteration
Cost by Landlord to Tenant.
Tenant shall pay all Costs incurred by Landlord in connection with any such
modification to this Lease and such financing, including closing costs,
brokerage fees, taxes, recording charges and legal fees and expenses.
(c) To the extent that the terms of the Mortgage or any
other document encumbering any of the Leased Premises shall require the
consent of Lender and/or the holder or holders of any encumbrance on any of
the Leased Premises (the "Encumbrancers") to the addition or construction of
any Major Alterations or to the financing thereof by Landlord, the rights and
obligations of Landlord and Tenant under Paragraph 13 and this Paragraph 36
are expressly conditioned upon Tenant's obtaining, prior to the commencement
of any construction, the Encumbrancers' written consent to such construction
and to Landlords obtaining, in the event Landlord has accepted Tenant's offer
to accept payment for the Major Alterations, the Encumbrancers' written
consent to such financing.
(d) If Landlord and Tenant do not reach agreement on
Tenant's request to have Landlord finance the Alteration Costs, Tenant shall,
subject to the provisions of Paragraph 13 of this Lease, have the right to
construct the Major Alterations at Tenant's sole cost and expense. In any
event, the construction of the Major Alterations shall be performed in
accordance with the provisions of Paragraph 13 hereof and the Major
Alterations shall be the property of Landlord and part of the Leased Premises
subject to this Lease.
(e) Nothing contained in this Paragraph 36 shall be
construed to modify Paragraph 13 hereof, and the provisions of Paragraph 12
and subparagraphs (i) and (ii) of Paragraph 13(a) shall apply to all Major
Alterations made or constructed hereunder, including the requirement for
Landlord's consent to Alterations.
(f) If Tenant desires to construct Major Alterations
consisting of an addition or an expansion to the Leased Premises and the cost
thereof exceeds $1,000,000, Tenant may, prior to the commencement of
construction of such Major Alterations, request Landlord to reimburse the cost
thereof to Tenant pursuant to Paragraphs 36(a) and 36(b). If, within 90 days
following receipt by Landlord of the detailed plans and specifications for the
proposed Major Alterations described in this subparagraph (f), Landlord is
unable to commit to provide funds for such Major Alterations in excess of
$1,000,000 to be amortized (through increases in Basic Rent) in accordance
with Paragraph 36(b) over the Amortization Period with interest at the
Landlord Rate, and if no Event of Default has occurred and is then continuing,
then the Tenant may, by written notice to Landlord within 10 days after
expiration of said 90 day period, elect to repurchase the Leased Premises for
a purchase price (the "Purchase Price") equal to the sum of the Acquisition
Cost and any Prepayment Premium which Landlord will be required to pay in
prepaying any Loan with proceeds of the Purchase Price. Within 60 days after
receipt of such notice by Landlord, Tenant shall pay to Landlord the Purchase
Price and Landlord will convey the Leased Premises to Tenant in accordance with
paragraph 20. If requested by Tenant, Landlord will borrow funds from
Guarantor on an unsecured basis to pay for Major Alterations in excess of
$1,000,000 if Guarantor is able to arrange such borrowing for Major
Alterations in excess of $1,000,000 at such terms and conditions more
favorable to Landlord than those obtainable by Landlord from other lenders so
long as Guarantor has no right to exercise remedies or increase the interest
rate if an Event of Default occurs and Landlord has the right to set-off
against sums borrowed from Guarantor any unpaid Monetary Obligations due to
Landlord under this Lease. Such sums borrowed by Landlord will be amortized
(through increases in Basic Rent) over the Amortization Period in accordance
with Paragraph 36(b) with interest at the interest rate payable to Guarantor.
37. Miscellaneous.
(a) The paragraph headings in this Lease are used
only for convenience in finding the subject matters and are not part of this
Lease or to be used in determining the intent of the parties or otherwise
interpreting this Lease.
(b) As used in this Lease, the singular shall include
the plural and any gender shall include all genders as the context requires
and the following words and phrases shall have the following meanings: (i)
"including" shall mean "including without limitation"; (ii) "provisions" shall
mean "provisions, terms, agreements, covenants and/or conditions"; (iii)
"lien" shall mean "lien, charge, encumbrance, title retention agreement,
pledge, security interest, mortgage and/or deed of trust"; (iv) "obligation"
shall mean "obligation, duty, agreement, liability, covenant and/or
condition"; (v) "any of the Leased Premises" shall mean "the Leased Premises
or any part thereof or interest therein"; (vi) "any of the Land" shall mean
"the Land or any part thereof or interest therein"; (vii) "any of the
Improvements" shall mean "the Improvements or any part thereof or interest
therein"; and (viii) "any of the Equipment" shall mean "the Equipment or any
part thereof or interest therein".
(c) Any act which Landlord is permitted to perform
under this Lease may be performed at any time and from time to time by
Landlord or any person or entity designated by Landlord. Each appointment of
Landlord as attorney-in-fact for Tenant hereunder is irrevocable and coupled
with an interest. Time is of the essence with respect to the performance by
Tenant of its obligations under this Lease.
(d) Landlord shall in no event be construed for any
purpose to be a partner, joint venturer or associate of Tenant or of any
subtenant, operator, concessionaire or licensee of Tenant with respect to any
of the Leased Premises or otherwise in the conduct of their respective
businesses.
(e) This Lease and any documents which may be
executed by Tenant on or about the effective date hereof at Landlord's request
constitute the entire agreement between the parties and supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto relating to the Leased Premises and the transactions provided for
herein. Landlord and Tenant are business entities having substantial
experience with the subject matter of this Lease and have each fully
participated in the negotiation and drafting of this Lease. Accordingly, this
Lease shall be construed without regard to the rule that ambiguities in a
document are to be construed against the drafter.
(f) This Lease may be modified, amended, discharged
or waived only by an agreement in writing signed by the party against whom
enforcement of any such modification, amendment, discharge or waiver is
sought. If requested by Tenant, and if no Event of Default has occurred and
is continuing, Landlord will enter into an amendment of this Lease on or prior
to December 31, 1997 in the form attached hereto as Exhibit E, provided that
all conditions to the effectiveness of the amendment which are set forth in
the amendment are satisfied by the Tenant (i) prior to December 31, 1997 and
(ii) prior to Landlord's execution of the Amendment.
(g) The covenants of this Lease shall run with the
land and bind Tenant, its successors and assigns and all present and
subsequent encumbrancers and subtenants of any of the Leased Premises, and
shall inure to the benefit of Landlord, its successors and assigns. If there
is more than one Tenant, the obligations of each shall be joint and several.
(h) If any one or more of the provisions contained in
this Lease shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Lease, but this Lease shall be
construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
(i) This Lease shall be governed by and construed and
enforced in accordance with the Laws of the State.
(j) Any actions taken by or on behalf of the
Landlord relating to inspection of the Leased Premises or inspection of
Tenant's books and records shall be performed or conducted at such times and in
such manner as to minimize interference with Tenant's business operations from
and within the Leased Premises.
IN WITNESS WHEREOF, Landlord and Tenant have caused this
Lease to be duly executed under seal as of the day and year first above
written.
LANDLORD:
QRS 12-14 (AL), INC.
Attest:
_____ By: /s/ Gordon J. Whiting
Vice President
Title: _______________
[Corporate Seal]
Title:
ATTEST: TENANT:
SPORTS WHOLESALE, INC.,
an Alabama corporation
By: /s/ Maxine B. Martin
Title: Title: Secretary
[Corporate Seal]
EXHIBIT B
EQUIPMENT
All fixtures, machinery, apparatus, equipment, fittings and appliances of
every kind and nature whatsoever now or hereafter affixed or attached to or
installed in any of the Leased Premises (except as hereafter provided),
including all electrical, anti-pollution, heating, lighting (including hanging
fluorescent lighting), incinerating, power, air cooling, air conditioning,
humidification, sprinkling, plumbing, lifting, cleaning, fire prevention, fire
extinguishing and ventilating systems, devices and machinery and all engines,
pipes, pumps, tanks (including exchange tanks and fuel storage tanks), motors,
conduits, ducts, steam circulation coils, blowers, steam lines, compressors,
oil burners, boilers, doors, windows, loading platforms, lavatory facilities,
stairwells, fencing (including cyclone fencing), passenger and freight
elevators, overhead cranes and garage units, together with all additions
thereto, substitutions therefor and replacements thereof required or permitted
by this Lease, but excluding all personal property and all trade fixtures,
equipment, machinery, office, manufacturing and warehouse equipment which are
not necessary to the operation, as buildings, of the buildings which
constitute part of the Leased Premises.
EXHIBIT C
PERMITTED ENCUMBRANCES
1. All conditions, restrictions and easements of record as of
the date hereof.
2. The conditions and restrictions set forth in the Contract
(as defined in the Transfer Agreement).
3. All rights and claims of parties in possession as of the
date hereof.
4. All rights and claims of any contractors, suppliers, or any
other person having a right to file a lien with respect to any work done prior
to the date hereof or done after the date hereof at the request of Tenant.
5. Real estate taxes and assessments not yet due or payable.
EXHIBIT D
BASIC RENT PAYMENTS
1. Basic Rent. Subject to the adjustments provided for
in Paragraphs 2, 3 and 4 below, Basic Rent payable in respect of the Term
shall be $475,784 per annum, payable quarterly in advance on each Basic Rent
Payment Date, in equal installments of $118,946 each.
2. CPI Adjustments to Basic Rent. The Basic Rent shall
be subject to adjustment, in the manner hereinafter set forth, for increases
in the index known as United States Department of Labor, Bureau of Labor
Statistics, Consumer Price Index, All Urban Consumers, United States City
Average, All Items, (1982-84=100) ("CPI") or the successor index that most
closely approximates the CPI. If the CPI shall be discontinued with no
successor or comparable successor index, Landlord and Tenant shall attempt to
agree upon a substitute index or formula, but if they are unable to so agree,
then the matter shall be determined by arbitration in accordance with the
rules of the American Arbitration Association then prevailing in New York
City. Any decision or award resulting from such arbitration shall be final
and binding upon Landlord and Tenant and judgment thereon may be entered in any
court of competent jurisdiction. In no event will the Basic Rent as adjusted
by the CPI adjustment be less than the Basic Rent in effect for the one year
period immediately preceding such adjustment.
3. Effective Dates of CPI Adjustments. Basic Rent shall
not be adjusted to reflect changes in the CPI until the third anniversary of
the Basic Rent Payment Date on which the first full monthly installment of
Basic Rent shall be due and payable (the "First Full Basic Rent Payment
Date"). As of the third anniversary of the First Full Basic Rent Payment Date
and thereafter on the sixth, ninth, twelfth and, if the Initial Term is
extended, the fifteenth, eighteenth, twenty-first, twenty-fourth, and
twenty-seventh anniversary of the First Full Basic Rent Payment Date, Basic
Rent shall be adjusted to reflect increases in the CPI during the most recent
three year period immediately preceding each of the foregoing dates (each such
date being hereinafter referred to as the "Basic Rent Adjustment Date").
4. Method of Adjustment for CPI Adjustment.
(a) As of each Basic Rent Adjustment Date when the
average CPI determined in clause (i) below (the "Ending CPI") exceeds the
Beginning CPI (as defined in this Paragraph 4(a)), the Basic Rent in effect
immediately prior to the applicable Basic Rent Adjustment Date shall be
multiplied by a fraction, the numerator of which shall be the difference
between (i) the average CPI for the three (3) most recent calendar months (the
"Prior Months") ending prior to such Basic Rent Adjustment Date for which the
CPI has been published on or before the forty-fifth (45th) day preceding such
Basic Rent Adjustment Date and (ii) the Beginning CPI, and the denominator of
which shall be the Beginning CPI. (Solely for purposes of the foregoing
calculation, the Ending CPI cannot exceed 109% of the Beginning CPI.) 75% of
the product of such multiplication shall be added to the Basic Rent in effect
immediately prior to such Basic Rent Adjustment Date. As used herein,
"Beginning CPI" shall mean the average CPI for the three (3) calendar months
corresponding to the Prior Months, but occurring three years earlier. If the
Ending CPI is the same or less than the Beginning CPI, the Basic Rent will
remain the same for the ensuing three-year period.
(b) Effective as of a given Basic Rent Adjustment
Date, Basic Rent payable under this Lease until the next succeeding Basic Rent
Adjustment Date shall be the Basic Rent in effect after the adjustment
provided for as of such Basic Rent Adjustment Date.
(c) Notice of the new annual Basic Rent shall be
delivered to Tenant on or before the tenth (10th) day preceding each Basic
Rent Adjustment Date.
Exhibit 11
Hibbett Sporting Goods, Inc.
Statement of Computation of
Net Income Per Share
<TABLE>
<CAPTION>
Fiscal Year Ended Thirteen-Week Period Ended
------------------------------------------- -----------------------------
January 29, January 28, February 3, April 29, May 4,
1994 1995 1996 1995 1996
----------- ----------- ----------- ---------- -----------
(52 Weeks) (52 Weeks) (52 Weeks)
<S> <C> <C> <C> <C> <C>
Net income......................... $ 1,469,000 $ 2,389,000 $ 2,443,000 $ 799,000 $ 935,000
=========== =========== =========== =========== ===========
Weighted average number of
common and common equivalent
shares outstanding:
Weighted averages shares,
excluding effect of stock options 39,677,581 39,677,581 35,506,651 39,677,581 23,389,000
Effect of stock options(1)......... 0 0 106,777 0 379,133
----------- ---------- ----------- ----------- -----------
39,677,581 39,677,581 35,613,428 39,677,501 23,768,133
=========== =========== =========== =========== ===========
Net income per share............... $.04 $.06 $.07 $.02 $.04
=========== =========== =========== =========== ===========
- ---------
(1) Stock options have been included in the above computation utilizing the
treasury stock method.
</TABLE>
Exhibit 21
List of Registrant's Subsidiaries
1. Hibbett Team Sales, Inc.
(incorporated under the Alabama Business Corporation Act)
2. Sports Wholesale, Inc.
(incorporated under the Alabama Business Corporation Act)
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 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
June 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the financial
statements of Hibbett Sporting Goods, Inc. for the fiscal year ended
Febrary 3, 1996 and for the thirteen week period ended May 4, 1996 and is
qualified in its entirety by reference to such financial statements.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<PERIOD-START> JAN-29-1995 FEB-4-1996
<FISCAL-YEAR-END> FEB-3-1996 FEB-3-1996
<PERIOD-END> FEB-3-1996 MAY-4-1996
<CASH> 31 32
<SECURITIES> 0 0
<RECEIVABLES> 1,427 1,513
<ALLOWANCES> 86 95
<INVENTORY> 20,705 26,065
<CURRENT-ASSETS> 23,790 29,134
<PP&E> 19,739 15,020
<DEPRECIATION> 7,605 7,226
<TOTAL-ASSETS> 36,702 37,703
<CURRENT-LIABILITIES> 12,883 14,536
<BONDS> 0 0
<COMMON> 234 234
0 0
0 0
<OTHER-SE> (8,327) (7,392)
<TOTAL-LIABILITY-AND-EQUITY> 36,702 37,703
<SALES> 67,077 20,251
<TOTAL-REVENUES> 67,077 20,251
<CGS> 46,642 14,035
<TOTAL-COSTS> 46,642 14,035
<OTHER-EXPENSES> 14,793 3,787
<LOSS-PROVISION> 62 10
<INTEREST-EXPENSE> 1,685 910
<INCOME-PRETAX> 3,957 1,519
<INCOME-TAX> 1,514 584
<INCOME-CONTINUING> 2,443 935
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,443 935
<EPS-PRIMARY> 0.07 0.04
<EPS-DILUTED> 0.07 0.04
</TABLE>
