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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(Fee Required). For the fiscal year ended December 27, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(No Fee Required). For the transition period from to .
Commission file number 015767
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THE SPORTSMAN'S GUIDE, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1293081
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
411 FARWELL AVE., SO. ST. PAUL, MINNESOTA 55075
(Address of principal executive offices)
(612) 451-3030
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
(TITLE OF CLASS)
Common Stock, par value $.01 per share
------------------------
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
As of March 14, 1997, the aggregate market value of the registrant's Common
Stock held by nonaffiliates was approximately $4,283,289 based on the average
bid and asked price of the Common Stock on such date.
As of March 14, 1997, there were 2,333,600 shares of the registrant's Common
Stock outstanding.
Exhibit index appears at page 37.
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PART I
ITEM 1. BUSINESS
The Sportsman's Guide, Inc. ("the Company") is engaged in the retail mail
order catalog business, featuring merchandise for people who enjoy the outdoors,
for handymen/do-it-your-selfers, and for anyone who appreciates high-value,
high-quality general merchandise for everyday use. In addition, the Company
markets primarily to men and is uniquely positioned within five specialty niches
including footwear, military surplus, and hunting, shooting, and camping
equipment. The Company's merchandise is marketed via monthly and specialty
titles of The Sportsman's Guide's catalog. The Company had 1996 sales of $112.3
million. The Sportsman's Guide has had over 3.3 million customers in its
operating history of which 1.0 million purchased from the Company's catalogs
within the last twelve months. The typical Sportsman's Guide customer is a 30-50
year old male who has an interest in hunting, shooting, fishing, camping or the
outdoors in general. The average customer has a mean household income of $45
thousand. The Company also has a small retail outlet store from which it sells
discontinued, overstocked and regular catalog merchandise.
The Company was incorporated under the laws of the State of Minnesota on
March 25, 1977, as The Olen Company, Inc. At that time the Company acquired the
business and assets of The Olen Company, a sole proprietorship owned by Gary
Olen, an officer, director and shareholder of the Company. In March 1986, the
Company changed its name to The Sportsman's Guide, Inc.
MERCHANDISING
Through its catalogs, the Company offers for sale a variety of merchandise,
including manufacturers' close-outs, primarily for the individual outdoorsman.
These items include hunting and general apparel, footwear, hunting and shooting
accessories, ammunition, knives and accessories, camping equipment, general
merchandise, collectibles and a variety of gift items.
Although the Company does not manufacture any of its products, a small
percentage of the items in
the catalogs are custom-designed by the Company, including T-shirts and
sweatshirts, hunting apparel, knives, patches, shirts and other hunting
accessories.
During fiscal years 1994, 1995 and 1996, no class of similar products
contributed more than ten percent of the Company's total sales.
SUPPLIERS
The Company purchases its merchandise from a wide variety of suppliers.
Generally, the Company purchases all of its product needs for a given item from
one vendor. No single supplier accounted for more than ten percent of the
Company's purchases during 1996. The Company believes that alternative sources
are available for most of its merchandise.
The Company primarily utilizes two printers to print and mail its catalogs.
The Company is not dependent upon either of these printers to perform these
functions and has used other companies for this purpose during 1996 and prior
years.
MARKETING
Catalog publications during 1996 consisted of twelve monthly editions
complimented by ten specialty titles targeting footwear, hunting apparel,
military surplus and shooting supplies. The twenty-two catalog editions produced
during 1996 compares to twenty-three editions during 1995, and thirteen editions
in 1994. The Company first tested the specialty catalog concept during 1994 and
found it to be successful. During 1995 and 1996 this concept has been developed
into the numerous specialty editions mentioned above. The specialty titles allow
a customized marketing plan for individual consumer groups thereby
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maximizing response rates and minimizing advertising costs. New customers are
largely pursued through the more general merchandise found in the monthly
catalog editions.
The Company mailed approximately forty-five million catalogs to existing and
prospective customers during 1996, a twenty percent reduction from 1995. The
marketing activities are centered around two primary programs: new customer
acquisition and existing customer programs.
The Company's customer acquisition programs are designed to identify and
capture new customers that fit its customer profile, and once acquired, maximize
the long-term profit potential from those customers. The primary sources of
prospective customers are rented mailing lists from over sixty different direct
marketing companies and over forty periodicals. During 1996, new customers
accounted for approximately twenty percent of the Company's sales.
With ongoing refinements in the Company's approach to merchandising and
marketing, the frequency and quantity of mailings to the top segments of the
existing customer list have increased which in turn have provided significant
sales growth over the last five years. Demographic and regression analyses of
historical purchasing patterns of existing customers, including recency,
frequency and monetary modeling, are performed to assist in merchandising and
customer targeting.
During 1996, the Company has continued to expand several marketing programs
that were initiated during 1995. These programs include a buyer's club and an
installment payment plan. Customers can purchase a one year membership in the
buyer's club for a $29.99 fee, or option for a two or three year membership for
fees of $53.99 and $80.99, respectively. Club members receive exclusive
merchandise offers as well as merchandise discounts of ten percent on regularly
priced items and five percent on sale items and special buys. The Company's
installment payment plan, known as the Company's E-Z Pay Plan, is available to
all customers with orders of $50 or more. Payments under the plan consist of
twenty-five percent down with three additional installments of equal amounts in
30 day increments. No interest or additional fees are charged to the customers
who elect the E-Z Pay Plan.
As a part of its marketing approach, the Company maintains a liberal policy
of making refunds or exchanges for all merchandise returned by customers for any
reason. The Company places no time limitation on this return policy. Returned
merchandise is restocked, sold in the retail outlet, returned to the supplier or
scrapped.
ORDER PROCESSING AND FULFILLMENT
Processing of customer orders is coordinated and handled by the Company's
on-line order entry system. Approximately 70 percent of the customer orders are
placed through the Company's toll-free telephone lines which are staffed 24
hours per day, seven days per week. The Company's telemarketing department is
staffed with individuals who are familiar with the products offered in the
catalogs, and can offer assistance to customers on availability, color, size,
etc. Telemarketers use a catalog sales system with pre-written merchandise
descriptions and sales offers, entering orders directly into the Company's
on-line computer system. The remainder of the Company's sales are primarily
received through the mail or by facsimile. Mail orders are payment verified,
batched and processed through the order entry system. Customers can pay for
their orders by any combination of check or credit card. Charges are not billed
to customer credit cards until the orders are ready for shipment.
The Company promises next business day shipping on orders received by 7 p.m.
for in-stock merchandise. Virtually all of the Company's merchandise is stocked
at, and shipped from, its facility in South St. Paul, Minnesota, although a
small percentage of merchandise is drop-shipped directly to the customer by
specific vendors. The Company primarily utilizes the United Parcel Service and
the United States Postal Service for shipment of its merchandise to its
customers. When cost effective, the Company utilizes a consolidating shipper for
delivery to the United States Postal Service.
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COMPETITION
The direct marketing industry includes a wide variety of specialty and
general merchandise retailers in a highly competitive and fragmented business
environment. The Company sells its products to customers in all fifty states and
competes in the purchase and sale of merchandise with all retailers. The Company
believes that no direct competitor offers as comprehensive a selection of
products at lower prices. However, there are other mail order catalogs as well
as discount retailers that offer similar products to those found in The
Sportsman's Guide catalog. Other outdoor/hunting catalogs include Bass Pro Shops
and Cabela's. None of these catalogs focus directly on the value-oriented
outdoorsman niche but rather compete with The Sportsman's Guide only in certain
product categories. Discount retailers, such as Wal-Mart and K-Mart, offer
selected similar products to those found in the Company's catalogs but generally
at equal or higher prices.
The Company competes by emphasizing the following:
- Concentration on high quality products sold at low prices, including
manufacturers' close-outs, military surplus and unusual or hard-to-find
products which provide value to the customers.
- Creative and expansive use of art and copy where each product is
extensively described with humorous call-outs and photo captions, photos
and caricatures. Copy is written in the first person from Gary Olen, the
President of the Company, to the reader. The catalog is perceived by
customers as having entertainment value and is positioned as "The
Fun-to-Read Catalog" TM.
- Each product is hand-picked and field tested by Company Associates to
insure its quality, functionality, proper sizing and therefore its
ultimate appeal to the customers.
- Strong emphasis on customer service exists by keeping most items in stock,
allowing a guaranteed return policy, personally replying to complaints,
and providing courteous and prompt service and delivery times.
- Toll-free telephone and fax ordering and toll-free customer service lines
are provided for customer use.
SEASONALITY
The majority of the Company's sales historically occur during the third and
fourth fiscal quarters. The seasonal nature of the Company's business is due to
the catalog's focus on hunting/shooting merchandise and related accessories for
the fall and winter apparel and gifts for the holiday seasons. The following
table illustrates the seasonal trends in the Company's sales for the fiscal
years ended December 27, 1996, December 29, 1995, and December 30, 1994.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL ANNUAL
SIX MONTHS ENDED SALES
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<S> <C>
June 1994..................................................................... 37%
December 1994................................................................. 63%
June 1995..................................................................... 41%
December 1995................................................................. 59%
June 1996..................................................................... 38%
December 1996................................................................. 62%
</TABLE>
SERVICE MARK
The Company believes that its service marks, "The Sportsman's Guide" and
"The Fun-to-Read Catalog" are of significant value and has registered the
service marks with the United States Patent and
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Trademark Office and with the appropriate agencies in Canada. If continuously
used and registered, United States service marks may be used exclusively by the
owner for an indefinite period.
EMPLOYEES
As of December 27, 1996, the Company had approximately 880 Associates.
REGULATION
The Company is subject to federal, state and local laws and regulations
which affect its catalog mail order operations. Federal Trade Commission
regulations, in general, govern the manner in which orders may be solicited, the
information which must be provided to prospective customers, the time in which
orders must be shipped, obligations to customers if orders are not shipped
within the time promised, and the time in which refunds must be paid if the
ordered merchandise is unavailable or if it is returned.
In addition, the Federal Trade Commission has established guidelines for
advertising and labeling many of the products sold by the Company. The Company
is also subject to a variety of state laws and regulations relating to, among
other things, advertising, pricing, charging and collecting state sales or use
tax and product safety/restrictions.
ITEM 2. PROPERTIES
The Company's offices, warehouse and distribution facilities are located at
411 Farwell Avenue, South St. Paul, Minnesota. The Company currently leases
approximately 320 thousand square feet under a triple net lease expiring
October, 1998. All of the Company's operations are located at this facility. The
Company believes its present facilities will be sufficient for its current
operating plan.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings other than
routine litigation which is incidental to its business and which is not material
in nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock is traded in the Minneapolis-St. Paul
over-the-counter market.
The following table sets forth the quarterly high and low bid prices for the
Company's Common Stock for the past two fiscal years as reported by Metro Data
Company, a Minneapolis computer service bureau that collects quotations from
local market makers. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and do not necessarily represent actual
transactions.
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All per share amounts have been restated to reflect a one-for-ten reverse
stock split approved by the stockholders on March 5, 1997 (see Note J of Notes
To Financial Statements).
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
1996
Fourth Quarter.......................... 2 1/2 1 1/2
Third Quarter........................... 1 7/8 1 7/8
Second Quarter.......................... 1 7/8 5/16
First Quarter........................... 15/16 5/16
1995
Fourth Quarter.......................... 3 1/8 15/16
Third Quarter........................... 5 3 1/8
Second Quarter.......................... 6 7/8 2 1/2
First Quarter........................... 10 5 5/8
</TABLE>
HOLDERS
At March 14, 1997, there were approximately 312 holders of record of the
Company's Common Stock. This number does not include persons whose shares are
held in "street" or nominee name.
DIVIDENDS
The Company neither declared nor paid any cash dividends to holders of its
Common Stock during the fiscal years ended December 27, 1996 and December 29,
1995. The Company currently intends to retain all earnings for use in its
business for the foreseeable future. The Company is prohibited from paying and
declaring dividends under the terms of its revolving credit agreement.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial information with
respect to the Company's five most recent fiscal years. This selected financial
information should be read in conjunction with the Company's Financial
Statements included in this report.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED(1)
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DECEMBER 27, DECEMBER 29, DECEMBER 30, DECEMBER 31, JANUARY 1,
1996 1995 1994 1993 1993
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales...................................... $ 112,270 $ 101,832 $ 96,398 $ 60,191 $ 38,162
Earnings (loss) from operations............ 4,056 (1,229) 3,732 (26) 592
Net earnings (loss)........................ 2,327 (1,744) 2,722 (478) 511
Net earnings (loss) per common share:
Primary (2).............................. .92 (.75) 1.05 (.20) .22
Fully diluted (2)........................ .91 (.75) 1.01 (.20) .22
Weighted average number of shares
outstanding:
Primary (2).............................. 2,589 2,334 2,588 2,333 2,333
Fully diluted (2)........................ 2,589 2,334 2,700 2,333 2,333
BALANCE SHEET DATA
Total assets............................... $ 27,890 $ 23,709 $ 21,179 $ 14,546 $ 8,623
Long-term debt excluding trade creditors'
obligation............................... 3,606 287 3,873 1,900 912
Trade creditors' obligation................ -- -- 74 635 635
Stockholders' equity....................... 3,875 1,548 3,292 570 1,048
</TABLE>
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(1) The Company operates on a 52 or 53 week fiscal year ending the Friday
nearest December 31. All of the above fiscal years consisted of 52 weeks
except fiscal year ended January 1, 1993 which consisted of 53 weeks.
(2) All amounts have been restated to reflect a one-for-ten reverse stock split
approved by the stockholders on March 5, 1997 (see Note J of Notes To
Financial Statements).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Record sales during fiscal 1996 of $112.3 million were $10.5 million (10.3%)
over fiscal 1995 sales of $101.8 million. Sales improvements were primarily
driven by increases in the average customer order size and customer response.
Overall advertising expense was controlled through a 20% reduction in the
circulation plan from last year. Sales per each advertising dollar expended of
$5.76 during 1996 was significantly ahead of $4.71 during 1995. The Company
distributed a monthly publication as well as ten specialty titles during 1996.
Publications during 1996 totaled twenty-two as compared to twenty-three during
1995.
Gross profit increased $5.4 million during 1996, a 15% gain over fiscal
1995. Gross profit gains were impacted as a result of a 10.3% sales increase and
improved retail product margins. Gross profit as a percentage of sales was 35.7%
during 1996 as compared to 34.1% during 1995. Improvements in the retail
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product margins account for a majority of the performance gain in gross profit
percentage. These margin improvements are driven by a strategic plan of shifting
product offerings to a larger percentage sales mix of manufacturers' close-outs
as well as a larger sales mix in higher margin product categories, including
apparel and footwear.
Selling, general and administrative expenses during fiscal 1996 of $35.8
million were $138 thousand lower than last year. Selling, general and
administrative expenses as a percentage of sales decreased significantly to
31.9% for 1996 as compared to 35.3% for 1995. These spending efficiencies as a
percentage of sales were primarily the result of an improved circulation plan
which lowered the percentage of direct advertising expenses, offset slightly by
higher spending in other expense categories. The strategy supporting the 1996
catalog circulation plan emphasizes a reduction in the overall circulation while
optimizing advertising and customer acquisition costs with increased response
rates and profits. Total circulation during 1996 of approximately 45 million
catalogs represents a 20% decrease from last year. Effective advertising
expenses as a percentage of sales for fiscal 1996 were 17.4% as compared to
21.2% for last year.
During May 1996, the Company terminated an Agreement and Plan of Merger (the
"Agreement") executed March 8, 1996, by and among The Sportsman's Guide, Inc.,
VISTA 2000, Inc. and VISTA Acquisition Subsidiary, Inc. The Company terminated
the Agreement based on various breaches of the Agreement by VISTA 2000, Inc.
Merger related costs totaling $228 thousand were incurred during the year and
have been expensed in the statement of operations. Earnings (loss) from
operations before merger related expenses for 1996 were $4.3 million as compared
to ($1.2) million for last year.
Record earnings from operations for 1996 of $4.1 million were $5.3 million
favorable to 1995's loss from operations of ($1.2) million. Earnings (loss) from
operations as a percentage of sales was 3.6% during 1996 as compared to (1.2%)
during 1995.
Interest expense for 1996 of $981 thousand was $38 thousand (4.0%) higher
than last year's expense of $943 thousand. The weighted average interest rate
during 1996 of 10.6% was 140 basis points above last year and was largely a
reflection of the higher credit risk, associated with the Company, following
1995's soft performance.
Income tax expense for fiscal 1996 was $759 thousand as compared to an
income tax benefit of ($355) thousand in 1995. The Company's effective tax
expense (benefit) rates for 1996 and 1995 were 24.6 percent and (16.9) percent,
respectively. The Company's effective tax rate in 1996 was lower than the
statutory tax rate due to the utilization of net operating loss carryforwards.
The Company's effective tax rate in 1995 was lower than the statutory rate due
to a valuation allowance being recorded.
As a result of the aforementioned, the net earnings for fiscal 1996 were
$2.3 million as compared to a net loss of ($1.7) million for fiscal 1995. The
net primary earnings per common share in 1996 was 92 cents, compared to a net
loss per common share of (75) cents in 1995.
1995 COMPARED TO 1994
The Company's sales during fiscal 1995 were $101.8 million as compared to
$96.4 million during 1995, an increase of approximately 6 percent. The increase
in sales was a result of a 38 percent increase in total catalog mailings offset,
for the most part, by lower than anticipated customer demand. The Company
continued to increase its annual catalog publications with twenty-three editions
in 1995 as compared with thirteen editions in 1994. The lower than anticipated
customer demand was partially caused by several catalog mailings being delivered
late to the customers' homes.
Gross profit in 1995 increased $2.7 million, or 8 percent compared to fiscal
1994, primarily reflecting the increased sales volume. The gross profit as a
percentage of sales increased to 34.1 percent from 33.2 percent in 1994. The
majority of the increase in the gross profit percentage was a result of the
Company increasing shipping and handling charges on outgoing parcels to its
customers. In the aggregate, retail product margins, as a percentage of sales,
were virtually unchanged from the prior year.
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Selling, general and administrative expenses were $35.9 million or 35.3
percent of sales in 1995 compared to $28.3 million or 29.4 percent of sales in
1994. The increase in spending was primarily due to the higher catalog mailings
and higher equipment and building rent as well as increased depreciation. The
latter three items were expended to increase the capacity of the computer
system, telephone switch and warehouse. The increase as a percent of sales was
primarily due to lower than anticipated customer response on virtually all
catalogs along with higher postage and paper costs. Virtually the entire mail
order industry and retailing in general experienced softness in consumer demand
in 1995.
As a result of the above, the Company incurred a loss from operations of
($1.2) million in fiscal 1995.
Interest expense for 1995 was $943 thousand compared to $582 thousand in
1994. The increase of $361 thousand was primarily attributable to higher daily
bank borrowings as a result of higher inventory levels throughout the year.
The income tax benefit for fiscal 1995 was ($355) thousand as compared to
income tax expense of $385 thousand in 1994. The Company's effective tax expense
(benefit) rates for 1995 and 1994 were (16.9) percent and 12.4 percent,
respectively. At December 29, 1995, the Company had net operating loss
carryforwards of $3.8 million. The Company's effective tax rate in 1995 was
lower than the statutory tax rate due to a valuation allowance being recorded.
The Company's effective tax rate for 1994 was lower than the statutory tax rate
due to the utilization of net operating loss carryforwards.
As a result of the aforementioned, the net loss for fiscal 1995 was ($1.7)
million as compared to net earnings of $2.7 million for fiscal 1994. The net
loss per common share in 1995 was 75 cents, compared to net earnings per common
share of $1.05 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its operating cash needs through funds generated from
operations, borrowings under its revolving line of credit and subordinated debt
with shareholders and other investors. During 1996, the Company entered into a
credit facility providing a revolving line of credit up to $10.0 million,
subject to an adequate borrowing base, expiring in May 1998. The credit facility
provides an available base amount of $6.0 million with an additional seasonal
availability of $1.0 million in April and an additional $4.0 million from May
1st through December 15th of each year. The credit facility is available for
working capital requirements with up to $1.0 million available for letters of
credit, subject to collateral coverage requirements. The availability of funding
under the facility is subject to the sum of the principal balance and letter(s)
of credit being paid down to $3.0 million, plus 80% of installment receivables.
The paydown requirement must be maintained for not less than 15 consecutive days
between December 1st and March 31st of each year. The revolving line of credit
is secured by substantially all assets of the Company. The credit agreement
contains certain financial covenants which, among other factors, requires the
Company to maintain certain levels of year-to-date earnings (loss), tangible net
worth, a maximum debt to tangible net worth ratio and a maximum yearly level of
capital spending. The Company was in compliance with these covenants at December
27, 1996.
The Company provided $662 thousand of cash from operations during 1996
compared to providing $1.3 million in cash during 1995. The net decrease in cash
provided by operating activities resulted primarily from an increase of $3.6
million in inventory partially offset by the improved profitability of the
Company. The Company built inventory levels at year-end to support the planned
sales requirements of mailing four catalogs during January 1997, versus only one
in January 1996.
The Company had positive working capital of $3.6 million at December 27,
1996, compared to negative working capital of $2.5 million at December 29, 1995.
At December 27, 1996 the Company had a current ratio of 1.18:1.00, compared to a
current ratio of .89:1.00 at December 29, 1995. The increase of $6.1 million in
working capital during 1996 is primarily the result of the Company's improved
profitability during 1996 and the renewal of the $3.4 million in subordinated
debt, maturing June 1998.
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The Company offers its customers a four-pay installment credit plan with no
finance fees; known as the E-Z Pay Plan. As a result, the Company supported
installment receivables totaling $2.3 million at December 27, 1996 and $1.2
million at December 29, 1995. The payment plan was initiated in November, 1995.
The Company's receivable balances are generally reflective of sales volume with
approximately 12% of the Company's sales generated by customers on the
installment plan. Continuation of the four-pay installment plan will require the
allocation of working capital which the Company expects to fund from internal
operations and availability under its revolving credit facility.
The Company's utilization of cash for investment activities of $1.1 million
in 1996 was $626 thousand lower than the 1995 utilization of cash. Investment
activities during fiscal 1996 consisted of capital expenditures including
projects to develop computer software systems and enhance warehouse operations
in terms of efficiencies and capacity. During 1994, the Company began a
multi-year project of replacing and enhancing its operational and management
information system. During 1997, the Company plans to continue the system
development plan with additional hardware and software upgrades totaling $900
thousand which will be funded from operations.
The Company has entered several long-term contracts related to a building
facility, telecommunication and computer equipment, and long-distance telephone
services. The Company occupies approximately 320 thousand square feet under a
lease that expires in October, 1998. The Company has a forty-eight month lease
contract, expiring September 1999, for a telecommunication system with an
original equipment value of approximately $1.1 million. The Company has several
lease contracts with terms ranging from nineteen months to thirty-two months for
various computer equipment with an original equipment value of approximately
$924 thousand. During 1996, the Company entered into a three year agreement for
long-distance telephone service with minimum purchase commitments of
approximately $900 thousand per year.
The Company believes it will have sufficient funds available to meet current
and future commitments.
This report contains forward looking statements which are subject to change
based on various important factors, including but not limited to general
economic conditions, a changing market environment for the Company's products
and the market acceptance of the Company's catalogs.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and schedules relating to the Company are
included herein:
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Financial Statements:
Report of Independent Certified Public Accountants............................................. 12
Balance Sheets as of December 27, 1996 and December 29, 1995................................... 13
Statements of Operations for the fiscal years ended December 27, 1996, December 29, 1995 and
December 30, 1994............................................................................ 14
Statements of Changes in Stockholders' Equity for the fiscal years ended December 27, 1996,
December 29, 1995 and December 30, 1994...................................................... 15
Statements of Cash Flows for the fiscal years ended December 27, 1996, December 29, 1995 and
December 30, 1994............................................................................ 16
Notes to Financial Statements.................................................................. 17
Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts for the fiscal years ended December 27, 1996,
December 29, 1995 and December 30, 1994...................................................... 27
</TABLE>
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[Grant Thornton Letterhead]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
The Sportsman's Guide, Inc.
We have audited the accompanying balance sheets of The Sportsman's Guide,
Inc. (a Minnesota corporation) as of December 27, 1996 and December 29, 1995 and
the related statements of operations, changes in stockholders' equity, and cash
flows for each of the three fiscal years in the period ended December 27, 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 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 The Sportsman's Guide, Inc.
as of December 27, 1996 and December 29, 1995 and the results of its operations
and its cash flows for each of the three fiscal years in the period ended
December 27, 1996 in conformity with generally accepted accounting principles.
We have also audited Schedule II for each of the three fiscal years in the
period ended December 27, 1996. In our opinion, this schedule presents fairly,
in all material respects, the information required to be set forth therein.
/s/ Grant Thornton LLP
Minneapolis, Minnesota
January 29, 1997 (except for Note J,
as to which the date is March 5, 1997)
12
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 29,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable--net.................................................. $ 3,038 $ 2,231
Inventory................................................................. 17,765 14,208
Prepaid expenses.......................................................... 538 858
Promotional material...................................................... 2,194 2,114
------------ ------------
Total current assets.................................................. 23,535 19,411
PROPERTY AND EQUIPMENT--NET................................................. 4,355 4,298
------------ ------------
Total assets.......................................................... $ 27,890 $ 23,709
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft position................................................... $ 3,539 $ 1,619
Notes payable--bank....................................................... 1,497 965
Current maturities of long-term debt
Related parties......................................................... -- 2,095
Other................................................................... 52 1,368
Accounts payable.......................................................... 10,710 13,554
Accrued expenses.......................................................... 1,809 794
Customer deposits and other liabilities................................... 2,316 1,479
------------ ------------
Total current liabilities............................................. 19,923 21,874
Long-term debt
Related parties........................................................... 1,795 --
Other..................................................................... 1,811 287
Deferred income taxes 486 --
------------ ------------
Total liabilities..................................................... 24,015 22,161
COMMITMENTS AND CONTINGENCIES............................................... -- --
STOCKHOLDERS' EQUITY
Series A Preferred Stock--$.01 par value; 200,000 shares authorized,
20,000 issued and outstanding........................................... -- --
Common Stock--$.01 par value; 36,800,000 shares authorized; 2,333,600
shares issued and outstanding........................................... 23 23
Additional paid-in capital................................................ 2,350 2,350
Accumulated earnings (deficit)............................................ 1,502 (825)
------------ ------------
Total stockholders' equity............................................ 3,875 1,548
------------ ------------
Total liabilities & stockholders' equity.............................. $ 27,890 $ 23,709
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
THE SPORTSMAN'S GUIDE, INC
STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 29, DECEMBER 30,
1996 1995 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sales................................................... $ 112,270 $ 101,832 $ 96,398
Cost of sales........................................... 72,200 67,137 64,367
-------- -------- -------
Gross profit.......................................... 40,070 34,695 32,031
Selling, general and administrative expenses............ 35,786 35,924 28,299
Merger related expenses................................. 228 -- --
-------- -------- -------
Earnings (loss) from operations....................... 4,056 (1,229) 3,732
Interest expense........................................ (981) (943) (582)
Miscellaneous income (expense).......................... 11 73 (43)
-------- -------- -------
Earnings (loss) before income taxes................... 3,086 (2,099) 3,107
Income tax benefit (expense)............................ (759) 355 (385)
-------- -------- -------
Net earnings (loss)................................... $ 2,327 $ (1,744) $ 2,722
-------- -------- -------
-------- -------- -------
Net earnings (loss) per common share:
Primary............................................... $ .92 $ (.75) $ 1.05
-------- -------- -------
-------- -------- -------
Fully diluted......................................... $ .91 $ (.75) $ 1.01
-------- -------- -------
-------- -------- -------
Weighted average common and
common equivalent shares outstanding:
Primary............................................... 2,589 2,334 2,588
-------- -------- -------
-------- -------- -------
Fully diluted......................................... 2,589 2,334 2,700
-------- -------- -------
-------- -------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL ACCUMULATED
------------------------ ------------------------ PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1994.................................... 20 $ -- 2,334 $ 23 $ 2,350 $ (1,803)
Net earnings..................................... -- -- -- -- -- 2,722
--
----- ----- --- ----------- ------------
December 30, 1994.................................. 20 -- 2,334 23 2,350 919
Net loss......................................... -- -- -- -- -- (1,744)
--
----- ----- --- ----------- ------------
December 29, 1995.................................. 20 -- 2,334 23 2,350 (825)
--
----- ----- --- ----------- ------------
Net earnings..................................... -- -- -- -- -- 2,327
--
----- ----- --- ----------- ------------
December 27, 1996.................................. 20 $ -- 2,334 $ 23 $ 2,350 $ 1,502
--
--
----- ----- --- ----------- ------------
----- ----- --- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 29, DECEMBER 30,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)................................................. $ 2,327 $ (1,744) $ 2,722
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization..................................... 1,092 708 455
Deferred income taxes............................................. 486 (290) 290
Other............................................................. (44) (38) 94
Changes in assets and liabilities:
Accounts receivable............................................. (807) (1,446) (521)
Inventory....................................................... (3,557) (637) (3,419)
Prepaid expenses................................................ 320 (131) (594)
Promotional material............................................ (80) 41 (688)
Bank overdraft position......................................... 1,920 1,619 --
Accounts payable................................................ (2,844) 2,664 1,979
Accrued expenses................................................ 1,015 (249) 636
Customer deposits and other liabilities......................... 834 779 (1,079)
------------ ------------ ------------
Cash flows provided by (used in) operating activities......... 662 1,276 (125)
Cash flows from investing activities:
Purchases of property and equipment................................. (1,149) (1,911) (2,063)
Proceeds from sale of property and equipment........................ -- 136 28
------------ ------------ ------------
Cash flows used in investing activities....................... (1,149) (1,775) (2,035)
Cash flows from financing activities:
Net proceeds from revolving credit line............................. 532 965 --
Payments on trade creditors' obligation............................. -- (561) (150)
Proceeds from long-term debt........................................ -- -- 2,500
Payments on long-term debt.......................................... (45) (558) (258)
------------ ------------ ------------
Cash flows provided by (used in) financing activities......... 487 (154) 2,092
------------ ------------ ------------
Decrease in cash and cash equivalents................................. -- (653) (68)
Cash and cash equivalents at beginning of year........................ -- 653 721
------------ ------------ ------------
Cash and cash equivalents at end of year.............................. $ -- $ -- $ 653
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the years for:
Interest.......................................................... $ 1,019 $ 938 $ 613
Income taxes...................................................... $ 5 $ 191 $ 28
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Fixed assets acquired under capital lease........................... $ -- $ 17 $ 11
Disposal of fixed assets acquired under capital lease............... $ -- $ -- $ 27
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. DESCRIPTION OF BUSINESS
The Sportsman's Guide, Inc. (the Company) is a consumer catalog marketer,
offering a variety of merchandise such as apparel, footwear, hunting and
shooting accessories, ammunition, knives, optics, general merchandise,
collectibles, and a variety of gift items. The Company conducts its operations
out of one facility in South St. Paul, Minnesota and distributes its catalogs
throughout the United States.
2. RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial
statements to conform to the current year's presentation.
3. REVENUE RECOGNITION
Sales are recorded at time of shipment along with a provision for
anticipated merchandise returns, net of exchanges, is recorded based upon
historical experience. The provision charged against sales during fiscal years
1996, 1995 and 1994 was $7.4 million, $5.2 million and $4.9 million. Reserves
for returns, net of exchanges, of $640 thousand, $177 thousand and $218 thousand
were recorded in accrued expenses at December 27, 1996, December 29, 1995, and
December 30, 1994.
Amounts billed to customers for shipping and handling of orders are netted
against the associated costs.
Customers can purchase one year memberships in the Company's buyer's club
for a $29.99 annual fee. The Company also offers two and three year memberships
at $53.99 and $80.99, respectively. Club members receive merchandise discounts
of 10% on regularly priced items and 5% on sale items and special buys.
Membership fees are deferred and recognized in income as the members place
orders and receive discounts. After 50% of the membership term, members can no
longer cancel their memberships, and any remaining deferred membership fees are
recognized as income.
4. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary investments purchased with
an original maturity of three months or less to be cash equivalents. The Company
also considers credit card settlements in-transit as cash for reporting
purposes. Chargebacks from the credit card companies are charged against
operations at the time initiated by the credit card company.
5. BANK OVERDRAFT POSITION
As a result of maintaining a consolidated cash management system, the
Company maintains overdraft positions at its primary bank. Such overdrafts are
consistent with the Company's cash management strategy of utilizing the "float"
on outstanding checks written. When outstanding checks exceed the bank cash
balances, the bank overdraft position is included in current liabilities.
6. ACCOUNTS RECEIVABLE
Accounts receivable consists primarily of amounts owed for merchandise by
customers utilizing the four payment installment plan, and amounts owed for list
rental and other advertising services by other
17
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
companies. The Company had an allowance for doubtful accounts of $140 thousand
at December 27, 1996. No allowance was provided for at December 29, 1995.
7. INVENTORY
Inventory consists of purchased finished merchandise available for sale and
is recorded at the lower of cost or market with the first-in, first-out (FIFO)
method used to determine cost for inventory.
8. PROMOTIONAL MATERIAL
The cost of producing and mailing catalogs is deferred and expensed over the
estimated useful lives of the catalogs. Catalog production and mailing costs are
amortized over periods ranging from four to six months from the in-home date of
the catalog. The ongoing cost of developing and maintaining the customer list is
charged to operations as incurred.
9. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. The Company capitalizes external and incremental internal costs of
developing computer software for internal use that represent major enhancements
and/or replacements of operating and management systems. Depreciation and
amortization is computed using the straight-line method.
10. INCOME TAXES
Deferred tax assets and liabilities represent the tax effects, based on
current tax law, of future deductible or taxable items that have been recognized
in the financial statements.
11. STOCK OPTIONS
The Company's employee stock option plans are accounted for under the
intrinsic value method.
12. NET EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is computed by dividing net earnings
(loss) by the weighted average number of common and common equivalent shares
outstanding. Net earnings (loss) per common share was calculated using the
modified treasury stock method in fiscal 1996 and the treasury stock method in
fiscal 1995 and 1994.
13. FISCAL YEAR
The Company's fiscal year ends on the Friday nearest December 31. Fiscal
years 1996, 1995 and 1994 consisted of 52 weeks.
14. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and
18
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE B--RELATED PARTY TRANSACTIONS
The Company purchased approximately $41 thousand, $175 thousand and $448
thousand of inventory during fiscal years 1996, 1995 and 1994 from companies
owned by family members of certain officers and directors of the Company.
The Company purchased approximately $3.0 million, $4.4 million and $6.7
million of inventory during the fiscal years 1996, 1995 and 1994 from companies
partially owned by a director of the Company.
The Company incurred interest expense on related party debt of $172
thousand, $172 thousand and $171 thousand in 1996, 1995 and 1994.
NOTE C--PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
DECEMBER 27, DECEMBER 29, USEFUL
1996 1995 LIVES
------------ ------------ -----------
<S> <C> <C> <C>
Machinery, equipment and furniture........................... $ 2,343 $ 2,152 5-12 years
Equipment under capital leases............................... 133 133 5 years
Leasehold improvements....................................... 853 802 Lease life
Computer equipment and accessories........................... 935 853 5 years
Computer software............................................ 2,553 1,728 5 years
------------ ------------
6,817 5,668
Less accumulated depreciation and amortization............... (2,462) (1,370)
------------ ------------
$ 4,355 $ 4,298
------------ ------------
------------ ------------
</TABLE>
19
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE D--COMMITMENTS AND CONTINGENCIES
The Company has entered several long-term contracts related to a building
facility, telecommunications and computer equipment, and long-distance telephone
services. The Company occupies approximately 320 thousand square feet under a
lease that expires in October, 1998. In addition to the base rent, the lease
requires the Company to pay real estate taxes, utilities, insurance and
maintenance, therefore these costs are included in future minimum lease
payments. The Company has several operating leases relating to telecommunication
and computer equipment with varying terms ranging from nineteen to forty-eight
months. During 1996, the Company entered into a three year agreement for
long-distance telephone services with minimum purchase commitments of
approximately $900 thousand per year.
Future minimum commitments under the above agreements at December 27, 1996
are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 2,777
1998................................................................ 2,299
1999................................................................ 928
2000................................................................ 4
---------
$ 6,008
---------
---------
</TABLE>
Rent expense for fiscal years 1996, 1995 and 1994 was $1.8 million, $1.7
million and $.9 million.
The Company is not a party to any pending legal proceedings other than
routine litigation which is incidental to its business and which is not material
in nature.
Several states, where the Company does not currently collect and remit sales
and use taxes, have attempted to enact legislation that seeks to require
out-of-state mail order companies to collect and remit such taxes. No
assessments have been made against the Company, and, to its knowledge, none has
been threatened or is contemplated. The United States Supreme Court held such
taxes place an unconstitutional burden on interstate commerce, which may only be
resolved by actions of the United States Congress.
NOTE E--REVOLVING CREDIT FACILITY
During 1996, the Company entered into a credit facility providing a
revolving line of credit up to $10.0 million, subject to an adequate borrowing
base, expiring in May 1998. The credit facility provides an available base
amount of $6.0 million with an additional seasonal availability of $1.0 million
in April and an additional $4.0 million from May 1st through December 15th of
each year. The revolving line of credit is for working capital and letters of
credit. Commercial letters of credit may not exceed $1.0 million at any time.
Borrowings under the revolving line of credit bear interest at the bank's prime
rate plus an applicable percentage point spread. As of December 27, 1996 the
spread was 1.5%. The spread cannot exceed 1.5% at any time, but may be lower if
the Company meets certain debt to tangible net worth ratio levels. The
availability of funding under the facility is subject to the sum of the
principal balance and letter(s) of credit being paid down to $3.0 million, plus
80% of installment receivables. The paydown requirement must be maintained for
not less than 15 consecutive days between December 1st and March 31st of each
year. The revolving line of credit is secured by substantially all assets of the
Company.
All borrowings are subject to various monthly covenants. The most
restrictive covenants require certain levels of year-to-date net earnings
(loss), tangible net worth, a maximum debt to tangible net worth
20
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE E--REVOLVING CREDIT FACILITY (CONTINUED)
ratio and a maximum yearly level of capital spending. As of December 27, 1996,
the Company was in compliance with all applicable covenants under the revolving
line of credit agreement.
The following is a summary of the credit facility (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance at end of year............................................. $ 1,497 $ 965 --
Interest rate at year-end.......................................... 9.75% 9.5% 10.0%
Maximum month-end borrowing during the year........................ $ 9,765 $ 11,720 $ 6,985
Average daily borrowing during the year............................ $ 6,029 $ 6,729 $ 2,445
Weighted average interest rate during the year..................... 10.6% 9.2% 9.3%
</TABLE>
NOTE F--LONG-TERM DEBT
Long-term debt is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 29,
1996 1995
------------- -------------
<S> <C> <C>
Subordinated notes payable to stockholders, interest at 1.75% over prime but not less
than 9%, payable quarterly (effective rate of 10% at December 27, 1996), principal
due June 1998. Collateralized by the assets of the Company. (a).................... $ 3,414 $ 3,414
Note payable to a government agency, interest at 4%, principal and interest payable
annually through June 1998. Collateralized by machinery, equipment and furniture
and fixtures. (b).................................................................. 182 220
Capitalized leases and other......................................................... 62 116
------ ------
3,658 3,750
Less current maturities.............................................................. 52 3,463
------ ------
$ 3,606 $ 287
------ ------
------ ------
</TABLE>
- ------------------------
(a) These notes were renewed during 1996. In connection with the renewal, the
Company issued warrants to purchase 341,400 shares of common stock (see Note
H). The above notes payable to stockholders are subordinate to present and
future financial institution borrowings (see Note E).
(b) Financing obtained from a government agency in connection with the Company's
new facility lease. Annual principal payments of $30 thousand plus interest
are required, with the final payment of $160 thousand due in June 1998.
Principal of $13 thousand will be forgiven each year if the Company attains
certain payroll levels. In 1996 and 1995, the required payroll level was
achieved. If the Company renews its lease in 1998, the final payment of $160
thousand will be restructured to be payable over five additional years.
21
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE F--LONG-TERM DEBT (CONTINUED)
Aggregate maturities of long-term debt at December 27, 1996 are as follows
(in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 52
1998................................................................ 3,574
---------
$ 3,626
---------
---------
</TABLE>
The fair value of long-term debt approximates the carrying value at December
27, 1996.
NOTE G--INCOME TAXES
The provision for income tax expense (benefit) consists of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal............................................................. $ 263 $ (70) $ 89
State............................................................... 10 5 6
--------- --------- ---------
273 (65) 95
Deferred
Federal............................................................. 486 (290) 290
--------- --------- ---------
$ 759 $ (355) $ 385
--------- --------- ---------
--------- --------- ---------
</TABLE>
Differences between income tax expense (benefit) and amounts derived by
applying the statutory federal income tax rate to earnings (loss) before income
taxes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
U.S. federal statutory rate........................................ 34.0% (34.0)% 34.0%
Change in valuation allowance...................................... (13.7) 20.2 (21.7)
Adjustment of prior years' accruals................................ 3.8 -- --
Other.............................................................. .5 (3.1) .1
--------- --------- ---------
24.6% (16.9)% 12.4%
--------- --------- ---------
--------- --------- ---------
</TABLE>
22
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE G--INCOME TAXES (CONTINUED)
The components of the net deferred tax asset and liability at December 27,
1996 and December 29, 1995, calculated at 34% consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 29,
1996 1995
------------- -------------
<S> <C> <C>
Current deferred tax assets (liabilities):
Inventory capitalization............................................... $ 219 $ 185
Inventory reserve...................................................... 218 51
Vacation accrual....................................................... 99 100
Returns reserve........................................................ 218 60
Net operating loss carryforwards....................................... -- 1,277
Promotional material................................................... (618) (671)
Prepaid expenses....................................................... (148) (240)
Income tax credits..................................................... 137 66
Other.................................................................. 94 21
----- ------
219 849
Valuation allowance.................................................... -- (424)
----- ------
Deferred tax asset....................................................... 219 425
Long-term deferred tax assets (liabilities):
Depreciation........................................................... (238) (306)
Internally developed software.......................................... (467) (107)
Other.................................................................. -- (12)
----- ------
Deferred tax liability................................................... (705) (425)
----- ------
Net deferred tax liability............................................... $ (486) $ --
----- ------
----- ------
</TABLE>
NOTE H--STOCKHOLDERS' EQUITY
The Company has 40,000,000 authorized shares; 200,000 of Series A Preferred
Stock, 36,800,000 of Common Stock and 3,000,000 undesignated shares.
STOCK OPTIONS
The Company has a stock option plan (the "1991 Plan") which provides
participating employees the right to purchase common stock of the Company
through incentive stock options. A total of 35,000 shares of common stock are
reserved for under the 1991 Plan and options are exercisable over a ten year
period from the date of grant. A total of 30,750 options were granted at a range
of exercise prices from $2.00 to $2.50 per share. A total of 19,750 options at a
range of exercise prices from $2.00 to $2.50 per share were canceled. A total of
250 options at an exercise price of $2.50 were exercised. During 1996, a total
of 6,750 options at an exercise price of $2.00 expired. At December 27, 1996, a
total of 3,000 options were exercisable.
During 1993, the Company issued options to purchase 55,000 shares of the
Company's common stock at $2.50 per share to an officer of the Company. The
options which are nontransferable, may only be exercised within 6 months of the
occurrence of any of the following events or they terminate: the death or
permanent disability of the officer, retirement at age 62, termination of
employment without cause or a
23
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE H--STOCKHOLDERS' EQUITY (CONTINUED)
public offering of the Company's common stock. None of the options were
exercisable at December 27, 1996.
During 1993, the Company also issued options to purchase 5,000 shares of the
Company's common stock at $2.50 per share to a director and former officer of
the Company. All of the options were exercisable at December 27, 1996 and expire
in 1997.
The Company has a non-qualified stock option plan (the "1994 Plan") which
provides for the issuance of up to 100,000 options to purchase shares of the
Company's common stock to certain employees, contingent upon meeting certain
quarterly pre-tax earnings levels. Options under the 1994 Plan are exercisable
over a three year period from the date of grant. A total of 50,000 options were
granted at a range of exercise prices from $3.70 to $8.70 per share. During
1995, a total of 1,000 options at a range of exercise prices from $3.70 to $8.70
were canceled. During 1996, a total of 4,125 options at a range of exercise
prices from $3.70 to $8.70 were canceled. The remaining 44,875 options were
exercisable at December 27, 1996.
The Company has an incentive stock option plan (the "1996 Plan") which
provides selected key employees the right to purchase stock of the Company
through the exercise of options granted. A total of 400,000 shares of common
stock are reserved for under the 1996 Plan and options are exercisable over a
ten year period from the date of grant. A total of 125,000 options were granted
at an exercise price of $2.50. All of the options were exercisable at December
27, 1996.
The following applies to options that are outstanding at December 27, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF REMAINING
EXERCISE NUMBER CONTRACTUAL WEIGHTED AVERAGE
PRICES OUTSTANDING LIFE EXERCISE PRICE
- -------------- ----------- --------------- -----------------
<S> <C> <C> <C>
$2.50 - $3.70 197,150 9 years $ 2.50
$5.30 - $5.50 17,675 1 year $ 5.40
$8.70 19,050 1 year $ 8.70
-----------
233,875
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
RANGE OF
EXERCISE NUMBER WEIGHTED AVERAGE
PRICES EXERCISABLE EXERCISE PRICE
- -------------- ----------- -----------------
<S> <C> <C> <C>
$2.50 - $3.70 141,150 $ 2.60
$5.30 - $5.50 17,675 $ 5.40
$8.70 19,050 $ 8.70
-----------
177,875
-----------
-----------
</TABLE>
Exercise prices for all of the options granted were at the fair value of the
Company's common stock on the respective grant dates. No compensation expense
has been recorded by the Company in the previous three years.
24
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE H--STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the stock option transactions during fiscal years 1996, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year................ 121,750 $ 4.03 104,500 $ 3.12 82,250 $ 3.07
Granted....................................... 125,000 2.50 20,000 8.70 30,000 4.83
Exercised..................................... -- -- -- -- (250) 2.50
Forfeited..................................... (6,125) 4.30 (2,750) 3.25 (7,500) 2.40
Expirations................................... (6,750) 2.00 -- -- -- --
--------- --------- ---------
Outstanding at end of year...................... 233,875 $ 3.27 121,750 $ 4.03 104,500 $ 3.12
--------- --------- ---------
--------- --------- ---------
Options exercisable at end of year.............. 177,875 $ 3.50 64,750 $ 5.40 41,500 $ 4.10
--------- --------- ---------
--------- --------- ---------
Weighted average fair value of options granted
during the year............................... $ 1.30 $ 2.20 N/A
</TABLE>
25
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE H--STOCKHOLDERS' EQUITY
The Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), which introduced an
alternative method for recognizing compensation costs based upon the fair market
value of the awards on the date they are granted. SFAS 123 allows entities to
continue to account for stock options using the intrinsic value method, provided
pro forma net earnings and net earnings per share as if the fair value based
method had been used are disclosed. The effect of implementing SFAS 123 is not
material to the Company's 1996 pro forma net earnings, although this may not be
representative of the future effects of applying this statement.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used: zero dividend yield; expected volatility of 25 percent;
risk-free interest rate of 6 percent; and an expected life of 10 years.
WARRANTS
In connection with private placements of debt in 1993 and 1994, stock
warrants to purchase 374,700 shares of the Company's common stock were issued to
the debtors. Of these stock warrants, 50,000 were issued at $2.50 per share and
expire in June 1998, and 324,700 were issued at $1.88 per share and expire in
April 1999.
In connection with the extension of $3.4 million in subordinated debt in May
1996, subordinated debt holders received a total of 341,400 warrants to purchase
the Company's common stock at an exercise price of $1.81 per share. Each
subordinated debt holder received one new warrant for every $10 in subordinated
debt. All warrants are exercisable at December 27, 1996 and expire in 2001.
In the aggregate, warrants to purchase 716,100 shares of common stock were
exercisable at December 27, 1996.
NOTE I--ADVERTISING EXPENSE
Selling, general and administrative expenses include advertising expenses of
$19.5 million, $21.6 million and $15.1 million for 1996, 1995 and 1994.
NOTE J--SUBSEQUENT EVENT
Subsequent to year end the Company's Board of Directors approved a
one-for-ten reverse stock split which was approved by the stockholders on March
5, 1997. All share and per share amounts have been restated to reflect the
effect of the reverse stock split.
26
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN C
------------------------------
COLUMN B ADDITIONS
------------- ------------------------------ COLUMN D COLUMN E
COLUMN A BALANCE AT CHARGED TO: ----------- ---------------
- --------------------------------------------- BEGINNING OF COSTS AND CHARGED TO: OTHER DEDUCTIONS BALANCE AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DESCRIBE DESCRIBE OF PERIOD
- --------------------------------------------- ------------- ----------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
RETURNS RESERVE
December 27, 1996............................ $ 177 $ 7,371 -- $ 6,908* $ 640
December 29, 1995............................ 218 5,230 -- 5,271* 177
December 20, 1994............................ 312 4,941 -- 5,035* 218
</TABLE>
- ------------------------
* Represents actual returns from customers.
27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to each director and
executive officer of the Company.
VINCENT W. SHIEL, 64, has been a director of the Company since 1990, and has
extensive experience in the sporting goods industry. Dr. Shiel was elected
Chairman on April 27, 1994. From 1984 through 1988, Dr. Shiel served on the
board of directors and owned a controlling interest in Gander Mountain, Inc., a
Wisconsin retail mail-order catalog company specializing in outdoor sporting
equipment. Dr. Shiel has not been associated with Gander Mountain since 1988.
Gander Mountain, which has been a competitor of the Company, discontinued its
catalog operations during 1996. Dr. Shiel owns an interest and serves as a
director of ABN Sports Supply, Inc., a Mansfield, Ohio based wholesale firearms
distributor. Dr. Shiel is a principal shareholder of and has served as
President, director, and consultant to Outdoor Consulting, Inc., a management
consulting firm, for the past nine years.
GARY OLEN, 55, is a co-founder of the Company and served as its Executive
Vice President and Secretary from its incorporation until December 31, 1993. Mr.
Olen was elected President and Chief Operating Officer of the Company on January
1, 1994. Mr. Olen was elected Chief Executive Officer on April 27, 1994. Mr.
Olen has been a director of the Company since its incorporation. From 1970
through 1977, Mr. Olen was employed as the Marketing Director for Fidelity File
Box, Inc. From 1967 through 1970, Mr. Olen was a Merchandise Manager with C&H
Distributors, a specialty mail order catalog business specializing in the sale
of industrial and office equipment. From 1960 through 1967, Mr. Olen was
employed in the catalog division of J.C. Penney Company. Mr. Olen was also the
sole proprietor of the predecessor of the Company.
LEONARD M. PALETZ, 62, is a co-founder of the Company and served as its
Chairman, Chief Executive Officer, Treasurer and a director from the Company's
incorporation in 1977 until 1994. Mr. Paletz resigned his offices of Chairman,
Chief Executive Officer and Treasurer, retiring as an employee of the Company
effective December 31, 1994. Mr. Paletz also served as the Company's President
from its incorporation through December 31, 1993. From 1962 through 1977, Mr.
Paletz was employed by Fidelity File Box, Inc. in various positions including
Vice President and General Manager. Mr. Paletz was also a director and
shareholder of Fidelity File Box, which sells, through mail order catalogs,
corrugated storage products, office and industrial equipment and office and
industrial supplies.
MARK F. KROGER, 43, has been a director of the Company since 1990. He is the
Chairman of the Board, President, Chief Executive Officer and Treasurer of ABN
Sports Supply, Inc. Mr. Kroger has served as President of ABN since 1986 and is
a member of its board of directors. Mr. Kroger has over 22 years experience in
the sporting goods industry.
WILLIAM T. SENA, 60, has been a director of the Company since 1990. He is an
investment advisor with Sena Weller Rohs Williams, Inc., a Cincinnati, Ohio
investment advisory firm. Mr. Sena has been associated with the investment
advisory firm and/or its predecessor since 1965. Mr. Sena is also a director of
Phoenix Medical Technology, Inc.
GREGORY R. BINKLEY, 48, has been a director of the Company since 1995. Mr.
Binkley has been employed by the Company since February, 1994 and was elected
Vice President in 1994, Senior Vice President of Operations and Chief Operating
Officer in 1995 and Executive Vice President in 1996. From 1993 to 1994, Mr.
Binkley served as an independent operations consultant. From 1990 to 1993, Mr.
Binkley was employed by the operations division of Fingerhut Companies, Inc., a
mail-order catalog business.
28
<PAGE>
CHARLES B. LINGEN, 52, has been a director of the Company since December,
1995. Mr. Lingen has been employed by the Company since May, 1994 as its Chief
Financial Officer, Vice President-Finance and Treasurer and in 1996 was elected
Senior Vice President of Finance. In 1995, Mr. Lingen was elected to serve as
Secretary of the Company. From 1973 to 1994, Mr. Lingen was employed by
Fingerhut Companies, Inc., a mail-order catalog business.
WILLIAM G. LUTH, 47, has been employed by the Company since June, 1995 and
was elected Vice President-Marketing in December, 1995 and in 1996 was elected
Senior Vice President of Marketing. Mr. Luth has numerous years experience in
the direct marketing industry, including being employed by Fingerhut Companies,
Inc. from 1994 to 1995, serving as an independent consultant to a direct
marketing catalog firm from 1993 to 1994, and being employed by Lands' End, a
mail-order catalog business, from 1992 to 1993 and Fingerhut Companies, Inc.
from 1982 to 1992.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and ten percent beneficial owners of the
Company's Common Stock to file reports with the Securities and Exchange
Commission. The Company believes that during fiscal 1996, all filing
requirements applicable to its directors, executive officers, and ten percent
beneficial owners were met.
29
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid to the named
executive officers for the services rendered in all capacities to the Company
for each of the fiscal years indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- -------------
SALARY OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) (#)
- --------------------------------------------------------------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C>
Gary Olen ........................................................... 1996 137,127 158,000 38,950
President and Chief Executive Officer 1995 126,253 -- --
1994 125,000 95,571 21,875
Gregory R. Binkley .................................................. 1996 103,275 86,500 21,210
Executive Vice President and Chief Operating Officer 1995 98,269 -- --
1994 76,827 47,785 5,313
Charles B. Lingen ................................................... 1996 97,218 79,500 17,670
Senior V.P. of Finance, Chief Financial Officer and 1995 90,816 -- --
Secretary/Treasurer 1994 49,759 19,114 1,875
William G. Luth ..................................................... 1996 94,311 79,500 17,670
Senior V.P. of Marketing (1) 1995 42,489 -- --
1994 -- -- --
</TABLE>
- ------------------------
(1) Mr. Luth was elected as an executive officer of the Company in December,
1995.
The following table sets forth information with respect to the named
executive officers concerning the grant of options during fiscal 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- ------------------------------------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF # OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/ SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ------------------------------------- ------------- --------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gary Olen............................ 38,950 31.1% 2.50 10/21/06 158,614 252,566
Gregory R. Binkley................... 21,210 17.0% 2.50 10/21/06 86,372 137,533
Charles B. Lingen.................... 17,670 14.1% 2.50 10/21/06 71,956 114,579
William G. Luth...................... 17,670 14.1% 2.50 10/21/06 71,956 114,579
</TABLE>
The following table sets forth information with respect to the named
executive officers concerning options held at fiscal year end 1996.
30
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES VALUE OPTIONS/SARS AT FY-END(#) FY-END($)
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE # ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary Olen.......................... -- -- 21,875 93,950 -- --
Gregory R. Binkley................. -- -- 5,313 21,210 -- --
Charles B.Lingen................... -- -- 1,875 17,670 -- --
William G. Luth.................... -- -- -- 17,670 -- --
</TABLE>
EMPLOYMENT AGREEMENTS
No employment agreements are currently in effect with any of the Company's
officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is comprised of Dr.
Shiel, Mr. Paletz and Mr. Sena. Mr. Paletz is a former chief executive officer
of the Company. During 1996, the Company purchased merchandise inventory in the
amount of $3.0 million from ABN Sports Supply, Inc. of which Dr. Shiel is a
shareholder and director.
31
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 14, 1997, certain information
regarding the beneficial ownership of Common Stock and Preferred Stock of the
Company by each director and named executive officer of the Company, all
directors and executive officers as a group, and each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock or Preferred Stock of the Company.
<TABLE>
<CAPTION>
TITLE OF NO. OF
NAME OF BENEFICIAL OWNER(1) CLASS SHARES PERCENT OF CLASS(2)
- ----------------------------------------------------------------- ------------ ------------ ---------------------
<S> <C> <C> <C>
Vincent W. Shiel................................................. Common 692,353(3) 27.4%
6900 Golf House Drive Preferred 10,000(4) 50.0%
Hobe Sound, FL 33455
Mark F. Kroger................................................... Common 102,836(5) 4.4%
110 Baird Parkway Preferred 1,000 5.0%
Mansfield, OH 44903
Leonard M. Paletz................................................ Common 260,420(6) 10.9%
4740 S. Ocean Blvd., #814
Highland Beach, FL 33487
Gary Olen........................................................ Common 105,058(7) 4.5%
411 Farwell Avenue
So. St. Paul, MN 55075
William T. Sena.................................................. -- -- --
300 Main Street
Cincinnati, OH 55075
Gregory R. Binkley............................................... Common 15,313(8) *
411 Farwell Avenue
So. St. Paul, MN 55075
Charles B. Lingen................................................ Common 1,875(9) *
411 Farwell Avenue
So. St. Paul, MN 55075
William G. Luth.................................................. -- -- --
411 Farwell Avenue
So. St. Paul, MN 55075
All directors and officers as a group (8 persons)................ Common 1,177,855(10) 45.3%
Preferred 11,000 55.0%
</TABLE>
- ------------------------
* Less than 1% of outstanding shares
32
<PAGE>
Holders of More Than 5% of Common Stock of the Company (in addition to
directors and executive officers named above):
<TABLE>
<CAPTION>
TITLE OF PERCENT OF
NAME OF BENEFICIAL OWNER(1) CLASS NO. OF SHARES CLASS(2)
- ------------------------------------------------------------------------ ------------ ------------- -------------
<S> <C> <C> <C>
Stuart A. Shiel ........................................................ Common 183,334(11) 7.8%
37710 Tinwood Court
Magnolia, TX 77355
Susan M. Mills ......................................................... Common 194,688(12) 8.3%
640 Hay Avenue Preferred 3,920 19.6%
Brookville, OH 45309
Ralph E. Heyman ........................................................ Common 497,488(13) 20.5%
1100 Courthouse Plaza, SW
Dayton, OH 45402
Frederick J. Kroger .................................................... Common 166,236(14) 6.9%
905 East Third Street Preferred 3,000 15.0%
Dayton, OH 45402
Thomas A. Smith ........................................................ Common 128,000(15) 5.4%
96 N.E. 4th Avenue
Delray Beach, FL 33444
</TABLE>
- ------------------------
Footnotes:
(1) Unless otherwise indicated, all shares are held of record and beneficially
owned by the person indicated.
(2) Percentages are calculated on the basis of the number of shares outstanding
on March 14, 1997, plus the number of shares issuable pursuant to presently
exercisable options and stock warrants for that individual.
(3) Includes 572,351 shares (147,348 of which represent shares issuable upon
the exercise of stock warrants) held in the name of Vincent W. Shiel as
Trustee and Settlor of the Vincent W. Shiel Revocable Trust and 120,002
shares (45,001 of which represent shares issuable upon the exercise of stock
warrants) held in the name of Helen M. Shiel, the wife of Dr. Shiel, as
Trustee and Settlor of the Helen M. Shiel Revocable Trust.
(4) Includes 7,500 shares held in the name of Vincent W. Shiel as Trustee and
Settlor of the Vincent W. Shiel Revocable Trust and 2,500 shares held in the
name of Helen M. Shiel as Trustee and Settlor of the Helen M. Shiel
Revocable Trust.
(5) Includes 9,501 shares issuable upon the exercise of stock warrants.
(6) Includes 46,020 shares issuable upon the exercise of stock warrants and
5,000 shares issuable upon the exercise of an option.
(7) Includes 21,875 shares issuable upon the exercise of options.
(8) Includes 2,000 shares held in the name of Mr. Binkley's wife and 5,313
shares issuable upon the exercise of options.
(9) Includes 1,875 shares issuable upon the exercise of options.
(10) Includes 281,933 shares issuable upon the exercise of stock warrants and
options.
(11) Includes 20,000 shares issuable upon the exercise of stock warrants. Does
not include 172,665 shares held in trust for the benefit of Stuart Shiel's
children. Mr. Shiel expressly disclaims beneficial ownership of all such
shares.
33
<PAGE>
(12) Includes 11,760 shares issuable upon the exercise of stock warrants.
(13) Includes 97,652 shares issuable upon the exercise of stock warrants as a
trustee of various trusts. Mr. Heyman holds 397,836 shares as a trustee of
various trusts, of which he has no pecuniary interest.
(14) Includes 72,901 shares issuable upon the exercise of stock warrants.
(15) Includes 40,000 shares issuable upon the exercise of stock warrants as a
trustee of various trusts. Mr. Smith holds 88,000 shares as a trustee of
various trust, of which he has no pecuniary interest.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
On January 11, 1990, the Company entered into a Consulting Agreement with
Outdoor Consulting, Inc., pursuant to which Outdoor Consulting provides
consulting services to the Company for $4 thousand per month plus certain
out-of-pocket expenses. The initial term of the agreement expired on December
31, 1990, and continues on a year-to-year basis until terminated by either party
upon 60 days prior written notice or unless sooner terminated. Vincent W. Shiel
is the controlling shareholder of Outdoor Consulting, Inc.
In February, 1994, the Company issued $3.2 million of debt in a private
placement transaction to certain shareholders, including Vincent Shiel, Leonard
Paletz and Mark Kroger. The debt is represented by promissory notes bearing
interest at the rate of 8% per annum payable quarterly. Pursuant to the terms of
the notes, the entire principal amount was payable in February, 1996 which was
extended until May 1996. Of the entire financing, $2.5 million represented
additional funds provided to the Company to meet certain working capital needs,
$500 thousand represented a rollover of the payment of short-term promissory
notes issued in June, 1993, $167 thousand represented a rollover of the
principal payments due on subordinated debt in January, 1994 and $80 thousand
represented a rollover of a principal payment to Mr. Paletz. Warrants to
purchase 324,700 shares of common stock of the Company were attached to the
promissory notes issued in 1994.
In May, 1996, the Company issued $3.4 million of debt in a private placement
to replace and renew the 1994 financing and certain other subordinated debt. The
new notes bear interest at 1.75% over prime, but not less than 9% per annum,
payable quarterly. Pursuant to the terms of the notes, the entire principal
amount is payable in June, 1998. Warrants to purchase 341,400 shares of common
stock of the Company, at an exercise price of $1.81, were attached to these
promissory notes. The promissory notes are secured by the assets of the Company
subordinate to financing held by a financial institution. The Company's
aggregate interest expense during 1996 for all of these financings was $317
thousand.
During fiscal 1996, the Company purchased merchandise inventory in the
amount of $3.0 million from ABN Sports Supply, Inc. of which Dr. Shiel is a
shareholder and director and Mark Kroger is a shareholder, director and
President of this company. The Company believes the terms of such purchases were
as favorable as could have been obtained from an unrelated party.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS:
The following financial statements of the Company are included herein at
Item 8.
Report of Independent Certified Public Accountants
Balance Sheets as of December 27, 1996 and December 29, 1995
Statements of Operations for the fiscal years ended December 27, 1996,
December 29, 1995 and December 30, 1994
34
<PAGE>
Statements of Changes in Stockholders' Equity for the fiscal years ended
December 27, 1996, December 29, 1995 and December 30, 1994
Statements of Cash Flows for the fiscal years ended December 27, 1996,
December 29, 1995 and December 30, 1994
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULES:
The following financial statement schedule of the Company is included herein
at Item 8.
Schedule II--Valuation and Qualifying Accounts for the fiscal years
ended December 27, 1996, December 29, 1995 and December 30, 1994
3. EXHIBITS: See Exhibits Index at page 37 of this report.
(B) REPORTS ON FORM 8-K: None.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE SPORTSMAN'S GUIDE, INC. Date: March 14, 1997
By /s/ GARY OLEN By /s/ CHARLES B. LINGEN
---------------------------------- ----------------------------------
Gary Olen Charles B. Lingen
PRESIDENT AND CHIEF EXECUTIVE CHIEF FINANCIAL OFFICER,
OFFICER SECRETARY, TREASURER AND SENIOR
VICE PRESIDENT OF FINANCE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of The
Sportsman's Guide, Inc., The Registrant, and in the capacities and on the dates
indicated.
By /s/ GARY OLEN By /s/ VINCENT W. SHIEL
---------------------------------- ----------------------------------
Gary Olen, Vincent W. Shiel,
PRESIDENT, CHIEF EXECUTIVE OFFICER CHAIRMAN AND DIRECTOR
AND DIRECTOR
By /s/ GREGORY R. BINKLEY By /s/ CHARLES B. LINGEN
---------------------------------- ----------------------------------
Gregory R. Binkley, Charles B. Lingen,
CHIEF OPERATING OFFICER, EXECUTIVE CHIEF FINANCIAL OFFICER,
VICE PRESIDENT AND DIRECTOR SECRETARY, TREASURER, SENIOR VICE
PRESIDENT OF FINANCE AND DIRECTOR
By /s/ MARK KROGER By /s/ WILLIAM T. SENA
---------------------------------- ----------------------------------
Mark Kroger, William T. Sena,
DIRECTOR DIRECTOR
By /s/ LEONARD M. PALETZ
----------------------------------
Leonard M. Paletz,
DIRECTOR
Date: March 14, 1997
The undersigned, by signing his name hereto, does sign and execute this
report on behalf of each of the above-named directors of The Sportsman's Guide,
Inc. pursuant to a power of attorney executed by each such director and filed
with the Securities Exchange Commission as an exhibit to this report.
By /s/ GARY OLEN
----------------------------------
Gary Olen
ATTORNEY-IN-FACT
36
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- ---------
<S> <C>
3.1 Restated Articles of Incorporation as restated through March 5, 1997
3.2 Bylaws (incorporated by reference from Exhibit 3.2 to the Registration Statement)
4.1 Specimen of the Company's Common Stock certificate (incorporated by reference from Exhibit 4.1 to
Amendment No. 1 to the Registration Statement filed May 8, 1986)
4.2 Form of Promissory Note dated May 16, 1996 issued by the Company (incorporated by reference from Exhibit
4.3 to Form 10-Q for the quarter ended June 28, 1996)
10.1 Letter of agreement between Vincent W. Shiel and the Company dated September 8, 1989 (incorporated by
reference from Exhibit 19.1 to Form 10-Q for the quarter ended September 29, 1989)
10.2 Consulting Agreement dated January 11, 1990 between the Company and Outdoor Consulting, Inc.
(incorporated by reference from Exhibit 10.16 to Form 10-K for the year ended December 29, 1989)
10.3* The Company's Incentive Stock Option Plan (incorporated by reference from Exhibit 10.16 to Form 10-K for
the year ended December 27, 1991)
10.4* Option Agreement between the Company and Leonard M. Paletz dated July 1, 1992 (incorporated by reference
from Exhibit 10.17 to Form 10-K for the year ended January 1, 1993)
10.5* First Amendment to Option Agreement between the Company and Leonard M. Paletz dated June 1, 1993
(incorporated by reference from Exhibit 10.5 to Form 10-K for the year ended December 30, 1994)
10.6* Second Amendment to Option Agreement between the Company and Leonard M. Paletz dated January 27, 1995
(incorporated by reference from Exhibit 10.6 to Form 10-K for the year ended December 30, 1994)
10.7* Employment Agreement between the Company and Gary Olen datedOctober 5, 1994 (incorporated by reference
from Exhibit 10.7 to Form 10-K for the year ended December 30, 1994)
10.8* Agreement between the Company and Gary Olen dated July 1, 1992, granting the use of Mr. Olen's name,
picture and likeness (incorporated by reference from Exhibit 10.19 to Form 10-K for the year ended
January 1, 1993)
10.9* Option Agreement between the Company and Gary Olen dated July 1, 1993 (incorporated by reference from
Exhibit 10.18 to Form 10-K for the year ended December 31, 1993)
10.10 Industrial Real Estate Lease between the Company and CB Commercial Real Estate Group, Inc. dated April
22, 1993 (incorporated by reference from Exhibit 10.20 to Form 10-K for the year ended December 31,
1993)
10.11 Credit and Security Agreement between the Company and Norwest Business Credit, Inc. dated May 17, 1996
(incorporated by reference from Exhibit 10.15 to Form 10-Q for the quarter ended June 28, 1996)
10.12 First Amendment to Credit and Security Agreement between the Company and Norwest Business Credit, Inc.
dated October 18, 1996
10.13 Second Amendment to Credit and Security Agreement between the Company and Norwest Business Credit, Inc.
dated November 4, 1996
10.14 Third Amendment to Credit and Security Agreement between the Company and Norwest Business Credit, Inc.
dated December 18, 1996
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- ---------
<S> <C>
10.15 Fourth Amendment to Credit and Security Agreement between the Company and Norwest Business Credit, Inc.
dated December 26, 1996
10.16* Form of Stock Option Agreement pursuant to the Company's 1994 Non-Qualified Performance Option Plan
10.17* The Company's 1996 Stock Option Plan
25.1 Powers of Attorney of each person who signed this report on Form 10-K on behalf of another pursuant to a
power of attorney
27 Financial Data Schedule
</TABLE>
Those exhibits marked with an asterisk (*) above constitute compensation
agreements for management and executive officers of the Company.
38
<PAGE>
RESTATED
ARTICLES OF INCORPORATION
OF
THE SPORTSMAN'S GUIDE, INC.
ARTICLE 1.
The name of this Corporation is: The Sportsman's Guide, Inc.
ARTICLE 2.
The purposes of this Corporation are general business purposes and the
Corporation shall possess all powers necessary to conduct any business in which
it is authorized to engage, including but not limited to, all those powers
expressed and conferred upon business corporations by the Minnesota Statutes,
together with those powers necessarily implied therefrom.
ARTICLE 3.
This Corporation shall have perpetual duration.
ARTICLE 4.
The registered office of this Corporation is located at: 1415 South 5th
Street, Hopkins, Minnesota 55343.
ARTICLE 5.
5.01 AUTHORIZED SHARES. (a) The total number of shares of all classes of
stock that this Corporation shall have authority to issue is 40,000,000,
consisting of 36,800,000 shares of Common Stock, par value $.01 per share,
200,000 shares of Series A Preferred Stock, par value $.01 per share, and
3,000,000 undesignated shares.
(b) At 5:00 p.m. E.S.T. on the date these Amended Articles of
Incorporation are amended to include this subsection (b) of ARTICLE 5.01 (the
"Effective Date"), each ten shares of the outstanding Common Stock shall be
changed into one share of Common Stock, $.01 par value (the "Reverse Stock
Split"). No fractional shares shall be issued in connection with the Reverse
Stock Split. All fractional share interests resulting from the Reverse Stock
Split shall instead be rounded-up to a whole share of Common Stock.
(1) Certificate(s) for shares of Common Stock outstanding prior to
the Effective Date shall evidence the right of the holder thereof to receive,
upon the surrender of such certificate(s) to the transfer agent of the
Corporation, a new certificate(s) evidencing that number of shares of Common
Stock into which the shares of Common Stock evidenced by the surrendered
certificate(s) were converted as a result of the Reverse Stock Split.
<PAGE>
(2) Promptly after the Effective Date, the Corporation shall give
written notice to holders of record of shares of Common Stock immediately prior
to the Effective Date that the Reverse Stock Split has become effective and
shall include with such notice instructions as to how certificates evidencing
shares of Common Stock outstanding prior to the Effective Date may be
surrendered to the transfer agent of the Corporation in exchange for the shares
to which the holder of such a certificate is entitled.
5.02 VOTING RIGHTS. Each holder of Common Stock shall have one vote in all
matters submitted to the shareholders for each share of Common Stock standing in
the name of such holder on the books of this Corporation. Except as otherwise
required by law, the shares of Series A Preferred Stock shall have no voting
rights.
5.03 TERMS OF SERIES A PREFERRED STOCK.
(a) DIVIDENDS. The holders of the Series A Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, out of any
funds legally available, dividends at the same rate per share of Series A
Preferred Stock as dividends are paid to the holders of the Common Stock;
provided, however, that in the event a dividend is paid to the holders of Common
Stock in shares of Common Stock, the holders of Series A Preferred Stock shall
only be entitled to receive a dividend payable in shares of Series A Preferred
Stock at the same rate per share as shares of Common Stock are paid to the
holders of the Common Stock. Except as provided in this Section 5.03(a) there
shall be no dividends declared on or paid to the Series A Preferred Stock.
(b) LIQUIDATION PREFERENCE.
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of this Corporation, the holders of Series A Preferred
Stock then outstanding shall be entitled to be paid out of the assets of this
Corporation available for distribution to its stock holders an amount per share
equal to the value of the assets available for distribution upon such
liquidation, dissolution or winding up ("Liquidation Proceeds") times a fraction
the numerator of which is 19.4483 and the denominator of which is the number of
outstanding shares of Common Stock immediately preceding the liquidation,
dissolution or winding up of this Corporation; provided, however, that solely
for the purpose of calculating the preferential amounts due the holders of the
Series A Preferred Stock, the Liquidation Proceeds shall not exceed $6,000,000.
After setting apart or paying in full the preferential amounts due the holders
of the Series A Preferred Stock, the holders of the Common Stock shall be
entitled, to the exclusion of the holders of the Preferred Stock, to share
ratably in all remaining assets of this Corporation available for distribution
to stockholders. If upon any liquidation or dissolution of this Corporation the
assets available for distribution shall be insufficient to pay the holders of
all
2
<PAGE>
outstanding shares of Series A Preferred Stock the full amounts to which
they respectively shall be entitled, the holders of such shares shall share pro
rata in any such distribution.
(ii) For purposes of this Section 5.03(b), (A) any acquisition of this
Corporation by the means of merger or other form of corporate reorganization in
which the outstanding shares of this Corporation are exchanged for securities or
other consideration issued, or caused to be issued, by the acquiring corporation
or its subsidiary (other than a mere reincorporation transaction) or (B) a sale
of all or substantially all of the assets of this Corporation, shall be treated
as a liquidation, dissolution or winding up of this Corporation and shall
entitle the holders of Series A Preferred Stock and Common Stock to receive at
closing in cash, securities or other property (valued as provided in Section
5.03(b)(iii) below) amounts as specified in Section 5.03(b)(i) above.
(iii) Whenever the distribution provided for in this Section 5.03(b)
shall be payable in securities or property other than cash, the value of such
distribution shall be the fair market value of such securities or other property
as determined in good faith by the Board of Directors.
5.04 STOCK SPLITS AND COMBINATIONS. If this Corporation shall at any time or
from time to time after the date on which a share of Series A Preferred Stock
was first issued (the "Original Issue Date") effect a subdivision of the
Outstanding Common Stock, the outstanding shares of Series A Preferred Stock
shall be subdivided at the same rate per share as the shares of Common Stock are
subdivided; and conversely, if this Corporation shall at any time or from time
to time after the Original Issue Date combine the outstanding shares of Common
Stock, then the outstanding shares of Series A Preferred Stock shall be combined
at the same rate per share as the shares of Common Stock are combined. Any
subdivision or combination of Series A Preferred Stock under this paragraph
shall become effective at the same time as the corresponding subdivision or
combination of Common Stock becomes effective. Except as provided in this
Section 5.03 there shall be no subdivisions or combinations of the Series A
Preferred Stock.
ARTICLE 6.
6.01 The Board of Directors of this Corporation, without action by the
Shareholders, is authorized to establish and designate from the undesignated
shares one or more classes or series of shares, to fix the relative rights and
preferences of such classes or series and to issue such classes or series of
shares for such consideration as the Board in its unrestricted discretion deems
advisable. The establishment and designation of a class or series of shares by
the Board of Directors, pursuant to the procedures set forth in the Minnesota
Business Corporation's Act, shall not constitute an amendment of these Articles
of Incorporation.
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<PAGE>
6.02 The Corporation may, without any new or additional consideration, issue
shares of voting stock or any other class or series pro rata to the holders of
the same or one or more other classes or series of shares.
ARTICLE 7.
7.01 The Common Stock holders shall have the right to cumulate votes for the
election of Directors. Unless cumulative voting rights are granted by the Board
of Directors with respect to some or all of the undesignated shares, the
undesignated shares shall confer no right to cumulate votes on the holders
thereof.
7.02 All shareholders are denied preemptive rights, unless, with respect to
some or all of the undesignated shares, the Board of Directors shall grant
preemptive rights.
7.03 The holders of the voting shares of the Corporation shall have the power,
by affirmative vote of the holders of a majority of the voting power of all
shares entitled to vote:
(a) when required by law, to authorize the sale, lease, exchange or other
disposition of all or substantially all of the Corporation's property and
assets, including its goodwill, not in the usual and ordinary course of
business;
(b) when required by law, to adopt an agreement or plan of exchange or
merger;
(c) to amend the Articles of Incorporation of the Corporation; or
(d) to dissolve the Corporation;
provided that any of the actions set forth in this Section 7.03 have not
received a negative vote of more than forty percent (40%) of the voting power of
all shareholders entitle to vote thereon.
ARTICLE 8.
The holders of 40% of the voting power of the shares entitled to vote at a
meeting of the shareholders either present in person or represented by a proxy
shall constitute a quorum of the shareholders for the transaction of business at
any shareholders' meeting.
ARTICLE 9.
The provisions of the Minnesota Business Corporations Act relating to
Control Share Acquisition, as amended from time to time, shall not apply to this
Corporation.
4
<PAGE>
ARTICLE 10
To the fullest extent permitted by the Minnesota Business Corporation Act
as the same exists or may hereafter be amended, a director of this Corporation
shall not be liable to this Corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director. Any repeal or modification of this
Article by the shareholders of this Corporation shall be prospective only and
shall not adversely affect any limitation of the personal liability of a
director of this Corporation existing at the time of such repeal or
modification.
5
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
This Amendment is made as of the 18th day of October, 1996 by and between The
Sportsman's Guide, Inc., a Minnesota corporation (the "Borrower"), and Norwest
Business Credit, Inc., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into the Credit and Security Agreement
dated as of May 17, 1996, (the "Credit Agreement").
The Lender has agreed to make certain loan advances to the Borrower and to cause
to be issued certain letters of credit for the account of the Borrower pursuant
to the terms and conditions set forth in the Credit Agreement.
The loan advances under the Credit Agreement are evidenced by the Borrower's
revolving note dated as of May 17, 1996, in the maximum principal amount of
$10,000,000 and payable to the order of the Lender (the "Note").
All indebtedness of the Borrower to the Lender is secured pursuant to the terms
of the Credit Agreement and all other Security Documents as defined therein
(collectively, the "Security Documents").
The Borrower has requested that certain amendments be made to the Credit
Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements herein contained, it is agreed as follows:
1. Terms used in this Amendment which are defined in the Credit Agreement
shall have the same meanings as defined therein, unless otherwise defined
herein.
2. The Credit Agreement is hereby amended as follows:
(a) The definition of "Borrowing Base" set forth in Section 1.1 of the
Credit Agreement is hereby amended by deleting clause (b) (ii) thereof in
its entirety and replacing the same with the following:
"(ii) for and during each month (or portion thereof indicated
below) of each calendar year (or portion thereof) during the term
hereof, the lesser of (A) the following percentages of Eligible
Inventory or (B) the following dollar amounts:
<PAGE>
CALENDAR YEAR 1996
The lesser of the
During the following percentage Or the following
Period(s) beginning of Eligible Inventory Dollar Amount
-------------------- --------------------- ----------------
January 1, 50% $ 6,000,000
February 1 and
March 1
April 1 50% $ 7,000,000
May 1 60% $10,000,000
June 1 75% $10,000,000
July 1 and 65% $10,000,000
August 1
September 1 60% $10,000,000
October 15 55% $11,500,000
November 15 55% $11,500,000
December 15 50% $ 6,000,000
CALENDAR YEAR 1997 AND THEREAFTER
The lesser of the
During the following percentage Or the following
Period(s) beginning of Eligible Inventory Dollar Amount
------------------- --------------------- ----------------
January 1, 50% $ 6,000,000
February 1 and
March 1
April 1 50% $ 7,000,000
May 1 60% $10,000,000
June 1 75% $10,000,000
July 15 and 65% $10,000,000
August 15
September 15 60% $10,000,000
October 15 55% $10,000,000
November 15 50% $10,000,000
December 15 50% $ 6,000,000
(b) The definition of "Commitment" set forth in Section 1.1 of the
Credit Agreement is hereby amended by deleting the same in its entirety and
replacing the same with the following:
"Commitment" means (i) from October 15, 1996 through December 15,
1996 $11,500,000, and (ii) at all other times $10,000,000, unless
said amount is
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<PAGE>
reduced pursuant to Section 2.9(c) hereof, in which event it means
the amount to which said amount is reduced.
(c) Exhibit A to the Credit Agreement is hereby deleted and replaced
with Exhibit A attached hereto.
(d) Section 1.1 of the Credit Agreement is hereby amended by adding to
said Section the following new definitions of "Banc One L/C" and "Banc
One L/C Amount":
"Banc One L/C" has the meaning specified in Section 2.3a hereof.
"Banc One L/C Amount" means the aggregate outstanding face amount of
the Banc One L/C.
(e) The Credit Agreement is hereby amended by adding thereto a new
Section 2.3a, reading as follows:
"2.3a ISSUANCE OF BANC ONE LETTER OF CREDIT. The Lender agrees, on
or before October 31, 1996, and on the terms and subject to the
conditions herein set forth, to cause to be issued by an Issuer a
standby letter of credit for the account of the Borrower in favor of
Banc One Leasing Corporation (the "Banc One L/C") with a face amount
not to exceed the lesser of (a) $400,000 or (b) the Borrowing Base
less the sum of (i) all outstanding and unpaid Advances hereunder,
plus (ii) 50% of the L/C Amount, plus (iii) the Banc One L/C Amount;
provided, however, that in no event shall the sum of the Advances
plus the L/C Amount plus the Banc One L/C Amount at any time exceed
the Commitment. The Banc One L/C shall be issued with an expiry
date no later than May 17, 1998. The Banc One L/C shall be issued
pursuant to a separate L/C Application entered into by the Borrower
and the Lender as co-applicants for the benefit of the Issuer,
completed in a manner satisfactory to the Lender and the Issuer.
The terms and conditions of such L/C Application shall supplement
the terms and conditions hereof, but in the event of inconsistency
between the terms of such L/C Application and the terms hereof, the
terms hereof shall control. The provisions of Sections 2.4, 2.5,
2.6, 2.7, 2.9 hereof shall apply to the Banc One L/C in the same
manner as the same apply to Letters of Credit and, without limiting
the generality of the foregoing, the definition of "Obligation of
Reimbursement" set forth in Section 2.4 (a) hereof shall include the
Borrower's obligation to pay to the Lender a sum equal to all
amounts drawn under the Banc One L/C plus any and all reasonable
charges and expenses that the Issuer or "the Lender may pay or incur
relative to such draw, plus interest on such amounts, charges and
expenses as set forth in Section 2.4 (b)."
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<PAGE>
(f) Section 2.9(c) of the Credit Agreement is hereby amended by
inserting the phrase "plus the Banc One L/C Amount" immediately after the
term "L/C Amount" in the fourth line of said Section.
(g) Section 2.10 of the Credit Agreement is hereby amended by inserting
the phrase "plus the Banc One L/C Amount" immediately after the term "L/C
Amount" in the second and fourth lines of said Section.
(h) Section 2.14 of the Credit Agreement is hereby amended by inserting
the phrase "and the Banc One L/C" immediately after the term "Letters of
Credit" in the third and eighth lines of said Section.
(i) Section 2.16 (c) of the Credit Agreement is hereby amended by
deleting said Section in its entirety and replacing the same with the
following:
"(c) The Borrower agrees to pay the Lender a commission with
respect to (i) each Letter of Credit, if any, accruing on a daily
basis and computed at the annual rate of two percent (2%) of the
available amount of such Letter of Credit (as it may be changed from
time to time), and (ii) the Banc One L/C, accruing on a daily basis
and computed at the annual rate of three percent (3%) of the Banc
One L/C Amount, in each case from and including the date of issuance
thereof until such date as such Letter of Credit or the Banc One
L/C, as the case may be, shall terminate by its terms, payable in
arrears, and prorated for any part of a full calendar year in which
such Letter of Credit or the Banc One L/C, as the case may be,
remains outstanding. The foregoing commissions shall be in addition
to any and all fees and charges of any Issuer of a Letter of Credit
and/or the Banc One L/C with respect thereto or in connection
therewith."
(j) Section 2.16 (d) of the Credit Agreement is hereby amended by
deleting said Section in its entirety and replacing the same with the following:
"(d) The Borrower agrees to pay the Lender, on written demand,
the administrative fees charged by the Issuer in connection with the
honoring of drafts under the Banc One L/C and any Letter of Credit,
amendments thereto, transfers thereof and all other activity with
respect to the Banc One L/C and/or the Letters of Credit."
3. Except as explicitly amended by this Amendment, all of the terms and
conditions of the Credit Agreement shall remain in full force and effect and
shall apply to any advance or letter of credit thereunder.
4. The Borrower agrees to pay the Lender as of the date hereof a fully earned,
non-refundable fee in the amount of $5,000 in consideration of the execution by
the Lender of this Amendment.
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<PAGE>
5. This Amendment shall be effective upon receipt by the Lender of an executed
original hereof, together with each of the following, each in substance and form
acceptable to the Lender in its sole discretion:
(a) The replacement note substantially in the form of Exhibit A hereto,
duly executed on behalf of the Borrower (the "Replacement Note").
(b) Certificate of the Secretary of the Borrower certifying as to (i)
the resolutions of the board of directors of the Borrower approving the
execution and delivery of this Amendment, (ii) the fact that the Articles
of Incorporation and Bylaws of the Borrower, which were certified and
delivered to the Lender pursuant to the Certificate of the Borrower's
Secretary dated as of May 17, 1996 in connection with the execution and
delivery of the Credit Agreement continue in full force and effect and have
not been amended or otherwise modified except as set forth in the
Certificate to be delivered, and (iii) certifying that the officers and
agents of the Borrower who have been certified to the Lender, pursuant to
the Certificate of the Borrower's Secretary dated as of May 17, 1996, as
being authorized to sign and to act on behalf of the Borrower continue to
be so authorized or setting forth the sample signatures of each of the
officers and agents of the Borrower authorized to execute and deliver this
Amendment and all other documents, agreements and certificates on behalf of
the Borrower.
6. The Borrower hereby represents and warrants to the Lender as follows:
(a) The Borrower has requisite power and authority to execute this
Amendment and the Replacement Note and to perform all of its obligations
hereunder, and this Amendment and the Replacement Note have been duly
executed and delivered by the Borrower and constitute the legal, valid and
binding obligation of the Borrower, enforceable in accordance with their
terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment and the Replacement Note have been duly authorized by all
necessary corporate action and do not (i) require any authorization,
consent or approval by any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (ii) violate any
provision of any law, rule or regulation or of any order, writ, injunction
or decree presently in effect, having applicability to the Borrower, or the
articles of incorporation or by-laws of the Borrower, or (iii) result in a
breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which the Borrower
is a party or by which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in Article V of
the Credit Agreement are correct on and as of the date hereof as though
made on and as of such
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<PAGE>
date, except to the extent that such representations and warranties relate
solely to an earlier date.
7. All references in the Credit Agreement to "this Agreement" shall be deemed
to refer to the Credit Agreement as amended hereby; and any and all references
in the Security Documents to the Credit Agreement shall be deemed to refer to
the Credit Agreement as amended hereby. Upon the satisfaction of each of the
conditions set forth in paragraph 4 hereof, the definition of "Note" and all
references thereto in the Credit Agreement shall be deemed amended to describe
the Replacement Note, which Replacement Note shall be issued by the Borrower to
the Lender in replacement, renewal and amendment, but not in repayment, of the
Note.
8. The execution of this Amendment and acceptance of the Replacement Note and
any documents related hereto shall not be deemed to be a waiver of any Default
or Event of Default under the Credit Agreement or breach, default or event of
default under any Security Document or other document held by the Lender,
whether or not known to the Lender and whether or not existing on the date of
this Amendment.
9. The Borrower hereby absolutely and unconditionally releases and forever
discharges the Lender, and any and all participants, parent corporations,
subsidiary corporations, affiliated corporations, insurers, indemnitors,
successors and assigns thereof, together with all of the present and former
directors, officers, agents and employees of any of the foregoing, from any and
all claims, demands or causes of action of any kind, nature or description,
whether arising in law or equity or upon contract or tort or under any state or
federal law or otherwise, which the Borrower has had, now has or has made claim
to have against any such person for or by reason of any act, omission, matter,
cause or thing whatsoever arising from the beginning of time to and including
the date of this Amendment, whether such claims, demands and causes of action
are matured or unmatured or known or unknown.
10. The Borrower hereby reaffirms its agreement under the Credit Agreement to
pay or reimburse the Lender on demand for all costs and expenses incurred by the
Lender in connection with the Credit Agreement, the Security Documents and all
other documents contemplated thereby, including without limitation all
reasonable fees and disbursements of legal counsel. Without limiting the
generality of the foregoing, the Borrower specifically agrees to pay all fees
and disbursements of counsel to the Lender for the services performed by such
counsel in connection with the preparation of this Amendment and the documents
and instruments incidental hereto. The Borrower hereby agrees that the Lender
may, at any time or from time to time in its sole discretion and without further
authorization by the Borrower, make a loan to the Borrower under the Credit
Agreement, or apply the proceeds of any loan, for the purpose of paying any such
fees, disbursements, costs and expenses.
11. This Amendment may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the day and year first above written.
The Sportsman's Guide, Inc.
By: /s/ CHARLES LINGEN
---------------------------------
Its: Secretary
---------------------------
Norwest Business Credit, Inc.
By: /s/ MARK GUSTAFSON
---------------------------------
Its: Vice President
---------------------------
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<PAGE>
EXHIBIT A
REVOLVING NOTE
$11,500,000.00 Minneapolis, Minnesota
October , 1996
For value received, the undersigned, The Sportsman's Guide, Inc., a Minnesota
corporation (the "Borrower"), hereby promises to pay on May 17, 1998 to the
order of Norwest Business Credit, Inc., a Minnesota corporation (the "Lender"),
at its main office in Minneapolis, Minnesota, or at any other place designated
at any time by the holder hereof, in lawful money of the United States of
America and in immediately available funds, the principal sum of Eleven Million
Five Hundred Thousand and 00/100 Dollars ($11,500,000.00) or, if less, the
aggregate unpaid principal amount of all advances made by the Lender to the
Borrower pursuant to that certain Credit and Security Agreement (the "Credit
Agreement") of even date herewith by and between the Lender and the Borrower,
together with interest on the principal amount hereunder remaining unpaid from
time to time, computed on the basis of the actual number of days elapsed and a
360-day year, from the date hereof until this Note is fully paid at the rate
from time to time in effect under the Credit Agreement. The principal hereof
and interest accruing thereon shall be due and payable as provided in the Credit
Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject to, the Credit Agreement, which
provides, among other things, for acceleration hereof. This Note is the Note
referred to in the Credit Agreement. This Note is executed, delivered and
accepted not in payment of, but as an amendment and restatement of the Revolving
Note dated May 17, 1996 executed by the Borrower and made payable to the order
of the Lender in the original principal amount of $10,000,000.
This Note is secured, among other things, pursuant to the Credit Agreement and
the Security Documents as therein defined, and may now or hereafter be secured
by one or more other security agreements, mortgages, deeds of trust, assignments
or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including attorneys'
fees and legal expenses in the event this Note is not paid when due, whether or
not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
THE SPORTSMAN'S GUIDE, INC.
By:
-------------------------------------
Its:
--------------------------------
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<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
This Amendment is made as of the 4th day of November, 1996 by and between The
Sportsman's Guide, Inc., a Minnesota corporation (the "Borrower"), and Norwest
Business Credit, Inc., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into the Credit and Security Agreement
dated as of May 17, 1996, as amended (the "Credit Agreement").
The Lender has agreed to make certain loan advances to the Borrower and to cause
to be issued certain letters of credit for the account of the Borrower pursuant
to the terms and conditions set forth in the Credit Agreement.
The loan advances under the Credit Agreement are evidenced by the Borrower's
revolving note dated as of October 18, 1996, in the maximum principal amount of
$11,500,000 and payable to the order of the Lender (the "Note").
All indebtedness of the Borrower to the Lender is secured pursuant to the terms
of the Credit Agreement and all other Security Documents as defined therein
(collectively, the "Security Documents").
The Borrower has requested that certain amendments be made to the Credit
Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements herein contained, it is agreed as follows:
1. Terms used in this Amendment which are defined in the Credit Agreement
shall have the same meanings as defined therein, unless otherwise defined
herein.
2. The Credit Agreement is hereby amended as follows:
(a) Section 1.1 of the Credit Agreement is hereby amended by deleting
from said Section the definitions of "Banc One L/C" and "Banc One L/C
Amount" and replacing the same with the following definitions of "Computer
Sales L/C" and "Computer Sales L/C Amount":
"Computer Sales L/C" has the meaning specified in Section 2.3a
hereof.
"Computer Sales L/C Amount" means the aggregate outstanding face
amount of the Computer Sales L/C.
<PAGE>
(b) Section 2.3a of the Credit Agreement is hereby amended by deleting
said section in its entirety and replacing the same with the following:
"2.3a ISSUANCE OF COMPUTER SALES LETTER OF CREDIT. The Lender
agrees, on or before November 15, 1996, and on the terms and subject
to the conditions herein set forth, to cause to be issued by an
Issuer a standby letter of credit for the account of the Borrower in
favor of Computer Sales International, Inc. (the "Computer Sales
L/C") with a face amount not to exceed the lesser of (a) $185,000 or
(b) the Borrowing Base less the sum of (i) all outstanding and
unpaid Advances hereunder, plus (ii) 50% of the L/C Amount, plus
(iii) the Computer Sales L/C Amount; provided, however, that in no
event shall the sum of the Advances plus the L/C Amount plus the
Computer Sales L/C Amount at any time exceed the Commitment. The
Computer Sales L/C shall be issued with an expiry date no later than
May 10, 1998. The Computer Sales L/C shall be issued pursuant to a
separate L/C Application entered into by the Borrower and the Lender
as co-applicants for the benefit of the Issuer, completed in a
manner satisfactory to the Lender and the Issuer. The terms and
conditions of such L/C Application shall supplement the terms and
conditions hereof, but in the event of inconsistency between the
terms of such L/C Application and the terms hereof, the terms hereof
shall control. The provisions of Sections 2.4, 2.5, 2.6, 2.7, 2.9
hereof shall apply to the Computer Sales L/C in the same manner as
the same apply to Letters of Credit and, without limiting the
generality of the foregoing, the definition of "Obligation of
Reimbursement" set forth in Section 2.4 (a) hereof shall include the
Borrower's obligation to pay to the Lender a sum equal to all
amounts drawn under the Computer Sales L/C plus any and all
reasonable charges and expenses that the Issuer or the Lender may
pay or incur relative to such draw, plus interest on such amounts,
charges and expenses as set forth in Section 2.4 (b)."
(c) Section 2.9(c) of the Credit Agreement is hereby amended by
inserting the phrase "plus the Computer Sales L/C Amount" immediately after
the term "L/C Amount" in the fourth line of said Section, and deleting the
phrase "plus the Bank One L/C Amount" therefrom.
(d) Section 2.10 of the Credit Agreement is hereby amended by inserting
the phrase "plus the Computer Sales L/C Amount" immediately after the term
"L/C Amount" in the second and fourth lines of said Section, and deleting
the phrase "plus the Bank One L/C Amount" therefrom..
(e) Section 2.14 of the Credit Agreement is hereby amended by inserting
the phrase "and the Computer Sales L/C" immediately after the term "Letters
of Credit" in the third and eighth lines of said Section, and deleting the
phrase "and the Banc One L/C" therefrom.
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<PAGE>
(f) Section 2.16 (c) of the Credit Agreement is hereby amended by
deleting said Section in its entirety and replacing the same with the
following:
"(c) The Borrower agrees to pay the Lender a commission with
respect to (i) each Letter of Credit, if any, accruing on a daily
basis and computed at the annual rate of two percent (2%) of the
available amount of such Letter of Credit (as it may be changed from
time to time), and (ii) the Computer Sales L/C, accruing on a daily
basis and computed at the annual rate of three percent (3%) of the
Computer Sales L/C Amount, in each case from and including the date
of issuance thereof until such date as such Letter of Credit or the
Computer Sales L/C, as the case may be, shall terminate by its
terms, payable in arrears, and prorated for any part of a full
calendar year in which such Letter of Credit or the Computer Sales
L/C, as the case may be, remains outstanding. The foregoing
commissions shall be in addition to any and all fees and charges of
any Issuer of a Letter of Credit and/or the Computer Sales L/C with
respect thereto or in connection therewith."
(g) Section 2.16 (d) of the Credit Agreement is hereby amended by
deleting said Section in its entirety and replacing the same with the
following:
"(d) The Borrower agrees to pay the Lender, on written demand, the
administrative fees charged by the Issuer in connection with the
honoring of drafts under the Computer Sales L/C and any Letter of
Credit, amendments thereto, transfers thereof and all other activity
with respect to the Computer Sales L/C and/or the Letters of
Credit."
3. Except as explicitly amended by this Amendment, all of the terms and
conditions of the Credit Agreement shall remain in full force and effect and
shall apply to any advance or letter of credit thereunder.
4. This Amendment shall be effective upon receipt by the Lender of an executed
original hereof, together with the following, in substance and form acceptable
to the Lender in its sole discretion:
(a) Certificate of the Secretary of the Borrower certifying as to (i)
the resolutions of the board of directors of the Borrower approving the
execution and delivery of this Amendment, (ii) the fact that the Articles
of Incorporation and Bylaws of the Borrower, which were certified and
delivered to the Lender pursuant to the Certificate of the Borrower's
Secretary dated as of May 17, 1996 in connection with the execution and
delivery of the Credit Agreement continue in full force and effect and have
not been amended or otherwise modified except as set forth in the
Certificate to be delivered, and (iii) certifying that the officers and
agents of the Borrower who have been certified to the Lender, pursuant to
the Certificate of the Borrower's Secretary dated as of May 17, 1996, as
being authorized to sign and to act on behalf of the Borrower continue to
be so
-3-
<PAGE>
authorized or setting forth the sample signatures of each of the officers
and agents of the Borrower authorized to execute and deliver this Amendment
and all other documents, agreements and certificates on behalf of the
Borrower.
5. The Borrower hereby represents and warrants to the Lender as follows:
(a) The Borrower has requisite power and authority to execute this
Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and
constitutes the legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment has been duly authorized by all necessary corporate action and do
not (i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic
or foreign, (ii) violate any provision of any law, rule or regulation or of
any order, writ, injunction or decree presently in effect, having
applicability to the Borrower, or the articles of incorporation or by-laws
of the Borrower, or (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Borrower is a party or by which it or its
properties may be bound or affected.
(c) All of the representations and warranties contained in Article V of
the Credit Agreement are correct on and as of the date hereof as though
made on and as of such date, except to the extent that such representations
and warranties relate solely to an earlier date.
6. All references in the Credit Agreement to "this Agreement" shall be deemed
to refer to the Credit Agreement as amended hereby; and any and all references
in the Security Documents to the Credit Agreement shall be deemed to refer to
the Credit Agreement as amended hereby.
7. The execution of this Amendment and any documents related hereto shall not
be deemed to be a waiver of any Default or Event of Default under the Credit
Agreement or breach, default or event of default under any Security Document or
other document held by the Lender, whether or not known to the Lender and
whether or not existing on the date of this Amendment.
8. The Borrower hereby absolutely and unconditionally releases and forever
discharges the Lender, and any and all participants, parent corporations,
subsidiary corporations, affiliated corporations, insurers, indernnitors,
successors and assigns thereof, together with all of the present and former
directors, officers, agents and employees of any of the foregoing, from any and
all claims, demands or causes of action of any kind, nature or description,
whether arising in law or equity or upon contract or tort or under any state or
federal law or otherwise, which the Borrower has had, now has or has made claim
to have against any such person for or by reason of any act, omission, matter,
cause or thing whatsoever arising from the beginning of
-4-
<PAGE>
time to and including the date of this Amendment, whether such claims, demands
and causes of action are matured or unmatured or known or unknown.
9. The Borrower hereby reaffirms its agreement under the Credit Agreement to
pay or reimburse the Lender on demand for all costs and expenses incurred by the
Lender in connection with the Credit Agreement, the Security Documents and all
other documents contemplated thereby, including without limitation all
reasonable fees and disbursements of legal counsel. Without limiting the
generality of the foregoing, the Borrower specifically agrees to pay all fees
and disbursements of counsel to the Lender for the services performed by such
counsel in connection with the preparation of this Amendment and the documents
and instruments incidental hereto. The Borrower hereby agrees that the Lender
may, at any time or from time to time in its sole discretion and without further
authorization by the Borrower, make a loan to the Borrower under the Credit
Agreement, or apply the proceeds of any loan, for the purpose of paying any such
fees, disbursements, costs and expenses.
10. This Amendment may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the day and year first above written.
The Sportsman's Guide, Inc.
By: /s/ CHARLES LINGEN
---------------------------------
Its: Secretary
---------------------------
Norwest Business Credit, Inc.
By: /s/ WARREN LINDEMAN
---------------------------------
Its: AVP
---------------------------
-6-
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
This Amendment is made as of the 18 day of December, 1996 by and between The
Sportsman's Guide, Inc., a Minnesota corporation (the "Borrower"), and Norwest
Business Credit, Inc., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into the Credit and Security Agreement
dated as of May 17, 1996, as amended (the "Credit Agreement").
The Lender has agreed to make certain loan advances to the Borrower and to cause
to be issued certain letters of credit for the account of the Borrower pursuant
to the terms and conditions set forth in the Credit Agreement.
The loan advances under the Credit Agreement are evidenced by the Borrower's
revolving note dated as of October 18, 1996, in the maximum principal amount of
$11,500,000 and payable to the order of the Lender (the "Note").
All indebtedness of the Borrower to the Lender is secured pursuant to the terms
of the Credit Agreement and all other Security Documents as defined therein
(collectively, the "Security Documents").
The Borrower has requested that certain amendments be made to the Credit
Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements herein contained, it is agreed as follows:
1. Terms used in this Amendment which are defined in the Credit Agreement
shall have the same meanings as defined therein, unless otherwise defined
herein.
2. The Credit Agreement is hereby amended as follows:
(a) Section 6.15 of the Credit Agreement is hereby amended to delete the
"." at the end thereof and to add the following thereto:
"Except for the four month period beginning on December 1, 1996 and
ending on March 31, 1997 during which period the Borrower shall make
a mandatory prepayment of the Advances (or make a payment to the
Lender in immediately available funds for deposit in a Special
Account) to the extent necessary to reduce the outstanding principal
balance of the Advances plus the L/C Amount to an amount equal to or
less than the sum of $3,000,000 plus 80% of the Eligible E-Z Pay
Plan Accounts for a period of at least 15 consecutive days.
<PAGE>
3. Except as explicitly amended by this Amendment, all of the terms and
conditions of the Credit Agreement shall remain in full force and effect and
shall apply to any advance or letter of credit thereunder.
4. The Borrower agrees to pay the Lender as of the date hereof a fully earned,
nonrefundable fee in the amount of $1,000 in consideration of the execution by
the Lender of this Amendment.
5. This Amendment shall be effective upon receipt by the Lender of an executed
original hereof, together with the following, in substance and form acceptable
to the Lender in its sole discretion:
(a) Certificate of the Secretary of the Borrower certifying as to (i)
the resolutions of the board of directors of the Borrower approving the
execution and delivery of this Amendment, (ii) the fact that the Articles
of Incorporation and Bylaws of the Borrower, which were certified and
delivered to the Lender pursuant to the Certificate of the Borrower's
Secretary dated as of May 17, 1996 in connection with the execution and
delivery of the Credit Agreement continue in full force and effect and have
not been amended or otherwise modified except as set forth in the
Certificate to be delivered, and (iii) certifying that the officers and
agents of the Borrower who have been certified to the Lender, pursuant to
the Certificate of the Borrower's Secretary dated as of May 17, 1996, as
being authorized to sign and to act on behalf of the Borrower continue to
be so authorized or setting forth the sample signatures of each of the
officers and agents of the Borrower authorized to execute and deliver this
Amendment and all other documents, agreements and certificates on behalf of
the Borrower.
6. The Borrower hereby represents and warrants to the Lender as follows:
(b) The Borrower has requisite power and authority to execute this
Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and
constitutes the legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms.
(c) The execution, delivery and performance by the Borrower of this
Amendment has been duly authorized by all necessary corporate action and do
not (i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic
or foreign, (ii) violate any provision of any law, rule or regulation or of
any order, writ, injunction or decree presently in effect, having
applicability to the Borrower, or the articles of incorporation or by-laws
of the Borrower, or (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Borrower is a party or by which it or its
properties may be bound or affected.
-2-
<PAGE>
(d) All of the representations and warranties contained in Article V of
the Credit Agreement are correct on and as of the date hereof as though
made on and as of such date, except to the extent that such representations
and warranties relate solely to an earlier date.
7. All references in the Credit Agreement to "this Agreement' shall be deemed
to refer to the Credit Agreement as amended hereby; and any and all references
in the Security Documents to the Credit Agreement shall be deemed to refer to
the Credit Agreement as amended hereby.
8. The execution of this Amendment and any documents related hereto shall not
be deemed to be a waiver of any Default or Event of Default under the Credit
Agreement or breach, default or event of default under any Security Document or
other document held by the Lender, whether or not known to the Lender and
whether or not existing on the date of this Amendment.
9. The Borrower hereby absolutely and unconditionally releases and forever
discharges the Lender, and any and all participants, parent corporations,
subsidiary corporations, affiliated corporations, insurers, indemnitors,
successors and assigns thereof, together with all of the present and former
directors, officers, agents and employees of any of the foregoing, from any and
all claims, demands or causes of action of any kind, nature or description,
whether arising in law or equity or upon contract or tort or under any state or
federal law or otherwise, which the Borrower has had, now has or has made claim
to have against any such person for or by reason of any act, omission, matter,
cause or thing whatsoever arising from the beginning of time to and including
the date of this Amendment, whether such claims, demands and causes of action
are matured or unmatured or known or unknown.
10. The Borrower hereby reaffirms its agreement under the Credit Agreement to
pay or reimburse the Lender on demand for all costs and expenses incurred by the
Lender in connection with the Credit Agreement, the Security Documents and all
other documents contemplated thereby, including without limitation all
reasonable fees and disbursements of legal counsel. Without limiting the
generality of the foregoing, the Borrower specifically agrees to pay all fees
and disbursements of counsel to the Lender for the services performed by such
counsel in connection with the preparation of this Amendment and the documents
and instruments incidental hereto. The Borrower hereby agrees that the Lender
may, at any time or from time to time in its sole discretion and without further
authorization by the Borrower, make a loan to the Borrower under the Credit
Agreement, or apply the proceeds of any loan, for the purpose of paying any such
fees, disbursements, costs and expenses.
11. This Amendment may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the day and year first above written.
The Sportsman's Guide, Inc.
By: /s/ CHARLES LINGEN
---------------------------------
Its: Secretary
---------------------------
Norwest Business Credit, Inc.
By: /s/ WARREN LINDEMAN
---------------------------------
Its: AVP
---------------------------
-4-
<PAGE>
FOURTH AMENDMENT TO CREDIT AGREEMENT
This Amendment is made effective as of the 26th day of December, 1996, by and
between THE SPORTSMAN'S GUIDE, INC., a Minnesota corporation (the "Borrower"),
and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into the Credit and Security Agreement
dated as of May 17, 1996, as amended (the "Credit Agreement").
The Lender has agreed to make certain loan advances to the Borrower and to cause
to be issued certain letters of credit for the account of the Borrower pursuant
to the terms and conditions set forth in the Credit Agreement.
The loan advances under the Credit Agreement are evidenced by the Borrower's
revolving note dated as of October 18, 1996, in the maximum principal amount of
$11,500,000 and payable to the order of the Lender (the "Note").
AR indebtedness of the Borrower to the Lender is secured pursuant to the terms
of the Credit Agreement and all other Security Documents as defined therein
(collectively, the "Security Documents").
The Borrower has requested that certain amendments be made to the Credit
Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements herein contained, it is agreed as follows:
1. Terms used in this Amendment which are defined in the Credit Agreement
shall have the same meanings as defined therein, unless otherwise defined
herein.
2. The Credit Agreement is hereby amended as follows:
(a) Section 2.16(e) of the Credit Agreement is hereby amended to delete
the figure "$9,000" therefrom and to substitute the figure "$15,000"
therefor.
(b) Section 7.10 of the Credit Agreement is hereby amended to delete the
figure "$1,100,000" therefrom and to substitute the figure "$1,150,000"
therefor.
(c) Section 7.17 of the Credit Agreement is hereby amended in its entirety
to read as follows:
SECTION 7.17 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation, and the Borrower will not increase the salary,
commission, consultant fee or other compensation (other than
<PAGE>
bonuses) of any director, officer or consultant or any member of their
families, by more than 10% in any one year, either individually or for
all such persons in the aggregate, or pay any such increase from any
source other than profits earned in the year of payment. The Borrower
may pay bonuses to directors, officers or consultants of the Borrower
in any year so long as, at the time of payment of such bonus, no
Default or Event of Default has occurred and exists, and so long as no
Default or Event of Default would occur or exist as a result of the
payment of such bonus.
3. Except as explicitly amended by this Amendment, all of the terms and
conditions of the Credit Agreement shall remain in full force and effect and
shall apply to any advance or letter of credit thereunder.
4. This Amendment shall be effective upon receipt by the Lender of an executed
original hereof, together with the following, in substance and form acceptable
to the Lender in its sole discretion:
(a) Certificate of the Secretary of the Borrower certifying as to (i)
the resolutions of the board of directors of the Borrower approving the
execution and delivery of this Amendment, (ii) the fact that the Articles
of Incorporation and Bylaws of the Borrower, which were certified and
delivered to the Lender pursuant to the Certificate of the Borrower's
Secretary dated as of May 17, 1996 in connection with the execution and
delivery of the Credit Agreement continue in full force and effect and have
not been amended or otherwise modified except as set forth in the
Certificate to be delivered, and (iii) certifying that the officers and
agents of the Borrower who have been certified to the Lender, pursuant to
the Certificate of the Borrower's Secretary dated as of May 17, 1996, as
being authorized to sign and to act on behalf of the Borrower continue to
be so authorized or setting forth the sample signatures of each of the
officers and agents of the Borrower authorized to execute and deliver this
Amendment and all other documents, agreements and certificates on behalf of
the Borrower.
5. The Borrower hereby represents and warrants to the Lender as follows:
(a) The Borrower has requisite power and authority to execute this
Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and
constitutes the legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment has been duly authorized by all necessary corporate action and do
not (i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic
or foreign, (ii) violate any provision of any law, rule or regulation or of
any order, writ, injunction or decree presently in effect, having
applicability to the Borrower, or the articles of incorporation or by-laws
of the Borrower, or (iii) result in a breach of or constitute a default
under any indenture or loan
-2-
<PAGE>
or credit agreement or any other agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected.
(c) All of the representations and warranties contained in Article V of
the Credit Agreement are correct on and as of the date hereof as though
made on and as of such date, except to the extent that such representations
and warranties relate solely to an earlier date.
6. All references in the Credit Agreement to "this Agreement" shall be deemed
to refer to the Credit Agreement as amended hereby; and any and all references
in the Security Documents to the Credit Agreement shall be deemed to refer to
the Credit Agreement as amended hereby.
7. The Borrower has increased the salaries of Gary Olen, Greg Binkley, Bill
Luth, Chuck Lingen, John Casler, Bernie Banhof, Barry Benecke, Chuck Lackey and
Dave Kolkind by more than 10% each, for total new salaries of $195,000,
$125,000, $115,000, $108,000, $100,000, $94,000, $94,000, $76,000 and $75,000,
respectively. These increases violate Section 7.17 of the Credit Agreement.
The Lender hereby waives the Events of Default which exist as a result of said
increases. Except for the waiver set forth in the immediately preceding
sentence, the execution of this Amendment and any documents related hereto shall
not be deemed to be a waiver of any Default or Event of Default under the Credit
Agreement or breach, default or event of default under any Security Document or
other document held by the Lender, whether or not known to the Lender and
whether or not existing on the date of this Amendment.
8. The Borrower hereby absolutely and unconditionally releases and forever
discharges, the Lender, and any and all participants, parent corporations,
subsidiary corporations, affiliated corporations, insurers, indemnitors,
successors and assigns thereof, together with all of the present and former
directors, officers, agents and employees of any of the foregoing, from any and
all claims, demands or causes of action of any kind, nature or description,
whether arising in law or equity or upon contract or tort or under any state or
federal law or otherwise, which the Borrower has had, now has or has made claim
to have against any such person for or by reason of any act, omission, matter,
cause or thing whatsoever arising from the beginning of time to and including
the date of this Amendment, whether such claims, demands and causes of action
are matured or unmatured or known or unknown.
9. The Borrower hereby reaffirms its agreement under the Credit Agreement to
pay or reimburse the Lender on demand for all costs and expenses incurred by the
Lender in connection with the Credit Agreement, the Security Documents and all
other documents contemplated thereby, including without limitation all
reasonable fees and disbursements of legal counsel. Without limiting the
generality of the foregoing, the Borrower specifically agrees to pay all fees
and disbursements of counsel to the Lender for the services performed by such
counsel in connection with the preparation of this Amendment and the documents
and instruments incidental hereto. The Borrower hereby agrees that the Lender
may, at any time or from time to time in its sole discretion and without further
authorization by the Borrower, make a loan to the Borrower under the Credit
Agreement, or apply the proceeds of any loan, for the purpose of paying any such
fees, disbursements, costs and expenses.
-3-
<PAGE>
10. This Amendment may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the day and year first above written.
THE SPORTSMAN'S GUIDE, INC. NORWEST BUSINESS CREDIT, INC.
By: /s/ CHARLES LINGEN By: /s/ WARREN LINDEMAN
--------------------------- -----------------------------
Its Secretary Its AVP
---------------------- -----------------------
-4-
<PAGE>
Exhibit 10.16
OPTION AGREEMENT
THIS OPTION AGREEMENT is made as of the ____ day of _______, 1994 by and
between THE SPORTSMAN'S GUIDE, INC., a Minnesota corporation (the "Company"),
and ________________ ("Employee"), under the following circumstances:
A. Employee is employed by the Company and has provided certain
valuable services to the Company and has been instrumental to the
success of the Company.
B. As a matter of separate inducement to Employee, and not in lieu
of his salary or as other compensation for his services, the
Company desires to grant Employee and Employee desires to
acquire, an option to purchase Company Common Stock, one cent
($.01) par value (hereinafter "Stock"), subject to the terms and
conditions contained herein.
C. The Board of Directors has approved of this grant of options
pursuant to the Company's incentive stock option plan.
NOW, THEREFORE, the parties hereby agree as follows:
1. GRANT OF OPTIONS. In consideration for Employee's services to the
Company, and not in lieu of any salary or other compensation for his services,
the Company hereby grants Employee an option to purchase up to an aggregate
total of __________________ (_____) shares of Stock at the purchase price of
$_____ per share.
All of the options granted pursuant to this Section 1 shall hereinafter
be collectively referred to as the "Options".
2. EXERCISE OF OPTIONS. The Options may be exercised at any time, in
whole or part, within a period of three (3) years from the date of this
Option Agreement. Upon the expiration of such three-year period, the Options
shall terminate. Exercise of the Options shall not be effective until the
Company has received notice of exercise, specifying the number of shares to
be purchased, and payment in full of the aggregate exercise price of the
shares purchased.
Notwithstanding anything to the contrary herein contained, this Option
may not be exercised if, in the opinion of counsel for the Company, the
issuance of the shares pursuant hereto, either alone or in combination with
the issuance of other securities by the Company, would constitute a violation
of applicable federal or state securities laws or regulations or orders
thereunder. In the event the Options may not otherwise be exercised by
reason of the foregoing sentence, the Company shall use its best efforts to
register said shares with the Securities and Exchange Commission as soon as
practicable and, concurrently therewith, to take such steps as may be
necessary to comply with applicable state securities laws in connection with
such issuance.
<PAGE>
3. DELIVERY OF SHARES. Upon receipt of payment acceptable to the
Company for the shares, the Company will thereafter deliver or cause to be
delivered to Employee (or his personal representatives), a certificate or
certificates for the number of shares with respect to which the Options are
being exercised, registered in the name of the optionee, provided, however,
that if any law or regulation or order of the Securities and Exchange
Commission or other body having jurisdiction and the premises shall require
the Company or optionee to take any action in connection with the shares then
being purchased, the delivery of the certificate or certificates for such
shares shall be delayed for the period necessary to take and complete such
action. The shares to be delivered on the exercise of the Options shall be
fully paid and non-assessable and free from any liens or charges. All shares
issued hereunder shall be restricted securities and shall bear an appropriate
restrictive legend.
4. PURCHASE FOR INVESTMENT. The Options are granted on the condition
that the purchase of shares of stock hereunder shall be for the account of
Employee (or his personal representative) for investment purposes and not
with a view to resale or distribution, except that such condition shall be
inoperative if the offering of shares subject to the Options, is registered
under the Securities Act of 1933, as amended, or if in the opinion of counsel
for the Company such shares may be resold without registration. At any time
of any exercise of the Options, Employee (or his personal representative)
will execute such further agreements as the Company may require to implement
the foregoing condition and to acknowledge Employee's (or such other
individual's) familiarity with restrictions on the resale of the shares under
applicable securities laws.
5. NONTRANSFERABILITY. The Options may not be sold, pledged,
hypothecated, or transferred by Employee, except as otherwise provided herein.
6. TERMINATION OF EMPLOYMENT. This Agreement, and the Options granted
hereunder, shall immediately terminate and may no longer be exercised if
Employee voluntarily terminates his employment with the Company or his
employment is terminated by the Company for "cause". Cause shall include,
without limitation, failure of Employee to materially comply with the terms of
any existing Employment Agreement between the Company and Employee, dishonesty,
chronic alcoholism, intoxication during normal working hours, actions involving
moral turpitude, addiction to or excessive use of drugs or conviction of a
felony, or a finding by the Company's Board of Directors that Employee has
materially failed to perform designated duties.
7. RIGHTS OF SHAREHOLDER. Employee shall have no rights as a
shareholder with respect to any shares covered by this Option until the date
of issuance of the stock certificate to him for such shares.
8. STOCK DIVIDENDS; SPLITS; STOCK COMBINATIONS; RECAPITALIZATION.
Appropriate adjustments shall be made in the maximum number
2
<PAGE>
of shares subject to this Option and in the number, kind, and option price of
shares covered by outstanding Options granted hereunder to give effect to any
stock dividends or other distribution, stock splits, stock combinations,
recapitalizations and other similar changes in the capital structure of the
Company after the date of this Agreement.
9. MERGER; SALE OF ASSETS; DISSOLUTION. In the event of a change of the
Stock resulting from a merger or similar reorganization as to which the
Company is the surviving corporation, the number and kind of shares which
thereafter may be subject to Options granted hereunder and the price per
share thereof shall be appropriately adjusted in such a manner as the Board
of Directors of the Company may deem equitable to prevent substantial
dilution or enlargement of the rights available or granted hereunder. If the
Company at any time should elect to dissolve, sell all or substantially all
of its assets, undergo a reorganization, or merge or consolidate with any
corporation and the Company is not the surviving corporation, (unless in the
case of a reorganization, merger, or consolidation the surviving corporation
assumes Employee's rights hereunder or issues substantially equivalent
substitute rights in place hereof) Employee shall be notified by the Company
of his right to exercise all of the Options prior to any such dissolution,
sale, reorganization, merger or consolidation. The failure to exercise such
Options within thirty (30) days of such notification shall cause the Options
hereunder to be terminated.
10. EFFECT OF THE OPTION ON EMPLOYMENT RELATIONSHIP. This Option shall
in no way, now or hereafter, reduce, enlarge or modify the employment
relationship between the Company and Employee. Nothing contained herein
shall be construed as conferring upon Employee any right to continue in the
employ of the Company.
11. NOTICES. All notices hereunder shall be in writing and shall be
deemed to have been given at the time when mailed in any general or branch
United States Post Office enclosed in a certified or registered postpaid
envelope addressed to the respective party at the address set forth below, or
at such changed address as either party may have fixed by notice; provided,
however, that any notice or change of address shall be effective only upon
receipt:
ADDRESS OF COMPANY: The Sportsman's Guide, Inc.
411 Farwell Avenue
South St. Paul, Minnesota 55075
WITH A COPY TO: Ralph E. Heyman, Esq.
Chernesky, Heyman & Kress
10 Courthouse Plaza, SW
Suite 1100
Dayton, Ohio 45402
3
<PAGE>
ADDRESS OF EMPLOYEE: ________________________
________________________
________________________
12. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement,
and supersedes all prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof.
13. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement in any particular respect shall not affect the validity and
enforceability of any other provision of this Agreement or of the same
provision in any other respect.
14. COMPLETE AGREEMENT; GOVERNING LAW. This Agreement supersedes all
prior agreements, written or oral, and is intended as a complete and
exclusive statement of the terms of the Agreement between the parties and may
not be changed or terminated orally and shall not be governed by the laws of
the State of Minnesota.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
THE SPORTSMAN'S GUIDE, INC.
By:______________________________
Title: __________________________
EMPLOYEE
_________________________________
[Name]
4
<PAGE>
Exhibit 10.17
THE SPORTSMAN'S GUIDE, INC.
1996 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to advance the interests of
The Sportsman's Guide, Inc., a Minnesota corporation (the "Company") by
providing an opportunity to selected key employees of the Company to purchase
stock of the Company through the exercise of options granted under this Plan.
By encouraging such stock ownership, the Company seeks to attract, retain
and motivate key employees of training, experience and ability, and to
encourage the judgment, initiative and efforts of such employees for the
successful conduct of the Company's business. It is intended that these
purposes will be effected by the granting of stock options as provided herein
which will qualify as "incentive stock options" under the provisions of
Section 422 (or its successor provisions) of the Internal Revenue Code of
1986 (the "Code"), and options which do not qualify as incentive stock
options under the Code ("nonqualified options").
2. STOCK SUBJECT TO THE PLAN. The total number of shares that may be
subject to options granted under this Plan shall not exceed 4,000,000 shares
of the Common Stock of the Company, $.01 par value ("Common Stock"). Shares
subject to an option which for any reason expires or is terminated
unexercised as to such shares may again be the subject of an option under the
Plan. The shares delivered upon exercise of options granted under this Plan
may be either authorized but unissued shares or issued shares reacquired by
the Company.
3. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company or such other committee
designated by the Board (the "Committee") consisting of two or more directors
who shall be appointed by and shall serve at the pleasure of the Board.
Subject to the provisions of this Plan, the Committee shall have full power
to construe and interpret the Plan and to establish, amend and rescind rules
and regulations for its administration. The Committee shall recommend to the
Board of Directors the individuals to whom and the times at which options
shall be granted, the designation of each option as an incentive stock option
or a nonqualified option, and the number of shares subject to each option.
Any such construction, rule determination or other action taken by the
Committee pursuant to the Plan shall be binding and conclusive upon the
approval by the Board of Directors.
Actions by a majority of the Committee at a meeting at which a quorum is
present, or actions approved in writing by all of the members of the
Committee, shall be the valid acts of the Committee. No member of the Board
of Directors or the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any option granted under it.
<PAGE>
4. ELIGIBLE EMPLOYEES. Options may be granted by the Board of
Directors to such key employees of the Company, including members of the
Board of Directors who are also employees of the Company, as are selected by
the Committee. The maximum number of shares subject to options which may be
granted to any individual shall be the total number of shares available under
the Plan.
5. TERMS AND CONDITIONS OF OPTIONS. All options granted under this
Plan shall be evidenced by stock option agreements in such form and not
inconsistent with the Plan as the Committee shall approve from time to time,
which agreements shall include, but not be limited to, the following terms
and conditions:
(a) PRICE. The purchase price per share of stock payable upon the
exercise of each option granted hereunder shall not be less than the fair
market value of the stock on the date the option is granted. If at the time
of grant of an incentive stock option the optionee owns stock possessing more
than 10% of the combined voting power of all classes of stock of the Company,
such purchase price per share shall not be less than 110% of the fair market
value of the stock on the date the option is granted. Such fair market value
shall be determined in accordance with procedures established by the
Committee conforming to regulations issued by the Internal Revenue Service
with regard to incentive stock options.
(b) NUMBER OF SHARES. Each option agreement shall specify the
number of shares to which it pertains.
(c) EXERCISE OF OPTIONS. Each option shall be exercisable for the
full amount or for any part thereof and at such intervals or in such
installments as the Board of Directors may determine at the time it grants
such option. No option shall be exercisable with respect to any shares later
than ten years after the date of grant of the option. If at the time of
grant of an incentive stock option the optionee owns stock possessing more
than 10% of the combined voting power of all classes of stock of the Company,
such option shall be exercisable no later than five years after the date of
grant.
(d) NOTICE OF EXERCISE AND PAYMENT. An option shall be exercisable
by delivery of a written notice to the Secretary of the Company specifying
the number of shares for which it is exercised. If the shares are not at the
time registered under the Securities Act of 1933, the optionee shall include
with such notice a letter, in form and substance satisfactory to the Company,
confirming that the shares are being purchased for the optionee's own account
for investment and not with a view to distribution. The exercise price and
any withholding obligations under applicable tax laws shall be paid in full
at the time of delivery of the notice of exercise, either by (i) cashier's,
certified or personal check, (ii) if permitted by a vote of the Board of
Directors by delivery and assignment to the Company of shares of Common Stock
or (iii) by a combination of (i) and (ii). The value of the Company stock
for such purpose shall be its fair market value as of the date the option is
exercised.
2
<PAGE>
(e) NON-TRANSFERABILITY. No option shall be transferable by the
optionee otherwise than by will or the laws of descent and distribution, and
each option shall be exercisable during the lifetime of the optionee only by
him or her.
(f) TERMINATION OF OPTIONS. Each option shall terminate and may no
longer be exercised if the optionee ceases for any reason to be an employee
of the Company, except that:
(i) If the optionee's employment shall have terminated for any
reason other than cause, disability (as defined below) or death, the
optionee may at any time within a period of 30 days after such
termination of employment exercise the option to the extent the
option was exercisable by the optionee on the date of termination of
employment.
(ii) If the optionee's employment shall have been terminated
because of disability within the meaning of Section 22(e)(3) of the
Code, the optionee may at any time within a period of one year after
such termination of employment exercise the option to the extent the
option was exercisable by the optionee on the date of termination of
employment.
(iii) If the optionee dies at a time when the option was
exercisable by the optionee, the optionee's estate, personal
representative or beneficiary to whom it has been transferred
pursuant to Section 5(e) hereof may, within six months following the
death, exercise the option to the extent the option might have been
exercised at the time of the optionee's death.
(iv) No option may be exercised to any extent by anyone after
the expiration date of the option.
(g) RIGHTS AS SHAREHOLDER. The optionee shall have no rights as a
shareholder with respect to any shares covered by an option until the date of
issuance of a stock certificate to the optionee for such shares.
6. TREATMENT OF CERTAIN INCENTIVE STOCK OPTIONS. To the extent that
the aggregate fair market value (determined as of the date the option is
granted) of shares with respect to which one or more incentive stock options
first become exercisable by an optionee in any calendar year exceeds
$100,000, taking into account shares subject to incentive stock options under
this Plan and shares subject to incentive stock options under all other plans
of the Company or other entities referenced in Section 422(d)(1) of the Code,
the options shall be treated as nonqualified stock options.
3
<PAGE>
7. STOCK DIVIDENDS; STOCK SPLITS; COMBINATIONS; RECAPITALIZATIONS.
Appropriate adjustment shall be made in the maximum number of shares of
Common Stock subject to the Plan and in the number, kind and option price of
shares covered by outstanding options granted hereunder to give effect to any
stock dividends or other distribution, stock splits, stock combinations,
recapitalizations and other similar changes in the capital structure of the
Company after the effective date of the Plan.
8. MERGER; SALE OF ASSETS; DISSOLUTION. In the event of a change of
the Common Stock resulting from a merger or similar reorganization as to
which the Company is the surviving corporation, the number and kind of shares
which thereafter may be optioned and sold under the Plan and the number and
kind of shares then subject to options granted hereunder and the price per
share thereof shall be appropriately adjusted in such a manner as the
Committee may deem equitable to prevent substantial dilution or enlargement
of the rights available or granted hereunder. If the Company at any time
should dissolve, sell all or substantially all of its assets, undergo a
reorganization, or merge or consolidate with any corporation and the Company
is not the surviving corporation, then (unless in the case of a
reorganization, merger or consolidation the surviving corporation assumes the
optionees' rights under the Plan or issues substantially equivalent
substitute rights in place thereof) each optionee shall be notified by the
Company of his or her right to exercise all outstanding options prior to any
such dissolution, sale, reorganization, merger or consolidation. The failure
to exercise such outstanding options within 30 days of such notification
shall cause the options to be terminated.
Notwithstanding the foregoing, in the case of an incentive stock option,
no adjustment shall be made pursuant to Section 7 or 8 hereof which would
cause the Plan to violate Section 424(a) of the Code or any successor
provisions thereto, without the written consent of the optionee adversely
affected thereby.
9. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors may at any
time amend or terminate the Plan or alter or amend any outstanding stock
option agreements under the Plan in any manner it deems advisable, provided
that no such action shall adversely affect or impair any then outstanding
option without the consent of the optionee holding such option.
10. EFFECT OF THE PLAN ON EMPLOYMENT RELATIONSHIP. The establishment of
the Plan shall in no way, now or hereafter, reduce, enlarge or modify the
employment relationship between the Company and the optionee. Nothing
contained in the Plan shall be construed as conferring upon any optionee any
right to continued employment with the Company or to give any employee any
right to participate in the Plan or to receive options. The granting of
options under the Plan shall be entirely discretionary with the Board of
Directors.
4
<PAGE>
11. EFFECTIVE DATE; DURATION OF PLAN. This Plan was adopted by the
Board of Directors on October 21, 1996 and shall be deemed effective as of
that date, subject to approval by the shareholders of the Company within 12
months after such adoption. Options granted before shareholder approval may
not be exercised until such approval is obtained, and such options will be
null and void (and the Plan shall terminate) if such approval is not
obtained. The Plan shall remain in effect until discontinued by the Board of
Directors, except that no incentive stock option may be granted under the
Plan after October 21, 2006.
12. DEFINITIONS.
(a) The term "key employees" means those executive, administrative,
operational or managerial employees of the Company who are determined by the
Committee to be eligible for options under this Plan.
(b) The term "optionee" means a key employee to whom an option is
granted under this Plan.
5
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
POWER OF ATTORNEY
WHEREAS, The Sportsman's Guide, Inc. (the "Company") intends to file
with the Securities and Exchange Commission its Report on Form 10-K for the
fiscal year ended December 27, 1996:
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company hereby appoints Gary Olen and Charles B. Lingen, or any one of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to execute in his name, place and stead, the
Company's Report on Form 10-K for the fiscal year ended December 27, 1996
(including any amendment to such report) and any and all other instruments
necessary or incidental in connection therewith, and to file the same with
the Securities and Exchange Commission. Said attorney shall have full power
and authority to do and perform in the name and on behalf of the undersigned,
in the aforesaid capacity, to all intents and purposes as the undersigned
might or could do in person. The undersigned hereby ratifies and approves the
acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
11 day of March, 1997.
/s/ Mark F. Kroger
-------------------
Mark F. Kroger
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
POWER OF ATTORNEY
WHEREAS, The Sportsman's Guide, Inc. (the "Company") intends to file
with the Securities and Exchange Commission its Report on Form 10-K for the
fiscal year ended December 27, 1996:
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company hereby appoints Gary Olen and Charles B. Lingen, or any one of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to execute in his name, place and stead, the
Company's Report on Form 10-K for the fiscal year ended December 27, 1996
(including any amendment to such report) and any and all other instruments
necessary or incidental in connection therewith, and to file the same with
the Securities and Exchange Commission. Said attorney shall have full power
and authority to do and perform in the name and on behalf of the undersigned,
in the aforesaid capacity, to all intents and purposes as the undersigned
might or could do in person. The undersigned hereby ratifies and approves the
acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
16 day of March, 1997.
/s/ Leonard M. Paletz
---------------------
Leonard M. Paletz
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
POWER OF ATTORNEY
WHEREAS, The Sportsman's Guide, Inc. (the "Company") intends to file
with the Securities and Exchange Commission its Report on Form 10-K for the
fiscal year ended December 27, 1996:
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company hereby appoints Gary Olen and Charles B. Lingen, or any one of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to execute in his name, place and stead, the
Company's Report on Form 10-K for the fiscal year ended December 27, 1996
(including any amendment to such report) and any and all other instruments
necessary or incidental in connection therewith, and to file the same with
the Securities and Exchange Commission. Said attorney shall have full power
and authority to do and perform in the name and on behalf of the undersigned,
in the aforesaid capacity, to all intents and purposes as the undersigned
might or could do in person. The undersigned hereby ratifies and approves the
acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
16 day of March, 1997.
/s/ William T. Sena
-------------------
William T. Sena
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
POWER OF ATTORNEY
WHEREAS, The Sportsman's Guide, Inc. (the "Company") intends to file
with the Securities and Exchange Commission its Report on Form 10-K for the
fiscal year ended December 27, 1996:
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company hereby appoints Gary Olen and Charles B. Lingen, or any one of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to execute in his name, place and stead, the
Company's Report on Form 10-K for the fiscal year ended December 27, 1996
(including any amendment to such report) and any and all other instruments
necessary or incidental in connection therewith, and to file the same with
the Securities and Exchange Commission. Said attorney shall have full power
and authority to do and perform in the name and on behalf of the undersigned,
in the aforesaid capacity, to all intents and purposes as the undersigned
might or could do in person. The undersigned hereby ratifies and approves the
acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
12 day of March, 1997.
/s/ Vincent W. Shiel
--------------------
Vincent W. Shiel
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 13 AND 14 OF THE COMPANY'S
FORM 10-K FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-30-1995
<PERIOD-END> DEC-27-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,178
<ALLOWANCES> 140
<INVENTORY> 17,765
<CURRENT-ASSETS> 23,535
<PP&E> 6,817
<DEPRECIATION> 2,462
<TOTAL-ASSETS> 27,890
<CURRENT-LIABILITIES> 19,923
<BONDS> 3,606
0
0
<COMMON> 23
<OTHER-SE> 3,852
<TOTAL-LIABILITY-AND-EQUITY> 27,890
<SALES> 112,270
<TOTAL-REVENUES> 112,270
<CGS> 72,200
<TOTAL-COSTS> 72,200
<OTHER-EXPENSES> (11)
<LOSS-PROVISION> 184
<INTEREST-EXPENSE> 981
<INCOME-PRETAX> 3,086
<INCOME-TAX> 759
<INCOME-CONTINUING> 2,327
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,327
<EPS-PRIMARY> .92
<EPS-DILUTED> .91
</TABLE>
