<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________.
Commission File Number 1-10704
-------
SPORT SUPPLY GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2241783
- ------------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Diplomat Drive, Farmers Branch, Texas 75234
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 484-9484
Not Applicable
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all
reports required 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
-------- -------
Indicated below is the number of shares outstanding of each class of
the registrant's common stock as of September 10, 1996.
Title of Each Class of Common Stock Number Outstanding
- -------------------------------------- ------------------------
Common Stock, $0.01 par value 6,764,834 shares
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
</TABLE>
2
<PAGE> 3
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
August 2, October 31,
1996 1995
------------- --------------
<S> <C> <C>
CURRENT ASSETS :
Cash $ 119,129 $ 570,467
Accounts receivable --
Trade, less allowance for doubtful accounts of
$500,000 in 1996 and $204,000 in 1995 12,990,659 12,866,238
Other 180,834 571,807
Income taxes receivable 1,554,455 209,931
Inventories 18,734,605 16,630,155
Other current assets 3,548,564 3,046,692
Net current assets of discontinued operations 3,184,970 17,882,043
------------ ------------
Total current assets 40,313,216 51,777,333
------------ ------------
DEFERRED CATALOG EXPENSES 2,604,755 1,944,244
PROPERTY, PLANT AND EQUIPMENT :
Land 8,663 8,663
Buildings 1,551,723 1,551,723
Machinery and equipment 6,048,567 5,784,678
Furniture and fixtures 3,526,356 3,338,119
Leasehold improvements 2,219,048 2,160,901
------------ ------------
13,354,357 12,844,084
Less -- Accumulated depreciation and amortization (7,150,481) (6,350,550)
------------ ------------
6,203,876 6,493,534
------------ ------------
COST IN EXCESS OF TANGIBLE NET ASSETS ACQUIRED,
less accumulated amortization of $1,010,000 in 1996 and
$918,000 in 1995 3,079,598 3,318,896
TRADEMARKS, less accumulated amortization of $698,000 in
1996 and $540,000 in 1995 3,601,057 3,759,846
OTHER ASSETS, less accumulated amortization of $1,367,000
in 1996 and $1,053,000 in 1995 1,029,949 1,267,023
NET NONCURRENT ASSETS OF DISCONTINUED OPERATIONS 16,712,423 17,794,413
------------ ------------
$ 73,544,874 $ 86,355,289
============ ============
CURRENT LIABILITIES :
Accounts payable $ 9,433,249 $ 7,215,666
Accrued property taxes 358,707 505,082
Other accrued liabilities 1,235,856 1,270,674
Notes payable and capital lease obligations, current portion 27,778,343 555,358
------------ ------------
38,806,155 9,546,780
------------ ------------
DEFERRED GAIN 36,149 50,023
DEFERRED INCOME TAXES 236,798 263,005
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS, net of
current portion 341,439 28,885,516
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Preferred stock, par value $0.01, 100,000 shares
authorized, no shares outstanding in 1996 or 1995
Common stock, par value $0.01, 20,000,000 shares
authorized, 7,551,899 and 7,551,337 shares issued in
1996 and 1995, 6,764,834 and 6,721,673 shares
outstanding in 1996 and 1995 75,520 75,513
Paid-in capital 46,543,192 46,649,095
Retained earnings (deficit) (4,749,993) 9,025,140
------------ ------------
41,868,719 55,749,748
Treasury stock, at cost, 787,065 shares in 1996
and 829,664 shares in 1995 (7,744,386) (8,163,543)
Unrealized holding period gain -- 23,760
------------ ------------
34,124,333 47,609,965
------------ ------------
$ 73,544,874 $ 86,355,289
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
For The Three Months Ended For The Nine Months Ended
---------------------------------- ----------------------------------
August 2, 1996 July 31, 1995 August 2, 1996 July 31, 1995
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 21,919,829 $ 20,644,470 $ 60,657,144 $ 52,995,647
Cost of sales 13,567,404 12,780,895 37,741,569 32,316,094
------------ ------------ ------------ ------------
Gross profit 8,352,425 7,863,575 22,915,575 20,679,553
Selling, general and
administrative expenses 7,371,792 6,013,154 21,141,661 16,957,388
------------ ------------ ------------ ------------
Operating profit 980,633 1,850,421 1,773,914 3,722,165
Interest expense (290,381) (351,381) (1,062,057) (894,069)
Other income (expense), net 2,916 4,079 34,558 (8,460)
------------ ------------ ------------ ------------
Earnings from continuing operations
before provision for income taxes 693,168 1,503,119 746,415 2,819,636
Provision for income taxes 249,484 555,154 268,708 1,065,030
------------ ------------ ------------ ------------
Earnings from continuing
operations 443,684 947,965 477,707 1,754,606
------------ ------------ ------------ ------------
Discontinued operations:
Earnings (loss) from operations, net -- 684,167 (2,082,143) 1,379,542
Loss on disposal, net (3,288,796) -- (12,170,697) --
------------ ------------ ------------ ------------
Earnings (loss) from discontinued
operations (3,732,480) 684,167 (14,252,840) 1,379,542
------------ ------------ ------------ ------------
Net earnings (loss) $ (3,288,796) $ 1,632,132 $(13,775,133) $ 3,134,148
============ ============ ============ ============
Earnings (loss) per common and
common equivalent share:
Continuing operations $ 0.06 $ 0.13 $ 0.07 $ 0.25
Discontinued operations (0.55) 0.10 (2.10) 0.20
------------ ------------ ------------ ------------
Net earnings (loss) $ (0.49) $ 0.23 $ (2.03) $ 0.45
============ ============ ============ ============
Weighted average number of
common and common
equivalent shares outstanding 6,776,802 7,023,262 6,772,416 6,928,915
============ ============ ============ ============
Dividends declared per common share $ -- $ 0.03 $ -- $ 0.09
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For The Nine Months Ended
------------------------------------------
August 2, 1996 July 31, 1995
------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
Net earnings (loss) $(13,775,133) $ 3,134,148
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities --
Loss on disposal of discontinued operations 12,170,697 --
Depreciation and amortization 1,282,347 838,203
Provision for allowances for accounts
receivable 552,701 12,981
Changes in assets and liabilities --
Increase in receivables (1,630,673) (3,710,989)
Increase in inventories (2,104,450) (1,358,792)
(Increase) decrease in deferred catalogs and
other current assets (1,162,383) 1,214,155
Increase in payables 2,217,583 248,489
Increase in accrued liabilities 20,457 45,584
(Increase) decrease in other assets 116,745 (2,449,806)
Other (27,841) (9,037)
Discontinued operations - noncash charges and
working capital changes 1,903,770 (3,276,180)
------------ ------------
Total adjustments 13,338,953 (8,445,392)
------------ ------------
Net cash (used in) provided by operating activities (436,180) (5,311,244)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES :
Acquisitions of property, plant & equipment (510,273) (1,762,510)
Proceeds from asset sales 5,078,190 --
Investing activities of discontinued operations (516,400) (1,416,236)
------------ ------------
Net cash used in investing activities 4,051,517 (3,178,746)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds from issuances of notes payable 4,342,834 11,025,903
Payments of notes payable and capital lease
obligations (8,211,737) (2,560,218)
Proceeds from common stock issuances 3,878 55,015
Dividends paid to stockholders (201,650) (407,033)
------------ ------------
Net cash (used in) provided by financing activities (4,066,675) 8,113,667
------------ ------------
Net change in cash (451,338) (376,323)
Cash, beginning of period 570,467 908,213
------------ ------------
Cash, end of period $ 119,129 $ 531,890
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
UNAUDITED
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION :
<TABLE>
<CAPTION>
For The Nine Months Ended
------------------------------------------
August 2, 1996 July 31, 1995
------------------- ------------------
<S> <C> <C>
Cash paid during the period for interest $ 1,874,881 $ 1,045,301
=========== ===========
Cash paid during the period for income taxes $ 145,000 $ 1,508,300
=========== ===========
During 1995, the Company acquired the assets of
an entity. In connection with this acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ -- $ 4,381,194
Cash paid for the acquisitions, net -- (1,000,000)
Debt issued for the acquisitions -- (3,018,939)
----------- -----------
Liabilities assumed $ $ 362,255
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES :
During November 1994, the Company reissued
105,769 shares of its common stock
previously held in treasury in connection
with an Exchange Agreement with Aurora $ -- $ 1,375,000
=========== ===========
During April 1996, the Company reissued 42,599
shares of its common stock previously
held in treasury in connection with
an acquisition completed in 1994 $ 309,383 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
These consolidated financial statements reflect all normal and
recurring adjustments that are, in the opinion of management, necessary to
present a fair statement of Sport Supply Group, Inc.'s (the "Company" or "SSG")
consolidated financial position as of August 2, 1996 and the results of its
operations for the three and nine month periods ended August 2, 1996 and July
31, 1995. In 1995, the Company changed its financial reporting year-end from
December 31 to October 31. The Company is currently operating on a 52/53 week
year ending on the Friday closest to October 31. Consequently, results of
operations presented for the three and nine month periods ended July 31, 1995
represent periods that are different than those historically reported by the
Company. The differences in the number of days included in the thirteen and
thirty-nine week periods ended August 2, 1996 as compared to the three and nine
month periods ended July 31, 1995 were not significant. Operating results for
the interim periods ending August 2, 1996 are not necessarily indicative of the
results that may be expected for the fiscal year ending October 31, 1996.
The consolidated financial statements include the accounts of SSG and
its wholly-owned subsidiary, Sport Supply Group International Holdings, Inc.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
During May 1996, the Company sold substantially all of the assets
(other than cash and accounts receivable) of its Gold Eagle Professional Golf
Products Division (the "Gold Eagle Division"). Subsequent to the sale of the
Gold Eagle Division, the Company adopted a formal plan to dispose of its
remaining retail segment operations (which previously included the Gold Eagle
Division). As a result, the Company's retail segment is being reported as a
discontinued operation in the accompanying consolidated financial statements.
Accordingly, certain prior year amounts have been restated to conform to the
current year presentation.
Note 1 - Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method for items manufactured by the
Company and weighted-average cost for items purchased for resale. As of August
2, 1996 and October 31, 1995, inventories (excluding inventories related to
discontinued operations) consisted of the following:
<TABLE>
<CAPTION>
August 2, October 31,
1996 1995
----------- -----------
<S> <C> <C>
Raw Materials..................... $ 2,553,856 $ 2,455,453
Work-in-progress.................. 244,867 103,691
Finished and purchased goods...... 15,935,882 14,071,011
----------- -----------
$18,734,605 $16,630,155
=========== ===========
</TABLE>
Note 2 - Stockholders' Equity
The Company maintains a stock option plan that provides up to
1,325,000 shares of common stock for awards of incentive and non-qualified
stock options to directors and employees of the Company. Under the stock
option plan, the exercise price of options will not be less than the fair
market value of the common stock at the date of grant or not less than 110% of
fair market value for incentive stock options granted to certain employees, as
more fully described in the Stock Option Plan. Options expire 10 years from
the grant date, or 5 years from the grant date for incentive stock options
granted to certain employees, or such earlier date as determined by the Board
of Directors of the Company.
During the nine months ended August 2, 1996, the Company granted a
total of 29,125 options under the stock option plan. During this same nine
month period, certain employees exercised 562 options at an exercise price of
$6.90 per share, resulting in proceeds of approximately $3,878 to the Company.
In addition, on May 13, 1996, the Company lowered the exercise price of certain
employees' (excluding officers and directors) stock options that were granted
pursuant to the stock option plan and that had an original exercise
7
<PAGE> 8
price in excess of the fair market value of the common stock on May 13, 1996 of
$6.875. The exercise price of these options was lowered to $6.875. The
following table summarizes transactions under the plan for the nine months
ended August 2, 1996 and July 31, 1995:
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
August 2, 1996 July 31, 1995
-------------- --------------
<S> <C> <C>
Options outstanding- beginning of 811,772 603,546
period
Options granted 29,125 243,400
Options exercised (562) (7,187)
Options forfeited (131,612) --
-------------- --------------
Options outstanding - end of period 708,723 839,759
============== ==============
Range of exercise prices $4.80 - $14.25 $4.80 - $14.25
============== ==============
</TABLE>
During the nine months ended August 2, 1996, the Company granted a total of
20,000 non-qualified options outside the plan. Forfeitures for the nine months
ended August 2, 1996 for non-qualified options issued outside the plan were
39,875. As of August 2, 1996 there were 735,130 non-qualified options
outstanding that were issued outside the plan. Such options have exercise
prices ranging from $5.50 to $15.00 per share.
Note 3 - Notes Payable and Capital Lease Obligations
As of August 2, 1996 and October 31, 1995, notes payable and capital
lease obligations consisted of the following:
<TABLE>
<CAPTION>
August 2, October 31,
1996 1995
------------ -----------
<S> <C> <C>
Note payable under revolving line of credit,
interest at prime plus 1-1/4% (9.5% at
August 2, 1996) or LIBOR plus 2-1/2% (8.06% at
August 2, 1996), due October 1, 1998,
collateralized by substantially all assets 24,783,814 26,742,760
Term loan, interest at LIBOR plus 2-1/2% (7.75% at
August 2, 1996), payable in quarterly installments plus
accrued interest of $125,000 with balance due
October 1, 1998, collateralized by substantially all assets 2,250,000 2,250,000
Term loan, interest at LIBOR plus 2-3/4% (8.25% at
August 2, 1996), payable in monthly installments of
$11,420 beginning July 1, 1996 with balance due October
1, 1998, collateralized by substantially all assets 685,228 --
Capital lease obligation, interest at 7.4%, payable
in monthly installments of principal and
interest totaling $3,159 through December 1998 83,677 106,772
Capital lease obligation, interest at 9%, payable
in annual installments of principal and
interest totaling $55,000 through August 2005 317,063 341,342
------------ -----------
Total 28,119,782 29,440,874
Less - current portion (27,778,343) (555,358)
------------ -----------
Long-term debt and capital lease obligations, net $ 341,439 $28,885,516
============ ===========
</TABLE>
8
<PAGE> 9
Effective December 20, 1995, the senior credit facility was increased
from a maximum of $40,000,000 to $50,000,000 and the term extended to October
1, 1998. The increase provided for additional loans to be made to SSG for the
cost of certain capital expenditures (up to a maximum of $1,000,000, of which
$685,228 has been borrowed as of August 2, 1996), the cost of acquiring
outstanding shares of SSG common stock (up to a maximum of $2,500,000), if any,
and the costs associated with future acquisitions (up to a maximum of
$6,500,000), if consummated. In order for additional loans to be made, the
Company is required to comply with the covenants contained in the loan
agreement, as amended, and to obtain the written approval of the senior and
participating lenders under certain circumstances.
On February 2, 1996 and March 12, 1996, the Company's senior lender
amended certain provisions of the loan agreement and granted short-term
overadvances to the Company to better facilitate the Company's seasonal cash
needs without increasing the total credit facility. The amendments to the
loan agreement were required in order to meet projected short-term liquidity
requirements and to support the continued expansion of the Company's revenue
base. As required by the amendments, the short-term overadvances were repaid
from the proceeds of the sale of the Gold Eagle Division on May 20, 1996.
The loan agreement contains financial and tangible net worth covenants
in addition to limits on capital expenditures. On September 19, 1996, SSG's
lenders amended certain provisions of the senior credit facility effective
August 2, 1996. The amendments were required in order to adjust certain
financial covenants based upon the Company's planned disposal of its remaining
retail segment operations. Notwithstanding this amendment, as of August 2,
1996, SSG was not in compliance with one of the financial covenants contained in
the loan agreement. SSG has not obtained a waiver from its lenders for such
violation of the loan agreement. SSG will continue to be in violation of the
loan agreement unless and until SSG either receives a waiver from its lenders
for such violation, the lenders agree to amend the covenant or the Company
repays all outstanding borrowings. SSG's lenders have allowed the Company to
remain in violation of this covenant and have continued to advance funds to the
Company pursuant to the terms of the loan agreement.
On September 19, 1996, the lenders notified SSG that SSG was in default
under the loan agreement and increased the interest rate on all outstanding
borrowings by two percentage points as of such date. In addition, the lenders
have retained the right to accelerate the repayment of indebtedness owed by SSG
under the loan agreement, but they have not indicated any desire or intent to
take such action. As a result of this default, SSG has classified all
outstanding borrowings under the senior credit facility as a current liability
in the accompanying balance sheet as of August 2, 1996. Amounts outstanding
under the senior credit facility are collateralized by substantially all assets
of the Company. The Company currently has the option of electing that its
borrowings under the senior credit facility bear interest at the prevailing
LIBOR rate plus 4.0% for the revolving line of credit, 4.25% for the term loan
and 4.75% for the additional loans (if any) or the lender's prime rate plus
2.75% for the revolving line of credit, 3.0% for the term loan and 3.25% for the
additional loans (if any). Historically, the Company has elected the lower of
the interest rates available under the facility.
As of August 2, 1996, SSG had borrowings of approximately $24,784,000
outstanding under the revolving line of credit and $2,935,000 under the term
loans, approximately $585,000 of letters of credit outstanding for foreign
purchases of inventory, and additional availability of approximately $2,480,000
based upon the Company's borrowing base at such time.
Note 4 - Net Earnings Per Common Share
Net earnings per common share is based upon the weighted average
number of common and common equivalent shares outstanding during the three and
nine month periods ended August 2, 1996 and July 31, 1995. Outstanding stock
options and common stock purchase warrants are considered common stock
equivalents when dilution results from their assumed exercise.
Note 5 - Discontinued Operations
On May 20, 1996, SSG disposed of substantially all of the assets
(other than cash and accounts receivable) of the Gold Eagle Division to Morris
Rosenbloom & Co., Inc., a privately-held corporation. Pursuant to the Asset
Purchase Agreement, the total consideration paid to SSG at closing was
$5,078,190 in cash. In addition, Morris Rosenbloom owes SSG an additional cash
payment estimated to be approximately $293,000 based upon a physical inventory
of the goods purchased in the transaction. Such funds are currently held in
escrow subject to verification of the physical inventory. The sale of the Gold
Eagle Division resulted in a pretax loss of approximately $750,000 which is
included in the loss on disposal of discontinued operations in the accompanying
consolidated statement of operations for the nine month period ended August 2,
1996.
Subsequent to the sale of the Gold Eagle Division, the Company adopted
a formal plan to dispose of the remaining operations of the Company's retail
segment (which previously included the Gold Eagle Division) and therefore has
classified these operations as discontinued. The following represents net
assets of discontinued
9
<PAGE> 10
operations as of August 2, 1996 and October 31, 1995 and the results of
operations for the three and nine month periods ended August 2, 1996 and July
31, 1995:
<TABLE>
<CAPTION>
August 2, October 31,
1996 1995
-----------------------------
<S> <C> <C>
Current assets $15,398,591 $21,672,773
Current liabilities (12,124,509) (3,790,730)
-----------------------------
Net current assets $ 3,274,082 $17,882,043
=============================
Noncurrent assets $16,712,423 $17,794,413
Noncurrent liabilities -- --
=============================
Net noncurrent assets $16,712,423 $17,794,413
=============================
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
August 2, 1996 July 31, 1995 August 2, 1996 July 31, 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 5,289,692 $ 8,502,067 $16,311,471 $20,918,732
Earnings (loss) before income taxes (737,807) 919,634 (3,970,305) 1,955,381
Provision (benefit) for income taxes (267,439) 235,467 (1,417,794) 575,839
Earnings (loss) from operations, net of income taxes (470,368) 684,167 (2,552,511) 1,379,542
Loss on disposal, net of income taxes (3,732,480) -- (12,170,697) --
</TABLE>
The net loss on disposal includes a charge recorded during the
quarterly period ended May 3, 1996 of approximately $9.3 million ($5.9 million
after estimated income tax benefit) to record the net assets at estimated
realizable value based upon a proposed rights offering pursuant to the Company's
plan of disposal. During the quarterly period ended May 3, 1996, the Company
also recorded a charge of approximately $3.9 million ($2.5 million after
estimated tax benefit) for anticipated operating losses during the estimated
twelve month disposal period, including interest expense. As a result of
certain factors, including, among others, management's current assessment of the
ultimate success of the proposed rights offering and estimates of the time
required to effect such transaction, as well as the Company's projected
liquidity requirements, the Company determined that a private sale of the
remaining assets of its retail segment is a preferable and more expeditious
method of disposal. The Company has engaged an investment banking firm to
assist in such disposition. Based upon management estimates of the net proceeds
to be received pursuant to such disposal, the Company recorded an additional
charge of $5.8 million ($3.7 million after estimated income tax benefit) during
the quarterly period ended August 2, 1996 to record the net assets at estimated
net realizable value. The net loss on disposal is based upon current estimates
made by management. There can be no assurances that such estimates will not be
materially different from actual amounts.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to borrow funds under its revolving credit
facility is based upon certain percentages of eligible trade accounts
receivable and eligible inventories. As of August 2, 1996, the Company had
total borrowings under its senior credit facility of approximately $27.7
million, outstanding letters of credit for foreign purchases of inventory of
approximately $0.6 million, and availability of approximately $2.5 million
based upon the Company's borrowing base at such time. The net decrease of $2.0
million in borrowings under the senior credit facility compared to October 31,
1995 reflects a repayment of approximately $5.0 million from the sale of the
Gold Eagle Division during May, 1996, partially offset by cash payments made
relating to the Nitro acquisition and an increase in seasonal working capital
requirements relating primarily to an increase in inventories of youth sports
and team dealer products.
As discussed in Note 3 to the consolidated financial statements, the
Company's loan agreement was amended in December 1995 to provide for additional
loans to be made to SSG for certain capital expenditures (up to a maximum of
$1,000,000, of which $685,228 has been borrowed as of August 2, 1996), for the
acquisition of outstanding shares of SSG common stock (up to a maximum of
$2,500,000), if any, and for the costs of future acquisitions (up to a maximum
of $6,500,000), if consummated. In order for these additional loans to be made,
the Company is required to comply with the covenants contained in the loan
agreement, as amended, and to obtain the written approval of the senior and
participating lenders under certain circumstances. On February 2, 1996 and
March 12, 1996, the Company's senior lender amended certain provisions of the
loan agreement and granted short-term overadvances to the Company to better
facilitate the Company's seasonal cash needs without increasing the total credit
facility. The amendments to the loan agreement were required in order to meet
projected short-term liquidity requirements and to support the continued
expansion of the Company's revenue base. As required by the amendments, the
short-term overadvances were repaid from the proceeds of the sale of the Gold
Eagle Division on May 20, 1996. On September 19, 1996, SSG's lenders amended
certain provisions of the loan agreement effective August 2, 1996. The
amendments were required in order to adjust certain financial covenants based
upon the Company's planned disposal of its remaining retail segment operations.
As of August 2, 1996, SSG was not in compliance with one of the
financial covenants contained in the loan agreement. SSG has not obtained a
waiver from the lenders for such violation of the loan agreement. SSG will
continue to be in violation of the loan agreement unless and until SSG either
receives a waiver from its lenders for such violation, the lenders agree to
amend the covenant or SSG repays all outstanding borrowings. SSG's lenders have
allowed the Company to remain in violation of this covenant and have continued
to advance funds to the Company pursuant to the terms of the loan agreement. On
September 19, 1996, the lenders notified SSG that SSG was in default under the
loan agreement and increased the interest rate on all outstanding borrowings by
two percentage points as of such date. In addition, the lenders have retained
the right to accelerate the repayment of indebtedness owed by SSG under the loan
agreement, but they have not indicated any desire or intent to take such action.
As a result of this default, SSG has classified all outstanding borrowings under
the senior credit facility as a current liability in the accompanying balance
sheet as of August 2, 1996. In the event the lenders accelerate the indebtedness
owed by the Company, the Company will need to seek an alternative financing
arrangement that may include terms and interest rates that are less favorable
than the Company's current credit facility, although no assurance can be given
that the Company will be able to obtain such financing.
During the current fiscal year, the Company periodically has delayed
payments to certain of its trade and other creditors. As of August 2, 1996,
the Company had total trade payables of approximately $9.4 million, of which
approximately $675,000 were more than 30 days past due. Deferred payment terms
have been negotiated with certain vendors. Although there have been no material
suspensions in deliveries by vendors, any significant shipping delays or
cancellations of purchase orders placed by the Company could adversely affect
future operating results.
In order to fund delinquent balances and satisfy its projected
short-term and long-term liquidity needs, the Company will be required to
arrange additional debt or equity financing. In this regard, the Company is
evaluating various alternatives which include, among others, the following:
11
<PAGE> 12
1. the Company is negotiating with its senior lender to amend the
senior credit facility to provide additional borrowing capacity;
2. the Company has engaged an investment banking firm to sell the
assets of its remaining golf operations in a privately negotiated
transaction; and
3. a private sale of debt and/or equity securities.
No assurance can be given that any of the foregoing transactions will be
consummated.
During November 1995 the Company approved the repurchase of up to
1,000,000 shares of its issued and outstanding common stock in the open market
and/or through privately negotiated transactions, subject to certain
conditions. No shares have been repurchased to date and the Company does not
anticipate repurchasing any such shares in the near future. Pursuant to the
amendment consummated with its lenders on September 19, 1996, SSG does not have
the ability to use proceeds of additional loans under the senior credit
facility for the repurchase of shares.
RESULTS OF OPERATIONS
During May 1996, the Company sold substantially all of the assets of its Gold
Eagle Professional Golf Products Division (the "Gold Eagle Division") and
subsequently approved a formal plan to dispose of its remaining retail segment
operations. As a result, the accompanying consolidated financial statements
present SSG's retail segment as a discontinued operation. Due to the change in
the Company's fiscal year-end from December 31 to October 31, operating results
for the three and nine month periods ended July 31, 1995 are different from
those historically reported by the Company. The following discussion, unless
otherwise indicated, relates to the Company's continuing operations only.
Net Revenues. Net revenues increased approximately $1.3 million (6.2%) and $7.7
million (14.5%) for the three and nine month periods ended August 2, 1996 as
compared to the same periods of 1995. The increases in net revenues reflect
increased sales in substantially all operating divisions, including significant
increases in revenues associated with youth sports league customers, partially
offset by declines in revenues associated with the United States Government.
The Company believes these declines are attributed to the continued downsizing
of military installations and work stoppages of various government agencies
during 1996. The overall increases in net revenues resulted primarily from
volume changes rather than price changes.
Gross Profit. Gross profit increased approximately $0.5 million (6.2%) and
$2.2 million (10.8%) for the three and nine month periods ended August 2, 1996
as compared to the same periods of 1995. As a percentage of net revenues, gross
profit remained constant at 38.1% for the three month period ended August 2,
1996 as compared to the same period of 1995 and decreased from 39.0% to 37.8%
for the nine month period ended August 2, 1996 as compared to the same period
of 1995. The decrease in gross profit as a percentage of net revenues for the
nine month period is attributable to, among other factors, an increase in sales
related to youth sports leagues and local sporting goods team dealers, as such
sales have historically had lower margins than other sales within SSG's
institutional business. During fiscal year 1996, the Company intensified its
marketing efforts relating to youth sports leagues with new product offerings
and aggressive pricing strategies designed to increase its market penetration.
As a result of these efforts, revenues associated with youth sports league
customers increased as a percentage of total revenues which contributed to the
decrease in gross profit as a percentage of net revenues. In the event that
revenues related to youth sports leagues continue to represent a larger
percentage of total revenues, the Company may continue to experience a
decrease in gross profit as a percentage of net revenues in future periods.
Selling, General and Administrative Expenses. Operating expenses increased
approximately $1.4 million (22.6%) and $4.2 million (24.7%) for the three and
nine month periods ended August 2, 1996 as compared to the same periods of
1995. As a percentage of net revenues, operating expenses increased from 29.1%
to 33.6% and from 32.0% to 34.9% for the three and nine month periods ended
August 2, 1996 as compared to the same periods of 1995. The dollar increase in
operating expenses as well as the increase in operating expenses as a
percentage of net revenues was primarily a result of the following:
12
<PAGE> 13
(i) An increase in expenses relating to the Company's primary distribution
facility for the nine months ended August 2, 1996 as compared to the same
periods of fiscal 1995. This facility was opened during April 1995 and
therefore was not operational for the entire nine month period of fiscal
1995. Such expenses include labor, rent and depreciation. This
unfavorable trend is expected to diminish in future periods as prior year
results of operations will include costs associated with this facility.
(ii) An increase in payroll costs associated with an increase in employees.
(iii) An increase in the provision for receivables relating primarily to SSG's
youth sports league customers based upon on-going credit evaluations.
Should SSG's youth sports league revenues continue to represent a larger
percentage of total revenues, the Company may experience an increase in
concentration of credit risk within this market. Management will continue
to perform on-going credit evaluations and provide provisions for
estimated losses.
(iv) An increase in freight costs associated with the increase in net revenues.
As a percentage of net revenues, freight costs (net of freight costs
recovered from customers) increased for the three and nine month periods
ended August 2, 1996 as compared to the prior year. This increase was due
primarily to revenues associated with youth sports leagues. As a result
of the Company's pricing strategy with respect to youth sports leagues
discussed above, freight costs recovered from youth sports league
customers were lower than SSG's historical institutional business. In
addition, during 1996 the Company strategically elected to change its
primary common carrier in order to improve customer satisfaction. Average
shipping rates of the new carrier were higher than SSG's previous
carrier. The Company has subsequently negotiated lower rates in order to
diminish the effects of this change in future periods.
(v) Expenses relating to the Company's participation in the 1996 Olympic
summer games. These expenses include royalties, travel, and miscellaneous
advertisements incurred during fiscal 1996 which are expected to be
partially offset by the sale of products used in the Olympic games.
Management believes these costs will continue through the fourth quarter
of fiscal year 1996.
(vi) An increase in advertising expenses due to the expansion of the Company's
marketing efforts, primarily expenses relating to catalogs mailed to
customers and additional advertising relating to the youth sports league
division. Although management is not aware of any pending increases in
paper costs or postal rates, any such increases could negatively impact
future operating results.
Operating Profit. Operating profit for the three and nine month periods ended
August 2, 1996 decreased approximately $870,000 (47.0%) and $1.9 million
(52.3%) as compared to the same periods of 1995, which reflects the impact of
the increase in operating costs as discussed above and the decrease in gross
profit percentages related to increased sales in the youth league division.
Interest Expense. Interest expense, net of amounts charged to discontinued
operations, decreased approximately $61,000 (18.8%) and increased approximately
$168,000 (17.4%) for the three and nine month periods ended August 2, 1996 as
compared to the same periods of 1995. The decrease in interest expense for the
three months ended August 2, 1996 was due to the decrease in borrowing levels
associated with the proceeds from the sale of the Gold Eagle Division.
Notwithstanding, interest expense in future periods may be materially higher due
to the interest rate increase imposed by SSG's lenders on September 19, 1996.
See Item 2 "Liquidity and Capital Resources" for a discussion of the higher
interest rates associated with the Company's senior credit facility.
Provision for Income Taxes. The provision for income taxes decreased
approximately $306,000 and $796,000 for the three and nine month periods ended
August 2, 1996 as compared to the same periods of 1995. The Company's effective
tax rate decreased from 36.9% to 36.0% and from 37.8% to 36.0% for the three
and nine month periods ended August 2, 1996 as compared to the same periods of
1995.
13
<PAGE> 14
Earnings from Continuing Operations. Earnings from continuing operations
decreased approximately $504,000 and $1,277,000 for the three and nine month
periods ended August 2, 1996 as compared to the same periods of 1995. Earnings
per share from continuing operations decreased from $0.13 to $0.06 and from
$0.25 to $0.07 for the three and nine month periods ended August 2, 1996 as
compared to the same periods of 1995. The three and nine month periods ended
August 2, 1996 include a decrease of approximately 3.51% and 2.26% in weighted
average shares outstanding.
"SAFE HARBOR " STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This report contains various forward looking statements and information that
are based on Management's beliefs as well as assumptions made by and
information currently available to Management. When used in this report, the
words "anticipate", "estimate", "expect", "predict", "project", and similar
expressions are intended to identify forward looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, expected or projected. Among the key factors that may have a
direct bearing on the Company's results (in addition to the need to meet
existing financial obligations and the Company's need to improve its financial
condition are set forth below.
Future trends for revenues and profitability remain difficult to predict. The
Company continues to face many risks and uncertainties, including: general and
specific market economic conditions, competitive factors, United States
Government sales, risk of nonpayment of accounts receivable, and foreign
supplier related issues.
The general economic condition in the U.S. could affect pricing on raw
materials such as metals and other commodities used in the manufacturing of
certain products. The Company believes it will be able to pass any significant
price increases on to its customers; however, any price increases could have an
adverse effect on revenues and costs.
Approximately 9% of the Company's institutional sales are made to the U.S.
Government, a majority of which are military installations. Anticipated
reductions in U.S. Government spending could lessen funds available to various
government customers for sports related equipment, which could adversely affect
the Company's results of operations.
While the institutional portion of the Company continues to grow, the Company
may elect for strategic purposes to accept lower margins in order to gain
incremental market share in certain target market segments.
Management continues to closely monitor orders and the creditworthiness of its
customers. The Company has not experienced abnormal increases in losses
associated with accounts receivable; however, credit risks associated with the
youth league division are considered by the Company to be greater than any
other division. The Company has made allowances for the amount it believes to
be adequate to properly reflect the risk to accounts receivable; however,
unforeseen market conditions may compel the Company to increase the allowances.
The sports related equipment market in which the Company participates is highly
competitive. SSG competes principally in the institutional market with local
sporting goods dealers, as well as other direct mail companies. While large
sporting goods companies dominate the market of sporting goods in the United
States, the Company does not compete with such companies.
The Company derives a significant portion of its revenues from sales of
products purchased directly from foreign suppliers located primarily in the Far
East. In addition, the Company believes many of the products it purchases from
domestic suppliers are produced by foreign manufacturers. The Company is
subject to risks of doing business abroad, including delays in shipments,
adverse fluctuations in currency exchange rates, increases in import duties,
decreases in quotas, changes in custom regulations and political turmoil. The
occurrence of any one or more of the foregoing could adversely affect the
Company's operations.
14
<PAGE> 15
Sport Supply Group believes it has the product offerings and competitive
resources for continued success, but revenues, costs, margin, product mix, and
profits are all influenced by a number of factors (including, without
limitation, the availability of capital resources) which are inherently
uncertain and therefore difficult to predict.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A Complaint was filed in June 1996 by X-Outs, Inc., formerly known as
International Golf, Inc. ("X-Outs") and Levco Group Ltd. with the United
States District Court in Tarrant County, Texas (the "Complaint") and names the
Company and certain officers of the Company as defendants. The Complaint
arises out of the Company's acquisition of X-Out's assets in 1994 whereby the
Company issued shares of its common stock as partial consideration for such
assets. Certain of the Company's officers were given Powers of Attorney to
sell such shares issued to the plaintiffs over a two year period. If the
proceeds generated from the sale of the shares did not equal a certain amount
upon expiration of the two year period, the Company agreed to pay the
plaintiffs based upon a formula set forth in the Purchase Agreement. Although
plaintiffs do not dispute that payment was made in accordance with the terms of
the formula in the Purchase Agreement, plaintiffs allege that the parties were
mutually mistaken in using language in the Purchase Agreement that allowed the
Company to make up the shortfall using a fixed price as opposed to the
prevailing market price at the end of the two year term. In addition, the
plaintiffs allege the defendants breached fiduciary duties in connection with
the sale of such shares. The plaintiffs seek to recover approximately $600,000
in actual damages for these claims plus $15 million in punitive damages. The
Company intends to vigorously defend such action.
In addition to the foregoing, the Company from time to time becomes
involved in various claims and lawsuits incident to its business (primarily
relating to product liability issues). In the opinion of management of SSG,
any ultimate liability arising out of currently pending claims and lawsuits
should not have a material effect on the financial condition or the results of
operations of SSG.
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable.
(b) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not applicable.
(b) Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
In November 1995, the Company received a notice from the United States
Securities and Exchange Commission (the "SEC") that the SEC is conducting a
non-public, informal inquiry concerning, among other things, trading in the
Company's securities and certain accounting issues raised by the Company's
October 24, 1995 press release. The Company is providing the SEC with its full
cooperation.
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Item
(a)(1) Exhibit 3.1 -- Amended and Restated Certificate of Incorporation of
the Company (incorporated by reference from Exhibit
4.1 to the Company's Registration Statement on Form
S-8 (Registration No. 33- 80028)).
(a)(2) Exhibit 3.1.1 -- Certificate of Amendment of Amended and Restated
Certificate of Incorporation to the Company
(incorporated by reference from Exhibit 4.1 to the
Company's Registration Statement on Form S-8
(Registration No. 33-80028)).
(a)(3) Exhibit 3.2 -- Amended and Restated Bylaws of the Company
(incorporated by reference from Exhibit 3.2 to the
Company's Report on Form 10-Q for the quarter ended
September 30, 1995).
(a)(4) Exhibit 4.1 -- Specimen of Common Stock Certificate (incorporated by
reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (Registration No.
33-39218)).
(a)(5) Exhibit 4.2 -- Warrant Agreement entered into between the Company
and Warrant Agent, including form of Warrant,
relating to the purchase of up to 1,300,000 shares of
the Company's common stock for $25.00 per share,
which expires on December 15, 1998 (incorporated by
reference from Exhibit 4.2 to the Company's
Registration Statement on Form S-3 (Registration No.
33-71574)).
(a)(6) Exhibit 10 -- Amended and Restated Loan and Security Agreement
between the Company and LaSalle Business Credit, Inc.
dated as of March 23, 1995 (incorporated by reference
from Exhibit 10.20 to the Company's Report on Form
10-K for the fiscal year ended December 31, 1994).
(a)(7) Exhibit 10.1 -- Amendment No. 1 to Amended and Restated Loan and
Security Agreement between the Company and LaSalle
Business Credit, Inc. (incorporated by reference from
Exhibit 10.20.1 to the Company's Report on Form 10-K
for the fiscal year ended October 31, 1995).
(a)(8) Exhibit 10.2 -- Amendment No. 2 to Amended and Restated Loan and
Security Agreement between the Company and LaSalle
Business Credit, Inc. (incorporated by reference from
Exhibit 10 of the Company's Report on Form 10-Q for
the quarter ended February 2, 1996).
(a)(9) Exhibit 10.3 -- Amendment No. 3 to Amended and Restated Loan and
Security Agreement between the Company and LaSalle
Business Credit, Inc.
(a)(10) Exhibit 10.4 -- Severance Agreement entered into by and between the
Company and R. Thomas Russell.
(a)(11) Exhibit 10.5 -- Severance Agreement entered into by and between the
Company and James R. Crawford.
(a)(11) Exhibit 11 -- Earnings per Common and Common Equivalent Share.
(a)(12) Exhibit 27 -- Financial Data Schedule
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPORT SUPPLY GROUP, INC.
September 19, 1996 By: /s/ James R. Crawford
-------------------------
James R. Crawford,
Principal Financial and
Accounting Officer
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
ITEM DESCRIPTION
- ---- -----------
<S> <C>
Exhibit 10.3 -- Amendment No. 3 to Amended and Restated Loan and Security
Agreement between the Company and LaSalle Business Credit,
Inc.
Exhibit 10.4 -- Severance Agreement entered into by and between the Company
and R. Thomas Russell
Exhibit 10.5 -- Severance Agreement entered into by and between the Company
and James R. Crawford
Exhibit 11 -- Earnings per Common and Common Equivalent Share
Exhibit 27 -- Financial Data Schedule
</TABLE>
19
<PAGE> 1
EXHIBIT 10.3
AMENDMENT NUMBER 3 TO
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
By
SPORT SUPPLY GROUP, INC.,
A Delaware Corporation
Borrower
SPORT SUPPLY GROUP INTERNATIONAL HOLDINGS, INC.,
A Delaware Corporation
Guarantor
And
LASALLE BUSINESS CREDIT, INC.,
Formerly Known As StanChart Business Credit, Inc.,
A Delaware Corporation
LaSalle
Dated As Of September ____, 1996,
Effective As Of August 2, 1996
<PAGE> 2
AMENDMENT NUMBER 3 TO
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER 3 TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("Amendment") is made as of September ____, 1996, and effective as of
August 2, 1996, by and between SPORT SUPPLY GROUP, INC., a Delaware corporation
("Borrower"), SPORT SUPPLY GROUP INTERNATIONAL HOLDINGS, INC., a Delaware
corporation ("Guarantor"), and LASALLE BUSINESS CREDIT, INC., formerly known as
StanChart Business Credit, Inc., a Delaware corporation ("LaSalle").
RECITALS
Pursuant to the Amended and Restated Loan and Security Agreement
between the Borrower and LaSalle dated March 23, 1995, as modified by (i) the
Amendment Number 1 to Amended and Restated Loan and Security Agreement dated
December 20, 1995, (ii) a letter agreement dated February 2, 1996, and (iii)
the Amendment Number 2 to Amended and Restated Loan and Security Agreement
dated March 12, 1996 (collectively, "Agreement"), LaSalle has agreed to extend
to the Borrower: (a) revolving loans in the maximum aggregate principal amount
outstanding at any one time of Thirty-Seven Million Five Hundred Thousand
Dollars ($37,500,000.00) (collectively, "Revolving Loans"); (b) a term loan in
the original principal amount of Two Million Five Hundred Thousand Dollars
($2,500,00.00) ("Term Loan"); and (c) additional term loans in the aggregate
principal amount of up to Ten Million Dollars ($10,000,000.00) (collectively,
"Additional Loans"). Pursuant to a Guaranty Agreement dated September 16,
1994, the Guarantor has guaranteed the payment and performance of all of the
Borrower's obligations to LaSalle, including without limitation the Borrower's
obligations under the Agreement. Unless otherwise defined herein, capitalized
terms used in this Amendment shall have the meanings given to such terms in the
Agreement.
The Borrower defaulted under paragraphs 11.1, 11.2, 11.3 and 11.4 of
the Agreement by failing to equal or exceed the minimum Tangible Net Worth,
EBITDA, Debt Service Coverage Ratio and Interest Coverage Ratio required
thereunder, as described in the letter agreement dated June 21, 1996 ("June 21
Letter Agreement"). Pursuant to the June 21 Letter Agreement, LaSalle agreed
to waive certain defaults arising under paragraphs 11.3 and 11.4 of the
Agreement for the Fiscal Quarter which ended February 2, 1996 as a result of
the Borrower's failure to equal or exceed the minimum Debt Service Coverage
Ratio and Interest Coverage Ratio required thereunder, and under paragraphs
11.1, 11.2 and 11.4 of the Agreement for the Fiscal Quarter which ended May 3,
1996 as a result of the Borrower's failure to equal or exceed the minimum
Tangible Net Worth, EBITDA and Interest Coverage Ratio required thereunder.
<PAGE> 3
The June 21 Letter Agreement provided, in part, that the parties were
to enter into an agreement modifying the terms of certain financial covenants
contained in the Agreement. Prior to executing such an agreement, the Borrower
advised LaSalle that it will not equal or exceed the minimum EBITDA required
under paragraph 11.2 of the Agreement for the Fiscal Quarter which ended August
2, 1996 as such paragraph is to be modified, and that as a result a further
default exists under the Agreement. The parties have entered into this
Amendment in order to document the modification of the financial covenants
contained in the Agreement, as agreed by the parties in accordance with the
June 21 Letter Agreement.
NOW THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1. Amendment. The Agreement is hereby amended as follows:
a. Section 1.1 of the Agreement is amended by replacing
the existing definition of "Interest Coverage Ratio" with the following:
"INTEREST COVERAGE RATIO" shall mean, with respect to
any period, the ratio of (a) Borrower's EBITDA for
such period, less sums paid by Borrower during such
period for Capital Expenditures not financed, to (b)
interest expense on Indebtedness deducted in
determining net income for such period.
b. Section 2.14 of the Agreement is amended by deleting
paragraph 2.14(a)(i), such that Borrower shall no longer have the right to use
proceeds of the Additional Loans for the acquisition of treasury stock of the
Borrower.
c. Section 2.1(B) of the Agreement is amended by
replacing the existing provision with the following:
(B) the lesser of (i) Twenty Million Dollars
($20,000,000.00) or (ii) sixty percent (60%) of the
value of Eligible Finished Goods at such time plus
forty percent (40%) of the value of Eligible Raw
Materials at such time (each valued at the lower of
cost or fair market value, on a FIFO basis, in
accordance with Generally Accepted Accounting
Principles) minus forty percent (40%) of the
aggregate face amount of undrawn documentary Letters
of Credit, provided that the amount advanced for
Eligible Finished Goods and Eligible Raw Materials
which are in transit shall not at
2
<PAGE> 4
any time exceed One Million Five Hundred Thousand
Dollars ($1,500,000.00); minus
d. Section 11.1 of the Agreement is amended by replacing
the existing provisions with the following:
11.1 Tangible Net Worth. Borrower shall maintain at all
times a Tangible Net Worth in an amount of not less
than Nine Million Dollars ($9,000,000.00). The
minimum Tangible Net Worth provided for herein shall
be increased, effective as of the close of each
Fiscal Year of Borrower commencing with the Fiscal
Year ending November 1, 1996, by an amount equal to
eighty percent (80%) of Borrower's net after tax
profit (but not decreased for losses) for the Fiscal
Year then ending less all cash dividends paid during
the Fiscal Year.
e. Section 11.2 of the Agreement is amended by replacing
the existing provision with the following:
11.2 EBITDA. Borrower shall equal or exceed an EBITDA for
the fiscal periods set forth below in the amounts set
forth opposite such periods:
<TABLE>
<CAPTION>
Period EBITDA
------ ------
<S> <C>
Three months ending 8/2/96 $1,900,000.00
Six months ending 11/1/96 $3,100,000.00
Nine months ending 1/31/97 $3,100,000.00
Twelve months ending 5/2/97 $5,500,000.00
and twelve months ending
each Fiscal Quarter thereafter
</TABLE>
f. Section 11.3 of the Agreement is amended by replacing
the existing provision with the following:
11.3 Debt Service Coverage. Borrower shall maintain a
Debt Service Coverage Ratio of not less than
1.25:1.00 measured at the end of each Fiscal Quarter,
as follows: (a) on a three (3) month basis for the
Fiscal Quarter ending August 2, 1996; (b) on a six
(6) month basis for the Fiscal Quarter ending
November 1, 1996; (c) on a nine (9) month basis
ending January 31, 1997; and (d) on a twelve (12)
month basis for each Fiscal Quarter ending
thereafter.
g. Section 11.4 of the Agreement is amended by replacing
the existing provision with the following:
3
<PAGE> 5
11.4 Interest Coverage Ratio. Borrower shall maintain an
Interest Coverage Ratio of not less than 1.50:1.00
measured at the end of each Fiscal Quarter, as
follows: (a) on a three (3) month basis for the
Fiscal Quarter ending August 2, 1996; (b) on a six
(6) month basis for the Fiscal Quarter ending
November 1, 1996; (c) on a nine (9) month basis
ending January 31, 1997; and (d) on a twelve (12)
month basis for each Fiscal Quarter ending
thereafter.
2. Cost And Expenses. Borrower shall pay, upon demand by
LaSalle, all costs and expenses incurred by LaSalle in connection with the
transactions described in this Amendment.
3. Warranties And Representations. As an inducement to LaSalle
to enter into this Amendment, Borrower makes the following representations and
warranties to LaSalle and acknowledges LaSalle's justifiable reliance thereon:
a. As of August 2, 1996, upon receipt of the waivers
described in the June 21 Letter Agreement, except for the default under
paragraph 11.2 of the Agreement described in Section 4 below, the Borrower was
not in default under the Agreement or any of the other Loan Documents, and
Borrower was in full compliance with all of the terms and conditions thereof;
b. As of August 2, 1996, upon receipt of the waivers
described in the June 21 Letter Agreement, other than the default under
paragraph 11.2 of the Agreement described in Section 4 below, no event existed
which was, or which with the passage of time, the giving of notice, or both,
would constitute a default under the Agreement or any of the Loan Documents;
c. All warranties and representations previously made to
LaSalle by Borrower in connection with the Loan Documents remain true, accurate
and complete, as of the date made;
d. Except as previously described in writing to LaSalle,
there have been no material adverse changes in Borrower's finances or
operations; and
e. The Agreement, as modified and amended herein, is the
valid and binding obligation of Borrower and is fully enforceable in accordance
with its terms.
4. Acknowledgement. LaSalle acknowledges that upon execution of
this Amendment, Borrower and Guarantor will be in default under paragraph 11.2
of the Agreement as a result of Borrower's failure to equal or exceed the
minimum EBITDA required under paragraph 11.2 of the Agreement for the Fiscal
Quarter which ended August 2, 1996. Other than the defaults waived pursuant to
4
<PAGE> 6
the June 21 Letter Agreement, nothing contained in this Amendment shall
constitute a waiver of the default under paragraph 11.2 described in this
paragraph or of any other violation or default which may exist under the
Agreement or under any other Loan Document, whether or not known to LaSalle.
LaSalle expressly reserves all of its rights and remedies in connection with
the default under paragraph 11.2 and any such other defaults. Pursuant to
paragraph 13.2 of the Agreement, any delay on the part of LaSalle in the
exercise of its rights or remedies available as a consequence of any defaults
shall not constitute a waiver, election or acquiescence by LaSalle.
5. Release. Borrower releases, acquits and forever discharges
LaSalle and LaSalle's subsidiaries, affiliates, officers, directors, agents,
employees, servants, attorneys and representatives from any and all claims,
demands, debts, actions, causes of action, suits, contracts, agreements,
obligations, accounts, defenses, offsets against the Borrower's obligation
under the Loan Documents, and liabilities of any kind or character whatsoever,
known or unknown, which Borrower ever had or now has against LaSalle or any of
LaSalle's subsidiaries, affiliates, officers, directors, agents, employees,
servants, attorneys or representatives.
6. No Novation. The parties to this Amendment specifically
intend that the amendment of the Agreement pursuant to this Amendment shall not
constitute a novation and shall not extinguish, terminate, affect or impair
Borrower's obligations under the Loan Documents.
7. Other Terms. Other than the foregoing, all other terms and
conditions of the Agreement shall remain unchanged and in full force and effect
and are ratified and confirmed in all respects by Borrower.
8. Successors and Assigns. This Amendment shall be binding upon
and inure to the benefit of Borrower and LaSalle and their respective
successors and assigns.
IN WITNESS WHEREOF, this Amendment is executed under seal on the date
first above written, intended to be effective as of August 2, 1996.
WITNESS/ATTEST: BORROWER:
SPORT SUPPLY GROUP, INC.,
A Delaware Corporation
- --------------------------------- By: (SEAL)
----------------------------
Name:
----------------------------
Title:
---------------------------
5
<PAGE> 7
GUARANTOR:
SPORT SUPPLY GROUP INTERNATIONAL
HOLDINGS, INC.,
A Delaware Corporation
- --------------------------------- By: (SEAL)
----------------------------
Name:
----------------------------
Title:
---------------------------
LASALLE:
LASALLE BUSINESS CREDIT, INC.,
A Delaware Corporation
- --------------------------------- By: (SEAL)
----------------------------
Name:
----------------------------
Title:
---------------------------
ACKNOWLEDGEMENTS
STATE OF ______________, CITY/COUNTY OF _________________, TO WIT:
I HEREBY CERTIFY that on this _____ day of September, 1996, before me,
the undersigned Notary Public of the jurisdiction aforesaid, personally
appeared ___________________, and acknowledged himself to be
_____________________________ of SPORT SUPPLY GROUP, INC., a Delaware
corporation, and that he, as such _____________________ being authorized so to
do, executed the foregoing instrument for the purposes therein contained by
signing the name of SPORT SUPPLY GROUP, INC., by himself as
______________________________________.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
_______________________
6
<PAGE> 8
STATE OF ______________, CITY/COUNTY OF _________________, TO WIT:
I HEREBY CERTIFY that on this _____ day of September, 1996, before
me, the undersigned Notary Public of the jurisdiction aforesaid, personally
appeared ____________________, and acknowledged himself to be
____________________________ of SPORT SUPPLY GROUP INTERNATIONAL HOLDINGS,
INC., a Delaware corporation, and that he, as such __________________________
being authorized so to do, executed the foregoing instrument for the purposes
therein contained by signing the name of SPORT SUPPLY GROUP INTERNATIONAL
HOLDINGS, INC., by himself as __________________________________.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
_______________________
STATE OF MARYLAND, CITY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY, that on this ____ day of September, 1996, before
me, the undersigned a Notary Public of the State of Maryland, personally
appeared Herbert M. Kidd, II, who acknowledged himself to be a First Vice
President of LASALLE BUSINESS CREDIT, INC., a Delaware corporation, and
acknowledged that he, as such First Vice President, being authorized so to do,
executed the foregoing instrument for the purposes therein contained by signing
the name of LASALLE BUSINESS CREDIT, INC. by himself as First Vice President.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
_______________________
7
<PAGE> 1
EXHIBIT 10.4
SEVERANCE AGREEMENT
THIS AGREEMENT is made as of the 13th day of May, 1996, between Sport
Supply Group, Inc., a Delaware corporation (the "Company"), and R. Thomas
Russell (the "Employee").
WHEREAS, the Board of Directors of the Company (the "Board") desires
to offer an inducement to the Employee to remain an employee of the Company;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained, this
Agreement sets forth benefits which the Company will pay to Employee in the
event of termination of Employee's employment, except as a result of death,
disability, retirement or termination by the Company for Cause, following a
"Change in Control" of the Company (in each case as such terms or events are
defined or discussed herein):
1. Term. The term of this Agreement shall continue until the
earlier of (i) the expiration of the third anniversary of the occurrence of a
Change in Control, (ii) the Employee's death, (iii) the Employee's earlier
voluntary retirement (except for those events described in Section 3(a)(2)) or
(iv) the incorporation of the Company's golf division so long as Employee is
offered a position of employment with such entity on substantially the same
terms as his employment with the Company; provided, however, that on each
anniversary of the Change in Control, the period referenced in Section (i)
above shall automatically be extended for an additional year unless, not later
than 90 calendar days prior to such anniversary date, the Company shall have
given written notice to the Employee that it does not wish to have the term
extended.
2. Definitions.
(a) Acquiring Person: An "Acquiring Person" shall mean
any person (as defined in Section 2(d)(iii) of this Agreement) that,
together with all Affiliates and Associates of such person, is the
beneficial owner of 15% or more of the outstanding Common Stock. The
term "Acquiring Person" shall not include Michael J. Blumenfeld,
Peter S. Blumenfeld, the Company, any subsidiary of the Company, any
employee benefit plan of the Company or subsidiary of the Company, or
any person holding Common Stock for or pursuant to the terms of any
such plan. For the purposes of this Agreement, a person who becomes
an Acquiring Person by acquiring beneficial ownership of 15% or more
of the Common Stock at any time after the date of this Agreement shall
continue to be an Acquiring Person whether or not such person
continues to be the beneficial owner of 15% or more of the outstanding
Common Stock.
(b) Affiliate and Associate. "Affiliate" and "Associate"
shall have the respective meanings ascribed to such terms in Rule
12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") in effect on the
date of this Agreement.
1
<PAGE> 2
(c) Cause. For "Cause" shall mean that the Employee
shall have committed:
(i) an intentional material act of fraud or
embezzlement in connection with his duties or in the course of
his employment with the Company;
(ii) intentional wrongful material damage to
property of the Company; or
(iii) intentional wrongful disclosure of material
secret processes or material confidential information of the
Company. For the purposes of this Agreement, no act, or
failure to act, on the part of the Employee shall be deemed
"intentional" unless done, or omitted to be done, by the
Employee not in good faith and without reasonable belief that
his action or omission was in the best interest of the
Company.
(d) Change in Control. A "Change in Control" of the
Company shall have occurred if at any time during the term of this
Agreement any of the following events shall occur:
(i) The Company is merged, consolidated or
reorganized into or with another corporation or other legal
person and as a result of such merger, consolidation or
reorganization less than 60% of the combined voting power to
elect each class of Directors of the then outstanding
securities of the remaining corporation or legal person or its
ultimate parent immediately after such transaction is
available to be received by all of the Company's stockholders
(who were stockholders immediately prior to the merger,
consolidation or reorganization) on a pro rata basis and is
actually received in respect of or exchange for voting
securities of the Company pursuant to such transaction;
(ii) The Company sells all or substantially all of
its assets to any other corporation or other legal person and
as a result of such sale less than 60% of the combined voting
power to elect each class of Directors of the then outstanding
securities of such corporation or legal person or its ultimate
parent immediately after such transaction is available to be
received by all of the Company's stockholders (who were
stockholders immediately prior to the sale) on a pro rata
basis and is actually received in exchange for the assets of
the Company pursuant to such sale (provided that this
provision shall not apply to a registered public offering of
securities of a subsidiary of the Company, which offering is
not part of a transaction otherwise a part of or related to a
Change in Control);
(iii) Any person (including any "person" as such
term is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange
Act) of securities which when added to any securities already
owned by such person would
2
<PAGE> 3
represent in the aggregate 20% or more of the then outstanding
securities of the Company which are entitled to vote to elect
any class of Directors;
(iv) If, at any time, the Continuing Directors
then serving on the Board cease for any reason to constitute
at least a majority thereof;
(v) Any occurrence that would be required to be
reported in response to Item 6(e) of Schedule 14A of
Regulation 14A or any successor rule or regulation promulgated
under the Exchange Act; or
(vi) Such other events that cause a change in
control of the Company, as determined by the Board in its sole
discretion; provided, however, that a Change in Control of the
Company shall not be deemed to have occurred as the result of
any transaction having one or more of the foregoing effects if
such transaction is proposed by, and includes a significant
equity participation (i.e., an aggregate of at least 20% of
the then outstanding common equity securities of the Company
immediately after such transaction which are entitled to vote
to elect any class of Directors) of executive officers of the
Company as constituted immediately prior to the occurrence of
such transaction or any Company employee stock ownership plan
or pension plan.
(e) Code. The "Code" shall mean the Internal Revenue
Code of 1986, as amended.
(f) Continuing Director. A "Continuing Director" shall
mean a Director of the Company who (i) is not an Acquiring Person, an
Affiliate or Associate, or a representative of an Acquiring Person or
nominated for election by an Acquiring Person, and (ii) was either a
member of the Board of Directors of the Company on the date of this
Agreement or subsequently became a Director of the Company and whose
initial election or initial nomination for election by the Company's
stockholders was approved by a majority of the Continuing Directors
then on the Board of Directors of the Company.
(g) Employment Term. The "Employment Term" shall be the
period of employment under this Agreement commencing on the day prior
to a Change in Control and continuing until the expiration of this
Agreement.
(h) Severance Compensation. The "Severance Compensation"
shall be a lump sum amount equal to 299% of the sum of (A) the highest
annual salary of the Employee in effect at any time during the
Employment Term or the salary of the Employee in effect immediately
prior to the Change in Control, whichever is the larger amount, plus
(B) the bonus or incentive compensation of the Employee, based upon
the dollar amount of bonus or incentive compensation that the Employee
received from the Company for the fiscal year preceding the year in
which the Change in Control occurred or for the fiscal year preceding
the year in which the Termination Date occurs, whichever is the larger
amount.
3
<PAGE> 4
(i) Termination Date. The "Termination Date" shall be
the date upon which the Employee or the Company effectively terminates
the employment of the Employee.
3. Rights of Employee Upon Change in Control or Termination.
(a) The Company shall provide the Employee, within ten
days following the Termination Date, Severance Compensation in lieu of
compensation to the Employee for periods subsequent to the Termination
Date, but without affecting the rights of the Employee at law or in
equity, if, following the occurrence of a Change in Control, any of
the following events shall occur:
(1) the Company terminates the Employee's
employment during the Employment Term other than for any of
the following reasons:
(i) the Employee dies;
(ii) the Employee becomes permanently
disabled and is unable to work for a period of 180
consecutive days; or
(iii) for Cause,
(2) the Employee terminates his employment after
such Change in Control and the occurrence of at least one of
the following events:
(i) An adverse change in the nature or
scope of the authorities, functions or duties
attached to the position with the Company that the
Employee had immediately prior to the Change in
Control, any reduction in the Employee's salary
during the Employment Term or any reduction in bonus
or incentive compensation (based upon the dollar
amount of bonus or incentive compensation that the
Employee received from the Company for the fiscal
year preceding the year in which the Change in
Control occurred or for the fiscal year preceding the
year in which the Termination Date occurs, whichever
is the larger amount) or a significant reduction in
scope or value of the aggregate other monetary or
nonmonetary benefits to which the Employee was
entitled from the Company immediately prior to the
Change in Control, any of which is not remedied
within ten calendar days after receipt by the Company
of written notice from the Employee of such change,
reduction, alteration or termination, as the case may
be;
(ii) A determination by the Employee made
in good faith that as a result of a Change in Control
and a change in circumstances thereafter
significantly affecting his position, changes in the
composition or policies of the Board, or of other
events of material effect, he has been rendered
substantially unable to carry out, or has been
substantially hindered in the performance of, the
authorities, functions or duties attached to his
position
4
<PAGE> 5
immediately prior to the Change in Control, which
situation is not remedied within ten calendar days
after receipt by the Company of written notice from
the Employee of such determination;
(iii) The Company shall require the
Employee to relocate his principal location of work
by more than 20 miles from the location thereof
immediately prior to the Change in Control or to
travel away from his office in the course of
discharging his responsibilities or duties hereunder
significantly more (in terms of either consecutive
days or aggregate days in any calendar year) than
required of him prior to the Change in Control
without in either case his prior written consent; or
(iv) the Company commits any material
breach of this Agreement.
(b) Notwithstanding the above section or any other
provision of this Agreement, in no event shall the Company pay or be
obligated to pay the Employee an amount which would be an Excess
Parachute Payment. For purposes of this Agreement, the term "Excess
Parachute Payment" shall mean any payment or any portion thereof which
would be an "excess parachute payment" within the meaning of Section
280G of the Code, and would result in the imposition of an excise tax
under Section 4999 of the Code, in the opinion of tax counsel selected
by the Company's independent accountants and acceptable to the
Employee. If it is established pursuant to a final determination of a
court or an Internal Revenue Service administrative appeals proceeding
that, notwithstanding the good faith of the Employee and the Company
in applying the terms of this Agreement, a payment (or portion
thereof) made is an Excess Parachute Payment, then, except as
hereafter provided, the Employee shall have an obligation to repay the
Company upon demand an amount equal to the minimum amount (but without
interest) necessary to insure that no payments made or to be made by
the Company pursuant to this Agreement is an Excess Parachute Payment;
provided, however, that if, in the opinion of tax counsel selected by
the Company's independent accountants and acceptable to the Employee
(in the circumstance where the Company or Employee has requested such
opinion), such repayment will not ensure that no Excess Parachute
Payment would be made hereunder, then (1) no such repayment obligation
will exist and (2) the Company shall pay to the Employee an additional
amount in cash equal to the amount necessary to cause the amount of
the aggregate after-tax cash compensation and benefits otherwise
receivable by the Employee to be equal to the aggregate after-tax cash
compensation and benefits he would have received as if Sections 280G
and 4999 of the Code had not been enacted.
(c) Upon written notice given by the Employee to the
Company prior to the receipt of Severance Compensation, the Employee,
at his sole option, may elect to have all or any part of any such
amount paid to him, without interest, on an installment basis selected
by him.
5
<PAGE> 6
(d) The payment of Severance Compensation by the Company
to the Employee shall not affect any rights and benefits which the
Employee may have pursuant to any other agreement, policy, plan,
program or arrangement of the Company providing benefits to the
Employee prior to the Termination Date, which rights shall be governed
by the terms thereof, except that payments hereunder after termination
shall reduce by an equal amount any sums payable after termination
under any agreement (including, without limitation, any employment
agreement) by and between the Company and the Employee. The Company
shall provide to the Employee throughout the Employment Term benefits
substantially similar to those which the Employee was receiving or
entitled to receive immediately prior to the Termination Date. Such
benefits as provided by the Company, however, shall be reduced to the
extent comparable benefits are actually received by the Employee
during the Employment Term as a result of employment other than with
the Company.
(e) The Company shall pay to the Employee all reasonable
legal fees and expenses incurred by him as a result of the enforcement
of any of Employee's rights hereunder within ten business days of the
date such expenses are incurred (including without limitation all such
fees and expenses, if any, incurred in contesting or disputing any
termination of employment or in seeking to obtain or enforce any right
or benefit provided by this Agreement in accordance with Section 12
hereof).
(f) The Company shall have no right of set-off or
counterclaim in respect of any claim, debt or obligation against any
payment or benefit to or for the benefit of the Employee provided for
in this Agreement.
(g) Without limiting the rights of the Employee at law or
in equity, if the Company fails to make any payment required to be
made hereunder on a timely basis, the Company shall pay interest on
the amount thereof on demand at an annualized rate of interest equal
to 120% of the then applicable Federal rate determined under Section
1274(d) of the Code, compounded semi-annually (but in no event shall
such interest exceed the highest lawful rate).
4. No Mitigation Required. In the event that this Agreement or
the employment of the Employee hereunder is terminated, the Employee shall not
be obligated to mitigate his damages nor the amount of any payment provided for
in this Agreement by seeking other employment or otherwise, and except for the
termination of benefits pursuant to Section 3(d), the acceptance of employment
elsewhere after termination shall in no way reduce the amount of Severance
Compensation payable hereunder.
6
<PAGE> 7
5. Successors; Binding Agreement.
(a) The Company will require any successor and any
corporation or other legal person (including any "person" as defined
in Section 2(d)(iii) of this Agreement) which is in control of such
successor (as "control" is defined in Regulation 230.405 or any
successor rule or regulation promulgated under the Securities Act of
1933, as amended) to all or substantially all of the business and/or
assets of the Company (by purchase, merger, consolidation or
otherwise), by agreement in form and substance satisfactory to the
Employee, to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure
of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a material breach of this Agreement by
the Company. Notwithstanding the foregoing, any such assumption shall
not, in any way, affect or limit the liability of the Company under
the terms of this Agreement or release the Company from any obligation
hereunder. As used in this Agreement, "Company" shall mean the
Company as herein before defined and any successor to its business
and/or all or part of its assets as aforesaid which executes and
delivers the agreement provided for in this Section 5 or which
otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) This Agreement and all rights of the Employee
hereunder shall inure to the benefit of and be enforceable by the
Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees.
6. Notice. The Company shall give written notice to Employee
within ten days after any Change in Control. Failure to give such notice shall
constitute a material breach of this Agreement. For purposes of this
Agreement, notices and all other communications provided for in the Agreement
shall be in writing and shall be deemed to have been duly given when delivered
or received after being mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Employee:
R. Thomas Russell
1901 Diplomat Drive
Farmers Branch, Texas 75234
If to the Company:
Sport Supply Group, Inc.
1901 Diplomat Drive
Farmers Branch, Texas 75234
Attention: President
7
<PAGE> 8
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Employee and such officer as may be
specifically designated by the Board. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, unless
specifically referred to herein, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this agreement.
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT
SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
8. Validity. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. Employment Rights. Nothing expressed or implied in this
Agreement shall create any right or duty on the part of the Company or the
Employee to have the Employee remain in the employment of the Company prior to
any Change in Control; provided, however, that any termination of employment of
the Employee or removal of the Employee as an elected officer of the Company
following the commencement of any discussion authorized by the Board of
Directors of the Company with a third person that ultimately results in a
Change in Control shall be deemed to be a termination or removal of the
Employee after a Change in Control for purposes of this Agreement and shall
entitle the Employee to all Severance Compensation. Notwithstanding any other
provision hereof to the contrary, the Employee may, at any time during the
Employment Term, upon the giving of 30 days prior written notice, terminate his
employment hereunder. If this Agreement or the employment of the Employee is
terminated under circumstances in which the Employee is not entitled to any
Severance Compensation, the Employee shall have no further obligation or
liability to the Company hereunder or otherwise with respect to his prior or
any future employment by the Company.
11. Withholding of Taxes. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or government regulation or ruling;
provided, however, that no withholding pursuant to Section 4999 of the Code
shall be made unless, in the opinion of tax counsel selected by the Company's
independent accountants and acceptable to the Employee, such withholding
relates to payments which result in the imposition of an excise tax pursuant to
Section 4999 of the Code.
8
<PAGE> 9
12. Legal Fees and Expenses. It is the intent of the Company that
the Employee not be required to incur the expenses associated with the
enforcement of his rights under this Agreement by litigation or other legal
action because the cost and expense thereof would substantially detract from
the benefits intended to be extended to the Employee hereunder. Accordingly,
if it should appear to the Employee that the Company has failed to comply with
any of its obligations under the Agreement or in the event that the Company or
any other person takes any action to declare the Agreement void or
unenforceable, or institutes any litigation designed to deny, or to recover
from, the Employee the benefits intended to be provided to the Employee
hereunder, the Company irrevocably authorizes the Employee from time to time to
retain counsel of his choice, at the expense of the Company as hereafter
provided, to represent the Employee in connection with the initiation or
defense of any litigation or other legal action, whether by or against the
Company or any director, officer, stockholder or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to the Employee's entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Employee agree that a confidential relationship shall exist between the
Employee and such counsel. The Company shall pay and be solely responsible for
any and all attorneys' and related fees and expenses incurred by the Employee
as a result of the Company's failure to perform this Agreement or any provision
thereof or as a result of the Company or any person contesting the validity or
enforceability of this Agreement or any provision thereof as aforesaid.
13. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Employee is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
on the date and year first above written.
SPORT SUPPLY GROUP, INC.
By:
-------------------------------
Michael J. Blumenfeld
Chairman of the Board and
Chief Executive Officer
-------------------------------
R. Thomas Russell
9
<PAGE> 1
EXHIBIT 10.5
SEVERANCE AGREEMENT
THIS AGREEMENT is made as of the 4th day of September, 1996, between
Sport Supply Group, Inc., a Delaware corporation (the "Company"), and James R.
Crawford (the "Employee").
WHEREAS, the Board of Directors of the Company (the "Board") desires
to offer an inducement to the Employee to remain an employee of the Company;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained, this
Agreement sets forth benefits which the Company will pay to Employee in the
event of termination of Employee's employment, except as a result of death,
disability, retirement or termination by the Company for Cause, following a
"Change in Control" of the Company (in each case as such terms or events are
defined or discussed herein):
1. Term. The term of this Agreement shall continue until the
earlier of (i) the expiration of the third anniversary of the occurrence of a
Change in Control, (ii) the Employee's death, or (iii) the Employee's earlier
voluntary retirement (except for those events described in Section 3(a)(2));
provided, however, that on each anniversary of the Change in Control, the
period referenced in Section (i) above shall automatically be extended for an
additional year unless, not later than 90 calendar days prior to such
anniversary date, the Company shall have given written notice to the Employee
that it does not wish to have the term extended.
2. Definitions.
(a) Acquiring Person: An "Acquiring Person" shall mean
any person (as defined in Section 2(d)(iii) of this Agreement) that,
together with all Affiliates and Associates of such person, is the
beneficial owner of 15% or more of the outstanding Common Stock. The
term "Acquiring Person" shall not include Michael J. Blumenfeld,
Peter S. Blumenfeld, the Company, any subsidiary of the Company, any
employee benefit plan of the Company or subsidiary of the Company, or
any person holding Common Stock for or pursuant to the terms of any
such plan. For the purposes of this Agreement, a person who becomes
an Acquiring Person by acquiring beneficial ownership of 15% or more
of the Common Stock at any time after the date of this Agreement shall
continue to be an Acquiring Person whether or not such person
continues to be the beneficial owner of 15% or more of the outstanding
Common Stock.
(b) Affiliate and Associate. "Affiliate" and "Associate"
shall have the respective meanings ascribed to such terms in Rule
12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") in effect on the
date of this Agreement.
(c) Cause. For "Cause" shall mean that the Employee
shall have committed:
(i) an intentional material act of fraud or
embezzlement in connection with his duties or in the course of
his employment with the Company;
(ii) intentional wrongful material damage to
property of the Company; or
(iii) intentional wrongful disclosure of material
secret processes or material confidential information of the
Company. For the purposes of this Agreement, no act, or
failure to act, on the part of the Employee shall be deemed
"intentional" unless done, or omitted to be done, by the
Employee not in good faith and without reasonable belief that
his action or omission was in the best interest of the
Company.
<PAGE> 2
(d) Change in Control. A "Change in Control" of the
Company shall have occurred if at any time during the term of this
Agreement any of the following events shall occur:
(i) The Company is merged, consolidated or
reorganized into or with another corporation or other legal
person and as a result of such merger, consolidation or
reorganization less than 60% of the combined voting power to
elect each class of Directors of the then outstanding
securities of the remaining corporation or legal person or its
ultimate parent immediately after such transaction is
available to be received by all of the Company's stockholders
(who were stockholders immediately prior to the merger,
consolidation or reorganization) on a pro rata basis and is
actually received in respect of or exchange for voting
securities of the Company pursuant to such transaction;
(ii) The Company sells all or substantially all of
its assets to any other corporation or other legal person and
as a result of such sale less than 60% of the combined voting
power to elect each class of Directors of the then outstanding
securities of such corporation or legal person or its ultimate
parent immediately after such transaction is available to be
received by all of the Company's stockholders (who were
stockholders immediately prior to the sale) on a pro rata
basis and is actually received in exchange for the assets of
the Company pursuant to such sale (provided that this
provision shall not apply to a registered public offering of
securities of a subsidiary of the Company, which offering is
not part of a transaction otherwise a part of or related to a
Change in Control);
(iii) Any person (including any "person" as such
term is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange
Act) of securities which when added to any securities already
owned by such person would represent in the aggregate 20% or
more of the then outstanding securities of the Company which
are entitled to vote to elect any class of Directors;
(iv) If, at any time, the Continuing Directors
then serving on the Board cease for any reason to constitute
at least a majority thereof;
(v) Any occurrence that would be required to be
reported in response to Item 6(e) of Schedule 14A of
Regulation 14A or any successor rule or regulation promulgated
under the Exchange Act; or
(vi) Such other events that cause a change in
control of the Company, as determined by the Board in its sole
discretion; provided, however, that a Change in Control of the
Company shall not be deemed to have occurred as the result of
any transaction having one or more of the foregoing effects if
such transaction is proposed by, and includes a significant
equity participation (i.e., an aggregate of at least 20% of
the then outstanding common equity securities of the Company
immediately after such transaction which are entitled to vote
to elect any class of Directors) of executive officers of the
Company as constituted immediately prior to the occurrence of
such transaction or any Company employee stock ownership plan
or pension plan.
(e) Code. The "Code" shall mean the Internal Revenue
Code of 1986, as amended.
(f) Continuing Director. A "Continuing Director" shall
mean a Director of the Company who (i) is not an Acquiring Person, an
Affiliate or Associate, or a representative of an Acquiring Person or
nominated for election by an Acquiring Person, and (ii) was either a
member of the Board of Directors of the Company on the date of this
Agreement or subsequently became a Director of the Company and whose
initial election or initial nomination for election by the
2
<PAGE> 3
Company's stockholders was approved by a majority of the Continuing
Directors then on the Board of Directors of the Company.
(g) Employment Term. The "Employment Term" shall be the
period of employment under this Agreement commencing on the day prior
to a Change in Control and continuing until the expiration of this
Agreement.
(h) Severance Compensation. The "Severance Compensation"
shall be a lump sum amount equal to 100% of the sum of (A) the highest
annual salary of the Employee in effect at any time during the
Employment Term or the salary of the Employee in effect immediately
prior to the Change in Control, whichever is the larger amount, plus
(B) the bonus or incentive compensation of the Employee, based upon
the dollar amount of bonus or incentive compensation that the Employee
received from the Company for the fiscal year preceding the year in
which the Change in Control occurred or for the fiscal year preceding
the year in which the Termination Date occurs, whichever is the larger
amount.
(i) Termination Date. The "Termination Date" shall be
the date upon which the Employee or the Company effectively terminates
the employment of the Employee.
3. Rights of Employee Upon Change in Control or Termination.
(a) The Company shall provide the Employee, within ten
days following the Termination Date, Severance Compensation in lieu of
compensation to the Employee for periods subsequent to the Termination
Date, but without affecting the rights of the Employee at law or in
equity, if, following the occurrence of a Change in Control, any of
the following events shall occur:
(1) the Company terminates the Employee's
employment during the Employment Term other than for any of
the following reasons:
(i) the Employee dies;
(ii) the Employee becomes permanently
disabled and is unable to work for a period of 180
consecutive days; or
(iii) for Cause,
(2) the Employee terminates his employment after
such Change in Control and the occurrence of at least one of
the following events:
(i) An adverse change in the nature or
scope of the authorities, functions or duties
attached to the position with the Company that the
Employee had immediately prior to the Change in
Control, any reduction in the Employee's salary
during the Employment Term or any reduction in bonus
or incentive compensation (based upon the dollar
amount of bonus or incentive compensation that the
Employee received from the Company for the fiscal
year preceding the year in which the Change in
Control occurred or for the fiscal year preceding the
year in which the Termination Date occurs, whichever
is the larger amount) or a significant reduction in
scope or value of the aggregate other monetary or
nonmonetary benefits to which the Employee was
entitled from the Company immediately prior to the
Change in Control, any of which is not remedied
within ten calendar days after receipt by the Company
of written notice from the Employee of such change,
reduction, alteration or termination, as the case may
be;
3
<PAGE> 4
(ii) A determination by the Employee made
in good faith that as a result of a Change in Control
and a change in circumstances thereafter
significantly affecting his position, changes in the
composition or policies of the Board, or of other
events of material effect, he has been rendered
substantially unable to carry out, or has been
substantially hindered in the performance of, the
authorities, functions or duties attached to his
position immediately prior to the Change in Control,
which situation is not remedied within ten calendar
days after receipt by the Company of written notice
from the Employee of such determination;
(iii) The Company shall require the
Employee to relocate his principal location of work
by more than 20 miles from the location thereof
immediately prior to the Change in Control or to
travel away from his office in the course of
discharging his responsibilities or duties hereunder
significantly more (in terms of either consecutive
days or aggregate days in any calendar year) than
required of him prior to the Change in Control
without in either case his prior written consent; or
(iv) the Company commits any material
breach of this Agreement.
(b) Notwithstanding the above section or any other
provision of this Agreement, in no event shall the Company pay or be
obligated to pay the Employee an amount which would be an Excess
Parachute Payment. For purposes of this Agreement, the term "Excess
Parachute Payment" shall mean any payment or any portion thereof which
would be an "excess parachute payment" within the meaning of Section
280G of the Code, and would result in the imposition of an excise tax
under Section 4999 of the Code, in the opinion of tax counsel selected
by the Company's independent accountants and acceptable to the
Employee. If it is established pursuant to a final determination of a
court or an Internal Revenue Service administrative appeals proceeding
that, notwithstanding the good faith of the Employee and the Company
in applying the terms of this Agreement, a payment (or portion
thereof) made is an Excess Parachute Payment, then, except as
hereafter provided, the Employee shall have an obligation to repay the
Company upon demand an amount equal to the minimum amount (but without
interest) necessary to insure that no payments made or to be made by
the Company pursuant to this Agreement is an Excess Parachute Payment;
provided, however, that if, in the opinion of tax counsel selected by
the Company's independent accountants and acceptable to the Employee
(in the circumstance where the Company or Employee has requested such
opinion), such repayment will not ensure that no Excess Parachute
Payment would be made hereunder, then (1) no such repayment obligation
will exist and (2) the Company shall pay to the Employee an additional
amount in cash equal to the amount necessary to cause the amount of
the aggregate after-tax cash compensation and benefits otherwise
receivable by the Employee to be equal to the aggregate after-tax cash
compensation and benefits he would have received as if Sections 280G
and 4999 of the Code had not been enacted.
(c) Upon written notice given by the Employee to the
Company prior to the receipt of Severance Compensation, the Employee,
at his sole option, may elect to have all or any part of any such
amount paid to him, without interest, on an installment basis selected
by him.
(d) The payment of Severance Compensation by the Company
to the Employee shall not affect any rights and benefits which the
Employee may have pursuant to any other agreement, policy, plan,
program or arrangement of the Company providing benefits to the
Employee prior to the Termination Date, which rights shall be governed
by the terms thereof, except that payments hereunder after termination
shall reduce by an equal amount any sums payable after termination
under any agreement (including, without limitation, any employment
agreement) by and between the Company and the Employee. The Company
shall provide to the Employee throughout the Employment Term benefits
substantially similar to those which the Employee was receiving or
entitled to receive immediately prior to the Termination Date. Such
4
<PAGE> 5
benefits as provided by the Company, however, shall be reduced to the
extent comparable benefits are actually received by the Employee
during the Employment Term as a result of employment other than with
the Company.
(e) The Company shall pay to the Employee all reasonable
legal fees and expenses incurred by him as a result of the enforcement
of any of Employee's rights hereunder within ten business days of the
date such expenses are incurred (including without limitation all such
fees and expenses, if any, incurred in contesting or disputing any
termination of employment or in seeking to obtain or enforce any right
or benefit provided by this Agreement in accordance with Section 12
hereof).
(f) The Company shall have no right of set-off or
counterclaim in respect of any claim, debt or obligation against any
payment or benefit to or for the benefit of the Employee provided for
in this Agreement.
(g) Without limiting the rights of the Employee at law or
in equity, if the Company fails to make any payment required to be
made hereunder on a timely basis, the Company shall pay interest on
the amount thereof on demand at an annualized rate of interest equal
to 120% of the then applicable Federal rate determined under Section
1274(d) of the Code, compounded semi-annually (but in no event shall
such interest exceed the highest lawful rate).
4. No Mitigation Required. In the event that this Agreement or
the employment of the Employee hereunder is terminated, the Employee shall not
be obligated to mitigate his damages nor the amount of any payment provided for
in this Agreement by seeking other employment or otherwise, and except for the
termination of benefits pursuant to Section 3(d), the acceptance of employment
elsewhere after termination shall in no way reduce the amount of Severance
Compensation payable hereunder.
5. Successors; Binding Agreement.
(a) The Company will require any successor and any
corporation or other legal person (including any "person" as defined
in Section 2(d)(iii) of this Agreement) which is in control of such
successor (as "control" is defined in Regulation 230.405 or any
successor rule or regulation promulgated under the Securities Act of
1933, as amended) to all or substantially all of the business and/or
assets of the Company (by purchase, merger, consolidation or
otherwise), by agreement in form and substance satisfactory to the
Employee, to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure
of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a material breach of this Agreement by
the Company. Notwithstanding the foregoing, any such assumption shall
not, in any way, affect or limit the liability of the Company under
the terms of this Agreement or release the Company from any obligation
hereunder. As used in this Agreement, "Company" shall mean the
Company as herein before defined and any successor to its business
and/or all or part of its assets as aforesaid which executes and
delivers the agreement provided for in this Section 5 or which
otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) This Agreement and all rights of the Employee
hereunder shall inure to the benefit of and be enforceable by the
Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees.
6. Notice. The Company shall give written notice to Employee
within ten days after any Change in Control. Failure to give such notice shall
constitute a material breach of this Agreement. For purposes of this
Agreement, notices and all other communications provided for in the Agreement
shall be in writing and shall be deemed to have been duly given when delivered
or received after being mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
5
<PAGE> 6
If to the Employee:
James R. Crawford
1901 Diplomat Drive
Farmers Branch, Texas 75234
If to the Company:
Sport Supply Group, Inc.
1901 Diplomat Drive
Farmers Branch, Texas 75234
Attention: President
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Employee and such officer as may be
specifically designated by the Board. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, unless
specifically referred to herein, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this agreement.
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT
SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
8. Validity. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. Employment Rights. Nothing expressed or implied in this
Agreement shall create any right or duty on the part of the Company or the
Employee to have the Employee remain in the employment of the Company prior to
any Change in Control; provided, however, that any termination of employment of
the Employee or removal of the Employee as an elected officer of the Company
following the commencement of any discussion authorized by the Board of
Directors of the Company with a third person that ultimately results in a
Change in Control shall be deemed to be a termination or removal of the
Employee after a Change in Control for purposes of this Agreement and shall
entitle the Employee to all Severance Compensation. Notwithstanding any other
provision hereof to the contrary, the Employee may, at any time during the
Employment Term, upon the giving of 30 days prior written notice, terminate his
employment hereunder. If this Agreement or the employment of the Employee is
terminated under circumstances in which the Employee is not entitled to any
Severance Compensation, the Employee shall have no further obligation or
liability to the Company hereunder or otherwise with respect to his prior or
any future employment by the Company.
11. Withholding of Taxes. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or government regulation or ruling;
provided, however, that no withholding pursuant to Section 4999 of the Code
shall be made unless, in the opinion of tax counsel selected by the Company's
independent accountants and acceptable to the Employee, such withholding
relates to payments which result in the imposition of an excise tax pursuant to
Section 4999 of the Code.
6
<PAGE> 7
12. Legal Fees and Expenses. It is the intent of the Company that
the Employee not be required to incur the expenses associated with the
enforcement of his rights under this Agreement by litigation or other legal
action because the cost and expense thereof would substantially detract from
the benefits intended to be extended to the Employee hereunder. Accordingly,
if it should appear to the Employee that the Company has failed to comply with
any of its obligations under the Agreement or in the event that the Company or
any other person takes any action to declare the Agreement void or
unenforceable, or institutes any litigation designed to deny, or to recover
from, the Employee the benefits intended to be provided to the Employee
hereunder, the Company irrevocably authorizes the Employee from time to time to
retain counsel of his choice, at the expense of the Company as hereafter
provided, to represent the Employee in connection with the initiation or
defense of any litigation or other legal action, whether by or against the
Company or any director, officer, stockholder or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to the Employee's entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Employee agree that a confidential relationship shall exist between the
Employee and such counsel. The Company shall pay and be solely responsible for
any and all attorneys' and related fees and expenses incurred by the Employee
as a result of the Company's failure to perform this Agreement or any provision
thereof or as a result of the Company or any person contesting the validity or
enforceability of this Agreement or any provision thereof as aforesaid.
13. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Employee is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
on the date and year first above written.
SPORT SUPPLY GROUP, INC.
By:
---------------------------------
Michael J. Blumenfeld
Chairman of the Board and
Chief Executive Officer
---------------------------------
James R. Crawford
7
<PAGE> 1
EXHIBIT 11
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Adjusted net earnings and adjusted number of common shares used in the
computation of net earnings per common share were determined as follows :
<TABLE>
<CAPTION>
Three Months Ended August 2, 1996 Nine Months Ended August 2, 1996
--------------------------------- --------------------------------
Full Full
ADJUSTED NET EARNINGS Primary Dilution (1) Primary Dilution (1)
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net loss $ (3,288,796) $ (3,288,796) $(13,775,133) $(13,775,133)
Add : reduction in interest
expense, net of
income taxes -- -- -- --
------------ ------------ ------------ ------------
Adjusted net loss $ (3,288,796) $ (3,288,796) $(13,775,133) $(13,775,133)
============ ============ ============ ============
ADJUSTED NUMBER OF COMMON SHARES
Weighted Average Common Shares
Outstanding 6,764,834 6,764,834 6,740,396 6,740,396
Incremental shares for assumed
exercise of outstanding
stock options and warrants 11,968 11,968 32,020 32,030
------------ ------------ ------------ ------------
Adjusted number of common shares 6,776,802 6,776,802 6,772,416 6,772,426
============ ============ ============ ============
Net loss per common share $ (0.49) $ (0.49) $ (2.03) $ (2.03)
============ ============ ============ ============
</TABLE>
NOTE (1): These calculations are submitted in accordance with
Regulation S-K Item 601(b)(11) although the calculations are
not required pursuant to Paragraph 40 of APB Opinion No. 15
because the effects are less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-01-1996
<PERIOD-END> AUG-02-1996
<CASH> 119,129
<SECURITIES> 0
<RECEIVABLES> 12,990,659
<ALLOWANCES> 500,000
<INVENTORY> 18,734,605
<CURRENT-ASSETS> 40,313,216
<PP&E> 13,354,357
<DEPRECIATION> (7,150,481)
<TOTAL-ASSETS> 73,544,874
<CURRENT-LIABILITIES> 38,806,155
<BONDS> 0
<COMMON> 75,520
0
0
<OTHER-SE> 34,048,813
<TOTAL-LIABILITY-AND-EQUITY> 73,544,874
<SALES> 60,657,144
<TOTAL-REVENUES> 60,657,144
<CGS> 37,741,569
<TOTAL-COSTS> 21,141,661
<OTHER-EXPENSES> 34,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,062,057
<INCOME-PRETAX> 746,415
<INCOME-TAX> 268,708
<INCOME-CONTINUING> 477,707
<DISCONTINUED> (14,252,840)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,775,133)
<EPS-PRIMARY> (2.03)
<EPS-DILUTED> (2.03)
</TABLE>
