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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended November 1, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File number 1-10704
Sport Supply Group, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 75-2241783
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Diplomat Drive, Farmers Branch, Texas 75234
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 484-9484
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Common Stock Purchase Warrants American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on January 20, 1997, based on the closing price of the common
stock on the New York Stock Exchange on such date, was approximately
$32,560,858.
Indicated below is the number of shares outstanding of each class of the
registrant's common stock, as of January 20, 1997.
Title of Each Class of Common Stock Number Outstanding
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Common Stock, $.01 par value 8,364,834
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of the Form 10-K
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Proxy Statement for Annual Meeting of Part III
Stockholders to be held March 21, 1997
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
PART I
1 Business ............................................................................... 3
2 Properties.............................................................................. 10
3 Legal Proceedings....................................................................... 10
4 Submission of Matters to a Vote of Security Holders..................................... 10
PART II
5 Market for Registrant's Common Equity and Related Stockholder Matters................... 10
6 Selected Financial Data................................................................. 12
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................................... 13
8 Financial Statements and Supplementary Data............................................. 20
9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................................... 44
PART III
10 Directors and Executive Officers of the Registrant...................................... 44
11 Executive Compensation.................................................................. 44
12 Security Ownership of Certain Beneficial Owners and Management.......................... 44
13 Certain Relationships and Related Transactions.......................................... 44
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................ 44
</TABLE>
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PART I
ITEM 1. BUSINESS.
GENERAL
Sport Supply Group, Inc. (the "Company" or "SSG") is the largest
direct mail marketer of sports related equipment and leisure products to the
institutional market in the United States. The Company principally serves the
institutional market, which is comprised primarily of schools, colleges,
universities, government agencies, military facilities, athletic clubs, youth
sports leagues and recreational organizations. SSG offers a broad line of
institutional-grade equipment and provides after-sale customer service through
the use of sales personnel strategically located in certain large metropolitan
areas (the "Metro Marketing Group"). See Item 1. -- "Business - Sales and
Marketing." The Company believes that prompt delivery of a broad range of
institutional-grade products at competitive prices differentiates it from the
retail sporting goods stores that primarily serve the consumer market. The
Company also serves the local sporting goods team dealer market principally
with its MacGregor brand products. The Company markets approximately 7,000
sports related equipment products to over 100,000 institutional, retail, mass
merchant and team dealer customers and maintains over 200,000 names on its
mailing lists.
In addition to the Company's core institutional business, the Company
sells golf related products (i.e., new and used golf balls and certain golf
accessory products) principally to the retail market. In May 1996, the Company
made the strategic decision to dispose of its golf operations to focus on its
core institutional business. On May 20, 1996 as part of this plan of disposal,
the Company sold virtually all of the assets of its Gold Eagle Professional
Golf Products Division, which sold golf accessory products to the retail
market. In addition to the sale of Gold Eagle, the Company adopted a plan to
dispose of the remaining operations of its retail golf segment. Consequently,
these operations are reported as discontinued operations. The Company is
currently seeking a buyer for these operations. In the alternative, the Company
will liquidate all or substantially all of the assets related to the Company's
discontinued operations if the Company believes it can realize more value from
such a liquidation as opposed to a sale of the business. The discussion in this
Report on Form 10-K regarding the Company's business, unless otherwise noted,
relates only to the Company's continuing operations (i.e., core institutional
business). Consequently, the Company will no longer report segment information
about this operation. For a discussion regarding the Company's discontinued
operations, see Note 9 to the consolidated financial statements included in
Item 8. -- "Financial Statements and Supplementary Data."
The Company's net revenues (excluding discontinued operations) have
increased from $47 million in 1991 to $80.5 million for the fiscal year ended
November 1, 1996. The Company attributes its high level of growth to the
successful development of an effective mail order marketing program and
competitive pricing that have led to greater market penetration and to the
development of, and increase in, the Company's manufacturing capabilities.
On December 10, 1996, pursuant to a Securities Purchase Agreement
dated November 27, 1996 between Emerson Radio Corp. ("Emerson") and the Company
(the "Purchase Agreement"), Emerson acquired directly from the Company (i)
1,600,000 shares of newly-issued Common Stock (the "Emerson Shares") for an
aggregate cash consideration of $11,500,000 or approximately $7.19 per share,
and (ii) 5-year warrants (the "Emerson Warrants") to acquire an additional
1,000,000 shares of Common Stock at an exercise price of $7.50 per share,
subject to standard anti-dilution adjustments, for an aggregate cash
consideration of $500,000. In addition, Emerson agreed to arrange for foreign
trade credit financing of $2.0 million for the benefit of the Company to
supplement the Company's existing credit facilities. If all of the Emerson
Warrants are exercised, Emerson will own approximately 34.9% of the issued and
outstanding shares of Common Stock. As a result of the change of control, the
Chief Executive Officer resigned and was replaced by a designee of Emerson. See
Item 12 --
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Security Ownership of Certain Beneficial Owners and Management" and Item 13 --
"Certain Relationships and Related Transactions."
The Company is a Delaware corporation incorporated in 1982 and in 1988
became the successor of an operating division of Aurora Electronics, Inc.
(f/k/a BSN Corp. and referred to herein as "Aurora"). Prior to the completion
of the initial public offering of 3,500,000 shares of the Company's common
stock in April, 1991, the Company was a wholly-owned subsidiary of Aurora. The
Company has one wholly-owned subsidiary, Sport Supply Group International
Holdings, Inc., a shell corporation that formerly held the operations of the
Gold Eagle Canada Division that was sold in May 1996.
The Company's executive offices are located at 1901 Diplomat Drive,
Farmers Branch, Texas 75234 and its telephone number is (972) 484-9484.
PRODUCTS
The Company believes it manufactures and distributes one of the
broadest lines of sports related equipment and leisure products for the
institutional market. SSG offers approximately 7,000 sporting goods and sports
related products, over 3,000 of which it manufactures. The product lines
offered by SSG include archery, baseball and softball, basketball, camping,
football, golf, tennis and other racquet sports, gymnastics, indoor recreation,
physical education, soccer, field hockey, lacrosse, track and field,
volleyball, weight lifting, and exercise equipment.
The Company believes brand recognition is important in the
institutional and team dealer markets. Most of SSG's products are marketed
under trade names or trademarks owned or licensed by the Company. SSG believes
its trade names and trademarks are well recognized among institutional
purchasers of sports related equipment. SSG intends to continue to expand its
product and brand name offerings by actively pursuing product, trademark and
trade name licensing arrangements and acquisitions. The Company's trademarks,
service marks, and trade names include the following:
o Atlanta 1996 and certain other marks, emblems and designations of the
Atlanta Committee for the Olympic Games, Inc. -- (Expired December
31, 1996).
o Official Factory Direct Equipment Supplier of Little League Baseball
(See discussion below).
o Voit(R) -- institutional sports related equipment and products,
including inflated balls and baseball and softball products (licensed
from Voit Corporation - see discussion below).
o MacGregor(R) -- certain equipment and accessories relating to
baseball, softball, basketball, soccer, football, volleyball, and
general exercise (e.g., dumbbells, curling bars, etc.) (licensed from
MacMark Corporation - see discussion below).
o Alumagoal(R) -- track and field equipment, including starting blocks,
hurdles, pole vault and high jump standards and crossbars.
o AMF -- gymnastics equipment (licensed from AMF Bowling, Inc. - see
discussion below).
o BSN(R) -- sport balls and mail order catalogs.
o Champion -- barbells, dumbbells and weight lifting benches.
o Curvemaster(R) -- baseball and softball pitching machines.
o Fibersport -- pole vaulting equipment.
o Gamecraft -- field and floor hockey equipment, soccer equipment,
scorebooks, coaching equipment, and table tennis equipment.
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o GSC Sports -- gymnastics equipment.
o Hammett & Sons -- indoor table-top games.
o Maxpro(R) -- products include, among others, football practice
dummies, baseball, and other protective helmets and pads (other than
football protective equipment), baseball chest protectors and baseball
mitts and gloves (licensed from Proacq Corp., a subsidiary of Riddell
Sports Inc.).
o New England Camp and Supply -- camping and outdoor recreational
equipment and accessories.
o North American Recreation(R) -- billiard, table tennis and other game
tables.
o Passon's Sports -- mail order catalogs.
o Pillo Polo(R) -- recreational polo and hockey games.
o Port-A-Pit(R) -- high jump and pole vault landing pits.
o Pro Base(R) -- baseball bases.
o Pro Down -- football down markers.
o Pro Net -- nets, net assemblies, frames and practice cages.
o Rol-Dri(R) and Tidi-Court -- golf course and tennis court maintenance
equipment.
o Safe-Squat -- specialty weight lifting squat machines.
o Toppleball(R) -- recreational ball games.
o U.S. Games, Inc.(R) -- goals, nets, playing equipment for physical
exercise games and mail order catalogs.
In addition to the above, the Company owns the following trademarks
and patents which are classified in discontinued operations :
o International Golf -- recycled golf balls.
o Nitro(R) -- new golf balls.
o Second Chance -- recycled golf balls.
The Voit license permits the Company to use the Voit(R) trademark in
connection with the manufacture, advertisement, and sale to institutional
customers and sporting goods dealers of specified institutional sports related
equipment and products, including inflated balls for all sports and baseball
and softball products. The Company is required to pay annual royalties under
the license equal to the greater of a certain percentage of revenues from the
sale of Voit products or a minimum royalty as set forth in the License
Agreement. The initial term of the Voit license expired on December 31, 1989,
and was subject to three renewal options for consecutive terms of five years
each. SSG has exercised two renewal periods, and currently is permitted to use
the Voit trademark through December 31, 1999.
In February, 1992, the Company acquired two separate licenses to use
several trade names, styles, and trademarks (including, but not limited to,
MacGregor(R)). Each license permits the Company to manufacture, promote, sell,
and distribute to institutional sporting goods customers (subject to certain
exceptions) in the United States, Canada, and Mexico, specified institutional
sports related equipment and products relating to baseball,
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softball, basketball, soccer, football, volleyball, and general exercise. Each
license is royalty-free and exclusive with respect to certain customers and
non-exclusive with respect to others. Each license is perpetual provided the
Company generates a predetermined minimum amount of revenues each year from the
sale of products bearing the MacGregor trademark, maintains certain quality
standards for such products and services, and does not commit any default under
the license agreements that remains uncured for a period of 30 days after the
Company receives notice of such default. The Company has converted a
substantial portion of its products to the MacGregor(R) brand, which is
believed to be one of the most widely recognized trade names in the industry.
These products are being sold to customers using the Company's existing
marketing channels. See Item 1. -- "Business - Sales and Marketing."
On August 19, 1993, the Company entered into an exclusive license
agreement with AMF Bowling, Inc. to use the AMF name in connection with the
promotion and sale of certain gymnastics equipment in the United States and
Canada. The Company is required to pay an annual royalty under the license
equal to the greater of: (i) a certain percentage of net revenues from the sale
of AMF products; or (ii) a minimum royalty as set forth in the license
agreement. The minimum royalty increases by a predetermined percentage each
year the license agreement is in effect. The initial term of the agreement
expired on December 31, 1995, and was subject to three renewal options for
consecutive terms of one year each through December 31, 1998. SSG exercised its
first two renewal options, and currently is permitted to use the AMF name
through December 31, 1997. The Company may also renew the license agreement
after December 31, 1998, subject to certain provisions contained in the license
agreement.
On December 15, 1995, the Company entered into a three year agreement
with Little League Baseball, Incorporated that, among other things, names the
Company as the "Official Factory Direct Equipment Supplier of Little League
Baseball." The Company is required to pay an annual fee to keep the agreement
in effect each year.
In addition to the foregoing, the Company has acquired (or had issued)
a number of patents relating to products sold by the Company. The following is
a list of some of the patents owned by the Company: (i) 2 separate patents
relating to a Power Squat/Weight Lifting Apparatus (expires May 20, 2003 and
June 23, 2004, respectively); (ii) Baseball Hitting Practice Device (expires
May 9, 2006); (iii) 2 separate patents relating to Football Digital Display
Markers (expires June 27, 2006 and November 28, 2006, respectively); (iv) Tennis
Net and Method of Making (expires October 1, 2008); (v) Rotator Cuff Exercise
Machine (expires January 29, 2008); (vi) Portable Balance Beam (expires July
28, 2009); and (vii) Holder for Beverage Containers (expires August 16, 2011).
The Company also has several patents relating to the manufacture and design of
golf balls and golf ball accessory packages, which patents are included in the
Company's discontinued operations.
SALES AND MARKETING
The Company markets its products through three primary marketing
divisions: 1) Sport Supply Group; 2) The Athletic Connection; and 3) Youth
Sports.
THE SPORT SUPPLY GROUP marketing division markets SSG's products to
institutional customers through catalogs, outbound telemarketing, and bid
related sales efforts. SSG publishes three primary catalogs designed for
institutional customers: BSN(R) Sports, U.S. Games(R) and New England Camp and
Recreation. Master catalogs containing a broad variety of the Company's
products are sent to all customers and potential customers on the Company's
mailing lists. Seasonal or specialty supplements are prepared and mailed
periodically to certain accounts that pertain to particular sports, such as
weight training, baseball or track and field. SSG services its existing
accounts and solicits new customers with a total of over 3 million pieces of
mail each year, including approximately 2.1 million catalogs.
The Company's mailing lists, developed over 20 years, are carefully
maintained, screened, and cross- checked. SSG frequently buys and rents lists
that it attempts to screen, improve, and cross reference before incorporating
them into the Company's master list. The master list is subdivided into various
combinations designed to place catalogs in the hands of individual purchase
decision makers. The master list is also subdivided by relevant product types,
seasons, and customer profiles.
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While SSG maintains a strong institutional customer base in rural and
small metropolitan areas, the institutional markets in large metropolitan areas
have historically been dominated by local sporting goods dealers and retailers.
Over the last several years, there has been a growing trend of large
metropolitan area school districts, city recreation departments, and other
institutions submitting proposed purchases through competitive bids. In
response to this trend, SSG intensified its bid related sales efforts by having
its Metro Marketing Group target large metropolitan area school districts and
institutions in an effort to include SSG's products among those specified on
bid invitations.
THE ATHLETIC CONNECTION marketing division was established in 1992 to
market certain of the Company's products, principally MacGregor brand products,
to sporting goods team dealers who also market these products to institutional
customers. Products are marketed through annual catalogs and commissioned sales
representatives to team dealers as opposed to institutional customers targeted
by the Sport Supply Group marketing division.
THE YOUTH SPORTS marketing division concentrates on selling team
sports products to independent youth leagues. The Youth Sports division
utilizes outbound telemarketing and a master catalog in conjunction with a
supplier contract with Little League Baseball, Inc. to reach this marketplace.
In addition to the sports products, the Youth Sports division is also capable
of providing trophies and fund raising products. On May 15, 1996, SSG entered
into a five-year Advertising and Distribution Agreement with Hershey Chocolate
U.S.A. Pursuant to this Agreement, SSG advertises and distributes promotional
materials featuring Hershey fund raising programs and products to youth sports
leagues and teams and also sells Hershey Chocolate products to its customers.
CUSTOMERS
The Company's revenues are not dependent upon any one or a few major
customers. Instead, the Company enjoys a very large and diverse customer base.
The Company's customers include all levels of public and private schools,
colleges, universities and military academies, municipal and governmental
agencies, military facilities, churches, clubs, camps, hospitals, youth sports
leagues, non-profit organizations and team dealer suppliers. SSG believes its
customer base in the United States is the largest in the institutional direct
mail market. The Company's institutional customers typically receive annual
appropriations for sports related equipment, which appropriations are generally
spent in the period preceding the season in which the sport or athletic
activity occurs. While institutions are subject to budget constraints, once
allocations have been made, aggregate levels of expenditures are typically not
reduced.
Approximately 8%, 10%, and 10% of the Company's sales (excluding sales
relating to the Company's discontinued operations) in fiscal 1996, 1995 (which
consisted of the ten months ending October 31, 1995) and 1994, respectively,
were to the United States Government, a majority of which sales were to
military installations. SSG has a contract with the General Services
Administration (the "GSA Contract") that grants the Company an "approved"
status when attempting to make sales to military installations or other
governmental agencies. The existing GSA Contract expires in December 2001.
Under the GSA Contract, the Company agrees to sell approximately 700 products
to United States Government agencies and departments at catalog prices or at
prices consistent with any discount provided to other customers of the Company.
Products sold to the United States Government under the GSA Contract are always
sold at the Company's lowest offered price. The Company also has a contract
with the General Services Administration for the sale of approximately 40 camp
related products with terms similar to the GSA Contract. This contract expires
in August 2002.
SSG also sells products not covered by the GSA Contract to United
States Government customers, although the appropriation process for purchases
of these products differs. These sales are made through a U.S. Government
non-appropriated fund contract. This contract is administered by the United
States Air Force and is scheduled to expire on September 30, 1997. Subject to
certain conditions, the Company has an option to renew this contract through
September 30, 1999. Although the Company currently intends to renew this
contract upon its expiration in September 1997, no assurance can be made that
the contract will be renewed. See Note 6 to the consolidated financial
statements included in Item 8. -- "Financial Statements and Supplementary
Data."
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SEASONAL FACTORS AND BACKLOG
Historically, SSG's revenues have peaked in the second and third
calendar quarters of each year due primarily to the budgeting procedures of
many of its customers and the seasonal demand for product offered by the
Company and the first and fourth calendar quarters are generally down because
of the lessening of demand arising from decreased sports activities, adverse
weather conditions inhibiting customer demand, holiday seasons and school
recesses. The Company is reviewing and considering the distribution of other
related products to counteract this cyclical trend. See Note 12 to the
consolidated financial statements included in Item 8. -- "Financial Statements
and Supplementary Data."
SSG had a backlog for continuing operations of approximately
$2,174,000 at November 1, 1996, compared to approximately $2,235,000 at October
31, 1995.
MANUFACTURING AND SUPPLIERS
The Company manufactures many of the products it distributes at its
four manufacturing facilities. See Item 2. -- "Properties." Game tables, gym
mats, netting, and tennis and baseball equipment are manufactured in the
Company's two Anniston, Alabama plants. Gymnastics equipment is manufactured at
SSG's facility in Cerritos, California. Items of steel and aluminum
construction, such as soccer field equipment and weight room equipment, are
principally manufactured at SSG's facilities in Farmers Branch, Texas.
Certain products manufactured by the Company are custom-made (such as
tumbling mats ordered in color or size specifications), while others are
standardized. The principal raw materials used by the Company in manufacturing
are, for the most part, readily available from several different sources. Such
raw materials include foam, vinyl, nylon thread, steel and aluminum tubing,
wood, slate, and cloth. Except as noted above, items not manufactured by SSG
are purchased from various suppliers primarily located in the United States,
the Republic of China (Taiwan), South Korea, Australia, the Philippines,
Thailand, the People's Republic of China, Pakistan, and Germany. SSG has no
significant purchase contracts with any major supplier of finished products,
and most products purchased from suppliers are readily available from other
sources. The Company purchases most of its finished product in U.S. dollars and
is therefore not subject to exchange rate differences.
COMPETITION
SSG competes in the institutional market principally with local
sporting goods dealers and retail sporting goods stores, which collectively
dominate the institutional market. Dealers and retail stores occasionally fill
institutional orders with Company products. Due to the formation of The
Athletic Connection marketing division in 1992, sales of SSG's institutional
products to local sporting goods team dealers have increased annually. The
Company has identified approximately 15 other direct mail companies in the
institutional market. SSG believes that most of these competitors are
substantially smaller than SSG in terms of geographic coverage, products
offered, and revenues.
The Company competes in the institutional market principally on the
basis of price, product availability and customer service. SSG believes it has
an advantage in the institutional market over traditional sporting goods
retailers and team dealers because its selling prices do not include comparable
price markups attributable to wholesalers, manufacturers, and/or distributors.
In addition, the Company's ability to control the availability of goods it
manufactures enables it to respond more rapidly to customer demand. SSG
believes its direct mail competitors operate primarily as wholesalers and
distributors, with little or no manufacturing capability.
While large sporting goods companies such as Wilson Sporting Goods
Co., Spalding Sporting Goods, a division of Evenflo, Inc., Rawlings Sporting
Goods, and Russell Athletic Company dominate the marketing of sports related
equipment in the United States, SSG does not compete directly with such
companies. Rather, certain of these companies supply products to SSG as well as
retail sporting goods stores and team dealers, the Company's primary
competitors in the institutional market.
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GOVERNMENT REGULATION
Many of the Company's products are subject to 15 U.S.C. ss.ss.
2051-2084 (1992 and Supp. 1996), among other laws, which empowers the Consumer
Product Safety Commission (the "CPSC") to protect consumers from hazardous
sporting goods and other articles. The CPSC has the authority to exclude from
the market certain articles which are found to be hazardous, and can require a
manufacturer to refund the purchase price of products that present a
substantial product hazard. CPSC determinations are subject to court review.
Similar laws exist in some states and cities in the United States.
PRODUCT LIABILITY AND INSURANCE
Because of the nature of the Company's products, SSG is periodically
subject to product liability claims resulting from personal injuries. The
Company from time to time may become involved in various lawsuits incidental to
the Company's business, some of which will relate to claims of injuries
allegedly resulting in substantial permanent paralysis. Significantly increased
product liability claims continue to be asserted successfully against
manufacturers and distributors throughout the United States resulting in
general uncertainty as to the nature and extent of manufacturers' and
distributors' liability for personal injuries. See Item 3 -- "Legal
Proceedings."
There can be no assurance that the Company's general product liability
insurance will be sufficient to cover any successful product liability claims
made against the Company. Any claims substantially in excess of the Company's
insurance coverage, or any substantial claim not covered by insurance, could
have a material adverse effect on the Company's results of operations and
financial condition.
EMPLOYEES
On November 1, 1996, SSG had approximately 422 full-time employees in
its core institutional business, 121 of whom were involved in the Company's
manufacturing operations. SSG also hires part-time and temporary employees
primarily during the summer months. On November 1, 1996, SSG also had
approximately 99 full-time employees in its golf operations. None of the
Company's employees are represented by a union, and the Company believes its
relations with its employees is good.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Year
First
Became
Name Age Present Position Officer
---- --- ---------------- -------
<S> <C> <C> <C>
Geoffrey P. Jurick 56 Chairman of the Board and 1996
Chief Executive Officer
Peter S. Blumenfeld 48 President and Chief Operating 1991
Officer
John P. Walker 33 Executive Vice President and Chief Financial 1996
Officer
Terrence M. Babilla 34 General Counsel and Secretary 1995
</TABLE>
All officers are elected for a term of one year or until their
successors are duly elected.
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ITEM 2. PROPERTIES.
The Company leases (i) a 135,000 square foot corporate headquarters
and manufacturing facility and (ii) a 181,000 square foot warehouse facility,
each of which is located in Farmers Branch, Texas. The 135,000 square foot
facility is under a lease expiring in July 1999, with a five year renewal
option. The 181,000 square foot warehouse facility is under a lease expiring in
December 2004, with two (2) five year renewal options. The Company also leases
a 45,000 square foot gymnastics equipment manufacturing facility in Cerritos,
California. The Company's lease in California expires in December 2001.
The Company owns (i) a 35,000 square foot foam product and netting
manufacturing plant and (ii) a 45,000 square foot game table manufacturing
plant, both of which are located in Anniston, Alabama.
ITEM 3. LEGAL PROCEEDINGS.
The Company from time to time becomes involved in various claims and
lawsuits incidental to its business. In the opinion of management of the
Company, any ultimate liability arising out of the currently pending product
liability claims and business related lawsuits will not have a material adverse
effect on the financial condition or results of operations of the Company
unless the claim substantially exceeds the Company's insurance coverage. See
Item 1. -- "Business -- Product Liability and Insurance."
As previously reported, 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 District Court in Tarrant County, Texas (the "Complaint"). The
Complaint named the Company and certain officers of the Company as defendants.
The Complaint arose out of the Company's acquisition of X-Outs' assets in 1994.
The Complaint made a number of allegations, including breach of contract and
breach of fiduciary duties. The Plaintiffs sought to recover approximately
$600,000 in actual damages plus $15 million in punitive damages. In light of
the substance of the Complaint and the expense, time, merits and uncertainty of
litigation, on January 6, 1997, the Company agreed to an out of court
settlement with the Plaintiffs for an amount less than the recovery of actual
damages sought in the Complaint and the Company has accrued this amount in
fiscal year 1996. The amount is not material to the financial position or
results of operations. The Company did not pay any punitive damages. Plaintiffs
have dismissed the Complaint against all defendants with prejudice.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
SSG's common stock, par value $.01 per share (the "Common Stock") is
traded on the New York Stock Exchange, Inc. ("NYSE") under the symbol GYM.
SSG's Common Stock Purchase Warrants, which were distributed as a special
dividend to the Company's stockholders on December 27, 1993 (the "1993
Warrants"), are traded on the American Stock Exchange, Inc. ("AMEX") under the
symbol GYMW. As of January 8, 1997, there were 3,031 holders of the Common
Stock (including individual security position listings). The following table
sets forth the range for the periods indicated of the high and low sales prices
for the Common Stock and the 1993 Warrants (after giving effect to the 5 for 4
stock split declared by the Company on January 26, 1994). The first three
quarterly periods for 1995 in the table set forth below are based on calendar
quarters. There is no fourth quarter 1995 information set forth in the
following table due to the Company's change in its fiscal year end from
December 31 to October 31.
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<TABLE>
<CAPTION>
Common Stock 1993 Warrants
------------ -------------
High Low High Low
---- --- ---- ---
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 First Quarter 14-1/4 10-1/4 2-7/8 1-7/8
Second Quarter 14-3/4 12-1/8 2-7/8 2
Third Quarter 13-1/8 10-3/4 2-1/4 1-13/16
1996 First Quarter 8-5/8 6-3/4 1-1/4 5/8
Second Quarter 8-1/8 6-1/8 3/4 3/8
Third Quarter 8-1/4 4-5/8 13/16 1/8
Fourth Quarter 7-7/8 5-1/8 7/16 3/16
</TABLE>
Total cash dividends paid during fiscal 1995 were $603,779. Cash
dividends totaling $201,650 were declared on October 20, 1995 and paid on
November 22, 1995. The Company announced on January 2, 1996 that it terminated
its annual cash dividend policy effective immediately. The Company currently
intends to retain any earnings for use in its business and does not anticipate
paying any cash dividends on its capital stock in the foreseeable future.
On December 10, 1996, pursuant to a Securities Purchase Agreement
dated November 27, 1996 between Emerson and the Company (the "Purchase
Agreement"), Emerson acquired directly from the Company (i) 1,600,000 shares of
newly-issued Common Stock (the "Emerson Shares") for an aggregate cash
consideration of $11,500,000 or approximately $7.19 per share, and (ii) 5-year
warrants (the "Emerson Warrants") to acquire an additional 1,000,000 shares of
Common Stock at an exercise price of $7.50 per share, subject to standard
anti-dilution adjustments, for an aggregate cash consideration of $500,000. In
addition, Emerson agreed to arrange for foreign trade credit financing of $2.0
million for the benefit of the Company to supplement the Company's existing
credit facilities. As a result of the change in control, the Chief Executive
Officer resigned and was replaced by a designee of Emerson. See Item 12 --
"Security Ownership of Certain Beneficial Owners and Management" and Item 13 --
"Certain Relationships and Related Transactions". The Emerson Shares and
Emerson Warrants were sold in a privately negotiated transaction pursuant to
Section 4(2) of the Securities Act of 1933, as amended (i.e., a transaction by
an issuer not involving a public offering).
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<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA.
The following tables set forth certain historical financial data for
the Company. The historical financial data has been derived from the audited
financial statements of the Company. The historical data below should be read
in conjunction with Item 7. -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's financial
statements and notes thereto included in Item 8. -- "Financial Statements and
Supplementary Data."
SELECTED FINANCIAL DATA
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED YEAR ENDED DECEMBER 31,
NOVEMBER 1, OCTOBER 31, ------------------------------------
1996 1995 1994 1993 1992
---- ---- ------- ------ -----
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net revenues $ 80,521 $ 65,134 $ 66,920 $ 58,817 $ 50,454
Gross profit 29,955 25,259 26,326 23,551 20,647
Operating profit (loss) (65) 3,894 5,162 5,694 4,679
Interest expense 1,372 1,126 973 1,039 892
Other income (expense), net 38 209 (5) 24 175
Cumulative effect of accounting change -- -- -- 50 --
Earnings (loss) from continuing operations (964) 1,847 2,802 3,324 2,654
Earnings (loss) from discontinued operations (17,773) (457) 1,900 482 397
Net earnings (loss) (18,737) 1,390 4,702 3,806 3,051
Net earnings (loss) per common share from
continuing operations(1) (0.14) 0.27 0.42 0.65 0.56
Net earnings (loss) per common share from
discontinued operations(1) (2.63) (0.07) 0.28 0.09 0.08
Net earnings (loss) per common share(1) $ (2.77) $ .20 $ .70 $ .74 $ .64
Weighted average common shares
outstanding(1) 6,768 6,950 6,760 5,154 4,790
Cash dividends declared per
common share (2) -- $ .12 $ .13 $ .16 $ .16
</TABLE>
<TABLE>
<CAPTION>
AT NOVEMBER 1 AT OCTOBER 31 AT DECEMBER 31,
------------- ------------- --------------------------------
BALANCE SHEET DATA: 1996 1995 1994 1993 1992
---- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $21,322 $42,231 $32,886 $25,840 $18,067
Total assets 70,009 86,355 71,616 45,574 38,389
Long-term obligations, net 24,338 29,199 16,698 5,578 13,919
Total liabilities 40,846 38,745 25,143 10,618 21,601
Stockholders' equity 29,163 47,610 46,473 34,956 16,788
</TABLE>
(1) Reflects the 5 for 4 stock split declared during January, 1994.
(2) Dividends declared in 1995 consisted of a $0.03 per share dividend for the
first three calendar quarters. Dividends declared in 1994 consisted of a $0.04
per share dividend for the fourth calendar quarter of 1993 and a $0.03 per
share dividend for the first, second and third calendar quarters of 1994.
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<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following table sets forth, for the periods indicated, certain
items related to the Company's continuing operations as a percentage of net
revenues. During 1995, the Company changed its financial reporting year end from
December 31 to October 31. Consequently, the fiscal year ended October 31, 1995
is a transition period consisting of ten calendar months. See Note 1 to the
consolidated financial statements included in Item 8. - "Financial Statements
and Supplementary Data".
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------------------------
November 1, October 31, December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net revenues (in thousands) $80,521 $65,134 $66,920
100.0% 100.0% 100.0%
Cost of sales 62.8% 61.2% 60.7%
Selling, general and administrative
expenses 37.3% 32.8% 31.6%
----------------------- ---------------------- ---------------------
Operating profit (loss) (0.1)% 6.0% 7.7%
======================= ====================== =====================
</TABLE>
In May 1996, the Company sold substantially all of the assets of its
Gold Eagle Professional Golf Products Division ("the Gold Eagle Division") and
approved a formal plan to dispose of its remaining retail segment operations
comprised of golf balls and golf related accessories. See Note 9 to the
consolidated financial statements included in Item 8. - "Financial Statements
and Supplementary Data". 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 and
because the fiscal year ended October 31, 1995 is comprised only of a ten month
period, certain comparisons of operating results may not be meaningful when
comparing 1996 to 1995 and 1995 to 1994. Therefore, certain financial data for
1996 and 1995 presented within this section also includes (where indicated)
comparative information relative to the twelve months ended October 31, 1995
(which information is unaudited) to provide a more meaningful discussion of
comparable operating results. In addition, certain financial data for 1994,
presented within the section includes (where indicated) comparative information
relative to the ten months ended October 31, 1994 (which information is
unaudited). The following discussion regarding 1996 as compared to 1995 and 1995
as compared to 1994, unless otherwise indicated, relates to the Company's
continuing operations only.
1996 COMPARED TO 1995
Net Revenues. Net revenues for the fiscal year ended November 1, 1996 increased
by approximately $15.4 million (23.6%) as compared to the fiscal year ended
October 31, 1995 and $7.0 million (9.5%) as compared to the twelve month period
ended October 31, 1995. The increase in net revenues reflects increased sales
in substantially all operating divisions, including 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 attributable to the continued downsizing of military
installations and work stoppages of various government agencies during fiscal
1996.
Gross Profit. Gross profit for the fiscal year ended November 1, 1996 increased
by approximately $4.7 million (18.6%) as compared to the fiscal year ended
October 31, 1995 and $1.5 million (5.2%) as compared to the twelve month period
ended October 31, 1995. As a percentage of net revenues, gross profit decreased
to 37.2% in 1996 from 38.8% for the fiscal year ended October 31, 1995. The
decrease in gross profit as a percentage of net revenues is primarily
attributable to a $950,000 provision to establish an inventory reserve in the
fourth quarter of 1996 and higher sales mix related to youth sports leagues
which are at lower margins than the Company's institutional business. The
inventory reserve reflects management's periodic assessment of the carrying
value of the Company's inventory and the Company's strategy to dispose of
slow-moving or obsolete inventory. During fiscal year 1996, the Company
intensified its marketing efforts relating to youth sports leagues with new
product
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<PAGE> 14
offerings and very 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 but
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
because such sales have historically had lower gross margins than SSG's base
institutional business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the fiscal year ended November 1, 1996 increased by
approximately $8.7 million (40.5%) as compared to the fiscal year ended October
31, 1995 and $4.9 million (19.5%) as compared to the twelve month period ended
October 31, 1995. The increase in these expenses was primarily due to the
following factors:
(i) An increase in expenses relating to the Company's primary distribution
facility for the twelve months ended November 1, 1996 as compared to the twelve
month period ended October 31, 1995. This facility was opened during April 1995
and therefore was not operational for the entire twelve month period ended
October 31, 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 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 fiscal year 1996 compared to the twelve
months ended October 31, 1995. 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, billable freight
costs from sales to youth sports league customers are lower than SSG's
historical institutional business. In addition, during 1996 the Company
strategically elected to change its primary freight carrier in order to improve
customer service. Average shipping rates of the new carrier were higher than
SSG's previous carrier. The Company has subsequently negotiated lower freight
rates with a different carrier.
(iv) 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 were partially offset by the
sale of products used in the Olympic games.
(v) An increase in the provision for receivables relating primarily to SSG's
youth sports league customers based upon on-going credit evaluations. If 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.
(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.
(vii) An increase in professional fees and expenses relating to legal and
financial services provided to the Company in connection with the Company's
efforts to arrange additional debt and equity financing, including fees and
expenses relating to the Emerson transaction. As these costs are nonrecurring,
management does not expect such costs to affect future operating results.
Notwithstanding the foregoing, approximately $972,000 of "change in control"
payments paid to certain employees of the Company in December 1996 will be
included as a charge in future operating results. See Note 10 to the
consolidated financial statements included in Item 8. -- "Financial Statements
and Supplementary Data").
(viii) The write-off of certain software and forecasting systems because the
Company has determined these assets are not being used or have no future
benefit.
Operating Profit (Loss). Operating profit decreased by approximately $3.9
million to a loss of $65,165 in fiscal 1996 from a profit of $3.9 million for
the fiscal year ended October 31, 1995 and $3.4 million (101.9%) as
14
<PAGE> 15
compared to the twelve month period ended October 31, 1995. As a percentage of
net revenues, operating loss was 0.1% in fiscal 1996 as compared to a profit of
6.0% for the fiscal year ended October 31, 1995. The decrease in operating
profit, both in dollar amount and as a percentage of net revenues, reflects the
impact of the increase in operating expenses and the decrease in gross profit
percentages as discussed above.
Interest Expense. Interest expense increased approximately $246,000 (21.8%) to
$1.4 million in fiscal 1996 from $1.1 million for the fiscal year ended October
31, 1995 and $31,000 (2.3%) as compared to the twelve month period ended October
31, 1995. The increase in interest expense reflects higher borrowing rates
associated with the Company's senior credit facility as compared to the
Company's borrowing rates in 1995, partially offset by a decrease in average
borrowing levels. The decrease in average borrowing levels was primarily the
result of debt payments with the proceeds generated from the sale of the Gold
Eagle Division. See Note 3 to the consolidated financial statements included in
Item 8 -- "Financial Statements and Supplementary Data" for a discussion of the
higher interest rates associated with the Company's senior credit facility. The
Company will incur less interest expense in future periods if it is successful
in its efforts to sell or liquidate all or substantially all of the assets
related to the Company's discontinued operations. No assurance can be given that
the Company's efforts will be successful. Due to the Emerson transaction and
planned disposition of the remaining operations of the retail segment,
management anticipates lower interest expense in future periods.
Provision (Benefit) for Income Taxes. The provision for income taxes decreased
approximately $1.6 million to a benefit of $436,000 in fiscal 1996 from a
provision of $1.1 million in fiscal 1995. The Company's effective tax rate
decreased to 31.1% in fiscal 1996 from 38.0% in fiscal 1995. See Note 4 to the
consolidated financial statements included in Item 8 -- "Financial Statements
and Supplementary Data".
Earnings (Loss) from Continuing Operations. Earnings (loss) from continuing
operations decreased approximately $2.8 million to $(964,000) in 1996 from $1.8
million in fiscal 1995. As a percentage of net revenues, the loss was 1.2% as
compared to earnings of 2.8% in fiscal 1995. Earnings (loss) from continuing
operations per common share was a loss of $0.14 per share in 1996 as compared
to earnings of $0.27 per share in fiscal 1995, which reflects the reduction in
earnings (loss) offset by a slight decrease in weighted average shares
outstanding. The weighted average shares outstanding in future periods will be
increased as a result of the Emerson transaction.
Earnings (Loss) from Discontinued Operations. As previously discussed, in May
1996, the Company sold its golf accessory business and adopted a formal plan to
dispose of its remaining operations which comprise its retail segment. For the
year ended November 1, 1996, the loss from discontinued operations was $2.2
million and the Company recorded an estimated loss on disposal of $15.5 million
including estimated operating losses through disposal date. At November 1,
1996, total reserves related to discontinued operations were approximately
$15.0 million. The Company has received indications of interest with respect to
the sale of the remaining retail operations.
1995 COMPARED TO 1994
Net Revenues. Net revenues for the fiscal year ended October 31, 1995 decreased
by approximately $1.8 million (2.7%) as compared to the year ended December 31,
1994 and increased by approximately $10.5 million (19.1%) as compared to the
ten month period ended October 31, 1994. The decrease reflects the ten month
period in 1995 as compared to a twelve month period in 1994. The increase as
compared to the ten month period was due to increased sales in substantially
all customer classifications and operating divisions within the institutional
segment.
Gross Profit. Gross profit for the fiscal year ended October 31, 1995 decreased
by approximately $1.1 million (4.0%) as compared to the year ended December 31,
1994 and increased by approximately $3.7 million (17.2%) as compared to the ten
month period ended October 31, 1994. As a percentage of net revenues, gross
profit decreased to 38.8% in fiscal 1995 from 39.3% for the year ended December
31, 1994. The decrease in gross profit as a percentage of net revenues also
reflects, among other factors, an increase in sales related to SSG's youth
sports leagues, as such sales have historically had lower gross margins than
SSG's base institutional business.
15
<PAGE> 16
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the fiscal year ended October 31, 1995 increased by
approximately $201,000 (1.0%) as compared to the year ended December 31, 1994
and by $5.9 million (38.1%) as compared to the ten month period ended October
31, 1994. The increase in these expenses was primarily due to the following
factors:
(i) Operating costs associated with the Company's new distribution facility, as
such costs were higher than those historically experienced by SSG. The increase
in these costs was attributable to higher labor costs, higher rent and
depreciation charges, higher shipping-related costs and start-up costs
associated with bringing the facility on-line. These cost increases more than
offset cost savings achieved by consolidating several warehouses into this
facility.
(ii) An increase in the provision for receivables relating to SSG's youth
sports league customers based upon on-going credit evaluations.
(iii) An increase in costs associated with catalogs mailed to customers due to
increases in paper costs and increases in postal rates implemented in early
1995.
(iv) An increase in costs associated with health insurance provided to
employees. The Company has a partially self-insured health insurance plan and
experienced an increase in claims during 1995 due to the increase in its
employee base resulting from acquisitions in 1994 and 1995, as well as an
increase in the number of claims that reached the plan's stop-loss limit.
(v) The write-off of acquisition related costs on pending acquisitions that
management determined would not be consummated and that were charged to
operating expense during the current year.
(vi) An increase in amortization charges resulting from goodwill associated
with acquisitions in 1994 and 1995.
(vii) An increase in provisions for property taxes resulting from the increase
in inventories.
(viii) Increases in estimated allowances for sales returns and accruals for
employee benefits due to the change in the Company's fiscal year.
Operating Profit. Operating profit decreased by approximately $1.3 million
(24.6%) to $3.9 million in fiscal 1995 from $5.2 million for the year ended
December 31, 1994. As a percentage of net revenues, operating profit decreased
to 6.0% in fiscal 1995 from 7.7% for the year ended December 31, 1994. The
decrease in operating profit, both in dollar amount and as a percentage of net
revenues, reflects the increase in operating expenses as discussed above.
Interest Expense. Interest expense increased approximately $153,000 (15.7%) to
$1.1 million in 1995 from $973,000 in 1994. The increase in interest expense
reflects higher average borrowing levels associated with the Company's senior
credit facility as compared to the Company's average borrowing levels in 1994.
The increase in average borrowing levels resulted primarily from cash payments
related to acquisitions, capital expenditures related to equipment utilized in
the Company's new distribution facility, and an increase in working capital
requirements. The increase in working capital requirements was primarily due to
the following factors:
(i) An increase in inventories due to anticipated requirements for youth sports
league related sales.
(ii) An increase in receivables primarily due to the seasonality of the
Company's business and change in fiscal year.
Other Income (Expense). Other income increased approximately $213,453 in fiscal
1995 from $(4,558) in 1994. The increase in other income reflects a gain of
approximately $199,000 realized from the sale of 356,000 shares of Riddell
Sports Inc. common stock. See Note 1 to the consolidated financial statements
included in Item 8 -- "Financial Statements and Supplementary Data".
16
<PAGE> 17
Provision for Income Taxes. The provision for income taxes decreased
approximately $251,000 (18.2%) to $1.1 million in fiscal 1995 from $1.4 million
in 1994. The Company's effective tax rate increased to 38.0% in fiscal 1995
from 33.0% in 1994. The increase in the Company's effective tax rate was due to
an increase in provisions for state income taxes and the effects of benefits
recorded in 1994 from the reversal of taxes previously provided in excess of
required amounts. See Note 4 to the consolidated financial statements included
in Item 8 -- "Financial Statements and Supplementary Data".
Earnings from Continuing Operations. Net earnings decreased approximately
$956,000 (34.1%) to $1.8 million in 1995 from $2.8 million in 1994. As a
percentage of net revenues, net earnings decreased to 2.8% in 1995 from 4.2% in
1994. Net earnings from continuing operations per common share decreased to
$0.27 per share in 1995 from $0.42 per share in 1994, which reflects the
reduction in net earnings and a slight increase in weighted average shares
outstanding.
LIQUIDITY AND CAPITAL RESOURCES
As of November 1, 1996, SSG was not in compliance with one of the financial
covenants contained in SSG's Senior Secured Credit Agreement. Although SSG's
senior lender declared SSG in default and increased the interest rate on all
outstanding borrowings by two percentage points effective as of September 19,
1996, the senior lender allowed SSG to remain in violation of this covenant and
continued to advance funds to SSG pursuant to the terms of the credit
agreement.
On November 27, 1996, the Company entered into an agreement with its senior
lender whereby the senior lender waived the default described above and amended
certain provisions of the Senior Secured Credit Agreement. The amendment
included (i) reducing the credit facility to $25 million, (ii) consolidating
the Company's outstanding term loans, (iii) reducing the interest rates to
pre-default interest rates, (iv) changing the expiration date and (v) reducing
the number of financial covenants from seven to two. The two remaining
covenants, which are based only on continuing operations, consist of a minimum
earnings before interest, taxes, depreciation and amortization calculation and
a minimum tangible net worth calculation. At November 1, 1996, the Company was
in compliance with the debt covenants as amended and the Company believes it
will remain in compliance with the financial covenants in 1997. The maturity
date of the Senior Secured Credit Agreement is November 14, 1997. Accordingly,
the debt is reflected in noncurrent liabilities as of November 1, 1996. The
Company and its senior lender are in the process of amending and restating the
Senior Secured Credit Agreement to, among other things, (i) extend the
expiration date to 1999 and (ii) remove the senior lender's participants from
the lending agreement.
The Company also entered into a Securities Purchase Agreement with Emerson
Radio Corp. ("Emerson") on November 27, 1996 (the "Purchase Agreement").
Pursuant to the Purchase Agreement, on December 10, 1996 Emerson acquired
directly from SSG (i) 1,600,000 shares of newly-issued Common Stock for an
aggregate consideration of $11,500,000 (the "Emerson Shares") and (ii)
five-year warrants to acquire an additional 1,000,000 shares of Common Stock at
an exercise price of $7.50 per share for an aggregate consideration of $500,000
(the "Emerson Warrants"). In addition, Emerson agreed to arrange for foreign
trade credit financing of $2.0 million for the benefit of SSG to supplement
SSG's existing credit facilities. The proceeds received from Emerson were
applied to reduce the Company's outstanding bank indebtedness. See also Item
12 - - Security Ownership of Certain Beneficial Owners and Management and
Item 13 -- Certain Relationships and Related Transactions.
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 November 1, 1996, the Company had total borrowings
under its senior credit facility of approximately $24.4 million and outstanding
letters of credit for foreign purchases of inventory of approximately $2.3
million. The net decrease of $4.6 million in borrowings under the senior credit
facility compared to October 31, 1995 reflects a repayment of approximately $5.0
million from the proceeds of the sale of the Gold Eagle Division during May,
1996, partially offset by cash payments made on a note payable related to a 1995
acquisition.
As of January 17, 1997, the Company had total borrowings under its senior
credit facility of approximately $14.0 million and outstanding letters of
credit for foreign purchases of inventory of approximately $2.2 million. The
net
17
<PAGE> 18
decrease of $10.4 million in borrowings under the senior credit facility
compared to November 1, 1996 reflects a repayment of approximately $12.0
million from the sale of the Emerson Shares and Emerson Warrants. Due to the
decrease in borrowings as well as the planned disposition of the discontinued
operations, management anticipates a decrease in interest expense for future
operating results.
The Company's consolidated working capital decreased approximately $25.6
million during the fiscal year ended November 1, 1996 from $42.2 million at
October 31, 1995 to $16.7 million at November 1, 1996. The decrease in working
capital is primarily a result of: (i) the after-tax noncash charge of
approximately $15.5 million relating to the estimated loss on disposal of the
Company's retail segment operations and (ii) an increase of approximately $2.7
million in trade payables relating to the Company periodically delaying payments
to certain of its trade and other creditors. However, as of January 20, 1997,
all creditors have been paid current.
The Company believes it will satisfy its short-term and long-term liquidity
needs from borrowings under its senior credit facility, cash flows from
operations and estimated proceeds from the disposal of discontinued operations,
if consummated.
As of November 1, 1996, the Company had no material commitments for capital
expenditures. The Company believes it will be able to satisfy its projected
capital equipment requirements in the foreseeable future from borrowings under
the senior credit facility and cash flows from operations.
Total cash dividends paid during fiscal 1995 were $603,779. During October
1995, a $0.03 per share dividend was declared which was paid subsequent to
October 31, 1995. During January 1996, the Company announced that it had
terminated its annual cash dividend policy. The Company currently intends to
retain any earnings for use in its business and does not anticipate paying any
cash dividends on its capital stock in the foreseeable future.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS OR FUTURE OPERATING
RESULTS
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 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, United States Government sales, risk of
nonpayment of accounts receivable, competitive factors, 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 8% of the Company's institutional sales are made to the U.S.
Government, a majority of which are made to military installations. Anticipated
reductions in U.S. Government spending could reduce 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.
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<PAGE> 19
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.
The Company is in the process of disposing its discontinued operations either
through a sale of all or substantially all of the assets of discontinued
operations to a single entity or a liquidation, or a combination of a sale and
liquidation. The Company has recorded several charges in the past to record the
net assets of the discontinued operation at estimated realizable value and for
anticipated operating losses during the estimated twelve month disposal period.
The current value of discontinued operations is based upon current estimates
made by management and no assurance can be made that the Company's discontinued
operations will be disposed of for an amount greater than or equal to the net
realizable value as reported on the Company's financial statements included in
this report. If the discontinued operations are disposed of for an amount less
than the book value or if the Company is unable to dispose of such operations,
the Company will be required to record additional charges to discontinued
operations. These charges could materially adversely affect the Company's
results of operations.
The Company 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 which are inherently uncertain and
therefore difficult to predict.
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<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
SPORT SUPPLY GROUP, INC.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants 21
Consolidated Balance Sheets as of November 1, 1996 and October 31, 1995 22
Consolidated Statements of Operations for the Year Ended November 1, 1996,
the Ten Month Period Ended October 31, 1995 and for the Year Ended
December 31, 1994 23
Consolidated Statements of Stockholders' Equity for the Year Ended November 1, 1996,
the Ten Month Period Ended October 31, 1995 and for the Year Ended
December 31, 1994 24
Consolidated Statements of Cash Flows for the Year Ended November 1, 1996,
the Ten Month Period Ended October 31, 1995 and for the Year Ended
December 31, 1994 26
Notes to Consolidated Financial Statements 28
</TABLE>
Financial statement schedules are omitted as the required information is
presented in the consolidated financial statements or the notes thereto or is
not necessary.
20
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Sport Supply Group, Inc.:
We have audited the accompanying consolidated balance sheets of Sport
Supply Group, Inc. (a Delaware corporation) and subsidiary as of November 1,
1996 and October 31, 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year ended November 1,
1996, the ten month period ended October 31, 1995 and for the year ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Sport
Supply Group, Inc. and subsidiary as of November 1, 1996 and October 31, 1995,
and the results of their operations and their cash flows for the year ended
November 1, 1996, the ten month period ended October 31, 1995 and the year
ended December 31, 1994 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
January 29, 1997
21
<PAGE> 22
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 1, 1996 AND OCTOBER 31, 1995
<TABLE>
<CAPTION>
November 1, October 31,
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS :
Cash $ 435,213 $ 570,467
Accounts receivable --
Trade, less allowance for doubtful accounts of
$552,000 in 1996 and $204,000 in 1995 11,836,173 12,866,238
Other 138,994 571,807
Income taxes receivable 1,343,579 209,931
Inventories, net 15,320,505 16,630,155
Other current assets 899,588 919,657
Deferred tax assets 5,883,341 2,127,035
Net current assets of discontinued operations -- 17,882,043
------------ ------------
Total current assets 35,857,393 51,777,333
------------ ------------
DEFERRED CATALOG EXPENSES 2,367,875 1,944,244
PROPERTY, PLANT AND EQUIPMENT :
Land 8,663 8,663
Buildings 1,551,723 1,551,723
Machinery and equipment 6,029,845 5,784,678
Furniture and fixtures 2,900,870 3,338,119
Leasehold improvements 2,365,821 2,160,901
------------ ------------
12,856,922 12,844,084
Less -- Accumulated depreciation and amortization (6,779,589) (6,350,550)
------------ ------------
6,077,333 6,493,534
------------ ------------
DEFERRED TAX ASSETS 4,492,847 --
COST IN EXCESS OF TANGIBLE NET ASSETS ACQUIRED,
less accumulated amortization of $1,036,000 in 1996 and
$918,000 in 1995 3,053,780 3,318,896
TRADEMARKS, less accumulated amortization of $748,000 in
1996 and $540,000 in 1995 3,551,801 3,759,846
OTHER ASSETS, less accumulated amortization of $1,078,000
in 1996 and $1,053,000 in 1995 761,826 1,267,023
NET NONCURRENT ASSETS OF DISCONTINUED OPERATIONS 16,365,572 17,794,413
------------ ------------
$ 72,528,427 $ 86,355,289
============ ============
CURRENT LIABILITIES :
Accounts payable $ 9,993,049 $ 7,215,666
Accrued property taxes 370,789 505,082
Other accrued liabilities 1,806,334 1,270,674
Notes payable and capital lease obligations, current portion 696,955 555,358
Net current liabilities of discontinued operations 6,329,927 --
------------ ------------
19,197,054 9,546,780
------------ ------------
DEFERRED GAIN 33,137 50,023
DEFERRED INCOME TAXES -- 263,005
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS, net of
current portion 24,135,267 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 75,519 75,513
Paid-in capital 46,543,193 46,649,095
Retained earnings (deficit) (9,711,357) 9,025,140
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
------------ ------------
29,162,969 47,609,965
------------ ------------
$ 72,528,427 $ 86,355,289
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 23
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Year Ended November 1, 1996, The Ten Month Period Ended
October 31, 1995
And The Year Ended December 31, 1994 (See Note 1)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET REVENUES $ 80,520,837 $ 65,133,959 $ 66,919,574
COST OF SALES 50,566,008 39,874,637 40,593,511
------------ ------------ ------------
GROSS PROFIT 29,954,829 25,259,322 26,326,063
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 30,019,994 21,365,188 21,164,228
------------ ------------ ------------
Operating profit (loss) (65,165) 3,894,134 5,161,835
OTHER INCOME (EXPENSE):
Interest expense (1,371,990) (1,126,024) (973,153)
Other income (expense), net 37,962 208,895 (4,558)
------------ ------------ ------------
(1,334,028) (917,129) (977,711)
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE (PROVISION) BENEFIT FOR INCOME TAXES (1,399,193) 2,977,005 4,184,124
(PROVISION) BENEFIT FOR INCOME TAXES 435,536 (1,130,250) (1,381,693)
------------ ------------ ------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (963,657) 1,846,755 2,802,431
DISCONTINUED OPERATIONS:
Earnings (loss) from operations, net of income tax (2,242,143) (456,534) 1,899,470
benefit (provision)
Loss on disposal, net of income tax benefit (15,530,697) -- --
------------ ------------ ------------
Earnings (loss) from discontinued
operations (17,772,840) (456,534) 1,899,470
------------ ------------ ------------
NET EARNINGS (LOSS) $(18,736,497) $ 1,390,221 $ 4,701,901
============ ============ ============
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE:
Continuing operations $ (0.14) $ 0.27 $ 0.42
Discontinued operations (2.63) (0.07) 0.28
------------ ------------ ------------
Net earnings (loss) $ (2.77) $ 0.20 $ 0.70
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 6,768,488 6,949,984 6,759,726
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 24
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 1, 1996, OCTOBER 31, 1995
AND DECEMBER 31, 1994 (SEE NOTE 1)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
----------------------- -------------------- Paid in Retained
Shares Amount Shares Amount Capital Earnings (Deficit)
----------- --------- ------- -------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 7,418,436 $ 74,184 -- $ -- $ 43,074,778 $ 4,522,403
Issuances of common stock upon exercises
of outstanding stock options 116,463 1,165 832,204
Tax benefit from exercises of stock options 304,616
Dividends declared to stockholders (783,956)
Reissuances of treasury stock 2,278,656
Increase in unrealized holding period loss
Net earnings 4,701,901
----------- --------- -------- ------- ------------- ------------
Balance, December 31, 1994 7,534,899 $ 75,349 -- $ -- $ 46,490,254 $ 8,440,348
Issuances of common stock upon
exercises of outstanding stock
options 16,438 164 137,551
Tax benefit from exercises of
stock options 19,300
Dividends declared to stockholders (805,429)
Reissuances of treasury stock 1,990
Change in unrealized holding period gain (loss)
Net earnings 1,390,221
----------- --------- -------- ------- ------------- ------------
Balance, October 31, 1995 7,551,337 $ 75,513 -- $ -- $ 46,649,095 $ 9,025,140
----------- --------- -------- ------- ------------- ------------
<CAPTION>
Treasury Stock Unrealized
------------------------------- Hoding
Shares Amount Period Gain (Loss) Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 1,292,300 $ (12,715,590) $ -- $ 34,955,775
Issuances of common stock upon exercises
of outstanding stock options 833,369
Tax benefit from exercises of stock options 304,616
Dividends declared to stockholders (783,956)
Reissuances of treasury stock (450,235) 4,430,027 6,708,683
Increase in unrealized holding period loss (247,500) (247,500)
Net earnings 4,701,901
---------------------------------------------------------------------------
Balance, December 31, 1994 842,065 $ (8,285,563) $ (247,500) $ 46,472,888
--------- ------------- ----------- -------------
Issuances of common stock upon
exercises of outstanding stock
options 137,715
Tax benefit from exercises of
stock options 19,300
Dividends declared to stockholders (805,429)
Reissuances of treasury stock (12,401) 122,020 124,010
Change in unrealized holding period gain (loss) 271,260 271,260
Net earnings 1,390,221
--------- ------------- ----------- -------------
Balance, October 31, 1995 829,664 $ (8,163,543) $ 23,760 $ 47,609,965
--------- ------------- ----------- -------------
</TABLE>
24
<PAGE> 25
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 1, 1996, OCTOBER 31, 1995
AND DECEMBER 31, 1994 (SEE NOTE 1)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
----------------------- -------------------- Paid in Retained
Shares Amount Shares Amount Capital Earnings (Deficit)
----------- --------- ------- -------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1995 7,551,337 $ 75,513 -- $ -- $ 46,649,095 $ 9,025,140
Issuances of common stock upon
exercises of outstanding stock
options 562 6 3,872
Reissuances of treasury stock (109,774)
Change in unrealized holding period gain (loss)
Net loss (18,736,497)
----------- --------- ------- --------- ------------- ------------
Balance, November 1, 1996 7,551,899 $ 75,519 -- $ -- $ 46,543,193 $ (9,711,357)
----------- --------- ------- --------- ------------- ------------
<CAPTION>
Treasury Stock Unrealized
------------------------------- Hoding
Shares Amount Period Gain (Loss) Total
-------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Balance, October 31, 1995 829,664 $ (8,163,543) $ 23,760 $ 47,609,965
Issuances of common stock upon
exercises of outstanding stock
options 3,878
Reissuances of treasury stock (42,599) 419,157 309,383
Change in unrealized holding period gain (loss) (23,760) (23,760)
Net loss (18,736,497)
-------- ------------- -------------- -------------
Balance, November 1, 1996 787,065 $ (7,744,386) $ -- $ 29,162,969
-------- ------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 26
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Year Ended November 1, 1996, The Ten Month Period
Ended October 31, 1995
And The Year Ended December 31, 1994 (See Note 1)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
Net earnings (loss) $(18,736,497) $ 1,390,221 $ 4,701,901
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating activities --
Loss on disposal of discontinued operations 15,530,697 -- --
Depreciation and amortization 2,528,716 1,821,768 1,461,898
Provision for allowances for
accounts receivable 895,716 538,311 137,251
Changes in assets and liabilities --
Increase in receivables (330,706) (5,456,837) (1,591,647)
(Increase) decrease in inventories, net 1,309,650 (2,598,262) 1,124,591
Increase in deferred catalog expense and
other current assets (403,562) (70,468) (801,908)
Increase in current deferred tax assets (3,756,306) (1,195,035) (558,000)
Increase in accounts payable 2,777,383 2,607,183 1,070,367
Increase in accrued liabilities 603,017 409,969 496,656
Decrease (increase) in other assets 313,305 (15,452) (1,223,036)
Increase in noncurrent deferred tax assets (4,755,852) -- --
Other (4,646) (5,205) (12,049)
Discontinued operations - noncash charges and
working capital changes 11,135,347 (4,167,157) (10,200,461)
------------ ------------ ------------
Total adjustments 25,842,759 (8,131,185) (10,096,338)
------------ ------------ ------------
Net cash provided by (used in) operating activities 7,106,262 (6,740,964) (5,394,437)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES :
Acquisitions of property, plant and equipment (631,562) (1,585,820) (2,517,919)
Proceeds from sale of investments 9,300 1,177,761 (2,825,451)
Investing activities of discontinued operations 734,982 (3,471,567) (351,757)
------------ ------------ ------------
Net cash provided by (used in) investing activities 112,720 (3,879,626) (5,695,127)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds from issuances of notes payable 3,245,046 13,252,769 10,980,574
Payments of notes payable and capital lease
obligations (7,853,698) (591,225) (98,572)
Proceeds from common stock issuances 3,877 157,015 1,184,170
Dividends paid to stockholders (201,650) (603,779) (783,956)
Warrants issuance costs -- -- (46,184)
Financing activities of discontinued operations (2,547,811) (1,259,900) --
------------ ------------ ------------
Net cash provided by (used in) financing activities (7,354,236) 10,954,880 11,236,032
------------ ------------ ------------
Net change in cash (135,254) 334,290 146,468
Cash, beginning of period 570,467 236,177 89,709
------------ ------------ ------------
Cash, end of period $ 435,213 $ 570,467 $ 236,177
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 27
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For The Year Ended November 1, 1996, The Ten Month Period
Ended October 31, 1995
And The Year Ended December 31, 1994 (See Note 1)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION :
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash paid during the period for interest $ 2,448,631 $ 1,608,665 $ 895,803
============ ============ ============
Cash paid during the period for income taxes $ 134,735 $ 1,870,950 $ 2,644,000
============ ============ ============
During 1995 and 1994 the Company acquired the assets
of several entities. In connection with these
acquisitions, liabilities were assumed as follows :
Fair value of assets acquired -- $ 6,793,652 $ 12,517,927
Cash paid for the acquisitions, net -- (2,651,697) (2,825,451)
Cash payable for the acquisitions -- -- (900,000)
Debt issued for the acquisitions -- (3,779,700) (90,000)
Fair value of treasury stock issued for
the acquisitions -- -- (5,333,683)
------------ ------------ ------------
Liabilities assumed $ -- $ 362,255 $ 3,368,793
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES :
During 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 $ -- $ --
============ ============ ============
During 1994, the Company reissued 344,466
shares of its common stock previously
held in treasury in connection with
several acquisitions $ -- $ -- $ 5,333,683
============ ============ ============
During 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
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 28
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 1, 1996
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BACKGROUND
Sport Supply Group, Inc. (the "Company" or "SSG") was incorporated in 1982. The
assets of the Sports & Recreation Division of Aurora Electronics, Inc. (f/k/a
BSN Corp., "Aurora") were contributed to the Company effective September 30,
1988. Prior to its initial public offering completed in April 1991, the Company
was a wholly-owned subsidiary of Aurora. The Company is engaged principally in
the direct mail marketing of sports related equipment and leisure products to
institutional and sporting goods team dealer customers. Additionally, the
Company is engaged in the marketing of certain sports related equipment to
retail and mass merchant customers, primarily with its golf accessory products
and new and recycled golf balls. In May 1996, the Company formally adopted a
plan to dispose of its retail segment. The Company manufactures many of the
products it sells, including tennis, volleyball, and other sports nets; items
of steel and aluminum construction, such as soccer and field hockey goals and
volleyball, pole vault, and high jump standards; other track and field
equipment; gymnastic and exercise mats; weight lifting equipment; tabletop
games and various plastic items.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
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. Certain prior year amounts have been reclassified to conform to
the current year presentation. 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.
The consolidated financial statements include estimates and assumptions made by
management which affect the reported amounts of assets and liabilities, the
reported amounts of revenues and expenses, provisions for and the disclosure of
contingent assets and liabilities. Actual results could differ from those
estimates.
FISCAL YEAR
During 1995, the Company changed its financial reporting year end from December
31 to October 31. Accordingly, fiscal year 1995 was a transition period
consisting of ten calendar months. Currently, the Company operates on a 52/53
week year ending on the Friday closest to October 31. All references to years
in these consolidated financial statements represent fiscal years unless
otherwise noted.
The following summarizes certain financial information relating to the
Company's results of continuing operations for the ten month period ended
October 31, 1995 and the comparable ten month period of 1994:
<TABLE>
<CAPTION>
1994
1995 (unaudited)
--------------- --------------
<S> <C> <C>
Net Revenues $65,133,959 $54,678,759
Gross Profit $25,259,322 $21,561,613
Provision for Income Taxes $1,130,250 $1,815,384
Net Earnings $1,846,755 3,629,576
</TABLE>
28
<PAGE> 29
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out and weighted-average cost methods for items
manufactured by the Company and weighted-average cost for items purchased for
resale. As of November 1, 1996 and October 31, 1995, inventories (excluding
inventories related to discontinued operations) consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Raw materials $ 2,255,675 $ 2,455,453
Work-in-process 146,751 103,691
Finished and purchased goods 13,868,079 14,071,011
------------ ------------
16,270,505 16,630,155
Less inventory reserve (950,000) --
============ ============
$ 15,320,505 $ 16,630,155
============ ============
</TABLE>
The Company recorded a $950,000 provision for the year ended November 1, 1996 to
establish an inventory reserve. This reserve reflects management's periodic
assessment of the carrying value of the Company's inventory and the Company's
strategy to dispose of slow-moving or obsolete inventory. As of November 1, 1996
and October 31, 1995, approximately 32% and 26% of total ending inventories were
products manufactured by the Company with the balance being products purchased
from outside suppliers. Sales of products manufactured by SSG accounted for
approximately 36% of total net revenues in 1996 and 1995, respectively. Costs
included in products manufactured by SSG include raw materials, direct labor,
and manufacturing overhead.
ADVERTISING AND DEFERRED CATALOG EXPENSES
The Company expenses the production costs of advertising as incurred, except
for production costs related to direct-response advertising activities which
are capitalized and amortized over the period that future benefits are expected
to be realized. Direct response advertising consists primarily of catalogs
which include order forms for the Company's products. Production costs,
primarily printing and postage, associated with catalogs are amortized
generally over twelve months. Certain other production costs, primarily
photography and artwork associated with catalogs, are amortized generally over
36 months.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated at cost and depreciated over the
estimated useful lives of the related assets using the straight-line method.
Leasehold improvements and property and equipment leased under capital lease
obligations are amortized over the terms of the related leases or their
estimated useful lives, whichever is shorter. The cost of maintenance and
repairs is charged to expense as incurred; significant renewals and betterments
are capitalized and depreciated over the remaining estimated useful lives of
the related assets.
Depreciation of property, plant and equipment is provided by the
straight-line method as follows:
Buildings Thirty to Forty years
Machinery and Equipment Five years
Furniture and Fixtures Five years
INTANGIBLE ASSETS
Cost in excess of tangible net assets acquired relates to acquisitions made by
the Company. Trademarks relate to costs incurred in connection with the
licensing agreements for the use of certain trademarks in conjunction with the
sale of the Company's products. Other intangible assets are classified as other
assets and consist principally of patents, certain product development costs,
and direct costs associated with the development of certain operational
systems.
29
<PAGE> 30
Amortization of intangible assets is provided by the straight-line
method as follows:
Cost in excess of tangible net assets acquired -- principally
forty years
Trademarks -- five to forty years
Patents -- seven to eleven years
Product development -- three to five years
Systems -- five to ten years
Management periodically assesses the realizability of its investments in
intangible assets in relation to current and anticipated net earnings and cash
flows. Based on management's assessment, the Company believes its investments
in intangible assets are fully realizable as of November 1, 1996.
The cost of intangible assets and related accumulated amortization are removed
from the Company's accounts during the year in which they become fully
amortized.
INVESTMENT IN EQUITY SECURITIES
During 1994, the Company entered into an Exchange Agreement with Aurora whereby
SSG exchanged 105,769 shares of its common stock (previously held in treasury)
for 500,000 common shares of Riddell Sports Inc. ("Riddell") held by Aurora. In
accordance with the provisions of Statement of Financial Accounting Standards
No.115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS No. 115"), the Company determined that this investment should be
classified as "available-for-sale securities" and reported at fair value.
During the ten month period ended October 31, 1995, the Company sold 356,000
Riddell shares resulting in proceeds of approximately $1,178,000 and a related
gain of approximately $199,000 which is included in other income in the
accompanying statement of operations for the ten month period ended October 31,
1995. The fair value of SSG's remaining investment in Riddell common stock
(144,000 shares) was approximately $432,000 as of October 31, 1995. During the
fiscal year ended November 1, 1996, the Company sold the remaining Riddell
shares resulting in proceeds of approximately $427,520 and a related gain of
approximately $31,520 which is included in other income in the accompanying
statement of operations for the twelve month period ended November 1, 1996.
INCOME TAXES
Deferred tax assets and liabilities are determined annually based upon the
estimated future tax effects of the differences in the tax bases of existing
assets and liabilities and the related financial statement carrying amounts,
using currently enacted tax laws and rates in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (See Note
4).
POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS
The Company does not currently offer, and has not offered in the past,
postemployment or postretirement benefits to its current or former employees
and, accordingly, does not have a recorded liability for such benefits.
NET EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Net earnings (loss) per share of common stock is based upon the weighted
average number of common and common equivalent shares outstanding during the
year ended November 1, 1996, the ten month period ended October 31, 1995 and
the year ended December 31, 1994. Outstanding stock options and common stock
purchase warrants are treated as common stock equivalents when dilution results
from their assumed exercise.
30
<PAGE> 31
REVENUE RECOGNITION
Revenue is generally recognized when inventory is shipped to the customer.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting For the
Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed Of"
("SFAS No. 121"), which established accounting standards for the impairment of
long-lived assets, certain identifiable intangible assets and goodwill. The
Company will adopt SFAS No. 121 in fiscal year 1997. The Company does not
expect the adoption of SFAS No. 121 to have a material effect on the Company's
consolidated financial position or results of operations.
During November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting For Stock Based Compensation" ("SFAS No. 123").
This statement requires the Company to provide additional disclosures related
to its stock based compensation plans or allows the Company to change its
method of accounting for compensation expense associated with its stock based
compensation plans. The Company is required to adopt this statement in fiscal
year 1997. The Company plans on adopting the disclosure only provisions of SFAS
No. 123. Accordingly, there will be no impact on the Company's consolidated
financial position or results of operations.
2. STOCKHOLDERS' EQUITY:
AUTHORIZED CAPITAL
The Company is authorized to issue 100,000 shares of preferred stock, par value
$0.01 per share, in one or more series and to designate the rights, preferences,
limitations, and restrictions on such shares. As of November 1, 1996 and
October 31, 1995, there were no shares of preferred stock issued or
outstanding. In addition, the Company is authorized to issue 20,000,000 shares
of common stock, par value $0.01 per share.
STOCK OPTIONS
The Company maintains a Stock Option Plan that initially provided up to 875,000
shares of common stock for awards of incentive and non-qualified stock options
to directors and key employees of the Company. During 1994, the Company amended
the Stock Option Plan increasing the number of shares of common stock available
under the Plan by 450,000 (for a total of 1,325,000 shares of common stock).
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 the fair market value for incentive stock options granted to
certain employees, as more fully described in the Stock Option Plan. Options
generally vest upon issuance and expire 10 years from the grant date, or 5
years from the grant date for incentive stock options granted to certain
employees, as more fully described in the Stock Option Plan, or such sooner
date as determined by the Board of Directors of the Company.
Transactions under the plan are summarized as follows:
<TABLE>
<CAPTION>
Exercise
Shares Prices
-------- ---------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1994 577,950 $ 4.80 - $12.10
Granted 166,438 $ 9.50 - $13.38
Exercised (116,463) $ 4.80 - $12.10
-------- ---------------
Outstanding at December 31, 1994 627,925 $ 4.80 - $13.38
Granted 261,900 $10.63 - $14.25
Exercised (16,438) $ 6.60 - $10.63
Forfeited (61,615) $ 6.60 - $13.13
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C> <C> <C>
Outstanding at October 31, 1995 811,772 $4.80 - $14.25
Granted 29,125 $6.50 - $ 7.13
Exercised (562) $ 6.90
Forfeited (154,862) $6.88 - $14.25
-------- --------------
Outstanding at November 1, 1996 685,473 $4.80 - $14.25
======== ==============
</TABLE>
All options granted under the Stock Option Plan during the year ended November
1, 1996, the ten month period ended October 31, 1995, and the year ended
December 31, 1994 were at exercise prices equal to the fair market value of the
Company's stock on the date of the grant. As a result of the options exercised
during 1995 and 1994, the Company realized tax benefits of approximately
$19,000 and $305,000 respectively. On May 13, 1996, the Company repriced the
exercise price to the current fair market value of certain employees'
(excluding officers and directors) stock options that were granted pursuant to
the stock option plan and that had an original exercise 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. As of November 1, 1996, there
were 289,640 shares available for option grants under the Stock Option Plan.
In addition to options granted pursuant to the Stock Option Plan, the Company
periodically grants options to purchase shares of SSG's common stock that are
not reserved for issuance under the Stock Option Plan ("non- Plan options").
During the year ended November 1, 1996, the ten month period ended October 31,
1995, and the year ended December 31, 1994, the Company granted 20,000, 264,380
and 25,000 non-Plan options, respectively. All non-Plan options granted were at
exercise prices ranging from $6.88 to $15.00 per share. Such exercise prices
were equal to the fair market value of the Company's common stock on the dates
of grant.
As of November 1, 1996, there were a total of 1,400,603 options (including
non-Plan options) outstanding with exercise prices ranging from $4.80 per share
to $15.00 per share. All outstanding options are fully vested.
DIVIDENDS
Historically, the Company had a $0.16 per share annual cash dividend policy
payable quarterly at $0.04 per share of common stock. In 1994, the Company
declared a 5 for 4 stock split and the Board of Directors revised the annual
cash dividend to $0.12 per share payable quarterly at $0.03 per share of common
stock. Total cash dividends paid in fiscal 1996, 1995 and 1994 were $201,650,
$603,779 and $783,956, respectively. During October 1995, a $0.03 per share
dividend was declared which was paid subsequent to October 31, 1995.
Accordingly, the total dividend payment of approximately $201,650 was recorded
as a charge to retained earnings during the ten month period ended October 31,
1995 and is included in other accrued liabilities in the accompanying balance
sheet as of October 31, 1995. During January 1996, the Company terminated its
annual cash dividend policy.
3. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS:
As of November 1, 1996 and October 31, 1995, notes payable and capital lease
obligations consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Note payable under revolving line of credit, interest at prime plus 1.25%
(11.0% at November 1,
1996 and 9.50% at October 31, 1995) or LIBOR plus
2.5% (9.375% at November 1, 1996 and 7.875% at
October 31, 1995), due November 14, 1997,
collateralized by substantially all assets $ 21,811,339 $ 26,742,760
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C> <C>
Term loan, interest at LIBOR plus 2.5% (9.625% at November 1, 1996 and
8.375% at October 31, 1995),
payable in quarterly installments of $125,000 plus accrued interest through
November 14, 1997, collateralized by substantially all assets
2,628,126 2,250,000
Capital lease obligation, interest at 7.4%, payable in monthly installments of
principal and interest totaling $3,159 through December 1998
75,694 106,772
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 24,832,222 29,440,874
Less - current portion (696,955) (555,358)
------------ ------------
Long-term debt and capital lease obligations, net $ 24,135,267 $ 28,885,516
============ ============
</TABLE>
CREDIT FACILITIES
The Company has a senior credit facility to finance letters of credit and to
provide for working capital requirements. 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. Effective March
23, 1995, the Company's senior credit facility was amended to increase the
revolving line of credit ("Revolver") from $25,000,000 to $37,500,000, create a
term loan in the amount of $2,500,000 and extend the expiration date to October
1, 1997. Effective December 20, 1995, the senior credit facility was increased
from $40,000,000 to $50,000,000. This increase in the facility provided for
additional loans to be made to SSG for the cost of certain capital expenditures
(up to a maximum of $1,000,000), 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, if consummated.
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. 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 senior credit facility. 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 November 1, 1996,
the Company was not in compliance with one of the financial covenants contained
in the loan agreement and the bank invoked an increase in interest rates as
provided for in the agreement. However, on December 10, 1996, SSG's lenders
amended certain provisions of the senior credit facility including changing the
maturity date, reducing the interest rate on the prime rate option, and reducing
the number of financial covenants effective November 27, 1996. At November 1,
1996, the Company was in compliance with the senior credit facility as amended.
Accordingly, the debt is classified in noncurrent liabilities in the
accompanying balance sheet.
Amounts outstanding under the senior credit facility are collateralized by
substantially all assets of the Company. As of November 1, 1996, the Company
had the option of electing the Revolver to bear interest at the prevailing
LIBOR rate plus 2.5% (9.375% at November 1, 1996) or the Lender's prime rate
plus 1.25% (11% at November 1, 1996). The Company also had the option of
electing the term loan to bear interest at the prevailing LIBOR rate plus 2.5%
(9.625% at November 1, 1996) or the Lender's prime rate plus 1.25% (11.0% at
November 1, 1996). Historically, the Company has elected the lower of the
interest rates available under the facility.
33
<PAGE> 34
As of November 1, 1996 and October 31, 1995, the Company had borrowings of
approximately $21,811,000 and $26,743,000, respectively, outstanding under the
Revolver and approximately $2,296,000 and $2,545,000, respectively, of letters
of credit outstanding for foreign purchases of inventory. In addition, as of
November 1, 1996 and October 31, 1995, SSG had borrowings of $2,628,000 and
$2,250,000, respectively, outstanding under the term loan.
Maturities of the Company's borrowings under the senior credit facility and
capital lease obligations as of November 1, 1996, by fiscal year and in the
aggregate, are as follows:
<TABLE>
<S> <C> <C>
1997 $ 696,955
1998 23,867,257
1999 37,699
2000 34,272
2001 37,357
Thereafter 158,682
-----------
Total maturities $24,832,222
===========
</TABLE>
CAPITAL LEASE OBLIGATIONS
During 1994, the Company entered into a capital lease obligation for certain
telephone equipment used at its corporate headquarters. The net present value
of the future minimum lease payments ($159,121) as of the date the lease was
consummated is included in property, plant and equipment in the accompanying
balance sheets as of November 1, 1996 and October 31, 1995 and is being
amortized over the related lease term.
During 1991, the Company entered into a capital lease obligation for a Crown
Suite at Texas Stadium used exclusively to entertain customers at Dallas
Cowboys football games. The Company's annual lease commitment is $55,000. The
net present value of the future minimum lease payments ($475,000) as of the
date the lease was consummated is included in property, plant, and equipment in
the accompanying balance sheets as of November 1, 1996 and October 31, 1995,
and is being amortized over the related lease term.
Future minimum lease payments as of November 1, 1996, by fiscal year and in the
aggregate, under the
Company's capital lease obligation are as follows:
<TABLE>
<S> <C> <C>
1997 $ 92,903
1998 92,903
1999 61,318
2000 55,000
2001 55,000
Thereafter 192,470
---------
Total future minimum lease
payments 549,594
Less - Amount representing
interest (156,837)
Present value of net future
minimum lease payments $ 392,757
=========
</TABLE>
4. INCOME TAXES:
As of November 1, 1996 and October 31, 1995, the components of the net deferred
tax assets and liabilities are as follows:
34
<PAGE> 35
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current deferred tax assets --
Allowances for doubtful accounts $ 385,000 $ 252,000
Inventories 1,600,000 1,471,000
Reserve for estimated loss on
disposal and other accrued
liabilities 3,898,000 404,000
----------- -----------
Total current deferred tax assets $ 5,883,000 $ 2,127,000
=========== ===========
Noncurrent deferred tax assets
(liabilities)--
Cost in excess of tangible net
assets acquired $ (329,000) $ (210,000)
Other intangible assets (235,000) (155,000)
Unrealized holding period loss -- (13,000)
Reserve for estimated loss on
disposal 4,851,000 --
Depreciation/other 206,000 115,000
----------- -----------
Total noncurrent deferred tax assets
(liabilities) $ 4,493,000 $ (263,000)
=========== ===========
</TABLE>
Deferred tax assets and liabilities related to state tax jurisdictions were not
significant as of November 1, 1996 and October 31, 1995. No valuation allowance
has been recorded for the Company's deferred tax assets as management believes
that it is more likely than not such assets will be realized. Management
believes that the deferred tax assets will be realized through prior taxes paid
and by future profitable operating results. Historically, the Company has been
profitable. The net loss reported for the fiscal year ended November 1, 1996 is
primarily the result of the retail segment which is being discontinued.
Subsequent to the disposal of the retail segment, management believes the
Company will be profitable.
The income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Current $(1,830,600) $ 2,082,348 $ 1,887,309
Deferred (8,512,158) (1,208,898) 467,458
------------ ----------- -----------
Income tax provision (benefit) $(10,342,758) $ 873,450 $ 2,354,767
============ =========== ===========
</TABLE>
The provision (benefit) for income taxes related to continuing operations in
the accompanying statements of operations for the year ended November 1, 1996,
the ten months ended October 31, 1995 and the year ended December 31, 1994
differ from the statutory federal rate (34%) as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income tax provision (benefit) at statutory
federal rate of 34% $ (475,726) $ 1,012,182 $ 1,422,602
Reversal of taxes previously
provided in excess of amounts
required -- -- (175,000)
State income taxes, net of
federal benefit -- 82,801 78,626
Other 40,190 35,267 55,465
----------- ----------- -----------
Total provision (benefit) for income taxes $ (435,536) $ 1,130,250 $ 1,381,693
=========== =========== ===========
</TABLE>
35
<PAGE> 36
5. ACQUISITIONS:
In 1994 and 1995, the Company completed numerous acquisitions in the golf
accessory and new and recycled golf ball operations. These acquisitions are
summarized below. As discussed in Note 9 in May 1996, the Company disposed of
its golf accessory operation and adopted a plan to dispose of its remaining
operations comprising its retail segment (primarily new and recycled golf ball
operations). Accordingly, these acquisitions are included in discontinued
operations in the accompanying financial statements.
During June 1995, the Company acquired certain assets of the Nitro golf
division of Prince Golf International, Ltd. ("Nitro"), a manufacturer and
distributor of new golf balls, for $1,000,000 in cash, a noninterest bearing
promissory note in the amount of approximately $3,800,000 and the assumption of
certain liabilities.
During January 1994, the Company acquired certain assets of J Ron Enterprises,
Inc. (d/b/a Treasure Coast Golf), recyclers and distributors of used golf
balls, for $350,000 in cash and the assumption of certain liabilities. The
purchase agreement includes provisions for additional purchase consideration to
be paid upon the occurrence of certain events occurring over a four year period
commencing on January 21, 1994 and ending January 20, 1998.
During January 1994, the Company acquired certain assets of Sunshine Golf,
recyclers and distributors of used golf balls, for $615,000 in cash and the
assumption of certain liabilities. The purchase agreement includes provisions
for additional purchase consideration to be paid upon the occurrence of certain
events occurring over a five year period commencing on January 27, 1994 and
ending January 26, 1999.
During February 1994, the Company acquired certain assets of 2814013 Canada
Inc. (a numbered Canadian corporation), a distributor of Gold Eagle golf
accessory products in Canada, for 28,231 shares of SSG common stock (previously
held in treasury) and the assumption of certain liabilities, primarily a lease
agreement related to the primary office and warehouse facility of the acquired
operations. The purchase agreement included provisions for additional
consideration to be paid in the event that the gross proceeds (as defined)
derived by the seller from the sale of the SSG common stock were less than a
guaranteed amount, subject to certain restrictions. As of October 31, 1995, the
Company had satisfied the terms of the agreement relating to additional
purchase consideration.
During March 1994, the Company acquired certain assets of X-Outs, Inc. (f/k/a
International Golf, Inc., "International Golf"), recyclers and distributors of
used golf balls, for $760,000 in cash, 126,235 shares of SSG common stock
(previously held in treasury) and the assumption of certain liabilities. The
purchase agreement included provisions for additional consideration to be paid
in the event that the gross proceeds (as defined) derived by the sellers from
the sale of the SSG common stock are less than a guaranteed amount, subject to
certain restrictions. During April 1996, SSG issued 42,599 shares of its
treasury stock pursuant to this guaranty. Subsequently, a complaint was filed
against the Company which was resolved in an out of court settlement on January
6, 1997. See Note 7.
During May 1994, the Company acquired certain assets of Balltec, Inc.,
recyclers and distributors of used golf balls, for $330,000 in cash, a
promissory note in the amount of $90,000 and the assumption of certain
liabilities. The purchase agreement includes provisions for additional purchase
consideration to be paid upon the occurrence of certain events occurring over a
three period commencing May 19, 1994 and ending May 19, 1997.
During June 1994, the Company acquired certain assets of Ball Bandit, Inc.
(f/k/a Second Chance Golf Ball Recyclers, Inc., "Second Chance"), recyclers and
distributors of used golf balls, for $303,000 in cash, 190,000 shares of SSG
common stock (previously held in treasury) and the assumption of certain
liabilities. The purchase agreement included provisions for additional
consideration to be paid upon the occurrence of certain
36
<PAGE> 37
events over a three year period commencing June 1, 1994 and ending May 31,
1997. The purchase agreement also included provisions for additional
consideration to be paid in the event that the gross proceeds (as defined)
derived by the sellers from the sale of the SSG common stock were less than a
guaranteed amount, subject to certain restrictions. As of October 31, 1995, the
Company had satisfied the terms of the agreement related to additional purchase
consideration.
During 1995 and 1994, the Company paid additional purchase consideration
totaling $2,551,471 and $476,000, respectively, related to certain of the above
acquisitions. The amount paid in 1995 includes $900,000 which the Company
became obligated to pay in 1994. The Company does not anticipate being required
to pay additional purchase consideration due to the operations being
discontinued.
6. MAJOR CUSTOMERS AND CONCENTRATION OF BUSINESS RISK:
The Company's customers for continuing operations are primarily public and
private schools, state and local governments, and the United States Government.
Sales to these customers for the year ended November 1, 1996, the ten month
period ended October 31, 1995 and the year ended December 31, 1994 were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Public and private schools 36% 33% 33%
State and local governments 15% 10% 10%
United States Government 8% 10% 10%
</TABLE>
With the exception of the United States Government, the Company did not have
any individual customers which accounted for more than 10% of net revenues
during the ten month period ended October 31, 1995 and the year ended December
1994. No individual customers accounted for more than 10% of net revenues in
1996.
The majority of the Company's sales are to institutional customers that are
publicly funded. The Company extends credit based upon an evaluation of a
customer's financial condition and provides for any anticipated credit losses
in its financial statements based upon management's estimates and ongoing
reviews of recorded allowances.
7. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases a portion of its office, warehouse, computer equipment and
manufacturing locations under noncancelable operating leases with terms ranging
from one to ten years. The majority of the Company's leases contain renewal
options which extend the leases beyond the current lease terms.
Future minimum lease payments under noncancelable operating leases for office,
warehouse, computer equipment and manufacturing locations, with remaining terms
in excess of one year are as follows:
<TABLE>
<C> <C>
1997 $1,595,000
1998 1,580,000
1999 1,104,000
2000 744,000
2001 744,000
Thereafter 1,812,000
----------
$7,579,000
==========
</TABLE>
Rent expense was approximately $1,609,000, $1,328,000 and $947,000 for 1996,
1995 and 1994, respectively.
37
<PAGE> 38
SEVERANCE AGREEMENTS
During 1991, the Company entered into Severance Agreements with two executive
officers of the Company providing that these officers would be entitled to
receive up to approximately three times their annual salary if there is both a
change in control and a termination or resignation (as defined therein) of such
officers. During 1995, the Company entered into Severance Agreements with two
additional executive officers and an employee having substantially the same
terms as those described above. In 1996, two of these Severance Agreements were
cancelled without payments due to the resignation of these designated
employees. Subsequent to November 1, 1996, an officer resigned pursuant to a
Purchase Agreement whereby Emerson Radio Corp. acquired 1,600,000 shares of
SSG's common stock and warrants to acquire an additional 1,000,000 shares. See
Note 10. The officer was paid approximately $670,000 pursuant to the Severance
Agreement on December 10, 1996. This expense will be charged to earnings in
fiscal year 1997. Consequently, only two Severance Agreements remain.
PRODUCT LIABILITY AND OTHER CLAIMS
Because of the nature of the Company's products, SSG is periodically subject to
product liability claims resulting from personal injuries. The Company from
time to time may become involved in various lawsuits incidental to the
Company's business, some of which will relate to claims of injuries allegedly
resulting in substantial permanent paralysis. Significantly increased product
liability claims continue to be asserted successfully against manufacturers
throughout the United States resulting in general uncertainty as to the nature
and extent of manufacturer's and distributors' liability for personal injuries.
In June 1996, a complaint was filed against the Company and certain officers of
the Company by X-Outs, Inc. The Complaint arose out of the Company's acquisition
of X-Outs' assets in 1994. The Complaint made a number of allegations, including
breach of contract and breach of fiduciary duties. The Plaintiffs sought to
recover approximately $600,000 in actual damages plus $15 million in punitive
damages. In light of the substance of the Complaint and the expense, time,
merits and uncertainty of litigation, on January 6, 1997, the Company agreed to
an out of court settlement with the Plaintiffs for an amount less than the
recovery of actual damages sought in the Complaint and the Company has accrued
this amount in fiscal year 1996. The amount is not material to the Company's
financial position or results of operations. The Company did not pay any
punitive damages. Plaintiffs have dismissed the Complaint against all defendants
with prejudice.
On October 26, 1995, a complaint was filed by one of the Company's shareholders
with the United States District Court for the Northern District of Texas (the
"Complaint") and named the Company and certain directors and officers as
defendants. The Complaint alleged violations of Sections 10(b) and 20(a) and
Rule 10b-5 of the Securities Exchange Act of 1934 relating to the Company's
alleged failure to adequately disclose certain financial and operating
information on a timely basis. On March 14, 1996, the Court entered an order
dismissing the Complaint without liability to the defendants.
There can be no assurance that the Company's general product liability
insurance will be sufficient to cover any successful product liability claims
made against the Company. In management's opinion, any ultimate liability
arising out of currently pending product liability claims will not have a
material adverse effect on the Company's financial condition or results of
operations. However, any claims substantially in excess of the Company's
insurance coverage, or any substantial claim not covered by insurance, could
have a material adverse effect on the Company's results of operations and
financial condition.
INDEMNIFICATION AGREEMENTS WITH AURORA
In connection with the transfer of all of the assets of Aurora's Sports and
Recreation Division to the Company on September 30, 1988, the Company assumed
all liabilities of the Sports and Recreation Division associated with such
assets and agreed to indemnify Aurora and hold Aurora harmless from such
liabilities and liabilities relating to the Sports and Recreation Division's
operations prior to such date. Although Aurora has not formally made any claims
under this indemnity agreement, a plaintiff in a product liability suit has
received a judgment against Aurora in the approximate amount of $100,000 and
the plaintiff has requested that the Company pay the judgment. In addition, the
Company is currently litigating one product liability claim that names the
Company and Aurora as co-defendants.
38
<PAGE> 39
In connection with the Company's initial public offering, the Company and
Aurora entered into an indemnification agreement relating to certain tax
liabilities that may arise with respect to periods beginning prior to the
initial public offering. Aurora has not made any claims under this indemnity
agreement.
Except as described above, management is not aware of any claims intended to be
made by Aurora relating to the above indemnity agreements.
1996 OLYMPICS
During 1995, the Company executed two agreements with Atlanta Centennial
Olympic Properties (the "ACOP Agreements"). The ACOP Agreements named SSG as an
official supplier of approximately 300 products used in the 1996 Olympic Games
and allowed the Company to use certain marks and emblems of the Atlanta
Committee for the Olympic Games (the "ACOG marks") in connection with the
manufacture, promotion and sale of licensed products bearing the ACOG marks.
Under terms of the ACOP Agreements, the Company was committed to provide
certain equipment for use in the 1996 Olympic Games and to pay a minimum
royalty of $324,000. As of November 1, 1996, all obligations related to the
ACOP Agreement have been satisfied.
8. EMPLOYEES' SAVINGS PLAN
Effective June 1, 1993, the Company established a defined contribution profit
sharing plan (the "401(k) Plan") for the benefit of eligible employees. All
employees with one year of service and who have attained the age of 21 are
eligible to participate in the 401(k) Plan. Employees may contribute up to 15%
of their compensation, subject to certain limitations, which qualifies under
the compensation deferral provisions of Section 401(k) of the Internal Revenue
Code.
The 401(k) Plan contains provisions which allow the Company to make
discretionary contributions during each plan year. No employer contributions
have been made since the inception of the plan. All administrative expenses of
the 401(k) Plan are paid by the Company.
9. 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 paid SSG an additional cash payment of
approximately $300,000 based upon a physical inventory of the goods purchased
in the transaction. 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 year ended November 1, 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
current assets and liabilities as well as net noncurrent assets of discontinued
operations as of November 1, 1996 and October 31, 1995 and the results of
operations for the year ended November 1, 1996, the ten month period ended
October 31, 1995 and the year ended December 31, 1994:
39
<PAGE> 40
<TABLE>
<CAPTION>
November 1, October 31,
1996 1995
----------------------------
<S> <C> <C>
Current assets $ 14,188,152 $ 21,672,773
Current liabilities ($20,518,079) (3,790,730)
----------------------------
Net current assets (liabilities) ($ 6,329,927) $ 17,882,043
============================
Noncurrent assets $ 16,365,572 $ 17,794,413
Noncurrent liabilities -- --
============================
Net noncurrent assets $ 16,365,572 $ 17,794,413
============================
</TABLE>
<TABLE>
<CAPTION>
For the Year For the Ten Months For the Year
Ended Ended Ended
November 1, 1996 October 31, 1995 December 31, 1994
-------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 18,725,955 $ 23,857,372 $ 21,610,069
Earnings (loss) before income taxes (3,503,348) (713,334) 2,872,543
Provision (benefit) for income taxes (1,261,205) (256,800) 973,074
Earnings (loss) from operations, net of income (2,242,143) (456,534) 1,899,469
taxes
Loss on disposal, net of income taxes
of $8,646,017 (15,530,697) -- --
</TABLE>
The net loss from operations for the year ended November 1, 1996 includes
interest expense of approximately $1,090,000 related to borrowings under the
Company's senior credit facility. Interest expense charged to discontinued
operations is based upon the amount of borrowings that management estimates
will be repaid from the proceeds of the disposal of the Company's retail
segment operations.
The net loss on disposal includes a charge recorded during the quarter 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
quarter ended May 3, 1996, the Company also recorded a reserve 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 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 was a preferable and
more expeditious method of disposal. Based upon management's 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 quarter ended August 2, 1996 and a charge of $5.2 million
($3.4 million after estimated income tax benefit) during the quarter ended
November 1, 1996 to record the net assets at estimated net realizable value. At
November 1, 1996, total reserves related to discontinued operations were
approximately $15.0 million. The net loss on disposal is based upon current
estimates made by management. There can be no assurances that actual amounts
will not be materially different from these estimates.
10. SUBSEQUENT EVENT
On December 10, 1996, pursuant to a Securities Purchase Agreement dated
November 27, 1996 between Emerson Radio Corp. and SSG ("the Purchase
Agreement"), Emerson acquired directly from SSG 1,600,000 shares of newly-issued
Common Stock for an aggregate consideration of $11,500,000 and five-year
warrants to acquire an additional 1,000,000 shares of Common Stock at an
exercise price of $7.50 per share for an aggregate consideration of $500,000.
In addition, Emerson agreed to arrange for foreign trade credit financing of
$2.0 million for the benefit of SSG to supplement SSG's existing credit
facilities. The unaudited pro forma information below gives effect to such
transaction at November 1, 1996:
40
<PAGE> 41
<TABLE>
<CAPTION>
November 1, 1996 (unaudited)
----------------------------
As Stated Pro Forma
----------------------------
Amount Amount
------ ------
<S> <C> <C>
Stockholders' equity:
Common stock $ 75,519 $ 91,519
Paid-in capital 46,543,193 58,027,193
Retained deficit (9,711,357) (9,711,357)
------------ ------------
Total stockholders' equity $ 36,907,355 $ 48,407,355
============ ============
Issued shares of common stock 7,551,899 9,151,899
</TABLE>
Pursuant to the Purchase Agreement, SSG caused a majority of the members of
SSG's Board of Directors to consist of Emerson's designees. As a result of the
change of control, the Chief Executive Officer resigned resulting in the payout
of his Severance Agreement. See Note 7. Additionally, two other employees
exercised certain rights under their option agreements to surrender the options
to the Company in exchange for cash. This resulted in total proceeds paid by the
Company of approximately $972,000, which will be included as a charge to
operating results in fiscal year 1997.
On January 23, 1997, the Board of Directors approved a change in the Company's
fiscal year end from October 31 to September 30. Consequently, the Company will
operate on a 52/53 week year ending on the Friday closest to September 30. As a
result of the change in fiscal year, the fiscal year ended September 26, 1997
will consist of eleven calendar months.
41
<PAGE> 42
11. SELECTED FINANCIAL DATA (UNAUDITED)
The following sets forth certain historical financial information for the
Company for each of the last 5 years (amounts in thousands, except per
share amounts):
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
NOVEMBER 1, OCTOBER 31, YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net revenues $ 80,521 $ 65,134 $ 66,920 $ 58,817 $ 50,454
Gross profit 29,955 25,259 26,326 23,551 20,647
Operating profit (65) 3,894 5,162 5,694 4,679
Interest expense 1,372 1,126 973 1,039 892
Other income (expense), net 38 209 (5) 24 175
Cumulative effect of accounting change -- -- -- 50 --
Earnings (loss) from continuing operations (964) 1,847 2,802 3,324 2,654
Earnings (loss) from discontinued operations (17,773) (457) 1,900 482 397
Net earnings (loss) (18,737) 1,390 4,702 3,806 3,051
Net earnings (loss) per common share from
continuing operations (0.14) 0.27 0.42 0.65 0.56
Net earnings (loss) per common share from
discontinued operations (2.63) (0.07) 0.28 0.09 0.08
Net earnings per common share $ (2.77) $ .20 $ .70 $ .74 $ .64
Weighted average common shares
outstanding 6,768 6,950 6,760 5,154 4,790
Cash dividends declared per
common share -- $ .12 $ .13 $ .16 $ .16
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 1 AS OF OCTOBER 31 AS OF DECEMBER 31,
--------------- ----------------------- -----------------------
BALANCE SHEET DATA: 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Working capital $ 21,322 $ 42,231 $ 32,886 $ 25,840 $ 18,067
Total assets 70,009 86,355 71,616 45,574 38,389
Long-term obligations, net 24,338 29,199 16,698 5,578 13,919
Total liabilities 40,846 38,745 25,143 10,618 21,601
Stockholders' equity 29,163 47,610 46,473 34,956 16,788
</TABLE>
42
<PAGE> 43
12. QUARTERLY INFORMATION (UNAUDITED):
The following table sets forth certain information regarding the
Company's results of operations for each full quarter within year ended
November 1, 1996 and the ten month period ended October 31, 1995.
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------- -------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd
Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA
Net revenues $ 13,216 $ 25,521 $ 21,920 $ 19,864 $ 19,429 $ 19,151 $ 22,335
Gross profit 5,112 9,451 8,352 7,040 7,847 7,389 8,577
Operating profit (loss) (1,034) 1,827 981 (1,839) 2,435 1,573 1,118
Interest expense 458 314 290 310 438 449 602
Other income (expense) 25 7 3 3 5 5 187
net
Net earnings (loss)
from continuing (933) 967 444 (1,442) 1,265 705 425
operations
Net earnings (loss)
from discontinued (151) (10,369) (3,733) (3,520) 380 813 430
operations (See Note 9)
Net earnings (loss) (1,084) (9,402) (3,289) (4,962) 1,645 1,518 855
Net earnings (loss) per
common share $ (0.16) $ (1.39) $ (0.49) $ (0.73) $ 0.24 $ 0.22 $ 0.12
Weighted average
shares outstanding 6,737 6,749 6,777 6,779 6,934 7,023 6,947
</TABLE>
The fourth quarter of 1995 is not presented since it consisted of one calendar
month. Results of operations for the month of October 1995 included a charge of
$2,700,000 to reduce the carrying value of certain recycled golf ball
inventories to net realizable value. This is included in net earnings (loss)
from discontinued operations. Results of operations for the quarter ended
November 1996 included a provision of $950,000 to reduce the carrying value of
inventories to net realizable value and provisions totaling $1,227,000 relating
to legal and professional fees as well as the write-off of miscellaneous assets.
43
<PAGE> 44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
See the discussion under the captions "Proposal One - Election of
Directors" and "Executive Compensation and Other Information" contained in the
Proxy Statement for the Annual Meeting of Stockholders to be held March 21,
1997, which information is incorporated herein by reference, and Item 1.
"Business Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION.
See the discussion under the caption "Executive Compensation and
Other Information" contained in the Proxy Statement for the Annual Meeting of
Stockholders to be held March 21, 1997, which information, except the
Performance Graph and the Report of the Board of Directors and Stock Option
Committee on Executive Compensation, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the discussion under the caption "Security Ownership of Certain
Beneficial Owners and Management" contained in the Proxy Statement for the
Annual Meeting of Stockholders to be held March 21, 1997, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the discussion under the caption "Certain Relationships and
Related Transactions" contained in the Proxy Statement for the Annual Meeting
of Stockholders to be held on March 21, 1997, which information is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements. See Item 8.
(a)(2) Supplemental Schedule Supporting Financial Statements. See Item 8.
(a)(3) Management Contract or Compensatory Plan. See Index to Exhibits on pages
46 through 50. Each of the following Exhibits described on the Index to
Exhibits is a management contract or compensatory plan: Exhibits 10.1, 10.2,
10.3, 10.4, 10.5, 10.6, 10.7, 10.7.1, 10.7.2, 10.7.3, and 10.26.
(b) Reports on Form 8-K. A Report on Form 8-K was filed under Item 5 on October
22, 1996, relating to Emerson's initial proposal dated October 11, 1996. A
Report on Form 8-K was filed on November 8, 1996 under Item 5 relating to
Emerson's revised proposal dated November 5, 1996 and the resignation of the
Company's Principal Accounting and Financial Officer. A Report on Form 8-K was
filed under Item 1 (Change in Control) on December 12, 1996 relating to the
consummation of the transaction with Emerson and matters relating thereto. No
financial statements were filed with any of the foregoing Reports on Form 8-K.
(c) Exhibits. See Index to Exhibits on pages 46 through 50.
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: January 29, 1997
SPORT SUPPLY GROUP, INC.
By: /s/ Geoffrey P. Jurick
--------------------------------
Geoffrey P. Jurick
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on January 29, 1997 by the following persons on
behalf of the registrant and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Geoffrey P. Jurick
- -------------------------------
Geoffrey P. Jurick Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
/s/ Eugene I. Davis
- -------------------------------
Eugene I. Davis Director
/s/ Peter S. Blumenfeld Director
- -------------------------------
Peter S. Blumenfeld
/s/ John P. Walker Executive Vice President, Chief
- ------------------------------- Financial Officer and Director
John P. Walker (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Johnson C.S. Ko Director
- -------------------------------
Johnson C.S. Ko
/s/ Peter G. Bunger Director
- -------------------------------
Peter G. Bunger
/s/ William H. Watkins, Jr. Director
- -------------------------------
William H. Watkins, Jr.
</TABLE>
45
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
-------- -------------------------------------------------------
<S> <C>
2.1 Securities Purchase Agreement dated November 27, 1996 by and
between the Company and Emerson Radio Corp. ("Emerson")
(incorporated by reference from Exhibit 2 to the Company's Report
on Form 8-K filed on December 12, 1996).
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)).
3.1.1 Certificate of Amendment of 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)).
*3.2 Amended and Restated Bylaws of the Company.
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)).
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)).
4.3 Warrant Agreement entered into between the Company and Emerson
relating to the purchase of up to 1,000,000 shares of the
Company's common stock for $7.50 per share, which expires on
December 10, 2001 (incorporated by reference from Exhibit 4(a) to
the Company's Report on Form 8-K filed on December 12, 1996).
10.1 Employment Agreement entered into by and between the Company and
Peter S. Blumenfeld (incorporated by reference from Exhibit 10.1
to the Company's Registration Statement on Form S-1 (Registration
No. 33-39218)).
*10.2 Form of Stock Option Agreement for Peter S. Blumenfeld
10.3 Employment Agreement entered into by and between the Company and
Terrence M. Babilla (incorporated by reference
from Exhibit 10.5 to the Company's Report on Form
10-K for the fiscal year ended October 31, 1995).
*10.4 Consulting and Separation Agreement dated as of September 16, 1994
by and between the Company and Jerry L. Gunderson.
10.5 Form of Indemnification Agreement entered into between the Company
and each of the directors of the Company and the Company's General
Counsel (incorporated by reference from Exhibit 10.3 to the
Company's Registration Statement on Form S-1 (Registration No. 33-
39218)).
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
--------- ----------------------------------------------------------------
<S> <C>
10.6 Form of Severance Agreement entered into between the Company and
each of Messrs. Peter S. Blumenfeld and Terrence M. Babilla
(incorporated by reference from Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (Registration No. 33-39218)).
10.7 Sport Supply Group, Inc. Stock Option Plan (incorporated by
reference from Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (Registration No. 33-39218)).
10.7.1 Amendment No. 1 to Sport Supply Group, Inc. Stock Option Plan
(incorporated by reference from Exhibit 10.4.1 to the Company's
Report on Form 10-K for the year ended 1992).
10.7.2 Amendment No. 2 to Sport Supply Group, Inc. Stock Option Plan
(incorporated by reference from Exhibit 10.4.2 to the Company's
Report on Form 10-K for the year ended 1993).
10.7.3 Amendment No. 3 to Sport Supply Group, Inc. Stock Option Plan
(incorporated by reference from Exhibit 4.6 to the Company's
Registration Statement on Form S-8 (Registration No. 33-80028)).
10.8 Registration Rights Agreement by and among the Company, Emerson
and Emerson Radio (Hong Kong) Limited (incorporated by reference
from Exhibit 4(b) to the Company's Report on Form 8-K filed on
December 12, 1996).
10.9 Assignment of Agreement and Inventory Purchase Agreement to
Affiliate by Aurora (incorporated by reference from Exhibit 10.10
to the Company's Registration Statement on Form S-1 (Registration
No. 33-39218)).
10.10 Form of Tax Indemnity Agreement by and between the Company and
Aurora (incorporated by reference from Exhibit 10.16 to the
Company's Registration Statement on Form S-1 (Registration No. 33-
39218)).
10.11 Master Agreement, dated as of February 19, 1992, by and between
MacMark Corporation, MacGregor Sports Products, Inc. and Aurora
(incorporated by reference from Exhibit 10.21 to the Company's
Report on Form 10-K for the year ended 1991).
10.12 Perpetual License Agreement, dated as of February
19, 1992, by and between MacMark Corporation,
Equilink Licensing Corporation, and Aurora
(incorporated by reference from Exhibit 10.22 to
the Company's Report on Form 10-K for the year
ended 1991).
10.13 Perpetual License Agreement, dated as of February 19, 1992, by and
between MacGregor Sports Products, Inc. and Aurora (incorporated
by reference from Exhibit 10.23 to the Company's Report on Form
10-K for the year ended 1991).
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
--------- ----------------------------------------------------------------
<S> <C>
10.14 Trademark Maintenance Agreement, dated as of
February 19, 1992, by and between MacMark
Corporation, Equilink Licensing Corporation, and
Aurora (incorporated by reference from Exhibit
10.24 to the Company's Report on Form 10-K for
the year ended 1991).
10.15 Trademark Maintenance Agreement, dated as of February 19, 1992, by
and between MacGregor Sports Products, Inc. and Aurora
(incorporated by reference from Exhibit 10.25 to the Company's
Report on Form 10-K for the year ended 1991).
10.16 Trademark Security Agreement, dated as of February 19, 1992, by
and between MacGregor Sports Products, Inc. and Aurora
(incorporated by reference from Exhibit 10.26 to the Company's
Report on Form 10-K for the year ended 1991).
10.17 Assignment and Assumption Agreement, dated to be effective as of
February 28, 1992, by and between Aurora and the Company
(incorporated by reference from Exhibit 10.27 to the Company's
Report on Form 10-K for the year ended 1991).
10.18 Amendment No. 1 to Perpetual License Agreement
and Trademark Maintenance Agreement dated as of
November 1, 1992, by and between MacMark
Corporation, Equilink Licensing Corporation and
the Company (incorporated by reference from
Exhibit 10.24 to the Company's Report on Form
10-K for the year ended 1992).
10.19 Amendment No. 1 to Perpetual License Agreement
and Trademark Maintenance Agreement dated as of
November 1, 1992, by and between MacGregor Sports
Products, Inc. and the Company (incorporated by
reference from Exhibit 10.25 to the Company's
Report on Form 10-K for the year ended 1992).
10.20 Amended and Restated Loan and Security Agreement between the
Company and LaSalle Business Credit, Inc. (formerly known as
StanChart Business Credit, Inc.) dated as of March 23, 1995
(incorporated by reference from Exhibit 10.17 to the Company's
Report on Form 10-K for the fiscal year ended December 31, 1994).
10.20.1 Amendment No. 1 to Amended and Restated Loan and Security
Agreement between the Company and LaSalle Business Credit, Inc.
dated as of December 20, 1995 (incorporated by reference from
Exhibit 5(b) to the Company's Report on Form 8-K dated January 2,
1996).
10.20.2 Amendment No. 2 to Amended and Restated Loan and Security
Agreement between the Company and LaSalle Business Credit, Inc.
dated as of March 21, 1996 (incorporated by reference from Exhibit
10 to the Company's Report on Form 10-Q for the quarterly period
ended February 2, 1996).
</TABLE>
48
<PAGE> 49
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
--------- ----------------------------------------------------------------
<S> <C>
10.20.3 Amendment No. 3 to Amended and Restated Loan and Security
Agreement between the Company and LaSalle Business Credit, Inc.
dated as of September 19, 1996 (incorporated by reference from
Exhibit 10.3 to the Company's Report on Form 10-Q for the
quarterly period ended August 1, 1996).
10.20.4 Amendment No. 4 to Amended and Restated Loan and Security
Agreement between the Company and LaSalle Business Credit, Inc.
dated as of November 27, 1996 (incorporated by reference from
Exhibit 4(d) to the Company's Report on Form 8-K filed on December
12, 1996).
*10.20.5 Amendment No. 5 to Amended and Restated Loan and Security
Agreement between the Company and LaSalle Business Credit, Inc.
dated as of January 28, 1997.
10.21 Lease, dated July 28, 1989, by and between Merit Investment
Partners, L.P. and the Company (incorporated by reference from
Exhibit 10.14 to the Company's Registration Statement on Form S-1
(Registration No. 33-39218)).
10.22 Industrial Lease Agreement, dated April 25, 1994, by and between
the Company and Centre Development Co. (incorporated by reference
from Exhibit 10.1 to the Company's Report on Form 10-Q for the
quarter ended June 30, 1994).
10.22.1 Amendment to Industrial Lease Agreement, dated
July 8, 1994, by and between the Company and
Centre Development Co. (incorporated by reference
from Exhibit 10.19.1 to the Company's Report on
Form 10-K for the fiscal year ended December 31,
1994).
10.23 Lease, dated December 2, 1991, by and between Injans Investments
and the Company (incorporated by reference from Exhibit 10.20 to
the Company's Report on Form 10-K for the year ended 1991).
*10.23.1 First Amendment to Standard Industrial Lease
dated September 12, 1996 by and between Injans
Investments and the Company.
10.24 Office Building Lease, dated November 20, 1992,
by and between the Company and Benson Associates
(incorporated by reference from Exhibit 10.30 to
the Company's Report on Form 10-K for the year
ended 1992).
10.24.1 First Amendment to Office Building Lease, by and
between the Company and Benson Associates dated
April 25, 1994 (incorporated by reference from
Exhibit 10.2 to the Company's Report on Form
10-Q for the quarter ended June 30, 1994)
10.25 License Agreement, dated as of September 23, 1991, by and between
Proacq Corp. and the Company (incorporated by reference from
Exhibit 10.17 to the Company's Report on Form 10-K for the year
ended 1991).
</TABLE>
49
<PAGE> 50
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
--------- ----------------------------------------------------------------
<S> <C>
10.26 Sport Supply Group Employees' Savings Plan dated June 1, 1993
(incorporated by reference from Exhibit 10.27 to the Company's
Report on Form 10-K for the year ended 1993).
*11 Earnings Per Common and Common Equivalent Share
*23 Consent of Independent Public Accountants.
*27 Financial Data Schedule
</TABLE>
- -------------------
* Filed Herewith.
50
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
SPORT SUPPLY GROUP, INC.
(As Adopted on January 23, 1997)
ARTICLE 1 - OFFICES
SECTION 1. Office. The registered office shall be established
and maintained at 32 Loockerman Square, Suite L-100, Dover, County of Kent, in
the State of Delaware.
SECTION 2. Other Offices. The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - MEETINGS OF STOCKHOLDERS
SECTION 1. Places of Meetings. Unless the Board of Directors
shall fix another place for the holding of the meeting, meetings of
stockholders shall be held at the corporation's headquarters, 1901 Diplomat,
Farmers Branch, Texas, or at such other place in the Dallas, Texas area as
specified by the person or persons calling the meeting.
SECTION 2. Annual Meetings. Annual meetings of stockholders for
the election of directors and for such other business as may be stated in the
notice of the meeting, shall be held on the second Friday in February at 10:00
a.m., unless the Board of Directors shall fix a different date or time. At each
annual meeting, the stockholders entitled to vote shall elect a Board of
Directors and may transact such other corporate business as shall be stated in
the notice of the meeting.
SECTION 3. Special Meetings. Special meetings of the stockholders,
for any purpose, unless otherwise prescribed by statute or by the Amended and
Restated Certificate of Incorporation, may only be called by the chairman of
the board and shall be called by the chairman of the board or secretary at the
request in writing of a majority of the directors or stockholders entitled to
vote. A call for a special meeting of stockholders shall be in writing, filed
with the secretary, and shall specify the time and place of holding of such
meeting and the purpose or purposes for which it is called.
1
<PAGE> 2
SECTION 4. Notice of Meetings. Written notice, stating the place,
date, and time of the meeting, and the general nature of the business to be
considered, shall be mailed to each stockholder of the corporation entitled to
vote at such meeting, but not less than ten nor more than sixty days before the
date of the meeting.
SECTION 5. Quorum. The holders of a majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at all meetings of the stockholders for the transaction of business, except as
otherwise provided by statute, the Amended and Restated Certificate of
Incorporation or these Amended and Restated Bylaws. If stockholders necessary
for a quorum shall fail to be present at the time and place fixed for any
meeting, the holders of a majority of the shares entitled to vote who are
represented in person or by proxy may adjourn the meeting from time to time,
until a quorum is present, and at any such adjourned meeting at which a quorum
is present, any business may be transacted which might have been transacted at
the original meeting.
SECTION 6. Voting. Except as otherwise provided by the Amended
and Restated Certificate of Incorporation, each stockholder entitled to vote in
accordance with the terms and provisions of the Amended and Restated
Certificate of Incorporation and these Amended and Restated Bylaws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled
to vote held by such stockholder.
SECTION 7. Required Vote. When a quorum is present at any
meeting, the vote of the holders of a majority of the shares having voting
power represented in person or by proxy at the meeting shall decide any
question brought before such meeting, unless the question is one upon which, by
express provision of statute, the Amended and Restated Certificate of
Incorporation or these Amended and Restated Bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question. All elections for directors shall be decided by a
plurality of the shares entitled to vote on the election of directors and
present in person or represented by proxy at the meeting.
SECTION 8. Proxies. (a) Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for
him by proxy, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period.
(b) Without limiting the manner in which a stockholder
may authorize another person or persons to act for him as proxy pursuant to
subsection (a) of this Section, the following shall constitute a valid means by
which a stockholder may grant such authority:
(i) A stockholder may execute a writing
authorizing another person or persons to act for him as proxy.
Execution may be accomplished by the stockholder or his
authorized officer, director, employee, or agent signing such
writing or causing his or her signature to be affixed to such
writing by any reasonable means including, but not limited to,
by facsimile signature.
2
<PAGE> 3
(ii) A stockholder may authorize another
person or persons to act for him as proxy by transmitting or
authorizing the transmission of a telegram, cablegram, or
other means of electronic transmission to the person who will
be the holder of the proxy or to a proxy solicitation firm,
proxy support service organization, or like agent duly
authorized by the person who will be the holder of the proxy
to receive such transmission, provided that any such telegram,
cablegram, or other means of electronic transmission must
either set forth or be submitted with information from which
it can be determined that the telegram, cablegram, or other
electronic transmission was authorized by the stockholder. If
it is determined that such telegrams, cablegrams, or other
electronic transmissions are valid, the inspectors or, if
there are no inspectors, such other persons making that
determination shall specify the information upon which they
relied.
(c) Any copy, facsimile telecommunication, or other
reliable reproduction of the writing or transmission created pursuant to
subsection (b) of this Section may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the
original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
SECTION 9. List of Stockholders. The secretary shall prepare, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall
be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall be produced and kept at
the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder present.
SECTION 10. Inspectors. (a) The corporation shall, in advance of
any meeting of stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of stockholders,
the chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of
shares outstanding and the voting power of each, (ii) determine the shares
represented at a meeting and the validity of proxies and ballots, (iii) count
all votes and ballots, (iv) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares
represented at the meeting, and their
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count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties
of the inspectors.
(c) The date and time of the opening and the closing of
the polls for each matter upon which the stockholders will vote at a meeting
shall be announced at the meeting. No ballot, proxies or votes, nor any
revocations thereof or changes thereto, shall be accepted by the inspectors
after the closing of the polls unless the Delaware Court of Chancery, upon
application by a stockholder, shall determine otherwise.
(d) In determining the validity and counting of proxies
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
accordance with Article II, Section 8(b)(ii), ballots and the regular books and
records of the corporation, except that the inspectors may consider other
reliable information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees, or similar persons
that represent more votes than the holder of a proxy is authorized by the
record owner to cast, or more votes than the stockholder holds of record. If
the inspectors consider other reliable information for the limited purpose
permitted herein, the inspectors at the time they make their certification
pursuant to subsection (b)(v) of this Section shall specify the precise
information considered by them including the person or persons from whom they
obtained the information, when the information was obtained, the means by which
the information was obtained and the basis for the inspector's belief that such
information is accurate and reliable.
Section 11. Action Without a Meeting. No action required to be
taken or which may be taken at an annual or special meeting of stockholders of
the corporation may be taken without a meeting, and the powers of stockholders
to consent in writing, without a meeting to the taking of any action is
specifically denied.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
corporation shall be managed by the Board of Directors. The Board may exercise
all such powers of the corporation and do all such lawful acts and things as
are not by statute, by the Amended and Restated Certificate of Incorporation or
these Amended and Restated Bylaws directed or required to be exercised or done
by the stockholders.
Number--The number of directors shall be fixed from time to time by
resolution of the Board of Directors but shall not be less than three nor more
than ten.
Tenure--The directors shall be elected at the annual meeting of
stockholders, except upon a vacancy or newly created directorship resulting
from resignation or removal of a director or an increase in the authorized
number of directors. Each director shall hold office until his successor is
elected and qualified or until his earlier resignation or removal.
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Vacancies--Vacancies and newly created directorships, resulting from
an increase in the authorized number of directors, may be filled by a majority
of the directors then in office though less than a quorum.
Resignation--Any director, member of a committee, or other officer may
resign at any time. Such resignation shall be made in writing, and shall take
effect at the time specified therein, and if no time be specified, at the time
of its receipt by the chairman, president or secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 2. Nominations for Directors. Nominations for election to
the Board of Directors of the corporation at a meeting of the stockholders may
be made by the Board of Directors, or on behalf of the Board of Directors by a
Nominating Committee appointed by the Board of Directors, or by any stockholder
of the corporation entitled to vote for the election of directors at such
meeting. Such nominations, other than those made by or on behalf of the Board
of Directors, shall be made by notice in writing and mailed by certified mail,
to the secretary of the corporation and received no later than 60 days after
the end of the corporation's fiscal year; provided, however, that if less than
35 days' notice of a meeting of stockholders called for the election of
directors is given to the stockholders, such nomination by such stockholder
shall have been made or delivered to the secretary of the corporation not later
than the close of business on the seventh day following the day on which the
notice of meeting was mailed. Such notice shall set forth as to each proposed
nominee who is not an incumbent director (i) the name, age, business address
and, if known, residence address of each nominee proposed in such notice, (ii)
the principal occupation or employment of each such nominee, (iii) the number
of shares of stock of the corporation which are beneficially owned by each such
nominee and the nominating stockholder, and (iv) any other information
concerning the nominee that must be disclosed of nominees in proxy
solicitations pursuant to Rule 14(a) of the Securities Exchange Act of 1934, as
amended.
The chairman of the board or, in his absence, the president, may, if
the facts warrant, determine and declare to the meeting of stockholders that a
nomination was not made in accordance with the foregoing procedure and that the
defective nomination shall be disregarded.
SECTION 3. Annual Meetings of Board. The annual meeting of
the Board of Directors shall be held following the annual meeting of the
stockholders and shall be a meeting of the directors elected at such meeting of
stockholders. No notice shall be required.
SECTION 4. Regular Meetings of Board. Regular meetings of
the Board shall be held at such times and places as the Board of Directors may
fix. No notice shall be required.
SECTION 5. Special Meetings of the Board. Special meetings of
the Board of Directors shall be held whenever called by the chairman, the
president, or any two or more directors. At least 24 hours written or oral
notice of each special meeting shall be given to each director.
SECTION 6. Telephone Meetings. Directors may attend any
meeting of the Board of Directors or any committee thereof by conference
telephone, radio, television, or similar means
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of communication by which all persons participating in the meeting can hear
each other, and all members so attending shall be deemed present at the meeting
for all purposes including the determination of whether a quorum is present.
SECTION 7. Quorum. A majority of the of members of the board
of directors if the total number is odd or one-half thereof if the total number
is even shall constitute a quorum for the transaction of business. The vote
of a majority of directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors, unless otherwise provided by law,
the Amended and Restated Certificate of Incorporation, or these Amended and
Restated Bylaws. If at any meeting of the Board of Directors there is less
than a quorum, the majority of those present may adjourn the meeting from time
to time until a quorum is present. At any such adjourned meeting, a quorum
being present, any business may be transacted which might have been transacted
at the original meeting.
SECTION 8. Removal. Any director or directors may be removed
either for or without cause at any time by the affirmative vote of the holders
of a majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for such purpose, and the vacancies
thus created may be filled at the meeting held for the purpose of removal by
the affirmative vote of a majority in interest of the stockholders entitled to
vote.
SECTION 9. Increase of Number. The number of directors may be
increased by amendment of these Amended and Restated Bylaws, by the affirmative
vote of a majority of the directors, though less than a quorum, or, by the
affirmative vote of a majority in interest of the stockholders at the annual
meeting or at a special meeting called for that purpose, and by like vote the
additional directors may be chosen at such meeting to hold office until the
next annual election and until their successors are elected and qualified.
SECTION 10. Committees of the Board. The Board of Directors
may by resolution, adopted by a majority of the whole Board of Directors,
designate one or more committees, each committee to consist of one or more of
the directors of the corporation. Any such committee, to the extent provided
in the resolution of the Board of Directors, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation, except as such committee may be
explicitly prohibited from doing so by the Amended and Restated Certificate of
Incorporation, these Amended and Restated Bylaws, or the laws of the State of
Delaware.
Each committee may adopt rules governing the method of calling and the
time and place of holding its meetings. Unless otherwise provided in the
resolution of the Board of Directors establishing the committee, a majority of
any committee shall constitute a quorum for the transaction of business, and
the act of a majority of the members of such committee present at a meeting at
which a quorum is present shall be the act of such committee.
SECTION 11. Compensation. Directors, who are not officers of the
corporation, shall receive such compensation as shall be fixed by resolution of
the Board of Directors for their services as directors and as members of
committees. Officers of the corporation shall not receive
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any compensation for serving on the Board of Directors or any of its
committees. All directors are entitled to reimbursement for fees and expenses
incurred for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation
therefor.
SECTION 12. Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if prior to such action a
written consent thereto is signed by all members of the Board of Directors, or
of such committee as the case may be, and such written consent is filed with
the minutes of proceedings of the Board or committee.
ARTICLE IV - OFFICERS
SECTION 1. Officers. The officers of the corporation shall
consist of at least a President and a Secretary, and shall be elected by the
Board of Directors and shall hold office until their successors are elected and
qualified or until their earlier resignation or removal. In addition, the Board
of Directors may elect a Chairman, a Chief Executive Officer, a Chief Financial
Officer, a Chief Operating Officer, a Treasurer, one or more Vice Presidents
and such Assistant Secretaries and Assistant Treasurers as it may deem proper.
None of the officers of the corporation need be directors. The officers shall
be elected at the annual meeting of the Board of Directors. More than two
offices may be held by the same person.
SECTION 2. Other Officers and Agents. The Board of Directors
may appoint such officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such power and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 3. Removal and Vacancies. Any officer or agent of the
corporation may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
may be filled by the Board of Directors or otherwise as provided in this
Article.
SECTION 4. Execution of Instruments. The Chairman of the Board,
Chief Executive Officer, President and Chief Financial Officer (and such other
officers as are authorized thereunto by resolution of the Board of Directors)
may execute, in the name of the corporation, bonds, notes, debentures and other
evidences of indebtedness, stock certificates, deeds, mortgages, deeds of
trust, indentures, contracts, leases, agreements and other instruments,
requiring a seal under the seal of the corporation, and may execute such
documents where not requiring a seal, except where such documents are required
by law to be otherwise signed and executed, and except where the signing and
execution thereof shall be exclusively delegated to some other officer or agent
of the corporation; when so affixed the seal shall be attested by the signature
of the Secretary or the Treasurer or an Assistant Secretary or Assistant
Treasurer.
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SECTION 5. Chairman. The Chairman of the Board of Directors,
if one be elected, shall preside at all meetings of the Board of Directors and
he shall have and perform such other duties as from time to time may be
assigned to him by the Board of Directors.
SECTION 6. President. The President shall preside at all
meetings of the stockholders and shall be ex-officio a member of all standing
committees, have general powers of oversight, supervision and management of the
business and affairs of the corporation, and see that all orders and
resolutions of the Board of Directors are carried into effect.
In the event another executive officer has been designated Chief
Executive Officer of the corporation by the Board of Directors, then (i) such
other executive officer shall have all of the powers granted by the bylaws to
the President and such other responsibilities, duties and powers as may from
time to time be designated by the Board of Directors; and (ii) the President
shall, subject to the powers of supervision and control thereby conferred upon
the Chief Executive Officer, have all necessary powers to discharge his
responsibility as President, including general supervision of the affairs of
the corporation and general and active control of all of its business.
The President or, if applicable, the Chief Executive Officer, shall
perform all the duties and have all the powers of the Chairman of the Board in
the absence of the Chairman of the Board.
SECTION 7. Chief Financial Officer. The Chief Financial
Officer shall, subject to the power of the Chief Executive Officer and
President, have general and active control of all of the financial matters of
the corporation and shall have all necessary powers to discharge such
responsibility, and shall perform such other duties as the Board of Directors,
the Chief Executive Officer, the President, or the Chairman may prescribe. He
shall be authorized to execute bonds, mortgages, and other contracts on behalf
of the corporation, except where required or permitted by law or these Amended
and Restated Bylaws to be otherwise executed and except where the execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
SECTION 8. Vice President. Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him by the Board
of Directors.
SECTION 9. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all monies and other valuables in the name and to the credit of the
corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the corporation as may
be ordered by the Board of Directors, the Chief Executive Officer, the Chief
Financial Officer or the President, taking proper vouchers for such
disbursements.
SECTION 10. Secretary. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors as required by
these Amended and Restated Bylaws, and all other notices required by law or by
these Amended and Restated Bylaws, and in case of his
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absence or refusal or neglect so to do, any such notice may be given by any
person thereunto directed by the Chief Executive Officer and President, or by
the directors, or stockholders, upon whose requisition the meeting is called as
provided in these Amended and Restated Bylaws. He shall record, or cause to be
recorded, all the proceedings of the meetings of the corporation and of
directors in a book to be kept for that purpose. He shall keep in safe custody
the seal of the corporation, and when authorized by the Board of Directors,
affix the same to any instrument requiring it, and when so affixed, it shall be
attested by his signature or by the signature of any Assistant Secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the corporation and to attest the fixing of his signature.
SECTION 11. Assistant Treasurers and Assistant Secretaries.
Assistant Treasurers and Assistant Secretaries, if any, shall be elected and
shall have such powers and shall perform such duties as shall be assigned to
them, respectively, by the directors.
ARTICLE V - SHARES AND STOCKHOLDERS
SECTION 1. Certificates Representing Shares. Every holder of
stock in the corporation shall be entitled to have a certificate, signed by, or
in the name of, the corporation by the Chairman of the Board, President or a
Vice President and the Treasurer, Secretary, Assistant Treasurer or Assistant
Secretary of the corporation, certifying the number of shares owned by him in
the corporation. The signature of any such officer may be facsimile if the
certificate is countersigned by a transfer agent or registered by a registrar,
other than the corporation itself or an employee of the corporation. In case
any officer who has signed or whose facsimile signature has been placed upon
such certificate shall have ceased to be such officer before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer at the date of its issuance. If the corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations, or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock provided that, except as otherwise provided in Section 202 of the
General Corporation Law of the State of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock a
statement that the corporation will furnish without charge to each stockholder
who so requests the designations, preferences, and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations, or restrictions of such preferences and
rights.
SECTION 2. Transfer of Shares. Subject to valid transfer
restrictions, by agreement or otherwise, and to stop-transfer orders directed
in good faith by the corporation to any transfer agent to prevent possible
violations of federal or state securities laws, rules, or regulations, or for
any other lawful purpose, upon surrender to the corporation of a certificate
for shares duly endorsed or accompanied by proper evidence of succession,
assignment, or authority to transfer,
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it shall be the duty of the corporation to issue a new certificate to the
person entitled thereto, cancel the old certificate, and record the transaction
upon its books.
SECTION 3. Fixing Record Date. (a) In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before
the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the date on which notice is given, or, if notice is
waived, at the close of business on the date next preceding the day on which
the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the record date is adopted
by the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by this Section, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by statute, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
Notwithstanding the foregoing, this Section 3(b) shall be subject to any terms
in the Amended and Restated Certificate of Incorporation and these Amended and
Restated Bylaws that restrict stockholders from acting by written consent.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to receive any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at
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the close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
SECTION 4. Registered Stockholders. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of any share or shares to receive dividends, and to vote as such
owner, and for all other purposes as such owner; and the corporation shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the State
of Delaware.
SECTION 5. Lost Certificates. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen, or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen, or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and give the corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
ARTICLE VI - MISCELLANEOUS PROVISIONS
SECTION 1. Notice and Waiver of Notice. Whenever notice is
required to be given under the Amended and Restated Certificate of
Incorporation, these Amended and Restated Bylaws, or the laws of the State of
Delaware, a written waiver thereof signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 2. Dividends. Subject to the provisions of the Amended
and Restated Certificate of Incorporation the Board of Directors may, out of
funds legally available therefor at any regular or special meeting, declare
dividends upon the capital stock of the corporation as and when they deem
advisable. Before declaring any dividends there may be set apart out of any
funds of the corporation available for dividends, such sum or sums as the
directors from time to time in their discretion deem proper working capital or
as a reserve fund to meet contingencies or for equalizing dividends or for such
other purposes as the directors shall deem conducive to the interests of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
SECTION 3. Seal. The corporate seal shall be circular in form
and shall contain the name of the corporation, the year of its creation, and
the words "CORPORATE SEAL
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DELAWARE." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
SECTION 4. Fiscal Year. The fiscal year of the corporation
shall be determined by resolution of the Board of Directors.
ARTICLE VII - INDEMNIFICATION
SECTION 1. Indemnification.
(a) The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and except that no indemnification shall
be made in respect to any claim, issue, or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
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(c) To the extent that a director, officer, employee
or agent of the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsections (a) and
(b), or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b)
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in subsections (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit, or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director or officer to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this Article VII. Such
expenses (including attorneys' fees) incurred by other employees or agents may
be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of this Article VII
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the Amended
and Restated Certificate of Incorporation, any agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) The corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under the provisions of this
Article VII.
(h) For purposes of this Article VII, references to
"the corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as
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a director, officer, employee or agent or another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position
under the provisions of this Article VII with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this Article VII, references to
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee or
agent of the corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this Article VII.
(j) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article VII shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VIII - AMENDMENTS
These Amended and Restated Bylaws may be altered and repealed and new
bylaws adopted at any annual meeting of the stockholders, or at any special
meeting of the stockholders if notice thereof is contained in the notice of
such special meeting, by the affirmative vote of a majority of the shares
entitled to vote thereat and present or represented at such meeting, or by the
affirmative vote of the Board of Directors at any regular meeting of the Board
of Directors, or at any special meeting of the Board of Directors, if notice
thereof is contained in the notice of such special meeting.
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EXHIBIT 10.2
SPORT SUPPLY GROUP, INC.
STOCK OPTION AGREEMENT
Effective Date of Grant:
January 3, 1995
Expiration Date:
January 2, 2005
TO:
---------------
WHEREAS, Sport Supply Group, Inc. (the "Company") desires, as part of
____________ (the "Optionee") compensation package, to encourage the
Optionee's sense of proprietorship in the Company by his owning shares of the
Company's common stock, par value $.01 per share (the "Common Stock");
NOW, THEREFORE, in consideration of Optionee's services to the Company
and the mutual agreements and covenants contained in this Agreement, the
Company hereby grants to Optionee a stock option (the "Option") to purchase up
to a total of shares of Common Stock, at a price per share of $_____ (the
"Option Price"), on the terms and conditions and subject to the restrictions as
set forth in this Agreement.
I. DEFINITIONS
a. Acquiring Person. An "Acquiring Person" shall mean any person
(including any "person" as such term is used in Sections 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that,
together with all Affiliates and Associates of such person, is the beneficial
owner of 10% 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 10%
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 10% 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 Exchange Act in effect on the date of
this Agreement.
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c. 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 merger,
consolidation or reorganization) 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 Acquiring Person 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 of Directors of the Company 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 of Directors of the Company
in its sole discretion;
provided, however, that a Change in Control of the Company shall not be deemed
to have occurred as a result of any transaction having one or more of the
foregoing effects if such transaction is approved by the Company's Board of
Directors, and includes a significant equity participation (i.e., an aggregate
of at least 20% of the then outstanding common equity securities of the Company
or parent entity of which the Company is a wholly-owned subsidiary
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immediately after such transaction which are entitled to vote to elect any
class of directors) by executive officers of the Company or any Company
employee stock ownership plan or pension plan.
d. Continuing Director. A "Continuing Director" shall mean a
director of the Company who (i) is not an Acquiring Person or an Affiliate or
Associate thereof, 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.
II. GENERAL PROVISIONS
The shares subject to this Option shall be exercisable beginning on
July 3, 1995. The right to exercise this Option shall expire ten (10) years
from the Effective Date of Grant as set forth in the upper right hand corner of
page 1 hereof, except as the right to exercise this Option is otherwise
qualified by the terms of this Agreement.
This Option is not transferable otherwise than by will or the laws of
descent and distribution or as specifically provided below. Optionee may
transfer this Option to members of his Immediate Family (as defined below) if
the Optionee does not receive any consideration for the transfer. "Immediate
Family" refers to children, grandchildren and spouse of Optionee or one or more
trusts for the benefit of such family members or partnerships in which such
family members are the only partners. This option may be exercised, during the
lifetime of the Optionee, only by the Optionee or by his guardian or legal
representative or his transferee as permitted hereunder. This Option is not
liable for or subject to, in whole or in part, the debts, contracts,
liabilities or torts of the Optionee nor shall it be subject to garnishment,
attachment, execution, levy or other legal or equitable process.
In the event the Optionee is terminated by the Company or voluntarily
resigns from the employ of the Company, the Option granted hereunder shall
terminate as of the date the Optionee is terminated or resigns, as appropriate.
In the event the termination of employment results from the Optionee's death or
disability, the Option shall be exercisable for twelve months from the date of
termination or until the Option by its terms expires, whichever first occurs.
In the event this Option is held by the Optionee at the time of the
Optionee's death, this Option shall be exercisable only by the executor or
administrator of the Optionee's estate, or if the Optionee's estate is not in
administration, by the person or persons to whom the Optionee's rights shall
have passed by the Optionee's will or under the laws of descent and
distribution of the state where the Optionee was domiciled at the date of
death.
The Company may suspend for a reasonable period or periods the time
during which this Option may be exercised if, in the opinion of the Company,
such suspension is required to enable
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the Company to remain in compliance with regulatory requirements relating to
the issuance of shares of Common Stock subject to this Option.
Notwithstanding the provisions set forth herein, the Optionee may
elect for a period of 180 days following a Change in Control to surrender to
the Company for cancellation all or any part of the unexercised portion of the
Option. In consideration of such surrender and cancellation, the Optionee
shall be entitled to receive for each share of Common Stock as to which the
surrendered portion of the option relates an amount in cash equal to the
difference between the Option Price per share under the Option and the highest
closing sales price per share (as reported on the principal stock exchange on
which the Common Stock is traded) of Common Stock during the 360 calendar day
period prior to Optionee's election pursuant to this paragraph.
In the event there is any change in the Common Stock subject to this
Option as the result of any stock dividend on, dividend of or stock split or
stock combination of, or any like change in, stock of the same class or in the
event of any change in the capital structure of the Company, the Board of
Directors shall make such adjustments with respect to this Option, as it deems
appropriate to prevent dilution or enlargement of the rights hereunder.
III. EXERCISE OF OPTION
This Option may be exercised only by written notice (the "Exercise
Notice") by the Optionee to the Company at its principal executive office. The
Exercise Notice shall be deemed given when deposited in the U. S. mails,
postage prepaid, addressed to the Company at its principal executive office, or
if given other than by deposit in the U.S. mails, when delivered in person to
an officer of the Company at that office. The date of exercise of the Option
(the "Exercise Date") shall be the date of the postmark if the notice is mailed
or the date received if the notice is delivered other than by mail. The
Exercise Notice shall state the number of shares in respect of which the Option
is being exercised and, if the shares for which the Option is being exercised
are to be evidenced by more than one stock certificate, the denominations in
which the stock certificates are to be issued. The Exercise Notice shall be
signed by the Optionee and shall include the complete address of such person,
together with such person's social security number. The Exercise Notice shall
be accompanied by payment of the aggregate Option Price of the shares purchased
by cash or check payable to the order of the Company or by delivery of shares
of Common Stock previously owned by the Optionee, in form satisfactory to the
Company, tendered in full or partial payment of the Option Price.
This Option may be exercised either by tendering cash or by an
exchange of shares of Common Stock of the Company previously owned by the
Optionee, or a combination of both, in an amount or having a combined value
equal to the aggregate Option Price for the shares subject to the Option or
portion thereof being exercised. The value of the previously owned shares of
Common Stock exchanged in full or partial payment for the shares purchased upon
exercise of the Option shall be equal to the Fair Market Value (as defined
below) of the Common Stock on the Exercise Date. For purposes of this
Agreement, "Fair Market Value" means the closing sale price (or average of the
quoted closing bid and asked prices if there is no closing sale price reported)
of the Common Stock on the date specified, as reported by the New York Stock
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<PAGE> 5
Exchange (or by the principal national stock exchange on which the Common Stock
is then listed), or if there is no reported price information for such date,
Fair Market Value will be determined by the reported price information for
Common Stock on the day nearest preceding such date.
The Optionee shall be entitled to elect to pay all or a portion of the
aggregate Option Price by having shares of Common Stock having a Fair Market
Value on the Exercise Date equal to the aggregate Option Price withheld by the
Company or sold by a broker-dealer under circumstances meeting the requirements
of 12 C.F.R. Part 220. In addition, upon exercise of the Option, the Company
may make financing available to the Optionee for the purchase of the Common
Stock that may be acquired pursuant to the exercise of the Option on such terms
as the Board of Directors shall specify.
The certificates for shares of Common Stock as to which this Option
shall have been so exercised shall be registered in the name of the Optionee
and shall be delivered to the Optionee at the address specified in the Exercise
Notice. The Company may defer making payment or delivery of any benefits under
this Agreement until satisfactory arrangements have been made for the payment
of any tax attributable to any amounts payable on shares deliverable under the
Option.
In the case of an exercise by an Optionee who is employed by the
Company or any Subsidiary thereof on the Exercise Date, the Optionee in
exercising such Option shall be entitled to elect to pay all or a portion of
all taxes arising in connection with the exercise of the Option by paying cash
or electing to (i) have the Company withhold shares of Common Stock that were
to be issued to the Optionee upon such exercise or (ii) deliver other shares of
Common Stock previously owned by the Optionee having a Fair Market Value equal
to the amount to be withheld; provided, however, that the amount to be withheld
shall not exceed the Optionee's estimated total federal (including FICA), state
and local tax obligations associated with the transaction. The Fair Market
Value of fractional shares remaining after payment of the withholding taxes
shall be paid to the Optionee in cash. In the case of Options exercised when
the Optionee is no longer employed by the Company or a Subsidiary, such Option
exercise shall be valid only if accompanied by payment or other arrangement
satisfactory to the Company with respect to the Company's obligations, if any,
to withhold federal and state taxes with respect to the exercise of the Option.
In the event the person exercising the Option is a permitted transferee of the
Optionee, the Exercise Notice shall be accompanied by appropriate proof of the
right of such transferee to exercise the Option.
Subject to the limitations expressed herein, this Option may be
exercised with respect to all or a part of the shares of the Common Stock
subject to it.
Neither the Optionee nor any person claiming under or through the
Optionee shall be, or have any rights or privileges of, a stockholder of the
Company in respect of any of the shares issuable upon the exercise of the
Option, unless and until certificates representing such shares shall have been
issued (as evidenced by the appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company).
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IV. RESTRICTIONS ON TRANSFER
The Option and the securities issuable upon exercise of the Option
have not been registered under the Securities Act of 1933 or qualified under
applicable state securities laws. Accordingly, unless there is an effective
registration statement and qualification respecting those securities issued
upon exercise of the Option under the Securities Act of 1933 or under
applicable state securities laws at the time of exercise of the Option, any
stock certificate issued pursuant to the exercise of the Option shall bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES
LAWS."
V. GOVERNING LAW
This Agreement has been executed in, and shall be deemed to be
performable in, Dallas, Dallas County, Texas. For these and other reasons, the
parties agree that this Agreement shall be governed by and construed in
accordance with the laws of the State of Texas. The parties further agree that
the courts of the State of Texas, and any courts whose jurisdiction is
derivative on the jurisdiction of the courts of the State of Texas, shall have
personal jurisdiction over all parties to this Agreement.
VI. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreements, representations and understandings of the parties.
No supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by the party to be charged therewith. No waiver of
any of the provisions of this Agreement shall be deemed, or shall constitute a
waiver of any other provision, whether or not similar, nor shall any waiver
constitute a continuing waiver.
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VII. DUPLICATE ORIGINALS
Duplicate originals of this document shall be executed by both the
Company and the Optionee, each of which shall retain one duplicate original.
SPORT SUPPLY GROUP, INC.
By:
--------------------------
Michael J. Blumenfeld,
Chief Executive Officer
ACCEPTED:
- ---------------------------------------------
Address: 1901 Diplomat Drive
Farmers Branch, Texas 75234
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<PAGE> 1
EXHIBIT 10.4
CONSULTING AND SEPARATION AGREEMENT
This CONSULTING AND SEPARATION AGREEMENT (this "Agreement") is made
and entered into effective as of the 16th day of September 1994 (the "Effective
Date"), by and between Sport Supply Group, Inc., a Delaware corporation (the
"Company") and Jerry L. Gunderson ("Gunderson").
WHEREAS, the Company and Gunderson entered into that certain
Employment Agreement dated as of January 1, 1994, a copy of which is attached
hereto as Exhibit A, whereby Gunderson was employed as a Vice President of the
Company's Gold Eagle Professional Golf Products Division (the "Employment
Agreement").
WHEREAS, the Company and Gunderson entered into that certain
Commission Agreement dated as of January 1, 1994, a copy of which is attached
hereto as Exhibit B (the "Commission Agreement").
WHEREAS, the Company and Gunderson desire to terminate the Employment
Agreement and Commission Agreement and enter into this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Resignation. Gunderson hereby resigns, effective immediately, as an
officer and employee of the Company, including without limitation his
position as Vice President of the Company's Gold Eagle Professional
Golf Products Division.
2. Consulting Agreement. Gunderson hereby agrees to provide consulting
services to the Company pursuant to the following terms:
a. Extent of Services. Gunderson agrees to provide consulting
services to the Company from the date hereof through
December 31, 2004 (the "Consulting Period") and shall
report to the Company's senior executive officers. During
such time, Gunderson agrees to promptly respond to all
reasonable business-related requests from the Company's
senior executive officers, and perform such duties or
responsibilities as are reasonably requested by any of the
Company's senior executive officers, including without
limitation, assisting the Company in procuring
experienced/used golf balls and entering into concession
agreements with country clubs and golf courses. Gunderson
further acknowledges and agrees that he is not and will not
represent himself as an agent of the Company or its
Affiliates and shall have no authority to bind the Company
or its Affiliates in any manner without the prior written
authorization of a senior executive officer of the Company.
Gunderson further agrees to uphold his duty of loyalty to
the Company, its management, and its business and
proprietary interests during the Consulting Period. The
inability of Gunderson to render services to the Company
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by reason of other employment, vacation, partial or
permanent disability or incapacity shall not constitute a
failure by Gunderson to perform his obligations hereunder
and shall not be deemed a breach or default by him
hereunder, so long as Gunderson responds to the Company's
request and provides such consulting services within a
reasonable period of time thereafter.
b. Compensation. As compensation for the performance of
Gunderson's services as a consultant hereunder, the Company
shall pay Gunderson an amount equal to $40.00 per hour for
each hour Gunderson actually provides consulting services
to the Company in accordance with the terms of this
Agreement (the "Consulting Compensation"). The Consulting
Compensation will accrue and be payable to Gunderson in
arrears in accordance with the payroll practices of the
Company in effect from time to time during the Consulting
Period, less such amounts required to be withheld or
deducted therefrom. In addition, the Company will
reimburse Gunderson for his reasonable travel and business
expenses incurred in connection with providing consulting
services hereunder. All requests for reimbursement shall
be in writing and supported by invoices, receipts or
similar documentation, and shall otherwise be in compliance
with the Company's policy regarding reimbursement.
3. Separation Benefits. Subject to the terms and conditions of this
Agreement, the Company will provide Gunderson with the following:
a. Cash Payments.
(i) The Company will deliver to
Gunderson a check in an amount not to exceed $4,000 within
10 days of the Company's receipt of all of Gunderson's
invoices or similar documentation relating to reimbursable
business expenses incurred on or before September 19, 1994
by Gunderson for the Company's benefit;
(ii) No later than the 1st day of each
calendar month (beginning on October 1, 1994 and ending on
December 1, 1994), the Company will pay Gunderson $6,000
(such payments are collectively referred to herein as the
"Advances");
(iii) No later than March 1, 1995, the
Company will pay Gunderson an amount equal to the
difference between (1) $.005 multiplied by the number of
experienced/used golf balls in excess of 3 million sold by
the Company's Gold Eagle Professional Golf Products
Division and Second Chance Division to one or more
unaffiliated third parties between January 1, 1994 and
December 31, 1994 less (2) $39,750;
(iv) No later than March 1, 1995, the
Company will pay Gunderson an amount equal to the
difference between (1) $.005 multiplied by the number of
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experienced/used golf balls sold by the Company's Gold
Eagle Golf Products Division and Second Chance Division to
one or more unaffiliated third parties between January 1,
1994 and December 31, 1994 less (2) $50,000 less (3) the
aggregate amount of all Advances paid to Gunderson; and
(v) The Company will pay Gunderson 120
equal monthly installments of $7,287.88 no later than the
last day of each calendar month, with the first payment
being made on January 31, 1995 and the last payment being
made on December 31, 2004.
For purposes of this Agreement, an experienced/used golf ball shall
be deemed "sold" when it has been properly invoiced and shipped by the Company.
All payments to Gunderson pursuant to this Agreement will be (i) deemed to have
been made if a check made payable to Gunderson for the appropriate amount has
been deposited in the U.S. mail and addressed to Gunderson at his address set
forth in Section 15 hereof, provided sufficient funds are available to clear
such check in the ordinary course of business after being deposited in a
financial institution and (ii) subject to deduction and withholding required by
applicable law.
b. Health Benefits. So long as the Company provides health
insurance benefits for its employees, the Company will
permit Gunderson and his spouse on the Effective Date to
participate in the health insurance plans which are
regularly maintained by the Company for its employees, and
will pay the insurance premiums relating thereto (except as
provided below), until the earlier of (i) December 31,
2004, (ii) the date Gunderson becomes eligible to
participate in the health insurance plan of another
employer or (iii) the date of Gunderson's death. Gunderson
agrees to notify the Company within 15 days of becoming
eligible to participate in the health insurance plan of
another employer if such coverage occurs prior to December
31, 2004. To the extent Gunderson was obligated to pay
premiums relating to health insurance coverage as an
employee or such premiums were deducted from Gunderson's
salary, Gunderson will continue to be so obligated to pay
such premiums or promptly reimburse the Company therefor.
Notwithstanding the foregoing, if the Company's health
insurance plan or health insurance provider will not permit
Gunderson and/or Gunderson's spouse to remain on the
Company's health insurance plan, the Company shall pay
Gunderson (prior to the last day of each month that he and
his spouse are not permitted to remain on such plan) an
amount equal to the amount the Company would contribute to
Gunderson's (or Gunderson's spouse) health insurance
premiums as if Gunderson was an employee of the Company at
such time until the earlier of (i) December 31, 2004, (ii)
the date Gunderson becomes eligible to participate in the
health insurance plan of another employer or (iii) the date
of Gunderson's death. Gunderson shall be responsible for
filing all necessary notices under the terms of any
applicable policy or plan and for the timely payment of any
premiums due and timely and proper filing of any claims.
Gunderson will be responsible for the payment of any and
all tax liabilities relating to the provision
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of health benefits hereunder and such payments will be
subject to any deduction and withholding required by
applicable law.
4. Covenants and Agreements of Gunderson. Gunderson acknowledges and
agrees that the Separation Benefits set forth in Section 3 hereof and
the other consideration he has accepted and received pursuant to this
Agreement are not otherwise due to him. In consideration for the
payments and other consideration reflected in Section 3 of this
Agreement, the receipt and sufficiency of which are hereby
acknowledged, Gunderson voluntarily and knowingly:
a. Nondisparagement of Company. Agrees that after the date
hereof, he will not say, publish or do anything that casts
the Company or any of its Affiliates (as defined in Section
23 hereof), any of its products or the industry or
management of the Company or any of its Affiliates in an
unfavorable light, or disparage or injure the Company's or
any of its Affiliate's goodwill, business reputation or
relationship with existing or potential suppliers, vendors,
customers, employees, contractors, investors or the
financial community in general, or the goodwill or business
reputation of the Company's or any of its Affiliate's
employees, officers, directors, consultants or contractors.
Notwithstanding the foregoing, nothing herein shall
prohibit Gunderson from truthfully testifying in a hearing,
deposition or other legal proceeding in which Gunderson
could be criminally or civilly sanctioned for the failure
to respond truthfully.
b. Release. Subject to Section 4.c. hereof, hereby waives,
releases and forever discharges the Company and/or its
predecessors; successors; partners; Affiliates, parents, or
subsidiaries; assigns; employee retirement, health (except
the continuous health coverage contemplated by this
Agreement) and welfare benefit plans and the fiduciaries
thereof; officers; administrators; employees; former
employees; directors; trustees; shareholders;
representatives; attorneys; and agents, from all claims,
liabilities, demands, actions, or causes of action, in
contract, tort or otherwise, including but not limited to
all wrongful discharge claims, all tort, intentional tort,
negligence, defamation, and contract claims, any claim for
attorneys' fees, or any claim arising from any federal,
state or local civil rights and/or employment legislation
(including but not limited to Title VII of the Civil Rights
Act of 1964, the Age Discrimination in Employment Act of
1967, the Texas Commission on Human Rights Act, and the
Florida Civil Human Rights Act of 1992 and any claim for
benefits, including but not limited to those arising under
the Employee Retirement Income Security Act of 1974
("ERISA"), known or hereafter discovered by Gunderson, on
account of or connected with or growing out of, directly or
indirectly, his employment and resignation thereof, the
Company's employment policies and practices, or on any
other basis whatsoever. Notwithstanding the foregoing,
Gunderson is not releasing the Company from any claims that
arise after the date hereof, including those that may arise
as a result of the Company's breach of this Agreement. By
execution hereof, Gunderson represents, covenants, and
warrants that no claims released or waived herein have
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been previously conveyed, assigned, or transferred in any
manner, whether in whole or in part, to any person, entity,
or other third party. Gunderson expressly represents that
he is competent and authorized to release and/or waive any
claim he may have against the Company on any basis
whatsoever.
c. Waiver. Waives all rights and benefits afforded by any
state laws which provide in substance that a general
release does not extend to the claims of which a person
does not know of or support to exist in his favor at the
time of executing a release; however, Gunderson is not
waiving rights or claims, if any, that may arise after the
date he signs this Agreement (including any claims under
ERISA for the payment of a benefit payable under an ERISA
plan).
d. Acknowledgement. Acknowledges that as of September 16,
1994: (i) his employment by the Company is lawfully and
voluntarily terminated; (ii) he has received all due and
owing pay for all labor and services performed by him for
the Company; and (iii) he has received or been compensated
for all salary, vacation time, sick leave, compensatory
time, reimbursable expenses (except as contemplated by
Section 3.a.(i) of this Agreement), personal injuries,
bonuses, profit-sharing, retirement, health, welfare,
pension, and all other employee benefits to which he may
have been entitled as of September 16, 1994.
e. Non-Compete Covenant. In addition to any other covenants,
contracts or agreements to which Gunderson may be subject,
from the date hereof until December 31, 2004, Gunderson
will not, directly or indirectly, either as an individual
or as an employer, employee, partner, officer, director,
shareholder, substantial investor, trustee, agent, advisor,
or consultant or in any other capacity whatsoever, of any
person or entity (other than the Company):
(a) conduct or assist others in conducting
any business related to the reconditioning, marketing
and/or selling of experienced/used golf balls (the
"Company's Business") in any market area in the United
States;
(b) recruit, hire, assist others in recruiting
or hiring, discuss employment with or refer to others for
employment (collectively referred to as "Recruiting
Activity") any person who is, or within the 24 month period
immediately preceding the date of any such Recruiting
Activity was, at any time, an employee of the Employer or
its Affiliates; or
(c) solicit or otherwise accept or take away
the customers, suppliers (including, without limitation,
country clubs and golf courses), clients, distributors,
dealers or independent salespersons of the Company, or any
of its Affiliates, which are engaged in the Company's
Business in the United States; or induce, attempt to induce
or assist any other person or entity in inducing or
attempting to induce, directly or indirectly, any such
customer, supplier, client, dealer, distributor or
independent salesperson to discontinue their relationship
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with the Company or its Affiliates; or in any way interfere
or attempt to interfere with a past or present relationship
maintained by the Company with a customer, supplier,
client, distributor, dealer or independent salesperson or
one that the Company is attempting to establish during the
Consulting Period.
Notwithstanding the foregoing, the purchase by
Gunderson of experienced/used golf balls from the Company
and the resale of such golf balls purchased from the
Company to the retail market will not be deemed to be a
violation of this covenant or the covenant not to compete
set forth in Section 4.2 of that Asset Purchase Agreement
dated March 10, 1994, by and among the Company,
International Golf, Inc., Merimac Investments, Inc., Miller
C. Hawkins, James C. Helm and Mary Lynn Helm, Jerry L.
Gunderson and Judith C. Gunderson, Randolph M. Levinson and
Levco Group, Ltd. (the "International Golf Purchase
Agreement").
It is the desire and intent of the parties to
this Agreement that the provisions of this Section 4.e.
shall be enforced to the fullest extent permissible under
the laws and public policies applied in each jurisdiction
in which enforcement is sought. It is understood and
agreed that the scope of this covenant contained in this
Section 4.e. is reasonable as to time, area, and persons
and is necessary to protect the proprietary and legitimate
business interest of the Company, and but for such covenant
the Company would be unwilling to enter into the
transactions contemplated by this Agreement. Gunderson
agrees that this covenant is reasonable in light of the
compensation and other benefits Gunderson has accepted
pursuant to this Agreement.
Should a court of competent jurisdiction
determine this covenant unenforceable as written, the court
shall modify this covenant to the extent necessary to make
it enforceable. The alleged breach of any other provision
of this Agreement asserted by Gunderson shall not be a
defense to claims arising from the Company's enforcement of
this covenant; provided, however, if Gunderson notifies the
Company that the Company breached its obligations in
Sections 3.a. or 3.b. of this Agreement and the Company (i)
does not dispute such breach and (ii) does not cure such
breach within 20 days of receiving written notice by
Gunderson of such breach, the breach of such provision(s)
may be asserted as a defense to claims arising from the
Company's enforcement of this covenant.
5. Conditions. It is expressly understood that the obligations and
agreements of the Company pursuant to this Agreement are expressly
subject to the continuing performance by Gunderson of the
obligations, covenants and agreements assumed by him pursuant hereto.
In this regard and not by way of limitation, the obligations,
covenants and agreements of the Company pursuant to Sections 2 and 3
are expressly conditioned on Gunderson continuing performance of the
obligations and agreements described in Sections 4, 7, 8, 9 and 10
hereof. In the event the Company's Board of Directors in good
6
<PAGE> 7
faith determines, in its sole discretion, that Gunderson has breached
any representation, agreement, covenant or obligation contained
herein (and such breach is not cured within 20 days of Gunderson's
receipt of a written notice by the Company alleging such breach), the
agreements, covenants and obligations of the Company pursuant hereto
shall terminate and be of no further force or effect, without
prejudice to any other right the Company may have hereunder to
performance of the agreements and obligations assumed by Gunderson
hereunder. Notwithstanding the foregoing, the 20 day cure period
described in the immediately preceding sentence will not apply if the
Company's Board of Directors determines Gunderson breached Sections 4
and/or 9 of this Agreement.
6. Revocation of this Agreement. Gunderson further acknowledges and
agrees that he has the right to discuss all aspects of this Agreement
with a private attorney, and that he has done so to the extent he
desires. Gunderson acknowledges and understands that he has
twenty-one (21) days to sign this Agreement after receipt of it in
order to fully consider all of its terms. Gunderson further
acknowledges and understands that this Agreement may be revoked by
him in writing within seven (7) days from the date he signs it, and
that this Agreement shall not become effective or enforceable until
the seven-day revocation period has expired.
7. Taxes. Gunderson further acknowledges and agrees that he shall be
solely responsible for the payment of all his federal, state and
local taxes, interest and penalties, if any, which are or may become
due on the amount paid to him under this Agreement, and agrees to
defend, indemnify and hold the Company harmless from any tax claims
on that amount.
8. Return of Property. Gunderson further agrees to return to James
Helm, simultaneously with the execution of this Agreement, all
documents, records, notebooks, mailing lists, business proposals,
contracts, agreements and other repositories containing information
concerning the Company or its business, and any keys or security
codes Gunderson possesses, whether copies or originals (including but
not limited to all correspondence, client and/or customer lists,
minutes or agenda(s) for any meeting, hand-written notes, journals,
computer printouts or programs, office memoranda, or other tangible
items or materials).
9. Confidentiality. Gunderson further agrees to keep the terms of this
Agreement wholly and completely confidential. Further, Gunderson
agrees not to disclose the amount, terms, substance, or contents of
this Agreement to any person or persons, excluding only his spouse,
his attorneys, his tax advisors and any government agency to which he
is required by law to reveal the terms of this Agreement.
Notwithstanding the foregoing, nothing herein shall prohibit
Gunderson from truthfully testifying in a hearing, deposition or
other legal proceeding in which Gunderson could be criminally or
civilly sanctioned for the failure to respond truthfully.
10. Full and Final Settlement. This Agreement is contractual, not a mere
recital, and is a full and final settlement of any and all claims
Gunderson may have against the Company and its Affiliates on any
basis whatsoever relating to his employment by the Company and/or
7
<PAGE> 8
resignation from the Company, and shall be binding on Gunderson and
his heirs, personal representative(s), estate and assigns.
11. Entire Agreement. This Agreement constitutes the entire
understanding Gunderson has with the Company with regard to the
matters addressed herein and supersedes any previous agreements,
whether oral or written, between the Company and Gunderson relating
to the subject matter hereof (other than the International Golf
Purchase Agreement). No other promises or agreements regarding the
matters addressed herein shall be binding unless they are in writing
and signed by Gunderson and the Company. Any such written
modification, or any written consent given by the Company for any act
of Gunderson, must be signed by the President or Chief Executive
Officer of the Company.
12. No Admission of Liability. This Agreement does not constitute an
admission of liability of any kind by the Company.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED BY, GOVERNED BY,
AND ENFORCED UNDER THE SUBSTANTIVE LAWS (AND NOT THE CHOICE OF LAW
PROVISIONS) OF THE STATE OF TEXAS, EXCEPT WHERE PREEMPTED BY FEDERAL
LAW.
14. Equitable Relief. Gunderson acknowledges that his expertise in the
Company's Business is of a special, unique, unusual, extraordinary
and intellectual character, which gives said expertise a peculiar
value, and that a breach by him of any of the provisions of Sections
4, 7, 8, 9 or 10 of this Agreement cannot reasonably or adequately be
compensated in damages in an action at law, and a breach by him of
any of such provisions will cause the Company irreparable injury and
damage. Gunderson further acknowledges that he possesses unique
skills, knowledge and ability and that disclosure, competition,
solicitation or disparagement by him in violation of this Agreement
or any other breach of the provisions of this Agreement would be
extremely detrimental to the Company. By reason thereof, Gunderson
agrees that the Company shall be entitled, in addition to any other
remedies it may have under this Agreement or otherwise, to
preliminary and permanent injunctive and other equitable relief to
prevent or curtail any breach of this Agreement by him; provided,
however, that no specification in this Agreement of a specific legal
or equitable remedy shall be construed as a waiver or prohibition
against the Company pursuing any other legal or equitable remedies in
the event of such a breach.
15. Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have
been duly given on the date of service if served personally on the
party to whom notice is to be given, or on the third day after
mailing if mailed to the party to whom notice is to be given properly
addressed, certified mail, return receipt requested, postage prepaid,
as follows:
8
<PAGE> 9
If to the Company:
Sport Supply Group, Inc.
1901 Diplomat
Farmers Branch, TX 75234
Attention: President
with a copy to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attention: Alan J. Bogdanow
If to Gunderson:
Jerry L. Gunderson
940 Southeast 4th Court
Deerfield Beach, Florida 33441
with a copy to:
Michael V. Mitrione
Gunster, Yoakley & Stewart
777 S. Flagler Drive
Suite 500 East
W. Palm Beach, Florida 33401
16. Counterparts. This Agreement may be executed in multiple original
counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute but one and the same Agreement.
17. No Continuing Waiver. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a
continuing waiver. Any waiver must be in writing and signed by the
party entitled to performance.
18. Attorneys' Fees. If any civil action, whether at law or in equity,
is necessary to enforce or interpret any of the terms of this
Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, court costs and other reasonable expenses of
litigation, in addition to any other relief to which such party may
be entitled.
19. Jurisdiction. The parties hereto hereby irrevocably submit to the
nonexclusive jurisdiction of the state and federal courts of the
State of Texas and agree and consent that service of process may be
made upon each party in any proceeding arising out of this
9
<PAGE> 10
Agreement by service of process as provided by Texas law. All
parties hereto hereby irrevocably waive, to the fullest extent
permitted by law, any objection which it may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of
or relating to this Agreement brought in the District Court of Dallas
County, State of Texas, or in the United States District Court for
the Northern District of Texas, and hereby further irrevocably waive
any claims that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum. The
parties hereto further agree to designate an agent for service of
process in the City of Dallas in connection with any such suit,
action or proceeding if requested by the other party in contemplation
of such a suit, action or proceeding and deliver to the other party
evidence thereof. The parties hereto hereby irrevocably agree that
any proceeding against any party arising out of or in connection with
this Agreement shall be brought in the district courts of Dallas
County, Texas, or in the United States District Court for the
Northern District of Texas.
20. Severability. The parties hereto expressly agree that it is not the
intention of any of them to violate any public policy, statutory or
common law rules, regulations, or decisions of any governmental or
regulatory body. If any provision of this Agreement is judicially or
administratively interpreted or construed as being in violation of
any public policy, statutory or common law rules, regulations, or
decisions of any governmental or regulatory body, such sections,
sentences, words, clauses, or combinations thereof shall be modified
to the extent necessary to make it enforceable and this Agreement
shall remain binding upon the parties hereto.
21. Descriptive Headings. The subject headings of the sections of this
Agreement are included for purposes of convenience only, and shall
not affect the construction or interpretation of any of its
provisions.
22. Survival of Rights. Subject to the terms of this Agreement, the
rights of Gunderson to receive the cash payments contemplated by
Section 3.a. of this Agreement and amounts earned under Section 2.b.
of the Agreement, if any, shall inure to the benefit of and be
enforceable by Gunderson's heirs and estate upon Gunderson's death.
The obligations of the Company in Section 3.b. shall expire
immediately upon Gunderson's death.
23. Affiliate. When used in this Agreement, the term "Affiliate" shall
mean (1) any corporation or organization of which such person is an
officer, director or partner or is directly or indirectly the
beneficial owner of 10% or more of any class of equity securities or
financial interest therein; or (2) any person that directly or
indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified.
For purposes of this Agreement, Gunderson's spouse shall be deemed to
be an Affiliate of Gunderson. Any person who is an Affiliate of any
party hereto on the date hereof shall be deemed to be the Affiliate
of such party for purposes of this Agreement, regardless of whether
such person ceases to be an Affiliate of such party after the date
hereof. Any person who at any time after the date hereof becomes an
Affiliate of any party hereto shall be deemed to be the Affiliate of
such party for purposes of this Agreement, regardless of whether such
person was an Affiliate on the date hereof.
10
<PAGE> 11
[THIS SPACE INTENTIONALLY LEFT BLANK]
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
September 16, 1994.
----------------------------------
Jerry L. Gunderson
SPORT SUPPLY GROUP, INC.
By:
------------------------------
Peter S. Blumenfeld, President
12
<PAGE> 1
EXHIBIT 10.20.5
AMENDMENT NUMBER 5 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 January 27, 1997
<PAGE> 2
AMENDMENT NUMBER 5 TO
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER 5 TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("Amendment") is made as of January 27, 1997, 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, (iii) the Amendment
Number 2 to Amended and Restated Loan and Security Agreement dated March 12,
1996, (iv) the Amendment Number 3 to Amended and Restated Loan and Security
Agreement dated September 19, 1996, and (v) the Amendment Number 4 to Amended
and Restated Loan and Security Agreement dated November 27, 1996 (collectively,
"Agreement"), the Borrower is indebted to LaSalle in connection with: (a)
revolving loans in the maximum aggregate principal amount outstanding at any
one time of Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000.00)
(collectively, "Revolving Loans"); and (b) a term loan in the original
principal amount of Two Million Five Hundred Thousand Dollars ($2,500,00.00)
("Term Loan"). 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 has requested that LaSalle extend the maturity date of the
Loans. LaSalle has agreed to the Borrower's request, but only in accordance
with the terms set forth in this Amendment.
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. Recitals. The Recitals set forth above are hereby incorporated
into this Amendment by reference, and the Borrower and the Guarantor
acknowledge that the Recitals are accurate in all respects.
<PAGE> 3
2. Amendment. Section 3.1(a) of the Agreement is amended by
replacing the reference therein to the expiration date of "October 31, 1997"
with "November 14, 1997."
3. 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.
4. 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. Except for violations which may result from changes
incurred by Borrower on or about December 10, 1996 in connection with severance
payments payable to Michael Blumenfeld and payments for puts on options held by
Terrence Babilla, as of the date of this Amendment, the Borrower is not in
default under the Agreement or any of the other Loan Documents, and Borrower is
in full compliance with all of the terms and conditions thereof;
b. Except for violations which may result from changes
incurred by Borrower on or about December 10, 1996 in connection with severance
payments payable to Michael Blumenfeld and payments for puts on options held by
Terrence Babilla, as of the date of this Amendment, no event exists which is,
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.
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.
2
<PAGE> 4
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.
WITNESS/ATTEST: BORROWER:
SPORT SUPPLY GROUP, INC.,
A Delaware Corporation
By: (SEAL)
- ----------------------------- -----------------------------
Name:
------------------------
Title:
-----------------------
GUARANTOR:
SPORT SUPPLY GROUP INTERNATIONAL
HOLDINGS, INC.,
A Delaware Corporation
By: (SEAL)
- ----------------------------- -----------------------------
Name:
------------------------
Title:
-----------------------
LASALLE:
LASALLE BUSINESS CREDIT, INC.,
A Delaware Corporation
By: (SEAL)
- ----------------------------- -----------------------------
Herbert M. Kidd, II,
First Vice President
3
<PAGE> 5
ACKNOWLEDGEMENTS
STATE OF _______________, CITY/COUNTY OF _________________, TO WIT:
I HEREBY CERTIFY that on this _____ day of January, 1997, before me, the
undersigned Notary Public of the jurisdiction aforesaid, personally appeared
___________________________, and acknowledged himself to be the
____________________ 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:
- ----------------------------
STATE OF _______________, CITY/COUNTY OF _________________, TO WIT:
I HEREBY CERTIFY that on this _____ day of January, 1997, before me, the
undersigned Notary Public of the jurisdiction aforesaid, personally appeared
____________________________, and acknowledged himself to be the
___________________ 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:
- ----------------------------
4
<PAGE> 6
STATE OF MARYLAND, CITY/COUNTY OF ______________________, TO WIT:
I HEREBY CERTIFY, that on this ____ day of January, 1997, 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:
- ----------------------------
5
<PAGE> 1
EXHIBIT 10.23.1
FIRST AMENDMENT TO STANDARD INDUSTRIAL LEASE
THIS FIRST AMENDMENT, dated September 12, 1996, amends the Lease
between Injans Investments, "LESSOR," and Sport Supply Group, Inc., "LESSEE,"
as follows:
W I T N E S S E T H
WHEREAS, on the 2nd day of December, 1991, the parties hereto entered
into a Lease for a term of five (5) years commencing January 1, 1992 and
terminating December 31, 1996 (the "Lease");
The Premises covered by said Lease being as
follows:
That certain 46,080 square foot building known as
12640 Moore Street, Cerritos, California.
WHEREAS, the parties desire to continue the said Lease on the terms
hereinafter stated.
NOW, THEREFORE, in consideration of the mutual covenants herein and
in the said Lease contained, it is hereby mutually agreed that:
1. The term of said Lease shall be extended for sixty (60) months
commencing January 1, 1997, and expiring December 31, 2001.
2. The rent shall be $16,358.00 per month, industrial gross ($.355 per
square foot, per month).
3. Lessor grants to Lessee the right to early cancellation of the Lease
under the following conditions:
A. Lessee shall give Lessor written notice of its intent to
cancel, not less than sixty (60) days prior to the Lease
cancellation date.
B. Lessee shall pay to Lessor a cancellation fee as follows in
lieu of any other remedy for Lessee terminating the Lease
early:
1. If the Lease is terminated in 1997 (first year),
the cancellation fee is $196,296.00, equivalent to
twelve (12) months rent.
2. If the Lease is terminated in 1998 (second year),
the cancellation fee is $163,580.00, equivalent to
ten (10) months rent.
3. If the Lease is terminated in 1999 (third year),
the cancellation fee is $98,148.00, equivalent to
six (6) months rent.
4. If the Lease is terminated in 2000 (fourth year),
the cancellation fee is $98,148.00, equivalent to
six (6) months rent.
5. If the Lease is terminated in 2001 (fifth year),
the cancellation fee is $98,148.00, equivalent to
six (6) months rent.
4. Each party agrees that the Lease, as amended to date, is in full force
and effect and that such party is not aware of any defaults that
exist on the part of the other party with respect to the Lease. As
<PAGE> 2
amended hereby, the Lease, as amended to date, remains in full force and
effect. Each party represents and warrants that it is authorized to execute
this Amendment. In the event of any conflict or inconsistency between the
Lease, as amended to date (or any rule or regulation of the building now in
effect or in effect at any time in the future), on the one hand and this
Amendment, on the other hand, the terms of this Amendment shall, in all events,
prevail.
IN WITNESS WHEREOF, the parties hereto have executed these presents
the day and year first above written.
LESSOR: LESSEE:
INJANS INVESTMENTS SPORT SUPPLY GROUP, INC.
By: /s/ J.O. Oltmans, II By: /s/ Michael J. Blumenfeld
------------------------ ----------------------------
J.O. Oltmans, II Michael J. Blumenfeld
Managing General Partner CEO/Chairman of the Board
Date: September 13, 1996 Date: September 18, 1996
--------------------- -------------------------
2
<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>
Twelve Months Ended November 1, 1996
------------------------------------
Full
Adjusted Net Earnings Primary Dilution (1)
------------ ------------
<S> <C> <C>
Net loss $(18,736,497) $(18,736,497)
Add : reduction in interest
expense, net of
income taxes -- --
------------ ------------
Adjusted net loss $(18,736,497) $(18,736,497)
============ ============
Adjusted Number of Common Shares
Weighted Average Common Shares
Outstanding 6,746,316 6,746,316
Incremental shares for assumed
exercise of outstanding
stock options and warrants 22,172 22,179
------------ ------------
Adjusted number of common shares 6,768,488 6,768,495
============ ============
Net loss per common share $ (2.77) $ (2.77)
============ ============
</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%.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K into the Company's
previously filed Registration Statements on Form S-8 File Nos. 33-42056,
33-48514, 33-64470 and 33-80028 and Registration Statement on Form S-3 File No.
33-71574.
ARTHUR ANDERSEN LLP
Dallas, Texas
January 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-01-1996
<PERIOD-END> NOV-01-1996
<CASH> 435,213
<SECURITIES> 0
<RECEIVABLES> 12,388,173
<ALLOWANCES> 552,000
<INVENTORY> 15,320,505
<CURRENT-ASSETS> 37,830,948
<PP&E> 12,856,922
<DEPRECIATION> (6,779,589)
<TOTAL-ASSETS> 72,528,427
<CURRENT-LIABILITIES> 19,197,054
<BONDS> 0
0
0
<COMMON> 75,519
<OTHER-SE> 29,087,450
<TOTAL-LIABILITY-AND-EQUITY> 75,528,427
<SALES> 80,520,837
<TOTAL-REVENUES> 80,520,837
<CGS> 50,566,008
<TOTAL-COSTS> 30,019,994
<OTHER-EXPENSES> 37,962
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,371,990
<INCOME-PRETAX> (1,399,193)
<INCOME-TAX> (435,536)
<INCOME-CONTINUING> (963,657)
<DISCONTINUED> (17,772,840)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,736,497)
<EPS-PRIMARY> (2.77)
<EPS-DILUTED> (2.77)
</TABLE>
