<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE FINISH LINE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 35-1537210
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
3308 N. MITTHOEFFER ROAD
INDIANAPOLIS, INDIANA 46236
(317) 899-1022
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
MR. ALAN H. COHEN
PRESIDENT
THE FINISH LINE, INC.
3308 N. MITTHOEFFER ROAD
INDIANAPOLIS, INDIANA 46236
(317) 899-1022
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JONATHAN K. LAYNE, ESQ. H. KURT VON MOLTKE, ESQ.
GIBSON, DUNN & CRUTCHER LLP KIRKLAND & ELLIS
333 SOUTH GRAND AVENUE 200 EAST RANDOLPH DRIVE
LOS ANGELES, CA 90071 CHICAGO, IL 60601
(213) 229-7000 (312) 861-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement from the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
Class A Common Stock, par value $.01 per share.. $75,123,750 $25,905
</TABLE>
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(1) Estimated solely for the purpose of determining the registration fee.
(2) Calculated pursuant to Rule 457(c) based upon the average of the high and
low prices of the Class A Common Stock on the Nasdaq National Market on
May 14, 1996.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES. IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 17, 1996
PROSPECTUS
2,600,000 SHARES
[THE FINISH LINE, INC. LOGO]
CLASS A COMMON STOCK
--------
Of the 2,600,000 shares of Class A Common Stock offered hereby, 1,300,000
shares are being sold by The Finish Line, Inc. (the "Company") and 1,300,000
shares are being sold by certain stockholders. See "Selling Stockholders". The
Company will not receive any proceeds from the sale of shares by the Selling
Stockholders.
The Company's Class A Common Stock is traded on the Nasdaq National Market
under the symbol "FINL." The reported last sale price of the Company's Class A
Common Stock on the Nasdaq National Market on May 16, 1996 was $24.63 per
share. See "Price Range of Class A Common Stock."
The Company has two classes of authorized Common Stock: Class A Common Stock,
which is offered hereby, and Class B Common Stock. Holders of Class A Common
Stock are entitled to one vote per share and holders of Class B Common Stock
are entitled to ten votes per share. See "Description of Capital Stock-- Common
Stock."
SEE "RISK FACTORS" ON PAGES 6 TO 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
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<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
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Total(3)......................... $ $ $ $
</TABLE>
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(1) For information concerning indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $ , of which $
is payable by the Company and $ is payable by the Selling Stockholders.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to 390,000 additional shares of Class A Common Stock solely to
cover over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Selling Stockholders will be $ , $
and $ , respectively.
--------
The shares of Class A Common Stock are being offered by the several
Underwriters named herein, subject to prior sales, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for
the shares of Class A Common Stock offered hereby will be available for
delivery on or about , 1996 at the offices of Smith Barney Inc., 333
West 34th Street, New York, New York 10001.
--------
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
OPPENHEIMER & CO., INC.
, 1996
<PAGE>
[LOGO APPEARS HERE]
TO CREATE AND OPERATE A SUPERIOR ATHLETIC SPECIALTY RETAIL ENTITY--BY
COMBINING CONCEPTUAL INNOVATION WHICH INCLUDES AN ENTERTAINING AND EXCITING
RETAIL ENVIRONMENT, THE MOST CURRENT INFORMATION TECHNOLOGIES AND SYSTEMS,
CAPABLE AND FOCUSED MANAGEMENT, AND A DEDICATED AND MOTIVATED WORK FORCE
EMPOWERED WITH THE PROPER RESOURCES--IN ORDER TO PROVIDE CUSTOMERS A
BENEFICIAL AND UNIQUE SHOPPING EXPERIENCE.
- Corporate Mission Statement
2/96
[PICTURES]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET
IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES AND EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the information
appearing elsewhere in this Prospectus and the documents and Financial
Statements and Notes thereto and other financial information included elsewhere
or incorporated by reference herein. Except as otherwise indicated, all
information contained in this Prospectus assumes that the Underwriters' over-
allotment option is not exercised. The Company's fiscal year ends on the last
day of February. As used in this Prospectus, "fiscal 1992," "fiscal 1993,"
"fiscal 1994," "fiscal 1995" and "fiscal 1996" refer to the Company's fiscal
years ended February 29, 1992, February 28, 1993, February 28, 1994, February
28, 1995 and February 29, 1996, respectively. "Fiscal 1997" and "fiscal 1998"
refer to the Company's fiscal years ending February 28, 1997 and February 28,
1998, respectively.
THE COMPANY
The Finish Line, Inc. (the "Company" or "Finish Line") is one of the largest
specialty retailers of brand name athletic, outdoor and lifestyle footwear,
activewear and accessories in the United States. As of May 1, 1996, the Company
operated 229 stores in 25 states, primarily in enclosed malls. A Finish Line
store generally carries the largest selection of men's, women's and children's
athletic and casual shoes in the mall in which it is located, as well as a
broad assortment of activewear and accessories all at competitive prices. Brand
names offered by the Company include Nike, Fila, adidas, Reebok, Starter,
Champion, Asics, Airwalk, Logo Athletic, Timberland and Converse.
The Company distinguishes itself from other athletic footwear specialty
retailers through its relatively large, mall-based store format. Finish Line's
stores average approximately 4,000 square feet, and its stores opened during
the most recent fiscal year average approximately 4,800 square feet. The
Company strives to create an exciting and entertaining retail environment by
continually updating its unique and highly functional store designs, while its
larger store size permits greater product depth and merchandising flexibility.
Since activewear and accessories represent higher gross margin opportunities,
Finish Line devotes a greater percentage of its sales area to such products
than typical athletic footwear specialty stores. Activewear and accessories
accounted for approximately 33% of the Company's sales in fiscal 1996.
OPERATING STRATEGIES
. EMPHASIS ON CUSTOMER SERVICE AND CONVENIENCE. The Company is committed to
making shopping for athletic footwear and activewear an enjoyable experience
for its customers by providing convenient mall-based store locations with
highly functional store designs, offering competitive prices on brand name
products, maintaining optimal in-stock levels of merchandise and employing
knowledgeable and courteous sales associates.
. INVENTORY MANAGEMENT. The Company's advanced information and distribution
systems enable it to track inventory in each store by SKU on a daily basis,
giving the Company flexibility to merchandise its products effectively. In
addition, these systems allow the Company to respond promptly to changing
customer preferences and to maintain optimal inventory levels. The Company's
inventory management system features automatic replenishment driven by point-
of-sale data capture and a highly automated distribution center, which
enables the Company to ship merchandise to each store every third day.
. PRODUCT DIVERSITY; BROAD DEMOGRAPHIC APPEAL. The Company stocks its stores
with a combination of the newest high profile and brand name merchandise,
unique products manufactured exclusively for the Company, as well as
promotional and opportunistic purchases of other brand-name merchandise.
Product diversity, in combination with the Company's store formats and
commitment to customer service, is intended to attract a broad demographic
cross-section of customers.
EXPANSION STRATEGIES
. NEW STORE OPENINGS. Since its initial public offering in June 1992, Finish
Line has expanded rapidly from 104 stores to 229 stores on May 1, 1996. The
Company expects to open 30 to 35 new stores in fiscal 1997 and 35 to 45 new
stores in fiscal 1998, which will represent increases of approximately 15% in
each year. As a result of the Company's strategy of opening larger stores,
including selected "large format" stores, the Company expects its total
square footage to increase at an annual rate of approximately 23% and 25% in
fiscal 1997 and fiscal 1998, respectively.
3
<PAGE>
. LARGER STORES. Over the past four years, the Company has adopted a strategy
of opening larger stores. This strategy allows for greater product depth and
merchandising flexibility, which the Company believes improves its ability to
compete against both mall-based and non-mall-based athletic retailers, and
will result in Finish Line's average square footage per store increasing at a
faster rate than its store count. The traditional stores which the Company
currently has firm commitments to open in fiscal 1997 average approximately
5,200 square feet. In addition, the Company opened a 20,000 square foot store
in the Circle Centre Mall in Indianapolis in fiscal 1996. This large format
store is an upscale athletic specialty store designed and merchandised into
seven distinct departments to satisfy the needs of the entire family. The
initial performance of this store has been encouraging, and two additional
large format stores are planned to open in fiscal 1997 in Buffalo and Denver.
Subject to the results of these stores, the Company anticipates opening three
to five additional large format stores in fiscal 1998.
. COMMITMENT TO CONTINUALLY STRENGTHEN INFRASTRUCTURE. Over the past eighteen
months, Finish Line has made a number of strategic infrastructure
investments, including enhancements to its management, store formats, and
distribution and information systems. Significant management additions and
organizational changes include recruiting additional senior management
professionals with significant industry experience and centralizing
supervision of the Company's footwear and activewear/accessories departments
to improve communication and coordination between the departments. In
addition, staffs in both departments were increased to allow each buyer or
merchandiser to focus more time and attention on their respective product
categories. The Company has also invested in its management information
systems and distribution center by implementing EDI and radio frequency
technology and plans to commence building a 128,000 square foot addition to
the distribution center in fiscal 1997. Management believes these
infrastructure investments will improve the efficiency of the Company's
inventory management and increase its in-stock position thereby facilitating
its continued growth.
The Company believes that its operating and expansion strategies have
contributed to its record of increasing net sales in each year since its
founding. Over the past five years, net sales have increased at a 25% compound
annual growth rate, and in fiscal 1996, net sales increased to $240.2 million,
a 25% improvement over the prior year period. The increase in fiscal 1996
included a 3.4% comparable store net sales gain resulting in an increase in net
sales per square foot to $308. This comparable store net sales growth, together
with improved expense controls and the leveraging of net sales increases over
its established infrastructure, have resulted in increased profits in recent
years. Net income increased to $9.7 million in fiscal 1996, a 15% improvement
over the prior year period.
The Company was incorporated in Delaware in 1992. The Company's principal
offices are located at 3308 N. Mitthoeffer Road, Indianapolis, Indiana 46236,
and its telephone number is (317) 899-1022.
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock
Offered by:
Company................ 1,300,000 shares
Selling Stockholders... 1,300,000 shares
Shares of Common Stock
Outstanding
after the Offering:(1)
Class A Common Stock... 6,692,762 shares
Class B Common Stock... 4,934,537 shares
----------
Total Class A and
Class B............. 11,627,299 shares
==========
Voting Rights............ One vote per share of Class A Common Stock and ten
votes per share of Class B Common Stock
Use of Proceeds.......... To repay bank indebtedness and for general corporate
purposes, including new store expansion.
Nasdaq National Market
Symbol.................. FINL
</TABLE>
- --------
(1) As of May 1, 1996. Excludes up to 572,251 shares of Class A Common Stock
which are subject to stock options under the Company's 1992 Employee Stock
Incentive Plan and Non-Employee Director Stock Option Plan.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND STORE OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1992(1) 1993(1) 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $98,420 $129,547 $157,011 $191,623 $240,155
Cost of sales
(including occupancy
expenses)............. 65,246 85,724 107,491 132,726 168,912
------- -------- -------- -------- --------
Gross profit........... 33,174 43,823 49,520 58,897 71,243
Selling, general and
administrative
expenses.............. 22,245 28,457 36,678 44,548 54,254
------- -------- -------- -------- --------
Operating income....... 10,929 15,366 12,842 14,349 16,989
Interest expense....... 821 467 184 317 892
------- -------- -------- -------- --------
Income before income
taxes................. 10,108 14,899 12,658 14,032 16,097
Provision for income
taxes................. 4,043 5,960 5,063 5,618 6,439
------- -------- -------- -------- --------
Net income............. $ 6,065 $ 8,939 $ 7,595 $ 8,414 $ 9,658
======= ======== ======== ======== ========
Net income per share .. $ .69 $ .95 $ .74 $ .82 $ .94
======= ======== ======== ======== ========
Weighted average
shares(2)............. 8,827 9,448 10,315 10,315 10,315
======= ======== ======== ======== ========
SELECTED STORE OPERATING
DATA:
Number of stores:
Opened during period.. 20 27 35 30 35
Closed during period.. 4 1 1 4 5
Open at end of period. 104 130 164 190 220
Total square feet(3)... 340,362 435,784 565,588 691,831 870,340
Average square feet per
store(3).............. 3,273 3,352 3,449 3,641 3,956
Net sales per square
foot for stores open
entire period......... $ 307 $ 324 $ 316 $ 300 $ 308
Increase (decrease) in
comparable store net
sales(4)(5)........... 5.2% 8.3% (2.3)% 1.7% 3.4%
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 29, 1996
--------------------
AS
ACTUAL ADJUSTED(6)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 32,453 $ 62,395
Total assets.............................................. 114,972 135,414
Total debt................................................ 9,500 --
Stockholders' equity...................................... 63,148 93,090
</TABLE>
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(1) Financial information presented for fiscal 1992 and fiscal 1993 includes
pro forma adjustments as reflected in notes 1 through 3 to "Selected
Financial Data."
(2) Consists of weighted average shares outstanding for the period.
(3) Computed as of the end of each fiscal period. Calculation for fiscal 1996
includes the Circle Centre Mall store which is 20,191 square feet in size.
Without inclusion of this store, which is significantly larger than any
other store, average square feet per store would be 3,882.
(4) Calculated using only those stores that were open for the full current
fiscal period and were also open for the full prior fiscal period.
(5) The increase in comparable store net sales is based on the actual number of
days (generally 365 days) in each year. 1996 and 1992 were leap years with
366 days. If 365 days of sales were used for fiscal 1996, the increase in
comparable store net sales would have been 3.1%. If 365 days of sales were
used for fiscal 1992, the increase in comparable store net sales would have
been 8.9% and 4.6% for fiscal 1993 and 1992, respectively.
(6) Adjusted to give effect to this offering and the application of the net
proceeds therefrom. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
This Prospectus, including the documents incorporated by reference herein,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended ("Securities Act"). Also, documents
subsequently filed by the Company with the Securities and Exchange Commission
and incorporated herein by reference will contain forward-looking statements.
Actual results could differ materially from those projected in the forward-
looking statements as a result of the risk factors set forth below and the
matters set forth or incorporated in the Prospectus generally. The Company
cautions the reader, however, that this list of factors may not be exhaustive,
particularly with respect to future filings. In analyzing an investment in the
securities offered hereby, prospective investors should carefully consider,
along with the other matters referred to herein, the risk factors described
below.
DEPENDENCE ON MAJOR SUPPLIERS; PRODUCT AVAILABILITY
The Company purchased approximately 70% and 80% of its merchandise in fiscal
1995 and fiscal 1996, respectively, from its five largest suppliers including
approximately 40% and 50% from Nike in such years. The Company expects Nike to
account for a larger percentage of its purchases in fiscal 1997 compared to
fiscal 1996. The Company's inability to obtain merchandise in a timely manner
from major suppliers (particularly Nike) could have a material adverse effect
upon the Company's operations and financial condition.
Certain merchandise that is high profile and in high demand is limited by
the suppliers based upon the suppliers' internal criteria. Although the
Company has been able to purchase sufficient quantities of this merchandise in
the past, there can be no assurance that the Company will continue to be
allocated sufficient amounts of such merchandise in the future. In addition,
because the Company's suppliers have a substantial amount of their product
manufactured in foreign countries, the Company's ability to obtain sufficient
quantities of merchandise on favorable terms may be affected by fluctuations
in currency exchange rates and by governmental regulations and economic, labor
and other conditions in the countries from which the Company's suppliers
obtain their product. The People's Republic of China is a significant ultimate
source of the Company's footwear and apparel merchandise. Revocation by the
United States of the "most favored nation," non-discriminatory trading status
of China could result in a substantial increase in tariff rates on goods
imported from China and, therefore, could adversely affect the Company's
operations. In addition, trade and other sanctions in the form of retaliatory
duties or otherwise, which have and continue to be threatened against China,
could restrict or eliminate certain imports from China and thereby adversely
affect the Company's operations.
MERCHANDISE TRENDS
The Company's success depends in part on its ability to anticipate and
respond to changing merchandise trends and consumer demands in a timely
manner. Accordingly, any failure by the Company to identify and respond to
emerging trends could adversely affect consumer acceptance of the merchandise
in the Company's stores, which in turn could adversely affect the Company's
business, financial condition and results of operations. In addition, if the
Company miscalculates either the market for the merchandise in its stores or
its customers' purchasing habits, it may be faced with a significant amount of
unsold inventory, which could have an adverse effect on the Company's
financial condition and results of operations.
FUTURE GROWTH
The Company has experienced significant growth in net sales, from $98.4
million in fiscal 1992 to $240.2 million in fiscal 1996. Such growth has been
a result of the increase in the number of Company stores and increases in
sales and net income from existing stores. The future sales growth of the
Company will continue to depend on these factors. There can be no assurance
that the Company will be able to lease favorable store sites on satisfactory
terms and conditions, to hire and retain competent personnel to construct and
open stores on a timely basis, or to operate the stores profitably, or that
sales from existing stores will increase. See "Business--Expansion
Strategies."
6
<PAGE>
EMPLOYEE COSTS
Congress is currently considering legislation which would raise the federal
minimum wage that employers must pay most employees. The Company currently
employs approximately 3,200 employees on a part-time basis and 900 employees
on a full-time basis. Management believes that if legislation was passed that
substantially raised the minimum wage, the Company would have to raise the
wages for a substantial number of its employees, thereby having an adverse
effect on the Company's results of operations if such increased costs could
not be offset by a reduction in other costs or be passed on to consumers
through retail price increases.
RETAIL INDUSTRY; SEASONALITY
The Company's sales could be adversely affected by a weak retail
environment. Footwear and activewear retailers are subject to general economic
conditions and purchases of footwear and activewear may decline during
recessionary periods. In addition, the Company's business tends to be seasonal
with a large percentage of annual sales occurring during the "back-to-school"
and year-end holiday periods and is also affected by adverse weather
conditions. An economic downturn during these periods could adversely affect
the Company to a greater extent than if such downturn occurred at other times
of the year. The Company's ability to achieve a high level of sales is
dependent in part on a high volume of mall traffic. Mall traffic may also be
adversely affected by economic downturns and by poor performance by or the
closing of "anchor" department stores.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on the efforts
and abilities of its executive officers. The loss of the services of certain
of these individuals could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company believes
that its future success also will depend significantly upon its ability to
attract, motivate and retain additional highly skilled managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting, assimilating and retaining the
personnel it requires to grow and operate profitably. The Company does not
have employment or non-compete agreements with its executive officers. See
"Management--Executive Officers and Directors."
COMPETITION
The retail footwear, activewear and accessories business is highly
competitive. Many of the stores with which the Company competes are units of
large national or regional chains that have substantially greater financial
and other resources than the Company. Among these stores are large athletic
"superstores," some of which are owned by major suppliers of the Company. In
many cases, the Company's stores are located in shopping centers or malls in
which one or more of its competitors also has a store. Many of the items sold
by the Company are sold by department stores, national and regional full line
sporting goods stores, athletic footwear specialty stores, athletic footwear
superstores, discount stores, traditional superstores and mass merchandisers.
A significant change in price, level of promotion or other strategies by the
Company's competitors could have a material adverse effect on the Company's
results of operations. See "Business--Competition."
CONTROL OF COMPANY
The Selling Stockholders (all of whom are officers and directors of the
Company) and their family members own substantially all of the outstanding
Class B Common Stock. As a result, upon the consummation of this offering the
Selling Stockholders and their family members will still have approximately
88% of the aggregate voting power of the Company, which will allow them to
control all actions to be taken by the stockholders, including the election of
all directors to the Board of Directors. See "Selling Stockholders" and
"Description of Capital Stock." This may have the effect of discouraging
offers to acquire the Company.
VOLATILITY OF STOCK PRICE
The trading price of the Class A Common Stock could be subject to wide
fluctuations in response to variations in the Company's quarterly operating
results, changes in earnings estimates by analysts, conditions in the
Company's business or general market or economic conditions. In addition, in
recent years the stock market has experienced extreme price and volume
fluctuations. Such market fluctuations could have a material adverse effect on
the market price for the Common Stock.
7
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,300,000 shares of Class A Common Stock offered by it, after deducting the
underwriting discount and offering expenses payable by the Company, are
estimated to be $29,941,875, based on the last reported sale price of the
Class A Common Stock on May 16, 1996. The Company intends to use the net
proceeds of this offering to repay all existing outstanding indebtedness under
its unsecured committed Loan Agreement (the "Facility Agreement") with a
commercial bank, and for general corporate purposes, including new store
expansion. The Company's outstanding indebtedness under the Facility Agreement
as of May 15, 1996 was $19.4 million. The Company will be permitted to
reborrow such amounts under the Facility Agreement, which expires on September
1, 1997. The effective borrowing rate at May 15, 1996 on the Facility was
approximately 6.2%. The Company will not receive any proceeds from the sale of
shares by the Selling Stockholders.
PRICE RANGE OF CLASS A COMMON STOCK
The Class A Common Stock has been traded on Nasdaq National Market
("Nasdaq") since the Company's initial public offering in June 1992. The
following table sets forth for the periods indicated the range of high and low
sale prices of the Class A Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
Fiscal Year Ended February 28, 1995
First Quarter............................................. $ 8.75 $5.75
Second Quarter............................................ 10.50 5.88
Third Quarter............................................. 11.00 6.75
Fourth Quarter............................................ 8.00 6.38
Fiscal Year Ended February 29, 1996
First Quarter............................................. $ 9.25 $5.75
Second Quarter............................................ 12.75 7.88
Third Quarter............................................. 9.63 8.00
Fourth Quarter............................................ 9.25 6.50
Fiscal Year Ending February 28, 1997
First Quarter (through May 16, 1996)...................... $25.88 $8.75
</TABLE>
On May 16, 1996, the reported last sale price of the Class A Common Stock,
as reported by Nasdaq, was $24.63 per share. As of May 16, 1996, the
approximate number of holders of record of Class A Common Stock was 274. The
Company believes that the number of beneficial holders of its Class A Common
Stock was in excess of 500 as of that date.
DIVIDEND POLICY
Since the Company's initial public offering in June 1992, the Company has
not declared any dividends and does not anticipate paying cash dividends on
its Common Stock in the foreseeable future. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and
will depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company and general
business conditions. In addition, the Facility Agreement contains a provision
limiting the Company's ability to pay dividends.
8
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at February 29, 1996, and as adjusted to give effect to the sale of
the 1,300,000 shares of Class A Common Stock offered by the Company hereby
(assuming a per share offering price $24.63, the reported last sale price on
May 16, 1996) and the application by the Company of the estimated net proceeds
therefrom as set forth under "Use of Proceeds." This table should be read in
conjunction with the Financial Statements and Notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
FEBRUARY 29, 1996
-------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt(1)................................... $ 9,500 $ --
=========== ===========
Long-term debt....................................... $ -- $ --
----------- -----------
Stockholders' equity:
Preferred Stock, par value $.01 per share,
1,000,000 shares authorized; none outstanding..... -- --
Common Stock, par value $.01 per share, 32,000,000
shares authorized:
Class A Common Stock 20,000,000 shares
authorized; 4,080,762 shares outstanding
(6,680,762 as adjusted)(2)...................... 41 67
Class B Common Stock, 12,000,000 shares
authorized; 6,234,537 outstanding (4,934,537 as
adjusted)....................................... 62 49
Additional paid-in capital......................... 30,374 60,303
Retained earnings.................................. 32,671 32,671
----------- -----------
Total stockholders' equity....................... 63,148 93,090
----------- -----------
Total capitalization........................... $ 63,148 $ 93,090
=========== ===========
</TABLE>
- --------
(1) Outstanding balance on the Facility Agreement was $19.4 million as of May
15, 1996. See "Use of Proceeds."
(2) Excludes up to 584,251 shares of Class A Common Stock which are subject to
stock options under the Company's 1992 Employee Stock Incentive Plan and
Non-Employee Director Stock Option Plan.
9
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STORE OPERATING DATA)
The selected financial data in the following table for the five years in the
period ended February 29, 1996 are derived from the financial statements of
the Company, which have been audited by Ernst & Young LLP, independent
auditors. The selected store operating data and the pro forma income statement
data for the periods set forth below are unaudited. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Financial Statements and Notes thereto and
other financial information included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $98,420 $129,547 $157,011 $191,623 $240,155
Cost of sales
(including occupancy
expenses)............. 65,246 85,724 107,491 132,726 168,912
------- -------- -------- -------- --------
Gross profit........... 33,174 43,823 49,520 58,897 71,243
Selling, general and
administrative
expenses(1)........... 23,642 28,667 36,678 44,548 54,254
------- -------- -------- -------- --------
Operating income....... 9,532 15,156 12,842 14,349 16,989
Interest expense....... 821 467 184 317 892
------- -------- -------- -------- --------
Income before income
taxes................. 8,711 14,689 12,658 14,032 16,097
Provision for income
taxes................. 97 2,812(2) 5,063 5,618 6,439
------- -------- -------- -------- --------
Net income............. $ 8,614 $ 11,877 $ 7,595 $ 8,414 $ 9,658
======= ======== ======== ======== ========
PRO FORMA INCOME STATE-
MENT DATA(3):
Pro forma income before
income taxes.......... $10,108 $ 14,899
Pro forma provision for
income taxes.......... 4,043 5,960
------- --------
Pro forma net income... $ 6,065 $ 8,939
======= ========
SHARE DATA:
Net income per share
(pro forma for fiscal
1992 and 1993)(3)..... $ .69 $ .95 $ .74 $ .82 $ .94
======= ======== ======== ======== ========
Weighted average
shares(4)............. 8,827 9,448 10,315 10,315 10,315
======= ======== ======== ======== ========
SELECTED STORE OPERATING
DATA:
Number of stores:
Opened during period.. 20 27 35 30 35
Closed during period.. 4 1 1 4 5
Open at end of period. 104 130 164 190 220
Total square feet(5)... 340,362 435,784 565,588 691,831 870,340
Average square feet per
store(5).............. 3,273 3,352 3,449 3,641 3,956
Net sales per square
foot for stores open
entire period......... $ 307 $ 324 $ 316 $ 300 $ 308
Increase (decrease) in
comparable store net
sales(6)(7)........... 5.2% 8.3% (2.3)% 1.7% 3.4%
BALANCE SHEET DATA:
Working capital........ $ 7,061 $ 24,066 $ 28,132 $ 30,050 $ 32,453
Total assets........... 41,102 60,688 72,884 88,535 114,972
Total debt............. 9,555 2,612 2,000 5,025 9,500
Redeemable common
stock................. 1,997 -- -- -- --
Stockholders' equity... 14,086 37,461 45,073 53,487 63,148
</TABLE>
10
<PAGE>
- --------
(1) Includes executive compensation expense for the Selling Stockholders of
$2,647, $1,454, $1,147, $1,348 and $1,159, in fiscal 1992, 1993, 1994,
1995 and 1996, respectively.
(2) Reflects the effect of the Company's treatment as a C corporation rather
than an S corporation after June 11, 1992, including a one-time deferred
tax credit of $1,108.
(3) Reflects the effect on the historical income statement data for fiscal
1992 and fiscal 1993 as if the Company (i) had paid its four Selling
Stockholders (who are also executive officers) annual executive
compensation aggregating $1,250 and (ii) had been treated as a C
corporation rather than an S corporation for income tax purposes, with an
assumed effective tax rate of 40%.
(4) Consists of weighted average shares outstanding for the period.
(5) Computed as of the end of each fiscal period. Calculation for fiscal 1996
includes the Circle Centre Mall store which is 20,191 square feet in size.
Without inclusion of this store, which is significantly larger than any
other store, average square feet per store would be 3,882.
(6) Calculated using only those stores that were open for the full current
fiscal period and were also open for the full prior fiscal period.
(7) The increase in comparable store net sales is based on the actual number
of days (generally 365 days) in each year. 1996 and 1992 were leap years
with 366 days. If 365 days of sales were used for 1996, the increase in
comparable store net sales would have been 3.1%. If 365 days of sales were
used for 1992, the increase in comparable store net sales would have been
8.9% and 4.6% for fiscal 1993 and 1992, respectively.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
information set forth under "Selected Financial Data" and the Financial
Statements and Notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
The Company's net sales grew from $98.4 million in fiscal 1992 to $240.2
million in fiscal 1996 as a result of the Company's store expansion program and
increased sales from existing stores. During that period, the number of stores
increased from 104 to 220, total square feet increased from 340,362 to 870,340
and sales per square foot ranged from $307 in fiscal 1992, to a high of $324 in
fiscal 1993 and was $308 in fiscal 1996. The Company believes the growth in
sales per square foot through fiscal 1993 was attributable to several factors
including improvements in the Company's management and control systems,
increased availability and demand for higher priced athletic footwear, and
greater emphasis on opening stores in higher traffic mall locations, which
resulted in greater sales from less square footage.
The decrease in sales per square foot in fiscal 1994 was a result of a
decrease in the average selling price of footwear, a more competitive and
promotional retail environment and a 2.9% increase in the average square feet
per store from 3,352 in fiscal 1993 to 3,449 in fiscal 1994. The decrease in
the average selling price of footwear in fiscal 1994 was in part a reflection
of an apparent trend in the fashion portion of the business toward a non-
athletic look and by a more competitive and promotional retail environment.
These factors also negatively affected the Company's gross margin in fiscal
1994. The continued decrease in sales per square foot in fiscal 1995 was a
result of the continued competitive and promotional retail environment along
with a 5.6% increase in the average square feet per store from 3,449 in fiscal
1994 to 3,641 in fiscal 1995. The increase in sales per square foot in fiscal
1996 was a result of the 3.4% increase in comparable store net sales along with
improved performance from the 30 existing stores open only part of fiscal 1995.
The Company's comparable store net sales growth was 5.2%, 8.3%, (2.3)%, 1.7%
and 3.4% in fiscal 1992, 1993, 1994, 1995, and 1996, respectively. The
comparable store net sales increase of 3.4% in fiscal 1996 consisted of an
increase of 1.0% in footwear and 8.9% in activewear/accessories. On a quarterly
basis, comparable store sales increases (decreases) for fiscal 1996 were 6.8%,
(0.6)%, 0.6% and 7.0% for the first, second, third and fourth quarters,
respectively.
The table below sets forth operating data of the Company as a percentage of
net sales for the periods indicated below.
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... 100.0% 100.0% 100.0%
Cost of sales (including occupancy
expenses)......................... 68.5 69.3 70.3
----- ----- -----
Gross profit....................... 31.5 30.7 29.7
Selling, general and administrative
expenses.......................... 23.4 23.2 22.6
----- ----- -----
Operating income................... 8.1 7.5 7.1
Interest expense................... 0.1 0.2 0.4
----- ----- -----
Income before income taxes......... 8.0 7.3 6.7
Provision for income taxes......... 3.2 2.9 2.7
----- ----- -----
Net income......................... 4.8% 4.4% 4.0%
===== ===== =====
</TABLE>
12
<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for fiscal 1996 were $240.2 million, an increase of $48.6 million
or 25.3% over fiscal 1995. Of this increase, $29.0 million was attributable to
a 15.8% increase in the number of stores open during the period from 190 at
the end of fiscal 1995 to 220 at the end of fiscal 1996 and a corresponding
25.8% increase in total square footage. The balance of the increase in net
sales was attributable to (i) an increase of $14.7 million from the 30
existing stores open only part of fiscal 1995, (ii) an increase of $7.0
million in net sales from existing stores open the entire twelve months of
fiscal 1996 and 1995 and (iii) less $2.1 million in net sales for stores
closed in fiscal 1996 but open for the entire twelve months of fiscal 1995.
During fiscal 1996, comparable store net sales increased 3.4% compared to
fiscal 1995. Comparable net footwear sales increased 1.0% for fiscal 1996 and
comparable net activewear and accessories sales increased 8.9%. Net sales per
square foot increased in fiscal 1996 to $308 from $300 in fiscal 1995. The
average selling price of footwear increased approximately 1.3% in fiscal 1996.
Gross profit, which is product margin less store occupancy costs, for fiscal
1996 was $71.2 million, an increase of $12.3 million, or 21.0%, over fiscal
1995. As a percentage of net sales, gross profit decreased to 29.7% in fiscal
1996 from 30.7% in fiscal 1995. Of the 1.0% decrease, 0.6% was due to lower
margins for products sold, 0.2% was due to an increase in the Company's
reserve for inventory shrink and the remaining 0.2% decrease was due to an
increase in occupancy costs as a percentage of net sales. The 0.6% decrease in
product margin was primarily due to a competitive and promotional retail
environment, particularly in the year-end holiday selling season.
Selling, general and administrative expenses in fiscal 1996 were $54.3
million, an increase of $9.7 million or 21.8% over fiscal 1995, and decreased
to 22.6% from 23.2% as a percentage of net sales. The dollar increase was
primarily attributable to the operating costs related to the 35 additional
stores opened during fiscal 1996. The decrease as a percentage of sales is
primarily a result of the comparable store net sales increase of 3.4% for
fiscal 1996 along with improved expense controls as well as the application of
certain administrative and other overhead costs over an increased net sales
base.
Net interest expense for fiscal 1996 was $892,000, an increase of $575,000
or 181.4%. This increase resulted from a higher average balance outstanding on
the Company's Facility Agreement due to an increase in the number of stores in
operation, the funding of new store expansion and related inventory
requirements, and an increase in the merchandise inventories on a per square
foot basis. Partially offsetting the increase in interest expense was a
decrease in the Company's average interest rate on outstanding borrowings.
Income tax expense was $6.4 million for fiscal 1996 compared to $5.6 million
for fiscal 1995. The increase in the Company's provision for federal and state
taxes in fiscal 1996 is due to the increased level of income before income
taxes as the effective tax rate was 40% for each of the comparable periods.
Net income per share increased 14.6% to $0.94 for fiscal 1996 compared to
$0.82 for fiscal 1995. Weighted average shares outstanding were 10,315,000
during both fiscal 1996 and 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for fiscal 1995 were $191.6 million, an increase of $34.6 million
or 22.0% over fiscal 1994. Of this increase, $19.8 million was attributable to
a 15.9% increase in the number of stores open during the period from 164 at
the end of fiscal 1994 to 190 at the end of fiscal 1995 and a corresponding
22.3% increase in total square footage. The balance of the increase in net
sales was attributable to (i) an increase of $14.4 million from the 33
existing stores open only part of fiscal 1994, (ii) an increase of $2.1
million in net sales from existing stores open the entire twelve months of
fiscal 1995 and 1994 and (iii) less $1.7 million in net sales for stores
closed in fiscal 1995 but open for the entire twelve months of fiscal 1994.
During fiscal 1995, comparable store net sales increased 1.7% compared to
fiscal 1994. Comparable net footwear sales for fiscal 1995 increased 4.0%.
Partially offsetting the increase in footwear sales was a 3.4% decrease in
comparable net activewear and
13
<PAGE>
accessories sales for the comparable period. Net sales per square foot
decreased in fiscal 1995 to $300 from $316 during fiscal 1994, primarily as a
result of opening larger stores. The average selling price of footwear
increased approximately 1.4% in fiscal 1995.
Gross profit, which includes product margin less store occupancy costs, for
fiscal 1995 was $58.9 million, an increase of $9.4 million or 18.9% over fiscal
1994. As a percentage of net sales, gross profit decreased to 30.7% in fiscal
1995 from 31.5% in fiscal 1994. Of this 0.8% decrease, 0.7% was due to an
increase in occupancy costs as a percentage of net sales with the remaining
0.1% decrease due to lower margins for products sold. The Company's fiscal 1995
operating results were adversely affected, particularly through the first six
months, by an apparent trend in the fashion portion of the business toward a
non-athletic look and a more competitive and promotional retail environment
which resulted in lower margins. The 0.7% increase in occupancy costs resulted
primarily from (i) a 5.6% increase in the average store size from 3,449 in
fiscal 1994 to 3,641 in fiscal 1995, and (ii) a continued increase in other
mall charges (i.e., common area maintenance, real estate taxes, and insurance)
on a per square foot basis versus fiscal 1994.
Selling, general and administrative expenses in fiscal 1995 were $44.5
million, an increase of $7.9 million or 21.5% over fiscal 1994, and decreased
to 23.2% from 23.4% as a percentage of net sales. This dollar increase was
primarily attributable to the operating costs related to the 30 additional
stores opened during fiscal 1995. The decrease as a percentage of sales is
primarily a result of the comparable store net sales increase of 1.7% for
fiscal 1995 along with improved expense controls as well as the application of
certain administrative and other overhead costs over an increased net sales
base.
Net interest expense for fiscal 1995 was $317,000, an increase of $133,000 or
72.3%. This increase resulted from a higher average balance outstanding on the
Company's Facility Agreement due to an increase in the number of stores and an
expansion of the Company's distribution center, as well as higher average
interest rates for fiscal 1995.
Income tax expense was $5.6 million for fiscal 1995 compared to $5.1 million
for fiscal 1994. The increase in the Company's provision for federal and state
taxes in fiscal 1995 is due to the increased level of income before income
taxes as the effective tax rate was 40% for each of the comparable periods.
Net income per share increased 10.8% to $0.82 for fiscal 1995 compared to
$0.74 for fiscal 1994. Weighted average shares outstanding were 10,315,000
during both fiscal 1995 and 1994.
14
<PAGE>
QUARTERLY COMPARISONS
The Company's merchandise is marketed during all seasons, with the highest
volume of merchandise sold during the second and fourth fiscal quarters as a
result of back-to-school and year-end holiday shopping. The third fiscal
quarter has traditionally had the lowest volume of merchandise sold and the
lowest results of operations.
The table below sets forth quarterly operating data of the Company,
including such data as a percentage of net sales, for fiscal 1996 and fiscal
1995. This quarterly information is unaudited but, in management's opinion,
reflects all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information for the periods
presented.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 29,
1995 1995 1995 1996
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $52,219 100.0% $64,584 100.0% $52,729 100.0% $70,623 100.0%
Cost of sales (including
occupancy expenses).... 36,341 69.6 44,895 69.5 37,770 71.6 49,906 70.7
------- ----- ------- ----- ------- ----- ------- -----
Gross profit............ 15,878 30.4 19,689 30.5 14,959 28.4 20,717 29.3
Selling, general and
administrative
expenses............... 12,358 23.7 14,015 21.7 13,356 25.3 14,525 20.5
------- ----- ------- ----- ------- ----- ------- -----
Operating income........ 3,520 6.7 5,674 8.8 1,603 3.1 6,192 8.8
Interest expense........ 130 0.2 229 0.3 305 0.6 228 0.3
------- ----- ------- ----- ------- ----- ------- -----
Income before income
taxes.................. 3,390 6.5 5,445 8.5 1,298 2.5 5,964 8.5
Provision for income
taxes.................. 1,356 2.6 2,178 3.4 519 1.0 2,386 3.4
------- ----- ------- ----- ------- ----- ------- -----
Net income.............. $ 2,034 3.9% $ 3,267 5.1% $ 779 1.5% $ 3,578 5.1%
======= ===== ======= ===== ======= ===== ======= =====
Net income per share.... $ 0.20 $ 0.32 $ 0.08 $ 0.35
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28,
1994 1994 1994 1995
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $42,174 100.0% $55,843 100.0% $41,198 100.0% $52,408 100.0%
Cost of sales (including
occupancy expenses).... 29,447 69.8 38,280 68.5 28,945 70.3 30,054 68.8
------- ----- ------- ----- ------- ----- ------- -----
Gross profit............ 12,727 30.2 17,563 31.5 12,253 29.7 16,354 31.2
Selling, general and
administrative
expenses............... 9,965 23.6 12,152 21.8 10,839 26.3 11,592 22.1
------- ----- ------- ----- ------- ----- ------- -----
Operating income........ 2,762 6.6 5,411 9.7 1,414 3.4 4,762 9.1
Interest expense........ 47 0.1 111 0.2 107 0.2 52 0.1
------- ----- ------- ----- ------- ----- ------- -----
Income before income
taxes.................. 2,715 6.5 5,300 9.5 1,307 3.2 4,710 9.0
Provision for income
taxes.................. 1,086 2.6 2,119 3.8 523 1.3 1,890 3.6
------- ----- ------- ----- ------- ----- ------- -----
Net income.............. $ 1,629 3.9% $ 3,181 5.7% $ 784 1.9% $ 2,820 5.4%
======= ===== ======= ===== ======= ===== ======= =====
Net income per share.... $ 0.16 $ 0.31 $ 0.08 $ 0.27
======= ======= ======= =======
</TABLE>
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company finances the opening of new stores and the resulting increase in
inventory requirements principally from operating cash flow and borrowings
under the Facility Agreement. Net cash provided by operations was $9.6 million,
$3.9 million and $6.2 million for fiscal 1994, 1995 and 1996, respectively. At
February 29, 1996, cash and cash equivalents were $1.7 million.
Merchandise inventories were $76.1 million at February 29, 1996 compared to
$55.5 million at February 28, 1995. On a per square foot basis, merchandise
inventories increased 9.0% compared to February 28, 1995. The increase is
primarily attributable to the early receipt of March footwear deliveries in
February 1996.
The Facility Agreement allows the Company to borrow up to the amount of $25.0
million and expires on September 1, 1997. The Company, at its election, can
increase the credit available to $30.0 million. The Company periodically
reviews its ongoing credit needs with its commercial bank and expects to renew
the Facility Agreement prior to its expiration for an additional period beyond
the current maturity date of September 1997. The interest rate on the Facility
Agreement is, at the Company's election, either the bank's Federal Fund Rate
plus 0.975%, the bank's CD Rate plus 0.875%, the bank's LIBOR Rate plus 0.875%
or the bank's prime commercial lending rate. The margin percentage added to the
Federal Fund Rate, CD Rate and LIBOR Rate is subject to adjustment quarterly
based on the fixed charge coverage ratio (as defined). The effective borrowing
rate at February 29, 1996 was approximately 6.4% per annum. At February 29,
1996, $9.5 million was outstanding under the Facility Agreement.
The Facility Agreement contains restrictive covenants that limit, among other
things, the Company's ability to declare or pay dividends, incur or guarantee
debt, redeem shares of its capital stock, be a party to a merger, acquire or
dispose of assets or engage in any other transactions outside the ordinary
course of business. In addition, the Company must maintain a fixed charge
coverage ratio (as defined) of not less than 1.5 to 1.0, a tangible net worth
of not less than $42.5 million and funded debt to total capitalization (as
defined) may not exceed 40%. The Company is in compliance with all such
covenants.
Capital expenditures were $10.0 million and $10.2 million for fiscal 1995 and
fiscal 1996, respectively. Expenditures in fiscal 1996 were primarily for the
build out of 32 of the 35 stores that were opened during fiscal 1996 (including
one large format store), the remodeling of 7 existing stores, the build out of
the first three stores that were opened in fiscal 1997 and the addition of
40,000 square feet of floor space in the existing warehouse through the
addition of a mezzanine level. Expenditures in fiscal 1995 were primarily for
the build out of 24 of the 30 stores that were opened during fiscal 1995, the
remodeling of 10 existing stores, the build out of the first three stores that
were opened in fiscal 1996 and the addition of 64,000 square feet of warehouse
space along with additional conveyor and material handling equipment.
The Company anticipates that total capital expenditures for fiscal 1997 will
be approximately $11.0 million, primarily for the opening of 30 to 35 new
stores (including two to three large format stores), the remodeling of seven to
ten existing stores and the commencement of a 128,000 square foot addition to
the existing distribution center.
The Company estimates that its cash requirement to open a new non-large
format store will range from $350,000 to $400,000 (net of construction
allowance) and from $1.4 million to $1.9 million for a new large format store
(net of construction allowance). These requirements for a traditional store
include approximately $175,000 for fixtures, equipment, leasehold improvements
and pre-opening expenses and $325,000 ($200,000 net of payables) in new store
inventory. The cash requirements for a large format store include approximately
$500,000 to $1.0 million for fixtures, equipment, leasehold improvements and
pre-opening expenses and $1.5 million ($900,000 net of payables) in new store
inventory.
Management believes that operating cash flow and borrowings under the
Company's existing Facility Agreement will be sufficient to complete the
Company's fiscal 1997 and fiscal 1998 store expansion program and to satisfy
the Company's other capital requirements through fiscal 1997 and fiscal 1998.
16
<PAGE>
BUSINESS
GENERAL
Finish Line is one of the largest specialty retailers of brand name
athletic, outdoor and lifestyle footwear, activewear and accessories in the
United States. As of May 1, 1996, the Company operated 229 stores in 25
states, primarily in enclosed malls. A Finish Line store generally carries the
largest selection of men's, women's and children's athletic and casual shoes
in the mall in which it is located, as well as a broad assortment of
activewear and accessories all at competitive prices. Brand names offered by
the Company include Nike, Fila, adidas, Reebok, Starter, Champion, Asics,
Airwalk, Logo Athletic, Timberland and Converse.
The Company distinguishes itself from other athletic footwear specialty
retailers through its relatively large, mall-based store format. Finish Line's
stores average approximately 4,000 square feet, and its stores opened during
the most recent fiscal year average approximately 4,800 square feet. The
Company strives to create an exciting and entertaining retail environment by
continually updating its unique and highly functional store designs, while its
larger store size permits greater product depth and merchandising flexibility.
Since activewear and accessories represent higher gross margin opportunities,
Finish Line devotes a greater percentage of its sales area to such products
than typical athletic footwear specialty stores. Activewear and accessories
accounted for approximately 33% of the Company's sales in fiscal 1996.
OPERATING STRATEGIES
. EMPHASIS ON CUSTOMER SERVICE AND CONVENIENCE. The Company is committed to
making shopping for athletic footwear and activewear an enjoyable experience
for its customers by providing convenient mall-based store locations with
highly functional store designs, offering competitive prices on brand name
products, maintaining optimal in-stock levels of merchandise and employing
knowledgeable and courteous sales associates.
. INVENTORY MANAGEMENT. The Company's advanced information and distribution
systems enable it to track inventory in each store by SKU on a daily basis,
giving the Company the flexibility to merchandise its products effectively.
In addition, these systems allow the Company to respond promptly to changing
customer preferences and to maintain optimal inventory levels. The Company's
inventory management system features automatic replenishment driven by
point-of-sale data capture and a highly automated distribution center, which
enables the Company to ship merchandise to each store every third day.
. PRODUCT DIVERSITY; BROAD DEMOGRAPHIC APPEAL. The Company stocks its stores
with a combination of the newest high profile and brand name merchandise,
unique products manufactured exclusively for the Company, as well as
promotional and opportunistic purchases of other brand-name merchandise.
Product diversity, in combination with the Company's store formats and
commitment to customer service, is intended to attract a broad demographic
cross-section of customers.
EXPANSION STRATEGIES
. NEW STORE OPENINGS. Since its initial public offering in June 1992, Finish
Line has expanded rapidly from 104 stores to 229 stores on May 1, 1996. The
Company expects to open 30 to 35 new stores in fiscal 1997 and 35 to 45 new
stores in fiscal 1998, which will represent increases of approximately 15%
in each such year. As a result of the Company's strategy of opening larger
stores, including selected large format stores, the Company expects its
total square footage to increase at an annual rate of approximately 23% and
25% in fiscal 1997 and fiscal 1998, respectively.
. LARGER STORES. Over the past four years, the Company has adopted a strategy
of opening larger stores. This strategy allows for greater product depth and
merchandising flexibility, which the Company believes improves its ability
to compete against both mall-based and non-mall-based athletic retailers,
and will result in Finish
17
<PAGE>
Line's average square footage per store increasing at a faster rate than its
store count. The traditional stores which the Company currently has firm
commitments to open in fiscal 1997 average approximately 5,200 square feet.
In addition, the Company opened a 20,000 square foot store in the Circle
Centre Mall in Indianapolis in fiscal 1996. This large format store is an
upscale athletic specialty store designed and merchandised into seven
distinct departments to satisfy the needs of the entire family. The initial
performance of this store has been encouraging, and two additional large
format stores are planned to open in fiscal 1997 in Buffalo and Denver.
Subject to the results of these stores, the Company anticipates opening three
to five additional large format stores in fiscal 1998.
. COMMITMENT TO CONTINUALLY STRENGTHEN INFRASTRUCTURE. Over the past eighteen
months, Finish Line has made a number of strategic infrastructure
investments, including enhancements to its management, store formats, and
distribution and information systems. Significant management additions and
organizational changes include recruiting additional senior management
professionals with significant industry experience and centralizing
supervision of the Company's footwear and activewear/accessories departments
to improve communication and coordination between the departments. In
addition, staffs in both departments were increased to allow each buyer or
merchandiser to focus more time and attention on their respective product
categories. The Company has also invested in its management information
systems and distribution center by implementing EDI and radio frequency
technology and plans to commence building a 128,000 square foot addition to
the distribution center in fiscal 1997. Management believes these
infrastructure investments will improve efficiency of the Company's
inventory management and increase its in-stock position thereby facilitating
its continued growth.
The Company believes that its operating and expansion strategies have
contributed to its record of increasing net sales in each year since its
founding. Over the past five years, net sales have increased at a 25% compound
annual growth rate, and in fiscal 1996, net sales increased to $240.2 million,
a 25% improvement over the prior year period. The increase in fiscal 1996
included a 3.4% comparable store net sales gain resulting in an increase in
net sales per square foot to $308. This comparable store net sales growth,
together with improved expense controls and the leveraging of net sales
increases over its established infrastructure, have resulted in increased
profits in recent years. Net income increased to $9.7 million in fiscal 1996,
a 15% improvement over the prior year period.
MERCHANDISE
The following table sets forth the percentage of net sales attributable to
the categories of footwear, activewear and related accessories during fiscal
1994, 1995 and 1996. These percentages fluctuate substantially during the
different consumer buying seasons. To take advantage of this seasonality, the
Company's stores are designed to allow a shift in emphasis in the merchandise
mix between footwear and activewear/accessory items.
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Footwear.......................... 69% 69% 67%
Activewear/Accessories............ 31 31 33
--- --- ---
Total......................... 100% 100% 100%
=== === ===
</TABLE>
Merchandising decisions, including merchandise mix, pricing, promotions and
markdowns, are made at the corporate headquarters. The store manager and
district manager, along with management at the Company's headquarters, review
the merchandise mix to adapt to permanent or temporary changes or sales
trends.
Footwear
The Company carries footwear from Nike, Fila, adidas, Reebok, Asics,
Timberland, Airwalk, Converse and many others. Major categories of footwear
include basketball, cross-training, running, aerobic, tennis, cleated, golf,
outdoor, casual and lifestyle. Most of the categories are available in men's,
women's and children's styles.
Activewear/Accessories
The activewear and accessories offered by the Company include products from
many of the same companies that supply the Company's footwear such as Nike,
Fila, adidas and Reebok. Additional suppliers include Starter,
18
<PAGE>
Champion, Logo Athletic, and lifestyle lines such as No Fear along with
outdoor apparel from Columbia and Timberland. Categories of activewear consist
of jackets, caps, running wear, warm-ups, fleece, fitness wear and
leisurewear. Many of these categories include licensed products bearing the
logos of college and professional teams. Among the accessories offered by the
Company are socks, athletic bags and shoe-care products. The Company's vendors
offer footwear, apparel and accessories in "collections" of similar design and
for specific purposes.
MARKETING
The Company attempts to price its merchandise competitively with athletic
specialty and sporting goods stores in the trade area of each Company store.
While the majority of merchandise is sold at the Company's regular retail
prices, the Company conducts promotions which generally revolve around themes
such as back-to-school, holiday seasons and vendor weeks. In addition, the
Company frequently promotes individual items.
The Company advertises through many different media, including television,
radio, newspaper and outdoor advertising. The Company also contributes to mall
merchant association funds which will advertise both the mall and individual
stores within the mall. In-store promotions with point-of-purchase materials
are also an important part of the Company's marketing strategy.
The Company also takes advantage of advertising and promotional assistance
from many of its suppliers. This assistance takes the form of cooperative
advertising programs, in-store sales incentives, point-of-purchase materials,
product training for employees and other programs. Total advertising expense
for fiscal 1995 and 1996 was 1.6% and 1.5% of net sales, respectively, after
deducting co-op reimbursements. The Company believes that it benefits
significantly from the advertising campaigns of its key suppliers, such as
Nike, Fila, adidas, Reebok and Starter.
PURCHASING AND DISTRIBUTION
The Company's product purchasing is coordinated through a centralized
merchandising department under the direction of a Vice President--General
Merchandise Manager. The merchandise department is currently comprised of 21
persons, including a Divisional Merchandise Manager and four buyers and
associates in the footwear area and five buyers and associates in the
activewear/accessories area. These buyers are supported by a planning and
distribution group comprised of ten professionals, including financial
planners and systems personnel.
The Company believes that its ability to buy in large quantities directly
from suppliers enables it to obtain favorable pricing and trade terms. The
Company works with approximately 130 suppliers, the largest of which (Nike)
accounted for approximately 40% and 50% of the Company's purchases in fiscal
1995 and fiscal 1996, respectively. The Company purchased approximately 70%
and 80% of its merchandise in fiscal 1995 and fiscal 1996, respectively, from
its five largest suppliers. The Company and its vendors have the capability to
use EDI technology. See "Risk Factors--Dependence on Major Suppliers; Product
Availability."
The Company's corporate headquarters and distribution center are located on
33 acres in Indianapolis, Indiana. The facility was designed to the Company's
requirements and specifications and is owned by the Company. It includes
automated conveyor and storage rack systems designed to reduce labor costs,
increase efficiency in processing merchandise and enhance space productivity.
This facility includes 24,000 square feet of office space and 128,000 square
feet of warehouse space. During fiscal 1996, the Company added 40,000 square
feet of floor space in the existing warehouse through the addition of a
mezzanine level at a cost of approximately $1.5 million, and it plans during
fiscal 1997 to commence an addition to its existing distribution center of an
additional 128,000 square feet of warehouse space. The Company believes it has
the ability to significantly expand the facility, as needed, on its existing
33 acres.
In fiscal 1996, the Company implemented new management computer software for
distribution center processing that features "radio frequency" technology.
Management believes that this new software should improve accuracy and allow
for real-time tracking of inventory within the distribution center.
19
<PAGE>
Nearly all of the Company's merchandise is shipped directly from suppliers
to the distribution center, where the Company processes and ships it by
contract and common carriers to its stores. Each day shipments are made to
one-third of the Company's stores. In any three-week period, each Company
store will receive five shipments. A shipment is received one to three days
from the date that the order is filled depending on the store's distance from
the distribution center. The Company maintains approximately one month's
supply of merchandise at the distribution center.
The Company believes that the distribution center, including planned future
expansion, will enable it to continue to service its stores, including
additional stores, for the foreseeable future.
MANAGEMENT INFORMATION SYSTEMS
The Company has a computerized management information system that includes a
network of computers at corporate headquarters used by management to support
decision making along with PC based point-of-sale (POS) computers at the
stores. The store computers are connected via modem to the corporate
headquarters computers. The system also features a perpetual inventory system
which permits corporate management to review daily each store's inventory by
department, class and stockkeeping unit (SKU), as well as current sales data.
This system includes an automated replenishment system that allows the Company
to replace faster-selling items on a more timely basis. Other functions in the
system include accounting, distribution, inventory tracking and control. In
fiscal 1996, the Company completed the replacement of all existing store
registers with PC based POS systems which provide increased productivity at
the store level along with additional controls and efficiencies at the
Company's headquarters.
Also during fiscal 1996, the Company upgraded its computer system at the
corporate headquarters which the Company believes will adequately serve its
needs for the foreseeable future.
STORE OPERATIONS
The Company operated 229 stores as of May 1, 1996, which are primarily
located in enclosed shopping malls. The Company's typical store format has a
sales floor, which includes a try-on area and a display area where each style
of footwear carried in the store is displayed by category (basketball, tennis,
running, etc.), and an adjacent stock room where the footwear inventory is
kept. The Company's stores range in size from 1,200 to 10,750 square feet plus
the 20,000 square foot "large format" store. The sales floor represents
approximately 65% to 75% of the total store space. In addition to its typical
store format, the Company operates approximately 30 stores utilizing a "rack
store" format, where footwear inventory is kept on the sales floor.
In order to keep its stores fresh and exciting, the Company has developed a
strategy of consolidating older merchandise in one or more stores in each
district for additional or final markdown. These stores are generally located
in strip shopping centers or mixed use outlet centers because these locations
typically have lower occupancy costs and investments in leasehold
improvements, allowing the Company to sell merchandise at lower prices.
Substantially all merchandise decisions with respect to prices, markdowns
and advertising are controlled by management at the corporate headquarters.
The Company has a national sales manager and regional and district managers
who visit each of the Company's stores on a regular basis to review the
implementation of Company policy, monitor operations and review inventories
and the presentation of merchandise. Accounting and general financial
functions for the Company's stores are conducted at corporate headquarters.
Each of the Company's stores has a store manager responsible for supervision
and overall operations, one or more assistant managers and additional full-
and part-time sales associates. Management believes that the Company's store
format and customer service help to reduce inventory shrinkage, which was
approximately 1.25% of net sales in fiscal 1996.
The national, regional, district and store managers receive a fixed salary
and are eligible for bonuses, based primarily on sales, payroll and shrinkage
performance goals of the stores for which they are responsible. All assistant
store managers and sales associates are paid on an hourly basis.
20
<PAGE>
STORE LOCATIONS
The Company operated 229 stores in 25 states as of May 1, 1996. The
following table sets forth information concerning the Company's stores.
<TABLE>
<CAPTION>
TOTAL NUMBER TOTAL NUMBER
STATE OF STORES STATE OF STORES
----- ------------ ----- ------------
<S> <C> <C> <C>
Arkansas.................. 2 Nebraska............ 4
Florida................... 7 New York............ 6
Georgia................... 10 North Carolina...... 13
Illinois.................. 17 Ohio................ 39
Indiana................... 23 Oklahoma............ 6
Iowa...................... 4 Pennsylvania........ 17
Kansas.................... 6 South Carolina...... 1
Kentucky.................. 6 Tennessee........... 6
Louisiana................. 5 Texas............... 23
Maryland.................. 4 Virginia............ 8
Michigan.................. 8 West Virginia....... 5
Mississippi............... 1 Wisconsin........... 6
Missouri.................. 2
</TABLE>
The Company considers its ability to obtain attractive, high traffic store
locations such as enclosed malls to be a critical element of its business and
a key factor in the Company's future growth and profitability. The Company
believes that the number of desirable store sites likely to be available in
the future will permit the Company to continue its expansion strategy. In
determining new store locations, the Company evaluates market areas, mall
locations, "anchor" stores, consumer traffic, mall sales per square foot,
competition and occupancy, construction and other costs associated with
opening a store.
The Company leases all of its stores. Initial lease terms of the Company's
stores generally range from five to ten years in duration without renewal
options, although some of the stores are subject to leases for five years with
one or more renewal options. The leases generally provide for a fixed minimum
rental plus a percentage of sales in excess of a specified amount.
COMPETITION
The business in which the Company is engaged is highly competitive and many
of the items sold by the Company are sold by department stores, national and
regional full line sporting goods stores, athletic footwear specialty stores,
athletic footwear superstores, discount stores, traditional shoe stores and
mass merchandisers. Many of the stores with which the Company competes are
units of large national and regional chains that have substantially greater
financial and other resources than the Company. Among these stores are stores
that are owned by major suppliers of the Company. To a lesser extent, the
Company competes with mail order and local sporting goods and athletic
specialty stores. In many cases, the Company's stores are located in shopping
centers or malls in which one or more of its competitors also has a store. The
leases that the Company enters into generally do not restrict the opening of
stores by the Company's competitors in the same mall carrying merchandise
similar to that of the Company.
The Company has been able to compete favorably with these competitors by
operating attractive, well-stocked stores in high retail traffic areas, with
competitive prices and knowledgeable and courteous customer service. The
Company attempts to keep its prices competitive with athletic specialty and
sporting goods stores in the trade area of a particular Company store,
including competitors that are not necessarily located in high traffic
enclosed malls like the Company's stores. The Company seeks to achieve this
objective by effectively mixing high profile and brand name merchandise with
promotional and opportunistic purchases of other brand name merchandise and by
controlling expenses, especially administrative and overhead expenses, with
small, efficient departments throughout its organization.
21
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICER
NAME AGE POSITION OR DIRECTOR SINCE
- ---- --- -------- -----------------
<S> <C> <C> <C>
Alan H. Cohen........... 49 Chairman of the Board of Directors, President and
Chief Executive Officer 1976
David I. Klapper........ 47 Executive Vice President, Director 1976
David M. Fagin.......... 52 Executive Vice President, Secretary and Director 1982
Larry J. Sablosky....... 47 Executive Vice President, Director 1982
Joseph W. Wood.......... 48 Vice President--General Merchandise Manager 1995
Steven J. Schneider..... 40 Vice President--Finance and Chief Financial Officer 1989
Donald E. Courtney...... 41 Vice President--MIS and Distribution 1989
George S. Sanders....... 38 Vice President--Real Estate and Construction 1994
Michael L. Marchetti.... 46 Vice President--Operations 1995
Jonathan K. Layne....... 42 Director 1992
Jeffrey H. Smulyan...... 48 Director 1992
</TABLE>
Mr. Alan H. Cohen, a co-founder of the Company, has served as President and
Chief Executive Officer and a director of the Company since May 1982. Since
1976, Mr. Cohen has been involved in the athletic retail business as principal
co-founder of Athletic Enterprises, Inc. (one of the predecessor companies of
the Company). Mr. Cohen is an attorney, and practiced law from 1973 through
1981.
Mr. David I. Klapper, a co-founder of the Company, has served as Executive
Vice President and a director of the Company since May 1982. Since 1976, Mr.
Klapper has been involved in the athletic retail business as principal co-
founder of Athletic Enterprises, Inc. (one of the predecessor companies of the
Company).
Mr. David M. Fagin, a co-founder of the Company, has served as Executive
Vice President, Secretary and a director of the Company since May 1982. Prior
to 1982, Mr. Fagin was self-employed as a manufacturer representative for
sporting goods companies. Mr. Fagin has been involved in the athletic retail
industry for over 25 years.
Mr. Larry J. Sablosky, a co-founder of the Company, has served as Executive
Vice President and a director of the Company since May 1982. Prior to 1982,
Mr. Sablosky was employed in a family retail business for over 10 years. Mr.
Sablosky has been involved in the retail industry for over 20 years.
Mr. Joseph W. Wood has served as Vice President--General Merchandise Manager
of the Company since January 1995. From May 1993 to December 1994, Mr. Wood
served as Executive Vice President and Chief Operating Officer of Just For
Feet, a superstore athletic footwear retailer. From October 1986 to May 1993,
Mr. Wood served as Senior Vice President and General Merchandise Manager of
the Athlete's Foot Group, a mall based athletic footwear retailer.
Mr. Steven J. Schneider has served as Vice President--Finance and Chief
Financial Officer of the Company since April 1989. From August 1984 to March
1989, Mr. Schneider was employed as Assistant Controller for Paul Harris
Stores, Inc., a women's apparel retailer. Mr. Schneider, a Certified Public
Accountant, was employed by a national accounting firm for two years and has
been engaged in various financial positions in the retail industry for 15
years.
Mr. Donald E. Courtney has served as Vice President--MIS and Distribution of
the Company since August 1989. From August 1988 to August 1989, Mr. Courtney
served as Director of MIS and Distribution for the Company. From August 1976
to August 1988, Mr. Courtney was employed by Guarantee Auto Stores, Inc., an
automotive retailer. At the time Mr. Courtney left Guarantee Auto Stores, he
held the position of VicePresident--MIS and Distribution. Mr. Courtney has
been involved in the retail industry for 18 years.
22
<PAGE>
Mr. George S. Sanders has served as Vice President--Real Estate and Store
Construction since April 1994. From February 1993 to April 1994, Mr. Sanders
served as Director of Real Estate of the Company. From 1983 to February 1993,
Mr. Sanders was employed by Melvin Simon and Associates, a real estate
developer and manager. At the time Mr. Sanders left Melvin Simon and
Associates, he held the position of Senior Leasing Representative.
Mr. Michael L. Marchetti has served as Vice President--Store Operations
since September 1995. From May 1990 to September 1995, Mr. Marchetti was
employed by Champs Sports, a division of Woolworth Corporation, the last five
years of which he served as Regional Vice President. Mr. Marchetti has been
involved in the retail industry for over 25 years.
Mr. Jonathan K. Layne has served as a director of the Company since June
1992. Mr. Layne has been a partner of the law firm of Gibson, Dunn & Crutcher
LLP since 1987, where he specializes in corporate and securities law matters.
Mr. Layne was an associate with Gibson, Dunn & Crutcher LLP from 1979 to 1986.
Mr. Layne is also a member of the Boards of Directors of Amwest Insurance
Group, Inc., an insurance holding company, K-Swiss Inc., a manufacturer of
athletic footwear and Maxwell Shoe Company, Inc., a manufacturer of women's
casual and dress footwear.
Mr. Jeffrey H. Smulyan has served as a director of the Company since June
1992. Mr. Smulyan has served since 1986 as Chairman of the Board and President
of Emmis Broadcasting Corporation, an owner and operator of radio stations.
Mr. Smulyan served as Chairman of the Seattle Mariners professional baseball
team from 1989 until 1992 and was the principal owner of Seattle Baseball,
L.P., which owned the Mariners prior to their sale in July 1992.
Each director holds office until the next annual meeting of stockholders or
until his successor has been elected and qualified. Officers are appointed by
and serve at the discretion of the Board of Directors. There are no family
relationships among any directors or executive officers of the Company.
The Board of Directors has two committees. The Audit Committee is comprised
of Messrs. Cohen, Layne, and Smulyan. The Compensation and Stock Option
Committee is comprised of Messrs. Smulyan and Layne.
23
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table shows compensation paid by the
Company for services rendered during fiscal years 1996, 1995, and 1994 for the
Chief Executive Officer at the end of the last fiscal year and the five most
highly compensated executive officers of the Company whose salary and bonus
exceeded $100,000 in fiscal year 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------
ANNUAL
COMPENSATION AWARDS PAYOUTS
--------------- --------------------- -------
RESTRICTED SECURITIES
STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS AWARD(S) OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR ($)(1) ($)(2) $ SAR'S(#) ($) ($)(3)
------------------ ---- ------- ------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alan H. Cohen 1996 265,000 116,706 -- -- -- --
CEO, President and 1995 250,000 90,000 -- -- -- 30,000
Chairman of the Board 1994 250,000 42,511 -- -- -- 29,193
Larry J. Sablosky 1996 225,000 99,090 -- -- -- 17,879
Executive Vice
President 1995 250,000 90,000 -- -- -- 30,000
1994 250,000 30,788 -- -- -- 29,193
Joseph W. Wood 1996 172,632 80,685(4) -- 5,000 -- --
Vice President--General 1995 26,559 -- -- 40,000 -- --
Merchandise Manager 1994 -- -- -- -- -- --
David I. Klapper 1996 175,000 51,380 -- -- -- 17,879
Executive Vice
President 1995 250,000 90,000 -- -- -- 30,000
1994 250,000 42,511 -- -- -- 29,193
David M. Fagin 1996 175,000 51,380 -- -- -- 17,879
Executive Vice
President, 1995 250,000 90,000 -- -- -- 30,000
and Secretary 1994 250,000 30,805 -- -- -- 29,193
</TABLE>
- --------
(1) From the Company's initial public offering in June 1992 through fiscal
1995, Messrs. Cohen, Klapper, Fagin and Sablosky were compensated at an
annualized base rate of $250,000.
(2) Cash bonuses for services rendered in fiscal 1996 have been listed in the
year earned; however, the stated amounts were actually paid in the
subsequent fiscal year.
(3) The stated amounts are Company contributions to The Finish Line, Inc.
Profit Sharing Plan. Mr. Cohen elected not to participate in the plan for
plan year ended October 31, 1995. Mr. Wood was not eligible to participate
in the plan during his first year of employment.
(4) $30,000 of the stated amount was paid in January 1996 as a signing bonus
which was paid at the end of Mr. Wood's first full year of employment.
DIRECTOR COMPENSATION
Directors who are employees of the Company are not compensated for serving
as directors. Directors who are not employees of the Company are paid $2,500
per annum and an additional $2,500 per meeting for attending regular meetings
of the Board of Directors and are reimbursed for expenses incurred in
attending regular, special and committee meetings. In addition, Directors who
are not employees of the Company receive options to purchase 3,000 shares of
Class A Common Stock upon their first election to the Board and an additional
2,000 options for each year they serve on the Board.
24
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information as to the current ownership of
the Class A and Class B Common Stock by the persons named below (the "Selling
Stockholders"), and as adjusted to reflect the sale of 1,300,000 shares of
Class A Common Stock by the Company and 1,300,000 shares of Class A Common
Stock by the Selling Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES TO BE BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------------------------- -----------------------------------------------------
CLASS A CLASS B CLASS A CLASS B
----------------- ----------------------- SHARES TO ----------------- -----------------------
PERCENT PERCENT BE SOLD IN PERCENT PERCENT PERCENT OF
NAME AND OF OF THE OF OF CLASS A AND
ADDRESS(3) SHARES(1) CLASS SHARES CLASS OFFERING(2) SHARES(1) CLASS SHARES CLASS CLASS B
- ---------- --------- ------- --------- ------- ----------- --------- ------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alan H. Cohen... -- -- 1,829,529(4) 29.3% 381,486 -- -- 1,448,043(4) 29.3% 12.5%
David I.
Klapper........ -- -- 1,829,529(4)(5) 29.3 381,486 -- -- 1,448,043(4)(5) 29.3 12.5
David M. Fagin.. -- -- 1,194,368(6) 19.2 263,614 -- -- 930,754(6) 18.9 8.0
Larry J.
Sablosky....... -- -- 1,311,241(4)(7) 21.0 273,414 -- -- 1,037,827(4)(7) 21.0 8.9
</TABLE>
- -------
(1) Excludes shares of Class B Common Stock convertible into a corresponding
number of Class A Common Stock.
(2) Consists of shares of Class B Common Stock that the Selling Stockholders
will convert immediately prior to the closing of this offering into the
same number of shares of Class A Common Stock, which shares will then be
sold in this offering.
(3) The address of each is 3308 North Mitthoeffer Road, Indianapolis, Indiana
46236.
(4) Includes 300,706 shares of Class B Common Stock for each of Messrs. Cohen
and Klapper and 196,603 for Mr. Sablosky held as trustee of various trusts
for the benefit of their respective minor children.
(5) Includes 342,857 shares held by Mr. Klapper as general partner of a family
partnership.
(6) Includes 33,054 shares held by Mr. Fagin's spouse and includes 6,582
shares held by Mr. Fagin as custodian for his minor children. Excludes an
aggregate of 76,452 shares held by Mr. Fagin's son and daughter who are
over the age of 21 and also excludes 1,481 shares held by Mr. Fagin's
granddaughter. Mr. Fagin disclaims beneficial ownership of all securities
held by other members of his household.
(7) Includes 4,984 shares held by Mr. Sablosky's spouse and includes 5,816
shares held by Mr. Sablosky as custodian for his minor children. Also
includes 59,748 shares held by a trust for Mr. Sablosky's minor children
under a Trust Agreement pursuant to which he serves as a co-trustee. Mr.
Sablosky disclaims beneficial ownership of all securities held by other
members of his household.
If the Underwriters' over-allotment option is exercised in full, Messrs.
Cohen, Klapper, Fagin and Sablosky will sell in this offering a total of
495,932, 495,932, 342,698 and 355,438 shares of Class A Common Stock,
respectively, and therefore will own 1,333,597, 1,333,597, 851,670 and 955,803
shares of Class B Common Stock, respectively, after completion of this
offering.
25
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 1,000,000 shares of
Preferred Stock, par value $.01 per share, and 32,000,000 shares of Common
Stock, par value $.01 per share.
COMMON STOCK
Each share of Common Stock is designated as either Class A Common Stock or
Class B Common Stock. The Company is authorized to issue 20,000,000 shares of
Class A Common Stock and 12,000,000 shares of Class B Common Stock. As of May
1, 1996, there were 4,092,762 shares of Class A Common Stock outstanding and
6,234,537 shares of Class B Common Stock outstanding. Substantially all of the
outstanding Class B Common Stock is held by the Selling Stockholders and their
family members. Upon the closing of this offering, there will be 6,692,762
shares of Class A Common Stock and 4,934,537 shares of Class B Common Stock
outstanding. Authorized shares of Class A Common Stock will be increased by an
amount equal to any corresponding decrease determined by the Board of
Directors in the number of authorized shares of Class B Common Stock. The
issued and outstanding shares of Class A Common Stock and Class B Common Stock
have been, and the shares of Class A Common Stock offered hereby will be, duly
authorized, validly issued, fully paid and nonassessable.
The Board of Directors has determined not to issue additional shares of
Class B Common Stock, except in conjunction with stock splits, reverse stock
splits, stock dividends, reclassifications and similar transactions and events
regarding the Class A Common Stock that would otherwise have the effect of
changing the conversion rights of the Class B Common Stock relative to the
Class A Common Stock (the "Adjustments").
Holders of Common Stock do not have any preemptive rights or rights to
subscribe for additional securities of the Company. Shares of Common Stock are
not redeemable and there are no sinking fund provisions.
While the shares of Class A Common Stock are not convertible into any other
series or class of the Company's securities, each share of Class B Common
Stock is freely convertible into one share (subject to the Adjustments) of
Class A Common Stock at the option of the Class B stockholder. All shares of
Class B Common Stock shall automatically convert to shares of Class A Common
Stock (on a share-for-share basis, subject to the Adjustments) on the earliest
record date for an annual meeting of the Company's stockholders on which the
number of shares of Class B Common Stock outstanding is less than 5% of the
total number of shares of Common Stock outstanding. Shares of Class B Common
Stock may not be transferred to third parties (except for transfers to certain
family members and in other limited circumstances). Any impermissible transfer
of shares of Class B Common Stock will result in the automatic conversion of
such shares into shares of Class A Common Stock.
Subject to the preferences applicable to Preferred Stock outstanding at the
time, holders of shares of Common Stock are entitled to dividends if, when and
as declared by the Board of Directors from funds legally available therefor,
and are entitled, in the event of liquidation, to share ratably in all assets
remaining after payment of liabilities and Preferred Stock preferences, if
any. In the case of dividends or other distributions payable in Common Stock,
shares of Class A Common Stock will be distributed with respect to Class A
Common Stock, and shares of Class B Common Stock shall be distributed with
respect to Class B Common Stock unless the Board of Directors determines to
distribute shares of Class A Common Stock with respect to Class B Common
Stock. In all other respects each share of Class A Common Stock and Class B
Common Stock will be treated equally with respect to dividends and
distributions.
Holders of Class A Common Stock are entitled to one vote for each share held
of record, and holders of Class B Common Stock are entitled to ten votes for
each share held of record. The Class A Common Stock and the Class B Common
Stock vote together as a single class on all matters submitted to a vote of
stockholders (including the election of directors), except that, in the case
of a proposed amendment to the Company's Restated Certificate of Incorporation
that would alter the powers, preferences or special rights of either the Class
A
26
<PAGE>
Common Stock or the Class B Common Stock, the class of Common Stock to be
altered shall vote on the amendment as a separate class. Shares of Common
Stock do not have cumulative voting rights with respect to the election of
directors. Immediately after this offering, the Selling Stockholders and their
family members will hold all the outstanding shares of Class B Common Stock,
constituting approximately 88% of the voting power of the outstanding Common
Stock, which will allow them to control all actions to be taken by the
stockholders, including the election of all directors to the Board of
Directors. See "Selling Stockholders" and "Risk Factors."
The Company's Board of Directors has six members. Either the directors or
the stockholders may amend the Bylaws to change the size of the Board, subject
to the requirement in the Restated Certificate of Incorporation that the
entire Board must consist of at least four and no more than 12 directors. The
directors stand for reelection at each annual meeting of the stockholder and
vacancies on the Board, including a vacancy caused by an increase in the size
of the Board, may be filled by the remaining directors. Any stockholder
entitled to vote at a meeting regarding the election of directors may nominate
a person for election as a director, provided that the stockholder gives the
Company written notice of the nomination at least 90 days before the meeting
(or if later, the seventh day after the first public announcement of the date
of such meeting), which notice must contain specified information about the
stockholder and the nominee.
The Company's Restated Certificate of Incorporation provides that any action
that can be taken at a meeting of the stockholders may be taken by written
consent in lieu of the meeting if the Company receives consents signed by
stockholders having the minimum number of vote that would be necessary to
approve the action at a meeting at which all shares entitled to vote on the
matter were present. This would permit the Selling Stockholders to take all
actions required to be taken by the stockholders without providing the other
stockholders the opportunity to make nominations, or raise other matters at a
meeting. However, the Company does not presently expect the written consent
procedure to be utilized in the future.
The Company's Transfer Agent and Registrar for the Class A and Class B
Common Stock is American Stock Transfer & Trust Co. The Class A Common Stock
is traded on the Nasdaq under the symbol "FINL."
PREFERRED STOCK
The Company's Board of Directors is authorized without further action by the
stockholders to issue, from time to time, shares of Preferred Stock in one or
more class or series, and to fix or alter the designations, powers and
preferences, and relative, participating, optional or other rights, if any,
and qualifications, limitations or restrictions thereof, including, without
limitation, dividend rights (and whether dividends are cumulative), conversion
rights, if any, voting rights (including the number of votes, if any, per
slide), rights and terms of redemption (including sinking fund provisions, if
any), redemption price and liquidation preferences of any unissued shares or
wholly unissued series of Preferred Stock, and the number of shares
constituting any such class or series and the designation thereof, and to
increase or decrease the number of shares of any such class or series
subsequent to the issuance of shares of such class or series, but not below
the amount then outstanding.
27
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholders have agreed
to sell to such Underwriter, the number of shares of Class A Common Stock set
forth opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF CLASS A
NAME COMMON STOCK
---- ----------------
<S> <C>
Smith Barney Inc............................................
A.G. Edwards & Sons, Inc....................................
Oppenheimer & Co., Inc...................................... _________
Total................................................... 2,600,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Class A
Common Stock offered hereby (other than those covered by the over-allotment
options described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., A.G. Edwards & Sons, Inc. and
Oppenheimer & Co., Inc. are acting as the Representatives, propose to offer
part of the shares directly to the public at the public offering price set
forth on the cover page of this Prospectus and part of the shares to certain
dealers at a price which represents a concession not in excess of $ per
share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
other dealers. After the initial offering of the shares to the public, the
public offering price and such concessions may be changed by the
Representatives.
The Selling Stockholders have granted to the Underwriters an option,
exercisable for thirty days from the date of this Prospectus, to purchase up
to 390,000 additional shares of Class A Common Stock at the price to public
set forth on the cover page of this Prospectus minus the underwriting
discounts and commissions. The Underwriters may exercise such option solely
for the purpose of covering over-allotments, if any, in connection with the
offering of the shares offered hereby. To the extent such option is exercised,
each Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite each Underwriter's name in the preceding table bears
to the total number of shares listed in such table.
The Company and the Selling Stockholders have agreed that, for a period of
120 days from the date of this Prospectus, and the remaining executive
officers and directors have agreed that, for a period of 90 days from the date
of this Prospectus, they will not, without the prior written consent of Smith
Barney Inc., offer, sell, contract to sell, or otherwise dispose of, any
shares of Class A Common Stock of the Company or any securities convertible
into, or exercisable or exchangeable for, Class A Common Stock of the Company,
except for the sale of up to 40,000 shares by two executive officers.
The Company, the Selling Stockholders, and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The rules of the Securities and Exchange Commission (the "Commission")
generally prohibit the Underwriters from making a market in the Class A Common
Stock of the Company during the two business
28
<PAGE>
days prior to commencement of sales in this Offering (the "Cooling Off
Period"). The Commission has, however, adopted Rule 10b-6A under the
Securities Exchange Act of 1934, as amended ("Rule 10b-6A"), which provides an
exemption from such prohibition for certain passive market making
transactions. Such passive market making transactions must comply with
applicable price and volume limits and must be identified as passive market
making transactions. In general, pursuant to Rule 10b-6A, a passive market
maker must display its bid for a security at a price not in excess of the
highest independent bid for the security. If all independent bids are lowered
below the passive maker's bid, however, such bid must then be lowered when
certain purchase limits are exceeded. Further, net purchases by a passive
market maker on each day are generally limited to a specified percentage of
the passive market maker's average daily trading volume in a security during a
specified prior period and must be discontinued when such limit is reached.
Pursuant to the exemption provided by Rule 10b-6A, certain of the Underwriters
and selling group members may engage in passive market making in the Class A
Common Stock of the Company during the Cooling Off Period. Passive market
making may stabilize the market price of the Class A Common Stock at a level
above that which might otherwise prevail, and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Gibson, Dunn & Crutcher LLP, Los Angeles,
California. Jonathan K. Layne, who is a member of the Company's Board of
Directors, is a partner of Gibson, Dunn & Crutcher LLP. Kirkland & Ellis,
Chicago, Illinois, will act as counsel to the Underwriters.
EXPERTS
The financial statements of The Finish Line, Inc. at February 28, 1995 and
February 29, 1996, and for each of the three years in the period ended
February 29, 1996, appearing in this Prospectus and Registration Statement (as
defined below) have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") with the Commission under the Securities Act with
respect to the securities covered by this Prospectus. This Prospectus omits
certain information and exhibits included in the Registration Statement,
copies of which may be obtained upon payment of a fee prescribed by the
Commission or may be examined free of charge at the principal office of the
Commission in Washington, D.C.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed with
the Commission by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located
at 500 West Madison Street, Room 1400, Chicago, Illinois 60606 and at 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material
can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, Washington, D.C. 20549, at prescribed rates.
29
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are by this
reference incorporated in and made a part of this Prospectus: (i) the
Company's Annual Report on Form 10-K for the fiscal year ended February 29,
1996; (ii) the Company's Registration Statement on Form 8-A filed May 20,
1992; and (iii) all documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the filing of a post-effective amendment which indicates that all the
securities offered hereby have been sold or which deregisters all the
securities then remaining unsold. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
Copies of all documents that are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents or into this
Prospectus) will be provided without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon a written or oral
request to The Finish Line, Inc., Attention: Chief Financial Officer, 3308 N.
Mitthoeffer Road, Indianapolis, Indiana 46236, telephone number (317) 899-
1022.
30
<PAGE>
THE FINISH LINE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Audited Financial Statements
Balance Sheets as of February 28, 1995 and February 29, 1996.............. F-3
Statements of Income for the Years Ended February 28, 1994, February 28,
1995 and February 29, 1996............................................... F-5
Statements of Cash Flows for the Years Ended February 28, 1994, February
28, 1995 and February 29, 1996........................................... F-6
Statements of Changes in Stockholders' Equity for the Years Ended February
28, 1994, February 28, 1995 and February 29, 1996........................ F-7
Notes to Financial Statements............................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
THE FINISH LINE, INC.
We have audited the accompanying balance sheets of The Finish Line, Inc. as
of February 28, 1995 and February 29, 1996, and the related statements of
income, cash flows, and changes in stockholders' equity for each of the three
years in the period ended February 29, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Finish Line, Inc. at
February 28, 1995 and February 29, 1996 and the results of its operations and
its cash flows for each of the three years in the period ended February 29,
1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Fort Wayne, Indiana
March 26, 1996
F-2
<PAGE>
THE FINISH LINE, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 978 $ 1,686
Accounts receivable................................... 1,914 1,099
Merchandise inventories............................... 55,498 76,088
Deferred income taxes................................. 1,367 1,608
Other................................................. 682 524
------- --------
Total current assets.............................. 60,439 81,005
PROPERTY AND EQUIPMENT:
Land.................................................. 315 315
Building.............................................. 4,114 4,156
Leasehold improvements................................ 20,861 26,898
Furniture, fixtures and equipment..................... 7,732 11,235
Construction in progress.............................. 1,975 596
------- --------
34,997 43,200
Less accumulated depreciation......................... 9,029 11,441
------- --------
25,968 31,759
OTHER ASSETS:
Deferred income taxes................................. 1,981 2,208
Other................................................. 147 --
------- --------
2,128 2,208
------- --------
Total assets.................................... $88,535 $114,972
======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
THE FINISH LINE, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable..................................... $19,272 $ 29,717
Notes payable to bank................................ 3,025 9,500
Employee compensation and related payroll taxes...... 2,570 3,234
Accrued interest..................................... 9 56
Accrued income taxes................................. 2,460 2,074
Accrued property and sales tax....................... 1,282 1,869
Other liabilities and accrued expenses............... 1,771 2,102
------- --------
Total current liabilities........................ 30,389 48,552
LONG-TERM LIABILITIES:
Deferred rent payments............................... 2,659 3,272
Long-term debt....................................... 2,000 --
------- --------
4,659 3,272
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 1,000 shares
authorized; none issued............................. -- --
Common Stock, $.01 par value
Class A:
Shares authorized--20,000
Shares issued and outstanding (1995--4,059; 1996--
4,081)........................................... 40 41
Class B:
Shares authorized--12,000
Shares issued and outstanding (1995--6,256; 1996--
6,235)........................................... 63 62
Additional paid-in capital......................... 30,371 30,374
Retained earnings.................................. 23,013 32,671
------- --------
Total stockholders' equity....................... 53,487 63,148
------- --------
Total liabilities and stockholders' equity..... $88,535 $114,972
======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
THE FINISH LINE, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................... $157,011 $191,623 $240,155
Cost of sales (including occupancy
expenses).............................. 107,491 132,726 168,912
-------- -------- --------
Gross profit............................ 49,520 58,897 71,243
Selling, general and administrative
expenses............................... 36,678 44,548 54,254
-------- -------- --------
Operating income........................ 12,842 14,349 16,989
Interest expense........................ 184 317 892
-------- -------- --------
Income before income taxes.............. 12,658 14,032 16,097
Provision for federal and state income
taxes.................................. 5,063 5,618 6,439
-------- -------- --------
Net income.............................. $ 7,595 $ 8,414 $ 9,658
======== ======== ========
Net income per share.................... $ .74 $ .82 $ .94
======== ======== ========
Weighted average shares................. 10,315 10,315 10,315
======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
THE FINISH LINE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................. $ 7,595 $ 8,414 $ 9,658
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 2,018 2,888 3,982
Deferred income taxes................ (589) (835) (468)
(Gain) loss on disposal of property
and equipment....................... 4 (15) 213
Changes in operating assets and
liabilities:
Accounts receivable................. (412) (881) 815
Merchandise inventories............. (6,059) (9,568) (20,590)
Other current assets................ 120 (280) 158
Tax deposits and other assets....... 1,726 (43) 147
Accounts payable.................... 2,925 1,391 10,445
Employee compensation and related
payroll taxes...................... 543 608 664
Accrued income taxes................ 758 1,038 (386)
Other liabilities and accrued
expenses........................... 349 554 965
Deferred rent payments.............. 621 621 613
-------- -------- --------
Net cash provided by operating
activities........................ 9,599 3,892 6,216
INVESTING ACTIVITIES:
Purchases of property and equipment.... (6,544) (10,025) (10,197)
Proceeds from disposals of property and
equipment............................. 12 418 211
-------- -------- --------
Net cash used in investing
activities........................ (6,532) (9,607) (9,986)
FINANCING ACTIVITIES:
Proceeds from short-term and long-term
debt.................................. 37,900 59,249 102,100
Principal payments on short-term and
long-term debt........................ (37,900) (56,224) (97,625)
Net principal reduction of stockholder
loans................................. (595) -- --
Proceeds and tax benefits from exercise
of stock options...................... -- -- 3
-------- -------- --------
Net cash provided by (used in)
financing activities.............. (595) 3,025 4,478
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents...................... 2,472 (2,690) 708
Cash and cash equivalents at beginning
of year............................... 1,196 3,668 978
-------- -------- --------
Cash and cash equivalents at end of
year.................................. $ 3,668 $ 978 $ 1,686
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
THE FINISH LINE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------
NUMBER OF SHARES AMOUNT ADDITIONAL
------------------ --------------- PAID-IN RETAINED
CLASS A CLASS B CLASS A CLASS B CAPITAL EARNINGS TOTALS
-------- -------- ------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 1,
1993................... 4,016 6,299 $40 $63 $30,371 $ 6,987 $37,461
Net income for 1994... 7,595 7,595
Conversion of Class B
Common Stock to Class
A Common Stock....... 20 (20)
Other................. 17 17
-------- -------- --- --- ------- ------- -------
Balance at February 28,
1994................... 4,036 6,279 40 63 30,371 14,599 45,073
Net income for 1995... 8,414 8,414
Conversion of Class B
Common Stock to Class
A Common Stock....... 23 (23)
-------- -------- --- --- ------- ------- -------
Balance at February 28,
1995................... 4,059 6,256 40 63 30,371 23,013 53,487
Net income for 1996... 9,658 9,658
Conversion of Class B
Common Stock to Class
A Common Stock....... 21 (21) 1 (1) --
Non-qualified Class A
Common Stock options
exercised............ 1 3 3
-------- -------- --- --- ------- ------- -------
Balance at February 29,
1996................... 4,081 6,235 $41 $62 $30,374 $32,671 $63,148
======== ======== === === ======= ======= =======
</TABLE>
See accompanying notes.
F-7
<PAGE>
THE FINISH LINE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements include the accounts of The Finish Line, Inc. ("the
Company"). Throughout these notes to the financial statements, the fiscal
years ended February 28, 1994, February 28, 1995, and February 29, 1996 are
referred to as 1994, 1995, and 1996, respectively.
Reclassification
Certain amounts in prior years have been reclassified to conform to the 1996
presentation.
Nature of Operations
Finish Line is a specialty retailer of men's, women's and children's brand-
name athletic, outdoor and lifestyle footwear, activewear and accessories.
Finish Line stores average approximately 4,000 square feet in size and are
primarily located in enclosed malls in the Midwest, Southeast and South.
In 1996, the Company purchased approximately 80% of its merchandise from its
five largest suppliers. The largest supplier, Nike, accounted for
approximately 40% and 50% of merchandise purchases in 1995 and 1996,
respectively.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with a
maturity date of three months or less when purchased.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market using a
weighted average cost method, which approximates the first-in, first-out
method.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
generally provided using the straight-line method over the estimated useful
lives of the assets, or where applicable, the terms of the respective leases,
whichever is shorter.
Store Opening and Closing Costs
Store opening costs and other non-capitalized expenditures incurred prior to
opening new retail stores are expensed on a pro rata basis throughout the
fiscal year in which the store is opened. When a decision to close a retail
store is made, the Company expenses any remaining future net lease obligation,
nonrecoverable investment in property and equipment and other costs related to
the store closure.
Deferred Rent Payments
The Company is a party to various lease agreements which require scheduled
rent increases over the noncancelable lease term. Rent expense for such leases
is recognized on a straight-line basis over the related lease term. The
difference between rent based upon scheduled monthly payments and rent expense
recognized on a straight-line basis is recorded as deferred rent payments.
F-8
<PAGE>
THE FINISH LINE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Advertising
The Company expenses the cost of advertising as incurred. Advertising
expense net of co-op credits for the years ended 1994, 1995, and 1996 amounted
to $2,788,000, $3,020,000, and $3,524,000, respectively.
Financial Instruments
Financial Instruments consist of cash and cash equivalents and Notes Payable
to Bank. The fair value of these financial instruments approximates their
carrying amounts at February 29, 1996. At February 28, 1995 and February 29,
1996, the Company had not invested in any derivative financial instruments.
Accounting Changes
In March 1995, the Financial Accounting Standards Board issued Statement No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. The Company will adopt SFAS
121 in the first quarter of fiscal 1997 and, based on current circumstances,
does not believe the effect of adoption will be material.
2. DEBT AGREEMENTS
The Company has an unsecured committed Loan Agreement (the "Facility") with
a commercial bank in the amount of $25,000,000, which expires on September 1,
1997. The Company, at its election, can increase the credit available to
$30,000,000. At February 29, 1996, $9,500,000 was outstanding under the
Facility.
The Facility contains restrictive covenants which limit, among other things,
mergers and dividends. In addition, the Company must maintain a fixed charge
coverage ratio (as defined) of not less than 1.5 to 1.0, a tangible net worth
of not less than $42,500,000, and funded debt to total capitalization (as
defined) may not exceed 40%. The Company was in compliance with all
restrictive covenants of the debt agreements in effect at February 29, 1996.
The interest rate on the Facility is, at the Company's election, either the
bank's Federal Fund Rate plus .975%, the bank's CD Rate plus .875%, the bank's
LIBOR Rate plus .875% or the bank's prime commercial lending rate. The margin
percentage added to the Federal Fund Rate, CD Rate and LIBOR Rate is subject
to adjustment quarterly based on the fixed charge coverage ratio (as defined).
The effective borrowing rate at February 29, 1996 was approximately 6.4%.
Interest paid on the Facility during 1994, 1995, and 1996 amounted to $98,000,
$225,000, and $773,000, respectively. The Company pays a commitment fee on the
unused portion of the Facility at an effective annual rate of 1/8 of 1%. The
commitment fees expensed in 1996 were $12,000.
Long-term debt as of February 28, 1995 consisted of a $2,000,000 promissory
note. The note was repaid in full on August 31, 1995. Interest paid on long-
term debt for 1994, 1995, and 1996 amounted to $94,000, $111,000, and $68,000
respectively.
F- 9
<PAGE>
THE FINISH LINE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. LEASES
The Company leases retail stores under noncancelable operating leases which
generally have lease terms ranging from five to ten years. Most of these lease
arrangements do not provide for renewal periods. Many of the leases contain
contingent rental provisions computed on the basis of store sales. In addition
to rent payments, certain leases require the Company to pay real estate taxes,
insurance, maintenance, and other costs. The components of rent expense
incurred under these leases is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Base rent............................. $ 8,686 $11,079 $14,042
Deferred rent......................... 621 621 613
Contingent rent....................... 1,020 859 1,509
------- ------- -------
Rent expense.......................... $10,327 $12,559 $16,164
======= ======= =======
</TABLE>
A schedule of future fixed rent payments by fiscal year for signed operating
leases at February 29, 1996 with initial or remaining noncancelable terms of
one year or more is as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 16,196
1998................................................................ $ 15,977
1999................................................................ $ 15,744
2000................................................................ $ 15,396
2001................................................................ $ 15,040
Thereafter.......................................................... $ 48,850
--------
$127,203
========
</TABLE>
The above schedule includes lease commitments for nine new stores which were
not open as of February 29, 1996.
4. INCOME TAXES
Components of the provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Currently payable:
Federal............................. $4,598 $5,162 $5,570
State............................... 1,054 1,291 1,337
------ ------ ------
5,652 6,453 6,907
------ ------ ------
Deferred:
Federal............................. (463) (663) (371)
State............................... (126) (172) (97)
------ ------ ------
(589) (835) (468)
------ ------ ------
$5,063 $5,618 $6,439
====== ====== ======
</TABLE>
F-10
<PAGE>
THE FINISH LINE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Deferred rent accrual............................ $1,063 $1,343
Store opening supplies........................... 927 1,073
Uniform capitalization........................... 764 819
Vacation accrual................................. 186 224
Bonus accrual.................................... 388 438
Other............................................ 30 127
------ ------
Total deferred tax assets.......................... 3,358 4,024
------ ------
Deferred tax liabilities:
Tax over book depreciation....................... (10) (208)
------ ------
Net deferred tax assets............................ $3,348 $3,816
====== ======
</TABLE>
Payments of income taxes for 1994, 1995, and 1996 were $5,082,000,
$5,579,000, and $7,465,000, respectively.
5. PROFIT SHARING PLAN
The Company sponsors a defined contribution profit sharing plan which covers
substantially all employees who have completed one year of service.
Contributions to this plan are discretionary and are allocated to employees as
a percentage of each covered employee's salary. The Company's total expense
for the plan in 1994, 1995, and 1996 amounted to $801,000, $900,000, and
$815,000, respectively.
6. STOCK OPTIONS
On March 27, 1992, the Board of Directors of the Company adopted and
approved the 1992 Incentive Plan (the "Plan"), which allows the grants of
incentive stock options and other awards. The Board of Directors has reserved
850,000 shares of Class A Common Stock for issuance upon exercise of options
or grants of other awards under the Plan.
Subject to the provisions of the Plan, the Compensation and Stock Option
Committee determines the terms of awards under the Plan, including exercise
price, vesting and expiration. All options outstanding under the Plan as of
the end of fiscal 1996 are exercisable at a price equal to the fair market
value on the date of grant, vest over four years and expire ten years after
the date of grant.
On July 21, 1994, the Company's stockholders approved The Finish Line, Inc.
Non-Employee Director Stock Option Plan (the "Director Plan"), which allows
the grant of a maximum of 75,000 shares of Class A Common Stock to non-
employee directors of the Company.
Subject to the provisions of the Director Plan, upon initial election as a
non-employee director, each such director will be granted a non-qualified
stock option to purchase 3,000 shares of the Class A Common Stock. In
addition, each non-employee director will be automatically granted, on an
annual basis, a non-qualified stock option to purchase 2,000 shares of the
Company's Class A Common Stock on the date of each Annual Meeting
F-11
<PAGE>
THE FINISH LINE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of Stockholders commencing with the Annual Meeting of Stockholders at which
the non-employee director is granted the initial 3,000 share option. The per
share exercise price of the options will be the fair market value of a share
of the Company's Class A Common Stock on the date of grant. Each option will
have a term of ten years and will become fully exercisable one year after a
non-employee director's initial election to the board. Options granted under
the Director Plan amounted to 10,000 and 4,000 in 1995 and 1996, respectively.
The Company currently follows the provisions of Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," which
requires compensation expense for the Company's options to be recognized only
if the market price of the underlying stock exceeds the exercise price on the
date of grant. Accordingly, the Company has not recognized compensation
expense for its options granted in 1994, 1995 or 1996.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123 ("SFAS 123"), "Accounting for Stock-
Based Compensation." SFAS 123 is effective for fiscal years beginning after
December 15, 1995 and will require companies to either adopt a fair value
based method of expense recognition for all stock compensation based awards,
or provide proforma net income and earnings per share information as if the
recognition and measurement provisions of SFAS 123 had been adopted. Upon the
adoption of SFAS 123 in fiscal 1997, the Company intends to continue to
account for its stock compensation based awards following the provisions of
APB 25 and provide the required fair value based proforma information.
A reconciliation of the Company's stock option activity and related
information under both plans is as follows:
<TABLE>
<CAPTION>
NUMBER PRICE
OF OPTIONS PER SHARE
---------- ---------------
<S> <C> <C>
Outstanding at February 28, 1993................. 95,001 $10.25 - $19.75
Granted.......................................... 107,000 9.75 - 15.25
Exercised........................................ 0
Canceled......................................... (26,000) 13.88 - 19.75
------- ---------------
Outstanding at February 28, 1994................. 176,001 9.75 - 15.25
Granted.......................................... 172,500 7.50 - 9.00
Exercised........................................ 0
Canceled......................................... (16,500) 8.00 - 15.25
------- ---------------
Outstanding at February 28, 1995................. 332,001 7.50 - 15.25
Granted.......................................... 281,250 6.75 - 12.00
Exercised........................................ (300) 8.00
Canceled......................................... (28,700) 6.75 - 15.25
------- ---------------
Outstanding at February 29, 1996................. 584,251 6.75 - 15.25
======= ===============
</TABLE>
As of February 29, 1996, 104,056 of the options are exercisable.
F-12
<PAGE>
THE FINISH LINE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. COMMON STOCK
At February 29, 1996, shares of the Company's stock outstanding consisted of
Class A and Class B Common Stock. Class A and Class B Common Stock have
identical rights with respect to dividends and liquidation preference.
However, Class A and Class B Common Stock differ with respect to voting
rights, convertibility, and transferability.
Holders of Class A Common Stock are entitled to one vote for each share held
of record, and holders of Class B Common Stock are entitled to ten votes for
each share held of record. The Class A Common Stock and the Class B Common
Stock vote together as a single class on all matters submitted to a vote of
stockholders (including the election of directors), except that, in the case
of a proposed amendment to the Company's Restated Certificate of Incorporation
that would alter the powers, preferences or special rights of either the Class
A Common Stock or the Class B Common Stock, the class of Common Stock to be
altered shall vote on the amendment as a separate class. Shares of Class A and
Class B Common Stock do not have cumulative voting rights.
While the shares of Class A Common Stock are not convertible into any other
series or class of the Company's securities, each share of Class B Common
Stock is freely convertible into one share of Class A Common Stock at the
option of the Class B Stockholders.
Shares of Class B Common Stock may not be transferred to third parties
(except for transfer to certain family members of the holders and in other
limited circumstances). All of the shares of Class B Common Stock are held by
certain executive officers and their family members.
8. PER SHARE DATA
Net income per share data is based on weighted average shares outstanding of
10,314,999, 10,314,999, and 10,315,177 in 1994, 1995, and 1996, respectively.
Assumed exercise of the stock options issued by the Company would have no
material effect on net income per share.
F-13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 8
Price Range of Class A Common Stock....................................... 8
Dividend Policy........................................................... 8
Capitalization............................................................ 9
Selected Financial Data................................................... 10
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 12
Business.................................................................. 17
Management................................................................ 22
Selling Stockholders...................................................... 25
Description of Capital Stock.............................................. 26
Underwriting.............................................................. 28
Legal Matters............................................................. 29
Experts................................................................... 29
Available Information..................................................... 29
Incorporation of Certain Documents by Reference........................... 30
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,600,000 SHARES
[THE FINISH LINE, INC. LOGO]
CLASS A COMMON STOCK
-------
PROSPECTUS
, 1996
-------
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
OPPENHEIMER & CO., INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Registrant and
Selling Stockholders in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts. All the
amounts shown are estimates except the Securities and Exchange Commission
registration fee and the National Association of Securities Dealers, Inc.
filing fee.
<TABLE>
<CAPTION>
SELLING
REGISTRANT STOCKHOLDERS
---------- ------------
<S> <C> <C>
Securities and Exchange Commission Registration Fee.... $11,263 $14,642
National Association of Securities Dealers, Inc. Filing
Fee................................................... 3,483 4,529
Legal Fees and Expenses................................ * *
Accounting Fees and Expenses........................... * *
Blue Sky Fees and Expenses, including Legal Fees....... * *
Printing, including Registration Statement, Prospectus,
etc................................................... * *
Miscellaneous Expenses................................. * *
------- -------
Total.............................................. $ * $ *
======= =======
</TABLE>
- --------
* To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IX of the Registrant's Restated Certificate of Incorporation and
Article VII of its Bylaws provide for the indemnification by the Registrant of
each director, officer, employee and agent of the Registrant to the fullest
extent permitted by the Delaware General Corporation Law, as the same exists
or may hereafter be amended. Section 145 of the Delaware General Corporation
Law provides in relevant part that a corporation may 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 such person 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 such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person 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 such person's conduct
was unlawful.
In addition, Section 145 provides that a corporation may 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 such
person 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 such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person 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 of 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 Delaware Court of Chancery or the court in which action or suit was
brought shall determine upon application that, despite the adjudication of the
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses
II-1
<PAGE>
which the Delaware Court of Chancery or such other court shall deem proper.
Delaware law further provides that nothing in the above-described provisions
shall be deemed exclusive of any other rights to indemnification or
advancement of expenses to which any person may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
The Registrant has entered into, and the stockholders of the Registrant
ratified, separate but identical indemnity agreements (the "Indemnity
Agreements") with each director of the Registrant and each executive officer
of the Registrant (the "Indemnitees"). Pursuant to the terms and conditions of
the Indemnity Agreements, the Registrant has agreed to indemnify each
Indemnitee against any amounts which he becomes legally obligated to pay in
connection with any claim against him based upon any act, omission, neglect or
breach of duty which he may commit, omit or suffer while acting in his
capacity as a director and/or officer of the Registrant; provided, however,
that such claim: (i) is not based upon the Indemnitee's gaining in fact any
personal profit or advantage to which he is not legally entitled; (ii) is not
for an accounting of profits made from the purchase or sale by the Indemnitee
of securities of the Registrant within the meaning of Section 16A(b) of the
Securities Exchange Act of 1934, as amended, or similar provisions of any
state law; and (iii) is not based upon the Indemnitee's knowingly fraudulent,
deliberately dishonest or willful misconduct.
The Indemnity Agreements provide that all costs and expenses incurred by the
Indemnitee in defending or investigating such claim shall be paid by the
Registrant in advance of the final disposition thereof unless the Registrant,
independent legal counsel, the stockholders of the Registrant or a court of
competent jurisdiction determines that: (i) the Indemnitee did not act in good
faith and in a manner that he reasonably believed to be in or not opposed to
the best interests of the Registrant; (ii) in the case of any criminal action
or proceeding, the Indemnitee intentionally breached his duty to the
Registrant or its stockholders. Each Indemnitee has undertaken to repay the
Registrant for any costs or expenses so advanced if it shall ultimately be
determined by a court of competent jurisdiction in a final, nonapplicable
adjudication that he is not entitled to indemnification under the Indemnity
Agreement.
The Registrant has purchased a policy of directors' liability insurance.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1 Form of Underwriting Agreement.
5 Opinion of Gibson, Dunn & Crutcher LLP.*
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5).*
23.2 Consent of Ernst & Young LLP (independent auditors).
24 Power of Attorney (included on Page II-4).
27 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by
II-2
<PAGE>
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed in reliance
upon 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of
1933 shall be deemed to be a part of this registration statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that is has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Indianapolis, Indiana, on the 16th day of May,
1996.
THE FINISH LINE, INC.
/s/ Alan H. Cohen
By:----------------------------------
Its: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature to this
Registration Statement appears below hereby constitutes and appoints Alan H.
Cohen and Steven J. Schneider as such person's true and lawful attorney-in-
fact and agent with full power of substitution for such person and in such
person's name, place and stead, In any and all capacities, to sign and to file
with the Securities and Exchange Commission, any and all amendments and post-
effective amendments to this Registration Statement, with exhibits thereto and
other documents in connection therewith, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or any
substitute therefore, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Alan H. Cohen Chairman of the Board, May 16, 1996
____________________________________ President and Chief
Alan H. Cohen Executive Officer
(Principal Executive
Officer)
/s/ David I. Klapper Executive Vice President and May 16, 1996
____________________________________ Director
David I. Klapper
/s/ David M. Fagin Executive Vice President, May 16, 1996
____________________________________ Secretary and Director
David M. Fagin
/s/ Larry J. Sablosky Executive Vice President and May 16, 1996
____________________________________ Director
Larry J. Sablosky
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Steven J. Schneider Vice President--Finance and May 16, 1996
____________________________________ Chief Financial Officer
Steven J. Schneider (Principal Financial and
Accounting Officer)
/s/ Jeffrey H. Smulyan Director May 16, 1996
____________________________________
Jeffrey H. Smulyan
/s/ Jonathan K. Layne Director May 16, 1996
____________________________________
Jonathan K. Layne
</TABLE>
II-5
<PAGE>
Edgar description of Pictures/Graphics.
---------------------------------------
Page 2 =
(a) Top = Map of United States depicting, by state, where Company stores and
Corporate Headquarters and Distribution Center are located.
(b) Bottom = Bar chart graph indicating for the years 1987-1996 Company
stores opened at the beginning of each year and Company stores opened during
each year.
Page 2A =
(a) Top = Store brand picture of Company's retail store located at Circle
Centre Mall, Indianapolis, Indiana.
(b) Left Center and Left Bottom = Store brand picture and "shoe wall" depicting
footwear sold by Company at Company's retail store located at Northwoods Mall,
Peoria, Illinois.
(c) Right Center and Right Bottom = Store brand picture and "shoe wall"
depicting footwear sold by Company at Company's retail store located at
Lafayette Square Mall, Indianapolis, Indiana.
Page 2B =
(a) Top = Store brand picture of Company's retail store located at Circle Centre
Mall, Indianapolis, Indiana.
(b) Left Center and Left Bottom = Store brand picture and "shoe wall" depicting
footwear sold by Company at Company's retail store located at Eastview Mall,
Rochester, New York.
(c) Right Center and Right Bottom = Pictures of Company store interior depicting
merchandise sold by Company at Company's retail store located at Circle Centre
Mall, Indianapolis, Indiana.
(d) Inside Back Cover = Six poster advertisements depicting vendor merchandise
sold by the Company.
<PAGE>
Proof as of 5/16/96
2,600,000 SHARES
THE FINISH LINE, INC.
CLASS A COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
June , 1996
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
OPPENHEIMER & CO., INC.
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
The Finish Line, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell an aggregate of 1,300,000 shares of its Class A
common stock, $0.01 par value per share, to the several Underwriters named in
Schedule II hereto (the "Underwriters") and the persons named in Part A of
Schedule I hereto (the "Selling Stockholders") propose to sell to the several
Underwriters an aggregate of 1,300,000 shares of Class A common stock of the
Company. The Company and the Selling Stockholders are hereinafter sometimes
referred to as the "Sellers". The Company's Class A common stock, $0.01 par
value, is hereinafter referred to as the "Common Stock" and the 1,300,000 shares
of Common Stock to be issued and sold to the Underwriters by the Company and the
1,300,000 shares of Common Stock to be sold to the Underwriters by the Selling
Stockholders are hereinafter referred to as the "Firm Shares". The Selling
Stockholders listed in Part B of Schedule I hereto also propose to sell to the
Underwriters, upon the terms and conditions set forth in Section 2 hereof, up to
an additional 390,000 shares (the "Additional Shares") of Common Stock. The
Firm Shares and the Additional Shares are hereinafter collectively referred to
as the "Shares".
The Company and the Selling Stockholders wish to confirm as follows
their respective agreements with you (the "Representatives") and the other
several Underwriters on whose
<PAGE>
behalf you are acting, in connection with the several purchases of the Shares by
the Underwriters.
1. Registration Statement and Prospectus. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-3 under the Act (the "registration
statement"), including a prospectus subject to completion relating to the
Shares. The term "Registration Statement" as used in this Agreement means the
registration statement (including all financial schedules and exhibits), as
amended at the time it becomes effective, or, if the registration statement
became effective prior to the execution of this Agreement, as supplemented or
amended prior to the execution of this Agreement. If it is contemplated, at the
time this Agreement is executed, that a post-effective amendment to the
registration statement will be filed and must be declared effective before the
offering of the Shares may commence, the term "Registration Statement" as used
in this Agreement means the registration statement as amended by said post-
effective amendment. The term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement, or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in the registration
statement at the time of the initial filing of the registration statement with
the Commission, and as such prospectus shall have been amended from time to time
prior to the date of the Prospectus. Any reference in this Agreement to the
registration statement, the Registration Statement, any Prepricing Prospectus or
the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act,
as of the date of the registration statement, the Registration Statement, such
Prepricing Prospectus or the Prospectus, as the case may be, and any reference
to any amendment or supplement to the registration statement, the Registration
Statement, any Prepricing Prospectus or the Prospectus shall be deemed to refer
to and include any documents filed after such date under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") which, upon filing, are
incorporated by reference therein, as required by paragraph (b) of Item 12 of
Form S-3. As used herein, the term "Incorporated Documents" means the documents
which at the time are incorporated by reference in the registration statement,
-2-
<PAGE>
the Registration Statement, any Prepricing Prospectus, the Prospectus, or any
amendment or supplement thereto.
2. Agreements to Sell and Purchase. Subject to such adjustments as
you may determine in order to avoid fractional Shares, the Company hereby
agrees, subject to all the terms and conditions set forth herein, to issue and
sell to each Underwriter and, upon the basis of the representations, warranties
and agreements of the Company and the Selling Stockholders herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $____ per Share (the "purchase price per share"), the number of Firm
Shares which bears the same proportion to the aggregate number of Firm Shares to
be issued and sold by the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto (or such number of
Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate
number of Firm Shares to be sold by the Company and the Selling Stockholders.
Subject to such adjustments as you may determine in order to avoid
fractional Shares, each Selling Stockholder agrees, subject to all the terms and
conditions set forth herein, to sell to each Underwriter and, upon the basis of
the representations, warranties and agreements of the Company and the Selling
Stockholders herein contained and subject to all the terms and conditions set
forth herein, each Underwriter, severally and not jointly, agrees to purchase
from each Selling Stockholder at the purchase price per share that number of
Firm Shares which bears the same proportion to the number of Firm Shares set
forth opposite the name of such Selling Stockholder in Schedule I hereto as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II hereto (or such number of Firm Shares increased as set forth in
Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by
the Company and the Selling Stockholders.
The Selling Stockholders listed in Part B of Schedule I hereto also
agree, subject to all the terms and conditions set forth herein, to sell to the
Underwriters, and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Stockholders herein contained and
subject to all the terms and conditions set forth herein, the Underwriters shall
have the right to purchase from the Selling Stockholders listed in Part B of
Schedule I hereto, at the purchase price per share, pursuant to an option (the
"over-allotment option") which may be exercised at any time and from time to
time prior to 9:00 P.M., New York City time, on the 30th day after the date of
the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday,
on the next business day thereafter when the New York Stock Exchange is open for
trading), up to an aggregate of 390,000 Additional Shares from the Selling
Stockholders listed in Part B of Schedule I hereto (the
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maximum number of Additional Shares which each of them agrees to sell upon the
exercise by the Underwriters of the over-allotment option is set forth opposite
their respective names in Part B of Schedule I). Additional Shares may be
purchased only for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. The number of Additional Shares which the
Underwriters elect to purchase upon any exercise of the over-allotment option
shall be provided by each Selling Stockholder who has agreed to sell Additional
Shares in proportion to the respective maximum numbers of Additional Shares
which each such Selling Stockholder has agreed to sell. Upon any exercise of
the over-allotment option, each Underwriter, severally and not jointly, agrees
to purchase from each Selling Stockholder who has agreed to sell Additional
Shares the number of Additional Shares (subject to such adjustments as you may
determine in order to avoid fractional Shares) which bears the same proportion
to the number of Additional Shares to be sold by each Selling Stockholder who
has agreed to sell Additional Shares as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto (or such number of
Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate
number of Firm Shares to be sold by the Selling Stockholders.
Certificates in transferable form for the Shares (including any
Additional Shares) which each of the Selling Stockholders agrees to sell
pursuant to this Agreement have been placed in custody with (the
"Custodian") for delivery under this Agreement pursuant to a Custody Agreement
and Power of Attorney (the "Custody Agreement") executed by each of the Selling
Stockholders appointing and as agents and attorneys-
in-fact (the "Attorneys-in-Fact"). Each Selling Stockholder agrees that (i) the
Shares represented by the certificates held in custody pursuant to the Custody
Agreement are subject to the interests of the Underwriters, the Company and each
other Selling Stockholder, (ii) the arrangements made by the Selling
Stockholders for such custody are, except as specifically provided in the
Custody Agreement, irrevocable, and (iii) the obligations of the Selling
Stockholders hereunder and under the Custody Agreement shall not be terminated
by any act of such Selling Stockholder or by operation of law, whether by the
death or incapacity of any Selling Stockholder or the occurrence of any other
event. If any Selling Stockholder shall die or be incapacitated or if any other
event shall occur before the delivery of the Shares hereunder, certificates for
the Shares of such Selling Stockholder shall be delivered to the Underwriters by
the Attorneys-in-Fact in accordance with the terms and conditions of this
Agreement and the Custody Agreement as if such death or incapacity or other
event had not occurred, regardless of whether or not the Attorneys-in-Fact or
any Underwriter shall have received notice of such death, incapacity or other
event. Each Attorney-in-Fact is authorized, on behalf of each of the Selling
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Stockholders, to execute this Agreement and any other documents necessary or
desirable in connection with the sale of the Shares to be sold hereunder by such
Selling Stockholder, to make delivery of the certificates for such Shares, to
receive the proceeds of the sale of such Shares, to give receipts for such
proceeds, to pay therefrom any expenses to be borne by such Selling Stockholder
in connection with the sale and public offering of such Shares, to distribute
the balance thereof to such Selling Stockholder, and to take such other action
as may be necessary or desirable in connection with the transactions
contemplated by this Agreement. Each Attorney-in-Fact agrees to perform his
duties under the Custody Agreement.
3. Terms of Public Offering. The Sellers have been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
[Kirkland & Ellis, 200 E. Randolph Drive, Chicago, Illinois 60601], at 10:00
A.M., New York City time, on , 1996 (the "Closing Date"). The place
of closing for the Firm Shares and the Closing Date may be varied by agreement
among you, the Company and the Attorneys-in-Fact.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Smith Barney Inc. at such time on such date (the "Option Closing Date"),
which may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than two nor later than ten business days after the
giving of the notice hereinafter referred to, as shall be specified in a written
notice from you on behalf of the Underwriters to the Company and the Attorneys-
in-Fact of the Underwriters' determination to purchase a number, specified in
such notice, of Additional Shares. The place of closing for any Additional
Shares and the Option Closing Date for such Shares may be varied by agreement
among you, the Company and the Attorneys-in-Fact.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates
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evidencing the Firm Shares and any Additional Shares to be purchased hereunder
shall be delivered to you on the Closing Date or the Option Closing Date, as the
case may be, against payment of the purchase price therefor in immediately
available funds.
5. Agreements of the Company. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Company will endeavor to cause the Registration Statement or such post-effective
amendment to become effective as soon as possible and will advise you promptly
and, if requested by you, will confirm such advice in writing, when the
Registration Statement or such post-effective amendment has become effective.
(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, which makes any statement of a material fact made in the
Registration Statement or the Prospectus (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectus (as then amended or supplemented) in
order to state a material fact required by the Act or the regulations thereunder
to be stated therein or necessary in order to make the statements therein not
misleading, or of the necessity to amend or supplement the Prospectus (as then
amended or supplemented) to comply with the Act or any other law. If at any
time the Commission shall issue any stop order suspending the effectiveness of
the Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal of such order at the earliest possible time.
(c) The Company will furnish to you, without charge (i) four signed
copies of the registration statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits to
the registration statement, (ii) such number of conformed copies of the
registration statement as originally filed and of each amendment thereto, but
without exhibits, as you may request, (iii) such number of copies
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of the Incorporated Documents, without exhibits, as you may request, and (iv)
four copies of the exhibits to the Incorporated Documents.
(d) The Company will not file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus or, prior to the
end of the period of time referred to in the first sentence in subsection (f)
below, file any document which, upon filing becomes an Incorporated Document, of
which you shall not previously have been advised or to which, after you shall
have received a copy of the document proposed to be filed, you shall reasonably
object.
(e) Prior to the execution and delivery of this Agreement, the Company
has delivered to you, without charge, in such quantities as you have requested,
copies of each form of the Prepricing Prospectus. The Company consents to the
use, in accordance with the provisions of the Act and with the securities or
Blue Sky laws of the jurisdictions in which the Shares are offered by the
several Underwriters and by dealers, prior to the date of the Prospectus, of
each Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer, the Company will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus (or to file under the Exchange Act any document which, upon
filing, becomes an Incorporated Document) in order to comply with the Act or any
other law, the Company will forthwith prepare and, subject to the provisions of
paragraph (d) above, file with the Commission an appropriate supplement or
amendment thereto (or to such document), and will expeditiously furnish to the
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Underwriters and dealers a reasonable number of copies thereof. In the event
that the Company and you, as Representatives of the several Underwriters, agree
that the Prospectus should be amended or supplemented, the Company, if requested
by you, will promptly issue a press release announcing or disclosing the matters
to be covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to service of process in suits, other than those arising out of the
offering or sale of the Shares, in any jurisdiction where it is not now so
subject.
(h) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering a twelve-
month period commencing after the effective date of the Registration Statement
and ending not later than 15 months thereafter, as soon as practicable after the
end of such period, which consolidated earnings statement shall satisfy the
provisions of Section ll(a) of the Act.
(i) During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or filed with the Commission, and (ii) from time to time
such other information concerning the Company as you may request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 12 hereof or by notice given by you terminating this
Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company or the Selling Stockholders to comply with the terms or
fulfill any of the conditions of this Agreement, the Company agrees to reimburse
the Representatives for all out-of-pocket expenses (including fees and expenses
of counsel for the Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
description set forth in the Prospectus.
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(l) If Rule 430A of the Act is employed, the Company will timely file
the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the
time and manner of such filing.
(m) Except as provided in this Agreement or as permitted or required
by the Company's 1992 Employee Stock Incentive Plan and Non-Employee Director
Stock Option Plan, the Company will not sell, contract to sell or otherwise
dispose of any Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or grant any options or warrants to purchase
Common Stock, for a period of 120 days after the date of the Prospectus, without
the prior written consent of Smith Barney Inc.
(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, to the same effect as the
agreements set forth in Section 6(d) below and with a term of 90 days after the
date of the Prospectus, signed by each of its current executive officers and
directors (other than the Selling Stockholders) its stockholders designated by
you, except that the lock-up letters signed by two of such executive officers
will permit without restriction the sale of an aggregate of 40,000 shares of
Common Stock by such two executive officers.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(p) The Company will use its best efforts to have the shares of Common
Stock which it agrees to sell under this Agreement listed, subject to notice of
issuance, on the Nasdaq National Market on or before the Closing Date.
6. Agreements of the Selling Stockholders. Each of the Selling
Stockholders agrees with the several Underwriters as follows:
(a) Such Selling Stockholder will cooperate to the extent necessary to
cause the registration statement or any post-effective amendment thereto to
become effective at the earliest possible time.
(b) Such Selling Stockholder will pay all Federal and other taxes, if
any on the transfer or sale of the Shares being sold by the Selling Stockholder
to the Underwriters.
(c) Such Selling Stockholder will do or perform all things required to
be done or performed by the Selling Stockholder prior to the Closing Date or any
Option Closing Date, as the case
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may be, to satisfy all conditions precedent to the delivery of the Shares
pursuant to this Agreement.
(d) Such Selling Stockholder will not sell, contract to sell or
otherwise dispose of any Common Stock, except for the sale of Shares to the
Underwriters pursuant to this Agreement, prior to the expiration of 120 days
after the date of the Prospectus, without the prior written consent of Smith
Barney Inc.
(e) Except as stated in this Agreement and in the Prepricing
Prospectus and the Prospectus, such Selling Stockholder will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(f) Such Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the period of time
referred to in Section 5(f) hereof, of any change in the Company's condition
(financial or other), business, prospects, properties, net worth or results of
operations or of any change in information relating to such Selling Stockholder
or the Company or any new information relating to the Company or relating to any
matter stated in the Prospectus or any amendment or supplement thereto which
comes to the attention of such Selling Stockholder that suggests that any
statement made in the Registration Statement or the Prospectus (as then amended
or supplemented, if amended or supplemented) is or may be untrue in any material
respect or that the Registration Statement or Prospectus (as then amended or
supplemented, if amended or supplemented) omits or may omit to state a material
fact or a fact necessary to be stated therein in order to make the statements
therein not misleading in any material respect, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented, if amended or
supplemented) in order to comply with the Act or any other law.
7. Representations and Warranties of the Company. The Company represents
and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the registration
statement as originally filed or as part of any amendment or supplement thereto,
or filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the provisions of the Act. The Commission has not issued
any order preventing or suspending the use of any Prepricing Prospectus.
(b) The Company and the transactions contemplated by this Agreement
meet the requirements for using Form S-3 under the Act. The registration
statement in the form in which it became or becomes effective and also in such
form as it may be when any
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post-effective amendment thereto shall become effective and the prospectus and
any supplement or amendment thereto when filed with the Commission under Rule
424(b) under the Act, complied or will comply in all material respects with the
provisions of the Act and will not at any such times contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, except that
this representation and warranty does not apply to statements in or omissions
from the registration statement or the prospectus made in reliance upon and in
conformity with information relating to any Underwriter furnished to the Company
in writing by or on behalf of any Underwriter through you expressly for use
therein.
(c) The Incorporated Documents heretofore filed, when they were filed
(or, if any amendment with respect to any such document was filed, when such
amendment was filed), conformed in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder, and any further
Incorporated Documents so filed will, when they are filed, conform in all
material respects with the requirements of the Exchange Act and the rules and
regulations thereunder; no such document when it was filed (or, if an amendment
with respect to any such document was filed, when such amendment was filed),
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading; and no such further document, when it is filed, will
contain an untrue statement of a material fact or will omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading.
(d) All the outstanding shares of Common Stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable and
are free of any preemptive or similar rights; the Shares to be issued and sold
by the Company have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor in accordance with the terms hereof, will
be validly issued, fully paid and nonassessable and free of any preemptive or
similar rights; and the capital stock of the Company conforms to the description
thereof in the registration statement and the prospectus.
(e) The Company is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus, and is
duly registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such
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registration or qualification, except where the failure so to register or
qualify does not have a material adverse effect on the condition (financial or
other), business, properties, net worth or results of operations of the Company
and the Subsidiaries (as hereinafter defined) taken as a whole.
(f) The Company has no subsidiaries.
(g) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company, or to which the
Company, or to which any of its respective properties is subject, that are
required to be described in the Registration Statement or the Prospectus but are
not described as required, and there are no agreements, contracts, indentures,
leases or other instruments that are required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement or any Incorporated Document that are not described or
filed as required by the Act or the Exchange Act.
(h) The Company is not in violation of its certificate or articles of
incorporation or by-laws, or other organizational documents, or of any law,
ordinance, administrative or governmental rule or regulation applicable to the
Company or of any decree of any court or governmental agency or body having
jurisdiction over the Company, or in default in any material respect in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any material
agreement, indenture, lease or other instrument to which the Company is a party
or by which any of them or any of their respective properties may be bound.
(i) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby (i) requires any consent,
approval, authorization or other order of or registration or filing with, any
court, regulatory body, administrative agency or other governmental body, agency
or official (except such as may be required for the registration of the Shares
under the Act and the Exchange Act and compliance with the securities or Blue
Sky laws of various jurisdictions, all of which have been or will be effected in
accordance with this Agreement) or conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the certificate
or articles of incorporation or bylaws, or other organizational documents, of
the Company or (ii) conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, any agreement, indenture, lease or
other instrument to which the Company is a party or by which any of them or any
of their respective properties may be bound, or violates or will violate any
statute, law, regulation or filing or judgment,
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injunction, order or decree applicable to the Company or any of its properties,
or will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to the terms of any
agreement or instrument to which it is a party or by which it may be bound or to
which any of the property or assets of it is subject.
(j) The accountants, Ernst & Young LLP, who have certified or shall
certify the financial statements included or incorporated by reference in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto) are independent public accountants as required by the Act.
(k) The financial statements, together with related schedules and
notes, included or incorporated by reference in the Registration Statement and
the Prospectus (and any amendment or supplement thereto), present fairly the
financial position, results of operations and changes in financial position of
the Company on the basis stated in the Registration Statement at the respective
dates or for the respective periods to which they apply; such statements and
related schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial and statistical
information and data included or incorporated by reference in the Registration
Statement and the Prospectus (and any amendment or supplement thereto) are
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company.
(l) The execution and delivery of, and the performance by the Company
of its obligations under, this Agreement have been duly and validly authorized
by the Company, and this Agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as rights
to indemnity and contribution hereunder may be limited by federal or state
securities laws.
(m) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), the
Company has not incurred any liability or obligation, direct or contingent, or
entered into any transaction, not in the ordinary course of business, that is
material to the Company, and there has not been any change in the capital stock,
or material increase in the short-term debt or long-term debt, of the Company,
or any material adverse change, or any development involving or which may
reasonably be expected to involve, a prospective material adverse change, in the
condition
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(financial or other), business, net worth or results of operations of the
Company.
(n) The Company has good and marketable title to all property (real
and personal) described in the Prospectus as being owned by it, free and clear
of all liens, claims, security interests or other encumbrances except such as
are described in the Registration Statement and the Prospectus or in a document
filed as an exhibit to the Registration Statement and all the property described
in the Prospectus as being held under lease by each of the Company is held by it
under valid, subsisting and enforceable leases.
(o) The Company has not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) completion of the distribution of the Shares,
will not distribute any offering material in connection with the offering and
sale of the Shares other than the Registration Statement, the Prepricing
Prospectus, the Prospectus or other materials, if any, permitted by the Act.
(p) The Company has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its respective properties and to conduct its business in the
manner described in the Prospectus, subject to such qualifications as may be set
forth in the Prospectus; the Company has fulfilled and performed all its
material obligations with respect to such permits and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other material impairment of the rights of
the holder of any such permit, subject in each case to such qualification as may
be set forth in the Prospectus; and, except as described in the Prospectus, none
of such permits contains any restriction that is materially burdensome to the
Company.
(q) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(r) To the Company's knowledge, neither the Company nor any employee
or agent of the Company has made any payment of funds of the Company or received
or retained any funds in violation of
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any law, rule or regulation, which payment, receipt or retention of funds is of
a character required to be disclosed in the Prospectus.
(s) The Company has filed all tax returns required to be filed, which
returns are complete and correct, and the Company is not in default in the
payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto.
(t) No holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the Company
because of the filing of the registration statement or consummation of the
transactions contemplated by this Agreement.
(u) The Company owns or possesses all patents, trademarks, trademark
registration, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights described in the
Prospectus as being owned by it or necessary for the conduct of its businesses,
and the Company is not aware of any claim to the contrary or any challenge by
any other person to the rights of the Company with respect to the foregoing.
(v) The Company has complied with all provisions of Florida Statutes,
(S)517.075, relating to issuers doing business with Cuba.
(w) The Company is not involved in any labor dispute nor is any such
dispute threatened, which dispute may reasonably be expected to involve a
material adverse change in the condition (financial or other), business, net
worth or results of operations of the Company.
8. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder represents and warrants to each Underwriter that:
(a) Such Selling Stockholder now has, and on the Closing Date and any
Option Closing Date will have, valid and marketable title to the Shares to be
sold by such Selling Stockholder, free and clear of any lien, claim, security
interest or other encumbrance, including, without limitation, any restriction on
transfer.
(b) Such Selling Stockholder now has, and on the Closing Date and any
Option Closing Date will have, full legal right, power and authorization, and
any approval required by law, to sell, assign transfer and deliver such Shares
in the manner provided in this Agreement, and upon delivery of and payment for
such Shares hereunder, the several Underwriters will acquire valid and
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marketable title to such Shares free and clear of any lien, claim, security
interest, or other encumbrance.
(c) This Agreement and the Custody Agreement have been duly
authorized, executed and delivered by or on behalf of such Selling Stockholder
and are the valid and binding agreements of such Selling Stockholder enforceable
against such Selling Stockholder in accordance with their terms.
(d) Neither the execution and delivery of this Agreement or the
Custody Agreement by or on behalf of such Selling Stockholder nor the
consummation of the transactions herein or therein contemplated by or on behalf
of such Selling Stockholder requires any consent, approval, authorization or
order of, or filing or registration with, any court, regulatory body,
administrative agency or other governmental body, agency or official (except
such as may be required under the Act or such as may be required under state
securities or Blue Sky laws governing the purchase and distribution of the
Shares) or conflicts or will conflict with or constitutes or will constitute a
breach of, or default under, or violates or will violate, any agreement,
indenture or other instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder is or may be bound or to which any of such
Selling Stockholder's property or assets is subject, or any statute, law, rule,
regulation, ruling, judgment, injunction, order or decree applicable to such
Selling Stockholder or to any property or assets of such Selling Stockholder.
(e) The Registration Statement and the Prospectus, do not and will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
(f) The representations and warranties of such Selling Stockholder in
the Custody Agreement are, and on the Closing Date and any Option Closing Date
will be, true and correct.
(g) Such Selling Stockholder has not taken, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares, except for the lock-up arrangements described
in the Prospectus.
(h) To the best knowledge of such Selling Stockholder, the
representations of the Company herein are true.
9. Indemnification and Contribution. (a) The Company and each
Selling Stockholder, severally, agree to indemnify and hold harmless each of you
and each other Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15
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of the Act or Section 20(a) of the Exchange Act from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or in
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with the
information relating to such Underwriter furnished in writing to the Company by
or on behalf of any Underwriter through you expressly for use in connection
therewith; provided, however, that the indemnification contained in this
paragraph (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any such loss, claim, damage, liability or expense
arising from the sale of the Shares by such Underwriter to any person if a copy
of the Prospectus shall not have been delivered or sent to such person within
the time required by the Act and the regulations thereunder, and the untrue
statement or alleged untrue statement or omission or alleged omission of a
material fact contained in such Prepricing Prospectus was corrected in the
Prospectus, provided that the Company has delivered the Prospectus to the
several Underwriters in requisite quantity on a timely basis to permit such
delivery or sending, and provided further, however, that the indemnification
contained in this paragraph (a) by each Selling Stockholder shall be limited to
an amount equal to the number of Shares sold to the Underwriters hereunder by
such Selling Stockholder multiplied by the price per share. The foregoing
indemnity agreement shall be in addition to any liability which the Company or
any Selling Stockholder may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company or any Selling Stockholder, such
Underwriter or such controlling person shall promptly notify the parties against
whom indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Underwriter or
such controlling person unless (i) the indemnifying parties have agreed in
writing to pay such fees and expenses, (ii)
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the indemnifying parties have failed to assume the defense and employ counsel,
or (iii) the named parties to any such action, suit or proceeding (including any
impleaded parties) include both such Underwriter or such controlling person and
the indemnifying parties and such Underwriter or such controlling person shall
have been advised by its counsel that representation of such indemnified party
and any indemnifying party by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such representation
by the same counsel has been proposed) due to actual or potential differing
interests between them (in which case the indemnifying party shall not have the
right to assume the defense of such action, suit or proceeding on behalf of such
Underwriter or such controlling person). It is understood, however, that the
indemnifying parties shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Underwriters and controlling persons not having actual or potential
differing interests with you or among themselves, which firm shall be designated
in writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The indemnifying parties shall not be liable
for any settlement of any such action, suit or proceeding effected without their
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
indemnifying parties agree to indemnify and hold harmless any Underwriter, to
the extent provided in the preceding paragraph, and any such controlling person
from and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement, each Selling Stockholder, and any person who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, to the same extent as the foregoing indemnity from the Company and the
Selling Stockholders to each Underwriter, but only with respect to information
relating to such Underwriter furnished in writing by or on behalf of such
Underwriter through you expressly for use in the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto.
If any action, suit or proceeding shall be brought against the Company, any of
its directors, any such officer, any Selling Stockholder, or any such
controlling person based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Underwriter pursuant to this paragraph
(c), such Underwriter shall have the rights and
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duties given to the Company by paragraph (b) above (except that if the Company
shall have assumed the defense thereof such Underwriter shall not be required to
do so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at such
Underwriter's expense), and the Company, its directors, any such officer, the
Selling Stockholders, and any such controlling person shall have the rights and
duties given to the Underwriters by paragraph (b) above. The foregoing indemnity
agreement shall be in addition to any liability which any Underwriter may
otherwise have.
(d) If the indemnification provided for in this Section 9 is unavailable to
an indemnified party under paragraphs (a) or (c) hereof in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then an
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Selling Stockholders on the one hand and the Underwriters on the other hand
from the offering of the Shares, or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholders on
the one hand and the Underwriters on the other in connection with the statements
or omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus; provided that, in the
event that the Underwriters shall have purchased any Additional Shares
hereunder, any determination of the relative benefits received by the Company,
the Selling Stockholders or the Underwriters from the offering of the Shares
shall include the net proceeds (before deducting expenses) received by the
Company and the Selling Stockholders, and the underwriting discounts and
commissions received by the Underwriters, from the sale of such Additional
Shares, in each case computed on the basis of the respective amounts set forth
in the notes to the table on the cover page of the Prospectus. The relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied
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by the Company or the Selling Stockholders on the one hand or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 9
were determined by a pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in paragraph (d)
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission and the contribution obligation of each Selling Stockholder
shall be limited to an amount equal to the number of Shares sold to the
Underwriters hereunder by such Selling Stockholder multiplied by the price per
share. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 9 are several in proportion
to the respective numbers of Firm Shares set forth opposite their names in
Schedule II hereto (or such numbers of Firm Shares increased as set forth in
Section 12 hereof) and not joint.
(f) No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened action,
suit or proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
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representations and warranties of the Company and the Selling Stockholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or the Selling Stockholders or any person controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
9.
10. Conditions of Underwriters' Obligations. The several obligations
of the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
registration statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the registration
statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or any Underwriter,
threatened by the Commission, and any request of the Commission for additional
information (to be included in the registration statement or the prospectus or
otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business,
properties, net worth, or results of operations of the Company not contemplated
by the Prospectus, which in your opinion, as Representatives of the several
Underwriters, would materially, adversely affect the market for the Shares, or
(ii) any event or development relating to or involving the Company or any
officer or director of the Company or any Selling Stockholder which makes any
statement made in the Prospectus untrue or which, in the opinion of the Company
and its counsel or the Underwriters and their counsel, requires the making of
any addition to or change in the Prospectus in order to state a material fact
required by the Act or any other law to be stated therein or necessary in order
to make the statements therein not misleading, if amending or supplementing the
Prospectus to reflect such event or development would, in your opinion, as
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Representatives of the several Underwriters, materially adversely affect the
market for the Shares.
(c) You shall have received on the Closing Date, an opinion of Gibson,
Dunn & Crutcher LLP, counsel for the Company and the Selling Stockholders, dated
the Closing Date and addressed to you, as Representatives of the several
Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly
registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the
conduct of its business requires such registration or qualification, except
where the failure so to register or qualify does not have a material
adverse effect on the condition (financial or other), business, properties,
net worth or results of operations of the Company;
(ii) The authorized and outstanding capital stock of the Company is as
set forth under the caption "Capitalization" in the Prospectus; and the
authorized capital stock of the Company conforms in all material respects
as to legal matters to the description thereof contained in the Prospectus
under the caption "Description of Capital Stock";
(iii) All the shares of capital stock of the Company outstanding prior
to the issuance of the Shares to be issued and sold by the Company
hereunder, have been duly authorized and validly issued, and are fully paid
and nonassessable;
(iv) The Shares to be issued and sold to the Underwriters by the
Company hereunder have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and free of
any preemptive, or to the best knowledge of such counsel after reasonable
inquiry, similar rights that entitle or will entitle any person to acquire
any Shares upon the issuance thereof by the Company;
(v) The form of certificates for the Shares conforms to the
requirements of the Delaware General Corporation Law;
(vi) The Registration Statement and all post-effective amendments, if
any, have become effective under the Act and, to the best knowledge of such
counsel after reasonable
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inquiry, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose are pending
before or contemplated by the Commission; and any required filing of the
Prospectus pursuant to Rule 424(b) has been made in accordance with Rule
424(b);
(vii) The Company has corporate power and authority to enter into this
Agreement and to issue, sell and deliver the Shares to be sold by it to the
Underwriters as provided herein, and this Agreement has been duly
authorized, executed and delivered by the Company and is a valid, legal and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforcement of rights to indemnity and
contribution hereunder may be limited by Federal or state securities laws
or principles of public policy and subject to the qualification that the
enforceability of the Company's obligations hereunder may be limited by
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium,
and other laws relating to or affecting creditors' rights generally and by
general equitable principles;
(viii) The Company is not in violation of its certificate of
incorporation or bylaws, or to the best knowledge of such counsel after
reasonable inquiry, is not in default in the performance of any material
obligation, agreement or condition contained in any bond, debenture, note
or other evidence of indebtedness, except as may be disclosed in the
Prospectus;
(ix) Neither the offer, sale or delivery of the Shares, the execution,
delivery or performance of this Agreement, compliance by the Company with
the provisions hereof nor consummation by the Company of the transactions
contemplated hereby conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, the certificate of
incorporation or bylaws of the Company or any agreement, indenture, lease
or other instrument to which the Company is a party or by which it or any
of its properties is bound that is an exhibit to the Registration Statement
or to any Incorporated Document, or is known to such counsel after
reasonable inquiry, or will result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company nor
will any such action result in any violation of any existing law,
regulation, ruling (assuming compliance with all applicable state
securities and Blue Sky laws), judgment, injunction, order or decree known
to such counsel after reasonable inquiry, applicable to the Company or any
of its properties;
(x) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative
agency or other governmental body,
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agency, or official is required on the part of the Company (except as have
been obtained under the Act and the Exchange Act or such as may be required
under state securities or Blue Sky laws governing the purchase and
distribution of the Shares) for the valid issuance and sale of the Shares
to the Underwriters as contemplated by this Agreement;
(xi) The Registration Statement and the Prospectus and any supplements
or amendments thereto (except for the financial statements and the notes
thereto and the schedules and other financial and statistical data included
therein, as to which such counsel need not express any opinion) comply as
to form in all material respects with the requirements of the Act; and each
of the Incorporated Documents (except for the financial statements and the
notes thereto and the schedules and other financial and statistical data
included therein, as to which counsel need not express any opinion)
complies as to form in all material respects with the Exchange Act and the
rules and regulations of the Commission thereunder;
(xii) To the best knowledge of such counsel after reasonable inquiry,
(A) other than as described or contemplated in the Prospectus (or any
supplement thereto), there are no legal or governmental proceedings pending
or threatened against the Company, or to which the Company or any of its
property is subject, which are required to be described in the Registration
Statement or Prospectus (or any amendment or supplement thereto) and (B)
there are no agreements, contracts, indentures, leases or other
instruments, that are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement thereto) or to
be filed as an exhibit to the Registration Statement or any Incorporated
Document that are not described or filed as required, as the case may be;
(xiii) To the best knowledge of such counsel after reasonable inquiry,
the Company is not in violation of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or of any decree
of any court or governmental agency or body having jurisdiction over the
Company;
(xiv) The statements in the Registration Statement and Prospectus,
insofar as they are descriptions of contracts, agreements or other legal
documents, or refer to statements of law or legal conclusions, are accurate
and present fairly the information required to be shown;
(xv) This Agreement and the Custody Agreement have each been duly
executed and delivered by or on behalf of each of the Selling Stockholders
and are valid and binding agreements
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of each Selling Stockholder enforceable against each Selling Stockholder in
accordance with their terms;
(xvi) To the knowledge of such counsel, each Selling Stockholder has
full legal right, power and authorization, and any approval required by
law, to sell, assign, transfer and deliver good, valid and marketable title
to the Shares which such Selling Stockholder has agreed to sell pursuant to
this Agreement;
(xvii) The execution and delivery of this Agreement and the Custody
Agreement by the Selling Stockholders and the consummation of the
transactions contemplated hereby and thereby will not conflict with,
violate, result in a breach of or constitute a default under the terms or
provisions of any agreement, indenture, mortgage or other instrument known
to such counsel to which any Selling Stockholder is a party or by which any
of them or any of their assets or property is bound, or any court order or
decree or any law, rule, or regulation applicable to any Selling
Stockholder or to any of the property or assets of any Selling Stockholder;
(xviii) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency, or official is required on the
part of the Selling Stockholders (except as have been obtained under the
Act and the Exchange Act or such as may be required under state securities
or Blue Sky laws governing the purchase and distribution of the Shares) for
the valid issuance and sale of the Shares to the Underwriters as
contemplated by this Agreement;
(xix) The Company owns all patents, trademarks, trademark
registrations, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights described in the
Prospectus as being owned by it or necessary for the conduct of its
business, and such counsel is not aware of any claim to the contrary or any
challenge by any other person to the rights of the Company with respect to
the foregoing;
(xx) Except as described in the Prospectus, there are no outstanding
options, warrants or other rights calling for the issuance of, and such
counsel does not know of any commitment, plan or arrangement to issue, any
shares of capital stock of the Company or any security convertible into or
exchangeable or exercisable for capital stock of the Company;
(xxi) Except as described in the Prospectus, there is no holder of any
security of the Company or any other person who
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has the right, contractual or otherwise, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, the
Shares or the right to have any Common Stock or other securities of the
Company included in the registration statement or the right, as a result of
the filing of the registration statement, to require registration under the
Act of any shares of Common Stock or other securities of the Company;
(xxii) Upon delivery of the Shares pursuant to this Agreement and
payment therefor as contemplated herein the Underwriters will acquire good
and valid title to the Shares free and clear of any lien, claim, security
interest, or other encumbrance, restriction on transfer or other defect in
title; and
(xxiii) Although counsel has not undertaken, except as otherwise
indicated in their opinion, to determine independently, and does not assume
any responsibility for, the accuracy or completeness of the statements in
the Registration Statement, such counsel has participated in the
preparation of the Registration Statement and the Prospectus, including
review and discussion of the contents thereof (including review and
discussion of the contents of all Incorporated Documents), and nothing has
come to the attention of such counsel that has caused them to believe that
the Registration Statement (including the Incorporated Documents) at the
time the Registration Statement became effective, or the Prospectus, as of
its date and as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading or that any amendment or supplement
to the Prospectus, as of its respective date, and as of the Closing Date or
the Option Closing Date, as the case may be, contained any untrue statement
of a material fact or omitted to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading (it being understood that such counsel
need express no opinion with respect to the financial statements and the
notes thereto and the schedules and other financial and statistical data
included in the Registration Statement or the Prospectus or any
Incorporated Document).
In rendering their opinion as aforesaid, counsel may rely upon an opinion
or opinions, each dated the Closing Date, of other counsel retained by them or
the Company as to laws of any jurisdiction other than the United States or the
State of New York, provided that (1) each such local counsel is acceptable to
the Representatives, (2) such reliance is expressly authorized by each
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opinion so relied upon and a copy of each such opinion is delivered to the
Representatives and is, in form and substance satisfactory to them and their
counsel, and (3) counsel shall state in their opinion that they believe that
they and the Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date an opinion of Kirkland
& Ellis, counsel for the Underwriters, dated the Closing Date and addressed to
you, as Representatives of the several Underwriters, with respect to the matters
referred to in clauses (iv), (vi), (vii) and (xxiii) of the foregoing paragraph
(c) and such other related matters as you may request.
(e) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Ernst & Young LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.
(f)(i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company, shall be contemplated by the
Commission at or prior to the Closing Date; (ii) there shall not have been any
change in the capital stock of the Company nor any material increase in the
short-term or long-term debt of the Company (other than in the ordinary course
of business) from that set forth or contemplated in the Registration Statement
or the Prospectus (or any amendment or Supplement thereto); (iii) there shall
not have been, since the respective dates as of which information is given in
the Registration Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse change
in the condition (financial or other), business, prospects, properties, net
worth or results of operations of the Company; (iv) the Company shall not have
any liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Company, other than those
reflected in the Registration Statement or the Prospectus (or any amendment or
supplement thereto); and (v) all the representations and warranties of the
Company contained in this Agreement shall be true and correct on and as of the
date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by the chief executive officer and the chief financial officer of the
Company (or such other officers as are acceptable to you), to the effect set
forth in this Section 10(f) and in Section 10(g) hereof.
(g) The Company shall not have failed at or prior to the Closing Date
to have performed or complied with any of its
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agreements herein contained and required to be performed or complied with by it
hereunder at or prior to the Closing Date.
(h) All the representations and warranties of the Selling Stockholders
contained in this Agreement shall be true and correct on and as of the date
hereof and on and as of the Closing Date as if made on and as of the Closing
Date, and you shall have received a certificate, dated the Closing Date and
signed by or on behalf of the Selling Stockholders to the effect set forth in
this Section 10(h) and in Section 10(i) hereof.
(i) The Selling Stockholders shall not have failed at or prior to the
Closing Date to have performed or complied with any of their agreements herein
contained and required to be performed or complied with by them hereunder at or
prior to the Closing Date.
(j) Prior to the Closing Date the shares of Common Stock which the
Company agrees to sell pursuant to this Agreement shall have been listed,
subject to notice of issuance, on the Nasdaq National Market.
(k) The Sellers shall have furnished or caused to be furnished to you
such further certificates and documents as you shall have requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.
Any certificate or document signed by any officer of the Company or any
Attorney-in-Fact or any Selling Stockholder and delivered to you, as
Representatives of the Underwriters, or to counsel for the Underwriters, shall
be deemed a representation and warranty by the Company, the Selling Stockholders
or the particular Selling Stockholder, as the case may be, to each Underwriter
as to the statements made therein.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the satisfaction on and as of any Option Closing Date
of the conditions set forth in this Section 10, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (i) shall be dated the Option
Closing Date in question and the opinions called for by paragraphs (c), (d) and
(e) shall be revised to reflect the sale of Additional Shares.
11. Expenses. Each of the Sellers covenants and agrees as follows:
(a) Except as provided in paragraph (b) below, the Company agrees to
pay, or reimburse if paid by the Representatives, whether
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<PAGE>
or not the transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses incident to the public offering of the Shares
and the performance of the obligations of the Sellers under the Agreement
including those relating to: (i) the preparation, printing, reproduction, filing
and distribution of the registration statement (including all financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and all amendments and supplements to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, the Incorporated Documents, and all
amendments or supplements to any of them, as may be reasonably requested for use
in connection with the offering and sale of the Shares; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the Shares,
including any stamp taxes in connection with the original issuance and sale of
the Shares; (iv) the printing (or reproduction) of this Agreement, the
preliminary and supplemental Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the offering
of the Shares; (v) the listing of the Shares on the Nasdaq National Market; (vi)
the registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states as provided in Section 5(g)
hereof (including the reasonable fees, expenses and disbursements of counsel for
the Underwriters relating to the preparation, printing or reproduction, and
delivery of the preliminary and supplemental Blue Sky Memoranda and such
registration and qualification); (vii) the filing fees and the fees and expenses
of counsel for the Underwriters in connection with any filings required to be
made with the National Association of Securities Dealers, Inc.; (viii) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers of
the Shares; and (ix) the fees and expenses of the Company's accountants and the
fees and expenses of counsel (including local and special counsel) for the
Company and the Selling Stockholders.
(b) Each of the Selling Stockholders severally agrees to pay, or
reimburse if paid by the Representatives or the Company, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated, (i) all costs and expenses directly incident to the public offering
of the Shares by such Selling Stockholder and the performance of the obligations
of such Selling Stockholder under this Agreement and (ii) such Selling
Stockholder's pro rata share of the costs and expenses set forth in clauses (vi)
and (vii) of paragraph (a) above and of the registration fee paid in connection
with the filing of the Registration Statement. For purposes of clause (ii)
above, each Selling Stockholder's pro rata share of the applicable costs and
expenses shall be determined by dividing the
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<PAGE>
total number of Shares that may be sold by such Selling Stockholder hereunder by
the total number of Shares.
12. Effective Date of Agreement. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the registration statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Company, by notifying you, or
by you, as Representatives of the several Underwriters, by notifying the Company
and the Selling Stockholders.
If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than one-
tenth of the aggregate number of Shares which the Underwriters are obligated to
purchase on the Closing Date, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule II hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in accordance with Section 20 of the
Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares
which such defaulting Underwriter or Underwriters are obligated, but fail or
refuse, to purchase. If any one or more of the Underwriters shall fail or
refuse to purchase Shares which it or they are obligated to purchase on the
Closing Date and the aggregate number of Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Shares which
the Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Company for the purchase of such Shares by one or
more non-defaulting Underwriters or other party or parties approved by you and
the Company are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any such default of any such Underwriter under this Agreement. The
term "Underwriter" as used in this Agreement includes, for all purposes of this
Agreement, any party
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<PAGE>
not listed in Schedule II hereto who, with your approval and the approval of the
Company, purchases Shares which a defaulting Underwriter is obligated, but fails
or refuses, to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or any Selling Stockholder, by notice to the Company,
if prior to the Closing Date or any Option Closing Date (if different from the
Closing Date and then only as to the Additional Shares), as the case may be, (i)
trading in securities generally on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market shall have been suspended or
materially limited, (ii) a general moratorium on commercial banking activities
in New York or Indiana shall have been declared by either federal or state
authorities, or (iii) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the
Prospectus or to enforce contracts for the resale of the Shares by the
Underwriters. Notice of such termination may be given to the Company by
telegram, telecopy or telephone and shall be subsequently confirmed by letter.
14. Information Furnished by the Underwriters. The statements set forth
in the last paragraph on the cover page, the stabilization legend on the inside
cover page, and the statements in the first and third paragraphs under the
caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 7(b) and 9 hereof.
15. Miscellaneous. Except as otherwise provided in Sections 5, 12 and 13
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 3308 N. Mitthoeffer Road, Indianapolis, Indiana 46236, Attention:
[insert name and title]; or (ii) if to the Selling Stockholders, at ,
Attention: [insert name and title], or (iii) if to you, as Representatives of
the several Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New
York, New York 10013, Attention: Manager, Investment Banking Division, with a
copy of any notice to the Company or any Selling Stockholder to be sent to
Jonathan K. Layne, Esq., Gibson,
-31-
<PAGE>
Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, California 90071 and a
copy of any notice to any Underwriter to be sent to H. Kurt von Moltke, Esq.,
Kirkland & Ellis, 200 E. Randolph Drive., Chicago, Illinois 60601.
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company, its directors and officers, and the other controlling
persons referred to in Section 9 hereof and their respective successors and
assigns, to the extent provided herein, and no other person shall acquire or
have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Shares in his
status as such purchaser.
16. Applicable Law; Counterparts. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
-32-
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
THE FINISH LINE, INC.
By ........................
President
Each of the Selling Stockholders
named in Schedule I hereto
By ........................
Attorney-in-Fact
By ........................
Attorney-in-Fact
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule II
hereto.
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
OPPENHEIMER & CO., INC.
As Representatives of the Several Underwriters
By SMITH BARNEY INC.
By ..........................
Managing Director
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<PAGE>
SCHEDULE I
THE FINISH LINE, INC.
Part A - Firm Shares
- --------------------
Number of
Selling Stockholders Firm Shares
-------------------- -----------
---------
Total........ 1,300,000
---------
Part B - Additional Shares
- --------------------------
Number of
Selling Stockholders Additional Shares
-------------------- -----------------
-------
Total........ 390,000
-------
-34-
<PAGE>
SCHEDULE II
THE FINISH LINE, INC.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER FIRM SHARES
----------- -----------
<S> <C>
Smith Barney Inc................................
A.G. Edwards & Sons, Inc........................
Oppenheimer & Co., Inc..........................
---------
Total........................................ 2,600,000
=========
</TABLE>
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<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated March 26,
1996, in the Registration Statement (Form S-3) and related Prospectus of The
Finish Line, Inc. for the registration of 2,990,000 shares of its Class A
Common Stock.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
May 16, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
1996 financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> FEB-28-1996
<CASH> 1,686
<SECURITIES> 0
<RECEIVABLES> 1,099
<ALLOWANCES> 0
<INVENTORY> 76,088
<CURRENT-ASSETS> 81,005
<PP&E> 43,200
<DEPRECIATION> 11,441
<TOTAL-ASSETS> 114,972
<CURRENT-LIABILITIES> 48,552
<BONDS> 0
<COMMON> 103
0
0
<OTHER-SE> 63,045
<TOTAL-LIABILITY-AND-EQUITY> 114,972
<SALES> 240,155
<TOTAL-REVENUES> 240,155
<CGS> 168,912
<TOTAL-COSTS> 168,912
<OTHER-EXPENSES> 54,254
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 892
<INCOME-PRETAX> 16,097
<INCOME-TAX> 6,439
<INCOME-CONTINUING> 9,658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,658
<EPS-PRIMARY> .94
<EPS-DILUTED> 0
</TABLE>
