UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________to_____________
COMMISSION FILE NO. 1-13322
JUMBOSPORTS INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 52-1643157
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4701 W. HILLSBOROUGH AVENUE
TAMPA, FLORIDA 33614
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 886-9688
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------- -----------------------
COMMON STOCK, PAR VALUE $0.01 PER SHARE OTC BULLETIN BOARD
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
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4 1/4% CONVERTIBLE SUBORDINATED NOTES DUE 2000
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 25, 1999 is unknown due to lack of trading activity.
The number of shares of the registrant's common stock outstanding as of March
25, 1999, was 20,420,001.
<PAGE>
As used in this Annual Report on Form 10-K, unless the context requires
otherwise, the terms the "Company" and "JumboSports" refer to JumboSports Inc.
and its operating subsidiaries.
PART 1
ITEM 1. BUSINESS
Forward-Looking Statements
Information included in this Report on Form 10-K may constitute
forward-looking statements that involve a number of risks and uncertainties.
From time to time, information provided by the company or statements made by its
employees may contain other forward-looking statements. Factors that could cause
actual results to differ materially from the forward-looking statements include
but are not limited to: Bankruptcy Court actions or proceedings related to the
bankruptcy, general economic conditions including inflation, consumer debt
levels, trade restrictions and interest rate fluctuations; competitive factors
including pricing pressures, technological developments and products offered by
competitors; inventory risks due to changes in market demand or the Company's
business strategies; and changes in effective tax rates.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date made. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
General
On February 14, 1997, the Company (which prior to such date was
incorporated in Delaware under the name "Sports & Recreation, Inc.") was merged
into a wholly owned subsidiary organized under Florida law. The purpose of such
merger was to change the corporate domicile of the Company from Delaware to
Florida. Also on February 14, 1997, the Company changed its corporate name from
Sports & Recreation, Inc. to JumboSports Inc.
JumboSports is a specialty retailer of quality name brand sporting
equipment, athletic footwear and apparel, operating 42 big-box sporting goods
superstores in 33 markets and 18 states. The Company began fiscal 1998 with 59
stores. In May 1998, the Company announced the closing of two stores and in
August 1998, the Company opened two new stores. In January 1999, an additional
17 stores were identified to be closed during the first half of fiscal 1999. The
Company's business strategy is to offer its customers the best overall value in
sporting goods through a wide assortment of quality name brand merchandise,
superior customer service and competitive prices. The Company's stores average
approximately 48,000 gross square feet. JumboSports has located stores in
Standard Metropolitan Statistical Areas with populations as small as 200,000 and
as large as 3,000,000.
As of January 29, 1999, the Company employed approximately 2,300
people. None of the Company's associates are covered by collective bargaining
agreements. The Company believes that its relationships with its associates are
good.
The Company's merchandising strategy is to offer both breadth and depth
of selection in quality name brand sporting goods in each of its product
categories. Each store offers approximately 70,000 stock keeping units ("SKUs")
across 23 major departments and over 200 subdepartments. The Company's target
customer ranges from the frequent sports enthusiast to the casual sporting goods
customer.
The sporting goods retail business is seasonal in nature with the
fourth quarter (Christmas selling season) representing approximately 28% of
sales for a JumboSports store that is open for the entire year. The average
maturity and geographic dispersion of the Company's store base may impact this
percentage in the future. The Company operates in one business segment. See Item
6, Selected Financial Data, for financial information.
2
<PAGE>
Chapter 11
On December 27, 1998 (the "Petition Date"), after experiencing a poor
holiday season and with increased pressure being applied by the Company's
lenders and suppliers, JumboSports Inc. and certain of its subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the Middle District of Florida (the
"Bankruptcy Court"). These related proceedings are being jointly administered
under the caption "In re.: JumboSports Inc., d/b/a Vacations Travel, f/k/a
Sports & Recreation, Inc., and f/d/b/a/ Sports Unlimited, Guide Series, Inc. and
Property Holdings Company I" Case Nos. 98-22545-8C1, 98-22546-8C1 and
98-22547-8C1, pursuant to an order of the Bankruptcy Court. The following
subsidiaries were not included in the bankruptcy filings: Nationwide Team Sales,
Inc., Retail Process Management, Inc., Sports & Recreation, Inc., Sports &
Recreation Holdings of PA, Inc. and Construction Resolution, Inc.
The bankruptcy petitions were filed in order to preserve cash and
permit the Company an opportunity to reorganize while working to restructure its
indebtedness. Pursuant to the Senior-Secured Super Priority Debtor-In-Possession
Loan and Security Agreement (the "DIP facility") dated February 12, 1999, among
JumboSports Inc., as Borrower, various financial institutions, as Lenders,
Foothill Capital Corporation, as Agent and Congress Financial Corporation
(Southern), as Co-Agent, the lenders have agreed to provide up to $110 million
in post-petition financing to the Company.
As a result of the Chapter 11 filings, absent approval of the
Bankruptcy Court, the Company is prohibited from paying, and creditors are
prohibited from attempting to collect claims or debts arising pre-petition. The
consummation of a plan of reorganization is the principal objective of the
Company's Chapter 11 cases. The plan of reorganization will set forth the means
for satisfying claims, including the liabilities subject to compromise, and
interests in the Company and its debtor subsidiaries. The consummation of a plan
of reorganization for the Company and its debtor subsidiaries will require
approval of the Bankruptcy Court.
The Company expects to propose a plan of reorganization for itself and
the other filing subsidiaries. The Bankruptcy Court has granted the Company's
request to extend its exclusive right to file a plan of reorganization through
June 1, 1999. The Company intends to request a further extension of the
exclusivity period while management works on implementing new operating
strategies that are intended to improve operating performance. There can be no
assurance that the Bankruptcy Court will grant such further extension or that
management's new strategies will produce the desired results. After the
expiration of the exclusivity period, creditors of the Company have the right to
propose their own plans of reorganization. A plan of reorganization, among other
things, may result in material dilution or elimination of the equity of existing
stockholders as a result of the issuance of equity to creditors or new
investors.
At this time, it is not possible to predict the outcome of the Chapter
11 filing, in general, or its effects on the business of the Company or on the
interests of creditors or stockholders. The Company's independent accountants
have issued a report expressing doubt about the Company's ability to continue as
a going concern. See the Consolidated Financial Statements of the Company
beginning on page F-1.
The Company does not plan to hold annual stockholder meetings during
the pendency of its Chapter 11 case.
Store Closings
Since January 31, 1997, when the Company operated 85 stores, two new
stores have opened and 45 stores have closed. The remaining 42 open stores are
cash contributors and have generally been profitable. The financial performance
of these remaining stores will be reviewed on a continuing basis and additional
stores may be closed, with the approval of the Bankruptcy Court, if such
closings are warranted.
When a store is closed, the inventory is liquidated and the proceeds
are used to pay down the Company's revolving credit line. If the store is owned
in fee, the real estate is marketed. The proceeds from the sale of the real
estate was used to further reduce debt, and consequently future debt service
requirements and interest expense. If the store is leased, the lease is marketed
during the stores' going out of business period and any proceeds from the sale
of the lease are used to reduce debt. If no market exists for the lease, the
lease is rejected to minimize cash obligations on the Company.
3
<PAGE>
New Management
On April 13, 1999, with the support of the official committees of
bondholders and unsecured creditors, the Bankruptcy Court approved the
appointment of Alfred F. Fasola, Jr. as Chief Executive Officer and Michael J.
Worrall as President, replacing Jack E. Bush. Mr. Bush will continue to serve as
Chairman of the Board. Both Mr. Fasola and Mr. Worrall have years of experience
in challenging turnaround situations and extensive knowledge of the retail
sporting goods industry. Along with B. Robert Floum, Chief Operating Officer,
the new management team is expected to implement major new initiatives as part
of the Company's reorganization efforts.
Industry and Competition
While JumboSports' competition differs by market, management generally
classifies its competition within one of the following categories:
TRADITIONAL AND SPECIALTY SPORTING GOODS RETAILERS. This category
includes traditional sporting goods chains (e.g., Dunham's, MC Sports),
specialty sports stores (e.g., Foot Locker, Just for Feet, Champs) and local
sporting goods retailers (e.g., local independent stores, pro shops). These
stores typically range in size from the small 1,000 square foot pro shops to the
larger 20,000 square foot traditional sporting goods chains and footwear
retailers. The traditional and specialty sporting goods retailers are primarily
located in regional malls, strip shopping centers, local country clubs and
resorts. The traditional chains and local sporting goods stores typically carry
a varied assortment of merchandise; however, the size of their stores limits the
breadth and depth of selection. The specialty stores and pro shops often carry a
wide assortment of one specific product category, such as athletic shoes,
fishing gear, golf or tennis equipment.
MASS MERCHANDISERS. This category includes discount stores (e.g.,
Wal-Mart, Kmart, Target) and department stores (e.g., Sears, J.C. Penney). These
stores range in size from approximately 50,000 to 200,000 square feet and are
primarily located in regional malls and strip shopping centers in markets across
the country. Sporting goods merchandise and apparel represent only a portion of
the total merchandise sales in these stores and generally reflect a more limited
selection with fewer high quality name brands.
BIG-BOX SPORTING GOODS CHAINS. This category includes the "category
killer" sporting goods retailers (e.g. The Sports Authority, Oshman's
Superstores, Gart Sports) more directly comparable to JumboSports. The big-box
stores range in size from 35,000 to 100,000 square feet and offer a selection of
sporting goods merchandise and apparel of 40,000 to 70,000 SKUs. These stores
compete on selection and depth of high quality merchandise and on the basis of
price; certain operators are able to attract higher-end brands not carried by
other competitive channels of distribution.
The Company believes that although its sales are impacted by retailers
in all three of the categories referred to above, the most significant
competition comes from the big-box sporting goods retailers. Of the Company's
stores, approximately six do not presently face competition from such big-box
sporting goods retailers. Management expects it will continue to face additional
competition in its markets from big-box stores over the next few years.
The Company purchases merchandise from over 1,000 vendors. In fiscal
1998, the 100 highest volume vendors represented over 70% of total merchandise
purchased. Nike, Inc., the Company's largest vendor, accounted for 8.7% of total
merchandise purchased. The Company does not maintain any long-term or exclusive
commitments or arrangements to purchase from any vendor. The Company is one of
the largest customers for many of its vendors.
4
<PAGE>
Environmental
Compliance with federal, state and local environmental laws and
regulations has not had, and is not expected to have, a material effect on the
capital expenditures, earnings and competitive position of the Company.
ITEM 2. PROPERTIES.
As of January 29, 1999, the Company operated 59 retail stores of which
17 are scheduled to close in April 1999. These 17 closing stores operate in 12
states (1 in Arizona, 1 in Colorado, 4 in Florida, 1 in Georgia, 1 in Iowa, 1 in
Illinois, 1 in Indiana, 1 in Louisiana, 1 in North Carolina, 1 in Ohio, 3 in
Tennessee and 1 in Virginia). The remaining 42 stores operate in 18 states (2 in
Alabama, 1 in Arkansas, 2 in Colorado, 1 in Delaware, 7 in Florida, 1 in Iowa, 1
in Kansas, 3 in Kentucky, 4 in Louisiana, 1 in Mississippi, 2 in Nebraska, 1 in
Nevada, 3 in North Carolina, 3 in Oklahoma, 3 in South Carolina, 2 in Tennessee,
3 in Texas and 2 in Virginia) and its Corporate Headquarters are located in
Tampa, Florida. The Company owns the beneficial interest in 24 stores and leases
the other 18 of its remaining 42 retail stores. The primary lease terms are for
10 to 20 years, with options to renew ranging from two to four additional
five-year terms. Two of the leases are treated for accounting purposes as
capital leases. Additionally, as of January 29, 1999, the Company had sixteen
properties held for sale and twelve leases on stores closed or scheduled to be
closed.
ITEM 3. LEGAL PROCEEDINGS.
The Company is from time to time involved in routine litigation
incidental to the conduct of its business. The Company believes that no such
currently pending routine litigation to which it is a party will have a material
adverse effect on its financial condition or results of operations.
On Sunday, December 27, 1998, JumboSports Inc. and certain of its
subsidiaries filed for reorganization under Chapter 11 of the Bankruptcy Code in
the United States Bankruptcy Court for the Middle District of Florida. These
related proceedings are being jointly administered under the caption "In re.:
JumboSports Inc., d/b/a/ Vacations Travel, f/k/a Sports & Recreation, Inc., and
f/d/b/a Sports Unlimited, Guide Series, Inc. and Property Holdings Company I",
Case Nos 98-22545-8C1, 98-22546-8C1 and 98-22547-8C1. The following subsidiaries
were not included in the bankruptcy filings: Nationwide Team Sales, Inc., Retail
Process Management, Inc., Sports & Recreation, Inc., Sports & Recreation
Holdings of PA, Inc. and Construction Resolution, Inc.
In connection with the Bankruptcy filing, all pre-petition actions
against the Company have been stayed.
A complaint was filed on March 23, 1999, in the Bankruptcy Court,
"LaSalle National Bank, Trustee for JP Morgan Commercial Mortgage Finance
Corporation Pass-through Certificate Series 1997-C5, acting by and through
AMRESCO Management, Inc., its Special Servicer v. JumboSports Inc., which
alleges that JumboSports did not have the right to terminate certain Trusts of
which JumboSports was the sole beneficiary and sole settlor. The Trusts held
bare legal title to real estate ("the Property") and pledged the Property as
security for loans. The plaintiff is seeking a judicial declaration that the
Property in question is not property of JumboSports, the Debtor's estate, and
that the Plaintiff may proceed against the Property as if it were not property
of the Debtor's estate. The Plaintiff further seeks a judicial declaration that
the Trusts are separate legal entities, that the Trusts have not been
terminated, that the termination is not valid, that there is no right to
terminate the Trusts except in accordance with applicable Delaware law, the
Trust Agreements, and the relevant loan documents and that there has been no
transfer of the Property to the Debtor. Management is currently unable to
predict the outcome of this case or the impact of an adverse ruling on its
reorganization efforts. The Company expects to file its written responses and
any claim for affirmative relief by April 30, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
5
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
On December 28, 1998, the New York Stock Exchange suspended trading in
the Company's Common Stock and on February 22, 1999, the SEC delisted the
Company's Common Stock. Subsequent to December 28, 1998, the Company's Common
Stock has been traded on the "OTC Bulletin Board" under the symbol "JSIBQ".
Prior to December 28, 1998, the Company's Common Stock was traded on the New
York Stock Exchange under the symbol "JSI" and prior to February 20, 1997, the
stock was traded under the symbol "WON". The following table reflects the range
of high and low selling prices of the Company's Common Stock by quarter over the
past two fiscal years.
Fiscal 1997 High Low
----------- ---- ----
First Quarter 6.750 4.375
Second Quarter 4.875 2.750
Third Quarter 4.063 3.000
Fourth Quarter 3.250 1.000
Fiscal 1998 High Low
------------ ---- ----
First Quarter 2.063 1.250
Second Quarter 1.750 0.938
Third Quarter 1.063 0.250
Fourth Quarter 0.500 0.020
The Company did not pay any dividends during the last two fiscal years
(see Management's Discussion & Analysis - Liquidity and Capital Resources
regarding dividend prohibitions). The approximate number of stockholders of
record as of January 29, 1999 was 422, and as of that date, the Company
estimates that there were approximately 7,128 beneficial owners holding stock in
nominee or "street" name.
In connection with their respective employment agreements, and pursuant
to the terms thereof, during fiscal year 1996 the Company loaned $166,667,
$137,500 and $30,250 to each of Messrs. Bebis (former Chairman, President and
Chief Executive Officer), Springer and Henning, respectively, to assist them
with the purchase of non-registered shares of the Company's Common Stock. Mr.
Bebis resigned in December 1997, and as part of his termination agreement the
Company agreed to file a registration statement in order to register his shares.
In lieu of incurring the expense of registering Mr. Bebis' shares, the Company
accepted the shares, valued at the closing price 90 days after Mr. Bebis' date
of termination, plus cash in satisfaction of the outstanding loan balance. The
shares were then canceled.
On February 17, 1998 the Company re-priced all options outstanding at
January 30, 1998 for active employees to an exercise price of $1.8125, the
market closing price on that date. The number of options this impacted was
876,221 with previous market valued prices ranging from $3.44 to $26.08.
6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
<TABLE>
<CAPTION>
January 29, January 28, January 31, January 30, January 29,
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
"Fiscal Year" "1994" "1995" "1996" "1997" "1998"
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Sales $383,600 $525,762 $624,019 $528,634 $362,395
Cost of sales including buying
and occupancy costs 283,908 395,208 505,062 453,509 282,251
------- ------- ------- ------- -------
Gross profit 99,692 130,554 118,957(1) 75,125(1) 80,144
Selling, general and
administrative expenses 69,207 106,233 124,918 112,489 78,911
Proceeds from a settlement of legal
proceedings (1,000)
Loss on disposition of assets, closed store
expenses, and other charges 2,096 22,568 43,055 15,200
------- ------- ------- ------- -------
Income (loss) from operations 30,485 22,225 (28,529) (80,419) (12,967)
Interest expense, net 4,815 11,254 19,890 30,395 22,366
------- ------- ------- ------- -------
Income (loss) before provision (benefit)
for income taxes, reorganization items
and extraordinary items 25,670 10,971 (48,419) (110,814) (35,333)
Reorganization items 58,344
------- ------- ------- ------- -------
Income (loss) before provision (benefit)
for income taxes and
extraordinary items 25,670 10,971 (48,419) (110,814) (93,677)
Provision (benefit) for income taxes 9,775 3,975 (17,875) 483 (163)
------- ------- ------- ------- -------
Income (loss) before extraordinary item 15,895 6,996 (30,544) (111,297) (93,514)
Extraordinary item (less applicable
income tax benefit) (181(2)
------- ------- ------- ------- -------
Net income (loss) $ 15,714 $ 6,996 $(30,544) $(111,297) $(93,514)
======= ======= ======= ======= =======
Net income (loss) per share
before extraordinary item $ 0.84(3) $ 0.35(3) $ (1.53)(3) $ (5.47) $ (4.58)
Net income (loss) per share $ 0.83(3) $ 0.35(3) $ (1.53)(3) $ (5.47) $ (4.58)
Average number of shares outstanding 18,844,412 19,744,013 19,984,993 20,363,299 20,404,857
Ratio of earnings to fixed charges 3.61 1.61 N/M N/M N/M
SELECTED OPERATING DATA:
Stores open at end of period 56 80 85 77(4) 59(4)
Total gross square feet
of store space 2,626,600 3,996,920 4,257,000 3,803,677 2,805,897
Average gross square feet per store(5) 46,904 49,962 50,082 49,398 47,558
Comparable store sales increase(6) 9.6% 1.7% 0.1% (8.8%) (12.4%)
Capital expenditures $ 89,610 $ 60,738 $ 15,236 $ 11,164 $ 6,041
BALANCE SHEET DATA:
Working Capital $167,498 $190,974 $158,678 $195,969 $137,080
Total assets 389,852 484,843 525,586 466,549 307,967
Long-term debt, less current maturities 167,703 234,557 294,325 335,557 322,058
Total stockholders' equity (deficit) 180,122 187,530 159,624 48,498 (45,065)
<FN>
(1) The Company recorded one-time charges to cost-of-sales of $32.4 million in
fiscal 1996 and $45.0 million in fiscal 1997. See Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations.
(2) The extraordinary item for the fiscal year ended January 29, 1995 relates
to early redemption premiums incurred in connection with the prepayment of
certain liabilities.
(3) Earnings per share has been restated as required by SFAS No. 128, "Earnings
Per Share."
(4) Eighteen stores closed in early fiscal 1998 and seventeen stores will close
in early fiscal 1999.
(5) Average gross square feet per store represents the average square feet of
total store space at the end of each fiscal year.
(6) A store's sales growth is included in the comparable store sales
calculation after its twelfth full month of operation. The fiscal 1997
comparable store calculation was adjusted for the below cost clearance sale
and five additional days of sales which occurred in fiscal 1996.
</FN>
</TABLE>
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
The notes to the consolidated financial statements are an integral part
of Management's Discussion and Analysis of Financial Condition and Results of
Operation.
This Management's Discussion and Analysis contains forward-looking
statements. These forward-looking statements are subject to the inherent
uncertainties in predicting certain future results and conditions. Certain
factors could cause actual results to differ materially from those projected in
these forward-looking statements. These factors include, but are not limited to,
product demand and market acceptance risks, the effect of economic conditions
generally, the impact of competition, commercialization and technological
difficulties and the condition of the retail and sporting goods industries.
On December 27, 1998, JumboSports Inc. and certain of its subsidiaries
filed petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code and are presently operating as debtors-in-possession subject to
the jurisdiction of the Untied States Bankruptcy Court for the Middle District
of Florida. For further discussion of Chapter 11 proceedings, see Item 1
"Chapter 11" and Note 1 to the consolidated financial statements.
Results of Operations
The following table sets forth certain data as a percentage of sales
for the periods indicated:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales including
buying and occupancy costs 80.9 85.8 77.9
---- ---- ----
Gross profit 19.1 14.2 22.1
Selling, general and
administrative expenses 20.0 21.3 21.8
Proceeds from a settlement of
legal proceedings (0.3)
Loss on disposition of assets,
closed store expenses and
non-recurring charges 3.7 8.1 4.2
---- ---- ----
Loss before provision (benefit) for
income taxes, reorganization items
and interest expense (4.6) (15.2) (3.6)
Interest expense, net 3.2 5.8 6.2
---- ---- ----
Loss before provision (benefit) for
income taxes and reorganization items (7.8) (21.0) (9.8)
Reorganization items 16.1
---- ---- ----
Net income (loss) before
provision (benefit) for income taxes (7.8) (21.0) (25.9)
Provision (benefit) for income taxes (2.9) 0.1 (0.1)
---- ---- ----
Net loss (4.9)% (21.1)% (25.8)%
==== ==== ====
</TABLE>
8
<PAGE>
In the second fiscal quarter of fiscal 1998, the Company recorded a
$15.2 million charge (4.2% of sales) for the loss on disposition of assets and
closed store expenses. The components are as follows (in millions):
Loss on disposition of assets and closed store expenses:
Loss on disposition of real estate $ 8.6
Loss on disposals of closed store fixtures and equipment 2.9
Closed store expenses 3.7
-----
Total $15.2
=====
The $8.6 million loss on disposition of real estate represents the loss
on sale of 16 properties comprised of closed stores and excess parcels. The $2.9
million loss on disposal of closed store fixtures relates to the excess loss on
the disposition of the 28 stores closed since 1997. Both the loss on real estate
and loss on closed store fixtures did not result in cash payments. The $3.7
million charge for closed store expenses relates primarily to the loss on
inventory and expenses of two closed stores which closed during the second
quarter of 1998, located in the Texas cities of San Antonio and El Paso. The
balance relates to additional charges for prior closed store lease and severance
reserves. These charges may result in future cash payments.
As a result of the Chapter 11 filings, the Company has recorded the
following reorganizational charges (in millions):
Loss on disposition of real estate $24.4
Loss on disposals of closed store
fixtures and equipment 6.4
Closed store expenses 8.9
Lease rejection damages 9.1
Restructuring charges 7.8
Retention and severance pay 1.8
-----
Total $58.4
=====
The $24.4 million loss on disposition of real estate represents the
write-down to net realizable value of the eight closing store properties held in
fee, the write-off of leasehold improvements on the 9 closing store properties
held under lease and certain other capitalized and deferred costs. The $6.4
million loss on disposals of closed stores fixtures and equipment represents the
write-down to net realizable value of fixtures and equipment of the 17 closing
stores. Both the loss on the real estate and the loss on the fixtures and
equipment will not result in cash payments. The $8.9 million charge for closed
store expenses relates primarily to the loss on inventory ($7.0 million) and the
expenses to be incurred in the 17 closing stores during the going out of
business sales ($1.9 million). The $7.8 million restructuring charges include
legal and professional fees incurred or paid prior to the petition date, the
write-off of loan costs previously incurred in connection with the Company's
pre-petition working capital facility, certain capitalized inventory costs, and
uncollectible receivables from vendors.
Certain leases on equipment and real estate will be rejected or
modified in connection with the Company's efforts to reorganize. The $9.1
million of lease rejection damages is the Company's current estimate of expected
loss associated with the rejection of these leases. A $1.8 million charge was
recorded to recognize certain retention payments and severance pay in connection
with the Company's initiatives. Of the $58.4 million, $2.0 million was paid in
cash in FY 1998, and up to an additional $4.5 million may result in future cash
payments. The remainder of the charges is non-cash.
The following represents reserve amounts created by the $58.4 million
of reorganization items (in millions):
Loss on disposition of real estate $ 0.6
Closed store expenses 8.9
Restructuring charges 2.5
Retention and severance pay 1.3
-----
Total $13.3
=====
9
<PAGE>
In the third and fourth quarters of fiscal 1997, the Company recorded
non-recurring charges related to store closings, excess and slow moving
inventory, severance, outdated technology and the write-off of debt costs in
connection with the Company's revolving line of credit. The components are as
follows (in millions):
Cost of Sales:
Mark-down of slow moving and
excess inventory $17.9
Additional shrinkage 9.5
Write-down for inventory liquidation
of closing stores 17.6
-----
45.0
Non-recurring and other charges:
Charges related to store closings 40.0
Other charges 4.0
-----
44.0
Interest:
Write-off of deferred debt costs 5.3
-----
Total $94.3
=====
The markdown of excess inventory of $17.9 million was taken to
correctly state the value of merchandise at the lower of cost or market. The
primary cause for this charge was due to problems experienced in athletic
footwear and apparel; both categories were impacted by distribution problems,
overly aggressive purchasing and soft sales. The Company took physical
inventories in each of its stores at year-end. Throughout the year, management
had estimated shrinkage at 2.2% of sales. This estimate was based on the prior
year's actual shrinkage of 2.8% and the industry average of 1.5%. The year-end
physical inventories resulted in a total shrinkage of 4.0% or approximately 1.8%
above the accrual. The additional shrinkage is believed to be primarily
attributable to implementation issues in connection with the new merchandising
systems and problems encountered with the Company's new distribution facility.
In February 1997, the Company changed its inventory distribution method and
inventory systems. The Company transitioned the majority of merchandise flow
from direct delivery to stores, to a third-party managed cross dock facility.
The initial start-up of the cross dock facility caused significant product
delays. Because of these delays, the Company experienced lost inventory, poor
sales and overstocks, resulting in higher shrinkage and increased markdowns to
alleviate seasonal and fashion oriented inventory levels. In October 1997, the
Company terminated its relationship with the third-party distribution manager
and returned to a merchandise flow direct to the Company's stores. By fiscal
year end, inventory levels returned to normal, and the Company expects gross
margins to return to historical levels in fiscal 1998. The Company installed new
financial and inventory systems to enhance inventory control information and
support the existing and future corporate infrastructure. As with any new
system, conversion issues arose, but the issues were timely corrected. The new
systems gave the Company real-time information to manage and control inventory
levels. Many of the aforementioned causes have been addressed and management is
focused on reducing and controlling shrinkage during fiscal 1998. Additionally,
the Company will be taking physical inventories throughout the year to better
estimate the proper shrinkage accrual. The Company recorded the inventory
write-down of $17.6 million for store closings inventory liquidation based on
the net realizable value of liquidating inventory at 26 stores anticipated to
close from January 1998 through May 1998. The establishment of the
aforementioned reserves did not result in additional cash payments in fiscal
1997.
The $40.0 million of charges related to store closings represent the
establishment of reserves of $29.1 million for the write-down of closed stores'
property and equipment to net realizable value, $6.7 million for expenses
attributable to the closing stores and $4.2 million for lease reserves at
closing locations. The establishment of these reserves did not result in
additional cash payments in fiscal 1997, but resulted in payments of $7.5
million in fiscal 1998.
Other charges of $4.0 million are for severance agreements attributable
to the administrative and management workforce reductions in January 1998, the
establishment of reserves for outdated information communications technology and
other miscellaneous charges. Cash payments of $0.5 million were made in fiscal
1997 and $2.5 million of cash payments were made in fiscal 1998.
10
<PAGE>
The Company accelerated the write-off of deferred debt costs in
connection with the renegotiation of the Company's credit facility in the amount
of $5.3 million. The deferred debt costs were loan fees and legal costs
associated with the Company's former $185.0 million revolving credit facility
which was revised on January 30, 1998, and subsequently refinanced. The
write-off of deferred debt costs were for cash payments of $3.0 million in
fiscal 1997, $1.0 million in non-cash payments and an additional $1.3 million
for cash payments to be made in fiscal 1998.
The following represents reserve accounts created by the $55.0 million
in charges recorded in 1996, the $94.3 million in charges recorded in 1997 and
the $15.2 million in charges in 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1/31/97 1/30/98 1/29/99
Reserve Initial Ending Ending Ending
Description Addition Reductions Balance Additions Reductions Balance Additions Reductions Balance
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Markdown of slow
moving and
excess inventory $17,928.5 $16,100.0 $1,828.5 $1,828.5
Write-down for
inventory
liquidation of
closing stores 17,538.2 7,348.7 10,189.5 $1,465.0 11,654.5
Expenses attributable
to closing stores 6,687.7 6,687.7 935.0 7,455.9 $166.8
Closing store equipment
reserve 5,011.5 5,011.5 2,886.4 7,882.2 15.7
Closed store leases 4,221.5 188.9 4,032.6 850.1 3,041.6 1,841.1
Other charges -
severance & outdated
communications
technology $1,800.0 $841.7 $958.3 3,543.6 720.4 3,781.5 487.3 3,327.2 941.6
Disposition and
impairment of
under-performing
assets 9,228.7 2,253.7 6,975.0 5,522.3 1,452.7 8,576.2 10,026.8 2.1
-------- ------- ------- ------- -------- -------- -------- -------- -------
Reserve Totals $11,028.7 $3,095.4 $7,933.3 $54,931.0 $29,880.3 $32,984.0 $15,200.0 $45,216.7 $2,967.3
======== ======= ======= ======= ======== ======== ======== ======== =======
</TABLE>
Fiscal 1998 Compared with Fiscal 1997
The Company began fiscal 1998 with 59 stores; two stores were closed in the
second fiscal quarter and two stores opened in the third fiscal quarter. The
Company ended the fiscal year with 59 stores. During the fourth fiscal quarter,
the Company announced the closing of 17 stores. These 17 stores will run going
out of business sales and close in late April, 1999.
Sales for fiscal 1998 decreased 31.4% to $362.4 million compared with sales
of $528.6 million in the prior year. The majority of the sales decline is due to
fewer stores in operation. Same store sales decreased by 12.4% for the fiscal
year. Same store sales were adversely affected by the following:
1. Poor sales trends were experienced throughout the retail sporting goods
industry as a result of the lack of new exciting product, unfavorable
weather conditions, changing consumer preferences and lower average
price points caused by heavy discounting.
2. Apparel sales on a same store basis were off 23.8%, with the biggest
declines occurring in licensed apparel and outerwear. License apparel
is driven by a number of factors including team uniform changes, the
location of league champions and professional sports labor disputes.
The NBA lockout, for example, has adversely impacted sales of NBA
licensed product. Outerwear sales are driven by weather conditions. An
unseasonably warm fall adversely affected sales and led to heavy
discounting.
3. Footwear sales were down 20.9% due to a general decline in the athletic
footwear category industry wide. Heavy discounting by the footwear
specialty retailers also contributed to the Company's sales declines.
Due to the Company's weakened financial condition, the Company could
not take advantage of manufacturer close-out merchandise which fueled
the sales by the specialty stores and the better capitalized big-box
competitors.
4. Tennis and golf continued poor sales trends as reported by most
retailers. The Company's golf offering is limited to mostly entry-level
brands and its own controlled label. Famous names such as Ping, Taylor
Made and Cobra are not made available to the Company by manufacturers.
11
<PAGE>
Gross profit for the year was $80.1 million, or 22.1% of sales as
compared to $75.1 million or 14.2% of sales in the prior year. This year's gross
profit percentage reflects a 0.85% inventory shrinkage whereas last year's
inventory shrinkage totaled 4.0% of sales. In the prior year, the Company
recorded a $45 million inventory write down, or 8.5% of sales, related to slow
moving athletic footwear and apparel, excess shrinkage and the inventory
liquidation of closing stores.
Selling, general and administrative expenses for the fiscal year were
$78.9 million, or 21.8% of sales, compared to $112.5 million, or 21.3% of sales,
in the prior year. The increase as a percentage of sales was due to lower sales
volume leverage on general and administrative expenses and certain operational
expenses. Store payroll expense improved 110 basis points versus last year and
advertising expense was 34 basis points less than last year.
During the third quarter of the fiscal year, the Company recorded $1.0
million of income for the settlement of legal proceedings. Due to the size and
nature of this settlement, the amount has been separately stated on the
Company's financial statements.
In the second quarter of fiscal 1998, the Company recorded a $15.2
million charge for the loss on disposition of assets and closed store expenses.
The components are as follows (in millions):
Loss on disposition of assets and closed store expenses:
Loss on disposition of real estate $ 8.6
Loss on disposals of closed store fixtures and equipment 2.9
Closed store expenses 3.7
-----
Total $15.2
=====
The $8.6 million loss on disposition of real estate represents the loss
on sale of 16 properties comprised of closed stores and excess parcels. The $2.9
million loss on disposal of closed store fixtures relates to the excess loss on
the disposition of the 28 stores closed since 1997. Both the loss on real estate
and loss on closed store fixtures did not result in cash payments. The $3.7
million charge for closed store expenses relates primarily to the loss on
inventory and expenses of two closed stores which closed during the second
quarter of 1998, located in the Texas cities of San Antonio and El Paso. The
balance relates to additional charges for prior closed store lease and severance
reserves. These charges may result in future cash payments.
Loss from operations was $13.0 million, or 3.6% of sales in fiscal 1998
as compared to loss from operations of $80.4 million or 15.2% of sales in fiscal
1997. The loss in the current year is primarily attributable to the $15.2
million charge taken in the second quarter. The loss in the prior year is
primarily attributable to $89.0 million in charges taken in the third and fourth
quarters.
Interest expense for fiscal 1998 was $22.4 million, or 6.2% of sales
compared to $30.4 million, or 5.8% of sales for the prior fiscal year. The
decrease in interest expense relates primarily to a reduction in average debt
outstanding due to the liquidation of closed store inventory and the sale of
closed store and excess real estate. Average interest rates in fiscal 1998 were
up 20 basis points over the prior year. No interest on the convertible
subordinated notes was accrued after the petition date.
Reorganization items represent charges incurred by the Company as part
of its Chapter 11 reorganization. The components are as follows (in millions):
Loss on disposition of real estate $24.4
Loss on disposals of closed store
fixtures and equipment 6.4
Closed store expenses 8.9
Lease rejection damages 9.1
Restructuring charges 7.8
Retention and severance pay 1.8
-----
Total $58.4
=====
12
<PAGE>
The $24.4 million loss on disposition of real estate represents the
write-down to net realizable value of the eight closing store properties held in
fee, the write-off of leasehold improvements on the 9 closing store properties
held under lease and certain other capitalized and deferred costs. The $6.4
million loss on disposals of closed stores fixtures and equipment represents the
write-down to net realizable value of fixtures and equipment of the 17 closing
stores. Both the loss on the real estate and the loss on the fixtures and
equipment will not result in cash payments. The $8.9 million charge for closed
store expenses relates primarily to the loss on inventory ($7.0 million) and the
expenses to be incurred in the 17 closing stores during the going out of
business sales ($1.9 million). The $7.8 million restructuring charges include
legal and professional fees incurred or paid prior to the petition date, the
write-off of loan costs previously incurred in connection with the Company's
pre-petition working capital facility, certain capitalized inventory costs, and
uncollectible receivables from vendors. Certain leases on equipment and real
estate will be rejected or modified in connection with the Company's efforts to
reorganize. The $9.1 million of lease rejection damages is the Company's current
estimate of expected loss associated with the rejection of these leases. A $1.8
million charge was recorded to recognize certain retention payments and
severance pay in connection with the Company's initiatives. Of the $58.4
million, $2.0 million was paid in cash in FY 1998, and up to an additional $4.5
million may result in future cash payments. The remainder of the charges is
non-cash.
For fiscal 1998 the Company recorded a $163 thousand tax benefit
related to certain tax carrybacks. In fiscal 1997 the Company recorded a $483
thousand tax expense as a result of writing off a deferred tax asset that had
been recorded in the prior year.
In the current fiscal year, the Company posted a net loss of $93.5
million, or 25.8% or sales, compared to a net loss of $111.3 million, or 21.1%
of sales in the prior fiscal year. The net loss for the current year is
primarily attributable to the $15.2 million loss recorded on disposition of
assets, closed stores expenses and non-recurring charges and the $58.4 million
in reorganization items. In the prior year, the net loss was attributable to the
$94.3 million of charges for store closings, inventory write-downs and other
charges.
As part of its Chapter 11 reorganization efforts, management is
developing a plan to reorganize and return the Company to profitability.
Seventeen unprofitable stores have been closed and expenses reduced accordingly.
Sales continue to present the biggest opportunity for management. Proper
in-stock levels as well as better presentation of merchandise are believed to be
key components to improving sales. Additionally, associates will be trained on
improving their customer service skills and sales productivity.
The Company believes that the sale of real estate that is held for sale
will reduce debt and interest expense, although the precise amount that will be
available to reduce debt will depend upon the interpretation and enforceability
of contractual provisions in various mortgages. Prior to Petition Date, the
Company negotiated prepayment premiums of approximately 5% on certain parcels of
real estate which were subject to mortgages containing similar contractual
provisions. An adverse judicial determination finding the contractual formula to
be enforceable would cause the Company to reassess its real estate marketing
program.
Fiscal 1997 Compared with Fiscal 1996
During fiscal 1997, the Company announced the closing of 26 stores in
13 states as compared to opening five new stores with no store closings in
fiscal 1996. The Company operated 85 stores for three fiscal quarters and 77
stores for one fiscal quarter, ending fiscal 1997 with 77 operating stores.
Sales for fiscal 1997 decreased 15.3% to $528.6 million compared with
sales of $624.0 million in the prior year. Same store sales decreased by 14.3%
for fiscal 1997. While these same store sales were unfavorable, management
believes they are not truly comparable because sales in the prior year were
bolstered by the 1996 inventory clearance sale the Company started in June 1996
and continued through November 1996 and the additional five days of sales in
fiscal 1996, fiscal 1996 being a 52 week and five day period. Sales below cost
incurred during the inventory clearance sale were $32.8 million which represents
5.3% of the prior years sales and the additional five days sales totaled $3.5
million. Adjusting same store sales in the prior year for the below cost
clearance sale and the five additional days of sales in fiscal 1996, results in
a comparable sales decrease of 8.8%. Sales have been adversely impacted by the
following:
13
<PAGE>
1. New merchandise management systems, installed at the beginning of the
fiscal year, caused significant disruptions in merchandise flow due to
problems encountered in receiving and making product ready to sell at
the store level;
2. Operational problems with the Company's distribution center during the
first eight months of the year caused substantial delays in the flow of
merchandise creating out of stock conditions for basic merchandise and
late arrivals of seasonal merchandise;
3. Certain merchandise categories were further affected. Outerwear sales
were lower due to less clearance sales than in the prior year. Fitness
was lower due to fewer new "informercial"-driven product introductions.
The footwear category was affected due to the declining in-line skate
business and general softness in the athletic footwear industry;
4. Sales were generally soft throughout the sporting goods retail segment,
partially as a result of comparisons against last year's Olympic
merchandise sales and last year's increased foot traffic due to the
Olympics; and
5. Competition continued to increase. Thirty-four additional stores this
year were affected by new big-box competitors which have opened since
the beginning of the prior year.
Gross profit for fiscal 1997 was $75.1 million, or 14.2% of sales, as
compared to $119.0 million, or 19.1% of sales in fiscal 1996. The Company
incurred a $45.0 million inventory write-down charge, or 8.5% of sales related
primarily to slow moving athletic footwear and apparel, excess shrinkage and the
inventory liquidation in connection with the closing of 26 stores. In the prior
year, the Company took a charge of $32.4 million, or 5.2% of sales, to recognize
the loss on outdated and discontinued product. The remaining decrease was
attributable to higher buying and occupancy costs as a percentage of sales.
Selling, general and administrative expenses for the fiscal year were
$112.5 million, or 21.3% of sales, compared to $124.9 million, or 20.0% of
sales, in the prior year. The increase as a percentage of sales was due to lower
sales volume leverage on fixed costs and certain higher operating costs. Payroll
expense as a percentage of sales was up 29 basis points due to the in-store
problems encountered by the introduction of the new merchandise information
systems as well as problems experienced in the implementation of the new
distribution center; also a higher average wage resulted from the
"ripple-effect" of the minimum wage increase and a generally tighter labor
market. Advertising expense as a percentage of sales was up 121 basis points,
due to additional expenditures for radio and television advertising, newspaper
advertising and the multi-paged advertising books in connection with the
corporate name change.
In addition to the $45.0 million inventory charge, the Company incurred
$43.0 million of non-recurring charges, or 8.1% of sales, in the current year's
third and fourth fiscal quarters for charges as discussed above. In the second
quarter of the prior year, the Company recorded a $22.6 million charge, or 3.7%
of sales for the disposition of and impairment of underperforming assets, for
certain loss contingencies and other charges.
Loss from operations in fiscal 1997 was $80.4 million or (15.2)% of
sales, compared to a loss from operations of $28.5 million, or (4.6)% of sales
in fiscal 1996. The loss in the current year was primarily attributable to $89.0
million in charges taken in the third and fourth quarters. The loss in the prior
year was primarily attributable to the $55.0 million in charges taken in the
second fiscal quarter.
Interest expense for fiscal 1997 was $30.4 million, or 5.8% of sales,
compared to $19.9 million, or 3.2% of sales for the prior fiscal year. This
increase in interest expense was the result of the following:
1. Average debt increased due to refinancing the $58.0 million off balance
sheet Tax Retention Operating Lease facility into the revolving credit
facility and higher average inventory levels;
2. The re-negotiated existing credit facility called for borrowings at
LIBOR plus 2% (beginning May 29, 1996) and 3.0% (beginning December 15,
1997) contributing to an overall 81 basis point increase in average
interest rates; and
3. The accelerated write-off of $5.3 million in deferred financing costs
in connection with the re-negotiation of the Company's existing credit
facility.
14
<PAGE>
The Company had $100 million of interest rate collars which
impacted interest expense by $15 thousand and $48 thousand, in fiscal 1996
and fiscal 1997, respectively.
The Company recorded an income tax expense of $0.5 million in fiscal
1997, the result of writing off the deferred tax asset recorded in the prior
year. In fiscal 1996, the Company recorded an income tax benefit of $17.9
million with an effective tax rate of 36.9%.
In fiscal 1997, the Company posted a net loss of $111.3 million, or
(21.1)% of sales, compared to a net loss of $30.5 million, or (4.9)% of sales
for the prior fiscal year. The net loss for the fiscal year was primarily
attributable to the $94.3 million of charges for store closings, inventory
write-downs and other charges incurred in the third and fourth fiscal quarters
with no federal income tax benefit, resulting in the full amount as a charge
after tax. In the prior year, the net loss was attributable to the $55.0 million
charge for inventory, non-recurring and other items incurred in the second
quarter of the prior year reduced by a federal income tax benefit, resulting in
a net charge after tax of $34.6 million.
Liquidity and Capital Resources
The Company's primary capital requirements have been to support capital
investment for the opening of new stores, to purchase inventory for new stores,
to meet seasonal working capital needs, and to retire indebtedness. The
Company's working capital needs have been funded through a combination of
external financing (including long-term debt and proceeds from the Company's IPO
in 1992, proceeds from the issuance of 4 1/4% Convertible Subordinated Notes in
1993, proceeds from a two million share stock offering in 1994 and mortgage
proceeds in 1996 and 1997), internally generated funds and credit terms from
vendors. Historically, the Company's working capital needs peak in the fourth
quarter.
During fiscal 1998, the Company completed the sale of 30 properties
totaling $77.1 million. Proceeds were used to reduce bank debt and retire
mortgage loans. During fiscal 1997, the Company sold seven properties totaling
$5.1 million. Proceeds were used to reduce bank debt. At end of fiscal 1998, the
Company had 16 properties with an estimated value of $54.0 million held for
sale. Eight of the 16 properties worth an estimated $26.8 million, were under
contract or letter of intent to be sold. With the filing of the bankruptcy these
sales were subject to Bankruptcy Court approval. Two of these contracts have
been approved and one of the two sales has closed. The proceeds from the sale
was used to reduce the DIP facility term loans consequently lowing future
interest expense and debt service requirements. Sales of the remaining
properties, if approved by Bankruptcy Court, will be used to reduce the DIP
facility term loans and mortgage debt (assuming the non-enforceability of the
yield maintenance provision and pre-payment penalties in certain of the
mortgages secured by such properties).
Operating activities in fiscal 1998 provided cash of $28.4 million
compared to a cash use of $34.5 million in fiscal 1997. An orderly reduction in
inventory levels in open stores plus the liquidation of inventory in the 18
stores (net) that closed during fiscal 1998 provided the majority of the cash.
In fiscal 1997, excess merchandise purchases resulting from implementation
issues with the Company's new merchandising system and third party distribution
facility caused unplanned inventory increases and a high use of cash.
Net cash of $71.1 million was provided by investing activities during
fiscal 1998 compared to a net cash use of $6.0 million in fiscal 1997. Cash
proceeds from the sale of property in fiscal 1998 were $77.1 million compared to
$5.1 million in fiscal 1997.
Cash used in financing activities was $76.0 million in fiscal 1998
compared to $35.9 million of cash provided by financing activities in fiscal
1997. In fiscal 1998 the Company repaid debt from the sale of property and the
liquidation of inventory. In fiscal 1997 the Company borrowed on its working
capital facility to finance inventory increases.
As of January 29, 1999, the Company had $67.1 million of long-term
mortgage obligations, $98.9 million of borrowings under its revolving line of
credit and $18.5 million of borrowings on its term loan. Both the revolving line
15
<PAGE>
of credit and the term loan are components of the Company's $150 million credit
facility which was completed on July 24, 1998. On December 27, 1998 the Company
and certain of its subsidiaries filed petitions for reorganization under Chapter
11 of the Bankruptcy Code. Thereafter, no additional amounts were drawn under
the credit facility agreement. Temporary usage of cash collateral was permitted
by the Bankruptcy Court through February 12, 1999. On February 11, 1999, the
Company and its lenders agreed to a $110 million Senior Secured Super Priority
Debtor-In-Possession Loan and Security Agreement (the "DIP facility"). The DIP
facility contains customary events of default and a number of covenants,
including restrictions on liens and sales of assets, prohibition on dividends
and certain changes in control. There are two financial covenants. As of April
30, 1999, the Company was in compliance with all the DIP facility covenants.
The DIP facility bears interest on revolving loans at the Company's
option, at the Reference Rate plus 0.5% or at LIBOR plus 2.75%.
Also as of January 29, 1999, the Company had $137.4 million of
liabilities subject to compromise. These liabilities relate to debt incurred or
existing prior to the petition date and are subject to settlement under terms of
a plan of reorganization.
The inventory liquidation of 17 stores during the first quarter of
fiscal 1999 and the proceeds from the sale of property held for sale are
expected to provide cash for the repayment of secured debt. This repayment
should materially reduce the Company's interest expense in future periods. The
Company is not accruing interest on its $74.5 million of convertible
subordinated notes during the pendency of its Chapter 11 case.
Year 2000 Compliance
Introduction
The "Year 2000 Problem" arose because many existing computer programs
use only the last two digits to refer to a year. Therefore, these computer
programs do not properly recognize a year that begins with "20" instead of the
familiar "19." If not corrected, many computer applications could fail or create
erroneous results. The problems created by using abbreviated dates appear in
hardware, operating systems and other software programs. The Company's Year 2000
("Y2K") compliance project is intended to determine the readiness of the
Company's business for the Year 2000. The Company defines Y2K "compliance" to
mean that the computer code will process all defined future dates properly and
give accurate results.
Description of Areas of Impact and Risk
The Company has identified three areas where the Y2K problem creates
risk to the Company. These areas are: a) internal Information Technology ("IT")
systems; b) non-IT systems with embedded chip technology; and c) system
capabilities of third party businesses with relationships with the Company,
including product suppliers, service providers (such as credit card processors,
telephone, power, security systems, payroll processing) and other businesses
whose failure to be Y2K compliant could have a material adverse effect on the
Company's business, financial condition or results of operations.
Plan to Address Year 2000 Compliance
In the spring of 1997, the Company developed a plan to address Y2K
readiness issues. The plan included the identification of IT and non-IT systems
for compliance, the readiness of the components and modification or replacement
of the components. Testing will be completed on each area before implementation.
Finally, contingency plans to address potential risks that the Y2K compliance
project will not address need to be developed.
State of Readiness
IT Systems - In the spring of 1997, the Company replaced all of its
application software from IBM, Microsoft and JDA Software Group (JDA). With the
implementation of one programming update from JDA, JumboSports will complete its
Y2K compliance in key financial, information and operating systems. The
application of the JDA update will require thorough testing of every application
at JumboSports. This testing is scheduled to be completed before October 1999,
with the applications implemented during October 1999.
16
<PAGE>
Non-IT Systems - The Company has also reviewed its non-IT systems for
Y2K compliance. Areas for modification have be identified and are in process for
completion in late 1999.
Third-Party Business - The Company has obtained from service vendors
written statements of Y2K compliance and readiness. For critical vendors, if the
Company does not receive a written statement of compliance, the Company will
pursue alternative means of obtaining Y2K readiness information, through the
review of publicly available information published by such third parties.
Cost of Project
The overall cost of the Company's Y2K compliance effort has and is not
expected to be material to the company's consolidated financial position,
results of operations or cash flows.
Contingency Plans and Risks
The Company believes that its approach to Y2K readiness is sound, but
it is possible that some business components are not identified, or that the
testing process does not result in analysis and remediation of all source code.
The Company's contingency plan will address alternative providers and processes
to deal with business interruptions that may be caused by internal system or
third party providers failure to be Y2K compliant.
The failure to correct a material Y2K problem could result in an
interruption in, or failure of, certain business activities or operations. Such
failure could materially and adversely affect the Company's results of
operations, liquidity and financial condition. In addition, the Company's
operating results could be materially adversely affected if it were to be held
responsible for the failure of products sold by the Company to be Y2K ready
despite the Company's disclaimer of product warranties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not believe there is material market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this item is set forth as an exhibit to
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors as of April 29, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Occupation/Background
<S> <C> <C>
Jack E. Bush 64 Chairman of the Board since December 5, 1997, Chief Executive Officer of
the Company from December 16, 1997 to April 13, 1999, and President from
February 17, 1999 to April 13, 1999. Mr. Bush is President of Raintree
Partners, Inc., a management consulting firm. He serves as Director of
Stage Stores, Inc. and Telequip Company. Previously, he served as
President and Director of Michaels Stores, Inc. from 1991-1995. Mr. Bush
is also currently Chairman of the Strategic Planning Board of Directors
of the College of Business and Public Administration at the University of
Missouri.
Harold F. Compton 51 Director of the Company since December 1996. Mr. Compton is President
and Chief Operating Officer of CompUSA Stores, America's largest
computer superstore retailer, which he joined in 1994 as Executive Vice
President/Operations. Prior to that, he served as President and Chief
Operating Officer of Central Electric, Inc. from 1993-1994 and Executive
Vice President/Operations and Human Resources of Home Base from 1989-1993.
R. Don Morris 59 Director of the Company since March 1998. Mr. Morris retired as
Executive Vice President/Chief Financial Officer of Michaels Stores, Inc.
in March 1997. Prior to 1990, when he joined Michaels Stores, he served
as Director, President and Chief Executive Officer of Frostcollection,
Inc. from 1988-1990.
Samuel Northrop, Jr. 67 Director of the Company since August 1996. Mr. Northrop retired in July
1996 as Director of Commercial Banking of Barnett Banks, Inc., a position
he held since 1991. He joined Barnett in November 1986 as Senior Vice
President and Manager of the U.S. Banking Group. While at Barnett, he was
also a member of the Corporate Loan Committee and the Management Advisory
Council. Prior to that, he served in various management capacities at
Wachovia Bank N.A.
Ronald L. Vaughn 52 Director of the Company since December 1996. Dr. Vaughn is President of the
University of Tampa, a position he has held since January 1995. Between
1984 and 1995, Dr. Vaughn held numerous positions at the University including,
Dean of the College of Business, Dean of Graduate Studies and Professor.
</TABLE>
18
<PAGE>
Executive officers are appointed by the Board of Directors and serve at
the pleasure of the Board. Executive Officers as of April 29, 1999 are as
follows:
<TABLE>
<CAPTION>
Name Age Position, Principal Occupation and Other Directorships
<S> <C> <C>
Alfred F. Fasola, Jr. 49 Chief Executive Officer of the Company since April 13, 1999. Mr. Fasola
is co-founder of the Taggart-Fasola Group, a financial and strategic
consulting business. From 1993-1995, he served as Chief Executive
Officer of Herman's Sporting Goods in Carteret, New Jersey. Due to an
overly aggressive payout to creditors under a Chapter 11 reorganization
in 1995, Herman's was forced to re-enter Bankruptcy in 1996 and shortly
thereafter, ceased operations. Prior to that, he served as Chairman and
Chief Executive Officer of Circle Express in Indianapolis, Indiana, and
President of Purolator Corporation in Basking Ridge, NJ.
Michael J. Worrall 51 President of the Company since April 13, 1999. Mr. Worrall served at
Chief Information Officer of Henry Silverman Jewelers in El Paso, Texas,
from 1997-1998 and as Executive Vice President of Kuppenheimer Menswear
in Atlanta, Georgia, from 1996-1997. Previously, he served as Senior
Vice President of Strategy, Planning and Business Re-engineering of
Herman's Sporting Goods in Carteret, New Jersey. Due to an overly
aggressive payout to creditors under a Chapter 11 reorganization in 1995,
Herman's was forced to re-enter Bankruptcy in 1996 and shortly
thereafter, ceased operations. Prior to that, he worked in Great Britain
for 15 years.
B. Robert Floum 62 Chief Operating Officer of the Company since January 26, 1998. From
1994-1998, Mr. Floum served as a consultant for a number of Florida-based
retailers. Prior to 1994, he served as President and Chief Executive
Officer of Fisher Big Wheel in New Castle, Pennsylvania, and Senior Vice
President of Merchandising of Roses Discount Stores in Henderson, North
Carolina.
Barry Gold 56 Executive Vice President of Operations, Logistics and Loss Prevention
since March 9, 1998. Mr. Gold previously served as Executive Vice
President of Stores and Operations for L. Luria and Son, a specialty
retailer, from 1996-1998. L. Luria and Son filed for protection under Chapter 11
of the Bankruptcy Code on August 13, 1997. Prior to that he served as Chief
Financial Officer of The Flax Art and Design Company, Inc. and Vice Chairman/Chief
Operating Officer of Fisher Big Wheel.
</TABLE>
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16(a)-3(e) during fiscal year 1998 and
Form 5 and amendments thereto furnished to the Company with respect to fiscal
year 1998 and any written representation otherwise furnished to the Company, the
Company believes that SEC filing requirements applicable to its Directors and
officers with respect to the Company's fiscal year ended January 29, 1999, have
been fulfilled and that all such filings were made on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION.
Directors Fees
Directors of the Company each received, upon their first appointment to
the Board, a one-time option grant to purchase 10,000 shares of the Company's
Common Stock at the fair market value of the Common Stock on the date of grant.
In addition, for so long as the Director were to remain a member of the Board,
such director would receive annual compensation in the form of option grants to
purchase 1,000 shares of the Company's Common Stock at the fair market value of
the Common Stock on the day preceding each Annual Meeting of Stockholders. These
options were to vest and become exercisable on the first anniversary of the date
of grant, provided the Director then remained a member of the Board. This
incentive compensation has not been approved by the Bankruptcy Court.
19
<PAGE>
In addition, each of said Directors is paid an annual fee of
$16,000 and $1,500 for attendance, in person or by telephone, at each
Board meeting, plus certain expense reimbursements and allowances. The
Bankruptcy Court has approved this compensation.
Executive Compensation
Summary Compensation Table
The following table sets forth, for the years ended January 29, 1999,
January 30, 1998 and January 31, 1997, the cash compensation paid by the
Company, as well as other compensation paid or accrued for these years to those
persons who were at January 29, 1999, the Company's Chief Executive Officer and
the other four most highly compensated officers of the Company ("Named
Officers"). See discussion under Employment Contracts for additional
information.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
---------------------------------------------- ------------------------------------
Other Annual Restricted Stock All other
Name and Principal Position Year Salary Bonus Compensation Stock Awards Options(#) comp.(1)
- --------------------------- ---- ------ ----- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack E. Bush 1998 $380,500(2) $ -0- $ 174,000(3) $ -0- 1,000 $ -0-
Chairman, Former 1997 69,479(2) -0- -0- -0- 211,000 -0-
President and Former 1996 N/A (4) N/A N/A N/A N/A N/A
Chief Executive Officer(5)
B. Robert Floum 1998 $300,000 $ -0- $ 186,950(3) $ -0- -0- $ 936
Chief Operating Officer 1997 N/A (4) N/A N/A N/A 200,000 N/A
1996 N/A (4) N/A N/A N/A N/A N/A
Raymond P. Springer 1998 $257,433 $218,909 $ 120,000(3) $ -0- 50,000 $10,707
Former Executive Vice 1997 208,063 17,308(6) -0- -0- 30,000 24,980
President and Chief 1996 145,385 72,692(6) -0- -0- 150,000 1,954
Financial Officer (5)
Barry Gold 1998 $167,223 $ -0- $ 149,961(3) $ -0- 100,000 $ 2,903
Executive Vice President 1997 N/A (4) N/A N/A N/A N/A N/A
Operations 1996 N/A (4) N/A N/A N/A N/A N/A
Michael Henning 1998 $139,713 $ 47,657 $ -0- $ -0- 50,000 $10,376
Senior Vice President 1997 133,492 4,207(6) -0- -0- 20,000 11,255
Human Resources 1996 108,173 27,043(6) -0- -0- 100,000 5,126
<FN>
- ------------
(1) Includes Company contributions and participant forfeitures allocated to
the accounts of the Named Officers in the Company's Profit Sharing and
401(k) Savings Plan and the Executive Deferred Compensation Plan, premiums
paid by the Company for insurance policies on the lives of the Named
Officers, the benefits of which are payable to the designated beneficiary
of each Named Officer and limited medical reimbursements paid to certain
Named Officers.
(2) Represents amounts paid directly to Mr. Bush and to Raintree Partners,
Inc., Mr. Bush's management consulting firm, and includes fees associated
with Mr. Bush as a Board member.
(3) Represents amounts paid to Named Officer in compliance with Named Officers
amended and restated Employment Agreements. Amounts in connection with
relocation expenses are included for Mr. Floum and Mr. Gold.
(4) Mr. Bush, Mr. Floum and Mr. Gold joined the Company in January 1998,
January 1998 and March 1998, respectively, and accordingly, received no
compensation from the Company prior to that date.
(5) Mr. Bush's and Mr. Springer's employment terminated on April 13, 1999.
(6) Represents a portion of the Named Officer's minimum guaranteed bonus,
pursuant to the terms of the Named Officer's employment agreement.
</FN>
</TABLE>
20
<PAGE>
Option Grants In Last Fiscal Year
The following table contains information concerning the grant of stock
options under the Company's Stock Incentive Plans to the Named Officers during
the last fiscal year. These stock options may be subject to modification or
elimination as part of the reorganization proceedings.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term (1)
------------------------------------------------------ --------------------------------
% of Total
Options
Granted to
Options Employees Exercise or
Granted In Fiscal Base Price Expiration
Name (#) Year(2) ($/share)(3) Date 5% 10%
- ------------------- -------- ---------- ------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Jack E. Bush 1,000(4) * 1.063 6/17/08 669 1,694
Raymond P. Springer 30,000(5) 4.0% 1.625 4/15/08 30,660 77,700
20,000(5) 2.7% 1.813 2/17/08 22,800 57,780
Michael Henning 30,000(5) 4.0% 1.625 4/15/08 30,660 77,700
20,000(5) 2.7% 1.563 3/25/08 19,660 49,820
Barry Gold 100,000(6) 13.4% 1.813 3/3/08 114,000 288,900
<FN>
- --------------
(1) Gains are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock and overall stock
market conditions. The amounts reflected in this table may not necessarily
be achieved.
(2) Reflected as a percentage of total option grants to all employees under
both 1989 Stock Incentive Plan and the 1996 Stock Incentive Plan. A total
of 356,600 option grants were made under the 1989 Stock Incentive Plan and
392,563 option grants were made under the 1996 Stock Incentive Plan.
(3) All options were originally granted at the market value on the date of
grant. The exercise price and tax withholding obligations related to
exercise may be paid by delivery of already owned shares, subject to
certain conditions.
(4) These options represent Mr. Bush's annual grant as a Director of the
Company.
(5) All options granted in 1998 to the Named Officer vest over five years,
pursuant to the terms of the Named Officer's Employment Agreement, at the
rate of 40% after two years from date of grant and 20% at the end of each
subsequent year.
(6) All options granted in 1998 to the Named Officer vest over four years at
the rate of 25% each year on the anniversary of the date of grant. .
* Represents less than 1%.
</FN>
</TABLE>
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year End
Option Values
None
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended January 29, 1999, Messrs. Compton and
Morris served on the Compensation Committee. Neither of them are or were
formerly officers of the Company, and there were no interlocks between them or
any of the Company's executive officers.
Employment Contracts
On April 13, 1999, the Bankruptcy Court approved the appointment of
Alfred F. Fasola, Jr. as Chief Executive Officer of the Company and Michael J.
Worrall as President. Mr. Fasola is to be paid a base annual compensation of
$174,000 and is entitled to a performance bonus based upon sustained
21
<PAGE>
break-even performance by the Company as defined and to be agreed upon by
the Board of Directors (with Bankruptcy Court approval). Mr. Worrall is to paid
a base annual compensation of $250,000 and is entitled to a performance bonus to
be determined on the same basis as Mr. Fasola. Both Mr. Fasola and Mr.
Worrall will be entitled to a success fee upon the sale, reorganization or
liquidation of the Company on terms to be agreed upon by the Board of Directors
to the extent that such compensation is approved by the Bankruptcy Court.
On February 23, 1999 and April 22, 1999, the Bankruptcy Court entered
orders approving certain compensation arrangements between the Company and Jack
E. Bush, who was on the Petition Date the Company's Chairman, Chief Executive
Officer and President, and Raymond P. Springer, who was on the Petition Date the
Company's Executive Vice President and Chief Financial Officer. As a result of
these orders Messrs. Bush and Springer were authorized to receive (a) regular
salary payments and benefits from the Petition Date through April 13, 1999; (b)
prorated daily compensation and benefits for up to an additional 45 days; and
(c) one year's salary in the form of a lump sum severance payment plus continued
insurance coverage for one year. Messrs. Bush and Springer each received
a retention bonus equal to six months' base compensation before the Petition
Date.
The employment agreements of Mr. Floum and Mr. Gold each terminate on
the latest of (a) the effective date of a plan of reorganization, (b) dismissal
of the Chapter 11 proceedings or (c) December 31, 1999 ("agreement termination
date"). Both Mr. Floum and Mr. Gold each received a lump sum retention bonus on
December 23, 1998 equal to six months of their respective base compensation.
Each employment agreement provides that the retention bonus be refunded to the
Company if the respective executive voluntarily terminates his employment prior
to the earlier of (a) December 31, 1999, (b) the effective date of a plan of
reorganization, (c) the date his employment is involuntarily terminated, or (d)
the cessation of retail business operations, Chapter 7 conversion or dismissal
of the Chapter 11 case. Additionally, each executive is eligible for a success
bonus equal to six months of their respective base compensation payable on the
effective date of a plan of reorganization, provided that (a) he remains in the
employment of the Company as of the effective date of a plan of reorganization,
(b) the plan is a non-liquidating plan, and (c) the plan is supported by
majority vote of the official committees. Each executive is also eligible for
severance pay of one year's annual base compensation, so long as he does not
voluntarily terminate his employment prior to the agreement termination date.
Mr. Henning's employment agreement calls for a retention bonus equal to
three months' base compensation to be paid on the earlier of (a) the effective
date of a plan of reorganization or (b) December 31, 1999, provided he remains
in the employ of the Company. Mr. Henning is also eligible for a success bonus
equal to three month's base compensation payable on the effective date of a plan
of reorganization. The agreement further provides that Mr. Henning is eligible
for salary continuation payable every two weeks until alternative permanent
employment is accepted, not to exceed twelve months, should his employment be
involuntarily terminated by the Company.
22
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
To the best knowledge of the Company based on information filed with the
Securities and Exchange Commission and information provided directly to the
Company by the persons and entities named below, the following table sets forth
the beneficial ownership of the Company's Common Stock, as of March 25, 1999
(unless otherwise noted), by each holder of more than 5% of the Company's Common
Stock and by each Director and executive officer of the Company and by the
Directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares
Beneficially Percent
Name and Address of Beneficial Owner Position with Company Owned (1) of Class
- ------------------------------------ --------------------- ------------ --------
<S> <C> <C> <C>
Directors/Nominees:
- -------------------
Jack E. Bush Chairman of the Board 212,000(2) 1.03%
6222 Raintree Court
Dallas, Texas
Harold F. Compton Director 21,000(2) *
14951 North Dallas Parkway
Dallas, Texas
R. Don Morris Director -0- (2) *
P.O. Box 988
Mt. Vernon, Texas
Samuel Northrop, Jr. Director 12,000(2) *
8140 Mar del Plata
Jacksonville, Florida
Ronald L. Vaughn Director 11,000(2) *
401 W. Kennedy Blvd.
Tampa, Florida
Former Executive Officers:
- --------------------------
Raymond P. Springer Former Executive Vice 32,000 *
4701 W. Hillsborough Avenue President and Chief
Tampa, Florida Financial Officer
Other Executive Officers:
- -------------------------
Alfred F. Fasola, Jr. Chief Executive Officer -0- *
4701 W. Hillsborough Avenue
Tampa, Florida
B. Robert Floum Chief Operating Officer 200,000(2) *
4701 W. Hillsborough Avenue
Tampa, Florida
23
<PAGE>
Barry Gold Executive Vice President/ 100,000(2) *
4701 W. Hillsborough Avenue Operations, Logistics and
Tampa, Florida Loss Prevention
Michael J. Worrall President -0- *
4701 W. Hillsborough Avenue
Tampa, Florida
Beneficial Owners in
Excess of 5% Ownership:
- -----------------------
Investcorp S.A. --- 2,793,914(3) 13.68%
37 rue Notre-Dame
Luxembourg
Dimensional Fund Advisors Inc. --- 1,026,300 (4) 5.03%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
All current Directors and executive 556,000 2.22%
officers as a group (9 persons)
* Represents less than one percent
<FN>
- ------------------------
(1) As used in this table, beneficial ownership means the sole or shared power
to vote, or direct the voting of, a security, or the sole or shared power
to dispose, or direct the disposition of a security. The named stockholders
have sole power to vote and dispose of all shares shown as being
beneficially owned by them, except as otherwise indicated.
(2) Includes all stock options vested as of April 20, 1999.
(3) As of January 29, 1999, Investcorp S.A. does not hold any shares of the
Company directly. Share ownership listed above includes shares held by
Investcorp's indirect wholly-owned subsidiaries, as to which shares
Investcorp holds sole voting and investment power. Share ownership also
includes 2,793,914 shares held by various Cayman Islands corporations, none
of which and none of the beneficial owners of which own individually more
than 5% of the Company's shares but as to which Investcorp may be deemed to
share beneficial ownership as a result of certain revocable management
contracts between Investcorp and the beneficial owners of such shares
pursuant to which Investcorp has the authority to direct the voting and
disposition of the shares. Investcorp owns no stock in the Cayman Islands
corporations that hold the shares subject to such revocable management
contracts.
(4) As of February 11, 1999, Dimensional Fund Advisors Inc. ("Dimensional"), a
registered investment advisor, is deemed to have beneficial ownership of
1,026,300 shares, all of which shares are held in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end investment company,
or in series of The DFA Investment Trust Company, a Delaware business
trust, or the DFA Group Trust and the DFA Participating Group Trust,
investment vehicles for qualified employee benefit plans, all of which
Dimensional serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In connection with their respective employment agreements, and pursuant
to the terms thereof, during fiscal year 1996 the Company loaned $166,667,
$137,500 and $30,250 to each of Messrs. Bebis (former Chairman, President and
Chief Executive Officer), Springer and Henning, respectively, to assist them
with the purchase of non-registered shares of the Company's Common Stock. In
lieu of incurring the expense of registering Mr. Bebis' shares as provided
in his termination agreement, the Company accepted the shares, valued at the
closing
24
<PAGE>
price 90 days after Mr. Bebis' date of termination, plus cash in satisfaction of
the outstanding loan balance. As of January 29, 1999, each of the outstanding
loans had been repaid in full.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Annual Report on Form 10-K:
(1) Financial Statements
Page
Reports of Independent Accountants......................................F-1
Consolidated Balance Sheets.............................................F-3
Consolidated Statements of Operations...................................F-4
Consolidated Statements of Stockholders' Equity.........................F-5
Consolidated Statements of Cash Flows...................................F-6
Notes to the Consolidated Financial Statements..........................F-7
(2) All schedules have been included as an Exhibit or the information is
included elsewhere in the financial statements or notes thereto
incorporated by reference in Item 8 of this Annual Report on Form 10-K.
(3) Exhibits - See Exhibit Index on page 26 and 27.
(b) Reports on Form 8-K:
On December 27, 1998, JumboSports Inc., a Florida corporation, and its
subsidiaries Guide Series, Inc. and Property Holdings Company I filed
Voluntary Petitions for Relief (Case Nos.98-22545-8C1, 98-22546-8C1 and
98-22547-8C1, respectively) under Chapter 11 of Title 11 of the United
States in United States Bankruptcy Court for the Middle District of
Florida, Tampa Division reported on Form 8-K on January 14, 1999.
25
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
Financial Statements - see index on page 25.
Financial Statement Schedules - see index on page 25.
3.1 Articles of Incorporation of JumboSports Inc. Incorporated by reference
to the exhibits included in the Company's Annual Report on Form 10-K/A
filed on November 16,1998.
3.2 Bylaws of JumboSports Inc. Incorporated by reference to the
exhibits included in the Company's Annual Report on Form 10-K/A filed on
March 12, 1998.
4.1 Specimen Common Stock Certificate. Incorporated by reference to
the exhibits included in the Company's Annual Report on Form 10-K/A
filed on November 16,1998.
4.2 Specimen of Debt Security. Incorporated by reference to the
exhibits included in the Company's Annual Report on Form 10-K/A filed
on November 16,1998.
4.3 Indenture between JumboSports Inc. and Barnett Banks Trust
Company, National Association, as Trustee. Incorporated by reference
to exhibits included in the Company's Annual Report on Form 10-K/A for
the fiscal year ended January 30, 1994.
4.4 Supplemental Indenture Agreement, dated February 14, 1997,
between JumboSports Inc. and The Bank of New York. Incorporated by
reference to the exhibits included in the Company's Form 8-B filed on
June 11, 1997.
4.5 Rights Agreement, dated June 12, 1996, between JumboSports Inc.
and ChaseMellon Shareholder Services, LLC. Incorporated by reference
to the exhibits included in the Company's Form 8-A filed on June 20, 1996.
4.6 Rights Certificate. Incorporated by reference to the exhibits included
in the Company's Form 8-A filed on June 20, 1996.
10.1 1989 Stock Incentive Plan, as amended through June 23, 1994.
Incorporated by reference to exhibits included in the Company's
Annual Report on Form 10-K for the fiscal year ended January 29, 1995.
10.2 Amendment to 1989 Stock Incentive Plan. Incorporated by reference to
the exhibits included in the Company's Form S-8 Registration Statement
filed on January 28, 1998 (Registration No. 333-45041).
10.3 1996 Stock Incentive Plan. Incorporated by reference to the
exhibits included in the Company's Form 8-B filed June 11, 1997.
10.6 Officers' Medical Reimbursement Plan. Incorporated by reference to
exhibits included in the Company's Registration Statement on Form S-1
(Registration Statement No. 33-50098).
10.7 Amended and Restated Credit Agreement, dated as of May 28, 1997,
among JumboSports, each of the subsidiaries of JumboSports, Barnett
Bank, N.A., NationsBank, N.A., and each of the Lenders (as defined in
the Amended and Restated Credit Agreement).
10.8 Form of Stock Option Agreement pursuant to the 1989 Stock Incentive
Plan for options granted to employees. Incorporated by reference to the
exhibits included in the Company's Annual Report on Form 10-K/A filed
on November 16,1998.
10.9 Form of Stock Option Agreement pursuant to the 1996 Stock Incentive
Plan for options granted to Directors. Incorporated by reference to the
exhibits included in the Company's Annual Report on Form 10-K/A filed
on November 16,1998.
10.10 Employee Stock Purchase Plan, as amended through November 14,
1994. Incorporated by reference to exhibits included in the Company's
Annual Report on Form 10-K for the fiscal year ended January 29, 1995.
10.11 Amendment Agreement, dated January 30, 1998, among JumboSports
Inc., Barnett Bank, N.A., NationsBank, N.A., and each of the lenders
(as defined in the Amendment Agreement). Incorporated by reference to
exhibits included in the Company's Form 8-K filed on
February 10, 1998.
10.12 Loan and Security Agreement, dated July 24, 1998, among JumboSports,
Inc. and Foothill Capital Corporation, Paragon Capital LLC, Congress
Financial Corporation, Foothill Partners III, L.P. and each of the
lenders (as defined in the Amendment Agreement). Incorporated by
reference to exhibits included in the Company's Form 8-K on
August 27, 1998.
26
<PAGE>
EXHIBIT INDEX
10.13 Senior Secured, Super-Priority Debtor-In-Possession Loan and Security
Agreement, dated February 12, 1999, among JumboSports Inc. and Foothill
Capital Corporation, Congress Financial Corporation and each of the
lenders (as defined in the Agreement).
10.14 Amended and Restated Employment Agreement dated as of March 16, 1999
between the Company and Jack E. Bush.
10.15 Amended and Restated Employment Agreement dated as of March 16, 1999
between the Company and B. Robert Floum.
10.16 Amended and Restated Employment Agreement dated as of March 16, 1999
between the Company and Raymond P. Springer.
10.17 Amended and Restated Employment Agreement dated as of March 16, 1999
between the Company and Barry Gold.
10.18 Amended and Restated Employment Agreement dated as of March 16, 1999
between the Company and Michael Henning.
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of Subsidiaries. Incorporated by reference to exhibits
included in the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996.
23. Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule (Edgar filing-only).
99 Schedule II - Valuation and Qualifying Accounts.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, on April 29, 1999.
JumboSports Inc.
(Registrant)
By: /s/ ALFRED F. FASOLA JR.
Alfred F. Fasola, Jr.,
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated above.
By: /s/ ALFRED F. FASOLA, JR.
Alfred F. Fasola, Jr.,
Chief Executive Officer
(Principal Executive Officer)
By: /s/ MICHAEL J. WORRALL
Michael J. Worrall, President
By: /s/ JEROME A. KOLLAR
Jerome A. Kollar, Chief Financial
Officer
By: /s/ JACK E. BUSH
Jack E. Bush, Chairman of the Board
of Directors
By: /s/ HAROLD F. COMPTON
Harold F. Compton, Director
By: /s/ R. DON MORRIS
R. Don Morris, Director
By: /s/ SAMUEL NORTHROP, JR.
Samuel Northrop, Jr., Director
By: /s/ RONALD L. VAUGHN
Ronald L. Vaughn, Director
28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders of JumboSports Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of JumboSports
Inc. and its subsidiaries (the "Company") at January 29, 1999, and January 30,
1998, and the results of their operations and their cash flows for each of the
three years in the period ended January 29, 1999, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, on December 27, 1998, JumboSports Inc. and
certain of its subsidiaries filed a voluntary petition for reorganization under
Chapter 11 of the United States Bankruptcy Code, thereby raising substantial
doubt about its ability to continue as a going concern. The Company has not
filed a plan of reorganization with the Bankruptcy Court. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of the petitions for reorganization.
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
April 23, 1999
F-1
<PAGE>
JUMBOSPORTS INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
January 30, January 29,
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 345 $ 23,809
Accounts receivable, (net of allowance for doubtful
accounts of 299 & 292 respectively) 4,654 3,066
Inventories 185,047 121,586
Property under contract for sale 78,801 10,248
Prepaid expenses and other assets 3,819 1,527
Income tax receivable 1,556 447
Prepaid inventory 3,900
--------- ---------
Total current assets 274,222 164,583
--------- ---------
Property held for sale 28,712 32,456
Property and equipment, net 145,747 94,357
Other assets:
Cost in excess of fair value of net assets acquired, net 10,803 10,462
Other 7,065 6,109
-------- ---------
Total other assets 17,868 16,571
-------- ---------
Total assets $ 466,549 $ 307,967
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 1,008 $ 893
Accounts payable 26,443 3,468
Accrued expenses 13,717 7,108
Accrued non-recurring charges 32,984
Accrued reorganization items 13,310
Other 4,101 2,724
-------- ---------
Total current liabilities 78,253 27,503
Other long-term liabilities 4,241 1,267
Revolving credit agreement 174,037 98,934
Credit facility term loan 18,471
Long-term debt less current maturities 86,770 67,224
Convertible subordinated notes 74,750
Liabilities subject to compromise 139,633
-------- ---------
Total liabilities 418,051 353,032
-------- ---------
Commitments and contingencies (Notes 3 and 7)
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 20,386,155 and 20,420,001
shares issued and outstanding, respectively 204 204
Additional paid-in capital 149,809 149,760
Accumulated deficit (101,515) (195,029)
-------- --------
Total stockholders' equity (deficit) 48,498 (45,065)
-------- --------
Total liabilities and stockholders' equity $466,549 $307,967
======== ========
</TABLE>
See Notes To The Consolidated Financial Statements.
F-2
<PAGE>
JUMBOSPORTS INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Sales $624,019 $528,634 $362,395
Cost of sales including buying
and occupancy costs 505,062 453,509 282,251
-------- -------- --------
Gross profit 118,957 75,125 80,144
Selling, general and administrative expenses 124,918 112,489 78,911
Proceeds from a settlement of legal proceedings (1,000)
Loss on disposition of assets, closed store expenses,
and other charges 22,568 43,055 15,200
-------- -------- --------
Loss before provision (benefit) for income taxes,
reorganization items and interest expense (28,529) (80,419) (12,967)
Interest expense, net 19,890 30,395 22,366
-------- -------- --------
Loss before provision (benefit) for
income taxes and reorganization items (48,419) (110,814) (35,333)
Reorganization items 58,344
-------- -------- --------
Loss before income taxes (48,419) (110,814) (93,677)
Provision (benefit) for income taxes (17,875) 483 (163)
-------- -------- --------
Net loss $(30,544) $(111,297) $(93,514)
======== ======== ========
Basic and diluted loss per common share $(1.53) $(5.47) $(4.58)
</TABLE>
See Notes To The Consolidated Financial Statements.
F-3
<PAGE>
JUMBOSPORTS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
Additional
Common Stock paid-in Accumulated
Shares Par Value capital earnings (deficit) Total
---------- --------- ---------- ------------------ -----
<S> <C> <C> <C> <C> <C>
Balance, January 28, 1996 19,769,059 $ 198 $ 147,006 $ 40,326 $ 187,530
Issuance of common stock 570,350 5 1,600 1,605
Tax benefit of exercise of options 1,033 1,033
Net loss (30,544) (30,544)
---------- --------- ----------- ----------- --------
Balance, January 31, 1997 20,339,409 203 149,639 9,782 159,624
Issuance of common stock 46,746 1 157 158
Tax benefit of exercise of options 13 13
Net loss (111,297) (111,297)
---------- --------- ----------- ----------- --------
Balance, January 30, 1998 20,386,155 204 149,809 (101,515) 48,498
---------- --------- ----------- ----------- --------
Issuance of common stock and
cancellation of non-registered
stock 33,846 (49) (49)
Net loss (93,514) (93,514)
---------- --------- ----------- ----------- --------
Balance, January 29, 1999 20,420,001 $ 204 $ 149,760 $ (195,029) $(45,065)
========== ========= =========== =========== ========
</TABLE>
See Notes To The Consolidated Financial Statements.
F-4
<PAGE>
JUMBOSPORTS INC.
DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(30,544) $(111,297) $(93,514)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 8,656 9,840 6,869
Gain (loss) on asset sales (478) 11
Amortization of cost in excess of the fair value of
net assets acquired 342 342 342
Deferred loan cost and other amortization 1,048 1,456 677
Deferred loan cost write off 5,345
Loss on disposed assets and other charges 22,568 43,055 15,200
Reorganization charges 58,344
Decrease (increase) in deferred tax asset (1,586) 1,586
Decrease in deferred income tax liability (4,388)
Decrease (increase) in accounts receivable 2,589 (2,316) 1,588
Decrease in inventories 35,144 16,043 63,461
Decrease (increase) in prepaid expenses and other assets (2,000) (77) 1,924
Increase in prepaid inventory (3,900)
Decrease (increase) in income tax receivable (11,386) 9,830 1,108
Decrease (increase) in other assets (1,818) 391 107
Increase (decrease) in accounts payable (7,278) (10,607) 14,292
Decrease in accrued expenses (133) (3,281) (1,062)
Increase (decrease) in other current liabilities (300) 5,100 (37,066)
Increase in deferred rent and other long term liabilities 2,380 82 (310)
Increase in income taxes payable 398 303
------- ------- ------
Net cash provided by (used in) operating activities 13,214 (34,497) 28,363
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (15,236) (11,164) (6,041)
Sale leaseback proceeds 2,150
Net collections under note receivable 31 16 106
Cash proceeds from sale of property 1,220 5,143 77,051
------- ------- ------
Net cash provided by (used in) investing activities (11,835) (6,005) 71,116
------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net 1,600 158 29
Tax benefit of options exercised 1,033 13
Net payments (borrowings) under stock purchase plan (482) 132 301
Proceeds from mortgage financing 13,039 72,425
Net borrowings under revolving credit agreements 24,595 42,467 378
Net repayments under revolving credit agreements (35,660) (72,425) (75,481)
Borrowings under term loan 30,683
Repayments under term loan (12,212)
Repayments of long term debt (578) (746) (17,289)
Loan and other financing costs (3,572) (6,121) (2,424)
------- ------- ------
Net cash provided by (used in) financing activities (25) 35,903 ( 76,015)
------- ------- ------
Net increase (decrease) in cash and cash equivalents 1,354 (4,599) 23,464
Cash and cash equivalents, beginning of period 3,590 4,944 345
------- ------- ------
Cash and cash equivalents, end of period $ 4,944 $ 345 $ 23,809
======= ======= ======
Supplemental Disclosure Cash Flow Information Cash paid during year for:
Interest (net of amounts capitalized) $ 19,482 $ 24,997 $ 20,931
Income taxes $ 40 $ 44 $ 13
</TABLE>
See Notes To The Consolidated Financial Statements.
F-5
<PAGE>
JUMBOSPORTS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT FOR SHARE, PER SHARE DATA AND AS OTHERWISE NOTED)
Note 1 - Summary of Significant Accounting Policies
CHAPTER 11
On December 27, 1998 (the "Petition Date"), after experiencing a poor
holiday season and with increased pressure being applied by the Company's
lenders and suppliers, JumboSports Inc. and certain of its subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the Middle District of Florida (the
"Bankruptcy Court"). These related proceedings are being jointly administered
under the caption "In re.: JumboSports Inc., d/b/a Vacations Travel, f/k/a
Sports & Recreation, Inc., and f/d/b/a/ Sports Unlimited, Guide Series, Inc. and
Property Holdings Company I" Case Nos. 98-22545-8C1, 98-22546-8C1 and
98-22547-8C1, pursuant to an order of the Bankruptcy Court. The following
subsidiaries were not included in the bankruptcy filings and are not material to
the Company's consolidated financial statements: Nationwide Team Sales, Inc.,
Retail Process Management, Inc., Sports & Recreation, Inc., Sports & Recreation
Holdings of PA, Inc. and Construction Resolution, Inc.
The bankruptcy petitions were filed in order to preserve cash and
permit the Company an opportunity to reorganize while working to restructure its
indebtedness. Pursuant to the Senior-Secured Super Priority Debtor-In-Possession
Loan and Security Agreement (the "DIP facility") dated February 12, 1999, among
JumboSports Inc., as Borrower, various financial institutions, as Lenders,
Foothill Capital Corporation, as Agent and Congress Financial Corporation
(Southern), as Co-Agent, the lenders have agreed to provide up to $110 million
in post-petition financing to the Company.
As a result of the Chapter 11 filings, absent approval of the
Bankruptcy Court, the Company is prohibited from paying, and creditors are
prohibited from attempting to collect claims or debts arising pre-petition. The
consummation of a plan of reorganization is the principal objective of the
Company's Chapter 11 cases. The plan of reorganization will set forth the means
for satisfying claims, including the liabilities subject to compromise, and
interests in the Company and its debtor subsidiaries. The consummation of a plan
of reorganization for the Company and its debtor subsidiaries will require
approval of the Bankruptcy Court.
The Company expects to propose a plan of reorganization for itself and
the other filing subsidiaries. The Bankruptcy Court has granted the Company's
request to extend its exclusive right to file a plan of reorganization through
June 1, 1999. The Company intends to request a further extension of the
exclusivity period while management works on implementing new operating
strategies that are intended to improve operating performance. There can be no
assurance that the Bankruptcy Court will grant such further extension or that
management's new strategies will produce the desired results. After the
expiration of the exclusivity period, creditors of the Company have the right to
propose their own plans of reorganization. A plan of reorganization, among other
things, may result in material dilution or elimination of the equity of existing
stockholders as a result of the issuance of equity to creditors or new
investors.
At this time, it is not possible to predict the outcome of the Chapter
11 filing, in general, or its effects on the business of the Company or on the
interests of creditors or stockholders. The Company's independent accountants
have issued a report expressing doubt about the Company's ability to continue as
a going concern. See the Consolidated Financial Statements of the Company
beginning on page F-1.
The Company does not plan to hold annual stockholder meetings during
the pendency of its Chapter 11 case.
The accompanying financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
F-6
<PAGE>
However, as a result of the Chapter 11 filing and circumstances relating to this
event, including the Company's leveraged financial structure and losses from
operations, such realization of assets and liquidation of liabilities is subject
to substantial doubt. While under the protection of Chapter 11, the Company may
sell or otherwise dispose of assets, and liquidate or settle liabilities, for
amounts other than those reflected in the financial statements. Further, a plan
of reorganization could materially change the amounts reported in the financial
statements, which do not give effect to all adjustments of the carrying value of
assets or liabilities that might be necessary as a consequence of a plan of
reorganization.
The appropriateness of using the going concern basis is dependent upon,
among other things, confirmation of a plan of reorganization, future profitable
operations, the ability to comply with the terms of the DIP facility and the
ability to generate sufficient cash from operations to meet obligations.
LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation
incidental to the conduct of its business. The Company believes that no such
currently pending routine litigation to which it is a party will have a material
adverse effect on its financial condition or results of operations.
On Sunday, December 27, 1998, JumboSports Inc. and certain of its
subsidiaries filed for reorganization under Chapter 11 of the Bankruptcy Code in
the United States Bankruptcy Court for the Middle District of Florida. These
related proceedings are being jointly administered under the caption "In re.:
JumboSports Inc., d/b/a/ Vacations Travel, f/k/a Sports & Recreation, Inc., and
f/d/b/a Sports Unlimited, Guide Series, Inc. and Property Holdings Company I",
Case Nos 98-22545-8C1, 98-22546-8C1 and 98-22547-8C1. The following subsidiaries
were not included in the bankruptcy filings: Nationwide Team Sales, Inc., Retail
Process Management, Inc., Sports & Recreation, Inc., Sports & Recreation
Holdings of PA, Inc. and Construction Resolution, Inc.
In connection with the Bankruptcy filing, all pre-petition actions
against the Company have been stayed.
A complaint was filed on March 23, 1999, in the Bankruptcy Court,
"LaSalle National Bank, Trustee for JP Morgan Commercial Mortgage Finance
Corporation Pass-through Certificate Series 1997-C5, acting by and through
AMRESCO Management, Inc., its Special Servicer" v. JumboSports Inc., which
alleges that JumboSports did not have the right to terminate certain Trusts of
which JumboSports was the sole beneficiary and sole settlor. The Trusts held
bare legal title to real estate ("the Property") and pledged the Property as
security for loans. The plaintiff is seeking a judicial declaration that the
Property in question is not property of JumboSports, the Debtor's estate, and
that the Plaintiff may proceed against the Property as if it were not property
of the Debtor's estate. The Plaintiff further seeks a judicial declaration that
the Trusts are separate legal entities, that the Trusts have not been
terminated, that the termination is not valid, that there is no right to
terminate the Trusts except in accordance with applicable Delaware law, the
Trust Agreements, and the relevant loan documents and that there has been no
transfer of the Property to the Debtor. Management is currently unable to
predict the outcome of this case or the impact of an adverse ruling on its
reorganization efforts. The Company expects to file its written responses and
any claim for affirmative relief by April 30, 1999.
ORGANIZATION
On January 31, 1997, JumboSports Inc. and its subsidiaries (the
"Company"), previously Sports & Recreation, Inc., operated 85 retail sporting
goods outlets in 29 states. In fiscal 1997 the Company announced the closings of
26 stores. On January 31, 1998, the Company operated 59 stores in 23 states. In
fiscal 1998 the Company opened two new stores and announced the closing of 19
stores. On January 30, 1999, the Company will operate 42 stores in 18 states.
PERIODS PRESENTED
In fiscal 1996, the Company changed to utilizing a 52 or 53 week fiscal
year ending on the Friday closest to the end of January, as compared to a 52 or
53 week fiscal year ending on the Sunday closest to the end of January. This
change in fiscal year caused fiscal year 1996 to be a 52 week and five day
period. The financial statements presented are for the 52 week and five day
period ended January 31, 1997 ("fiscal 1996"), for the 52 week period ended
January 30, 1998 ("fiscal 1997") and for the 52 week period ended January 29,
1999 ("fiscal 1998").
F-7
<PAGE>
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
JumboSports Inc. and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
BASIS OF ACCOUNTING
The use of estimates is inherent in the preparation of financial
statements in accordance with generally accepted accounting principles. Actual
results can differ from these estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of first-in, first-out (FIFO) cost
or market for fiscal 1996 and for fiscal 1997 at the lower of cost (computed
using the FIFO retail method) or market. The Company believes that the FIFO
retail method provides improved information for the operation of its business in
a manner consistent with the method used widely in the retail industry. The
cumulative effect of the change to the FIFO retail method was immaterial.
Proforma effects of the change for prior periods is not determinable. The
Company considers cost to include the direct cost of merchandise, plus internal
costs associated with merchandise procurement, storage, handling, and
distribution. Selling, general and administrative costs capitalized into ending
inventory were $4,128 and $4,237 in fiscal 1997 and fiscal 1998, respectively.
PROPERTY AND EQUIPMENT
Property is recorded at cost and includes interest on funds borrowed to
finance construction. Capitalized interest was approximately $135, $221 and $37
in fiscal 1996, fiscal 1997 and fiscal 1998, respectively. Depreciation and
amortization are provided using the straight-line method over the estimated
useful service lives of the related assets. Costs and related accumulated
depreciation on assets retired or disposed of are removed from the accounts and
any gains or losses resulting therefrom are credited or charged to operations.
INCOME TAXES
The Company provides for federal and state income taxes currently
payable as well as for those deferred because of timing differences between
reporting income and expenses for financial statement purposes and income and
expenses for tax purposes. Work Opportunity Tax credits were recorded as a
reduction of income taxes.
The Company uses the provisions of Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes". SFAS 109 requires
an asset and liability approach in accounting for income taxes. Under the asset
and liability method, deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The Company's
differences relate primarily to the difference in carrying values of certain
assets and liabilities for book and tax reporting and the deferred income tax
asset resulting from the Company's non-recurring restructuring charges. Under
SFAS 109, the effective rate on deferred tax assets and liabilities of a change
in tax rates is recognized as income or expense in the period that includes the
enactment date.
ADVERTISING COSTS
Advertising costs are expensed the first time advertising takes place.
Included in selling, general and administrative expenses for fiscal 1996, fiscal
1997 and fiscal 1998 are $13,309, $17,498 and $10,778 respectively, of
advertising expenses.
F-8
<PAGE>
DEFERRED LOAN CHARGES
Deferred loan charges represent fees paid in connection with the
acquisition of certain of the Company's debt. These charges are being amortized
using the interest method over the term of the related debt. Net deferred loan
costs were $2,217, $3,140 and $2,234 in fiscal 1996, fiscal 1997 and fiscal
1998, respectively.
IMPAIRMENT OF ASSETS
SFAS 121, "Accounting for Impairment of Long-Lived Assets to be
Disposed of", requires that long-lived assets and certain intangibles to be held
and used by the Company be reviewed for impairment. In conducting its review,
management considers, among other things, its current and expected operating
cash flows together with a judgment as to the fair value the Company could
receive upon sale of its investment. Based on this review, the Company recorded
a $5.2 million pre-tax charge as part of the $22.6 million charge it took in the
second quarter of fiscal 1996. In fiscal 1997 and 1998 the Company recorded
charges of $21.2 million and $8.6 million, respectively, for the write-down to
net realizable values for closing stores.
Although, the Company adopted SFAS 121 in fiscal 1996, the Company did
not realize an impairment of long-lived assets until the second quarter of
fiscal 1996 because of the corporate philosophy change from rapid expansion and
growth to individual store profitability and contribution measurements. The
change in philosophy came about due to a management change during February 1996.
New management changed the focus concentrating on building infrastructure in
order to support successful and profitable store expansion. To accomplish this,
third party consulting groups were retained to build a real estate site
selection model projecting revenues based on the Company's customer base and
demographics for the existing and future store sites. With the developed model's
information, the Company used the revenue projections to determine if the
potential future sites under development at the time, would meet the Company's
minimum return on investment. This allowed the Company to segregate the assets
to be held and used, and to be disposed of. The analysis completed during the
second fiscal quarter of 1996 showed that the impairment was for sites that were
not opened and charges pertaining to SFAS 121 were recognized accordingly. The
Company has completed the analysis on a periodic basis, and has made
determinations to close stores and impair the assets relating to those stores,
as evidenced in fiscal 1997.
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over a 40 year
period. Accumulated amortization was $2,862 and $3,204 as of January 30, 1998,
and January 29, 1999, respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash, receivables, accounts
payable, revolving credit agreement, and long term debt approximate their fair
values. The fair value of the convertible subordinated notes was approximately
$31,000 and $4,900 on January 30, 1998, and January 29, 1999, respectively,
based upon current market rates.
TOTAL INTEREST EXPENSE AND RISK MANAGEMENT INSTRUMENTS
Total interest expense incurred was $29,092, $30,928 and $24,790 for
fiscal 1996, fiscal 1997 and fiscal 1998, respectively. The Company, in
connection with its revolving credit facility, had entered into $100,000 of
interest rate collar agreements. These agreements qualify for hedge accounting
and are amortized to interest expense. The $100 million of interest rate collars
impacted interest expense by $15, $48 and $8 in fiscal 1996, fiscal 1997 and
fiscal 1998, respectively. Interest not accrued on the Senior Subordinated Notes
from the Petition Date to January 29, 1999 was $265.
The Company's $100 million of interest rate collar agreements expired
by June 1998.
F-9
<PAGE>
EARNINGS PER COMMON SHARE
Earnings per common shares is calculated in accordance with SFAS No.
128, "Earnings Per Share," and is based on the weighted average number of common
shares outstanding during each year as follows:
Weighted Average
Year Shares Outstanding
---------------------------------------------------
Fiscal 1996 19,984,993
Fiscal 1997 20,363,299
Fiscal 1998 20,404,857
ACCOUNTING PRONOUNCEMENTS
In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which is effective for periods ending after December 15, 1998. This
statement establishes standards for computing and presenting income which
includes translation adjustments. In 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which is
also effective for periods ending after December 15, 1998. This statement
establishes additional disclosure requirements for business segments.
In 1998 the FASB issued SFAS No. 133 "Derivative Financial Instruments
and Hedging Activities", which is effective for periods ending after June 15,
1999. This statement establishes standards for disclosing and valuing
off balance sheet risk instruments.
None of the above statements are applicable to the Company in the
current reporting period.
Note 2 - Property and Equipment
<TABLE>
<CAPTION>
Estimated
January 30, January 29, Useful
1998 1999 Life(in Years)
----------- ----------- --------------
<S> <C> <C> <C>
Land $ 90,570 $ 49,555
Buildings 105,617 59,126 15 - 39
Furniture, fixtures and equipment 40,445 23,022 3 - 10
Leasehold improvements 44,085 31,630 15 - 39
Assets held under capital lease 2,182 6,412
Construction in-process 6,726
----------- -----------
Total property and equipment, cost 289,625 169,745
Less accumulated depreciation and amortization 36,365 32,684
----------- -----------
Total property and equipment, net 253,260 137,061
Less property under contract for sale 78,801 10,248
Less property held for sale 28,712 32,456
----------- -----------
Property and equipment, net $ 145,747 $ 94,357
=========== ===========
</TABLE>
Note 3 - Revolving Credit Agreement
On July 24, 1998, the Company entered into a new five-year, $150,000
secured revolving loan and term loan agreement ("the Loan facility"). Proceeds
of the loans were used to retire the existing $180 million secured revolving
credit facility that was scheduled to mature on May 31, 1999, and to fund
on-going working capital requirements. During the term of the Loan facility, the
Company is restricted from making any distribution or declaring or paying any
dividends (in cash or other property, other than capital stock) on, or
purchasing, acquiring, redeeming or retiring any of the Company's capital stock,
of any class, whether now or hereafter outstanding; provided however, that the
Company is permitted to redeem shares of its capital stock in an amount not to
exceed $200 thousand in the aggregate. Other restrictions include limitations on
additional indebtedness, disposals of assets, change of control, investments and
capital expenditures. There are no financial performance covenants.
The term loans consist of a Tranche A and a Tranche B. The Tranche A
term loan was initially funded at $20.5 million and the Tranche B term loan was
initially funded at $10.2. Interest on the Tranche A term loan accrues at the
Reference Rate (the variable rate of interest most recently announced by Norwest
Bank Minnesota, N.A. as it "base rate") plus 1.50%. Interest on the Tranche B
term loan accrues at 12.5%. Total principal installments of $511 are to be paid
monthly commencing with October 1, 1998, and continuing on the first day of each
succeeding month.
F-10
<PAGE>
The Company is required to prepay the term loans with the Net Proceeds
from the sale of the Real Property Collateral pursuant to a prescribed
allocation as set forth in the loan agreement. All prepayments of principal are
applied ratably to principal installments in order of their maturity. Due to
prepayments, future principal installment obligations have been satisfied
through October 1, 2000.
Availability under the Tranche A advances is limited to the lower of
$125 million less Tranche A term loans and an amount based on a predetermined
formula which includes a provision for up to 80% of eligible accounts and
approximately 70% of eligible inventory. Interest accrues on Tranche A advances,
at the Company's option, based upon the Reference Rate plus .50% (8.0% at
January 29, 1999) or the Eurodollar Rate (LIBOR or other Eurodollar rates
selected by Agent) plus 250 basis points.
Anytime that no Tranche A availability exists, Tranche B advances may
be requested by the Company. Availability on Tranche B advances is limited to
the lesser of $15 million and an amount based on a predetermined formula which
includes a provision for approximately 10% of eligible inventory. Interest
accrues on Tranche B advances at the Reference Rate plus 3.0%.
The Loan facility also includes a letter of credit subfacility.
Commitments under the letter of credit subfacility are limited to the lesser of
$10 million or availability under the revolving line of credit (Tranche A and
Tranche B). At January 29, 1999, outstanding commitments under the letter of
credit subfacility were $1.4 million.
The Agreement also contains a provision for early termination, at the
option of the Company, with a payment of an early termination premium to the
lender.
On December 27, 1998, the Company filed a petition for reorganization
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court.
Thereafter, no additional amounts were drawn under the Loan facility. On January
8, 1999, the Bankruptcy Court entered a Preliminary Order Granting Debtor's
Emergency Motion for Authority to Use Cash Collateral effective as of December
28, 1998. At a hearing on January 21, 1999, the Company announced to the Court
an agreement had been reached between the Company and its secured lenders for
debtor-in-possession financing ("the DIP facility") and that a motion to seek
approval of such financing would soon be filed with the Court. The Company was
then granted authority to continue the use of cash collateral subject to certain
restrictions through February 12, 1999, when it was anticipated that the motion
seeking approval of the DIP financing would be heard in court.
At January 30, 1998, the Company had a $180 million secured revolving
credit facility which matured on May 31, 1999. During the term of this
agreement, the Company was restricted from declaring or paying any cash
dividends, making any other distributions on account of any class of its stock
(other than stock splits or stock dividends) or redeeming, purchasing, retiring
or otherwise acquiring directly or indirectly any shares of its stock, except
for fractional shares in connection with stock splits or stock dividends and
shares issued to employees to exercise outstanding options. Interest on this
borrowing accrued, at the Company's option, based upon the lender's prime rate
plus 200 basis points (10.50% at January 30, 1998) or LIBOR plus 300 basis
points (8.62% at January 30, 1998). Interest on advances under the prime rate
was payable quarterly in arrears. Interest on LIBOR rate advances was fixed and,
at the Company's option, was payable in arrears on 30, 60 or 90 day periods. The
revolving credit facility was collateralized by real and personal property. The
availability under the revolving credit facility was the lower of $180,000 or
the borrowing base. The borrowing base was a calculation based upon eligible
assets: real estate, inventories and equipment. At January 30, 1998, the Company
had $174,037 outstanding and $920 available under this agreement.
In conjunction with the revolving credit facility, the Company also
entered into a letter of credit sub-facility. Commitments under the letter of
credit are limited to the lesser of $10 million or the availability under the
revolving line of credit. At January 30, 1998, outstanding commitments under the
letter of credit facility were $1.0 million.
F-11
<PAGE>
In conjunction with the revolving credit facility, the Company has
entered into $100 million of interest rate collar agreements. These agreements
hedge interest rate fluctuations by setting floor rates and ceiling rates on a
notional amount of $100 million. The Company has $50 million of agreements with
floor rates of 5.23% and ceiling rates of 8.00% and $50 million of agreements
with floor rates of 5.75% and ceiling rates of 7.50%. These agreements
terminated on various dates in calendar year 1998.
Note 4 - Long-Term Debt
<TABLE>
<CAPTION>
January 30, January 29,
1998 1999
----------- -----------
<S> <C> <C>
Obligations under real estate capital leases for two store facilities with
interest imputed at approximately 13.06% and 13.20% per annum. The
agreements require monthly
payments of $31 including interest through September 2011. $2,772 $ -
Mortgage obligations for thirty store facilities with interest
ranging from 8.30% to 8.99% per annum. The agreements
require monthly payments of $573 including interest with
various dates of maturity from November 2007 through
June 2009 85,006 68,117
------ ------
Total debt 87,778 68,117
Less current maturities 1,008 893
------ ------
Total long-term debt $86,770 $67,224
====== ======
</TABLE>
Excluding liabilities subject to compromise, future minimum payments under
the mortgage obligations during the fiscal years subsequent to January 29, 1999,
are as follows:
1999 $ 6,870
2000 6,870
2001 6,870
2002 6,870
2003 6,870
Thereafter 88,238
-------
Total 122,588
Less amount representing interest 54,471
-------
Present value of future minimum lease payments 68,117
Less current maturities 893
-------
Total long-term debt $67,224
=======
Note 5 - Subordinated Debt
During fiscal 1993, the Company issued $74,750 in convertible
subordinated notes with interest at 4.25%. The notes require semi-annual
interest payments beginning May 1, 1994, through November 1, 2000, the date of
maturity. The notes are convertible into common stock of the Company at any time
on or before November 1, 2000, unless previously redeemed, at a conversion price
of $25.50 per share, subject to adjustment in certain events.
The notes are subordinated to all secured indebtedness and parri passu
with all unsecured indebtedness and have been reclassified as liabilities
subject to compromise (see Note 6).
F-12
<PAGE>
Note 6 - Liabilities Subject to Compromise
Liabilities subject to compromise are subject to future adjustments on
Bankruptcy Court actions and further developments with respect to disputed
claims. Liabilities subject to compromise are as follows:
Convertible subordinated notes plus accrued interest $ 75,253
Accounts payable 37,268
Rejected leases and other miscellaneous claims 12,044
Obligations under capital leases 6,602
Accrued expenses 6,262
Deferred liabilities 2,204
--------
Total $139,633
========
Liabilities subject to compromise under reorganization proceedings
include substantially all unsecured debt as of the petition date. Pursuant to
the provision of the Bankruptcy Code, payment of these liabilities may not be
made except pursuant to a plan of reorganization or Bankruptcy Court order while
the Company continues to operate as debtors in possession. The Company has
recorded an estimated liability for certain leases and contracts that have
either been rejected or the Company anticipates rejecting.
Note 7 - Commitments and Contingencies
TAX RETENTION OPERATING LEASE
On May 10, 1995, the Company entered into a Tax Retention Operating
Lease Agreement (the "TROL"), whereby an owner trust was formed for the sole
purpose of acquiring and/or constructing properties which will later be leased
to the Company as retail store locations. The TROL had an original aggregate
facility commitment of $70,000. However, effective October 10, 1995, the
aggregate facility commitment under the TROL agreement was increased to $85,000.
Interim rental payments were due under the agreement for the properties opened
within the first two years from the date of the TROL's inception, based upon a
blended interest rate being (i) the greater of the NationsBank prime rate or the
Federal Funds rate, plus 50 basis points, or (ii) the appropriate Eurodollar
Rate plus a variable margin (112.5 to 150 basis points) determined based upon
certain financial ratios of the Company. On June 4, 1996, the TROL was
refinanced and $58,058, the utilized commitment, was incorporated into the
Company's revolving credit facility. Accordingly, this transaction has been
excluded from the accompanying Consolidated Statement of Cash Flows for fiscal
1996.
In fiscal 1996, the Company utilized the TROL facility for new store
construction on three of the five stores opened. The total commitment utilized
through June 6, 1996, was $58,058. The purpose of the TROL was to provide
off-balance sheet financing of new store site and development costs at
attractive rates.
OTHER OPERATING LEASES
The Company has leases on 30 store facilities (18 opened stores and 12
closing stores), corporate office facilities and two warehouses with unrelated
parties. These leases have terms ranging from five to 20 years, with options to
renew ranging from two to four additional five-year terms. Additionally, certain
store leases provide for contingent rent computed as a percentage of sales in
excess of a specified amount. Contingent rent of $104, $81 and $34 was incurred
for fiscal 1996, fiscal 1997 and fiscal 1998, respectively.
In addition to the facility leases, the Company has entered into
various leases for store fixtures, transportation equipment and data processing
equipment under operating lease agreements with terms ranging from three to five
years.
F-13
<PAGE>
Rent expense under all operating lease agreements including the TROL
for each of the fiscal periods presented is as follows:
1996 $ 14,136
1997 12,935
1998 12,478
Excluding leases rejected or identified to be rejected, future minimum
lease payments under non-cancelable operating lease agreements during the fiscal
years subsequent to January 29, 1999, are as follows:
1999 $ 9,436
2000 7,104
2001 6,094
2002 5,597
2003 4,880
Thereafter 35,025
---------
Total $ 68,136
=========
NEW STORE CONSTRUCTION
The Company had previously utilized one construction agent as general
contractor for substantially all of its new store facilities. The agent worked
solely for the Company. Current and future construction is subject to a
competitive bidding process.
Note 8 - Income Taxes
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1997 1998
--------- -------- -------
<S> <C> <C> <C>
Current $(10,875) $(1,103) $(163)
Deferred (7,000) 1,586 0
--------- -------- -------
$(17,875) $ 483 $(163)
========= ======== =======
</TABLE>
F-14
<PAGE>
The following is a schedule of the significant net deferred income tax
assets and liabilities as January 30, 1998 and January 29, 1999:
<TABLE>
<CAPTION>
January 30, January 29,
1998 1999
----------- ----------
<S> <C> <C>
Net Current Deferred Income Tax Asset:
Non-recurring charges not deductible for
tax reporting until paid $ 21,525 $ 21,046
Inventory basis difference between tax and
financial reporting (788) (342)
Accrued expenses not deductible for tax
reporting until paid 2,684 2,025
Other 74 77
-------- -------
Total current deferred income tax asset, net 23,495 22,806
-------- -------
Net Non-Current Deferred Income Tax Asset (Liability):
Accelerated tax depreciation (6,304) (7,873)
Tax benefit carryovers 24,352 61,356
Accrued expenses not deductible for tax reporting
until paid 715 659
Other 92 79
-------- -------
Total non-current deferred income tax asset (liability), net 18,855 54,221
-------- -------
Valuation allowance (42,350) (77,027)
-------- -------
Total net deferred tax asset $ - $ -
======== =======
</TABLE>
At January 29, 1999, the Company had tax net operating loss ("NOL")
carryforwards of $158,656 for federal income tax purposes and $185,016 for state
income tax purposes. The federal NOL will expire, if unused, in years 2011, 2012
and 2013 and the state NOL's will expire, if unused, in the years 2001 through
2018.
For the year ending January 29, 1999, the Company recorded a valuation
allowance of $77,027 to offset the deferred tax assets in excess of the deferred
tax liabilities.
The Company's income tax expense differed from the statutory federal
rate of 34%, as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Income taxes (benefits) using the federal statutory rate $(16,462) $(37,677) $(31,850)
Increase in taxes resulting from:
State taxes, net of federal benefit (1,937) (4,388) (3,911)
Goodwill amortization 130 130 130
Change in valuation allowance 42,350 35,510
Targeted jobs tax credit 1
Other differences, net 394 68 (43)
-------- -------- --------
Total $(17,875) $ 483 $ (163)
======== ======== ========
</TABLE>
Note 9 - Employee Benefit Plans
The Company's qualified profit sharing and 401(k) savings plan (the
"Plan") covers all employees meeting certain eligibility requirements. The Plan
permits each participant to reduce his or her taxable compensation basis by up
to 15% and have the amount of such reduction contributed to the Plan. The
Company makes a matching contribution of 50% of the first 6% of compensation
deferred by each participant. In addition, in any year, the Company may
contribute to the Plan additional amounts determined by the Company's Board of
Directors at its sole discretion. Salary reduction contributions are immediately
vested in full; matching and discretionary contributions begin to vest after the
participant's first year of service and become fully vested after the
participants fourth year of service. During fiscal 1996, 1997 and 1998, expense
under the Plan was approximately $62, $64 and $145, respectively.
F-15
<PAGE>
The Company's Employee Stock Purchase Plan ("ESPP") allows employees
meeting certain eligibility requirements to purchase Company stock at a 15%
discount from the fair market value of the stock price. The plan was terminated
by the Company in the fourth quarter of fiscal 1998.
The Company's key employee non-qualified deferred compensation plan
allows the employee to defer compensation and earn interest at a rate of 10%
annually. Interest expense for fiscal 1997 was $23. The plan was terminated by
the Company in the first quarter of fiscal 1998.
Note 10 - Loss on Disposition of Assets, Closed Stores Expenses
and Other Charges
In the second quarter of fiscal 1996 the Company recorded
one-time charges of $55.0 million. The components are as follows
(in millions):
Cost of Sales:
Inventory write-down for shrink
and obsolete and slow moving merchandise $32.4
-----
Non-recurring and other charges:
Disposition of and impairment of
underperforming assets 11.4
Charges for certain loss contingencies 3.0
Other charges 8.2
-----
22.6
-----
Total $55.0
=====
The inventory write-down for obsolete and slow moving merchandise and
excess shrinkage of $32.4 million was comprised of a $24.3 million charge for
the write-down of inventory below cost and an additional $8.1 million charge for
merchandise inventory shrinkage. The Company recorded the inventory write-down
to correctly state the value of discontinued, obsolete and slow moving inventory
at a net realizable market value. The inventory for which these reserves were
established was sold during fiscal 1996. Throughout the year, the Company
accrued inventory shrinkage at 1.1% of sales based on prior years' experience.
The excess shrinkage recorded at year-end is believed to be attributable to the
inventory clearance sales and the fact that the Company had taken its first SKU
level inventory. The establishment of these reserves did not result in
additional cash payments.
The $11.4 million charge for impairment of underperforming assets was
attributable to the write-off of undesirable retail sites and impairment of
other sites of $5.2 million and the write-off of assets as the result of
organizational changes of $6.2 million. The write-off of committed retail sites
was for new store projects that were deemed undesirable. The sites were deemed
committed based on proforma operating income projections. The operating income
projections revealed sites which, in the opinion of new management, would not
achieve or maintain the Company's minimum requirements for return on investment.
The charge for impairment of other sites was for nearly-completed retail
sites that were also deemed undesirable based on proforma operating income
projections. The impairment was determined based on the net realizable sale
value of the sites. The establishment of these reserves did not result in
additional cash payments.
Charges for certain loss contingencies relate to the October 1996
submission of settlement with no admission of liability to the court by the
Company and the plaintiffs in two pending class action suits. The class action
suits asserted claims under the federal securities laws and alleged the Company
artificially inflated the price of its common stock during the class period,
July 14, 1994 through March 13, 1995. By the terms of the settlement, a class
was certified by the court and prorata payments in the total amount of $6.3
million were made to the class members submitting claims. Of this amount, $2.9
million was funded by the Company and the remainder funded by the Company's
insurance carrier.
F-16
<PAGE>
Other charges were attributable to costs incurred for severance and
related charges of $1.8 million, employee benefit program charges of $4.3
million and other charges of $2.1 million. Cash payments of $0.9 million were
paid in fiscal 1996 and an additional $0.9 million of cash payments will be made
in future periods.
In the third and fourth quarters of fiscal 1997, the Company recorded
non-recurring charges of $94.3 million related to store closings, excess and
slow moving inventory, severance, outdated technology and the write-off of debt
costs in connection with the Company's revolving line of credit. The components
are as follows (in millions):
Cost of Sales:
Mark-down of slow moving and excess inventory $ 17.9
Additional shrinkage 9.5
Write-down for inventory liquidation of closing stores 17.6
------
45.0
Non-recurring and other charges:
Charges related to store closings 40.0
Other charges 4.0
------
44.0
Interest:
Write-off of deferred debt costs 5.3
------
Total $ 94.3
======
The markdown of excess inventory of $17.9 million was taken to
correctly state the value of merchandise at the lower of cost or market. The
primary cause for this charge was due to problems experienced in athletic
footwear and apparel; both categories were impacted by distribution problems,
overly aggressive purchasing and soft sales. The Company took physical
inventories in each of its stores at year-end. Throughout the year, management
had estimated shrinkage at 2.2% of sales. This estimate was based on the prior
year's actual shrinkage of 2.8% and the industry average of 1.5%. The year-end
physical inventories resulted in a total shrinkage of 4.0% or approximately 1.8%
above the accrual. The additional shrinkage is believed to be primarily
attributable to implementation issues in connection with the new merchandising
systems and problems encountered with the new distribution facility. In February
1997, the Company changed the inventory distribution method and inventory
systems. The Company transitioned the majority of merchandise flow from direct
delivery to stores, to a third party managed cross dock facility. The initial
start-up of the cross dock facility caused significant product delays. Because
of these delays, the Company experienced lost inventory, poor sales and
overstocks, resulting in higher shrinkage and increased markdowns to alleviate
seasonal and fashion oriented inventory levels. In October 1997, the Company
terminated its relationship with the third-party distribution manager and
returned to a merchandise flow direct to the Company's stores. By fiscal year
end, inventory levels returned to normal, and the Company expects gross margins
to return to historical levels in 1998. The Company installed new financial and
inventory systems from JDA Software Group (JDA). The systems were installed to
enhance inventory control information and support the existing and future
corporate infrastructure. As with any new system, conversion issues arose, but
the issues were timely corrected. The new systems gave the Company real-time
information to manage and control inventory levels. Many of the aforementioned
causes have been addressed and management is focused on reducing and controlling
shrinkage during fiscal 1998. Additionally, the Company will be taking physical
inventories throughout the year to better estimate the proper shrinkage accrual.
The Company recorded the inventory write-down of $17.6 million for store
closings inventory liquidation based on the net realizable value of liquidating
inventory at 26 stores anticipated to close from January 1998 through May 1998.
The establishment of the aforementioned reserves did not result in additional
cash payments in fiscal 1997.
The $40.0 million of charges related to store closings represent the
establishment of reserves of $29.1 million for the write-down of closed stores
property and equipment to net realizable value, $6.7 million for expenses
attributable to the closing stores and $4.2 million for lease reserves at
closing locations. The establishment of these reserves did not result in
additional cash payments in fiscal 1997, but resulted in payments of $7.5
million in fiscal 1998.
F-17
<PAGE>
Other charges of $4.0 million are for severance agreements attributable
to the administrative and management workforce reductions in January 1998 the
establishment of reserves for outdated information communications technology and
other miscellaneous charges. Cash payments of $0.5 million were made in fiscal
1997 and $2.5 million of cash payments were made in fiscal 1998.
The Company accelerated the write-off of deferred debt costs in
connection with the renegotiation of the Company's credit facility in the amount
of $5.3 million. The deferred debt costs were loan fees and legal costs
associated with the Company's former $185.0 million revolving credit facility
which was revised on January 30, 1998, and subsequently refinanced. The
write-off of deferred debt costs were for cash payments of $3.0 million in
fiscal 1997, $1.0 million in non-cash payments and an additional $1.3 million
for cash payments to be made in fiscal 1998.
In the second quarter of fiscal 1998, the Company recorded a $15.2
million charge for the loss on disposition of assets and closed store expenses.
The components are as follows (in millions):
Loss on disposition of assets and closed store expenses:
Loss on disposition of real estate $ 8.6
Loss on disposals of closed store fixtures and equipment 2.9
Closed store expenses 3.7
-----
Total $15.2
=====
The $8.6 million loss on disposition of real estate represents the loss
on sale of 16 properties comprised of closed stores and excess parcels. The $2.9
million loss on disposal of closed store fixtures relates to the excess loss on
the disposition of the 28 stores closed since 1997. Both the loss on real estate
and loss on closed store fixtures did not result in cash payments. The $3.7
million charge for closed store expenses relates primarily to the loss on
inventory and expenses of two closed stores which closed during the second
quarter of 1998, located in the Texas cities of San Antonio and El Paso. The
balance relates to additional charges for prior closed store lease and severance
reserves. These charges may result in future cash payments.
The following represents reserve accounts created by the $55.0 million
in charges recorded in 1996 and the $94.3 million in charges recorded in 1997
and the $15.2 million in charges in 1998 (in thousands):
<TABLE>
<CAPTION>
1/31/97 1/30/98 1/29/99
Reserve Initial Ending Ending Ending
Description Addition Reductions Balance Additions Reductions Balance Additions Reductions Balance
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Markdown of slow
moving and
excess inventory $17,928.5 $16,100.0 $1,828.5 $1,828.5
Write-down for
inventory
liquidation of
closing stores 17,538.2 7,348.7 10,189.5 $1,465.0 11,654.5
Expenses attributable
to closing stores 6,687.7 6,687.7 935.0 7,455.9 $166.8
Closing store equipment
reserve 5,011.5 5,011.5 2,886.4 7,882.2 15.7
Closed store leases 4,221.5 188.9 4,032.6 850.1 3,041.6 1,841.1
Other charges -
severance & outdated
communications
technology $1,800.0 $841.7 $958.3 3,543.6 720.4 3,781.5 487.3 3,327.2 941.6
Disposition and
impairment of
under-performing
assets 9,228.7 2,253.7 6,975.0 5,522.3 1,452.7 8,576.2 10,026.8 2.1
-------- ------- ------- ------- -------- -------- -------- -------- -------
Reserve Totals $11,028.7 $3,095.4 $7,933.3 $54,931.0 $29,880.3 $32,984.0 $15,200.0 $45,216.7 $2,967.3
======== ======= ======= ======= ======== ======== ======== ======== =======
</TABLE>
F-18
<PAGE>
Note 11 - Reorganization Items
As a result of the Chapter 11 filings, the Company has recorded the
following reorganizational charges (in millions):
Loss on disposition of real estate $24.4
Loss on disposals of closed store
fixtures and equipment 6.4
Closed store expenses 8.9
Lease rejection damages 9.1
Restructuring charges 7.8
Retention and severance pay 1.8
-----
Total $58.4
=====
The $24.4 million loss on disposition of real estate represents the
write-down to net realizable value of the 8 closing store properties held in
fee, the write-off of leasehold improvements on the 9 closing store properties
held under lease and certain other capitalized and deferred costs. The $6.4
million loss on disposals of closed stores fixtures and equipment represents the
write-down to net realizable value of fixtures and equipment of the 17 closing
stores. Both the loss on the real estate and the loss on the fixtures and
equipment will not result in cash payments. The $8.9 million charge for closed
store expenses relates primarily to the loss on inventory ($7.0 million) and the
expenses to be incurred in the 17 closing stores during the going out of
business sales ($1.9 million). The $7.8 million restructuring charges include
legal and professional fees incurred or paid prior to the petition date, the
write-off of loan costs previously incurred in connection with the Company's
pre-petition working capital facility, certain capitalized inventory costs, and
uncollectible receivables from vendors. Certain leases on equipment and real
estate will be rejected or modified in connection with the Company's efforts to
reorganize. The $9.1 million of lease rejection damages is the Company's current
estimate of expected loss associated with the rejection of these leases. A $1.8
million charge was recorded to recognize certain retention payments and
severance pay in connection with the Company's initiatives. Of the $58.4
million, $2.0 million was paid in cash in FY 1998, and up to an additional $4.5
million may result in future cash payments. The remainder of the charges is
non-cash.
The following represents reserve amounts created by the $58.4 million
of reorganization items (in millions):
Loss on disposition of real estate $ 0.6
Closed store expenses 8.9
Restructuring charges 2.5
Retention and severance pay 1.3
-----
Total $13.3
=====
Note 12 - Stockholders' Equity
The Company's Stock Option Plan was established on September 14, 1989
(the "1989 Plan"). The 1989 Plan provides that options be granted to certain key
employees and directors at exercise prices equal to not less than 50% of fair
market value on the date the option is granted. In June 1997, the stockholders
of the Company approved an amendment to the 1989 Plan increasing the number of
shares that may be issued thereunder as 1,000,000 shares. All options granted to
date have been at fair market value on the date of the grant. Prior to Fiscal
1996, options granted to key employees generally became exerciseable after one
year in 25% increments per year and expire 10 years from the date of grant.
Options granted to key employees in Fiscal 1996 and forward generally become
excerciseable at 40% after two years and 20% per year thereafter and expire 10
years from the date of grant. Options granted to directors generally become
fully exerciseable after one year and expire 10 years from the date of grant.
The Company has reserved 3,212,212 shares for distribution under the 1989 Plan.
Options to purchase 968,347 shares were granted to key employees and directors
thereunder as of January 29, 1999.
F-19
<PAGE>
In March of 1996, the Company adopted an additional stock incentive
plan, the 1996 Stock Incentive Plan, for issuance of stock options to Company
employees who are not subject to the reporting requirements of Section 16 under
the Exchange Act (the "1996 Plan"). One million shares are reserved for issuance
under the 1996 Plan, and options to purchase a total of 781,450 shares were
granted to employees thereunder, as of January 29, 1999. Vesting provisions are
similar under both the 1989 Plan and the 1996 Plan. All options granted to date
have been at fair market value on the date of the grant. Options granted to
employees generally become exerciseable after one year in 25% increments per
year and expire 10 years from the date of grant.
Effective January 30, 1998, the Company adopted SFAS No. 128,
"Earnings Per Share," which established new standards for computing and
presenting EPS. Upon adoption, the Company restated its EPS for 1996 to
conform with SFAS No. 128. The computations under SFAS No. 128 are summarized
below:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997 Fiscal 1998
Per Per Per
Average Share Average Share Average Share
Loss Shares Amount Loss Shares Amount Loss Shares Amount
------------------------ ------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EPS: Basic
Income available to
common shareholder $(30,544) 19,985 $(1.53) $(111,297) 20,363 $(5.47) $(93,514) 20,405 $(4.58)
======== ====== ======= ========== ====== ====== ======== ====== ======
Effect of Dilutive
Securities
Options $ - - $ - - $ - -
Convertible
subordinated notes - - - - - -
-------- ------ ------- ---------- ------ ------ -------- ------ ------
Total Dilution - -(1) - -(1) - -(1)
-------- ------ ------- ---------- ------ ------ -------- ------ ------
EPS: Diluted
Income available to common
stockholders with assumed
conversions $(30,544) 19,985 $(1.53) $(111,297) 20,363 $(5.47) $(93,514) 20,405 $(4.58)
======== ====== ======= ========== ====== ====== ======== ====== ======
<FN>
(1) Not reported under GAAP as conversion would be anti-dilutive.
</FN>
</TABLE>
F-20
<PAGE>
A summary of stock option activity related to the 1989 and 1996 Plans is as
follows:
<TABLE>
<CAPTION>
Weighted Avg.
Option Price Option
Shares Per Share Price
--------- ------------- -------------
<S> <C> <C> <C>
Outstanding January 29, 1996 1,845,791 $3.95 - 29.33 $ 11.08
Granted 1,317,204 4.38 - 9.75 6.65
Exercised (376,618) 3.95 - 5.00 4.62
Canceled or surrendered (677,709) 6.75 - 29.33 16.45
--------- ------------- --------
Outstanding January 31, 1997 2,108,668 $3.95 - 29.33 $ 7.74
========= ============= ========
Exercisable at January 31, 1997 701,323 $3.95 - 29.33 $ 9.15
========= ============= ========
Outstanding February 1, 1997 2,108,668 $3.95 - 29.33 $ 7.74
Granted 1,145,700 1.00 - 6.75 3.20
Exercised (19,085) 3.95 3.95
Canceled or surrendered (1,145,393) 3.44 - 26.08 6.64
--------- ------------- --------
Outstanding January 30, 1998 2,089,890 $1.00 - 29.33 $ 5.89
========= ============= ========
Outstanding January 31, 1998 2,089,890 $1.00 - 29.33 $ 5.89
Granted 749,163 $0.50 - 1.813 1.69
Exercised
Canceled or surrendered (1,089,256) $0.50 - 29.33 9.40
--------- ------------- --------
Exercisable at January 29, 1999 1,749,797 $0.50 - 26.08 $ 1.90
========= ============= ========
</TABLE>
The following table further summarizes information about the 1989 and 1996
Plans:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 1/29/99 Life (in years) Price at 1/29/99 Price
--------------- ----------- --------------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
$ 0.50 to $1.25 462,500 9.0 $ 1.15 0 $ 0
$ 1.38 to $1.81 1,204,251 8.3 1.78 193,491 1.81
$ 3.44 to $8.88 64,321 8.2 5.58 31,000 7.42
$11.50 to $26.08 18,725 4.6 15.91 17,725 16.15
--------------- ----------- --------------- -------- ----------- -------
$ 0.50 to $26.08 1,749,797 8.4 $ 1.90 242,216 $ 3.58
=============== =========== =============== ======== =========== =======
</TABLE>
In October 1995, the Financial Accounting Standards Board issued
Financial Accounts Standard No.123, "Accounting for Stock Based Compensation"
("SFAS 123") which is effective for fiscal years beginning after December 15,
1995. As permitted by SFAS 123, the Company has elected to continue to account
for its stock based plans under APB No. 25, "Accounting for Stock Issued to
Employees".
If the Company had elected to recognize compensation expense for stock
options based on the fair value at grant date, consistent with the method
prescribed by SFAS 123, net income and earnings per share would have been
reduced to the proforma amounts shown below:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Net loss
As reported $(30,544) $(111,297) $(93,514)
Proforma $(33,437) $(112,193) $(93,514)
Loss per share
As reported $(1.53) $(5.47) $(4.58)
Proforma $(1.67) $(5.51) $(4.58)
</TABLE>
F-21
<PAGE>
The proforma amounts were determined using the Black-Scholes Valuation
Model with the following key assumptions: (i) a discount rate of 7.0%, 5.6% and
5.1% for 1996, 1997 and 1998, respectively; (ii) a volatility factor initially
based on the average trading price for the prior 18 months; (iii) no dividend
yield; and (iv) an average expected option life of four years.
On February 17, 1998 the Company re-priced all options outstanding at
January 30, 1998 for active employees to an exercise price of $1.8125, the
market closing price on that date. The number of options this impacted was
876,221 with previous market value grant prices ranging from $3.44 to $26.08.
In 1997, 680,000 options were canceled for executive officers (Mr.
Bebis and Mr. Wittman) who terminated their employment with the Company. The
balance of the options canceled in 1997 were for other employees who terminated
service with the Company. The grants in fiscal 1997, were primarily to Mr. Bush,
200,000 options, and Mr. Floum, 200,000 options. The balance of option grants
were to incoming management personnel.
In conjunction with a change in management in fiscal 1996, 236,500
outstanding options with exercise prices ranging from $11.67 to $29.33 were
canceled and reissued at the then market value of $5 per share. The options vest
immediately and expire 5 years from the date of grant. Additionally, 300,000
options were issued with an exercise price of $4.38, the market value on the
date of grant. The options vest 40% on the second anniversary of the date of the
grant and 20% each year thereafter and expire 10 years after the date of grant.
In addition to the above option activity and as result of the February 1996
management change, options were canceled and reissued to new management.
Note 13 -Subsequent Events
On February 11, 1999, the Bankruptcy Court granted a motion for
authority to obtain debtor-in-possession financing. Proceeds from the 18 month
DIP facility are being used to finance the on-going working capital needs of the
Company, to pay fees and expenses incurred in connection with the DIP facility
agreement, to pay all amounts due under the pre-petition credit agreement, to
replace the letter of credits issued and outstanding thereunder, and to pay
certain other costs and bankruptcy related claims and charges as allowed by the
Bankruptcy Court.
During the term of the DIP facility agreement, the Company is
restricted from making any distribution or declaring or paying any dividends (in
cash or other property, other than capital stock) on, or purchasing, acquiring,
redeeming or retiring any of the Company's capital stock, of any class, whether
now or hereafter outstanding. Other restrictions include limitations on
additional indebtedness, disposal of assets, change of control, capital
expenditures and investments; provided, however, that the Company may make loans
to its subsidiaries, Nationwide Team Sales, Inc. in an aggregate amount not to
exceed $1.25 million. Additionally, the Company agreed to achieve certain levels
of earnings before interest, taxes, depreciation, amortization and restructuring
charges ("EBITDAR") on a cumulative quarterly basis beginning with the first
quarter of fiscal 1999 and each succeeding quarter thereafter through the end of
fiscal 1999 and on a rolling 12 months basis thereafter through the duration of
the agreement.
The DIP facility provides for a term loan of $25 million and a
revolving loan credit facility of $85 million including a $10 million letter of
credit subfacility. The term loan consists of a Tranche A and a Tranche B.
Tranche A was initially funded at $9.7 million with a total commitment of $10
million. The Tranche B term loan was initially funded at $15 million. Interest
on the Tranche A term loan accrues at the Reference Rate plus 1.75%. Interest on
the Tranche B term loan accrues at 12.75%. Total principal installments of $417
thousand are to be paid monthly commencing with August 1, 1999 and continuing on
the first day of each succeeding month. The Company is required to prepay the
term loans with the net proceeds from the sale of Real Property Collateral
pursuant to a prescribed allocation in the loan agreement. All prepayments of
principal will be ratably applied to principal installments in the inverse order
of maturity. Availability under the revolving loan credit facility is limited to
the lesser of $85 million or amounts based on a predetermined formula which
includes a provision for up to 80% of Eligible Accounts and approximately 74.5%
of Eligible Inventory. Commitments under the letter of credit subfacility are
limited to the lesser of $10 million or availability under the revolving line of
credit.
F-22
<PAGE>
The Company incurred approximately $1.3 million in fees in connection
with the new DIP facility agreement. Interest on the term loans and revolving
advances and fees on the letters of credit are payable monthly in arrears.
The Agreement also contains a provision for early termination, at the
option of the Company, with a payment of an early termination premium to the
lenders if exit financing is provided by a third party.
Note 14 - Quarterly Financial Information (Unaudited)
Summarized quarterly financial data for fiscal 1998 and fiscal 1997 is
as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
1998
Net sales $ 86,544 $ 86,837 $ 87,075 $101,939
Gross profit 20,260 19,924 17,115 22,845
Non-recurring & other charges 5,200
Reorganization items 58,344
Net loss (6,037) (19,248) (6,873) (61,356)
Basic and diluted loss
per common share:
Net loss $ (0.30) $ (0.94) $( 0.34) $ (3.00)
======== ======== ======== ========
1997
Net Sales $130,134 $136,225 $129,945 $132,330
Gross profit 30,654 33,605 9,302 1,564
Non-recurring & other charges 18,472 24,583
Net loss (1,505) (1,879) (45,763) (62,150)
Basic and diluted loss
per common share:
Net loss $ (0.07) $ (0.09) $ (2.26) $ (3.05)
======== ======== ======== =========
</TABLE>
F-23
NO RECORDING, STAMP, DOCUMENTARY STAMP OR MORTGAGE TAXES OR FEES ARE DUE OR
OTHERWISE TO BE PAID PURSUANT TO THAT ORDER DATED FEBRUARY 11, 1999 ISSUED BY
THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF FLORIDA, TAMPA
DIVISION, IN IN RE: JUMBOSPORTS INC., JOINTLY ADMINISTERED BANKRUPTCY CASE NO.
98-22545-8C1, INCORPORATING AND MAKING APPLICABLE, AMONG OTHER THINGS, SECTION
1146(c) OF THE UNITED STATES BANKRUPTCY CODE.
$110,000,000
SENIOR SECURED, SUPER-PRIORITY
DEBTOR-IN-POSSESSION
LOAN AND SECURITY AGREEMENT
among
JUMBOSPORTS INC.
as Borrower,
THE FINANCIAL INSTITUTIONS NAMED HEREIN,
as Lenders,
FOOTHILL CAPITAL CORPORATION,
as Agent
and
CONGRESS FINANCIAL CORPORATION (SOUTHERN),
as Co-Agent
as of February 12, 1999
<PAGE>
TABLE OF CONTENTS
Page(s)
1. DEFINITIONS AND CONSTRUCTION.............................................2
1.1 Definitions..................................................2
1.2 Accounting Terms............................................26
1.3 Code........................................................26
1.4 Construction...... .........................................26
1.5 Schedules and Exhibits......................................26
2. LOAN AND TERMS OF PAYMENT...............................................26
2.1 Revolving Advances..........................................26
2.2 Letters of Credit...........................................34
2.3 Tranche A Term Loans........................................37
2.4 Tranche B Term Loans........................................38
2.5 Payments....................................................39
2.6 Overadvances................................................42
2.7 Interest and Letter of Credit Fees:
Rates, Payments, and Calculations.........................42
2.8 Collection of Accounts......................................44
2.9 Crediting Payments; Application of Collections..............44
2.10 Designated Account..........................................45
2.11 Maintenance of Loan Account; Statements of Obligations......45
2.12 Fees........................................................45
2.13 Eurodollar Rate Loans.......................................47
2.14 Illegality..................................................48
2.15 Requirements of Law.........................................49
2.16 Indemnity...................................................50
3. CONDITIONS; TERM OF AGREEMENT...........................................52
3.1 Conditions Precedent to the Initial Advance,
Letter of Credit, and the Term Loans......................52
3.3 Conditions Subsequent.......................................55
3.4 Term........................................................56
3.5 Effect of Termination.......................................56
3.6 Early Termination by Borrower...............................56
4. CREATION OF SECURITY INTEREST...........................................57
4.1 Grant of Security Interest..................................57
4.2 Negotiable Collateral.......................................57
4.3 Collection of Accounts, General Intangibles,
and Negotiable Collateral.................................58
4.4 Delivery of Additional Documentation Required...............58
4.5 Power of Attorney...........................................58
4.6 Right to Inspect............................................59
<PAGE>
5. REPRESENTATIONS AND WARRANTIES..........................................59
5.1 No Encumbrances.............................................59
5.2 Eligible Accounts...........................................60
5.3 Eligible Inventory..........................................60
5.4 Equipment...................................................60
5.5 Location of Inventory and Equipment.........................60
5.6 Inventory Records...........................................60
5.7 Location of Chief Executive Office; FEIN....................60
5.8 Due Organization and Qualification; Subsidiaries............60
5.9 Due Authorization; No Conflict..............................61
5.10 Litigation..................................................62
5.11 No Material Adverse Change. ................................62
5.12 Solvency....................................................62
5.13 Employee Benefits...........................................63
5.14 Environmental Condition.....................................63
5.15 Intellectual Property.......................................63
5.16 Year 2000 Compliance........................................63
6. AFFIRMATIVE COVENANTS...................................................64
6.1 Accounting System...........................................64
6.2 Collateral and Financial Reporting..........................64
6.3 [Intentionally Omitted.]....................................70
6.4 Tax Returns.................................................70
6.5 Guarantor Reports...........................................70
6.6 Returns.....................................................70
6.7 Title to Equipment..........................................70
6.8 Maintenance of Equipment....................................70
6.9 Taxes.......................................................71
6.10 Insurance...................................................71
6.11 No Setoffs or Counterclaims.................................73
6.12 Location of Inventory and Equipment.........................73
6.13 Compliance with Laws........................................73
6.14 Employee Benefits...........................................73
6.15 Leases......................................................74
7. NEGATIVE COVENANTS......................................................75
7.1 Indebtedness................................................75
7.2 Liens.......................................................75
7.3 Restrictions on Fundamental Changes.........................76
<PAGE>
7.4 Disposal of Assets..........................................76
7.5 Change Name.................................................76
7.6 Guarantee...................................................76
7.7 Nature of Business..........................................77
7.8 Prepayments and Amendments..................................77
7.9 Change of Control...........................................77
7.10 Consignments................................................78
7.11 Distributions...............................................78
7.12 Accounting Methods..........................................78
7.13 Investments.................................................78
7.14 Transactions with Affiliates................................78
7.15 Suspension..................................................79
7.16 Compensation................................................79
7.17 Use of Proceeds.............................................79
7.18 Change in Location of Chief Executive Office; Inventory
and Equipment with Bailees................................79
7.19 No Prohibited Transactions Under ERISA......................79
7.20 Financial Covenants.........................................80
7.21 Capital Expenditures........................................81
7.22 Accounts....................................................81
7.23 Retail Store Closings.......................................81
8. EVENTS OF DEFAULT.......................................................82
9. THE LENDER GROUP'S RIGHTS AND REMEDIES..................................85
9.1 Rights and Remedies.........................................85
9.2 Remedies Cumulative.........................................88
10. TAXES AND EXPENSES......................................................88
11. WAIVERS; INDEMNIFICATION................................................88
11.1 Demand; Protest; etc........................................88
11.2 The Lender Group=s Liability for Collateral.................89
11.3 Indemnification.............................................89
12. NOTICES.................................................................89
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER..............................92
14. DESTRUCTION OF BORROWER'S DOCUMENTS.....................................93
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS..............................93
15.1 Assignments and Participations..............................93
15.2 Successors..................................................96
<PAGE>
16. AMENDMENTS; WAIVERS.....................................................96
16.1 Amendments and Waivers......................................96
16.2 No Waivers; Cumulative Remedies.............................97
17. AGENT; THE LENDER GROUP.................................................97
17.1 Appointment and Authorization of Agent......................97
17.2 Delegation of Duties........................................98
17.3 Liability of Agent-Related Persons..........................99
17.4 Reliance by Agent...........................................99
17.5 Notice of Default or Event of Default.......................99
17.6 Credit Decision............................................100
17.7 Costs and Expenses; Indemnification........................101
17.8 Agent in Individual Capacity...............................101
17.9 Successor Agent............................................102
17.10 Withholding Tax............................................102
17.11 Collateral Matters.........................................104
17.12 Restrictions on Actions by Lenders;
Sharing of Payments......................................105
17.13 Agency for Perfection......................................105
17.14 Payments by Agent to the Lenders...........................105
17.15 Concerning the Collateral and Related Loan Documents.......106
17.16 Field Audits and Examination Reports; Confidentiality;
Disclaimers by Lenders; Other
Reports and Information....................................106
17.17 Several Obligations; No Liability..........................107
18 GENERAL PROVISIONS.....................................................108
18.1 Effectiveness..............................................108
18.2 Section Headings...........................................108
18.3 Interpretation.............................................108
18.4 Severability of Provisions.................................108
18.5 Counterparts; Telefacsimile Execution......................108
18.6 Revival and Reinstatement of Obligations...................108
18.7 Integration................................................109
18.8 Time is of the Essence.....................................109
<PAGE>
SCHEDULES AND EXHIBITS
Schedule B-1 Business Plan [Confidential - Previously
provided to the Lenders and the
Committees]
Schedule C-1 Commitments
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule P-2 Real Estate Mortgagees
Schedule R-1 Primary Real Estate
Schedule R-2 Secondary Real Estate
Schedule S-1 Senior Claims
Schedule T-1 Real Estate Trusts
Schedule 2.8 Deposit and Investment Accounts
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 5.15 Intellectual Property
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Indebtedness
Exhibit A-1 Form of Assignment and Acceptance
Exhibit C-1 Form of Compliance Certificate
Exhibit 6.2 Form of Borrowing Base Certificate
<PAGE>
NO RECORDING, STAMP, DOCUMENTARY STAMP OR MORTGAGE TAXES OR FEES ARE DUE OR
OTHERWISE TO BE PAID PURSUANT TO THAT ORDER DATED FEBRUARY 11, 1999 ISSUED BY
THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF FLORIDA, TAMPA
DIVISION, IN IN RE: JUMBOSPORTS INC., JOINTLY ADMINISTERED BANKRUPTCY CASE NO.
98-22545-8C1, INCORPORATING AND MAKING APPLICABLE, AMONG OTHER THINGS, SECTION
1146(c) OF THE UNITED STATES BANKRUPTCY CODE.
SENIOR SECURED, SUPER-PRIORITY DEBTOR-IN-POSSESSION
LOAN AND SECURITY AGREEMENT
THIS SENIOR SECURED, SUPER-PRIORITY DEBTOR-IN-POSSESSION LOAN AND SECURITY
AGREEMENT (this AAgreement"), is entered into as of February 12, 1999, among
JUMBOSPORTS INC., a Florida corporation ("Borrower"), with its chief executive
office located at 4701 W. Hillsborough Avenue, Tampa, Florida 33614, on the one
hand, and the financial institutions listed on the signature pages hereof (such
financial institutions, together with their respective successors and assigns,
are referred to hereinafter each individually as a ALender" and collectively as
the ALenders"), and FOOTHILL CAPITAL CORPORATION, as Agent, and CONGRESS
FINANCIAL CORPORATION (SOUTHERN), as Co-Agent, on the other hand.
WITNESSETH:
WHEREAS, on December 27, 1998 (the "Relief Date"), Borrower filed a
petition for relief pursuant to Chapter 11 of the United States Bankruptcy Code
in the United States Bankruptcy Court for the Middle District of Florida, Tampa
Division (the ACourt"). Borrower continues to operate its business and manage
its properties as a debtor-in-possession pursuant to Sections 1107 and 1108 of
the United States Bankruptcy Code and order of the Court; and
WHEREAS, prior to the Relief Date, the Lenders provided financing to
Borrower pursuant to that certain Loan and Security Agreement dated as of July
24, 1998, as modified and amended by that certain First Amendment to Loan and
Security Agreement dated as of November 30, 1998 (as modified and amended, the
APre-Relief Date Loan Agreement"); and
WHEREAS, the Lenders= commitment to provide ongoing financing to Borrower
under the Pre-Relief Date Loan Agreement has been terminated; and
WHEREAS, Borrower has requested that the Lenders provide a senior secured,
super-priority credit facility up to $110,000,000 to fund the ongoing working
capital requirements of Borrower and to replace the Pre-Relief Date Loan
Agreement. The Lenders are willing to provide such financing in the manner and
pursuant to the terms of this Agreement;
<PAGE>
AGREEMENT:
NOW, THEREFORE, in consideration of the agreements, provisions and
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. DEFINITIONS AND CONSTRUCTION.. DEFINITIONS AND CONSTRUCTION.
1.1 As used in this Agreement, the following terms shall have the following
definitions:
"Account Debtor" means any Person who is or who may become obligated under,
with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods or the rendition of services by Borrower,
irrespective of whether earned by performance, and any and all credit insurance,
guaranties, or security therefor. For purposes of the definition of
ACollateral", AAccounts" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
and to its Primary Subsidiaries arising out of the sale or lease of goods or the
rendition of services by Borrower and its Primary Subsidiaries, irrespective of
whether earned by performance, and any and all credit insurance, guaranties, or
security therefor.
"Adjusted EBITDAR" means, for any period, the net income (or net loss) of
Borrower, for such period as determined in accordance with GAAP, (a) plus to the
extent reflected in the changes in the statement of net income for such period
the sum of, without duplication, the following for Borrower (i) interest
expense, (ii) taxes, (iii) depreciation and amortization expense, (iv)
extraordinary losses and (v) expenses related to Borrower=s restructuring, and
(b) minus to the extent reflected in the changes in the statement of net income
for such period extraordinary gains.
"Adjusted Eurodollar Rate" means, with respect to each Interest Period for
any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to
the next 1/16%) determined by dividing (a) the Eurodollar Rate for such Interest
Period by (b) a percentage equal to (i) one hundred percent (100%) minus (ii)
the Reserve Percentage. The Adjusted Eurodollar Rate shall be adjusted on and as
of the effective day of any change in the Reserve Percentage.
"Advances" has the meaning set forth in Section 2.1(a)).
<PAGE>
"Affiliate" means, as applied to any Person, any other Person who directly
or indirectly controls, is controlled by, is under common control with or is a
director or officer of such Person. For purposes of this definition, Acontrol"
means the possession, directly or indirectly, of the power to vote ten percent
(10%) or more of the securities having ordinary voting power for the election of
directors or the direct or indirect power to direct the management and policies
of a Person.
"Agent" means Foothill, solely in its capacity as agent for the Lenders,
and shall include any successor agent.
"Agent's Account" has the meaning set forth in Section 2.8.
"Agent Advance" has the meaning set forth in Section 2.1(h).
"Agent's Fee Letter" has the meaning set forth in Section 2.12(a))(iv).
"Agent Loan" has the meaning set forth in Section 2.1(g).
"Agent-Related Persons" means Agent, together with its Affiliates, and the
officers, directors, employees, counsel, agents, and attorneys-in-fact of Agent
and such Affiliates.
"Agreement" has the meaning set forth in the preamble hereto.
"Appraised Value" means with respect to Primary Real Estate, the appraised
value of each parcel of Real Property constituting Primary Real Estate as set
forth on Schedule R-1.
"Assignee" has the meaning set forth in Section 15.1(a)).
"Assignment and Acceptance" has the meaning set forth in Section 15.1 (a)
and shall be in the form of Exhibit A-1.
"Assignment of Note" means that certain Assignment of Note and Security
Agreement of even date herewith between Borrower and Agent, in form and
substance satisfactory to the Lender Group, pursuant to which Borrower assigns
to Agent the Nationwide Team Sales Note.
"Assignment of Real Estate Trust Interests" means that certain Assignment
of Business Trust Interests of even date herewith between Borrower and Agent, in
form and substance satisfactory to the Lender Group, pursuant to which Borrower
pledges its beneficial interests in the Real Estate Trusts.
<PAGE>
"Authorized Person" means any officer or other employee of Borrower.
"Availability" means, as of the date of determination, the result (so long
as such result is a positive number) of (a) the lesser of the (i) the Borrowing
Base, or (ii) the Maximum Revolving Amount, less (b) the Revolving Facility
Usage.
"Availability Reserves" means such reserves as Agent from time to time
determines in its reasonable discretion as being appropriate to reflect the
impediments to the Lender Group's ability to realize upon the Collateral.
Without limiting the generality of the foregoing, Availability Reserves may
include (but are not limited to) reserves based upon the following:
(a)) post-Relief Date rent --
(i) based upon Borrower's or any Subsidiary of Borrower's past due
post-Relief Date rent; and
(ii) based upon two months of rent payments in respect of Borrower's leased
locations in any Landlord Lien State or One Turn State with respect to which an
acceptable Collateral Access Agreement has not been obtained or with respect to
which the inclusion of such findings and decretal portions in the Final Order,
in Agent=s sole discretion, are not deemed equivalent to, and acceptable in lieu
of, the execution and delivery of the afore-referenced Collateral Access
Agreement;
(b) in-store customer credits and gift certificates; and
(c) delinquent post-Relief Date taxes and other governmental charges
including without limitation ad valorem, personal property, sales and other
taxes which may have priority over the security interests of the Lender Group in
the Collateral.
"Average Unused Portion of the Maximum Revolving Amount" means, as of any
date of determination, (a) the Maximum Revolving Amount, less (b) the sum of (i)
the average Daily Balance of Advances that were outstanding during the
immediately preceding month, plus (ii) the average Daily Balance of the undrawn
Letters of Credit that were outstanding during the immediately preceding month.
<PAGE>
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. ' 101
et seq.), as amended, and any successor statute.
"Benefit Plan" means a Adefined benefit plan" (as defined in Section 3(35)
of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA Affiliate
has been an "employer" (as defined in Section 3(5) of ERISA) within the past six
years.
"Blocked Account" shall mean any deposit account established by Borrower,
including the Concentration Account, at a Blocked Account Bank pursuant to a
Blocked Account Agreement.
"Blocked Account Agreements" means those certain Blocked Account
Agreements, in form and substance reasonably satisfactory to Agent, each of
which is among Borrower, Agent and a Blocked Account Bank, and each such Blocked
Account Agreement shall be referred to herein as a ABlocked Account Agreement".
"Blocked Account Bank" means any of Norwest Bank Minnesota, National
Association, NationsBank, N.A., Hibernia National Bank and/or any other bank
mutually acceptable to Borrower and Foothill.
"Borrower" has the meaning set forth in the preamble to this Agreement.
"Borrower=s Books" means all of Borrower's books and records including:
ledgers; records indicating, summarizing, or evidencing Borrower's properties or
assets (including the Collateral) or liabilities; all information relating to
Borrower=s business operations or financial condition; and all computer
programs, disk or tape files, printouts, runs, or other computer prepared
information. For purposes of the definition of "Collateral", "Borrower's Books"
means all of Borrower's and its Primary Subsidiaries' books and records
including: ledgers; records indicating, summarizing, or evidencing Borrower's
and its Primary Subsidiaries properties or assets (including the Collateral) or
liabilities; all information relating to Borrower's and its Primary Subsidiaries
business operations or financial condition; and all computer programs, disk or
tape files, printouts, runs, or other computer prepared information.
"Borrowing" means a borrowing hereunder consisting of Advances made on the
same day by the Tranche A Lenders, or by Agent in the case of an Agent Loan or
an Agent Advance.
"Borrowing Base" has the meaning set forth in Section 2.1(a)).
"Borrowing Base Certificate" has the meaning set forth in Section 6.2(a)).
<PAGE>
"Business Day" means any day that is not a Saturday, Sunday, or other day
on which national banks are authorized or required to close and Agent and
Co-Agent are open.
"Business Plan" means Borrower's and its Subsidiaries' business plans
attached hereto as Schedule B-1 (confidential - previously provided to the
Lenders and the Committees), together with any amendment, modification or
revision of such business plan approved by Agent in its reasonable discretion.
"Butler Shoe" means H. Butler Footwear, Inc., a Florida corporation.
"Butler Shoe Warehouse" means that certain warehouse of Butler Shoe located
at 4597 15th Street East, Bradenton, Florida 34203.
"Change of Control" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the Abeneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
of more than thirty percent (30%) of the total voting power of all classes of
stock then outstanding of Borrower entitled to vote in the election of
directors.
"Chapter 11 Case" means the cases commenced by virtue of the voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code filed by Borrower
and certain Subsidiaries of Borrower in the Court on the Relief Date and jointly
administered as Chapter 11 Case No. 98-22545-8C1.
"Closing Date" means the date of the first to occur of the making of the
initial Advance, the issuance of the initial Letter of Credit, or the funding of
the Term Loans.
"Co-Agent" means Congress Financial Corporation (Southern), a Georgia
corporation.
"Co-Agent's Fee Letter" has the meaning set forth in Section 2.12(a))(iii).
"Code" means the Uniform Commercial Code as in effect in the State of
Georgia from time to time.
"Collateral" means with respect to Borrower and its Primary Subsidiaries,
all real and personal property (exclusive of Bankruptcy Recoveries (as defined
in the Final Order)) of Borrower and its Primary Subsidiaries, whether now
existing or hereafter arising, including without limitation each of the
following:
(a)) the Accounts,
<PAGE>
(b) Borrower=s Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) the Investment Property,
(h) the Real Property Collateral,
(i) any money, or other assets of Borrower that now or hereafter come into
the possession, custody, or control of the Lender Group, and
(j) the proceeds and products, whether tangible or intangible, of any of
the foregoing, including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Borrower=s Books, Equipment, General
Intangibles, Inventory, Negotiable Collateral, Investment Property, the Primary
Real Estate, money, deposit accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or other disposition of any of
the foregoing, or any portion thereof or interest therein, and the proceeds
thereof.
"Collateral Access Agreement" means a landlord waiver, mortgagee waiver,
bailee letter, or acknowledgment agreement of any warehouseman, processor,
lessor, consignee, or other Person in possession of, having a Lien upon, or
having rights or interests in the Equipment or Inventory, in each case, in form
and substance reasonably satisfactory to Agent.
"Collections" means all cash, checks, notes, instruments, and other items
of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
"Commitment" means, at any time with respect to a Lender, the principal
amount set forth beside such Lender's name under the heading "Commitment" on
Schedule C-1 or on Schedule 1 to the Assignment and Acceptance pursuant to which
such Lender became a Lender hereunder in accordance with the provisions of
Section 15.1, as such Commitment may be adjusted from time to time in accordance
with the provisions of Section 15.1, which amount is the aggregate amount of
such Lender's Tranche A Commitment and Tranche B Commitment, and "Commitments"
means, collectively, the aggregate amount of the Commitments of all Lenders.
<PAGE>
"Committees" means, collectively, the official committee of unsecured
creditors and the official committee of bondholders formed, appointed or
approved by the United States Trustee in the Chapter 11 Case and each of such
Committees shall be referred to herein as a ACommittee".
"Compliance Certificate" means a certificate substantially in the form of
Exhibit C-1 and delivered by the chief accounting officer of Borrower to Agent.
"Concentration Account" means account number 3753527015 of Borrower
maintained at NationsBank, N.A., or such other deposit account of Borrower
(located in the United States).
"Concentration Account Agreement" means the Blocked Account Agreement among
Borrower, the Concentration Account Bank and Agent in form and substance
satisfactory to Agent applicable to the Concentration Account.
"Concentration Account Bank" means NationsBank, N.A., or such other bank
satisfying the guidelines of the U.S. Trustee and designated in writing by Agent
and Borrower.
"Convertible Subordinated Notes" means those certain 43% Convertible
Subordinated Notes due 2000 in the original principal amount of $74,750,000
issued pursuant to that certain Indenture dated as of November 4, 1993, among
Borrower (as successor to Sports & Recreation, Inc., a Delaware corporation), as
issuer, and Barnett Banks Trust Company, National Association, as trustee, as
supplemented by that certain Supplemental Indenture Agreement dated as of
February 14, 1997.
"Cost" means the calculated cost of Inventory based on the RSL consistent
with Borrower's current and historical accounting practices. "Cost" does not
include any inventory capitalization costs inclusive of advertising, but does
include freight and may include other charges used in Borrower's determination
of costs of goods sold and bringing goods to market, all within Agent's sole
discretion and in accordance with GAAP.
"Court" has the meaning set forth in the first recital paragraph hereto.
"Credit Card Agreements" means those certain agreements between Agent and
the credit card processors of Borrower pursuant to which such credit card
processors agree to transfer on a daily basis all credit card receipts of
Borrower into the Concentration Account or other Blocked Account.
"Daily Balance" means the amount of an Obligation owed at the end of a
given day.
<PAGE>
"deems itself insecure" as applied to any Person means that such Person in
good faith believes that the prospect of payment of the Obligations or
performance under the Loan Documents is materially impaired.
"Default" means an event, condition, or default that, with the giving of
notice, the passage of time, or both, would be an Event of Default.
"Defaulting Lender" has the meaning set forth in Section 2.1 (f)(ii).
"Defaulting Lenders Rate" means the Reference Rate for the first three days
from and after the date the relevant payment is due and thereafter at the
interest rate then applicable to Advances.
"Deferred Closing Fee" has the meaning set forth in Section 3.6.
"Deferred Closing Fee Carve-Out Event" has the meaning set forth in Section
3.6.
"Designated Account" means account number 6355055921 of Borrower maintained
with Borrower=s Designated Account Bank, or such other deposit account of
Borrower (located within the United States) which has been designated, in
writing and from time to time, by Borrower to Agent.
"Designated Account Bank" means Norwest Bank Minnesota, National
Association, whose office is located at Minneapolis, Minnesota, and whose ABA
number is 091000019, or such other bank as Agent and Borrower may designate from
time to time.
"Dilution" means, in each case based upon the experience of the immediately
prior twelve (12) months, the result of dividing the Dollar amount of (a) bad
debt write-downs, discounts, advertising, returns, promotions, credits, or other
dilution with respect to the Accounts, by (b) Borrower's Collections (excluding
extraordinary items) plus the Dollar amount of clause (a)).
"Dilution Reserve" means, as of any date of determination, an amount
sufficient to reduce the Lenders= advance rate against Eligible Accounts by one
percentage point for each percentage point by which Dilution is in excess of
five percent (5%).
"Disbursement Letter" means an instructional letter executed and delivered
by Borrower to Agent regarding the extensions of credit to be made on the
Closing Date, the form and substance of which shall be satisfactory to Agent.
"Dollars or $" means United States dollars.
<PAGE>
"Eligible Accounts" means those third party credit card Accounts, net of
customary reserves created by Borrower in the ordinary course of business, that
arise out of Borrower's sale of goods or rendition of services, that strictly
comply with each and all of the representations and warranties respecting
Accounts made by Borrower to the Lender Group in the Loan Documents, and that
are and at all times continue to be acceptable to Agent in all respects;
provided, however, that standards of eligibility may be fixed and revised from
time to time by Agent in Agent=s reasonable credit judgment.
"Eligible In-Transit Inventory" means those items of Inventory that do not
qualify as Eligible Landed Inventory solely because they are not in a location
set forth on Schedule E-1 but: (a) such Inventory is currently in-transit from a
location not set forth on Schedule E-1 to a location set forth on Schedule E-1,
(b) title to such Inventory has passed to Borrower, (c) documents of title with
respect to such Inventory have been delivered to Agent or its agent if requested
or otherwise required by the Agent, (d) such Inventory is insured against types
of loss, damage, hazards, and risks, and in amounts, satisfactory to Agent in
its discretion, and (e) such Inventory has been paid for or, if purchased under
an Inventory Letter of Credit, such Inventory Letter of Credit either has been
drawn upon in full and reimbursed, or expired undrawn; in each case, with
documentation therefor in form and substance satisfactory to Agent in its
discretion.
"Eligible Inventory" means the Eligible In-Transit Inventory and the
Eligible Landed Inventory, less Inventory Reserves.
"Eligible Landed Inventory" means Inventory consisting of first quality
finished goods held for sale in the ordinary course of Borrower's business and
raw materials for such finished goods, that are located at or in-transit between
Borrower's premises or between Borrower=s premises and the Butler Shoe Warehouse
or its successors, if any, identified on Schedule E-1, that strictly comply with
each and all of the representations and warranties respecting Inventory made by
Borrower to the Lender Group in the Loan Documents, and that are and at all
times continue to be acceptable to the Lender Group in all respects; provided,
however, that standards of eligibility may be fixed and revised from time to
time by Agent in Agent's reasonable credit judgment. In determining the amount
to be so included, Inventory shall be valued at the lower of Cost or market on a
basis consistent with Borrower's current and historical accounting practices
based on the RSL. An item of Inventory shall not be included in Eligible Landed
Inventory if:
(a) it is not owned solely by Borrower or Borrower does not have good,
valid, and marketable title thereto;
(b) it is not located at one of the locations set forth on Schedule E-1;
<PAGE>
(c) it is not located on property owned or leased by Borrower or in a
contract warehouse, in each case, subject to a Collateral Access Agreement
executed by the mortgagee, lessor, the warehouseman, or other third party, as
the case may be, or with respect to which the inclusion of such findings and
decretal portions in the Final Order in Agent=s sole discretion are deemed
equivalent to, and acceptable in lieu of, the execution and delivery of the
afore-referenced Collateral Access Agreements, and in each case segregated or
otherwise separately identifiable from goods of others, if any, stored on the
premises;
(d) it is not subject to a valid and perfected first priority security
interest in favor of the Agent, for itself and the Lender Group;
(e) it consists of goods returned by Borrower's customers or goods in
transit; and
(f) it is obsolete or slow moving, a restrictive or custom item, packaging
and shipping materials, supplies used or consumed in Borrower's business,
Inventory subject to a Lien in favor of any third Person, defective goods,
Aseconds," or Inventory acquired on consignment.
"Eligible Transferee" means (a) a commercial bank organized under the laws
of the United States, or any state thereof, and having total assets in excess of
$5,000,000,000, or the asset based lending Affiliate of such bank, (b) a
commercial bank organized under the laws of any other country which is a member
of the Organization for Economic Cooperation and Development or a political
subdivision of any such country, and having total assets in excess of
$5,000,000,000 or the asset based lending Affiliate of such bank; provided that
such bank is acting through a branch or agency located in the United States, (c)
a finance company, insurance or other financial institution, or fund that is
engaged in making, purchasing, or otherwise investing in commercial loans in the
ordinary course of its business and having total assets in excess of
$500,000,000, (d) any Affiliate (other than individuals) of an existing Lender,
and (e) any other Person approved by Agent and, so long as no Default or Event
of Default exists, approved by Borrower.
"Equipment" means all of Borrower=s present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, goods (other
than consumer goods, farm products, or Inventory), wherever located, including,
(a) any interest of Borrower in any of the foregoing, and (b) all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing. For purposes of the definition of
"Collateral", "Equipment" means all of Borrower's and its Primary Subsidiaries
present and hereafter acquired machinery, machine tools, motors, equipment,
furniture, furnishings, fixtures, vehicles (including motor vehicles and
trailers), tools, parts, goods (other than consumer goods, farm products, or
Inventory of Borrower and its Primary Subsidiaries), wherever located,
including, (a) any interest of Borrower and its Primary Subsidiaries in any of
the foregoing, and (b) all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing.
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
U.S.C. " 1000 et seq., amendments thereto, successor statutes, and regulations
or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any Benefit Plan
or Multiemployer Plan, (b) the withdrawal of Borrower, any of its Subsidiaries
or ERISA Affiliates from a Benefit Plan during a plan year in which it was a
Asubstantial employer" (as defined in Section 4001(a)(2) of ERISA), (c) the
providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Eurodollar Rate" means, with respect to the Interest Period for a
Eurodollar Rate Loan, the interest rate per annum at which United States dollar
deposits are offered to Norwest Bank Minnesota, National Association by major
banks in the London interbank market (or other Eurodollar Rate market selected
by Agent) on or about 2:00 p.m. (Atlanta, Georgia time) two (2) Business Days
prior to the commencement of such Interest Period in amounts comparable to the
amount of the Eurodollar Rate Loans requested by and available to Borrower in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrower.
"Eurodollar Rate Loan" means any Advance or any Term Loan (or any portion
thereof) made or outstanding hereunder during any period when interest on such
Advance or the Term Loan (or portion thereof) is payable based on the Adjusted
Eurodollar Rate.
"Event of Default" has the meaning set forth in Section 8.
<PAGE>
"Existing Lender" means Foothill Capital Corporation, as agent for a group
of lenders and the co-agent under the Pre-Relief Date Loan Agreement.
"FEIN" means Federal Employer Identification Number.
"Final Order" means the order of the Court entered in the Chapter 11 Case
after a final hearing under Bankruptcy Rule 4001(c)(2), satisfactory in form and
substance to Agent (specifically including, but not limited to, findings of fact
with respect to extending credit hereunder in good faith for purposes, among
other things, of Section 364(e) of the Bankruptcy Code), together with all
extensions, modifications and amendments thereto, which, among other matters but
not by way of limitation, authorizes Borrower to obtain credit, incur
indebtedness, and grant Liens under this Agreement and the other Loan Documents,
as the case may be, and provides for the super-priority of Agent's claims on
behalf of the Lenders, all as set forth in such order.
"Foothill" means Foothill Capital Corporation, a California corporation,
with an office in Atlanta, Georgia.
"Foothill Partners" means Foothill Partners III, L.P., its successors and
assigns.
"Foothill Partners' Fee Letter" has the meaning set forth in Section
2.12(b)(ii).
"Funding Date" means the date on which a Borrowing occurs.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"Genco" means Genco I, Inc., a Delaware corporation.
"Genco Warehouse" means that certain warehouse of Genco at 1135 Heil Quaker
Street, LaVergne, Tennessee.
<PAGE>
"General Intangibles" means all of Borrower's present and future general
intangibles and other personal property (including contract rights, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, tax refund claims, its
beneficial interests in the Real Estate Trusts, option contracts and contracts
for the sale of Primary Real Estate), other than goods, Accounts, and Negotiable
Collateral. For purposes of the definition of "Collateral", AGeneral
Intangibles" means all of Borrower's and its Primary Subsidiaries' present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, tax refund
claims, Borrower's beneficial interests in the Real Estate Trusts, option
contracts and contracts for the sale of Primary Real Estate), other than goods,
Accounts of Borrower and its Primary Subsidiaries, and Negotiable Collateral of
Borrower and its Primary Subsidiaries.
"GOB Appraised Value" means the estimated net amount, expressed as a
percentage of the Cost of Inventory, projected to be obtainable, over a finite
period, for Inventory sold in a going-out-of-business sale, determined on a
semi-annual basis by an appraiser satisfactory to Agent.
"GOB Order" means that certain Order (i) Authorizing Debtor to Implement
its Business Restructuring Plan by Closing Certain Stores, (ii) Permitting
Debtor to Conduct Going-Out-of-Business Sales, (iii) Authorizing Debtor's
Retention of Liquidator, and (iv) Approving Procedure to Reject Unexpired
Leases, signed by the Court on February 1, 1999.
"GOB Store Proceeds" means the Guaranteed Amount (as defined in that
certain agency agreement referred to as the "Agreement" in the GOB Order)
required to be paid by Hilco/Great American Group to Borrower which has not
otherwise been paid to Borrower prior to the Closing Date, plus, if the
Inventory at Borrower's Las Vegas, Nevada retail store is not otherwise included
in the assets sold pursuant to the GOB Order, the net amount payable to Borrower
pursuant to an order by the Court from a liquidator on account of any
going-out-of-business sale of Borrower's Inventory at its Las Vegas, Nevada
retail store, plus, the net amount payable to Borrower pursuant to an order by
the Court from a liquidator on account of any other going-out-of-business sales
of Borrower's Inventory with respect to any other retail stores of Borrower.
"Governing Documents" means the certificate or articles of incorporation,
by-laws, or other organizational or governing documents of any Person.
<PAGE>
"Hazardous Materials" means (a) substances that are defined or listed in,
or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or AEP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Indebtedness" means: (a) all obligations of Borrower for borrowed money,
(b) all obligations of Borrower evidenced by bonds, debentures, notes, or other
similar instruments and all reimbursement or other obligations of Borrower in
respect of letters of credit, bankers acceptances, interest rate swaps, or other
financial products, (c) all obligations of Borrower under capital leases, (d)
all obligations or liabilities of others secured by a Lien on any property or
asset of Borrower, irrespective of whether such obligation or liability is
assumed, and (e) any obligation of Borrower guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with
recourse to Borrower) any indebtedness, lease, dividend, letter of credit, or
other obligation of any other Person.
"Initial GOB Store Proceeds" means $27,447,750.
"Insolvency Proceeding" means any proceeding commenced by or against any
Person under any provision of the Bankruptcy Code or under any other bankruptcy
or insolvency law, assignments for the benefit of creditors, compositions,
extensions generally with creditors, or proceedings seeking reorganization,
arrangement, or other similar relief.
"Interest Coverage Ratio" means, for any period, the ratio of Adjusted
EBITDAR to cash interest expense of Borrower.
"Interest Period" means, for any Eurodollar Rate Loan, the period
commencing on the Business Day such Eurodollar Rate Loan is disbursed or
continued, or on the Business Day on which a Reference Rate Loan is converted to
such Eurodollar Rate Loan, and ending on the date one (1), two (2), or three (3)
months thereafter, as selected by Borrower and notified to Agent pursuant to
Section 2.13, but in no event ending after the Maturity Date of this Agreement.
"Inventory" means all present and future inventory in which Borrower has
any interest, including goods held for sale or lease or to be furnished under a
contract of service and all of Borrower=s present and future raw materials, work
in process, finished goods, and packing and shipping materials, wherever
located. For purposes of the definition of "Collateral", "Inventory" means all
present and future inventory in which Borrower and its Primary Subsidiaries have
any interest, including goods held for sale or lease or to be furnished under a
contract of service and all of Borrower's and its Primary Subsidiaries" present
and future raw materials, work in process, finished goods, and packing and
shipping materials, wherever located.
<PAGE>
"Inventory Letter of Credit" means a documentary Letter of Credit issued to
support the purchase by Borrower of Inventory prior to transit to a location set
forth on Schedule E-1, that provides that all draws thereunder must require
presentation of customary documentation (including, if applicable, commercial
invoices, packing list, certificate of origin, bill of lading or airwaybill,
customs clearance documents, quota statement, inspection certificate,
beneficiaries statement, and bill of exchange, bills of lading, dock warrants,
dock receipts, warehouse receipts, or other documents of title) in form and
substance satisfactory to Agent and reflecting the passage to Borrower of title
to first quality Inventory conforming to Borrower's contract with the seller
thereof. Any such Letter of Credit shall cease to be an AInventory Letter of
Credit" at such time, if any, as the goods purchased thereunder become Eligible
Landed Inventory.
"Inventory Reserves"means such reserves as may be established from time to
time by Agent in Agent's reasonable discretion with respect to the determination
of the saleability, at retail, of the Eligible Inventory or which reflect such
other factors as affect the current retail or market value of the Eligible
Inventory. Without limiting the generality of the foregoing, Inventory Reserves
may include (but are not limited to) reserves based upon the following:
(a) Inventory held at the Genco Warehouse to the extent such Inventory is
Eligible Inventory;
(b) damaged Inventory to the extent such Inventory is included in the RSL;
(c) variances between the ISL and the RSL to the extent the RSL exceeds the
ISL;
(d) estimated reclamation claims of unpaid sellers of Inventory sold to
Borrower (other than reclamation claims asserted in the Chapter 11 Case which
will be paid in cash or allowed as administrative expense claims);
(e) Inventory, as of any date of determination, in excess of one hundred
twenty percent (120%) of the level of Inventory reflected on the balance sheet
contained in the Business Plan as of the month of the date of determination;
(f) Inventory, as of any date of determination, at a level lower than
eighty percent (80%) of the level of Inventory reflected on the balance sheet
contained in the Business Plan as of the month of the date of determination;
<PAGE>
(g) actual shrinkage in excess of shrinkage accrual on Borrower=s Books;
(h) change in Inventory character, composition or mix; and
(i) trade discounts given by Borrower's vendors that have not otherwise
reduced Inventory.
"Investment Property" means all of Borrower's "investment property" as such
term is defined in the Code, now owned or hereafter acquired by Borrower and, in
any event, including without limitation all securities, whether certificated or
uncertificated, security entitlements, securities accounts, commodity contracts
and commodity accounts. For purposes of the definition of "Collateral",
"Investment Property" means all of Borrower's and its Primary Subsidiaries'
"investment property" as such term is defined in the Code, now owned or
hereafter acquired by Borrower and its Subsidiaries and, in any event, including
without limitation all securities, whether certificated or uncertificated,
security entitlements, securities accounts, commodity contracts and commodity
accounts.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"ISL" means the inventory stock ledger of Borrower.
"L/C" has the meaning set forth in Section 2.2(a)).
"L/C Guaranty" has the meaning set forth in Section 2.2(a)).
"Landlord Lien State" means any state or jurisdiction under whose statutory
or common law the rights of a landlord in assets of that landlord's tenant, for
unpaid rent, may be senior to a perfected security interest in such assets.
"Lender" and "Lenders" have the respective meanings set forth in the
preamble to this Agreement, and shall include any other Person made a party to
this Agreement in accordance with the provisions of Section 15.1.
"Lender Group" means, individually and collectively, each of the individual
Lenders and Agent.
<PAGE>
"Lender Group Expenses" means, except as limited by Section 2.12(c), all:
costs or expenses (including taxes, and insurance premiums) required to be paid
by Borrower under any of the Loan Documents that are paid or incurred by the
Lender Group; reasonable fees or charges paid or incurred by the Lender Group in
connection with the Lender Group's transactions with Borrower, including, fees
or charges for photocopying, notarization, couriers and messengers,
telecommunication, public record searches (including tax lien, litigation, and
UCC searches and including searches with the patent and trademark office, the
copyright office, or the department of motor vehicles), filing, recording,
publication, appraisal (including periodic Personal Property Collateral or Real
Property Collateral appraisals), real estate surveys, real estate title policies
and endorsements, and environmental audits; costs and expenses incurred by Agent
in the disbursement of funds to Borrower (by wire transfer or otherwise);
reasonable charges paid or incurred by Agent resulting from the dishonor of
checks; costs and expenses paid or incurred by Agent to correct any Default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Personal Property Collateral or the Real
Property Collateral, or any portion thereof, irrespective of whether a sale is
consummated; costs and expenses paid or incurred by the Lender Group (including
any costs and expenses to engage outside parties) in examining Borrower's Books
and in monitoring and analyzing the Personal Property Collateral and the Real
Property Collateral; reasonable costs and expenses of the Oversight Agent; costs
and expenses of third party claims or any other suit paid or incurred by the
Lender Group in enforcing or defending the Loan Documents or in connection with
the transactions contemplated by the Loan Documents or the Lender Group's
relationship with Borrower or any guarantor; and the Lender Group's reasonable
attorneys fees and expenses incurred in advising, structuring, drafting,
reviewing, administering, amending, terminating, enforcing (including attorneys
fees and expenses incurred in connection with the Chapter 11 Case or in any
other "workout," "restructuring," or any other Insolvency Proceeding concerning
Borrower or any guarantor of the Obligations), defending, or concerning the Loan
Documents, irrespective of whether suit is brought; provided, however, that
prior to a Default or Event of Default "Lender Group Expenses" shall not include
any attorneys fees and expenses of any member of the Lender Group other than
Agent, Co-Agent and Foothill Partners.
"Letter of Credit" means an L/C or an L/C Guaranty, as the context
requires.
"Lien" means any interest in property securing an obligation owed to, or a
claim by, any Person other than the owner of the property, whether such interest
shall be based on the common law, statute, or contract, whether such interest
shall be recorded or perfected, and whether such interest shall be contingent
upon the occurrence of some future event or events or the existence of some
future circumstance or circumstances, including the lien or security interest
arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, security agreement, adverse claim or charge,
conditional sale or trust receipt, or from a lease, consignment, or bailment for
security purposes and also including reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting Real Property.
"Loan Account" has the meaning set forth in Section 2.11.
<PAGE>
"Loan Documents" means this Agreement, the Assignment of Note, the
Disbursement Letter, the Letters of Credit, the Credit Card Agreements, the
Blocked Account Agreements, the Oversight Agent Agreement, the Mortgages, the
Stock Pledge Agreement, the Subsidiary Guaranty Agreement, the Subsidiary
Security Agreement, the Trademark Security Agreement, the Assignment of Real
Estate Trust Interests, the Agent's Fee Letter, the Co-Agent's Fee Letter, the
Foothill Partners= Fee Letter, any note or notes executed by Borrower and
payable to the Lender Group, and any other agreement entered into, now or in the
future, in connection with this Agreement.
"Margin" has the meaning set forth in Section 2.7(a)).
"Material Adverse Change" means, except for the filing of the Chapter 11
Case and events disclosed to the Lenders prior to the Closing Date, (a) a
material adverse change in the business, prospects, operations, results of
operations, assets, liabilities or condition (financial or otherwise) of
Borrower or any Subsidiary of Borrower, (b) the material impairment of
Borrower's or any Subsidiary of Borrower's ability to perform its obligations
under the Loan Documents to which it is a party or of the Lender Group to
enforce the Obligations or realize upon the Collateral, (c) a material adverse
effect on the value of the Collateral, or (d) a material impairment of the
priority of the Lender Group's Liens with respect to the Collateral.
"Maturity Date" means August 12, 2000.
"Maximum Amount" means, as of the date of determination, the sum of (a) the
Maximum Revolving Amount, and (b) the then outstanding principal balance of the
Term Loans.
"Maximum Revolving Amount" means $85,000,000.
"Mortgage" means any mortgage, deeds of trust, or deed to secure debt,
executed by Borrower or a Subsidiary of Borrower in favor of Agent, the form and
substance of which shall be satisfactory to the Lender Group.
"Multiemployer Plan" means a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any ERISA
Affiliate has contributed, or was obligated to contribute, within the past six
(6) years.
"Nationwide Team Sales" means Nationwide Team Sales, Inc., a Florida
corporation.
"Nationwide Team Sales Note" means that certain promissory note of even
date herewith from Nationwide Team Sales to Borrower which note is secured by
substantially all of the assets of Nationwide Team Sales.
<PAGE>
"Negotiable Collateral" means all of Borrower's present and future letters
of credit, notes, drafts, instruments, investment property, security
entitlements, securities (including the shares of stock of Subsidiaries of
Borrower), documents, personal property leases (wherein Borrower is the lessor),
chattel paper, and Borrower's Books relating to any of the foregoing. For
purposes of the definition of "Collateral", "Negotiable Collateral" means all of
Borrower's and its Primary Subsidiaries' present and future letters of credit,
notes, drafts, instruments, investment property, security entitlements,
securities (including the shares of stock of Subsidiaries of Borrower and its
Primary Subsidiaries), documents, personal property leases (wherein Borrower and
its Primary Subsidiaries are the lessor), chattel paper, and Borrower's Books
(of Borrower and its Primary Subsidiaries) relating to any of the foregoing.
"Net Proceeds" means (a) with respect to Primary Real Estate, the net cash
or cash equivalent proceeds from the sale of such Primary Real Estate after
payment of reasonable selling costs and expenses not to exceed ten percent (10%)
of the gross proceeds from such sale, and (b) with respect to Secondary Real
Estate, the net cash or cash equivalent proceeds from the sale of such Secondary
Real Estate after payment of reasonable selling costs and expenses not to exceed
ten percent (10%) of the gross proceeds from such sale and after satisfaction of
any mortgage or other Lien on such Secondary Real Estate.
"Obligations" means all loans, Advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations under any outstanding
Letters of Credit, fees (including Deferred Closing Fees), liabilities
(including all amounts charged to Borrower's Loan Account pursuant hereto),
obligations, or Lender Group Expenses (including any fees or expenses that, but
for the provisions of the Bankruptcy Code, would have accrued), lease payments,
guaranties, covenants, and duties owing by Borrower to the Lender Group of any
kind and description (whether pursuant to or evidenced by the Loan Documents or
pursuant to any other agreement between the Lender Group and Borrower, and
irrespective of whether for the payment of money), whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including any debt, liability, or obligation owing from Borrower to others
that the Lender Group may have obtained by assignment or otherwise, and further
including all interest not paid when due and all Lender Group Expenses that
Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"One Turn State" means any state or other jurisdiction under whose
statutory or common law the relative priority of the rights of a landlord in
assets of that landlord's tenant, for unpaid rent, vis a vis the rights of the
holder of a perfected security interest therein is dependent upon whether such
security interest arose prior to or subsequent to the subject asset's coming
onto the demised premises.
"Originating Lender" has the meaning set forth in Section 15.1(e).
"Overadvance" has the meaning set forth in Section 2.6.
<PAGE>
"Oversight Agent" means Paragon Capital LLC, a Delaware limited liability
company, or such other "Oversight Agent" designated by Agent.
"Oversight Agent Agreement" means that certain Oversight Agent Agreement of
even date herewith among the Oversight Agent and Agent.
"Participant" has the meaning set forth in Section 15.1(e).
"PBGC" means the Pension Benefit Guaranty Corporation as defined in Title
IV of ERISA, or any successor thereto.
"Permitted Liens" means (a) Liens held by the Lender Group, (b) Liens for
unpaid taxes (i) that are not yet due and payable or (ii) that are the subject
of Permitted Protests or (iii) with respect to which Borrower's failure to pay
such taxes is permitted by the Bankruptcy Code or an order of the Court after
notice and a hearing or (iv) with respect to which Borrower's failure to pay
such taxes is consented to in writing by the holders of such tax claims and
written notice thereof is provided to Agent or (v) with respect to which
Borrower's failure to pay such taxes is consented to in writing by the Required
Lenders, (c) Liens set forth on Schedule P-1, (d) the interests of lessors under
operating leases (e) purchase money security interests and Liens of lessors
under capital leases securing Indebtedness in an aggregate amount not to exceed
$1,000,000 at any time and so long as the Lien only attaches to the asset
purchased or acquired and only secures the purchase price of the asset, (f)
Liens arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course
of business of Borrower and not in connection with the borrowing of money, and
which Liens either (i) are for sums not yet due and payable, or (ii) are the
subject of Permitted Protests, (g) Liens arising from deposits made in
connection with obtaining worker's compensation or other unemployment insurance,
(h) Liens or deposits to secure performance of bids, tenders, or leases (to the
extent permitted under this Agreement), incurred in the ordinary course of
business of Borrower and not in connection with the borrowing of money, (i)
Liens arising by reason of security for surety or appeal bonds in the ordinary
course of business of Borrower, (j) Liens with respect to the Real Property
Collateral that are exceptions to the commitments for title insurance issued in
connection with the Mortgages, as accepted by Agent, (k) with respect to any
Real Property that is not part of the Real Property Collateral, easements,
rights of way, zoning and similar covenants and restrictions, and similar
encumbrances that customarily exist on properties of Persons engaged in similar
activities and similarly situated and that in any event do not materially
interfere with or impair the use or operation of the Collateral by Borrower or
the value of the Lender Group's Lien thereon or therein, or materially interfere
with the ordinary conduct of the business of Borrower, and (l) with respect to
Secondary Real Estate, Liens of mortgagees listed on Schedule P-2.
<PAGE>
"Permitted Protest" means the right of Borrower to protest any Lien (other
than any such Lien that secures the Obligations), tax (other than payroll taxes
or taxes that are the subject of a United States federal tax lien), or rental
payment, provided that (a) a reserve with respect to such obligation is
established on the books of Borrower in an amount that is reasonably
satisfactory to Agent, (b) any such protest is instituted and diligently
prosecuted by Borrower in good faith, and (c) Agent is satisfied that, while any
such protest is pending, there will be no impairment of the enforceability,
validity, or priority of any of the Liens of the Lender Group in and to the
Collateral.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than the Real
Property Collateral.
"Plan" means any employee benefit plan, program, or arrangement maintained
or contributed to by Borrower or with respect to which it may incur liability.
"Pre-Relief Date Loan Agreement" has the meaning set forth in the second
recital paragraph hereto.
"Primary Real Estate" means the Real Property described on Schedule R-1 and
any other Real Property acquired by Borrower or any Subsidiary of Borrower after
the Closing Date.
"Primary Subsidiaries" means, with respect to Borrower, all of its
Subsidiaries other than Property Holdings, the Real Estate Trusts and Nationwide
Team Sales.
"Pro-Rata Share" means, with respect to a Lender, a fraction (expressed as
a percentage), the numerator of which is the amount of such Lender's Commitment
and the denominator of which is the aggregate amount of the Commitments.
"Property Holdings" means Property Holdings Company I, a Florida
corporation.
"Real Estate Indebtedness" means the Indebtedness secured by the Secondary
Real Estate, as described on Schedule 7.1.
"Real Estate Trusts" means the business trusts listed on Schedule T-1.
"Real Property" means any estates or interests in real property now owned
or hereafter acquired by Borrower or any Subsidiary of Borrower.
<PAGE>
"Real Property Collateral" means the Primary Real Estate.
"Reference Rate" means the variable rate of interest, per annum, most
recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its Abase rate," irrespective of whether such announced
rate is the best rate available from such financial institution.
"Reference Rate Loan" means any Advance or the Tranche A Term Loans (or any
portion thereof) made or outstanding hereunder during any period when interest
on such Advance or the Tranche A Term Loans (or portion thereof) is payable
based on the Reference Rate.
"Release Price" means, with respect to any of the Primary Real Estate,
ninety percent (90%) of the Appraised Value of such Primary Real Estate.
"Relief Date" has the meaning set forth in the first recital paragraph
hereto.
"Reportable Event" means any of the events described in Section 4043(c) of
ERISA or the regulations thereunder other than a Reportable Event as to which
the provision of thirty (30) days notice to the PBGC is waived under applicable
regulations.
"Required Lenders" means, at any time, Lenders whose Pro-Rata Shares
aggregate sixty-six and two-thirds percent (66b%) or more of the Commitments.
"Requirement of Law" means, as to any Person: all (a) (i) statutes and
regulations and (ii) court orders and injunctions, arbitrators' decisions,
and/or similar rulings, in each instance by any governmental authority, or other
body which has jurisdiction over such Person, or any property of such Person, or
of any other Person whose conduct such Person would be responsible and (b) that
Person's organizational documents, by-laws and/or other instruments which deal
with corporate or similar governance, as applicable.
"Reserve Percentage" means and refers to, as of the date of determination
thereof, the maximum percentage (rounded upward, if necessary to the nearest
1/100th of one percent (1%)), as determined by Agent (or its Affiliates) in
accordance with its (or their ) usual procedures (which determination shall be
conclusive in the absence of manifest error), that is in effect on such date as
prescribed by the Federal Reserve Board for determining the reserve requirements
(including supplemental, marginal, and emergency reserve requirements) with
respect to eurocurrency funding (currently referred to as "eurocurrency
liabilities") by Norwest Bank Minnesota, National Association or its Affiliates.
<PAGE>
"Retiree Health Plan" means an "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"Revolving Facility Usage" means, as of any date of determination, the
aggregate amount of Advances and undrawn or unreimbursed Letters of Credit
outstanding.
"RSL" means the retail stock ledger of Borrower.
"Secondary Real Estate A means the Real Property described on Schedule R-2.
"Senior Claims" means those pre-Relief Date claims or liens set forth on
Schedule S-1 attached hereto, if any, that have priority over, or are pari passu
with, the claims and Liens of Agent on behalf of the Lenders, to the extent
allowed by the Bankruptcy Court or in any plan of reorganization consented to by
the Lenders.
"Settlement" has the meaning set forth in Section 2.1(i)(i).
"Settlement Date" has the meaning set forth in Section 2.1(i)(i).
"Solvent" means, with respect to any Person on a particular date, that on
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Stock Pledge Agreement" means that certain Stock Pledge Agreement of even
date herewith among Borrower and Agent, in form and substance satisfactory to
the Lender Group.
<PAGE>
"Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors (or appoint
other comparable managers) of such corporation, partnership, limited liability
company, or other entity and, with respect to Borrower, (a) shall be deemed to
include without limitation the Real Estate Trusts and, (b) shall include without
limitation Property Holdings, Sports & Recreation Holdings of PA, Inc., a
Delaware corporation, Guide Series, Inc., a Florida corporation, Construction
Resolution, Inc., a Florida corporation, Sports & Recreation, Inc., a Florida
corporation, Retail Process Management, Inc., a Florida corporation, and
Nationwide Team Sales.
"Subsidiary Guaranty Agreement" means that certain Subsidiary Guaranty of
even date herewith from Borrower's Primary Subsidiaries and Property Holdings to
Agent, in form and substance satisfactory to the Lender Group.
"Subsidiary Security Agreement" means that certain Subsidiary Security
Agreement of even date herewith among Borrower's Primary Subsidiaries and Agent,
in form and substance satisfactory to the Lender Group.
"Term Loans" means, collectively, the Tranche A Term Loans and the Tranche
B Term Loans.
"Termination Date" has the meaning set forth in Section 3.4.
"Trademark Security Agreement" means that certain Trademark Security
Agreement of even date herewith among Borrower, Guide Series, Inc., a Florida
corporation, and Agent, in form and substance satisfactory to the Lender Group.
"Tranche A Commitment" means, at any time with respect to a Lender, the
principal amount set forth beside such Lender's name under the heading "Tranche
A Commitment" on Schedule C-1 or on Schedule 1 to the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder in accordance with the
provisions of Section 15.1, as such Tranche A Commitment may be adjusted from
time to time in accordance with the provisions of Section 15.1 and "Tranche A
Commitments" means, collectively, the aggregate amount of the Tranche A
Commitments of all Lenders.
"Tranche A Commitment Fee" has the meaning set forth in Section 2.12(a)).
"Tranche A Commitment Fee Second Installment" has the meaning set forth in
Section 2.12(a)).
"Tranche A Lender" means any Lender who has a Tranche A Commitment.
<PAGE>
"Tranche A Pro-Rata Share" means, with respect to a Lender, a fraction
(expressed as a percentage), the numerator of which is the amount of such
Lender's Tranche A Commitment and the denominator of which is the aggregate
amount of the Tranche A Commitments.
"Tranche A Term Loans" has the meaning set forth in Section 2.3(a)).
"Tranche B Commitment" means, at any time with respect to a Lender, the
principal amount set forth beside such Lender's name under the heading "Tranche
B Commitment" on Schedule C-1 or on Schedule 1 to the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder in accordance with the
provisions of Section 15.1, as such Tranche B Commitment may be adjusted from
time to time in accordance with the provisions of Section 15.1 and "Tranche B
Commitments" means, collectively, the aggregate amount of the Tranche B
Commitments of all Lenders.
"Tranche B Commitment Fee" has the meaning set forth in Section 2.12(b).
"Tranche B Lender" means any Lender who has a Tranche B Commitment.
"Tranche B Pro-Rata Share" means, with respect to a Lender, a fraction
(expressed as a percentage), the numerator of which is the amount of such
Lender's Tranche B Commitment and the denominator of which is the aggregate
amount of the Tranche B Commitments.
"Tranche B Term Loans" has the meaning set forth in Section 2.4(a)).
"Voidable Transfer" has the meaning set forth in Section 18.6.
1.2. All accounting terms not specifically defined herein shall be
construed in accordance with GAAP. When used herein, the term "financial
statements" shall include the notes and schedules thereto. Whenever the term
"Borrower" is used in respect of a financial covenant or a related definition,
it shall be understood to mean Borrower on a consolidated basis unless the
context clearly requires otherwise.
1.3. Any terms used in this Agreement that are defined in the Code shall be
construed and defined as set forth in the Code unless otherwise defined herein.
<PAGE>
1.4. Unless the context of this Agreement clearly requires otherwise,
references to the plural include the singular, references to the singular
include the plural, the term "including" is not limiting, and the term "or" has,
except where otherwise indicated, the inclusive meaning represented by the
phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. An Event of Default shall "continue"
or be "continuing" until such Event of Default has been waived in writing by the
requisite members of the Lender Group or by Agent upon the direction by the
requisite members of the Lender Group. Section, subsection, clause, schedule,
and exhibit references are to this Agreement unless otherwise specified. Any
reference in this Agreement or in the Loan Documents to this Agreement or any of
the Loan Documents shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, and
supplements, thereto and thereof, as applicable.
1.5 Schedules and Exhibits. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances
(a) Subject to the terms and conditions of this Agreement, each Tranche A
Lender agrees to make advances "Advances") to Borrower in an amount at any one
time outstanding not to exceed such Tranche A Lender's Pro-Rata Share of an
amount equal to the lesser of (a)) the Maximum Revolving Amount, less the
outstanding balance of all undrawn or unreimbursed Letters of Credit, or (B) the
Borrowing Base, less (x) the aggregate amount of all undrawn or unreimbursed
Letters of Credit (other than Inventory Letters of Credit), less (y) the sum of
(a)a twenty-five and one-half of one percent (25.5%) of the aggregate amount of
all undrawn or unreimbursed Inventory Letters of Credit, and (bb) freight and
duty charges applicable thereto, less (z) the aggregate amount of the
Availability Reserves. For purposes of this Agreement, "Borrowing Base", as of
any date of determination, shall mean the result of:
(I) the lesser of (i) $2,500,000 or (ii) eighty percent (80%) of Eligible
Accounts, less the amount, if any, of the Dilution Reserve, plus
(II) the lesser of (i) the Maximum Revolving Amount, less the amount of
availability created under subsection (I) above, (ii) seventy-four and one-half
of one percent (74.5%) of the lower of Cost or market value (determined based on
the RSL) of Eligible Inventory, or (iii) ninety percent (90%) of the most
recently determined GOB Appraised Value of the Cost (determined based on the
RSL) of Inventory, minus
(III) the aggregate amount of reserves, if any, established by Agent under
Sections 2.1(b), 6.15 and 10.
<PAGE>
(b) Anything to the contrary in Section 2.1(a) above notwithstanding, (i)
Agent may create reserves against or reduce its advance rates based upon
Eligible Accounts or Eligible Inventory without declaring an Event of Default if
it determines that there has occurred a Default or a Material Adverse Change,
(ii) Agent may create reserves for the Carve-Out Amount, (iii) Agent may create
reserves in the amount of any claims allowed by order of the Court pursuant to
Section 506(c) of the Bankruptcy Code which will be charged against the
Collateral or the Lenders, (iv) Agent may create reserves in the amount of any
unpaid post-Relief Date rent or other amounts due under any real property leases
of Borrower except to the extent (a) Borrower's failure to pay such post-Relief
Date rent or other amounts due is permitted by the Bankruptcy Code or by order
of the Court after notice and a hearing, or (B) Borrower's failure to pay such
post-Relief Date rent or other amounts due is consented to in writing by the
applicable lessors and written notice thereof is provided to Agent or (C)
Borrower's failure to pay such post-Relief Date rent or other amounts due is
consented to in writing by the Required Lenders, and (v) Agent may create
reserves in the amount of any unpaid post-Relief Date taxes or other similar
charges owed by Borrower except to the extent (a) such taxes or other similar
charges are the subject of a Permitted Protest, or (B) Borrower's failure to pay
such taxes or other similar charges is permitted by the Bankruptcy Code or by
order of the Court after notice and a hearing, or (C) Borrower's failure to pay
such taxes or other similar charges is consented to in writing by the holders of
such claims and written notice thereof is provided to Agent, or (D) Borrower's
failure to pay such taxes or other similar charges is consented to in writing by
the Required Lenders.
(c) Amounts borrowed pursuant to this Section 2.1 may be repaid and,
subject to the terms and conditions of this Agreement, reborrowed at any time
during the term of this Agreement.
(d) Procedure for Borrowing. Each Borrowing shall be made upon Borrower's
irrevocable request therefor delivered to Agent (which notice must be received
by Agent no later than 1:00 p.m. (Atlanta, Georgia time) on the Funding Date if
such advance is for $5,000,000 or less or no later than 1:00 p.m. (Atlanta,
Georgia time) on the Business Day immediately preceding the requested Funding
Date if such advance is for more than $5,000,000) specifying (i) the amount of
the Borrowing; and (ii) the requested Funding Date, which shall be a Business
Day.
(e) Agent's Election. Promptly after receipt of a request for a Borrowing
pursuant to Section 2.1(d) in excess of $5,000,000, Agent shall elect, in its
discretion, (i) to have the terms of Section 2.1(f) apply to such requested
Borrowing, or (ii) to make an Agent Loan pursuant to the terms of Section 2.1(g)
in the amount of the requested Borrowing. Any requested Borrowing of $5,000,000
or less shall be made as an Agent Loan pursuant to the terms of Section 2.1(g).
(f) Making of Advances.
<PAGE>
(i) In the event that Agent shall elect to have the terms of this Section
2.1(f) apply to a requested Borrowing in excess of $5,000,000 as described in
Section 2.1(e), then promptly after receipt of a request for a Borrowing
pursuant to Section 2.1(d), Agent shall notify the Lenders, not later than 4:00
p.m. (Atlanta, Georgia time) on the Business Day immediately preceding the
Funding Date applicable thereto, by telephone and promptly followed by telecopy,
or other similar form of transmission, of the requested Borrowing. Each Tranche
A Lender shall make the amount of such Tranche A Lender's Pro-Rata Share of the
requested Borrowing available to Agent in same day funds, to such account of
Agent as Agent may designate, not later than 3:00 p.m. (Atlanta, Georgia time)
on the Funding Date applicable thereto. After Agent's receipt of the proceeds of
such Advances, upon satisfaction of the applicable conditions precedent set
forth in Sections 3.1 (with respect to the initial funding on the Closing Date)
and 3.2, Agent shall make the proceeds of such Advances available to Borrower on
the applicable Funding Date by transferring same day funds equal to the proceeds
of such Advances received by Agent to the Designated Account; provided, however,
that, subject to the provisions of Section 2.1(l), Agent shall not request any
Tranche A Lender to make, and no Tranche A Lender shall have the obligation to
make, any Advance if Agent shall have received written notice from any Lender,
or otherwise has actual knowledge, that one or more of the applicable conditions
precedent set forth in Sections 3.1 (with respect to the initial funding on the
Closing Date) or 3.2 will not be satisfied on the requested Funding Date for the
applicable Borrowing; provided further, however, that, subject to the provisions
of Section 2.1(l), Agent shall not request any Tranche A Lender to make, and no
Tranche A Lender shall have the obligation to make, any Advance if Agent shall
have received written notice from any Lender, or otherwise has knowledge that
the requested Advance would result in the outstanding Advances and Letters of
Credit exceeding the Availability on such Funding Date.
<PAGE>
(ii) Unless Agent receives notice from a Tranche A Lender with respect to
any Borrowing after the Closing Date, at least one Business Day prior to the
date of such Borrowing, that such Tranche A Lender will not make available as
and when required hereunder to Agent for the account of Borrower the amount of
that Tranche A Lender's Pro-Rata Share of the Borrowing as to Borrowings to
which this Section 2.1(f) applies, Agent may assume that each Tranche A Lender
has made or will make such amount available to Agent in immediately available
funds on the Funding Date and Agent may (but shall not be so required), in
reliance upon such assumption, make available to Borrower on such date a
corresponding amount. If and to the extent any Tranche A Lender shall not have
made its full amount available to Agent in immediately available funds and Agent
in such circumstances has made available to Borrower such amount, that Tranche A
Lender shall on the Business Day following such Funding Date make such amount
available to Agent, together with interest at the Defaulting Lenders Rate for
each day during such period. A notice from Agent submitted to any Tranche A
Lender with respect to amounts owing under this subsection shall be conclusive,
absent manifest error. If such amount is paid to Agent such payment to Agent
shall constitute such Tranche A Lender's Advance on the date of Borrowing for
all purposes of this Agreement. If such amount is not paid to Agent on the
Business Day following the Funding Date, Agent will notify Borrower of such
failure to fund and, upon demand by Agent, Borrower shall pay such amount to
Agent for Agent's account, together with interest thereon for each day elapsed
since the date of such Borrowing, at a rate per annum equal to the interest rate
applicable at the time to the Advances composing such Borrowing. The failure of
any Tranche A Lender to make any Advance on any Funding Date shall not relieve
any other Tranche A Lender of any obligation hereunder to make an Advance on
such Funding Date, but no Tranche A Lender shall be responsible for the failure
of any other Tranche A Lender to make the Advance to be made by such other
Tranche A Lender on any Funding Date. Any Tranche A Lender that fails to make
any Advance that it is required to make hereunder on any Funding Date and that
has not cured such failure by making such Advance within one Business Day after
written demand upon it by Agent to do so, shall constitute a "Defaulting Lender"
for purposes of this Agreement until such Advance is made.
(iii) Agent shall not be obligated to transfer to a Defaulting Lender any
payments made by Borrower to Agent for the Defaulting Lender's benefit; nor
shall a Defaulting Lender be entitled to the sharing of any payments hereunder.
Amounts payable to a Defaulting Lender shall instead be paid to or retained by
Agent. Agent may hold and, in its discretion, re-lend to Borrower the amount of
all such payments received or retained by it for the account of such Defaulting
Lender. Solely for the purposes of voting or consenting to matters with respect
to the Loan Documents and determining Pro-Rata Shares, such Defaulting Lender
shall be deemed not to be a "Lender" and such Defaulting Lender's Commitment
shall be deemed to be zero. This section shall remain effective with respect to
such Defaulting Lender until (a)) the Obligations under this Agreement shall
have been declared or shall have become immediately due and payable or (B) the
requisite non-Defaulting Lenders, Agent, and Borrower shall have waived such
Defaulting Lender's default in writing. The operation of this section shall not
be construed to increase or otherwise affect the Commitment of any
non-Defaulting Lender, or relieve or excuse the performance by Borrower or its
Subsidiaries or any guarantor of the Obligations or their duties and obligations
hereunder.
(g) Making of Agent Loans.
<PAGE>
(i) In the event Agent shall elect to have the terms of this Section 2.1(g)
apply to a requested Borrowing in excess of $5,000,000 as described in Section
2.1(e) or in the event of any requested Borrowing of $5,000,000 or less, Agent
shall make an Advance in the amount of such Borrowing (any such Advance made
solely by Agent pursuant to this Section 2.1(g) being referred to as an "Agent
Loan" and such Advances being referred to collectively as "Agent Loans")
available to Borrower on the Funding Date applicable thereto by transferring
same day funds to Borrower's Designated Account. Each Agent Loan is an Advance
hereunder and shall be subject to all the terms and conditions applicable to
other Advances, except that all payments thereon shall be payable to Agent
solely for its own account (and for the account of the holder of any
participation interest with respect to such Advance). Subject to the provisions
of Section 2.1(l), Agent shall not make any Agent Loan if Agent shall have
received written notice from any Lender (a) copy of which will be provided to
Borrower), or otherwise has actual knowledge, that (i) one or more of the
applicable conditions precedent set forth in Section 3.1 (with respect to the
initial funding on the Closing Date) or 3.2 will not be satisfied on the
requested Funding Date for the applicable Borrowing, or (ii) the requested
Borrowing would result in the Advances and the Letters of Credit exceeding the
Availability on such Funding Date. Agent shall not otherwise be required to
determine whether the applicable conditions precedent set forth in Section 3.1
or 3.2 have been satisfied on the Funding Date applicable thereto prior to
making, in its sole discretion, any Agent Loan.
(ii) The Agent Loans shall be secured by the Collateral and shall
constitute Advances and Obligations hereunder, and shall bear interest at the
rate applicable from time to time to Advances pursuant to Section 2.7.
(h) Agent Advances.
(i) Agent hereby is authorized by Borrower and the Lenders, from time to
time in Agent's sole discretion, (1) after the occurrence of a Default or an
Event of Default (but without constituting a waiver of such Default or Event of
Default), or (2) at any time that any of the other applicable conditions
precedent set forth in Section 3.1 or 3.2 have not been satisfied, or (3) at any
time there is no Availability, to make Advances to Borrower on behalf of the
Lenders which Agent, in its reasonable business judgment, deems necessary or
desirable (a) to preserve or protect the Collateral, or any portion thereof, (B)
to enhance the likelihood of, or maximize the amount of, repayment of the
Obligations, or (C) to pay any other amount chargeable to Borrower pursuant to
the terms of this Agreement, including Lender Group Expenses and the costs,
fees, and expenses described in Section 10 (any of the Advances described in
this Section 2.1(h) being hereinafter referred to as "Agent Advances");
provided, that Agent shall not make any Agent Advances to Borrower without the
consent of the Required Lenders if the amount thereof would exceed $3,000,000 in
the aggregate at any one time.
(ii) Agent Advances shall be repayable on demand and secured by the
Collateral, shall constitute Advances and Obligations hereunder, and shall bear
interest at the rate applicable from time to time to the Obligations pursuant to
Section 2.7.
(i) Settlement. It is agreed that each Tranche A Lender's funded portion of
the Advances is intended by the Tranche A Lenders to be equal at all times to
such Tranche A Lender's Tranche A Pro-Rata Share of the outstanding Advances.
Such agreement notwithstanding, Agent and the Lenders agree (which agreement
shall not be for the benefit of or enforceable by Borrower) that in order to
facilitate the administration of this Agreement and the other Loan Documents,
settlement among them as to the Advances, the Agent Loans, and the Agent
Advances shall take place on a periodic basis in accordance with the following
provisions:
<PAGE>
(i) Agent shall request settlement ("Settlement") with the Lenders on a
weekly basis, or on a more frequent basis if so determined by Agent, (1) for
itself, with respect to each Agent Loan and Agent Advance, and (2) with respect
to Collections received, as to each by notifying the Lenders by telephone and
promptly followed by telecopy, or other similar form of transmission, of such
requested Settlement, no later than 4:00 p.m. (Atlanta, Georgia time) on the
Business Date immediately preceding the date of such requested Settlement (the
"Settlement Date"). Such notice of a Settlement Date shall include a summary
statement of the amount of outstanding Advances, Term Loans, Agent Loans, and
Agent Advances for the period since the prior Settlement Date, the amount of
repayments received in such period, and the amounts allocated to each Lender of
the principal, interest, fees, and other charges for such period. Subject to the
terms and conditions contained herein (including Section 2.1(i)(ii)): (y) if (a)
a Tranche A Lender's balance of the Advances, Tranche A Term Loans, Agent
Advances and Agent Loans is less than such Lender's Tranche A Pro-Rata Share of
the Advances, Tranche A Term Loans, Agent Advances and Agent Loans, or (B) a
Tranche B Lender's balance of the Tranche B Term Loans is less than such
Lender's Tranche B Pro-Rata Share of the Tranche B Term Loans, then such Lender
shall by no later than 3:00 p.m. (Atlanta, Georgia time) on the Settlement Date
transfer in same day funds to the account of Agent as Agent may designate, an
amount such that each Lender shall, upon receipt of such amount, have as of the
Settlement Date, its Tranche A Pro-Rata Share of all Advances, Tranche A Term
Loans, Agent Advances and Agent Loans, and its Tranche B Pro-Rata Share of all
Tranche B Term Loans; and (z) if (a) a Tranche A Lender's balance of the
Advances, Tranche A Term Loans, Agent Advances and Agent Loans exceeds such
Lender's Tranche A Pro-Rata Share of the Advances, Tranche A Term Loans, Agent
Advances and Agent Loans, or (B) a Tranche B Lender's balance of the Tranche B
Term Loans exceeds such Lender's Tranche B Pro-Rata Share of the Tranche B Term
Loans, then Agent shall by no later than 4:00 p.m. (Atlanta, Georgia time) on
the Settlement Date transfer in same day funds to the account of such Lender as
such Lender may designate, an amount such that each Lender shall, upon receipt
of such amount, have as of the Settlement Date, its Tranche A Pro-Rata Share of
all Advances, Tranche A Term Loans, Agent Advances and Agent Loans, and its
Tranche B Pro-Rata Share of all Tranche B Term Loans; provided, however, that
notwithstanding the foregoing or anything in this Agreement which may be
construed to the contrary, all Agent Advances made at any time when the Tranche
A Commitment has not been terminated or there remain outstanding Advances or
Tranche A Term Loans shall be allocated to and reimbursed by the Tranche A
Lenders in accordance with their Tranche A Pro Rata Shares and all Agent
Advances made at any time thereafter shall be allocated to and reimbursed by the
Tranche B Lenders in accordance with their respective Tranche B Pro-Rata Shares.
Amounts made available to Agent under clause (y) of the immediately preceding
sentence shall be applied against the amounts of the applicable Agent Loan or
Agent Advance and, together with the portion of such Agent Loan or Agent Advance
representing Foothill's Pro-Rata Share, Tranche A Pro-Rata Share or Tranche B
Pro-Rata Share, as the case may be, thereof, shall constitute Advances of such
Lenders. If any such amount is not made available to Agent by any Lender on the
Settlement Date applicable thereto to the extent required by the terms hereof,
Agent shall be entitled to recover for its account such amount on demand from
such Lender together with interest thereon at the Defaulting Lenders Rate.
<PAGE>
(ii) In determining whether a Lender's balance of the Advances, Term Loans,
Agent Loans, and Agent Advances is less than, equal to, or greater than such
Lender's Tranche A Pro-Rata Share or Tranche B Pro-Rata Share, as the case may
be, of the Advances, Term Loans, Agent Loans, and Agent Advances as of a
Settlement Date, Agent shall, as part of the relevant Settlement, apply to such
balance the portion of payments actually received by Agent with respect to
principal, interest, fees payable by Borrower and allocable to the Lenders
hereunder, and proceeds of Collateral. To the extent that a net amount is owed
to any such Lender after such application, such net amount shall be distributed
by Agent to that Lender as part of such Settlement; provided, however, that the
commitment fee payable by Borrower under Section 2.12(a) shall be distributed to
the Lenders within three Business Days following the Closing Date without regard
to the netting of amounts owing to or owed by any Lender as part of a
Settlement.
(iii) Between Settlement Dates, Agent, to the extent no Agent Advances or
Agent Loans are outstanding, may pay over to Foothill any payments received by
Agent, which in accordance with the terms of the Agreement would be applied to
the reduction of the Advances, for application to Foothill's Tranche A Pro-Rata
Share of the Advances. If, as of any Settlement Date, Collections received since
the then immediately preceding Settlement Date have been applied to Foothill's
Tranche A Pro-Rata Share of the Advances other than to Agent Loans or Agent
Advances, as provided for in the previous sentence, Foothill shall pay to Agent
for the accounts of the Lenders, and Agent shall pay to the Lenders, to be
applied to the outstanding Advances of such Lenders, an amount such that each
Lender shall, upon receipt of such amount, have, as of such Settlement Date, its
Tranche A Pro-Rata Share of the Advances. During the period between Settlement
Dates, Agent with respect to Agent Loans and Agent Advances, and each Lender
with respect to the Term Loans, and each Tranche A Lender with respect to the
Advances other than Agent Loans and Agent Advances, shall be entitled to
interest at the applicable rate or rates payable under this Agreement on the
daily amount of funds employed by Agent or the Lenders, as applicable.
(j) Notation. Agent shall record on its books the principal amount of the
Term Loans, and the Advances owing to each Lender, including the Agent Loans and
Agent Advances owing to Agent, and the interests therein of each Lender, from
time to time. In addition, each Lender is authorized, at such Lender's option,
to note the date and amount of each payment or prepayment of principal of such
Lender's Term Loan, and Advances in its books and records, including computer
records, such books and records constituting rebuttably presumptive evidence,
absent manifest error, of the accuracy of the information contained therein.
<PAGE>
(k) Lenders' Failure to Perform. All Advances (other than Agent Loans and
Agent Advances) shall be made by the Tranche A Lenders simultaneously and in
accordance with their Tranche A Pro-Rata Shares. It is understood that (i) no
Lender shall be responsible for any failure by any other Lender to perform its
obligation to make any Advances hereunder, nor shall any Commitment of any
Lender be increased or decreased as a result of any failure by any other Lender
to perform its obligation to make any Advances hereunder, and (ii) no failure by
any Lender to perform its obligation to make any Advances hereunder shall excuse
any other Lender from its obligation to make any Advances hereunder.
(l) Overadvances. (i) Agent may make voluntary Overadvances without the
written consent of the Required Lenders for amounts charged to the applicable
Loan Account for principal payments on the Term Loans, interest, fees or Lender
Group Expenses pursuant to Section 2.1(h)(i)(3)(C). If the conditions for
borrowing under Section 3.2 cannot be fulfilled, Agent may not knowingly and
intentionally continue to make Advances (including Agent Loans but excluding
Agent Advances pursuant to Section 2.1(h)) unless each of the following
conditions is satisfied: (1) after giving effect to any such Advances, the
Advances outstanding would not exceed the Borrowing Base by more than an amount
proposed by Agent and agreed to by the Lenders, (2) such Advances are made
pursuant to a plan (proposed by Agent and agreed to by the Lenders) for the
elimination of the Advances outstanding in excess of the Borrowing Base, (3) the
outstanding Revolving Facility Usage (except for and excluding amounts charged
to the applicable Loan Account for interest, fees, or Lender Group Expenses),
does not exceed the Maximum Revolving Amount and (4) Agent shall not make any
such voluntary Overadvance more than sixty (60) days after the date of the first
Overadvance each time Agent shall make or provide the same, provided, that, if
at any time within any such sixty (60) day period commencing on the date of the
first such Overadvance, the Advances and the outstanding Letters of Credit do
not exceed the Borrowing Base for thirty (30) consecutive days, then such sixty
(60) day period shall cease and recommence upon the next time that Agent may
make such Overadvance. The foregoing provisions are for the sole and exclusive
benefit of Agent and the Lenders and are not intended to benefit Borrower in any
way. The Agent Advances and Agent Loans, as applicable, that are made pursuant
to this Section 2.1(l) shall be subject to the same terms and conditions as any
other Agent Advance or Agent Loan, as applicable, except that the rate of
interest applicable thereto shall be the rates set forth in Section 2.7(c)(i)
without regard to the presence or absence of a Default or Event of Default;
provided, that the Required Lenders may, at any time, revoke Agent's
authorization contained in this Section 2.1(l) to make Overadvances (except for
and excluding amounts charged to the applicable Loan Account for interest, fees,
or Lender Group Expenses), any such revocation to be in writing and to become
effective upon Agent's receipt thereof; provided further, however, that the
making of such Overadvances shall not constitute a waiver of such Event of
Default arising therefrom.
<PAGE>
(ii) In the event Agent obtains actual knowledge that Revolving Facility
Usage exceeds the amount permitted by the preceding paragraph, regardless of the
amount of or reason for such excess, Agent shall notify Lenders as soon as
practicable (and prior to making any (or any further) intentional Overadvances
(except for and excluding amounts charged to the applicable Loan Account for
interest, fees, or Lender Group Expenses) unless Agent determines that prior
notice would result in imminent harm to the Collateral or its value), and
Lenders thereupon shall, together with Agent, jointly determine the terms of
arrangements that shall be implemented with Borrower intended to reduce, within
a reasonable time, the outstanding principal amount of the Advances to Borrower
to an amount permitted by the preceding paragraph. In the event any Lender
disagrees over the terms of reduction and/or repayment of any Overadvance, the
terms of reduction and/or repayment thereof shall be implemented according to
the determination of the Required Lenders.
(iii) Each Lender shall be obligated to settle with Agent as provided in
Section 2.1(i) and Section 2.1(l)(ii) for the amount of such Lender's Pro-Rata
Share, Tranche A Pro-Rata Share or Tranche B Pro-Rata Share, as the case may be,
of any unintentional Overadvances by Agent reported to such Lender, any
intentional Overadvances made as permitted under this Section 2.1(l), and any
Overadvances resulting from the charging to the applicable Loan Account of
interest, fees, or Lender Group Expenses.
2.2 Letters of Credit.
(a) Agreement to Cause Issuance; Amounts; Outside Expiration Date. Subject
to the terms and conditions of this Agreement, Agent agrees to issue letters of
credit for the account of Borrower (each, an "L/C") or to issue guarantees of
payment (each such guaranty, an "L/C Guaranty") with respect to letters of
credit issued by an issuing bank for the account of Borrower. Agent shall have
no obligation to issue a Letter of Credit if any of the following would result:
(i) the sum of twenty-five and one-half of one percent (25.5%) of the
aggregate amount of all undrawn and unreimbursed Inventory Letters of Credit,
plus freight and duty charges applicable thereto, plus one hundred percent
(100%) of the aggregate amount of all other types of undrawn and unreimbursed
Letters of Credit, would exceed the Borrowing Base less the amount of
outstanding Advances (including any Agent Advances and Agent Loans) less the
aggregate amount of Availability Reserves and reserves established under Section
2.1(b); or
(ii) the aggregate amount of all undrawn or unreimbursed Letters of Credit
(including Inventory Letters of Credit) would exceed the lower of: (x) the
Maximum Revolving Amount less the amount of outstanding Advances (including any
Agent Advances and Agent Loans) less the aggregate amount of Availability
Reserves and reserves established under Section 2.1(b); or (y) $10,000,000; or
(iii) the outstanding Obligations (other than under the Term Loans) would
exceed the Maximum Revolving Amount.
<PAGE>
Borrower expressly understands and agrees that Agent shall have no
obligation to arrange for the issuance by issuing banks of the letters of credit
that are to be the subject of L/C Guarantees. Borrower and the Lender Group
acknowledge and agree that certain of the letters of credit that are to be the
subject of L/C Guarantees may be outstanding on the Closing Date. Each Letter of
Credit shall have an expiry date no later than the date on which this Agreement
is scheduled to terminate under Section 3.4 (without regard to any potential
renewal term) and all such Letters of Credit shall be in form and substance
acceptable to Agent in its sole discretion. If the Tranche A Lenders are
obligated to advance funds under a Letter of Credit, Borrower immediately shall
reimburse such amount to Agent and, in the absence of such reimbursement, the
amount so advanced immediately and automatically shall be deemed to be a Advance
hereunder and, thereafter, shall bear interest at the rate then applicable to
Advances under Section 2.7.
(b) Indemnification. Borrower hereby agrees to indemnify, save, defend, and
hold the Tranche A Lenders harmless from any loss, cost, expense, or liability,
including payments made by the Tranche A Lenders, expenses, and reasonable
attorneys fees incurred by the Tranche A Lenders arising out of or in connection
with any Letter of Credit. Borrower agrees to be bound by the issuing bank's
regulations and interpretations of any letters of credit guarantied by the
Tranche A Lenders and opened to or for Borrower's account or by Agent's
interpretations of any Letter of Credit issued by Agent to or for Borrower's
account, even though this interpretation may be different from Borrower's own,
and Borrower understands and agrees that the Tranche A Lenders shall not be
liable for any error, negligence, or mistake, whether of omission or commission,
in following Borrower's instructions or those contained in the Letter of Credit
or any modifications, amendments, or supplements thereto. Borrower understands
that the L/C Guarantees may require the Tranche A Lenders to indemnify the
issuing bank for certain costs or liabilities arising out of claims by Borrower
against such issuing bank. Borrower hereby agrees to indemnify, save, defend,
and hold the Tranche A Lenders harmless with respect to any loss, cost, expense
(including reasonable attorneys fees), or liability incurred by the Tranche A
Lenders under any L/C Guaranty as a result of the Tranche A Lenders'
indemnification of any such issuing bank.
(c) Supporting Materials. Borrower hereby authorizes and directs any bank
that issues a letter of credit guaranteed by an L/C Guaranty to deliver to Agent
all instruments, documents, and other writings and property received by the
issuing bank pursuant to such letter of credit, and to accept and rely upon
Agent's instructions and agreements with respect to all matters arising in
connection with such letter of credit and the related application. Borrower may
or may not be the "applicant" or "account party" with respect to such letter of
credit.
(d) Costs of Letters of Credit. Any and all charges, commissions, fees, and
costs incurred by Agent relating to the letters of credit guaranteed by an L/C
Guaranty shall be considered Lender Group Expenses for purposes of this
Agreement and immediately shall be reimbursable by Borrower to Agent.
<PAGE>
(e) Cash Collateral. Immediately upon the termination of this Agreement,
Borrower agrees to either (i) provide cash collateral to be held by Agent in an
amount equal to 102% of the maximum amount of the Tranche A Lenders' obligations
under Letters of Credit, or (ii) cause to be delivered to Agent releases of all
of the Tranche A Lenders' obligations under outstanding Letters of Credit. At
Agent's discretion, any proceeds of Collateral received by Agent after the
occurrence and during the continuation of an Event of Default may be held as the
cash collateral required by this Section 2.2(e).
(f) Increased Costs. If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or application
by any governmental authority of any such applicable law, treaty, rule, or
regulation, or (ii) compliance by the issuing bank or the Tranche A Lenders with
any direction, request, or requirement (irrespective of whether having the force
of law) of any governmental authority or monetary authority including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve System
as from time to time in effect (and any successor thereto):
(i) any reserve, deposit, or similar requirement is or shall be imposed or
modified in respect of any Letters of Credit issued hereunder, or
(ii) there shall be imposed on the issuing bank or the Tranche A Lenders
any other condition regarding any letter of credit, or Letter of Credit, as
applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the
cost to the issuing bank or the Tranche A Lenders of issuing, making,
guaranteeing, or maintaining any letter of credit, or Letter of Credit, as
applicable, or to reduce the amount receivable in respect thereof by such
issuing bank or the Tranche A Lenders, then, and in any such case, Agent may, at
any time within a reasonable period after the additional cost is incurred or the
amount received is reduced, notify Borrower, and Borrower shall pay on demand
such amounts as the issuing bank or Agent may specify to be necessary to
compensate the issuing bank or Agent for such additional cost or reduced
receipt, together with interest on such amount from the date of such demand
until payment in full thereof at the rate set forth in Section 2.7(a)) or
(c)(i), as applicable. The determination by the issuing bank or Agent, as the
case may be, of any amount due pursuant to this Section 2.2(f), as set forth in
a certificate setting forth the calculation thereof in reasonable detail, and
delivered to Borrower upon completion thereof, shall, in the absence of manifest
or demonstrable error, be final and conclusive and binding on all of the parties
hereto.
(g) Participations.
(i) Purchase of Participations. Immediately upon issuance of any Letter of
Credit in accordance with this Section 2.2, each Tranche A Lender shall be
deemed to have irrevocably and unconditionally purchased and received without
recourse or warranty, an undivided interest and participation in the credit
support or enhancement provided through Agent to such issuer in connection with
the issuance of such Letter of Credit, equal to such Tranche A Lenders' Tranche
A Pro-Rata Share of the face amount of such Letter of Credit (including, without
limitation, all obligations of Borrower with respect thereto, and any security
therefor or guaranty pertaining thereto).
<PAGE>
(ii) Documentation. Upon the request of any Tranche A Lender, Agent shall
furnish to such Lender copies of any Letter of Credit, reimbursement agreements
executed in connection therewith, application for any Letter of Credit and
credit support or enhancement provided through Agent in connection with the
issuance of any Letter of Credit, and such other documentation as may reasonably
be requested by such Lender.
(iii) Obligations Irrevocable. The obligations of each Tranche A Lender to
make payments to Agent with respect to any Letter of Credit or with respect to
any credit support or enhancement provided through Agent with respect to a
Letter of Credit, and the obligations of Borrower to make payments to Agent, for
the account of the Tranche A Lenders, shall be irrevocable, not subject to any
qualification or exception whatsoever, including, without limitation, any of the
following circumstances:
(A) any lack of validity or enforceability of this Agreement or any of the
other Loan Documents;
(B) the existence of any claim, setoff, defense, or other right which any
Borrower may have at any time against a beneficiary named in a Letter of Credit
or any transferee of any Letter of Credit (or any Person for whom any such
transferee may be acting), any Lender, Agent, the issuer of such Letter of
Credit, or any other Person, whether in connection with this Agreement, any
Letter of Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transactions between such Borrower or any
other Person and the beneficiary named in any Letter of Credit);
(C) any draft, certificate, or any other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(D) the surrender or impairment of any security for the performance or
observance of any of the terms of any of the Loan Documents; or
(E) the occurrence of any Default or Event of Default.
2.3 Tranche A Term Loans
<PAGE>
(a) Several Tranche A Term Loans. Subject to the terms and conditions of
this Agreement, each Tranche A Lender severally agrees to make a term loan (each
a "Tranche A Term Loan" and collectively the "Tranche A Term Loans") to Borrower
in an amount equal to each such Tranche A Lender's Tranche A Pro-Rata Share of
$10,000,000. The Tranche A Term Loans shall be made as follows: (i) $9,715,000
shall be made on the Closing Date and (ii) $285,000 shall be made on the date
the Tranche A Commitment Fee Second Installment is due and payable. Each Tranche
A Lender shall make the amount of such Tranche A Lender's Tranche A Term Loan
(except for the portion of the Tranche A Term Loan representing the Tranche A
Commitment Fee attributable to such Lender) available to Agent in same day
funds, not later than 12:00 noon (Atlanta, Georgia time), on the Closing Date.
The portion of the Tranche A Term Loans representing each installment of the
Tranche A Commitment Fee shall be deemed to be advanced to Borrower on the
respective due dates therefor. After Agent's receipt of the proceeds of such
Tranche A Term Loans, upon satisfaction of the applicable conditions precedent
set forth in Sections 3.1 and 3.2, Agent shall make the proceeds of such Tranche
A Term Loans available to Borrower on the Closing Date by transferring same day
funds equal to the proceeds of such Tranche A Term Loans received by Agent to
the Designated Account. All amounts outstanding under the Tranche A Term Loans
shall constitute Obligations.
(b) Amortization. The Tranche A Term Loan of each Lender shall be repaid in
monthly installments of principal in the amount of such Tranche A Lender's
Tranche A Pro-Rata Share of $166,667. Each such installment shall be due and
payable on the first day of each month commencing on August 1, 1999 and
continuing on the first day of each succeeding month. The outstanding principal
balance of the Tranche A Term Loans, together with all accrued and unpaid
interest and fees thereon, shall be due and payable on the earlier of the
Maturity Date or the date of termination of this Agreement, whether by its
terms, by prepayment, by acceleration, or otherwise.
(c) Mandatory and Optional Prepayments of Tranche A Term Loans. Borrower
shall prepay the Tranche A Term Loans, without premium or penalty, from the GOB
Store Proceeds and from the Net Proceeds from the sale of the Real Property
Collateral and the Secondary Real Estate pursuant to the allocation of such GOB
Store Proceeds and Net Proceeds provided for in Section 2.5(b). The unpaid
principal balance of the Tranche A Term Loans may be prepaid in whole or in part
without penalty or premium (except as provided in Section 2.16) at any time
during the term of this Agreement upon thirty (30) days prior written notice by
Borrower to Agent. All partial prepayments of principal on the Tranche A Term
Loans will be applied ratably to installments due on each such Tranche A Term
Loan in the inverse order of their maturity.
2.4 Tranche B Term Loans.
<PAGE>
(a) Several Tranche B Term Loans. Subject to the terms and conditions of
this Agreement, each Tranche B Lender severally agrees to make a term loan (each
a "Tranche B Term Loan" and collectively the "Tranche B Term Loans") to Borrower
on the Closing Date, in an amount equal to each such Tranche B Lender's Tranche
B Pro-Rata Share of $15,000,000. Each Tranche B Lender shall make the amount of
such Tranche B Lender's Tranche B Term Loan (except for the portion of the
Tranche B Term Loan representing the Tranche B Commitment Fee attributable to
such Lender) available to Agent in same day funds, not later than 12:00 Noon
(Atlanta, Georgia time), on the Closing Date. The portion of the Tranche B Term
Loans representing the Tranche B Commitment Fee shall be deemed to be advanced
to Borrower on the Closing Date. After Agent's receipt of the proceeds of such
Tranche B Term Loans, upon satisfaction of the applicable conditions precedent
set forth in Sections 3.1 and 3.2, Agent shall make the proceeds of such Tranche
B Term Loans available to Borrower on the Closing Date by transferring same day
funds equal to the proceeds of such Tranche B Term Loans received by Agent to
the Designated Account. All amounts outstanding under the Tranche B Term Loans
shall constitute Obligations.
(b) Amortization. The Tranche B Term Loan of each Lender shall be repaid in
monthly installments of principal in the amount of such Tranche B Lender's
Tranche B Pro-Rata Share of $250,000. Each such installment shall be due and
payable on the first day of each month commencing on August 1, 1999 and
continuing on the first day of each succeeding month. The outstanding principal
balance of the Tranche B Term Loans, together with all accrued and unpaid
interest and fees thereon, shall be due and payable on the earlier of the
Maturity Date or the date of termination of this Agreement, whether by its
terms, by prepayment, by acceleration, or otherwise.
(c) Mandatory and Optional Prepayments of Tranche B Term Loans. Borrower
shall prepay the Tranche B Term Loans, without premium or penalty, from the Net
Proceeds from the sale of the Real Property Collateral and the Secondary Real
Estate pursuant to the allocation of such Net Proceeds provided for in Section
2.5(b). So long as the Tranche A Term Loans have been repaid in full, the unpaid
principal balance of the Tranche B Term Loans may be prepaid in whole or in part
without penalty or premium (except as provided in Section 2.16) at any time
during the term of this Agreement upon thirty (30) days prior written notice by
Borrower to Agent. All partial prepayments of principal on the Tranche B Term
Loans will be applied ratably to installments due on each such Tranche B Term
Loan in the inverse order of their maturity.
2.5 Payments
(a) Payments by Borrower.
(i) All payments to be made by Borrower shall be made without set-off,
recoupment, deduction, or counterclaim, except as otherwise required by law.
Except as otherwise expressly provided herein, all payments by Borrower shall be
made to Agent for the account of the Lenders or Agent, as the case may be, at
Agent's address set forth in Section 12, and shall be made in immediately
available funds, no later than 2:00 p.m. (Atlanta, Georgia time) on the date
specified herein. Any payment received by Agent later than 2:00 p.m. (Atlanta,
Georgia time), at the option of Agent, shall be deemed to have been received on
the following Business Day and any applicable interest or fee shall continue to
accrue until such following Business Day.
(ii) Whenever any payment is due on a day other than a Business Day, such
payment shall be made on the following Business Day, and such extension of time
shall in such case be included in the computation of interest or fees, as the
case may be.
<PAGE>
(iii) Unless Agent receives notice from Borrower prior to the date on which
any payment is due to the Lenders that Borrower will not make such payment in
full as and when required, Agent may assume that Borrower has made such payment
in full to Agent on such date in immediately available funds and Agent may (but
shall not be so required), in reliance upon such assumption, distribute to each
Lender on such due date an amount equal to the amount then due such Lender. If
and to the extent Borrower has not made such payment in full to Agent, each
Lender shall repay to Agent on demand such amount distributed to such Lender,
together with interest thereon at the Reference Rate for each day from the date
such amount is distributed to such Lender until the date repaid.
(b Apportionment and Application of Payments.
(i) Except as otherwise provided with respect to Defaulting Lenders,
aggregate principal and interest payments shall be apportioned ratably among the
Lenders (according to the unpaid principal balance of the Advances or Term
Loans to which such payments relate held by each Lender) and, payments of the
fees (other than fees designated for Agent's separate account and except as
specifically provided in Section 2.12) shall, as applicable, be apportioned
ratably among the Lenders. All payments shall be remitted to Agent.
(ii) Except upon the occurrence and during the continuance of an Event of
Default, all payments (other than payments specifically relating to principal or
interest on the Term Loans or specific Advances and payments of specific fees to
be applied to specific Term Loans or Advances, and other than payments from the
GOB Store Proceeds and the Net Proceeds of Primary Real Estate and Secondary
Real Estate which shall be applied to the Obligations as set forth below) shall
be applied, first, to pay any fees or expense reimbursements then due to Agent
from Borrower; second, to pay any fees or expense reimbursements then due to the
Lenders from Borrower; third, to pay interest due in respect of all Advances,
including Agent Loans and Agent Advances; fourth, to pay or prepay principal of
Agent Loans and Agent Advances; fifth, ratably to pay principal of Advances and
unreimbursed obligations in respect of Letters of Credit; sixth, to cash
collateralize any issued and outstanding Letters of Credit; seventh, ratably to
pay principal and accrued and unpaid interest in respect of Tranche A Term
Loans, and eighth, ratably to pay any other Obligations due to Agent or any
Lender by Borrower.
(iii) Except upon the occurrence and during the continuance of an Event of
Default, GOB Store Proceeds shall be applied as follows: first, to pay or prepay
principal and accrued interest on the Agent Loans and Agent Advances; second,
ratably to pay principal and accrued interest on the Advances and unreimbursed
obligations in respect of Letters of Credit; third, to cash collateralize any
issued and outstanding Letters of Credit; fourth, ratably to pay principal and
accrued interest in respect of the Tranche A Term Loans; and fifth, in the order
set forth in Section 2.5(b)(ii) above.
<PAGE>
(iv) Except upon the occurrence and during the continuance of an Event of
Default, Net Proceeds of the Primary Real Estate and Secondary Real Estate shall
be applied as follows: first, to the principal and accrued and unpaid interest
and fees on the Tranche A Term Loans; second, to the principal and accrued and
unpaid interest and fees on the Tranche B Term Loans; third, until the actual
advance rate with respect to Inventory is equal to eighty-five percent (85%) of
the most recently determined GOB Appraisal Value of the Cost (determined based
on the RSL) of Inventory, to the principal and accrued interest and fees on the
Agent Loans and Agent Advances, then ratably to pay principal and accrued
interest and fees on the Advances and unreimbursed obligations in respect of
Letters of Credit and then to cash collateralize any issued and outstanding
Letters of Credit; and fourth, to Borrower to be applied by Borrower to the
remaining Advances outstanding pursuant to Section 2.9 (but not as a permanent
reduction of the Commitments).
(v) Upon the occurrence and during the continuance of an Event of Default,
all payments (except for payments from the Net Proceeds of Primary Real Estate
and Secondary Real Estate which shall be applied to the Obligations as set forth
in Section 2.5(b)(vi) below) shall be applied, first, to pay any fees or expense
reimbursements then due to Agent from Borrower; second, to pay any fees (other
than fees set forth in Section 2.12(b)) or expense reimbursements then due to
the Lenders from Borrower; third, to pay interest due in respect of all
Advances, including Agent Loans and Agent Advances; fourth, to pay interest due
in respect of all Tranche A Term Loans; fifth, to cash collateralize issued and
outstanding Letters of Credit; sixth, to pay or prepay principal of Agent Loans
and Agent Advances; seventh, ratably to pay principal of the Advances; eighth,
ratably to pay principal of the Tranche A Term Loans; ninth, to pay fees set
forth in Section 2.12(b); tenth, to pay interest due in respect of all Tranche B
Term Loans; eleventh, ratably to pay principal of Tranche B Term Loans; and
twelfth, ratably to pay any other Obligations due to Agent or any Lender by
Borrower.
(vi) Upon the occurrence and during the continuance of an Event of Default,
Net Proceeds of the Primary Real Estate and Secondary Real Estate shall be
applied as follows: first, to the principal and accrued and unpaid interest and
fees on the Tranche A Term Loans; second, to the principal and accrued and
unpaid interest and fees of the Advances, including Agent Loans and Agent
Advances; third, to pay the principal and accrued and unpaid interest and fees
on the Tranche B Term Loans; and fourth, in the order set forth in Section
2.5(b)(v) above.
(vii) Agent shall promptly distribute to each Lender, pursuant to the
applicable wire transfer instructions received from each Lender in writing, such
funds as it may be entitled to receive, subject to a Settlement delay as
provided for in Section 2.1(i).
<PAGE>
(c) Promise to Pay. Borrower hereby promises to pay in United States
Dollars in full to Agent, for the benefit of the Lender Group, the Obligations,
including, without limitation, the principal amount of all Advances and Term
Loans, and all accrued and unpaid interest and fees thereon, all in accordance
with the terms of this Agreement.
Overadvances. Subject to the other terms and conditions hereof, the Lenders
may, in their sole discretion, make Advances hereunder in excess of the amount
set forth in Section 2.1 hereof. If, at any time or for any reason, the amount
of Obligations owed by Borrower to the Lender Group pursuant to Sections 2.1 and
2.2 is greater than either the Dollar or percentage limitations set forth in
Sections 2.1 or 2.2 (an "Overadvance"), Borrower immediately shall pay on
demand to Agent, in cash, the amount of such excess to be used by Agent to
reduce the Obligations pursuant to the terms of Section 2.5(b). Notwithstanding
the foregoing, no Overadvances shall be outstanding for greater than a sixty-day
(60) period at any one time.
2.7 Interest and Letter of Credit Fees: Rates, Payments, and
Calculations.
(a) Interest Rate. Except as provided in clause (c) below, (i) all
Eurodollar Rate Loans shall bear interest at a per annum rate equal to the
Adjusted Eurodollar Rate plus the applicable margin (as calculated below) (the
"Margin") in effect with respect to Eurodollar Rate Loans from time to time
outstanding, (ii) Reference Rate Loans shall bear interest at a per annum rate
equal to the Reference Rate plus the Margin in effect with respect to the type
(i.e. Advance or Tranche A Term Loan) of Reference Rate Loans from time to time
outstanding, (iii) Tranche B Term Loans shall bear interest at the per annum
rate of twelve and three quarters of one percent (12.75%), and (iv) all other
Obligations shall bear interest at the per annum rate equal to the Reference
Rate plus the Margin in effect with respect to Advances that are Reference Rate
Loans. As of the Closing Date and through and including the date of termination
of this Agreement, the Margin shall be the applicable per annum rate set forth
in the table below:
<TABLE>
<CAPTION>
Margin Margin
for for
Type of Obligation: Reference Rate Loans: Eurodollar Rate Loans:
- -------------------- --------------------- ----------------------
<S> <C> <C>
Advances 0.50% 2.75%
- -------------------- --------------------- ----------------------
Tranche A Term Loans 1.75% Not Available
- -------------------- --------------------- ----------------------
</TABLE>
(b) Letter of Credit Fee. Borrower shall pay Agent, for the ratable benefit
of the Tranche A Lenders based on the Tranche A Pro-Rata Share, a fee (in
addition to the charges, commissions, fees, and costs set forth in Section
2.2(d)) equal to one and one-half percent (1.5%) per annum times the aggregate
undrawn amount of all outstanding Letters of Credit.
<PAGE>
(c) Default Rate. Upon the occurrence and during the continuation of an
Event of Default, (i) all Obligations (except for undrawn Letters of Credit)
shall bear interest at a per annum rate equal to three percentage points (3%)
above the rate otherwise applicable to such Obligations, and (ii) the Letter of
Credit fee provided in Section 2.7(b) shall be increased to four and one-half
percent (4.5%) per annum times the amount of the aggregate undrawn amount of all
outstanding Letters of Credit.
(d) [Intentionally Omitted.]
(e) Payments. Interest and Letter of Credit fees payable hereunder shall be
due and payable, in arrears, on the first day of each month during the term
hereof. Borrower hereby authorizes Agent, at its option, without prior notice to
Borrower, to charge such interest and Letter of Credit fees, all Lender Group
Expenses (as and when incurred), the charges, commissions, fees, and costs
provided for in Section 2.2(d) (as and when accrued or incurred), the fees and
charges provided for in Section 2.12, 2.15 and 2.16 (as and when accrued or
incurred), and all installments or other payments due under the Term Loans, or
any Loan Document to the applicable Loan Account, which amounts thereafter shall
accrue interest at the rate then applicable to Advances hereunder. Any interest
not paid when due shall be compounded and shall thereafter accrue interest at
the rate then applicable to Advances hereunder.
(f) Computation. The Reference Rate as of the date of this Agreement is
seven and three-quarters percent (7.75%) per annum. In the event the Reference
Rate is changed from time to time hereafter, the applicable rate of interest
hereunder automatically and immediately shall be increased or decreased by an
amount equal to such change in the Reference Rate. All interest and fees
chargeable under the Loan Documents shall be computed on the basis of a 360 day
year for the actual number of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the
interest rate or rates payable under this Agreement, plus any other amounts paid
in connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable. Borrower and the Lender Group, in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and manner
of payment stated within it; provided, however, that, anything contained herein
to the contrary notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then, ipso facto as
of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
<PAGE>
2.8 Collection of Accounts
(a) Borrower shall, immediately after the Closing Date, instruct all
Account Debtors to remit all Collections directly to the Concentration Account
via electronic funds transfer (including, but not limited to ACH transfers) on
each Business Day. Borrower shall cause all cash received by Borrower at any
retail store location to be deposited on a daily basis into any Blocked Account
or, at Agent's option, any other bank account to be deposited to or sent by
electronic funds transfer (including, but not limited to, ACH transfers) on each
Business Day to the Concentration Account. In addition, Borrower agrees that all
other Collections and other amounts received directly by Borrower from any
Account Debtor or any other source immediately upon receipt shall be deposited
into any Blocked Account. With respect to such bank accounts that are Blocked
Accounts, Borrower, Agent and the Blocked Account Banks shall enter into Blocked
Account Agreements, which, among other things, with respect to all Blocked
Accounts (other than the Concentration Account) will provide for all cash
deposited into a Blocked Account to be sent by electronic funds transfer
(including, but not limited to, ACH transfers) each Business Day to the
Concentration Account; provided, however, that all cash deposited into Blocked
Accounts at Hibernia National Bank and Norwest Bank Minnesota, N.A. shall be
wired each Business Day into an account (the "Agent's Account") maintained by
Agent at a depository selected by Agent. With respect to each account (other
than Blocked Accounts) into which Collections are deposited, Borrower shall
irrevocably authorize and direct in writing, in form and substance satisfactory
to Agent, each such bank to send via wire transfer (including, but not limited
to, ACH transfers) each Business Day all funds deposited into each such account
to the Concentration Account and each such bank shall agree to do so. No Blocked
Account Agreement or other arrangement contemplated in this Section 2.8(a))
shall be modified by Borrower without the prior written consent of Agent. Upon
the terms and subject to the conditions set forth in the Blocked Account
Agreement applicable to the Concentration Account, all amounts received in the
Concentration Account shall be wired each Business Day into the Agent's Account.
(b) Borrower shall not, and shall not permit any of its Subsidiaries to,
open or maintain any deposit account or investment account with any bank or
other financial institution other than the Designated Account, the Blocked
Accounts and the other accounts listed on Schedule 2.8. All deposit accounts and
investment accounts of Borrower and its Subsidiaries are listed on Schedule 2.8.
<PAGE>
2.9 Crediting Payments; Application of Collections. The receipt of any
Collections by Agent (whether from transfers to Agent by the Concentration
Account Bank pursuant to the Concentration Account Agreement or otherwise)
immediately shall be applied provisionally to reduce the Obligations outstanding
under Section 2.1, but shall not be considered a payment on account unless such
Collection item is a wire transfer of immediately available federal funds and is
made to the Agent's Account or unless and until such Collection item is honored
when presented for payment. From and after the Closing Date, Agent (for its sole
account) shall be entitled to charge Borrower for one (1) Business Days of
"clearance" or Afloat" at the rate set forth in Section 2.7(a)(ii) or Section
2.7(c)(i), as applicable, on all Collections that are received by Agent
(regardless of whether forwarded by the Concentration Account Bank to Agent,
whether provisionally applied to reduce the Obligations under Section 2.1, or
otherwise). This across-the-board one (1) Business Day clearance or float charge
on all Collections is acknowledged by the parties to constitute an integral
aspect of the pricing of the financing of Borrower, and shall apply irrespective
of the characterization of whether receipts are owned by Borrower or Agent, and
whether or not there are any outstanding Advances, the effect of such clearance
or float charge being the equivalent of charging one (1) Business Day of
interest on such Collections. Should any Collection item not be honored when
presented for payment, then Borrower shall be deemed not to have made such
payment, and interest shall be recalculated accordingly. Anything to the
contrary contained herein notwithstanding, any Collection item shall be deemed
received by Agent only if it is received into the Agent's Account on a Business
Day on or before 2:00 p.m. (Atlanta, Georgia time). If any Collection item is
received into the Agent's Account on a non-Business Day or after 2:00 p.m.
(Atlanta, Georgia time) on a Business Day, it shall be deemed to have been
received by Agent as of the opening of business on the immediately following
Business Day.
2.10 Designated Account. Agent and the Lender Group are authorized to make
the Advances, the Letters of Credit, and the Term Loans under this Agreement
based upon telephonic or other instructions received from anyone purporting to
be an Authorized Person, or without instructions if pursuant to Section 2.7(e).
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by the Lender Group hereunder. Unless
otherwise agreed by Agent and Borrower, any Advance requested by Borrower and
made by the Lender Group hereunder shall be made to the Designated Account.
2.11 Maintenance of Loan Account; Statements of Obligations. Agent shall
maintain an account on its books in the name of Borrower (the "Loan Account") on
which Borrower will be charged with all Advances, and the Term Loans made by the
Lender Group to Borrower or for Borrower's account, including, accrued interest,
Lender Group Expenses, and any other payment Obligations of Borrower. In
accordance with Section 2.9, the Loan Account will be credited with all payments
received by Agent from Borrower or for Borrower's account, including all amounts
received in the Agent's Account from the Concentration Account Bank. Agent shall
render statements regarding the Loan Account to Borrower, including principal,
interest, fees, and including an itemization of all charges and expenses
constituting the Lender Group Expenses owing, and such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrower and the Lender Group unless, within thirty (30) days
after receipt thereof by Borrower, Borrower shall deliver to Agent written
objection thereto describing the error or errors contained in any such
statements.
2.12 Fees. Borrower shall pay to Agent (except where otherwise indicated)
for the ratable benefit of the Lender Group (except where otherwise indicated)
the following fees:
<PAGE>
(a) Tranche A Fees.
(i) Tranche A Commitment Fee. A commitment fee in the amount of $855,000
(the :Tranche A Commitment Fee") which fee shall be fully earned on the Closing
Date. Sixty-six and two-thirds percent (66.67%) of the Tranche A Commitment Fee,
in the amount of $570,000 shall be due and payable on the Closing Date to Agent
for the ratable benefit of the Lenders under the Tranche A Commitment and the
remaining portion of the Tranche A Commitment Fee, $285,000, (the "Tranche A
Commitment Fee Second Installment") shall be payable on the earlier of (x) the
date 120 days following the Closing Date, (y) payment in full of the Tranche A
Term Loan, and (z) the Termination Date. The Tranche A Commitment Fee shall be
payable from the proceeds of the Tranche A Term Loans.
(ii) Unused Line Fee. On the first day of each month for the immediately
preceding month during the term of this Agreement, an unused line fee in an
amount equal to one-quarter of one percent (0.25%) per annum times the Average
Unused Portion of the Maximum Revolving Amount payable to Agent for the ratable
benefit of the Tranche A Lenders.
(iii) Co-Agent's Fee Letter. The fees set forth in that certain fee letter
of even date herewith between Borrower and Co-Agent (the "Co-Agent's Fee
Letter"), payable to Co-Agent for its own account; and
(iv) Agent's Fee Letter. The fees set forth in that certain fee letter of
even date herewith between Borrower and Agent (the "Agent's Fee Letter"),
payable to Agent for its own account;
(b) Tranche B Fees.
(i) Tranche B Commitment Fee. A commitment fee of $300,000 (the "Tranche B
Commitment Fee") payable to Agent for the ratable benefit of the Tranche B
Lenders, which fee shall be fully earned and due and payable on the Closing Date
from a portion of the proceeds of the Tranche B Term Loans;
(ii) Foothill Partners' Fee Letter. The fees set forth in that certain fee
letter of even date herewith between Borrower and Foothill Partners (the
"Foothill Partners' Fee Letter"), payable to Foothill Partners for its own
account; and
<PAGE>
(c) Financial Examination, Documentation, and Appraisal Fees. For the sole
accounts of Agent: (i) a fee of $650 per day per examiner, plus out-of-pocket
expenses for each financial analysis and examination (i.e., audits) of Borrower
performed by personnel employed by Agent; (ii) an appraisal fee of $1,500 per
day per appraiser, plus out-of-pocket expenses for each appraisal of the
Collateral performed by personnel employed by Agent; (iii) the reasonable
charges actually paid or incurred by Agent if it elects to employ the services
of one or more third Persons to perform such financial analyses and examinations
(i.e., audits) of Borrower; and (iv) the reasonable charges actually paid or
incurred by Agent if it elects to employ the services of one or more third
Persons to appraise the Collateral; provided, however, that so long as no
Default or Event of Default has occurred, the fees owed by Borrower pursuant to
Section 2.12(c)(i) and (iii) shall not exceed $35,000 per annum, plus
out-of-pocket expenses as otherwise provided for in Section 2.12(c)(i).
(d) Miscellaneous. Except as specifically provided herein, the fees set
forth herein shall be fully earned when due, non-refundable when paid and, if
applicable, computed on the basis of a 360 day year for the actual number of
days elapsed.
2.13 Eurodollar Rate Loans. Any other provisions herein to the contrary
notwithstanding, the following provisions shall govern with respect to
Eurodollar Rate Loans as to the matters covered:
(a) Borrowing; Conversion; Continuation. Borrower may from time to time, on
or after the Closing Date, request in writing to Agent: (i) Advances to
constitute Eurodollar Rate Loans; (ii) that Reference Rate Loans that are
Advances be converted into Eurodollar Rate Loans; or (iii) that existing
Eurodollar Rate Loans continue for an additional Interest Period. Any such
request shall specify the aggregate amount of the requested Eurodollar Rate
Loans, the proposed funding date therefor (which shall be a Business Day, and
with respect to continued Eurodollar Rate Loans shall be the last day of the
Interest Period of the existing Eurodollar Rate Loans being continued), and the
proposed Interest Period, in each case subject to the limitations set forth
below. Eurodollar Rate Loans may only be made, continued, or extended if, as of
the proposed funding date therefor each of the following conditions is
satisfied:
(v) no Event of Default exists;
(w) no more than five (5) Eurodollar Rate Loans may be in effect at any one
time;
(x) the amount of each Eurodollar Rate Loan borrowed, converted, or
continued must be in an amount not less than $1,000,000 and integral multiples
of $500,000 in excess thereof;
(y) Agent shall have determined that the Interest Period or Adjusted
Eurodollar Rate is available to the Tranche A Lenders and can be readily
determined as of the date of the request for such Eurodollar Rate Loan by
Borrower; and
<PAGE>
(z) Agent shall have received such request at least two (2) Business Days
prior to the proposed funding date therefor.
Any request by Borrower to borrow Eurodollar Rate Loans, to convert Reference
Rate Loans to Eurodollar Rate Loans, or to continue any existing Eurodollar Rate
Loans shall be irrevocable, except to the extent that Agent shall determine
under Sections 2.13(a), 2.14 or 2.15 that such Eurodollar Rate Loans cannot be
made or continued.
(b) Determination of Interest Period. By giving notice as set forth in
Section 2.13(a), Borrower shall have the option of selecting a one (1), two (2),
or three (3) month Interest Period for such Eurodollar Rate Loan. The
determination of Interest Periods shall be subject to the following provisions:
(i) in the case of immediately successive Interest Periods, each successive
Interest Period shall commence on the day on which the next preceding Interest
Period expires;
(ii) if any Interest Period would otherwise expire on a day which is not a
Business Day, the Interest Period shall be extended to expire on the next
succeeding Business Day; provided, however, that if the next succeeding Business
Day occurs in the following calendar month, then such Interest Period shall end
on the last Business Day of the calendar month at the end of such Interest
Period;
(iii) if any Interest Period begins on the last Business Day of a month or
on a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period, then the Interest Period shall end on
the last Business Day of the calendar month at the end of such Interest Period;
and
(iv) Borrower may not select an Interest Period which expires later than
the Maturity Date.
<PAGE>
(c) Automatic Conversion: Optional Conversion by Agent. Any Eurodollar Rate
Loan shall automatically convert to a Reference Rate Loan upon the last day of
the applicable Interest Period, unless Agent has received a request to continue
such Eurodollar Rate Loan at least two (2) Business Days prior to the end of
such Interest Period in accordance with the terms of Section 2.13 (a). Any
Eurodollar Rate Loan shall, at the Lender Group's option, upon notice to
Borrower, convert to a Reference Rate Loan in the event that (i) an Event of
Default shall have occurred and be continuing as of the last day of the Interest
Period for such Eurodollar Rate Loan, or (ii) this Agreement is terminated, and
Borrower shall pay to Agent for the benefit of the Tranche A Lenders any amounts
required by Section 2.16 as a result thereof.
2.14 Illegality. Any other provision herein to the contrary
notwithstanding, if the adoption of or any change in any Requirement of Law or
in the interpretation or application thereof shall make it unlawful for any
Tranche A Lender to make or maintain Eurodollar Rate Loans as contemplated by
this Agreement, (a)) the obligation of the Tranche A Lenders hereunder to make
Eurodollar Rate Loans, continue Eurodollar Rate Loans as such, and convert
Reference Rate Loans to Eurodollar Rate Loans shall forthwith be suspended and
(b) the then outstanding Eurodollar Rate Loans, if any, shall be converted
automatically to Reference Rate Loans on the respective last days of the then
current Interest Periods with respect thereto or within such earlier period as
required by law; provided, however, that before making any such demand, each
Tranche A Lender agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions and so long as such efforts would
not be disadvantageous to it, in its reasonable discretion, in any legal,
economic, or regulatory manner) to designate a different lending office if the
making of such a designation would allow such Tranche A Lender or its lending
office to continue to perform its obligations to make Eurodollar Rate Loans. If
any such conversion of a Eurodollar Rate Loan occurs on a day which is not the
last day of the then current Interest Period with respect thereto, Borrower
shall pay to Agent for the benefit of the Tranche A Lenders such amounts, if
any, as may be required pursuant to Section 2.16. If circumstances subsequently
change so that the Tranche A Lenders shall determine that they are no longer so
affected, the Tranche A Lenders promptly will notify Agent and Agent will
promptly notify Borrower, and upon receipt of such notice, the obligations of
the Tranche A Lenders to make or continue Eurodollar Rate Loans or to convert
Reference Rate Loans into Eurodollar Rate Loans shall be reinstated.
2.15 Requirements of Law
(a) If the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof or compliance by the Tranche A Lenders
with any request or directive (whether or not having the force of law) from any
central bank or other Governmental authority made subsequent to the date hereof:
(i) shall subject any Tranche A Lender to any tax, levy, charge, fee,
reduction, or withholding of any kind whatsoever with respect to this Agreement
or any Advance, or change the basis of taxation of payments to any Tranche A
Lender in respect thereof (except for the establishment of a tax based on the
net income of such Tranche A Lender or changes in the rate of tax on the net
income of such Tranche A Lender);
<PAGE>
(ii) shall impose, modify or hold applicable any reserve, special deposit,
compulsory loan, or similar requirement against assets held by, deposits or
other liabilities in or for the account of, loans or other extensions of credit
by, or any other acquisition of funds by, any office of any Tranche A Lender; or
(iii) shall impose on any Tranche A Lender any other condition with respect
to this Agreement or any Advance;
and the result of any of the foregoing is to increase the cost to any Tranche A
Lender of making, converting into, continuing, or maintaining Eurodollar Rate
Loans or to reduce any amount receivable hereunder in respect of Eurodollar Rate
Loans, or to forego any other sum payable thereunder or make any payment on
account thereof, then, in any such case, Borrower shall promptly pay such
Tranche A Lender, upon its demand, any additional amounts necessary to
compensate such Tranche A Lender for such increased cost or reduced amount
receivable; provided, however, that before making any such demand, each Tranche
A Lender agrees to use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, in its reasonable discretion, in any legal, economic, or
regulatory manner) to designate a different Eurodollar lending office if the
making of such designation would allow such Tranche A Lender or its Eurodollar
lending office to continue to perform its obligations to make Eurodollar Rate
Loans or to continue to fund or maintain Eurodollar Rate Loans and avoid the
need for, or materially reduce the amount of, such increased cost. If a Tranche
A Lender becomes entitled to claim any additional amounts pursuant to this
Section 2.15, such Tranche A Lender shall notify Agent and Borrower of the event
by reason of which it has become so entitled. A certificate as to any additional
amounts payable pursuant to this Section 2.15 submitted by a Tranche A Lender to
Agent and Borrower shall be conclusive in the absence of manifest error. If
Borrower so notifies any such Tranche A Lender within five (5) Business Days
after such Tranche A Lender notifies Borrower of any increased cost pursuant to
the foregoing provisions of this Section 2.15 and reimburses such for any cost
in accordance with Section 2.16., Borrower may convert all affected Eurodollar
Rate Loans then outstanding into Reference Rate Loans in accordance with Section
2.13.
<PAGE>
(b) If any Tranche A Lender shall have determined that the adoption of or
any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Tranche A Lender or
any Person controlling such Tranche A Lender with any request or directive
regarding capital adequacy (whether or not having the force of law) from any
governmental authority made subsequent to the date hereof does or shall have the
effect of increasing the amount of capital required to be maintained or reducing
the rate of return on such Tranche A Lender's or such Person's capital as a
consequence of its obligations hereunder to a level below that which such
Tranche A Lender or such Person could have achieved but for such change or
compliance (taking into consideration such Tranche A Lender's or such Person's
policies with respect to capital adequacy) by an amount deemed by such Tranche A
Lender to be material, then from time to time, after submission by such Tranche
A Lender to Agent and Borrower of a prompt written request therefor, Borrower
shall pay to such Tranche A Lender such additional amount or amounts as will
compensate such Tranche A Lender or such Person for such reduction. This
covenant shall survive the termination of this Agreement and the payment of the
Obligations.
2.16 Indeminity. Borrower agrees to indemnify each Tranche A Lender and to
hold each Tranche A Lender harmless from any loss or expense which such Tranche
A Lender may sustain or incur as a consequence of (a) a default by Borrower in
payment when due of the principal amount of or interest on any Eurodollar Rate
Loan, (b) a default by Borrower in making a borrowing of, conversion into, or
continuation of Eurodollar Rate Loans after Borrower has given a notice
requesting the same in accordance with the provisions of this Agreement, (c) a
default by Borrower in making any prepayment after Borrower has given a notice
thereof in accordance with the provisions of this Agreement, or (d) the making
of a prepayment of Eurodollar Rate Loans on a day which is not the last day of
an Interest Period with respect thereto (whether due to the termination of this
Agreement upon an Event of Default or otherwise), including, in each case, any
such loss or expenses arising from the re-employment of funds obtained by it or
from fees payable to terminate the deposits from which such funds were obtained.
Calculation of all amounts payable to the Tranche A Lenders under this Section
2.16 shall be made as though the Tranche A Lenders had actually funded the
relevant Eurodollar Rate Loan through the purchase of a deposit bearing interest
at the Adjusted Eurodollar Rate in an amount equal to the amount of such
Eurodollar Rate Loan and having a maturity comparable to the relevant Interest
Period; provided, however, that any Tranche A Lender may fund each of the
Eurodollar Rate Loans in a manner it sees fit, and the foregoing assumption
shall be utilized only for the calculation of amounts payable under this Section
2.16. This covenant shall survive the termination of this Agreement and the
payment of the Obligations.
<PAGE>
2.17 Super-Priority Nature of Obligations. All Obligations under the Loan
Documents shall constitute administrative expenses of Borrower in the Chapter 11
Case with priority under Section 364(c)(1) of the Bankruptcy Code over any and
all other administrative expenses of the kind specified in Sections 105, 326,
330, 331, 503, 507 and 726 of the Bankruptcy Code, and shall also have priority
over any claims arising under Section 506(c) of the Bankruptcy Code, (a) subject
and subordinate only to the following (hereinafter referred to as the "Carve-Out
Expenses"): (i) fees and disbursements incurred on and after the Relief Date by
professionals retained pursuant to Court order in the Chapter 11 Case pursuant
to Sections 327 or 1103 of the Bankruptcy Code by Borrower or any Committee or
an examiner appointed to which Agent consents pursuant to Section 1104 of the
Bankruptcy Code (the "Bankruptcy Professionals"), and any costs and expenses of
members of the Committees, up to a maximum aggregate amount outstanding and
unpaid not to exceed $1,000,000 (such dollar amount being referred to herein as
the "Carve-Out Amount") (determined without regard to fees and expenses which
may be awarded and paid on an interim basis and exclusive of any pre-Relief Date
retainers paid or subsequently transferred to any Bankruptcy Professionals), and
(ii) any statutorily mandated costs and fees of the United States Trustee or
clerk of the Court with respect to the Chapter 11 Case; provided, however, that
the Carve-Out Expenses shall not include (x) any other claims that are or may be
senior to or pari passu with any of the Carve-Out Expenses or (y) any fees or
expenses of the Bankruptcy Professionals incurred in connection with the
commencement or continuation of any suit, motion, action or other proceeding
challenging the extent, validity, perfection, enforceability or priority of the
Agent's or Lenders= claims or liens arising under or in connection with the
Pre-Relief Date Loan Agreement, provided further, however, that the Carve-Out
Amount shall be decreased to $750,000 if, and at such time as, the Court enters
an order providing for the payment of professional fees and expenses on an
interim monthly basis in an amount of at least eighty percent (80%) of the fees
for professional services rendered and one hundred percent (100%) of the
expenses incurred during a particular month, and (b) pari passu with allowed
administrative expense claims of the kind specified in Section 503(b)(1)(a)) of
the Bankruptcy Code of trade creditors for Inventory sold to Borrower after the
Relief Date pursuant to trade credit terms. No other claim having a priority
superior or pari passu to that granted to Agent and the Lenders by the Final
Order shall be granted or approved while any Obligations under this Agreement
remain outstanding.
3. CONDITIONS; TERM OF AGREEMENT
3.1 Conditions Precedent to the Initial Advance, Letter of Credit, and the
Term Loans. The obligation of the Lender Group to make the initial Advance, to
issue the initial Letter of Credit, or to make the Term Loans is subject to the
fulfillment, to the satisfaction of Agent and its counsel, of each of the
following conditions on or before the Closing Date:
(a) Agent shall have received each of the following documents, duly
executed, and each such document shall be in full force and effect:
a. the Oversight Agent Agreement;
b. the Disbursement Letter;
c. the Mortgages;
d. the Stock Pledge Agreement;
e. the Subsidiary Guaranty Agreement;
f. the Subsidiary Security Agreement;
g. the Trademark Security Agreement;
h. the Assignment of Real Estate Trust Interests;
<PAGE>
i. the Assignment of Note;
j. the Co-Agent's Fee Letter;
k. the Agent's Fee Letter;
l. the Foothill Partners= Fee Letter; and
m. financing statements and fixture filings necessary to perfect Agent's
security interest in the Personal Property Collateral;
(b) Agent shall have received a certificate from the Secretary of Borrower
attesting to the resolutions of Borrower's Board of Directors authorizing its
execution, delivery, and performance of this Agreement and the other Loan
Documents to which Borrower is a party and authorizing specific officers of
Borrower to execute the same;
(c) Agent shall have received copies of any amendments to Borrower's
Governing Documents, from the Pre-Relief Date Loan Agreement to the Closing
Date, certified by the Secretary of Borrower;
(d) Agent shall have received a certificate of status with respect to
Borrower, dated within ten (10) days of the Closing Date, such certificate to be
issued by the appropriate officer of the jurisdiction of organization of
Borrower, which certificate shall indicate that Borrower is in good standing in
such jurisdiction;
(e) Agent shall have received certificates of status with respect to
Borrower, each dated within fifteen (15) days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions in
which its failure to be duly qualified or licensed would constitute a Material
Adverse Change, which certificates shall indicate that Borrower is in good
standing in such jurisdictions;
(f) Agent shall have received a certificate of insurance, together with the
endorsements thereto, as are required by Section 6.10, the form and substance of
which shall be satisfactory to Agent and its counsel;
(g) Agent shall have received a Collateral Access Agreement from H. Butler
Footwear, Inc., together with precautionary UCC-1 financing statements covering
Inventory stored on the premises of H. Butler Footwear, Inc., each in form and
substance satisfactory to Agent;
<PAGE>
(h) Agent shall have received opinions of Borrower's corporate counsel,
Fowler, White, Gillen, Boggs, Villareal and Banker, P.A., and Borrower's
bankruptcy counsel, Stichter, Riedel, Blain & Prosser, P.A., each in form and
substance satisfactory to Agent in its sole discretion;
(i) Agent shall have received satisfactory evidence that all tax returns
required to be filed by Borrower have been timely filed and all taxes upon
Borrower or its properties, assets, income, and franchises (including real
property taxes and payroll taxes) have been paid prior to delinquency, except
such taxes (i) that are the subject of a Permitted Protest, (ii) with respect to
which the Borrower's failure to pay such taxes is permitted by the Bankruptcy
Code or by an order of the Court after notice and a hearing, (iii) with respect
to which Borrower's failure to pay such taxes has been consented to in writing
by the holder of such tax claims and written notice thereof has been provided to
Agent, and (iv) that are disclosed to Agent and with respect to which Agent has
consented to Borrower's failure to pay such taxes;
(j) Agent shall have received the financial projections and Business Plan
of Borrower for the succeeding twelve (12) month period following the Closing
Date, in form and substance satisfactory to Agent and in its sole discretion;
(k) Agent shall have received evidence satisfactory to it that (i) before
giving effect to the borrowings on the Closing Date, Borrower has unrestricted
cash on hand in an amount equal to or greater than of at least $8,000,000 and
(ii) all cash being held by Borrower (excluding cash in disbursement accounts to
cover checks issued) has been deposited into the Concentration Account or wire
transferred to the Agent's Account;
(l) the Final Order, in form and substance reasonably satisfactory to
Agent, approving the transactions contemplated hereby and granting a first
priority perfected security interest in the Collateral subject only to Senior
Claims shall have been entered by the Court and Agent shall have received a
certified copy of such Final Order;
(m) the automatic stay shall have been modified to permit the creation and
perfection of Agent's Liens and security interests on behalf of the Lenders and
shall have been modified to permit enforcement of Agent's and the Lenders=
rights and remedies under the Loan Documents subject to satisfying the
requirements of Section 9.1 and paragraph 17 of the Final Order;
(n) Agent shall have received the Initial GOB Store Proceeds from Borrower
for application to the Obligations (as defined in the Pre-Relief Date Loan
Agreement) which Agent acknowledges have been received and so applied; and
(o) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered and
executed and shall be in form and substance satisfactory to Agent and its
counsel.
<PAGE>
3.2 Conditions Precedent to all Advances, all Letters of Credit and the
Term Loans. The following shall be conditions precedent to all Advances, all
Letters of Credit and the Term Loans hereunder:
(a) the representations and warranties contained in this Agreement and the
other Loan Documents shall be true and correct in all respects on and as of the
date of such extension of credit, as though made on and as of such date (except
to the extent that such representations and warranties relate solely to an
earlier date);
(b) if requested by Agent, Borrower shall provide to Agent a Borrowing Base
Certificate dated as of the day of the requested Advance;
(c) no Default or Event of Default shall have occurred and be continuing on
the date of such extension of credit, nor shall either result from the making
thereof; and
(d) no injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the extending of such credit shall have
been issued and remain in force by any governmental authority against Borrower,
the Lender Group or any of their Affiliates.
3.3 Conditions Subsequent. As conditions subsequent to initial closing
hereunder, Borrower shall perform or cause to be performed the following (the
failure by Borrower to so perform or cause to be performed constituting an Event
of Default):
(a) on or before February 16, 1999, Borrower shall file an application with
the Court seeking to engage, subject to Court approval, an outside consultant or
financial advisor reasonably acceptable to Agent;
(b) on or before the date fifteen (15) days following the Closing Date,
Borrower shall have delivered to Agent (i) Blocked Account Agreements from each
of Norwest Bank Minnesota, N.A., NationsBank, N.A. and Hibernia National Bank,
and Credit Card Agreements from each of Paymentech, Novus Services, Inc. and
American Express Travel Related Services Co., Inc.;
(c) on or before the date fifteen (15) days following the Closing Date,
Agent shall have received appraisals of the Inventory satisfactory to Agent;
(d) on or before the date thirty (30) days following the Closing Date,
Agent shall have received evidence reasonably satisfactory to it that Borrower
has closed the bank accounts designated as "in process of closing" on Schedule
2.8;
<PAGE>
(e) on or before the date thirty (30) days following the Closing Date,
Borrower shall have delivered to Agent a report in form reasonably satisfactory
to Agent scheduling all reclamation claims asserted by creditors of Borrower
with respect to Inventory shipped prior to the Relief Date;
(f) on or before the date sixty (60) days following the Closing Date, Agent
shall have received such Collateral Access Agreements from lessors,
warehousemen, bailees, and other third persons as Agent may reasonably require
or the inclusion of such findings and decretal portions in the Final Order as
Agent, in its sole discretion, may deem equivalent to, and acceptable in lieu
of, the execution and delivery of the afore-referenced Collateral Access
Agreements;
(g) on or before the date sixty (60) days following the Closing Date, Agent
shall have received a mortgagee waiver agreement with respect to all real
property securing loans to financial or other institutions as set forth on
Schedule P-2 on which Inventory is located, in form and substance reasonably
satisfactory to Agent or the inclusion of such findings and decretal portions in
the Final Order as Agent, in its sole discretion, may deem equivalent to, and
acceptable in lieu of, the execution and delivery of the afore-referenced
mortgagee waiver agreements; and
(h) on or before April 1, 1999, Borrower shall have delivered to Agent
Borrower's plan to resolve any "year 2000 problem" (as defined in Section 5.16),
in form and substance reasonably satisfactory to Agent.
3.4 Term. This Agreement shall become effective upon the execution and
delivery hereof by Borrower and the Lender Group and shall continue in full
force and effect for a term ending on the date the earlier of (a) the Maturity
Date, (b) the earlier of the effective date of a confirmed plan of
reorganization or the date thirty (30) days following the date of the entry of
an order confirming a plan of reorganization, (c) acceleration of the
Obligations following the occurrence of an Event of Default, or (d) the date of
the closing of the sale of all or substantially all of Borrower's assets,
including without limitation a sale of all or substantially all of Borrower's
assets pursuant to Section 363 of the Bankruptcy Code, a confirmed plan of
reorganization or a liquidation in either a Chapter 11 or a Chapter 7 case (but
specifically excluding the liquidation contemplated by the GOB Order) (the
earliest of such dates referred to in subsections (a), (b), (c) and (d), the
"Termination Date"). Notwithstanding the foregoing, the Required Lenders shall
have the right to terminate this Agreement immediately upon the occurrence and
during the continuation of an Event of Default.
<PAGE>
3.5 Effect of Termination. On the Termination Date, all Obligations
(including contingent reimbursement obligations of Borrower with respect to any
outstanding Letters of Credit) immediately shall become due and payable without
notice or demand. No termination of this Agreement, however, shall relieve or
discharge Borrower of Borrower's duties, Obligations, or covenants hereunder,
and the Lender Group's continuing security interests in the Collateral shall
remain in effect until all Obligations have been fully and finally discharged
and the Lender Group's obligation to provide additional credit hereunder is
terminated.
3.6 Early Termination by Borrower. Borrower has the option, at any time
upon ten (10) days prior written notice to Agent, to terminate this Agreement
prior to the Maturity Date by paying to Agent (for the ratable benefit of the
Lender Group), in cash, the Obligations (including an amount equal to 102% of
the undrawn amount of the Letters of Credit), in full, together with a fee (the
"Deferred Closing Fee") equal to 1% of the Maximum Amount if terminated prior to
the Maturity Date; provided, however, that the Deferred Closing Fee shall be
equal to 0.50% of the Maximum Amount if the Commitments are being terminated and
the Obligations are being paid in connection with the sale of all or
substantially all of the assets of Borrower pursuant to Section 363 of the
Bankruptcy Code so long as all Obligations are repaid on or before August 16,
1999; provided further, however, that no Deferred Closing Fee shall be due if
(a)) the Obligations are being refinanced by "exit financing" provided by any or
all of the Lenders (but specifically including Foothill) whether in connection
with Borrower's reorganization and emergence from bankruptcy or a sale of
Borrower or all or substantially all of Borrower's assets to a third party, (b)
Agent on behalf of the Lenders fails to deliver to Borrower a good faith
proposal for "exit financing" within the time period set forth below in this
Section 3.6, (c) Agent on behalf of the Lenders fails to match a reasonably
competitive offer for "exit financing" received in writing by Borrower and
forwarded to Agent, or (d) Borrower conducts an orderly liquidation, with Court
approval, and the Obligations are repaid in full on or before August 16, 1999
(each of the foregoing events described in clauses (a), (b), (c) and (d) shall
hereafter be referred to as a "Deferred Closing Fee Carve-Out Event"). If this
Agreement is terminated prior to the Maturity Date (including without limitation
upon any of the events described above in subsections (b), (c) and (d) of
Section 3.4) and no Deferred Closing Fee Carve-Out Event has occurred, in view
of the impracticability and extreme difficulty of ascertaining actual damages
and by mutual agreement of the parties as to a reasonable calculation of the
Lender Group's lost profits as a result thereof, Borrower shall pay to Agent
(for the ratable benefit of the Lender Group) upon the effective date of such
termination, a fee in an amount equal to the Deferred Closing Fee. The Deferred
Closing Fee shall be presumed to be the amount of damages sustained by the
Lender Group as the result of the early termination and Borrower agrees that it
is reasonable under the circumstances currently existing. The Deferred Closing
Fee provided for in this Section 3.6 shall be deemed included in the
Obligations. Agent on behalf of the Lenders shall make a good faith proposal for
"exit financing" for Borrower within fifteen (15) days of receipt of (I) a draft
of a proposed plan of reorganization of Borrower, and (II) a post-confirmation
business plan of Borrower; provided, however, that such plans described in
clauses (I) and (II) above, first shall have been reviewed and approved by
Borrower's consultant or financial advisor reasonably acceptable to Agent.
<PAGE>
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants to Agent for the
benefit of the Lender Group a continuing security interest in all of its
currently existing and hereafter acquired or arising Personal Property
Collateral in order to secure prompt repayment of any and all Obligations and in
order to secure prompt performance by Borrower of each of its covenants and
duties under the Loan Documents. The security interests of Agent for the benefit
of the Lender Group in Borrower's Personal Property Collateral shall attach to
all of Borrower's Personal Property Collateral without further act on the part
of the Lender Group or Borrower. Anything contained in this Agreement or any
other Loan Document to the contrary notwithstanding, except as permitted by
Section 7.4, Borrower has no authority, express or implied, to dispose of any
item or portion of the Personal Property Collateral, the Real Property
Collateral, or the Secondary Real Estate.
4.2 Negotiable Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrower,
immediately upon the request of Agent, shall endorse and deliver physical
possession of such Negotiable Collateral to Agent.
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral.
At any time, Agent or Agent's designee may (a) notify customers or Account
Debtors of Borrower that the Accounts, General Intangibles, or Negotiable
Collateral have been assigned to Agent for the benefit of the Lender Group or
that Agent for the benefit of the Lender Group has a security interest therein,
and (b) upon a Default or Event of Default or if the Lender Group deems itself
insecure, collect the Accounts, General Intangibles, and Negotiable Collateral
directly and charge the collection costs and expenses to the Loan Account.
Borrower agrees that it will hold in trust for the Lender Group, as the Lender
Group's trustee, any Collections that it receives and immediately will deliver
said Collections to Agent in their original form as received by Borrower.
<PAGE>
4.4 Delivery of Additional Documentation Required. At any time upon the
request of Agent, Borrower shall execute and deliver to Agent all financing
statements, continuation financing statements, fixture filings, security
agreements, pledges, assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other documents that Agent reasonably may request,
in form satisfactory to Agent, to perfect and continue perfected the Liens of
the Lender Group in the Collateral pledged by Borrower, and in order to fully
consummate all of the transactions contemplated hereby and under the other Loan
Documents. Without limiting the generality of the foregoing, (a) at such time as
legal title to the Secondary Real Estate (other than Secondary Real Estate owned
by Property Holdings as of the Closing Date) is vested in Borrower, Borrower
shall contemporaneously (i) execute such mortgages and other documents required
by Agent in its reasonable discretion to provide Agent with a lien on such
Secondary Real Estate, and (ii) deliver such other documents, instruments and
opinions, including title insurance policies, consistent with those documents,
instruments and opinions required with respect to the Primary Real Estate, and
(b) at such time as Borrower obtains consent from the applicable holders of
Senior Claims with respect thereto, Borrower shall contemporaneously (i) execute
such mortgages, security agreements and other documents required by Agent in its
reasonable discretion to provide Agent with a lien on the Secondary Real Estate
and personal property of Property Holdings, and (ii) deliver such other
documents, instruments, financing statements and opinions, including title
insurance policies, consistent with those documents, instruments, financing
statements and opinions required with respect to the Primary Real Estate.
4.5 Power of Attorney. Borrower hereby irrevocably makes, constitutes, and
appoints Agent (and any of Agent's officers, employees, or agents designated by
Agent) as Borrower's true and lawful attorney, with power to (a) if Borrower
refuses to, or fails timely to execute and deliver any of the documents
described in Section 4.4, sign the name of Borrower on any of the documents
described in Section 4.4, (b) at any time that an Event of Default has occurred
and is continuing or the Lender Group deems itself insecure, sign Borrower's
name on any invoice or bill of lading relating to any Account, drafts against
Account Debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to Account Debtors, (c) send requests for verification of
Accounts, (d) endorse Borrower's name on any Collection item that may come into
the Lender Group's possession, (e) at any time that (x) an Event of Default has
occurred and is continuing or the Lender Group deems itself insecure and (y) the
Lender Group has asserted or implemented any rights or remedies under Article 9
hereof, notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Agent, to receive and open all mail
addressed to Borrower, and to retain all mail relating to the Collateral pledged
by Borrower and immediately return all other mail to Borrower, (f) at any time
that an Event of Default has occurred and is continuing or the Lender Group
deems itself insecure, make, settle, and adjust all claims under Borrower's
policies of insurance and make all determinations and decisions with respect to
such policies of insurance, and (g) at any time that an Event of Default has
occurred and is continuing or Agent deems itself insecure, settle and adjust
disputes and claims respecting the Accounts directly with Account Debtors, for
amounts and upon terms that Agent determines to be reasonable, and Agent may
cause to be executed and delivered any documents and releases that Agent
determines to be necessary. The appointment of Agent as Borrower's attorney, and
each and every one of Agent's rights and powers, being coupled with an interest,
is irrevocable until all of the Obligations have been fully and finally repaid
and performed and the Lender Group's obligation to extend credit hereunder is
terminated.
<PAGE>
Agent (through any of its officers, employees, or agents), and together
with any Lender that so elects, shall have the right, from time to time
hereafter (and, so long as no Default or Event of Default has occurred and is
continuing, during regular business hours) to inspect Borrower's Books and to
check, test, and appraise the Collateral in order to verify Borrower's financial
condition or the amount, quality, value, condition of, or any other matter
relating to, the Collateral. Unless and until a Default or Event of Default
occurs, Agent intends to conduct (a) on site financial analyses and examinations
of Borrower no more frequently than quarterly, and (b) appraisals on the
Personal Property Collateral no more frequently than semi-annually; provided,
however, that, at all times, Agent shall be entitled to conduct appraisals of
the Collateral in its sole discretion. Agent, from time to time (in all events,
at Borrower's expense), may undertake "mystery shopping" (so-called) visits to
all or any of Borrower's business premises. Agent shall provide Borrower with a
copy of any non-company confidential results of such mystery shopping upon
completion thereof.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender Group to enter into this Agreement, Borrower
makes the following representations and warranties which shall be true, correct,
and complete in all respects as of the date hereof, and shall be true, correct,
and complete in all respects as of the Closing Date, and at and as of the date
of the making of each Advance and the issuance of each Letter of Credit
thereafter, as though made on and as of the date of such Advance or issuance of
such Letter of Credit (except to the extent that such representations and
warranties relate solely to an earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement:
5.1 No Encumbrances. Borrower and its Subsidiaries have good and
indefeasible title to the Collateral, free and clear of Liens except for
Permitted Liens.
5.2 Eligible Accounts. The Eligible Accounts are bona fide existing
obligations created by the sale and delivery of Inventory or the rendition of
services to Account Debtors in the ordinary course of Borrower's business,
unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation. The property giving rise to
such Eligible Accounts has been delivered to the Account Debtor, or to the
Account Debtor's agent for immediate shipment to and unconditional acceptance by
the Account Debtor. Eligible Accounts do not consist of any Accounts with
respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, or other terms by reason of which the
payment by the Account Debtor may be conditional. Eligible Accounts do not
consist of Accounts with respect to which the goods giving rise to such Accounts
have not been shipped and billed to the Account Debtor, the services giving rise
to such Accounts have not been performed and accepted by the Account Debtor, or
Accounts that otherwise do not represent final sales. Eligible Accounts do not
consist of Accounts that represent progress payments or other advance billings
that are due prior to the completion of performance by Borrower of the subject
contract for goods or services. Borrower has not received notice of bankruptcy,
insolvency, or material impairment of the financial condition of any Account
Debtor regarding any Eligible Account.
5.3 Eligible Inventory. All Eligible Inventory is of good and merchantable
quality, free from defects.
<PAGE>
5.4 Equipment. All of the Equipment is used or held for use in Borrower's
business and is fit for such purposes.
5.5 Location of Inventory and Equipment. Except with respect to Inventory
stored at the Butler Shoe Warehouse and at the Genco Warehouse, the Inventory
and Equipment are not stored with a bailee, warehouseman, or similar party
(without Agent's prior written consent) and are located only at the locations
identified on Schedule 6.12 or otherwise permitted by Section 6.12.
5.5 Inventory Records. Borrower keeps correct and accurate records
itemizing and describing the kind, type, quality, and quantity of the Inventory,
and Borrower's Cost therefor.
5.7 Location of Chief Executive Office; FEIN. The chief executive office of
Borrower is located at the address indicated in the preamble to this Agreement
and Borrower's FEIN is 52-1643157.
5.8 Due Organization and Qualification; Subsidiaries.
(a) Each of Borrower and each Subsidiary of Borrower is duly organized and
existing and in good standing under the laws of the jurisdiction of its
incorporation and qualified and licensed to do business in, and in good standing
in, any state where the failure to be so licensed or qualified reasonably could
be expected to have a Material Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and accurate list of
Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their incorporation; (ii) the number of shares of each class of common and
preferred stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by Borrower. All of the outstanding capital stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
(c) Except as set forth on Schedule 5.8, no capital stock (or any
securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for capital stock) of any direct or indirect Subsidiary of
Borrower is subject to the issuance of any security, instrument, warrant,
option, purchase right, conversion or exchange right, call, commitment or claim
of any right, title, or interest therein or thereto.
5.9 Due Authorization; No Conflict.
<PAGE>
(a) The execution, delivery, and performance by Borrower and each
Subsidiary of Borrower, as applicable, of this Agreement and the Loan Documents
to which Borrower or any such Subsidiary is a party have been duly authorized by
all necessary corporate action.
(b) The execution, delivery, and performance by Borrower and each
Subsidiary of Borrower, as applicable, of this Agreement and the Loan Documents
to which Borrower or any such Subsidiary is a party do not and will not (i)
violate any provision of federal, state, or local law or regulation (including
Regulations T, U, and X of the Federal Reserve Board) applicable to Borrower or
any such Subsidiary, as applicable, the Governing Documents of Borrower or any
such Subsidiary, as applicable, or any order, judgment, or decree of any court
or other governmental authority binding on Borrower or any such Subsidiary, as
applicable, (ii) result in a breach of, or constitute (with due notice or lapse
of time or both) a default under any material contractual obligation or material
lease of Borrower or any such Subsidiary, as applicable, (iii) result in or
require the creation or imposition of any Lien of any nature whatsoever upon any
properties or assets of Borrower or any such Subsidiary of Borrower other than
Permitted Liens, or (iv) require any approval of stockholders or any approval or
consent of any Person under any material contractual obligation of Borrower or
any such Subsidiary of Borrower.
(c) Other than the entry of the Final Order and the filing of appropriate
financing statements, fixture filings and mortgages, the execution, delivery,
and performance by Borrower and each Subsidiary of Borrower of this Agreement
and the Loan Documents to which Borrower or any Subsidiary, as applicable, is a
party do not and will not require any registration with, consent, or approval
of, or notice to, or other action with or by, any federal, state, foreign, or
other governmental authority or other Person.
(d) This Agreement and the Loan Documents to which Borrower and each
Subsidiary of Borrower is a party, and all other documents contemplated hereby
and thereby, when executed and delivered by Borrower or any such Subsidiary, as
applicable, will be the legally valid and binding obligations of Borrower or
such Subsidiary, as applicable, enforceable against Borrower or such Subsidiary,
as applicable, in accordance with their respective terms, except as enforcement
may be limited by equitable principles and, with respect to Subsidiaries other
than Property Holdings and Guide Series, Inc., except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors= rights generally.
(e) The Liens granted by Borrower and each Subsidiary of Borrower to Agent
(for the benefit of the Lender Group) in and to Borrower's and its Subsidiaries=
properties and assets pursuant to this Agreement and the other Loan Documents
are validly created, perfected, and first priority Liens, subject only to
Permitted Liens.
<PAGE>
5.10 Litigation. There are no actions or proceedings pending by or against
Borrower or any Subsidiary of Borrower before any court or administrative agency
and Borrower does not have knowledge or belief of any pending, threatened, or
imminent litigation, governmental investigations, or claims, complaints,
actions, or prosecutions involving Borrower, any Subsidiary of Borrower, or any
guarantor of the Obligations, except for: (a) the Chapter 11 Case, (b) ongoing
collection matters in which Borrower is the plaintiff; (c) matters disclosed on
Schedule 5.10; and (d) matters arising after the date hereof that, if decided
adversely to Borrower or any Subsidiary of Borrower, would not result in a
Material Adverse Change.
5.11 No Material Adverse Change. All financial statements relating to
Borrower, any Subsidiary of Borrower or any guarantor of the Obligations that
have been delivered by Borrower to the Lender Group have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit adjustments) and
fairly present Borrower's (or such Subsidiary's or guarantor's, as applicable)
financial condition as of the date thereof and Borrower's (or such Subsidiary's
or guarantor's, as applicable) results of operations for the period then ended.
There has not been a Material Adverse Change with respect to Borrower (or such
Subsidiary or guarantor, as applicable) since the date of the latest financial
statements submitted to the Lender Group on or before the Closing Date.
5.12 Solvency. No transfer of property is being made by Borrower or any
Subsidiary of Borrower and no obligation is being incurred by Borrower or any
Subsidiary of Borrower in connection with the transactions contemplated by this
Agreement or the other Loan Documents with the intent to hinder, delay, or
defraud either present or future creditors of Borrower or any Subsidiary of
Borrower.
5.13 Employee Benefits. None of Borrower, any Subsidiary of Borrower, or
any of their ERISA Affiliates maintains or contributes to any Benefit Plan,
other than those listed on Schedule 5.13. Borrower, each Subsidiary of Borrower
and each ERISA Affiliate have satisfied the minimum funding standards of ERISA
and the IRC with respect to each Benefit Plan to which it is obligated to
contribute. No ERISA Event has occurred nor has any other event occurred that
may result in an ERISA Event that reasonably could be expected to result in a
Material Adverse Change. None of Borrower or any Subsidiary of Borrower, any
ERISA Affiliate, or any fiduciary of any Plan is subject to any direct or
indirect liability with respect to any Plan under any applicable law, treaty,
rule, regulation, or agreement except for liability for contributions incurred
in the normal operation and administration of the Plan or Plans. None of
Borrower or any Subsidiary of Borrower or any ERISA Affiliate is required to
provide security to any Plan under Section 401(a))(29) of the IRC.
<PAGE>
5.14 Environmental Condition. To the best of Borrower's and each
Subsidiary's knowledge, after due and reasonable inquiry, none of Borrower's or
any Subsidiary of Borrower's properties or assets has ever been used by Borrower
or any Subsidiary of Borrower or, to the best of Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials, except in compliance with
all applicable laws. None of Borrower's or any Subsidiary of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No Lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned or
operated by Borrower or any Subsidiary of Borrower. Borrower has not received a
summons, citation, notice, or directive from the Environmental Protection Agency
or any other federal or state governmental agency concerning any action or
omission by Borrower resulting in the releasing or disposing of Hazardous
Materials into the environment.
5.15 Intellectual Property. Neither Borrower nor any Subsidiary of Borrower
owns, licenses or has any rights to or interest in any patents, trade names,
trademarks, servicemarks, registered copyrights, or any application for the
registration of any of the foregoing, except as set forth on Schedule 5.15.
5.16 Year 2000 Compliance. Borrower and its Subsidiaries are in the process
of implementing a comprehensive program to address the "year 2000 problem" (that
is, the risk that computer applications may not be able to properly perform
date-sensitive functions after December 31, 1999) and shall resolve on or before
July 31, 1999 any material "year 2000 problem." Borrower has also made
reasonable inquiry of its major suppliers and vendors that, if unable to sell
Inventory or provide services to Borrower, as the case may be, would result in a
Material Adverse Change, with respect to the "year 2000 problem." On the basis
of the inquiry, Borrower has no reason to believe that each such supplier and
vendor of Borrower will not resolve any material "year 2000 problem" on a timely
basis.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower shall
do all of the following:
6.1 Accounting System. Maintain a standard and modern system of accounting
that enables Borrower and each Subsidiary of Borrower to produce financial
statements in accordance with GAAP, and maintain records pertaining to the
Collateral that contain information as from time to time may be requested by
Agent. Borrower also shall keep a modern inventory reporting system that shows
all additions, sales, claims, returns, and allowances with respect to the
Inventory.
6.2 Collateral and Financial Reporting. Provide Agent, or such other party
as Agent shall designate (including, without any limitation, the Oversight
Agent), with copies to the financial advisor(s) for the Committees, with the
following documents at the following times in form satisfactory to Agent:
<PAGE>
(a) Borrowing Base Certificate. Borrower shall provide to Agent, weekly
and, upon request by Agent, on each day Borrower requests an Advance, a
borrowing base certificate (in the form of Exhibit 6.2 hereto, as such form may
be revised from time to time by Agent) (each a "Borrowing Base Certificate").
Such Borrowing Base Certificate may be sent to Agent by facsimile transmission,
provided that, upon request by Agent, the original thereof is forwarded to Agent
on the date of such transmission. No adjustments to the Borrowing Base
Certificate may be made without supporting documentation and such other
documentation as may be requested by Agent from time to time.
(b) Weekly Reports. Weekly, not later than Wednesday for the immediately
preceding fiscal week:
(i) sales audit report (Borrower's format in use on the Closing Date is
acceptable);
(ii) collateral activity summary (the so-called "roll forward inventory
report"); and
(iii) "flash sales" by geographical market (Borrower's format in use on the
Closing Date is acceptable).
(c) Monthly Reports.
(i) Monthly, Borrower shall provide to Agent original counterparts of (each
in such form as Agent from time to time may specify):
(a)) Within twenty-five (25) days after the end of each month for such
month:
(1) RSL total company inventory report by department;
(2) RSL total company inventory report for Borrower;
(3) ISL report;
(4) purchase and accounts payable aging report;
(5) rent, tax and insurance compliance certificate; and
<PAGE>
(6) a report in form satisfactory to Agent setting forth all rent and other
amounts due with respect to real and personal property of Borrower and each
Subsidiary of Borrower and taxes and other similar charges of Borrower and each
Subsidiary of Borrower that are due but remain unpaid.
(B) Within thirty (30) days after the end of each month for such month:
(1) reconciliation of gross margin and cost of sales from RSL to general
ledger;
(2) RSL inventory report reconciliation to Availability and to ISL;
(3) financial statements including balance sheet, income statement
(consolidated and by store), cash flow report and comparison of same store
sales;
(4) gift certificates/merchandise credits report at month-end; and
(5) officer's compliance certificate.
(C) Promptly upon receipt thereof:
(1) an Inventory Valuation/capacity analysis prepared by the Oversight
Agent or such other retail specialist acceptable to Agent in the form provided
to Agent under the Pre-Relief Date Loan Agreement; and
(2) any report prepared by Borrower's consultant or financial advisor.
<PAGE>
(D) Within thirty (30) days following the end of each month, Borrower shall
provide to Agent an original counterpart of management prepared financial
statements of Borrower and its Subsidiaries, on a consolidated and consolidating
basis, for the period from the beginning of Borrower's and its Subsidiaries=
then current fiscal year through the end of the subject month, with comparative
information for the same period of the previous fiscal year, which statement
shall include, at a minimum, a balance sheet, income statement (on a store
specific and on a "consolidated" basis), statement of changes in shareholders=
equity, and cash flow report and comparisons for the corresponding month of the
then immediately previous year, as well as to the Business Plan.
(ii) For purposes of Section 6.2(c)(i)(a), above, the first "month" in
respect of which the items required by that Section shall be provided shall be
January, 1999 and for purposes of Section 6.2(c)(i)(B) above, the first "month"
in respect of which the items required by that Section shall be provided shall
be January, 1999.
(d) Quarterly Reports. Quarterly, within forty five (45) days following the
end of each of Borrower's fiscal quarters, Borrower shall provide to Agent an
original counterpart of management prepared financial statements of Borrower and
its Subsidiaries, on a consolidated and consolidating basis, for the period from
the beginning of Borrower's and its Subsidiaries' then current fiscal year
through the end of the subject quarter, with comparative information for the
same period of the previous fiscal year, which statement shall include, at a
minimum, a balance sheet, income statement (on a store specific and on a
"consolidated" basis), statement of changes in shareholders= equity, and cash
flow report and comparisons for the corresponding quarter of the then
immediately previous year, as well as to the Business Plan.
(e) Annual Reports.
<PAGE>
(i) In addition to the monthly reports required under this Section 6.2,
annually, within one hundred twenty (120) days following the end of Borrower's
and its Subsidiaries' fiscal year, Borrower shall deliver to Agent an original
signed counterpart of Borrower's and its Subsidiaries' annual financial
statements, on a consolidated basis, which statement shall have been audited by,
and bear the unqualified opinion of Borrower's independent certified public
accountants reasonably acceptable to Agent (i.e. said statement shall be
"certified" by such accountants) certifying that such statements have been
prepared in accordance with GAAP and, except with respect to any explanatory or
qualifying paragraph regarding the filing of the Chapter 11 Case, without any
explanatory paragraphs or other qualifying paragraphs, together with (x) a
certificate of such accountants addressed to Agent stating that such accountants
do not have knowledge of the existence of any Default or Event of Default, and
(y) a copy of such accountant's letter to management. Such annual statements
shall include, at a minium (with comparative information for the then prior
fiscal year) a balance sheet, profit and loss statement, income statement,
statement of changes in shareholders' equity, and cash flows. Borrower shall
provide an interim draft of such financial statements within sixty (60) days
after year-end, inclusive of subsequent periods, until the year-end statements
are finalized. Together with the above, Borrower also shall deliver to Agent
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with the Securities and
Exchange Commission, if any, as soon as the same are filed, any press releases
of Borrower, and any other information that is provided by Borrower to its
shareholders, and any other report reasonably requested by Agent relating to the
financial condition of Borrower and its Subsidiaries. Prior to the Closing Date,
Borrower shall have issued written instructions to its independent certified
public accountants authorizing them to communicate with Agent and to release to
Agent whatever financial information concerning Borrower that Agent may request.
Borrower hereby irrevocably authorizes and directs all auditors, accountants, or
other third parties to deliver to Agent, at Borrower's expense, copies of
Borrower's and its Subsidiaries' financial statements, papers related thereto,
and other accounting records of any nature in their possession and to disclose
to Agent any information they may have regarding Borrower's and its
Subsidiaries' business affairs and financial condition.
(ii) Each annual statement shall be accompanied by such accountant's
certificate indicating that to the best knowledge of such accountant, no event
has occurred which is or which, solely with the passage of time or the giving of
notice (or both) would be, an Event of Default.
(iii) Borrower hereby acknowledges that the Lender Group relied upon
Borrower's audited financial statements for the fiscal year ended January 30,
1998 in extending credit to Borrower.
(f) Officers' Certificates. Borrower shall cause Borrower's chief financial
officer to provide such Person's certificate with those monthly, quarterly, and
annual statements to be furnished pursuant to this Agreement, which certificate
shall:
(i) Indicate that the subject statement was prepared in accordance with
GAAP consistently applied, and presents fairly the financial condition of
Borrower and its Subsidiaries at the close of, and the results of Borrower's and
its Subsidiaries= operations and cash flows for, the period(s) covered, subject,
however (with the exception of the certificate which accompanies such annual
statement) to usual year end adjustments;
(ii) Indicate either that (i) no Default or Event of Default has occurred
or (ii) if such an event has occurred, its nature (in reasonable detail) and the
steps (if any) being taken or contemplated by Borrower to be taken on account
thereof;
<PAGE>
(iii) Include calculations concerning Borrower's compliance ( or failure to
comply) at the date of the subject statement with the covenants included in
Sections 7.20 and 7.21 below;
(iv) Indicate that, except as provided in the report required by Section
6.2(c)(i)(a))(6), all taxes have been paid;
(v) Indicate that all rent and additional rent, except as provided in the
report required by Section 6.2(c)(i)(a)(6), has been paid; and
(vi) Indicate that premiums for insurance required under Section 6.10
hereof have or have not been paid.
(g) Inventories, Appraisals and Audits.
(i) Agent, at the expense of Borrower, may participate in and/or observe
each physical count and/or inventory of so much of the Collateral as consists of
Inventory which is undertaken on behalf of Borrower.
(ii) Upon Agent's request from time to time, Borrower shall obtain, or
shall permit Agent to obtain financial or SKU based physical counts and/or
inventories of the Collateral, conducted by such inventory takers as are
satisfactory to Agent and following such methodology as may be required by
Agent, each of which physical counts and/or financial or SKU based inventories
shall be observed by Borrower's accountants. For each fiscal year in which this
Agreement is in effect, Borrower shall perform (at its expense) one (1) full
physical inventory as of fiscal year end for all locations. Borrower shall
engage a third party acceptable to Agent to conduct each month a full physical
inventory of at least one (1) retail store location per geographic region of
Borrower's retail store locations; provided, however, that no such inventories
are required to be done in February, November or December for any given fiscal
year of Borrower; provided further, however, that, with respect to such
inventories required in the months of March and April of any year, so long as
the final results of Borrower's full physical inventory as of the preceding
fiscal year end of Borrower are delivered within the time period required below,
no such inventories are required to be done in March or April of any given
fiscal year of Borrower. The results of each such physical inventory shall be
provided to Agent no later than the fifteenth day of each month for the prior
month when an inventory is completed. The draft or unaudited results of all
inventories or counts shall be furnished to Lender within fifteen (15) business
days of the taking of such inventories or counts and, with respect to the final
results of the full physical inventory as of each fiscal year end of Borrower,
the results of each such inventory shall be delivered to Agent no later than the
date forty-five (45) days following the date of Borrower's fiscal year end.
<PAGE>
(h) Additional Financial Information.
(i) In addition to all other information required to be provided pursuant
to this Section 6.2, Borrower promptly shall provide to Agent such other and
additional information concerning Borrower, any Subsidiary of Borrower, and any
guarantor of the Obligations, the Collateral (and other collateral securing
repayment of the Obligations), the operation of Borrower's and its Subsidiaries'
business, and Borrower's and its Subsidiaries' financial condition, including
original counterparts of financial reports and statements, as Agent or Co-Agent
may from time to time reasonably request from Borrower.
(ii) Borrower may provide Agent, from time to time hereafter, with updated
Business Plans. In all events, Borrower, not later than sixty (60) days prior to
the end of each of Borrower's fiscal years, shall deliver to Agent an updated
and extended Business Plan which shall go out at least through the end of the
then next fiscal year and the final Business Plan within fifteen (15) days of
the end of Borrower's fiscal year. In each event, such updated and extended
Business Plans shall be provided in the same form as that provided to and
approved by Borrower's Board of Directors and reasonably satisfactory to Agent.
(iii) Promptly when filed with the Court or delivered to the United States
Trustee for the Chapter 11 Case or any Committee, Borrower shall provide to
Agent all monthly reports, projections or other information respecting
Borrower's business or financial condition or prospects filed with the Court or
delivered to the United States Trustee for the Chapter 11 Case or any Committee.
(i) Financial Performance Covenants. Borrower shall observe and comply with
the covenants set forth in Sections 7.20 and 7.21 which covenants are based on
the Business Plan set forth on Schedule B-1 hereto.
(j) Electronic Reporting. At Agent's option, all information and reports
required to be submitted to Agent by Borrower shall be transmitted
electronically pursuant to an electronic transmitting reporting system and shall
be in a record layout format designated by Agent from time to time.
(k) Reporting to Committees. Agent shall cause, and Borrower permits Agent
to cause, the Oversight Agent to distribute to the Committees all reports
provided to Agent by the Oversight Agent that the Agent determines in its
discretion are non-proprietary and non-privileged as between Agent and the
Oversight Agent.
6.3 [Intentionally Omitted.].3[Intentionally Omitted.]
<PAGE>
6.4 Tax Returns. Deliver to Agent, with copies to the financial advisor(s)
for the Committees, copies of each of Borrower's and each Subsidiary of
Borrower's future federal income tax returns, and any amendments thereto, within
thirty (30) days of the filing thereof with the Internal Revenue Service.
6.5 Guarantor Reports. Cause any guarantor of any of the Obligations to
deliver its annual financial statements at the time when Borrower provides its
audited financial statements to Agent and copies of all federal income tax
returns as soon as the same are available and in any event no later than thirty
(30) days after the filing thereof with the Internal Revenue Service.
6.6 Returns. Cause returns and allowances, if any, as between Borrower and
its Account Debtors to be on the same basis and in accordance with the usual and
customary practices of Borrower, as they exist at the time of the execution and
delivery of this Agreement. If, at a time when no Event of Default has occurred
and is continuing, any Account Debtor returns any Inventory to Borrower,
Borrower promptly shall determine the reason for such return and, if Borrower
accepts such return, issue a credit memorandum (with a copy to be sent to Agent)
in the appropriate amount to such Account Debtor. If, at a time when an Event of
Default has occurred and is continuing, any Account Debtor returns any Inventory
to Borrower, Borrower promptly shall determine the reason for such return and,
if Agent consents (which consent shall not be unreasonably withheld), issue a
credit memorandum (with a copy to be sent to Agent) in the appropriate amount to
such Account Debtor.
6.7 Title to Equipment. Upon Agent's request, Borrower immediately shall
deliver to Agent, properly endorsed, any and all evidences of ownership of,
certificates of title, or applications for title to any items of Equipment.
6.8 Maintenance of Equipment. Maintain the Equipment in good operating
condition and repair (ordinary wear and tear and damage by casualty excepted),
and make all necessary replacements thereto so that the value and operating
efficiency thereof shall at all times be maintained and preserved. Other than
those items of Equipment that constitute fixtures on the Closing Date, Borrower
shall not permit any item of Equipment to become a fixture to real estate or an
accession to other property, and such Equipment shall at all times remain
personal property.
<PAGE>
Except as permitted by the Bankruptcy Code or by an order of the Court
after notice and a hearing or with respect to which the failure to pay is
consented to in writing by the holder of the applicable tax claim and written
notice thereof is provided to Agent or with respect to which the failure to pay
is consented to in writing by the Required Lenders, cause all assessments and
taxes, whether real, personal, or otherwise, due or payable by, or imposed,
levied, or assessed against Borrower, any Subsidiary of Borrower or any of their
respective properties to be paid in full, before delinquency or before the
expiration of any extension period, except to the extent that the validity of
such assessment or tax shall be the subject of a Permitted Protest. Except as
permitted by the Bankruptcy Code or by an order of the Court after notice and a
hearing or with respect to which the failure to pay is consented to in writing
by the holder of the applicable tax claim and written notice thereof is provided
to Agent or with respect to which the failure to pay is consented to in writing
by the Required Lenders, Borrower shall, and shall cause its Subsidiaries to,
make due and timely payment or deposit of all such federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Agent, on demand, appropriate certificates attesting to the payment
thereof or deposit with respect thereto. Except as permitted by the Bankruptcy
Code or by an order of the Court after notice and a hearing or with respect to
which the failure to pay is consented to in writing by the holder of the
applicable tax claim and written notice thereof is provided to Agent or with
respect to which the failure to pay is consented to in writing by the Required
Lenders, Borrower will, and will cause each of its Subsidiaries to, make timely
payment or deposit of all tax payments and withholding taxes required of them by
applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request,
furnish Agent with proof satisfactory to Agent indicating that Borrower and each
Subsidiary of Borrower has made such payments or deposits.
6.10 Insurance.
(a) At its expense, keep the Personal Property Collateral insured against
loss or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as are ordinarily insured against by other owners in
similar businesses. Borrower also shall maintain business interruption, public
liability, product liability, and property damage insurance relating to
Borrower's ownership and use of the Personal Property Collateral, as well as
insurance against larceny, embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the type necessary
to insure the Improvements (as such term is defined in the Mortgages), for the
full replacement cost thereof, against any loss by fire, lightning, windstorm,
hail, explosion, aircraft, smoke damage, vehicle damage, earthquakes, elevator
collision, and other risks from time to time included under "extended coverage"
policies, in such amounts as Agent may require, but in any event in amounts
sufficient to prevent Borrower or any Subsidiary of Borrower from becoming a
co-insurer under such policies, (ii) combined single limit bodily injury, and
property damage insurance against any loss, liability, or damages on, about, or
relating to each parcel of Real Property Collateral, in such amounts as Agent
shall reasonably require; (iii) business rental insurance covering annual
receipts for a twelve (12) month period for each parcel of Real Property
Collateral; and (iv) insurance for such other risks as Agent may require.
Replacement costs, at Agent's option, may be redetermined by an insurance
appraiser, satisfactory to Agent, not more frequently than once every twelve
(12) months at Borrower's cost.
(c) [Intentionally Omitted.]
<PAGE>
(d) All such policies of insurance shall be in such form, with such
companies, and in such amounts as may be reasonably satisfactory to Agent. All
insurance required herein shall be written by companies which are authorized to
do insurance business in the State of California. All hazard insurance and such
other insurance as Agent shall specify, shall contain a California Form 438BFU
(NS) mortgagee endorsement, or an equivalent endorsement satisfactory to Agent,
showing Agent (for the ratable benefit of the Lenders) as sole loss payee
thereof, and shall contain a waiver of warranties. Every policy of insurance
referred to in this Section 6.10 shall contain an agreement by the insurer that
it will not cancel such policy except after thirty (30) days prior written
notice to Agent (for the ratable benefit of the Lenders) and that any loss
payable thereunder shall be payable notwithstanding any act or negligence of
Borrower or the Lender Group which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment and notwithstanding (i)
occupancy or use of the Real Property Collateral for purposes more hazardous
than permitted by the terms of such policy, (ii) any foreclosure or other action
or proceeding taken by the Lender Group pursuant to the Mortgages upon the
happening of an Event of Default, or (iii) any change in title or ownership of
the Real Property Collateral. Borrower shall deliver to Agent copies of such
policies of insurance and evidence of the payment of all premiums therefor.
(e) Original policies or certificates thereof satisfactory to Agent
evidencing such insurance shall be delivered to Agent at least thirty (30) days
prior to the expiration of the existing or preceding policies. Borrower shall
give Agent prompt notice of any loss covered by such insurance, and, except to
the extent prohibited by any mortgagee with respect to the Secondary Real
Estate, Agent shall have the right to adjust any loss. Except to the extent
prohibited by any mortgagee with respect to the Secondary Real Estate, Agent
shall have the exclusive right to adjust all losses payable under any such
insurance policies without any liability to Borrower or any Subsidiary of
Borrower whatsoever in respect of such adjustments. Unless the Required Lenders
otherwise consent, any monies received as payment for any loss under any
insurance policy including the insurance policies mentioned above, shall be paid
over to Agent (for the ratable benefit of Lenders) to be applied at the option
of Agent either to the prepayment of the Obligations without premium, in such
order or manner as Agent may elect, or shall be disbursed to Borrower or any
Subsidiary of Borrower, as applicable, under stage payment terms satisfactory to
Agent for application to the cost of repairs, replacements, or restorations. All
repairs, replacements, or restorations shall be effected with reasonable
promptness and shall be of a value at least equal to the value of the items or
property destroyed prior to such damage or destruction. Upon the occurrence of
an Event of Default, Agent shall have the right to apply all prepaid premiums to
the payment of the Obligations in such order or form as Agent shall determine.
(f) Borrower shall not, and shall not permit any Subsidiary to, take out
separate insurance concurrent in form or contributing in the event of loss with
that required to be maintained under this Section 6.10, unless Agent is included
thereon as named insured with the loss payable to Agent (for the ratable benefit
of Lenders) under a standard California 438BFU (NS) Mortgagee endorsement, or
its local equivalent. Borrower immediately shall notify Agent whenever such
separate insurance is taken out, specifying the insurer thereunder and full
particulars as to the policies evidencing the same, and originals of such
policies immediately shall be provided to Agent.
<PAGE>
6.11 No setoffs or Counterclaims. Make payments hereunder and under the
other Loan Documents by or on behalf of Borrower without setoff or counterclaim
and free and clear of, and without deduction or withholding for or on account
of, any federal, state, or local taxes.
Except for Eligible In-Transit Inventory, keep the Inventory and Equipment
only at the locations identified on Schedule 6.12; provided, however, that
Borrower may amend Schedule 6.12 so long as such amendment occurs by written
notice to Agent not less than thirty (30) days prior to the date on which the
Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United States, and so long as, at the time of
such written notification, Borrower provides any financing statements or fixture
filings necessary to perfect and continue perfected (the Lien of Agent for the
benefit of the Lender Group), security interests in such assets and also
provides to Agent a Collateral Access Agreement; provided, however, that a
Collateral Access Agreement shall not be required if the Final Order contains
such findings and decretal portions as Agent, in its sole discretion, may deem
equivalent to, and acceptable in lieu of, the execution and delivery of any
Collateral Access Agreement.
6.13 Compliance with Laws. Comply, and cause each of its Subsidiaries to
comply, in all material respects, with the requirements of all applicable laws,
rules, regulations, and orders of any governmental authority, including the Fair
Labor Standards Act and the Americans With Disabilities Act, other than laws,
rules, regulations, and orders the non-compliance with which, individually or in
the aggregate, would not have and could not reasonably be expected to cause a
Material Adverse Change.
6.14 Employee Benefits.
(a) Deliver to Agent, with copies to the financial advisor(s) for the
Committees: (i) Promptly, and in any event within ten (10) Business Days after
Borrower or any of its Subsidiaries knows or has reason to know that an ERISA
Event has occurred that reasonably could be expected to result in a Material
Adverse Change, a written statement of the chief financial officer of Borrower
describing such ERISA Event and any action that is being taking with respect
thereto by Borrower, any such Subsidiary or ERISA Affiliate, and any action
taken or threatened by the IRS, Department of Labor, or PBGC. Borrower or such
Subsidiary, as applicable, shall be deemed to know all facts known by the
administrator of any Benefit Plan of which it is the plan sponsor, (ii)
promptly, and in any event within three (3) Business Days after the filing
thereof with the IRS, a copy of each funding waiver request filed with respect
to any Benefit Plan and all communications received by Borrower, any of its
Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate with respect
to such request, and (iii) promptly, and in any event within three (3) Business
Days after receipt by Borrower, any of its Subsidiaries or, to the knowledge of
Borrower, any ERISA Affiliate, of the PBGC's intention to terminate a Benefit
Plan or to have a trustee appointed to administer a Benefit Plan, copies of each
such notice.
<PAGE>
(b) Cause to be delivered to Agent, upon Agent's request, with copies to
the financial advisor(s) for the Committees, each of the following: (i) a copy
of each Plan (or, where any such plan is not in writing, complete description
thereof) (and if applicable, related trust agreements or other funding
instruments) and all amendments thereto, all written interpretations thereof and
written descriptions thereof that have been distributed to employees or former
employees of Borrower or its Subsidiaries; (ii) the most recent determination
letter issued by the IRS with respect to each Benefit Plan; (iii) for the three
(3) most recent plan years, annual reports on Form 5500 Series required to be
filed with any governmental agency for each Benefit Plan; (iv) all actuarial
reports prepared for the last three (3) plan years for each Benefit Plan; (v) a
listing of all Multiemployer Plans, with the aggregate amount of the most recent
annual contributions required to be made by Borrower or any ERISA Affiliate to
each such plan and copies of the collective bargaining agreements requiring such
contributions; (vi) any information that has been provided to Borrower or any
ERISA Affiliate regarding withdrawal liability under any Multiemployer Plan; and
(vii) the aggregate amount of the most recent annual payments made to former
employees of Borrower or its Subsidiaries under any Retiree Health Plan.
6.15 Leases. Except as permitted by the Bankruptcy Code or by an order of
the Court after notice and a hearing or with respect to which the failure to pay
is consented to in writing by the applicable lessor and written notice thereof
is provided to Agent or with respect which the failure to pay is consented to in
writing by the Required Lenders, pay, and cause each Subsidiary to pay, when due
all post-Relief Date rents and other amounts payable under any real property
leases to which Borrower or any Subsidiary of Borrower is a party or by which
Borrower's or any Subsidiary of Borrower's properties and assets are bound,
unless such payments are the subject of a Permitted Protest. To the extent that
Borrower or any Subsidiary of Borrower fails timely on or before the expiration
of any applicable cure periods to make payment of such post-Relief Date rents
and other amounts payable when due under its real property leases, Agent shall
be entitled, in its discretion, to create such reserves against the Borrowing
Base as are otherwise permitted herein. Borrower shall promptly notify Agent of
the assumption or rejection of any such leases by Borrower under the Bankruptcy
Code.
6.16 GOB Sales. Promptly upon receipt thereof, remit the GOB Store Proceeds
to Agent to be applied to the Obligations in the manner set forth in Section
2.5.
6.17 Mortgages on Real Estate. Unless otherwise consented to by the
Required Lenders, make all regularly scheduled principal and interest payments
due in respect of all indebtedness secured by senior liens on the Secondary Real
Estate. Borrower shall promptly notify Agent of the commencement of any
foreclosure action with respect to any Secondary Real Estate.
<PAGE>
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower will
not, and will not permit any Subsidiary to, do any of the following:
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together with Indebtedness to
issuers of letters of credit that are the subject of L/C Guarantees;
(b) Indebtedness set forth on Schedule 7.1 (other than Real Estate
Indebtedness);
(c) Indebtedness (other than Real Estate Indebtedness) secured by Permitted
Liens;
(d) refinancings, renewals, or extensions of Indebtedness permitted under
clauses (b) and (c) of this Section 7.1 (and continuance or renewal of any
Permitted Liens associated therewith) so long as: (i) the terms and conditions
of such refinancings, renewals, or extensions do not materially impair the
prospects of repayment of the Obligations by Borrower, (ii) the net cash
proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to the Lender Group as those
applicable to the refinanced Indebtedness;
(e) Indebtedness evidenced by the Convertible Subordinated Notes; and
(f) the Real Estate Indebtedness.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens. The prohibition provided for in this
Section 7.2 specifically includes, without limitation, any effort by Borrower or
any Committee to "prime" or create pari passu to any claims or interests of
Agent on behalf of the Lenders any Lien irrespective of whether such claims or
interests may be "adequately protected."
<PAGE>
7.3 Restrictions on Fundamental Changes. Subject to Required Lenders
consenting to otherwise or except as permitted by Section . 7.4, enter into any
merger, consolidation, reorganization, or recapitalization, or reclassify its
capital stock, or liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, assign, lease, transfer, or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its property or assets; provided, however, that any Primary
Subsidiary may merge into any other Primary Subsidiary or Borrower and Borrower
may liquidate or otherwise dissolve Sports & Recreation Holdings of PA, Inc., a
Delaware corporation, Construction Resolution, Inc., a Florida corporation and
Sports & Recreation, Inc., a Florida corporation.
7.4 Disposal of Assets. Except as permitted by Section 7.23, sell, lease,
assign, transfer, or otherwise dispose of any of Borrower's properties or assets
other than (a) sales of Inventory to buyers in the ordinary course of Borrower's
business as currently conducted, (b) the sale of any parcel of Primary Real
Estate listed on Schedule R-1 so long as (i) no Default or Event of Default
exists, (ii) the gross cash proceeds (inclusive of selling costs and expenses)
from such sale are equal to or exceed the Release Price for such parcel sold,
and (iii) the Net Proceeds are paid to Agent to be applied to the Obligations as
set forth in Section 2.5(b), (c) the sale of any parcel of Secondary Real Estate
at a price acceptable to Agent and so long as (i) no Default or Event of Default
exists, (ii) the Net Proceeds from such sale are distributed to Borrower, and
(iii) the Net Proceeds are paid to Agent to be applied to the Obligations
pursuant to the terms of Section 2.5(b), and (d) the going-out-of-business sales
contemplated by the GOB Order and any order entered approving the
going-out-of-business-sale of Borrower's Inventory at any other retail stores so
long as (i) the GOB Store Proceeds are paid to Agent to be applied to the
Obligations pursuant to the terms of Section 2.5(b) and (ii) with respect to any
such sale with respect to Borrower's Inventory at any other retail store not
otherwise included in the GOB Order, the sales price therefor (net of any costs
and expenses of such liquidation) is not less than the portion of the Borrowing
Base attributable to Inventory at such retail store or such other price
acceptable to the Required Lenders.
7.5 Change Name. Change Borrower's or any Subsidiary of Borrower's name,
FEIN, corporate structure (within the meaning of Section 9-402(7) of the Code),
or identity, or add any new fictitious name; provided, however, that so long as
Borrower provides Agent with thirty (30) days prior written notice thereof, any
Subsidiary of Borrower may change its name.
7.6 Guarantee. Guarantee or otherwise become in any way liable with respect
to the obligations of any third Person except by endorsement of instruments or
items of payment for deposit to the account of Borrower or which are transmitted
or turned over to Agent; provided, however, that each Subsidiary of Borrower may
guarantee payment of the Obligations as set forth in the Subsidiary Guaranty
Agreement.
7.7 Nature of Business. Make any change in the principal nature of
Borrower's or any Subsidiary of Borrower's business.
<PAGE>
7.8 Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by Section 7.1(d),
prepay, redeem, retire, decease, purchase, or otherwise acquire any Indebtedness
owing to any third Person, other than the Obligations in accordance with this
Agreement; provided, however, that Borrower or any Subsidiary of Borrower may
prepay Real Estate Indebtedness secured by any parcel of Secondary Real Estate
sold pursuant to Section 7.4(c) solely from the proceeds of such sale; or
(b) Directly or indirectly, amend, modify, alter, increase, or change any
of the terms or conditions of any agreement, instrument, document, indenture, or
other writing evidencing or concerning Indebtedness permitted under Sections
7.1(b), (c), or (d); or
(c) change its fiscal year from the Friday closest to January 31; or
(d) without the prior written consent of the Required Lenders, directly or
indirectly amend, modify, alter, or change in any manner adverse to Borrower or
the Lenders (i) the articles of incorporation or by-laws of Property Holdings,
(ii) any document evidencing or securing any Indebtedness of Property Holdings,
or (iii) any trust agreement with respect to the Real Estate Trusts; or
(e) Except as specifically permitted under the Final Order or consented to
by the Required Lenders (which consent shall not be unreasonably withheld), make
any payment or transfer with respect to any pre-Relief Date Lien or
Indebtedness, whether by way of "adequate protection" under the Bankruptcy Code
or otherwise in an aggregate amount in excess of the greater of $250,000 and the
amount of "adequate protection" payments contemplated by the Business Plan.
Notwithstanding anything contained herein to the contrary, and subject to the
entry of an order of the Court after appropriate notice and hearing required by
the Federal Rules of Bankruptcy Procedure, the Borrower may enter into adequate
protection arrangements with Intermedia Communications, Inc. on account of its
pre-Relief Date executory contract to provide frame relay services and with
Paymentech on account of its pre-Relief Date merchant processing agreement.
7.9 Change of Control. Cause, permit, or suffer, directly or indirectly,
any Change of Control.
7.10 Consignments. Consign any Inventory or sell any Inventory on bill and
hold, sale or return, sale on approval, or other conditional terms of sale.
<PAGE>
7.11 Distributions. Make any distribution or declare or pay any dividends
(in cash or other property, other than capital stock) on, or purchase, acquire,
redeem, or retire any of Borrower's capital stock, of any class, whether now or
hereafter outstanding; provided, however, that any Subsidiary of Borrower may
make any distribution or declare or pay any dividend to Borrower. Borrower shall
not permit any Subsidiary of Borrower to enter into any agreement with any third
party restricting such Subsidiary's ability to make distributions to Borrower.
7.12 Accounting Methods. Modify or change its method of accounting or enter
into, modify, or terminate any agreement currently existing, or at any time
hereafter entered into with any third party accounting firm or service bureau
for the preparation or storage of Borrower's or any Subsidiary of Borrower's
accounting records without said accounting firm or service bureau agreeing to
provide Agent information regarding the Collateral or Borrower's or any
Subsidiary of Borrower's financial condition. Borrower waives, and will cause
each of its Subsidiaries to waive, the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Agent pursuant to or in accordance
with this Agreement, and agrees that Agent may contact directly any such
accounting firm or service bureau in order to obtain such information.
7.13 Investments. Except to the extent permitted by Section 7.4, directly
or indirectly make, acquire, or incur any liabilities (including contingent
obligations) for or in connection with (a) the acquisition of the securities
(whether debt or equity) of, or other interests in, a Person, (b) loans,
advances, capital contributions, or transfers of property to a Person, or (c)
the acquisition of all or substantially all of the properties or assets of a
Person; provided, however, that Borrower may make loans to employees to finance
such employees= relocation expenses in an amount not to exceed $500,000 in the
aggregate and $150,000 per employee; provided further, however, that
notwithstanding anything herein which may be construed to the contrary Borrower
shall not permit Property Holdings (i) to acquire any assets after the Closing
Date, or (ii) to hold any assets other than the Secondary Real Estate and the
improvements thereon that are owned by Property Holdings on the Closing Date;
provided further, however, that Borrower may make loans to Nationwide Team Sales
in an aggregate amount not to exceed $1,250,000 at any time so long as such
loans are evidenced by the Nationwide Team Sales Note, are secured by a security
interest in substantially all of the assets of Nationwide Team Sales and such
Nationwide Team Sales Note and the security therefor are assigned to Agent
pursuant to the Assignment of Note and such other documentation required by
Agent in its reasonable discretion.
7.14 Transactions with Affliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms, that are fully disclosed to Agent, and that are no
less favorable to Borrower than would be obtained in an arm's length transaction
with a non-Affiliate.
7.15 Suspension. Except as permitted by Section 7.4, suspend or go out of a
substantial portion of its business.
<PAGE>
7.16 Compensation. Increase the annual fee or per-meeting fees paid to
directors during any year by more than 15% over the prior year; pay or accrue
total cash compensation, during any year, to officers and senior management
employees in an aggregate amount in excess of 115% of that paid or accrued in
the prior year; provided, however, that notwithstanding the foregoing, Borrower
may make payments under that certain JumboSports Inc. Performance Incentive
Bonus Program as it exists on the date hereof; provided, further, however, that
notwithstanding the foregoing, Borrower may make payments permitted under any
compensation plan approved by the Court.
7.17 Use of Proceeds. Use the proceeds of the Advances and the Term Loans
for any purpose other than (a)) on the Closing Date, (i) to repay in full the
outstanding principal, accrued interest, and accrued fees and expenses owing to
Existing Lender under the Pre-Relief Date Loan Agreement, and (ii) to pay
transactional costs and expenses incurred in connection with this Agreement, and
(b) thereafter, consistent with the terms and conditions hereof, for its lawful
and permitted corporate purposes consistent with the Business Plan and as
otherwise allowed by the Final Order.
7.18 Change in Location of Chief Executive Office; Inventory and Equipment
with Bailees. Relocate its chief executive office to a new location without
providing thirty (30) days prior written notification thereof to Agent and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected the Lien of Agent (for the benefit of the Lender Group) and also
provides to Agent a Collateral Access Agreement with respect to such new
location; provided, however, that a Collateral Access Agreement shall not be
required if the Final Order contains such findings and decretal portions as
Agent, in its sole discretion, may deem equivalent to, and acceptable in lieu
of, the execution and delivery of any Collateral Access Agreement. The Inventory
and Equipment shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party other than Butler Shoes at the Butler Shoe
Warehouse and, Genco at the Genco Warehouse without Agent's prior written
consent.
7.19 No Prohibited Transactions Under ERISA. Directly or indirectly:ctions
Under ERISA
(a) engage, or permit any Subsidiary of Borrower to engage, in any
prohibited transaction which is reasonably likely to result in a civil penalty
or excise tax described in Sections 406 of ERISA or 4975 of the IRC for which a
statutory or class exemption is not available or a private exemption has not
been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC),
whether or not waived;
<PAGE>
(c) fail, or permit any Subsidiary of Borrower to fail, to pay timely
required contributions or annual installments due with respect to any waived
funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to terminate, any
Benefit Plan where such event would result in any liability of Borrower, any of
its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to make any
required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay any required
installment or any other payment required under Section 412 of the IRC on or
before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a Plan resulting
in an increase in current liability for the plan year such that either of
Borrower, any Subsidiary of Borrower or any ERISA Affiliate is required to
provide security to such Plan under Section 401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to withdraw, from any
Multiemployer Plan where such withdrawal is reasonably likely to result in any
liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $100,000.
7.20 Financial Covenants. (a) Suffer a variance from the Business Plan with
respect to the line items indicated below in excess of the amount set forth
opposite each such line item measured on a monthly basis on the twenty-fifth
(25th) day of each month for the immediately preceding month, commencing on
March 25, 1999 (for the month of February 1999);
Business Plan Line Item: Variance:
Inventory Level Shall not be greater than 120% of Business Plan
Inventory Level Shall not be less than 80% of Business Plan
(b) Gross Margin. Fail to achieve a gross margin on Inventory (computed
using the RSL)for any month, commencing with February 1999, of at least
thirty-two and one quarter of one percent (32.25%).
<PAGE>
(c) Minimum EBITDAR. Fail to maintain as of the last day of the fiscal
quarter ending closest to April 30, 1999, and as of the last day of each fiscal
quarter thereafter, Adjusted EBITDAR of at least the amount set forth in the
table below for such period (i) with respect to the fiscal quarter ending
closest to April 30, 1999, for the immediately preceding quarter, (ii) with
respect to the fiscal quarter ending closest to July 31, 1999, for the
immediately preceding two quarters, (iii) with respect to the fiscal quarter
ending closest to October 31, 1999, for the immediately preceding three
quarters, and (iv) with respect to each fiscal quarter ending thereafter, for
the immediately preceding four quarters:
<TABLE>
<CAPTION>
For the Fiscal Quarter period ending closest to: Adjusted EBITDAR shall not be
less than:
- ------------------------------------------------- ----------------------------------------
<S> <C>
April 30, 1999 ($ 2,500,000)
July 31, 1999 $ 300,000
October 31, 1999 $ 4,200,000
January 31, 2000 $ 9,625,000
April 30, 2000 $14,125,000
July 31, 2000 $14,125,000
</TABLE>
7.21 Capital Expenditures. Make cash capital expenditures in excess of
$250,000 during any month; provided, however, that if capital expenditures in
any month are less than the aggregate amount permitted in such month, the excess
permitted amount for such month may be carried forward to the next succeeding
month.
7.22 Accounts. Create or permit to be created any Account other than (a))
third party credit card Accounts and (b) Accounts that are not credit card
Accounts in an aggregate amount not to exceed $5,000,000 at any time.
7.23 Retail Store Closings. Commit to close, or close, any retail store
location at which Borrower maintains, offers for sale, or stores any of the
Personal Property Collateral other than the retail stores closed and the
Personal Property Collateral liquidated pursuant to the GOB Order and the other
Personal Property Collateral located at retail stores identified in the GOB
Order liquidated pursuant to an order of the Court, and if not otherwise closed
and liquidated pursuant to the GOB Order, any other retail store of Borrower to
the extent closed and liquidated pursuant to an order by the Court and otherwise
permitted by Section 7.4.
<PAGE>
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared due and
payable, any portion of the Obligations (whether of principal, interest, fees
and charges due the Lender Group, reimbursement of Lender Group Expenses, or
other amounts constituting Obligations);
8.2 (a) If Borrower fails or neglects to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in Sections 6.2
(Collateral and Financial Reporting), 6.4 (Tax Returns), 6.7 (Title to
Equipment), 6.12 (Location of Inventory and Equipment), 6.13 (Compliance with
Laws), 6.14 (Employee Benefits), or 6.15 (Leases) of this Agreement and such
failure continues for a period of five (5) Business Days; (b) if Borrower fails
or neglects to perform, keep, or observe any term, provision, condition,
covenant, or agreement contained in Sections 6.1 (accounting System) or 6.8
(Maintenance of Equipment) of this Agreement and such failure continues for a
period of fifteen (15) Business Days; or (c) if Borrower or any Subsidiary of
Borrower fails or neglects to perform, keep, or observe any other term,
provision, condition, covenant, or agreement contained in this Agreement, or in
any of the other Loan Documents (giving effect to any grace periods, if any,
expressly provided for in such Loan Documents); in each case, other than any
such term, provision, condition, covenant, or agreement that is the subject of
another provision of this Section 8, (in which event such other provision of
this Section 8 shall govern); provided that, during any period of time that any
such failure or neglect of Borrower or any Subsidiary of Borrower referred to in
this paragraph exists, even if such failure or neglect is not yet an Event of
Default by virtue of the existence of a grace period, if any, Lenders shall not
be required during such period to make Advances to Borrower;
8.3 If there is a Material Adverse Change;
8.4 If Borrower or any Committee brings a motion, or files any plan of
reorganization or disclosure statement attendant thereto in the Chapter 11 Case:
(i) to obtain additional financing under Section 364(c) or (d) of the Bankruptcy
Code; (ii) to grant any Lien upon or affecting any Collateral; (iii) except as
provided in the Final Order, to use cash collateral of Agent and the Lenders
under Section 363(c) of the Bankruptcy Code without Agent's and the Lenders=
consent; or (iv) which commences any other action or actions adverse to any of
Agent or any Lender or its rights and remedies hereunder or its interest in the
Collateral that would, individually or in the aggregate, result in a Material
Adverse Change;
8.5 If Borrower or any Subsidiary of Borrower is enjoined, restrained, or
in any way prevented by court order from continuing to conduct all or any
material part of its business affairs;
<PAGE>
8.6 If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's or any Subsidiary of Borrower's properties or
assets by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental
agency, or if any taxes or debts owing at any time hereafter to any one or more
of such entities becomes a Lien, whether choate or otherwise, upon any of
Borrower's or any Subsidiary of Borrower's properties or assets and the same is
not paid on the payment date thereof or a bond for the full amount thereof is
not obtained by Borrower, and the aggregate amount of such Liens or notices of
Liens, levies or assessments exceeds $100,000;
8.7 If a judgment or other claim in an amount equal to or exceeding
$100,000 becomes a Lien or encumbrance upon any material portion of Borrower=s
or any Subsidiary of Borrower's properties or assets;
8.8 (i) Any claim or claims of any Person other than any Committee under
Section 506(c) of the Bankruptcy Code against or with respect to any of the
Collateral in an aggregate amount equal to or exceeding $250,000 is allowed by
an order of the Court, or (ii) any claim or claims of any Committee under
Section 506(c) of the Bankruptcy Code against or with respect to any of the
Collateral is allowed;
8.9 If there is a default under the Real Estate Indebtedness (other than a
default in respect of a payment obligation that is not otherwise required to be
made under Section 6.17);
8.10 If any of the following occur (i) a post-Relief Date judgment is
entered or liability incurred in excess of $250,000, or (ii) general liability
and workers compensation costs (inclusive of insurance premiums with respect
thereto) during any fiscal year in the aggregate exceed such costs for the
preceding fiscal year by more than $100,000, or (iii) any post-Relief Date
judgments are entered or liabilities are incurred, including but not limited to
any occurrences specified in subparts (i) and (ii) of this Section 8.10, that
would individually or in the aggregate result in a Material Adverse Change;
8.11 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to the
Lender Group by Borrower or any Subsidiary of Borrower or any officer, employee,
agent, or director of Borrower or any Subsidiary of Borrower, or if any such
warranty or representation is withdrawn;
8.12 If the obligation of any guarantor under its guaranty or other third
Person under any Loan Document is limited or terminated by operation of law or
by the guarantor or other third Person thereunder, or any such guarantor or
other third Person becomes the subject of an Insolvency Proceeding;
<PAGE>
8.13 The entry of an order approving a disclosure statement and allowing
distribution of a plan of reorganization and such approved disclosure statement
attendant thereto by Borrower or any other Person to which the Lenders do not
consent or otherwise agree to the treatment of their claims;
8.14 The entry of an order confirming a plan of reorganization that does
not require repayment in full of all of the Borrower's Obligations under this
Agreement on the earlier of the effective date of such plan of reorganization or
the date thirty (30) days following entry of the order confirming such plan of
reorganization, unless the Lenders, or a subset thereof but otherwise
specifically including Foothill, are providing "exit financing" in connection
with such plan of reorganization;
8.15 The entry of an order amending, supplementing, staying, vacating or
otherwise modifying the Loan Documents or the Final Order without the written
consent of the Lenders;
8.16 The payment of, or application for authority to pay, any material
pre-petition claim, other than those of trade creditors (including reclamation
claims), employees (or paid for their benefit), taxing authorities, creditors
under leases or executory contracts, Senior Claims and other than those required
to be paid with the initial Advance pursuant to the terms of this Agreement,
without the Required Lenders' prior written consent or pursuant to an order of
the Court after notice and hearing;
8.17 The sale without the Lenders= consent, of all or substantially all of
Borrower's assets either through a sale under Section 363 of the Bankruptcy
Code, through a confirmed plan of reorganization in the Chapter 11 Case, or
otherwise, that does not provide for payment in full of the Obligations and
termination of the Commitments;
8.18 The dismissal of the Chapter 11 Case, or the conversion of the Chapter
11 Case from one under Chapter 11 to one under Chapter 7 of the Bankruptcy Code;
8.19 Except for the investigation and other activities expressly permitted
in paragraph 9 of the Final Order, the commencement of a suit or action
(including the commencement of any suit or action as a result of any
investigation permitted under paragraph 9 of the Final Order) against any of
Agent or any Lender and, as to any suit or action brought by any Person other
than Borrower or an officer or employee of Borrower, the continuation thereof
without dismissal for thirty (30) days after service thereof on any of Agent or
any Lender, that assert, by or on behalf of Borrower, or any Committee, any
claim or legal or equitable remedy which seeks subordination of the claim or
Lien of any of Agent or any Lender;
8.20 If, without the Lenders= consent, an interim or permanent trustee is
appointed in the Chapter 11 Case, or an examiner with expanded powers to operate
or manage the financial affairs, the business, or reorganization of the Borrower
is appointed in the Chapter 11 Case; or
<PAGE>
8.21 If, without the Lenders' consent, an order by the Court is entered
granting relief from or modifying the automatic stay of Section 362 of the
Bankruptcy Code (i) to allow any creditor to execute upon or enforce a lien on
any Collateral, or (ii) with respect to any Lien or the granting of any Lien on
any Collateral to any state or local environmental or regulatory agency or
authority, or (iii) with respect to any retail display racks or point of sale
equipment leased to Borrower.
9. THE LENDER GROUP'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and during the continuation,
of an Event of Default Agent may, pursuant to Sections 17.4 and 17.5, and shall
upon the direction of the Required Lenders, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of
the other Loan Documents, or otherwise, immediately due and payable and
terminate the Commitments;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, under any of the Loan Documents, or under any
other agreement between Borrower and the Lender Group;
(c) Terminate this Agreement and any of the other Loan Documents as to any
future liability or obligation of the Lender Group, but without affecting the
Lender Group's rights and security interests in the Personal Property Collateral
or the Real Property Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account Debtors for
amounts and upon terms which Agent considers advisable, and in such cases, Agent
will credit Borrower's Loan Account with only the net amounts received by Agent
in payment of such disputed Accounts after deducting all Lender Group Expenses
incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for the Lender
Group, segregate all returned Inventory from all other property of Borrower or
in Borrower's possession and conspicuously label said returned Inventory as the
property of the Lender Group;
<PAGE>
(f) Without notice to or demand upon Borrower or any guarantor, make such
payments and do such acts as Agent considers necessary or reasonable to protect
its security interests in the Collateral. Borrower agrees to assemble the
Personal Property Collateral if Agent so requires, and to make the Personal
Property Collateral available to Agent as Agent may designate. Borrower
authorizes Agent to enter the premises where the Personal Property Collateral is
located, to take and maintain possession of the Personal Property Collateral, or
any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or Lien that in Agent's determination appears to conflict with the Liens
of Agent (for the benefit of the Lender Group) in the Collateral and to pay all
expenses incurred in connection therewith. With respect to any of Borrower's
owned or leased premises, Borrower hereby grants Agent a license to enter into
possession of such premises and to occupy the same, without charge, for up to
120 days in order to exercise any of the Lender Group's rights or remedies
provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly waived), and
without constituting a retention of any collateral in satisfaction of an
obligation (within the meaning of Section 9-505 of the Code), set off and apply
to the Obligations any and all (i) balances and deposits of Borrower held by the
Lender Group (including any amounts received in the Blocked Accounts), or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by the Lender Group;
(h) Hold, as cash collateral, any and all balances and deposits of Borrower
held by the Lender Group, and any amounts received in the Blocked Accounts, to
secure the full and final repayment of all of the Obligations;
(i) Seek the appointment of a receiver or keeper to take possession of the
Collateral and to enforce any of Agent's remedies with respect to such
appointment without prior notice or hearing;
(j) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell (in the manner provided for herein) the
Personal Property Collateral. Agent is hereby granted a license or other right
to use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Personal
Property Collateral, in completing production of, advertising for sale, and
selling any Personal Property Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to the Lender Group's benefit;
(k) Sell the Personal Property Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Agent determines is commercially reasonable. It is not necessary that the
Personal Property Collateral be present at any such sale;
(l) Agent shall give notice of the disposition of the Personal Property
Collateral as follows:
<PAGE>
(a) Agent shall give Borrower and each holder of a security interest in the
Personal Property Collateral who has filed with Agent a written request for
notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some other disposition other than a public sale is to
be made of the Personal Property Collateral, then the time on or after which the
private sale or other disposition is to be made;
(B) The notice shall be hand-delivered to an officer of Borrower, or
mailed, postage prepaid, to Borrower as provided in Section 12, at least five
(5) days before the date fixed for the sale, or at least five (5) days before
the date on or after which the private sale or other disposition is to be made;
no notice needs to be given prior to the disposition of any portion of the
Personal Property Collateral that is perishable or threatens to decline speedily
in value or that is of a type customarily sold on a recognized market. Notice to
Persons other than Borrower claiming an interest in the Personal Property
Collateral shall be sent to such addresses as they have furnished to Agent;
(C) If the sale is to be a public sale, Agent also shall give notice of the
time and place by publishing a notice one time at least five (5) days before the
date of the sale in a newspaper of general circulation in the county in which
the sale is to be held;
(m) Agent may credit bid and purchase at any public sale;
(n) Any deficiency that exists after disposition of the Personal Property
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Agent to Borrower; and
(o) Borrower hereby acknowledges that the Obligations arose out of a
commercial transaction, and agrees that if an Event of Default shall occur,
Agent shall have the right to an immediate writ of possession without notice of
a hearing;
<PAGE>
provided, however, that without prejudicing any rights of Agent and the Lenders,
Agent and the Lenders acknowledge Borrower's right to seek an expedited or
emergency hearing contesting the occurrence of an Event of Default and seeking
the continuation of funding hereunder pursuant to paragraph 17(ii) of the Final
Order; provided further, however, that notwithstanding the foregoing, prior to
exercising the foregoing remedies under Sections 9.1(c) through (o), pursuant to
paragraph 17(ii) of the Final Order Agent shall file a motion in the Chapter 11
Case seeking a final order granting relief from the automatic stay which motion
shall be verified or have attached thereto a supporting affidavit, and which
verified motion or supporting affidavit shall recite the facts establishing the
Event of Default under this Agreement. Borrower and, if appropriate, the
Committees shall have ten (10) business days after service of such motion to
respond. If no objection, contravening affidavit or sworn response, as
appropriate or required, is timely filed, pursuant to the Final Order the Court
will enter a final order granting relief from the automatic stay allowing Agent
to pursue all rights and remedies available to it. If, however, an objection, a
contravening affidavit or a sworn response, as appropriate or required, is
filed, pursuant to the Final Order the Court will set down for hearing Agent's
motion for final order seeking relief from the automatic stay on an expedited
basis at the next available time (generally with twenty-four or forty-eight
hours notice, if possible) at which hearing the Court will determine whether an
Event of Default has occurred and whether the relief sought should be granted,
and dispose of the motion accordingly. Pursuant to the Final Order, the sole
issue to be considered at any such hearing will be whether and to what extent an
Event of Default has occurred which would allow for the entry of a final order
granting relief from the automatic stay to allow Agent to proceed with
enforcement of its rights and remedies available hereunder.
9.2 Remedies Cumulative. The Lender Group's rights and remedies under this
Agreement, the Loan Documents, the Final Order, and all other agreements shall
be cumulative. The Lender Group shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by the Lender Group of one right or remedy shall be deemed an election,
and no waiver by the Lender Group of any Event of Default shall be deemed a
continuing waiver. No delay by the Lender Group shall constitute a waiver,
election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any post-Relief Date monies (whether taxes,
assessments, insurance premiums, or, in the case of leased real properties,
rents or other amounts payable under such leases) due to third Persons, or fails
to make any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Agent
determines that such failure by Borrower could result in a Material Adverse
Change and such failure (i) is not deemed to be a Permitted Protest or permitted
by the Bankruptcy Code or an order of the Court after notice and a hearing or
(ii) with respect to which the failure to pay is not consented to in writing by
the holder of the applicable claim or written notice thereof is not provided to
Agent or (iii) with respect to which the failure to pay is not consented to in
writing by the Required Lenders, in its discretion and without prior notice to
Borrower, Agent may do any or all of the following: (a) make payment of the same
or any part thereof; (b) set up such reserves in Borrower's Loan Account as
Agent deems necessary to protect the Lender Group from the exposure created by
such failure; provided, however, that any reserves with respect to unpaid
post-Relief Date taxes and similar charges and unpaid post-Relief Date real
property leases and similar charges shall be determined as otherwise provided in
this Agreement; or (c) obtain and maintain insurance policies of the type
described in Section 6.10, and take any action with respect to such policies as
Agent deems prudent. Any such amounts paid by Agent shall constitute Lender
Group Expenses. Any such payments made by Agent shall not constitute an
agreement by the Lender Group to make similar payments in the future or a waiver
by the Lender Group of any Event of Default under this Agreement. Agent need not
inquire as to, or contest the validity of, any such expense, tax, or Lien and
the receipt of the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
<PAGE>
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by the Lender Group on which Borrower may in any way be liable.
11.2 The Lender Group's Liability for Collateral. So long as the Lender
Group complies with its obligations, if any, under Section 9-207 of the Code,
the Lender Group shall not in any way or manner be liable or responsible for:
(a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring
or arising in any manner or fashion from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person. All risk of loss, damage, or destruction of
the Collateral shall be borne by Borrower.
11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold
Agent, each Agent-Related Person, the Co-Agent, each Lender, each Participant,
and each of their respective officers, directors, employees, counsel, agents,
and attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest
extent permitted by law) from and against any and all claims, demands, suits,
actions, investigations, proceedings, and damages, and all reasonable attorneys
fees and disbursements and other costs and expenses actually incurred in
connection therewith (as and when they are incurred and irrespective of whether
suit is brought), at any time asserted against, imposed upon, or incurred by any
of them in connection with or as a result of or related to the execution,
delivery, enforcement, performance, and administration of this Agreement and any
other Loan Documents or the transactions contemplated herein, and with respect
to any investigation, litigation, or proceeding related to this Agreement, any
other Loan Document, or the use of the proceeds of the credit provided hereunder
(irrespective of whether any Indemnified Person is a party thereto), or any act,
omission, event or circumstance in any manner related thereto (all the
foregoing, collectively, the "Indemnified Liabilities"). Borrower shall have no
obligation to any Indemnified Person under this Section 11.3 with respect to any
Indemnified Liability that a court of competent jurisdiction finally determines
to have resulted from the gross negligence or willful misconduct of such
Indemnified Person. This provision shall survive the termination of this
Agreement and the repayment of the Obligations.
12. NOTICES.
<PAGE>
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other Loan Document shall be in writing
and (except for financial statements and other informational documents which may
be sent by first-class mail, postage prepaid) shall be hand-delivered (with hand
deliveries to Borrower, Agent, the Co-Agent and Foothill Partners to be to an
officer thereof) or sent by registered or certified mail (postage prepaid,
return receipt requested), overnight courier, or telefacsimile to Borrower, to
Agent, to Co-Agent or to Foothill Partners, as the case may be, at its address
set forth below:
If to Borrower: JUMBOSPORTS INC.
4701 W. Hillsborough Avenue
Tampa, Florida 33614
Attn: Chief Financial Officer
Fax No. (813) 885-8642
with copies to: STICHTER, RIEDEL, BLAIN & PROSSER, PA
110 E. Madison St., Suite 200
Tampa, Florida 33602
Attn: Harley E. Riedel, Esq.
Fax No. (813) 229-1811
with copies to: FOWLER, WHITE, GILLEN, BOGGS,
VILLAREAL AND BANKER, P.A.
Suite 1700
501 East Kennedy Boulevard
Tampa, Florida 33602
Attn: Jeffrey C. Shannon, Esq.
Fax No. (813) 229-8313
with copies to: STROOCK & STROOCK & LAVAN LLP
200 South Biscayne Boulevard
Suite 3300
First Union Financial Center
Miami, Florida 33131-2385
Attn: Scott L. Baena, Esq.
Fax. No. (302) 789-9302
with copies to: KRONISH LIEB WEINER & HELLMAN LLP
1114 Avenue of the Americas
46th Floor
New York, New York 10036
Attn: Robert A. Boghosian, Esq.
Fax: (212) 479-6273
<PAGE>
If to Agent or the FOOTHILL CAPITAL CORPORATION
Lender Group in care 11111 Santa Monica Blvd.
of Agent: Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. (310) 478-9788
with copies to: FOOTHILL CAPITAL CORPORATION
60 State Street, Suite 1150
Boston, Massachusetts 02109
Attn: Account Executive
Fax No. (617) 722-9493
with copies to: PAUL, HASTINGS, JANOFSKY & WALKER LLP
600 Peachtree Street, N.E., Suite 2400
Atlanta, Georgia 30308
Attn: Jesse H. Austin, III, Esq.
Fax No. (404) 815-2424
with copies to: HILL, WARD & HENDERSON, P.A.
101 East Kennedy Boulevard, Suite 3700
P.O. Box 2231
Tampa, Florida 33601
Attn: Douglas P. McClurg, Esq.
Fax No. (813) 221-2900
with copies to: STROOCK & STROOCK & LAVAN LLP
200 South Biscayne Boulevard
Suite 3300
First Union Financial Center
Miami, Florida 33131-2385
Attn: Scott L. Baena, Esq.
Fax. No. (302) 789-9302
with copies to: KRONISH LIEB WEINER & HELLMAN LLP
1114 Avenue of the Americas
46th Floor
New York, New York 10036
Attn: Robert A. Boghosian, Esq.
Fax: (212) 479-6273
<PAGE>
If to Co-Agent: CONGRESS FINANCIAL CORPORATION (SOUTHERN)
200 Galleria Parkway, Suite 1500
Atlanta, Georgia 30339
Attn: Mr. Drew Stawin
Fax No. (770) 956-8120
If to Foothill Partners: FOOTHILL PARTNERS III, L.P.
c/o Foothill Capital Corporation
11111 Santa Monica Blvd.
Suite 1500
Los Angeles, California
Attn: Mr. Michael Bohannon
Fax No. (310) 479-0461
with copies to: BUCHALTER, NEMER, FIELDS & YOUNGER
24th Floor
601 South Figueroa Street
Los Angeles, California 90017
Attn: Robert C. Colton, Esq.
Fax No. (213) 896-0400
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12, other
than notices by Agent in connection with Sections 9-504 or 9-505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) days after the deposit thereof in the mail. Borrower acknowledges and agrees
that notices sent by Agent in connection with Sections 9-504 or 9-505 of the
Code shall be deemed sent when deposited in the mail or hand-delivered, or,
where permitted by law, transmitted telefacsimile or other similar method set
forth above.
<PAGE>
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT), THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR
THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA. THE PARTIES
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS MAY BE TRIED AND LITIGATED IN THE STATE AND FEDERAL
COURTS LOCATED IN THE COUNTY OF FULTON, STATE OF GEORGIA OR, AT THE SOLE OPTION
OF THE LENDER GROUP, IN ANY OTHER COURT IN WHICH THE LENDER GROUP SHALL INITIATE
LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER
THE MATTER IN CONTROVERSY. NOTWITHSTANDING THE FOREGOING, NOTHING HEREIN SHALL
INTERFERE WITH THE COURT'S JURISDICTION OVER THE CHAPTER 11 CASE. EACH OF
BORROWER AND EACH MEMBER OF THE LENDER GROUP WAIVES, TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. EACH OF BORROWER AND EACH MEMBER OF THE LENDER
GROUP HEREBY WAIVES THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF
BORROWER AND EACH MEMBER OF THE LENDER GROUP REPRESENTS THAT IT HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS
All documents, schedules, invoices, agings, or other papers delivered to
Agent may be destroyed or otherwise disposed of by Agent four (4) months after
they are delivered to or received by Agent, unless Borrower requests, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
<PAGE>
15.1 Assignments and Participations.
(a) Any Lender may, with the written consent of Agent, assign and delegate
to one or more Eligible Transferees (each an "Assignee") all, or any ratable
part, of the Obligations, the Commitments, and the other rights and obligations
of such Lender hereunder and under the other Loan Documents, in a minimum amount
of $5,000,000; provided, however, that Borrower and Agent may continue to deal
solely and directly with such Lender in connection with the interest so assigned
to an Assignee until (i) written notice of such assignment, together with
payment instructions, addresses, and related information with respect to the
Assignee, shall have been given to Borrower and Agent by such Lender and the
Assignee; (ii) such Lender and its Assignee shall have delivered to Borrower and
Agent a fully executed Assignment and Acceptance ("Assignment and Acceptance")
in the form of Exhibit A-1; and (iii) the assignor Lender or Assignee has paid
to Agent for Agent's sole and separate account a processing fee in the amount of
$2,500 (other than assignments by the members of the Lender Group who are
signatories hereto to other members of the Lender Group who are signatories
hereto). Anything contained herein to the contrary notwithstanding, the consent
of Agent shall not be required (and payment of any fees shall not be required)
if such assignment is in connection with any merger, consolidation, sale,
transfer, or other disposition of all or any substantial portion of the business
or loan portfolio of such Lender or is to an Affiliate of a Lender.
(b) From and after the date that Agent notifies the assignor Lender that it
has received a fully executed Assignment and Acceptance and payment of the
above-referenced processing fee, (i) the Assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, shall have the rights
and obligations of a Lender under the Loan Documents, and (ii) the assignor
Lender shall, to the extent that rights and obligations hereunder and under the
other Loan Documents have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under
this Agreement (and in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Lender's rights and obligations under this
Agreement and the other Loan Documents, such Lender shall cease to be a party
hereto and thereto), and such assignment shall effect a novation between
Borrower and the Assignee.
<PAGE>
(c) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the Assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (1) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties, or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency, or
value of this Agreement or any other Loan Document furnished pursuant hereto;
(2) such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of Borrower or any
guarantor or the performance or observance by Borrower or any guarantor of any
of its obligations under this Agreement or any other Loan Document furnished
pursuant hereto; (3) such Assignee confirms that it has received a copy of this
Agreement, together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (4) such Assignee will, independently and without
reliance upon Agent, such assigning Lender, or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (5) such Assignee appoints and authorizes Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (6) such Assignee agrees that it will perform
in accordance with their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
(d) Immediately upon each Assignee's making its processing fee payment
under the Assignment and Acceptance, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the Commitments of the Assignor
and Assignee arising therefrom. The Commitment allocated to each Assignee shall
reduce such Commitment of the assigning Lender pro tanto.
<PAGE>
(e) Any Lender may at any time, with the written consent of Agent, which
consent shall not be unreasonably withheld, sell to one or more Persons (a)
"Participant") participating interests in the Obligations, the Commitment, and
the other rights and interests of that Lender (the "Originating Lender")
hereunder and under the other Loan Documents; provided, however, that (i) the
Originating Lender's obligations under this Agreement shall remain unchanged,
(ii) the Originating Lender shall remain solely responsible for the performance
of such obligations, (iii) Borrower and Agent shall continue to deal solely and
directly with the Originating Lender in connection with the Originating Lender's
rights and obligations under this Agreement and the other Loan Documents, (iv)
no Originating Lender shall transfer or grant any participating interest under
which the Participant has the sole and exclusive right to approve any amendment
to, or any consent or waiver with respect to, this Agreement or any other Loan
Document, except to the extent such amendment to, or consent or waiver with
respect to this Agreement or of any other Loan Document would (a) extend the
final maturity date of the Obligations hereunder in which such participant is
participating; (B) reduce the interest rate applicable to the Obligations
hereunder in which such Participant is participating; (C) release all or a
material portion of the Collateral (except to the extent expressly provided
herein or in any of the Loan Documents) supporting the Obligations hereunder in
which such Participant is participating; (D) postpone the payment of, or reduce
the amount of, the interest or fees hereunder in which such Participant is
participating; or (E) change the amount or due dates of scheduled principal
repayments or prepayments or premiums in respect of the Obligations hereunder in
which such Participant is participating; and (v) all amounts payable by Borrower
hereunder shall be determined as if such Originating Lender had not sold such
participation; except that, if amounts outstanding under this Agreement are due
and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of set-off in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement; provided, however, that no Participant may exercise any such right of
setoff without the notice to and consent of Agent. The rights of any Participant
shall only be derivative through the Originating Lender with whom such
Participant participates and no Participant shall have any direct rights as to
the other Lenders, Agent, Borrower, the Collections, the Collateral, or
otherwise in respect of the Advances, the Letters of Credit or the Term Loans.
No Participant shall have the right to participate directly in the making of
decisions by the Lenders among themselves. The provisions of this Section
15.1(e) are solely for the benefit of the Lender Group, and Borrower shall have
no rights as a third party beneficiary of any of such provisions.
(f) In connection with any such assignment or participation or proposed
assignment or participation, a Lender may disclose to a third party all
documents and information which it now or hereafter may have relating to
Borrower or Borrower's business.
(g) Notwithstanding any other provision in this Agreement, any Lender may
at any time create a security interest in, or pledge, all or any portion of its
rights under and interest in this Agreement in favor of any Federal Reserve Bank
in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR
'203.14, and such Federal Reserve Bank may enforce such pledge or security
interest in any manner permitted under applicable law.
15.2 Successors. This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties, including, with
respect to Borrower, the estate of Borrower, any trustee or successor in
interest of Borrower in the Chapter 11 Case or any subsequent case commenced
under Chapter 7 of the Bankruptcy Code; provided, however, that Borrower may not
assign this Agreement or any rights or duties hereunder without the Lenders=
prior written consent and any prohibited assignment shall be absolutely void. No
consent to assignment by the Lenders shall release Borrower from its
Obligations. A Lender may assign this Agreement and its rights and duties
hereunder pursuant to Section 15.1 and, except as expressly required pursuant to
Section 15.1, no consent or approval by Borrower is required in connection with
any such assignment.
16. AMENDMENTS; WAIVERS.
No amendment or waiver of any provision of this Agreement or any other Loan
Document, and no consent or forbearance with respect to any departure by
Borrower therefrom, shall be effective unless the same shall be in writing and
signed by the Required Lenders (or by Agent at the written request of the
Required Lenders) and Borrower and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no such waiver, amendment, or consent shall,
unless in writing and signed by all the Lenders and Borrower and acknowledged by
Agent, do any of the following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement or any other Loan
Document for any payment of principal, interest, fees, or other amounts due to
the Lenders (or any of them) hereunder or under any other Loan Document;
<PAGE>
(c) reduce, forgive, compromise, cancel or waive payment of the principal
of, or the rate of interest specified herein on, any Advance or Term Loan, or
any fees or other amounts payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Advances and Term Loans, which is required for the
Lenders or any of them to take any action hereunder;
(e) increase the advance rate with respect to Advances (except for the
restoration of an advance rate after the prior reduction thereof), or change
Section 2.1(b);
(f) amend or modify in any manner Section 2.1(l);
(g) amend or modify in any manner Section 2.5(b);
(h) amend this Section or any provision of the Agreement providing for
consent or other action by all Lenders;
(i) release Collateral other than as permitted by Section 17.11;
(j) subordinate the lien of Agent in any of the Collateral or any of the
Obligations (except to the extent permitted herein);
(k) change the definition of "Required Lenders";
(l) release Borrower from any Obligation for the payment of money; or
(m) amend any of the provisions of Article 17.
and, provided further, that no amendment, waiver or consent shall, unless
in writing and signed by Agent, affect the rights or duties of Agent under this
Agreement or any other Loan Document; and, provided further, that the limitation
contained in clause (e) above shall not be deemed to limit the ability of Agent
to make Advances or Agent Loans, as applicable, in accordance with the
provisions of Sections 2.1(g), (h), or (l). The foregoing notwithstanding, any
amendment, modification, waiver, consent, termination, or release of or with
respect to any provision of this Agreement or any other Loan Document that
relates only to the relationship of the Lender Group among themselves, and that
does not affect the rights or obligations of Borrower, shall not require consent
by or the agreement of Borrower.
<PAGE>
No failure by Agent or any Lender to exercise any right, remedy, or option
under this Agreement, any other Loan Document, or any present or future
supplement hereto or thereto, or in any other agreement between or among
Borrower and Agent and/or any Lender, or delay by Agent or any Lender in
exercising the same, will operate as a waiver thereof. No waiver by Agent or any
Lender will be effective unless it is in writing, and then only to the extent
specifically stated. No waiver by Agent or the Lenders on any occasion shall
affect or diminish Agent's and each Lender's rights thereafter to require strict
performance by Borrower of any provision of this Agreement. Agent's and each
Lender's rights under this Agreement and the other Loan Documents will be
cumulative and not exclusive of any other right or remedy which Agent or any
Lender may have.
<PAGE>
17. AGENT; THE LENDER GROUP.
17.1 Appointment and Authorization of Agent. Each Lender hereby designates
and appoints Foothill as its Agent under this Agreement and the other Loan
Documents and each Lender hereby irrevocably authorizes Agent to take such
action on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Agent agrees to
act as such on the express conditions contained in this Article 17. The
provisions of this Article 17 are solely for the benefit of Agent and the
Lenders, and Borrower shall not have any rights as a third party beneficiary of
any of the provisions contained herein; provided, however, that the provisions
of Sections 17.10, 17.11, and 17.16(d) also shall be for the benefit of
Borrower. Any provision to the contrary contained elsewhere in this Agreement or
in any other Loan Document notwithstanding, Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall Agent have
or be deemed to have any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations, or liabilities
shall be read into this Agreement or any other Loan Document or otherwise exist
against Agent. Except as expressly otherwise provided in this Agreement, Agent
shall have and may use its sole discretion with respect to exercising or
refraining from exercising any discretionary rights or taking or refraining from
taking any actions which Agent is expressly entitled to take or assert under or
pursuant to this Agreement and the other Loan Documents, including making the
determinations contemplated by Section 2.1(b). The identification of Congress
Financial Corporation as Co-Agent hereunder shall not create any rights in favor
of it, nor subject it to any duties or obligations in such capacity except as
otherwise expressly provided herein. Without limiting the generality of the
foregoing, or of any other provision of the Loan Documents that provides rights
or powers to Agent, Lenders agree that Agent shall have the right to exercise
the following powers as long as this Agreement remains in effect: (a) maintain,
in accordance with its customary business practices, ledgers and records
reflecting the status of the Advances, the Term Loans, the Collateral, the
Collections, and related matters; (b) execute and/or file any and all financing
or similar statements or notices, amendments, renewals, supplements, documents,
instruments, proofs of claim for Lenders, notices and other written agreements
with respect to the Loan Documents; (c) make Advances for itself or on behalf of
Lenders as provided in the Loan Documents; (d) exclusively receive, apply, and
distribute the Collections as provided in the Loan Documents; (e) open and
maintain such bank accounts and lock boxes as Agent deems necessary and
appropriate in accordance with the Loan Documents for the foregoing purposes
with respect to the Collateral and the Collections; (f) perform, exercise, and
enforce any and all other rights and remedies of the Lender Group with respect
to Borrower, the Advances, the Term Loans, the Collateral, the Collections, or
otherwise related to any of same as provided in the Loan Documents; and (g)
incur and pay such Lender Group Expenses as Agent may deem necessary or
appropriate for the performance and fulfillment of its functions and powers
pursuant to the Loan Documents.
17.2 Delegation of Duties. Except as otherwise provided in this Section,
Agent may execute any of its duties under this Agreement or any other Loan
Document by or through agents, employees, or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
Agent shall not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects as long as such selection was made in
compliance with this Section and without gross negligence or willful misconduct.
The foregoing notwithstanding, Agent shall not make any material delegation of
duties to subagents or non-employee delegees without the prior written consent
of Required Lenders (it being understood that routine delegation of such
administrative matters as filing financing statements, or conducting appraisals
or audits, is not viewed as a material delegation that requires prior Required
Lender approval). Notwithstanding anything herein which may be construed to the
contrary, the Lenders and Borrower acknowledge and agree that Agent may engage
the Oversight Agent pursuant to the Oversight Agent Agreement, as it may be
modified and amended from time to time and the Oversight Agent may carry out its
duties as set forth in such agreement.
17.3 Liability of Agent-Related Persons. None of the Agent-Related Persons
shall (i) be liable for any action taken or omitted to be taken by any of them
under or in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct), or, (ii) be responsible in any manner to any of the Lenders for any
recital, statement, representation or warranty made by Borrower, or any
Subsidiary or Affiliate of Borrower, or any officer or director thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement, or other document referred to or provided for
in, or received by Agent under or in connection with, this Agreement or any
other Loan Document, or the validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other Loan Document, or for any failure
of Borrower or any other party to any Loan Document to perform its obligations
hereunder or thereunder. No Agent-Related Person shall be under any obligation
to any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement or any
other Loan Document, or to inspect the properties, books, or records of
Borrower, or any of Borrower's Subsidiaries or Affiliates.
<PAGE>
17.4 Relliance by Agent. Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex, or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent, or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to Borrower or counsel to any Lender), independent accountants, and other
experts selected by Agent. Agent shall be fully justified in failing or refusing
to take any action under this Agreement or any other Loan Document unless it
shall first receive such advice or concurrence of the Required Lenders or all
Lenders, as applicable, and until such instructions are received, Agent shall
act, or refrain from acting, as it deems advisable so long as it is not grossly
negligent or guilty of wilful misconduct. If Agent so requests, it shall first
be indemnified to its reasonable satisfaction by Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Agent shall in all cases be fully protected
in acting, or in refraining from acting, under this Agreement or any other Loan
Document in accordance with a request or consent of the Required Lenders or all
Lenders, as applicable, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Lenders.
17.5 Notice of Default or Event of Default. Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest, fees, and
expenses required to be paid to Agent for the account of Agent or the Lenders or
the delivery of information to Agent hereunder, except with respect to actual
knowledge of the existence of an Overadvance, and except with respect to
Defaults and Events of Default of which Agent has actual knowledge, unless Agent
shall have received written notice from a Lender or Borrower referring to this
Agreement, describing such Default or Event of Default, and stating that such
notice is a "notice of default." Agent promptly will notify the Lenders of its
receipt of any such notice or of any Event of Default of which Agent has, or is
deemed to have, actual knowledge. If any Lender obtains actual knowledge of any
Event of Default, such Lender promptly shall notify the other Lenders and Agent
of such Event of Default. Each Lender shall be solely responsible for giving any
notices to its Participants, if any. Copies of any such notices shall also be
provided by Borrower. Subject to Section 17.4, Agent shall take such action, or
refrain from taking any action, with respect to such Default or Event of Default
as may be requested by the Required Lenders; provided, however, that:
(a) At all times, Agent may propose and, with the consent of Required
Lenders (which shall not be unreasonably withheld and which shall be deemed to
have been given by a Lender unless such Lender has notified Agent to the
contrary in writing within three days of notification of such proposed actions
by Agent) exercise, any remedies on behalf of the Lender Group; and
(b) At all times, once Required Lenders or all Lenders, as the case may be,
have approved the exercise of a particular remedy or pursuit of a course of
action, Agent may, but shall not be obligated to, make all administrative
decisions in connection therewith or take all other actions reasonably
incidental thereto (for example, if the Required Lenders approve the foreclosure
of certain Collateral, Agent shall not be required to seek consent for the
administrative aspects of conducting such sale or handling of such Collateral).
<PAGE>
17.6 Credit Decision. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by Agent hereinafter taken, including any review of the affairs of Borrower
and its Subsidiaries or Affiliates, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to Agent that it has, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition, and
creditworthiness of Borrower and any other Person (other than the Lender Group)
party to a Loan Document, and all applicable bank regulatory laws relating to
the transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to Borrower. Each Lender also represents
that it will, independently and without reliance upon any Agent-Related Person
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals, and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition, and
creditworthiness of Borrower, and any other Person (other than the Lender Group)
party to a Loan Document. Except for notices, reports, and other documents
expressly herein required to be furnished to the Lenders by Agent, Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the business, prospects, operations, property,
financial and other condition, or creditworthiness of Borrower, and any other
Person party to a Loan Document that may come into the possession of any of the
Agent-Related Persons.
<PAGE>
17.7 Costs and Expenses; Indemnification. Agent may incur and pay Lender
Group Expenses to the extent Agent deems reasonably ion. necessary or
appropriate for the performance and fulfillment of its functions, powers, and
obligations pursuant to the Loan Documents, including without limiting the
generality of the foregoing, but subject to any requirements of the Loan
Documents that it obtain any applicable consents or engage in any required
consultation, court costs, reasonable attorneys fees and expenses, costs of
collection by outside collection agencies and auctioneer fees and costs of
security guards or insurance premiums paid to maintain the Collateral, whether
or not Borrower are obligated to reimburse Agent or Lenders for such expenses
pursuant to the Loan Agreement or otherwise. Agent is authorized and directed to
deduct and retain sufficient amounts from Collections to reimburse Agent for
such out-of-pocket costs and expenses prior to the distribution of any amounts
to Lenders. In the event Agent is not reimbursed for such costs and expenses
from Collections, each Lender hereby agrees that it is and shall be obligated to
pay to or reimburse Agent for the amount of such Lender's Pro-Rata Share
thereof. Whether or not the transactions contemplated hereby are consummated,
the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent
not reimbursed by or on behalf of Borrower and without limiting the obligation
of Borrower to do so), according to their Pro-Rata Shares, from and against any
and all Indemnified Liabilities; provided, however, that no Lender shall be
liable for the payment to the Agent-Related Persons of any portion of such
Indemnified Liabilities resulting solely from such Person's gross negligence,
bad faith, or willful misconduct. Without limitation of the foregoing, each
Lender shall reimburse Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including attorney fees and expenses) incurred by Agent
in connection with the preparation, execution, delivery, administration,
modification, amendment, or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that Agent is not
reimbursed for such expenses by or on behalf of Borrower. The undertaking in
this Section 17.7 shall survive the payment of all Obligations hereunder and the
resignation or replacement of Agent.
17.8 Agent in Individual Capacity. Foothill and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests, in and generally engage in any kind of banking, trust,
financial advisory, underwriting, or other business with Borrower and its
Subsidiaries and Affiliates and any other Person party to any Loan Documents as
though Foothill were not Agent hereunder without notice to or consent of the
Lenders. The Lenders acknowledge that, pursuant to such activities, Foothill and
its Affiliates may receive information regarding Borrower or their Affiliates
and any other Person party to any Loan Documents that is subject to
confidentiality obligations in favor of Borrower or such other Person and that
prohibit the disclosure of such information to the Lenders, and the Lenders
acknowledge that, in such circumstances (and in the absence of a waiver of such
confidentiality obligations, which waiver Agent will use its reasonable best
efforts to obtain), Agent shall be under no obligation to provide such
information to them. With respect to the Agent Loans and Agent Advances,
Foothill shall have the same rights and powers under this Agreement as any other
Lender and may exercise the same as though it were not Agent, and the terms
"Lender" and "Lenders" include Foothill in its individual capacity.
<PAGE>
17.9 Successor Agent. Agent may resign as Agent upon forty-five (45) days=
notice to the Lenders and Borrower. If Agent resigns under this Agreement,
Co-Agent shall have the option to become the successor Agent. If Co-Agent elects
not to exercise its option to become a successor Agent, the Required Lenders
shall appoint any Lender or Eligible Transferee as successor Agent for the
Lenders. If no successor Agent is appointed prior to the effective date of the
resignation of Agent, Agent may appoint a successor Agent, after consulting with
the Lenders and Borrower. Agent may be removed and replaced by Co-Agent as
successor Agent upon Agent's breach or failure to perform any material provision
of this Agreement or as provided under applicable law. In the event Co-Agent
does not exercise the foregoing right to remove and replace Agent, and if Agent
has breached or failed to perform any material provision of this Agreement or of
applicable law, the Required Lenders may agree in writing to remove and replace
Agent with a successor Agent from among the Lenders. In any such event, upon the
acceptance of its appointment as successor Agent hereunder, such successor Agent
shall succeed to all the rights, powers and duties of the retiring Agent and the
term "Agent" shall mean such successor Agent and the retiring Agent's
appointment, powers and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Section 17 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement. If no successor Agent has accepted
appointment as Agent by the date which is forty-five (45) days following a
retiring Agent's notice of resignation, the retiring Agent's resignation shall
nevertheless thereupon become effective and the Lenders shall perform all of the
duties of Agent hereunder until such time, if any, as the Lenders appoint a
successor Agent as provided for above.
17.10 Withholding Tax.
(a) If any Lender is a "foreign corporation, partnership or trust" within
the meaning of the IRC and such Lender claims exemption from, or a reduction of,
U.S. withholding tax under Sections 1441 or 1442 of the IRC, such Lender agrees
with and in favor of Agent and Borrower, to deliver to Agent and Borrower:
(i) if such Lender claims an exemption from, or a reduction of, withholding
tax under a United States tax treaty, properly completed IRS Forms 1001 and W-8
before the payment of any interest in the first calendar year and before the
payment of any interest in each third succeeding calendar year during which
interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid under this Agreement is
exempt from United States withholding tax because it is effectively connected
with a United States trade or business of such Lender, two properly completed
and executed copies of IRS Form 4224 before the payment of any interest is due
in the first taxable year of such Lender and in each succeeding taxable year of
such Lender during which interest may be paid under this Agreement, and IRS Form
W-9; and
(iii) such other form or forms as may be required under the IRC or other
laws of the United States as a condition to exemption from, or reduction of,
United States withholding tax.
Such Lender agrees to promptly notify Agent and Borrower of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Lender claims exemption from, or reduction of, withholding tax
under a United States tax treaty by providing IRS Form 1001 and such Lender
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of Borrower, such Lender agrees to notify Agent and Borrower of
the percentage amount in which it is no longer the beneficial owner of
Obligations of Borrower to such Lender. To the extent of such percentage amount,
Agent and Borrower will treat such Lender's IRS Form 1001 as no longer valid.
<PAGE>
(c) If any Lender claiming exemption from United States withholding tax by
filing IRS Form 4224 with Agent sells, assigns, grants a participation in, or
otherwise transfers all or part of the Obligations of Borrower to such Lender,
such Lender agrees to undertake sole responsibility for complying with the
withholding tax requirements imposed by Sections 1441 and 1442 of the IRC.
(d) If any Lender is entitled to a reduction in the applicable withholding
tax, Agent may withhold from any interest payment to such Lender an amount
equivalent to the applicable withholding tax after taking into account such
reduction. If the forms or other documentation required by subsection (a)) of
this Section are not delivered to Agent, then Agent may withhold from any
interest payment to such Lender not providing such forms or other documentation
an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the United States or
other jurisdiction asserts a claim that Agent or Borrower did not properly
withhold tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered, was not properly executed, or because such
Lender failed to notify Agent and Borrower of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason) such Lender shall indemnify Agent and Borrower fully for
all amounts paid, directly or indirectly, by Agent or Borrower as tax or
otherwise, including penalties and interest, and including any taxes imposed by
any jurisdiction on the amounts payable to Agent or Borrower under this Section,
together with all costs and expenses (including attorneys fees and expenses).
The obligation of the Lenders under this subsection shall survive the payment of
all Obligations and the resignation of Agent.
17.11 Collateral Matters.
<PAGE>
(a) The Lenders hereby irrevocably authorize Agent, to release any Lien on
any Collateral, (i) upon the termination of the Commitments and payment and
satisfaction in full by Borrower of all Obligations; and upon such termination
and payment Agent shall deliver to Borrower, at Borrower's sole cost and
expense, all UCC termination statements and any other documents necessary to
terminate the Loan Documents and release the Liens with respect to the
Collateral; (ii) constituting property being sold or disposed of if a release is
required or desirable in connection therewith and if Borrower certifies to Agent
that the sale or disposition is permitted under Section 7.4 of this Agreement or
the other Loan Documents (and Agent may rely conclusively on any such
certificate, without further inquiry); (iii) constituting property in which
neither Borrower nor any Subsidiary of Borrower owned an interest at the time
the Lien was granted or at any time thereafter; or (iv) constituting property
leased to Borrower or any Subsidiary of Borrower under a lease that has expired
or been terminated in a transaction permitted under this Agreement. Except as
provided above, Agent will not release any Lien on any Collateral without the
prior written authorization of the Lenders. Upon request by Agent or Borrower at
any time, the Lenders will confirm in writing Agent's authority to release any
such Liens on particular types or items of Collateral pursuant to this Section
17.11; provided, however, that (i) Agent shall not be required to execute any
document necessary to evidence such release on terms that, in Agent's opinion,
would expose Agent to liability or create any obligation or entail any
consequence other than the release of such Lien without recourse,
representation, or warranty, and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens (other than those
expressly being released), upon (or obligations of Borrower in respect of) all
interests retained by Borrower or any Subsidiary of Borrower, including, the
proceeds of any sale, all of which shall continue to constitute part of the
Collateral.
(b) Agent shall have no obligation whatsoever to any of the Lenders to
assure that the Collateral exists or is owned by Borrower or a Subsidiary of
Borrower, as the case may be, is cared for, protected, or insured or has been
encumbered, or that the Liens of Agent (for the benefit of the Lender Group)
have been properly or sufficiently or lawfully created, perfected, protected, or
enforced or are entitled to any particular priority, or to exercise at all or in
any particular manner or under any duty of care, disclosure, or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to Agent pursuant to any of the Loan Documents, it being understood
and agreed that in respect of the Collateral or any act, omission or event
related thereto, subject to the terms and conditions contained herein, Agent may
act in any manner it may deem appropriate, in its sole discretion given Agent's
own interest in such Collateral in its capacity as one of the Lenders and that
Agent shall have no other duty or liability whatsoever to any Lender as to any
of the foregoing, except as otherwise provided herein.
17.12 Restrictions on Actions by Lenders; Sharing of Payments..12
Restrictions on Actions by Lenders; Sharing of Payments.
(a) Each of the Lenders agrees that it shall not, without the express
consent of Agent, and that it shall, to the extent it is lawfully entitled to do
so, upon the request of Agent, set off against the Obligations any amounts owing
by such Lender to Borrower or any accounts of Borrower now or hereafter
maintained with such Lender. Each of the Lenders further agrees that it shall
not, unless specifically requested to do so by Agent, take or cause to be taken
any action, including the commencement of any legal or equitable proceedings, to
foreclose any Lien on, or otherwise enforce any security interest in, any of the
Collateral the purpose of which is, or could be, to give such Lender any
preference or priority against the other Lenders with respect to the Collateral.
<PAGE>
(b) Subject to Section 17.8, if, at any time or times any Lender shall
receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of
Collateral or any payments with respect to the Obligations of Borrower to such
Lender arising under, or relating to, this Agreement or the other Loan
Documents, except for any such proceeds or payments received by such Lender from
Agent pursuant to the terms of this Agreement, or (ii) payments from Agent in
excess of such Lender's Pro-Rata Share, Tranche A Pro-Rata Share or Tranche B
Pro-Rata Share, as the case may be, of all such distributions by Agent, such
Lender shall promptly (1) turn the same over to Agent, in kind, and with such
endorsements as may be required to negotiate the same to Agent, or in same day
funds, as applicable, for the account of all of the Lenders and for application
to the Obligations in accordance with the applicable provisions of this
Agreement, or (2) purchase, without recourse or warranty, an undivided interest
and participation in the Obligations owed to the other Lenders so that such
excess payment received shall be applied ratably as among the Lenders in
accordance with their Pro- Rata Shares, Tranche A Pro-Rata Shares or Tranche B
Pro-Rata Shares, as the case may be; provided, however, that if all or part of
such excess payment received by the purchasing party is thereafter recovered
from it, those purchases of participations shall be rescinded in whole or in
part, as applicable, and the applicable portion of the purchase price paid
therefor shall be returned to such purchasing party, but without interest except
to the extent that such purchasing party is required to pay interest in
connection with the recovery of the excess payment.
17.13 Agency for Perfection. Agent and each Lender hereby appoints each
other Lender as agent for the purpose of perfecting the Liens of the Lender
Group in assets which, in accordance with Article 9 of the UCC can be perfected
only by possession. Should any Lender obtain possession of any such Collateral,
such Lender shall notify Agent thereof, and, promptly upon Agent's request
therefor shall deliver such Collateral to Agent or in accordance with Agent's
instructions.
17.14 Payments by Agent to the Lenders. All payments to be made by Agent to
the Lenders shall be made by bank wire transfer or internal transfer of
immediately available funds pursuant to the instructions set forth on Schedule
C-1, or pursuant to such other wire transfer instructions as each party may
designate for itself by written notice to Agent. Concurrently with each such
payment, Agent shall identify whether such payment (or any portion thereof)
represents principal, premium or interest on revolving advances or otherwise.
17.15 Concerning the Collateral and Related Loan Documents..15 Concerning
the Collateral and Rel Each member of the Lender Group authorizes and directs
Agent to enter into this Agreement and the other Loan Documents relating to the
Collateral, for the benefit of the Lender Group. Each member of the Lender Group
agrees that any action taken by Agent, Required Lenders, or all Lenders, as
applicable, in accordance with the terms of this Agreement or the other Loan
Documents relating to the Collateral and the exercise by Agent, Required
Lenders, or all Lenders, as applicable, of their respective powers set forth
therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Lenders.
17.16 Field Audits and Examination Reports; Confidentiality; Disclaimers by
Lenders; Other Reports and Information. By signing this Agreement, each Lender;
(a) is deemed to have requested that Agent furnish such Lender, promptly
after it becomes available, a copy of each field audit or examination report
(each a "Report" and collectively, "Reports") prepared by Agent, and Agent shall
so furnish each Lender with such Reports;
<PAGE>
(b) expressly agrees and acknowledges that Agent (i) does not make any
representation or warranty as to the accuracy of any Report, and (ii) shall not
be liable for any information contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that Agent or other party performing any
audit or examination will inspect only specific information regarding Borrower
and will rely significantly upon Borrower's books and records, as well as on
representations of Borrower's personnel;
(d) agrees to keep all Reports and other material information obtained by
it pursuant to the requirements of this Agreement in accordance with its
reasonable customary procedures for handling confidential information; it being
understood and agreed by Borrower that in any event such Lender may make
disclosures (i) reasonably required by any bona fide potential or actual
Assignee, transferee, or Participant in connection with any contemplated or
actual assignment or transfer by such Lender of an interest herein or any
participation interest in such Lender's rights hereunder, (ii) of information
that has become public by disclosures made by Persons other than such Lender,
its Affiliates, assignees, transferees, or participants, or (iii) as required or
requested by any court, governmental or administrative agency, pursuant to any
subpoena or other legal process, or by any law, statute, regulation, or court
order; provided, however, that, unless prohibited by applicable law, statute,
regulation, or court order, such Lender shall notify Borrower of any request by
any court, governmental or administrative agency, or pursuant to any subpoena or
other legal process for disclosure of any such non-public material information
concurrent with, or where practicable, prior to the disclosure thereof; and
(e) without limiting the generality of any other indemnification provision
contained in this Agreement, agrees: (i) to hold Agent and any such other Lender
preparing a Report harmless from any action the indemnifying Lender may take or
conclusion the indemnifying Lender may reach or draw from any Report in
connection with any loans or other credit accommodations that the indemnifying
Lender has made or may make to Borrower, or the indemnifying Lender's
participation in, or the indemnifying Lender's purchase of, a loan or loans of
Borrower; and (ii) to pay and protect, and indemnify, defend, and hold Agent and
any such other Lender preparing a Report harmless from and against, the claims,
actions, proceedings, damages, costs, expenses and other amounts (including,
attorney costs) incurred by Agent and any such other Lender preparing a Report
as the direct or indirect result of any third parties who might obtain all or
part of any Report through the indemnifying Lender.
<PAGE>
In addition to the foregoing: (x) any Lender may from time to time request of
Agent in writing that Agent provide to such Lender a copy of any report or
document provided by Borrower to Agent, and, upon receipt of such request, Agent
shall provide a copy of same to such Lender promptly upon receipt thereof; (y)
to the extent that Agent is entitled, under any provision of the Loan Documents,
to request additional reports or information from Borrower, any Lender may, from
time to time, reasonably request Agent to exercise such right as specified in
such Lender's notice to Agent, whereupon Agent promptly shall request of
Borrower the additional reports or information specified by such Lender, and,
upon receipt thereof, Agent promptly shall provide a copy of same to such
Lender; and (z) any time that Agent renders to Borrower a statement regarding
the Loan Account, Agent shall send a copy of such statement to each Lender.
17.17 Several Obligations; No Liability. Notwithstanding that certain of
the Loan Documents now or hereafter may have been or will be executed only by or
in favor of Agent in its capacity as such, and not by or in favor of the
Lenders, any and all obligations on the part of Agent (if any) to make any
Advances shall constitute the several (and not joint) obligations of the
respective Lenders on a ratable basis, according to their respective
Commitments, to make an amount of such Advances not to exceed, in principal
amount, at any one time outstanding, the amount of their respective Commitments.
Nothing contained herein shall confer upon any Lender any interest in, or
subject any Lender to any liability for, or in respect of, the business, assets,
profits, losses, or liabilities of any other Lender. Each Lender shall be solely
responsible for notifying its Participants of any matters relating to the Loan
Documents to the extent any such notice may be required, and no Lender shall
have any obligation, duty, or liability to any Participant of any other Lender.
Except as provided in Section 17.7, no member of the Lender Group shall have any
liability for the acts of any other member of the Lender Group. No Lender shall
be responsible to Borrower or any other Person for any failure by any other
Lender to fulfill its obligations to make Advances, nor to advance for it or on
its behalf in connection with its Commitment, nor to take any other action on
its behalf hereunder or in connection with the financing contemplated herein.
18. GENERAL PROVISIONS.
18.1 Effectiveness. This Agreement shall be binding and deemed effective
when executed by Borrower and the Lender Group.
18.2 Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each section applies equally to this entire Agreement.
18.3 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against the Lender Group or
Borrower, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
18.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
<PAGE>
18.5 Conterparts; Telefacsimile Execution. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
18.6 Revival and Reinstatement of Obligations..6 Revival and Reinstatement
of Obligations. If the incurrence or payment of the Obligations by Borrower or
any guarantor of the Obligations or the transfer by any or all of such parties
to the Lender Group of any property of either or both of such parties should for
any reason subsequently be declared to be void or voidable under any state or
federal law relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences, and other
voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if the Lender Group is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that the Lender Group is required or elects to
repay or restore, and as to all reasonable costs, expenses, and attorneys fees
of the Lender Group related thereto, the liability of Borrower or such guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
18.7 Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
18.8 Time if of the Essence. Time is of the essence of this Agreement. Time
is of the Essence.
18.9 Secondary Real Estate. Notwithstanding anything to the contrary
contained in this Agreement, Borrower has advised Agent and the Lenders that
Borrower asserts or may assert legal and beneficial ownership of or rights in
and to the Secondary Real Estate, including (but not limited to) rights related
to substantive consolidation and rights to recover transferred property pursuant
to 11 U.S.C. Sections 544, et seq. Any descriptions of or references in this
Agreement to the Real Estate Trusts and/or the Secondary Real Estate shall be
without prejudice to all of Borrower's ownership interests, rights, defenses,
and causes of action with respect thereto as against third Persons, provided
Borrower's ownership interests, rights, defenses and causes of action shall be
subject to the claims and security interests of Agent and the Lenders under this
Agreement.
[Remainder of page intentionally left blank]
<PAGE>
SENIOR SECURED, SUPER-PRIORITY DEBTOR-IN-POSSESSION LOAN AND SECURITY AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in Atlanta, Georgia as of the date first above written.
JUMBOSPORTS INC.,
a Florida corporation
By: /s/ R. P. Springer
Title: EVP
FOOTHILL CAPITAL CORPORATION, a
California corporation with an office in
Atlanta, Georgia, as Agent and as a
Tranche A Lender
By: /s/ Todd Colpitts
Title: VP
CONGRESS FINANCIAL CORPORATION
(SOUTHERN), a Georgia corporation with
an office in Atlanta, Georgia, as
Co-Agent and as a Tranche A Lender
By: /s/ Drew Stawin
Title: VP
FOOTHILL PARTNERS III, L.P., a Delaware
limited partnership, as
a Tranche B Lender
By: /s/ Jeff Nikora
Title: MGP
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is made
and entered into this 16 day of March, 1999, by and between JUMBOSPORTS INC., a
Florida corporation (hereinafter called "Employer"), and JACK E. BUSH
(hereinafter called "Employee").
WHEREAS, Employer and Employee are parties to that certain Employment
Agreement dated December 23, 1998 (the "Prior Employment Agreement");
WHEREAS, on December 27, 1998, Employer filed its Voluntary Petition for
Relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy
Code");
WHEREAS, pursuant to that certain Order Granting Debtor's Motion for
Authority to Pay Officers' Salaries and Directors' Fees and to Honor Existing
Compensation Agreements and Policies, entered by Judge C. Timothy Corcoran, III,
on February 23, 1999 (the "Compensation Order"), the Prior Employment Agreement
was approved, subject to certain required modifications; and
WHEREAS, the parties hereto desire to amend and completely restate the
Prior Employment Agreement to comply with the provisions of the Compensation
Order.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby amend and restate the Prior Employment Agreement to read in
its entirety as set forth below:
WITNESSETH:
1. Employment. Employer hereby agrees to continue to employ Employee, and
Employee hereby agrees to continue his employment with Employer, upon the terms
and conditions hereinafter set forth.
2. Effect of Compensation Order. Employer and Employee intend that this
Agreement shall comply in all respects with the provisions of the Compensation
Order, and the Compensation Order is incorporated herein by this reference. In
the event of any inconsistency between the provisions of this Agreement and the
provisions of the Compensation Order, the provisions of the Compensation Order
shall control.
3. Effect on Prior Agreements. Employer and Employee hereby acknowledge and
agree that this Agreement supersedes any prior or contemporaneous agreement,
representation or understanding, oral or written, between Employer and Employee
regarding the terms and conditions of Employee's employment with Employer,
including, without limitation, the Prior Employment Agreement.
<PAGE>
4. Term. The term of this Agreement shall commence effective as of February
23, 1999 (the "Effective Date"), and shall, subject to prior termination
pursuant to paragraph 8 of this Agreement, terminate on the latest of (a) the
effective date of a plan of reorganization with respect to the Employer, (b) the
dismissal of the Chapter 11 proceeding with respect to the Employer or (c)
December 31, 1999.
5. Duties. The Employee is engaged as Chairman, Chief Executive Officer and
President of the Employer. The Employee shall have such duties, responsibilities
and accommodations as the Employer's Board of Directors shall designate to that
position.
6. Extent of Service. Employee shall exclusively devote his entire working
time, energy and attention to his duties hereunder, provided that the Employee
may (i) make passive investments in entities which are not publicly traded and
which are not competitive with, or suppliers of goods or services to, Employer,
(ii) own up to 2% of the outstanding equity securities of any entity which is
publicly traded on a national securities exchange or on the NASDAQ Stock Market,
and (iii) with the approval of the Board of Directors, serve on boards of
corporations that do not compete with the Company or serve on boards for or
engage in activities of a community, civic or public interest nature.
7. Compensation and Benefits. During the term of this Agreement, Employer
shall pay to Employee the following compensation, which shall be payable, less
any withholding and other payroll taxes required by law, in accordance with
Employer's normal payroll policies applicable to all of Employer's employees:
(a) Base Salary. An annual base salary in the amount of Three Hundred Forty
Eight Thousand Dollars ($348,000) (the "Annual Base Salary").
(b) Stay or Retention Bonus. Employee is entitled to a retention bonus in
accordance with the provisions of Schedule A attached to this Agreement and
incorporated herein by this reference ("Schedule A"); provided, however, that
for purposes of determining whether Employee is entitled to such retention
bonus, the termination of Employee's employment by Employee following a
Constructive Termination Event (as defined herein) shall be deemed to be an
"involuntarily" termination.
(c) Success Bonus. Employee is entitled to a success bonus in accordance
with the provisions of Schedule A; provided, however, that, for purposes of
determining whether Employee is entitled to such success bonus, Employee's
employment hereunder shall be deemed to continue following the termination of
such employment (i) by Employer without Cause (as defined herein), (ii) by
Employee following a Constructive Termination Event (as defined herein), or
(iii) as a result of the death or Permanent Disability (as defined herein) of
Employee.
<PAGE>
(d) Other Benefit Programs. During the term of this Agreement, Employee
shall be entitled to continue to participate in Employer's executive benefit
programs available for senior executive officers as it may exist from time to
time, including, without limitation, any temporary housing assistance program in
which Employee participates as of the Effective Date.
8. Termination.
(a) Termination by Employer. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement is not to be considered an agreement
for a fixed term or as a guarantee of continuing employment. Accordingly,
Employee's employment may be terminated by Employer with or without cause upon
immediate written notice to Employee at any time during the term of this
Agreement. Additionally, Employee's employment shall automatically terminate
upon his death or upon a determination that he is permanently disabled.
(b) Termination by Employee. Notwithstanding anything to the contrary
contained in this Agreement, Employee may resign as an officer and, if
applicable, director and terminate his employment with Employer at any time upon
30 days' prior written notice to Employer.
(c) Effect of Termination. Upon the termination of Employee's employment
with Employer for any reason, Employee shall remain entitled to (i) the
bi-weekly portion of his Annual Base Salary then due through the date of such
termination and (ii) all benefits which are accrued, vested and earned up to the
termination date under the terms of any existing benefit plan of Employer such
as the vested balance of the employee's account under any retirement or deferred
compensation plan and any benefits which are legally required to be provided
after termination, such as COBRA benefits ("Legally Earned or Required
Benefits"). Except as provided in the preceding sentence, and except for any
severance benefit to which Employee may be entitled pursuant to paragraph 9 of
this Agreement, Employee shall be entitled to no other benefits or salary from
Employer following the termination of Employee's employment hereunder.
(d) Agreements by Employee. Upon termination of Employee's employment with
Employer for any reason, Employee shall immediately return any and all property
and records belonging to Employer which are in Employee's possession and shall
vacate Employer's offices in a prompt and professional manner.
(e) Transition Services. Upon a termination of employment, whether by
Employee or by Employer, with or without cause, Employee shall cooperate with
Employer in order to insure an orderly and businesslike transfer of Employee's
duties to other personnel designated by the Employer. Additionally, Employee
shall make himself available for a period of ninety (90) days after such
termination, at reasonable times and upon reasonable notice, to consult with
Employer and assist Employer with respect to any matters for which Employer
requests such assistance; provided that Employer shall reimburse Employee for
any reasonable out-of-pocket expense incurred by Employee at Employer's request
in connection with such consultation or assistance, and Employer shall schedule
such consultation at times which will not interfere with any subsequent
employment which Employee has obtained and such consultation shall not require
more than an average of two days per month without Employee's consent. A breach
of the foregoing provisions by Employee shall be deemed to be a material breach
of this Agreement.
<PAGE>
9. Severance Benefits. Employee shall be entitled to severance payments in
accordance with the provisions of Schedule A. In addition, if Employee is
entitled to receive a severance benefit pursuant to Schedule A, then Employee
shall continue to be entitled to his then current benefits pursuant to paragraph
7(d) of this Agreement until the earlier of (x) the date on which Employee
becomes entitled to receive comparable benefits from another employer or (y) the
date that is one (1) year after the termination of Employee's employment.
10. Excise Taxes. In the event that any payment to be received by Employee
hereunder would be subject to an excise tax pursuant to Section 4999 of the
Code, whether in whole or in part, as a result of being an "excess parachute
payment" within the meaning of such term in Section 280G(b) of the Code, the
amount payable under this Agreement shall be reduced to the largest amount so
that no portion of such payment is subject to excise tax pursuant to Section
4999 of the Code. If the amount necessary to eliminate such excise tax exceeds
the amount otherwise payable under this Agreement, no payment shall be made
under this paragraph and no further adjustment shall be made.
11. Nondisclosure of Confidential Information and Trade Secrets. Employee
shall not disclose, either directly or indirectly, any Confidential Information
or Trade Secrets to any other person or otherwise use such Confidential
Information or Trade Secrets for any purpose except in connection with his
employment with the Employer. For purposes of the foregoing, the term "Trade
Secret" has the meaning ascribed thereto in Section 688.002(4), Florida
Statutes, or any revision or successor thereto, and the term "Confidential
Information" means any technical or nontechnical data, formula, pattern,
compilation, program, devise, method, technique, drawing, process, know-how,
financial data, financial plan, marketing plan, expansion plan, cost analysis,
list of suppliers, customers or their employees, or other proprietary
information which is secret and confidential and is not readily and legally
available to the public from sources other than Employer.
<PAGE>
12. Injunctive Relief. In the event of a breach or violation or threatened
breach or violation by Employee of the provisions of any of the restrictive
covenants set forth in paragraph 11 of this Agreement, Employer shall be
entitled to an injunction restraining Employee from directly or indirectly
engaging in such behavior. Nothing herein shall be construed as prohibiting
Employer from pursuing any other remedies available to it by law or by this
Agreement for breach, violation or threatened breach or violation of any
provision of this Agreement, including, by way of illustration and not by way of
limitation, the recovery of damages from Employee or any other person, firm,
corporation or entity. The provisions of paragraphs 11 and 12 of this Agreement
shall survive the termination of this Agreement for any reason. Should Employer
bring an action against Employee to enforce any restrictive covenants set forth
in this Agreement, the period of restriction applicable to such covenant shall
be deemed to begin running on the date of entry of an order granting Employer
preliminary injunctive relief and shall continue uninterrupted for the original
intended period.
13. Definitions. For purposes of this Agreement, the following terms shall
have the meanings assigned in this paragraph 13:
(a) The term "Cause" shall mean (i) Employee's commission of any act or
acts of fraud or willful misappropriation that result in material expense or
harm to Employer; (ii) Employee's default in any material respect in the
performance of his obligations, services or duties hereunder (other than a
default caused by a medically determinable physical or mental impairment of
Employee), which shall include, without limitation, Employee's disregarding
written instructions from the Board of Directors of Employer concerning the
conduct of his duties hereunder, if Employee has failed to substantially cure
such default within thirty (30) days following the delivery by Employer of
written notice to Employee specifying in reasonable detail the nature of all
claimed defaults and the manner in which Employee may cure such defaults; or
(iii) Employee's conviction of a felony in any state or federal court within the
United States.
(b) The term "Constructive Termination Event" shall mean (x) any action by
Employer which is directed at Employee specifically, or which is aimed at a
group of employees which includes Employee, and not at all employees generally,
and which has the effect of diminishing Employee's compensation, employment
responsibilities, authority, or accommodations; or (y) a request by any holder
of Employer's outstanding indebtedness that Employee terminate his employment
with Employer.
(c) The term "Permanent Disability" means Employee's inability to perform
with reasonable accommodation the essential duties of Employee's position, as
existing on the date of this Agreement, as the result of any medically
determinable physical or mental impairment which has lasted, or can reasonably
be expected to last, for a period of 120 consecutive days or any 180 days in any
twelve-month period. The determination of whether Employee is subject to a
Permanent Disability shall be made by a licensed medical doctor selected by the
Compensation Committee of the Board of Directors of Employer, and the decision
of such doctor shall be binding on the parties hereto.
<PAGE>
14. General Provisions.
(a) Governing Law; Venue. The laws of the State of Florida, excluding its
choice of law provisions if such laws would result in the application of laws
other than the laws of the State of Florida, shall govern any disputes between
the parties, the validity of this Agreement, the construction of its terms, and
the interpretation of the rights and duties of the parties hereunder. The forum
selected for any proceeding or suit related to a dispute between the parties or
this Agreement shall be in a federal or state court of competent jurisdiction
located in Hillsborough County, Florida. The parties hereto each consent to
those courts' personal jurisdiction over them, and waive any defense, whether
asserted by motion or pleading, that Hillsborough County, Florida is an improper
or inconvenient venue.
(b) Further Action. Each party hereto agrees to perform all further acts
and execute, acknowledge, and deliver any documents which may be reasonably
necessary, appropriate, or desirable to carry out the provisions of this
Agreement.
(c) No Waiver. No party shall be deemed to have waived any of its rights or
remedies hereunder unless such waiver is specific and in writing. No delay or
omission by any party in exercising any of its rights or remedies hereunder
shall constitute a waiver thereof, or shall constitute any further waiver
thereafter. All rights and remedies of a party are cumulative and concurrent and
the exercise of one right or remedy shall not be deemed a waiver or release of
any other right or remedy.
(d) Binding Effect; Counterparts. The covenants and agreements contained in
this Agreement shall be binding on, and shall inure to the benefit of the
successors and permitted assignees of the parties. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the same
agreement.
(e) Complete Agreement; Modification. This Agreement contains the final,
complete, and exclusive expression of the understanding between the parties with
respect to the transactions contemplated by this Agreement, and supersedes any
prior or contemporaneous agreement or representation, oral or written, by any of
them. This Agreement may be modified or amended only by an agreement in writing
signed by or on behalf of both parties hereto.
<PAGE>
(f) Notices. All notices, demands and other communications required or
permitted hereunder shall be in writing, and shall be deemed given on the third
(3d) day after it is deposited in a United States postal letter box for mailing
by first class mail, postage prepaid, certified mail, return receipt requested
(regardless of whether the return receipt is subsequently received), and
addressed by the sender as follows, or to such other address as the parties may
designate to the others in writing:
To Employer: JumboSports Inc.
4701 W. Hillsborough Avenue
Tampa, Florida 33614
Attention: President
To Employee: Jack E. Bush
7017 Bonaventure Drive
Tampa, Florida 33607
(g) Descriptive Headings. The titles and captions preceding the text of the
articles and sections of this Agreement are inserted solely for convenient
reference and neither constitute a part of this Agreement nor affect its
meaning, interpretation, or effect.
(h) Severability. If any paragraph, or other provision of this Agreement,
or the application thereof, is held to be invalid, illegal, or unenforceable in
any respect or for any reason, the remainder of this Agreement, and the
application of the paragraph or other provision to a person or circumstance with
respect to which it is valid, legal, and enforceable, shall not be affected
thereby.
(i) Gender; Number. Throughout this Agreement, except where the context
requires otherwise, the masculine gender shall be deemed to include the feminine
and neuter and the singular number shall be deemed to include the plural, and
vice-versa.
(j) Computation of Time. Whenever the last day for the exercise of any
privilege or the discharge of any duty under this Agreement shall fall upon
Saturday, Sunday or any public or legal holiday, whether federal or of the State
of Florida, the party having such privilege or duty shall have until 5:00 p.m.
on the next succeeding regular business day to exercise such privilege or to
discharge such duty.
(k) Continuance of Agreement. The rights, responsibilities and duties of
the parties hereto and the covenants and agreements herein contained shall
survive the execution hereof, shall continue to bind the parties hereto, and
shall continue in full force and effect until each and every obligation of the
parties pursuant to this Agreement shall have been fully performed.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
on the day and year first written above.
EMPLOYEE:
By: /s/ JACK E. BUSH
Title: CEO
<PAGE>
COMPENSATION PACKAGE FOR
JACK BUSH
1. Base Compensation.
Continuation of basic compensation and benefits while employed by the
Debtor.
2. Stay or Retention Bonus.
(a) Amount: Six months of base salary
(b) Date of payment: Already paid
(c) Conditions to make stay bonus non-refundable: Mr. Bush will stay until
the earlier of:
(i) December 31, 1999;
(ii) The effective date of a plan of reorganization;
(iii) The date that his employment is involuntarily terminated; or (iv) The
"bitter end," which would include a Chapter 7 conversion, the cessation of
retail business operations (such as by liquidation, stay relief and foreclosure
by Foothill, sale of the business, etc.), or dismissal of the Chapter 11 case.
3. Success Bonus.
(a) Amount: Six Months of base compensation
(b) Date of Payment: the effective date of a plan or reorganization
(c) Conditions precedent to payment:
(i) Continued employment as of the effective date of the plan;
(ii) The plan is a non-liquidating plan; and
(iii) The plan has been supported by majority vote of both Committees.
<PAGE>
4. Severance Pay (other than in the case of a Foothill Event of Default and
subsequent acceleration).
(a) Amount: From nine to twelve months of base compensation
(b) Date of Payment:
(i) Nine months payable in a lump sum on the date of termination of
employment
(ii) Up to an additional three months of base compensation payable monthly
in months seven to twelve at the rate of 50% for each such month that Mr. Bush
has not accepted permanent employment (not including consulting assignments and
board directorships)
(c) The only condition to the payment of these amounts is that the employee
not voluntarily leave the Company prior to the time permitted under paragraph 2
above and (as to the three months deferred payment) that the employee has not
entered into a permanent employment agreement (not including consulting
agreements and board representations).
5. Severance Pay (following termination of employment after a Foothill Event of
Default and subsequent acceleration).
(a) This provision is applicable in lieu of the severance compensation set
forth in P. 4 above if, and only if:
(i) Foothill declares an Event of Default that is not subsequently waived
by Foothill or judicially determined to have not occurred or to be unenforceable
by Foothill;
(ii) Foothill accelerates its DIP loan after such Event of Default and does
not thereafter reinstate the DIP loan; and
(iii) Mr. Bush's employment is thereafter terminated.
(b) Amount: Six months of base compensation
(c) Date of Payment: Termination of employment
6. Death or Disability.
The Stay Bonus will not be refundable if the employee dies or is disabled.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is made
and entered into this 16 day of March, 1999, by and between JUMBOSPORTS INC., a
Florida corporation (hereinafter called "Employer"), and ROBERT FLOUM
(hereinafter called "Employee").
WHEREAS, Employer and Employee are parties to that certain Employment
Agreement dated December 23, 1998 (the "Prior Employment Agreement");
WHEREAS, on December 27, 1998, Employer filed its Voluntary Petition for
Relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy
Code");
WHEREAS, pursuant to that certain Order Granting Debtor's Motion for
Authority to Pay Officers' Salaries and Directors' Fees and to Honor Existing
Compensation Agreements and Policies, entered by Judge C. Timothy Corcoran, III,
on February 23, 1999 (the "Compensation Order"), the Prior Employment Agreement
was approved, subject to certain required modifications; and
WHEREAS, the parties hereto desire to amend and completely restate the
Prior Employment Agreement to comply with the provisions of the Compensation
Order.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby amend and restate the Prior Employment Agreement to read in
its entirety as set forth below:
WITNESSETH:
1. Employment. Employer hereby agrees to continue to employ Employee, and
Employee hereby agrees to continue his employment with Employer, upon the terms
and conditions hereinafter set forth.
2. Effect of Compensation Order. Employer and Employee intend that this
Agreement shall comply in all respects with the provisions of the Compensation
Order, and the Compensation Order is incorporated herein by this reference. In
the event of any inconsistency between the provisions of this Agreement and the
provisions of the Compensation Order, the provisions of the Compensation Order
shall control.
3. Effect on Prior Agreements. Employer and Employee hereby acknowledge and
agree that this Agreement supersedes any prior or contemporaneous agreement,
representation or understanding, oral or written, between Employer and Employee
regarding the terms and conditions of Employee's employment with Employer,
including, without limitation, the Prior Employment Agreement.
<PAGE>
4. Term. The term of this Agreement shall commence effective as of February
23, 1999 (the "Effective Date"), and shall, subject to prior termination
pursuant to paragraph 8 of this Agreement, terminate on the latest of (a) the
effective date of a plan of reorganization with respect to the Employer, (b) the
dismissal of the Chapter 11 proceeding with respect to the Employer or (c)
December 31, 1999.
5. Duties. The Employee is engaged as Chief Operating Officer of the
Employer. The Employee shall have such duties, responsibilities and
accommodations as the Employer's Board of Directors shall designate to that
position.
6. Extent of Service. Employee shall exclusively devote his entire working
time, energy and attention to his duties hereunder, provided that the Employee
may (i) make passive investments in entities which are not publicly traded and
which are not competitive with, or suppliers of goods or services to, Employer,
(ii) own up to 2% of the outstanding equity securities of any entity which is
publicly traded on a national securities exchange or on the NASDAQ Stock Market,
and (iii) with the approval of the Board of Directors, serve on boards of
corporations that do not compete with the Company or serve on boards for or
engage in activities of a community, civic or public interest nature.
7. Compensation and Benefits. During the term of this Agreement, Employer
shall pay to Employee the following compensation, which shall be payable, less
any withholding and other payroll taxes required by law, in accordance with
Employer's normal payroll policies applicable to all of Employer's employees:
(a) Base Salary. An annual base salary (the "Annual Base Salary") in the
amount of Three Hundred Thousand Dollars ($300,000), subject to increase in
accordance with the provisions of Schedule A attached to this Agreement and
incorporated herein by this reference ("Schedule A").
(b) Stay or Retention Bonus. Employee is entitled to a retention bonus in
accordance with the provisions of Schedule A; provided, however, that for
purposes of determining whether Employee is entitled to such retention bonus,
the termination of Employee's employment by Employee following a Constructive
Termination Event (as defined herein) shall be deemed to be an "involuntarily"
termination.
(c) Success Bonus. Employee is entitled to a success bonus in accordance
with the provisions of Schedule A; provided, however, that, for purposes of
determining whether Employee is entitled to such success bonus, Employee's
employment hereunder shall be deemed to continue following the termination of
such employment (i) by Employer without Cause (as defined herein), (ii) by
Employee following a Constructive Termination Event (as defined herein), or
(iii) as a result of the death or Permanent Disability (as defined herein) of
Employee.
<PAGE>
(d) Other Benefit Programs. During the term of this Agreement, Employee
shall be entitled to continue to participate in Employer's executive benefit
programs available for senior executive officers as it may exist from time to
time, including, without limitation, any temporary housing assistance program in
which Employee participates as of the Effective Date.
8. Termination.
(a) Termination by Employer. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement is not to be considered an agreement
for a fixed term or as a guarantee of continuing employment. Accordingly,
Employee's employment may be terminated by Employer with or without cause upon
immediate written notice to Employee at any time during the term of this
Agreement. Additionally, Employee's employment shall automatically terminate
upon his death or upon a determination that he is permanently disabled.
(b) Termination by Employee. Notwithstanding anything to the contrary
contained in this Agreement, Employee may resign as an officer and, if
applicable, director and terminate his employment with Employer at any time upon
30 days' prior written notice to Employer.
(c) Effect of Termination. Upon the termination of Employee's employment
with Employer for any reason, Employee shall remain entitled to (i) the
bi-weekly portion of his Annual Base Salary then due through the date of such
termination and (ii) all benefits which are accrued, vested and earned up to the
termination date under the terms of any existing benefit plan of Employer such
as the vested balance of the employee's account under any retirement or deferred
compensation plan and any benefits which are legally required to be provided
after termination, such as COBRA benefits ("Legally Earned or Required
Benefits"). Except as provided in the preceding sentence, and except for any
severance benefit to which Employee may be entitled pursuant to paragraph 9 of
this Agreement, Employee shall be entitled to no other benefits or salary from
Employer following the termination of Employee's employment hereunder.
(d) Agreements by Employee. Upon termination of Employee's employment with
Employer for any reason, Employee shall (i) immediately return any and all
property and records belonging to Employer which are in Employee's possession
and shall vacate Employer's offices in a prompt and professional manner and (ii)
resign immediately as an officer and, if applicable, director of Employer and
any subsidiary of Employer unless Employer indicates in writing to Employee its
desire that Employee retain any such position.
<PAGE>
(e) Transition Services. Upon a termination of employment, whether by
Employee or by Employer, with or without cause, Employee shall cooperate with
Employer in order to insure an orderly and businesslike transfer of Employee's
duties to other personnel designated by the Employer. Additionally, Employee
shall make himself available for a period of ninety (90) days after such
termination, at reasonable times and upon reasonable notice, to consult with
Employer and assist Employer with respect to any matters for which Employer
requests such assistance; provided that Employer shall reimburse Employee for
any reasonable out-of-pocket expense incurred by Employee at Employer's request
in connection with such consultation or assistance, and Employer shall schedule
such consultation at times which will not interfere with any subsequent
employment which Employee has obtained and such consultation shall not require
more than an average of two days per month without Employee's consent. A breach
of the foregoing provisions by Employee shall be deemed to be a material breach
of this Agreement.
9. Severance Benefits. Employee shall be entitled to severance payments in
accordance with the provisions of Schedule A. In addition, if Employee is
entitled to receive a severance benefit pursuant to Schedule A, then Employee
shall continue to be entitled to his then current benefits pursuant to paragraph
7(d) of this Agreement until the earlier of (x) the date on which Employee
becomes entitled to receive comparable benefits from another employer or (y) the
date that is one (1) year after the termination of Employee's employment.
10. Excise Taxes. In the event that any payment to be received by Employee
hereunder would be subject to an excise tax pursuant to Section 4999 of the
Code, whether in whole or in part, as a result of being an "excess parachute
payment" within the meaning of such term in Section 280G(b) of the Code, the
amount payable under this Agreement shall be reduced to the largest amount so
that no portion of such payment is subject to excise tax pursuant to Section
4999 of the Code. If the amount necessary to eliminate such excise tax exceeds
the amount otherwise payable under this Agreement, no payment shall be made
under this paragraph and no further adjustment shall be made.
11. Nondisclosure of Confidential Information and Trade Secrets. Employee
shall not disclose, either directly or indirectly, any Confidential Information
or Trade Secrets to any other person or otherwise use such Confidential
Information or Trade Secrets for any purpose except in connection with his
employment with the Employer. For purposes of the foregoing, the term "Trade
Secret" has the meaning ascribed thereto in Section 688.002(4), Florida
Statutes, or any revision or successor thereto, and the term "Confidential
Information" means any technical or nontechnical data, formula, pattern,
compilation, program, devise, method, technique, drawing, process, know-how,
financial data, financial plan, marketing plan, expansion plan, cost analysis,
list of suppliers, customers or their employees, or other proprietary
information which is secret and confidential and is not readily and legally
available to the public from sources other than Employer.
<PAGE>
12. Injunctive Relief. In the event of a breach or violation or threatened
breach or violation by Employee of the provisions of any of the restrictive
covenants set forth in paragraph 11 of this Agreement, Employer shall be
entitled to an injunction restraining Employee from directly or indirectly
engaging in such behavior. Nothing herein shall be construed as prohibiting
Employer from pursuing any other remedies available to it by law or by this
Agreement for breach, violation or threatened breach or violation of any
provision of this Agreement, including, by way of illustration and not by way of
limitation, the recovery of damages from Employee or any other person, firm,
corporation or entity. The provisions of paragraphs 11 and 12 of this Agreement
shall survive the termination of this Agreement for any reason. Should Employer
bring an action against Employee to enforce any restrictive covenants set forth
in this Agreement, the period of restriction applicable to such covenant shall
be deemed to begin running on the date of entry of an order granting Employer
preliminary injunctive relief and shall continue uninterrupted for the original
intended period.
13. Definitions. For purposes of this Agreement, the following terms shall
have the meanings assigned in this paragraph 13:
(a) The term "Cause" shall mean (i) Employee's commission of any act or
acts of fraud or willful misappropriation that result in material expense or
harm to Employer; (ii) Employee's default in any material respect in the
performance of his obligations, services or duties hereunder (other than a
default caused by a medically determinable physical or mental impairment of
Employee), which shall include, without limitation, Employee's disregarding
written instructions from the Board of Directors of Employer concerning the
conduct of his duties hereunder, if Employee has failed to substantially cure
such default within thirty (30) days following the delivery by Employer of
written notice to Employee specifying in reasonable detail the nature of all
claimed defaults and the manner in which Employee may cure such defaults; or
(iii) Employee's conviction of a felony in any state or federal court within the
United States.
(b) The term "Constructive Termination Event" shall mean (x) any action by
Employer which is directed at Employee specifically, or which is aimed at a
group of employees which includes Employee, and not at all employees generally,
and which has the effect of diminishing Employee's compensation, employment
responsibilities, authority, or accommodations; or (y) a request by any holder
of Employer's outstanding indebtedness that Employee terminate his employment
with Employer.
(c) The term "Permanent Disability" means Employee's inability to perform
with reasonable accommodation the essential duties of Employee's position, as
existing on the date of this Agreement, as the result of any medically
determinable physical or mental impairment which has lasted, or can reasonably
be expected to last, for a period of 120 consecutive days or any 180 days in any
twelve-month period. The determination of whether Employee is subject to a
Permanent Disability shall be made by a licensed medical doctor selected by the
Compensation Committee of the Board of Directors of Employer, and the decision
of such doctor shall be binding on the parties hereto.
<PAGE>
14. General Provisions.
(a) Governing Law; Venue. The laws of the State of Florida, excluding its
choice of law provisions if such laws would result in the application of laws
other than the laws of the State of Florida, shall govern any disputes between
the parties, the validity of this Agreement, the construction of its terms, and
the interpretation of the rights and duties of the parties hereunder. The forum
selected for any proceeding or suit related to a dispute between the parties or
this Agreement shall be in a federal or state court of competent jurisdiction
located in Hillsborough County, Florida. The parties hereto each consent to
those courts' personal jurisdiction over them, and waive any defense, whether
asserted by motion or pleading, that Hillsborough County, Florida is an improper
or inconvenient venue.
(b) Further Action. Each party hereto agrees to perform all further acts
and execute, acknowledge, and deliver any documents which may be reasonably
necessary, appropriate, or desirable to carry out the provisions of this
Agreement.
(c) No Waiver. No party shall be deemed to have waived any of its rights or
remedies hereunder unless such waiver is specific and in writing. No delay or
omission by any party in exercising any of its rights or remedies hereunder
shall constitute a waiver thereof, or shall constitute any further waiver
thereafter. All rights and remedies of a party are cumulative and concurrent and
the exercise of one right or remedy shall not be deemed a waiver or release of
any other right or remedy.
(d) Binding Effect; Counterparts. The covenants and agreements contained in
this Agreement shall be binding on, and shall inure to the benefit of the
successors and permitted assignees of the parties. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the same
agreement.
(e) Complete Agreement; Modification. This Agreement contains the final,
complete, and exclusive expression of the understanding between the parties with
respect to the transactions contemplated by this Agreement, and supersedes any
prior or contemporaneous agreement or representation, oral or written, by any of
them. This Agreement may be modified or amended only by an agreement in writing
signed by or on behalf of both parties hereto.
<PAGE>
(f) Notices. All notices, demands and other communications required or
permitted hereunder shall be in writing, and shall be deemed given on the third
(3d) day after it is deposited in a United States postal letter box for mailing
by first class mail, postage prepaid, certified mail, return receipt requested
(regardless of whether the return receipt is subsequently received), and
addressed by the sender as follows, or to such other address as the parties may
designate to the others in writing:
To Employer: JumboSports Inc.
4701 W. Hillsborough Avenue
Tampa, Florida 33614
Attention: President
To Employee: Robert Floum
7219 Glennaker Drive
Tampa, Florida 33607
(g) Descriptive Headings. The titles and captions preceding the text of the
articles and sections of this Agreement are inserted solely for convenient
reference and neither constitute a part of this Agreement nor affect its
meaning, interpretation, or effect.
(h) Severability. If any paragraph, or other provision of this Agreement,
or the application thereof, is held to be invalid, illegal, or unenforceable in
any respect or for any reason, the remainder of this Agreement, and the
application of the paragraph or other provision to a person or circumstance with
respect to which it is valid, legal, and enforceable, shall not be affected
thereby.
(i) Gender; Number. Throughout this Agreement, except where the context
requires otherwise, the masculine gender shall be deemed to include the feminine
and neuter and the singular number shall be deemed to include the plural, and
vice-versa.
(j) Computation of Time. Whenever the last day for the exercise of any
privilege or the discharge of any duty under this Agreement shall fall upon
Saturday, Sunday or any public or legal holiday, whether federal or of the State
of Florida, the party having such privilege or duty shall have until 5:00 p.m.
on the next succeeding regular business day to exercise such privilege or to
discharge such duty.
<PAGE>
(k) Continuance of Agreement. The rights, responsibilities and duties of
the parties hereto and the covenants and agreements herein contained shall
survive the execution hereof, shall continue to bind the parties hereto, and
shall continue in full force and effect until each and every obligation of the
parties pursuant to this Agreement shall have been fully performed.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
on the day and year first written above.
EMPLOYEE:
By: /s/ B. ROBERT FLOUM
Title: COO
<PAGE>
COMPENSATION PACKAGE FOR
FOR ROBERT FLOUM
1. Base Compensation:
Continuation of basic compensation and benefits while employed by the
Debtor. Any increase in base compensation would require Court approval after
notice to the Committees.
2. Stay or Retention Bonus.
(a) Amount: Six months of base salary
(b) Date of payment: Already paid
(c) Conditions to make stay bonus non-refundable: Mr. Floum will stay until
the earlier of:
(i)December 31, 1999;
(ii) The effective date of a plan of reorganization; (iii) The date that
his employment is involuntarily terminated; or (iv) The "bitter end," which
would include a Chapter 7 conversion, the cessation of retail business
operations (such as by liquidation, stay relief and foreclosure by Foothill,
sale of the business, etc.), or dismissal of the Chapter 11 case.
3. Success Bonus.
(a) Amount: Three to six months, as set forth below.
(b) Date of Payment: the effective date of a plan of reorganization
(c) Conditions to six months success bonus.
(i)Continued employment as of the effective date of the plan;
(ii) The plan is a non-liquidating plan; and
(iii) The plan has been supported by both Committees.
(d) Condition of three month success bonus: employment on the effective
date of a non-liquidating plan (even if non-consensual).
<PAGE>
4. Severance Pay.
(a) Amount: One year of base compensation
(b) Date of Payment: Date of termination of employment
(c) Terms of Payment: Lump sum cash payment
(d) Condition to payment:
(i)Mr. Floum's employment is terminated by the debtor in possession prior
to the effective date of a plan or reorganization; or
(ii) Mr. Floum is not offered continued employment by the reorganized
debtor at the same or greater salary and benefits and with the same or greater
job responsibilities and position, or
(iii) Mr. Floum's post-confirmation employment is terminated within six
months after the effective date.
5. Death or Disability.
The Stay Bonus will not be refundable if the employee dies or is disabled.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is made
and entered into this 16 day of March, 1999, by and between JUMBOSPORTS INC., a
Florida corporation (hereinafter called "Employer"), and RAYMOND P. SPRINGER
(hereinafter called "Employee").
WHEREAS, Employer and Employee are parties to that certain Employment
Agreement dated December 23, 1998 (the "Prior Employment Agreement");
WHEREAS, on December 27, 1998, Employer filed its Voluntary Petition for
Relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy
Code");
WHEREAS, pursuant to that certain Order Granting Debtor's Motion for
Authority to Pay Officers' Salaries and Directors' Fees and to Honor Existing
Compensation Agreements and Policies, entered by Judge C. Timothy Corcoran, III,
on February 23, 1999 (the "Compensation Order"), the Prior Employment Agreement
was approved, subject to certain required modifications; and
WHEREAS, the parties hereto desire to amend and completely restate the
Prior Employment Agreement to comply with the provisions of the Compensation
Order.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby amend and restate the Prior Employment Agreement to read in
its entirety as set forth below:
WITNESSETH:
1. Employment. Employer hereby agrees to continue to employ Employee, and
Employee hereby agrees to continue his employment with Employer, upon the terms
and conditions hereinafter set forth.
2. Effect of Compensation Order. Employer and Employee intend that this
Agreement shall comply in all respects with the provisions of the Compensation
Order, and the Compensation Order is incorporated herein by this reference. In
the event of any inconsistency between the provisions of this Agreement and the
provisions of the Compensation Order, the provisions of the Compensation Order
shall control.
3. Effect on Prior Agreements. Employer and Employee hereby acknowledge and
agree that this Agreement supersedes any prior or contemporaneous agreement,
representation or understanding, oral or written, between Employer and Employee
regarding the terms and conditions of Employee's employment with Employer,
including, without limitation, the Prior Employment Agreement.
<PAGE>
4. Term. The term of this Agreement shall commence effective as of February
23, 1999 (the "Effective Date"), and shall, subject to prior termination
pursuant to paragraph 8 of this Agreement, terminate on the latest of (a) the
effective date of a plan of reorganization with respect to the Employer, (b) the
dismissal of the Chapter 11 proceeding with respect to the Employer or (c)
December 31, 1999.
5. Duties. The Employee is engaged as Executive Vice President and Chief
Financial Officer of the Employer. The Employee shall have such duties,
responsibilities and accommodations as the Employer's Board of Directors shall
designate to that position.
6. Extent of Service. Employee shall exclusively devote his entire working
time, energy and attention to his duties hereunder, provided that the Employee
may (i) make passive investments in entities which are not publicly traded and
which are not competitive with, or suppliers of goods or services to, Employer,
(ii) own up to 2% of the outstanding equity securities of any entity which is
publicly traded on a national securities exchange or on the NASDAQ Stock Market,
and (iii) with the approval of the Board of Directors, serve on boards of
corporations that do not compete with the Company or serve on boards for or
engage in activities of a community, civic or public interest nature.
7. Compensation and Benefits. During the term of this Agreement, Employer
shall pay to Employee the following compensation, which shall be payable, less
any withholding and other payroll taxes required by law, in accordance with
Employer's normal payroll policies applicable to all of Employer's employees:
(a) Base Salary. An annual base salary in the amount of Two Hundred Forty
Thousand Dollars ($240,000) (the "Annual Base Salary").
(b) Stay or Retention Bonus. Employee is entitled to a retention bonus in
accordance with the provisions of Schedule A attached to this Agreement and
incorporated herein by this reference ("Schedule A"); provided, however, that
for purposes of determining whether Employee is entitled to such retention
bonus, the termination of Employee's employment by Employee following a
Constructive Termination Event (as defined herein) shall be deemed to be an
"involuntarily" termination.
(c) Success Bonus. Employee is entitled to a success bonus in accordance
with the provisions of Schedule A; provided, however, that, for purposes of
determining whether Employee is entitled to such success bonus, Employee's
employment hereunder shall be deemed to continue following the termination of
such employment (i) by Employer without Cause (as defined herein), (ii) by
Employee following a Constructive Termination Event (as defined herein), or
(iii) as a result of the death or Permanent Disability (as defined herein) of
Employee.
<PAGE>
(d) Other Benefit Programs. During the term of this Agreement, Employee
shall be entitled to continue to participate in Employer's executive benefit
programs available for senior executive officers as it may exist from time to
time, including, without limitation, any temporary housing assistance program in
which Employee participates as of the Effective Date.
8. Termination.
(a) Termination by Employer. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement is not to be considered an agreement
for a fixed term or as a guarantee of continuing employment. Accordingly,
Employee's employment may be terminated by Employer with or without cause upon
immediate written notice to Employee at any time during the term of this
Agreement. Additionally, Employee's employment shall automatically terminate
upon his death or upon a determination that he is permanently disabled.
(b) Termination by Employee. Notwithstanding anything to the contrary
contained in this Agreement, Employee may resign as an officer and, if
applicable, director and terminate his employment with Employer at any time upon
30 days' prior written notice to Employer.
(c) Effect of Termination. Upon the termination of Employee's employment
with Employer for any reason, Employee shall remain entitled to (i) the
bi-weekly portion of his Annual Base Salary then due through the date of such
termination and (ii) all benefits which are accrued, vested and earned up to the
termination date under the terms of any existing benefit plan of Employer such
as the vested balance of the employee's account under any retirement or deferred
compensation plan and any benefits which are legally required to be provided
after termination, such as COBRA benefits ("Legally Earned or Required
Benefits"). Except as provided in the preceding sentence, and except for any
severance benefit to which Employee may be entitled pursuant to paragraph 9 of
this Agreement, Employee shall be entitled to no other benefits or salary from
Employer following the termination of Employee's employment hereunder.
(d) Agreements by Employee. Upon termination of Employee's employment with
Employer for any reason, Employee shall (i) immediately return any and all
property and records belonging to Employer which are in Employee's possession
and shall vacate Employer's offices in a prompt and professional manner and (ii)
resign immediately as an officer and, if applicable, director of Employer and
any subsidiary of Employer unless Employer indicates in writing to Employee its
desire that Employee retain any such position.
(e) Transition Services. Upon a termination of employment, whether by
Employee or by Employer, with or without cause, Employee shall cooperate with
Employer in order to insure an orderly and businesslike transfer of Employee's
duties to other personnel designated by the Employer. Additionally, Employee
shall make himself available for a period of ninety (90) days after such
termination, at reasonable times and upon reasonable notice, to consult with
Employer and assist Employer with respect to any matters for which Employer
requests such assistance; provided that Employer shall reimburse Employee for
any reasonable out-of-pocket expense incurred by Employee at Employer's request
in connection with such consultation or assistance, and Employer shall schedule
such consultation at times which will not interfere with any subsequent
employment which Employee has obtained and such consultation shall not require
more than an average of two days per month without Employee's consent. A breach
of the foregoing provisions by Employee shall be deemed to be a material breach
of this Agreement.
<PAGE>
9. Severance Benefits. Employee shall be entitled to severance payments in
accordance with the provisions of Schedule A. In addition, if Employee is
entitled to receive a severance benefit pursuant to Schedule A, then Employee
shall continue to be entitled to his then current benefits pursuant to paragraph
7(d) of this Agreement until the earlier of (x) the date on which Employee
becomes entitled to receive comparable benefits from another employer or (y) the
date that is one (1) year after the termination of Employee's employment.
10. Excise Taxes. In the event that any payment to be received by Employee
hereunder would be subject to an excise tax pursuant to Section 4999 of the
Code, whether in whole or in part, as a result of being an "excess parachute
payment" within the meaning of such term in Section 280G(b) of the Code, the
amount payable under this Agreement shall be reduced to the largest amount so
that no portion of such payment is subject to excise tax pursuant to Section
4999 of the Code. If the amount necessary to eliminate such excise tax exceeds
the amount otherwise payable under this Agreement, no payment shall be made
under this paragraph and no further adjustment shall be made.
11. Nondisclosure of Confidential Information and Trade Secrets. Employee
shall not disclose, either directly or indirectly, any Confidential Information
or Trade Secrets to any other person or otherwise use such Confidential
Information or Trade Secrets for any purpose except in connection with his
employment with the Employer. For purposes of the foregoing, the term "Trade
Secret" has the meaning ascribed thereto in Section 688.002(4), Florida
Statutes, or any revision or successor thereto, and the term "Confidential
Information" means any technical or nontechnical data, formula, pattern,
compilation, program, devise, method, technique, drawing, process, know-how,
financial data, financial plan, marketing plan, expansion plan, cost analysis,
list of suppliers, customers or their employees, or other proprietary
information which is secret and confidential and is not readily and legally
available to the public from sources other than Employer.
12. Injunctive Relief. In the event of a breach or violation or threatened
breach or violation by Employee of the provisions of any of the restrictive
covenants set forth in paragraph 11 of this Agreement, Employer shall be
entitled to an injunction restraining Employee from directly or indirectly
engaging in such behavior. Nothing herein shall be construed as prohibiting
Employer from pursuing any other remedies available to it by law or by this
Agreement for breach, violation or threatened breach or violation of any
provision of this Agreement, including, by way of illustration and not by way of
limitation, the recovery of damages from Employee or any other person, firm,
corporation or entity. The provisions of paragraphs 11 and 12 of this Agreement
shall survive the termination of this Agreement for any reason. Should Employer
bring an action against Employee to enforce any restrictive covenants set forth
in this Agreement, the period of restriction applicable to such covenant shall
be deemed to begin running on the date of entry of an order granting Employer
preliminary injunctive relief and shall continue uninterrupted for the original
intended period.
<PAGE>
13. Definitions. For purposes of this Agreement, the following terms shall
have the meanings assigned in this paragraph 13:
(a) The term "Cause" shall mean (i) Employee's commission of any act or
acts of fraud or willful misappropriation that result in material expense or
harm to Employer; (ii) Employee's default in any material respect in the
performance of his obligations, services or duties hereunder (other than a
default caused by a medically determinable physical or mental impairment of
Employee), which shall include, without limitation, Employee's disregarding
written instructions from the Board of Directors of Employer concerning the
conduct of his duties hereunder, if Employee has failed to substantially cure
such default within thirty (30) days following the delivery by Employer of
written notice to Employee specifying in reasonable detail the nature of all
claimed defaults and the manner in which Employee may cure such defaults; or
(iii) Employee's conviction of a felony in any state or federal court within the
United States.
(b) The term "Constructive Termination Event" shall mean (x) any action by
Employer which is directed at Employee specifically, or which is aimed at a
group of employees which includes Employee, and not at all employees generally,
and which has the effect of diminishing Employee's compensation, employment
responsibilities, authority, or accommodations; or (y) a request by any holder
of Employer's outstanding indebtedness that Employee terminate his employment
with Employer.
(c) The term "Permanent Disability" means Employee's inability to perform
with reasonable accommodation the essential duties of Employee's position, as
existing on the date of this Agreement, as the result of any medically
determinable physical or mental impairment which has lasted, or can reasonably
be expected to last, for a period of 120 consecutive days or any 180 days in any
twelve-month period. The determination of whether Employee is subject to a
Permanent Disability shall be made by a licensed medical doctor selected by the
Compensation Committee of the Board of Directors of Employer, and the decision
of such doctor shall be binding on the parties hereto.
<PAGE>
14. General Provisions.
(a) Governing Law; Venue. The laws of the State of Florida, excluding its
choice of law provisions if such laws would result in the application of laws
other than the laws of the State of Florida, shall govern any disputes between
the parties, the validity of this Agreement, the construction of its terms, and
the interpretation of the rights and duties of the parties hereunder. The forum
selected for any proceeding or suit related to a dispute between the parties or
this Agreement shall be in a federal or state court of competent jurisdiction
located in Hillsborough County, Florida. The parties hereto each consent to
those courts' personal jurisdiction over them, and waive any defense, whether
asserted by motion or pleading, that Hillsborough County, Florida is an improper
or inconvenient venue.
(b) Further Action. Each party hereto agrees to perform all further acts
and execute, acknowledge, and deliver any documents which may be reasonably
necessary, appropriate, or desirable to carry out the provisions of this
Agreement.
(c) No Waiver. No party shall be deemed to have waived any of its rights or
remedies hereunder unless such waiver is specific and in writing. No delay or
omission by any party in exercising any of its rights or remedies hereunder
shall constitute a waiver thereof, or shall constitute any further waiver
thereafter. All rights and remedies of a party are cumulative and concurrent and
the exercise of one right or remedy shall not be deemed a waiver or release of
any other right or remedy.
(d) Binding Effect; Counterparts. The covenants and agreements contained in
this Agreement shall be binding on, and shall inure to the benefit of the
successors and permitted assignees of the parties. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the same
agreement.
(e) Complete Agreement; Modification. This Agreement contains the final,
complete, and exclusive expression of the understanding between the parties with
respect to the transactions contemplated by this Agreement, and supersedes any
prior or contemporaneous agreement or representation, oral or written, by any of
them. This Agreement may be modified or amended only by an agreement in writing
signed by or on behalf of both parties hereto.
<PAGE>
(f) Notices. All notices, demands and other communications required or
permitted hereunder shall be in writing, and shall be deemed given on the third
(3d) day after it is deposited in a United States postal letter box for mailing
by first class mail, postage prepaid, certified mail, return receipt requested
(regardless of whether the return receipt is subsequently received), and
addressed by the sender as follows, or to such other address as the parties may
designate to the others in writing:
To Employer: JumboSports Inc.
4701 W. Hillsborough Avenue
Tampa, Florida 33614
Attention: President
To Employee: Raymond P. Springer
18210 Clear Lake Drive
Lutz, Florida 33549
(g) Descriptive Headings. The titles and captions preceding the text of the
articles and sections of this Agreement are inserted solely for convenient
reference and neither constitute a part of this Agreement nor affect its
meaning, interpretation, or effect.
(h) Severability. If any paragraph, or other provision of this Agreement,
or the application thereof, is held to be invalid, illegal, or unenforceable in
any respect or for any reason, the remainder of this Agreement, and the
application of the paragraph or other provision to a person or circumstance with
respect to which it is valid, legal, and enforceable, shall not be affected
thereby.
(i) Gender; Number. Throughout this Agreement, except where the context
requires otherwise, the masculine gender shall be deemed to include the feminine
and neuter and the singular number shall be deemed to include the plural, and
vice-versa.
(j) Computation of Time. Whenever the last day for the exercise of any
privilege or the discharge of any duty under this Agreement shall fall upon
Saturday, Sunday or any public or legal holiday, whether federal or of the State
of Florida, the party having such privilege or duty shall have until 5:00 p.m.
on the next succeeding regular business day to exercise such privilege or to
discharge such duty.
(k) Continuance of Agreement. The rights, responsibilities and duties of
the parties hereto and the covenants and agreements herein contained shall
survive the execution hereof, shall continue to bind the parties hereto, and
shall continue in full force and effect until each and every obligation of the
parties pursuant to this Agreement shall have been fully performed.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement on
the day and year first written above.
EMPLOYEE:
By: /s/ RAYMOND P. SPRINGER
Title: CFO
<PAGE>
COMPENSATION PACKAGE FOR
RAY SPRINGER
1. Base Compensation.
Continuation of basic compensation and benefits while employed by the
Debtor.
2. Stay or Retention Bonus.
(a) Amount: Six months of base salary
(b) Date of payment: Already paid
(c) Conditions to make stay bonus non-refundable: Mr. Springer will stay
until the earlier of:
(i) December 31, 1999;
(ii) The effective date of a plan of reorganization;
(iii) The date that his employment is involuntarily terminated; or (iv) The
"bitter end," which would include a Chapter 7 conversion, the cessation of
retail business operations (such as by liquidation, stay relief and foreclosure
by Foothill, sale of the business, etc.), or dismissal of the Chapter 11 case.
3. Success Bonus.
(a) Amount: Six Months of base compensation
(b) Date of Payment: the effective date of a plan or reorganization
(c) Conditions precedent to payment:
(i) Continued employment as of the effective date of the plan;
(ii) The plan is a non-liquidating plan; and
(iii) The plan has been supported by majority vote of both Committees.
<PAGE>
4. Severance Pay (other than in the case of a Foothill Event of Default and
subsequent acceleration).
(a) Amount: From nine to twelve months of base compensation
(b) Date of Payment:
(i) Nine months payable in a lump sum on the date of termination of
employment
(ii) Up to an additional three months of base compensation payable monthly
in months seven to twelve at the rate of 50% for each such month that Mr.
Springer has not accepted permanent employment (not including consulting
assignments and board directorships)
(c) The only condition to the payment of these amounts is that the employee
not voluntarily leave the Company prior to the time permitted under paragraph 2
above and (as to the three months deferred payment) that the employee has not
entered into a permanent employment agreement (not including consulting
agreements and board representations).
5. Severance Pay (following termination of employment after a Foothill Event of
Default and subsequent acceleration).
(a) This provision is applicable in lieu of the severance compensation set
forth in P. 4 above if, and only if:
(i) Foothill declares an Event of Default that is not subsequently waived
by Foothill or judicially determined to have not occurred or to be unenforceable
by Foothill;
(ii) Foothill accelerates its DIP loan after such Event of Default and does
not thereafter reinstate the DIP loan; and
(iii) Mr. Springer's employment is thereafter terminated.
(b) Amount: Six months of base compensation
(c) Date of Payment: Termination of employment
6. Death or Disability.
The Stay Bonus will not be refundable if the employee dies or is disabled.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is made
and entered into this 16 day of March, 1999, by and between JUMBOSPORTS INC., a
Florida corporation (hereinafter called "Employer"), and BARRY GOLD (hereinafter
called "Employee").
WHEREAS, Employer and Employee are parties to that certain Employment
Agreement dated December 23, 1998 (the "Prior Employment Agreement");
WHEREAS, on December 27, 1998, Employer filed its Voluntary Petition for
Relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy
Code");
WHEREAS, pursuant to that certain Order Granting Debtor's Motion for
Authority to Pay Officers' Salaries and Directors' Fees and to Honor Existing
Compensation Agreements and Policies, entered by Judge C. Timothy Corcoran, III,
on February 23, 1999 (the "Compensation Order"), the Prior Employment Agreement
was approved, subject to certain required modifications; and
WHEREAS, the parties hereto desire to amend and completely restate the
Prior Employment Agreement to comply with the provisions of the Compensation
Order.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby amend and restate the Prior Employment Agreement to read in
its entirety as set forth below:
WITNESSETH:
1. Employment. Employer hereby agrees to continue to employ Employee, and
Employee hereby agrees to continue his employment with Employer, upon the terms
and conditions hereinafter set forth.
2. Effect of Compensation Order. Employer and Employee intend that this
Agreement shall comply in all respects with the provisions of the Compensation
Order, and the Compensation Order is incorporated herein by this reference. In
the event of any inconsistency between the provisions of this Agreement and the
provisions of the Compensation Order, the provisions of the Compensation Order
shall control.
3. Effect on Prior Agreements. Employer and Employee hereby acknowledge and
agree that this Agreement supersedes any prior or contemporaneous agreement,
representation or understanding, oral or written, between Employer and Employee
regarding the terms and conditions of Employee's employment with Employer,
including, without limitation, the Prior Employment Agreement.
<PAGE>
4. Term. The term of this Agreement shall commence effective as of February
23, 1999 (the "Effective Date"), and shall, subject to prior termination
pursuant to paragraph 8 of this Agreement, terminate on the latest of (a) the
effective date of a plan of reorganization with respect to the Employer, (b) the
dismissal of the Chapter 11 proceeding with respect to the Employer or (c)
December 31, 1999.
5. Duties. The Employee is engaged as Executive Vice President, Operations,
Logistics and Loss Prevention of the Employer. The Employee shall have such
duties, responsibilities and accommodations as the Employer's Board of Directors
shall designate to that position.
6. Extent of Service. Employee shall exclusively devote his entire working
time, energy and attention to his duties hereunder, provided that the Employee
may (i) make passive investments in entities which are not publicly traded and
which are not competitive with, or suppliers of goods or services to, Employer,
(ii) own up to 2% of the outstanding equity securities of any entity which is
publicly traded on a national securities exchange or on the NASDAQ Stock Market,
and (iii) with the approval of the Board of Directors, serve on boards of
corporations that do not compete with the Company or serve on boards for or
engage in activities of a community, civic or public interest nature.
7. Compensation and Benefits. During the term of this Agreement, Employer
shall pay to Employee the following compensation, which shall be payable, less
any withholding and other payroll taxes required by law, in accordance with
Employer's normal payroll policies applicable to all of Employer's employees:
(a) Base Salary. An annual base salary (the "Annual Base Salary") in the
amount of One Hundred Eighty Five Thousand Dollars ($185,000), subject to
increase in accordance with the provisions of Schedule A attached to this
Agreement and incorporated herein by this reference ("Schedule A").
(b) Stay or Retention Bonus. Employee is entitled to a retention bonus in
accordance with the provisions of Schedule A; provided, however, that for
purposes of determining whether Employee is entitled to such retention bonus,
the termination of Employee's employment by Employee following a Constructive
Termination Event (as defined herein) shall be deemed to be an "involuntarily"
termination.
(c) Success Bonus. Employee is entitled to a success bonus in accordance
with the provisions of Schedule A; provided, however, that, for purposes of
determining whether Employee is entitled to such success bonus, Employee's
employment hereunder shall be deemed to continue following the termination of
such employment (i) by Employer without Cause (as defined herein), (ii) by
Employee following a Constructive Termination Event (as defined herein), or
(iii) as a result of the death or Permanent Disability (as defined herein) of
Employee.
<PAGE>
(d) Other Benefit Programs. During the term of this Agreement, Employee
shall be entitled to continue to participate in Employer's executive benefit
programs available for senior executive officers as it may exist from time to
time, including, without limitation, any temporary housing assistance program in
which Employee participates as of the Effective Date.
8. Termination.
(a) Termination by Employer. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement is not to be considered an agreement
for a fixed term or as a guarantee of continuing employment. Accordingly,
Employee's employment may be terminated by Employer with or without cause upon
immediate written notice to Employee at any time during the term of this
Agreement. Additionally, Employee's employment shall automatically terminate
upon his death or upon a determination that he is permanently disabled.
(b) Termination by Employee. Notwithstanding anything to the contrary
contained in this Agreement, Employee may resign as an officer and, if
applicable, director and terminate his employment with Employer at any time upon
30 days' prior written notice to Employer.
(c) Effect of Termination. Upon the termination of Employee's employment
with Employer for any reason, Employee shall remain entitled to (i) the
bi-weekly portion of his Annual Base Salary then due through the date of such
termination and (ii) all benefits which are accrued, vested and earned up to the
termination date under the terms of any existing benefit plan of Employer such
as the vested balance of the employee's account under any retirement or deferred
compensation plan and any benefits which are legally required to be provided
after termination, such as COBRA benefits ("Legally Earned or Required
Benefits"). Except as provided in the preceding sentence, and except for any
severance benefit to which Employee may be entitled pursuant to paragraph 9 of
this Agreement, Employee shall be entitled to no other benefits or salary from
Employer following the termination of Employee's employment hereunder.
(d) Agreements by Employee. Upon termination of Employee's employment with
Employer for any reason, Employee shall (i) immediately return any and all
property and records belonging to Employer which are in Employee's possession
and shall vacate Employer's offices in a prompt and professional manner and (ii)
resign immediately as an officer and, if applicable, director of Employer and
any subsidiary of Employer unless Employer indicates in writing to Employee its
desire that Employee retain any such position.
(e) Transition Services. Upon a termination of employment, whether by
Employee or by Employer, with or without cause, Employee shall cooperate with
Employer in order to insure an orderly and businesslike transfer of Employee's
duties to other personnel designated by the Employer. Additionally, Employee
shall make himself available for a period of ninety (90) days after such
termination, at reasonable times and upon reasonable notice, to consult with
Employer and assist Employer with respect to any matters for which Employer
requests such assistance; provided that Employer shall reimburse Employee for
any reasonable out-of-pocket expense incurred by Employee at Employer's request
in connection with such consultation or assistance, and Employer shall schedule
such consultation at times which will not interfere with any subsequent
employment which Employee has obtained and such consultation shall not require
more than an average of two days per month without Employee's consent. A breach
of the foregoing provisions by Employee shall be deemed to be a material breach
of this Agreement.
<PAGE>
9. Severance Benefits. Employee shall be entitled to severance payments in
accordance with the provisions of Schedule A. In addition, if Employee is
entitled to receive a severance benefit pursuant to Schedule A, then Employee
shall continue to be entitled to his then current benefits pursuant to paragraph
7(d) of this Agreement until the earlier of (x) the date on which Employee
becomes entitled to receive comparable benefits from another employer or (y) the
date that is one (1) year after the termination of Employee's employment.
10. Excise Taxes. In the event that any payment to be received by Employee
hereunder would be subject to an excise tax pursuant to Section 4999 of the
Code, whether in whole or in part, as a result of being an "excess parachute
payment" within the meaning of such term in Section 280G(b) of the Code, the
amount payable under this Agreement shall be reduced to the largest amount so
that no portion of such payment is subject to excise tax pursuant to Section
4999 of the Code. If the amount necessary to eliminate such excise tax exceeds
the amount otherwise payable under this Agreement, no payment shall be made
under this paragraph and no further adjustment shall be made.
11. Nondisclosure of Confidential Information and Trade Secrets. Employee
shall not disclose, either directly or indirectly, any Confidential Information
or Trade Secrets to any other person or otherwise use such Confidential
Information or Trade Secrets for any purpose except in connection with his
employment with the Employer. For purposes of the foregoing, the term "Trade
Secret" has the meaning ascribed thereto in Section 688.002(4), Florida
Statutes, or any revision or successor thereto, and the term "Confidential
Information" means any technical or nontechnical data, formula, pattern,
compilation, program, devise, method, technique, drawing, process, know-how,
financial data, financial plan, marketing plan, expansion plan, cost analysis,
list of suppliers, customers or their employees, or other proprietary
information which is secret and confidential and is not readily and legally
available to the public from sources other than Employer.
12. Injunctive Relief. In the event of a breach or violation or threatened
breach or violation by Employee of the provisions of any of the restrictive
covenants set forth in paragraph 11 of this Agreement, Employer shall be
entitled to an injunction restraining Employee from directly or indirectly
engaging in such behavior. Nothing herein shall be construed as prohibiting
Employer from pursuing any other remedies available to it by law or by this
Agreement for breach, violation or threatened breach or violation of any
provision of this Agreement, including, by way of illustration and not by way of
limitation, the recovery of damages from Employee or any other person, firm,
corporation or entity. The provisions of paragraphs 11 and 12 of this Agreement
shall survive the termination of this Agreement for any reason. Should Employer
bring an action against Employee to enforce any restrictive covenants set forth
in this Agreement, the period of restriction applicable to such covenant shall
be deemed to begin running on the date of entry of an order granting Employer
preliminary injunctive relief and shall continue uninterrupted for the original
intended period.
<PAGE>
13. Definitions. For purposes of this Agreement, the following terms shall
have the meanings assigned in this paragraph 13:
(a) The term "Cause" shall mean (i) Employee's commission of any act or
acts of fraud or willful misappropriation that result in material expense or
harm to Employer; (ii) Employee's default in any material respect in the
performance of his obligations, services or duties hereunder (other than a
default caused by a medically determinable physical or mental impairment of
Employee), which shall include, without limitation, Employee's disregarding
written instructions from the Board of Directors of Employer concerning the
conduct of his duties hereunder, if Employee has failed to substantially cure
such default within thirty (30) days following the delivery by Employer of
written notice to Employee specifying in reasonable detail the nature of all
claimed defaults and the manner in which Employee may cure such defaults; or
(iii) Employee's conviction of a felony in any state or federal court within the
United States.
(b) The term "Constructive Termination Event" shall mean (x) any action by
Employer which is directed at Employee specifically, or which is aimed at a
group of employees which includes Employee, and not at all employees generally,
and which has the effect of diminishing Employee's compensation, employment
responsibilities, authority, or accommodations; or (y) a request by any holder
of Employer's outstanding indebtedness that Employee terminate his employment
with Employer.
(c) The term "Permanent Disability" means Employee's inability to perform
with reasonable accommodation the essential duties of Employee's position, as
existing on the date of this Agreement, as the result of any medically
determinable physical or mental impairment which has lasted, or can reasonably
be expected to last, for a period of 120 consecutive days or any 180 days in any
twelve-month period. The determination of whether Employee is subject to a
Permanent Disability shall be made by a licensed medical doctor selected by the
Compensation Committee of the Board of Directors of Employer, and the decision
of such doctor shall be binding on the parties hereto.
<PAGE>
14. General Provisions.
(a) Governing Law; Venue. The laws of the State of Florida, excluding its
choice of law provisions if such laws would result in the application of laws
other than the laws of the State of Florida, shall govern any disputes between
the parties, the validity of this Agreement, the construction of its terms, and
the interpretation of the rights and duties of the parties hereunder. The forum
selected for any proceeding or suit related to a dispute between the parties or
this Agreement shall be in a federal or state court of competent jurisdiction
located in Hillsborough County, Florida. The parties hereto each consent to
those courts' personal jurisdiction over them, and waive any defense, whether
asserted by motion or pleading, that Hillsborough County, Florida is an improper
or inconvenient venue.
(b) Further Action. Each party hereto agrees to perform all further acts
and execute, acknowledge, and deliver any documents which may be reasonably
necessary, appropriate, or desirable to carry out the provisions of this
Agreement.
(c) No Waiver. No party shall be deemed to have waived any of its rights or
remedies hereunder unless such waiver is specific and in writing. No delay or
omission by any party in exercising any of its rights or remedies hereunder
shall constitute a waiver thereof, or shall constitute any further waiver
thereafter. All rights and remedies of a party are cumulative and concurrent and
the exercise of one right or remedy shall not be deemed a waiver or release of
any other right or remedy.
(d) Binding Effect; Counterparts. The covenants and agreements contained in
this Agreement shall be binding on, and shall inure to the benefit of the
successors and permitted assignees of the parties. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the same
agreement.
(e) Complete Agreement; Modification. This Agreement contains the final,
complete, and exclusive expression of the understanding between the parties with
respect to the transactions contemplated by this Agreement, and supersedes any
prior or contemporaneous agreement or representation, oral or written, by any of
them. This Agreement may be modified or amended only by an agreement in writing
signed by or on behalf of both parties hereto.
<PAGE>
(f) Notices. All notices, demands and other communications required or
permitted hereunder shall be in writing, and shall be deemed given on the third
(3d) day after it is deposited in a United States postal letter box for mailing
by first class mail, postage prepaid, certified mail, return receipt requested
(regardless of whether the return receipt is subsequently received), and
addressed by the sender as follows, or to such other address as the parties may
designate to the others in writing:
To Employer: JumboSports Inc.
4701 W. Hillsborough Avenue
Tampa, Florida 33614
Attention: President
To Employee: Barry Gold
8649 N. Himes Avenue #509
Tampa, Florida 33614
(g) Descriptive Headings. The titles and captions preceding the text of the
articles and sections of this Agreement are inserted solely for convenient
reference and neither constitute a part of this Agreement nor affect its
meaning, interpretation, or effect.
(h) Severability. If any paragraph, or other provision of this Agreement,
or the application thereof, is held to be invalid, illegal, or unenforceable in
any respect or for any reason, the remainder of this Agreement, and the
application of the paragraph or other provision to a person or circumstance with
respect to which it is valid, legal, and enforceable, shall not be affected
thereby.
(i) Gender; Number. Throughout this Agreement, except where the context
requires otherwise, the masculine gender shall be deemed to include the feminine
and neuter and the singular number shall be deemed to include the plural, and
vice-versa.
(j) Computation of Time. Whenever the last day for the exercise of any
privilege or the discharge of any duty under this Agreement shall fall upon
Saturday, Sunday or any public or legal holiday, whether federal or of the State
of Florida, the party having such privilege or duty shall have until 5:00 p.m.
on the next succeeding regular business day to exercise such privilege or to
discharge such duty.
(k) Continuance of Agreement. The rights, responsibilities and duties of
the parties hereto and the covenants and agreements herein contained shall
survive the execution hereof, shall continue to bind the parties hereto, and
shall continue in full force and effect until each and every obligation of the
parties pursuant to this Agreement shall have been fully performed.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement on
the day and year first written above.
EMPLOYEE:
By: /s/ BARRY GOLD
Title: EVP - Operations
<PAGE>
COMPENSATION PACKAGE FOR
BARRY GOLD
1. Base Compensation:
Continuation of basic compensation and benefits while employed by the
Debtor. Any increase in base compensation would require Court approval after
notice to the Committees.
2. Stay or Retention Bonus.
(a) Amount: Six months of base salary
(b) Date of payment: Already paid
(c) Conditions to make stay bonus non-refundable: Mr. Gold will stay until
the earlier of:
(i) December 31, 1999;
(ii) The effective date of a plan of reorganization;
(iii) The date that his employment is involuntarily terminated; or (iv) The
"bitter end," which would include a Chapter 7 conversion, the cessation of
retail business operations (such as by liquidation, stay relief and foreclosure
by Foothill, sale of the business, etc.), or dismissal of the Chapter 11 case.
3. Success Bonus.
(a) Amount: Three to six months, as set forth below.
(b) Date of Payment: the effective date of a plan of reorganization
(c) Conditions to six months success bonus.
(i) Continued employment as of the effective date of the plan;
(ii) The plan is a non-liquidating plan; and
(iii) The plan has been supported by both Committees.
(d) Condition of three month success bonus: continued employment on the
effective date of a non-liquidating plan (even if non-consensual).
<PAGE>
4. Severance Pay.
(a) Amount: One year of base compensation
(b) Date of Payment: Date of termination of employment
(c) Terms of Payment: Lump sum cash payment
(d) Condition to payment:
(i) Mr. Gold's employment is terminated by the debtor in possession prior
to the effective date of a plan or reorganization; or
(ii) Mr. Gold is not offered continued employment by the reorganized debtor
at the same or greater salary and benefits and with the same or greater job
responsibilities and position, or
(iii) Mr. Gold's post-confirmation employment is terminated within six
months after the effective date.
5. Death or Disability.
The Stay Bonus will not be refundable if the employee dies or is disabled.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is made
and entered into this 16 day of March, 1999, by and between JUMBOSPORTS INC., a
Florida corporation (hereinafter called "Employer"), and MICHAEL HENNING
(hereinafter called "Employee").
WHEREAS, Employer and Employee are parties to that certain Employment
Agreement dated December 24, 1998 (the "Prior Employment Agreement");
WHEREAS, on December 27, 1998, Employer filed its Voluntary Petition for
Relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy
Code");
WHEREAS, pursuant to that certain Order Granting Debtor's Motion for
Authority to Pay Officers' Salaries and Directors' Fees and to Honor Existing
Compensation Agreements and Policies, entered by Judge C. Timothy Corcoran, III,
on February 23, 1999 (the "Compensation Order"), the Prior Employment Agreement
was approved, subject to certain required modifications; and
WHEREAS, the parties hereto desire to amend and completely restate the
Prior Employment Agreement to comply with the provisions of the Compensation
Order.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby amend and restate the Prior Employment Agreement to read in
its entirety as set forth below:
WITNESSETH:
1. Employment. Employer hereby agrees to continue to employ Employee, and
Employee hereby agrees to continue his employment with Employer, upon the terms
and conditions hereinafter set forth.
2. Effect of Compensation Order. Employer and Employee intend that this
Agreement shall comply in all respects with the provisions of the Compensation
Order, and the Compensation Order is incorporated herein by this reference. In
the event of any inconsistency between the provisions of this Agreement and the
provisions of the Compensation Order, the provisions of the Compensation Order
shall control.
3. Effect on Prior Agreements. Employer and Employee hereby acknowledge and
agree that this Agreement supersedes any prior or contemporaneous agreement,
representation or understanding, oral or written, between Employer and Employee
regarding the terms and conditions of Employee's employment with Employer,
including, without limitation, the Prior Employment Agreement.
<PAGE>
4. Term. The term of this Agreement shall commence effective as of February
23, 1999 (the "Effective Date"), and shall, subject to prior termination
pursuant to paragraph 8 of this Agreement, terminate on the latest of (a) the
effective date of a plan of reorganization with respect to the Employer, (b) the
dismissal of the Chapter 11 proceeding with respect to the Employer or (c)
December 31, 1999.
5. Duties. The Employee is engaged as Senior Vice President, Human
Resources, of the Employer. The Employee shall have such duties,
responsibilities and accommodations as the Employer's Board of Directors and
Chief Executive Officer shall designate to that position.
6. Extent of Service. Employee shall exclusively devote his entire working
time, energy and attention to his duties hereunder, provided that the Employee
may (i) make passive investments in entities which are not publicly traded and
which are not competitive with, or suppliers of goods or services to, Employer,
(ii) own up to 2% of the outstanding equity securities of any entity which is
publicly traded on a national securities exchange or on the NASDAQ Stock Market,
and (iii) with the approval of the Board of Directors, serve on boards of
corporations that do not compete with the Company or serve on boards for or
engage in activities of a community, civic or public interest nature.
7. Compensation and Benefits. During the term of this Agreement, Employer
shall pay to Employee the following compensation, which shall be payable, less
any withholding and other payroll taxes required by law, in accordance with
Employer's normal payroll policies applicable to all of Employer's employees:
(a) Base Salary. An annual base salary (the "Annual Base Salary") in the
amount of One Hundred Forty Thousand Dollars ($140,000), subject to increase in
accordance with the provisions of Schedule A attached to this Agreement and
incorporated herein by this reference ("Schedule A").
(b) Stay or Retention Bonus. Employee is entitled to a retention bonus in
accordance with the provisions of Schedule A; provided, however, that for
purposes of determining whether Employee is entitled to such retention bonus,
the termination of Employee's employment by Employee following a Constructive
Termination Event (as defined herein) shall be deemed to be an "involuntarily"
termination.
(c) Success Bonus. Employee is entitled to a success bonus in accordance
with the provisions of Schedule A; provided, however, that, for purposes of
determining whether Employee is entitled to such success bonus, Employee's
employment hereunder shall be deemed to continue following the termination of
such employment (i) by Employer without Cause (as defined herein), (ii) by
Employee following a Constructive Termination Event (as defined herein), or
(iii) as a result of the death or Permanent Disability (as defined herein) of
Employee. (d) Other Benefit Programs. During the term of this Agreement,
Employee shall be entitled to continue to participate in Employer's executive
benefit program available for senior executive officers as it may exist from
time to time.
<PAGE>
8. Termination.
(a) Termination by Employer. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement is not to be considered an agreement
for a fixed term or as a guarantee of continuing employment. Accordingly,
Employee's employment may be terminated by Employer with or without cause upon
immediate written notice to Employee at any time during the term of this
Agreement. Additionally, Employee's employment shall automatically terminate
upon his death or upon a determination that he is permanently disabled.
(b) Termination by Employee. Notwithstanding anything to the contrary
contained in this Agreement, Employee may resign as an officer and, if
applicable, director and terminate his employment with Employer at any time upon
30 days' prior written notice to Employer.
(c) Effect of Termination. Upon the termination of Employee's employment
with Employer for any reason, Employee shall remain entitled to (i) the
bi-weekly portion of his Annual Base Salary then due through the date of such
termination and (ii) all benefits which are accrued, vested and earned up to the
termination date under the terms of any existing benefit plan of Employer such
as the vested balance of the employee's account under any retirement or deferred
compensation plan and any benefits which are legally required to be provided
after termination, such as COBRA benefits ("Legally Earned or Required
Benefits"). Except as provided in the preceding sentence, and except for any
severance benefit to which Employee may be entitled pursuant to paragraph 9 of
this Agreement, Employee shall be entitled to no other benefits or salary from
Employer following the termination of Employee's employment hereunder.
(d) Agreements by Employee. Upon termination of Employee's employment with
Employer for any reason, Employee shall (i) immediately return any and all
property and records belonging to Employer which are in Employee's possession
and shall vacate Employer's offices in a prompt and professional manner and (ii)
resign immediately as an officer and, if applicable, director of Employer and
any subsidiary of Employer unless Employer indicates in writing to Employee its
desire that Employee retain any such position.
(e) Transition Services. Upon a termination of employment, whether by
Employee or by Employer, with or without cause, Employee shall cooperate with
Employer in order to insure an orderly and businesslike transfer of Employee's
duties to other personnel designated by the Employer. Additionally, Employee
shall make himself available for a period of ninety (90) days after such
termination, at reasonable times and upon reasonable notice, to consult with
Employer and assist Employer with respect to any matters for which Employer
requests such assistance; provided that Employer shall reimburse Employee for
any reasonable out-of-pocket expense incurred by Employee at Employer's request
in connection with such consultation or assistance, and Employer shall schedule
such consultation at times which will not interfere with any subsequent
employment which Employee has obtained and such consultation shall not require
more than an average of two days per month without Employee's consent. A breach
of the foregoing provisions by Employee shall be deemed to be a material breach
of this Agreement.
<PAGE>
9. Severance Benefits. Employee shall be entitled to severance payments in
accordance with the provisions of Schedule A; provided, however, that in the
event that Employee accepts alternative permanent employment within the twelve
(12) month severance period described in Schedule A at a salary that is less
than Employee's Annual Base Salary on the date of termination of employment with
Employer, Employer shall continue to make severance payments to Employee
throughout the balance of such twelve (12) month severance period to the extent
necessary so that Employee's total compensation during such period equals the
total compensation Employee would have received had he not accepted such
alternative permanent employment. In addition, if Employee is entitled to
receive a severance benefit pursuant to Schedule A, then Employee shall continue
to be entitled to his then current benefits pursuant to paragraph 7(d) of this
Agreement until the earlier of (x) the date on which Employee becomes entitled
to receive comparable benefits from another employer or (y) the date that is one
(1) year after the termination of Employee's employment.
10. Excise Taxes. In the event that any payment to be received by Employee
hereunder would be subject to an excise tax pursuant to Section 4999 of the
Code, whether in whole or in part, as a result of being an "excess parachute
payment" within the meaning of such term in Section 280G(b) of the Code, the
amount payable under this Agreement shall be reduced to the largest amount so
that no portion of such payment is subject to excise tax pursuant to Section
4999 of the Code. If the amount necessary to eliminate such excise tax exceeds
the amount otherwise payable under this Agreement, no payment shall be made
under this paragraph and no further adjustment shall be made.
11. Nondisclosure of Confidential Information and Trade Secrets. Employee
shall not disclose, either directly or indirectly, any Confidential Information
or Trade Secrets to any other person or otherwise use such Confidential
Information or Trade Secrets for any purpose except in connection with his
employment with the Employer. For purposes of the foregoing, the term "Trade
Secret" has the meaning ascribed thereto in Section 688.002(4), Florida
Statutes, or any revision or successor thereto, and the term "Confidential
Information" means any technical or nontechnical data, formula, pattern,
compilation, program, devise, method, technique, drawing, process, know-how,
financial data, financial plan, marketing plan, expansion plan, cost analysis,
list of suppliers, customers or their employees, or other proprietary
information which is secret and confidential and is not readily and legally
available to the public from sources other than Employer.
12. Injunctive Relief. In the event of a breach or violation or threatened
breach or violation by Employee of the provisions of any of the restrictive
covenants set forth in paragraph 11 of this Agreement, Employer shall be
entitled to an injunction restraining Employee from directly or indirectly
engaging in such behavior. Nothing herein shall be construed as prohibiting
Employer from pursuing any other remedies available to it by law or by this
Agreement for breach, violation or threatened breach or violation of any
provision of this Agreement, including, by way of illustration and not by way of
limitation, the recovery of damages from Employee or any other person, firm,
corporation or entity. The provisions of paragraphs 11 and 12 of this Agreement
shall survive the termination of this Agreement for any reason. Should Employer
bring an action against Employee to enforce any restrictive covenants set forth
in this Agreement, the period of restriction applicable to such covenant shall
be deemed to begin running on the date of entry of an order granting Employer
preliminary injunctive relief and shall continue uninterrupted for the original
intended period.
<PAGE>
13. Definitions. For purposes of this Agreement, the following terms shall
have the meanings assigned in this paragraph 13:
(a) The term "Cause" shall mean (i) Employee's commission of any act or
acts of fraud or willful misappropriation that result in material expense or
harm to Employer; (ii) Employee's default in any material respect in the
performance of his obligations, services or duties hereunder (other than a
default caused by a medically determinable physical or mental impairment of
Employee), which shall include, without limitation, Employee's disregarding
written instructions from the Board of Directors of Employer concerning the
conduct of his duties hereunder, if Employee has failed to substantially cure
such default within thirty (30) days following the delivery by Employer of
written notice to Employee specifying in reasonable detail the nature of all
claimed defaults and the manner in which Employee may cure such defaults; or
(iii) Employee's conviction of a felony in any state or federal court within the
United States.
(b) The term "Constructive Termination Event" shall mean (x) any action by
Employer which is directed at Employee specifically, or which is aimed at a
group of employees which includes Employee, and not at all employees generally,
and which has the effect of diminishing Employee's compensation, employment
responsibilities, authority, or accommodations; or (y) a request by any holder
of Employer's outstanding indebtedness that Employee terminate his employment
with Employer.
(c) The term "Permanent Disability" means Employee's inability to perform
with reasonable accommodation the essential duties of Employee's position, as
existing on the date of this Agreement, as the result of any medically
determinable physical or mental impairment which has lasted, or can reasonably
be expected to last, for a period of 120 consecutive days or any 180 days in any
twelve-month period. The determination of whether Employee is subject to a
Permanent Disability shall be made by a licensed medical doctor selected by the
Compensation Committee of the Board of Directors of Employer, and the decision
of such doctor shall be binding on the parties hereto.
<PAGE>
14. General Provisions.
(a) Governing Law; Venue. The laws of the State of Florida, excluding its
choice of law provisions if such laws would result in the application of laws
other than the laws of the State of Florida, shall govern any disputes between
the parties, the validity of this Agreement, the construction of its terms, and
the interpretation of the rights and duties of the parties hereunder. The forum
selected for any proceeding or suit related to a dispute between the parties or
this Agreement shall be in a federal or state court of competent jurisdiction
located in Hillsborough County, Florida. The parties hereto each consent to
those courts' personal jurisdiction over them, and waive any defense, whether
asserted by motion or pleading, that Hillsborough County, Florida is an improper
or inconvenient venue.
(b) Further Action. Each party hereto agrees to perform all further acts
and execute, acknowledge, and deliver any documents which may be reasonably
necessary, appropriate, or desirable to carry out the provisions of this
Agreement.
(c) No Waiver. No party shall be deemed to have waived any of its rights or
remedies hereunder unless such waiver is specific and in writing. No delay or
omission by any party in exercising any of its rights or remedies hereunder
shall constitute a waiver thereof, or shall constitute any further waiver
thereafter. All rights and remedies of a party are cumulative and concurrent and
the exercise of one right or remedy shall not be deemed a waiver or release of
any other right or remedy.
(d) Binding Effect; Counterparts. The covenants and agreements contained in
this Agreement shall be binding on, and shall inure to the benefit of the
successors and permitted assignees of the parties. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the same
agreement.
(e) Complete Agreement; Modification. This Agreement contains the final,
complete, and exclusive expression of the understanding between the parties with
respect to the transactions contemplated by this Agreement, and supersedes any
prior or contemporaneous agreement or representation, oral or written, by any of
them. This Agreement may be modified or amended only by an agreement in writing
signed by or on behalf of both parties hereto.
<PAGE>
(f) Notices. All notices, demands and other communications required or
permitted hereunder shall be in writing, and shall be deemed given on the third
(3d) day after it is deposited in a United States postal letter box for mailing
by first class mail, postage prepaid, certified mail, return receipt requested
(regardless of whether the return receipt is subsequently received), and
addressed by the sender as follows, or to such other address as the parties may
designate to the others in writing:
To Employer: JumboSports Inc.
4701 W. Hillsborough Avenue
Tampa, Florida 33614
Attention: President
To Employee: Michael Henning
4331 Cheval Boulevard
Lutz, Florida 33549
(g) Descriptive Headings. The titles and captions preceding the text of the
articles and sections of this Agreement are inserted solely for convenient
reference and neither constitute a part of this Agreement nor affect its
meaning, interpretation, or effect.
(h) Severability. If any paragraph, or other provision of this Agreement,
or the application thereof, is held to be invalid, illegal, or unenforceable in
any respect or for any reason, the remainder of this Agreement, and the
application of the paragraph or other provision to a person or circumstance with
respect to which it is valid, legal, and enforceable, shall not be affected
thereby.
(i) Gender; Number. Throughout this Agreement, except where the context
requires otherwise, the masculine gender shall be deemed to include the feminine
and neuter and the singular number shall be deemed to include the plural, and
vice-versa.
(j) Computation of Time. Whenever the last day for the exercise of any
privilege or the discharge of any duty under this Agreement shall fall upon
Saturday, Sunday or any public or legal holiday, whether federal or of the State
of Florida, the party having such privilege or duty shall have until 5:00 p.m.
on the next succeeding regular business day to exercise such privilege or to
discharge such duty.
(k) Continuance of Agreement. The rights, responsibilities and duties of
the parties hereto and the covenants and agreements herein contained shall
survive the execution hereof, shall continue to bind the parties hereto, and
shall continue in full force and effect until each and every obligation of the
parties pursuant to this Agreement shall have been fully performed.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement on
the day and year first written above.
EMPLOYEE:
By: /s/ MICHAEL HENNING
Title: SVP - Human Resources
<PAGE>
COMPENSATION PACKAGE FOR
MICHAEL HENNING
1. Base Compensation:
Continuation of basic compensation and benefits while employed by the
Debtor. Annual salary increases up to 25% of base salary can be implemented with
approval of both committees. Otherwise, any change to base compensation would
require an order of the Bankruptcy Court.
2. Stay or Retention Bonus.
(a) Amount: Three months of base salary
(b) Date of payment: The earlier of
(i) the effective date of a plan of reorganization; or
(ii) December 31, 1999.
(c) Conditions of the stay bonus: Mr. Henning will stay until the earlier
of:
(i) December 31, 1999;
(ii) The effective date of a plan of reorganization;
(iii) The date that his employment is involuntarily terminated; or
(iv) The "bitter end," which would include a Chapter 7 conversion, the
cessation of retail business operations (such as by liquidation, stay relief and
foreclosure by Foothill, sale of the business, etc.), or dismissal of the
Chapter 11 case.
3. Success Bonus.
(a) Amount: Three months of base salary
(b) Date of Payment: the effective date of a plan of reorganization
(c) Continued of payment: continued employment on the effective date of a
plan.
<PAGE>
4. Severance Pay.
(a) Amount: Up to one year of base compensation, subject to mitigation
(b) Date of Payment: Normal pay check every two weeks, until alternative
permanent employment is accepted, for up to twelve (12) months
(c) Condition to payment:
(i) Mr. Henning is terminated by the debtor in possession prior to the
effective date of a plan of reorganization; or
(ii) Mr. Henning is not offered continued employment by the reorganized
debtor at the same or greater salary and benefits and with the same or greater
job responsibilities and position; or
(iii) Mr. Henning's post-confirmation employment is terminated after the
effective date.
5. Death or Disability.
The Stay Bonus will also be payable if the employee dies or is disabled.
EXHIBIT 12
JumboSports Inc.
Statements of Ratio of Earnings to Fixed Charges
(in thousands except ratio data)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earning (loss) before tax $ 25,670 $ 10,971 $ (48,419) $(111,297) $(93,514)
Fixed charges:
Interest 6,790 13,890 20,092 30,928 22,501
Interest portion of rent expense 3,045 3,956 1,214 0 0
--------- --------- --------- --------- ---------
Total fixed charges 9,835 17,846 21,306 30,928 22,501
Earnings plus fixed charges $ 35,505 $ 28,817 $ (27,113) $ 80,369 $ (71,013)
========= ========= ========= ========= =========
Earnings plus fixed charges
to fixed charges 3.61 1.61 N/M N/M N/M
N/M - not meaningful
</TABLE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
JumboSports Inc. and subsidiaries on Forms S-8 (File Nos. 333-45051 and
333-45043) of our report dated April 23, 1999, on our audits of the consolidated
financial statements of JumboSports Inc. and subsidiaries as of January 30, 1998
and January 29, 1999 and for the years ended January 31, 1997, January 30, 1998
and January 29, 1999, which report is included in this annual report on Form
10-K.
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
April 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JUMBOSPORTS INC. FOR THE YEAR ENDED JANUARY 29,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JAN-29-1999
<PERIOD-START> JAN-31-1998
<PERIOD-END> JAN-29-1999
<CASH> 23,809
<SECURITIES> 0
<RECEIVABLES> 3,941
<ALLOWANCES> 428
<INVENTORY> 121,586
<CURRENT-ASSETS> 164,583
<PP&E> 158,853
<DEPRECIATION> 32,040
<TOTAL-ASSETS> 307,967
<CURRENT-LIABILITIES> 27,503
<BONDS> 0
0
0
<COMMON> 204
<OTHER-SE> (45,269)
<TOTAL-LIABILITY-AND-EQUITY> 307,967
<SALES> 362,395
<TOTAL-REVENUES> 362,395
<CGS> 256,748
<TOTAL-COSTS> 282,251
<OTHER-EXPENSES> 93,111
<LOSS-PROVISION> 58,344
<INTEREST-EXPENSE> 22,366
<INCOME-PRETAX> (93,677)
<INCOME-TAX> (163)
<INCOME-CONTINUING> (93,514)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93,514)
<EPS-PRIMARY> (4.58)
<EPS-DILUTED> (4.58)
</TABLE>
EXHIBIT 99
JUMBOSPORTS INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended January 30, 1998 and January 29, 1999
<TABLE>
<CAPTION>
Additional
Beginning Charge to Cost Ending
Balance and Expense Deductions (1) Balance
<S> <C> <C> <C> <C>
Year ended January 30, 1998
Allowance for doubtful accounts $273 $255 $ 89 $439
Year ended January 29, 1999
Allowance for doubtful accounts $439 $ 66 $ 77 $428
<FN>
(1) Write-offs and recoveries
</FN>
</TABLE>
