<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-21632
ELLETT BROTHERS, INC.
(Exact name of Registrant as specified in its charter)
SOUTH CAROLINA 57-0957069
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
267 COLUMBIA AVENUE, CHAPIN, SOUTH CAROLINA 29036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803) 345-3751
Securities registered pursuant to section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK (no par value)
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. [x]
As of February 28, 1998 there were 5,120,918 shares of common stock of the
Registrant outstanding, and the aggregate market value of the shares of common
stock held by nonaffiliated shareholders (based upon the closing price for the
stock on the Nasdaq National Market on February 28, 1998) was $31,365,623.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement in connection with the Registrant's
1998 Annual Meeting of Shareholders to be held May 27, 1998 are incorporated by
reference into Part III of this report.
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<PAGE> 2
ADVISORY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in PART I, Item 1 (Business) and in PART II,
Item 7 (Management's Discussion and Analysis of Financial Condition and Results
of Operations) that are not historical facts are forward-looking statements
subject to the safe harbor created by the Private Securities Litigation Reform
Act of 1995. The Company cautions readers of this Annual Report on Form 10-K
that such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from those expressed
or implied by such forward-looking statements. Although the Company's management
believes that their expectations of future performance are based on reasonable
assumptions within the bounds of their knowledge of their business and
operations, there can be no assurance that actual results will not differ
materially from their expectations. Factors which could cause actual results to
differ from expectations include, among other things, reductions in, or lack of
growth of, firearm sales; potential negative effects of existing and future gun
control legislation on consumer demand for firearms; the potential negative
impact on gross margins from shifts in the Company's product mix toward lower
margin products; seasonal fluctuations in the Company's business; competition
from national, regional and local distributors and various manufacturers who
sell products directly to the Company's customer base; competition from sporting
goods mass merchandisers or "superstores" which sell in competition with the
Company's primary customer base; exposure to product liability lawsuits; the
challenges and uncertainties in the implementation of the Company's expansion
and development strategies; the Company's dependence on key personnel; and other
factors described in this report and in other reports filed by the Company with
the Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
BACKGROUND
GENERAL
Ellett Brothers, Inc. and subsidiaries (the "Company") is a nationwide marketer
and supplier of natural outdoor sporting goods products. The Company markets and
distributes a broad line of products and accessories for hunting and shooting
sports, marine, camping, archery, and other related outdoor activities. The
Company's product line, which contains over 60,000 stock-keeping units (SKU's),
includes firearms, ammunition, marine electronics, small engine replacement
parts, electric trolling motors, binoculars, cutlery, archery equipment, leather
goods, flashlights, tents, lanterns, sportsmen's gifts, camping accessories,
decorative boxes, licensed nostalgia items, and a variety of other natural
outdoor sporting goods products. During fiscal years 1997, 1996, and 1995,
revenues from sales of firearms and ammunition comprised approximately 49.8%,
49.2%, and 50.8%, respectively, of the Company's revenues. The Company features
such recognized brand names as Remington, Ruger, Winchester, Daisy, Rocky Shoes
and Boots, LaCrosse, Motorguide, Coleman, Rubbermaid, Swiss Army, Bear Archery,
and Nikon. The Company's mailing address is 267 Columbia Avenue, Chapin, South
Carolina, 29036, and its telephone number is (803) 345-3751.
In late 1988, the Company began broadening its product line from primarily
hunting and shooting goods to include marine accessories. The Company's marine
accessories business has proven to be a natural extension of Ellett Brothers'
traditional sporting goods business, with sales increasing from $2.6 million in
1989 to almost $21.0 million in 1997. In 1994, Ellett formed a new sales group
to specifically target archery retailers. The archery group has shown continued
growth since its inception.
During 1995, Ellett Brothers, Inc. ("Ellett") implemented its acquisition
strategy by acquiring assets of entities with products that complement Ellett's
existing product line as well as opening the possibility of new markets or
channels of distribution. As a result, substantially all of the assets of Evans
Sports, Inc. ("Evans") and Vintage Editions, Inc. ("Vintage") were acquired in
April and September 1995, respectively. Evans is a manufacturer of outdoor
sporting accessories and wooden nostalgia boxes. Vintage is a manufacturer of
specialty licensed nostalgia products. While their products are similar in
nature, they are very distinct in quality and marketing approaches. The Company
expects to continue to seek expansion of the wood products of both companies to
provide additional sales to both current and new customers. All of the newly
acquired assets of Evans and Vintage were transferred to wholly-owned
subsidiaries that were incorporated in the state of South Carolina at the time
of each respective purchase. The subsidiaries were also purchased to further add
to the growth of the Company, by providing increased sales and gross profit as
well as new channels of distribution.
Also in August 1995, Ellett purchased the accounts receivable and inventory of
Safesport Manufacturing Company ("Safesport"), an importer and marketer of
outdoor leisure products, specializing in camping accessories and cutlery items.
In June 1997, executive management and the Board of Directors concluded that the
ongoing operation of the Safesport subsidiary was not in the best interest of
the Company and began liquidation. The liquidation process was substantially
completed in the fourth quarter (see Note 4 to the financial statements).
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<PAGE> 3
DESCRIPTION OF BUSINESS
MARKETING
The Company currently sells to over 23,800 active customer accounts (defined as
customers who have made a purchase from the Company within the last twelve
months), the majority of which are independent natural outdoor sporting goods
retailers (as opposed to mass merchandisers). The Company's largest customer was
responsible for approximately 2.4% of 1997 sales, and sales to the Company's ten
largest customers represented approximately 6.7% of 1997 sales. The Company
seeks to expand its existing customer base further through the identification of
new or alternative channels for its product lines. Distribution channels
targeted by the Company include specialty pro shop retailers of archery
products, industry organization groups and larger sporting goods stores.
Ellett Brothers' customer base in its traditional distribution business is
organized into individual business units. Each sales associate, after ten weeks
of intensive training, is promoted to manager of an individual business unit
serving a designated customer base. Each business unit manager participates in
the development of an annual profit plan, receives monthly profit and loss
statements, and is accountable for the performance of the business unit.
Business unit managers continually update each customer's file with product,
sales and other customer-specific information to tailor the Company's services
to better suit the customer's needs. Customers regularly contact their personal
business unit manager to obtain current information regarding compatible
products and accessories, product warranties, and product availability.
The Company believes this organizational structure is unique in its industry
because the business unit managers are incentivized to develop strong one-on-one
relationships with their customers and to enhance their sales, marketing, and
management skills. The Company believes this enhances the overall productivity
of each business unit.
Ellett Brothers' commitment to ongoing training and professional development of
its business unit managers is a key feature of the organization. Ellett Brothers
trains each business unit manager to be a constant source of products, as well
as the product information source for that business unit's customers. Management
believes this teleservicing approach is unique to Ellett. Each business unit
manager receives 500 hours of training in the manager's first year and
approximately 200 hours of training each year thereafter. Prior to any customer
contact, each business unit manager must successfully complete an intensive 10
week training, testing, and analysis process, which addresses product knowledge
and a broad range of selling skills. Every business unit manager begins each day
with a training meeting designed to build on earlier training and provide
updates on Company direction, product promotions, and new marketing
opportunities. In addition, periodic career enhancement classes provide in-depth
training on a wide range of topics.
Because of Ellett Brothers' business unit approach and state-of-the-art
telecommunications technology, we do not need an outside sales force in our
traditional distribution business. Ellett's business unit approach, combined
with our teleservicing, enables us to communicate frequently with our entire
customer base, providing timely updates on market developments, new products,
promotions, and order status. In 1997, Ellett Brothers averaged approximately
5,000 outbound customer contacts and 3,700 inbound customer contacts daily, with
a collective total of over 420 hours of telephone time daily. Ellett believes
that it is capable of contacting its entire customer base in two days rather
than the weeks typically required by a traditional field sales force.
Evans and Vintage rely on an inside marketing staff as well as independent sales
representatives. The products of the subsidiaries are also cross-marketed to
traditional Ellett customers by Ellett's sales associates to help generate
additional sales for the subsidiaries.
A key part of Ellett Brothers' marketing strategy is the production of complete
annual product catalogs, as well as frequent promotional mini-catalogs. Annual
catalogs are produced for each of our major product groups, including hunting
and shooting sports products, archery products, marine accessories, Evans'
products, and Vintage's products. The hunting and shooting, archery, and marine
catalogs are produced in two separate formats. The Ellett version is designed to
be used at a retail sales counter by store employees as a reference tool and
sales guide. Ellett also sells catalogs to its customer base with the retail
store's name on the front cover, which the retailers generally give to their
best customers. Management believes that through this process our catalogs are
found in the hands of the most active consumers in the marketplace. In 1997,
Ellett distributed over 113,000 copies of our annual catalogs.
In 1997, Ellett's distribution business produced over 42 different mini-catalogs
(periodic promotional flyers) with 44% of our sales being from items featured in
these mini-catalogs. These promotional, business-to-business mail order vehicles
are designed to focus our customers and business unit managers on a narrow range
of products, including special values, new products, and upcoming seasonal items
for a short period of time. In 1997, we issued mini-catalogs for our hunting and
shooting sports products, archery products, and marine accessory products.
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<PAGE> 4
DISTRIBUTION
Ellett's ability to ship orders in a timely fashion is an important element in
maintaining successful customer relationships. Our distribution centers pride
themselves on generally having customer orders ready for shipment within six
business hours of the receipt of an order, resulting in virtually no backlog of
orders. Consequently, Ellett serves as a "just-in-time" inventory supplier to
many of our distribution business customers. Our electronic inventory management
system enables us to manage over 60,000 stock keeping units, minimizing
out-of-stock situations and provides what we believe to be one of the highest
fulfillment rates in our industry.
The Company utilizes United Parcel Service for delivery services to the majority
of its customers, while a few customers pick up merchandise. The use of UPS has
allowed the Company to avoid the substantial fixed costs associated with
regional warehouse locations and a fleet of trucks. Following the 1997 UPS
strike, management reviewed this relationship and believes the benefits exceed
the risks of any future strike.
PURCHASING AND SUPPLIERS
The Company currently purchases products from approximately 900 manufacturers
and other suppliers. The Company's four largest suppliers accounted for
approximately 26.9%, 30.2%, and 26.6% of the Company's purchases during 1997,
1996, and 1995, respectively. Management believes that the Company's size,
reputation, prompt payment history, and overall knowledge of independent
sporting goods retailers have contributed to strong relationships with its
suppliers. The majority of the suppliers provide advertising allowances to the
Company to assist in the promotion and sale of their products, via the catalogs
and mini-catalogs, while many are actively involved in on-site promotion efforts
at Ellett Brothers.
Ellett Brothers' purchasing associates play a key role in merchandising. They
are responsible for the initial buying decisions, including selection and
pricing, and coordination of supplier promotional efforts. All distribution
products are evaluated on a 2 to 3 week cycle and must perform to guidelines
established by the Company. Raw materials for the manufacturing and assembly
operations are evaluated as each major purchase cycle is encountered. Purchasing
associates are regularly involved in reviewing new products or current product
performance for the addition or discontinuance of items.
COMPETITION
The industry in which Ellett competes is extremely competitive. The principal
methods of competition within the natural outdoor sporting goods distribution
industry include purchasing convenience, customer service, inventory selection,
price, and rapid customer order turnaround. Ellett believes that it
differentiates itself by its strategies of servicing each customer through that
customer's own personal business unit manager, providing customers with ongoing
product and market information, after-the-sale follow-up, carrying one of the
most extensive selections of inventory in its various product categories, and
having customer orders generally ready for shipment within six business hours of
the order being received by a business unit manager.
Ellett's customer base consists almost exclusively of independent sporting goods
retailers located across the United States. Ellett competes with other national
distributors, various regional and local distributors and various manufacturers
who sell certain products directly to these retailers. Ellett has identified
approximately 60 distributors, of whom approximately six are national in scope,
competing in the hunting and shooting sports, camping and archery products and
outdoor accessories markets, and has identified approximately 50 other
distributors competing in the marine accessories markets. Certain of these
competitors may have substantially greater financial resources, larger sales and
support staffs and greater purchasing power than Ellett. Ellett's ability to
compete successfully depends on factors both within and outside its control,
including its ability, if necessary, to support reductions in selling prices
through reductions in operating expenses, the timing and success of product
introductions, access to high demand products, successful inventory management,
suitable product quality, reliability and price, and general economic
conditions. Ellett also indirectly competes with sporting goods mass
merchandisers or "superstores", to which Ellett generally does not sell, but
which generally sell in competition with the Ellett's primary customer base of
independent sporting goods retailers.
Although Ellett shares customers with its subsidiaries, competition in the
markets of the subsidiaries differs from Ellett's traditional distribution
business. Management believes Evans and Vintage hold the majority of the market
for nostalgic and licensed decorative boxes, with a few smaller companies
competing for market share. Evans' customer base is dominated by mass
merchandisers and Vintage's sales are predominately through specialty catalogs
and gift shops. The main competitive factor for Evans and Vintage is being able
to produce a product timely and at a price level commensurate to the quality of
the item.
GOVERNMENT REGULATION AND LICENSES
In recent years, an increasing amount and variety of legislation aimed at
eliminating or limiting the production, sale, possession, ownership and use of
certain kinds of firearms has been introduced in the United States Congress and
in various state legislatures, and the Company expects that such legislation
will continue to be introduced in the future. In addition, certain states and
other local governments have already adopted, or are currently considering the
adoption of, laws aimed at the control of firearm
Page 4 of 27
<PAGE> 5
possession and ownership by the public. In 1994, the Brady Bill, which imposes
up to a five-day waiting period for a background check for purchasers of
handguns, became effective. In May 1994, the federal government banned the
importation of firearms and ammunition from China, including three types of
firearms and related ammunition sold by the Company, and the September 1994
Crime Bill imposed a ban on the production and importation, but not the sale of,
19 types of firearms (including copycat versions), six of which are sold by the
Company, as well as large capacity magazines. Such legislation, however, still
allows the Company to continue to sell these products. There can be no assurance
that existing and future gun control legislation will not have a substantial
negative impact on consumer demand for firearms and result in a material adverse
effect on the Company's financial condition and results of operations.
The Company is also subject to a variety of federal, state and local laws and
regulations relating to, among other things, advertising, the sale and handling
of firearms, the offering and extension of credit and workplace and product
safety, including various regulations concerning the storage of gunpowder.
Certain governmental licenses and permits are also necessary in connection with
the Company's operations. In particular, as with any seller of firearms, the
Company is required to maintain a federal firearms license that imposes various
restrictions and conditions on the Company's operations, including a requirement
that the Company resell firearms and ammunition only to federally licensed
firearms dealers. In addition, all exports of firearms and ammunition require
federal government licenses in advance of shipment. In the event that the
Company should be determined to be in violation of any applicable regulations,
licenses or permits, the Company could become subject to cease and desist
orders, injunctions, civil fines and other penalties. Any such penalties could
have a material adverse effect on the Company's business and results of
operations.
SEASONALITY
Historically, the Company's business has been seasonal. The sales of hunting and
shooting sports products, as well as camping, archery, and outdoor accessories,
usually increase in the third quarter of each year, and peak early in the fourth
quarter. Sales of marine accessories usually increase in the first quarter of
each year, then peak midway through the second quarter and continue at similar
levels through the first half of the third quarter. Operations of the
subsidiaries have been seasonal, producing significantly higher sales and gross
profit during the third and fourth quarters, with losses in the first and second
quarters. The Company's quarterly operating results also may be affected by a
wide variety of factors, such as legislative and regulatory changes, competitive
pressures, and general economic conditions.
ASSOCIATES
The Company views all of its personnel as associates of the Company, rather than
merely as employees. As of February 28, 1998, the Company employed approximately
410 associates, none of whom was a member of an industry trade union or
collective bargaining unit. Part-time workers (primarily clerical and
distribution) are also utilized over the course of the year as needed to assist
the Company during periods of peak sales.
COMPANY TRADENAMES AND TRADEMARKS
The Company utilizes several trade names, trademarks and service marks in the
course of its business, including, among others, the Ellett Brothers(R), Ellett
Brothers As Big As All Outdoors(R), and As Big As All Outdoors(R) trademarks.
Although the Company's operations are not dependent upon any single trade name
or trademark, other than the Ellett Brothers trademark, the Company considers
its various trademarks and trade names to be valuable to its business.
ITEM 2. PROPERTIES
The Company's operations are carried out at five separate locations. The
following table sets forth certain information regarding each of these
facilities:
<TABLE>
<CAPTION>
Approximate
Aggregate Usable
Square Feet Status
---------------------------------
<S> <C> <C>
Chapin, South Carolina 190,000 Owned
Chapin, South Carolina 40,000 Owned
Newberry, South Carolina 140,000 Owned
Houston, Missouri 62,000 Leased
Taylorsville, North Carolina 30,000 Leased
</TABLE>
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<PAGE> 6
The Company's headquarters is housed in the 190,000 square foot, two-story
office and warehouse facility located on 12 acres of land owned by the Company.
The second floor of this facility, approximately 40,000 square feet, encompasses
the Company's teleservicing sales and administrative departments, including a
complete media workshop as well as a video and photography studio. Both of the
Chapin, South Carolina facilities serve as collateral under the Company's
industrial revenue refunding bonds. See Note 10 to the Financial Statements. The
Newberry facility, located on 16.4 acres of land owned by the Company, includes
34,000 square feet of warehouse space added in February 1996.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings. See Note 15 to
the Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders of Ellett Brothers, Inc.
during the fourth quarter of fiscal year 1997.
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<PAGE> 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Ellett Brothers, Inc. is traded on the Nasdaq National
Market System under the symbol ELET. As of March 11, 1998, the Company had a
total of approximately 1,273 shareholders. Of this total there were 73
shareholders of record and approximately 1,200 nominee holders.
The following table sets forth the quarterly high and low sale prices per share
for the common stock as reported on the Nasdaq National Market and dividends on
common stock.
<TABLE>
<CAPTION>
Quarter Ended: High Low Dividend
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 1996 $ 8.25 $ 5.50 $ 0.02
June 30, 1996 7.38 5.38 0.02
September 30, 1996 6.50 5.00 0.02
December 31, 1996 5.63 4.50 0.02
March 31, 1997 5.63 4.38 0.02
June 30, 1997 5.38 4.13 0.02
September 30, 1997 6.38 4.88 0.02
December 31, 1997 6.25 5.13 0.02
</TABLE>
The Company did not sell any equity securities during the fiscal year ended
December 31, 1997 which were not registered under the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA(1)(6)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 152,500 $ 147,666 $ 150,411 $ 160,187 $ 118,652
Income (loss) before income taxes (1,353) 2,673 7,384 9,722 5,404
Net income (loss)(2)(6) (815) 1,687 4,634 6,156 3,415
Earnings (loss) per share(2)(3)(6) (0.16) 0.33 0.89 1.29 0.78
Dividends paid per share(4) 0.08 0.08 0.08 0.18 0.00
Weighted average number of
Shares outstanding(3) 5,148 5,135 5,230 4,783 4,380
Working capital 48,140 55,029 50,512 45,678 31,949
Total assets 63,614 73,688 70,275 61,236 46,690
Long-term debt obligations 33,187 38,472 33,533 30,089 28,773
Shareholders' equity 23,336 24,637 24,548 20,332 7,507
Other data:
Number of business units at year end 139 145 160 151 134
Number of customers served during year(5) 23,800 25,890 25,737 20,228 18,197
</TABLE>
(1)Prior to June 9, 1993, Ellett Brothers operated as the outdoor sporting
goods division of Ellett Brothers Limited Partnership. For comparison
purposes, amounts prior to June 9, 1993 reflect the operations of that
division of Ellett Brothers Limited Partnership and thereafter the operations
of Ellett Brothers, Inc. Pro forma provisions for income taxes have been made
at the corporate statutory rates for periods prior to June 9, 1993.
(2)For comparison purposes, net income for the year ended December 31, 1993
excludes a one-time, non-cash charge of $622, related to income taxes, or
$0.14 per share, upon the conversion from a partnership to a corporation.
(3)Earnings per share and weighted average common shares outstanding were
computed based on an assumed 4,000 pro forma shares outstanding prior to the
conversion from a partnership to a corporation in June 1993, and actual
shares outstanding thereafter.
(4)Includes quarterly dividends at $0.02 per share paid in March, June,
September and December 1997, 1996, 1995, and 1994, and a special dividend at
$0.10 per share paid in March 1994.
(5)Due to the potential for errors in elimination of mutual customers between
subsidiaries, the numbers for 1997, 1996, and 1995 are approximations.
Management feels that any differences are insignificant.
(6)In June 1997, executive management and the Board of Directors concluded that
ongoing operation of the Safesport Manufacturing Company subsidiary was not
in the best interest of the Company and began liquidation of this subsidiary.
The liquidation was substantially concluded by December 31, 1997 with a net
after tax impact of $2,276 ($0.44 per share).
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<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Sales for the year ended December 31, 1997 were $152.5 million, as compared to
$147.7 million in 1996, an increase of $4.8 million or 3.2%. Excluding the
impact of Safesport from the two years, sales for 1997 would have been $144.4
million, as compared to $141.4 million in 1996, an increase of $3.0 million or
2.1%. During 1997, sales of hunting and shooting sports products declined 0.4%
when compared to 1996 sales. Also during 1997, sales of camping, archery and
outdoor accessories increased by 0.6% when compared to 1996 sales. The marine
accessory group showed continued growth, with an 8.6% increase when compared to
1996 sales. The 1997 results for the distribution operations were generally
favorable, with the exception of the impact of the UPS strike in the third
quarter. Our best estimate is that the strike reduced sales by $2.8 million.
Management believes, except for the impact of the UPS strike, that retail sales
corresponding to all areas of the Company's business improved slightly in 1997.
Management also believes that, while the overall industry appears to be
experiencing limited sales growth, the consolidation taking place at the retail
and distribution levels continues to provide opportunities for market growth.
Sales in 1997 from the remaining subsidiaries, Evans Sports and Vintage
Editions, were $7.9 million, as compared to $6.5 million in 1996, an increase of
$1.4 million or 21.8%. The improvement was brought about by new product
introductions and increased market penetration.
Gross profit was $23.1 million for the year ended December 31, 1997, as compared
to $27.0 million in 1996, a decrease of $3.9 million or 14.3%. As a percentage
of sales, gross profit was 15.2% in 1997, as compared to 18.3% in 1996. The
decline in gross profit as a percentage of sales was almost entirely due to the
impact of the liquidation of the Safesport inventory in the third and fourth
quarters. Excluding the impact of Safesport from the two years, gross profit for
1997 would have been $25.3 million, on 17.5% of sales, as compared to $25.0
million, or 17.7% of sales, in 1996. The remaining decline resulted from
competitive pressures within the traditional distribution business. While
management is taking steps to reduce the decline in gross profit as a percentage
of sales, it expects the competitive pricing pressures to continue in the
future, potentially affecting gross profit as a percentage of sales for the
Company.
Selling, general, and administrative expenses in 1997 were $21.8 million (14.3%
of sales), as compared to $21.4 million (14.5% of sales) in 1996, an increase of
$0.4 million or 1.7%. Increased expenses were incurred as a result of planned
increase in costs incurred with the computer equipment and information system
upgrades, catalog and mini-catalog production, and personnel costs. Excluding
the impacts of Safesport, selling, general, and administrative expenses for 1997
were $19.5 million, as compared to $18.7 million in 1996. However, certain fixed
expenses previously allocated to Safesport, primarily depreciation and interest
expenses totaling approximately $435,000, will continue into future years.
Interest expense in both 1997 and 1996 was $3.3 million (2.2% of sales). The
benefit from reduced borrowings due to lower inventories, primarily resulting
from the Safesport liquidation, was offset by higher interest rates.
Income tax benefit in 1997 was $538,000, as compared to a $1.0 million expense
in 1996. The effective rate for 1997 was 39.8%, as compared to 36.9% for 1996.
The difference in rates is primarily the result of the impact of the Safesport
liquidation on the deferred tax calculation.
1996 COMPARED TO 1995
Sales for the year ended December 31, 1996 were $147.7 million, as compared to
$150.4 million in 1995, a decrease of $2.7 million or 1.8%. Included in these
amounts were sales from Ellett's subsidiaries, Evans Sports, Vintage Editions
and Safesport, of $12.8 million and $9.1 million for the years ended December
31, 1996 and 1995, respectively. During 1996, sales of hunting and shooting
sports products declined 5.9% when compared to 1995 sales. Also during 1996,
sales of camping, archery and outdoor accessories declined by 6.1% when compared
to 1995 sales. The marine accessory group showed continued growth with a 5.1%
increase when compared to 1995 sales. Management believes the weak consumer
demand in 1995 and 1996 led retailers in the hunting and shooting sports markets
to reduce their inventory levels and subsequently purchase inventory on a "Just
in Time" basis. Retailers were reluctant to purchase inventory ahead of the
typical fall hunting seasons, even with the incentives of extended terms and
additional discounts, which contributed to small sales increases in the third
and fourth quarters in hunting and shooting sports products. Retailers also
reduced their purchases of accessories related to the hunting and shooting
sports products which contributed to the decline in the camping, archery and
outdoor accessories sales.
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<PAGE> 9
Gross profit was $27.0 million for the year ended December 31, 1996, as compared
to $28.7 million in 1995, a decrease of $1.7 million or 5.8%. As a percentage of
sales, gross profit was 18.3% in 1996, as compared to 19.1% in 1995. The decline
in gross profit as a percentage of sales was mainly due to lowering sales prices
to remain competitive and stimulate sales within the traditional distribution
business. The subsidiaries were affected by unfavorable manufacturing variances
which led to a 5.1% decline in gross profit as a percentage of sales. Management
expects the competitive pricing pressures to continue in the future, affecting
gross profit for the Company.
Selling, general and administrative expenses in 1996 were $21.4 million (14.5%
of sales), as compared to $18.7 million (12.5% of sales) in 1995, an increase of
$2.7 million or 14.3%. Increased expenses were incurred as a result of operating
the subsidiaries for a full year as compared to a partial year in 1995,
relocation of one subsidiary from Denver, Colorado to Newberry, South Carolina,
increased costs incurred with the computer equipment and information system
upgrades, increased costs of catalog and mini-catalog production and
compensation expense recorded for the stock awards to certain officers. Expenses
that decreased were directly related to the decrease in sales and profits, such
as sales and management bonuses and telephone expense.
Interest expense in 1996 was $3.3 million (2.2% of sales), as compared to $3.1
million (2.1% of sales) in 1995, an increase of $177,000 or 5.7%. The benefit of
lower interest rates in 1996 was more than offset by increased borrowings to
operate the subsidiaries and fund the increase in working capital.
Income tax expense in 1996 was $1.0 million, as compared to $2.8 million in
1995. The effective rate for 1996 was 36.9%, as compared to 37.2% for 1995.
SEASONALITY AND QUARTERLY INFORMATION
Historically the Company's business has been seasonal. The sales of hunting and
shooting sports products, as well as camping, archery and outdoor accessories,
usually increase in the third quarter of each year and peak early in the fourth
quarter. Sales of marine accessories usually increase in the first quarter of
each year, then peak midway through the second quarter and continue at similar
levels through the first half of the third quarter. Operations of the
subsidiaries acquired during 1995 have been seasonal, producing significantly
higher sales and gross profit during the third and fourth quarters, with losses
in the first and second quarters. The Company's quarterly operating results may
also be affected by a wide variety of factors, such as legislative and
regulatory changes, competitive pressures, and general economic conditions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are results of operations and
borrowings under its revolving credit facility. Pursuant to its operating
strategy, the Company maintains minimal cash balances and is substantially
dependent on, among other things, the availability of adequate working capital
financing to support inventories and accounts receivable.
Net cash provided by operating activities was $7.4 million during the year ended
December 31, 1997, as compared to net cash used by operating activities of $2.1
million in 1996. The increase in net cash provided in operating activities in
1997 was mainly due to the decrease in inventories, partially resulting from the
liquidation of Safesport, combined with decreases in prepaid expenses. This was
offset by decreases in trade payables and other liabilities.
Net cash used in investing activities was $1.2 million during the year ended
December 31, 1997, as compared to $1.4 million in 1996. The net cash used in
investing activities was mainly due to the purchase of computer equipment and
information system upgrades.
Net cash used by financing activities was $5.9 million during the year ended
December 31, 1997, as compared to $3.3 million net cash provided in 1996. The
Company used the additional cash provided by operations in 1997 to decrease
borrowings under its revolving credit facility by $4.7 million. The Company also
used a portion of the net cash provided by operating activities to make
principal payments on long-term debt, to repurchase common stock, and to pay
dividends.
Working capital requirements for the Company's traditional distribution business
have historically been somewhat seasonal in nature. Accounts receivable have
generally increased in the first quarter primarily because of the customary
industry practice during the first quarter of each year to offer customers
extended payment terms for purchases of certain products, thereby extending the
payment due dates for a portion of its sales into the third and fourth quarters
of the year. Accounts receivable have generally increased further early in the
third quarter as additional 60 to 90 day extended terms have been offered to
stimulate sales in advance of the Company's highest volume quarters. Accounts
receivable usually decrease in the fourth quarter as payments are received on
prior quarters' sales and a larger percentage of current sales are made with
shorter payment terms. Inventory generally builds during the first two quarters
and peaks in the third quarter to support the higher sales volumes of the third
and fourth quarters.
Page 9 of 27
<PAGE> 10
Working capital requirements have been seasonal for the subsidiaries.
Inventories have increased during the first half of the year to accommodate the
sales in the third and fourth quarters. Accounts receivable have declined to
their lowest point in the second quarter just before the sales increase in the
second half of the year.
During the year ended December 31, 1997, the Company continued the efforts to
upgrade its computer equipment and information systems with expenditures of $1.2
million. The total cost of the computer upgrades, including 1996, 1997, and 1998
expenditures, is expected to be approximately $3.0 million, of which
approximately $1.1 million is planned for 1998. These system upgrades will be
year 2000 compliant.
Principal maturities on the Company's industrial revenue refunding bonds for
1998, 1999, and 2000 will be $517,000, $567,000, and $617,000, respectively. The
annual interest charges, at the fixed rate of 7.5%, will be $606,000, $568,000,
and $525,000, for 1998, 1999, and 2000, respectively (see Note 10 to the
financial statements).
Management believes that cash generated from operations, and available under the
Company's revolving credit facility, will be sufficient to finance its
operations, expected working capital needs, capital expenditures, debt service
requirements, and business acquisitions during 1998 and for the foreseeable
future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Securities and Exchange Commission Release 33-7386 (January 31,
1997), the disclosure requirement contemplated by Item 305 of Regulation S-K in
response to this Item 7A is not currently mandated for the Company.
The net loss for 1997 was $815,000, or $0.16 per share, as compared to net
income of $1.7 million, or $0.33 per share, in 1996. The loss for 1997 includes
$2.3 million ($0.44 per share) of one-time losses from the closing of Safesport,
excluding which net income for 1997 would have been $1.5 million, or $0.29 per
share. Excluding all impacts of Safesport operations from 1997 and 1996, net
income would have been $2.3 million in 1997, as compared to $2.5 million in
1996.
Page 10 of 27
<PAGE> 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(A) FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (in thousands)
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------------------
ASSETS 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 395 $ 139
Accounts receivable, less allowance for doubtful accounts of $769
and $750 at December 31, 1997 and 1996, respectively 19,201 19,716
Other accounts receivable 1,820 1,218
Inventories 31,535 39,756
Prepaid expenses 1,488 3,727
Deferred income tax asset 534 591
- ----------------------------------------------------------------------------------------------------------------
Total current assets 54,973 65,147
- ----------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost, less
accumulated depreciation and amortization 6,703 6,190
Other assets:
Intangible assets, at cost, less accumulated amortization 1,936 2,262
Other assets 2 89
- ----------------------------------------------------------------------------------------------------------------
Total other assets 1,938 2,351
- ----------------------------------------------------------------------------------------------------------------
$ 63,614 $ 73,688
================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable, trade $ 4,424 $ 7,909
Accrued expenses 1,884 1,696
Current portion of long-term debt 525 513
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 6,833 10,118
- ----------------------------------------------------------------------------------------------------------------
Revolving credit facility 26,788 31,515
Long-term debt 6,399 6,957
Deferred income tax liability 258 461
Commitments and Contingencies (see Note 11 and 15)
Shareholders' equity:
Preferred stock, no par value (5,000 shares authorized,
no shares issued or outstanding) - -
Common stock, no par value (20,000 shares authorized, 5,121
and 5,065 shares issued and outstanding as of December 31,
1997 and 1996, respectively) 12,833 12,550
Unearned compensation (177) (250)
Unrealized gain on IRB reserve 21 -
Subscription receivable (452) -
Retained earnings 11,111 12,337
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 23,336 24,637
- ----------------------------------------------------------------------------------------------------------------
$ 63,614 $ 73,688
================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 11 of 27
<PAGE> 12
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended December 31
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 152,500 $ 147,666 $ 150,411
Cost of goods sold 129,372 120,683 121,756
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 23,128 26,983 28,655
Selling, general and administrative expenses 21,785 21,420 18,744
- ---------------------------------------------------------------------------------------------------------------------
Income from operations 1,343 5,563 9,911
- ---------------------------------------------------------------------------------------------------------------------
Other income (expenses)
Interest income 454 444 431
Interest expense (3,297) (3,289) (3,112)
Other income (expense) 147 (45) 154
- ---------------------------------------------------------------------------------------------------------------------
(2,696) (2,890) (2,527)
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (1,353) 2,673 7,384
Income tax expense (benefit) (538) 986 2,750
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (815) $ 1,687 $ 4,634
=====================================================================================================================
Basic and diluted earnings (loss) per common share $ (0.16) $ 0.33 $ 0.89
=====================================================================================================================
Weighted average shares outstanding 5,148 5,135 5,230
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 12 of 27
<PAGE> 13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands)
<TABLE>
<CAPTION>
Unrealized
Gain on
Common Unearned Available for Subscription Retained
Stock Compensation Sale Securities Receivable Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shareholders' equity at December 31, 1994 $ 13,487 $ - $ - $ - $ 6,845 $ 20,332
Net income - - - - 4,634 4,634
Dividends paid, $0.08 per share - - - - (418) (418)
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity at December 31, 1995 13,487 - - - 11,061 24,548
Net income - - - - 1,687 1,687
Dividends paid, $0.08 per share - - - - (411) (411)
Repurchase of 223 shares of common stock (1,277) - - - - (1,277)
Issuance of 58 shares of common stock
to executive officers 340 (340) - - - -
Amortization of unearned compensation - 90 - - - 90
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders equity at December 31, 1996 12,550 (250) - - 12,337 24,637
Net income (loss) - - - - (815) (815)
Dividends paid, $0.08 per share - - - - (411) (411)
Repurchase of 56 shares of common stock (276) - - - - (276)
Issuance of 112 shares of common stock
to executive officers 559 (84) - (452) - 23
Amortization of unearned compensation - 157 - - - 157
IRB Reserve - - 21 - - 21
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity at December 31, 1997 $ 12,833 $ (177) $ 21 $ (452) $ 11,111 $ 23,336
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 13 of 27
<PAGE> 14
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (815) $ 1,687 $ 4,634
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 973 901 686
Deferred income taxes (146) (303) (157)
Provision for loss on accounts receivable 1,568 933 905
Amortization of unearned compensation 157 90 -
Other 7 (17) -
Changes in assets and liabilities:
Accounts receivable (1,655) (2,224) (1,586)
Inventories 8,221 (1,304) (2,965)
Prepaid expenses 2,239 213 (281)
Accounts payable, trade (3,485) (1,125) 529
Accrued expenses 188 (949) 198
Other assets 162 (13) (17)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 7,414 (2,111) 1,946
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (1,257) (1,332) (887)
Purchase of intangibles and other assets - (121) -
Proceeds from sale of property and equipment 15 40 -
Proceeds from sale of intangibles - 25 -
Business acquisitions (see Note 3) - - (3,971)
Change in industrial revenue refunding bond reserve - 23 (140)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,242) (1,365) (4,998)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Gross borrowings on revolving credit facility 151,592 154,200 155,314
Gross repayments on revolving credit facility (156,332) (148,764) (151,363)
Principal payments on long-term debt (467) (416) (133)
Principal payments on capital lease obligations (45) (42) (23)
Net proceeds from sale of common stock 23 - -
Repurchase of common stock (276) (1,277) -
Dividends to shareholders (411) (411) (418)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (5,916) 3,290 3,377
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 256 (186) 325
Cash and cash equivalents:
Beginning of year $ 139 $ 325 $ -
- ----------------------------------------------------------------------------------------------------------------------------------
End of year $ 395 $ 139 $ 325
==================================================================================================================================
Cash payments for interest $ 3,339 $ 3,246 $ 3,050
==================================================================================================================================
Cash payments for income taxes $ 438 $ 1,297 $ 3,056
==================================================================================================================================
Non-cash financing activity: lease liability assumed $ - $ - $ 118
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 14 of 27
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
1. BASIS OF PRESENTATION
Ellett Brothers, Inc. is principally a supplier of goods and customer services
to independent retailers who serve the natural outdoor sporting goods market,
primarily in the United States. Ellett Brothers' products are diversified among
a wide variety of outdoor sporting goods equipment including a wide selection of
styles and brand names. During 1995, Ellett Brothers also acquired substantially
all of the assets of two entities ("the Acquired Businesses") and certain assets
of an importer and marketer (see Note 3) whose products complemented Ellett
Brothers' existing operations. The assets of each entity were transferred to
separate wholly-owned subsidiaries. In 1997, the assets of the importer and
marketer were liquidated and its operations were terminated (see Note 4).
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries (see Note 3). Significant intercompany accounts
and transactions have been eliminated in consolidation.
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Revenue recognition
The Company recognizes revenue from product sales at the time of shipment.
Inventories
Inventories, consisting principally of purchased goods held for resale, are
stated at the lower of cost or market, with cost determined under the first-in,
first-out (FIFO) method.
Credit risk
The Company performs ongoing evaluations of its customers and generally does not
require collateral. An allowance for doubtful accounts is provided in an amount
equal to the estimated collection losses. At December 31, 1997 and 1996 prepaid
expenses included prepayments in the amounts of $548 and $2,553, respectively,
on future purchases of inventory from certain suppliers for which the Company
will receive favorable discounts.
Advertising costs
The Company has elected to expense all advertising costs as incurred or the
first time advertising takes place, with the exception of direct response
advertising, which is capitalized and amortized over the period of its expected
future benefit. At December 31, 1997 and 1996, the Company did not have any
significant amounts capitalized as direct response advertising. The Company
incurred total advertising expenditures of $735, $808, and $357 during the years
ended December 31, 1997, 1996, and 1995, respectively.
Property, plant and equipment
Property, plant and equipment are depreciated or amortized using the
straight-line method over the estimated useful lives of the respective assets
which range as follows:
Description Years
-------------------------------------------------------------------
Buildings and improvements 25 - 39
Furniture, fixtures and equipment 3 - 10
Expenditures for repairs and maintenance are charged to expense as incurred. The
costs of major renewals and betterments are capitalized and depreciated over
their estimated useful lives. The cost and related accumulated depreciation of
property, plant and equipment are removed from the accounts upon disposition and
any resulting gain or loss is reflected in results of operations.
Page 15 of 27
<PAGE> 16
Intangible assets
Intangible assets principally represent the amount by which costs of acquired
net assets exceeded their related fair value ("goodwill") and costs of acquired
non-compete agreements. The carrying value of goodwill is reviewed periodically,
and if the facts and circumstances suggests that it is impaired, the impairment
will be accounted for in accordance with FASB Statement No. 121, "Accounting for
Impairment of Long-Lived Assets". The non-compete agreements are being amortized
over the original terms of the agreements. Intangible assets are amortized using
the following methods and estimated useful lives.
<TABLE>
<CAPTION>
Description Method Years
-------------------------------------------------------------------
<S> <C> <C>
Deferred financing costs Effective interest 20
Licenses and trademarks Straight-line 5 - 20
Goodwill Straight-line 10
Non-compete agreements Straight-line 10
</TABLE>
Fair values of financial instruments
The Company owns certain debt securities held on deposit with the trustee for
payment of interest and principal on the IRB bond (see Note 10). Market values
of bond issues outstanding are based on quotes received from securities dealers
or the present value of principal and interest payments at the current market
rates. The revolving credit facility is carried at current value which
approximates the fair market value.
Income taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
Stock based compensation
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of the
grant. On January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation (SFAS No. 123). As
permitted by SFAS No. 123, the Company has chosen to continue to apply APB
Opinion No. 25 Accounting for Stock Issued to Employees' (APB 25) and related
interpretations in accounting for its stock based compensation. No options have
been granted since the disclosure provisions of SFAS No. 123 were adopted by the
Company.
Earnings per common share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No.
128 is designed to improve the earnings per share information provided in
financial statements by simplifying the prior computational guidelines, revising
the disclosure requirements, and increasing comparability of earnings per share
data on an international basis. This pronouncement, which became effective for
periods ending after December 15, 1997, requires the restatement of earnings per
share data for all periods presented in the form of basic earnings per share and
diluted earnings per share. Although the Company had options outstanding during
portions of the three years ended December 31, 1997, they have an antidilutive
effect on earnings per share for each year. As such, the earnings per share
calculations previously reported by the Company equal basic and diluted earnings
per share calculated under the provisions of SFAS No. 128. Basic and diluted
earnings per share for the years ended December 31, 1997, 1996, and 1995 is
earnings divided by the weighted average shares outstanding.
Investment securities
The Company accounts for investment securities in accordance with Statement of
Financial Accounting Standard No. 115 (SFAS No. 115), "Accounting for Certain
Investments in Debt and Equity Securities." This statement requires investment
securities to be classified into three types:
(a) Securities Held to Maturity - Debt securities that the Company has the
positive intent and ability to hold to maturity are reported at
amortized cost.
(b) Trading Securities - Debt and equity securities that are bought and
held principally for the purpose of selling in the near term are
reported at fair value, with unrealized gains and losses included in
earnings.
(c) Securities Available for Sale - Debt and equity securities not
classified as either securities held to maturity or trading securities
are reported at fair value, with unrealized gains and losses reported
as a separate component of shareholders' equity.
The classification of securities is generally determined at the date of
purchase. Gains and losses on sales of investment securities, computed based on
the specific identification method, are included in other income at the time of
sale.
Page 16 of 27
<PAGE> 17
New Accounting Pronouncements
During 1997, the Financial Accounting Standards Board issued two new Statements
of Financial Accounting Standards (SFAS), No. 130, "Reporting of Comprehensive
Income" and No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards of reporting and displaying
comprehensive income and its components. SFAS No. 131 establishes guidelines in
reporting information about operating segments in annual financial statements
and requires selected information about operating segments. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. Both of these standards will be effective for the Company's
1998 fiscal year. These pronouncements are not expected to have a material
impact on the Company's financial statements.
Reclassifications
Certain amounts in the 1996 and 1995 financial statements have been reclassified
to conform to the 1997 presentation with no effect on previously reported net
earnings or retained earnings.
3. ACQUISITIONS AND CONSOLIDATION
From April to September 1995, the Company purchased substantially all of the
assets of two specialty manufacturers of sporting accessories and nostalgia
products, and substantially all the accounts receivable and inventory of an
importer and marketer of outdoor leisure products. The Company paid $7,077 in
cash for the Acquired Businesses and these assets, which was the sum of the net
amounts due after acquiring $9,091 of assets (primarily accounts receivable,
inventory and intangible assets) and assuming $2,014 in liabilities (primarily
trade payables, accrued expenses and a $500 liability for relocation costs of
acquired inventory). The assets of each entity were transferred to separate,
wholly-owned subsidiaries, and the acquisitions were accounted for using the
purchase method of accounting, with the excess of the prices paid over the
estimated fair value of the assets acquired being recorded as goodwill. The
goodwill and non-compete agreements arising from these transactions (see Note 7)
are being amortized over 10 years. The results of operations for these entities
are included in the statements of operations from the dates of acquisition.
The following information presents the unaudited pro forma results of operations
for the Company as if the acquisitions described above had occurred on January
1, 1995.
<TABLE>
<CAPTION>
For the year ended December 31, 1995
(unaudited)
- ------------------------------------------------------------------------
<S> <C>
Pro forma sales $ 157,153
Pro forma net income $ 3,437
Pro forma earnings per share $ .66
</TABLE>
The objective of the pro forma information is to show what the effects on the
Company's sales, net income and earnings per share might have been had the
transactions described above occurred on January 1, 1995. However, the pro forma
results of operations are not necessarily indicative of the results of
operations the Company would have experienced had such transactions occurred on
such date or of results which may occur in the future.
4. CLOSING OF SUBSIDIARY OPERATION
In June 1997, executive management and the Board of Directors concluded that
ongoing operation of the Safesport Manufacturing Company subsidiary was not in
the best interest of the Company, and began liquidation of this subsidiary. The
liquidation was substantially concluded by the end of 1997. An after tax reserve
of $2,725, or $0.53 per share, was established as of June 30 for the purpose of
this liquidation. The reserve was reviewed as of September 30, 1997 and adjusted
to reflect the liquidation efforts through that point. The reserves were
adjusted to the values noted below, resulting in $208 of net income for the
three months ended September 30, 1997. As of December 31, 1997, the liquidation
was substantially concluded and the reserves were adjusted to zero, resulting in
$241 of net income for the three months ended December 31, 1997. The reserve was
composed of the following components as of June 30, 1997 and as of September 30,
1997.
<TABLE>
<CAPTION>
June 30, 1997 September 30, 1997
-----------------------------------------------------------------------
<S> <C> <C>
Inventory Reserve $ 3,548 $ 1,246
Accounts Receivable Reserve 207 580
Accrued Expenses 255 10
Current Tax Benefit (1,285) (688)
---------------------------------------------------------------------
Total Reserve $ 2,725 $ 1,148
</TABLE>
Page 17 of 27
<PAGE> 18
5. INVENTORIES
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 30,406 $ 38,283
Raw materials 885 1,096
Work in progress 244 377
-------------------------------------------------------------------------------------
$ 31,535 $ 39,756
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 216 $ 216
Buildings and improvements 6,751 6,751
Furniture, fixtures and equipment 6,428 5,202
-------------------------------------------------------------------------------------
13,395 12,169
Less accumulated depreciation
and amortization 6,692 5,979
-------------------------------------------------------------------------------------
$ 6,703 $ 6,190
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C>
Deferred financing costs $ 336 $ 336
Licenses 203 282
Goodwill 528 528
Non-compete agreements 1,700 1,700
-------------------------------------------------------------------------------------
2,767 2,846
Less accumulated amortization 831 584
-------------------------------------------------------------------------------------
$ 1,936 $ 2,262
</TABLE>
8. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale: Bond Reserve $ 1,147 $ 25 $ (4) $ 1,168
</TABLE>
9. REVOLVING CREDIT FACILITY
In 1994, the Company entered into a revolving credit facility (the "Agreement")
with an affiliate of First Union National Bank of North Carolina, N.A. The
Agreement is collateralized by substantially all of the Company's assets other
than real estate. The initial term of the Agreement was for three years ending
in June 1997. The Agreement was amended in September 1997 to extend the term to
September 30, 2001. Effective August 1, 1996, borrowings under the Agreement
bear interest at a rate equal to, at the Company's option, prime rate plus .375%
or 2.25% above the 30 or 90 day LIBOR rate. Combinations of these rates can be
used for the various loans which comprise the total facility outstanding
balance. The interest rates of the facility are subject to change based on
changes in the Company's leverage ratio and net income. At December 31, 1997,
the interest rate was 8.22%.
The Agreement provides the Company with a revolving line of credit and letters
of credit. The revolving line of credit provides loans of up to 70% of the
eligible inventories and up to 85% of eligible receivables. The maximum amount
that can be outstanding at any time under the Agreement is $40,000.
The Agreement contains various restrictions which, among other things, limit
capital expenditures and limit cash dividends. The Agreement also requires the
Company to meet various minimum financial covenants.
Page 18 of 27
<PAGE> 19
10. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Industrial Revenue Refunding Bonds, Series 1988 ("IRB") collateralized by
real estate. Interest at 7.5% and 10.6% at December 31, 1997 and
1996, respectively, due to bond holders semi-annually is required to
be deposited with the Trustee monthly in an amount equal to one-sixth
of the next interest payment. The Company also pays one-twelfth of
the next principal payment (by way of annual maturity or annual
mandatory sinking fund redemption) to the Trustee monthly
in addition to the interest. $ 8,084 $ 8,550
Industrial revenue refunding bond reserve on deposit with the Trustee (1,168) (1,133)
Capital lease agreement collateralized by computer equipment. Lease was
assumed with the purchase of the Acquired Businesses during 1995. The
original cost of the equipment was $138 and the lease required a
total of 42 monthly payments of $4 8 53
-----------------------------------------------------------------------------------------------------------------------
6,924 7,470
Less, current portion (525) (513)
------------------------------------------------------------------------------------------------------------------------
$ 6,399 $ 6,957
</TABLE>
Under the terms of the IRB, the Company is required to maintain a reserve fund
with a fair market value in the amount of $1,050 on deposit with the Trustee.
The Company may, depending upon market value fluctuations of the bonds held in
the reserve fund, be required to make payments to bring the fund up to the
$1,050. If for any reason, the reserve fund is in excess of the required amount,
such excess may be used to reduce required sinking fund payments. Reserve fund
balances may also be used toward the redemption of the outstanding IRB
obligations. In September 1997, the agreement was amended to reduce the interest
rate from 10.65% to 7.5%, and to eliminate the ability for early redemption.
The fair market value of the IRB at December 31, 1997 and 1996 was approximately
$8,084 and $9,600, respectively.
Principal maturities and sinking fund requirements for long-term debt at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
For year ending December 31,
<S> <C>
1998 $ 517
1999 567
2000 617
2001 667
2002 716
Thereafter 3,832
---------------------------------------------------------------
$ 6,916
===============================================================
</TABLE>
Under the bond agreement, as amended, annual cash dividends are limited to 60%
of annual net income (adjusted for non-cash charges), a required minimum fixed
charge ratio of 1.25:1 (adjusted for non-cash charges), a required minimum
current ratio of 1.17:1, and a required minimum shareholders' equity level (as
defined) of $6,000 at December 31, 1996 and thereafter.
Principal and interest payments related to the capital lease are due in the
amount of $8 for the year ended December 31, 1998.
11. OPERATING LEASES
The Company entered into three significant leases for computer equipment in
conjunction with the first phase of an information system upgrade. The Company
incurred $279, $169, and $0 in rental expenses related to these leases in 1997,
1996, and 1995, respectively.
The future minimum lease payments as of December 31, 1997 are as follows:
For the year ending December 31,
---------------------------------------------------------------
1998 $ 279
1999 109
---------------------------------------------------------------
$ 388
Page 19 of 27
<PAGE> 20
12. COMMON AND PREFERRED STOCK
The Company is authorized to issue 20,000 shares of no-par-value common stock.
At December 31, 1996 and 1995, the Company had 112 and 142 outstanding options,
respectively, all of which are fully vested. The options had an exercise price
of $7.00 per share which equaled the closing market price on the date of grant.
The options were scheduled to expire in 2003. In January 1997, these options
were cancelled and, in exchange, the Company issued 112 shares of common stock
to two executives of the Company for $475. The market value of these shares on
the measurement date was $559. The shares carry restrictions over their
transferability which will be lifted over a two year period ending in January
1999. The difference between the market value and the price at which the shares
were sold to the executives is reflected as unearned compensation and is being
amortized over the two year period. In connection with the issuance of these
shares, the Company received promissory notes totaling $452, which has been
classified at December 31, 1997 as offset to shareholders' equity, and $23 in
cash from the executives. Balances due under the promissory notes, which bear
interest at 5.6%, payable semi-annually, become due on a pro-rata basis as the
shares are sold by the executives.
The Company reacquired 100, 93, and 30 shares of its common stock in April, July
and September of 1996, respectively, and reacquired 46 and 10 shares in June and
December of 1997, and recorded it using the cost method of accounting for
treasury stock. During 1996, the Company awarded 58 shares of restricted common
stock to two executives of the Company. The restrictions are scheduled to be
released pro-rata over a three to four year period, based on certain criteria.
The stock awards were valued at the market price per share at the time of each
award, and unearned compensation was recorded in equity. Compensation expense
will be recognized as the awards vest over the three to four year period.
Additionally, the Board of Directors of the Company is authorized to issue, at
its discretion, up to 5,000 shares of preferred stock in one or more series with
the number of shares, designation, relative rights and preferences, and
limitations to be determined by resolution of the Board of Directors. However,
no share of stock of any class shall be subject to preemptive rights or have
cumulative voting provisions.
13. INCOME TAXES
Income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ (573) $ 1,186 $ 2,648
State 181 103 259
----------------------------------------------------------------------------------------
(392) 1,289 2,907
----------------------------------------------------------------------------------------
Deferred:
Federal 103 (278) (156)
State (249) (25) (1)
----------------------------------------------------------------------------------------
(146) (303) (157)
----------------------------------------------------------------------------------------
$ (538) $ 986 $ 2,750
========================================================================================
</TABLE>
Components of the net deferred income tax liability (asset) were as follows:
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------------------------------------
1997 1996
----------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation and amortization $ 448 $ 415
Bad debt expense (246) (225)
Inventory capitalization (343) (355)
State net operating loss (169) -
Other 34 35
----------------------------------------------------------------------------------------
Total $ (276) $ (130)
========================================================================================
</TABLE>
Income tax expense varied from statutory federal income taxes as follows:
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at 34% statutory federal rate $ (460) $ 909 $ 2,511
State income taxes, net of federal tax benefit (45) 52 172
Other (33) 25 67
----------------------------------------------------------------------------------------
Income tax expense $ (538) $ 986 $ 2,750
</TABLE>
The Company had approximately $5,125 of state net operating loss carryforwards
at December 31, 1997. These carryforwards will expire in 2002 through 2012, if
not utilized.
Page 20 of 27
<PAGE> 21
14. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan (the "Plan") covering
substantially all full-time employees who meet certain age and length of service
requirements. Participants are eligible to contribute up to 20% of their annual
compensation, not to exceed legal limits, and the Company, at its discretion,
makes matching contributions to the Plan. Participants vest immediately in their
contributions and after three years in the Company's contributions. The Company
incurred expenses related to the Plan of $67, $49 and $42 for the years ended
December 31, 1997, 1996, and 1995, respectively.
15. CONTINGENCY
The Company is currently a defendant in certain product liability lawsuits that
arose in the normal course of business. It is the opinion of management that the
Company has meritorious defenses and the disposition of these matters will not
have a material adverse effect on the consolidated financial position, results
of operations or liquidity of the Company.
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table of supplementary financial information presents selected
unaudited quarterly results of the Company's operations over the last eight
quarters:
<TABLE>
<CAPTION>
1996 1997
- ----------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 36,722 $ 32,372 $ 38,857 $ 39,715 $ 36,801 $ 34,671 $ 41,326 $ 39,702
Gross profit 6,527 6,594 7,024 6,838 6,343 2,677 6,842 7,266
Selling, general,
and administrative 5,519 5,250 5,537 5,114 5,149 5,802 5,421 5,413
Income (loss) from
operations 1,008 1,344 1,487 1,724 1,194 (3,125) 1,421 1,853
Net income (loss) 348 365 406 568 392 (2,626) 465 954
Basic and diluted earnings
(loss) per share 0.07 0.07 0.08 0.11 0.08 (0.51) 0.09 0.19
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Ellett Brothers, Inc.
We have audited the accompanying consolidated balance sheets of Ellett
Brothers, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. We have
also audited Schedule II - Valuation and Qualifying Accounts. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ellett
Brothers, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND, L.L.P.
Raleigh, North Carolina
February 12, 1998
Page 21 of 27
<PAGE> 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Information called for by Part III (Items 10, 11, 12 and 13) of this report on
Form 10-K has been omitted as the Company intends to file with the Securities
and Exchange Commission not later than April 30, 1998, a definitive proxy
statement pursuant to Regulation 14A promulgated under the Securities Exchange
Act of 1934. Such information will be set forth in such Proxy Statement and is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by the Item is incorporated by reference from the
section of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held May 27, 1998, under the caption "DIRECTORS AND EXECUTIVE
OFFICERS".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from those
sections of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held May 27, 1998 under the captions "EXECUTIVE
COMPENSATION", "COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION" AND
"PERFORMANCE GRAPH."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
section of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held May 27, 1998 under the caption "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
section of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held May 27, 1998 under the caption "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS."
Page 22 of 27
<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements: See Item 8 of this report on Form 10-K.
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts - Page 24
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions, or are inapplicable, or the required information
is disclosed elsewhere, and therefore, have been omitted.
3. Exhibits: The Exhibits listed on the accompanying Index to Exhibits
on pages 26 and 27 are filed as part of this report.
(b) There were no reports filed on Form 8-K for the quarter ended December 31,
1997.
Page 23 of 27
<PAGE> 24
ELLETT BROTHERS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 & 1995
(In Thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning Cost/ Other End
Description of Period Expenses Accounts Deductions of Period
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997
Allowance for Doubtful Accounts $ 750 $1,568 $ 899(B) $2,448(A) $ 769
====== ====== ====== ====== ======
Allowance for Obsolete Inventory $ 500(D) $3,745(E) $ - $3,548 $ 697
====== ====== ====== ====== ======
1996
Allowance for Doubtful Accounts $ 712 $ 933 $1,471(B) $2,366(A) $ 750
====== ====== ====== ====== ======
Allowance for Obsolete Inventory $ 500(D) $ -(E) $ - $ - $ 500
====== ====== ====== ====== ======
1995
Allowance for Doubtful Accounts $ 521 $ 905 $1,645(C) $2,359(A) $ 712
====== ====== ====== ====== ======
Allowance for Obsolete Inventory $ 250(D) $ -(E) $ 250(F) $ - $ 500
====== ====== ====== ====== ======
</TABLE>
- --------------
The information above is provided in support of the financial statements as
further described in Note 2 to the financial statements.
(A) Represents actual write-off of uncollectable accounts.
(B) Recoveries.
(C) Represents $1,305 of recoveries and $340 of reserves established at the
acquisition of the Acquired Businesses and purchased accounts
receivable of another entity.
(D) The Company maintains a general reserve for excess or obsolete
inventory and for lower of cost or market adjustments. As part of the
Company's inventory management, slow moving items are identified and
prices are reduced until the items are liquidated. These sales are part
of sales and cost of sales.
(E) Reflected as cost of sales. See Note D above.
(F) Represents reserves established at acquisition of the Acquired
Businesses and purchased inventory of another entity.
Page 24 of 27
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ELLETT BROTHERS, INC.
(Registrant)
Date: March 31, 1998 By: /s/ Joseph F. Murray, Jr.
---------------------------
Joseph F. Murray, Jr.
President and Chief 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 Company and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------- -------------------------------------- --------------
<S> <C> <C>
/s/ Robert D. Gorham, Jr. Chairman of the Board March 31, 1998
- --------------------------------
Robert D. Gorham, Jr.
/s/ Joseph F. Murray, Jr. Director, President and March 31, 1998
- -------------------------------- Chief Executive Officer
Joseph F. Murray, Jr.
/s/ Richard M. Eddinger Vice President of Finance, Treasurer March 31, 1998
- -------------------------------- and Chief Financial Officer
Richard M. Eddinger
/s/ E. Wayne Gibson Director, Chairman of the Executive March 31, 1998
- -------------------------------- Committee and Secretary
E. Wayne Gibson
/s/ William H. Batchelor Director March 31, 1998
- --------------------------------
William H. Batchelor
/s/ Charles V. Ricks Director March 31, 1998
- --------------------------------
Charles V. Ricks
/s/ William H. Stanley Director March 31, 1998
- --------------------------------
William H. Stanley
</TABLE>
Page 25 of 27
<PAGE> 26
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
3(a) Articles of Incorporation of the Corporation. Incorporated
by reference to Exhibit 3(a) filed as part of the
Corporation's Registration Statement on Form S-1 (File No.
33-61490).
3(b) Bylaws of the Corporation. Incorporated by reference to
Exhibit 3(b) filed as part of the Corporation's
Registration Statement on Form S-1 (File No. 33-61490).
4(a) Specimen Stock Certificate for the Common Stock of the
Corporation. Incorporated by reference to Exhibit 4(a)
filed as part of the Corporation's Registration Statement
on Form S-1 (File No. 33-61490).
4(b) Loan Agreement between Lexington County, South Carolina and
Ellett Brothers Limited Partnership dated as of November 1,
1988. Incorporated by reference to Exhibit 4(c) filed as
part of the Corporation's Registration Statement on Form
S-1 (File No. 33-61490).
4(c) Promissory Note of Ellett Brothers Limited Partnership to
Lexington County, South Carolina dated December 1, 1988.
Incorporated by reference to Exhibit 4(d) filed as part of
the Corporation's Registration Statement on Form S-1 (File
No. 33-61490).
4(d) Trust Indenture between Lexington County, South Carolina
and Ellett Brothers Limited Partnership dated as of
November 1, 1988. Incorporated by reference to Exhibit 4(e)
filed as part of the Corporation's Registration Statement
on Form S-1 (File No. 33-61490).
4(e) Mortgage and Security Agreement between Ellett Brothers
Limited Partnership and Citizens and Southern Trust Company
(South Carolina), National Association, dated as of
November 1, 1988. Incorporated by reference to Exhibit 4(f)
filed as part of the Corporation's Registration Statement
on Form S-1 (File No. 33-61490).
4(f) Form of Amendment dated June 3, 1992 between Ellett
Brothers Limited Partnership, NationsBank, Allstate
Municipal Income Opportunities Trust and Allstate Municipal
Income Trust II relating to the Loan Agreement filed as
Exhibit 4(b). Incorporated by reference to Exhibit 4(i)
filed as part of the Corporation's Annual Report on Form
10-K for the year ended December 31, 1993.
4(g) Form of Letter Agreement dated July 29, 1992 among Allstate
Municipal Income Opportunities Trust, Allstate Municipal
Income Trust II, Ellett Brothers Limited Partnership,
NationsBank and Lexington County relating to the Loan
Agreement filed as Exhibit 4(b). Incorporated by reference
to Exhibit 4(j) filed as part of the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1993.
4(h) Letter dated February 23, 1993 of Allstate Municipal Income
Opportunities Trust and Allstate Municipal Income Trust II
to Ellett Brothers Limited Partnership relating to the Loan
Agreement filed as Exhibit 4(b). Incorporated by reference
to Exhibit 4(k) filed as part of the Corporation's
Registration Statement on Form S-1 (File No. 33-61490).
4(i) Form of Assignment and Assumption Agreement dated June 9,
1993 between Ellett Brothers Limited Partnership and Ellett
Brothers, Inc. relating to the Loan Agreement filed as
Exhibit 4 (b). Incorporated by reference to Exhibit 4(l)
filed as part of the Corporation's Annual Report on Form
10-K for the year ended December 31, 1993.
4(j) First Amendatory Loan Agreement between Lexington County,
South Carolina, the Corporation and The Bank of New York
dated as of September 12, 1997.
4(k) First Supplemental Trust Indenture between Lexington
County, South Carolina, the Corporation and The Bank of New
York dated as of September 12, 1997.
4(l) Mortgage Modification Agreement between the corporation and
The Bank of New York dated as of September 12, 1997.
4(m) Modification of Note between the Corporation and The Bank of New
York dated as of September 12, 1997.
Page 26 of 27
<PAGE> 27
INDEX TO EXHIBITS
(continued)
Exhibit
Number Description
- ------- -----------
10(a) Financing and Security Agreement dated June 10, 1994
between First Union Commercial Corporation and the
Corporation. Incorporated by reference to Exhibit 10(d)
filed as part of the Corporation's quarterly report on Form
10-Q for the quarter ended June 30, 1994.
10(b) Amendment dated April 21, 1995 to the Financing and
Security Agreement filed as exhibit 10(a). Incorporated by
reference to Exhibit 10(e) filed as part of the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995.
10(c) Amendment dated December 23, 1996 to the Financing and Security
Agreement filed as Exhibit 10(a). Incorporated by reference to
Exhibit 10(f) filed as part of the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1996.
10(d) Amendment dated March 31, 1997 to the Financing and Security
Agreement filed as Exhibit 10(a).
10(e) Amendment dated September 26, 1997 to the Financing and Security
Agreement filed as Exhibit 10(a).
10(f) Amendment dated December 30, 1997 to the Financing and Security
Agreement filed as Exhibit 10(a).
21 Subsidiaries of the Registrant.
27 Financial data schedule.
Page 27 of 27
<PAGE> 1
EXHIBIT 4(j) TO
1997 ANNUAL REPORT ON FORM 10-K
FIRST AMENDATORY LOAN AGREEMENT
This First Amendatory Loan Agreement (the "Amendment") is made as of
the 12th day of September, 1997, by and among LEXINGTON COUNTY, SOUTH CAROLINA,
a body politic and corporate, and a political subdivision of the State of South
Carolina (hereinafter called the "County"); ELLETT BROTHERS, INC., a South
Carolina corporation (hereinafter called the "Company"); and THE BANK OF NEW
YORK (the "Trustee"), as successor to Citizens and Southern Trust Company (South
Carolina), National Association, as Trustee under that certain Trust Indenture,
dated as of November 1, 1988 (the "Indenture") between the County and Citizens
and Southern Trust Company (South Carolina), National Association.
WHEREAS, by Ordinance enacted on November 4, 1988 (the "1988
Ordinance"), the County Council of Lexington County (the "County Council")
authorized the issuance of its $9,100,000 Industrial Revenue Refunding Bonds,
Series 1988 (Ellett Brothers Limited Partnership Project) (the "Bonds"),
pursuant to the provisions of Chapter 29, Title 4 of the Code of Laws of South
Carolina 1976, as amended (the "Enabling Act"), to refinance the acquisition of
warehouse facilities on behalf of Ellett Brothers Limited Partnership, a North
Carolina limited partnership (the "Predecessor Company"), under the terms of a
loan agreement dated as of November 1, 1988 (the "Loan Agreement") between the
County and the Predecessor Company; and
WHEREAS, the Predecessor Company evidenced its obligations under the
Loan Agreement by that certain promissory note, dated December 1, 1988 (the
"Note") in the original principal amount of $9,100,000 to the County which the
County assigned to the original trustee by assignment dated December 1, 1988 and
the Predecessor Company secured its obligations under the Note and the Loan
Agreement, as assigned by the County to the original trustee, by giving the
original trustee a Mortgage and Security Agreement dated as of November 1, 1988
(the "Mortgage"); and
WHEREAS, the Bonds were issued by the County pursuant to the terms of
the Indenture; and
WHEREAS, pursuant to the terms of an Assignment and Assumption
Agreement, dated as of June 9, 1993, between the Predecessor Company and the
Company, the Company has succeeded to all rights and obligations of the
Predecessor Company with respect to the Loan Agreement; and
WHEREAS, the Trustee is successor trustee in compliance with the terms
of the Indenture to Citizens and Southern Trust Company (South Carolina),
National Association; and
WHEREAS, Sections 1002 and 1102 of the Indenture permit the amendment
of the
<PAGE> 2
Bonds, the Loan Agreement, and the Indenture with the consent of the
owner of all outstanding Bonds; and
WHEREAS, the original interest rate on the Bonds is 10.625%; and
WHEREAS, The Depository Trust Company, under its nominee name Cede &
Co., is the registered owners of all of the outstanding Bonds on behalf of its
beneficial owner The Bank of New York, as custodian (the "Custodian") on behalf
of Municipal Income Opportunities Trust and Municipal Income Trust II, funds
managed by Dean Witter InterCapital, Inc. (collectively, the "Bondholder"); and
WHEREAS, the Bondholder, as the owner of all the outstanding Bonds, has
agreed to a reduction of the interest rate on the Bonds from 10.625% to 7.50%
upon elimination of the optional redemption features of the Bonds.
NOW, THEREFORE, in consideration of the recitals and the mutual
promises contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company, the
County, and the Trustee, intending to be legally bound hereby, agree as follows:
Section 1. Recitals. The Recitals are incorporated herein by reference
and shall be deemed to be part of this Amendment.
Section 2. Amendments. The Loan Agreement is hereby amended as set
forth in this Section 2.
(a) Section 11.2 of the Loan Agreement is hereby deleted in
its entirety.
(b) Section 11.3 of the Loan Agreement is hereby deleted in
its entirety.
(c) Section 11.5 of the Loan Agreement is hereby amended by
deleting the reference to Section 11.2 therein.
(d) All references in the Loan Agreement to the Series 1988
Bonds shall hereinafter be deemed to refer to the Amended Bonds issued pursuant
to the terms of the First Supplemental Indenture and described in Exhibit A
attached thereto.
(e) All references in the Loan Agreement to the term
"Note" shall hereinafter be deemed to mean the Note (as defined therein) as
modified by the modification to Note attached hereto as Exhibit A.
2
<PAGE> 3
Section 3. Conditions to Effectiveness. This Amendment is hereby
subject to receipt by the Trustee and the Bondholder of all the following
conditions precedent and are further subject to the condition that, as certified
to the Trustee by the Company, no default or event of default under the Loan
Agreement, the Note, the Bonds, the Mortgage, or the Indenture occur to be
continuing:
(a) The original Amended Bonds, duly executed by the County.
(b) The original counterpart of this Amendment to be executed
by the parties hereto.
(c) A Mortgage Modification Agreement duly executed by the
Company and the Trustee modifying the Mortgage in form and substance as
satisfactory to the Trustee and duly recorded in the Office of the Clerk of
Court of Lexington County, South Carolina.
(d) An original counterpart of the First Supplemental Trust
Indenture, duly executed by the parties thereto.
(e) a written opinion addressed to the Bondholder and Trustee
of Nexsen, Pruett, Jacobs, Pollard & Robinson, L.L.P., counsel to the Company,
in form and substance satisfactory to the Bondholder and the Trustee.
(f) A written opinion addressed to the Bondholder and Trustee
of Haynsworth, Marion, McKay & Guerard, L.L.P., Bond Counsel, in form and
substance as satisfactory to the Bondholder and the Trustee.
(g) Receipt by the Trustee of an endorsement to its existing
Mortgagee title insurance policy, policy number 41020202000149 issued by Chicago
Title Insurance Company, which endorsement must be in all respects satisfactory
to the Trustee and must ensure the Trustee's first lien position pursuant to the
Mortgage, as modified.
Section 4. No Other Amendment. Except for the amendment set forth
above, the text of the Loan Agreement shall remain unchanged and in full force
and effect. The Loan Agreement and this Amendment shall be construed together as
a single agreement. Nothing herein contained shall waive, annul, alter, limit,
diminish, vary, or affect any provision, condition, covenant, or agreement
contained in the Loan Agreement, except as herein amended, nor affect nor impair
any rights, powers, or remedies under the Loan Agreement as hereby amended. The
County and the Company promise and agree to perform all their respective
obligations and agreements under the Loan Agreement, as hereby amended; the Loan
Agreement, as amended, being hereby ratified and affirmed. The County and the
Company hereby expressly agree that the Loan Agreement, as amended, is in full
force and effect.
3
<PAGE> 4
Section 5. Representations and Warranties of the Company. The Company
hereby represents and warrants to the parties hereto as follows:
(a) No default or event of default, nor any act, event,
condition, or circumstance which with the passage of time or the giving of
notice or both, would constitute a default or an event of default, under the
Loan Agreement has occurred and is continuing as of the date hereof.
(b) The Company is a corporation duly incorporated under the
laws of the State of South Carolina, is in good standing and duly qualified to
do business in the State of South Carolina, and has the corporate power and
authority to enter into this Amendment, the modification to the Note, the
Mortgage Modification Agreement, and by proper corporate action has been duly
authorized to execute and deliver the Amended Note and Mortgage Modification
Agreement, and to do all acts and things that are required or contemplated
hereunder to be done, observed, and performed by it.
(c) By proper action, the Company has duly authorized the
execution, delivery, and performance of this Amendment, the Mortgage
Modification Agreement, and the Modification to Note, and this Amendment, the
Mortgage Modification Agreement, and the Modification to Note, have been validly
executed and delivered by, and constitute the legal, valid, and binding
obligations of, the Company, enforceable against it in accordance with their
terms, except as enforcement thereof may be limited by bankruptcy,
reorganization, insolvency, or other laws affecting the enforcement of
creditors' rights or by usual limitations on the availability of equitable
remedies.
(d) The execution and delivery of this Amendment, the Mortgage
Modification Agreement, and the Modification to Note, and the Company's
performance hereunder do not and will not require the consent or approval of any
regulatory authority or governmental authority or agency having jurisdiction
over the Company nor be in contravention of or in conflict with the Company's
partnership agreement, or the provision of any statute, or any judgment, order,
or indenture, instrument, agreement, or undertaking, to which the Company is a
party or by which the Company's assets or properties are or may become bound.
(e) There is no litigation pending or threatened against the
Company which would in any manner materially adversely affect the business or
financial condition of the Company or materially adversely affect the Project or
the obligations of the Company under the Loan Agreement, as amended.
(f) There are no liens or encumbrances on the Project (as
defined in the Loan Agreement) except Permitted Encumbrances (as defined in the
Loan Agreement).
Section 6. Representations and Warranties of the County. The County
hereby represents and warrants to the parties hereto as follows:
4
<PAGE> 5
(a) No default or event of default, nor any act, event,
condition, or circumstance which with the passage of time or the giving of
notice or both, would constitute a default or an event of default, under the
Loan Agreement or the Indenture has occurred and is continuing as of the date
hereof.
(b) The County is a body politic and corporate and a political
subdivision of the State of South Carolina, and pursuant to Chapter 29, Title 4
of the Code of Laws of South Carolina 1976, as amended (the "Enabling Statute")
is authorized to issue its bonds to refinance or refund outstanding obligations
issued to finance the cost of "project" as defined in the Enabling Statute, to
issue its bonds and loan the proceeds of such bonds to "industries" as defined
in the Enabling Statute for the purpose of defraying the cost of providing such
projects, and to enter into agreements with industries for the purpose of
providing for the payment of bonds issued under the Enabling Statute; the County
is authorized and empowered to enter into this Amendment, the modification to
the Note, and by ordinance duly enacted has been duly authorized to execute and
deliver this Amendment, the Amended Bonds, and the First Supplemental Trust
Indenture, and to do all acts and things that are required or contemplated
hereunder or thereunder to be done, observed, and performed by it.
(c) By proper action, the County has duly authorized the
execution, delivery, and performance of this Amendment, the First Supplemental
Trust Indenture, the Amended Bonds, and this Amendment, the First Supplemental
Trust Indenture, and the Amended Bonds have been validly executed and delivered
by, and constitute the legal, valid, and binding obligations of, the County,
enforceable against it in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, reorganization, insolvency, or other laws
affecting the enforcement of creditors' rights or by usual limitations on the
availability of equitable remedies.
(d) There is no litigation pending or threatened against the
County which would in any manner materially adversely affect the business or
financial condition of the County or materially adversely affect the Project or
the obligations of the County under the Indenture as supplemented or the Amended
Bonds.
5
<PAGE> 6
Section 7. Governing Law. This Amendment shall be deemed to be made
pursuant to the laws of the State of South Carolina with respect to agreements
made and to be performed wholly in the State of South Carolina and shall be
construed, interpreted, performed, and enforced in accordance therewith.
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers or representatives to execute and deliver this Amendment as
of the date and year first above written.
ELLETT BROTHERS, INC.
By: /s/ E. Wayne Gibson
---------------------
Its: Corporate Secretary
LEXINGTON COUNTY, SOUTH CAROLINA
(SEAL)
ATTEST: By: /s/ William B. Banning
------------------------
Chairman, County Council of
Lexington County, South Carolina
/s/ Dorothy K. Black
- ----------------------------------
Clerk, County Council of Lexington
County, South Carolina
THE BANK OF NEW YORK, as Trustee
By: /s/ Watson T. Barger
----------------------
Its: Agent
The undersigned The Bank of New York, as Custodian, hereby consents to
the amendment of the Loan Agreement pursuant to the terms of the foregoing First
Amendatory Loan Agreement.
THE BANK OF NEW YORK, as Custodian
By: _______________________________
Its: ______________________________
6
<PAGE> 1
EXHIBIT 4(k) TO
1997 ANNUAL REPORT ON FORM 10-K
FIRST SUPPLEMENTAL TRUST INDENTURE
This First Supplemental Trust Indenture (the "Supplement") is made as
of the 12th day of September, 1997, by and among LEXINGTON COUNTY, SOUTH
CAROLINA, a body politic and corporate, and a political subdivision of the State
of South Carolina (hereinafter called the "County"); ELLETT BROTHERS, INC., a
South Carolina corporation (hereinafter called the "Company"); and THE BANK OF
NEW YORK (the "Trustee"), as successor to Citizens and Southern Trust Company
(South Carolina), National Association, as Trustee under that certain Trust
Indenture, dated as of November 1, 1988 (the "Indenture") between the County and
Citizens and Southern Trust Company (South Carolina), National Association.
WHEREAS, by Ordinance enacted on November 4, 1988 (the "1988
Ordinance"), the County Council of Lexington County (the "County Council")
authorized the issuance of its $9,100,000 Industrial Revenue Refunding Bonds,
Series 1988 (Ellett Brothers Limited Partnership Project) (the "Series 1988
Bonds"), pursuant to the provisions of Chapter 29, Title 4 of the Code of Laws
of South Carolina 1976, as amended (the "Enabling Act"), to refinance the
acquisition of warehouse facilities on behalf of Ellett Brothers Limited
Partnership, a North Carolina limited partnership (the "Predecessor Company"),
under the terms of a loan agreement dated as of November 1, 1988 (the "Loan
Agreement") between the County and the Predecessor Company; and
WHEREAS, the Predecessor Company evidenced its obligations under the
Loan Agreement by that certain promissory note, dated December 1, 1988 (the
"Note") in the original principal amount of $9,100,000 to the County which the
County assigned to the original trustee by assignment dated December 1, 1988 and
the Predecessor Company secured its obligations under the Note and the Loan
Agreement, as assigned by the County to the original trustee, by giving the
original trustee a Mortgage and Security Agreement, dated as of November 1, 1988
(the "Mortgage"); and
WHEREAS, the Series 1988 Bonds were issued by the County pursuant to
the terms of the Indenture; and
WHEREAS, pursuant to the terms of an Assignment and Assumption
Agreement, dated as of June 9, 1993, between the Predecessor Company and the
Company, the Company has succeeded to all rights and obligations of the
Predecessor Company with respect to the Loan Agreement, the Note, and the
Mortgage; and
WHEREAS, the Trustee is successor trustee in compliance with the terms
of the Indenture to Citizens and Southern Trust Company (South Carolina),
National Association; and
<PAGE> 2
WHEREAS, Sections 1002 and 1102 of the Indenture permit the amendment
of the Bonds, and the Indenture with the consent of the owner of all outstanding
Bonds; and
WHEREAS, the original interest rate on the Bonds is 10.625%; and
WHEREAS, The Depository Trust Company, under its nominee name Cede &
Co., is the registered owner of all of the outstanding Bonds on behalf of its
beneficial owner The Bank of New York, as custodian (the "Custodian") on behalf
of Municipal Income Opportunities Trust and Municipal Income Trust II, funds
managed by Dean Witter InterCapital, Inc. (collectively, the "Bondholder"); and
WHEREAS, the Bondholder, as the owner of all the outstanding Bonds has
agreed to a reduction of the interest rate on the Bonds from 10.625% to 7.50%
upon elimination of the optional redemption features of the Bonds.
NOW, THEREFORE, in consideration of the recitals and the mutual
promises contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company, the
County, the Trustee, and the Bondholder, intending to be legally bound hereby,
agree as follows:
Section 1. Recitals. The Recitals are incorporated herein by reference
and shall be deemed to be part of this Supplement.
Section 2. Supplements. The Indenture is hereby amended, to be
effective on September 12, 1997, as set forth in this Section 2.
(a) Exhibit C to the Indenture is hereby replaced with the
form of the Amended Bonds (the "Amended Bonds") attached hereto as Exhibit A and
all references in the Indenture to Exhibit C shall hereinafter be deemed to
refer to the Exhibit A attached hereto and the Exhibit A attached to this
Supplement is hereby added to the Indenture and made a part hereof and thereof
by this reference.
(b) Section 202 of the Indenture is hereby amended to read as
follows:
"The Amended Bonds, in the aggregate principal amount of
$9,100,000 originally dated December 1, 1988, shall be
designated "Lexington County, South Carolina, Industrial
Revenue Refunding Bonds, Series 1988 (Ellett Brothers Limited
Partnership Project)", and shall be issuable only as
fully-registered bonds without coupons in the denominations of
$5,000 or any integral multiple thereof, shall be numbered
from R-1 upward, and shall bear interest payable on March 1,
1989, and thereafter semiannually on each March 1 and
September 1
2
<PAGE> 3
at the rate of 7 and 1/2 percentum (7.50%) per annum. Series
1988 Bonds in the aggregate principal amount of $3,850,000
shall mature on September 1, 2002, and the Series 1988 Bonds
in the aggregate principal amount of $5,250,000 shall mature
on September 1, 2008. The Series 1988 Bonds are subject to
redemption prior to maturity as more fully described in
Article III."
(c) Section 301(a)(ii) is hereby deleted in its entirety.
(d) All references in the Indenture to the Series 1988 Bonds
shall hereinafter be deemed to refer to the Amended Bonds issued pursuant to the
terms of this Supplement and described in Exhibit A attached hereto.
(e) All references in the Indenture to the term "Note" shall
hereinafter be deemed to mean the Note (as defined therein) as modified by the
modification to Note attached to the First Amendatory Loan Agreement as Exhibit
A.
(f) The Indenture is amended by adding Section 217 as set
forth on Exhibit B hereto.
Section 3. Conditions to Effectiveness. This Supplement is hereby
subject to the satisfaction of all conditions set forth in Section 3 to the
First Amendatory Loan Agreement.
Section 4. No Other Supplement. Except for the amendment set forth
above, the text of the Indenture shall remain unchanged and in full force and
effect. The Indenture and this Supplement shall be construed together as a
single agreement. Nothing herein contained shall waive, annul, alter, limit,
diminish, vary, or affect any provision, condition, covenant, or agreement
contained in the Indenture, except as herein amended, nor affect nor impair any
rights, powers, or remedies under the Indenture as hereby amended. The County
and the Company promise and agree to perform all their respective obligations
and agreements under the Indenture, as hereby amended; the Indenture, as
amended, being hereby ratified and affirmed. The County and the Company hereby
expressly agree that the Indenture, as amended, is in full force and effect.
Section 5. Counterparts. This Supplement may be executed in
counterparts, each of which shall be deemed to be an original and all of which,
taken together, shall constitute one and the same agreement.
3
<PAGE> 4
Section 6. Governing Law. This Supplement shall be deemed to be made
pursuant to the laws of the State of South Carolina with respect to agreements
made and to be performed wholly in the State of South Carolina and shall be
construed, interpreted, performed, and enforced in accordance therewith.
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers or representatives to execute and deliver this Supplement as
of the date and year first above written.
ELLETT BROTHERS, INC.
By: /s/ E. Wayne Gibson
---------------------
Its: Corporate Secretary
LEXINGTON COUNTY, SOUTH CAROLINA
(SEAL)
ATTEST: By: /s/ William B. Banning
----------------------
Chairman, County Council of
Lexington County, South Carolina
/s/ Dorothy K. Black
- --------------------
Clerk, County Council of Lexington
County, South Carolina
THE BANK OF NEW YORK, as Trustee
By: /s/ Watson T. Barger
-----------------------
Its: Agent
4
<PAGE> 5
The undersigned The Bank of New York, as Custodian, hereby (i)
represents that it is the authorized custodian of the holders of all Bonds, (ii)
consents to the foregoing First Supplemental Trust Indenture, and (iii) waives
any rights as to notice of the same pursuant to the Indenture.
THE BANK OF NEW YORK, as Custodian
By: /s/ The Bank of New York
-----------------------------
Its: /s/ Helena Morales
-----------------------------
5
<PAGE> 1
EXHIBIT 4(l) TO
1997 ANNUAL REPORT ON FORM 10-K
MORTGAGE MODIFICATION AGREEMENT
between
ELLETT BROTHERS, INC.
and
THE BANK OF NEW YORK, AS TRUSTEE
Dated as of September 12, 1997
Recording Reference: Mortgage and Security
Agreement, dated as of November 1, 1988,
recorded in Book 1235 at page 192 in the
office of the RMC for Lexington County,
South Carolina on December 1, 1988.
This instrument prepared by and after
recording returned to:
Samuel W. Howell, IV
Haynsworth, Marion, McKay & Guerard, L.L.P.
134 Meeting Street, Fourth Floor
Post Office Box 1119
Charleston, South Carolina 29402
<PAGE> 2
STATE OF SOUTH CAROLINA )
) MORTGAGE MODIFICATION AGREEMENT
COUNTY OF LEXINGTON )
THIS MORTGAGE MODIFICATION AGREEMENT, made as of the 12th day of
September, 1997, by and between ELLETT BROTHERS,INC., a South Carolina
corporation "Mortgagor"), and THE BANK OF NEW YORK (the "Trustee"), as successor
to Citizens and Southern Trust Company, (South Carolina), National Association,
as trustee under that certain Trust Indenture, dated as of November 1, 1988 (the
"Indenture"), between Lexington County, South Carolina (the "County") and
Citizens and Southern Trust Company (South Carolina), National Association, as
Trustee.
W I T N E S S E T H
WHEREAS, the County issued its Industrial Revenue Refunding Bonds,
Series 1988 (Ellett Brothers Limited Partnership Project) in the original
principal amount of $9,100,000 (the "Bonds"); and
WHEREAS, the County loaned the proceeds of the Bonds to Ellett Brothers
Limited Partnership, a North Carolina limited partnership (the "Original
Mortgagor") pursuant to a Loan Agreement, dated as of November 1, 1988 (the
"Loan Agreement"), between the County and the Original Mortgagor for the purpose
of refinancing certain real and personal property in Lexington County, South
Carolina (the "Project"); and
WHEREAS, the Original Mortgagor evidenced its obligations under the
Loan Agreement by that certain promissory note, dated December 1, 1988 (the
"Note") in the original principal amount of $9,100,000 to the County which the
County assigned to the original trustee by assignment dated December 1, 1988;
and
WHEREAS, the County secured its obligations under the Bonds by
assigning all of its right, title, and interest (except for certain rights to
receive indemnification and the payment of expenses) under the Loan Agreement to
the predecessor to the Trustee pursuant to the terms of the Indenture; and
WHEREAS, the Original Mortgagor secured its obligations under the Note
and the Loan Agreement, as assigned by the County to the Trustee, by giving the
original trustee a Mortgage and Security Agreement, dated as of November 1,
1988, and recorded in Book 1235 at page 192 in the Office of the RMC for
Lexington County, South Carolina (the "Mortgage"), which mortgage constitutes a
first perfected lien and security interest upon the Project; and
WHEREAS, pursuant to the terms of an Assignment and Assumption
Agreement, dated as of June 9, 1993, and Recorded in the Lexington County R.M.C.
Office in Book 2576 at page 136, the Mortgagor has succeeded to all rights and
obligations of the Original Mortgagor with respect to the Loan Agreement, the
Note, and the Mortgage; and
<PAGE> 3
EXHIBIT 4(l) TO
1997 ANNUAL REPORT ON FORM 10-K
WHEREAS, the Trustee is successor trustee in compliance with the terms
of the Indenture to Citizens and Southern Trust Company (South Carolina),
National Association; and
WHEREAS, The Depository Trust Company, under its nominee name Cede &
Co., is the registered owners of all of the outstanding Bonds on behalf of its
beneficial owner The Bank of New York, as custodian (the "Custodian") on behalf
of Municipal Income Opportunities Trust and Municipal Income Trust II, funds
managed by Dean Witter InterCapital, Inc. (collectively, the "Bondholder"); and
WHEREAS, the Bonds bear interest at a rate of 10.625% and the Mortgagor
has requested and the Bondholder has agreed, to reduce the interest rate on the
Bonds to 7.5% and to make certain other modifications to the Bonds; and
WHEREAS, by ordinance enacted on September 8, 1997, the County Council
of Lexington County, South Carolina authorized the amendment of the Bonds, the
Indenture, and the Loan Agreement to provide for a reduction of the interest
rate and certain other changes as aforesaid and the issuance of Amended Bonds
(the "Amended Bonds") to replace the Bonds; and
WHEREAS, the Loan Agreement is being amended pursuant to a First
Amendatory Loan Agreement, of even date herewith, executed by and among the
Mortgagor, the County, the Trustee, and the Bondholder (the Loan Agreement as
amended by the First Amendatory Loan Agreement is hereinafter referred to as the
"Amended Loan Agreement"); and
WHEREAS, the Indenture is being supplemented pursuant to a First
Supplemental Trust Indenture, of even date herewith, executed by and among the
Mortgagor, the County, the Trustee, and the Bondholder (the Indenture as
supplemented by the First Supplemental Trust Indenture is hereinafter referred
to as the "Supplemented Indenture"); and
WHEREAS, the Note is being amended pursuant to a Note Modification
Agreement, of even date herewith, executed by and among the Mortgagor, the
County, the Trustee, and the Bondholder (the Note as amended by the Note
Modification Agreement is hereinafter referred to as the "Amended Note"); and
WHEREAS, the Trustee, with the consent of the Bondholder, and the
Mortgagor, mutually desire to modify and amend the provisions of the Mortgage in
the manner hereinafter set out, it being specifically understood that except as
herein modified and amended, the terms and provisions of the Mortgage shall
remain unchanged and continue in full force and effect as therein written.
NOW, THEREFORE, the Mortgagor and the Trustee, in consideration of the
premises and the sum of One Dollar ($1.00) to each in hand paid by the other,
receipt of which is acknowledged
2
<PAGE> 4
EXHIBIT 4(l) TO
1997 ANNUAL REPORT ON FORM 10-K
by each, do hereby agree that the Mortgage should be, and the same hereby is,
modified and amended as follows:
A. The recitals set forth above are incorporated herein by reference
and shall be deemed to be part of this Agreement.
(2) All references in the Mortgage to the Bonds shall hereinafter be
deemed to refer to the Amended Bonds and the Mortgage hereby secures the Amended
Bonds, as well as those other obligations of the Mortgagor referred to in the
Mortgage.
(3) All reference in the Mortgage to the Loan Agreement shall
hereinafter be deemed to refer to the Amended Loan Agreement and the Mortgage
hereby secures the Amended Loan Agreement, as well as those other obligations of
the Mortgagor referred to in the Mortgage.
(4) All references in the Mortgage to the Indenture shall hereinafter
be deemed to refer to the Supplemented Indenture.
(5) All references in the Mortgage to the Note shall hereinafter be
deemed to refer to the Amended Note and the Mortgage hereby secures the Amended
Note.
IT IS MUTUALLY AGREED by and between the parties hereto that this
Agreement shall become a part of the Mortgage by reference that nothing herein
contained shall impair the security now held for the Amended Bonds, the Amended
Loan Agreement, or the Amended Note, nor shall waive, annul, vary, or affect any
provision, condition, covenant, or agreement contained in the Mortgage except as
herein amended, nor affect or impair any rights, powers, or remedies under the
Mortgage as hereby amended. Furthermore, the Trustee does hereby reserve all
rights and remedies it may have as against all parties who may be or may
hereafter become primarily or secondarily liable for the repayment of the
indebtedness evidenced by the Amended Bonds, the Amended Loan Agreement, or the
Amended Note.
The Mortgagor promises and agrees to perform all of the requirements,
conditions, and obligations under the terms of the Mortgage, as hereby modified
and amended, said document being hereby ratified and affirmed. The execution and
delivery hereof shall not constitute a novation or modification of the lien,
encumbrance, or security title of the Mortgage which document shall retain its
priority as originally filed for record.
This Agreement shall be binding upon and inure to the benefit any
assignee or the respective heirs, executors, administrators, successors, and
assigns of the parties hereto.
This Agreement may be executed in any number of counterparts, each of
which shall be an
3
<PAGE> 5
EXHIBIT 4(l) TO
1997 ANNUAL REPORT ON FORM 10-K
original but all of which taken together shall constitute one and the same
instrument, and any other parties hereto may execute any of such counterparts.
This Agreement shall be construed, interpreted, enforced, and governed
by and in accordance with the laws of the State of South Carolina.
4
<PAGE> 6
EXHIBIT 4(l) TO
1997 ANNUAL REPORT ON FORM 10-K
IN WITNESS WHEREOF, this instrument has been executed under seal by the
parties hereto and delivered as of the date and year first above written.
WITNESS: ELLETT BROTHERS, INC.
/s/ Danielle Hartman
- --------------------- By: /s/ E. Wayne Gibson
/s/ Carrie L. Shank -----------------------
- --------------------- Its: Secretary
WITNESS: THE BANK OF NEW YORK,
as Trustee
/s/ Mary Heintz
- ---------------------
/s/ T. Connelly By: /s/ Watson T. Barger
- --------------------- ----------------------
Its: Agent
The undersigned hereby consents to the aforesaid Mortgage Modification
Agreement.
WITNESS THE BANK OF NEW YORK, as Custodian
- ------------------------------ By:
-----------------------------
Its:
- ------------------------------ -----------------------------
5
<PAGE> 7
EXHIBIT 4(l) TO
1997 ANNUAL REPORT ON FORM 10-K
STATE OF NORTH CAROLINA )
) PROBATE
COUNTY OF NASH )
PERSONALLY appeared before me the undersigned witness who, being duly
sworn, deposed and said that (s)he saw E. Wayne Gibson, the Secretary of Ellett
Brothers, Inc. sign, seal and deliver the foregoing Mortgage Modification
Agreement and that (s)he, together with the other witness, whose name appears as
a witness, witnessed the execution thereof.
/s/ Patricia J. Hollman
-----------------------
SWORN to and subscribed before me
This 11th day of September, 1997.
/s/ Becky W. Butler (SEAL)
- -----------------------------------
NOTARY PUBLIC FOR NORTH CAROLINA
My commission expires: 2-6-2001
6
<PAGE> 8
EXHIBIT 4(l) TO
1997 ANNUAL REPORT ON FORM 10-K
STATE OF FLORIDA )
) PROBATE
COUNTY OF DUVAL )
PERSONALLY appeared before me the undersigned witness who, being duly
sworn, deposed and said that (s)he saw Watson T. Barger, the Agent of The Bank
of New York, as trustee, sign, seal and deliver the foregoing Mortgage
Modification Agreement and that (s)he, together with the other witness, whose
name appears as a witness, witnessed the execution thereof.
/s/ Mary T. Heintz
------------------
SWORN to and subscribed before me
this 11th day of September, 1997.
/s/ Michelle O'Donnell (SEAL)
- --------------------------------
NOTARY PUBLIC FOR THE STATE OF FLORIDA
My commission expires: 10/18/1999
7
<PAGE> 9
EXHIBIT 4(l) TO
1997 ANNUAL REPORT ON FORM 10-K
STATE OF NEW YORK )
) PROBATE
COUNTY OF NEW YORK )
PERSONALLY appeared before me the undersigned witness who, being duly
sworn, deposed and said that (s)he saw Helena Morales, the Authorized Signature
of The Bank of New York, as custodian, sign, seal and deliver the foregoing
consent to Mortgage Modification Agreement and that (s)he, together with the
other witness, whose name appears as a witness, witnessed the execution thereof.
/s/ Helena Morales
------------------
SWORN to and subscribed before me
this 12th day of September, 1997.
/s/ Joan K. DeCelie (SEAL)
- ----------------------------
NOTARY PUBLIC FOR THE STATE OF NEW YORK
My commission expires: 9/30/1999
8
<PAGE> 1
EXHIBIT 4(m) TO
1997 ANNUAL REPORT ON FORM 10-K
MODIFICATION TO NOTE
This Modification to Note, made as of the 12th day of September 1997,
by and between ELLETT BROTHERS, INC., a South Carolina Corporation (the
"Company"), and THE BANK OF NEW YORK (the "Trustee") as Trustee.
W I T N E S S E T H:
WHEREAS, Lexington County, South Carolina (the "County") issued its
Industrial Revenue Refunding Bonds, Series 1988 (Ellett Brothers Limited
Partnership Project) in the original principal amount of $9,100,000 (the
"Bonds"); and
WHEREAS, the County loaned the proceeds of the Bonds to Ellett Brothers
Limited Partnership, a North Carolina limited partnership (the "Predecessor
Company") pursuant to a Loan Agreement, dated as of November 1, 1988 (the "Loan
Agreement"), between the County and the Predecessor Company for the purpose of
refinancing certain real and personal property in Lexington County, South
Carolina (the "Project"); and
WHEREAS, the Predecessor Company evidenced its obligations under the
Loan Agreement by that certain promissory note, dated December 1, 1988 (the
"Note") in the original principal amount of $9,100,000 to the County which the
County assigned to the original trustee by assignment dated December 1, 1988
(the "Assignment"); and
WHEREAS, the County secured its obligations under the Bonds by
assigning all of its right, title, and interest (except for certain rights to
receive indemnification and the payment of expenses) under the Loan Agreement to
the predecessor to the Trustee pursuant to the terms of the Indenture; and
WHEREAS, the Predecessor Company secured its obligations under the Note
and the Loan Agreement, as assigned by the County to the Trustee, by giving the
original trustee a Mortgage and Security Agreement, dated as of November 1,
1988, and recorded in Book 1235 at page 192 in the Office of the RMC for
Lexington County, South Carolina (the "Mortgage"), which mortgage constitutes a
first perfected lien and security interest upon the Project; and
WHEREAS, pursuant to the terms of an Assignment and Assumption
Agreement, dated as of June 9, 1993, the Company has succeeded to all rights and
obligations of the Predecessor Company with respect to the Loan Agreement, the
Note, and the Mortgage; and
WHEREAS, the Trustee is successor trustee in compliance with the terms
of the Indenture to Citizens and Southern Trust Company (South Carolina),
National Association; and
WHEREAS, The Depository Trust Company, under its nominee name Cede &
Co., is the
<PAGE> 2
registered owners of all of the outstanding Bonds on behalf of its beneficial
owner The Bank of New York, as custodian (the "Custodian") on behalf of
Municipal Income Opportunities Trust and Municipal Income Trust II, funds
managed by Dean Witter InterCapital, Inc. (collectively, the "Bondholder"); and
WHEREAS, the Bonds bear interest at a rate of 10.625% and the Company
has requested and the Bondholder has agreed, to reduce the interest rate on the
Bonds to 7.5% and to make certain other modifications to the Bonds; and
WHEREAS, by ordinance enacted on September 8, 1997, the County Council
of Lexington County, South Carolina authorized the amendment of the Bonds, the
Indenture, and the Loan Agreement to provide for a reduction of the interest
rate and certain other changes as aforesaid and the issuance of Amended Bonds
(the "Amended Bonds") to replace the Bonds; and
WHEREAS, the Loan Agreement is being amended pursuant to a First
Amendatory Loan Agreement, of even date herewith, executed by and among the
Company, the County, the Trustee, and the Bondholder (the Loan Agreement as
amended by the First Amendatory Loan Agreement is hereinafter referred to as the
"Amended Loan Agreement"); and
WHEREAS, the Indenture is being supplemented pursuant to a First
Supplemental Trust Indenture, of even date herewith, executed by and among the
Company, the County, the Trustee, and the Bondholder (the Indenture as
supplemented by the First Supplemental Trust Indenture is hereinafter referred
to as the "Supplemented Indenture"); and
WHEREAS, the Note is being amended pursuant to this Modification (the
Note as amended by this Modification is hereinafter referred to as the "Amended
Note").
NOW, THEREFORE, the Company and the Trustee, in consideration of the
premises and the sum of one dollar to each in hand paid by the other, a receipt
of which is hereby acknowledged by each, do hereby agree that the Note and the
Assignment should be, the same hereby are, modified and amended as follows:
1. The recitals are incorporated herein by reference and shall be
deemed to be a part of this Modification.
2. All references in the Note to the Series 1988 Bonds shall
hereinafter be deemed to refer to the Amended Bonds.
3. All references in the Note to the Company shall hereinafter mean
Ellett Brothers, Inc., a South Carolina corporation. All references in the Note
to the Indenture shall hereinafter mean the Indenture as supplemented by the
First Supplemental Trust Indenture of even date herewith. All references in the
Note to the Loan Agreement shall hereinafter mean the Loan Agreement as amended
by the First Amendatory Loan Agreement of even date herewith. All references to
the Company shall
2
<PAGE> 3
mean Ellett Brothers, Inc., a South Carolina corporation. All references to the
Trustee shall hereinafter refer to The Bank of New York, its successors and
assigns.
4. Except as modified as provided in paragraphs 2 and 3 above, all
other terms and provisions of the Note shall remain in full force and effect.
IT IS MUTUALLY AGREED by and between the parties hereto that this
Modification shall become a part of the Note and the Assignment by reference and
that nothing herein shall waive, annul, vary, or affect any provision,
condition, covenant, or agreement contained in the Note and the Assignment
except as herein amended, nor affect or impair any rights, powers, or remedies
under the Note and the Assignment, as hereby amended.
The Company promises and agrees to perform all of the requirements,
conditions, and obligations under the terms of the Note and the Assignment as
hereby modified and amended, said documents being hereby ratified and affirmed.
This Modification shall be binding upon and inure to the benefit of any
assignee or the respective successors and assigns to the parties hereto.
This Modification may be executed in any number of counterparts, each
of which shall be an original but all of which taken together shall constitute
one and the same instrument and any of the parties hereto may execute any of
such counterparts.
This Modification shall be construed, interpreted, enforced, and
governed by and in accordance with the laws of the State of South Carolina.
IN WITNESS WHEREOF, this instrument has been executed under seal by the
parties hereto and delivered as of the date and year first above written.
ELLETT BROTHERS, INC.
By: /s/ E. Wayne Gibson
-------------------------
Its: Corporate Secretary
THE BANK OF NEW YORK, as Trustee
By: /s/ Watson T. Barger
-------------------------
Its: Agent
3
<PAGE> 1
EXHIBIT 10(d) TO
1997 ANNUAL REPORT ON FORM 10-K
THIRD AMENDMENT TO
FINANCING AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT, dated as of
March 31, 1997, is by and among FIRST UNION COMMERCIAL CORPORATION ("Lender"),
ELLETT BROTHERS, INC. ("Ellett"), LEISURE SPORTS MARKETING, INC. ("Leisure"),
EVANS SPORTS, INC., ("Evans"), SAFESPORT MANUFACTURING COMPANY ("Safesport"),
and VINTAGE EDITIONS, INC. ("Vintage") (hereinafter Ellett, Leisure, Evans,
Safesport and Vintage may be referred to collectively as the "Borrower").
RECITAL
A. The Lender, Ellett and Evans have entered into that certain
Financing and Security Agreement, dated June 10, 1994, as amended April 21, 1995
and December 23, 1996 (the "Financing Agreement").
B. The Borrower and the Lender have agreed to amend the Financing
Agreement as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Financing Agreement is hereby amended as follows:
(a) The introductory paragraph of the Financing
Agreement is amended in its entirety so that such paragraph
now reads as follows:
AGREEMENT made June 10, 1994, as amended
April 21, 1995, December 23, 1996 and March 31, 1997,
by and between ELLETT BROTHERS, INC., a business
corporation duly organized under the laws of the
State of South Carolina having a principal place of
business at 267 Columbia Avenue, Chapin, South
Carolina 29036 ("Ellett"), EVANS SPORTS, INC., a
business corporation duly organized under the laws of
the State of South Carolina having a principal place
of business at 267 Columbia Avenue, Chapin, South
Carolina 29036 ("Evans"), LEISURE SPORTS MARKETING,
INC., a business corporation duly organized under the
laws of the State of South Carolina having a
principal place of business at 267 Columbia Avenue,
Chapin, South Carolina 29036
<PAGE> 2
("Leisure"), SAFESPORT MANUFACTURING COMPANY, a
business corporation duly organized under the laws of
the State of South Carolina having a principal place
of business at 267 Columbia Avenue, Chapin, South
Carolina 29036 ("Safesport") and VINTAGE EDITIONS,
INC., a business corporation duly organized under the
laws of the State of South Carolina having a
principal place of business at 267 Columbia Avenue,
Chapin, South Carolina 29036 ("Vintage") (herein
Ellett, Evans, Leisure, Safesport and Vintage are
collectively referred to as "Borrower") and FIRST
UNION COMMERCIAL CORPORATION ("Lender") with its
principal place of business at Charlotte, North
Carolina.
(b) The first sentence of Section 20 of the Financing
Agreement is hereby amended in its entirety so that such
sentence now reads as follows:
This Agreement shall have an initial term
commencing on the date hereof through and including
July 1, 1998 and shall be automatically renewed for
successive periods of one year unless terminated as
herein provided.
2. This Third Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be
deemed an original, and it shall not be necessary in making proof of
this Third Amendment to produce or account for more than one
counterpart.
3. THIS THIRD AMENDMENT AND THE OTHER DOCUMENTS AND AGREEMENTS
EXECUTED IN CONNECTION HEREWITH (UNLESS SPECIFICALLY STIPULATED TO THE
CONTRARY IN SUCH DOCUMENT OR AGREEMENT), AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NORTH CAROLINA WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be executed by their duly authorized corporate officers as of the day and
year first above written.
ELLETT BROTHERS, INC.
By: /s/ Richard M. Eddinger,
Vice President Finance & CFO
(Title)
EVANS SPORTS, INC., a South
Carolina corporation
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
LEISURE SPORTS MARKETING, INC., a
South Carolina corporation
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
SAFESPORT MANUFACTURING COMPANY, a
South Carolina corporation
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
VINTAGE EDITIONS, INC., a
South Carolina corporation
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
FIRST UNION COMMERCIAL CORPORATION
By: /s/ William P. Dyer, Vice President
(Title)
-3-
<PAGE> 1
EXHIBIT 10(e) TO
1997 ANNUAL REPORT ON FORM 10-K
FOURTH AMENDMENT TO
FINANCING AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT, dated as of
September 26, 1997, is by and among FIRST UNION COMMERCIAL CORPORATION
("Lender"), ELLETT BROTHERS, INC. ("Ellett"), LEISURE SPORTS MARKETING, INC.
("Leisure"), EVANS SPORTS, INC., ("Evans"), SAFESPORT MANUFACTURING COMPANY
("Safesport"), and VINTAGE EDITIONS, INC. ("Vintage") (hereinafter Ellett,
Leisure, Evans, Safesport and Vintage may be referred to collectively as the
"Borrower").
RECITAL
A. The Lender and the Borrower have entered into that certain Financing
and Security Agreement, dated June 10, 1994, as amended April 21, 1995, December
23, 1996 and March 31, 1997 (the "Financing Agreement").
B. The Borrower and the Lender have agreed to amend the Financing
Agreement as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. The first sentence of Section 20 of the Financing Agreement
is hereby amended in its entirety so that such sentence now reads as
follows:
This Agreement shall have an initial term
commencing on the date hereof through and including
September 30, 2001 and shall be automatically renewed
for successive periods of one year unless terminated
as herein provided.
2. This Fourth Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be
deemed an original, and it shall not be necessary in making proof of
this Fourth Amendment to produce or account for more than one
counterpart.
3. THIS FOURTH AMENDMENT AND THE OTHER DOCUMENTS AND
AGREEMENTS EXECUTED IN CONNECTION HEREWITH (UNLESS SPECIFICALLY
STIPULATED TO THE CONTRARY IN SUCH DOCUMENT OR AGREEMENT), AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NORTH CAROLINA WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be executed by their duly authorized corporate officers as of the
day and year first above written.
ELLETT BROTHERS, INC.
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
EVANS SPORTS, INC., a South
Carolina corporation
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
LEISURE SPORTS MARKETING, INC., a
South Carolina corporation
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
SAFESPORT MANUFACTURING COMPANY, a
South Carolina corporation
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
VINTAGE EDITIONS, INC., a
South Carolina corporation
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
FIRST UNION COMMERCIAL CORPORATION
By: /s/ Robert L. Dean, Vice President
(Title)
-2-
<PAGE> 1
EXHIBIT 10(f) TO
1997 ANNUAL REPORT ON FORM 10-K
FIFTH AMENDMENT TO
FINANCING AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT, dated as of
December 30, 1997, is by and among FIRST UNION COMMERCIAL CORPORATION
("Lender"), ELLETT BROTHERS, INC. ("Ellett"), LEISURE SPORTS MARKETING, INC.
("Leisure"), EVANS SPORTS, INC., ("Evans"), SAFESPORT MANUFACTURING COMPANY
("Safesport"), and VINTAGE EDITIONS, INC. ("Vintage") (hereinafter Ellett,
Leisure, Evans, Safesport and Vintage may be referred to collectively as the
"Borrower").
RECITAL
A. The Lender and the Borrower have entered into that certain Financing
and Security Agreement, dated June 10, 1994, as amended (the "Financing
Agreement").
B. The Borrower and the Lender have agreed to amend the Financing
Agreement as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Sections 11(iii) and (vii) are amended in their entirety so
that such Sections now read as follows:
(iii)(A) declare or pay any cash dividends
or make any other cash distributions to its
stockholders; or (B) repurchase, redeem or retire any
of its capital stock; provided, however, Borrower
shall be permitted to make such dividend payments,
cash distributions, repurchases, redemptions or
retirements (1) in fiscal year 1997 in an aggregate
amount up to $900,000 and (2) in any fiscal year
thereafter in an aggregate amount equal to 60% of
Borrower's net income after taxes for such fiscal
year;
(vii) allow Borrower's ratio of net income
before interest and taxes to interest expense (A) as
of the last day of fiscal year 1997 (computed for
such fiscal year) to be less than .25 to 1.0 or (B)
as of the last day of each fiscal year thereafter
(computed for each such fiscal year) to be less than
2.0 to 1.0;
2. This Fifth Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be
deemed an original, and it shall not be necessary in making proof of
this Fifth Amendment to produce or account for more than one
counterpart.
<PAGE> 2
3. THIS FIFTH AMENDMENT AND THE OTHER DOCUMENTS AND AGREEMENTS
EXECUTED IN CONNECTION HEREWITH (UNLESS SPECIFICALLY STIPULATED TO THE
CONTRARY IN SUCH DOCUMENT OR AGREEMENT), AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NORTH CAROLINA WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment
to be executed by their duly authorized corporate officers as of the day and
year first above written.
ELLETT BROTHERS, INC.
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
EVANS SPORTS, INC., a South
Carolina corporation
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
LEISURE SPORTS MARKETING, INC., a
South Carolina corporation
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
SAFESPORT MANUFACTURING COMPANY, a
South Carolina corporation
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
VINTAGE EDITIONS, INC., a
South Carolina corporation
By: /s/ Richard M. Eddinger, Vice
President Finance & CFO
(Title)
FIRST UNION COMMERCIAL CORPORATION
By: /s/ Robert L. Dean, Vice President
(Title)
-3-
<PAGE> 1
1997 ANNUAL REPORT ON FORM 10-K
Exhibit 21
Subsidiaries of the Registrant:
<TABLE>
<CAPTION>
Name State of Incorporation DBA
- -------------------------------------------------------------------------------
<S> <C> <C>
Leisure Sports Marketing South Carolina None
Evans Sports, Inc. Missouri None
Vintage Editions, Inc. North Carolina None
Safesport Manufacturing Company (inactive) South Carolina None
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ELLETT BROTHERS, INC. FOR THE YEAR ENDED DECEMBER 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 395
<SECURITIES> 0
<RECEIVABLES> 19,970
<ALLOWANCES> 769
<INVENTORY> 31,535
<CURRENT-ASSETS> 54,973
<PP&E> 13,395
<DEPRECIATION> 6,692
<TOTAL-ASSETS> 63,614
<CURRENT-LIABILITIES> 6,833
<BONDS> 6,399
0
0
<COMMON> 12,833
<OTHER-SE> 10,503
<TOTAL-LIABILITY-AND-EQUITY> 63,614
<SALES> 152,500
<TOTAL-REVENUES> 152,500
<CGS> 129,372
<TOTAL-COSTS> 129,372
<OTHER-EXPENSES> 21,785
<LOSS-PROVISION> 1,568
<INTEREST-EXPENSE> 3,297
<INCOME-PRETAX> (1,353)
<INCOME-TAX> (538)
<INCOME-CONTINUING> (815)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (815)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
