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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
July 31, 1998 0-23570
JUST FOR FEET, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 52-2098043
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7400 Cahaba Valley Road, Birmingham, Alabama 35242
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 408-3000
--------------------
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Common Stock, par value $.0001 per share 31,176,810 shares
- ---------------------------------------- -----------------------------
Class Outstanding at September 11,
1998
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PART I. FINANCIAL INFORMATION
ITEM I. Financial Statements
JUST FOR FEET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1998 1998
-----------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,238 $ 82,490
Accounts receivable 17,332 15,840
Merchandise inventories 322,712 206,128
Other 15,130 6,709
-------- --------
Total current assets 368,412 311,167
PROPERTY AND EQUIPMENT, NET 113,577 94,529
REPURCHASED FRANCHISE RIGHTS, NET 2,823 2,913
GOODWILL, NET 63,144 36,106
OTHER ASSETS 3,820 3,637
-------- --------
$551,776 $448,352
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 84,296 $ 90,667
Accounts payable 100,499 51,162
Accrued expenses 22,217 9,292
Income taxes 1,363
Current maturities of long-term obligations 4,058 3,222
-------- --------
Total current liabilities 211,070 155,706
LONG-TERM OBLIGATIONS 16,908 16,646
DEFERRED LEASE RENTALS 11,754 7,212
DEFERRED INCOME TAXES 662 704
-------- --------
Total liabilities 240,394 180,268
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SHAREHOLDERS' EQUITY:
Common stock - par value $.0001 per share; 70,000 shares authorized;
31,174, and 29,993 shares issued and outstanding at July 31, 1998
and January 31, 1998, respectively 3 3
Paid-in capital 248,123 218,616
Retained earnings 63,256 49,465
-------- --------
Total shareholders' equity 311,382 268,084
-------- --------
$551,776 $448,352
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
1
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JUST FOR FEET INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
-------------------- --------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $175,329 $112,369 $327,250 $205,172
Cost of sales 99,813 65,115 188,116 118,916
-------- -------- -------- --------
Gross profit 75,516 47,254 139,134 86,256
-------- -------- -------- --------
Franchise fees, royalties and other revenue 288 269 596 477
-------- -------- -------- --------
Operating expenses:
Store operating 53,004 32,444 97,760 59,641
Store opening costs 1,890 2,012 5,243 3,072
Amortization of intangibles 433 245 793 355
General and administrative 5,782 4,910 11,181 7,945
-------- -------- -------- --------
Total operating expenses 61,109 39,611 114,977 71,013
-------- -------- -------- --------
Operating income 14,695 7,912 24,753 15,720
Interest (expense) income, net (1,726) (35) (2,328) 410
-------- -------- -------- --------
Earnings before income taxes 12,969 7,877 22,425 16,130
Provision for income taxes 4,993 3,072 8,634 6,124
-------- -------- -------- --------
Net earnings $ 7,976 $ 4,805 $ 13,791 $ 10,006
======== ======== ======== ========
EARNINGS PER SHARE:
Basic $0.26 $0.16 $0.46 $0.34
======== ======== ======== ========
Diluted $0.25 $0.16 $0.44 $0.33
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 30,532 29,796 30,288 29,240
======== ======== ======== ========
Diluted 32,199 30,881 31,686 30,231
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
2
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JUST FOR FEET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31,
--------------------
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 13,791 $ 10,006
Adjustments to reconcile net earnings to
net cash used in operating activities:
Depreciation and amortization 6,420 3,511
Deferred income taxes (42) 149
Deferred lease rentals 1,248 1,104
Changes in assets and liabilities providing (using) cash, net of
effects of acquisitions in 1998 and 1997:
Accounts receivable (1,252) (3,675)
Merchandise inventories (80,194) (28,245)
Other assets 4,986 (994)
Accounts payable 35,015 (3,364)
Accrued expenses 2,548 6,000
Income taxes (1,363) 846
-------- ---------
Net cash used by operating activities (18,843) (14,662)
-------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment (23,614) (22,046)
Acquisitions, net of cash acquired (199) (25,302)
Purchases of marketable securities (14,537)
Maturities and sales of marketable securities 39,876
-------- ---------
Net cash used for investing activities (23,813) (22,009)
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FINANCING ACTIVITIES:
Short-term borrowings (repayments), net (49,369) (100,000)
Borrowings of long-term obligations 1,700 5,429
Principal payments on long-term obligations (1,723) (885)
Proceeds from issuance of common stock 20,000
Proceeds from exercise of options 2,796 690
-------- ---------
Net cash used in financing activities (26,596) (94,766)
-------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (69,252) (131,437)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 82,490 138,785
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,238 $ 7,348
======== =========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
3
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JUST FOR FEET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - GENERAL
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information, Regulation S-X and the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
These unaudited financial statements include all adjustments, consisting of
normal, recurring accruals, which Just For Feet, Inc. (the "Company") considers
necessary for a fair presentation of the financial position and the results of
operations for these periods.
The results of operations for the three and six months ended July 31, 1998 are
not necessarily indicative of the results to be expected for the full year
ending January 31, 1999. For further information, refer to the financial
statements and notes thereto for the fiscal year ended January 31, 1998 included
in the Company's Form 10-K as filed with the Securities and Exchange Commission.
SHORT-TERM BORROWINGS
The Company has an unsecured line of credit with a bank which has recently been
increased to $70 million, reducing to $40 million after October 31, 1998, and
expiring July 1, 1999. The Company also had $43 million outstanding on a bank
term loan which bears interest at a floating rate above LIBOR (7.2% at July 31,
1998) due October 31, 1998.
FISCAL YEAR
The Company's fiscal year ends on January 31. References to fiscal year by date
refer to the fiscal year beginning February 1 of that calendar year; for example
"fiscal 1998" began on February 1, 1998 and will end on January 31, 1999.
NOTE 2 - ACQUISITIONS
On March 17, 1997, the Company acquired Athletic Attic for approximately $9.7
million in cash, net of cash acquired, the repayment of approximately $1.3
million of Athletic Attic's debt, and approximately $5.6 million of common stock
(259,000 shares). On May 14, 1997, the Company acquired Imperial Sports for
approximately $5.8 million in cash, net of cash acquired, the repayment of
approximately $8.7 million of Imperial Sports' debt, and approximately $21.5
million of common stock (1,077,000 shares).
These acquisitions have been accounted for as purchases and, accordingly, each
purchase price has been allocated to assets acquired and liabilities assumed
based upon their estimated fair values as of the acquisition dates. The excess
of the aggregate purchase prices over the fair market value of net assets
acquired is being amortized over 30 years. The accompanying consolidated
statements of earnings for the three and six months ended July 31, 1997 includes
the results of operations of Athletic Attic and Imperial Sports (collectively
"the specialty store division") from their respective acquisition dates.
On July 2, 1998, the Company acquired all of the outstanding stock of Sneaker
Stadium, Inc. ("Sneaker") for nominal cash consideration and assumed $43.0
million of existing bank debt. Such debt was immediately paid off with the
proceeds of a term loan by the Company. The Company will make additional
payments of up to $33.0 million after April 2002 to certain specified former
lenders of Sneaker, if the acquired Sneaker Stadium stores attain certain
financial targets. Such additional payments, if required, will be accounted for
as additional consideration for the acquisition. The
4
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acquisition has been accounted for as a purchase and accordingly the purchase
price has been allocated to assets acquired and liabilities assumed based upon
their estimated fair values as of the acquisition date. The excess of the
purchase price over the fair market value of net assets acquired is being
amortized over 30 years. The estimated fair values of assets acquired and
liabilities assumed were considered to be the best estimates as of the
acquisition date and may be adjusted as more information is obtained. These
estimates are summarized as follows (in thousands):
Cash $ 2,476
Accounts receivable 240
Merchandise inventories 36,390
Property and equipment 1,174
Other assets 13,665
Goodwill 27,475
Accounts payable and accrued expenses (24,773)
Interest bearing debt (43,000)
Other liabilities (4,261)
--------
$ 9,386
========
Consideration consisted of:
Cash (principally for direct
acquisition costs) $ 2,675
Warrants issued 6,711
--------
$ 9,386
========
Concurrent with and as a condition of the Company's acquisition of Sneaker, an
affiliate of Thomas H. Lee Company ("THL"), a firm which owned a controlling
interest in Sneaker, purchased from the Company an aggregate of 926,355 units,
each consisting of one share of the Company's common stock and a warrant to
purchase 0.997 of a share of the Company's common stock at a purchase price of
$21.59 per share. The aggregate purchase price for the units was $20.0 million.
The warrants' estimated fair market value on July 2, 1998 was $6.7 million
which, for accounting purposes, was considered a part of the consideration paid
by the Company for Sneaker.
The accompanying consolidated statement of earnings for the three and six months
ended July 31, 1998 includes the results of operations of Sneaker Stadium from
its acquisition date.
The following unaudited pro forma consolidated results of operations for the six
month periods ended July 31, 1998 and 1997 assume the Sneaker Stadium
acquisition occurred as of February 1, 1997 (in thousands, except per share
amounts):
1998 1997
-------- --------
Net sales $392,373 $267,407
Net earnings 10,020 7,110
Earnings per share:
Basic $ 0.32 $ 0.24
Diluted $ 0.31 $ 0.23
The pro forma results are not necessarily indicative of the results of the
Company had the Sneaker acquisition occurred at the beginning of the periods
presented, nor necessarily indicative of the results of future operations. The
acquisitions of the specialty stores would not have a material effect on the
1997 pro forma results.
5
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NOTE 3 - NEW ACCOUNTING STANDARDS
The Company is required to adopt Statement of Financial Accounting Standards
("SFAS") No. 130 Reporting Comprehensive Income in fiscal 1998. However, the
Company has no components of comprehensive income requiring special treatment
under SFAS No. 130. The Company is also required to adopt SFAS No. 131
Disclosures about Segments of an Enterprise and Related Information in fiscal
1998. Because the Company operates solely in the retail athletic footwear and
apparel industry, management believes that the implementation of SFAS No. 131
will have no significant impact on future financial reporting.
In April 1998 the Financial Accounting Standards Board issued Statement of
Position No. 98-5 Reporting on the Cost of Start-Up Activities (the "SOP") which
requires that costs of start-up activities and organization costs be expensed as
incurred. The Company currently expenses start-up costs for new stores in the
month that the new store opens. The SOP is effective for years beginning after
December 15, 1998. If the SOP had been adopted for the six months ended July 31,
1998, the cumulative effect of the change in accounting principle would have
resulted in a net charge to earnings of approximately $600,000 ($0.02 per basic
and diluted share), net of applicable income taxes of approximately $375,000.
The effect on the three month period ended July 31, 1998 would have been to
increase operating expenses by approximately $470,000 and decrease net income by
approximately $290,000 ($0.01 per basic and diluted share). The effect on the
six month period ended July 31, 1998 would have been to increase operating
expenses by approximately $370,000 and decrease net income by approximately
$225,000 ($0.01 per basic and diluted share).
NOTE 4 - LITIGATION
In July 1997, a lawsuit was filed by a shareholder (individually and on behalf
of others) against the Company and certain of its current and former officers, a
former director and two of the four managing underwriters in the Company's June
1996 public offering of common stock. The suit alleges that the Company's
registration statement and prospectus used in such offering contained certain
misleading financial information. The Company, its named officers and directors
deny any liability on those claims (the dollar amount of which is currently
unspecified) and are vigorously defending the suit.
6
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company operates retail stores in the brand-name athletic and outdoor
footwear and apparel market. The Company was founded in 1977 with the opening
of a small mall-based store and in 1988, Just For Feet opened its first
superstore in Birmingham, Alabama. As a result of the success and high sales
volume generated by the larger store format, the Company has focused on
developing and refining its superstore concept. There were 101 Just For Feet
superstores at July 31, 1998, operating in 21 states and Puerto Rico, including
eleven stores operated by Just For Feet's only superstore franchisee. The
Company's fiscal year ends on January 31. References to fiscal year by date
refer to the fiscal year beginning February 1 of that calendar year; for example
"fiscal 1998" began on February 1, 1998 and will end on January 31, 1999.
Of the 90 Company operated Just For Feet superstores, 17 superstores were
opened in the first six months of fiscal 1998. The Company expects to open
approximately 25 superstores during fiscal 1998. The Company may accelerate the
opening of new stores in any one fiscal quarter.
On July 2, 1998, the Company acquired Sneaker Stadium, Inc. ("Sneaker"), an
operator of 39 athletic footwear and apparel superstores located primarily in
the Northeast and Mid-Atlantic regions of the United States. It is the Company's
intention to convert the acquired superstores to the Just For Feet format and
systems over the next nine months and to close the corporate headquarters of
Sneaker Stadium and consolidate all operations into the Company's Birmingham,
Alabama headquarters. In connection with the acquisition, Just For Feet assumed
$43.0 million of existing Sneaker Stadium debt and, if the acquired Sneaker
Stadium stores attain certain future financial targets, the Company will make
additional payments of up to $33.0 million on or after April 30, 2002.
The Sneaker acquisition has been accounted for as a purchase and
accordingly, the results of operations are included in the consolidated
statement of earnings as of the acquisition date. Acquired stores that are to
be remodeled and integrated into the Company's operations must be closed during
the remodeling period. During such remodeling period, the Company will continue
to incur rent and other store operating expenses, including salaries and wages,
without generating any sales. These expenses, which would otherwise be
recognized as store operating costs, will be principally deferred and recognized
as store opening costs in the month in which each remodeled store reopens for
business. These conditions may affect the Company's profitability for such
periods and the comparability of the Company's results of operations for the
fourth quarter of fiscal 1998 and the first quarter of fiscal 1999 as compared
to the same periods for fiscal 1997 and 1998.
Concurrent with the Company's acquisition of Sneaker, Thomas H. Lee Company
("THL"), a firm which owned a controlling interest in Sneaker, through an
affiliated entity purchased from the Company 926,355 shares of common stock and
a warrant to purchase an additional 923,591 shares of common stock at an
exercise price of $21.59 per share, for a total investment of $20.0 million. The
warrants' estimated fair market value on July 2, 1998 was $6.7 million and, for
accounting purposes, the warrants were considered a part of the consideration
paid by the Company for Sneaker Stadium. In addition, THL became entitled to
designate one member of the Board of Directors.
As part of its long-term growth strategy, the Company entered the specialty
store segment of the athletic and outdoor footwear and apparel market in fiscal
1997 through the acquisitions of Athletic Attic and Imperial Sports, which are
now operated as the specialty store division of the Company. Both acquisitions
have been accounted for as purchases and, accordingly, the results of operations
of these acquired businesses are included in the Company's consolidated
statements of earnings from their respective acquisition dates. At July 31,
1998, there were 109 Company-owned and 44 franchised specialty stores in 21
states and Puerto Rico. The Company anticipates opening approximately 40
specialty stores during fiscal 1998.
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In recent years, the Company has achieved positive comparable store sales
growth on an annual basis. During the three and six month periods ended July
31, 1998, comparable store sales increased 2.2% and 2.8%, respectively as
compared to 4.0% and 4.5% for the same periods last year. The Company does not
expect comparable store sales to continue to increase in the future at
historical rates, nor can any assurance be given that increases in comparable
store sales will continue. The first quarter of fiscal 1998 was the first
quarter that the Company included the specialty stores in the comparable store
sales base.
In April 1998, the Financial Accounting Standards Board issued Statement of
Position No. 98-5 Reporting on the Cost of Start-up Activities (the "SOP") which
requires that costs of start-up activities and organization costs be expensed as
incurred. The Company currently expenses start-up costs for new stores in the
month that the new store opens. The SOP is effective for years beginning after
December 15, 1998. If the SOP had been adopted for the six months ended July 31,
1998, the cumulative effect of the change in accounting principle would have
resulted in a net charge to earnings of approximately $600,000 ($0.02 per basic
and diluted share), net of applicable income taxes of approximately $375,000.
The effect on the three month period ended July 31, 1998 would have been to
increase operating expenses by approximately $470,000 and decrease net income by
approximately $290,000 ($0.01 per basic and diluted share). The effect on the
six month period ended July 31, 1998 would have been to increase operating
expenses by approximately $370,000 and decrease net income by approximately
$225,000 ($0.01 per basic and diluted share).
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, income statement data
expressed as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 56.9 57.9 57.5 58.0
----- ----- ----- -----
Gross profit 43.1 42.1 42.5 42.0
Franchise fees, royalties and other revenue 0.2 0.2 0.2 0.2
Operating expenses:
Store operating 30.2 28.9 29.9 29.0
Store opening costs 1.1 1.8 1.6 1.4
Amortization of intangibles 0.3 0.2 0.2 0.2
General and administrative 3.3 4.4 3.4 3.9
----- ----- ----- -----
Operating income 8.4 7.0 7.6 7.7
Interest (expense) income, net (1.0) 0.0 (0.7) 0.2
----- ----- ----- -----
Earnings before income taxes 7.4 7.0 6.9 7.9
Provision for income taxes 2.8 2.7 2.6 3.0
----- ----- ----- -----
Net earnings 4.6% 4.3% 4.3% 4.9%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JULY 31, 1998 COMPARED TO THREE MONTHS ENDED JULY 31, 1997
Net Sales - Net sales increased approximately $62.9 million, or approximately
56.0%, to $175.3 million in the second quarter of fiscal 1998 compared to net
sales of $112.4 million for the second quarter of fiscal 1997. This increase
was primarily attributable to 29 new superstores and 24 new specialty stores
opened since July 31, 1997, an increase in comparable store sales of 2.2% and
additional sales of $16.9 million from the Sneaker Stadium superstores acquired
in July 1998. The calculation of comparable store sales included 54 superstores
and 78 specialty stores at July 31, 1998. The acquisitions of Sneaker Stadium
on July 2, 1998 and the specialty stores (Athletic Attic on March 17, 1997 and
Imperial Sports on May 14, 1997) have been accounted for as purchases and
accordingly, the results of operations of those businesses are included in the
Company's consolidated statement of earnings from their respective acquisition
dates.
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Gross Profit - Gross profit for the second quarter of fiscal 1998 increased
59.8% to $75.5 million from $47.3 million in the prior year comparable period,
primarily as a result of increased sales. As a percentage of net sales, gross
profit for the second quarter of fiscal 1998 increased to 43.1% from 42.1% for
the second quarter of fiscal 1997.
Store Operating Expenses. Store operating expenses increased $20.6 million or
approximately 63.4% to $53.0 million in the second quarter of fiscal 1998 from
$32.4 million in the second quarter of fiscal 1997. The increase was primarily
attributable to the operating expenses of the 29 new superstores and 24 new
specialty stores opened since July 31, 1997, as well as the operating expenses
of the 39 Sneaker Stadium stores acquired in July 1998. As a percentage of net
sales, store operating expenses increased to 30.2% for the three month period
ended July 31, 1998 from 28.9% for the three month period ended July 31, 1997
primarily as a result of increased superstore regional management payroll and
related expenses and the increase in superstore level payroll as a result of the
impact of the minimum wage increases in September 1996 and 1997, as well as the
higher store operating cost structure of the specialty stores.
Store Opening Costs. Store opening costs are charged to operations in the month
the applicable store opens. These costs remained relatively constant at
approximately $1.9 million and $2.0 million in the second quarters of fiscal
1998 and 1997, respectively. The Company opened six new superstores and nine
new specialty stores in the second quarter of fiscal 1998 as compared to seven
new superstores in the second quarter of fiscal 1997.
General and Administrative Expenses. General and administrative expenses
increased approximately $900,000, or 17.8%, to $5.8 million in the second
quarter of fiscal 1998 from $4.9 million in the second quarter of fiscal 1997.
This increase was primarily attributable to the increase in corporate staff to
support the Company's planned growth and the higher general and administrative
expenses as a percentage of net sales for the specialty store division. As a
percentage of net sales, general and administrative expenses decreased to
approximately 3.3% in the second quarter of fiscal 1998 from approximately 4.4%
in the second quarter of fiscal 1997, due primarily to the increase in sales and
the consolidation of the specialty store division.
Amortization of Intangibles. Amortization of intangibles, which includes
amortization of goodwill and franchise rights, increased to approximately
$433,000 for the second quarter of fiscal 1998 from approximately $245,000 in
the second quarter of fiscal 1997. This increase is attributable to the
amortization of goodwill resulting from the acquisitions of the specialty stores
and Sneaker Stadium.
Operating Income. Operating income increased 85.7% to $14.7 million in the
second quarter of fiscal 1998 from $7.9 million in the second quarter of fiscal
1997. Operating income, as a percentage of net sales, increased to 8.4% in the
second quarter of fiscal 1998 from 7.0% in the second quarter of fiscal 1997
primarily due to the increase in gross profit and decreases in store opening and
general and administrative expenses as a percentage of net sales, as outlined
above.
Interest Expense/Income, Net. Net interest expense was approximately $1.7
million in the second quarter of fiscal 1998, compared to net interest expense
of approximately $35,000 in the second quarter of fiscal 1997. The increase in
net interest expense was primarily due to the increase in debt to fund the
acquisition of Sneaker Stadium in July 1998 and Imperial Sports in May 1997 and
to fund the cash requirements for opening 29 new superstores and 24 new
specialty stores since July 31, 1997.
Provision for Income Taxes. The Company's effective combined federal and state
income tax rate decreased to 38.5% in the quarter ending July 31, 1998 compared
to 39.0% in the second quarter of the prior year.
Net Income. As a result of the above factors, net income increased
approximately 66.0% to $8.0 million in the second quarter of fiscal 1998 from
$4.8 million in the second quarter of fiscal 1997.
9
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SIX MONTHS ENDED JULY 31, 1998 COMPARED TO SIX MONTHS ENDED JULY 31, 1997
Net Sales - Net sales increased $122.1 million, or approximately 59.5%, to
$327.3 million in the first six months of fiscal 1998 compared to net sales of
$205.2 million for the first six months of fiscal 1997. This increase was
primarily attributable to 29 new superstores and 24 new specialty stores opened
since July 31, 1997, an increase in comparable store sales of 2.8%, and
additional sales of $16.9 million from the Sneaker Stadium superstores acquired
in July 1998. The calculation of comparable store sales included 54 superstores
and 78 specialty stores at July 31, 1998. Athletic Attic was acquired on March
17, 1997, Imperial Sports was acquired on May 14, 1997 and Sneaker Stadium was
acquired on July 2, 1998. These acquisitions have been accounted for as
purchases and, accordingly, the results of operations of these acquired
businesses are included in the Company's consolidated statement of earnings from
their respective acquisition dates.
Gross Profit - Gross profit increased 61.3% to $139.1 million for the first six
months in fiscal 1998 from $86.3 million for the first six months of fiscal 1997
primarily as a result of increased sales. As a percentage of net sales, gross
profit was 42.5% and 42.0% for the first six months in fiscal 1998 and 1997,
respectively.
Store Operating Expenses. Store operating expenses increased approximately
63.9% to $97.8 million in the first six months of fiscal 1998 from $59.6 million
in the first six months of fiscal 1997. The increase was primarily attributable
to the operating expenses of the 29 new superstores and 24 new specialty stores
opened since July 31, 1997, and the operating expenses of the Sneaker Stadium
stores acquired in July 1998. As a percentage of net sales, store operating
expenses increased to 29.9% for the six month period ended July 31, 1998 from
29.0% for the first six months of fiscal 1997 primarily as a result of increased
superstore regional management payroll and related expenses and the increase in
superstore level payroll as a result of the impact of the minimum wage increase
in September 1997, as well as the higher store operating cost structure at the
specialty store group.
Store Opening Costs. Store opening costs are charged to operations in the month
the applicable store opens. Seventeen superstores and 19 specialty stores were
opened in the six month period ended July 31, 1998 compared to 11 superstores
opened in the six month period ended July 31, 1997. These costs increased
approximately $2.1 million to approximately $5.2 million in the first six months
of fiscal 1998 from approximately $3.1 million in the first six months of fiscal
1997.
General and Administrative Expenses. General and administrative expenses
increased to $11.2 million, or approximately 40.7%, in the first six months of
fiscal 1998 from $7.9 million in the first six months of fiscal 1997. This
increase was primarily attributable to the increase in corporate staff to
support the Company's planned growth and the higher general and administrative
expenses as a percentage of net sales for the specialty store division. As a
percentage of net sales, general and administrative expenses decreased to
approximately 3.4% in the first six months of fiscal 1998 from approximately
3.9% in the first six months of fiscal 1997 primarily due to the increase in
sales and the consolidation of the specialty store division.
Amortization of Intangibles. Amortization of intangibles, which includes
amortization of goodwill and franchise rights, increased to approximately
$793,000 for the first six months of fiscal 1998 from approximately $355,000 for
the first six months of fiscal 1997. This increase was primarily attributable
to the amortization of goodwill resulting from the acquisitions of Athletic
Attic, Imperial Sports and Sneaker Stadium.
Operating Income. Operating income increased to approximately $24.8 million in
the first six months of fiscal 1998 from approximately $15.7 million in the
first six months of fiscal 1997. Operating income, as a percentage of net
sales, remained relatively constant at 7.6% and 7.7% for the first six months of
fiscal 1998 and 1997, respectively.
10
<PAGE>
Net Interest Income/Expense. Net interest expense was approximately $2.3
million in the first six months of fiscal 1998, compared to net interest income
of approximately $410,000 in the first six months of fiscal 1997. The increase
in net interest expense was primarily due to the increase in debt to fund the
acquisitions of Sneaker Stadium in July 1998 and Imperial Sports in May 1997 and
to fund the cash requirements for opening 29 new superstores and 24 new
specialty stores since July 31, 1997.
Provision for Income Taxes. The Company's effective combined federal and state
income tax rate increased to 38.5% for the six months ending July 31, 1998
versus 38.0% for the six months ending July 31, 1997. The increase in the
effective tax rate resulted primarily from the impact in the prior year period
of non-taxable interest income and the inclusion of non-deductible goodwill
resulting from the acquisitions of Athletic Attic, Imperial Sports and Sneaker
Stadium and the expansion into states with higher income tax rates.
Net Income. As a result of the above factors, net income increased
approximately 37.8% to $13.8 million in the first six months of fiscal 1998 from
net income of $10.0 million in the first six months of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Just For Feet's primary sources of working capital are cash flows from
operations and borrowings under its line of credit and other credit facilities.
The Company had working capital of $157.3 million and $155.5 million at July 31,
1998 and January 31, 1998, respectively. The principal use of cash has been to
fund store operations and to purchase inventory, equipment and fixtures. During
the first six months of fiscal 1998, the Company acquired approximately $23.6
million of property and equipment, including approximately $13.0 million to open
new stores, approximately $7.5 million for improvements to existing stores, and
approximately $3.1 million for corporate additions and improvements. The
Company's short-term operational cash requirements are not highly seasonal. The
Company had approximately $13.2 million in cash and cash equivalents as of July
31, 1998.
On July 2, 1998, the Company consummated the private placement of 926,355
shares of common stock and warrants to purchase an additional 923,591 shares of
common stock to an affiliate of Thomas H. Lee Company ("THL"), one of the former
owners of Sneaker Stadium. The warrants are exercisable at any time at a price
of $21.59 per share. The Company received $20.0 million from such private
placement.
As of July 31, 1998, the Company had borrowed $41.3 million under its
revolving bank line of credit. The line of credit, which expires July 1, 1999,
permits the Company to borrow up to $70.0 million (which will be reduced to
$40.0 million after October 31, 1998) for general working capital purposes.
Borrowings under the line of credit bear interest at a floating rate above LIBOR
(7.2% at July 31, 1998) and are unsecured. The line of credit contains certain
financial covenants and other restrictions.
On June 30, 1998, the Company obtained a $43.0 million term loan from a bank
which was used to fund the purchase of Sneaker Stadium. The term loan, which
matures on October 31, 1998, bears interest at a floating rate above LIBOR (7.2%
at July 31, 1998), and is unsecured. The term loan contains certain financial
covenants and other restrictions.
The Company intends to refinance the revolving bank line of credit and the
bank term loan prior to October 31, 1998.
The Company also has several arrangements to finance certain store fixtures,
point-of-sale ("POS") equipment and management information systems.
11
<PAGE>
Just For Feet's future capital requirements are primarily for the opening of
new superstores and specialty stores and the conversion of existing Sneaker
Stadium stores to the Just For Feet format and operating systems. The Company
estimates that the total cash required to open a new 15,000 to 20,000 square
foot prototype superstore, including store fixtures and equipment, leasehold
improvements, net working capital and store opening costs, typically ranges from
$1.5 to $2.5 million, depending on the amount of vendor and landlord assistance.
The Company estimates that the total cash required to open a 4,000 to 6,000
square foot specialty store ranges from $300,000 to $400,000. The Company
currently expects to open approximately 25 new superstores and approximately 40
new specialty stores in fiscal 1998. The Company estimates the cost to remodel a
Sneaker Stadium superstore to be approximately $500,000. The Company plans to
increase the average inventory at these stores from approximately $1.3 million
prior to remodeling to approximately $1.8 million at their reopening.
The Company is not currently planning any material major expenditures other
than those mentioned above, and believes that internally generated funds, cash
on hand and existing or additional bank borrowings will be adequate to fund its
anticipated needs through at least the end of fiscal 1998.
SEASONALITY
The Company does not experience significant seasonal fluctuations in its
business. However, the highest sales periods for the Company are the spring,
back-to-school and Christmas selling seasons. The Company also generally
experiences lower gross margins during January, February, September and October
due to retail markdowns taken to clear seasonal merchandise. Quarterly results
may fluctuate materially depending on the timing of new store openings and
related store opening expenses, net sales contributed by new stores and
increases or decreases in comparable store sales.
IMPACT OF INFLATION
The Company does not believe that inflation has had a material, adverse effect
on net sales or results of operations. The Company has generally been able to
pass on increased costs through increases in selling prices.
YEAR 2000
The Company has established policies and procedures to coordinate changes to
computer systems and applications necessary to achieve a Year 2000 date
conversion with no effect on customers or disruption to business operations.
These actions are necessary to ensure that the systems and applications will
recognize and process the Year 2000 and beyond. The Company has also assessed
its hardware and software systems' Year 2000 compliance. Based on this
assessment, management believes that all of such systems are either currently
Year 2000 compliant or will be compliant by mid-1999.
There can be no assurance, however, that computer systems operated by third
parties, including vendors, credit card transaction processors and financial
institutions with which the Company's systems interface , will continue to
interface properly with the Company's system and will otherwise be compliant on
a timely basis with Year 2000 requirements. The Company is currently
developing vendor surveys and certification requests to assess the Year 2000
compliance of its major vendors. The Company has not developed a contingency
plan but will do so, if deemed necessary, upon completion of its assessment of
vendor readiness with regard to the Year 2000 issue. Management currently
estimates that the total cost of achieving Year 2000 compliance and of assessing
major vendor compliance will not exceed $500,000. Any failure of the Company's
computer system or those of certain third parties to achieve Year 2000
compliance on a timely basis could have a material adverse effect on the
Company's business, financial condition and results of operations.
12
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This filing contains statements that constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. These statements appear in a number of places in this filing and
the Company's other filings with the Securities and Exchange Commission ("SEC")
and include statements regarding the intent, belief or current expectations of
the Company, its directors or its officers with respect to, among other things:
(i) the timing, magnitude and costs of the Company's entry into the smaller
specialty store market of the industry; (ii) the Company's expansion plans;
(iii) the Company's ability to successfully convert Sneaker Stadium superstores
to Just For Feet superstores; (iv) potential acquisitions by the Company; (v)
trends affecting the Company's financial condition or results of operations; and
(vi) the Company's business and growth strategies. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in the forward-looking statements as a
result of various factors. The information contained in this filing and the
Company's other filings with the SEC, including without limitation the
information set forth under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" identifies important factors that
could cause such differences.
PART II
ITEM 2. CHANGES IN SECURITIES.
- ------- ----------------------
(a.) At the Company's Annual Meeting of Shareholders held on June 26, 1998, the
Company's shareholders approved the reincorporation of the Company from Alabama
to Delaware. As a part of the reincorporation, the shareholders approved a new
Certificate of Incorporation and Bylaws which differed in many respects from the
Company's former Articles of Incorporation and Bylaws. The significant
differences were described in detail in the Company's Proxy Statement relating
to the 1998 Annual Meeting and included, without limitation, the elimination of
the right of shareholders to call a special meeting and the requirement of
supermajority shareholder approval to amend certain provisions of the new
Bylaws. For a detailed description of the new Certificate of Incorporation and
Bylaws and their effect on the rights of holders of the Company's common stock,
see the Company's Proxy Statement relating to its 1998 Annual Meeting of
Shareholders.
(c.) On July 2, 1998, the Company acquired Sneaker Stadium, Inc. ("Sneaker"), an
operator of 39 athletic footwear and apparel superstores. Concurrently with and
as a condition to the acquisition, an affiliate of Thomas H. Lee Company
("THL"), a firm which owned a controlling interest in Sneaker, purchased from
the Company 926,355 units, each consisting of one share of the Company's common
stock and a warrant to purchase 0.997 of a share of the Company's common stock,
at a purchase price of $21.59 per share. The aggregate purchase price for the
units was $20.0 million. The issuance of such securities was made in reliance
upon the exemption from registration provided by Section 4(2) of the Securities
Act of 1933 as a transaction by an issuer not involving a public offering.
Offers and sales were made without any public solicitation and the securities,
when issued, bore a restrictive legend. No underwriter was involved in the
transaction and no commissions were paid.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ----------------------------------------------------
On June 26, 1998, the Company held its 1998 Annual Meeting of Shareholders.
At the meeting, the following persons were elected to serve on the Company's
Board of Directors for a term of one year and until their successors are elected
and have qualified: Harold Ruttenberg, Bart Starr, Sr., Michael P. Lazarus,
Randall L. Haines, David F. Bellett and Edward S. Croft, III. The number of
votes cast for and against the election of each nominee for director was as
follows:
13
<PAGE>
AGAINST/
WITHHOLD
Director FOR AUTHORITY
-------- --- ---------
Harold Ruttenberg................. 26,312,974 384,801
Bart Starr, Sr................... 25,674,352 1,023,423
Michael P. Lazarus................ 26,310,511 387,264
Randall L. Haines................. 26,310,511 387,264
David F. Bellett.................. 26,310,661 387,114
Edward C. Croft III.............. 26,310,511 387,264
In addition, the Company's shareholders ratified an amendment to the Company's
amended and restated Articles of Incorporation which increased the Company's
authorized capital stock and eliminated a previously authorized class of
preferred stock which was no longer outstanding. The number of votes cast in
favor of the ratification was 25,475,704 and the number of votes cast against
the ratification was 1,055,440. There were 28,718 abstentions.
In addition, the Company's shareholders approved a proposal to change the
Company's state of incorporation from Alabama to Delaware through the merger of
the Company into a wholly owned subsidiary of the Company. The number of votes
cast in favor of the reincorporation was 21,614,541 and the number of votes cast
against the reincorporation was 1,138,898. There were 20,307 abstentions.
ITEM 5. OTHER INFORMATION.
- ------- ------------------
As set forth in the Company's Proxy Statement for the 1998 Annual Meeting,
any shareholder proposals intended to be presented at the 1999 Annual Meeting of
Shareholders must be received by the Company by December 26, 1998, in order to
be considered for inclusion in the proxy statement and form of proxy for that
meeting.
Any shareholder who intends to present a proposal at the 1999 Annual
Meeting of Shareholders and has not sought inclusion of the proposal in the
Company's proxy materials pursuant to Rule 14a-8, must provide the Company with
notice of such proposal no later than March 10, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------- ---------------------------------
(a) Exhibits. The following exhibits have been filed with this Report:
3(i) - Certificate of Incorporation.
3(ii) - Bylaws.
10.5.2 - Modification to extend the term from September 6, 1998 to
October 31, 1998 of the increase in the principal amount of the Master
Revolving Promissory Note dated January 26, 1998 payable to Compass
Bank from $40,000,000 to $70,000,000 million.
10.17 - Bank Term Note for $43 million, dated June 28, 1998.
(b) Reports on Form 8-K. One Report on Form 8-K was filed during the three
months ended July 31, 1998. On July 14, 1998, the Company filed a
Current Report on Form 8-K relating to the acquisition by the Company
of Sneaker Stadium, Inc. On July 27, 1998 the Company amended such Form
8-K through the filing of a Current Report on Form 8-K/A which included
(a) financial statements of Business Acquired and (b) Pro-Forma
Financial Information relative to the acquisition.
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JUST FOR FEET, INC.
Dated: September 14, 1998 By: /s/ Harold Ruttenberg
---------------------------
Harold Ruttenberg
Chairman, President and Chief
Executive Officer
Dated: September 14, 1998 By: /s/ Eric L. Tyra
---------------------------
Eric L. Tyra
Executive Vice President and
Chief Financial Officer
<PAGE>
CERTIFICATE OF INCORPORATION
OF
JUST FOR FEET, INC.
I.
The name of the Corporation is Just For Feet, Inc.
II.
The street address of the registered office of the Corporation is 1209
Orange Street, Wilmington, New Castle County, Delaware 19801. The registered
agent of the Corporation at such office is The Corporation Trust Company.
III.
The Corporation is organized for the purpose of engaging in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware, and the Corporation shall be authorized to exercise
and enjoy all powers, rights and privileges conferred upon corporations by the
laws of the State of Delaware as in force from time to time, including, without
limitation, all powers necessary or appropriate to carry out all those acts and
activities in which it may lawfully be engaged.
IV.
The Corporation shall have authority to issue 75,000,000 shares of capital
stock, which shall be divided into two classes with the following designations,
preferences, limitations and relative rights:
(A) Common Stock. One class shall consist of 70,000,000 shares of
common stock having a par value of $.0001 per share, designated "Common
Stock."
(B) Preferred Stock. One class shall consist of 5,000,000 shares of
preferred stock having a par value of $.0001 per share, designated
"Preferred Stock." The board of directors is authorized, subject to any
limitations prescribed by law, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the
designation, powers, preferences, and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. The
number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the Common Stock, without a
vote of the holders of the Preferred Stock, or of any series thereof, unless
a vote of any such holders is required pursuant to the certificate or
certificates establishing the series of Preferred Stock.
<PAGE>
V.
The name and mailing address of the Incorporator of the Corporation is:
NAME ADDRESS
---- -------
Arthur Jay Schwartz, Esq. Suite 3100, Promenade II
1230 Peachtree Street, N.E.
Atlanta, Georgia 30390-3592
VI.
No director of the Corporation shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director; provided, however, that this Article VI shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the Corporation its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law (as in effect and as
hereafter amended) or (iv) for any transaction from which the director derived
an improper personal benefit. If the Delaware General Corporation Law is
hereafter amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of each director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended. Neither the amendment nor
repeal of this Article VI, nor the adoption of any provision of this Certificate
of Incorporation inconsistent with this Article VI, shall eliminate or reduce
the effect of this Article VI in respect of any acts or omissions occurring
prior to such amendment, repeal or adoption of any inconsistent provision.
VII.
Elections of Directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
VIII.
(A) The board of directors, pursuant to the terms of this Article VIII, may
amend or repeal any provision of the Bylaws of the Corporation or adopt any new
Bylaw, unless the shareholders have adopted, amended or repealed a particular
Bylaw provision and, in doing so, have expressly reserved to the shareholders
the right of amendment or repeal therefor. The Board of Directors may adopt,
amend, alter or repeal the Bylaws of the Corporation only by the vote of a
majority of the entire Board.
(B) The stockholders of the Corporation have the right, in accordance with
the voting requirements set forth in this Article VIII(B), to amend or repeal
any provision of the Bylaws of the Corporation, or to adopt new Bylaw
provisions, even though such provisions may also be adopted, amended or repealed
by the Board. Except as may otherwise specifically be required by law, the
affirmative vote of the holders of not less than seventy-five percent (75%) of
the total number of
-2-
<PAGE>
votes entitled to be cast by the holders of all of the outstanding shares of
capital stock of the Corporation then entitled to vote generally in the election
of directors shall be required for the stockholders to adopt, amend, alter or
repeal any provision of the Bylaws of the Corporation.
IX.
Stockholders of the Corporation shall take action only by annual or special
meetings duly held in accordance with Section 211 of the Delaware General
Corporation Law and the Bylaws of the Corporation. Stockholders may not take
any action by written consent in lieu of a meeting.
X.
Special meetings of the stockholders of the Corporation may be called at any
time and only by a majority of the Board of Directors.
XI.
Notwithstanding any other provisions of this Certificate or the Bylaws of
the Corporation (and notwithstanding the fact that some lesser percentage may be
specified by law, this Certificate or the Bylaws of the Corporation), the
affirmative vote of the holders of at least seventy-five percent (75%) of the
total number of votes entitled to be cast by the holders of all of the shares of
capital stock of the Corporation then entitled to vote generally in the election
of directors shall be required to amend, alter, change or repeal, or to adopt
any provision as part of this Certificate inconsistent with, the provisions set
forth in Articles VI, VII, VIII, IX and X and this Article XI.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation on this 17th day of April, 1998.
/s/ Arthur Jay Schwartz
------------------------
Arthur Jay Schwartz
Incorporator
-3-
<PAGE>
BYLAWS
OF
JUST FOR FEET, INC.
ARTICLE I
STOCKHOLDERS
------------
1.01 Place of Meetings. Annual and special meetings of the stockholders
-----------------
shall be held at such place, either within or without of the State of Delaware,
as may be designated by the Board of Directors. In the absence of such
designation, such meeting shall be held at the principal office of the
Corporation located within the State of Alabama.
1.02 Annual Meeting. The annual meeting of the stockholders for the
--------------
election of directors and the transaction of such other business as may properly
come before the meeting shall be held on such date as may be determined by
resolution of the Board of Directors.
1.03 Special Meeting. Unless otherwise prescribed by statute, special
---------------
meetings of the stockholders, for any purpose or purposes, shall be called in
accordance with the Certificate of Incorporation of the Corporation. No
business other than that specified in the notice of special meeting shall be
transacted at any such special meeting.
1.04 Notice of Meetings. Written or printed notice stating the place, day
------------------
and hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary or
the Board of Directors or officer calling the meeting, to each stockholder of
record in the manner above provided. The notice of special meeting may be
waived by submitting a signed waiver or by attendance at the meeting.
1.05 Closing of Transfer Books and Fixing Record Date. For the purposes
------------------------------------------------
of determining stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or stockholders entitled to receive
payment of any dividend, or in order to make a determination of stockholders for
any other proper purpose, the Board of Directors may provide that the stock
transfer books shall be closed for a stated period not to exceed in any case
sixty (60) days immediately preceding such meeting. In lieu of closing the
stock transfer books, the Board of Directors may fix in advance a date as the
record date for any such determination of stockholders, such date in any case to
be not more than sixty (60) days, and in case of a meeting of stockholders, not
less than ten (10) days, prior to the date on which the particular action
requiring such determination of stockholders is to be taken, and in no event may
the record date precede the date upon which the Directors adopt a resolution
fixing the record date. If the stock transfer books are not closed and no
record date is fixed for the determination of stockholders entitled to notice of
or to vote at a meeting of stockholders, or stockholders entitled to receive
payment of a dividend, or a determination of stockholders for any other proper
purpose, the date on which notice of the meeting is given (as defined in Article
IX hereof) or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of the stockholders. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this Section 1.05, such determination
<PAGE>
shall apply to any adjournment thereof, unless the Board of Directors fixes a
new record date for the adjournment.
1.06 Voting List. The officer or agent having charge of the stock
-----------
transfer books for shares of the Corporation shall make, at least ten (10) days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten (10) days prior to such meeting, shall be kept
on file at the principal office of the Corporation and shall be subject to
inspection by any stockholder at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any stockholder during the whole time
of the meeting. The original stock transfer books shall be prima facie evidence
as to who are the stockholders entitled to examine such list or transfer books
or to vote at any meeting of stockholders.
1.07 Quorum. A majority of the outstanding shares of the of the
------
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum for the transaction of business at such meeting. If a
quorum is present, the affirmative vote of the majority of the shares
represented at the meeting entitled to vote on the subject matter shall be the
act of the stockholders, unless the vote of a greater number of shares on the
matter being voted on is required by the Certificate of Incorporation of the
Corporation, these Bylaws or applicable law. Directors shall be elected by a
plurality of the shares represented at the meeting and entitled to vote in the
election of Directors.
1.08 Adjournment of Stockholder Meeting. Any meeting of stockholders may
----------------------------------
be adjourned at any time, whether or not there is a quorum, by the chairman of
such meeting or the vote of the majority of shares represented at such meeting.
When a meeting is adjourned to another time or place, notice need not be given
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
1.09 Proxies. At all meetings of stockholders, a stockholder may vote by
-------
proxy, executed in writing by the stockholder or by his duly authorized attorney
in fact. Such proxy shall be filed with the Secretary of the Corporation before
or at the time of the meeting. No proxy shall be valid after three (3) years
from the date of its execution, unless otherwise provided in the proxy.
1.10 Voting of Shares. Each outstanding share shall be entitled to one
----------------
vote and each fractional share shall be entitled to a corresponding fractional
vote on each matter submitted to vote at a meeting of stockholders.
1.11 Voting by Voice, Hand or Ballot. All voting at meetings of the
-------------------------------
stockholders, including voting for the election of directors but excepting where
otherwise required by law, shall be by a voice or hand vote; provided, however,
that upon demand therefor by a stockholder entitled to vote or by his or her
proxy, a vote by written ballot shall be taken. Every written ballot shall
state the name of the stockholder or proxy voting and such other information as
may be required under the procedure established for the meeting.
-2-
<PAGE>
1.12 Voting of Shares by Certain Holders. The rights of persons in whose
-----------------------------------
names shares stand on the stock records of the Corporation to vote is subject to
the following provisions:
(a) Neither treasury shares, nor shares of its own stock held by the
Corporation in a fiduciary capacity, nor shares held by another Corporation if
the majority of the shares entitled to vote for the election of directors of
such other Corporation is held by the Corporation, shall be voted at any meeting
or counted in determining the total number of outstanding shares at any given
time.
(b) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the bylaws of such
corporation may prescribe, or, in the absence of such provision, as the board of
directors of such Corporation may determine.
(c) Shares held by an administrator, executor, personal
representative, guardian, or conservator may be voted by him, either in person
or by proxy, without a transfer of such shares into his name.
(d) Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
(e) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
be contained in an appropriate order of the court by which such receiver was
appointed.
(f) A stockholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so transferred.
1.13 Informal Action by Stockholders. Any action required or permitted to
-------------------------------
be taken by the stockholders must be affected at a duly called annual or special
meeting of the stockholders of the Corporation. Stockholders may not take any
action by written consent in lieu of a meeting of the stockholders.
1.14 Conduct of Stockholder Meetings. Meetings of the stockholders shall
-------------------------------
be presided over by the Chairman of the Board or, in his absence, the President
of the Corporation, or, if no such person is present, a person designated by the
Chairman of the Board or, in his absence, the President of the Corporation. The
Secretary of the Corporation or, in his absence, an Assistant Secretary, or, if
no such person is present, a person designated by the chairman of the meeting,
shall act as secretary of the meeting. The precedence of and procedure on
motions and other procedural matters at a meeting shall be as determined by the
chairman of such meeting, in his sole discretion, provided that such chairman
acts in a manner which is not inconsistent with the Certificate of Incorporation
of the Corporation, these Bylaws and applicable law.
-3-
<PAGE>
1.15 Notification of Stockholder Business.
------------------------------------
(a) All business properly brought before an annual meeting of the
stockholders shall be transacted at such meeting. Business shall be deemed
properly brought before an annual meeting of stockholders only if it is (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the request of the Board of Directors, (ii) otherwise properly brought before
the meeting by or at the direction of the Board of Directors or (iii) brought
before the meeting by a stockholder of record entitled to vote at such meeting
if written notice of such stockholder's intent to bring such business before
such meeting is delivered to the Secretary of the Corporation at the principal
executive offices of the Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the ninetieth (90th) day prior to the first
anniversary of the preceding year's annual meeting of stockholders; provided,
however, that in the event that the date of such meeting is more than thirty
(30) days before or more than sixty (60) days after such anniversary date,
written notice by the stockholder must be delivered not earlier than the close
of business on the ninetieth (90th) day prior to such meeting and not later than
the close of business on the later of the sixtieth (60th) day prior to such
meeting or the tenth (10th) day following issuance by the Corporation of a press
release announcing the date of such meeting. In no event shall any press
release announcing an adjournment of an annual meeting commence a new time
period for the giving of written notice by a stockholder described above.
(b) Each written notice by a stockholder described above shall set forth,
at a minimum, the following: (i) as to the stockholder giving the notice and, if
applicable, the beneficial owner or the person on whose behalf such proposal is
being made (A) the name and address of such person as such information appears
on the books of the Corporation, (B) the class and number of such shares of the
Corporation which are owned beneficially and of record by such person; (ii) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting; (iii) a representation
that the stockholder is a holder of record of shares of the Corporation entitled
to vote at such meeting and intends to appear in person or in proxy at such
meeting to propose such business; (iv) any material interest of the stockholder
in such business.
(c) The chairman of the meeting may refuse to transact any business at any
meeting presented without compliance with the procedures set forth in this
Section 1.15.
ARTICLE II
BOARD OF DIRECTORS
------------------
2.01 General Powers. The business and affairs of the Corporation shall be
--------------
managed by its Board of Directors, except as otherwise provided in the
Certificate of Incorporation or by applicable law.
2.02 Number; Qualifications. The Corporation's Board of Directors shall
----------------------
consist of not less than three (3) and not more than fifteen (15) Directors, as
such number may be designated from time to time by the Board of Directors. If
such number is not so fixed, the Corporation shall have six (6) Directors.
Directors need not be stockholders of the Corporation or residents of the State
of Delaware or the State of Alabama.
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2.03 Election; Term of Office. Directors shall be elected at each annual
------------------------
meeting of the stockholders. Directors shall be elected by plurality vote of the
stockholders. Each Director shall hold office until the next annual meeting of
the stockholders and thereafter until such time as his successor shall have been
elected and qualified. No reduction in the number of Directors shall have the
effect of removing any director before such Director's term of office shall
expire.
2.04 Removal of Directors. Any Director may be removed only in the manner
--------------------
provided in the Corporation's Certificate of Incorporation, as amended. If no
such provision appears therein, any Director may be removed either with or
without cause, at any time, by vote of the stockholders holding a majority of
the shares then entitled to vote for the election of Directors, present at any
special meeting called for that purpose. In case any vacancy so created shall
not be filled by the stockholders at such meeting, such vacancy may be filled by
the Board of Directors as provided in Section 2.06 hereof.
2.05 Resignation. Any Director may resign at any time by giving written
-----------
notice to the President or to the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein; and unless
otherwise specified therein, the acceptance of such resignation by the
Corporation shall not be necessary to make it effective.
2.06 Vacancies. Any vacancy occurring in the Board of Directors, whether
---------
by resignation of a Director or an increase in the number of Directors, may be
filled by the affirmative vote of a majority of the remaining Directors, though
less than a quorum, or by a sole remaining Director. A Director elected by the
remaining Directors or the stockholders to fill a vacancy shall be elected for
the unexpired term of his predecessor in office. Any directorship to be filled
by reason of an increase in the number of Directors shall be filled by the
affirmative vote of a majority of the Directors then in office or by election at
an annual meeting or a special meeting of stockholders called for that purpose,
and a Director so chosen shall hold office for the term specified in Section
2.03 of this Article.
2.07 Regular Meetings. A regular meeting of the Board of Directors shall
----------------
be held without other notice than this Bylaw immediately after and at the same
place as the annual meeting of the stockholders. The Board of Directors may
provide by resolution the time and place, either within or without the State of
Delaware, for the holding of additional regular meetings without other notice
than such resolution.
2.08 Special Meetings. Special meetings of the Board of Directors may be
----------------
called by or at the request of the President, the Chairman of the Board or a
majority of the Directors. The person or persons authorized to call special
meetings of the Board of Directors may fix any place, either within or without
the State of Delaware, as the place for holding any special meeting of the Board
of Directors called by them.
2.09 Telephonic Meetings. Members of the Board of Directors or any
-------------------
committee designated by the Board of Directors may participate in a meeting of
the Board of Directors or committee by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear one another at the same time. Such participation shall constitute presence
in person at the meeting. All participants in any meeting of Directors, by
virtue of their participation and without further action on their part, shall be
deemed to have consented to the recording of such meeting by electronic device
or otherwise, and to the making of a written transcript thereof, in order that
minutes thereof shall be available for the Corporation's records.
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2.10 Notice. Notice of any special meeting shall be given at least four
------
(4) days previous thereto by written notice mailed to each Director at his
business address, or by notice given at least two (2) days prior to the meeting,
in person or by any means specified in Section 9.01(b) or (c). Any Director may
waive notice of any meeting. The attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
2.11 Quorum. A majority of the number of Directors fixed in accordance
------
with these Bylaws shall constitute a quorum for the transaction of business.
The act of the majority of the Directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors.
2.12 Compensation. The amount, if any, which each Director shall be
------------
entitled to receive as compensation for his services as a Director shall be
fixed from time to time by resolution of the Board of Directors. If any
director shall serve as a member of any committee of the Board of Directors or
perform special services at the instance of the Board of Directors, such may be
paid additional compensation as the Board of Directors may determine. Each
Director shall be entitled to reimbursement for traveling expenses incurred by
him in attending any meeting of the Board of Directors or of a committee. Such
compensation shall be payable even though a meeting may be adjourned because of
a lack of a quorum.
2.13 Action by Directors Without Meeting. Any action required to be taken
-----------------------------------
at a meeting of the Directors of the Corporation or any action which may be
taken at such a meeting, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the Directors
entitled to vote with respect to the subject matter thereof. A consent shall be
sufficient for this Section 2.13 if it is executed in counterparts, in which
event all of such counterparts, when taken together, shall constitute one and
the same consent.
2.14 Designation of Committees. The Board of Directors may by resolution
-------------------------
or resolutions passed by a majority of the whole Board of Directors designate
one or more committees, each committee to consist of two or more of the
directors of the Corporation, which to the extent provided in the resolution or
resolutions shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the Corporation, and may have
power to authorize the seal of the Corporation to be affixed to all papers which
may require it; provided, however, that no such committee shall have any power
or authority in reference to those matters prohibited by Section 141(c) of the
Delaware General Corporation Law. Such committee or committees shall have such
name or names as may be determined from time to time by resolution or
resolutions adopted by the Board of Directors. If provisions be made for any
such committee or committees, the members thereof shall be appointed by the
Board of Directors and shall serve during the pleasure of the Board of
Directors. A majority of the members of a committee shall constitute a quorum
for the transaction of business. The Board of Directors may designate one or
more directors of the Corporation as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee and
who, in such event, shall be counted in determining the presence of a quorum.
Vacancies in such committees shall be filled by the Board of Directors;
provided, however, that in the absence or disqualification of any member of such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may
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<PAGE>
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board of
Directors may at its pleasure discontinue any such committee or committees.
ARTICLE III
OFFICERS
--------
3.01 Generally. The Board of Directors at its first meeting and at each
---------
annual meeting thereafter shall elect, at a minimum, the following officers: a
President, a Secretary and a Treasurer. The Board of Directors at any time and
from time to time may elect or appoint such other officers as it shall deem
necessary, including, but not limited to, a Chairman of the Board of Directors,
one or more Vice Presidents, one or more Assistant Vice Presidents, one or more
Assistant Treasurers, and one or more Assistant Secretaries, who shall hold
their offices for such terms as shall be determined by the Board of Directors
and shall exercise such powers and perform such duties as are specified by these
Bylaws, or as shall be determined from time to time by the Board of Directors.
Any person may hold two or more offices, except that no person may hold the
office of President and Secretary. No officer need be a shareholder of the
Corporation.
3.02 Compensation. The salaries of the officers of the corporation shall
------------
be fixed by the Board of Directors, except that the Board of Directors may
delegate to any committee or officer or officers the power to fix the
compensation of any other officer.
3.03 Tenure. Each officer of the corporation shall hold office for the
------
term for which he is elected or appointed, and until his successor has been duly
elected or appointed and has qualified, or until his earlier resignation,
removal from office or death. Any officer may be removed by the Board of
Directors whenever in its judgment the best interest of the corporation will be
served thereby.
3.04 Vacancies. A vacancy in any office, because of resignation, removal
---------
or death may be filled by the Board of Directors for the unexpired portion of
the term.
3.05 Chairman of the Board. The Chairman of the Board shall preside at
---------------------
all meetings of stockholders and of the Board of Directors. He shall be the
chief executive officer and the head of the corporation and, subject to the
Board of Directors, shall have the general control and management of the
business and affairs of the corporation. He shall vote any shares of stock or
other voting securities owned by the corporation. He may sign, with the
Secretary or any other proper officer of the corporation thereunto authorized by
the Board of Directors, certificates for shares of the corporation, any deeds,
mortgages, bonds, policies of insurance, contracts, investment certificates or
other instruments which the Board of Directors has authorized to be executed.
In general, he shall perform all duties incident to the office of the Chairman
of the Board and such other duties as may from time to time be assigned to him
by the Board.
3.06 President. The President shall be the chief operating officer of
---------
the corporation and, subject to the control of the Board of Directors, shall in
general manage, supervise and control the day to day business and affairs of the
corporation. He shall, when present, preside at meetings of all of the
stockholders in the absence of the Chairman of the Board or if no Chairman of
the Board has been
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<PAGE>
elected. He may sign, with the Secretary or any other proper officer of the
corporation thereunto authorized by the Board of Directors, certificates for
shares of the corporation, any deeds, mortgages, bonds, policies of insurance,
contracts, investment certificates, or other instruments which the Board of
Directors has authorized to be executed, except in cases where signing the
execution thereof shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties incident to the office of the President and such other duties as may
be prescribed by the Board of Directors from time to time.
3.07 Vice Presidents. In the absence of the President or in the event of
---------------
his death or inability or refusal to act, the Vice President (or in the event
there may be more than one Vice President, the Vice Presidents in the order
designated at the time of their election, or in the absence of any designation,
then in order of election) shall perform the duties of the President and, when
so acting, shall have all the powers of and be subject to all the restrictions
upon the President. Any Vice President may sign, with the Secretary or an
Assistant Secretary, certificates for shares of the corporation and shall
perform such other duties as shall from time to time be assigned to him by the
President or by the Board of Directors. All Vice Presidents shall have such
other duties as prescribed by the Board of Directors from time to time.
3.08 Secretary. The Secretary shall: (a) attend and keep the minutes of
---------
the stockholders' meetings and of the Board of Directors' meetings in one or
more books provided by that purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents, the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep a
register of the post office address of each stockholder which shall be furnished
to the Secretary by such stockholder; (e) sign with the President or a Vice
President certificates for shares of the corporation, the issuance of which
shall have been authorized by resolution of the Board of Directors; (f) have
general charge of the stock transfer books of the corporation; (g) in general
perform all duties incident to the office of the Secretary and such other duties
as from time to time may be assigned to him by the President or the Board of
Directors.
3.09 Treasurer. The Treasurer, unless otherwise determined by the Board
---------
of Directors, shall: (a) have charge and custody of and be responsible for all
funds and securities of the corporation; (b) receive and give receipts for
monies due and payable to the corporation from any source whatsoever, and
deposit all such monies in the name of the corporation in such banks, trust
companies or other depositories as shall be selected by the Board of Directors;
and (c) in general perform all the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned by the Board of
Directors.
3.10 Assistant Officers. The Assistant Secretaries, when authorized by
------------------
the Board of Directors, may sign with the President or a Vice President
certificates for shares of the corporation the issuance of which shall have been
authorized by a resolution of the Board of Directors. The Assistant Vice
Presidents, Secretaries and Treasurers, in general, shall perform such duties as
shall be assigned by the Vice President(s), Secretary or Treasurer,
respectively, or by the President or by the Board of Directors.
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ARTICLE IV
INDEMNIFICATION
---------------
4.01 Right to Indemnification. Each person who was or is made a party or
------------------------
is threatened to be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter, a "proceeding"), by reason of the fact that he or she is or was a
director or an officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
tax or penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that, except as
provided in Section 4.03 hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
4.02 Right to Advancement of Expenses. The right to indemnification
--------------------------------
conferred in Section 4.01 of this Article IV shall include the right to be paid
by the Corporation the expenses (including attorneys' fees) incurred in
defending any such proceeding in advance of its final disposition (hereinafter,
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter, an "undertaking"),
by or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is not
further right to appeal (hereinafter, a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 4.02 or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Section 4.01 and 4.02 of this Article IV shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
4.03 Right of Indemnitee to Bring Suit. If a claim under Section 4.01 or
---------------------------------
4.02 of this Article IV is not paid in full by the Corporation within sixty (60)
days after a written claim therefor has been received by the Corporation (except
in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty (20) days) the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also to the
expense of prosecuting or defending such suit. In (a) any suit brought by the
indemnitee to enforce a right to
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<PAGE>
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that and
(b) in any suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the Corporation shall be entitled to
recover such expenses upon a final adjudication that, the indemnitee has not met
any applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the indemnitee
has not met such applicable standard of conduct shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article IV or otherwise, shall be on the
Corporation.
4.04 Non-Exclusivity of Rights. The right to indemnification and to the
-------------------------
advancement of expenses conferred in this Article IV shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the Certificate of Incorporation of the Corporation, these Bylaws, any
agreement or vote of stockholder or disinterested directors or otherwise.
4.05 Insurance. The Corporation may maintain insurance, at its expense, to
---------
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
4.06 Indemnification of Employees and Agents. The Corporation may, to the
---------------------------------------
extent authorized from time to time by the Board of Directors, grant rights to
indemnification and to the advancement of expenses to any employee or agent of
the Corporation to the fullest extent of the provisions of this Article IV with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
ARTICLE V
EXECUTION OF INSTRUMENTS AND DEPOSIT OF FUNDS
---------------------------------------------
5.01. Contracts and Other Documents. Contracts and other instruments or
-----------------------------
documents may be signed in the name of the Corporation by the President or by
any other officer authorized to sign such contract, instrument, or document by
the Board of Directors, and such authority may be general or confined to
specific instances.
5.02. Interested Directors; Quorum. No contract or transaction between
----------------------------
the Corporation and one (1) or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one (1) or more of its directors or officers are directors
or officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the
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<PAGE>
director or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if (i) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.03 Dividends. Subject to the laws of the State of Delaware, the Board
---------
of Directors may, from time to time, declare and the Corporation may pay
dividends on its outstanding shares in cash, property, or its own shares, except
when the Corporation is insolvent or when the declaration or payment thereof
would e contrary to any restrictions contained in the Certificate of
Incorporation.
5.04 Bank Accounts and Deposits. All funds of the Corporation shall be
--------------------------
deposited from time to time to the credit of the Corporation with such banks,
bankers, trust companies or other depositories as the Board of Directors may
select or as may be selected by any officer or officers, agent or agents of the
Corporation to whom such power may be delegated from time to time by the Board
of Directors.
5.05. Signing of Checks and Drafts. Except as otherwise provided in these
----------------------------
Bylaws, all checks, drafts, or other order or payment of money, notes, or other
evidences of indebtedness, issued in the name of or payable to the Corporation,
shall be signed or endorsed by such person or persons and in such manner as
shall be determined from time to time by resolution of the Board of Directors.
5.06. Loans. No loans and no renewals of any loans shall be contracted on
-----
behalf of the Corporation except as authorized by the Board of Directors. When
authorized so to do by the Board of Directors, any officer or agent of the
Corporation may effect loans and advances for the Corporation from any bank,
trust company or other institution or from any firm, corporation or individual,
and for such loans and advances may make, execute and deliver promissory notes,
bonds or other evidences of indebtedness of the Corporation. When authorized so
to do by the Board of Directors, any officer or agent of the Corporation may
pledge, hypothecate or transfer, as security for the payment of any and all
loans, advances, indebtedness and liabilities of the Corporation, any and all
stocks, securities and other personal property at any time held by the
Corporation, and, to that end, may endorse, assign and deliver the same. Such
authority may be general or confined to specific instances.
ARTICLE VI
ISSUANCE AND TRANSFER OF SHARES
-------------------------------
6.01. Issuance of Certificates. Each stockholder of the Corporation shall
------------------------
be entitled to a certificate or certificates, in such form as shall be approved
by the Board of Directors and required by law, certifying the number of shares
of the Corporation owned by such stockholder.
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6.02. Signature on Stock Certificates. The shares of the Corporation
-------------------------------
shall be represented by certificates signed by the President or a Vice President
and the Secretary, and may be sealed with the seal of the Corporation or a
facsimile thereof. The signature of any of these officers upon a certificate
may be a facsimile. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer at the date of its issue.
6.03. Stock Transfer Books. A record of all certificates for shares
--------------------
issued by the Corporation shall be the Secretary or by any transfer agent or
registrar appointed pursuant to Section 6.04 below at the principal office of
the Corporation or at the office of such transfer agent or registrar. Such
record shall show the name and address of the person, firm or corporation in
which certificates for shares are registered, the number and classes of shares
represented by each such certificate, the date of each such certificate, and in
case of certificates which have been canceled, the dates of cancellation
thereof.
6.04 Transfer Agents and Registrars. The Board of Directors may appoint
------------------------------
one (1) or more transfer agents, registrars of other agents for the purpose of
registering transfer of shares of the Corporation, issuing new certificates of
shares of the Corporation and canceling certificates surrendered to the
Corporation. Such agents and registrars shall be appointed at such times and
places as the requirements of the Corporation may necessitate and the Board of
Directors may designate. Any such transfer agent, registrar or other agent
shall be under a duty to the Corporation to exercise good faith and due
diligence in performing his functions. Such transfer agent, registrar or other
agent shall have, with regard to the particular functions he performs, the same
obligation to the holder or owner of shares of the Corporation and shall have
the same rights and privileges as the Corporation has in regard to those
functions. Notice to a transfer such agent, registrar or other such agent is
notice to the Corporation with respect to the functions performed by the agent.
6.05. Replacement of Lost, Destroyed and Stolen Certificates. Where a
------------------------------------------------------
certificate for shares of the Corporation has been lost, destroyed or stolen,
the Corporation shall issue a new certificate in place of the original
certificate if the owner (a) files with the Corporation a sufficient indemnity
bond, and (b) satisfies any other reasonable requirements imposed by the Board
of Directors of the Corporation.
6.06. Transfer of Shares. Shares of the capital stock of the Corporation
------------------
shall be transferred on the books of the Corporation by the holder thereof in
person or by his attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares to be transferred, except
as provided in the preceding section. Books for the transfer of shares of the
capital stock shall be kept by the Corporation or by one or more transfer agents
appointed by it.
6.07. Regulations. The Board of Directors shall have power and authority
-----------
to make such rules and regulations as-it may deem expedient concerning the
issue, transfer and registration of certificates for shares of the capital stock
of the Corporation.
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ARTICLE VII
CORPORATE RECORDS, REPORTS, AND SEAL
------------------------------------
7.01. Minutes of Corporate Meetings. The Corporation shall keep at its
-----------------------------
principal place of business, or at such other place as may be directed by the
Board of Directors, a book of minutes of all proceedings of its stockholders and
Board of Directors, with the time and place of holding of all meetings, whether
regular or special, and, if special, how authorized, the notice thereof given,
the names of those present at directors meetings, the number of shares or
members present or represented at stockholders meetings, and the proceedings
thereof.
7.02. Inspection of Records and Properties by Directors. Every Director
-------------------------------------------------
shall have the absolute right at any reasonable time to inspect all books,
records, documents of every kind, and the physical properties of the
Corporation, and also of its subsidiary corporations. Such inspection by a
Director may be made in person or by agent or attorney, and the right of
inspection includes the right to make extracts.
7.03. Fiscal Year. The fiscal year of the Corporation shall begin on the
------------
first day of February, and terminate on the last day of January of each
succeeding year; unless the Board of Directors shall adopt a different fiscal
year.
7.04. Corporate Seal. The seal of the Corporation shall be circular in
--------------
form and shall have engraved upon it the words, "Just For Feet, Inc." The seal
shall be used by causing it to be affixed or impressed or a facsimile thereof
may be reproduced or otherwise used in such manner as the Board of Directors
shall determine.
ARTICLE VIII
ADOPTION, AMENDMENT, AND REPEAL OF BY LAWS
------------------------------------------
8.01. Power of Directors to Amend. The Board of Directors shall have the
---------------------------
power to alter, amend or repeal the Bylaws of the Corporation or adopt new
Bylaws for the Corporation; provided, however, that the Board of Directors may
not alter, amend, or repeal any provision of the Bylaws which was adopted by the
stockholders pursuant to the Certificate of Incorporation and specifically
provides that it cannot be altered, amended or repealed by the Board of
Directors.
8.02. Power of Stockholders to Amend. The stockholders shall have the
------------------------------
power to alter, amend or repeal the Bylaws of the Corporation or adopt new
Bylaws of the Corporation only as provided in the Certificate of Incorporation
of the Corporation.
-13-
<PAGE>
ARTICLE IX
NOTICES
-------
9.01 Giving of Notice. Except as otherwise provided by the General
----------------
Corporation Law of Delaware, these Bylaws, the Corporation's Certificate of
Incorporation, or resolution of the Board of Directors, every meeting notice or
other notice, demand, bill, statement or other communication (collectively,
"Notice") to or from the Corporation from or to a Director, Officer or
stockholder shall be duly given if it is written or printed and is (a) sent by
first class mail or by overnight service of the U.S. Postal Service, postage
prepaid, (b) sent by any established overnight air courier service, such as
Federal Express, Emery, Airborne or UPS, (c) sent by telegraph, tested telex or
other tested facsimile transmission, (d) delivered by any commercial messenger
service which regularly retains its receipts, or (e) personally delivered,
provided a receipt is obtained reflecting the date of delivery. Notice shall
not be duly given unless all delivery or postage charges are pre-paid. Notice
shall be given to an addressee's most recent address as it appears on the
Corporation's records. A Notice shall be deemed "given" when dispatched for
delivery, or if mailed, on the date postmarked. This Section shall not have the
effect of shortening any notice period provided for in these Bylaws.
9.02 Waiver of Notice. Any Notice required by the General Corporation Law
----------------
of Delaware, the Certificate of Incorporation or these Bylaws may be waived in
writing at any time by the person entitled to the Notice, and such waiver shall
be equivalent to the giving of notice. Notice of any meeting shall be waived by
attendance (if a stockholders' meeting, in person or by proxy) at the meeting.
A waiver of Notice of a special meeting of stockholders shall state the purpose
for which the meeting was called or the business to be transacted thereat.
125300
-14-
<PAGE>
EXHIBIT 10.5.2
LOAN MODIFICATION AGREEMENT
THIS LOAN MODIFICATION AGREEMENT (this "Agreement") is being entered
into by and between COMPASS BANK, an Alabama banking corporation ("Bank"), and
JUST FOR FEET, INC., an Alabama corporation ("Borrower"), as of the 31st day of
August, 1998.
RECITALS
Borrower is the maker of a certain Seventy Million and no/100 Dollars
($70,000,000) Master Revolving Promissory Note dated as of June 5, 1998 (the
"Note") which evidences Borrower's indebtedness to Bank under a $70,000,000
Revolving Line of Credit (the "Line of Credit"). Presently, the availability
under the Line of Credit is scheduled to be reduced to $40,000,000 after
September 6, 1998. Borrower has requested that such availability reduction date
be extended to October 31, 1998.
AGREEMENT
NOW THEREFORE, in consideration of the premises, the mutual agreements
of the parties as set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Borrower and Bank, intending to be legally bound hereby, agree as follows:
1. MODIFICATION OF LINE OF CREDIT. Provided that no event of default
------------------------------
occurs under the Note, the date on which principal credit availability under the
Line of Credit shall be reduced from $70,000,000 to $40,000,000 shall be
extended to October 31, 1998.
<PAGE>
2. Representations and Warranties. Each representation, warranty and
------------------------------
covenant contained in the Note is hereby reaffirmed as of the date hereof.
Borrower represents that Borrower has no offsets or claims against Bank arising
under, related to or connected with the Note or Line of Credit.
3. Execution and Effectiveness. This agreement has been negotiated, and is
---------------------------
is being executed and delivered, in the State of Alabama. Except as expressly
set forth herein or as is necessary to carry out the intent of this Agreement,
the Note shall remain in full force and effect in accordance with its terms, as
amended hereby.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and effective as of the date first above set forth, but actually signed
on the dates set forth below.
BORROWER:
--------
ATTEST: JUST FOR FEET, INC.
By /s/ Scott C. Wynne By /s/ Eric L. Tyra
------------------------------ ---------------------------------
Its Secretary Its Executive Vice President
---------------------- --------------------------
Dated Executed: 8/31/98
--------------------
(CORPORATE SEAL)
BANK:
----
COMPASS BANK
By /s/ Janet Brock
------------------------------ ---------------------------------
Witness Its Senior Vice President
--------------------------
Dated Executed: 8/31/98
--------------------
2
<PAGE>
STATE OF ALABAMA
COUNTY OF SHELBY
I, Doris Lee Sewell, a Notary Public in and for said County in said
State, hereby certify that Eric XXXXX, whose name as EVP of JUST FOR FEET, INC.,
a corporation, is signed to the foregoing instrument and who is known to me,
acknowledged before me on this day that, being informed of the contents of the
instrument, he, as such officer and with full authority, executed the same
voluntarily for and as the act of said corporation.
Given under my hand this the 31st day of August 1998.
/s/ Doris Lee Sewell
-------------------------
Notary Public
NOTARY PUBLIC STATE OF ALABAMA
AT LARGE. MY COMMISSION
EXPIRES: Aug. 30, 1999.
BONDED THRU NOTARY PUBLIC
UNDERWRITERS.
[NOTARIAL SEAL]
My Commission Expires:
---------------
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
I, Chelsa P. Turner, a Notary Public in and for said County in said
State, hereby certify that Janet Brock, whose name as XXX of COMPASS BANK, an
Alabama corporation, is signed to the foregoing instrument and who is known to
me, acknowledged before me on this day that, being informed of the contents of
the instrument, he, as such officer and with full authority, executed the same
voluntarily for and as the act of said corporation.
Given under my hand this the 1st day of September, 1998.
/s/ Chelsa P. Turner
--------------------------------
Notary Public
[NOTARIAL SEAL]
My Commission Expires: February 17,
2001
3
<PAGE>
EXHIBIT 10.17
TERM PROMISSORY NOTE
THIS NOTE IS BEING EXECUTED AND DELIVERED IN ADDITION TO THAT CERTAIN
$70,000,000 AMENDED & RESTATED MASTER REVOLVING PROMISSORY NOTE FROM JUST FOR
FEET, INC. TO COMPASS BANK DATED AS OF JUNE 5, 1998.
$43,000,000.00 Birmingham, Alabama
June 30, 1998
FOR VALUE RECEIVED, the undersigned, JUST FOR FEET, INC., an Alabama
corporation (the "Borrower"), hereby promises to pay to the order of COMPASS
BANK (the "Lender", or together with any subsequent assignee, transferee or
holder of this Note, the "Holder"), at its office at 15 South 20th Street,
Birmingham, Alabama 35233, or at such other place as Lender may direct, in
lawful money of the United States of America constituting legal tender in
payment of all debts and dues, public and private, the principal amount of
FORTY-THREE MILLION AND NO/100 DOLLARS ($43,000,000.00), or so much thereof as
may from time to time be outstanding hereunder, together with interest thereon
calculated at the rate and in the manner set forth herein (and any charges and
expenses provided for under this Note), all on and in accordance with the terms
and in the manner more particularly set forth below:
1. DEFINITIONS. The following terms shall, for purposes of this Note,
-----------
have the following meanings:
"AUTHORIZED AGENT" shall mean the Chief Executive Officer or Chief
----------------
Financial Officer of the Borrower or any other agent of Borrower from time to
time designated by Borrower as authorized to request advances and to make the
interest rate elections provided for hereunder.
<PAGE>
"BUSINESS DAY" shall mean any day, Monday through Friday, on which Holder
------------
is open for the conduct of its general banking business.
"COMPASS BANK PRIME", as used herein, is a reference rate established by
------------------
Holder for use in computing and adjusting interest, is subject to increase,
decrease or change at Holder's discretion, and is only one of the reference
rates or indices that Holder uses. Holder may lend to others at rates of
interest at, or greater or less than, Compass Bank Prime or the rate(s) provided
herein. Any change in the applicable rate under this Note resulting from a
change in Compass Bank Prime shall take effect on the day of such change.
"EBITDAR COVERAGE RATIO" shall mean the ratio of (a) Borrower's earnings
----------------------
before interest, taxes, depreciation, amortization and rentals to (b) the sum of
Borrower's interest, rentals and current maturities of long term debt; all
determined on a rolling four fiscal quarter basis in accordance with generally
accepted accounting principles consistently applied.
"INTEREST PAYMENT DATE" shall be the first day of each calendar month. If
---------------------
any Interest Payment Date would otherwise be a day which is not a Business Day,
such Interest Payment Date shall be extended to the end of the next succeeding
Business Day.
"LIBOR MARGIN PERCENTAGE" shall be a percentage determined on the date
-----------------------
hereof and on the first day of May, August, November and February of each year
for so long as this Note is outstanding based upon Borrower's EBITDAR Coverage
Ratio for the fiscal quarter which immediately preceded Borrower's last full
quarter prior to the date on which the applicable interest rate under this Note
is to be calculated or adjusted, in
<PAGE>
accordance with the following table:
===============================================================================
EBITDAR COVERAGE APPLICABLE LIBOR MARGIN
RATIO PERCENTAGE
- -------------------------------------------------------------------------------
(less than or equal to) 2.50 TO 1 1.500%
- -------------------------------------------------------------------------------
(greater than) 2.50 TO 1 but
(less than or equal to) 3.00 TO 1 1.250%
- -------------------------------------------------------------------------------
(greater than) 3.00 TO 1 but
(less than or equal to) 3.15 TO 1 1.125%
- -------------------------------------------------------------------------------
(greater than) 3.15 TO 1 but
(less than or equal to) 3.30 TO 1 1.000%
- -------------------------------------------------------------------------------
(greater than) 3.30 TO 1 .875%
================================================================================
"LIBOR RATE" means, at the time of any computation required under this
----------
Note, an interest rate equal to (i) Holder's reasonable estimate of the offering
rate in United States dollars as shown on page 3750 of the Telerate Service at
which United States dollar deposits in the amount of the then unpaid principal
amount of this Note would be, at Holder's request, offered to Holder by brokers
or other intermediaries trading in the London Interbank Market for a period of
one month at approximately 11:00 A.M. (London Time), on the date on which the
LIBOR Rate is to be set and the monthly interest period is to apply; plus (ii)
any then-applicable reserve requirements imposed upon Holder by the Federal
Reserve System or then-applicable assessment rate required to be paid by Holder
from time to time to the Federal Deposit Insurance Corporation (or any
successor) for such corporation's insuring Holder's deposits in the United
States (as additional percentage points); plus (iii) the applicable LIBOR Margin
Percentage.
2. LOAN; ADVANCES. Borrower has applied to Lender and Lender has agreed
--------------
to make available to Borrower a term loan in the maximum principal amount of
FORTY-THREE MILLION AND NO/100 DOLLARS ($43,000,000.00) which Loan is and shall
be governed by this Note. Accordingly, in consideration of the foregoing, the
credit to be
<PAGE>
made available hereunder, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, from the date hereof until
September 15, 1998, subject to the terms and conditions of this Note and so long
as no event of default shall have occurred hereunder, Holder shall make
principal advances to Borrower hereunder up to the aggregate principal amount of
$43,000,000 for Borrower's general corporate purposes.
3. PAYMENTS AND MATURITY. (a) Interest, calculated as set forth below
---------------------
from the date hereof, on the unpaid principal amount hereof shall be paid on
each Interest Payment Date (as herein defined) with the first interest payment
due on August 1, 1998, and monthly thereafter until the maturity date.
(b) The entire unpaid principal balance outstanding hereunder plus accrued
interest (and any charges and expenses provided for under this Note) shall be
due and payable in full on September 15, 1998, which is the maturity date of
this Note, unless such amounts are due sooner pursuant to the terms of this
Note.
4. APPLICABLE INTEREST RATE. Unless Compass Bank Prime is applicable
------------------------
pursuant to Section 17 of this Note, the outstanding principal balance of this
Note shall bear interest at a rate equal to the LIBOR Rate as calculated
initially on the date hereof and as calculated on the first day of each month
thereafter, based upon the applicable LIBOR Margin Percentage. During any
period when Compass Bank Prime is applicable, the applicable interest rate shall
be the greater of (a) Compass Bank Prime from time to time prevailing, such rate
to change as Compass Bank Prime changes, or (b) five percent (5%). Any
principal amounts outstanding hereunder after maturity shall bear interest at a
rate equal to Compass Bank Prime plus two percentage points (2%), calculated in
a
<PAGE>
manner set forth herein.
5. LIBOR RATE. Unless Compass Bank Prime is applicable pursuant to
----------
Section 17 of this Note, the unpaid principal balance of this Note shall bear
interest at a rate equal to the LIBOR Rate, which shall be determined as
follows:
5.1 On the first day of each month, Holder shall (subject to availability)
determine the LIBOR Rate (as defined herein). The LIBOR Rate so determined
shall be the LIBOR Rate applicable to this Note until the first day of the next
month, at which time Holder shall determine and reset the then effective LIBOR
Rate.
5.2 Notwithstanding the fact that the interest rate hereof is based upon
the London Interbank Market, Borrower agrees that Holder shall not be required
actually to obtain funds from such source at any time.
5.3 Interest shall be paid by Borrower on each respective Interest Payment
Date.
6. 360-DAY YEAR. Irrespective of which rate is the applicable interest
------------
rate under this Note, interest from date on the outstanding unpaid principal
balance of this Note shall be calculated by multiplying the product of the
relevant principal amount and the applicable interest rate by the actual number
of days elapsed, and dividing by 360.
7. FACILITY FEE. Borrower shall pay to Holder upon execution of this
------------
Note a Facility Fee in respect of the Loan in the amount of $107,500.
8. PREPAYMENTS. Borrower may prepay without penalty from time to time the
-----------
outstanding principal balance of this Note, or any part thereof, bearing
interest at the LIBOR Rate, or, if applicable, Compass Bank Prime.
9. INDEMNITY. Borrower hereby agrees to indemnify Holder, its officers,
---------
<PAGE>
employees, and agents from any cost or loss arising from their actions taken or
omitted to be taken in good faith based upon communications between Borrower and
Holder. The obligations of Borrower under this Section shall survive payment of
this Note.
10. EXPENSES. Holder shall be entitled to recover all expenses incurred
--------
in collecting or attempting to collect this Note, including, without limitation,
court costs and attorneys' fees. The obligations of Borrower under this Section
shall survive payment of this Note.
11. CERTAIN COVENANTS. (a) Borrower shall not cause or allow its Total
-----------------
Debt-to-Tangible Net Worth ratio to exceed 1.0 - to - 1.0 as of the end of each
of Borrower's fiscal quarters. As used in this paragraph 11(a), "Tangible Net
Worth" shall mean Borrower's net worth (determined in accordance with generally
accepted accounting principles) less (A) any and all loans and other advances to
and investments in Borrower's affiliates, subsidiaries, owners, parent,
employees, officers, shareholders, directors or other related entities, (B)
notes, notes receivable, accounts, accounts receivable, intercompany
receivables, and other amounts owing from Borrower's affiliates, subsidiaries,
owners, parent, employees, officers, shareholders, directors or other related
entities; and (C) any and all intangibles. As used in this paragraph 11(a),
"Total Debt" shall mean all of Borrower's indebtedness and liabilities owing to
Holder or to any other person or entity, howsoever and whensoever created or
arising, absolute or contingent, and joint or several, exclusive of short-term
treasury bill-secured debt incurred over Borrower's fiscal year end for Alabama
share tax purposes.
(b) Borrower shall maintain a minimum EBITDAR Coverage Ratio of 2.0 - to -
1 calculated at the end of each of Borrower's fiscal quarters on a rolling four
fiscal quarter
<PAGE>
basis.
(c) If at any time the amount outstanding under this Note exceeds the
Maximum Principal Amount, then Borrower shall immediately remit to Holder good
funds sufficient to eliminate such excess.
(d) Borrower shall submit or cause to be submitted to Holder (i) for the
first three (3) quarters during each fiscal year, Borrower's internal unaudited
quarterly financial statements within forty-five (45) days after the close of
each such quarter in each fiscal year including balance sheets as of the close
of such period, income statements, and reconciliations of surplus for such
period, prepared in accordance with generally accepted accounting principles;
(ii) Borrower's audited fiscal year-end financial statements within one hundred
twenty (120) days after the close of each fiscal year, including balance sheets
as of the close of such period, income statements, and reconciliations of
stockholders' equity audited by an independent certified public accountant and
performed in accordance with generally accepted accounting principles; and (iii)
such other financial and related information which Holder reasonably shall
request regarding Borrower when and as requested by Holder. In addition,
Borrower shall notify Holder immediately in writing if any event has occurred
which constitutes an event of default or would constitute an event of default
but for the requirement that notice be given, or time elapse or both, under any
of Borrower's loans, notes, debentures or bonds then outstanding, accompanied by
a description of the nature of such event.
(e) Borrower shall at all times comply with all laws, ordinances, rules and
regulations of any governmental authority or entity governing or affecting
Borrower or any of its property, and shall immediately notify Holder of any and
all actual, alleged or
<PAGE>
asserted violations of any such laws, ordinances, rules or regulations which
could materially impact Borrower's ability to perform under this Note.
(f) Promptly after the same shall have become known to Borrower, Borrower
shall notify Holder in writing of any action, suit or proceeding at law or in
equity or by or before any governmental instrumentality or other agency, if
adversely determined, might impair the ability of Borrower to perform its
obligations under this Note.
(g) Borrower shall not (i) liquidate, discontinue or materially reduce its
normal operations with intention to liquidate; or (ii) cause, allow or suffer to
occur (a) the merger or consolidation of or involving Borrower with or into any
corporation, partnership, or other entity, or (b) the sale, lease, transfer or
other disposal of all or any substantial part of its assets.
(h) Borrower shall pay all reasonable fees and expenses, including, without
limitation, legal fees and expenses, filing fees, insurance premiums and
expenses, appraisal fees, recording costs and taxes actually incurred by Holder
from time to time in connection with the preparation of and closing on this Note
and any related documents. Borrower shall pay to Holder on demand any and all
such fees and expenses together with any and all fees, expenses and costs (i) of
collection or (ii)otherwise incurred or paid by Holder in amending, modifying,
extending or administering this Note or the transactions contemplated hereby or
in protecting or enforcing its rights upon or with respect to this Note.
(i) Borrower shall pay any and all taxes, with the exception of taxes
measured by income, charges and expenses of every kind or description paid or
incurred by Holder under or with respect to this Note, any advances hereunder or
any collateral therefor or
<PAGE>
the collection of or realization upon the same.
(j) Borrower shall not cause or allow any of its assets to be sold, leased,
assigned, transferred, disposed of, mortgaged, made subject to a security
interest, lien or encumbrance including without limitation its inventory,
accounts, intangibles, goods, money, and securities (all as defined in the
Alabama Uniform Commercial Code), provided that Borrower may sell goods to
Borrower's retail customers in the ordinary course of Borrower's business and
may sell, lease, assign, transfer, dispose of, mortgage, or grant or create a
security interest, lien or encumbrance on Borrower's real property, fixtures and
other fixed assets.
12. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
------------------------------
follows:
(a) Borrower is a duly organized Alabama corporation, validly existing, and
in good standing under the laws of the State of Alabama and is qualified to do
business and is in good standing in all other jurisdictions where such
qualification is necessary. Borrower (i) has all necessary licenses and
corporate powers and authority to own its assets and conduct its business as now
conducted or presently proposed to be conducted; and (ii) is duly qualified and
in good standing (and will remain so qualified and in good standing) in every
jurisdiction in which it is or shall be doing business or in which the failure
to qualify and remain in good standing would or could have an adverse effect on
its business or properties.
(b) The execution, delivery, and performance of this Note are within
Borrower's corporate powers, have been duly and validly authorized and are not
in contravention of the law or the terms of its charter, by-laws, or other
incorporation
<PAGE>
papers, or of any indenture, agreement, or undertaking or any law, regulation or
order to which Borrower is a party or by which Borrower or any of its property
is or may be bound. Upon execution and delivery, this Note will be a valid and
binding obligation of Borrower enforceable in accordance with its terms.
(c) Subject to any limitations stated therein or in connection therewith,
all balance sheets, earnings statements and other financial data which have been
or may hereafter be furnished to Holder in connection herewith, do or shall
fairly represent the financial condition of Borrower (or other person or entity,
as applicable) as of the dates and results of operations for the periods for
which the same are furnished in accordance with generally accepted accounting
principles consistently applied, and all other information, reports and other
papers and data furnished to Holder shall be accurate, as of the relevant date,
and correct in all material respects and complete insofar as completeness may be
necessary to give Holder a true and accurate knowledge of the subject matter.
(d) Borrower's name is as set forth on the first page of this Note.
Borrower will promptly advise Holder in writing of any change in Borrower's
name, chief executive office or principal place of business.
(e) Borrower is not now in default under any agreement evidencing an
obligation for the payment of money, performance of a service or delivery of
goods, demand for performance under which, or acceleration of the maturity of
which, would render Borrower insolvent or unable to meet its other debts as they
become due or conduct its business as usual.
(f) In the event (i) any of Borrower's warranties or representations shall
prove
<PAGE>
to be false or misleading, or (ii) anyone in judicial proceedings shall assert
against Holder a claim or defense arising out of any transaction between itself
and Borrower, Borrower agrees to indemnify and hold Holder harmless against any
liability, judgment, cost, attorneys' fees or other expense whatsoever arising
therefrom.
(g) Except for any litigation described on Exhibit A hereto, there are no
judgments, actions, suits, claims, proceedings or investigations existing,
outstanding, pending, or to the best of Borrower's knowledge after due inquiry,
threatened or in prospect, before any court, agency or tribunal, or governmental
authority against or involving Borrower or any guarantor which do or could
materially affect the ability of Borrower to perform its obligations under this
Note.
13. EVENTS OF DEFAULT. Upon the occurrence or existence of any one or
-----------------
more of the following events of default:
(a) failure by Borrower to make any payment of principal, interest or
charges and expenses provided for under this Note as and when the same
is due and payable;
(b) failure by Borrower to pay or perform any other loan, indebtedness,
liability or obligation to Holder as and when due;
(c) failure by Borrower or any other person or entity to observe or comply
with any covenant, obligation, agreement, term or provision contained
or referenced in this Note or in any other document, agreement or
instrument executed in connection with or securing this Note or that
certain Agreement Regarding Maintenance of Unencumbered Ownership of
Property from Borrower in favor of Lender dated as of June 30, 1998;
<PAGE>
(d) failure to comply with any terms or conditions of or the occurrence or
continuation of any default or event of default contained, specified
or referenced in any other document, agreement or instrument
evidencing, securing, relating to or executed in connection with this
Note or the indebtedness evidenced hereby or any other indebtedness,
obligation or liability of Borrower to Holder;
(e) the occurrence or continuation of any default or event of default with
respect to any indebtedness, obligation or liability of Borrower in
favor of any other creditor or lender, whether or not evidenced by
note, loan, debenture, bond or account, if the effect of such default
or event of default is to allow the creditor or lender to which the
indebtedness, obligation or liability is owed to accelerate the same
such that it shall become due prior to the stated due date thereof;
(f) if any warranty or representation contained herein shall prove false
or misleading in any material respect or if Borrower made or makes any
other material misrepresentation to Holder for the purpose of
obtaining credit or any extension of credit;
(g) issuance by an injunction or attachment against property of, the
general assignment by, judgment against or filing of petition in
bankruptcy by or against Borrower; the filing of an application in any
court for a receiver for Borrower; or the dissolution or liquidation
of Borrower (provided, however, Borrower shall have sixty (60) days to
have dismissed of record any involuntary bankruptcy petition filed
against it); or
<PAGE>
(h) calling of a meeting of creditors, appointment of a committee of
creditors or liquidation agents, or offering of a composition or
extension to creditors by, for or of Borrower;
then, or at any time thereafter, Holder may, with or without notice to Borrower,
declare this Note to be forthwith due and payable, as to principal and interest
and related charges and expenses provided for under this Note, without
presentment, demand, protest, or other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in any other instrument
executed in connection with or securing this Note to the contrary
notwithstanding.
14. WAIVERS. With respect to the amounts due under this Note and
-------
Borrower's obligations hereunder, Borrower waives the following:
(a) All rights of exemption of property from levy or sale under execution
or other process for the collection of debts under the Constitution or laws of
the United States or any state thereof; and
(b) Demand, presentment, protest, notice of protest or dishonor, notice of
nonpayment, suit against any party, diligence in collection, and all other
requirements necessary to charge or hold the undersigned liable on any
obligations hereunder.
Holder may accept partial payment, or (if this Note is hereafter secured or
collateralized) release or exchange any security or any collateral without
discharging or releasing any of the obligations evidenced hereby or any
unreleased security or collateral.
15. COMPLIANCE WITH LAWS. It is the intention of Holder and Borrower to
--------------------
conform strictly to any applicable usury laws. Accordingly, if the transactions
<PAGE>
contemplated hereby would be usurious under any applicable law, then, in that
event, notwithstanding anything to the contrary in this Note or any agreement
entered into in connection with or as security for or guaranteeing this Note, it
is agreed as follows: (a) the aggregate of all consideration which constitutes
interest under applicable law that is contracted for, taken, reserved, charged,
or received by Holder under this Note or under any agreement entered into in
connection with or as security for this Note shall under no circumstances exceed
the Highest Lawful Rate (as defined below), and any excess shall be canceled
automatically and, if theretofore paid, shall, at the option of Holder, be
credited by Holder on the principal amount of any indebtedness owed to Holder by
Borrower or refunded by Holder to Borrower, and (b) in the event that the
payment of this Note is accelerated or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to Holder may never include more than the Highest Lawful Rate and
excess interest, if any, to Holder provided for in this Note or otherwise shall
be canceled automatically as of the date of such acceleration or prepayment and,
if theretofore paid, shall, at the option of Holder, be credited by Holder on
the principal amount of any indebtedness owed to Holder by Borrower or refunded
by Holder to Borrower.
"Highest Lawful Rate" means the maximum non-usurious interest rate that at
any time or from time to time may be contracted for, taken, reserved, charged,
or received on amounts due to Holder, under laws applicable to Holder with
regard to this Note that are presently in effect or, to the extent allowed by
law, under such applicable laws that allow a higher maximum non-usurious rate
than applicable laws now allow.
16. GENERAL. Holder shall not by any act, delay, omission or otherwise be
-------
<PAGE>
deemed to have waived any of its rights or remedies, and no waiver of any kind
shall be valid unless in writing and signed by Holder. All rights and remedies
of Holder under the terms of this Note, and applicable statutes or rules of law,
shall be cumulative and may be exercised successively or concurrently. Borrower
agrees that, as of the date hereof, there are no defenses, equities or setoffs
in respect to the obligations set forth herein. The obligations of Borrower
hereunder shall be binding upon and enforceable against Borrower and its
successors and assigns. BORROWER AGREES THAT THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED UNDER THE LAWS OF THE STATE OF ALABAMA (WITHOUT REGARD TO CHOICE OF
LAW CONSIDERATIONS), INCLUDING, WITHOUT LIMITATION, APPLICABLE USURY LAWS. THIS
NOTE HAS BEEN NEGOTIATED, AND IS BEING EXECUTED AND DELIVERED IN THE STATE OF
ALABAMA, OR IF EXECUTED ELSEWHERE, SHALL BECOME EFFECTIVE UPON HOLDER'S RECEIPT
AND ACCEPTANCE OF THE EXECUTED ORIGINAL OF THIS NOTE IN THE STATE OF ALABAMA;
PROVIDED, HOWEVER, THAT HOLDER SHALL HAVE NO OBLIGATION TO GIVE, NOR SHALL
BORROWER BE ENTITLED TO RECEIVE, ANY NOTICE OF SUCH ACCEPTANCE FOR THIS NOTE TO
BECOME A BINDING OBLIGATION OF BORROWER. IT IS INTENDED, AND BORROWER AND
HOLDER SPECIFICALLY AGREE, THAT THE LAWS OF THE STATE OF ALABAMA GOVERNING
INTEREST SHALL APPLY TO THIS NOTE AND THIS TRANSACTION. NOTWITHSTANDING THE
FOREGOING, NOTHING CONTAINED IN THIS PARAGRAPH SHALL PREVENT HOLDER FROM
BRINGING ANY ACTION OR EXERCISING ANY RIGHTS AGAINST BORROWER, ANY GUARANTOR,
ANY SECURITY FOR THIS NOTE OR ANY OF BORROWER'S OR ANY GUARANTOR'S PROPERTIES IN
ANY OTHER COUNTY, STATE OR JURISDICTION. INITIATING SUCH ACTION OR PROCEEDING
OR TAKING ANY SUCH ACTION IN ANY OTHER STATE OR JURISDICTION SHALL IN NO EVENT
CONSTITUTE A WAIVER BY HOLDER OF ANY OF THE FOREGOING. As used herein, the
terms "Borrower", "Lender", "guarantor" and "Holder" shall be deemed to include
their respective successors, legal representatives
<PAGE>
and assigns, whether by voluntary action of the parties or by operation of law.
This Note is given under the seal of all parties hereto and it is intended that
this Note shall constitute and have the effect of a sealed instrument according
to law. Any provision in this Note which may be unenforceable or invalid under
applicable law shall be ineffective to the extent of such unenforceability or
invalidity without affecting the enforceability or validity of any other
provision hereof.
17. YIELD PROTECTION.
----------------
17.1 GENERAL. With respect to LIBOR Rate advances, if any future law,
-------
rule, regulation or directive, or any future judicial or administrative
interpretation of any existing law, rule, regulation or directive
(a) subjects Holder to any tax, duty, charge or withholding on or from
payments due from Borrower (excluding taxation of the overall net
income of Holder or taxation which may be treated as an offset against
such taxation of overall net income), or
(b) imposes or increases any reserve, special deposit or similar
requirement against Holder, or
(c) imposes any other condition, the result of which is to increase the
cost to Holder of making, funding or maintaining loans or reduces any
amount receivable by Holder in connection with loans, or requires
Holder to make any payment calculated by reference to the amount of
loans held or interest received by it,
then, upon demand by Holder, Borrower shall pay to Holder that portion of such
increased expense incurred or reduced amount received which Holder determines is
<PAGE>
attributable to making, funding and maintaining LIBOR Rate advances hereunder.
Holder promptly shall notify Borrower upon its becoming aware of any such
increased expense or reduced amount received.
17.2 SURVIVAL OF INDEMNITY. Determination of amounts payable under Section
---------------------
17.1 above in connection with the LIBOR Rate shall be calculated as though
Holder funded the amount of the principal to which the LIBOR Rate applies
through the purchase of a deposit of the type, amount and maturity corresponding
to the deposit used as a reference in determining the applicable LIBOR Rate for
such principal amount. The obligations of Borrower under Section 17 hereof
shall survive payment of this Note.
17.3 ILLEGALITY AFFECTING LIBOR RATE ADVANCES. If Holder, in its sole
----------------------------------------
discretion, determines that maintenance of any LIBOR Rate would violate any
applicable law, rule, regulation, or directive applicable to Holder, then Holder
may suspend the availability of the LIBOR Rate, including the amount of
principal then outstanding to which the LIBOR Rate then applies, upon notice to
Borrower. In the event of suspension of the LIBOR Rate, the applicable rate
shall be determined by Lender using an index rate which in Lender's sole
judgment is comparable to the LIBOR Rate, or if none is available, the
applicable rate shall be Compass Bank Prime.
17.4 AVAILABILITY OF INTEREST RATE. If Holder, in its reasonable
-----------------------------
discretion, determines that (a) deposits of a type and maturity appropriate to
match the LIBOR Rate to the amount of the unpaid principal under this Note are
not available to Holder, or (b) that the LIBOR Rate does not accurately reflect
the cost to Holder of making the corresponding advance, Holder may suspend the
availability of the LIBOR Rate with respect to future advances and future
interest periods. In the event of suspension of the
<PAGE>
LIBOR Rate, the applicable rate shall be determined by Lender using an index
rate which in Lender's sole judgment is comparable to the LIBOR Rate, or if none
is available, the applicable rate shall be Compass Bank Prime.
18. GENERAL. Borrower represents that this Note is enforceable against
-------
Borrower in accordance with its terms and that Borrower has no offsets or claims
against Holder arising, related to or connected with this Note.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered by its duly authorized officer in Alabama effective as of the 30th day
of June, 1998, but actually executed on the day of June, 1998.
----
BORROWER:
---------
ATTEST: JUST FOR FEET, INC.
By By
--------------------------- ----------------------------
Its Its
--------------------- ---------------------
(CORPORATE SEAL)
<PAGE>
STATE OF
--------------------
COUNTY OF
-------------------
I, , a notary public in and for
------------------------------------------
said county in said state, hereby certify that ,
--------------------------------
whose name as ______________ of JUST FOR FEET, INC., a corporation, is signed
to the foregoing instrument and who is known to me, acknowledged before me on
this day that, being informed of the contents of such instrument, he, as such
officer and with full authority, executed the same voluntarily for and as the
act of said corporation.
Given under my hand and official seal this the day of , 1998.
-- ------
------------------------------------
[NOTARIAL SEAL] Notary Public
My Commission Expires:
-------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JAN-31-1999 JAN-31-1998
<PERIOD-START> FEB-01-1998 FEB-01-1997
<PERIOD-END> JUL-31-1998 JUL-31-1997
<CASH> 13,238 82,490
<SECURITIES> 0 0
<RECEIVABLES> 17,332 15,840
<ALLOWANCES> 0 0
<INVENTORY> 322,712 206,128
<CURRENT-ASSETS> 368,412 311,167
<PP&E> 132,101 108,487
<DEPRECIATION> 18,524 13,958
<TOTAL-ASSETS> 551,776 448,352
<CURRENT-LIABILITIES> 211,070 155,706
<BONDS> 0 0
0 0
0 0
<COMMON> 3 3
<OTHER-SE> 311,379 268,081
<TOTAL-LIABILITY-AND-EQUITY> 551,776 448,352
<SALES> 327,250 205,172
<TOTAL-REVENUES> 327,846<F1> 206,721<F1>
<CGS> 188,116 118,916
<TOTAL-COSTS> 291,119<F2> 181,629<F2>
<OTHER-EXPENSES> 11,974<F3> 8,300<F3>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,328 662
<INCOME-PRETAX> 22,425 16,130
<INCOME-TAX> 8,634 6,124
<INCOME-CONTINUING> 13,791 10,006
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 13,791 10,006
<EPS-PRIMARY> $0.46 $0.34
<EPS-DILUTED> $0.44 $0.33
<FN>
<F1> - Includes sales, franchise fees, royalties and other revenue and interest
income.
<F2> - Includes CGS, store operating and store opening costs.
<F3> - Includes amortization of intangibles and general and administrative
costs.
</FN>
</TABLE>
