<PAGE>
As filed with the Securities and Exchange Commission on June 14, 1999.
Registration Number 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------------
Just For Feet, Inc.
(Exact name of Registrant as specified in its charter)
---------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 5661 52-2098043
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
7400 Cahaba Valley Road
Birmingham, Alabama 35242
(205) 408-3000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
---------------------------
HAROLD RUTTENBERG
Chairman and Chief Executive Officer
7400 Cahaba Valley Road
Birmingham, Alabama 35242
(205) 408-3000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------
Copies to:
ARTHUR JAY SCHWARTZ, ESQ.
Smith, Gambrell & Russell, LLP
1230 Peachtree Street, N.E., Suite 3100
Atlanta, Georgia 30309
---------------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Be Offering Price Aggregate Amount of Registration
Securities to Be Registered Registered (1) Per Note Offering Price(1) Fee (1)(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11% Senior Subordinated Notes,
Series B....................... $200,000,000 100% $200,000,000 $55,600
- ---------------------------------------------------------------------------------------------------------------------
Guarantees of 11% Senior (2) (2) (2) (2)
Subordinated Notes, Series B..
=====================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the amount of registration fee
pursuant to Rule 457(f) of the Securities Act.
(2) Each Registrant other than Just For Feet, Inc. is a subsidiary of Just For
Feet, Inc. and is guaranteeing payment of the notes being registered. No
separate consideration will be received for the guarantees of the 11%
Senior Subordinated Notes, Series B by the guarantor subsidiaries of Just
For Feet, Inc. Pursuant to Rule 457(n) under the Securities Act, no
registration fee is required with respect to these guarantees.
The registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Sectiona8(a),
may determine.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS(1)
<TABLE>
<CAPTION>
State or Other Primary Standard
Jurisdiction of Industrial I.R.S. Employer
Incorporation or Classification Identification
Exact Name of Registrant As Specified in its Charter Organization Code Number Number
- ----------------------------------------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C>
Just For Feet, Inc.................................... Delaware 5661 63-0734234
Sneaker Stadium, Inc.................................. Delaware 5661 22-3282329
SNKR Holding Corp..................................... Delaware 5661 22-3496117
Athletic Attic Marketing, Inc......................... Florida 5661 59-1652915
Just For Feet of Texas, Inc........................... Alabama 5661 63-1110660
Just For Feet of Nevada, Inc.......................... Nevada 5661 63-1106743
Just For Feet Specialty Stores, Inc................... Michigan 5661 38-2236573
</TABLE>
- ---------------------------
(1) The address, including zip code, and telephone number, including area code,
of the additional Registrants' principal executive offices is 7400 Cahaba
Valley Road, Birmingham, Alabama 35242, (205) 408-3000.
2
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the SEC is
effective. This prospectus is not an offer to sell those securities and we are
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
SUBJECT TO COMPLETION, DATED _______________, 1999
PROSPECTUS
JUST FOR FEET, INC.
Exchange Offer for $200,000,000
of 11% Senior Subordinated Notes due 2009
We are offering you the opportunity to exchange your 11% Senior
Subordinated
Notes due 2009 for our new 11% Senior Subordinated Notes due 2009 that are
registered under the Securities Act. Your old notes are not registered under
the Securities Act.
Material terms of the exchange offer:
. Expiration. The exchange offer will expire at 5:00 p.m. New York
City time on ___________, 1999, unless we extend it.
. Exchange. We will exchange all outstanding old notes that are validly
tendered and not validly withdrawn before the exchange offer expires
for an equal principal amount of exchange notes.
. The Exchange Notes. The terms of the exchange notes are substantially
identical to the old notes,except that the exchange notes are registered
under the Securities Act. Certain transfer restrictions and registration
rights relating to the old notes do not apply to the exchange notes.
. Withdrawal Rights. You may withdraw tenders of old notes at any time
before the exchange offer expires.
. Tax Consequences. We believe that the exchange of notes will not be a
taxable event for U.S.federal income tax purposes, but you should see
"United States Federal Income Tax Considerations" for more information.
. Use of Proceeds. We will not receive any proceeds from the exchange
offer.
. Trading. There is no existing market for the exchange notes and we
will not apply to list them on any securities exchange.
See "Risk Factors" beginning on page 10 for a discussion of certain factors
that you should consider before you tender your old notes and participate in the
exchange offer.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THE EXCHANGE NOTES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is ____________, 1999.
<PAGE>
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information. This prospectus does not offer to sell or
buy any notes in any jurisdiction where it is unlawful. The information in this
prospectus is current as of its date, but the information may change after that
date.
This exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of old notes in any jurisdiction in which this exchange
offer or the acceptance thereof would not be in compliance with the securities
or blue sky laws of such jurisdiction.
---------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.............................. 1
Risk Factors.................................... 10
Use of Proceeds................................. 20
Capitalization.................................. 20
Selected Financial and Other Data............... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 24
Business........................................ 34
Management...................................... 42
Security Ownership of Certain Beneficial
Owners and Management......................... 44
Page
----
The Exchange Offer.............................. 46
Description of Revolving Credit Facility........ 53
Description of Exchange Notes................... 54
United States Federal Income Tax 94
Considerations................................
Plan of Distribution............................ 97
Legal Matters................................... 98
Experts......................................... 98
Incorporation of Certain Documents by
Reference..................................... 98
Where You Can Find More Information............. 99
Index to Financial Statements .................. F-1
---------------------------
FORWARD-LOOKING STATEMENTS
This prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements appear in a
number of places in this prospectus and in documents incorporated by reference
herein and include statements regarding the intent, belief or current
expectations of Just For Feet with respect to, among other things: (i) the
timing, magnitude and costs of our participation in the smaller specialty store
market of the industry; (ii) our expansion plans; (iii) competition from other
footwear companies; (iv) leverage; (v) our ability to successfully integrate
recent acquisitions, including our ability to successfully convert Sneaker
Stadium superstores to Just For Feet superstores; (vi) potential acquisitions by
the Company; (vii) trends affecting our financial condition or results
of operations including changes in customer demand and merchandise trends; and
(viii) our business and growth strategies. These include statements regarding
the effect of recent difficulties in our specialty store division on our fiscal
1999 results and future expansion plans and our plans to seek vendor support and
amendments to our credit facilities. 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 and incorporated by reference in this
prospectus from our filings with the Securities and Exchange Commission,
including without limitation the information set forth under the headings "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" identifies important factors that could
cause such differences.
---------------------------
The Company owns the following federally registered service marks (in
design form): "Just For Feet," "Just For Feet, World's Largest Athletic Shoe
Store," "Just For Feet, Where The 13th Pair is FREE!" and "Athletic Attic." This
prospectus also mentions several registered trademarks owned by other companies
including Nike(R), Reebok(R), New Balance(R), Adidas(R), Fila(R), K-Swiss(R),
Converse(R), Timberland(R) and Rockport(R).
---------------------------
i
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important
to you. To understand the exchange offer fully, you should read the entire
prospectus, including the risk factors and the financial statements. Unless the
context indicates otherwise, all references to "Just For Feet," the "Company,"
"we," "our," and "us" refer to Just For Feet, Inc. and its consolidated
subsidiaries. We recently changed our fiscal year-end, which historically ended
on January 31. We now operate on a 52/53 week fiscal year ending on the Saturday
closest to January 31. In this prospectus, references to fiscal years prior to
fiscal 1999 refer to the fiscal year beginning on February 1 of that calendar
year; for example, "fiscal 1997" began on February 1, 1997 and ended on January
31, 1998; fiscal 1998 began on February 1, 1998 and ended on January 30, 1999.
Fiscal 1999 began on January 31, 1999 and will end on January 29, 2000. The
information contained on our website does not form a part of this prospectus.
The Company
We are the leading operator of large format "category killer" superstores
specializing in brand-name athletic and outdoor footwear and apparel. Our
company was founded in 1977 and we opened our first superstore in 1988. As a
result of the success and high sales volume generated by the larger store
format, we have focused primarily on expanding our superstore concept. Our
superstores offer a dominant selection of brand-name athletic and outdoor
footwear, superior customer service and technical sales assistance in an
entertaining shopping environment. In July 1998, we expanded our superstore
operations in the Northeast and Mid-Atlantic states with the acquisition of
Sneaker Stadium, Inc., an operator of athletic footwear and apparel superstores.
As of June 1, 1999, we had completed the conversion of 34 of the acquired
superstores to the Just For Feet superstore format and permanently closed four
former Sneaker Stadium superstores. As of June 1, 1999, there were 152 Just For
Feet superstores operating in 28 states and Puerto Rico including 12 superstores
operated by our only superstore franchisee.
In 1997, we entered the smaller format specialty store market of the
athletic and outdoor footwear and apparel industry with the acquisitions of
Athletic Attic and Imperial Sports. The specialty stores complement our
superstore format by allowing us to further penetrate existing superstore
markets and enter smaller markets where customer demographics may not support
the superstore format. The specialty store division represented less than 16% of
our consolidated net sales and EBITDA, respectively, in fiscal 1998. As of June
1, 1999, there were 173 Company-owned and 41 franchised specialty stores in 24
states and Puerto Rico.
Historically, we have grown primarily through the opening of new
superstores and, more recently, through selective acquisitions. We have
increased our net sales and EBITDA (see footnote 4 on page 9 for an explanation
of EBITDA) from $23.7 million and $775,000, respectively, in fiscal 1993 to
$774.9 million and $68.1 million, respectively, in fiscal 1998. These increases
represent compound annual growth rates of 100.9% and 144.8%, respectively. Total
Company-owned superstores increased to 120 from five over the same period. In
addition, we have achieved 21 consecutive quarters of positive comparable store
sales growth since our initial public offering in March 1994. No assurance can
be given that increases in comparable store sales will continue.
We have recently experienced some operational and market difficulties in
our speciality store division which had an adverse impact on our profitability
in the first quarter of fiscal 1999 and are likely to continue to impact our
profitability for the remainder of fiscal 1999. At May 1, 1999, the specialty
store division had excess inventory of over $50 million. The buildup in
inventory is attributable mainly to footwear orders placed at the division level
which are in excess of the division's current needs, as well as lower than
expected sales volumes in the specialty stores. We have announced our intention
to significantly reduce inventory levels. Primarily as a result of these lower
than planned sales volumes and abnormally high inventory levels, we are
experiencing, on a Company-wide basis, lower gross margins, higher store
operating expenses and higher net interest expense than planned. As a result, we
expect to report a net loss in the second quarter of fiscal 1999 and that net
earnings in fiscal 1999 will be lower than in fiscal 1998. If we are unable to
achieve significant inventory reductions in the second quarter as planned, and
higher than planned inventory levels continue, we will experience significantly
lower gross margins, significantly higher store operating expenses and net
interest expense, decreased liquidity and significantly lower net earnings in
fiscal 1999 than in fiscal 1998. As a result of these difficulties, we have
reduced the number of specialty stores we expect to open in fiscal 1999 from 60
to 45 (of which 37 already have been opened to date). We currently do not intend
to open any new specialty stores in fiscal 2000 unless the current conditions in
the athletic footwear industry and the results of our specialty store division
improve. See "Risk Factors -- Recent Difficulties at our Specialty Stores,"
"Risk Factors -- Capital Needs and Substantial Leverage" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."
Our principal executive offices are located at 7400 Cahaba Valley Road,
Birmingham, Alabama 35242 and our telephone number is (205) 408-3000.
The Exchange Offer
In this prospectus, the terms (1) "old notes" refer to the 11% Senior
Subordinated Notes due 2009 that we issued on April 15, 1999, (2)"exchange
notes" refer to the 11% Series B Senior Subordinated Notes due 2009 that have
been registered under the Securities Act and that we are offering in exchange
for the old notes and (3) "notes" collectively refer to the old notes and the
exchange notes.
The Exchange Offer.................. We are offering to exchange $1,000
principal amount of our exchange notes for
each $1,000 principal amount of old notes.
As of the date of this prospectus,
$200,000,000 in aggregate principal amount
of old notes are outstanding.
1
<PAGE>
We have registered the exchange notes
under the Securities Act and they are
substantially identical to the old notes,
except for transfer restrictions,
registration rights and liquidated damages
provisions relating to the old notes.
Resale of the
Exchange Notes................. Under existing SEC interpretations set
forth in no-action letters, we believe that
the exchange notes may be offered for
resale, resold and otherwise transferred by
you without compliance with the
registration and prospectus delivery
provisions of the Securities Act; provided
that:
. you are acquiring the exchange notes in
the ordinary course of business;
. you are not participating, do not intend
to participate, and have no arrangement
or understanding with any person to
participate, in the distribution of the
exchange notes issued to you in the
exchange offer; and
. you are not an affiliate of ours.
If our belief is inaccurate and you
transfer any exchange note without
delivering a prospectus meeting the
requirements of the Securities Act or
without an exemption from registration of
your exchange notes, you may incur
liability under the Securities Act. We do
not assume, or indemnify you against, such
liability.
Each participating broker-dealer that is
issued exchange notes for its own account
in exchange for old notes which were
acquired as a result of market-making or
other trading activities (a oparticipating
broker-dealero), must acknowledge that it
will deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of the exchange
notes. The accompanying letter of
transmittal states that by so acknowledging
and by delivering a prospectus, such
broker-dealer will not be deemed to admit
that it is an ounderwritero within the
meaning of the Securities Act. A
participating broker-dealer may use this
prospectus for an offer, to resell, resale
or other retransfer of the exchange notes.
We will make this prospectus and any
amendment or supplement to this prospectus,
available for a period of 180 days after
the oconsummation dateo of this exchange
offer which date is 30 days after the date
of this prospectus to any participating
broker-dealer for use in connection with
any such resales. We believe that no
registered holder of the old notes is an
affiliate of ours as defined in Rule 405 of
the Securities Act.
Any broker-dealer that is not a
participating broker-dealer may not rely on
existing SEC interpretations set forth in
no-action letters and must comply with the
registration and prospectus delivery
requirements of the Securities Act in order
to resell the old notes or the exchange
notes. Such requirements include being
named as a selling security holder in a
registration statement relating to any such
resales.
The exchange offer is not being made to,
nor will we accept surrenders for exchange
from, holders of old notes in any
jurisdiction in which this exchange offer
or our acceptance would not be in
compliance with the securities or blue sky
laws of such jurisdiction.
2
<PAGE>
Accrued Interest on the
Exchange Notes and the
Old Notes........................ Interest on the exchange notes will accrue
from the last interest payment date on
which interest was paid on the old notes,
or, if no interest was paid on the old
notes, from April 15, 1999, the date of
issuance of the old notes. Holders whose
old notes are accepted for exchange will be
deemed to have waived the right to receive
any interest accrued on the old notes.
No Minimum Condition................ We are not conditioning the exchange offer
on the tender of any minimum aggregate
principal amount of old notes.
Expiration Date..................... The exchange offer will expire at 5:00
p.m., New York City time, on _____________,
1999, unless we decide to extend the
exchange offer.
Withdrawal Rights................... You may withdraw your tender at any time
prior to 5:00 p.m., New York City time, on
the expiration date.
Conditions to the
Exchange Offer................... We are not required to accept for exchange
any old notes, and we may terminate or
amend the exchange offer, if:
. we are faced with any legal action or
proceeding that might materially impair
our ability to proceed with the exchange
offer or if any material adverse
development occurs in an existing action
or proceeding with respect to us;
. the exchange offer violates applicable
law or any applicable SEC
interpretations; or
. we do not obtain any governmental or
quasi-governmental approvals that we
deem necessary to consummate the
exchange offer.
We may waive these conditions, but we
currently anticipate that each of the
conditions will be satisfied. We reserve
the right to terminate or amend the
exchange offer at any time before the
expiration date if any of these conditions
occur.
3
<PAGE>
Procedures for If you are a holder of old notes who wishes
Tendering Old Notes............. to accept the exchange offer, you must:
. complete, sign and date the accompanying
letter of transmittal, or a facsimile
thereof, and mail or otherwise deliver
such documentation, together with your
old notes to the exchange agent at the
address set forth under "The Exchange
Offer--Exchange Agent;" or
. arrange for The Depository Trust Company
to transmit all required information,
including an agent's message forming
part of a book-entry transfer in which
you agree to be bound by the terms of
the letter of transmittal, to the
exchange agent in connection with a
book-entry transfer.
By tendering your old notes in either
manner, you will be representing, among
other things, that:
. you are acquiring the exchange notes in
the ordinary course of business;
. you are not participating, do not intend
to participate, and have no arrangement
or understanding with any person to
participate, in the distribution of the
exchange notes issued to you in the
exchange offer; and
. you are not an affiliate of ours.
Special Procedures for
Beneficial Owners................ If you beneficially own old notes
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and you wish to tender your old
notes in the exchange offer, you should
contact the registered holder promptly and
instruct it to tender on your behalf. If
you wish to tender on your own behalf, you
must, prior to completing and executing the
letter of transmittal and delivering your
old notes, either arrange to have your old
notes registered in your name or obtain a
properly completed bond power from the
registered holder. The transfer of
registered ownership may take considerable
time.
Guaranteed Delivery
Procedures....................... If you wish to tender your old notes and
time will not permit your required
documents to reach the exchange agent by
the expiration date, or the procedures for
book-entry transfer cannot be completed on
time, you may tender your old notes
according to the guaranteed delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Use of Proceeds..................... We will not receive any proceeds from the
exchange of notes in the exchange offer. We
will pay all our expenses incurred in
connection with the exchange offer.
U.S. Federal Income Tax
Consequences..................... The exchange of notes in the exchange offer
will not result in any gain or loss to you
for U.S. federal income tax purposes. See
"United States Federal Income Tax
Considerations."
4
<PAGE>
Effect on Holders
of Old Notes.................... As a result of this exchange offer, we will
have fulfilled an obligation under the
registration rights agreement with the
initial purchasers of the old notes and,
accordingly, there will be no increase in
the interest rate on the old notes. If you
do not tender your old notes in the
exchange offer:
. you will continue to hold the old notes
and will be entitled to all the rights
and subject to all the limitations
applicable to the old notes under the
indenture governing the notes, except
for any rights under the registration
rights agreement that terminate as a
result of the completion of the exchange
offer; and
. you will not have any further
registration or exchange rights and your
old notes will be subject to
restrictions on transfer. Accordingly,
the trading market for untendered old
notes could be adversely affected.
Shelf Registration
Statement........................ In some situations, holders of old notes
may require us to file, and cause to become
effective, a shelf registration statement
under the Securities Act, which would cover
resales of old notes by such holders.
Exchange Agent...................... The Bank of New York is serving as exchange
agent in connection with the exchange
offer.
The Exchange Notes
The summary below describes the principal terms of the exchange notes.
Certain of the terms and conditions described below are subject to important
limitations and exceptions. The oDescription of Exchange Noteso section of this
prospectus contains a more detailed description of the terms and conditions of
the exchange notes.
Issuer............................... Just For Feet, Inc., a Delaware
corporation.
Securities........................... $200.0 million in principal amount of 11%
Senior Subordinated Notes due 2009.
Maturity............................. May 1, 2009.
Interest............................. Semi-annually in cash in arrears on May 1
and November 1 of each year, starting
November 1, 1999.
Guarantees........................... All of our U.S. subsidiaries other than
those treated as "Unrestricted
Subsidiaries" (as defined in the indenture
governing the exchange notes) will
guarantee the exchange notes on a senior
subordinated basis. Future U.S.
subsidiaries which are deemed Restricted
Subsidiaries will also be required to
guarantee the exchange notes. As of the
date of issuance of the exchange notes,
all of our U.S. subsidiaries will
guarantee the exchange notes. See
"Description of Exchange Notes--
Guarantees."
5
<PAGE>
Ranking.............................. The exchange notes will be general
unsecured senior subordinated obligations
and will be subordinated to all of our
existing and future senior debt. The
exchange notes will rank equally with any
of our future unsecured senior
subordinated debt, and will rank senior to
any of our future subordinated debt.
The subsidiary guarantees will be general
unsecured senior subordinated obligations
of the subsidiary guarantors and will be
subordinated to all existing and future
senior debt of the subsidiary guarantors.
The subsidiary guarantees will rank
equally with any future unsecured senior
subordinated debt of the subsidiary
guarantors, and will rank senior to any
future subordinated debt of the subsidiary
guarantors.
Because the exchange notes are
subordinated, in the event of bankruptcy,
liquidation or dissolution, holders of the
exchange notes will not receive any
payment until holders of senior debt have
been paid in full. The term "senior debt"
is defined in the "Description of Exchange
Notes--Subordination" section of this
prospectus.
Optional Redemption.................. On or after May 1, 2004, we may redeem
some or all of the exchange notes at any
time at the redemption prices described in
the section "Description of Exchange
Notes" under the heading "Optional
Redemption." At any time before May 1,
2004, we may redeem all of the exchange
notes at a redemption price equal to 100%
of their principal amount plus a premium
as described under the heading "Optional
Redemption," together with accrued and
unpaid interest to the date of redemption.
Prior to May 1, 2002, we may redeem up to
35% of the exchange notes with the
proceeds of certain sales of equity in the
Company at the price listed in the section
"Description of Exchange Notes" under the
heading "Optional Redemption."
Mandatory Offer to Repurchase........ If we experience a Change of Control, we
must offer to repurchase the exchange
notes at a price equal to 101% of the
principal amount of the exchange notes
plus accrued and unpaid interest to the
date of repurchase as further described in
the section "Description of Exchange
Notes" under the heading "Repurchase of
Notes--Change of Control."
Basic Covenants of the Indenture..... We will issue the exchange notes under an
indenture with The Bank of New York as
trustee. The indenture will, among other
things, restrict our ability and the
ability of our restricted subsidiaries to:
. borrow money;
. pay dividends on stock or purchase
stock;
. make investments and other restricted
payments;
. use assets as security in other
transactions;
. sell certain assets or merge with
or into other companies;
6
<PAGE>
. enter into certain transactions with
affiliates;
. sell stock in our restricted
subsidiaries; and
. restrict dividends or other payments
to us.
These covenants are subject to important
exceptions and qualifications, which are
described in the section "Description of
Exchange Notes," among other places
under the heading "Certain Covenants,"
in this prospectus.
Risk Factors
You should refer to the section entitled "Risk Factors" following this
summary beginning on page 10 for an explanation of certain risks relating to the
exchange notes, all of which apply to the old notes as well.
7
<PAGE>
Summary Consolidated Financial and Other Data
The following income statement data for fiscal 1998, 1997, 1996, 1995 and
1994 have been derived from our audited consolidated financial statements. The
selected consolidated income statement data for the three months ended May 1,
1999 and April 30, 1998 and consolidated balance sheet data as of May 1, 1999
have been derived from our unaudited consolidated financial statements. In our
opinion, the unaudited financial information contains all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of operations for such periods. The results for the
three months ended May 1, 1999 may not be indicative of the results to be
achieved for the entire fiscal year. You should read the information set forth
below in conjunction with oManagementAEs Discussion and Analysis of Financial
Condition and Results of Operations,o our Consolidated Financial Statements and
related notes and other financial information included elsewhere or incorporated
by reference herein.
On July 2, 1998, we acquired Sneaker Stadium. The acquisition was accounted
for as a purchase and, accordingly, the results of operations of Sneaker Stadium
have been included in our consolidated statement of earnings from the date of
acquisition. Sneaker Stadium incurred significant net losses in each of its last
three fiscal years and the first quarter of fiscal 1998 prior to our acquiring
it in the second quarter of fiscal 1998. As of May 1, 1999, we had completed the
conversion of 33 of the acquired Sneaker Stadium superstores to the Just For
Feet format, closed or announced the permanent closure of four of the acquired
stores and expect to complete the conversion of two remaining acquired
superstores by the end of the second quarter of this fiscal year. The following
financial information does not include historical financial information for
Sneaker Stadium prior to the date of its acquisition or pro forma financial
information for such acquisition, all of which is contained in the CompanyAEs
Current Report on Form 8-K/A included as Appendix A hereto and incorporated
herein by reference.
<TABLE>
<CAPTION>
Fiscal Year Three Months Ended
---------------------------------------------------- --------------------
May 1, April 30,
1998 1997 1996 1995 1994 1999 1998
--------- --------- --------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Income Statement Data(1):
Net sales............................... $774,863 $478,638 $256,397 $119,819 $56,364 $220,985 $151,921
Gross profit............................ 322,533 198,822 108,871 50,850 23,872 92,452 63,618
Operating income........................ 51,245 34,296 20,825 11,627 4,771 12,698 10,059
Net earnings............................ 26,648 21,403 15,960(2) 9,722 3,219 4,646(2) 5,816
Other Financial Data:
EBITDAR(3).............................. $117,450 $ 67,242 $ 35,696 $ 19,683 $ 8,767 $ 35,352 $ 20,176
Rental expense.......................... 49,323 24,163 10,900 5,847 3,128 16,315 7,152
EBITDA(4)............................... 68,127 43,079 24,796 13,836 5,639 19,037 13,024
Depreciation and amortization........... 16,129 8,783 3,971 2,209 868 6,339 2,965
Interest expense........................ 8,059 1,446 832 703 293 5,160 727
Capital expenditures.................... 73,325 43,446 33,206 14,380 5,952 21,642 12,277
Ratio of EBITDA to interest expense..... 2.7x 29.8x 29.8x 19.7x 19.3xa 3.7x 17.9x
Ratio of total debt to EBITDA........... 3.4x .5x .4x .6x .7xa 15.4x 1.6x
Other Operating Data(1):
Increase in comparable store sales(5). 3.2% 4.5% 24.7% 18.0% 10.2% 2.4% 3.5%
Number of Company superstores
(at end of period)..................... 120(6) 73 50 27 15 137(7) 84
Number of Company specialty stores
(at end of period)................ 141 92 -- -- -- 167 101
</TABLE>
- ---------------------------
See footnotes on next page.
8
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May 1, 1999
----------------------
(Dollars in thousands)
Balance Sheet Data:
Working capital..................................... $369,379
Total assets........................................ 771,183
Long-term debt and capital lease obligations........ 286,414
Total debt.......................................... 293,085
Stockholders' equity................................ 328,588
- --------------------
(1) Effective February 1, 1996, the Company changed its method of accounting
for store opening costs, which are costs principally for pre-opening
salaries, travel and rent that are incremental and directly attributable
to the opening of a new store. Under the newer method, the Company
charged these costs to operations in the month that the store opened.
Previously, store opening costs were capitalized and amortized over the
12 months following the store opening. The cumulative effect of this
change in accounting principle for store pre-opening costs in fiscal 1996
was $2.0 million or $0.07 per diluted share.
Effective with the beginning of the current fiscal year (January 31,
1999), the Company changed this method of accounting as required by
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities." The new rule requires the Company to expense pre-opening
costs as incurred. The cumulative effect of adopting the new rule was a
charge to earnings in the first quarter of fiscal 1999 of approximately
$1,847,000 ($0.06 per basic and diluted share), net of applicable taxes
of $1,156,000. The effect on the three-month period ended May 1, 1999 was
an increase in store opening costs of approximately $1.3 million and a
decrease in net income of approximately $774,000 ($0.02 per basic and
diluted share), net of applicable income taxes of approximately $484,000.
(2) Before cumulative effect of change in accounting principle for pre-
opening costs. See note 1.
(3) EBITDAR represents net income before interest, income taxes,
depreciation, amortization and rental expense. EBITDAR is presented
because it is a widely accepted financial indicator of a company's
ability to service and/or incur indebtedness. EBITDAR, however, should
not be construed as an alternative to net income as a measure of a
company's operating results or to operating cash flow as a measure of
liquidity. This methodology may not be consistent with a similarly
captioned item presented by other companies.
(4) EBITDA represents net income before interest, income taxes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a retail companyAEs ability to service and/or
incur indebtedness. EBITDA, however, should not be construed as an
alternative to net income as a measure of a company's operating results
or to operating cash flow as a measure of liquidity. This methodology may
not be consistent with a similarly captioned item presented by other
companies.
(5) Company operated superstores are included in the comparable store sales
calculation beginning generally in the thirteenth month of operation or
upon their acquisition, assuming at least twelve months of prior
operations. The acquired Sneaker Stadium superstores will be included in
the comparable store sales base beginning in the fourteenth month after
reopening as a Just For Feet superstore. The Company included the
specialty stores which were first acquired in fiscal 1997 in the
comparable store sales base for the first time in the quarter ended April
30, 1998. Specialty stores, other than those acquired in fiscal 1997,
will be included in the comparable store sales calculation beginning
generally in the thirteenth month of operation.
(6) In addition, we were in the process of converting 14 Sneaker Stadium
superstores into Just For Feet superstores, and three Sneaker Stadium
superstores were undergoing going-out-of-business sales prior to closing
permanently.
(7) In addition, two of the acquired Sneaker Stadium superstores were
undergoing going-out-of-business sales prior to closing permanently.
9
<PAGE>
RISK FACTORS
Before you tender your old notes, you should be aware that there are
various risks involved in such an investment, including those we describe below,
virtually all of which are applicable to both the old notes and the exchange
notes. There are additional risks in not tendering your old notes in this
exchange offer. You should consider carefully these risk factors together with
all of the other information included in this prospectus before you decide to
tender your old notes in the exchange offer.
Risk Factors Relating to the Notes
Transfer Restrictions on Old Notes-Old notes outstanding after the exchange
offer will not have registration rights and we expect the market for the old
notes to be illiquid.
If you do not exchange your old notes for exchange notes pursuant to the
exchange offer, your old notes will continue to be subject to the restrictions
on transfer of the old notes. In general, you may not offer or sell old notes
unless they are registered under the Securities Act, except pursuant to an
exemption from the registration requirements of the Securities Act and
applicable state securities laws. We do not currently intend to register the old
notes under the Securities Act and have no obligation to do so, except as may
otherwise be required under limited circumstances enumerated in the registration
rights agreement with respect to the old notes. Under existing SEC
interpretations, we believe that you may offer for resale, resell or otherwise
transfer the exchange notes, unless you are an affiliate of ours within the
meaning of Rule 405 under the Securities Act, without compliance with the
registration and prospectus delivery requirements of the Securities Act, so long
as you acquired the exchange notes in the ordinary course of your business and
you will not, and have no arrangement with any person to, participate in the
distribution of the exchange notes. Each broker-dealer that receives exchange
notes for its own account in exchange for old notes, where such old notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. See "Plan of Distribution."
To the extent that old notes are tendered and accepted in the exchange offer,
the trading market for untendered and tendered but unaccepted old notes will be
adversely affected.
Capital Needs and Substantial Leverage-Our substantial indebtedness could
adversely affect our financial health and prevent us from fulfilling our
obligations under the exchange notes.
We have substantially increased our borrowings in the last twelve months
and we will at times be more leveraged after this offering. The following chart
shows our total debt and stockholders' equity at May 1, 1999:
At May 1, 1999
------------------
(Unaudited, in thousands)
Total debt....................................... $293,085
Stockholders' equity............................. $328,588
At June 1, 1999, our total debt was $385.6 million. The increase in our total
debt between May 1, 1999 and June 1, 1999 consisted primarily of a $93.0 million
increase in borrowings under our revolving credit facility. Such additional
borrowings were used principally to fund the opening of new superstores, new
specialty stores and the remodeling and reopening of Sneaker Stadium
superstores, as well as to fund higher than planned inventory levels, during the
period. We will require substantial capital to fund our operations and finance
our anticipated growth, so we likely will incur additional debt in the future.
In addition, our revolving credit facility permits borrowings of up to $200.0
million. We had $46.3 million available for additional borrowings under the
facility at June 1, 1999. Future borrowings under this facility are subject to
the satisfaction of certain conditions at the time of borrowing. We anticipate
that at the end of the second quarter of fiscal 1999, we will not be in
compliance with certain covenants under our revolving credit facility. We are
seeking an amendment to the facility to revise such covenants so that we will
remain in compliance. We are also seeking additional support from our major
vendors. Although management is confident that we will obtain this vendor
support and the amendment to our credit facility, there can be no assurance that
we will. If we are unable to obtain an amendment to the facility, we would be in
default, which would permit our lenders under that facility to accelerate the
maturity of our debt under that facility and would cause defaults under our
other indebtedness, including the notes. In addition, if we are unable to obtain
an amendment or vendor support, we will require additional funds from other
financing sources to fund our operations. In such event, there can be no
assurance that we will be able to obtain such financing as and when required or
on acceptable terms. We are also limited in the amount of additional debt we can
incur by certain agreements including the indenture governing the notes and the
credit facility.
Our substantial indebtedness could have important consequences to you. For
example, it could:
. make it more difficult for us to satisfy our obligations with respect to
the exchange notes;
. increase our vulnerability to general adverse economic and industry
conditions;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of cash flow to fund our growth strategy, working capital,
capital expenditures and other general corporate purposes;
10
<PAGE>
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage compared to our competitors that
have less debt;
. limit, along with the financial and other restrictive covenants in our
indebtedness, our ability to borrow additional funds; and
. make us more vulnerable to a downturn in our business or the economy.
The addition of new debt to our current debt levels could intensify the
leverage-related risks that we now face. See "Risk Factors - Recent Difficulties
at our Specialty Stores," "Capitalization," "Selected Financial Data,"
"Description of Exchange Notes--Repurchase at the Option of Holder--Change of
Control" and "Description of Senior Debt."
Subordination--The exchange notes and Guarantees are subordinated to Senior
Debt; thus your right to receive payment on the exchange notes is junior to most
of our existing debt and possibly all of our future borrowings. Further, the
guarantees of the exchange notes are junior to all of our guarantors' existing
indebtedness and possibly all of their future borrowings.
The exchange notes will be subordinate to all our senior debt. The
guarantees will be subordinated to all guarantor senior debt. As of June 1,
1999, we had outstanding $185.6 million of senior debt, with $153.7 million of
borrowings under our revolving credit facility, and our subsidiaries had
outstanding $0.9 million of senior debt. We also may incur additional senior
debt under the terms of the revolving credit facility. For example, we have,
subject to the terms and conditions thereof, $46.3 million available under our
revolving credit facility which, if borrowed, would be senior debt.
In the event of our bankruptcy, liquidation or dissolution, our assets
would be available to pay obligations on the exchange notes only after all
payments have been made on our senior debt. Similarly, in the event of a
bankruptcy, liquidation or dissolution of any guarantor, its assets would be
available to pay obligations on the guarantee only after all payments had been
made on its guarantor senior debt. In addition, no cash payments may be made
with respect to the exchange notes during the continuance of a payment default
with respect to senior debt. Furthermore, under certain circumstances, no cash
payments with respect to the exchange notes may be made for a period of up to
179 days (during each period of 360 days) if a nonpayment default exists with
respect to designated senior debt. We cannot assure you that sufficient assets
in the future would be available to make any payments to you or other holders of
the exchange notes. The terms "senior debt" and "designated senior debt" are
defined in the "Description of the Exchange Notes--Subordination" section of
this prospectus.
Ability to Service Debt--We require a significant amount of cash to service our
indebtedness. Our ability to generate cash depends on many factors beyond our
control.
Our ability to make payments on and to refinance our indebtedness,
including the exchange notes, and to fund our operations, planned capital
expenditures and expansion efforts will depend on our ability to generate cash
in the future. This, to a certain extent, is subject to general economic,
financial, competitive and other factors that are beyond our control.
We cannot assure you that our business will generate sufficient cash flow
from operations or that future borrowings will be available to us, including
under our revolving credit facility, in an amount sufficient to enable us to pay
our indebtedness, including the exchange notes, or to fund our other liquidity
needs. We may need to refinance all or a portion of our indebtedness, including
the exchange notes, on or before maturity. We cannot assure you that we will be
able to refinance any of our indebtedness, including our revolving credit
facility and the exchange notes, on commercially reasonable terms or at all. See
"Risk Factors - Recent Difficulties at our Specialty Stores.
Restrictive Covenants - The Indenture and our revolving credit facility contain
various covenants which limit management's discretion in the operations of our
business.
The revolving credit facility and the indenture governing the old notes and
the exchange notes each contain various provisions which limit management's
discretion by restricting our and our subsidiaries' ability to:
11
<PAGE>
. borrow money;
. pay dividends on stock or purchase stock;
. make investments and other restricted payments;
. use assets as security in other transactions;
. sell certain assets or merge with or into other companies;
. enter into certain transactions with affiliates;
. sell stock in the restricted subsidiaries; and
. restrict dividends or other payments to the Company.
In addition, the revolving credit facility requires us to meet certain financial
ratios.
Further indebtedness may contain similar, or even more restrictive, provisions
and covenants.
If we fail to comply with the restrictions of the revolving credit
facility, the indenture or any further financing agreements, a default may
occur. This default may allow the creditors, if the agreements so provide, to
accelerate the related debt as well as any other debt to which a cross-
acceleration or cross-default provisions applies. In addition, the lenders may
be able to terminate any commitments they had made to supply us with further
funds. See "Description of Senior Debt--Revolving Credit Facility."
Change of Control--We may not have the ability to raise the funds necessary to
finance the Change of Control offer required by the indenture.
If we undergo a Change of Control (as defined in "Description of Exchange
Notes--Certain Definitions"), we must offer to buy back the exchange notes for a
price equal to 101% of the exchange notes' principal amount, plus any interest
which has accrued and remains unpaid as of the repurchase date. We would fund
any repurchase obligation with our available cash, cash generated from other
sources such as borrowings, sales of equity, or funds provided by a new
controlling person. However, we cannot assure you that there will be sufficient
funds available for any required repurchases of the exchange notes when a Change
of Control occurs. Our ability to repurchase the exchange notes upon a Change of
Control may be limited by the terms of the senior debt and the subordination
provisions of the indenture. For example, the revolving credit facility will
prohibit us from repurchasing the exchange notes after a Change of Control until
we first repay our debt under the revolving credit facility in full or obtain a
waiver from our lenders. If we fail to repurchase the exchange notes in that
circumstance, we will go into default under both the exchange notes and the
revolving credit facility. Any future debt which we incur may also contain
restrictions on repayment which come into effect upon a Change of Control. If a
Change of Control occurs, we cannot assure you that we will have sufficient
funds to repay all of our other debt obligations which we may be required to
repay, in addition to the exchange notes. See "Description of Exchange Notes--
Repurchase of the Option of Holders--Change of Control" and "Description of
Senior Debt."
Fraudulent Conveyance Matters-Federal and state statutes allow courts, under
specific circumstances, to void guarantees and require Noteholders to return
payments received from guarantors.
If a bankruptcy case or lawsuit is initiated by unpaid creditors of any
guarantor, the debt represented by the guarantee of the exchange notes entered
into by such guarantor may be reviewed under the federal bankruptcy law and
comparable provisions of state fraudulent transfer laws. Under these laws, the
guarantee could be voided, or claims in respect of the guarantee could be
subordinated to other obligations of the guarantor if, among other things, such
guarantor, at the time it entered into the guarantee:
. received less than reasonably equivalent value or fair consideration for
entering into the guarantee; and
. was insolvent or rendered insolvent by reason of entering into a
guarantee; or
12
<PAGE>
. was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
. intended to incur, or believed that it would incur, debts or contingent
liabilities beyond its ability to pay such debts or contingent
liabilities as they became due.
In addition, any payment by a guarantor could be voided and required to be
returned to such guarantor, or to a fund for the benefit of the creditors of
such guarantor.
If a guarantee of a subsidiary were voided as a fraudulent conveyance or
held unenforceable for any other reason, holders of the exchange notes would be
solely creditors of the Company and creditors of our other subsidiaries that
have validly guaranteed the exchange notes. The exchange notes then would be
effectively subordinated to all obligations of the subsidiary whose guarantee
was voided and not just such guarantor's senior indebtedness.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
. the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets; or
. if the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
. it could not pay its debts or contingent liabilities as they became due.
To the extent that the claims of the holders of the exchange notes against
any subsidiary were subordinated in favor of other creditors of such subsidiary,
such other creditors would be entitled to be paid in full before any payment
could be made on the exchange notes. If one or more of the guarantees is voided
or subordinated, we cannot assure you that after providing for all prior claims,
there would be sufficient assets remaining to satisfy the claims of the holders
of the exchange notes.
Based upon financial and other information, we believe that the guarantees
are being incurred for proper purposes and in good faith and that each
subsidiary that is a guarantor is solvent and will continue to be solvent after
this offering is completed, will have sufficient capital for carrying on its
business after such issuance and will be able to pay its debts as they mature.
There can be no assurance, however, as to what standard a court would apply in
making such determinations or that a court would agree with our conclusions in
this regard.
No Prior Market for Exchange Notes - You cannot be sure that an active trading
market will develop for these notes.
There is no public market for the exchange notes. The initial purchasers of
the old notes make a market in the old notes and intend to make a market in the
exchange notes. The initial purchasers, however, may stop their market-making at
any time. In addition, the liquidity of the trading market in the exchange
notes, and the market price quoted for the exchange notes, may be adversely
affected by changes in the overall market for high yield securities and by
changes in our financial performance or prospects or in the prospects for
companies in our industry generally. As a result, you cannot be sure that an
active trading market will develop for the exchange notes.
Risk Factors Relating to Just For Feet
Recent difficulties at our specialty stores - These difficulties have negatively
impacted our operating results. As a result, we presently intend to slow the
expansion of our specialty store concept.
As part of our long-term growth strategy, we entered the smaller specialty
store market of the athletic and outdoor footwear and apparel industry with the
acquisitions of Athletic Attic in March 1997 and Imperial Sports in May 1997.
See "Business - Athletic Attic and Imperial Sports Specialty Stores." We
acquired a total of 87 specialty stores in those acquisitions and operated a
total of 173 specialty stores at June 1, 1999.
In the fourth quarter of fiscal 1998, sales at our specialty stores
suffered along with other smaller format athletic footwear retailers. In the
first quarter of fiscal 1999, specialty store operations were adversely impacted
by lower gross margins and higher than anticipated store operating expenses as a
percentage of net sales, primarily as a result of lower than expected sales
volumes in recently opened specialty stores and higher than expected interest
expense associated with funding higher than planned inventory levels during the
period. At May 1, 1999, the specialty store division had excess inventory of
over $50 million. The buildup in inventory is attributable mainly to footwear
orders placed at the division level in excess of the division's current needs,
as well as to the lower than expected sales volumes in the specialty stores. We
have announced our intention to significantly reduce our inventory levels. As we
attempt to lower our inventory levels, Company-wide gross margins will continue
to decrease significantly, particularly in the second quarter of fiscal 1999. As
a result of our implementation of this plan to reduce inventory levels and
higher than planned interest costs, we anticipate reporting a net loss in the
second quarter of fiscal 1999 and that net earnings in fiscal 1999 will be lower
than in fiscal 1998. If we are unable to achieve significant inventory
reductions in the second quarter as planned, and higher than planned inventory
levels continue, we will experience significantly lower gross margins,
significantly higher store operating expenses and net interest expense,
decreased liquidity and significantly lower net earnings in fiscal 1999 than in
fiscal 1998.
We opened 51 specialty stores in fiscal 1998 and have opened 37 such stores
to date this fiscal year. We expect to open approximately 12 additional
specialty stores during the remainder of fiscal 1999. We presently do not intend
to open any new specialty stores in fiscal 2000 unless the current conditions in
the athletic footwear industry and the results of our specialty store division
improve. No assurance can be given that the specialty stores can be operated
successfully, that we will successfully reduce our abnormally high inventory
levels, or that the specialty store expansion will resume or, if resumed, that
it will not have a material adverse effect on our operating results due to
development and pre-opening costs, potential diversion of management's attention
or cannibalization of sales from existing stores.
We may not be able to accomplish some or all of our superstore expansion plans.
Our growth is dependent, in large part, on our ability to open new
superstores and to operate such stores profitably. We opened 23 superstores in
fiscal 1997. We opened an additional 26 superstores in fiscal 1998 (excluding 21
remodeled former Sneaker Stadium superstores) and have opened eight superstores
(excluding 13 remodeled former Sneaker Stadium superstores) this fiscal year
through June 1, 1999. We expect to open
13
<PAGE>
approximately 25 superstores during each of fiscal 1999 and fiscal 2000
(excluding those we acquired from Sneaker Stadium). From time to time, we also
intend to open additional high visibility, high profile "flagship" stores,
modeled on our existing flagship stores, in key locations. Initial capital
expenditures associated with opening such flagship stores are higher than for
prototype superstores. The opening of new superstores may be clustered in one or
more time periods, rather than spread evenly through the year.
Our ability to open the projected number of superstores on a timely basis
will depend upon a number of factors, some of which are beyond our control. Such
risk factors include: identifying suitable sites, our ability to lease (or
purchase) suitable sites on acceptable terms, the time and cost required to
construct or refurbish sites, the hiring, training, and retention of skilled
managers and personnel, availability of sufficient working capital or financing
and other factors. In addition, adverse weather conditions may cause
construction delays which, in turn, may affect our ability to open new
superstores on schedule. As a result, there can be no assurance that we will be
able to achieve our targets for opening new superstores. In addition, there can
be no assurance that new superstores will be profitable or achieve sales and
profitability comparable to our existing superstores. Our expansion plans
include the opening of additional superstores in market areas where we have
already opened stores. There can be no assurance, however, that opening such
additional superstores in the same market area will not reduce sales at our
existing stores located in that area. While we continue to evaluate select
opportunities to expand internationally, we have no current plans to do so. Any
expansion of our superstores to international locations would expose us to the
risks of doing business in foreign jurisdictions, including political, economic
and foreign currency risks. We also may continue to expand by making
acquisitions, but we have no current agreements or understandings with respect
to any future acquisitions.
Our growth and profitability could be adversely affected by any continued
difficulties in converting Sneaker Stadium superstores into Just For Feet
superstores and our future success will be dependent, in part, on our ability to
successfully integrate Sneaker Stadium.
Our future success will depend, in part, upon our ability to efficiently
and successfully convert Sneaker Stadium superstores to Just For Feet
superstores and integrate the converted stores into our operations.
Sneaker Stadium incurred significant losses in each of its last three
fiscal years and the first quarter of fiscal 1998, prior to our acquiring it and
there can be no assurance that the conversion of such stores to Just For Feet
stores will reduce or eliminate similar losses in the future. In addition,
Sneaker Stadium historically generated lower average sales per store and lower
gross margins than those typically experienced by our superstores. To the extent
such conditions continue before or after conversion, such conditions may affect
not only the operations of the converted stores but also our consolidated
results of operations until (or even after) the acquired stores are fully
converted. The acquisition of Sneaker Stadium increased the number of
superstores we operated by approximately 44%. The acquired superstores are
located in geographic areas in which we had not previously operated a
significant number of superstores. We expect the aggregate cost of remodeling
such stores to be approximately $27.0 million, approximately $7.0 million more
than our initial cost estimates. Through June 1, 1999, we had remodeled and
reopened 34 former Sneaker Stadium superstores and permanently closed four
former Sneaker Stadium superstores.
The initial process of liquidating old inventory, remodeling the acquired
stores, restocking inventory, retraining store personnel and reopening the first
group of former Sneaker Stadium stores as Just For Feet superstores encountered
unforeseen difficulties, resulting primarily from our attempt to reopen the
stores prior to Thanksgiving in order to take advantage of the Christmas
shopping season. The aggressive construction schedule did not permit sufficient
time to complete and adequately stock the in-store warehouse in many of the
stores, resulting in those stores opening with only approximately one-half of
the planned inventory. This factor, combined with unusually warm weather in the
Northeast, resulted in lower sales than anticipated and increased expense,
primarily due to ongoing construction and fixturing in the stores and the
staffing of such reopened stores at full operational levels. On average,
converted stores did not achieve the operating results we expected for the first
several months of post-reopening activity. Even though we believe we have now
made substantial progress in integrating Sneaker Stadium, the failure to do so
could have a material adverse effect not only on such operations but also on our
consolidated results of operations and financial condition. Even though we
expect all construction and fixturing to be completed on the second group of
converted stores before they reopen, we currently believe that the converted
stores will not, at least in the near term, achieve average sales or average
operating results comparable to average results achieved at our existing mature
superstores. Furthermore, there cannot be any assurance that these converted
stores will ever achieve average sales or average operating results comparable
to the average sales and operating results we have achieved at our existing
mature superstores.
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<PAGE>
The remaining acquired stores that are to be remodeled and reopened as Just
For Feet superstores must be closed during the remodeling period. During such
remodeling period, we incur rent and other store expenses, including salaries
and wages, without generating any sales at such sites. These expenses, which
would otherwise be recognized as store operating costs, are recognized as store
pre-opening expenses.
The integration of Sneaker Stadium as described above has adversely
affected our results of operations for the fourth quarter of fiscal 1998 and the
first quarter of fiscal 1999 and may do so in the future.
Our specialty store concept is subject to unique risks in addition to those
faced by our superstore concept.
While operating in the same industry as Just For Feet's superstores, these
specialty stores are subject to different competitive and operating factors not
present in our superstore operations. Some of our specialty stores are mall-
based and may be subject to risks associated with the closer physical proximity
of competition because leasing arrangements for mall space typically do not
prohibit the lessor from also leasing space in the mall to competitors. It may
also be more difficult to market our mall-based specialty stores as
"destination" stores due to their location. Finally, like other athletic and
outdoor footwear specialty stores, our specialty stores stock a higher
percentage of apparel than our superstores. Accordingly, such stores may be more
vulnerable to changes in merchandise trends and consumer demand than our
superstores. See "Risk Factors--Our continued success will be dependent on our
ability to anticipate and respond to merchandise trends."
Significant Capital Requirements and Need for Additional Financing--We will need
to make significant capital expenditures in order to expand.
In order to expand and develop our current business and enter new markets,
we will make significant capital expenditures. We expect to fund these
expenditures through internally generated funds, borrowings under our revolving
credit facility and further debt or equity financing. We cannot assure you,
however, that we will succeed in generating sufficient funds or in raising
sufficient future debt or equity financing on acceptable terms. In particular,
we anticipate that at the end of the second quarter of fiscal 1999, we will not
be in compliance with certain covenants under our revolving credit facility. We
are seeking an amendment to the facility to revise such covenants so that we
will remain in compliance. We are also seeking additional support from our major
vendors. Although management is confident that we will obtain this vendor
support and this amendment, there can be no assurance that we will. If we are
unable to obtain an amendment to the facility, we would be in default, which
would permit our lenders under that facility to accelerate the maturity of our
debt under that facility and could cause defaults under our other indebtedness,
including the notes. In addition, if we are unable to obtain an amendment or
vendor support, we will require additional funds from other financing sources to
fund our operations. In such event, there can be no assurance that we will be
able to obtain such financing as and when required or on acceptable terms.
Our future capital requirements depend on a number of factors, some of
which we can control and others of which are beyond our control. The factors
which we can control include marketing expenses and staffing levels. Those
factors which are beyond our control include competitive conditions and capital
costs. If, due to these and other factors, we are unable to raise sufficient
funds, we may have to delay or abandon some of our expenditures or plans for
future
15
<PAGE>
expansion. This would negatively affect our growth and our ability to compete in
the athletic and outdoor footwear industry.
Historically there have been significant fluctuations in comparable store sales
and such fluctuations may continue in the future.
A variety of factors, some of which are beyond our control, affect our
comparable store sales results including, among others, economic conditions,
fashion trends, the retail sales environment, sourcing and distribution of
products and our ability to execute our business strategy efficiently. Our
quarterly comparable store sales results have fluctuated significantly in the
past. Our comparable store sales results increased 3.2% in fiscal 1998, 4.5% in
fiscal 1997, 24.7% in fiscal 1996, 18.0% in fiscal 1995, 10.2% in fiscal 1994,
and 6.2% in fiscal 1993. There can be no assurance that we will continue to
generate increases in comparable store sales. The market's reaction to our
comparable store sales results could cause the prices of the exchange notes to
fluctuate substantially.
We may not be able to successfully manage our growth.
We have grown significantly in the past five years and will to continue to
pursue our growth strategy. While we continually evaluate the adequacy of our
systems and controls, there can be no assurance that our accounting systems,
purchasing systems, internal controls and management information systems will
continue to be adequate or that we will be able to upgrade or reconfigure our
systems and controls to respond to our growth; an inability to do so could have
a material adverse effect on the successful growth and operation of our
business. Should sales continue to increase, we will have to find and train even
more personnel to staff our stores. There is no assurance that we will be able
to hire or train the personnel we will need to meet increased demand should it
develop. If we are unable to hire such personnel, our sales may be adversely
affected. If we are unable to manage growth effectively, our business, results
of operations and financial condition could be materially and adversely
affected.
We may continue to grow through acquisitions and will need to successfully
integrate any such acquisitions on a timely basis.
We have no current commitments or understandings with respect to the
acquisition of any entity. However, we have explored and continue to explore
acquisitions, including acquisitions of entities employing alternative formats.
There can be no assurance that we will be able to identify and acquire
appropriate businesses or obtain financing for such acquisitions on satisfactory
terms. Any acquisitions may be financed through the issuance of our common
stock, which may be dilutive to our shareholders, or through the incurrence of
additional indebtedness, which may be senior to the exchange notes. The process
of integrating acquired businesses into our operations may result in unforeseen
difficulties and may require a disproportionate amount of resources and
management's attention, and there can be no assurance that we will be able to
successfully integrate acquired businesses into our operations. In addition, any
businesses we acquire may have lower margins than some or all of our operations,
which would adversely affect our results of operations for the period in which
any such acquisition occurs and subsequent periods.
Most of our sales are of products purchased from a small number of key vendors.
Our business is dependent to a significant degree upon our ability to
purchase popular, brand-name merchandise at competitive prices. For fiscal 1998,
approximately 62% of our purchases were from five vendors, including
approximately 42% purchased from Nike and Reebok combined. Similarly, for fiscal
1997, approximately 64% of our purchases also were from the same five vendors,
including approximately 48% purchased from Nike and Reebok combined. The loss of
certain key vendors or vendor support could have a material adverse effect on
our business. We believe that our relationships with our key vendors are good
and that we have adequate sources of brand-name merchandise; however, there can
be no assurance that we will be able to acquire such merchandise at competitive
prices or on competitive terms in the future. Certain merchandise that is high
profile and in high demand is allocated by vendors based upon the vendors'
internal criteria. We also purchase closeout merchandise from vendors at
significant price discounts. Although we have been able to purchase sufficient
quantities of allocated and closeout merchandise in the past, there can be no
assurance that we will be able to obtain sufficient amounts of such merchandise
in the future. See "--Capital Needs and Substantial Leverage."
A fundamental element of the superstores' merchandising strategy is the
use of "concept shops" to display a leading brand's product line on fixtures
typically designed to tie into national advertising campaigns. The specialty
16
<PAGE>
stores also utilize a variation of the "concept shop" to display Nike products.
The "concept shops" are typically designed, built and periodically updated by
the Company's vendors. There can be no assurance that this form of vendor
support, which provides substantial financial and merchandising benefits to us,
will continue in the future. In addition, Just For Feet's vendors provide
support through cooperative advertising allowances, employee training and
promotional events. There can be no assurance that such assistance from our
vendors will continue in the future.
Our continued success will be dependent, in part, on our ability to anticipate
and respond to merchandise trends.
Our sales results are dependent, in part, on the popularity of our
merchandise. Should consumer demand for the products of any key vendors decline,
our operating results could be adversely affected compared to any competitors
whose sales are less "brand concentrated." Certain participants in the athletic
footwear industry, including both manufacturers and retailers, have announced
sales and same store sales results that were below analysts' expectations for
1998. Factors that have been cited for such lower sales include increases in
order cancellations and reduced consumer demand for products, resulting in
decreased production. There can be no assurance that such industry trends will
not in the future have a material adverse effect on the Company's business,
financial condition or results of operations.
Our success depends, in part, on our ability to anticipate and respond to
changing merchandise trends and consumer demands in a timely manner.
Accordingly, if we fail to identify and respond to emerging trends, such failure
could adversely affect our business. For example, if we miscalculate either the
market for the merchandise in our stores or the purchasing habits of our
customers, we may be required to sell a significant amount of inventory at below
average markups over our cost, or even below cost, which could have a material
adverse effect on our business, financial condition or results of operations.
Our operating results are affected by general economic conditions and are
subject to quarterly and seasonal fluctuations.
Our operating results may be adversely affected by unfavorable local,
regional or national economic conditions or other factors beyond our control,
such as weather. In addition, our quarterly results of operations 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. New store openings and the conversion and reopening
of the acquired Sneaker Stadium stores will have a significant impact on
quarterly operating results for the foreseeable future. Past increases in the
minimum wage and any future increases will result in an increase in our payroll
expense. As a result, store operating expenses in fiscal 1998, as a percentage
of net sales, have increased over prior year periods. There can be no assurance
that additional increases in the minimum wage will not affect store operating
results in future periods. Our business is also subject to some seasonal
fluctuation, with slightly heavier concentrations of sales during the spring,
back-to-school and Christmas selling seasons.
We depend on key management personnel.
We believe that our continued success will depend to a significant extent
upon the efforts and abilities of Harold Ruttenberg, our founder, Chairman and
Chief Executive Officer and Helen M. Rockey, our President and Chief Operating
Officer. The loss of either of their services could have a material adverse
effect on us. We carry key man life insurance on Mr. Ruttenberg in the amount of
$1.7 million. We believe that our future success will also depend, in part, upon
our ability to attract, retain and motivate qualified personnel to expand our
senior management team. Competition for such personnel is intense. Although we
have recently hired several senior level management personnel with extensive
experience in the athletic footwear industry, there can be no assurance that we
will continue to successfully attract and retain such personnel. See
"Management."
Qualified store level personnel are important to our success.
We believe the training of our store personnel gives us a competitive
advantage. There can be no assurance that competition for qualified retail sales
associates and store managers will not increase. Similarly, alternative
employment opportunities could result in higher compensation costs, increased
employee turnover or lower levels of customer service, any of which could have a
material adverse effect on our business, financial condition or results of
operations.
17
<PAGE>
We operate in a highly competitive market.
The retail athletic and outdoor footwear industry is highly competitive.
Our superstores and specialty stores compete primarily with sporting goods
superstores, athletic footwear specialty stores, department stores, discount
stores, traditional shoe stores, traditional sporting goods stores, mass
merchandisers and other athletic and outdoor footwear stores, many of which are
units of national or regional chains that have substantially greater financial
and marketing resources than we do and several of which have developed their own
superstore concepts. We may face periods of intense price and marketing
competition in the future which could have an adverse effect on our business,
financial condition and results of operations.
Even if we are "year 2000 compliant," we could be adversely affected by third
party noncompliance.
Many currently installed computer systems and software products are not
capable of distinguishing 21st century dates from 20th century dates. As a
result, beginning January 1, 2000, computer systems and software used by many
companies in a wide variety of industries will produce erroneous results or fail
unless they have been modified or upgraded to process date information
correctly. We have established policies and procedures to coordinate changes to
our computer systems and applications necessary to achieve a Year 2000 date
conversion. We have also assessed our hardware and software systemsAE Year 2000
compliance. We anticipate that all of such systems are either currently Year
2000 compliant or will be compliant by mid-1999. We believe that the Company
will comply with the Year 2000 requirements, and we currently do not anticipate
that we will experience any material disruption to our operations as a result of
the failure of any of our systems to be Year 2000 compliant. There can be no
assurance, however, that computer systems operated by third parties, including
customers, vendors, credit card transaction processors and financial
institutions, with which our systems interface, will continue to interface
properly with our systems and will otherwise be compliant on a timely basis with
Year 2000 requirements. We have developed and distributed vendor surveys and
certification requests to assess the Year 2000 compliance status of our major
vendors and have asked that such information be completed by April 30, 1999. We
currently estimate that the total cost of achieving Year 2000 compliance and of
assessing major vendor compliance will not exceed $500,000. We cannot assure you
that our Year 2000 program will be effective or that our estimates of the time
and cost of completing our program will be accurate. Any failure of our computer
systems or the systems of third parties to achieve Year 2000 compliance on a
timely basis could have a material adverse effect on our business, financial
condition and results of operations.
18
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange of old notes
pursuant to the exchange offer. Our net proceeds from the sale of the old notes
were approximately $193.0 million, after deducting the discount to the initial
purchasers and offering expenses. We used $80.0 million of the net proceeds to
repay all amounts outstanding under a term loan and $113.0 million of the net
proceeds to repay a portion of the total amount outstanding under our revolving
credit facility. As of June 1, 1999, the Company had $153.7 million outstanding
under the revolving credit facility. Funds provided by the term loan were used
to reduce the amounts outstanding under the revolving credit facility. Funds
provided by the revolving credit facility were used for acquisitions, expansion
and general working capital needs. See "Description of Revolving Credit
Facility."
CAPITALIZATION
The following table sets forth our total debt and shareholders' equity at
May 1, 1999.
As of May 1, 1999
-----------------------
(Unaudited, in thousands)
Revolving credit facility (1).......................... $ 60,700
Other debt, including current maturities............... 32,385
11% Senior Subordinated Notes due 2009................. 200,000
---------
Total debt............................................. 293,085
---------
Total shareholders' equity............................. 328,588
---------
Total debt and shareholders' equity.................... $ 621,673
=========
___________________
(1) At June 1, 1999, $153.7 million of indebtedness was outstanding under this
facility.
19
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following consolidated income statement data for fiscal 1998, 1997,
1996, 1995 and 1994 have been derived from our audited consolidated financial
statements. The selected consolidated income statement data for the three months
ended May 1, 1999 and April 30, 1998 and consolidated balance sheet data as of
May 1, 1999 have been derived from our unaudited consolidated financial
statements. In our opinion, the unaudited financial information contains all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of operations for such periods. The results for
the three months ended May 1, 1999 may not be indicative of the results to be
achieved for the entire fiscal year. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," our Consolidated Financial Statements and
related notes and other financial information included elsewhere or incorporated
by reference herein.
On July 2, 1998, we acquired Sneaker Stadium. The acquisition was accounted
for as a purchase and, accordingly, the results of operations of Sneaker Stadium
have been included in our consolidated statement of earnings from the date of
acquisition. Sneaker Stadium incurred significant net losses in each of its last
three fiscal years and the first quarter of fiscal 1998 prior to our acquiring
it in the second quarter of fiscal 1998. As of May 1, 1999, we had completed the
conversion of 33 of the acquired Sneaker Stadium superstores to the Just For
Feet format, with the two remaining acquired superstores scheduled for reopening
during the second quarter of this fiscal year. The following financial
information does not include historical financial information for Sneaker
Stadium prior to the date of its acquisition or pro forma financial information
for such acquisition, all of which is contained in the Company's current report
on Form 8-K/A included as Appendix A hereto and incorporated herein by
reference.
<TABLE>
<CAPTION>
Fiscal Year Three Months Ended
-------------------------------------------------- ------------------
May 1, April 30,
1998 1997 1996 1995 1994 1999 1998
------ ------ ------ ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Income Statement Data(1):
Net sales.............................................. $774,863 $478,638 $256,397 $119,819 $56,364 $220,985 $151,921
Cost of sales.......................................... 452,330 279,816 147,526 68,969 32,492 128,533 88,303
-------- -------- -------- -------- ------- -------- --------
Gross profit.......................................... 322,533 198,822 108,871 50,850 23,872 92,452 63,618
Franchise fees, royalties and other revenue............ 1,299 1,101 581 485 379 140 308
Operating expenses:
Store operating....................................... 232,505 139,659 69,329 33,264 16,197 67,879 44,756
Store opening costs................................... 13,669 6,728 11,240 2,712 699 4,300 3,352
Amortization of intangibles........................... 2,072 1,200 180 157 155 652 360
General and administrative............................ 24,341 18,040 7,878 3,575 2,429 7,063 5,399
-------- -------- -------- -------- ------- -------- --------
Operating income....................................... 51,245 34,296 20,825 11,627 4,771 12,698 10,059
Interest income (expense), net......................... (7,916) (76) 3,918 2,931 376 (5,144) (602)
-------- -------- -------- -------- ------- -------- --------
Earnings before income taxes and cumulative effect of
change in accounting principle........................ 43,329 34,220 24,743 14,558 5,147 7,554 9,457
Provision for income taxes............................. 16,681 12,817 8,783 4,836 1,928 2,908 3,641
-------- -------- -------- -------- ------- -------- --------
Earnings before cumulative effect of change in
accounting principle................................. 26,648 21,403 15,960 9,722 3,219 4,646 5,816
Cumulative effect on prior years of change in
accounting principle................................. -- -- (2,041) -- -- (1,847) --
-------- -------- -------- -------- ------- -------- --------
Net earnings........................................... $26,648 $ 21,403 $ 13,919 $ 9,722 $ 3,219 $ 2,799 $ 5,816
======== ======== ======== ======== ======= ======== ========
Basic net earnings per share before cumulative effect
of change in accounting principle..................... $ 0.87 $ 0.72 $ 0.58 $ 0.40 $ 0.19 $ 0.15 $ --
Cumulative effect on prior years of change in
accounting principle.................................. -- -- (0.08) -- -- (0.06) --
-------- -------- -------- -------- ------- -------- --------
Basic net earnings per share........................... $ 0.87 $ 0.72 $ 0.50 $ 0.40 $ 0.19 $ 0.09 $ --
======== ======== ======== ======== ======= ======== ========
Diluted net earnings per share before cumulative effect
of change in accounting principle.................... $ 0.84 $ 0.70 $ 0.55 $ 0.38 $ 0.18 $ 0.15 $ 0.19
Cumulative effect on prior years of change in
accounting principle................................. -- -- ( 0.07) -- -- (0.06) --
-------- -------- -------- -------- ------- -------- --------
Diluted net earnings per share......................... $ 0.84 $ 0.70 $ 0.48 $ 0.38 $ 0.18 $ 0.09 $ 0.19
======== ======== ======== ======== ======= ======== ========
Basic weighted average shares outstanding.............. 30,737 29,615 27,627 24,246 17,017 31,204 30,044
Diluted weighted average shares outstanding............ 31,852 30,410 29,096 25,546 17,948 31,695 31,172
Pro forma net earnings (2)............................. -- -- -- $ 8,487 $ 2,607
======== ======== ======== ======== =======
Pro forma basic net earnings per share(2).............. -- -- -- $ 0.35 $ 0.15
======== ======== ======== ======== =======
Pro forma diluted net earnings per share(2)............ -- -- -- $ 0.33 $ 0.15
======== ======== ======== ======== =======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Three Months Ended
------------------------------------------- --------------------
May 1, April 30,
1998 1997 1996 1995 1994 1999 1998
------ ------ ------ ------ ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Other Financial Data:
EBITDAR(3)......................................... $117,450 $67,242 $35,696 $19,683 $8,767 $ 35,352 $ 20,176
Rental Expense..................................... 49,323 24,163 10,900 5,847 3,128 16,315 7,152
EBITDA(4).......................................... 68,127 43,079 24,796 13,836 5,639 19,037 13,024
Depreciation and amortization...................... 16,129 8,783 3,971 2,209 868 6,339 2,965
Interest expense................................... 8,059 1,446 832 703 293 5,144 602
Capital expenditures............................... 73,325 43,446 33,206 14,380 5,952 21,642 12,277
Ratio of EBITDA to interest expense................ 2.7x 29.8x 29.8x 19.7x 19.3x 3.7x 1.6x
Ratio of total debt to EBITDA...................... 3.4x .5x .4x .6x .7x 15.4x 21.6x
Ratio of earnings to fixed charges(5).............. 2.8x 3.6x 6.9x 6.3x 4.7x 1.7x 3.6x
Other Operating Data:
Increase in comparable store sales(6).............. 3.2% 4.5% 24.7% 18.0% 10.2% 2.4% 3.5%
Number of Company superstores (at end of period)... 120(7) 73 50 27 15 137(8) 84
Number of Company specialty stores (at end
of period)........................................ 141 92 -- -- -- 167 101
January 30, January 31, May 1, April 30,
------------ --------------------------------------- ------ ---------
1999 1998 1997 1996 1995 1999 1998
------ ------ ------ ------ ------ ------ ------
(Dollars in thousands)
Balance Sheet Data:
Working capital..................................... $316,798 $155,461 $167,829 $108,304 $64,617 $369,379 $153,456
Total assets........................................ 689,396 448,352 375,834 243,580 89,505 771,183 387,868
Long-term debt and capital lease obligations........ 216,203 16,646 6,488 6,696 3,102 286,414 17,283
Shareholders' equity................................ 325,706 268,084 218,556 149,270 72,983 328,588 274,765
</TABLE>
- ---------------------------
(1) Effective February 1, 1996, the Company changed its method of accounting
for store opening costs, which are costs principally for pre-opening
salaries, travel and rent that are incremental and directly attributable to
the opening of a new store. Under the newer method, the Company charged
these costs to operations in the month that the store opens. Previously,
store opening costs were capitalized and amortized over the 12 months
following the store opening. The cumulative effect of this change in
accounting principle for store pre-opening costs in fiscal 1996 was $2.0
million or $0.07 per diluted share.
Effective with the beginning of the current fiscal year (January 31, 1999),
the Company changed this method of accounting as required by Statement of
Position No. 98-5, "Reporting on the Costs of Start-Up Activities." The new
rule requires the Company to expense pre-opening costs as incurred. The
cumulative effect of adopting the new rule was a charge to earnings in the
first quarter of fiscal 1999 of approximately $1,847,000 ($0.06 per basic
and diluted share), net of applicable taxes of $1,156,000. The effect on
the three-month period ended May 1, 1999 was an increase in store opening
costs of approximately $1.3 million and a decrease in net income of
approximately $774,000 ($0.02 per basic and diluted share), net of
applicable income taxes of approximately $484,000.
(2) Pro forma amounts for fiscal 1995 and 1994 assume that the change in
accounting principle described in note 1 above is applied retroactively.
(3) EBITDAR represents net income before interest, income taxes, depreciation,
amortization and rental expense. EBITDAR is presented because it is a
widely accepted financial indicator of a company's ability to service
and/or incur indebtedness. EBITDAR, however, should not be construed as an
alternative to net income as a measure of a company's operating results or
to operating cash flow as a measure of liquidity. This methodology may not
be consistent with a similarly captioned item presented by other companies.
(4) EBITDA represents net income before interest, income taxes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a retail company's ability to service and/or incur
indebtedness. EBITDA, however, should not be construed as an alternative to
net income as a measure of a
21
<PAGE>
company's operating results or to operating cash flow as a measure of
liquidity. This methodology may not be consistent with a similarly
captioned item presented by other companies.
(5) The ratio of earnings to fixed charges has been computed by dividing
earnings before income taxes plus fixed charges and amortization of
previously capitalized interest by fixed charges. Fixed charges include
interest expense and a percentage of rents which management deems to be
attributable to interest costs.
(6) Company operated superstores are included in the comparable store sales
calculation beginning generally in the thirteenth month of operation or
upon their acquisition, assuming at least twelve months of prior
operations. The acquired Sneaker Stadium superstores will be included in
the comparable store sales base beginning in the fourteenth month after
reopening as a Just For Feet superstore. We included the specialty stores
which were acquired in fiscal 1997 in the comparable store sales base for
the first time in the quarter ended April 30, 1998. Specialty stores, other
than those acquired in fiscal 1997, will be included in the comparable
store sales calculation beginning generally in the thirteenth month of
operation.
(7) In addition, the Company was in the process of converting 13 Sneaker
Stadium superstores into Just For Feet superstores, and three Sneaker
Stadium superstores were undergoing going-out-of-business sales prior to
closing permanently.
(8) In addition, two of the acquired Sneaker Stadium superstores were
undergoing going-out-of-business sales prior to closing permanently.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Just For Feet operates retail stores in the brand-name athletic and outdoor
footwear and apparel market. Just For Feet was founded in 1977 with the opening
of a small mall-based store, and, in 1988, 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 primarily on developing and
refining its superstore concept.
Superstore and Specialty Store Operations
As of June 1, 1999, there were 152 Just For Feet superstores operating in
28 states and Puerto Rico, including 12 superstores operated by Just For Feet's
only superstore franchisee. Of the 140 Company operated superstores, 23
superstores were opened in fiscal 1997 and 26 superstores were opened in fiscal
1998, along with 21 converted Sneaker Stadium stores. The Company expects to
open approximately 25 new superstores and 14 remodeled former Sneaker Stadium
superstores in fiscal 1999 and 25 new superstores in fiscal 2000. The Company
may change the rate of opening of new superstores in any one fiscal quarter.
As part of its long-term growth strategy, the Company entered the smaller
specialty store market of the athletic and outdoor footwear and apparel industry
in 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. As
of June 1, 1999, the Company operated 173 Company-owned and 41 franchised
specialty stores in 22 states and Puerto Rico. The Company opened 51 new
specialty stores in fiscal 1998 and expects to open approximately 45 new
specialty stores in fiscal 1999.
In fourth quarter of fiscal 1998, sales at the specialty stores suffered
along with other smaller format athletic footwear retailers. In the first
quarter of fiscal 1999, specialty store operations were adversely impacted by
lower gross margins and higher than anticipated store operating expenses as a
percentage of net sales, primarily as a result of lower than planned sales
volumes in recently opened specialty stores and higher than expected interest
expense associated with funding higher than planned inventory levels during the
period. At May 1, 1999, the specialty store division had excess inventory of
over $50 million. The buildup in inventory is attributable mainly to footwear
orders placed at the division level in excess of the division's current needs,
as well as lower than expected sales volumes in the specialty stores. The
Company recently announced its intention to significantly reduce inventories.
The Company anticipates that the planned inventory reduction will result in
Company-wide gross margin rates for the second quarter of fiscal 1999 falling
below rates achieved in the first quarter of fiscal 1999. The Company also
anticipates that primarily due to the projected impact on gross margins and
higher than planned interest costs, the Company will report a net loss from
operations in the second quarter ending July 31, 1999. The Company also expects
that net earnings for fiscal 1999 will be lower than in fiscal 1998. If the
Company is unable to achieve significant inventory reductions in the second
quarter as planned, and higher than planned inventory levels continue, the
Company will experience significantly lower gross margins, significantly higher
store operating expenses and net interest expense, decreased liquidity and
significantly lower net earnings in fiscal 1999 than in fiscal 1998.
To accommodate the Company's expansion, the Company has increased its
corporate staff. In addition, the specialty stores have a higher general and
administrative expense structure as a percent of net sales than the superstore
operations. These factors resulted in general and administrative costs
increasing to 3.8% of sales during fiscal 1997 from 3.1% in fiscal 1996 and 3.0%
in fiscal 1995. General and administrative costs decreased to 3.1% of sales for
fiscal 1998 from 3.8% for fiscal 1997 primarily due to leverage from increasing
Company sales.
In recent years, the Company has achieved positive comparable store sales
growth on an annual basis. Comparable store sales increased 3.2% in fiscal 1998,
4.5% in fiscal 1997, 24.7% in fiscal 1996, 18.0% in fiscal 1995, 10.2% in fiscal
1994, and 6.2% in fiscal 1993. No assurance can 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.
Effective February 1, 1996, the Company changed its method of accounting
for store opening costs, which are costs principally for pre-opening salaries
and travel that are incremental and directly attributable to the opening of a
new store. Under the newer method, the Company charged these costs to operations
in the month that the store opens. Previously, store opening costs were
capitalized and amortized over the 12 months following the store
23
<PAGE>
opening. The cumulative effect of this change in accounting principle resulted
in a charge to operations at the beginning of the year ended January 31, 1997 of
$2.0 million, net of income taxes of $1.1 million.
Effective with the beginning of the current fiscal year (January 31, 1999),
the Company changed its method of accounting for store opening costs as required
Statement of Position No. 98-5, Reporting on the Cost of Start-Up Activities
(the "SOP"). The SOP requires that costs of start-up activities and organization
costs be expensed as incurred. The Company previously expensed start-up costs
for new stores in the month that the new store opened. The cumulative effect of
the change in accounting principle was a net charge to earnings of approximately
$1.8 million ($0.06 per basic and diluted share), net of applicable income taxes
of approximately $1.2 million. The effect on the three month period ended May 1,
1999 was an increase in store opening costs of approximately $1.3 million and a
decrease in net income of approximately $774,000 ($0.02 per basic and diluted
share), net of applicable taxes of approximately $484,000.
Prior to fiscal 1998, the Company's fiscal year ended on January 31.
Effective for fiscal years beginning with fiscal 1998, the Company changed its
fiscal year end to the Saturday closest to January 31. Prior to fiscal 1998,
references to fiscal year by date refer to the fiscal year beginning February 1
of that calendar year; for example "fiscal 1997" began February 1, 1997 and
ended on January 31, 1998. "Fiscal 1998" began on February 1, 1998 and ended on
January 30, 1999. "Fiscal 1999" began on January 31, 1999 and will end on
January 29, 2000.
Sneaker Stadium
On July 2, 1998, the Company acquired Sneaker Stadium, Inc., an operator of
39 athletic footwear and apparel superstores located primarily in the Northeast
and Mid-Atlantic United States.
Sneaker Stadium incurred significant losses in each of its last three
fiscal years and the first quarter of fiscal 1998, prior to our acquisition of
it. In addition, Sneaker Stadium historically experienced lower average sales
per store and lower gross margins than those typically experienced by our
superstores. The acquisition of Sneaker Stadium increased the number of
superstores operated by us by approximately 44%. The acquired superstores also
are located in geographic areas in which we had not previously operated a
significant number of superstores. We expect the aggregate cost of remodeling
such stores to be approximately $27.0 million, approximately $7.0 million more
than our initial cost estimates. Through June 1, 1999, we had remodeled and
reopened 34 former Sneaker Stadium superstores and permanently closed four
stores.
The initial process of liquidating old inventory, remodeling the acquired
stores, restocking inventory, retraining store personnel and reopening the first
group of former Sneaker Stadium stores as Just For Feet superstores encountered
unforeseen difficulties, resulting primarily from our attempt to reopen the
stores prior to Thanksgiving in order to take advantage of the Christmas
shopping season. The aggressive construction schedule did not permit sufficient
time to complete and adequately stock the in-store warehouse in many of the
stores, resulting in those stores opening with only approximately one-half of
the planned inventory. This factor, combined with unusually warm weather in the
Northeast, resulted in lower sales than anticipated and increased expense,
primarily due to ongoing construction and fixturing in the stores and the
staffing of such reopened stores at full operational levels. On average,
converted stores did not achieve the operating results we expected for the first
several months of post-reopening activity. Even though we believe we have now
made substantial progress in integrating Sneaker Stadium, the failure to do so
could have a material adverse effect not only on such operations but also on our
consolidated results of operations and financial condition. Even though we
expect all construction and fixturing to be completed on the second group of
converted stores before they reopen, we currently believe that the converted
stores will not, at least in the near term, achieve average sales or average
operating results comparable to average results achieved at our existing mature
superstores. Furthermore, there cannot be any assurance that these converted
stores will ever achieve average sales or average operating results comparable
to the average sales and operating results we have achieved at our existing
mature superstores.
Acquired stores that were remodeled and reopened as Just For Feet
superstores were closed during the remodeling period. During such remodeling
period, we continued 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, have instead been classified
as store opening costs. These conditions have affected the Company's
profitability for such periods and the comparability of the Company's results
of operations for the first quarter of fiscal 1999 as compared to the first
quarter of fiscal 1998.
24
<PAGE>
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. Concurrent with the acquisition,
an affiliate of Thomas H. Lee Company, one of the former owners of Sneaker
Stadium, purchased from the Company 926,355 shares of common stock and warrants
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 estimated fair
market value of the warrants on July 2, 1998 was $6.7 million and, for
accounting purposes, the warrants were considered part of the consideration paid
by the Company for Sneaker Stadium. The acquisition has been accounted for as a
purchase and, accordingly, the results of operations of Sneaker Stadium are
included in the Company's consolidated statement of earnings from the July 2,
1998 acquisition date.
Results of Operations
The following table sets forth, for the periods indicated, statement of
earnings data expressed as a percentage of net sales (numbers may not add to
100% due to rounding):
<TABLE>
<CAPTION>
Fiscal Year Three Months Ended
------------------------ ---------------------
May 1, April 30,
1998 1997 1996 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales........................................................ 100.0 % 100.0% 100.0 % 100.0 % 100.0 %
Cost of sales.................................................... 58.4 58.5 57.5 58.2 58.1
---- ---- ---- ---- ----
Gross profit..................................................... 41.6 41.5 42.5 41.8 41.9
Franchise fees, royalties and other revenue...................... 0.2 0.2 0.2 0.1 0.2
Operating expenses:
Store operating............................................. 30.0 29.2 27.0 30.7 29.5
Store opening costs......................................... 1.8 1.4 4.4 2.0 2.2
Amortization of intangibles................................. 0.3 0.2 -- 0.3 0.2
General and administrative.................................. 3.1 3.8 3.1 3.2 3.6
---- ---- ---- ---- ----
Operating income................................................. 6.6 7.1 8.1 5.7 6.6
Interest income (expense), net................................... (1.0) -- 1.5 (2.3) (0.4)
---- ---- ---- ---- ----
Earnings before income taxes and cumulative effect of change in
accounting principle........................................ 5.6 7.1 9.7 3.4 6.2
Provision for income taxes....................................... 2.2 2.6 3.4 1.3 2.4
---- ---- ---- ---- ----
Earnings before cumulative effect of change in accounting
principle................................................... 3.4 4.5 6.3 2.1 3.8
Cumulative effect on prior years of change in accounting
principle................................................... -- -- (0.8) (0.8) --
---- ---- ---- ---- ----
Net earnings..................................................... 3.4 % 4.5% 5.5 % 1.3 % 3.8 %
==== ==== ==== ==== ====
</TABLE>
Three Months Ended May 1, 1999 Compared to Three Months Ended April 30, 1998
Net Sales--Net sales increased $69.1 million, or 45.5%, to $221.0 million
in the first three months of fiscal 1999 compared to net sales of $151.9 million
for the first three months of fiscal 1998. This increase was primarily
attributable to 53 new superstores (including 33 remodeled and reopened former
Sneaker Stadium superstores) and 66 new specialty stores opened since April 30,
1998 and an increase in comparable store sales of 2.4%. The calculation of
comparable store sales included 68 superstores and 86 specialty stores at May 1,
1999. The acquisition of Sneaker Stadium on July 2, 1998 has been accounted for
as a purchase and, accordingly, the results of operations are included in the
Company's consolidated statement of earnings from the July 2, 1998 acquisition
date.
Gross Profit--Gross profit for the first quarter of 1999 increased 45.3% to
$92.5 million from $63.6 million for the first quarter of fiscal 1998 primarily
as a result of increased sales. As a percentage of net sales, gross profit for
the first quarters of 1999 and 1998 remained relatively constant at 41.8% and
41.9%, respectively.
Franchise Fees, Royalties and Other Revenue. Franchise fees, royalties and
other revenue decreased 54.6% to $140,000 in the first quarter of fiscal 1999
from $308,000 in the first quarter of fiscal 1998, primarily as a result of the
Company not recognizing any royalty income from its sole superstore franchisee
as a result of a lawsuit filed against the Company by the franchisee in April
1999. See "Business--Litigation."
Store Operating Expenses. Store operating expenses increased $23.1 million
or 51.7% to $67.9 million in the first quarter of fiscal 1999 from $44.8 million
in the first quarter of fiscal 1998. The increase was
25
<PAGE>
primarily attributable to the operating expenses of the 53 new superstores and
66 new specialty stores opened since April 30, 1998. As a percentage of net
sales, store operating expenses increased to 30.7% for the three month period
ended May 1, 1999 from 29.5% for the first three months of fiscal 1998. This
increase primarily resulted from higher store operating costs in the specialty
store division as a percentage of net sales, as sales at newer specialty stores
opened primarily in the latter part of fiscal 1998 and in 1999 have not achieved
anticipated levels which has resulted in a higher store operating expense
structure.
Store Opening Costs. Effective with the beginning of the current fiscal
year (January 31, 1999), the Company changed its method of accounting for store
opening costs as required by Statement of Position No. 98-5, Reporting on the
Cost of Start-Up Activities (the "SOP"). The SOP requires that costs of start-up
activities and organization costs be expensed as incurred. The Company
previously expensed start-up costs for new stores in the month that the new
store opened. The effect on the three month period ended May 1, 1999 was an
increase in store opening costs of approximately $1.3 million and a decrease in
net income of approximately $774,000 ($0.02 per basic and diluted share), net of
applicable taxes of approximately $484,000. The Company opened five new
superstores, 12 converted former Sneaker Stadium superstores and 27 new
specialty stores in the first quarter of fiscal 1999 as compared to 11 new
superstores and 10 new specialty stores in the first quarter of fiscal 1998. As
a percentage of net sales, store opening costs declined to 2.0% for the current
quarter from 2.2% in the prior year first quarter as a result of the increase in
sales noted above.
Amortization of Intangibles. Amortization of intangibles, which includes
amortization of goodwill and franchise rights, increased to approximately
$652,000 for the first quarter of fiscal 1999 from approximately $360,000 for
the first quarter of fiscal 1998. This increase was primarily attributable to
the amortization of goodwill resulting from the acquisition of Sneaker Stadium
in July 1998.
General and Administrative Expenses. General and administrative expenses
increased $1.7 million, or 30.8%, to $7.1 million in the first quarter of fiscal
1999 from $5.4 million in the first quarter of fiscal 1998. This increase was
primarily attributable to the increase in corporate staff to support the
Company's current and planned growth. As a percentage of net sales, general and
administrative expenses decreased to 3.2% in the first quarter of fiscal 1999
from 3.6% in the first quarter of fiscal 1998 primarily due to the continued
leverage on higher sales at Just For Feet superstores and specialty stores and
continued focus on controlling such costs.
Operating Income. Operating income increased 26.2% to $12.7 million in the
first quarter of fiscal 1999 from $10.1 million the first quarter of fiscal
1998. Operating income, as a percentage of net sales, decreased to approximately
5.7% for the first quarter of fiscal 1999 from approximately 6.6% for the first
quarter of fiscal 1998, primarily due to the increase in store operating
expenses as a percentage of net sales as outlined above.
Net Interest Income/Expense. Net interest expense was $5.1 million in the
first quarter of fiscal 1999, compared to $602,000 in the first quarter of
fiscal 1998. The increase in net interest expense was primarily due to the
increase in debt to fund the acquisition of Sneaker Stadium in July 1998, to
fund the cash requirements for opening 20 new superstores, remodeling and
reopening 33 former Sneaker Stadium superstores and opening 66 new specialty
stores since April 30, 1998 and due to the cash requirements of funding higher
than planned inventory levels in the first quarter of fiscal 1999.
Provision for Income Taxes. The Company's effective combined federal and
state income tax rate remained constant at 38.5% for the first quarters of
fiscal 1999 and 1998.
Earnings Before Cumulative Effect of Change in Accounting Principle. As a
result of the above factors, earnings before the cumulative effect of the change
in accounting principle decreased 20.1% to $4.6 million in the first quarter of
fiscal 1999 from $5.8 million in the first quarter of fiscal 1998.
Cumulative Effect of Change in Accounting Principle. The cumulative effect
of the change in accounting principle that resulted from adopting the SOP was a
net charge to earnings of $1.8 million, net of applicable income taxes of $1.2
million.
Net Income. As a result of the above factors, net income decreased 51.9% to
$2.8 million in the first quarter of fiscal 1999 from $5.8 million in the first
quarter of fiscal 1998.
26
<PAGE>
Fiscal 1998 Compared to Fiscal 1997
Impact of Sneaker Stadium Superstore Sales. The Company acquired 39
Sneaker Stadium superstores on July 2, 1998. During fiscal 1998, 24 of these
acquired superstores ran clearance sales primarily in the July through September
1998 period and were closed. These superstores then underwent renovation and
construction with 21 reopening as Just For Feet superstores in late November
1998. The remaining Sneaker Stadium superstores began clearance sales in early
November 1998 and 12 were closed during January 1999 for remodeling and
construction. The Company plans for 13 of these superstores to reopen as Just
For Feet superstores in the first quarter of fiscal 1999. As a result of the
unusually high volume of sales with lower gross profit from the clearance sales,
consolidated gross profit and store operating expenses, as a percentage of net
sales, have been reduced below typical operating levels.
Net Sales. Net sales increased $296.2 million, or 61.9%, to $774.9 million
for fiscal 1998 compared to net sales of $478.6 million for fiscal 1997. This
increase was primarily attributable to 26 new superstores, 21 converted
superstores (formerly Sneaker Stadium superstores) and 51 new specialty stores
opened during the year, an increase in comparable store sales of 3.2% and
additional sales during the year of $93.4 million from the Sneaker Stadium
superstores acquired in July 1998. The calculation of comparable store sales
included 62 superstores and 85 specialty stores at January 30, 1999.
Gross Profit. Gross profit for fiscal 1998 increased to $322.5 million or
62.2% from $198.8 million in fiscal 1997 as a result of increased sales. As a
percentage of net sales, gross profit increased to 41.6% for fiscal 1998 from
41.5% for fiscal 1997 primarily as a result of increased vendor discounts and
less promotional activity than in the prior year, offset by the dilutive impact
of the clearance sales at the acquired Sneaker Stadium superstores.
Store Operating Expenses. Store operating expenses increased $92.8 million
or 66.5% to $232.5 million in fiscal 1998 from $139.7 million in fiscal 1997.
The increase was primarily attributable to the operating expenses of the 26 new
superstores and 51 new specialty stores opened during fiscal 1998, as well as
the operating expenses of the 39 Sneaker Stadium superstores acquired in July
1998. As a percentage of net sales, store operating expenses increased to 30.0%
for fiscal 1998 from 29.2% for fiscal 1997 primarily as a result of higher
payroll and occupancy expenses, as a percentage of net sales, for the specialty
stores and the acquired Sneaker Stadium superstores; increased superstore
regional management payroll and related expenses and the increase in superstore
payroll (partially as a result of the impact of the minimum wage increase in
September 1997), all of which were partially offset by lower net advertising
costs as a percentage of net sales for the Just For Feet superstores.
Store Opening Costs. Store opening costs are charged to operations in the
month the applicable store opens. These costs increased $7.0 million to $13.7
million for fiscal 1998 from $6.7 million for fiscal 1997. This increase is
primarily attributable to costs associated with re-opening 21 of the acquired
Sneaker Stadium superstores, as well as the costs to open 26 superstores and 51
specialty stores in fiscal 1998 as compared to the costs to open 23 superstores
and six specialty stores in fiscal 1997. As a percentage of net sales, such
costs increased to 1.8% for fiscal 1998 from 1.4% in fiscal 1997.
Amortization of Intangibles. Amortization of intangibles, which includes
amortization of goodwill and franchise rights, increased to $2.1 million for
fiscal 1998 from $1.2 million for fiscal 1997. This increase is primarily
attributable to the amortization of goodwill resulting from the acquisitions of
the specialty stores in fiscal 1997 and Sneaker Stadium in fiscal 1998.
General and Administrative Expenses. General and administrative expenses
increased $6.3 million or 34.9%, to $24.3 million for fiscal 1998 from $18.0
million for fiscal 1997. This increase was primarily attributable to the
increase in corporate staff to support the Company's planned growth and the
general and administrative expenses attributed to the Sneaker Stadium
acquisition. As a percentage of net sales, general and administrative expenses
decreased to 3.1% for fiscal 1998 from 3.8% for fiscal 1997. This decrease was
due primarily to the increase in sales and the reduction in the percentage of
such expenses at the specialty store division as that division continues to
rationalize its overhead structure, as well as management's continued focus on
controlling such costs.
Operating Income. Operating income increased 49.4% to $51.2 million for
fiscal 1998 from $34.3 million for fiscal 1997. Operating income, as a
percentage of net sales, decreased to 6.6% for fiscal 1998 from 7.1% for fiscal
27
<PAGE>
1997 primarily due to the increases in store operating expenses and store
opening costs which were partially offset by a decrease in general and
administrative expenses as a percentage of net sales, as outlined above.
Interest Expense/Income, Net. Net interest expense was $7.9 million for
fiscal 1998 compared to $76,000 for fiscal 1997. The increase in net interest
expense was primarily due to the increase in debt to fund the acquisition of
Sneaker Stadium and to fund the capital expenditures and working capital
requirements for opening 26 new superstores, 51 new specialty stores and the
renovation and working capital requirements of the acquired Sneaker Stadium
superstores during fiscal 1998.
Provision for Income Taxes. The Company's combined effective federal and
state income tax rate increased to 38.5% for fiscal 1998 as compared to 37.5%
for fiscal 1997 primarily from the impact of non-taxable interest income in
fiscal 1997 and the inclusion of non-deductible goodwill resulting from the
acquisitions of Athletic Attic, Imperial Sports and Sneaker Stadium.
Net Income. As a result of the above factors, net income increased
24.5% to $26.6 million for fiscal 1998 from $21.4 million for fiscal 1997.
Fiscal 1997 Compared to Fiscal 1996
Net Sales. Net sales increased $222.2 million or 86.7% for fiscal 1997 to
$478.6 million compared to net sales of $256.4 million for fiscal 1996. This
increase was primarily attributable to additional sales of $68.9 million from
the 23 new superstores opened during the year, an increase in comparable store
sales of 4.5%, and additional sales of $60.5 million from the specialty stores
acquired during fiscal 1997. The calculation of comparable store sales for the
year included 42 superstores. The specialty store division of the Company
consists of Athletic Attic and Imperial Sports which were acquired on March 17,
1997 and May 14, 1997, respectively.
Gross Profit. Gross profit increased to $198.8 million or 82.6% for fiscal
1997 from $108.9 million in fiscal 1996 as a result of increased sales. As a
percentage of net sales, gross profit decreased to 41.5% for fiscal 1997 from
42.5% for fiscal 1996, primarily as a result of programs utilized to increase
sales and to reduce inventory in the second half of fiscal 1997.
Store Operating Expenses. Store operating expenses increased $70.3 million
or 101.4% to $139.7 million in fiscal 1997 from $69.3 million in fiscal 1996.
This increase was primarily attributable to the operating expenses of the 23
superstores opened during fiscal 1997 and the operating expenses of the acquired
specialty stores. As a percentage of net sales, store operating expenses
increased to 29.2% in fiscal 1997 from 27.0% in fiscal 1996 primarily as a
result of increased superstore regional management payroll and related expenses
and increases in superstore level payroll as a result of the impact of minimum
wage increases in October 1996 and September 1997.
Store Opening Costs. Store opening costs are charged to operations in the
month the applicable store opens. Twenty-three superstores were opened during
each of fiscal 1997 and 1996. Store opening costs decreased $4.5 million or
40.1% to $6.7 million in fiscal 1997 from $11.2 million in fiscal 1996,
reflecting a reduction in per store opening costs as a result of increased focus
on controlling costs in this area.
General and Administrative Expense. General and administrative expenses of
$18.0 million increased $10.1 million, or 129.0% in fiscal 1997 from $7.9
million in fiscal 1996. As a percentage of net sales, general and administrative
expenses increased to 3.8% in fiscal 1997 as compared to 3.1% for fiscal 1996,
primarily attributable to increased corporate staff and facilities to support
the Company's current and future growth and the acquisitions of the specialty
stores which have higher general and administrative expenses as a percentage of
net sales than the Company had experienced prior to the acquisitions.
Amortization of Intangibles. Amortization of intangibles, which includes
amortization of goodwill and franchise rights, increased to $1.2 million for
fiscal 1997 from $0.2 million for fiscal 1996. This increase was primarily
attributable to the amortization of goodwill resulting from the acquisitions of
Athletic Attic and Imperial Sports.
Operating Income. Operating income increased 64.7% to $34.3 million in
fiscal 1997 from $20.8 million in fiscal 1996 as a result of growth in the
superstore division and the results of operations in the acquired specialty
28
<PAGE>
store division. As a percentage of net sales, operating income decreased from
8.1% in fiscal 1996 to 7.1% in fiscal 1997, due primarily to the percentage
decline in gross profit margin and increases, as a percentage of net sales, in
store operating expenses, general and administrative expenses and amortization
of intangibles, offset by the decline in store opening costs as a percentage of
net sales, as discussed above.
Net Interest Income (Expense). Net interest expense was approximately
$76,000 in fiscal 1997, compared to net interest income of $3.9 million in
fiscal 1996. The decrease was primarily due to the decrease in cash as a result
of financing the acquisitions of the specialty stores, cash outlays for opening
23 new superstores during fiscal 1997 and the remodeling and information systems
improvements at the specialty store division.
Net Income. As a result of the above factors, net income increased 53.8%
to $21.4 million in fiscal 1997 from $13.9 million in fiscal 1996.
Seasonality and Quarterly Fluctuations
The Company does not experience significant seasonal fluctuations in its
business. However, the highest sales periods for the Company's stores 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.
The following table sets forth certain unaudited results of operations for
the Company's last nine fiscal quarters. The unaudited information includes all
normal recurring adjustments which management considers necessary for a fair
presentation of the information shown. All amounts shown are in thousands,
except per share and store data.
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998 Fiscal 1999
------------------------------------------- ------------------------------- ------------------
First Second Third Fourth First Second Third Fourth First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $92,803 $112,369 $131,033 $142,433 $151,921 $175,329 $226,008 $221,605 $220,985
Gross profit............... 39,002 47,254 53,567 58,999 63,618 75,516 91,147 92,252 92,452
Earnings before income
taxes..................... 8,253 7,877 8,813 9,277 9,457 12,969 16,326 4,577 7,554
Net earnings............... 5,201 4,805 5,376 6,021 5,816 7,976 10,040 2,817 2,799
EBITDA..................... 9,253 9,978 11,485 12,363 13,024 18,150 23,242 13,711 19,037
Company superstores at
period end............... 54 61 66 73 84 90(1) 94(1) 120(2) 137(3)
Company specialty stores
at period end............ 30 85 87 92 101 109 122 141 167
</TABLE>
- ---------------------------
(1) Does not include any of the 39 Sneaker Stadium superstores acquired by the
Company on July 2, 1998.
(2) Does not include three Sneaker Stadium superstores in the process of
holding going-out-of-business sales and 14 Sneaker Stadium superstores
under renovation during the period.
(3) Does not include two Sneaker Stadium superstores undergoing going-out-of-
business sales during the period prior to closing permanently.
29
<PAGE>
Liquidity and Capital Resources
Just For Feet's primary sources of working capital have been cash flows
from operations, borrowings under its revolving credit facility and other credit
facilities and proceeds from public and private offerings of securities. The
Company had working capital of $316.8 million, $155.5 million and $167.8 million
at January 30, 1999, January 31, 1998 and January 31, 1997, respectively, and
$369.4 million at May 1, 1999. The principal use of cash has been to fund
acquisitions and store operations, to remodel the acquired Sneaker Stadium
stores and to purchase inventory, equipment and fixtures. During fiscal 1998,
the Company spent approximately $79.3 million for property and equipment,
including approximately $53.9 million to open new stores, approximately $17.6
million for improvements to existing stores, and approximately $7.8 million for
corporate additions and improvements. During the first quarter of fiscal 1999,
the Company spent approximately $21.6 million for property and equipment,
including approximately $14.1 million to open new stores, approximately $6.3
million for improvements to existing stores, and approximately $1.2 million for
corporate additions and improvements. The Company's short-term operational cash
requirements are not highly seasonal. The Company had approximately $17.6
million in cash and cash equivalents as of May 1, 1999.
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, 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.
On December 10, 1998, the Company obtained a $200.0 million senior
revolving credit facility from a syndicate of banks. The revolving credit
facility terminates on December 10, 2001, bears interest at a floating rate
above either prime or LIBOR, is secured by the stock of the Company's domestic
subsidiaries and 66-2/3% of the Company's Puerto Rican subsidiary and guaranteed
by all of the domestic subsidiaries and is subject to certain restrictive
covenants. Interest rates under the facility are subject to increase depending
on changes in certain ratios under the financial covenants. The proposed
amendment to the credit agreement provides for further increases to the interest
rate under the facility based upon changes in these ratios.
On April 15, 1999, the Company completed a $200.0 million private placement
of senior subordinated notes. Proceeds from such private placement were used to
repay an $80.0 million term loan and approximately $113.0 million under the
revolving credit facility.
At June 1, 1999, there was $153.7 million outstanding under the Company's
revolving credit facility. The $93.0 million increase in the amount outstanding
under this facility since May 1, 1999 was principally used to fund the opening
of new superstores, new specialty stores and the remodeling and reopening of
Sneaker Stadium superstores, as well as to fund higher than planned inventory
levels, during the period.
The Company finances certain store fixtures, point-of-sale ("POS")
equipment and management information systems through various financing
arrangements which may involve capital leases and/or senior term loans.
Just For Feet's future capital requirements are primarily for the opening
of new superstores and specialty stores. 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 anticipates opening a total of approximately 25 new
superstores, 14 remodeled former Sneaker Stadium stores and approximately 45 new
specialty stores in fiscal 1999, and approximately 25 new superstores in fiscal
2000.
The Company plans to spend approximately $60.0 to 65.0 million on capital
expenditures in 1999, including up to $5.0 million in connection with the
construction of a second office building on the campus of its existing
Birmingham, Alabama headquarters, approximately $49.0 to 54.0 million in
connection with the opening of new superstores (including two flagship
superstores) and specialty stores and approximately $6.0 million in connection
with other capital improvements to its business. Total capital expenditures for
the construction of its second office building are estimated to be $8.0 million
over the fiscal 1999 and fiscal 2000. The Company estimates the cost of opening
the two flagship stores planned for 1999, including capital expenditures with
respect to such stores, will aggregate approximately $6.0 million. The Company
is not currently planning any material expenditures other than those mentioned
above.
The Company anticipates that at the end of the second quarter of fiscal
1999, the Company will not be in compliance with certain covenants under our
revolving credit facility. The Company is seeking an amendment to the facility
to revise such covenants so that we will remain in compliance. The Company is
also seeking additional support from our major vendors. The Company had $46.3
million available for additional borrowings under the facility at June 1, 1999.
Future borrowings under this facility are subject to the satisfaction of certain
conditions at the time of borrowing. The Company believes that internally
generated funds, cash on hand, vendor support and bank borrowings under our
credit facility will be adequate to fund its anticipated needs through at least
the end of fiscal 1999. Although management is confident that we will obtain
this vendor support and this amendment, there can be no assurance that we will.
If the Company is unable to obtain an amendment to the facility, we would be in
default, which would permit our lenders under that facility to accelerate the
maturity of our debt under that facility and would cause defaults under our
other indebtedness, including the notes. In addition, if we are unable to obtain
an amendment to our credit facility or vendor support, we will require
additional funds from other financing sources to fund our operations. In such
event, there can be no assurance that we will be able to obtain such financing
as and when required or on acceptable terms.
30
<PAGE>
New Accounting Standards Not Yet Adopted
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued. This Statement requires that all derivatives be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In addition, all hedging relationships
must be designated, reassessed and documented pursuant to the provisions of SFAS
No. 133. This Statement will be effective for the Company in fiscal 2000.
Management has not determined the likely effect of SFAS No. 133 on the
Company's financial statements.
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 Readiness
As part of the Company's Compliance Validation Project, the Company has
assessed its hardware and software systems for Year 2000 compliance. The Company
also 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 critical business systems used by the Company
break down into five categories for the discussion of system compliance,
findings, certifications, and remediation of software. The categories include
the following:
. Merchandise control applications, related hardware, and operating systems.
. Administration applications, related hardware, and operating systems.
. Network hardware and software.
. System utilities and databases, related hardware, and operating systems.
. Desktop office automation applications, related hardware, and operating
systems.
All known Year 2000 upgrade, replacement or remediation efforts for key systems
are complete with the following three exceptions:
. User files generated through desktop office automation applications
(estimated completion date August 1999).
. Specialty store division's cash register applications on IBM's Retail
Applications for DOS (estimated completed date August 1999).
. Ceridian payroll system interface (estimated completion date September
1999)
The Company relies on two applications to manage inventory and monitor
sales activity. The two applications are Island Pacific's I/3/ Merchandising
Applications for Retail ("I/3/") and IBM's Retail Applications for DOS
("RADOS").
Another application, Premenos, provides electronic data interchange ("EDI")
interface capabilities between the Company and vendors for I/3/ processing. I/3/
is an inventory and distribution management system that the Company uses to
analyze sales and inventory, and to purchase, price and distribute product. The
Company also uses an integrated financial package from I/3/. The Company does
not use any other application for inventory item control or for recording
financial information. The I/3/ version 1.3, is the latest supported software
release of these applications and is certified Year 2000 compliant by the
vendor. I3 runs on the Company's IBM AS400 model 535 computer. The AS400 runs
IBM OS400 operating system software, which IBM certifies is Year 2000 compliant.
In addition, as part of the AS400 upgrades, which took place in 1997 as part of
a normal maintenance routine, the Company ensured Year 2000 compliance of that
hardware. The Company also completed a conversion of all point of sale ("POS")
equipment in its superstores to address enhanced operational needs which also
ensured Year 2000 compliance of those terminals. The completion date of the
upgrade to the Year 2000 RADOS release for the specialty stores is estimated to
be August 1999. All superstore POS registers now operate on the latest version
of RADOS, which IBM certifies as being Year 2000 compliant. RADOS runs on IBM
4694 model 144 POS terminals. These terminals are upgraded to the latest version
of hardware BIOS. The oldest terminal in the Company inventory is approximately
two years old.
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Premenos is the Company's EDI translation software. The application sends
electronic purchase orders to the Company's vendors and receives invoices from
them electronically. The application version the Company currently has installed
is certified to be Year 2000 compliant. This upgraded version has been tested
and certified and is operating and exchanging information with I3 on a daily
basis without significant incident.
The human resource application employed by the Company was internally
developed approximately two years ago. The system was developed using Delphi
development tools and is integrated with an Oracle database that contains
employee data. The application and the supporting database are currently
processing century dates. The Company does plan a major revision or replacement
of the system in the next two years.
The Family Plan application, the Company's "13th pair is free" customer
purchase tracking system, tracks customer's shoe purchases and after 12 pairs
are purchased, provides customers with a free pair of shoes (the 13th pair is
free) at a value equal to the average purchase price of the 12 purchased pairs
of shoes. The system was developed approximately three years ago using the
Delphi development tool kit and is Year 2000 compliant. The application has two
components; a corporate application for tracking and reporting and a store
component for inquiry and redemption. The corporate application runs on a
Solaris 3000 operating system, utilizing Solaris 2.6 and Oracle 7.3. The store
component runs on a Compaq, Windows 95B personal computer. All system hardware
and software for both components are Year 2000 compliant.
The Company's payroll system consists of the following three major
components:
. Time clock application.
. The Company's employee information system.
. Ceridian payroll system interface.
The time clock application used by the Company was internally developed.
The application was developed along with the human resource and employee
information system using the Delphi development tool set and integrated with an
Oracle database containing the employee information including time and
attendance information.
The corporate payroll applications run on a Sun 3000 computer, utilizing
Solaris 2.6 and accessing employee data in an Oracle, version 7.3, database.
The remaining component of the payroll system consists of an interface
written by the Company with the Ceridian system that calculates net pay and
produces paychecks for Company employees. The interface was written using the
Delphi development toolkit. Validation of Ceridian Year 2000 compliance is part
of the Company's Compliance Validation Project and is scheduled to be completed
in September 1999.
Novell Intranetware version 4.10 is the system software that provides
directory services and server management functions for all of the corporate and
store local area networks. Version 4.10 is Year 2000 compliant and is
functioning on a daily basis without significant incidents. The Company also
uses many utilities and management tools developed by Novell for network
management. All versions of Novell utilities used by the Company are Year 2000
compliant.
The Company's other applications which are not dependent on computers or
software such as security, fire, phone, audio and visual entertainment systems,
heating and air conditioning and other such systems have been evaluated and are
considered to be Year 2000 compliant. Vendor surveys and requests for
certifications of Year 2000 compliance have been received from all major vendors
considered critical to the Company's business continuity. The Company is in the
process of evaluating the responses from the vendors to determine if a
contingency plan is necessary. The estimated completion date for the evaluation
and implementation of a contingency plan, if one is deemed necessary, is
September 1999.
The Company has not incurred any significant historical costs related to
the Year 2000 issue as our systems have been upgraded as part of normal
maintenance routines and also due to the Company's rapid growth. Management
currently estimates that the total remaining costs of achieving Year 2000
compliance and of assessing major vendor compliance will not exceed $500,000.
The most likely worst case scenario would be the interruption of inventory flow
due to vendors' experiencing Year 2000 problems. 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.
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BUSINESS
General
Just For Feet is the nation's leading operator of "category killer" large
format superstores specializing in brand-name athletic and outdoor footwear and
apparel. Just For Feet, which began with a single mall-based store in 1977,
opened its first superstore in 1988 and since that time has focused on
developing and refining its superstore concept. As of June 1, 1999, there were
152 Just For Feet superstores operating in 28 states and Puerto Rico, including
12 superstores operated by Just For Feet's only superstore franchisee. In July
1998, the Company significantly accelerated its superstore expansion strategy in
the Northeast and Mid-Atlantic states by acquiring Sneaker Stadium, an operator
of 39 athletic footwear and apparel superstores. As of June 1, 1999, we had
completed the conversion of 34 of the acquired superstores to the Just For Feet
superstore format and closed four former Sneaker Stadium superstores.
In 1997, we entered the smaller format specialty store market of the
athletic and outdoor footwear and apparel industry with the acquisitions of
Athletic Attic and Imperial Sports, each a privately owned athletic and outdoor
footwear and apparel retailer. As of June 1, 1999, there were 173 Company-owned
and 41 franchised specialty stores in 24 states and Puerto Rico. As a result of
recent operational difficulties in our specialty store division, we have reduced
the number of specialty stores we expect to open in fiscal 1999 from 60 to 45
(of which 37 have been opened to date). We currently do not intend to open any
new specialty stores in fiscal 2000 unless the current conditions in the
athletic footwear industry and the results of our specialty store division
improve. See "Prospectus Summary -- The Company," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and
"Business -- Athletic Attic and Imperial Sports Specialty Stores."
Just For Feet Superstores
Superstore Competitive Strengths. We believe the success of our superstore
format is due to the following core strengths:
Dominant Selection of Brand-Name Athletic and Outdoor Footwear. Just For
Feet seeks to offer a larger selection of brand-name athletic and outdoor
footwear in terms of styles, sizes and price points than any of its competitors.
The prototype 15,000 to 20,000 square foot Just For Feet superstore has
approximately three to four times the selling space of leading mall-based
specialty athletic footwear retailers. This large store format enables each Just
For Feet superstore to offer a dominant selection of name-brand athletic and
outdoor footwear. Just For Feet superstores carry approximately 2,500 to 4,500
styles of athletic and outdoor footwear as compared to an estimated 200 to 700
styles typically offered by conventional mall-based athletic footwear retailers,
department stores and sporting goods superstores. Just For Feet carries most of
the leading athletic and outdoor footwear brands including Nike, Reebok, New
Balance, Adidas, Fila, K-Swiss, Asics, Converse, Timberland and Rockport. Just
For Feet seeks to offer virtually all styles in the brands it carries. The
Company's superstores sell shoes for almost every sport and recreational
activity, including:
. running . golf
. basketball . football
. cross-training . baseball
. tennis . soccer
. aerobics . walking
. hiking . wrestling
Just For Feet superstores carry shoes in sizes ranging from infants' size one
to men's size 22. In addition to offering most sizes in most styles, Just For
Feet superstores carry a complete selection of widths in those styles which are
offered in multiple widths.
The store layout permits customers to locate shoes by brand (e.g., Nike,
Reebok, New Balance) or category (e.g., running, basketball, tennis). One shoe
of each regularly stocked style is located in the appropriate branded concept
shop and the other is presented on a full three-wall display arranged by
category which surrounds the fitting area at the back of the store. These
displays, which emphasize current, in-season products, are complemented by the
"Combat Zone," where Just For Feet regularly highlights special values on
closeouts and other special-purchase merchandise and liquidates old or slow
moving inventory.
Superior Customer Service and Technical Sales Assistance. We believe that
providing a high level of customer service is vital to our competitive
advantage. Our goal is to offer a level of customer service and technical
expertise superior to that of our competition. Just For Feet is committed to
making shopping for athletic and outdoor footwear an enjoyable experience
through the employment of knowledgeable, well-trained and energetic sales
associates. Because of the large selection of footwear carried, and to further
differentiate our superstores from other
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retailers, we devote substantial time and resources to training and testing our
employees in footwear technology, the performance attributes of Just For Feet's
merchandise and common foot problems. In addition, new superstore managers and
other superstore management personnel undergo an intensive two to three-week
training program at "Just For Feet University" to enhance their understanding of
all aspects of Just For Feet's business. Over 800 employees attended Just For
Feet University during fiscal 1998. Each superstore employee receives ongoing
training through frequent clinics sponsored by vendors and consultation with
Just For Feet's technical specialists. Just For Feet also utilizes satellite
technology for broadcasting between corporate headquarters and individual
superstores. Management believes that satellite technology is an effective and
cost-efficient way to facilitate communication and continuing education
throughout Just For Feet superstores.
Just For Feet strives to staff its superstores with a high ratio of sales
associates to customers. Because Just For Feet superstores sell almost every
athletic shoe offered by leading brands, sales associates are able to act as
problem solvers for customers and to recommend the ideal shoe with less risk of
losing a sale. Just For Feet seeks to retain its nucleus of well-trained sales
personnel through bonus payments, a broad based stock option program and
opportunities for advancement.
Entertaining Shopping Experience. The Company strives to create an
exciting and high-energy shopping experience in its superstores through the use
of:
. bright colors,
. upbeat music,
. an enclosed "half-court" basketball court for use by customers,
. a multi-screen video bank, and
. appearances by sports celebrities.
The prototype Just For Feet superstore typically features 15 to 20 separate
branded "concept shops," each displaying the brand's product line. These
concept shops are typically built and periodically updated by the vendors to tie
into their national advertising campaigns. Each Just For Feet superstore
benefits from the upscale appearance of the branded fixturing.
Extensive Advertising and Promotion. We use extensive television and print
advertising to generate customer store visits. We typically run television
advertisements on the local affiliate of each of ABC, CBS, NBC and Fox, as well
as other cable and broadcast networks, up to six days per week in many of our
superstore markets. Print advertisements and promotional circulars often are
published weekly in local newspapers. As we add new superstores in existing
markets, we have benefitted, and we believe we will continue to benefit, from
print and television synergies and cost efficiencies. We strive to make each new
superstore opening a major retail event by widely advertising through newspaper
and television. We use unique promotional events which add to the fun and
excitement of shopping in Just For Feet superstores, including appearances by
sports celebrities such as former NFL quarterbacks Bart Starr (who is also a
director of the Company) and Jim Kelly.
Superstore Operating Strategy. A key component of our operating strategy
is to continue to emphasize and build on our significant competitive strengths
and by focusing on the following:
In-Store Warehousing. Rather than operating a centralized distribution
center for our superstores, we typically devote approximately 45% of the square
footage of each superstore to warehouse space. Each superstore receives
shipments directly from vendors and stocks merchandise in an area behind (or
above) the selling floor not visible to customers. Our decentralized
distribution system enables us to:
. receive merchandise at each superstore on a timely basis,
. avoid the time and expense of handling merchandise twice,
. maintain deep inventory positions in core styles, and
. stock our superstores more fully in advance of peak selling periods.
Utilizing Sophisticated Management Information Systems. We believe that we
have sophisticated information systems that assist us in optimizing our
superstore operations. Control of our merchandising activities is currently
maintained by a fully-integrated point-of-sale inventory and management
information system which permits management to monitor inventory and store
operations on a daily or more frequent basis. Barcoding of merchandise and use
of scanners at receiving and point-of-sale allows the inventories of all stores
to be automatically adjusted and sales automatically logged as customers check
out. Purchasing, tracking and receiving systems assist in the
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efficient and timely distribution of merchandise to each superstore. Systems are
in place to permit review, on a daily or more frequent basis, of sales
information by store, category, vendor or employee in order to focus on store
needs and employee productivity. In-store information systems are linked
directly to the corporate office.
Competitive Pricing. We believe that providing a wide selection of
competitively priced, brand-name footwear provides superior value to our
customers. While we are not a discount retailer, we guarantee that we will match
any competitor's advertised price and offer a family frequent buyer program
under which our superstores give participating customers the thirteenth pair of
shoes free (up to the average purchase price of the previous twelve pairs). In
addition, Just For Feet offers a limited selection of closeout merchandise and
slow-moving inventory at prices generally ranging from 33% to 70% below
manufacturers' suggested retail prices displayed in an area at the front of
each superstore called the "Combat Zone." Management believes the ability to
offer a wide selection of closeout or discontinued merchandise compared to that
offered in speciality stores provides it with a competitive advantage over such
stores in attracting the high value/low price conscious customer due to the
space constraints on the ability of speciality stores to stock both new and
discontinued merchandise.
Superstore Growth Strategy. We are also focused on increasing net sales
and earnings of our superstores through the following growth strategies:
Superstore Expansion. We intend to strengthen our position as the leading
operator of athletic and outdoor footwear superstores by opening approximately
25 new superstores in each of fiscal 1999 and 2000. We opened 26 superstores in
fiscal 1998 (excluding 21 converted Sneaker Stadium superstores) and have opened
eight superstores in fiscal 1999 through June 1, 1999 (excluding twelve
converted former Sneaker Stadium superstores). In addition to our prototype
superstores, we currently operate high visibility, high profile "flagship"
superstores which provide added entertainment features at Caesar's Palace in
Las Vegas and on Long Island in New York, and plan to open new flagship
superstores in fiscal 1999 in Times Square in New York and Union Square in San
Francisco. Flagship superstores, which are not necessarily larger than the
prototypical Just For Feet superstore, provide added entertainment features
designed to generate and maintain customer excitement and are located in high
profile locations. We will continue to open superstores in new and existing
markets, including those markets with the potential for multiple sites, which
allows us to take advantage of advertising and operating efficiencies. We have
either executed or negotiated leases with respect to all superstores scheduled
to open during fiscal 1999 and are actively reviewing numerous additional sites
for fiscal 2000.
Through our July 1998 acquisition of Sneaker Stadium, we significantly
accelerated our superstore expansion into the Northeast and Mid-Atlantic states,
areas not previously significantly served by Just For Feet, although targeted
for expansion by management. The Company closed four of the acquired Sneaker
Stadium superstores and converted 34 of the acquired superstores to the Just For
Feet name, format and systems and reopened those stores as Just For Feet
superstores. We believe that the profitability of the acquired stores will be
enhanced upon conversion and operation by Just For Feet management. Management
expects to improve profitability by leveraging Just For Feet's vendor
relationships to provide broader and deeper inventories and better pricing than
previously available and by implementing Just For Feet's advanced management
information systems, staff training and store management structure.
The Company's superstore expansion strategy is to open superstores in new
and existing markets, including those markets with the potential for multiple
sites, which enables the Company to take advantage of advertising and operating
efficiencies. In addition, Just For Feet will continue to open superstores in
smaller markets which can only accommodate one superstore.
We generally seek to open one Just For Feet superstore in a chosen market
for every 300,000 to 400,000 residents. As a result, multiple superstores opened
in larger markets, such as Atlanta, Dallas, Denver, Houston, Kansas City and
Phoenix, derive significant benefit from advertising and operating efficiencies.
More recently, we have also focused on operating single superstores in mid-sized
metropolitan markets such as Montgomery, Alabama and Jackson, Mississippi. In
addition, we continue to evaluate select opportunities to expand
internationally.
Because our vendors drop ship merchandise directly to the superstores, Just
For Feet's expansion plans are dependent more on the attractiveness of
individual superstore sites than the logistical constraints that would be
imposed by a central distribution center. Just For Feet plans to open primarily
freestanding superstores in high traffic, high visibility locations typically on
outparcels of or adjacent to shopping malls. Our superstore expansion strategy
is to concentrate our efforts on opening Company-operated superstores.
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We lease all but three of our existing superstores and intend to lease all
new superstores. We estimate that our total cash requirements to open each new
prototype superstore, including store fixtures and equipment, leasehold
improvements, net working capital and store opening costs, typically range from
$1.5 to $2.5 million, depending on the extent of vendor and landlord assistance
and the size and projected volume of the store. The total cash outlay required
to open a flagship superstore typically ranges from $2.5 to $4.0 million.
Development and Expansion of Electronic Commerce Capabilities. In 1998, we
launched our online shopping website (www.feet.com). The website is designed to
permit customers to view and receive technical information on merchandise and to
place orders over the Internet. In February 1999, we began the process of
significantly expanding our website to provide enhanced customer service
functions, increased product selection and a flexible order fulfillment
capability. We believe e-commerce capability provides us with incremental sales
opportunities, helps prevent the potential loss of sales at existing stores to
competitors possessing e-commerce capabilities and provides us with the
opportunity to take market share from our competitors not possessing such
capabilities. Such sales may, to some extent, displace sales from our existing
stores. The expanded website is designed to permit customers to browse color
images of selected merchandise online by brand, style or function and to make
purchases. As part of our commitment to customer service, we permit in-store
returns or exchanges on electronic purchases and are continually evaluating
alternative delivery options to expedite order fulfillment. The website is
designed to interface with our information systems. We intend to utilize our
television and print advertisements to increase awareness of our website as part
of our regular advertising and, individually or in conjunction with our vendors,
may offer exclusive promotions through our site.
Superstore Operations
Just For Feet employs a three-tiered management system for superstore
operations, presently consisting of regional directors, divisional directors and
a store director for each store. Each superstore is managed by a store director,
two store managers, an office manager, an operations manager and up to seven
assistant managers, depending on the sales volume of the store. Store directors
report to a district director, who in turn reports to a regional director.
The sales staff of individual superstores ranges from approximately 60 to
180 employees depending on the size of the store and the time of year. The
Company's policy is to staff its superstores sufficiently to ensure that all
customers receive prompt personalized attention. Store directors and managers
are paid a salary, while all other superstore employees are paid on an hourly
basis. Just For Feet provides an incentive compensation plan for virtually all
employees. Store director and manager incentive plans are based primarily upon a
combination of store sales, payroll level relative to sales and inventory
variance compared to budget. Sales associates are eligible for semiannual bonus
payments based on their individual sales performances. In addition, the
Company's incentive plans include grants of stock options to senior management
and store directors, store managers and assistant store managers and certain
store operations personnel.
Just For Feet experiences inventory shrinkage rates which it believes are
below the retail industry average. Management attributes its low shrinkage rate
to stocking footwear off the selling floor, the presence of an operations
manager and security personnel at each superstore, the use of surveillance
systems and the reduced handling of merchandise associated with Just For Feet's
in-store warehousing system.
Just For Feet superstores operate seven days per week. To enhance customer
convenience, normal hours for superstores located on outparcels of shopping
malls are typically thirty minutes prior to the mall's opening until thirty
minutes after the mall's closing. Superstores are open on all holidays except
Christmas, Thanksgiving and Easter.
Athletic Attic and Imperial Sports Specialty Stores
As part of our long-term growth strategy, we entered the smaller format
specialty store market of the athletic and outdoor footwear and apparel industry
with the 1997 acquisitions of Athletic Attic and Imperial Sports. Athletic
Attic, based in Gainesville, Florida, and Imperial Sports, based in Flint,
Michigan, were privately owned athletic and outdoor footwear and apparel
retailers operating an aggregate of 87 stores. The Athletic Attic and Imperial
Sports operations were combined to form our specialty store division. Since the
acquisitions, we have opened 94 new specialty stores, primarily under the
Athletic Attic name. There are currently 173 Company-owned and 41 franchised
specialty stores in 24 states and Puerto Rico.
In the fourth quarter of fiscal 1998, sales at the specialty stores
suffered along with other smaller format athletic footwear retailers. In the
first quarter of fiscal 1999, specialty stores operations were adversely
impacted by lower gross margins and higher than anticipated store operating
expenses as a percentage of net sales, primarily as a result of lower than
expected sales volumes in recently opened specialty stores and higher than
expected interest expense associated with funding higher than planned inventory
levels during the period. At May 1, 1999, the specialty store division had
excess inventory of over $50 million. The buildup in inventory is attributable
mainly to footwear orders placed at the division level in excess of the
division's current needs, as well as to the lower than expected sales volumes in
the specialty stores. We have announced our intention to significantly reduce
our inventory levels. As we attempt to lower our inventory levels, Company-wide
gross margins will continue to decrease significantly, particularly in the
second quarter of fiscal 1999. As a result of our implementation of this plan to
reduce inventory levels and higher than planned interest costs, we anticipate
reporting a net loss in the second quarter of fiscal 1999 and that net earnings
in fiscal 1999 will be lower than in fiscal 1998. If we are unable to achieve
significant inventory reductions in the second quarter as planned, and higher
than planned inventory levels continue, we will experience significantly lower
gross margins, significantly higher store operating expenses and net interest
expense, decreased liquidity and significantly lower net earnings in fiscal 1999
than in fiscal 1998.
We opened 51 specialty stores in fiscal 1998 and have opened 33 such stores
this fiscal year through June 1, 1999. We expect to open approximately 12
additional specialty stores during the remainder of fiscal 1999. We presently do
not intend to open any new specialty stores in fiscal 2000 unless the current
conditions in the athletic footwear industry and the results of our specialty
store division improve. See "Risk Factors -- Recent Difficulties at our
Specialty Stores" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
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Specialty Store Business Strategy
We believe the success of our specialty store format will depend on our
implementing the following operating and growth strategies:
Operating Strategy. Our strategy for operating the specialty stores has
the following key components:
Capitalize on Existing Operational Strengths. In operating our specialty
stores, we intend to emphasize the three elements that have been successful in
our superstores: selection, service and advertising. Our goal is to operate
specialty stores that have a greater selection of footwear than that of our
competitors' comparably sized specialty stores, and to serve customers with a
highly trained sales staff. In addition, consistent with our focus on training
and store operations and our objective of staffing all our stores with
knowledgeable and friendly sales associates, we are developing a training
program based on the concept and curriculum of Just For Feet University.
Finally, we intend to attract customers to our specialty stores through
aggressive local advertising campaigns which will emphasize, among other things,
the broad selection and customer service at these stores.
Implement Targeted Operational Improvements. We are conducting a thorough
review of the operations of our specialty stores in order to improve sales and
profitability. Specifically, we are focusing on the following operational
improvements that we believe will provide a solid foundation for successful
operation of the specialty stores:
. conducting a thorough review of the causes of the current high
inventory levels and implementing safeguards to help prevent a
reoccurrence; and
. altering the inventory mix of some stores in an effort to generate
higher sales and better gross margins.
Strategy for Development and Expansion of Specialty Store Operations. We
are focused on increasing the net sales and earnings of our specialty store
division through the following growth strategies:
Target a Broad Range of Markets and Locations. While we are currently
experiencing operational difficulties in our specialty store division and have
curtailed our expansion plans, we believe that the development of smaller
specialty stores, in conjunction with continued development of our core
superstores, has provided us with incremental growth opportunities. The
specialty stores have allowed us to expand into a much broader range of markets
and real estate locations. The specialty store format allows us to enter smaller
markets where customer demographics may not support the superstore format. We
also use the specialty stores to achieve greater market penetration in markets
which are large enough to support superstores as part of our strategy to
maximize market share. Because of their higher initial investment and fixed
costs, Just For Feet superstores require a much higher level of sales in order
to produce an attractive return on investment and consequently require a larger
population base. Whereas approximately 300,000 to 400,000 people in a trade area
are required to generate the high level of sales expected for Just For Feet
superstores, we believe that smaller specialty stores can be successful with as
few as 25,000 people in a trade area.
As part of this strategy, we opened 51 new specialty stores in fiscal 1998
and 33 new specialty stores through June 1, 1999 (reduced from our original goal
of 60 as a result of the recent operational difficulties in the specialty
stores). We plan to open a total of 45 new specialty stores in fiscal 1999. We
intend to open all new specialty stores under the name Athletic Attic, except in
those Michigan markets where we believe the Imperial Sports name has substantial
brand identity. We do not plan to open any specialty stores in fiscal 2000
unless the current conditions in the athletic footwear industry and the results
of our specialty store division improve.
Develop a Differentiating Specialty Store Strategy. We have developed a
strategy for developing athletic specialty stores which we believe is unique
among our primary competitors. If there is significant improvement in the
athletic footwear industry and significant improvement in the operations of our
existing specialty stores, we intend to resume our specialty store expansion and
implement our strategy for development of these stores. Under our strategy, we
intend to establish a leadership position in targeted markets by expanding
beyond enclosed shopping malls. In addition to expanding our presence in the
same universe of enclosed shopping malls targeted by our primary competitors, we
also will focus on urban and suburban retail strip centers, which reach
potential consumers near where they live and work and provide the added benefit
of lower occupancy costs. If we recommence our expansion strategy, we intend to
enter new specialty store markets by opening higher profile specialty stores in
enclosed shopping malls, then surrounding them with new stores located in retail
strip centers. By concentrating a number of stores in targeted markets, we will
be able to leverage advertising costs. Advertising will be designed to attract
customers to our specialty stores as destination shoppers. We believe this
strategy will be facilitated by locating our non-mall based specialty stores in
urban and suburban strip centers and power
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centers adjacent to "big box" retailers, although some of our new specialty
stores also will be located in traditional high-traffic mall locations which are
not as dependent on advertising to generate customer traffic.
Management Information Systems
We believe that we have sophisticated information systems that assist us in
optimizing our superstore operations. Control of our merchandising activities is
currently maintained by a fully integrated point-of-sale, inventory and
management information system which permits management to monitor inventory and
store operations on a daily or more frequent basis. Bar-coding of merchandise
and the use of scanners at receiving and point-of-sale allows the inventories of
all stores to be automatically adjusted and sales automatically logged as
customers check out. Purchasing, tracking and receiving systems assist in the
efficient and timely distribution of merchandise to each superstore. Systems are
in place to permit review, on a daily or more frequent basis, of sales
information by store, category, vendor or employee in order to focus on store
needs and employee productivity. In-store information systems are linked in our
superstores directly to the corporate office.
In order to improve operational productivity, facilitate timely decision
making and support our future growth, we have implemented enhanced systems
capabilities utilizing a fully integrated software system on an IBM AS/400
platform, together with store level systems and equipment. Our enhanced systems
provide management with the capability to track gross margin and inventory
levels by superstore on a daily basis. In addition, a Human Resource/Time
Management/Payroll system allows daily analysis of labor costs by location.
Management believes that the enhanced systems will be able to support our
planned growth for the foreseeable future.
For a discussion of Year 2000 compliance, see "Risk Factors--Even if we are
year 2000 compliant, we could be adversely affected by third party
noncompliance" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000 Readiness."
Competition
The retail athletic and outdoor footwear industry, which in 1997 had total
sales in the United States of approximately $13 billion, is highly competitive.
We compete primarily with sporting goods superstores, athletic footwear
specialty stores, department stores, discount stores, traditional shoe stores,
traditional sporting goods stores and mass merchandisers and other athletic
footwear retailers, several of which have developed their own superstore
concepts. We believe, however, that we operate the only significant superstore
chain in the athletic and outdoor footwear industry. We believe that competition
in the retail athletic footwear industry is based primarily on the number of
styles of brand-name athletic and outdoor shoes offered, pricing and customer
service. We believe that our superstore concept and, to a lesser extent our
specialty store concept, will allow us to carry and display a larger number of
the more popular styles of athletic and outdoor footwear than our competitors.
Additionally, we believe that our pricing strategy and frequent buyer program
encourage repeat shopping and customer loyalty. We may face periods of intense
competition in the future which could have an adverse effect on our financial
results.
Employees
At May 1, 1999, we had approximately 15,000 employees, including those
employed on a part-time or seasonal basis. The number of employees fluctuates
during the year primarily due to seasonality. None of our employees is
represented by a labor union.
We attribute a large portion of our success in generating sales and
maintaining various areas of cost control to our inclusion of virtually all
sales employees in store-level incentive compensation plans. Many employees,
from senior executives to store level management also participate in our
incentive stock option plans. We also contribute to the cost of medical
insurance coverage for those employees who are eligible to participate in our
sponsored plans. All employees also receive discounts on our merchandise. We
consider our relationship with our employees to be good.
Trademarks
The Company owns the following federally registered service marks (in
design form): "Just For Feet," "Just For Feet, World's Largest Athletic Shoe
Store," "Just For Feet, Where The 13th Pair is FREE!" and "Athletic Attic." The
Company believes its marks are valuable and, accordingly, intends to maintain
its marks and the related registrations. The Company is not aware of any pending
claims of infringement or other challenges to the
38
<PAGE>
Company's right to use its marks in the United States. This prospectus also
mentions several registered trademarks owned by other companies including
Nike(R), Reebok(R), New Balance(R), Adidas(R), Fila(R), K-Swiss(R), Asics(R),
Converse(R), Timberland(R) and Rockport(R).
Litigation
On June 27, 1997, a lawsuit was filed by Ronald K. Drucker, individually
and on behalf of all others similarly situated, in the United States District
Court for the Northern District of Alabama against the Company, Harold
Ruttenberg, Don-Allen Ruttenberg, Scott C. Wynne, Adam Gilburne, Pamela B.
Ruttenberg, Robert C. Wabler, William Blair & Company and Montgomery Securities.
The defendants are the Company; its Chairman and Chief Executive Officer; three
other executive officers of the Company; the Company's former Chief Financial
Officer and a former director; another former officer of the Company; and two of
the four managing underwriters in the Company's June 1996 public offering of
common stock. The individual defendants were selling shareholders in such
offering. The plaintiff purports to represent a class consisting of all persons
who purchased common stock in or traceable to the June 1996 public offering. The
suit alleges that the Company's registration statement and the prospectus used
in such offering contained materially misleading financial statements. The
plaintiffs are seeking an unspecified amount of damages. On January 7, 1999, the
court entered an order appointing Mr. Drucker as lead plaintiff and approving
the selection of lead counsel. The Company and its named officers and directors
deny liability on the claims and are vigorously defending the suit, which is
only in the preliminary stages.
On April 20, 1999, MBA Marketing Corporation, the sole superstore
franchisee of Just For Feet, Inc., filed a complaint in the United States
District Court for the Southern District of Ohio, Eastern Division, seeking
declaratory judgment, an accounting and monetary damages against Just For Feet,
Inc. and Casual Wear II, Inc. (the "Company"). The complaint alleges that the
Company has breached its obligations under certain franchise agreements between
it and the Plaintiff and seeks actual damages in excess of $82.5 million,
punitive damages in excess of $25 million and the right to terminate the
franchise agreements. The Company denies all allegations contained in the
complaint and will vigorously defend these allegations.
The Company and/or its subsidiaries, also are involved in various legal
proceedings that have arisen in the normal course of their business. While it is
not possible to predict the outcome of such proceedings with certainty, the
Company does not believe that the ultimate resolution of those proceedings or
any of the litigation discussed above is likely to have a material adverse
effect on its financial condition or its consolidated results of operations.
Properties
At June 1, 1999, we operated 140 Just For Feet superstores (not including
12 superstores operated by Just For Feet's only superstore franchisee). With
the exception of a Birmingham, Alabama store (which is subject to a ground
lease), one store in Orlando, Florida and one store in Knoxville, Tennessee, all
of the Company's superstore facilities are leased. We intend to lease all new
superstores. We also operated 173 specialty stores, each of which is leased.
Specialty stores are located primarily in enclosed shopping malls and, to a
lesser extent, in retail strip centers.
Certain leases for existing stores provide for fixed minimum rentals and
provide for contingent rental payments based upon various specified percentages
of sales above minimum levels. Certain leases also contain escalation clauses
for increases in minimum rentals, operating costs and taxes. Certain other
leases provide for future rent increases based upon increases in the Consumer
Price Index. Superstore leases carry varying terms expiring between 2003 and
2016, excluding applicable renewal periods. Specialty store leases are typically
for shorter initial terms and begin expiring in fiscal 1999, excluding renewal
periods.
Our corporate headquarters are located in a 42,000 square foot building
completed in May 1997, on approximately 25 acres of land owned by us in
Birmingham, Alabama. The headquarters facilities also include a 36,000 square
foot warehouse. We currently are planning the construction of a second office
building on our corporate campus, expected to cost approximately $8.0 million
over the next two years.
39
<PAGE>
MANAGEMENT
The executive officers and directors of the Company are as follows:
Name Age Position
---- --- --------
Harold Ruttenberg..... 56 Chairman of the Board and Chief Executive Officer
Helen M. Rockey....... 43 President and Chief Operating Officer; Director
Eric L. Tyra.......... 49 Executive Vice President--Finance and Chief
Financial Officer
Robert E. Oyster...... 53 President--Superstore Division
Warren Ruttenberg..... 30 President--Specialty Store Division
Nicholas C. Kartalis.. 49 Executive Vice President--Superstore Sales
Don-Allen Ruttenberg.. 32 Executive Vice President
Scott C. Wynne........ 32 Executive Vice President--Operations and Secretary
Bart Starr, Sr........ 65 Director
Michael P. Lazarus.... 43 Director
Randall L. Haines..... 56 Director
David F. Bellet....... 52 Director
Edward S. Croft, III.. 56 Director
Warren C. Smith, Jr... 42 Director
John A. Berg.......... 37 Director
Mr. Harold Ruttenberg is the founder of the Company and has served as its
Chairman and Chief Executive Officer since its inception in 1977. Mr. Ruttenberg
also served as President from the Company's inception to March 1999. Harold
Ruttenberg is the father of Warren and Don-Allen Ruttenberg.
Ms. Rockey was appointed President and Chief Operating Officer in March
1999 and has served as a director of the Company since June 1999. Prior to
joining the Company, Ms. Rockey served as President and Chief Executive Officer
of Brooks Sports, Inc., a worldwide athletic footwear, apparel and accessories
company, since 1994. For 11 years prior to joining Brooks, Ms. Rockey worked in
a variety of positions with Nike, Inc.
Mr. Tyra has served as Executive Vice President--Finance and Chief
Financial Officer since May 1997. From January 1994 to May 1997, Mr. Tyra was
Vice President--Finance, Treasurer and Chief Financial Officer of Club Car,
Inc., a manufacturer of golf cars and utility vehicles. From 1991 to 1993, Mr.
Tyra was a Senior Vice President with First Financial Management Corporation,
serving in various financial management positions. Previously, Mr. Tyra was a
partner with Deloitte & Touche LLP.
Mr. Oyster has served as President--Superstore Division since June 1999.
From 1998 until he joined the Company, Mr. Oyster was president of OptiVenture,
Inc., an engineering company and manufacturer of optical disks. From 1996 to
1998, Mr. Oyster served as a consultant to various venture capital firms
assisting in retail acquisition, turnaround and merger projects. From 1979 to
1996, Mr. Oyster served in the positions of Chairman, Chief Executive officer,
Chief Operating Officer and Chief Financial Officer of Sun Television and
Appliances, Inc. headquartered in Columbus, Ohio.
Mr. Warren Ruttenberg has served as President--Specialty Store Division
since May 1999; Executive Vice President--Superstore Operations from March 1999
to May 1999; Vice President of Sales from November 1995 to March 1999; and
District Sales Manager from March 1994 to November 1995. Warren Ruttenberg is
the son of Harold Ruttenberg and the brother of Don-Allen Ruttenberg.
Mr. Kartalis was appointed Executive Vice President--Superstore Sales of
the Company in January 1999. Mr. Kartalis held various sales and management
positions with Nike, Inc. from 1987 to 1992. Since 1992, Mr. Kartalis has held
executive position in sales, merchandising and marketing with Danskin, Inc.
(1992-1994), Dick's Clothing and Sporting Goods, Inc. (1994), Apex One, Inc.
(1995) and Avia Group International (1995). From 1996 until he joined the
Company, Mr. Kartalis was a consultant in the retail industry.
Mr. Don-Allen Ruttenberg, who joined the Company in 1987, serves as
Executive Vice President. He served as Executive Vice President--New Store
Development from February 1997 to February 1999, and as Vice President--
Merchandising from January 1994 to February 1997. Since 1987, Mr. Ruttenberg
also has been actively
40
<PAGE>
involved in various merchandising aspects of the Company, focusing on footwear
technology. Don-Allen Ruttenberg is the son of Harold Ruttenberg and brother of
Warren Ruttenberg.
Mr. Wynne has been employed by the Company since 1985 and has served as
Operations Manager since 1990 with specific responsibilities in inventory
control, distribution, management information systems and traffic. He was
elected Vice President--Store Operations in January 1994, Corporate Secretary in
August 1995 and Executive Vice President--Operations in February 1997.
Mr. Starr has served as a director of the Company since August 1993. He has
served as the Chairman of the Board of Healthcare Realty Management, a real
estate development company, since 1990 and from 1984 to 1990 was a partner in
RAL Management Group, also a real estate development company. From 1956 to 1972,
Mr. Starr was a professional football player for the Green Bay Packers of the
National Football League. He presently serves as a spokesperson for the Company.
Mr. Lazarus has served as a director of the Company since August 1993. Mr.
Lazarus has served as a Managing Partner of Weston Presidio Capital Management,
L.P., a venture capital firm, since 1991. From 1986 to 1991, he served as
Managing Director and Director of the Private Placement Department of Montgomery
Securities. Mr. Lazarus also serves as a director of Guitar Center, Inc.
Mr. Haines has served as a director of the Company since May 1994. Mr.
Haines has served as President of Compass Bank--Birmingham since February 1996.
From January 1993 to January 1996, Mr. Haines served as President of Compass
Bank of Huntsville, Alabama. From 1986 to January 1993, Mr. Haines served as
Commercial Banking Manager of Compass Bank of Birmingham, Alabama.
Mr. Bellet has served as a director of the Company since May 1996. Mr.
Bellet has been Chairman of Crown Advisors Ltd., a private investment counseling
firm, since founding the firm in 1981. He is also a general partner in the
limited partnerships managed by Crown in the venture capital industry. From 1969
to 1981, Mr. Bellet was a Vice President of Citibank in the Investment
Management Group.
Mr. Croft has served as a director of the Company since July 1996. Mr.
Croft has been a principal in the private investment banking firm of Croft &
Bender LLC since August 1996. From April 1996 to August 1996, Mr. Croft was
President of Croft & Co., a financial advisory firm. From May 1971 through April
1996, Mr. Croft was an investment banker with The Robinson-Humphrey Company,
Inc. Mr. Croft also serves on the Board of Directors of Artesyn Technologies,
Inc.
Mr. Smith has served as a director of the Company since July 1998. Mr.
Smith is a Managing Director of Thomas H. Lee Company ("THL") and has been
employed by THL since 1990. Mr. Smith also serves as a director of Eye Care
Centers of America, Inc., Finlay Enterprises, Inc. and Rayovac Corporation. In
addition, Mr. Smith serves as a Vice President of Thomas H. Lee Advisors I and
T.H. Lee Mezzanine II, affiliates of M.L. Lee Acquisition Fund, L.P. and M.L.
Lee Acquisition Fund II (Retirement Account), L.P., respectively, which are THL
affiliates. Mr. Smith was appointed to the Board of Directors pursuant to an
agreement with a THL affiliate in connection with its investment in the Company.
Mr. Berg has served as a director of the Company since June 1999. Since
December 1998, Mr. Berg has been managing partner at Dorset Capital Management.
From 1988 to 1998, Mr. Berg was an investment banker with NationsBanc Montgomery
Securities, LLC, most recently holding the title of Senior Managing Director.
41
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based solely on information made available to the Company, the following
table sets forth certain information as of May 1, 1999 with respect to the
beneficial ownership of the Company's Common Stock by (i) each person known by
the Company to own beneficially more than five percent (5%) of the Company's
Common Stock, (ii) each director of the Company, (iii) each of the executive
officers of the Company whose cash compensation exceeded $100,000 for fiscal
1998, and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Shares of
Common Stock Percent of
Beneficial Owner Beneficially Owned(1) Outstanding Shares
- ---------------- --------------------- ------------------
<S> <C> <C>
Harold Ruttenberg(2)................................................... 5,439,730 17.4%
Pamela B. Ruttenberg(3)................................................ 1,841,002 5.9
The TCW Group, Inc.(4)................................................. 2,789,586 8.9
Sneaker Guarantee LLC(5)(19)........................................... 1,849,946 5.9
Banc One Corporation(6)................................................ 1,685,944 5.4
Karl B. Friedman, as Trustee for the Pamela B. Ruttenberg Irrevocable
Children's Trust(7).............................................. 521,910 1.7
Harold and Pamela Ruttenberg Foundation................................ 375,845 1.2
Adam J. Gilburne(8).................................................... 255,576 *
Ruttenberg Family Foundation(9)........................................ 137,686 *
Eric L. Tyra(10)....................................................... 92,000 *
Alex M. Bond(11)....................................................... 20,000 *
Don-Allen Ruttenberg(12)............................................... 129,818 *
Scott C. Wynne(13)..................................................... 128,604 *
Warren Ruttenberg(14).................................................. 14,375 *
Randall L. Haines(15).................................................. 65,337 *
Michael P. Lazarus(16)................................................. 658,549 2.1
Edward S. Croft, III(17)............................................... 56,171 *
Bart Starr, Sr.(18).................................................... 58,310 *
David F. Bellet(19).................................................... 53,100 *
Warren C. Smith, Jr.(20)............................................... 1,849,946 5.9
John A. Berg........................................................... -- --
Helen M. Rockey(21).................................................... -- --
All executive officers and directors as a group (14 persons)(22)....... 8,801,516 27.6%
</TABLE>
- ---------------------------
*Less than 1%.
(1) Unless otherwise indicated, each person has sole voting and investment
power as to all such shares. Shares of Common Stock underlying options to
purchase Common Stock which are exercisable within 60 days of April 12,
1999 are deemed to be outstanding for the purpose of computing the
outstanding Common Stock owned by the particular person and by the group,
but are not deemed outstanding for any other purpose.
(2) Harold Ruttenberg and Pamela B. Ruttenberg are husband and wife. Includes
3,085,197 shares owned directly by Harold Ruttenberg, 1,841,002 shares
held by him as Trustee under a Voting Trust Agreement for the benefit of
Pamela B. Ruttenberg which terminates in 2003, 375,845 shares held by the
Harold and Pamela Ruttenberg Foundation and 137,686 shares held by the
Ruttenberg Family Foundation. Mr. Ruttenberg serves on the Board of
Directors of each of such foundations and in such capacity shares voting
and investment power with respect to shares owned by such foundations.
Mr. Ruttenberg's address is 7400 Cahaba Valley Road, Birmingham, Alabama
35242.
(3) Represents shares held by Harold Ruttenberg as Voting Trustee for Pamela
B. Ruttenberg, with respect to which Mr. Ruttenberg has voting power.
Mrs. Ruttenberg retains the power to dispose of such shares. Mrs.
Ruttenberg's address is 7400 Cahaba Valley Road, Birmingham, Alabama
35242.
(4) Based on a Schedule 13G dated February 12, 1999 filed by the TCW Group,
Inc. ("TCW"). The Schedule 13G reports that Robert Day may be deemed to
control TCW and, as a result, may be deemed to beneficially own the
shares of common stock owned by TCW. The Schedule 13G also reports that
the shares are held by subsidiaries or other affiliates of TCW or Robert
Day. The Company makes no representation as to the accuracy or
completeness of the information reported. The business address of TCW is
865 South Figueroa Street, Los Angeles, California 90017 and the business
address of Robert Day is 200 Park Avenue, Suite 2000, New York, New York
10166.
42
<PAGE>
(5) Includes presently exercisable warrants to purchase 923,591 shares of
Common Stock.
(6) Based on a Schedule 13G/A dated February 1, 1999 filed by Banc One
Corporation (oBanc Oneo) as a parent bank holding company for several
subsidiary commercial banks. The Schedule 13G/A states that of the
1,685,944 shares beneficially owned, Banc One has sole voting power with
respect to 1,675,604 shares, sole dispositive power with respect to
1,660,292 shares and shared dispositive power with respect to 18,002
shares. The Company makes no representation as to the accuracy or
completeness of the information reported. Banc OneAEs business address is
One First National Plaza, Chicago, Illinois 60670.
(7) Trust is for the benefit of the three adult children of Harold and Pamela
Ruttenberg, two of whom, Warren Ruttenberg and Don-Allen Ruttenberg, are
executive officers of the Company. The shares held in the trust are
allocated pro rata among the three children. Mr.aFriedman disclaims
beneficial ownership of the shares in the trust.
(8) Includes 128,385 shares subject to outstanding options to purchase Common
Stock which are exercisable within 60 days. Excludes 236,250 shares
subject to outstanding options to purchase Common Stock which will become
exercisable at various dates in the future. On April 27, 1999, Mr.
Gilburne submitted his resignation from all positions with the Company,
effective May 31, 1999.
(9) Shares held by the Ruttenberg Family Foundation for the benefit of the
Birmingham Jewish Federation. The Ruttenbergs disclaim beneficial
ownership of the shares held by such Foundation.
(10) Represents shares subject to outstanding options to purchase Common Stock
which are exercisable within 60 days. Excludes 158,000 shares subject to
outstanding options to purchase Common Stock which will become
exercisable at various dates in the future.
(11) Represents shares subject to outstanding options to purchase Common Stock
which are exercisable within 60 days. Mr. Bond resigned from the Company
on February 28, 1999.
(12) Includes 40,479 shares subject to outstanding options to purchase Common
Stock which are exercisable within 60 days. Excludes 115,000 shares
subject to outstanding options to purchase Common Stock which will become
exercisable at various dates in the future.
(13) Includes 80,958 shares subject to outstanding options to purchase Common
Stock which are exercisable within 60 days. Excludes 115,000 shares
subject to outstanding options to purchase Common Stock which will become
exercisable at various dates in the future.
(14) Represents shares subject to outstanding options to purchase common stock
which are exercisable within 60 days. Excludes 24,375 shares subject to
outstanding options to purchase common stock which will become
exercisable at various dates in the future.
(15) Includes 65,000 shares subject to outstanding options to purchase Common
Stock which are exercisable within 60 days. Excludes 2,500 shares subject
to outstanding options to purchase Common Stock which will become
exercisable at various dates in the future.
(16) Includes 65,000 shares subject to outstanding options to purchase Common
Stock which are exercisable within 60 days. Excludes 2,500 shares subject
to outstanding options to purchase Common Stock which will become
exercisable at various dates in the future. Also includes 593,549 shares
held by Weston Presidio Capital II, L.P. Mr. Lazarus is a general partner
of a limited partner of the partnership that owns the shares and may be
deemed to share beneficial ownership of such shares.
(17) Includes 55,000 shares subject to outstanding options to purchase Common
Stock which are exercisable within 60 days. Excludes 27,500 shares
subject to outstanding options to purchase Common Stock which will become
exercisable at various dates in the future.
(18) Includes 44,750 shares subject to outstanding options to purchase Common
Stock which are exercisable within 60 days. Excludes 66,500 shares
subject to outstanding options to purchase Common Stock which will become
exercisable at various dates in the future.
(19) Includes 42,500 shares subject to outstanding options to purchase Common
Stock which are exercisable within 60 days and an aggregate of 600 shares
owned by Mr. Bellet's two daughters, with respect to which shares Mr.
Bellet disclaims beneficial ownership. Excludes 2,500 shares subject to
outstanding options to purchase Common Stock which will become
exercisable at various dates in the future.
(20) Mr. Smith was appointed to the Board of Directors upon the acquisition on
July 2, 1998 by Sneaker Guarantee LLC of the securities referred to in
this note. The number of shares shown as beneficially owned by Mr. Smith
includes 926,355 shares of Common Stock and 923,591 shares underlying
warrants to purchase Common Stock owned by Sneaker Guarantee LLC. Mr.
Smith serves as a vice president of the general partner of a limited
partnership which is the manager of Sneaker Guarantee LLC and as such may
be deemed to beneficially own such securities.
(21) Excludes 600,000 shares subject to outstanding options to purchase common
stock which will become exercisable at various dates in the future.
(22) Includes outstanding options to purchase an aggregate of 628,447 shares
of Common Stock held by executive officers and directors which are
exercisable within 60 days. Excludes 1,650,125 shares subject to
outstanding options to purchase Common Stock which will become
exercisable at various dates in the future.
43
<PAGE>
THE EXCHANGE OFFER
Purpose and Effect--
We sold the old notes on April 15, 1999 to NationsBanc Montgomery
Securities LLC, Merrill Lynch & Co., BT Alex. Brown and The Robinson-Humphrey
Company, LLC, which we refer to as the initial purchasers of the old notes. The
initial purchasers subsequently placed the old notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act. When
we sold the old notes to the initial purchasers, we entered into a registration
rights agreement that required us:
. to file a registration statement with the SEC with respect to an exchange
offer; and
. use our best efforts to cause the exchange offer registration statement
to be declared effective not later than September 12, 1999.
This prospectus is a part of the exchange offer registration statement that
we were required to file. As soon as the exchange offer registration statement
has been declared effective, we will offer the exchange notes in exchange for
the old notes. We will keep the exchange offer open for at least 20 business
days after the date on which notice of the exchange offer is mailed to the
holders of the old notes. For each old note validly tendered to us and not
withdrawn, the holder of the old note will receive an exchange note having a
principal amount equal to the principal amount of the surrendered old note.
Interest on the exchange notes will accrue from the last interest payment date
on which interest was paid on the old notes or, if no interest has been paid on
the notes, from April 15, 1999, the date of issuance of the old notes.
Under existing SEC interpretations set forth in no-action letters, we
believe that the exchange notes may be offered for resale, resold and otherwise
transferred by you without compliance with the registration and prospectus
delivery provisions of the Securities Act; provided that:
. you are acquiring the exchange notes in the ordinary course of business;
. you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate, in the
distribution of the exchange notes issued to you in the exchange offer;
and
. you are not an affiliate of ours.
If our belief is inaccurate and you transfer any exchange notes without
delivering a prospectus meeting the requirements of the Securities Act or
without an exemption from registration of your exchange notes, you may incur
liability under the Securities Act. We do not assume or indemnify you against
such liability.
Each participating broker-dealer that is issued exchange notes for its own
account in exchange for old notes which were acquired as a result of market-
making or other trading activities, must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of the exchange notes. The accompanying letter of transmittal states that
by so acknowledging and by delivering a prospectus, such broker-dealer will not
be deemed to admit that it is an ounderwritero within the meaning of the
Securities Act. A participating broker-dealer may use this prospectus for an
offer to resell, resale or other retransfer of the exchange notes. We will make
this prospectus and any amendment or supplement to this prospectus available for
a period of 180 days after the date of this prospectus to any such participating
broker-dealer for use in connection with any such resales. We believe that no
registered holder of the old notes is an affiliate of ours as defined in Rule
405 of the Securities Act.
By tendering your old notes, you will be representing, among other things,
that:
. you are acquiring the exchange notes in the ordinary course of business;
. you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate, in the
distribution of the exchange notes issued to you in the exchange offer;
. you are not an affiliate of ours; and
44
<PAGE>
. if you are a participating broker-dealer, you will deliver a prospectus
meeting the requirements of the Securities Act in connection with any
resale of the exchange notes.
Any broker-dealer that is not a participating broker-dealer may not rely on
existing SEC interpretations set forth in no-action letters and must comply with
the registration and prospectus delivery requirements of the Securities Act in
order to resell the old notes or the exchange notes. These requirements include
being named as a selling security holder in a registration statement related to
any such resales.
Terms of the Exchange Offer
Subject to the conditions in this prospectus and in the letter of
transmittal, we will accept old notes validly tendered and not withdrawn prior
to 5:00 p.m., New York City time, on the expiration date. We will issue $1,000
principal amount of exchange notes in exchange for each $1,000 principal amount
of outstanding old notes accepted in the exchange offer. You may tender some or
all of your old notes pursuant to the exchange offer. However, tenders of old
notes must be in a minimum principal amount of $1,000 or an integral multiple of
$1,000.
The form and terms of the exchange notes will be identical in all material
respects to the form and terms of the old notes, except that:
. the exchange notes will bear a different CUSIP number from the old notes;
. the issuance of the exchange notes will be registered under the
Securities Act and, therefore, the exchange notes will not bear legends
restricting transfer; and
. the holders of the exchange notes generally will not be entitled to
rights under the registration rights agreement, including liquidated
damages.
As of the date of this prospectus, $200,000,000 aggregate principal amount
of old notes were outstanding. This prospectus and the letter of transmittal are
being mailed to persons who were holders of old notes on the close of business
on the date of this prospectus. Holders of old notes do not have any appraisal
or dissenters' rights under the Delaware General Corporation Law or the
indenture in connection with the exchange offer. We intend to conduct the
exchange offer in accordance with the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations promulgated thereunder.
We will be deemed to have accepted validly tendered old notes when we have
given written notice thereof to The Bank of New York, as exchange agent. The
exchange agent will act as agent for the tendering holders for the purpose of
receiving the exchange notes from us.
If any tendered old notes are not accepted for exchange for any reason, the
certificates for the unaccepted old notes will be returned, without expense, to
the tendering holders, as soon as possible after the expiration date.
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes for
exchange notes. We will pay all charges and expenses, other than transfer taxes,
in connection with the exchange offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "expiration date" means 5:00 p.m., New York City time, on
___________, 1999, unless we extend the exchange offer, in which case the term
oexpiration dateo means the latest date and time to which the exchange offer is
extended.
In order to extend the exchange offer, we will notify the exchange agent by
written notice and will make a public announcement of the extension, each prior
to 9:00 a.m., New York City time, on the next business day after the previously
scheduled expiration date.
We reserve the right, in our sole discretion:
45
<PAGE>
. to delay accepting any old notes, to extend the exchange offer or to
terminate the exchange offer if any of the conditions set forth below
under "--Conditions" have not been satisfied, by giving written notice of
such delay, extension or termination to the exchange agent; or
. to amend the terms of the exchange offer in any manner, whether before or
after any tender of the old notes.
Any delay in acceptance, extension, termination or amendment will be followed as
soon as possible by oral or written notice to the registered holders.
Accrued Interest on the Exchange Notes
Interest on the exchange notes will accrue from the last interest payment
date on which interest was paid on the old notes, or, if no interest was paid on
the old notes, from April 15, 1999, the date of issuance of the old notes.
Holders whose old notes are accepted for exchange will be deemed to have waived
the right to receive any interest accrued on the old notes.
Procedures for Tendering Old Notes
Only a holder of old notes may tender old notes in the exchange offer. Each
holder wishing to accept the exchange offer must:
. complete, sign and date the accompanying letter of transmittal, or a
facsimile thereof, in accordance with the instructions in this
prospectus and the letter of transmittal;
. have the signatures thereon guaranteed if required by the letter of
transmittal or transmit an agent's message in connection with a book-
entry transfer; and
. mail or otherwise deliver the letter of transmittal or facsimile thereof
or agent's message, together with the old notes and any other required
documents, to the exchange agent prior to 5:00 p.m., New York City time,
on the expiration date.
Delivery of the old notes may be made by book-entry transfer in accordance with
the procedures described below. Confirmation of book-entry transfer must be
received by the exchange agent prior to the expiration date.
The term "agent's message" means a message transmitted by a book-entry
transfer facility to, and received by, the exchange agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the old notes that such participant has
received and agrees:
. to participate in the automated tender option program of the exchange
agent and the book-entry transfer facility (expected to be The Depository
Trust Company ("DTC");
. to be bound by the terms of the letter of transmittal; and
. that we may enforce such agreement against such participant.
By executing the letter of transmittal, each holder will make the
representations set forth under the heading "--Purpose and Effect" to us. Your
tender and our acceptance will constitute an agreement that you will participate
in the exchange offer in accordance with the terms and subject to the conditions
set forth in this prospectus and in the letter of transmittal.
The method of delivery of the old notes and the letter of transmittal and
all other required documents to the exchange agent is at your election and sole
risk. As an alternative to delivery by mail, you may wish to consider overnight
or hand delivery service. In all cases, you should allow sufficient time to
assure delivery to the exchange agent before the expiration date. You may
request your broker, dealer, commercial bank, trust company or nominee to effect
the exchange of old notes for you.
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If you are a beneficial owner whose old notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and you wish
to tender your old notes in the exchange offer, you should contact the
registered holder promptly and instruct the registered holder to tender on your
behalf.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an "eligible institution." An eligible institution is a member of
a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a savings institution, commercial bank or trust
company having an office or correspondent in the United States, or otherwise an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act, and which is, in each case, a member of a recognized signature
guarantee program (i.e., Securities Transfer Agents Medallion Program, Stock
Exchange Medallion Program or New York Stock Exchange Medallion Signature
Program). However, signatures on a letter of transmittal or notice of withdrawal
are not required to be guaranteed with respect to old notes that are tendered:
. by a registered holder who has not completed the box entitled oSpecial
Issuance Instructionso or the box entitled oSpecial Delivery
Instructionso on the letter of transmittal; or
. for the account of an eligible institution.
If a letter of transmittal is signed by a person other than the registered
holder, the old notes must be endorsed or accompanied by a properly completed
bond power, signed by the registered holder with the signature thereon
guaranteed by an eligible institution.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, these
persons should so indicate when signing, and evidence satisfactory to us of
their authority to so act must be submitted with the letter of transmittal.
We understand that the exchange agent will make a request soon after the
date of this prospectus to establish an account through the facilities of DTC
for receipt of the tender of old notes through book-entry delivery. For the
purpose of facilitating the exchange offer, any financial institution that is a
DTC participant may participate in the exchange offer through book-entry
delivery of old notes by causing DTC to transfer such old notes into the
exchange agent's account for the old notes. Although delivery of the old notes
may be effected through book-entry transfer into the exchange agent's account at
DTC, unless an agent's message is received by the exchange agent in compliance
with the automated tender option program, an appropriate letter of transmittal
properly completed and duly executed with any required signature guarantee and
all other required documents must in each case be delivered to the exchange
agent on or prior to the expiration date, or, if the guaranteed delivery
procedures described below are complied with, within the time period provided
under such procedures. Delivery of documents to DTC does not constitute delivery
to the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered old notes and withdrawal of tendered old notes
will be determined by us. We reserve the absolute right to reject old notes not
properly tendered or any old notes that our counsel deems would be unlawful for
us to accept. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular old notes. Our interpretation of the terms
and conditions of the exchange offer, including the instructions in the letter
of transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of old notes must be cured
within such time as we determine. Although we intend to notify holders of
defects or irregularities with respect to tenders of old notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
notification. Tenders of old notes will not be deemed to have been made until
defects or irregularities have been cured or waived. Any old notes received by
the exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent to the tendering holders, unless otherwise provided in the letter of
transmittal, soon after the expiration date.
No letter of transmittal, old notes, notice of guaranteed delivery or other
documents should be sent to us or DTC. Delivery of these documents to us or DTC
will not constitute valid delivery.
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Guaranteed Delivery Procedures
Holders of old notes who wish to tender their old notes but who cannot,
prior to 5:00 p.m., New York City time, on the expiration date (1) deliver their
old notes, the letter of transmittal or any other documents required by the
letter of transmittal to the exchange agent or (2) deliver a confirmation of the
book-entry tender of their old notes into the exchange agent's account at DTC
and otherwise complete the procedures for book-entry transfer, may effect a
tender of old notes if:
. the tender is made through an eligible institution;
. prior to 5:00 p.m., New York City time, on the expiration date, the
exchange agent receives from the eligible institution a properly
completed and duly executed notice of guaranteed delivery setting forth
the name and address of the holder, the certificate number(s) and the
principal amount of old notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three business days after the
expiration date, the letter of transmittal, together with the
certificate(s) representing the old notes, or a confirmation of book-
entry transfer of such old notes into the exchange agent's account at
DTC, and any other documents required by the letter of transmittal will
be deposited by the eligible institution with the exchange agent; and
. the properly completed and duly executed letter of transmittal, as well
as the certificate(s) representing all tendered old notes in proper form
for transfer, or a confirmation of book-entry transfer of such old notes
into the exchange agent's account at DTC, and all other documents
required by the letter of transmittal are received by the exchange agent
within three business days after the expiration date.
Acceptance of Old Notes for Exchange; Delivery of Exchange Notes
Promptly after satisfaction or waiver of all of the conditions to the
exchange offer, we will accept all old notes properly tendered and will issue
the exchange notes. For a description of conditions to the exchange offer, see
"--Conditions" below. We will be deemed to have accepted properly tendered old
notes for exchange when, as and if we have given written notice to the exchange
agent. For each old note accepted for exchange, the holder of such old note will
receive an exchange note having a principal amount equal to that of the
surrendered old note.
In all cases, issuance of exchange notes will be made only after timely
receipt by the exchange agent of certificates for old notes (or a timely
confirmation that old notes have been transferred into the exchange agent's
account at DTC), a properly completed and duly executed letter of transmittal
and all other required documents. If any tendered old notes are not accepted for
any reason, or if old notes are submitted for a greater principal amount than
the holder desires to exchange, the unaccepted or non-exchanged old notes will
be returned without expense to the tendering holder soon after the expiration or
termination of the exchange offer.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw a tender
of old notes at any time prior to 5:00 p.m., New York City time, on the
expiration date.
To withdraw a tender of old notes, the exchange agent must receive a
telegram, telex, letter or facsimile transmission notice of withdrawal prior to
5:00 p.m., New York City time, on the expiration date. A notice of withdrawal
must:
. specify the name of the person having deposited the old notes to be
withdrawn (the "Depositor");
. identify the old notes to be withdrawn, including the certificate
number(s) and principal amount of the old notes, or, in the case of old
notes tendered by book-entry transfer into the exchange agent's account
at DTC pursuant to the applicable book-entry procedures, the name and
number of the account at DTC to be credited;
. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the old notes were tendered (including
any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the trustee register the transfer of the old
notes into the name of the person withdrawing the tender; and
. specify the name in which the old notes are to be registered, if
different from that of the Depositor.
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We will determine all questions as to the validity, form and eligibility,
including time of receipt, of withdrawal notices. Any old notes so withdrawn
will be deemed not to have been validly tendered and no exchange notes will be
issued unless the old notes so withdrawn are validly retendered. Any old notes
which have been tendered but which are not accepted for exchange will be
returned, without expense, to the holder soon after withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn old notes may be
retendered by following one of the procedures described above under
"--Procedures for Tendering Old Notes" at any time prior to the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, we are not required
to accept for exchange any old notes, and may terminate or amend the exchange
offer, if:
. any action or proceeding is instituted or threatened in any court or by
any governmental or quasi-governmental agency which might materially
impair our ability to proceed with the exchange offer or any material
adverse development has occurred in any existing action or proceeding
with respect to us;
. the exchange offer violates applicable law or any applicable SEC
interpretations; or
. any governmental or quasi-governmental approval has not been obtained,
which approval we deem necessary for the consummation of the exchange
offer.
If we determine in our sole, reasonable discretion that any of the
foregoing conditions are not satisfied, we may:
. refuse to accept any old notes and return all tendered old notes to the
tendering holders;
. extend the exchange offer and retain all old notes tendered prior to the
expiration of the exchange offer, subject, however, to the rights of
holders to withdraw such old notes in accordance with "--Withdrawal of
Tenders"; or
. waive the unsatisfied conditions and accept all properly tendered old
notes which have not been withdrawn.
In addition, we reserve the right, notwithstanding the satisfaction or failure
of any or all of the conditions, to terminate or amend the exchange offer in any
manner.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered or accepted for exchange.
Exchange Agent
The Bank of New York, which also acts as trustee under the indenture, has
been appointed as exchange agent for the exchange offer. Each holder wishing to
accept the exchange offer must deliver (1) a letter of transmittal, the holder's
tendered old notes and all other required documents or (2) a notice of
guaranteed delivery and all other documents described under "--Guaranteed
Delivery Procedures," to the exchange agent as follows:
By Mail or Hand Delivery: The Bank of New York
101 Barclay Street -7E
New York, New York 10286
Attention: Reorganization Section
Facsimile Transmission: (212) 815-4699
Confirm by Telephone: (212) 815-[ ]
Delivery to an address other than as set forth above will not constitute
valid delivery.
If you have any questions or need additional copies of this prospectus, the
letter of transmittal or the notice of guaranteed delivery, please write or
telephone the exchange agent.
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Fees and Expenses
The principal solicitation of tenders for the exchange offer is being made
by mail; however, additional solicitations may be made by telegraph, telecopy,
telephone or in person by our officers, employees or agents and our affiliates.
We have not retained any dealer-manager in connection with the exchange offer
and will not make any payments to brokers, dealers or others to solicit
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection with the exchange offer. We will
pay all other expenses to be incurred in connection with the exchange offer.
Such expenses include fees and expenses of the trustee, accounting and legal
fees and printing costs, among others.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the old
notes, which is face value, as reflected in our accounting records on the date
of exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes in connection with the exchange offer. The expenses of the exchange
offer will be amortized over the term of the exchange notes.
Consequences of Failure to Exchange
The old notes that are not exchanged for exchange notes will remain
restricted securities. Accordingly, old notes may not be reoffered, resold,
pledged or otherwise transferred except in accordance with applicable state
securities laws and:
. to a person whom the transferor reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of Rule
144A;
. in an offshore transaction meeting the requirements of Rule 903 or Rule
904 of Regulation S;
. to an institution that is an "accredited investor" within the meaning of
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act;
. pursuant to an exemption from registration under the Securities Act
provided by Rule 144 thereunder; or
. pursuant to an effective registration statement under the Securities Act.
Following consummation of the exchange offer, holders of the old notes who
were eligible to participate in the exchange offer but who did not tender their
old notes generally will not have any further registration rights under the
registration rights agreement, and the old notes will continue to be subject to
restrictions on transfer. Accordingly, the liquidity of the market for such old
notes could be adversely affected. See "Risk Factor--Transfer Restrictions on
Old Notes--Old notes outstanding after the exchange offer generally will not
have registration rights and we expect the market for the old notes to be
illiquid."
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DESCRIPTION OF REVOLVING CREDIT FACILITY
The following is a summary of our $200.0 million revolving credit facility
and is qualified in its entirety by reference to the agreement evidencing such
revolving credit facility (as amended, the "Credit Agreement"), a copy of which
is available from the Company.
On December 10, 1998, the Company entered into a revolving credit facility
of $200.0 million. The revolving credit facility is secured by all of the stock
of the Company's domestic subsidiaries and 66 2/3% of the stock of the Company's
Puerto Rican subsidiary and is guaranteed by all of the domestic subsidiaries of
the Company. The revolving credit facility matures on December 10, 2001, at
which time all amounts outstanding under any type of borrowing become due.
Revolving borrowings bear interest, at the Company's option, at either (i)
LIBOR, plus a margin of up to 1.75%, based on the Company's Consolidated Fixed
Charge Coverage Ratio (as such term is defined in the Credit Agreement) or (ii)
the greater of the NationsBank prime rate or the Federal Funds Rate plus 0.5%,
plus a margin of up to 0.25% based on the Company's Consolidated Fixed Charge
Coverage Ratio. Applicable interest rates will be increased by 2.0% per annum
during the continuance of any specified event of default under the Credit
Agreement. A commitment fee ranging from 0.25% to 0.375%, based on the Company's
Consolidated Fixed Charge Coverage Ratio, is payable on the unused portion of
the revolving commitment. Letter of credit fees are payable for each letter of
credit issued, in an amount equal to the product of the face amount of each
letter of credit and a percentage ranging from 1.0% to 1.75%, based on the
Company's Consolidated Fixed Charge Coverage Ratio. As of June 1, 1999, the
Company had outstanding under the revolving credit facility $153.7 million in
revolving borrowings.
The obligations of the lenders under the revolving credit facility to
advance funds are subject to the satisfaction of certain conditions customary in
agreements of this type. In addition, the Company and its subsidiaries are
subject to certain customary affirmative and negative covenants contained in the
Credit Agreement, including, without limitation, covenants that restrict,
subject to specified exceptions, (i) incurring additional indebtedness and other
obligations; (ii) a merger or consolidation with any other person, or a
liquidation, dissolution or winding-up of the Company; (iii) engaging in
transactions with affiliates; (iv) investing funds of the Company; (v) granting
of liens to secure any other indebtedness; (vi) making certain restricted
payments, including, but not limited to, declaring dividends or making other
distributions; and (vii) engaging in sale-leaseback transactions and (viii) the
amount of capital expenditures in any fiscal year.
The Credit Agreement requires the Company to maintain certain financial
ratios, including: (i) Consolidated Leverage Ratio; (ii) Consolidated Fixed
Charge Coverage Ratio; (iii) Consolidated Tangible Net Worth; and (iv)
Consolidated Funded Debt to Capitalization Ratio (each as defined in the Credit
Agreement).
The Credit Agreement provides for customary events of default. Occurrence
of such events of default could result in acceleration of the Company's
obligations under the revolving credit facility and foreclosure on the
collateral securing such obligations with material adverse results to the
holders of the exchange notes.
In connection with the offering of the old notes, we amended the Credit
Agreement to, among other things, (i) permit the offering and (ii) amend certain
of the financial covenants.
We anticipate that at the end of the second quarter of fiscal 1999, we will
not be in compliance with certain of the financial ratio covenants under the
Credit Agreement. We are seeking an amendment to the facility to revise these
covenants so that we remain in compliance. The proposed amendment to the credit
facility provides for an increased interest rate based on changes in the
financial ratios.
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DESCRIPTION OF EXCHANGE NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the word
"Company" refers only to Just for Feet, Inc. and not to any of its subsidiaries.
The Company will issue the exchange notes under the indenture among itself,
the Guarantors and The Bank of New York, as trustee (the "Trustee"),pursuant to
an effective registration statement under of the Securities Act. The terms of
the exchange notes include those stated in the indenture and those made part of
the indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The old notes, the exchange notes and any Additional
Notes subsequently issued under the indenture are created as a single class for
all purposes under the indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. Accordingly, all reference to
the terms of the exchange notes are described in this section as simply the
onoteso which reference also includes any unexchanged old notes unless otherwise
specified.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as holders of the notes. Certain defined terms used in this
description but not defined below under "--Certain Definitions" have the
meanings assigned to them in the indenture.
Brief Description of the Notes and the Guarantees
The Notes
The notes:
. are general unsecured obligations of the Company;
. are subordinated in right of payment to all existing and future Senior
Debt of the Company;
. are pari passu in right of payment with any future senior subordinated
Indebtedness of the Company; and
. are unconditionally guaranteed by the Guarantors.
The Guarantees
The notes are guaranteed by all of the Domestic Subsidiaries of the
Company. As of the date of this prospectus, all of our subsidiaries, other than
Just for Feet of Puerto Rico, Inc., are Domestic Subsidiaries. However, in the
future, under certain circumstances, we may have subsidiaries in addition to
Just for Feet of Puerto Rico, Inc. which are not Domestic Subsidiaries.
Each Guarantee of the notes:
. is a general unsecured obligation of the Guarantor;
. is subordinated in right of payment to all existing and future Senior
Debt of the Guarantor; and
. is pari passu in right of payment with any future senior subordinated
Indebtedness of the Guarantor.
As of the date of this prospectus, all of our subsidiaries are "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "--Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries," we are permitted to designate certain of our subsidiaries as
"Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will not be subject
to many of the restrictive covenants in the indenture. Our Unrestricted
Subsidiaries will not guarantee the notes.
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Principal, Maturity and Interest
The indenture provides for the issuance by the Company of notes with a
maximum aggregate principal amount of $300.0 million, of which $200.0 million of
exchange notes will be issued in this offering. The Company may issue additional
notes (the "Additional Notes") from time to time after this offering. Any
offering of Additional Notes is subject to the covenant described below under
the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Disqualified Stock." The Company will issue notes in denominations of $1,000 and
integral multiples of $1,000. The notes will mature on May 1, 2009.
Interest on the notes will accrue at the rate of 11% per annum and will be
payable semiannually in arrears on May 1 and November 1, commencing on November
1, 1999. The Company will make each interest payment to the Holders of record on
the immediately preceding April 15 and October 15.
Interest on the notes will accrue from April 15, 1999, the date of original
issuance of the old notes or, if interest has already been paid on the old
notes, from the date it was most recently paid. Interest will be computed on the
basis of a 360 day year comprised of twelve 30 day months.
Methods of Receiving Payments on the Notes
All payments on notes will be made at the office or agency of the Paying
Agent and Registrar within the City and State of New York by check mailed to the
Holders at their addresses set forth in the register of Holders, or by wire
transfer if a Holder has given wire transfer instructions to the Company.
Paying Agent and Registrar for the Notes
The Trustee will initially act as Paying Agent and Registrar. The Company
may change the Paying Agent or Registrar without prior notice to the Holders,
and the Company or any of its Subsidiaries may act as Paying Agent or Registrar.
Transfer and Exchange
A Holder may transfer or exchange notes in accordance with the indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
indenture. The Company is not required to transfer or exchange any note selected
for redemption. Also, the Company is not required to transfer or exchange any
note for a period of 15 days before a selection of notes to be redeemed.
The registered Holder of a note will be treated as the owner of it for all
purposes.
Subsidiary Guarantees
The Guarantors will jointly and severally guarantee the Company's
obligations under the notes. Each Subsidiary Guarantee will be subordinated to
the prior payment in full of all Senior Debt of that Guarantor. The obligations
of each Guarantor under its Subsidiary Guarantee will be limited as necessary to
prevent that Subsidiary Guarantee from constituting a fraudulent conveyance
under applicable law. See "Risk Factors--Fraudulent Conveyance Matters--Federal
and state statutes allow courts, under specific circumstances, to void
guarantees and require Noteholders to return payments received from guarantors."
A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, other than the Company or
another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger assumes
all the obligations of that Guarantor under the indenture, its
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Subsidiary Guarantee and the registration rights agreement pursuant to a
supplemental indenture satisfactory to the Trustee; or
(b) such sale or other disposition complies with the "Asset Sale"
provisions of the indenture, including the application of the Net Proceeds
therefrom.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of merger or
consolidation) to a Person that is not (either before or after giving effect to
such transaction) a Restricted Subsidiary of the Company, if the sale or other
disposition of all or substantially all of the assets of that Guarantor complies
with the "Asset Sale" provisions of the indenture, including the application of
the Net Proceeds therefrom;
(2) in connection with any sale of all of the Capital Stock of a Guarantor
to a Person that is not (either before or after giving effect to such
transaction) a Restricted Subsidiary of the Company, if the sale of all such
Capital Stock of that Guarantor complies with the "Asset Sale" provisions of the
indenture, including the application of the Net Proceeds therefrom;
(3) if the Company properly designates any Restricted Subsidiary that is a
Guarantor as an Unrestricted Subsidiary; or
(4) under the circumstances described under the covenant described below
under "--Certain Covenants--Additional Guarantees and Limitation on Issuance of
Guarantees of Indebtedness."
See "--Repurchase at the Option of Holders--Asset Sales."
Subordination
The payment of principal, interest and premium and Liquidated Damages, if
any, on the notes will be subordinated to the prior payment in full of all
Senior Debt of the Company, including Senior Debt of the Company incurred after
the date of the indenture.
The holders of Senior Debt of the Company will be entitled to receive
payment in full in Cash Equivalents of all Obligations due in respect of Senior
Debt of the Company (including interest after the commencement of any bankruptcy
proceeding at the rate specified in the applicable Senior Debt of the Company)
before the Holders of notes will be entitled to receive any payment with respect
to the notes (except that Holders of notes may receive and retain Permitted
Junior Securities and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance"), in the event of any distribution to
creditors of the Company:
(1) in a liquidation or dissolution of the Company;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property;
(3) in an assignment by the Company for the benefit of its creditors; or
(4) in any marshaling of the Company's assets and liabilities.
The Company also may not make any payment in respect of the notes (except
in Permitted Junior Securities or from the trust described under "--Legal
Defeasance and Covenant Defeasance") if:
(1) a payment default on Designated Senior Debt of the Company occurs and
is continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing on any series of Designated
Senior Debt of the Company that permits holders of that series of Designated
Senior Debt of the Company to accelerate its maturity and the Trustee receives a
notice of such default (a "Payment Blockage Notice") from the Company or the
holders of any Designated Senior Debt of the Company.
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Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default
is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt of the Company has been accelerated.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the delivery of the immediately prior
Payment Blockage Notice; and
(2) all scheduled payments of principal, interest and premium and
Liquidated Damages, if any, on the notes that have come due have been paid in
full in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 90 days.
If the Trustee or any Holder of the notes receives a payment in respect of
the notes (except in Permitted Junior Securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") when:
(1) the payment is prohibited by these subordination provisions; and
(2) the Trustee or the Holder has actual knowledge that the payment is
prohibited;
the Trustee or the Holder, as the case may be, shall hold the payment in trust
for the benefit of the holders of Senior Debt of the Company. Upon the written
request of the holders of Senior Debt of the Company, the Trustee or the Holder,
as the case may be, shall deliver the amounts in trust to the holders of Senior
Debt of the Company or their proper representative.
The Company must promptly notify holders of its Senior Debt if payment of
the notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of the Company, Holders of notes
may recover less ratably than creditors of the Company who are holders of Senior
Debt of the Company.
Payments under the Subsidiary Guarantee of each Guarantor will be
subordinated to the prior payment in full of all Senior Debt of such Guarantor,
including Senior Debt of such Guarantor incurred after the date of the
indenture, on the same basis as provided above with respect to the subordination
of payments on the notes by the Company to the prior payment in full of Senior
Debt of the Company. See "Risk Factors--Subordination.--The Notes and Guarantees
are subordinated to Senior Debt; thus your right to receive payment on the notes
is junior to most of our existing debt and possibly all of our future
borrowings. Further, the guarantees of the notes are junior to all of our
guarantors' existing indebtedness and possibly all of their future borrowings."
"Designated Senior Debt" means:
(1) any Indebtedness outstanding under the Credit Agreement; and
(2) any other Senior Debt permitted under the indenture the aggregate
principal amount of which that is committed and available to be drawn on is
$20.0 million or more and that has been designated by the Company as "Designated
Senior Debt." For purposes of determining whether a particular issue of Senior
Debt may qualify as "Designated Senior Debt," the principal amount of one or
more issues of Senior Debt owing to a common lender (or its Affiliates) may be
aggregated.
"Permitted Junior Securities" means:
(1) Equity Interests in the Company or any Guarantor; or
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(2) debt securities that are subordinated to all Senior Debt and any debt
securities issued in exchange for Senior Debt to substantially the same extent
as, or to a greater extent than, the notes and the Subsidiary Guarantees are
subordinated to Senior Debt under the indenture.
"Senior Debt" means:
(1) all Indebtedness of the Company or any Guarantor at any time
outstanding under Credit Facilities and all Hedging Obligations and
Currency Agreements with respect thereto;
(2) any other Indebtedness of the Company or any Guarantor permitted to
be incurred under the terms of the indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the notes or any
Subsidiary Guarantee; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or owing
by the Company;
(2) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates;
(3) any Indebtedness or amounts owed for goods, materials or services
purchased in the ordinary course of business;
(4) the portion of any Indebtedness that is incurred in violation of the
indenture; or
(5) the old notes or the exchange notes.
Optional Redemption
At any time prior to May 1, 2002, the Company may on any one or more
occasions redeem up to 35% of the sum of (i) the initial aggregate principal
amount of notes and (ii) the initial aggregate principal amount of any
Additional Notes at a redemption price of 111% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Equity Offerings;
provided that:
(1) at least 65% of the sum of (x) the initial aggregate principal amount
of notes and (y) the initial aggregate principal amount of any Additional
Notes remains outstanding immediately after the occurrence of such
redemption (excluding notes held by the Company and its Subsidiaries); and
(2) the redemption must occur within 90 days of the date of the closing
of such Equity Offering.
In addition, at any time prior to May 1, 2004, the notes will be redeemable
at the option of the Company, in whole but not in part, at a redemption price
equal to the sum of (i) the principal amount thereof, plus (ii) accrued and
unpaid interest, if any, to the applicable date of redemption, plus (iii) the
Make-Whole Premium.
Except pursuant to the preceding paragraphs, the notes will not be
redeemable at the Company's option prior to May 1, 2004.
On or after May 1, 2004, the Company may redeem all or a part of the notes
from time to time upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the
applicable redemption date, if redeemed during the twelvemonth period beginning
on May 1 of the years indicated below:
Year Percentage
- ---- ----------
2004................................................................. 105.500%
2005................................................................. 103.667%
2006................................................................. 101.833%
2007 and thereafter.................................................. 100.000%
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Mandatory Redemption
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, the Company is obligated to offer to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
a Holder's notes and Additional Notes, if any, pursuant to a Change of Control
Offer on the terms set forth in the indenture. In the Change of Control Offer,
the Company will offer a Change of Control Payment in cash equal to 101% of the
aggregate principal amount of notes and Additional Notes, if any, repurchased
plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the
date of purchase. Within 30 days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase notes and
Additional Notes, if any, on the Change of Control Payment Date specified in
such notice, which date shall be no earlier than 30 days and no later than 60
days from the date such notice is mailed, pursuant to the procedures required by
the indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the notes and Additional Notes,
if any, as a result of a Change of Control. To the extent that the provisions of
any securities laws or regulations conflict with the Change of Control
provisions of the indenture, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Change of Control provisions of the indenture by virtue of
such conflict.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all notes and Additional Notes, if any, or
portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee the notes and
Additional Notes, if any, so accepted together with an Officers'
Certificate stating the aggregate principal amount of notes and Additional
Notes, if any, or portions thereof being purchased by the Company.
The Paying Agent will promptly mail to each Holder of notes and Additional
Notes, if any, so tendered the Change of Control Payment for such notes and
Additional Notes, and the Trustee will promptly authenticate and mail (or cause
to be transferred by book-entry) to each Holder a new note equal in principal
amount to any unpurchased portion of the notes and Additional Notes surrendered,
if any; provided that each such new note will be in a principal amount of $1,000
or an integral multiple thereof.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, the
Company will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of notes and Additional Notes, if any, required by this
covenant. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The Credit Agreement currently prohibits the Company from purchasing any
notes or Additional Notes, and also provides that certain change of control
events with respect to the Company would constitute a default under the Credit
Agreement. Any future credit agreements or other agreements relating to Senior
Debt to which the Company becomes a party may contain similar restrictions and
provisions. In the event a Change of Control occurs at a time when the Company
is prohibited from purchasing notes and Additional Notes, the Company could seek
the consent of its senior lenders to the purchase of notes and Additional Notes
or could attempt to refinance the borrowings that contain such prohibition. If
the Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing notes and Additional Notes. In such case,
the Company's failure to purchase tendered notes and Additional Notes would
constitute an Event of Default under the indenture which would, in turn,
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constitute a default under such Senior Debt. In such circumstances, the
subordination provisions in the indenture would likely restrict payments to the
Holders of notes and Additional Notes.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the Holders of the notes and Additional Notes, if
any, to require that the Company repurchase or redeem the notes and Additional
Notes, if any, in the event of a takeover, recapitalization or similar
transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by the Company and
purchases all notes and Additional Notes, if any, validly tendered and not
withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of the Company and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of notes and Additional Notes, if any, to require the Company to
repurchase such notes and Additional Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of the
Company and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by the Company's Board of
Directors and evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee; and
(3) at least 75% of the consideration therefor received by the Company or
such Restricted Subsidiary is in the form of Cash Equivalents. For purposes
of this provision, each of the following shall be deemed to be Cash
Equivalents:
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by
their terms subordinated to the notes or any Subsidiary Guarantee) that
are assumed by the transferee of any such assets and from which the
Company or such Restricted Subsidiary is unconditionally released; and
(b) any securities, notes or other obligations received by the Company
or any such Restricted Subsidiary from such transferee that are within
thirty (30) days of receipt thereof converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received in
that conversion).
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds at its option:
(1) to repay Senior Debt and, if the Senior Debt repaid is revolving
credit Indebtedness that (a) was incurred under paragraph (1) of the second
paragraph under "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Disqualified Stock" or (b) was incurred under any other
provision of the indenture and the Company at the time of such repayment
would not otherwise be able to incur an additional $1.00 of indebtedness
under the Fixed Charge Coverage Ratio pursuant to the first paragraph under
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Disqualified Stock," to correspondingly reduce commitments with respect to
such revolving credit Indebtedness;
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(2) to acquire all or substantially all of the assets of, or a majority
of the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure in or that is used or useful in a
Permitted Business; or
(4) to acquire other Long-term assets in or that are used or useful in a
Permitted Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will make
an Asset Sale Offer to all Holders of notes and Additional Notes, if any, and
all holders of other Indebtedness that is pari passu with the notes containing
provisions similar to those set forth in the indenture with respect to offers to
purchase with the proceeds of sales of assets to purchase the maximum principal
amount of notes and Additional Notes, if any, and such other pari passu
Indebtedness that may be purchased out of the Excess Proceeds. The offer price
in any Asset Sale Offer will be equal to 100% of principal amount plus accrued
and unpaid interest and Liquidated Damages, if any, to the date of purchase, and
will be payable in cash. If any Excess Proceeds remain after consummation of an
Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not
otherwise prohibited by the indenture. If the aggregate principal amount of
notes and such other pari passu Indebtedness tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the Trustee shall select the notes and
Additional Notes, if any, and such other pari passu Indebtedness to be purchased
on a pro rata basis based on the principal amount of notes and Additional Notes
and such other pari passu Indebtedness tendered. Upon completion of each Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of the indenture, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the indenture by virtue of such
conflict.
The Credit Agreement currently prohibits the Company from purchasing any
notes and Additional Notes, and also provides that certain asset sale events
with respect to the Company would constitute a default under the Credit
Agreement. Any future credit agreements or other agreements relating to Senior
Debt to which the Company becomes a party may contain similar restrictions and
provisions. In the event an Asset Sale occurs at a time when the Company is
prohibited from purchasing notes and Additional Notes, the Company could seek
the consent of its senior lenders to the purchase of notes and Additional Notes
or could attempt to refinance the borrowings that contain such prohibition. If
the Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing notes and Additional Notes. In such case,
the Company's failure to purchase tendered notes and Additional Notes would
constitute an Event of Default under the indenture which would, in turn,
constitute a default under such Senior Debt. In such circumstances, the
subordination provisions in the indenture would likely restrict payments to the
Holders of notes and Additional Notes.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the Trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
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If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the Holder thereof upon
cancellation of the original note. Exchange notes called for redemption become
due on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
Certain Covenants
Restricted Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of the Company's or any of its Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company or any of its Restricted
Subsidiaries) or to the direct or indirect holders of the Company's or any
of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company or to the Company or a Restricted
Subsidiary of the Company);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company, any direct or
indirect parent of the Company or any other Subsidiary of the Company that
is not or as a result of such transaction does not become a Wholly Owned
Restricted Subsidiary of the Company;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes or the Subsidiary Guarantees, except a payment of
interest thereon or principal at any scheduled principal or sinking fund
payment date or at the Stated Maturity thereof; or
(4) make any Restricted Investment (all such payments and other actions
set forth in clauses (1) through (4) above being collectively referred to
as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Disqualified Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the indenture (excluding Restricted Payments
permitted by clauses (2) and (3) of the next succeeding paragraph), is less
than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from January 31, 1999 to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Company
since the date of the indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of the Company
(other than Disqualified Stock) or from the issue or sale of convertible
or exchangeable Disqualified Stock or convertible or exchangeable debt
securities of the Company that have been converted into or exchanged for
such Equity Interests (other than Equity Interests (or Disqualified Stock
or debt securities) sold to a Subsidiary of the Company), plus
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(c) to the extent that any Restricted Investment that was made after
the date of the indenture is sold for Cash Equivalents or otherwise
liquidated or repaid for Cash Equivalents, the lesser of (i) the cash
return of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (ii) the initial amount of such
Restricted Investment, plus
(d) the aggregate net cash proceeds received after the date of the
indenture by the Company from the conversion or exchange, if any, of debt
securities or Disqualified Capital Stock of the Company into or for
Capital Stock (other than Disqualified Capital Stock) of the Company.
Notwithstanding the foregoing and, in the case of clauses (2), (3), (6),
(7), (8), (9) and (10), so long as no Default has occurred and is continuing or
would be caused thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Company or any
Guarantor or of any Equity Interests of the Company or a Guarantor in
exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of,
Equity Interests of the Company (other than Disqualified Stock); provided
that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition or
payment of subordinated Indebtedness of the Company or any Guarantor with
the net cash proceeds from, or in exchange for, Permitted Refinancing
Indebtedness;
(4) repurchases of Equity Interests deemed to occur upon the exercise of
stock options if such Equity Interests represent a portion of the exercise
price thereof or withholding tax due in connection therewith;
(5) payments not to exceed $100,000 in the aggregate since the Issue Date
to permit the Company to make payments to holders of its Equity Interests
in lieu of issuing fractional shares of its Equity Interests;
(6) payments in respect of any repurchase, redemption, acquisition,
cancellation or other retirement for value of any Equity Interests or stock
appreciation or similar securities of the Company or any Restricted
Subsidiary of the Company held by then current or former officers,
directors or employees of the Company or any Restricted Subsidiary (or
their estates or beneficiaries under their estates) or by an employee
benefit plan, upon death, disability, retirement, termination of employment
or departure from the Board of Directors, not to exceed $500,000 in the
aggregate in any fiscal year, increased by the amount of net cash proceeds
from okey mano life insurance policies which are used to make such
redemptions or repurchases;
(7) the payment of any dividend by a Restricted Subsidiary of the Company
to the holders of such Restricted Subsidiary's common Equity Interests on a
pro rata basis;
(8) the repurchase of any Subordinated Indebtedness of the Company or any
Guarantor at a purchase price not greater than 100% of the principal amount
of such Subordinated Indebtedness in the event of a Change of Control (as
defined below) pursuant to a provision similar to the "Repurchase at the
Option of Holders--Change of Control" covenant; provided that, prior to or
simultaneously with such repurchase, the Company has made the Change of
Control Offer as provided in such covenant and has repurchased all notes
validly tendered for payment in connection with such Change of Control
Offer;
(9) the repurchase of any Subordinated Indebtedness of the Company or any
Guarantor, at a purchase price not greater than 100% of the principal
amount of such Indebtedness in the event of an Asset Sale pursuant to a
provision similar to the oRepurchase at the Option of HoldersuAsset Saleso
covenant; provided that, prior to such repurchase, the Company has made an
Offer to purchase the notes as provided in such covenant and has
repurchased all notes validly tendered for payment in connection with such
Offer; and
(10) Restricted Payments in a total amount not to exceed $5.0 million.
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The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the Trustee. The Board of Directors'
determination must be based upon an opinion or appraisal by an accounting,
appraisal or investment banking firm of national standing if the fair market
value exceeds $10.0 million. At least once per fiscal year, the Company shall
deliver to the Trustee an Officers' Certificate stating that Restricted Payments
made during such year were permitted and setting forth the basis upon which the
calculations required by this "Restricted Payments" covenant were computed
together with a copy of any fairness opinion or appraisal required by the
indenture.
If the aggregate amount of all Restricted Payments calculated under the
foregoing provision includes a Restricted Investment in an Unrestricted
Subsidiary, the aggregate amount of all Restricted Payments calculated under the
foregoing provision will be reduced by the lesser of (x) the net asset value of
such Subsidiary at the time it becomes a Restricted Subsidiary and (y) the
initial amount of such Investment.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and the Company will not issue any Disqualified Stock and the Company
will not permit any of its Restricted Subsidiaries to issue any Disqualified
Stock; provided, however, that the Company may incur Indebtedness (including
Acquired Debt) or issue Disqualified Stock, and a Guarantor may incur
Indebtedness or issue Disqualified Stock, if the Fixed Charge Coverage Ratio for
the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or the preferred stock or Disqualified Stock had
been issued, as the case may be, at the beginning of such four-quarter period.
Notwithstanding the foregoing, the first paragraph of this covenant will
not prohibit the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Debt"):
(1) the incurrence by the Company and any Guarantor of Indebtedness and
letters of credit under Credit Facilities in an aggregate principal amount
at any one time outstanding under this clause (1) (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Company and the Guarantors thereunder) not to exceed
$200.0 million less the aggregate amount of all Net Proceeds of Asset Sales
applied by the Company or any Guarantor to repay any revolving credit
Indebtedness under a Credit Facility and effect a corresponding commitment
reduction thereunder pursuant to the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales;"
(2) the incurrence by the Company and any Guarantor of the Existing
Indebtedness;
(3) the incurrence by the Company of Indebtedness represented by the old
notes and the exchange notes;
(4) the incurrence from time to time and at any time by Guarantors of
Indebtedness represented by the Subsidiary Guarantees;
(5) the incurrence by the Company or any Guarantor of Indebtedness
represented by Capital Lease Obligations, mortgage financings or purchase
money obligations, in each case, incurred for the purpose of financing all
or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used or useful in the business of the Company
or such Guarantor, in an aggregate principal amount outstanding (including
all Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (5)), not to exceed 5% of aggregate total
revenue of the Company and its Restricted Subsidiaries during the most
recently completed four fiscal quarter period on a consolidated basis
(measured at the date of incurrence);
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(6) the incurrence by the Company or any of the Guarantors of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to refund, refinance or replace Indebtedness (other than inter-company
Indebtedness) that was permitted by the indenture to be incurred under the
first paragraph of this covenant or clause (2), (3), (4) or (6) of this
paragraph;
(7) the incurrence by the Company or any of its Restricted Subsidiaries
of inter-company Indebtedness between or among the Company and any of its
Restricted Subsidiaries or between or among any Restricted Subsidiaries;
provided, however, that:
(a) if the Company or any Guarantor is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
notes, in the case of the Company, or the Subsidiary Guarantee, in the
case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the
Company or a Restricted Subsidiary thereof and (ii) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Restricted Subsidiary thereof; shall be deemed,
in each case, to constitute an incurrence of such Indebtedness by the
Company or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (7);
(8) the incurrence by the Company or any of its Restricted
Subsidiaries of:
(a) Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this indenture to be outstanding; and
(b) Currency Agreements entered into in the ordinary course of business
in respect of assets or obligations denominated in a foreign currency;
(9) the guarantee by the Company or any of the Guarantors of Indebtedness
of the Company or a Restricted Subsidiary of the Company that was permitted
to be incurred by another provision of this covenant;
(10) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness of the Company
or any Restricted Subsidiary in the form of additional Indebtedness with
the same terms, and the payment of dividends on Disqualified Stock in the
form of additional shares of the same class of Disqualified Stock will not
be deemed to be an incurrence of Indebtedness or an issuance of
Disqualified Stock for purposes of this covenant; provided, in each such
case, that the amount thereof is included in Fixed Charges of the Company
as accrued;
(11) Indebtedness of the Company or any Restricted Subsidiary arising
from the honoring by a bank or other financial institution of a check,
draft or other similar instrument inadvertently drawn against insufficient
funds in the ordinary course of business; provided that any such
Indebtedness is extinguished within five business days of its incurrence;
(12) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in respect of workers' compensation claims or self-
insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(13) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary of the Company providing for indemnification or adjustment of
purchase price obligations, in each case incurred or assumed in connection
with the disposition of any business, assets or a Restricted Subsidiary of
the Company, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition; provided that the
maximum assumable liability in respect of all such Indebtedness at no time
exceeds the gross proceeds actually received by the Company and its
Restricted Subsidiaries in respect of such disposition;
(14) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any of its Restricted
Subsidiaries in the ordinary course of business; and
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(15) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness at any time outstanding incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause (15)
not to exceed $15.0 million.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Disqualified Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (15) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company will be permitted to classify such item of Indebtedness in any manner
that complies with this covenant. Indebtedness under Credit Facilities and
letters of credit or bankers acceptances outstanding on the date on which notes
are first issued and authenticated under the indenture shall be deemed to have
been incurred on such date in reliance on the exception provided by clause (1)
of the definition of Permitted Debt.
Limitation on Other Senior Subordinated Debt
The Company will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of the Company and senior in any respect in right of
payment to the notes. No Guarantor will incur, create, issue, assume, guarantee
or otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to the Senior Debt of such Guarantor and senior in any respect
in right of payment to such Guarantor's Subsidiary Guarantee.
Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind securing Indebtedness or amounts owed for
goods, materials or services purchased in the ordinary course of business (other
than Permitted Liens) upon any of their property or assets, now owned or
hereafter acquired, unless all payments due under the indenture and the notes
are secured on an equal and ratable basis with the obligations so secured until
such time as such obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
the Company or any of its Restricted Subsidiaries, or pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the indenture and
any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in such Existing Indebtedness, as
in effect on the date of the indenture;
(2) the Credit Agreement or any other agreements as in effect on the date
of the indenture and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in such agreements, as in effect
on the date of the indenture;
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(3) the indenture, the notes and the Subsidiary Guarantees;
(4) applicable law, rules, regulations or orders;
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the indenture
to be incurred;
(6) in the case of clause (3) of the first paragraph of this "Dividend
and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant,
provisions (A) that restrict in a customary manner consistent with past
practices the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or
asset, (B) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by the
indenture or (C) arising or agreed to in the ordinary course of business,
not relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of the Company or
any Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary;
(7) purchase money obligations for assets or property acquired in the
ordinary course of business that impose restrictions on the assets or
property so acquired of the nature described in clause (3) of the preceding
paragraph;
(8) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(10) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets or property subject to such Lien; and
(11) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, asset sale agreements, stock sale
agreements and other similar agreements permitted by the indenture.
Nothing contained in this "Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in the "Liens" covenant or (2) restricting
the sale or other disposition of property or assets of the Company or any of its
Restricted Subsidiaries pursuant to Liens otherwise permitted in the "Liens"
covenant that secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
Merger, Consolidation or Sale of Assets
The Company will not, and the Company will not permit any of its Restricted
Subsidiaries which, singly or together with other Restricted Subsidiaries or the
Company, represent all or substantially all of the assets of the Company and its
Restricted Subsidiaries on a consolidated basis to, directly or indirectly, in a
single transaction or series of related transactions: (1) consolidate or merge
with or into another Person (whether or not the Company or such Restricted
Subsidiary is the surviving corporation); or (2) sell, assign, transfer, convey
or otherwise dispose of all or substantially all of the properties or assets of
the Company and its Subsidiaries taken as a whole to another Person; unless:
(1) either: (a) the Company or such Restricted Subsidiary, as the case
may be, is the surviving corporation; or (b) the Person formed by or
surviving any such consolidation or merger (if other than the Company or
such Restricted Subsidiary) or to which such sale, assignment, transfer,
conveyance or other disposition shall have
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been made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Company or such Restricted Subsidiary) or the Person to
which such sale, assignment, transfer, conveyance or other disposition
shall have been made assumes all the obligations of the Company or such
Restricted Subsidiary (if such Restricted Subsidiary is a Guarantor), as
the case may be, under the notes, the indenture and the registration rights
agreement pursuant to agreements reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) if such transaction involves the Company, the Company or the Person
formed by or surviving any such consolidation or merger (if other than the
Company), or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made will, on the date of such transaction
after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Disqualified Stock."
This "Merger, Consolidation or Sale of Assets" covenant will not apply to a
sale, assignment, transfer, conveyance or other disposition of assets between or
among the Company and any of its Restricted Subsidiaries.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies
with this covenant and that such Affiliate Transaction has been approved
by a majority of the disinterested members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Company or such
Restricted Subsidiary of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking
firm of national standing.
No outside director or non-management director shall be deemed not to be a
"disinterested director" by reason of his receipt of reasonable and customary
directors' fees or the participation in reasonable and customary directors'
stock grant, stock option or stock warrant plans, or such other form of director
remuneration as is reasonable and customary.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of the Company or such Restricted Subsidiary;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries or between or among Restricted Subsidiaries;
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(3) reasonable fees and compensation (including bonuses) paid to, and
indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Subsidiary of the Company as determined
in good faith by the Company's Board of Directors;
(4) any agreement as in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby (including pursuant to any
amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement in effect on
the Issue Date;
(5) loans or advances to officers, directors or employees of the Company
or its Restricted Subsidiaries not in excess of $5.0 million at any one
time outstanding;
(6) the granting or performance of registration rights under a written
registration rights agreement approved by the Board of Directors;
(7) sales of Equity Interests (other than Disqualified Stock) to
Affiliates of the Company; and
(8) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "--Restricted Payments."
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary (including any newly acquired or
formed subsidiary) if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary so designated will be deemed to be a
Restricted Investment made as of the time of such designation and that
designation will only be permitted if such Investment would be permitted at that
time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (1) such
Indebtedness is permitted under the covenant described under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Disqualified
Stock," calculated on a pro forma basis as if such designation had occurred at
the beginning of the four-quarter reference period; and (2) no Default or Event
of Default would be in existence following such designation.
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to transfer, convey, sell, lease or otherwise dispose of any Equity
Interests in any Wholly Owned Restricted Subsidiary of the Company to any Person
(other than the Company or to a Wholly Owned Restricted Subsidiary of the
Company), unless
(1) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Wholly Owned Restricted Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant described
above under the caption "--Repurchase at the Option of Holders--Asset
Sales."
In addition, the Company will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company.
Notwithstanding the foregoing, this covenant shall not prohibit any
issuance or sale of the Capital Stock of any Restricted Subsidiary if
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect to such issuance or sale would have
been permitted to be made under the "Limitation on Restricted Payments" covenant
if made on the date of such issuance or sale.
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Additional Guarantees and Limitations on Issuances of Guarantees of Indebtedness
If the Company or any of its Restricted Subsidiaries acquires or creates
another Domestic Subsidiary after the date of the indenture, then that newly
acquired or created Domestic Subsidiary must become a Guarantor and, within 20
Business Days of the date on which it was acquired or created, execute and
deliver a supplemental indenture providing for the Guarantee of the payment of
the notes by such Domestic Subsidiary on the same basis as the Guarantors on the
date of the indenture and deliver an Opinion of Counsel to the Trustee.
The Company will not permit any Restricted Subsidiary, which is not a
Guarantor, directly or indirectly, to Guarantee or pledge any assets to secure
the payment of any other Indebtedness of the Company unless such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture
providing for the Guarantee of the payment of the notes by such Restricted
Subsidiary, which Guarantee shall be senior to or pari passu with such
Subsidiary's Guarantee of or pledge to secure such other Indebtedness unless
such other Indebtedness is Senior Debt, in which case the Guarantee of the notes
may be subordinated to the Guarantee of such Senior Debt to the same extent as
the notes are subordinated to such Senior Debt. Any Subsidiary's Guarantee of
the notes provided for in this paragraph will provide by its terms that it will
be automatically and unconditionally released and discharged upon the release by
the holders of the Indebtedness of the Company described in the preceding
sentence of their guarantee by such Restricted Subsidiary (including any deemed
release upon payment in full of all obligations under such Indebtedness other
than as a result of payment under such Guarantee). The form of the Guarantee
will be attached as an exhibit to the indenture.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to, engage
in any business other than Permitted Businesses, except to such extent as would
not be material to the Company and its Restricted Subsidiaries taken as a whole;
provided, however, that the Company and any Restricted Subsidiary also may
engage in a business other than a Permitted Business so long as such non-
Permitted Business is acquired in connection with the acquisition of a Permitted
Business and such non-Permitted Business is held for disposition and disposed of
within 365 days of its acquisition.
Payments for Consent
The Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder of notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the indenture or the notes unless
such consideration is offered to be paid and is paid to all Holders of the notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the Commission, so long as any notes are
outstanding (unless defeased in a Legal Defeasance), the Company will furnish to
the Holders of notes, within the time periods specified in the Commission's
rules and regulations (including any extensions permitted thereunder):
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if
the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by the Company's certified independent accountants;
and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
In addition, whether or not required by the Commission, the Company will
file a copy of all of the information and reports referred to in clauses (1) and
(2) above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request if not obtainable from the
Commission. In addition, the Company and the Subsidiary Guarantors have agreed
that, for so long as any notes remain outstanding, they will furnish to the
Holders and to securities analysts and prospective investors, upon
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their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act if not obtainable from the Commission.
If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then, to the extent that any such Unrestricted Subsidiary or group
of Unrestricted Subsidiaries would (but for its or their being designated as an
Unrestricted Subsidiary or Subsidiaries) constitute a Significant Subsidiary or
Subsidiaries, the quarterly and annual financial information required by the
preceding paragraph shall include a reasonably detailed presentation, either on
the face of the financial statements or in the footnotes thereto, and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the notes whether or not prohibited by
the subordination provisions of the indenture;
(2) default in payment when due of the principal of, or premium, if any,
on the notes, whether or not prohibited by the subordination provisions of
the indenture;
(3) failure by the Company or any of its Restricted Subsidiaries to
comply with the provisions described under the captions "--Repurchase at
the Option of Holders--Change of Control," "--Repurchase at the Option of
Holders--Asset Sales" or "--Certain Covenants--Merger, Consolidation or
Sale of Assets;"
(4) a default in the observance or performance of any other covenant or
agreement contained in the indenture which continues for a period of 45
days after the Company receives written notice specifying the default (and
demanding that such default be remedied) from the Trustee or the Holders of
at least 25% of the outstanding principal amount of the notes;
(5) default by the Company or any Restricted Subsidiary under any
mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the
date of the indenture, if that default:
(a) is caused by a failure to make any payment when due at final
maturity of any such Indebtedness (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$15.0 million or more, provided that if any such default is cured or waived or
any such acceleration rescinded, or such Indebtedness is repaid, within a period
of 10 days after the occurrence of such Payment Default or acceleration, such
Event of Default under the indenture and any consequential acceleration of the
notes shall be automatically rescinded, so long as (x) such rescission does not
conflict with any judgment or decree and (y) there is no other Indebtedness
outstanding under which there has been a default which has not been cured or
waived or an acceleration which has not been rescinded or the Indebtedness not
repaid;
(6) failure by the Company or any of its Significant Subsidiaries to pay
final judgments not covered by insurance aggregating in excess of $15.0
million, which judgments are not paid, discharged or stayed for a period of
60 days;
(7) except as permitted by the indenture, any Guarantee of any
Significant Subsidiary or one or more Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any authorized
Person acting on behalf of any Guarantor, shall deny or disaffirm its
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obligations under its Subsidiary Guarantee (other than by reason of release
in accordance with the indenture); and
(8) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries or a Guarantor.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Significant
Subsidiary, all outstanding notes will become due and payable immediately
without further action or notice. Upon the happening of any other Event of
Default specified in the indenture, the Trustee or the Holders of at least 25%
in principal amount of outstanding notes may declare the principal of and
accrued interest on all the notes to be due and payable by notice in writing to
the Company and (if from the Holders) the Trustee specifying the respective
Event of Default and that it is a "notice of acceleration", and upon receipt of
such notice the same shall become due and payable upon the first to occur of an
acceleration under any issue of then outstanding Designated Senior Debt or five
Business Days after receipt by the Company and each Representative of holders of
Designated Senior Debt then outstanding of such notice of acceleration, unless
all Events of Default specified in their respective notices of acceleration
shall have been cured within said five Business Day period.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest or Liquidated
Damages) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest or Liquidated Damages on, or the principal of, the notes, and may
rescind and cancel any declaration of acceleration and its consequences other
than an acceleration for nonpayment of interest or Liquidated Damages on, or the
principal, of the notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or the Guarantors under the notes, the indenture, the Subsidiary
Guarantees or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, choose to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding notes ("Legal Defeasance"). This means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
outstanding notes, except for:
(1) the rights of holders of the notes to receive payments in respect of
the principal of, premium, if any, and interest and Liquidated Damages, if
any, on the notes when such payments are due,
(2) the Company's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payments,
(3) the rights, powers, trust, duties and immunities of the Trustee and
the Company's obligations in connection therewith, and
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(4) the Legal Defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, choose to have
the obligations of the Company released with respect to certain covenants that
are described in the indenture ("Covenant Defeasance"). Thereafter, any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the notes. In the event Covenant Defeasance occurs,
certain events (not including nonpayment, bankruptcy, receivership,
reorganization and insolvency events) described under "Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the holders of the notes, cash in U.S. dollars, noncallable
U.S. government obligations, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
and interest and Liquidated Damages on the notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be;
(2) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel reasonably acceptable to the Trustee
confirming that:
(a) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or
(b) since the date of the indenture, there has been a change in the
applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the holders of the notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case had such Legal Defeasance not
occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel reasonably acceptable to the Trustee
confirming that the holders of the notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case had
such Covenant Defeasance not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either:
(a) on the date of such deposit, or
(b) insofar as Events of Default from bankruptcy or insolvency are
concerned, at any time in the period ending on the 91st day after the
date of deposit
other than a Default or Event of Default with respect to the indenture resulting
from the incurrence of Indebtedness, all or a portion of which will be used to
defease the notes concurrently with such incurrence;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, the indenture,
except with respect to the incurrence of Indebtedness as described in
clause (4) above, or any other material agreement or instrument to which
the Company or any of its Restricted Subsidiaries is a party or by which
the Company or any of its Restricted Subsidiaries is bound;
(6) the Company shall have delivered to the Trustee an officer's
certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of the notes over any other creditors of
the Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others;
(7) the Company shall have delivered to the Trustee an officer's
certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or Covenant
Defeasance have been complied with;
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(8) the Company shall have delivered to the Trustee an opinion of counsel
to the effect that:
(a) the trust funds will not be subject to any rights of holders of
Indebtedness of the Company other than the notes, and
(b) assuming no intervening bankruptcy of the Company between the date
of the deposit and the 91st day following the deposit and that no Holder
of the notes is an insider of the Company, after the 91st day following
the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and
(9) certain other customary conditions precedent are satisfied.
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the indenture
or the notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions, or waive any payment, with respect to the redemption
of the notes;
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of,
or interest or premium, or Liquidated Damages, if any, on the notes (except
a rescission of acceleration of the notes by the Holders of at least a
majority in aggregate principal amount of the notes and a waiver of the
payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of Holders of notes to receive
payments of principal of, or interest or premium or Liquidated Damages, if
any, on the notes;
(7) release any Guarantor from any of its obligations under its
Subsidiary Guarantee or the indenture, except in accordance with the terms
of the indenture;
(8) modify the obligations of the Company to make offers to purchase
notes and Additional Notes, if any, (i) upon a Change of Control after the
occurrence of a Change of Control or (ii) from the proceeds of one or more
Asset Sales after the aggregate amount of Excess Proceeds from such Asset
Sales exceeds $10.0 million; or
(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the
indenture relating to subordination that adversely affects the rights of the
Holders of the notes will require the consent of the Holders of at least 66 2/3%
in aggregate principal amount of notes then outstanding.
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Notwithstanding the preceding, without the consent of any Holder of notes,
the Company, the Guarantors and the Trustee may amend or supplement the
indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of the Company's or any Guarantor's
obligations to Holders of notes in the case of a merger or consolidation or
sale of all or substantially all of the Company's or such Guarantor's
assets;
(4) to make any change that would provide any additional rights or
benefits to the Holders of notes or that does not adversely affect the
legal rights under the indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated (except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has theretofore been deposited in trust or held in trust by
the Company and thereafter repaid to the Company) have been delivered to
the Trustee for cancellation; or
(b) all notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the making of a
notice of redemption or otherwise or will become due and payable within
one year and the Company or any Guarantor has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust solely
for the benefit of the Holders, cash in U.S. dollars, noncallable
Government Securities, or a combination thereof, in such amounts as will
be sufficient without consideration of any reinvestment of interest, to
pay and discharge the entire indebtedness on the notes not delivered to
the Trustee for cancellation for principal, premium and Liquidated
Damages, if any, and accrued interest to the date of maturity or
redemption;
(2) no Default or Event of Default (other than a Default or Event of
Default resulting from the incurrence of Indebtedness all or a portion of
which will be used to discharge the notes concurrently with such
incurrence) shall have occurred and be continuing on the date of such
deposit or shall occur as a result of such deposit and such deposit will
not result in a breach or violation of, or constitute a default under, any
other material instrument to which the Company or any Guarantor is a party
or by which the Company or any Guarantor is bound;
(3) the Company or any Guarantor has paid or caused to be paid all other
sums payable by it under the indenture; and
(4) the Company has delivered irrevocable instructions to the Trustee
under the indenture to apply the deposited money toward the payment of the
notes at maturity or the redemption date, as the case may be.
In addition, the Company must deliver an Officers' Certificate and an
Opinion of Counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
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Concerning the Trustee
If the Trustee becomes a creditor of the Company or any Guarantor, the
indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
Holder of notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to Just for Feet, Inc.,
7400 Cahaba Valley Road, Birmingham, Alabama 35242, Attention: Chief Financial
Officer.
Book-Entry, Delivery and Form
Except as set forth below, exchange notes will be issued in registered,
global form in minimum denominations of $1,000 and integral multiples of $1,000
in excess thereof.
The exchange notes initially will be represented by one or more exchange
notes in registered, global form without interest coupons (collectively, the
"Global Notes"). The Global Notes will be deposited upon issuance with the
Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New
York, and registered in the name of DTC or its nominee, in each case for credit
to an account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"--Exchange of Global Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of notes in certificated
form.
Transfers of beneficial interests in the Global Notes will be subject to
the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of Euroclear and Cedel), which may
change from time to time.
Depository Procedures
The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the
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Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established
by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchaser with portions of the
principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on,
and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
Investors in the Global Notes who are Participants in DTC's system may hold
their interests therein directly through DTC. Investors in the Global Notes who
are not Participants may hold their interests therein indirectly through
organizations (including Euroclear and Cedel) which are Participants in such
system. Euroclear and Cedel will hold interests in the Global Notes on behalf
of their participants through customers' securities accounts in their respective
names on the books of their respective depositories, which are Morgan Guaranty
Trust Company of New York, Brussels office, as operator of Euroclear, and
Citibank, N.A., as operator of Cedel. All interests in a Global Note, including
those held through Euroclear or Cedel, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or Cedel may also be
subject to the procedures and requirements of such systems. The laws of some
states require that certain Persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such Persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants, the ability of a Person having beneficial interests in
a Global Note to pledge such interests to Persons that do not participate in the
DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interest in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
"Holders" thereof under the indenture for any purpose.
Payments in respect of the principal of, and interest and premium and
Liquidated Damages, if any, on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the indenture. Under the terms of the indenture, the Company and the
Trustee will treat the Persons in whose names the notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving
payments and for all other purposes. Consequently, neither the Company, the
Trustee nor any agent of the Company or the Trustee has or will have any
responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(2) any other matter relating to the actions and practices of DTC or
any of its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the notes, and the Company and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
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Transfers of exchange notes represented by interests in the Global Notes
between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Cedel will be effected in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to old
notes, cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Cedel, as the case may be,
by the counter-party in such system in accordance with the rules and procedures
and within the established deadlines (Brussels time) of such system. Euroclear
or Cedel, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant Global Note in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
Euroclear participants and Cedel participants may not deliver instructions
directly to the depositories for Euroclear or Cedel.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the notes, DTC reserves the right
to exchange the Global Notes for legended notes in certificated form, and to
distribute such notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to continue
to perform such procedures, and may discontinue such procedures at any time.
Neither the Company nor the Trustee nor any of their respective agents will have
any responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for definitive exchange notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies the Company that it is unwilling or unable to
continue as depositary for the Global Notes and the Company fails to
appoint a successor depositary or (b) has ceased to be a clearing agency
registered under the Exchange Act;
(2) the Company, at its option, notifies the Trustee in writing that
it elects to cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and will bear the applicable restrictive legend referred to in
"Notice to Investors," unless that legend is not required by applicable law.
Same Day Settlement and Payment
The Company will make payments in respect of the notes represented by the
Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. The Company will make all payments of
principal, interest and premium and Liquidated Damages, if any, with respect to
Certificated Notes by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is specified,
by mailing a check to each such Holder's registered address. The notes
represented by the Global Notes are expected to be
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eligible to trade in the PORTAL market and to trade in DTC's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
notes will, therefore, be required by DTC to be settled in immediately available
funds. The Company expects that secondary trading in any Certificated Notes will
also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. DTC has advised the Company that cash received in
Euroclear or Cedel as a result of sales of interests in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
Registration Rights; Liquidated Damages
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the proposed form of registration rights agreement
in its entirety because it, and not this description, defines your registration
rights as Holders of notes. See "--Additional Information."
The Company, the Guarantors and the Initial Purchasers entered into the
registration rights agreement on April 15, 1999 prior to the closing of the
offering of the old notes. Pursuant to the registration rights agreement, the
Company and the Guarantors agreed to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to the exchange notes. Upon the effectiveness of the Exchange Offer
Registration Statement of which this prospectus is a part, the Company and the
Guarantors will offer to the Holders of old notes pursuant to the exchange offer
who are able to make certain representations the opportunity to exchange their
old notes for exchange notes.
The Company has agreed, subject to the terms and conditions in the
registration rights agreement, to make available for a period of up to 180 days
after the consummation of the exchange offer a prospectus meeting the
requirements of the Securities Act to any broker dealer that acquired exchange
notes for its own account as a result of market-making or other trading
activities for use in connection with any resale of such exchange notes.
If:
(1) the Company and the Guarantors are not permitted to consummate the
Exchange Offer because the exchange offer is not permitted by applicable
law or Commission policy; or
(2) any Holder of notes notifies the Company prior to the 20th day
following consummation of the exchange offer that:
(a) it is prohibited by law or Commission policy from
participating in the exchange offer; or
(b) that it may not resell the exchange notes acquired by it in
the Exchange Offer to the public without delivering a prospectus and
the prospectus contained in the Exchange Offer Registration Statement
is not appropriate or available for such resales; or
(c) that it is a broker-dealer and owns notes acquired directly
from the Company or an affiliate of the Company,
the Company and the Guarantors will file with the Commission a Shelf
Registration Statement to cover resales of the notes by the Holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement.
The Company and the Guarantors will use their best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission.
The registration rights agreement provides:
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(1) the Company and the Guarantors would file an Exchange Offer
Registration Statement of which this prospectus is a part with the
Commission on or prior to the sixtieth day after the issuance of the old
notes;
(2) the Company and the Guarantors will use their best efforts to have
the Exchange Offer Registration Statement declared effective by the
Commission on or prior to September 12, 1999;
(3) unless the exchange offer would not be permitted by applicable law
or Commission policy, the Company and the Guarantors will
(a) commence the exchange offer; and
(b) use their best efforts to issue on or prior to 30 business
days, or longer, if required by the federal securities laws, after the
date on which the Exchange Offer Registration Statement was declared
effective by the Commission, exchange notes in exchange for all old
notes properly tendered prior thereto in the exchange offer; and
(4) if obligated to file the Shelf Registration Statement, the Company
and the Guarantors will use their best efforts to file the Shelf
Registration Statement with the Commission on or prior to 30 days after
such filing obligation arises and to cause the Shelf Registration to be
declared effective by the Commission on or prior to 90 days after such
obligation arises.
If:
(1) the Company and the Guarantors fail to file any of the
registration statements required by the registration rights agreement on or
before the date specified for such filing; or
(2) any of such registration statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness
(the "Effectiveness Target Date"); or
(3) the Company and the Guarantors fail to consummate the exchange
offer within 30 business days of the Effectiveness Target Date with respect
to the Exchange Offer Registration Statement; or
(4) the Shelf Registration Statement is declared effective but
thereafter, pending the announcement of a material corporate transaction,
the Company issues a notice that the Shelf Registration Statement is
unusable, or such notice is required under applicable securities laws to be
issued by the Company, and, during the period specified in the registration
rights agreement, the aggregate number of days in any consecutive
twelvemonth period for which all such notices are issued or required to be
issued exceeds 45 days; or
(5) the Exchange Offer Registration Statement is declared effective
but thereafter ceases to be effective or usable in connection with
exchanges or sales of notes during the periods specified in the
registration rights agreement (in the case of sales of notes, after the
consummation of the exchange offer, by broker-dealers who acquired such
notes as a result of market-making activities, for an aggregate number of
days in excess of 45 days) (each such event referred to in clauses (1)
through (5) above, a "Registration Default"),
then the Company and the Guarantors will pay Liquidated Damages to each Holder
of old notes, with respect to the first 90 day period immediately following the
occurrence of the first Registration Default in an amount equal to $.05 per week
per $1,000 principal amount of old notes held by such Holder.
The amount of the Liquidated Damages will increase by an additional $.05
per week per $1,000 principal amount of old notes with respect to each
subsequent 90 day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages for all Registration Defaults of $.50 per
week per $1,000 principal amount of old notes.
All accrued Liquidated Damages will be paid by the Company and the
Guarantors on each Damages Payment Date to the Global Note Holder by wire
transfer of immediately available funds or by federal funds check and to Holders
of Certificated Notes by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
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Holders of old notes will be required to make certain representations to
the Company (as described in the registration rights agreement) in order to
participate in this exchange offer and will be required to deliver certain
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the registration rights agreement in order to have their notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above. By acquiring notes, a Holder will
be deemed to have agreed to indemnify the Company and the Guarantors against
certain losses arising out of information furnished by such Holder in writing
for inclusion in any Shelf Registration Statement. Holders of notes will also be
required to suspend their use of the prospectus included in the Shelf
Registration Statement under certain circumstances upon receipt of written
notice to that effect from the Company.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights; provided that the sale, conveyance or other disposition of all or
substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
indenture described above under the caption "--Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above under the
caption "--Certain Covenants--Merger, Consolidation or Sale of Assets" and
not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of the Company's
Restricted Subsidiaries or the sale of Equity Interests in any of its
Restricted Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value (or, if an issuance of Equity
Interests, generating net proceeds) of less than $2.0 million in any twelve
month period;
(2) a transfer of assets between or among the Company and its Wholly
Owned Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary;
(4) the sale, discount, factoring or lease, as the case may be, of
equipment, inventory, accounts receivable or other assets in the ordinary
course of business;
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(5) the exchange of any assets held by the Company or a Guarantor for
assets held by any person or entity; provided that (i) the assets received
by the Company or a Guarantor in any such exchange in the good faith
reasonable judgment of the Board of Directors of the Company will
immediately constitute, be a part of, or be used in, a Permitted Business,
(ii) the Board of Directors of the Company has determined that the terms of
any exchange are fair and reasonable, and (iii) any such exchange shall be
deemed to be an Asset Sale to the extent that the Company or Guarantor
receives cash or Cash Equivalents in such exchange;
(6) the licensing of intellectual property in the ordinary course of
business;
(7) disposals or replacements of obsolete equipment in the ordinary
course of business;
(8) the sale or other disposition of cash or Cash Equivalents;
(9) any sale, conveyance, disposition or other transfer of the Equity
Interests of an Unrestricted Subsidiary or Restricted Investment; and
(10) a Restricted Payment or Permitted Investment that is permitted
by the covenant described above under the caption "--Certain Covenants--
Restricted Payments."
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the
general partner of the partnership; and
(3) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof) having maturities of not more than one year from the date
of acquisition;
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(3) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank
deposits, in each case, with institutional lenders having capital and
surplus in excess of $500.0 million and chartered or organized in the
United States.
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of the Company and its Restricted Subsidiaries, taken
as a whole, to any "person" (as that term is used in Section 13(d)(3) of
the Exchange Act) other than the Principal or a Related Party of the
Principal;
(2) the adoption of a plan relating to the liquidation or dissolution
of the Company;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principal and his Related
Parties, becomes the Beneficial Owner, directly or indirectly, of more than
50% of the Voting Stock of the Company, measured by voting power rather
than number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors; or
(5) the Company consolidates with, or merges with or into, any Person,
or any Person consolidates with, or merges with or into, the Company, in
any such event pursuant to a transaction in which any of the outstanding
Voting Stock of the Company or such other Person is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of the Company outstanding immediately
prior to such transaction is converted into or exchanged for Voting Stock
(other than Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting Stock of
such surviving or transferee Person (immediately after giving effect to
such issuance) and no Person, other than the Principal and his Related
Parties, becomes the Beneficial Owner, directly or indirectly, of more than
50% of such Voting Stock, measured by voting power rather than number of
shares.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized by any such Person or any of its Restricted Subsidiaries in
connection with an Asset Sale, to the extent such losses were deducted in
computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income;
plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, noncash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings,
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and net of the effect of all payments made or received pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing
such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other noncash expenses (excluding any such
noncash expense to the extent that it represents an accrual of or reserve
for cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation,
amortization and other noncash expenses were deducted in computing such
Consolidated Net Income; minus
(5) noncash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other noncash expenses
of, a Restricted Subsidiary of the Company shall be added to Consolidated Net
Income to compute Consolidated Cash Flow of the Company only to the extent that
a corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the specified Person or a Wholly Owned
Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall
be excluded.
"Contingent Payment Agreement" means the Contingent Payment Agreement dated
as of July 2, 1998 made by the Company, for the benefit of Banque Nationale de
Paris, for itself and as agent for itself and for Merrill Lynch Senior Floating
Rate Fund, Inc., Merrill Lynch Prime Rate Portfolio and Merrill Lynch Debt
Strategies Portfolio and, subject to the limitations provided therein, for the
benefit of the persons or entities listed on Schedule I thereto.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the date of the
indenture; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Credit Agreement" means that certain Credit Agreement, dated as of
December 10, 1998 and amended as of January 29, 1999, February 23, 1999, and
March 24, 1999 by and among the Company, as Borrower, the Guarantors named
therein, NationsBank, N.A., as Administrative Agent, Compass Bank, as
Documentation Agent, First Union National Bank, Marine Midland Bank, SouthTrust
Bank, N.A. and SunTrust Bank, Atlanta, as Co-Agents, and the lenders named
therein, including any related notes, guarantees, collateral documents,
instruments
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and agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business and designed to protect against or manage
exposure to fluctuations in foreign currency exchange rates.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Domestic Subsidiary" means any Restricted Subsidiary that was formed under
the laws of the United States or any state thereof or the District of Columbia.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means a sale of Equity Interests (other than Disqualified
Stock) of the Company.
"Existing Indebtedness" means the aggregate principal amount of
Indebtedness of the Company and its Subsidiaries (other than Indebtedness under
the Credit Agreement) in existence on the date of the indenture, until such
amounts are repaid, including for this purpose amounts due in respect of the
Company's earnout obligations under the Contingent Payment Agreement.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued,
including, without limitation, amortization of debt issuance costs and
original issue discount, noncash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net of the effect of all payments made or
received pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of preferred stock of such Person or
any of its Restricted Subsidiaries, other than dividends on Equity
Interests
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payable solely in Equity Interests of the Company (other than Disqualified
Stock) or to the Company or a Restricted Subsidiary of the Company, times
(b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory
tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, repays, repurchases or redeems any Indebtedness or issues,
repurchases or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated and on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom as if the same had occurred at the beginning of the
applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated on a
pro forma basis in accordance with Regulation S-X under the Securities Act,
but without giving effect to clause (3) of the proviso set forth in the
definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded;
and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date.
For purposes of this definition, whenever pro forma effect is to be given
to a transaction, the pro forma calculations shall be made in good faith by a
responsible financial or accounts officer of the Company.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect as of the date of the indenture.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each of:
(1) Sneaker Stadium, Inc., Just For Feet of Texas, Inc., Just For Feet
of Nevada, Inc., Just For Feet Specialty Stores, Inc., SNKR Holding Corp.
and Athletic Attic Marketing, Inc; and
(2) any other subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the indenture;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
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(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Restricted Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Restricted Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Restricted Subsidiary not sold
or disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Certain Covenants--Restricted
Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Make-Whole Premium" means, with respect to a note on any date of
redemption, the excess of (A) the present value at such date of redemption of
all remaining required interest payments (exclusive of interest accrued and
unpaid to the date of redemption) and principal payments due on such note and
all premium payments relating thereto assuming a redemption date of May 1, 2004,
computed using a discount rate equal to the Treasury Rate plus 75 basis points,
over (B) the then outstanding principal amount of such note.
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"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with: (a) any
Asset Sale; or (b) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
noncash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, in each
case, after taking into account any available tax credits or deductions and any
tax sharing arrangements, and amounts required to be applied to the repayment of
Indebtedness, other than Indebtedness under a Credit Facility of the Company or
a Restricted Subsidiary, secured by a Lien on the asset or assets that were the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable as a guarantor or otherwise, or (c)
(except to the extent that either the Company or such Restricted Subsidiary
could make a Restricted Investment in the aggregate principal amount of
such loan pursuant to the covenant described under "--Certain Covenants--
Restricted Payments") constitutes the lender;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the notes) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any retail business engaged primarily in the
footwear business, the related apparel business, the sports business, the
athletic equipment business or any combination thereof and any related,
ancillary or complementary business.
"Permitted Investments" means:
(1) any Investment in the Company or in a Wholly Owned Restricted
Subsidiary of the Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment:
(a) such Person becomes a Wholly Owned Restricted Subsidiary of
the Company; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or
is liquidated into, the Company or a Wholly Owned Restricted
Subsidiary of the Company;
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(4) any Investment made as a result of the receipt of noncash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales;"
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company;
(6) Hedging Obligations;
(7) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP;
(8) stock, obligations or securities received in satisfaction of
judgments or good faith settlement of litigation, disputes or other debts;
(9) investments in prepaid expenses, negotiable instruments held for
collection and lease, utility, workers' compensation and similar deposits;
(10) loans or advances to officers, directors or employees of the
Company or its Restricted Subsidiaries not in excess of $5.0 million at any
one time outstanding;
(11) accounts receivable owing to the Company or any Restricted
Subsidiary created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms, provided
that such terms may include such concessionary trade terms as the Company
or such Restricted Subsidiary deems reasonable under the circumstances; and
(12) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with
outstanding Investments made pursuant to this clause (12) since the date of
the indenture, not to exceed $10.0 million.
"Permitted Liens" means:
(1) Liens on the assets of the Company and any Guarantor securing
Senior Debt that was permitted by the terms of the indenture to be
incurred;
(2) Liens in favor of the Company or any Restricted Subsidiary;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior
to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with
the Company or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition and
do not extend to any property other than the property so acquired by the
Company or the Restricted Subsidiary;
(5) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Disqualified Stock" covering only the assets acquired with such
Indebtedness;
(6) Liens on Indebtedness or other agreements in effect on the Issue
Date;
(7) Liens securing Indebtedness incurred by a non-Domestic Subsidiary
of the Company as permitted under clause (15) of the second paragraph of
the covenant described under "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Disqualified Stock;"
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(8) Liens for taxes, assessments or government charges or claims which
are not yet delinquent or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if
a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor;
(9) statutory Liens or landlords', carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate process of
law, if a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made therefor;
(10) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance and return-of-money bonds and other
obligations of like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money);
(11) Liens on goods (and the proceeds thereof) and documents of title
and the property covered thereby securing indebtedness in respect of
commercial letters of credit; and
(12) Liens incurred in the ordinary course of business of the Company
or any Restricted Subsidiary of the Company with respect to obligations
that do not exceed $5.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries (including Acquired Indebtedness) issued
in exchange for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund other Indebtedness of the Company or any of
its Restricted Subsidiaries (other than inter-company Indebtedness); provided
that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest thereon
and the amount of any reasonably determined premium necessary to accomplish
such refinancing and such reasonable expenses incurred in connection
therewith);
(2) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is equal to or subordinated in right of payment to the
notes, such Permitted Refinancing Indebtedness (A) has a final maturity
date later than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (B) is equal to or subordinated in right of
payment to the notes on terms at least as favorable to the Holders of notes
as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(3) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Principal" means Harold Ruttenberg.
"Related Party" means:
(1) any controlling stockholder, 80% (or more) owned Subsidiary, or
immediate family member (in the case of an individual) of any Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of which consist of any one or
more Principals and/or such other Persons referred to in the immediately
preceding clause (1).
"Restricted Investment" means an Investment other than a Permitted
Investment.
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"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any direct or indirect Restricted Subsidiary
of the Company that would, at the date of determination, qualify as a
"significant subsidiary" within the meaning of such term under Rule 102(w) of
Regulation S-X under the Securities Exchange Act of 1934, as amended.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two Business Days prior to the date
fixed for prepayment (or, if such Statistical Release is no longer published,
any publicly available source for similar market data)) most nearly equal to the
then remaining term of the notes to May 1, 2004; provided, however, that if the
then remaining term to May 1, 2004 is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the then
remaining term of the notes to May 1, 2004 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt, provided that if
any such Indebtedness ceases to be Non-Recourse Debt (other than by virtue
of the immediately following proviso), such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company that was not permitted under the Indenture; provided, further, that
the Company or a Restricted Subsidiary of the Company may Guarantee,
endorse, agree to provide funds for the payment or maintenance of, or
otherwise become directly or indirectly liable with respect to,
Indebtedness of an Unrestricted Subsidiary, but only to the extent that the
Company or such Restricted Subsidiary could make a Restricted Investment in
such Unrestricted Subsidiary pursuant to the covenant described under
"--Certain Covenants--Restricted Payments," and any such Guarantee,
endorsement or agreement shall be deemed an incurrence of Indebtedness by
the Company for the purposes of the covenant described under "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock;"
(2) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
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(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries.
Any designation of a Restricted Subsidiary of the Company as an
Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the preceding conditions and was permitted by the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the preceding
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Disqualified
Stock," the Company shall be in default of such covenant.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest one-
twelfth) that will elapse between such date and the making of such payment;
by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes material U.S. federal income tax
considerations associated with the exchange of the old notes for the exchange
notes pursuant to the exchange offer and the ownership and disposition of the
notes. The summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations, rulings and judicial decisions as of the date of
this prospectus, all of which may be repealed, revoked or modified with possible
retroactive effect. This summary is limited to investors who will hold the notes
as capital assets within the meaning of Section 1221 of the Code and does not
deal with holders that may be subject to special tax rules including, but not
limited to:
. insurance companies;
. tax-exempt organizations;
. financial institutions;
. dealers in securities or currencies;
. traders in securities electing to mark to market;
. holders whose functional currency is not the U.S. dollar;
. holders who will hold the notes as a hedge against currency risks or as
part of a straddle, synthetic security, conversion transaction or other
integrated investment comprised of the notes and one or more other
investments or;
. except to the extent discussed below, Non-U.S. Holders (as defined
below).
The summary is applicable only to persons who tender their old notes in exchange
for newly issued exchange notes and does not address other purchasers. This
summary is for general information only and does not address all aspects of
federal income taxation that may be relevant to holders of the notes in light of
their particular circumstances. It does not address any tax consequences arising
under the laws of any state, local or foreign taxing jurisdiction.
You should consult your own tax advisor as to the particular tax
consequences to you of the exchange of old notes for exchange notes and the
ownership and disposition of the notes, including the applicability of any
federal estate or gift tax laws, any state, local, or foreign tax laws, any
changes in applicable tax laws, and any pending or proposed legislation or
regulations. We have not asked for or received an opinion of counsel with regard
to the following discussion of federal income tax consequences.
As used herein, the term "U.S. Holder" means a holder of notes that is:
. a citizen or resident of the United States for U.S. federal income tax
purposes;
. a corporation or entity taxed as a corporation created or organized
under the laws of the United States, any state in the U.S. or the
District of Columbia;
. an estate, the income of which is subject to United States federal
income tax without regard to its source; or
. a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions
of the trust.
A "Non-U.S. Holder" is any beneficial holder that is not a U.S. Holder.
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Effect of Exchange Offer
There will be no U.S. federal income tax consequences to anyone exchanging
an old note for an exchange note pursuant to the exchange offer. You will have
the same adjusted basis and holding period in the exchange note as you had in
the old note immediately before the exchange.
U.S. Taxation of U.S. Holders
Stated interest on notes. Stated interest on a note generally will be
included in the gross income of a U.S. Holder as ordinary income at the time it
accrues or is received in accordance with the U.S. Holder's method of accounting
for U.S. federal income tax purposes.
Disposition of the notes. Upon the sale, exchange, redemption, retirement
or other disposition of a note (collectively, a "Disposition"), a U.S. Holder
generally will recognize gain or loss equal to the difference between the amount
realized upon the Disposition, except to the extent such amount is attributable
to accrued but unpaid interest which will be taxable as such, and such holder's
adjusted tax basis in the note. A U.S. Holder's adjusted tax basis in a note
will, in general, be the U.S. Holder's cost for that note. This gain or loss
will be capital gain or loss. Net capital gain (i.e., generally capital gain in
excess of capital loss) recognized by an individual U.S. Holder upon the
disposition of a note that has been held for more than one year generally will
be subject to tax at a maximum rate of 20%. Gain from the Disposition of a note
that has been held for one year or less will be taxed at ordinary income tax
rates. The deductibility of capital losses is subject to limitations.
Market discount. U.S. Holders, other than original purchasers of the old
notes, should be aware that the sale of the exchange notes may be affected by
the market discount provisions of the Code. The market discount rules generally
provide that if a U.S. Holder of a note
. purchased the note, after the original offering, at a "market discount"
(i.e., at an amount less than the adjusted issue price of the note as
determined on the date of such purchase) exceeding a statutorily defined
de minimis amount, and
. thereafter recognizes gain upon a disposition, including a partial
redemption, of the exchange note received in exchange for an old note,
the lesser of such gain or the portion of the market discount that accrued while
the old note and exchange note were held by such U.S. Holder will be treated as
ordinary interest income at the time of disposition. The rules also provide that
a U.S. Holder who acquires a note at a market discount may be required to defer
a portion of any interest expense that may otherwise be deductible on any
indebtedness incurred or maintained to purchase or carry the note until the U.S.
Holder disposes of such note in a taxable transaction. If a holder of such a
note elects to include market discount in income currently, neither of the
foregoing rules would apply.
Non-U.S. Holders
Interest on the notes. Under present U.S. federal income tax law, subject
to the discussion of backup withholding and information reporting below,
payments of principal and interest on the notes to any Non-U.S. Holder will not
be subject to U.S. federal income or withholding tax provided that:
. the Non-U.S. Holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock entitled to
vote of Just For Feet, Inc.;
. the Non-U.S. Holder is not a controlled foreign corporation that is
related to Just For Feet, Inc., directly or indirectly, through stock
ownership;
. such interest payments are not effectively connected with a United
States trade or business; and
. the beneficial owner of the note provides, either directly or through a
financial institution that holds the note on behalf of the non-U.S.
Holder and that holds customers' securities in the ordinary course of
its trade or business, us or our agent an IRS Form W-8 or a
substantially similar substitute form, signed under penalties of
perjury, that it is not a United States person and provides its name and
address.
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Disposition of the notes. A Non-U.S. Holder will not be subject to U.S.
federal income tax on gain realized on the Disposition of a note, unless
. the gain is effectively connected with a trade or business carried on by
such holder within the United States or, if a treaty applies,
attributable to the United States permanent establishment maintained by
the holder, or
. the holder is an individual who is present in the United States for 183
days or more in the taxable year of disposition and certain other
requirements are met.
Backup Withholding and Information Reporting
Backup withholding of U.S. federal income tax at a rate of 31% may apply to
payments made in respect of the notes to a holder who is not an "exempt
recipient" and who fails to provide identifying information, such as the
holder's taxpayer identification number, in the required manner. Generally,
individuals are not exempt recipients, whereas corporations and certain other
entities generally are exempt recipients. Payments made in respect of notes to a
U.S. Holder must be reported to the IRS, unless the U.S. Holder is an exempt
recipient or establishes an exemption. A Non-U.S. Holder who provides an IRS
Form W-8 generally will not be subject to backup withholding.
Upon the sale of a note to, or through, a broker, the broker must withhold
31% of the entire purchase price unless either (1) the broker determines that
the seller is a corporation or other exempt recipient or (2) the seller
provides, in the required manner, identifying information and, in the case of a
Non-U.S. Holder, certifies that such seller is a Non-U.S. Holder, and that other
conditions are met. Such a sale must also be reported by the broker to the IRS,
unless either (1) the broker determines that the seller is an exempt recipient
or (2) the seller certifies that it is a Non-U.S. Holder.
The amount of any backup withholding imposed on a payment to a holder will
be allowed as a credit against such holder's U.S. federal income tax liability
and may entitle such holder to a refund, provided that the required information
is furnished to the IRS.
Final United States Treasury Department regulations modify the backup and
withholding and information reporting requirements in certain respects for
payments made after December 31, 1999. It is possible that the Company and
other withholding agents may request a new withholding exemption form from
holders in order to qualify for continued exemption from withholding under the
Treasury Regulations when they become effective. Prospective investors,
including foreign partnerships and their partners, should consult their tax
advisors regarding possible additional reporting requirements.
The Foregoing Discussion of Certain Federal Income Tax Consequences is For
General Information Only and each Prospective Holder Should Consult His Own Tax
Adviser With Respect to the Tax Consequences to Him of the Acquisition,
Ownership and Disposition of a Note (Including the Applicability And Effect of
State, Local, Foreign And Other Tax Laws).
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PLAN OF DISTRIBUTION
Except as provided herein, this prospectus may not be used for an offer to
resell, a resale or other transfer of exchange notes. Under existing SEC
interpretations set forth in no-action letters, we believe that the exchange
notes may be offered for resale, resold and otherwise transferred, other than by
our affiliates within the meaning of Rule 405 under the Securities Act, without
further compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that the exchange notes are acquired in the
ordinary course of business and the holders have no arrangement or understanding
with any person to participate in the distribution (within the meaning of the
Securities Act) of the exchange notes. Any holder who is one of our affiliates
or who intends to participate in the exchange offer for the purpose of
distributing the exchange notes:
. will not be able to rely on the existing SEC interpretations set forth
in no-action letters;
. will not be able to tender its old notes; and
. must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer
transaction unless such sale or transfer is made pursuant to an
exemption from such requirements.
A participating broker-dealer holding old notes may participate in the
exchange offer provided that it acquired the old notes for its own account as a
result of market-making or other trading activities. In connection with any
resales of exchange notes, any participating broker-dealer who receives exchange
notes in the exchange offer may be an "underwriter," within the meaning of the
Securities Act, and must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of the exchange notes. The SEC has
taken the position that participating broker- dealers may fulfill their
prospectus delivery requirements with respect to the exchange notes, other than
a resale of an unsold allotment from the original sale of the old notes, with
this prospectus, as amended or supplemented from time to time. Under the
registration rights agreement, we are required to allow participating broker-
dealers to use this prospectus, as amended or supplemented from time to time, in
connection with the resale of exchange notes for a period of 180 days. Each
participating broker-dealer wishing to accept the exchange offer must represent
that it will deliver a prospectus meeting the requirements of the Securities Act
if it resells any exchange notes.
Any broker-dealer that is not a participating broker-dealer may not rely on
existing SEC interpretations set forth in no-action letters and must comply with
the registration and prospectus delivery requirements of the Securities Act in
order to resell the old notes or the exchange notes. These requirements include
being named as a selling security holder in a registration statement related to
any such resales.
The exchange offer is intended to satisfy our obligations under the
registration rights agreement. We will not receive any cash proceeds from the
issuance of the exchange notes. In consideration for issuing the exchange notes,
we will receive a like principal amount of old notes. The form and terms of the
exchange notes will be identical in all material respects to the form and terms
of the old notes, except for the elimination of transfer restrictions,
registration rights and liquidated damages provisions relating to the old notes.
Exchange notes received by broker-dealers for their own account in the
exchange offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the exchange notes or a combination of these methods of resale, at
market prices prevailing at the time of resale, or at prices related to
prevailing market prices or at negotiated prices. Any resale may be made
directly to purchasers or to or through broker-dealers who may receive
compensation in the form of commissions or concessions from the broker-dealer
and/or the purchasers of the exchange notes. Any broker-dealer that resells
exchange notes that were received by it for its own account in the exchange
offer and any person that participates in the distribution of exchange notes may
be deemed an "underwriter" (within the meaning of the Securities Act). Any
profit on the resale and any commissions or concessions received by any such
broker-dealers may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that any acknowledgment by a
participating broker-dealer that it will deliver a prospectus in connection with
any resale of exchange notes, and the delivery of a prospectus, will not be
deemed an admission by a participating broker-dealer that it is an underwriter.
For a period of 180 days after the expiration date, we will send additional
copies of this prospectus and any amendment or supplement to this prospectus to
any participating broker-dealer that requests these documents in the
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participating broker-dealer's letter of transmittal. By acceptance of the
exchange offer, each broker-dealer that receives exchange notes for old notes
agrees that, upon receipt of notice from us of the happening of any event which
makes any statement in this prospectus untrue in any material respect or which
requires the making of any changes in this prospectus in order to make the
statements herein not materially misleading, which notice we have agreed to
deliver to each broker-dealer, the broker-dealer will suspend the use of this
prospectus until we have amended or supplemented this prospectus to correct such
misstatement or omission and have furnished copies of the amended or
supplemented prospectus to the broker-dealer.
We have agreed, pursuant to the registration rights agreement, to pay all
expenses incident to our performance of the exchange offer and the registration
rights agreement, other than agency fees and commissions, underwriting discounts
and commissions and the fees and disbursements of counsel and other advisors and
experts retained by the holders. In addition, we have agreed to indemnify the
holders of the exchange notes against liabilities under the Securities Act.
The exchange notes are a new issuance of securities for which there is
currently no trading market. The exchange notes will not be listed on any
national securities exchange or Nasdaq. We have been advised by the initial
purchasers that they intend to make a market in the exchange notes; however, the
initial purchasers are not obligated to do so, and market making activities may
be discontinued at any time without notice. Accordingly, we cannot assure you
that an active trading market for the exchange notes will develop or as to the
liquidity of a market. In addition, if the exchange notes are traded after their
initial issuance, they may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar
securities, our performance and other factors.
LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by Smith,
Gambrell & Russell, LLP, Atlanta, Georgia. Matters of New York law will be
passed upon for us by Shearman & Sterling, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of January 30, 1999
and January 31, 1998 and for the fiscal years ended January 30, 1999, January
31, 1998 and January 31, 1997, included and incorporated by reference in this
prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report which is included and incorporated by reference herein
and has been so included and incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Sneaker Stadium, Inc. as of
February 1, 1998 and February 2, 1997 and for the fiscal years ended February 1,
1998, February 2, 1997 and January 28, 1996 included as Appendix A hereto have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto (which report dated May 21, 1998
contained an explanatory paragraph concerning Sneaker Stadium's ability to
continue as a going concern) and are included herein upon the authority of said
firm as experts in giving said reports.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this prospectus,
except for any information superseded by information contained directly in this
prospectus. This prospectus incorporates by reference the documents set forth
below that Just For Feet has previously filed with the SEC. These documents
contain important information about Just For Feet and its financial condition.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that is also incorporated or deemed
to be incorporated by reference herein, modifies or superseded the earlier
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus.
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We hereby incorporate by reference to this prospectus the following reports
filed with the SEC:
. Our Current Report on Form 8-K as amended by Amendment No. 1 on Form
8-K/A dated July 2, 1998;
. Our Annual Report on Form 10-K for the year ended January 30, 1999; and
. Our Quarterly Report on Form 10-Q for the quarter ended May 1, 1999.
In addition, all documents filed by Just For Feet pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
prospectus and prior to the termination of this exchange offer will be deemed to
be incorporated by reference into this prospectus and to be a part hereof from
the date of filing of such documents.
Documents incorporated by reference are available from Just For Feet
without charge. Prospective investors may obtain documents incorporated by
reference into this prospectus by requesting them from us by telephone at (205)
408-3000 or in writing at our corporate offices at Just For Feet, Inc., 7400
Cahaba Valley Road, Birmingham, Alabama 35242, Attention: Corporate Secretary.
In order to ensure timely delivery of the documents, any request should be made
at least five days prior to ________________, 1999, the expiration date of the
exchange offer.
WHERE YOU CAN FIND MORE INFORMATION
In connection with the exchange offer, we have filed with the SEC a
registration statement under the Securities Act relating to the exchange notes
to be issued in the exchange offer. As permitted by SEC rules, this prospectus
omits certain information included in the registration statement. For further
information about us and the exchange notes, you should refer to the
registration statement and its exhibits.
Just For Feet files annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy the reports,
statements and other information we file at the SEC's public reference room in
Washington, D.C., located at 450 Fifth Street, N.W., Washington, D.C. 20549.
The SEC also maintains regional offices where you can read and copy the reports.
These are located at 500 West Madison Street, Room 1400, Chicago, Illinois 60606
and at Seven World Trade Center, Suite 1300, New York, New York 10048. You can
request copies of these documents, upon payment of photocopying fees, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. Our filings are also available to
the public on the SEC's Internet site at www.sec.gov. These documents are also
available for viewing and copying at the offices of The Nasdaq Stock Market.
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INDEX TO FINANCIAL STATEMENTS
[CAPTION]
<TABLE>
<S> <C>
Just For Feet, Inc. and Subsidiaries
Audited Financial Statements
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets at January 30, 1999 and January 31, 1998...... F-3
Consolidated Statements of Earnings for the years ended January 30, 1999,
January 31, 1998 and January 31, 1997.................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended
January 30, 1999, January 31, 1998 and January 31, 1997.................. F-5
Consolidated Statements of Cash Flows for the years ended January 30,
1999, January 31, 1998, and January 31, 1997............................. F-6
Notes to Consolidated Financial Statements................................ F-7
Unaudited Financial Statements
Condensed Consolidated Balance Sheets at May 1, 1999 and January 30,
1999..................................................................... F-27
Condensed Consolidated Statements of Earnings for the Three months ended
May 1, 1999 and April 30, 1998........................................... F-28
Condensed Consolidated Statements of Cash Flows for the Three months ended
May 1, 1999 and April 30, 1998........................................... F-29
Notes to Unaudited Condensed Consolidated Financial Statements............ F-30
</TABLE>
F-1
<PAGE>
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF JUST FOR FEET, INC.:
We have audited the accompanying consolidated balance sheets of Just For Feet,
Inc. and subsidiaries as of January 30, 1999 and January 31, 1998, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended January 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Just For Feet, Inc. and
subsidiaries as of January 30, 1999 and January 31, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended January 30, 1999 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for the store opening costs effective February
1, 1996.
Deloitte & Touche LLP
Birmingham, Alabama
April 23, 1999
F-2
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
(In thousands except
per share amounts)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents............................. $ 12,412 $ 82,490
Accounts receivable................................... 18,875 15,840
Merchandise inventories............................... 399,901 206,128
Other................................................. 18,302 6,709
-------- --------
Total current assets................................ 449,490 311,167
PROPERTY AND EQUIPMENT, NET............................ 160,592 94,529
GOODWILL, NET.......................................... 71,084 36,106
OTHER ASSETS........................................... 8,230 6,550
-------- --------
$689,396 $448,352
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings................................. $ -- $ 90,667
Accounts payable...................................... 100,322 51,162
Accrued expenses...................................... 24,829 9,292
Income taxes.......................................... 1,363
Deferred income taxes................................. 902
Current maturities of long-term obligations........... 6,639 3,222
-------- --------
Total current liabilities........................... 132,692 155,706
LONG-TERM OBLIGATIONS.................................. 216,203 16,646
DEFERRED LEASE RENTALS................................. 13,162 7,212
DEFERRED INCOME TAXES.................................. 1,633 704
-------- --------
Total liabilities................................... 363,690 180,268
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTES 2, 6, 10 AND 12)
SHAREHOLDERS' EQUITY:
Preferred stock--par value $.0001 per share; 5,000
shares authorized; none issued.......................
Common stock--par value $.0001 per share; 70,000
shares authorized; 31,197 (1999) and 29,993 (1998)
shares issued and outstanding 3 3
Paid-in capital....................................... 249,590 218,616
Retained earnings..................................... 76,113 49,465
-------- --------
Total shareholders' equity.......................... 325,706 268,084
-------- --------
$689,396 $448,352
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
[CAPTION]
<TABLE>
Fiscal
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
(In thousands except per share amounts)
<S> <C> <C> <C>
NET SALES......................... $ 774,863 $ 478,638 $ 256,397
COST OF SALES..................... 452,330 279,816 147,526
------------- ------------- -------------
GROSS PROFIT...................... 322,533 198,822 108,871
------------- ------------- -------------
FRANCHISE FEES, ROYALTIES AND
OTHER REVENUE.................... 1,299 1,101 581
------------- ------------- -------------
OPERATING EXPENSES:
Store operating.................. 232,505 139,659 69,329
Store opening costs.............. 13,669 6,728 11,240
Amortization of intangibles...... 2,072 1,200 180
General and administrative....... 24,341 18,040 7,878
------------- ------------- -------------
Total operating expenses........ 272,587 165,627 88,627
------------- ------------- -------------
OPERATING INCOME.................. 51,245 34,296 20,825
INTEREST EXPENSE.................. (8,059) (1,446) (832)
INTEREST INCOME................... 143 1,370 4,750
------------- ------------- -------------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE............. 43,329 34,220 24,743
PROVISION FOR INCOME TAXES........ 16,681 12,817 8,783
------------- ------------- -------------
EARNINGS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING
PRINCIPLE........................ 26,648 21,403 15,960
CUMULATIVE EFFECT ON PRIOR YEARS
OF CHANGE IN ACCOUNTING
PRINCIPLE........................ -- -- (2,041)
------------- ------------- -------------
Net earnings.................... $ 26,648 $ 21,403 $ 13,919
============= ============= =============
BASIC EARNINGS PER SHARE:
Before cumulative effect of
change in accounting principle.. $ 0.87 $ 0.72 $ 0.58
Cumulative effect on prior years
of change in accounting
principle....................... -- -- (0.08)
------------- ------------- -------------
Net earnings per share.......... $ 0.87 $ 0.72 $ 0.50
============= ============= =============
DILUTED EARNINGS PER SHARE:
Before cumulative effect of
change in accounting principle.. $ 0.84 $ 0.70 $ 0.55
Cumulative effect on prior years
of change in accounting
principle....................... -- -- (0.07)
------------- ------------- -------------
Net earnings per share.......... $ 0.84 $ 0.70 $ 0.48
============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic............................ 30,737 29,615 27,627
============= ============= =============
Diluted.......................... 31,852 30,410 29,096
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
[CAPTION]
<TABLE>
Common Stock
---------------- Paid-in Retained
Shares Par Value Capital Earnings
------ --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 1, 1996.................. 26,298 $ 3 $135,124 $14,143
Public offering of common stock, net of
offering costs............................ 1,639 -- 52,900 --
Exercise of options........................ 557 -- 1,822 --
Income tax benefit from exercise of
options................................... -- -- 620 --
Other capital transactions................. 1 -- 25 --
Net earnings............................... -- -- -- 13,919
------ ---- -------- -------
BALANCE, JANUARY 31, 1997.................. 28,495 3 190,491 28,062
Common stock issued in connection with
acquisition............................... 1,336 -- 27,123 --
Exercise of options........................ 161 -- 804 --
Income tax benefit from exercise of
options................................... -- -- 173 --
Other capital transactions................. 1 -- 25 --
Net earnings............................... -- -- -- 21,403
------ ---- -------- -------
BALANCE, JANUARY 31, 1998.................. 29,993 3 218,616 49,465
Common stock issued in connection with
acquisition............................... 926 -- 20,000 --
Warrants issued in connection with
acquisition............................... -- -- 6,711 --
Exercise of options........................ 278 -- 3,056 --
Income tax benefit from exercise of
options................................... -- -- 1,182 --
Other capital transactions................. -- -- 25 --
Net earnings............................... -- -- -- 26,648
------ ---- -------- -------
BALANCE, JANUARY 30, 1999.................. 31,197 $ 3 $249,590 $76,113
====== ==== ======== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CAPTION]
<TABLE>
Fiscal
-----------------------------
1998 1997 1996
--------- -------- --------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings................................... $ 26,648 $ 21,403 $ 13,919
Adjustments to reconcile net earnings to net
cash used by operating activities:
Cumulative effect of change in accounting
principle................................ 2,041
Depreciation and amortization................. 16,129 8,783 3,971
Deferred income taxes......................... 12,100 2,194 (744)
Deferred lease rentals........................ 2,655 2,111 1,456
Changes in assets and liabilities providing
(using) cash, net of effects of acquisitions
in 1998 and 1997:
Accounts receivable........................... (2,795) (8,918) (3,143)
Merchandise inventories....................... (170,169) (56,616) (76,685)
Other assets.................................. (8,228) (5,643) 271
Accounts payable.............................. 34,638 7,495 16,628
Accrued expenses.............................. 7,133 2,264 2,709
Income taxes.................................. (181) 543 (2,506)
--------- -------- --------
Net cash used by operating activities....... (82,070) (26,384) (42,083)
--------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment, net of
disposals..................................... (78,984) (43,446) (33,206)
Acquisitions, net of cash acquired............. (199) (25,548)
Purchases of marketable securities............. (14,726) (44,778)
Maturities and sales of marketable securities.. 51,653 63,132
--------- -------- --------
Net cash used for investing activities...... (79,183) (32,067) (14,852)
--------- -------- --------
FINANCING ACTIVITIES:
Borrowings (repayments) under credit
facilities, net............................... (90,667) (9,333) 45,000
Borrowings of long-term obligations............ 291,076 12,739 479
Principal payments on long-term obligations.... (132,290) (2,054) (1,335)
Proceeds from issuance of common stock, net.... 20,000 52,900
Proceeds from exercise of options.............. 3,056 804 1,822
--------- -------- --------
Net cash provided by financing activities... 91,175 2,156 98,866
--------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.................................... (70,078) (56,295) 41,931
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.... 82,490 138,785 96,854
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR.......... $ 12,412 $ 82,490 $138,785
========= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for:
Interest, net of amounts capitalized.......... $ 6,156 $ 1,376 $ 832
Income taxes.................................. $ 6,300 $ 9,851 $ 7,878
Fair value of assets acquired under capital
leases........................................ $ -- $ 507 $ 1,633
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Just For Feet, Inc. is a national U.S. retailer of athletic and outdoor
footwear and apparel for men, women and children organized and managed in both
a superstore and smaller specialty store concept. Just For Feet operated 120
company-owned and 12 franchised Just For Feet superstores and 13 Sneaker
Stadium superstores (Note 2) and 141 company-owned and 42 franchised specialty
stores at January 30, 1999.
During the year ended January 30, 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 131, Disclosures About Segments of
an Enterprise and Related Information. Under SFAS No. 131, segments are defined
as components of an enterprise about which separate financial information is
available that is evaluated by the chief operating decision maker in deciding
how to allocate operating resources and in assessing performance. Under SFAS
No. 131, the superstore and specialty store concepts represent two operating
segments that have been aggregated for financial reporting purposes.
Approximately 76%, 76% and 78% of the Company's sales were comprised of
athletic and outdoor footwear for fiscal 1998, 1997 and 1996, respectively. The
remaining sales were principally apparel. Sales and assets outside the United
States are not material.
Principles of Consolidation
The accompanying financial statements include the consolidated accounts of Just
For Feet, Inc. and its wholly owned subsidiaries (collectively, "the Company").
All significant intercompany transactions and balances have been eliminated.
Fiscal Year
In 1998 the Company adopted the standard fiscal year of the retail industry
which is a 52/53 week period ending on the Saturday closest to January 31. As a
result, the most recent fiscal year ended on January 30, 1999 ("fiscal 1998").
Prior to the change, the Company's year ended on January 31, 1998 ("fiscal
1997") and January 31, 1997 ("fiscal 1996").
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
Merchandise Inventories
Merchandise inventories consist of athletic and outdoor footwear and apparel
and are valued at the lower of cost (first-in, first-out method) or market.
Costs associated with certain purchasing and merchandise handling activities
are included in inventories.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the lesser of the estimated useful
lives of the related assets or the relevant lease term. Estimated useful lives
range from two to ten years for furniture, fixtures and equipment, up to 20
years for leasehold improvements, and up to 39 years for buildings. Maintenance
and repairs are expensed as incurred. Renewals and betterments, which extend
the useful lives of assets, are capitalized.
F-7
<PAGE>
At January 31, 1998, the Company's former corporate headquarters in
Birmingham, Alabama and an office and retail center in Michigan with an
aggregate net book value of approximately $3.3 million were held for sale and
classified in long-term other assets in the accompanying consolidated balance
sheet. During fiscal 1998, the Company sold the real estate in Michigan and
began using the former corporate headquarters in Birmingham; accordingly, the
net book value of the former headquarters (approximately $2.2 million at
January 30, 1999) is now classified in property and equipment in the
accompanying consolidated balance sheet.
Store Opening Costs
Effective February 1, 1996, the Company changed its method of accounting for
store opening costs, which are costs principally for pre-opening employee
salaries and travel which are incremental and directly attributable to the
opening of a new store. Under the new method, the Company charges store opening
costs to operations in the month the store opens. Previously, store opening
costs were capitalized and amortized over the twelve months following the store
opening. The cumulative effect of this change in accounting principle resulted
in a $2.0 million charge to income, net of income taxes of $1.1 million, for
fiscal 1996 ($0.08 per basic and $0.07 per diluted share). At January 30, 1999
and January 31, 1998, capitalized store opening costs of approximately $3.0
million and $1.0 million are included in other current assets in the
accompanying consolidated balance sheets.
Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires
certain disclosures for financial instruments for which it is practicable to
estimate the fair value. The Company's financial instruments consist of cash
and cash equivalents, receivables, payables, accrued expenses and interest
bearing debt. The fair value of each of the Company's financial instruments
approximates the carrying values reflected in the accompanying consolidated
balance sheets at January 30, 1999 and January 31, 1998, primarily because of
the short-term nature of these instruments. The Company's debt includes a
combination of fixed and variable interest rates, which approximate market
rates at January 30, 1999 and 1998; as such, the carrying value of the debt
approximates fair value.
Accounting for Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS No. 123, Accounting for Stock-Based Compensation, requires
certain pro forma disclosures which are presented in Note 10.
Goodwill
Goodwill is being amortized on the straight-line basis over 30 years (Note
2). Accumulated amortization of goodwill was approximately $2.9 million at
January 30, 1999 and approximately $1.0 million at January 31, 1998.
Impairment of Assets
The Company continually evaluates its investment in long-lived assets used in
operations for impairment based on judgements as to the undiscounted cash flows
of individual stores in accordance with the SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Assets to Be Disposed Of. Based on
these reviews, there were no adjustments to the carrying value of long-lived
assets for fiscal 1998, 1997 or 1996.
Revenue Recognition
Revenues from retail sales are recognized at the time of sale. The Company
maintains an incentive program for frequent buyers of footwear. Estimated
future costs associated with providing incentives under this program are
included in accrued expenses.
F-8
<PAGE>
Franchise fee income is recognized when the related franchise store begins
operations, which coincides with substantial performance of initial services to
the franchisee. Royalty revenues are recognized as earned. Sales of merchandise
to franchisees (and related cost of sales) are netted in net sales in the
accompanying statements of operations as such amounts, and the resulting gross
profit, are immaterial.
Advertising
The Company expenses the cost of advertising as incurred. Advertising expense,
net of co-op credits, charged to operations was $43.9 million, $27.7 million
and $17.7 million for fiscal 1998, 1997 and 1996, respectively. Included in
other current assets at January 30, 1999 is approximately $738,000 related to a
Superbowl advertisement, which will be expensed by the Company in the first
quarter of fiscal 1999.
Income Taxes
The Company accounts for income taxes using the liability method. Deferred tax
assets and liabilities are recorded based on the differences between the
financial statement and tax basis of assets and liabilities and the tax rates
in effect.
Earnings Per Share
Weighted average common shares outstanding (diluted) includes the dilutive
effect of stock options as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
--------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Weighted average common shares outstanding (basic)........ 30,737 29,615 27,627
Dilutive effect of stock options.......................... 1,115 795 1,469
------ ------ ------
Weighted average common shares outstanding (diluted)...... 31,852 30,410 29,096
====== ====== ======
</TABLE>
For fiscal 1998 there were options to purchase 416,000 shares and warrants to
purchase 924,000 shares of common stock and for fiscal 1997 and 1996 there were
options to purchase 1.3 million and 31,000 shares, respectively, of common
stock excluded from the computation of weighted average shares as such options
and warrants would have been anti-dilutive.
Reliance on Key Vendors
The Company's business is dependent to a significant degree upon its ability to
purchase brand-name merchandise at competitive prices. For fiscal 1998, 1997
and 1996, approximately 62%, 64% and 70%, respectively, of the Company's
merchandise was purchased from five vendors, including approximately 42%, 48%
and 54%, respectively, from Nike and Reebok. The loss of key vendors could have
a material adverse effect on the Company's business.
New Accounting Standards Not Yet Adopted
In April 1998, Statement of Position No. 98-5, Reporting on the Cost of Start-
Up Activities (the "SOP") was issued, 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 Company is required to adopt this SOP in the first quarter of
fiscal 1999. If the SOP had been adopted for the year ended January 30, 1999,
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 year ended January 30, 1999 would have been to increase operating
expenses by approximately $2.0 million and decrease net income by approximately
$1.3 million ($0.04 per basic and diluted share).
F-9
<PAGE>
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is
required to be adopted for years beginning after June 15, 1999. The Company has
not yet evaluated the effect which SFAS No. 133 may have on its financial
statements.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results may differ from those estimates.
Reclassifications
Certain reclassifications have been made in the fiscal 1997 and 1996
presentations to conform to the fiscal 1998 presentation.
2. ACQUISITIONS
The Company made one acquisition in fiscal 1998 and two acquisitions in fiscal
1997 that 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 at the respective acquisition dates. The excess of
the consideration paid over the net tangible and identifiable intangible assets
acquired has been recorded as goodwill and is being amortized over 30 years.
The accompanying consolidated statements of earnings for fiscal 1998 and fiscal
1997 include the results of operations of the acquired entities from their
respective acquisition dates.
In July 1998, the Company acquired all of the outstanding stock of Sneaker
Stadium, Inc. ("Sneaker") for nominal cash consideration (principally for
direct acquisition costs) and the assumption of $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 may make additional payments of up to $33.0 million
after April 2002 to certain specified former lenders of Sneaker, if the
acquired Sneaker Stadium superstores attain certain financial targets. Such
additional payments, if required, will be accounted for as additional
consideration for the acquisition.
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 exercisable at any time through July 2, 2003. The aggregate
purchase price for the units was $20.0 million. The estimated fair market value
of the warrants 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 warrants issued in connection with this acquisition represent non-
cash investing and financing activities for the purpose of the consolidated
statement of cash flows for fiscal 1998. In addition, THL appointed a member to
the Company's Board of Directors in accordance with the terms of the
acquisition agreement. Certain fees aggregating approximately $750,000
associated with this acquisition were paid to affiliates of THL as direct costs
of the acquisition.
In March 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 the
Company's common stock (259,000 shares). In May 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 Sport's debt and
approximately $21.5 million of the Company's common stock (approximately 1.1
million shares). The common stock issued in connection with these acquisitions
represents non-cash investing and financing activities for the purpose of the
consolidated statement of cash flows for fiscal 1997. Certain fees aggregating
$222,000 associated with these acquisitions were paid to an entity in which a
director of the Company is a partner.
F-10
<PAGE>
The estimated fair values of assets acquired and liabilities assumed in
fiscal 1998 for the Sneaker Stadium acquisition and in fiscal 1997 for the
combined acquisitions of Athletic Attic and Imperial Sports are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
-----------------
1998 1997
-------- -------
<S> <C> <C>
Cash......................................................... $ 2,476 $ 907
Merchandise inventories...................................... 37,153 16,188
Property and equipment....................................... 700 5,318
Other assets................................................. 2,745 1,336
Goodwill..................................................... 36,403 37,044
Deferred income taxes........................................ 15,600 1,759
Accounts payable and accrued liabilities..................... (36,499) (6,312)
Interest bearing debt........................................ (43,000) --
Deferred lease rentals....................................... (3,294) (2,064)
Other liabilities............................................ (2,898) (598)
-------- -------
$ 9,386 $53,578
======== =======
Consideration consisted of:
Cash........................................................ $ 2,675 $26,455
Stock issued................................................ -- 27,123
Warrants issued............................................. 6,711 --
-------- -------
$ 9,386 $53,578
======== =======
</TABLE>
Included in the above accrued liabilities amount for the Sneaker Stadium
acquisition in fiscal 1998 is (i) approximately $2.1 million for severance
costs relating to substantially all of its approximately 1,900 employees, of
which approximately $2.0 million was paid during fiscal 1998 and charged
against the liability account, and (ii) approximately $1.4 million for future
rental costs associated with acquired Sneaker Stadium superstores closed or
expected to be closed within one year of the acquisition date.
The following unaudited pro forma consolidated results of operations for
fiscal 1998 and 1997 assume the Sneaker Stadium acquisition occurred as of the
beginning of fiscal 1997 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal
-----------------
1998 1997
-------- --------
<S> <C> <C>
Net sales..................................................... $839,986 $611,481
Net earnings.................................................. 22,728 10,888
Earnings per share:
Basic........................................................ $ 0.72 $ 0.36
Diluted...................................................... $ 0.69 $ 0.35
</TABLE>
The pro forma results are not necessarily indicative of the results the
Company would have achieved had the Sneaker acquisition occurred at the
beginning of fiscal 1997, nor necessarily indicative of the results of future
operations. The acquisitions of the Athletic Attic and Imperial Sports would
not have a material effect on fiscal 1997 and 1996 pro forma results.
F-11
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows (in thousands):
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
<S> <C> <C>
Owned:
Land................................................... $ 3,807 $ 3,807
Store facilities and corporate office.................. 18,157 15,212
Furniture, fixtures and equipment...................... 61,140 37,847
Leasehold improvements................................. 91,733 42,765
Construction-in-progress............................... 9,537 4,753
-------- -------
184,374 104,384
Accumulated depreciation and amortization.............. (26,645) (12,910)
-------- -------
157,729 91,474
-------- -------
Under capital leases:
Furniture, fixtures and equipment...................... 4,232 4,103
Accumulated amortization............................... (1,369) (1,048)
-------- -------
2,863 3,055
-------- -------
$160,592 $94,529
======== =======
</TABLE>
4. SHORT-TERM BORROWINGS
At January 31, 1998, the Company had $15.7 million outstanding under a $40.0
million unsecured line of credit bank agreement. (The president of one of the
bank's subsidiaries is also a director of the Company.) This line was cancelled
and all amounts outstanding were repaid in December 1998 with proceeds from a
$200.0 million revolving senior credit facility (Note 5). Borrowings under this
line of credit bore interest at a floating rate above the LIBOR rate (5.6% plus
1.5% at January 31, 1998). The agreement contained certain covenants, which
included the maintenance of minimum net worth and certain financial ratios.
At January 31, 1998, the Company had $75.0 million of short-term borrowings
that were used to purchase U.S. Treasury securities for Alabama share tax
planning purposes. These securities, which were pledged as collateral on this
debt, were sold in early February 1998 with the sale proceeds being utilized to
repay such borrowings.
5. LONG-TERM OBLIGATIONS
Senior Credit Facility
In December 1998, the Company obtained a $200.0 million revolving senior
credit facility (the "Senior Facility") from a syndicate of banks, including a
bank for which a director of the Company is president of one of the bank's
subsidiaries. The Senior Facility terminates in December 2001, bears interest
at a floating rate above either prime or LIBOR, is guaranteed and secured by
the stock of the Company's domestic subsidiaries and is secured by 66 2/3% of
the stock of the Company's foreign subsidiary (Note 13), and is subject to
certain restrictive covenants which include the maintenance of minimum net
worth and certain financial ratios. The Company used borrowings under this
facility to repay amounts outstanding under its other revolving bank lines
(Note 4). At January 30, 1999, $189.2 million was outstanding under this
facility, of which $165.0 million bore interest at rates ranging from 6.49% to
6.79% (LIBOR plus 1.50%) and $24.2 million bore interest at 7.75% (prime).
Commitment fees are computed at rates ranging from .25% to .375% per annum on
the unused portion of the facility.
Other Long-Term Debt
Other long-term debt consists of various notes payable due in monthly
installments through 2010, which bear interest at variable and fixed rates
ranging primarily from 6.9% to 10.4% at January 30, 1999. Such debt is
F-12
<PAGE>
collateralized principally by land, buildings and equipment with an aggregate
carrying value of approximately $35.4 million at January 30, 1999. Scheduled
maturities of other long-term debt at January 30, 1999 were as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
1999................................................................ $ 5,455
2000................................................................ 5,607
2001................................................................ 5,555
2002................................................................ 5,627
2003................................................................ 3,840
Thereafter.......................................................... 5,365
-------
Total.............................................................. $31,449
=======
</TABLE>
The Company also leases certain furniture, fixtures and equipment under long-
term agreements that are accounted for as capital leases. Scheduled maturities
under these capital leases at January 30, 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
1999............................................................... $ 1,430
2000............................................................... 774
2001............................................................... 170
2002............................................................... 61
-------
2,435
-------
Less amounts representing interest................................. (242)
-------
Total capital lease obligations.................................... 2,193
Less current portion............................................... (1,184)
-------
Long-term capital lease obligations................................ $ 1,009
=======
</TABLE>
6. OPERATING LEASE COMMITMENTS
The Company leases certain store facilities, land, fixtures and equipment
under agreements that are accounted for as operating leases. Lease terms range
from approximately three years to twenty years. Certain leases contain renewal
options and provide for future rent increases based upon increases in the
Consumer Price Index. At January 30, 1999, future annual minimum lease payments
under operating leases with remaining terms in excess of one year (including
lease payments for 31 store facilities not yet opened at January 30, 1999) are
as follows (in thousands):
<TABLE>
<CAPTION>
Real Fixtures and
Fiscal Estate Equipment Total
------ -------- ------------ --------
<S> <C> <C> <C>
1999.......................................... $ 64,062 $2,308 $ 66,370
2000.......................................... 68,189 2,205 70,394
2001.......................................... 68,548 1,233 69,781
2002.......................................... 69,812 161 69,973
2003.......................................... 68,675 108 68,783
Thereafter.................................... 510,065 -- 510,065
-------- ------ --------
Total........................................ $849,351 $6,015 $855,366
======== ====== ========
</TABLE>
Total rent expense under all operating leases was as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Minimum rentals..................................... $46,710 $23,891 $10,190
Additional rentals based on sales volume............ 319 272 710
------- ------- -------
$47,029 $24,163 $10,900
======= ======= =======
</TABLE>
F-13
<PAGE>
Rent expense for operating leases that contain scheduled rent increases is
recognized for financial reporting purposes on the straight-line method.
Consequently, amounts that have been expensed for financial reporting purposes,
but not yet paid, are reflected as deferred lease rentals in the accompanying
consolidated balance sheets. In addition, subsequent to January 30, 1999, the
Company entered into lease agreements for four stores which require aggregate
rental payment of $24.2 million through 2019. The Company has subleased a
portion of a facility to a third party. Future sublease rentals are not
material.
7. INCOME TAXES
The consolidated provision for income taxes is comprised of the following (in
thousands):
[CAPTION]
<TABLE>
Fiscal
-----------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Current:
Federal................................................ $ 2,391 $ 9,763 $7,397
State.................................................. 572 860 1,245
------- ------- ------
2,963 10,623 8,642
------- ------- ------
Deferred:
Federal................................................ 12,404 1,991 130
State.................................................. 1,459 203 11
Foreign................................................ (145) -- --
------- ------- ------
13,718 2,194 141
------- ------- ------
$16,681 $12,817 $8,783
======= ======= ======
</TABLE>
Following is a reconciliation of the applicable U.S. federal income tax,
computed at the statutory rate, to the provision reflected in the consolidated
statements of earnings, excluding the cumulative effect of the fiscal 1996
accounting change (in thousands):
<TABLE>
<CAPTION>
Fiscal
------------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Federal income tax at statutory rate.................. $15,165 $11,977 $8,660
State income taxes, net of federal tax effect......... 1,320 691 820
Tax exempt interest income............................ (270) (856)
Amortization of goodwill.............................. 462 398
Other................................................. (266) 21 159
------- ------- ------
$16,681 $12,817 $8,783
======= ======= ======
</TABLE>
F-14
<PAGE>
Deferred tax assets and liabilities that arise as a result of temporary
differences are summarized as follows (in thousands):
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued expenses....................................... $ 1,356 $ 865
Deferred lease rentals and lease valuations............ 3,980 2,509
State net operating loss carryforward.................. 1,345 --
Other.................................................. 58 437
------- -------
Total deferred tax assets............................ 6,739 3,811
------- -------
Deferred tax liabilities:
Store opening costs.................................... (633) (358)
Other prepaid expenses................................. (1,317) (430)
Franchise rights....................................... (812) (880)
Depreciation and fixed asset valuation................. (2,331) (2,375)
Other.................................................. (465) (524)
------- -------
Total deferred tax liabilities....................... (5,558) (4,567)
------- -------
$ 1,181 $ (756)
======= =======
</TABLE>
As a result of the Sneaker Stadium acquisition (see Note 2), the Company has
available net operating loss carryforwards for state income tax purposes of
approximately $20.0 million at January 30, 1999 which expire at various times
over the next 20 years.
8. FRANCHISE AND OTHER ACTIVITIES
Franchise operations consist of one franchisee that operates 12 franchised
superstores in three states and 17 franchisees that operate 42 franchised
specialty stores in six states and Puerto Rico. The Company generally receives
initial franchise fees for the superstore franchises on a per store basis for
providing certain services and other advice related to opening a franchise
store. In addition, the Company receives royalties from superstore and
specialty store franchisees based on a percentage of sales.
Revenues from franchisees included in the accompanying consolidated
statements of earnings are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
--------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Initial franchisee fees...................................... $-- $ 45 $ 15
Royalties.................................................... 995 841 566
---- ---- ----
$995 $886 $581
==== ==== ====
Merchandise sales to franchisees............................. $896 $796 $399
==== ==== ====
</TABLE>
Included in accounts receivable at January 30, 1999 and January 31, 1998 is
$612,000 and $847,000, respectively, due from franchisees and $342,000 and
$348,000, respectively, due from officers of the Company.
9. COMMON STOCK
In June 1996, the Company completed a fourth public offering of 1.6 million
shares of its common stock at $34.25 per share. Net proceeds (after offering
costs) from the sale of this stock approximated $52.9 million. Certain shares
of the Company's common stock are subject to registration rights.
F-15
<PAGE>
10. STOCK OPTION PLANS
In August 1993, the Company adopted the Employee Incentive Stock Option Plan.
This plan provides for the issuance of incentive stock options to Company
employees of up to 4.5 million shares. Options may be granted at prices that
are equal to or greater than the fair market value of the shares at the date of
the grant. Options become exercisable over periods of generally one to five
years and expire ten years from the date of the grant. At January 30, 1999, the
Company had approximately 1.0 million options available for future grants under
this plan.
In June 1995, the Company adopted the Non-Employee Director Stock Option
Plan. This plan provides for the issuance of stock options to non-employee
directors of up to 281,000 shares of the Company's common stock. Options may be
granted at prices that are equal to or greater than the fair market value of
the shares at the date of grant and become exercisable ratably over the three
years commencing on the first anniversary date of the grant. At January 30,
1999, the Company had 29,000 options available for future grants under this
plan.
In June 1997, the Company adopted its 1997 Employee Incentive Plan which
provides for the grant of incentive and non-qualified stock options, stock
appreciation rights, restricted stock or performance awards covering an
aggregate of 2.9 million shares of the Company's common stock to eligible (as
defined by the Plan) directors, officers, employees, consultants and advisors
of the Company and its subsidiaries. Options may be granted at prices which are
equal to or greater than the fair market value (as defined by the Plan) of the
shares at the date of grant. Options become exercisable over periods of
generally one to five years and expire ten years from the date of the grant.
During the year ended January 31, 1998, 100,000 options were granted under this
plan to a director of the Company under a personal services contract;
compensation expense related to this grant was not significant. At January 30,
1999, the Company had 1.1 million options available for future grants under
this plan.
Information regarding these option plans is as follows (in thousands, except
for weighted average exercise price):
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------- ----------------
<S> <C> <C>
At February 1, 1996................................ 2,502 $ 8.43
Granted at fair market value...................... 1,381 25.78
Exercised......................................... (557) 3.38
Forfeited......................................... (280) 21.21
-----
At January 31, 1997 (519 options exercisable)...... 3,046 16.08
Granted at fair market value...................... 3,019 14.72
Exercised......................................... (160) 4.99
Forfeited......................................... (752) 13.71
Cancelled......................................... (930) 25.69
-----
At January 31, 1998 (976 options exercisable)...... 4,223 13.93
Granted at fair market value...................... 1,015 14.66
Exercised......................................... (279) 10.90
Forfeited......................................... (902) 15.38
-----
At January 30, 1999 (1,431 options exercisable).... 4,057 14.01
=====
</TABLE>
F-16
<PAGE>
The following table summarizes information about stock options outstanding
and exercisable at January 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ -----------------------------
Range Weighted Weighted
of Number Average Average Number Weighted
Exercise Outstanding Exercise Remaining Exercisable Average
Price (in thousands) Price Life (Years) (in thousands) Exercise Price
-------- -------------- -------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.48-$ 5.13........... 211 $ 2.89 4.9 211 $ 2.89
$ 8.69-$13.84........... 1,540 11.12 7.6 546 9.86
$14.09-$14.75........... 1,009 14.62 8.6 166 14.64
$15.06-$19.42........... 990 16.72 8.2 321 16.88
$20.00-$37.08........... 307 25.39 7.7 187 25.85
----- -----
4,057 14.01 7.9 1,431 13.05
===== =====
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation cost has
been recognized in the Company's financial statements for the stock option
plans. The weighted average fair value of options granted during fiscal 1998,
1997 and 1996 was $4.92, $5.10 and $9.86, respectively. Had compensation cost
for the Company's option plans been determined based on the fair market value
at the grant date for awards during fiscal 1998, 1997 and 1996 consistent with
the provisions of that statement, the Company's net earnings (and basic and
diluted earnings per share) prior to the cumulative effect of the change in
accounting principle would have been reduced to $23.2 million ($0.75 basic and
$0.73 diluted earnings per share), $17.0 million ($0.58 basic and $0.56 diluted
earnings per share) and $12.7 million ($0.46 basic and $0.44 diluted earnings
per share), respectively. The fair market value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions for fiscal 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Fiscal
----------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected volatility......................................... 42.0% 30.0% 34.0%
Risk free interest rate..................................... 4.9% 6.2% 6.5%
Expected lives (years)...................................... 3 4.5 4.6
Dividends paid during the life of the options............... -- -- --
</TABLE>
11. RETIREMENT SAVINGS PLAN
In June 1998, the Company adopted a defined contribution retirement savings
plan, (the Just For Feet Savings Plan--the "Plan") under Section 401(k) of the
Internal Revenue Code. The 401(k) plans of Imperial Sports and Sneaker Stadium
were also merged into this plan. All Company employees at least 18 years of age
who have completed one year of service with 1,000 hours or more are eligible to
participate in the Plan. Employees elect contribution percentages of up to 20%
of annual compensation, as well as the investment options for their
contributions. The Company makes matching contributions on behalf of each
participant of up to 25% of the first 6% of each participant's contribution to
the Plan. The Plan also allows for a supplemental matching contribution of up
to 25% of the first 6% of each participant's contribution to the Plan. Matching
contributions to the Plan were $142,000 and $38,000 for fiscal 1998 and 1997,
respectively. Employee contributions are 100% vested while Company
contributions are vested according to a specified scale based on years of
service.
12. 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 and its named officers
and directors deny liability on the claims (the dollar amount of which is
currently unspecified) and are vigorously defending the suit.
F-17
<PAGE>
On April 20, 1999, the sole superstore franchisee of the Company, as
Plaintiff, filed a complaint seeking declaratory judgement, an accounting and
monetary damages against the Company. The complaint alleges that the Company
has breached its obligations under certain franchise agreements between it and
the Plaintiff and seeks actual damages in excess of $82.5 million, punitive
damages in excess of $25 million and the right to terminate the franchise
agreements. The Company denies all allegations contained in the complaint and
will vigorously defend these allegations.
The Company is a defendant in various lawsuits incident to the ordinary
course of business. It is not possible to determine with precision the probable
outcome or the amount of liability, if any, with respect to these lawsuits;
however, in the opinion of the Company, the disposition of these lawsuits will
not adversely affect the consolidated financial statements of the Company to a
material extent.
13. SUBSEQUENT EVENT
On April 14, 1999, the Company completed the private placement of $200.0
million, 11.0% senior subordinated notes (the "Notes"). Proceeds from this debt
offering were used to repay a $80.0 million term loan (which was initially
borrowed in February 1999) and approximately $113.0 million of the Senior
Facility. The Notes mature in May 2009 and require interest payments semi-
annually. The Notes are redeemable after April 2004 without a make-whole
premium. At any time prior to May 2004, the Company may redeem all of the notes
at a redemption price equal to 100% of their principal amount plus a make-whole
premium, together with accrued interest through the redemption date. Before May
2002, the Company may redeem up to 35% of the notes with the net proceeds of
certain sales of equity. The notes are general unsecured obligations,
subordinate to all of the Company's senior debt.
All of the Company's wholly owned U.S. subsidiaries (the Company's non-
guarantor foreign subsidiary was formed in fiscal 1998) have guaranteed the
Notes. Accordingly, condensed consolidating financial statements are presented
below. On February 1, 1998, the Company effected a corporate reorganization
whereby certain of its operations were transferred into separate wholly owned
subsidiaries. The condensed consolidating financial statements retroactively
reflect this reorganization as if it occurred on February 1, 1996, and thus,
the financial information related to these operations is included in the
guarantor subsidiaries column for all periods presented. The guarantees of the
guarantor subsidiaries of the Notes are full, unconditional, and joint and
several. Separate financial statements of the guarantor subsidiaries are not
presented because management has determined that they would not be material to
investors. There are no significant restrictions on the ability of Just For
Feet, Inc. (the "Parent") to obtain funds from the guarantor subsidiaries. The
Parent and the guarantors have accounted for their respective subsidiaries on
the equity basis.
F-18
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
January 30, 1999
-------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiary Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents... $ 1,856 $ 10,309 $ 247 $ -- $ 12,412
Accounts receivable--trade.. 18,875 -- 18,875
Accounts receivable--
intercompany............... 279,375 -- -- (279,375) --
Merchandise inventory....... 97,030 297,247 5,624 399,901
Other....................... 7,057 11,030 215 18,302
-------- -------- ------ --------- --------
Total current assets....... 404,193 318,586 6,086 (279,375) 449,490
PROPERTY AND EQUIPMENT, NET 45,097 112,693 2,802 160,592
INVESTMENTS IN SUBSIDIARIES.. 191,507 -- -- (191,507) --
GOODWILL, NET................ 71,084 71,084
OTHER ASSETS................. 1,287 6,932 11 8,230
-------- -------- ------ --------- --------
$642,084 $509,295 $8,899 $(470,882) $689,396
======== ======== ====== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable............ $ 81,341 $ 18,540 $ 441 $ -- $100,322
Accounts payable--
intercompany............... -- 270,767 8,608 (279,375) --
Accrued expenses............ 11,563 13,161 105 24,829
Income taxes................ 902 -- 902
Current maturities of long-
term obligations........... 6,108 531 -- 6,639
-------- -------- ------ --------- --------
Total current liabilities.. 99,914 302,999 9,154 (279,375) 132,692
LONG-TERM OBLIGATIONS........ 215,186 1,017 216,203
DEFERRED LEASE RENTALS....... 457 12,705 -- 13,162
DEFERRED INCOME TAXES........ 821 812 -- 1,633
-------- -------- ------ --------- --------
Total liabilities.......... 316,378 317,533 9,154 (279,375) 363,690
-------- -------- ------ --------- --------
SHAREHOLDERS' EQUITY:
Common stock................ 3 11 -- (11) 3
Additional paid-in capital.. 249,590 115,376 -- (115,376) 249,590
Retained earnings........... 76,113 76,375 (255) (76,120) 76,113
-------- -------- ------ --------- --------
Total shareholders'
equity.................... 325,706 191,762 (255) (191,507) 325,706
-------- -------- ------ --------- --------
$642,084 $509,295 $8,899 $(470,882) $689,396
======== ======== ====== ========= ========
</TABLE>
F-19
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEETS--(Continued)
<TABLE>
<CAPTION>
January 31, 1998
-----------------------------------------------
Guarantor
Parent Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..... $ 77,228 $ 5,262 $ -- $ 82,490
Accounts receivable--trade.... 14,664 1,176 -- 15,840
Accounts receivable--
intercompany................. 72,848 -- (72,848) --
Merchandise inventory......... 63,246 142,882 -- 206,128
Other......................... 5,054 1,655 -- 6,709
-------- -------- --------- --------
Total current assets........ 233,040 150,975 (72,848) 311,167
PROPERTY AND EQUIPMENT, NET.... 41,680 52,849 -- 94,529
INVESTMENTS IN SUBSIDIARIES.... 164,508 -- (164,508) --
GOODWILL, NET.................. -- 36,106 -- 36,106
OTHER ASSETS................... 253 6,297 -- 6,550
-------- -------- --------- --------
$439,481 $246,227 $(237,356) $448,352
======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Short-term borrowings......... $ 90,667 $ -- $ -- $ 90,667
Accounts payable.............. 51,162 -- -- 51,162
Accounts payable--
intercompany................. -- 72,848 (72,848) --
Accrued expenses.............. 7,724 1,568 -- 9,292
Income taxes.................. 478 885 -- 1,363
Current maturities of long-
term obligations............. 3,222 -- -- 3,222
-------- -------- --------- --------
Total current liabilities... 153,253 75,301 (72,848) 155,706
LONG-TERM OBLIGATIONS.......... 16,646 -- -- 16,646
DEFERRED LEASE RENTALS......... 794 6,418 -- 7,212
DEFERRED INCOME TAXES.......... 704 -- -- 704
-------- -------- --------- --------
Total liabilities........... 171,397 81,719 (72,848) 180,268
-------- -------- --------- --------
SHAREHOLDERS' EQUITY:
Common stock.................. 3 11 (11) 3
Additional paid-in capital.... 218,616 115,376 (115,376) 218,616
Retained earnings............. 49,465 49,121 (49,121) 49,465
-------- -------- --------- --------
Total shareholders' equity.. 268,084 164,508 (164,508) 268,084
-------- -------- --------- --------
$439,481 $246,227 $(237,356) $448,352
======== ======== ========= ========
</TABLE>
F-20
<PAGE>
CONDENSED CONSOLIDATING
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Fiscal 1998
--------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiary Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES............... $135,819 $624,251 $14,793 $ -- $774,863
COST OF SALES........... 80,950 361,345 10,035 -- 452,330
-------- -------- ------- -------- --------
GROSS PROFIT............ 54,869 262,906 4,758 -- 322,533
-------- -------- ------- -------- --------
FRANCHISE FEES,
ROYALTIES AND OTHER
REVENUE................ (6,708) 8,007 -- -- 1,299
-------- -------- ------- -------- --------
OPERATING EXPENSES:
Store operating........ 32,422 195,514 4,569 -- 232,505
Store opening costs.... 2,067 10,999 603 -- 13,669
Amortization of
intangibles........... 181 1,891 -- -- 2,072
General and
administrative........ 6,282 18,059 -- -- 24,341
-------- -------- ------- -------- --------
Total operating
expenses............. 40,952 226,463 5,172 -- 272,587
-------- -------- ------- -------- --------
OPERATING INCOME
(LOSS)................. 7,209 44,450 (414) -- 51,245
INTEREST INCOME
(EXPENSE), NET......... (7,780) (136) -- -- (7,916)
-------- -------- ------- -------- --------
EARNINGS (LOSS) BEFORE
INCOME TAXES AND EQUITY
IN EARNINGS OF
SUBSIDIARIES........... (571) 44,314 (414) -- 43,329
PROVISION FOR INCOME
TAXES.................. (220) 17,060 (159) -- 16,681
-------- -------- ------- -------- --------
EARNINGS (LOSS) BEFORE
EQUITY IN EARNINGS OF
SUBSIDIARIES .......... (351) 27,254 (255) -- 26,648
EQUITY IN EARNINGS OF
SUBSIDIARIES........... 26,999 -- -- (26,999) --
-------- -------- ------- -------- --------
Net earnings (loss)... $ 26,648 $ 27,254 $ (255) $(26,999) $ 26,648
======== ======== ======= ======== ========
</TABLE>
F-21
<PAGE>
CONDENSED CONSOLIDATING
STATEMENTS OF EARNINGS--(Continued)
<TABLE>
<CAPTION>
Fiscal 1997
-----------------------------------------------
Guarantor
Parent Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
NET SALES...................... $86,789 $391,849 $ -- $478,638
COST OF SALES.................. 50,732 229,084 -- 279,816
------- -------- -------- --------
GROSS PROFIT................... 36,057 162,765 -- 198,822
------- -------- -------- --------
FRANCHISE FEES, ROYALTIES AND
OTHER REVENUE................. 36 1,065 -- 1,101
------- -------- -------- --------
OPERATING EXPENSES:
Store operating............... 31,379 108,280 -- 139,659
Store opening costs........... 2,584 4,144 -- 6,728
Amortization of intangibles... -- 1,200 -- 1,200
General and administrative.... 5,835 12,205 -- 18,040
------- -------- --------
Total operating expenses..... 39,798 125,829 -- 165,627
------- -------- -------- --------
OPERATING INCOME (LOSS)........ (3,705) 38,001 -- 34,296
INTEREST INCOME (EXPENSE),
NET........................... (76) -- -- (76)
------- -------- -------- --------
EARNINGS (LOSS) BEFORE INCOME
TAXES AND EQUITY IN EARNINGS
OF SUBSIDIARIES .............. (3,781) 38,001 -- 34,220
PROVISION FOR INCOME TAXES..... (1,416) 14,233 -- 12,817
------- -------- -------- --------
EARNINGS (LOSS) BEFORE EQUITY
IN EARNINGS OF SUBSIDIARIES .. (2,365) 23,768 -- 21,403
EQUITY IN EARNINGS OF
SUBSIDIARIES.................. 23,768 -- (23,768) --
------- -------- -------- --------
Net earnings................. $21,403 $ 23,768 $(23,768) $ 21,403
======= ======== ======== ========
</TABLE>
F-22
<PAGE>
CONDENSED CONSOLIDATING
STATEMENTS OF EARNINGS--(Continued)
<TABLE>
<CAPTION>
Fiscal 1996
----------------------------------------------
Guarantor
Parent Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
NET SALES....................... $39,952 $216,445 $ -- $256,397
COST OF SALES................... 23,050 124,476 -- 147,526
------- -------- -------- --------
GROSS PROFIT.................... 16,902 91,969 -- 108,871
------- -------- -------- --------
FRANCHISE FEES, ROYALTIES AND
OTHER REVENUE.................. -- 581 -- 581
------- -------- -------- --------
OPERATING EXPENSES:
Store operating................ 10,835 58,494 -- 69,329
Store opening costs............ 2,668 8,572 -- 11,240
Amortization of intangibles.... -- 180 -- 180
General and administrative..... 3,217 4,661 -- 7,878
------- -------- -------- --------
Total operating expenses..... 16,720 71,907 -- 88,627
------- -------- -------- --------
OPERATING INCOME................ 182 20,643 -- 20,825
INTEREST INCOME (EXPENSE), NET.. 3,918 -- -- 3,918
------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES,
EQUITY IN EARNINGS OF
SUBSIDIARIES, AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE...................... 4,100 20,643 -- 24,743
PROVISION FOR INCOME TAXES...... 1,456 7,327 -- 8,783
------- -------- -------- --------
EARNINGS BEFORE EQUITY IN
EARNINGS OF SUBSIDIARIES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE........... 2,644 13,316 -- 15,960
EQUITY IN EARNINGS OF
SUBSIDIARIES................... 11,275 -- (11,275) --
CUMULATIVE EFFECT ON PRIOR YEARS
OF CHANGE IN ACCOUNTING
PRINCIPLE...................... -- (2,041) -- (2,041)
------- -------- -------- --------
Net earnings................. $13,919 $ 11,275 $(11,275) $ 13,919
======= ======== ======== ========
</TABLE>
F-23
<PAGE>
CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal 1998
---------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiary Eliminations Consolidated
--------- ------------ ------------- ------------ ------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss).... $ 26,648 $ 27,254 $ (255) $(26,999) $ 26,648
Adjustments to
reconcile net earnings
to net cash (used in)
provided by operating
activities:
Depreciation and
amortization......... 4,108 11,828 193 16,129
Deferred income
taxes................ 117 11,983 -- 12,100
Deferred lease
rentals.............. (337) 2,992 -- 2,655
Undistributed earnings
of subsidiaries...... (26,999) -- -- 26,999 --
Changes in assets and
liabilities providing
(using) cash, net of
effects of
acquisition:
Accounts receivable... (4,211) 1,416 -- -- (2,795)
Merchandise
inventories.......... (33,784) (130,761) (5,624) -- (170,169)
Other assets.......... (2,751) (5,257) (220) -- (8,228)
Accounts payable...... 30,179 4,018 441 -- 34,638
Accrued expenses...... 3,839 3,189 105 -- 7,133
Income taxes.......... 424 (605) -- -- (181)
Advances to/from
subsidiaries ........ (157,176) 148,568 8,608 -- --
--------- --------- ------- -------- ---------
Net cash provided by
(used in) operating
activities......... (159,943) 74,625 3,248 -- (82,070)
--------- --------- ------- -------- ---------
INVESTING ACTIVITIES:
Purchases of property
and equipment......... (6,604) (69,379) (3,001) -- (78,984)
Acquisition, net of
cash acquired......... -- (199) -- (199)
--------- --------- ------- -------- ---------
Net cash used for
investing
activities......... (6,604) (69,578) (3,001) -- (79,183)
--------- --------- ------- -------- ---------
FINANCING ACTIVITIES:
Borrowings (repayments)
under financing
agreements, net....... (90,667) -- -- -- (90,667)
Borrowings (repayments)
of long-term
obligations, net...... 158,786 -- -- -- 158,786
Proceeds from issuance
of common stock, net.. 20,000 -- -- -- 20,000
Proceeds from exercise
of options............ 3,056 -- -- -- 3,056
--------- --------- ------- -------- ---------
Net cash provided by
financing
activities......... 91,175 -- -- -- 91,175
--------- --------- ------- -------- ---------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (75,372) 5,047 247 (70,078)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF THE PERIOD.......... 77,228 5,262 -- -- 82,490
--------- --------- ------- -------- ---------
CASH AND CASH
EQUIVALENTS, END OF THE
PERIOD................. $ 1,856 $ 10,309 $ 247 $ -- $ 12,412
========= ========= ======= ======== =========
</TABLE>
F-24
<PAGE>
CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
Fiscal 1997
------------------------------------------------
Guarantor
Parent Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings................. $ 21,403 $ 23,768 $(23,768) $ 21,403
Adjustments to reconcile net
earnings to net cash (used
in) provided by operating
activities:
Depreciation and
amortization............... 3,432 5,351 -- 8,783
Deferred income taxes....... 902 1,292 -- 2,194
Deferred lease rentals...... 375 1,736 -- 2,111
Undistributed earnings of
subsidiaries............... (23,768) -- 23,768 --
Changes in assets and
liabilities providing
(using) cash, net of effects
of acquisitions:
Accounts receivable......... (8,111) (807) -- (8,918)
Merchandise inventories..... (22,472) (34,144) -- (56,616)
Other assets................ (3,998) (1,645) -- (5,643)
Accounts payable............ 12,265 (4,770) -- 7,495
Accrued expenses............ 2,238 26 -- 2,264
Income taxes................ 478 65 -- 543
Advances to/from
subsidiaries............... (63,137) 63,137 -- --
-------- -------- -------- --------
Net cash provided by (used
in) operating
activities............... (80,393) 54,009 -- (26,384)
-------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and
equipment................... (20,247) (23,199) -- (43,446)
Acquisitions, net of cash
acquired.................... -- (25,548) -- (25,548)
Purchases of marketable
securities.................. (14,726) -- -- (14,726)
Maturities and sales of
marketable securities....... 51,653 -- -- 51,653
-------- -------- -------- --------
Net cash provided by (used
for) investing
activities............... 16,680 (48,747) -- (32,067)
-------- -------- -------- --------
FINANCING ACTIVITIES:
Borrowings (repayments) under
financing agreements, net... (9,333) -- -- (9,333)
Borrowings (repayments) of
long-term obligations, net.. 10,685 -- -- 10,685
Proceeds from exercise of
options..................... 804 -- -- 804
-------- -------- -------- --------
Net cash provided by
financing activities..... 2,156 -- -- 2,156
-------- -------- -------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS.... (61,557) 5,262 -- (56,295)
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE PERIOD...... 138,785 -- -- 138,785
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END
OF THE PERIOD................ $ 77,228 $ 5,262 $ -- $ 82,490
======== ======== ======== ========
</TABLE>
F-25
<PAGE>
CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
Fiscal 1996
------------------------------------------------
Guarantor
Parent Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings................. $ 13,919 $ 11,275 $(11,275) $ 13,919
Adjustments to reconcile net
earnings to net cash (used
in) provided by operating
activities:
Cumulative effect of change
in accounting principle.... -- 2,041 -- 2,041
Depreciation and
amortization............... 1,669 2,302 -- 3,971
Deferred income taxes....... -- (744) -- (744)
Deferred lease rentals...... 235 1,221 -- 1,456
Undistributed earnings of
subsidiaries............... (11,275) -- 11,275 --
Changes in assets and
liabilities providing
(using) cash:
Accounts receivable......... (3,143) -- -- (3,143)
Merchandise inventories..... (19,037) (57,648) -- (76,685)
Other assets................ 233 38 -- 271
Accounts payable............ 16,628 -- -- 16,628
Accrued expenses............ 2,709 -- -- 2,709
Income taxes................ -- (2,506) -- (2,506)
Advances to/from
subsidiaries............... (60,734) 60,734 -- --
-------- -------- -------- --------
Net cash provided by (used
in) operating
activities............... (58,796) 16,713 -- (42,083)
-------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and
equipment................... (16,493) (16,713) -- (33,206)
Purchases of marketable
securities.................. (44,778) -- -- (44,778)
Maturities and sales of
marketable securities....... 63,132 -- -- 63,132
-------- -------- -------- --------
Net cash provided by (used
for) investing
activities............... 1,861 (16,713) -- (14,852)
-------- -------- -------- --------
FINANCING ACTIVITIES:
Borrowings (repayments) under
financing agreements, net... 45,000 -- -- 45,000
Borrowings (repayments) of
long-term obligations, net.. (856) -- -- (856)
Proceeds from issuance of
common stock, net........... 52,900 -- -- 52,900
Proceeds from exercise of
options..................... 1,822 -- -- 1,822
-------- -------- -------- --------
Net cash provided by
financing activities..... 98,866 -- -- 98,866
-------- -------- -------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS.... 41,931 -- -- 41,931
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE PERIOD...... 96,854 -- -- 96,854
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END
OF THE PERIOD................ $138,785 $ -- $ -- $138,785
======== ======== ======== ========
</TABLE>
F-26
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
May 1, January 30,
1999 1999
-------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 17,629 $ 12,412
Accounts receivable..................................... 18,174 18,875
Merchandise inventories................................. 458,069 399,901
Other................................................... 16,195 18,302
-------- --------
Total current assets.................................. 510,067 449,490
PROPERTY AND EQUIPMENT, NET............................... 176,082 160,592
GOODWILL, NET............................................. 70,477 71,084
OTHER ASSETS.............................................. 14,559 8,230
-------- --------
$771,185 $689,396
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $ 94,260 $100,322
Accrued expenses........................................ 39,757 25,731
Current maturities of long-term obligations............. 6,671 6,639
-------- --------
Total current liabilities............................. 140,688 132,692
LONG-TERM OBLIGATIONS..................................... 286,414 216,203
DEFERRED LEASE RENTALS.................................... 13,867 13,162
DEFERRED INCOME TAXES..................................... 1,628 1,633
-------- --------
Total liabilities..................................... 442,597 363,690
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock--par value $.0001; 5,000 shares
authorized; none issued
Common stock--par value $.0001; 70,000 shares
authorized; 31,205 (May 1, 1999) and 31,197 (January
30, 1999) shares issued and outstanding................ 3 3
Paid-in capital......................................... 249,673 249,590
Retained earnings....................................... 78,912 76,113
-------- --------
Total stockholders' equity............................ 328,588 325,706
-------- --------
$771,185 $689,396
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
F-27
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (In thousands, except
per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended
------------------
April
May 1, 30,
1999 1998
-------- --------
<S> <C> <C>
Net sales................................................. $220,985 $151,921
Cost of sales............................................. 128,533 88,303
-------- --------
Gross profit.............................................. 92,452 63,618
-------- --------
Franchise fees, royalties earned and other revenue........ 140 308
-------- --------
Operating expenses:
Store operating......................................... 67,879 44,756
Store opening........................................... 4,300 3,352
Amortization of intangibles............................. 652 360
General and administrative.............................. 7,063 5,399
-------- --------
Total operating expenses.............................. 79,894 53,867
-------- --------
Operating income.......................................... 12,698 10,059
Interest expense, net..................................... (5,144) (602)
-------- --------
Earnings before income taxes and cumulative effect of
change in accounting principle........................... 7,554 9,457
Provision for income taxes................................ 2,908 3,641
-------- --------
Earnings before cumulative effect of change in accounting
principle................................................ 4,646 5,816
Cumulative effect of change in accounting principle....... (1,847) --
-------- --------
Net earnings.............................................. $ 2,799 $ 5,816
======== ========
BASIC EARNINGS PER SHARE:
Before cumulative effect of change in accounting
principle.............................................. $ 0.15 $ 0.19
Cumulative effect of change in accounting principle..... (0.06) --
-------- --------
Net earnings per share.................................. $ 0.09 $ 0.19
======== ========
DILUTED EARNINGS PER SHARE:
Before cumulative effect of change in accounting
principle.............................................. $ 0.15 $ 0.19
Cumulative effect of change in accounting principle..... (0.06) --
-------- --------
Net earnings per share.................................. $ 0.09 $ 0.19
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic................................................... 31,204 30,044
======== ========
Diluted................................................. 31,695 31,172
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
F-28
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
May 1, April 30,
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings............................................ $ 2,799 $ 5,816
Adjustments to reconcile net earnings to net cash used
by operating activities:
Cumulative effect of change in accounting principle... 1,847
Depreciation and amortization......................... 6,339 2,965
Deferred income taxes................................. (6) (28)
Deferred lease rentals................................ 706 439
Loss on disposal of property and equipment............ 247
Changes in assets and liabilities providing (using)
cash:
Accounts receivable................................... 701 (1,041)
Merchandise inventories............................... (58,168) (5,844)
Other assets.......................................... (6,113) (185)
Accounts payable...................................... (6,061) (9,141)
Accrued expenses...................................... 14,025 1,206
Income taxes.......................................... 3,425
--------- --------
Net cash used by operating activities............... (43,684) (2,388)
--------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment..................... (21,061) (12,277)
--------- --------
Net cash used for investing activities.............. (21,061) (12,277)
--------- --------
FINANCING ACTIVITIES:
Repayments of short-term borrowings, net................ (63,951)
Borrowings of long-term obligations..................... 435,100 1,701
Principal payments on long-term obligations............. (365,221) (816)
Proceeds from exercise of options....................... 83 865
--------- --------
Net cash provided by (used for) financing
activities......................................... 69,962 (62,201)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 5,217 (76,866)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............ 12,412 82,490
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ 17,629 $ 5,624
========= ========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
F-29
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 months ended May 1, 1999 are not
necessarily indicative of the results to be expected for the full year ending
January 29, 2000. For further information, refer to the financial statements
and notes thereto for the fiscal year ended January 30, 1999 included in the
Company's Form 10-K as filed with the Securities and Exchange Commission.
FISCAL YEAR
In late 1998 the Company adopted the standard fiscal year of the retail
industry which is a 52/53 week period ending on the Saturday closest to January
31. As a result, the most recent fiscal year ended on January 30, 1999 ("fiscal
1998") and the current three month period ended on May 1, 1999. However, all
quarters during fiscal 1998 ended the last day of April, July and October and
have not been restated as a result of the change in fiscal year.
SEGMENT REPORTING
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131 Disclosures about Segments of an Enterprise and
Related Information. Under SFAS No. 131, segments are defined as components of
an enterprise about which separate financial information is available that is
evaluated by the chief operating decision maker in deciding how to allocate
operating resources and in assessing performance. Under SFAS No. 131, the
superstore and specialty store concepts represent two operating segments that
have been aggregated for financial reporting purposes.
Approximately 76% of the Company's sales were comprised of athletic and
outdoor footwear for fiscal 1998 and 1997. The remaining sales were principally
apparel. Management believes that this sales mix will not materially change for
fiscal 1999. Sales and assets outside the United States are not material.
NOTE 2--ACQUISITION
On July 2, 1998, the Company acquired all of the outstanding stock of Sneaker
Stadium, Inc. ("Sneaker") for nominal cash consideration and the assumption of
$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 may 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 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.
F-30
<PAGE>
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.
NOTE 3--CHANGE IN ACCOUNTING PRINCIPLE
Effective January 31, 1999, the Company adopted 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 previously expensed start-up costs for new stores in the
month that the new store opened. The cumulative effect of this change in
accounting principle resulted in a net charge to earnings of approximately $1.8
million ($0.06 per basic and diluted share), net of applicable income taxes of
approximately $1.2 million. The effect on the three month period ended May 1,
1999 was an increase in store opening costs of approximately $1.3 million, and
a decrease in net income of approximately $774,000 ($0.02 per basic and diluted
share), net of applicable income taxes of approximately $484,000.
NOTE 4--NEW ACCOUNTING STANDARD
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued. This Statement requires that all derivatives be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In addition, all hedging relationships
must be designated, reassessed and documented pursuant to the provisions of
SFAS No. 133. This Statement will be effective for the Company in fiscal 2000
(although a delay in the effective date until 2001 is presently being
contemplated by the Financial Accounting Standards Board). The Company's
management has not determined the effect of SFAS No. 133 on its financial
statements.
NOTE 5--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 and its named officers
and directors deny liability on the claims (the dollar amount of which is
currently unspecified) and are vigorously defending the suit.
On April 20, 1999, the sole superstore franchisee of the Company, as
Plaintiff, filed a complaint seeking declaratory judgement, an accounting and
monetary damages against the Company. The complaint alleges that the Company
has breached its obligations under certain franchise agreements between it and
the Plaintiff and seeks actual damages in excess of $82.5 million, punitive
damages in excess of $25.0 million and the right to terminate the franchise
agreements. The Company denies all allegations contained in the complaint and
will vigorously defend these allegations.
The Company is a defendant in various lawsuits incident to the ordinary
course of business. It is not possible to determine with precision the probable
outcome or the amount of liability, if any, with respect to these lawsuits;
however, in the opinion of the Company, the disposition of these lawsuits will
not adversely affect the consolidated financial statements of the Company to a
material extent.
F-31
<PAGE>
NOTE 6--LONG-TERM OBLIGATIONS
At May 1, 1999, the Company had $60.7 million outstanding under a $200.0
million revolving senior credit facility (the "Facility") with a syndicate of
banks. The Facility terminates on December 10, 2001, bears interest at a
floating rate above either prime or LIBOR, (the effective rate was 6.5% at
May 1, 1999), is guaranteed and secured by the stock of the Company's domestic
subsidiaries and 66 2/3% of the Company's foreign subsidiary and is subject to
certain restrictive covenants. At May 1, 1999, the Company was in compliance
with these covenants. However, the Company anticipates that at the end of the
second quarter of fiscal 1999 it will not be in compliance with certain
covenants under this revolving credit facility. The Company is in the process
of obtaining an amendment to the facility to revise such covenants so that it
will remain in compliance.
On April 15, 1999, the Company completed the private placement of $200.0
million of 11.0% senior subordinated notes (the "Notes"). Proceeds from this
placement were used to repay a $80.0 million term loan (which was initially
borrowed in February 1999) and approximately $113.0 million of the Facility.
The Notes mature in May 2009 and require interest payments semi-annually. The
Notes are redeemable after April 2004 without a make-whole premium. At any time
prior to May 2004, the Company may redeem all of the Notes at a redemption
price equal to 100% of their principal amount plus a make-whole premium,
together with accrued interest through the redemption date. Before May 2002,
the Company may redeem up to 35% of the Notes with the net proceeds of certain
sales of equity. The Notes are general unsecured obligations, subordinate to
all of the Company's senior debt. Certain Note issuance costs have been
classified in other non-current assets on the accompanying balance sheet and
are being amortized over the life of the Notes.
All of the Company's wholly owned U.S. subsidiaries (the Company's non-
guarantor foreign subsidiary was formed in fiscal 1998) have guaranteed the
Notes. Accordingly, unaudited condensed consolidating financial statements are
presented below. The guarantees of the guarantor subsidiaries of the Notes are
full, unconditional, and joint and several. Separate financial statements of
the guarantor subsidiaries are not presented because management has determined
that they would not be material to investors. There are no significant
restrictions on the ability of Just For Feet, Inc. (the "Parent") to obtain
funds from the guarantor subsidiaries. The Parent and the guarantors have
accounted for their respective subsidiaries on the equity basis.
F-32
<PAGE>
Condensed Consolidating Balance Sheets (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
May 1, 1999
-----------------------------------------------------------
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiary Eliminations Consolidated
-------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents..... $ (19) $ 17,436 $ 212 $ -- $ 17,629
Accounts
receivable--
trade........... 15,463 2,711 -- -- 18,174
Accounts
receivable--
intercompany.... 305,011 -- -- (305,011) --
Merchandise
Inventory....... 119,382 333,164 5,523 -- 458,069
Other........... 10,079 5,901 215 -- 16,195
-------- -------- ------ --------- --------
Total Current
Assets.......... 449,916 359,212 5,950 (305,011) 510,067
PROPERTY AND
EQUIPMENT, NET... 48,980 124,273 2,829 -- 176,082
INVESTMENTS IN
SUBSIDIARIES..... 195,795 -- -- (195,795) --
GOODWILL, NET.... -- 70,477 -- -- 70,477
OTHER ASSETS..... 10,996 3,552 11 -- 14,559
-------- -------- ------ --------- --------
$705,687 $557,514 $8,790 $(500,806) $771,185
======== ======== ====== ========= ========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
CURRENT
LIABILITIES:
Accounts
payable......... 54,369 39,899 (8) -- $ 94,260
Accounts
payable--
intercompany.... -- 296,163 8,848 (305,011) --
Accrued
expenses........ 27,930 11,551 276 -- 39,757
Current
maturities of
long-term
obligations..... 6,671 -- -- -- 6,671
-------- -------- ------ --------- --------
Total Current
Liabilities..... 88,970 347,613 9,116 (305,011) 140,688
LONG-TERM
OBLIGATIONS...... 286,384 30 -- -- 286,414
DEFERRED LEASE
RENTALS.......... 924 12,943 -- -- 13,867
DEFERRED INCOME
TAXES............ 821 807 -- -- 1,628
-------- -------- ------ --------- --------
Total
Liabilities..... 377,099 361,393 9,116 (305,011) 442,597
-------- -------- ------ --------- --------
STOCKHOLDERS'
EQUITY:
Common Stock..... 3 11 -- (11) 3
Additional Paid-
In Capital....... 249,673 115,376 -- (115,376) 249,673
Retained
Earnings......... 78,912 80,734 (326) (80,408) 78,912
-------- -------- ------ --------- --------
Total
Stockholders'
Equity.......... 328,588 196,121 (326) (195,795) 328,588
-------- -------- ------ --------- --------
$705,687 $557,514 $8,790 $(500,806) $771,185
======== ======== ====== ========= ========
<CAPTION>
January 30, 1999
----------------------------------------------------------
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiary Eliminations Consolidated
-------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents..... $ 1,856 $ 10,309 $ 247 $ -- $ 12,412
Accounts
receivable--
trade........... 18,875 -- -- 18,875
Accounts
receivable--
intercompany.... 279,375 -- -- (279,375) --
Merchandise
Inventory....... 97,030 297,247 5,624 399,901
Other........... 7,057 11,030 215 18,302
-------- ------------ ---------- ------------ ------------
Total Current
Assets.......... 404,193 318,586 6,086 (279,375) 449,490
PROPERTY AND
EQUIPMENT, NET... 45,097 112,693 2,802 160,592
INVESTMENTS IN
SUBSIDIARIES..... 191,507 -- -- (191,507) --
GOODWILL, NET.... 71,084 71,084
OTHER ASSETS..... 1,287 6,932 11 8,230
-------- ------------ ---------- ------------ ------------
$642,084 $509,295 $8,899 $ (470,882) $689,396
======== ============ ========== ============ ============
LIABILITIES AND
STOCKHOLDERS'
EQUITY
CURRENT
LIABILITIES:
Accounts
payable......... $ 81,341 $ 18,540 $ 441 $100,322
Accounts
payable--
intercompany.... -- 270,767 8,608 (279,375) --
Accrued
expenses........ 12,465 13,161 105 25,731
Current
maturities of
long-term
obligations..... 6,108 531 -- 6,639
-------- ------------ ---------- ------------ ------------
Total Current
Liabilities..... 99,914 302,999 9,154 (279,375) 132,692
LONG-TERM
OBLIGATIONS...... 215,186 1,017 216,203
DEFERRED LEASE
RENTALS.......... 457 12,705 -- 13,162
DEFERRED INCOME
TAXES............ 821 812 -- 1,633
-------- ------------ ---------- ------------ ------------
Total
Liabilities..... 316,378 317,533 9,154 (279,375) 363,690
-------- ------------ ---------- ------------ ------------
STOCKHOLDERS'
EQUITY:
Common Stock..... 3 11 -- (11) 3
Additional Paid-
In Capital....... 249,590 115,376 -- (115,376) 249,590
Retained
Earnings......... 76,113 76,375 (255) (76,120) 76,113
-------- ------------ ---------- ------------ ------------
Total
Stockholders'
Equity.......... 325,706 191,762 (255) (191,507) 325,706
-------- ------------ ---------- ------------ ------------
$642,084 $509,295 $8,899 $ (470,882) $689,396
======== ============ ========== ============ ============
</TABLE>
F-33
<PAGE>
Condensed Consolidating Statements of Earnings (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended May 1, 1999
----------------------------------------------------------
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.......... $38,616 $178,958 $3,411 $ -- $220,985
Cost of sales...... 22,666 103,754 2,113 -- 128,533
------- -------- ------ ------- --------
Gross profit....... 15,950 75,204 1,298 -- 92,452
------- -------- ------ ------- --------
Franchise fees,
royalties and other
revenue............ 260 50 (170) -- 140
------- -------- ------ ------- --------
Operating expenses:
Store operating... 11,152 55,583 1,144 -- 67,879
Store opening
costs............. 87 4,213 -- -- 4,300
Amortization of
intangibles....... 45 607 -- -- 652
General and
administrative.... 1,570 5,393 100 -- 7,063
------- -------- ------ ------- --------
Total operating
expenses........ 12,854 65,796 1,244 -- 79,894
------- -------- ------ ------- --------
Operating income
(loss)............. 3,356 9,458 (116) -- 12,698
Interest expense,
net................ (5,144) -- -- -- (5,144)
------- -------- ------ ------- --------
Earnings (loss)
before income
taxes, Equity in
earnings of
subsidiaries and
cumulative effect
of change in
accounting
principle.......... (1,788) 9,458 (116) -- 7,554
Provision for
income taxes....... (688) 3,641 (45) -- 2,908
------- -------- ------ ------- --------
Earnings (loss)
before equity in
earnings of
subsidiaries and
cumulative effect
of change in
accounting
principle.......... (1,100) 5,817 (71) -- 4,646
Equity in earnings
of subsidiaries.... 4,288 -- -- (4,288) --
Cumulative effect
of change in
accounting
principle.......... (389) (1,458) -- -- (1,847)
------- -------- ------ ------- --------
Net earnings
(loss).......... $ 2,799 $ 4,359 $ (71) $(4,288) $ 2,799
======= ======== ====== ======= ========
<CAPTION>
Three Months Ended April 30, 1998
----------------------------------------------------------
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiary Eliminations Consolidated
-------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.......... $30,311 $119,175 $2,435 $ -- $151,921
Cost of sales...... 18,161 68,660 1,482 -- 88,303
-------- ------------ ---------- ------------ ------------
Gross profit....... 12,150 50,515 953 -- 63,618
-------- ------------ ---------- ------------ ------------
Franchise fees,
royalties and other
revenue............ 792 (484) -- -- 308
-------- ------------ ---------- ------------ ------------
Operating expenses:
Store operating... 7,255 36,866 635 -- 44,756
Store opening
costs............. 735 2,014 603 -- 3,352
Amortization of
intangibles....... 45 315 -- -- 360
General and
administrative.... 879 4,520 -- -- 5,399
-------- ------------ ---------- ------------ ------------
Total operating
expenses........ 8,914 43,715 1,238 -- 53,867
-------- ------------ ---------- ------------ ------------
Operating income
(loss)............. 4,028 6,316 (285) -- 10,059
Interest expense,
net................ (602) -- -- -- (602)
-------- ------------ ---------- ------------ ------------
Earnings (loss)
before income
taxes, Equity in
earnings of
subsidiaries and
cumulative effect
of change in
accounting
principle.......... 3,426 6,316 (285) -- 9,457
Provision for
income taxes....... 1,325 2,426 (110) -- 3,641
-------- ------------ ---------- ------------ ------------
Earnings (loss)
before equity in
earnings of
subsidiaries and
cumulative effect
of change in
accounting
principle.......... 2,101 3,890 (175) -- 5,816
Equity in earnings
of subsidiaries.... 3,715 -- -- (3,715) --
Cumulative effect
of change in
accounting
principle.......... -- -- -- -- --
-------- ------------ ---------- ------------ ------------
Net earnings
(loss).......... $ 5,816 $ 3,890 $ (175) $ (3,715) $ 5,816
======== ============ ========== ============ ============
</TABLE>
F-34
<PAGE>
Condensed Consolidating Statements of Cash Flow (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended May 1, 1999
-----------------------------------------------------------
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiary Eliminations Consolidated
-------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings
(loss)............ $ 2,799 $ 4,359 $ (71) $ (4,288) $ 2,799
Adjustments to
reconcile net
earnings to net
cash provided by
(used in)
operating
activities:
Cumulative effect
of change in
accounting........ 389 1,458 -- -- 1,847
Depreciation and
amortization...... 1,627 4,621 91 -- 6,339
Deferred income
taxes............. -- (6) -- -- (6)
Deferred lease
rentals........... 467 239 -- -- 706
Undistributed
earnings of
subsidiaries...... (4,288) -- -- 4,288 --
Loss on disposal
of property and
equipment......... 69 178 -- -- 247
Changes in assets
and liabilities
providing (using)
cash:
Accounts
receivable........ 3,412 (2,711) -- -- 701
Merchandise
inventories....... (22,352) (35,917) 101 -- (58,168)
Other assets...... (12,731) 6,618 -- -- (6,113)
Accounts
payable........... (26,972) 21,360 (449) -- (6,061)
Accrued
expenses.......... 15,465 (1,611) 171 -- 14,025
Income taxes...... -- -- -- -- --
Advances to/from
subsidiaries...... (25,636) 25,396 240 -- --
-------- -------- ----- -------- --------
Net cash
provided by
(used in)
operating
activities...... (67,751) 23,984 83 -- (43,684)
-------- -------- ----- -------- --------
INVESTING ACTIVITIES:
Purchases of
property and
equipment......... (5,605) (15,338) (118) -- (21,061)
-------- -------- ----- -------- --------
Net cash used
for investing
activities ...... (5,605) (15,338) (118) -- (21,061)
-------- -------- ----- -------- --------
FINANCING ACTIVITIES:
Repayments of
short-term
obligations,
net............... -- -- -- -- --
Borrowings
(repayments) of
long-term
obligations,
net............... 71,398 (1,519) -- -- 69,879
Proceeds from
exercise of
options........... 83 -- -- -- 83
-------- -------- ----- -------- --------
Net cash
provided by
(used in)
financing
activities....... 71,481 (1,519) -- -- 69,962
-------- -------- ----- -------- --------
NET INCREASE
(DECREASE) IN CASH
AND CASH
EQUIVALENTS........ (1,875) 7,127 (35) -- 5,217
CASH AND CASH
EQUIVALENTS,
BEGINNING OF THE
PERIOD............. 1,856 10,309 247 -- 12,412
-------- -------- ----- -------- --------
CASH AND CASH
EQUIVALENTS, END OF
THE PERIOD......... $ (19) $ 17,436 $ 212 $ -- $ 17,629
======== ======== ===== ======== ========
<CAPTION>
Three Months Ended April 30, 1998
-----------------------------------------------------------
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiary Eliminations Consolidated
--------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings
(loss)............ $ 5,816 $3,890 $ (175) $ (3,715) $ 5,816
Adjustments to
reconcile net
earnings to net
cash provided by
(used in)
operating
activities: --
Cumulative effect
of change in
accounting........ -- -- -- -- --
Depreciation and
amortization...... 1,082 1,818 65 -- 2,965
Deferred income
taxes............. 150 (178) -- -- (28)
Deferred lease
rentals........... 38 401 -- -- 439
Undistributed
earnings of
subsidiaries...... (3,715) -- -- 3,715 --
Loss on disposal
of property and
equipment......... -- -- -- -- --
Changes in assets
and liabilities
providing (using)
cash:
Accounts
receivable........ (1,102) 61 -- -- (1,041)
Merchandise
inventories....... 8,989 (9,450) (5,383) -- (5,844)
Other assets...... (657) 516 (44) -- (185)
Accounts
payable........... (18,867) 9,726 -- -- (9,141)
Accrued
expenses.......... (3,149) 4,355 -- -- 1,206
Income taxes...... 2,372 1,053 -- -- 3,425
Advances to/from
subsidiaries...... (1,174) (7,349) 8,523 -- --
--------- ------------ ---------- ------------ ------------
Net cash
provided by
(used in)
operating
activities...... (10,217) 4,843 2,986 -- (2,388)
--------- ------------ ---------- ------------ ------------ ---
INVESTING ACTIVITIES:
Purchases of
property and
equipment......... (858) (8,765) (2,654) -- (12,277)
--------- ------------ ---------- ------------ ------------
Net cash used
for investing
activities ...... (858) (8,765) (2,654) -- (12,277)
--------- ------------ ---------- ------------ ------------
FINANCING ACTIVITIES:
Repayments of
short-term
obligations,
net............... (63,951) -- -- -- (63,951)
Borrowings
(repayments) of
long-term
obligations,
net............... 832 53 -- -- 885
Proceeds from
exercise of
options........... 865 -- -- -- 865
--------- ------------ ---------- ------------ ------------
Net cash
provided by
(used in)
financing
activities....... (62,254) 53 -- -- (62,201)
--------- ------------ ---------- ------------ ------------
NET INCREASE
(DECREASE) IN CASH
AND CASH
EQUIVALENTS........ (73,329) (3,869) 332 -- (76,866)
CASH AND CASH
EQUIVALENTS,
BEGINNING OF THE
PERIOD............. 77,228 5,262 -- -- 82,490
--------- ------------ ---------- ------------ ------------
CASH AND CASH
EQUIVALENTS, END OF
THE PERIOD......... $ 3,899 $1,393 $ 332 $ -- $ 5,624
========= ============ ========== ============ ============
</TABLE>
F-35
<PAGE>
Appendix A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): July 2, 1998
----------------
JUST FOR FEET, INC.
(Exact name of registrant as specified in its charter)
----------------
Delaware 000-23570 63-0734234
(State or other (Commission File Number) (IRS Employer
jurisdiction Identification No.)
of incorporation)
7400 Cahaba Valley Road
Birmingham, Alabama 35242
(Address of principal executive offices)
Registrant's telephone number, including area code:
(205) 408-3000
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired:
Filed as a part of this report are the required financial statements for
Sneaker Stadium, Inc.
(b) Pro Forma Financial Information:
Filed as a part of this report is the required pro forma financial
information relative to the acquisition of Sneaker Stadium, Inc.
(c) Exhibits:
<TABLE>
<C> <S>
2.4 Agreement and Plan of Merger dated as of July 2, 1998 among Just For
Feet, Inc., a Delaware corporation, as Purchaser, JFF Merger Corp., a
Delaware corporation and wholly-owned subsidiary of Purchaser, and
Sneaker Stadium, Inc., a Delaware corporation*
10.17 Contingent Payment Agreement dated as of July 2, 1998 among Just For
Feet, Inc., a Delaware corporation, for the benefit of Banque Nationale
de Paris, for itself and as agent for itself and for Merrill Lynch
Senior Floating Rate Fund, Inc., Merrill Lynch Prime Rate Portfolio and
Merrill Lynch Debt Strategies Portfolio, and subject to the limitations
provided therein, for the benefit of the persons or entities listed on
Schedule I thereto*
10.18 Common Stock and Warrant Purchase Agreement dated as of July 2, 1998
between Just For Feet, Inc. and Sneaker Guarantee LLC*
23.1 Consent of Arthur Andersen LLP
</TABLE>
- --------
* previously filed
A-2
<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 hereunto duly authorized.
JUST FOR FEET, INC.
By: /s/ Eric L. Tyra
-----------------------------------
Name: Eric L. Tyra
Title: Executive Vice President &
Chief Financial Officer
Dated: July 27, 1998
A-3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Sneaker Stadium, Inc. and Subsidiary:
Consolidated Financial Statements as of February 1, 1998 and February 2,
1997 and for the years ended February 1, 1998, February 2, 1997 and
January 28, 1996, together with the Auditors' Report................... A-5
Consolidated Unaudited Interim Financial Statements as of May 3, 1998
and for the thirteen weeks ended May 3, 1998 and May 4, 1997........... A-23
Just For Feet, Inc. and Subsidiaries:
Unaudited Pro Forma Combined Financial Statements as of April 30, 1998
and for the three months ended April 30, 1998 and the year ended
January 31, 1998....................................................... A-27
</TABLE>
A-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Sneaker Stadium, Inc.:
We have audited the accompanying consolidated balance sheets of Sneaker
Stadium, Inc. (a Delaware corporation) and subsidiary as of February 1, 1998
and February 2, 1997, and the related consolidated statements of operations,
redeemable preferred stock and shareholders' deficit and cash flows for the
years ended February 1, 1998, February 2, 1997 and January 28, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sneaker
Stadium, Inc. and subsidiary as of February 1, 1998 and February 2, 1997, and
the results of their operations and their cash flows for the years ended
February 1, 1998, February 2, 1997 and January 28, 1996 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred significant operating losses
from inception and incurred a loss of $19,771,000 for the year ended February
1, 1998. Significant losses continue to be incurred subsequent to February 1,
1998. In addition, due to expected events of default, certain debt obligations
have been classified as current liabilities. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 1. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
May 21, 1998
A-5
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 1, February 2,
1998 1997
------------ ------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 918,298 $ 949,847
Accounts receivable.............................. 878,957 998,589
Inventories, net................................. 48,980,329 35,965,782
Prepaid expenses and other....................... 1,456,513 1,349,375
------------ ------------
Total current assets........................... 52,234,097 39,263,593
Property and equipment, net........................ 14,522,075 11,815,368
Debt issuance costs, net........................... 1,454,236 1,750,000
Other assets....................................... 1,767,512 1,818,083
------------ ------------
$ 69,977,920 $ 54,647,044
============ ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable................................. $ 11,807,290 $ 11,841,056
Accrued expenses and other....................... 6,031,666 3,801,600
Current portion of capitalized lease
obligations..................................... 674,449 436,076
Line of credit................................... 34,516,636 --
Term loan payable................................ 21,988,634 --
New store facility note.......................... 5,000,000 --
------------ ------------
Total current liabilities...................... 80,018,675 16,078,732
------------ ------------
Line of credit..................................... -- 13,657,256
------------ ------------
Term loan payable.................................. -- 21,376,166
------------ ------------
Deferred rent...................................... 2,700,970 1,443,837
------------ ------------
Capitalized lease obligations...................... 574,760 920,814
------------ ------------
Subordinated indemnification notes................. 7,500,000 7,500,000
------------ ------------
Subordinated convertible promissory notes.......... 5,266,667 --
------------ ------------
Series A perpetual preferred stock................. 41,699,795 41,531,900
------------ ------------
Commitments and contingencies (Note 11)
Shareholders' deficit:
Common stock, $.01 par value, 55,000,000 shares
authorized, 17,101,752 and 17,060,752 shares
issued and outstanding.......................... 171,018 170,608
Additional paid-in capital....................... (24,723,004) (24,740,494)
Accumulated deficit.............................. (43,230,961) (23,291,775)
------------ ------------
Total shareholders' deficit.................... (67,782,947) (47,861,661)
------------ ------------
$ 69,977,920 $ 54,647,044
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
A-6
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended
---------------------------------------
February 1, February 2, January 28,
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Net sales............................ $132,843,602 $ 68,270,455 $20,410,800
Cost of goods sold................... 87,952,434 42,899,923 13,080,953
------------ ------------ -----------
Gross profit....................... 44,891,168 25,370,532 7,329,847
------------ ------------ -----------
Selling, general and administrative
expenses............................ 58,240,045 32,201,431 12,778,126
Recapitalization costs and other re-
lated expenses...................... -- 3,861,638 --
------------ ------------ -----------
58,240,045 36,063,069 12,778,126
------------ ------------ -----------
Operating loss..................... (13,348,877) (10,692,537) (5,448,279)
Interest expense..................... (6,439,293) (608,724) (63,900)
Interest income...................... 16,879 142,721 155,578
------------ ------------ -----------
Net loss............................. $(19,771,291) $(11,158,540) $(5,356,601)
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
A-7
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Shareholders' Deficit
Redeemable Series A ----------------------------------------------------------------
Convertible Perpetual Additional Stock
Preferred Preferred Common Paid-In Accumulated Subscriptions
Stock Stock Stock Capital Deficit Receivable Total
------------ ----------- -------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 29,
1995................... $ 8,707,631 $ -- $ 41,500 $ 166,000 $ (2,278,864) $(171,398) $ (2,242,762)
Sale of Common Stock... -- -- 2,400 9,600 -- (9,600) 2,400
Sale of Redeemable
Convertible Preferred
Stock, net of
expenses.............. 25,696,663 -- -- -- (56,648) -- (56,648)
Accretion of Redeemable
Convertible Preferred
Stock redemption
value................. 1,441,897 -- -- -- (1,441,897) -- (1,441,897)
Payment of stock
subscriptions......... -- -- -- -- -- 5,398 5,398
Net loss............... -- -- -- -- (5,356,601) -- (5,356,601)
------------ ----------- -------- ------------ ------------ --------- ------------
Balance, January 28,
1996................... 35,846,191 -- 43,900 175,600 (9,134,010) (175,600) (9,090,110)
Sale of Common and
Series A Perpetual
Preferred Stock....... -- 11,739,591 23,606 3,814,309 -- -- 3,837,915
Accretion of Redeemable
Convertible Preferred
Stock redemption
value................. 2,999,225 -- -- -- (2,999,225) -- (2,999,225)
Dividend paid and
conversion of
Redeemable Convertible
Preferred Stock into
Common and Series A
Perpetual Preferred
Stock................. (38,845,416) 25,975,292 109,976 (29,006,497) -- -- (28,896,521)
Redemption of Common
Stock with Series A
Perpetual Preferred
Stock................. -- 2,285,113 (14,056) (2,271,057) -- -- (2,285,113)
Exercise of stock
options............... -- -- 5,928 146,649 -- -- 152,577
Payment of stock
subscriptions......... -- -- -- -- -- 175,600 175,600
Issuance of Common and
Series A Perpetual
Preferred Stock as
payment for services.. -- 296,100 1,254 202,646 -- -- 203,900
Issuance of Common and
Series A Perpetual
Preferred Stock
warrants to bank...... -- 1,237,100 -- 2,386,734 -- -- 2,386,734
Grant of Common Stock
options to a
consultant............ -- -- -- 204,700 -- -- 204,700
Repurchase of
fractional shares..... -- (1,296) -- 1,296 -- -- 1,296
Payment to extinguish
warrants.............. -- -- -- (394,874) -- -- (394,874)
Net loss............... -- -- -- -- (11,158,540) -- (11,158,540)
------------ ----------- -------- ------------ ------------ --------- ------------
Balance, February 2,
1997................... -- 41,531,900 170,608 (24,740,494) (23,291,775) -- (47,861,661)
Exercise of stock
options............... -- -- 410 2,490 -- -- 2,900
Issuance of non-voting
Common Stock warrants
to noteholders........ -- -- -- 15,000 -- -- 15,000
Accretion of Series A
Perpetual Preferred
Stock redemption
value................. -- 167,895 -- -- (167,895) -- (167,895)
Net loss............... -- -- -- -- (19,771,291) -- (19,771,291)
------------ ----------- -------- ------------ ------------ --------- ------------
Balance, February 1,
1998................... $ -- $41,699,795 $171,018 $(24,723,004) $(43,230,961) $ -- $(67,782,947)
============ =========== ======== ============ ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these statements.
A-8
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended
----------------------------------------
February 1, February 2, January 28,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................... $(19,771,291) $(11,158,540) $ (5,356,601)
Adjustments to reconcile net loss
to net cash used in operating
activities--
Imputed interest on debt......... 612,468 -- --
Depreciation and amortization.... 3,373,253 1,602,174 646,240
Amortization of debt issuance
costs........................... 295,764 -- --
Noncash interest expense......... 181,667 -- --
Noncash financing expense........ 100,000 -- --
Loss on disposal of property and
equipment....................... -- 59,547 --
Loss on store closings........... 1,924,507 -- --
Provision for deferred rent...... 1,512,749 1,052,923 323,374
Common and Preferred Stock and
options issued for services..... -- 704,700 --
Changes in operating assets and
liabilities--
(Increase) decrease in--
Accounts receivable............ 119,632 (351,715) (608,251)
Inventories.................... (13,014,547) (23,642,101) (9,776,874)
Prepaid expenses and other..... (107,138) (990,457) (348,419)
Other assets................... 239,571 (1,313,140) (280,955)
Increase (decrease) in--
Accounts payable............... (1,040,867) 7,387,562 1,067,691
Accrued expenses and other..... 1,570,285 2,705,220 839,008
------------ ------------ ------------
Net cash used in operating
activities.................. (24,003,947) (23,943,827) (13,494,787)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and
equipment......................... (7,226,246) (7,712,626) (1,821,019)
------------ ------------ ------------
Cash flows from financing activities:
Increase in bank overdrafts........ 1,007,101 1,203,908 --
Payments on capitalized lease
obligations....................... (481,737) (507,569) (253,999)
Payment of debt issuance costs..... -- (1,750,000) --
Proceeds from issuance of term
loan.............................. -- 25,000,000 --
Proceeds from subordinated
indemnification notes............. -- 7,500,000 --
Net proceeds from line of credit... 20,859,380 13,657,256 --
Proceeds from new store facility
note.............................. 5,000,000 -- --
Proceeds from subordinated
convertible promissory notes...... 4,811,000 -- --
Net proceeds from sales of Common
Stock............................. -- 3,837,915 2,400
Net proceeds from sales of
Redeemable Convertible Preferred
Stock............................. -- 10,249,992 18,390,023
Net proceeds from sale of Series A
Perpetual Preferred Stock......... -- 11,739,591 --
Dividends paid on Redeemable
Convertible Preferred Stock....... -- (41,766,645) --
Proceeds from subscriptions
receivable........................ -- 175,600 5,398
Net proceeds from exercise of
options........................... 2,900 152,577 --
Net payment to extinguish warrant.. -- (394,874) --
------------ ------------ ------------
Net cash provided by
financing activities........ 31,198,644 29,097,751 18,143,822
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................... (31,549) (2,558,702) 2,828,016
Cash and cash equivalents, beginning
of year............................. 949,847 3,508,549 680,533
------------ ------------ ------------
Cash and cash equivalents, end of
year................................ $ 918,298 $ 949,847 $ 3,508,549
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
A-9
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND:
Sneaker Stadium, Inc. (the Company) was incorporated in Delaware on February
23, 1994, and sells athletic footwear, activewear and related accessories
through Company-owned stores. The first store opened in November 1994, and the
Company operated 38 stores as of February 1, 1998 in New York, New Jersey,
Pennsylvania, Connecticut, North Carolina and Virginia.
The Company has incurred losses since its inception and expects to incur a
loss for the year ending January 31, 1999. There can be no assurance that the
Company will achieve and maintain profitability, or that its historical revenue
growth will be sustained. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result
should the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to comply with
the terms of its financing agreements and ultimately to attain profitability.
Management continues to work with its lenders to waive expected events of
default (see Notes 5 and 6) and will seek equity investments as required. See
Note 13 regarding the sale of the Company, which may result in significant
adjustments to the carrying value of the Company's assets and liabilities.
The Company operates in a highly competitive sector of the retail industry
and is subject to changing merchandise trends and consumer demands. All of the
Company's stores are located in the Northeast and Mid-Atlantic regions of the
United States. In addition, the Company's business relies significantly on
certain vendors (see Note 2).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Sneaker
Stadium, Inc. and its wholly-owned subsidiary, SNKR Holding Corp. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
Fiscal Year-End
The Company operates under a 52-53-week fiscal year ending the Sunday nearest
January 31. The year ended February 1, 1998 (fiscal 1997) includes 52 weeks of
operations, the year ended February 2, 1997 (fiscal 1996) includes 53 weeks of
operations and the year ended January 28, 1996 (fiscal 1995) includes 52 weeks
of operations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reliance on Key Vendors
The Company's business is dependent to a significant degree upon its ability
to purchase brand-name merchandise at competitive prices. For fiscal 1997, 1996
and 1995, approximately 68%, 66% and 57%,
A-10
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
respectively, of the Company's merchandise was purchased from five vendors,
including approximately 33%, 34% and 28%, respectively, purchased from a single
vendor. The loss of certain key vendors could have a material adverse effect on
the Company's business.
Revenue Recognition
Revenues for retail sales are recognized at the time of sale. The Company
maintains an incentive program for frequent buyers of footwear. Estimated
future costs associated with providing incentives under this program were
$1,746,376 and $1,197,867 as of February 1, 1998 and February 2, 1997,
respectively, and are included in accrued expenses and other.
Statements of Cash Flows Information
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents for the
purpose of determining cash flows. The Company paid $5,867,165, $489,375 and
$78,628 of interest expense in fiscal 1997, 1996 and 1995, respectively.
Capitalized lease obligations of $374,056, $669,503 and $1,448,955 were
incurred on equipment leases entered into in fiscal 1997, 1996 and 1995,
respectively.
Restricted Cash
The Company has pledged $575,000 of certificates of deposit as security
deposits on certain leases as of February 1, 1998. All certificates are subject
to renewal and, therefore, are included in other assets.
Inventories
Inventories consist of athletic and outdoor footwear and clothing and are
valued at the lower of cost (weighted average that approximates first-in,
first-out) or market. Costs associated with certain purchasing and merchandise
handling activities are included in inventories. Such costs were $3,820,690,
$1,884,652 and $549,195 in fiscal 1997, 1996 and 1995, respectively. Costs
included in inventories were $1,873,647 and $1,050,903 at February 1, 1998 and
February 2, 1997, respectively. The amounts shown on the balance sheets are net
of reserves of $1,031,822 and $460,399 at February 1, 1998 and February 2,
1997, respectively.
Store Preopening Costs
Certain costs incurred prior to the opening of new stores are charged to
expense during the first month that the stores are open for business. In April
1998, the Financial Accounting Standards Board (FASB) issued Statement of
Position (SOP) No. 98-5 which requires that costs of start-up activities and
organization costs be expensed as incurred. The SOP is effective for fiscal
years beginning after December 15, 1998. At February 1, 1998, there were no
amounts capitalized for the opening of new stores.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized, while repairs and maintenance are charged to expense. Depreciation
is provided over the estimated useful lives of the assets using the straight-
line method. The estimated lives are three to ten years for furniture, fixtures
and equipment and the shorter of the estimated useful life or lease term for
leasehold improvements.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for
fiscal 1997, 1996 and 1995 was $8,657,513, $6,197,731 and $2,112,584,
respectively.
A-11
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred Rent
Rent expense on leases is recorded on a straight-line basis over the lease
period. The excess of rent expense over the actual cash paid has been recorded
as deferred rent.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Long-Lived Assets
In March 1995, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS No. 121 established accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill. The Company continually evaluates whether later
events and circumstances have occurred that indicate the remaining estimated
useful lives of long-lived assets may warrant revision or that the remaining
balance of long-lived assets may not be recoverable. Management believes that
there has been no impairment of long-lived assets as of February 1, 1998, other
than for stores identified for closure (see Note 12).
Accounting for Stock-Based Compensation
The Company accounts for its stock-based compensation under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and
the related interpretations. In 1995, the FASB issued SFAS No. 123, "Accounting
for Stock-Based Compensation." SFAS No. 123 established new financial
accounting and reporting standards for stock-based employee compensation plans.
This statement also applies to transactions in which an entity issues its
equity instruments to acquire goods or services from non-employees. The Company
has adopted the disclosure requirements of this statement (see Note 10).
Stock Split
In connection with the January 17, 1997 recapitalization of the Company (see
Note 4), the Board of Directors authorized a two-for-one split of the Company's
Common Stock. All Common share amounts included in the accompanying
consolidated financial statements and notes have been adjusted retroactively to
give effect to this stock split.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform with the current year presentation.
New Accounting Pronouncement
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement requires companies to classify items of other comprehensive
income by their nature in the financial statements
A-12
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
a statement of financial position. SFAS No. 130 is effective for financial
statements issued for fiscal years beginning after December 15, 1997.
Management believes that SFAS No. 130 will not have a material effect on the
Company's financial statements.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
February 1, February 2,
1998 1997
----------- -----------
<S> <C> <C>
Furniture and fixtures and equipment............... $12,546,294 $ 8,423,845
Leasehold improvements............................. 7,352,890 5,675,973
Construction in progress........................... 41,957 --
----------- -----------
19,941,141 14,099,818
Accumulated depreciation and amortization.......... (5,419,066) (2,284,450)
----------- -----------
$14,522,075 $11,815,368
=========== ===========
</TABLE>
Equipment under capital leases included in property and equipment is
$2,492,514 and $2,118,458, with accumulated amortization of $1,330,126 and
$754,400, as of February 1, 1998 and February 2, 1997, respectively.
4. RECAPITALIZATION:
The Company entered into a recapitalization agreement on January 17, 1997.
The specific transactions which occurred in connection with the
recapitalization were as follows:
a) The Company increased the number of authorized shares of Common Stock
to 55,000,000 and authorized 1,250,000 shares of Preferred Stock, of which
750,000 shares were designated as Series A Perpetual Preferred Stock.
b) The Company sold 2,360,608.85 shares of Common Stock for $3,837,915
and sold 117,395.91 shares of Series A Perpetual Preferred for $11,739,591
to new investors.
c) The Company declared a special dividend of $1.6623 and $2.5476 per
share to the Series A and Series B Preferred (collectively the "Redeemable
Convertible Preferred") shareholders, respectively. The aggregate dividend
of $41,766,645 was paid on January 17, 1997.
d) Upon payment of the special dividend, all outstanding Redeemable
Convertible Preferred was converted into 10,997,532.64 shares of Common
Stock and 259,752.92 shares of Series A Perpetual Preferred, and the
Redeemable Convertible Preferred was canceled.
e) Options to purchase 592,750 shares of Common Stock were exercised,
generating cash proceeds of $152,577.
f) Common Stock subscriptions receivable of $175,600 were paid, with
interest of $26,877.
g) 1,405,518.44 shares of outstanding Common Stock were exchanged for
22,851.13 shares of Series A Perpetual Preferred and the Common Stock
received by the Company was retired.
h) The Company issued 125,384 shares of Common Stock and 2,961 shares of
Series A Perpetual Preferred to a non-employee as payment for $500,000 of
services rendered in connection with the recapitalization.
A-13
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
i) The Company purchased the warrant issued in connection with the
capital lease facility for net consideration of $394,874 (see Note 11).
j) The Company entered into a $7,500,000 subordinated indemnification
note due to certain shareholders and to a warrant holder and entered into
new bank credit facilities (see Notes 5, 6 and 7).
5. BANK DEBT:
On January 17, 1997, the Company entered into a $35,000,000 Credit Agreement
with a bank which provided the Company with a $25,000,000 term advance (Term
Loan) and $10,000,000 in new store advances (New Store Facility). On January
17, 1997, the Company borrowed $25,000,000 under the Term Loan and incurred
$1,400,000 in financing costs, which were deferred and are being amortized over
the term of the Credit Agreement. The borrowings were used to finance a portion
of the recapitalization transactions (see Note 4).
Borrowings under the Credit Agreement are collateralized by substantially all
of the Company's assets. The interest rate on the Term Loan and the New Store
Facility varies based on whether the borrowing is designated as a base rate
loan or Eurodollar loan. The interest rate on the base rate loans is the higher
of the prime rate plus 2.5% or 0.5% above the Federal Funds Rate plus 2.5%. All
borrowings designated as Eurodollar loans utilize the Eurodollar Rate plus
4.0%. Interest is due quarterly. The Credit Agreement requires an annual
commitment fee of .375% on the average unused portion of the New Store
Facility.
The Company is subject to certain covenants described in the Credit
Agreement. Such covenants, among other things, restrict the Company's ability
to incur debt, pay dividends, and make capital expenditures and acquisitions.
The Company is also subject to restrictive financial covenants, which include
ratios related to net worth, leverage, fixed charges and interest coverage. The
Credit Agreement was amended in September 1997 in connection with the
Subordinated Convertible Promissory Notes (see Note 7) and a restriction was
placed on the Company limiting new store openings to eight in fiscal 1998 and
eleven in fiscal 1999. Events of default under these covenants increase the
interest rate by 2.0%. Compliance with the terms of the covenants has been
waived through September 30, 1998. However, due to the Company's forecasted
non-compliance subsequent to that date, all amounts outstanding under the Term
Loan and New Store Facility have been classified as a current liability at
February 1, 1998 in the accompanying consolidated balance sheet.
In connection with the Credit Agreement, the lender received warrants to
purchase 1,472,641 shares of Common Stock for $.01 per share and warrants to
purchase 12,371 shares of Series A Perpetual Preferred Stock for $.01 per
share. The warrants expire on January 17, 2007 and are exercisable upon a sale
notice of the Company, as defined. For financial reporting purposes, the
warrants have been valued at $3,623,834 based on the estimated fair value of
the Common and Series A Perpetual Preferred Stock. This amount has been
recorded as original issue discount on the Term Loan.
At February 1, 1998, there was $25,000,000 outstanding under the Term Loan.
Interest on the Term Loan was 9.625% at February 1, 1998. The principal is
payable in quarterly installments from December 1999 through December 2002.
Scheduled maturity (assuming early payment not mandated by lender) is as
follows:
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
1999......................................................... $ 1,500,000
2000......................................................... 6,000,000
2001......................................................... 7,500,000
2002......................................................... 10,000,000
</TABLE>
A-14
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Effective February 25, 1997, the Company entered into an Interest Rate Collar
Agreement as required by the Credit Agreement for $20,000,000 of Eurodollar
loans, which places a ceiling on the Eurodollar rate of 7.5% and establishes a
floor of 5.15% through February 25, 1999. This agreement involves the exchange
of fixed-rate and floating-rate interest payments periodically over the life of
the agreement without the exchange of the underlying principal amounts. The
differential to be paid or received is accrued as interest rates change and
recognized over the life of the agreement as an adjustment to interest expense.
The fair value of this collar agreement, which is not material at February 1,
1998, is not recognized in the accompanying financial statements. The counter
party to the collar agreement is a major financial institution. Management
believes the risk of incurring losses related to credit risk is remote and any
potential losses would be immaterial.
At February 1, 1998, there was $5,000,000 outstanding under the New Store
Facility at an interest rate of 9.750%. The highest borrowing during fiscal
1997 was $5,000,000, average borrowings were $4,108,333, and the weighted
average interest rate was 9.17%. Principal is due beginning on March 31, 2000
in quarterly installments of 5% of the amount outstanding on June 30, 1999,
with the remaining balance due on December 31, 2002 (assuming early payment not
mandated by lender). Borrowings under the New Store Facility are subject to
limitations based on historical same store sales and average per store
borrowings, as defined. As of February 1, 1998, the Company was limited to
total borrowings of $5,000,000 on the New Store Facility.
6. LINE OF CREDIT:
In fiscal 1996, the Company entered into a three-year secured line of credit
with a bank. This line was terminated at no cost to the Company in connection
with the recapitalization. Fees of $120,005 were incurred under the line in
fiscal 1996.
On January 17, 1997, the Company entered into a $35,000,000 Revolving Loan
Agreement (Revolver) with a bank, which expires on December 31, 2002.
Borrowings on the Revolver are variable by month and are limited to 60% to 70%
of the book value of eligible inventories, less the lender's guarantee reserve,
as defined. Interest is variable based on whether the borrowing is designated
as a LIBOR Rate Loan or a Base Rate Loan and is payable monthly. The Company is
also subject to an unused line fee of .375%, payable quarterly. Borrowings are
collateralized by a first lien on the Company's inventories. The Company
incurred $350,000 in costs related to the Revolver, which were deferred and are
being amortized over the term of the Revolver.
The Revolver was amended in September 1997 in connection with the
Subordinated Convertible Promissory Notes (see Note 7), in December 1997 and in
May 1998 in connection with the Subordinated Secured Convertible Notes (see
Note 7). The Company incurred financing costs of $120,000 in connection with
these amendments.
The Revolver, as amended, provides for borrowings subject to a borrowing base
of the lesser of 65% of the eligible inventory or a percentage of the
inventory's net liquidation value, as defined. In addition, for the period May
20, 1998 through September 30, 1998 the Company can borrow an additional
$7,000,000 (Supplemental Overadvance) and for the period September 10, 1997
through December 31, 1999, the Company can borrow an additional $4,514,000
(Overadvance). For the period May 20, 1998 through September 30, 1998, total
borrowings are limited to $42,000,000 and after October 1, 1998 are limited to
$35,000,000. The Overadvance and Supplemental Overadvance are secured by
guarantees of certain shareholders of the Company. The Overadvance is
guaranteed through December 31, 1999 and the Supplemental Overadvance is
guaranteed through September 30, 1998. On September 30, 1998, the borrowings
outstanding under the Supplemental Overadvance will be repaid with the proceeds
from the sale of Subordinated Secured Convertible Notes to certain shareholders
(see Note 7).
A-15
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At February 1, 1998, there was $34,516,636 outstanding under the Revolver at
an interest rate of 8.375%. The highest borrowing during the year was
$35,378,300. Average borrowings were $26,841,916, and the weighted average
interest rate was 8.63%.
Upon prepayment in full of the Credit Agreement, the Company is required to
prepay the Revolver in an amount equal to 75% of excess cash flow, as defined.
The Company is subject to certain covenants described in the Revolver. Such
covenants, among other things, restrict the Company's ability to incur debt,
pay dividends, and make capital expenditures and acquisitions. The Company is
also subject to restrictive financial covenants, which include ratios related
to interest coverage, working capital and tangible capital. The Revolver
includes cross default provisions with the Credit Agreement (see Note 5). At
February 1, 1998, the Company was not in compliance with certain of these
covenants. The defaults of these covenants have been waived by the bank through
December 31, 1999. However, due to the anticipated non-compliance of the
covenants under the Credit Agreement and the cross default provisions, the
Revolver has been classified as a current liability at February 1, 1998 in the
accompanying consolidated balance sheet.
7. SUBORDINATED DEBT:
Subordinated Indemnification Notes
On January 17, 1997, the Company issued $7,500,000 in Subordinated
Indemnification Notes (the Indemnification Notes) to certain shareholders and a
warrant holder as an escrow amount for the benefit of the Company and certain
new investors. The Indemnification Notes were initially non-interest bearing
and had an initial maturity date of February 1, 1998 and a final maturity date
of April 2, 2006. The Indemnification Notes are subordinate to the Term Loan,
New Store Facility and Revolver and payment of the Indemnification Notes is
limited by the terms of such agreements.
Beginning February 2, 1998, interest accrues at 12% per year on the principal
outstanding and is due upon payment of the Indemnification Notes. After April
2, 1998, the principal and interest are convertible at the option of the
holders into Common and Series A Perpetual Preferred at a conversion price of
$1.6258 per share of Common Stock and $100 per share of Series A Perpetual
Preferred, subject to adjustment, allocated .4077 to the Common and .5923 to
the Series A Perpetual Preferred.
Subordinated Convertible Promissory Notes
On September 10, 1997, the Company issued $5,100,000 of Subordinated
Convertible Promissory Notes (the Promissory Notes), of which $100,000 was
issued for payment of certain fees and included in the fiscal 1997 statement of
operations. The Promissory Notes accrue interest at 12% per year, payable in
additional Promissory Notes. Principal and interest are due on April 2, 2006.
At the option of the holders, the Promissory Notes are exchangeable for shares
of Series B Perpetual Preferred Stock at a conversion price of $100 per share.
The Promissory Notes are subordinate to the Term Loan, New Store Facility and
the Revolver. The Promissory Notes are pari passu with the Indemnification
Notes.
The Company received $4,811,000 in cash for the Promissory Notes plus
$189,000 in Secured Promissory Notes from certain management shareholders which
are included in other assets in the accompanying balance sheet. Principal and
interest at 6.3% per year on the Secured Promissory Notes are due the earlier
of (i) April 2, 2006, (ii) the date the Company repays the Promissory Notes,
(iii) the date the management shareholders exercise their conversion rights
under the Indemnification Notes or (iv) upon the discontinuation of the
Company's operations.
A-16
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the sale of the Promissory Notes, the holders received
warrants to purchase 5,162,750 shares of Non-Voting Common Stock for $.10 per
share. The warrants expire on the earlier of September 10, 2007 or an initial
public offering. For financial reporting purposes, the warrants have been
valued at $15,000 based on the estimated fair value of the Non-Voting Common
Stock. This amount has been recorded as original issue discount on the
Promissory Notes.
Subordinated Secured Convertible Notes
On May 20, 1998, the Company entered into an agreement to issue $7,000,000 of
Subordinated Secured Convertible Notes (the Secured Notes) on September 30,
1998. The proceeds from the Secured Notes must be used to repay any borrowing
on the Supplemental Overadvance provision on the Revolver (see Note 6). The
Secured Notes will accrue interest at 12% per year. Principal and interest on
the Secured Notes are due May 1, 2008. At the option of the holder, the Secured
Notes are exchangeable for shares of Series C Perpetual Preferred Stock at a
conversion price of $100 per share. The Secured Notes are subordinate to the
Term Loan, New Store Facility and the Revolver. The Secured Notes are secured
by substantially all of the assets of the Company and are senior to the
Promissory Notes and the Indemnification Notes.
8. INCOME TAXES:
Income taxes consist of the following:
<TABLE>
<CAPTION>
For the Year Ended
-------------------------------------
February 1, February 2, January 28,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal................................ $ -- $ -- $ --
State.................................. -- -- --
----------- ----------- -----------
-- -- --
----------- ----------- -----------
Deferred:
Federal................................ (6,653,624) (3,999,542) (1,834,108)
State.................................. (1,174,169) (705,802) (323,666)
----------- ----------- -----------
(7,827,793) (4,705,344) (2,157,774)
Increase in valuation allowance.......... 7,827,793 4,705,344 2,157,774
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
A reconciliation of the effective income tax rate with the statutory Federal
income tax rate is as follows:
<TABLE>
<CAPTION>
For the Year Ended
-----------------------------------
February 1, February 2, January 28,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Statutory rate......................... (34)% (34)% (34)%
State income taxes, net of Federal
benefit............................... (6)% (6)% (6)%
Other.................................. -- (2)% --
Increase in valuation allowance........ 40 % 42 % 40 %
--- --- ---
-- -- --
=== === ===
</TABLE>
A-17
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The major components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
February 1, February 2,
1998 1997
------------ -----------
<S> <C> <C>
Net operating loss carryforward................. $ 8,562,358 $ 3,181,076
Start-up costs.................................. 181,206 273,753
Deferred rent................................... 1,182,635 577,534
Non-deductible accruals......................... 1,879,851 619,394
Depreciation.................................... (219,272) (192,314)
Inventory reserves and other.................... 405,939 141,604
Preopening costs................................ 2,015,831 1,474,447
Recapitalization costs and other related ex-
penses......................................... 1,215,381 1,458,458
Cooperative advertising reserve................. 286,800 148,984
------------ -----------
15,510,729 7,682,936
Valuation allowance............................. (15,510,729) (7,682,936)
------------ -----------
$ -- $ --
============ ===========
</TABLE>
Management has established a full valuation allowance for the net deferred
tax asset due to the uncertainty of its realization. At February 1, 1998, the
Company had Federal net operating loss carryforwards of approximately $21
million for tax reporting purposes that begin to expire in 2010. The usage of
the net operating loss carryforwards will be limited on an annual basis due to
changes in ownership (see Notes 4 and 13).
9. PREFERRED STOCK:
Redeemable Convertible Preferred Stock
Redeemable Convertible Preferred Stock consisted of Series A Preferred Stock
and Series B Preferred Stock. The Series A Preferred was convertible into
Common Stock based on a conversion rate, as defined. The Series A Preferred had
voting rights equal to the number of common shares into which it was
convertible. At January 28, 1996, there were 15,000,000 shares of $.01 par
value Series A Preferred authorized and 13,700,833 shares issued and
outstanding.
On December 31, 2000, 2001 and 2002, one-third, one-half and the remaining
shares of Series A Preferred, respectively, were required to be redeemed by the
Company (subject to certain provisions) at the original purchase price plus
accrued but unpaid dividends. Dividends accrued at an annual rate of $.10 per
share. In connection with the recapitalization of the Company (see Note 4), all
outstanding Series A Preferred was converted into Common Stock and Series A
Perpetual Preferred, and the Series A Preferred was canceled.
The Series B Preferred was convertible into Common Stock based on a
conversion rate, as defined. The Series B Preferred had voting rights equal to
the number of Common shares into which it was convertible. At January 28, 1996,
there were 8,000,000 shares of $.01 par value Series B Preferred authorized and
5,590,910 shares issued and outstanding.
On December 31, 2000, 2001 and 2002, one-third, one-half and the remaining
shares of Series B Preferred were required to be redeemed by the Company
(subject to certain provisions) at the original purchase price plus accrued but
unpaid dividends. Dividends accrued at an annual rate of $.275 per share. In
connection with the recapitalization of the Company (see Note 4), all
outstanding Series B Preferred was converted into Common Stock and Series A
Perpetual Preferred, and the Series B Preferred was canceled.
A-18
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Series A Perpetual Preferred Stock
The Series A Perpetual Preferred Stock has one vote per share and is entitled
to receive 5% cumulative dividends commencing January 1, 1998, increasing to
7.5% on January 1, 1999 and to 10% on January 1, 2000. The Series A Perpetual
Preferred is senior to Common Stock in liquidation, and has a liquidation value
of $100 per share, plus all accrued and unpaid dividends. The Series A
Perpetual Preferred is mandatorily redeemable by the Company in the event of a
liquidation event, as defined. At February 2, 1997 and February 1, 1998, there
were 750,000 shares of $.01 par value Series A Perpetual Preferred authorized
and 402,948 shares issued and outstanding. At February 1, 1998, the liquidation
value was $40,462,695.
Series B Perpetual Preferred Stock
The Series B Perpetual Preferred Stock has one vote for every 100 shares held
and is entitled to receive dividends equal to those accruing on the Series A
Perpetual Preferred. The Series B Perpetual Preferred is senior to the Series A
Perpetual Preferred and Common Stock in liquidation and has a liquidation value
of five times the stated value plus all accrued and unpaid dividends. The
Series B Perpetual Preferred is mandatorily redeemable by the Company in the
event of a liquidation event, as defined. At February 1, 1998, there were
1,500,000 shares of $.01 par value Series B Perpetual Preferred authorized and
no shares issued or outstanding.
Series C Perpetual Preferred Stock
The Series C Perpetual Preferred Stock has one vote for every 100 shares held
and is entitled to receive dividends equal to those accruing on the Series A
and Series B Perpetual Preferred. The Series C Perpetual Preferred is senior to
the Series A and Series B Perpetual Preferred and Common Stock in liquidation
and has a liquidation value of five times the stated value plus all accrued and
unpaid dividends. The Series C Perpetual Preferred is mandatorily redeemable by
the Company in the event of a liquidation event, as defined. At February 1,
1998, there were 700,000 shares of $.01 par value Series C Perpetual Preferred
authorized and no shares issued or outstanding.
10. SHAREHOLDERS' DEFICIT:
<TABLE>
<CAPTION>
February 1, February 2,
1998 1997
------------ ------------
<S> <C> <C>
Common Stock, $.01 par value, 55,000,000 shares
authorized, 17,101,752 and 17,060,752 shares
issued and outstanding......................... $ 171,018 $ 170,608
Non-Voting Common Stock, $.01 par value,
5,162,750 shares authorized, none issued or
outstanding.................................... -- --
Additional paid-in capital...................... (24,723,004) (24,740,494)
Accumulated deficit............................. (43,230,961) (23,291,775)
------------ ------------
$(67,782,947) $(47,861,661)
============ ============
</TABLE>
Common Stock
In the event of the closing of an initial public offering, the Non-Voting
Common stock of the Company is convertible into Common Stock.
Common Stock Options
In fiscal 1994, the Company established the 1994 Stock Plan (the Plan). The
Plan, as amended, provides for the granting of up to 5,000,000 shares of Common
Stock or options to purchase Common Stock to eligible employees and
consultants. Options granted may vest based on performance and/or time, as
defined.
A-19
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company issued 1,150,000 and 240,000 shares of common stock under the
Plan to management in fiscal 1994 and 1995, respectively. Shares were issued at
$.05 per share and were paid for in cash and interest-bearing promissory notes.
Promissory notes of $175,600 were repaid to the Company as part of the
recapitalization of the Company in fiscal 1996 (see Note 4).
The exercise price of options granted may be at the fair market value of the
stock or at a price determined by a committee of the Board of Directors. The
stock options granted prior to the recapitalization of the Company became
fully-vested upon the recapitalization. Options granted subsequent to the
recapitalization will generally vest over a five-year period and will be
exercisable over a period determined by the committee, but not longer than ten
years.
Information with respect to options granted under the Plan is as follows:
<TABLE>
<CAPTION>
Aggregate Option Price
Shares Price Per Share
---------- ---------- -------------
<S> <C> <C> <C>
Balance, January 29, 1995............. 154,000 $ 7,700 $0.05
Granted............................. 453,000 61,570 0.05 -0.50
Exercised........................... -- -- -
Expired............................. -- -- -
---------- ---------- -------------
Balance, January 28, 1996............. 607,000 69,270 0.05 -0.50
Granted............................. 1,533,010 2,220,958 0.135-1.6258
Exercised........................... (592,750) (152,577) 0.05 -0.80
Expired............................. (1,800) (424) 0.05 -0.80
---------- ---------- -------------
Balance, February 2, 1997............. 1,545,460 2,137,227 0.05 -1.6258
Granted............................. 183,500 18,350 0.10
Exercised........................... (41,000) (2,900) 0.05 -0.135
Expired............................. (34,050) (22,124) 0.05 -0.80
Change in exercise price:
Old price......................... (1,458,460) (2,112,795) 0.135-1.6258
New price......................... 1,458,460 145,846 0.10
---------- ---------- -------------
Balance, February 1, 1998............. 1,653,910 $ 163,604 $0.05 -$0.10
========== ========== =============
</TABLE>
During fiscal 1997, options outstanding under the Plan with exercise prices
ranging from $.135 to $1.6258 per share were revalued to $.10 per share.
The options outstanding at February 1, 1998 include options to purchase an
aggregate of 157,756 shares of Common Stock granted to certain executives at an
exercise price of $0.10 per share for which vesting is accelerated over a five-
year period if the Company achieves certain defined financial objectives. The
options will vest 100% if the executives are employed by the Company through
January 17, 2005. None of these options were vested at February 1, 1998.
At February 1, 1998, there were 464,442 exercisable options at prices ranging
from $0.05 to $0.10 per share. The aggregate exercise price of these options
was $44,657. At February 1, 1998, there were 1,288,290 shares of common stock
reserved for future grant.
Had compensation cost for the Company's plan been determined based upon the
fair value of the options at the date of grant, as prescribed under SFAS No.
123, the Company's net loss for fiscal 1997, 1996 and 1995 would have been
increased by $75,762, $66,490 and $2,253, respectively.
The effects of applying SFAS No. 123 in the pro forma disclosure are not
indicative of future amounts, as SFAS No. 123 has not been applied to options
granted prior to January 30, 1995. The weighted average fair
A-20
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
value of the options granted in fiscal 1997, 1996 and 1995 is estimated as
$0.03, $0.38 and $0.03 per share, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: zero dividend yield and volatility, risk-free interest rate of
5.9%, 6.5% and 6.2%, respectively, and an expected life of five years.
11. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases its office and retail stores under various noncancellable
operating leases. Certain of these leases have renewal options. Future minimum
lease payments, net of rent credits, including four stores for which the
Company has entered into lease agreements but has not yet commenced operations,
are as follows:
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
1998........................................................ $ 12,789,265
1999........................................................ 14,374,329
2000........................................................ 14,532,531
2001........................................................ 14,814,126
2002........................................................ 15,470,480
Thereafter.................................................. 121,019,816
------------
$193,000,547
============
</TABLE>
Rent expense, including percentage rent, was $12,618,764, $5,821,110 and
$1,909,119 in fiscal 1997, 1996 and 1995, respectively.
Capital Leases
The Company has entered into capital leases for certain equipment. The
present value of the future minimum lease payments as of February 1, 1998 are
as follows:
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
1998......................................................... $ 744,992
1999......................................................... 482,167
2000......................................................... 90,545
2001......................................................... 37,449
----------
1,355,153
Less imputed interest........................................ (105,944)
----------
$1,249,209
==========
</TABLE>
In April 1995, the Company entered into a $1,700,000 capital lease facility
for certain equipment. In connection with this facility, the Company issued
warrants to the lessor for the purchase of 178,500 shares of Series A Preferred
Stock for $1.00 per share. These warrants were repurchased in connection with
the recapitalization of the Company (see Note 4).
Advertising
The Company has made commitments to place up to $1,500,000 in television
advertising in fiscal 1998.
Employment Agreements
On January 17, 1997, the Company entered into two-year employment agreements
with certain key employees providing for aggregate base salaries of $375,000
per year, performance bonuses of up to 100% of
A-21
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
base salary, stock options, benefits, severance in certain circumstances and a
non-competition period during the agreement and the two years thereafter.
Consulting Agreement
On January 17, 1997, the Company entered into a consulting agreement with a
director requiring payments of $100,000 per year. The director was also granted
an option to purchase 457,712 shares of Common Stock at an exercise price of
$1.6258 per share. During fiscal 1997, these options were revalued to $.10 per
share (see Note 10). Consulting expense related to this option grant was
recorded in fiscal 1996. The options vest over a three-year period. The
agreement provides for a non-competition period during the agreement and the
two years thereafter. The agreement can be terminated by either party upon
notice, as defined.
Management Agreement
On January 17, 1997, the Company entered into a five-year management
agreement with an affiliate of a new investor requiring payments of $150,000
per year. The agreement also provided for the payment of a fee in connection
with the recapitalization.
Litigation
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. The Company believes that it has adequate
insurance coverage against possible liabilities that may be incurred in
connection with such claims. The Company could be materially and adversely
affected if it were required to pay damages or incur defense costs in
connection with a claim that is beyond the scope of insurance coverage or if
the claim exceeds the insurance policy limits. Management believes that the
outcome of litigation and claims pending as of February 1, 1998 will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
12. LOSS ON STORE CLOSINGS:
In fiscal 1997, the Company recorded a loss of $1,924,507 related to
implementation of a plan to close three retail store locations. Under the terms
of the plan, the stores will be closed, subleased to third parties, and the
inventory shipped to other store locations. Management anticipates the plan
will be completed in fiscal 1998. The loss on store closings consists primarily
of abandoned property and leasehold improvements, rental commitments to be paid
prior to sublease, and deferred rent recapture. This loss has been recorded in
selling, general and administrative expenses in the accompanying statement of
operations.
13. SALE OF BUSINESS (UNAUDITED):
On June 6, 1998, the Company signed a letter of intent whereby its
shareholders will sell all of their shares to Just For Feet, Inc. for $.0001
per share. Pursuant to the terms of the letter of intent, the Company will be
merged into a wholly-owned subsidiary of Just For Feet and Just For Feet will
assume $43.0 million of the outstanding debt. The holders of the subordinated
notes will forgive the amounts due them. Should the acquired Sneaker Stadium
stores attain certain specified financial goals, an additional payment of up to
$31.0 million may be paid to the various lenders. The letter of intent has been
approved by the Boards of Directors of both companies. Closing on the
transaction is subject to satisfactory completion of due diligence, definitive
documentation of the merger and contingent payment agreements, the approval of
the Company's shareholders and various lenders and expiration of the Hart-
Scott-Rodino waiting period.
A-22
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
May 3,
1998
------------
<S> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 1,933,626
Accounts receivable............................................ 1,364,550
Inventories, net............................................... 53,565,505
Prepaid expenses and other..................................... 2,240,776
------------
Total current assets......................................... 59,104,457
PROPERTY AND EQUIPMENT, net...................................... 14,100,894
DEBT ISSUANCE COSTS, net......................................... 1,380,295
OTHER ASSETS..................................................... 1,598,766
------------
$ 76,184,412
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable............................................... $ 23,406,069
Accrued expenses and other..................................... 8,425,076
Current portion of capitalized lease obligations............... 612,042
Line of credit................................................. 30,327,731
Term loan payable.............................................. 22,141,751
New store facility note........................................ 5,000,000
------------
Total current liabilities.................................... 89,912,669
------------
DEFERRED RENT.................................................... 3,101,473
------------
CAPITALIZED LEASE OBLIGATIONS.................................... 466,434
------------
SUBORDINATED INDEMNIFICATION NOTES............................... 7,500,000
------------
SUBORDINATED CONVERTIBLE PROMISSORY NOTES........................ 5,266,667
------------
SERIES A PERPETUAL PREFERRED STOCK............................... 42,203,480
------------
COMMITMENTS AND CONTINGENCIES....................................
SHAREHOLDERS' DEFICIT:
Common stock, $.01 par value, 55,000,000 shares authorized,
17,101,752 shares issued and outstanding...................... 171,018
Additional paid-in capital..................................... (24,723,004)
Accumulated deficit............................................ (47,714,325)
------------
Total shareholders' deficit.................................. (72,266,311)
------------
$ 76,184,412
============
</TABLE>
The accompanying notes are an integral part of this statement.
A-23
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended
------------------------------
May 3, May 4,
1998 1997
-------------- --------------
<S> <C> <C>
NET SALES...................................... $38,393,025 $29,210,109
COST OF GOODS SOLD............................. 24,736,624 18,203,023
-------------- --------------
Gross profit................................. 13,656,401 11,007,086
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES... 15,909,142 12,284,129
-------------- --------------
Operating loss............................... (2,252,741) (1,277,043)
INTEREST EXPENSE............................... (1,727,757) (1,356,364)
INTEREST INCOME................................ 819 1,883
-------------- --------------
NET LOSS....................................... $ (3,979,679) $ (2,631,524)
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
A-24
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended
-----------------------------
May 3, May 4,
1998 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $ (3,979,679) $ (2,631,524)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities--
Imputed interest on debt....................... 153,117 153,117
Depreciation and amortization.................. 934,783 694,695
Amortization of debt issuance costs............ 73,941 73,941
Provision for deferred rent.................... 400,503 380,386
Changes in operating assets and liabilities--
(Increase) decrease in--
Accounts receivable........................ (485,593) (787,999)
Inventories................................ (4,585,176) (16,132,159)
Prepaid expenses and other................. (784,263) (831,084)
Other assets............................... 168,746 181,115
Increase in--
Accounts payable........................... 13,809,798 10,505,376
Accrued expenses and other................. 2,093,410 1,617,412
------------- --------------
Net cash (used in) provided by operating
activities.............................. 7,799,587 (6,776,724)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (213,602) (3,161,237)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in bank overdrafts.................... (2,211,019) (1,203,918)
Payments on capitalized lease obligations...... (170,733) (59,480)
Net proceeds from line of credit............... (4,188,905) 7,959,227
Proceeds from new store facility note.......... -- 4,000,000
------------- --------------
Net cash provided by financing activities.... (6,570,657) 10,695,829
------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS........ 1,015,328 757,868
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD... 918,298 949,847
------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD......... $ 1,933,626 $ 1,707,715
============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
A-25
<PAGE>
SNEAKER STADIUM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles applicable
to a going concern, which principles assume that assets will be realized and
liabilities will be discharged in the normal course of business. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. It is suggested that these consolidated financial statements be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's audited financial statements for the fiscal year
ended February 1, 1998.
In the opinion of the management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position as of
May 3, 1998 and the results of operations and cash flows for the thirteen-week
periods ended May 4, 1997 and May 3, 1998. The results of operations for the
period ended May 3, 1998 are not necessarily indicative of the results to be
expected for the full year.
The Company has incurred significant losses since its inception and incurred
a loss of $3,979,679 in the thirteen-week period ended May 3, 1998. Due to
expected events of default, certain debt obligations have been classified as
current liabilities. These factors, among others, raise substantial doubt about
the Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern. The Company's continuation as a going concern is
dependent upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to comply with the terms of its financing
agreements and ultimately to attain profitability. Management continues to work
with its lenders to waive expected events of default and will seek equity
investments as required. See Note 3 regarding the sale of the Company, which
may result in significant adjustments to the carrying value of the Company's
assets and liabilities.
Note 2. Income Taxes
Due to recurring losses, the Company has provided a full valuation allowance
reserve for the tax benefit associated with the losses incurred for the
thirteen week periods ended May 4, 1997 and May 3, 1998.
Note 3. Sale of Company
On July 2, 1998, Just For Feet, Inc. acquired all of the outstanding stock of
the Company for $1,750 cash and the assumption of approximately $43 million of
existing debt of the Company. Immediately prior to the acquisition, certain of
the Company's lenders forgave approximately $32 million of the Company's
indebtedness and the Company's shareholders were released from their guarantees
of Company debt. Just For Feet, Inc. is obligated to make certain contingent
payments on or after April 30, 2002 (up to a maximum of $33 million) to
specified lenders of the Company, if the acquired Sneaker Stadium stores future
earnings exceed specified targeted amounts.
A-26
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE ACQUISITION OF SNEAKER STADIUM, INC.
The following unaudited pro forma combined financial statements and
explanatory notes reflect the acquisition on July 2, 1998 of Sneaker Stadium,
Inc. (Sneaker) by Just For Feet, Inc. (JFF). JFF acquired all of the
outstanding stock of Sneaker for nominal cash consideration and assumed $43.0
million of existing Sneaker bank debt. Such debt was immediately paid off with
the proceeds of a term loan by JFF. The acquisition has been accounted for
under the purchase method. JFF will make additional payments of up to $33
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.
Concurrent with and as a condition of JFF's acquisition of Sneaker, an
affiliate of Thomas H. Lee Company (THL), a firm which owned a controlling
interest in Sneaker, purchased from JFF an aggregate of 926,355 units, each
unit consisting of one share of JFF common stock and a warrant to purchase .997
of a share of JFF 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 and, for
accounting purposes, were considered a part of the consideration paid by JFF
for Sneaker.
The pro forma combined balance sheet assumes that the acquisition was
consummated on April 30, 1998 and the pro forma combined statements of income
for the year ended January 31, 1998 and the three months ended April 30, 1998
assume that the acquisition was consummated on February 1, 1997.
For purposes of these pro forma financial statements, the financial
statements of JFF as of and for the three months ended April 30, 1998 and for
the year ended January 31, 1998 have been combined with those of Sneaker as of
and for the thirteen weeks ended May 3, 1998 and the year ended February 1,
1998, respectively.
Certain pro forma adjustments are based on preliminary estimates. Final
allocations will be made on the basis of further evaluations and, therefore,
such allocations may differ from those reflected in the pro forma combined
financial statements.
JFF intends to convert the Sneaker superstores to the JFF name and format.
JFF may also close some of the acquired stores. JFF intends to close Sneaker's
existing corporate headquarters and consolidate all operations into JFF's
headquarters. Following the liquidation of existing inventory through clearance
or similar sales, Sneaker stores will be closed, remodeled, restocked and the
staff retrained prior to reopening under the JFF name. The accompanying pro
forma financial statements do not include any adjustments or effects from such
integration activities.
The pro forma statements of income are not necessarily indicative of the
results of operations of JFF had the Sneaker acquisition occurred at the
beginning of the periods presented, nor necessarily indicative of the results
of future operations. These statements should be read in conjunction with the
separate historical financial statements and notes thereto of JFF (included in
JFF's Annual Report on Form 10-K for the year ended January 31, 1998) and
Sneaker (included herein).
A-27
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
April 30, 1998 (in thousands)
<TABLE>
<CAPTION>
Just For Feet, Inc. Sneaker Pro Forma Pro Forma
and Subsidiaries Stadium, Inc. Adjustments Combined
------------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash.................. $ 5,624 $ 1,934 $ 20,000 b $ 7,558
(20,000)c
Accounts receivable... 16,881 1,365 18,246
Merchandise
inventories.......... 211,972 53,566 (11,900)a 253,638
Other assets.......... 6,472 2,240 5,390 a 14,102
-------- -------- -------- --------
Total current
assets............. 240,949 59,105 (6,510) 293,544
PROPERTY AND EQUIPMENT,
NET.................... 104,135 14,101 (13,000)a 105,236
GOODWILL................ 35,857 27,857 a 63,714
OTHER ASSETS............ 6,926 2,978 2,727 a 12,631
-------- -------- -------- --------
$387,867 $ 76,184 $ 11,074 $475,125
======== ======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
---------------------
CURRENT LIABILITIES:
Short-term
borrowings........... $ 26,716 $ 57,470 $(17,430)a $ 46,756
(20,000)c
Accounts payable...... 42,021 23,406 65,427
Accrued expenses...... 10,498 8,365 5,173 a 24,036
Income taxes.......... 4,788 60 4,848
Current maturities of
long-term
obligations.......... 3,470 612 4,082
-------- -------- -------- --------
Total current
liabilities........ 87,493 89,913 (32,257) 145,149
LONG-TERM OBLIGATIONS... 17,283 13,233 (12,767)a 17,749
DEFERRED LEASE RENTALS.. 7,650 3,101 10,751
DEFERRED INCOME TAXES... 676 (676)a
-------- -------- -------- --------
Total liabilities... 113,102 106,247 (45,700) 173,649
-------- -------- -------- --------
REDEEMABLE PREFERRED
STOCK.................. 42,203 (42,203)a
-------- --------
SHAREHOLDERS' EQUITY:
Common stock.......... 3 171 (171)a 3
Paid-in-capital....... 219,481 (24,723) 31,434 a 246,192
20,000 b
Retained earnings..... 55,281 (47,714) 47,714 a 55,281
-------- -------- -------- --------
Total shareholders'
equity............. 274,765 (72,266) 98,977 301,476
-------- -------- -------- --------
$387,867 $ 76,184 $ 11,074 $475,125
======== ======== ======== ========
</TABLE>
See notes to pro forma combined financial statements.
A-28
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
Three Months Ended April 30, 1998 (in thousands, except per share amounts)
<TABLE>
<CAPTION>
Just For Feet, Inc. Sneaker Pro Forma Pro Forma
and Subsidiaries Stadium, Inc. Adjustments Combined
------------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES............... $151,921 $ 38,393 $ $190,314
COST OF SALES........... 88,303 24,737 113,040
-------- -------- --------
GROSS PROFIT............ 63,618 13,656 77,274
-------- -------- --------
FRANCHISE FEES AND
ROYALTIES EARNED....... 308 308
-------- --------
OPERATING EXPENSES:
Store operating....... 44,756 14,488 59,244
Amortization of
intangibles.......... 360 232 b 592
Store-opening costs... 3,352 3,352
General and
administrative....... 5,399 1,421 6,820
-------- -------- ------- --------
Total operating
expenses........... 53,867 15,909 232 70,008
-------- -------- ------- --------
OPERATING INCOME
(LOSS)................. 10,059 (2,253) (232) 7,574
INTEREST EXPENSE, NET... 602 1,727 (1,727)a 1,012
410 c
-------- -------- ------- --------
INCOME (LOSS) BEFORE
INCOME TAXES........... 9,457 (3,980) 1,085 6,562
PROVISION (BENEFIT) FOR
INCOME TAXES........... 3,641 (1,039)d 2,602
-------- -------- ------- --------
NET INCOME (LOSS)....... $ 5,816 $ (3,980) $ 2,124 $ 3,960
======== ======== ======= ========
EARNINGS PER SHARE:
BASIC................. $ 0.19 $ 0.13
======== ========
DILUTED............... $ 0.19 $ 0.12
======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC................. 30,044 926 e 30,970
======== ======= ========
DILUTED............... 31,172 926 e 32,098
======== ======= ========
</TABLE>
See notes to pro forma combined financial statements.
A-29
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
Year Ended January 31, 1998 (in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Just For Feet, Inc. Sneaker Adjustments Combined
and Subsidiaries Stadium, Inc. (Unaudited) (Unaudited)
------------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES............... $478,638 $132,844 $ $611,482
COST OF SALES........... 279,816 87,953 367,769
-------- -------- --------
GROSS PROFIT............ 198,822 44,891 243,713
-------- -------- --------
FRANCHISE FEES AND
ROYALTIES EARNED....... 1,101 1,101
-------- --------
OPERATING EXPENSES:
Store operating....... 139,659 49,928 189,587
Amortization of
intangibles.......... 1,200 928 b 2,128
Store-opening costs... 6,728 2,129 8,857
General and
administrative....... 18,040 6,183 24,223
-------- -------- ------- --------
Total operating
expenses........... 165,627 58,240 928 224,795
-------- -------- ------- --------
OPERATING INCOME
(LOSS)................. 34,296 (13,349) (928) 20,019
INTEREST EXPENSE, NET... 76 6,422 (6,422)a 1,706
1,630 c
-------- -------- ------- --------
INCOME (LOSS) BEFORE
INCOME TAXES........... 34,220 (19,771) 3,864 18,313
PROVISION (BENEFIT) FOR
INCOME TAXES........... 12,817 (5,839)d 6,978
-------- -------- ------- --------
NET INCOME (LOSS)....... $ 21,403 $(19,771) $ 9,703 $ 11,335
======== ======== ======= ========
EARNINGS PER SHARE:
BASIC................. $ 0.72 $ 0.37
======== ========
DILUTED............... $ 0.70 $ 0.36
======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC................. 29,615 926 e 30,541
======== ======= ========
DILUTED............... 30,410 926 e 31,336
======== ======= ========
</TABLE>
See notes to pro forma combined financial statements.
A-30
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Pro Forma Balance Sheet Adjustments
a) To record JFF's purchase of Sneaker. The Company paid nominal
consideration for Sneaker's outstanding stock. Warrants issued to an affiliate
of THL with an estimated fair value of $6.7 million and approximately $2.7
million of transaction costs are included as additional consideration. The
historical carrying value of Sneaker's tangible net assets is estimated to
approximate their fair value except for property and equipment and inventory.
Accordingly, the purchase price has been tentatively allocated as follows:
<TABLE>
<S> <C>
Consideration paid:
Warrants issued.............................................. $ 6,711
Estimated transaction costs.................................. 2,673
--------
9,384
--------
Historical net assets of Sneaker:
Historical net deficiency in assets.......................... (72,266)
Redeemable preferred stock acquired.......................... 42,203
Sneaker debt forgiven immediately prior to acquisition(1).... 32,419
Historical intangible and certain other assets of Sneaker
without continuing value.................................... (4,329)
--------
(1,973)
--------
Excess of purchase price over historical net assets
acquired.................................................... $ 11,357
========
Allocation of excess purchase price (including fair value
adjustments):
Property and equipment(2).................................... (13,000)
Merchandise inventories(2)................................... (11,900)
Accrued expenses(3).......................................... (2,500)
Deferred income taxes(4)..................................... 10,900
Goodwill..................................................... 27,857
--------
$ 11,357
========
</TABLE>
--------
(1) Lenders of Sneaker Stadium forgave certain indebtedness immediately
prior to the acquisition. For purposes of the pro forma balance
sheet, such forgiveness has been reflected as though it had
occurred at April 30, 1998.
(2) As JFF plans to close and renovate all existing Sneaker stores and
liquidate existing inventory, these assets have been reduced to
their estimated fair value.
(3) Severance costs for certain Sneaker employees who will not continue
with JFF.
(4) Deferred income taxes are primarily attributable to the difference
in the income tax and financial reporting basis of assets arising
from the fair market value adjustments.
b) To record the sale of 926,355 shares of JFF common stock to an affiliate
of THL.
c) To reduce short-term borrowings with the proceeds from the sale of common
stock to an affiliate of THL.
A-31
<PAGE>
Pro Forma Statement of Income Adjustments
a) To eliminate interest expense associated with Sneaker's debt.
b) To record amortization of goodwill on a straight-line method over its
estimated thirty-year life.
c) To record interest expense related to $43.0 million in JFF debt, reduced
by the effects of applying to short-term borrowings the $20 million of proceeds
from the sale of common stock to an affiliate of THL.
d) To record an income tax benefit on the historical loss of Sneaker and to
tax effect the pro forma adjustments described above, excluding goodwill
amortization.
e) To reflect shares of common stock sold to an affiliate of THL.
A-32
<PAGE>
================================================================================
[LOGO OF JUST FOR FEET, INC. APPEARS HERE]
Just For Feet, Inc.
EXCHANGE OFFER
For $200,000,000
11% Senior Subordinated Notes due 2009
---------------------------
Prospectus
---------------------------
================================================================================
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The following summary is qualified in its entirety by reference to the
complete statute, Certificate of Incorporation, Bylaws and agreement referred to
below. Section 145 of the General Corporation Law of the State of Delaware
("DGCL") provides that a corporation has the power to indemnify any director or
officer, or former director or officer, who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) against the expenses (including
attorney's fees), judgments, fines or amounts paid in settlement actually and
reasonably incurred by them in connection with the defense of any action by
reason of being or having been directors or officers, if such person shall have
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interest of the corporation, and, with respect to any criminal
action or proceeding, provided that such person had no reasonable cause to
believe his conduct was unlawful, except that, if such action shall be in the
right of the corporation, no such indemnification shall be provided as to any
claim, issue or matter as to which such person shall have been judged to have
been liable to the corporation unless and to the extent that the Court of
Chancery of the State of Delaware, or any court in which such suit or action was
brought, shall determine upon application that, in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnify for such expenses as such court shall deem proper. As permitted by
Section 102(b)(7) of the DGCL, the Certificate of Incorporation of the
Registrant incorporated herein by reference (the "Certificate of Incorporation"
provides that no director shall be liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director other than (i)
for breaches of the director's duty of loyalty to the Registrant and its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for the unlawful
payment of dividends or unlawful stock purchases or redemptions under Section
174 of the DGCL, and (iv) for any transaction from which the director derived an
improper personal benefit. The Registrant's Bylaws provide indemnification of
the Registrant's directors and officers, both past and present, to the fullest
extent permitted by the DGCL, and allow the Registrant to advance or reimburse
litigation expenses upon submission by the director or officer of an undertaking
to repay such advances or reimbursements if it is ultimately determined that
indemnification is not available to such director or officer pursuant to the
Bylaws. The Registrant's Bylaws will also authorize the Registrant to maintain
insurance on behalf of an officer or director against any liability asserted
against him in any such capacity whether or not the Registrant would have the
power to indemnify him against such liability under the DGCL.
Item 21. Exhibit and Financial Statement Schedules
(a) The exhibits listed below are filed with or incorporated by reference
into this Registration Statement. The exhibits which are denominated with an
asterisk (*) were previously filed as part of, and are hereby incorporated by
reference from either (i) the Company's Registration Statement on Form S-1
under the Securities Act of 1933, Registration No. 33-74404 ("1994 S-1"), (ii)
the Company's Registration Statement on Form S-1 under the Securities Act of
1933, Registration No. 33-87414 (the "1995 S-1"), (iii) the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1997 (the "1996 10-
K"), (iv) the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998 (the "1997 10-K") or (v) the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1999 (the "1998 10-K"). Unless
otherwise indicated, the exhibit number corresponds to the exhibit number in the
referenced document.
Exhibit
Number Description
- ------ -----------
*2.1 Asset Purchase Agreement dated March 17, 1997 by and between
Owensboro Investment Company, Inc. and Just For Feet, Inc. (1996 10-K)
*2.2 Stock Purchase Agreement dated March 17, 1997 by and among Just For
Feet, Inc., Premium Sports, Inc. and John Gasser (1996 10-K)
*2.3 Agreement and Plan of Merger dated March 17, 1997, by and among Just
For Feet, Inc., an Alabama corporation, IAC Acquisition Corporation, a
Michigan corporation and wholly owned subsidiary of Just For Feet,
Imperial Acquisition Corporation, a Michigan corporation, and certain
of the shareholders of Imperial Acquisition Corporation (1996 10-K)
II-1
<PAGE>
Exhibit
Number Description
- ----- -----------
*3(i) Amended and Restated Certificate of Incorporation of Just For Feet,
Inc. (1994 S-1, Exhibit 3(a))
*3(ii) Amended and Restated Bylaws of Just For Feet, Inc. (1994 S-1, Exhibit
3(b))
4.1 Indenture dated as of April 15, 1999 between Just For Feet, Inc. and
certain of its subsidiaries as Guarantors and The Bank of New York, as
Trustee
4.2 Registration Rights Agreement dated as of April 15, 1999 between Just
For Feet, Inc. and certain of its subsidiaries as Guarantors and
NationsBanc Montgomery Securities LLC, Merrill Lynch & Co., BT Alex.
Brown Incorporated and The Robinson-Humphrey Company, LLC
4.3 Form of Just For Feet, Inc. 11% Senior Subordinated Notes due 2009
(contained in the Indenture filed as Exhibit 4.1)
4.4 Form of Just For Feet, Inc. 11% Senior Subordinated Notes due 2009,
Series B (contained in the Indenture filed as Exhibit 4.1)
+5 Opinion of Smith, Gambrell & Russell, LLP
*9 Voting Trust Agreement dated August 10, 1993, by and among the
Company, Pamela Beryl Ruttenberg and Harold Ruttenberg. (1994 S-1)
*10.1 Amended and Restated Just For Feet, Inc. 1997 Employee Incentive Plan
(1998 Form 10-K)
*10.1.1 Amendment No. 1 to Amended and Restated 1997 Employee Incentive Plan
(1998 Form 10-K)
*10.2 Employment Agreement dated November 6, 1996, between the Company and
Alex Bond (1996 10-K)
*10.3 Employment Agreement dated May 1, 1997, between the Company and Eric
L. Tyra (1997 10-K)
*10.4.1 Employment Agreement dated January 8, 1998 between the Company and
Adam J. Gilburne (1997 10-K)
*10.5 Credit Agreement dated December 10, 1998 among the Company, certain
subsidiaries of the Company as Guarantors, various lenders named
therein and NationsBank, N.A., as Administrative Agent (1998 Form
10-K)
*10.5.1 Amendment No. 1 dated as of January 29, 1999 to Credit Agreement dated
December 10, 1998 among the Company, certain subsidiaries of the
Company as Guarantors, the various lenders named therein and
NationsBank, N.A., as Administrative Agent. (1998 Form 10-K)
*10.5.2 Amendment No. 2 dated as of February 23, 1999 to Credit Agreement
dated December 10, 1998 among the Company, certain subsidiaries of the
Company as Guarantors, the various lenders named therein and
NationsBank, N.A., as Administrative Agent. (1998 Form 10-K)
*10.5.3 Amendment No. 3 dated as of March 24, 1999 to Credit Agreement dated
December 10, 1998 among the Company, certain subsidiaries of the
Company as Guarantors, the various lenders named therein and
NationsBank, N.A., as Administrative Agent. (1998 Form 10-K)
*10.6 Just For Feet, Inc. Employee Incentive Stock Option Plan, as amended.
(1994 S-1, Exhibit 10(g))
*10.6.1 Amendment No. 2 to the Just For Feet, Inc. Employee Incentive Stock
Option Plan. (1994 S-1)
II-2
<PAGE>
Exhibit
Number Description
- ------ -----------
*10.6.2 Amendment No. 3 to the Just For Feet, Inc. Employee Incentive Stock
Option Plan (1996 10-K)
*10.7 Franchise Agreement dated November 20, 1989, between Casual Wear II,
Inc. and MBA Marketing Corporation. (1994 S-1, Exhibit 10(h))
*10.8 Franchise Agreement dated May 19, 1992, between Casual Wear II, Inc.
and MBA Marketing Corporation. (1994 S-1, Exhibit 10(i))
*10.9 Franchise Agreement dated April 1, 1993, between Casual Wear II, Inc.
and MBA Marketing Corporation. (1994 S-1, Exhibit 10(k))
*10.10 Employment Agreement dated March 1, 1999 between the Company and Helen
Rockey. (1998 Form 10-K)
*10.11 Employment Agreement dated December 7, 1998 between the Company and
Nicholas C. Kartalis (1998 Form 10-K)
*10.15 Personal Service Agreement dated August 22, 1997 between the Company
and Bart Starr, Sr. (1997 10-K)
12 Statement re: Computation of Ratios
21 Subsidiaries
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Arthur Andersen LLP
24 Powers of Attorney (included on signature pages to this Registration
Statement)
25 Statement of Eligibility (Form T-1) of The Bank of New York, as
Trustee
27 Financial Data Schedule
99 Form of Letters of Transmittal and related documents to be used in
conjunction with the Exchange Offer
______________
+ To be filed by amendment
(b) Financial Statement Schedules -- None.
Item 22. Undertakings
(a) Each of the undersigned Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
II-3
<PAGE>
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change in such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Each of the undersigned Registrants hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of the
Registrants' annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, each of the
Registrants has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a Registrant of expenses
incurred or paid by a director, officer or controlling person of such Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, such Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(d) Each of the undersigned Registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to items 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(e) Each of the undersigned Registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Birmingham,
State of Alabama, on the 14th day of June, 1999.
JUST FOR FEET, INC.
By: /s/ Harold Ruttenberg
----------------------------------------
Harold Ruttenberg
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harold Ruttenberg and Eric L. Tyra and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
as fully and to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Harold Ruttenberg Chairman of the Board and Chief June 14, 1999
- ------------------------ Executive Officer
Harold Ruttenberg (principal executive officer)
/s/ Helen M. Rockey President, Chief Operating June 14, 1999
- ------------------------ Officer and Director
Helen M. Rockey
/s/ Eric L. Tyra Executive Vice President, Chief June 14, 1999
- ------------------------ Financial Officer
Eric L. Tyra (principal financial officer)
/s/ Edward S. Croft Director June 14, 1999
- ------------------------
Edward S. Croft
Signatures Continued on Next Page
<PAGE>
Signature Title Date
--------- ----- ----
/s/ Michael P. Lazarus Director June 14, 1999
- ------------------------
Michael P. Lazarus
/s/ Randall L. Haines Director June 14, 1999
- ------------------------
Randall L. Haines
/s/ Warren C. Smith Director June 14, 1999
- ------------------------
Warren C. Smith
/s/ David F. Bellet Director June 14, 1999
- ------------------------
David F. Bellet
/s/ Bart Starr, Sr. Director June 14, 1999
- ------------------------
Bart Starr, Sr.
/s/ John A. Berg Director June 14, 1999
- ------------------------
John A. Berg
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Birmingham,
State of Alabama, on the 14th day of June, 1999.
SNEAKER STADIUM, INC.
By: /s/ Harold Ruttenberg
----------------------------------------
Harold Ruttenberg
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harold Ruttenberg and Eric L. Tyra and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
as fully and to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Harold Ruttenberg Chairman of the Board and Chief June 14, 1999
- ------------------------ Executive Officer
Harold Ruttenberg (principal executive officer)
/s/ Eric L. Tyra Vice President, Secretary, June 14, 1999
- ------------------------ Treasurer and Director
Eric L. Tyra (principal financial officer)
/s/ Don-Allen Ruttenberg Director June 14, 1999
- ------------------------
Don-Allen Ruttenberg
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Birmingham,
State of Alabama, on the 14th day of June, 1999.
SNKR HOLDING CORP.
By: /s/ Harold Ruttenberg
----------------------------------------
Harold Ruttenberg
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harold Ruttenberg and Eric L. Tyra and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
as fully and to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Harold Ruttenberg Chairman of the Board and Chief June 14, 1999
- ------------------------- Executive Officer
Harold Ruttenberg (principal executive officer)
/s/ Eric L. Tyra Vice President, Secretary, June 14, 1999
- ------------------------- Treasurer and Director
Eric L. Tyra (principal financial officer)
/s/ Don-Allen Ruttenberg Director June 14, 1999
- -------------------------
Don-Allen Ruttenberg
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Birmingham,
State of Alabama, on the 14th day of June, 1999.
JUST FOR FEET OF NEVADA, INC.
By: /s/ Harold Ruttenberg
--------------------------------------
Harold Ruttenberg
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harold Ruttenberg and Eric L. Tyra and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
as fully and to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Harold Ruttenberg President and Director June 14, 1999
- ------------------------- (principal executive officer)
Harold Ruttenberg
/s/ Eric L. Tyra Vice President, Secretary and June 14, 1999
- ------------------------- Treasurer
Eric L. Tyra (principal financial officer)
/s/ Dan Weymiller Director June 14, 1999
- -------------------------
Dan Weymiller
/s/ Dereak Sikes Director June 14, 1999
- -------------------------
Dereak Sikes
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Birmingham,
State of Alabama, on the 14th day of June, 1999.
JUST FOR FEET OF TEXAS, INC.
By: /s/ Harold Ruttenberg
------------------------------------
Harold Ruttenberg
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harold Ruttenberg and Eric L. Tyra and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
as fully and to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Harold Ruttenberg President and Director June 14, 1999
- ------------------------- (principal executive officer)
Harold Ruttenberg
/s/ Eric L. Tyra Vice President, Secretary and June 14, 1999
- ------------------------- Treasurer and Director
Eric L. Tyra (principal financial officer)
/s/ Don-Allen Ruttenberg Director June 14, 1999
- -------------------------
Don-Allen Ruttenberg
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Birmingham,
State of Alabama, on the 14th day of June, 1999.
ATHLETIC ATTIC MARKETING, INC.
By: /s/ Harold Ruttenberg
----------------------------------------
Harold Ruttenberg
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harold Ruttenberg and Eric L. Tyra and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
as fully and to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Harold Ruttenberg Chairman of the Board and Chief June 14, 1999
- ------------------------- Executive Officer
Harold Ruttenberg (principal executive officer)
/s/ Eric L. Tyra Vice President and Director June 14, 1999
- -------------------------
Eric L. Tyra
/s/ Andrew S. Belsky Secretary and Treasurer June 14, 1999
- ------------------------- (principal financial officer)
Andrew S. Belsky
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Birmingham,
State of Alabama, on the 14th day of June, 1999.
JUST FOR FEET SPECIALTY STORES, INC.
By: /s/ Harold Ruttenberg
----------------------------------------
Harold Ruttenberg
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harold Ruttenberg and Eric L. Tyra and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
as fully and to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Harold Ruttenberg Chairman, Chief Executive June 14, 1999
- ------------------------- Officer and Director
Harold Ruttenberg (principal executive officer)
/s/ Eric L. Tyra Vice President and Director June 14, 1999
- -------------------------
Eric L. Tyra
/s/ Andrew S. Belsky Secretary and Treasurer June 14, 1999
- ------------------------- (principal financial officer)
Andrew S. Belsky
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
4.1 Indenture dated as of April 15, 1999 between Just For Feet, Inc.
and certain of its subsidiaries as Guarantors and The Bank of
New York, as Trustee
4.2 Registration Rights Agreement dated as of April 15, 1999 between
Just For Feet, Inc. and certain of its subsidiaries as Guarantors
and NationsBanc Montgomery Securities LLC, Merrill Lynch & Co.,
BT Alex. Brown Incorporated and The Robinson-Humphrey Company, LLC
4.3 Form of Just For Feet, Inc. 11% Senior Subordinated Notes due
2009 (contained in the Indenture filed as Exhibit 4.1)
4.4 Form of Just For Feet, Inc. 11% Senior Subordinated Notes due
2009, Series B (contained in the Indenture filed as Exhibit 4.1)
5 Opinion of Smith, Gambrell & Russell, LLP (to be filed by
amendment)
12 Statement re: Computation of Ratios
21 Subsidiaries
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Arthur Andersen LLP
24 Powers of Attorney (included on signature pages to this
Registration Statement)
25 Statement of Eligibility (Form T-1) of The Bank of New York, as
Trustee
27 Financial Data Schedule
99 Form of Letters of Transmittal and related documents to be used in
conjunction with the Exchange Offer
</TABLE>
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
--------------
JUST FOR FEET, INC.,
as Issuer
SNEAKER STADIUM, INC.
JUST FOR FEET OF TEXAS, INC.
JUST FOR FEET OF NEVADA, INC.
JUST FOR FEET SPECIALTY STORES, INC.
SNKR HOLDING CORP.
ATHLETIC ATTIC MARKETING, INC.,
as Guarantors
11% SENIOR SUBORDINATED NOTES DUE 2009
INDENTURE
Dated as of April 15, 1999
The Bank of New York,
as Trustee
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture Act Indenture
Section Section
310(a)(1).......................................................... 7.10
(a)(2).......................................................... 7.10
(a)(3).......................................................... N.A.
(a)(4).......................................................... N.A.
(a)(5).......................................................... 7.10
(i)(b)............................................................. 7.10
(ii)(c)............................................................. N.A.
311(a)............................................................. 7.11
(b)............................................................. 7.11
(iii)(c)............................................................. N.A.
312(a)............................................................. 2.05
(b)............................................................. 11.03
(iv)(c)............................................................. 11.03
313(a)............................................................. 7.06
(b)(1).......................................................... 10.03
(b)(2).......................................................... 7.07
(v)(c)............................................................. 7.06;
11.02
(vi)(d)............................................................. 7.06
314(a)............................................................. 4.03;
11.02
(c)(1).......................................................... 11.04
(c)(2).......................................................... 11.04
(c)(3).......................................................... N.A.
(vii)(e)............................................................. 11.05
(f)............................................................. NA
315(a)............................................................. 7.01
(b)............................................................. 7.05;
11.02
(A)(c)............................................................. 7.01
(d)............................................................. 7.01
(e)............................................................. 6.11
316(a)(last sentence).............................................. 2.09
(a)(1)(A)....................................................... 6.05
(a)(1)(B)....................................................... 6.04
(a)(2).......................................................... N.A.
(b)............................................................. 6.07
(B)(c)............................................................. 2.12
317(a)(1).......................................................... 6.08
(a)(2).......................................................... 6.09
(b)............................................................. 2.04
318(a)............................................................. 11.01
(b)............................................................. N.A.
(c)............................................................. 11.01
<PAGE>
<TABLE>
<CAPTION>
Trust Indenture Act Indenture
Section Section
<S> <C>
(b) ........................................................... N.A.
(c) ........................................................... 11.01
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of this Indenture.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C>
Section 1.01. Definitions................................................ 1
Section 1.02. Other Definitions.......................................... 22
Section 1.03. Incorporation by Reference of Trust Indenture Act.......... 22
Section 1.04. Rules of Construction...................................... 23
ARTICLE 2.
THE NOTES
Section 2.01. Form and Dating............................................ 23
Section 2.02. Execution and Authentication............................... 24
Section 2.03. Registrar and Paying Agent................................. 25
Section 2.04. Paying Agent to Hold Money in Trust........................ 25
Section 2.05. Holder Lists............................................... 26
Section 2.06. Transfer and Exchange...................................... 26
Section 2.07. Replacement Notes.......................................... 41
Section 2.08. Outstanding Notes.......................................... 41
Section 2.09. Treasury Notes............................................. 42
Section 2.10. Temporary Notes............................................ 42
Section 2.11. Cancellation............................................... 42
Section 2.12. Defaulted Interest......................................... 43
Section 2.13. CUSIP Numbers.............................................. 43
ARTICLE 3.
REDEMPTION AND PREPAYMENT; SATISFACTION AND DISCHARGE
Section 3.01. Notices to Trustee......................................... 43
Section 3.02. Selection of Notes to Be Redeemed.......................... 44
Section 3.03. Notice of Redemption....................................... 44
Section 3.04. Effect of Notice of Redemption............................. 45
Section 3.05. Deposit of Redemption Price................................ 45
Section 3.06. Notes Redeemed in Part..................................... 46
Section 3.07. Optional Redemption........................................ 46
Section 3.08. Mandatory Redemption....................................... 47
Section 3.09. Offer to Purchase.......................................... 47
Section 3.10. Satisfaction and Discharge of Indenture.................... 49
</TABLE>
<PAGE>
ii
<TABLE>
<CAPTION>
Page
<S> <C>
Section 3.11. Application of Trust Money................................. 50
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Notes........................................... 50
Section 4.02. Maintenance of Office or Agency............................ 51
Section 4.03. Reports.................................................... 51
Section 4.04. Compliance Certificate..................................... 52
Section 4.05. Taxes...................................................... 53
Section 4.06. Stay, Extension and Usury Laws............................. 53
Section 4.07. Restricted Payments........................................ 53
Section 4.08. Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries............................... 56
Section 4.09. Incurrence of Indebtedness and Issuance of Disqualified
Stock...................................................... 57
Section 4.10. Asset Sales................................................ 60
Section 4.11. Transactions with Affiliates............................... 62
Section 4.12. Liens...................................................... 63
Section 4.13. Corporate Existence........................................ 63
Section 4.14. Offer to Repurchase upon Change of Control................. 63
Section 4.15. Limitation on Other Senior Subordinated Debt............... 65
Section 4.16. Limitation on Issuances and Sales of Equity Interests
in Wholly Owned Subsidiaries.......................... 65
Section 4.17. Limitation on Issuances of Guarantees of Indebtedness...... 65
Section 4.18. Additional Guarantees...................................... 66
Section 4.19. Business Activities........................................ 66
Section 4.20. Designation of Restricted and Unrestricted Subsidiaries.... 66
Section 4.21. Payments for Consent....................................... 67
ARTICLE 5.
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets................... 67
Section 5.02. Successor Corporation Substituted.......................... 68
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.......................................... 68
Section 6.02. Acceleration............................................... 70
</TABLE>
<PAGE>
iii
<TABLE>
<CAPTION>
Page
<S> <C>
Section 6.03. Other Remedies............................................. 71
Section 6.04. Waiver of Past Defaults.................................... 71
Section 6.05. Control by Majority........................................ 72
Section 6.06. Limitation on Suits........................................ 72
Section 6.07. Rights of Holders of Notes to Receive Payment.............. 73
Section 6.08. Collection Suit by Trustee................................. 73
Section 6.09. Trustee May File Proofs of Claim........................... 73
Section 6.10. Priorities................................................. 74
Section 6.11. Undertaking for Costs...................................... 74
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee.......................................... 75
Section 7.02. Rights of Trustee.......................................... 76
Section 7.03. Individual Rights of Trustee............................... 77
Section 7.04. Trustee's Disclaimer....................................... 77
Section 7.05. Notice of Defaults......................................... 78
Section 7.06. Reports by Trustee to Holders of the Notes................. 78
Section 7.07. Compensation and Indemnity................................. 78
Section 7.08. Replacement of Trustee..................................... 79
Section 7.09. Successor Trustee by Merger, Etc........................... 80
Section 7.10. Eligibility; Disqualification.............................. 81
Section 7.11. Preferential Collection of Claims Against Company.......... 81
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance... 81
Section 8.02. Legal Defeasance and Discharge............................. 81
Section 8.03. Covenant Defeasance........................................ 82
Section 8.04. Conditions to Legal or Covenant Defeasance................. 82
Section 8.05. Deposited Money and Cash Equivalents to Be Held in Trust;
Other Miscellaneous Provisions........................ 84
Section 8.06. Repayment to Company....................................... 85
Section 8.07. Reinstatement.............................................. 85
</TABLE>
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
<PAGE>
iv
<TABLE>
<CAPTION>
Page
<S> <C>
Section 9.01. Without Consent of Holders of Notes........................ 86
Section 9.02. With Consent of Holders of Notes........................... 87
Section 9.03. Compliance with Trust Indenture Act........................ 89
Section 9.04. Revocation and Effect of Consents.......................... 89
Section 9.05. Notation on or Exchange of Notes........................... 89
Section 9.06. Trustee to Sign Amendments, Etc............................ 89
ARTICLE 10.
SUBORDINATION
Section 10.01. Agreement to Subordinate.................................. 90
Section 10.02. Liquidation; Dissolution; Bankruptcy...................... 90
Section 10.03. Default on Designated Senior Debt......................... 90
Section 10.04. Acceleration of Securities................................ 91
Section 10.05. When Distribution Must Be Paid Over....................... 91
Section 10.06. Notice by Company......................................... 92
Section 10.07. Subrogation............................................... 92
Section 10.08. Relative Rights........................................... 92
Section 10.09. Subordination May Not Be Impaired by Company.............. 92
Section 10.10. Distribution or Notice to Representative.................. 93
Section 10.11. Rights of Trustee and Paying Agent........................ 93
Section 10.12. Authorization to Effect Subordination..................... 93
Section 10.13. Amendments 94
ARTICLE 11.
SUBSIDIARY GUARANTEES
Section 11.01. Guarantee................................................. 94
Section 11.02. Subordination of Subsidiary Guarantee..................... 95
Section 11.03. Limitation on Guarantor Liability......................... 95
Section 11.04. Execution and Delivery of Subsidiary Guarantee............ 95
Section 11.05. Guarantors May Consolidate, Etc., on Certain Terms........ 96
Section 11.06. Releases Following Sale of Assets......................... 97
ARTICLE 12.
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.............................. 98
</TABLE>
<PAGE>
v
<TABLE>
<CAPTION>
Page
<S> <C>
Section 12.02. Notices................................................... 98
Section 12.03. Communication by Holders of Notes with Other Holders
of Notes.............................................. 100
Section 12.04. Certificate and Opinion as to Conditions Precedent........ 100
Section 12.05. Statements Required in Certificate or Opinion............. 100
Section 12.06. Rules by Trustee and Agents............................... 101
Section 12.07. No Personal Liability of Directors, Officers, Employees
and Stockholders...................................... 101
Section 12.08. Governing Law............................................. 101
Section 12.09. No Adverse Interpretation of Other Agreements............. 101
Section 12.10. Successors................................................ 101
Section 12.11. Severability.............................................. 101
Section 12.12. Counterpart Originals..................................... 101
Section 12.13. Table of Contents, Headings, Etc.......................... 102
</TABLE>
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF NOTATION OF GUARANTEE
Exhibit E FORM OF SUPPLEMENTAL INDENTURE
<PAGE>
INDENTURE dated as of April 15, 1999 among Just For Feet, Inc., a Delaware
corporation (the "Company"), the Guarantors and The Bank of New York, a New York
banking corporation, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the 11% Senior
Subordinated Notes due 2009 (the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
-----------
"144A Global Note" means a global note in the form of Exhibit A hereto
bearing the Global Note Legend and the Private Placement Legend and deposited
with or on behalf of, and registered in the name of, the Depositary or its
nominee that will be issued in a denomination equal to the outstanding principal
amount of the Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, whether or
not such Indebtedness is incurred in connection with, or in contemplation of,
such other Person merging with or into, or becoming a Subsidiary of, such
specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"Additional Notes" means up to $100 million in aggregate principal amount
of Notes (other than the Initial Notes) issued under this Indenture in
accordance with Sections 2.02 and 4.09 hereof.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange of
or for beneficial interests in any Global Note, the rules and procedures of the
Depositary, Euroclear and Cedel that apply to such transfer or exchange.
<PAGE>
2
"Asset Sale" means: (i) the sale, lease, conveyance or other disposition of
any assets or rights; provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
Sections 4.14 and/or 5.01 hereof and not by Section 4.10 hereof; and (ii) the
issuance of Equity Interests by any of the Company's Restricted Subsidiaries or
the sale of Equity Interests in any of its Restricted Subsidiaries.
Notwithstanding the foregoing, the following items shall not be deemed to
be Asset Sales:
(i) any single transaction or series of related transactions that
involves assets having a fair market value (or, if an issuance of Equity
Interests, generating net proceeds) of less than $2.0 million in any
twelve-month period;
(ii) a transfer of assets between or among the Company and its
Wholly Owned Restricted Subsidiaries;
(iii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary;
(iv) the sale, discount, factoring or lease, as the case may be, of
equipment, inventory, accounts receivable or other assets in the ordinary
course of business;
(v) the exchange of any assets held by the Company or a Guarantor
for assets held by any person or entity; provided that (x) the assets
received by the Company or a Guarantor in any such exchange in the good
faith reasonable judgment of the Board of Directors of the Company will
immediately constitute, be a part of, or be used in, a Permitted Business,
(y) the Board of Directors of the Company has determined that the terms of
any exchange are fair and reasonable, and (z) any such exchange shall be
deemed to be an Asset Sale to the extent that the Company or Guarantor
receives cash or Cash Equivalents in such exchange;
(vi) the licensing of intellectual property in the ordinary course
of business;
(vii) disposals or replacements of obsolete equipment in the ordinary
course of business;
(viii) the sale or other disposition of cash or Cash Equivalents;
(ix) any sale, conveyance, disposition or other transfer of the
Equity Interests of an Unrestricted Subsidiary or Restricted Investment;
and
<PAGE>
3
(x) a Restricted Payment or Permitted Investment that is permitted by
Section 4.07 hereof.
"Asset Sale Offer" shall mean an offer to purchase the Note made pursuant
to and in accordance with Section 4.10.
"Bankruptcy Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"Board of Directors" means (i) with respect to a corporation, the board of
directors of the corporation; (ii) with respect to a partnership, the Board of
Directors of the general partner of the partnership; and (iii) with respect to
any other Person, the board or committee of such Person serving a similar
function.
"Broker-Dealer" has the meaning set forth in the Registration Rights
Agreement.
"Business Day" means any day other than a Legal Holiday.
"Calculation Date" means, in accordance with the definition of "Fixed
Charge Coverage Ratio" set forth herein, the date on which the event for which
the calculation of the Fixed Charge Coverage Ratio is made.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or a business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited), and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
<PAGE>
4
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case, with institutional lenders having capital
and surplus in excess of $500.0 million and chartered or organized in the United
States, (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper having the highest rating obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in
each case maturing within six months after the date of acquisition, and (vi)
money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i) through (v) of this
definition.
"Cedel" means Cedel Bank, SA.
"Change of Control" means the occurrence of any of the following: (i) the
direct or indirect sale, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related transactions,
of all or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries, taken as a whole, to any "person" (as that term is used
in Section 13(d)(3) of the Exchange Act) other than the Principal or a Related
Party of the Principal, (ii) the adoption of a plan relating to the liquidation
or dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any "person" (as defined above), other than the Principal and his
Related Parties, becomes the Beneficial Owner, directly or indirectly, of more
than 50% of the Voting Stock of the Company, measured by voting power rather
than number of shares, (iv) the first day on which a majority of the members of
the Board of Directors of the Company are not Continuing Directors, or (v) the
Company consolidates with, or merges with or into, any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which any of the outstanding Voting Stock of the
Company or such other Person is converted into or exchanged for cash, securities
or other property, other than any such transaction in which the Voting Stock of
the Company outstanding immediately prior to such transaction is converted into
or exchanged for Voting Stock (other than Disqualified Stock) of the surviving
or transferee Person constituting a majority of the outstanding shares of such
Voting Stock of such surviving or transferee Person (immediately after giving
effect to such issuance) and no Person, other than the Principal and his Related
Parties, becomes the Beneficial Owner, directly or indirectly, of more than 50%
of such Voting Stock, measured by voting power rather than number of shares.
"Company" means Just For Feet, Inc.
<PAGE>
5
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus (i)
an amount equal to any extraordinary loss plus any net loss realized by any such
Person or any of its Restricted Subsidiaries in connection with an Asset Sale,
to the extent such losses were deducted in computing such Consolidated Net
Income, plus (ii) provision for taxes based on income or profits of such Person
and its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income, plus
(iii) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or received pursuant to
Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, minus (v) non-cash items increasing such
Consolidated Net Income for such period, other than the accrual of revenue in
the ordinary course of business, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the preceding, the provision
for taxes based on the income or profits of, and the depreciation and
amortization and other non-cash expenses of, a Restricted Subsidiary of the
Company shall be added to Consolidated Net Income to compute Consolidated Cash
Flow of the Company only to the extent that a corresponding amount of
Consolidated Net Income attributable to such Restricted Subsidiary would be
permitted at the date of determination to be paid as a dividend to the Company
by such Restricted Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"Consolidated Net Income" means, with respect to any specified
Person for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid in cash to the specified Person or a Wholly
Owned Restricted Subsidiary thereof; (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval
<PAGE>
6
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders; (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded; and (iv) the cumulative effect of a change in
accounting principles shall be excluded.
"Contingent Payment Agreement" means the Contingent Payment Agreement dated
as of July 2, 1998 made by the Company, for the benefit of Banque Nationale de
Paris, for itself and as agent for itself and for Merrill Lynch Senior Floating
Rate Fund, Inc., Merrill Lynch Prime Rate Portfolio and Merrill Lynch Debt
Strategies Portfolio and, subject to the limitations provided therein, for the
benefit of the persons or entities listed on Schedule I thereto.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who: (i) was a member of such Board of
Directors on the date hereof; or (ii) was nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Agreement" means that certain Credit Agreement, dated as of
December 10, 1998 and amended as of January 29, 1999, February 23, 1999, and
March 24, 1999 by and among the Company, as Borrower, the Guarantors named
therein, NationsBank, N.A., as Administrative Agent, Compass Bank as
Documentation Agent, First Union National Bank, Marine Midland Bank, SouthTrust
Bank, N.A., and SunTrust Bank, Atlanta, as Co-Agents, and the lenders named
therein, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced from time to time.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business and
<PAGE>
7
designed to protect against or manage exposure to fluctuations in foreign
currency exchange rates.
"Custodian" means the Trustee, as custodian with respect to the Notes in
global form, or any successor entity thereto.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the name of the
Holder thereof and issued in accordance with Section 2.06 hereof, in the form of
Exhibit A hereto, except that such Note shall not bear the Global Note Legend
and shall not have the "Schedule of Exchanges of Interests in the Global Note"
attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in whole
or in part in global form, the Person specified in Section 2.03 hereof as the
Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Credit Agreement; and (ii) any other Senior Debt permitted hereunder the
aggregate principal amount of which that is committed and in the aggregate that
is drawn on or available to be drawn on is $20.0 million or more and that has
been designated by the Company as "Designated Senior Debt." For purposes of
determining whether a particular issue of Senior Debt may qualify as "Designated
Senior Debt," the principal amount of one or more issues of Senior Debt owing to
a common lender (or its Affiliates) may be aggregated.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with Section 4.07.
"Domestic Subsidiary" means any Restricted Subsidiary that was formed under
the laws of the United States or any state thereof or the District of Columbia.
<PAGE>
8
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means a sale of Equity Interests (other than Disqualified
Stock) of the Company.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Notes issued in the Exchange Offer in accordance
with Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Existing Indebtedness" means the aggregate principal amount of
Indebtedness of the Company and its Subsidiaries (other than Indebtedness under
the Credit Agreement) in existence on the date hereof, until such amounts are
repaid, including for this purpose amounts due in respect of the Company's
earnout obligations under the Contingent Payment Agreement.
"Fixed Charge Coverage Ratio" means, with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, repays, repurchases or redeems any Indebtedness or issues,
repurchases or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated and on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom as if the same had occurred at the beginning of the
applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(i) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to
<PAGE>
9
such reference period and on or prior to the Calculation Date shall be given
pro forma effect as if they had occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated on a pro forma basis in accordance with Regulation S-X under the
Securities Act, but without giving effect to clause (iii) of the proviso set
forth in the definition of Consolidated Net Income;
(ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded; and
(iii) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of
the specified Person or any of its Restricted Subsidiaries following the
Calculation Date.
For purposes of this definition, whenever pro forma effect is to be given
to a transaction, the pro forma calculations shall be made in good faith by a
responsible financial or accounting officer of the Company.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of: (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued,
including, without limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capital Lease Obligations, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or received pursuant to
Hedging Obligations; plus (ii) the consolidated interest of such Person and its
Restricted Subsidiaries that was capitalized during such period; plus (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries, whether or not such Guarantee
or Lien is called upon; plus (iv) the product of (a) all dividends, whether paid
or accrued and whether or not in cash, on any series of preferred stock of such
Person or any of its Restricted Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company,
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards
<PAGE>
10
Board or in such other statements by such other entity as have been approved by
a significant segment of the accounting profession, which are in effect as of
the date hereof.
"Global Note Legend" means the legend set forth in Section 2.06(g)(ii),
which is required to be placed on all Global Notes issued under this Indenture.
"Global Notes" means, individually and collectively, each of the Restricted
Global Notes and the Unrestricted Global Notes, issued in accordance with
certain sections of this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness and shall include in the case of
Indebtedness of an Unrestricted Subsidiary, any endorsement, agreement to
provide funds for the payment or maintenance of, or to otherwise become directly
or indirectly liable with respect to, such Indebtedness by the Company or any of
its Restricted Subsidiaries.
"Guarantors" means each of (i) Sneaker Stadium, Inc., Just For Feet of
Texas, Inc., Just For Feet of Nevada, Inc., Just For Feet Specialty Stores,
Inc., SNKR Holding Corp. and Athletic Attic Marketing, Inc and (ii) any other
subsidiary that executes a Subsidiary Guarantee in accordance with the
provisions hereof, and their respective successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of: (i)
borrowed money; (ii) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof); (iii) banker's acceptances; (iv) representing Capital Lease
Obligations; (v) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or trade
payable; or (vi) representing any Hedging Obligations, if and to the extent any
of the preceding items (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of the specified Person
prepared in accordance with GAAP. In addition, the term "Indebtedness" includes
all Indebtedness of others secured by a
<PAGE>
11
Lien on any asset of the specified Person (whether or not such Indebtedness is
assumed by the specified Person) and, to the extent not otherwise included, the
Guarantee by the specified Person of any indebtedness of any other Person. The
amount of any Indebtedness outstanding as of any date shall be: (i) the accreted
value thereof, in the case of any Indebtedness issued with original issue
discount; and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Indirect Participant" means a Person who holds a beneficial interest in a
Global Note through a Participant.
"Initial Notes" means $200.0 million in aggregate principal amount of Notes
originally issued under this Indenture on the date hereof.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Restricted Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Restricted Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Restricted Subsidiary not sold
or disposed of in an amount determined as provided in the final paragraph of
Section 4.07 hereof.
"Issue Date" means the date on which the initial $200.0 million in
aggregate principal amount of the Notes were originally issued under this
Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which commercial
banks in The City of New York or at a place of payment are authorized or
required by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
<PAGE>
12
"Letter of Transmittal" means the letter of transmittal to be prepared by
the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Liquidated Damages" means the additional amounts (if any) payable by the
Company in the event of a Registration Default under, and as defined in, the
Registration Rights Agreement.
"Make-Whole Premium" means, with respect to a Note on any date of
redemption, the excess of (A) the present value at such date of redemption of
all remaining required interest payments (exclusive of interest accrued and
unpaid to the date of redemption) and principal payments due on such Note and
all premium payments relating thereto assuming a redemption date of May 1, 2004,
computed using a discount rate equal to the Treasury Rate plus 75 basis points
over (B) the then outstanding principal amount of such Note.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with: (a) any Asset Sale, or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries; and (ii) any extraordinary gain (but not loss),
together with any related provision for taxes on such extraordinary gain (but
not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, in each
case, after taking into account any available tax credits or deductions and any
tax sharing arrangements, and amounts required to be applied to the repayment of
Indebtedness, other than Indebtedness under a Credit Facility of the Company or
a Restricted Subsidiary, secured by a Lien on the asset or assets that were the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
<PAGE>
13
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise,
or (c) (except to the extent that either the Company or such Restricted
Subsidiary could make a Restricted Investment in the aggregate principal amount
of such loan pursuant to Section 4.07) constitutes the lender; (ii) no default
with respect to which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit upon
notice, lapse of time or both any holder of any other Indebtedness (other than
the Notes) of the Company or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" has the meaning assigned to it in the preamble to this Indenture.
The Initial Notes and the Additional Notes, if any are issued, shall be treated
as a single class for all purposes under this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer or the principal accounting officer of
the Company, that meets the requirements of Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 12.05 hereof.
The counsel may be an employee of or counsel to the Company.
"Participant" means, with respect to the Depositary, Euroclear or Cedel, a
Person who has an account with the Depositary, Euroclear or Cedel, respectively
(and, with respect to The Depository Trust Company, shall include Euroclear and
Cedel).
<PAGE>
14
"Permitted Business" means any retail business engaged primarily in the
footwear business, the related apparel business, the sports business, the
athletic equipment business or any combination thereof and any related,
ancillary or complementary business.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (ii) any Investment in Cash
Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment; (a) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company, or (b) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company; (iv) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with Section 4.10; (v) any acquisition of assets
solely in exchange for the issuance of Equity Interests (other than Disqualified
Stock) of the Company; (vi) any Hedging Obligations; (vii) payroll, travel and
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses in accordance with GAAP; (viii) stock,
obligations or securities received in satisfaction of judgments or good faith
settlement of litigation, disputes or other debts; (ix) investments in prepaid
expenses, negotiable instruments held for collection and lease, utility,
workers' compensation and similar deposits; (x) loans or advances to officers,
directors or employees of the Company or its Restricted Subsidiaries not in
excess of $5.0 million at any one time outstanding; (xi) accounts receivable
owing to the Company or any Restricted Subsidiary created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms, provided that such terms may include such concessionary
trade terms as the Company or such Restricted Subsidiary deems reasonable under
the circumstances; and (xii) other Investments in any Person having an aggregate
fair market value (measured on the date each such Investment was made and
without giving effect to subsequent changes in value), when taken together with
outstanding Investments made pursuant to this clause (xii) since the date
hereof, not to exceed $10.0 million.
"Permitted Junior Securities" means (i) Equity Interests in the Company or
any Guarantor; or (ii) debt securities that are subordinated to all Senior Debt
and any debt securities issued in exchange for Senior Debt to substantially the
same extent as, or to a greater extent than, the Notes and the Subsidiary
Guarantees are subordinated to Senior Debt as provided hereunder.
"Permitted Liens" means (i) Liens on the assets of the Company and any
Guarantor securing Senior Debt that was permitted by the terms hereof to be
incurred; (ii) Liens in favor of the Company or any Restricted Subsidiary; (iii)
Liens on property of a Person existing at the time such Person is merged with or
into or consolidated with the Company or any Restricted Subsidiary of the
Company; provided that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any property other than
those of the Person merged into or consolidated with the Company or the
Restricted Subsidiary; (iv) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
<PAGE>
15
acquisition and do not extend to any property other than the property so
acquired by the Company or any such Restricted Subsidiary; (v) Liens to secure
Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of
the second paragraph of Section 4.09 covering only the assets acquired with such
Indebtedness; (vi) Liens on Indebtedness or other agreements in effect on the
Issue Date; (vii) Liens securing Indebtedness incurred by a non-Domestic
Subsidiary of the Company as permitted under clause (xv) of the second paragraph
of Section 4.09; (viii) Liens for taxes, assessments or government charges or
claims which are not yet delinquent or which are being contested in good faith
by appropriate proceedings promptly instituted and diligently conducted and if a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (ix) statutory Liens or
landlords', carriers', warehousemen's, mechanics', suppliers', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business and
with respect to amounts not yet delinquent or being contested in good faith by
appropriate process of law, if a reserve or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been made therefor; (x)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other obligations of like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (xi) Liens on goods (and the proceeds thereof) and
documents of title and the property covered thereby securing indebtedness in
respect of commercial letters of credit; and (xii) Liens incurred in the
ordinary course of business of the Company or any Restricted Subsidiary of the
Company with respect to obligations that do not exceed $5.0 million at any one
time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries (including Acquired Indebtedness) issued
in exchange for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund other Indebtedness of the Company or any of
its Restricted Subsidiaries (other than intercompany Indebtedness); provided
that (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest thereon and
the amount of any reasonably determined premium necessary to accomplish such
refinancing and such reasonable expenses incurred in connection therewith); (ii)
if the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is equal to or subordinated in right of payment to the Notes, such
Permitted Refinancing Indebtedness (A) has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (B) is equal
to or subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iii) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
<PAGE>
16
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Principal" means Harold Ruttenberg.
"Private Placement Legend" means the legend set forth in Section 2.06(g)(i)
to be placed on all Notes issued hereunder except where otherwise permitted by
the provisions of this Indenture.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of April 15, 1999, by and among the Company, the Guarantors and the
other parties named on the signature pages thereof, as such agreement may be
amended, modified or supplemented from time to time and, with respect to any
Additional Notes, one or more registration rights agreements between the
Company, the Guarantors and the other parties thereto, as such agreement(s) may
be amended, modified or supplemented from time to time, relating to rights given
by the Company to the purchasers of Additional Notes to register such Additional
Notes under the Securities Act.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a global Note bearing the Global Note
Legend and the Private Placement Legend and deposited with or on behalf of and
registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding principal amount of the Notes resold in
reliance on Rule 904 of Regulation S.
"Related Party" means (i) any controlling stockholder, 80% (or more) owned
Subsidiary, or immediate family member (in the case of an individual) of any
Principal; or (ii) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding an
80% or more controlling interest of which consist of any one or more Principals
and/or such other Persons referred to in the immediately preceding clause (i).
"Representative" means the Trustee, agent or representative for any Senior
Debt.
"Responsible Officer" when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any successor
group of the Trustee) or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
<PAGE>
17
"Restricted Definitive Note" means a Definitive Note bearing the Private
Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private Placement
Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means (i) all Indebtedness of the Company or any Guarantor at
any time outstanding under Credit Facilities and all Hedging Obligations and
Currency Agreements with respect thereto; (ii) any other Indebtedness of the
Company or any Guarantor permitted to be incurred under the terms hereof, unless
the instrument under which such Indebtedness is incurred expressly provides that
it is on a parity with or subordinated in right of payment to the Notes or any
Subsidiary Guarantee; and (iii) all Obligations with respect to the items listed
in the preceding clauses (i) and (ii). Notwithstanding anything to the contrary
in the preceding, Senior Debt will not include: (a) any liability for federal,
state, local or other taxes owed or owing by the Company; (b) any Indebtedness
of the Company to any of its Subsidiaries or other Affiliates; (c) any
Indebtedness or amounts owed for goods, materials or services purchased in the
ordinary course of business; (d) the portion of any Indebtedness that is
incurred in violation of any terms or provisions hereof; or (e) the Notes.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means any direct or indirect Restricted Subsidiary
of the Company that would, at the date of determination, qualify as a
"significant subsidiary" within the meaning of such term under Rule 1-02(w) of
Regulation S-X under the Exchange Act.
<PAGE>
18
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person: (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof); and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means the Guarantee by each Guarantor of the
Company's payment obligations under this Indenture and on the Notes, executed
pursuant to the provisions of this Indenture.
"TIA" means the Trust Indenture Act of 1939, as amended, as in effect on
the date on which this Indenture is qualified under the TIA, except as provided
in Section 9.03 hereof.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two Business Days prior to the date
fixed for prepayment (or, if such Statistical Release is no longer published,
any publicly available source for similar market data)) most nearly equal to the
then remaining term of the Notes to May 1, 2004; provided, however, that if the
then remaining term to May 1, 2004 is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the then
remaining term of the Notes to May 1, 2004 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"Trustee" means the party named as such in the preamble to this Indenture
until a successor replaces it in accordance with the applicable provisions of
this Indenture and thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes that do
not bear and are not required to bear the Private Placement Legend.
<PAGE>
19
"Unrestricted Global Note" means a permanent global Note in the form of
Exhibit A attached hereto that bears the Global Note Legend and that has the
"Schedule of Exchanges of Interests in the Global Note" attached thereto, and
that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary (i) has no
Indebtedness other than Non-Recourse Debt, provided that if any such
Indebtedness ceases to be Non-Recourse Debt (other than by virtue of the
immediately following proviso), such event shall be deemed to constitute an
incurrence of Indebtedness by a Restricted Subsidiary of the Company that was
not permitted under the terms hereof; provided, further, that the Company or a
Restricted Subsidiary of the Company may Guarantee, endorse, agree to provide
funds for the payment or maintenance of, or otherwise become directly or
indirectly liable with respect to, Indebtedness of an Unrestricted Subsidiary,
but only to the extent that the Company or such Restricted Subsidiary could make
a Restricted Investment in such Unrestricted Subsidiary pursuant to Section 4.07
and any such Guarantee, endorsement or agreement shall be deemed an incurrence
of Indebtedness by the Company for the purposes of Section 4.09; (ii) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Company; (iii) is a Person with
respect to which neither the Company nor any of its Restricted Subsidiaries has
any direct or indirect obligation (a) to subscribe for additional Equity
Interests or (b) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; and (iv)
has not guaranteed or otherwise directly or indirectly provided credit support
for any Indebtedness of the Company or any of its Restricted Subsidiaries.
Any designation of a Restricted Subsidiary of the Company as an
Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the preceding conditions and was permitted by Section 4.07. If, at
any time, any Unrestricted Subsidiary would fail to meet the preceding
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes hereof and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09, the Company shall be in default
thereunder.
"U.S. Person" means a U.S. person as defined in Rule 902(k) under the
Securities Act.
<PAGE>
20
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing: (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment; by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
Section 1.02. Other Definitions.
-----------------
Defined
in
Term Section
"Affiliate Transaction".................................... 4.11
"Asset Sale Offer"......................................... 4.10
"Authentication Order"..................................... 2.02
"Change of Control Offer".................................. 4.14
"Change of Control Payment"................................ 4.14
"Change of Control Payment Date"........................... 4.14
"Covenant Defeasance"...................................... 8.03
"Event of Default"......................................... 6.01
"Excess Proceeds".......................................... 4.10
"incur".................................................... 4.09
"Legal Defeasance"......................................... 8.02
"Offer Amount"............................................. 3.09
"Offer Period"............................................. 3.09
"Paying Agent"............................................. 2.03
"Permitted Debt"........................................... 4.09
"Purchase Date"............................................ 3.09
"Registrar"................................................ 2.03
"Remedy"................................................... 6.06
"Repurchase Offer"......................................... 3.09
"Restricted Payments"...................................... 4.07
<PAGE>
21
Section 1.03. Incorporation by Reference of Trust Indenture Act. Whenever
-------------------------------------------------
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes means the Company and any successor obligor upon the
Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them.
Section 1.04. Rules of Construction. Unless the context otherwise requires:
---------------------
a term has the meaning assigned to it;
an accounting term not otherwise defined has the meaning assigned to it in
accordance with GAAP;
"or" is not exclusive;
words in the singular include the plural, and in the plural include the
singular;
provisions apply to successive events and transactions; and
references to sections of or rules under the Securities Act or the TIA
shall be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.
<PAGE>
22
ARTICLE 2.
THE NOTES
Section 2.01. Form and Dating. (a) General. The Notes and the Trustee's
---------------
certificate of authentication shall be substantially in the form of Exhibit A
hereto. The Notes may have notations, legends or endorsements required by law,
stock exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes shall be in denominations of $1,000 and integral
multiples thereof.
The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Indenture and the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby. However, to the extent any provision of
any Note conflicts with the express provisions of this Indenture, the provisions
of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form shall be substantially in
the form of Exhibit A attached hereto (including the Global Note Legend thereon
and the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A attached hereto (but without the Global Note Legend thereon and
without the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee, in
accordance with instructions given by the Holder thereof as required by Section
2.06 hereof.
(c) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Global Notes that are held by
Participants through Euroclear or Cedel Bank.
Section 2.02. Execution and Authentication. One Officer shall sign the
----------------------------
Notes for the Company by manual or facsimile signature.
If the Officer whose signature is on a Note no longer holds that office at
the time a Note is authenticated, the Note shall nevertheless be valid.
<PAGE>
23
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by one
Officer (an "Authentication Order"), authenticate Notes for original issue up to
the aggregate principal amount of $300.0 million, of which $200.0 million will
be issued as Initial Notes on the date hereof. The aggregate principal amount of
Notes outstanding at any time may not exceed such amount except as provided in
Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with Holders or an Affiliate of the Company.
The Trustee shall have the right to decline to authenticate and deliver any
Notes under this Section if the Trustee, being advised by counsel, determines
that such action may not lawfully be taken or if the Trustee in good faith shall
determine that such action would expose the Trustee to personal liability to
existing Holders.
Section 2.03. Registrar and Paying Agent. The Company shall maintain an
--------------------------
office or agency where Notes may be presented for registration of transfer or
for exchange ("Registrar") and an office or agency where Notes may be presented
for payment ("Paying Agent"). The Registrar shall keep a register of the Notes
and of their transfer and exchange. The Company may appoint one or more
co-registrars and one or more additional paying agents. The term "Registrar"
includes any co-registrar and the term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company shall notify the Trustee in writing of the
name and address of any Agent not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Company or any of its Subsidiaries may act as
Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to act
as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Notes.
Section 2.04. Paying Agent to Hold Money in Trust. The Company shall
-----------------------------------
require each Paying Agent other than the Trustee to agree in writing that the
Paying Agent shall hold in trust for the benefit of Holders or the Trustee all
money held by the Paying Agent for the payment of principal, premium or
Liquidated Damages, if any, or interest on the Notes, and shall notify the
<PAGE>
24
Trustee of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money. If the Company or a Restricted Subsidiary acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy
or reorganization proceedings relating to the Company, the Trustee shall serve
as Paying Agent for the Notes.
Section 2.05. Holder Lists. The Trustee shall preserve in as current a form
------------
as is reasonably practicable the most recent list available to it of the names
and addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If
the Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of the
Holders of Notes and the Company shall otherwise comply with TIA ss. 312(a).
Section 2.06. Transfer and Exchange. (a) Transfer and Exchange of Global
---------------------
Notes. A Global Note may not be transferred as a whole except by the Depositary
to a nominee of the Depositary, by a nominee of the Depositary to the Depositary
or to another nominee of the Depositary, by the Depositary or any such nominee
to a successor Depositary or a nominee of such successor Depositary. All Global
Notes shall be exchanged by the Company for Definitive Notes if (i) the Company
delivers to the Trustee notice from the Depositary that it is unwilling or
unable to continue to act as Depositary or that it is no longer a clearing
agency registered under the Exchange Act and, in either case, a successor
Depositary is not appointed by the Company within 120 days after the date of
such notice from the Depositary or (ii) the Company in its sole discretion
determines that the Global Notes (in whole but not in part) should be exchanged
for Definitive Notes and delivers a written notice to such effect to the Trustee
or (iii) there shall have occurred and be continuing a Default or Event of
Default with respect to the Notes. Upon the occurrence of any of the preceding
events in (i), (ii) or (iii) above, Definitive Notes shall be issued in such
names as the Depositary shall instruct the Trustee. Global Notes also may be
exchanged or replaced, in whole or in part, as provided in Sections 2.07 and
2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu
of, a Global Note or any portion thereof, pursuant to this Section 2.06 or
Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Note. A Global Note may not be exchanged for another
Note other than as provided in this Section 2.06(a), however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
<PAGE>
25
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend. Beneficial
interests in any Unrestricted Global Note may be transferred to Persons who
take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note. No written orders or instructions shall be
required to be delivered to the Registrar to effect the transfers described
in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section 2.06(b)(i) above, the transferor
of such beneficial interest must deliver to the Registrar either (A) (1) a
written order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in the
Global Note in an amount equal to the beneficial interest to be transferred
or exchanged and (2) instructions given in accordance with the Applicable
Procedures containing information regarding the Participant account to be
credited with such increase or (B) (1) a written order from a Participant
or an Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the Depositary to
the Registrar containing information regarding the Person in whose name
such Definitive Note shall be registered to effect the transfer or exchange
referred to in (1) above. Upon consummation of an Exchange Offer by the
Company in accordance with Section 2.06(f) hereof, the requirements of this
Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by
the Registrar of the instructions contained in the Letter of Transmittal
delivered by the Holder of such beneficial interests in the Restricted
Global Notes. Upon satisfaction of all of the requirements for transfer or
exchange of beneficial interests in Global Notes contained in this
Indenture and the Notes or otherwise applicable under the Securities Act,
the Trustee shall adjust the principal amount of the relevant Global
Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
<PAGE>
26
(A) if the transferee shall take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof; and
(B) if the transferee shall take delivery in the form of a
beneficial interest in the Regulation S Global Note, then the
transferor must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of the beneficial interest to be transferred, in the
case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (1) a
Broker-Dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in Rule
144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the
Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted Global
Note, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a beneficial interest in an Unrestricted
<PAGE>
27
Global Note, a certificate from such holder in the form of
Exhibit B hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar or the Company so requests or if the Applicable
Procedures so require, an Opinion of Counsel in form reasonably
acceptable to the Registrar and the Company to the effect that
such exchange or transfer is in compliance with the Securities
Act and that the restrictions on transfer contained herein and in
the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive
Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Restricted Definitive Note, then,
upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a certificate from such holder in the form
of Exhibit C hereto, including the certifications in item (2)(a)
thereof;
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications
in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule 903
or Rule 904
<PAGE>
28
under the Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant to
an exemption from the registration requirements of the Securities Act
in accordance with Rule 144 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications
in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (3)(c)
thereof; or
(G) if such beneficial interest is being transferred pursuant to
an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof,
and the Company shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Restricted
Definitive Note in the appropriate principal amount. Any Restricted
Definitive Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 2.06(c) shall be registered
in such name or names and in such authorized denomination or denominations
as the holder of such beneficial interest shall instruct the Registrar
through instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Restricted Definitive Notes to
the Persons in whose names such Notes are so registered. Any Restricted
Definitive Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear the
Private Placement Legend and shall be subject to all restrictions on
transfer contained therein.
(ii) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. A holder of a beneficial interest in a Restricted Global
Note may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial
<PAGE>
29
interest to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of such beneficial interest, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in
the applicable Letter of Transmittal that it is not (1) a
Broker-Dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in Rule
144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for an Unrestricted Definitive Note, a certificate
from such holder in the form of Exhibit C hereto, including
the certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the
form of an Unrestricted Definitive Note, a certificate from
such holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar or the Company so requests or if the Applicable Procedures
so require, an Opinion of Counsel in form reasonably acceptable to the
Registrar and the Company to the effect that such exchange or transfer
is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
(iii) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest in an
Unrestricted Global Note proposes to exchange such beneficial interest for
a Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Definitive Note,
<PAGE>
30
then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii)
hereof, the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Company shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Definitive Note in the appropriate principal amount. Any Definitive Note
issued in exchange for a beneficial interest pursuant to this Section
2.06(c)(iii) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant. The Trustee shall
deliver such Definitive Notes to the Persons in whose names such Notes are
so registered. Any Definitive Note issued in
exchange for a beneficial interest pursuant to this Section 2.06(c)(iii)
shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests.
(i) Restricted Definitive Notes to Beneficial Interests in Restricted
Global Notes. If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note or
to transfer such Restricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in a Restricted Global Note,
then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global
Note, a certificate from such Holder in the form of Exhibit C hereto,
including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule 903
or Rule 904 under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (2)
thereof;
<PAGE>
31
(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to
an Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable;
(F) if such Restricted Definitive Note is being transferred to
the Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in item
(3)(c) thereof; or
(G) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the case
of clause (A) above, the appropriate Restricted Global Note, in the
case of clause (B) above, the 144A Global Note and in the case of
clause (C) above, the Regulation S Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note
or transfer such Restricted Definitive Note to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global Note
only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a Broker-Dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an affiliate
(as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the
Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
<PAGE>
32
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(1)(c) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in the
form of Exhibit B hereto, including the certifications in item
(4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar or the Company so requests or if the Applicable Procedures
so require, an Opinion of Counsel in form reasonably acceptable to the
Registrar and the Company to the effect that such exchange or transfer
is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
Upon satisfaction of the conditions of any of the subparagraphs (A) through
(D) in this Section 2.06(d)(ii), the Trustee shall cancel the Restricted
Definitive Notes and increase or cause to be increased the aggregate
principal amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note
or transfer such Unrestricted Definitive Notes to a Person who takes
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note at any time. Upon receipt of a request for such an exchange or
transfer, the Trustee shall cancel the applicable Unrestricted Definitive
Note and increase or cause to be increased the aggregate principal amount
of one of the Unrestricted Global Notes.
If any such exchange or transfer from an Unrestricted Definitive Note
to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D)
or (iii) above at a time when an Unrestricted Global Note has not yet been
issued, the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Unrestricted Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the
<PAGE>
33
Registrar the Definitive Notes duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar duly executed by
such Holder or by his attorney, duly authorized in writing. In addition, the
requesting Holder shall provide any additional certifications, documents and
information, as applicable, required pursuant to the following provisions of
this Section 2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the name
of Persons who take delivery thereof in the form of a Restricted Definitive
Note if the Registrar receives the following:
(A) if the transfer shall be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a certificate in
the form of Exhibit B hereto, including the certifications in item (1)
thereof;
(B) if the transfer shall be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2) thereof;
and
(C) if the transfer shall be made pursuant to any other
exemption from the registration requirements of the Securities Act,
then the transferor must deliver a certificate in the form of Exhibit
B hereto, including the certifications, certificates and Opinion of
Counsel required by item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any
Restricted Definitive Note may be exchanged by the Holder thereof for an
Unrestricted Definitive Note or transferred to a Person or Persons who take
delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a Broker-Dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an affiliate
(as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
<PAGE>
34
(C) any such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Definitive Note,
a certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar or the Company so requests, an Opinion of Counsel in
form reasonably acceptable to the Registrar and the Company to
the effect that such exchange or transfer is in compliance with
the Securities Act and that the restrictions on transfer
contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the
Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes.
A Holder of Unrestricted Definitive Notes may transfer such Notes to a
Person who takes delivery thereof in the form of an Unrestricted Definitive
Note. Upon receipt of a request to register such a transfer, the Registrar
shall register the Unrestricted Definitive Notes pursuant to the
instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not Broker-
Dealers, (y) they are not participating in a distribution of the Exchange Notes
and (z) they are not affiliates (as defined in Rule 144) of the Company, and
accepted for exchange in the Exchange Offer and (ii) Unrestricted Definitive
Notes in an aggregate principal amount equal to the principal amount of the
Restricted Definitive Notes accepted for exchange in the Exchange Offer.
Concurrently with the issuance of such Unrestricted Global Notes, the Trustee
shall cause the aggregate principal amount of the applicable Restricted Global
Notes to be reduced accordingly, and the Company shall execute and the Trustee
shall authenticate and deliver to the Persons designated by the
<PAGE>
35
Holders of Restricted Definitive Notes such accepted Restricted Definitive Notes
in the appropriate principal amount, and cancel or cause to be cancelled such
Restricted Definitive Notes. For purposes of this Section 2.06 all references to
the Notes shall include the corresponding Subsidiary Guarantees endorsed
thereon.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Note and each Definitive Note (and all Notes issued in exchange
therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THIS NOTE AND THE GUARANTEES ENDORSED HEREON HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE OR
THE GUARANTEES ENDORSED HEREON NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF
THIS NOTE AND THE GUARANTEES ENDORSED HEREON BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITIES, PRIOR TO
THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS NOTE AND THE GUARANTEES ENDORSED HEREON
(OR ANY PREDECESSOR OF THIS NOTE AND THE GUARANTEES ENDORSED HEREON)
(THE "RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO THE COMPANY OR
ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES AND
THE GUARANTEES ENDORSED THEREON ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE
<PAGE>
36
144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (i) PURSUANT TO CLAUSE (D) PRIOR TO THE END OF THE 40-DAY
DISTRIBUTION COMPLIANCE PERIOD WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT OR PURSUANT TO CLAUSE (E) PRIOR TO THE RESALE
RESTRICTION TERMINATION DATE TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS NOTE IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE."
(B) Notwithstanding the foregoing, any Unrestricted Global Note
or Unrestricted Definitive Note issued pursuant to and in compliance
with subparagraphs (b)(iv), (c)(ii), (c)(iii), (d)(ii), (d)(iii),
(e)(ii), (e)(iii) or (f) to this Section 2.06 (and all Notes issued in
exchange therefor or substitution thereof) shall not bear the Private
Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY
MAKE SUCH NOTATIONS HEREON OR REPLACEMENTS HEREOF AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06(h) OR 2.07 OF THE INDENTURE RESPECTIVELY,
(II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART
PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE
MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY."
<PAGE>
37
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
beneficial interests in other Global Notes or Definitive Notes or a particular
Global Note has been redeemed, repurchased or canceled in whole and not in part,
each such Global Note shall be returned to or retained and canceled by the
Trustee in accordance with Section 2.11 hereof. At any time prior to such
cancellation, if any beneficial interest in a Global Note is exchanged for or
transferred to a Person who shall take delivery thereof in the form of a
beneficial interest in another Global Note or for Definitive Notes, the
principal amount of Notes represented by such Global Note shall be reduced
accordingly and an endorsement shall be made on such Global Note by the Trustee
or by the Depositary at the direction of the Trustee to reflect such reduction;
and if the beneficial interest is being exchanged for or transferred to a Person
who shall take delivery thereof in the form of a beneficial interest in another
Global Note, such other Global Note shall be increased accordingly and an
endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 3.09, 4.10, 4.14 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Global Notes
or Definitive Notes surrendered upon such registration of transfer or
exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any mailing of a notice of
redemption of Notes under Section 3.02 hereof and ending at the close of
business on the day of such mailing, (B) to register the transfer of or to
exchange any Note (i) selected for redemption in whole or in part, except
<PAGE>
38
the unredeemed portion of any Note being redeemed in part or (ii) tendered
for repurchase pursuant to Section 4.10 or Section 4.14 hereof, except the
portion of the tendered Note not being repurchased or (C) to register the
transfer of or to exchange a Note between a record date and the next
succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Notes and for all other purposes, and none of the Trustee, any Agent
or the Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by facsimile
with the original to follow by first class mail.
(ix) Each Holder of a Note agrees to indemnify the Company and the
Trustee against any liability that may result from the transfer, exchange
or assignment of such Holder's Note in violation of any provision of this
Indenture and/or applicable United States federal or state securities laws.
(x) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Note (including any transfers between or
among Participants or beneficial owners of interests in any Global Note)
other than to require delivery of such certificates and other documentation
or evidence as are expressly required by, and to do so if and when
expressly required by the terms of, this Indenture, and to examine the same
to determine substantial compliance as to form with the express
requirements hereof.
Section 2.07. Replacement Notes. If any mutilated Note is surrendered
-----------------
to the Trustee or the Company and the Trustee receives evidence to its
satisfaction of the destruction, loss or theft of any Note, the Company shall
issue and the Trustee, upon receipt of an Authentication Order, shall
authenticate a replacement Note if the Trustee's requirements are met. An
indemnity bond must be supplied by the Holder that is sufficient in the judgment
of the Trustee and the Company to protect the Company, the Trustee, any Agent
and any authenticating agent from any loss that any of them may suffer if a Note
is replaced. The Company may charge for its expenses in replacing a Note.
<PAGE>
39
Every replacement Note issued pursuant to this Section 2.07 is an
additional obligation of the Company and shall be entitled to all of the
benefits of this Indenture equally and proportionately with all other Notes duly
issued hereunder.
Section 2.08. Outstanding Notes. The Notes outstanding at any time are
-----------------
all the Notes authenticated by the Trustee except for those canceled by it,
those delivered to it for cancellation, those reductions in the interest in a
Global Note effected by the Trustee in accordance with the provisions hereof,
and those described in this Section as not outstanding. Except as set forth in
Section 2.09 hereof, a Note does not cease to be outstanding because the Company
or an Affiliate of the Company holds the Note; however, Notes held by the
Company or a Subsidiary of the Company shall not be deemed to be outstanding for
purposes of Section 3.07(b) hereof.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
Section 2.09. Treasury Notes. In determining whether the Holders of
--------------
the required principal amount of Notes have concurred in any direction, waiver
or consent, Notes owned by the Company, or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company, shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Notes that a Responsible Officer of the
Trustee actually knows are so owned shall be so disregarded.
Section 2.10. Temporary Notes. Until certificates representing Notes
---------------
are ready for delivery, the Company may prepare and the Trustee, upon receipt of
an Authentication Order, shall authenticate temporary Notes. Temporary Notes
shall be substantially in the form of certificated Notes but may have variations
that the Company considers appropriate for temporary Notes and as shall be
reasonably acceptable to the Trustee. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate certificated Notes in exchange
for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
<PAGE>
40
Section 2.11. Cancellation. The Company at any time may deliver Notes
------------
to the Trustee for cancellation. The Registrar and Paying Agent shall forward to
the Trustee any Notes surrendered to them for registration of transfer, exchange
or payment. The Trustee and no one else shall cancel all Notes surrendered for
registration of transfer, exchange, payment, replacement or cancellation and
shall dispose of such canceled Notes in accordance with its customary procedures
(subject to the record retention requirement of the Exchange Act). Subject to
Section 2.07, the Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest. If the Company defaults in a payment
------------------
of interest on the Notes, it shall pay the defaulted interest in any lawful
manner plus, to the extent lawful, interest payable on the defaulted interest,
to the Persons who are Holders on a subsequent special record date, in each case
at the rate provided in the Notes. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
Section 2.13. CUSIP Numbers. The Company in issuing the Notes may use
-------------
"CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders; provided
that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Notes or as contained in
any notice of redemption and that reliance may be placed only on the other
identification numbers printed on the Notes, and any such redemption shall not
be affected by any defect in or omission of such numbers. The Company shall
promptly notify the Trustee of any change in the "CUSIP" numbers.
ARTICLE 3.
REDEMPTION AND PREPAYMENT;
SATISFACTION AND DISCHARGE
Section 3.01. Notices to Trustee. If the Company elects to redeem
------------------
Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it
shall furnish to the Trustee, at least 45 days but not more than 75 days before
a redemption date (unless a shorter notice period shall be satisfactory to the
Trustee), an Officers' Certificate setting forth (i) the clause of this
Indenture pursuant to which the redemption shall occur, (ii) the redemption
date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption
price.
<PAGE>
41
Section 3.02. Selection of Notes to Be Redeemed. If less than all of
---------------------------------
the Notes are to be redeemed at any time, selection of Notes for redemption
shall be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed,
or, if the Notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate. In the event of partial
redemption by lot, the particular Notes to be redeemed shall be selected, unless
otherwise provided herein, not less than 45 nor more than 75 days prior to the
redemption date by the Trustee (unless a shorter time period shall be
satisfactory to the Trustee) from the outstanding Notes not previously called
for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption. Subject to the provisions of
--------------------
Section 3.09 hereof, at least 30 days but not more than 60 days before a
redemption date, the Company shall mail or cause to be mailed, by first class
mail, a notice of redemption to each Holder whose Notes are to be redeemed at
its registered address.
The notice shall identify the Notes (including CUSIP number(s)) to be
redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
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42
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph. The notice, if mailed in the manner provided herein
shall be presumed to have been given, whether or not the Holder receives such
notice.
Section 3.04. Effect of Notice of Redemption. Once notice of
------------------------------
redemption is mailed in accordance with Section 3.03 hereof, Notes called for
redemption become irrevocably due and payable on the redemption date at the
redemption price. A notice of redemption may not be conditional. The failure to
include the CUSIP number or any incorrect CUSIP number shall not affect the
validity of such notice.
Section 3.05. Deposit of Redemption Price. At least one Business Day
---------------------------
prior to the redemption date, the Company shall deposit with the Trustee or with
the Paying Agent or if the Company is acting as its own Paying Agent hold in
trust money sufficient to pay the redemption price of and accrued interest on
all Notes to be redeemed on that date. The Trustee or the Paying Agent shall
promptly return to the Company upon the Company's written request any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part. Upon surrender of a Note that is
----------------------
redeemed in part, the Company shall issue and, upon the Company's written
request, the Trustee shall authenticate for the Holder at the expense of the
Company a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
<PAGE>
43
Section 3.07. Optional Redemption. (a) Except as set forth in clauses
-------------------
(b) and (c) of this Section 3.07, the Notes shall not be redeemable at the
Company's option prior to May 1, 2004. On or after May 1, 2004, the Company may
redeem all or a part of the Notes from time to time, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages, if any, to the applicable redemption date, if redeemed
during the twelve-month period beginning on May 1 of the years indicated below:
Year Percentage
2004........................................ 105.500%
2005........................................ 103.667%
2006........................................ 101.833%
2007 and thereafter......................... 100.000%
(b) At any time prior to May 1, 2002, the Company may on any one or
more occasions redeem up to 35% of the sum of (i) the initial aggregate
principal amount of the Notes and (ii) the initial aggregate principal amount of
any Additional Notes at a redemption price of 111 % of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Equity Offerings;
provided that (A) at least 65% of the sum of (x) the initial aggregate principal
amount of the Notes and (y) the initial aggregate principal amount of any
Additional Notes remains outstanding immediately after the occurrence of such
redemption (excluding Notes held by the Company and its Subsidiaries); and (B)
the redemption must occur within 90 days of the date of the closing of such
Equity Offering.
(c) At any time prior to May 1, 2004, the Notes will be redeemable at
the option of the Company, in whole but not in part, at a redemption price equal
to the sum of (i) the principal amount thereof, plus (ii) accrued and unpaid
interest, if any, to the applicable date of redemption, plus (iii) the Make-
Whole Premium.
(d) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption. Subject to the rights of Holders
--------------------
set forth in Section 4.10 and 4.14 hereof, the Company is not required to make
mandatory redemption or sinking fund payments with respect to the Notes.
Section 3.09. Offer to Purchase. In the event that, pursuant to
-----------------
Sections 4.10 and 4.14 hereof, the Company shall be required to commence an
offer to all Holders to purchase Notes (a "Repurchase Offer"), it shall follow
the procedures specified below.
<PAGE>
44
The Repurchase Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 or 4.14 hereof (the "Offer Amount") or, if
less than the Offer Amount has been tendered, all Notes properly tendered in
response to the Repurchase Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Repurchase Offer.
Upon the commencement of a Repurchase Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
reasonably necessary to enable such Holders to tender Notes pursuant to the
Repurchase Offer. The Repurchase Offer shall be made to all Holders. The notice,
which shall govern the terms of the Repurchase Offer, shall state:
(a) that the Repurchase Offer is being made pursuant to this Section
3.09 and Sections 4.10 or 4.14 hereof and the length of time the Repurchase
Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Repurchase Offer shall cease to accrue
interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to a
Repurchase Offer may only elect to have all of such Note purchased or a
portion of such Note in denominations of $1,000 or integral multiples
thereof;
(f) that Holders electing to have a Note purchased pursuant to any
Repurchase Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, the
Depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three Business Days before the Purchase
Date;
<PAGE>
45
(g) that Holders shall be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be, receives,
not later than the close of business on the second Business Day preceding
the expiration of the Offer Period, a facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Note the
Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Note purchased (withdrawn Notes may
not be retendered pursuant to the same Purchase Offer);
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000,
or integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered (or transferred by book-entry transfer).
On the Purchase Date, the Company shall, to the extent lawful, accept
for payment, on a pro rata basis to the extent necessary, the Offer Amount of
Notes or portions thereof properly tendered pursuant to the Repurchase Offer, or
if less than the Offer Amount has been tendered, all Notes properly tendered,
deposit with the Depositary or the Paying Agent an amount equal to the purchase
price of all Notes or portions thereof so properly tendered, and shall deliver
to the Trustee an Officers' Certificate stating that such Notes or portions
thereof were accepted for payment by the Company in accordance with the terms of
this Section 3.09. The Depositary or the Paying Agent, as the case may be, shall
promptly (but in any case not later than five Business Days after the Purchase
Date) mail or deliver to each tendering Holder an amount equal to the purchase
price of the Notes properly tendered by such Holder and accepted by the Company
for purchase, and the Company shall promptly issue a new Note, and the Trustee,
upon written request from the Company shall authenticate and mail or deliver
such new Note to such Holder, in a principal amount equal to any unpurchased
portion of the Note surrendered. Any Note not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company shall
publicly announce the results of the Repurchase Offer on or as soon as
practicable after the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
Section 3.10. Satisfaction and Discharge of Indenture. This Indenture
---------------------------------------
shall be discharged and shall cease to be of further effect as to all Notes
issued thereunder, and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when
<PAGE>
46
(i) either
(a) all Notes that have been authenticated (except lost, stolen
or destroyed Notes that have been replaced or paid and Notes for whose
payment money has theretofore been deposited in trust or held in trust
by the Company and thereafter repaid to the Company) have been
delivered to the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the making of a
notice of redemption or otherwise or will become due and payable
within one year and the Company or any Guarantor has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in
trust solely for the benefit of the Holders, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient without consideration of any
reinvestment of interest, to pay and discharge the entire indebtedness
on the Notes not delivered to the Trustee for cancellation for
principal, premium and Liquidated Damages, if any, and accrued
interest to the date of maturity or redemption;
(ii) no Default or Event of Default (other than a Default or Event of
Default resulting from the incurrence of Indebtedness, all or a portion of
which will be used to discharge the Notes concurrently with such
incurrence) shall have occurred and be continuing on the date of such
deposit or shall occur as a result of such deposit and such deposit will
not result in a breach or violation of, or constitute a default under, any
other material instrument to which the Company or any Guarantor is a party
or by which the Company or any Guarantor is bound;
(iii) the Company or any Guarantor has paid or caused to be paid all
other sums payable by it under this Indenture; and
(iv) the Company has delivered irrevocable instructions to the
Trustee under this Indenture to apply the deposited money toward the
payment of the Notes at maturity or the redemption date, as the case may
be.
In addition, the Company must deliver an Officers' Certificate and an
Opinion of Counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
Section 3.11. Application of Trust Money. All money deposited with the
--------------------------
Trustee pursuant to Section 3.10 shall be held in trust and applied by it, in
accordance with the provisions of the Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Persons entitled thereto,
of the principal (and premium, if any) and interest for whose payment
<PAGE>
47
such money has been deposited with the Trustee; but such money need not be
segregated from other funds except to the extent required by law.
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Notes. The Company shall pay or cause to be
paid the principal of, premium, if any, and interest on the Notes on the dates
and in the manner provided in the Notes in accordance with the terms of the
Notes and this Indenture. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if a Person other than the
Company or a Subsidiary thereof, holds as of 12:00 p.m. (noon) Eastern Time on
the due date money deposited by the Company in immediately available funds and
designated for and sufficient to pay all principal, premium, if any, and
interest then due. The Company shall pay all Liquidated Damages, if any, in the
same manner on the dates and in the amounts set forth in the Registration Rights
Agreement.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to the then applicable interest rate on the Notes to the extent lawful; it shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace period) at the same rate to the extent
lawful.
Section 4.02. Maintenance of Office or Agency. The Company shall
-------------------------------
maintain in the Borough of Manhattan, the City of New York, an office or agency
(which may be an office of the Trustee or an affiliate of the Trustee, Registrar
or co-registrar) where Notes may be surrendered for registration of transfer or
for exchange and where notices and demands to or upon the Company in respect of
the Notes and this Indenture may be served. The Company shall give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the City of New York) where the Notes may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in the Borough of Manhattan, the City of New York for such
purposes. The Company shall give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
<PAGE>
48
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
Section 4.03. Reports. (a) Whether or not required by the SEC, so long
-------
as any Notes are outstanding (unless defeased in a Legal Defeasance), the
Company will furnish to the Holders of Notes and the Trustee, within the time
periods specified in the SEC's rules and regulations (including any extensions
permitted thereunder), (i) all quarterly and annual financial information that
would be required to be contained in a filing with the SEC on Forms 10-Q and 10-
K if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report on the annual financial
statements by the Company's certified independent accountants; and (ii) all
current reports that would be required to be filed with the SEC on Form 8-K if
the Company were required to file such reports. In addition, whether or not
required by the SEC, the Company will file a copy of all of the information and
reports referred to in clauses (i) and (ii) above with the SEC for public
availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request if not obtainable from the SEC. In addition, the Company and the
Subsidiary Guarantors have agreed that, for so long as any Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act if not obtainable
from the SEC.
(b) If the Company has designated any of its Subsidiaries as
Unrestricted Subsidiaries, then, to the extent that any such Unrestricted
Subsidiary or group of Unrestricted Subsidiaries would (but for its or their
being designated as an Unrestricted Subsidiary or Subsidiaries) constitute a
Significant Subsidiary or Subsidiaries, the quarterly and annual financial
information required by paragraph (a) above shall include a reasonably detailed
presentation, either on the face of the financial statements or in the footnotes
thereto, and in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," of the financial condition and results of operations of
the Company and its Restricted Subsidiaries separate from the financial
condition and results of operations of the Unrestricted Subsidiaries of the
Company.
(c) Delivery of such reports, information and documents to the Trustee
is for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
Section 4.04. Compliance Certificate. (a) The Company and each
Guarantor (to the extent that such Guarantor is so required under the TIA) shall
deliver to the Trustee, within 120 days after the end of each fiscal year, an
Officers' Certificate stating that a review of the activities of the Company and
its Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has
<PAGE>
49
kept, observed, performed and fulfilled its obligations under this Indenture,
and further stating, as to each such Officer signing such certificate, that to
the best of his or her knowledge the Company has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions of this Indenture (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge and what action the Company is taking or proposes to take
with respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Notes is prohibited or if such event
has occurred, a description of the event and what action the Company is taking
or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
Section 4.05. Taxes. The Company shall pay, and shall cause each of
-----
its Subsidiaries to pay, prior to delinquency, all material taxes, assessments,
and governmental levies except such as are contested in good faith and in an
appropriate manner or by appropriate proceedings or where the failure to effect
such payment is not adverse in any material respect to the Holders of the Notes.
Section 4.06. Stay, Extension and Usury Laws. The Company and each of
------------------------------
the Guarantors covenant (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law wherever enacted,
now or at any time hereafter in force, that may affect the covenants or the
performance of this Indenture; and the Company and each of the Guarantors (to
the extent that it may lawfully do so) hereby expressly waive all benefit or
advantage of any such law, and covenant (to the extent it may lawfully do so)
that it shall not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
<PAGE>
50
Section 4.07. Restricted Payments. The Company will not, and will not
-------------------
permit any of its Restricted Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any other payment or distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company or any of its Restricted Subsidiaries) or to
the direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or to the Company or a Restricted Subsidiary of the Company); (ii)
purchase, redeem or otherwise acquire or retire for value (including, without
limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company, any direct or indirect parent of
the Company or any other Subsidiary of the Company that is not or as a result of
such transaction does not become a Wholly Owned Restricted Subsidiary of the
Company; (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes or the Subsidiary Guarantees, except a payment of
interest thereon or principal at any scheduled principal or sinking fund payment
date or at the Stated Maturity thereof; or (iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment: (a) no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof; and (b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09; and (c)
such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the date hereof (excluding Restricted Payments permitted by clauses (ii) and
(iii) of the next succeeding paragraph), is less than the sum, without
duplication, of (A) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from January 31, 1999 to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (B) 100% of the aggregate net cash proceeds received by the
Company since the date hereof as a contribution to its common equity capital or
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of convertible or exchangeable
Disqualified Stock or convertible or exchangeable debt securities of the Company
that have been converted into or exchanged for such Equity Interests (other than
Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary
of the Company), plus (C) to the extent that any Restricted Investment that was
made after the date hereof is sold for Cash Equivalents or otherwise liquidated
or repaid for Cash Equivalents, the lesser of (1) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition, if
any) and (2) the initial amount of such Restricted Investment, plus (D) the
aggregate net cash proceeds received after the date hereof by the Company from
the conversion or exchange, if any, of debt
<PAGE>
51
securities or Disqualified Capital Stock of the Company into or for Capital
Stock (other than Disqualified Capital Stock) of the Company.
Notwithstanding the foregoing and, in the case of clauses (ii), (iii),
(vi), (vii), (viii), (ix) and (x) of this paragraph, so long as no Default has
occurred and is continuing or would be caused thereby, the preceding provisions
will not prohibit (i) the payment of any dividend within 60 days after the date
of declaration thereof, if at said date of declaration such payment would have
complied with the provisions hereof; (ii) the redemption, repurchase,
retirement, defeasance or other acquisition of any subordinated Indebtedness of
the Company or any Guarantor or of any Equity Interests of the Company or a
Guarantor in exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of,
Equity Interests of the Company (other than Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (c)(B) of the preceding paragraph; (iii) the defeasance,
redemption, repurchase or other acquisition or payment of subordinated
Indebtedness of the Company or any Guarantor with the net cash proceeds from, or
in exchange for, Permitted Refinancing Indebtedness; (iv) repurchases of Equity
Interests deemed to occur upon the exercise of stock options if such Equity
Interests represent a portion of the exercise price thereof or withholding tax
due in connection therewith; (v) payments not to exceed $100,000 in the
aggregate since the Issue Date to permit the Company to make payments to holders
of its Equity Interests in lieu of issuing fractional shares of its Equity
Interests; (vi) payments in respect of any repurchase, redemption, acquisition,
cancellation or other retirement for value of any Equity Interests, stock
appreciation or similar securities of the Company or any Restricted Subsidiary
of the Company held by then current or former officers, directors or employees
of the Company or any Restricted Subsidiary (or their estates or beneficiaries
under their estates) or by an employee benefit plan, upon death, disability,
retirement, termination of employment or departure from the Board of Directors,
not to exceed $500,000 in the aggregate in any fiscal year, increased by the
amount of net cash proceeds from "key man" life insurance policies which are
used to make such redemptions or repurchases; (vii) the payment of any dividend
by a Restricted Subsidiary of the Company to the holders of such Restricted
Subsidiary's common Equity Interests on a pro rata basis; (viii) the repurchase
of any Subordinated Indebtedness of the Company or any Guarantor at a purchase
price not greater than 100% of the principal amount of such Subordinated
Indebtedness in the event of a Change of Control pursuant to a provision similar
to Section 4.14 hereof; provided that, prior to or simultaneously with such
repurchase, the Company has made the Change of Control Offer as provided in
Section 4.14 and has repurchased all Notes validly tendered for payment in
connection with such Change of Control Offer; (ix) the repurchase of any
Subordinated Indebtedness of the Company or any Guarantor, at a purchase price
not greater than 100% of the principal amount of such Indebtedness in the event
of an Asset Sale pursuant to a provision similar to Section 4.10; provided that,
prior to such repurchase, the Company has made an Asset Sale Offer to purchase
the Notes as provided in Section 4.10 and has repurchased all Notes validly
tendered for payment in connection with such Asset Sale Offer; and (x)
Restricted Payments in a total amount not to exceed $5.0 million.
<PAGE>
52
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued for the
purposes hereof shall be determined by the Board of Directors whose resolution
with respect thereto shall be delivered to the Trustee. The Board of Directors'
determination must be based upon an opinion or appraisal by an accounting,
appraisal or investment banking firm of national standing if the fair market
value exceeds $10.0 million. At least once per fiscal year, the Company shall
deliver to the Trustee an Officers' Certificate stating that Restricted Payments
made during such year were permitted and setting forth the basis upon which the
calculations required hereby were computed together with a copy of any fairness
opinion or appraisal required by this Indenture. If the aggregate amount of all
Restricted Payments calculated under this Section 4.07 includes a Restricted
Investment in an Unrestricted Subsidiary, the aggregate amount of all Restricted
Payments calculated under this Section 4.07 will be reduced by the lesser of (x)
the net asset value of such Subsidiary at the time it becomes a Restricted
Subsidiary and (y) the initial amount of such Investment.
Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted
------------------------------------------------------------
Subsidiaries. The Company will not, and will not permit any of its Restricted
- ------------
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock to the Company or any of its Restricted Subsidiaries, or pay
any indebtedness owed to the Company or any of its Restricted Subsidiaries; (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries; or
(iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries. However, the preceding restrictions will not apply to
encumbrances or restrictions existing under or by reason of (i) Existing
Indebtedness as in effect on the date hereof and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in such Existing
Indebtedness, as in effect on the date hereof; (ii) the Credit Agreement or any
other agreements as in effect on the date hereof and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained in
such agreements, as in effect on the date hereof; (iii) the Indenture, the Notes
and the Subsidiary Guarantees; (iv) applicable law, rules, regulations or
orders; (v) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired,
<PAGE>
53
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms hereof to be incurred; (vi) in the case of clause (iii) of the first
sentence of this Section 4.08, provisions (A) that restrict in a customary
manner the subletting, assignment or transfer of any property or asset that is a
lease, license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the terms hereof or (C)
arising or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; (vii) purchase
money obligations for property or assets acquired in the ordinary course of
business that impose restrictions on the property or assets so acquired of the
nature described in clause (iii) of the first sentence of this Section 4.08;
(viii) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary pending
its sale or other disposition; (ix) Permitted Refinancing Indebtedness, provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced; (x)
Liens securing Indebtedness that limit the right of the debtor to dispose of the
assets or property subject to such Lien; and (xi) provisions with respect to the
disposition or distribution of assets or property in joint venture agreements,
asset sale agreements, stock sale agreements and other similar agreements
permitted by this Indenture. Nothing contained in this Section 4.08 shall
prevent the Company or any Restricted Subsidiary from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in Section 4.12 or
(2) restricting the sale or other disposition of property or assets of the
Company or any of its Restricted Subsidiaries pursuant to Liens otherwise
permitted in Section 4.12 that secure Indebtedness of the Company or any of its
Restricted Subsidiaries.
Section 4.09. Incurrence of Indebtedness and Issuance of Disqualified
-------------------------------------------------------
Stock. The Company will not, and will not permit any of its Restricted
- -----
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and the Company will not issue any Disqualified Stock and the Company
will not permit any of its Restricted Subsidiaries to issue any Disqualified
Stock; provided, however, that the Company may incur Indebtedness (including
Acquired Debt) or issue Disqualified Stock, and a Guarantor may incur
Indebtedness or issue Disqualified Stock, if the Fixed Charge Coverage Ratio for
the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or the preferred stock or Disqualified Stock had
been issued, as the case may be, at the beginning of such four-quarter period.
The first paragraph of this Section 4.09 will not prohibit the incurrence
of any of the following items of Indebtedness (collectively, "Permitted Debt"):
<PAGE>
54
(i) the incurrence by the Company and any Guarantor of Indebtedness
and letters of credit under Credit Facilities in an aggregate principal
amount at any one time outstanding under this clause (i) (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and the Guarantors thereunder) not to
exceed $200.0 million less the aggregate amount of all Net Proceeds of
Asset Sales applied by the Company or any Guarantor to repay any revolving
credit Indebtedness under a Credit Facility and effect a corresponding
commitment reduction thereunder pursuant to Section 4.10;
(ii) the incurrence by the Company and any Guarantor of the Existing
Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes and the Exchange Notes;
(iv) the incurrence from time to time and at any time by Guarantors
of Indebtedness represented by the Subsidiary Guarantees;
(v) the incurrence by the Company or any Guarantor of Indebtedness
represented by Capital Lease Obligations, mortgage financings or purchase
money obligations, in each case, incurred for the purpose of financing all
or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used or useful in the business of the Company
or such Guarantor, in an aggregate principal amount outstanding (including
all Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (v)), not to exceed 5% of aggregate total
revenue of the Company and its Restricted Subsidiaries during the most
recently completed four fiscal quarter period on a consolidated basis
(measured at the date of incurrence);
(vi) the incurrence by the Company or any of the Guarantors of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted to be incurred under the
first paragraph of this Section 4.09 or clause (ii), (iii), (iv) or (vi) of
this paragraph;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries or between or among any Restricted
Subsidiaries; provided, however, that (a) if the Company or any Guarantor
is the obligor on such Indebtedness, such Indebtedness must be expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes, in the case of the Company, or the Subsidiary
Guarantee, in the case of a Guarantor; and (b) (1) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a
<PAGE>
55
Restricted Subsidiary thereof and (2) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a Wholly
Owned Restricted Subsidiary thereof; shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, that was not permitted by this
clause (vii);
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of (a) Hedging Obligations that are incurred for the purpose
of fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms hereof to be outstanding; and
(b) Currency Agreements entered into in the ordinary course of business in
respect of assets or obligations denominated in a foreign currency;
(ix) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that
was otherwise permitted to be incurred by this Section 4.09;
(x) the accrual of interest, the accretion or amortization of
original issue discount, the payment of interest on any Indebtedness of the
Company or any Restricted Subsidiary in the form of additional Indebtedness
with the same terms, and the payment of dividends on Disqualified Stock in
the form of additional shares of the same class of Disqualified Stock will
not be deemed to be an incurrence of Indebtedness or an issuance of
Disqualified Stock for purposes of this Section 4.09; provided, in each
such case, that the amount thereof is included in Fixed Charges of the
Company as accrued;
(xi) Indebtedness of the Company or any Restricted Subsidiary
arising from the honoring by a bank or other financial institution of a
check, draft or other similar instrument inadvertently drawn against
insufficient funds in the ordinary course of business; provided that any
such Indebtedness is extinguished within five Business Days of its
incurrence;
(xii) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(xiii) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification or
adjustment of purchase price obligations, in each case incurred or assumed
in connection with the disposition of any business, assets or a Restricted
Subsidiary of the Company, other than guarantees of Indebtedness incurred
by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition;
provided that the maximum assumable liability in respect of all such
Indebtedness at no time exceeds the
<PAGE>
56
gross proceeds actually received by the Company and its Restricted
Subsidiaries in respect of such disposition;
(xiv) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any of its Restricted
Subsidiaries in the ordinary course of business; and
(xv) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness at any time outstanding incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause (xv), not to exceed $15 million.
For purposes of determining compliance with this Section 4.09, in the
event that an item of proposed Indebtedness meets the criteria of more than one
of the categories of Permitted Debt described in clauses (i) through (xv) above,
or is entitled to be incurred pursuant to the first paragraph of this Section
4.09, the Company shall be permitted to classify such item of Indebtedness in
any manner that complies with this Section 4.09. Indebtedness under Credit
Facilities and letters of credit or bankers' acceptances outstanding on the date
on which Notes are first issued and authenticated under this Indenture shall be
deemed to have been incurred on such date in reliance on the exception set forth
in clause (i) of the definition of Permitted Debt.
Section 4.10. Asset Sales. The Company will not, and will not permit any of
-----------
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
(or the Restricted Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value of the assets or
Equity Interests issued or sold or otherwise disposed of; (ii) such fair market
value is determined by the Company's Board of Directors and evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee; and (iii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of Cash
Equivalents. For purposes of this provision, each of the following shall be
deemed to be Cash Equivalents:
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by
their terms subordinated to the Notes or any Subsidiary Guarantee) that are
assumed by the transferee of any such assets and from which the Company or
such Restricted Subsidiary is unconditionally released; and
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
within thirty (30) days of receipt thereof converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received in that
conversion).
<PAGE>
57
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds at its option (i) to repay Senior Debt
and, if the Senior Debt repaid is revolving credit Indebtedness that (a) was
incurred under clause (i) of the second paragraph of Section 4.09 or (b) was
incurred under any other provision hereof and the Company at the time of such
repayment would not otherwise be able to incur an additional $1.00 of
indebtedness under the Fixed Charge Coverage Ratio pursuant to the first
paragraph of Section 4.09, to correspondingly reduce commitments with respect to
such revolving credit Indebtedness; (ii) to acquire all or substantially all of
the assets of, or a majority of the Voting Stock of, another Permitted Business;
(iii) to make a capital expenditure in or that is used or useful in a Permitted
Business; or (iv) to acquire other long-term assets in or that are used or
useful in a Permitted Business. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce revolving credit borrowings or
otherwise invest such Net Proceeds in any manner that is not prohibited
hereunder. Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will make
an Asset Sale Offer to all Holders of Notes and Additional Notes, if any, and
all holders of other Indebtedness that is pari passu with the Notes containing
provisions similar to those set forth herein with respect to offers to purchase
with the proceeds of sales of assets to purchase the maximum principal amount of
Notes and Additional Notes, if any, and such other pari passu Indebtedness that
may be purchased out of the Excess Proceeds. The offer price in any Asset Sale
Offer will be equal to 100% of principal amount plus accrued and unpaid interest
and Liquidated Damages, if any, to the date of purchase, and will be payable in
cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer,
the Company may use such Excess Proceeds for any purpose not otherwise
prohibited by this Indenture. If the aggregate principal amount of Notes and
such other pari passu Indebtedness tendered into such Asset Sale Offer exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes and Additional
Notes, if any, and such other pari passu Indebtedness to be purchased on a pro
rata basis based on the principal amount of Notes and Additional Notes and such
other pari passu Indebtedness tendered. Upon completion of each Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with each
repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Section 4.10, the Company will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations under
this Section 4.10 or Section 3.09 hereof, by virtue of such conflict.
Section 4.11. Transactions with Affiliates. The Company will not, and will
----------------------------
not permit any of its Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"),
unless:
<PAGE>
58
(i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person; and (ii) the Company delivers to the
Trustee: (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with this
covenant and that such Affiliate Transaction has been approved by a majority of
the disinterested members of the Board of Directors; and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, an opinion as to the
fairness to the Company or such Restricted Subsidiary of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing. No outside director or
non-management director shall be deemed not to be a "disinterested director" by
reason of his receipt of reasonable and customary directors' fees or the
participation in reasonable and customary directors' stock grant, stock option
or stock warrant plans, or such other form of director remuneration as is
reasonable and customary.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph: (i) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Restricted Subsidiary; (ii) transactions between
or among the Company and/or its Restricted Subsidiaries or between or among
Restricted Subsidiaries; (iii) reasonable fees and compensation (including
bonuses) paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any Subsidiary of the Company as
determined in good faith by the Company's Board of Directors; (iv) any agreement
as in effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) in any
replacement agreement thereto so long as any such amendment or replacement
agreement is not more disadvantageous to the Holders in any material respect
than the original agreement in effect on the Issue Date; (v) loans or advances
to officers, directors or employees of the Company or its Restricted
Subsidiaries not in excess of $5.0 million at any one time outstanding; (vi) the
granting or performance of registration rights under a written registration
rights agreement approved by the Board of Directors; (vii) sales of Equity
Interests (other than Disqualified Stock) to Affiliates of the Company; and
(viii) Restricted Payments that are permitted by Section 4.07 hereof.
Section 4.12. Liens. The Company will not, and will not permit any of its
-----
Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer
to exist or become effective any Lien of any kind securing Indebtedness or
amounts owed for goods, materials or services purchased in the ordinary course
of business (other than Permitted Liens) upon any of their property or assets,
now owned or hereafter acquired, unless all payments due under this Indenture
and the Notes are secured on an equal and ratable basis with the obligations so
secured until such time as such obligations are no longer secured by a Lien.
<PAGE>
59
Section 4.13. Corporate Existence. Subject to Article 5 hereof, the Company
-------------------
shall do or cause to be done all things necessary to preserve and keep in full
force and effect (i) its corporate existence, and the corporate, partnership or
other existence of each of its Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Subsidiary and (ii) the rights (charter and statutory),
licenses and franchises of the Company and its Subsidiaries; provided, however,
that the Company shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of any of its
Subsidiaries, if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in
any material respect to the Holders of the Notes.
Section 4.14. Offer to Repurchase upon Change of Control. (a) Upon the
------------------------------------------
occurrence of a Change of Control, each Holder of Notes shall have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company shall mail a notice to each Holder stating (i) that the Change of
Control Offer is being made pursuant to this Section 4.14 and that all Notes
properly tendered will be accepted for payment; (ii) the purchase price and the
purchase date, which shall be no earlier than 30 days and no later than 60 days
from the date such notice is mailed (the "Change of Control Payment Date");
(iii) that any Note not tendered will continue to accrue interest; (iv) that,
unless the Company defaults in the payment of the Change of Control Payment, all
Notes accepted for payment pursuant to the Change of Control Offer shall cease
to accrue interest after the Change of Control Payment Date; (v) that Holders
electing to have any Notes purchased pursuant to a Change of Control Offer will
be required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; (vi) that Holders
will be entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the second Business Day preceding the Change
of Control Payment Date, a facsimile transmission or letter setting forth the
name of the Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have the Notes
purchased; and (vii) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof. Withdrawn Notes may not be
retendered pursuant to the same Change of Control Offer. The Company shall
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this Section 4.14
or Section 3.09 hereof, the Company shall comply with the applicable securities
<PAGE>
60
laws and regulations and shall not be deemed to have breached its obligations
described in this Indenture by virtue thereof.
(b) By 12:00 Noon Eastern Time on the Change of Control Payment Date, the
Company shall, to the extent lawful, (1) accept for payment all Notes or
portions thereof properly tendered pursuant to the Change of Control Offer, (2)
deposit with the Paying Agent an amount equal to the Change of Control Payment
in respect of all Notes or portions thereof so tendered and (3) deliver or cause
to be delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent shall promptly mail to each
Holder of Notes so tendered the Change of Control Payment for such Notes, and
the Trustee shall promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note shall be in a principal amount of $1,000 or an integral multiple
thereof. Prior to compliance with this Section 4.14, but in any event within 90
days following a Change of Control, the Company will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Notes
required by this Section 4.14. The Company shall publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
(c) Notwithstanding anything to the contrary in this Section 4.14, the
Company shall not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in this
Section 4.14 and Section 3.09 hereof and all other provisions of this Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
Section 4.15. Limitation on Other Senior Subordinated Debt. The Company
--------------------------------------------
shall not incur, create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of payment to any Senior
Debt of the Company and senior in any respect in right of payment to the Notes.
No Guarantor will incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment to
the Senior Debt of such Guarantor and senior in any respect in right of payment
to such Guarantor's Subsidiary Guarantee.
Section 4.16. Limitation on Issuances and Sales of Equity Interests in
--------------------------------------------------------
Wholly Owned Subsidiaries. The Company will not, and will not permit any of its
- -------------------------
Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise dispose
of any Equity Interests in any Wholly Owned Restricted Subsidiary of the Company
to any Person (other than to the Company or to a Wholly Owned Restricted
Subsidiary of the Company), unless
(i) such transfer, conveyance, sale, lease or other disposition is of
all the Equity Interests in such Wholly Owned Restricted Subsidiary; and
<PAGE>
61
(ii) the cash Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with Section 4.10 hereof.
In addition, the Company will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company.
Notwithstanding the foregoing, this Section 4.16 shall not prohibit
any issuance or sale of the Capital Stock of any Restricted Subsidiary if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect to such issuance or sale would have
been permitted to be made under Section 4.07 if made on the date of such
issuance or sale.
Section 4.17. Limitation on Issuances of Guarantees of Indebtedness.
-----------------------------------------------------
The Company will not permit any Restricted Subsidiary, which is not a Guarantor,
directly or indirectly, to Guarantee or pledge any assets to secure the payment
of any other Indebtedness of the Company unless such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for the
Guarantee of the payment of the Notes by such Restricted Subsidiary, which
Guarantee shall be senior to or pari passu with such Subsidiary's Guarantee of
or pledge to secure such other Indebtedness unless such other Indebtedness is
Senior Debt, in which case the Guarantee of the Notes may be subordinated to the
Guarantee of such Senior Debt to the same extent as the Notes are subordinated
to such Senior Debt. Any Subsidiary Guarantee of the Notes provided for pursuant
to this Section 4.17 will provide by its terms that it will be automatically and
unconditionally released and discharged upon the release by the holders of the
Indebtedness of the Company described in the preceding sentence of their
guarantee by such Restricted Subsidiary (including any deemed release upon
payment in full of all obligations under such Indebtedness other than as a
result of payment under such guarantee). Such Subsidiary Guarantee shall be in
the form set forth in Exhibit E attached hereto.
Section 4.18. Additional Guarantees. If the Company or any of its
---------------------
Restricted Subsidiaries shall acquire or create another Domestic Subsidiary
after the date hereof, then such newly acquired or created Domestic Subsidiary
shall become a Guarantor and shall, within 20 Business Days of the date on which
it was acquired or created, execute and deliver a supplemental indenture in the
form of Exhibit E hereto providing for the Guarantee of the payment of the Notes
by such Domestic Subsidiary on the same basis as the Guarantors on the date
hereof and deliver an Opinion of Counsel to the Trustee.
Section 4.19. Business Activities. The Company will not, and will not
-------------------
permit any Restricted Subsidiary to, engage in any business other than Permitted
Businesses, except to such extent as would not be material to the Company and
its Restricted Subsidiaries taken as a whole; provided, however, that the
Company and any Restricted Subsidiary also may engage in a business other than a
Permitted Business so long as such non-Permitted Business is acquired in
connection
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62
with the acquisition of a Permitted Business and such non-Permitted Business is
held for disposition and disposed of within 365 days of its acquisition.
Section 4.20. Designation of Restricted and Unrestricted Subsidiaries.
-------------------------------------------------------
The Board of Directors of the Company may designate any Restricted Subsidiary to
be an Unrestricted Subsidiary (including any newly acquired or formed
subsidiary) if that designation would not cause a Default. If a Restricted
Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair
market value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary so designated will be deemed to be a
Restricted Investment made as of the time of such designation and that
designation will only be permitted if such Investment would be permitted at that
time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under Section 4.09 hereof, as calculated on a pro
forma basis as if such designation had occurred at the beginning of the four-
quarter reference period; and (ii) no Default or Event of Default would be in
existence following such designation.
Section 4.21. Payments for Consent. The Company will not, and will not
--------------------
permit any of its Restricted Subsidiaries to, directly or indirectly, pay or
cause to be paid any consideration to or for the benefit of any Holder of Notes
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of the Indenture or the Notes unless such consideration is offered
to be paid and is paid to all Holders of the Notes that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
ARTICLE 5.
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets. The Company
----------------------------------------
will not, and the Company will not permit any of its Restricted Subsidiaries
which, singly or together with other Restricted Subsidiaries or the Company,
represent all or substantially all of the assets of the Company and its
Restricted Subsidiaries on a consolidated basis to, directly or indirectly, in a
single transaction or series of related transactions: (i) consolidate or merge
with or into another Person (whether or not the Company or such Restricted
Subsidiary is the surviving corporation); or (ii) sell, assign, transfer, convey
or otherwise dispose of all or substantially all of the properties or assets of
the Company and its Subsidiaries taken as a whole to another Person; unless: (A)
either (1) the Company or such Restricted Subsidiary, as the case may be, is the
surviving corporation; or (2) the Person formed by or surviving any such
consolidation or merger (if other
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63
than the Company or such Restricted Subsidiary) or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any state
thereof or the District of Columbia; (B) the Person formed by or surviving any
such consolidation or merger (if other than the Company or such Restricted
Subsidiary) or the Person to which such sale, assignment, transfer, conveyance
or other disposition shall have been made assumes all the obligations of the
Company or such Restricted Subsidiary (if such Restricted Subsidiary is a
Guarantor), as the case may be, under the Notes, the Indenture and the
Registration Rights Agreement pursuant to agreements reasonably satisfactory to
the Trustee; (C) immediately after such transaction no Default or Event of
Default exists; and (D) if such transaction involves the Company, the Company or
the Person formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, conveyance or
other disposition shall have been made will, on the date of such transaction
after giving pro forma effect thereto and any related financing transactions as
if the same had occurred at the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of Section
4.09. This Section 5.01 will not apply to a sale, assignment, transfer,
conveyance or other disposition of assets between or among the Company and any
of its Restricted Subsidiaries.
Section 5.02. Successor Corporation Substituted. Upon any
---------------------------------
consolidation or merger, or any sale, assignment, transfer, conveyance or other
disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
assignment, transfer, conveyance or other disposition is made shall succeed to,
and be substituted for (so that from and after the date of such consolidation,
merger, sale, conveyance or other disposition, the provisions of this Indenture
referring to the "Company" shall refer instead to the successor corporation and
not to the Company), and may exercise every right and power of the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default. Each of the following is an "Event of
-----------------
Default":
(a) default in the payment when due of interest on, or Liquidated
Damages with respect to, the Notes (whether or not prohibited by Article 10
hereof) and such default continues for a period of 30 days;
(b) default in payment of the principal of or premium, if any, on the
Notes (whether or not prohibited by Article 10 hereof);
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64
(c) failure by the Company or any of its Restricted Subsidiaries to
comply with the provisions of Sections 4.10, 4.14 and 5.01 hereof;
(d) a default in the observance or performance of any other covenant
or agreement contained in this Indenture which continues for a period of 45
days after the Company receives written notice specifying the default (and
demanding that such default be remedied) from the Trustee or the Holders of
at least 25% of the outstanding principal amount of the Notes;
(e) default by the Company or any Restricted Subsidiary under any
mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the
date hereof, if that default (i) is caused by a failure to make any payment
when due at final maturity of any such Indebtedness (a "Payment Default")
or (ii) results in the acceleration of such Indebtedness prior to its
express maturity, and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $15 million or more, provided
that if any such default is cured or waived or any such acceleration
rescinded, or such Indebtedness is repaid, within a period of 10 days after
the occurrence of such Payment Default or acceleration, such Event of
Default hereunder and any consequential acceleration of the Notes shall be
automatically rescinded, so long as (1) such rescission does not conflict
with any judgment or decree and (2) there is no other Indebtedness
outstanding under which there has been a default which has not been cured
or waived or an acceleration which has not been rescinded or the
Indebtedness not repaid;
(f) failure by the Company or any of its Significant Subsidiaries to
pay final judgments not covered by insurance aggregating in excess of $15
million, which judgments are not paid, discharged or stayed for a period of
60 days;
(g) except as permitted herein, any Subsidiary Guarantee of any
Significant Subsidiary or one or more Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any authorized
Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee (other than by reason of release
in accordance with the provisions set forth herein); and
(h) any Guarantor, the Company or any of its Significant Subsidiaries
pursuant to or within the meaning of Bankruptcy Law:
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65
(i) commences a voluntary case; or
(ii) consents to the entry of an order for relief against it in
an involuntary case; or
(iii) consents to the appointment of a custodian of it or for all
or substantially all of its property; or
(iv) makes a general assignment for the benefit of its
creditors; or
(v) generally is not paying its debts as they become due; or
(i) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against any Guarantor, the Company or any
Significant Subsidiaries in an involuntary case;
(ii) appoints a custodian of any Guarantor, the Company or any
of its Significant Subsidiaries or for all or substantially all of the
property of any Guarantor, the Company or any of its Significant
Subsidiaries; or
(iii) orders the liquidation of any Guarantor, the Company or any
of its Significant Subsidiaries;
and the order or decree remains in force, undischarged or unstayed and
in effect for 60 consecutive days.
In the event of a declaration of acceleration of the Notes because an
Event of Default has occurred and is continuing as a result of the acceleration
of any Indebtedness described in clause (e) of the preceding paragraph, the
declaration of acceleration of the Notes shall be automatically annulled if the
holders of any Indebtedness described in clause (e) of the preceding paragraph
have rescinded the declaration of acceleration in respect of such Indebtedness
within 30 days of the date of such declaration and if (i) the annulment of the
acceleration of Notes would not conflict with any judgment or decree of a court
of competent jurisdiction and (ii) all existing Events of Default, except
nonpayment of principal or interest on the Notes that became due solely because
of the acceleration of the Notes, have been cured or waived.
Section 6.02. Acceleration. If any Event of Default occurs and is
------------
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare all the principal, premium, if any,
accrued interest and Liquidated Damages, if any, of the Notes to be due and
payable by notice in writing to the Company and (to the Trustee if given by
<PAGE>
66
the Holders) specifying the respective Event of Default and that it is a "notice
of acceleration", and upon receipt of such notice the same shall become due and
payable upon the first to occur of an acceleration under any issue of then
outstanding Designated Senior Debt or five Business Days after receipt by the
Company and each Representative of holders of Designated Senior Debt then
outstanding of such notice of acceleration, unless all Events of Default
specified in such respective notices of acceleration shall have been cured
within said five Business Day period. Notwithstanding the foregoing, in the case
of an Event of Default described in clause (h) or (i) of Section 6.01, with
respect to the Company or any of its Significant Subsidiaries all outstanding
Notes shall become due and payable immediately without further action or notice.
Section 6.03. Other Remedies. If an Event of Default occurs and is
--------------
continuing, the Trustee may pursue any available remedy to collect the payment
of principal, premium, if any, and interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults. Holders of not less than a
-----------------------
majority in aggregate principal amount of the then outstanding Notes by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences hereunder, except a
continuing Default or Event of Default in the payment of the principal of,
premium and Liquidated Damages, if any, or interest on, the Notes (including in
connection with an offer to purchase) (provided, however, that the Holders of a
majority in aggregate principal amount of the then outstanding Notes may rescind
an acceleration and its consequences, including any related payment default that
resulted from such acceleration). The Company shall deliver to the Trustee an
Officers' Certificate stating that the requisite percentage of Holders have
consented to such waiver and shall furnish the Trustee with copies of such
consents. In case of any such waiver, the Company, the Trustee and the Holders
shall be restored to their former positions and rights hereunder and under the
Notes, respectively. This Section 6.04 shall be in lieu of Section 316(a)(1)(B)
of the TIA and such Section 316(a)(1)(B) of the TIA is hereby expressly excluded
from this Indenture and the Notes, as permitted by the TIA. Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
Section 6.05. Control by Majority. Subject to Section 2.09, holders of
-------------------
a majority in principal amount of the then outstanding Notes may direct in
writing the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee or exercising any trust or power conferred
on it. However, the Trustee shall refuse to follow any
<PAGE>
67
direction that conflicts with law or this Indenture and may refuse to follow any
direction that the Trustee determines may be unduly prejudicial to the rights of
Holders of Notes not taking part in such direction, and the Trustee shall have
the right to decline to follow any such direction, if the Trustee, being advised
by counsel, determines that such action so directed may not be lawfully taken or
if the Trustee, in good faith shall by a Responsible Officer, determine that the
proceedings so directed may involve the Trustee in personal liability; provided
that the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction. In the event the Trustee takes any action
or follows any direction pursuant to this Indenture, the Trustee shall be
entitled to indemnification from each Holder satisfactory to it in its sole
discretion against any loss or expense caused by taking such action or following
such direction. This Section 6.05 shall be in lieu of Section 316(a)(1)(A) of
the TIA, and such Section 316(a)(1)(A) of the TIA is hereby expressly excluded
from this Indenture and the Notes, as permitted by the TIA.
Section 6.06. Limitation on Suits. No Holder of any Note shall have
-------------------
any right to institute or to order or direct the Trustee to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy (collectively a
"Remedy") except as specified in the following sentence. A Holder of a Note may
pursue a Remedy with respect to this Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
Remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee security or indemnity satisfactory to the Trustee
against any cost, loss, liability or expense including security or
indemnity satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred or reasonably probable to be incurred in
compliance with such request;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of at least a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note; it being understood and intended that no one or more Holders
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the
<PAGE>
68
rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit of
all the Holders.
Section 6.07. Rights of Holders of Notes to Receive Payment.
---------------------------------------------
Notwithstanding any other provision of this Indenture, the right of any Holder
of a Note to receive payment of principal, premium and Liquidated Damages, if
any, and interest on the Note, on or after the respective due dates expressed in
the Note (including in connection with an offer to purchase), or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee. If an Event of Default
--------------------------
specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is
authorized to recover judgment in its own name and as trustee of an express
trust against the Company for the whole amount of principal of, premium and
Liquidated Damages, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim. The Trustee is
--------------------------------
authorized to file such proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and the Holders of the Notes allowed in any
judicial proceedings relative to the Company (or any other obligor upon the
Notes), its creditors or its property and shall be entitled and empowered to
collect, receive and distribute any money or other securities or property
payable or deliverable on any such claims and any custodian in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee, and in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
<PAGE>
69
Section 6.10. Priorities. Subject to the provisions of Article 10, if
----------
the Trustee collects any money pursuant to this Article, it shall pay out the
money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium (if any), Liquidated Damages, (if
any) and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs. In any suit for the enforcement
---------------------
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as a Trustee, any court in its discretion
may require the filing by any party litigant in the suit of an undertaking to
pay the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees and expenses, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Company, the Trustee, a suit by a Holder of a Note pursuant to
Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount
of the then outstanding Notes for enforcement of the payment of principal of, or
premium (if any) or interest on, any Note on or after the maturity date
expressed in such Note (including, in the case of redemption, on or after the
redemption date therefor).
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee. (a) If an Event of Default has
-----------------
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and skill
in its exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are
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70
specifically set forth in this Indenture and no others, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
in the case of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture (but need not
confirm or investigate the accuracy of mathematical calculations or other
facts purported to be stated therein).
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree in writing with the
Company. Money or assets held in trust by the Trustee need not be segregated
from other funds or assets except to the extent required by law.
Section 7.02. Rights of Trustee. (a) The Trustee may conclusively rely
-----------------
and shall be protected in acting or refraining from acting upon any document
believed by it to be genuine
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71
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel of its selection and may require an Officers' Certificate or an
Opinion of Counsel or both. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such Officers' Certificate
or Opinion of Counsel. The Trustee may consult with counsel of its selection and
the advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent or attorney
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
security or indemnity satisfactory to the Trustee against the costs, expenses
and liabilities that might be incurred by it in compliance with such request or
direction.
(g) The Trustee shall not be deemed to have knowledge of any Default
or Event of Default except (i) any Event of Default occurring pursuant to
Section 6.01(a) or 6.01(b) or (ii) any Event of Default of which a Responsible
Officer of the Trustee shall have received written notification or otherwise
obtained actual knowledge.
(h) Whenever by the terms of this Indenture, the Trustee shall be
required to transmit notices or reports to any or all Holders, the Trustee shall
be entitled to rely on the information provided by the Registrar as to the names
and addresses of the Holders as being correct. If the Registrar is other than
the Trustee, the Trustee shall not be responsible for the accuracy of such
information.
(i) The rights, privileges, protections, immunities and benefits given
to the Trustee, including, without limitation, its right to be indemnified, are
extended to, and shall be enforceable by, the Trustee in each of its capacities
hereunder, and to each agent, custodian and other Person employed to act
hereunder.
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72
Section 7.03. Individual Rights of Trustee. The Trustee in its
----------------------------
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Company or any Affiliate of the Company with the
same rights it would have if it were not Trustee. However, in the event that the
Trustee acquires any conflicting interest it must eliminate such conflict within
90 days, apply to the SEC for permission to continue as trustee or resign. Any
Agent may do the same with like rights and duties. The Trustee is also subject
to Sections 7.10 and 7.11 hereof.
Section 7.04. Trustee's Disclaimer. The Trustee shall not be
--------------------
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Notes, it shall not be accountable for the Company's use
of the proceeds from the Notes or any money paid to the Company or upon the
Company's direction under any provision of this Indenture, it shall not be
responsible for the use or application of any money received by any Paying Agent
other than the Trustee, and it shall not be responsible for any statement or
recital herein or any statement in the Notes or any other document in connection
with the sale of the Notes or pursuant to this Indenture other than its
certificate of authentication.
Section 7.05. Notice of Defaults. If a Default or Event of Default
------------------
occurs and is continuing and if it is known to the Trustee, the Trustee shall
mail to Holders of Notes a notice of the Default or Event of Default within 90
days after it occurs. Except in the case of a Default or Event of Default in
payment of principal of, premium, if any, or interest on any Note, the Trustee
may withhold the notice if and so long as the board of directors, the executive
committee or a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of the Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes. Within 60
------------------------------------------
days after each April 1 beginning with the April 1 following the date of this
Indenture, and for so long as Notes remain outstanding, the Trustee shall mail
to the Holders of the Notes a brief report dated as of such reporting date that
complies with TIA (S) 313(a) (but if no event described in TIA (S) 313(a) has
occurred within the twelve months preceding the reporting date, no report need
be transmitted). The Trustee also shall comply with TIA (S) 313(b)(2). The
Trustee shall also transmit by mail all reports as required by TIA (S) 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA (S) 313(d). The
Company shall promptly notify the Trustee when the Notes are listed on any
securities exchange or of any delisting thereof.
Section 7.07. Compensation and Indemnity. The Company shall pay to the
--------------------------
Trustee from time to time compensation as shall be agreed in writing between the
Company and the Trustee for its acceptance of this Indenture and services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable
<PAGE>
73
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel and
any taxes or other expenses incurred by a trust created pursuant to Section 8.04
hereof.
The Company shall indemnify each of the Trustee and any predecessor
Trustee (in all capacities under this Indenture) and its agents against any and
all losses, liabilities, damages, claims or expenses (including compensation,
fees, disbursements and expenses of Trustee's agents and counsel) incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, including the costs and expenses of enforcing this
Indenture against the Company (including this Section 7.07) and defending itself
against any claim (whether asserted by the Company or any Holder or any other
person) or liability in connection with the exercise or performance of any of
its powers or duties hereunder, except to the extent any such loss, liability or
expense may be attributable to its negligence or bad faith. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel, provided
that the Company will not be required to pay such fees and expenses if it
assumes the Trustee's defense and there is no conflict of interest as reasonably
determined by the Trustee between the Company and the Trustee in connection with
such defense. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld. The Company need not
reimburse any expense or indemnify against any loss or liability to the extent
incurred by the Trustee through its negligence, bad faith or willful misconduct.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes or the Guarantees endorsed thereon. Such Lien shall
survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to
the extent applicable.
<PAGE>
74
Section 7.08. Replacement of Trustee. A resignation or removal of the
----------------------
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Bankruptcy Custodian or other public officer takes charge of
the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
Subject to Section 310(b) of the TIA, if a successor Trustee does not
take office within 60 days after the retiring Trustee resigns or is removed, the
retiring Trustee (at the expense of the Company), the Company, or the Holders of
Notes of at least 10% in principal amount of the then outstanding Notes may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding
<PAGE>
75
replacement of the Trustee pursuant to this Section 7.08, the Company's
obligations under Section 7.07 hereof shall continue for the benefit of the
retiring Trustee.
Section 7.09. Successor Trustee by Merger, Etc. If the Trustee
--------------------------------
consolidates, merges or converts into, or transfers all or substantially all of
its corporate trust business to, another corporation, the successor corporation
without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification. There shall at all times
-----------------------------
be a Trustee hereunder that is a corporation organized and doing business under
the laws of the United States of America or of any state thereof that is
authorized under such laws to exercise corporate trustee power, that is subject
to supervision or examination by federal or state authorities and that has a
combined capital and surplus of at least $50 million as set forth in its most
recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA
(S) 310(b); provided, however, that there shall be excluded from the operation
of TIA Section 310(b)(1) any indenture or indentures under which other
securities, or certificates of interest or participation in other securities, of
the Company are outstanding, if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met.
Section 7.11. Preferential Collection of Claims Against Company. The
-------------------------------------------------
Trustee is subject to TIA (S) 311(a), excluding any creditor relationship
listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be
subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
---------------------------------------------
Defeasance. The Company may, at the option of its Board of Directors evidenced
- ----------
by a resolution set forth in an Officers' Certificate, at any time, elect to
have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article Eight.
Section 8.02. Legal Defeasance and Discharge. Upon the Company's
------------------------------
exercise under Section 8.01 hereof of the option applicable to this Section
8.02, the Company shall, subject to the satisfaction of the conditions set forth
in Section 8.04 hereof, be deemed to have been discharged from its obligations
with respect to all outstanding Notes and all obligations of the Guarantors
shall be deemed to have been discharged with respect to their obligations under
the Subsidiary Guarantees on the date the conditions set forth below are
satisfied (hereinafter,
<PAGE>
76
"Legal Defeasance"). For this purpose, Legal Defeasance means that the Company
and the Guarantors shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes and Subsidiary Guarantees,
respectively, which shall thereafter be deemed to be "outstanding" only for the
purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all other obligations
under such Notes and Guarantees and this Indenture (and the Trustee, on demand
of and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, interest and Liquidated Damages, if any, on
such Notes when such payments are due, (b) the Company's obligations with
respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (d) this Article 8. Subject to
compliance with this Article Eight, the Company may exercise its option under
this Section 8.02 notwithstanding the prior exercise of its option under Section
8.03 hereof.
Section 8.03. Covenant Defeasance. Upon the Company's exercise under
-------------------
Section 8.01 hereof of the option applicable to this Section 8.03, the Company
and each of the Guarantors shall, subject to the satisfaction of the conditions
set forth in Section 8.04 hereof, be released from their respective obligations
under the covenants set forth in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12,
4.14, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20 and 4.21 hereof with respect to the
outstanding Notes on and after the date the conditions set forth in Section 8.04
are satisfied (hereinafter, "Covenant Defeasance"), and the Notes and Subsidiary
Guarantees shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes and Subsidiary Guarantees shall not be deemed
outstanding for accounting purposes). For this purpose, Covenant Defeasance
means that, with respect to the outstanding Notes and Subsidiary Guarantees, the
Company and the Guarantors may omit to comply with and shall have no liability
in respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 6.01 hereof,
but, except as specified above, the remainder of this Indenture and such Notes
shall be unaffected thereby. In addition, upon the Company's exercise under
Section 8.01 hereof of the option applicable to this Section 8.03 hereof,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
Sections 6.01(c) through 6.01(g) hereof shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance. The
------------------------------------------
following shall be the conditions to the application of either Section 8.02 or
8.03 hereof to the outstanding Notes:
<PAGE>
77
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as shall be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium
and Liquidated Damages, if any, and interest on the outstanding Notes on
the stated maturity or on the applicable redemption date, as the case may
be, and the Company must specify whether the Notes are being defeased to
maturity or to a particular redemption date;
(b) in the case of an election under Section 8.02 hereof, the Company
shall have delivered to the Trustee an opinion of counsel reasonably
acceptable to the Trustee confirming that (i) the Company has received
from, or there has been published by, the Internal Revenue Service a ruling
or (ii) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders of
the outstanding Notes shall not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and shall be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred;
(c) in the case of an election under Section 8.03 hereof, the Company
shall have delivered to the Trustee an opinion of counsel reasonably
acceptable to the Trustee confirming that the Holders of the outstanding
Notes shall not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and shall be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(d) no Default or Event of Default shall have occurred and be
continuing either (1) on the date of such deposit, or (2) insofar as an
Event of Default set forth in Section 6.01(h) or Section 6.01(i) shall have
occurred and be continuing, at any time in the period ending on the 91st
day after the date of deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness, all or a portion of which
will be used to defease the Notes concurrently with such incurrence);
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under this Indenture
(except with respect to the incurrence of Indebtedness as described in
clause (d) above), or any other material agreement or instrument to which
the Company or any of its Restricted Subsidiaries is a party or by which
the Company or any of its Restricted Subsidiaries is bound;
<PAGE>
78
(f) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over any other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with; and
(h) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that (i) the trust funds will not be subject to any
rights of holders of Indebtedness of the Company other than the Notes, and
(ii) assuming no intervening bankruptcy of the Company between the date of
the deposit and the 91st day following the deposit and that no Holder of
the Notes is an insider of the Company, after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally.
Section 8.05. Deposited Money and Cash Equivalents to Be Held in
--------------------------------------------------
Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money
- -------------------------------------
and non-callable Cash Equivalents (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as
Paying Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable Cash
Equivalents deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Cash Equivalents held by it as provided
in Section 8.04 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.04(a) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
<PAGE>
79
Section 8.06. Repayment to Company. Any money deposited with the
--------------------
Trustee or any Paying Agent, or then held by the Company, in trust for the
payment of the principal of, premium, if any, interest, or Liquidated Damages,
if any, on any Note and remaining unclaimed for two years after such principal,
and premium, if any, interest, or Liquidated Damages, if any, has become due and
payable shall be paid to the Company on its request or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Note shall
thereafter, as a general unsecured creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in The Wall Street Journal
(national edition), notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
such notification or publication, any unclaimed balance of such money then
remaining shall be repaid to the Company.
Section 8.07. Reinstatement. If the Trustee or Paying Agent is unable
-------------
to apply any United States dollars or non-callable Government Securities in
accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, then the Company's
obligations under this Indenture and the Notes and the Guarantors' obligations
under the Subsidiary Guarantees shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as
the Trustee or Paying Agent is permitted to apply all such money in accordance
with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that,
if the Company or a Guarantor makes any payment of principal of, premium, if
any, or interest on any Note or Subsidiary Guarantee following the reinstatement
of its obligations, the Company or such Guarantor, as the case may be, shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes. Notwithstanding
-----------------------------------
Section 9.02 of this Indenture, without the consent of any Holder of Notes, the
Company, the Guarantors and the Trustee may amend or supplement this Indenture
or the Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
<PAGE>
80
(c) to provide for the assumption of the Company's or any Guarantor's
obligations to Holders of Notes in the case of a merger or consolidation or sale
of all or substantially all of the assets of the Company or of such Guarantor;
(d) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights under this Indenture of any such Holder;
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act;
(f) to provide for the issuance of Additional Notes in accordance
with the limitations set forth in this Indenture as of the date hereof;
(g) to allow any Subsidiary to guarantee the Notes; or
(h) to provide for collateral for the Notes or one or more Subsidiary
Guarantees.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
7.02(b) hereof stating that such amended or supplemental Indenture complies with
this Section 9.01, the Trustee shall join with the Company in the execution of
any amended or supplemental Indenture authorized or permitted by the terms of
this Indenture and to make any further appropriate agreements and stipulations
that may be therein contained, but the Trustee shall not be obligated to enter
into such amended or supplemental Indenture that affects its own rights, duties
or immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes. Except as provided
--------------------------------
below in this Section 9.02, the Company and the Trustee may amend or supplement
this Indenture (including Sections 3.09, 4.10 and 4.14 hereof) and the Notes
with the consent of the Holders of at least a majority in principal amount of
the Notes (including Additional Notes, if any) then outstanding voting as a
single class (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, the Notes), and,
subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of
Default or compliance with any provision of this Indenture or the Notes may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes (including Additional Notes, if any) voting as a single
class (including, without limitation, consents obtained in connection with a
tender offer or exchange offer for, the Notes). Without the consent of at least
662/3% in aggregate principal amount of the Notes then outstanding (including
Additional Notes, if any) voting as a single class (including consents obtained
in connection with a purchase of, or tender offer or exchange offer for, the
Notes), no waiver or amendment to this Indenture may make any change in the
provisions of
<PAGE>
81
Article 10 hereof that adversely affects the rights of any Holder of Notes.
Section 2.08 hereof shall determine which Notes are considered to be
"outstanding" for purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and, if requested, upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02(b)
hereof stating that any such amended or supplemental Indenture complies with
this Section 9.02, the Trustee shall join with the Company in the execution of
such amended or supplemental Indenture unless such amended or supplemental
Indenture directly affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise, in which case the Trustee may in its discretion,
but shall not be obligated to, enter into such amended or supplemental
Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver.
Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in
aggregate principal amount of the Notes (including Additional Notes, if any)
then outstanding voting as a single class may waive compliance in a particular
instance by the Company with any provision of this Indenture or the Notes.
However, without the consent of each Holder affected, an amendment or waiver
under this Section 9.02 may not (with respect to any Notes held by a
non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note
or alter the provisions, or waive any payment, with respect to the
redemption of the Notes, except as provided in the first paragraph of this
Section 9.02 with respect to Sections 3.09, 4.10 and 4.14 hereof;
(c) reduce the rate of or change the time for payment of interest on
any Note;
(d) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest or Liquidated Damages, if any, on the
Notes (except a
<PAGE>
82
rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the Notes (including Additional
Notes, if any) and a waiver of the payment default that resulted from such
acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of (i) past Defaults or (ii) the rights of Holders of Notes to
receive payments of principal of or premium, if any, or interest or
Liquidated Damages, if any, on the Notes;
(g) amend or modify the obligations of the Company to make offers to
purchase Notes and Additional Notes, if any, (i) upon a Change of Control
after the occurrence of a Change of Control or (ii) from the proceeds of
one or more Asset Sales after the aggregate amount of Excess Proceeds from
such Asset Sales exceeds $10.0 million;
(h) make any change in Section 6.04 or 6.07 hereof or in the
foregoing amendment and waiver provisions; or
(i) release any Guarantor from any of its obligations under its
Subsidiary Guarantee of the Notes or this Indenture, except in accordance
with the terms of this Indenture.
Section 9.03. Compliance with Trust Indenture Act. Every amendment or
-----------------------------------
supplement to this Indenture or the Notes shall be set forth in an amended or
supplemental Indenture that complies with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents. Until an amendment,
---------------------------------
supplement or waiver becomes effective, a consent to it by a Holder of a Note is
a continuing consent by the Holder of a Note and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note. However,
any such Holder of a Note or subsequent Holder of a Note may revoke the consent
as to its Note if the Trustee receives written notice of revocation before the
date the waiver, supplement or amendment becomes effective. An amendment,
supplement or waiver becomes effective in accordance with its terms and
thereafter binds every Holder.
Section 9.05. Notation on or Exchange of Notes. The Trustee may place
--------------------------------
an appropriate notation about an amendment, supplement or waiver on any Note
thereafter authenticated. The Company in exchange for all Notes may issue and
the Trustee shall, upon receipt of an Authentication Order, authenticate new
Notes that reflect the amendment, supplement or waiver.
<PAGE>
83
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, Etc. The Trustee shall sign
-------------------------------
any amended or supplemental Indenture authorized pursuant to this Article 9 if
the amendment or supplement does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. The Company may not sign an amendment
or supplemental Indenture until the Board of Directors approves it. In executing
any amended or supplemental indenture, the Trustee shall be entitled to receive
and (subject to Section 7.01 hereof) shall be fully protected in relying upon,
in addition to the documents required by Section 11.04 hereof, an Officers'
Certificate and an Opinion of Counsel stating that the execution of such amended
or supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, execute any such amendment,
supplement or waiver which affects the Trustee's rights, duties or immunities
under this Indenture or otherwise. In signing any amendment, supplement or
waiver, the Trustee shall be entitled to receive an indemnity reasonably
satisfactory to it.
ARTICLE 10.
SUBORDINATION
Section 10.01. Agreement to Subordinate. The Company agrees, and each
------------------------
Holder by accepting a Note agrees, that the payment of principal, interest,
premium, if any, and Liquidated Damages, if any on the Notes and any payment on
account of the acquisition or redemption of the Notes by the Company, and any
payment made by any one or more Guarantors on account of the Notes is
subordinated in right of payment, to the extent and in the manner provided in
this Article 10, to the prior payment in full of all Senior Debt (whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed), and that the subordination is for the benefit of the holders of
Senior Debt.
Section 10.02. Liquidation; Dissolution; Bankruptcy. The holders of
------------------------------------
Senior Debt of the Company will be entitled to receive payment in full in Cash
Equivalents of all Obligations due in respect of Senior Debt of the Company
(including interest after the commencement of any bankruptcy proceeding at the
rate specified in the applicable Senior Debt of the Company) before the Holders
of Notes will be entitled to receive any payment with respect to the Notes
(except that Holders of Notes may receive and retain Permitted Junior Securities
and payments made from the trust pursuant to Article 8 hereof), in the event of
any distribution to creditors of the Company: (i) in a liquidation or
dissolution of the Company; (ii) in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property;
(iii) in an assignment by the Company for the benefit of its creditors; or (iv)
in any marshaling of the Company's assets and liabilities.
<PAGE>
84
Section 10.03. Default on Designated Senior Debt. (a) The Company also
---------------------------------
shall not make any payment in respect of the Notes (except in Permitted Junior
Securities or from the trust pursuant to Article 8 hereof) if:
(1) a payment default on Designated Senior Debt of the Company occurs
and is continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing on any series of
Designated Senior Debt of the Company that permits holders of that series
of Designated Senior Debt of the Company to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Company or the holders of any Designated Senior Debt of the
Company.
(b) Payments on the Notes may and shall be resumed by the Company:
(1) in the case of a payment default, upon the date on which such
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt of the Company has been accelerated.
(c) No new Payment Blockage Notice may be delivered to the Company or
the Trustee that would start a new Payment Blockage Period unless and until: (i)
360 days have elapsed since the delivery of the immediately prior Payment
Blockage Notice that started a Payment Blockage Period; and (ii) all scheduled
payments of principal, interest and premium and Liquidated Damages, if any, on
the Notes that have come due have been paid in full in cash. No nonpayment event
of default which existed or was continuing with respect to the Designated Senior
Debt for which notice commencing a Payment Blockage Period was given on the date
such Payment Blockage Period commenced shall be or be made the basis for the
commencement of any subsequent Payment Blockage Period unless such event of
default is cured or waived for a period of not less than 90 consecutive days.
Section 10.04. Acceleration of Securities. If payment of the
--------------------------
Securities is accelerated because of an Event of Default, the Company shall
promptly notify holders of Senior Debt of the acceleration.
Section 10.05. When Distribution Must Be Paid Over. In the event that
-----------------------------------
the Trustee or any Holder receives any payment of any Obligations with respect
to the Notes (except in Permitted Junior Securities or from the trust pursuant
to Article 8 hereof) at a time when the Trustee or such Holder, as applicable,
has, subject to Section 10.11, knowledge that such payment is prohibited by
Section 10.04 hereof, such payment shall be held by the Trustee or such
<PAGE>
85
Holder, as applicable, in trust for the benefit of, and shall be paid forthwith
over and delivered, upon written request, to, the holders of Senior Debt as
their interests may appear or their Representative under this Indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such Obligations in full in accordance with their terms, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Company
or any other Person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
Section 10.06. Notice by Company. The Company shall promptly notify
-----------------
the Trustee and the Paying Agent in writing of any facts known to the Company
that would cause a payment of any Obligations with respect to the Notes to
violate this Article 10, but failure to give such notice shall not affect the
subordination of the Notes to the Senior Debt as provided in this Article 10.
Section 10.07. Subrogation. After all Senior Debt is paid in full and
-----------
until the Notes are paid in full, Holders of Notes shall be subrogated (equally
and ratably with all other Indebtedness pari passu with the Notes) to the rights
of holders of Senior Debt to receive distributions applicable to Senior Debt to
the extent that distributions otherwise payable to the Holders of Notes have
been applied to the payment of Senior Debt. A distribution made under this
Article 10 to holders of Senior Debt that otherwise would have been made to
Holders of Notes is not, as between the Company and Holders, a payment by the
Company on the Notes.
Section 10.08. Relative Rights. This Article 10 defines the relative
---------------
rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture
shall:
(a) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Notes in accordance with their terms;
(b) affect the relative rights of Holders of Notes and creditors of
the Company other than their rights in relation to holders of Senior Debt;
or
(c) prevent the Trustee or any Holder of Notes from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners
<PAGE>
86
of Senior Debt to receive distributions and payments otherwise payable to
Holders of Notes.
If the Company fails because of this Article 10 to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
Section 10.09. Subordination May Not Be Impaired by Company. No right
--------------------------------------------
of any holder of Senior Debt to enforce the subordination of the Indebtedness
evidenced by the Notes shall be impaired by any act or failure to act by the
Company or any Holder or by the failure of the Company or any Holder to comply
with this Indenture.
Section 10.10. Distribution or Notice to Representative. Whenever a
----------------------------------------
distribution is to be made or a notice given to holders of Senior Debt, the
distribution may be made and the notice given to their Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders of Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of Notes for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Debt and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 10.
Section 10.11. Rights of Trustee and Paying Agent. Notwithstanding the
----------------------------------
provisions of this Article 10 or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment or distribution by the Trustee, and the
Trustee and the Paying Agent may continue to make payments on the Notes, unless
the Trustee shall have received at its Corporate Trust Office at least five
Business Days prior to the date of such payment written notice of facts that
would cause the payment of any Obligations with respect to the Notes to violate
this Article 10. Only the Company or a Representative may give the notice.
Nothing in this Article 10 shall impair the claims of, or payments to, the
Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights.
<PAGE>
87
Section 10.12. Authorization to Effect Subordination. Each Holder of Notes,
-------------------------------------
by the Holder's acceptance thereof, authorizes and directs the Trustee on such
Holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article 10, and appoints the
Trustee to act as such Holder's attorney-in-fact for any and all such purposes.
If the Trustee does not file a proper proof of claim or proof of debt in the
form required in any proceeding referred to in Section 6.09 hereof at least 30
days before the expiration of the time to file such claim, holders of any Senior
Debt (or their Representatives), including the lenders under the Credit
Agreement, are hereby authorized to file an appropriate claim for and on behalf
of the Holders of the Notes.
Section 10.13. Amendments. The provisions of this Article 10 shall not be
----------
amended or modified without the written consent of the holders of all Designated
Senior Debt.
ARTICLE 11.
SUBSIDIARY GUARANTEES
Section 11.01. Guarantee. Subject to this Article 11, each of the
---------
Guarantors hereby, jointly and severally, unconditionally guarantees to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, irrespective of the validity and enforceability
of this Indenture, the Notes or the obligations of the Company hereunder or
thereunder, that: (a) the principal of and interest on the Notes will be
promptly paid in full when due, whether at maturity, by acceleration, redemption
or otherwise, and interest on the overdue principal of and interest on the
Notes, if any, if lawful, and all other obligations of the Company to the
Holders or the Trustee hereunder or thereunder will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; and (b) in case
of any extension of time of payment or renewal of any Notes or any of such other
obligations, that same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed or any performance so guaranteed for whatever reason, the
Guarantors shall be jointly and severally obligated to pay the same immediately.
Each Guarantor agrees that this is a guarantee of payment and not a guarantee of
collection.
The Guarantors hereby agree that their obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenant that this Subsidiary
<PAGE>
88
Guarantee shall not be discharged except by complete performance of the
obligations contained in the Notes and this Indenture.
If any Holder or the Trustee is required by any court or otherwise to
return to the Company, the Guarantors or any custodian, trustee, liquidator or
other similar official acting in relation to either the Company or the
Guarantors, any amount paid by either to the Trustee or such Holder, this
Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. Each
Guarantor further agrees that, as between the Guarantors, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of this Subsidiary Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such obligations as provided in Article 6 hereof, such
obligations (whether or not due and payable) shall forthwith become due and
payable by the Guarantors for the purpose of this Subsidiary Guarantee. The
Guarantors shall have the right to seek contribution from any non-paying
Guarantor so long as the exercise of such right does not impair the rights of
the Holders under the Subsidiary Guarantee.
Section 11.02. Subordination of Subsidiary Guarantee. The Obligations of
-------------------------------------
each Guarantor under its Subsidiary Guarantee pursuant to this Article 11 shall
be junior and subordinated to the Guarantee of any Senior Debt of such Guarantor
on the same basis as the Notes are junior and subordinated to Senior Debt of the
Company. For the purposes of the foregoing sentence, the Trustee and the Holders
shall have the right to receive and/or retain payments by any of the Guarantors
only at such times as they may receive and/or retain payments in respect of the
Notes pursuant to this Indenture, including Article 10 hereof.
Section 11.03. Limitation on Guarantor Liability. Each Guarantor, and by
---------------------------------
its acceptance of Notes, each Holder, hereby confirms that it is the intention
of all such parties that the Subsidiary Guarantee of such Guarantor not
constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law,
the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or
any similar federal or state law to the extent applicable to any Subsidiary
Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and
the Guarantors hereby irrevocably agree that the obligations of such Guarantor
will, after giving effect to such maximum amount and all other contingent and
fixed liabilities of such Guarantor that are relevant under such laws, and after
giving effect to any collections from, rights to receive contribution from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under this Article 11, result in the
obligations of such Guarantor under its Subsidiary Guarantee not constituting a
fraudulent transfer or conveyance.
<PAGE>
89
Section 11.04. Execution and Delivery of Subsidiary Guarantee. To evidence
----------------------------------------------
its Subsidiary Guarantee set forth in Section 11.01, each Guarantor hereby
agrees that a notation of such Subsidiary Guarantee substantially in the form
included in Exhibit D shall be endorsed by an Officer of such Guarantor (who may
also be an Officer of the Company or one or more of the other Guarantors) on
each Note authenticated and delivered by the Trustee and that this Indenture
shall be executed on behalf of such Guarantor by its President or one of its
Vice Presidents.
Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in
Section 11.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on the Subsidiary
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall
be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof
hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth
in this Indenture on behalf of the Guarantors.
In the event that the Company creates or acquires any new Subsidiaries
subsequent to the date of this Indenture, if required by Section 4.18 hereof,
the Company shall cause such Subsidiaries to execute supplemental indentures to
this Indenture and Subsidiary Guarantees in accordance with Section 4.18 hereof
and this Article 11, to the extent applicable.
Section 11.05. Guarantors May Consolidate, Etc., on Certain Terms. Except
--------------------------------------------------
as otherwise provided in Section 11.06, a Guarantor may not sell or otherwise
dispose of all or substantially all of its assets, or consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person) another
Person unless:
(a) immediately after giving effect to such transaction, no Default or
Event of Default exists; and
(b) either:
(i) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such
consolidation or merger assumes all the obligations of that Guarantor
under this Indenture, its Subsidiary Guarantee and the Registration
Rights Agreement pursuant to a supplemental indenture satisfactory to
the Trustee; or
(ii) the Net Proceeds of such sale or other disposition are
applied in accordance with the applicable provisions of this
Indenture.
<PAGE>
90
In case of any such consolidation, merger, sale or conveyance and upon the
assumption by the successor Person, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the
Subsidiary Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Guarantor, such successor Person shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor Person thereupon may cause to be signed
any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in
all respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
Except as set forth in Articles 4 and 5 hereof, and notwithstanding clauses
(a) and (b) above, nothing contained in this Indenture or in any of the Notes
shall prevent any consolidation or merger of a Guarantor with or into the
Company or another Guarantor, or shall prevent any sale or conveyance of the
property of a Guarantor as an entirety or substantially as an entirety to the
Company or another Guarantor.
Section 11.06. Releases Following Sale of Assets. Any Guarantor will be
---------------------------------
released and relieved of any obligations under its Subsidiary Guarantee, (i) in
connection with any sale or other disposition of all or substantially all of the
assets of that Guarantor (including by way of merger or consolidation) to a
Person that is not (either before or after giving effect to such transaction) a
Restricted Subsidiary of the Company, if the sale or other disposition of all or
substantially all of the assets of that Guarantor complies with Section 4.10
hereof, including the application of the Net Proceeds therefrom; (ii) in
connection with any sale of all of the Capital Stock of a Guarantor to a Person
that is not (either before or after giving effect to such transaction) a
Restricted Subsidiary of the Company, if the sale of all such Capital Stock of
that Guarantor complies with Section 4.10 hereof, including the application of
the Net Proceeds therefrom; (iii) if the Company designates any Restricted
Subsidiary that is a Guarantor as an Unrestricted Subsidiary in accordance with
the terms hereof; or (iv) under the circumstances set forth in Section 4.17.
Upon delivery by the Company to the Trustee of an Officers' Certificate and an
Opinion of Counsel to the effect that such sale or other disposition was made by
the Company in accordance with the provisions of this Indenture, including
without limitation Section 4.10 hereof, the Trustee shall execute any documents
reasonably required in order to evidence the release of any Guarantor from its
obligations under its Subsidiary Guarantee.
Any Guarantor not released from its obligations under its Subsidiary
Guarantee shall remain liable for the full amount of principal of and interest
on the Notes and for the other obligations of any Guarantor under this Indenture
as provided in this Article 11.
<PAGE>
91
ARTICLE 12.
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls. This Indenture is subject to
----------------------------
the provisions of the TIA that are required to be a part of this Indenture, and
shall, to the extent applicable, be governed by such provisions. If any
provision of this Indenture modifies any TIA provision that may be so modified,
such TIA provision shall be deemed to apply to this Indenture as so modified. If
any provision of this Indenture excludes any TIA provision that may be so
excluded, such TIA provision shall be excluded from this Indenture.
The provisions of TIA Section 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included unless expressly
excluded by this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.
Section 12.02. Notices. Any notice or communication by the Company, any
-------
Guarantor or the Trustee to the others is duly given if in writing and delivered
in Person or mailed by first class mail (registered or certified, return receipt
requested), telecopier (promptly confirmed in writing) or overnight air courier
guaranteeing next day delivery, to the others' address
If to the Company and/or any Guarantor:
Just For Feet, Inc.
7400 Cahaba Valley Road
Birmingham, AL 35274
Telecopier No.: (205) 408-3200
Attention: Chief Financial Officer
With a copy to:
Smith, Gambrell & Russell, LLP
Promenade Two, Suite 3100
1230 Peachtree Street, NE
Atlanta, GA 30309-3592
Telecopier No.: (404) 815-3509
Attention: Arthur Jay Schwartz, Esq.
<PAGE>
92
If to the Trustee:
The Bank of New York
101 Barclay Street, 21 West
New York, NY 10286
Telecopier No.: (212) 815-5915
Attention: Corporate Trust Trustee Administration
The Company, any Guarantor or the Trustee by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA ss. 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
Section 12.03. Communication by Holders of Notes with Other Holders of
-------------------------------------------------------
Notes. Holders may communicate pursuant to TIA ss. 312(b) with other Holders
- -----
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
Section 12.04. Certificate and Opinion as to Conditions Precedent. Upon any
--------------------------------------------------
request or application by the Company to the Trustee to take any action under
this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 12.05
hereof) stating that,
<PAGE>
93
in the opinion of the signers, all conditions precedent and covenants, if any,
provided for in this Indenture relating to the proposed action have been
satisfied;
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied; and
(c) where applicable, a certificate or opinion by an independent
certified public accountant satisfactory to the Trustee that complies with
TIA Section 314(c).
Section 12.05. Statements Required in Certificate or Opinion. Each
---------------------------------------------
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture (other than a certificate provided pursuant to
TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S) 314(e) and shall
include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
Section 12.06. Rules by Trustee and Agents. The Trustee may make reasonable
---------------------------
rules for action by or at a meeting of Holders. The Registrar or Paying Agent
may make reasonable rules and set reasonable requirements for its functions.
Section 12.07. No Personal Liability of Directors, Officers, Employees and
-----------------------------------------------------------
Stockholders. No director, officer, employee, incorporator or stockholder of the
- ------------
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or the Guarantors under the Notes, the Subsidiary Guarantees,
this Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
SEC that such a waiver is against public policy.
<PAGE>
94
Section 12.08. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK
-------------
SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE
SUBSIDIARY GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF
CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY.
Section 12.09. No Adverse Interpretation of Other Agreements. This
---------------------------------------------
Indenture may not be used to interpret any other indenture, loan or debt
agreement of the Company or its Subsidiaries or of any other Person. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
All agreements of each Guarantor in this Indenture shall bind its successors,
except as otherwise provided in Article 11.
Section 12.10. Successors. All agreements of the Company in this Indenture
----------
and the Notes shall bind its successors. All agreements of the Trustee in this
Indenture shall bind its successors. All agreements of each Guarantor in this
Indenture shall bind its successors, except as otherwise provided in Article 11.
Section 12.11. Severability. In case any provision in this Indenture or in
------------
the Notes shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 12.12. Counterpart Originals. The parties may sign any number of
---------------------
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
Section 12.13. Table of Contents, Headings, Etc. The Table of Contents,
--------------------------------
Cross-Reference Table and Headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part of this Indenture and shall in no way modify or restrict any
of the terms or provisions hereof.
[Signatures on following page]
<PAGE>
SIGNATURES
Dated as of April 15, 1999
Very truly yours,
JUST FOR FEET, INC.
By: /s/ Eric L. Tyra
--------------------------------
Name: Eric L. Tyra
Title: Executive Vice President
SNEAKER STADIUM, INC.
By: /s/ Eric L. Tyra
--------------------------------
Name: Eric L. Tyra
Title: Vice President
JUST FOR FEET OF TEXAS, INC.
By: /s/ Eric L. Tyra
--------------------------------
Name: Eric L. Tyra
Title: Vice President
JUST FOR FEET OF NEVADA, INC.
By: /s/ Eric L. Tyra
--------------------------------
Name: Eric L. Tyra
Title: Vice President
<PAGE>
JUST FOR FEET SPECIALTY STORES, INC.
By: /s/ Eric L. Tyra
---------------------------------
Name: Eric L. Tyra
Title: Vice President
SNKR HOLDING CORP.
By: /s/ Eric L. Tyra
---------------------------------
Name: Eric L. Tyra
Title: Vice President
ATHLETIC ATTIC MARKETING, INC.
By: /s/ Eric L. Tyra
---------------------------------
Name: Eric L. Tyra
Title: Vice President
THE BANK OF NEW YORK,
as Trustee
By: /s/ Marie E. Trimboli
---------------------------------
Name: Marie E. Trimboli
Title: Assistant Treasurer
<PAGE>
EXHIBIT A
================================================================================
CUSIP/CINS
11% Senior Subordinated Notes due 2009
No. ___
JUST FOR FEET, INC.
promises to pay to CEDE & CO., or registered assigns, the principal sum of TWO
HUNDRED MILLION Dollars on May 1, 2009.
Interest Payment Dates: May 1 and November 1
Record Dates: April 15 and October 15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed.
JUST FOR FEET, INC.
By: __________________________________
Name:
Title:
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Global Notes referred to in the within-mentioned Indenture:
Dated: _______, _____.
THE BANK OF NEW YORK
as Trustee
By: _____________________________
(Authorized Signatory)
<PAGE>
11% Senior Subordinated Notes due 2009
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON OR REPLACEMENTS
HEREOF AS MAY BE REQUIRED PURSUANT TO SECTION 2.06(H) OR 2.07 OF THE INDENTURE
RESPECTIVELY, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART
PURSUANT TO SECTION 2.06(A) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE
DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE
INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY
WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.
THIS NOTE AND THE GUARANTEES ENDORSED HEREON HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS NOTE OR THE GUARANTEES ENDORSED HEREON NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS NOTE AND THE GUARANTEES
ENDORSED HEREON BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITIES, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE AND THE GUARANTEES ENDORSED
HEREON (OR ANY PREDECESSOR OF THIS NOTE AND THE GUARANTEES ENDORSED HEREON) (THE
"RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE NOTES AND THE GUARANTEES ENDORSED THEREON
ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO
THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER
(i) PURSUANT TO CLAUSE (D) PRIOR TO THE END OF THE 40-DAY DISTRIBUTION
COMPLIANCE
<PAGE>
PERIOD WITHIN THE MEANING OF REGULATIONS UNDER THE SECURITIES ACT OR PURSUANT TO
CLAUSE (E) PRIOR TO THE RESALE RESTRICTION TERMINATION DATE TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS NOTE IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION
DATE.
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. Interest. Just for Feet, Inc., a Delaware corporation (the
--------
"Company"), promises to pay interest on the principal amount of this Note at 11%
per annum from the date hereof until maturity and shall pay the Liquidated
Damages payable pursuant to Section 5 of the Registration Rights Agreement
referred to below. The Company shall pay interest semi-annually on May 1 and
November 1 of each year, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes
shall accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance; provided that if there is no
existing Default in the payment of interest, and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; provided further that the first Interest Payment Date shall be
November 1, 1999. The Company shall pay interest (including post-petition
interest in any proceeding under any bankruptcy law) on overdue principal and
premium, if any, from time to time on demand at a rate equal to the then
applicable interest rate on the Notes to the extent lawful; it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest shall be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment. The Company shall pay interest on the Notes
-----------------
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on April 15 or October 15 next preceding the Interest
Payment Date, even if such Notes are canceled after such record date and on or
before such Interest Payment Date, except as provided in Section 2.12 of the
Indenture with respect to defaulted interest. The Notes shall be payable as to
principal, premium and Liquidated Damages, if any, and interest at the office or
agency of the Company maintained for such purpose within or without the City and
State of New York, or, at the option of the Company, payment of interest and
Liquidated Damages may be made by check mailed to the Holders at their addresses
set forth in the register of Holders, and provided that payment by wire transfer
of same day funds shall be required with respect to principal of and interest,
premium and Liquidated Damages on, all Global Notes. Such payment shall be in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts.
<PAGE>
3. Paying Agent and Registrar. Initially, The Bank of New York, the
--------------------------
Trustee under the Indenture, shall act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar without notice to any Holder.
The Company or any of its Subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Notes under an Indenture dated
---------
as of April 15, 1999 (the "Indenture") between the Company, the Guarantors and
the Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended. The Notes are subject to all such terms, and Holders are
referred to the Indenture and such Act for a statement of such terms. To the
extent any provision of this Note conflicts with the express provisions of the
Indenture, the provisions of the Indenture shall govern and be controlling. This
Note is an obligation of the Company and is one of a duly authorized issue of
securities of the Company limited to $200.0 million in aggregate principal
amount. The Indenture pursuant to which this Note is issued provides that up to
$100.0 million of Additional Notes may be issued thereunder.
5. Optional Redemption.
-------------------
(a) At any time prior to May 1, 2002, the Company may on any one or
more occasions redeem up to 35% of the sum of (i) the initial aggregate
principal amount of Notes and (ii) the initial aggregate principal amount of any
Additional Notes at a redemption price of 111% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Equity Offerings;
provided that:
(i) at least 65% of the sum of (x) the initial aggregate principal
amount of Notes and (y) the initial aggregate principal amount of any
Additional Notes remains outstanding immediately after the occurrence of
such redemption (excluding Notes held by the Company and its Subsidiaries);
and
(ii) the redemption must occur within 90 days of the date of the
closing of such Equity Offering.
(b) At any time prior to May 1, 2004, the Notes will be redeemable at
the option of the Company, in whole but not in part, at a redemption price equal
to the sum of (i) the principal amount thereof, plus (ii) accrued and unpaid
interest, if any, to the applicable date of redemption, plus (iii) the Make-
Whole Premium.
Except pursuant to the preceding paragraphs, the Notes will not be
redeemable at the Company's option prior to May 1, 2004.
On or after May 1, 2004, the Company may redeem all or a part of the
Notes from time to time upon not less than 30 nor more than 60 days' notice, at
the redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated
<PAGE>
Damages, if any, thereon, to the applicable redemption date, if redeemed during
the twelve-month period beginning on May 1 of the years indicated below:
Year Percentage
- ---- ----------
2004..................................................... 105.500%
2005..................................................... 103.667%
2006..................................................... 101.833%
2007 and thereafter...................................... 100.000%
6. Mandatory Redemption. Except as set forth in paragraph 7 below,
--------------------
the Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
7. Repurchase at Option of Holder.
------------------------------
(a) If a Change of Control occurs, the Company is obligated to offer
to repurchase all or any part (equal to$1,000 or an integral multiple thereof)
of a Holder's Notes and Additional Notes, if any, pursuant to a Change of
Control Offer on the terms set forth in the Indenture. In the Change of Control
Offer, the Company will offer a Change of Control Payment in cash equal to 101%
of the aggregate principal amount of Notes and Additional Notes, if any,
repurchased plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the date of purchase. Within 30 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes and Additional Notes, if any, on the Change of Control
Payment Date specified in such notice, which date shall be no earlier than 30
days and no later than 60 days from the date such notice is mailed, pursuant to
the procedures required by the Indenture and described in such notice.
(b) When the Company or a Restricted Subsidiary consummates any Asset
Sales and the aggregate amount of Excess Proceeds with respect thereto exceeds
$10.0 million, the Company will make an Asset Sale Offer to all Holders of Notes
and Additional Notes, if any, and all holders of other Indebtedness that is pari
passu with the Notes containing provisions similar to those set forth in the
Indenture with respect to offers to purchase with the proceeds of sales of
assets to purchase the maximum principal amount of Notes and Additional Notes,
if any, and such other pari passu Indebtedness that may be purchased out of the
Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100%
of principal amount plus accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase, and will be payable in cash. If any Excess
Proceeds remain after consummation of an Asset Sale Offer, the Company may use
such Excess Proceeds for any purpose not otherwise prohibited by the Indenture.
If the aggregate principal amount of Notes and such other pari passu
Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes and Additional Notes, if any, and
such other pari passu Indebtedness to be purchased on a pro rata basis based on
the principal amount of Notes and Additional Notes and such other pari passu
indebtedness tendered.
<PAGE>
8. Notice of Redemption. Notice of redemption shall be mailed at
--------------------
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or
portions thereof called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered
---------------------------------
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before the mailing of a notice of redemption of Notes to be redeemed or during
the period between a record date and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be
---------------------
treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions,
--------------------------------
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes and Additional Notes, if any, voting as a single class and any existing
default or compliance with any provision of the Indenture or the Notes may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes and Additional Notes, if any, voting as a single class.
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's or any Guarantor's
obligations to Holders of the Notes in case of a merger or consolidation or sale
of all or substantially all of the assets of the Company or of such Guarantor,
to make any change that would provide any additional rights or benefits to the
Holders of Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act, to provide for the Issuance of Additional Notes in accordance
with the limitations set forth in the Indenture, or to allow any Subsidiary to
guarantee the Notes.
12. Defaults and Remedies. Events of Default include: (a) default for
30 days in the payment when due of interest on, or Liquidated Damages with
respect to, the Notes (whether or not prohibited by Article 10 of the
Indenture); (b) default in payment of the principal of or premium, if any, on
the (whether or not prohibited by Article 10 of the Indenture); (c) failure by
the Company to comply with the provisions of Sections 4.10, 4.14 and 5.01 of the
Indenture; (d) failure by the
<PAGE>
Company for 45 days after notice from the Trustee or Holders of at least 25% in
principal amount of the Notes (including Additional Notes, if any) then
outstanding to comply with any other covenant or agreement of the Indenture; (e)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the date
of the Indenture, if that default (i) is caused by a failure to make any payment
when due at final maturity of any such Indebtedness (a "Payment Default"); or
(ii) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $15.0 million or more; (f) failure by the Company or any
of its Significant Subsidiaries to pay final judgments not covered by insurance
aggregating in excess of $15.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; (g) except as permitted by the Indenture, any
Subsidiary Guarantee of any Significant Subsidiary or one or more Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or any
authorized Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee (other than by reason of release in
accordance with the provisions of the Indenture); and (h) certain events of
bankruptcy or insolvency with respect to any Guarantor, the Company or any of
its Significant Subsidiaries. In the event of a declaration of acceleration of
the Notes because an Event of Default has occurred and is continuing as a result
of the acceleration of any Indebtedness described in clause (e) above, the
declaration of acceleration of the Notes shall be automatically annulled if the
holders of any Indebtedness described in clause (e) above have rescinded the
declaration of acceleration in respect of such Indebtedness within 30 days of
the date of such declaration and if (i) the annulment of the acceleration of
Notes would not conflict with any judgment or decree of a court of competent
jurisdiction and (ii) all existing Events of Default, except nonpayment of
principal or interest on the Notes that became due solely because of the
acceleration of the Notes, have been cured or waived. If any Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the principal,
premium, if any, accrued interest and Liquidated Damages, if any, of the Notes
to be due and payable immediately. Notwithstanding the foregoing, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency,
with respect to the Company or any of its Subsidiaries all outstanding Notes
shall become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. The Holders of a majority in aggregate principal
amount of the Notes then outstanding by notice to the Trustee may on behalf of
the Holders of all of the Notes waive any existing Default or Event of Default
and its consequences under the Indenture except a continuing Default or Event of
Default in the payment of the principal of, premium and Liquidated Damages, if
any, or interest on, the Notes (including in connection with an offer to
purchase)(provided, however, that the holders of a majority in aggregate
principal amount of the outstanding Notes may rescind an
<PAGE>
acceleration and its consequences, including any related payment default that
resulted from such acceleration). The Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
13. Trustee Dealings with Company. The Trustee, in its individual or
-----------------------------
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. No director, officer, employee,
--------------------------
incorporator or stockholder of the Company or any of the Guarantors, as such,
shall have any liability for any obligations of the Company or such Guarantor
under the Notes, the Subsidiary Guarantees or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the SEC that such a waiver is against
public policy.
15. Authentication. This Note shall not be valid until authenticated
--------------
by the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of
-------------
a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. Additional Rights of Holders of Restricted Global Notes and
-----------------------------------------------------------
Restricted Definitive Notes. In addition to the rights provided to Holders of
- ---------------------------
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement, dated as of April 15, 1999, among the Company, the Subsidiary
Guarantors named therein and the other parties named on the signature pages
thereof or, in the case of Additional Notes, Holders of Restricted Global Notes
and Restricted Definitive Notes shall have the rights set forth in one or more
registration rights agreements, if any, between the Company and the other
parties thereto, relating to rights given by the Company to the purchasers of
Additional Notes (collectively, the "Registration Rights Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
-------------
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
<PAGE>
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Just for Feet, Inc.
7400 Cahaba Valley Road
Birmingham, AL 35242
Attention: Chief Financial Officer
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date: _______________
Your Signature:__________________________
(Sign exactly as your name appears on the
face of this Note)
Signature Guarantee.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.14 of the Indenture, check the box below:
[_] Section 4.10 [_] Section 4.14
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the
amount you elect to have purchased: $________
Date: _______________ Your Signature:____________________________
(Sign exactly as your name appears on the
Note)
Tax Identification No:_____________________
Signature Guarantee.
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Just for Feet, Inc.
7400 Cahaba Valley Road
Birmingham, AL 35242
The Bank of New York
101 Barclay Street, 21 West
New York, NY 10286
Re: 11% Senior Subordinated Notes due 2009
--------------------------------------
Reference is hereby made to the Indenture, dated as of April 15, 1999
(the "Indenture"), between Just For Feet, Inc., as issuer (the "Company"), and
The Bank of New York, as trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
______________ (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to __________ (the "Transferee"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
(1.) Check if Transferee will take delivery of a beneficial interest
in the 144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer
is being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
(2.) Check if Transferee will take delivery of a beneficial interest
in the Regulation S Global Note or a Definitive Note pursuant to Regulation S.
The Transfer is
<PAGE>
being effected pursuant to and in accordance with Rule 903 or Rule 904 under the
Securities Act and, accordingly, the Transferor hereby further certifies that
(i) the Transfer is not being made to a person in the United States and (x) at
the time the buy order was originated, the Transferee was outside the United
States or such Transferor and any Person acting on its behalf reasonably
believed and believes that the Transferee was outside the United States or (y)
the transaction was executed in, on or through the facilities of a designated
offshore securities market and neither such Transferor nor any Person acting on
its behalf knows that the transaction was prearranged with a buyer in the United
States, (ii) no directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities
Act, (iii) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act and (iv) if the proposed
transfer is being made prior to the expiration of the Restricted Period, the
transfer is not being made to a U.S. Person or for the account or benefit of a
U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed
transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will be subject to the restrictions on
Transfer enumerated in the Private Placement Legend printed on the Regulation S
Global Note and/or the Definitive Note and in the Indenture and the Securities
Act.
(3.) Check if Transferee will take delivery of a beneficial interest
in an Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) Check if Transfer is pursuant to Rule 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will no longer be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.
(b) Check if Transfer is Pursuant to Regulation S. (i) The Transfer
is being effected pursuant to and in accordance with Rule 903 or Rule 904 under
the Securities Act and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any state of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will no longer be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes, on Restricted Definitive Notes and in the Indenture.
(c) Check if Transfer is Pursuant to Other Exemption. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration
<PAGE>
requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and
in compliance with the transfer restrictions contained in the Indenture and any
applicable blue sky securities laws of any State of the United States and (ii)
the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will not be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Global Notes or Restricted
Definitive Notes and in the Indenture.
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
[Insert Name of Transferor]
By: ______________________
Name:
Title:
Dated:_____________, ____
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) a beneficial interest in the:
(i) 144A Global Note (CUSIP _________), or
(ii) Regulation S Global Note (CUSIP _________); or
(b) a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) a beneficial interest in the:
(i) 144A Global Note (CUSIP ________), or
(ii) Regulation S Global Note (CUSIP ________), or
(iii) Unrestricted Global Note (CUSIP ________); or
(b) a Restricted Definitive Note; or
(c) an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Just for Feet, Inc.
7400 Cahaba Valley Road
Birmingham, AL 35242
The Bank of New York
101 Barclay Street, 21 West
New York, NY 10286
Re: 11% Senior Subordinated Notes due 2009
--------------------------------------
(CUSIP______________)
Reference is hereby made to the Indenture, dated as of April 15, 1999
(the "Indenture"), between Just for Feet, Inc., as issuer (the "Company"), and
The Bank of New York, as trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
____________ (the "Owner") owns and proposes to exchange the Note[s]
or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
(1.) Exchange of Restricted Definitive Notes or Beneficial Interests
in a Restricted Global Note for Unrestricted Definitive Notes or Beneficial
Interests in an Unrestricted Global Note
(a) Check if Exchange is from beneficial interest in a Restricted
Global Note to beneficial interest in an Unrestricted Global Note. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with the United States Securities Act of
1933, as amended (the "Securities Act"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(b) Check if Exchange is from beneficial interest in a Restricted
Global Note to Unrestricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange
<PAGE>
has been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Definitive Note is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.
(c) Check if Exchange is from Restricted Definitive Note to
beneficial interest in an Unrestricted Global Note. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) Check if Exchange is from Restricted Definitive Note to
Unrestricted Definitive Note. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
(2.) Exchange of Restricted Definitive Notes or Beneficial Interests
in Restricted Global Notes for Restricted Definitive Notes or Beneficial
Interests in Restricted Global Notes
(a) Check if Exchange is from beneficial interest in a Restricted
Global Note to Restricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
(b) Check if Exchange is from Restricted Definitive Note to
beneficial interest in a Restricted Global Note. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE]_____ 144A Global Note, ______ Regulation S Global Note with an equal
principal amount, the Owner hereby certifies (i) the beneficial interest
<PAGE>
is being acquired for the Owner's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
____________________________
[Insert Name of Owner]
By:_____________________
Name:
Title:
Dated:_____________, ____
<PAGE>
EXHIBIT D
FORM OF NOTATION OF GUARANTEE
For value received, each Guarantor (which term includes any successor
Person under the Indenture) has, jointly and severally, unconditionally
guaranteed, to the extent set forth in the Indenture and subject to the
provisions in the Indenture dated as of April 15, 1999 (the "Indenture") among
Just For Feet, Inc., the Guarantors listed on the signature pages thereto and
The Bank of New York, as trustee (the "Trustee"), (a) the due and punctual
payment of the principal of, premium, if any, and interest on the Notes (as
defined in the Indenture), whether at maturity, by acceleration, redemption or
otherwise, the due and punctual payment of interest on overdue principal and
premium, and, to the extent permitted by law, interest, and the due and punctual
performance of all other obligations of the Company to the Holders or the
Trustee all in accordance with the terms of the Indenture and (b) in case of any
extension of time of payment or renewal of any Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. The obligations of the Guarantors to the
Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the
Indenture are expressly set forth in Article 11 of the Indenture and reference
is hereby made to the Indenture for the precise terms of the Subsidiary
Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall
be bound by such provisions, (b) authorizes and directs the Trustee, on behalf
of such Holder, to take such action as may be necessary or appropriate to
effectuate the subordination as provided in the Indenture and (c) appoints the
Trustee attorney-in-fact of such Holder for such purpose; provided, however,
that the indebtedness evidenced by this Subsidiary Guarantee shall cease to be
so subordinated and subject in right of payment upon any defeasance of this Note
in accordance with the provisions of the Indenture.
[Name of Guarantor]
By: ________________________
Name:
Title:
<PAGE>
EXHIBIT E
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
Supplemental Indenture (this "Supplemental Indenture"), dated as of
_____________, among __________________ (the "Guaranteeing Subsidiary"), a
subsidiary of Just For Feet, Inc. (or its permitted successor), a Delaware
corporation (the "Company"), the Company, the other Guarantors (as defined in
the Indenture referred to herein) and The Bank of New York, as trustee under the
Indenture referred to below (the "Trustee").
WITNESSETH
WHEREAS, the Company and the Guarantor party thereto heretofore
executed and delivered to the Trustee an indenture (the "Indenture"), dated as
of April 15, 1999 providing for the issuance of an aggregate principal amount of
up to $300.0 million of 11% Senior Subordinated Notes due 2009 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally
guarantee all of the Company's Obligations under the Notes and the Indenture on
the terms and conditions set forth herein (the "Subsidiary Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without
-----------------
definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees
----------------------
as follows:
(a) Along with all other Guarantors, to jointly and severally
Guarantee to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of the Indenture,
the Notes or the obligations of the Company hereunder or
thereunder, that:
<PAGE>
(i) the principal of and interest on the Notes will be promptly paid
in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of
and interest on the Notes, if any, if lawful, and all other
obligations of the Company to the Holders or the Trustee
hereunder or thereunder will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof;
and
(ii) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, that same will be
promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due
of any amount so guaranteed or any performance so guaranteed for
whatever reason, the Guarantors shall be jointly and severally
obligated to pay the same immediately.
(b) The obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of the Notes or the Indenture,
the absence of any action to enforce the same, any waiver or consent
by any Holder of the Notes with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor.
(c) The following is hereby waived: diligence presentment, demand of
payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first
against the Company, protest, notice and all demands whatsoever.
(d) This Subsidiary Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and the
Indenture.
(e) If any Holder or the Trustee is required by any court or otherwise to
return to the Company, the Guarantors, or any custodian, Trustee,
liquidator or other similar official acting in relation to either the
Company or the Guarantors, any amount paid by either to the Trustee or
such Holder, this Subsidiary Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect.
(f) The Guaranteeing Subsidiary shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations
<PAGE>
guaranteed hereby until payment in full of all obligations
guaranteed hereby.
(g) As between the Guarantors, on the one hand, and the Holders and
the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in
Article 6 of the Indenture for the purposes of this Subsidiary
Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any
declaration of acceleration of such obligations as provided in
Article 6 of the Indenture, such obligations (whether or not due
and payable) shall forthwith become due and payable by the
Guarantors for the purpose of this Subsidiary Guarantee.
(h) The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does
not impair the rights of the Holders under the Guarantee.
(i) Pursuant to Section 10.02 of the Indenture, after giving effect
to any maximum amount and any other contingent and fixed
liabilities that are relevant under any applicable Bankruptcy or
fraudulent conveyance laws, and after giving effect to any
collections from, rights to receive contribution from or payments
made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under Article 10 of the
Indenture shall result in the obligations of such Guarantor under
its Subsidiary Guarantee not constituting a fraudulent transfer
or conveyance.
3. Execution and Delivery. Each Guaranteeing Subsidiary agrees that
the Subsidiary Guarantees shall remain in full force and effect notwithstanding
any failure to endorse on each Note a notation of such Subsidiary Guarantee.
4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms.
(a) No Guarantor may sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person), another Person, other
than the Company or another Guarantor, unless:
(i) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(ii) either:
<PAGE>
(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such
consolidation or merger assumes all the obligations of that Guarantor
under the Indenture, its Subsidiary Guarantee and the Registration
Rights Agreement pursuant to a supplemental indenture satisfactory to
the Trustee; or
(b) such sale or other disposition complies with Section 4.10 of
the Indenture, including the application of the Net Proceeds
therefrom.
(b) In case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor corporation, by supplemental
indenture, executed and delivered to the Trustee and satisfactory in form
to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the
due and punctual performance of all of the covenants and conditions of the
Indenture to be performed by the Guarantor, such successor corporation
shall succeed to and be substituted for the Guarantor with the same effect
as if it had been named herein as a Guarantor. Such successor corporation
thereupon may cause to be signed any or all of the Subsidiary Guarantees to
be endorsed upon all of the Notes issuable hereunder which theretofore
shall not have been signed by the Company and delivered to the Trustee. All
the Subsidiary Guarantees so issued shall in all respects have the same
legal rank and benefit under the Indenture as the Subsidiary Guarantees
theretofore and thereafter issued in accordance with the terms of the
Indenture as though all of such Subsidiary Guarantees had been issued at
the date of the execution hereof.
(c) Except as set forth in Articles 4 and 5 of the Indenture, and
notwithstanding clauses (a) and (b) above, nothing contained in the
Indenture or in any of the Notes shall prevent any consolidation or merger
of a Guarantor with or into the Company or another Guarantor, or shall
prevent any sale or conveyance of the property of a Guarantor as an
entirety or substantially as an entirety to the Company or another
Guarantor.
5. Releases.
--------
(a) The Subsidiary Guarantee of a Guarantor will be released:
(i) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation) to a Person that is not (either before or
after giving effect to such transaction) a Restricted Subsidiary of
the Company, if the sale or other disposition of all or substantially
all of the assets of that Guarantor complies with Section 4.10 of the
Indenture, including the application of the Net Proceeds therefrom;
(ii) in connection with any sale of all of the Capital Stock of a
Guarantor to a Person that is not (either before or after giving
effect to such transaction) a Restricted Subsidiary of the Company, if
the sale of all such Capital Stock of that Guarantor complies
<PAGE>
with Section 4.10 of the Indenture, including the application of the Net
Proceeds therefrom;
(iii) if the Company properly designates any Restricted Subsidiary
that is a Guarantor as an Unrestricted Subsidiary; or
(iv) under the circumstances set forth in Section 4.17.
Upon delivery by the Company to the Trustee of an Officers'
Certificate and an Opinion of Counsel to the effect that such sale or other
disposition was made by the Company in accordance with the provisions of the
Indenture, including without limitation Section 4.10 of the Indenture, the
Trustee shall execute any documents reasonably required in order to evidence the
release of any Guarantor from its obligations under its Subsidiary Guarantee.
(b) Any Guarantor not released from its obligations under its
Subsidiary Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other obligations of any Guarantor under the
Indenture as provided in Article 10 of the Indenture.
6. No Recourse Against Others. No past, present or future
--------------------------
director, officer, employee, incorporator, stockholder or agent of the
Guaranteeing Subsidiary, as such, shall have any liability for any obligations
of the Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary
Guarantees, the Indenture or this Supplemental Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of the Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the SEC that such a waiver is against
public policy.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF
----------------------
NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT
THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
8. Counterparts. The parties may sign any number of copies of
------------
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
9. Effect of Headings. The Section headings herein are for
------------------
convenience only and shall not affect the construction hereof.
<PAGE>
10. The Trustee. The Trustee shall not be responsible in any manner
-----------
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guaranteeing Subsidiary and the Company.
<PAGE>
EXHIBIT 4.2
EXECUTION COPY
--------------
REGISTRATION RIGHTS AGREEMENT
Dated as of April 15, 1999
by and among
JUST FOR FEET, INC.,
as Issuer,
SNEAKER STADIUM INC.,
JUST FOR FEET OF TEXAS, INC.,
JUST FOR FEET OF NEVADA, INC.,
JUST FOR FEET SPECIALTY STORES, INC.,
SNKR HOLDING CORP., and
ATHLETIC ATTIC MARKETING, INC.,
as Guarantors
and
NationsBanc Montgomery Securities LLC
Merrill Lynch & Co.
BT Alex. Brown Incorporated
The Robinson-Humphrey Company, LLC
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of April 15, 1999, by and among Just for Feet, Inc., a Delaware
corporation (the "Company"), Sneaker Stadium, Inc., a Delaware corporation, Just
-------
For Feet of Texas, Inc., an Alabama corporation, Just for Feet of Nevada, Inc.,
a Nevada corporation, Just For Feet Specialty Stores, Inc., a Michigan
corporation, SNKR Holding Corp., a Delaware corporation, and Athletic Attic
Marketing, Inc., a Florida corporation (each a "Guarantor" and, collectively,
---------
the "Guarantors") and NationsBanc Montgomery Securities LLC, Merrill Lynch &
----------
Co., BT Alex. Brown Incorporated, The Robinson-Humphrey Company, LLC, (each, an
"Initial Purchaser" and, collectively, the "Initial Purchasers"), each of whom
----------------- ------------------
has agreed to purchase the Company's 11% Senior Subordinated Notes due May 1,
2009 (the "Notes") pursuant to the Purchase Agreement (as defined below).
-----
This Agreement is made pursuant to the Purchase Agreement, dated April
12, 1999 (the "Purchase Agreement"), by and among the Company, the Guarantors
------------------
and the Initial Purchasers. In order to induce the Initial Purchasers to
purchase the Notes, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers set forth in Section 2 of
the Purchase Agreement. Capitalized terms used herein and not otherwise defined
herein shall have the meaning assigned to them under the Indenture, dated as of
April 15, 1999, entered into by and among the Company, the Guarantors and The
Bank of New York, as Trustee, relating to the Notes and the Exchange Notes (the
"Indenture").
---------
The parties hereby agree as follows:
Section 1. Definitions. As used in this Agreement, the following
-----------
capitalized terms shall have the following meanings:
Act: The Securities Act of 1933, as amended.
---
Affiliate: As defined in Rule 144 of the Act.
---------
Broker-Dealer: Any broker or dealer registered under the Exchange
-------------
Act.
Certificated Securities: Definitive Notes, as defined in the
-----------------------
Indenture.
Closing Date: The date hereof.
------------
Commission: The Securities and Exchange Commission.
----------
Consummate: An Exchange Offer shall be deemed "Consummated" for
----------
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the period
1
<PAGE>
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Exchange Notes in the same aggregate
principal amount as the aggregate principal amount of Notes tendered by Holders
thereof pursuant to the Exchange Offer.
Consummation Deadline: As defined in Section 3(b) hereof.
---------------------
Effectiveness Deadline: As defined in Sections 3(a) and 4(a) hereof.
----------------------
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Exchange Notes: The Company's 11% Senior Subordinated Notes due May
--------------
1, 2009 to be issued pursuant to the Indenture: (i) in the Exchange Offer or
(ii) as contemplated by Section 4 hereof.
Exchange Offer: The exchange and issuance by the Company of a
--------------
principal amount of Exchange Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal amount
of Notes that are tendered by such Holders in connection with such exchange and
issuance.
Exchange Offer Registration Statement: The Registration Statement
-------------------------------------
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
--------------
propose to sell the Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act and pursuant to Regulation S under
the Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
---------------
Holders: As defined in Section 2 hereof.
-------
Prospectus: The prospectus included in a Registration Statement at
----------
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
-------------------
Registration Default: As defined in Section 5 hereof.
--------------------
Registration Statement: Any registration statement of the Company and
----------------------
the Guarantors relating to (a) an offering of Exchange Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii)
2
<PAGE>
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
Regulation S: Regulation S promulgated under the Act.
------------
Rule 144: Rule 144 promulgated under the Act.
--------
Shelf Registration Statement: As defined in Section 4 hereof.
----------------------------
Suspension Notice: As defined in Section 6(d) hereof.
-----------------
TIA: The Trust Indenture Act of 1939 as in effect on the date of the
---
Indenture.
Transfer Restricted Securities: Each (A) Note, until the earliest to
------------------------------
occur of (i) the date on which such Note is exchanged in the Exchange Offer for
an Exchange Note which is entitled to be resold to the public by the Holder
thereof without complying with the prospectus delivery requirements of the Act,
(ii) the date on which such Note has been disposed of in accordance with a Shelf
Registration Statement (and the purchasers thereof have been issued Exchange
Notes), or (iii) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Act or is saleable pursuant to Rule 144(k) under
the Act (or similar provisions then in effect) and each (B) Exchange Note held
by a Broker Dealer until the date on which such Exchange Note is disposed of by
a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including the delivery of the Prospectus
contained therein).
Section 2. Holders. A Person is deemed to be a holder of Transfer
-------
Restricted Securities (each, a "Holder") whenever such Person owns Transfer
------
Restricted Securities.
Section 3. Registered Exchange Offer. (a) Unless the Exchange Offer
-------------------------
shall not be permitted by applicable federal law (after the procedures set forth
in Section 6(a)(i) below have been complied with), the Company and the
Guarantors shall (i) cause the Exchange Offer Registration Statement to be filed
with the Commission as soon as practicable after the Closing Date, but in no
event later than 60 days after the Closing Date (such 60th day being the "Filing
------
Deadline"), (ii) use its best efforts to cause such Exchange Offer Registration
- --------
Statement to become effective at the earliest possible time, but in no event
later than 150 days after the Closing Date (such 150th day being the
"Effectiveness Deadline"), (iii) in connection with the foregoing, (A) file all
- -----------------------
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause it to become effective, (B) file, if applicable, a
post-effective amendment to such Exchange Offer Registration Statement pursuant
to Rule 430A under the Act and (C) cause all necessary filings, if any, in
connection with the registration and qualification of the Exchange Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Exchange Offer Registration Statement, commence and Consummate the Exchange
Offer. The Exchange
3
<PAGE>
Offer shall be on the appropriate form permitting (i) registration of the
Exchange Notes to be offered in exchange for the Notes that are Transfer
Restricted Securities and (ii) resales of Exchange Notes by any Broker-Dealer
that tendered into the Exchange Offer Notes that such Broker-Dealer acquired for
its own account as a result of market making activities or other trading
activities (other than Notes acquired directly from the Company or any of its
Affiliates) as contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event shall
such period be less than 20 Business Days. The Company and the Guarantors shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the Exchange Notes shall be included
in the Exchange Offer Registration Statement. The Company and the Guarantors
shall use their respective best efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
business days thereafter (such 30/th/ day being the "Consummation Deadline").
---------------------
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Notes acquired directly from
the Company or any Affiliate of the Company), may exchange such Transfer
Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy, rules or regulations after the
date of this Agreement. See the Shearman & Sterling no-action letter (available
July 2, 1993).
Because any such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with its initial sale of any Exchange
Notes received by such Broker-Dealer in the Exchange Offer, the Company and the
Guarantors shall permit the use of the Prospectus contained in the Exchange
Offer Registration Statement by such Broker-Dealer to satisfy such prospectus
delivery requirement through the Consummation Deadline and thereafter as
provided in the remainder of this paragraph. To the extent necessary to ensure
that the prospectus contained in the Exchange Offer Registration Statement is
available for sales of Exchange Notes by any Broker-Dealer that acquired
Exchange Notes as a result of market-making or similar activities such that the
Broker-Dealer would be required to deliver a prospectus under the Act upon a
subsequent sale or other disposition of the Exchange Notes, then the Company and
the
4
<PAGE>
Guarantors agree to use their respective best efforts to keep the Exchange
Offer Registration Statement continuously effective, supplemented, amended and
current as required by and subject to the provisions of Section 6(a) and (c)
hereof and in conformity with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, for a period of one-hundred-eighty (180) days (as extended pursuant to
Section 6(c)(i)) from the Consummation Deadline or such shorter period as will
terminate when all Transfer Restricted Securities covered by such Registration
Statement have been sold pursuant thereto if any such Broker-Dealer desiring
such action shall notify the Company in writing that such Broker-Dealer acquired
Exchange Notes as a result of market-making or other similar activities such
that the Broker-Dealer would be required to deliver a prospectus under the Act
upon a subsequent sale or other disposition of the Exchange Notes. The Company
and the Guarantors shall provide copies of the latest version of such Prospectus
to such Broker-Dealers, in such number as such Broker-Dealers may reasonably
request promptly upon such request, and in no event later than one Business Day
after the date of such request, at any time during such period.
Section 4. Shelf Registration. (a) Shelf Registration. If (i) the
------------------ ------------------
Exchange Offer is not permitted by applicable law (after the Company and the
Guarantors have complied with the procedures set forth in Section 6(a)(i) below)
or (ii) if any Holder of Transfer Restricted Securities shall notify the Company
in writing within 20 Business Days following the Consummation Deadline that (A)
such Holder was prohibited by law or Commission policy from participating in the
Exchange Offer or (B) such Holder may not resell the Exchange Notes acquired by
it in the Exchange Offer to the public without delivering a prospectus and the
Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder or (C) such Holder is a
Broker-Dealer and holds Notes acquired directly from the Company or any of its
Affiliates, then the Company and the Guarantors shall: (x) cause to be filed, on
or prior to 30 days after the earlier of (i) the date on which the Company
determines that the Exchange Offer Registration Statement cannot be filed as a
result of clause (a)(i) above and (ii) the date on which the Company receives
the notice specified in clause (a)(ii) above, (such earlier date, the "Filing
------
Deadline"), a shelf registration statement pursuant to Rule 415 under the Act
- --------
(which may be an amendment to the Exchange Offer Registration Statement (the
"Shelf Registration Statement")), relating to all Transfer Restricted
- -----------------------------
Securities, and (y) shall use their respective best efforts to cause such Shelf
Registration Statement to become effective on or prior to 60 days after the
Filing Deadline for the Shelf Registration Statement (such 60th day the
"Effectiveness Deadline").
- -----------------------
If, after the Company and the Guarantors filed an Exchange Offer
Registration Statement that satisfies the requirements of Section 3(a) above,
the Company and the Guarantors are required to file and make effective a Shelf
Registration Statement solely because the Exchange Offer is not permitted under
applicable federal law (i.e., clause (a)(i) above), then the filing of the
Exchange Offer Registration Statement shall be deemed to satisfy the
requirements of clause (x) above; provided that, in such event, the Company and
the Guarantors shall remain obligated to use best efforts to meet the Effective
Deadline set forth in clause (y).
5
<PAGE>
To the extent necessary to ensure that the Shelf Registration
Statement is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a) and the other
securities required to be registered therein pursuant to Section 6(b)(ii)
hereof, the Company and the Guarantors shall use their respective best efforts
to keep any Shelf Registration Statement required by this Section 4(a)
continuously effective, supplemented, amended and current as required by and
subject to the provisions of Sections 6(b) and (c) hereof and in conformity with
the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of at
least two years (as extended pursuant to Section 6(c)(i)) following the Closing
Date, or such shorter period as will terminate when all Transfer Restricted
Securities covered by such Shelf Registration Statement have been sold pursuant
thereto.
(b) Provision by Holders of Certain Information in Connection with the
------------------------------------------------------------------
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
- ----------------------------
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
Section 5. Liquidated Damages. If (i) any Registration Statement
------------------
required by this Agreement is not filed with the Commission on or prior to the
applicable Filing Deadline, (ii) any such Registration Statement has not been
declared effective by the Commission on or prior to the applicable Effectiveness
Deadline, (iii) the Exchange Offer has not been Consummated on or prior to the
Consummation Deadline, (iv) the Shelf Registration Statement is declared
effective but thereafter, pending the announcement of a material corporate
transaction, the Company issues a notice that the Shelf Registration Statement
is unusable, or such notice is required under applicable securities laws to be
issued by the Company, and, during the period specified in Section 4(a) above,
the aggregate number of days in any consecutive twelve-month period for which
all such notices are issued or required to be issued exceeds 45 days, or (v) the
Exchange Offer Registration Statement is filed and declared effective but
thereafter (A) during the period through and including the Consummation
Deadline, shall cease to be effective or fail to be usable for its intended
purpose without being succeeded immediately by a post-effective amendment to
such Exchange Offer Registration Statement that cures such failure and that is
itself declared effective immediately or (B) during the period from the day
after the Consummation Deadline through and including the one-hundred-eightieth
day after the Consummation Deadline, pending the announcement of a material
corporate transaction, the Company issues a notice that the Exchange Offer
Registration Statement is unusable for the purposes contemplated by the second
paragraph of Section 3(c) above, or such notice is required under applicable
securities laws to be issued by
6
<PAGE>
the Company, and, during the 180-day period specified in Section 3(c) above, the
aggregate number of days for which all such notices are issued or required to be
issued exceeds 45 days (each such event referred to in clauses (i) through (v),
a "Registration Default"), then the Company and the Guarantors hereby jointly
--------------------
and severally agree to pay to each Holder of Transfer Restricted Securities
affected thereby liquidated damages in an amount equal to $.05 per week per
$1,000 in principal amount of Transfer Restricted Securities held by such Holder
for each week or portion thereof that the Registration Default continues for the
first 90-day period immediately following the occurrence of such Registration
Default. The amount of the liquidated damages shall increase by an additional
$.05 per week per $1,000 in principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages of $.50 per week
per $1,000 in principal amount of Transfer Restricted Securities; provided that
the Company and the Guarantors shall in no event be required to pay liquidated
damages for more than one Registration Default at any given time.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the effectiveness of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon Consummation of the
Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-
effective amendment to the Registration Statement or an additional Registration
Statement that causes the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement) to again be declared effective or
made usable in the case of (iv) or (v)(A) or (B) above, as applicable, the
liquidated damages payable with respect to the Transfer Restricted Securities as
a result of such clause (i), (ii), (iii), (iv) or (v)(A) or (B), as applicable,
shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated
damages are due cease to be Transfer Restricted Securities, all obligations of
the Company and the Guarantors to pay accrued liquidated damages with respect to
such securities shall survive until such time as such obligations with respect
to such securities shall have been satisfied in full.
In the event that the Exchange Offer Registration Statement is
declared effective but thereafter the Company issues a notice as contemplated by
clause (v)(B) above, the number of days during which such Registration Statement
is unusable shall be deducted from the first annual 45-day "blackout" period
permitted under clause (iv) above for purposes of determining the number of days
during which Additional Interest would accrue in the event of a Registration
Default under clause (iv) above.
Section 6. Registration Procedures. (a) Exchange Offer Registration
----------------------- ---------------------------
Statement. In connection with the Exchange Offer, the Company and the Guarantors
- ---------
shall (x) comply with all applicable provisions of Section 6(c) below, (y) use
their respective best efforts to effect such
7
<PAGE>
exchange and to permit the resale of Exchange Notes by any Broker-Dealer that
tendered in the Exchange Offer Notes that such Broker-Dealer acquired for its
own account as a result of its market making activities or other trading
activities (other than Notes acquired directly from the Company or any of its
Affiliates) being sold in accordance with the intended method or methods of
distribution thereof, and (z) comply with all of the following provisions:
(i) If, following the date hereof there has been announced a change in
Commission policy with respect to exchange offers such as the Exchange
Offer, that in the reasonable opinion of counsel to the Company raises a
substantial question as to whether the Exchange Offer is permitted by
applicable federal law, the Company and the Guarantors hereby agree to seek
a no-action letter or other favorable decision from the Commission allowing
the Company and the Guarantors to Consummate an Exchange Offer for such
Transfer Restricted Securities. The Company and the Guarantors hereby
agree to pursue the issuance of such a decision to the Commission staff
level. In connection with the foregoing, the Company and the Guarantors
hereby agree to take all such other actions as may be reasonably requested
by the Commission or otherwise reasonably required in connection with the
issuance of such decision, including without limitation (A) participating
in telephonic conferences with the Commission, (B) delivering to the
Commission staff an analysis prepared by counsel to the Company setting
forth the legal bases, if any, upon which such counsel has concluded that
such an Exchange Offer should be permitted and (C) diligently pursuing a
resolution (which need not be favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer, each
Holder of Transfer Restricted Securities (including, without limitation,
any Holder who is a Broker Dealer) shall furnish, upon the request of the
Company, prior to the Consummation of the Exchange Offer, a written
representation to the Company and the Guarantors (which may be contained in
the letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an Affiliate of the Company,
(B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Exchange Notes to be issued in the Exchange Offer and
(C) it is acquiring the Exchange Notes in its ordinary course of business.
As a condition to its participation in the Exchange Offer each Holder using
the Exchange Offer to participate in a distribution of the Exchange Notes
shall acknowledge and agree that if the resales are of Exchange Notes
obtained by such Holder in exchange for Notes acquired directly from the
Company or an Affiliate thereof, it (1) could not, under Commission policy
as in effect on the date of this Agreement, rely on the position of the
Commission enunciated in Morgan Stanley and Co., Inc. (available June 5,
----------------------------
1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as
----------------------------------
interpreted in the Commission's letter to Shearman & Sterling dated July 2,
-------------------
1993, and similar no-action letters (including, if applicable, any no-
action letter obtained pursuant to clause (i) above), and (2) must comply
with the registration and prospectus delivery requirements of the Act in
connection with a secondary resale transaction and that such a secondary
resale
8
<PAGE>
transaction must be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall provide a supplemental
letter to the Commission (A) stating that the Company and the Guarantors
are registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available May
----------------------------------
13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as
----------------------------
interpreted in the Commission's letter to Shearman & Sterling dated July 2,
-------------------
1993, and, if applicable, any no-action letter obtained pursuant to clause
(i) above, (B) including a representation that neither the Company nor any
Guarantor has entered into any arrangement or understanding with any Person
to distribute the Exchange Notes to be received in the Exchange Offer and
that, to the best of the Company's and each Guarantor's information and
belief, each Holder participating in the Exchange Offer is acquiring the
Exchange Notes in its ordinary course of business and has no arrangement or
understanding with any Person to participate in the distribution of the
Exchange Notes received in the Exchange Offer and (C) any other undertaking
or representation required by the Commission as set forth in any no-action
letter obtained pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement, the Company and the Guarantors shall:
(i) comply with all the provisions of Section 6(c) below and use their
respective reasonable best efforts to effect such registration to permit
the sale of the Transfer Restricted Securities being sold in accordance
with the intended method or methods of distribution thereof (as indicated
in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company and the Guarantors will prepare
and file with the Commission a Registration Statement relating to the
registration on any appropriate form under the Act, which form shall be
available for the sale of the Transfer Restricted Securities in accordance
with the intended method or methods of distribution thereof within the time
periods and otherwise in accordance with the provisions hereof, and
(ii) issue, upon the request of any Holder or purchaser of Notes
covered by any Shelf Registration Statement contemplated by this Agreement,
Exchange Notes having an aggregate principal amount equal to the aggregate
principal amount of Notes sold pursuant to the Shelf Registration Statement
and surrendered to the Company for cancellation; the Company shall register
Exchange Notes on the Shelf Registration Statement for this purpose and
issue the Exchange Notes to the purchaser(s) of securities subject to the
Shelf Registration Statement in the names as such purchaser(s) shall
designate.
9
<PAGE>
(c) General Provisions. In connection with any Registration Statement
------------------
and any related Prospectus required by this Agreement, the Company and the
Guarantors shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain
an untrue statement of material fact or omit to state any material fact
necessary to make the statements therein not misleading or (B) not to be
effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company and the Guarantors shall
file promptly an appropriate amendment to such Registration Statement
curing such defect, and, if Commission review is required, use their
respective reasonable best efforts to cause such amendment to be declared
effective as soon as practicable.
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the applicable Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as the case may be; cause the
Prospectus to be supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Act, and to
comply fully with Rules 424, 430A and 462, as applicable, under the Act in
a timely manner; and comply with the provisions of the Act with respect to
the disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise each Holder promptly and, if requested by such Holder,
confirm such advice in writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to
any applicable Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating
thereto, (C) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of the
Transfer Restricted Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for any of the preceding purposes, (D) of
the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement in order to make
the statements therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If
10
<PAGE>
at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending
the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the Company
and the Guarantors shall use their respective reasonable best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time;
(iv) subject to Section 6(c)(i), if any fact or event contemplated by
Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(v) furnish to each Holder in connection with such exchange or sale,
if any, before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review and
comment of such Holders in connection with such sale, if any, for a period
of at least four Business Days, and the Company will not file any such
Registration Statement or Prospectus or any amendment or supplement to any
such Registration Statement or Prospectus (including all such documents
incorporated by reference) to which such Holders shall reasonably object
within four Business Days after the receipt thereof. A Holder shall be
deemed to have reasonably objected to such filing if such Registration
Statement, amendment, Prospectus or supplement, as applicable, as proposed
to be filed, contains an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading or fails to comply with the applicable requirements of the Act;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to each Holder in connection with such
exchange or sale, if any, make at reasonable times the Company's and the
Guarantors' representatives available for discussion of such document and,
subject to appropriate confidentiality agreements being entered into, other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such Holders may reasonably
request;
(vii) subject to appropriate confidentiality agreements being entered
into, make available, at reasonable times, for inspection by each Holder
and any attorney or accountant retained by such Holders, all financial and
other records, pertinent corporate documents of the Company and the
Guarantors and cause at reasonable times the
11
<PAGE>
Company's and the Guarantors' officers, directors and employees to supply
all information reasonably requested by any such Holder, attorney or
accountant at reasonable times in connection with such Registration
Statement or any post-effective amendment thereto subsequent to the filing
thereof and prior to its effectiveness;
(viii) if requested by any Holders in connection with such exchange
or sale, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such Holders may reasonably request to have included
therein, including, without limitation, information relating to the "Plan
of Distribution" of the Transfer Restricted Securities; and make all
required filings of such Prospectus supplement or post-effective amendment
as soon as reasonably practicable after the Company is notified of the
matters to be included in such Prospectus supplement or post-effective
amendment;
(ix) furnish to each Holder in connection with such exchange or sale,
without charge, at least one copy of the Registration Statement, as first
filed with the Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits (including
exhibits incorporated therein by reference);
(x) deliver to each Holder, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company and
the Guarantors hereby consent to the use (in accordance with law, rules,
regulations and orders) of the Prospectus and any amendment or supplement
thereto by each selling Holder in connection with the public offering and
the sale of the Transfer Restricted Securities covered by the Prospectus or
any amendment or supplement thereto;
(xi) upon the request of any Holder, enter into such agreements
(including underwriting agreements) and make such representations and
warranties and take all such other actions in connection therewith as may
be reasonable and customary in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to any
applicable Registration Statement contemplated by this Agreement as may be
reasonably requested by any Holder in connection with any sale or resale
pursuant to any applicable Registration Statement. In such connection, the
Company and the Guarantors shall:
(A) upon request of any Holder furnish (or in the case of
paragraphs (2) and (3) below, use its best efforts to cause to be
furnished) to each Holder, upon Consummation of the Exchange Offer or
upon the effectiveness of the Shelf Registration Statement, as the
case may be:
(1) a certificate, dated such date, signed on behalf of the
Company and each Guarantor by (x) the President or any Vice
President and (y) a principal financial or accounting officer of
the Company and such
12
<PAGE>
Guarantor, confirming, as of the date thereof, the matters set
forth in Section 5(e) of the Purchase Agreement and such other
similar matters as such Holders may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company and the Guarantors covering matters similar to those set
forth in paragraph (c) of Section 5 of the Purchase Agreement and
Exhibit A thereto subject to the same conditions with respect
thereto and to the delivery thereof and such other matter as such
Holder may reasonably request which are customarily covered in
company counsel opinions to underwriters in underwritten public
offerings, and in any event including a statement to the effect
that such counsel has participated in conferences with officers
and other representatives of the Company and the Guarantors,
representatives of the independent public accountants for the
Company and the Guarantors and have considered the matters
required to be stated therein and the statements contained
therein, although such counsel has not independently verified the
accuracy, completeness or fairness of such statements; and that
such counsel advises that, on the basis of the foregoing (relying
as to materiality to the extent such counsel deems appropriate
upon the statements of officers and other representatives of the
Company and the Guarantors) and without independent check or
verification), no facts came to such counsel's attention that
caused such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any post-
effective amendment thereto became effective and, in the case of
the Exchange Offer Registration Statement, as of the date of
Consummation of the Exchange Offer, contained an untrue statement
of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein
not misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the
opinion dated the date of Consummation of the Exchange Offer, as
of the date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Without limiting the foregoing, such counsel may state further
that such counsel assumes no responsibility for, and has not
independently verified, the accuracy, completeness or fairness of
the financial statements, notes and schedules and other financial
data and statistical data included in any Registration Statement
contemplated by this Agreement or the related Prospectus; and
13
<PAGE>
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with
underwritten public offerings, and covering the matters set forth
in the comfort letters delivered pursuant to Section 5(a) of the
Purchase Agreement subject to the same conditions with respect
thereto and to the delivery thereof; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance
with the matters covered in clause (A) above and with any customary
conditions contained in the any agreement entered into by the Company
and the Guarantors pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Securities under
the securities or Blue Sky laws of such jurisdictions as the selling
Holders may reasonably request and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of
the Transfer Restricted Securities covered by the applicable Registration
Statement; provided, however, that neither the Company nor any Guarantor
shall be required to register or qualify as a foreign corporation where it
is not now so qualified or to take any action that would subject it to the
service of process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any jurisdiction
where it is not now so subject;
(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Transfer Restricted Securities to
be sold and not bearing any restrictive legends; and to register such
Transfer Restricted Securities in such denominations and such names as the
selling Holders may request at least two Business Days prior to any sale of
such Transfer Restricted Securities;
(xiv) use their respective best efforts to cause the disposition of
the Transfer Restricted Securities covered by the Registration Statement to
be registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Securities, subject
to the proviso contained in clause (xii) above;
14
<PAGE>
(xv) provide a CUSIP number for all Transfer Restricted Securities not
later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture
with certificates for the Transfer Restricted Securities which are in a
form eligible for deposit with the Depository Trust Company;
(xvi) otherwise use their respective reasonable best efforts to
comply with all applicable rules and regulations of the Commission, and
make generally available to its security holders with regard to any
applicable Registration Statement, as soon as practicable, a consolidated
earnings statement meeting the requirements of Rule 158 (which need not be
audited) covering a twelve-month period beginning after the effective date
of the Registration Statement (as such term is defined in paragraph (c) of
Rule 158 under the Act);
(xvii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee and
the Holders to effect such changes to the Indenture as may be required for
such Indenture to be so qualified in accordance with the terms of the TIA;
and execute and use its best efforts to cause the Trustee to execute, all
documents that may be required to effect such changes and all other forms
and documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner;
(xviii) provide promptly to each Holder, upon request, each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act if not obtainable from the Commission;
and
(ix) the Company and the Guarantors will be deemed not to have used
their best efforts to cause the Exchange Offer Registration Statement or
the Shelf Registration Statement, as the case may be, to become, or to
remain, effective during the requisite period if the Company or any of the
Guarantors voluntarily and knowingly takes any action that would, or omits
to take any action which omission would, result in any such Registration
Statement not being declared effective or in the Holders of Registrable
Securities covered thereby not being able to exchange or offer and sell
such Registrable Securities during that period as and to the extent
contemplated hereby, unless (i) such action is required by applicable law
or (ii) such action is taken by the Company and the Guarantors in good
faith and for valid business reasons (but not including avoidance of the
Company's or the Guarantors', as applicable, obligations hereunder),
including a material corporate transaction, so long as the Company and the
Guarantors promptly comply with the requirements of Section 6(c)(iv)
thereof, if applicable.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
-----------------------
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice
15
<PAGE>
from the Company of the existence of any fact or the happening of any event of
the kind described in Section 6(c)(iii)(D) hereof or, in the case of the Shelf
Registration, the Company shall issue a notice pending the announcement of a
material corporate transaction that the Shelf Registration Statement is unusable
(in each case, a "Suspension Notice"), such Holder will forthwith discontinue
-----------------
disposition of Transfer Restricted Securities pursuant to the applicable
Registration Statement until (i) such Holder has received copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(iv) hereof, or
(ii) such Holder is advised in writing by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus (in
each case, the "Recommencement Date"). Each Holder receiving a Suspension Notice
-------------------
hereby agrees that it will either (i) destroy any Prospectuses, other than
permanent file copies, then in such Holder's possession which have been replaced
by the Company with more recently dated Prospectuses or (ii) deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Holder's possession of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of the Suspension
Notice. The time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by a number of days equal to the number of days in the period from and including
the date of delivery of the Suspension Notice to the date of delivery of the
Recommencement Date.
Section 7. Registration Expenses. (a) All expenses incident to the
---------------------
Company's and the Guarantors' performance of or compliance with this Agreement
will be borne, jointly and severally, by the Company and the Guarantors,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing certificates
for the Exchange Notes to be issued in the Exchange Offer and printing of
Prospectuses), messenger and delivery services and telephone; (iv) all fees and
disbursements of counsel for the Company, the Guarantors and one counsel for the
Holders of Transfer Restricted Securities chosen by the Holders of a majority of
the outstanding Transfer Restricted Securities; (v) all application and filing
fees in connection with listing the Exchange Notes on a national securities
exchange or automated quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified public accountants of
the Company and the Guarantors (including the expenses of any special audit and
comfort letters required by or incident to such performance).
The Company will, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchasers
16
<PAGE>
and the Holders of Transfer Restricted Securities who are tendering Notes into
the Exchange Offer and/or selling or reselling Notes or Exchange Notes pursuant
to the "Plan of Distribution" contained in the Exchange Offer Registration
Statement or the Shelf Registration Statement, as applicable, for the reasonable
fees and disbursements of not more than one counsel, who shall be Shearman &
Sterling unless another firm shall be chosen by the Holders of a majority in
principal amount of the Transfer Restricted Securities for whose benefit such
Registration Statement is being prepared.
Section 8. Indemnification. (a) The Company and the Guarantors
---------------
agree, jointly and severally, to indemnify and hold harmless each Holder, its
directors, officers, any underwriter in any underwritten public offering of
Transfer Restricted Securities pursuant to a Shelf Registration Statement and
each Person, if any, who controls such Holder or underwriter (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act), from and against
(i) any and all loss, liability, claim, damage and expense whatsoever, as
incurred, arising out of any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement (or any amendment or
supplement thereto) pursuant to which Transfer Restricted Securities under the
Act, including all documents incorporated therein by reference, or the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading, or arising out of
any untrue statement or alleged untrue statement of a material fact contained in
any Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; (ii) any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission, provided that (subject to Section 8(d) below) any such
settlement is effected with the written consent of the Company and the
Guarantors; and (iii) any and all expenses whatsoever, as incurred (including
the fees and disbursements of counsel chosen by any indemnified party, subject
to the limitations in Section 8(c) below), reasonably incurred in investigating,
preparing or defending against any litigation or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such alleged
untrue statement or omission, to the extent that any such expense is not paid
under subparagraph (i) or (ii) above; provided, however, that this indemnity
agreement shall not apply to any loss, liability, claim, damage or expense to
the extent arising out of any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with written
information furnished to the Company and the Guarantors by the Initial
Purchasers, such Holder or such underwriter expressly for use in a Registration
Statement (or any amendment thereto) or any Prospectus (or any amendment or
supplement thereto); provided, further, that the Company will not be liable to
any Initial Purchaser, Holder (in its capacity as Holder), or underwriter (or
any person who controls such party within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act) with respect to any such untrue statement or
alleged untrue statement or omission or alleged omission
17
<PAGE>
made in any preliminary Prospectus to the extent that the Company shall sustain
the burden of proving that any such loss, liability, claim, damage or expense
resulted from the fact that such Initial Purchaser, Holder (in its capacity as
Holder) or underwriter, as the case may be, sold Transfer Restricted Securities
to a Person to whom such Initial Purchaser, Holder (in its capacity as Holder)
or underwriter, as the case may be, failed to send or give, at or prior to the
written confirmation of the sale of such Securities a copy of the final
Prospectus (as amended or supplemented) if the Company has previously furnished
copies thereof (sufficiently in advance of the closing of such sale to allow for
distribution of the final Prospectus in a timely manner) to such Initial
Purchaser, Holder (in its capacity as Holder) or underwriter, as the case may
be, and the loss, liability, claim, damage or expense of such Initial Purchaser,
Holder (in its capacity as Holder) or underwriter, as the case may be, resulted
solely from an untrue statement or omission or alleged untrue statement or
omission of a material fact contained in or omitted from such preliminary
Prospectus which was corrected in the final Prospectus.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and the Guarantors,
and their respective directors and officers, and each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Company, or the Guarantors to the same extent as the foregoing
indemnity from the Company and the Guarantors set forth in section (a) above,
but only with reference to information relating to such Holder furnished in
writing to the Company by such Holder expressly for use in any Registration
Statement. In no event shall any Holder, its directors, officers or any Person
who controls such Holder be liable or responsible for any amount in excess of
the amount by which the total amount received by such Holder with respect to its
sale of Transfer Restricted Securities pursuant to a Registration Statement
exceeds (i) the amount paid by such Holder for such Transfer Restricted
Securities and (ii) the amount of any damages that such Holder, its directors,
officers or any Person who controls such Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
- ------------------
against whom such indemnity may be sought (the "indemnifying person") in writing
-------------------
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), a Holder shall not be required to assume the
defense of such action pursuant to this Section 8(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have
18
<PAGE>
failed to assume the defense of such action or employ counsel reasonably
satisfactory to the indemnified party or (iii) the named parties to any such
action (including any impleaded parties) include both the indemnified party and
the indemnifying party, and the indemnified party shall have been advised by
such counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the indemnifying party
(in which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of the indemnified party). In any such case,
the indemnifying party shall not, in connection with any one action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed promptly following receipt of invoice therefor as they are incurred.
Such firm shall be designated in writing by a majority of the Holders, in the
case of the parties indemnified pursuant to Section 8(a), and by the Company and
Guarantors, in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party under this Section 8 shall not be liable for any settlement
of any proceeding effected without its written consent, but if settled with such
consent or if there be a final non-appealable judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party against any loss,
claim, damage, liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by Section 8(c) hereof, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the final terms of such proposed settlement as soon as practicable prior to such
settlement being entered into and (iii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or consent
to the entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Guarantors, on the one hand, and the Holders, on the other hand, from their
sale of Transfer Restricted Securities or (ii) if the allocation provided by
clause 8(d)(i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i)
19
<PAGE>
above but also the relative fault of the Company and the Guarantors, on the one
hand, and of the Holder, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
fault of the Company and the Guarantors, on the one hand, and of the Holder, on
the other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or such Guarantor, on the one hand, or by the Holder, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
judgments referred to above shall be deemed to include, subject to the
limitations set forth in the third sentence of Section 8(c), any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Company, the Guarantors and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any matter, including any
action that could have given rise to such losses, claims, damages, liabilities
or judgments. Notwithstanding the provisions of this Section 8, no Holder, its
directors, its officers or any Person, if any, who controls such Holder shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the total received by such Holder with respect to the sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Holder for such Transfer Restricted Securities and (ii) the
amount of any damages which such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Transfer Restricted Securities
held by each Holder hereunder and not joint.
Section 9. Rule 144a and Rule 144. The Company and each Guarantor
----------------------
agree with each Holder, for so long as any Transfer Restricted Securities remain
outstanding and during any period in which the Company or such Guarantor (i) is
not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon
request of any Holder, to such Holder or beneficial owner of Transfer Restricted
Securities in connection with any sale thereof and any prospective purchaser of
such Transfer Restricted Securities designated by such Holder or beneficial
owner, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such
20
<PAGE>
Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to
Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby
in a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
Section 10. Miscellaneous. (a) Remedies. The Company and the
------------- --------
Guarantors acknowledge and agree that any failure by the Company and/or the
Guarantors to comply with their respective obligations under Sections 3 and 4
hereof may result in material irreparable injury to the Initial Purchasers or
the Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchasers or any Holder may obtain such relief
as may be required to specifically enforce the Company's and the Guarantors'
obligations under Sections 3 and 4 hereof. The Company and the Guarantors
further agree to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any Guarantor
--------------------------
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor any Guarantor has previously entered into any agreement
granting any registration rights with respect to its securities to any Person.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's and
the Guarantors' securities under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the rights
of Holders hereunder.
21
<PAGE>
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:
(1) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(2) if to the Company or the Guarantors:
Just for Feet, Inc.
7400 Cahaba Valley Road
Birmingham, AL 35242
Telecopier No.: (205) 408-3170
Attention: Chief Financial Officer
With a copy to:
Smith, Gambrell & Russell, LLP
Promenade Two, Suite 3100
1230 Peachtree Street, N.E.
Atlanta, GA 30309-3592
Telecopier No.: (404) 685-6932
Attention: Arthur Jay Schwartz, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders; provided that nothing herein shall be deemed to permit any
assignment, transfer or other disposition of Transfer Restricted Securities in
violation of the terms hereof or of the Purchase Agreement or the Indenture. If
any transferee of any Holder shall acquire Transfer Restricted Securities in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale set
forth in this
22
<PAGE>
Agreement and, if applicable, the Purchase Agreement, and such Person shall be
entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
23
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
JUST FOR FEET, INC.
By: /s/ Eric L. Tyra
-----------------------------------------
Name: Eric L. Tyra
Title: Vice President
SNEAKER STADIUM, INC.
By: /s/ Eric L. Tyra
-----------------------------------------
Name: Eric L. Tyra
Title: Vice President
JUST FOR FEET OF TEXAS, INC.
By: /s/ Eric L. Tyra
-----------------------------------------
Name: Eric L. Tyra
Title: Vice President
JUST FOR FEET OF NEVADA, INC.
By: /s/ Eric L. Tyra
-----------------------------------------
Name: Eric L. Tyra
Title: Vice President
JUST FOR FEET SPECIALTY STORES INC.
By: /s/ Eric L. Tyra
-----------------------------------------
Name: Eric L. Tyra
Title: Vice President
24
<PAGE>
SNKR HOLDING CORP.
By: /s/ Eric L. Tyra
-----------------------------------------
Name: Eric L. Tyra
Title: Vice President
ATHLETIC ATTIC MARKETING, INC.
By: /s/ Eric L. Tyra
-----------------------------------------
Name: Eric L. Tyra
Title: Vice President
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Shawn M. Dreyer
-----------------------------------------
Name: Shawn M. Dreyer
Title:
MERRILL LYNCH & CO.
By: /s/ Chantal D. Simon
-----------------------------------------
Name: Chantal D. Simon
Title: Managing Director
BT ALEX. BROWN INCORPORATED
By: /s/ Gregory J. Shaia
-----------------------------------------
Name: Gregory J. Shaia
Title: Principal
THE ROBINSON-HUMPHREY COMPANY, LLC
By: /s/ Charles H. Ogburn
-----------------------------------------
Name: Charles H. Ogburn
Title: Senior Managing Director
25
<PAGE>
Exhibit 12
JUST FOR FEET, INC.
STATEMENT RE COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratio information)
<TABLE>
<CAPTION>
Year Ended Three Months Three Months
January 30, Ended Ended
1999 May 1, 1999 April 30, 1998
----------- ------------ --------------
<S> <C> <C> <C>
EARNINGS:
Income from continuing operations before income taxes $ 43,329 $ 7,554 $ 9,457
Fixed charges 24,502 10,583 3,620
----------- ------------ --------------
$ 67,831 $ 18,137 $ 13,077
=========== ============ ==============
FIXED CHARGES:
Interest, including amortization of debt issuance costs $ 7,916 $ 5,144 $ 602
Portion of rents representative of interest factor 16,586 5,439 3,018
----------- ------------ --------------
$ 24,502 $ 10,583 $ 3,620
=========== ============ ==============
RATIO OF EARNINGS TO FIXED CHARGES 2.8x 1.7x 3.6x
=========== ============ ==============
</TABLE>
<PAGE>
Exhibit 21
Subsidiaries
of
Just For Feet, Inc.
Name State of Incorporation
- -------------------------------------- ----------------------
Sneaker Stadium, Inc. Delaware
SNKR Holding Corp. Delaware
Just For Feet of Texas, Inc. Alabama
Just For Feet of Nevada, Inc. Nevada
Just For Feet Specialty Stores, Inc. Michigan
Athletic Attic Marketing, Inc. Florida
Just For Feet of Puerto Rico, Inc. Puerto Rico
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Just For Feet, Inc. and subsidiaries on Form S-4 of our report dated April 23,
1999, included in the Annual Report on Form 10-K of Just For Feet, Inc. for the
year ended January 30, 1999, and to the use of our report dated April 23, 1999,
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Birmingham, Alabama
June 10, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated May 21, 1998
included in the Just For Feet, Inc. Form 8-K/A dated July 27, 1998 and to all
references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Philadelphia, PA
June 10, 1999
<PAGE>
EXHIBIT 25
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [_]
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
JUST FOR FEET, INC.
(Exact name of obligor as specified in its charter)
Delaware 52-2098043
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Table of Additional Registrants
-------------------------------
Just For Feet, Inc. Delaware 63-0734234
Sneaker Stadium, Inc. Delaware 22-3282329
SNKR Holding Corp. Delaware 22-3496117
Athletic Attic Marketing, Inc. Florida 59-1652915
Just For Feet of Texas, Inc. Alabama 63-110660
Just For Feet of Nevada, Inc. Nevada 63-1106743
Just For Feet Specialty Stores, Inc. Michigan 38-2236573
7400 Cahaba Valley Road
Birmingham, Alabama 35242
(Address of principal executive offices) (Zip code)
_____________
11% Senior Subordinated Notes, Series B
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Name Address
- ----------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-
29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with
Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed
with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed
with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
-2-
<PAGE>
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 8th day of June, 1999.
THE BANK OF NEW YORK
By: /s/ MARY LAGUMINA
------------------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business March 31, 1999,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
ASSETS Dollar Amounts
In Thousands
Cash and balances due from depository
institutions:
<S> <C>
Noninterest-bearing balances and currency and $ 4,508,742
coin...........................................
Interest-bearing balances....................... 4,425,071
Securities:
Held-to-maturity securities..................... 836,304
Available-for-sale securities................... 4,047,851
Federal funds sold and Securities purchased 1,743,269
under agreements to resell......................
Loans and lease financing receivables:
Loans and leases, net of unearned
income.......................................... 39,349,679
LESS: Allowance for loan and
lease losses.................................... 603,025
LESS: Allocated transfer risk
reserve......................................... 15,906
Loans and leases, net of unearned income, 38,730,748
allowance, and reserve.........................
Trading Assets................................... 1,571,372
Premises and fixed assets (including capitalized 685,674
leases).........................................
Other real estate owned.......................... 10,331
Investments in unconsolidated subsidiaries and 182,449
associated companies............................
Customers' liability to this bank on acceptances 1,184,822
outstanding.....................................
Intangible assets................................ 1,129,636
Other assets..................................... 2,632,309
-----------
Total assets..................................... $61,688,578
===========
</TABLE>
5
<PAGE>
LIABILITIES
Deposits:
In domestic offices............................. $25,731,036
Noninterest-bearing............................. 10,252,589
Interest-bearing................................ 15,478,447
In foreign offices, Edge and Agreement
subsidiaries, and IBFs......................... 18,756,302
Noninterest-bearing............................. 111,386
Interest-bearing................................ 18,644,916
Federal funds purchased and Securities sold
under agreements to repurchase.................. 3,276,362
Demand notes issued to the U.S.Treasury.......... 230,671
Trading liabilities.............................. 1,554,493
Other borrowed money:
With remaining maturity of one year or less..... 1,154,502
With remaining maturity of more than one year
through three years............................ 465
With remaining maturity of more than three years 31,080
Bank's liability on acceptances executed and
outstanding..................................... 1,185,364
Subordinated notes and debentures................ 1,308,000
Other liabilities................................ 2,743,590
-----------
Total liabilities................................ 55,971,865
===========
EQUITY CAPITAL
Common stock..................................... 1,135,284
Surplus.......................................... 764,443
Undivided profits and capital reserves........... 3,807,697
Net unrealized holding gains (losses) on
available-for-sale securities................... 44,106
Cumulative foreign currency translation
adjustments..................................... (34,817)
Total equity capital............................. 5,716,713
-----------
Total liabilities and equity capital............. $61,688,578
===========
6
<PAGE>
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Reyni
Alan R. Griffith Directors
Gerald L. Hassell
7
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUST FRO
FEET INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-29-2000 JAN-30-1999
<PERIOD-START> JAN-30-1999 FEB-01-1998
<PERIOD-END> MAY-01-1999 APR-30-1998
<CASH> 17,629 12,412
<SECURITIES> 0 0
<RECEIVABLES> 18,174 18,875
<ALLOWANCES> 0 0
<INVENTORY> 458,069 399,901
<CURRENT-ASSETS> 510,067 449,490
<PP&E> 210,155 188,606
<DEPRECIATION> 34,073 28,014
<TOTAL-ASSETS> 771,185 689,396
<CURRENT-LIABILITIES> 140,688 132,692
<BONDS> 0 0
0 0
0 0
<COMMON> 3 3
<OTHER-SE> 328,585 325,703
<TOTAL-LIABILITY-AND-EQUITY> 771,185 689,396
<SALES> 220,985 151,921
<TOTAL-REVENUES> 221,125<F1> 152,229<F1>
<CGS> 128,533 88,303
<TOTAL-COSTS> 200,712<F2> 136,411<F2>
<OTHER-EXPENSES> 7,715<F3> 5,759<F3>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,144 602
<INCOME-PRETAX> 7,554 9,457
<INCOME-TAX> 2,908 3,641
<INCOME-CONTINUING> 4,646 5,816
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> (1,847) 0
<NET-INCOME> 2,799 5,816
<EPS-BASIC> 0.09 0.19
<EPS-DILUTED> 0.09 0.19
<FN>
<F1>Includes Sales, Franchise fees, royalties and other revenue and interest
income, net (if income).
<F2>Includes CGS, store operating and Store openings costs.
<F3>Includes amortization of intangibles and general and administrative.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-30-1999 JAN-31-1998 JAN-29-2000 JAN-30-1999
<PERIOD-START> FEB-01-1998 FEB-01-1997 JAN-30-1999 FEB-01-1998
<PERIOD-END> JAN-30-1999 JAN-31-1998 MAY-01-1999 APR-30-1998
<CASH> 12,412 82,490 17,629 12,412
<SECURITIES> 0 0 0 0
<RECEIVABLES> 18,875 15,840 18,174 18,875
<ALLOWANCES> 0 0 0 0
<INVENTORY> 399,901 206,128 458,069 399,901
<CURRENT-ASSETS> 449,490 311,167 510,067 449,490
<PP&E> 188,606 108,487 210,155 188,606
<DEPRECIATION> 28,014 13,958 34,073 28,014
<TOTAL-ASSETS> 689,396 448,352 771,185 689,396
<CURRENT-LIABILITIES> 132,692 155,706 140,688 132,692
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 3 3 3 3
<OTHER-SE> 325,703 268,081 328,585 325,703
<TOTAL-LIABILITY-AND-EQUITY> 689,396 448,352 771,185 689,396
<SALES> 774,863 478,638 220,985 151,921
<TOTAL-REVENUES> 776,305<F1> 481,109<F1> 221,125<F1> 152,229<F1>
<CGS> 452,330 279,816 128,533 88,303
<TOTAL-COSTS> 698,504<F2> 426,203<F2> 200,712<F2> 136,411<F2>
<OTHER-EXPENSES> 26,413<F3> 19,240<F3> 7,715<F3> 5,759<F3>
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 8,059 1,446 5,144 602
<INCOME-PRETAX> 43,329 34,220 7,554 9,457
<INCOME-TAX> 16,681 12,817 2,908 3,641
<INCOME-CONTINUING> 26,648 21,403 4,646 5,816
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 (1,847) 0
<NET-INCOME> 26,648 21,403 2,799 5,816
<EPS-BASIC> 0.87 0.72 0.09 0.19
<EPS-DILUTED> 0.84 0.70 0.09 0.19
<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.
</FN>
</TABLE>
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
JUST FOR FEET, INC.
Offer to Exchange
11% Senior Subordinated Notes due 2009, Series B
for any and all of the outstanding
11% Senior Subordinated Notes due 2009
Pursuant to the Prospectus dated ___________, 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1999, UNLESS THE OFFER IS EXTENDED
- --------------------------------------------------------------------------------
The Bank of New York
(the "Exchange Agent")
By Hand, Overnight Courier or Mail
The Bank of New York
101 Barclay Street - 7E
New York, New York 10286
Reorganization Section
By facsimile: (212) 815-4699. Call (212) 815-_________ for confirmation.
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
<PAGE>
The undersigned hereby acknowledges receipt of the Prospectus dated
__________, 1999 (the "Prospectus") of Just For Feet, Inc. (the "Company") and
this Letter of Transmittal, which together constitute the Company's offer (the
"Exchange Offer") to exchange $1,000 principal amount of its 11% Senior
Subordinated Notes due 2009, Series B (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which the Prospectus is a part, for each
$1,000 principal amount of its outstanding 11% Senior Subordinated Notes due
2009 (the "Old Notes"). The term "Expiration Date" shall mean 5:00 p.m., New
York City time, on , 1999, unless the Exchange Offer
is extended, in which case the term "Expiration Date" means the latest date and
time to which the Exchange Offer is extended. Capitalized terms used but not
defined herein have the meaning given to them in the Prospectus.
Valid acceptance of the terms of the Exchange Offer may be effected by a
participant in The Depository Trust Company ("DTC") tendering Notes through the
DTC's Automated Tender Offer Program ("ATOP") where the Exchange Agent receives
an Agent's Message prior to the Expiration Date. Accordingly, such participant
must electronically transmit its acceptance to the DTC through ATOP, and then
the DTC will edit and verify the acceptance, execute a book-entry delivery to
the Exchange Agent's account at the DTC and send an Agent's Message to the
Exchange Agent for its acceptance. By tendering through ATOP, participants in
the DTC will expressly acknowledge receipt of this Letter of Transmittal and
agree to be bound by its terms and the Company will be able to enforce such
agreement against DTC participants. The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of Old Notes being tendered or accepted
for exchange. However, the Exchange Offer is subject to certain conditions. See
"The Exchange Offer -- Conditions" in the Prospectus. This Letter of Transmittal
is to be completed by a holder of Old Notes if (i) certificates are to be
forwarded herewith or (ii) a tender of certificates for Old Notes is to be made
by book-entry transfer to the account maintained by the Exchange Agent at the
DTC pursuant to the book-entry transfer procedures set forth under "The Exchange
Offer -- Procedures for Tendering Old Notes" in the Prospectus. Holders who wish
to tender their Old Notes but who cannot, prior to 5:00 p.m., New York City
time, on the Expiration Date (a) deliver their Old Notes, this Letter of
Transmittal or any other required documents to the Exchange Agent or (b) deliver
a confirmation of the book-entry tender of their Old Notes into the Exchange
Agent's account at DTC (a "Book-Entry Confirmation") and otherwise complete the
procedures for book-entry transfer, may effect a tender of Old Notes by
complying with the guaranteed delivery procedures set forth under "The Exchange
Offer -- Guaranteed Delivery Procedures" in the Prospectus. Delivery of
documents to DTC or the Company does not constitute delivery to the Exchange
Agent.
Please list on the next page the Old Notes to which this Letter of
Transmittal relates. If the space indicated is inadequate, the Certificate or
Registration Numbers and the Principal Amounts should be listed on a separately
signed schedule affixed hereto.
2
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
DESCRIPTION OF SENIOR SUBORDINATED NOTES TENDERED HEREBY
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate
Principal Principal
Name(s) and Address(es) of Registered Owner(s) Certificate or Amount Represented Amount
(Please fill in) Registration Numbers* by Old Notes Tendered**
- ----------------------------------------------------------------------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
- ----------------------------------------------------------------------------------------------------------
* Need not be completed by Book-Entry Holders.
** Unless otherwise indicated, the Holder will be deemed to have tendered the full aggregate
principal amount represented by such Old Notes. All tenders must be in integral multiples of
$1,000.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT AT DTC AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution
----------------------------------------------
Account Number
-------------------------------------------------------------
Transaction Code Number
----------------------------------------------------
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name of Registered Holder(s)
-----------------------------------------------
Window Ticket Number (if any)
----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-------------------------
Name of Eligible Institution that Guaranteed Delivery
----------------------
If delivered by book-entry transfer:
Name of Tendering Institution
----------------------------------------------
Account Number
-------------------------------------------------------------
Transaction Code Number
----------------------------------------------------
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name
-----------------------------------------------------------------------
Address
--------------------------------------------------------------------
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
3
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the Old Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
such Old Notes tendered hereby, the undersigned hereby exchanges, assigns and
transfers to, or upon the order of, the Company all right, title and interest in
and to such Old Notes as are being tendered hereby, including all rights to
accrued and unpaid interest thereon as of the Expiration Date. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent the true and
lawful agent and attorney-in-fact of the undersigned (with full knowledge that
said Exchange Agent acts as the agent of the Company in connection with the
Exchange Offer) to cause the Old Notes to be assigned, transferred and
exchanged. The undersigned represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Old Notes and to acquire
Exchange Notes issuable upon the exchange of such tendered Old Notes, and that
when the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
The undersigned represents to the Company that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned; (ii) neither the undersigned nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act; (iii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in a distribution of
such Exchange Notes; and (iii) the undersigned and any such other person
acknowledge that, if they are participating in the Exchange Offer for the
purpose of distributing the Exchange Notes, (a) they cannot rely on the position
of the staff of the Securities and Exchange Commission enunciated in Exxon
Capital Holdings Corporation (available April 13, 1989), Morgan Stanley & Co.,
Inc. (available June 5, 1991) or similar no-action letters and, in the absence
of an exemption therefrom, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with the resale
transaction and (b) failure to comply with such requirements in such instance
could result in the undersigned or any such other person incurring liability
under the Securities Act for which such persons are not indemnified by the
Company. If the undersigned or the person receiving the Exchange Notes covered
by this letter is an affiliate (as defined under Rule 405 of the Securities Act)
of the Company, the Exchange Notes may not be offered for resale, resold or
otherwise transferred by the undersigned or such other person without
registration under the Securities Act or an exemption therefrom. If the exchange
offeree is a broker-dealer holding Old Notes acquired for its own account as a
result of market-making activities or other trading activities, it will deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resale of Exchange Notes received in respect of such Old Notes pursuant to
the Exchange Offer; however, by so acknowledging and by delivering a prospectus,
the undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Old Notes or transfer ownership of such Old Notes on the account books
maintained by a book-entry transfer facility. The undersigned further agrees
that acceptance of any tendered Old Notes by the Company and the issuance of
Exchange Notes in exchange therefor shall constitute performance in full by the
Company of its obligations under the Registration Rights Agreement and that the
Company shall have no further obligations or liabilities thereunder for the
registration of the Old Notes or the Exchange Notes.
4
<PAGE>
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company), as more particularly set forth in the Prospectus,
the Company may not be required to exchange any of the Old Notes tendered hereby
and, in such event, the Old Notes not exchanged will be returned to the
undersigned at the address shown below the signature of the undersigned.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Tendered Old Notes may be withdrawn at any time
prior to the Expiration Date.
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this Letter
of Transmittal, certificates for all Exchange Notes delivered in exchange for
tendered Old Notes, and any Old Notes delivered herewith but not exchanged, will
be registered in the name of the undersigned and shall be delivered to the
undersigned at the address shown below the signature of the undersigned. If an
Exchange Note is to be issued to a person other than the person(s) signing this
Letter of Transmittal, or if the Exchange Note is to be mailed to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal at an address different than the address
shown on this Letter of Transmittal, the appropriate boxes of this Letter of
Transmittal should be completed. If Old Notes are surrendered by Holder(s) that
have completed either the box entitled "Special Registration Instructions" or
the box entitled "Special Delivery Instructions" in this Letter of Transmittal,
signature(s) on this Letter of Transmittal must be guaranteed by an Eligible
Institution (as defined in Instruction 2).
<TABLE>
<S> <C>
- -------------------------------------------------------- ----------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the Exchange Notes To be completed ONLY if the Exchange
are to be issued in the name of someone Notes are to be sent to someone other than the
other than the undersigned. undersigned, or to the undersigned at an address
other than that shown above under "Description of
Name Senior Subordinated Notes Tendered Hereby."
-------------------------------------------------
Address Name
---------------------------------------------- ---------------------------------------------
Address
----------------------------------------------------- ------------------------------------------
Book-Entry Transfer Facility Account: --------------------------------------------------
-----------------------------------------------------
Employer Identification or Social Security Number:
-----------------------------------------------------
(Please print or type) (Please print or type)
- -------------------------------------------------------- ----------------------------------------------------
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURE: TO BE COMPLETED BY ALL TENDERING HOLDERS
(In addition, complete Substitute Form W-9 on following page)
X
----------------------------------------------------------------------------
X
----------------------------------------------------------------------------
(Signature(s) of Registered Holder(s))
Must be signed by registered holder(s) exactly as name(s) appear(s) on the
Old Notes or on a security position listing as the owner of the Old Notes or by
person(s) authorized to become registered holder(s) by properly completed bond
powers transmitted herewith. If signature is by attorney-in-fact, trustee,
executor, administrator, guardian, officer of a corporation or other person
acting in a fiduciary capacity, please provide the following information.
(Please print or type):
Name and Capacity (full title):
----------------------------------------------
Address (including zip code):
------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Area Code and Telephone Number:
----------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------------
Dated:
------------------------------
SIGNATURE GUARANTEE
(If Required -- See Instruction 4)
Authorized Signature:
--------------------------------------------------------
(Signature of Representative of Signature Guarantor)
Name and Title:
--------------------------------------------------------------
Name of Plan:
----------------------------------------------------------------
Area Code and Telephone Number:
----------------------------------------------
(Please print or type)
Dated:
---------------------------
- --------------------------------------------------------------------------------
6
<PAGE>
PAYOR'S NAME: JUST FOR FEET, INC.
THIS SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED
----
Please provide your social security number or other taxpayer identification
number on the following Substitute Form W-9 and certify therein that you are
subject to backup withholding.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
SUBSTITUTE Part 1-PLEASE PROVIDE YOUR TIN IN THE BOX AT
RIGHT AND CERTIFY BY SIGNING AND DATING
FORM W-9 BELOW.
------------------------
SOCIAL SECURITY
NUMBER
OR EMPLOYER
IDENTIFICATION NUMBER
--------------------------------------------------------------------------------
Part 2-CHECK THE BOX IF YOU ARE NOT SUBJECT TO
BACKUP WITHHOLDING UNDER THE PROVISIONS OF
DEPARTMENT OF THE SECTION 3406(A) (1) (C) OF THE INTERNAL REVENUE
TREASURY CODE BECAUSE (1) YOU ARE EXEMPT FROM BACKUP
WITHHOLDING, (2) YOU HAVE NOT BEEN NOTIFIED THAT Part 3 -
INTERNAL REVENUE YOU ARE SUBJECT TO BACKUP WITHHOLDING AS A AWAITING TIN [_]
SERVICE RESULT OF FAILURE TO REPORT ALL INTEREST OR
DIVIDENDS OR (3) THE INTERNAL REVENUE SERVICE
HAS NOTIFIED YOU THAT YOU ARE NO LONGER SUBJECT
TO BACKUP WITHHOLDING. [_]
--------------------------------------------------------------------------------
CERTIFICATION: UNDER PENALTIES OF PERJURY, I CERTIFY THAT THE
PAYOR'S REQUEST FOR INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
TAXPAYER
IDENTIFICATION SIGNATURE: DATE:
NUMBER ("TIN") ------------------------------------- --------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: ANY FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
7
<PAGE>
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER
I CERTIFY UNDER PENALTIES OF PERJURY THAT A TAXPAYER IDENTIFICATION NUMBER HAS
NOT BEEN ISSUED TO ME, AND EITHER (A) I HAVE MAILED OR DELIVERED AN APPLICATION
TO RECEIVE A TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE INTERNAL REVENUE
SERVICE CENTER OR SOCIAL SECURITY ADMINISTRATION OFFICE, OR (B) I INTEND TO
MAIL OR DELIVER AN APPLICATION IN THE NEAR FUTURE. I UNDERSTAND THAT IF I DO
NOT PROVIDE A TAXPAYER IDENTIFICATION NUMBER WITHIN 60 DAYS, 31% OF ALL
REPORTABLE PAYMENTS MADE TO ME THEREAFTER WILL BE WITHHELD, UNTIL I PROVIDE A
NUMBER.
-------------------------------------------------- ------------------------
SIGNATURE DATE
- --------------------------------------------------------------------------------
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates.
All physically delivered Old Notes or confirmation of any book-entry
transfer to the Exchange Agent's account at a book-entry transfer facility of
Old Notes tendered by book-entry transfer, as well as a properly completed and
duly executed copy of this Letter of Transmittal or facsimile thereof, and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at any of its addresses set forth herein on or prior to the
Expiration Date. The method of delivery of this Letter of Transmittal, the 144A
Notes and all other required documents is at the election and risk of the
Holder. Instead of delivery by mail, it is recommended that Holders use an
overnight or hand delivery service. Except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Old Notes for exchange.
Delivery to an address other than as set forth herein, or instructions via
a facsimile number other than the ones set forth herein, will not constitute a
valid delivery.
2. Guaranteed Delivery Procedures.
Holders who wish to tender their 144A Notes, and (i) whose Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent (or comply
with the procedures for book-entry transfer) prior to the Expiration Date, may
effect a tender if:
a. the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent
in the United States or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution");
b. prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Old Notes, the
certificate or registration number(s) of such 144A Notes and the principal
amount of Old Notes tendered, stating that the tender is being made thereby
and guaranteeing that, within five (5) business days after the Expiration
Date, the Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Old Notes to be tendered in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes into
the Exchange Agent's account at the Depository) and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
c. such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered 144A Notes in proper form for
transfer (or a confirmation of book-entry transfer of such 144A Notes into
the Exchange Agent's account at the Depository) and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent
within five business days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above. Any Holder who wishes to tender Old Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery relating to such
Old Notes prior to the Expiration Date. Failure to complete the guaranteed
delivery procedures outlined above will not, of itself,
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affect the validity or effect a revocation of any Letter of Transmittal form
properly completed and executed by a Holder who attempted to use the guaranteed
delivery procedures.
3. Partial Tenders; Withdrawals.
If less than the entire principal amount of Old Notes evidenced by a
submitted certificate is tendered, the tendering Holder should fill in the
principal amount tendered in the column entitled "Principal Amount Tendered" of
the box entitled "Description of Senior Subordinated Notes Tendered Hereby." A
newly issued 144A Note for the principal amount of 144A Notes submitted but not
tendered will be sent to such Holder as soon as practicable after the Expiration
Date. All 144A Notes delivered to the Exchange Agent will be deemed to have been
tendered in full unless otherwise indicated.
Any 144A Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date, after which tenders of 144A Notes are
irrevocable. To withdraw a tender of Old Notes in the Exchange Offer, a written
or facsimile transmission notice of withdrawal must be received by the Exchange
Agent by 5:00 p.m., New York City time, on the Expiration Date. Any such notice
of withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the 144A Notes to be
withdrawn (including the certificate or registration number(s) and principal
amount of such Old Notes, or, in the case of 144A Notes transferred by book-
entry transfer, the name and number of the account at the DTC to be credited),
(iii) be signed by the Depositor in the same manner as the original signature on
this Letter of Transmittal (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Old Notes register the transfer of such 144A Notes into the name of the
Depositor withdrawing the tender, (iv) specify the name in which such 144A Notes
are to be registered, if different from that of the Depositor and (v) include a
statement that such holder is withdrawing his election to have such Old Notes
exchanged. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the 144A Notes so withdrawn are validly retendered. Any Old Notes which have
been tendered but which are not accepted for exchange, will be returned to the
Holder thereof without cost to such Holder as soon as practicable after
withdrawal, rejection of tender or termination of Exchange Offer.
4. Signature on this Letter of Transmittal; Written Instruments and
Endorsements; Guarantee of Signatures.
If this Letter of Transmittal is signed by the registered Holder(s) of the
Old Notes tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration or enlargement or any
change whatsoever. If this Letter of Transmittal is signed by a participant in
the Depository, the signature must correspond with the name as it appears on the
security position listing as the owner of the Old Notes.
If any of the 144A Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of 144A Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
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Signatures on this Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution unless the Old Notes
tendered hereby are tendered (i) by a registered Holder who has not completed
the box entitled "Special Registration Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or Holders
of Old Notes (which term, for the purposes described herein, shall include a
participant in the Depository whose name appears on a security listing as the
owner of the 144A Notes) listed and tendered hereby, no endorsements of the
tendered Old Notes or separate written instruments of transfer or exchange are
required. In any other case, the registered Holder (or acting Holder) must
either properly endorse the Old Notes or transmit properly completed bond powers
with this Letter of Transmittal (in either case, executed exactly as the name(s)
of the registered Holder(s) appear(s) on the Old Notes, and, with respect to a
participant in the Depository whose name appears on a security position listing
as the owner of 144A Notes, exactly as the name of the participant appears on
such security position listing), with the signature on the Old Notes or bond
power guaranteed by an Eligible Institution (except where the Old Notes are
tendered for the account of an Eligible Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
5. Special Registration and Delivery Instructions.
Tendering Holders should indicate, in the applicable box, the name and
address (or account at the Depository) in which the Exchange Notes or substitute
Old Notes for principal amounts not tendered or not accepted for exchange are to
be issued (or deposited), if different from the names and addresses or accounts
of the person signing this Letter of Transmittal. In the case of issuance in a
different name, the employer identification number or social security number of
the person named must also be indicated and the tendering Holder should complete
the applicable box.
If no instructions are given, the Exchange Notes (and any Old Notes not
tendered or not accepted) will be issued in the name of and sent to the acting
Holder of the Old Notes or deposited at such Holder's account at the Depository.
6. Transfer Taxes.
The Company shall pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered Holder of the Old Notes
tendered, or if tendered 144A Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of 144A Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other person) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted herewith, the amount of such transfer taxes will be billed
directly to such tendering Holder.
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Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the Old Notes listed in the Letter of
Transmittal.
7. Waiver of Conditions.
The Company reserves the right, in its reasonable judgment, to waive, in
whole or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
8. Mutilated, Lost, Stolen or Destroyed Notes.
Any Holder whose 144A Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
9. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal may be
directed to the Exchange Agent at the address and telephone number set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to Eric L. Tyra, Just For Feet, Inc., 7400
Cahaba Valley Parkway, Birmingham, Alabama 35242; telephone: (205) 408-3000
(collect).
10. Validity and Form.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any 144A Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to particular 144A Notes. The Company's interpretation
of the terms and conditions of the Exchange Offer (including the instructions in
this Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of 144A Notes
must be cured within such time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Old Notes,
nor shall any of them incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any 144A Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost to
such holder by the Exchange Agent to the tendering Holders of Old Notes, unless
otherwise provided herein, as soon as practicable following the Expiration Date.
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Old Notes is required to
provide the Exchange Agent with such Holder's correct TIN on Substitute Form W-9
above. If such Holder is an individual, the TIN is the Holder's social security
number. The Certificate of Awaiting Taxpayer Identification Number should be
completed if the tendering Holder has not been issued a TIN and has applied for
a number or intends to apply for a number in the near future. If the Exchange
Agent is not provided with the correct TIN, the Holder may be subject to a $50
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penalty imposed by the Internal Revenue Service. In addition, payments that are
made to such Holder with respect to tendered Old Notes may be subject to backup
withholding.
Certain Holders (including, among others, all domestic corporations and
certain foreign individuals and foreign entities) are not subject to these
backup withholding and reporting requirements. Such a Holder, who satisfies one
or more of the conditions set forth in Part 2 of the Substitute Form W-9, should
execute the certification following such Part 2. In order for a foreign Holder
to qualify as an exempt recipient, that Holder must submit to the Exchange Agent
a properly completed Internal Revenue Service Form W-9, signed under penalties
of perjury, attesting to that Holder's exempt status. Such forms can be obtained
from the Exchange Agent.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any amounts otherwise payable to the Holder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to a Holder with
respect to Old Notes tendered for exchange, the Holder is required to notify the
Exchange Agent of his or her correct TIN by completing the form herein
certifying that the TIN provided on Substitute Form W-9 is correct (or that such
Holder is awaiting a TIN) and that (i) such Holder is exempt, (ii) such Holder
has not been notified by the Internal Revenue Service that he or she is subject
to backup withholding as a result of failure to report all interest or dividends
or (iii) the Internal Revenue Service has notified such Holder that he or she is
no longer subject to backup withholding.
What Number to Give the Exchange Agent
Each Holder is required to give the Exchange Agent the social security
number or employer identification number of the record Holder(s) of the 144A
Notes. If Old Notes are in more than one name or are not in the name of the
actual Holder, consult the instructions on Internal Revenue Service Form W-9,
which may be obtained from the Exchange Agent, for additional guidance on which
number to report.
Certificate of Awaiting Taxpayer Identification Number
If the tendering Holder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, write "Applied For"
in the space for the TIN on Substitute Form W-9, sign and date the form and the
Certificate of Awaiting Taxpayer Identification Number and return them to the
Exchange Agent. If such certificate is completed and the Exchange Agent is not
provided with the TIN within 60 days, the Exchange Agent will withhold 31% of
all payments made thereafter until a TIN is provided to the Exchange Agent.
IMPORTANT: This Letter of Transmittal or a facsimile thereof (together with
144A Notes or confirmation of book-entry transfer and all other required
documents) or a Notice of Guaranteed Delivery must be received by the Exchange
Agent on or prior to the Expiration Date.
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