SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended OCTOBER 25, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission File No. 1-13426
THE SPORTS AUTHORITY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3511120
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3383 N. STATE ROAD 7, FT. LAUDERDALE, FLORIDA 33319
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(954) 735-1701
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of Common Stock outstanding at December 9, 1998: 31,819,876
<PAGE>
THE SPORTS AUTHORITY, INC.
INDEX TO FORM 10-Q
PAGE NUMBER
-----------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
INDEX TO EXHIBITS 21
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------------- ------------------------------
OCTOBER 25, OCTOBER 26, OCTOBER 25, OCTOBER 26,
1998 1997 1998 1997
----------- ----------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales $ 366,973 $ 340,896 $ 1,140,675 $ 1,043,992
Licensee fees and rental income 38 267 812 951
----------- ----------- ------------- ------------
367,011 341,163 1,141,487 1,044,943
----------- ----------- ------------- ------------
Cost of merchandise sold, includes
buying and occupancy costs 299,296 241,800 870,080 747,883
Selling, general and administrative expenses 105,726 90,973 299,722 263,822
Pre-opening expense 3,578 3,875 7,859 5,926
Goodwill amortization 491 491 1,472 1,473
----------- ----------- ------------- ------------
409,091 337,139 1,179,133 1,019,104
----------- ----------- ------------- ------------
Store exit costs 39,446 - 39,446 -
Corporate restructuring 3,930 - 3,930 -
Impairment of long-lived assets 13,457 - 13,457 -
----------- ----------- ------------- ------------
56,833 - 56,833 -
----------- ----------- ------------- ------------
Operating (loss) income (98,913) 4,024 (94,479) 25,839
Interest, net 2,801 1,482 8,099 3,795
----------- ----------- ------------- ------------
(Loss) income before income taxes (101,714) 2,542 (102,578) 22,044
Income tax (benefit) expense (35,703) 1,352 (35,673) 9,306
Minority interest (1,123) (821) (2,098) (1,432)
----------- ----------- ------------- ------------
Net (loss) income $ (64,888) $ 2,011 $ (64,807) $ 14,170
=========== =========== ============= ============
Earnings per common share and equivalents $ (2.04) $ 0.06 $ (2.04) $ 0.45
=========== =========== ============= ============
Common shares plus common share equivalents:
Basic 31,813 31,559 31,745 31,512
=========== =========== ============= ============
Diluted 31,813 31,888 31,745 31,838
=========== =========== ============= ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
THE SPORTS AUTHORITY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
OCTOBER 25, JANUARY 25,
1998 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 24,020 $ 20,359
Merchandise inventories 393,648 327,662
Accounts receivable and other current assets 51,942 44,405
Property held for resale 2,869 -
----------- ------------
Total current assets 472,479 392,426
Net property owned 332,454 313,050
Other assets and deferred charges 78,236 56,029
Goodwill - net of accumulated amortization of
$17,094 and $15,622, respectively 49,311 50,783
----------- ------------
Total Assets $ 932,480 $ 812,288
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable - trade $ 177,634 $ 148,512
Accrued payroll and other liabilities 128,507 106,805
Short-term debt 117,584 21,468
Taxes other than income taxes 20,142 10,548
Income taxes 3,153 5,383
----------- ------------
Total current liabilities 447,020 292,716
Long-term debt 169,846 157,439
Other long-term liabilities 48,803 30,671
----------- ------------
Total liabilities 665,669 480,826
Minority interest (4,187) (2,089)
Stockholders' equity:
Common stock, $.01 par value, 100,000 shares
authorized, 31,820 issued 318 316
Additional paid-in-capital 250,446 247,140
Deferred compensation and receivables from officers (1,118) (1,589)
Retained earnings 24,419 89,226
Treasury stock, 56 shares (527) (494)
Cumulative translation adjustment (2,540) (1,048)
----------- ------------
Total stockholders' equity 270,998 333,551
----------- ------------
Total Liabilities and Stockholders' Equity $ 932,480 $ 812,288
=========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
39 WEEKS ENDED
------------------------------
OCTOBER 25, OCTOBER 26,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CASH PROVIDED BY (USED FOR):
OPERATIONS
Net (loss) income $ (64,807) $ 14,170
Adjustments to reconcile net (loss) income to operating cash flows:
Depreciation and amortization 34,662 27,345
Cumulative translation adjustment (1,492) (475)
Minority interest in net loss of Joint Venture (2,098) (1,432)
Loss on sale or disposal of property and equipment 16 52
Impairment of long-lived assets 13,457 -
Store exit costs 39,446 -
Corporate restructuring 3,930 -
(Increase) Decrease in deferred tax assets (37,242) 144
Increase in other assets (6,511) (5,368)
Increase in long-term liabilities 3,393 3,676
Increase in inventories (65,986) (80,196)
Increase in accounts payable 29,122 13,458
Other - net 894 (12,892)
----------- ------------
Net cash used for operations (53,216) (41,518)
----------- ------------
INVESTING
Capital expenditures - owned property (60,110) (85,062)
Proceeds from sale of property and equipment 2 1,307
Other - net 6,536 149
----------- ------------
Net cash used for investing (53,572) (83,606)
----------- ------------
FINANCING
Short-term borrowings 96,116 26,529
Long-term borrowings 12,950 3,709
Proceeds from sale of stock 1,959 1,876
Purchase of treasury stock (33) (114)
Debt issuance costs - (43)
Reduction in capital lease obligations (543) -
----------- ------------
Net cash provided by financing 110,449 31,957
----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,661 (93,167)
Cash and cash equivalents at beginning of year 20,359 109,645
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,020 $ 16,478
=========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements do not
include all information and footnotes necessary for the annual presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles.
Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year's presentation.
In the opinion of The Sports Authority, Inc. management, all
adjustments necessary for a fair presentation of the results for the interim
periods have been included.
NOTE 2: EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and
diluted EPS computations is illustrated below:
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------------- -----------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) OCTOBER 25, OCTOBER 26, OCTOBER 25, OCTOBER 26,
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
BASIC EPS COMPUTATION
Net (loss) income $ (64,888) $ 2,011 $ (64,807) $ 14,170
------------ ----------- ------------ -----------
Weighted average common shares 31,813 31,559 31,745 31,512
------------ ----------- ------------ -----------
Earnings per common share $ (2.04) $ 0.06 $ (2.04) $ 0.45
============ =========== ============ ===========
DILUTED EPS COMPUTATION
Net (loss) income $ (64,888) $ 2,011 $ (64,807) $ 14,170
Plus income impact of assumed conversion:
Interest on convertible subordinated notes (a) - - - -
------------ ----------- ------------ -----------
Income available to common shareholders
+ assumed conversions $ (64,888) $ 2,011 $ (64,807) $ 14,170
------------ ----------- ------------ -----------
</TABLE>
6
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C> <C>
Weighted average common shares 31,813 31,559 31,745 31,512
Effect of stock options - 329 - 326
Shares from subordinated notes assuming
conversion (a) - - - -
------------ ----------- ------------ -----------
Total Shares 31,813 31,888 31,745 31,838
------------ ----------- ------------ -----------
Earnings per common share-assuming dilution $ (2.04) $ 0.06 $ (2.04) $ 0.45
============ =========== ============ ===========
</TABLE>
(a) 4,580,964 shares issuable pursuant to the conversion rights granted to
holders of the Company's 5.25% Convertible Subordinated Notes are not included
in the computation due to an antidilutive effect in all periods.
NOTE 3: RECENT PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income". This
statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
Comprehensive income is defined as the change in equity arising from non-owner
sources. It includes net income as well as foreign currency items, minimum
pension liability adjustments, and unrealized gains and losses on certain
investments in debt and equity securities. This statement is effective for
fiscal years beginning after December 15, 1997. Comprehensive (loss) income for
the 13 and 39 weeks ended October 25, 1998 was ($66,675,000) and ($66,301,000),
respectively, compared to $2,003,000 and $13,696,000 for the same periods in the
prior year.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This statement requires that public
business enterprises report certain information about operating segments in
complete sets of financial statements of the enterprise and in condensed
financial statements of interim periods issued to shareholders. It also requires
that public business enterprises report certain information about their products
and services, the geographic areas in which they operate, and their major
customers. This statement is effective for fiscal years beginning after December
15, 1997. The Company expects changes in its future disclosures but the
statement will have no impact on its consolidated results of operations,
financial position or cash flows.
7
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 1998, the AICPA issued a statement of position on start-up or
pre-opening costs. This statement requires that all start-up or pre-opening
costs be expensed as incurred. The Company currently expenses the costs of
opening a new store in its first month of operation. This statement is effective
for fiscal years beginning after December 15, 1998. The balance of prepaid
pre-opening costs as of October 25, 1998 was approximately $1.1 million.
8
<PAGE>
Item 2.
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the Company's income statement data as a percent
of sales for the periods indicated.
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------------- ----------------------------
OCTOBER 25, OCTOBER 26, OCTOBER 25, OCTOBER 26,
1998 1997 1998 1997
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold, includes
buying and occupancy costs 81.6 70.9 76.3 71.6
----------- ----------- ---------- ----------
Gross margin 18.4 29.1 23.7 28.4
Licensee fees and rental income - 0.1 0.1 0.1
Selling, general and administrative expenses 28.8 26.7 26.3 25.3
Pre-opening expense 1.0 1.1 0.7 0.6
Goodwill amortization 0.1 0.2 0.1 0.1
Store exit cost 10.7 - 3.5 -
Corporate restructuring 1.1 - 0.3 -
Impairment of long-lived assets 3.7 - 1.2 -
----------- ----------- ---------- ----------
Operating (loss) income (27.0) 1.2 (8.3) 2.5
Interest, net 0.7 0.4 0.7 0.4
----------- ----------- ---------- ----------
(Loss) income before income taxes (27.7) 0.8 (9.0) 2.1
Income tax (benefit) expense (9.7) 0.4 (3.1) 0.9
Minority interest (0.3) (0.2) (0.2) (0.2)
----------- ----------- ---------- ----------
Net (loss) income (17.7)% 0.6% (5.7)% 1.4%
=========== =========== ========== ==========
</TABLE>
The following table sets forth the Company's store openings and closings for the
periods indicated.
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------------- ----------------------------
OCTOBER 25, OCTOBER 26, OCTOBER 25, OCTOBER 26,
1998 1997 1998 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Beginning number of stores 206 174 199 168
Openings 10 11 20 17
Closings - - (3) -
----------- ----------- ----------- ----------
Ending number of stores 216 185 216 185
=========== =========== =========== ==========
</TABLE>
9
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
GENERAL
In the third quarter of 1998 the Company recorded a pre-tax non-comparable
charge of $82.9 million related to the restructuring of its business. On an
after-tax basis the non-comparable charge was $54.6 million, or $1.72 per share.
The charge primarily reflects the deterioration in sales productivity and
earnings growth resulting from poor performing stores and inappropriate capital
allocations. Excluding the effects of this non-comparable charge, the net loss
was $10.3 million or $0.32 per share. The components of the non-comparable
charge are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Cost of merchandise sold:
Inventory write-down for aged inventory and
markdowns to liquidate inventory for 18 store closures $24.1
-----
Selling, general and administrative expenses:
Miscellaneous corporate charges 2.0
-----
Restructuring charges:
Exit cost related to 18 store closings (2 of which will be relocated) 39.4
Corporate restructuring 3.9
Asset impairment in accordance with FAS 121 for six stores
that will remain open 13.5
-----
56.8
-----
Total pre-tax non-comparable charge 82.9
-----
Income tax (benefit):
Tax benefit related to above charges (32.5)
Tax charge 4.2
-----
Total income tax (benefit): (28.3)
-----
Total after-tax non-comparable charge $54.6
=====
</TABLE>
10
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
13 WEEKS ENDED OCTOBER 25, 1998 AND OCTOBER 26, 1997
Sales for the 13 weeks ended October 25, 1998 were $367.0 million, a $26.1
million, or 7.6%, increase over sales of $340.9 million for the same period in
the prior year. Of the 7.6% increase in sales, 6.3%, or $21.3 million, was
attributable to the inclusion of a full 13 weeks sales for the stores opened in
1997 which had no comparable store sales in the prior year and 6.9%, or $23.5
million, was attributable to the twenty new stores opened in the first 39 weeks
of 1998. These increases were partially offset by a 4.7%, or $15.6 million,
decrease in comparable store sales and a 0.9%, or $3.2 million, decrease in
sales for the three stores that closed in February 1998. The comparable store
sales decrease in the third quarter of 1998 was primarily the result of
disappointing sales in footwear, fitness, golf, men's apparel and licensed
apparel. Excluding all or a portion of the third quarter of 1998 sales from 16
stores considered to be cannibalized by new store openings, comparable store
sales decreased 4.2% in the third quarter of 1998, as compared to flat
comparable sales in the same period of the prior year after excluding all or a
portion of the third quarter of 1997 sales from 21 stores considered to be
cannibalized. The Company considers an existing store to be cannibalized for a
period of one year from the date on which a new store overlaps its primary trade
area. In calculating comparable store sales excluding cannibalized stores, sales
from a cannibalized store are excluded from the calculation of total comparable
sales for such months.
Cost of merchandise sold, including buying and occupancy costs, for the 13
weeks ended October 25, 1998 was $299.3 million, or 81.6% of sales, as compared
to $241.8 million, or 70.9% of sales, for the same period in the prior year. As
a percent of sales, gross margin was 18.4% for 1998 and 29.1% for 1997. The
major components of cost of goods sold are merchandise costs and, to a lesser
extent, occupancy costs. For the 1998 period, merchandise costs increased
primarily due to a inventory write-down of $24.1 million included in the
non-comparable charge associated with aged inventory and anticipated markdowns
at 18 stores to be closed (2 of which will be relocated) in early 1999, as well
as costs related to the operation of the regional distribution center ("RDC")
which opened in November 1997 and an increase in net markdowns. Occupancy costs,
which are fixed in nature, increased as a percent of sales due to lower sales
volumes in the third quarter of 1998 versus the same period of 1997.
Selling, general and administrative (SG&A) expenses for the 13 weeks ended
October 25, 1998 were $105.7 million, or 28.8% of sales, as compared to $91.0
million, or 26.7% of sales, for the same period in the prior year. The 2.1% of
sales increase in SG&A expenses is attributable primarily to the lack of sales
productivity and the inclusion of $2.0 million of miscellaneous corporate
charges included in the non-comparable charge.
11
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Pre-opening expense for the 13 weeks ended October 25, 1998 was $3.6
million, or 1.0% of sales, as compared to $3.9 million, or 1.1% of sales, for
the same period in the prior year. The $0.3 million decrease is due to the
opening of 10 stores in the 1998 period versus 11 stores in the 1997 period.
Pre-opening expenses consist principally of store payroll expense for associate
training and store preparation prior to a store opening, as well as
grand-opening advertising expenditures.
Restructuring charges of $56.8 million associated with store exit costs,
corporate restructuring, and impairment of assets were recorded in the 13 weeks
ended October 25, 1998. During this period the Company announced plans to close
18 stores (2 of which will be relocated) and reserved $39.4 million for
estimated costs to be incurred at these locations beyond the closing date,
including rent, common area maintenance charges, real property taxes, fixed
asset disposals, and employee severance. Corporate restructuring relating to the
realignment of strategic business functions resulted in the creation of a number
of key executive positions. In connection with this restructuring, the Company
recorded $3.9 million in employment contract obligations to several departing
executives. Asset impairment charges of $13.5 million were recorded in
accordance with FAS 121 as the result of the Company estimating that future cash
flows at six stores would be below the asset carrying amount.
Interest, net for the 13 weeks ended October 25, 1998 was $2.8 million, or
0.7% of sales, as compared to $1.5 million, or 0.4% of sales, for the same
period in the prior year. The increase of $1.3 million was primarily
attributable to an increase in borrowings under the Company's $150 million
revolving credit facility expiring in April 1999 (the "Revolving Credit
Facility") as well as a decrease in interest income from short-term investments.
Income tax benefit for the 13 weeks ended October 25, 1998 was $35.7 million
at an effective tax rate of 35.1%, as compared to income tax expense of $1.4
million at an effective tax rate of 53.2% for the same period of 1997. The
decrease in the effective tax rate reflects the decreased effects of the
valuation allowance related to the Company's joint venture in Japan.
Additionally, the decrease in the effective tax rate reflects the impact of a
non-comparable tax charge related to the Company's Canadian subsidiary.
As a result of the foregoing factors, net loss for the 13 weeks ended
October 25, 1998 was $64.9 million, or (17.7)% of sales, as compared to net
income of $2.0 million, or 0.6% of sales, for the same period in the prior year.
12
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
39 WEEKS ENDED OCTOBER 25, 1998 AND OCTOBER 26, 1997
Sales for the 39 weeks ended October 25, 1998 were $1,140.7 million, a $96.7
million, or 9.3%, increase over sales of $1,044.0 million for the same period in
the prior year. Of the 9.3% increase in sales, 10.2%, or $106.5 million, was
attributable to the inclusion of a full 39 weeks of sales for the stores opened
in 1997 which had no comparable store sales in the prior year and 4.3%, or $44.8
million, was attributable to the 20 new stores opened in the first 39 weeks of
1998. These increases were partially offset by a 4.5%, or $45.7 million,
decrease in comparable store sales and a 0.9%, or $9.0 million, decrease in
sales for the three stores closed in February 1998. The comparable store sales
decrease in the first 39 weeks of 1998 was primarily the result of disappointing
sales in footwear, fitness, golf, men's apparel and licensed apparel. In
addition, sales in the first quarter were negatively impacted by productivity
and allocation issues related to the start-up of the RDC. Excluding all or a
portion of the first 39 weeks of 1998 sales from 18 stores considered to be
cannibalized by new store openings, comparable store sales decreased 3.8% in the
first 39 weeks of 1998, as compared to flat comparable sales in the same period
of last year after excluding all or a portion of the first 39 weeks of 1997
sales from 24 stores considered to be cannibalized.
Cost of merchandise sold, including buying and occupancy costs, for the 39
weeks ended October 25, 1998 was $870.1 million, or 76.3% of sales, as compared
to $747.9 million, or 71.6% of sales, for the same period in the prior year. As
a percent of sales, gross margin was 23.7% for 1998 and 28.4% for 1997. For the
1998 period, merchandise costs increased primarily due to a non-comparable
inventory write-down of $24.1 million associated with aged inventory and
anticipated markdowns at 18 stores to be closed (2 of which will be relocated)
in early 1999, as well as costs related to the operation of the RDC and an
increase in net markdowns. Occupancy costs, which are fixed in nature, increased
as a percent of sales due to lower sales volumes in the first 39 weeks of 1998
versus the same period of 1997.
SG&A expenses for the 39 weeks ended October 25, 1998 were $299.7 million,
or 26.3% of sales, as compared to $263.8 million, or 25.3% of sales, for the
same period in the prior year. The 1.0% of sales increase in SG&A expenses was
mainly attributable to the lack of sales productivity in the first 39 weeks of
1998 versus the same period of 1997.
Pre-opening expense for the 39 weeks ended October 25, 1998 was $7.9
million, or 0.7% of sales, as compared to $5.9 million, or 0.6% of sales, for
the same period in the prior year. Pre-opening expense increased $2.0 million
primarily due to the opening of 20 stores in the 1998 period versus 17 stores in
the 1997 period and, to a lesser extent, to higher pre-opening occupancy
expenses in one store in 1998 as result of commencing lease obligations six
months prior to opening.
13
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Restructuring charges of $56.8 million are discussed above.
Interest, net for the 39 weeks ended October 25, 1998 was $8.1 million, or
0.7% of sales, as compared to $3.8 million, or 0.4% of sales, for the same
period in the prior year. The increase of $4.3 million was primarily
attributable to an increase in borrowings under the Revolving Credit Facility as
well as a decrease in interest income from short-term investments.
Income tax benefit for the 39 weeks ended October 25, 1998 was $35.7 million
at an effective tax rate of 34.8%, as compared to income tax expense of $9.3
million at an effective tax rate of 42.2% for the same period of 1997. The
decrease in the effective tax rate reflects the decreased effects of the
valuation allowance related to the Company's joint venture in Japan, as well as
the tax charge related to the Company's Canadian subsidiary.
As a result of the foregoing factors, net loss for the 39 weeks ended
October 25, 1998 was $64.8 million, or (5.7)% of sales, as compared to net
income of $14.2 million, or 1.4% of sales, for the same period in the prior
year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working capital
needs and to open new stores in connection with its expansion strategy. For the
39 weeks ended October 25, 1998 these capital requirements have generally been
satisfied by short-term borrowings.
Cash flows generated by operating, investing and financing activities as
reported in the Consolidated Statements of Cash Flows for the 39 weeks ended
October 25, 1998 are summarized below. The net increase in cash and cash
equivalents for the 39 weeks ended October 25, 1998 was $3.7 million as compared
to a decrease of $93.2 million for the same period in the prior year.
Net cash used for operations was $53.2 million for the 39 weeks ended
October 25, 1998 as compared to $41.5 million for the same period in the prior
year. Inventory net of accounts payable increased $36.9 million as compared to
$66.7 million for the same period in the prior year. The current year increase
is offset by a $24.1 million non-comparable inventory write-down associated with
aged inventory and anticipated markdowns at 18 stores to be closed in early
1999. Depreciation and amortization expense resulted primarily from leasehold
improvements, store fixtures and goodwill. Depreciation expense is expected to
remain flat due to less expansion than in the past.
14
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Net cash used for investing was $53.6 million for the 39 weeks ended October
25, 1998, as compared to $83.6 million for the same period in the prior year.
Capital expenditures during the 39 weeks of 1998 included $39.1 million of
expenditures primarily associated with opening stores. The remaining capital
expenditures of $13.7 million was related to existing stores, as well as
computer hardware and software enhancements. Other-net decreased by $6.5 million
primarily due to the payoff of a note receivable.
Net cash provided by financing for the 39 weeks ended October 25, 1998 was
$110.5 million, as compared to $32.0 million for the same period in the prior
year. The increase was mainly comprised of short-term borrowings under the
Revolving Credit Facility.
The Company's working capital at October 25, 1998 was $25.5 million
compared with $114.9 million at October 26, 1997, a decrease of $89.4 million.
The decrease in working capital was primarily due to an increase in short-term
borrowings required to fund operations, compared to the first 39 weeks of 1997
which funded operations with proceeds from the 1996 convertible debt issuance.
To a lesser extent working capital was impacted by the write-down of inventories
and reserves established for the current portion of store exit costs.
The Company currently plans to open 30 new stores in 1998, and approximately
ten in 1999. Due to the store growth and refurbishments of existing stores, the
Company expects that its capital expenditures will be approximately $83 million
in 1998. The Company will continue to finance substantially all of its new
stores with operating leases, assuming availability and appropriate terms. To
the extent stores are not financed with operating leases, capital expenditures
will be higher by approximately $4 million to $8 million per location. While the
Company had originally intended to incur capital expenditures in 1998 in
connection with the opening of an additional RDC in 1999, the Company has made
no commitments for a second RDC.
The Company has a Revolving Credit Facility in the amount of $150 million to
fund working capital requirements. This line of credit contains certain
financial covenants relating to the maintenance of a minimum fixed charge
coverage ratio, a maximum leverage ratio and a minimum tangible net worth. As a
result of the non-comparable charge, the Revolving Credit Facility was amended
in October 1998 to remeasure financial covenants exclusive of this restructuring
charge, to lower the required fixed charge coverage ratio, and to grant the
banks a security interest in inventory and certain accounts receivable. The
higher interest rates and commitment fees as a result of the amendment will not
have a material impact on the results of operations.
15
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
The Company believes that anticipated cash flows from operations, borrowings
under the Revolving Credit Facility and by Mega Sports, the company's 51% owned
joint venture in Japan, and operating leases will be sufficient to satisfy its
currently anticipated working capital and capital expenditure requirement, as
well as any additional cash requirements due to store closings, through the next
12 months, assuming the Company is successful in negotiating a new credit
facility prior to the expiration of the Revolving Credit Facility in April 1999.
The Company continues to evaluate various sources of financing for its expansion
and working capital needs.
SEASONALITY AND INFLATION
The Company's business is highly seasonal, with its highest sales and
operating profitability occurring in the fourth quarter, which includes the
holiday selling season. In fiscal 1997, 28.7% of the Company's sales occurred in
the fourth quarter. In the future, changes in the number and timing of store
openings and consumer buying habits, particularly in the holiday selling season,
may change seasonality trends.
Management does not believe inflation had a material effect on the financial
statements for the periods presented.
YEAR 2000
Many information and business systems utilize programming code in which
calendar years are abbreviated as two digits. The Year 2000 issue relates to the
potential for systems to interpret the year 2000 as the year 1900, causing
system failure or unreliability.
The Company began its Year 2000 compliance project in 1997. The scope of the
project includes: assessment of information and non-information systems;
reprogramming, repairing or replacing systems determined to be non-compliant;
and ensuring compliance by key vendors and suppliers.
The Company has completed the assessment of internal information systems,
and has determined areas of non-compliance to be primarily in the inventory
management system and other retail applications. Aside from nominal hardware
replacement, it is the Company's belief that non-compliance can be fully
remedied by programming modifications, and it has engaged a team of outside
consultants and programmers for this phase. Modifications, testing and
implementation are expected to be complete by the second quarter of 1999.
16
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
The Company has expensed as incurred approximately $1.3 million in Year 2000
compliance costs in fiscal 1998, primarily related to assessment and
reprogramming fees by outside labor. This figure excludes the cost of internal
staff hours dedicated to the project. The Company expects to incur an additional
$1.5 million through fiscal 1999. Total project costs are not anticipated to
have a material adverse affect on the Company's operations.
The Company has substantially completed its assessment of non-information
technology such as signage, time clocks, office equipment and alarm systems and
has determined these systems to be materially compliant. Such determinations
were made from written and verbal communication with vendors as well as internal
review and testing.
The Company has sent surveys to all key vendors and suppliers, and is in the
process of compiling responses. Based on the results of this survey the Company
will evaluate the need for, and extent of, contingency plans to establish
alternate sources of merchandise, supplies and services. Additionally, the
Company is developing a disaster recovery plan in the event critical outside
services can not be received due to non-compliance by key suppliers.
Management believes that conversion of internal business and operating
systems will be completed in a timely manner; however, failure to do so could
have a material impact on the Company's operations. Additionally, there can be
no assurances that the Company's key suppliers or vendors will complete their
conversions in a timely manner. In the event this issue prevents third parties
from timely delivery of inventory or services required by the Company, the
Company's results of operations could be materially adversely affected.
17
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
FORWARD LOOKING STATEMENTS
Certain statements under the heading "Management's Discussion and Analysis"
and elsewhere in this Form 10-Q constitute "forward looking statements" made in
reliance on the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. As such, they involve risks and uncertainties that could
cause actual results to differ materially from those set forth in such forward
looking statements. The Company's forward looking statements are based on
assumptions about, or include statements concerning, many important factors,
including without limitation changes in discretionary consumer spending and
consumer preferences, particularly as they relate to sporting goods, athletic
footwear and apparel; seasonal patterns in consumer spending and, in particular,
the level of consumer spending during the fourth quarter; the Company's ability
to effectively implement its strategies, including its merchandising,
distribution and store expansion strategies; competitive trends and
consolidation within the sporting goods retailing industry; the effect of
economic changes in other countries in which the Company does business; the
Company's ability to successfully negotiate a new credit facility prior to the
expiration of its Revolving Credit Facility in April 1999; and other factors
described in the Company's Form 10-K for 1997. While the Company believes that
its assumptions are reasonable, it cautions that it is impossible to predict the
impact of certain factors which could cause actual results to differ materially
from expected results.
18
<PAGE>
THE SPORTS AUTHORITY, INC.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
See Exhibit Index on page 21.
(b) Reports on Form 8-K:
A Form 8-K containing information under Item 5 was filed on
each of the following dates: August 11, 1998 (announcing the Company's rejection
of an offer from Gart Sports Company), September 10, 1998 (announcing an
agreement to terminate the Merger Agreement between the Company and Venator
Group, Inc.), September 15, 1998 (announcing the appointment of Martin E. Hanaka
as Chief Executive Officer), September 22, 1998 (announcing the adoption of a
Shareholder Rights Plan), September 28, 1998 (announcing that Richard J. Lynch,
Jr., President, had ceased to be a Director and an employee of the Company), and
October 7, 1998 (announcing a non-comparable charge and that Robert J. Timinski,
Executive Vice President, and Arnold Sedel, Senior Vice President, had ceased to
be employed by the Company).
19
<PAGE>
THE SPORTS AUTHORITY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SPORTS AUTHORITY, INC.
Date: December 9, 1998 By: /s/ ANTHONY F. CRUDELE
---------------------------------
Anthony F. Crudele
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
20
<PAGE>
INDEX TO EXHIBITS
EXHIBITS
3.1 Certificate of Designations of Series A Junior Participating Preferred
Stock of the Company, filed with the Secretary of State of Delaware on
September 29, 1998
3.2 Amended and Restated Bylaws of the Company, as of November 18, 1998
4.1 Rights Agreement dated as of October 5, 1998 between the Company and First
Union National Bank, as Rights Agent, incorporated by reference to Exhibit
1 to the Form 8-A filed on September 22, 1998
10.1 First Amendment, dated October 23, 1998, to the Amended and Restated Credit
Agreement dated as of December 22, 1997 among the Company, the financial
institutions named therein, First Union National Bank, as administrative
agent for such financial institutions, and Fleet National Bank, as
co-agent, which Amended and Restated Credit Agreement was filed as Exhibit
10.18 to the Form 10-K for 1997
10.2 Agreement dated October 19, 1998 between the Company and Jack A. Smith
concerning the termination of Mr. Smith's employment
10.3 Agreement dated September 28, 1998 between the Company and Richard J.
Lynch, Jr. concerning the termination of Mr. Lynch's employment
10.4 Agreement dated November 1, 1998 between the Company and Robert J. Timinski
concerning the termination of Mr. Timinski's employment
27.1 Financial Data Schedule
21
EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
THE SPORTS AUTHORITY, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
----------------------------------------------
The Sports Authority, Inc., a Delaware corporation (the "Corporation"),
hereby certifies that, at a meeting duly called and held on September 22, 1998,
the following resolution was adopted by the Board of Directors of the
Corporation in accordance with Article FOURTH of its Restated Certificate of
Incorporation and Section 151(g) of the General Corporation Law providing for a
Series of Preferred Stock designated as the Series A Junior Participating
Preferred Stock:
RESOLVED, that pursuant to the authority expressly vested in
the Board of Directors of The Sports Authority, Inc. (the
"Corporation") by Article FOURTH of the Restated Certificate of
Incorporation of the Corporation, the Board of Directors hereby fixes
the voting powers, designations, preferences and other special rights
and qualifications, limitations and restrictions of the first series of
the Preferred Stock, par value $.01 per share, which shall consist of
100,000 shares and shall be designated as Series A Junior Participating
Preferred Shares (the "Series A Preferred Shares"), as follows:
SPECIAL TERMS OF THE SERIES A PREFERRED SHARES
SECTION 1. DIVIDENDS AND DISTRIBUTIONS.
(a) The rate of dividends payable per share of Series A
Preferred Shares on the first day of January, April, July and October
in each year or such other quarterly payment date as shall be specified
by the Board of Directors (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction
of a share of the Series A Preferred Shares, shall be (rounded to the
nearest cent) equal to the greater of (i) $10.00 or (ii) subject to the
provision for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in cash, based upon the fair market
value at the time the non-cash dividend or other distribution is
declared or paid as determined in good faith by the Board of Directors)
of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding
shares of
<PAGE>
Common Stock (by reclassification or otherwise), declared on the
Common Stock, $.01 par value per share, of the Corporation since the
immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of the Series A Preferred
Shares. Dividends on the Series A Preferred Shares shall be paid out
of funds legally available for such purpose. In the event the
Corporation shall at any time after October 5, 1998 (the "Rights
Declaration Date") (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding shares of
Common Stock, or (iii) combine the outstanding shares of Common Stock
into a smaller number of shares, then in each such case the amounts to
which holders of Series A Preferred Shares were entitled immediately
prior to such event under clause (ii) of the preceding sentence shall
be adjusted by multiplying each such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately
prior to such event.
(b) Dividends shall begin to accrue and be cumulative on
outstanding Series A Preferred Shares from the Quarterly Dividend
Payment Date next preceding the date of issue of such Series A
Preferred Shares, unless the date of issue of such shares is prior to
the record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of
issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of Series A Preferred Shares entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue
and be cumulative from such quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on the
Series A Preferred Shares in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding.
SECTION 2. VOTING RIGHTS. In addition to any other voting
rights required by law, the holders of Series A Preferred Shares shall
have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each Series A Preferred Share shall entitle the holder thereof
to 1,000 votes on all matters submitted to a vote of the stockholders
of the Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, then in each such case
the number of votes per share to which holders of Series A Preferred
Shares were
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<PAGE>
entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(b) In the event that dividends upon the Series A Preferred
Shares shall be in arrears to an amount equal to six full quarterly
dividends thereon, the holders of such Series A Preferred Shares shall
become entitled to the extent hereinafter provided to vote
noncumulatively at all elections of directors of the Corporation, and
to receive notice of all stockholders' meetings to be held for such
purpose. At such meetings, to the extent that directors are being
elected, the holders of such Series A Preferred Shares voting as a
class shall be entitled solely to elect two members of the Board of
Directors of the Corporation; and all other directors of the
Corporation shall be elected by the other stockholders of the
Corporation entitled to vote in the election of directors. Such voting
rights of the holders of such Series A Preferred Shares shall continue
until all accumulated and unpaid dividends thereon shall have been paid
or funds sufficient therefor set aside, whereupon all such voting
rights of the holders of shares of such series shall cease, subject to
being again revived from time to time upon the reoccurrence of the
conditions above described as giving rise thereto.
At any time when such right to elect directors separately as a
class shall have so vested, the Corporation may, and upon the written
request of the holders of record of not less than 20% of the then
outstanding total number of shares of all the Series A Preferred Shares
having the right to elect directors in such circumstances shall, call a
special meeting of holders of such Series A Preferred Shares for the
election of directors. In the case of such a written request, such
special meeting shall be held within 90 days after the delivery of such
request, and, in either case, at the place and upon the notice provided
by law and in the By-laws of the Corporation; provided, that the
Corporation shall not be required to call such a special meeting if
such request is received less than 120 days before the date fixed for
the next ensuing annual or special meeting of stockholders of the
Corporation. Upon the mailing of the notice of such special meeting to
the holders of such Series A Preferred Shares, or, if no such meeting
be held, then upon the mailing of the notice of the next annual or
special meeting of stockholders for the election of directors, the
number of directors of the Corporation shall, ipso facto, be increased
to the extent, but only to the extent, necessary to provide sufficient
vacancies to enable the holders of such Series A Preferred Shares to
elect the two directors hereinabove provided for, and all such
vacancies shall be filled only by vote of the holders of such Series A
Preferred Shares as hereinabove provided. Whenever the number of
directors of the Corporation shall have been increased, the number as
so increased may thereafter be further increased or decreased in such
manner as may be permitted by the By-
-3-
<PAGE>
laws and without the vote of the holders of Series A Preferred Shares,
provided that no such action shall impair the right of the holders of
Series A Preferred Shares to elect and to be represented by two
directors as herein provided.
So long as the holders of Series A Preferred Shares are
entitled hereunder to voting rights, any vacancy in the Board of
Directors caused by the death or resignation of any director elected by
the holders of Series A Preferred Shares, shall, until the next meeting
of stockholders for the election of directors, in each case be filled
by the remaining director elected by the holders of Series A Preferred
Shares having the right to elect directors in such circumstances.
Upon termination of the voting rights of the holders of any
series of Series A Preferred Shares the terms of office of all persons
who shall have been elected directors of the Corporation by vote of the
holders of Series A Preferred Shares or by a director elected by such
holders shall forthwith terminate.
(c) Except as otherwise provided herein, in the Restated
Certificate of Incorporation of the Corporation or by law, the holders
of Series A Preferred Shares and the holders of Common Stock (and the
holders of shares of any other series or class entitled to vote
thereon) shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
SECTION 3. REACQUIRED SHARES. Any Series A Preferred Shares
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become
authorized but unissued Series Preferred Stock and may be reissued as
part of a new series of Series Preferred Stock to be created by
resolution or resolutions of the Board of Directors.
SECTION 4. LIQUIDATION, DISSOLUTION OR WINDING UP. In the
event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of Series A Preferred Shares
shall be entitled to receive the greater of (a) $100.00 per share, plus
accrued dividends to the date of distribution, whether or not earned or
declared, or (b) an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 1,000 times the aggregate
amount to be distributed per share to holders of Common Stock. In the
event the Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding shares of Common Stock, or
(iii) combine the outstanding shares of Common Stock into a smaller
number of shares, then in each such case the amount to which holders of
Series A Preferred Shares were entitled immediately prior to such event
pursuant to clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after
-4-
<PAGE>
such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
SECTION 5. CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property,
then in any such case the Series A Preferred Shares shall at the same
time be similarly exchanged or changed in an amount per share (subject
to the provision for adjustment hereinafter set forth) equal to 1,000
times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding shares of Common Stock, or (iii) combine
the outstanding shares of Common Stock into a smaller number of shares,
then in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series A Preferred
Shares shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number
of shares of Common Stock that were outstanding immediately prior to
such event.
SECTION 6. NO REDEMPTION. The Series A Preferred Shares shall
not be redeemable.
SECTION 7. RANKING. The Series A Preferred Shares shall rank
junior to all other series of the Corporation's Series Preferred Stock
as to the payment of dividends and the distribution of assets, unless
the terms of any such series shall provide otherwise.
SECTION 8. FRACTIONAL SHARES. Series A Preferred Shares may be
issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Series A Preferred Shares.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation this 22nd day of September, 1998.
THE SPORTS AUTHORITY, INC.
By: /s/ JACK A. SMITH
------------------------------
Name: Jack A. Smith
Title: Chairman of the Board
-5-
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
THE SPORTS AUTHORITY, INC.
(hereinafter called the "Corporation")
(As of November 18, 1998)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the Stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The annual meetings of stockholders shall
be held on such date and at such time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Written notice of the annual meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by
the Certificate of Incorporation, special meetings of stockholders, for any
purpose or purposes, may be called by either (i) the Chairman, if there be one,
(ii) the President or (iii) the Secretary, and shall be called by any such
officer at the request in writing of a majority of the Board of Directors. Such
request shall state the purpose or purposes of
<PAGE>
the proposed meeting. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called shall be given not less than 10 nor more than 60 days before the date
of the meeting to each stockholder entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise prescribed by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder entitled to vote at the meeting in
accordance with Section 2 or 3 above.
SECTION 5. VOTING. Unless otherwise prescribed by law, the Certificate
of Incorporation or these By-laws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Unless otherwise prescribed by
law or the Certificate of Incorporation, each stockholder represented at a
meeting of stockholders shall be entitled to cast one vote for each share of the
capital stock entitled to vote thereat held by such stockholder. Such votes may
be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his or her discretion, may require that any votes
cast at such meeting shall be cast by written ballot.
SECTION 6. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least 10 days before every meeting of stockholders, a complete list
of the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder of the Corporation who is
present.
SECTION 7. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list
<PAGE>
required by Section 6 of this Article II or the books of the Corporation, or to
vote in person or by proxy at any meeting of stockholders.
SECTION 8. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Corporation. Nominations of persons for election to the Board
of Directors may be made at any annual meeting of stockholders (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any stockholder of the Corporation (i) who is a stockholder of record
on the date of the giving of the notice provided for in this Section 8 and on
the record date for the determination of stockholders entitled to vote at such
annual meeting and (ii) who complies with the notice procedures set forth in
this Section 8.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
not less than 60 days nor more than 90 days prior to the date of the annual
meeting of stockholders; PROVIDED, HOWEVER, that in the event that less than 70
days' notice or prior public disclosure of the date of the meeting is given or
made, notice by the stockholder to be timely must be so received not later than
the close of business on the tenth (10th) day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure of
the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposed to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation that are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation that are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be
<PAGE>
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 8. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
SECTION 9. BUSINESS AT ANNUAL MEETINGS. No business may be transacted
at an annual meeting of stockholders, other than business that is either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors (or any duly authorized committee
thereof), (b) otherwise properly brought before the annual meeting by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (c) otherwise properly brought before the annual meeting by any stockholder
of the Corporation (i) who is a stockholder of record on the date of the giving
of the notice provided for in this Section 9 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 9.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
not less than 60 days nor more than 90 days prior to the date of the annual
meeting of stockholders; PROVIDED, HOWEVER, that in the event that less than 70
days' notice or prior public disclosure of the date of the meeting be given or
made, notice by the stockholder to be timely must be so received not later than
the close of business on the tenth (10th) day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure of
the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation that
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such
<PAGE>
business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 9, PROVIDED, HOWEVER, that, once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 9 shall be deemed to preclude discussion by
any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors
shall consist of the number of directors set forth or provided for in the
Certificate of Incorporation. Except as provided in Section 2 of this Article
III, directors shall be elected by a plurality of the votes cast at annual
meetings of stockholders, and each director so elected shall hold office until
the next annual meeting and until his or her successor is duly elected and
qualified, or until his or her earlier death, resignation or removal. Any
director may resign at any time upon notice to the Corporation. Directors need
not be stockholders.
SECTION 2. VACANCIES. Any vacancy on the Board of Directors that
results from an increase in the number of directors may be filled by a majority
of the Board of Directors then in office, provided that a quorum is present, and
any other vacancy occurring in the Board of Directors may be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director. Any director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class. Any director elected to fill a
vacancy not resulting from an increase in the number of directors shall have the
same remaining term as his or her predecessor. Directors of the Corporation may
be removed by the stockholders of the Corporation only for cause.
SECTION 3. DUTIES AND POWERS. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-laws
directed or required to be exercised or done by the stockholders.
SECTION 4. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
<PAGE>
Regular meetings of the Board of Directors may be held without notice at such
time and at such place as may from time to time be determined by the Board of
Directors. Special meetings of the Board of Directors may be called by the
Chairman, if there be one, the Chief Executive Officer, or by a majority of the
directors then in office. Notice thereof stating the place, date and hour of the
meeting shall be given to each director either by mail not less than forty-eight
(48) hours before the date of the meeting, by telephone or telegram on
twenty-four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
SECTION 5. QUORUM. Except as otherwise prescribed by law, the
Certificate of Incorporation or these By-laws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 6. ACTIONS OF BOARD. Unless otherwise prescribed by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise
prescribed by the Certificate of Incorporation or these By-laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
SECTION 8. COMPENSATION. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid, in
cash or stock of the Corporation, a fixed sum for attendance at each meeting of
the Board of Directors or a stated salary as a director. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
SECTION 9. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and on or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall
<PAGE>
be void or voidable solely for this reason, or solely because the director or
officer is present at or participates in the meeting of the Board of Directors
of committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose if (i) the material
facts as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee is good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or their relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote therein, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a Chief Executive Officer, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a Chairman
of the Board of Directors (who must be a director), a Vice Chairman of the Board
of Directors (who must be a director), a President and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation or these By-laws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board of Directors and the Vice Chairman of the Board of
Directors, need such officers be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first meeting held
after each annual meeting of stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier death,
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the
<PAGE>
Corporation by the President or any Vice President and any such officer may, in
the name of and on behalf of the Corporation, take all such action as any such
officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
power incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present. The
Board of Directors may, be resolution, from time to time confer like powers upon
any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him or her by these By-laws or by
the Board of Directors.
SECTION 5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall,
subject to the control of the Board of Directors have general supervision of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. The Chief Executive Officer shall
execute all bonds, mortgages, contracts and other instruments of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-laws, the Board of Directors or
the Chief Executive Officer. In the absence or disability of the Chairman of the
Board of Directors, or if there be none, the Chief Executive Officer shall
preside at all meetings of the stockholders and the Board of Directors. The
Chief Executive Officer shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him or her by these
By-laws or by the Board of Directors. At the request of the Chief Executive
Officer or in the Chief Executive Officer's absence or in the event of the Chief
Executive Officer's inability or refusal to act, other officers of the
Corporation, in the order designated by the Board of Directors, shall perform
the duties of the Chief Executive Officer and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Chief Executive
Officer.
SECTION 6. VICE PRESIDENTS. Each Vice President shall perform such
duties and have such other powers as the Board of Directors from time to time
may prescribe.
SECTION 7. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or the
President, under whose supervision the Secretary shall be. If the Secretary
shall be unable or shall refuse to cause to be given notice of all meetings of
the stockholders and
<PAGE>
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
SECTION 8. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the Treasurer shall give the Corporation
a bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of the Treasurer and for the restoration to the Corporation, in case of his or
her death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his or her control belonging to the Corporation.
SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise provided
in these By-laws, Assistant Secretaries, if there by any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his or her
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be on, or the Treasurer, and in the absence of the Treasurer or in the
event of his or her disability or refusal to act, shall perform the duties of
the Treasurer, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the office of Assistant
Secretary and for the restoration to the Corporation, in case of his death,
resignation, retirement or removal
<PAGE>
from office, of all books, papers, vouchers, money and other property of
whatever kind in his or her possession or under his control belonging to the
Corporation.
SECTION 11. OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
COMMITTEES
SECTION 1. EXECUTIVE. The Board of Directors may, by resolution passed
by a majority of the entire Board of Directors, designate an Executive Committee
of the Board of Directors. The Executive Committee shall consist of not less
than three members of the Board, one of whom shall be the Chairman of the Board.
One member shall be designated as chairman by the Board. During the intervals
between meetings of the Board of Directors and subject to such limitations as
provided by law or by resolution of the Board, the Committee shall possess and
may exercise all powers and authority of the Board of Directors in the
management and direction of the affairs of the Corporation as shall be permitted
by applicable law. The Committee shall keep minutes of its proceedings, and all
action by the Committee shall be reported at the next meeting of the Board of
Directors.
SECTION 2. AUDIT COMMITTEE. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate an Audit
Committee of the Board of Directors. The Audit Committee shall consist of one or
more members of the Board, none of whom shall be an officer of the Corporation
or any of its subsidiaries. One member shall be designated as chairman by the
Board. The Committee shall recommend to the Board the conditions, compensation
and term of appointment of independent certified public accountants for the
auditing of the books and accounts of the Corporation and its subsidiaries. From
time to time, as considered necessary and desirable, the Committee shall confer
with such accountants for the exchanging of views relating to the scope and
results of the auditing books and accounts of the Corporation and its
subsidiaries and shall provide to the Board such assistance as may be required
with respect to the corporate and reporting practices of the Corporation. The
Committee shall perform such other duties as the Board may prescribe.
SECTION 3. COMPENSATION COMMITTEE. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate a
Compensation Committee of the Board of Directors. The Compensation Committee
shall consist of one or more members of the Board, all of whom shall be
"Non-Employee Directors," as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended. Further, no person may be a member
of this Committee except
<PAGE>
individuals who are "outside directors" within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended. One member shall be designated as
chairman by the Board. The Committee shall determine the nature and amount of
compensation of all senior officers of the Corporation. As may be prescribed by
the Board of Directors, the Committee shall administer any stock option or other
long term incentive plan of the Corporation and perform other prescribed duties.
SECTION 4. GOVERNANCE COMMITTEE. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate a
Governance Committee of the Board of Directors. The Governance Committee shall
consist of one or more members of the Board. One member shall be designated as
chairman by the Board. The Committee shall recommend to the Board nominees for
election as directors, and shall perform such other duties as the Board may
prescribe.
ARTICLE VI
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such stockholder in the Corporation.
SECTION 2. SIGNATURES. When a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employees, or (ii) a registrar
other than the Corporation or its employees, any other signature on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
<PAGE>
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these By-laws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than 60 days nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim or interest in such shares or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise required by law.
ARTICLE VII
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation of these By-laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex, cable or confirmed facsimile.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law,
the Certificate of Incorporation or these By-laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VIII
<PAGE>
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of capital stock.
Before payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, deems proper as a reserve or
reserves to meet contingencies, ro for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for any proper purpose, and the
Board of Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE IX
AMENDMENTS
SECTION 1. These By-laws may be altered, amended or repealed, in whole
or in part, or new By-laws may be adopted by the stockholders or by the Board of
Directors, provided, however, that notice of such alteration, amendment, repeal
or adoption of new By-laws be contained in the notice of such meeting of
stockholders or Board of Directors as the case may be. All such amendments must
be approved by either the holders of a majority of the outstanding capital stock
entitled to vote thereon or by a majority of the entire Board of Directors then
in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article IX and in
these By-laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have it there were no vacancies.
EXHIBIT 10.1
FIRST AMENDMENT
THIS FIRST AMENDMENT to the Amended and Restated Credit Agreement dated
as of December 22, 1997 (as amended, restated or otherwise modified, the "Credit
Agreement") by and among THE SPORTS AUTHORITY, INC., a corporation organized
under the laws of Delaware (the "Borrower"), the Subsidiaries of the Borrower
identified on the signature pages thereto, the lenders party thereto (the
"Lenders"), First Union National Bank, as Administrative Agent ("First Union" or
the "Agent"), and Fleet National Bank, as Co-Agent (the "Co-Agent") is made and
entered into as of this 23rd day of October, 1998 by and among the Borrower, the
Subsidiaries of the Borrower identified on the signature pages hereto, the
Lenders, the Agent for the Lenders and the Co-Agent. This First Amendment shall
have an effective date (the "First Amendment Effective Date") determined in
accordance with the provisions of Section 3.2 below.
STATEMENT OF PURPOSE
Because of certain changes in its financial condition, the Borrower has
requested that the Agent and Lenders agree to certain amendments to the Credit
Agreement. Pursuant to the terms hereof, the Agent and Lender are willing to
agree to such amendments.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. All capitalized undefined terms used in this
First Amendment and shall have the meanings assigned thereto in the Credit
Agreement.
SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT.
SECTION 2.1. SECTION 1.1 of the Credit Agreement is hereby
amended by deleting the defined terms referenced below and replacing such
deleted defined terms with the corresponding defined terms set forth below:
"'APPLICABLE MARGIN' means (a) with regard to Base Rate Loans,
0.50% and (b) with regard to LIBO Rate Loans, 1.50%."
"'APPLICABLE PERCENTAGE' means 0.375%."
"'EBITDA' means, for any period, the consolidated net income
of the Borrower and its Subsidiaries during such period before
provisions for tax expense, net interest expense, depreciation
expense, amortization, other non-cash charges, and all charges
attributable (without duplication) to the One-Time Charge
included in the determination of such net income, each as
determined in accordance with GAAP."
<PAGE>
"'LOAN DOCUMENT' means the Amended and Restated Credit
Agreement, the First Amendment, the Notes, the Guaranty, each
Intercompany Note, the Pledge Agreement, the Security
Agreement, each Rate Protection Agreement and each other
agreement, supplement, letter, document or instrument
delivered in connection with any of the foregoing."
SECTION 2.2. SECTION 1.1 of the Credit Agreement is hereby
amended by inserting the following defined terms in the correct alphabetical
order:
"'BORROWING BASE' shall mean an amount equal to the product of
(a) fifty percent (50%) TIMES (b) Eligible Inventory."
"'BORROWING BASE CERTIFICATE' means the monthly Borrowing Base
Certificate in form and substance satisfactory to the Agent,
substantially in the form of EXHIBIT A to the First
Amendment."
"'ELIGIBLE INVENTORY' means net inventory of the Borrower and
its Domestic Subsidiaries as determined in accordance with
GAAP LESS (i) any such inventory deemed to be ineligible by
the Agent, acting reasonably in accordance with standards
applicable to the retail industry pursuant to written notice
to the Borrower and (ii) any such inventory in aggregate value
in excess of $10,000,000 kept, stored or maintained with any
single bailee, warehouseman, carrier or similar party."
"'FIRST AMENDMENT' means the First Amendment, dated as of
October 23, 1998, to the Amended and Restated Credit
Agreement."
"'FIRST AMENDMENT EFFECTIVE DATE' shall have the meaning
assigned thereto in the First Amendment."
"'ONE-TIME CHARGE' means all charges more fully described in
the Borrower's October 6, 1998 press release regarding certain
store closings and charges."
"'PERFECTION CERTIFICATE' means the Perfection Certificate
substantially in the form of EXHIBIT B to the Security
Agreement, as amended, restated or otherwise modified from
time to time."
"'SECURITY AGREEMENT' means the Security Agreement executed
and delivered pursuant to the First Amendment substantially in
the form of EXHIBIT B to the First Amendment, as amended,
restated or otherwise modified from time to time."
SECTION 2.3. SECTION 2.1.2. of the Credit Agreement
is hereby amended by deleting CLAUSES (A) and (B) of such SECTION 2.1.2. and
substituting the following CLAUSES (A) and (B) in lieu thereof:
2
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"(a) of all Lenders would exceed the lesser of (i)
the Committed Amount or (ii) the Borrowing Base,
or
(b) of such Lender would exceed such Lender's
percentage of the lesser of (i) the Committed Amount
or (ii) the Borrowing Base."
SECTION 2.4. SECTION 3.1. of the Credit Agreement is
hereby amended by deleting such CLAUSE (B) of SECTION 3.1. and substituting the
following new CLAUSE (B) in lieu thereof:
"(b) shall, on each date when any reduction in the
Committed Amount or Borrowing Base, as applicable,
shall become effective (changes in the Borrowing Base
shall become effective on the day of receipt by the
Agent of any Borrowing Base Certificate), make a
mandatory prepayment of all Loans equal to the
excess, if any, of the aggregate, outstanding
principal amount of all loans over the Committed
Amount or Borrowing Base, as applicable, as so
reduced;"
SECTION 2.5. CLAUSE (A) of SECTION 3.2.1. of the
Credit Agreement is hereby amended by inserting the phrase "plus the Applicable
Margin" immediately following the phrase "Alternate Base Rate" and immediately
prior to the phrase "from time to time".
SECTION 2.6. SECTION 6.6. of the Credit Agreement is
hereby amended by inserting the phrase "other than as announced in the
Borrower's October 6, 1998 press release regarding certain store closings and
charges" immediately prior to the period at the end of such SECTION 6.6.
SECTION 2.7. SECTION 7.1.1. of the Credit Agreement
is hereby amended by (a) deleting the word "and" at the end of CLAUSE (G) of
such SECTION 7.1.1. and (b) by deleting the period at the end of CLAUSE (h) of
such SECTION 7.1.1. and inserting the following in lieu thereof:
"(i) as soon as generally available and in any event
within fifteen (15) days after the end of any fiscal
month a Borrowing Base Certificate."
SECTION 2.8. SECTION 7.1.7. of the Credit Agreement
is hereby amended by deleting CLAUSE (a) of such SECTION 7.1.7. and inserting
the following new CLAUSE (A) in lieu thereof:
"(a) in the event such Person is a Domestic
Subsidiary, such Person, if not theretofore a party
to the Guaranty or Security Agreement, shall execute
and deliver to the Agent a supplement to the Guaranty
or Security Agreement (including without limitation,
such certificates, documents, instruments, opinions
and financing statements as are reasonably requested
by the Agent), as applicable, for the purposes of
becoming a guarantor or Grantor thereunder, as
applicable, which such supplement shall be in form
and substance reasonably satisfactory to the Agent."
3
<PAGE>
SECTION 2.9. ARTICLE VII of the Credit Agreement is
hereby amended by inserting the following new SECTION 7.1.8. in correct
numerical order in such ARTICLE VII:
"Section 7.1.8. POST-CLOSING COVENANTS REGARDING THE
FIRST AMENDMENT.
(a) As soon as practicable, and in any event within
thirty (30) days after the First Amendment Effective
Date, the Borrower shall have delivered (to the
extent not previously delivered) to the Agent the
results of the Lien search required pursuant to
Section 3.2(c)(ii) of the First Amendment; and
(b) The Borrower shall use its reasonable best
efforts to deliver to the Agent, within ninety (90)
days of the First Amendment Effective Date, landlord
agreements, in form and substance satisfactory to the
Agent with respect to each parcel of real property
leased by the Borrower or any Domestic Subsidiary
where Collateral (as defined in the Security
Agreement) is located. Borrower shall not be
obligated to pay any such landlord any amount or post
any bond or letter of credit in connection with
obtaining any such agreements. The failure to obtain
any such landlord agreement after such reasonable
best efforts shall not result in a Default or Event
of Default under the Credit Agreement.
SECTION 2.10. SECTION 7.2.2. of the Credit Agreement
is hereby amended by deleting the percentage amount "50%" in the ninth line
thereof and substituting the percentage amount "60%" in lieu thereof.
SECTION 2.11. CLAUSE (A) of SECTION 7.2.4. of the
Credit Agreement is hereby amended by deleting such CLAUSE (A) and substituting
the following new CLAUSE (A) in lieu thereof:
"(a) its Tangible Net Worth to be at any time less
than $215,000,000."
SECTION 2.12. CLAUSE (B) of SECTION 7.2.4. of the
Credit Agreement is hereby amended by deleting the numeral "1.70" therein and
substituting the numeral "1.25" in lieu thereof.
SECTION 3. CLOSING; CONDITIONS TO EFFECTIVENESS.
SECTION 3.1. CLOSING. The closing of the First
Amendment shall take place at the offices of Kennedy, Covington, Lobdell &
Hickman, L.L.P. at 10:00 a.m. on October 23, 1998, or on such other date as the
parties hereto shall mutually agree.
SECTION 3.2. CONDITIONS TO CLOSING AND INITIAL
EXTENSIONS OF CREDIT. The First Amendment shall become effective on the date on
which each of the following conditions shall have been satisfied as determined
by the Agent:
4
<PAGE>
(a) EXECUTED DOCUMENTS. The Agent shall have received (i) this
First Amendment duly executed by the Agent, the Co-Agent, the Borrower,
the Subsidiaries of the Borrower identified on the signature pages
hereto and Lenders constituting Required Lenders and (ii) the Security
Agreement (and Perfection Certificate attached thereto) duly executed
by the Agent, the Borrower and the Subsidiaries of the Borrower
identified on the signature pages thereto, as applicable.
(b) CLOSING CERTIFICATES; ETC.
(i) BORROWING BASE CERTIFICATE. The Agent shall have
received a duly executed Borrowing Base Certificate, in form and
substance satisfactory to the Agent, setting forth the calculation of
the Borrowing Base as of the fiscal month of September 1998.
(ii) SECRETARY'S CERTIFICATES. The Agent shall have
received from each Obligor (other than The Sports Authority Puerto
Rico, Inc.) a certificate dated as of the First Amendment Effective
Date, of its Secretary or Assistant Secretary certifying that included
therein, or attached thereto is each of the following:
(A) resolutions duly adopted by its Board of
Directors then in full force and effect authorizing
the execution, delivery and performance of the First
Amendment and each Loan Document executed pursuant
thereto, to be executed by such Obligor;
(B) a certification of the incumbency and
signatures of those of its officers authorized to act
with respect to the First Amendment and each Loan
Document executed pursuant thereto, executed by such
Obligor, upon which certificate each Lender may
conclusively rely until it shall have received a
further certificate of the Secretary of such Obligor
canceling or amending such prior certificate; and
(C) a true and complete copy of such
Obligor's articles of incorporation and all
amendments thereto, certified as of a recent date by
the Secretary of the corporation, with regard to the
articles of incorporation of the Borrower and its
Domestic Subsidiaries only and a true and complete
copy of such Obligor's bylaws in effect as on the
date of such certification.
(iii) OPINIONS OF COUNSEL. The Agent shall have
received opinions, dated as of the First Amendment Effective Date and addressed
to the Agent and all Lenders, from Morgan, Lewis & Bockius, LLP counsel to the
Borrower and its Domestic Subsidiaries, each in form and substance satisfactory
to the Agent.
5
<PAGE>
(iv) HAZARD AND LIABILITY INSURANCE. The Agent shall
have received certificates of insurance, evidence of payment of all insurance
premiums for the current policy year of each, and, if requested by the
Administrative Agent, copies (certified by a responsible officer of the
Borrower) of insurance policies in the form required under the Security
Agreement and otherwise in form and substance reasonably satisfactory to the
Administrative Agent.
(c) COLLATERAL.
(i) FILINGS AND RECORDINGS. All financing statements,
duly executed by the respective Obligors, that are necessary to perfect
the security interests of the Lenders in the Collateral (as defined in
the Security Agreement) shall have been received by the Agent.
(ii) LIEN SEARCH. The Borrower shall have delivered to
the Agent the results of a Lien search made against the Borrowers and
its Domestic Subsidiaries under the UCC with respect to central filings
as in effect in any state in which any of its assets are located,
indicating among other things that assets of the Borrower and its
Domestic Subsidiaries are free and clear of any Lien except for
Permitted Liens; PROVIDED that, so long as such central filing Lien
search has been initiated in all applicable jurisdictions prior to the
date hereof, this closing condition shall be deemed satisfied with
regard to any jurisdiction for which the results of such Lien search
are unavailable (unless such unavailability is caused by the Borrower
or its Subsidiaries) so long as the Borrower identifies to the Agent,
in writing, (A) each such jurisdiction for which Lien search results
are unavailable and (B) the reasons for such unavailability.
(d) CONSENTS; DEFAULTS.
(i) GOVERNMENTAL AND THIRD PARTY APPROVALS. The Borrower
shall have obtained all necessary approvals, authorizations and
consents of any Person and of all Governmental Authorities and courts
having jurisdiction with respect to the transactions contemplated by
this First Amendment.
(ii) NO INJUNCTION, ETC. No action, proceeding,
investigation, regulation or legislation shall have been instituted,
threatened or proposed before any governmental authority to enjoin,
restrain, or prohibit, or to obtain substantial damages in respect of,
or which is related to or arises out of this First Amendment or the
other Loan Documents executed in connection therewith or the
consummation of the transactions contemplated hereby or thereby, or
which, in the Agent's sole discretion, would make it inadvisable to
consummate the transactions contemplated by this First Amendment and
such other Loan Documents.
(iii) NO EVENT OF DEFAULT. Except with respect to
covenants, representations, warranties and other agreements amended by
this First Amendment, no Default or Event of Default shall have
occurred and be continuing.
6
<PAGE>
(iv) PAYMENT AT CLOSING; FEE LETTERS. The Borrower shall
have paid all accrued and unpaid fees or commissions due hereunder
(including, without limitation, the fees referenced in the fee letter
dated as of October 12, 1998 between the Borrower and the Agent and all
legal fees and expenses of the Agent) to the Agent and Lenders, and to
any other Person such amount as may be due thereto in connection with
the transactions contemplated hereby, including all taxes, fees and
other charges in connection with the execution, delivery, recording,
filing and registration of any of the Loan Documents executed in
connection herewith.
(e) MISCELLANEOUS. All opinions, certificates and other
instruments and all proceedings in connection with the transactions
contemplated by this First Amendment shall be satisfactory in form and
substance to the Lenders. The Lenders shall have received copies of all
other instruments and other evidence as the Lender may reasonably
request, in form and substance satisfactory to the Lenders, with
respect to the transactions contemplated by this First Amendment and
the taking of all actions in connection therewith.
SECTION 4. REPRESENTATIONS AND WARRANTIES; NO DEFAULT.
SECTION 4.1. By its execution hereof, the Borrower hereby
certifies on behalf of itself and each of its Subsidiaries that each of the
representations and warranties (as amended hereby) set forth in the Credit
Agreement (excluding, however, those contained in SECTION 6.7 of the Credit
Agreement) and the other Loan Documents is true and correct as of the date
hereof (unless such representations and warranties are stated to relate solely
to an earlier date), in which case such representations and warranties shall be
true and correct as of such earlier date as if fully set forth herein; PROVIDED,
that the representations and warranties contained in SECTION 6.5 of the Credit
Agreement shall be deemed to relate to the July 7, 1998 financial information
delivered to the Agent and Lenders.
SECTION 4.2. Borrower hereby represents to the Agent and each
Lender that, except as previously disclosed by the Borrower to the Agent and the
Lenders pursuant to SECTION 6.7 of the Credit Agreement;
(a) no labor controversy, litigation, arbitration or
governmental investigation or proceeding is pending or, to the
knowledge of the Borrower, threatened against the Borrower or any of
its Subsidiaries which might materially adversely affect the Borrower's
consolidated business, operations, assets, financial condition or
properties or which purports to affect the legality, validity or
enforceability of the Credit Agreement, the Notes or any other Loan
Document; and
(b) no development shall have occurred in any labor
controversy, litigation, arbitration or governmental investigation or
proceeding previously disclosed pursuant to SECTION 6.7 of the Credit
Agreement which might materially adversely affect the consolidated
businesses, operations, assets, financial condition or properties of
the Borrower and its Subsidiaries.
7
<PAGE>
SECTION 4.3. Borrower hereby represents to the Agent and each
Lender that, as of the date hereof, except with respect to covenants,
representations and warranties and other agreements amended by this First
Amendment, no Default or Event of Default has occurred and is continuing under
the Credit Agreement and, after giving effect to the transactions contemplated
hereby, no Default or Event of Default has occurred and is continuing under the
Credit Agreement.
SECTION 5. LIMITED FIRST AMENDMENT AND RESTATEMENT. Except as expressly
amended herein, (a) the Credit Agreement and each other Loan Document shall
continue to be, and shall remain, in full force and effect (including all
monetary limitations and other restrictions applicable to the Borrower and its
Subsidiaries and Affiliates) as in existence immediately prior to the date
hereof and (b) this First Amendment shall not be deemed (i) to be a waiver of,
or consent to, or a modification or amendment of, any other term or condition of
the Credit Agreement or any other Loan Documents or (ii) to prejudice any other
right or rights which the Agent or Lenders may now have or may have in the
future under or in connection with the Credit Agreement or the Loan Documents or
any of the instruments or agreements referred to therein, as the same may be
amended, restated or otherwise modified from time to time.
SECTION 6. EXPENSES. The Borrower shall pay all reasonable
out-of-pocket expenses of the Agent in connection with the preparation,
execution and delivery of this First Amendment, including without limitation,
the reasonable fees and disbursements of counsel for the Administrative Agent.
SECTION 7. CONFIRMATION OF GUARANTY AND PLEDGE, SECURITY AND ASSIGNMENT
AGREEMENTS. (a) Each of the Subsidiary Guarantors hereby acknowledges and
consents to the terms of this First Amendment and confirm that their respective
obligations under the Guaranty shall remain in full force and effect and shall
secure the Obligations of the Borrower under the Credit Agreement as amended by
this First Amendment, (b) the Borrower hereby confirms that its obligations
under the Pledge, Security and Assignment Agreement shall remain as amended by
this First Amendment in full force and effect and shall secure the Obligations
of the Borrower under the Credit Agreement and (c) each party hereto
acknowledges and consents to the terms of the Credit Agreement as amended by
this First Amendment and confirms the validity and enforceability of each Loan
Documents.
SECTION 8. GOVERNING LAW. This First Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 9. COUNTERPARTS. This First Amendment may be executed in
separate counterparts, each of which when executed and delivered is an original
but all of which taken together constitute one and the same instrument.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed as of the date and year first above written.
8
<PAGE>
BORROWER:
[CORPORATE SEAL] THE SPORTS AUTHORITY, INC.
By: /s/ A. F. CRUDELE
---------------------------------------
Name: Anthony F. Crudele
Title: Senior Vice President and
Chief Financial Officer
AGREED TO AND ACKNOWLEDGED BY:
SUBSIDIARIES OF THE BORROWER:
[CORPORATE SEAL] AUTHORITY INTERNATIONAL, INC.
By: /s/ A. F. CRUDELE
---------------------------------------
Name: Anthony F. Crudele
Title: Senior Vice President and
Chief Financial Officer
[Signature Pages Continue]
9
<PAGE>
[CORPORATE SEAL] OSR, INC.
By: /s/ A. F. CRUDELE
---------------------------------------
Name: Anthony F. Crudele
Title: Senior Vice President and
Chief Financial Officer
[CORPORATE SEAL] THE SPORTS AUTHORITY CANADA,
INC.
By: /s/ A. F. CRUDELE
---------------------------------------
Name: Anthony F. Crudele
Title: Senior Vice President and
Chief Financial Officer
[CORPORATE SEAL] THE SPORTS AUTHORITY FLORIDA,
INC.
By: /s/ A. F. CRUDELE
---------------------------------------
Name: Anthony F. Crudele
Title: Senior Vice President and
Chief Financial Officer
[CORPORATE SEAL] THE SPORTS AUTHORITY MICHIGAN,
INC.
By: /s/ A. F. CRUDELE
---------------------------------------
Name: Anthony F. Crudele
Title: Senior Vice President and
Chief Financial Officer
10
<PAGE>
FIRST UNION NATIONAL BANK
(on behalf of itself and as successor by
merger to CoreStates, N.A.)
By: /S/ IRENE ROSEN MARKS
------------------------------------
Name: IRENE ROSEN MARKS
Title: VICE PRESIDENT
[Signature Pages Continue]
11
<PAGE>
FLEET NATIONAL BANK
By: /S/ THOMAS J. BULLARD
----------------------------------
Name:THOMAS J. BULLARD
Title: VICE PRESIDENT
[Signature Pages Continue]
12
<PAGE>
COMERICA BANK
By:/S/ MARTIN G. ELLIS
-------------------------------
Name: MARTIN G. ELLIS
Title: VICE PRESIDENT
[Signature Pages Continue]
13
<PAGE>
THE BANK OF NEW YORK
By: /S/ PAULA REGAN
------------------------
Name: PAULA REGAN
Title: VICE PRESIDENT
[Signature Pages Continue]
14
<PAGE>
THE DAI-ICHI KANGYO BANK, LIMITED
ATLANTA AGENCY
By:/S/ TATSUJI NOGUCHI
--------------------------------------
Name: TATSUJI NOGUCHI
Title: CHIEF REPRESENTATIVE
[Signature Pages Continue]
15
<PAGE>
SUNTRUST BANK, SOUTH FLORIDA, N.A.
By:/S/ JEFFREY S. WOLFE
-------------------------------------
Name: JEFFREY S. WOLFE
Title: VICE PRESIDENT
[Signature Pages Continue]
16
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By:/S/ J. WILLIAM BLOORE
----------------------------------------
Name: J. WILLIAM BLOORE
Title: VICE PRESIDENT
[Signature Pages Continue]
17
<PAGE>
WACHOVIA BANK, N.A.
By:/S/ SHAWN JANKO
---------------------------------------------
Name: SHAWN JANKO
Title: BANKING OFFICER
[Signature Pages Continue]
18
<PAGE>
BANK OF MONTREAL
By: /S/ THOMAS E. MCGRAW
----------------------------------------
Name: THOMAS E. MCGRAW
Title: DIRECTOR
[Signature Pages Continue]
19
<PAGE>
THE FUJI BANK AND TRUST COMPANY
By:/S/ RAYMOND VENTURA
-------------------------------------
Name: RAYMOND VENTURA
Title: VICE PRESIDENT & MANAGER
20
<PAGE>
EXHIBIT A
TO
FIRST AMENDMENT
21
<PAGE>
FORM OF BORROWING BASE CERTIFICATE
BORROWING BASE CERTIFICATE
THE SPORTS AUTHORITY, INC.
Date: ____________________
First Union National Bank,
as Administrative Agent
One First Union Center, 4th Floor
301 South College Street
Charlotte, North Carolina 28288-0608
Attn: Syndication Agency Services
Telephone: 383-0281
Facsimile: 383-0288
- --------------------------------------------------------------------------------
(1) Net Inventory of the Borrower and its Domestic
Subsidiaries determined in accordance with GAAP as $______________
of fiscal month ending
_________________________
- --------------------------------------------------------------------------------
(2) Less Inventory deemed ineligible pursuant to
written notice to the Borrower in accordance
with the Credit Agreement __________
TOTAL INELIGIBLES __________
(3) Eligible Inventory (Line 1 minus Line 2) $______________
- --------------------------------------------------------------------------------
(4) BORROWING BASE: 50% of Line 3.
Eligible Inventory $______________
- --------------------------------------------------------------------------------
For the purpose of inducing the lenders party thereto (the "Lenders") to
continue to make loans or advances to THE SPORTS AUTHORITY, INC., a Delaware
corporation (the "Borrower") pursuant to the terms of the Amended and Restated
Credit Agreement dated December 22, 1997 (as amended, restated or otherwise
modified, the "Credit Agreement") by and among the Borrower, certain
Subsidiaries of the Borrower identified on the signature pages thereto, the
Lenders, the Agent and the Co-Agent, and the Loan Documents executed in
connection therewith, the undersigned hereby certifies to the Agent and Lenders
that: the foregoing Borrowing Base Certificate is true and correct in all
respects and is consistent with the books and records of the Borrower and its
Subsidiaries
THE SPORTS AUTHORITY, INC.
By:
-----------------------------------------
Name:
Title:
22
<PAGE>
EXHIBIT B
TO
FIRST AMENDMENT
FORM OF SECURITY AGREEMENT
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (as amended, restated or otherwise modified,
this "Agreement"), dated as of October ____,1998 by and among THE SPORTS
AUTHORITY, INC., a corporation organized under the laws of Delaware (the
"Borrower") and the Subsidiaries of the Borrower identified on the signature
pages attached hereto (the "Subsidiary Grantors", and together with the Borrower
and each additional Grantor who executes a Security Agreement Supplement
substantially in the form of EXHIBIT A hereto, the "Grantors", each
individually, a "Grantor"), and FIRST UNION NATIONAL BANK, as administrative
agent (the "Agent") for the benefit of itself and the lenders (the "Lenders")
who are, or may become, parties to the Credit Agreement referred to below.
STATEMENT OF PURPOSE
Pursuant to the Amended and Restated Credit Agreement dated as of
December 22, 1997, by and among the Borrower, the Subsidiaries of the Borrower
identified on the signature pages thereto, the Lenders, the Agent and Fleet
National Bank, as Co-Agent (as amended, restated or otherwise modified, the
"Credit Agreement"), the Lenders have agreed to make certain extensions of
credit to the Borrower as more particularly described therein. Terms defined in
the Credit Agreement and not otherwise defined herein, when used in this
Agreement including its preamble and recitals, shall have the respective
meanings provided for in the Credit Agreement, as amended by the First
Amendment.
Pursuant to the Credit Agreement, the Lenders required that the
Domestic Subsidiaries of the Borrower execute and deliver a guaranty agreement
to secure the Obligations.
Because of certain changes in the Borrower's financial condition, the
Borrower has requested that the Lenders agree to certain amendments to the
Credit Agreement. Pursuant to the terms and conditions of the First Amendment to
the Credit Agreement dated as of even date herewith by and among the Borrower,
certain Subsidiaries of the Borrower identified on the signature pages thereto,
the Lenders, the Agent and the Co-Agent, the Lenders are willing to agree to
such amendments.
In connection with the transactions contemplated by the First Amendment
and as a condition precedent thereto, the Lenders have requested and the
Grantors have agreed to grant a continuing security interest in and to the
"Collateral" (as hereinafter defined) to secure the "Secured Obligations" (as
hereinafter defined).
23
<PAGE>
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and to induce the Lenders to continue to make available extensions
of credit pursuant to the Credit Agreement, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. The following terms, when used in this
Agreement, shall have the following meanings:
"ACCOUNT DEBTOR" means any Person who is or may become obligated to any
Grantor under, with respect to, or on account of, an Account.
"ACCOUNTS" means "Accounts" as defined in the UCC, whether secured or
unsecured, now existing or hereafter created, now or hereafter owned or acquired
by any Grantor or in which any Grantor now or hereafter has or acquires any
right or interest.
"ACCOUNTS AGING REPORT" means an aged trial balance of all Accounts
existing as of a specified date, in a form reasonably satisfactory to the Agent,
specifying the names, addresses, face value and dates of invoices of each
Account Debtor obligated on any Accounts so listed.
"COLLATERAL" shall have the meaning given in SECTION 2(A) of this
Agreement.
"COLLATERAL ACCOUNT" means a cash collateral account established by the
Grantors with the Agent, in the name and under the exclusive dominion and
control of the Agent, pursuant to SECTION 6 hereof.
"FINANCING STATEMENTS" shall mean the Uniform Commercial Code Form
UCC-1 Financing Statements executed by the Grantors with respect to the
Collateral and to be filed in the jurisdictions set forth in the Perfection
Certificate.
"INSTRUMENTS" means all "instruments", "chattel paper" or "letters of
credit" (each as defined in the UCC) to the extent they are evidencing,
representing, arising from or existing in respect of, relating to, securing or
otherwise supporting the payment of, any of the Accounts, including (but not
limited to) promissory notes, drafts, bills of exchange and trade acceptances,
now or hereafter owned or acquired by such Grantor or in which such Grantor now
or hereafter has or acquires any right or interest.
"INVENTORY" means all "inventory" as defined in the UCC wherever
located, including without limitation, all goods manufactured or acquired for
sale or lease and all raw materials, work-in-process and finished goods, whether
now or hereafter owned or acquired by any Grantor or in which such Grantor now
or hereafter has or acquires any right or interest.
"PERFECTION CERTIFICATE" means a certificate dated as of even date
herewith, substantially in the form of EXHIBIT B attached hereto, setting forth
the corporate or other names, chief executive office or principal place of
business in each state and other current locations of each Grantor and such
other
24
<PAGE>
information as the Agent deems reasonably necessary for the perfection of the
security interests granted hereunder, completed and supplemented with the
schedules and attachments contemplated thereby to the reasonable satisfaction of
the Agent, and certified by the Chief Executive Officer, President, any
Executive Vice President, Chief Financial Officer or Treasurer of each Grantor
so authorized to act.
"PERMITTED LIENS" means all Liens respecting the Collateral permitted
pursuant to Section 7.2.3 of the Credit Agreement.
"PROCEEDS" means all proceeds (as defined by the UCC) of, and all other
profits, rentals or receipts, in whatever form, arising from the collection,
sale, lease, exchange, assignment, licensing or other disposition of, or
realization upon, Collateral, including, without limitation, all claims of any
Grantor against third parties for loss of, damage to or destruction of, or for
proceeds payable under, or unearned premiums with respect to, policies of
insurance in respect of, any Collateral, and any condemnation or requisition
payments with respect to any Collateral and all Collateral acquired with the
cash proceeds of any other Collateral.
"SCHEDULE OF INVENTORY" means a schedule of Inventory based upon each
Grantor's most recent physical inventory and its perpetual inventory records, in
a form reasonably satisfactory to the Agent.
"SECURED OBLIGATIONS" means (a) with respect to the Borrower, the
Obligations as defined in the Credit Agreement and (b) with respect to any
Subsidiary Guarantor, the obligations of such Subsidiary Guarantor under the
Guaranty and any renewals or extensions of any of the obligations thereunder.
"SECURITY INTERESTS" means the security interests granted by the
Grantors to the Agent hereby in respect of the Collateral.
"TAX REFUND" means all tax refund claims and any rights to receive a
refund, rebate or payment from any taxing authority.
"UCC" means the Uniform Commercial Code as in effect in the State of
New York; PROVIDED that, if by reason of mandatory provisions of law, the
perfection or the effect of perfection or non-perfection of the Security
Interests in any Collateral is governed by the Uniform Commercial Code as in
effect in a jurisdiction other than New York, "UCC" means the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such perfection or effect of perfection or non-perfection.
SECTION 2. THE SECURITY INTERESTS.
(a) In order to secure the payment when due of the Secured Obligations,
each Grantor hereby grants to the Agent, for the ratable benefit of itself and
the Lenders, a continuing security interest in and to all of such Grantors'
estate, right, title and interest in and to all of the following property,
whether now or hereafter owned or acquired by such Grantor or in which such
Grantor now has or hereafter has or acquires any estate, right, title or
interest, and whenever located (collectively,
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along with any other property of such Grantor which may from time to time secure
the Secured Obligations pursuant to the terms of this Agreement, the
"Collateral"):
(i) Accounts (including all Instruments);
(ii) Tax Refund;
(iii) Inventory;
(iv) The Collateral Account, all cash deposited therein from
time to time, the investments made pursuant to SECTION 6 and other
monies and property of any kind of any Grantor in the possession or
under the control of the Agent or any Lender;
(v) All products and Proceeds of all or any of the
Collateral described in clauses (i) through (iii) hereof.
(b) The Security Interests are granted as security only and shall not
subject the Agent or any Lender to, or transfer to the Agent or any Lender, or
in any way affect or modify, any obligation or liability of any Grantor with
respect to any of the Collateral or any transaction in connection therewith.
SECTION 3. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and
warrants to the Agent and each Lender as follows:
(a) Such Grantor has the corporate or other applicable power and
authority and the legal right to execute and deliver, to perform its obligations
under, and to grant the Security Interests in the Collateral owned by it
pursuant to, this Agreement and has taken all necessary corporate action to
authorize its execution, delivery and performance of, and grant of the Security
Interests on the Collateral pursuant to, this Agreement.
(b) This Agreement constitutes a legal, valid and binding obligation of
such Grantor enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies.
(c) Such Grantor is the sole owner of, and has good, indefeasible and
marketable title to, all of its respective Collateral owned by it, free and
clear of any Liens other than Permitted Liens.
(d) Other than financing statements or other similar or equivalent
documents or instruments with respect to Permitted Liens, no financing
statement, mortgage, security agreement or similar or equivalent document or
instrument covering all or any part of the Collateral is on file or of record in
any jurisdiction. No Collateral of such Grantor is in the possession of any
Person (other than the Grantors) asserting any claim thereto or security
interest therein, except that the Agent or its designee may have possession of
Collateral as contemplated hereby and a bailee, warehouseman, agent
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or processor may have possession of the Collateral as contemplated by, and so
long as, the Grantors have complied with, SECTION 4(C)(III) and SECTION 4(C)(IV)
hereof.
(e) All of the information set forth in the Perfection Certificate
relating to such Grantor is true and correct as of the date hereof.
(f) Such Grantor has, contemporaneously herewith, delivered to the
Agent possession of all originals of all negotiable Instruments constituting
Collateral currently owned or held by such Grantor, if any (duly endorsed in
blank, if requested by the Agent).
(g) With respect to any Inventory of such Grantor: (i) all Inventory of
such Grantor is, and shall be at all times, located in the States listed in the
Perfection Certificate or as to which such Grantor has complied with the
provisions of SECTION 4(A)(I) hereof, except Inventory in transit from one
Grantor's location to another Grantor's location and (ii) no Inventory is, nor
shall at any time or times be, subject to any Lien whatsoever, except for
Permitted Liens.
(h) The Financing Statements are in appropriate form and when filed in
the offices specified in the Perfection Certificate, the Security Interests will
constitute valid and perfected security interests in the Collateral, prior to
all other Liens and rights of others therein (to the extent that a security
interest therein may be perfected by filing pursuant to the UCC) and all filings
and other actions necessary or desirable to perfect and protect such Security
Interests have been duly taken.
SECTION 4. FURTHER ASSURANCES; COVENANTS.
(a) GENERAL.
(i) No Grantor will change the location of its chief executive
office or principal place of business in any state unless it shall have
given the Agent thirty (30) days prior written notice thereof, executed
and delivered to the Agent all financing statements and financing
statement amendments which the Agent may request in connection
therewith and, if reasonably requested by the Agent, delivered an
opinion of counsel with respect thereto in accordance with SECTION
4(A)(V) hereof. No Grantor shall change the locations where it keeps or
holds any Collateral or any records relating thereto from any
applicable location described in the Perfection Certificate unless such
Grantor shall have given the Agent thirty (30) days prior written
notice of such change of location, executed and delivered to the Agent
all financing statements and financing statement amendments which the
Agent may request in connection therewith and, if reasonably requested
by the Agent, delivered an opinion of counsel with respect thereto in
accordance with SECTION 4(A)(V) hereof; PROVIDED, HOWEVER, that any
Grantor may keep Inventory at, or in transit to, any location described
in the Perfection Certificate. No Grantor shall in any event change the
location of any Collateral if such change would cause the Security
Interests in such Collateral to lapse or cease to be perfected.
(ii) No Grantor will change its name, identity or corporate or
other structure in any manner unless it shall have given the Agent
thirty (30) days prior written notice thereof,
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executed and delivered to the Agent all financing statements and
financing statement amendments which the Agent may request in
connection therewith, and, if reasonably requested by the Agent,
delivered an opinion of counsel with respect thereto in accordance with
SECTION 4 (A)(V) hereof.
(iii) The Grantors will maintain the Agent's Lien on the
Collateral as a first priority perfected Lien thereon, except for the
Permitted Liens. Each Grantor will, from time to time, at its expense,
execute, deliver, file and record any statement, assignment,
instrument, document, agreement or other paper and take any other
action (including, without limitation, any filings of financing or
continuation statements under the UCC) that from time to time may be
necessary, or that the Agent may reasonably request, in order to
create, preserve, upgrade in rank (to the extent required hereby),
perfect, confirm or validate the Security Interests or to enable the
Agent to exercise and enforce any of its rights, powers and remedies
hereunder with respect to any of the Collateral. Prior to the
irrevocable payment in full of the Secured Obligations, to the extent
required by the immediately preceding sentence, each Grantor hereby
authorizes the Agent, upon the failure of any Grantor to so do within
ten (10) Business Days after receipt of notice in writing from the
Agent, to execute and file financing statements, financing statement
amendments or continuation statements without such Grantor's signature
appearing thereon. Each Grantor agrees that, except as otherwise
required by law, a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement is
sufficient as a financing statement. The Grantors shall pay the
reasonable costs of, or incidental to, any recording or filing of the
Financing Statements and any other financing statements, financing
statement amendments or continuation statements concerning the
Collateral required to be made pursuant to this SECTION 4(A).
(iv) Each Grantor will, promptly upon request, provide to the
Agent all information and evidence the Agent may reasonably request
concerning the Collateral, and in particular the Accounts, to enable
the Agent to enforce the provisions of this Agreement.
(v) Prior to each date on which any Grantor proposes to take
any action contemplated by SECTION 4(A)(I) or SECTION 4 (A)(II) hereof,
if reasonably requested by the Agent, such Grantor shall, at its cost
and expense, cause to be delivered to the Agent and the Lenders an
opinion of counsel, satisfactory to the Agent, to the effect that all
financing statements and amendments or supplements thereto,
continuation statements and other documents required to be recorded or
filed in order to perfect and protect the Security Interests and
priority thereof against all creditors of and purchasers from such
Grantor have been filed in each filing office necessary or desirable
for such purposes and that all filing fees and taxes, if any, payable
in connection with such filings have been paid in full.
(vi) Each Grantor will pay when due all material taxes,
assessments and governmental charges or levies imposed upon the
Collateral or in respect of its income or profits therefrom, as well as
all material claims of any kind (including, without limitation, claims
for labor, materials and supplies) against or with respect to the
Collateral, except that no such charge need be paid if (A) the validity
thereof is being contested in good faith by appropriate
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proceedings, (B) such proceedings do not involve any danger of the
sale, forfeiture or loss of, or creation of a Lien on, any of the
Collateral or any interest therein and (C) such charge is adequately
reserved against on such Grantor's books in accordance with GAAP.
(vii) The Grantors shall not
(1) sell, assign (by operation of law or otherwise)
or otherwise dispose of any of the Collateral, except as
permitted by the Credit Agreement or hereunder ; or
(2) create or suffer to exist any Lien or other
charge or encumbrance upon or with respect to any of the
Collateral to secure indebtedness of any Person or entity
other than Permitted Liens.
(b) ACCOUNTS, ETC.
(i) Each Grantor shall use all reasonable efforts in
accordance with past practice to cause to be collected from its Account
Debtors, as and when due, any and all amounts owing under or on account
of each Account (including, without limitation, Accounts which are
delinquent, such Accounts to be collected in accordance with past
practices) and to apply upon receipt thereof all such amounts as are so
collected to the outstanding balance of such Account. The costs and
expenses (including, without limitation, attorney's fees) of collection
of Accounts incurred by such Grantor or the Agent shall be borne by
such Grantor.
(ii) Upon the occurrence and during the continuance of an
Event of Default, upon request of the Agent or the Required Lenders,
each Grantor will promptly notify (and each Grantor hereby authorizes
the Agent so to notify) each Account Debtor in respect of any Account
that such Account has been assigned to the Agent hereunder and that any
payments due or to become due in respect of such Account are to be made
directly to the Agent or its designee.
(iii) Each Grantor will perform and comply in all material
respects with all of its material obligations in respect of its
Accounts and the exercise by the Agent of any of its rights hereunder
shall not release such Grantor from any of its duties or obligations.
(iv) No Grantor will (A) amend, modify, terminate or waive any
material provision of any agreement giving rise to an Account in any
manner which could reasonably be expected to materially adversely
affect the value of the Collateral, taken as a whole, (B) fail to
exercise promptly and diligently each and every material right which it
may have under each agreement giving rise to an Account (other than any
right of termination) which could reasonably be expected to materially
adversely affect the value of the Collateral, taken as a whole, or (C)
fail to deliver to the Agent a copy of each written material demand,
notice or document received by it which could reasonably be expected to
materially adversely affect the value of the Collateral, taken as a
whole, relating in any way to any material agreement giving rise to an
Account.
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(v) Other than in the ordinary course of business as generally
conducted by each Grantor, no Grantor will (A) grant any extension of
the time of payment of any of the Accounts or (B) compromise, compound
or settle the same for less than the full amount thereof, release,
wholly or partially, any Person liable for the payment thereof, or
allow any credit or discount whatsoever thereon.
(vi) At the request of the Agent or the Required Lenders, and
within fifteen (15) days after the end of each fiscal month after the
occurrence and during the continuance of an Event of Default, the
Grantors shall deliver to the Agent and each Lender an Accounts Aging
Report.
(c) INVENTORY, ETC.
(i) At the request of the Agent or Required Lenders, and
within fifteen (15) days after the end of each fiscal month after the
occurrence and during the continuance of an Event of Default, the
Grantors shall deliver to the Agent and each Lender a Schedule of
Inventory. Unless otherwise indicated thereon or in writing by the
Grantors, each Schedule of Inventory delivered by the Grantors to the
Agent shall constitute a representation with respect to the Inventory
listed thereon or referred to therein that: (A) all such Inventory is
located at places of business listed in the Perfection Certificate or
as to which the applicable Grantor has complied with the provisions of
SECTION 4(A)(I) hereof or on the premises identified on the then
current Schedule of Inventory or is Inventory in transit from one such
location to another such location and (B) no such Inventory is subject
to any Lien whatsoever, except for Permitted Liens.
(ii) Each Grantor will cause the Agent, for the ratable
benefit of itself and the Lenders, to be named as loss payee on each
insurance policy covering risks relating to any of its Inventory, as
reasonably requested by the Agent. Each Grantor will deliver to the
Agent, upon request of the Agent, copies of the insurance policies for
such insurance. Each such insurance policy shall provide that all
insurance proceeds shall be adjusted with and payable to the Agent, and
provide that no cancellation or termination thereof shall be effective
until at least thirty (30) days have elapsed after receipt by the Agent
of written notice thereof. The Agent agrees that, as long as no Default
or Event of Default has occurred and is continuing, any such net cash
proceeds received by it shall be promptly paid over to the Grantors.
(d) INDEMNIFICATION. Each Grantor agrees to pay, and to save the Agent
and the Lenders harmless from, any and all liabilities, reasonable costs and
expenses (including, without limitation, reasonable legal fees and expenses)
incurred by the Agent or any Lenders (i) with respect to, or resulting from, any
and all excise, sales or other taxes which may be payable or determined to be
payable with respect to any of the Collateral, (ii) with respect to, or
resulting from, complying with any applicable law applicable to any of the
Collateral or (iii) in connection with any of the transactions contemplated by
this Agreement (except to the extent any such liabilities, costs and expenses
result from the gross negligence or willful misconduct of the Agent or Lenders).
In any suit, proceeding or action brought by the Agent under any Account for any
sum owing thereunder, or to enforce any
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provisions of any Account, each Grantor will save, indemnify and keep the Agent
and the Lenders harmless from and against all expense, loss or damage suffered
by the Agent or any Lender by reason of any defense, setoff, counterclaim,
recoupment or reduction or liability whatsoever of the Account Debtor or any
other obligor thereunder, arising out of a breach by any Grantor of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such Account Debtor or obligor or
its successors from any Grantor (except to the extent any such expense, loss or
damage results from the gross negligence or willful misconduct of the Agent or
Lenders). The obligations of the Grantors under this SECTION 4(D) shall survive
the termination of the other provisions of this Agreement.
SECTION 5. REPORTING AND RECORDKEEPING. Each Grantor respectively
covenants and agrees with the Agent and the Lenders that from and after the date
of this Agreement and until the Commitments have terminated and all Secured
Obligations have been fully satisfied:
(a) MAINTENANCE OF RECORDS GENERALLY. Each Grantor will keep and
maintain at its own cost and expense adequate records of the Collateral,
including, without limitation, a record of all payments received and all credits
granted with respect to the Collateral and all other dealings with the
Collateral in accordance with past practices. All chattel paper given to such
Grantor with respect to any Accounts will be marked with the following legend:
"THIS WRITING AND THE OBLIGATIONS EVIDENCED OR SECURED HEREBY ARE SUBJECT TO THE
SECURITY INTEREST OF FIRST UNION NATIONAL BANK, AS AGENT". For the Agent's and
the Lenders' further security, each Grantor agrees that upon the occurrence and
during the continuation of any Event of Default, upon the request of the Agent
or the Required Lenders, such Grantor shall deliver and turn over any such books
and records directly to the Agent or its designee. Each Grantor shall permit any
representative of the Agent to inspect such books and records in accordance with
Section 7.1.5. of the Credit Agreement and will provide photocopies thereof to
the Agent upon its reasonable request.
(b) CERTAIN PROVISIONS REGARDING MAINTENANCE OF RECORDS AND REPORTING
RE: ACCOUNTS.
(i) In the event any amounts due and owing in excess of
$5,000,000 in the aggregate are in dispute between any Account Debtor
and any Grantor, such Grantor shall provide the Agent with written
notice thereof promptly after such Grantor's learning thereof,
explaining the reason for the dispute, all claims related thereto and
the amount in controversy.
(ii) Each Grantor will promptly notify the Agent in writing if
any Account or Accounts, the face value of which exceeds $5,000,000 in
the aggregate, arises or arise out of a contract with the United States
of America, or any department, agency, subdivision or instrumentality
thereof, or of any state (or department, agency, subdivision or
instrumentality thereof) where such state has a state assignment of
claims act or other law comparable to the Federal Assignment of Claims
Act. Each Grantor will take any action required or requested by the
Agent or give notice of the Agent's Security Interest in such Accounts
under the provisions of the Federal Assignment of Claims Act or any
comparable law or act enacted by any state or local Governmental
authority. Any notifications or other documents executed and delivered
to
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the Agent in connection with the Federal Assignment of Claims Act or
any comparable state law may be promptly filed with the appropriate
Governmental authority by the Agent or held by the Agent until the
Agent or the Required Lenders decide in its or their sole discretion to
make any such filing.
(iii) The Grantors will promptly upon, but in no event later
than ten (10) Business Days after: (A) the Grantors learning thereof,
inform the Agent, in writing, of any material delay in such Grantor's
performance of any of its obligations to any Account Debtor and of any
assertion of any claims, offsets or counterclaims by any Account Debtor
and of any allowances, credits and/or other monies granted by such
Grantor to any Account Debtor, in each case involving amounts in excess
of $5,000,000 in the aggregate for all Accounts and Account Debtors;
and (B) the Grantors receipt or learning thereof, furnish to and inform
the Agent of any adverse information that, to the knowledge of the
Grantors, could reasonably be expected to materially adversely affect
the financial condition of any Account Debtor with respect to Accounts
exceeding $5,000,000 in the aggregate.
(c) FURTHER IDENTIFICATION OF COLLATERAL. Each Grantor will, if so
reasonably requested by the Agent, furnish to the Agent statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as the Agent may reasonably request, all in
reasonable detail.
(d) NOTICES. In addition to the notices required by SECTION 5(B)
hereof, each Grantor will advise the Agent promptly, in reasonable detail, (i)
of any material Lien or claim made or asserted against any of the Collateral (in
excess of $10,000,000), and (ii) of the occurrence of any other event which
could reasonably be expected to have a material adverse effect on the
Collateral, taken as a whole, or on the validity, perfection or priority of the
Security Interests.
SECTION 6. COLLATERAL ACCOUNT.
(a) There is hereby established with the Agent a Collateral Account in
the name and under the exclusive dominion and control of the Agent. There shall
be deposited from time to time into such account the cash proceeds of the
Collateral required to be delivered to the Agent pursuant to SECTION 6(B) hereof
or any other provision of this Agreement. Any income received by the Agent with
respect to the balance from time to time standing to the credit of the
Collateral Account, including any interest or capital gains on investments of
amounts on deposit in the Collateral Account, shall remain, or be deposited, in
the Collateral Account together with any investments from time to time made
pursuant to subsection (c) of this SECTION 6, shall vest in the Agent, shall
constitute part of the Collateral hereunder and shall not constitute payment of
the Secured Obligations until applied thereto as hereinafter provided.
(b) Upon the occurrence and during the continuance of an Event of
Default, if requested by the Agent, each Grantor shall instruct all Account
Debtors and other Persons obligated in respect of all Accounts to make all
payments in respect of the Accounts either (i) directly to the Agent (by
instructing that such payments be remitted to a post office box which shall be
in the name and under
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the exclusive dominion and control of the Agent) or (ii) to one or more other
banks in any state in the United States (by instructing that such payments be
remitted to a post office box which shall be in the name and under the exclusive
dominion and control of such bank) under a Lockbox Letter substantially in the
form of EXHIBIT C hereto duly executed by each Grantor and such bank or under
other arrangements, in form and substance reasonably satisfactory to the Agent,
pursuant to which such Grantor shall have irrevocably instructed such other bank
(and such other bank shall have agreed) to remit all proceeds of such payments
directly to the Agent for deposit into the Collateral Account or as the Agent
may otherwise instruct such bank, and thereafter if the proceeds of any
Collateral shall be received by any of the Grantors, such Grantor will promptly
deposit such proceeds into the Collateral Account and until so deposited, all
such proceeds shall be held in trust by such Grantor for and as the property of
the Agent, for the benefit of itself and the Lenders and shall not be commingled
with any other funds or property of such Grantor. At any time after the
occurrence and during the continuance of an Event of Default, the Agent may
itself so instruct each Grantor's Account Debtors. All such payments made to the
Agent shall be deposited in the Collateral Account.
(c) Amounts on deposit in the Collateral Account shall be promptly
liquidated and applied to the payment of the Secured Obligations in the manner
specified in SECTION 10 hereof.
SECTION 7. GENERAL AUTHORITY.
(a) The Grantors hereby irrevocably appoint, after the occurrence and
during the continuance of an Event of Default, the Agent their true and lawful
attorney, with full power of substitution, in the name of each Grantor, the
Agent, the Lenders or otherwise, for the sole use and benefit of the Agent and
the Lenders, but at the Grantors' expense, to exercise, at any time from time to
time all or any of the following powers:
(i) to file the Financing Statements and any financing
statements, financing statement amendments and continuation statements
referred to in SECTIONS 4(A)(I), 4(A)(II), 4(A)(III) and 4(C)(IV)
hereof;
(ii) to demand, sue for, collect, receive and give acquittance
for any and all monies due or to become due with respect to any
Collateral or by virtue thereof;
(iii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect to any Collateral;
(iv) to sell, transfer, assign or otherwise deal in or with
the Collateral and the Proceeds thereof, as fully and effectually as if
the Agent were the absolute owner thereof; and
(v) to extend the time of payment of any or all thereof and to
make any allowance and other adjustments with reference to the
Collateral;
PROVIDED that the Agent shall not take any of the actions described in this
SECTION 7(A) except those described in clause (i) above unless an Event of
Default shall have occurred and be continuing and the
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Agent shall give the Grantors not less than ten (10) Business Days' prior
written notice of the time and place of any sale or other intended disposition
of any of the Collateral, except any Collateral which is perishable or threatens
to decline speedily in value or is of a type customarily sold on a recognized
market. The Grantors agree that any such notice constitutes "reasonable
notification" within the meaning of Section 9-504(3) of the UCC (to the extent
such Section is applicable).
(b) RATIFICATION. The Grantors hereby ratify all that said attorney
shall lawfully do or cause to be done by virtue hereof. The power of attorney
granted pursuant to Section 7(a) is a power coupled with an interest and shall
be irrevocable.
(c) OTHER POWERS. The Grantors also authorize the Agent, after the
occurrence and during the continuance of an Event of Default, at any time and
from time to time, to execute, in connection with the sale provided for in
SECTION 8 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
SECTION 8. REMEDIES UPON EVENT OF DEFAULT.
(a) If any Event of Default has occurred and is continuing, the Agent
may, upon the request of the Required Lenders (and only upon such request),
exercise on behalf of itself and the Lenders all rights of a secured party under
the UCC (whether or not in effect in the jurisdiction where such rights are
exercised) and, in addition, the Agent may, upon the request of the Required
Lenders (and only upon such request), (i) withdraw all cash, if any, in the
Collateral Account and investments made with amounts on deposit in the
Collateral Account, and apply such monies, investments and other cash, if any,
then held by it as Collateral as specified in SECTION 10 hereof and (ii) if
there shall be no such monies, investments or cash or if such monies,
investments or cash shall be insufficient to pay the Secured Obligations then
outstanding in full, sell the Collateral or any part thereof at public or
private sale, for cash, upon credit or for future delivery, and at such price or
prices as the Agent may deem satisfactory. The Agent or any Lender may be the
purchaser of any or all of the Collateral so sold at any public sale (or, if the
Collateral is of a type customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price quotations or if
otherwise permitted under applicable law, at any private sale) and thereafter
hold the same, absolutely, free from any right or claim of whatsoever kind. Each
Grantor will execute and deliver such documents and take such other action as
the Agent deems reasonably necessary or advisable in order that any such sale
may be made in compliance with law. Upon any such sale the Agent shall have the
right to deliver, assign and transfer to the purchaser thereof the Collateral so
sold (without warranty). Each purchaser at any such sale shall hold the
Collateral so sold to it absolutely, free from any claim or right of whatsoever
kind, including any equity or right of redemption of any Grantor. To the extent
permitted by law, each Grantor hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any law now
existing or hereafter adopted. The notice of such sale shall be given to the
Grantors ten (10) Business Days prior to such sale and (A) in case of a public
sale, state the time and place fixed for such sale, and (B) in the case of a
private sale, state the day after which sale may be consummated. Any such public
sale shall be held at such time or times within ordinary business hours and at
such place or places as the Agent may fix in the notice of such sale. At any
such sale the Collateral may be sold in one lot as an entirety or in separate
parcels, as the Agent may determine. The Agent shall not
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be obligated to make any such sale pursuant to any such notice. The Agent may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
same may be so adjourned. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by the Agent until the selling price is paid by the purchaser thereof,
but the Agent shall not incur any liability in case of the failure of such
purchaser to take up and pay for the Collateral so sold and, in case of any such
failure, such Collateral may again be sold upon like notice. The Agent, instead
of exercising the power of sale herein conferred upon it, may proceed by a suit
or suits at law or in equity to foreclose the Security Interests and sell the
Collateral, or any portion thereof, under a judgment or decree of a court or
courts of competent jurisdiction. The Grantors shall remain liable for any
deficiency.
(b) For the purpose of enforcing any and all rights and remedies under
this Agreement, the Agent may (i) require each Grantor to, and each Grantor
agrees that it will, at its expense and upon the request of the Agent, forthwith
assemble all or any part of the Collateral as directed by the Agent and make it
available at a place designated by the Agent which is, in the Agent's opinion,
reasonably convenient to the Agent and such Grantor, whether at the premises of
such Grantor or otherwise, (ii) to the extent permitted by applicable law,
enter, with or without process of law and without breach of the peace, any
premises where any of the Collateral is or may be located and, without charge or
liability to the Agent, seize and remove such Collateral from such premises,
(iii) have access to and use such Grantor's books and records relating to the
Collateral and (iv) prior to the disposition of the Collateral, store or
transfer such Collateral without charge in or by means of any storage or
transportation facility owned or leased by such Grantor, process, repair or
recondition such Collateral or otherwise prepare it for disposition in any
manner and to the extent the Agent deems appropriate.
SECTION 9. LIMITATION ON DUTY OF AGENT IN RESPECT OF COLLATERAL. Beyond
reasonable care in the custody thereof, the Agent shall have no duty as to any
Collateral in its possession or control or in the possession or control of any
agent or bailee or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto. The Agent shall be
deemed to have exercised reasonable care in the custody of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which it accords its own property, and the Agent shall not be liable or
responsible for any loss or damage to any of the Collateral, or for any
diminution in the value thereof, by reason of the act or omission of any
warehouseman, carrier, forwarding agency, consignee or other agent or bailee
selected by the Agent in good faith.
SECTION 10. APPLICATION OF PROCEEDS. Upon the occurrence and during the
continuance of an Event of Default, the proceeds of any sale of, or other
realization upon, all or any part of the Collateral shall be applied by the
Agent in accordance with Section 4.7 of the Credit Agreement, and then to
payment to the Grantors or their successors or assigns, or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds. The Agent may make distribution hereunder in cash or in kind or, on a
ratable basis, in any combination thereof.
SECTION 11. CONCERNING THE AGENT. The provisions of Article IX of the
Credit Agreement shall inure to the benefit of the Agent in respect of this
Agreement and shall be binding upon the parties
35
<PAGE>
to the Credit Agreement in such respect. In furtherance and not in derogation of
the rights, privileges and immunities of the Agent therein set forth:
(a) The Agent is authorized to take all such action as is
provided to be taken by it as Agent hereunder and all other action
incidental thereto. As to any matters not expressly provided for
herein, the Agent may request instructions from the Lenders and shall
act or refrain from acting in accordance with written instructions from
the Required Lenders (or, when expressly required by this Agreement or
the Credit Agreement, all the Lenders) or, in the absence of such
instructions, in accordance with its discretion.
(b) The Agent shall not be responsible for the existence,
genuineness or value of any of the Collateral or for the validity,
perfection, priority or enforceability of the Security Interests,
whether impaired by operation of law or by reason of any action or
omission to act on its part (other than any such action or inaction
constituting gross negligence or willful misconduct). The Agent shall
have no duty to ascertain or inquire as to the performance or
observance of any of the terms of this Agreement by any Grantor.
SECTION 12. APPOINTMENT OF COLLATERAL AGENTS. At any time or times,
with, so long as no Default or Event of Default has occurred and is continuing,
the consent of the Grantors (which consent shall not be unreasonably withheld),
in order to comply with any legal requirement in any jurisdiction or in order to
effectuate any provision of the Loan Documents, the Agent may appoint another
bank or trust company or one or more other Persons, either to act as collateral
agent or agents, jointly with the Agent or separately, on behalf of the Agent
and the Lenders with such power and authority as may be necessary for the
effectual operation of the provisions hereof and specified in the instrument of
appointment (which may, in the discretion of the Agent, include provisions for
the protection of such collateral agent similar to the provisions of SECTION 11
hereof).
SECTION 13. EXPENSES. In the event that the Grantors fail to comply
with the provisions of the Credit Agreement, this Agreement or any other Loan
Document, such that the value of any Collateral or the validity, perfection,
rank or value of the Security Interests are thereby diminished or potentially
diminished or put at risk, the Agent if requested by the Required Lenders may,
but shall not be required to, effect such compliance on behalf of the Grantors,
and the Grantors shall reimburse the Agent for the reasonable costs thereof on
demand. All insurance expenses and all reasonable expenses of protecting,
storing, warehousing, appraising, insuring, handling, maintaining and shipping
the Collateral, any and all excise, stamp, intangibles, transfer, property,
sales, and use taxes imposed by any state, federal, or local authority or any
other governmental authority on any of the Collateral, or in respect of the sale
or other disposition thereof, shall be borne and paid by the Grantors; and if
the Grantors fail promptly to pay any portion thereof when due, the Agent or any
Lender may, at its option, but shall not be required to, pay the same and charge
the Grantors' account therefor, and the Grantors agree to reimburse the Agent or
such Lender therefor on demand. All sums so paid or incurred by the Agent or any
Lender for any of the foregoing and any and all other sums for which the
Grantors may become liable hereunder and all reasonable costs and expenses
(including reasonable attorneys' fees, legal expenses and court costs) incurred
by the Agent or any Lender in enforcing or protecting the Security Interests or
any of their rights or remedies hereunder shall be payable by the
36
<PAGE>
Grantors on demand and shall bear interest (after as well as before judgment)
until paid at the rate then applicable to Base Rate Loans under the Credit
Agreement and shall be additional Secured Obligations hereunder.
SECTION 14. NOTICES. All notices, communications and distributions
hereunder shall be given or made in accordance with Section 10.2 of the Credit
Agreement.
SECTION 15. RELEASE AND TERMINATION.
(a) Upon any sale, lease, transfer or other disposition of any item of
Collateral by any Grantor in accordance with the terms of the Loan Documents
(other than sales of Collateral in the ordinary course of business consistent
with past practices), the Agent will, at such Grantor's expense, execute and
deliver to such Grantor such documents as such Grantor shall request to evidence
the release of such item of Collateral from the assignment and security interest
granted hereby.
(b) This Agreement shall remain in effect from the First Amendment
Effective Date through and including the date upon which all Secured Obligations
shall have been indefeasibly and irrevocably paid and satisfied in full and the
Commitments terminated and upon such date the Security Interest granted hereby
shall terminate and all rights to the Collateral shall revert to the Grantors.
Upon any such termination, (i) the Agent shall promptly assign, release,
transfer and deliver to the Grantors the Collateral held by it hereunder, all
instruments of assignment executed in connection therewith, together with all
monies held by the Agent or any of its agents hereunder, free and clear of the
Liens hereof and (ii) the Agent and the Lenders will promptly execute and
deliver to the Grantors such documents and instruments (including but not
limited to appropriate UCC termination statements) as the Grantors shall request
to evidence such termination in each such case at the expense of the Grantors.
SECTION 16. WAIVERS, NON-EXCLUSIVE REMEDIES. No failure on the part of
the Agent or any Lender to exercise, and no delay in exercising and no course of
dealing with respect to, any right under the Credit Agreement, this Agreement or
any other Loan Document shall operate as a waiver thereof or hereof; nor shall
any single or partial exercise by the Agent or any Lender of any right under the
Credit Agreement, this Agreement or any other Loan Document preclude any other
or further exercise thereof, and the exercise of any rights under this
Agreement, the Credit Agreement and the other Loan Documents are cumulative and
are not exclusive of any other remedies provided by law. This Agreement is a
Loan Document executed pursuant to the Credit Agreement.
SECTION 17. CHANGES IN WRITING. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only in writing signed by the Grantors and the Agent with the consent of the
Required Lenders (or, when expressly required by this Agreement or the Credit
Agreement, all of the Lenders).
SECTION 18. POWERS COUPLED WITH AN INTEREST. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
37
<PAGE>
SECTION 19. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such provision and
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 20. HEADINGS. the various headings of this Agreement are
inserted for convenience only and shall not affect the meaning or interpretation
of this Agreement or any provisions thereof or thereto.
SECTION 21. EXECUTION IN COUNTERPARTS, EFFECTIVENESS, ETC. This
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be deemed to be an original and all of which shall constitute
together but one and the same agreement. This Agreement shall become effective
when counterparts hereof executed on behalf of the Borrower and the Agent shall
have been received by the Agent.
SECTION 22. GOVERNING LAW; ENTIRE AGREEMENT. THIS AGREEMENT SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK.
SECTION 23. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED, HOWEVER, that
(a) the Borrower may not assign or transfer its rights or obligations
hereunder without the prior written consent of the Agent and all Lenders; and
(b) the rights of sale, assignment and transfer of the Lenders are
subject to Section 10.11 of the Credit Agreement.
SECTION 24. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER SHALL BE BROUGHT AND
MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER,
THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY
BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES
TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION.
38
<PAGE>
THE BORROWER FURTHER IRREVOCABLY APPOINTS CT CORPORATION SYSTEM (THE "PROCESS
AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK
10019, UNITED STATES, AS ITS AGENT TO RECEIVE ON THE BORROWER'S BEHALF AND ON
BEHALF OF THE BORROWER'S PROPERTY, SERVICE OF COPIES OF THE SUMMONS AND
COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH LITIGATION. SUCH
SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO THE
BORROWER IN CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND
THE BORROWER HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO
ACCEPT SUCH SERVICE ON ITS BEHALF. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BORROWER HEREBY EXPRESSLY
AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY
SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT
THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 25. WAIVER OF JURY TRIAL. THE AGENT, THE LENDERS AND THE
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
THE AGENT, THE LENDERS OR THE BORROWER. THE AGENT, THE LENDERS AND THE BORROWER
HEREBY AGREE THAT THEY WILL NOT SEEK TO CONSOLIDATE ANY SUCH LITIGATION WITH ANY
OTHER LITIGATION IN WHICH A JURY TRIAL HAS NOT OR CANNOT BE WAIVED. THE
PROVISIONS OF THIS SECTION 25 HAVE BEEN FULLY NEGOTIATED BY THE PARTIES HERETO
AND SHALL BE SUBJECT TO NO EXCEPTIONS. THE BORROWER ACKNOWLEDGES AND AGREES THAT
IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH
OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING
INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
39
<PAGE>
[Signature Pages Follow]
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers, all as of the day and
year first written above.
BORROWER
[CORPORATE SEAL] THE SPORTS AUTHORITY, INC.
By:
-------------------------------------
Name:
Title:
SUBSIDIARIES OF THE BORROWER:
[CORPORATE SEAL] AUTHORITY INTERNATIONAL, INC.
By:
-------------------------------------
Name:
Title:
[CORPORATE SEAL] OSR, INC.
By:
-------------------------------------
Name:
Title:
[CORPORATE SEAL] THE SPORTS AUTHORITY FLORIDA, INC.
By:
-------------------------------------
Name:
Title:
[Signature Pages Continue]
41
<PAGE>
[CORPORATE SEAL] THE SPORTS AUTHORITY MICHIGAN, INC.
By:
-------------------------------------
Name:
Title:
[Signature Pages Continue]
42
<PAGE>
AGENT:
FIRST UNION NATIONAL BANK, as
Agent
By:
-------------------------------------
Name:
Title:
43
<PAGE>
EXHIBIT A
(to Security Agreement)
SECURITY AGREEMENT SUPPLEMENT
SECURITY AGREEMENT SUPPLEMENT, dated as of _______________, (the
"SUPPLEMENT"), made by [INSERT NAME OF DOMESTIC SUBSIDIARY], a
__________________ (the "Additional Grantor"), in favor of FIRST UNION NATIONAL
BANK, as Administrative Agent (in such capacity, the "Agent") under the Credit
Agreement (as defined in the Security Agreement referred to below) for the
ratable benefit of the Agent and Lenders (as so defined).
1. Reference is hereby made to the Security Agreement dated as of
October ___, 1998, made by THE SPORTS AUTHORITY, INC. and certain subsidiaries
thereof (collectively, the "Grantors"), in favor of the Agent (as amended,
restated or otherwise modified, the "Security Agreement"). This Supplement
supplements the Security Agreement, forms a part thereof and is subject to the
terms thereof. Capitalized terms used and not defined herein shall have the
meanings given thereto or referenced in the Security Agreement.
2. In order to secure the Credit Agreement, in accordance with the
terms thereof, and to secure the payment and performance of all of the Secured
Obligations, the Additional Grantor hereby grants to the Agent, for the ratable
benefit of itself and the Lenders, a continuing security interest in and to all
of the Additional Grantor's estate, right, title and interest in and to all
Collateral whether now or hereafter owned or acquired by the Additional Grantor
or in which the Additional Grantor now has or hereafter has or acquires any
rights, and wherever located (the "New Collateral").
3. The Security Interests are granted as security only and shall not
subject the Agent, the Co-Agent or any Lender to, or transfer to the Agent, the
Co-Agent or any Lender, or in any way affect or modify, any obligation or
liability of the Additional Grantor with respect to any of the New Collateral or
any transaction in connection therewith.
4. The Additional Grantor hereby agrees that it is a "Grantor" under
the Security Agreement as if a signatory thereto on the Closing Date of the
Credit Agreement, and the Additional Grantor shall comply with all of the terms,
covenants, conditions and agreements and hereby makes each representation and
warranty, in each case set forth therein and applicable to a "Grantor." The
Additional Grantor agrees that "Collateral" as used therein shall include all
New Collateral pledged pursuant hereto and the Security Agreement and "Security
Agreement" or "Agreement" as used therein shall mean the Security Agreement as
supplemented hereby.
5. Attached hereto is a supplement to the Perfection Certificate
delivered to the Agent on the Closing Date.
44
<PAGE>
6. The Additional Grantor hereby acknowledges it has received a copy of
the Security Agreement and that it has read and understands the terms thereof.
7. The Additional Grantor hereby agrees that it shall deliver to the
Agent such UCC Financing Statements and all other certificates or other
documents and take such action as the Agent shall reasonably request in order to
effectuate the terms hereof and the Security Agreement.
[Signature Pages Follow]
45
<PAGE>
IN WITNESS WHEREOF, the undersigned hereby causes this Supplement to be
executed and delivered as of the date first above written.
[CORPORATE SEAL] [INSERT NAME OF SUBSIDIARY]
By:
-------------------------------------
Name:
Title:
46
<PAGE>
EXHIBIT B
(to Security Agreement)
PERFECTION CERTIFICATE
Reference is made to that certain Security Agreement d0ated as of
October ____, 1998, executed by the entities set forth on the signature pages
thereto (collectively, the "Grantors" and each, a "Grantor"), in favor of FIRST
UNION NATIONAL BANK, as administrative agent (the "Agent"), for the ratable
benefit of the Agent and the Lenders who are or may become a party to the Credit
Agreement referred to below (collectively, the "Lenders"). Capitalized terms
used herein and not otherwise defined shall have the meanings ascribed to them
in the Credit Agreement (as defined in the Security Agreement).
The Grantors hereby certify to the Agent and each Lender as follows:
1. NAMES, ETC.
(a) The exact name of each Grantor as it appears in its
Articles or Certificate of Incorporation, as applicable, is as follows:
(b) Except as set forth in SCHEDULE 1 attached hereto, no
Grantor has changed its identity or legal structure in any way within the past
five years.
(c) The following is a list of all other names (including
trade names or similar appellations) used by any Grantor or any of their
respective divisions or other business units at any time during the past five
years:
(d) The taxpayer identification numbers of the Grantors are as
follows:
2. CURRENT LOCATIONS.
47
<PAGE>
(a) The chief executive offices of each of the Grantors are
located at the following addresses:
MAILING ADDRESS COUNTY STATE
--------------- ------ -----
(b) The following are the only locations at which the Grantors
maintain any books or records relating to any Accounts:
MAILING ADDRESS COUNTY STATE
--------------- ------ -----
(c) The following are all the locations not identified above
where the Grantors maintain any Inventory:
3. UNUSUAL TRANSACTIONS. Other than as set forth below, all Accounts
have been originated by the Grantors and all Inventory has been acquired by the
Grantors in the ordinary course of business.
48
<PAGE>
4. RELIANCE. The undersigned acknowledges that the Agent and the
Lenders are entitled to rely and have, in fact, relied on the information
contained herein, and any successor or assign of the Agent or the Lenders is
entitled to rely on the information contained therein.
49
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Perfection
Certificate, this ____ day of ________________,_______.
GRANTOR:
[CORPORATE SEAL] THE SPORTS AUTHORITY, INC.
By:
-------------------------------------
Name:
Title:
SUBSIDIARIES OF GRANTOR:
[CORPORATE SEAL] AUTHORITY INTERNATIONAL, INC.
By:
-------------------------------------
Name:
Title:
[CORPORATE SEAL] OSR, INC.
By:
-------------------------------------
Name:
Title:
[CORPORATE SEAL] THE SPORTS AUTHORITY FLORIDA, INC.
By:
-------------------------------------
Name:
Title:
[CORPORATE SEAL] THE SPORTS AUTHORITY MICHIGAN, INC.
By:
-------------------------------------
Name:
Title:
50
<PAGE>
EXHIBIT C
(to Security Agreement)
[FORM OF LOCKBOX LETTER]
_______________, _____
[Name and Address of Lockbox Bank)
Re: [CORPORATION]
Ladies and Gentlemen:
We hereby notify you that effective __________, ____, we have
transferred exclusive ownership and control of our lock-box account(s) no[s].
_____________________ (the "LOCKBOX ACCOUNT[S]") maintained with you under the
terms of the [Lockbox Agreement] attached hereto as Exhibit A (the "LOCKBOX
AGREEMENT[S]") to First Union National Bank, as Agent (the "AGENT").
We hereby irrevocably instruct you to make all payments to be made by
you out of or in connection with the Lockbox Account(s) (i) to the Agent for
credit to account no. ________ maintained by it at its office at
________________________ or (ii) as you may otherwise be instructed by the
Agent.
We also hereby notify you that the Agent shall be irrevocably entitled
to exercise any and all rights in respect of or in connection with the Lockbox
Account(s), including, without limitation, the right to specify when payments
are to be made out of or in connection with the Lockbox Account(s).
All funds deposited into the Lockbox Account(s) will not be subject to
deduction, set-off, banker's lien or any other right in favor of any other
person than the Agent, except that you may set-off against the Lockbox
Account(s) the face amount of any check deposited in and credited to such
Lockbox Account(s) which is subsequently returned for any reason. Your
compensation for providing the service contemplated herein shall be mutually
agreed between you and us from time to time and we will continue to pay such
compensation.
51
<PAGE>
Please confirm your acknowledgment of and agreement to the foregoing
instructions by signing in the space provided below
Very truly yours,
By:
---------------------------------------
Name:
Title:
Acknowledged and agreed to as of this ________ day of ____________, _____.
[LOCKBOX BANK]
By:
------------------------------------------
Name:
Title:
52
EXHIBIT 10.2
October 19, 1998
Mr. Jack Smith
Dear Jack:
This letter will confirm our understanding concerning the termination
of your employment with The Sports Authority, Inc. (the "Company"). Reference is
made to the employment agreement dated as of August 29, 1996 between you and the
Company (the "Employment Agreement") and to the restricted stock agreement dated
as of March 28, 1996 between you and the Company (the "Restricted Stock
Agreement").
1. Your employment was terminated by the Company on September 15, 1998,
entitling you to the benefits described in Section 2 of the Employment
Agreement.
2. The restricted stock granted to you under the Restricted Stock
Agreement includes the following shares which have not yet vested: 16,687 shares
scheduled to vest on June 21, 1999 and 16,688 shares scheduled to vest on June
21, 2000. The Compensation Committee of the Board has determined pursuant to
Section 6(c)(iii) of the 1996 Stock Option and Restricted Stock Plan that,
notwithstanding the terms of the Restricted Stock Agreement, such unvested
shares shall not be forfeited due to the termination of your employment. Such
unvested shares shall vest on the dates set forth above and shall be forfeited
prior to the applicable date only if the Compensation Committee shall determine,
in its sole discretion, that you have not fulfilled your obligations under the
Employment Agreement.
3. The Company agrees to pay the reasonable expenses of leasing and
operating an office until June 30, 2000 to enable you to discharge your duties
as Chairman of the Board.
4. Except as modified by this agreement, the Employment Agreement and
the Restricted Stock Agreement are ratified and confirmed in all respects.
Sincerely,
THE SPORTS AUTHORITY, INC.
By /S/ MARTIN E. HANAKA
----------------------
Agreed:
/S/ JACK A. SMITH
---------------------
EXHIBIT 10.3
TERMINATION AGREEMENT
September 28, 1998
Mr. Richard J. Lynch, Jr.
Dear Dick:
This letter will confirm our understanding concerning the termination
of your employment with The Sports Authority, Inc. (the "Company").
1. Your employment will terminate effective immediately, by mutual
consent. In addition, you have indicated that your resignation from the Board of
Directors will occur at the same time as the termination of your employment.
2. The Company will pay to you your base salary for employment through
September 30, 1998 (your last pay check being the one dated October 9, 1998).
Thereafter, the Company will pay to you twenty-six (26) bi-weekly severance
payments (the first of which shall be dated October 23, 1998 and the last of
which shall be dated October 8, 1999) equal to the sum of (i) your current
bi-weekly base salary, and (ii) 1/26th of the "on plan" bonus amount targeted
for you for the Company's 1998 fiscal year. In addition, the Company will pay
the cost of benefit continuation under COBRA for you and your family for medical
and dental coverage until the date of your last severance payment. All other
benefits, except those which by their nature provide benefits after termination
of employment, will cease on the date hereof. All payments hereunder shall be
subject to applicable withholding and deductions.
3. The Company agrees that the 30,000 stock options granted to you on
March 26, 1996 shall be fully vested and exercisable as of the date hereof, and
that all restrictions on restricted shares purchased by you under the Management
Stock Purchase Plan in March 1996 shall lapse as of the date hereof. The Company
agrees that the 20,000 stock options granted to you on March 11, 1997 and the
20,000 stock options granted to you on January 28, 1998 shall be fully vested
and exercisable one year from the date hereof, provided that you shall not have
breached any obligation to the Company under this agreement prior to that date.
All such options shall be exercisable by you until the third anniversary of the
date such options vest. The Company agrees that you will receive the benefit of
any actions taken prior to one year from the date hereof for any person who was
a "named executive officer" in the Company's 1998 proxy statement or the Chief
Executive Officer to reprice, revalue, replace or in any way enhance the value
of options issued prior to the date of this agreement, and the Company will
promptly notify you of any such action.
4. The payments provided hereunder shall constitute the exclusive
payments due you from, and the exclusive obligation of, the Company upon the
termination of your employment,
<PAGE>
except for any benefits which may be due you in normal course under any employee
or executive benefit plan of the Company which provides benefits after
termination of employment. You shall not be required to mitigate the amount of
any payment or benefit provided for in this agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for herein be reduced by any compensation earned by other employment or
otherwise. The payments hereunder may not be transferred, assigned or encumbered
in any manner, either voluntarily or involuntarily. In the event of your death,
any payments then or thereafter due hereunder will be made to your estate.
5. In consideration of the obligations of the Company hereunder, you
agree that you shall not, for a period of one year from the date hereof, (a)
directly or indirectly become an employee, director or advisor of, or otherwise
affiliated with, any retailer of sporting goods, footwear or apparel with retail
outlets in the United States (unless the classes of products sold by such
retailer constitute less than 10% of the total sales by the Company and its
licensees in the United States during the Company's 1998 fiscal year), (b)
directly or indirectly solicit or hire, or encourage the solicitation or hiring
of, any person who was an employee of the Company at any time on or after the
date of this agreement (unless more than six months shall have elapsed between
the last day of such person's employment by the Company and the first date of
such solicitation or hiring), or (c) without the written consent of the Chief
Executive Officer of the Company, disclose to any person other than as required
by law or court order, any confidential information obtained by you while in the
employ of the Company, provided, however, that confidential information shall
not include any information known generally to the public (other than as a
result of unauthorized disclosure by you) or any specific information or type of
information generally not considered confidential by persons engaged in the same
business as the Company, or information disclosed by the Company by any member
of its Board of Directors or any other officer thereof to a third party without
restrictions on the disclosure of such information.
You acknowledge that these restrictions are reasonable and necessary to
protect the Company's legitimate interests, that the Company would not have
entered into this agreement in the absence of such restrictions, and that any
violation of these restrictions will result in irreparable harm to the Company.
You agree that the Company shall be entitled to preliminary and permanent
injunctive relief, without the necessity of proving actual damages, as well as
an equitable accounting of all earnings, profits and other benefits arising from
any violation hereof, which rights shall be cumulative and in addition to any
other rights or remedies to which the Company may be entitled. You irrevocably
and unconditionally (i) agree that any legal proceeding arising out of this
paragraph may be brought in the United States District Court for the Southern
District of Florida, or if such court does not have jurisdiction or will not
accept jurisdiction, in any court of general jurisdiction in Broward County,
Florida, (ii) consent to the non-exclusive jurisdiction of such court in any
such proceeding, and (iii) waive any objection to the laying of venue of any
such proceeding in any such court. You also irrevocably and unconditionally
consent to the service of any process, pleadings, notices or other papers.
6. You irrevocably and unconditionally release the Company, its
predecessors, successors, and assigns, as well as past and present officers,
directors, and employees, from any
<PAGE>
and all claims, liabilities, or promises outside of this agreement, known or
unknown, arising out of or relating to your employment with the Company. You
waive these claims on behalf of yourself and on behalf of your heirs, assigns,
and anyone making a claim through you. The claims waived and discharged include,
but are not limited to: (a) employment discrimination claims (including claims
of sex discrimination and/or sexual harassment) and retaliation under Title VII
of the Civil Rights Act of 1964; (b) age discrimination claims under the Age
Discrimination in Employment Act; (c) State of Florida and County of Broward
equal employment opportunity act claims; (d) disputed wages, including claims
for any back wages; (e) wrongful discharge and/or breach of contract claims; and
(f) tort claims, including invasion of privacy, defamation, fraud, and
infliction of emotional distress. You will not bring any legal action against
the Company, its predecessors, successors and assigns, as well as past and
present officers, directors, and employees for any claim waived and you
represent and warrant that you have not filed any such claim to date.
7. The Company irrevocably and unconditionally releases you from any
and all claims, liabilities, or promises outside of this agreement, known or
unknown, arising out of or relating to your employment with the Company. The
Company will not bring any legal action against you for any claim waived and the
Company represents and warrants that it has not filed any such claim to date.
8. You represent that you understand completely your right to review
all aspects of this agreement with an attorney of your choice, have had the
opportunity to consult with an attorney of your choice, have carefully read and
fully understand all the provisions of this agreement and that you are freely,
knowingly, and voluntarily entering into this agreement and the release
contained herein.
9. You acknowledge that you have been informed of the following rights
available to you under Age Discrimination in Employment Act (ADEA):
(a) You have the right to consult with an attorney before signing this
Agreement;
(b) You do not waive rights or claims under ADEA that might arise after
the date this waiver is executed;
(c) You have twenty-one (21) days from the date you receive this
agreement to consider this agreement;
(d) You have seven days after signing this agreement to revoke it.
10. In any action or proceeding between you and the Company arising
from or relating to the interpretation or enforcement of this agreement, the
prevailing party shall be entitled to recover all reasonable costs incurred,
including without limitation reasonable attorneys' fees.
11. This agreement shall be governed by and interpreted under the laws
of the State of Florida without giving effect to any conflict of laws
provisions.
12. This agreement sets forth the entire understanding with respect to
the subject matter hereof and supersedes all prior agreements, written or oral
or express or implied, between you and the Company as to such subject matter.
This agreement may not be amended, nor may
<PAGE>
any provision hereof be modified or waived, except by an instrument in writing
duly signed by you and the Company.
13. If any provision of this agreement, or any application thereof to
any circumstances, is invalid, in whole or in part, such provision or
application shall to that extent be severable and shall not affect other
provisions or applications of this agreement.
14. Notices under this agreement shall be in writing and deemed
properly given if personally delivered, sent by certified or registered mail
(return receipt requested), postage prepaid, or delivered by overnight courier
service which delivers only upon the signed receipt of the addressee. Notices
shall be given to the Company at 3383 North State Road 7, Ft. Lauderdale, FL
33319, attn: Chief Executive Officer, with a copy to General Counsel, and to you
at the address you provide to the Company's General Counsel.
Please indicate your agreement by signing below and retain one copy for
you records.
Sincerely,
THE SPORTS AUTHORITY, INC.
By: /S/ MARTIN E. HANAKA
Witness: Agreed:
/S/ FRANK BUBB /S/ RICHARD J. LYNCH, JR.
Date: September 28, 1998 Date: September 28, 1998
EXHIBIT 10.4
TERMINATION AGREEMENT
November 1, 1998
Mr. Robert J. Timinski
Dear Bob:
This letter will confirm our understanding concerning the termination
of your employment with The Sports Authority, Inc. (the "Company").
1. Your employment will terminate effective immediately, by mutual
consent.
2. The Company will pay to you your base salary for employment for work
through October 31, 1998 (your last pay check being the one dated November 6,
1998). Thereafter, the Company will pay to you twenty-six (26) bi-weekly
severance payments (the first of which shall be dated November 20, 1998 and the
last of which shall be dated November 5, 1999) equal to the sum of (i) your
current bi-weekly base salary, and (ii) 1/26th of the "on plan" bonus amount
targeted for you for the Company's 1998 fiscal year. In addition, the Company
will reimburse you for the cost of COBRA medical and dental coverage for you and
your family until the date of your last severance payment. All other insurance
coverage will cease on the date hereof. All payments hereunder shall be subject
to applicable withholding and deductions.
3. The Company agrees that the 13,200 stock options granted to you on
March 26, 1996 shall be fully vested and exercisable as of the date hereof, that
all restrictions on the 4,021 restricted shares purchased by you under the
Management Stock Purchase Plan in March 1996 shall lapse as of the date hereof,
and that an unrestricted certificate representing such 4,021 shares (net of
shares withheld for income tax withholding) will be delivered to you promptly.
The Company agrees that the 10,000 stock options granted to you on March 11,
1997 and the 15,000 stock options granted to you on January 28, 1998 shall be
fully vested and exercisable one year from the date hereof, provided that you
shall not have breached any obligation to the Company under this agreement prior
to that date. The 25,000 options described in the preceding sentence shall be
exercisable by you until three months after the date such options vest, and all
other options held by you shall be exercisable by you until June 30, 1999.
4. The payments provided hereunder shall constitute the exclusive
payments due you from, and the exclusive obligation of, the Company upon the
termination of your employment, except for any benefits which may be due you in
normal course under any employee or executive benefit plan of the Company which
provides benefits after termination of employment. You shall not be required to
mitigate the amount of any
<PAGE>
payment or benefit provided for in this agreement by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for herein be
reduced by any compensation earned by other employment or otherwise. The
payments hereunder may not be transferred, assigned or encumbered in any manner,
either voluntarily or involuntarily. In the event of your death, any payments
then or thereafter due hereunder will be made to your estate.
5. In consideration of the obligations of the Company
hereunder, you agree that you shall not, for a period of one year from the date
hereof, (a) directly or indirectly become an employee, director, consultant or
advisor of, or otherwise affiliated with, any retailer of sporting goods,
footwear or apparel with retail outlets in the United States (unless the classes
of products sold by such retailer constitute less than 10% of the total sales by
the Company and its licensees in the United States during the Company's 1998
fiscal year), (b) directly or indirectly solicit or hire, or encourage the
solicitation or hiring of, any person who was an employee of the Company at any
time on or after the date of this agreement (unless more than six months shall
have elapsed between the last day of such person's employment by the Company and
the first date of such solicitation or hiring), (c) disparage the name, business
reputation or business practices of the Company or any of its officers or
directors, or interfere with the Company's existing or prospective business
relationships, or (d) without the written consent of the Chief Executive Officer
of the Company, disclose to any person other than as required by law or court
order, any confidential information obtained by you while in the employ of the
Company, provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by you) or any specific information or type of
information generally not considered confidential by persons engaged in the same
business as the Company, or information disclosed by the Company by any member
of its Board of Directors or any other officer thereof to a third party without
restrictions on the disclosure of such information.
You acknowledge that these restrictions are reasonable and necessary to
protect the Company's legitimate interests, that the Company would not have
entered into this agreement in the absence of such restrictions, and that any
violation of these restrictions will result in irreparable harm to the Company.
You agree that the Company shall be entitled to preliminary and permanent
injunctive relief, without the necessity of proving actual damages, as well as
an equitable accounting of all earnings, profits and other benefits arising from
any violation hereof, which rights shall be cumulative and in addition to any
other rights or remedies to which the Company may be entitled. You irrevocably
and unconditionally (i) agree that any legal proceeding arising out of this
paragraph may be brought in the United States District Court for the Southern
District of Florida, or if such court does not have jurisdiction or will not
accept jurisdiction, in any court of general jurisdiction in Broward County,
Florida, (ii) consent to the non-exclusive jurisdiction of such court in any
such proceeding, and (iii) waive any objection to the laying of venue of any
such proceeding in any such court. You also irrevocably and unconditionally
consent to the service of any process, pleadings, notices or other papers.
<PAGE>
6. You irrevocably and unconditionally release the Company, its
predecessors, successors, and assigns, as well as past and present officers,
directors, and employees, from any and all claims, liabilities, or promises
outside of this agreement, known or unknown, arising out of or relating to your
employment with the Company. You waive these claims on behalf of yourself and on
behalf of your heirs, assigns, and anyone making a claim through you. The claims
waived and discharged include, but are not limited to: (a) employment
discrimination claims (including claims of sex discrimination and/or sexual
harassment) and retaliation under Title VII of the Civil Rights Act of 1964; (b)
age discrimination claims under the Age Discrimination in Employment Act; (c)
State of Florida and County of Broward equal employment opportunity act claims;
(d) disputed wages, including claims for any back wages; (e) wrongful discharge
and/or breach of contract claims; and (f) tort claims, including invasion of
privacy, defamation, fraud, and infliction of emotional distress. You will not
bring any legal action against the Company, its predecessors, successors and
assigns, as well as past and present officers, directors, and employees for any
claim waived and you represent and warrant that you have not filed any such
claim to date.
7. You represent that you understand completely your right to review
all aspects of this agreement with an attorney of your choice, have had the
opportunity to consult with an attorney of your choice, have carefully read and
fully understand all the provisions of this agreement and that you are freely,
knowingly, and voluntarily entering into this agreement and the release
contained herein.
8. You acknowledge that you have been informed of the following rights
available to you under Age Discrimination in Employment Act (ADEA):
(a) You have the right to consult with an attorney before signing this
Agreement;
(b) You do not waive rights or claims under ADEA that might arise after
the date this waiver is executed;
(c) You have twenty-one (21) days from the date you receive this
agreement to consider this agreement; (d) You have seven days after
signing this agreement to revoke it.
9. This agreement shall be governed by and interpreted under the laws
of the State of Florida without giving effect to any conflict of laws
provisions.
10. This agreement sets forth the entire understanding with respect to
the subject matter hereof and supersedes all prior agreements, written or oral
or express or implied, between you and the Company as to such subject matter.
This agreement may not be amended, nor may any provision hereof be modified or
waived, except by an instrument in writing duly signed by you and the Company.
11. If any provision of this agreement, or any application thereof to
any circumstances, is invalid, in whole or in part, such provision or
application shall to that extent be severable and shall not affect other
provisions or applications of this agreement.
<PAGE>
Please indicate your agreement by signing below and retain one copy for
you records.
Sincerely,
THE SPORTS AUTHORITY, INC.
By: /S/ MARTIN E. HANAKA
------------------------------------
Witness: Agreed:
/S/ JANE E. TIMINSKI /S/ ROBERT J. TIMINSKI
------------------------------------
Date: October 21, 1998 Date: October 21, 1998
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<FISCAL-YEAR-END> JAN-25-1998
<PERIOD-START> JAN-26-1998
<PERIOD-END> OCT-25-1998
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