UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 2000
Commission File No. 1-13426
THE SPORTS AUTHORITY, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3511120
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3383 N. State Road 7 - Ft. Lauderdale, Florida 33319
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(Address of principal executive offices) (Zip Code)
(954) 735-1701
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Each Exchange on which Registered
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Common Stock, $.01 par value The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting and nonvoting common equity
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing: $78,655,983 at the close of business
on April 3, 2000.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 32,208,176 Shares of
Common Stock outstanding as of April 3, 2000.
Documents Incorporated by Reference: the Company's Proxy Statement dated
April 28, 2000, incorporated partially in Parts II and III hereof.
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PART I
FORWARD LOOKING STATEMENTS
Certain statements contained in or incorporated by reference in this Form
10-K and the Company's 1999 Annual Report to Stockholders 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 athletic footwear, apparel and sporting equipment and the Company's
particular merchandise mix and retail locations; the Company's ability to
effectively implement its merchandising, marketing, store expansion and
refurbishment, electronic commerce, and other strategies; competition from other
retailers (including internet and direct manufacturer sales); unseasonable
weather; fluctuating sales margins; product availability; and capital spending
levels. The Company undertakes no obligation to release publicly the results of
any revisions to these forward looking statements to reflect events or
circumstances after the date such statements were made.
ITEM 1. BUSINESS
GENERAL
With sales of $1.5 billion in fiscal 1999, the Company is the largest
full-line sporting goods retailer in the United States. The Company's business
strategy is to offer customers extensive selections of quality, brand name
athletic footwear, apparel and sporting equipment, and high levels of customer
service. At January 29, 2000, the Company directly operated 201 stores as well
as two temporary clearance centers, substantially all in excess of 40,000 gross
square feet, including 198 stores in 32 states across the United States and five
stores in Canada. The Company ceased operating its five stores in Canada in
March 2000. Mega Sports Co., Ltd., which is now 8.4% owned by the Company, is a
joint venture which operates another 19 stores in Japan under a license
agreement with the Company. The Company also owns 19.9% of
TheSportsAuthority.com, Inc., a joint venture which, since November of 1999, has
operated the retail e-commerce site WWW.THESPORTSAUTHORITY.COM as a "clicks"
shopping alternative augmenting the Company's "bricks" store presence. Under the
terms of the joint venture agreement, the Company's ownership interest can
increase to 49.9%.
The Company was incorporated in Delaware in 1987. In 1990, the Company was
acquired by Kmart Corporation. Following public offerings in November 1994 and
October 1995, Kmart no longer owns any interest in the Company.
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INDUSTRY OVERVIEW
According to the National Sporting Goods Association, total U.S. retail
sales of sporting goods (including athletic footwear, apparel and sporting
equipment) was approximately $44 billion in 1998. The retail sporting goods
industry is comprised of four principal categories of retailers: (i) traditional
sporting goods retailers, (ii) specialty sporting goods retailers, (iii) large
format sporting goods retailers and (iv) mass merchandisers. In addition, a
variety of other retailers sell various types of sporting goods, principally
athletic footwear and apparel. Sporting goods retailing in the United States is
characterized by intensive competition among retailers, increasing competition
from new channels of distribution such as catalogs and electronic commerce, and
consolidation among vendors.
BUSINESS STRATEGY
The Company is focused on serving consumers who participate and/or are
interested in almost any type of sport, leisure or recreational activity. The
stores offer the extensive selection and competitive pricing associated with
category dominant retailers while, at the same time, offering quality brand
names and high levels of customer service. The key elements of this strategy are
as follows:
STORE FORMAT. The Company operates large format stores, substantially all
of which are in excess of 40,000 gross square feet. This format enables the
Company to provide under one roof an extensive selection of merchandise for
sports and leisure activities that ordinarily are associated with specialty
shops and pro shops, such as golf, tennis, snow skiing, cycling, hunting,
fishing, bowling, archery, boating and water sports, as well as for activities
ordinarily associated with traditional sporting goods retailers, such as team
sports, physical fitness, and men's, women's and children's athletic and active
apparel and footwear. The average store offers approximately 29,500 active SKUs
(excluding discontinued items) across 18 major departments.
QUALITY BRAND NAME SPORTING GOODS. The Company's merchandising strategy is
to offer strong assortments in quality brand name sporting goods in its
merchandise classifications. The Company's comprehensive merchandise assortment
includes over 700 brand names, including Adidas, Asics, Champion, Coleman,
Columbia, Easton, Head, Huffy, K2, Mongoose, New Balance, Nike, Penn, Prince,
Proform, Rawlings, Reebok, Rollerblade, Russell, Shakespeare, Spalding, Taylor
Made, Teva, Timberland and Wilson. In 1999, the Company added Izod, Cross Creek,
Orlimar and Titleist Golf apparel to its apparel and golf merchandise
assortments as well as Salomon and Adams brand names.
CUSTOMER SERVICE. The Company seeks to distinguish itself from other large
format sporting goods retailers, traditional sporting goods retailers and mass
merchandisers by emphasizing high levels of customer service. In addition, the
Company seeks to hire many sales associates who are sports enthusiasts skilled
in various disciplines.
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PRICING: ALWAYS PRICED RIGHT. The Company's pricing policy is to market
merchandise at prices that are always competitive in the market at the time. The
Company also seeks to be a price leader on certain highly identifiable items.
FOCUS ON MULTI-STORE MARKETS. The Company seeks to establish a significant
presence in each of its markets and pursues a store expansion strategy that
primarily focuses on opening multiple stores in its markets. This focus enables
the Company to obtain significant market penetration and to leverage management
and advertising expenses, thereby achieving greater economies of scale. In
addition, the Company believes its multi-store market strategy results in
greater name recognition and enhanced customer convenience in each market. The
Company believes that achieving greater market penetration will enable it to
compete more effectively and increase profitability and return on capital over
the long term.
E-COMMERCE. TheSportsAuthority.com, Inc. offers an online channel for
customers to purchase a wide selection of athletic footwear, apparel and
sporting equipment, as well as announcing special promotional events and
providing store locator and corporate information. The site also hosts a
consumer-to-consumer Internet auction that enables consumers throughout the
United States to buy and sell used sporting goods conveniently. The Company
anticipates future enhancements to include the integration of sports related
content and community programs, corporate communications features, concept shops
for key vendors, and additional product information such as specific brand size
charts, pull-down options, photo enhancements and flexibility to view multiple
colors of an item. The Company's joint venture partner, Global Sports
Interactive, Inc. a, a wholly-owned subsidiary of Global Sports, Inc., is
contributing the technological, organizational and working capital requirements
of the joint venture, as well as dedicated marketing funds to promote online
traffic. The Company licenses trademarks and service marks, domain names,
content, purchasing power and vendor relationships to the joint venture. The
Company has an initial ownership in TheSportsAuthority.com of 19.9%, which will
automatically increase to 49.9% if certain performance criteria are met by
either TheSportsAuthority.com or the Company. In addition, the Company has an
option to purchase additional shares of TheSportsAuthority.com, up to 49.9%, in
certain events.
STORES
The Company's stores are located primarily in regional strip or power
centers that generally have tenants that are value-oriented large format
retailers, and a small percentage are located in malls and stand alone
locations. The markets in which the stores are located are listed in Item 2.
The Company engaged in a rapid expansion program until mid-1998, when it
substantially reduced its store expansion program and began a comprehensive
review of its real estate processes. In the third quarter of 1998, the Company
announced its intention to close 18 underperforming stores (of which two were to
be relocated) as part of a comprehensive restructuring plan. The Company
completed 15 store closings in the first quarter of 1999, and as a result of
changing market conditions and favorable rent concessions, the Company has
decided not to close the remaining three stores. The Company temporarily
reopened two of the previously
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closed stores as clearance outlets in October 1999. In the fourth quarter of
1999, the Company announced its intention to close its remaining five stores in
Canada. These stores were subsequently closed in March 2000. See Note 4 of
the Notes to Consolidated Financial Statements contained in Part II, Item 8. The
Company opened three new full-line stores in 1999.
The Company anticipates growth in the number of stores to be modest over
the next few years with five new stores planned to open in 2000 (two of which
will be relocations of existing stores). Expansion in future years will depend,
among other things, on general economic and business conditions affecting
consumer confidence and spending and, in particular, the level of consumer
demand for sporting goods; the availability of adequate capital; desirable
locations at acceptable terms; qualified management personnel; the Company's
ability to manage the operational aspects of its growth; and comparable store
performance.
While the Company's expansion program in recent years has included opening
stores in Canada and Japan, the Company has exited the Canadian market and
reduced its ownership interest in its joint venture in Japan. See "Restructuring
of the Company's Joint Venture in Japan" below. The Company has no current plans
for expansion outside the United States, but will continue to evaluate expansion
opportunities.
The Company's expansion strategy focuses primarily on multi-store markets
where it can achieve significant market penetration and can leverage management
personnel, distribution and advertising expenses while minimizing
cannibalization of sales at existing stores. In analyzing markets, the Company
evaluates the market's potential in terms of total number of store locations.
Sites are selected based on demographics (such as income levels and
distribution, age and family size), population, regional access, co-tenancy,
available lease or purchase terms, visibility, parking, and distance from
competition.
The Company traditionally has obtained new store locations through
long-term operating leases. On an operating lease basis, the cost of opening a
new store is approximately $2.2 million, consisting primarily of the investment
in inventory, the cost of furniture, fixtures and equipment and pre-opening
expenses, such as the costs associated with training employees, stocking the
store and grand opening advertising. If the site requires a retrofit of an
existing building, costs (excluding furniture, fixtures and equipment) can be
significantly higher. The Company currently plans to finance substantially all
of its new stores with operating leases, assuming availability and appropriate
terms.
The Company believes customers want an easy shopping environment and
therefore seeks to make shopping at its stores as convenient as possible through
its extensive in-store signage and department placement. The Company has
developed and tested a new store prototype featuring specialty stores within a
store so customers can shop by sport, interactive kiosks, in-store customer
clinics and demonstrations, and a wide array of audio visual entertainment. The
Company is also enhancing its presentation with improved fixtures, signage,
adjacencies, and increased point-of-purchase information.
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In 1999, the Company spent approximately $9.5 million refurbishing its
stores. Seven stores received comprehensive remodels featuring improved
departmental adjacencies modeled after the new store prototype. This included
interactive and audio visual developments as well as new shopping areas
specifically focused on youth and team sports fans. One hundred nineteen stores
received basic renovations that included new category end cap signage and
widening the aisles to accommodate new aisle bin fixtures for small and impulse
merchandise and to improve customer traffic flow. The Company expects that its
capital expenditures in 2000 will be approximately $30.0-$35.0 million,
primarily related to refurbishments of existing stores and upgrades of
information systems.
STORE OPERATIONS AND CUSTOMER SERVICE
Each store displays merchandise in accordance with centrally developed
presentation standards. These standards are designed to provide logical
department adjacencies to promote convenience and multiple purchases of related
items. The layouts for each department are also centrally developed to ensure
that each store utilizes display techniques to highlight merchandise and present
a consistent and attractive shopping environment.
The Company divides selling and non-selling functions in order to allow its
sales associates to devote their full attention to assisting customers.
Non-selling duties, such as receiving and stocking, are performed immediately
before and after store operating hours. In order to enhance sales and payroll
productivity, the Company implemented a sales-based compensation plan for all
footwear associates in late 1999.
In March 2000 the Company entered into a five year contract with RMS
Networks to create, produce and broadcast via satellite WTSA-The Sports
Authority Network, the first in-store sports retailer network, for all of the
Company's stores. The network is an opportunity to increase the frequency and
length of customer visits and the dollars spent during each visit. Programming
will entertain and inform customers with sports news and event highlights,
sports segments and consumer tutorials promoting in-store merchandise, vendor
advertising, and professional team and athlete profiles. The network will also
be used to broadcast corporate communications such as merchandise training, new
product introductions and promotional initiatives to employees nationwide.
Project costs are estimated to be $15 million, which will be funded by RMS
Networks.
MERCHANDISING
The Company's merchandising strategy focuses on offering a broader and
deeper selection of quality, brand name merchandise than is generally available
in traditional sporting goods retailers. The Company's comprehensive merchandise
assortment consists of a wide variety of athletic footwear, apparel, sporting
equipment and accessories and is designed to meet the sporting goods needs of
its customers, from the sports enthusiast to the weekend athlete. The Company
continuously introduces new products under its Hot-New-Now program. The average
store offers
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approximately 29,500 active SKUs (excluding discontinued items) across more than
300 merchandise classifications.
The Company also tailors merchandise assortment and store space allocation
to reflect customer preferences at each store location. This is accomplished by
considering geographical as well as demographic differences by store and
involves differentiation in brands, sizes, colors, fabrication and seasonality
of the assortment. For example, not all stores carry stationary bicycles or
feature water shops.
The Company's stores offer an extensive selection of both hard lines, which
consist of equipment for team sports, fitness, outdoor sports, golf, racquet
sports, cycling, water sports, marine, snow sports and general merchandise, and
soft lines, which consist of athletic and active footwear and apparel. During
the past three years, hard lines constituted approximately 51% of the Company's
sales, apparel constituted approximately 21%, and footwear constituted
approximately 28%.
The hard lines and soft lines sold by the Company include the following
merchandise categories:
ATHLETIC AND ACTIVE APPAREL: This category consists of both casual and
leisure apparel, as well as apparel designed and fabricated for specific sports,
in men's, women's and children's assortments. Casual and leisure apparel
includes basic and seasonal T-shirts, shorts, sweats and warm ups. Performance
specific apparel includes offerings for sports such as golf, tennis, running,
fitness, soccer, baseball, football, hockey, and skiing. The apparel category
also includes NCAA and professional league licensed apparel.
ATHLETIC AND ACTIVE FOOTWEAR: The footwear selection includes casual
footwear intended for day to day streetwear, as well as athletic shoes for
running and walking, tennis, fitness and crosstraining, basketball and hiking.
In addition, the Company carries specialty footwear including a complete line of
cleated shoes for baseball, football, soccer and golf. Important categories
within the footwear department are recreational and hockey skates, socks and
accessories.
OUTDOOR SPORTS: A large assortment of merchandise is carried in the
stores aimed at outdoor sports enthusiasts. Included are camping equipment,
including tents, sleeping bags and cooking appliances; fishing gear, including
rods, reels, tackle and accessories; optics, including binoculars and scopes;
knives and cutlery; archery equipment and accessories; and marine and water
sports equipment, including navigational electronics, diving and snorkeling
equipment, water skis, inflatable boats and rafts and accessories. The Company
discontinued the sales of handguns in all of its locations in early 1999 and
reduced its rifle and other hunting assortment.
RECREATIONAL SPORTS: Team sports include a full range of equipment and
accessories for such sports as basketball, baseball, soccer, football, hockey
and lacrosse. The golf department includes a complete assortment of golf clubs
and club sets, bags, balls, teaching aids and accessories. The racquet
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sports department covers the needs of participants in tennis, racquetball,
squash, badminton and platform or paddle ball. The Company offers services such
as racquet stringing and trial demo periods.
FITNESS SPORTS: The fitness department is comprised of complete
assortments for aerobic and anaerobic workouts, including treadmills, stationary
bicycles and steppers for aerobic and home gyms, weight benches, dumbbells and
free weights for anaerobic. In addition, the department carries a selection of
boxing equipment and accessories. Finally, the department features items
designed for wellness and relaxation, such as massagers and magna-therapy, and
nutritional supplements. An extension of the fitness category is the cycling
department, which focuses on all terrain, touring, 20" BMX and freestyle
bicycles. In addition, the Company carries accessories such as gloves, helmets,
and water bottles.
WINTER SPORTS: The Company offers a complete line of ski apparel,
including technical outerwear, bib pants, thermal underwear, sweaters and
accessories. The Company also offers a complete line of skis and ski equipment,
including Alpine and cross country skis, snowboards, boots, bindings, goggles,
and accessories, as well as technical services to support new sales and tune-ups
on customer owned product.
PURCHASING
The Company maintains its own central buying staff and a central
replenishment and allocation staff. This staff manages the planning system,
allocates fashion and seasonal merchandise, replenishes basic merchandise and
coordinates the distribution of all merchandise.
Under the Company's merchandise planning system, the merchandise mix for
each store is selected by the central buying staff in consultation with field
management. The system allows the Company to manage its sales and inventory
levels by store at the subclass level. The Company also uses an automated
allocation system to allocate non-reorderable merchandise to stores based on
planned sales and inventory at the SKU level, as well as recent sales trends and
inventory position. The Company also utilizes an automated replenishment system
for approximately 40% of its active assortment. This replenishment system
balances in-stock positions to satisfy customer demand with the costs associated
with carrying such inventory.
The Company currently purchases merchandise from approximately 750 vendors
and, in fiscal 1999, the Company's largest vendor, Nike, Inc., accounted for
approximately 13% of its total merchandise purchased. The Company does not
maintain any material long-term or exclusive commitments or arrangements to
purchase from any vendor. The Company is either the largest or one of the
largest customers for many of its vendors. The Company believes it will continue
to obtain sufficient merchandise for all of its stores on a timely basis.
DISTRIBUTION
In late 1997, the Company opened its first regional distribution center
("RDC") near Atlanta, Georgia. The RDC serves as a flow-through facility to
receive and allocate merchandise to the
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Company's stores. Merchandise is received at the RDC, made "floor ready" as
necessary, and subsequently allocated and distributed to Company stores. At
year-end, the RDC serviced 147 stores. In addition, the Company maintains an
off-site receiving facility in Chino, California. The Company relocated its
receiving facility in Chino in April 2000 to a larger facility in order to
expand the number of stores serviced from 4 to 27, to establish flow-through
cross-dock facilities, and to handle merchandise imports. Merchandise not
processed by the centralized distribution network is shipped directly to each
store by vendors.
MANAGEMENT INFORMATION SYSTEMS
Since its inception, the Company has implemented management information
systems that integrate purchasing, receiving, sales and perpetual inventory data
on a daily basis. These systems include the functions of automated
replenishment, automated merchandising planning and allocation, electronic data
interchange, daily tracking of in-stock levels by item and location and a "data
warehouse" which gives corporate buying staff access to sales information on a
class and sub-class level. Additionally, the Company began a significant
revamping of its merchandise management systems in 1999, which it expects to
complete in the third quarter of 2000.
The Company currently employs point-of-sale terminals in all of its stores,
which provide price look-up capabilities and SKU-level sales data, capture
customer telephone data and initiate requests for authorization of the different
credit and check tenders accepted by the Company. The Company also utilizes IBM
AS/400 computers and hand held radio frequency terminals at store level as
in-store processors to record merchandise receipts, produce price tickets,
maintain SKU-level perpetual inventories and for general data inquiry. These
in-store processors communicate interactively with central AS/400 computers to
exchange data generated at store level and the Company's corporate offices.
These processors are intended to provide local management with the ability to
more closely manage inventory productivity and merchandise space planning, as
well as reduce the amount of employee time spent on non-selling functions.
ADVERTISING AND PROMOTION
The Company advertises its products and seeks to build name recognition and
market share through direct mail, newspaper advertising, broadcast media,
billboards and sports sponsorships. The focus on multi-store markets enables the
Company to leverage a substantial portion of its advertising costs. In addition,
the Company uses variable levels of advertising among different markets based on
return and approaches each advertising event with a season-based theme.
In November 1999 the Company engaged Andersen Consulting to conduct a
comprehensive review of the Company's advertising effectiveness. Based on the
results of this review, the Company expects to initiate changes covering ad
content, timing and medium by mid 2000.
Also in November 1999, the Company launched its private label credit card
to benefit from incremental sales, enhance its brand image, increase customer
loyalty and regular customer communication, maximize promotional offers,
capitalize on direct mail opportunities, increase
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average purchase dollars per transaction, increase shopping frequency, and
obtain access to a substantial customer database.
COMPETITION
The retail sporting goods industry is comprised of the following four
principal categories of retailers:
TRADITIONAL SPORTING GOODS RETAILERS. Traditional sporting goods retailers
tend to have relatively small stores, generally ranging in size from 5,000 to
20,000 square feet, frequently located in malls or strip centers (e.g., Modell's
Sporting Goods, Champs, Dunham's, MVP Sports and Hibbett Sporting Goods). These
stores typically carry limited quantities of each item in their assortment and
generally offer a more limited selection at higher prices than large format
stores.
SPECIALTY SPORTING GOODS RETAILERS. Specialty sporting goods retailers
include specialty shops, ranging in size from 1,000 to 10,000 square feet,
frequently located in malls or strip centers (e.g., Bike USA, Busy Body Fitness,
Edwin Watts, Foot Locker, Footstar, Foot Action, The Athlete's Foot, The Finish
Line and West Marine), and also include pro shops that often are single store
operations. These stores typically carry a wide assortment of one specific
product category, such as athletic shoes or golf or tennis equipment, and
generally have higher prices than large format stores.
LARGE FORMAT SPORTING GOODS RETAILERS. Large format stores such as the
Company's stores generally range in size from 30,000 to 70,000 square feet,
offer a broad selection of brand name sporting goods merchandise and tend to be
either anchor stores in strip malls or free-standing locations (e.g., Galyan's,
Gart Sports, Oshman's and Dick's Clothing and Sporting Goods). In addition,
other large format sporting goods retailers compete with certain product
categories sold by the Company (e.g., REI in outdoor sporting products).
MASS MERCHANDISERS. Mass merchandisers are large stores, generally ranging
in size from 50,000 to 200,000 square feet, featuring sporting equipment as part
of their overall assortment, and are located primarily in strip centers or
free-standing locations (e.g., Wal*Mart, Target and Kmart). These stores have
limited selection and fewer brand names and also typically do not offer the
customer service offered by sporting goods retailers.
In addition, a variety of other retailers sell various types of sporting
goods, principally athletic footwear and apparel. Sporting goods retailing in
the United States is characterized by intensive competition, increasing
competition from new channels of distribution such as catalogs and electronic
commerce, and consolidation among vendors.
The Company believes that the principal strengths with which it competes
are customer service, a broad assortment of brand name merchandise, ease of
shopping and a competitive pricing strategy.
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TRADEMARKS AND SERVICE MARKS
The Company uses "The Sports Authority" as its trade name and applies to
qualify to do business as such in each jurisdiction where it operates stores.
The Company's retail identity is comprised of the trade name, as well as a
family of trademarks and service marks featuring the word AUTHORITY, many of
which are registered (or the subject of pending applications) in the U.S. Patent
and Trademark Office, the Canadian Trade-Marks Office, the Japanese Patent
Office and other applicable offices around the world. Marks registered in the
U.S. Patent and Trademark Office include AUTHORITY(R), THE SPORTS AUTHORITY(R),
THE SPORTS AUTHORITY & Design(R), THE SKI AUTHORITY(R), GOLF AUTHORITY(R),
TENNIS AUTHORITY(R) and TEAM SPORTS AUTHORITY(R), among others. The Company
vigorously protects its trademarks, service marks and trade name from
infringement throughout the world by strategic registration and enforcement
efforts. Use of these marks is under license from The Sports Authority Michigan,
Inc., a wholly-owned subsidiary of the Company.
ASSOCIATES
As of January 29, 2000, the Company had a total of approximately 5,900
full-time and approximately 6,300 part-time associates. Of these, approximately
11,300 were employed in the Company's stores and approximately 900 were employed
in corporate office positions, regional and district positions, and the
Company's Atlanta regional distribution center. None of the Company's associates
is covered by a collective bargaining agreement. The Company endeavors to
promote new store management from its existing personnel. The Company believes
that its relationships with its associates are good.
SEASONALITY
The Company's annual business cycle is seasonal, with higher sales and
correlated profits occurring in the second and fourth quarters. In fiscal 1999,
the Company's sales trended as follows: 23.9% in the first quarter, 25.8% in the
second quarter, 21.9% in the third quarter and 28.4% in the fourth quarter.
RESTRUCTURING OF THE COMPANY'S JOINT VENTURE IN JAPAN
In March 1999, the Company and JUSCO Co., Ltd., a major Japanese retailer
that owns 9.4% of the Company's outstanding shares, entered into a comprehensive
restructuring of the ownership, service and license agreements governing their
joint venture, Mega Sports Co., Ltd. Mega Sports was formed in 1995 for the
purpose of developing and operating The Sports Authority stores in Japan. At the
end of 1999, Mega Sports operated 19 stores in Japan. More information
concerning the restructuring appears under the caption "Certain Transactions" on
page 16 of the Company's Proxy Statement dated April 28, 2000, which is
incorporated by reference into Item 13 below.
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ITEM 2. PROPERTIES
The following table sets forth certain information regarding the markets in
which the Company had stores as of January 29, 2000.
<TABLE>
<CAPTION>
UNITED STATES REGIONS/METROPOLITAN AREA NUMBER OF STORES
<S> <C>
NORTHEAST
Baltimore....................................................................................... 4
Boston ......................................................................................... 6
Hartford/North Haven............................................................................ 4
New York ....................................................................................... 29
Portland, ME ................................................................................... 1
Philadelphia ................................................................................... 9
Providence...................................................................................... 2
Washington, D.C. ............................................................................... 14
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SUBTOTAL NORTHEAST......................................................................... 69
SOUTHEAST
Augusta, GA..................................................................................... 1
Atlanta......................................................................................... 11
Charleston...................................................................................... 1
Charlotte....................................................................................... 3
Chattanooga..................................................................................... 1
Fayetteville.................................................................................... 1
Ft. Myers....................................................................................... 1
Gainesville, FL................................................................................. 1
Greensboro...................................................................................... 1
Greenville, SC.................................................................................. 1
Jacksonville.................................................................................... 2
Memphis......................................................................................... 1
Montgomery...................................................................................... 1
Myrtle Beach.................................................................................... 1
Naples.......................................................................................... 1
Nashville....................................................................................... 2
New Orleans..................................................................................... 1
Norfolk/Hampton................................................................................. 3
Orlando......................................................................................... 7
Pensacola....................................................................................... 1
Southeast Florida............................................................................... 16
Tampa/St. Petersburg............................................................................ 10
Winston-Salem................................................................................... 1
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SUBTOTAL SOUTHEAST......................................................................... 69
MIDWEST
Chicago......................................................................................... 15 *
Detroit......................................................................................... 7
Madison, WI..................................................................................... 1
Omaha..........................................................................................1
St. Louis....................................................................................... 6
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SUBTOTAL MIDWEST........................................................................... 30 *
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SOUTHWEST
Dallas.......................................................................................... 1
El Paso......................................................................................... 1
Las Vegas....................................................................................... 2
Little Rock..................................................................................... 1
Phoenix......................................................................................... 7
Tucson.......................................................................................... 1
----
SUBTOTAL SOUTHWEST......................................................................... 13
NORTHWEST
Anchorage....................................................................................... 1
Seattle/Tacoma.................................................................................. 3
----
SUBTOTAL NORTHWEST......................................................................... 4
WEST
Honolulu........................................................................................ 3
Fresno.......................................................................................... 1
Los Angeles..................................................................................... 2 *
Sacramento...................................................................................... 2
San Diego....................................................................................... 5
----
SUBTOTAL WEST.............................................................................. 13 *
----
SUBTOTAL UNITED STATES.............................................................................. 198 *
----
CANADA/METROPOLITAN AREA**
Toronto......................................................................................... 5
----
SUBTOTAL CANADA..................................................................................... 5
----
TOTAL ALL COUNTRIES................................................................................. 203 *
====
</TABLE>
- -----------------------
* These totals include two stores closed in the first quarter of 1999 and
temporarily reopened as clearance outlets in October 1999.
** These locations were closed in March 2000. See Note 4 of the Notes to
Consolidated Financial Statements contained in Part II, Item 8.
As of January 29, 2000, the Company occupied 18 owned stores and 185 stores
pursuant to long-term leases. The leases typically provide for an initial 10 to
25 year term with multiple five-year renewal options. In most cases, the
Company's leases provide for minimum annual rent subject to periodic
adjustments, plus other charges, including a proportionate share of taxes,
insurance and common area maintenance. Fifty-nine of the Company's store leases
are guaranteed by Kmart. In 1999, the Company sold eight owned store sites
pursuant to a sale-leaseback agreement with SPI Holdings, LLC for an aggregate
sales price of $46.8 million, which was primarily used to pay down existing
debt. The Company continues to operate stores in these locations under long-term
operating leases.
The Company leases a building at 3383 N. State Road 7, Fort Lauderdale,
Florida, containing approximately 106,000 square feet, that houses its corporate
offices, with a remaining primary term of 8 years with two 10-year renewal
options.
13
<PAGE>
In 1999, the Company assigned, subleased or terminated the leases for three
of the stores that were closed in the first quarter of 1999 and continues its
efforts to dispose of the leases and properties for all other closed stores.
ITEM 3. LEGAL PROCEEDINGS
The Company is one of thirty-three defendants, including firearms
manufacturers and retailers, in CITY OF CHICAGO AND COUNTY OF COOK V. BERETTA
U.S.A. CORP. ET AL, Circuit Court of Cook County, Illinois, which was served on
the Company on November 23, 1998. The complaint is based on legal theories of
public nuisance and negligent entrustment of firearms and alleges that the
defendant retailers sell firearms in the portion of Cook County outside Chicago
that are found illegally in Chicago. The complaint seeks damages allocated among
the defendants exceeding $358.1 million to compensate the City of Chicago and
Cook County for their alleged costs (of which the complaint enumerates a total
of $153 million) resulting from the alleged public nuisance. The complaint also
seeks punitive damages and injunctive relief imposing additional regulations on
the methods the defendant retailers use to sell firearms in Cook County. On
February 10, 2000, the Court dismissed the complaint's negligent entrustment
count. The plaintiffs filed an amended complaint with the Court's permission on
March 27, 2000, which contains both the public nuisance and negligent
entrustment counts.
Pursuant to a business decision made in late 1998, the Company announced in
April 1999 that it would cease selling handguns in the United States, and the
Company ceased selling handguns in the Chicago area by May 1999. In recent
years, handguns have constituted less than 1% of the Company's total sales. In
addition, the Company believes that it has complied with all applicable laws and
regulations governing the sale of firearms and intends to defend itself
vigorously in this suit.
On March 15, 2000, the plaintiffs in IN RE THE SPORTS AUTHORITY, INC.
SHAREHOLDERS LITIGATION, C.A. No. 16373NC, voluntarily dismissed the action
without prejudice. As reported in the Company's Form 10-K for 1998, this action
had been filed in the Court of Chancery of the State of Delaware in New Castle
County in May 1998 with respect to the merger agreement dated May 7, 1998
between the Company and Venator Group, Inc., which was terminated by mutual
agreement in September 1998.
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. The Company believes that no currently pending
litigation to which it is a party will have a material adverse effect on its
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company is traded on the New York Stock Exchange
(the "NYSE") under the symbol "TSA". The following table sets forth, for the
fiscal quarters indicated, the high and low market prices for the Common Stock
as reported on the NYSE.
HIGH LOW
---- ---
Fiscal 1998
1st Quarter ............................... $ 17.06 $ 10.75
2nd Quarter ............................... 18.75 13.44
3rd Quarter ............................... 14.31 4.06
4th Quarter ............................... 8.13 3.81
Fiscal 1999
1st Quarter ............................... 8.50 4.00
2nd Quarter ............................... 8.06 2.81
3rd Quarter ............................... 4.38 2.19
4th Quarter ............................... 3.25 1.63
As of April 3, 2000, the Company had approximately 1,779 shareholders of
record.
DIVIDEND POLICY
The Company did not declare any dividends in 1998 or 1999 and intends to
retain its earnings to finance future internal investments. Therefore, the
Company does not anticipate paying any cash dividends in the foreseeable future.
The declaration and payment of dividends, if any, is subject to the discretion
of the Board of Directors of the Company and to certain limitations under the
General Corporation Law of the State of Delaware. In addition, certain
agreements contain restrictions on the Company's ability to pay dividends. The
timing, amount and form of dividends, if any, will depend, among other things,
on the Company's results of operations, financial condition, cash requirements
and other factors deemed relevant by the Board of Directors.
15
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below reflects the
historical results of operations, financial position and operating data of the
Company for the periods indicated and should be read in conjunction with the
consolidated financial statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations included elsewhere
herein.
<TABLE>
<CAPTION>
Fiscal Year Ended (1)
-------------------------------------------------------------------------------
January 29, January 24, January 25, January 26, January 28,
2000 1999 1998 1997 1996
---------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Sales $ 1,492,860 $ 1,599,660 $ 1,464,565 $ 1,271,296 $ 1,046,652
Gross profit 360,564 390,959 419,537 365,373 292,427
License fees and rental income 1,829 841 3,345 3,165 2,772
Selling, general and administrative expenses 394,963 410,730 365,363 304,955 245,886
Pre-opening expense 1,609 11,194 10,570 11,408 9,140
Goodwill amortization 1,963 1,963 1,963 1,963 1,963
Store exit costs 8,861 39,446 4,302 - -
Corporate restructuring (700) 3,930 - - -
Impairment of long-lived assets 88,751 13,457 - - -
------------ ------------ ------------ ------------ ------------
Operating (loss) income (133,054) (88,920) 40,684 50,212 38,210
Interest, net 15,287 11,965 5,952 2,180 820
Gain on deconsolidation of joint venture (5,001) - - - -
------------ ------------ ------------ ------------ ------------
(Loss) income before income taxes and
extraordinary gain (143,340) (100,885) 34,732 48,032 37,390
Income tax expense (benefit) 22,721 (35,028) 14,730 19,597 15,305
Minority interest - (2,066) (2,191) (1,570) (245)
------------ ------------ ------------ ------------ ------------
(Loss) income before extraordinary gain (166,061) (63,791) 22,193 30,005 22,330
Extraordinary gain, net of tax of $3,678 5,517 - - - -
------------ ------------ ------------ ------------ ------------
Net (loss) income $ (160,544) $ (63,791) $ 22,193 $ 30,005 $ 22,330
============ ============ ============ ============ ============
Basic earnings (loss) per common share:
(Loss) income before extraordinary gain $ (5.19) $ (2.01) $ 0.70 $ 0.96 $ 0.72
Extraordinary gain .17 - - - -
------------ ------------ ------------ ------------ ------------
Net (loss) income $ (5.02) $ (2.01) $ 0.70 $ 0.96 $ 0.72
============ ============ ============ ============ ============
Diluted earnings (loss) per common share:
(Loss) income before extraordinary gain $ (5.19) $ (2.01) $ 0.70 $ 0.94 $ 0.71
Extraordinary gain .17 - - - -
------------ ------------ ------------ ------------ ------------
Net (loss) income $ (5.02) $ (2.01) $ 0.70 $ 0.94 $ 0.71
============ ============ ============ ============ ============
PERCENT OF SALES DATA:
Gross margin 24.2% 24.4% 28.6% 28.8% 27.9%
Selling, general and administrative expenses 26.5 25.7 24.9 24.0 23.4
Operating (loss) income (8.9) (5.6) 2.8 4.0 3.7
(Loss) income before income taxes and
extraordinary gain (9.6) (6.3) 2.4 3.8 3.6
</TABLE>
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA, CONTINUED
<TABLE>
<CAPTION>
Fiscal Year Ended (1)
-------------------------------------------------------------------------------
January 29, January 24, January 25, January 26, January 28,
2000 1999 1998 1997 1996
---------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL AND OPERATING DATA:
End of period stores 203 226 199 168 136
Comparable store sales (decrease) increase (3.4)% (3.7)% (2.2)% 3.3% 1.1%
Inventory turnover 2.9 3.1 3.1 3.2 3.2
Weighted average sales per square foot $ 172 $ 177 $ 193 $ 203 $ 214
Weighted average sales per store
(IN THOUSANDS) 7,390 7,661 8,334 8,819 9,231
Average sale per transaction 45.67 46.53 46.54 45.99 44.85
End of period inventory net of accounts
payable per store (IN THOUSANDS) 1,250 831 900 729 823
Capital expenditures (IN THOUSANDS) 31,640 84,561 114,271 102,165 55,321
Depreciation and amortization (IN THOUSANDS) 46,908 47,921 37,314 28,506 20,339
BALANCE SHEET DATA - END OF PERIOD:
(IN THOUSANDS)
Working capital $ 62,102 $ 30,545 $ 99,710 $ 175,997 $ 81,878
Total assets 643,003 897,454 807,990 750,158 521,317
Long-term debt 126,029 173,248 157,439 152,021 -
Stockholders' equity 116,110 272,912 333,551 310,317 277,528
</TABLE>
- ------------------
(1) The fiscal years ended January 29, 2000 and January 28, 1996 consisted
of 53 weeks. All other fiscal years shown each consisted of 52 weeks.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the Company's statement of operations data
as a percent of sales for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
January 29, January 24, January 25,
2000 1999 1998
----------- ----------- ------------
<S> <C> <C> <C>
Sales 100.0% 100.0 % 100.0 %
Cost of merchandise sold, including
buying and occupancy costs 75.8 75.6 71.4
----------- ----------- ------------
Gross margin 24.2 24.4 28.6
License fees and rental income (0.1) (0.1) (0.2)
Selling, general and administrative expenses 26.5 25.7 24.9
Pre-opening expense 0.1 0.7 0.7
Goodwill amortization 0.1 0.1 0.1
Store exit costs 0.6 2.5 0.3
Corporate restructuring - 0.3 -
Impairment of long-lived assets 5.9 0.8 -
----------- ----------- ------------
Operating (loss) income (8.9) (5.6) 2.8
Interest, net 1.0 0.7 0.4
Gain on deconsolidation of joint venture (0.3) - -
----------- ----------- ------------
(Loss) income before income taxes and
extraordinary gain (9.6) (6.3) 2.4
Income tax expense (benefit) 1.5 (2.2) 1.0
Minority interest - (0.1) (0.1)
----------- ----------- ------------
(Loss) income before extraordinary gain (11.1) (4.0) 1.5
Extraordinary gain, net of tax 0.3 - -
----------- ----------- ------------
Net (loss) income (10.8)% (4.0)% 1.5 %
=========== =========== ============
</TABLE>
The following table sets forth the Company's store openings and closings
for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
January 29, January 24, January 25,
2000 1999 1998
----------- ------------ ------------
<S> <C> <C> <C>
Beginning number of stores 226 199 168
Openings 3 30 31
Closings (15) (3) -
Deconsolidation of joint venture (13) - -
----------- ------------ ------------
Ending number of stores - full line 201 226 199
Clearance store openings 2 - -
----------- ------------ ------------
Total stores 203 226 199
=========== ============ ============
</TABLE>
18
<PAGE>
FISCAL YEARS ENDED JANUARY 29, 2000 (FISCAL 1999) AND JANUARY 24, 1999 (FISCAL
1998)
Sales for the 53 weeks ended January 29, 2000 were $1,492.9 million, a
$106.8 million, or 6.7% decrease from sales of $1,599.7 million for the fiscal
year ended January 24, 1999. Sales in fiscal 1998 include $84.9 million from
Mega Sports Co., Ltd. ("Mega Sports"), the Company's Japanese joint venture. The
Company discontinued consolidation of Mega Sports in 1999 due to a reduction of
its ownership interest in the joint venture. Additionally, the Company closed 15
stores in the first quarter of 1999 pursuant to its previously announced
restructuring plans. The prior year includes sales of $78.8 million from closed
stores, as compared to $11.3 million in 1999.
Excluding the impact of the deconsolidation of Mega Sports and the store
closings, sales increased $45.6 million, or 2.9%. Of the 2.9% increase, $85.6
million, or 5.3%, was attributable to stores opening in 1998 and 1999 which had
no comparable sales in the prior year, and approximately $15.7 million, or 1.0%,
was attributable to adding six days to the 1999 fiscal year. (See Note 2 of the
Notes to Consolidated Financial Statements.) These increases were offset by a
decrease in comparable store sales of $55.7 million, or 3.4%, excluding the
impact of store closings and declines in the hunting category due to the Company
discontinuing the sale of handguns in all locations in early 1999 and reducing
its rifle and hunting assortment. The decrease in comparable store sales
reflected continued weakness in the key categories of footwear, golf and men's
apparel, which have trended negatively for several consecutive quarters. During
1999, the Company implemented a number of initiatives to reverse these trends,
including revising its merchandising and pricing approach, testing and
evaluating new marketing strategies and developing incentive selling programs.
License fees and rental income was $1.8 million in 1999, compared to $0.8
million in 1998. In 1999, license fees included $1.6 million in royalty fee
income under a license agreement between the Company and Mega Sports. (See Note
3 of the Notes to Consolidated Financial Statements.) Prior to 1999,
intercompany royalty fees were eliminated due to consolidation of Mega Sports in
the Company's results of operations. Royalty fees under a license agreement with
TheSportsAuthority.com, Inc. which commenced in the fourth quarter of 1999, were
nominal in the current fiscal year. The Company also has a license arrangement
for the sale of diving merchandise in three stores. Sales of licensee
merchandise are excluded from the Company's total sales.
The major components of cost of merchandise sold are merchandise costs
(including distribution) and, to a lesser extent, occupancy costs. Cost of
merchandise sold increased from 75.6% of sales in 1998 to 75.8% of sales in
1999, an increase of 0.2% of sales. This increase was attributable to an
increase in occupancy costs of 0.3% of sales resulting from the decline in sales
productivity. Merchandise costs were 67.4% of sales for both 1999 and 1998. In
1999, merchandise costs included a $28.9 million charge related to excess
markdowns taken to address aged inventory, liquidations at closing stores and
inventory shrink. The prior year included a $24.1 million inventory writedown
related primarily to aged inventory and store closings. Excluding these charges,
merchandise costs decreased 0.5%, from 65.9% of sales in 1998 to 65.4% of sales
in 1999, as a result of improved purchase markons.
Selling, general and administrative ("SG&A") expenses in 1999 were $395.0
million, or 26.5% of sales, compared to $410.7 million, or 25.7% of sales in the
prior year. The increase as a percentage of
19
<PAGE>
sales resulted from the decline in sales productivity and an increase in
advertising expenditures to drive traffic into the stores.
Pre-opening expense in 1999 was $1.6 million, or 0.1% of sales, compared to
$11.2 million, or 0.7% of sales in 1998. The decrease in expense reflected the
reductions in store openings, from 30 stores in 1998 to three full-line format
stores in 1999. During 1999, the Company also opened two clearance stores, on a
test basis, in previously closed locations. No pre-opening expense was incurred
on these openings. Pre-opening expense consists principally of store payroll
expense for associate training and store preparation prior to a store opening,
operating expenses and grand-opening advertising costs.
In the fourth quarter of 1999, the Company recorded charges aggregating
$156.5 million, of which $28.9 million was applicable to the inventory related
charges discussed previously, and $127.6 million was comprised of the following:
$8.9 million for store exit costs; $88.8 million for asset impairments,
including goodwill of $46.9 million; $28.8 million for tax charges, net of
expected tax refunds; and $1.3 million for cumulative translation losses related
to the Canadian subsidiary.
Store exit costs relate to the closing of five Canadian stores and two
stores in the United States. The charge represents estimated costs to be
incurred beyond the store closing date, including rent, common area maintenance
charges, real property taxes and employee severance. (See Note 4 of the Notes to
Consolidated Financial Statements.) The Company's decision to exit its Canadian
operations was based on poor performance in the stores as well as the Company's
strategic plan to focus Company resources on domestic markets. All five stores
were closed in March 2000. The two United States stores are being closed due to
the opening of new stores in close proximity to these locations. Canadian store
sales were $28.4 million, $31.0 million and $29.3 million in 1999, 1998 and
1997, respectively, and operating losses excluding restructuring charges were
$4.4 million, $3.7 million and $4.0 million, respectively.
Based on continued declines in store operating performance, the Company
evaluated the recoverability of its store-level assets pursuant to Financial
Accounting Standards No. 121 ("SFAS 121"). The Company recorded a $41.9 million
impairment charge on property and equipment at 40 stores based on a
determination that the carrying value of assets at these locations exceeded
estimated future cash flows. Estimated future cash flows were based on the
Company's fiscal year 2000 budget and internal projections for years beyond
2000. The charge included $1.9 million related to the five Canadian stores which
closed in March 2000, $0.5 million for the two domestic locations expected to
close in 2000 and $1.4 million for two owned locations which closed in 1999.
An impairment charge of $46.9 million on the Company's enterprise-level
goodwill was recognized pursuant to a change in the Company's method of
measuring the recoverability of goodwill. Prior to 1999, the Company measured
the recoverability of goodwill using the projected, undiscounted cash flows
method. In 1999, the Company changed its method for measuring impairment to the
market value method, whereby impairment is measured by the excess of the
Company's net book value over its market capitalization. Since the excess of the
Company's net book value over its market capitalization exceeded the carrying
value of the Company's goodwill, the remaining value of goodwill was written
off.
20
<PAGE>
In conjunction with closing the Canadian subsidiary, the Company recognized
$1.3 million in cumulative translation adjustments, previously a component of
stockholders' equity, as required by Financial Accounting Standards No. 52. This
charge is included in SG&A expenses.
Corporate restructuring of ($0.7) million related to the settlement of the
Company's obligation under an employment contract with a former executive. The
initial reserve for this obligation was included in the Company's 1998
restructuring charge. As a result of the settlement, the Company reversed the
remaining reserve under this contract in 1999.
Operating loss was $133.1 million, or (8.9)% of sales in 1999, as compared
to $88.9 million, or (5.6)% of sales in 1998. Operating loss before pre-opening
expense, goodwill amortization and restructuring charges was $32.6 million, or
(2.2)% of sales in 1999, versus $18.9 million, or (1.2)% of sales for the
preceding year.
Interest, net was $15.3 million, or 1.0% of sales in 1999, compared to
$12.0 million, or 0.7% of sales in 1998. The increase of $3.3 million was due to
an increase in current borrowings under the Company's revolving credit
facilities, combined with an increase in the Company's borrowing rate. The
Company's weighted average interest rate on revolving credit borrowings was 7.4%
in 1999, compared to 6.6% in 1998.
In March 1999, the Company reduced its ownership interest in Mega Sports
and, as a result, discontinued consolidation of the results of Mega Sports in
1999 and recorded a gain on deconsolidation of $5.0 million, or 0.3% of sales.
See Note 3 of the Notes to Consolidated Financial Statements.
Income tax expense on loss before extraordinary gain was $22.7 million in
1999, compared to an income tax benefit of $35.0 million in 1998. The current
year tax expense includes a provision for a valuation allowance of $37.6 million
on the Company's U.S. deferred tax assets at the beginning of the year, and a
$5.7 million writeoff of Canadian deferred tax assets. The valuation allowance
was recorded pursuant to Financial Accounting Standards No. 109. The Company's
cumulative losses in recent years have created a presumption that the deferred
tax assets may not be realizable. Accordingly, the Company provided a valuation
allowance for all its net deferred tax assets as of January 29, 2000. The
writeoff of Canadian deferred tax assets related to the Company's decision to
exit its Canadian operations. These charges were partially offset by an
estimated $18.7 million tax refund expected to be generated by the carryback of
the Company's 1999 net operating loss. The Company's effective tax rate in 1998
was 34.7%. The Company expects its effective tax rate will be nominal in 2000 as
net operating loss carryforwards and other deductions can be used to offset
future taxable income, if any.
In the third quarter of 1999, the Company recorded an extraordinary gain of
$5.5 million, net of tax, on the early extinguishment of $23.5 million in
principal amount of its 5.25% Convertible Subordinated Notes (the "Notes"), due
in September 2001. The Company purchased the Notes on the open market for $14.0
million, excluding accrued interest.
As a result of the foregoing factors, the Company's 1999 net loss was
$160.5 million, as compared to $63.8 million in the prior year.
21
<PAGE>
FISCAL YEARS ENDED JANUARY 24, 1999 (FISCAL 1998) AND JANUARY 25, 1998 (FISCAL
1997)
Sales for the fiscal year ended January 24, 1999 were $1,599.7 million,
a $135.1 million, or 9.2% increase over sales of $1,464.6 million for the fiscal
year ended January 25, 1998. In August 1998, the Company began directly selling
winter sports apparel and hardlines in its North American stores. Previously,
winter sports merchandise was sold under a license agreement with a third party
and was excluded from total sales of the Company. The agreement was terminated
effective August 1, 1998. Of the 9.2% sales increase in 1998, 2.0% was
attributable to the inclusion of sales of $29.3 million from Company-operated
winter sports departments.
Of the remaining increase in total sales, 7.3%, or $107.2 million, was
attributable to non-winter sports sales in 31 stores opened in 1997 which had no
comparable store sales in the prior year, and 6.2%, or $91.1 million, was
attributable to the 30 stores opened in 1998. These increases were partially
offset by a 5.6%, or $80.0 million, decrease in comparable store sales,
excluding winter sports product sales, and an 0.7%, or $12.5 million, decrease
in non-comparable sales related to the three store closings in early 1998. The
decrease in comparable store sales resulted from declines in specific categories
such as footwear, fitness and golf.
License fees and rental income in 1998 were $0.8 million, or 0.1% of sales,
compared to $3.3 million, or 0.2% of sales, in the prior year. The decline
resulted from the termination in 1998 of the Company's license agreement
covering the sale of winter sports merchandise in North American stores. Under
the agreement, the Company had received a fee of approximately 10% of licensee
merchandise sales.
Cost of merchandise sold, including buying and occupancy costs, increased
4.2% of sales, from 71.4% in 1997 to 75.6% in 1998. Merchandise costs increased
3.8% of sales, of which 1.5% was attributable to a $24.1 million inventory
writedown taken to address aged inventory and anticipated markdowns at stores
scheduled to close in 1999. Merchandise costs in 1998 reflect full year
operating costs associated with the Company's first regional distribution center
("RDC"), which opened in November 1997 and became fully operational in 1998. The
Company did not fully realize logistics savings expected as a result of the
transition from direct store to regional distribution due to productivity and
allocation problems encountered in the start-up phase of the RDC.
SG&A expenses as a percent of sales were 25.7% in 1998, compared to 24.9%
in the prior year. The 0.8% of sales increase was attributable to negative
leveraging as a result of a decrease in sales productivity in 1998 compared to
1997.
Pre-opening expense in 1998 was $11.2 million, compared to $10.6 million in
the prior year. The Company opened 30 stores in 1998 versus 31 stores in 1997;
however, pre-opening expense increased $0.6 million due to higher pre-opening
occupancy charges at three stores opened in 1998.
In 1998, the Company recorded total restructuring charges of $56.8 million,
consisting of: $39.4 million for store exit costs related to 18 planned store
closings; $3.9 million for corporate restructuring; and $13.5 million for asset
impairments at six stores. The Company completed 15 store closings in early
1999. As a result of changing market conditions and favorable rent concessions,
the Company
22
<PAGE>
determined that it would not close the remaining three stores, and has reversed
the reserve balances for these locations. (See Note 4 of the Notes to
Consolidated Financial Statements). The Company recorded $3.9 million in
employment contract obligations to several departing executives in conjunction
with changes to internal processes and strategic business functions.
Operating loss was $88.9 million, or (5.6)% of sales in 1998, as compared to
operating income of $40.7 million, or 2.8% of sales, in 1997. Operating loss
before pre-opening expense, goodwill amortization and restructuring charges was
$18.9 million, or (1.2)% of sales in 1998, as compared to income of $57.5
million, or 3.9% of sales in 1997.
Interest, net was $12.0 million in 1998, as compared to $6.0 million in
1997. The increase of $6.0 million was primarily attributable to an increase in
short-term borrowings as well as a decrease in interest income from short-term
investments.
Income tax benefit in 1998 was $35.0 million with an effective tax rate of
34.7%, as compared to income tax expense in 1997 of $14.7 million with an
effective tax rate of 42.4%. The decrease in the effective tax rate was due, in
part, to a $4.2 million tax charge included in the 1998 restructuring charges.
The charge related primarily to a writedown of deferred tax assets of the
Canadian subsidiary based on a determination that a portion of the subsidiary's
net operating losses may expire before being utilized. Exclusive of this charge,
the 1998 effective tax rate was 38.9%.
As a result of the foregoing factors, net loss in 1998 was $63.8 million,
or (4.0)% of sales, as compared to net income of $22.2 million, or 1.5% of
sales, in 1997.
The results of operations for 1998 and 1997 include Mega Sports. Due to a
reduction in the Company's ownership interest in the joint venture, the Company
discontinued consolidation of Mega Sports beginning in fiscal 1999. Net losses
of the joint venture were $4.2 million in 1998 and $4.5 million in 1997, of
which the Company's share was $2.1 million and $2.3 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working capital
needs and for capital expenditures on hardware and software upgrades, store
refurbishments and new store openings. In 1999 these capital requirements were
generally funded by revolving credit borrowings and real estate sale/leasebacks.
Cash flows generated by (used for) operating, investing and financing activities
for 1999, 1998 and 1997 are summarized below. The net (decrease) increase in
cash and cash equivalents was ($4.2) million in 1999, $1.3 million in 1998 and
($90.6) million in 1997.
Net cash (used for) provided by operations was ($78.9) million in 1999, as
compared to $7.5 million in 1998 and ($2.0) million in 1997. The decrease in
operating cash flows in 1999 was primarily due to management's decision to
accelerate payments to vendors during the fourth quarter to alleviate vendor
concerns after bankruptcy filings by other sporting goods retailers.
Consequently, inventory financed by accounts payable decreased from 49.0% in
1998 to 26.9% in 1999. The remaining decrease resulted from payments of $10.3
million for store exit costs under the 1998 and 1997 store
23
<PAGE>
closing plans, and $1.7 million under several employment contracts with former
executives. In 1999, the Company recorded additional reserves for stores
expected to close in 2000. The Company estimates that it will pay a total of
$12.7 million in store exit costs during fiscal 2000 under the store closing
plans approved in 1997, 1998 and 1999.
Net cash provided by (used for) investing was $11.1 million in 1999, as
compared to ($78.2) million in 1998 and ($112.8) million in 1997. The increase
in cash provided by investing activities resulted from the sale-leaseback of
eight owned properties during 1999 for an aggregate sales price of $46.8
million, combined with a decline in capital expenditures due to a decrease in
store openings. Capital expenditures were $31.6 million in 1999, and consisted
of $13.6 million for upgrades to information systems, $9.5 million to refurbish
existing stores, $5.6 million for three new stores, and $2.9 million for RDC and
corporate improvements.
Net cash provided by financing activities was $63.6 million in 1999 as
compared to $72.0 million in 1998 and $24.1 million in 1997. Cash provided by
financing activities consisted principally of borrowings under the revolving
credit facility between the Company and a group of lenders led by Fleet Retail
Finance Inc. (formerly BankBoston Retail Finance, Inc.) dated April 13, 1999,
("Credit Facility"). In December 1999, the Credit Facility was amended to
increase maximum borrowings from $200 million to $275 million and to extend the
maturity date of the facility from April 2002 to September 2003. The Credit
Facility is secured by inventories, and borrowings are limited to a borrowing
base determined largely with reference to eligible inventories. Borrowings
increased $80.3 million in 1999, and were used to fund working capital needs,
store refurbishment, upgrades to information systems and early retirement of
long-term debt. The early retirement of debt reduced the outstanding principal
amount of the Company's Notes, which mature in September 2001, by $23.5 million.
The Company's working capital at January 29, 2000 was $62.1 million,
compared with $30.5 million at January 24, 1999, an increase of $31.6 million.
The increase resulted primarily from the deconsolidation of Mega Sports, which
had negative working capital at January 24, 1999 of $22.0 million.
The Company substantially cut back its expansion program in 1999, and
intends to similarly limit expansion in 2000. It plans to open five new stores,
and to finance the stores with operating leases. The Company estimates capital
expenditures in 2000 will be approximately $30.0 - $35.0 million, primarily for
refurbishment of existing stores and upgrades of information systems.
During the first quarter of 2000, the Company purchased an additional $76.0
million in principal amount of its Notes for $56.2 million, excluding interest.
The purchases reduced the remaining outstanding principal amount of the Notes to
$50.0 million. The Company has announced its intention to purchase Notes from
time to time, as conditions warrant.
The Company believes that anticipated cash flows from operations, combined
with borrowings under the Credit Facility, will be sufficient to fund working
capital and finance capital expenditures through the next 12 months.
24
<PAGE>
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended,
which is required to be adopted by the Company in fiscal year 2001. The Company
generally does not use derivatives; accordingly, management does not anticipate
that the adoption of the new Statement will have a significant effect on
earnings or the financial position of the Company.
YEAR 2000
In prior years, the Company disclosed the nature and progress of its plans
to become Year 2000 compliant. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information and non-information technology systems, and
believes those systems responded successfully to the Year 2000 date change.
The Company expensed as incurred approximately $2.7 million on its Year 2000
compliance project, and expects no material costs in the future. The Company is
not aware of any material problems resulting from Year 2000 issues, either with
its internal systems or the products and services of third parties. The Company
will continue to monitor its mission critical computer applications and those of
its suppliers and vendors throughout the Year 2000 to ensure that any latent
Year 2000 issues that may arise are resolved promptly.
SEASONALITY AND INFLATION
The Company's annual business cycle is seasonal, with higher sales and
correlated profits occurring in the second and fourth quarters. In fiscal 1999,
the Company's sales trended as follows: 23.9% in the first quarter, 25.8% in the
second quarter, 21.9% in the third quarter and 28.4% in the fourth quarter.
Management does not believe inflation had a material effect on the
financial statements for the periods presented.
FORWARD LOOKING STATEMENTS
Refer to Forward Looking Statements in Part I.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company has no material exposure to the market risks covered by this
Item.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Management's Responsibility for Financial Reporting 27
Report of Independent Certified Public Accountants 28
Report of Independent Certified Public Accountants 29
Consolidated Statements of Operations for the fiscal years ended
January 29, 2000, January 24, 1999 and January 25, 1998 30
Consolidated Balance Sheets, as of January 29, 2000 and January 24, 1999 31
Consolidated Statements of Changes in Stockholders' Equity for the fiscal
years ended January 29, 2000, January 24, 1999 and January 25, 1998 32
Consolidated Statements of Cash Flows for the fiscal years ended
January 29, 2000, January 24, 1999 and January 25, 1998 33
Notes to Consolidated Financial Statements 34
26
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the integrity and consistency of all
financial information presented in this Annual Report. The financial statements
have been prepared in accordance with generally accepted accounting principles
and include certain amounts based on Management's best estimates and judgments
as required.
Management has developed and maintains a system of accounting and controls
designed to provide reasonable assurance that the Company's assets are protected
from improper use and that accounting records provide a reliable basis for the
preparation of financial statements. This system includes policies which require
adherence to ethical business standards and compliance with all laws to which
the Company is subject. This system is continually reviewed, improved and
modified in response to changing business conditions and operations. The
Company's comprehensive internal audit program provides for constant evaluation
of the adequacy of and adherence to Management's established policies and
procedures; the extent of the Company's system of internal accounting controls
recognizes that the cost should not exceed the benefits derived. Management
believes that assets are safeguarded and financial information is reliable.
The financial statements of the Company have been audited by Ernst & Young
LLP, independent certified public accountants. Their report, which appears
herein, is based upon their audit conducted in accordance with generally
accepted auditing standards. These standards include a review of the systems of
internal controls and tests of transactions to the extent considered necessary
by them for purposes of supporting their opinion.
The Audit Committee of the Board of Directors is comprised solely of
Directors who are not officers or employees of the Company. The Committee is
responsible for recommending to the Board of Directors the selection of
independent certified public accountants. It meets periodically and monitors the
financial, accounting and auditing procedures of the Company in addition to
reviewing the Company's financial reports. The Company's independent certified
public accountants and The Sports Authority's internal auditors have full and
free access to the Audit Committee.
/s/ MARTIN E. HANAKA /s/ GEORGE R. MIHALKO
- ----------------------- -----------------------
Martin E. Hanaka George R. Mihalko
Chief Executive Officer Chief Financial Officer
27
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS AND STOCKHOLDERS
THE SPORTS AUTHORITY, INC.
We have audited the accompanying consolidated balance sheet of The Sports
Authority, Inc. as of January 29, 2000, and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Sports
Authority, Inc. at January 29, 2000, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
As discussed in Note 4 to the Consolidated Financial Statements, in 1999 the
Company changed its method for measuring impairment of goodwill.
/s/ ERNST & YOUNG LLP
Miami, Florida
March 27, 2000
28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF THE SPORTS AUTHORITY, INC.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
The Sports Authority, Inc. and its subsidiaries at January 24, 1999, and the
results of their operations and their cash flows for each of the two years in
the period ended January 24, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
April 6, 1999
29
<PAGE>
THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------
January 29, January 24, January 25,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Sales $ 1,492,860 $ 1,599,660 $ 1,464,565
License fees and rental income 1,829 841 3,345
----------- ----------- -----------
1,494,689 1,600,501 1,467,910
----------- ----------- -----------
Cost of merchandise sold, including buying and
occupancy costs 1,132,296 1,208,701 1,045,028
Selling, general and administrative expenses 394,963 410,730 365,363
Pre-opening expense 1,609 11,194 10,570
Goodwill amortization 1,963 1,963 1,963
----------- ----------- -----------
1,530,831 1,632,588 1,422,924
----------- ----------- -----------
Store exit costs 8,861 39,446 4,302
Corporate restructuring (700) 3,930 --
Impairment of long-lived assets 88,751 13,457 --
----------- ----------- -----------
96,912 56,833 4,302
----------- ----------- -----------
Operating (loss) income (133,054) (88,920) 40,684
----------- ----------- -----------
Interest:
Interest expense 17,657 13,197 8,544
Interest income (2,370) (1,232) (2,592)
----------- ----------- -----------
Interest, net 15,287 11,965 5,952
----------- ----------- -----------
Gain on deconsolidation of joint venture (5,001) -- --
----------- ----------- -----------
(Loss) income before income taxes and
extraordinary gain (143,340) (100,885) 34,732
Income tax expense (benefit) 22,721 (35,028) 14,730
Minority interest -- (2,066) (2,191)
----------- ----------- -----------
(Loss) income before extraordinary gain (166,061) (63,791) 22,193
Extraordinary gain, net of tax of $3,678 5,517 -- --
----------- ----------- -----------
Net (loss) income $ (160,544) $ (63,791) $ 22,193
=========== =========== ===========
Basic and diluted earnings (loss) per common share:
(Loss) income before extraordinary gain $ (5.19) $ (2.01) $ 0.70
Extraordinary gain .17 -- --
----------- ----------- -----------
Net (loss) income $ (5.02) $ (2.01) $ 0.70
=========== =========== ===========
Weighted average common shares outstanding:
Basic 32,003 31,768 31,513
=========== =========== ===========
Diluted 32,003 31,768 31,816
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
30
<PAGE>
THE SPORTS AUTHORITY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
January 29, January 24,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 11,814 $ 16,007
Merchandise inventories 347,273 367,951
Receivables and other current assets 55,264 55,377
--------- ---------
Total current assets 414,351 439,335
Net property and equipment 213,638 341,371
Other assets and deferred charges 15,014 67,928
Goodwill - net of accumulated amortization of $17,585
at January 24, 1999 -- 48,820
--------- ---------
Total Assets $ 643,003 $ 897,454
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade $ 93,584 $ 180,117
Accrued payroll and other current liabilities 111,392 139,468
Current debt 130,544 75,623
Taxes other than income taxes 12,894 13,582
Income taxes 3,835 --
--------- ---------
Total current liabilities 352,249 408,790
Long-term debt 126,029 173,248
Other long-term liabilities 48,615 46,659
--------- ---------
Total liabilities 526,893 628,697
--------- ---------
Commitments and contingencies
Minority interest -- (4,155)
Stockholders' Equity:
Common stock, $.01 par value; 100,000 shares authorized;
32,264 and 31,951 shares issued, respectively 323 320
Additional paid-in capital 251,991 251,024
Deferred compensation (574) (531)
(Accumulated deficit) retained earnings (135,109) 25,435
Treasury stock, 55 and 56 shares, respectively, at cost (521) (527)
Accumulated other comprehensive loss -- (2,809)
--------- ---------
Total stockholders' equity 116,110 272,912
--------- ---------
Total Liabilities and Stockholders' Equity $ 643,003 $ 897,454
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
31
<PAGE>
THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Retained Other
Common Stock Additional Earnings Comprehensive
-------------------- Paid-in Deferred (Accumulated Treasury Income
Shares Amount Capital Compensation Deficit) Stock (Loss) Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 26, 1997 31,466 $ 315 $ 245,621 $ (2,177) $ 67,033 $ (381) $ (94) $ 310,317
Common stock issued under stock plans 68 1 1,054 (124) 931
Common stock retired under stock plans (112) (1) (1,143) 144 (1,000)
Amortization of deferred compensation 672 672
Options issued under stock option plan 125 (125) --
Stock options exercised 127 1 1,504 1,505
Treasury stock acquired (10) (21) 21 (113) (113)
COMPREHENSIVE INCOME (LOSS):
Net income 22,193 22,193
Cumulative translation adjustment (954) (954)
---------
Comprehensive income 21,239
--------------------------------------------------------------------------------------
Balance, January 25, 1998 31,539 316 247,140 (1,589) 89,226 (494) (1,048) 333,551
Common stock issued under stock plans 140 2 1,445 (794) 653
Common stock re-issued under stock plans 105 1 999 1,000
Common stock retired under stock plans (2) (25) 25 --
Amortization of deferred compensation 1,827 1,827
Stock options exercised 120 1 1,465 1,466
Treasury stock acquired (7) (33) (33)
COMPREHENSIVE LOSS:
Net loss (63,791) (63,791)
Cumulative translation adjustment (1,761) (1,761)
---------
Comprehensive loss (65,552)
--------------------------------------------------------------------------------------
Balance, January 24, 1999 31,895 320 251,024 (531) 25,435 (527) (2,809) 272,912
Common stock issued under stock plans 322 3 1,012 (660) 355
Common stock retired under stock plans (2) (25) 25 --
Common stock cancelled under stock plans (7) (20) (20)
Treasury stock re-issued 1 6 6
Amortization of deferred compensation 592 592
COMPREHENSIVE LOSS:
Net loss (160,544) (160,544)
Cumulative translation adjustment 2,809 2,809
---------
Comprehensive loss (157,735)
--------------------------------------------------------------------------------------
Balance, January 29, 2000 32,209 $ 323 $ 251,991 $ (574) $(135,109) $ (521) $ -- $ 116,110
======================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
32
<PAGE>
THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------
January 29, January 24, January 25,
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR):
OPERATIONS
Net (loss) income $(160,544) $ (63,791) $ 22,193
Adjustment to reconcile net (loss) income to operating cash flows:
Depreciation and amortization 46,908 47,921 37,314
Gain on deconsolidation of joint venture (5,001) -- --
Gain on extinguishment of debt (9,195) -- --
Cumulative translation adjustment 1,439 (1,761) (954)
Minority interest in net loss of joint venture -- (2,066) (2,191)
Loss on sale or disposal of property and equipment 3,023 375 225
Impairment of long-lived assets 88,751 13,457 --
Accrual for store exit costs 8,861 39,446 4,302
Corporate restructuring (700) 3,930 --
Change in deferred tax assets 43,313 (25,107) (10,994)
Decrease (increase) in other assets 3,167 (7,552) (2,517)
(Decrease) increase in other long-term liabilities (1,340) 5,993 4,908
Cash (used for) provided by current assets and liabilities:
Increase in income taxes receivable (21,313) -- --
Increase in inventories (5,544) (40,289) (48,085)
(Decrease) increase in accounts payable (64,801) 31,605 (8,644)
Other - net (5,921) 5,344 2,487
--------- --------- ---------
Net cash (used for) provided by operations (78,897) 7,505 (1,956)
--------- --------- ---------
INVESTING
Capital expenditures (31,640) (84,561) (114,271)
Net proceeds from sale of property and equipment 45,845 9 1,349
Deconsolidation of joint venture (3,127) -- --
Other - net (16) 6,353 172
--------- --------- ---------
Net cash provided by (used for) investing 11,062 (78,199) (112,750)
--------- --------- ---------
FINANCING
Short-term borrowings, net 80,277 54,155 16,425
Proceeds from long-term debt -- 16,578 5,418
Payments on long-term debt (14,015) -- --
Proceeds from sale of stock 353 2,068 2,403
Proceeds from sale of (purchase of) treasury stock 6 (33) (113)
Debt issuance costs (2,158) -- (43)
Reduction in capital lease obligations (821) (769) --
--------- --------- ---------
Net cash provided by financing 63,642 71,999 24,090
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,193) 1,305 (90,616)
Cash and cash equivalents at beginning of year 16,007 14,702 105,318
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,814 $ 16,007 $ 14,702
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid, net of amount capitalized $ 15,375 $ 15,854 $ 7,666
Income taxes (refunded) paid, net (7,177) 3,291 28,136
</TABLE>
See accompanying Notes to Consolidated Financial Statements
33
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: THE COMPANY
The Sports Authority, Inc. ("The Sports Authority" or "Company") is the
largest full-line sporting goods retailer in the United States. At January 29,
2000, the Company operated 201 full-line stores as well as two temporary
clearance centers, substantially all in excess of 40,000 square feet, including
198 stores in 32 states across the United States and five stores in Canada. The
Company ceased operating its five stores in Canada in March 2000.
The Company's Japanese joint venture, Mega Sports Co., Ltd. ("Mega Sports")
operates 19 THE SPORTS AUTHORITY stores in Japan pursuant to its license
agreement with the Company. The Company is a minority owner in Mega Sports,
which was formed in January 1995 pursuant to the Company's joint venture
agreement with JUSCO Co., Ltd. ("JUSCO"), a major Japanese retailer which owns
9.4% of the Company's outstanding stock.
The Company also owns 19.9% of TheSportsAuthority.com, Inc., a joint
venture with Global Sports Interactive, Inc., a wholly-owned subsidiary of
Global Sports, Inc., which operates the e-commerce business of the Company.
Under the terms of the joint venture agreement, the Company's ownership interest
can increase up to 49.9%. In addition, the Company has the option to purchase
additional shares of TheSportsAuthority.com, Inc., up to 49.9%, upon certain
events.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are described below.
BASIS OF FINANCIAL STATEMENT PRESENTATION: The Company prepares its
financial statements in conformity with generally accepted accounting
principles. These principles require management to (1) make estimates and
assumptions that affect the reported amounts of assets and liabilities, (2)
disclose contingent assets and liabilities at the date of the financial
statements and (3) report amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
FISCAL YEAR: During 1999, the Company revised its fiscal calendar to end
the 1999 fiscal year on Saturday, January 29, 2000, and to cause all succeeding
years to end on the Saturday closest to the end of January. This change added
six days to the 1999 fiscal year, which were included in the Company's results
of operations. Prior to 1999, the Company's fiscal year ended on the Sunday
prior to the last Wednesday in January. The 1999 fiscal year consisted of 53
weeks. The 1998 and 1997 fiscal years each consisted of 52 weeks and ended on
January 24, 1999 and January 25, 1998, respectively.
BASIS OF CONSOLIDATION: The Company includes its wholly-owned and
majority-owned subsidiaries in the consolidated financial statements. All
intercompany transactions and amounts have been eliminated in consolidation.
34
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
EARNINGS PER SHARE: A reconciliation of the basic and diluted EPS
computations is illustrated below:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
-------------------------------------
<S> <C> <C> <C>
BASIC EPS COMPUTATION
(Loss) income before extraordinary gain $(166,061) $ (63,791) $ 22,193
--------- --------- ---------
Weighted average common shares 32,003 31,768 31,513
--------- --------- ---------
Basic earnings (loss) before extraordinary gain
per common share $ (5.19) $ (2.01) $ 0.70
========= ========= =========
DILUTED EPS COMPUTATION
(Loss) income before extraordinary gain $(166,061) $ (63,791) $ 22,193
--------- --------- ---------
Weighted average common shares 32,003 31,768 31,513
Effect of stock options -- -- 303
--------- --------- ---------
Total shares 32,003 31,768 31,816
--------- --------- ---------
Diluted earnings (loss) before extraordinary gain
per common share $ (5.19) $ (2.01) $ 0.70
========= ========= =========
</TABLE>
The computation of diluted EPS for all years presented excludes shares
issuable under the Company's 5.25% Convertible Subordinated Notes because the
issuance of the shares would be antidilutive. For 1999 and 1998, the computation
also excludes the effect of stock options, which would be antidilutive due to
the Company's net losses.
CASH AND CASH EQUIVALENTS: The Company considers cash on hand in stores,
deposits in banks, certificates of deposit and short-term marketable securities
with original maturities of 90 days or less to be cash and cash equivalents.
INVENTORIES: Merchandise inventories are valued on a first-in, first-out
(FIFO) basis at the lower of cost or market using the retail inventory method.
PROPERTY AND EQUIPMENT: Land, buildings, leasehold improvements and
furniture, fixtures and equipment are recorded at cost. Depreciation is provided
over the estimated useful lives of related assets on the straight-line method
for financial statement purposes and on accelerated methods for income tax
purposes. Most store properties are leased and improvements are amortized over
the term of the lease but not more than 10 years. Other estimated useful lives
include 40 years for building, seven years for store fixtures and five years for
other furniture, fixtures and equipment.
35
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
IMPAIRMENT OF PROPERTY AND EQUIPMENT: In accordance with Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
the Company evaluates the carrying value of property and equipment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. An impairment loss is recorded when the net book
value of assets exceed their fair value, as measured by projected undiscounted
future cash flows.
GOODWILL: Prior to the Company's Initial Public Offering ("IPO") on
November 23, 1994, the Company was a wholly-owned subsidiary of Kmart
Corporation ("Kmart"). Goodwill represents the excess of Kmart's cost to acquire
the Company over the fair value of the assets as of March 2, 1990, the date
Kmart acquired the Company. The Company has historically amortized goodwill over
40 years using the straight-line method, and has evaluated the recoverability of
its carrying value using projected undiscounted cash flows. In 1999, the Company
changed the method by which it evaluates the recoverability of goodwill to the
market value method. As a result of this change, the Company recorded an
impairment charge for the remaining carrying value of its goodwill. (See Note 4
of the Notes to Consolidated Financial Statements.)
FINANCIAL INSTRUMENTS: The following methods and assumptions were used to
estimate fair value of the Company's financial instruments:
/bullet/ The carrying amounts of cash and cash equivalents, accounts
receivable and accounts payable approximate fair value due to
their short-term nature.
/bullet/ The fair value of the Company's note receivable is based on
current interest rates and repayment terms of the note.
/bullet/ The carrying value of current debt approximates fair value due
to its short term-nature.
/bullet/ Market prices were used to determine the fair value of the
5.25% Convertible Subordinated Notes (the "Notes").
As of January 29, 2000, the Notes outstanding had a carrying value of
$126.0 million and a fair value of $92.0 million, and the note receivable had a
carrying value of $5.2 million and a fair value of $4.6 million.
REVENUE RECOGNITION, LICENSE FEES AND RENTAL INCOME: Merchandise sales are
recognized at the point of sale. The Company has license agreements with Mega
Sports and TheSportsAuthority.com, Inc. under which the Company receives royalty
fees. (See Note 3 of the Notes to Consolidated Financial Statements.)
Additionally, the Company sells diving merchandise in three locations through a
license agreement under which the Company receives a percentage of product sales
in exchange for rent and services. Such license fees and rental income are
recognized on an accrual basis. Sales of licensee merchandise are excluded from
total sales.
36
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
ADVERTISING COSTS: Production costs are expensed upon first showing of the
advertising, and other advertising costs are generally expensed as incurred. The
Company participates in cooperative advertising with its vendors under which a
portion of advertising costs are reimbursed to the Company. Advertising
expenditures, net of cooperative advertising reimbursements, were $51.4 million,
$47.0 million and $42.1 million in 1999, 1998 and 1997, respectively.
PRE-OPENING COSTS: In 1999, the Company adopted Statement of Position No.
98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up Activities." SOP 98-5
requires that start-up and pre-opening costs be expensed as incurred effective
for fiscal years beginning after December 15, 1998. Previously, start-up costs
were expensed in the month the store opened. The adoption of SOP 98-5 did not
have a material impact on the Company's consolidated results of operations or
financial position in 1999.
STORE CLOSING COSTS: The Company provides for future net lease obligations,
severance payments and other expenses related to store closings in the period
that the Company commits to a plan of exit. Reserves are evaluated periodically
based on actual costs, and are adjusted for material changes in estimates.
INCOME TAXES: The Company provides for income taxes currently payable or
receivable, deferred income taxes resulting from temporary differences between
the book and tax bases of assets and liabilities, and valuation allowances on
its deferred tax assets in accordance with Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes."
FOREIGN CURRENCY TRANSLATION: The financial statements of the Company's
foreign subsidiaries were maintained in their functional currencies and
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52. Assets and liabilities were translated at current
exchange rates existing at the balance sheet date and stockholders' equity was
translated at historical exchange rates. Revenues and expenses were translated
at the average exchange rate for the period. In 1999, the Company recognized
cumulative translation adjustments of $2.8 million due to the deconsolidation of
Mega Sports and discontinuance of operations in Canada.
COMPREHENSIVE INCOME: Comprehensive income (loss) represents the change in
equity arising from non-owner sources, including net income (loss) and other
comprehensive income items such as foreign currency translation adjustments and
minimum pension liability adjustments. The Company's comprehensive income (loss)
consists of net income (loss) and foreign currency translation adjustments.
37
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NEW ACCOUNTING PRONOUNCEMENT: In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended, which is required to be adopted by the
Company in fiscal year 2001. The Company generally does not use derivatives;
accordingly, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
RECLASSIFICATION: Certain amounts in the prior year's financial statements
have been reclassified to conform to the current year's presentation.
NOTE 3: RELATED PARTY TRANSACTIONS
JAPANESE JOINT VENTURE:
In March 1999, the Company sold 32% of its 51% ownership interest in Mega
Sports to JUSCO for $1.1 million. In May 1999, JUSCO made an additional capital
contribution to the joint venture, not matched by the Company, which further
reduced the Company's ownership to 8.4%. As a minority owner, the Company
discontinued consolidation of the joint venture in 1999, and recorded a $5.0
million gain on deconsolidation.
The Company has a license agreement with Mega Sports which permits Mega
Sports to use certain trademarks, technology and know-how of the Company in
exchange for royalty fees of 1.0% of Mega Sports' gross sales in 1999, 1.1% in
2000 and 1.2% in 2001 through 2005. Mega Sports has the option of extending the
new license agreement for three ten-year periods expiring in 2035. The Company's
results of operations in 1999 include royalty fees of $1.6 million pursuant to
the license agreement. In 1998 and prior years, royalty fees were eliminated due
to consolidation of the joint venture in the Company's results of operations.
JUSCO provides management and other services to Mega Sports pursuant to a
services agreement with the joint venture, for which it receives a fee equal to
1.0% of Mega Sports' gross sales and reimbursement of reasonable expenses. The
Company's financial statements for fiscal 1998 and 1997 include fees paid by
Mega Sports to JUSCO totaling $849,000 and $487,000, respectively.
E-COMMERCE JOINT VENTURE:
In May 1999, the Company entered into a license agreement with
TheSportsAuthority.com, Inc. ("TSA.com") which licenses certain trademarks,
service marks, domain names, content, purchasing power and vendor relationships
to the joint venture. The license agreement expires on December 31, 2014 or upon
the earlier termination of other agreements with or relating to TSA.com. The
Company and TSA.com also entered into an e-commerce agreement under which the
Company will furnish certain purchasing, merchandising and management services,
for which TSA.com will reimburse all reasonable
38
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
costs incurred, while TSA.com will furnish all the services necessary to operate
the e-commerce website. Royalty fees under the license agreement included in the
Company's operating results in 1999 were nominal.
NOTE 4: RESTRUCTURING AND IMPAIRMENT CHARGES
STORE EXIT COSTS:
In 1999, the Company recorded store exit costs of $8.9 million, of which
$6.2 million related to the announced closure of five stores in Canada. The
Company is discontinuing its Canadian operations based on poor store performance
and its decision to focus Company resources on domestic markets. Remaining exit
costs of $2.7 million related to the planned closure of two stores in the United
States and, to a lesser extent, the adjustment of reserves established for the
1998 and 1997 store closing plans. Canadian store sales were $28.4 million,
$31.0 million and $29.3 million in 1999, 1998 and 1997, respectively, and
operating losses excluding restructuring charges were $4.4 million, $3.7 million
and $4.0 million, respectively.
The Company recorded store exit charges of $39.4 million in 1998 for the
planned closure of eighteen underperforming stores, including two in Canada. As
a result of favorable market and lease factors, the Company decided not to close
three stores, and has reversed its store exit reserves for these locations. The
remaining fifteen stores were closed in the first quarter of 1999. The Company
paid approximately $8.6 million in lease and related costs, $1.2 million in
other exit costs and $0.5 million in employee severance payments to
approximately 500 employees during 1999.
The 1997 charge of $4.3 million related to the closing of three stores and
two off-site receiving facilities. The two receiving facilities were
consolidated into the Company's regional distribution center, which opened in
November 1997. As of January 29, 2000, reserves under the 1997 store closing
plan consisted primarily of the remaining lease obligation for one store.
During 1999, the Company evaluated the adequacy of its store exit reserves
based on current information with respect to the marketability of these
locations. Based on this evaluation, the Company increased its reserves for
lease and other exit costs at certain locations. This increase was partially
offset by a reduction in reserves for two lease assignments and one sublease
completed in 1999, as well as the reversal of reserves for stores that will
remain open. The net effect of these adjustments was to increase reserves by
approximately $0.7 million.
39
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Following is a reconciliation of store exit reserves:
<TABLE>
<CAPTION>
Lease and
Related Fixed Employee
(IN THOUSANDS) Obligations Assets Severance Other Total
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 25, 1998 $ 2,015 $ 1,823 $ 50 $ 350 $ 4,238
Reserves for 1998 store closing plan 26,571 11,777 657 441 39,446
Reclassification of accrued step rent 4,443 4,443
Payments and asset disposals (610) (4,336) (36) (130) (5,112)
-------- -------- -------- -------- --------
Balance at January 24, 1999 32,419 9,264 671 661 43,015
Reserves for 1999 store closing plan 7,540 -- 251 372 8,163
Adjustment of prior year reserves 413 (494) (189) 969 699
Reclassification of accrued step rent 673 -- -- -- 673
Payments and asset disposals (8,573) (8,496) (485) (1,193) (18,747)
-------- -------- -------- -------- --------
Balance at January 29, 2000 $ 32,472 $ 274 $ 248 $ 809 $ 33,803
======== ======== ======== ======== ========
</TABLE>
CORPORATE RESTRUCTURING:
In 1998, the Company recorded a $3.9 million charge for employment contract
obligations to several departing executives. The Company charged payments of
$1.7 million and $0.6 million to the reserve in 1999 and 1998, respectively, and
has substantially satisfied its remaining obligations under these contracts. In
the first quarter of 1999, the Company negotiated the settlement of one contract
and reduced the corporate restructuring reserve by $0.7 million.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company recorded impairment charges on property and equipment of $41.9
million and $13.5 million in 1999 and 1998, respectively. The impairment charges
were recorded pursuant to SFAS 121, which requires that long-lived assets be
evaluated for impairment whenever events and circumstances, including
consecutive loss years, indicate that the carrying value of assets may not be
recoverable. The Company wrote off assets at 40 stores in 1999, and six stores
in 1998, based on a determination that the carrying value of assets at these
locations exceeded estimated future cash flows. The 1999 charge includes $2.4
million for stores being closed or relocated. Of this amount, $1.9 million
relates to the five Canadian stores which were closed in March 2000, $0.5
million relates to the two domestic stores expected to be closed by the third
quarter of 2000 and $1.4 million relates to two owned properties which were
closed in 1999. The remainder of the 1999 charge relates to 33 stores which
continue in operation.
40
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In 1999, the Company changed its method of evaluating the recoverability of
goodwill from the undiscounted cash flow method to the market value method.
Under the market value method, impairment is measured by the excess of the
Company's net book value over its market capitalization. The Company believes
the market value method is preferable because it results in a more objective
measurement of recoverability and better reflects the value of goodwill as
perceived by investors. Since the excess of the Company's net book value over
its market capitalization exceeded the carrying value of the Company's goodwill,
the change in method resulted in the write off of the remaining carrying value
of goodwill of $46.9 million, or ($1.47) per share. This change represents a
change in method which is inseparable from a change in estimate and,
accordingly, the effect of the change has been reflected as an impairment charge
in the accompanying 1999 statement of operations.
NOTE 5: RECEIVABLES AND OTHER CURRENT ASSETS
Receivables and other current assets consists of the following:
January 29, January 24,
(IN THOUSANDS) 2000 1999
-----------------------
Income taxes receivable $ 22,976 $ --
Other receivables, net of allowances of $1,820
and $1,571, respectively 18,289 24,801
Prepaid expenses 13,999 19,453
Deferred income taxes (See Note 8) -- 11,123
--------- ---------
Total $ 55,264 $ 55,377
========= =========
NOTE 6: PROPERTY AND EQUIPMENT
Net property and equipment consists of the following:
January 29, January 24,
(IN THOUSANDS) 2000 1999
-----------------------
Land $ 38,946 $ 68,581
Buildings 64,991 98,936
Leasehold improvements 60,566 96,130
Furniture, fixtures and equipment 186,464 206,521
Property under capital leases 2,332 7,192
Construction in progress 140 27
--------- ---------
353,439 477,387
Less - accumulated depreciation and amortization (139,801) (136,016)
--------- ---------
Total $ 213,638 $ 341,371
========= =========
41
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 7: OTHER ASSETS AND DEFERRED CHARGES
Other assets and deferred charges consists of the following:
January 29, January 24,
(IN THOUSANDS) 2000 1999
-----------------------
Deferred income taxes (See Note 8) $ -- $ 32,201
Note receivable 5,182 5,280
Lease acquisition costs, net of amortization 4,363 10,123
Debt issuance costs and loan fees 2,837 2,095
Deferred loss on sale/leaseback of property 2,235 --
Leasehold and other deposits 397 17,703
Other -- 526
--------- ---------
Total $ 15,014 $ 67,928
========= =========
In June 1996, the Company paid Kmart $5.5 million in principal and accrued
interest in exchange for a participation in a privately placed mortgage note.
Under the terms of the mortgage note, principal is receivable annually and
interest semi-annually over the remaining period of 16 years at an interest rate
of 8.4%.
Lease acquisition costs consist primarily of the acquisition of nine leases
of two former sporting goods retailers. The costs of the leases were deferred
and are being amortized on a straight-line basis over the remaining lease terms
of the stores. In 1999, lease acquisition costs of $3.0 million related to five
stores were written off as impaired. The Company sold its rights under one lease
in conjunction with the sale-leaseback of eight owned properties in 1999.
Debt issuance costs relate to the Company's long-term convertible debt and
are being amortized over the five-year term of the debt using the effective
interest method. The Company wrote off $0.3 million in debt issuance costs in
conjunction with its purchase of Notes in 1999. Loan fees relate to the Credit
Facility and are being amortized on a straight-line basis over the term of the
Agreement.
During 1999, the Company sold eight properties under a sale-leaseback
agreement with SPI Holdings, LLC. The properties were sold for an aggregate
sales price of $46.8 million, and resulted in a loss on sale of $3.1 million.
The Company recognized $0.9 million of this loss in 1999, representing the
excess of the carrying value of the assets sold over their fair market value.
The remaining loss was deferred and is being amortized over the lease term,
which is 20 years for all properties. Proceeds from the sale were used primarily
to pay down existing debt.
42
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Leasehold deposits in 1998 consisted primarily of store leasing costs in
Japan which are now excluded from the Company's consolidated financial
statements due to the deconsolidation of Mega Sports.
NOTE 8: INCOME TAXES
(Loss) income before income taxes is as follows:
(IN THOUSANDS) 1999 1998 1997
----------------------------------
United States $(130,985) $ (88,332) $ 43,149
Foreign (12,355) (12,553) (8,417)
--------- --------- --------
Total $(143,340) $(100,885) $ 34,732
========= ========= ========
The provision (benefit) for income taxes consists of:
(IN THOUSANDS) 1999 1998 1997
---------------------------------
Current:
Federal $(18,599) $ (5,441) $ 19,471
State and local 1,685 (1,500) 3,300
-------- -------- --------
(16,914) (6,941) 22,771
-------- -------- --------
Deferred:
Federal 34,012 (22,012) (4,917)
State and local 3,596 (6,050) (1,388)
Foreign 5,705 (25) (1,736)
-------- -------- --------
43,313 (28,087) (8,041)
-------- -------- --------
Total $ 26,399 $(35,028) $ 14,730
======== ======== ========
The provision (benefit) for income taxes is included in the Company's Statements
of Operations as follows:
(IN THOUSANDS) 1999 1998 1997
---------------------------------
Income tax expense (benefit) $ 22,721 $(35,028) $ 14,730
Income tax expense on extraordinary gain 3,678 -- --
-------- -------- --------
Total $ 26,399 $(35,028) $ 14,730
======== ======== ========
43
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
A reconciliation of the federal statutory rate to the Company's effective tax
rate follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rate $(50,169) (35.0)% $(35,310) (35.0)% $ 12,156 35.0%
State and local taxes, net of federal tax benefit 3,433 2.4 (4,908) (5.0) 1,243 3.6
Change in valuation allowance 61,958 43.2 -- -- -- --
Goodwill 17,087 11.9 687 0.7 687 2.0
Foreign tax rate differential (1,167) (0.8) 3,617 3.5 412 1.2
Other (4,743) (3.3) 886 1.1 232 0.6
-------- ------ -------- ------ -------- ------
Total $ 26,399 18.4% $(35,028) (34.7)% $ 14,730 42.4%
======== ====== ======== ====== ======== ======
</TABLE>
Deferred tax assets and liabilities resulted from the following:
<TABLE>
<CAPTION>
January 29, January 24,
(IN THOUSANDS) 2000 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Short-term:
Inventory $ 774 $ 920
Accruals and other liabilities 11,167 9,829
Other -- 374
-------- --------
Total short-term 11,941 11,123
-------- --------
Long-term:
Accruals and other liabilities 12,323 6,930
Property and equipment - foreign -- 972
Canada excess liabilities 3,221 2,501
Restructuring charges 26,848 24,018
Net operating loss carryforwards 13,212 --
AMT credit carryforwards 1,274 --
Other 1,796 1,925
-------- --------
Total long-term 58,674 36,346
-------- --------
Total deferred tax assets 70,615 47,469
Less: valuation allowance (61,958) --
-------- --------
Deferred tax assets, net of allowance 8,657 47,469
-------- --------
Deferred tax liabilities:
Short-term:
Other -- 11
-------- --------
Total short-term -- 11
-------- --------
Long-term:
Property and equipment 7,763 3,762
Other 894 383
-------- --------
Total long-term 8,657 4,145
-------- --------
Total deferred tax liabilities 8,657 4,156
-------- --------
Net deferred tax assets $ -- $ 43,313
======== ========
</TABLE>
44
<PAGE>
THE SPORTS AUTHORITY, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company has a net operating loss carryforward for federal income tax
purposes of approximately $21.5 million, net of a federal net operating loss
carryback claim of $57.2 million. The federal net operating loss carryforward
will expire in the Company's fiscal year ending January 2020. In addition, the
Company has $1.3 million of federal alternative minimum tax credit carryforwards
which are not subject to expiration. The Company has state income tax net
operating loss carryforwards of approximately $114.1 million, also expiring in
varying amounts through the Company's fiscal year ending January 2020. The
federal and state net operating loss and tax credit carryforwards could be
subject to limitation if, within any three year period prior to the expiration
of the applicable carryforward period, there is a more than 50% change in the
ownership of the Company.
In 1999, the Company established a valuation allowance in the amount of
$62.0 million for its net deferred tax assets because the realization of
deferred tax assets in excess of deferred tax liabilities cannot be reasonably
assured given the recent cumulative losses incurred by the Company.
Additionally, the Company wrote off approximately $5.7 million of deferred tax
assets attributable to its Canadian subsidiary. The deferred tax assets will not
be realized due to the Company's decision to terminate its operation in Canada.
The Company had previously written down the Canadian deferred tax assets by $3.6
million during 1998.
NOTE 9: CURRENT DEBT
Current debt consists of the following:
January 29, January 24,
(IN THOUSANDS) 2000 1999
--------------------
Revolving credit facility $129,725 $ 49,472
Current portion of capital lease obligations 819 1,707
Short-term loans -- 24,444
-------- --------
Total $130,544 $ 75,623
======== ========
On April 13, 1999, the Company entered into a three year, $200 million
revolving credit facility (the "Credit Facility") with a group of lenders led by
BankBoston Retail Finance Inc. (now Fleet Retail Finance Inc.) to replace the
Company's prior $160 million revolving credit facility which matured on April
26, 1999. In December 1999, the Credit Facility was amended to increase maximum
borrowings to $275 million and to extend the term of the Credit Facility to
September 2003. Borrowings bear interest at the election of the Company at
either the Base Rate or the Eurodollar Rate, both as defined in the Credit
Facility. The Eurodollar Rate includes an interest rate margin, which is 1.75%
to 2.25% under the amended Credit Facility, compared to the initial margin of
1.75%. The Company's weighted average interest rates on revolving credit
borrowings were 7.4% and 6.6% in 1999 and 1998, respectively.
45
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Credit Facility limits borrowings to a borrowing base determined
largely with reference to eligible inventory balances.
Short-term loans in 1998 consisted of bank loans owed by Mega Sports, which
are now excluded from the Company's consolidated financial statements due to the
deconsolidation of Mega Sports.
NOTE 10: LONG-TERM DEBT
Long-term debt consists of the following:
January 29, January 24,
(IN THOUSANDS) 2000 1999
--------------------
5.25% Convertible Subordinated Notes $126,029 $149,500
Term loans -- 19,217
Long-term portion of capital lease obligations -- 4,531
-------- --------
Total $126,029 $173,248
======== ========
The 5.25% Convertible Subordinated Notes mature on September 15, 2001, and
are convertible at the option of the holders into an aggregate of 3,861,774
shares of the Company's common stock at any time until the maturity date, at a
conversion price of $32.635 per share, subject to adjustment in certain events.
Interest is payable semi-annually, on March 15 and September 15 of each year.
The Notes are redeemable at the option of the Company at any time on or after
September 15, 1999 at declining redemption prices beginning with 102.1% of par
at September 15, 1999. The Notes are unsecured obligations of the Company
subordinated in right of payment to all existing and future Senior Indebtedness,
as defined in the Indenture pursuant to which the Notes were issued.
In August 1999, the Company purchased $23.5 million principal amount of
Notes on the open market, for a purchase price of $14.0 million excluding
interest. The Company recorded an extraordinary gain on the transaction of $5.5
million, net of tax. Subsequent to January 29, 2000, an additional $76.0 million
principal amount of Notes were acquired for an aggregate purchase price of $56.2
million.
Term loans in 1998 related to a series of unsecured loans between Mega
Sports and several Japanese banks, which are now excluded from the Company's
financial statements due to the deconsolidation of Mega Sports.
Interest expense in the accompanying Consolidated Statements of Operations
is net of capitalized interest of $762,000 and $844,000 in 1998 and 1997,
respectively. No amounts were capitalized in 1999.
46
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 11: OTHER LONG-TERM LIABILITIES
Other long-term liabilities consists of the following:
January 29, January 24,
(IN THOUSANDS) 2000 1999
----------------------
Step rent accrual $28,737 $24,398
Long-term portion of store exit reserve 19,878 21,414
Other -- 847
------- -------
Total $48,615 $46,659
======= =======
A majority of the Company's store leases contain fixed escalation clauses.
Rental expense for such leases is recognized on a straight-line basis with
adjustments to the corresponding step rent accrual.
The store exit reserve consists primarily of accrued lease obligations and
costs, net of estimated future sublease income, related to the Company's store
closing plans. (See Note 4 of the Notes to Consolidated Financial Statements.)
NOTE 12: COMMITMENTS AND CONTINGENCIES
Prior to the Company's IPO on November 23, 1994, the Company was a
wholly-owned subsidiary of Kmart. Kmart continues to guarantee approximately 59
leases in effect or committed to as of the date of the IPO. Pursuant to a Lease
Guaranty, Indemnification and Reimbursement Agreement ("Indemnification
Agreement"), the Company has agreed to indemnify Kmart for any losses incurred
by Kmart as a result of actions or omissions on the part of the Company, as well
as for all amounts paid by Kmart pursuant to Kmart's guarantees of the Company's
leases. In addition, Kmart has certain rights to acquire leased stores
guaranteed by Kmart if its losses or unreimbursed guaranty payments exceed
certain levels or the Company fails to meet certain financial performance
ratios.
Leases with respect to five of the Company's stores serve as collateral for
certain mortgage pass-through certificates (the "Certificates"). The
Certificates include a provision which would permit the holders of the mortgage
pass-through certificates to require the Company or, upon the Company's failure,
Kmart, to repurchase the underlying mortgage notes in certain events, including
the failure by the Company to make payments of rent under the related lease, the
failure by Kmart to maintain required debt ratings or the termination of the
guarantee by Kmart of the Company's obligations under the related lease. In the
event the Company is required to repurchase all of the underlying mortgage
notes, the Company would be obligated to either refinance or pay approximately
$26 million.
47
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The lease with respect to one of the Company's stores serves as collateral
for a privately placed mortgage note
(the "Note") which is also secured by leases of adjacent tenants. The Note, of
which the principal amount is $3.5 million, may be put back to Kmart in certain
events, including a decline in Kmart's debt rating. Under the Indemnification
Agreement, the Company must reimburse Kmart for "losses" in connection with the
Company's allocable share of Kmart's payments on the put of the Note.
The Company is one of thirty-three defendants, including firearms
manufacturers and retailers, in CITY OF CHICAGO AND COUNTY OF COOK V. BERETTA
U.S.A. CORP. ET AL, Circuit Court of Cook County, Illinois, which suit was
served on the Company on November 23, 1998. The complaint is based on legal
theories of public nuisance and negligent entrustment of firearms and alleges
that the defendant retailers sell firearms in the portion of Cook County outside
Chicago that are found illegally in Chicago. The complaint seeks damages
allocated among the defendants exceeding $358.1 million to compensate the City
of Chicago and Cook County for their alleged costs (of which the complaint
enumerates a total of $153 million) resulting from the alleged public nuisance.
The complaint also seeks punitive damages and injunctive relief imposing
additional regulations on the methods the defendant retailers use to sell
firearms in Cook County. On February 10, 2000, the Court dismissed the
complaint's negligent entrustment count. The plaintiffs filed an amended
complaint with the Court's permission on March 27, 2000, which contains both the
public nuisance and negligent entrustment counts.
There are various other claims, lawsuits and pending actions against the
Company incident to its operations. In the opinion of management, the ultimate
resolution of these matters will not have a material effect on the Company's
liquidity, financial position or results of operations.
NOTE 13: LEASES
The Company conducts operations primarily in leased facilities. Store
leases are generally for terms of 10 to 25 years with multiple five-year renewal
options which allow the Company to extend the term of the lease up to 25 years
beyond the initial noncancellable term. Certain leases require the Company to
pay additional amounts, including rental payments based on a percentage of
sales, and executory costs related to taxes, maintenance and insurance. Some
selling space has been sublet to other retailers in certain of the leased
facilities. The Company also leases certain equipment used in the course of
operations under operating leases.
48
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Future minimum lease payments under noncancelable operating leases at
January 29, 2000 were as follows:
(IN THOUSANDS)
Year:
2000 $ 102,298
2001 99,088
2002 96,864
2003 94,157
2004 94,555
Later years 823,462
------------
Total minimum lease payments 1,310,424
Less: minimum sublease rental income (12,701)
------------
Net minimum lease payments $ 1,297,723
============
A summary of operating lease rental expense and short-term rentals follows:
(IN THOUSANDS) 1999 1998 1997
-------------------------------------
Minimum rentals $ 89,482 $ 101,866 $ 86,148
Percentage rentals (69) 80 292
Less: sublease rentals (1,038) (1,023) (967)
--------- --------- ---------
Total $ 88,375 $ 100,923 $ 85,473
========= ========= =========
NOTE 14: EMPLOYEE RETIREMENT PLANS
Employees of the Company who meet certain requirements as to age and
service are eligible to participate in The Sports Authority 401(k) Savings and
Profit Sharing Plan and certain executives are eligible to participate in The
Sports Authority Supplemental 401(k) Savings and Profit Sharing Plan. The
Company's expense related to these plans was $2.4 million, $2.5 million and $2.3
million in 1999, 1998 and 1997, respectively.
The Company has an unfunded supplemental executive retirement plan for
certain executives of the Company. Pension benefits earned under the plan are
primarily based on years of service at the level of Vice President or higher
after June 1990 and average compensation, including salary and bonus. Pension
expense was $761,000, $779,400 and $443,800 in 1999, 1998 and 1997,
respectively, and the accrued pension liability was $1.6 million and $1.2
million as of January 29, 2000 and January 24, 1999, respectively.
The Company has assumed all obligations for senior executives previously
covered under the Kmart supplemental executive retirement plan. The vested
benefit obligation for pension benefits under the Kmart plan was $299,000 and
$311,000 as of January 29, 2000 and January 24, 1999, respectively.
49
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 15: STOCK PURCHASE, STOCK OPTION AND RESTRICTED STOCK PLANS
In connection with the IPO, the Company adopted the Management Stock
Purchase Plan (the "Management Plan") and the Employee Stock Purchase Plan (the
"Employee Plan"). Under the Management Plan, the Company's senior management
personnel were required, prior to May 1996, to receive a minimum of 20%, and
were permitted to elect to receive up to 100%, of their annual incentive bonuses
in the form of restricted common stock of the Company at a 20% discount from
fair value. In addition, certain senior management personnel were given a
one-time opportunity to invest up to $1.0 million each to purchase restricted
common stock at the time of the IPO, at a 20% discount from the IPO price, net
of the underwriting discount. For each restricted share of common stock so
purchased, the Company granted the employee an option to purchase one additional
restricted share of common stock at the IPO price, less the underwriting
discount. Restricted shares of common stock purchased or acquired through
exercise of options granted under the Management Plan are restricted from sale
or transfer for three years from the date of purchase, except in the event of a
change in control of the Company, as defined in the plan, and certain other
events.
The Employee Plan allows the Company's employees to purchase shares of the
Company's common stock at a 15% discount from its fair market value. Shares
purchased through the Employee Plan are restricted from sale or transfer for one
year from the date of purchase, except in the event of a change in control of
the Company, as defined in the plan, and certain other events.
Under the 1994 Stock Option Plan (the "1994 Plan"), as amended, 2,274,591
shares of the Company's common stock have been reserved for option grants. Under
the 1996 Stock Option and Restricted Stock Plan (the "1996 Plan"), the number of
shares reserved for grants is 2,250,000, of which 1,950,000 are reserved for
grants of options and 300,000 are reserved for the grant of restricted shares.
The exercise price of options to be granted under these plans may not be less
than the fair market value per share of common stock at grant date, except that
options granted in lieu of a bonus may be granted at a price not less than 80%
of the fair market value. The Compensation Committee of the Board (the
"Committee") has sole discretion to determine the vesting and exercisability
provisions of each option granted, except that no option may become exercisable
and no option which is not granted in lieu of a bonus may vest until the
optionee has completed at least one year of employment after the date of grant.
Exercisability is accelerated on a change in control of the Company, as defined
in the plan, and in certain other events. The term of each option may not exceed
ten years from the date of grant. The Committee has sole discretion to determine
the restricted period for each grant of restricted shares under the 1996 Plan,
but in no event may the restricted period be less than six months after the date
of grant. The restricted period is accelerated on a change in control of the
Company, as defined in the plan, and in certain other events.
50
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In May 1999, the stockholders approved the Performance Unit Plan. Under
this plan, executive officers and certain other employees are eligible to
receive cash payments based upon the Company's attainment of an earnings per
share target measured over a three-year performance period unless otherwise
specified by the Committee. The number of target performance units (with an
initial unit value of $1.00 and a maximum unit value of $2.00) are established
at the beginning of a performance period for each participant based on the
participant's role and responsibilities and competitive levels of long-term
compensation. The Plan is designed to be self-funding out of the Company's
earnings and involves no stockholder dilution. The first eligible payments under
the Plan will be for the two-year measurement period ending with 2000. No
compensation expense was recognized under this plan in 1999.
The Company recognizes compensation expense for the discount on restricted
common stock purchased under the Management Plan. Such discounts are recognized
as expense on a straight-line basis over the three-year period during which the
shares are restricted from sale or transfer. The Company also recognizes
compensation expense over the restricted period for shares granted under the
1996 Plan. The Company's expense related to the Management Plan and 1996 Plan
was $343,000, $903,000 and $510,000 in 1999, 1998 and 1997, respectively.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,934,197 $ 12.36 2,323,885 $ 14.86 2,014,136 $ 13.34
Granted 1,469,725 3.97 1,314,321 9.81 627,599 19.21
Exercised - - (120,413) 12.18 (130,395) 11.91
Canceled (1,543,995) 11.32 (583,596) 16.65 (187,455) 15.20
------------ --------- ----------
Outstanding at end of year 2,859,927 8.61 2,934,197 12.36 2,323,885 14.86
============ ========== ==========
Exercisable at end of year 773,202 14.35 1,105,226 12.72 726,936 11.91
============ ========== ==========
Weighted average fair value of
options granted during year $ 1.82 $ 4.06 $ 8.31
</TABLE>
51
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
A summary of stock options outstanding at January 29, 2000 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------- ------------------------------------------
Weighted Average Weighted Average Weighted
Range of Outstanding at Remaining Exercise Price Exercisable at Average
Exercise Prices January 29, 2000 Life (in years) January 29, 2000 Exercise Price
- ------------------------------------------------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.81 - $ 5.00 1,356,840 8.9 $ 3.89 39,565 $ 4.25
5.01 - 10.75 481,700 7.7 9.19 23,250 10.75
10.76 - 24.88 1,021,387 4.2 14.62 710,387 15.03
--------- -------
2,859,927 7.0 8.61 773,202 14.35
========= =======
Available for
grant at end of
year 1,163,856
=========
</TABLE>
The Company used the Black-Scholes option pricing model with the following
weighted average assumptions in determining the fair value of options granted:
expected volatility of 43% for 1999 and 37% for 1998 and 1997; risk-free
interest rates of 5.6%, 5.2% and 6.4% for 1999, 1998 and 1997, respectively; and
an expected life of 5 years.
The Company applies Accounting Principles Board Opinion No. 25 ("APB 25")
and related interpretations in accounting for its plans. Since the exercise
prices of stock options granted equal or exceed the market value of the
Company's stock on date of grant, no compensation cost has been recognized for
the stock option plans. Had Statement of Financial Accounting Standards No. 123
been applied, compensation expense under the stock option plans and the Employee
Plan would have been $0.8 million, $2.7 million and $3.2 million for 1999, 1998
and 1997, respectively, and net (loss) income and earnings (loss) per common
share would have been as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER
SHARE DATA) 1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Net (loss) income As reported $ (160,544) $ (63,791) $ 22,193
Pro forma (161,301) (65,517) 20,286
Basic and diluted earnings
(loss) per common share As reported $ (5.02) $ (2.01) $ 0.70
Pro forma (5.04) (2.06) 0.64
</TABLE>
52
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 16: SHAREHOLDER RIGHTS PLAN
In September 1998, the Company's Board of Directors adopted a Shareholder
Rights Plan and declared a dividend distribution of one "Right" per outstanding
share of common stock. Each Right entitles the stockholder to buy a unit
consisting of one one-thousandth of a share of Series A Junior Participating
Preferred Shares (a "Unit") or, in certain circumstances, a combination of
securities and assets of equivalent value at a purchase price of $50 per Unit,
subject to adjustment. Each Unit carries voting and dividend rights that are
intended to produce the equivalent of one share of common stock.
The Rights become exercisable only if (i) a person or group acquires 20% or
more of the Company's outstanding common stock, or (ii) a person or group
announces a tender offer for 20% or more of the Company's outstanding common
stock. In certain events the Rights entitle each stockholder to receive shares
of common stock having a value equal to two times the exercise price of the
Right, and the Rights of the acquiring person or group will become null and
void. These events include, but are not limited to (i) a merger in which the
Company is the surviving corporation, and (ii) acquisition of 20% or more of the
Company's outstanding common stock other than through a tender offer that
provides fair value to all stockholders. If the Company is acquired in a merger
in which it is not the surviving corporation, or more than 50% of its assets or
earning power is sold or transferred, each holder of a Right will have the right
to receive, upon exercise, common shares of the acquiring company. The Company
can redeem each Right for $.01 at any time prior to the Rights becoming
exercisable. Rights that are not redeemed or exercised will expire on October 5,
2001.
53
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 17: QUARTERLY HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
1999 Quarter Ended
-----------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) April July October January
--------------- -------------- -------------- -------------------
<S> <C> <C> <C> <C>
Sales $ 356,517 $ 385,550 $ 327,255 $ 423,538
Operating (loss) income (3,962) 7,787 (13,744) (123,135)(a)(c)
(Loss) income before extraordinary gain (1,471) 2,265 (10,748) (156,107)(a)(b)(c)
Net (loss) income (1,471) 2,265 (5,231) (156,107)
Diluted earnings (loss) before extraordinary gain
per common share (0.05) 0.07 (0.33) (4.85)
Diluted earnings (loss) per common share (0.05) 0.07 (0.16) (4.85)
<CAPTION>
1998 Quarter Ended
-----------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) April July October January
--------------- -------------- -------------- -------------------
<S> <C> <C> <C> <C>
Sales $ 346,464 $ 427,238 $ 366,973 $ 458,985
Operating (loss) income (4,263) 8,696 (98,913)(d) 5,560(e)
Net (loss) income (3,746) 3,827 (64,888)(d) 1,016(e)
Diluted earnings (loss) per common share (0.12) 0.12 (2.04) 0.03
</TABLE>
(a) During the fourth quarter of 1999, the Company recorded charges as
follows: $8.9 million for store exit costs; $88.8 million for asset
impairments; and $1.3 million for cumulative translation losses related
to the Canadian subsidiary. The Company also recorded inventory-related
charges aggregating $28.9 million for excess markdowns, liquidations in
connection with store closings and inventory shrink.
(b) During the fourth quarter of 1999, the Company recorded $28.8 million
for tax charges (net of expected tax refunds).
(c) During the fourth quarter of 1999, the Company reduced bonus and other
accruals by approximately $3.1 million.
(d) During the third quarter of 1998, the Company recorded special charges
as follows: $39.4 million for store exit costs; $3.9 million for
corporate restructuring; and $13.5 for asset impairments. The Company
also recorded merchandise cost adjustments aggregating $24.1 million
for excess markdowns and liquidations in connection with store
closings.
(e) Fourth quarter adjustments in 1998 had the effect of increasing
operating income and net income by approximately $6.5 million and $3.8
million, respectively. These adjustments related primarily to
reductions of bonus and other miscellaneous accruals.
54
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Information concerning a change in the Company's independent public
accountants is contained under the caption "Ratification of the Appointment of
Independent Public Accountants" on page 24 of the Company's Proxy Statement
dated April 28, 2000.
55
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, and their business experience during
at least the past five years, are as follows:
Martin E. Hanaka, age 50. Mr. Hanaka was elected as Chairman in November
1999, after having been elected Chief Executive Officer in September 1998, and
having been elected as Vice Chairman and as a Director of the Company in
February 1998. From August 1994 until October 1997, Mr. Hanaka served as
President and Chief Operating Officer and as a director of Staples, Inc., an
office supply retailer. Mr. Hanaka's extensive retail career has included
serving as Executive Vice President of Marketing and as President and Chief
Operating Officer of Lechmere, Inc. from September 1992 through July 1994, and
serving in various capacities for 20 years at Sears Roebuck & Co., most recently
as Vice President in charge of Sears Brand Central.
James R. Tener, age 51. Mr. Tener joined the Company in June 1999 as
Executive Vice President and Chief Operating Officer. He previously served as
Executive Vice President for Store Operations of OfficeMax, Inc. an office
supply retailer, from April 1996 to May 1999, as Chief Operating Officer of
Busybody Inc., a specialty fitness equipment retailer, from March 1995 to April
1996, and as Senior Vice President for Operations of Pier 1 Imports, Inc., a
decorative home furnishings retailer, from December 1989 to August 1994.
George R. Mihalko, age 45. Mr. Mihalko joined the Company in September 1999
as Executive Vice President and Chief Financial Officer. He previously served as
Senior Vice President, Chief Financial Officer and Treasurer of Pamida Holding
Corporation, a general merchandise retailer, from 1995 to July 1999, and as Vice
President and Treasurer of Pier 1 Imports, Inc. a decorative home furnishings
retailer, from 1993 to 1995.
Henry Flieck, age 52. Mr. Flieck joined the Company in October 1998 as
Executive Vice President, Growth & Development. Mr. Flieck previously served as
Senior Vice President of Real Estate for Staples, Inc., an office supply
retailer, from 1989 to 1998.
Arthur Quintana, age 50. Mr. Quintana joined the Company in October 1998 as
Senior Vice President, Supply Chain. He previously served as Vice President,
Inventory Management and Logistics at Sunglass Hut International, Inc. from July
1997 to October 1998, and prior to that as Vice President of Replenishment at
Office Depot, an office supply retailer, from 1990 to 1997.
There is no family relationship between any of these executive officers or
between any such officer and any Director of the Company. The remaining
information required by this Item 10 is incorporated herein by reference to the
information under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" beginning on pages 5 and 16,
respectively, of the Company's Proxy Statement dated April 28, 2000.
56
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by
reference to the information under the caption "Executive Compensation" on page
8 of the Company's Proxy Statement dated April 28, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated herein by
reference to the information under the caption "Stock Ownership" on page 3 of
the Company's Proxy Statement dated April 28, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated herein by
reference to the information under the caption "Certain Transactions" on page 16
of the Company's Proxy Statement dated April 28, 2000.
57
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed with, and as a part of, this Annual
Report on Form 10-K.
1. FINANCIAL STATEMENTS.
"Index to Financial Statements" contained in Part II, Item 8.
2. FINANCIAL STATEMENT SCHEDULES.
The schedules have been omitted because they are not applicable or not
required.
3. EXHIBITS.
3.1 Restated Certificate of Incorporation of the Company,
incorporated herein by reference to Exhibit 3.1 to the Form
10-K for 1994.
3.2 Certificate of Designation of Series A Junior Participating
Preferred Stock of the Company, incorporated herein by
reference to Exhibit 3.1 to the Form 10-Q for the third
quarter of 1998.
3.3 Amended and Restated Bylaws of the Company, incorporated
herein by reference to Exhibit 3.2 to the Form 10-Q for the
third quarter of 1998.
4.1 Indenture, dated as of September 20, 1996, between the Company
and The Bank of New York, as Trustee, relating to the
Company's $149,500,000 5.25% Convertible Subordinated Notes
due September 15, 2001 (including forms of note), incorporated
herein by reference to Exhibit 4.1 to Registration Statement
No. 333-16877 on Form S-3.
4.2 Registration Rights Agreement, dated as of September 20, 1996,
between the Company and Goldman, Sachs & Co., relating to the
Company's $149,500,000 5.25% Convertible Subordinated Notes
due September 15, 2001, incorporated herein by reference to
Exhibit 4.2 to Registration Statement No. 333-16877 on Form
S-3.
58
<PAGE>
4.3* Amended and Restated Rights Agreement dated as of February
1, 2000 between the Company and American Stock Transfer and
Trust Company, as Rights Agent.
10.1 Lease Guaranty, Indemnification and Reimbursement Agreement,
dated November 23, 1994, as amended, between the Company and
Kmart Corporation, incorporated herein by reference to Exhibit
10.3 to the Form 10-K for 1994.
10.2 Employee Stock Purchase Plan, as amended, incorporated herein
by reference to Exhibit 10.9 to the Form 10-Q for the second
quarter of 1995.
10.3 Supplemental 401(k) Savings and Profit Sharing Plan,
incorporated herein by reference to Exhibit 10.19 to the Form
10-K for 1996.
10.4 1996 Stock Option and Restricted Stock Plan, incorporated
herein by reference to Exhibit 10.2 to the Form 10-Q for the
second quarter of 1997.
10.5 Supplemental Executive Retirement Plan, as amended,
incorporated herein by reference to Exhibit 10.3 to the Form
10-Q for the second quarter of 1997.
10.6 Management Stock Purchase Plan, as amended, incorporated
herein by reference to Exhibit 10.1 to the Form 10-Q for the
third quarter of 1997.
10.7 Deferred Compensation Plan, incorporated herein by reference
to Exhibit 10.19 to the Form 10-K for 1997.
10.8 Annual Incentive Bonus Plan, as amended, incorporated herein
by reference to Exhibit A to the Company's Proxy Statement
dated April 28, 1998.
10.9 Director Stock Plan, as amended February 1, 1999, incorporated
herein by reference to Exhibit 10.26 to the Form 10-K for
1998.
10.10 Amendment No. 1 to Director Stock Plan, incorporated herein by
reference to Exhibit 10.3 to the Form 10-Q for the third
quarter of 1999.
59
<PAGE>
10.11 Amended and Restated 1994 Stock Option Plan, incorporated
herein by reference to Exhibit A to the Company's Proxy
Statement dated April 26, 1999.
10.12 Performance Unit Plan, incorporated herein by reference to
Exhibit B to the Company's Proxy Statement dated April 26,
1999.
10.13 Termination Agreement dated October 11, 1999 between the
Company and Anthony F. Crudele, incorporated herein by
reference to Exhibit 10.2 to the Form 10-Q for the third
quarter of 1999.
10.14* Employment Agreement dated January 11, 2000 between the
Company and Martin E. Hanaka.
10.15* Form of Severance Agreement dated January 11, 2000 between the
Company and each of Jim Tener, George Mihalko, Henry Flieck
and Arthur Quintana.
10.16 Amended and Restated Joint Venture Agreement dated as of March
12, 1999 between the Company and JUSCO Co., Ltd., incorporated
by reference to Exhibit 10.19 to the Form 10-K for 1998.
10.17 Amended and Restated License Agreement dated as of March 26,
1999 between the Company and Mega Sports Co., Ltd.,
incorporated by reference to Exhibit 10.20 to the Form 10-K
for 1998.
10.18 Amended and Restated Services Agreement dated as of March
26, 1999 between the Company and Mega Sports Co., Ltd.,
incorporated by reference to Exhibit 10.21 to the Form 10-K
for 1998.
10.19 Guaranty dated as of March 12, 1999 from JUSCO Co., Ltd. to
the Company, incorporated by reference to Exhibit 10.22 to the
Form 10-K for 1998.
10.20 Agreement dated as of March 12, 1999 between the Company and
JUSCO Co., Ltd., incorporated by reference to Exhibit 10.23 to
the Form 10-K for 1998.
60
<PAGE>
10.21 Loan and Security Agreement dated as of April 13, 1999 between
BankBoston Retail Finance Inc., as Agent for the Lenders
referenced therein, and the Company and its wholly-owned
United States subsidiaries, incorporated by reference to
Exhibit 10.24 to the Form 10-K for 1998.
10.22 First Amendment to Loan and Security Agreement dated as of
April 13, 1999 between BankBoston Retail Finance Inc., as
Agent for the Lenders referenced therein, and the Company and
its wholly-owned United States subsidiaries, dated as of
November 17, 1999, incorporated herein by reference to Exhibit
10.4 to the Form 10-Q for the third quarter of 1999.
10.23 Second Amendment to Loan and Security Agreement dated as of
April 13, 1999 between BankBoston Retail Finance Inc., as
Agent for the Lenders referenced therein, and the Company and
its wholly-owned United States subsidiaries, dated as of
December 14, 1999, incorporated by reference to Exhibit 10.1
to the Form 8-K dated December 17, 1999.
10.24 Agreement for Purchase and Sale and Leaseback, dated May 14,
1999, between the Company and SPI Holdings, LLC, incorporated
by reference to Exhibit 10.2 to the Form 10-Q for the second
quarter of 1999.
10.25 Letter Agreement, dated June 14, 1999, between the Company and
SPI Holdings, LLC, including form of Lease Agreement attached
thereto, incorporated by reference to Exhibit 10.3 to the Form
10-Q for the second quarter of 1999.
10.26 Second Amendment to Agreement for Purchase and Sale and
Leaseback, dated May 14, 1999, dated as of July 29, 1999,
incorporated by reference to Exhibit 10.4 to the Form 10-Q for
the second quarter of 1999.
10.27 Third Amendment to Agreement for Purchase and Sale and
Leaseback, dated May 14, 1999, dated as of August 31, 1999,
incorporated by reference to Exhibit 10.5 to the Form 10-Q for
the second quarter of 1999.
10.28* E-Commerce Venture Agreement between the Company and Global
Sports Interactive, Inc. dated May 7, 1999.
61
<PAGE>
10.29* Amendment No. 1 to E-Commerce Venture Agreement between the
Company and Global Sports Interactive, Inc. dated May 14,
1999.
10.30* E-Commerce Agreement between the Company and
TheSportsAuthority.com, Inc. dated May 14, 1999.
10.31* E-Commerce Services Agreement between TheSportsAuthority.com,
Inc. and Global Sports Interactive, Inc. dated May 14, 1999.
10.32* License Agreement between the Company, The Sports Authority
Michigan, Inc. and TheSportsAuthority.com, Inc. dated May
14, 1999.
10.33* Agreement between the Company and Global Sports, Inc. dated
May 14, 1999.
18.1* Letter regarding change in accounting principles.
21.1* Subsidiaries of the Company.
23.1* Consent of Ernst & Young LLP.
23.2* Consent of PricewaterhouseCoopers LLP.
27.1* Financial Data Schedule
- ---------------------
* Filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K.
Reports on Form 8-K were filed on (1) November 12, 1999 containing
information under Item 5; (2) December 17, 1999 containing information
under Items 5 and 7; and (3) January 11, 2000 containing information
under Item 8.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE SPORTS AUTHORITY, INC.
Date: APRIL 27, 2000 By: /S/ MARTIN E. HANAKA
-------------------- --------------------------------
Martin E. Hanaka,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ MARTIN E. HANAKA Chief Executive Officer and APRIL 27, 2000
- ----------------------------------- Director (Principal Executive
Martin E. Hanaka Officer)
/S/ GEORGE R. MIHALKO Executive Vice President and APRIL 27, 2000
- ----------------------------------- Chief Financial Officer
George R. Mihalko (Principal Financial Officer)
/S/ EVA L. CLAWSON Vice President and APRIL 27, 2000
- ----------------------------------- Controller
Eva L. Clawson (Principal Accounting Officer)
/S/ A. DAVID BROWN Director APRIL 27, 2000
- -----------------------------------
A. David Brown
/S/ NICHOLAS A. BUONICONTI Director APRIL 27, 2000
- -----------------------------------
Nicholas A. Buoniconti
/S/ MARY ELIZABETH BURTON Director APRIL 27, 2000
- -----------------------------------
Mary Elizabeth Burton
/S/ CYNTHIA R. COHEN Director APRIL 27, 2000
- -----------------------------------
Cynthia R. Cohen
/S/ STEVE DOUGHERTY Director APRIL 27, 2000
- -----------------------------------
Steve Dougherty
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/S/ JULIUS W. ERVING Director APRIL 27, 2000
- -----------------------------------
Julius W. Erving
/S/ CAROL FARMER Director APRIL 27, 2000
- -----------------------------------
Carol Farmer
/S/ CHARLES H. MOORE Director APRIL 27, 2000
- -----------------------------------
Charles H. Moore
</TABLE>
64
<PAGE>
INDEX TO EXHIBITS
EXHIBITS DESCRIPTION
4.3* Amended and Restated Rights Agreement dated as of February 1,
2000 between the Company and American Stock Transfer and Trust
Company, as Rights Agent.
10.14* Employment Agreement dated January 11, 2000 between the Company
and Martin E. Hanaka.
10.15* Form of Severance Agreement dated January 11, 2000 between the
Company and each of Jim Tener, George Mihalko, Henry Flieck and
Arthur Quintana.
10.28* E-Commerce Venture Agreement between the Company and Global
Sports Interactive, Inc. dated May 7, 1999.**
10.29* Amendment No. 1 to E-Commerce Venture Agreement between the
Company and Global Sports Interactive, Inc. dated May 14,
1999.**
10.30* E-Commerce Agreement between the Company and
TheSportsAuthority.com, Inc. dated May 14, 1999.**
10.31* E-Commerce Services Agreement between TheSportsAuthority.com,
Inc. and Global Sports Interactive, Inc. dated May 14, 1999.**
10.32* License Agreement between the Company, The Sports Authority
Michigan, Inc. and TheSportsAuthority.com, Inc. dated May 14,
1999.**
10.33* Agreement between the Company and Global Sports, Inc. dated May
14, 1999.
18.1* Letter regarding change in accounting principles.
21.1* Subsidiaries of the Company.
23.1* Consent of Ernst & Young LLP.
23.2* Consent of PricewaterhouseCoopers LLP.
27.1* Financial Data Schedule
- --------------------
* Filed as part of this Annual Report on Form 10-K.
** Confidential treatment has been requested as to certain portions of this
exhibit. A complete copy of this agreement, including the redacted terms,
has been separately filed with the Securities and Exchange Commission.
65
EXHIBIT 4.3
- --------------------------------------------------------------------------------
THE SPORTS AUTHORITY, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Rights Agent
AMENDED AND RESTATED
RIGHTS AGREEMENT
As amended as of February 1, 2000
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
1. Certain Definitions. ....................................................................................2
2. Appointment of Rights Agent. ...........................................................................5
3. Issue of Rights Certificates. ...........................................................................5
4. Form of Rights Certificates. ............................................................................7
5. Countersignature and Registration........................................................................8
6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated,
Destroyed, Lost or Stolen Rights Certificates............................................................8
7. Exercise of Rights; Purchase Price; Expiration Date of Rights............................................9
8. Cancellation and Destruction of Rights Certificates. ...................................................11
9. Reservation and Availability of Capital Stock; Registration of Securities...............................11
10. Capital Stock Record Date. .............................................................................13
11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights. ...........................13
12. Certificate of Adjusted Purchase Price or Number of Shares. ............................................22
13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power....................................23
14. Fractional Rights and Fractional Shares.................................................................26
15. Rights of Action. ......................................................................................27
16. Agreement of Rights Holders. ...........................................................................27
17. Rights Certificate Holder Not Deemed a Stockholder. ...................................................28
18. Concerning the Rights Agent.............................................................................28
19. Merger or Consolidation or Change of Name of Rights Agent...............................................29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
20. Duties of Rights Agent. ................................................................................29
21. Change of Rights Agent. ................................................................................32
23. Redemption and Termination..............................................................................33
25. Notice of Certain Events................................................................................35
26. Notices. ...............................................................................................36
27. Supplements and Amendments. ...........................................................................36
28. Successors. ............................................................................................37
29. Determinations and Actions by the Board of Directors, etc. .............................................37
30. Benefits of this Agreement. ............................................................................37
31. Severability. ..........................................................................................38
32. Governing Law. .........................................................................................38
33. Counterparts. ..........................................................................................38
34. Descriptive Headings. ..................................................................................38
</TABLE>
Exhibit A Resolution of the Board of Directors with respect to
Series A Junior Participating Preferred Shares
Exhibit B Form of Rights Certificate
<PAGE>
AMENDED AND RESTATED
RIGHTS AGREEMENT
AMENDED AND RESTATED RIGHTS AGREEMENT, as amended as of
February 1, 2000 (the "Agreement"), between THE SPORTS AUTHORITY, INC., a
Delaware corporation (the "Company"), and AMERICAN STOCK TRANSFER & TRUST
COMPANY, a New York corporation (the "Rights Agent").
W I T N E S S E T H
WHEREAS, on September 22, 1998 (the "Rights Dividend
Declaration Date"), the Board of Directors of the Company authorized and
declared a dividend distribution of one Right for each Common Share (as
hereinafter defined) of the Company outstanding at the close of business on
October 5, 1998 (the "Record Date") (which for these purposes shall include all
Common Shares presently entitled to receive dividends) and has authorized the
issuance of one Right (as such number may hereafter be adjusted pursuant to the
provisions of Section 11(i) hereof) for each Common Share of the Company issued
between the Record Date (whether originally issued or delivered from the
Company"s treasury) and the Distribution Date (as hereinafter defined), each
Right initially representing the right to purchase one one-thousandth of a
Preferred Share (as hereinafter defined) of the Company having the rights,
powers and preferences set forth in the form of the Resolution of the Board of
Directors attached hereto as Exhibit A, upon the terms and subject to the
conditions hereinafter set forth (the "Rights"); and
WHEREAS, the Rights will be held by the Rights Agent under
this Agreement as trustee for the stockholders of the Company until the
Distribution Date; and
WHEREAS, the Board of Directors of the Company has considered
whether approval of this Agreement and the distribution of the Rights is in the
best interests of the Company and all other pertinent factors; and
WHEREAS, the Board of Directors of the Company has concluded
that approval of this Agreement and the distribution of the Rights is in the
best interests of the Company because the existence of the Rights will help (i)
reduce the risk of coercive two-tiered, front-end loaded or partial offers that
may not offer fair value to all stockholders, (ii) mitigate against market
accumulators who through open market and/or private purchases may achieve a
position of substantial influence or control without paying to selling or
remaining stockholders a fair control premium, (iii) deter market accumulators
who are simply interested in putting the Company into "play," (iv) restrict
self-dealing by a substantial stockholder, and (v) preserve the Board of
Directors" bargaining power and flexibility to deal with third-party acquirors,
to pursue the business strategies of the Company and to otherwise seek to
maximize values for all stockholders; and
<PAGE>
WHEREAS, in accordance with Section 21 hereof, the Company
appointed American Stock Transfer & Trust Company as successor Rights Agent,
effective February 1, 2000, and, in connection therewith, made certain
amendments to this Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, and intending to be legally bound hereby,
the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the Common Shares then outstanding, but shall
not include the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any Person or entity
organized, appointed or established by the Company for or pursuant to the terms
of any such plan. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition of Common Shares by the
Company which, by reducing the number of Common Shares outstanding, increases
the proportionate number of Common Shares beneficially owned by such Person to
20% or more of the Common Shares then outstanding; PROVIDED, HOWEVER, that if a
Person shall become the Beneficial Owner of 20% or more of the then outstanding
Common Shares by reason of Common Shares purchased by the Company and shall,
after such share purchases by the Company, become the Beneficial Owner of any
additional Common Shares, then such Person shall be deemed to be an "Acquiring
Person." Notwithstanding the foregoing, if a majority of the directors then in
office determines in good faith that a Person who would otherwise be an
"Acquiring Person", as defined pursuant to the foregoing provisions of this
paragraph (a), has become such inadvertently, and such Person divests as
promptly as practicable a sufficient number of Common Shares so that such Person
would no longer be an Acquiring Person, as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed to be an
"Acquiring Person" for purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended and in effect
on the date hereof (the "Exchange Act").
(c) A Person shall be deemed the "Beneficial Owner" of, and
shall be deemed to "beneficially own," any securities:
(i) That such Person or any of such Person"s
Affiliates or Associates, directly or indirectly, has the right to
acquire (whether such right is exercisable immediately or only after
the passage of time) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed the
"Beneficial Owner" of, or
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<PAGE>
to "beneficially own," (A) securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person"s Affiliates
or Associates until such tendered securities are accepted for payment,
purchase or exchange, or (B) securities issuable upon exercise of
Rights at any time prior to the occurrence of a Triggering Event, or
(C) securities issuable upon exercise of Rights from and after the
occurrence of a Triggering Event which Rights were acquired by such
Person or any of such Person"s Affiliates or Associates prior to the
Distribution Date or pursuant to Section 3(a) or Section 22 hereof (the
"Original Rights") or pursuant to Section 11(i) hereof in connection
with an adjustment made with respect to any Original Rights;
(ii) that such Person or any of such Person"s
Affiliates or Associates, directly or indirectly, has the right to vote
or dispose of or has "beneficial ownership" of (as determined pursuant
to Rule 13d-3 of the General Rules and Regulations under the Exchange
Act), including without limitation pursuant to any agreement,
arrangement or understanding (whether or not in writing); PROVIDED,
HOWEVER, that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph (ii) as
a result of an oral or written agreement, arrangement or understanding
to vote such security if such agreement, arrangement or understanding:
(A) arises solely from a revocable proxy given in response to a public
proxy or consent solicitation made pursuant to, and in accordance with,
the applicable provisions of the General Rules and Regulations under
the Exchange Act, and (B) is not also then reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iii) that are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate thereof)
with which such Person (or any of such Person"s Affiliates or
Associates) has any agreement, arrangement or understanding (whether or
not in writing), for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy as described in the proviso to
subparagraph (ii) of this paragraph (c)) or disposing of any voting
securities of the Company;
PROVIDED, HOWEVER, that nothing in this paragraph (c) shall cause a person
engaged in business as an underwriter of securities to be the "Beneficial Owner"
of, or to "beneficially own," any securities acquired through such Person"s
participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition.
(d) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of New York or the
state in which the principal office of the Rights Agent is located are
authorized or obligated by law or executive order to close.
- 3 -
<PAGE>
(e) "Close of Business" on any given date shall mean 5:00
P.M., New York time, on such date; PROVIDED, HOWEVER, that if such date is not a
Business Day it shall mean 5:00 P.M., New York time, on the next succeeding
Business Day.
(f) "Common Share" shall mean, when used with reference to the
Company, a share of common stock, par value $.01 per share, of the Company and,
to the extent that there are not a sufficient number of Common Shares authorized
to permit the full exercise of the Rights, shares of any other class or series
of the Company designated for such purpose containing terms substantially
similar to the terms of the Common Shares, except that "Common Share" when used
with reference to any Person other than the Company shall mean the shares of
common stock of such Person with the greatest voting power, or the equity
securities or other equity interest having power to control or direct the
management, of such Person.
(g) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(h) "Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(i) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company or other entity.
(j) "Preferred Share" shall mean a share of Series A Junior
Participating Preferred Shares, par value $.01 per share, of the Company and, to
the extent that there are not a sufficient number of shares of Series A Junior
Participating Preferred Shares authorized to permit the full exercise of the
Rights, shares of any other series of Series Preferred Stock of the Company
designated for such purpose containing terms substantially similar to the terms
of the Series A Junior Participating Preferred Shares.
(k) "Preferred Share Fraction" shall mean one one-thousandth
of a Preferred Share.
(l) "Section 11(a)(ii) Event" shall mean any event described
in Section 11(a)(ii) (A), (B) or (C) hereof.
(m) "Section 13 Event" shall mean any event described in
clauses (x), (y) or (z) of Section 13(a) hereof.
(n) "Stock Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such.
(o) "Subsidiary" shall have the meaning ascribed to such term
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
- 4 -
<PAGE>
(p) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.
(q) "Triggering Event" shall mean any Section 11(a)(ii) Event
or any Section 13 Event.
Unless otherwise specified, where reference is made in this
Agreement to sections of, and the General Rules and Regulations under, the
Exchange Act, such reference shall mean such sections and rules as amended from
time to time and any successor provisions thereto.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby
appoints the Rights Agent to act as agent for the Company in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such Co-Rights Agents as
it may deem necessary or desirable.
SECTION 3. ISSUE OF RIGHTS CERTIFICATES.
(a) Until the earlier of (i) the Close of Business on the
tenth Business Day after a Stock Acquisition Date involving an Acquiring Person
that has become such in a transaction as to which the Board of Directors has not
made the determination referred to in Section 11(a)(ii)(B) hereof, or (ii)
within ten (10) Business Days (or such later date as may be determined by action
of the Board of Directors prior to such time any Person becomes an Acquiring
Person) after the date that a tender or exchange offer by any Person (other than
the Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms of any such
plan) is first published or sent or given within the meaning of Rule 14d-2(a) of
the General Rules and Regulations under the Exchange Act, if upon consummation
thereof, such Person would be the Beneficial Owner of 20% or more of the Common
Shares then outstanding (the earlier of (i) and (ii) being herein referred to as
the "Distribution Date"), (x) beneficial interests in the Rights will be
evidenced (subject to the provisions of paragraph (b) of this Section 3) by the
certificates for the Common Shares registered in the names of the holders of the
Common Shares (which certificates for Common Shares shall be deemed also to be
certificates for beneficial interests in the Rights) and not by separate
certificates, and (y) the Rights and beneficial interests therein will be
transferable only in connection with the transfer of the underlying Common
Shares (including a transfer to the Company). The Company must promptly notify
the Rights Agent of such Distribution Date and request that its transfer agent
provide the Rights Agent with a list of the record holders of the Company"s
Common Shares as of the close of business on the Distribution Date. As soon as
practicable after the Rights Agent receives such notice and list, the Rights
Agent will send by first-class, postage prepaid mail, to each record holder of
the Common Shares as of the close of business on the Distribution Date, at the
address of such holder shown on the records of the Company, one or more rights
certificates, in substantially the form of Exhibit B hereto (the "Rights
Certificates"), evidencing one Right for each Common Share so held, subject to
adjustment as provided herein. In the event that an adjustment in the number of
Rights per Common Share has been made pursuant to Section 11(p) hereof, at the
time of distribution of the Rights Certificates, the
- 5 -
<PAGE>
Company shall make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Rights Certificates representing
only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of and after the Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.
(b) With respect to certificates for the Common Shares
outstanding as of the Record Date, until the Distribution Date, the registered
holders of the Common Shares shall also be the registered holders of the
beneficial interests in the associated Rights. Until the earlier of the
Distribution Date or the Expiration Date (as such term is defined in Section 7
hereof), the transfer of any certificates representing Common Shares in respect
of which Rights have been issued shall also constitute the transfer of the
Rights associated with such Common Shares. Certificates issued after the Record
Date upon the transfer of Common Shares outstanding on the Record Date shall
bear the legend set forth in subsection (c).
(c) Except as provided in Section 22 hereof, Rights shall be
issued in respect of all Common Shares that are issued (whether originally
issued or delivered from the Company"s treasury) after the Record Date but prior
to the earlier of the Distribution Date or the Expiration Date. Certificates
representing such Common Shares shall also be deemed to be certificates for
beneficial interests in the associated Rights, and shall bear the following
legend:
"This certificate also evidences a beneficial interest in and
entitles the holder hereof to certain Rights as set forth in
the Amended and Restated Rights Agreement between The Sports
Authority, Inc. (the "Company") and American Stock Transfer &
Trust Company (the "Rights Agent") as amended as of February
1, 2000 (the "Rights Agreement"), and as the same may be
amended from time to time, the terms of which are hereby
incorporated herein by reference and a copy of which is on
file at the principal offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and
beneficial interests therein will no longer be evidenced by
this certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on
the date of mailing, without charge promptly after receipt of
a written request therefor. Under certain circumstances set
forth in the Rights Agreement, Rights issued to, or held by,
any Person who is, was or becomes an Acquiring Person or any
Affiliate or Associate thereof (as such terms are defined in
the Rights Agreement), whether currently held by or on behalf
of such Person or by any subsequent holder, may become null
and void."
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, beneficial
interests in the Rights associated with the Common Shares represented by such
certificates shall be evidenced by such certificates alone and
- 6 -
<PAGE>
registered holders of Common Shares shall also be the registered holders of
beneficial interests in the associated Rights, and the transfer of any of such
certificates shall also constitute the transfer of beneficial interests in the
Rights associated with the Common Shares represented by such certificates.
SECTION 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to
purchase and of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate (which do not affect the
duties or responsibilities of the Rights Agent) and as are not inconsistent with
the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or the Nasdaq Stock Market on which the
Rights may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 hereof, the Rights Certificates,
whenever distributed, shall entitle the holders thereof to purchase such number
of Preferred Share Fractions as shall be set forth therein at the price set
forth therein (such exercise price per Preferred Share Fraction, the "Purchase
Price"), but the amount and type of securities purchasable upon the exercise of
each Right and the Purchase Price thereof shall be subject to adjustment as
provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights that the Company knows are beneficially
owned by: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes such, or
(iii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the Acquiring
Person becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing oral or written plan, agreement, arrangement
or understanding regarding the transferred Rights or (B) a transfer that the
Board of Directors of the Company has determined is part of an oral or written
plan, agreement, arrangement or understanding that has as a primary purpose or
effect avoidance of Section 7(e) hereof, and provided that the Company shall
have notified the Rights Agent that this Section 4(b) applies, any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
"The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly,
this Rights Certificate and the Rights represented hereby may
become null and
- 7 -
<PAGE>
void in the circumstances specified in Section 7(e) of such
Agreement."
SECTION 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile signature, and shall have affixed thereto the
Company"s seal or a facsimile thereof which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be manually countersigned by an
authorized signatory of the Rights Agent and shall not be valid for any purpose
unless so countersigned. In case any officer of the Company who shall have
signed any of the Rights Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Rights Certificates, nevertheless, may be countersigned by an
authorized signatory of the Rights Agent and issued and delivered by the Company
with the same force and effect as though the Person who signed such Rights
Certificates had not ceased to be such officer of the Company; and any Rights
Certificates may be signed on behalf of the Company by any Person who, at the
actual date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the date of
the execution of this Agreement any such Person was not such an officer.
(b) Following the Distribution Date and upon receipt by the
Rights Agent of the notice and list of recordholders of the Rights referred to
in Section 3(a), the Rights Agent will keep or cause to be kept, at its office
or offices designated pursuant to Section 25 hereof, books for registration and
transfer of the Rights Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Rights Certificates, the
number of Rights evidenced on its face by each of the Rights Certificates, the
Certificate number and the date of each of the Rights Certificates.
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF
RIGHTS CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES.
(a) Subject to the provisions of Section 4(b), Section 7(e)
and Section 14 hereof, at any time after the Close of Business on the
Distribution Date, and at or prior to the Close of Business on the Expiration
Date, any Rights Certificate or Certificates may be transferred, split up,
combined or exchanged for another Rights Certificate or Certificates, entitling
the registered holder to purchase a like number of Preferred Share Fractions
(or, following a Triggering Event, Common Shares or other securities, cash or
other assets, as the case may be), as the Rights Certificate or Certificates
surrendered then entitled such holder or former holder in the case of a transfer
to purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Rights Certificate or Certificates shall make such request in
writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Certificates to be transferred, split up, combined or exchanged
at the office of the Rights Agent designated for such purpose. Neither the
Rights Agent nor the
- 8 -
<PAGE>
Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate or Certificates until the
registered holder shall have completed and signed the certificate contained in
the form of assignment on the reverse side of such Rights Certificate and shall
have provided such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the Company
or the Rights Agent shall reasonably request. Thereupon the Rights Agent shall,
subject to Section 4(b), Section 7(e) and Section 14 hereof, countersign and
deliver to the Person entitled thereto a Rights Certificate or Rights
Certificates, as the case may be, as so requested. The Rights Agent shall not be
obligated to process the transaction until it has received evidence that all
taxes and charges arising from the transaction have been paid. The Company may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for countersignature and delivery to the registered
owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE
OF RIGHTS.
(a) Subject to subsection (e), the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the office of the Rights Agent designated for such purpose, together with
payment of the aggregate Purchase Price (except as provided in Section 11(q)
hereof) with respect to the total number of Preferred Share Fractions (or Common
Shares, other securities, cash or other assets, as the case may be) as to which
such surrendered Rights are then exercisable (except as provided in Section
11(q) hereof), at or prior to the earliest of (i) the Close of Business on
October 5, 2001 (the "Final Expiration Date"), (ii) the consummation of a
transaction contemplated by Section 13(d) hereof, or (iii) the time at which the
Rights are redeemed or terminated as provided in Section 23 hereof (the earliest
of (i), (ii) and (iii) being herein referred to as the "Expiration Date").
(b) The Purchase Price for each Preferred Share Fraction
pursuant to the exercise of a Right shall initially be $50, and shall be subject
to adjustment from time to time as provided in Sections 11 and 13(a) hereof and
shall be payable in accordance with subsection (c).
- 9 -
<PAGE>
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
duly executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price per Preferred Share Fraction (or Common Shares, other
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable tax or governmental charge,
the Rights Agent shall, subject to Section 20(k) and Section 14(b) hereof,
thereupon promptly (i) (A) requisition from any transfer agent of the Preferred
Shares (or make available, if the Rights Agent is the transfer agent for the
Common Shares) certificates for the total number of Preferred Shares to be
purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company shall have elected to
deposit some or all of the total number of Preferred Shares issuable upon
exercise of the Rights hereunder with a depositary agent, requisition from the
depositary agent depositary receipts representing such number of Preferred Share
Fractions as are to be purchased (in which case certificates for the Preferred
Shares represented by such receipts shall be deposited by the transfer agent
with the depositary agent) and the Company will direct the depositary agent to
comply with such request, (ii) requisition from the Company the amount of cash,
if any, to be paid in lieu of fractional shares in accordance with Section 14
hereof, (iii) after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Rights Certificate, registered in such name or names as may be designated by
such holder, and (iv) after receipt thereof, deliver such cash, if any, to or
upon the order of the registered holder of such Rights Certificate. The payment
of the Purchase Price (as such amount may be reduced pursuant to Section
11(a)(iii) hereof) may be made, at the election of the holder of the Rights
Certificate, (x) in cash or by certified bank check or money order payable to
the order of the Company or (y) by delivery of Rights if and to the extent
authorized by Section 11(q) hereof. In the event that the Company is obligated
to issue other securities of the Company (including Common Shares) pay cash
and/or distribute other property pursuant to Section 11(a) hereof, the Company
will make all arrangements necessary so that such other securities, cash and/or
other property are available for distribution by the Rights Agent, if and when
necessary to comply with this agreement.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to, or upon the order of, the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, subject to the provisions of Section 6 and
Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any
Rights beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such, or (iii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any Person
with whom the Acquiring
- 10 -
<PAGE>
Person has any continuing oral or written plan, agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which the Board
of Directors of the Company has determined is part of an oral or written plan,
agreement, arrangement or understanding which has as a primary purpose or effect
the avoidance of this Section 7(e), shall become null and void without any
further action and no holder of such Rights shall have any rights whatsoever
with respect to such Rights, whether under any provision of this Agreement or
otherwise; PROVIDED, HOWEVER, that the Rights held by an Acquiring Person, an
Affiliate or Associate of an Acquiring Person or the transferees of such persons
referred to above shall not be voided unless the Acquiring Person in question or
an Affiliate or Associate of such Acquiring Person shall be involved in the
transaction giving rise to the Section 11(a)(ii) Event. The Company shall notify
the Rights Agent when this Section 7(e) applies and shall use all reasonable
efforts to insure that the provisions of this Section 7(e) and Section 4(b)
hereof are complied with, but neither the Company nor the Rights Agent shall
have any liability to any holder of Rights Certificates or other Person as a
result of the Company"s failure to make any determinations with respect to an
Acquiring Person or its Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) properly completed and signed the certificate contained in
the form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise, and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall or the Rights Agent
reasonably request.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHTS
CERTIFICATES. All Rights Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the Company
or any of its agents, be delivered to the Rights Agent for cancellation or in
canceled form, or, if surrendered to the Rights Agent, shall be canceled by it,
and no Rights Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company shall deliver
to the Rights Agent for cancellation and retirement, and the Rights Agent shall
so cancel and retire, any other Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Rights Certificates to the Company, or shall, at the written
request of the Company, destroy such canceled Rights Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
SECTION 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK;
REGISTRATION OF SECURITIES.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available for issuance upon the exercise of outstanding Rights
as many of its authorized and unissued Preferred Shares (and, following the
occurrence of a Triggering Event, out of its authorized and
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unissued or treasury Common Shares and/or other securities) or out of its
authorized and issued shares held in its treasury, which together, shall at all
times after the Distribution Date be sufficient to permit the exercise in full
of all outstanding Rights.
(b) So long as the Preferred Shares (and, following the
occurrence of a Triggering Event, Common Shares or other securities) issuable
and deliverable upon the exercise of the Rights may be listed on any stock
exchange, or quoted on the Nasdaq Stock Market, the Company shall use its best
efforts to cause, from and after such time as the Rights become exercisable, all
shares and other securities reserved for such issuance to be listed on such
exchange upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, or as soon as is required by law following the
Distribution Date, as the case may be, a registration statement or statements
under the Securities Act of 1933, as amended (the "Act"), with respect to the
securities purchasable upon exercise of the Rights on an appropriate form or
forms, (ii) cause such registration statement or statements to become effective
as soon as practicable after such filing, and (iii) cause such registration
statement or statements to remain effective (with a prospectus at all times
meeting the requirements of the Act) until the earlier of (A) the date as of
which the Rights are no longer exercisable for such securities, and (B) the
Expiration Date. The Company will also take such action as may be appropriate
under, or to ensure compliance with, the securities or "blue sky" laws of the
various states in connection with the exercisability of the Rights. The Company
may temporarily suspend, for a period of time not to exceed ninety (90) days
after the date set forth in clause (i) of the first sentence of this subsection
(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. In addition,
if the Company shall determine that a registration statement is required
following the Distribution Date, the Company may, by issuing a public
announcement, temporarily suspend the exercisability of the Rights until such
time as a registration statement has been declared effective. The Company shall
notify the Rights Agent whenever it makes a public announcement pursuant to this
subsection (c) and give the Rights Agent a copy of the announcement.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained, nor shall the Rights be
exercisable if the exercise thereof shall not be permitted under applicable law
or a registration statement shall not have been declared effective.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares (and,
following a Triggering Event, Common Shares or other securities) delivered upon
exercise of Rights shall, at the time of delivery of the certificates for such
shares or other securities (subject to payment of the Purchase Price), be duly
and validly
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authorized and issued and, with respect to Preferred Shares, Common Shares or
other shares of capital stock, fully paid and nonassessable.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all taxes and governmental charges that may be
payable in respect of the issuance or delivery of the Rights Certificates and of
any certificates for a number of Preferred Share Fractions (or Common Shares or
other securities, as the case may be) upon the exercise of Rights. The Company
shall not, however, be required to pay any transfer tax that may be payable in
respect of any transfer or delivery of Rights Certificates to a Person other
than, or the issuance or delivery of a number of Preferred Share Fractions (or
Common Shares or other securities, as the case may be) in respect of a name
other than that of the registered holder of the Rights Certificates evidencing
Rights surrendered for exercise or to issue or deliver any certificates for a
number of Preferred Share Fractions (or Common Shares or other securities, as
the case may be) in a name other than that of the registered holder upon the
exercise of any Rights until such tax shall have been paid (any such tax being
payable by the holder of such Rights Certificate at the time of surrender) or
until it has been established to the Company"s satisfaction that no such tax is
due.
SECTION 10. CAPITAL STOCK RECORD DATE. Each Person in whose
name any certificate for a number of Preferred Share Fractions (or Common Shares
or other securities, as the case may be) is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of such
Preferred Share Fractions (or Common Shares or other securities, as the case may
be) represented thereby on, and such certificate shall be dated, the date upon
which the Rights Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and all applicable taxes and governmental
charges) was made; PROVIDED, HOWEVER, that if the date of such surrender and
payment is a date upon which the applicable transfer books of the Company are
closed, such Person shall be deemed to have become the record holder of such
shares (fractional or otherwise) on, and such certificate shall be dated, the
next succeeding Business Day on which the applicable transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Rights Certificate shall not be entitled to any rights of a
stockholder of the Company with respect to shares for which the Rights shall be
exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as provided herein.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF
SHARES OR NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares
and other securities covered by each Right and the number of Rights outstanding
are subject to adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on any security of the
Company payable in Preferred Shares, (B) subdivide the outstanding
Preferred Shares, (C) combine the outstanding Preferred Shares into a
smaller number of shares, or (D) issue any shares of its capital stock
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in a reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation), except as
otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of Preferred Shares or
capital stock, as the case may be, issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised
after such time shall be entitled to receive, upon payment of the
adjusted Purchase Price, the aggregate number and kind of Preferred
Shares or capital stock, as the case may be, that, if such Right had
been exercised immediately prior to such date and at a time when the
Preferred Share transfer books were open, such holder would have owned
upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. If an event
occurs which would require an adjustment under both this Section
11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in
this Section 11(a)(i) shall be in addition to, and shall be made prior
to, any adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event:
(A) any Acquiring Person or any Associate or
Affiliate of any Acquiring Person, at any time after the Stock
Acquisition Date, directly or indirectly, (1) shall merge into
the Company or otherwise combine with the Company and the
Company shall be the continuing or surviving corporation of
such merger or combination and the Common Shares of the
Company or other equity securities of the Company shall remain
outstanding, (2) shall, in one transaction or a series of
transactions, transfer any assets to the Company or to any of
its Subsidiaries in exchange (in whole or in part) for Common
Shares, for shares of other equity securities of the Company,
or for securities exercisable for or convertible into shares
of equity securities of the Company (Common Shares or
otherwise) or otherwise obtain from the Company, with or
without consideration, any additional shares of such equity
securities or securities exercisable for or convertible into
shares of such equity securities (other than pursuant to a pro
rata distribution to all holders of Common Shares), (3) shall
sell, purchase, lease, exchange, mortgage, pledge, transfer or
otherwise acquire or dispose of assets in one transaction or a
series of transactions, to, from or with (as the case may be)
the Company or any of its Subsidiaries, on terms and
conditions less favorable to the Company than the Company
would be able to obtain in arm"s-length negotiation with an
unaffiliated third party, other than pursuant to a Section 13
Event, (4) shall sell, purchase, lease, exchange, mortgage,
pledge, transfer or otherwise dispose of assets having an
aggregate fair market value of more than $10,000,000 in one
transaction or a series of transactions, to, from or with (as
the case may be) the Company or any of the Company"s
Subsidiaries (other than incidental to the lines of business,
if any, engaged in as of the date hereof between the Company
and such Acquiring Person or Associate or Affiliate), other
than pursuant to a Section 13 Event, (5) shall receive any
compensation from the
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Company or any of the Company"s Subsidiaries other than
compensation for full-time employment as a regular employee at
rates in accordance with the Company"s (or its Subsidiaries")
past practices, or (6) shall receive the benefit, directly or
indirectly (except proportionately as a stockholder and except
if resulting from a requirement of law or governmental
regulation), of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax
advantages provided by the Company or any of its Subsidiaries;
or
(B) any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any Person or
entity organized, appointed or established by the Company for
or pursuant to the terms of any such plan), alone or together
with its Affiliates and Associates, shall, at any time after
the Rights Dividend Declaration Date, become the Beneficial
Owner of 20% or more of the Common Shares then outstanding,
unless the event causing the 20% threshold to be crossed is a
Section 13 Event, or is an acquisition of Common Shares
pursuant to a tender offer or an exchange offer for all
outstanding Common Shares at a price and on terms determined
by at least a majority of the directors, after receiving
advice from one or more nationally recognized investment
banking firms, to be in the best interests of the Company and
its stockholders (a "Qualifying Offer"), after taking into
consideration all factors that such members of the Board of
Directors deem relevant, including, without limitation, the
long-term prospects and value of the Company and the prices
and terms that such members of the Board of Directors believe,
in good faith, could reasonably be achieved if the Company or
its assets were sold on an orderly basis designed to realize
maximum value, or
(C) during such time as there is an
Acquiring Person, there shall be any reclassification of
securities (including any reverse stock split), or
recapitalization of the Company, or any merger or
consolidation of the Company with any of its Subsidiaries or
any other transaction or series of transactions involving the
Company or any of its Subsidiaries, other than a Section 13
Event or series of such Section 13 Events (whether or not with
or into or otherwise involving an Acquiring Person) that has
the effect, directly or indirectly, of increasing by more than
1% the proportionate share of the outstanding shares of any
class of equity securities of the Company or any of its
Subsidiaries that is directly or indirectly beneficially owned
by any Acquiring Person or any Associate or Affiliate of any
Acquiring Person,
then, promptly following the first occurrence of a Section 11(a)(ii)
Event, proper provision shall be made so that each holder of a Right
(except as provided below and in Section 7(e) hereof) shall thereafter
have the right to receive, upon exercise thereof at the then current
Purchase Price in accordance with the terms of this Agreement, in lieu
of a number of Preferred Share Fractions, such number of Common Shares
of the Company as shall equal
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the result obtained by (x) multiplying the then current Purchase Price
by the then number of Preferred Share Fractions for which a Right was
exercisable immediately prior to the first occurrence of a Section
11(a)(ii) Event, and (y) dividing that product (which, following such
first occurrence, shall thereafter be referred to as the "Purchase
Price" for each Right and for all purposes of this Agreement) by 50% of
the current market price (as defined in and determined pursuant to
Section 11(d) hereof) per Common Share on the date of such first
occurrence (such number of shares, the "Adjustment Shares").
(iii) In the event that the number of Common Shares that
are authorized by the Company"s Certificate of Incorporation but not
outstanding or reserved for issuance for purposes other than upon
exercise of the Rights are not sufficient to permit the exercise in
full of the Rights in accordance with the foregoing subparagraph (ii)
of this Section 11(a), the Company shall: (A) determine the excess of
the value of the Adjustment Shares issuable upon the exercise of a
Right (the "Current Value") over the Purchase Price (such excess, the
"Spread"), and (B) with respect to each Right, make adequate provision
to substitute for the Adjustment Shares, upon payment of the applicable
Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3)
Common Shares of the same or a different class or other equity
securities of the Company (including, without limitation, preferred
shares or units of preferred shares that a majority of the directors in
office at the time has deemed (based, among other things, on the
dividend and liquidation rights of such preferred shares) to have
substantially the same economic value as Common Shares (such preferred
shares, hereinafter referred to as "common share equivalents")), (4)
debt securities of the Company, (5) other assets, or (6) any
combination of the foregoing, having an aggregate value equal to the
Current Value, where such aggregate value has been determined by a
majority of the directors in office at the time after considering the
advice of a nationally recognized investment banking firm selected by
the Board of Directors of the Company; PROVIDED, HOWEVER, if the
Company shall not have made adequate provision to deliver value
pursuant to clause (B) above within thirty (30) days following the
later of (x) the first occurrence of a Section 11(a)(ii) Event and (y)
the date on which the Company"s right of redemption pursuant to Section
23(a) expires (the later of (x) and (y) being referred to herein as the
"Section 11(a)(ii) Trigger Date"), then the Company shall be obligated
to deliver, upon the surrender for exercise of a Right and without
requiring payment of the Purchase Price, Common Shares (to the extent
available) and then, if necessary, cash, which shares and/or cash have
an aggregate value equal to the Spread. If the Board of Directors of
the Company shall determine in good faith that it is likely that
sufficient additional Common Shares could be authorized for issuance
upon exercise in full of the Rights, the thirty (30) day period set
forth above may be extended to the extent necessary, but not more than
ninety (90) days after the Section 11(a)(ii) Trigger Date, in order
that the Company may seek stockholder approval for the authorization of
such additional shares (such period, as it may be extended, the
"Substitution Period"). To the extent that the Company determines that
some action need be taken pursuant to the first and/or second sentences
of this Section 11(a)(iii), the Company shall provide, subject to
Section 7(e) hereof, that such action shall apply uniformly to all
outstanding Rights, and may suspend the exercisability of the Rights
until the expiration of
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the Substitution Period in order to seek any authorization of
additional shares and/or to decide the appropriate form of distribution
to be made pursuant to such first sentence and to determine the value
thereof. The Company shall make a public announcement when the
exercisability of the Rights has been temporarily suspended, and again
when such suspension is no longer in effect. The Company shall notify
the Rights Agent of the suspension of the exercisability of the Rights,
and provide the Rights Agent with a copy of such public announcement.
For purposes of this Section 11(a)(iii), the value of the Common Shares
shall be the current market price (as determined pursuant to Section
11(d) hereof) per Common Share on the Section 11(a)(ii) Trigger Date
and the value of any "common share equivalent" shall be deemed to have
the same value as the Common Shares on such date.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to holders of any security of the
Company entitling them to subscribe for or purchase (for a period expiring
within forty-five (45) calendar days after such record date) Preferred Shares
(or shares having the same rights, privileges and preferences as the Preferred
Shares ("equivalent preferred shares")) or securities convertible into Preferred
Shares or equivalent preferred shares at a price per Preferred Share or per
equivalent preferred share (or having a conversion price per share, if a
security convertible into Preferred Shares or equivalent preferred shares) less
than the current market price (as determined pursuant to Section 11(d) hereof)
per Preferred Share on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of Preferred Shares outstanding on such record date,
plus the number of Preferred Shares that the aggregate offering price of the
total number of Preferred Shares and/or equivalent preferred shares so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price, and
the denominator of which shall be the number of Preferred Shares outstanding on
such record date, plus the number of additional Preferred Shares and/or
equivalent preferred shares to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible). In
case such subscription price may be paid by delivery of consideration part or
all of which may be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Company, the Rights Agent and the holders of
the Rights. Preferred Shares owned by or held for the account of the Company
shall not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed, and
in the event that such rights or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price that would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Shares (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a regular
quarterly dividend out of the earnings or retained earnings of the Company),
assets (other than a regular quarterly dividend referred to above or dividend
payable in Preferred Shares, but
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including any dividend payable in stock other than Preferred Shares) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the current market
price (as determined pursuant to Section 11(d) hereof) per Preferred Share on
such record date, less the then fair market value (as determined in good faith
by the Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent and shall be conclusive for all
purposes) of the portion of the cash, assets or evidences of indebtedness so to
be distributed or of such subscription rights or warrants applicable to a
Preferred Share and the denominator of which shall be such current market price
(as determined pursuant to Section 11(d) hereof) per Preferred Share. Such
adjustments shall be made successively whenever such a record date is fixed, and
in the event that such distribution is not so made, the Purchase Price shall be
adjusted to be the Purchase Price which would have been in effect if such record
date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other
than computations made pursuant to Section 11(a)(iii) hereof, the
"current market price" per Common Share on any date shall be deemed to
be the average of the daily closing prices per Common Share for the
thirty (30) consecutive Trading Days (as such term is hereinafter
defined) immediately prior to and not including such date, and for
purposes of computations made pursuant to Section 11(a)(iii) hereof,
the "current market price" per Common Share on any date shall be deemed
to be the average of the daily closing prices per Common Share for the
ten (10) consecutive Trading Days immediately following and not
including such date; PROVIDED, HOWEVER, that in the event that the
current market price per Common Share is determined during a period
following the announcement by the issuer of such Common Share of (A) a
dividend or distribution on such Common Share payable in Common Shares
or securities convertible into Common Shares (other than the Rights),
or (B) any subdivision, combination or reclassification of such Common
Shares, and prior to the expiration of the requisite thirty (30)
Trading Day or ten (10) Trading Day period, as set forth above, after
the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then, and
in each such case, the "current market price" shall be properly
adjusted to take into account ex-dividend trading. The closing price
for each Trading Day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing
bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange
or, if the Common Shares are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Common Shares are
listed or admitted to trading or, if the Common Shares are not listed
or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation
System ("Nasdaq") or such other system then in use, or, if on any such
date the Common Shares are not quoted by any such organization,
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the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Shares selected
by the Board of Directors of the Company. If on any such date no market
maker is making a market in the Common Shares, the fair value of such
shares on such date as determined in good faith by the Board of
Directors of the Company shall be used. The term "Trading Day" shall
mean a day on which the principal national securities exchange on which
the Common Shares are listed or admitted to trading is open for the
transaction of business or, if the Common Shares are not listed or
admitted to trading on any national securities exchange, a Business
Day. If the Common Shares are not publicly held or not so listed or
traded, "current market price" per share shall mean the fair value per
share as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed
with the Rights Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder,
the "current market price" per Preferred Share shall be determined in
the same manner as set forth above for the Common Shares in clause (i)
of this Section 11(d) (other than the last sentence thereof). If the
current market price per Preferred Share cannot be determined in the
manner provided above or if the Preferred Shares are not publicly held
or listed or traded in a manner described in clause (i) of this Section
11(d), the "current market price" per Preferred Share shall be
conclusively deemed to be an amount equal to one hundred (as such
number may be appropriately adjusted for such events as stock splits,
stock dividends and recapitalizations with respect to the Common Shares
occurring after the date of this Agreement) multiplied by the current
market price per Common Share. If neither the Common Shares nor the
Preferred Shares are publicly held or so listed or traded, "current
market price" per Preferred Share shall mean the fair value per share
as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes. For all purposes
of this Agreement, the "current market price" of a Preferred Share
Fraction shall be equal to the "current market price" of one Preferred
Share divided by 1000.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the Purchase
Price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest ten-thousandth of a Common
Share or one millionth of a Preferred Share, as the case may be.
(f) If as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Shares, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect
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to the Preferred Shares contained in Sections 11(a), (b), (c), (e), (g), (h),
(i), (j), (k), (m) and (q), and the provisions of Sections 7, 9, 10, 13 and 14
hereof with respect to the Preferred Shares shall apply on like terms to any
such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Preferred Share
Fractions purchasable from time to time hereunder upon exercise of the Rights,
all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in subsections (b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
Preferred Share Fractions (calculated to the nearest one-one millionth of a
Preferred Share) obtained by (i) multiplying (x) the number of Preferred Share
Fractions covered by a Right immediately prior to this adjustment, by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price, and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of Preferred Share Fractions purchasable upon the
exercise of a Right. Each of the Rights outstanding after the adjustment in the
number of Rights shall be exercisable for the number of Preferred Share
Fractions for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one-one
millionth of a Preferred Share) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the Purchase
Price in effect immediately after adjustment of the Purchase Price. The Company
shall make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. The Company shall forward a copy of such
public announcement to the Rights Agent. The record date for the adjustment may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Rights Certificates have been issued, shall be at least ten (10) days
later than the date of the public announcement. If Rights Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the
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option of the Company, the adjusted Purchase Price) and shall be registered in
the names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of Preferred Share Fractions issuable upon the exercise of
the Rights, the Rights Certificates theretofore and thereafter issued may
continue to express the Purchase Price per Preferred Share Fraction and the
number of Preferred Share Fractions that were expressed in the initial Rights
Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then stated or par value, if any, of the
number of Preferred Share Fractions issuable upon exercise of the Rights, the
Company shall take any corporate action that may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue such number
of fully paid and nonassessable Preferred Share Fractions at such adjusted
Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of Preferred Share Fractions and other capital stock or securities of
the Company, if any, issuable upon such exercise over and above the number of
Preferred Share Fractions and other capital stock or securities of the Company,
if any, issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment; PROVIDED, HOWEVER, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder"s
right to receive such additional shares (fractional or otherwise) or securities
upon the occurrence of the event requiring such adjustment, and the Company
shall also deliver a copy of such bill or instrument to the Rights Agent.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment the Board of
Directors of the Company shall determine to be advisable in order that any (i)
consolidation or subdivision of the Preferred Shares, (ii) issuance wholly for
cash of any Preferred Shares at less than the current market price, (iii)
issuance wholly for cash for Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, (iv) stock dividends
or (v) issuance of rights, options or warrants referred to in this Section 11,
hereafter made by the Company to holders of its Preferred Shares shall not be
taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o) hereof), or
(iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning
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power of the Company and its Subsidiaries (taken as a whole) to any other person
or persons (other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), if (x) at the
time of or immediately after such consolidation, merger or sale there are any
rights, warrants or other instruments or securities outstanding or agreements in
effect that would substantially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights or (y) prior to, simultaneously with or
immediately after such consolidation, merger or sale, the stockholders of the
Person who constitutes, or would constitute, the "Principal Party" for purposes
of Section 13(a) hereof shall have received a distribution of Rights previously
owned by such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 26
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after the
Rights Dividend Declaration Date and prior to the Distribution Date (i) declare
a dividend on the outstanding Common Shares payable in Common Shares, (ii)
subdivide the outstanding Common Shares, or (iii) combine the outstanding Common
Shares into a smaller number of shares, the number of Rights associated with
each Common Share then outstanding, or issued or delivered thereafter but prior
to the Distribution Date, shall be proportionately adjusted so that the number
of Rights thereafter associated with each Common Share following any such event
shall equal the result obtained by multiplying the number of Rights associated
with each Common Share immediately prior to such event by a fraction the
numerator of which shall be the total number of Common Shares outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of Common Shares outstanding immediately following the
occurrence of such event.
(q) In the event that the Rights become exercisable following
a Section 11(a)(ii) Event, the Company, by action of a majority of the directors
in office at the time, may authorize that the Rights, subject to Section 7(e)
hereof, either (i) will only be, or (ii) may, at the option of the holder
entitled to exercise the Rights be, exercisable for, in either case 50% of the
Common Shares (or cash or other securities or assets to be substituted for the
Adjustment Shares pursuant to subsection (a)(iii)) that would otherwise be
purchasable under subsection (a), in consideration of the surrender to the
Company of the Rights so exercised and without other payment of the Purchase
Price. Rights exercised under this subsection (q) shall be deemed to have been
exercised in full and shall be canceled.
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER
OF SHARES. Whenever an adjustment is made as provided in Section 11 or Section
13 hereof, the Company shall (a) promptly prepare a certificate setting forth
such adjustment and a brief, reasonably detailed statement of the facts and
computations accounting for such adjustment, (b) promptly file with the Rights
Agent, and with each transfer agent for the Preferred Shares and the Common
Shares, a copy
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of such certificate, and (c) mail a brief summary thereof to each holder of a
Rights Certificate (or, if prior to the Distribution Date, to each holder of a
certificate representing Common Shares) in accordance with Section 25 hereof.
The Rights Agent shall be fully protected in relying on any such certificate and
on any adjustment therein contained and shall have no duty with respect to and
shall not be deemed to have knowledge of any such adjustment unless and until it
shall have received such a certificate.
SECTION 13 CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS
OR EARNING POWER.
(a) In the event that, following the Stock Acquisition Date,
directly or indirectly, (x) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), and the Company shall not
be the continuing or surviving corporation of such consolidation or merger, (y)
any person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof) shall consolidate with, or merge with or
into, the Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the outstanding Common Shares shall be
changed into or exchanged for stock or other securities of any other Person or
cash or any other property, or (z) the Company shall sell or otherwise transfer
(or one or more of its Subsidiaries shall sell or otherwise transfer), in one
transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets, operating income, cash flow or earning
power of the Company and its Subsidiaries (taken as a whole) to any Person or
Persons (other than the Company or any Subsidiary of the Company in one or more
transactions each of which complies with Section 11(o) hereof), then, and in
each such case and except as contemplated by subsection (d), proper provision
shall be made so that:
(i) each holder of a Right, except as provided in
Section 7(e) hereof or subsection (e), shall thereafter have the right
to receive, upon the exercise thereof at the then current Purchase
Price in accordance with the terms of this Agreement, such number of
validly authorized and issued, fully paid, non assessable and freely
tradeable Common Shares of the Principal Party (as such term is
hereinafter defined), not subject to any liens, encumbrances, rights of
first refusal or other adverse claims, as shall be equal to the result
obtained by (1) multiplying the then current Purchase Price by the
number of Preferred Share Fractions for which a Right is exercisable
immediately prior to the first occurrence of a Section 13 Event (or, if
a Section 11(a)(ii) Event has occurred prior to the first occurrence of
a Section 13 Event, multiplying the number of such shares for which a
Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event by the Purchase Price in effect immediately
prior to such first occurrence), and (2) dividing that product (which,
following the first occurrence of a Section 13 Event, shall be referred
to as the "Purchase Price" for each Right and for all purposes of this
Agreement) by 50% of the current market price (determined pursuant to
Section 11(d)(i) hereof) per Common Share of such Principal Party on
the date of consummation of such Section 13 Event;
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<PAGE>
(ii) such Principal Party shall thereafter be liable
for, and shall assume, by virtue of such Section 13 Event, all the
obligations and duties of the Company pursuant to this Agreement;
(iii) the term "Company" shall thereafter be deemed
to refer to such Principal Party, it being specifically intended that
the provisions of Section 11 hereof shall apply only to such Principal
Party following the first occurrence of a Section 13 Event;
(iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number
of its Common Shares) in connection with the consummation of any such
transaction as may be necessary to assure that the provisions hereof
shall thereafter be applicable, as nearly as reasonably may be, in
relation to its Common Shares thereafter deliverable upon the exercise
of the Rights; and
(v) the provisions of Section 11(a)(ii) hereof shall
be of no effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in
clause (x) or (y) of the first sentence of subsection (a), the Person
that is the issuer of any securities into which Common Shares of the
Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to such
merger or consolidation; and
(ii) in the case of any transaction described in
clause (z) of the first sentence of subsection (a), the Person that is
the party receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
PROVIDED, HOWEVER, that in the case of either (i) or (ii) above, (1) if the
Common Shares of such Person are not at such time and have not been continuously
over the preceding twelve (12) month period registered under Section 12 of the
Exchange Act, and such Person is a direct or indirect Subsidiary of another
Person the Common Shares of which are and have been so registered, "Principal
Party" shall refer to such other Person, and (2) in case such Person is a
Subsidiary, directly or indirectly, of more than one Person, the Common Shares
of two or more of which are and have been so registered, "Principal Party" shall
refer to whichever of such Persons is the issuer of the Common Shares having the
greatest aggregate market value.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of its Common Shares that have not been issued or
reserved for issuance to permit the exercise in full of the Rights in accordance
with this Section 13 and unless prior thereto the Company and such Principal
Party shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the
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<PAGE>
terms set forth in paragraphs (a) and (b) of this Section 13 and further
providing that, as soon as practicable after the date of any Section 13 event,
the Principal Party will
(i) prepare and file a registration statement under
the Act, with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and will use its best
efforts to cause such registration statement to (A) become effective as
soon as practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
Expiration Date;
(ii) use its best efforts to qualify or register the
Rights and the securities purchasable upon exercise of the Rights under
blue sky laws of such jurisdiction, as may be necessary or appropriate;
and
(iii) deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates
that comply in all respects with the requirements for registration on
Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13 Event
shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the
Rights that have not theretofore been exercised shall thereafter become
exercisable solely in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 (other than this subsection (d)) shall not be applicable
to, and the term "Section 13 Event" shall not include, a transaction described
in subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is
consummated with a Person, or Persons who acquired Common Shares pursuant to a
Qualifying Offer (or a wholly owned Subsidiary of any such Person or Persons),
(ii) the price per Common Share offered in such transaction is not less than the
price per Common Share paid to all holders of Common Shares whose shares were
purchased pursuant to such tender offer or exchange offer and (iii) the form of
consideration being offered to the remaining holders of Common Shares pursuant
to such transaction is the same as the form of consideration paid pursuant to
such tender or exchange offer. Upon consummation of any such transaction
contemplated by this subsection (d), all Rights hereunder shall expire.
(e) In the event that the Rights become exercisable under
subsection (a) (except as provided in subsection (d)), the Company, by action of
a majority of the directors in office at the time, may authorize that the Rights
either (i) will only be or (ii) may, at the option of the Principal Party be,
exercisable for, 50% of the Common Shares of the Principal Party that would
otherwise be purchasable under subsection (a), in consideration of the surrender
to the Principal Party, as the successor to the Company under subsection (a)
(ii), of the Rights so exercised and without other payment of the Purchase
Price. Rights exercised under this subsection (e) shall be deemed to have been
exercised in full and shall be canceled.
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<PAGE>
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of
Rights, except prior to the Distribution Date as provided in Section 11(p)
hereof, or to distribute Rights Certificates that evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this subsection (a), the
current market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such fractional
Rights would have been otherwise issuable. The closing price of the Rights for
any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading, or if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by Nasdaq or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights the fair value of the
Rights on such date as determined in good faith by the Board of Directors of the
Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares upon exercise of the Rights or to distribute certificates which
evidence fractional Preferred Shares, except in each case for fractions which
are integral multiples of Preferred Shares. In lieu of fractional Preferred
Shares that are not integral multiples of Preferred Shares, the Company may pay
to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of a Preferred Share. For purposes of this subsection (b),
the current market value of one Preferred Share shall be the closing price of a
Preferred Share (as determined pursuant to Section 11(d)(ii) hereof) for the
Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the
Company shall not be required to issue fractions of Common Shares upon exercise
of the Rights or to distribute certificates that evidence fractional Common
Shares. In lieu of fractional Common Shares, the Company may pay to the
registered holders of Rights Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one Common Share. For purposes of this subsection (c), the
current market value of one Common Share shall be the closing price of one
Common Share (as determined pursuant to Section 11(d)(i) hereof) for the Trading
Day immediately prior to the date of such exercise.
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<PAGE>
(d) Whenever a payment for fractional Rights or fractional
shares is to be made by the Rights Agent, the Company shall (i) promptly prepare
and deliver to the Rights Agent a certificate setting forth in reasonable detail
the facts related to such payment and the process and/or formulas utilized in
calculating such payments, and (ii) provide sufficient monies to the Rights
Agent in the form of fully collected funds to make such payments. The Rights
Agent shall be fully protected in relying on such certificate and shall have no
duty with respect to and shall not be deemed to have knowledge of any payment
for fractional Rights or fractional shares under this Section 4 unless and until
it shall have received such a certificate and sufficient monies.
(e) The holder of a Right or a beneficial interest in a Right
by the acceptance thereof expressly waives his right to receive any fractional
Rights or any fractional Common Shares upon exercise of a Right, except as
permitted by this Section 14.
SECTION 15. RIGHTS OF ACTION. All rights of action in respect
of this Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights or beneficial interests
therein, it is specifically acknowledged that the holders of Rights or
beneficial interests therein would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of the
obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
SECTION 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a
Right or a beneficial interest in a Right by accepting the same consents and
agrees with the Company and the Rights Agent and with every other such holder
that:
(a) prior to the Distribution Date, beneficial interests in
the Rights will be transferable only in connection with the transfer of Common
Shares;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office of the Rights Agent designated for such purposes, duly endorsed or
accompanied by a proper instrument of transfer and with the appropriate forms
and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the Person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated Common
Share certificate) is registered as the absolute owner
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<PAGE>
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Rights Certificates or the associated Common Share
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
required to be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or a beneficial interest in a Right or other Person as a
result of its inability to perform any of its obligations under this Agreement
by reason of any preliminary or permanent injunction or other order, decree,
judgment or ruling (whether interlocutory or final) issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; PROVIDED, HOWEVER, the Company must use its best
efforts to have any such order, decree, judgment or ruling lifted or otherwise
overturned as soon as possible.
SECTION 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A
STOCKHOLDER. No holder, as such, of any Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of the number of
Preferred Share Fractions or any other securities of the Company (including the
Common Shares) that may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 24 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Rights Certificate
shall have been exercised in accordance with the provisions hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the preparation, execution,
delivery, amendment, administration and execution of this Agreement and the
exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Rights Agent and its directors, officers, employees and agents,
for and to hold each of them harmless against, any loss, liability, damage,
judgment, fine, penalty, claim, demand, settlement, cost or expense, incurred
without gross negligence, bad faith or willful misconduct on the part of the
Rights Agent or any such indemnified party, for any action taken, suffered or
omitted by the Rights Agent in connection with the acceptance or administration
of this Agreement or the exercise of its duties hereunder, including without
limitation the costs and expenses of defending against any claim of liability in
the premises.
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(b) The Rights Agent shall be fully protected and shall incur
no liability for or in respect of any action taken, suffered or omitted by it in
connection with the acceptance and administration of this Agreement or in the
exercise of its duties hereunder in reliance upon any Rights Certificate or
certificate for Common Shares or for other securities of the Company, instrument
of assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement, or other paper or document
believed by it to be genuine and to be signed, executed and, where necessary,
verified or acknowledged, by the proper Person or Persons.
(c) The indemnity provided in this Section 18 shall survive
the expiration of the Rights and termination of the Agreement.
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF
RIGHTS AGENT.
(a) Any Person into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any Person
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any Person succeeding to the
stockholder services or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; PROVIDED, HOWEVER, that such Person would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT. The Rights Agent
undertakes the duties and obligations, and only the duties and obligations,
expressly imposed by this Agreement (and no implied duties or obligations) upon
the following terms and conditions, by all of which the Company and the holders
of Rights Certificates or beneficial interests in the Rights, by their
acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the advice or written opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent, and the Rights Agent shall incur no liability for or in respect of, any
action taken, suffered or omitted by it in good faith and in accordance with
such advice or opinion.
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(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of "current market price") be proved or established by the
Company prior to taking, suffering or omitting any action hereunder, such fact
or matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, the President, any Vice
President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization and protection to the Rights Agent and
the Rights Agent shall incur no liability for or in respect of any action taken,
suffered or omitted in good faith by it under the provisions of this Agreement
in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own gross negligence, bad faith or willful misconduct; PROVIDED, HOWEVER, that
the Rights Agent shall not be liable for special, indirect, incidental or
consequential loss or damage of any kind whatsoever, even if the Rights Agent
has been advised of the likelihood of such loss or damage.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any liability or
responsibility in respect of the validity of any provision of this Agreement or
the execution and delivery hereof (except the due execution hereof by the Rights
Agent) or in respect of the validity or execution of any Rights Certificate
(except its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this Agreement
or in any Rights Certificate; nor shall it be responsible for any adjustment
required under the provisions of this Agreement or responsible for the manner,
method or amount of any such adjustment or the ascertaining of the existence of
facts that would require any such adjustment (except with respect to the
exercise of Rights evidenced by Rights Certificates after actual notice of any
such adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any Common
Shares to be issued pursuant to this Agreement or any Rights Certificate or as
to whether any Common Shares or Preferred Shares will, when so issued, be
validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board,
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the President, the Chief Executive Officer, any Vice President, the Secretary,
any Assistant Secretary, the Treasurer or any Assistant Treasurer of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and such instructions shall be full authorization and
protection for the Rights Agent and the Rights Agent shall incur no liability
for or in respect of any action taken, suffered or omitted to be taken by it in
good faith in accordance with instructions of any such officer or for any delay
in acting while awaiting instructions. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Agreement and the date on or after which such action shall be
taken or such omission shall be effective. The Rights Agent shall not be liable
for any action taken by, or omission of, the Rights Agent in accordance with a
proposal included in any such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
any officer of the Company actually receives such application, unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted. The Rights Agent may
conclusively rely on the most recent instructions provided to it by any such
officer.
(h) The Rights Agent and any stockholder, affiliate, director,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
the Rights Agent under this Agreement and none of such actions shall constitute
a breach of trust. Nothing herein shall preclude the Rights Agent from acting in
any other capacity for the Company or for any other Person or legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company or any other Person
resulting from any such act, default, neglect or misconduct, absent gross
negligence, bad faith or willful misconduct in the selection and continued
employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if it believes that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
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(l) The Rights Agent undertakes only the express duties and
obligations imposed on it by this Agreement and no implied duties or obligations
shall be read into this Agreement against the Rights Agent.
SECTION 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days" prior written notice mailed to the Company and
to each transfer agent of the Common Shares and Preferred Shares by registered
or certified mail, and to the holders of the Rights Certificates by first- class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days" prior written notice mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common
Shares and Preferred Shares, by registered or certified mail, and to the holders
of the Rights Certificates by first-class mail. If the Rights Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then any registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a Person organized, doing business and
in good standing under the laws of the United States or of any state, having a
principal office in the State of New York, that is authorized by law to exercise
stockholder services and stock transfer powers and is subject to supervision or
examination by federal or state authority and that has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$10,000,000 or (b) an Affiliate of any such Person. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares and Preferred Shares and mail a
notice thereof in writing to the registered holders of the Rights Certificates
or, prior to the Distribution Date, to the registered holders of the Common
Shares. In case at the time such successor Rights Agent shall succeed to the
agency and trust created by this Agreement, any of the Rights Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of a predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
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SECTION 22. ISSUANCE OF NEW RIGHTS CERTIFICATES.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance, sale or delivery of Common Shares
following the Distribution Date and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to Common Shares so issued, sold or
delivered pursuant to the exercise of stock options, stock appreciation rights,
grants or awards outstanding on the Distribution Date under any benefit plan or
arrangement for employees or directors, or upon the exercise, conversion or
exchange of securities outstanding on the Record Date or hereinafter issued by
the Company, and (b) may, in any other case, if deemed necessary or appropriate
by the Board of Directors of the Company, issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
PROVIDED, HOWEVER, that (i) no such Rights Certificate shall be issued if, and
to the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Rights Certificate would be issued, and (ii)
no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
SECTION 23. REDEMPTION AND TERMINATION.
(a) The Board of Directors of the Company may, at its option,
at any time prior to the earlier of (i) the Close of Business on the tenth day
following a Stock Acquisition Date (or, if the Stock Acquisition Date shall have
occurred prior to the Record Date, the Close of Business on the tenth day
following the Record Date), or (ii) the Close of Business on the Final
Expiration Date, redeem all but not less than all the then outstanding Rights at
a redemption price of $.01 per Right, as such amount may be appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price") and the Company may, at its option, pay
the Redemption Price either in Common Shares (based on the "current market
price", as defined in Section 11(d)(i) hereof, of the Common Shares at the time
of redemption) or cash; PROVIDED, HOWEVER, that if, following the occurrence of
a Stock Acquisition Date and following the expiration of the right of redemption
hereunder but prior to any Triggering Event, (i) an Acquiring Person shall have
transferred or otherwise disposed of a number of Common Shares in one
transaction or series of transactions, not directly or indirectly involving the
Company or any of its Subsidiaries, which did not result in the occurrence of a
Triggering Event or the Company shall have issued additional equity securities,
in either instance such that such Person is thereafter a Beneficial Owner of 10%
or less of the outstanding Common Shares, and (ii) there is no other Acquiring
Person immediately following the occurrence of the event described in clause
(i), then the right of redemption shall be reinstated and thereafter be subject
to the provisions of this Section 23. Notwithstanding anything contained in this
Agreement to the contrary, the Rights shall not be exercisable after the first
occurrence of a Section 11(a)(ii) Event until such time as the Company"s right
of redemption hereunder has expired.
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(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, without any notice, or
further action, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price for each Right so held. Promptly after the action of the Board of
Directors ordering the redemption of the Rights, the Company shall give notice
of such redemption to the Rights Agent and the holders of the then outstanding
Rights by, in the case of notice to holders, mailing such notice to all such
holders at each holder"s last address as it appears upon the registry books of
the Rights Agent or, prior to the Distribution Date, on the registry books of
the Transfer Agent for the Common Shares. Any notice that is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made.
SECTION 24. EXCHANGE.
(a) The Board of Directors of the Company may, at its option,
at any time after any Person becomes an Acquiring Person, exchange all or part
of the then outstanding and exercisable Rights (which shall not include Rights
that have become null and void pursuant to the provisions of Section 7(e)
hereof) for Common Shares at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Company"s Board of Directors shall not be empowered to effect such exchange
at any time after any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or any such Subsidiary, or any
Person organized, appointed or established by the Company for or pursuant to the
terms of any such plan), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of fifty percent (50%) or more of the
Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of the
holders of such Rights shall be to receive that number of Common Shares equal to
the number of such Rights held by such holder multiplied by the Exchange Ratio.
The Company shall promptly give public notice of any such exchange; PROVIDED,
HOWEVER, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company shall promptly notify the
Rights Agent of any such exchange. The Company promptly shall mail a notice of
any such exchange to all of the holders of such Rights at their last addresses
as they appear upon the registry books of the Rights Agent. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of exchange will state the method
by which the exchange of the Common Shares for Rights will be effected and, in
the event of any partial exchange, the number of Rights which will be exchanged.
Any partial exchange shall be effected pro rata based on the number of Rights
(other than Rights which have become void pursuant to the provisions of Section
7(e) hereof) held by each holder of Rights.
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(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but issued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exchange of the Rights.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Common Shares would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Common Share. For the
purposes of this subsection (d), the current market value of a whole Common
Share shall be the closing price of a Common Share (as determined pursuant to
the second sentence of Section 11(d) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
SECTION 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Shares or to make any other distribution to the holders of
Preferred Shares (other than a regular quarterly dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Shares rights or warrants to subscribe for or to purchase any additional
Preferred Shares or shares of stock of any class or any other securities, rights
or options, or (iii) to effect any reclassification of its Preferred Shares
(other than a reclassification involving only the subdivision of outstanding
Preferred Shares), or (iv) to effect any consolidation or merger into or with
any other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), or to effect any sale or other transfer (or
to permit one or more of its Subsidiaries to effect any sale or other transfer),
in one transaction or a series of related transactions, of more than 50% of the
assets or earning power of the Company and its Subsidiaries (taken as a whole)
to any other Person or Persons (other than the Company and/or any of its
Subsidiaries in one or more transactions each of which complies with Section
11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of
the Company, then, in each such case, the Company shall give to the Rights Agent
and to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 26 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of Preferred Shares, if any
such date is to be fixed, and such notice shall be so given in the case of any
action covered by clause (i) or (ii) above at least twenty (20) days prior to
the record date for determining holders of Preferred Shares for purposes of such
action, and in the case of any such other action, at least twenty (20) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of Preferred Shares, whichever shall be the
earlier.
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(b) Upon the occurrence of a Section 11(a)(ii) Event, (i) the
Company shall as soon as practicable thereafter give to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 26 hereof, a
notice of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Section 11(a)(ii) hereof,
and (ii) all references in the preceding paragraph to Preferred Shares shall be
deemed thereafter to refer to Common Shares and/or, if appropriate, other
securities.
SECTION 26. NOTICES. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
The Sports Authority, Inc.
3383 N. State Road 7
Ft. Lauderdale, Florida 33319
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Corporate Trust Department
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date to the holder of certificates representing Common
Shares) shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as shown on the
registry books of the Company.
SECTION 27. SUPPLEMENTS AND AMENDMENTS. Prior to the
Distribution Date and subject to the penultimate sentence of this Section 27,
the Company may and the Rights Agent shall, if the Company so directs,
supplement or amend any provision of this Agreement without the approval of any
holders of certificates representing Common Shares. From and after the
Distribution Date and subject to the penultimate sentence of this Section 27,
the Company may and the Rights Agent shall, if the Company so directs,
supplement or amend this Agreement without the approval of any holders of Rights
Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provisions herein, (iii) to shorten or lengthen any time period hereunder,
or (iv) to change or supplement the provisions hereunder in any manner that the
Company may deem necessary or desirable and that
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shall not adversely affect the interests of the holders of Rights Certificates;
PROVIDED, this Agreement may not be supplemented or amended to lengthen,
pursuant to clause (iii) of this sentence, (A) a time period relating to when
the Rights may be redeemed at such time as the Rights are not then redeemable,
or (B) any other time period unless such lengthening is for the purpose of
protecting, enhancing or clarifying the rights of, and/or the benefits to, the
holders of Rights. Upon the delivery of a certificate from an appropriate
officer of the Company that states that the proposed supplement or amendment is
in compliance with the terms of this Section 27, and if requested by the Rights
Agent, an opinion of counsel, the Rights Agent shall execute such supplement or
amendment. Notwithstanding anything contained in this Agreement to the contrary,
(i) no supplement or amendment shall be made that changes the Redemption Price,
the Final Expiration Date, the Purchase Price or the number of Preferred Share
Fractions for which a Right is exercisable and (ii) no supplement or amendment
that changes or increases the obligations and duties of the Rights Agent under
this Agreement shall be effective without the consent of the Rights Agent. Prior
to the Distribution Date, the interests of the beneficial owners of Rights shall
be deemed coincident with the interests of the holders of Common Shares.
SECTION 28. SUCCESSORS. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF
DIRECTORS, ETC. For all purposes of this Agreement, any calculation of the
number of Common Shares outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding Common
Shares of which any Person is the Beneficial Owner, shall be made in accordance
with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and
Regulations under the Exchange Act. The Board of Directors of the Company shall
have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement, and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights or to amend or supplement the
Agreement). All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) that are done or made by the Board in good faith, shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights and all other Persons, and (y) not subject the directors to any liability
to the holders of the Rights. For purposes of this Agreement, the Rights Agent
shall be allowed to assume that all such actions, calculations, interpretations
and determinations have been done or made by the Board in good faith.
SECTION 30. BENEFITS OF THIS AGREEMENT. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, registered holders of the Common Shares) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
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be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Shares).
SECTION 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable for any purpose or under
any set of circumstances or as applied to any Person, such invalid, void or
unenforceable term, provision, covenant or restriction shall continue in effect
to the maximum extent possible for all other purposes, under all other
circumstances and as applied to all other Persons; and the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
PROVIDED, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the Close of Business on the
tenth day following the date of such determination by the Board of Directors.
Without limiting the foregoing, if any provisions requiring that a determination
be made by less than the entire Board (or at a time or with the concurrence of a
group of directors consisting of less than the entire Board) is held by a court
of competent jurisdiction or other authority to be invalid, void or
unenforceable, such determination shall then be made by the Board in accordance
with applicable law and the Company"s Certificate of Incorporation and by-laws.
SECTION 32. GOVERNING LAW. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such jurisdiction applicable to
contracts made and to be performed entirely within such jurisdiction; except
that all provisions regarding the rights, duties and obligations of the Rights
Agent shall by governed by and construed in accordance with the laws of the
State of New York applicable to contracts made and to be performed entirely
within such jurisdiction.
SECTION 33. COUNTERPARTS. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
SECTION 34. DESCRIPTIVE HEADINGS. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
THE SPORTS AUTHORITY, INC.
By:___________________________________
Name:
Title:
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:___________________________________
Name:
Title:
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EXHIBIT A
RESOLUTION OF THE BOARD OF DIRECTORS OF
THE SPORTS AUTHORITY, INC.
ESTABLISHING AND DESIGNATING
SERIES A JUNIOR PARTICIPATING PREFERRED SHARES
AS A SERIES OF THE 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 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
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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 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
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<PAGE>
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-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
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<PAGE>
authorized but unissued Series Preferred Stock and may be reissued as Series A
Preferred Shares or 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 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
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<PAGE>
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.
- 44 -
<PAGE>
EXHIBIT B
[Form of Rights Certificate]
Certificate No. R- ___________ Rights
NOT EXERCISABLE AFTER OCTOBER 5, 2001 OR AFTER EARLIER REDEMPTION BY
THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON
(AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT
HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED
BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON
WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF
AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES
SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]*
- ---------------
* The bracketed portion of the legend shall be inserted only if applicable and
shall replace the preceding sentence.
- 45 -
<PAGE>
THE SPORTS AUTHORITY, INC.
RIGHTS CERTIFICATE
This certifies that ___________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Amended and Restated Rights Agreement, as amended as of
February 1, 2000 (the "Rights Agreement"), between The Sports Authority, Inc., a
Delaware corporation (the "Company"), and American Stock Transfer & Trust
Company, a New York corporation (the "Rights Agent"), to purchase from the
Company at any time prior to 5:00 P.M. (New York time) on October 5, 2001 at the
office or offices of the Rights Agent designated for such purpose, or its
successors as Rights Agent, one one-thousandth of a fully paid, nonassessable
share of Series A Junior Participating Preferred Stock (the "Preferred Share")
of the Company, at a purchase price (the "Purchase Price") of $50 per one
one-thousandth of a Preferred Share (such fraction, a "Preferred Share
Fraction"), upon presentation and surrender of this Rights Certificate with the
Form of Election to Purchase and related Certificate duly executed. Except as
provided in Sections 11(q) and 13(e) of the Rights Agreement, the Purchase Price
shall be paid, at the option of the Company, in cash or Common Stock of the
Company (the "Common Shares") having an equivalent value. The number of Rights
evidenced by this Rights Certificate (and the number of Preferred Share
Fractions that may be purchased upon exercise thereof) set forth above, and the
Purchase Price per Preferred Share Fraction set forth above, are the number and
Purchase Price as of October 5, 1998, based on the Preferred Shares as
constituted at such date.
Except as otherwise provided in the Rights Agreement, upon the
occurrence of any Section 11(a)(ii) Event (as such term is defined in the Rights
Agreement), if the Rights evidenced by this Rights Certificate are beneficially
owned by (i) an Acquiring Person or Associate or Affiliate or Associate of any
Acquiring Person (as such terms are defined in the Rights Agreement), (ii) a
transferee of any Acquiring Person (of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such, or (iii) under
certain circumstances specified in the Rights Agreement, a transferee of a
person who, after such transfer, became an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person, such Rights shall become null and void and no
holder hereof shall have any right with respect to such Rights from and after
the occurrence of any such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and
the number and kind of Preferred Shares or other securities that may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events,
including Triggering Events and a Section 11 (a) (ii) Event.
This Rights Certificate is subject to all of the terms,
covenants and restrictions of the Rights Agreement, which terms, covenants and
restrictions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full
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<PAGE>
description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the holders of the
Rights Certificates, which limitations of rights include the temporary
suspension of the exercisability of such Rights under the specific circumstances
set forth in the Rights Agreement. Copies of the Rights Agreement are on file at
the above-mentioned office of the Rights Agent and are also available upon
written request to the Company.
This Rights Certificate, with or without other Rights
Certificates, upon surrender at the office of the Rights Agent designated for
such purpose, may be exchanged for another Rights Certificate or Rights Certifts
entitling the holder to purchase a like aggregate number of Preferred Share
Fractions as the Rights evidenced by the Rights Certificate or Rights
Certificates surrendered shall have entitled such holder to purchase. If this
Rights Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Rights Certificate or Rights Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $.01 per Right at any time prior to the earlier of the Close
of Business (as such term is defined in the Rights Agreement) on (i) the tenth
day following the Stock Acquisition Date (as such time period may be extended
pursuant to the Rights Agreement), and (ii) the Final Expiration Date.
No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of a Preferred Share, which may, as the election of the
Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of Preferred Shares
or of any other securities of the Company (including Common Shares) that may at
any time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
- 47 -
<PAGE>
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of ____________, ____
ATTEST: THE SPORTS AUTHORITY, INC.
______________________________ By: _______________________________
Secretary Title:
Countersigned:
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:____________________________
Authorized Signature
- 48 -
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if
such holder desires to transfer the Rights
Certificate.)
FOR VALUE RECEIVED _______________________________________ hereby sells, assigns
and transfers unto______________________________________________________________
(Please print name and address of transferee)
_______________________________________________________ this Rights Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ___________________ Attorney, to transfer the within
Rights Certificate on the books of the within-named Company, with full power of
substitution.
Dated: _________________, ____
______________________________
Signature
Signature Guaranteed:
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: _________________, ____ ____________________________
Signature
Signature Guaranteed:
- 49 -
<PAGE>
NOTICE
The signatures to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
- 50 -
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise Rights represented by the Rights
Certificate.)
To: THE SPORTS AUTHORITY, INC.:
The undersigned hereby irrevocably elects to exercise ________
Rights represented by this Rights Certificate to purchase the Preferred Shares
issuable upon the exercise of the Rights (or Common Shares or such other
securities of the Company or of any other person that may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be issued
in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced
by this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated: _________________, ____
___________________________
Signature
Signature Guaranteed:
- 51 -
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that
(1) the Rights evidenced by this Rights Certificate [ ] are
[ ] are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as
such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: _________________, ____ ___________________________
Signature
Signature Guaranteed:
NOTICE
The signatures to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
- 52 -
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
January 11, 2000
Mr. Martin E. Hanaka
Chairman and Chief Executive Officer
The Sports Authority, Inc.
3383 North State Road 7
Ft. Lauderdale, FL 33319
Dear Mr. Hanaka:
This letter will confirm our understanding concerning your continued employment
with The Sports Authority, Inc. (the "Company").
1. The Company agrees to employ you as, and you agree to serve as, the Company's
Chief Executive Officer through December 31, 2001, subject to the terms of this
agreement.
2. If your employment with the Company is terminated by the Company other than
for Cause, or if your employment is terminated by death, and if paragraph 3 does
not apply, the Company will pay to you (or, in the case of death, your estate)
through December 31, 2001, a monthly fee equal to (a) one-twelfth of your
annualized base salary in effect on the date your employment is terminated, plus
(b) one-twelfth of the "on plan" bonus amount targeted for you for the fiscal
year during which your employment is terminated (to be paid on or about the 15th
day of each month). In addition, all of your unvested options to purchase
Company stock under the Company's stock option plans will vest upon the
termination of your employment.
3. If there is a Change in Control of the Company while you are employed by the
Company and if (i) your employment with the Company is terminated by the Company
other than for Cause, (ii) you terminate your employment with the Company for
Good Reason, or (iii) your employment is terminated by death, in any case within
a two-year period following such a Change in Control, the Company will pay to
you an amount equal to 2.99 times the sum of (i) your annual rate of base salary
at the time of termination or immediately prior to the Change in Control,
whichever base salary amount
<PAGE>
is greater, and (ii) the "on plan" bonus amount targeted for you for the fiscal
year in which termination occurs or the fiscal year immediately prior to the
Change in Control, whichever bonus amount is greater. Such payment shall be made
within fifteen days after your termination.
4. If there is a Change in Control of the Company while you are employed by the
Company and if, at any time after one year after the Change in Control and
before December 31, 2001, (i) you are not the chief executive officer of (A) the
corporation or other entity (whether or not it is the Company) which is the
survivor of any merger or consolidation resulting from the Change in Control, if
such surviving corporation or entity is not more than 50% owned by any other
corporation or entity, or (B) the corporation or other entity which, as a result
of the Change in Control, owns more than 50% of the stock of the Company or the
corporation or entity which is the survivor of any merger or consolidation
resulting from the Change in Control, other than due to your resignation from
such position or your refusal to serve in such position, and (ii) you terminate
your employment with the Company or such other entity (other than under the
circumstances described in paragraph 3), the Company will pay to you through one
year after the last day of your employment a monthly fee equal to (a)
one-twelfth of your annualized base salary in effect on the date your employment
is terminated, plus (b) one-twelfth of the "on plan" bonus amount targeted for
the fiscal year in which termination occurs or the fiscal year immediately prior
to the Change in Control, whichever bonus amount is greater (to be paid on or
about the 15th day of each month).
5. (a) Termination by the Company for "Cause" means termination based on
(i) conduct which is a material violation of Company policy, as in effect
immediately before any Change in Control, or which is fraudulent or unlawful or
which materially interferes with your ability to perform your duties, (ii)
misconduct which damages or injures the Company or substantially damages the
Company's reputation, or (iii) gross negligence in the performance of, or
willful failure to perform, your duties and responsibilities.
(b) Termination by you for "Good Reason" means termination based on the
occurrence without your express written consent of any of the following: (i) a
significant diminution by the Company of your role with the Company or a
significant detrimental change in the nature and/or scope of your status with
the Company, other than for Cause, (ii) a reduction in your base salary, other
than for Cause and other than as part of an across-the-board reduction in
salaries of management personnel (including all Vice Presidents and above) of
less than 20%, (iii) a material diminution by the Company of benefits (taken as
a whole) provided to you immediately prior to the Change in Control, or (iv) the
relocation of the Company's principal executive offices to a location outside of
Broward County, Palm Beach County or Dade County, Florida or any requirement
that you be based anywhere other than the Company's principal executive offices.
(c) A "Change in Control" shall be deemed to have occurred if:
<PAGE>
(i) the "beneficial ownership" (as defined in Rule l3d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
securities representing more than 50% of the combined voting power of the
Company is acquired by any "person" as defined in sections 13(d) and 14(d) of
the Exchange Act (other than the Company or any trustee or other fiduciary
holding securities under an employee benefit plan of the Company), or
(ii) the shareholders of the Company approve a definitive
agreement to merge or consolidate the Company with or into another corporation
or to sell or otherwise dispose of all or substantially all of its assets, or
(iii) during any period of three consecutive years,
individuals who at the beginning of such period were members of the Board of
Directors of the Company cease for any reason to constitute at least a majority
thereof (unless the election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the beginning of
such period).
6. (a) Anything in this Agreement to the contrary notwithstanding, in the
event that it shall be determined that any payment or distribution by the
Company to or for your benefit, whether paid or payable or distributed or
distributable pursuant to the terms of this agreement or otherwise (the
"Payment"), would constitute an "excess parachute payment" within the meaning of
Section 280G of the Code, you shall be paid an additional amount (the "Gross-Up
Payment") such that the net amount retained by you after deduction of any excise
tax imposed on you under Section 4999 of the Code , and any federal, state and
local income and employment tax and excise tax imposed upon the Gross-Up Payment
shall be equal to the Payment. For purposes of determining the amount of the
Gross-Up Payment, you shall be deemed to pay federal income tax and employment
taxes at the highest marginal rate of federal income and employment taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of your residence (or, if greater, the state and locality in which you
are required to file a nonresident income tax return with respect to the
Payment) on the Termination Date, net of the maximum reduction in federal income
taxes that may be obtained by you from the deduction of such state and local
taxes.
(b) All determinations to be made under this paragraph 6 shall be made
by the Company's independent public accountant immediately prior to the Change
of Control (the "Accounting Firm"), which firm shall provide its determinations
and any supporting calculations both to the Company and you within 10 days of
your termination. Any such determination by the Accounting Firm shall be binding
upon the Company and you. Within five days after the Accounting Firm's
determination, the Company shall pay (or cause to be paid) or distribute (or
cause to be distributed) to you, or for your benefit, such amounts as are then
due to you under this agreement.
<PAGE>
(c) You shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after you know of such claim and
shall apprise the Company of the nature of such claim and the date on which such
claim is requested to be paid. You shall not pay such claim prior to the
expiration of the thirty day period following the date on which you give such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies you
in writing prior to the expiration of such period that it desires to contest
such claim, you shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold you harmless, on an after-tax
basis, for any excise tax, income tax or employment tax, including interest and
penalties, with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this paragraph 6, the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearing and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
you to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and you agree to prosecute such contest to a termination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine; provided further,
however, that if the Company directs you to pay such claim and sue for a refund
the Company shall advance the amount of such payment to you, on an interest-free
basis and shall indemnify and hold you harmless, on an after-tax basis, from any
excise tax, income tax or employment tax, including interest or penalties with
respect thereto, imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and provided further that any
extension of the statute of limitations relating to payment of taxes for your
taxable year with respect to which such contested amount is claimed to be due is
limited solely to such contested
<PAGE>
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
you shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by you of an amount advanced by the Company
pursuant to this Section, you become entitled to receive any refund with respect
to such claim, you shall (subject to the Company's complying with the
requirements of this paragraph) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by you of an amount advanced by the
Company pursuant to this Section, a determination is made that you shall not be
entitled to any refund with respect to such claim and the Company does not
notify you in writing of its intent to contest such denial of refund prior to
the expiration of thirty days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
(e) All of the fees and expenses of the Accounting Firm in performing
the determinations referred to in this paragraph shall be borne solely by the
Company. The Company agrees to indemnify and hold harmless the Accounting Firm
of and from any and all claims, damages and expenses resulting from or relating
to its determinations pursuant to this paragraph, except for claims, damages or
expenses resulting from the gross negligence or willful misconduct of the
Accounting Firm.
7. In consideration of the obligations of the Company hereunder, you agree that
you shall not, for a period of one year from the termination of your employment
by you or the Company for any reason (or the later of one year from the
termination of your employment or December 31, 2001, if your employment is
terminated under paragraph 2), (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 fiscal year of the Company immediately preceding the year of such
termination), (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 such termination (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
<PAGE>
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.
8. The payments provided hereunder shall constitute the exclusive payments due
you from, and the exclusive obligation of, the Company in the event of any
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, other than a severance pay
plan. 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.
9. It is the intent of the parties that you not be required to incur any
expenses associated with the enforcement of your right to receive payments due
under paragraph 3 or paragraph 4 of this agreement by arbitration, litigation or
other legal action because the cost and expense thereof would substantially
detract from the benefits intended to be extended to you. Accordingly, the
Company shall pay you on demand the amount necessary to reimburse you in full
for all reasonable expenses (including all attorneys' fees and legal expenses)
incurred by you in enforcing the obligations of the Company to make the payments
due under paragraph 3 or paragraph 4 of this agreement.
10. The obligation to make the payments hereunder is conditioned upon your
execution and delivery to the Company at the time of the termination of your
employment of a release, in form satisfactory to the Company, of any claims you
may
<PAGE>
have as a result of your employment or termination of employment under any
federal, state or local law, excluding any claim for 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, other than a severance
pay plan, and excluding any claims for reimbursement for liabilities, costs or
expenses incurred in any action against you within the scope of your employment
by the Company and for which you would have been indemnified pursuant to the
bylaws of the Company as of the date hereof (in which case you shall notify the
Company in writing within ten days after receiving service of process as to the
commencement of the action and give the Company the right to control the defense
of any such action), unless later limited in accordance with applicable law.
11. The Company shall require any successor or successors (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to you, to acknowledge expressly that this
agreement is binding upon and enforceable against the Company in accordance with
the terms hereof, and in the same manner and to the same extent that the Company
would be required to perform if no such succession or successions had taken
place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this agreement. As
used in this agreement, the Company shall mean the Company as hereinbefore
defined and any such successor or successors to its business and/or assets,
jointly and severally.
12. All payments hereunder shall be subject to applicable tax withholding and
deductions.
13. This agreement sets forth the entire understanding between you and the
Company concerning your relationship with the Company and supersedes all prior
agreements, written or oral, 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.
14. 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.
15. This agreement shall be governed by and interpreted under the laws of the
State of Delaware without giving effect to any conflict of laws provisions.
<PAGE>
Please indicate your agreement by signing below and retain one copy for you
records.
Sincerely,
THE SPORTS AUTHORITY, INC.
By:
------------------------------
Cynthia Cohen
Chair, Compensation Committee
Agreed:
- -----------------------
Martin E. Hanaka
EXHIBIT 10.15
SEVERANCE AGREEMENT - 73+
January __, 2000
Dear _______________:
This letter will confirm our understanding on the matters set forth
below, and supersedes the letter agreement between us on the same subject dated
______, 199_.
1. If your employment with The Sports Authority, Inc. (the "Company")
is terminated by the Company other than for Cause and paragraph 2 does not
apply, the Company will pay to you your base salary through the date termination
occurs, plus any other amount due you at the time of termination under any bonus
plan of the Company, and thereafter the Company will pay you twenty-six (26)
bi-weekly severance payments equal to your bi-weekly base salary at the time of
termination. In addition, on the next ensuing date when bonuses are paid under
the bonus plan of the Company in which you are a participant at the time of your
termination, the Company will pay you in a lump sum an amount equal to the bonus
you would have received if you had remained employed by the Company through that
date.
2. Notwithstanding paragraph 1, if there is a Change in Control of the
Company while you are employed by the Company and if your employment with the
Company is terminated by the Company other than for Cause or if you terminate
your employment with the Company for Good Reason, in either case within a
two-year period following such a Change in Control, the Company will pay to you
an amount equal to two times the sum of (i) your annual rate of base salary at
the time of termination or immediately prior to the Change in Control, whichever
base salary amount is greater, and (ii) the "on plan" bonus amount targeted for
you for the fiscal year in which termination occurs or the fiscal year
immediately prior to the Change in Control, whichever bonus amount is greater.
Such payment shall be made within fifteen days after your termination.
3. (a) Termination by the Company for "Cause" means termination based
on (i) conduct which is a material violation of Company policy (as in effect on
the date your employment is terminated, if it is terminated under paragraph 1,
and as in effect immediately before the Change in Control, if your employment is
terminated under paragraph 2), or which is fraudulent or unlawful or which
materially interferes with your ability to perform your duties, (ii) misconduct
which damages or injures the Company or substantially damages the Company's
reputation, or (iii) gross negligence in the performance of, or willful failure
to perform, your duties and responsibilities.
<PAGE>
(b) Termination by you for "Good Reason" means termination based on
the occurrence without your express written consent of any of the following: (i)
a significant diminution by the Company of your role with the Company or a
significant detrimental change in the nature and/or scope of your status with
the Company, other than for Cause, (ii) a reduction in your base salary, other
than for Cause and other than as part of an across-the-board reduction in
salaries of management personnel (including all Vice Presidents and above) of
less than 20%, (iii) a material diminution by the Company of benefits (taken as
a whole) provided to you immediately prior to the Change in Control, or (iv) the
relocation of the Company's principal executive offices to a location outside of
Broward County, Palm Beach County or Dade County, Florida or any requirement
that you be based anywhere other than the Company's principal executive offices.
(c) A "Change in Control" shall be deemed to have occurred if:
(i) the "beneficial ownership" (as defined in Rule
l3d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of securities representing more than 50% of the combined voting power of
the Company is acquired by any "person" as defined in sections 13(d) and 14(d)
of the Exchange Act (other than the Company or any trustee or other fiduciary
holding securities under an employee benefit plan of the Company), or
(ii) the shareholders of the Company approve a
definitive agreement to merge or consolidate the Company with or into another
corporation or to sell or otherwise dispose of all or substantially all of its
assets, or
(iii) during any period of three consecutive years,
individuals who at the beginning of such period were members of the Board of
Directors of the Company cease for any reason to constitute at least a majority
thereof (unless the election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the beginning of
such period).
4. (a) Anything in this Agreement to the contrary notwithstanding, in
the event that it shall be determined that any payment or distribution by the
Company to or for your benefit, whether paid or payable or distributed or
distributable pursuant to the terms of this agreement or otherwise (the
"Payment"), would constitute an "excess parachute payment" within the meaning of
Section 280G of the Code, you shall be paid an additional amount (the "Gross-Up
Payment") such that the net amount retained by you after deduction of any excise
tax imposed on you under Section 4999 of the Code , and any federal, state and
local income and employment tax and excise tax imposed upon the Gross-Up Payment
shall be equal to the Payment. For purposes of determining the amount of the
Gross-Up Payment, you shall be deemed to pay federal income tax and employment
taxes at the highest marginal rate of federal income and employment taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
<PAGE>
local income taxes at the highest marginal rate of taxation in the state and
locality of your residence (or, if greater, the state and locality in which you
are required to file a nonresident income tax return with respect to the
Payment) on the Termination Date, net of the maximum reduction in federal income
taxes that may be obtained by you from the deduction of such state and local
taxes.
(b) All determinations to be made under this paragraph 4 shall be
made by the Company's independent public accountant immediately prior to the
Change of Control (the "Accounting Firm"), which firm shall provide its
determinations and any supporting calculations both to the Company and you
within 10 days of your termination. Any such determination by the Accounting
Firm shall be binding upon the Company and you. Within five days after the
Accounting Firm's determination, the Company shall pay (or cause to be paid) or
distribute (or cause to be distributed) to you, or for your benefit, such
amounts as are then due to you under this agreement.
(c) You shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after you know of such claim and
shall apprise the Company of the nature of such claim and the date on which such
claim is requested to be paid. You shall not pay such claim prior to the
expiration of the thirty day period following the date on which you give such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies you
in writing prior to the expiration of such period that it desires to contest
such claim, you shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold you harmless, on an after-tax
basis, for any excise tax, income tax or employment tax, including interest and
penalties, with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on
<PAGE>
the foregoing provisions of this paragraph 4, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearing and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct you to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and you agree to prosecute such
contest to a termination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided further, however, that if the Company directs you to pay
such claim and sue for a refund the Company shall advance the amount of such
payment to you, on an interest-free basis and shall indemnify and hold you
harmless, on an after-tax basis, from any excise tax, income tax or employment
tax, including interest or penalties with respect thereto, imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and provided further that any extension of the statute of limitations
relating to payment of taxes for your taxable year with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
you shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by you of an amount advanced by the
Company pursuant to this Section, you become entitled to receive any refund with
respect to such claim, you shall (subject to the Company's complying with the
requirements of this paragraph) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by you of an amount advanced by the
Company pursuant to this Section, a determination is made that you shall not be
entitled to any refund with respect to such claim and the Company does not
notify you in writing of its intent to contest such denial of refund prior to
the expiration of thirty days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
(e) All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in this paragraph shall be borne
solely by the Company. The Company agrees to indemnify and hold harmless the
Accounting Firm of and from any and all claims, damages and expenses resulting
from or relating to its determinations pursuant to this paragraph, except for
claims, damages or expenses resulting from the gross negligence or willful
misconduct of the Accounting Firm.
5. The payments provided hereunder shall constitute the exclusive
payments due you from, and the exclusive obligation of, the Company in the event
of any 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, other than a severance
pay plan. You shall not be required to mitigate the amount of any payment or
benefit provided for in this
<PAGE>
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.
6. In consideration of the obligations of the Company hereunder, you
agree that you shall not, for a period of (i) one year from the date of any
termination of your employment by the Company other than for Cause and other
than under paragraph 2, and (ii) two years from the date of any other
termination of your employment other than under paragraph 2, (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 fiscal year of the Company immediately
preceding the year of such termination), (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 such termination (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
<PAGE>
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.
7. In the event you initiate legal action against the Company to
enforce your rights under this agreement, the party which prevails in such
litigation shall be entitled to full reimbursement by the other party for all
reasonable expenses (including reasonable attorneys' fees and expenses) incurred
in connection with such action.
8. This agreement shall terminate on November 30, 2001 and shall be
automatically renewed for successive one-year periods unless the Company
notifies you or you notify the Company in writing that this agreement will not
be renewed at least sixty days prior to the end of the current term, provided,
however, that (i) after a Change in Control during the term of this agreement,
this agreement shall remain in effect until all of the obligations of the
parties hereunder are satisfied, and (ii) this agreement shall terminate if,
prior to a Change in Control, your employment with the Company shall terminate
for any reason other than as provided herein.
9. The obligation to make the payments hereunder is conditioned upon
your execution and delivery to the Company at the time of the termination of
your employment of a release, in form satisfactory to the Company, of any claims
you may have as a result of your employment or termination of employment under
any federal, state or local law, excluding any claim for 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, other than a
severance pay plan, and excluding any claims for reimbursement for liabilities,
costs or expenses incurred in any action against you within the scope of your
employment by the Company and for which you would have been indemnified pursuant
to the bylaws of the Company as of the date hereof (in which case you shall
notify the Company in writing within ten days after receiving service of process
as to the commencement of the action and give the Company the right to control
the defense of any such action), unless later limited in accordance with
applicable law.
10. The Company shall require any successor or successors (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to you, to acknowledge expressly that this
agreement is binding upon and enforceable against the Company in accordance with
the terms hereof, and in the same manner and to the same extent that the Company
would be required to perform if no such succession or successions had taken
place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this agreement. As
used in this agreement, the Company shall mean the Company as hereinbefore
defined and any such successor or successors to its business and/or assets,
jointly and severally.
11. All payments hereunder shall be subject to applicable tax
withholding and deductions.
<PAGE>
12. Nothing in this agreement shall be construed as giving you any
right to be retained in the employ of the Company.
13. This agreement shall be governed by and interpreted under the laws
of the State of Delaware without giving effect to any conflict of laws
provisions.
14. 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.
15. 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.
Please indicate your agreement by signing below and retain one copy for
you records.
Sincerely,
THE SPORTS AUTHORITY, INC.
By:
-----------------------------
Agreed:
- -----------------------------
Date:
------------------------
EXHIBIT 10.28
Confidential Treatment has been requested with respect to portions of
the agreement indicated with an asterisk [*]. A complete copy of this agreement,
including the redacted terms, has been separately filed with the Securities and
Exchange Commission.
E-COMMERCE VENTURE AGREEMENT
BETWEEN
THE SPORTS AUTHORITY, INC.
AND
GLOBAL SPORTS INTERACTIVE, INC.
MAY 7, 1999
<PAGE>
E-COMMERCE VENTURE AGREEMENT
This Agreement is made and entered into on the 7th day of May, 1999, by
and between GLOBAL SPORTS INTERACTIVE, INC., a corporation organized and
existing under the laws of the Commonwealth of Pennsylvania and having its
principal place of business at King of Prussia, Pennsylvania ("GSI"), and THE
SPORTS AUTHORITY, INC., a corporation organized and existing under the laws of
the State of Delaware and having its principal place of business at Fort
Lauderdale, Florida ("TSA").
SECTION I
PURPOSE AND STRUCTURE OF THE E-COMMERCE VENTURE
1.1. PURPOSE. The purpose of the e-commerce venture is to manage and
operate the E-Commerce Business.
1.2. STRUCTURE. The e-commerce venture shall be carried out through
TheSportsAuthority.com, Inc., a corporation to be organized by the parties under
the laws of the State of Delaware ("TSA.com") and located in King of Prussia,
Pennsylvania unless the parties otherwise agree. The parties agree to cause
TSA.com to sell and issue shares only as provided in Section 3.3 hereof.
SECTION II
TERMS AND DEFINITIONS
For purposes of this Agreement, the following terms have the meaning
expressed after each term:
2.1. "ADVERTISING CO-OP AND DISCRETIONARY FUNDS" - Amounts earned by or
allocated to TSA.com by vendors, the purpose of which is to advertise that
vendor"s brand or to use at TSA.com"s discretion.
2.2. "AFFILIATE(S)" - An entity directly or indirectly controlling
(through one or more intermediaries), controlled by or under common control with
a given "Party" (as defined below), where control means the ownership or
control, directly or indirectly, of 50% or more of all of the voting power of
the shares (or other securities or rights) entitled to vote for the election of
1
<PAGE>
directors or other governing authority, provided that such entity shall be
considered an Affiliate only for the time during which such control exists.
2.3. "BOARD OF DIRECTORS" - The Board of Directors of TSA.com or of any
Subsidiary, as the case may be.
2.4. "BUSINESS DAY(S)" - Any day which is not a Saturday, Sunday or
official federal holiday in the United States.
2.5. "DIRECTORS" - The members of the Board of Directors of TSA.com.
2.6. "E-COMMERCE AGREEMENT" - The agreement between TSA.com and TSA,
substantially in the form attached hereto as EXHIBIT "A."
2.7. "E-COMMERCE BUSINESS" - The business of creating, developing,
operating, managing, advertising and promoting the TSA Site (as defined below).
2.8. "E-COMMERCE SERVICES AGREEMENT" - The agreement between TSA.com
and GSI, substantially in the form attached hereto as EXHIBIT "B."
2.9. "FISCAL YEAR" - TSA.com"s fiscal year as further defined in
Section 7.1.
2.10. "GAAP" - Generally accepted accounting principles, consistently
applied.
2.11. "GROSS SALES" shall mean all revenues received for merchandise
and services furnished at, by or through the TSA Site by TSA.com, its Affiliate,
Subsidiary or Related companies or permitted sublicensees (if any), whether
received by TSA.com, its Affiliate, Subsidiary or Related companies or permitted
sublicensees, whether for cash, credit, or other QUID PRO QUO (as measured at
fair market value), except that the following shall be excluded in calculating
Gross Sales: (i) sales of General Merchandise or Own Brand Merchandise
subsequently returned for refund or credit; (ii) value added taxes, consumption
taxes, sales taxes, uses taxes and any other applicable taxes imposed by
governments, excluding withholding taxes collected and paid by TSA.com, if any;
and (iii) TSA.com"s related actual costs of shipping and handling. Gross Sales
shall be calculated net of any allowances given with respect to defective
General Merchandise or Own Brand Merchandise, provided that such allowances
shall not exceed [*] percent ([*]%) of the value (at TSA.com"s lowest cost) of
General Merchandise or Own Brand Merchandise (as the case may be) received in
any given Fiscal Year from the subject vendor or vendors to TSA.com.
2.12. "INTERNET" - A global network of interconnected computer
networks, each using
2
<PAGE>
the Transmission Control Protocol/Internet Protocol and/or such other standard
network interconnection protocols as may be adopted from time to time, which is
used to transmit content that is directly or indirectly delivered to a computer
or other digital electronic device for display to an end-user, whether such
content is delivered through on-line browsers, off-line browsers or through
"push" technology, electronic mail, broadband distribution, satellite, wireless
or other successor technologies or means.
2.13. "INVESTMENT BANKER" - A major investment banking firm having
substantial experience in the valuation of e-commerce enterprises similar in
size and structure to TSA.com.
2.14. "LICENSE AGREEMENT" - The agreement among TSA, The Sports
Authority Michigan, Inc. and TSA.com, substantially in the form attached hereto
as EXHIBIT "C."
2.15. "OPERATIVE DOCUMENTS" - This Joint Venture Agreement, the
E-Commerce Agreement, the E-Commerce Services Agreement and the License
Agreement.
2.16. "PARTY(IES)" - "Party" shall mean TSA and/or GSI; "Parties" shall
mean both of them.
2.17. "RELATED" - Related company or companies shall mean any legal
entity which holds directly or indirectly more than 50% of the issued share
capital or capital stock of GSI or TSA, or of which GSI or TSA holds directly or
indirectly more than 50% of the issued share capital or capital stock, in any
event not to include TSA.com. An entity shall be deemed to hold shares
indirectly if the shares are held by another entity that is majority controlled,
either directly or through other majority controlled entities, by such first
mentioned entity.
2.18. "SHAREHOLDER(S)" - The shareholder(s) of TSA.com.
2.19. "SUBSIDIARY" - Any company owned or controlled by GSI or by TSA.
2.20. "TSA COMPETITOR" shall mean: (a) any person, firm or corporation
or other entity (other than TSA and its retailing Subsidiaries) which either
directly or indirectly derives twenty percent (20%) or more of its revenues from
the sales or distribution of sporting goods, athletic apparel, athletic footwear
or related goods and services, whether operating from stores located in the
U.S., Canada or Japan or any other nation in which the predominant language is
English, whether by mail order, home shopping through audio or video
programming, over the Internet or otherwise; and (b) any retailing entity which
would clearly be regarded as a competitor of TSA by the U.S. Department of
Justice under federal antitrust and competition laws and regulations.
2.21. "TSA SITE" shall mean that certain Internet site currently
accessible through the URL "http://www.thesportsauthority.com," and any backup
or mirror Internet site operated by
3
<PAGE>
TSA.com; it being understood that the TSA Site shall be primarily targeted by
TSA.com at Customers, and NOT at persons, entities or activities otherwise
described in Article 2.6 of the License Agreement. TSA.com agrees that the TSA
Site shall not be used by TSA.com to furnish, sell, advertise or promote the
goods or services of any TSA Competitor.
2.22. "TSA STORES" shall mean any sporting goods retail store
established and/or operated by Retailer or Retailer"s retailing subsidiaries
devoted to the sale of a broad assortment of sporting goods and equipment,
footwear and apparel and related goods and to provision of the related services.
SECTION III
FORMATION AND CAPITALIZATION OF THE JOINT VENTURE
3.1. INDEPENDENT ENTITIES. It is the intention of GSI and TSA that
TSA.com and any Subsidiary of TSA.com shall (i) be autonomous and independent
business organizations; (ii) have their own personnel, except as otherwise
contemplated herein or by the E-Commerce Services Agreement, and (iii) not
require any loans or guarantees from TSA.
3.2. ORGANIZATION OF TSA.COM. As soon as possible after the execution
of this Agreement, GSI shall cause TSA.com to be duly organized under the laws
of the State of Delaware. The initial registered office of TSA.com shall be
located at such location as may be determined mutually by the Parties. The text
of the Certificate of Incorporation and the Bylaws of TSA.com shall be subject
to the prior approval of both of the Parties.
3.3. INITIAL CAPITAL CONTRIBUTIONS. The Certificate of Incorporation of
TSA.com shall authorize the issuance of up to 16,000 shares of common stock,
$.01 par value per share, and no other class of equity securities. Upon
organization of TSA.com, the Parties agree to cause TSA.com to issue and sell to
(i) GSI 8,001 shares of TSA.com common stock for the aggregate cash purchase
price of $[*] and (ii) TSA 1,999 shares of TSA.com common stock for the
aggregate cash purchase price of $[*].
3.4. ADDITIONAL FUNDING.
(a) GSI shall loan TSA.com all additional funding hereafter
required by TSA.com. Such loans shall bear interest at the [*], but not in
excess of [*] (the "GSI Rate"). In the alternative, GSI may support borrowing
directly by TSA.com by providing (without additional compensation other than
reimbursement of any letter of credit fees) letters of credit or guarantees to
enhance TSA.com"s creditworthiness to permit TSA.com to borrow at the GSI Rate.
All
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additional funding as used herein shall include but not be limited to all
amounts for corporate overhead, purchase or lease of property, inventory and
working capital needs in connection therewith, and any shortfall that may be
required pursuant to Section 6.3 of the E-Commerce Agreement. In the event of a
breach of this Section 3.4(a), GSI shall have the right to cure such breach
within 30 days of receipt of written notice of breach from TSA.
(b) GSI agrees to fund TSA.com in the manner provided in Section
3.4(a) in an amount not less than [*] during the period from the date hereof
through November 1, 1999. In the event of a breach of this Section 3.4(b), GSI
shall have the right to cure such breach within 30 days of receipt of written
notice of breach from TSA.
(c) GSI agrees to cause TSA.com to spend, prior to December 31,
2007, not less than [*] in excess of the amount of Advertising Co-op and
Discretionary Funds spent by TSA.com for advertising of TSA"s Site, of which at
least [*] shall be spent by December 31, 2001 and the balance remaining will be
spent at the rate of at least [*] per Fiscal Year until all [*] is spent. In the
event of a breach of this Section 3.4(c), GSI shall have the right to cure such
breach within 30 days of receipt of written notice of breach from TSA.
(d) A breach of Sections 3.4(c) may be cured by delivering to TSA
the required amounts not spent on condition that TSA spend such amounts for
advertising of TSA"s Site in such manner as TSA shall determine.
(e) The Parties shall not permit TSA.com to incur any indebtedness
for borrowed money except in accordance with Section 3.4(a).
3.5 TSA OPTION. The parties agree to cause TSA to have the right and
option, on and after May 9, 2002 (or immediately prior to an initial public
offering of shares of TSA.com common stock, if such offering occurs prior to May
9, 2002), to purchase from TSA.com shares of TSA.com common stock in the number
which after purchase would cause TSA to own up to 49.9% of the outstanding
shares of TSA.com common stock. Such "49.9%" is based on 16,000 authorized
shares of common stock, and the parties agree that so long as there are 16,000
shares authorized TSA"s ownership pursuant to Sections 3.3, 3.5 and 3.6 hereof
shall never exceed 7.999 shares unless the parties otherwise mutually agree. The
purchase price shall be payable to TSA.com in cash at closing and shall be equal
to the lesser of (i) the aggregate amount equal to the percentage of TSA.com
shares to be purchased (giving effect to such purchase) multiplied times an
amount equal to [*] times the [*] as of the month end immediately prior to the
closing of such purchase, as determined in accordance with GAAP, or (ii) [*]. In
the event that such stockholders equity shall be positive, then such aggregate
purchase price shall be [*]. The option set forth in this Section 3.5 shall
expire upon an initial public offering of TSA.com common stock.
3.6 EARN IN.
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(a) The Parties agree that provided that TSA.com"s Gross Sales in
the first full fiscal year exceed [*], TSA.com shall issue and deliver to TSA
upon TSA"s demand therefor, [*] shares of TSA.com common stock.
(b) The Parties further agree that TSA.com shall issue and deliver
shares of TSA.com common stock to TSA in the following amounts promptly upon the
achievement of either the Land Based Goal or the E-Commerce Goal for the year
indicated.
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Land Based E-Commerce Number of
Year Goal Goal Shares
2000 $[*] N/A [*]
2001 $[*] $[*] [*]
2002 $[*] $[*] [*]
2003 $[*] $[*] [*]
"Land Based Goal" shall mean gross revenues of TSA for TSA"s fiscal
year.
"E-Commerce Goal" shall mean TSA.com"s operating income (excluding
extraordinary items) for the Fiscal Year as determined in accordance with GAAP.
In the event the goals set forth in Sections 3.6(a) or 3.6(b) for a
prior year or years are not achieved, but a goal for a subsequent year is
achieved, then TSA shall receive all shares specified above in Sections 3.6(a)
or 3.6(b) for the prior year or years.
The provisions of this Section 3.6 shall terminate upon TSA"s exercise
of the option set forth in Section 3.5 hereof.
3.7 WARRANT. In consideration of TSA entering into this Agreement, GSI
shall cause Global Sports, Inc., a Delaware corporation ("Global"), to issue and
deliver to TSA a Warrant to purchase shares of Global common stock in the amount
and with the terms and conditions set forth on EXHIBIT "D" hereto.
SECTION IV
MANAGEMENT AND OPERATIONS OF TSA.COM;
VOTING PROCEDURES
4.1. MANAGEMENT OF TSA.COM.
(a) BOARD OF DIRECTORS. The Board of Directors shall consist of
five persons. The Parties agree to elect to the Board of Directors three persons
designated by GSI from time to time and two persons designated by TSA from time
to time. Each Party may remove the persons appointed by such Party as a Director
at any time. The Parties agree that a quorum for a Board of Directors meeting
shall exist only if at least three directors are present and if at least one of
the directors present is a designee of TSA. The initial directors designated by
each Party shall be as set forth on EXHIBIT "E."
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(b) MEETINGS. The Parties agree that the Bylaws of TSA.com shall
provide that (i) meetings of the Board of Directors can be called upon five
Business Days" written notice by the Chairman of the Board, the President or any
two Directors and (ii) meetings of shareholders can be called by any shareholder
upon 10 days" written notice.
4.2. MANAGEMENT OF SUBSIDIARIES. The Board of Directors of any
Subsidiary of TSA.com shall consist at all times of the same persons as are the
members of the Board of Directors of TSA.com.
4.3. TRANSACTIONS WITH GSI OR TSA. The Parties agree that TSA.com and
any Subsidiaries of TSA.com shall be operated as independent businesses and that
any transaction between or among TSA.com or any Subsidiary of TSA.com, on the
one hand, and GSI or TSA or any of their Related companies, on the other hand,
shall be on an arms-length basis (except as otherwise provided in the Operative
Documents). Any sales or purchases of materials, products or services to or from
TSA.com or any Subsidiary by GSI or TSA or any of their Related companies shall
be competitive with alternative sources of equivalent materials, products or
services in terms of price, design, performance, quality, technology and
delivery (except as otherwise provided in the Operative Documents).
4.4. INSURANCE. The Parties shall cause TSA.com to maintain at all
times during the term of this Agreement an amount of coverage, consistent with
good business practices in the United States and sufficient at all times to the
obligations of the Parties under the Operative Documents, including, without
limitation, comprehensive general liability insurance, including products and
completed operations and contractual liability coverage, naming TSA and GSI and
their respective Subsidiary and Related companies as additional insureds. Each
policy of insurance purchased by TSA.com pursuant to the preceding sentence
shall (i) be placed with a reputable insurance company acceptable to the Board
of Directors, (ii) either have a self-insurance retention or a deductible in
amounts consistent with good business practices, as such amount may be
determined by the Board of Directors, and (iii) contain other terms acceptable
to the Board of Directors.
4.5. ACTIONS BY SHAREHOLDERS/VOTING PROCEDURE. Any action of TSA.com or
any Subsidiary with respect to any decision or process requiring the approval of
the Shareholders shall require the unanimous vote of the shareholders.
4.6. ACTIONS BY BOARD OF DIRECTORS. Any action of TSA.com or any
Subsidiary with respect to any decision or process requiring the approval of the
Directors shall require the affirmative vote of a majority of the Directors
present at a Board meeting except the following actions, which shall require the
affirmative vote of at least four Directors:
(i) Any amendment to the Bylaws.
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(ii) The sale or issuance of any shares of common stock,
securities convertible in shares of common stock or options or rights to acquire
any shares of common stock, other than as provided in Section 3 of this
Agreement.
(iii) The declaration of any dividend or distribution to
shareholders.
SECTION V
DIVIDEND POLICY
The Parties agree not to permit TSA.com to declare and pay any
dividends until such time as the indebtedness payable to GSI referred to in
Section 3.4 hereof shall have been paid in full, unless the Parties shall
otherwise agree in writing.
SECTION VI
E-COMMERCE, E-COMMERCE SERVICES AND LICENSE AGREEMENTS
The Parties agree to enter into the E-Commerce Agreement, the
E-Commerce Services Agreement and the License Agreement substantially in the
form attached hereto. The parties agree that none of such agreements, in the
form executed by the parties thereto, may be amended without the prior written
consent of both of the Parties. The Parties agree that TSA.com shall not enter
into any agreement with either of the Parties or any of their Affiliates without
the prior written consent of both of the Parties.
SECTION VII
ACCOUNTING MATTERS, BOOKS AND RECORDS
7.1. FISCAL YEAR. The fiscal year of each of TSA.com and any Subsidiary
of TSA.com shall end on December 31 of each year.
7.2. RIGHT OF INSPECTION. The accounting books, records and accounts of
TSA.com and each Subsidiary shall at all times be open to inspection by duly
authorized representatives of GSI and/or TSA during regular business hours.
7.3. BOOKS AND RECORDS. The accounting books, records and accounts of
TSA.com and Subsidiary shall be kept in accordance with GAAP at the principal
place of business of TSA.com and shall be audited by TSA.com"s external auditor
at the expense of TSA.com or the appropriate Subsidiary of TSA.com, as
applicable. The Parties agree to mutually nominate and approve
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Deloitte Touche as the initial external auditor and to nominate and approve any
replacement external auditor thereafter.
SECTION VIII
RESTRICTION ON TRANSFER
8.1. GENERAL RESTRICTION. Except with the prior written consent of the
other Party, neither Party shall, directly or indirectly, sell, assign, give or
otherwise dispose of, any shares of common stock of TSA.com owned by it in any
manner except (i) as provided in Section 8.3 hereof or (ii) as provided in
Section 8.6 hereof. Neither Party shall pledge or otherwise grant a security
interest in the shares of TSA.com common stock owned by it without the prior
written consent of the other Party.
8.2. INTEREST COVERED BY AGREEMENT. Section 8.1 hereof shall be
applicable to any shares of TSA.com common stock owned by a Party, whether now
owned or hereafter acquired by whatever means, including, but not limited to,
interests acquired by purchase, share dividend or received through any
recapitalization or reorganization of TSA.com.
8.3. TRANSFERS TO WHOLLY OWNED SUBSIDIARIES. Notwithstanding anything
in this Agreement to the contrary, (a) TSA may, from time to time, transfer all
(but not less than all) of its TSA.com common stock to any Subsidiary of TSA,
and (b) GSI may, from time to time, transfer all (but not less than all) of its
TSA.com common stock to any Subsidiary of GSI (each of the foregoing transfers
in this paragraph is hereinafter referred to as a "Permitted Transfer" and each
Subsidiary referred to as a "Transferee"); PROVIDED, HOWEVER, that (i) the
Transferee shall continue to be a Subsidiary of TSA or GSI, as the case may be,
(ii) the Transferee shall enter into a joinder agreement to be bound by all of
the terms and conditions of this Agreement in the same manner as is applicable
to its transferor hereunder, (iii) GSI or TSA, as the case may be, shall
continue to be bound by all of the terms and conditions of this Agreement, (iv)
the Party effecting a Permitted Transfer shall provide notice of such Transfer
to the other Party within 10 Business Days following such Permitted Transfer,
together with the written joinder from the Transferee and (v) if any Transferee
subsequently ceases to be a Subsidiary of TSA or GSI, as the case may be, TSA or
GSI, as the case may be, shall cause such common stock to be transferred back to
TSA or GSI or to any other Subsidiary of TSA or GSI prior to the Transferee
ceasing to be a Subsidiary of TSA or GSI.
8.4. IMPERMISSIBLE TRANSFERS VOID. Any attempted sale, transfer or
disposition of TSA.com common stock made in violation of this Agreement shall be
null and void. The transferee of such interest shall not be entitled to be
registered as a shareholder of TSA.com and shall not be entitled to vote such
interest or receive dividends thereon.
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8.5. LEGEND ON SHARES. The following legend shall be placed on all
certificates representing TSA.com common stock:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "SECURITIES ACT") OR UNDER APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AVAILABLE
EXEMPTIONS FROM SUCH REGISTRATION, PROVIDED THAT THE SELLER
DELIVERS TO THE COMPANY AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY CONFIRMING THE AVAILABILITY OF SUCH
EXEMPTION.
THESE SECURITIES ARE SUBJECT TO CERTAIN RIGHTS AND OPTIONS
RESTRICTING TRANSFERABILITY PURSUANT TO A CERTAIN JOINT VENTURE
AGREEMENT DATED MAY 9, 1999, A COPY OF WHICH IS AVAILABLE FROM THE
SECRETARY OF THE COMPANY.
8.6. PROVISIONS RELATING TO TRANSFERS TO PERSONS OR ENTITIES OTHER THAN
TO WHOLLY OWNED SUBSIDIARIES.
(a) GENERAL. After May 9, 2004, a Party may sell all, but not less
than all, of its TSA.com common stock only in accordance with this Section 8.6.
(b) NEGOTIATIONS; NOTICE OF PROPOSED SALE. A Party (the
"Transferring Party") who desires to sell all of its TSA.com common stock, other
than a Permitted Transfer, shall first give written notice to the other Party
the "Other Party") of its intentions, and negotiate in good faith with the Other
Party with respect to a sale of its TSA.com common stock. If a written
definitive agreement with respect to a sale is not reached within 60 days after
the date on which notice is given by the Transferring Party, the Transferring
Party may negotiate with third parties with respect to the sale of all but not
less than all of its TSA.com common stock, subject to the right of first refusal
of the Other Party set forth below. If the Transferring Party receives a bona
fide written offer from a third party to purchase its TSA.com common stock, the
Transferring Party shall serve notice (the "Transfer Notice") on the Other
Party. The Transfer Notice shall state that the Transferring Party has received
a bona fide written offer to purchase all of its TSA.com common stock from a
financially responsible third party, the consideration proposed to be paid for
the TSA.com common stock, any additional material terms or conditions of such
offer and the name and address of the prospective purchaser (the "Third Party").
(c) OPTION TO PURCHASE.
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(1) Upon receipt of the Transfer Notice, the Other Party shall
have the option to purchase all, but not less than all, of the TSA.com common
stock owned by the Transferring Party. The Other Party may purchase such common
stock for the same consideration described in the Transfer Notice (or, to the
extent the consideration consists of securities, for the equivalent cash market
value of such securities) and in accordance with any other material terms or
conditions described in the Transfer Notice.
(2) If the Other Party elects to exercise its option to
purchase the TSA.com common stock, it shall do so by notifying the Transferring
Party of such election within 30 days after receipt of the Transfer Notice from
such Party. After such 30-day period, the Other Party"s option shall expire.
(3) In the event of any purchase and sale of TSA.com common
stock pursuant to this paragraph (c), the closing of such purchase and sale
shall be held within 90 days after the date on which notice of exercise of an
option is given by the Other Party to the Transferring Party.
(d) LAPSE OF OPTIONS. If the option specified in Section 8.6(c)
hereof shall expire without exercise thereof, the Transferring Party shall be
entitled to make the proposed sale of its TSA.com common stock to the Third
Party for the consideration and in accordance with any other material terms or
conditions described in the Transfer Notice, provided that the Third Party
agrees, in form and substance reasonably satisfactory to the Other Party, to be
bound by the provisions of this Agreement to the same extent as if such Third
Party were originally a party hereto. If the sale of the Transferring Party"s
TSA.com common stock is not completed within 90 days of the date of the
expiration of the option set forth in Section 8.6(c) above, then such TSA.com
common stock shall again become subject to the options of this Section 8.6.
(e) DELIVERY OF CERTIFICATES. At the closing of any sale of
TSA.com common stock pursuant to this Agreement, the Transferring Party shall
deliver to the Transferee the certificate(s) for such TSA.com common stock. The
shares being transferred shall be transferred free and clear of any lien or
encumbrance, except for the provisions of this Section 8.6.
8.7 PUBLIC OFFERINGS. Upon the closing of an underwritten public
offering by TSA.com of its common stock registered under the Securities Act of
1933, this Section 8 shall automatically terminate and be of no further force
and effect.
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SECTION IX
TERM AND TERMINATION
9.1. TERM. This Agreement shall terminate upon 90 days" prior notice
given by one Party to the other Party on and after December 31, 2014. Such 90
day period shall be extended until the occurrence of a purchase by one of the
Parties pursuant to Section 9.3, if such purchase shall not have been completed
within such 90 day period, or the expiration of the right of each Party to elect
to make a purchase pursuant to Section 9.3.
9.2. TERMINATION. This Agreement may be terminated prior to December
31, 2014 in accordance with Section 9.4, as follows:
(a) By either Party if the other Party shall materially default in
the performance of any of the covenants, terms and conditions of this Agreement
and shall fail to cure such default within 60 days after receipt of notice in
writing from the terminating Party of such default, giving reasonable
particulars of such default and of the intention of the Party serving the notice
to terminate this Agreement unless such default is cured; PROVIDED, HOWEVER,
that if such default cannot reasonably be cured within 60 days, no termination
shall occur so long as the Party against which default has been declared
continues to use its best efforts to cure such default and in fact cures such
default within 90 days of receipt of such notice.
(b) By either Party if the other Party shall be judicially
declared bankrupt or insolvent, make an assignment for the benefit of, or enter
into a compromise with, its creditors; initiate bankruptcy or insolvency
proceedings of any kind or proceedings for the appointment of a receiver,
manager, judicial manager or similar official with respect to it or any of its
assets or become a party to dissolution proceedings; PROVIDED, HOWEVER, that no
termination shall occur if any such action is stayed, dismissed or reversed
within 60 days of the initiation of such action and the other Party provides
satisfactory evidence of the same within such period and in fact cures such
default within 90 days of receipt of such notice.
(c) TSA shall have the right to terminate this Agreement in the
event that total revenues from all sources from the TSA Site by TSA.com for the
Fiscal Year ended December 31, 2003 shall be less than [*]. In order to exercise
such right to terminate this Agreement, TSA shall give GSI written notice of
termination during the period commencing January 1, 2004 and ending 30 days
after final TSA.com financial statements for the year ended December 31, 2003
are delivered to TSA. The Parties agree to cause such financial statements to be
prepared and delivered to TSA prior to March 15, 2004.
(d) TSA shall have the right to terminate this Agreement in the
event that TSA.com shall not achieve positive operating income for the Fiscal
Year ended December 31, 2005, excluding extraordinary items of income or
expense, as determined in accordance with GAAP. In order to exercise such option
to terminate this Agreement, TSA shall give GSI written notice of termination
during the period commencing January 1, 2006 and ending 30 days after final
TSA.com financial statements for the Fiscal Year ended December 31, 2005 are
delivered to TSA. The Parties agree to cause such financial statements to be
prepared and delivered to TSA prior to March 15, 2006.
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(e) TSA shall have the option to terminate this Agreement in the
event that (i) either TSA.com"s operating income, excluding extraordinary items
of income or expense, for the Fiscal Year ended December 31, 2009 shall be less
than [*]% of TSA.com"s Gross Sales for the Fiscal Year ended December 31, 2009,
or (ii) TSA.com"s Gross Sales for the Fiscal Year ended December 31, 2009, as
determined in accordance with GAAP, shall be less than [*]. In order to exercise
such option to terminate this Agreement, TSA shall give GSI written notice of
termination during the period commencing January 1, 2010 and ending 30 days
after final TSA.com financial statements for the Fiscal Year ended December 31,
2009 are delivered to TSA. The Parties agree to cause such financial statements
to be prepared and delivered to TSA prior to February 15, 2010.
(f) TSA shall have the option to terminate this Agreement in the
event that the Launch Date (as defined in the E-Commerce Agreement) has not
occurred on before November 1, 1999, provided that TSA.com shall have until
December 1, 1999 to cure such default. In order to exercise such right, TSA
shall give GSI written notice of termination prior to January 31, 2000.
(g) TSA shall have the right to terminate this Agreement in the
event that Michael G. Rubin is not a full-time active employee of one of Global,
GSI or TSA.com for any reason prior to January 1, 2001. In order to exercise
such option to terminate this Agreement, TSA shall give GSI written notice of
termination within 60 days of the date on which Michael G. Rubin is not such an
employee.
(h) TSA shall have the right to terminate this Agreement in the
event that the shareholders equity of Global, as determined in accordance with
GAAP, as of December 31, 1999, is less than [*]. In order to exercise such
option to terminate this Agreement, TSA shall give GSI written notice of
termination within 60 days of the date Global first publishes financial
statements as of December 31, 1999.
(i) TSA shall have the right to terminate this Agreement in the
event that GSI breaches any of the provisions of Sections 3.4(b), (c) or (d)
hereof, or Section 5.1 of the E-Commerce Services Agreement.
(j) TSA shall have the right to terminate this Agreement in the
event TSA gives notice of termination of the License Agreement or the E-Commerce
Agreement or if TSA.com gives notice of termination of the E-Commerce Services
Agreement provided that termination of this Agreement shall not be effective
unless and until such other agreement is terminated pursuant to its terms.
(k) GSI shall have the right to terminate this Agreement if the
event TSA.com gives notice of termination of the License Agreement or the
E-Commerce Agreement provided that termination of this Agreement shall not be
effective unless and until such other agreement is terminated pursuant to its
terms.
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9.3. EFFECT OF TERMINATION AFTER 2014. Upon termination of this
Agreement by written notice given after December 31, 2014 by either Party in
accordance with Section 9.1 hereof, hereof, either Party shall have the right to
cause a Valuation by giving written notice to the other within 30 days after the
date on which notice of termination is given. If neither Party elects to cause a
Valuation, then the option contained in this Section 9.3 shall terminate. If
either Party elects to cause a Valuation, TSA shall have the right (but not the
obligation) to purchase all (but not less than all) of the TSA.com common stock
then owned or held by GSI or any of its Subsidiaries by giving written notice to
GSI within 20 days after the date of determination of Fair Market Value. In the
event that TSA shall fail to exercise such right, GSI shall have the right (but
not the obligation) to purchase all (but not less than all) of the TSA.com
common stock then owned or held by TSA or any of its Subsidiaries by giving
written notice to TSA within 40 days after the date of determination of Fair
Market Value. The price that the purchaser (the "Purchaser") shall pay for the
TSA.com common stock owned by the other Party or any of its Subsidiaries (the
"Seller"), in the event that the Purchaser elects to exercise the right to
purchase the TSA.com common stock of the Seller under this Section 9.3, shall be
the Fair Market Value of the TSA.com common stock owned by the Seller as of the
date notice of termination is given, determined in accordance with the
Valuation. The purchase price of the TSA.com common stock purchased under this
Section 9.3 must be paid in immediately available funds through a transfer of
funds to a banking account to be designated at that time by the Seller to the
Purchaser. The closing of any purchase and sale of TSA.com common stock under
this Section 9.3 shall be completed within 20 days after the Purchaser gives the
Seller notice of its election to purchase hereunder. As a condition of closing,
the Seller shall deliver to the Purchaser or its nominees the certificate for
the TSA.com common stock. The TSA.com common stock so delivered shall be duly
endorsed and free and clear of any lien or encumbrance of any nature whatsoever.
9.4. EFFECT OF TERMINATION UNDER SECTION 9.2.
(a) Upon termination in accordance with Section 9.2 hereof, the
Party exercising the right of termination (the "Terminating Party") shall have
the right to cause a Valuation by giving written notice to the other Party
contemporaneously with the notice of termination, in which event the date of
termination shall not occur until the occurrence of a purchase by the
Terminating Party pursuant to this Section 9.4 or the expiration of the
Terminating Party"s right to make a purchase hereunder. If the Terminating Party
does not cause a Valuation, then the option contained in this Section 9.4 shall
terminate. If the Terminating Party elects to cause a Valuation and in addition
to any other remedy as may be provided for in this Agreement or by law, the
Terminating Party shall have the right but not the obligation to purchase all
(but not less than all) of the TSA.com common stock then owned by the other
party or any of its Subsidiaries by giving written notice to the other Party
within 20 days of the date of determination of Fair Market Value. The price that
the Terminating Party shall pay for the TSA.com common stock owned by the other
Party or any of its Subsidiaries shall be 50% of the Fair Market Value of the
TSA.com common stock owned by the other Party as of the date notice of
termination is given, determined in
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accordance with the Valuation. The purchase price of the TSA.com common stock
purchased must be paid in immediately available funds through a transfer of
funds to a banking account to be designated at that time by the seller to the
purchaser. The closing of any purchase of TSA.com common stock by the
Terminating Party shall be completed within 20 days after the Terminating Party
gives the other Party notice of its election to purchase hereunder. As a
condition of closing, the seller shall deliver to the purchaser or its nominees
the certificate for the TSA.com common stock. The TSA.com common stock so
delivered shall be duly endorsed and free and clear of any lien or encumbrance
of any nature whatsoever.
(b) In the event that the Terminating Party elects to cause a
Valuation pursuant to Section 9.4(a) and TSA.com common stock is not so
purchased by the Terminating Party pursuant to Section 9.4(a), the other Party
shall have the right (but not the obligation) to require the Terminating Party
to purchase all (but not less than all) of the TSA.com common stock then owned
or held by the other Party or any of its Subsidiaries by giving written notice
to the Terminating Party within 40 days after the date of Valuation. The
purchase price for the TSA.com common stock under this Section 9.4(b), shall be
50% of the Fair Market Value of the TSA.com common stock owned by the other
Party as of the date notice of termination is given, determined in accordance
with the Valuation. The purchase price must be paid in immediately available
funds through a transfer of funds to a banking account to be designated at that
time by the seller to the purchaser. The closing of any purchase of TSA.com
common stock under this Section 9.4(b) shall be completed within 20 days after
the other Party gives the Terminating Party notice of its election to require
the Terminating Party to purchase hereunder. As a condition of closing, the
seller shall deliver to the purchaser or its nominee the certificate for the
TSA.com common stock. The TSA.com common stock so delivered shall be duly
endorsed and free and clear of any lien or encumbrance of any nature whatsoever.
9.5. DEFINITIONS. For the purposes of this Section 9, the following
terms shall have the meanings ascribed to them below.
"Fair Market Value" of the TSA.com common stock held by the Seller
means (A) the value of the TSA.com common stock, considering TSA.com as a going
concern being sold as an entirety, taking into account net worth, past, present
and prospective earnings and cash flow, market conditions and prices paid in
previous acquisitions of similar businesses and specific valuations given to
Internet-related business, multiplied by (B) the percentage of the TSA.com
common stock held by the Seller.
"Valuation" means the following procedure to determine Fair Market
Value: GSI and TSA shall each select an Investment Banker, each at its own
expense, within a 20-day calendar period following the date on which a Party
notified the other Party of its intent to exercise the right to cause a
Valuation under Section 9.3 or 9.4. The Fair Market Value shall be the average
obtained by dividing the sum of the Fair Market Value determined by the two
Investment Bankers by two, provided the higher of the two determinations is not
greater than 10% of the lesser of the two. In the event that such difference is
greater than 10%, the two Investment Bankers shall choose a third
16
<PAGE>
Investment Banker. The third Investment Banker shall then select which of the
Fair Market Values previously determined by the first two Investment Bankers it
believes is more accurate. The selection of the third Investment Banker shall be
the Fair Market Value and shall be conclusive and binding on both parties. Each
Investment Banker shall make its determination as to the Fair Market Value
within a period of 30 days from the date of its selection.
The Parties shall cause TSA.com to disclose and make available to the
Investment Bankers selected pursuant to this Section 9.5 all of the information
regarding the operations and financial condition of TSA.com and its Subsidiaries
as may be requested by such Investment Bankers in order to conduct and conclude
their Valuations as set forth herein.
9.6 DISSOLUTION. In the event that the TSA.com common stock is not
purchased in accordance with either Section 9.3 or 9.4, the Parties agree to
promptly dissolve TSA.com and distribute its net assets in accordance with
Delaware law.
9.7. SURVIVAL. The termination of this Agreement for any reason shall
not release either Party from its liability to pay any sums of money accrued,
due and payable to the other Party or to discharge its then-accrued and unfilled
obligations. Sections 9 and 10 shall survive any termination of this Agreement.
SECTION X
CONFIDENTIALITY PROVISIONS
10.1. GENERAL CONFIDENTIALITY PROVISIONS/PUBLIC DISCLOSURE. Except as
may be mutually agreed in writing between the Parties or as a Party may
reasonably determine to be required or appropriate to comply with stock
exchanges or securities laws, neither GSI nor TSA shall, nor shall either of
them permit any of its Related companies, during the term of this Agreement or
any time thereafter, to: (i) disclose to third parties the terms and conditions
of this Agreement or the other Operative Documents, except to those of its
Related companies, attorneys, accountants and other consultants who need to know
the information for the purposes of operating TSA.com and carrying out
transactions related thereto; or (ii) disclose to third parties (i.e. persons or
entities other than TSA or GSI), any confidential or proprietary information
obtained from the other Party or any Affiliate Company of the other Party.
SECTION XI
ADDITIONAL COVENANTS
11.1. PRESS RELEASES. All voluntary public announcements concerning the
transactions contemplated by this Agreement shall be mutually acceptable to both
GSI and TSA. Unless
17
<PAGE>
required by law, neither GSI on the one hand, and TSA on the other hand, shall
make any public announcement or issue any press release concerning the
transactions contemplated by this Agreement without the prior written consent of
GSI or TSA, respectively.
11.2. EXCLUSIVE.
(a) During the term of this Agreement (i) TSA and its Subsidiaries
agree not to engage in the E-Commerce Business except as permitted under Section
2.6(a) of the License Agreement and (ii) GSI agrees not to engage in and TSA.com
shall not engage in the sale of goods over the Internet as a shareholder,
partner or investor in any corporation, partnership, limited liability company
or other entity or venture which generates in excess of 20% of its revenues from
the sale of sporting goods, athletic footwear and athletic apparel (other than
with TJX Companies, Inc., Ross Stores, Inc. and any other such party which does
not engage in the sale of sporting goods, athletic footwear and athletic apparel
in the United States, Canada, Japan, any other nation in which the predominant
language is English or any other nation in which TSA, any of its Subsidiaries or
any corporation, LLC or other entity or venture in which TSA has more than a 19%
interest engages in the sale of sporting goods, athletic footwear and athletic
apparel or has announced its intention to commence doing so within six months
and in fact does so) (the foregoing shall not prevent GSI from entering into
additional e-commerce services or e-commerce license agreement with other
retailers of sporting goods, athletic footwear or athletic apparel, but GSI may
not launch any web site for such retailers or provide any other e-commerce
services prior to January 1, 2000).
(b) Until January 1, 2000, GSI agrees to devote all of its
e-commerce related activities to developing the TSA Site and the sites of other
retailers which have executed e-commerce services agreements with GSI prior to
the date of this Agreement (except that GSI may enter into additional e-commerce
services or e-commerce license agreement with other retailers of sporting goods,
athletic footwear or athletic apparel, but GSI may not launch any web site for
such retailers or provide any other e-commerce services prior to January 1,
2000).
11.3. EXPENSES. Except as otherwise provided herein, each Party shall
bear its own expenses in connection with the transactions contemplated hereby.
11.4. CHOICE OF LAW. This Agreement shall be construed, interpreted and
enforced under and in accordance with the internal laws of the State of
Delaware.
11.5. WAIVER OF JURY TRIAL. EACH OF TSA AND GSI DO HEREBY KNOWINGLY,
VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE SUCH RIGHT ANY PARTY MAY HAVE
TO A JURY TRIAL IN EVERY JURISDICTION IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY OR ITS RESPECTIVE
AFFILIATES, SUCCESSORS OR ASSIGNS, IN RESPECT OF ANY MATTER ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT, ANY OTHER OPERATIVE DOCUMENT OR ANY OTHER
18
<PAGE>
DOCUMENTS EXECUTED AND DELIVERED BY ANY PARTY IN CONNECTION THEREWITH
(INCLUDING, WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT,
AND ANY CLAIMS OR DEFENSES ASSERTING THAT THIS AGREEMENT WAS FRAUDULENTLY
INDUCED OR OTHERWISE VOID OR VOIDABLE).
11.6. NOTICES.
(a) Any notice or request with respect to this Agreement shall be
in writing and shall be delivered personally, by facsimile transmission, or by
overnight express courier, in each such case directed by each Party to the
other, with evidence of transmission, to its respective addresses as follows:
if to GSI: Global Sports Interactive, Inc.
555 South Henderson Road
King of Prussia, Pennsylvania 19406
Attention: President
Fax No.: 610-354-9088
copy to: David S. Mandel, Esq.
Astor Weiss Kaplan & Rosenblum, LLP
The Bellevue
Broad & Walnut Streets
6th Floor
Philadelphia, Pennsylvania 19102
Fax No.: 215-790-0509
if to TSA: The Sports Authority, Inc.
3383 North State Road 7
Fort Lauderdale, Florida 33319
Attention: Alex Stanton,
Senior Vice President,
Business Development
Fax No.: 954-677-6094
copies to: The Sports Authority, Inc.
3383 North State Road 7
Fort Lauderdale, Florida 33319
Attention: General Counsel
Fax No.: 954-730-4288
The Sports Authority Michigan, Inc.
306 S. Washington, Suite 224
Royal Oak, Michigan 48067
Attention: Senior Vice President and
General Counsel
Fax No.: 248-414-9993
19
<PAGE>
(b) Any notice or request shall be deemed to be given when
actually received. Either Party, by written notice to the other Party, may
change the address to which notices or requests shall be directed.
11.7. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon each of the Parties and their respective permitted successors and
assigns, but neither the rights nor the obligations of either Party hereunder
may be voluntarily assigned, in whole or in part, without the prior written
consent of the other Party.
11.8. SEVERABILITY; CONFLICT WITH ORGANIZATIONAL DOCUMENTS. If any term
or provision of this Agreement is held to be unenforceable or in conflict with
any law or regulation of any kind, either by arbitration as provided herein or
by court of competent jurisdiction, then this Agreement, except for such part or
parts thereof, shall continue to be in full force and effect; PROVIDED, HOWEVER,
that such remaining terms and provisions of this Agreement shall be construed to
reflect the original intent of the Parties and remain as a workable instrument
for the purposes of carrying out the original intentions of the Parties. In the
event of any conflict between the provisions of this Agreement and the
organizational documents of TSA.com, the provisions of this Agreement shall
prevail.
11.9. ENTIRE AGREEMENT. The Operative Documents constitute the complete
and final agreement between the Parties with respect to the subject matter
hereof and supersede all previous negotiations, agreements, commitments and
understandings, whether written or oral.
11.10. AMENDMENT; WAIVER. The provisions hereof may not be amended,
waived, modified or superseded except by an instrument in writing signed by a
duly authorized officer or representative of each of the Parties.
11.11. HEADINGS. Descriptive headings in this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any of the provisions of this Agreement.
11.12. COUNTERPARTS. This Agreement may be executed in counterparts and
both such counterparts taken together shall be deemed to constitute the same
instrument.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on the date first above written by its duly authorized officer or
officers.
GLOBAL SPORTS INTERACTIVE, INC.
By: /S/ MICHAEL RUBIN
------------------------------
Name:
Title:
THE SPORTS AUTHORITY, INC.
By: /S/ MARTIN E. HANAKA
------------------------------
Name:
Title:
20
<PAGE>
EXHIBIT "A"
SEE E-COMMERCE AGREEMENT
1
<PAGE>
EXHIBIT "B"
SEE E-COMMERCE SERVICES AGREEMENT
2
<PAGE>
EXHIBIT "C"
SEE LICENSE AGREEMENT
3
<PAGE>
EXHIBIT "D"
WARRANT TERM SHEET
1. GRANT OF WARRANTS As part of its E-Commerce Initiative,
Global Sports, Inc. ("Global") intends
to provide all sporting goods and/or
athletic footwear and apparel retailers
who execute a contract with Global to
become part of Global"s E-Commerce
Initiative ("Retailers") prior to the
public announcement of such initiative
the opportunity to receive warrants to
purchase shares of Global common stock
based on the terms and conditions
outlined in this Term Sheet.
2. AMOUNT OF WARRANTS Warrants will be granted for a total
exercise amount of [*]. Each Retailer
will receive a warrant to purchase its
pro rata share of the total exercise
amount based on the proportion that such
Retailer"s net sales (including sales by
such Retailer"s franchisees, if any) for
its most recent fiscal year bears to the
total net sales of all Retailers
participating in the E-Commerce
Initiative (including sales by all such
Retailers" franchisees, if any).
3. SECURITY Warrant to purchase Global common stock.
The period during which the warrant may
be exercised will be one year from the
date of public announcement of Global"s
E-Commerce Initiative. The warrant and
the shares of common stock issuable upon
exercise of the warrant will be offered
and sold to Retailers pursuant to an
exemption from the Securities Act of
1933, as amended. As a result, such
shares will be restricted securities
within the meaning of that Act, and the
resale of such shares will be subject to
certain restrictions, including a one
year holding period.
4. WARRANT EXERCISE PRICE The warrant exercise price will be equal
to the average of the closing bid and
asked prices for a share of Common Stock
for the 20 trading days ending on the
trading day immediately preceding the
public announcement of Global"s
E-Commerce Initiative.
4
<PAGE>
5. ISSUANCE OF WARRANTS Global will issue the warrants to
participating Retailers effective as of
the public announcement of Global"s
E-Commerce Initiative which is expected
to occur by May 10, 1999.
6. CONFIDENTIALITY This Term Sheet is not to be disclosed
to any party other than the employees or
advisors of Retailers receiving this
Term Sheet who need to know the terms
set forth herein for the purpose of
evaluating such Retailer"s participation
in Global"s E-Commerce Initiative.
7. OTHER This Term Sheet is only intended to
serve as a general outline of the major
terms of Global"s proposed grant of
warrants in accordance with the terms
and conditions set forth herein. This
Term Sheet does not constitute an offer
or sale of the shares by Global. This
Term Sheet does not constitute a
commitment or binding agreement to grant
such securities. Such commitment or
binding agreement can only be created by
definitive agreements which will need to
be negotiated and executed.
5
EXHIBIT 10.29
Confidential Treatment has been requested with respect to portions of the
agreement indicated with an asterisk [*]. A complete copy of this agreement,
including the redacted terms, has been separately filed with the Securities and
Exchange Commission.
AMENDMENT NO. 1
TO
E-COMMERCE VENTURE AGREEMENT
This Amendment No 1 to E-Commerce Venture Agreement (the "Amendment")
is made and entered into on this 14th day of May, 1999, by and between GLOBAL
SPORTS INTERACTIVE, INC., a Pennsylvania corporation ("GSI"), and THE SPORTS
AUTHORITY, INC., a Delaware corporation ("TSA").
WHEREAS, the parties hereto are parties to that certain E-Commerce
Venture Agreement dated May 7, 1999 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement as set forth
herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto hereby agree as
follows:
1. AMENDMENTS. Sections 2.11, 3.3, 9.2(e) and 11.2 of the Agreement and
the definition of "Fair Market Value" contained in Section 9.5 of the Agreement
are amended in their entirety to read as follows:
2.11 "Net Sales" shall mean as defined by GAAP in the United
States.
* * *
3.3. INITIAL CAPITAL CONTRIBUTIONS. The Certificate of
Incorporation of TSA.com shall authorize the issuance of up to 16,000
shares of common stock, $.01 par value per share, and no other class of
equity securities. The Parties agree to cause TSA.com to issue and sell
to (i) GSI 8,001 shares of TSA.com common stock for the aggregate cash
purchase price of $[*], (ii) TSA 1,999 shares of TSA.com common stock
for the aggregate cash purchase price of $[*] and (iii) TSA 6,000
shares of TSA.com common stock in consideration of the Names (as
defined and provided for in the License Agreement) provided that such
6,000 shares shall only be issued and delivered, on or after February
1, 2002, promptly after the first to occur of the following: (a) TSA's
gross revenues for any TSA fiscal year, commencing with fiscal year
2001 and fiscal years
<PAGE>
thereafter, shall exceed $[*] or (b) TSA.com's operating income
(excluding extraordinary items) for any TSA.com Fiscal Year, commencing
with Fiscal Year 2001 and Fiscal Years thereafter, shall exceed $[*].
* * *
9.2 (e):
(e) TSA shall have the option to terminate this
Agreement in the event that (i) either TSA.com's operating income,
excluding extraordinary items of income or expense, for the Fiscal Year
ended December 31, 2009 shall be less than [*] of TSA.com's Net Sales
for the Fiscal Year ended December 31, 2009, or (ii) TSA.com's Net
Sales for the Fiscal Year ended December 31, 2009 and determined in
accordance with GAAP, shall be less than [*]. In order to exercise such
option to terminate this Agreement, TSA shall give GSI written notice
of termination during the period commencing January 1, 2010 and ending
30 days after final TSA.com financial statements for the Fiscal year
ended December 31, 2009 are delivered to TSA. The Parties agree to
cause such financial statements to be prepared and delivered to TSA
prior to February 15, 2010.
* * *
11.2. EXCLUSIVE.
(a) During the term of this Agreement (i) TSA and its
Subsidiaries agree not to engage in the E-Commerce Business except as
permitted under Section 2.6(a) of the License Agreement, except that if
TSA acquires another business selling sporting goods, athletic footwear
and/or athletic apparel and related goods and services either through
land based stores or through catalog sales which is engaged in
e-commerce business, TSA can continue to operate the e-commerce
business of the acquired business until such time, if ever, that TSA
changes 50% or more of the acquired business's land based stores to
stores operating under the name "The Sports Authority" or any variation
thereof, or changes the catalog name to "The Sports Authority" or any
variation thereof, (ii) GSI agrees not to engage in and TSA.com shall
not engage in the sale of goods over the Internet as a shareholder,
partner or investor in any corporation, partnership, limited liability
company or other entity or venture which generates in excess of 20% of
its revenues from the sale of sporting goods, athletic footwear and
athletic apparel (other than with TJX Companies, Inc., Ross Stores,
Inc. and any other such party which does not engage in the sale of
sporting goods, athletic footwear and athletic apparel in the
2
<PAGE>
United States, Canada, Japan, any other nation in which the predominant
language is English or any other nation in which TSA, any of its
Subsidiaries or any corporation, LLC or other entity or venture in
which TSA has more than a 19% interest engages in the sale of sporting
goods, athletic footwear and athletic apparel or has announced its
intention to commence doing so within six months and in fact does so)
(the foregoing shall not prevent GSI from taking the actions permitted
in Section 11.2(b)).
(b) Until January 1, 2000, GSI agrees to devote its
e-commerce related activities to developing the TSA Site and the sites
of other retailers which have executed e-commerce services agreements
with GSI prior to the date of this Agreement, provided that (i) GSI may
enter into additional e-commerce services or e-commerce license
agreements with other retailers of sporting goods, athletic footwear or
athletic apparel, (ii) GSI may not commence providing any services to
develop any web site for such retailers until after the Launch Date (as
defined in the E-Commerce Agreement) and (iii) GSI may not launch any
web site for such retailers prior to January 1, 2000.
* * *
"Fair Market Value" of the TSA.com common stock held by the
Seller means (A) the value of the TSA.com common stock, considering
TSA.com as a going concern being sold as an entirety, taking into
account net worth, past, present and prospective earnings and cash
flow, market conditions and prices paid in previous acquisitions of
similar businesses and specific valuations given to Internet-related
business and considering TSA.com as if TSA.com owned the Customer Data,
multiplied by (B) the percentage of the TSA.com common stock held by
the Seller.
2. DELETIONS. The penultimate sentence of Section 3.5 and all of
Section 3.6 of the Agreement are hereby deleted.
3. CONTINUING EFFECT. Except to the extent expressly amended pursuant
to this Amendment, the parties agree that each of the provisions of the
Amendment remain in full force and effect.
4. COUNTERPARTS. This Amendment may be executed in counterparts and
both such counterparts taken together shall be deemed to constitute the same
instrument.
3
<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be
executed on the date first above written.
GLOBAL SPORTS INTERACTIVE, INC.
By: /S/ MICHAEL RUBIN
---------------------------------
Name:
-------------------------------
Title:
------------------------------
THE SPORTS AUTHORITY, INC.
By: /S/ MARTIN E. HANAKA
---------------------------------
Name:
-------------------------------
Title:
------------------------------
4
EXHIBIT 10.30
Confidential Treatment has been requested with respect to portions of the
agreement indicated with an asterisk [*]. A complete copy of this agreement,
including the redacted terms, has been separately filed with the Securities and
Exchange Commission.
E-COMMERCE AGREEMENT
THIS E-Commerce Agreement dated the 14th day of May, 1999 (the
"Effective Date") is by and between THESPORTSAUTHORITY.COM, INC., a Delaware
corporation ("TSA.com"), and THE SPORTS AUTHORITY, INC., a Delaware corporation
("Retailer").
WHEREAS, Retailer is a full line sporting goods retailer and operates
TSA Stores (as defined below) in the U.S. and Canada under the trade name,
trademark and service mark THE SPORTS AUTHORITY;
WHEREAS, Retailer has entered into a certain E-COMMERCE VENTURE
AGREEMENT with Global Sports Interactive, Inc. for the purpose of cooperatively
forming and operating the company which is TSA.com;
WHEREAS, TSA.com is in the business of creating, developing, operating,
maintaining, advertising and promoting all aspects of the E-Commerce Business;
and
WHEREAS, Retailer desires to enter into an agreement with TSA.com
pursuant to which TSA.com shall provide certain services to Retailer, all upon
the terms and conditions hereinafter set forth;
WHEREAS, Retailer and its subsidiary THE SPORTS AUTHORITY MICHIGAN,
INC. (as "Licensor") have entered into a certain LICENSE AGREEMENT with TSA.com
under which TSA.com as Licensee has been granted certain rights to use the
Marks, Names, TSA Buying Power and TSA Content (all as defined in the License
Agreement) in connection with creating, developing, operating, maintaining,
advertising and promoting the TSA Site; and
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following meaning:
1.1 "Advertising Co-op and Discretionary Funds" shall mean amounts earned
by or allocated to Retailer by its vendors, the purpose of which is to
advertise or market a given vendor's brand or goods, or for
advertising, marketing, promotional or other use at Retailer's
discretion.
<PAGE>
1.2 "Advertising and Marketing Partners of TSA.com" shall mean operators or
proprietors of search engines, portals, community sites, content sites,
on-line retailers, shopping, regional and industry directories, push
sites, and other Internet sites capable of attracting Customers for the
TSA Site, or desirous of attracting Customers from the TSA Site to
their sites, with whom TSA.com contracts for exchanges of advertising
and promotional services and any form of compensation. For purposes of
this Agreement, TSA.com shall not contract with TSA Competitors and the
same shall be excluded from the definition of Advertising and Marketing
Partners of TSA.com.
1.3 "Business Day(s)" shall mean any day which is not a Saturday, Sunday or
official federal holiday in the U.S.
1.4 "Closeout Merchandise" shall mean end of season, out of style, broken
stock or excess merchandise that is currently carried by Retailer in a
substantial number of its TSA Stores, or merchandise which is available
for purchase from a given vendor on a closeout basis for sale in a
substantial number of Retailer's TSA Stores, and priced by Retailer at
a greater than normal discount for the purpose of reducing inventory or
turning inventory quickly, without replenishment.
1.5 "Confidential Information" shall mean as that term is defined in
Article XI of this Agreement.
1.6 "Cross Promotion" shall mean the use by Advertising and Marketing
Partners of TSA.com of certain of Retailer's Names and Marks (as
defined in and subject to the License Agreement) on other than the TSA
Site for the purpose of promoting the TSA Site and the goods and
services offered on the TSA Site.
1.7 "Customer" shall mean a consumer who purchases or otherwise receives
any merchandise or services furnished by TSA.com from the TSA Site as
permitted hereunder.
1.8 "Customer Data" shall mean any and all data relating to Customers or
potential Customers of the TSA Site, including without limitation, data
relating to persons referred by or through the Advertising and
Marketing Partners of TSA.com to the TSA Site. Such data may include,
without limitation, names and other identifying information such as
addresses, phone numbers and e-mail addresses, credit card numbers and
related data, preferences, gift and shipping information, purchase,
payment and connection histories, correspondence, inquiries, and
descriptions of the items and quantities of items purchased by any such
persons.
1.9 "Databases" shall mean all data structures, data schema, database
dictionaries, attributes, validation tests for each element, table
sizes and formats, access requirements, data dependencies and other
elements involving the management or storage of data on the TSA Site,
and all refinements, updates, releases, improvements and enhancements
thereto, all Intellectual Property Rights embedded therein (except
those belonging to Retailer or TSA.com) and all applications created
specifically for management and use of
2
<PAGE>
the Customer Data, Financial Data and TSA Content, but excluding the
Customer Data, Financial Data and TSA Content PER SE. GSI shall own all
right, title and interest in and to the Databases, while Retailer and
TSA.com may use the Databases subject to other restrictions set forth
herein.
1.10 "Defective Allowance" shall mean a discount or rebate granted by a
vendor to a retailer as a result of defective merchandise received by
the retailer and pursuant to which, the retailer also retains or
destroys the merchandise.
1.11 "Disclosing Party" shall mean the party disclosing Confidential
Information as permitted under this Agreement.
1.12 "E-Commerce Business" shall mean the business of creating, developing,
operating, advertising and promoting the TSA Site as further described
herein.
1.13 "E-Commerce Orders" shall mean any orders for On-Line Merchandise or
services placed by Customers from the TSA Site.
1.14 "E-Commerce Shopping Experience" shall mean the unique and highly
interactive experience of shopping for and purchasing merchandise from
the TSA Site, including, without limitation, the experience of a
functional (little or no fluff), streamlined, easy to navigate, on-line
sporting goods store with the Features Set described herein and in
ATTACHMENT A. As much as practicable, the TSA Site shall draw from the
"look and feel" of Retailer's TSA Stores and reinforce Retailer's
mission of offering high quality, high performance, innovative
products, in fashion and on trend as to style, color, materials and
makeup, supporting beginner, intermediate and enthusiast participants
through superior value and service. The E-Commerce Shopping Experience
is intended to help make the TSA Site THE e-commerce shopping site for
sporting goods, athletic apparel and athletic footwear.
1.15 "Features Set" shall mean the features, characteristics and
requirements for the TSA Site as set forth throughout this Agreement
and in ATTACHMENT A, as the latter may be amended or supplemented in
accordance with this Agreement.
1.16 "Financial Data" shall mean all data relating to the financial
performance or operations of the TSA Site, including the financial
information generated pursuant to Article 8.1 below, and any aggregates
of data which are Customer Data, except that any names and other
information identifying Customers in any manner shall not be considered
and be excluded from Financial Data.
1.17 "Fiscal Year" shall mean TSA.com's fiscal year. TSA.com shall give at
least ninety (90) days advance notice to Retailer of any change in
designation of TSA.com's Fiscal Year.
1.18 "In Line Merchandise" shall mean current merchandise carried by
Retailer in a substantial number of its TSA Stores (excluding test
merchandise, Markdowns, Closeouts and Special Makeups), or merchandise
which Retailer intends in the near future to carry
3
<PAGE>
in a substantial number of its TSA Stores, or which is offered by the
same vendors and is closely related to foregoing merchandise and
available to Retailer but not currently carried in its TSA Stores.
1.19 "Intellectual Property Rights" shall mean any and all now known or
hereafter known tangible and intangible (a) rights associated with
works of authorship throughout the universe, including but not limited
to copyrights, moral rights, and mask-works, (b) trademark and trade
name rights and similar rights, (c) trade secret rights, (d) patents,
designs, algorithms and other industrial property rights, (e) all other
intellectual and industrial property rights (of every kind and nature
throughout the universe and however designated) (including logos,
"rental" rights and rights to remuneration), whether arising by
operation of law, contract, license, or otherwise, and (f) all
registrations, initial applications, renewals, extensions,
continuations, divisions or reissues hereof now or hereafter in force
(including any rights in any of the foregoing).
1.20 "Internet" shall mean a global network of interconnected computer
networks, each using the Transmission Control Protocol/Internet
Protocol and/or such other standard network interconnection protocols
as may be adopted from time to time, which is used to transmit content
that is directly or indirectly delivered to a computer or other digital
electronic device for display to an end-user, whether such content is
delivered through on-line browsers, off-line browsers, or through
"push" technology, electronic mail, broadband distribution, satellite,
wireless or other successor technologies or means. Internet shall also
mean on-line services such as AOL, CompuServe and Prodigy.
1.21 "Launch Date" shall mean the date on which TSA.com commences normal
operation of the TSA Site with the Core Functionality as further
described in ATTACHMENT A.
1.22 "Markdowns" shall mean merchandise currently in Retailer's inventory in
a substantial number of its TSA Stores which is systematically offered
for sale at prices less than the original retail prices at which
Retailer offered such merchandise, in response to low demand,
seasonality, obsolescence or other market conditions.
1.23 "Milestone Delivery Schedule" shall mean the major dates and
deliverables in creating, developing and launching the TSA Site, which
may be incorporated into the Production Schedule, as further described
in ATTACHMENT A.
1.24 "On Line Customer Loyalty Programs" shall mean programs established by
TSA.com with Retailer's prior review and approval to encourage repeat
business at the TSA Site from Customers.
1.25 "On Line Gift Certificates" shall mean gift certificates bearing the
mark THESPORTSAUTHORITY.COM, distributed electronically under the
auspices of TSA.com (subject to Retailer's approval and the terms of
the LICENSE AGREEMENT), offered by TSA.com and redeemable only through
or on the TSA Site, but not at Retailer's TSA Stores.
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1.26 "On Line Merchandise" shall mean the merchandise offered and sold by
TSA.com on the TSA Site as further defined in Article 4.3.
1.27 "Outsourcing Partner(s)" shall mean any person or entity which, subject
to Article 20.11 and other applicable terms of this Agreement, TSA.com
engages to perform any of the obligations, duties or services which
TSA.com has undertaken or promised to perform under this Agreement.
1.28 "Own Brand Merchandise" shall mean any and all goods bearing, or sold
under or in connection with packaging or labels bearing the mark THE
SPORTS AUTHORITY or the mark THE SPORTS AUTHORITY & Design, as either
offered and sold by Retailer in its TSA Stores, or offered and sold by
TSA.com from the TSA Site. All such sales by TSA.com are subject to the
terms of the LICENSE AGREEMENT.
1.29 "Party" shall mean Retailer or TSA.com; "Parties" shall mean both of
them.
1.30 "Production Schedule" shall mean the schedule to be agreed upon by the
Parties for the creation, development, and production (both before and
after the Launch Date) of the TSA Site, including the delivery of TSA
Content and TSA.com Products.
1.31 "Receiving Party" shall mean the party receiving Confidential
Information as permitted under this Agreement.
1.32 "Retailer's Warehouse" shall mean the place or places at which Retailer
receives bulk delivery of any merchandise from its vendors.
1.33 "Special Makeups" shall mean merchandise currently carried by Retailer
in a substantial number of its TSA Stores (excluding test merchandise,
Markdowns and In-Line Merchandise), or merchandise which Retailer plans
to carry in a substantial number of its TSA Stores, which is
manufactured and sold to Retailer on a temporarily exclusive basis, and
not otherwise available in the market or for purchase by other
retailers during the period of exclusivity.
1.34 "Term" shall mean the period commencing with the Effective Date and
continuing until this Agreement is terminated as provided in Article
XVII below.
1.35 "TSA Competitor" shall mean: (a) any person, firm or corporation or
other entity (other than TSA and its retailing subsidiaries) which
either directly or indirectly derives twenty percent (20%) or more of
its revenues from the sales or distribution of sporting goods, athletic
apparel, athletic footwear or related goods and services, whether
operating from stores located in the U.S., Canada or Japan or any other
nation in which the predominant language is English, whether by mail
order, home shopping through audio or video programming, over the
Internet or otherwise; and (b) any retailing entity which would clearly
be regarded as a competitor of TSA by the U.S. Department of Justice
under federal antitrust and competition laws and regulations.
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1.36 "TSA.com Products" shall mean, collectively, the TSA.com Tools and the
TSA.com Work Product.
1.37 "TSA.com Tools" shall mean any tools, both in object code and source
code form, which TSA.com has already developed or which TSA.com
independently develops or licenses from a third party, excluding any
tools which TSA.com creates pursuant to this Agreement. By way of
example, TSA.com Tools may include, without limitation, search engines,
Java servlets and ActiveX controls.
1.38 "TSA.com Work Product" shall mean all HTML files and Java files (or
derivatives of either), graphics files, animation files, data files,
technology, scripts and programs, both in object code and source code
form, all documentation and any other items used by TSA.com to create
the TSA Site.
1.39 "TSA Content" shall mean the following content or information, as
furnished by Retailer to TSA.com subject to the terms of this Agreement
and the License Agreement:
(a) text, graphics, photographs, video, audio and/or
other data or information relating to any subject
furnished by Retailer to TSA.com and intended solely
for use in connection with the TSA Site;
(b) Retailer selected print advertisements for the TSA
Stores or the goods and services offered by Retailer
in the TSA Stores, including run of press and insert
advertisements which appear in newspapers and
magazines, as well as printed in store signage, point
of sale and display signage and information promoting
events and the goods and services offered in the TSA
Stores; and
(c) such information concerning the goods and services
offered by Retailer in the TSA Stores in the U.S. as
Retailer possesses and has the right to transfer and
license to TSA.com, and which Retailer deems
necessary to successful operation of the TSA Site,
including, without limitation, information which is
related to the sourcing, manufacturing, development,
design, fabrication, construction, test procedures,
performance features, quality control standards,
merchandise specifications, reliability standards,
distribution, product costs, other costs, allowances,
rebates, sizes, colors, decoration, display, pricing,
margins, vendor economic information, and similar
information and know-how necessary to the
procurement, merchandising, inventory management and
sales of such goods and services in the TSA Stores.
1.40 "TSA Gift Certificates" shall mean gift certificates bearing the marks
THE SPORTS AUTHORITY and THE SPORTS AUTHORITY & Design, printed and
distributed under the auspices of Retailer, offered by Retailer for
redemption at its TSA Stores, or if by TSA.com on the TSA Site,
redeemable only at Retailer's TSA Stores.
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1.41 "TSA Site" shall mean that certain Internet site currently accessible
through the URL "http://www.thesportsauthority.com," and any backup or
mirror Internet site; it being understood that the TSA Site shall be
primarily targeted by TSA.com at Customers, and not at persons,
entities or activities otherwise described in Article 2.6 of the
LICENSE AGREEMENT. Further, the TSA Site shall not be used by TSA.com
to furnish, sell, advertise or promote the goods or services of any TSA
Competitor. The TSA Site shall include, without limitation, the
E-Commerce Shopping Experience, the Features Set and other aspects,
features and characteristics as set forth in this Agreement and its
Attachments.
1.42 "TSA Stores" shall mean any sporting goods retail store established
and/or operated by Retailer or Retailer's wholly-owned retailing
subsidiaries and devoted to the sale of a broad assortment of sporting
goods, athletic footwear, athletic apparel and related goods, and to
provision of related services.
1.43 "URL" shall mean the uniform resource locator of the TSA Site on the
Internet.
1.44 "URL Integration" shall mean the display of Retailer's URL in
Retailer's prepared advertising, marketing, public relations and
investor relations communications as further described in Article 7.5.
1.45 "Web" or "web" shall mean the World Wide Web, a network protocol for
accessing and viewing text, graphics, sound and other media and
engaging in e-commerce via the Internet.
ARTICLE II
DEVELOPMENT OF THE TSA SITE
2.1 SERVICES. TSA.com, at its own expense and at no cost to Retailer, shall
provide all creative, design, programming and other consulting services,
including all applicable TSA.com Products, necessary to the successful
realization of the TSA Site, including without limitation, services in the Core
Functionality as specified in ATTACHMENT A and incorporation of at least the
core aspects (as agreed by the Parties) of the Features Set, in accordance with
the Milestone Delivery Schedule and the Production Schedule, and as is necessary
in order to deliver the TSA Site in condition acceptable to Retailer on or
before the Launch Date. After initial acceptance by Retailer and full scale
launch of the TSA Site, TSA.com's development and maintenance services shall
continue throughout the Term of this Agreement.
2.2 TSA CONTENT. (a) INITIAL TSA CONTENT. As soon as reasonably possible after
the Effective Date, TSA.com and Retailer shall agree upon a Production Schedule
for the delivery by Retailer to TSA.com of that TSA Content which Retailer
intends for TSA.com to incorporate into the TSA Site. The Parties acknowledge
that Retailer shall be able to deliver certain "static" information, such as TSA
Store locations, promptly to TSA.com, and that other TSA Content, such as TSA
Content concerning the merchandise to be sold on the TSA Site, may be delivered
at a later date, closer to the Launch Date. TSA Content shall be in the
format(s) designated by TSA.com as set forth in ATTACHMENT B hereto or in such
other formats as the Parties may
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mutually agree. Upon Retailer's request, TSA.com shall assist Retailer in the
conversion of TSA Content into an acceptable form for use by TSA.com for the TSA
Site.
(b) SUBSEQUENT TSA CONTENT. Retailer shall supply TSA.com with updated
TSA Content as it becomes available to Retailer and necessary to updating the
TSA Site. Notwithstanding anything contained herein to the contrary, and except
as it relates to Special Make-Ups, it shall be TSA.com's responsibility to
produce and maintain all camera ready product information for use on the TSA
Site and Retailer shall have no responsibility therefor. With respect to Special
Make-Ups, Retailer shall furnish sample products to TSA.com with sufficient lead
time to allow TSA.com to produce camera ready product information as and when
needed.
2.3 PROJECT LIAISONS. Each party's primary contacts for development efforts
shall be the project liaisons specified in ATTACHMENT A or the persons otherwise
designated in writing by Retailer or TSA.com from time to time, as the case may
be.
2.4 ACCEPTANCE. TSA.com shall make available to Retailer Alpha and Beta versions
of the TSA Site for Retailer's review and, with respect to the Beta version,
annotation and approval, and Retailer shall provide the latter, all according to
the Milestone Delivery Schedule, if not earlier. Retailer shall review and
comment upon the Alpha version within two Business Days after delivery of the
Alpha version. TSA.com shall make any necessary changes and furnish the Beta
version of the TSA Site for Retailer's review and acceptance on or before
September 21, 1999. Retailer shall have seven (7) Business Days after delivery
of the Beta version to review and evaluate the TSA Site (the "Acceptance
Period") in order to assess whether it successfully incorporates the Features
Set, captures the desired E-Commerce Shopping Experience and otherwise complies
with the terms of this Agreement and of the License Agreement. During the
Acceptance Period, Retailer shall identify in writing to TSA.com all aspects of
the TSA Site that do not substantially conform as described above. Upon receipt
of Retailer's list of non-conformities, TSA.com shall correct promptly all such
non-conformities so that the TSA Site does conform in all material respects, and
substantially conforms in all lesser respects, after which Retailer and TSA.com
shall extend the Acceptance Period for a second seven (7) Business Day
Acceptance Period during which Retailer shall confirm that all non-conformities
that were previously identified have been corrected. Notwithstanding the
foregoing, the TSA Site shall be deemed accepted upon the earlier of: (i) its
use in commerce with all Core Functionality, provided, however, TSA.com shall
not use the TSA Site in commerce without Retailer's prior approval and consent;
(ii) Retailer's failure to give notice of any non-conformities during an
Acceptance Period; or (iii) Retailer's acceptance of the TSA Site.
The acceptance procedures set forth in this Article 2.4 shall also apply to any
material modifications made to the TSA Site during the Term of this Agreement.
As used herein, "material modifications" shall mean alterations which
significantly change the overall design, "look and feel" or functionality of the
TSA Site, or which extend or reduce the Features Set.
2.5 ADDITIONAL FEATURES OF THE TSA SITE; UPDATES. TSA.com, at its own expense
and at no cost to Retailer shall provide such content and features on the TSA
Site as Retailer elects, which contain or make accessible as part of the TSA
Site such information as: corporate information
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(E.G., historic background, mission statement, names of officers and directors),
store locator, public financial information (E.G., SEC filings, annual reports,
etc.), press releases, community programs, employment opportunities for in store
or corporate positions, frequently asked questions, a "contact us" section,
customer reviews, product reviews and any other information which serves to
enhance the TSA Site and help the TSA Site and Retailer attract and retain
Customers.
Without limiting the foregoing, following the initial completion, acceptance and
launch of the TSA Site, TSA.com, at its own expense and at no cost to Retailer,
shall update non-shopping aspects of the TSA Site, as requested from time to
time by Retailer, as follows:
(a) Employment Opportunities - TSA.com shall furnish technology to
allow Retailer to update as frequently as Retailer desires.
(b) Public Financial Information -
i) Stock Prices - to be updated daily or more frequently
by a link to another web site offering such
information.
ii) SEC Filings and Annual Reports - SEC filings shall be
provided by a link so long as the government (or
Retailer) makes such filings available at no cost.
Both SEC filings and annual reports shall be provided
only if available in portable document format; in the
alternative, TSA.com shall provide the consumer with
a form and format in order facilitate efficient
delivery of such information from Retailer's investor
relations or legal departments.
(c) Store Locators - to be updated as such information changes and
is received from Retailer.
(d) Frequently Asked Questions - to be updated by TSA.com monthly,
from TSA.com's experience in hosting, managing and operating
the TSA Site, and from any information which Retailer
provides.
(e) Corporate Information - to be updated as such information
changes and is received from Retailer.
(f) Retailer's Community Programs - to be updated as such
information changes and is received from Retailer.
(g) Press Releases - TSA.com shall furnish technology to allow
Retailer to update and post on the TSA Site directly. Retailer
shall be able to post press releases on the TSA Site as it
desires.
(h) "Contact Us" Section - to be updated as such information
changes and is received from Retailer.
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ARTICLE III
HOSTING AND MAINTENANCE OF THE TSA SITE
3.1 DATA CENTER AND SERVICES. TSA.com, at its own expense and at no cost to
Retailer, shall furnish a data center and all "back-end" operations for the
purpose of hosting and maintaining the TSA Site, either directly, or through an
Outsourcing Partner (the "Data Center"). The Data Center shall be configured to
meet or exceed the standards and specifications set forth in ATTACHMENT C. The
Data Center shall host the TSA Site and data servers in a secure environment.
The Data Center shall provide a commercially reasonable communications link to
the public Internet that is monitored at all times with wide area network
management tools. The Data Center shall include all necessary resources,
including backup and mirror systems, to make the Data Center highly reliable and
allow the TSA Site to be operational on a 24 hours/7 days a week basis but for
scheduled down time for maintenance and backup purposes. The Data Center shall
be supported and managed by TSA.com and TSA.com's operations and systems
administration staff shall maintain all servers and provide all technical and
support resources required to resolve any technical issues or failures of
equipment. TSA.com shall operate the Data Center and all servers, all in
accordance with ATTACHMENT C.
Retailer may request changes in the hosting operation or services provided under
this Agreement in order to meet the changing needs of Retailer and of the TSA
Site. Such requests shall be made in writing. Retailer and TSA.com shall
evaluate the needs and proposed changes to determine the best course of action
and amend ATTACHMENT C, if necessary and agreed to by the Parties.
3.2 TSA.com shall make the Data Center ready for acceptance testing on or
before October 14, 1999. Retailer or its representatives may conduct
acceptance tests during the following two-week period to verify that the
Data Center meets the agreed upon acceptance criteria. If at the end of
such two-week period, the Data Center has failed to meet such criteria, the
Parties shall work together to determine the reasons for such failure. The
Party whose action or inaction is determined to be the cause of such
failure, shall, with the cooperation and assistance of the other Party,
work to promptly remedy such failure. If the Data Center has not passed the
acceptance criteria within thirty (30) days after the end of such two-week
period, and if the cause has been attributed to TSA.com or its Outsourcing
Partner, Retailer shall have the right, upon written notice to TSA.com, to
terminate this Agreement at the end of such thirty day period. Once
Retailer has accepted the Data Center in accordance with the agreed upon
acceptance criteria, TSA.com shall immediately staff its operations team
and begin operating the Data Center.
3.3 PERFORMANCE MONITORING. TSA.com and Retailer shall work together during the
implementation of the Data Center to mutually agree upon the reports that
TSA.com shall prepare and deliver as part of normal operations to document
performance once the Data Center has been accepted and gone into operation.
TSA.com shall permit Retailer to track performance and derive statistics via
remote access to the Data Center.
3.4 HOSTING SERVICES. TSA.com shall load the TSA Site onto server(s) that are
connected to the Internet and readily accessible via the Web through use of the
URL. TSA.com shall ensure
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that the TSA Site is functional and ready to process transactions in an
efficient manner, and that it is compatible with all major software platforms,
including the major web browsers and helping applications and plug-ins. TSA.com
shall upload all TSA Content, including updates, to the TSA Site within three
(3) Business Days of delivery to TSA.com. With TSA.com's prior written consent
and cooperation, Retailer may electronically transmit or upload TSA Content
directly to the Web Site.
3.5 MAINTENANCE SERVICES. TSA.com shall maintain the TSA Site so that it
functions in a reasonably error free manner and according to the standards and
specifications set forth in ATTACHMENT C. Upon notification of an error in the
TSA Site or of a non-conformity between the TSA Site and the Features Set or
ATTACHMENT C, whether from Retailer or from any Customer or user of the TSA
Site, TSA.com shall promptly commence an investigation into the reported error,
and TSA.com shall, upon reproducing such error, use reasonable commercial
efforts to correct such error in a timely fashion. While providing any
maintenance services, TSA.com shall ensure that the TSA Site is functional and
ready to process transactions in a reasonably efficient manner, provided,
however, that TSA.com may, during low usage periods and as mutually determined
by the Parties, temporarily take down or block access to the TSA Site to perform
maintenance.
3.6 SEARCH ENGINE REGISTRATION. On or before the Launch Date, and from time to
time as requested by Retailer during the Term of this Agreement, TSA.com shall
write professional meta tags and register the TSA Site and Retailer's URL with
the as many of the leading search engines and directories, as well as many of
the leading shopping, industry and regional directories, as practicable. The
Parties acknowledge that submission of registration materials does not guarantee
that registration will actually take place.
ARTICLE IV
MERCHANDISING THE TSA SITE
4.1 IN GENERAL. The Parties acknowledge that Retailer's core competencies lie,
in part, in the selection, sourcing, purchasing, distribution, presentation,
advertising and sale of merchandise, including without limitation, the
establishment and maintenance of favorable relationships with merchandise
vendors, all in relation to operating land-based sporting goods stores.
Similarly, TSA.com's (or GSI's) core competencies lie, in part, in the creation,
development and operation of e-commerce businesses, including, without
limitation, making it possible for land-based retailers to successfully migrate
to and operate e-commerce businesses which may differ, especially as to
merchandising, from their land-based stores. The Parties anticipate that the
majority of merchandise to be offered and sold on the TSA Site shall be
merchandise which Retailer originally selects and orders for its TSA Stores.
Under this Agreement, TSA.com shall be kept informed of Retailer's selection and
ordering processes and shall be entitled, subject to the restrictions set forth
herein, to select from the full range of merchandise offered in Retailer's TSA
Stores the merchandise to be offered on the TSA Site. TSA.com's selection may be
supplemented in part, as provided herein, with merchandise not otherwise offered
or sold in Retailer's TSA Stores.
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4.2 RESTRICTIONS. In no event shall TSA.com offer or sell on the TSA Site, and
Retailer shall not be required to assist TSA.com in obtaining:
(a) firearms, ammunition, explosives and explosive materials,
weapons, and any related items, equipment and accessories
which may be subject to licensing, permitting and or other
governmental restrictions on sales, distribution and/or
exports of the same;
(b) counterfeit merchandise or merchandise which infringes the
valid Intellectual Property Rights of others within an
applicable jurisdiction;
(c) any merchandise for which merchants are charged with in-person
verification of identity or age or other qualifications to own
or purchase the subject merchandise;
(d) any merchandise which is subject to any export prohibition
from the U.S., or which is barred or otherwise prohibited from
use in any export destination country outside the U.S., unless
such merchandise is offered, sold and delivered to Customers
only within the U.S.;
(e) any merchandise, which if offered or sold on the TSA Site,
would violate the terms of any agreement between the subject
vendor and Retailer, including, without limitation, any term
restricting distribution to the territories served by
Retailer's TSA Stores, or which would otherwise materially
damage the relationship between the subject vendor and
Retailer; and
(f) any merchandise which Retailer requests in writing be removed
from the TSA Site, if for legitimate business purposes set
forth in Retailer's notice to TSA.com; provided that Retailer
purchases such merchandise from TSA.com at TSA.com's cost if
such merchandise cannot be returned to the vendor.
The above restrictions shall apply at all times to the TSA Site. Retailer and
TSA.com agree to communicate in good faith, as needed, concerning the
construction, application and enforcement of the above restrictions.
4.3 AVAILABLE MERCHANDISE. Subject to the above restrictions, TSA.com shall have
the right to offer and sell on the TSA Site, and Retailer shall assist TSA.com
in obtaining:
(a) In Line Merchandise;
(b) Special Make-Ups;
(c) Closeout Merchandise, but only such Closeout Merchandise as
Retailer currently carries, or places orders for sale in its
TSA Stores;
(d) Markdowns;
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(e) On Line Gift Certificates; and
(f) TSA Gift Certificates.
Merchandise in categories 4.3(a) through (f) above shall be referred to as
"On-Line Merchandise."
4.4 VENDOR RELATIONS; ORDERS BY TSA.COM. (a) At such time and by means of a form
of written or electronic notice which is mutually agreed upon by the Parties,
Retailer shall notify all of its vendors: (i) of the formation of TSA.com as a
venture of Retailer and GSI; (ii) that the TSA Site is operated by TSA.com;
(iii) that TSA.com shall be coordinating its purchases with Retailer and
purchasing additional quantities of merchandise as ordered by Retailer; (iv)
that each vendor, for the benefit of Retailer, should sell its merchandise to
TSA.com at the same prices, with the same Advertising Co-op and Discretionary
Funds and on the same terms and conditions as it sells the same merchandise to
Retailer; and (v) that such merchandise should be shipped and invoiced directly
to TSA.com. If a given vendor refuses to directly ship to and invoice TSA.com,
TSA.com shall notify Retailer. If the vendor cannot be persuaded to deal
directly with TSA.com, then subject to Retailer's consent, which it may withhold
as it sees fit, Retailer may place the order for TSA.com and such vendor may
ship to and invoice Retailer for such merchandise. Retailer shall then invoice
TSA.com at Retailer's net cost, and TSA.com shall pay Retailer the purchase
price and all freight and handling charges within thirty days of any such
shipment by Retailer to TSA.com. TSA.com shall pay Retailer its PRO RATA share
(based upon that portion of the shipment purchased by Retailer for TSA.com as it
relates to the entire shipment received by Retailer from that vendor) of the
actual freight costs from the vendor's facility to Retailer's Warehouse, as well
as any handling and freight costs incurred by Retailer in packing and shipping
the subject merchandise from Retailer's Warehouse to TSA.com's fulfillment
facility. Retailer shall include a detailed bill of lading or invoice with each
such shipment.
(b) IN LINE MERCHANDISE. Retailer shall use its best efforts to advise
TSA.com within ten (10) Business Days after placing a purchase order with a
vendor for any In Line Merchandise, identifying the vendor and the item (by
category, class, UPC and/or Retailer's sku number), and setting forth Retailer's
net cost, Retailer's proposed original retail price and expected date of receipt
at Retailer's Warehouse.
(c) SPECIAL MAKE-UPS; OWN BRAND MERCHANDISE. Retailer shall use its
best efforts to advise TSA.com within ten (10) Business Days after placing a
purchase order with a vendor for any Special Make-Ups or Own Brand Merchandise,
identifying the vendor and the item (by category, class, UPC and/or Retailer's
sku number), and setting forth Retailer's net cost, Retailer's proposed original
retail price and expected date of receipt at Retailer's Warehouse. Further,
Retailer shall advise TSA.com and, if possible, furnish TSA.com with a sample of
the Special Make-Ups or Own Brand Merchandise and advise TSA.com of the color
selection and size range. TSA.com shall have the right to purchase up to five
per cent of the Special Make-Up or Own Brand Merchandise, proportionately as to
size and color, as ordered by Retailer. TSA.com shall have five (5) business
days after receipt of notice from Retailer to place its order for Special
Make-Ups or Own Brand Merchandise and, if so, the quantity thereof.
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Notwithstanding anything contained herein to the contrary, TSA.com recognizes
that there may be instances where there shall be an insufficient amount of a
particular item of Special Make-Ups or Own Brand Merchandise to warrant selling
such merchandise on-line. In such instances Retailer shall not be required to
offer such Special Make-Ups or Own Brand Merchandise to TSA.com. Further,
TSA.com acknowledges that Retailer may not be able to offer to TSA.com certain
Special Make-Ups or Own Brand Merchandise which is not available in all of
Retailer's TSA Stores.
(d) CLOSEOUT MERCHANDISE. Retailer shall use its best efforts to advise
TSA.com within ten (10) Business Days after issuing a purchase order for
Closeout Merchandise from a vendor. Retailer may from time to time agree to sell
Closeout Merchandise to TSA.com on such terms and in such amounts as may be
determined by the Parties, provided, however, that Retailer shall use
commercially reasonable efforts to make Closeout Merchandise available to
TSA.com, subject to availability.
(e) MARKDOWNS. Retailer may from time to time agree to sell Markdowns
to TSA.com on such terms and conditions and in such amounts as may be determined
by the Parties.
(f) The Parties shall cooperate with each other so that, as between
TSA.com and Retailer, as much of the processes set forth in Article 4.4(a)-(f)
above as possible may be accomplished electronically.
4.5 PRICES OF ON-LINE MERCHANDISE. Subject to the terms of this paragraph and to
any applicable laws, Retailer shall [*]. [*] shall adopt and be responsible for
implementing such price determinations. Retailer shall use its best efforts to
[*]; provided, however, that for any item which [*]. TSA.com may assist Retailer
in [*]. Retailer acknowledges that TSA.com, unless it elects to do so, [*]. In
such event, Retailer shall nevertheless have the right to [*] The Parties shall
cooperate with each other so that the entire pricing process between TSA.com and
Retailer may be accomplished electronically.
4.6 ON-LINE GIFT CERTIFICATES; TSA GIFT CERTIFICATES. Subject to Retailer's
prior review and approval of the form and content of any proposed On-Line Gift
Certificate and of TSA.com's redemption policy, and subject to the terms of the
"License Guidelines and Restrictions" under the LICENSE AGREEMENT, TSA.com may
develop, publish and offer for sale On-Line Gift Certificates on the TSA Site.
TSA.com shall clearly and conspicuously state in connection with any offer to
purchase or sell such On-Line Gift Certificates, and state on the On-Line Gift
Certificates themselves, that On-Line Gift Certificates are redeemable only on
the TSA Site and not at TSA Stores. In addition, subject to the prior
negotiation and agreement of the Parties as to all terms, TSA.com may offer TSA
Gift Certificates for sale on the TSA Site, but only with the clear and
conspicuous statement that such TSA Gift Certificates are redeemable only in TSA
Stores. As between TSA.com and Retailer, TSA.com shall bear any escheat duties
with respect to On-Line Gift Certificates.
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ARTICLE V
ORDER PROCESSING AND CUSTOMER SERVICE
5.1 PROCESSING OF CUSTOMER ORDERS. Except as otherwise provided in Article 6.3,
TSA.com shall be solely responsible for processing all E-Commerce Business.
TSA.com shall enter into merchant agreements in its own name and on its own
account with at least the credit card providers VISA, Master Card and American
Express. Further, TSA.com shall use commercially reasonable efforts to provide
the functionality to accept Retailer's forthcoming private label credit card, on
the same terms and conditions as accepted by Retailer at Retailer's TSA Stores.
TSA.com shall provide secure systems for submitting and processing all credit
card transactions, as well as systems for immediate confirmation of all
E-Commerce Orders, and confirmation of shipments, out of stock or back orders
via mail and/or email. TSA.com shall promptly process all E-Commerce Orders
received from Customers via the TSA Site. TSA.com shall take the Customer's
credit card number at such time as On-Line Merchandise or related services are
ordered. TSA.com shall charge the Customer's credit card at the time the On-Line
Merchandise is shipped or the related services are furnished. The transaction
shall appear on the Customer's credit card under the merchant name
"TheSportsAuthority.com" and proceeds shall be deposited into TSA.com's
designated bank account for full credit to TSA.com. TSA.com shall make all
arrangements for delivery of all On-Line Merchandise and related services
purchased on the TSA Site.
5.2 CUSTOMER RELATIONS. TSA.com shall be responsible for providing all Customer
service relating to the TSA Site, which shall be provided in a courteous and
professional manner consistent with that provided by other reputable on-line
retailers. TSA.com shall invite Customer feedback via a "Contact us" or "How are
we doing?" feature. Beginning on and after the Launch Date, TSA.com shall
maintain an email reply service and a toll-free telephone number and furnish
adequate staff on a 24 hours a day/7 days a week basis to receive and handle
telephone inquiries, requests and complaints from Customers. TSA.com shall
periodically summarize and share Customers' on-line and telephone feedback with
Retailer, and continuously use it to improve TSA.com's operations, as
applicable.
5.3 ON-LINE CUSTOMER LOYALTY PROGRAMS. Subject to Retailer's prior review and
approval, which shall no be unreasonably withheld, TSA.com shall have the right
to establish On-Line Customer Loyalty Programs in order to encourage continued
E-Commerce Orders. Customer Loyalty Programs established by TSA.com shall be
used only in connection with E-Commerce Orders and Retailer's customer loyalty
programs shall be used only in connection with purchases at Retailer's TSA
Stores.
5.4 RETURN OF ON-LINE MERCHANDISE. TSA.com's return policy shall be consistent
with Retailer's return policy. With each shipment of merchandise, TSA.com shall
specifically instruct all Customers that NO On-Line Merchandise purchased from
the TSA Site may be returned to Retailer's TSA Stores and may only be returned
to TSA.com in accordance with the instructions enclosed; provided, however, that
Retailer at its sole discretion, in order to maximize its own customer goodwill,
may accept any such On-Line Merchandise for return in accordance with Retailer's
return policy, and thereafter return the On-Line Merchandise (or destroy for
credit, as agreed by the Parties) to TSA.com's fulfillment center. Once each
quarter, or more often as Retailer sees fit, it shall prepare and send an
itemized invoice describing all returns of On-Line Merchandise which it has
accepted at TSA Stores during the period elapsed since the
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last such invoice, setting forth the items returned, quantities, amounts
refunded or values exchanged, and any packing, handling and freight charges
incurred by Retailer in shipping such On-Line Merchandise to TSA.com. TSA.com
shall pay each invoice in full within 30 days of receipt from Retailer. The
Parties shall negotiate in good faith and mutually agree to an appropriate
service charge which Retailer may add to all such invoices.
ARTICLE VI
FULFILLMENT
6.1 FULFILLMENT DUTIES OF TSA.COM. TSA.com shall use commercially reasonable
efforts commensurate with leading e-commerce retail fulfillment operations to
provide fulfillment services for the TSA Site, according to the service
standards set forth in ATTACHMENT C. These fulfillment services shall include,
without limitation:
(a) ORDER RECEIPT: accept all Customer orders (and order inquiries
and cancellations) on-line from TSA Site, and via dedicated
toll-free telephone number(s) on a 24 hours/day, seven days a
week basis. Process credit cards, verify authorizations and
track frauds. Compute and collect applicable taxes and
shipping and handling charges. Track, verify and confirm all
orders by phone, mail or email as appropriate.
(b) CREDIT CARD AUTHORIZATION AND BILLING: Process credit card
payments, verify authorizations and track frauds. Reauthorize
initial denials. Bill credit cards at time of shipment.
(c) MERCHANDISE RECEIVING AND INSPECTION: Receive, count and
inspect merchandise at warehouse or distribution center. Issue
and track backorders.
(d) INVENTORY CONTROL: Track all merchandise on order, in
warehouse or distribution center, and as sold to Customers.
Manage shrinkage.
(e) PICK, PACK AND SHIP: Pick merchandise to fill orders from
warehouse or distribution center. Pack and seal merchandise
for safe shipment. Ship via Customer designated method within
the time frames selected by or promised to Customers.
(f) SHIPPING VERIFICATION AND MANIFESTING: Select appropriate
shipping carriers, apply appropriate shipping labels, and
communicate with carriers and Customers to verify and track
all shipments.
(g) RETURNS PROCESSING: Provide on-line and toll-free telephone
support for processing merchandise returns. Issue RA numbers,
UPS call tags and the like. Verify, confirm and track returns.
Issue credit card credits (or refunds or exchanges) to
Customers promptly upon receipt of returned merchandise.
Process returns of defective merchandise to recover from
vendors.
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(h) CUSTOMER SERVICE: In addition to the services afforded to
Customers above and as described in Article V, invite, track
and respond as appropriate to Customer feedback. Provide
systematic capability to track and monitor customer service
activity to include such information as original order number,
order date, reason for Customer contact, and resolution. For
phone calls, track time to answer and call duration. For
e-mail, track elapsed time from Customer send time/date to
TSA.com response time/date.
(i) REPORTING: Provide reports to Retailer, including, without
limitation, concerning daily, weekly and monthly performance
in each of the above categories, demand by page in the TSA
Site, demand by item in the TSA Site, cancellations and
returns, defectives, and the like.
6.2 RETAILER'S OPTION TO ASSUME FULFILLMENT DUTIES. The parties agree that, at
the option of Retailer, at any time after the second anniversary of the Launch
Date, and upon nine months' prior written notice given by Retailer to TSA.com
and GSI, Retailer may assume all fulfillment duties with respect to the
E-Commerce Business and the TSA Site, provided that Retailer is able to satisfy
the following conditions:
(a) Retailer demonstrates to TSA.com's reasonable satisfaction
that it has the ability to provide the same or better
fulfillment services as TSA.com's then current fulfillment
Outsourcing Partner at the same or better cost;
(b) Retailer demonstrates to GSI's reasonable satisfaction that
any resulting modifications needed in GSI's engineering
architecture shall seamlessly integrate Retailer's fulfillment
systems with GSI's operations. Further, if modifications are
needed to integrate with GSI's operations, Retailer shall bear
the costs of making such modifications; and
(c) If Retailer desires to outsource fulfillment after satisfying
the foregoing conditions, it may only do so: (i) if Retailer
also outsources all of its other e-commerce, mail order and
catalog fulfillment services; and (ii) the costs charged by
Retailer to TSA.com for the outsourced fulfillment services
for the TSA Site does not include any markup by Retailer.
ARTICLE VII
ADVERTISING AND MARKETING THE TSA SITE
7.1 PRIOR APPROVAL OF AGREEMENTS. TSA.com agrees to obtain the written approval
of Retailer prior to entering into any agreement or arrangement with Advertising
and Marketing Partners of TSA.com, including, without limitation, all agreements
for on-line or off-line links, cross promotion, exclusive arrangements,
affiliate arrangements, and all other advertising exchange, traffic
accumulation, aggregation and distribution methods or arrangements.
7.2 USE OF ADVERTISING CO-OP AND DISCRETIONARY FUNDS. (a) TSA.com shall use all
Advertising Co-op and Discretionary Funds received by TSA.com directly from
vendors as a
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result of the purchase of On-Line Merchandise for the TSA Site, exclusively to
promote the TSA Site, in the manner and according to strategies as the Parties
shall mutually determine. All proposed advertisements shall be submitted to
Retailer for Retailer's prior review and approval.
(b) Any Advertising Co-op and Discretionary Funds received by Retailer
due to a given vendor's refusal to deal directly with TSA.com, and arising from
Retailer's purchase of any On-Line Merchandise for TSA.com, shall be passed
through to TSA.com by Retailer. In any event, Retailer and TSA.com each prefer
that vendors deal directly with TSA.com, and each shall request Retailer's
vendors to do so.
7.3 TSA.COM'S ADDITIONAL ADVERTISING COMMITMENT. TSA.com shall spend, prior to
December 31, 2007, not less than [*] in excess of the amount of Advertising
Co-op and Discretionary Funds spent by TSA.com for advertising of TSA's Site, of
which at least [*] shall be spent by December 31, 2001 and the balance remaining
will be spent at the rate of at least [*] per Fiscal Year until all [*] is
spent. In the event of a breach of this Article 7.3, TSA.com shall have the
right to cure such breach within 30 days of receipt of written notice of breach
from Retailer.
7.4 CROSS PROMOTION. Subject to Retailer's prior review and approval, and
subject to the terms of the License AGREEMENT, TSA.com shall have the right to
use Retailer's URL, the name and mark "TheSportsAuthority.com" and certain other
Marks (as defined in the LICENSE AGREEMENT) to cross promote the TSA Site with
Advertising and Marketing Partners of TSA.com.
7.5 URL INTEGRATION BY RETAILER. Retailer, commencing no later than October 1,
1999 and on a rolling basis as it orders or prepares new printed materials or
advertisements or other communications pieces, and continuing during throughout
the Term, at no cost to TSA.com, shall use its best efforts to provide for URL
Integration in its prepared advertising, marketing and public and investor
relations communications pieces, as follows:
(a) by including its URL within substantially all of its print
media advertising (including, without limitation, in
newspapers, periodicals, circulars, billboards, print
materials, shopping bags, cash register receipts and print
sponsorship advertising);
(b) by including its URL in substantially all of Retailer's
television advertising; and
(c) by mentioning its URL during substantially all of Retailer's
radio advertisements.
Retailer shall not be required to use the URL in any formats or applications
where it deems such use to be inappropriate, poor design, unreasonable or
awkward (E.G., in a radio spot which is too short) or where such use is rejected
or unacceptable under the terms of any applicable advertising, marketing or
sponsorship agreement. Retailer may use the following disclaimer together with
the URL if appropriate and necessary: "On Line Merchandise offerings may vary
from products offered in The Sports Authority stores."
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ARTICLE VIII
ADMINISTRATIVE SERVICES
8.1. ADMINISTRATIVE SERVICES TO BE PROVIDED BY TSA.COM. TSA.com shall provide
the following services to support the TSA Site and the E-Commerce Business:
(a) TSA.com shall, as required by law, or as requested by
Retailer, GSI or both:
(i) formulate operating plans and budgets and share these
with GSI and Retailer, at least semi-annually;
(ii) provide long range forecasting and statistical
analyses and share these with GSI and Retailer;
(iii) establish policies, provide technical support for and
prepare and maintain financial books, coordinate
financial audits, maintain statutory records and
registers, and prepare and file financial reports,
accounts and returns and income tax and other
taxation returns required by the U.S. and other
national, state and local governments;
(iv) obtain and administer national, state, and local
licenses and permits necessary to conduct the
E-Commerce Business and to operate the TSA Site;
(v) install and maintain various financial reporting
systems, including general accounting, sales audit,
inventory control, internal control, asset accounting
and other like systems as are customary and usual for
similar enterprises;
(vi) assist with public affairs and corporate
communications services involving the TSA Site and
the E-Commerce Business; and
(vii) assist with developing advertising and marketing
strategies and plans, and buying and managing print,
electronic, sponsorship and other advertising and
signage programs.
(b) FINANCIAL STATEMENTS. TSA.com shall provide Retailer with monthly
unaudited financial statements in such detail as Retailer may from time to time
require and shall provide Retailer with real-time electronic access on a 24
hour/7 days a week basis to its books and records to the extent the same are
maintained in an electronic media and accessible on-line.
(c) AUDITS. During the term of this Agreement and for a period of two
(2) years thereafter, each Party shall keep and maintain accurate books and
records relating to this Agreement. Upon request, Retailer or its agent(s) may
inspect, audit and analyze copies of those records of TSA.com relating to this
Agreement. Upon request, TSA.com or its agent(s) may inspect, audit and analyze
copies of those records of Retailer relating to this Agreement. Any
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such audit by a Party (the "Auditing Party") shall be conducted at the Auditing
Party's own cost and expense, during normal business hours at the regular place
of business of the other Party (the "Audited Party") upon at least ten (10) days
prior written notice. Each Party may exercise its right to audit hereunder no
more than once per year, unless a material discrepancy (I.E., a discrepancy in
excess of [*] or [*]) was discovered in an audit. In such cases, the Auditing
Party may audit every six (6) months until the results of the audit show that a
material discrepancy no longer exists. All underpayments shall be promptly
remitted to the Auditing Party. No payments rendered under this Agreement shall
be subject to audit more than two (2) years from the date of its presentation.
Neither Party shall exercise its audit rights unless it has a reasonable basis
to believe the information provided by the other Party is inaccurate.
ARTICLE IX
RETAILER'S SERVICES
9.1 PROJECT MANAGER; MERCHANDISING MANAGER. Retailer shall make two of its
employees available to serve as a full-time project manager and a full-time
merchandising manager to work with TSA.com with respect to all aspects of
Retailer's rights and obligations pursuant to the TSA Site, the E-Commerce
Business and this Agreement. Such "Dedicated Employees" shall be hired,
employed, managed and compensated by Retailer, and TSA.com shall reimburse
Retailer for each such Dedicated Employee's services in the manner set forth
below.
9.2 CHARGES. TSA.com shall reimburse Retailer for all commercially reasonable
compensation costs incurred by Retailer in connection with the Dedicated
Employees, including, without limitation, TSA.com's allocable share of the
wages, salary, bonus, 401(k), profit sharing and other standard compensation and
employee benefits as paid or furnished by Retailer, and of any employment based
sums that Retailer as an employer is required by law to contribute on behalf of
such Dedicated Employees to local, state and federal agencies. Each Dedicated
Employee shall keep track of all work time that he or she devotes to working for
any party other than TSA.com and periodically report the same to Retailer. At
least once each month Retailer shall prepare a written statement (a "Dedicated
Employee Invoice") identifying each Dedicated Employee employed on TSA.com's
behalf during the preceding month, itemizing the compensation furnished by
Retailer for each Dedicated Employee, totaling the amounts by Dedicated
Employee, and reducing such totals proportionately for the time each Dedicated
Employee spent working for parties other than TSA.com during the subject month.
9.3 TSA.COM'S PAYMENTS. Dedicated Employee Invoices shall be calculated and sent
by Retailer to TSA.com on a monthly basis. Less frequent billing may be
appropriate for periods in which minimal time has been spent or minimal costs
have been incurred. TSA.com agrees to pay Retailer all charges within thirty
(30) days after the receipt of any Dedicated Employee Invoice from Retailer.
ARTICLE X
CUSTOMER DATA, FINANCIAL DATA AND DATABASES
10.1 OWNERSHIP AND USE OF CUSTOMER DATA. (a) TSA shall own all right, title and
interest in and to the Customer Data, while TSA.com shall have an irrevocable
right and license hereunder
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to use the Customer Data in its business operations. TSA.com shall adhere to all
United States and Canadian privacy and data protection laws applicable to its
gathering, processing, storing and transmitting of Customer Data. TSA.com shall
use its best efforts to adhere to all such privacy and data protection laws of
all other nations and shall indemnify TSA for any loss, damage or expense caused
by its failure to do so; PROVIDED, HOWEVER, that the parties agree that such
failure to do so shall not be deemed a breach of this Agreement.
(b) Each Party shall treat the Customer Data as Confidential
Information of the other Party in accordance with the provisions of Article
11.1. The Parties agree that TSA.com may use Customer Data in the operation of
the TSA Site and the E-Commerce Business, and that Retailer may use the Customer
Data in the operation of Retailer's land based stores, but neither Party shall
furnish, rent, sell or otherwise disclose Customer Data to any person or entity
whatsoever without the prior written consent of the other Party. Further, the
Parties agree not to furnish, rent, sell or otherwise disclose to any person or
entity whatsoever any Financial Data, without the other Party's prior written
consent and subject to such terms and conditions as the Parties may mutually
determine. Notwithstanding the foregoing, TSA.com may permit GSI, at no charge
to GSI, to use Financial Data (BUT NOT Customer Data) to form trends and overall
research as to the on-line shopping habits of consumers.
10.2 DELIVERY OF CUSTOMER DATA AND FINANCIAL DATA TO RETAILER. From time to
time, Retailer may request that TSA.com provide to Retailer any or all of the
Customer Data or the Financial Data as Retailer shall specify, including,
without limitation, the following information:
(a) Customers' names;
(b) Customers' addresses;
(c) Customers' phone numbers;
(d) Customers' e-mail addresses;
(e) items purchased;
(f) amount spent;
(g) information as to how and from where Customers reached TSA Site;
(h) "refers";
(i) unique visitors to site;
(j) page views per site;
(k) top ten most viewed pages;
(l) bottom ten least viewed pages;
(m) time of day traffic patterns;
(n) sales by product and brand in the aggregate;
(o) Customer comments and complaints (shall be furnished on a
monthly basis or more often as requested); and
(p) such additional information as requested by Retailer.
Upon receipt of such request, TSA.com shall provide the Customer Data or
Financial Data to Retailer in a commercially standard format, either via
diskette, CD-ROM, electronically, or via another mutually agreeable method.
TSA.com shall use commercially reasonable efforts to ensure that the Customer
Data and Financial Data provided to Retailer accurately and completely reflects
the Customer Data and Financial Data in the TSA Site, but until such data is
audited and
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TSA.com's books are closed for the applicable period, TSA.com shall have no
obligation to check the accuracy, validity or integrity of the Customer Data or
Financial Data.
10.3 OWNERSHIP AND USE OF FINANCIAL DATA. TSA.com, Retailer and GSI shall
jointly and severally own all right, title and interest in and to the Financial
Data, except that all use of the Financial Data by any of them shall always be
subject to the restrictions set forth herein.
10.4 OWNERSHIP OF DATABASES. GSI shall own all right, title and interest in and
to the Databases, while Retailer and TSA.com may use the Databases subject to
other restrictions set forth herein.
ARTICLE XI
CONFIDENTIALITY
11.1 CONFIDENTIAL INFORMATION. Each Party acknowledges that, in connection with
the performance of this Agreement, it may receive Confidential Information of
the other Party. For the purpose of this Agreement, "Confidential Information"
shall mean information or materials that is marked "confidential" or which the
Receiving Party knows or has reason to know is the confidential or proprietary
information of the Disclosing Party, either because (i) such information is
marked or otherwise identified by the Disclosing Party as confidential or
proprietary, or (ii) such information has commercial value and is not generally
known in the Disclosing Party's trade or industry. Confidential Information
shall include, without limitation: (a) concepts and ideas relating to the
development and distribution of content in any medium; (b) trade secrets,
drawings, inventions, know-how, software programs, and software source
documents; (c) information regarding plans for research, development, new
service offerings or products, marketing and selling, business plans, business
forecasts, budgets and unpublished financial statements, licenses and
distribution arrangements, prices and costs, suppliers and customers; (d)
existence of any business discussions, negotiations or agreements between the
parties; (e) the terms and conditions of this Agreement; (f) all information
with respect to Retailer's vendors, Retailer's price and cost structures,
TSA.com's vendors, TSA.com's merchandise price and cost structures, the cost of
merchandise sold by TSA.com, the existence or amount of any cooperative
advertising subsidy or rebate; and (g) all prices of merchandise to be sold on
the TSA Site prior to publication of such prices on the TSA Site; provided,
however, that Retailer shall be provided with the information referred to in
clauses (f) and (g).
11.2 CONFIDENTIALITY. The Receiving Party hereby agrees: (i) to hold and
maintain in strict confidence all Confidential Information of the Disclosing
Party and, except as otherwise permitted herein, not to disclose it to any third
party; and (ii) not to use any Confidential Information of the Disclosing Party
except as permitted by this Agreement or as may be necessary for the Receiving
Party to perform its obligations under this Agreement. The Receiving Party shall
use at least the same degree of care to protect the Disclosing Party's
Confidential Information as it uses to protect its own Confidential Information
of like importance, and in no event shall such degree of care be less than
reasonable care. The obligations and restrictions imposed by this Article 11
shall terminate five (5) years after the expiration or termination of this
Agreement.
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11.3 EXCEPTIONS. Notwithstanding the foregoing, the parties agree that
Confidential Information shall not include any information that: (a) was in the
public domain at the time it was communicated to the Receiving Party by the
Disclosing Party; (b) entered the public domain subsequent to the time it was
communicated to the Recipient by the Disclosing Party through no fault of the
Receiving Party; (c) was in the Receiving Party's possession free of any
obligation of confidence at the time it was communicated to the Receiving Party
by the Disclosing Party; (d) was rightfully communicated to the Receiving Party
by a third party, free of any obligation of confidence, subsequent to the time
it was communicated to the Receiving Party by the Disclosing Party; (e) was
developed by employees or agents of the Receiving Party independently of and
without reference to any information communicated to the Receiving Party by the
Disclosing Party; or (f) was communicated by the Disclosing Party to an
unaffiliated third party free of any obligation of confidence. In addition, the
Receiving Party may disclose the Disclosing Party's Confidential Information in
response to a valid order by a court or other governmental body, as otherwise
required by law, or as necessary to establish the rights of either party under
this Agreement; provided, however, in the event that the Receiving Party
receives a demand to disclose such Confidential Information in connection with a
legal action or proceeding, the Receiving Party, if possible, shall first notify
the Disclosing Party of the demand in order to provide the Disclosing Party an
opportunity to seek a protective order. TSA.com may also disclose certain of
Retailer's Confidential Information to GSI in connection with the performance by
GSI of its duties, but only to the extent expressly permitted in the E-COMMERCE
SERVICES Agreement by and among TSA.com, GSI and Retailer of even date herewith.
11.4 CONFIDENTIALITY OF THIS AGREEMENT. The Parties acknowledge that the terms
and conditions of this Agreement constitute Confidential Information which shall
be governed by the terms of this Article 11.
ARTICLE XII
APPROVALS
12.1 APPROVAL PROCESS. Except as otherwise expressly set forth herein, and
except with respect to any use of "Licensed Property" (as defined in the LICENSE
AGREEMENT) which requires approval under the LICENSE AGREEMENT, when a given
provision calls for prior review and approval by one Party of a submission by
the other Party, the Party receiving the submission shall review it in a timely
manner and use its best efforts to communicate in writing its approval or
disapproval as soon as practicable after receiving the same. Failure to
communicate approval within five (5) Business Days of receipt of the submission
shall be deemed a disapproval. The submitting Party may re-start the approval
process by making a second submission marked "Second Request." The Party
receiving the second submission shall again review it in a timely manner and use
its best efforts to communicate in writing its approval or disapproval as soon
as practicable after receiving the same. Failure to communicate approval within
five (5) Business Days of receipt of the submission shall be deemed an approval.
In no event, shall the Party seeking approval produce, distribute, or otherwise
follow through on or implement the subject of the submission until approval is
granted in writing by the Party charged with the right of approval, or until the
applicable period has expired after a Second Request and the Party receiving the
second submission has failed to reply.
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ARTICLE XIII
EXCLUSIVITY
13.1 RETAILER. During the term of this Agreement, except as otherwise permitted
under Article 2.6(a) of the LICENSE AGREEMENT, Retailer agrees to not engage in
the business of creating, developing, operating, advertising and promoting a
business-to-consumer e-commerce business on the Internet which directly or
indirectly generates in excess of 20% of its revenues from the sale of sporting
goods, athletic footwear, athletic apparel and related goods and services
("Restricted Business"), except that if Retailer acquires another business
selling sporting goods, athletic footwear and/or athletic apparel and related
goods and services either through land based stores or through catalog sales
which is engaged in e-commerce business, Retailer can continue to operate the
e-commerce business of the acquired business until such time, if ever, that
Retailer changes 50% or more of the acquired business's land based stores to
stores operating under the name "The Sports Authority" or any variation thereof
or changes the catalog name to "the Sports Authority" or any variation thereof.
If Retailer desires to engage in any Restricted Business during the term of this
Agreement, it shall only do so through TSA.com and such business shall be
conducted on the terms and conditions set forth in this Agreement.
13.2 TSA.COM. During the Term of this Agreement, TSA.com agrees to NOT engage in
the sale of goods over the Internet as a shareholder, partner or investor in any
corporation, partnership, limited liability company or other entity or venture
which directly or indirectly generates in excess of 20% of its revenues from the
sale of sporting goods, athletic footwear, athletic apparel and related goods
and services.
ARTICLE XIV
REPRESENTATIONS AND WARRANTIES
14.1 BOTH PARTIES. Each Party represents and warrants to the other Party that:
(a) it is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation and that it has the power and
authority to enter into this Agreement and the transactions contemplated herein;
(b) the consummation of the transactions described by this Agreement shall not
conflict with or result in a breach of any of the terms, provisions or
conditions of its Articles of Incorporation or Bylaws, or any statute or
administrative regulation or any order, writ, injunction, judgment or decree of
any court, regulatory or governmental authority or of any agreement or
instrument to which it is a party or by which it is bound, or constitute a
default thereunder; and (c) this Agreement has been duly authorized, executed
and delivered by it and this Agreement is valid, enforceable and binding upon
each Party in accordance with its terms.
14.2 YEAR 2000. TSA.com warrants that the TSA Site shall not suffer any material
adverse effect as a result of a failure in any TSA.com Work Product or TSA.com
Tools to be Y2K Compliant. A product or service which is "Y2K Compliant" is one
that provides accurate results using data having date ranges spanning from
January 1, 1980 through December 31, 2019 ("Y2K Period"). By way of example and
not of limitation, "Y2K Compliant" means, with respect to a product or service,
that it can currently and shall, during the Y2K Period, continue to (a) manage
and manipulate data involving all dates within the Y2K Period (including the
fact that the year
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2000 is a leap year) without functional or data abnormality related to such
dates; (b) manage and manipulate data involving all dates within the Y2K Period
without inaccurate results related to such dates; (c) have user interfaces and
data fields formatted to distinguish between dates within the Y2K Period; and
(d) accurately identify and either reject or correct invalid date data during
the Y2K Period. Provided TSA.com otherwise complies with this Article 14.2, it
shall not be liable to Retailer for any failure to perform obligations under
this Agreement to the extent such failure arises from a failure to be Y2K
Compliant that: (i) affects the non-performing party's customers or suppliers;
or (ii) is beyond its reasonable control.
ARTICLE XV
INDEMNIFICATION
15.1 RETAILER. Retailer, at its own cost and expense, shall defend, indemnify
and hold harmless TSA.com and any of its officers, directors, employees or
agents from and against any and all actions, claims, proceedings or lawsuits
arising from or related in any way to: (a) any claim that TSA.com's use of the
Marks as permitted hereunder and under the LICENSE AGREEMENT, including use of
Retailer's URL and of the name and Mark "TheSportsAuthority.com" infringes the
trademark, service mark, trade dress or trade name rights of any third party in
the U.S., its territories and possessions, Puerto Rico, or Canada, provided,
HOWEVER, that Retailer shall not bear any duty, obligation or liability pursuant
to this Article 15.1 to the extent that, and with respect to which, any use by
TSA.com of any of the Marks is in a manner not authorized by this Agreement or
the License Agreement; or (b) from Retailer's gross negligence or willful or
intentional misconduct.
15.2 TSA.COM. Subject to Article 15.1 above, TSA.com, at its own cost and
expense, shall defend, indemnify and hold harmless Retailer and any of its
officers, directors, employees or agents from and against all damages, expenses,
liabilities and other costs (including reasonable attorneys' fees and court
costs) arising: (a) from a claim made by any party (other than Retailer) that is
related in any way to the TSA Site, the E-Commerce Business, On-Line Merchandise
sold or services furnished through the TSA Site, or TSA.com's services to
Retailer provided pursuant to this Agreement; or (b) from TSA.com's gross
negligence or willful or intentional misconduct.
15.3 Any Party seeking indemnification shall notify the other Party as soon as
possible after such Party seeking indemnification becomes aware of the claim.
Except with respect to infringement claims asserted under 15.1(a) which Retailer
shall have the sole right to defend, the indemnifying Party shall have the right
to defend any claim pursuant to this Article XV. The indemnified Party shall
cooperate with such defense and, at its option, may also defend such claim to
the extent that its interests in any way vary from that of the indemnifying
Party.
ARTICLE XVI
INSURANCE
16.1 TSA.com shall, during the Term of this Agreement, maintain the following
insurance coverages as indicated or as required by law, whichever shall be
greater, with insurers in good standing and authorized to do business under the
laws of the State(s) where performance shall occur:
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(a) Comprehensive General Liability, naming Retailer as an additional
insured, including without limitation Contractual Liability and
Products Liability, with broad form property damage and bodily injury
(including Personal Injury) coverage. The minimum limits for each shall
be [*] per occurrence and [*] annual aggregate; and
(b) Workers' Compensation and Employers' Liability with minimum limits
of [*] per accident, [*] disease (each employee) and [*] disease
(policy limit).
Upon Retailer's request, TSA.com shall tender to Retailer certificates of
insurance evidencing the coverages required to be maintained by TSA.com
hereunder. The certificates must provide that no change or cancellation of
insurance shall be made without thirty (30) days prior written notice to
Retailer.
ARTICLE XVII
TERM AND TERMINATION
17.1 TERM. This Agreement shall commence on the Effective Date and automatically
terminate upon termination of the E-COMMERCE VENTURE AGREEMENT, or terminate
pursuant to Article 17.2 below.
17.2. TERMINATION. This Agreement may be terminated prior to termination of the
E-COMMERCE VENTURE AGREEMENT, as follows:
(a) By either Party if the other Party shall materially breach in the
performance of any of the covenants, terms and conditions of this Agreement and
shall fail to cure such breach within 60 days after receipt of notice in writing
from the terminating Party of such breach, giving reasonable particulars of such
breach and of the intention of the Party serving the notice to terminate this
Agreement unless such breach is cured; PROVIDED, HOWEVER, that if such breach
cannot reasonably be cured within 60 days, no termination shall occur so long as
the Party against which breach has been declared continues to use its best
efforts to cure such breach.
(b) By either Party if the other Party shall be judicially declared
bankrupt or insolvent, make an assignment for the benefit of, or enter into a
compromise with, its creditors; initiate bankruptcy or insolvency proceedings of
any kind or proceedings for the appointment of a receiver, manager, judicial
manager or similar official with respect to it or any of its assets or become a
party to dissolution proceedings; PROVIDED, HOWEVER, that no termination shall
occur if any such action is stayed, dismissed or reversed within 60 days of the
initiation of such action and the other Party provides satisfactory evidence of
the same within such period.
ARTICLE XVIII
NO IMPLIED WARRANTIES; LIMITATIONS UPON LIABILITY
18.1 Neither Party shall be liable to the other party for incidental,
consequential, punitive or exemplary damages arising in connection with this
agreement or the performance, omission of performance or termination hereof,
even if the said Party has been advised of the possibility of
26
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such damages and without regard to the nature of the claim or the underlying
theory or cause of action (whether in contract, tort or otherwise). Neither
Party makes any representation or warranty to the other except as specifically
set forth herein.
ARTICLE XIX
PROPERTY RIGHTS AND OWNERSHIP
19.1 GENERAL. The TSA Site shall consist of, and shall operate in conjunction
with, multiple elements, all of which are subject to certain Intellectual
Property Rights. The Parties' respective rights with respect to such elements
shall be as set forth below. For purposes of this Agreement, the term
"ownership" shall refer to ownership of all right, title and interest in and to
the respective elements, including, but not limited to, all patent, copyright,
trade secret, trademark and any other similar Intellectual Property Rights
therein, as applicable.
19.2 RETAILER'S URL. Retailer's URL shall be owned solely by Retailer (or its
licensor) and all use by TSA.com shall be governed by the LICENSE AGREEMENT.
19.3 THE TSA SITE. The TSA Site shall be owned solely by TSA.com. Except with
respect to each whole page of the TSA Site (which TSA.com shall own), TSA.com
disclaims all right, title and interest, and Retailer shall own all right, title
and interest, in and to all TSA Content and all works derivative of the TSA
Content which are incorporated into the TSA Site, whether such works are
copyright or trademark subject matter or otherwise, and even if such works are
not created by Retailer.
19.4 SOFTWARE. Software developed by GSI for the TSA Site shall be owned solely
by GSI, subject to any authorizations to use and approvals obtained and granted
to TSA.com and Retailer.
19.5 TSA.COM PRODUCTS. As between Retailer and TSA.com, TSA.com owns the TSA.com
Products.
19.6 TSA CONTENT. As between TSA.com and Retailer, Retailer owns the TSA
Content. Except for a limited non-exclusive license to use the TSA Content
(subject to the terms of the LICENSE AGREEMENT) solely to perform its
obligations hereunder, this Agreement confers no ownership or other beneficial
interest in TSA Content to TSA.com.
ARTICLE XX
MISCELLANEOUS
20.1 DISCONTINUANCE OR REGULATION OF THE INTERNET. Retailer acknowledges and
agrees that the Internet (including without limitation the Web) is a network of
private and public networks, that TSA.com has no control over the Internet, and
that TSA.com is not liable for the discontinuance of operation of any portion of
the Internet or possible regulation of the Internet which might restrict or
prohibit the operation of the TSA Site.
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20.2 FORCE MAJEURE. In the event that either party is unable to perform any of
its obligations under this Agreement or to enjoy any of its benefits because of
any event beyond the control of the affected party including, but not limited
to, natural disaster, acts of God, actions or decrees of governmental bodies or
failure of communications lines or networks (a "Force Majeure Event"), the party
who has been so affected shall promptly give written notice to the other party
and shall use its best efforts to resume performance. Upon receipt of such
notice, all obligations under this Agreement shall be immediately suspended for
the duration of such Force Majeure Event.
20.3 WAIVER. No delay or failure on the part of any party hereto in exercising
any right, power or privilege under this Agreement shall impair any such right,
power or privilege or be construed as a waiver of any default or any
acquiescence therein. No single or partial exercise of any such right, power or
privilege shall preclude the further exercise of such right, power or privilege,
or the exercise of any other right, power or privilege. No waiver shall be valid
against any party hereto unless made in writing and signed by the party against
whom enforcement of such waiver is sought and then only to the extent expressly
specified.
20.4 PRESS RELEASES. All voluntary public announcements concerning the
transactions contemplated by this Agreement shall be mutually acceptable to both
TSA.com and Retailer. Unless required by law, neither TSA.com on the one hand,
and/or Retailer on the other hand, shall make any public announcement or issue
any press release concerning the transactions contemplated by this Agreement
without the prior written consent of TSA.com or Retailer, respectively. With
respect to any announcement that any of the Parties is required by law to issue,
such Party shall, to the extent possible under the circumstances, review the
necessity for and the contents of the announcement with the other Party before
issuing the announcement; provided, however, if either Party cannot obtain the
consent of the other Party in a timely manner, the Party required to comply with
law may issue the press release or public announcement without obtaining the
consent of the other Party.
20.5 CHOICE OF DELAWARE LAW. This Agreement shall be deemed to have been
executed and delivered in the State of Delaware, and shall be construed,
interpreted and enforced under and in accordance with the internal laws of the
State of Delaware.
20.6 BINDING EFFECT; ASSIGNMENT; TSA.COM'S USE OF OUTSOURCING PARTNERS. (a) This
Agreement shall be binding upon the Parties hereto, their successors and
permitted assigns and approved Outsourcing Partners. Neither Party may assign
its rights and/or duties under this Agreement without the prior written consent
of the other Party, except as provided below.
(b) Upon written notice to TSA.com, Retailer shall have the right to
assign this Agreement to any person or entity which acquires or succeeds to all
or substantially all of Retailer's business or assets
(c) Retailer acknowledges that TSA.com shall contract with GSI, Organic
Online, Inc. and Client Logic Corporation as major Outsourcing Partners to
perform certain services hereunder. TSA.com represents and warrants to Retailer
that TSA.com shall fully comply with the terms of Article 20.6(e) below with
respect to GSI, Organic Online, Inc. and Client Logic Corporation.
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(d) TSA.com may employ Outsourcing Partners to perform certain other
services hereunder, provided, however, that for any Outsourcing Partner proposed
by TSA.com to perform web site development or fulfillment services, and for any
Outsourcing Partner proposed by TSA.com under an agreement which will pay such
Outsourcing Partner over $500,000 in any year,TSA.com shall notify Retailer and
obtain its prior written consent with respect to the material terms of
engagement of any such Outsourcing Partner, which consent shall not be
unreasonably withheld.
(e) All Outsourcing Partners must be fully informed by TSA.com and
bound in writing and agree (i) to all of the applicable restrictions upon
TSA.com hereunder, and (i) to perform all of the applicable obligations of
TSA.com with respect to Retailer hereunder, including, without limitation, the
obligations set forth in Articles VIII, X, XI, XII, XV, XVI and XX. Retailer
shall be deemed a third party beneficiary of all such agreements between TSA.com
and its Outsourcing Partners, and shall be entitled to enforce such agreements
as against any Outsourcing Partner in its own name and on its own behalf.
Notwithstanding the foregoing, as between Retailer and TSA.com, TSA.com shall be
responsible for all acts or omissions of any Outsourcing Partner.
20.7 COUNTERPARTS. This Agreement may be signed in several counterparts, each of
which shall be deemed an original, and all of which when taken together, shall
be deemed a complete instrument.
20.8 ENTIRE AGREEMENT. This Agreement, as well as the LICENSE AGREEMENT and the
E-COMMERCE SERVICES Agreement, represent the entire agreement of the Parties
with respect to the subject matter hereof and may not be modified, except in
writing, and executed by all of the Parties hereto. This Agreement supersedes
all prior writings of the Parties with respect to this subject matter.
20.9 NO PARTNERSHIP. The relationship of the Parties herein shall be that of
independent contractors and nothing herein shall be construed to create a joint
venture or partnership.
20.10 HEADINGS. Section headings contained in this Agreement are inserted for
convenience or reference only and shall not be deemed to be a part of this
Agreement for any other purpose.
20.11 NOTICES. Any notices or writings to be sent hereunder shall be in writing
and shall be by personal delivery or facsimile transmission and shall be deemed
given upon the earlier of actual receipt or receipt by sender of confirmation of
facsimile transmission. Notices shall be sent to the following addresses (or
such other address as either party may specify in writing):
if to TSA.com: TheSportsAuthority.com, Inc.
555 South Henderson Road
King of Prussia, Pennsylvania 19406
Attention: President
Fax No.: (610) 768-0981
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copy to: David S. Mandel, Esq.
Astor Weiss Kaplan & Rosenblum, LLP
The Bellevue
Broad & Walnut Streets
6th Floor
Philadelphia, Pennsylvania 19102
Fax No.: (215) 790-0509
if to Retailer: The Sports Authority, Inc.
3383 North State Road No. 7
Fort Lauderdale, Florida 33319
Attention: Alex Stanton, Senior Vice
President, Business Development
Fax No.: (954) 677-6094
copy to: The Sports Authority, Inc.
3383 North State Road 7
Fort Lauderdale, Florida 33319
Attention: General Counsel
Fax No.: (954) 730-4288
and to: The Sports Authority Michigan, Inc.
306 South Washington, Suite 224
Royal Oak, Michigan 48067
Attention: General Counsel
Fax No: (248) 414-9993
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IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to enter into this Agreement with intent to be legally bound
hereby, the date and year first above written.
THESPORTSAUTHORITY.COM, INC. THE SPORTS AUTHORITY, INC.
By: /S/ MICHAEL RUBIN By: /S/ MARTIN E. HANAKA
---------------------------- ------------------------------
Title: Title:
------------------------- ---------------------------
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ATTACHMENT A
Domain Name: TheSportsAuthority.com
Format of Retailer Content : SEE Attachment B
Project Liaisons: For TSA.com - Michael Golden For Retailer - Alex Stanton
Feature Set: TSA.com, at its own expense, shall create, maintain and operate the
TSA Site for Retailer on the Web in accordance with state of the art computer
software development industry professional standards and with at least the
following functionality:
1. Standard Search
2. Browse Category/Sub-Category/Family/Sub-Family
3. Product Presentation
4. Related Products
5. Product Comparison
6. Shopping Cart
7. Online Checkout with Secure Ordering
8. Email Notification of Orders
9. Order Tracking
10. User Login/Registration
11. User Profile Management
12. Product Bundles/Promotions
13. 24/7 Real Time Customer Service
14. Reporting Tools for Site Performance, Sales and Traffic
15. Affiliate Program Management
16. Store Locator with Mapping
17. Gift Giving Functionality
18. Real-Time Order Processing (including tax and shipping costs configurators)
19. Corporate Information (including financial information and company profile)
20. Employment and Press Areas with remote publishing tools for administration
by Retailer
(Collectively, items 1-20 above describe the "Core Functionality" of the TSA
Site)
<PAGE>
MILESTONE DELIVERY SCHEDULE:
Task Estimated Completion Date
Establish Fulfillment Capabilities April 30, 1999
Discovery And Planning June 1, 1999
Commence Engine Engineering July 31, 1999
Alpha Testing August 15, 1999
Retailer Web Site Development August 30, 1999
Quality Control Review And Revisions September 16, 1999
Beta (Soft Launch) September 21, 1999
Web Site Launch To General Public October 1 - December 1,1999
Media And Promotions October 1 - December 1,1999
<PAGE>
ATTACHMENT B
ASSET SUBMISSION GUIDELINES
This section details how to submit assets.
SOURCE ASSETS AND FINAL ASSETS
We require source files for all assets. This means if an image is originally
constructed as a layered RGB Photoshop file at 100x500 pixels, we need that
file, even if the final file is a flattened 4-bit GIF at 20x100.
We allow the submission of final assets in some cases, but only by prior
arrangement and only in addition to an up-to-date source file. All submitted
assets are subject to review and verification by production staff.
MEDIA AND FORMAT
We routinely receive assets in the following media and formats:
Digital Media:
Media:
SyQuest 44mb, 88mb, 200mb, CD-ROM (including PhotoCD), Zip, Jaz, 3.5" floppy.
Format:
Win16, Win-32, or Macintosh
File Formats:
Text: Raw, MS Word 95, RTF, HTML
Bitmap Graphics:
Photoshop, TIFF, PCD (PhotoCD), EPS, PICT (JPEG and GIF for final files only
and only along with source files)
PostScript Graphics:
EPS, Illustrator (7.0 preferred)
Video:
QuickTime
Audio:
WAV, AIFF, MIDI
<PAGE>
Non-Digital Media:
Contact us to discuss needs and capabilities before submitting any non-digital
assets.
ASSET SUBMISSION
We prefer to receive assets via FTP (file transfer protocol) although we gladly
accept assets via standard package delivery services (i.e., FedEx, USPS, UPS,
etc.).
Submission via FTP
FTP Area: ftp.globalsportsinteractive.com
Assets should be left in "Incoming" which is a level below the initial
directory. Once assets have been transferred, e-mail confirmation is required.
Submission via Package Delivery
If you wish to submit assets via standard package delivery services, please
address the package to this address:
Address TBD
If you are submitting hard assets like brochures, photographs, etc. please be
sure to ship them in a reinforced container to prevent damage to the assets
while in transit.
If you are submitting digital media like SyQuests, Zip disks, Jaz disks, etc.,
be sure to ship them in a well-padded, reinforced container.
<PAGE>
ATTACHMENT C
TSA Site Performance Standards and Specifications
A. SCHEDULED MAINTENANCE DOWNTIME
In order to keep the TSA site running at optimal efficiency, scheduled downtime
will be used for periodic system maintenance and upgrades. TSA.com has a
scheduled maintenance window of 4AM to 6AM EST on Sunday mornings for the TSA
Site. Tracking tickets will be issued to track any maintenance performed during
this time. Tickets are also issued for unscheduled maintenance and downtime.
B. ESCALATION PROCEDURES
If a technical problem occurs with the TSA Site, contact people in the following
order:
FRONTIER GLOBAL CENTER NETWORK OPERATIONS CENTER
1 800 662 3551
TSA.COM WEB OPERATIONS
Joe Romello (610)768 0900
Michael Balik (610) 768 0900
ORGANIC WEB OPERATIONS
Daniel Lees (212) 277 4678 pager [email protected]
Dion Lee Chin (212) 277 4742 pager [email protected]
ORGANIC PROJECT ENGINEER
Clay Amerault (212) 277 4732 pager [email protected]
C. Server Monitoring
1. WEB SERVERS
Web servers will be monitored by continuous pinging to make sure the
machine is alive. The http server will be continuously monitored to
ensure it is serving web pages. The home page will be monitored to
ensure the correct home page is being displayed with no errors. Disk
space on the web servers will be monitored and someone notified if
capacity exceeds a preset level.
2. APPLICATION SERVERS
Application servers will be monitored by continuous pinging to make
sure the machine is alive. Disk space on the application servers will
be monitored and web operations notified if capacity exceeds a preset
level.
3. DATABASE SERVERS
Database servers will be monitored by continuous pinging to make sure
the machine is alive. Disk space on the database servers will be
monitored and someone notified if capacity exceeds a preset level.
Database table space and database extents allocated will be monitored
and web operations notified if capacity exceeds a preset level.
<PAGE>
D. REPLACEMENT PARTS
Under the Sun Silver maintenance agreement, replacement parts shall be available
within four (4) hours of reported failure.
E. BACKUPS
Full backups of all machines will be performed every Monday morning beginning at
2AM EST. Incremental backups will be performed every morning except Monday
beginning at 4AM EST.
F. HOSTING ENVIRONMENT
Other than scheduled downtime as described above, TSA.com guarantees 99% uptime,
with preset escalation points for outages starting from system degradation and
system interruption and moving to Priority I, II or III. The mean response time
for server response to access the TSA Site shall not exceed more than __ seconds
during any one (1) hour period. Pages will return in 8 seconds or less over a T1
connection on a 28.8Kps modem. The bandwidth representing the TSA Site's
connection to the Internet shall be no less than a ____ connection, and shall be
operating at capacity no more than __ minutes in any 24 hour period.
G. SECURITY
Since the TSA Site is an electronic commerce web site, security is a primary
concern. TSA.com shall operate and maintain the TSA Site's servers at a locked
and secured location and shall prevent unauthorized access to the same, and any
databases or other sensitive material generated from or used in conjunction with
the TSA Site. TSA.com shall promptly notify Retailer of any known security
breaches or holes. A Solaris platform will be used to keep the web site system
as secure as possible. Solaris allows easy removal of nonessential services.
Solaris allows administrative access to the servers to be restricted by a secure
shell or direct terminal connection. Solaris allows auditing of access to the
system. Solaris allows software that performs a single use password system.
Credit card and other sensitive data will be encrypted before being transmitted.
In addition to securing the individual servers used in the system, a firewall
will be used.
H. DESIGN REQUIREMENTS
Standard Viewable Area: 615x500
Monitor Resolution: 800x600 and greater
Maximum Page Size: 50k, no page exceeding 80k
Connection Speed: 28.8 Kbps and greater
Graphic Formats: GIF89a, JPEG, plus a TBD enhanced
image format
Interactive Elements: HTML, JavaScript, CSS, Dynamo, dHTML
I. SUPPORTED BROWSER ENVIRONMENTS
This list below shows which browser/platform/OS combinations, based on research
conducted by GSI, will provide full functionality for the GSI Common Engine and
the TSA Site. The list below should cover approximately 95% of all browsers.
Users without Netscape 4 (or higher) or Internet Explorer 4 (or higher) will be
directed to a page informing them how to download the necessary browser.
Additionally, since JavaScript is required to view the site, users who have
<PAGE>
disabled JavaScript will be directed to a page telling them how to enable it.
This list also serves as the list of browsers with which the site will be tested
during the quality assurance phase of the project-preceding launch.
<TABLE>
<CAPTION>
BROWSER VERSION PLATFORM OS VERSION
<S> <C> <C> <C> <C>
Netscape Navigator 4.0.x Windows 95,98,NT 4.0
MS Internet Explorer 4.x Windows 95,98,NT 4.0
Netscape Navigator 4.0.x Macintosh MacOS 7.x.x and up
MS Internet Explorer 4.x Macintosh MacOS 7.x.x and up
</TABLE>
J. FULFILLMENT, CUSTOMER SERVICE
1. TELEPHONE SERVICE
On a monthly basis, TSA.com shall provide the following service levels:
/bullet/ Abandoned calls not to exceed 2% of total calls.
/bullet/ Average speed of answer shall not exceed 20 seconds.
/bullet/ Calls delayed shall not exceed 20%.
2. SHIPMENT SERVICE TIME
TSA.com shall use its best efforts to make all shipments of merchandise
to Customers according to the following schedule:
/bullet/ 100% by the end of the Business Day following date of receipt
(orders received after 3PM count as next day).
/bullet/ Balance by the end of the second Business Day following the
date of receipt.
/bullet/ Preferential orders and Federal Express (or other express
courier service) orders will be shipped on the day received.
3. CUSTOMER RETURNS, REQUESTS FOR INFORMATION
TSA.com shall process all Customer returns within three (3) Business
Days of receipt. TSA.com shall respond to requests for information
Customers for UPS call tags (or the like) and Customer returns within
three (3) Business Days of receipt. Similarly, TSA.com shall respond to
requests from Customers regarding shipment confirmation or other
matters within three (3) Business Days of receipt, except that serious
problems shall be responded to within 24 hours.
K. REPORTING
TSA.com shall provide monthly reports (or more frequent) to Retailer by the 15th
of each month, which:
/bullet/ Track and monitor maintenance and downtime of the TSA Site;
/bullet/ Track and monitor the metrics set forth above in items C, E, F
and J;
/bullet/ Track and monitor such information as original order number,
order date, reason for Customer contact, and resolution; and
/bullet/ For e-mail, elapsed time from Customer send time/date to
TSA.com response time/date.
EXHIBIT 10.31
Confidential Treatment has been requested with respect to portions of the
agreement indicated with an asterisk [*]. A complete copy of this agreement,
including the redacted terms, has been separately filed with the Securities and
Exchange Commission.
E-COMMERCE SERVICES AGREEMENT
THIS E-Commerce Services Agreement dated the 14th day of May, 1999 (the
"Effective Date"), is by and between GLOBAL SPORTS INTERACTIVE, INC., a
Pennsylvania corporation ("GSI"), and THESPORTSAUTHORITY.COM, INC., a Delaware
corporation ("TSA.com").
WHEREAS, TSA.com has entered into an E-COMMERCE AGREEMENT, a copy of
which is attached hereto (the "E-COMMERCE AGREEMENT"), with The Sports
Authority, Inc., a Delaware corporation ("Retailer"), pursuant to which TSA.com
has agreed to create and manage the e-commerce business of Retailer; and
WHEREAS, GSI is in the business of creating, developing, operating,
maintaining, advertising and promoting all aspects of e-commerce business; and
WHEREAS, TSA.com desires to enter into an agreement with GSI pursuant
to which GSI shall provide certain services to TSA.com, all upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE I
DEFINITIONS
Terms used in this Agreement shall have the same meanings as set forth
in Article I and elsewhere within the E-COMMERCE AGREEMENT.
ARTICLE II
GSI SERVICES
2.1 SERVICES. GSI agrees to perform all of the services and obligations on
behalf of TSA.com which TSA.com has agreed to perform for Retailer pursuant to
Articles II - IX and Article 10.2 of the E-COMMERCE AGREEMENT (the "Services").
2.2 PAYMENT AND ACCOUNTING TO GSI FROM TSA.COM. For the services rendered
hereunder, TSA.com shall pay to GSI an amount equal to all of GSI's commercially
reasonable actual direct costs (without markup) ("GSI's Direct Costs") of
creating and operating the TSA Site and TSA.com's pro rata share of GSI's
commercially reasonable actual indirect costs (without markup)("GSI's Indirect
Costs"). The sum of GSI's Direct Costs and GSI's Indirect Costs shall
<PAGE>
be referred to as "GSI's Entitlement." GSI's Direct Costs shall include but not
be limited to fulfillment costs (as discussed in Articles V and VI of the
E-COMMERCE AGREEMENT), credit card costs, direct employee costs including salary
and benefits, front end development costs of the TSA Site and advertising and
marketing costs. Indirect Costs shall be determined in accordance with GAAP and
shall include, without limitation, GSI employee salary allocation, including
benefits, overhead allocation of GSI including rent, taxes (other than income
taxes) and utilities, GSI management personnel allocation, capital expenditures,
including hardware and software costs, common engine allocation and hosting
allocation. GSI shall not allocate or charge to TSA.com any sums as either GSI's
Direct Costs or GSI's Indirect Costs if the underlying Services, costs or
expenses were not directly or indirectly provided in relation to, or incurred
for, the TSA Site or performed or paid by GSI on behalf of TSA.com or Retailer
as otherwise provided in the E-COMMERCE AGREEMENT.
2.3 TSA.COM'S PAYMENTS. GSI's Entitlement shall be calculated and charged by GSI
to TSA.com on a monthly basis. TSA.com agrees to pay GSI all charges within
thirty (30) days after the receipt of any GSI Entitlement charges or invoice
from GSI.
ARTICLE III
CUSTOMER DATA, FINANCIAL DATA AND DATABASES
3.1 OWNERSHIP AND USE OF CUSTOMER DATA. TSA shall own all right, title and
interest in and to the Customer Data, while TSA.com shall have an irrevocable
right and license under the E-COMMERCE AGREEMENT to use the Customer Data in its
business operations. GSI shall adhere to all United States privacy and data
protection laws applicable to its gathering, processing, storing and
transmitting of Customer Data. GSI shall use its best efforts to adhere to all
such privacy and data protection laws of all other nations and shall indemnify
TSA for any loss, damage or expense caused by its failure to do so; PROVIDED,
HOWEVER, that the parties agree that such failure to do so shall not be deemed a
breach of this Agreement.
3.2 CONFIDENTIALITY OF THE CUSTOMER DATA. Under the E-COMMERCE AGREEMENT, both
Retailer and TSA.com have agreed that each Party shall treat the Customer Data
as Confidential Information of the other Party, that TSA.com may use Customer
Data in the operation of the TSA Site and the E-Commerce Business, and that
Retailer may use the Customer Data in the operation of Retailer's land based
stores, but that neither Retailer nor TSA.com shall furnish, rent, sell or
otherwise disclose Customer Data to any person or entity whatsoever without the
prior written consent of the other Party. Further, under the E-COMMERCE
AGREEMENT, both Retailer and TSA.com have agreed not to furnish, rent, sell or
otherwise disclose to any person or entity whatsoever any Financial Data,
without the other Party's prior written consent and subject to such terms and
conditions as the Parties may mutually determine. Notwithstanding the foregoing,
Retailer and TSA.com have agreed that TSA.com may permit GSI, at no charge to
GSI, to use Financial Data (BUT NOT Customer Data) to form trends and overall
research as to the on-line shopping habits of consumers. GSI agrees to treat the
Customer Data as Confidential Information and shall not furnish, rent, sell or
otherwise disclose Customer Data to any person or entity whatsoever without the
prior written consent of Retailer.
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3.3 OWNERSHIP AND USE OF FINANCIAL DATA. TSA.com, Retailer and GSI shall jointly
and severally own all right, title and interest in and to the Financial Data,
except that all use of the Financial Data by any of them shall always be subject
to the restrictions set forth in the E-COMMERCE AGREEMENT .
3.4 OWNERSHIP OF DATABASES. GSI shall own all right, title and interest in and
to the Databases, while Retailer and TSA.com may use the Databases subject to
other restrictions set forth in the E-COMMERCE AGREEMENT.
ARTICLE IV
CONFIDENTIALITY
4.1 CONFIDENTIAL INFORMATION. Each Party acknowledges that, in connection with
the performance of this Agreement, it may receive Confidential Information of
the other Party and that GSI may receive Confidential Information of Retailer
(which shall be deemed a "Disclosing Party for purposes of this Agreement). For
the purpose of this Agreement, "Confidential Information" shall mean information
or materials that is marked "confidential" or which the Receiving Party knows
has reason to know is the confidential or proprietary information of the
Disclosing Party, either because a) such information is marked or otherwise
identified by the Disclosing Party as confidential or proprietary, or b) such
information has commercial value and is not generally known in the Disclosing
Party's trade or industry. Confidential Information shall include, without
limitation: (a) concepts and ideas relating to the development and distribution
of content in any medium; (b) trade secrets, drawings, inventions, know-how,
software programs, and software source documents; (c) information regarding
plans for research, development, new service offerings or products, marketing
and selling, business plans, business forecasts, budgets and unpublished
financial statements, licenses and distribution arrangements, prices and costs,
suppliers and customers; (d) existence of any business discussions, negotiations
or agreements between the parties; (e) the terms and conditions of this
Agreement; (f) all information with respect to Retailer's vendors, Retailer's
price and cost structures, TSA.com's vendors, TSA.com's merchandise price and
cost structures, the cost of merchandise sold by TSA.com, the existence or
amount of any cooperative advertising subsidy or rebate; and (g) all prices of
merchandise to be sold on the TSA Site prior to publication of such prices on
the TSA Site; provided, however, that Retailer shall be provided with the
information referred to in clauses (f) and (g).
4.2 CONFIDENTIALITY. The Receiving Party hereby agrees: (i) to hold and maintain
in strict confidence all Confidential Information of the Disclosing Party and,
except as otherwise permitted herein, not to disclose it to any third party; and
(ii) not to use any Confidential Information of the Disclosing Party except as
permitted by this Agreement or as may be necessary for the Receiving Party to
perform its obligations under this Agreement. The Receiving Party shall use at
least the same degree of care to protect the Disclosing Party's Confidential
Information as it uses to protect its own Confidential Information of like
importance, and in no event shall such degree of care be less than reasonable
care. The obligations and restrictions imposed by this Article IV shall
terminate five (5) years after the expiration or termination of this Agreement.
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4.3 EXCEPTIONS. Notwithstanding the foregoing, the parties agree that
Confidential Information shall not include any information that: (i) was in the
public domain at the time it was communicated to the Receiving Party by the
Disclosing Party; (ii) entered the public domain subsequent to the time it was
communicated to the Recipient by the Disclosing Party through no fault of the
Receiving Party; (iii) was in the Receiving Party's possession free of any
obligation of confidence at the time it was communicated to the Receiving Party
by the Disclosing Party; (iv) was rightfully communicated to the Receiving Party
by a third party, free of any obligation of confidence, subsequent to the time
it was communicated to the Receiving Party by the Disclosing Party; (v) was
developed by employees or agents of the Receiving Party independently of and
without reference to any information communicated to the Receiving Party by the
Disclosing Party; or (vi) was communicated by the Disclosing Party to an
unaffiliated third party free of any obligation of confidence. In addition, the
Receiving Party may disclose the Disclosing Party's Confidential Information in
response to a valid order by a court or other governmental body, as otherwise
required by law, or as necessary to establish the rights of either party under
this Agreement; provided, however, in the event that the Receiving Party
receives a demand to disclose such Confidential Information in connection with a
legal action or proceeding, the Receiving Party, if possible, shall first notify
the Disclosing Party of the demand in order to provide the Disclosing Party an
opportunity to seek a protective order. TSA.com may also disclose certain of
Retailer's Confidential Information to GSI in connection with the performance by
GSI of its duties, but only to the extent expressly permitted herein.
4.4 CONFIDENTIALITY OF THIS AGREEMENT. The Parties acknowledge that the terms
and conditions of this Agreement constitute Confidential Information which shall
be governed by the terms of this Article 4.
ARTICLE V
APPROVALS
5.1 APPROVAL PROCESS. Except as otherwise expressly set forth in the E-COMMERCE
AGREEMENT and herein, and except with respect to any use of "Licensed Property"
(as defined in the LICENSE AGREEMENT) which requires approval under the LICENSE
AGREEMENT, when a given provision calls for prior review and approval by one
Party of a submission by the other Party, the Party receiving the submission
shall review it in a timely manner and use its best efforts to communicate in
writing its approval or disapproval as soon as practicable after receiving the
same. Failure to communicate approval within five (5) Business Days of receipt
of the submission shall be deemed a disapproval. The submitting Party may
re-start the approval process by making a second submission marked "Second
Request." The Party receiving the second submission shall again review it in a
timely manner and use its best efforts to communicate in writing its approval or
disapproval as soon as practicable after receiving the same. Failure to
communicate approval within five (5) Business Days of receipt of the submission
shall be deemed an approval. In no event, shall the Party seeking approval
produce, distribute, or otherwise follow through on or implement the subject of
the submission until approval is granted in writing by the Party charged with
the right of approval, or until the applicable period has expired after a Second
Request and the Party receiving the second submission has failed to reply.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 BOTH PARTIES. Each Party represents and warrants to the other Party that:
(i) it is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation and that it has the power and
authority to enter into this Agreement and the transactions contemplated herein;
(ii) the consummation of the transactions described by this Agreement shall not
conflict with or result in a breach of any of the terms, provisions or
conditions of its Articles of Incorporation or Bylaws, or any statute or
administrative regulation or any order, writ, injunction, judgment or decree of
any court, regulatory or governmental authority or of any agreement or
instrument to which it is a party or by which it is bound or constitute a
default thereunder; and (iii) this Agreement has been duly authorized, executed
and delivered by it and this Agreement is valid, enforceable and binding upon
each Party in accordance with its terms.
6.2 YEAR 2000. GSI warrants to TSA. com and Retailer that the TSA Site shall not
suffer any material adverse effect as a result of a failure in any TSA.com Work
Product or TSA.com Tools to be Y2K Compliant. A product or service which is "Y2K
Compliant" is one that provides accurate results using data having date ranges
spanning from January 1, 1980 through December 31, 2019 ("Y2K Period"). By way
of example and not of limitation, "Y2K Compliant" means, with respect to a
product or service, that it can currently and shall, during the Y2K Period,
continue to (a) manage and manipulate data involving all dates within the Y2K
Period (including the fact that the year 2000 is a leap year) without functional
or data abnormality related to such dates; (b) manage and manipulate data
involving all dates within the Y2K Period without inaccurate results related to
such dates; (c) have user interfaces and data fields formatted to distinguish
between dates within the Y2K Period; and (d) accurately identify and either
reject or correct invalid date data during the Y2K Period. Provided TSA.com
otherwise complies with this Article 14.2, it shall not be liable to Retailer
for any failure to perform obligations under this Agreement to the extent such
failure arises from a failure to be Y2K Compliant that: (i) affects the
non-performing party's customers or suppliers; or (ii) is beyond its reasonable
control.
ARTICLE VII
INDEMNIFICATION
7.1 GSI, at its own cost and expense, shall defend, indemnify and hold harmless
TSA.com and Retailer and any of their officers, directors, employees or agents
from and against all damages, expenses, liabilities and other costs (including
reasonable attorneys' fees and court costs) arising: (a) from a claim made by
any party (other than TSA.com or Retailer) that is related in any way to
services furnished by GSI with respect to the TSA Site or GSI's services to
TSA.com or Retailer provided pursuant to this Agreement; or (b) from GSI's gross
negligence, willful or intentional misconduct. TSA.com or Retailer shall notify
GSI as soon as possible after TSA.com becomes aware of a claim. GSI shall have
the sole right to defend any claim pursuant to this Article VII. TSA.com and
Retailer shall cooperate with such defense and, at its option, may also defend
such claim to the extent that its interests in any way vary from that of GSI.
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ARTICLE VIII
INSURANCE
8.1 GSI shall, during the Term of this Agreement, maintain the following
insurance coverages as indicated or as required by law, whichever shall be
greater, with insurers in good standing and authorized to do business under the
laws of the State(s) where performance shall occur:
(a) Comprehensive General Liability, naming Retailer and TSA.com as an
additional insured, including without limitation Contractual Liability and
Products Liability, with broad form property damage and bodily injury (including
Personal Injury) coverage. The minimum limits for each shall be [*] per
occurrence and [*] annual aggregate;
(b) Workers' Compensation and Employers' Liability with minimum limits
of [*]per accident, [*] disease (each employee) and [*] disease (policy limit).
Upon TSA.com's or Retailer's request, GSI shall tender to TSA.com and/or
Retailer certificates of insurance evidencing the coverages required to be
maintained by GSI hereunder. The certificates must provide that no change or
cancellation of insurance shall be made without thirty (30) days prior written
notice to Retailer.
ARTICLE IX
TERM AND TERMINATION
9.1 This Agreement shall commence on the Effective Date and automatically
terminate upon termination of the E-COMMERCE AGREEMENT, or terminate pursuant to
Article 9.1(a) or (b) below:
(a) By either party if the other party shall materially default in the
performance of any of the covenants, terms and conditions of this Agreement and
shall fail to cure such default within 60 days after receipt of notice in
writing from the terminating party of such default, giving reasonable
particulars of such default and of the intention of the party serving the notice
to terminate this Agreement unless such default is cured; provided, however,
that if such default cannot reasonably be cured within 60 days, no termination
shall occur so long as the party against which default has been declared
continues to use its best efforts to cure such default.
(b) By either party if the other party shall be judicially declared
bankrupt or insolvent, make an assignment for the benefit of, or enter into a
compromise with, its creditors; initiate bankruptcy or insolvency proceedings of
any kind or proceedings for the appointment of a receiver, manager, judicial
manager, or similar official with respect to it or any of its assets or become a
party to dissolution proceedings; provided, however, that no termination shall
occur if any such action is stayed, dismissed or reversed within 60 days of the
initiation of such action and the other party provides satisfactory evidence of
the same within such period.
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ARTICLE X
NO IMPLIED WARRANTIES; LIMITATIONS UPON LIABILITY
10.1 Neither Party shall be liable to the other party for incidental,
consequential, punitive or exemplary damages arising in connection with this
agreement or the performance, omission of performance or termination hereof,
even if the said Party has been advised of the possibility of such damages and
without regard to the nature of the claim or the underlying theory or cause of
action (whether in contract, tort or otherwise). Neither Party makes any
representation or warranty to the other except as specifically set forth herein.
ARTICLE XI
PROPERTY RIGHTS AND OWNERSHIP
11.1 GENERAL. The TSA Site shall consist of, and shall operate in conjunction
with, multiple elements, all of which are subject to certain Intellectual
Property Rights. The Parties' respective rights with respect to such elements
shall be as set forth below. For purposes of this Agreement, the term
"ownership" shall refer to ownership of all right, title and interest in and to
the respective elements, including, but not limited to, all patent, copyright,
trade secret, trademark and any other similar Intellectual Property Rights
therein, as applicable.
11.2 Retailer's URL shall be owned solely by Retailer (or its licensor).
11.3 The TSA Site shall be owned solely by TSA.com. Except with respect to each
whole page of the TSA Site (which TSA.com shall own). TSA.com disclaims all
right, title and interest, and Retailer shall own all right, title and interest,
in and to all TSA Content and all works derivative of the TSA Content which are
incorporated into the TSA Site, whether such works are copyright or trademark
subject matter or otherwise, and even if such works are not created by Retailer.
11.4 SOFTWARE. Software developed by GSI for the TSA Site, shall be owned solely
by GSI, subject to any authorizations to use and approvals obtained and granted
to TSA.com and Retailer.
11.5 OWNERSHIP OF TSA.COM PRODUCTS. As between Retailer and TSA.com, TSA.com
owns the TSA.com Products.
11.6 OWNERSHIP OF TSA CONTENT. As between TSA.com, GSI and Retailer, Retailer
owns the TSA Content. Except for a limited non-exclusive license to use the TSA
Content (during the Term and subject to the terms of the LICENSE AGREEMENT)
solely to perform TSA.com's obligations under the E-COMMERCE AGREEMENT, this
Agreement confers no ownership or other beneficial interest in TSA Content to
TSA.com or to GSI.
ARTICLE XII
MISCELLANEOUS
12.1 DISCONTINUANCE OR REGULATION OF THE INTERNET. TSA.com acknowledges and
agrees that the Internet (including without limitation the Web) is a network of
private and public networks, that GSI has no control over the Internet, and that
GSI is not liable for the discontinuance of
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operation of any portion of the Internet or possible regulation of the Internet
which might restrict or prohibit the operation of the TSA Site.
12.2 FORCE MAJEURE. In the event that either party is unable to perform any of
its obligations under this Agreement or to enjoy any of its benefits because of
any event beyond the control of the affected party including, but not limited
to, natural disaster, acts of God, actions or decrees of governmental bodies or
failure of communications lines or networks (a "Force Majeure Event"), the party
who has been so affected shall promptly give written notice to the other party
and shall use its best efforts to resume performance. Upon receipt of such
notice, all obligations under this Agreement shall be immediately suspended for
the duration of such Force Majeure Event.
12.3 WAIVER. No delay or failure on the part of any party hereto in exercising
any right, power or privilege under this Agreement shall impair any such right,
power or privilege or be construed as a waiver of any default or any
acquiescence therein. No single or partial exercise of any such right, power or
privilege shall preclude the further exercise of such right, power or privilege,
or the exercise of any other right, power or privilege. No waiver shall be valid
against any party hereto unless made in writing and signed by the party against
whom enforcement of such waiver is sought and then only to the extent expressly
specified.
12.4. CHOICE OF LAW. This Agreement shall be construed, interpreted and enforced
under and in accordance with the internal laws of the State of Delaware
12.5 BINDING EFFECT; ASSIGNMENT; GSI'S USE OF OUTSOURCING PARTNERS. This
Agreement shall be binding upon the Parties hereto, their successors and
permitted assigns and approved Outsourcing Partners. Subject to the following
provisions, neither Party may assign its rights and/or duties under this
Agreement without the prior written consent of the other Party, except as
provided below.
(a) GSI may employ Outsourcing Partners to perform certain Services
hereunder, provided, however, that for any Outsourcing Partner proposed by GSI
to perform web site development or fulfillment services, and for any Outsourcing
Partner proposed by GSI under an agreement which will pay such Outsourcing
Partner over [*] in any year, GSI shall notify Retailer and obtain its prior
written consent with respect to the material terms of engagement of any such
Outsourcing Partner, which consent shall not be unreasonably withheld.
(b) All Outsourcing Partners must be fully informed by GSI and bound in
writing and agree (i) to all of the applicable restrictions upon GSI hereunder,
and (i) to perform all of the applicable obligations of GSI with respect to
TSA.com hereunder and with respect to Retailer under the E-COMMERCE AGREEMENT.
TSA.com and Retailer shall each be deemed a third party beneficiary of all such
agreements between GSI and its Outsourcing Partners, and shall be entitled to
enforce such agreements as against any Outsourcing Partner in its own name and
on its own behalf. Notwithstanding the foregoing, as between Retailer and
TSA.com on the one hand, and GSI on the other hand, GSI shall be responsible for
all acts or omissions of any Outsourcing Partner.
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(c) Retailer acknowledges that it has approved ClientLogic and Organic
On Line, Inc. as Outsourcing Partners.
12.6 COUNTERPARTS. This Agreement may be signed in several counterparts, each of
which shall be deemed an original, and all of which when taken together, shall
be deemed a complete instrument.
12.7 ENTIRE AGREEMENT. This Agreement represents the entire agreement of the
Parties with respect to the subject matter hereof and may not be modified,
except in writing, executed by both of the Parties hereto. This Agreement
supersedes all prior writings of the Parties with respect to this subject
matter.
12.8 NO PARTNERSHIP. The relationship of the Parties herein shall be that of
independent contractors and nothing herein shall be construed to create a joint
venture or partnership.
12.9 HEADINGS. Section headings contained in this Agreement are inserted for
convenience or reference only and shall not be deemed to be a part of this
Agreement for any other purpose.
12.10 NOTICES. Any notices or writings to be sent hereunder shall be in writing
and shall be by personal delivery or facsimile transmission and shall be deemed
given upon the earlier of actual receipt or receipt by sender of confirmation of
facsimile transmission. Notices shall be sent to the following addresses (or
such other address as either party may specify in writing):
if to TSA.com: TheSportsAuthority.com, Inc.
555 South Henderson Road
King of Prussia, Pennsylvania 19406
Attention: President
Fax No.: (610) 768-0981
copy to: David S. Mandel, Esq.
Astor Weiss Kaplan & Rosenblum, LLP
The Bellevue
Broad & Walnut Streets
6th Floor
Philadelphia, Pennsylvania 19102
Fax No.: (215) 790-0509
copy to: The Sports Authority, Inc.
3383 North State Road 7
Fort Lauderdale, Florida 33319
Attention: General Counsel
Fax No.: (954) 730-4288
if to GSI: Global Sports Interactive, Inc.
555 South Henderson Road
King of Prussia, Pennsylvania 19406
Attention: President
Fax No.: (610) 768-0981
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IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to enter into this Agreement with intent to be legally bound
hereby, the date and year first above written.
GLOBAL SPORTS INTERACTIVE, INC. THESPORTSAUTHORITY.COM, INC.
By: /S/ MICHAEL RUBIN By: /S/ MICHAEL RUBIN
-------------------------------- --------------------------------
Print Name: Print Name:
------------------------ ------------------------
Title: Title:
----------------------------- -----------------------------
Date: Date:
------------------------------ ------------------------------
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EXHIBIT 10.32
Confidential Treatment has been requested with respect to portions of the
agreement indicated with an asterisk [*]. A complete copy of this agreement,
including the redacted terms, has been separately filed with the Securities and
Exchange Commission.
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made and entered into as of the
14th day of May, 1999 (the "Effective Date") by and between THE SPORTS
AUTHORITY, INC., a Delaware corporation with its principal place of business at
3383 North State Road 7, Fort Lauderdale, Florida 33319, U.S.A. ("TSA"), and THE
SPORTS AUTHORITY MICHIGAN, INC. a Michigan corporation with its principal place
of business at 306 South Washington, Suite 224, Royal Oak, Michigan 48067
("TSAMI"; or collectively, "Licensor"), and THESPORTSAUTHORITY.COM, INC., a
Delaware corporation with its principal office at 555 South Henderson Road, King
of Prussia, Pennsylvania 19406 ("TSA.COM" or "Licensee").
WHEREAS, TSAMI, its parent company TSA and TSA's other retailing
subsidiaries The Sports Authority Florida, Inc., Authority International Inc.
and The Sports Authority Canada, Inc. comprise the largest full-line sporting
goods retailer in the U.S. and Canada, each operating full line sporting goods
stores under the name and mark THE SPORTS AUTHORITY;
WHEREAS, TSAMI is the owner of certain Marks, Names and TSA Content (as
each is defined below) in the U.S., Canada and Japan; TSA is the owner of
certain Marks, Names and TSA Content throughout the world other than in the
U.S., Canada and Japan; and both TSAMI and TSA are the owners of certain TSA
Buying Power (as defined below);
WHEREAS, TSA and Global Sports Interactive, Inc. ("GSI") have agreed
under a certain E-COMMERCE VENTURE AGREEMENT dated May 7, 1999 (the "EVA") to
form TSA.COM to develop and operate the "TSA Site" (as defined below) on the
"Internet" (as defined below);
WHEREAS, TSA and TSA.COM have agreed under a certain E-COMMERCE
AGREEMENT dated May 14, 1999 (the "ECA") that TSA.COM shall create, develop,
operate, maintain, advertise and promote the TSA Site;
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WHEREAS, GSI and TSA.COM have agreed under a certain E-COMMERCE
SERVICES AGREEMENT dated May 14, 1999 (the "ESA") that GSI shall perform many of
the services described in the ECA; and
WHEREAS, TSA.COM desires to license from TSA and TSAMI certain of the
Marks, Names, TSA Buying Power and TSA Content owned or controlled by TSA and
TSAMI for use in creating, developing, operating, maintaining, advertising and
promoting the TSA Site;
NOW, THEREFORE, in consideration of the mutual promises, undertakings
and covenants herein, and for other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereby respectively
grant, covenant and agree as follows:
ARTICLE I
DEFINITIONS
1.1 "Advertising and Marketing Partners of Licensee" shall mean operators or
proprietors of search engines, portals, community sites, content sites, on-line
retailers, shopping, regional and industry directories, push sites, and other
Internet sites capable of attracting Customers for the TSA Site, or desirous of
attracting Customers from the TSA Site to their sites, with whom Licensee
contracts for exchanges of advertising and promotional services and any form of
compensation. For purposes of this Agreement, Licensee shall not contract with
TSA Competitors (as defined below) and the same shall be excluded from the
definition of Advertising and Marketing Partners of Licensee.
1.2 "Affiliate(s)" shall mean an entity directly or indirectly controlling
(through one or more intermediaries), controlled by or under common control with
a given "Party" (as defined below), where control means the ownership or
control, directly or indirectly, of fifty percent (50%) or more of all of the
voting power of the shares (or other securities or rights) entitled to vote for
the election of directors or other governing authority; provided that such
entity shall be considered an Affiliate only for the time during which such
control exists.
1.3 "Business Day(s)" shall mean any day which is not a Saturday, Sunday or
official federal holiday in the U.S.
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1.4 "Customer" shall mean a consumer who purchases or otherwise receives
Services, Materials, General Merchandise or Own Brand Merchandise furnished by
Licensee from the TSA Site as permitted hereunder.
1.5 "Fiscal Year" shall mean Licensee's fiscal year. Licensee shall give at
least ninety (90) days advance notice to Licensor of any change in designation
of Licensee's Fiscal Year.
1.6 "General Merchandise" shall mean any goods offered, sold or furnished by
Licensee from the TSA Site as permitted hereunder, other than Own Brand
Merchandise.
1.7 "Net Sales" shall mean as defined by GAAP in the United States.
1.8 "Internet" shall mean a global network of interconnected computer networks,
each using the Transmission Control Protocol/Internet Protocol and/or such other
standard network interconnection protocols as may be adopted from time to time,
which is used to transmit content that is directly or indirectly delivered to a
computer or other digital electronic device for display to an end-user, whether
such content is delivered through on-line browsers, off-line browsers, or
through "push" technology, electronic mail, broadband distribution, satellite,
wireless or other successor technologies or means. Internet shall also mean
on-line services such as AOL, CompuServe and Prodigy.
1.9 "Licensed Property" shall mean the Marks, Names, TSA Buying Power and TSA
Content which Licensor has agreed to license to Licensee under Articles 2.1-2.4.
1.10 "License Guidelines And Restrictions" shall mean the clearance, form,
format and use restrictions and procedures set forth in EXHIBIT A, attached,
which Licensee shall adhere to at all times in its use of the Licensed Property
on or in connection with the TSA Site and on or in connection with any site of
the Advertising and Marketing Partners of Licensee linked with or to the TSA
Site.
1.11 "Marks" shall mean:
(a) the mark THE SPORTS AUTHORITY in English in block letters and any
equivalent in foreign language characters, and certain THE SPORTS
AUTHORITY logotypes, and such other trademarks and service marks, which
are proprietary to Licensor, as shall be identified in writing by
Licensor from time to time, together with
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associated trademark and service mark applications and registrations
therefor, all as more specifically described in EXHIBIT B attached
hereto and incorporated herein, as EXHIBIT B may be modified from time
to time in writing by Licensor as further set forth in Article 2.1(b);
(b) all related emblems, logos and symbols, and all combinations, forms
and derivations thereof as are currently or hereafter used by Licensor
in connection with Own Brand Merchandise (as defined below); and
(c) the Trade Dress (as defined below) inherent in the design, layout
and presentation of TSA Stores or in the TSA Content in the U.S.A. and
Canada, including, without limitation, such Trade Dress as may be
subject to protection under applicable intellectual property or
industrial property laws and regulations of countries within the
Territory.
1.12 "Materials" shall mean exterior and interior signs, flags, banners,
packaging, labels, print, electronic and broadcast advertising and promotional
media, indexes and pages on Internet sites (whether visible or not to the
general public), meta-tags, manuals, brochures, flyers, posters, sales
literature, business forms, gift certificates, credit cards, debit cards,
membership or consumer loyalty program cards and related materials, stationery,
employee uniforms, badges, merchandise bags and boxes, baskets, trolleys and
carts, sales receipts and charge slips, tickets and tags, and the like, bearing
any of the Marks and used on or in connection with furnishing the Services,
General Merchandise, or Own Brand Merchandise or with the TSA Site.
1.13 "Names" shall mean the following Internet domain names or URLs registered
in the name of either TSAMI or TSA, or both, together with any additions as may
be notified to Licensee from time to time in writing by Licensor, or any
deletions as agreed by the Parties:
/bullet/ http://www.sportsauthority.com
/bullet/ http://www.thesportsauthority.com
/bullet/ http://www.sportsauthority.org
/bullet/ http://www.thesportsauthority.org
/bullet/ http://www.sports-authority.org
/bullet/ http://www.sportsauthority.net
/bullet/ http://www.thesportsauthority.net
/bullet/ http://www.sports-authority.net
/bullet/ http://www.skiauthority.com
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/bullet/ http://www.theskiauthority.com
/bullet/ http://www.skiauthority.org
/bullet/ http://www.theskiauthority.org
/bullet/ http://www.skiauthority.net
/bullet/ http://www.theskiauthority.net
1.14 "Own Brand Merchandise" shall mean any and all goods bearing or otherwise
sold under or in connection with packaging or labels bearing the mark THE SPORTS
AUTHORITY, THESPORTSAUTHORITY.COM or the mark THE SPORTS AUTHORITY & Design, as
permitted hereunder and subject always to Licensor's prior written approval and
instructions.
1.15 "Party" shall mean the Licensor or Licensee; "Parties" shall mean both of
them.
1.16 "Related" company or companies shall mean any legal entity which holds
directly or indirectly more than fifty percent (50%) of the issued share capital
or capital stock of GSI or TSA, or of which GSI or TSA or their parent companies
hold directly or indirectly more than fifty (50%) of the issued share capital or
capital stock, in any event not to include Licensee. An entity shall be deemed
to hold shares indirectly if the shares are held by another entity that is
majority controlled, either directly or through other majority controlled
entities, by such first mentioned entity.
1.17 "Royalties" shall mean the following:
--------------------------------------------------------------
[*]of any and all Net Sales during any Fiscal Year (or portion
thereof) during the Term and any permitted extension.
--------------------------------------------------------------
The Royalties shall be paid by Licensee in consideration for use of the Marks,
TSA Content and TSA Buying Power hereunder, but not for use of the Names.
Licensor shall receive consideration for use of the Names as provided in Article
3.3 of the E-COMMERCE VENTURE AGREEMENT. Upon request of any Party, the
Royalties may be reviewed from time to time to insure that they are commensurate
with the income derived by Licensee from use of the Licensed Property and to
ensure the Parties' compliance with applicable transfer pricing rules. The
Royalties may be amended only by mutual written agreement of the Parties.
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1.18 "Services" shall mean those services:
(a) offered by Licensee to Customers at or through the TSA Site,
including, without limitation, retail store services in the
fields of sporting goods, athletic footwear, athletic apparel
and related goods as furnished on the Internet at the URL
"http://www.thesportsauthority.com," as well as sporting goods
assembly, repair and maintenance, racquet stringing, layaway,
delivery, customer loyalty programs, and related services; and
(b) those advertising and promotional services offered by Licensee
to Advertising and Marketing Partners of Licensee, including,
without limitation, services intended to increase Customer
traffic at the TSA Site, and services intended to attract
Customers from the TSA Site to the sites of Advertising and
Marketing Partners of Licensee.
1.19 "Subsidiary" shall mean any company owned or controlled by Licensee, or by
Licensor.
1.20 "Term" shall mean the period commencing with the Effective Date and
continuing approximately fifteen (15) years through December 31, 2014 unless
this Agreement is otherwise earlier terminated as provided in Article 5.8 below.
1.21 "Territory" shall mean throughout the universe EXCLUDING Japan.
1.22 "TSA Buying Power" shall mean Licensor's volume purchasing power and
ability to obtain other favorable terms in procuring goods and services from
Licensor's vendors, including without limitation, favorable pricing, delivery,
exclusivity, makeup, display, advertising and promotion, defective allowance and
merchandise return terms and other consideration.
1.23 "TSA Competitor" shall mean: (a) any person, firm or corporation or other
entity (other than TSA and its retailing Subsidiaries) which either directly or
indirectly derives twenty percent (20%) or more of its revenues from the sales
or distribution of sporting goods, athletic apparel, athletic footwear or
related goods and services, whether operating from stores located in the U.S.,
Canada or Japan or any other nation in which the predominant language is English
or any other nation in which TSA establishes TSA Stores during the Term of this
Agreement, whether by mail order, home shopping through audio or video
programming, over the Internet or otherwise; and (b) any retailing entity which
would clearly be regarded as a competitor of TSA by the U.S. Department of
Justice under federal antitrust and competition laws and regulations.
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1.24 "TSA Content" shall mean:
(a) text, graphics, photographs, video, audio and/or other data or
information relating to any subject furnished by Licensor to
Licensee and intended solely for use in connection with the
TSA Site;
(b) Licensor selected print advertisements for the TSA Stores or
the goods and services offered by Licensor in the TSA Stores,
including run of press and insert advertisements which appear
in newspapers and magazines, as well as printed in store
signage, point of sale and display signage and information
promoting events and the goods and services offered in the TSA
Stores; and
(c) such information concerning the goods and services offered by
Licensor in the TSA Stores in the U.S. as Licensor possesses
and has the right to transfer and license to Licensee, and
which Licensor deems necessary to successful operation of the
TSA Site, including, without limitation, information which is
related to the sourcing, manufacturing, development, design,
fabrication, construction, test procedures, performance
features, quality control standards, merchandise
specifications, reliability standards, distribution, costs,
allowances, rebates, sizes, colors, decoration, display,
pricing, margins, vendor economic information, and similar
information and know-how necessary to the procurement,
merchandising, inventory management and sales of such goods
and services in the TSA Stores.
1.25 "TSA Gift Certificates" shall mean gift certificates bearing the marks THE
SPORTS AUTHORITY and THE SPORTS AUTHORITY & Design, printed and distributed
under the auspices of Licensor, and redeemable at Licensor's TSA Stores.
1.26 "TSA Site" shall mean that certain Internet site currently accessible
through the URL "http://www.thesportsauthority.com," and any backup or mirror
Internet site operated by Licensee; it being understood that the TSA Site shall
be primarily targeted by Licensee at Customers, and NOT at persons, entities or
activities otherwise described in Article 2.6. Licensee agrees that the TSA Site
shall not be used by Licensee to furnish, sell, advertise or promote the goods
or services of any TSA Competitor.
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1.27 "TSA Stores" shall mean any sporting goods retail store established and/or
operated by TSA or its retailing Subsidiaries under the name and mark THE SPORTS
AUTHORITY and related marks, and devoted to the sale of a broad assortment of
sporting goods, athletic footwear, athletic apparel and related goods, and to
provision of the related services.
1.28 "Trade Dress" shall mean the total appearance or look and feel of:
(a) Own Brand Merchandise and its packaging and labels;
(b) TSA Stores as operated by Licensor in the U.S.; and
(c) print and television advertisements, billboards, and interior
or exterior signage as used by Licensor in the U.S. to promote
or identify the TSA Stores or Licensor's goods and services.
ARTICLE II
LICENSES
2.1 GRANT OF LICENSE TO USE MARKS. (a) Subject to the terms and conditions set
forth in this Agreement, Licensor hereby grants to Licensee, for the Term only,
and Licensee accepts from Licensor, upon the terms and conditions specified
herein, the non-transferable, exclusive (as to third parties but not as to
Licensor) right and license in the Territory only, to use the Marks on and in
connection with the Services, Materials and Own Brand Merchandise furnished in
or in connection with the TSA Site if, and only if, such Services, Materials and
Own Brand Merchandise comply with the quality standards set forth herein and
those approved and issued by Licensor from time to time. Licensor may monitor
and control the nature and quality of the Services, Materials and Own Brand
Merchandise, and Licensor may appoint one or more representatives to monitor and
exercise such control on Licensor's behalf. Such monitoring shall in no way
lessen or limit Licensee's obligation to use the Marks only as set forth herein.
No other, further or different license is granted or implied and no assignment
of any right or interest is made or intended herein. In particular, no license
is granted to sublicense or otherwise permit any third party to use the Marks.
Licensee may only use the Marks on or in connection with Services, Materials and
Own Brand Merchandise subject to Articles II and III and all other terms and
conditions hereof. Except for use of "TheSportsAuthority.com, Inc." as its
registered corporate or business name (subject always to the applicable terms
and conditions of this Agreement), Licensee is prohibited from using the Marks
or any name or mark confusingly
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similar to the Marks, including any abbreviations of the Marks, as part of
Licensee's registered corporate or business name in any jurisdiction in the
Territory, or as part of any Internet domain name not otherwise registered in
Licensor's name.
(b) CHANGES TO EXHIBIT B: Certain records in EXHIBIT B may be included
for information purposes only and, as indicated in writing, shall be excluded
from the definition of Marks hereunder. Licensor and Licensee acknowledge that
the "core" Marks as set forth in EXHIBIT B are: AUTHORITY, THE SPORTS AUTHORITY,
THESPORTSAUTHORITY.COM, SPORTSAUTHORITY.COM and THE SPORTS AUTHORITY & Design as
registered (or subject to pending applications to register) in the U.S. and
Canada. Licensor may make changes to EXHIBIT B from time to time as it sees fit
to add Marks and to update information in records for existing Marks by
delivering an updated version of EXHIBIT B to Licensee. Licensor may only change
EXHIBIT B to delete non-core Marks (or records for non-core Marks) by giving 30
days prior written notice (stating Licensor's reasons for the proposed
deletion(s) in reasonable detail) and an opportunity to object to Licensee. If,
at the end of 30 days, Licensee has failed to object in writing, the proposed
deletions may be made and Licensor shall deliver an updated EXHIBIT B to
Licensee. If Licensee objects within the 30-day period, it shall do so by
delivering a written notice to Licensor which explains in reasonable detail the
basis for the objection. Licensor may accept the objection and forego the
deletion(s), but if not, Licensor and Licensee shall negotiate in good faith and
use their best efforts to achieve a mutually acceptable resolution.
Notwithstanding the foregoing, if Licensee has made a substantial and material
investment in a non-core Mark which Licensor proposes to delete, and the reason
for the proposed deletion is NOT a binding court order, judgment or other
injunction prohibiting Licensor's or Licensee's continued use of the subject
Mark, the Parties shall strive to preserve Licensee's continued right to use the
non-core Mark and to retain the non-core Mark as part of EXHIBIT B.
2.2 GRANT OF LICENSE TO USE NAMES. Subject to the terms and conditions set forth
in this Agreement, Licensor hereby grants to Licensee, for the Term only, and
Licensee accepts from Licensor, upon the terms and conditions specified herein,
the non-transferable, exclusive (as to third parties but not as to Licensor)
right and license in the Territory only, to use the Names on and in connection
with the TSA Site if, and only if, such use complies with the License Guidelines
And Restrictions set forth in EXHIBIT A. In particular, Licensee shall use the
Name "http://www.thesportsauthority.com" as its primary domain name, and use the
other Names, if at all, as pointers or immediate links to the primary domain
name. Licensor may monitor and control the nature and quality of Licensee's use
of the Names, and Licensor may appoint one or more representatives to monitor
and exercise such control on Licensor's behalf. Such monitoring
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shall in no way lessen or limit Licensee's obligation to use the Names only as
set forth herein. No other, further or different license is granted or implied
and no assignment of any right or interest is made or intended herein. In
particular, no license is granted to sublicense or otherwise permit any third
party to use the Names. Licensee may only use the Names on or in connection with
TSA Site subject to Articles II and III and all other terms and conditions
hereof.
2.3 GRANT OF LICENSE TO USE TSA BUYING POWER. Subject to the terms and
conditions set forth in this Agreement, Licensor hereby grants to Licensee, for
the Term only, and Licensee accepts from Licensor, upon the terms and conditions
specified herein, the non-transferable, non-exclusive right and license in the
Territory only, to use the TSA Buying Power on and in connection with the TSA
Site if, and only if, such use complies with the restrictions set forth in this
Agreement. Licensor may monitor and control the nature and quality of Licensee's
use of the TSA Buying Power, and Licensor may appoint one or more
representatives to monitor and exercise such control on Licensor's behalf. Such
monitoring shall in no way lessen or limit Licensee's obligation to use the TSA
Buying Power only as set forth herein. No other, further or different license is
granted or implied and no assignment of any right or interest is made or
intended herein. In particular, no license is granted to sublicense or otherwise
permit any third party to use the TSA Buying Power. Licensee may only use the
TSA Buying Power on or in connection with TSA Site subject to Articles II and
III and all other terms and conditions hereof.
2.4 GRANT OF LICENSE TO USE TSA CONTENT. Subject to the terms and conditions set
forth in this Agreement, Licensor hereby grants to Licensee, for the Term only,
and Licensee accepts from Licensor, upon the terms and conditions specified
herein, the non-transferable, non-exclusive right and license in the Territory
only, to use the TSA Content solely in connection with the TSA Site if, and only
if, such use complies with the restrictions set forth in herein. Licensor may
monitor and control the nature and quality of Licensee's use of the TSA Content,
and Licensor may appoint one or more representatives to monitor and exercise
such control on Licensor's behalf. Such monitoring shall in no way lessen or
limit Licensee's obligation to use the TSA Content only as set forth herein. No
other, further or different license is granted or implied and no assignment of
any right or interest is made or intended herein. In particular, no license is
granted to sublicense or otherwise permit any third party to use the TSA
Content. Licensee may only use the TSA Content on or in connection with TSA Site
subject to Articles II and III and all other terms and conditions hereof.
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2.5 MARKING, SAMPLES, INSPECTION, QUALITY CONTROL
(a) MARKING OWN BRAND MERCHANDISE AND MATERIALS. Licensee agrees to
mark all Own Brand Merchandise and Materials in a manner complying with the
License Guidelines And Restrictions set forth in EXHIBIT A. Licensor reserves
the right to change the provisions of EXHIBIT A as it sees fit in order to
protect the Licensed Property, or Licensor's interests in the Licensed Property,
and such changes shall become binding upon Licensee upon receipt of written
notice of such changes. Licensee shall have a reasonable period, but no more
than ninety (90) days from first notice, to fully implement such changes.
Without limiting the foregoing, upon request from Licensor and with respect to
TSA Content which is created or owned by Licensor, Licensee shall place a notice
of copyright on each page of the TSA Site which displays TSA Content ("TSA
Content Page") in accordance with the License Guidelines and Restrictions. No
TSA Content Page, upon which a notice of copyright is placed pursuant to the
preceding sentence, shall contain any other copyright notice whatsoever except
as mutually agreed to and determined by the Parties. Licensee shall cooperate
fully with Licensor in connection with Licensor's obtaining appropriate
copyright protection in the name of Licensor for any TSA Content Page. Licensee
acknowledges and agrees that all copyrights and rights of copyright furnished by
Licensor as TSA Content, including any derivative works, shall be and remain the
sole and complete property of Licensor; that all such copyrights and rights of
copyright in the name of and/or owned by any copyright proprietor other than
Licensor or Licensee shall be and remain the sole and complete property of such
copyright proprietor; that Licensee shall not at any time acquire or claim any
right, title or interest of any nature whatsoever in any such copyright by
virtue of this Agreement or of Licensee's uses thereof in connection with TSA
Content, the Marks, Own Brand Merchandise, TSA Buying Power or any intellectual
or industrial property rights therein; and that any right, title or interest in
or relating to any such copyright which comes into existence as a result of, or
during the term of, the exercise by Licensee of any right granted to it
hereunder shall immediately vest in Licensor.
(b) SUBMISSION OF SAMPLES OF OWN BRAND MERCHANDISE AND MATERIALS;
APPROVAL PROCESS. At any time upon request of Licensor, prior to introducing any
Own Brand Merchandise for sale and prior to producing and publishing or
distributing any Materials for the first time, Licensee shall furnish at
Licensee's expense samples of such Own Brand Merchandise and Materials,
including the trademark, copyright and disclaimer notices thereon and any other
labels, tags or markings. Further, Licensor shall have the right to inspect the
TSA Site, including all underlying code and data structures (solely for purposes
of protecting its interests in the Licensed Property and to ensure Licensee's
compliance with the terms hereof), and to inspect samples of General Merchandise
or Own Brand Merchandise, in order to assure compliance with the quality
standards established by Licensor. If so notified in writing by Licensor,
Licensee
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shall not offer or furnish any Services, Materials, General Merchandise or Own
Brand Merchandise whose nature or quality does not comply with the quality
standards established by Licensor in accordance with this Agreement. Further, if
Licensee proposes to alter the Marks in any way or to deviate in any way from
the forms in which the Marks have been furnished to Licensee by TSAMI, Licensee
shall first submit a sample of the proposed altered Mark to Licensor for
Licensor's prior review and written approval.
Licensor's changes (if any) to the quality standards established by Licensor in
accordance with this Agreement shall be reasonably necessary or reasonably
calculated to protect the Licensed Property or Licensor's interests in the
Licensed Property.
Licensor shall review in a timely manner all such samples and requests and use
its best efforts to communicate in writing its approval or disapproval as soon
as practicable after receiving the same. Failure to communicate approval within
fifteen (15) Business Days of receipt of the same shall be deemed a disapproval.
In no event, however, shall Licensee distribute or offer for sale the subject
General Merchandise, Own Brand Merchandise or Materials or use any altered Marks
until approval of the applicable sample is granted in writing by Licensor. If
Licensee intends to proceed, Licensee specifically agrees to amend to the
satisfaction of Licensor any sample of General Merchandise or Own Brand
Merchandise (including packaging and labels), Materials or any proposed
alterations of the Marks as may be directed by Licensor. A further sample shall
be provided to Licensor for its prior review and written approval if any
subsequent changes are made in approved General Merchandise, Own Brand
Merchandise or Materials or in the Marks. To the extent practicable, Licensor
and Licensee shall cooperate in good faith in developing standard manuals or
procedures setting forth approved formats for packaging and labels for Own Brand
Merchandise, and approved formats for Materials. Once established, Licensee
shall fully comply with such manuals or procedures and submit for Licensor's
review and approval any material deviation from such manual or procedures in the
manner provided herein.
(c) APPROVAL PROCESS FOR CHANGES IN QUALITY. In the event Licensee
wishes to materially reduce the quality of an existing Service or item of Own
Brand Merchandise, and such reductions may have a materially adverse impact upon
the Licensed Property, or upon Licensor's interests in the Licensed Property,
Licensee shall advise Licensor in writing of the description of such Service or
item of Own Brand Merchandise and the proposed revised quality standard well in
advance of any such proposed change. Licensor's failure to advise Licensee in
writing of Licensor's approval of such proposed change within thirty (30) days
of receipt of notice from Licensee, shall be deemed a disapproval.
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(d) LINE REVIEWS. Licensee shall inform Licensor of, and Licensor shall
have the right to attend at its expense, Licensee's periodic line reviews of any
General Merchandise or Own Brand Merchandise offered or to be offered by
Licensee. Further, to ensure compliance with Licensor's standards and
instructions relating to the Licensed Property, Licensor, at its expense,
directly or through representatives, may inspect and test General Merchandise
and Own Brand Merchandise from time to time. Licensee shall reasonably cooperate
and aid Licensor in making such inspections and tests.
(e) DELEGATION. Without limiting or waiving Licensor's rights in any
manner, Licensor delegates in part to Licensee the continuing duty to exercise
quality control regarding the nature and quality of the Services, Materials,
General Merchandise and Own Brand Merchandise and the nature and quality of
Licensee's use of the Marks and Names. Licensor may recommend and Licensee shall
adopt and comply with any reasonable procedures, tests, surveys or the like to
fulfill this delegation. Licensor may request reports, documentation, evidence
or other proof of Licensee's performance under this provision and Licensee shall
promptly furnish the same to Licensor.
2.6 LICENSE EXCLUSIONS: Licensee agrees and acknowledges that:
(a) RESERVATION OF RIGHTS. Taken together, Articles 2.1-2.4 grant to
Licensee the exclusive right to use the Marks, Names, TSA Content and TSA Buying
Power to conduct the "E-Commerce Business," which shall mean the business of
creating, developing, operating, maintaining, advertising and promoting the TSA
Site (as further described in the ECA). Notwithstanding the foregoing, Licensor
reserves to itself, its Affiliate, Subsidiary and Related companies, and their
respective agents, distributors, representatives, licensees, franchisees,
customers, successors and assigns (now or hereafter existing), all rights to use
(and the right to license or otherwise authorize others to use) the Marks,
Names, TSA Buying Power and TSA Content for any and all purposes not
inconsistent with Licensee's rights as provided in Articles 2.1-2.4 hereof,
including without limitation, the right to use and exploit the Marks, Names, TSA
Buying Power and TSA Content throughout the universe, including in the
Territory:
(i) to manufacture, source, market, sell, furnish, advertise and
promote goods and services offered at or in connection with
the TSA Stores, including from kiosks or other externally
networked devices located within TSA Stores;
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(ii) to manufacture, source, market, sell, furnish, advertise and
promote goods and services offered by means of mail order
catalogs furnished to consumers, vendors, employees and others
by mail, or distributed within TSA Stores;
(iii) to print, source, market, sell, furnish, advertise and promote
TSA Gift Certificates directly or indirectly, whether from TSA
Stores, by mail order, over the Internet, an intranet or
extranet (except from an Internet site owned or operated by
Licensor directed at consumers, as opposed to Licensor's
employees or other businesses), or otherwise;
(iv) to create, develop, operate and/or maintain, directly or
indirectly through any third party, any Internet site
primarily devoted to business-to-business transactions, or
primarily devoted to the provision of information and not
otherwise directed at the purchase of sporting goods, athletic
apparel, athletic footwear or related goods and services;
(v) to advertise and promote the TSA Stores and Licensor's goods
and services, and to display the Marks, on the Internet on
sites other than the TSA Site, provided that such
advertisements, promotions or displays shall attempt to direct
all individual consumers (as opposed to businesses or
organizations) wishing to make purchases from Licensor on the
Internet to the TSA Site; and
(vi) to manufacture, source, market, sell, furnish, advertise and
promote goods and services offered by means of home shopping
audio or video programs or successor technologies (not on the
Internet).
(b) OWN BRAND MERCHANDISE. Nothing contained herein shall prevent or
restrict Licensor or any Affiliate, Related or Subsidiary companies or third
parties licensed by Licensor from manufacturing, marketing, advertising or
selling Own Brand Merchandise, whether from stores, by mail order, over the
Internet, an intranet or extranet (except from an Internet site directed at
consumers, as opposed to Licensor's employees or other businesses), or
otherwise, it being understood that the license granted with respect to Own
Brand Merchandise is wholly non-exclusive.
(c) PROHIBITED USE OF TSA CONTENT. Nothing contained herein shall
permit Licensee (or its Affiliate, Subsidiary or Related companies) to use or
permit others to use the TSA Content
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in any manner on or in connection with any site of any TSA Competitor. Licensee
shall segregate and take all necessary measures to prevent the TSA Content from
being commingled with the content of any TSA Competitor, and to prevent the
unauthorized disclosure of such TSA Content as would be deemed "Confidential
Information" as defined in Article IV. Further, in possessing and using the TSA
Content, Licensee shall be responsible for compliance with all antitrust,
competition and similar laws and regulations applicable to the use or misuse of
the TSA Content by Licensee, its Affiliate, Subsidiary and Related companies,
and any third party (including any TSA Competitors) which may have gained access
to the TSA Content through any of them.
(d) PROHIBITED USE OF HEAD AND TYROLIA MARKS. Nothing contained herein
shall authorize or permit Licensee (or its Affiliate, Related or Subsidiary
companies) to use the trademarks HEAD or TYROLIA, or to offer for sale on the
TSA Site any goods, packaging or labels bearing the marks HEAD or TYROLIA.
(e) LICENSOR'S OTHER AUTHORIZED USERS. Licensor has entered into
license agreements, sponsorship agreements, settlement agreements and other
agreements regarding use of the Marks by others, as further described in EXHIBIT
C, attached. Licensor intends to renew such agreements where applicable, and to
continue entering into similar agreements during the Term which are not
otherwise inconsistent with Licensee's rights hereunder.
(f) NO EMBARRASSMENT. Licensee shall not offer or sell General
Merchandise, Own Brand Merchandise or render the Services, or advertise or
promote the TSA Site, in any way associated with, or thought to be associated
with any illegal, vulgar, obscene, immoral, unsavory or offensive activities,
nor cause material embarrassment to be suffered by Licensor by reason of acts or
omissions of Licensee which are illegal, immoral or scandalous.
(g) NO OTHER USES. Licensee shall not use any Marks, Names, TSA Buying
Power or TSA Content for any purpose other than the creation, development,
operation, maintenance, advertising and promotion of the TSA Site. All Marks,
Names, TSA Buying Power and TSA Content shall remain the sole and exclusive
property of Licensor, and neither Licensee nor any other person or entity shall
acquire any rights in the Marks, Names, TSA Buying Power or TSA Content except
those rights specifically granted to Licensee under this Agreement.
(h) NO EXPORTS TO JAPAN. While the TSA Site may be accessible within
Japan (such accessibility shall not, by itself, be considered a breach), except
for one time, individual quantity
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(NOT bulk or volume) purchases for personal use by the subject Customer for
delivery within the Territory but possible export to Japan, Licensee shall not
knowingly export or furnish General Merchandise, Own Brand Merchandise or
Services from the Territory into Japan or knowingly sell General Merchandise,
Own Brand Merchandise to any person or entity which it knows or has reason to
believe intends to export Own Brand Merchandise from the Territory into Japan.
Licensee acknowledges and agrees that the sale or marketing of General
Merchandise, Own Brand Merchandise or Services by it or by persons authorized by
it outside of the Territory shall materially damage Licensor and its
relationships with other licensees, and that, accordingly, any such sales, if
done knowingly, shall be deemed a material breach of this Agreement.
(i) NO CO-BRANDING. Licensee shall not "co-brand" the TSA Site or use
the Marks immediately adjacent to other trademarks on the TSA Site in a manner
which, in comparison, places less emphasis or imposes smaller dimensions upon
the Marks, without obtaining Licensor's prior approval in the manner described
in Article 2.5(b).
(j) PROHIBITION OF GAMBLING ACTIVITIES. Licensee at no time shall
publicize, advertise, distribute, transmit, promote or otherwise make available
information about gambling or lotteries in violation of any federal, state,
local or foreign law, regulation, order or act of government or governmental
instrumentality to which either Licensor or Licensee is subject, nor shall
Licensee engage in, aid or abet, any such gambling or lottery activity in
violation of any federal, state, local or foreign law, regulation, order or act
of government or governmental instrumentality to which either Licensor or
Licensee is subject. Furthermore, Licensee shall not at any time permit or
authorize any links between the TSA Site and any Other Licensee Site or any
Third Party Site that publicizes, advertises, distributes, transmits, promotes
or otherwise makes available information about gambling or lotteries in
violation of any federal, state, local or foreign law, regulation, order or act
of government or governmental instrumentality to which either Licensor or
Licensee is subject.
ARTICLE III
STANDARD OF PERFORMANCE
3.1 COMMERCIALLY REASONABLE EFFORTS. Licensee shall use commercially reasonable
efforts appropriate to an experienced e-commerce retailer, on a continuous basis
during the Term:
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(a) to advertise, promote, sell and furnish the TSA Site,
Services, General Merchandise and Own Brand Merchandise in the
Territory;
(b) to exercise all reasonable care and skill in the performance
of such duties;
(c) to review and progressively improve its Net Sales in the
Territory;
(d) to exploit the rights granted herein throughout the Territory
consistent with the high standards and prestige represented by
the Marks; and
(e) to observe, protect and enhance the distinctive THE SPORTS
AUTHORITY image as communicated by Licensor.
3.2 HIGH STANDARDS; TSA MISSION STATEMENT. Licensee acknowledges that Licensor
maintains high standards for Own Brand Merchandise and services sold by and
through the TSA Stores. Further, Licensee acknowledges that Licensor maintains
high standards for its Own Brand Merchandise and Licensor's services, as
expressed in Licensor's Mission Statement, attached hereto as EXHIBIT D and as
may be amended from time to time by Licensor (the "TSA Mission Statement").
Licensee agrees to maintain the quality of the Own Brand Merchandise, Services
and Materials sold or distributed by it pursuant to this Agreement, and the
nature and quality of Licensee's use of the Licensed Property, in conformity
with the TSA Mission Statement and as expressed in standards communicated by
Licensor to Licensee from time to time. Further, Licensee warrants that all Own
Brand Merchandise, Services and Materials shall continue to meet or exceed such
standards. Further, Licensee shall use its best efforts to ensure that: (a) all
Own Brand Merchandise, Services and Materials comply with the requirements of
Articles II and III and all applicable laws, rules and regulations; and (b)
neither the Own Brand Merchandise nor the manufacturing thereof shall violate or
infringe any right of any third party or the human rights of any person employed
to manufacture the same.
ARTICLE IV
CONFIDENTIALITY AND NON-DISCLOSURE
4.1 CONFIDENTIAL INFORMATION. For purposes of this Agreement, Confidential
Information means: (i) business or technical information of either Party,
including but not limited to any information relating to either Party's product
plans, designs, product costs, other costs, product prices, product names,
allowances, rebates, finances, advertising plans, strategies or buys,
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marketing plans or strategies, business opportunities, personnel, research,
development or know-how; (ii) any written information designated by either Party
as confidential or proprietary or, if orally disclosed, reduced to writing by
the disclosing Party within thirty (30) days of such disclosure; (iii) all
materials furnished by one Party in connection with any audit conducted
hereunder; and (iv) the terms and conditions of this Agreement.
4.2 EXCLUSIONS. Confidential Information shall not include: (i) information that
is or becomes generally known or available by publication, commercial use or
otherwise through no fault or breach of this Agreement by the receiving Party;
(ii) information that is rightfully in the receiving Party's possession prior to
first receiving it from the disclosing Party; (iii) information that is lawfully
received by the receiving party from a third party, without restriction on
disclosure and without breach of a nondisclosure obligation; or (iv) information
that the receiving Party can prove with written evidence is independently
developed by the receiving Party, without use of or access to Confidential
Information of the disclosing Party.
4.3 OBLIGATIONS. Each Party shall not use the other Party's Confidential
Information, except as expressly permitted under this Agreement and shall not
disclose such Confidential Information to any third party, except to its
employees and consultants with a need to know for such party's performance of
this Agreement (and only subject to binding use and disclosure restrictions at
least as protective as those set forth herein executed in writing by such
employees or consultants). However, each Party may disclose Confidential
Information of the other Party: (i) pursuant to an order or requirement, to
which it is subject, of a court, administrative agency or other governmental
body, provided that such Party gives reasonable notice to the other Party to
contest such order or requirement; (ii) on a confidential basis to legal and
financial advisors; provided, however, that prior to such disclosure, the Party
disclosing the Confidential Information shall use its best efforts to secure an
agreement from the third party receiving the Confidential Information to keep
such information confidential; and (iii) as required by any law, rule, or
regulation, to which it is subject.
4.4 The Parties' respective confidentiality obligations as set forth in this
Article IV shall continue in full force and effect notwithstanding expiration or
termination of this Agreement for any reason.
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ARTICLE V
GENERAL PROVISIONS
5.1 PAYMENTS. Beginning with the Effective Date, during the initial Term, and if
applicable, after termination of the Agreement to the extent any amounts are
accrued and unpaid, Licensee shall pay the Royalties to Licensor in the manner
and at the times specified below.
5.2 REPORTS; ROYALTIES.
(a) Within forty-five (45) days after the end of each quarter of
Licensee's Fiscal Year, Licensee shall:
(i) Deliver to Licensor a report, certified by one of its
corporate officers, giving the following particulars
concerning Net Sales during the preceding quarter of
Licensee's Fiscal Year, together with documentary proof of
payment of any applicable tax withheld and/or paid by Licensee
(including, without limitation, true copies of receipts or
certificates evidencing payment of such taxes):
(A) Net Sales of the TSA Site derived from sale of
General Merchandise, Own Brand Merchandise and
Services to Customers;
(B) Net Sales of the TSA Site derived from advertising
furnished by Licensee to any Advertising and
Marketing Partners of Licensee;
(C) Net Sales of the TSA Site derived from all other
sources;
(D) Amount of Royalties due to Licensor with respect to
the TSA Site attributable to items (A), (B) and (C)
above, and in the aggregate; and
(E) Amount of tax of any kind properly withheld and/or
paid to tax authorities by Licensee.
(ii) Pay to Licensor the Royalties due for the quarter covered by
such report, in U.S. Dollars, in immediately available funds,
by bank draft or other means as reasonably directed by
Licensor. Receipt or acceptance of any report or payment shall
not preclude Licensor from questioning the correctness thereof
at any time. In the event that any inconsistency or mistake is
discovered by either Licensor or Licensee in such reports or
payments, it shall be immediately rectified and, within
fifteen (15) Business Days, the appropriate report and payment
shall be made.
(b) Time is of the essence with respect to Licensee's duty to make all
payments when due and Licensee's obligations to make such payments are absolute,
unconditional and not subject to any right of reduction or set-off, except for
withholding taxes imposed on the
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Royalties which Licensee is required by law to withhold. Licensee shall withhold
and pay in a timely manner such taxes to the proper tax authority at the rate
required by statute but reduced to the fullest extent as permitted by tax
treaty, and Licensee shall provide Licensor with official receipts of all
withholding tax payments sufficient to enable Licensor to claim appropriate
federal income tax credits. Without limiting the foregoing, Licensee shall pay
to Licensor interest at the rate of the lesser of (i) one and one half percent
(1.5%) per month, compounded monthly, or (ii) the maximum rate allowed by
applicable law, on so much of the Royalty as remains outstanding from time to
time beyond the period for payment set forth above. Written notice by Licensor
to Licensee as to any amount of the outstanding Royalty (including interest)
shall be PRIMA FACIE evidence that said amount is unpaid as of the date of such
notice.
(c) Licensee shall respond in writing to any written inquiry from
Licensor with respect to any report or payment within fifteen (15) Business Days
of receipt thereof.
(d) If, in the course of an audit or inspection by Licensor or its
representative(s), any discrepancy shall appear with respect to any amount due
and payable by Licensee and the amount paid, the amount owed (including interest
computed as set forth in Article 5.2(b) above) shall be paid within fifteen (15)
Business Days after Licensee's receipt of notice of any such discrepancy.
(e) Within ninety (90) days after the end of each Fiscal Year of
Licensee, Licensee shall furnish Licensor a certificate from an independent
certified public accountant as to the accuracy of Licensee's Royalty payments
and reports for each such Fiscal Year.
5.3 BOOKS AND AUDITS.
(a) Licensee shall keep full, true and accurate books of account in
conformance with generally accepted accounting principles ("GAAP") in effect in
the U.S. and containing all particulars which may be necessary for the purpose
of reviewing Net Sales and computing the Royalties due and payable to Licensor.
Said books of account shall be kept at Licensee's principal place of business
and maintained by Licensee for a period of at least two (2) years following the
end of each subject year during the Term and shall be available for inspection
by Licensor, upon reasonable notice and during normal business hours.
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(b) Licensee shall maintain accurate records of all sales from the TSA
Site, of its annual advertising and promotional expenditures, and of contracts
and orders placed by Customers, and shall make such records available to
Licensor upon request for use in enforcing, registering or protecting the
Licensed Property throughout the world.
(c) During the Term and for a period of three (3) years after
expiration or termination of this Agreement, Licensor or an independent
certified public accountant retained by Licensor, may audit all statements of
account, records and reports provided for in this Agreement, at least once per
Fiscal Year of Licensee, but no more than once unless an audit discloses a
material discrepancy. In such cases, Licensor may audit every six (6) months
until the results of the audit show that a material discrepancy no longer
exists. Licensee shall make available to Licensor or said certified public
accountant for the purposes of this paragraph any and all records reasonably
necessary to the verification of such reports. Any error(s) discovered by such
audit shall be corrected by Licensee within fifteen (15) Business Days after
having been notified of such error. The expenses of any and all such audits and
inspections shall be borne by Licensor. However, if the error(s) discovered
represent an underpayment by Licensee of more than [*] Dollars ($[*]) due in the
Fiscal Year in question, Licensee shall promptly reimburse Licensor for the
reasonable costs of such audit.
5.4 REPRESENTATIONS, WARRANTIES AND DUTIES OF LICENSEE. Licensee represents and
warrants to Licensor and agrees that:
(a) Licensee is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation; and it
has the corporate power and is authorized under its Articles of Incorporation
and its Bylaws to carry on its business as now conducted and as contemplated
under this Agreement;
(b) Licensee has performed all corporate actions and received all
corporate authorizations necessary to execute and deliver this Agreement and to
perform its obligations hereunder;
(c) Licensee has and shall maintain the power and authority and all
material governmental licenses, authorizations, consents and approvals as
required in all jurisdictions within the Territory to own its assets, carry on
its business and to execute, deliver, and perform its obligations under this
Agreement;
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(d) Licensee is in compliance, and shall remain in compliance with all
requirements of any U.S. and Canadian, or to the best of its knowledge, any
other law (statutory or common), treaty, rule or regulation or determination of
an arbitrator or of a governmental authority, in each case applicable to or
binding upon it or any of its property or to which the Services or any of its
business related to the TSA Site is subject, except where failure to be in
compliance could not reasonably be expected to have a material adverse change
in, or a material adverse affect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of Licensee;
(e) There are no (A) nongovernmental third parties or (B) governmental
or regulatory entities in the U.S. or Canada who are entitled to any notice of
the transactions contemplated hereunder or whose consent is required to be
obtained by Licensee for the consummation of the transactions contemplated
hereunder;
(f) Licensee does not currently, and shall not during the term of this
Agreement, represent or promote any services or products that intentionally
divert business away from the TSA Site. Licensee shall continuously conduct its
business in a manner that reflects favorably on the Licensed Property;
(g) Licensee shall fully comply at its sole cost and expense with any
and all quality standards set forth herein and that Licensor may set forth from
time to time with respect to the Licensed Property and the Own Brand Merchandise
and Materials and Services bearing or embodying the Licensed Property;
(h) As between Licensor and Licensee, for purposes of this Agreement,
Licensee shall be completely responsible for the payment of all sums of money
which may be due at any time to its own employees, contractors, vendors, agents
and representatives, and for all other claims made by such parties against
Licensor. Licensor shall not for any reason be liable under this Agreement in
any way for Licensee's termination of employment or other relationships with
such parties or other legal entities, nor for any goods or services furnished to
Licensee by Licensor or any third party or by Licensee to Licensor or any third
party;
(i) As between Licensor and Licensee, for purposes of this Agreement,
Licensee shall be completely responsible for the computation, notification,
withholding, payment, filing and reporting of all applicable taxes of any kind
whatsoever which may be due at any time in connection with Licensee's
activities, assets or operations as permitted hereunder, including, without
limitation, all sales and use taxes, all value added taxes, and all withholding
taxes.
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(j) Except with respect to trademark and service mark applications and
registrations, domain name registrations, recording of this Agreement and
related registered user agreements, all of which are reserved exclusively to
Licensor, Licensee shall, at its own expense, secure any and all approvals,
licenses, registrations and/or permits required under the laws or regulations of
any governmental or similar entity having jurisdiction over Licensee or the TSA
Site, or over the shipment, export, import, sale or other distribution of goods
(including General Merchandise and Own Brand Merchandise) or provision of
Services within the Territory as these relate to operation of the TSA Site,
including, without limitation, compliance with all export and import control
regulations and applicable consumer product, content labeling, country of
origin, and health and safety laws and the like;
(k) Licensee shall, during the Term and for one (1) year following
expiration or termination of this Agreement, ensure the adequate provision of
after sales service and spare parts to Customers in the Territory, subject to
reasonable cooperation of Licensor to assist Licensee in obtaining access to
spare parts;
(l) As between Licensor and Licensee, in the Territory and in Japan,
all right, title, interest and ownership in and to the Licensed Property, and
present and future registrations thereof, as trademarks, service marks, trade
names, trade dress, copyrights or works or copyright (including derivative
works), industrial models, designs, and the like, are and shall remain in
Licensor and Licensee agrees to render all reasonable assistance in maintenance
of these rights. Further, Licensee agrees and acknowledges that all goodwill
associated with or created by use of the Licensed Property by Licensee has
inured and shall continue forever to inure to the benefit of Licensor. Upon
termination of this Agreement all rights in and to the Licensed Property,
including all right to the use thereof, and all goodwill associated with use of
the Licensed Property, shall thereupon revert back to Licensor and Licensor
shall thereafter enjoy those rights as if this Agreement had never been
executed. If, by operation of law or otherwise, any goodwill associated with
Licensee's use of the Licensed Property shall be deemed to accrue or have
accrued to Licensee, Licensee agrees to immediately and irrevocably assign
without condition such goodwill to Licensor. Licensor shall not be required to
compensate Licensee for reversion or assignment of the goodwill;
(m) Except with respect to authorized advertising and marketing
programs conducted by Licensee with the Advertising and Marketing Partners of
Licensee and any non-Internet advertising and marketing programs otherwise
permitted under this Agreement, Licensee shall
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not sell, distribute or otherwise make available or permit any use of the
Licensed Property on or in connection with Own Brand Merchandise, Materials or
Services, outside of the TSA Site, whether inside or outside the Territory, and
Licensee shall cooperate with Licensor in preventing all such sales and
distribution by others. Before permitting any vendor or supplier to sell off or
otherwise dispose of surplus, defective or returned Own Brand Merchandise to
parties other than Licensee, Licensee shall require the vendor or supplier to
remove all of the Licensed Property from such Own Brand Merchandise; and
(n) Licensee shall not attack or impair or put at issue Licensor's
rights in the Licensed Property, or any of Licensor's applications or
registrations therefor, nor assist anyone else in doing so. Except as licensed
hereunder, Licensee shall not use or apply to register the Licensed Property or
any identical or deceptively or confusingly similar service marks, trademarks,
corporate names, trade names, domain names, trade dress, copyrights, industrial
models or designs, or any derivations thereof, during the Term and forever
hereafter. Further, Licensee shall not use the Licensed Property in any manner
likely to jeopardize the exclusiveness or distinctiveness of the Licensed
Property or Licensor's proprietorship thereof, and Licensee shall not register
or attempt to register its rights in the Licensed Property as granted hereunder.
Without limiting the foregoing, during and after the expiration or termination
of this Agreement, Licensee, upon Licensor's written request, shall execute all
such documents as may be necessary to further confirm or perfect Licensor's
rights in the Licensed Property. If Licensee shall fail to execute any such
documents within thirty (30) days after Licensor's request, Licensee hereby
confirms that Licensor shall automatically be considered Licensee's
attorney-in-fact for the purpose of executing such documents.
5.5 REPRESENTATIONS, WARRANTIES AND DUTIES OF LICENSOR. TSA and TSAMI each
represents, warrants and agrees that:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and it has the
corporate power and is authorized under its Certificate of Incorporation and its
Bylaws to carry on its business as now conducted;
(b) it has performed all corporate actions and received all corporate
authorizations necessary to execute and deliver this Agreement and to perform
its obligations hereunder;
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(c) it has and shall maintain the power and authority and all material
governmental licenses, authorizations, consents and approvals to be obtained
within the U.S to own its assets, carry on its business and to execute, deliver,
and perform its obligations under this Agreement;
(d) there are no (A) nongovernmental third parties and (B) governmental
or regulatory entities in the U.S. who are entitled to any notice of the
transaction, licenses and services contemplated hereunder or whose consent is
required to be obtained by Licensor for the consummation of the transaction
contemplated hereunder;
(e) to the best of its knowledge as of the Effective Date it and its
licensors are the sole and rightful owners of all right, title and interest in
and to the Marks and Names and it has the unrestricted right to market, license
and exploit the Marks and Names;
(f) as of the Effective Date, either TSA or TSAMI has obtained or
applied for trademark and service mark registrations for certain of the Marks
throughout much of the Territory, as further described in EXHIBIT B;
(g) it shall not engage directly or indirectly in the "E-Commerce
Business" except as otherwise provided in Article 2.6 of this Agreement and as
otherwise provided in Article 13.1 of the E-COMMERCE AGREEMENT;
(h) Other than as disclosed in EXHIBIT C, attached, as of the Effective
Date, there are no material outstanding assignments, grants, licenses,
encumbrances, obligations or agreements of Licensor inconsistent with this
Agreement; and
(i) OTHER THAN THOSE SET FORTH ABOVE, LICENSOR MAKES NO WARRANTIES TO
ANY PERSON OR ENTITY WITH RESPECT TO ANY TSA CONTENT, TSA BUYING POWER, NAMES,
MARKS, GOODS, SERVICES, OR OTHER SUBJECT MATTER OF THIS AGREEMENT ALL OF WHICH
ARE PROVIDED "AS IS," AND LICENSOR HEREBY DISCLAIMS ALL IMPLIED WARRANTIES,
INCLUDING, WITHOUT LIMITATION, ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE AND NONINFRINGEMENT.
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5.6 PROTECTION OF RIGHTS.
(a) In the ordinary course of business, Licensee or its counsel may
review periodically the use and/or registration by others of any trademark,
service mark, trade name, domain name, trade dress, industrial model or design
or copyright in the Territory which is a copy of, identical or confusingly or
deceptively similar to the Licensed Property or any aspect thereof. Licensee
agrees to inform Licensor promptly of any possible infringement, or of any
passing off or unfair competition affecting said Licensed Property which comes
to the attention of Licensee. Further, Licensee agrees to fully cooperate and
assist Licensor in the protection and defense of any of Licensor's rights in the
Licensed Property, in the filing and prosecution (at Licensor's expense) of any
trademark, trade dress, service mark, trade name, copyright, domain name,
industrial model or design application, registration, renewal and the like, in
the recording of this Agreement or any other relevant agreements, including,
without limitation, registered user agreements, and in the doing of any other
act with respect to the Licensed Property, including the prevention of the use
thereof by any unauthorized person, that in the sole discretion and judgment of
Licensor may be necessary or desirable.
(b) Licensor deems the Licensed Property to be extremely valuable.
Licensor shall have the sole right to determine whether or not any action shall
be taken on account of any infringement, passing off or unfair competition
activities or other enforcement of Licensor's rights in the Licensed Property.
If Licensor so desires it may prosecute any actions, claims, lawsuits or
proceedings in its own name or join Licensee as a party thereto, all at
Licensor's expense. Licensor shall be entitled to recover any and all sums of
money awarded and materials delivered up as a result of such actions, claims,
lawsuits or proceedings.
(c) Licensee shall not institute any lawsuit or take any action on
account of any actual or alleged infringement, passing off or unfair competition
relating to the Licensed Property, and Licensee shall not have any right or
claim against Licensor for Licensor's failure to enforce its rights in the
Licensed Property or failure to prosecute any actual or alleged infringement,
passing off or unfair competition by others in relation to the Licensed
Property. Notwithstanding the foregoing, IF, after Licensor is advised and has a
reasonable opportunity to investigate and attempt to resolve an instance of
actual or alleged infringement, passing off or unfair competition, yet Licensor
determines not to institute any lawsuit or take any further action or because,
in Licensor's reasonable opinion, the same are unwarranted or of no avail,
Licensee may institute a lawsuit or take any action, solely in its own name, to
remedy the actual or alleged infringement, passing off or unfair competition. As
a prerequisite to instituting such a lawsuit
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and taking any such actions, Licensee shall deliver to Licensor a duly executed
guarantee from Global Sports, Inc. ("GSI") providing that GSI agrees to and
shall pay any and all costs, expenses and damages, including attorneys' fees,
expert fees and all court costs incurred by Licensee and by Licensor (including
Licensor's internal costs) in the matter. Licensee agrees to keep Licensor fully
informed regarding all such lawsuits and actions, and to obtain Licensor's prior
written approval of any proposed settlement which affects the Licensed Property
or Licensor's interest in the Licensed Property. Licensee shall apply any costs,
fees, damages or other sums recovered in any such action or lawsuit to reimburse
the amounts Licensee or GSI has expended in the action or lawsuit. Once Licensee
or GSI has been fully reimbursed, the balance shall be delivered as determined
by the court.
5.7 INDEMNIFICATION.
(a) LICENSEE'S INDEMNIFICATION. Except as provided in Article 5.7(b)
below, Licensee agrees to defend, indemnify and hold harmless Licensor and its
Affiliate, Subsidiary and Related companies and each of their respective
directors, officers, employees, representatives and agents, at Licensee's
expense, from and against any and all actions, claims, proceedings or lawsuits
to the extent arising from or related in any way to Licensee's acts or
omissions. This indemnification shall include, without limitation, claims of
premises or product liability, claims of patent, copyright, trade name,
trademark, trade dress, service mark, right of personality or persona, or
industrial model or design infringement, negligence, defamation,
misrepresentation, false advertising, unfair competition, trade secret
misappropriation and failure to file, pay or report any applicable tax. Licensor
agrees to give Licensee timely notice of such actions, claims, proceedings or
lawsuits and Licensee has the right and obligation, at its sole expense, to
defend the same and shall be solely responsible for satisfying any monetary
judgments awarded or any settlements entered into as a result of such actions,
claims, proceedings or lawsuits. Licensor may at its sole election participate
in any such defense at its own expense. In any event, Licensee agrees to keep
Licensor fully informed regarding all actions, claims, proceedings or lawsuits
which affect or involve Licensor under this paragraph.
(b) LICENSOR'S INDEMNIFICATION. Licensor agrees to defend, indemnify
and hold harmless Licensee and its Affiliate, Subsidiary and Related companies
and each of their respective directors, officers, employees, representatives and
agents, at Licensor's expense, from and against any and all actions, claims,
proceedings or lawsuits to the extent arising from or related in any way to,
claims that Licensee's use of the Marks and/or Names hereunder infringes the
trademark, service mark, trade dress or trade name rights of third parties in
the U.S., its
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territories and possessions, Puerto Rico, or Canada, provided, HOWEVER, that
Licensor shall not bear any duty, obligation or liability pursuant to this
Article 5.7(b) to the extent that and with respect to any use by Licensee of any
of the Marks and/or Names is in a manner not authorized by this Agreement.
Licensee agrees to give Licensor timely notice of such actions, claims,
proceedings or lawsuits and Licensor has the right and obligation, at its sole
expense, to defend the same and shall be solely responsible for satisfying any
monetary judgments awarded or any settlements entered into as a result of such
actions, claims, proceedings or lawsuits. Licensee may at its election
participate in any such defense at its own expense, provided, however, that
Licensee shall comply with any reasonable request of Licensor to cooperate in
the defense of any such actions, claims, proceedings or lawsuits. In any event,
Licensor agrees to keep Licensee fully informed of any material information
regarding all actions, claims, proceedings or lawsuits which affect or involve
Licensee under this paragraph.
5.8 TERM AND TERMINATION.
(a) INITIAL TERM. This Agreement shall begin on the Effective Date and
continue in full force and effect for approximately fifteen (15) years through
and including December 31, 2014. This Agreement shall terminate of the first to
occur of 90 days prior notice given by one Party to the other Party on or after
December 31, 2014, or termination pursuant to any of Articles 5.8(b)-(f) below.
(b) Without prejudice to any other rights either Party may have, a
Party may terminate this Agreement for cause premised upon any one or more of
the reasons set forth in (i) through (iv) below by giving notice to the other
Party in accordance with (c), (d) or (e) below, as the case may be:
(i) if Licensee shall fail to make any payments when due or to
deliver any reports as required hereunder or if Licensee or
Licensor otherwise materially breaches in any manner the terms
of this Agreement;
(ii) if Licensee shall be generally unable to pay its obligations
as they become due, or if either Party shall make any
assignment for the benefit of creditors, or shall file, or
have filed against it, any petition for protection or relief
from creditors or any petition in bankruptcy, or be
adjudicated bankrupt or insolvent, or if any receiver is
appointed for its business or property or a substantial
portion thereof, or if any trustee in bankruptcy or insolvency
shall be appointed for a Party, or if a Party
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shall be in default upon any material debt obligation and such
default shall be continuing beyond any applicable cure period;
(iii) if Licensee shall fail in any material respect to follow
Licensor's instructions regarding quality control and
protection of the Licensed Property as required under this
Agreement; or
(iv) if Licensee has ceased to carry on and diligently pursue its
day to day business activities of operating and promoting the
TSA Site utilizing the Licensed Property.
(c) In the event of breach by a Party of any provision of this
Agreement as provided in (b)(i), (b)(iii) or (b)(iv) above, the non-breaching
Party shall give the breaching Party notice in writing to cure the breach within
sixty (60) days (the "Notice Period") or such longer period as may be agreed
upon by the Parties, and if the breach is not cured within such period, the
non-breaching Party shall be entitled to exercise any remedies it may have
hereunder, including, without limitation, its right to terminate this Agreement
effective upon expiration of the Notice Period, provided that if such breach is
capable of being cured but incapable, by reason of its nature, of being cured
within the Notice Period, the non-breaching Party may, in its discretion, delay
taking action so long as the breaching Party shall have begun in good faith to
cure such breach within the Notice Period and thereafter proceeds diligently to
complete the cure of the breach and such breach is cured within a reasonable
period thereafter.
(d) In the event of the occurrence of any event described in (b)(ii)
above, the complaining Party may terminate this Agreement effective upon
expiration of the Notice Period; provided, however, that the non- complaining
Party may avoid such termination if any adverse filing described in (b)(ii) is
stayed, dismissed or reversed within the Notice Period and Licensee provides
satisfactory evidence of same to Licensor within such period.
(e) This Agreement shall automatically terminate on the date that
Licensor ceases to have a direct or indirect ownership interest in Licensee or
on the date that any of the EVA, ESA or ECA agreements is terminated, whichever
is earlier.
(f) This Agreement may be terminated at any time by mutual written
agreement of the Parties.
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(g) Expiration or termination of this Agreement for any reason shall
not affect obligations which (i) have accrued as of the date of expiration or
termination, (ii) arise out of occurrences prior to the termination date, (iii)
become effective upon termination or (iv) by their terms continue after
termination.
(h) Upon termination of this Agreement, the Parties shall mutually
cooperate to effect an orderly termination of their relationship as Licensor and
Licensee, and Licensee shall within thirty (30) days:
(i) Return to Licensor all TSA Content and Materials, and cease
using the Licensed Property in any manner and for any purpose
and take all steps necessary to delete any and all references
to any Licensed Property from its business licenses, permits,
business forms, packaging, labels, advertisements, promotions
and other Materials;
(ii) As directed by Licensor, return to Licensor, destroy or
obliterate all Own Brand Merchandise (including packaging and
labels) and Materials bearing the Licensed Property and
furnish sworn affidavits attesting thereto as requested by
Licensor;
(iii) Cease holding itself out as a licensee of Licensor or as an
entity otherwise authorized or permitted to use the Licensed
Property; and
(iv) Cooperate with Licensor in obtaining the cancellation of any
registration of this Agreement and amendment or cancellation
of any registered user agreements and corporate, domain name
or business name registrations. Licensee, upon Licensor's
written request, shall execute all such documents as may be
necessary to fulfill this provision. If Licensee shall fail to
execute any such documents within thirty (30) days after
Licensor's request, Licensee hereby confirms that Licensor
shall automatically be considered Licensee's attorney-in-fact
for the purpose of executing such documents.
(i) Notwithstanding the foregoing, upon termination or expiration of
this Agreement for any reason other than pursuant to Article 5.8(b)(i) or
(b)(iii), Licensee shall have, for a period of 180 days thereafter, the right to
sell off, on a nonexclusive basis, all of the unsold Own Brand Merchandise in
Licensee's inventory which was on hand prior to such termination or expiration;
PROVIDED, HOWEVER, that Licensee shall, prior to disposing of such unsold Own
Brand
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Merchandise, furnish to Licensor an itemized and sworn statement setting forth
accurate descriptions and unit volumes of all such unsold Own Brand Merchandise.
Further, Licensee shall be entitled to phase out use of the Licensed Property
over the same 180 day period. Royalties shall accrue at the then current rate
and be paid by Licensee according to the quarterly schedule set forth in Article
5.2 and within thirty (30) days of the end of such 180 day period. All
dispositions of inventory and use of Licensed Property pursuant to this
paragraph shall strictly comply with all provisions of this Agreement. On the
181st day, Licensee:
(i) shall immediately transfer to Licensor, or destroy, at
Licensor's option, all remaining inventory of Own Brand
Merchandise;
(ii) shall immediately transfer to Licensor all TSA Content; and
(iii) shall have completely and permanently ceased using the
Licensed Property.
(j) Should Licensee fail to cease using any Licensed Property upon
termination of this Agreement, or in any other manner fail to comply with
Articles 5.8(h) and (i) above, Licensee agrees and hereby specifically consents
to each and all of the following remedies and provisions, which shall be
cumulative and not mutually exclusive:
(i) Licensor may obtain a decree of any court of competent
jurisdiction ordering Licensee to immediately cease the use of
the Licensed Property and to otherwise comply with Articles
5.8(h) and (i) above, to amend or cancel any registration of
this Agreement and any registered user agreements and to amend
or cancel any corporate or business name registrations and to
change its business name accordingly. Licensee's consent to
this remedy is based upon express recognition by Licensee that
Licensor would otherwise suffer irreparable harm and that
monetary damages would therefore be an inadequate remedy for
Licensor;
(ii) Licensor shall have the right to collect actual direct damages
suffered by Licensor by reason of Licensee's failure to comply
with Articles 5.8(h) and (i) above;
(iii) Licensor may file an action asking the appropriate
governmental agency to impound any infringing Own Brand
Merchandise and Materials and to close or put on hold the TSA
Site;
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(iv) Licensor shall be entitled to any other relief which may be
deemed proper, whether at law or equity;
(v) No assignee for the benefit of creditors, custodian, receiver,
trustee in bankruptcy, sheriff or any other officer of the
court or official charged with marshalling or taking over
custody of Licensee's assets or business shall have any right
to continue this Agreement or to exploit in any way or use the
Licensed Property; and
(vi) Licensee's performance under this Agreement is personal in
nature and Licensor is excused from accepting the performance
of an entity other than Licensee. The Parties agree that this
Agreement is a nonassignable contract of Licensee under
section 365(c) of the Bankruptcy Code of the U.S.A., or any
amendment or successor thereto (the "Bankruptcy Code").
Further, in the event that Licensee is a debtor under the
Bankruptcy Code, or any equivalent in any foreign
jurisdiction, and this Agreement has not been terminated, the
Parties agree that the adequate protection of Licensor's
interest in this Agreement and in the Licensed Property
requires that Licensee fully comply with all of the terms and
conditions of this Agreement, including, without limitation,
timely making all Royalty payments when due and maintaining
the quality of Own Brand Merchandise and Services sold by
Licensee pursuant to this Agreement, and the nature and
quality of Licensee's use of the Licensed Property as required
hereunder.
5.9 CHOICE OF LAW AND FORUM. This Agreement shall be governed and construed
under federal laws of the U.S.A. and laws of the State of Michigan and for any
controversy, the Parties expressly submit to the exclusive jurisdiction of the
state and federal courts of the State of Michigan, U.S.A., and hereby waive any
claim of inconvenient forum. Without limiting the foregoing, Licensee also
submits to the jurisdiction of any court in Licensee's home state with authority
to hear and decide proceedings in relation to Licensor's specific or provisional
enforcement of this Agreement.
5.10 WAIVER OF JURY TRIAL. Each Party hereby knowingly, voluntarily,
intentionally and irrevocably waives such right as any Party may have to a jury
trial in every jurisdiction in any action, proceeding or counterclaim brought by
either of the Parties hereto and/or their respective Affiliate, Subsidiary and
Related companies in respect of any matter arising out of or in connection with
this Agreement (including, without limitation, any action to cancel or rescind
32
<PAGE>
this Agreement, and any claims or defenses asserting that this Agreement was
fraudulently induced or otherwise void or voidable).
5.11 NOTICES.
(a) Any notice or request with respect to this Agreement shall be made
personally, by registered mail, by airborne express courier, or by confirmed
facsimile, and shall be directed by each Party to the other at its respective
address as follows:
If to Licensee, to:
TheSportsAuthority.com, Inc.
555 South Henderson Road
King of Prussia, Pennsylvania 19406
Tel: (610) 768-0900
Fax: (610) 768-0981
Attention: President
WITH A COPY TO:
Global Sports Interactive, Inc.
555 South Henderson Road
King of Prussia, Pennsylvania 19406
Tel: (610) 768-0900
Fax: (610) 768-0981
Attention: President
and if to Licensor, to:
The Sports Authority Michigan, Inc.
306 S. Washington, Suite 224
Royal Oak, Michigan 48067
Tel: (248) 414-9990
Fax: (248) 414-9993
Attention: Senior Vice President and General Counsel
AND
The Sports Authority, Inc.
3383 North State Road 7
Ft. Lauderdale, Florida 33319
Tel: (954) 735-1701
Fax: (954) 730-4288
Attention: Chief Executive Officer and General Counsel
33
<PAGE>
(b) Any notice or request shall be deemed to be given when actually
received. Either Party, by written notice to the other Party, may change the
address to which notices or requests shall be directed.
5.12 NO IMPLIED WARRANTIES; LIMITATION ON LIABILITY. Neither party shall be
liable to the other Party for incidental, consequential, punitive or exemplary
damages arising in connection with this Agreement or the performance, omission
of performance or termination hereof, even if the said Party has been advised of
the possibility of such damages and without regard to the nature of the claim or
the underlying theory or cause of action (whether in contract, tort or
otherwise). Neither Party makes any representation or warranty to the other
except as specifically set forth herein.
5.13 FURTHER DOCUMENTS. Each Party shall, upon request, make, execute and
deliver such documents as shall be reasonably necessary to take such action as
may be reasonably requested to fully implement and carry out the purposes of
this Agreement. This Agreement may be executed in counterparts and all such
counterparts taken together shall be deemed to constitute one and the same
instrument.
5.14 BINDING EFFECT. All covenants, agreements, representations, warranties and
indemnifications in this Agreement by and on behalf of either of the Parties
shall bind and inure to the benefit of the successors and permitted assigns of
Licensor and Licensee (if any). Upon termination of this Agreement, all
obligations and covenants of Licensee under this Agreement shall survive and be
enforceable.
5.15 NO PARTNERSHIP, NO JOINT VENTURE. This Agreement shall not be construed as
creating a joint venture, partnership or agency between Licensor and Licensee.
5.16 SUBLICENSING; PROHIBITION ON ASSIGNMENT BY LICENSEE. The licenses granted
herein are personal to Licensee and neither this Agreement nor any rights or
duties hereunder may be sublicensed, assigned, mortgaged or pledged by Licensee
without the prior written consent of an authorized officer of Licensor, which
consent may be withheld at Licensor's sole discretion. For purposes of this
Article 5.16, an assignment shall include any attempt to sublicense, assign,
mortgage or pledge by Licensee without the prior written consent of an
authorized officer of Licensor, and shall be null and void AB INITIO.
Notwithstanding the foregoing, Licensor may freely assign this Agreement and/or
its rights and duties hereunder to any Affiliate, Related or
34
<PAGE>
Subsidiary company, provided Licensor gives timely notice of the same to
Licensee. Licensee's change in status from a privately held to a publicly held
company after an initial public offering shall not, in and of itself, be
considered a prohibited assignment, mortgage or pledge.
5.17 WAIVER. Silence, acquiescence or inaction shall not be deemed a waiver of
any right. A waiver shall only be effective if it is in writing and signed by
the Party to be charged. Any such waiver shall not be construed as a continuing
waiver or as a waiver of any other breach of a same or similar nature.
5.18 SEVERABILITY. In the event that any part or portion of this Agreement shall
be deemed to be invalid or illegal, then such invalid or illegal portion shall,
so far as possible, not affect the validity or legality of the remainder of this
Agreement. Further, the Parties agree that they shall attempt to arrive at a
modification of any illegal or invalid part so as to render the same legal and
valid and within the keeping of the original tenor and spirit of the Agreement.
5.19 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the Parties with respect to use and licensing of the Licensed Property, and
supersedes all prior negotiations, understandings and agreements, if any,
between the Parties, whether oral or written. This Agreement replaces in its
entirety the License Agreement, and the latter is hereby terminated. Except as
otherwise provided with respect to EXHIBITS A-D, this Agreement may only be
amended or modified by written instrument signed by authorized officers of both
Parties. Because both Parties are sophisticated and knowledgeable business
enterprises with ready access to legal counsel, the principle of construing an
ambiguous provision or provisions against the drafter shall be disregarded when
construing this Agreement.
5.20 TITLES AND HEADINGS. Titles and headings herein are for convenience only
and are not part of this Agreement.
5.21 TAX ON AGREEMENT. Any stamp duty or other tax or duty imposed on this
Agreement or on any related registered user agreement shall be the sole
responsibility of and shall be paid by Licensee.
5.22 CONFIDENTIAL AGREEMENT. The terms of this Agreement are confidential and
shall not be disclosed except for the purpose of enforcement or registration or
recording or as may be required by law.
35
<PAGE>
5.23 COUNTERPARTS; FACSIMILES. The Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one and the same
instrument. Each Party shall receive a duplicate original of the counterpart
copy or copies executed by it. For purposes hereof, a facsimile copy of this
Agreement, including the signature pages and EXHIBITS hereto, shall be deemed an
original. Notwithstanding the foregoing, the Parties shall each deliver
original, execution copies of this Agreement to one another as soon as
practicable following execution thereof.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives as of the Effective Date.
THE SPORTS AUTHORITY, INC. THESPORTSAUTHORITY.COM, INC
By: /S/ MARTIN E. HANAKA By: /S/ MICHAEL RUBIN
---------------------------- ---------------------------
Title: Title:
------------------------- ------------------------
THE SPORTS AUTHORITY MICHIGAN, INC.
By: /S/ MICHAEL LISI
----------------------------
Title: SVP, GENERAL COUNSEL & SECRETARY
---------------------------------
Acknowledged and Agreed to by: Acknowledged and Agreed to
with respect to Article 5.6(c) by:
GLOBAL SPORTS INTERACTIVE, INC. GLOBAL SPORTS, INC.
By: /S/ MICHAEL RUBIN By: /S/ MICHAEL RUBIN
---------------------------- ---------------------------
Title: Title:
------------------------- ------------------------
36
<PAGE>
EXHIBIT A
LICENSE GUIDELINES AND RESTRICTIONS
A. GENERAL
The following guidelines and restrictions apply to Licensee and each company or
other entity which may be authorized under the LICENSE AGREEMENT dated May 7,
1999 between TSA Interactive, Inc. ("Licensee") on the one hand, and The Sports
Authority, Inc. and The Sports Authority Michigan, Inc. (collectively,
"Licensor") to use certain of the "Marks" and "Names" as described in the
LICENSE AGREEMENT. All use of the Marks and Names by Licensee shall inure to the
benefit of and be on behalf of Licensor, and Licensee's utilization of the Marks
and Names shall not create any right, title or interest in or to such Marks or
Names in Licensee.
A consistent corporate image or identity is one of Licensor's strongest assets.
It provides immediate recognition and creates goodwill for Licensor, the "TSA
Stores" (as defined in the LICENSE AGREEMENT) and Licensor's goods and services.
The purpose of this guide is to ensure a clear and consistent presentation to
Licensor's and Licensee's customers. In addition, this document covers elements
of the corporate visual vocabulary: color, typography, and staging, and gives
Licensee guidelines for positioning visual elements. This document also offers
some examples of unacceptable usage and defines certain restrictions, so
Licensee will know what to avoid. All proposed usage by Licensee of the Marks
with Own Brand Merchandise must be approved in writing in advance by Licensor as
set forth in the LICENSE AGREEMENT.
Do not alter the Marks. Use them in a consistent manner, as depicted in these
guidelines. The addition of hyphens or spaces to a word Mark, creation of
unauthorized acronyms, or alteration of any design Marks or logos, for example,
could weaken public recognition of the Marks and damage their strength as a
brand designation. Any icons or hypertext links using Marks should only appear
in the forms authorized by Licensor.
B. THE MARKS
1. The word marks are:
a) primary marks:
AUTHORITY
SPORTSAUTHORITY.COM
THE SKI AUTHORITY
THE SPORTS AUTHORITY
THE SPORTS AUTHORITY LTD.
THE AUTHORITY ON SPORTING GOODS
THESPORTSAUTHORITY.COM
b) secondary marks:
BASKETBALL AUTHORITY
EXERCISE AUTHORITY
FOOTWEAR AUTHORITY
GOLF AUTHORITY
HOCKEY AUTHORITY
HUNTING AUTHORITY
IN-LINE SKATE AUTHORITY
FISHING AUTHORITY
FITNESS AUTHORITY
MARINE AUTHORITY
OUTDOOR AUTHORITY
OUTERWEAR AUTHORITY
RUNNING AUTHORITY
37
<PAGE>
SHOE & APPAREL AUTHORITY
TEAM SPORTS AUTHORITY
TENNIS AUTHORITY
THE BICYCLE AUTHORITY
THE BAG AUTHORITY
THE CLUB AUTHORITY
THE KNIFE AUTHORITY
THE LOW PRICE AUTHORITY
2. The design or logo marks are:
THE SPORTS AUTHORITY & Design (as depicted in the
attached sheet)
C. USE.
1) UNACCEPTABLE USES OF THE MARKS.
Do not use old design versions of the Marks.
Do not combine any Mark with any other mark or element.
Do not use any other mark confusingly similar to the Marks.
Do not rotate or tilt any Mark at an angle.
Do not pluralize any Mark.
Do not use the design Marks in a sentence.
Do not add graphic elements to any design Mark.
Do not create repeating patterns of the Marks.
Do not place the Marks in a containing shape.
Do not change the horizontal or vertical scale of any design
Mark.
Do not use any Mark in the possessive.
Do not print the design Marks or logos in any color other than
as specified by Licensor.
Do not reverse the design Marks or logos out of a background
with insufficient contrast.
Do not reverse the design Marks or logos out of a photograph.
Do not reverse the design Marks or logos out of patterned
backgrounds.
2) CLEAR SPACE. A minimum clear space on all sides of any Mark is
to be kept free of other visual elements. The minimum clear
space is equal to 1/2 of the Mark height.
3) STAGING. Staging involves proper placement, scale, and
proportion of any Mark and how it aligns with typography and
other elements. Licensee shall avoid staging any Mark at the
edges of a page. Licensee shall always surround the subject
Mark by the preferred clear space. Licensee shall not place
any Mark so that it "bleeds" off the edge of materials.
4) PRESENTATION WITH THIRD-PARTY TRADEMARKS. When printed with a
third party's trademark, the Marks must be of at least equal
size as such third party's trademark. Licensee shall not print
any Mark in black if the third party's trademark appears in
color.
5) DESIGN MARKS OR LOGOS. Licensee shall always reproduce each
logo exactly as specified by Licensor using approved original
reproduction art or digital files available from Licensor's
Advertising and Marketing Department. The design Marks or
logos as provided by Licensor are unique. Licensee may not
attempt to recreate the design Marks or logos.
D. CORPORATE NAMES VERSUS MARKS. Licensor's proper corporate names are:
The Sports Authority, Inc.,
OR
The Sports Authority Michigan, Inc.
38
<PAGE>
When referring to either company in any format be sure to use the FULL corporate
name, without dropping the article "The" or the comma (and be sure to place the
comma in the proper place). Both names are proper nouns, like "Smith" or
"Lincoln." In contrast, the Marks are adjectives and should NOT be used as
nouns. For example, when referring to an item of Own Brand Merchandise, one
would refer to THE SPORTS AUTHORITY brand athletic bags. The Mark should be used
as an adjective and not as a noun, and it should appear in all capital letters
to set it off from other printed matter. Finally, although either corporate name
can be used in the possessive form (e.g., "The Sports Authority, Inc.'s"), the
Marks should NOT be used in the possessive form.
E. MARKS - NOTICES
As soon as a given Mark is registered with respect to certain goods or certain
services in the U.S., Canada and other key markets as determined by Licensor,
Licensor may inform Licensee and Licensee shall commence marking all packaging,
labels and "Materials") (as defined in the LICENSE AGREEMENT) for the Own Brand
Merchandise and Services subject to such registration(s) with one or more of the
following phrases, as determined by the application and available space, taking
care to use the second phrase whenever possible:
"Registered Trademark"
[in English or such other languages as instructed by Licensor]
or
"(R)Registered Trademark of The Sports Authority, Inc. and/or
The Sports Authority Michigan, Inc., used under license."
[in English or such other languages as instructed by Licensor]
or
"(R)"
The registration notices should be placed adjacent to any Mark, logo, slogan or
other Materials incorporating registered trademarks or service marks wherever
possible. Such notices advise third parties of the existence of the subject
registration(s), and warn them to refrain from adopting or using an identical or
confusingly similar mark for identical or similar goods.
F. CONTENT OF TSA SITE
1. The TSA Site shall not include advertising from casinos,
sports books or other gambling enterprises, nor shall it
"courtesy" any enterprise or individual for having supplied
information to the TSA Site.
2. The TSA Site shall not include any content that: (a) is
sexually explicit, (b) contains profanity, (c) is slanderous
or libelous or (d) that denigrates a particular group based on
gender, race, creed, religion, sexual preference or handicap.
The parties acknowledge that Licensee may not be able to
prevent such content from appearing on the TSA Site due to the
actions of non-employees, although Licensee shall take such
reasonable steps to prevent such action by non-employees as
may be prudent under the circumstances.
3. Each page of the TSA Site containing any TSA Content, Marks or
Own Brand Merchandise shall have the same look and feel of the
TSA Stores in the U.S. as Licensor shall from time to time
adopt.
4. Each party shall notify the other of all errors, omissions,
and/or inaccuracies in the TSA Content within forty-eight (48)
hours after it becomes aware thereof.
5. If Licensee provides such notice, it shall specify to Licensor
what action, if any, it has taken to correct the error,
omission and/or inaccuracy.
39
<PAGE>
6. If Licensor provides such a notice, or receives such notice,
it may specify the action to be taken by Licensee to correct
the error, omission and/or inaccuracy or resubmit such
content.
7. All TSA Content shall be subject to restrictions and
instructions disclosed by Licensor at any time.
G. COPYRIGHT NOTICES
1. Licensee shall place an appropriate copyright notice to be
furnished by Licensor on all TSA Content Pages on the TSA
Site.
2. Licensee and Licensor shall mutually develop the procedures
for placing any third party copyright notice on any TSA
Content Page.
40
<PAGE>
Exhibit B
<TABLE>
<CAPTION>
========================================================================================================================
MARK GOODS/SERVICES CL SER. NO. REG. NO.
<S> <C> <C> <C> <C>
AQUARIUM AUTHORITY retail store services featuring 42 74-699,118 2,141,699
pet fish and aquatic supplies
AUCTION AUTHORITY online auction services, namely, 42 75-809,485
providing access to information with
respect to price, availability, sales
volume and other characteristics of
goods and services, posting listings
of goods and services available for
sale or requested for purchase, and
facilitating auction purchase and
sale transactions, all by means of a
global computer information network
AUTHORITY retail store services in the field 42 74-695,504 2,074,354
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
AUTHORITY apparel, namely, rainwear, 25 366,111 1,245,417
jackets, coats, suits, slacks and
vests
AUTOGRAPH AUTHORITY computerized on-line retail store 35 75-711,996 2,335,979
services featuring collectibles, 42
trading cards and autographed
memorabilia (35); computer
services, namely providing
information on collectibles,
trading cards and autographed
memorabilia, by means of a global
computer information network (42).
BASKETBALL AUTHORITY retail store services in the field 42 74-695,510 2,074,358
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
EXERCISE AUTHORITY retail store services in the field 42 74-695,506 2,082,095
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
FISHING AUTHORITY retail store services in the field 42 74-695,507 2,074,356
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
FITNESS AUTHORITY retail store services in the field 42 74-695-513 2,079,864
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
FOOTWEAR AUTHORITY retail store services in the field 42 74-695,653 2,082,096
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
GOLF AUTHORITY retail store services in the field 42 74-695,512 2,074,359
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
HOCKEY AUTHORITY retail store services in the field 42 74-695,651 2,079,866
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
========================================================================================================================
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
MARK GOODS/SERVICES CL SER. NO. REG. NO.
<S> <C> <C> <C> <C>
HOT NEW NOW retail store services featuring 35
apparel, footwear, headgear,
sporting goods and equipment,
gifts and related goods and
services; computerized retial
store services featuring apparel,
footwear, headgear, sporting goods
and equipment, gifts and related
goods and services; cooperative
advertising services
HOUSEWARES AUTHORITY retail housewares store services 35 75-600,729
HUNTING AUTHORITY retail store services in the field 42 74-695,508 2,074,357
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
IN-LINE SKATE AUTHORITY retail store services in the field 42 74-695,502 2,074,353
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
ISPORT retail store services featuring 35 75-808,312
consumer electronic products,
games, pre-recorded audio and
video tapes and discs, books and
magazines
MAIL AUTHORITY telephone answering, photocopying 35 75-167,549 2,284,347
and business management services 42
(35); postal services, namely rental
of mail boxes, mail forwarding,
packaging articles for
transportation, and receipt and
delivery of mail and parcels for
others (42)
MARINE AUTHORITY retail store services in the field 42 74-695,655 2,079,867
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
MUSCLE AUTHORITY magazines and newsletters 16 75-618,602 2,335,185
pertaining to exercise and fitness
OUTDOOR AUTHORITY retail store services in the field 35 74-695,514
of sporting goods and equipment,
apparel, footwear, headgear and
related goods
OUTERWEAR AUTHORITY retail store services in the field 42 74-695,509 2,076,213
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
PANTS AUTHORITY retail outlets featuring 35 75-509,313
clothing, footwear, outerwear and
headgear
PARTS AUTHORITY retail outlets featuring sporting 42 75-076,697
goods and equipment and parts,
components and materials for use
with the same; rental of
sporting goods and protective
clothing and equipment
PREPARE YOURSELF retail store services in the 35 75-277,570 2,176,490
fields of fitness, sporting goods 42
and equipment, apparel, footwear,
headgear and related goods and
services; cooperative advertising
(35); computer services, namely
========================================================================================================================
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
MARK GOODS/SERVICES CL SER. NO. REG. NO.
<S> <C> <C> <C> <C>
providing information on fitness,
sporting goods and equipment,
apparel, footwear, headgear and
related goods and services by
means of a global computer
information network in class 42
RUNNING AUTHORITY retail store services in the field 42 74-695,654 2,082,097
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
SHOE & APPAREL AUTHORITY retail store services in the field 42 74-695,501 2,074,352
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
SPORTS-AUTHOR-ITY.COM computerized on-line retail store 35 75-636,136
services featuring clothing, 42
footwear, outerwear and headgear;
retail outlets featuring clothing,
footwear, outerwear and headgear;
dissemination of advertising for
others via an on-line electronic
communication network; promoting
the goods and services of others
by preparing and placing
advertisements on a web site
accessed through a global computer
network; promoting sports teams,
competitions and events for others
(35); computer services, namely
providing information on
clothing, footwear, outerwear and
headgear by means of a global
computer information network (42)
SPORTS AUTHORITY FOOD, restaurant services 42 74-256,187 2,074,782
SPIRITS AND SPORTS and
design
TEAM SPORTS AUTHORITY retail store services in the field 42 74-695,505 2,074,355
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services in
Class 42
TENNIS AUTHORITY retail store services in the field 42 74-695,511 2,076,214
of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
THE AUTHORITY ON SPORTING rental of sporting goods, 41 75-136,153 2,101,178
GOODS including protective clothing and 42
equipment; retail store services in
the fields of fitness, sporting goods
and equipment, apparel, footwear,
headgear and related goods.
THE BAG AUTHORITY athletic bags, utility bags, stuff 18 74-595,323 1,938,392
bags, duffle bags and soft luggage
THE BICYCLE AUTHORITY repairs and maintenance of 37 74-471,949 2,003,381
bicycles in International Class 42
37; retail store services in the
field of bicycles and related
accessories in International Class
42
THE CLUB AUTHORITY management of recreation and 35 74-708,805 1,999,520
fitness clubs of others; and
========================================================================================================================
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
MARK GOODS/SERVICES CL SER. NO. REG. NO.
<S> <C> <C> <C> <C>
business consulting services
relating to health, recreation and
fitness clubs
THE FITNESS AUTHORITY THE services rendered by health clubs 41 74-713,191 2,096,403
LAST WORD IN FITNESS &
Design
THE FITNESS AUTHORITY THE fitness apparel, namely 25 74-713,059 2,098,608
LAST WORD IN FITNESS & sweatshirts, t-shirts and tank tops
Design
THE KNIFE AUTHORITY retail store services featuring 42 74-596,250 1,963,911
sale of sporting goods and
equipment, footwear and clothing
THE LOW PRICE AUTHORITY retail store services comprising 42 74-595,324 1,937,000
sale of sporting goods and
equipment, footwear and clothing
THE MATTRESS AUTHORITY retail bedding store services 35 75-371,148 2,275400
featuring furniture and bedding
THE SHOE AUTHORITY retail store services in the field 42 74-622,104
of sporting goods and equipment,
apparel, footwear and related
products and accessories
THE SKI AUTHORITY retail store services featuring 42 74-116,271 1,688,221
ski equipment and clothing
THE SPORTS AUTHORITY retail store services featuring 42 73-736,556 1,527,526
sporting equipment and clothing
THE SPORTS AUTHORITY ladies apparel, namely shirts, and 25 74-362,909 1,821,430
mens apparel, namely hats, visors,
pants, shirts, shorts and swim
trunks
THE SPORTS AUTHORITY & retail store services featuring 42 73-736,555 1,529,035
Design sporting equipment and clothing
THE SPORTS AUTHORITY athletic tape and pre-wrap; balls, 28 75-076,695
bats and gloves for games;
body-building machines; fishing hooks
and tackle; hand, knee and elbow
guards for sports use; nets for
sports; protective paddings for
sports; racket strings for rtennis,
badminton, squash and racquetball;
toy figures, inflatable ride-on toys,
plush toys, and water-squirting toys;
wax for skis.
THE SPORTS AUTHORITY for computer services, namely 42 75-076,694 2,102,208
interactive on-line publications
in the fields of sporting goods
and equipment, apparel , footwear,
headgear and related goods and
services
THE SPORTS AUTHORITY 16: scorebooks, instruction guides 16 75-076,675 2,071,449
and books in the fields of sports, 18
exercise, fitness and recreation; 24
clip boards; printed forms; 25
printed matter, namely art 26
pictures, art prints, bags for 35
merchandise packaging, calendars, 36
gift certificates, illustrations,
price tags, and magazines in the
fields of sports, exercise,
fitness and recreation; score
cards; stationery.
=======================================================================================================================
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
MARK GOODS/SERVICES CL SER. NO. REG. NO.
<S> <C> <C> <C> <C>
18: bags for travel and sports. 24:
towels. 25: clothing, namely shirts,
tops, pants and shorts; head wear;
hosiery; sweat bands. 26: shoe laces.
35: advertising for others;
import-export agency; marketing
research; purchasing agents; sales
promotion for others; promoting
sports teams, competitions and events
for others; 36: sponsoring sports
teams, competitions and events for
others
THE SPORTS AUTHORITY retail store services in the 42 75-132,507
LIMITED fields of fitness, sporting goods
and equipment, apparel, footwear,
headgear and related goods and
services; rental of sporting
goods and protective clothing and
equipment
THE SPORTS AUTHORITY LTD. rental of sporting goods, 41 75-136,804 2,108,004
including protective clothing and 35
equipment; retail store services
in the fields of fitness, sporting
goods and equipment, apparel,
footwear, headgear and related
goods.
THE SPORTS AUTHORITY stringing and re-gripping 37 75-501,083 2,274,172
racquetball, squash and tennis 39
racquets, sizing and drilling 40
bowling balls, line winding for
fishing reels, customizing arrows
for archery, sighting of firearms
(37); parcel delivery; delivery of
goods by truck and van (39); and
assembly of goods for others (40).
THE SPORTS AUTHORITY telephone calling card services 36 75-521,226 2,249,780
THE SPORTS AUTHORITY credit card services 36 75-539,949 2,333,857
THESPORTSAUTHOR-ITY.COM computerized on-line retail store 35 75-636,870
services featuring clothing, 42
footwear, outerwear and headgear;
retail outlets featuring clothing,
footwear, outerwear and headgear;
dissemination of advertising for
others via an on-line electronic
communication network; promoting
the goods and services of others
by preparing and placing
advertisements on a web site
accessed through a global computer
network; promoting sports teams,
competitions and events for others
(35; computer services, namely
providing information on
clothing, footwear, outerwear and
headgear by means of a global
computer information network (42)
TSA.COM mens and ladies apparel, namely 25 75-925,065
shorts, pants, shirts, hats, caps, 28
visors, hosiery and outerwear (25); 35
=========================================================================================================================
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
MARK GOODS/SERVICES CL SER. NO. REG. NO.
<S> <C> <C> <C> <C>
balls, bats and gloves for 41
games, protective guards and 42
paddings for sports, toy figures,
inflatable ride on toys, plush
toys, and water-squirting toys
(28); retail store services
featuring apparel, footwear,
headgear, sporting goods and
equipment, collectibles, gifts and
related goods and services,
computerized on-line retail store
services featuring apparel,
footwear, headgear, sporting goods
and equipment, collectibles, gifts
and related goods and services,
cooperative advertising (35);
rental of sporting goods, bicycles
and protective clothing and
equipment (41); computer services,
namely providing information on
apparel, footwear, headgear,
sporting goods and equipment,
collectibles, gifts and related
goods and services by means of a
global computer information
network (42).
YOUR SPORTING GOODS retail store services in the field 42 74-695,652 2,056,425
MEGASTORE of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services
YOU'VE NEVER SEEN ANYTHING retail store services in the field 35 74-695,503 2,034,485
QUITE LIKE IT of sporting goods and equipment,
apparel, footwear, headgear and
related goods and services in
Class 42
================================ ======================================== =========== ================= ================
</TABLE>
46
<PAGE>
EXHIBIT C
OTHER LICENSED OR AUTHORIZED USERS OF THE MARKS
A. COMPREHENSIVE, LONG TERM LICENSE AGREEMENTS
1. FIRST AMENDMENT TO LICENSE AGREEMENT between The Sports Authority
Michigan, Inc. (formerly Intelligent Sports Inc.) as licensor and The
Sports Authority, Inc., The Sports Authority Florida, Inc. and
Authority International, Inc. as licensees, for use of certain Marks in
connection with full line sporting goods stores and related goods and
services in the U.S., its territories and possessions and Puerto Rico.
2. LICENSE AGREEMENT between The Sports Authority Michigan, Inc. (formerly
Intelligent Sports Inc.) and The Sports Authority, Inc. as licensor and
The Sports Authority Canada, Inc. as licensee, for use of certain Marks
and certain technology and know-how in connection with full line
sporting goods stores and related goods and services in Canada.
3. AMENDED AND RESTATED LICENSE AGREEMENT between The Sports Authority
Michigan, Inc. and The Sports Authority, Inc. as licensor and Mega
Sports Co., Ltd. as licensee for use of certain Marks and certain
technology and know-how in connection with full line sporting goods
stores and related goods and services in Japan.
4. LICENSE AGREEMENT between The Sports Authority Michigan, Inc. as
licensor and Fancy Publications, Inc. as licensee for use of certain
Marks and certain domain names (THEPETAUTHORITY.COM, PETAUTHORITY.COM,
THEAQUARIUMAUTHORITY.COM and AQUARIUMAUTHORITY.COM) in connection with
titles of print or electronic media publications relating to animals,
reptiles, fish and birds, throughout the world.
5. LICENSE AGREEMENT between The Sports Authority Michigan, Inc. as
licensor and Drayton Plains Veterinary Clinic, Inc. as licensee for use
of the names and marks THE PET AUTHORITY, PET AUTHORITY ANIMAL HOSPITAL
and THE PET AUTHORITY ANIMAL HOSPITAL on and in connection with
veterinary services, namely, animal care and animal health services,
including medical, grooming and training, and operation of a retail
department within Licensee's hospital featuring sales of pet related
merchandise, in Oakland County, Michigan.
6. LICENSE AGREEMENT between The Sports Authority Michigan, Inc. as
licensor and Yogurt Ventures U.S.A., Inc. as licensee for use of the
marks THE SMOOTHIE AUTHORITY and THE SMOOTHIE AUTHORITY & Design for
use on and in connection with non-alcoholic frozen beverages (i.e.,
smoothies) and as service marks on and in connection with operation of
businesses serving smoothies, ice cream and/or frozen yogurt, within
the U.S. and Australia.
7. LICENSE AGREEMENT between The Sports Authority Michigan, Inc. as
licensor and Nike Bauer, Inc. as licensee for use of the trademark
POWER & AUTHORITY and related logotypes on and in connection with
certain sporting goods in the fields of ice and street hockey,
worldwide.
B. SHORT TERM, PHASE-OUT LICENSES FOR SETTLEMENT PURPOSES
1. AGREEMENT between The Sports Authority Michigan, Inc. as licensor and
Luggage Authority, Inc. as licensee for use of the trademark LUGGAGE
AUTHORITY on and in connection with a retail luggage, leather goods and
accessories business operating in Virginia.
2. AGREEMENT between The Sports Authority Michigan, Inc. and The Sports
Authority, Inc. as licensor and The Fish Authority, Inc. as licensee
for use of the mark THE FISH AUTHORITY and related logotypes as a
corporate name and service mark on and in connection with operation of
a wholesale seafood business based in Miami, FL.
47
<PAGE>
3. AGREEMENT between The Sports Authority Michigan, Inc. as licensor and
Carondelet Trading, Inc. as licensee for use of the names and marks
MAIL AUTHORITY, CLAYTON MAIL AUTHORITY, MAILAUTHORITY.COM and MAIL
AUTHORITY & Design on and in connection with a postal service,
packaging, courier, photocopying and retail mail and shipping supplies
business operating in the U.S.
4. AGREEMENT between The Sports Authority Michigan, Inc. as licensor, and
RDL Holdings I Corp., RDL Holdings II Corp., RDL Holdings III Corp.,
The Storage Authority-Third Avenue, L.P., The Storage Authority-Andrews
Avenue, L.P., and The Storage Authority-Australian Avenue, L.P.
collectively as licensee for use of the name and mark THE STORAGE
AUTHORITY and related logotypes on and in connection with a self
storage and retail storage supplies business operating in Florida.
C. OTHER AGREEMENTS, PERMISSIVE USES, ETC.
1. Such other and further long term license agreements which are not
materially in conflict with any grant of rights to Licensee under the
LICENSE AGREEMENT, and such other and further short term, phase-out
licenses entered into for settlement purposes, as Licensor may enter
into from time to time.
2. Current and future permissive uses for Licensor's benefit by Licensor's
agents, representatives and providers of goods or services to Licensor,
including, without limitation, Licensor's law firms, advertising or
marketing firms, public relations firms, and persons or entities which
receive charitable contributions or sponsorships from Licensor.
3. Current and future no-royalty (or nominal royalty) permissions granted
for single uses of one or more Marks for educational purposes,
including, without limitation, permissions to use one or more Marks in
annual reports, books, articles, stories or the like.
48
<PAGE>
EXHIBIT D
LICENSOR'S MISSION STATEMENT
The Sports Authority, Inc. and its retailing subsidiaries and licensees
(collectively, "TSA") shall offer high quality, high performance and innovative
products, in fashion and on trend as to style, color, materials and makeup.
TSA stands for superior performance products through superior technology.
TSA shall become the leading sporting goods reseller, and a premier retailer, in
each market that it serves.
TSA is a mass merchant, focused on serving mainstream urban and suburban
families and individuals who participate in almost any type of sport, leisure or
recreational activity. TSA's "offer" will support beginner, intermediate and
enthusiast participants through superior value and service.
49
EXHIBIT 10.33
AGREEMENT
THIS AGREEMENT is made and entered into on May 14, 1999, by and between
THE SPORTS AUTHORITY, INC., a Delaware corporation ("TSA"), and GLOBAL SPORTS,
INC., a Delaware corporation ("Global").
WHEREAS, Global desires that TSA enter into a certain E-Commerce
Venture Agreement (the "Venture Agreement") of even date with Global Sports
Interactive, Inc., a Pennsylvania corporation and wholly owned subsidiary of
Global ("GSI") regarding the formation and operation of TheSportsAuthority.com,
Inc., to be a Delaware corporation ("TSA.com"); and
WHEREAS, GSI desires to enter into a certain E-Commerce Services
Agreement, referred to in the JV Agreement, to be between GSI and TSA.com (the
"Services Agreement"); and
WHEREAS, TSA is willing to enter into the Venture Agreement only if
Global Agrees to be bound by certain provisions of the Venture Agreement and the
Services Agreement as if it were a party thereto;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties hereto do hereby agree as follows:
1. JV AGREEMENT. For the benefit of TSA, Global hereby agrees to be
bound by and subject to all of the provisions of Sections 3.4, 3.7, 10.1 and
11.2, the last sentence of Section 2.21 and the last sentence of Section 6 of
the Venture Agreement as if it were GSI and a party thereto.
2. SERVICES AGREEMENT. For the benefit of TSA.com, Global hereby agrees
to be bound by and subject to all of the provisions of Articles III, IV and VII
of the Services Agreement as if it were GSI and a party thereto.
3. LICENSE AGREEMENT. For the benefit of TSA, Global hereby agrees to
be bound by and subject to the provisions of Article IV and Article 5.6(c) of
the License Agreement as if it were GSI and a party thereto.
4. CHOICE OF LAW. This Agreement shall be construed, interpreted and
enforced under and in accordance with the laws of the State of Delaware.
5. COUNTERPARTS. This Agreement may be executed in counterparts and
both such counterparts taken together shall be deemed to constitute the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to enter into this Agreement with intent to be legally bound
hereby, the date and year first above written.
THE SPORTS AUTHORITY, INC.
By /S/ MARTIN E. HANAKA
------------------------------
Name:
----------------------------
Title:
---------------------------
GLOBAL SPORTS, INC.
By /S/ MICHAEL G. RUBIN
------------------------------
Name:
----------------------------
Title:
---------------------------
EXHIBIT 18.1
April 20, 2000
Mr. George R. Mihalko
Executive Vice President & Chief Financial Officer
The Sports Authority, Inc.
3383 N. State Road 7
Ft. Lauderdale, Florida 33319
Dear Mr. Mihalko:
Note 4 to the Consolidated Financial Statements of The Sports Authority, Inc.
(the "Company") included in its Form 10-K for the fiscal year ended January 29,
2000, describes a change in the method for measuring impairment of "enterprise
level" goodwill. Prior to the change, the recoverability of goodwill was
measured using projected undiscounted cash flows. Under the Company's new
accounting method, impairment of goodwill is measured by the "market value"
method. We conclude that the change to the "market value" method of measuring
the impairment of goodwill is to an acceptable alternative method which, based
on your business judgment to make this change and for the stated reasons, is
preferable in your circumstances.
Very truly yours,
/s/Ernst & Young LLP
EXHIBIT 21.1
SUBSIDIARIES OF THE SPORTS AUTHORITY, INC.
The following subsidiaries are 100% owned by The Sports Authority, Inc.
unless otherwise indicated:
1. Authority International, Inc. (a Delaware Corporation)
2. The Sports Authority Canada, Inc. (an Ontario, Canada Corporation)
3. The Sports Authority Florida, Inc. (a Florida Corporation)
4. The Sports Authority Michigan, Inc. (a Michigan Corporation)
5. The Sports Authority Puerto Rico, Inc. (a Puerto Rico Corporation)
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements on
Form S-3 (No. 333-16877, No. 333-47127 and No. 333-63281) and Registration
Statements on Form S-8 (No. 33-86522, No. 33-94224, No. 33-09259 and No.
333-32955) of The Sports Authority, Inc. of our report dated March 27, 2000,
with respect to the consolidated financial statements of The Sports Authority,
Inc. included in this Annual Report (Form 10-K) for the year ended January 29,
2000.
/s/ Ernst & Young LLP
Miami, Florida
April 24, 2000
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-16877 and No. 333-47127) and Registration
Statements on Form S-8 (No. 333-32955, No. 33-09259 and No. 33-86522) of The
Sports Authority, Inc. of our report dated April 6, 1999 relating to the
financial statements, which appears in the Annual Report to Shareholders, which
is incorporated in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
April 18, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-25-1999
<PERIOD-END> JAN-29-2000
<CASH> 11,814
<SECURITIES> 0
<RECEIVABLES> 20,109
<ALLOWANCES> (1,820)
<INVENTORY> 347,273
<CURRENT-ASSETS> 414,351
<PP&E> 353,439
<DEPRECIATION> (139,801)
<TOTAL-ASSETS> 643,003
<CURRENT-LIABILITIES> 352,249
<BONDS> 126,029
0
0
<COMMON> 323
<OTHER-SE> 115,787
<TOTAL-LIABILITY-AND-EQUITY> 643,003
<SALES> 1,492,860
<TOTAL-REVENUES> 1,494,689
<CGS> 1,132,296
<TOTAL-COSTS> 1,132,296
<OTHER-EXPENSES> 100,484
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,657
<INCOME-PRETAX> (143,340)
<INCOME-TAX> 22,721
<INCOME-CONTINUING> (166,061)
<DISCONTINUED> 0
<EXTRAORDINARY> 5,517
<CHANGES> 0
<NET-INCOME> (160,544)
<EPS-BASIC> (5.02)
<EPS-DILUTED> (5.02)
</TABLE>
