-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M0J6sYXjv2/Vxuf0LOk05ql83TfDqSExCgb+l0OlsLvXRM93hGUGdLDGA+dxwJn6 4u+qhh+thh7CiPcj6LkK7A== 0000931763-99-001310.txt : 19990428 0000931763-99-001310.hdr.sgml : 19990428 ACCESSION NUMBER: 0000931763-99-001310 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HIBBETT SPORTING GOODS INC CENTRAL INDEX KEY: 0001017480 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940] IRS NUMBER: 631074067 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20969 FILM NUMBER: 99601860 BUSINESS ADDRESS: STREET 1: 451 INDUSTRIAL LANE CITY: BIRMINGHAM STATE: AL ZIP: 35211 BUSINESS PHONE: 2059424292 MAIL ADDRESS: STREET 1: 451 INDUSTRIAL LANE CITY: BIRNINGHAM STATE: AL ZIP: 35211 10-K 1 FORM 10-K 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 Commission file number January 30, 1999 000-20969 HIBBETT SPORTING GOODS, INC. (Exact name of registrant as specified in its charter) Delaware 63-1074067 (State of other jurisdiction (I.R.S. Employer of Incorporation or organization) Identification No.) 451 Industrial Lane Birmingham, Alabama 35211 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (205) 942-4292 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class CUSIP Number Which Registered Common Stock, $.01 Par Value 428565-10-5 NASDAQ Stock Market 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) 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 ((S)229.405 of this chapter) 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. ___. The aggregate market value of the voting stock held by non-affiliates of the Registrant (assuming for purposes of this calculation that all executive officers and directors are "affiliates") was $80,138,531 at April 6,1999, based on the closing sale price of $21.625 for the Common Stock on such date on the Nasdaq National Market. The number of shares outstanding of the Registrant's Common Stock, as of April 6, 1999 was 6,421,491. DOCUMENTS INCORPORATED BY REFERENCE Items 6, 7, 7A and 8 of Part II are incorporated by reference from the Company's 1999 Annual Report to Stockholders. Items 10, 11, 12 and 13 of Part III are incorporated by reference from the Company's definitive Proxy Statement for the 1999 Annual Meeting of Stockholders, to be held June 8, 1999. Registrant's definitive Proxy Statement will be filed with the Securities and Exchange Commission on or before April 30, 1999. HIBBETT SPORTING GOODS, INC. INDEX PART I
Item 1. Business 2 Item 2. Properties 6 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 7 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7 Item 6. Selected Consolidated Financial and Operating Data 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 7A. Quantitative and Qualitative Disclosure About Market Risk 8 Item 8. Consolidated Financial Statements and Supplementary Data 8 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 8 PART III Item 10. Directors and Executive Officers of Registrant 8 Item 11. Executive Compensation 8 Item 12. Security Ownership of Certain Beneficial Owners and Management 8 Item 13. Certain Relationships and Related Transactions 8 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 8
PART I ITEM 1. BUSINESS GENERAL Hibbett Sporting Goods, Inc. ("Hibbett" or the "Company") is a rapidly- growing operator of full-line sporting goods stores in small to mid-sized markets predominantly in the southeastern United States. Hibbett's stores offer a broad assortment of quality athletic equipment, footwear and apparel at competitive prices with superior customer service. The Company's merchandise assortment features a broad selection of brand name merchandise emphasizing team and individual sports complemented by localized apparel and accessories designed to appeal to a wide range of customers within each market. The Company believes that its stores are among the primary retail distribution alternatives for brand name vendors that seek to reach Hibbett's target markets. The Company operates 156 Hibbett Sports stores as well as eleven smaller- format Sports Additions athletic shoe stores and four larger-format Sports & Co. superstores. Hibbett's primary retail format and growth vehicle is Hibbett Sports, a 5,000 square foot store located primarily in enclosed malls and dominant strip centers. Although competitors in some markets may carry product lines and national brands similar to Hibbett, the Company believes that its Hibbett Sports stores are typically the primary, full-line sporting goods retailers in their markets due to the extensive selection of traditional team and individual sports merchandise offered and a high level of customer service. BUSINESS STRATEGY The Company targets markets with county populations that range from 30,000 to 250,000. By targeting these smaller markets, the Company believes that it is able to achieve significant strategic advantages, including numerous expansion opportunities, comparatively low operating costs and a more limited competitive environment than generally faced in larger markets. In addition, the Company establishes greater customer and vendor recognition as the leading full-line sporting goods retailer in these local communities. Management believes that its ability to merchandise to local sporting or community interests differentiates Hibbett from its national competitors. This strong regional focus also enables the Company to achieve significant cost benefits including lower corporate expenses, reduced distribution costs and increased economies of scale from marketing activities. Additionally, Hibbett also utilizes sophisticated information systems to maintain tight controls over operating costs. The Company strives to hire enthusiastic sales personnel with an interest in sports. The Company's extensive training program focuses on product knowledge and selling skills and is conducted through the use of in-store clinics, videos, self study courses, and interactive group discussions. STORE CONCEPTS Hibbett Sports The Company's primary retail format is Hibbett Sports, a 5,000 square foot store located in enclosed malls and dominant strip centers. The Company tailors its Hibbett Sports concept to the size, demographics and competitive conditions of each market. Eighty-eight Hibbett Sports stores are located in enclosed malls, the majority of which are the only enclosed malls in the county, and the remaining sixty-eight are located in dominant strip centers. Hibbett Sports stores offer a core selection of quality, brand name merchandise with an emphasis on team and individual sports. This merchandise mix is complemented by a selection of localized apparel and accessories designed to appeal to a wide range of customers within each market. For example, the 2 Company believes that apparel with logos of sports teams of local interest represents a larger percentage of the merchandise mix in Hibbett Sports stores than it does in the stores of national chain competitors. In addition, the Company strives to quickly respond to major sports events of local interest such as the recent University of Tennessee NCAA football championship. Sports Additions The Company's eleven Sports Additions stores are small, mall-based stores, averaging 1,500 square feet with approximately 90% of merchandise consisting of athletic footwear and the remainder consisting of caps and a limited assortment of apparel. Sports Additions stores offer a broader assortment of athletic footwear, with a greater emphasis on fashion than the athletic footwear assortment offered by Hibbett Sports stores. All but one Sports Additions store are currently located in malls in which Hibbett Sports stores are also present. Sports & Co. The Company opened four Sports & Co. superstores between March 1995 and September 1996. Sports & Co. superstores average 25,000 square feet and offer a larger assortment of athletic footwear, apparel and equipment than Hibbett Sports stores. Athletic equipment and apparel represent a higher percentage of the overall merchandise mix at Sports & Co. superstores than they do at Hibbett Sports stores. Sports & Co. superstores are designed to project the same exciting and entertaining in-store atmosphere as Hibbett Sports stores but on a larger scale. For example, Sports & Co. superstores offer customer participation areas, such as putting greens and basketball hoop shoots, and feature periodic special events including appearances by well-known athletes. Team Sales Hibbett Team Sales, Inc. ("Team Sales"), a wholly-owned subsidiary of the Company, is a leading supplier of customized athletic apparel, equipment and footwear to school, athletic and youth programs in Alabama. Team Sales sells its merchandise directly to educational institutions and youth associations. The operations of Team Sales are independent of the operations of the Company's stores, and its warehousing and distribution operate out of its own warehouse. Team Sales does not meet the materiality reporting requirements of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information. EXPANSION STRATEGY Hibbett targets markets ranging in population from 30,000 to 250,000. By targeting smaller markets, the Company believes that it is able to achieve significant strategic advantages, including numerous expansion opportunities, comparatively lower operating costs and a more limited competitive environment than generally faced in larger markets. In addition, the Company establishes greater customer and vendor recognition as the leading full-line sporting goods retailer in the local community. In fiscal 1994, the Company began to accelerate its rate of new store openings to take advantage of the growth opportunities in its target markets. The Company has identified approximately 500 potential markets for future Hibbett Sports stores within the states in which it operates and in contiguous states. Hibbett's clustered expansion program, which calls for opening new stores within a two-hour driving distance of another Company location, allows it to take advantage of efficiencies in distribution, marketing and regional management. In January 1996, the Company moved its operations to a newly constructed distribution center which has significant expansion potential to support the Company's growth for the foreseeable future. The Company anticipates expanding the distribution center in fiscal 2000. In evaluating potential markets, the Company considers population, economic conditions, local competitive dynamics and availability of suitable real estate. Hibbett Sports stores effectively operate in both enclosed mall and dominant strip center locations. 3 The Company's continued growth will depend, in large part, upon the Company's ability to open new stores in a timely manner and to operate them profitably. However, successful expansion is subject to various contingencies, many of which are beyond the Company's control. These contingencies include, among others, (i) the Company's ability to identify and secure suitable store sites on a timely basis and on satisfactory terms and to complete any necessary construction or refurbishment of these sites, (ii) the Company's ability to hire, train and retain qualified managers and other personnel and (iii) the successful integration of new stores into existing operations. No assurance can be given that the Company will be able to complete its expansion plans successfully; that the Company will be able to achieve results similar to those achieved with prior locations; or that the Company will be able to continue to manage its growth effectively. The Company's failure to achieve its expansion plans could materially adversely affect its business, financial condition and results of operations. MERCHANDISING The Company's merchandising strategy is to provide a broad assortment of quality athletic equipment, footwear and apparel at competitive prices in a full service environment. The Company's stores offer a broad selection of brand name merchandise with an emphasis on team and individual sports. This merchandise mix is complemented by a selection of localized apparel and accessories designed to appeal to a wide range of customers within each market. The Company's leading product category is athletic footwear, followed by apparel and sporting equipment, ranked according to sales. The Company emphasizes quality brand name merchandise. The Company believes that the breadth and depth of its brand name merchandise selection generally exceeds the merchandise selection carried by local independent competitors. Many of these branded products are highly technical and require considerable sales assistance. The Company coordinates with its vendors to educate the sales staff at the store level on new products and trends. Although the core merchandise assortment tends to be similar for each Hibbett Sports store, important local or regional differences frequently exist. Accordingly, the Company's stores regularly offer products that reflect preferences for particular sporting activities in each community and local interest in college and professional sports teams. The Company's knowledge of these interests, combined with its access to leading vendors, enables Hibbett Sports stores to react quickly to emerging trends or special events, such as college or professional championships. The Company's merchandise staff analyzes current sporting goods trends by maintaining close relationships with the Company's vendors, monitoring sales at competing stores, communicating with customers, store managers and personnel and reviewing industry trade publications. The merchandise staff works closely with store personnel to meet the requirements of individual stores for appropriate merchandise in sufficient quantities. The Company's success depends in part on its ability to anticipate and respond to changing merchandise trends and consumer demand in a timely manner. Accordingly, any failure by the Company to identify and respond to emerging trends could adversely affect consumer acceptance of the merchandise in the Company's stores, which in turn could materially adversely affect the Company's business, financial condition and results of operations. In addition, if the Company miscalculates either the market for the merchandise in its stores or its customers' purchasing habits, it may be faced with a significant amount of unsold inventory, which could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, a major shift in consumer demand away from athletic footwear and apparel could have a material adverse effect on the Company's business, financial condition and results of operations. VENDOR RELATIONSHIPS The sporting goods retail business is very brand name driven. Accordingly, the Company maintains relationships with a number of well-known sporting goods vendors to satisfy customer demand. The 4 Company believes that its stores are among the primary retail distribution alternatives for brand name vendors that seek to reach Hibbett's target markets. As a result, the Company is able to attract considerable vendor interest and establish long-term partnerships with vendors. As its vendors expand their product lines and grow in popularity, the Company expands its sales and promotions of these products within its stores. In addition, as the Company continues to increase its store base and enter new markets, the vendors have increased their brand presence within these regions. The Company also places significant emphasis on and works with its vendors to establish the most favorable pricing and to receive cooperative marketing funds. Management believes the Company maintains excellent working relationships with vendors. During fiscal 1999, the Company's largest vendor, Nike, represented approximately 36% of its total purchases. The loss of key vendor support could have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that it has long-standing and strong relationships with its vendors and that it has adequate sources of brand name merchandise on competitive terms; however, there can be no assurance that the Company will be able to acquire such merchandise at competitive prices or on competitive terms in the future. In this regard, certain merchandise that is high profile and in high demand may be allocated by vendors based upon the vendors' internal criteria which are beyond the Company's control. ADVERTISING AND PROMOTION The Company targets special advertising opportunities in its markets to increase the effectiveness of its advertising budget. In particular, the Company prefers advertising in local media as a way to further differentiate itself from national chain competitors. Substantially all of the Company's advertising and promotional spending is centrally directed, with some funds allocated to district managers on an as-requested basis. Advertising in the sports pages of local newspapers serves as the foundation of the Company's promotional program, and in fiscal 1999 it accounted for the majority of the Company's total advertising costs. Other media such as local radio, television and outdoor billboards are used by the Company to reinforce Hibbett name recognition and brand awareness in the community. In addition, direct mail to customers on an in-house mailing list has been used by the Company to reinforce already established buying patterns and to increase customer loyalty. DISTRIBUTION The Company maintains a single 130,000 square foot distribution center in Birmingham, Alabama for all 171 of its existing stores and manages the distribution process centrally from its corporate headquarters which are located in the same building as the distribution center. In January 1996 the Company moved its operations to this newly constructed distribution center which has significant expansion potential to support the Company's growth for the foreseeable future. In fact, in order to support its continued expansion, the Company anticipates adding approximately 90,000 square feet to the facility in fiscal 2000. The Company believes strong distribution support for its stores is a critical element of its expansion strategy and is central to its ability to maintain a low cost operating structure. As the Company continues its expansion, it intends to open new stores in locations that can be supplied from the Company's distribution center. The Company receives substantially all of its merchandise at its distribution center. For key products, the Company maintains backstock at the distribution center that is allocated and distributed to stores through an automatic replenishment program based on items sold during the prior week. Merchandise is typically delivered to stores weekly via Company-operated vehicles. COMPETITION The business in which the Company is engaged is highly competitive and many of the items sold by the Company are sold by local sporting goods stores, department and discount stores, athletic footwear and other specialty athletic stores, traditional shoe stores and national and regional full-line sporting goods stores. The marketplace for sporting goods remains highly fragmented as many different retailers compete 5 for market share by utilizing a variety of store formats and merchandising strategies. In recent years, the growth of large format retailers has resulted in significant consolidation in large metropolitan markets. However, the Company believes that the competitive environment for sporting goods remains different in small to mid-sized markets where retail demand may not support larger format stores. In smaller markets such as those targeted by the Company's Hibbett Sports format, national chains compete by focusing on a specialty category like athletic footwear in the case of Foot Locker and Foot Action. Accordingly, many of the stores with which the Company competes are units of national chains that have substantially greater financial and other resources than the Company. Hibbett Sports format stores compete with national chains that focus on athletic footwear, local sporting goods stores, department and discount stores, traditional shoe stores and mass merchandisers. Although its Hibbett Sports format may face competition from a variety of competitors, the Company believes that its Hibbett Sports format is able to compete effectively by distinguishing itself as a full-line sporting goods store with an emphasis on team and individual sports merchandise complemented by a selection of localized apparel and accessories. The larger markets targeted by Sports & Co. superstores are also highly competitive. The Company's Sports & Co. superstores compete with sporting goods superstores, athletic footwear superstores and mass merchandisers. Competitors of Sports & Co. superstores may carry similar product lines and national brands and a broader assortment. The Company believes the principal competitive factors in its markets are service, breadth of merchandise offered availability of brand names, availability of local merchandise and price. The Company believes it competes favorably with respect to these factors in the small to mid-sized markets predominantly in the Southeast. However, there can be no assurance that the Company will continue to be able to compete successfully against existing or future competitors. Expansion by the Company into markets served by its competitors, entry of new competitors or expansion of existing competitors into the Company's markets, could have a material adverse effect on the Company's business, financial condition and results of operations. EMPLOYEES The Company employed approximately 563 full-time and approximately 1,233 part-time employees at January 30, 1999, none of whom are represented by a labor union. The number of part-time employees fluctuates depending on seasonal needs. There can be no assurance that the Company's employees will not, in the future, elect to be represented by a union. The Company considers its relationship with its employees to be good and has not experienced significant interruptions of operations due to labor disagreements. ITEM 2. PROPERTIES The Company currently leases all of its existing 171 store locations and expects that its policy of leasing rather than owning will continue as it expands. The Company's leases typically provide for a short initial lease term with options on the part of the Company to extend. Management believes that this lease strategy enhances the Company's flexibility to pursue various expansion opportunities resulting from changing market conditions and to periodically re-evaluate store locations. The Company's ability to open new stores is contingent upon locating satisfactory sites, negotiating favorable leases and recruiting and training additional qualified management personnel. As current leases expire, the Company believes that it will be able either to obtain lease renewals if desired for present store locations or to obtain leases for equivalent or better locations in the same general area. To date, the Company has not experienced any significant difficulty in either renewing leases for existing locations or securing leases for suitable locations for new stores. The Company's leases may contain certain provisions with which the Company may not be in compliance. Based primarily on the Company's belief that it maintains good relations with its landlords, that most of its leases are at market rents and that it has historically been able to secure leases for suitable locations, management believes that these provisions will not have a material adverse effect on the business or financial condition of the Company. The Company moved its operations to the newly-built corporate offices and distribution center in Birmingham, Alabama in January 1996. The offices and the distribution center are leased by the Company 6 under a long term operating lease. The Company expects the planed expansion in fiscal 2000 will be incorporated into the existing lease. Team Sales owns its warehousing and distribution center located in Birmingham, Alabama. ITEM 3. LEGAL PROCEEDINGS The Company is a party to various legal proceedings incidental to its business. In the opinion of management, after consultation with legal counsel, the ultimate liability, if any, with respect to those proceedings is not presently expected to materially affect the business, financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the NASDAQ National Market (NASDAQ) under the symbol HIBB. The following table sets forth, for the periods indicated the high and low closing sales prices of shares of the Common Stock as reported by NASDAQ.
FISCAL 1999: High Low -------- ------- First Quarter (February 1 to May 2) $ 35 5/8 $23 Second Quarter (May 3 to August 1) $ 40 1/4 $32 5/8 Third Quarter (August 2 to October 31) $ 31 3/4 $20 Fourth Quarter (November 1 to January 30) $ 36 1/16 $16 1/2 FISCAL 1998: First Quarter (February 2 to May 3) $ 17 3/4 $15 Second Quarter (May 4 to August 2) $ 23 1/2 $15 Third Quarter (August 3 to November 1) $ 32 1/4 $22 Fourth Quarter (November 2 to January 31) $ 28 $17
On April 6, 1999, the last reported sale price for the Company's Common Stock as quoted by NASDAQ was $21 5/8 per share. As of April 6, 1999, the Company had approximately 54 registered shareholders. The Company has never declared or paid any dividends on its common stock. The Company currently intends to retain its future earnings to finance the growth and development of its business and therefore does not anticipate declaring or paying cash dividends on its common stock for the foreseeable future. Any future decision to declare or pay dividends will be at the discretion of the Board of Directors and will be dependent upon the Company's financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deems relevant. ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The information required is incorporated by reference from page 9 of the Company's 1999 Annual Report to Stockholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required is incorporated by reference from pages 10 to 16 of the Company's 1999 Annual Report to Stockholders. 7 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The information required is incorporated by reference from page 16 of the Company's 1999 Annual Report to Stockholders. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required is incorporated by reference from pages 18 to 28 of the Company's 1999 Annual Report to Stockholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The information required is incorporated by reference from the sections entitled "Directors and Executive Officers", "The Board of Directors", and "Certain Relationships and Related Transactions" in the Proxy Statement for the Annual Meeting of Stockholders to be held June 8, 1999 (the "Proxy Statement"), which is to be filed with the Securities and Exchange Commission. ITEM 11. EXECUTIVE COMPENSATION The information required is incorporated by reference from the section entitled "Executive Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required is incorporated by reference from the sections entitled "Security Ownership of Certain Beneficial Owners" and "Directors and Executive Officers" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required is incorporated by reference from the section entitled "Certain Relationships and Related Transactions" in the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: 1. Financial Statements: The following Financial Statements and Supplementary Data of the Registrant and Independent Auditors' Report on such Financial Statements are incorporated by reference from the Company's 1999 Annual Report to Stockholders, in Part II, Item 8: Consolidated Balance Sheets as of January 30, 1999 and January 31, 1998 Consolidated Statements of Operations for the fiscal years ended January 30,1999, January 31, 1998 and February 1,1997 8 Consolidated Statements of Stockholders' Investment for the fiscal years ended January 30, 1999, January 31, 1998 and February 1, 1997 Consolidated Statements of Cash Flows for the fiscal years ended January 30, 1999, January 31, 1998 and February 1, 1997 Notes to Consolidated Financial Statements Report of Independent Public Accountants 2. Financial Statement Schedules: The following consolidated financial statement schedule of Hibbett Sporting Goods, Inc. is attached hereto: Schedule II Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable, and therefore have been omitted. 3. Exhibits. The Exhibits listed on the accompanying Exhibits Index are filed as part of, or incorporated by reference into, this report. EXHIBITS INDEX Exhibit # - --------- 3.1 (a) Certificate of Incorporation of the Company 3.2 (a) Bylaws of the Company 10.1 + Credit Agreement dated as of November 5, 1998 between the Company, Hibbett Team Sales, Inc., Sports Wholesale, Inc., AmSouth Bank, NationsBank, N.A. and BankBoston, N.A. 10.2 + Credit Agreement dated as of November 5, 1998 between the Company, Hibbett Team Sales, Inc., Sports Wholesale, Inc. and AmSouth Bank 10.3 (b) Advisory Agreement dated November 1, 1995 between the Company and Saunders, Karp & Co., L.P. 10.4 (b) Non-competition Agreement dated November 1, 1995 among Charles C. Anderson, Joel R. Anderson, Clyde B. Anderson, the Company, The SK Equity Fund, L.P. and SK Investment Fund, L.P. 10.5 (d) The Company's Stock Option Plan (as amended effective as of October 10, 1996) 10.6 (d) The Company's Amended and Restated 1996 Stock Option Plan ("1996 Plan") 10.7 (d) The Company's Employee Stock Purchase Plan 9 10.8 (d) The Company's Stock Plan for Outside Directors 10.9.1 (b) Lease Agreement dated as of February 12, 1996 between QRS 12-14 (AL), Inc. and Sports Wholesale, Inc. (the "Lease Agreement") 10.9.2 (c) Landlord's Waiver and Consent re: Lease Agreement dated February 12, 1996 by QRS 12-14 (AL), Inc. 10.10 (d) Letter from the Company to Clyde B. Anderson dated September 13, 1996 re: Consulting Agreement 13.1 + Fiscal 1999 Annual Report 21 (b) List of Company's Subsidiaries 23.1 + Consent of Arthur Andersen LLP 27 + Financial Data Schedule (a) Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 1997, and incorporated herein by reference. (b) Filed as an exhibit to the Company's Registration Statement on Form S-1, (Registration No. 333-07023) filed with the Securities and Exchange Commission June 27, 1996, and incorporated herein by reference. (c) Filed as an exhibit to Amendment No. 1 to the Company's Registration Statement on Form S-1(Registration No. 333- 07023), filed with the Securities and Exchange Commission July 16, 1996, and incorporated herein by reference. (d) Filed as an exhibit to Amendment No. 2 to the Company's Registration Statement on Form S-1(Registration No. 333- 07023), filed with the Securities and Exchange Commission September 16, 1996, and incorporated herein by reference. + Filed heretowith (b) Reports on Form 8-K: No reports on Form 8-K have been filed during the three months ended January 30, 1999. SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HIBBETT SPORTING GOODS, INC. By: /s/ Michael J. Newsome ----------------------------------- Michael J. Newsome President 10 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date - ------------------------------ -------------------------- --------------- /s/ Michael J. Newsome Principal Executive Officer April 23, 1999 - ------------------------------ and Director -------------- Michael J. Newsome /s/ Susan H. Fitzgibbon Principal Financial Officer April 23, 1999 - ------------------------------ and Principal Accounting -------------- Susan H. Fitzgibbon Officer /s/ Clyde B. Anderson Director April 23, 1999 - ------------------------------ -------------- Clyde B. Anderson /s/ H. Ray Compton Director April 23, 1999 - ------------------------------ -------------- H. Ray Compton /s/ F. Barron Fletcher, III Director April 23, 1999 - ------------------------------ -------------- F. Barron Fletcher, III /s/ Carl Kirkland Director April 23, 1999 - ------------------------------ -------------- Carl Kirkland /s/ John F. Megrue, Jr. Director April 23, 1999 - ------------------------------ -------------- John F. Megrue, Jr. /s/ Thomas A. Saunders, III Director April 23, 1999 - ------------------------------ -------------- Thomas A. Saunders, III 11 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________________ SCHEDULES AND EXHIBITS TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 30, 1999 ___________________ HIBBETT SPORTING GOODS, INC. ================================================================================ 12 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE To Hibbett Sporting Goods, Inc.: We have audited in accordance with generally accepted auditing standards, the financial statements of HIBBETT SPORTING GOODS, INC. (a Delaware corporation) AND SUBSIDIARIES, included in this Form 10-K and have issued our report thereon dated March 11, 1999. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II included in Part IV of the Form 10-K is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Birmingham, Alabama March 11, 1999 13 HIBBETT SPORTING GOODS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998, AND FEBRUARY 1, 1997
FISCAL YEAR ENDED -------------------------------------------------------------- January 30, January 31, February 1, 1997 1999 1998 ------------------ --------------- ----------------- Balance of allowance for doubtful accounts at beginning of period $184,000 $134,000 $ 86,000 Charged to costs and expenses 85,400 110,000 71,000 Write-offs, net of recoveries (45,400) (60,000) (23,000) ------------------ -------------- ------------------ Balance of allowance for doubtful accounts at end of period $224,000 $184,000 $134,000 ================== =============== ==================
14 EX-10.1 2 CREDIT AGREEMENT EXHIBIT 10.1 [EXECUTION COPY] ================================================================================ CREDIT AGREEMENT DATED NOVEMBER 5, 1998 BETWEEN HIBBETT SPORTING GOODS, INC., HIBBETT TEAM SALES, INC. AND SPORTS WHOLESALE, INC. AND AMSOUTH BANK, BANKBOSTON, N.A. AND NATIONSBANK, N.A. AND AMSOUTH BANK, AS AGENT RELATING TO A $25,000,000 REVOLVING FACILITY LOAN ================================================================================ CREDIT AGREEMENT ---------------- THIS CREDIT AGREEMENT dated as of November 5, 1998 ("this Agreement") is entered into by HIBBETT SPORTING GOODS, INC., a Delaware corporation ("Hibbett"), HIBBETT TEAM SALES, INC., an Alabama corporation ("HTS"), and SPORTS WHOLESALE, INC., an Alabama corporation ("SW"; HTS and SW are sometimes together referred to as the "Initial Participating Entities"; Hibbett and the Initial Participating Entities, together with all entities that hereafter become Participating Entities, being hereafter sometimes together referred to as the "Borrowers"), AMSOUTH BANK, an Alabama banking corporation ("AmSouth"), NATIONSBANK, N.A., a national banking association, and BANKBOSTON, N.A., a national banking association (collectively, with all other persons that may from time to time hereafter become Lenders hereunder by execution of an Assignment and Acceptance, the "Lenders"), and AMSOUTH BANK, an Alabama banking corporation, as agent for the Lenders (the "Agent"). RECITALS -------- A. The Borrowers have applied to the Lenders for a revolving credit facility in an aggregate principal amount outstanding not to exceed $25,000,000 (the "Revolving Facility") the proceeds of which are to be used by the Borrowers for general corporate purposes, including seasonal working capital, and letters of credit issued in the ordinary course of business. B. The Lenders are willing to make the Revolving Facility available to the Borrowers only if, among other things, the Borrowers enter into this Agreement and the other Loan Documents (as hereinafter defined). AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing Recitals, and to induce the Lenders to make the Revolving Facility available, the Borrowers, the Lenders and the Agent agree as follows: ARTICLE 1 DEFINITIONS ----------- SECTION 1.1 For the purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: Unless otherwise specified, all accounting terms used herein have the meanings assigned to them, and all computations herein provided shall be made, in accordance with those generally accepted accounting principles applied in the preparation of the audited financial statements of Hibbett referred to in Section 5.3; provided that the financial statements required to be delivered pursuant to clauses (1) and (2) of Section 7.3 shall be prepared in accordance with generally accepted accounting principles as in effect from time to time and provided further that quarterly financial statements delivered pursuant to such clause (1) are not required to contain footnote disclosure and shall be subject to ordinary year-end audit adjustments. All references herein to "generally accepted accounting principles" refer to such principles as they exist at the date of application thereof. All references in this Agreement to designated "Articles", "Sections" and other subdivisions or to lettered Exhibits are to the designated Articles, Sections and other subdivisions hereof and the lettered Exhibits annexed hereto unless the context otherwise clearly indicates. All Article, Section, other subdivision and Exhibit captions herein are used for reference only and in no way limit or describe the scope or intent of, or in any way affect, this Agreement. The terms "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. The terms "include," "including" and similar terms shall be construed as if followed by the phrase "without being limited to." The terms defined in this article have the meanings attributed to them in this article. Singular terms shall include the plural as well as the singular, and vice versa. Words of masculine, feminine or neuter gender shall mean and include the correlative words of other genders. All recitals set forth in this Agreement are hereby incorporated in the operative provisions of this Agreement. No inference in favor of or against any party shall be drawn from the fact that such party or its counsel has drafted any portion hereof. All references herein to a separate instrument are to such separate instrument as the same may be amended or supplemented from time to time pursuant to the applicable provisions thereof. Absolute Rate shall have the meaning assigned to such term in Section ------------- 2.3(c)(ii)(D) hereof. 2 Absolute Rate Auction shall mean a solicitation of Competitive Bid --------------------- Quotes setting forth Absolute Rates pursuant to Section 2.3 hereof. Absolute Rate Loans shall mean the Competitive Bid Loans on which the ------------------- interest rates are determined on the basis of Absolute Rates set at Absolute Rate Auctions. Actual/360 Basis shall mean a method of computing interest or other ---------------- charges hereunder on the basis of an assumed year of 360 days for actual number of days elapsed, meaning that interest or other charges accrued for each day will be computed by multiplying the rate applicable on that day by the unpaid principal balance (or other relevant sum) on that day and dividing the result by 360. Advance shall mean a borrowing under the Revolving Facility consisting ------- of the aggregate principal amount of a Syndicated Loan or a Competitive Bid Loan. Affiliate of any specified person shall mean any person directly or --------- indirectly controlling or controlled by or under direct or indirect common control with such specified person. For purposes of this definition "control" when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Agent shall mean AmSouth Bank and its successors, as agent for the ----- Lenders under this Agreement. Agreement shall mean, on any date, this Credit Agreement, as --------- originally in effect on the Closing Date and as thereafter from time to time amended, supplemented, restated or otherwise modified and in effect on such date. AmSouth shall mean AmSouth Bank, an Alabama banking corporation, as a ------- Lender and its successors and assigns. Applicable Commitment Percentage shall mean, for each Lender, a -------------------------------- fraction, the numerator of which shall be the then amount of such Lender's Commitment and the denominator of which shall be the aggregate amount of the Commitments of all the Lenders, which Applicable Commitment Percentage for each Lender as of the Closing Date is as set forth on the signature pages hereof under the caption "Applicable Commitment Percentage" or, in the case of any person that hereafter becomes a Lender, on the signature pages of the Assignment and Acceptance executed by such person; provided, however, that the Applicable Commitment Percentage of each Lender shall be increased or decreased to reflect any assignments to or by such Lender effected in accordance with Section 10.1 hereof. 3 Applicable Lending Office shall mean, for each Lender and for each ------------------------- Type of Loan, the "Lending Office" of such Lender (or of an Affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or, in the case of any person that hereafter becomes a Lender, on the signature pages of the Assignment and Acceptance executed by such person, or such other office of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Agent and Hibbett as the office by which its Loans of such Type are to be made and maintained. Assignment and Acceptance shall mean an Assignment and Acceptance in ------------------------- the form of Exhibit K (with blanks appropriately completed) delivered in --------- connection with an assignment of a portion of a Lender's interest under this Agreement pursuant to Section 10.1. Assumption Agreement shall have the meaning attributed to that term in -------------------- Section 2.1(i). Base Rate shall mean the higher of the (i) Federal Funds Effective --------- Rate plus 1/2% per annum and (ii) Prime Rate. Base Rate Loans shall mean Syndicated Loans that bear interest at --------------- rates based upon the Base Rate. Borrowers shall have the meaning attributed to that term in the --------- preamble to this Agreement. Business Day shall mean (a) any day on which commercial banks are not ------------ authorized or required to close in the city in the United States in which each of the Lenders maintains its principal place of business and (b) if such day relates to the giving of notices or quotes in connection with a borrowing of, a payment or prepayment of principal of or interest on, a Conversion of or into, or an Interest Period for, a LIBOR Loan or a notice by Hibbett with respect to any such borrowing, payment, prepayment, Conversion or Interest Period, any day on which dealings in Dollar deposits are carried out in the London interbank market. Capital Expenditures shall mean any expenditure for fixed assets or -------------------- that is properly chargeable to capital account in accordance with generally accepted accounting principles. Class shall have the meaning assigned to such term in Section 1.2 ----- hereof. Closing Date shall mean the date of this Agreement. ------------ Commitment shall mean, as to each Lender, the obligation of such ---------- Lender to make Syndicated Loans pursuant to Section 2.1 hereof in an aggregate amount at any one time outstanding up to but not exceeding the amount set out below such Lender's name on the 4 signature pages hereof under the caption "Commitment" (as the same may be reduced at any time or from time to time pursuant to Section 2.8 hereof), or, in the case of any person who hereafter becomes a Lender, on the signature pages of the Assignment and Acceptance executed by such person (as the same may be reduced at any time or from time to time pursuant to Section 2.8 hereof); provided that the Commitment of each Lender shall be increased or decreased to reflect any assignments to or by such Lender effected in accordance with Section 10.1 hereof. Competitive Bid Borrowing shall have the meaning assigned to such term ------------------------- in Section 2.3(b) hereof. Competitive Bid Loans shall mean the Loans provided for by Section 2.3 --------------------- (a) hereof. Competitive Bid Notes shall mean the promissory notes provided for by --------------------- Section 2.7(b) hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. Competitive Bid Quote shall mean an offer in accordance with Section --------------------- 2.3(c) hereof by a Lender to make a Competitive Bid Loan with one single specified interest rate. Competitive Bid Quote Request shall have the meaning assigned to such ----------------------------- term in Section 2.3(b) hereof. Consolidated Entity shall mean a person whose financial statements are ------------------- appropriately consolidated with Hibbett's financial statements under generally accepted accounting principles. Consolidated Net Income shall mean, with reference to any period, the ----------------------- net income of Hibbett and its Consolidated Entities (on a consolidated basis) for such period after eliminating all non-recurring non-cash items of income and expense. Convert, Conversion and Converted shall refer to a conversion pursuant --------------------------------- to Section 3.2 hereof of one Type of Syndicated Loan into another Type of Syndicated Loan, which may be accompanied by the transfer by a Lender (at its sole discretion) of a Loan from one Applicable Lending Office to another. Credit Obligations shall mean the Revolving Facility Obligations, the ------------------ Letter of Credit Obligations and all other obligations and debts of the Borrowers owing to the Lenders and arising under the terms of this Agreement, the Notes and the other Loan Documents, whether now or hereafter incurred, existing or arising, including the principal amount of all Advances, all Letter of Credit Borrowings and all Reimbursement Obligations, any sums expended by the Agent or any of the Lenders in exercising the rights and remedies described in Section 8.1, all accrued interest on Advances and 5 Reimbursement Obligations, and all costs, fees, charges and expenses incurred and payable in connection therewith, including fees payable under the terms of, or in connection with, this Agreement, and all other obligations and debts owing to the Lenders arising in connection with, ancillary to, or in support of Advances and Letter of Credit Borrowings, and all extensions, alterations, modifications, revisions and renewals of any of the foregoing. Current Maturities shall mean principal maturing or coming due on ------------------ Funded Debt (other than the Credit Obligations) during the next succeeding period of twelve calendar months. Debt of any person shall mean, without duplication, (i) the Credit ---- Obligations and all other indebtedness, whether or not represented by bonds, debentures, notes or other securities, for the repayment of borrowed money or for reimbursement of drafts drawn or available to be drawn under letters of credit (provided that letters of credit issued to secure trade obligations, workmen's compensation or similar liabilities and other obligations (not constituting Debt) arising in the ordinary course of business shall count as Debt only to the extent that the aggregate face amount of such letters of credit exceeds $2,000,000) and banker's acceptances issued for the account of such person, (ii) all indebtedness deferred for the payment of the purchase price of property or assets purchased (except accounts payable arising in the ordinary course of business and not incurred through the borrowing of money), (iii) all capitalized lease obligations, (iv) all indebtedness secured by any mortgage or pledge of, or Lien on, property of such person, whether or not the indebtedness secured thereby shall have been assumed, (v) Guaranteed Obligations, (vi) all obligations with respect to any conditional sale contract or title retention agreement, and (vii) all obligations with respect to interest rate swap agreements. Default shall mean an Event of Default or an event that with notice or ------- lapse of time or both would become an Event of Default. Dollars and the symbol $ shall mean dollars constituting legal tender ------- - for the payment of public and private debts in the United States of America. EBITDA for any period shall mean Consolidated Net Income (or the net ------ deficit, if expenses and charges exceed revenues and other proper income credits) for such period, plus amounts that have been deducted for (i) depreciation, (ii) amortization, (iii) Interest Expense and (iv) income and profit taxes in determining Consolidated Net Income for such period. EBITDAR for any period shall mean Consolidated Net Income (or the net ------- deficit, if expenses and charges exceed revenues and other proper income credits) for such period, plus amounts that have been deducted for (i) Interest Expense, (ii) Operating Lease Payments, (iii) depreciation, (iv) amortization and (v) income and profit taxes in determining Consolidated Net Income for such period. 6 ERISA shall mean the Employee Retirement Income Security Act of 1974, ----- as amended from time to time, and the regulations promulgated and rulings issued thereunder. ERISA Affiliate shall mean, as of any date, any corporation, --------------- partnership or other trade or business (whether or not incorporated) under common control with Hibbett and which together with Hibbett is treated as single employer under Section 414 of the Internal Revenue Code, as amended. Event of Default shall have the meaning assigned to such term in ---------------- Article 8 hereof. Facility Fee shall have the meaning attributed to that term in Section ------------ 2.14. Facility Fee Rate shall mean that percent per annum set forth below in ----------------- the column entitled "Facility Fee Rate": Ratio of Funded Debt Facility Fee to EBITDA Rate (%) -------------------- ------------ (1) Equal to or less than 1.25 to 1.00 .125% (2) Greater than 1.25 to 1.00 but less than or equal to 2.0 to 1.00 .15% (3) Greater than 2.0 to 1.00 but less than or equal to 3.0 to 1.0 .175% Federal Funds Effective Rate shall mean, for any day, the rate per ---------------------------- annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of Atlanta on the Business Day next succeeding such day, provided that (a) if the day for -------- which such rate is to be determined is not a Business Day, the Federal Funds Effective Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published for any Business Day, and (b) if such rate is not so published for any Business Day, the Federal Funds Effective Rate for such Business Day shall be the average rate charged to the Agent on such Business Day on such transactions as determined by the Agent. Fixed Rate shall mean the Absolute Rate or the LIBOR-Based Rate. ---------- Fixed Rate Segment shall mean a Segment to which a Fixed Rate is (or ------------------ is proposed to be) applicable. 7 Funded Debt shall mean all Debt of Hibbett and the Consolidated ----------- Entities, on a consolidated basis, that matures by its terms more than one year after, or is renewable or extendible at the option of the debtor to a date more than one year after, the date as of which Funded Debt is being determined. Governmental Authority shall mean any national, federal, state, ---------------------- county, municipal or other agency, authority, department, commission, bureau, board, court or instrumentality thereof. Governmental Requirements shall mean all laws, rules, regulations, ------------------------- requirements, ordinances, judgments, decrees, codes and orders of any Governmental Authority applicable to the Borrowers or any Consolidated Entity. Guaranteed Obligations of any person shall mean all guaranties ---------------------- (including guaranties of guaranties and guaranties of dividends and other monetary obligations), endorsement assumptions and other contingent obligations with respect to, or to purchase or otherwise pay or acquire, Debt of others. Hazardous Material shall mean (a) any asbestos or insulation or other ------------------ material composed of or containing asbestos and (b) any hazardous, toxic or dangerous waste, substance or material defined as such in the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, or any other Governmental Requirement regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material. This definition refers to the amounts of such waste, substance or material present at a particular facility in excess of the reportable quantity or threshold planning quantity, if applicable, for such waste, substance or material as may be listed in such act, law or other Governmental Requirement described in the foregoing sentence. Immaterial Subsidiary shall mean any Subsidiary of the Borrowers that --------------------- either (a) has assets with a gross fair market value of less than $250,000 and gross revenues (determined for the most recently ended period of twelve consecutive fiscal months) of less than $250,000 or (b) has been organized by the Borrowers as an acquisition vehicle solely for the purpose of merging with another person in connection with an acquisition permitted under Section 7.7(15). Interest Expense shall mean all interest incurred on Debt (including ---------------- obligations payable under capitalized leases attributable to interest) during the period in question. Interest Period shall mean: --------------- (a) with respect to any LIBOR Loan, each period commencing on the date such LIBOR Loan is made or Converted from a Loan of another Type or the last day of the next preceding Interest Period for such Loan and ending on the numerically corresponding day 8 in the first, second, third, or sixth calendar month thereafter, as Hibbett may select as provided in Section 3.2 hereof, except that each Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month; (b) with respect to any Absolute Rate Loan, the period commencing on the date such Absolute Rate Loan is made and ending on any Business Day not less than 7 days and not more than 180 days thereafter, as Hibbett may select as provided in Section 2.3 hereof; and (c) with respect to any LIBOR Market Loan, the period commencing on the date such LIBOR Market Loan is made and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Borrowers may select as provided in Section 2.3(b) hereof, except that each Interest Period that commences on the last Business Day of a calendar month (or any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) if any Interest Period for any Competitive Bid Loan or LIBOR Loan would otherwise end after the Termination Date, such Interest Period shall end on the Termination Date; (ii) each Interest Period that would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, in the case of an Interest Period for a LIBOR Loan or a LIBOR Market Loan, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iii) notwithstanding clauses (i) and (ii) above, no Interest Period for any Loan (other than an Absolute Rate Loan) shall have a duration of less than one month (in the case of a LIBOR Loan or a LIBOR Market Loan) and, if the Interest Period for any LIBOR Loan or LIBOR Market Loan would otherwise be a shorter period, such Loan shall not be available hereunder for such period. Issuing Bank shall mean, with respect to each Letter of Credit, the ------------ Lender that issues such Letter of Credit as provided in Section 2.4. Lender's Local Time shall mean the time in effect at the location of ------------------- the Applicable Lending Office of the Lender in question. Lenders shall mean AmSouth, NationsBank, N.A. and BankBoston, N.A., ------- and their respective successors and assigns. Letter of Credit Borrowings shall mean as of any date the maximum --------------------------- aggregate amount that the Issuing Banks could be required to pay under drafts that could be, or have been, properly drawn in compliance with the terms of all Letters of Credit outstanding on such date, other than drafts that have been drawn and paid. 9 Letter of Credit Obligations shall mean (a) the Letter of Credit ---------------------------- Borrowings and (b) the Reimbursement Obligations and the Borrowers' other obligations under this Agreement with respect to Letters of Credit or drawings made thereunder, including obligations with respect to all principal, interest, fees and other charges related thereto. Letter of Credit Participation shall mean, with respect to any Lender ------------------------------ other than the Issuing Bank, the extension of credit represented by the participation of such Lender hereunder in the Issuing Bank's liability with respect to a Letter of Credit issued in accordance with the terms of Section 2.4. Letters of Credit shall mean all letters of credit issued on or after ----------------- the Closing Date by the Issuing Banks for the account of the Borrowers or any of them under this Agreement. Liabilities shall mean all Debt and all other items (including taxes ----------- accrued as estimated) that, in accordance with generally accepted accounting principles, would be included in determining total liabilities as shown on the liabilities side of a balance sheet. LIBOR Auction shall mean a solicitation of Competitive Bid Quotes ------------- setting forth LIBOR Margins based on the LIBOR-Based Rate pursuant to Section 2.3 hereof. LIBOR-Based Rate shall mean the rate of interest determined by the ---------------- Agent by reference to the Knight-Ridder Money Center reporting service or other comparable financial information reporting service at the time employed by the Agent as of 10:00 a.m. (Birmingham, Alabama time) two (2) Business Days prior to the commencement of the Interest Period, of the cost of funds available to the Agent from the purchase on the London interbank market of funds in the form of time deposits in Dollars in the approximate amount of the Segment that is to bear interest at the LIBOR-Based Rate, having a maturity comparable to the Interest Period during which the LIBOR- Based Rate is to be in effect, it being expressly understood that the Agent may not actually purchase any such time deposits and obtain such funds. LIBOR Loans shall mean Syndicated Loans on which interest rates are ----------- determined on the basis of LIBOR-Based Rates plus the Syndicated Margin. LIBOR Margin shall have the meaning assigned to such term in Section ------------ 2.3(c)(ii)(C) hereof. LIBOR Market Loans shall mean Competitive Bid Loans on which interest ------------------ rates are determined on the basis of LIBOR-Based Rates pursuant to a LIBOR Auction. LIBOR Reserve Requirement shall mean the percentage (expressed as a ------------------------- decimal) prescribed by the Board of Governors of the Federal Reserve System (or any successor), on the date on which the LIBOR-Based Rate is determined, for determining the reserve 10 requirements of the Agent (including any marginal, emergency, supplemental, special or other reserves) with respect to liabilities relating to time deposits purchased in the London interbank market having a maturity equal to the period during which the LIBOR-Based Rate will be in effect and in an amount equal to the Segment involved, without any benefit or credit for any proration, exemptions or offsets under any now or hereafter applicable regulations. Lien shall mean any mortgage, pledge, assignment, charge, encumbrance, ---- lien, security interest or financing lease. Loan Documents shall mean this Agreement, any Assumption Agreement, -------------- the Notes and all other agreements, instruments and documents executed or delivered at any time in connection with the Credit Obligations, or to evidence or secure any of the Credit Obligations. Loans shall mean the aggregate outstanding amount of all Syndicated ----- Loans, Competitive Bid Loans, Letter of Credit Borrowings and Reimbursement Obligations, and all extensions and renewals thereof. Margin Stock shall have the meaning attributed to that term in ------------ Regulation U of the Federal Reserve Board, as amended. Material Adverse Change shall mean a material adverse change in the ----------------------- financial condition, results of operations or business of Hibbett and its Subsidiaries, taken as a whole. Material Adverse Effect shall mean a material adverse effect upon (i) ----------------------- the financial condition, results of operations or business of Hibbett and its Subsidiaries, taken as a whole, (ii) the ability of Hibbett and the Participating Entities, taken as a whole, to perform their obligations under this Agreement or any of the other Loan Documents or (iii) the legality, validity or enforceability of this Agreement or any of the other Loan Documents or the rights and remedies of the Agent or the Lenders hereunder and thereunder. Material Contract shall mean any contract or agreement (i) to which ----------------- Hibbett or any of its Subsidiaries is a party, by which any of them or their respective properties is bound or to which any of them is subject and (ii) that is required to be filed as an exhibit to Hibbett's registration statements or periodic reports (including on Forms 10-Q and 10-K) submitted to the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the rules and regulations from time to time promulgated thereunder, or under the Exchange Act of 1934. Notes shall mean the Syndicated Notes and the Competitive Bid Notes. ----- 11 Operating Lease Payments shall mean all amounts payable under any ------------------------ lease or rental agreement (other than obligations under capital leases) during the period in question (but excluding, in any event, amounts paid in respect of taxes, utilities, insurance, common area maintenance and other like charges associated with the lease and rental of real and personal property). Opinion of Counsel shall mean a favorable written opinion of an ------------------ attorney or firm of attorneys duly licensed to practice law in the jurisdiction the laws of which are applicable to the legal matters in question and who is not an employee of the Borrowers or of an Affiliate of the Borrowers. Participating Entity shall mean any Subsidiary that hereafter executes -------------------- and delivers to the Agent an Assumption Agreement and all other documents necessary to assume joint and several liability as to the Credit Obligations. PBGC shall mean the Pension Benefit Guaranty Corporation and any ---- successor thereto. Permitted Encumbrances shall mean: ---------------------- (1) Liens for taxes, assessments and other governmental charges that are not delinquent or that are being contested in good faith by appropriate proceedings duly pursued, and for which adequate reserves have been established and are being maintained; (2) mechanics', materialmen's, contractors', landlords' or other similar liens arising in the ordinary course of business, securing obligations that are not delinquent or that are being contested in good faith by appropriate proceedings duly pursued, and for which adequate reserves have been established and are being maintained; (3) restrictions, exceptions, reservations, easements, conditions, limitations and other matters of record that do not materially adversely affect the value or utility of the property affected thereby or the use to which such property is being put; (4) Liens and other matters approved in writing by the Required Lenders; (5) Liens for purchase money obligations or capital leases provided that such Liens attach only to the property so purchased or leased; (6) Liens existing on any asset prior to the acquisition thereof by a Borrower and not created in contemplation of such acquisition; (7) deposits under workmen's compensation, unemployment insurance and Social Security laws; 12 (8) Liens arising out of any litigation, legal proceeding or judgment that are not delinquent or that are being contested in good faith by appropriate proceedings duly pursued, and for which adequate reserves have been established and are being maintained, and any pledges or deposits to secure, or in lieu of, any surety, stay or appeal bond with respect to any litigation, legal proceeding or judgment; (9) the existing Liens described in Exhibit A hereto; and --------- (10) Liens arising out of the refinancing, extension, renewal or refunding of any Debt secured by Liens permitted by any of the foregoing clauses (5) or (6), provided that such Debt is not increased other than by an amount equal to any reasonable financing fees and is not secured by any additional assets. Permitted Investments shall mean: --------------------- (1) direct obligations of, or obligations the payment of which is guaranteed by, the United States of America or an interest in any trust or fund that invests solely in such obligations or repurchase agreements, properly secured, with respect to such obligations; (2) direct obligations of agencies or instrumentalities of the United States of America having a rating of A or higher by Standard & Poor's Ratings Group or A2 or higher by Moody's Investors Service, Inc.; (3) a certificate of deposit issued by, or other interest-bearing deposits with, a bank having its principal place of business in the United States of America and having equity capital of not less than $250,000,000; (4) certificates of deposit issued by, or other interest-bearing deposits with, any other bank organized under the laws of the United States of America or any state thereof, provided that such deposit is either (i) insured by the Federal Deposit Insurance Corporation or (ii) properly secured by such bank by pledging direct obligations of the United States of America having a market value not less than the face amount of such deposits; (5) commercial paper maturing within 270 days of the acquisition thereof and, at the time of acquisition, having a rating of A-1 or higher by Standard & Poor's Ratings Group, or P-1 or higher by Moody's Investors Service, Inc.; (6) eligible banker's acceptances, repurchase agreements and tax- exempt municipal bonds having a maturity of less than one year, in each case having a rating of, or that is the full recourse obligation of a person whose senior debt is rated, A or higher by Standard & Poor's Ratings Group or A2 or higher by Moody's Investors Service, Inc.; 13 (7) any other investment having a rating of A or higher or A-1 or higher by Standard & Poor's Ratings Group or A2 or higher or P-1 or higher by Moody's Investors Service, Inc; (8) mutual funds, the stated investment policies of which require substantially all assets in such mutual funds to be invested in one or more other itemized Permitted Investments; (9) investments consisting of loans and advances by any of the Borrowers to (i) the Consolidated Entities and (ii) employees for reasonable travel, relocation, business expenses and other various purposes in the ordinary course of business not exceeding $250,000 in the aggregate; and (10) other investments made with the express prior written approval of the Required Lenders. person (whether or not capitalized) shall include natural persons, ------ sole proprietorships, corporations, trusts, unincorporated organizations, associations, companies, institutions, entities, joint ventures, partnerships, limited liability companies and Governmental Authorities. Plan shall mean any "employee pension benefit plan" as defined in ---- Section 3(3) of ERISA which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and which is maintained, or contributed to, by Hibbett or any ERISA Affiliate for employees of Hibbett or any ERISA Affiliate. Prime Rate shall mean that rate of interest designated by the Agent ---------- from time to time as its "prime rate", it being expressly understood and agreed that its prime rate is merely an index rate used by the Agent to establish lending rates and is not necessarily the Agent's most favorable lending rate, and that changes in the Agent's prime rate are discretionary with the Agent. Any change in the Prime Rate shall be effective as of the date of such change. Principal Office shall mean the principal office of the Agent located ---------------- at AmSouth-Sonat Tower, 1900 Fifth Avenue North, Birmingham, Alabama 35203, or such other location in Jefferson County, Alabama designated by the Agent by notice to the Borrowers and the Lenders. Quarterly Payment Date shall have the meaning attributed to that term ---------------------- in Section 2.5. Regulatory Change shall mean on or after the Closing Date, the ----------------- adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, 14 or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Agent, AmSouth or any Lender with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency with respect to maintaining LIBOR Loans or establishing reserves for Letters of Credit, as the case may be. Reimbursement Obligation shall mean at any time the obligation of the ------------------------ Borrowers with respect to any Letter of Credit to reimburse the applicable Issuing Bank and the other Lenders to the extent of their respective Letter of Credit Participations for amounts theretofore paid by the Issuing Bank or any other Lender pursuant to a drawing under such Letter of Credit. Request for Advance or Interest Rate Election shall have the meaning --------------------------------------------- attributed to that term in Section 2.2. Request for Issuance of Letters of Credit shall mean an issuance ----------------------------------------- request duly executed by an officer of Hibbett or other Borrower, as applicable, designated as authorized to sign, substantially in the form of Exhibit L hereto. --------- Required Lenders shall mean Lenders having at least 100% of the ---------------- aggregate amount of the Commitments or, if the Commitments shall have terminated, Lenders holding at least 100% of the aggregate unpaid principal amount of the Loans, provided that if any Lender shall have failed to fund its portion of a Syndicated Loan pursuant to Section 2.1 and the Agent has made such Syndicated Loan on such Lender's behalf, the Agent shall be deemed the holder of such portion of such Lender's Commitment for purposes of this definition. Revolving Facility shall mean the credit facility made available to ------------------ the Borrowers by the Lenders under the terms of Article 2 in an aggregate amount of up to $25,000,000 as reduced by the Borrowers pursuant to Section 2.8 hereof. Revolving Facility Obligations shall mean the outstanding principal ------------------------------ amount of all borrowings under the Revolving Facility consisting of the aggregate principal amount of a Syndicated Loan or a Competitive Bid Loan, all interest accrued thereon, all costs, charges, fees and expenses payable in connection therewith and all extensions and renewals thereof. Segment shall mean a portion of the Advances (or all thereof) with ------- respect to which a particular interest rate is (or is proposed to be) applicable. Solvent shall mean, as to any person, on a particular date, that such ------- person has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage, is able to pay its debts as they mature, owns property having 15 a value, both at fair valuation and at present fair saleable value, greater than the amount required to pay its probable liability on existing debts as they become mature (including known reasonable contingencies and contingencies that should be included in notes of such person's financial statements pursuant to generally accepted accounting principles), and does not intend to, and does not believe that it will, incur debts or probable liabilities beyond its ability to pay such debts or liabilities as they mature. Stores shall mean the existing and hereafter acquired or opened retail ------ sporting goods stores owned and operated by the Borrowers. Subsidiary shall mean any corporation or other entity of which ---------- securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by Hibbett, and which is a Consolidated Entity. Syndicated Loans shall mean the loans provided for by Section 2.1 ---------------- hereof, which may be Base Rate Loans or LIBOR Loans. Syndicated Loan Segment shall mean a portion of the Advances (or all ----------------------- thereof) for a Syndicated Loan with respect to which a particular interest rate is (or is proposed to be) applicable. Syndicated Margin shall mean that percent per annum set forth below, ----------------- in the case of a Syndicated Loan bearing interest at a LIBOR-Based Rate, which shall be the Syndicated Margin set forth opposite the ratio of Funded Debt to EBITDA at the time of each such Advance as determined based on the most recent financial statements furnished to the Agent pursuant to Section 5.3 or Section 7.3 hereof: Ratio of Funded Debt Syndicated to EBITDA Margin --------------------- ---------- (1) Equal to or less than 1.25 to 1.00 .80% (2) Greater than 1.25 to 1.00 but less than or equal to 2.0 to 1.00 1.05% (3) Greater than 2.0 to 1.00 but less than or equal to 3.0 to 1.0 1.30% Syndicated Notes shall mean the promissory notes provided for by ---------------- Section 2.7 hereof and all promissory notes delivered in substitution or exchange thereof in each case as the same shall be modified and supplemented and in effect from time to time. 16 Termination Date means November 5, 2001, as the same may be extended ---------------- from time to time in accordance with Section 2.13 hereof. Type shall have the meaning as assigned to such term in Section 12 ---- hereof. SECTION 1.2 CLASSES AND TYPES OF LOANS. Loans hereunder are distinguished -------------------------- by "Class" and "Type". The "Class" of a Loan refers to whether such Loan is a Competitive Bid Loan or a Syndicated Loan, each of which constitutes a Class. The "Type" of a Loan refers to whether such Loan is a Base Rate Loan, a LIBOR Loan, an Absolute Rate Loan or a LIBOR Market Loan, each of which constitutes a Type. Loans may be identified by both Class and Type. ARTICLE 2 REVOLVING FACILITY TERMS ------------------------ SECTION 2.1 SYNDICATED LOANS. ---------------- (a) From and after the Closing Date to (but not including) the Termination Date, on the terms and subject to the conditions set forth in this Agreement, each Lender severally agrees to lend to the Borrowers, jointly and severally, and the Borrowers may borrow, repay and reborrow, an amount not exceeding the difference between (i) such Lender's Commitment in effect from time to time, less the then outstanding principal amount of such Lender's Syndicated Loans and (ii) the sum of such Lender's share of the then outstanding (x) Letter of Credit Borrowings and (y) Reimbursement Obligations; provided, however, that no more -------- ------- than seven (7) different Interest Periods for both Syndicated Loans and Competitive Bid Loans combined may be outstanding at the same time (for which purpose Interest Periods described in different lettered clauses of the definition of the term "Interest Period" shall be deemed to be different Interest Periods even if they are coterminous). All Syndicated Loans made by the Lenders to the Borrowers under this Agreement with respect to the Revolving Facility shall be evidenced by a promissory note for each Lender each dated the Closing Date payable to the order of each Lender, duly executed by the Borrowers, and in the aggregate maximum principal amount of $25,000,000, all as provided in Section 2.7 hereof. The Syndicated Loans shall bear interest as provided in Article 3 below. The unpaid principal amount of all Loans hereunder shall not exceed the Revolving Facility, and each Syndicated Loan made hereunder shall be allocated pro rata among the Lenders based upon their Applicable Commitment Percentage regardless of amounts outstanding under Competitive Bid Loans. (b) If a draft drawn under any Letter of Credit is paid by the Issuing Bank, and the Borrowers fail or refuse to reimburse the Issuing Bank for such payment, as required by Section 2.4, on or before the close of business on the next Business Day after demand is made by the Issuing Bank on the Borrowers for such reimbursement, the Borrowers hereby authorize the Agent, upon the request and on behalf of the Issuing Bank, without the requirement of notice to 17 the Borrowers, to satisfy the Reimbursement Obligation created by the payment of such draft by making a Syndicated Loan to the Borrowers under the Revolving Facility with interest at the Base Rate. Such Syndicated Loans shall not be subject to the provisions of Section 2.2. If the Issuing Bank requests that the Agent request a Syndicated Loan, specifying in such request to the Agent the aggregate amount of the Syndicated Loan and the date on which such Syndicated Loan is to be made, the Agent shall provide notice thereof to each Lender by telephone or facsimile specifying the amount of the Syndicated Loan to be made by such Lender and the date on which the Syndicated Loan is to be made. If such notice to a Lender is given by the Agent at or before 11:00 a.m. Lender's Local Time on any Business Day, such Lender shall, pursuant to the terms and subject to the conditions of this Agreement, make a Syndicated Loan in the amount of such Lender's Applicable Commitment Percentage of the reimbursement amount and shall pay such amount to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds before 2:00 p.m. Birmingham, Alabama time on the same Business Day. If such notice to a Lender is given by the Agent after 11:00 a.m. Lender's Local Time on any Business Day, such Lender shall, pursuant to the terms and subject to the conditions of this Agreement, make a Syndicated Loan in the amount of such Lender's Applicable Commitment Percentage of the reimbursement amount and shall pay such amount to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds before 12:00 noon Birmingham, Alabama time on the next following Business Day. Each such Syndicated Loan shall bear interest at the Base Rate. (c) Each Participating Entity, separately and severally, hereby appoints and designates Hibbett as its agent and attorney-in-fact to act on behalf of it for all purposes of the Loan Documents. Hibbett shall have authority to exercise on behalf of each Participating Entity all rights and powers that Hibbett deems necessary, incidental or convenient in connection with the Loan Documents, including the authority to execute and deliver certificates, documents, agreements and other instruments referred to or provided for in the Loan Documents, request Advances and elect interest rate options hereunder, request the issuance of Letters of Credit, receive all proceeds of Advances, give all notices, approvals and consents required or requested from time to time by the Lender and take any other actions and steps that each Participating Entity could take for its own account in connection with the Loan Documents from time to time, it being the intent of each Participating Entity to grant to Hibbett plenary power to act on behalf of each Participating Entity in connection with and pursuant to the Loan Documents. The appointment of Hibbett as agent and attorney-in-fact for each Participating Entity hereunder shall be coupled with an interest and be irrevocable so long as any Loan Document shall remain in effect. Neither the Agent nor the Lenders need obtain any Participating Entity's consent or approval for any act taken by Hibbett pursuant to any Loan Document, and all such acts shall bind and obligate Hibbett and each Participating Entity, jointly and severally. Each Participating Entity forever waives and releases any claim (whether now or hereafter arising) against the Lender based on any claim of Hibbett's lack of authority to act on behalf of each Participating Entity in connection with the Loan Documents. (d) The liability of each Participating Entity with respect to the Credit Obligations shall be limited to an amount equal to the greater of (i) $1.00 less than the greatest of (A) the 18 Participating Entity's Net Worth (as hereinafter defined) as of the end of the most recently concluded fiscal quarter of the Participating Entity ended on or prior to the date the Participating Entity became a Borrower, (B) the highest Net Worth of the Participating Entity at the end of any fiscal quarter ending after the Participating Entity became a Borrower and prior to the earlier of the date of the commencement of a case under the United States Bankruptcy Code (the "Bankruptcy Code") involving the Participating Entity or the date enforcement of this Agreement or any of the other Loan Documents is sought against the Participating Entity and (C) the Net Worth of the Participating Entity at the earlier of the date of the commencement of a case under the Bankruptcy Code involving the Participating Entity or the date enforcement of this Agreement or any of the other Loan Documents is sought against the Participating Entity; or (ii) the amount that in a legal proceeding brought within the applicable limitations period is determined by the final, non-appealable order of a court having jurisdiction over the issue and the applicable parties to be the amount of value or benefit given by the Lender, or received by the Participating Entity, in exchange for the obligations of the Participating Entity under this Agreement and the other Loan Documents. As used in this subsection 2.1(d), "Net Worth" shall mean (x) the fair value of the property of the Participating Entity from time to time (taking into consideration the value, if any, of rights of subrogation, contribution and indemnity), minus (y) the total liabilities of the Participating Entity (including contingent liabilities [discounted in appropriate instances], but excluding liabilities of the Participating Entity under this Agreement and the other Loan Documents) from time to time. (e) Each Initial Participating Entity (i) acknowledges that it has had full and complete access to the underlying papers relating to the Credit Obligations and all other papers executed by any person in connection with the Credit Obligations, has reviewed them and is fully aware of the meaning and effect of their contents; (ii) is fully informed of all circumstances that bear upon the risks of executing this Agreement and the other Loan Documents that a diligent inquiry would reveal; (iii) has adequate means to obtain from Hibbett on a continuing basis information concerning Hibbett's financial condition and is not depending on the Agent or the Lenders to provide such information, now or in the future; and (iv) agrees that neither the Agent nor the Lenders shall have any obligation to advise or notify it or to provide it with any data or information. (f) Each Initial Participating Entity hereby agrees that its obligations and liabilities with respect to the Credit Obligations are joint and several with Hibbett, continuing, absolute and unconditional (subject to the provisions of subsection (d) of this section). Without limiting the generality of the foregoing, the obligations and liabilities of each Initial Participating Entity with respect to the Credit Obligations shall not be released, discharged, impaired, modified or in any way affected by (i) the invalidity or unenforceability of any Loan Document, (ii) the failure of the Agent or the Lenders to give each Initial Participating Entity a copy of any notice given to Hibbett, (iii) any modification, amendment or supplement of any obligation, covenant or agreement contained in any Loan Document, (iv) any compromise, settlement, release or termination of any obligation, covenant or agreement in any Loan Document, (v) any waiver of payment, performance or observance by or in favor of Hibbett of any obligation, covenant or agreement under any Loan Document, (vi) any consent, extension, indulgence or other action or inaction, or 19 any exercise or non-exercise of any right, remedy or privilege with respect to any Loan Document, (vii) the extension of time for payment or performance of any of the Credit Obligations, or (viii) any other matter that might otherwise be raised in avoidance of, or in defense against an action to enforce, the obligations of each Initial Participating Entity under this Agreement, the Revolving Facility, the Notes or any other Loan Document. (g) None of the Borrowers will exercise any rights that it may have or acquire by way of subrogation under this Agreement or any of the other Loan Documents or the Subrogation and Contribution Agreement referred to in subsection (h) below, by any payment made hereunder or under any of the other Loan Documents or otherwise, until all the Credit Obligations have been paid in full and this Agreement has been terminated and is no longer subject to reinstatement under Section 10.8. If any amount shall be paid to a Borrower on account of any such subrogation rights at any time when all of the Credit Obligations shall not have been paid in full and this Agreement terminated, such amount shall be held in trust for the benefit of the Lenders and shall be paid forthwith to the Lenders to be credited and applied upon the Credit Obligations, whether matured or unmatured, in accordance with the terms of the Loan Documents. (h) The Borrowers will not amend or waive any provision of the Subrogation and Contribution Agreement dated the Closing Date entered into by the Borrowers nor consent to any departure from such Subrogation and Contribution Agreement, without having obtained the prior written consent of the Lenders to such amendment, waiver or consent. (i) Each person that is to become after the Closing Date a Participating Entity shall, at the time it is to become a Participating Entity, execute and deliver to the Lender, in accordance with the provisions of Section 7.13, an Assumption Agreement in the form attached hereto as Exhibit E ("Assumption --------- Agreement"). SECTION 2.2 ADVANCES OF SYNDICATED LOANS. ---------------------------- (a) Except as otherwise provided in Section 2.1(b), Advances of Syndicated Loans shall be made no more frequently than once in each week, shall be in an amount not less than $3,000,000 and shall be in an integral multiple of $100,000. Each request for an Advance of a Syndicated Loan must be in writing (which may be by facsimile transmission) and must be received by the Agent not later than (x) 11:00 a.m., Birmingham, Alabama time, at least three Business Days prior to the date of any LIBOR Loan and (y) 10:00 a.m., Birmingham, Alabama time, on the day which such Advance is to be made in the case of a Base Rate Loan. Each request for an Advance of a Syndicated Loan shall be in the form attached hereto as Exhibit B ("Request for Advance or Interest Rate Election") --------- and shall specify the amount of the Advance requested, the date as of which the Advance is to be made, and shall provide the interest rate information called for in Section 3.2. (b) Unless the Required Lenders shall otherwise require, the Agent may accept from the Borrowers telephonic or facsimile requests for Advances of Syndicated Loans without requiring the submission of a Request for Advances or Interest Rate Election form. Any request 20 for Advances of Syndicated Loans not made in writing shall be promptly confirmed in writing, which may be by facsimile. The Agent shall promptly furnish each Lender by facsimile a copy of each Request for Advance or Interest Rate Election or, unless such Lender objects, convey to such Lender by telephone or facsimile transmission the information contained in the Request for Advances or Interest Rate Election or other form of request for Advances received from the Borrowers. Not later than 1:00 P.M. Birmingham, Alabama time, on the date specified for each Advance of a Syndicated Loan hereunder, each Lender shall make available the amount of the Syndicated Loan or Loans to be made by it on such date to the Agent at the Principal Office, in Dollars and in immediately available funds, and the amount received by the Agent shall be made available to the Borrowers by depositing the proceeds thereof into an account with the Agent in the name of the Borrowers. (c) The Lenders' obligation to make Advances of Syndicated Loans shall terminate, if not sooner terminated pursuant to other provisions of this Agreement, on the Termination Date. The Lenders shall have no obligation to make Advances of Syndicated Loans if a Default has occurred and is continuing. Each Request for Advance or Interest Rate Election, whether submitted under this Section 2.2 in connection with a requested Advance or under Section 3.2 in connection with an interest rate election and each Request for Issuance of Letters of Credit, shall be signed by an officer of Hibbett designated as authorized to sign and submit Request for Advance or Interest Rate Election or Request for Issuance of Letters of Credit forms in the documents submitted to the Agent pursuant to Section 6.3 below. Hibbett may, from time to time, by notice to the Agent, terminate the authority of any person to submit Request for Advance or Interest Rate Election or Request for Issuance of Letters of Credit forms and designate new or additional persons to so act by delivering to the Agent a certificate of the Secretary or Assistant Secretary of Hibbett certifying the incumbency and specimen signature of each such person. The Agent and the Lenders shall be entitled to rely conclusively upon the authority of any person so designated by Hibbett. SECTION 2.3 COMPETITIVE BID LOANS. --------------------- (a) In addition to borrowings of Syndicated Loans, at any time prior to the Termination Date the Borrowers may request the Lenders to make offers to make Competitive Bid Loans to the Borrowers in Dollars. The Lenders may, but shall have no obligation to, make such offers and the Borrowers may, but shall have no obligation to, accept any such offers in the manner set forth in this Section 2.3. Competitive Bid Loans may be LIBOR Market Loans or Absolute Rate Loans (each a "Type" of Competitive Bid Loan), provided that: -------- (i) there may be no more than seven (7) different Interest Periods for both Syndicated Loans and Competitive Bid Loans combined outstanding at the same time (for which purpose Interest Periods described in different lettered clauses of the definition of the term "Interest Period" shall be deemed to be different Interest Periods even if they are coterminous); and 21 (ii) the aggregate principal amount of all Competitive Bid Loans, together with the sum of the aggregate principal amount of all outstanding Syndicated Loans shall not exceed the aggregate amount of the Commitments at such time. (b) When the Borrowers wish to request offers to make Competitive Bid Loans, Hibbett shall give the Agent (which shall promptly notify the Lenders) notice (a "Competitive Bid Quote Request") to be received by the Agent not later than 10:00 a.m. Birmingham, Alabama time, on (x) the fourth Business Day prior to the date of borrowing proposed therein, in the case of a LIBOR Auction or (y) the Business Day next preceding the date of borrowing proposed therein, in the case of an Absolute Rate Auction (or, in any such case, such other time and date as Hibbett and the Agent, with the consent of the Required Lenders, may approve). Hibbett may request offers to make Competitive Bid Loans for not more than two (2) different Interest Periods in a single Competitive Bid Quote Request (for which purpose Interest Periods in different lettered clauses of the definition of the term "Interest Period" shall be deemed to be different Interest Periods even if they are coterminous); provided that the request for -------- each separate Interest Period shall constitute a separate Competitive Bid Quote Request for a separate borrowing (a "Competitive Bid Borrowing"), and there shall not be outstanding at any one time more than five (5) Competitive Bid Borrowings. Each Competitive Bid Quote Request shall be substantially in the form of Exhibit C hereto and shall specify as to each Competitive Bid --------- Borrowing: (i) the proposed date of such borrowing, which shall be a Business Day; (ii) the aggregate amount of such Competitive Bid Borrowing, which shall be at least $3,000,000 and in multiples of $100,000 but shall not cause the limits specified in Section 2.3(a) hereof to be exceeded; (iii) the duration of the Interest Period applicable thereto; (iv) whether the Competitive Bid Quote requested is for a LIBOR Market Loan or an Absolute Rate Loan; and (v) if the Competitive Bid Quote requested is for an Absolute Rate Loan, the date on which the Competitive Bid Quote is to be submitted (the "Quotation Date"). Except as otherwise provided in this Section 2.3(b), no Competitive Bid Quote Request shall be given within five (5) Business Days (or such other number of days as Hibbett and the Agent, with the consent of the Required Lenders, may approve) of any other Competitive Quote Request. (c) (i) Each Lender may submit one or more Competitive Bid Quotes, each containing an offer to make a Competitive Bid Loan in response to any Competitive Bid Quote Request; provided that, if Hibbett's request under Section -------- 2.3(b) hereof specified more than one Interest Period, such Lender may make a single submission containing one or more Competitive 22 Bid Quotes for each such Interest Period. Each Competitive Bid Quote must be submitted to the Agent not later than (x) 1:00 p.m. Birmingham, Alabama time, on the fourth Business Day prior to the proposed date of borrowing, in the case of a LIBOR Auction, or (y) 10:00 a.m. Birmingham, Alabama time on the Quotation Date, in the case of an Absolute Rate Auction (or, in any such case, such other time and date as Hibbett and the Agent, with the consent of the Required Lenders, may approve), provided that any Competitive Bid Quote may be submitted -------- by AmSouth only if AmSouth notifies Hibbett of the terms of the offer contained therein not later than (x) noon Birmingham, Alabama time on the fourth Business Day prior to the proposed date of borrowing, in the case of a LIBOR Auction or (y) 8:45 a.m. Birmingham, Alabama time on the Quotation Date, in the case of an Absolute Rate Auction. Subject to Sections 4.5, 4.6 and Article 6 and 9 hereof, any Competitive Bid Quote so made shall be irrevocable except with the consent of the Agent given on the instructions of the Borrowers. (ii) Each Competitive Bid Quote shall be substantially in the form of Exhibit D hereto and shall specify: - --------- (A) the proposed date of borrowing and the Interest Period therefor; (B) the principal amount of the Competitive Bid Loan for which each such Competitive Bid Quote is being made, which principal amount shall be at least $1,000,000 (or a larger multiple of $100,000); provided that the aggregate principal amount of all Competitive Bid -------- Loans for which a Lender submits Competitive Bid Quotes may not exceed the principal amount of the Competitive Bid Borrowing for a particular Interest Period for which offers were requested; (C) in the case of a LIBOR Auction, the margin above or below the applicable LIBOR-Based Rate (the "LIBOR Margin") offered for each Competitive Bid Loan, expressed as a percentage (rounded upwards, if necessary, to the nearest 1/10,000th of 1%) to be added to or subtracted from the applicable LIBOR-Based Rate; (D) in the case of an Absolute Rate Auction, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/10,000th of 1%) offered for each such Competitive Bid Loan (the "Absolute Rate"); and (E) the identity of the quoting Lender. Unless otherwise agreed by the Agent and Hibbett, no Competitive Bid Quote shall contain qualifying, conditional or similar language or propose terms other than or in addition to those set forth in the applicable Competitive Bid Quote Request and, in particular, no Competitive Bid Quote may be conditioned upon acceptance by Hibbett of all (or some specified minimum) of the principal amount of the Competitive Bid Loan for which such Competitive Bid Quote is being made. 23 (d) The Agent shall (x) in the case of a LIBOR Auction, by 3:00 p.m. Birmingham, Alabama time, on the day a Competitive Bid Quote is submitted or (y) in the case of an Absolute Rate Auction, as promptly as practicable after a Competitive Bid Quote is submitted (but in any event not later than 10:30 a.m. Birmingham, Alabama time on the Quotation Date), notify Hibbett of the terms (i) of any Competitive Bid Quote submitted by a Lender that is in accordance with Section 2.3(c) and (ii) of any Competitive Bid Quote that amends, modifies or is otherwise inconsistent with a previous Competitive Bid Quote submitted by such Lender with respect to the same Competitive Bid Quote Request. Any such subsequent Competitive Bid Quote shall be disregarded by the Agent unless such subsequent Competitive Bid Quote is submitted solely to correct a manifest error in such former Competitive Bid Quote. The Agent's notice to Hibbett shall specify (A) the aggregate principal amount of the Competitive Bid Borrowing for which Competitive Bid Quotes have been received and (B) the respective principal amounts and LIBOR Margins or Absolute Rates, as the case may be, so offered by each Lender (identifying the Lender that made each Competitive Bid Quote). (e) Not later than 11:30 a.m. Birmingham, Alabama time on (x) the third Business Day prior to the proposed date of borrowing, in the case of a LIBOR Auction or (y) the Quotation Date, in the case of an Absolute Rate Auction (or, in any such case, such other time and date as Hibbett and the Agent, with the consent of the Required Lenders, may approve), Hibbett shall notify the Agent of its acceptance or nonacceptance of the offers submitted pursuant to Section 2.3(d) hereof (and the failure of Hibbett to give such notice by such time shall constitute nonacceptance) and the Agent shall promptly notify each affected Lender. In the case of acceptance, such notice shall specify the aggregate principal amount of offers for each Interest Period that are accepted. Hibbett may accept any Competitive Bid Quote in whole or in part (provided that any -------- Competitive Bid Quote accepted in part shall be at least $1,000,000 or a larger multiple of $100,000); provided that: -------- (i) the aggregate principal amount of each Competitive Bid Borrowing may not exceed the applicable amount set forth in the related Competitive Bid Quote Request; (ii) the aggregate principal amount of each Competitive Bid Borrowing shall be at least $3,000,000 (or a larger multiple of $100,000) but shall not cause the limits specified in Section 2.3(a) hereof to be exceeded; (iii) acceptance of offers may be made only in ascending order of LIBOR Margins or Absolute Rates, as the case may be, in each case beginning with the lowest rate so offered; and (iv) Hibbett may not accept any offer where the Agent has correctly advised Hibbett that such offer fails to comply with Section 2.3(c) hereof or otherwise fails to comply with the requirements of this Agreement (including Section 2.3(a) hereof). 24 If offers are made by two or more Lenders with the same LIBOR Margins or Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount with respect to which offers are accepted for the related Interest Period after the acceptance of all offers, if any, of all lower LIBOR Margins or Absolute Rates, as the case may be, offered by any Lender for such related Interest Period, the principal amount of Competitive Bid Loans with respect to which such offers are accepted shall be allocated by Hibbett among such Lenders as nearly as possible (in amounts of at least $1,000,000 or larger multiples of $100,000) in proportion to the aggregate principal amount of such offers. Determinations by Hibbett of the amounts of Competitive Bid Loans and the lowest bid after adjustment as provided in Section 2.3(e)(iii) shall be conclusive in the absence of manifest error. (f) Any Lender whose offer to make any Competitive Bid Loan has been accepted shall, not later than noon Birmingham, Alabama time on the date specified for the making of such Loan, make the amount of such Loan available to the Agent at the Principal Office in Dollars and in immediately available funds, for the account of the Borrowers. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrowers on such date by depositing the same, in Dollars and in immediately available funds, in an account of the Borrowers maintained at the Principal Office. The Borrowers shall pay the Agent, for its sole account, $100 for each request to make Competitive Bid Loans. SECTION 2.4 LETTER OF CREDIT BORROWINGS. --------------------------- (a) From and after the Closing Date to and including thirty (30) Business Days prior to the Termination Date, the Borrowers may, by submission to the Agent of a Request for Issuance of Letters of Credit, from time to time request that Letters of Credit be issued upon the terms and subject to the conditions of this Agreement for the account of the Borrowers in such amounts as may be requested by the Borrowers, up to a maximum aggregate amount of Letter of Credit Borrowings at any one time outstanding that, when added to (i) the then outstanding Reimbursement Obligations plus (ii) the then outstanding Syndicated Loans and Competitive Bid Loans, would not exceed the Commitments then in effect; provided, however, that no Letter of Credit shall be issued if the issuance thereof would cause the aggregate outstanding amount of Letter of Credit Borrowings and Reimbursement Obligations to exceed $5,000,000. (b) Each Request for Issuance of Letters of Credit shall be submitted to the Agent by Hibbett, on behalf of itself and the other Borrowers, at least three Business Days prior to the date the Letter of Credit is to be issued (or such shorter period as may be agreed to by the Agent), shall obligate the Borrowers to reimburse the Issuing Bank on demand for any amounts drawn under such Letter of Credit and such other sums as may be provided for herein, and shall be executed by a duly authorized officer of Hibbett, on behalf of itself and the other Borrowers, as applicable. On the same day that the Agent receives a Request for Issuance of Letters of Credit, the Agent shall notify the Lender requested by the Borrowers to issue a Letter of Credit and the other Lender or Lenders of receipt of such Request for Issuance of Letters of Credit. If the Lender requested by the Borrowers to issue the Letter of Credit is a Lender other than AmSouth, and such Lender declines to issue such Letter of Credit, or if the Borrowers fail to specify the Lender that is to 25 issue the Letter of Credit, AmSouth shall issue the Letter of Credit requested by the Borrowers and shall be the Issuing Bank with respect thereto. The Issuing Bank (whether the Lender requested by the Borrowers to issue the Letter of Credit or AmSouth) shall issue the Letter of Credit and will make available to the beneficiary thereof the original of such Letter of Credit, as directed by Hibbett in the Request for Issuance of Letters of Credit. (c) Each Letter of Credit shall (i) be a letter of credit issued in the ordinary course of the business of the Borrowers; (ii) expire by its terms on a date not later than thirty (30) Business Days prior to the Termination Date; (iii) be in an amount that complies with paragraph (a) of this Section 2.4; (iv) not conflict with any law or regulation binding on the Issuing Bank; and (v) contain such further provisions and conditions as are standard and reasonable for ordinary irrevocable letters of credit and as may be requested by Hibbett, on behalf of itself and each Participating Entity, and reasonably satisfactory to the Issuing Bank. (d) In accordance with the provisions of Section 2.1(b), the Issuing Bank shall notify the Agent and the other Lender or Lenders of any drawing under any Letter of Credit issued for the account of the Borrowers as promptly as practicable following the receipt by the Issuing Bank of such drawing. (e) Each Lender (other than the Issuing Bank) shall automatically acquire on the date of issuance thereof a Letter of Credit Participation in the liability of the Issuing Bank with respect to each Letter of Credit in an amount equal to such Lender's Applicable Commitment Percentage of such liability, and each Lender (other than the Issuing Bank) thereby shall absolutely, unconditionally and irrevocably assume, and shall be unconditionally obligated to pay to the Issuing Bank as hereinafter described, its Applicable Commitment Percentage of the liability of the Issuing Bank under such Letter of Credit. Simultaneously with the making of a Syndicated Loan made under Section 2.1(b) by a Lender, such Lender shall, automatically and without any further action on the part of the Issuing Bank or such Lender, acquire a Letter of Credit Participation in an amount equal to such Syndicated Loan (excluding the portion thereof constituting interest) in the related Reimbursement Obligation of the Borrowers. The Reimbursement Obligations of the Borrowers shall be immediately due and payable, whether by Syndicated Loans made in accordance with Section 2.1(b) or otherwise. Each Lender's obligation to make payment to the Agent for the account of the Issuing Bank pursuant to this Section 2.4(e), and the right of the Issuing Bank to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and shall be made without any offset, abatement, withholding or reduction whatsoever; provided, however, that nothing contained in this sentence shall limit the Issuing Bank's liability for its gross negligence or willful misconduct in improperly honoring a draft drawn under a Letter of Credit. (f) For each Letter of Credit that the Issuing Bank issues (and all renewals thereof), the Borrowers pay to the Agent for the benefit of the Lenders a letter of credit fee payable on each Quarterly Payment Date in arrears, computed at the Syndicated Margin for LIBOR Loans in effect from time to time during the calendar quarter ended on the day next preceding the Quarterly Payment Date based on the aggregate amount of Letter of Credit Borrowings outstanding from 26 time to time during such calendar quarter. In addition, for each Letter of Credit that is issued (and all renewals thereof), the Borrowers agree to pay to the Agent in advance, for the sole account of the Issuing Bank, an issuance or renewal fee, as the case may be, equal to one-eighth of one percent (1/8%) per annum on the stated amount of the Letter of Credit being issued or renewed. Such fee shall be payable in advance on the date of issuance or renewal, as the case may be. The Borrowers acknowledge that each Issuing Bank will be required by applicable rules and regulations of the Federal Reserve Board to maintain reserves for its liability to honor draws made pursuant to a Letter of Credit notwithstanding the obligation of the Lenders for a Letter of Credit Participation in such liability. The Borrowers agree to reimburse the Issuing Bank promptly for all additional costs incurred by reason of any Regulatory Change that the Issuing Bank may hereafter incur solely by reason of its acting as issuer of the Letters of Credit and its being required to reserve for such liability, it being understood by the Borrowers that other interest and fees payable under this Agreement do not include compensation of the Issuing Bank for such reserves. Each Issuing Bank shall furnish to the Borrowers, at the time of such Issuing Bank's demand for payment of such additional costs, the computation of such additional cost, which shall be conclusive absent demonstrable error, provided that such computations are made on a reasonable basis. The Borrowers shall pay to the Issuing Bank administrative and other fees, if any, in connection with the Letters of Credit in such amounts and at such times as the Issuing Bank and the Borrowers shall agree from time to time. (g) If a draft drawn under a Letter of Credit is presented to the Issuing Bank and the Issuing Bank honors such draft, the Borrowers shall, promptly upon demand of the Issuing Bank therefor and no later than the Business Day following the date of such demand, reimburse the Issuing Bank for the amount of such draft, with interest thereon (i) from the date such draft is honored by the Issuing Bank to but not including the date the Issuing Bank makes demand on the Borrowers for reimbursement, at the applicable Federal Funds Effective Rate and (ii) if the Borrowers do not reimburse the Issuing Bank on the date such demand is made, from the date on which such demand is made to, but not including, the date of reimbursement by the Borrowers to the Issuing Bank, at the Base Rate then in effect. SECTION 2.5 PAYMENTS. All interest accrued on Syndicated Loans and -------- Reimbursement Obligations subject to the Base Rate shall be payable on the first day of each successive January, April, July and October (each, a "Quarterly Payment Date"), commencing on January 1, 1999 and upon payment in full of such Syndicated Loans and Reimbursement Obligations. All interest accrued on each Loan subject to a Fixed Rate having an Interest Period of three months or less shall be payable at the end of the applicable Interest Period then in effect. All interest accrued on each Loan subject to a Fixed Rate having an Interest Period of greater than three months shall be payable (a) on the date that is three months after the initial date of the Interest Period applicable to such Loan and (b) the last day of the Interest Period applicable to such Loan. The principal amount of Syndicated Loans, and Reimbursement Obligations, together with accrued interest thereon, shall be due on the Termination Date. The principal amount of Competitive Bid Loans 27 shall be paid on the last day of the Interest Period for such Competitive Bid Loan. All payments of Credit Obligations shall be payable to the Agent on or before 10:00 a.m. Birmingham, Alabama time on the date when due, at the Principal Office in Dollars and in immediately available funds free and clear of all rights of set-off or counterclaim. If any payment falls due on a day that is not a Business Day, then such due date shall be extended to the next succeeding Business Day (except that, in the case of LIBOR Loans, if the next succeeding Business Day falls in another calendar month, such due date shall be the next preceding Business Day), and such extension of time shall then be included in the computation of payment of interest, fees or other applicable amounts. Payments received by the Lenders shall be applied first to expenses, fees and charges, then to accrued interest and finally to principal. SECTION 2.6 PREPAYMENT. ---------- (a) The Borrowers may at any time prepay all or any part of the Advances, without premium or penalty (except as set forth below); provided, however, that no Fixed Rate Segment may be prepaid during an Interest Period unless the Borrowers shall pay to the Agent the amounts required by Section 4.5 hereof. The Borrowers shall pay all interest accrued to the date of prepayment on any amount prepaid as permitted under the terms of the next preceding sentence on or prior to the Termination Date in connection with the prepayment in full of the Credit Obligations and the concurrent termination of this Agreement. The Borrowers shall give the Agent notice of its intent to pay any Base Rate Loan not later than 10:00 a.m. on the date of payment. Failure to give such notice shall result in payment of interest through the next succeeding Business Day on the amount so paid. (b) If at any time the principal amount of the Advances, together with the sum of the then outstanding Letter of Credit Borrowings and Reimbursement Obligations, is greater than the Commitments then in effect, the Borrower shall immediately make a prepayment (notwithstanding the provisions of clause (a) of this section, but subject to the provisions of Section 4.5) on the Advances equal to the difference between (a) said aggregate principal amount of the Advances plus the sum of the then outstanding Letter of Credit Borrowings and Reimbursement Obligations and (b) the Commitments. SECTION 2.7 NOTES. ----- (a) The Syndicated Loans made by each Lender shall be evidenced by a single promissory note of the Borrowers substantially in the form of Exhibit F-1 ----------- hereto, dated the Closing Date, payable to such Lender in a principal amount equal to the amount of its Commitment as originally in effect and otherwise duly completed. (b) The Competitive Bid Loans made by any Lender shall be evidenced by a single promissory note of the Borrowers substantially in the form of Exhibit F-2 ----------- hereto, dated the Closing Date, payable to such Lender and otherwise duly completed. 28 (c) The date, amount, Type, interest rate and duration of Interest Period (if applicable) of each Loan of each Class made by each Lender to the Borrowers, and each payment made on account of the principal thereof, shall be recorded by such Lender on its books; provided that the failure of such Lender to make, or -------- any error by the Lender in making, any such recordation shall not affect the obligations of the Borrowers to make a payment when due of any amount owing hereunder or under such Note with respect to the Loans to be evidenced by such Note. SECTION 2.8 REDUCTION IN REVOLVING FACILITY. The Borrowers shall have ------------------------------- the right from time to time on each Quarterly Payment Date, upon not less than three (3) Business Days' written notice to the Agent, to reduce the amount of the Revolving Facility. The Agent shall give each Lender, within one (1) Business Day thereafter, telephonic notice (confirmed in writing) of such reduction. Each such reduction shall be in the aggregate principal amount of $5,000,000 or a larger integral multiple of $1,000,000, and shall permanently reduce the Commitment of each Lender on a pro rata basis. No such reduction shall result in payment of a Fixed Rate Segment other than on the last day of the respective Interest Period. Each reduction of the Revolving Facility shall be accompanied by payment of the Loans to the extent that the Credit Obligations exceed the Revolving Facility after giving effect to such reductions together with accrued and unpaid interest on the amounts prepaid. SECTION 2.9 LENDING OFFICES. The Loans of each Type made by each Lender --------------- shall be made and maintained at such Lender's Applicable Lending Office for Loans of such Type. SECTION 2.10 PRO RATA PAYMENTS. Except as otherwise provided herein, (a) ----------------- each payment on account of the principal of and interest on the Syndicated Loans and fees (other than the Agent's fees payable under Section 9.14 hereof, which shall be retained by the Agent) described in this Agreement shall be made to the Agent for the account of the Lenders pro rata based on their Applicable Commitment Percentages, (b) each payment on account of principal of and interest on a Competitive Bid Loan shall be made to the Agent for the account of the Lender making such Competitive Bid Loan, (c) all payments to be made by the Borrowers for the account of each of the Lenders on account of principal, interest and fees, shall be made without set-off or counterclaim, and (d) the Agent will promptly distribute payments received by it to the Lenders. If a payment is received by the Agent before 10:00 a.m., Birmingham, Alabama time on a Business Day, the Agent shall distribute each Lender's share of the payment to such Lender before 2:00 p.m., Lender's Local Time on the same day; or if a payment is received by the Agent after 10:00 a.m. Birmingham, Alabama time on a Business Day or is received on a day other than a Business Day, the Agent shall distribute each Lender's share of the payment to such Lender before 2:00 p.m., Lender's Local Time on the next Business Day. If, for any reason, the Agent makes any distribution to any Lender prior to receiving the corresponding payment from the Borrowers, and the Borrowers' payment is not received by the Agent within three Business Days after payment by the Agent to the Lender, the Lender will, upon written request from the Agent, return the payment to the Agent with interest at the interest rate per annum for overnight borrowing by the Agent from the Federal Reserve Bank for the period commencing on the date the Lender received such payment and ending on, but excluding, the date of its repayment to the Agent. If the Agent advises any Lender of any miscalculation of the amount of such Lender's share that has 29 resulted in an excess payment to such Lender, promptly upon request by the Agent such Lender shall return the excess amount to the Agent with interest calculated as set forth above. Similarly, if a Lender advises the Agent of any miscalculation that has resulted in an insufficient payment to such Lender, promptly upon written request by such Lender the Agent shall pay the additional amount to such Lender with interest calculated as set forth above. In the event the Agent is required to return any amount of principal, interest or fees or other sums received by the Agent after the Agent has paid over to any Lender its share of such amount, such Lender shall, promptly upon demand by the Agent, return to the Agent such share, together with applicable interest on such share. SECTION 2.11 DEFICIENCY ADVANCES. No Lender shall be responsible for any ------------------- default of any other Lender with respect to such other Lender's obligation to make any Syndicated Loan hereunder nor shall the Commitment of any Lender hereunder be increased as a result of such default of any other Lender. Without limiting the generality of the foregoing, in the event any Lender (a "failing Lender") shall fail to make an Advance with respect to a Syndicated Loan to the Borrowers as provided in Section 2.1, the Agent may in its discretion, but shall not be obligated to, advance under the Syndicated Note in its favor (without regard to the maximum face amount of such Syndicated Note, which maximum face amount shall be deemed increased as necessary to give effect to the provisions of this section) as a Lender all or any portion of such amount (the "deficiency advance") and shall thereafter be entitled to payments of principal of and interest on such deficiency advance in the same manner and at the same interest rate or rates to which such failing Lender would have been entitled had such failing Lender made such Advance under its Syndicated Note; provided that, upon payment to the Agent from such failing Lender of the entire outstanding amount of such deficiency advance, together with interest thereon, from the most recent date or dates interest was paid to the Agent by the Borrowers on each Syndicated Loan comprising the deficiency advance at the interest rate per annum for overnight borrowing by the Agent from the Federal Reserve Bank, then such payment shall be credited against the Syndicated Note of the Agent in full payment of such deficiency advance and the Borrowers shall be deemed to have borrowed the amount of such deficiency advance from such failing Lender as of the most recent date or dates, as the case may be, upon which any payments of interest were made by the Borrower thereon. Acceptance by the Borrower of a deficiency advance from the Agent shall in no way limit the rights of the Borrower against a failing Lender. Each Lender other than AmSouth and the failing Lender shall have the right, at its option, to purchase from AmSouth a portion of the deficiency advance determined by multiplying the principal amount of the deficiency advance by a fraction the numerator of which is the purchasing Lender's Applicable Commitment Percentage and the denominator of which is the aggregate of the Applicable Commitment Percentages of all the Lenders other than the failing Lender. SECTION 2.12 ADJUSTMENTS BY AGENT. Notwithstanding the construction of -------------------- "pro rata" to mean based on the Applicable Commitment Percentage and any provisions contained herein for the advancement of funds or distribution of payments on a pro rata basis, the Agent may, in its discretion, but shall not be obligated to, adjust downward or upward (but not in excess of any applicable Commitment) the principal amount of any Loan to be made by any Lender to the 30 nearest amount that is evenly divisible by $100, and make appropriate related adjustments in the distribution of payments of principal and interest on the Loans. SECTION 2.13 EXTENSION OF TERMINATION DATE. If the Borrowers have ----------------------------- furnished to the Agent and the Lenders the financial statements referred to in Section 7.3 within the time set forth therein and three year financial projections for the Borrowers, the Borrowers may request, not earlier than ninety (90) days prior to the first and second annual anniversary of the Closing Date, that the Termination Date be extended for an additional period of one year. The Agent shall notify the Borrowers in writing, within forty-five (45) days of receipt of such request, of the decision of the Lenders as to whether to extend the Termination Date. Failure by the Agent to give such notice shall constitute refusal by the Lenders to extend the Termination Date. The Termination Date shall be extended only upon written consent of all Lenders. SECTION 2.14 FEES. As consideration for the Lenders' agreement to provide ---- the Revolving Facility, the Borrowers agree to pay to the Agent for the account of each of the Lenders a facility fee equal to the Facility Fee Rate times the average daily amount of the Commitments (the "Facility Fee"). The Facility Fee shall be payable in arrears on each Quarterly Payment Date, commencing on January 1, 1999, and on the Termination Date or the date of any earlier termination of this Agreement. The Facility Fee shall be computed on an Actual/360 Basis. SECTION 2.15 WITHHOLDING TAX EXEMPTION. Each Lender that is not ------------------------- incorporated or organized under the laws of the United States of America, or a state thereof, shall, on or before the date such Lender becomes a party to this Agreement, deliver to each of Hibbett and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement and such Lender's Syndicated Note without deduction or withholding of any United States federal income taxes. Each Lender that so delivers a Form 1001 or 4224 further undertakes to deliver to each of Hibbett and the Agent two additional copies of such form (or a successor form) on or before the date that such form expires (currently, three successive calendar years for Form 1001 and one calendar year for Form 4224), becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from a required withholding or deduction of United States federal income tax or after the occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by Hibbett or the Agent, in each case certifying that such Lender is entitled to receive payments under this Agreement and such Lender's Syndicated Note without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred after the Closing Date and prior to the date on which any such delivery would otherwise be required that renders all such forms inapplicable or that would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender promptly advises Hibbett and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. 31 ARTICLE 3 INTEREST -------- SECTION 3.1 APPLICABLE INTEREST RATES. The Borrowers shall have the ------------------------- option to elect to have any Syndicated Loan Segment bear interest at the LIBOR- Based Rate plus the applicable Syndicated Margin or at the Base Rate. For any period of time and for any Syndicated Loan Segment with respect to which the Borrowers do not elect another interest rate, such Syndicated Loan Segment shall bear interest at the Base Rate. The Borrowers' right to elect a LIBOR-Based Rate for a Syndicated Loan Segment shall be subject to the following requirements: (a) each such Syndicated Loan Segment shall be in the amount of $5,000,000 or more and in an integral multiple of $500,000 and (b) each such Syndicated Loan Segment shall have a maturity selected by the Borrowers of one, two, three or six months; provided, however, that no such Syndicated Loan Segment shall have a maturity date later than the Termination Date. SECTION 3.2 PROCEDURE FOR EXERCISING INTEREST RATE OPTIONS. Hibbett, on ---------------------------------------------- behalf of itself and each Participating Entity, may elect to have a particular interest rate apply to a Syndicated Loan Segment by notifying the Agent in writing not later than 11:00 a.m., Birmingham, Alabama time, three (3) Business Days prior to the effective date on which any LIBOR-Based Rate is to become applicable or not later than 9:00 a.m., Birmingham, Alabama time, on the same day on which a requested Base Rate is to become applicable. Unless the Required Lenders otherwise require, the Agent may, in its discretion, accept an election by Hibbett to have a particular rate applied to a Syndicated Loan Segment given by telephone or facsimile. Any notice of interest rate election hereunder shall be irrevocable and shall be in the form attached hereto as Exhibit B and shall --------- set forth the following: (a) the amount of the Syndicated Loan Segment to which the requested interest rate will apply, (b) the date on which the selected interest rate will become applicable, (c) whether the interest rate selected is the Base Rate or a LIBOR-Based Rate and (d) if the interest rate selected is a LIBOR-Based Rate, the maturity selected for the Interest Period. Any request to have a particular rate applied to a Syndicated Loan Segment not made in writing shall be promptly confirmed in writing. On the second Business Day preceding the Business Day that a requested LIBOR-Based Rate is to become applicable, the Agent shall use its best efforts to notify Hibbett by telephone or by facsimile transmission of the applicable LIBOR-Based Rate, by 10:00 a.m., Birmingham, Alabama time, or as earlier on that day as may be practical in the circumstances. The Agent shall not be required to provide a LIBOR-Based Rate on any day on which a LIBOR Quote is not available. The Agent shall notify the Lenders by facsimile transmission as promptly as practicable of the receipt by the Agent of each interest rate election and of each LIBOR-Based Rate agreed to by the Agent and Hibbett. SECTION 3.3 BASE RATE. Each Segment subject to the Base Rate shall bear --------- interest from the date the Base Rate becomes applicable thereto until payment in full, or until a LIBOR-Based Rate is selected by the Borrowers and becomes applicable thereto, on the unpaid principal balance of such Segment on an Actual/360 Basis. Any change in the Base Rate shall take effect on the effective date of such change in the Base Rate designated by the Agent, without notice to the Borrowers and without any further action by the Agent. Notwithstanding the foregoing, for the 32 purpose of enabling the Agent to send periodic billing statements in advance of each interest payment date reflecting the amount of interest payable on such interest payment date, the Base Rate, in effect 15 days prior to each interest payment date shall be deemed to be the Base Rate, as continuing in effect until the date prior to such interest payment date for purposes of computing the amount of interest payable on such interest payment date. If the Agent elects to use the Base Rate, 15 days prior to the interest payment date for billing purposes, and if the Base Rate changes during such 15-day period, the difference between the amount of interest that in fact accrues during such period and the amount of interest actually paid will be added to or subtracted from, as the case may be, the interest otherwise payable in preparing the periodic billing statement for the next succeeding interest payment date. In determining the amount of interest payable at the Termination Date or upon full prepayment of the Credit Obligations, all changes in the Base Rate occurring on or prior to the day before the Termination Date or the date of such full prepayment shall be taken into account. SECTION 3.4 LIBOR-BASED RATE. Each Syndicated Loan Segment subject to the ---------------- LIBOR-Based Rate shall bear interest from the date the LIBOR-Based Rate becomes applicable thereto until the end of the applicable Interest Period on the unpaid principal balance of such Syndicated Loan Segment at the LIBOR-Based Rate on an Actual/360 Basis plus the applicable Syndicated Margin. SECTION 3.5 CHANGES IN MARGIN. Any change in the rate of interest payable ----------------- with respect to a LIBOR Loan because of a change in the Syndicated Margin shall become effective as of the first day of the fiscal quarter next following the receipt by the Agent of the Compliance Certificate furnished by the Borrowers to the Agent pursuant to Section 7.3(3) hereof, stating that as a result of a change in the ratio of Funded Debt to EBITDA there has been a change in the Syndicated Margin. Any such change in the Syndicated Margin shall be effective without notice to the Borrowers and without any further action by the Agent or the Lenders. SECTION 3.6 POST MATURITY INTEREST. Upon and after the occurrence of any ---------------------- Event of Default, the outstanding principal amount of all Advances and Reimbursement Obligations and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any fees and other amounts then due and payable hereunder, shall thereafter bear interest (including post- petition interest in any proceeding under applicable bankruptcy laws) payable upon demand at a rate that is 2.00% per annum (calculated on an Actual/360 Basis) in excess of the interest rate otherwise payable under this Agreement with respect to the applicable Advances and Reimbursement Obligations (or, in the case of any such fees and other amounts, at a rate that is 2.00% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Advances); provided that, in the case of Advances subject to a Fixed Rate, -------- upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective, such Advances subject to a Fixed Rate shall thereupon become Base Rate Advances and thereafter bear interest payable upon demand at a rate that is 2.00% per annum (calculated on an Actual/360 Basis) in excess of the interest rate otherwise payable under this Agreement for Base Rate Advances. The payment or acceptance of the increased rate provided by this Section 3.6 shall not constitute a waiver of any Event of Default or an amendment to this Agreement or otherwise 33 prejudice or limit any rights or remedies of the Lender. Interest on all Advances and Reimbursement Obligations shall be calculated on an Actual/360 Basis. ARTICLE 4 TERMINATION OF LIBOR-BASED RATE AND YIELD PROTECTION ---------------------------------------------------- SECTION 4.1 ADDITIONAL COSTS. ---------------- (a) The Borrowers shall pay directly to each Lender (through the Agent) from time to time such amounts as such Lender may determine in good faith to be necessary to compensate it for any costs which such Lender determines are attributable to its making or maintaining any LIBOR Loan or its obligation to make any LIBOR Loans hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any of such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs") resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or its Notes in respect of any of such Loans (other than taxes imposed on or measured by the overall net income of such Lender or of its Applicable Lending Office for any of such Loans by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); (ii) imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender including any change in the LIBOR Reserve Requirement; or (iii) imposes any other condition affecting the interests of any Lender under this Agreement or its LIBOR Loans to the Borrowers. If any Lender requests compensation from the Borrowers in writing under this Section 4.1(a), the Borrowers may, by notice to such Lender (with a copy to the Agent), (i) suspend the obligation of such Lender to make or continue LIBOR Loans until the regulatory change giving rise to such request ceases to be in effect or (ii) require such Lender to designate another of its existing facilities as the Applicable Lending Office for making LIBOR Loans or take other reasonable action if such designation or other action would avoid the need for, or reduce the amount of, compensation pursuant to this Section 4.1(a) and would not in such Lender's good faith judgment be disadvantageous to such Lender. Any amounts due under this Section 4.1(a) as a result of a change in the LIBOR Reserve Requirement shall only be payable by the Borrowers to the extent such Lender incurs actual costs associated with any such change. 34 (b) Without limiting the effect of the provisions of Section 4.1(a), in the event that, by reason of any regulatory change, any Lender either (i) incurs additional costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender which includes deposits by reference to which the interest rate on LIBOR Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender which includes LIBOR Loans or (ii) becomes subject to restrictions on the amount of any such category of liabilities or assets which it may hold, then, if such Lender so elects (through the Agent) by notice to the Borrowers, the obligation of such Lender to make or continue Loans hereunder shall be suspended until such regulatory change ceases to be in effect. Notwithstanding the foregoing, the obligation of any Lender to make or continue LIBOR Loans shall not be affected by any other Lender's suspension of its obligations as set forth in this Section 4.1(b). (c) Without limiting the effect of the foregoing provisions of this Section 4.1 (but without duplication), the Borrowers shall pay directly to each Lender (through the Agent) from time to time on written request such amounts as such Lender may determine in good faith to be necessary to compensate such Lender for any increased costs which it determines are attributable to the maintenance by such Lender (or any Applicable Lending Office) of capital in respect of its Loans pursuant to any Regulatory Change or implementing any risk-based capital guideline or requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) hereafter issued by any Governmental Authority implementing at the national level the Basle Accord (including the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) and the Final Risk-Based Capital Guidelines of the Office of the Comptroller of the Currency (12 CFR Part 3, Appendix A)), such compensation to include an amount equal to any reduction of the rate of return on assets or equity of such Lender (or any Applicable Lending Office) to a level below that which such Lender (or any Applicable Lending Office) could have achieved but for such Regulatory Change. For purposes of this Section 4.1(c), "Basle Accord" shall mean the proposals for risk-based capital framework described by the Basle Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, modified and supplemented in effect from time to time or any replacement thereof. (d) Each Lender (through the Agent) shall notify Hibbett of any event occurring after the Closing Date that will entitle such Lender to compensation under Section 4.1(a) or (c) as promptly as practicable, but in any event within 45 days after such Lender obtains actual knowledge thereof; provided however, that if such Lender fails to give such notice within 45 days after it obtains actual knowledge of such an event, such Lender shall, with respect to compensation payable pursuant to this Section 4.1 in respect of any costs resulting from such event, only be entitled to payment under this Section 4.1 for costs incurred from and after the date 45 days prior to the date that such Lender does give such notice. Each Lender (through the Agent) will furnish to Hibbett a certificate setting forth in reasonable detail the basis and amount of each request by such Lender for compensation under Section 4.1(a) or (b) and such compensation shall be due five Business Days from the date Hibbett receives such certificate. Determinations and allocations by 35 any Lender for purposes of this Section 4.1 of the effect of any regulatory change pursuant to Section 4.1(a) or (b), of maintaining Loans or its obligation to make Loans or on amounts receivable by it in respect of Loans, and of the amounts required to compensate such Lender under this Section 4.1, shall be made in a manner consistent with that applied by such Lender in similar contexts and shall be conclusive in the absence of demonstrable error. SECTION 4.2 LIMITATION ON TYPES OF ADVANCES. Anything herein to the ------------------------------- contrary notwithstanding, if on or prior to the determination of any LIBOR-Based Rate for any Interest Period: (a) the Agent determines in good faith (which determination shall be conclusive) that quotations of interest rates for the relevant deposits referred to in the definition of LIBOR-Based Rate are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for LIBOR Loans as provided herein; or (b) if the Required Lenders determine in good faith (which determination shall be conclusive) and notify the Agent that the relevant rates of interest referred to in the definition of LIBOR-Based Rate in this Agreement upon the basis of which the rate of interest for LIBOR Loans for such Interest Period is to be determined are not likely to adequately cover the cost to such Lenders of making or maintaining LIBOR Loans for such Interest Period; then the Agent shall give Hibbett and each Lender written notice thereof, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional LIBOR Loans, and the Borrowers shall, on the last day(s) of the then-current Interest Period(s) for the outstanding LIBOR Loans, either prepay such Loans or convert such Loans into Base Rate Loans. SECTION 4.3 ILLEGALITY. Notwithstanding any other provision of this ---------- Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to honor its obligation to make or maintain LIBOR Loans hereunder, then such Lender (through the Agent) shall promptly notify Hibbett and such Lender's obligation to make LIBOR Loans shall be suspended until such time as such Lender may again make and maintain LIBOR Loans. SECTION 4.4 TREATMENT OF AFFECTED LOANS. --------------------------- If the obligation of any Lender to make LIBOR Loans shall be suspended pursuant to Sections 4.1 or 4.3, such Lender's LIBOR Loans shall be automatically converted into Base Rate Loans on the last day(s) of the then- current Interest Period(s) for such outstanding Loans (or, in the case of a conversion pursuant to Section 4.3 that is legally required to be made immediately, on such earlier date as such Lender may specify to Hibbett with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Sections 4.1 or 4.3 which gave rise to such conversion no longer exist to the extent that such Lender's LIBOR Loans have been so converted, all payments and prepayments of principal which would otherwise be applied to such Lender's LIBOR Loans shall be applied instead to its Base Rate Loans. 36 SECTION 4.5 COMPENSATION. The Borrowers shall pay to the Agent for the ------------ account of each Lender, upon the request of such Lender through the Agent, five Business Days after Hibbett receives the certificate referred to herein, such amount or amounts as shall be sufficient to compensate it for any loss, cost, or expense which such Lender determines in good faith is attributable to: (a) any payment, prepayment or conversion of a LIBOR Loan by the Borrowers for any reason on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Borrowers for any reason to borrow a LIBOR Loan (other than a refusal by such Lender to make such a LIBOR Advance pursuant to this Article 4) from such Lender on the date for such borrowing specified in the relevant Request for Advance or Interest Rate Election or Competitive Bid Quote Request. Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest which otherwise would have accrued on the principal amount so paid, prepaid or converted or not borrowed for the period from the date of such payment, prepayment, conversion or failure to borrow to the last day of the then-current Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan which would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Loan provided for herein over (ii) the amount of interest which would otherwise have accrued on such principal amount at a rate per annum equal to the interest component of the amount such Lender would have bid in the London interbank market for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as determined in good faith by such Lender); provided that such compensation shall not include loss of margin for the period after any payment, prepayment, conversion or failure to borrow described in Sections 4.5(a) or (b). SECTION 4.6 TAXES. ----- (a) Any and all payments by the Borrowers hereunder shall be paid (except to the extent required by law) free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding franchise taxes and taxes based on net income (including branch profit taxes and minimum taxes) imposed on the Agent or any Lender by the United States or the jurisdiction (or any political subdivision thereof) in which the Agent or such Lender, as the case may be, is organized, is doing business, or has its principal office or Applicable Lending Office (all such nonexcluded taxes, levies, imposts deductions, charges, withholding and liabilities being hereinafter referred to as "Taxes"). If the Borrowers shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Lenders or the Agent (i) the sum payable by the Borrowers shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.6) such Lender or the Agent shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make such deduction, and (iii) the Borrowers shall 37 pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law. Notwithstanding anything to the contrary, the Borrowers shall not be required to increase the sum payable to any Lender that is not incorporated or organized under the laws of the United States of America or a state thereof with respect to any Taxes that are imposed on amounts payable to such Lender at the time such Lender becomes a party to this Agreement or that are attributable to such Lender's failure to comply with the requirements of Section 2.15. (b) In addition, the Borrowers agree to pay any present or future stamp or documentary taxes or an other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrowers will indemnify each Lender and the Agent for the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 4.6) imposed on amounts payable hereunder paid by such Lender or the Agent (net of any benefits as reasonably determined by such Lender or Agent), and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Such indemnification shall be made within five Business Days after the date of receipt of a written demand therefor from such Lender, or the Agent, as the case may be together with evidence that payment of such Taxes and Other Taxes has been made. (d) Within 30 days after the date of any payment of Taxes or Other Taxes withheld by the Borrowers in respect of any payment to any Lender or the Agent, the Borrowers will furnish to the Agent the original or a certified copy of a receipt evidencing payment thereof or, if such receipt is not available, any other evidence of payment reasonably satisfactory to the Agent. (e) Any Lender or the Agent, as the case may be, claiming any additional amounts payable pursuant to this Section 4.6 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document reasonably requested by the Borrowers if the making of such a filing would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue and would not, in the sole reasonable determination of such Lender, be otherwise disadvantageous to such Lender. To the extent any Lender shall receive a refund (either by way of a direct payment or an offset) or a credit in respect of all or a portion of the additional amounts payable pursuant to this Section 4.6, such Lender shall promptly notify the Borrowers of the amount of such refund or credit and within 30 days after the receipt of such refund or credit, pay to the Borrowers the amount of such refund or credit. 38 ARTICLE 5 REPRESENTATIONS AND WARRANTIES ------------------------------ Each of the Borrowers, jointly and severally, represents and warrants to the Agent and the Lenders as follows: SECTION 5.1 ORGANIZATION POWERS, EXISTENCE, ETC. (a) Hibbett and each ----------------------------------- Consolidated Entity (other than Immaterial Subsidiaries) are duly organized, validly existing and in good standing under the laws of the state in which it is incorporated, (b) Hibbett and each Consolidated Entity (other than Immaterial Subsidiaries) have the corporate power and authority to own its properties and assets and to carry on its business as now being conducted, (c) Hibbett and each Consolidated Entity (other than Immaterial Subsidiaries) have the corporate power to execute, deliver and perform the Loan Documents to which they are a party, (d) Hibbett and each Consolidated Entity (other than Immaterial Subsidiaries) are duly qualified to do business in each state with respect to which the failure to be so qualified would have a Material Adverse Effect and (e) except as set forth in Exhibit J hereto, Hibbett and each Consolidated --------- Entity has not done business under any other name, trade name or otherwise within the five years immediately preceding the Closing Date. SECTION 5.2 AUTHORIZATION OF BORROWING, ETC. The execution, delivery and ------------------------------- performance of the Loan Documents (a) have been duly authorized by all requisite corporate action and (b) will not violate any Governmental Requirement, the certificate of incorporation or bylaws of Hibbett or any Consolidated Entity, or any Material Contract to which Hibbett or any Consolidated Entity is a party, or by which Hibbett or any Consolidated Entity or any of their properties are bound, or be in conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such Material Contract. SECTION 5.3 LIABILITIES. Hibbett has furnished to the Lender a copy of ----------- the audited consolidated balance sheet of Hibbett and the Consolidated Entities dated as of January 31, 1998 and a statement of changes in shareholders' equity and the related statements of income and cash flow as of the end of fiscal year 1998 and the unaudited consolidated balance sheet of Hibbett and the Consolidated Entities dated as of August 1, 1998 and the related statements of income and cash flow for the six month period then ended. Such financial statements were prepared in conformity with generally accepted accounting principles consistently applied throughout the period involved (subject, with respect to the unaudited financial statements, to the absence of notes required by generally accepted accounting principles and to normal year-end audit adjustments), are in accordance with the books and records of Hibbett and the Consolidated Entities in all material respects, are correct and complete in all material respects and present fairly the financial condition of Hibbett and the Consolidated Entities as of the date of such financial statements, and, since the date of such financial statements, no material adverse change in the financial condition, business or results of operations of Hibbett and the Consolidated Entities, taken as a whole, has occurred. Neither Hibbett nor any Consolidated Entity has any Liabilities, Guaranteed Obligations or other 39 obligations or liabilities, direct or contingent, that are material in amount other than the Liabilities reflected in such balance sheet and the notes thereto. SECTION 5.4 TAXES. Hibbett and each Consolidated Entity has filed or ----- caused to be filed all federal, state and local tax returns that are required to be filed (other than such state or local tax returns and reports the failure to file which would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect), and has paid all taxes as shown on said returns or on any assessment received by Hibbett or any Consolidated Entity to the extent that such taxes have become due, other than those that are being contested in good faith and by proper proceedings and for which adequate reserves have been established in accordance with generally accepted accounting principles. The Borrowers have reserves which are believed by the officers of the Borrowers to be adequate for the payment of additional taxes for years which have not been audited by the respective tax authorities. SECTION 5.5 LITIGATION. There are no actions, suits or proceedings ---------- pending or, to the best knowledge of the Borrowers, threatened against or affecting Hibbett or any Consolidated Entity, by or before any Governmental Authority that involve any of the transactions contemplated in this Agreement or the reasonable likelihood of any judgment or liability that may result in a Material Adverse Change; and neither Hibbett nor any Consolidated Entity is in default with respect to any material Governmental Requirement which default could reasonably be likely to have a Material Adverse Effect. SECTION 5.6 AGREEMENTS. Neither Hibbett nor any Consolidated Entity is in ---------- default in the performance, observance or fulfillment of any of the obligations contained in any Material Contract to which it is a party, which default could reasonably be likely to have a Material Adverse Effect. SECTION 5.7 USE OF PROCEEDS. None of the Borrowers intends to use any --------------- part of the proceeds of Advances for the purpose of purchasing or carrying any Margin Stock or retiring any debt incurred to purchase or carry any Margin Stock or for any other purpose that is not expressly authorized by this Agreement. SECTION 5.8 ERISA. Neither Hibbett nor any ERISA Affiliate maintains or ----- contributes to, or has within the preceding five years maintained or contributed to, any Plan that is a Plan subject to Title IV of ERISA. SECTION 5.9 SUBSIDIARIES. As of the Closing Date, Hibbett has no ------------ Subsidiaries other than the Initial Participating Entities. The Participating Entities have no direct or indirect equity ownership in any other person other than other Subsidiaries of Hibbett. Hibbett's ownership interest in each Participating Entity is free and clear of all Liens, warrants, options, rights to purchase and other interests of any person. All capital stock of the Participating Entity has been duly authorized and validly issued and is fully paid and non-assessable. 40 SECTION 5.10 ENVIRONMENTAL LAWS. ------------------ (a) To the best knowledge of the Borrowers, all properties owned or used by the Borrowers, while under the custody, care and control of the Borrowers, have been maintained in compliance in all material respects with all applicable federal, state and local environmental protection, occupational, health and safety or similar laws, including the Federal Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.), Resource Conservation & Recovery Act (42 U.S.C. (S) -- --- 6901 et seq.), Safe Water Drinking Act (42 U.S.C. (S) 300(f) et seq.), Toxic -- --- -- --- Substances Control Act (15 U.S.C. (S) 2601 et seq.), Clean Air Act (42 U.S.C. -- --- (S) 7401 et seq.) and Comprehensive Environmental Response of Compensation and -- --- Liability Act (42 U.S.C. (S) 6901 et seq.) ("CERCLA"). -- --- (b) The Borrowers have not received any material written notification from any Governmental Authority with respect to current, existing violations of any of the laws enumerated in clause (a) above, or pursuant to any of their respective implementing regulations or state analogues to such laws or regulations. (c) To the best knowledge of the Borrowers, there has not been, at any location owned or used by the Borrowers, any "Release" (as defined in Section 101(22) of CERCLA) by the Borrowers, anyone within the Borrowers' control, or any other person, of any Hazardous Materials. (d) To the best knowledge of the Borrowers, the Borrowers have not sent or arranged for the transportation or disposal of Hazardous Materials or wastes to a site which, pursuant to CERCLA or any similar state law (i) has been placed, or is proposed (by the Environmental Protection Agency or relevant state authority) to be placed, on the "National Priorities List" of hazardous waste sites or its state equivalent, or (ii) is subject to a claim, an administrative order or other request to take "removal" or "remedial" action (in each case as defined in CERCLA) by any person. SECTION 5.11 DISCLOSURE. No financial statement, document, certificate or ---------- other written communication furnished to the Lender by or on behalf of the Borrowers in connection with any Loan Document contained when so furnished any statement of a material fact that was untrue in any material respect. SECTION 5.12 LICENSES. All material licenses, permits, accreditations and -------- approvals required by all Governmental Authorities necessary in order for each Store to be operated for its intended purpose have been obtained and are in full force and effect, except for those the failure to obtain which would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect. SECTION 5.13 TITLE TO PROPERTIES. As of the Closing Date, the Borrowers ------------------- have good and marketable title to all their properties and assets reflected on the balance sheet referred to in Section 5.3 except for those matters shown on such balance sheet and except for such properties 41 and assets as have been disposed of since the date of said balance sheet as no longer used or useful in the conduct of its business or as have been disposed of in the ordinary course of the business. All such properties and assets are free and clear of all Liens, except as otherwise permitted or required by the provisions of the Loan Documents. SECTION 5.14 ENFORCEABILITY. This Agreement and each of the other Loan -------------- Documents, when duly executed and delivered by the Borrowers, as appropriate, in accordance with the provisions of this Agreement, will constitute the legal, valid and binding, joint and several, obligations of the Borrowers, enforceable in accordance with their respective terms, subject to the effect of bankruptcy, insolvency, reorganization, receivership, moratorium and similar laws affecting the rights and remedies of creditors generally. SECTION 5.15 CONSENTS, REGISTRATIONS, APPROVALS, ETC. No registration ---------------------------------------- with or consent or approval of, or other action by, any Governmental Authority is required for the execution, delivery and performance of this Agreement or the other Loan Documents, or the borrowings under this Agreement, by the Borrowers. SECTION 5.16 SOLVENCY. Hibbett is Solvent, and Hibbett will not, as a -------- result of the transactions provided for herein (i) become not Solvent, (ii) be left with unreasonably small capital, (iii) incur debts beyond its ability to pay them as they mature or (iv) have Liabilities (including reasonable contingencies) in excess of the fair saleable value of its assets. ARTICLE 6 GENERAL CONDITIONS OF LENDING ----------------------------- The Lenders' obligation to make each Syndicated Loan and the Issuing Bank's obligation to issue each Letter of Credit hereunder is subject to the following conditions precedent: SECTION 6.1 REPRESENTATIONS AND WARRANTIES. On the date of each Advance ------------------------------ or issuance of a Letter of Credit hereunder and on the date Hibbett presents to the Agent a Request for Advance or Interest Rate Election form or Competitive Bid Quote Request or Request for Issuance of Letters of Credit, the representations and warranties set forth in this Agreement and in all other Loan Documents shall be true and correct on and as of such date with the same effect as though such representations and warranties had been made on the date of the Advance or issuance of the Letter of Credit on the date Hibbett presents to the Agent a Request for Advance or Interest Rate Election or Competitive Bid Quote Request or Request for Issuance of Letters of Credit, as the case may be (or in the case of any such representation and warranty made as of a particular date, as of such particular date), except to the extent previously fulfilled in accordance with the terms hereof, subsequently inapplicable, or modified as a result of activities of the Borrowers, or any of them. The borrowing of each Advance or obtaining of each Letter of Credit or the presentation by Hibbett of each Request for Advance or Interest Rate Election or Competitive Bid Quote Request or Request for Issuance of Letters of Credit shall constitute a 42 representation and warranty by the Borrowers to the Lender that no material adverse change in the financial condition of Hibbett and the Consolidated Entities, on a consolidated basis, as reflected in the financial statements delivered to the Agent and the Lenders pursuant to Section 5.3 has occurred since the date of such financial statements. SECTION 6.2 NO DEFAULT. On the date of each Advance hereunder and on the ---------- date of the issuance of each Letter of Credit, the Borrowers shall be in compliance with all the terms and conditions set forth in this Agreement on their part to be observed or performed, and no Default shall have occurred and be continuing. The borrowing of each Advance or obtaining of each Letter of Credit shall constitute a representation and warranty by the Borrowers to the Agent and the Lenders that no Default has occurred and is continuing. The presentation by Hibbett of each Request for Advances or Interest Rate Election or Request for Issuance of Letters of Credit shall constitute a representation and warranty by the Borrowers to the Lenders and to the Agent that no Default or Event of Default has occurred and is continuing. SECTION 6.3 SUPPORTING DOCUMENTS. -------------------- (a) The Agent, on behalf of the Lenders, shall have also received on the Closing Date (i) a copy of resolutions of the Board of Directors of each of the Borrowers, certified as in full force and effect on such date by the Secretary or Assistant Secretary of the respective Borrower, authorizing the execution, delivery and performance of the Loan Documents and authorizing designated officers of the Borrowers to execute and deliver the Loan Documents on behalf of the Borrowers, and with respect to Hibbett, to execute and deliver to the Agent a Competitive Bid Quote Request form or a Request for Advance or Interest Rate Election or Request of Issuance of Letters of Credit forms; (ii) a certificate of the Secretary or Assistant Secretary of each of the Borrowers, dated such date, certifying that (A) an attached copy of the Certificate of Incorporation and bylaws of such Borrower as true and correct as of such date, (B) that the Certificate of Incorporation and Bylaws of such Borrower has not been amended since the date of the last amendment attached thereto and (c) the incumbency and specimen signatures of the designated officers referred to in clause (i) above; (iii) an Opinion of Counsel to the Borrowers in the form required by the Agent and its counsel; and (iv) such additional supporting documents as the Agent or its counsel may reasonably request. (b) The Agent shall also have received on or before any date after the Closing Date on which a person becomes a Participating Entity (i) a copy of resolutions of the Board of Directors and, if necessary, the shareholders, partners or members of such person certified as in full force and effect on the date thereof by the Secretary or Assistant Secretary of such person, authorizing such person's execution, delivery and performance of, the Loan Documents and all other agreements and instruments that this Agreement requires to be executed, delivered and performed by such person; (ii) a copy of the organizational documents of such person, certified as true and correct on and as of the date on which Loan Documents are executed and delivered by such person; (iii) certificates of good standing with respect to such person from the appropriate Governmental Authorities in the jurisdiction under the laws of which such person is incorporated or formed; (iv) an Opinion of Counsel to such person consistent with the form of the Opinions of 43 Counsel to the Borrowers delivered pursuant to subsection (a) of this Section 6.3 (with such changes therein as are appropriate in the circumstances) as to the execution and delivery by such person of the Loan Documents and other matters related thereto; (v) fully executed copies of all Loan Documents that this Agreement requires to be executed or delivered (or both) by such person (including a fully executed Assumption Agreement); and (vi) such additional supporting documents as the Lender or its counsel may reasonably request. ARTICLE 7 GENERAL COVENANTS OF THE BORROWERS ---------------------------------- From the Closing Date until payment in full of the Credit Obligations and the termination of this Agreement, the Borrowers, jointly and severally, covenant and agree that: SECTION 7.1 EXISTENCE, PROPERTIES, ETC. Each of the Borrowers shall, and -------------------------- (to the extent of its right to do so) shall cause each other Consolidated Entity (other than Immaterial Subsidiaries) to (a) do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights and franchises and comply with all Governmental Requirements applicable to it except to the extent the failure to do so would not be reasonably likely to have a Material Adverse Effect or as otherwise permitted by clause (i) of Section 7.7(6) and (b) at all times maintain, preserve and protect all franchises and trade names and preserve all of its property used or useful in the conduct of its business and keep the same in good repair, working order and condition, and from time to time make, or cause to be made, all needful and proper repairs, renewals and replacements, betterments and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times except to the extent the failure to do so would not be reasonably likely to have a Material Adverse Effect. SECTION 7.2 PAYMENT OF INDEBTEDNESS, TAXES, ETC. Each of the Borrowers ----------------------------------- shall, and (to the extent of its right to do so) shall cause each Consolidated Entity to, (a) pay its indebtedness and obligations in accordance with its terms except to the extent the failure to do so would not be reasonably likely to have a Material Adverse Effect and (b) pay and discharge or cause to be paid and discharged promptly all taxes, assessments and other charges or levies of Governmental Authorities imposed upon it or upon its income and profits or upon any of its properties before the same shall become in default, as well as all lawful claims for labor, materials and supplies or otherwise, which, if unpaid, might become a Lien upon such properties or any part thereof except to the extent the failure to do so would not be reasonably likely to have a Material Adverse Effect; provided, however, that Hibbett and the other Consolidated -------- ------- Entities shall not be required to pay and discharge or cause to be paid and discharged any such indebtedness, obligation, tax, assessment, charge, levy or claim so long as the validity or amount thereof is being duly contested in good faith by appropriate proceedings and Hibbett and the Consolidated Entities shall maintain adequate reserves for such taxes, indebtedness, obligations, assessments, charges, levies or claims during such proceedings. 44 SECTION 7.3 FINANCIAL STATEMENTS, REPORTS, ETC. The Borrowers shall ---------------------------------- deliver or cause to be delivered to the Lender: (1) Not later than 50 days after the end of each first, second and third fiscal quarter, a copy of Hibbett's 10-Q as filed with the Securities and Exchange Commission or if such filing is no longer required, a balance sheet and a statement of revenues and expenses of Hibbett and its Consolidated Entities on a consolidated basis and a statement of cash flow of Hibbett and its Consolidated Entitles on a consolidated basis for such fiscal quarter and for the period beginning on the first day of the fiscal year and ending on the last day of such fiscal quarter (in sufficient detail to indicate Hibbett's and each Consolidated Entity's compliance with the financial covenants set forth in Section 7.7), together with statements in comparative form for the corresponding periods in the preceding fiscal year, and certified by the president or chief financial officer of Hibbett; each certificate provided pursuant to this clause (1) shall state that, except as disclosed in such certificate no Default has occurred and is continuing as of such date or, if such certificate discloses that a Default has occurred and is continuing as of such date, such certificate shall describe such Default in reasonable detail and state what action, if any, the Borrowers are taking or propose to take with respect thereto. (2) Not later than 100 days after the end of each fiscal year, a copy of Hibbett's 10-K as filed with the Securities and Exchange Commission or if such filing is no longer required, financial statements (including a balance sheet, a statement of revenues and expenses, a statement of changes in shareholders' equity and a statement of cash flow) of Hibbett and its Consolidated Entities on a consolidated and for such fiscal year (in sufficient detail to indicate Hibbett's and each Consolidated Entity's compliance with the financial covenants set forth in this Article 7), together with statements in comparative form for the preceding fiscal year, and accompanied by an opinion of certified public accountants of recognized national standing, which opinion shall state in effect that such financial statements (A) were audited using generally accepted auditing standards, (B) were prepared in accordance with generally accepted accounting principles applied on a consistent basis, and (C) present fairly the financial condition and results of operations of Hibbett and its Consolidated Entities for the periods covered. (3) Together with the financial statements required by paragraphs (1) and (2) above a compliance certificate duly executed by the president or chief financial officer of Hibbett in the form of Exhibit G attached hereto --------- ("Compliance Certificate"). (4) Promptly upon receipt thereof, copies of all management or similar letters submitted to the Borrowers or any Consolidated Entity by independent accountants in connection with any annual or interim audit of the books of the Borrowers or any Consolidated Entity made by such accountants. 45 (5) After the filing or receiving thereof, copies of all material reports and notices that any Borrower or other ERISA Affiliate files under ERISA with the Internal Revenue Service or the PBGC or the United States Department of Labor. (6) As soon as practicable, such other information regarding the business affairs, financial condition or operations of the Borrower or its Consolidated Entities as the Lender shall reasonably request from time to time or at any time. The Lender shall have no obligation to make Advances or issue Letters of Credit at any time at which the Borrowers or any of them is delinquent in the preparation and delivery of any of the items described above, whether or not such delinquency constitutes an Event of Default. SECTION 7.4 LITIGATION NOTICE. Each of the Borrowers shall, promptly ----------------- after the same shall have become known to any officer of such Borrower, notify the Lender in writing of any action, suit or proceeding at law or in equity or by or before any Governmental Authority in which there is a reasonable likelihood of an outcome that would have a Material Adverse Effect. SECTION 7.5 DEFAULT NOTICE. Hibbett shall promptly give notice in writing -------------- to the Lender of the occurrence of any Default, together with a written statement of the chief executive officer or chief financial officer of Hibbett setting forth the nature and period of existence thereof and the action that the Borrowers have taken and propose to take with respect thereto. SECTION 7.6 INSURANCE. The Borrowers shall and (to the extent of their --------- right to do so) shall cause each of the Consolidated Entities to keep at all times their insurable properties adequately insured with reputable insurers and maintain in force, and pay all premiums and costs related to (a) insurance on such properties to such extent and against such risks, including fire, as is customary with companies in the same or a similar business of comparable size, (b) necessary workman's compensation insurance and (c) such other insurance (including liability insurance) as may be required by applicable Governmental Requirements or as may otherwise be customarily maintained by companies in the same or a similar business of comparable size. SECTION 7.7 COVENANTS REGARDING FINANCIAL CONDITION. Except as otherwise --------------------------------------- expressly provided in this Section 7.7, Hibbett shall also cause and require each of the Consolidated Entities to observe and perform each of the covenants and agreements of this section to be observed and performed by the Borrowers or any of them, whether or not a specific reference is made to the Consolidated Entities in each such covenant. The Borrowers, jointly and severally, covenant and agree that: (1) Fixed Charges Coverage Ratio. The ratio of (A) EBITDAR for any ---------------------------- consecutive four quarter period to (B) the sum of (i) Interest Expense, Operating Lease Payments, all income taxes (but only to the extent actually paid during such period), dividends (but only to the extent actually paid during such period) and (ii) Current 46 Maturities of Hibbett and the Consolidated Entities on a consolidated basis at the end of such period shall not be less than 1.25 to 1.0 at any time. (2) Funded Debt to EBITDA Ratio. The ratio of Funded Debt on the last --------------------------- day of any consecutive four quarter period to EBITDA for such period shall not be greater than 3.0 to 1.0. (3) Capital Expenditures. Hibbett and the Consolidated Entities on a -------------------- consolidated basis will not make in the aggregate in any consecutive four fiscal quarters Capital Expenditures (net of landlord allowances, proceeds of asset sales and casualty insurance proceeds) that exceed $15,000,000. (4) Investment and Loans. Hibbett and the Consolidated Entities on a -------------------- consolidated basis will not, directly or indirectly, purchase or otherwise acquire any stock, security, obligation or evidence of indebtedness of, make any capital contribution to, own any equity interest in, or make any loan or advance to, any other person; provided, however, that it may acquire and continue to hold (A) all stock of and own interests in the persons that constitute or, after giving effect to such purchase, will constitute Consolidated Entities; and (B) Permitted Investments. (5) Disposition of Assets. Hibbett and the Consolidated Entities on a --------------------- consolidated basis will not without the consent of the Lender, sell, lease, transfer or otherwise dispose of all or any substantial part of its properties and assets. (6) Consolidation or Merger. Hibbett and the Consolidated Entities ----------------------- will not consolidate with or merge with or into another person or permit any other person to merge into it; provided, however, (i) it may permit the ----------------- Consolidated Entities to merge or consolidate with other Consolidated Entities or Hibbett and (ii) it may merge or consolidate with another person so long as (x) any Borrower is the surviving corporation, (y) if such merger or consolidation is in connection with a permitted acquisition, the applicable conditions of subparagraph (15) of this Section shall be satisfied and (z) immediately after giving effect thereto, no Default would exist. (7) Liens. Hibbett will not, and will not permit any Consolidated ----- Entity to, incur, create, assume or permit to exist any Lien upon any of its accounts receivable, contract rights, chattel paper, inventory, equipment, instruments, general intangibles or other personal or real property of any character, whether now owned or hereafter acquired, other than Liens that constitute Permitted Encumbrances. (8) Sale of Receivables. Hibbett will not, and will not permit any ------------------- Consolidated Entity to, sell, assign or discount, or grant or permit any Lien on, any of its accounts receivable or any promissory note held by it, with or without recourse, other than the discount of such notes in the ordinary course of business for collection. 47 (9) Lease Obligations. Hibbett and the Consolidated Entities on a ----------------- consolidated basis will not incur, create, permit to exist or assume any obligation to make Operating Lease Payments under any lease (other than any capital lease or the QRS Lease) that (x) has an unexpired term (including renewals at the option of the lessee) of more than 20 years or (y) provides for aggregate Operating Lease Payments during any consecutive four fiscal quarters in excess of $1,000,000, if (z) immediately thereafter, the aggregate Operating Lease Payments to be made by it under all leases (other than any capital leases or the QRS Lease) described in the preceding subclauses (x) or (y) would exceed $10,000,000 in any consecutive four fiscal quarters. (10) Indebtedness. Hibbett and the Consolidated Entities on a ------------ consolidated basis will not incur, create, assume or permit to exist any Debt, except (A) the indebtedness evidenced by the Notes, (B) other Debt to the Lender, (C) purchase money obligations allowed under Section 7.7(7), (D) Debt not exceeding $4,000,000 in the aggregate, (E) capitalized lease obligations and (F) Debt owed to a Consolidated Entity. (11) Guaranties. Except for the existing guaranty by Hibbett of the ---------- obligations of SW under the QRS Lease and any other guaranty by a Borrower of another Consolidated Entity's obligations, Hibbett will not, and will not permit any Consolidated Entity to, guarantee, endorse, become surety for or otherwise in any way become or be responsible for the indebtedness, liabilities or obligations of any other person, whether by agreement to purchase the indebtedness or obligations of any other person, or agreement for the furnishing of funds to any other person (directly or indirectly, through the purchase of goods, supplies or services or by way of stock purchase, capital contribution, working capital maintenance agreement, advance or loan) or for the purpose of paying or discharging the indebtedness or obligations of any other person, or otherwise, except for the endorsement of negotiable instruments in the ordinary course of business for collection. (12) Take or Pay Contracts. Hibbett will not, and will not permit any --------------------- Consolidated Entity to, enter into or be a party to any contract for the purchase of merchandise, materials, supplies or other property if such contract provides that payment for such merchandise, materials, supplies or other property shall be made regardless of whether delivery of such merchandise, materials, supplies or other property is ever made or tendered. (13) Sale-Leaseback. Except for (i) the Lease Agreement between QRS -------------- 12-14 (AL), Inc. and SW dated February 12, 1996 and any amendments or supplements thereto (the "QRS Lease") and (ii) any sale-leaseback of any additions to its existing warehouse and headquarters in Birmingham, Alabama, Hibbett will not, and will not permit any Consolidated Entity to, enter into any arrangement, directly or indirectly, with any person whereby it sells or transfers any property, real, personal or mixed, and used or useful in its business, whether now owned or hereafter acquired, and thereafter rents or leases such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred. 48 (14) Dividends and Distributions. Hibbett will not permit any --------------------------- Consolidated Entity to be or become subject to any restrictions on the ability of such Consolidated Entity to pay dividends or to make distributions. (15) Permitted Acquisitions. The Borrowers shall not make in any ---------------------- given fiscal year any acquisitions of stock or assets of persons engaged primarily in the same line of business as the Borrowers having a cost in excess of $5,000,000, if, on the date of the acquisition a Default exists or would result from such acquisition without the express prior consent of the Required Lenders; provided that this Section 7.7(15) shall not prohibit Hibbett from complying with its obligations under the Purchase Agreement relating to the QRS Lease if Hibbett can do so without causing a Default under some other provision of this Agreement. SECTION 7.8 CONTINUATION OF CURRENT BUSINESS. Neither the Borrowers nor -------------------------------- any Consolidated Entity will engage in any business other than the business now being conducted by it or other business reasonably ancillary thereto. SECTION 7.9 COOPERATION; INSPECTION OF PROPERTIES. The Borrowers shall, ------------------------------------- and shall cause the Consolidated Entities to, permit the Agent and its representatives, at the Agent's sole cost and expense (so long as no Default exists) to inspect the Borrowers' and the Consolidated Entities' properties and assets (including all Stores), and to inspect, review and audit the Borrowers' and the Consolidated Entities' books and records from time to time and at any time, after reasonable notice and at reasonable times. SECTION 7.10 USE OF PROCEEDS. The Borrowers shall use the proceeds --------------- exclusively for general corporate purposes. SECTION 7.11 TRANSACTIONS WITH AFFILIATES. Except as set forth in Exhibit ---------------------------- ------- H, none of the Borrowers nor any other Consolidated Entity will, directly or - - indirectly, enter into any lease or other transaction with any Affiliate (other than a Borrower or another Consolidated Entity) on terms that are less favorable to such Borrower or Consolidated Entity entering into such lease or other transaction than would have been obtained on an arm's length basis with persons who are not Affiliates of such Borrower or other Consolidated Entity. SECTION 7.12 ERISA. The Borrowers will not and will not permit any other ----- ERISA Affiliate to establish any Plan subject to Title IV of ERISA SECTION 7.13 CREATION OR ACQUISITION OF SUBSIDIARIES. The Borrowers may --------------------------------------- from time to time create or acquire new Subsidiaries in connection with permitted acquisitions allowed under Section 7.7(15) or otherwise in accordance with this Agreement, provided that neither the aggregate fair market value at -------- any time of the assets of all Subsidiaries that are Immaterial Subsidiaries at such time, nor the aggregate gross revenues (determined for the most recently ended period of twelve consecutive fiscal months) of all Subsidiaries that are Immaterial Subsidiaries at such time, shall exceed $4,000,000, and provided -------- further that promptly (and in any - ------- 49 event within fifteen (15) Business Days) after the creation or direct or indirect acquisition by any Borrower of any such new Subsidiary (or, if such new Subsidiary is an Immaterial Subsidiary when so created or acquired, promptly (and in any event within fifteen (15) Business Days) after such new Subsidiary ceases to be an Immaterial Subsidiary ), such new Subsidiary will execute and deliver to the Agent an Assumption Agreement and all other documents necessary to cause it to become jointly and severally liable for all the Credit Obligations (subject to the limitations provided in the Assumption Agreement). ARTICLE 8 EVENTS OF DEFAULT AND REMEDIES ------------------------------ SECTION 8.1 EVENTS OF DEFAULT. The following shall constitute Events of ----------------- Default under this Agreement: (a) default in the due payment of any principal or interest payable on any Note, Reimbursement Obligation or any other amount payable under Articles 2, 3 and 4 of this Agreement and such default shall continue unremedied for a period of 5 days after the date the Agent gives Hibbett telephonic (confirmed promptly in writing) or written notice of such default; provided, however, that the Agent shall not be required to provide such notice more than 3 times in any 12 consecutive month period; or (b) any of the Borrowers shall default in the observance or performance of any provision in Sections 7.7, 7.8, 7.10, 7.12 and 7.13; or (c) any of the Borrowers shall default in the performance or observance of any provision of this Agreement, except those covered by clauses (a) or (b) above, and shall not cure such default within 30 days after the date the Lender gives written or telephonic notice of the default to Hibbett; or (d) any statement, certification, representation or warranty contained herein, or in any of the other Loan Documents or in any report, financial statement, certificate or other instrument delivered to the Lender by or on behalf of the Borrowers, was misleading or untrue in any material respect at the time it was made; or (e) default shall be made with respect to any Debt of any of the Borrowers or of any other Consolidated Entity (other than the Credit Obligations) when due or within any applicable grace period or the performance of any other obligation incurred in connection with any Debt of such Borrower or other Consolidated Entity (other than the Credit Obligations), if the effect of such default is to accelerate the maturity of such Debt or to permit the holder thereof to cause such Debt to become due prior to its stated 50 maturity, or any such Debt shall not be paid when due or within any applicable grace period, if the aggregate amount of all such Debt involved exceeds $1,000,000; or (f) any of the Borrowers or any other Consolidated Entity (other than an Immaterial Subsidiary) shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or other custodian of it or any of its properties or assets, (ii) fail or admit in writing its inability to pay its debts generally as they become due, (iii) make a general assignment for the benefit of creditors, (iv) suffer or permit an order for relief to be entered against it in any proceeding under the federal Bankruptcy Code, or (v) file a voluntary petition in bankruptcy, or a petition or an answer seeking an arrangement with creditors or seeking to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or statute, or if corporate or partnership action shall be taken by the Borrowers or any other Consolidated Entity (other than an Immaterial Subsidiary) for the purpose of effecting any of the foregoing; or (g) a petition shall be filed, without the application, approval or consent of any of the Borrowers or any other Consolidated Entity (other than an Immaterial Subsidiary), in any court of competent jurisdiction, seeking bankruptcy, reorganization, rearrangement, dissolution or liquidation of such Borrower or other Consolidated Entity (other than an Immaterial Subsidiary) or of all or a substantial part of the properties or assets of such Borrowers or other Consolidated Entity (other than an Immaterial Subsidiary), or seeking any other relief under any law or statute of the type referred to in clause (v) of paragraph (h) above against such Borrower or other Consolidated Entity (other than an Immaterial Subsidiary), or the appointment of a receiver, trustee, liquidator or other custodian of the Borrower or any other Consolidated Entity (other than an Immaterial Subsidiary) or of all or a substantial part of the properties or assets of such Borrower or any other Consolidated Entity (other than an Immaterial Subsidiary), and such petition shall not have been dismissed within 60 days after the filing thereof; or (h) an Event of Default (as therein defined) under the QRS Lease shall have occurred and be continuing, and the Landlord thereunder shall have given notice pursuant to Section 23 of the QRS Lease of its intention to exercise remedies thereunder; or (i) final judgment or judgments for the payment of money in excess of an aggregate of $500,000 shall be rendered against any of the Borrowers and the same shall remain undischarged for a period of 30 days during which execution shall not be effectively stayed; or (j) (1) The persons listed on Exhibit I hereto and the beneficiaries --------- of any trusts listed therein, taken together, shall cease to beneficially own and control, directly or indirectly, at least (a) 50% of the number of issued and outstanding shares of the capital stock of Hibbett entitled (without regard to the occurrence of any contingency) to vote for 51 the election of a majority of the members of the board of directors of Hibbett (the "Voting Shares") beneficially owned and controlled by them on the Closing Date (as such number may be adjusted for stock splits, combinations and similar events) and (b) 20% of the total issued and outstanding Voting Shares at any time, or (2) Hibbett ceases to beneficially own and control at least one hundred percent (100%) of the issued and outstanding shares of each class of capital stock of the Initial Participating Entities. then, and in any such event and at any time thereafter, if such Event of Default shall then be continuing, (A) either or both of the following actions may be taken: (i) the Agent, with the consent of the Lenders, may, and at the direction of the Required Lenders shall, declare any obligation of the Lenders to make further Loans or to issue Letters of Credit terminated, whereupon the obligation of each Lender to make further Loans or to issue Letters of Credit hereunder shall terminate immediately, and (ii) the Agent shall at the direction of the Required Lenders, at their option, declare by notice to the Borrowers any or all of the Credit Obligations (other than Letter of Credit Borrowings) to be immediately due and payable, and the same, including all interest accrued thereon and all other obligations of the Borrowers to the Lenders, shall forthwith become immediately due and payable without presentment, demand, protest, notice or other formality of any kind, all of which are hereby expressly waived, anything contained herein or in any instrument evidencing the Credit Obligations to the contrary notwithstanding; provided, however, that notwithstanding the -------- above, (A) the foregoing shall not affect in any way the obligations of the Lenders to make Syndicated Loans to reimburse drawings under Letters of Credit as provided in Section 2.4, or to purchase participations from the Issuing Bank in the unreimbursed amount of any drawings under any Letters of Credit as provided in Section 2.4, and (B) if there shall occur an Event of Default under clauses (f) or (g) above, then the obligation of the Lenders to lend hereunder shall automatically terminate and any and all of the Credit Obligations (other than Letter of Credit Borrowings) shall be immediately due and payable without the necessity of any action by the Agent or the Required Lenders or notice to the Agent or the Lenders; (B) at the option of the Required Lenders, the Issuing Bank and the Agent may treat all then outstanding Letters of Credit as if drafts in the full amount available to be drawn thereunder had been properly drawn thereunder and paid by the Issuing Bank and the Borrowers had failed or refused to reimburse the Issuing Bank for the amount so paid within the time permitted under Section 2.1; (C) the Borrowers shall, promptly upon demand of the Agent, deposit in cash with the Agent an amount equal to the amount of all Letter of Credit Obligations then outstanding, as collateral security for the repayment thereof, which deposit shall be held by the Agent under the provisions of Section 10.8; and 52 (D) the Agent, on behalf of Lenders may, and at the direction of the Required Lenders shall, exercise any and all rights and remedies available to the Agent or Lenders under the Loan Documents and applicable law. SECTION 8.2 AGENT TO ACT. In case any one or more Events of Default shall ------------ occur and be continuing, the Agent may, and at the direction of the Required Lenders shall, proceed to protect and enforce their rights or remedies either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, agreement or other provision contained herein or in any other Loan Document, or to enforce the payment of the Credit Obligations or any other legal or equitable right or remedy; provided, however, that the Agent may, without obtaining the direction or consent of the Required Lenders, take any such action described above in this section if, in the good faith judgment of the Agent, action is required to be taken in order to protect the interests of the Lenders prior to the time consent or approval of the Required Lenders can be obtained. SECTION 8.3 CUMULATIVE RIGHTS. No right or remedy herein conferred upon ----------------- the Agent or the Lenders is intended to be exclusive of any other rights or remedies contained herein or in any other Loan Document, and every such right or remedy shall be cumulative and shall be in addition to every other such right or remedy contained herein and therein or now or hereafter existing at law or in equity or by statute, or otherwise. SECTION 8.4 NO WAIVER. No course of dealing between the Borrowers and any --------- Lender or the Agent or any failure or delay on the part of any Lender or the Agent in exercising any rights or remedies hereunder shall operate as a waiver of any rights or remedies hereunder and no single or partial exercise of any rights or remedies hereunder shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or of the same right or remedy on a future occasion. SECTION 8.5 DEFAULT. The Agent and the Lenders shall have no right to ------- accelerate any of the Loans except upon the occurrence of an Event of Default; provided, however, nothing contained in this sentence shall in any respect - -------- impair or adversely affect the right, power and authority of the Agent and the Lenders (i) to take any action expressly required or permitted to be taken under the Loan Documents upon the occurrence of any Default (and including any action or proceeding which the Agent may determine to be necessary or appropriate in furtherance of any such expressly authorized action) and (ii) to take any action provided under the Loan Documents or otherwise available by statute, at law or in equity upon the occurrence of any Default. SECTION 8.6 ALLOCATION OF PROCEEDS. If an Event of Default has occurred ---------------------- and is continuing, and the maturity of the Notes has been accelerated pursuant to Section 8.2, all payments received by the Agent hereunder with respect to any principal of or interest on the Credit Obligations or any other amounts payable by the Borrowers hereunder shall be applied by the Agent in the following order: (i) amounts due to the Agent for servicing fees; 53 (ii) amounts due to the Lenders pursuant to Section 2.14 and amounts due to the Lenders and to the Issuing Banks pursuant to Section 2.4; (iii) payments of interest on the Syndicated Loans; (iv) payments of principal on the Syndicated Loans; (v) payment of cash amounts to the Agent for deposit pursuant to Section 10.8; and (vi) payments of all other amounts due under this Agreement, if any, to be applied in accordance with the outstanding principal balance of each Lender's Loans. ARTICLE 9 THE AGENT --------- SECTION 9.1 APPOINTMENT. Each Lender hereby irrevocably designates and ----------- appoints AmSouth as the Agent of the Lenders under this Agreement, and each of the Lenders hereby irrevocably authorizes AmSouth, as the Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers as are expressly delegated to the Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. The Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any of the Lenders, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise be imposed upon or exist against the Agent. SECTION 9.2 ACTS OF AGENT. The Agent shall administer the Loans and the ------------- Loan Documents on behalf of and for the benefit of the Lenders in all respects as if the Agent were the sole Lender under the Loan Documents, except that: (a) the Agent shall administer the Loans and the Loan Documents with a degree of care at least equal to that customarily employed by the Agent in the administration of similar credit facilities for its own account; (b) the Agent shall not, without the consent of all the Lenders, take or agree or consent to any action (including any amendment to or modification of any of the Loan Documents) that would (i) extend the maturity of any payment of principal of or interest on, or fees or other compensation or amounts payable with respect to, the Loans, (ii) reduce the principal amount of or rate of interest on the Loans, (iii) increase or extend any Lender's Commitment, (iv) reduce the rate of any fee payable under Section 2.7 or modify any provision that would reduce any amounts payable by the Borrowers under this 54 Agreement, (v) reduce the percentage set out in the definition of "Required Lenders", or (vi) make any change in this subsection (b) or in subsection (c) below; and (c) except as otherwise set forth in subsection (b) above and as otherwise expressly provided elsewhere in this Agreement, the Agent shall not, without the consent of the Required Lenders (x) take any action that, under any of the other provisions of this Agreement, requires consent or approval of the Required Lenders or (y) effect any modification of, or consent to or waive the violation of, any provision of, or waive any Event of Default under, any of the Loan Documents. The Agent, upon its receipt of actual knowledge thereof, shall notify the Lenders of (1) each proposed action that would require the consent of all or any of the Lenders under clause (a) or (b) of this section, (2) the occurrence of any Event of Default or of any failure of payment or any breach of covenant described in Section 8.1(c), whether or not such failure has become an Event of Default, and (3) any action proposed to be taken by the Agent in the administration of the Loans and the Loan Documents not in the ordinary course of business; provided, that any failure of the Agent to give the Lenders any such -------- notice shall not alone be the basis for any liability of the Agent to the Lenders except for the Agent's gross negligence or willful misconduct. The Agent shall promptly furnish to the Lenders copies of all documents and notices (other than non-material communications) that the Agent may receive pursuant to this Agreement and the other Loan Documents; provided, that any failure of the Agent -------- to furnish promptly to any Lender any such copies shall not alone be the basis for any liability of the Agent to the Lenders except for the Agent's gross negligence or willful misconduct. The Agent shall assume no responsibility with respect to the authenticity, validity, accuracy or completeness of any document furnished to any Lender. Each Lender, upon its receipt of actual knowledge thereof, shall notify the Agent of the occurrence of any event of the kind described in clause (2) of this section; provided, that any failure of the -------- Lender to give the Agent any such notice shall not alone be the basis for any liability of such Lender to the Agent or to any other Lender except for such Lender's gross negligence or willful misconduct. The Agent shall make available to the Lenders for inspection upon request the Agent's records with respect to all sums received or expended by the Agent in connection with the Loans and the Loan Documents. SECTION 9.3 ATTORNEYS-IN-FACT. The Agent may execute any of its duties ----------------- under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the gross negligence or willful misconduct of any agents or attorneys-in-fact selected by it with reasonable care. SECTION 9.4 LIMITATION ON LIABILITY. Neither the Agent nor any of its ----------------------- officers, directors, employees, agents or attorneys-in-fact shall be liable to the Lenders for any action lawfully taken or omitted to be taken by it or them under or in connection with this Agreement except for its or their own gross negligence or willful misconduct. Neither the Agent nor any of 55 its Affiliates shall be responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by Hibbett, any of the other Borrowers or any other Consolidated Entity, or any officer or partner thereof, contained in this Agreement or in any of the other Loan Documents, or in any certificate, report, statement or other document referred to or provided for in or received by the Agent under or in connection with this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any of the other Loan Documents, or for any failure of any of the Borrowers to perform its obligations thereunder. The Agent shall not be under any obligation to any of the Lenders to ascertain or to inquire as to the observance or performance of any of the terms, covenants or conditions of this Agreement or any of the other Loan Documents on the part of any of the Borrowers or to inspect the properties, books or records of any of the Borrowers or any other Consolidated Entity. SECTION 9.5 RELIANCE. The Agent shall be entitled to rely, and shall be -------- fully protected in relying, upon any Note, writing, resolution, notice, consent certificate, affidavit, letter, cablegram, telegram, telecopy or telex message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper person or persons and upon advice and statements of legal counsel (including counsel to the Borrowers), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless an assignment or other appropriate documentation shall have been filed with and accepted by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive advice or concurrence of the Lenders or the Required Lenders as provided in this Agreement or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Required Lenders (except where the consent or approval of all the Lenders is required), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all present and future holders of the Notes. SECTION 9.6 NOTICE OF DEFAULT. The Agent shall not be deemed to have ----------------- knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent has received notice from a Lender or any of the Borrowers or any other Consolidated Entity referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". If the Agent receives such a notice, the Agent shall promptly give notice thereof to the Lenders and the Participants. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default as it shall deem advisable. SECTION 9.7 NO REPRESENTATIONS. Each Lender expressly acknowledges that ------------------ neither the Agent nor any of its Affiliates has made any representations or warranties to it and that no act by the Agent hereafter taken, including any review of the affairs of the Borrowers or any of them 56 or any of the Consolidated Entities, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the financial condition, creditworthiness, affairs, status and nature of the Borrowers and the Consolidated Entities and made its own decision to enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and to make such investigation as it deems necessary to inform itself as to the status and affairs, financial or otherwise, of the Borrowers and the Consolidated Entities. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrowers or any of the Consolidated Entities that may come into the possession of the Agent or any of its Affiliates. SECTION 9.8 INDEMNIFICATION. The Lenders agree to indemnify the Agent in --------------- its capacity as such (to the extent not reimbursed by the Borrowers or any of the other Consolidated Entities and without limiting any obligations of the Borrowers or any of the other Consolidated Entities so to do), ratably according to the respective principal amount of the Revolving Notes held by them (or, if no Notes are outstanding, ratably in accordance with their respective Applicable Commitment Percentages as then in effect) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may at any time (including at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement or any other document contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. The agreements in this section shall survive the payment of the Credit Obligations and the termination of this Agreement. SECTION 9.9 AGENT AS LENDER. The Agent and its Affiliates may make loans --------------- to, accept deposits from and generally engage in any kind of business with the Borrowers and the other Consolidated Entities as though it were not the Agent hereunder. With respect to its Loans made or renewed by it and any Note issued to it, the Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. SECTION 9.10 RESIGNATION. If the Agent shall resign as Agent under this ----------- Agreement, then the Required Lenders may appoint a successor Agent for the Lenders, which successor shall 57 be approved by the Borrowers, which approval shall not be unreasonably withheld, which shall be a commercial bank organized under the laws of the United States of America or any state thereof, having a combined surplus and capital of not less than $500,000,000, whereupon such successor Agent shall succeed to the rights, powers and duties of the former Agent and the obligations of the former Agent shall be terminated and canceled, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement; provided, however, that the former Agent's resignation shall not become - -------- effective until such successor Agent has been appointed; provided, further, if -------- ------- the Required Lenders cannot agree as to a successor Agent within ninety (90) days after such resignation, the Agent shall appoint a successor Agent acceptable to Lenders having at least 51% of the aggregate amount of the Commitments, and the parties hereto agree to execute whatever documents are necessary to effect such action under this Agreement or any other document executed pursuant to this Agreement; provided, however in such event all -------- provisions of this Agreement and the Loan Documents, shall remain in full force and effect. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. SECTION 9.11 SHARING OF PAYMENTS, ETC. Each Lender agrees that if it ------------------------ shall, through the exercise of a right of banker's lien, set-off, counterclaim or otherwise, obtain payment with respect to its Credit Obligations (other than any payment pursuant to Section 3.5 or 3.6) which results in its receiving more than its pro rata share of the aggregate payments with respect to all of the Credit Obligations (other than any payment pursuant to Section 3.5 or 3.6), then (a) such Lender shall be deemed to have simultaneously purchased from the other Lenders a share in their Credit Obligations so that the amount of the Credit Obligations held by each of the Lenders shall be pro rata, and (b) such other adjustments shall be made from time to time as shall be equitable to insure that the Lenders share such payments ratably; provided, however, that for purposes of -------- this Section 9.11 the term "pro rata" shall be determined with respect to both the Commitments of each Lender and to the Revolving Facility after subtraction in each case of amounts, if any, by which any such Lender has not funded its share of the outstanding Advances and Reimbursement Obligations. If all or any portion of any such excess payment is thereafter recovered from the Lender which received the same, the purchase provided in this Section 9.11 shall be rescinded to the extent of such recovery, without interest. The Borrowers expressly consent to the foregoing arrangements and agree that each Lender so purchasing a portion of the other Lenders' Credit Obligations may exercise all rights of payment (including all rights of set-off, banker's lien or counterclaim) with respect to such portion as fully as if such Lender were the direct holder of such portion. SECTION 9.12 PAYMENTS BETWEEN AGENT AND LENDERS. All payments by the ---------------------------------- Agent to any Lender, and all payments by any Lender to the Agent, under the terms of this Agreement shall be made by wire transfer in immediately available funds to the receiving party's address specified in or pursuant to Section 10.2. If the Agent or any of the Lenders shall fail to pay when due any sum payable to the Agent or any other Lender, such sum shall bear interest until paid at the interest rate per annum for overnight borrowing by the payee from the Federal Reserve Bank for 58 the period commencing on the date such payment was due and ending on, but excluding, the date such payment is made. SECTION 9.13 INDEPENDENT AGREEMENTS. The provisions contained in Sections ---------------------- 9.1 through 9.9 and 9.11 through 9.13 constitute independent obligations and agreements of the Agent and the Lenders, and the Borrowers shall not be deemed parties thereto or bound thereby or entitled to any benefit thereunder. The Borrowers acknowledge the rights of the Lenders and the Agent under Section 9.10. SECTION 9.14 AGENT FEES. The Borrowers agree to pay to the Agent, for its ---------- individual account, an annual Agent's fee in such amount as shall be agreed to from time to time. ARTICLE 10 MISCELLANEOUS ------------- SECTION 10.1 PARTICIPATIONS AND ASSIGNMENTS. ------------------------------ (a) The Borrowers and the Lenders understand that each of the Lenders may grant a participation in such Lender's Notes, Loans and interest in the Credit Obligations and the Loan Documents to any Affiliate of such Lender, and all communications with such Lender and the Borrowers shall be solely with such Lender and not with any participant. Each participation granted by a Lender hereunder (other than to an Affiliate of the Lender) shall be in an amount not less than $5,000,000. The Borrowers agree that any participant or subparticipant (which, like a participant, must be an Affiliate of such Lender) may exercise any and all rights of banker's lien or set-off with respect to any Borrower, as fully as if such participant or subparticipant had made a loan directly to such Borrower in the amount of the participation or subparticipation given to such participant or subparticipant in the Credit Obligations and the Loan Documents. For purposes of this Section 10.1 only, the Borrowers shall be deemed to be directly obligated to each participant or subparticipant in the amount of its participating interest in the amount of the principal of, and interest on, the Credit Obligations. Nothing contained in this section shall affect such Lender's right of set-off (under Section 10.3 or applicable law) with respect to the entire amount of the Credit Obligations, notwithstanding any such participation or subparticipation. The Lenders may divulge to any participant or subparticipant all information, reports, financial statements, certificates and documents obtained by the Lenders from any of the Borrowers or any other person under any provisions of this Agreement or the other Loan Documents or otherwise. (b) At any time after the Closing Date each Lender may, with the prior consent of the Agent and the Borrowers, which consent shall not be unreasonably withheld, assign to one or more banks or financial institutions all or a portion of its rights and obligations under this Agreement (including all or a portion of the Note payable to its order); provided, that (i) each such assignment shall -------- be of a constant, and not a varying, percentage of all of the assigning Lender's 59 rights and obligations under this Agreement, (ii) for each assignment involving the issuance and transfer of Notes, the assigning Lender shall execute an Assignment and Acceptance and the Borrowers hereby consent to execute a replacement Note or Notes to give effect to the assignment, (iii) the minimum commitment which shall be assigned is $5,000,000 (together with which the assigning Lender's applicable portion of the Letter of Credit Participations shall also be assigned) and (iv) such assignee shall have an office located in the United States. Upon such execution, delivery, approval and acceptance, from and after the effective date specified in each Assignment and Acceptance (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder or under such Note or Notes have been assigned or negotiated to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder, as fully as if such assignee had been named as a Lender in this Agreement, and of a holder of such Note or Notes, and (y) the assignor shall, to the extent that rights and obligations hereunder or under such Note or Notes have been assigned or negotiated by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its future obligations under this Agreement. No assignee shall have the right to make any further assignment of its rights and obligations pursuant to this Section 10.1. Any Lender that makes an assignment shall pay to the Agent a one-time administrative fee of $5,000, which fee shall not be reimbursed by Borrowers. (c) By executing and delivering an Assignment and Acceptance, the Lender- assignor and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) the assignment made under such Assignment and Acceptance is made under such Assignment and Acceptance without recourse; (ii) such assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or any other person or the performance or observance by the Borrowers or any other person of any of its obligations under any Credit Document or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of all financial statements delivered pursuant to Section 7.3, and such other Credit Documents and other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, the assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the Note and the other Credit Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender and a holder of such Note. (d) The Agent shall maintain at its address referred to herein a copy of each Assignment and Acceptance delivered to and accepted by it. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender, the Agent shall give prompt notice thereof to the Borrowers. 60 (f) Notwithstanding any provision of this Section 10.1 to the contrary, any Lender may assign all or any portion of its interest in the Loans to any of its Affiliates without approval by the Agent or the Borrowers upon payment of the administrative fee described in Section 10.1(a) above, or to any Federal Reserve Bank without approval by the Agent or the Borrowers and without payment of any fees. SECTION 10.2 NOTICES. ------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted by this Agreement or the other Loan Documents to be made upon, given or furnished to, or filed with, any of the Borrowers or any of the Lenders or the Agent must (except as otherwise provided in this Agreement or the other Loan Documents) be in writing and be delivered by one of the following means: (1) by personal delivery at the hand delivery address specified below, (2) by first-class, registered or certified mail, postage prepaid and addressed as specified below, or (3) if facsimile transmission facilities for such party are identified below or pursuant to a separate notice from such party, sent by facsimile transmission to the number specified below or in such notice. (b) The hand delivery address, mailing address and (if applicable) facsimile transmission number for receipt of notice or other documents by such parties are as set forth below the signatures of the Borrowers and the Lender on the attached signature pages. Any of such parties may change its address or facsimile transmission number for receiving any such notice or other document by giving notice of the change to the other parties referred to in this Section 10.2. (c) Any such notice or other document shall be deemed delivered when actually received by an officer, director, partner or other legal representative of the party at the address or number specified pursuant to this Section 10.2, or, if sent by mail, three Business Days after such notice or document is deposited in the United States mail, addressed as provided above. (d) Five (5) Business Days' notice to the Borrowers as provided above shall constitute reasonable notification to the Borrowers when notification is required by law; provided, however, that nothing contained in the foregoing shall be construed as requiring five (5) Business Days' notice if, under applicable law and the circumstances then existing, a shorter period of time would constitute reasonable notice. SECTION 10.3 SETOFF. Upon the occurrence and during the continuance of ------ any Event of Default each Lender is hereby authorized at any time and from time to time, without notice to the Borrowers or any of them (any such notice being expressly waived by the Borrowers), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender (including any branches, agencies or Affiliates of such Lender, wherever located) to or for the credit or the account of the Borrowers or any of them against any and all of the obligations of the Borrowers and each of them now or hereafter existing under any of the Loan Documents, irrespective of whether or not any demand shall have been made under the Loan Documents and although such obligations may be 61 unmatured. Such Lender agrees promptly to notify each affected Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application or impose any liability on such Lender. The rights of such Lender under this Section 10.3 are in addition to all other rights and remedies (including other rights of set-off or pursuant to any banker's lien) that such Lender may have. SECTION 10.4 SURVIVAL. All representations and warranties made under -------- this Agreement shall be deemed to be made, and shall be true and correct, at and as of the Closing Date and the date of each Loan except to the extent (a) previously fulfilled in accordance with the terms hereof, (b) subsequently inapplicable, (c) modified as a result of activities of the Borrowers or changes in circumstances, in any case as permitted hereunder or consented to in accordance with the provisions hereof or (d) such representations and warranties specifically relate to an earlier date. All covenants, agreements, representations and warranties made in this Agreement or in any of the other Loan Documents and in the certificates delivered pursuant to any of the Loan Documents shall survive the making by the Lenders of the Loans and the execution and delivery to the Agent and Lenders of this Agreement, the Notes and the other Loan Documents and shall continue in full force and effect so long as any of the Credit Obligations remain outstanding. SECTION 10.5 EXPENSES. (a) The Borrowers shall pay all reasonable -------- out-of-pocket expenses of the Agent and the Lenders, including fees and disbursements of counsel for the Agent, in connection with the preparation of the Loan Documents, any waiver or consent hereunder or thereunder or any amendment hereof or thereof or any Default or alleged Default hereunder (including those in connection with collection and other enforcement proceedings resulting therefrom), other than expenses due to the Agent or the Lenders' own gross negligence or willful misconduct. Any amount paid or advanced by the Agent or the Lenders under this section or the other Loan Documents not immediately reimbursed to the Agent or the Lenders after demand shall bear interest until paid at a rate equal to two percent (2%) in excess of the Base Rate in effect from time to time, or the highest rate permitted by law, whichever is less. The Borrowers shall pay all costs and expenses of performing and satisfying their obligations under this Agreement. The Borrowers' obligations under this Section 105 shall survive the payment in full of the Credit Obligations and the termination of this Agreement. SECTION 10.6 COUNTERPARTS. This Agreement may be executed in any number ------------ of counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such fully-executed counterpart. SECTION 10.7 SUBMISSION TO JURISDICTION. Each Borrower irrevocably (a) -------------------------- acknowledges that this Agreement will be accepted by the Agent and performed by such Borrower in the State of Alabama; (b) submits to the jurisdiction of each state or federal court sitting in Jefferson County, Alabama (collectively, the "Courts") over any suit, action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents (individually, an "Agreement Action"); (c) waives, to the fullest extent permitted by law, any objection or defense that such Borrower may now or hereafter have based on improper venue, lack 62 of personal jurisdiction, inconvenience of forum or any similar matter in any Agreement Action brought in any of the Courts; (d) agrees that final judgment in any Agreement Action brought in any of the Courts shall be conclusive and binding upon such Borrower and may be enforced in any other court to the jurisdiction of which such Borrower is subject, by a suit upon such judgment; (e) consents to the service of process on such Borrower in any Agreement Action by the mailing of a copy thereof by registered or certified mail, postage prepaid, to such Borrower at its address designated in or pursuant to Section 10.2; (f) agrees that service in accordance with this Section 10.7 shall in every respect be effective and binding on such Borrower to the same extent as though served on such Borrower in person by a person duly authorized to serve such process; and (g) AGREES THAT THE PROVISIONS OF THIS SECTION, EVEN IF FOUND NOT TO BE STRICTLY ENFORCEABLE BY ANY COURT, SHALL CONSTITUTE "FAIR WARNING" TO SUCH BORROWER THAT THE EXECUTION OF THIS AGREEMENT MAY SUBJECT SUCH BORROWER TO THE JURISDICTION OF EACH STATE OR FEDERAL COURT SITTING IN JEFFERSON COUNTY, ALABAMA WITH RESPECT TO ANY AGREEMENT ACTIONS, AND THAT IT IS FORESEEABLE BY SUCH BORROWER THAT IT MAY BE SUBJECTED TO THE JURISDICTION OF SUCH COURTS AND MAY BE SUED IN THE STATE OF ALABAMA IN ANY AGREEMENT ACTIONS. Nothing in this Section 10.7 shall limit or restrict the Agent's right to serve process or bring Agreement Actions in manners and in courts otherwise than as herein provided. SECTION 10.8 TERMINATION. The termination of this Agreement shall not ----------- affect any rights of the Borrowers, the Lenders or the Agent or any obligation of the Borrowers, the Lenders or the Agent, arising prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into or rights created or obligations incurred prior to such termination have been fully disposed of, concluded or liquidated and the Credit Obligations arising prior to or after such termination have been irrevocably paid in full. The rights granted to the Agent for the benefit of the Lenders hereunder and under the other Loan Documents shall continue in full force and effect, notwithstanding the termination of this Agreement, until all of the Credit Obligations have been paid in full after the termination hereof or the Borrowers have furnished the Lenders with an indemnification satisfactory to the Lenders with respect thereto. All representations, warranties, covenants, waivers and agreements contained herein shall survive termination hereof until payment in full of the Credit Obligations unless otherwise provided herein. Notwithstanding the foregoing, if after receipt of any payment of all or any part of the Credit Obligations, the Agent or the Lenders are for any reason compelled to surrender such payment to any Person because such payment is determined to be void or voidable as a preference, impermissible setoff, a diversion of trust funds or for any other reason, this Agreement shall continue in full force and the Borrowers shall be liable to, and shall indemnify and hold the Agent and the Lenders harmless for, the amount of such payment surrendered until the Agent and the Lenders shall have been finally and irrevocably paid in full. The provisions of the foregoing sentence shall be and remain effective notwithstanding any contrary action which may have been taken by the Agent or the Lenders in reliance upon such payment, and any such contrary action so taken shall be without prejudice to the Agent's or the Lenders' rights under this Agreement and shall be deemed to have been conditioned upon such payment having become final and irrevocable. If on any date on which the Borrowers wish to pay 63 the Credit Obligations in full and terminate this Agreement, there are any outstanding Letter of Credit Borrowings, the Borrowers shall, unless otherwise agreed by the Required Lenders in their sole discretion, make a cash prepayment to the Agent on such date in an amount equal to the then-outstanding Letter of Credit Borrowings, and the Agent shall hold such prepayment in an interest- bearing cash collateral account in the name and under the sole control of the Agent (which account shall bear interest at the Agent's then-current rate for such accounts) as security for the Reimbursement Obligations and other Letter of Credit Obligations. To the extent allowed by law, such account shall not constitute an asset of the Borrowers, or any of them, subject to their rights therein under this Section 10.8. The Agent shall from time to time debit such account for the payment of the Letter of Credit Obligations as the same become due and payable and shall promptly refund any excess funds (including interest) held in said account to the Borrowers if and when no Letter of Credit Borrowings remain outstanding hereunder and all of the Credit Obligations have been paid in full. The Borrowers shall remain liable for any Credit Obligations in excess of the amounts paid from such account. SECTION 10.9 GOVERNING LAW. All documents executed pursuant to the ------------- transactions contemplated herein, including this Agreement and each of the Loan Documents, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the internal laws and judicial decisions of the State of Alabama. SECTION 10.10 INDEMNIFICATION. In consideration of the execution and --------------- delivery of this Agreement by the Agent and the Lenders, and so long as the Agent and the Lenders have fulfilled their respective obligations hereunder, each of the Borrowers hereby indemnifies, exonerates and holds the Agent and the Lenders and their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, claims, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to any of the following: (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties; (c) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment in connection with the Borrowers or the release by the Borrowers of any Hazardous Materials; or (d) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated 64 by the Borrowers thereof of any Hazardous Materials (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any environmental laws), regardless of whether caused by, or within the control of, the Borrowers, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or willful misconduct, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrowers hereby agree to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 10.11 AGREEMENT CONTROLS. In the event that any term of any of ------------------ the Loan Documents other than this Agreement conflicts with any term of this Agreement, the terms and provisions of this Agreement shall control. SECTION 10.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding ---------------------- upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Borrowers may not assign or transfer their rights or obligations hereunder without the prior written consent of the Required Lenders. The Lenders may not assign or transfer their respective interest hereunder except as otherwise provided in this Agreement. SECTION 10.13 SEVERABILITY. Any provision of any of the Loan Documents ------------ that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 10.14 OBLIGATIONS OF HIBBETT ABSOLUTE. Hibbett hereby agrees that ------------------------------- its obligations and liabilities with respect to the Credit Obligations are joint and several with the Participating Entities, continuing, absolute and unconditional. Without limiting the generality of the foregoing, the obligations and liabilities of Hibbett with respect to the Credit Obligations shall not be released, discharged, impaired, modified or in any way affected by (a) the invalidity or unenforceability of any Loan Document executed by any other person with respect to the Credit Obligations, (b) the failure of the Agent to give Hibbett a copy of any notice given to any other person, (c) any modification, amendment or supplement of any obligation, covenant or agreement contained in any Loan Document executed by any other person with respect to the Credit Obligations, (d) any compromise, settlement, release or termination of any obligation, covenant or agreement in any Loan Document executed with respect to the Credit Obligations, (e) any waiver of payment, performance or observance by or in favor of any other person of any obligation, covenant or agreement under any Loan Document, (f) any consent, extension, indulgence or other action or inaction, or any exercise or non-exercise of any right, remedy or privilege with respect to any Loan Document executed by any other person with respect to the Credit Obligations, or (g) the extension of time for payment or performance of any Credit Obligation by any other person. 65 SECTION 10.15 ARBITRATION; PRESERVATION AND LIMITATION OF REMEDIES. ---------------------------------------------------- (a) If any dispute or controversy shall arise among the parties hereto as to any matter arising out of or in connection with the Loan Documents, the parties shall attempt in good faith to resolve such controversy by mutual agreement. If such dispute or controversy cannot be so resolved, it shall be resolved solely in accordance with the provisions of this Section 10.15. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. (b) Any dispute, controversy or claim between or among the parties hereto (the "Disputing Parties"), including disputes, controversies and claims arising out of or related to the Loan Documents, or the breach thereof, and the subject matter hereof, shall, except as provided in this Section 10.15, be settled by a single arbitrator by arbitration in Birmingham, Alabama in accordance with the Commercial Arbitration Rules of the American Arbitration Association as amended from time to time and as modified by this Agreement. (c) The arbitrator shall be selected by the Disputing Parties within 15 days after demand for arbitration is made by a Disputing Party. If the Disputing Parties are unable to agree on an arbitrator within such period, then each Disputing Party shall select one arbitrator, and each such arbitrator shall select a third arbitrator and the dispute shall be settled by the panel consisting of such three arbitrators (such panel, or the single arbitrator agreed to by both parties, as the case may be, being hereinafter referred to as the "Arbiter"). Each arbitrator shall be a licensed attorney in the State of Alabama and shall possess substantive legal experience with respect to the principal issues in dispute. (d) Except as may otherwise be agreed in writing by the Disputing Parties or as ordered by the Arbiter upon substantial justification, the hearing of the dispute shall be held and concluded within 90 days of submission of the dispute to arbitration. The Arbiter shall render its final award within 30 days following conclusion of the hearing. The Arbiter shall state the factual and legal basis for the award. The decision of the Arbiter shall be final and binding except as provided in the Federal Arbitration Act, 9 U.S.C. Section 1 et. seq., and except for errors of law based on findings of fact. Final - -- --- judgment may be entered upon such an award in any court of competent jurisdiction, but entry of such judgment shall not be required to make such award effective. (e) Nothing in this Section 10.15 shall limit any right that any party may otherwise have to seek to obtain preliminary injunctive relief in order to preserve the status quo pending the disposition of any such arbitration proceeding. 66 IN WITNESS WHEREOF, each of the Borrowers, the Lenders and the Agent have caused this Credit Agreement to be executed and delivered by its duly authorized corporate officer as of the day and year first above written. HIBBETT SPORTING GOODS, INC. By:_________________________________ Its _____________________________ HIBBETT TEAM SALES, INC. By:_________________________________ Its _____________________________ SPORTS WHOLESALE, INC. By:_________________________________ Its _____________________________ Hand Delivery and Mailing Address: 451 Industrial Lane Birmingham, Alabama 35211 FAX: (205) 912-7293 Attention: Chief Financial Officer AMSOUTH BANK By:_________________________________ Its Senior Vice President Commitment: $12,500,000 Applicable Commitment Percentage: 50% Lending Office and Hand Delivery Address: 7th Floor, AmSouth-Sonat Tower 1900 Fifth Avenue North Birmingham, Alabama 35203 FAX: (205) 801-0157 Attention: Regional Banking Department Mailing Address: Post Office Box 11007 Birmingham, Alabama 35288 FAX: (205) 801-0157 Attention: Regional Banking Department NATIONSBANK, N.A. By:__________________________________ Its:______________________________ Commitment: $5,000,000 Applicable Commitment Percentage: 20% Lending Office, Mailing and Hand Delivery Address: One Perimeter Park South Suite 100 North Birmingham, Alabama 35243 FAX: (205) 970-6015 Attention: Alan Schweer BANKBOSTON, N.A. By:__________________________________ Its:______________________________ Commitment: $7,500,000 Applicable Commitment Percentage: 30% Lending Office, Mailing and Hand Delivery Address: 100 Federal Street Mail Stop 010905 Boston, Massachusetts 02110 FAX: (617) 434-6685 Attention: Peter Griswold AMSOUTH BANK, as Agent By:__________________________________ Its Senior Vice President EX-10.2 3 CREDIT AGREEMENT EXHIBIT 10.2 [EXECUTION COPY] ================================================================================ CREDIT AGREEMENT DATED NOVEMBER 5, 1998 BETWEEN HIBBETT SPORTING GOODS, INC., HIBBETT TEAM SALES, INC. AND SPORTS WHOLESALE, INC. AND AMSOUTH BANK RELATING TO A $5,000,000 REVOLVING FACILITY LOAN ================================================================================ CREDIT AGREEMENT ---------------- THIS CREDIT AGREEMENT dated as of November 5, 1998 ("this Agreement") is entered into by HIBBETT SPORTING GOODS, INC., a Delaware corporation ("Hibbett"), HIBBETT TEAM SALES, INC., an Alabama corporation ("HTS"), and SPORTS WHOLESALE, INC., an Alabama corporation ("SW"; HTS and SW are sometimes together referred to as the "Initial Participating Entities"; Hibbett and the Initial Participating Entities, together with all entities that hereafter become Participating Entities, being hereafter sometimes together referred to as the "Borrowers") and AMSOUTH BANK, an Alabama banking corporation (the "Lender"). RECITALS -------- A. The Borrowers have applied to the Lender for a short-term revolving credit facility in an aggregate principal amount outstanding not to exceed $5,000,000 (the "Revolving Facility"), the proceeds of which are to be used by the Borrowers for general corporate purposes, including seasonal working capital. B. The Lender is willing to make the Revolving Facility available to the Borrowers only if, among other things, the Borrowers enter into this Agreement and the other Loan Documents (as hereinafter defined). AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing Recitals, and to induce the Lender to make the Revolving Facility available, the Borrowers and the Lender agree as follows: ARTICLE 1 DEFINITIONS ----------- SECTION 1.1 For the purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: Unless otherwise specified, all accounting terms used herein have the meanings assigned to them, and all computations herein provided shall be made, in accordance with those generally accepted accounting principles applied in the preparation of the audited financial statements of Hibbett referred to in Section 53; provided that the financial statements required to be delivered pursuant to clauses (1) and (2) of Section 73 shall be prepared in accordance with generally accepted accounting principles as in effect from time to time and provided further that quarterly financial statements delivered pursuant to such clause (1) are not required to contain footnote disclosure and shall be subject to ordinary year-end audit adjustments. All references herein to "generally accepted accounting principles" refer to such principles as they exist at the date of application thereof. All references in this Agreement to designated "Articles", "Sections" and other subdivisions or to lettered Exhibits are to the designated Articles, Sections and other subdivisions hereof and the lettered Exhibits annexed hereto unless the context otherwise clearly indicates. All Article, Section, other subdivision and Exhibit captions herein are used for reference only and in no way limit or describe the scope or intent of, or in any way affect, this Agreement. The terms "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. The terms "include," "including" and similar terms shall be construed as if followed by the phrase "without being limited to." The terms defined in this article have the meanings attributed to them in this article. Singular terms shall include the plural as well as the singular, and vice versa. Words of masculine, feminine or neuter gender shall mean and include the correlative words of other genders. All recitals set forth in this Agreement are hereby incorporated in the operative provisions of this Agreement. No inference in favor of or against any party shall be drawn from the fact that such party or its counsel has drafted any portion hereof. All references herein to a separate instrument are to such separate instrument as the same may be amended or supplemented from time to time pursuant to the applicable provisions thereof. Actual/360 Basis shall mean a method of computing interest or other ---------------- charges hereunder on the basis of an assumed year of 360 days for actual number of days elapsed, meaning that interest or other charges accrued for each day will be computed by multiplying the rate applicable on that day by the unpaid principal balance (or other relevant sum) on that day and dividing the result by 360. Advance shall mean a borrowing under the Revolving Facility pursuant ------- to Section 21. Affiliate of any specified person shall mean any person directly or --------- indirectly controlling or controlled by or under direct or indirect common control with such 2 specified person. For purposes of this definition "control" when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Agreement shall mean, on any date, this Credit Agreement, as --------- originally in effect on the Closing Date and as thereafter from time to time amended, supplemented, restated or otherwise modified and in effect on such date. Assumption Agreement shall have the meaning attributed to that term in -------------------- Section 21. Base Rate shall mean (a) the higher of the (i) Federal Funds Effective --------- Rate plus 1/2% per annum and (ii) Prime Rate plus (b) the applicable Margin. Base Rate Loans shall mean Loans that bear interest at rates based --------------- upon the Base Rate. Business Day shall mean any day on which commercial banks are not ------------ authorized or required to close in Birmingham, Alabama. Capital Expenditures shall mean any expenditure for fixed assets or -------------------- that is properly chargeable to capital account in accordance with generally accepted accounting principles. Closing Date shall mean the date of this Agreement. ------------ Consolidated Entity shall mean a person whose financial statements are ------------------- appropriately consolidated with Hibbett's financial statements. Consolidated Net Income shall mean, with reference to any period, the ----------------------- net income of Hibbett and its Consolidated Entities (on a consolidated basis) for such period after eliminating all non-recurring non-cash items of income and expense. Convert, Conversion and Converted shall refer to a conversion pursuant --------------------------------- to Section 32 hereof of one Type of Loan into another Type of Loan. Credit Obligations shall mean the Revolving Facility Obligations, and ------------------ all other obligations and debts of the Borrowers owing to the Lender and arising under the terms of this Agreement, the Note, and the other Loan Documents, whether now or hereafter incurred, existing or arising, including the principal amount of all Advances, any sums expended by the Lender in exercising the rights and remedies described in Section 81, all accrued interest on Advances, and all costs, fees, charges and expenses incurred and payable in connection therewith, including fees payable under the terms of, or in 3 connection with, this Agreement, and all other obligations and debts owing to the Lender arising in connection with, ancillary to, or in support of Advances, and all extensions, alterations, modifications, revisions and renewals of any of the foregoing. Current Maturities shall mean principal maturing or coming due on ------------------ Funded Debt (other than the Credit Obligations) during the next succeeding period of twelve calendar months. Debt of any person shall mean, without duplication, (i) the Credit ---- Obligations and all other indebtedness, whether or not represented by bonds, debentures, notes or other securities, for the repayment of borrowed money or for reimbursement of drafts drawn or available to be drawn under letters of credit (provided that letters of credit issued to secure trade obligations, workmen's compensation or similar liabilities and other obligations (not constituting Debt) arising in the ordinary course of business shall count as Debt only to the extent that the aggregate face amount of such letters of credit exceeds $2,000,000) and banker's acceptances issued for the account of such person, (ii) all indebtedness deferred for the payment of the purchase price of property or assets purchased (except accounts payable arising in the ordinary course of business and not incurred through the borrowing of money), (iii) all capitalized lease obligations, (iv) all indebtedness secured by any mortgage or pledge of, or Lien on, property of such person, whether or not the indebtedness secured thereby shall have been assumed, (v) Guaranteed Obligations, (vi) all obligations with respect to any conditional sale contract or title retention agreement, and (vii) all obligations with respect to interest rate swap agreements. Default shall mean an Event of Default or an event that with notice or ------- lapse of time or both would become an Event of Default. Dollars and the symbol $ shall mean dollars constituting legal tender ------- - for the payment of public and private debts in the United States of America. EBITDA for any period shall mean Consolidated Net Income (or the net ------ deficit, if expenses and charges exceed revenues and other proper income credits) for such period, plus amounts that have been deducted for (i) depreciation, (ii) amortization, (iii) Interest Expense and (iv) income and profit taxes in determining Consolidated Net Income for such period. EBITDAR for any period shall mean Consolidated Net Income (or the net ------- deficit, if expenses and charges exceed revenues and other proper income credits) for such period, plus amounts that have been deducted for (i) Interest Expense, (ii) Operating Lease Payments, (iii) depreciation, (iv) amortization and (v) income and profit taxes in determining Consolidated Net Income for such period. 4 ERISA shall mean the Employee Retirement Income Security Act of 1974, ----- as amended from time to time, and the regulations promulgated and rulings issued thereunder. ERISA Affiliate shall mean, as of any date, any corporation, --------------- partnership or other trade or business (whether or not incorporated) under common control with Hibbett and which together with Hibbett is treated as single employer under Section 414 of the Internal Revenue Code, as amended. Event of Default shall have the meaning assigned to such term in ---------------- Article 8 hereof. Federal Funds Effective Rate shall mean, for any day, the rate per ---------------------------- annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of Atlanta on the Business Day next succeeding such day, provided that (a) if the day for -------- which such rate is to be determined is not a Business Day, the Federal Funds Effective Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published for any Business Day, and (b) if such rate is not so published for any Business Day, the Federal Funds Effective Rate for such Business Day shall be the average rate charged to the Lender on such Business Day on such transactions as determined by the Lender. Fixed Rate shall mean the Quoted Cost of Funds Rate. ---------- Fixed Rate Segment shall mean a Segment to which a Fixed Rate is (or ------------------ is proposed to be) applicable. Funded Debt shall mean all Debt of Hibbett and the Consolidated ----------- Entities, on a consolidated basis, that matures by its terms more than one year after, or is renewable or extendible at the option of the debtor to a date more than one year after, the date as of which Funded Debt is being determined. Governmental Authority shall mean any national, federal, state, ---------------------- county, municipal or other agency, authority, department, commission, bureau, board, court or instrumentality thereof. Governmental Requirements shall mean all laws, rules, regulations, ------------------------- requirements, ordinances, judgments, decrees, codes and orders of any Governmental Authority applicable to the Borrowers or any Consolidated Entity. Guaranteed Obligations of any person shall mean all guaranties ---------------------- (including guaranties of guaranties and guaranties of dividends and other monetary obligations), endorsement assumptions and other contingent obligations with respect to, or to purchase or otherwise pay or acquire, Debt of others. 5 Hazardous Material shall mean (a) any asbestos or insulation or other ------------------ material composed of or containing asbestos and (b) any hazardous, toxic or dangerous waste, substance or material defined as such in the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, or any other Governmental Requirement regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material. This definition refers to the amounts of such waste, substance or material present at a particular facility in excess of the reportable quantity or threshold planning quantity, if applicable, for such waste, substance or material as may be listed in such act, law or other Governmental Requirement described in the foregoing sentence. Immaterial Subsidiary shall mean any Subsidiary of the Borrowers that --------------------- either (a) has assets with a gross fair market value of less than $250,000 and gross revenues (determined for the most recently ended period of twelve consecutive fiscal months) of less than $250,000 or (b) has been organized by the Borrowers as an acquisition vehicle solely for the purpose of merging with another person in connection with an acquisition permitted under Section 7.7(15). Interest Expense shall mean all interest incurred on Debt (including ---------------- obligations payable under capitalized leases attributable to interest) during the period in question. Interest Period shall mean the period commencing on the date a Quoted --------------- Cost of Funds Rate Loan is made and ending on any Business Day up to 29 days thereafter, as Hibbett may select as provided in Section 32 hereof. Each Interest Period that would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day. Liabilities shall mean all Debt and all other items (including taxes ----------- accrued as estimated) that, in accordance with generally accepted accounting principles, would be included in determining total liabilities as shown on the liabilities side of a balance sheet. Lien shall mean any mortgage, pledge, assignment, charge, encumbrance, ---- lien, security interest or financing lease. Loan Documents shall mean this Agreement, any Assumption Agreement, -------------- the Note, and all other agreements, instruments and documents executed or delivered at any time in connection with the Credit Obligations, or to evidence or secure any of the Credit Obligations. Loans shall mean the aggregate outstanding amount of all Advances and ----- all extensions and renewals thereof. 6 Margin shall mean, at any time with respect to the Loan the applicable ------ percentage points as determined under the following matrix with reference to the ratio of Funded Debt to EBITDA calculated as provided below:
APPLICABLE MARGIN RATIO OF FUNDED APPLICABLE MARGIN (QUOTED COST OF DEBT TO EBITDA (BASE RATE) FUNDS RATE) --------------- ----------------- ------------------ (1) Equal to or less than 0 .925% 1.25 to 1.00 (2) Greater than 1.25 to 0 1.1175% 1.00 but less than or equal to 2.0 to 1.00 (3) Greater than 2.0 to .25% 1.425% 1.00 but less than or equal to 3.0 to 1.0
From the Closing Date until receipt of the Lender of the financial statements for the fiscal quarter ended October 31, 1998 pursuant to Section 73 below, the Margin shall be 0% for Base Rate Loans and .925% for Quoted Cost of Funds Rate Loans. The Margins shall be reset from time to time in accordance with the above matrix on the day after receipt by the Lender in accordance with Section 7.3 of financial statements together with a Compliance Certificate that provides for different Margins than those then in effect. Margin Stock shall have the meaning attributed to that term in ------------ Regulation U of the Federal Reserve Board, as amended. Material Adverse Change shall mean a material adverse change in the ----------------------- financial condition, results of operations or business of Hibbett and its Subsidiaries, taken as a whole. Material Adverse Effect shall mean a material adverse effect upon (i) ----------------------- the financial condition, results of operations or business of Hibbett and its Subsidiaries, taken as a whole, (ii) the ability of Hibbett and the Participating Entities, taken as a whole, to perform their obligations under this Agreement or any of the other Loan Documents or (iii) the legality, validity or enforceability of this Agreement or any of the other Loan Documents or the rights and remedies of the Lender hereunder and thereunder. Material Contract shall mean any contract or agreement (i) to which ----------------- Hibbett or any of its Subsidiaries is a party, by which any of them or their respective properties is bound or to which any of them is subject and (ii) that is required to be filed as an exhibit to Hibbett's registration statements or periodic reports (including on Forms 10-Q and 10-K) submitted to the Securities and Exchange Commission under the Securities Act of 7 1933, as amended, and the rules and regulations from time to time promulgated thereunder, or under the Exchange Act of 1934. Maximum Credit Amount shall mean $5,000,000. --------------------- Note shall have the meaning assigned to such term in Section 21 ---- hereof. Operating Lease Payments shall mean all amounts payable under any ------------------------ lease or rental agreement (other than obligations under capital leases) during the period in question (but excluding, in any event, amounts paid in respect of taxes, utilities, insurance, common area maintenance and other like charges associated with the lease and rental of real and personal property). Opinion of Counsel shall mean a favorable written opinion of an ------------------ attorney or firm of attorneys duly licensed to practice law in the jurisdiction the laws of which are applicable to the legal matters in question and who is not an employee of the Borrowers or of an Affiliate of the Borrowers. Participating Entity shall mean any Subsidiary that hereafter executes -------------------- and delivers to the Lender an Assumption Agreement and all other documents necessary to assume joint and several liability as to the Credit Obligations. PBGC shall mean the Pension Benefit Guaranty Corporation and any ---- successor thereto. Permitted Encumbrances shall mean: ---------------------- (1) Liens for taxes, assessments and other governmental charges that are not delinquent or that are being contested in good faith by appropriate proceedings duly pursued, and for which adequate reserves have been established and are being maintained; (2) mechanics', materialmen's, contractors', landlords' or other similar liens arising in the ordinary course of business, securing obligations that are not delinquent or that are being contested in good faith by appropriate proceedings duly pursued, and for which adequate reserves have been established and are being maintained; (3) restrictions, exceptions, reservations, easements, conditions, limitations and other matters of record that do not materially adversely affect the value or utility of the property affected thereby or the use to which such property is being put; (4) Liens and other matters approved in writing by the Lender; (5) Liens for purchase money obligations or capital leases provided that such Liens attach only to the property so purchased or leased; 8 (6) Liens existing on any asset prior to the acquisition thereof by a Borrower and not created in contemplation of such acquisition; (7) deposits under workmen's compensation, unemployment insurance and Social Security laws; (8) Liens arising out of any litigation, legal proceeding or judgment that are not delinquent or that are being contested in good faith by appropriate proceedings duly pursued, and for which adequate reserves have been established and are being maintained, and any pledges or deposits to secure, or in lieu of, any surety, stay or appeal bond with respect to any litigation, legal proceeding or judgment; (9) the existing Liens described in Exhibit A hereto; and --------- (10) Liens arising out of the refinancing, extension, renewal or refunding of any Debt secured by Liens permitted by any of the foregoing clauses (5) or (6), provided that such Debt is not increased other than by an amount equal to any reasonable financing fees and is not secured by any additional assets. Permitted Investments shall mean: --------------------- (1) direct obligations of, or obligations the payment of which is guaranteed by, the United States of America or an interest in any trust or fund that invests solely in such obligations or repurchase agreements, properly secured, with respect to such obligations; (2) direct obligations of agencies or instrumentalities of the United States of America having a rating of A or higher by Standard & Poor's Ratings Group or A2 or higher by Moody's Investors Service, Inc.; (3) a certificate of deposit issued by, or other interest-bearing deposits with, a bank having its principal place of business in the United States of America and having equity capital of not less than $250,000,000; (4) certificates of deposit issued by, or other interest-bearing deposits with, any other bank organized under the laws of the United States of America or any state thereof, provided that such deposit is either (i) insured by the Federal Deposit Insurance Corporation or (ii) properly secured by such bank by pledging direct obligations of the United States of America having a market value not less than the face amount of such deposits; (5) commercial paper maturing within 270 days of the acquisition thereof and, at the time of acquisition, having a rating of A-1 or higher by Standard & Poor's Ratings Group, or P-1 or higher by Moody's Investors Service, Inc.; 9 (6) eligible banker's acceptances, repurchase agreements and tax- exempt municipal bonds having a maturity of less than one year, in each case having a rating of, or that is the full recourse obligation of a person whose senior debt is rated, A or higher by Standard & Poor's Ratings Group or A2 or higher by Moody's Investors Service, Inc.; (7) any other investment having a rating of A or higher or A-1 or higher by Standard & Poor's Ratings Group or A2 or higher or P-1 or higher by Moody's Investors Service, Inc; (8) mutual funds, the stated investment policies of which require substantially all assets in such mutual funds to be invested in one or more other itemized Permitted Investments; (9) investments consisting of loans and advances by any of the Borrowers to (i) the Consolidated Entities and (ii) employees for reasonable travel, relocation, business expenses and other various purposes in the ordinary course of business not exceeding $250,000 in the aggregate; and (10) other investments made with the express prior written approval of the Lender. person (whether or not capitalized) shall include natural persons, ------ sole proprietorships, corporations, trusts, unincorporated organizations, associations, companies, institutions, entities, joint ventures, partnerships, limited liability companies and Governmental Authorities. Plan shall mean an employee pension benefit plan as defined in Section ---- 3(2) of ERISA which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and which is maintained, or contributed to, by Hibbett or any ERISA Affiliate for employees of Hibbett or any ERISA Affiliate. Prime Rate shall mean that rate of interest designated by the Lender ---------- from time to time as its "prime rate", it being expressly understood and agreed that its prime rate is merely an index rate used by the Lender to establish lending rates and is not necessarily the Lender's most favorable lending rate, and that changes in the Lender's prime rate are discretionary with the Lender. Any change in the Prime Rate shall be effective as of the date of such change. Principal Office shall mean the principal office of the Lender located ---------------- at AmSouth-Sonat Tower, 1900 Fifth Avenue North, Birmingham, Alabama 35203, or such other location in Jefferson County, Alabama designated by the Lender by notice to the Borrowers. 10 Quarterly Payment Date shall have the meaning attributed to that term ---------------------- in Section 23. Quoted Cost of Funds Rate shall mean the per annum rate of interest ------------------------- designated by the Lender as its quoted cost of funds determined by the Lender in its sole discretion (provided market conditions and other considerations allow the Lender to quote such rate), plus the applicable Margin. Quoted Cost of Funds Rate Loans shall mean Loans that bear interest at ------------------------------- rates based upon the Quoted Cost of Funds Rate. Request for Advance or Interest Rate Election shall have the meaning --------------------------------------------- attributed to that term in Section 22. Revolving Facility shall mean the credit facility made available to ------------------ the Borrower by the Lender under the terms of Article 2 in an aggregate amount of up to $5,000,000 as reduced by the Borrowers pursuant to Section 25 hereof. Revolving Facility Obligations shall mean the outstanding principal ------------------------------ amount of all Advances, all interest accrued thereon, all costs, charges, fees and expenses payable in connection therewith and all extensions and renewals thereof. Segment shall mean a portion of the Advances (or all thereof) with ------- respect to which a particular interest rate is (or is proposed to be) applicable. Solvent shall mean, as to any person, on a particular date, that such ------- person has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage, is able to pay its debts as they mature, owns property having a value, both at fair valuation and at present fair saleable value, greater than the amount required to pay its probable liability on existing debts as they become mature (including known reasonable contingencies and contingencies that should be included in notes of such person's financial statements pursuant to generally accepted accounting principles), and does not intend to, and does not believe that it will, incur debts or probable liabilities beyond its ability to pay such debts or liabilities as they mature. Stores shall mean the existing and hereafter acquired or opened retail ------ sporting goods stores owned and operated by the Borrowers. Subsidiary shall mean any corporation or other entity of which ---------- securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by Hibbett, and which is a Consolidated Entity. Termination Date means November 4, 1999. ---------------- 11 Type shall have the meaning as assigned to such term in Section 1.2 ---- hereof. SECTION 1.2 TYPES OF LOANS. The "Type" of an Advance refers to whether -------------- such Advance is a Base Rate Loan or a Quoted Cost of Funds Rate Loan, each of which constitutes a Type. ARTICLE 2 REVOLVING FACILITY TERMS ------------------------ SECTION 2.1 ADVANCES. -------- (a) From and after the Closing Date to (but not including) the Termination Date, on the terms and subject to the conditions set forth in this Agreement, the Lender agrees to lend to the Borrowers, jointly and severally, and the Borrowers may borrow, repay and reborrow, an amount not exceeding the Maximum Credit Amount in effect from time to time; provided, however, that no more than -------- ------- four (4) different Interest Periods may be outstanding at the same time (for which purpose Interest Periods described in different lettered clauses of the definition of the term "Interest Period" shall be deemed to be different Interest Periods even if they are coterminous). All Advances made by the Lender to the Borrowers under this Agreement with respect to the Revolving Facility shall be evidenced by a promissory note for the Lender dated the Closing Date payable to the order of the Lender, duly executed by the Borrowers, and in the aggregate maximum principal amount of $5,000,000 (the "Note"). The date, amount, Type, interest rate and duration of Interest Period (if applicable) of each Advance made by the Lender to the Borrowers, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books; provided that the failure of the Lender to make, or any error by the Lender in - -------- making, any such recordation shall not affect the obligations of the Borrowers to make a payment when due of any amount owing hereunder or under the Note with respect to the Advances to be evidenced by the Note. The Advances shall bear interest as provided in Article 3 below. The unpaid principal amount of all Loans hereunder shall not exceed the Revolving Facility. (b) Each Participating Entity, separately and severally, hereby appoints and designates Hibbett as its agent and attorney-in-fact to act on behalf of it for all purposes of the Loan Documents. Hibbett shall have authority to exercise on behalf of each Participating Entity all rights and powers that Hibbett deems necessary, incidental or convenient in connection with the Loan Documents, including the authority to execute and deliver certificates, documents, agreements and other instruments referred to or provided for in the Loan Documents, request Advances and elect interest rate options hereunder, receive all proceeds of Advances, give all notices, approvals and consents required or requested from time to time by the Lender and take any other actions and steps that each Participating Entity could take for its own account in connection with the Loan Documents from time to time, it being the intent of each Participating Entity to grant to Hibbett plenary power to act on behalf of each Participating Entity in connection with and pursuant to the Loan Documents. The appointment of Hibbett as agent and 12 attorney-in-fact for each Participating Entity hereunder shall be coupled with an interest and be irrevocable so long as any Loan Document shall remain in effect. The Lender need not obtain each Participating Entity's consent or approval for any act taken by Hibbett pursuant to any Loan Document, and all such acts shall bind and obligate Hibbett and each Participating Entity, jointly and severally. Each Participating Entity forever waives and releases any claim (whether now or hereafter arising) against the Lender based on any claim of Hibbett's lack of authority to act on behalf of each Participating Entity in connection with the Loan Documents. (c) The liability of each Participating Entity with respect to the Credit Obligations shall be limited to an amount equal to the greater of (i) $1.00 less than the greatest of (A) the Participating Entity's Net Worth (as hereinafter defined) as of the end of the most recently concluded fiscal quarter of the Participating Entity ended on or prior to the date the Participating Entity became a Borrower, (B) the highest Net Worth of the Participating Entity at the end of any fiscal quarter ending after the Participating Entity became a Borrower and prior to the earlier of the date of the commencement of a case under the United States Bankruptcy Code (the "Bankruptcy Code") involving the Participating Entity or the date enforcement of this Agreement or any of the other Loan Documents is sought against the Participating Entity and (C) the Net Worth of the Participating Entity at the earlier of the date of the commencement of a case under the Bankruptcy Code involving the Participating Entity or the date enforcement of this Agreement or any of the other Loan Documents is sought against the Participating Entity; or (ii) the amount that in a legal proceeding brought within the applicable limitations period is determined by the final, non-appealable order of a court having jurisdiction over the issue and the applicable parties to be the amount of value or benefit given by the Lender, or received by the Participating Entity, in exchange for the obligations of the Participating Entity under this Agreement and the other Loan Documents. As used in this subsection 2.1(c), "Net Worth" shall mean (x) the fair value of the property of the Participating Entity from time to time (taking into consideration the value, if any, of rights of subrogation, contribution and indemnity), minus (y) the total liabilities of the Participating Entity (including contingent liabilities [discounted in appropriate instances], but excluding liabilities of the Participating Entity under this Agreement and the other Loan Documents) from time to time. (d) Each Initial Participating Entity (i) acknowledges that it has had full and complete access to the underlying papers relating to the Credit Obligations and all other papers executed by any person in connection with the Credit Obligations, has reviewed them and is fully aware of the meaning and effect of their contents; (ii) is fully informed of all circumstances that bear upon the risks of executing this Agreement and the other Loan Documents that a diligent inquiry would reveal; (iii) has adequate means to obtain from Hibbett on a continuing basis information concerning Hibbett's financial condition and is not depending on the Lender to provide such information, now or in the future; and (iv) agrees that the Lender shall not have any obligation to advise or notify it or to provide it with any data or information. (e) Each Initial Participating Entity hereby agrees that its obligations and liabilities with respect to the Credit Obligations are joint and several with Hibbett, continuing, absolute and unconditional (subject to the provisions of subsection (d) of this section). Without limiting the generality of the foregoing, the obligations and liabilities of each Initial Participating Entity 13 with respect to the Credit Obligations shall not be released, discharged, impaired, modified or in any way affected by (i) the invalidity or unenforceability of any Loan Document, (ii) the failure of the Lender to give each Initial Participating Entity a copy of any notice given to Hibbett, (iii) any modification, amendment or supplement of any obligation, covenant or agreement contained in any Loan Document, (iv) any compromise, settlement, release or termination of any obligation, covenant or agreement in any Loan Document, (v) any waiver of payment, performance or observance by or in favor of Hibbett of any obligation, covenant or agreement under any Loan Document, (vi) any consent, extension, indulgence or other action or inaction, or any exercise or non-exercise of any right, remedy or privilege with respect to any Loan Document, (vii) the extension of time for payment or performance of any of the Credit Obligations, (viii) any other matter that might otherwise be raised in avoidance of, or in defense against an action to enforce, the obligations of each Initial Participating Entity under this Agreement, the Revolving Facility, the Note or any other Loan Document. (f) None of the Borrowers will exercise any rights that it may have or acquire by way of subrogation under this Agreement or any of the other Loan Documents or the Subrogation and Contribution Agreement referred to in subsection (h) below, by any payment made hereunder or under any of the other Loan Documents or otherwise, until all the Credit Obligations have been paid in full and this Agreement has been terminated and is no longer subject to reinstatement under Section 98. If any amount shall be paid to a Borrower on account of any such subrogation rights at any time when all of the Credit Obligations shall not have been paid in full and this Agreement terminated, such amount shall be held in trust for the benefit of the Lender and shall be paid forthwith to the Lender to be credited and applied upon the Credit Obligations, whether matured or unmatured, in accordance with the terms of the Loan Documents. (g) The Borrowers will not amend or waive any provision of the Subrogation and Contribution Agreement dated the Closing Date entered into by the Borrowers nor consent to any departure from such Subrogation and Contribution Agreement, without having obtained the prior written consent of the Lender to such amendment, waiver or consent. (h) Each person that is to become after the Closing Date a Participating Entity shall, at the time it is to become a Participating Entity, execute and deliver to the Lender, in accordance with the provisions of Section 713, an Assumption Agreement in the form attached hereto as Exhibit E ("Assumption --------- Agreement"). SECTION 2.2 ADVANCES OF LOANS. Advances shall be made no more frequently ----------------- than once in each week, shall be in an amount not less than $250,000 and shall be in an integral multiple of $50,000. Each request for an Advance must be received by the Lender not later than 11:30 a.m., Birmingham, Alabama time, on the day which such Advance is to be made in the case of a Base Rate Loan or Quoted Cost of Funds Rate Loan. Each request for an Advance shall be in the form attached hereto as Exhibit B ("Request for Advance or Interest Rate --------- Election") and shall specify the amount of the Advance requested, the date as of which the Advance is to be made, and shall provide the interest rate information called for in Section 32. The Lender shall accept from the Borrowers telephonic or facsimile requests for Advances 14 without requiring the submission of a Request for Advances or Interest Rate Election form. Any request for Advances not made in writing shall be promptly confirmed in writing. Not later than 1:00 P.M. Birmingham, Alabama time, on the date specified for each Advance hereunder, the Lender shall make available the amount of the Advance to be made by it on such date to the Borrowers by depositing the proceeds thereof into an account with the Lender in the name of the Borrowers. The Lender's obligation to make Advances shall terminate, if not sooner terminated pursuant to other provisions of this Agreement, on the Termination Date. The Lender shall have no obligation to make Advances if a Default has occurred and is continuing. Each Request for Advance or Interest Rate Election, whether submitted under this Section 22 in connection with a requested Advance or under Section 32 in connection with an interest rate election, shall be signed by an officer of Hibbett designated as authorized to sign and submit Request for Advance or Interest Rate Election forms in the documents submitted to the Lender pursuant to Section 63 below. Hibbett may, from time to time, by notice to the Lender, terminate the authority of any person to submit Request for Advance or Interest Rate Election forms and designate new or additional persons to so act by delivering to the Lender a certificate of the Secretary or Assistant Secretary of Hibbett certifying the incumbency and specimen signature of each such person. The Lender shall be entitled to rely conclusively upon the authority of any person so designated by Hibbett. SECTION 2.3 PAYMENTS. All interest accrued on Loans subject to the Base -------- Rate shall be payable on the first day of each successive January, April, July and October (each, a "Quarterly Payment Date"), commencing on January 1, 1999 and upon payment in full of such Advances. All interest accrued on each Loan subject to a Fixed Rate shall be payable at the end of the applicable Interest Period then in effect. The principal amount of Advances, together with accrued interest thereon, shall be due on the Termination Date. All payments of Credit Obligations shall be payable to the Lender on or before 10:00 a.m. Birmingham, Alabama time on the date when due, at the Principal Office in Dollars and in immediately available funds free and clear of all rights of set-off or counterclaim. If any payment falls due on a day that is not a Business Day, then such due date shall be extended to the next succeeding Business Day, and such extension of time shall then be included in the computation of payment of interest, fees or other applicable amounts. Payments received by the Lender shall be applied first to expenses, fees and charges, then to accrued interest and finally to principal. SECTION 2.4 PREPAYMENT. ---------- (a) The Borrowers may at any time prepay all or any part of the Advances, without premium or penalty (except as set forth below); provided, however, that no Fixed Rate Segment may be prepaid during an Interest Period. The Borrowers shall pay, on the date of prepayment, all interest accrued to the date of prepayment on any amount prepaid. (b) If at any time the principal amount of the Advances is greater than the Maximum Credit Amount then in effect, the Borrower shall immediately make a prepayment (notwithstanding the provisions of clause (a) of this section on the Advances equal to the difference between (a) said aggregate principal amount of the Advances and (b) the Maximum Credit Amount. 15 SECTION 2.5 REDUCTION IN REVOLVING FACILITY. The Borrowers shall have the ------------------------------- right from time to time upon not less than three (3) Business Days' notice to the Lender, to reduce the amount of the Revolving Facility. Each such reduction shall be in the aggregate principal amount of $1,000,000 or a larger integral multiple of $100,000, and shall permanently reduce the Maximum Credit Amount. Any such reduction resulting in payment of a Fixed Rate Segment other than on the last day of the respective Interest Period shall be permitted. Each reduction of the Revolving Facility shall be accompanied by payment of the Loans to the extent that the principal amount of the Advances exceed the Revolving Facility after giving effect to such reductions together with accrued and unpaid interest on the amounts prepaid. SECTION 2.6 FEES. As consideration for the Lender's agreement to provide ---- the Revolving Facility, the Borrowers agree to pay to the Lender a facility fee per annum equal to the then applicable Margin times the average daily amount of the Maximum Credit Amount (the "Facility Fee"). The Facility Fee shall be determined under the following matrix with reference to the ratio of Funded Debt to EBITDA payable in arrears in each Quarterly Payment Date, commencing on January 1, 1999 and on the Termination Date or the date of any earlier termination of this Agreement:
RATIO OF FUNDED DEBT TO EBITDA APPLICABLE MARGIN --------------- ------------------ (1) Equal to or less than .125% 1.25 to 1.00 (2) Greater than 1.25 to .15% 1.00 but less than or equal to 2.0 to 1.00 (3) Greater than 2.0 to 1.00 .175% but less than or equal to 3.0 to 1.0
From the Closing Date until receipt by the Lender of the financial statement for the fiscal quarter ending October 31, 1998 pursuant to Section 73 below, the fee percentage shall be .125%. The Facility Fee Rate shall be reset from time to time as the calculation of Margin changes as set forth herein. ARTICLE 3 INTEREST ON LOANS ----------------- SECTION 3.1 APPLICABLE INTEREST RATES. The Borrowers shall have the ------------------------- option to elect to have any Segment bear interest at the Base Rate or the Quoted Cost of Funds Rate. For any period of time and for any Segment with respect to which the Borrowers do not elect another interest rate, such Segment shall bear interest at the Base Rate. The Borrowers' right to elect 16 a Quoted Cost of Funds Rate for a Segment shall be subject to the following requirements: (a) each Segment shall be in the amount of $50,000 or more and in an integral multiple thereof, (b) each Segment shall have a maturity selected by the Borrower of from one to twenty-nine days, (c) no more than four Segments may be outstanding at any time, and (d) no Segment may have a maturity date later than the Termination Date. SECTION 3.2 PROCEDURE FOR EXERCISING INTEREST RATE OPTIONS. Hibbett, on ---------------------------------------------- behalf of itself and each Participating Entity, may elect to have a particular interest rate apply to a Segment by notifying the Lender in writing not later than 9:00 a.m., Birmingham, Alabama time, on the same day on which a requested Base Rate or Quoted Cost of Funds Rate is to become applicable. Any notice of interest rate election hereunder shall be irrevocable and shall be in the form attached hereto as Exhibit B and shall set forth the following: (a) the amount --------- of the Segment to which the requested interest rate will apply, (b) the date on which the selected interest rate will become applicable, (c) whether the interest rate selected is the Base Rate or Quoted Cost of Funds Rate and (d) if the interest rate selected is a Quoted Cost of Funds Rate, the maturity selected for the Interest Period. The Lender shall accept from the Borrowers telephonic requests to have a particular rate applied to a Segment without requiring the submission of a Request for Advances or Interest Rate Election form. Any request to have a particular rate applied to a Segment not made in writing shall be promptly confirmed in writing. On the same day that a requested Quoted Cost of Funds Rate is to become applicable, the Lender shall notify Hibbett by telephone or by facsimile transmission of the applicable Quoted Cost of Funds Rate by 11:00 a.m., Birmingham, Alabama time, or as earlier on that day as may be practical in the circumstances. If Hibbett does not accept any Quoted Cost of Funds Rate quoted by the Lender within 15 minutes of it being provided by the Lender, the Lender may, in view of changing market conditions, revise the Quoted Cost of Funds Rate at any time. No Quoted Cost of Funds Rate shall be effective until mutually agreed upon by Hibbett and the Lender. If the Lender and Hibbett attempt to agree on the Quoted Cost of Funds Rate but fail so to agree, or if there is any uncertainty as to whether or not the Lender and Hibbett have agreed upon the Quoted Cost of Funds Rate, interest shall accrue on the Segment for which the Quoted Cost of Funds Rate has been selected at the then applicable Base Rate. SECTION 3.3 BASE RATE. Each Segment subject to the Base Rate shall bear --------- interest from the date the Base Rate becomes applicable thereto until payment in full, or until a Quoted Cost of Funds Rate is selected by the Borrowers and becomes applicable thereto, on the unpaid principal balance of such Segment on an Actual/360 Basis. Any change in the Base Rate shall take effect on the effective date of such change in the Base Rate designated by the Lender, without notice to the Borrowers and without any further action by the Lender. Notwithstanding the foregoing, for the purpose of enabling the Lender to send periodic billing statements in advance of each interest payment date reflecting the amount of interest payable on such interest payment date, the Base Rate, in effect 15 days prior to each interest payment date shall be deemed to be the Base Rate, as continuing in effect until the date prior to such interest payment date for purposes of computing the amount of interest payable on such interest payment date. If the Lender elects to use the Base Rate, 15 days prior to the interest payment date for billing purposes, and if the Base Rate changes during such 15-day period, the difference between the amount of interest that in fact accrues during such period and the amount of interest actually paid 17 will be added to or subtracted from, as the case may be, the interest otherwise payable in preparing the periodic billing statement for the next succeeding interest payment date. In determining the amount of interest payable at the Termination Date or upon full prepayment of the Credit Obligations, all changes in the Base Rate occurring on or prior to the day before the Termination Date or the date of such full prepayment shall be taken into account. SECTION 3.4 QUOTED COST OF FUNDS RATE. Each Segment subject to the Quoted ------------------------- Cost of Funds Rate shall bear interest from the date the Quoted Cost of Funds Rate becomes applicable thereto until the end of the applicable Interest Period on the unpaid principal balance of such Segment at the Quoted Cost of Funds Rate on an Actual/360 Basis. SECTION 3.5 CHANGES IN MARGIN. Any change in the rate of interest payable ----------------- because of a change in the Margin shall become effective as of the first day of the fiscal quarter next following the receipt by the Lender of the Compliance Certificate furnished by the Borrowers to the Lender pursuant to Section 7.3(3) hereof, stating that as a result of a change in the ratio of Funded Debt to EBITDA there has been a change in the Margin. Any such change in the Margin shall be effective without notice to the Borrowers and without any further action by the Lender. SECTION 3.6 POST MATURITY INTEREST. Upon and after the occurrence of any ---------------------- Event of Default, the outstanding principal amount of all Advances and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any fees and other amounts then due and payable hereunder, shall thereafter bear interest (including post-petition interest in any proceeding under applicable bankruptcy laws) payable upon demand at a rate that is 2.00% per annum (calculated on an Actual/360 Basis) in excess of the interest rate otherwise payable under this Agreement with respect to the applicable Advances (or, in the case of any such fees and other amounts, at a rate that is 2.00% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans); provided that, in the case of Advances subject to a Fixed -------- Rate, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective, such Advances subject to a Fixed Rate shall thereupon become Base Rate Loans and thereafter bear interest payable upon demand at a rate that is 2.00% per annum (calculated on an Actual/360 Basis) in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans. The payment or acceptance of the increased rate provided by this Section 36 shall not constitute a waiver of any Event of Default or an amendment to this Agreement or otherwise prejudice or limit any rights or remedies of the Lender. Interest on all Advances shall be calculated on an Actual/360 Basis. 18 ARTICLE 4 TERMINATION OF FIXED RATE AND YIELD PROTECTION ---------------------------------------------- SECTION 4.1 ADDITIONAL COSTS. ---------------- (a) Without limiting the effect of the foregoing provisions of this Section 41 (but without duplication), the Borrowers shall pay directly to the Lender from time to time on written request such amounts as the Lender may determine in good faith to be necessary to compensate the Lender for any increased costs which it determines are attributable to the maintenance by the Lender of capital in respect of its Loans pursuant to any regulatory change or implementing any risk-based capital guideline or requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) hereafter issued by any government or governmental or supervisory authority implementing at the national level the Basle Accord (including the Final Risk- Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) and the Final Risk- Based Capital Guidelines of the Office of the Comptroller of the Currency (12 CFR Part 3, Appendix A)), such compensation to include an amount equal to any reduction of the rate of return on assets or equity of the Lender to a level below that which the Lender could have achieved but for such regulatory change. For purposes of this Section 41, "Basle Accord" shall mean the proposals for risk-based capital framework described by the Basle Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, modified and supplemented in effect from time to time or any replacement thereof. (b) The Lender shall notify Hibbett of any event occurring after the Closing Date that will entitle the Lender to compensation under Section 4.1(a) or (c) as promptly as practicable, but in any event within 45 days after the Lender obtains actual knowledge thereof; provided however, that if the Lender fails to give such notice within 45 days after it obtains actual knowledge of such an event, the Lender shall, with respect to compensation payable pursuant to this Section 41 in respect of any costs resulting from such event, only be entitled to payment under this Section 41 for costs incurred from and after the date 45 days prior to the date that the Lender does give such notice. The Lender will furnish to Hibbett a certificate setting forth in reasonable detail the basis and amount of each request by the Lender for compensation under Section 4.1(a) or (b) and such compensation shall be due five Business Days from the date Hibbett receives such certificate. Determinations and allocations by the Lender for purposes of this Section 41 of the effect of any regulatory change pursuant to Section 4.1(a) or (b), of maintaining Loans or its obligation to make Loans or on amounts receivable by it in respect of Loans, and of the amounts required to compensate the Lender under this Section 41, shall be made in a manner consistent with that applied by the Lender in similar contexts and shall be conclusive in the absence of demonstrable error. 19 SECTION 4.2 TAXES. ----- (a) Any and all payments by the Borrowers hereunder shall be paid (except to the extent required by law) free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding franchise taxes and taxes based on net income (including branch profit taxes and minimum taxes) imposed on the Lender by the United States or the jurisdiction (or any political subdivision thereof) in which the Lender is organized, is doing business, or has its Principal Office (all such nonexcluded taxes, levies, imposts deductions, charges, withholding and liabilities being hereinafter referred to as "Taxes"). If the Borrowers shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Lender (i) the sum payable by the Borrowers shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 42) the Lender shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make such deduction, and (iii) the Borrowers shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law. (b) In addition, the Borrowers agree to pay any present or future stamp or documentary taxes or an other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrowers will indemnify the Lender for the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 42) imposed on amounts payable hereunder paid by the Lender (net of any benefits as reasonably determined by the Lender), and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Such indemnification shall be made within five Business Days after the date of receipt of a written demand therefor from the Lender together with evidence that payment of such Taxes and Other Taxes has been made. (d) Within 30 days after the date of any payment of Taxes or Other Taxes withheld by the Borrowers in respect of any payment to the Lender, the Borrowers will furnish to the Lender the original or a certified copy of a receipt evidencing payment thereof or, if such receipt is not available, any other evidence of payment reasonably satisfactory to the Agent. (e) The Lender claiming any additional amounts payable pursuant to this Section 42 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document reasonably requested by the Borrowers if the making of such a filing would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue and would not, in the sole reasonable determination of the Lender, be otherwise disadvantageous to the Lender. To the extent the Lender shall receive a refund (either by way of a direct payment or an offset) or a credit in respect of all or a portion of the additional amounts payable pursuant to this Section 42, the Lender shall promptly notify the Borrowers 20 of the amount of such refund or credit and within 30 days after the receipt of such refund or credit, pay to the Borrowers the amount of such refund or credit. ARTICLE 5 REPRESENTATIONS AND WARRANTIES ------------------------------ Each of the Borrowers, jointly and severally, represents and warrants to the Lender as follows: SECTION 5.1 ORGANIZATION POWERS, EXISTENCE, ETC. (a) Hibbett and each ----------------------------------- Consolidated Entity (other than Immaterial Subsidiaries) are duly organized, validly existing and in good standing under the laws of the state in which it is incorporated, (b) Hibbett and each Consolidated Entity (other than Immaterial Subsidiaries) have the corporate power and authority to own its properties and assets and to carry on its business as now being conducted, (c) Hibbett and each Consolidated Entity (other than Immaterial Subsidiaries) have the corporate power to execute, deliver and perform the Loan Documents to which they are a party, (d) Hibbett and each Consolidated Entity (other than Immaterial Subsidiaries) are duly qualified to do business in each state with respect to which the failure to be so qualified would have a Material Adverse Effect and (e) except as set forth in Exhibit D hereto, Hibbett and each Consolidated --------- Entity has not done business under any other name, trade name or otherwise within the five years immediately preceding the Closing Date. SECTION 5.2 AUTHORIZATION OF BORROWING, ETC. The execution, delivery and ------------------------------- performance of the Loan Documents (a) have been duly authorized by all requisite corporate action and (b) will not violate any Governmental Requirement, the certificate of incorporation or bylaws of Hibbett or any Consolidated Entity, or any Material Contract to which Hibbett or any Consolidated Entity is a party, or by which Hibbett or any Consolidated Entity or any of their properties are bound, or be in conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such Material Contract. SECTION 5.3 LIABILITIES. Hibbett has furnished to the Lender a copy of ----------- the audited consolidated balance sheet of Hibbett and the Consolidated Entities dated as of January 31, 1998 and a statement of changes in shareholders' equity and the related statements of income and cash flow as of the end of fiscal year 1998 and the unaudited consolidated balance sheet of Hibbett and the Consolidated Entities dated as of August 1, 1998 and the related statements of income and cash flow for the six month period then ended. Such financial statements were prepared in conformity with generally accepted accounting principles consistently applied throughout the period involved (subject, with respect to the unaudited financial statements, to the absence of notes required by generally accepted accounting principles and to normal year-end audit adjustments), are in accordance with the books and records of Hibbett and the Consolidated Entities in all material respects, are correct and complete in all material respects and present fairly the financial condition of Hibbett and the Consolidated Entities as of the date of such financial statements, and, since the date of such financial statements, no material adverse change 21 in the financial condition, business or results of operations of Hibbett and the Consolidated Entities, taken as a whole, has occurred. Neither Hibbett nor any Consolidated Entity has any Liabilities, Guaranteed Obligations or other obligations or liabilities, direct or contingent, that are material in amount other than the Liabilities reflected in such balance sheet and the notes thereto. SECTION 5.4 TAXES. Hibbett and each Consolidated Entity has filed or ----- caused to be filed all federal, state and local tax returns that are required to be filed (other than such state or local tax returns and reports the failure to file which would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect), and has paid all taxes as shown on said returns or on any assessment received by Hibbett or any Consolidated Entity to the extent that such taxes have become due, other than those that are being contested in good faith and by proper proceedings and for which adequate reserves have been established in accordance with generally accepted accounting principles. The Borrowers have reserves which are believed by the officers of the Borrowers to be adequate for the payment of additional taxes for years which have not been audited by the respective tax authorities. SECTION 5.5 LITIGATION. There are no actions, suits or proceedings ---------- pending or, to the best knowledge of the Borrowers, threatened against or affecting Hibbett or any Consolidated Entity, by or before any Governmental Authority that involve any of the transactions contemplated in this Agreement or the reasonable likelihood of any judgment or liability that may result in a Material Adverse Change; and neither Hibbett nor any Consolidated Entity is in default with respect to any material Governmental Requirement which default could reasonably be likely to have a Material Adverse Effect. SECTION 5.6 AGREEMENTS. Neither Hibbett nor any Consolidated Entity is in ---------- default in the performance, observance or fulfillment of any of the obligations contained in any Material Contract to which it is a party, which default could reasonably be likely to have a Material Adverse Effect. SECTION 5.7 USE OF PROCEEDS. None of the Borrowers intends to use any --------------- part of the proceeds of Advances for the purpose of purchasing or carrying any Margin Stock or retiring any debt incurred to purchase or carry any Margin Stock or for any other purpose that is not expressly authorized by this Agreement. SECTION 5.8 ERISA. Neither Hibbett nor any ERISA Affiliate maintains or ----- contributes to, or has within the preceding five years maintained or contributed to, any Plan that is a Plan subject to Title IV of ERISA. SECTION 5.9 SUBSIDIARIES. As of the Closing Date, Hibbett has no ------------ Subsidiaries other than the Initial Participating Entities. The Participating Entities have no direct or indirect equity ownership in any other person other than other Subsidiaries of Hibbett. Hibbett's ownership interest in each Participating Entity is free and clear of all Liens, warrants, options, rights to purchase and other interests of any person. All capital stock of the Participating Entity has been duly authorized and validly issued and is fully paid and non-assessable. 22 SECTION 5.10 ENVIRONMENTAL LAWS. ------------------ (a) To the best knowledge of the Borrowers, all properties owned or used by the Borrowers, while under the custody, care and control of the Borrowers, have been maintained in compliance in all material respects with all applicable federal, state and local environmental protection, occupational, health and safety or similar laws, including the Federal Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.), Resource Conservation & Recovery Act (42 U.S.C. (S) -- --- 6901 et seq.), Safe Water Drinking Act (42 U.S.C. (S) 300(f) et seq.), Toxic -- --- -- --- Substances Control Act (15 U.S.C. (S) 2601 et seq.), Clean Air Act (42 U.S.C. -- --- (S) 7401 et seq.) and Comprehensive Environmental Response of Compensation and -- --- Liability Act (42 U.S.C. (S) 6901 et seq.) ("CERCLA"). -- --- (b) The Borrowers have not received any material written notification from any Governmental Authority with respect to current, existing violations of any of the laws enumerated in clause (a) above, or pursuant to any of their respective implementing regulations or state analogues to such laws or regulations. (c) To the best knowledge of the Borrowers, there has not been, at any location owned or used by the Borrowers, any "Release" (as defined in Section 101(22) of CERCLA) by the Borrowers, anyone within the Borrowers' control, or any other person, of any Hazardous Materials. (d) To the best knowledge of the Borrowers, the Borrowers have not sent or arranged for the transportation or disposal of Hazardous Materials or wastes to a site which, pursuant to CERCLA or any similar state law (i) has been placed, or is proposed (by the Environmental Protection Agency or relevant state authority) to be placed, on the "National Priorities List" of hazardous waste sites or its state equivalent, or (ii) is subject to a claim, an administrative order or other request to take "removal" or "remedial" action (in each case as defined in CERCLA) by any person. SECTION 5.11 DISCLOSURE. No financial statement, document, certificate or ---------- other written communication furnished to the Lender by or on behalf of the Borrowers in connection with any Loan Document contained when so furnished any statement of a material fact that was untrue in any material respect. SECTION 5.12 LICENSES. All material licenses, permits, accreditations and -------- approvals required by all Governmental Authorities necessary in order for each Store to be operated for its intended purpose have been obtained and are in full force and effect, except for those the failure to obtain which would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect. SECTION 5.13 TITLE TO PROPERTIES. As of the Closing Date, the Borrowers ------------------- have good and marketable title to all their properties and assets reflected on the balance sheet referred to in Section 53 except for those matters shown on such balance sheet and except for such properties and assets as have been disposed of since the date of said balance sheet as no longer 23 used or useful in the conduct of its business or as have been disposed of in the ordinary course of the business. All such properties and assets are free and clear of all Liens, except as otherwise permitted or required by the provisions of the Loan Documents. SECTION 5.14 ENFORCEABILITY. This Agreement and each of the other Loan -------------- Documents, when duly executed and delivered by the Borrowers, as appropriate, in accordance with the provisions of this Agreement, will constitute the legal, valid and binding, joint and several, obligations of the Borrowers, enforceable in accordance with their respective terms, subject to the effect of bankruptcy, insolvency, reorganization, receivership, moratorium and similar laws affecting the rights and remedies of creditors generally. SECTION 5.15 CONSENTS, REGISTRATIONS, APPROVALS, ETC. No registration ---------------------------------------- with or consent or approval of, or other action by, any Governmental Authority is required for the execution, delivery and performance of this Agreement or the other Loan Documents, or the borrowings under this Agreement, by the Borrowers. SECTION 5.16 SOLVENCY. Hibbett is Solvent, and Hibbett will not, as a -------- result of the transactions provided for herein (i) become not Solvent, (ii) be left with unreasonably small capital, (iii) incur debts beyond its ability to pay them as they mature or (iv) have Liabilities (including reasonable contingencies) in excess of the fair saleable value of its assets. ARTICLE 6 GENERAL CONDITIONS OF LENDING ----------------------------- The Lender's obligation to make each Advance hereunder is subject to the following conditions precedent: SECTION 6.1 REPRESENTATIONS AND WARRANTIES. On the date of each Advance ------------------------------ hereunder, the representations and warranties set forth in this Agreement and in all other Loan Documents shall be true and correct on and as of such date with the same effect as though such representations and warranties had been made on the date of the Advance (or in the case of any such representation and warranty made as of a particular date, as of such particular date), except to the extent previously fulfilled in accordance with the terms hereof, subsequently inapplicable, or modified as a result of activities of the Borrowers, or any of them. The borrowing of each Advance shall constitute a representation and warranty by the Borrowers to the Lender that no material adverse change in the financial condition of Hibbett and the Consolidated Entities, on a consolidated basis, as reflected in the financial statements delivered to the Lender pursuant to Section 53 has occurred since the date of such financial statements. SECTION 6.2 NO DEFAULT. On the date of each Advance hereunder, the ---------- Borrowers shall be in compliance with all the terms and conditions set forth in this Agreement on their part to be observed or performed, and no Default shall have occurred and be continuing. The 24 borrowing of each Advance shall constitute a representation and warranty by the Borrowers to the Lender that no Default has occurred and is continuing. SECTION 6.3 SUPPORTING DOCUMENTS. -------------------- (a) The Lender shall have also received on the Closing Date (i) a copy of resolutions of the Board of Directors of each of the Borrowers, certified as in full force and effect on such date by the Secretary or Assistant Secretary of the respective Borrower, authorizing the execution, delivery and performance of the Loan Documents and authorizing designated officers of the Borrowers to execute and deliver the Loan Documents on behalf of the Borrowers, and with respect to Hibbett, to execute and deliver to the Lender a Request for Advance or Interest Rate Election forms; (ii) a certificate of the Secretary or Assistant Secretary of each of the Borrowers, dated such date, certifying that (A) an attached copy of the Certificate of Incorporation and bylaws of such Borrower as true and correct as of such date, (B) that the Certificate of Incorporation and Bylaws of such Borrower has not been amended since the date of the last amendment attached thereto and (c) the incumbency and specimen signatures of the designated officers referred to in clause (i) above; (iii) an Opinion of Counsel to the Borrowers in the form required by the Lender and its counsel; and (iv) such additional supporting documents as the Lender or its counsel may reasonably request. (b) The Lender shall also have received on or before any date after the Closing Date on which a person becomes a Participating Entity (i) a copy of resolutions of the Board of Directors and, if necessary, the shareholders, partners or members of such person certified as in full force and effect on the date thereof by the Secretary or Assistant Secretary of such person, authorizing such person's execution, delivery and performance of, the Loan Documents and all other agreements and instruments that this Agreement requires to be executed, delivered and performed by such person; (ii) a copy of the organizational documents of such person, certified as true and correct on and as of the date on which Loan Documents are executed and delivered by such person; (iii) certificates of good standing with respect to such person from the appropriate Governmental Authorities in the jurisdiction under the laws of which such person is incorporated or formed; (iv) an Opinion of Counsel to such person consistent with the form of the Opinions of Counsel to the Borrowers delivered pursuant to subsection (a) of this Section 63 (with such changes therein as are appropriate in the circumstances) as to the execution and delivery by such person of the Loan Documents and other matters related thereto; (v) fully executed copies of all Loan Documents that this Agreement requires to be executed or delivered (or both) by such person (including a fully executed Assumption Agreement); and (vi) such additional supporting documents as the Lender or its counsel may reasonably request. ARTICLE 7 GENERAL COVENANTS OF THE BORROWERS ---------------------------------- From the Closing Date until payment in full of the Credit Obligations and the termination of the Revolving Facility, the Borrowers, jointly and severally, covenant and agree that: 25 SECTION 7.1 EXISTENCE, PROPERTIES, ETC. Each of the Borrowers shall, and -------------------------- (to the extent of its right to do so) shall cause each other Consolidated Entity (other than Immaterial Subsidiaries) to (a) do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights and franchises and comply with all Governmental Requirements applicable to it except to the extent the failure to do so would not be reasonably likely to have a Material Adverse Effect or as otherwise permitted by clause (i) of Section 7.7(6) and (b) at all times maintain, preserve and protect all franchises and trade names and preserve all of its property used or useful in the conduct of its business and keep the same in good repair, working order and condition, and from time to time make, or cause to be made, all needful and proper repairs, renewals and replacements, betterments and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times except to the extent the failure to do so would not be reasonably likely to have a Material Adverse Effect. SECTION 7.2 PAYMENT OF INDEBTEDNESS, TAXES, ETC. Each of the Borrowers ----------------------------------- shall, and (to the extent of its right to do so) shall cause each Consolidated Entity to, (a) pay its indebtedness and obligations in accordance with its terms except to the extent the failure to do so would not be reasonably likely to have a Material Adverse Effect and (b) pay and discharge or cause to be paid and discharged promptly all taxes, assessments and other charges or levies of Governmental Authorities imposed upon it or upon its income and profits or upon any of its properties before the same shall become in default, as well as all lawful claims for labor, materials and supplies or otherwise, which, if unpaid, might become a Lien upon such properties or any part thereof except to the extent the failure to do so would not be reasonably likely to have a Material Adverse Effect; provided, however, that Hibbett and the other Consolidated -------- ------- Entities shall not be required to pay and discharge or cause to be paid and discharged any such indebtedness, obligation, tax, assessment, charge, levy or claim so long as the validity or amount thereof is being duly contested in good faith by appropriate proceedings and Hibbett and the Consolidated Entities shall maintain adequate reserves for such taxes, indebtedness, obligations, assessments, charges, levies or claims during such proceedings. SECTION 7.3 FINANCIAL STATEMENTS, REPORTS, ETC. The Borrowers shall ---------------------------------- deliver or cause to be delivered to the Lender: (1) Not later than 50 days after the end of each first, second and third fiscal quarter, a copy of Hibbett's 10-Q as filed with the Securities and Exchange Commission or if such filing is no longer required, a balance sheet and a statement of revenues and expenses of Hibbett and its Consolidated Entities on a consolidated basis and a statement of cash flow of Hibbett and its Consolidated Entitles on a consolidated basis for such fiscal quarter and for the period beginning on the first day of the fiscal year and ending on the last day of such fiscal quarter (in sufficient detail to indicate Hibbett's and each Consolidated Entity's compliance with the financial covenants set forth in Section 77), together with statements in comparative form for the corresponding periods in the preceding fiscal year, and certified by the president or chief financial officer of Hibbett; each certificate provided pursuant to this clause (1) shall state that, except as disclosed in such certificate no Default has occurred and is continuing as of such date or, if such 26 certificate discloses that a Default has occurred and is continuing as of such date, such certificate shall describe such Default in reasonable detail and state what action, if any, the Borrowers are taking or propose to take with respect thereto. (2) Not later than 100 days after the end of each fiscal year, a copy of Hibbett's 10-K as filed with the Securities and Exchange Commission or if such filing is no longer required, financial statements (including a balance sheet, a statement of revenues and expenses, a statement of changes in shareholders' equity and a statement of cash flow) of Hibbett and its Consolidated Entities on a consolidated and for such fiscal year (in sufficient detail to indicate Hibbett's and each Consolidated Entity's compliance with the financial covenants set forth in this Article 7), together with statements in comparative form for the preceding fiscal year, and accompanied by an opinion of certified public accountants of recognized national standing, which opinion shall state in effect that such financial statements (A) were audited using generally accepted auditing standards, (B) were prepared in accordance with generally accepted accounting principles applied on a consistent basis, and (C) present fairly the financial condition and results of operations of Hibbett and its Consolidated Entities for the periods covered. (3) Together with the financial statements required by paragraphs (1) and (2) above a compliance certificate duly executed by the president or chief financial officer of Hibbett in the form of Exhibit C attached hereto --------- ("Compliance Certificate"). (4) Promptly upon receipt thereof, copies of all management or similar letters submitted to the Borrowers or any Consolidated Entity by independent accountants in connection with any annual or interim audit of the books of the Borrowers or any Consolidated Entity made by such accountants. (5) After the filing or receiving thereof, copies of all material reports and notices that any Borrower or other ERISA Affiliate files under ERISA with the Internal Revenue Service or the PBGC or the United States Department of Labor. (6) As soon as practicable, such other information regarding the business affairs, financial condition or operations of the Borrower or its Consolidated Entities as the Lender shall reasonably request from time to time or at any time. The Lender shall have no obligation to make Advances or issue Letters of Credit at any time at which the Borrowers or any of them is delinquent in the preparation and delivery of any of the items described above, whether or not such delinquency constitutes an Event of Default. SECTION 7.4 LITIGATION NOTICE. Each of the Borrowers shall, promptly ----------------- after the same shall have become known to any officer of such Borrower, notify the Lender in writing of any action, suit or proceeding at law or in equity or by or before any Governmental Authority in which there is a reasonable likelihood of an outcome that would have a Material Adverse Effect. 27 SECTION 7.5 DEFAULT NOTICE. Hibbett shall promptly give notice in writing -------------- to the Lender of the occurrence of any Default, together with a written statement of the chief executive officer or chief financial officer of Hibbett setting forth the nature and period of existence thereof and the action that the Borrowers have taken and propose to take with respect thereto. SECTION 7.6 INSURANCE. The Borrowers shall and (to the extent of their --------- right to do so) shall cause each of the Consolidated Entities to keep at all times their insurable properties adequately insured with reputable insurers and maintain in force, and pay all premiums and costs related to (a) insurance on such properties to such extent and against such risks, including fire, as is customary with companies in the same or a similar business of comparable size, (b) necessary workman's compensation insurance and (c) such other insurance (including liability insurance) as may be required by applicable Governmental Requirements or as may otherwise be customarily maintained by companies in the same or a similar business of comparable size. SECTION 7.7 COVENANTS REGARDING FINANCIAL CONDITION. Except as otherwise --------------------------------------- expressly provided in this Section 77, Hibbett shall also cause and require each of the Consolidated Entities to observe and perform each of the covenants and agreements of this section to be observed and performed by the Borrowers or any of them, whether or not a specific reference is made to the Consolidated Entities in each such covenant. The Borrowers, jointly and severally, covenant and agree that: (1) Fixed Charges Coverage Ratio. The ratio of (A) EBITDAR for any ---------------------------- consecutive four quarter period to (B) the sum of (i) Interest Expense, Operating Lease Payments, all income taxes (but only to the extent actually paid during such period), dividends (but only to the extent actually paid during such period) and (ii) Current Maturities of Hibbett and the Consolidated Entities on a consolidated basis at the end of such period shall not be less than 1.25 to 1.0 at any time. (2) Funded Debt to EBITDA Ratio. The ratio of Funded Debt on the --------------------------- last day of any consecutive four quarter period to EBITDA for such period shall not be greater than 3.0 to 1.0. (3) Capital Expenditures. Hibbett and the Consolidated Entities on a -------------------- consolidated basis will not make in the aggregate in any consecutive four fiscal quarters Capital Expenditures (net of landlord allowances, proceeds of asset sales and casualty insurance proceeds) that exceed $15,000,000. (4) Investment and Loans. Hibbett and the Consolidated Entities on a -------------------- consolidated basis will not, directly or indirectly, purchase or otherwise acquire any stock, security, obligation or evidence of indebtedness of, make any capital contribution to, own any equity interest in, or make any loan or advance to, any other person; provided, however, that it may acquire and continue to hold (A) all stock of and own interests in the persons that constitute or, after giving effect to such purchase, will constitute Consolidated Entities; and (B) Permitted Investments. 28 (5) Disposition of Assets. Hibbett and the Consolidated Entities on --------------------- a consolidated basis will not without the consent of the Lender, sell, lease, transfer or otherwise dispose of all or any substantial part of its properties and assets. (6) Consolidation or Merger. Hibbett and the Consolidated Entities ----------------------- will not consolidate with or merge with or into another person or permit any other person to merge into it; provided, however, (i) it may permit the ----------------- Consolidated Entities to merge or consolidate with other Consolidated Entities or Hibbett and (ii) it may merge or consolidate with another person so long as (x) any Borrower is the surviving corporation, (y) if such merger or consolidation is in connection with a permitted acquisition, the applicable conditions of subparagraph (15) of this Section shall be satisfied and (z) immediately after giving effect thereto, no Default would exist. (7) Liens. Hibbett will not, and will not permit any Consolidated ----- Entity to, incur, create, assume or permit to exist any Lien upon any of its accounts receivable, contract rights, chattel paper, inventory, equipment, instruments, general intangibles or other personal or real property of any character, whether now owned or hereafter acquired, other than Liens that constitute Permitted Encumbrances. (8) Sale of Receivables. Hibbett will not, and will not permit any ------------------- Consolidated Entity to, sell, assign or discount, or grant or permit any Lien on, any of its accounts receivable or any promissory note held by it, with or without recourse, other than the discount of such notes in the ordinary course of business for collection. (9) Lease Obligations. Hibbett and the Consolidated Entities on a ----------------- consolidated basis will not incur, create, permit to exist or assume any obligation to make Operating Lease Payments under any lease (other than any capital lease or the QRS Lease) that (x) has an unexpired term (including renewals at the option of the lessee) of more than 20 years or (y) provides for aggregate Operating Lease Payments during any consecutive four fiscal quarters in excess of $1,000,000, if (z) immediately thereafter, the aggregate Operating Lease Payments to be made by it under all leases (other than any capital leases or the QRS Lease) described in the preceding subclauses (x) or (y) would exceed $10,000,000 in any consecutive four fiscal quarters. (10) Indebtedness. Hibbett and the Consolidated Entities on a ------------ consolidated basis will not incur, create, assume or permit to exist any Debt, except (A) the indebtedness evidenced by the Note, (B) other Debt incurred in connection with the Credit Agreement of even date between the Borrowers, the Lender, NationsBank, N.A., BankBoston, N.A. and the Lender as Agent, (C) purchase money obligations allowed under Section 7.7(7), (D) Debt not exceeding $4,000,000 in the aggregate (E) capitalized lease obligations and (F) Debt owed to a Consolidated Entity. (11) Guaranties. Except for the existing guaranty by Hibbett of the ---------- obligations of SW under the QRS Lease and any other guaranty by a Borrower of another Consolidated Entity's obligations, Hibbett will not, and will not permit any Consolidated 29 Entity to, guarantee, endorse, become surety for or otherwise in any way become or be responsible for the indebtedness, liabilities or obligations of any other person, whether by agreement to purchase the indebtedness or obligations of any other person, or agreement for the furnishing of funds to any other person (directly or indirectly, through the purchase of goods, supplies or services or by way of stock purchase, capital contribution, working capital maintenance agreement, advance or loan) or for the purpose of paying or discharging the indebtedness or obligations of any other person, or otherwise, except for the endorsement of negotiable instruments in the ordinary course of business for collection. (12) Take or Pay Contracts. Hibbett will not, and will not permit any --------------------- Consolidated Entity to, enter into or be a party to any contract for the purchase of merchandise, materials, supplies or other property if such contract provides that payment for such merchandise, materials, supplies or other property shall be made regardless of whether delivery of such merchandise, materials, supplies or other property is ever made or tendered. (13) Sale-Leaseback. Except for (i) the Lease Agreement between QRS -------------- 12-14 (AL), Inc. and SW dated February 12, 1996 and any amendments or supplements thereto (the "QRS Lease") and (ii) any sale leaseback of any additions to its existing warehouse and headquarters in Birmingham, Alabama, Hibbett will not, and will not permit any Consolidated Entity to, enter into any arrangement, directly or indirectly, with any person whereby it sells or transfers any property, real, personal or mixed, and used or useful in its business, whether now owned or hereafter acquired, and thereafter rents or leases such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred. (14) Dividends and Distributions. Hibbett will not permit any --------------------------- Consolidated Entity to be or become subject to any restrictions on the ability of such Consolidated Entity to pay dividends or to make distributions. (15) Permitted Acquisitions. The Borrowers shall not make in any ---------------------- given fiscal year any acquisitions of stock or assets of persons engaged primarily in the same line of business as the Borrowers having a cost in excess of $5,000,000, if, on the date of the acquisition a Default exists or would result from such acquisition without the express prior consent of the Lender; provided that this Section 7.7(15) shall not prohibit Hibbett from complying with its obligations under the Purchase Agreement relating to the QRS Lease if Hibbett can do so without causing a Default under some other provision of this Agreement. SECTION 7.8 CONTINUATION OF CURRENT BUSINESS. Neither the Borrowers nor -------------------------------- any Consolidated Entity will engage in any business other than the business now being conducted by it or other business reasonably ancillary thereto. 30 SECTION 7.9 COOPERATION; INSPECTION OF PROPERTIES. The Borrowers shall, ------------------------------------- and shall cause the Consolidated Entities to, permit the Lender and its representatives, at the Lender's sole cost and expense (so long as no Default exists) to inspect the Borrowers' and the Consolidated Entities' properties and assets (including all Stores), and to inspect, review and audit the Borrowers' and the Consolidated Entities' books and records from time to time and at any time, after reasonable notice and at reasonable times. SECTION 7.10 USE OF PROCEEDS. The Borrowers shall use the proceeds --------------- exclusively for general corporate purposes. SECTION 7.11 TRANSACTIONS WITH AFFILIATES. Except as set forth in Exhibit ---------------------------- ------- F, none of the Borrowers nor any other Consolidated Entity will, directly or - - indirectly, enter into any lease or other transaction with any Affiliate (other than a Borrower or another Consolidated Entity) on terms that are less favorable to such Borrower or Consolidated Entity entering into such lease or other transaction than would have been obtained on an arm's length basis with persons who are not Affiliates of such Borrower or other Consolidated Entity. SECTION 7.12 ERISA. The Borrowers will not and will not permit any other ----- ERISA Affiliate to establish any Plan subject to Title IV of ERISA SECTION 7.13 CREATION OR ACQUISITION OF SUBSIDIARIES. The Borrowers may --------------------------------------- from time to time create or acquire new Subsidiaries in connection with permitted acquisitions allowed under Section 7.7(15) or otherwise in accordance with this Agreement, provided that neither the aggregate fair market value at -------- any time of the assets of all Subsidiaries that are Immaterial Subsidiaries at such time, nor the aggregate gross revenues (determined for the most recently ended period of twelve consecutive fiscal months) of all Subsidiaries that are Immaterial Subsidiaries at such time, shall exceed $4,000,000, and provided -------- further that promptly (and in any event within fifteen (15) Business Days) after - ------- the creation or direct or indirect acquisition by any Borrower of any such new Subsidiary (or, if such new Subsidiary is an Immaterial Subsidiary when so created or acquired, promptly (and in any event within fifteen (15) Business Days) after such new Subsidiary ceases to be an Immaterial Subsidiary ), such new Subsidiary will execute and deliver to the Lender an Assumption Agreement and all other documents necessary to cause it to become jointly and severally liable for all the Credit Obligations (subject to the limitations provided in the Assumption Agreement). ARTICLE 8 EVENTS OF DEFAULT AND REMEDIES ------------------------------ SECTION 8.1 EVENTS OF DEFAULT. The following shall constitute Events of ----------------- Default under this Agreement: 31 (a) default in the due payment of any principal or interest payable on any Advance or any other amount payable under Articles 2, 3 and 4 of this Agreement and such default shall continue unremedied for a period of 5 days after the date the Lender gives Hibbett telephonic (confirmed promptly in writing) or written notice of such default; provided, however, that the Lender shall not be required to provide such notice more than 3 times in any 12 consecutive month period; or (b) any of the Borrowers shall default in the observance or performance of any provision in Sections 77, 78, 710, 712 and 713; or (c) any of the Borrowers shall default in the performance or observance of any provision of this Agreement, except those covered by clauses (a) or (b) above, and shall not cure such default within 30 days after the date the Lender gives written or telephonic notice of the default to Hibbett; or (d) any statement, certification, representation or warranty contained herein, or in any of the other Loan Documents or in any report, financial statement, certificate or other instrument delivered to the Lender by or on behalf of the Borrowers, was misleading or untrue in any material respect at the time it was made; or (e) default shall be made with respect to any Debt of any of the Borrowers or of any other Consolidated Entity (other than the Credit Obligations) when due or within any applicable grace period or the performance of any other obligation incurred in connection with any Debt of such Borrower or other Consolidated Entity (other than the Credit Obligations), if the effect of such default is to accelerate the maturity of such Debt or to permit the holder thereof to cause such Debt to become due prior to its stated maturity, or any such Debt shall not be paid when due or within any applicable grace period, if the aggregate amount of all such Debt involved exceeds $1,000,000; or (f) any of the Borrowers or any other Consolidated Entity (other than an Immaterial Subsidiary) shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or other custodian of it or any of its properties or assets, (ii) fail or admit in writing its inability to pay its debts generally as they become due, (iii) make a general assignment for the benefit of creditors, (iv) suffer or permit an order for relief to be entered against it in any proceeding under the federal Bankruptcy Code, or (v) file a voluntary petition in bankruptcy, or a petition or an answer seeking an arrangement with creditors or seeking to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or statute, or if corporate or partnership action shall be taken by the Borrowers or any other Consolidated Entity (other than an Immaterial Subsidiary) for the purpose of effecting any of the foregoing; or (g) a petition shall be filed, without the application, approval or consent of any of the Borrowers or any other Consolidated Entity (other than an Immaterial Subsidiary), 32 in any court of competent jurisdiction, seeking bankruptcy, reorganization, rearrangement, dissolution or liquidation of such Borrower or other Consolidated Entity (other than an Immaterial Subsidiary) or of all or a substantial part of the properties or assets of such Borrowers or other Consolidated Entity (other than an Immaterial Subsidiary), or seeking any other relief under any law or statute of the type referred to in clause (v) of paragraph (h) above against such Borrower or other Consolidated Entity (other than an Immaterial Subsidiary), or the appointment of a receiver, trustee, liquidator or other custodian of the Borrower or any other Consolidated Entity (other than an Immaterial Subsidiary) or of all or a substantial part of the properties or assets of such Borrower or any other Consolidated Entity (other than an Immaterial Subsidiary), and such petition shall not have been dismissed within 60 days after the filing thereof; or (h) an Event of Default (as therein defined) under the QRS Lease shall have occurred and be continuing, and the Landlord thereunder shall have given notice pursuant to Section 23 of the QRS Lease of its intention to exercise remedies thereunder; or (i) final judgment or judgments for the payment of money in excess of an aggregate of $500,000 shall be rendered against any of the Borrowers and the same shall remain undischarged for a period of 30 days during which execution shall not be effectively stayed; or (j) (1) The persons listed on Exhibit G hereto and the beneficiaries --------- of any trusts listed therein, taken together, shall cease to beneficially own and control, directly or indirectly, at least (a) 50% of the number of issued and outstanding shares of the capital stock of Hibbett entitled (without regard to the occurrence of any contingency) to vote for the election of a majority of the members of the board of directors of Hibbett (the "Voting Shares") beneficially owned and controlled by them on the Closing Date (as such number may be adjusted for stock splits, combinations and similar events) and (b) 20% of the total issued and outstanding Voting Shares at any time, or (2) Hibbett ceases to beneficially own and control at least one hundred percent (100%) of the issued and outstanding shares of each class of capital stock of the Initial Participating Entities. then, and in any such event and at any time thereafter, if such Event of Default shall then be continuing, (A) either or both of the following actions may be taken: (i) the Lender may declare any obligation of the Lender to make further Advances terminated, whereupon the obligation of the Lender to make further Advances hereunder shall terminate immediately, and (ii) the Lender may declare by notice to the Borrowers any or all of the Credit Obligations to be immediately due and payable, and the same, including all interest accrued thereon and all other obligations of the Borrowers to the Lender, shall forthwith become immediately due and payable without presentment, demand, protest, notice or other formality of any kind, all of which are hereby expressly waived, anything contained herein or in any instrument evidencing the Credit Obligations to the contrary notwithstanding; provided, however, -------- that notwithstanding the above, if there shall occur 33 an Event of Default under clauses (f) or (g) above, then the obligation of the Lender to lend hereunder shall automatically terminate and any and all of the Credit Obligations shall be immediately due and payable without the necessity of any action by the Lender or notice to the Lender; and (B) the Lender may exercise any and all rights and remedies available to the Lender under the Loan Documents and applicable law. SECTION 8.2 CUMULATIVE RIGHTS. No right or remedy herein conferred upon ----------------- the Lender is intended to be exclusive of any other rights or remedies contained herein or in any other Loan Document, and every such right or remedy shall be cumulative and shall be in addition to every other such right or remedy contained herein and therein or now or hereafter existing at law or in equity or by statute, or otherwise. SECTION 8.3 NO WAIVER. No course of dealing between the Borrowers and the --------- Lender or any failure or delay on the part of the Lender in exercising any rights or remedies hereunder shall operate as a waiver of any rights or remedies hereunder and no single or partial exercise of any rights or remedies hereunder shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or of the same right or remedy on a future occasion. SECTION 8.4 DEFAULT. The Lender shall have no right to accelerate any of ------- the Loans except upon the occurrence of an Event of Default; provided, however, -------- nothing contained in this sentence shall in any respect impair or adversely affect the right, power and authority of the Lender (i) to take any action expressly required or permitted to be taken under the Loan Documents upon the occurrence of any Default (and including any action or proceeding which the Lender may determine to be necessary or appropriate in furtherance of any such expressly authorized action) and (ii) to take any action provided under the Loan Documents or otherwise available by statute, at law or in equity upon the occurrence of any Default. ARTICLE 9 MISCELLANEOUS ------------- SECTION 9.1 PARTICIPATIONS. The Borrowers and the Lender understand that -------------- the Lender may grant a participation in the Note, Loans and interest in the Credit Obligations and the Loan Documents to any Affiliate of the Lender, and all communications with the Lender and the Borrowers shall be solely with the Lender and not with any participant. The Borrowers agree that any participant or subparticipant (which, like a participant, must be an Affiliate of the Lender) may exercise any and all rights of banker's lien or set-off with respect to any Borrower, as fully as if such participant or subparticipant had made a loan directly to such Borrower in the amount of the participation or subparticipation given to such participant or subparticipant in the Credit Obligations and the Loan Documents. For purposes of this Section 91 only, the Borrowers shall be deemed to be directly obligated to each participant or subparticipant in the amount of its participating interest in the amount of the principal of, and interest on, the Credit 34 Obligations. Nothing contained in this section shall affect the Lender's right of set-off (under Section 93 or applicable law) with respect to the entire amount of the Credit Obligations, notwithstanding any such participation or subparticipation. The Lender may divulge to any participant or subparticipant all information, reports, financial statements, certificates and documents obtained by the Lender from any of the Borrowers or any other person under any provisions of this Agreement or the other Loan Documents or otherwise. SECTION 9.2 NOTICES. ------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted by this Agreement or the other Loan Documents to be made upon, given or furnished to, or filed with, any of the Borrowers the Lender must (except as otherwise provided in this Agreement or the other Loan Documents) be in writing and be delivered by one of the following means: (1) by personal delivery at the hand delivery address specified below, (2) by first-class, registered or certified mail, postage prepaid and addressed as specified below, or (3) if facsimile transmission facilities for such party are identified below or pursuant to a separate notice from such party, sent by facsimile transmission to the number specified below or in such notice. (b) The hand delivery address, mailing address and (if applicable) facsimile transmission number for receipt of notice or other documents by such parties are as set forth below the signatures of the Borrowers and the Lender on the attached signature pages. Any of such parties may change its address or facsimile transmission number for receiving any such notice or other document by giving notice of the change to the other parties referred to in this Section 92. (c) Any such notice or other document shall be deemed delivered when actually received by an officer, director, partner or other legal representative of the party at the address or number specified pursuant to this Section 92, or, if sent by mail, three Business Days after such notice or document is deposited in the United States mail, addressed as provided above. (d) Five (5) Business Days' notice to the Borrowers as provided above shall constitute reasonable notification to the Borrowers when notification is required by law; provided, however, that nothing contained in the foregoing shall be construed as requiring five (5) Business Days' notice if, under applicable law and the circumstances then existing, a shorter period of time would constitute reasonable notice. SECTION 9.3 SETOFF. Upon the occurrence and during the continuance of any ------ Event of Default each Lender is hereby authorized at any time and from time to time, without notice to the Borrowers or any of them (any such notice being expressly waived by the Borrowers), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender (including any branches, agencies or Affiliates of the Lender, wherever located) to or for the credit or the account of the Borrowers or any of them against any and all of the obligations of the Borrowers and each of them now or hereafter existing under any of the Loan Documents, irrespective of 35 whether or not any demand shall have been made under the Loan Documents and although such obligations may be unmatured. The Lender agrees promptly to notify each affected Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set- off and application or impose any liability on the Lender. The rights of the Lender under this Section 93 are in addition to all other rights and remedies (including other rights of set-off or pursuant to any banker's lien) that the Lender may have. SECTION 9.4 SURVIVAL. All representations and warranties made under this -------- Agreement shall be deemed to be made, and shall be true and correct, at and as of the Closing Date and the date of each Loan except to the extent (a) previously fulfilled in accordance with the terms hereof, (b) subsequently inapplicable, (c) modified as a result of activities of the Borrowers or changes in circumstances, in any case as permitted hereunder or consented to in accordance with the provisions hereof or (d) such representations and warranties specifically relate to an earlier date. All covenants, agreements, representations and warranties made in this Agreement or in any of the other Loan Documents and in the certificates delivered pursuant to any of the Loan Documents shall survive the making by the Lender of the Loans and the execution and delivery to the Lender of this Agreement, the Note and the other Loan Documents and shall continue in full force and effect so long as any of the Credit Obligations remain outstanding. SECTION 9.5 EXPENSES. (a) The Borrowers shall pay all reasonable out-of- -------- pocket expenses of the Lender, including fees and disbursements of counsel for the Lender, in connection with the preparation of the Loan Documents, any waiver or consent hereunder or thereunder or any amendment hereof or thereof or any Default or alleged Default hereunder (including those in connection with collection and other enforcement proceedings resulting therefrom), other than expenses due to the Lender's own gross negligence or willful misconduct. Any amount paid or advanced by the Lender under this section or the other Loan Documents not immediately reimbursed to the Lender after demand shall bear interest until paid at a rate equal to two percent (2%) in excess of the Base Rate in effect from time to time, or the highest rate permitted by law, whichever is less. The Borrowers shall pay all costs and expenses of performing and satisfying their obligations under this Agreement. The Borrowers' obligations under this Section 95 shall survive the payment in full of the Credit Obligations and the termination of this Agreement. SECTION 9.6 COUNTERPARTS. This Agreement may be executed in any number of ------------ counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such fully-executed counterpart. SECTION 9.7 SUBMISSION TO JURISDICTION. Each Borrower irrevocably (a) -------------------------- acknowledges that this Agreement will be accepted by the Lender and performed by such Borrower in the State of Alabama; (b) submits to the jurisdiction of each state or federal court sitting in Jefferson County, Alabama (collectively, the "Courts") over any suit, action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents (individually, an "Agreement Action"); (c) waives, to the fullest extent permitted by law, any objection or defense that such Borrower may now or hereafter have based on improper venue, 36 lack of personal jurisdiction, inconvenience of forum or any similar matter in any Agreement Action brought in any of the Courts; (d) agrees that final judgment in any Agreement Action brought in any of the Courts shall be conclusive and binding upon such Borrower and may be enforced in any other court to the jurisdiction of which such Borrower is subject, by a suit upon such judgment; (e) consents to the service of process on such Borrower in any Agreement Action by the mailing of a copy thereof by registered or certified mail, postage prepaid, to such Borrower at its address designated in or pursuant to Section 92; (f) agrees that service in accordance with this Section 97 shall in every respect be effective and binding on such Borrower to the same extent as though served on such Borrower in person by a person duly authorized to serve such process; and (g) AGREES THAT THE PROVISIONS OF THIS SECTION, EVEN IF FOUND NOT TO BE STRICTLY ENFORCEABLE BY ANY COURT, SHALL CONSTITUTE "FAIR WARNING" TO SUCH BORROWER THAT THE EXECUTION OF THIS AGREEMENT MAY SUBJECT SUCH BORROWER TO THE JURISDICTION OF EACH STATE OR FEDERAL COURT SITTING IN JEFFERSON COUNTY, ALABAMA WITH RESPECT TO ANY AGREEMENT ACTIONS, AND THAT IT IS FORESEEABLE BY SUCH BORROWER THAT IT MAY BE SUBJECTED TO THE JURISDICTION OF SUCH COURTS AND MAY BE SUED IN THE STATE OF ALABAMA IN ANY AGREEMENT ACTIONS. Nothing in this Section 97 shall limit or restrict the Lender's right to serve process or bring Agreement Actions in manners and in courts otherwise than as herein provided. SECTION 9.8 TERMINATION. The termination of this Agreement shall not ----------- affect any rights of the Borrowers or the Lender or any obligation of the Borrowers or the Lender, arising prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into or rights created or obligations incurred prior to such termination have been fully disposed of, concluded or liquidated and the Credit Obligations arising prior to or after such termination have been irrevocably paid in full. The rights granted to the Lender for the benefit of the Lender hereunder and under the other Loan Documents shall continue in full force and effect, notwithstanding the termination of this Agreement, until all of the Credit Obligations have been paid in full after the termination hereof or the Borrowers have furnished the Lender with an indemnification satisfactory to the Lender with respect thereto. All representations, warranties, covenants, waivers and agreements contained herein shall survive termination hereof until payment in full of the Credit Obligations unless otherwise provided herein. Notwithstanding the foregoing, if after receipt of any payment of all or any part of the Credit Obligations, the Lender is for any reason compelled to surrender such payment to any Person because such payment is determined to be void or voidable as a preference, impermissible setoff, a diversion of trust funds or for any other reason, this Agreement shall continue in full force and the Borrowers shall be liable to, and shall indemnify and hold the Lender harmless for, the amount of such payment surrendered until the Lender shall have been finally and irrevocably paid in full. The provisions of the foregoing sentence shall be and remain effective notwithstanding any contrary action which may have been taken by the Lender in reliance upon such payment, and any such contrary action so taken shall be without prejudice to the Lender's rights under this Agreement and shall be deemed to have been conditioned upon such payment having become final and irrevocable. 37 SECTION 9.9 GOVERNING LAW. All documents executed pursuant to the ------------- transactions contemplated herein, including this Agreement and each of the Loan Documents, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the internal laws and judicial decisions of the State of Alabama. SECTION 9.10 INDEMNIFICATION. In consideration of the execution and --------------- delivery of this Agreement by the Lender, and so long as the Lender has fulfilled its obligations hereunder, each of the Borrowers hereby indemnifies, exonerates and holds the Lender and its officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, claims, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to any of the following: (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties; (c) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment in connection with the Borrowers or the release by the Borrowers of any Hazardous Materials; or (d) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the Borrowers thereof of any Hazardous Materials (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any environmental laws), regardless of whether caused by, or within the control of, the Borrower, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or willful misconduct, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 9.11 AGREEMENT CONTROLS. In the event that any term of any of the ------------------ Loan Documents other than this Agreement conflicts with any term of this Agreement, the terms and provisions of this Agreement shall control. SECTION 9.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon ---------------------- and shall inure to the benefit of the parties hereto and their respective successors and assigns; 38 provided, however, that the Borrowers may not assign or transfer their rights or obligations hereunder without the prior written consent of the Lender. The Lender may not assign or transfer its interest hereunder except as otherwise provided in this Agreement. SECTION 9.13 SEVERABILITY. Any provision of any of the Loan Documents ------------ that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 9.14 OBLIGATIONS OF HIBBETT ABSOLUTE. Hibbett hereby agrees that ------------------------------- its obligations and liabilities with respect to the Credit Obligations are joint and several with the Participating Entities, continuing, absolute and unconditional. Without limiting the generality of the foregoing, the obligations and liabilities of Hibbett with respect to the Credit Obligations shall not be released, discharged, impaired, modified or in any way affected by (a) the invalidity or unenforceability of any Loan Document executed by any other person with respect to the Credit Obligations, (b) the failure of the Lender to give Hibbett a copy of any notice given to any other person, (c) any modification, amendment or supplement of any obligation, covenant or agreement contained in any Loan Document executed by any other person with respect to the Credit Obligations, (d) any compromise, settlement, release or termination of any obligation, covenant or agreement in any Loan Document executed with respect to the Credit Obligations, (e) any waiver of payment, performance or observance by or in favor of any other person of any obligation, covenant or agreement under any Loan Document, (f) any consent, extension, indulgence or other action or inaction, or any exercise or non-exercise of any right, remedy or privilege with respect to any Loan Document executed by any other person with respect to the Credit Obligations, or (g) the extension of time for payment or performance of any Credit Obligation by any other person. SECTION 9.15 ARBITRATION; PRESERVATION AND LIMITATION OF REMEDIES. ---------------------------------------------------- (a) If any dispute or controversy shall arise among the parties hereto as to any matter arising out of or in connection with the Loan Documents, the parties shall attempt in good faith to resolve such controversy by mutual agreement. If such dispute or controversy cannot be so resolved, it shall be resolved solely in accordance with the provisions of this Section 915. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. (b) Any dispute, controversy or claim between or among the parties hereto (the "Disputing Parties"), including disputes, controversies and claims arising out of or related to the Loan Documents, or the breach thereof, and the subject matter hereof, shall, except as provided in this Section 915, be settled by a single arbitrator by arbitration in Birmingham, Alabama in accordance with the Commercial Arbitration Rules of the American Arbitration Association as amended from time to time and as modified by this Agreement. 39 (c) The arbitrator shall be selected by the Disputing Parties within 15 days after demand for arbitration is made by a Disputing Party. If the Disputing Parties are unable to agree on an arbitrator within such period, then each Disputing Party shall select one arbitrator, and each such arbitrator shall select a third arbitrator and the dispute shall be settled by the panel consisting of such three arbitrators (such panel, or the single arbitrator agreed to by both parties, as the case may be, being hereinafter referred to as the "Arbiter"). Each arbitrator shall be a licensed attorney in the State of Alabama and shall possess substantive legal experience with respect to the principal issues in dispute. (d) Except as may otherwise be agreed in writing by the Disputing Parties or as ordered by the Arbiter upon substantial justification, the hearing of the dispute shall be held and concluded within 90 days of submission of the dispute to arbitration. The Arbiter shall render its final award within 30 days following conclusion of the hearing. The Arbiter shall state the factual and legal basis for the award. The decision of the Arbiter shall be final and binding except as provided in the Federal Arbitration Act, 9 U.S.C. Section 1 et. seq., and except for errors of law based on findings of fact. Final - -- --- judgment may be entered upon such an award in any court of competent jurisdiction, but entry of such judgment shall not be required to make such award effective. (e) Nothing in this Section 915 shall limit any right that any party may otherwise have to seek to obtain preliminary injunctive relief in order to preserve the status quo pending the disposition of any such arbitration proceeding. 40 IN WITNESS WHEREOF, each of the Borrowers and the Lender have caused this Credit Agreement to be executed and delivered by its duly authorized corporate officer as of the day and year first above written. HIBBETT SPORTING GOODS, INC. By: ___________________________________________ Its _______________________________________ HIBBETT TEAM SALES, INC. By: ___________________________________________ Its _______________________________________ SPORTS WHOLESALE, INC. By: ___________________________________________ Its _______________________________________ Hand Delivery and Mailing Address: 451 Industrial Lane Birmingham, Alabama 35211 FAX: (205) 912-7293 Attention: Chief Financial Officer AMSOUTH BANK By: ____________________________________________ Its Senior Vice President Hand Delivery Address: 7th Floor, AmSouth-Sonat Tower 1900 Fifth Avenue North Birmingham, Alabama 35203 FAX: (205) 801-0157 Attention: Regional Banking Department Mailing Address: Post Office Box 11007 Birmingham, Alabama 35288 FAX: (205) 801-0157 Attention: Regional Banking Department EX-13.1 4 1999 ANNUAL REPORT EXHIBIT 13.1 HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
January 30, January 31, February 1, February 3, January 28, 1999 1998 1997 1996 1995 --------------- --------------- -------------- --------------- ------------ (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks) INCOME STATEMENT DATA : Net sales $ 143,350 $ 113,563 $ 86,401 $ 67,077 $ 52,266 Cost of goods sold, including warehouse, distribution, and store occupancy costs 100,409 78,714 60,017 46,642 36,225 --------------- --------------- -------------- --------------- ------------ Gross profit 42,941 34,849 26,384 20,435 16,041 Store operating, selling, and administrative expenses 28,720 22,947 17,339 (1) 13,471 10,453 Depreciation and amortization 3,056 2,286 1,821 1,322 1,066 --------------- --------------- -------------- --------------- ------------ Operating Income 11,165 9,616 7,224 5,642 4,522 Interest expense, net 141 8 2,642 1,685 (2) 654 --------------- --------------- -------------- --------------- ------------ Income before provision for income taxes and extraordinary item 11,024 9,608 4,582 3,957 3,868 Provision for income taxes 4,234 3,675 1,752 1,514 1,479 --------------- --------------- -------------- --------------- ------------ Income before extraordinary item 6,790 5,933 2,830 2,443 2,389 Extraordinary item, net - - (1,093)(3) - - --------------- --------------- -------------- --------------- ------------ Net income $ 6,790 $ 5,933 $ 1,737 $ 2,443 $ 2,389 =============== =============== ============== =============== ============ Earnings per common share: Basic: Income before extraordinary item $ 1.06 $ 0.95 $ 0.62 $ 0.42 $ 0.37 Extraordinary item, net - - (0.24) (3) - - --------------- --------------- -------------- --------------- ------------ Net income $ 1.06 $ 0.95 $ 0.38 $ 0.42 $ 0.37 =============== =============== ============== =============== ============ Diluted: Income before extraordinary item $ 1.04 $ 0.93 $ 0.61 $ 0.42 $ 0.37 Extraordinary item, net - - (0.24) (3) - - --------------- --------------- -------------- --------------- ------------ Net income $ 1.04 $ 0.93 $ 0.37 $ 0.42 $ 0.37 =============== =============== ============== =============== ============ Weighted average shares outstanding: Basic 6,403,922 6,227,415 4,552,118 5,820,763 (2) 6,504,521 Diluted 6,557,273 6,362,755 4,671,268 5,838,267 (2) 6,504,521 SELECTED OPERATING DATA : - ----------------------- Number of stores open at end of period: Hibbett Sports 156 107 77 56 52 Sports & Co. 4 4 4 3 - Sports Additions 11 9 8 8 8 --------------- --------------- -------------- --------------- ------------ Total 171 120 89 67 60 =============== =============== ============== =============== ============ BALANCE SHEET DATA : - ------------------ Working capital $ 29,127 $ 25,649 $ 16,280 $ 10,907 $ 7,459 Total assets 68,552 53,366 40,358 36,702 22,787 Total debt - - - (3) 31,912 (2) 5,328 Stockholders' investment (deficit) 45,260 38,155 26,512 (3) (8,093) (2) 8,259
FOOTNOTES (DOLLARS IN THOUSANDS): (1) Includes a $513 pre-tax gain on the sale of the Company's former headquarters and distribution facility and a one-time pre-tax compensation expense of $462 related to stock options issued on August 1, 1996. (2) In November 1995, the Company completed the Recapitalization. The Recapitalization included the repurchase and retirement of 5,609,836 shares of common stock for cash and debt and the issuance of 2,886,721 new shares of common stock and debt in exchange for cash. The Recapitalization resulted in a substantial increase in total debt outstanding and a deficit in stockholders' investment. (3) During the third quarter of fiscal 1997 ended November 2, 1996, the Company completed its initial public offering with net proceeds of $32,868. In connection therewith, a substantial portion of the Company's long-term debt was repaid resulting in an extraordinary loss of $1,093 (net of applicable tax benefit of $677). 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Hibbett is a rapidly-growing operator of full-line sporting goods stores in small to mid-sized markets in nineteen states, predominantly in the Southeast. Hibbett's stores offer a broad assortment of quality athletic equipment, footwear and apparel at competitive prices with superior customer service. The Company's merchandise assortment features a core selection of brand name merchandise emphasizing team and individual sports complemented by a selection of localized apparel and accessories designed to appeal to a wide range of customers within each market. The Company believes that its stores are among the primary retail distribution alternatives for brand name vendors that seek to reach Hibbett's target markets. As of January 30, 1999, the Company operated 156 Hibbett Sports stores as well as eleven smaller-format Sports Additions athletic shoe stores and four larger-format Sports & Co. superstores. Hibbett's primary retail format and growth vehicle is Hibbett Sports; a 5,000 square foot store located primarily in enclosed malls as well as dominant strip center locations. Although competitors in some markets may carry product lines and national brands similar to Hibbett, the Company believes that its Hibbett Sports stores are typically the primary, full-line sporting goods retailers in their markets due to, among other factors, the extensive selection of traditional team and individual sports merchandise offered and a high level of customer service. Beginning in fiscal 1994, Hibbett accelerated its store-opening rate to approximately 10 stores per year. Since then, the Company has further accelerated its rate of new store openings to take advantage of the growth opportunities in its target markets. From fiscal 1995 through fiscal 1998, the Company substantially increased its store base, growing from 49 to 120 stores. In fiscal 1999, the Company opened 51 new Hibbett Sports stores and two Sports Additions stores. The Company closed two Hibbett Sports stores in fiscal 1999. The Company's expansion strategy is to continue to open new Hibbett Sports stores in its target markets. The Company plans to open approximately 55 Hibbett Sports stores in fiscal 2000. In fiscal 1996 and 1997, the Company increased its staffing levels in finance, merchandising, real estate, distribution and field management to support its expansion plans. In addition, the Company moved into a new headquarters and distribution center in January 1996 which has significant expansion potential to support the Company's growth for the foreseeable future. In anticipation of continued growth, the Company has begun planning an expansion of the distribution center to be completed by the end of fiscal 2000. In October 1996, the Company completed its initial public offering of 2,300,000 shares of common stock at the initial public offering price of $16.00 per share. The net proceeds to the Company of approximately $33.0 million were used to repay the subordinated notes and accrued interest thereon, to repay the term loan and accrued interest thereon, and to reduce borrowings under the revolving loan agreement. In October 1997, the Company completed a secondary public offering of 1,133,197 shares of common stock at the offering price of $27.75 per share. Of the 1,133,197 shares of common stock offered, 933,197 shares were offered by certain selling shareholders and 200,000 shares were offered by the Company. The net proceeds to the Company of approximately $4.8 million were used to reduce borrowings under the revolving credit facility and for working capital and general corporate purposes. The Company operates on a 52 or 53 week fiscal year ending on the Saturday nearest to January 31 of each year. The consolidated statements of operations for the fiscal years ended January 30, 1999, January 31, 1998 and February 1, 1997, include 52 weeks of operations. Hibbett is incorporated under the laws of the State of Delaware. 17 RESULTS OF OPERATIONS The following table sets forth consolidated statements of operations expressed as a percentage of net sales for the periods indicated:
FISCAL YEAR ENDED ----------------------------------------------------- January 30, January 31, February 1, 1999 1998 1997 ---------------- ---------------- ----------------- Net sales 100.0% 100.0% 100.0% Cost of goods sold, including warehouse, distribution, and store occupancy costs 70.0 69.3 69.5 ----- ----- ----- Gross profit 30.0 30.7 30.5 Store operating, selling, and admin. expenses 20.0 20.2 20.1 Depreciation and amortization 2.1 2.0 2.1 ----- ----- ----- Operating income 7.9 8.5 8.3 Interest expense, net 0.1 0.0 3.0 ----- ----- ----- Income before provision for income taxes and extraordinary item 7.8 8.5 5.3 Provision for income taxes 3.0 3.3 2.0 ----- ----- ----- Income before extraordinary item 4.8 5.2 3.3 Extraordinary item, net 0.0 0.0 (1.3) ----- ----- ----- Net income 4.8% 5.2% 2.0% ====== ====== ======
FISCAL 1999 COMPARED TO FISCAL 1998 Net sales. Net sales increased $29.8 million, or 26.2%, to $143.4 million for the fifty-two weeks ended January 30, 1999, from $113.6 million for the fifty-two weeks ended January 31, 1998. The increase is attributable to the opening of fifty-one Hibbett Sports stores, two Sports Additions stores, and a 2.7% increase in comparable store net sales. The increase in comparable store net sales was due primarily to increased equipment sales as well as increased apparel and accessory sales. New stores and stores not in the comparable store net sales calculation accounted for $27.5 million of the increase in net sales and increases in comparable store net sales contributed $2.3 million. During fiscal 1999, the Company also closed two Hibbett Sports stores. Comparable store net sales data for the period reflect sales for the Company's traditional format stores open throughout the period and the corresponding period of the prior fiscal year. Gross profit. Cost of goods sold includes the cost of inventory, occupancy costs for stores and occupancy and operating costs for the distribution center. Gross profit was $42.9 million, or 30.0% of net sales, in the fifty-two weeks ended January 30, 1999, as compared to $34.9 million, or 30.7% of net sales, in the prior fiscal year. The decrease in gross profit as a percent to sales was primarily the result of lower apparel product margins in the fourth quarter and higher store occupancy costs as a percentage of net sales as a result of the increased number of new stores in the store base. Lower apparel product margins were primarily the result of higher markdowns on winter apparel due to unusual weather patterns during the fourth quarter. Store operating, selling and administrative expenses. Store operating, selling and administrative expenses were $28.7 million, or 20.0% of net sales, in fiscal 1999 as compared to $23.0 million, or 20.2% of net sales, in fiscal 1998. The decrease in store operating, selling and administrative expenses as a percentage of net sales in fiscal 1999 is primarily attributable to improved leveraging of administrative costs over increased sales. 18 Depreciation and amortization. Depreciation and amortization as a percentage of net sales increased slightly to 2.1% in the fifty-two weeks ended January 30, 1999 from 2.0% in the prior year due to the increase in the number of new stores in the store base. Interest expense, net. Net interest expense for the fifty-two weeks ended January 30, 1999 was $141,000 compared to $8,000 in the prior year period. The increase is attributable to higher levels of borrowing on the Company's revolving credit facility in the current fiscal year to fund new store openings. FISCAL 1998 COMPARED TO FISCAL 1997 Net sales. Net sales increased $27.2 million, or 31.4%, to $113.6 million for the fifty-two weeks ended January 31, 1998, from $86.4 million for the fifty-two weeks ended February 1, 1997. The increase is attributable to the opening of thirty-one Hibbett Sports stores, two Sports Additions stores, and a 6.4% increase in comparable store net sales. The increase in comparable store net sales was due primarily to increased ladies and kids footwear and apparel sales as well as increased equipment sales and improved inventory processing at the distribution center. New stores and stores not in the comparable store net sales calculation accounted for $23.1 million of the increase in net sales and increases in comparable store net sales contributed $4.1 million. During fiscal 1998, the Company also closed one Hibbett Sports store and one Sports Additions store. Gross profit. Cost of goods sold includes the cost of inventory, occupancy costs for stores and occupancy and operating costs for the distribution center. Gross profit was $34.9 million, or 30.7% of net sales, in the fifty-two weeks ended January 31, 1998, as compared to $26.4 million, or 30.5% of net sales, in the prior fiscal year. The increase in gross profit as a percent to sales was the result of a slightly higher product margin combined with improved leveraging of warehouse and distribution costs over higher sales. Store operating, selling and administrative expenses. Store operating, selling and administrative expenses were $23.0 million, or 20.2% of net sales, in fiscal 1998 as compared to $17.3 million, or 20.1% of net sales, in fiscal 1997. Lower advertising costs in fiscal 1998 as a percent of sales were offset by higher public company related costs in the Company's first full year as a public company, as well as the costs associated with the opening of 33 new stores as compared to 22 new stores in the prior year. Depreciation and amortization. Depreciation and amortization as a percentage of net sales declined slightly to 2.0% in the fifty-two weeks ended January 31, 1998 from 2.1% in the prior year due to the increase in net sales. Interest expense, net. The $2.6 million decrease in net interest expense for the fifty-two weeks ended January 31, 1998 compared to the prior year period is primarily the result of the repayment of long-term debt with the proceeds of the initial public offering in October 1996. FISCAL 1997 COMPARED TO FISCAL 1996 Net sales. Net sales increased $19.3 million, or 28.8%, to $86.4 million for the fifty-two weeks ended February 1, 1997, from $67.1 million for the fifty-three weeks ended February 3, 1996. New stores and stores not in the comparable store net sales calculation accounted for $14.3 million of the increase in net sales and increases in comparable store net sales contributed $5.0 million. Excluding the effect of the additional week of sales in the prior year period, net sales increased 30.4%. The increase in sales in fiscal 1997 is attributable to the opening of twenty-one Hibbett Sports stores and one Sports & Co. superstore and a 10.2% increase in comparable store net sales for the 52- week comparable period. The increase in comparable store net sales was due primarily to increased footwear sales and improved inventory processing at the new distribution center. Gross profit. Gross profit was $26.4 million, or 30.5% of net sales, in the fifty-two weeks ended February 1, 1997, as compared to $20.4 million, or 30.5% of net sales, in the prior fiscal year. Improved 19 leveraging of store occupancy costs over higher sales was offset by higher markdowns in the current year. Store operating, selling and administrative expenses. Store operating, selling and administrative expenses for the fifty-two weeks ended February 1, 1997 include a net gain of $533,000 on the disposal of assets which primarily relates to the $513,000 gain on the sale of the former headquarters and distribution facility. The net gain was substantially offset by a one-time compensation expense of approximately $462,000 related to the issuance of stock options on August 1, 1996. Excluding these items, store operating, selling and administrative expenses were $17.4 million, or 20.1% of net sales, for the fifty-two weeks ended February 1, 1997, as compared to $13.5 million, or 20.1% of net sales, for the fifty-three weeks in the year ago period. Depreciation and amortization. Depreciation and amortization as a percentage of net sales increased slightly to 2.1% in the fifty-two weeks ended February 1, 1997 from 2.0% in the prior year. Interest expense. The $957,000 increase in interest expense for the fifty- two weeks ended February 1, 1997 compared to the prior year is due primarily to the interest expense associated with the subordinated notes which were issued in connection with the Recapitalization in November 1995 (see Note 2 to the Consolidated Financial Statements) and, to a lesser extent, to an increase in borrowings under the revolving loan agreement to fund new store openings. In connection with the initial public offering, the Company repaid a substantial portion of its long-term debt. Extraordinary item, net. The $1.1 million extraordinary item is the result of the early extinguishment of debt with the proceeds of the initial public offering. This item is shown net of the applicable income tax benefit of $677,000. LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements relate primarily to new store openings and working capital requirements. The Company's working capital requirements are somewhat seasonal in nature and typically reach their peak near the end of the third and the beginning of the fourth quarter of its fiscal year. Historically, the Company has funded its cash requirements primarily through cash flow from operations and borrowings under its revolving loan facilities. Net cash provided by operating activities has historically been driven by net income levels combined with fluctuations in inventory and accounts payable balances. Income before extraordinary item has increased in each of the last three fiscal years. In addition, the Company has continued to increase its inventory levels throughout these periods as the number of stores has increased. These inventory increases were primarily financed with cash from operations in each of the last three fiscal years. These activities resulted in cash flows provided by operating activities of $2.6 million, $1.5 million, and $1.8 million in fiscal 1999, fiscal 1998, and fiscal 1997, respectively. With respect to cash flows from investing activities, capital expenditures for fiscal 1999 were $6.3 million compared with $4.6 million in fiscal 1998 and $4.3 million in fiscal 1997. The higher capital expenditures in fiscal 1999 resulted primarily from the opening of 51 new Hibbett Sports stores and two Sports Additions stores as compared to 33 new Hibbett Sports stores in fiscal 1998. During fiscal 1997, the Company completed the sale-leaseback of its new headquarters and distribution center and the sale of the former headquarters and warehouse facilities. The Company used the proceeds of $5.3 million to (1) repay $4.3 million then outstanding under the senior subordinated notes issued to temporarily finance the new headquarters and distribution center, and (2) to fund its working capital requirements. The Company estimates capital expenditures in fiscal 2000 to be approximately $7.3 million which will fund the opening of approximately 55 Hibbett Sports stores, remodel selected existing stores, and fund headquarters and distribution center related capital expenditures, excluding a planned expansion to the 20 distribution center. The Company anticipates the expansion will be completed by the end of fiscal 2000 and will be incorporated into the existing long term operating lease for the facility. Net cash provided by (used in) financing activities was $127,000, $5.2 million and ($539,000) in fiscal 1999, fiscal 1998, and fiscal 1997, respectively. Cash flows from financing activities have historically represented the Company's financing of its long-term growth. Proceeds from the Company's secondary public stock offering in October 1997 were $4.8 million. The proceeds were used to reduce borrowings under the revolving credit facility and for working capital and general corporate purposes. In fiscal 1997, the Company used the net proceeds of $32.9 million from the initial public stock offering to repay long-term debt and revolving loan borrowings. On November 5, 1998, the Company established a new unsecured revolving credit facility which will expire November 5, 2001 and allows borrowings up to $25 million. The Company also established an unsecured working capital line of credit for $5 million which is subject to annual renewal. As of January 30,1999, the Company had no borrowings outstanding under the new facility or the working capital line of credit. Based on its current operating and store opening plans, the Company believes that it can adequately fund its cash needs for the foreseeable future through borrowings under the new facility, the working line of credit and cash generated from operations. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of "comprehensive income," which is the total of net income and all other non-owner changes in stockholders' equity, and its components. This standard was adopted in fiscal 1999 and did not have a significant impact on the Company's financial reporting. In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131, which supersedes SFAS Nos. 14,18, 24 and 30, establishes new standards for segment reporting, using the "management approach," in which reportable segments are based on the same criteria that management disaggregates a business for making operating decisions and assessing performance. This standard was adopted in fiscal 1999 and did not have a significant impact on the Company's financial reporting. In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about Pensions and Other Post-retirement Benefits. SFAS No. 132, which supersedes SFAS Nos. 87, 88, and 106, standardizes the disclosure requirements for pensions and other post-retirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful as they were when SFAS Nos. 87, 88 and 106, were issued. This standard was adopted in fiscal 1999 and did not have a significant impact on the Company's financial reporting. The American Institute of Certified Public Accountants ("AICPA"), has issued Statement of Position ("SOP"), 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This statement requires capitalization of external direct costs of materials and services, payroll and payroll related costs for employees directly associated, and interest cost during development of computer software for internal use. Capitalized software costs should be amortized on a straight-line basis unless another systematic and rational basis is more representative of the software's use. This statement is not expected to have a material effect on the Company's financial statements. The AICPA has issued SOP 98-5, Reporting on the Costs of Start-up Activities. This statement provides guidance on the financial reporting of start-up costs and organization costs, and requires these costs to be expensed as incurred. The new rules are not expected to have a significant impact on the Company's financial statements. 21 DIVIDEND POLICY The Company has never declared or paid any dividends on its common stock. The Company currently intends to retain its future earnings to finance the growth and development of its business and therefore does not anticipate declaring or paying cash dividends on its common stock for the foreseeable future. Any future decision to declare or pay dividends will be at the discretion of the Board of Directors and will be dependent upon the Company's financial condition, results of operations, capital requirements and other factors as the Board of Directors deems relevant. YEAR 2000 COMPLIANCE During fiscal 1999, the Company has continued to evaluate its management information systems to identify and address Year 2000 issues. In connection therewith, the Company has classified its Year 2000 emphasis into five areas: 1. Information systems that are critical to daily operations (receiving and processing of merchandise, executing sales at store level, and processing payroll and other financial accounting functions, etc.) 2. Information systems that are important but not critical to daily operations (tracking supply inventories, electronically sending purchase orders, etc.) 3. Customized, internally developed programs or interfaces with the above mentioned systems (radio frequency system in the warehouse, sales audit system, etc.) 4. Non information technology items (phone system, security system, warehouse conveyors, heating and air systems, etc.) 5. Third party (vendor) compliance The Company has classified its Year 2000 implementation program into four areas 1. Evaluation and Initial Assessment 2. Remediation/Reprogramming 3. Testing 4. Contingency Planning The following table outlines the Company's current status regarding the first two areas of its Year 2000 implementation program:
Percent Complete -------------------------------------------------- Evaluation & Remediation & Classification/ Program Assessment Reprogramming - --------------------------------------------------- ---------------------- ---------------------- 1. Critical Systems: ---------------- Merchandising & Distribution 100% 100% Financial & Payroll 100% 100% Point of Sale/Store Registers 95% 70% Mainframe Processing 100% 100% 2. Important but not critical systems 95% 80% 3. Custom developed programs & interfaces 100% 100% 4. Non Information Technology items 95% 60% 5. Third Party Compliance 95% 20%
22 The Company has plans in place to complete its Year 2000 implementation, including testing of all systems, by the middle of calendar year 1999. The Company plans to continue to rely primarily on internal resources in order to complete these steps. The Company's financial, merchandising and distribution systems are third party vendor software programs which have been recently upgraded and are certified as Year 2000 compliant by the software vendors. These upgrades were previously planned and were not accelerated due to Year 2000 issues. The Company's point of sale system operates the cash registers in the stores. The registers run on a personal computer system using third party software. The software has been upgraded in order to accept credit cards with expiration dates beyond December 31, 1999, and all other significant date sensitive applications except for layaway transactions which are not material to the Company. The point of sale operating system and networking system is in the process of being upgraded to be Year 2000 compliant. The Company has not deferred any significant information technology projects in order to address the Year 2000 issue. Based on present information, the Company believes that its current plans as outlined above will substantially mitigate the risk of a material disruption in the Company's operations due to internal Year 2000 factors. However, possible consequences of the Company not being Year 2000 compliant include, but are not limited to, loss of revenues, loss of communication capability with stores, inability to process or quantify merchandise, and inability to engage in other operational and financial activities. At the present time, the Company has not established a contingency plan for possible Year 2000 issues. The Company expects to consider contingency plans based on the results of its Year 2000 testing and its assessment of related risks. Additionally, the Company is in the process of communicating with third parties in order to assess their Year 2000 readiness and the extent to which the Company may be vulnerable to any third parties' failure to remediate their Year 2000 issues. Many of these parties have stated their ability to supply the Company will not be affected by the Year 2000 issue. Management believes that the Company's largest vendor, Nike, has made significant progress toward their Year 2000 compliance and does not expect any material disruption therefrom. However, the Company cannot assure timely compliance of third parties, including any other material vendors, and may be adversely affected by failure of a significant third party to become Year 2000 compliant. Approximately $145,000 has been expended to date related to Year 2000 compliance. The Company currently expects that the total costs of Year 2000 compliance for the Company's current systems will not exceed $185,000, which includes the lease or purchase of a system dedicated for Year 2000 testing. These costs are not expected to have a significant impact on the Company's financial position or results of operations. The costs associated with Year 2000 compliance are based on management's current views with respect to future events and may be updated as additional information becomes available. Please refer to the Special Note Regarding Forward Looking Statements. MARKET RISK The Company's financial condition, results of operations and cash flows are subject to market risk from interest rate fluctuations on its revolving credit facility and working capital line of credit, each of which bears interest at rates that vary with LIBOR, prime or quoted cost of funds rates. The average amount of borrowings outstanding under these agreements during fiscal 1999 was $4,550,992, the maximum amount outstanding was $11,024,717 and the weighted average interest rate was 6.49%. A 23 10% increase or decrease in market interest rates would not have a material impact on the Company's financial condition, results of operations or cash flows. SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS The statements contained in this report that are not purely historical or which might be considered an opinion or projection concerning the Company or its business, whether express or implied, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include statements regarding the Company's expectations, intentions, plans or strategies regarding the future, including statements related to the Year 2000 issue. All forward-looking statements included in this document are based upon information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. It is important to note that the Company's actual results could differ materially from those described or implied in such forward-looking statements because of, among other factors, the ability of the Company to execute its expansion plans, a shift in demand for the merchandise offered by the Company, the Company's ability to obtain brand name merchandise at competitive prices, the effect of regional or national economic conditions and the effect of competitive pressures from other retailers. In addition, the reader should consider the risk factors described from time to time in the Company's other documents and reports, including the factors described under "Risk Factors" in the Company's Registration Statement on Form S-1, filed with the Securities and Exchange Commission on October 1, 1997, and any amendments thereto. QUARTERLY FLUCTUATIONS The Company has historically experienced and expects to continue to experience seasonal fluctuations in its net sales and operating income. The Company's net sales and operating income are typically higher in the fourth quarter due to sales increases during the holiday selling season. However, the seasonal fluctuations are mitigated by the strong product demand in the spring, summer and back-to-school sales periods. The Company's quarterly results of operations may also fluctuate significantly as a result of a variety of factors, including the timing of new store openings, the amount and timing of net sales contributed by new stores, the level of pre-opening expenses associated with new stores, the relative proportion of new stores to mature stores, merchandise mix, the relative proportion of stores represented by each of the Company's three store concepts and demand for apparel and accessories driven by local interest in sporting events. 24 The following tables set forth certain unaudited financial data for the quarters indicated: UNAUDITED QUARTERLY FINANCIAL DATA (Dollar amounts in thousands, except per share amounts)
Fiscal Year Ended January 30, 1999 ---------------------------------------------------------------- First Second Third Fourth (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) ------------- ------------- ------------- ------------- Net sales $ 33,321 $ 32,524 $ 35,988 $ 41,517 Gross profit 10,163 9,617 10,913 12,248 Operating income 2,964 2,185 2,874 3,142 Net income $ 1,858 $ 1,352 $ 1,739 $ 1,841 ============= ============= ============= ============= Basic earnings per common share: Net income $ 0.29 $ 0.21 $ 0.27 $ 0.29 ============= ============= ============= ============= Diluted earnings per common share: Net income $ 0.28 $ 0.21 $ 0.27 $ 0.28 ============= ============= ============= ============= Fiscal Year Ended January 31, 1998 ---------------------------------------------------------------- First Second Third Fourth (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) ------------- ------------- ------------- ------------- Net sales $ 26,165 $ 26,393 $ 27,797 $ 33,208 Gross profit 8,039 7,838 8,491 10,481 Operating income 2,281 1,611 2,193 3,531 Net income $ 1,424 $ 986 $ 1,350 $ 2,173 ============= ============= ============= ============= Basic earnings per common share: Net income $ 0.23 $ 0.16 $ 0.22 $ 0.34 ============= ============= ============= ============= Diluted earnings per common share: Net income $ 0.23 $ 0.16 $ 0.21 $ 0.33 ============= ============= ============= =============
In the opinion of the Company's management, this unaudited information has been prepared on the same basis as the audited information presented elsewhere herein and includes all adjustments necessary to present fairly the information set forth therein. The operating results from any quarter are not necessarily indicative of the results to be expected for any future period. HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
January 30, January 31, 1999 1998 ------------------ ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 945 $ 4,498 Accounts receivable, net 2,144 1,839 Inventories 47,694 33,267 Prepaid expenses and other 802 603 Refundable income taxes 96 47 Deferred income taxes 738 606 ------------------ ----------------- Total current assets 52,419 40,860 ------------------ ----------------- PROPERTY AND EQUIPMENT: Land 24 24 Buildings 216 216 Equipment 9,465 6,903 Furniture and fixtures 7,018 5,341 Leasehold improvements 11,762 8,864 Construction in progress 194 1,242 ------------------ ----------------- 28,679 22,590 Less accumulated depreciation & amortization 13,273 10,475 ------------------ ----------------- Total property and equipment 15,406 12,115 ------------------ ----------------- NONCURRENT ASSETS: Deferred income taxes 505 364 Other, net 222 27 ------------------ ----------------- Total noncurrent assets 727 391 ------------------ ----------------- Total Assets $ 68,552 $ 53,366 ================== ================= LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts payable $ 16,233 $ 10,951 Accrued income taxes 2,477 860 Accrued expenses: Payroll-related 2,638 1,813 Other 1,944 1,587 ------------------ ----------------- Total current liabilities 23,292 15,211 ------------------ ----------------- LONG-TERM DEBT - - ------------------ ----------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' INVESTMENT: Preferred Stock, $.01 par value, 1,000,000 shares authorized, no shares outstanding - - Common Stock, $.01 par value, 12,000,000 shares authorized, 6,413,780 and 6,393,977 shares issued and outstanding at January 30, 1999 and January 31, 1998, respectively 64 64 Paid-in capital 53,996 53,681 Retained earnings (deficit) (8,800) (15,590) ------------------ ----------------- Total stockholders' investment 45,260 38,155 ------------------ ----------------- Total Liabilities and Stockholders' Investment $ 68,552 $ 53,366 ================== =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE SHEETS. HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fiscal Year Ended ----------------------------------------------------------- January 30, January 31, February 1, 1999 1998 1997 ------------------ ----------------- ----------------- Net sales $ 143,350 $ 113,563 $ 86,401 Cost of goods sold, including warehouse, distribution, and store occupancy costs 100,409 78,714 60,017 ------------------ ----------------- ----------------- Gross profit 42,941 34,849 26,384 Store operating, selling, and administrative expenses 28,720 22,947 17,339 Depreciation and amortization 3,056 2,286 1,821 ------------------ ----------------- ----------------- Operating income 11,165 9,616 7,224 Interest expense, net 141 8 2,642 ------------------ ----------------- ----------------- Income before provision for income taxes and extraordinary item 11,024 9,608 4,582 Provision for income taxes 4,234 3,675 1,752 ------------------ ----------------- ----------------- Income before extraordinary item 6,790 5,933 2,830 Extraordinary item, net of income tax benefit of $677 - - (1,093) ------------------ ----------------- ----------------- Net income $ 6,790 $ 5,933 $ 1,737 ================== ================= ================= Earnings per common share: Basic: Income before extraordinary item $ 1.06 $ 0.95 $ 0.62 Extraordinary item, net - - (0.24) ------------------ ----------------- ----------------- Net income $ 1.06 $ 0.95 $ 0.38 ================== ================= ================= Diluted: Income before extraordinary item $ 1.04 $ 0.93 $ 0.61 Extraordinary item, net - - (0.24) ------------------ ----------------- ----------------- Net income $ 1.04 $ 0.93 $ 0.37 ================== ================= ================= Weighted average shares outstanding: Basic 6,403,922 6,227,415 4,552,118 ================== ================= ================= Diluted 6,557,273 6,362,755 4,671,268 ================== ================= =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS. HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT (DOLLARS IN THOUSANDS)
Common Stock Retained ---------------------------------- Number of Paid-In Earnings Shares Amount Capital (Deficit) --------------- ----------- -------------- -------------- BALANCE, February 3, 1996 23,389,000 $ 234 $ 14,933 $ (23,260) Net income - - - 1,737 Retroactive effect of 1-for-6.1 reverse stock split (19,554,739) (196) 196 - Initial public offering of common stock, net of offering costs of $1,356 2,300,000 23 32,845 - --------------- ----------- -------------- -------------- BALANCE, February 1, 1997 6,134,261 61 47,974 (21,523) Net income - - - 5,933 Secondary public offering of common stock, net of offering costs of $449 200,000 2 4,815 - Issuance of shares from the employee stock purchase plan and the exercise of stock options 59,716 1 892 - --------------- ----------- -------------- -------------- BALANCE, January 31, 1998 6,393,977 64 53,681 (15,590) Net income - - - 6,790 Issuance of shares from the employee stock purchase plan and the exercise of stock options 19,803 - 315 - --------------- ----------- -------------- -------------- BALANCE, January 30, 1999 6,413,780 $ 64 $ 53,996 $ (8,800) =============== =========== ============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS. HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
Fiscal Year Ended ------------------------------------------------------------ January 30, January 31, February 1, 1999 1998 1997 ------------------- ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,790 $ 5,933 $ 1,737 ------------------- ----------------- ----------------- Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item - - 1,770 Depreciation and amortization 3,056 2,286 1,969 Deferred income taxes (273) (23) (101) (Gain) loss on disposal of assets 20 31 (533) Interest expense funded through additional debt - - 14 (Increase) decrease in assets: Accounts receivable, net (305) 258 (756) Inventories (14,427) (8,746) (3,816) Prepaid expenses and other (199) (120) 271 Refundable income taxes (49) 81 291 Other noncurrent assets (237) (12) 9 Increase in liabilities: Accounts payable 5,282 570 10 Accrued income taxes 1,805 424 436 Accrued expenses 1,182 833 517 ------------------- ----------------- ----------------- Total adjustments (4,145) (4,418) 81 ------------------- ----------------- ----------------- Net cash provided by operating activities 2,645 1,515 1,818 ------------------- ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (6,340) (4,548) (4,308) Proceeds from sale of property 15 14 5,267 ------------------- ----------------- ----------------- Net cash provided by (used in) investing activities (6,325) (4,534) 959 ------------------- ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common shares in public offering - 4,817 32,868 Repayment of subordinated and senior subordinated notes payable to stockholders - - (20,267) Revolving loan borrowings and repayments, net - - (12,140) Repayment of term loan - - (1,000) Proceeds from options exercised and purchase of shares under the employee stock purchase plan 127 431 - ------------------- ----------------- ----------------- Net cash provided by (used in) financing activities 127 5,248 (539) ------------------- ----------------- ----------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,553) 2,229 2,238 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,498 2,269 31 ------------------- ----------------- ----------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 945 $ 4,498 $ 2,269 =================== ================= ================= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 235 $ 43 $ 3,006 =================== ================= ================= Income taxes, net of refunds $ 2,596 $ 3,153 $ 846 =================== ================= ================= SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES: Noncash recognition of paid-in capital related to exercise of stock options $ - $ 462 $ - =================== ================= =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS. HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS Hibbett Sporting Goods, Inc. (the "Company") is an operator of full-line sporting goods retail stores in small to mid-sized markets in the southeastern United States. The Company's fiscal year ends on the Saturday closest to January 31 of each year. The consolidated statements of operations for fiscal years ended January 30, 1999, January 31, 1998 and February 1, 1997, include 52 weeks of operations. The Company's merchandise assortment features a core selection of brand name merchandise emphasizing team and individual sports complemented by a selection of localized apparel and accessories designed to appeal to a wide range of customers within each market. PRINCIPLES OF CONSOLIDATION The consolidated financial statements of the Company include its accounts and the accounts of all wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect (1) the reported amounts of certain assets and liabilities and disclosure of certain contingent assets and liabilities at the date of the financial statements, and (2) the reported amounts of certain revenues and expenses during the reporting period. Actual results could differ from those estimates. CONSOLIDATED STATEMENTS OF CASH FLOWS For purposes of the consolidated statements of cash flows, the Company considers all short-term, highly liquid investments with original maturities of three months or less to be cash equivalents. INVENTORIES Inventories are valued at the lower of cost or market using the retail inventory method of accounting, with cost determined on a first-in, first-out basis and market based on the lower of replacement cost or estimated realizable value. The Company's business is dependent to a significant degree upon close relationships with its vendors. During fiscal 1999, the company's largest vendor, Nike, represented approximately 36% of its purchases. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. It is the Company's policy to depreciate assets acquired prior to January 28, 1995 using accelerated and straight-line methods over the estimated service lives (3 to 10 years for equipment, 5 to 10 years for furniture and fixtures, and 10 to 31.5 years for buildings) and to amortize leasehold improvements using the straight-line method over the periods of the applicable leases. Depreciation on assets acquired subsequent to January 28, 1995 is provided using the straight-line method over the estimated service lives (3 to 5 years for equipment, 7 years for furniture 29 and fixtures, and 39 years for buildings) or, in the case of leasehold improvements, 10 years or over the lives of the respective leases, if shorter. Maintenance and repairs are charged to expense as incurred. Costs of renewals and betterments are capitalized by charges to property accounts and are depreciated using applicable annual rates. The cost and accumulated depreciation of assets sold, retired, or otherwise disposed of are removed from the accounts, and the related gain or loss is credited or charged to income. STORE OPENING COSTS Non-capital expenditures incurred in preparation for opening new retail stores are expensed in the period each store opens. STOCK-BASED COMPENSATION Compensation cost is measured under the intrinsic value method in accordance with Accounting Principles Bulletin No. 25. Pro forma disclosures of net income and earnings per share are presented as if the fair value method had been applied, as required under Statement of Financial Accounting Standards ("SFAS") No. 123. FAIR VALUE OF FINANCIAL INSTRUMENTS In preparing disclosures about the fair value of financial instruments, management considers that the carrying amount approximates fair value for cash and cash equivalents, receivables, short-term borrowings and accounts payable, because of the short maturities of those instruments. ADVERTISING COSTS Costs incurred for producing and communicating advertising are expensed when incurred. EARNINGS PER SHARE Basic earnings per share ("EPS") excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock are exercised or converted into common stock or resulted in the issuance of common stock that then shared in earnings. Diluted EPS has been computed based on the weighted average number of shares outstanding, including the effect of outstanding stock options, if dilutive, in each respective year. A reconciliation of the weighted average shares for basic and diluted EPS is as follows:
FISCAL YEAR ENDED ------------------------------------------------------------------------- JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997 --------------------- --------------------- ---------------------- Weighted average shares outstanding: Basic 6,403,922 6,227,415 4,552,118 Dilutive effect of stock options outstanding 153,351 135,340 119,150 --------------------- --------------------- ---------------------- Diluted 6,557,273 6,362,755 4,671,268 ===================== ===================== ======================
All earnings per share, weighted average shares outstanding, stock options and stock option per share amounts have been retroactively restated for all periods presented to reflect the 1-for-6.1 reverse stock split discussed in Note 2. Supplemental basic earnings per share for fiscal 1997 is calculated by dividing net income after adjustment for applicable interest expense of $1,491,000 (net of tax), by the 30 adjusted number of weighted average shares outstanding (6,134,261 shares after giving effect to the number of shares to repay $31,012,000 of debt). Supplemental basic earnings per share before and after the extraordinary item for the fiscal year ended February 1, 1997 was $ .70 and $ .53, respectively. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS The Company continually evaluates whether events and circumstances have occurred that indicate the remaining balance of long-lived assets and intangibles may be impaired and not recoverable. The Company's policy is to recognize any impairment loss on long-lived assets as a charge to current income when certain events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. PRIOR YEAR RECLASSIFICATION Certain prior year amounts have been reclassified to conform to the current year presentation. 2. STOCKHOLDERS' INVESTMENT TRANSACTIONS On November 1, 1995, the Company's Board of Directors approved a series of equity and debt transactions which resulted in a recapitalization of the Company and a change in controlling ownership of the common stock outstanding (the "Recapitalization"). In connection with the Recapitalization, the Company's Board of Directors (i) increased the number of authorized shares of common stock from 3,000,000 to 50,000,000 shares, (ii) declared a 38.687189-for-1 stock split, (iii) approved the repurchase and retirement of 34,220,000 shares (5,609,836 shares after giving retroactive effect to the 1-for-6.1 reverse stock split discussed below) of common stock for $1.00 per share ($6.10 per share after giving retroactive effect to the 1-for-6.1 reverse stock split discussed below) with $22,250,000 cash and the issuance of $13,051,000 of debt (including unamortized debt discount), and (iv) approved the issuance of 17,609,000 new shares (2,886,721 shares after giving effect of the 1-for-6.1 reverse stock split discussed below) of common stock at $1.00 per share ($6.10 per share after giving retroactive effect to the 1-for-6.1 reverse stock split discussed below) and $7,074,000 of debt (including unamortized debt discount) for $24,250,000 cash. Expenses of $2,506,000 were incurred in connection with the Recapitalization and reduced paid-in capital. On September 13, 1996, the Company's Board of Directors approved a 1-for- 6.1 reverse stock split of the Company's Common Stock. In addition, the Board of Directors approved a plan of reorganization which included (i) reincorporating the Company in the state of Delaware, (ii) decreasing the number of authorized shares of common stock from 50,000,000 to 12,000,000 shares, and (iii) authorizing 1,000,000 shares of preferred stock, par value $.01 per share. All references in the financial statements to weighted average shares outstanding, earnings per share, and stock options have been restated to reflect the above stock splits and the reverse stock split. In October 1996, the Company completed its initial public offering of 2,300,000 shares of common stock at the initial public offering price of $16 per share. The net proceeds to the Company of $32,868,000 were used to repay the subordinated notes and accrued interest thereon, to repay the term loan and accrued interest thereon, and to reduce borrowings under the revolving loan agreement. In October 1997, the Company and certain shareholders completed a public offering of 200,000 primary shares and 933,197 secondary shares at a price of $27.75 per share. The Company's net proceeds of $4,817,000 were used to reduce borrowings under the revolving credit facility and for working capital and general corporate purposes. 31 3. LONG-TERM DEBT From October 1996 until November 5, 1998, the Company maintained an unsecured $20 million revolving credit facility. In November 1998, the Company established (i) a new $25 million unsecured revolving credit facility which will expire November 5, 2001, and (ii) a $5 million unsecured working capital line of credit which is subject to annual renewal (collectively, the "Debt Agreements"). There were no amounts outstanding under the Debt Agreements at January 30, 1999. The average amount of borrowings outstanding under the applicable loan agreements during fiscal 1999 was $4,550,992, the maximum amount outstanding was $11,024,717, and the weighted average interest rate was 6.49%. The average amount of borrowings outstanding under the prior facility during fiscal 1998 was $1,652,450, the maximum amount outstanding was $4,394,250, and the weighted average interest rate was 6.93%. There were no borrowings outstanding under the prior facility at January 31, 1998. The Company's Debt Agreements contain certain restrictive covenants common to such agreements. The Company was in compliance with respect to all of its covenants at January 30, 1999. As part of the Recapitalization, in November 1995, the Company issued to stockholders subordinated notes and senior subordinated bridge notes totaling $20,125,000 with an original issue discount of $1,514,000 related solely to the stockholders' subordinated notes. A portion of the proceeds of these borrowings were utilized to retire existing debt. In January 1996, the Company issued $128,000 of additional notes as satisfaction for interest on the Company's bridge notes. The Company repaid the senior subordinated bridge notes in February 1996. In connection with the Company's initial public offering in October 1996, the subordinated notes were repaid. The repayment resulted in a loss of $1,093,000 (net of the applicable income tax benefit of $677,000) which is classified as an extraordinary item in the accompanying statement of operations. 4. LEASES The Company leases the premises for its retail sporting goods stores under operating leases which expire in various years through the year 2008. Many of these leases contain renewal options and require the Company to pay executory costs (such as property taxes, maintenance, and insurance). Rental payments typically include minimum rentals plus contingent rentals based on sales. In February 1996, the Company entered into a sale-leaseback transaction to finance its new warehouse and office facilities. The sales price of $4,700,000 approximated the book value of the facility after considering transaction expenses. The related lease term is for 15 years at $476,000 per year and is structured as an operating lease. Minimum future rental payments under noncancelable operating leases having remaining terms in excess of one year as of January 30, 1999 are as follows:
FISCAL YEAR ENDING ------------------ 2000 $ 9,059,000 2001 8,371,000 2002 7,755,000 2003 6,706,000 2004 4,752,000 Thereafter 9,564,000 ----------- $46,207,000 ===========
32 Rental expense for all operating leases consisted of the following:
FISCAL YEAR ENDED ----------------------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 ----------------------------------------------------- Minimum rentals $8,049,500 $5,645,000 $4,365,000 Contingent rentals 790,000 822,500 682,000 ---------- ---------- ---------- $8,839,500 $6,467,500 $5,047,000 ========== ========== ==========
5. PROFIT-SHARING PLAN The Company maintains a 401(k) profit sharing plan (the "Plan") which permits participants to make pretax contributions to the Plan. The Plan covers all employees who have completed one year of service and who are at least 21 years of age. Participants of the Plan may voluntarily contribute from 2% to 15% of their compensation within certain dollar limits as allowed by law. These elective contributions are made under the provisions of Section 401(k) of the Internal Revenue Code which allows deferral of income taxes on the amount contributed to the Plan. The Company's contribution to the Plan equals (1) an amount determined at the discretion of the Board of Directors plus (2) a matching contribution equal to a discretionary percentage of up to 6% of a participant's compensation. Contribution expense for fiscal years 1999, 1998, and 1997 was $397,000, $303,000, and $238,000, respectively. 6. RELATED-PARTY TRANSACTIONS The Company's majority stockholder provides financial advisory services to the Company for an annual fee of $200,000. Such services include, but are not necessarily limited to, advice and assistance concerning any and all aspects of the operation, planning, and financing of the Company. Management fee expense under this arrangement was $200,000 in fiscal 1999, fiscal 1998 and fiscal 1997. Subordinated notes payable to stockholders, net of the related unamortized debt discount, were outstanding and included in long-term debt in the amount of $18,772,000 at February 3, 1996. Related to these notes, the Company incurred approximately $1,355,000 of interest expense in fiscal 1997. The Company maintains a sublease for one store with an entity that is controlled by a minority stockholder which expires in June 2008. Minimum lease payments were $190,800 in fiscal 1999, fiscal 1998 and fiscal 1997. Future minimum lease payments under this noncancelable sublease aggregate $1,796,700. The Company leased its previous warehouse and office facilities under a lease-purchase agreement that was fully paid in a previous year. Subsequent to February 3, 1996, the Company sold an assignment of its interest in the lease on this property to a related party for $850,000, which resulted in a gain of approximately $513,000 in the fiscal year ended February 1, 1997. 33 7. INCOME TAXES A summary of the components of the provision for income taxes is as follows:
FISCAL YEAR ENDED ----------------------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 ----------------------------------------------------- Federal: Current $3,878,000 $3,211,000 $1,650,000 Deferred (190,000) (19,000) (90,000) ------------ ------------ ------------ 3,688,000 3,192,000 1,560,000 ------------ ------------ ------------ State: Current 629,000 487,000 203,000 Deferred (83,000) (4,000) (11,000) ------------ ------------ ------------ 546,000 483,000 192,000 ------------ ------------ ------------ Provision for income taxes $4,234,000 $3,675,000 $1,752,000 ============ ============ ============
The provision for income taxes differs from the amounts computed by applying federal statutory rates due to the following:
FISCAL YEAR ENDED ----------------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 ----------------------------------------------- Tax provision computed at the federal statutory rate (34%) $3,748,000 $3,267,000 $1,558,000 Effect of state income taxes, net of benefits 439,000 393,000 151,000 Other 47,000 15,000 43,000 ---------- ---------- ---------- $4,234,000 $3,675,000 $1,752,000 ========== ========== ==========
Temporary differences which create deferred tax assets are detailed below:
JANUARY 30, 1999 JANUARY 31, 1998 ------------------------------------------------------------------ CURRENT NONCURRENT CURRENT NONCURRENT ------------------------------------------------------------------ Depreciation $ --- $ 505,000 $ --- $ 364,000 Inventory 269,000 --- 90,000 --- Accruals 570,000 --- 560,000 --- Other (101,000) --- (44,000) --- ---------- --------- --------- ---------- Deferred tax asset $ 738,000 $ 505,000 $ 606,000 $ 364,000 ========== ========= ========= ==========
The Company has not recorded a valuation allowance for deferred tax assets as realization is considered more likely than not. 34 8. STOCK OPTION AND STOCK PURCHASE PLANS Stock Option Plans The Company utilizes the intrinsic value method of accounting for stock option grants. As the option exercise price is generally equal to the fair value of the shares of common stock at the date of the option grant, no compensation cost is recognized. The Hibbett Sporting Goods, Inc. Employee Stock Option Plan, as amended (the "Original Option Plan") authorizes the granting of stock options for the purchase of up to 66,352 shares of common stock. Options granted vest over a three-year period for 25,369 shares and a five-year period for 40,983 shares and expire on the tenth anniversary of the date of grant. As of January 30, 1999, 53,268 of these options were outstanding. In fiscal 1997, the Company adopted the Hibbett Sporting Goods, Inc. 1996 Stock Option Plan, as amended (the "1996 Option Plan"). The 1996 Option Plan authorized the granting of stock options for the purchase of up to 238,566 shares of common stock. At the annual meeting of shareholders on June 9, 1998, the 1996 Option Plan was amended to provide for an additional 300,000 shares of common stock to be reserved for future grants of stock options. Options granted vest over a five-year period and expire on the tenth anniversary of the date of grant. As of January 30, 1999, a total of 280,870 shares of the Company's authorized and unissued common stock were reserved for future grants under the 1996 Option Plan, and options for 249,303 shares were outstanding at that date. On August 1, 1996, the Company entered into an agreement with a minority shareholder and granted options for 70,820 shares which became exercisable six months after October 17, 1996, the date of the Company's initial public offering. A summary of the status of the Company's stock option plans is as follows:
FISCAL YEAR ENDED -------------------------------------------------------------------------------------- JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997 -------------------------- -------------------------- -------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE -------------------------- -------------------------- -------------------------- Outstanding at beginning of year 244,088 $10.83 265,086 $ 9.42 66,352 $ 4.49 Granted 77,000 27.71 52,500 15.00 199,016 11.07 Exercised (16,579) 3.73 (70,820) 8.48 --- --- Forfeited (1,938) 20.25 (2,678) 14.15 (282) 13.12 ---------------------- ---------------------- ---------------------- Outstanding at end of year 302,571 $15.46 244,088 $10.83 265,086 $ 9.42 ====================== ====================== ====================== Exerciseable at end of year 93,749 $ 9.75 58,503 $ 7.62 16,652 $ 3.96 ======== ======== ======== Weighted average market value of options granted $27.71 $15.00 $14.99 ======== ======== ========
35 The following table summarizes information about stock options outstanding at January 30, 1999:
Options Outstanding Options Exercisable ------------------------------------------------------------ --------------------------------------- Weighted Number Average Number Outstanding at Remaining Weighted Exercisable at Weighted Range of January 30, Contractual Average January 30, Average Exercise Price 1999 Life (Years) Exercise Price 1999 Exercise Price - -------------------- ------------------ ---------------- ------------------- ------------------ ----------------- $1.89 to $6.10 96,314 6.8 $ 5.56 52,980 $ 5.12 $15.00 to $16.00 130,057 7.9 $15.61 40,769 $15.76 $26.88 to $28.00 76,200 9.3 $27.71 --- ---
Compensation costs of $50,000 were accrued in fiscal 1999 and 1998, and $500,000 was accrued in fiscal 1997, related to the difference in the estimated market value of the stock and the nonqualified option exercise price, including the related tax benefit. As these options are exercised, the excess of the proceeds and accruals over the par value is credited to paid-in capital. Additionally, the tax benefit associated with 1) the exercise of nonqualified stock options and 2) disqualifying dispositions of shares acquired in the Company's option plans, is also credited to paid-in capital and amounted to $188,000 in fiscal 1999. If the Company had recorded compensation costs in accordance with SFAS No. 123 under the fair value based method (using the Black-Scholes option pricing model), the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
FISCAL YEAR ENDED --------------------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 --------------------------------------------------- Net income--as reported $ 6,790 $ 5,933 $ 1,737 Net income--pro forma 6,499 5,778 1,597 Diluted earnings per share--as reported 1.04 .93 .37 Diluted earnings per share--pro forma .99 .91 .34
The weighted average assumptions for determining compensation costs under the fair value method include (i) a risk-free interest rate based on zero-coupon governmental issues on each grant date with the maturity equal to the expected term of the options ( 5.5%, 6.5% and 6.1% for fiscal 1999, 1998 and 1997, respectively), (ii) an expected forfeiture rate of 4.4%, (iii) an expected stock volatility of 65%, and (iv) no expected dividend yield. The weighted average fair value of options granted in fiscal 1999, fiscal 1998 and fiscal 1997 was $15.98, $8.08 and $6.59, respectively. Other Plans On September 13, 1996, the Company adopted an Employee Stock Purchase Plan and Outside Director Stock Plan reserving 75,000 shares and 50,000 shares of the Company's common stock, respectively, for purchase by the employees and directors at 85% and 100% of the fair value of the common stock, respectively. On January 29, 1999, January 30, 1998 and January 10, 1997, the Company granted 7,500, 5,000 and 10,000 options, respectively, at exercise prices of $17.75, $22.56 and $12.13 (market value at the date of grant) respectively, under the Outside Director Stock Plan. These options vest immediately and expire on the earlier of the tenth anniversary of the grant or one year from the date on which the director is no longer eligible. The Employee Stock Purchase Plan became effective on April 1, 1997, and as of January 30, 1999, 5,734 shares have been issued. 36 9. COMMITMENTS AND CONTINGENCIES The Company is a party to various legal proceedings incidental to its business. In the opinion of management, after consultation with legal counsel, the ultimate liability, if any, with respect to those proceedings is not presently expected to materially affect the financial position or results of operations of the Company. 37 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Hibbett Sporting Goods, Inc.: We have audited the accompanying consolidated balance sheets of HIBBETT SPORTING GOODS, INC. (a Delaware corporation) AND SUBSIDIARIES as of January 30, 1999 and January 31, 1998, and the related consolidated statements of operations, stockholders' investment, and cash flows for each of the three fiscal years in the period ended January 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hibbett Sporting Goods, Inc. and subsidiaries as of January 30, 1999 and January 31, 1998, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 30, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Birmingham, Alabama March 11, 1999 38 EX-23.1 5 CONSENT OF ARTHUR ANDERSEN LLP Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into Hibbett Sporting Goods, Inc.'s previously filed Registration Statements File Nos. 333-21299, 333-21301, 333- 21303, and 333-21305. ARTHUR ANDERSEN LLP Birmingham, Alabama April 22, 1999 39 EX-27 6 FDS
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF HIBBETT SPORTING GOODS, INC. FOR THE YEAR TO DATE PERIOD ENDED JANUARY 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS JAN-30-1999 FEB-01-1998 JAN-30-1999 945 0 2,368 224 47,694 52,419 28,679 13,273 68,552 23,292 0 0 0 64 45,196 68,552 143,350 143,350 100,409 100,409 31,776 85 141 11,024 4,234 6,790 0 0 0 6,790 1.06 1.04
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