-----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, VOuQ1QABzhMqG00tJPf1PakTtgzMTA7QHL05+/PAYFQ+SPSjVOnQS8ETc1WfTOU4 VknSX/52tdZ45XKKDhWL7g== 0000950144-97-004803.txt : 19970430 0000950144-97-004803.hdr.sgml : 19970430 ACCESSION NUMBER: 0000950144-97-004803 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970201 FILED AS OF DATE: 19970429 SROS: NONE 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: AL FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20969 FILM NUMBER: 97590185 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 HIBBETT SPORTING GOODS, INC. 1 ================================================================================ 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 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996] --------------- For the fiscal year ended Commission file number February 1, 1997 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 (Section 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 $47,511,939 at April 18,1997, based on the closing sale price of $16.625 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 18, 1997 was 6,134,261. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Hibbett Sporting Goods, Inc. Proxy Statement for its 1997 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. 2 HIBBETT SPORTING GOODS, INC. INDEX
PART I Item 1. Business 3 Item 2. Properties 7 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 8 Item 6. Selected Consolidated Financial and Operating Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 8. Financial Statements and Supplementary Data 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 31 PART III Item 10. Directors and Executive Officers of Registrant 31 Item 11. Executive Compensation 32 Item 12. Security Ownership of Certain Beneficial Owners and Management 32 Item 13. Certain Relationships and Related Transactions 32 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 32
3 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 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 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. The Company operates 77 Hibbett Sports stores as well as eight 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 predominantly in enclosed malls. 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 a number of 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 predominantly in enclosed malls. The Company tailors its Hibbett Sports concept to the size, demographics and competitive conditions of each market. Sixty-seven Hibbett Sports stores are located in enclosed malls, the majority of which are the only enclosed malls in the county, and the remaining ten are located in strip centers. 3 4 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 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. Sports & Co. The Company opened the first of its four Sports & Co. superstores in the spring of 1995 in Huntsville, Alabama. 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. Sports Additions The Company's eight Sports Addition 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 Sports Additions stores are currently located in the malls in which Hibbett Sports stores are also present. 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 are managed separately out of its own warehouse. 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 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 the local community. The Company has recently accelerated its rate of new store openings to take advantage of the growth opportunities in its target markets. The Company has identified over 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 radius 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 its newly constructed distribution center which has significant expansion potential to support the Company's growth for the foreseeable future. 4 5 In evaluating potential markets, the Company considers population, economic conditions, local competitive dynamics and availability of suitable real estate. Although approximately 90% of Hibbett Sports stores are located in enclosed malls, the stores also operate profitably in strip center locations. As the Company continues to expand, it will open new stores in mall and strip center locations. MERCHANDISING The Company's merchandising strategy is to provide a broad assortment of quality athletic equipment, footwear and apparel at competitive prices. The Company's stores offer a core 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. 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 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 1997, the Company's largest vendor, Nike, represented approximately 40% of its total purchases. ADVERTISING AND PROMOTION The Company targets special advertising opportunities in its markets to increase the effectiveness of its advertising spending. In particular, the Company prefers advertising in local media as a way to further 5 6 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 1997 it accounted for the majority of the Company's total advertising spending. 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 89 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. 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 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 and traditional shoe stores. 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 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 6 7 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 414 full-time and approximately 686 part-time employees at February 1, 1997, 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 89 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 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 under a long term operating 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. 7 8 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. Trading of the Company's stock commenced on October 11, 1996. 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 1997: High Low ---- ---- First Quarter ................................ -- -- Second Quarter ............................... -- -- Third Quarter (October 11 to November 2) .... $21 1/2 $19 1/2 Fourth Quarter (November 3 to February 1) .... $19 1/2 $12 1/8
On April 18, 1997, the last reported sale price for the Company's Common Stock as quoted by NASDAQ was $16 5/8 per share. As of April 18, 1997, the Company had approximately 53 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 statement of operations data and balance sheet data for each of the five fiscal years ended January 31, 1993, January 29, 1994, January 28, 1995, February 3, 1996, and February 1, 1997 set forth below have been derived from audited financial statements of the Company, except for the provision for income taxes, net income and net income per share in fiscal 1993, which are pro forma amounts as explained in footnote 3. The following data should be read in conjunction with the Consolidated Financial Statements of the Company and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Form 10-K. 8 9 HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
February 1, February 3, January 28, January 29, January 31, 1997 1996 1995 1994(1) 1993 ---------- ---------- ---------- ---------- ---------- (52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) INCOME STATEMENT DATA: - ---------------------- Net sales $ 86,401 $ 67,077 $ 52,266 $ 40,119 $ 36,366 Cost of goods sold, including warehouse, distribution, and store occupancy costs 60,017 46,642 36,225 27,731 24,998 ---------- ---------- ---------- ---------- ---------- Gross profit 26,384 20,435 16,041 12,388 11,368 Store operating, selling, and administrative expenses 17,339 (2) 13,471 10,453 8,579 7,861 Depreciation and amortization 1,821 1,322 1,066 932 814 ---------- ---------- ---------- ---------- ---------- Operating income 7,224 5,642 4,522 2,877 2,693 Interest Expense 2,642 1,685 (4) 654 488 325 ---------- ---------- ---------- ---------- ---------- Income before provision for income taxes and extraordinary item 4,582 3,957 3,868 2,389 2,368 Provision for income taxes 1,752 1,514 1,479 920 906 (3) ---------- ---------- ---------- ---------- ---------- Income before extraordinary item 2,830 2,443 2,389 1,469 1,462 (3) Extraordinary item, net (1,093)(5) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net income $ 1,737 $ 2,443 $ 2,389 $ 1,469 $ 1,462 ========== ========== ========== ========== ========== Earnings per common share: Income before extraordinary item $ 0.61 $ 0.42 $ 0.37 $ 0.23 $ 0.22 (3) Extraordinary item, net (0.24)(5) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net income $ 0.37 $ 0.42 $ 0.37 $ 0.23 $ 0.22 (3) ========== ========== ========== ========== ========== Weighted average shares outstanding 4,666,173 5,838,267 (4) 6,504,521 6,504,521 6,504,521 ========== ========== ========== ========== ========== SELECTED OPERATING DATA: - ------------------------ Number of stores open at end of period: Hibbett Sports 77 56 52 41 33 Sports & Co. 4 3 -- -- -- Sports Additions 8 8 8 8 6 ---------- ---------- ---------- ---------- ---------- Total 89 67 60 49 39 ========== ========== ========== ========== ========== BALANCE SHEET DATA: - ------------------- Working capital $ 16,280 $ 10,907 $ 7,459 $ 4,030 $ 2,097 Total assets 40,358 36,702 22,787 17,507 14,569 Total debt -- (5) 31,912 (4) 5,328 6,179 4,810 Stockholders' investment (deficit) 26,512 (5) (8,093)(4) 8,259 5,871 4,402
9 10 FOOTNOTES (DOLLARS IN THOUSANDS): (1) During fiscal year 1994, the Company changed its fiscal year from a twelve-month period ending January 31 to a 52-53 week period ending on the Saturday nearest to January 31. (2) 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. (3) Prior to July 1, 1992, the Company was a Subchapter S corporation. Under these provisions, the taxable income of the Company was included in the individual income tax returns of the stockholders. Effective July 1, 1992, the Company and its stockholders terminated the S corporation election and the Company became a taxable corporation. Thus, the provision for income taxes for the fiscal year ended January 31, 1993 gives effect to the application of pro forma income taxes that would have been reported had the Company been a taxable corporation for federal and state income tax purposes for such fiscal year. (4) In November 1995, the Company completed the Recapitalization (see Footnote 2 to the Consolidated Financial Statements). 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. (5) During the third quarter ended November 2, 1996, the Company completed its initial public offering (see Footnote 2 to the Consolidated Financial Statements) with net proceeds of $32,868. In connection therewith, a substantial portion of the Company's long-term debt was repaid resulting in a loss of $1,093 (net of applicable tax benefit of $677). The loss is classified as an extraordinary item. 10 11 ITEM 7. 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 twelve states 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 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. The Company operates 77 Hibbett Sports stores as well as eight 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 predominantly in enclosed malls. 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. In fiscal 1997, the Company further accelerated its rate of new store openings to take advantage of the growth opportunities in its target markets. In fiscal 1997, the Company opened 21 new Hibbett Sports stores and one Sports & Co. superstore. The Company plans to open approximately 27 Hibbett Sports stores in fiscal 1998. To support its expansion plans, the Company has increased its staffing levels in finance, merchandising, real estate, distribution and field management. Additionally, in January 1996, the Company moved into its new headquarters and distribution center which has significant expansion potential to support the Company's growth for the foreseeable future. The Company expects to benefit from leveraging these additional costs over a larger store base as it continues to implement its expansion plans. 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 approximately $33 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. The Company operates on a 52 or 53 week fiscal year ending on the Saturday nearest to January 31 of such year. The consolidated statements of operations for the fiscal years ended February 1, 1997, and January 28, 1995, include 52 weeks of operations while the fiscal year ended February 3, 1996, includes 53 weeks of operations. Hibbett is incorporated under the laws of the state of Delaware. 11 12 RESULTS OF OPERATIONS The following table sets forth statements of operations expressed as a percentage of net sales for the periods indicated.
FISCAL YEAR ENDED ------------------------------------------------ February 1, February 3, January 28, 1997 1996 1995 ---- ---- ---- Net Sales 100.0% 100.0% 100.0% Cost of goods sold, including warehouse, distribution, and store occupancy costs 69.5 69.5 69.3 ----- ----- ----- Gross Profit 30.5 30.5 30.7 Store operating, selling, and administrative expenses 20.1 20.1 20.0 Depreciation and amortization 2.1 2.0 2.0 ----- ----- ----- Operating Income 8.3 8.4 8.7 Interest expense 3.0 2.5 1.3 ----- ----- ----- Income before provision for income taxes and extraordinary item 5.3 5.9 7.4 Provision for income taxes 2.0 2.3 2.8 ----- ----- ----- Income before extraordinary item 3.3 3.6 4.6 Extraordinary item, net (1.3) 0.0 0.0 ----- ----- ----- Net income 2.0% 3.6% 4.6% ===== ===== =====
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. Comparable store net sales data for the period reflect stores open throughout the period and the corresponding period of the prior fiscal year. Comparable store net sales reflect sales by the Company's traditional format stores only. 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 $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 leveraging of store occupancy costs over higher sales was offset by higher markdowns in the current year. Store operating, selling and administration 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 12 13 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. As a result, the Company anticipates lower interest expense in future periods. Extraordinary item, net. The $1,093,000 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. FISCAL 1996 COMPARED TO FISCAL 1995 Net sales. Net sales increased $14.8 million, or 28.3%, to $67.1 million in fiscal 1996 from $52.3 million in fiscal 1995. This increase is attributable to the opening of five Hibbett Sports stores, three Sports & Co. superstores and one Sports Additions store, an increase in comparable store net sales of 6.2% and an additional week of sales as fiscal 1996 included 53 weeks of operations, offset in part by the closing of one Sports Additions store. The increase in comparable store net sales was due primarily to increased sales of footwear and apparel. New stores and stores not in the comparable store net sales calculation accounted for $11.8 million of the increase in net sales and increases in comparable store net sales contributed $3.0 million. Gross profit. Gross profit was $20.4 million, or 30.5% of net sales, in fiscal 1996 as compared to $16.0 million, or 30.7% of net sales, in fiscal 1995. The decline in gross profit as a percentage of net sales primarily resulted from higher distribution costs. In anticipation of its accelerated expansion plan, the Company increased staff positions at its distribution center, adding two senior distribution center managers. Store operating, selling and administrative expenses. Store operating, selling and administrative expenses were $13.5 million, or 20.1% of net sales, in fiscal 1996 as compared to $10.5 million, or 20.0% of net sales, in fiscal 1995. This increase as a percentage of net sales is primarily attributable to the costs associated with increasing the Company's corporate staff to support future growth. Depreciation and amortization. Depreciation and amortization as a percentage of net sales remained constant at 2.0% in fiscal 1996 and fiscal 1995. Interest expense. The $1.0 million increase in interest expense for fiscal 1996 is primarily due to the interest expense associated with the subordinated notes which were issued in connection with the Recapitalization and the increase in borrowings under the revolving loan agreement and the previous loan agreement to fund new store openings. Net income. Net income increased $54,000, or 2.3%, to $2.4 million in fiscal 1996 compared to fiscal 1995 due to the factors discussed above. 13 14 FISCAL 1995 COMPARED TO FISCAL 1994 Net sales. Net sales increased $12.1 million, or 30.3%, to $52.3 million in fiscal 1995 from $40.1 million in fiscal 1994. This increase is attributable to the opening of 11 Hibbett Sports stores and an increase in comparable store net sales of 15.6%. The increase in comparable store net sales was due primarily to a significant increase in branded apparel sales as well as a moderate increase in footwear sales. New stores and stores not in the comparable store net sales calculation accounted for $7.3 million of the increase in net sales and increases in comparable store net sales contributed $4.8 million. Gross profit. Gross profit was $16.0 million, or 30.7% of net sales, in fiscal 1995 as compared to $12.4 million, or 30.9% of net sales, in fiscal 1994. The decline in gross profit as a percentage of net sales primarily resulted from higher store occupancy costs. Store operating, selling and administrative expenses. Store operating, selling and administrative expenses were $10.5 million, or 20.0% of net sales, in fiscal 1995 as compared to $8.6 million, or 21.4% of net sales, in fiscal 1994. This decrease as a percentage of net sales was the result of spreading fixed costs over the Company's larger sales base. Depreciation and amortization. Depreciation and amortization as a percentage of net sales decreased to 2.0% in fiscal 1995 from 2.3% in fiscal 1994 as a result of the Company's operating leverage as these costs were allocated over a larger sales base. Interest expense. The $166,000 increase in interest expense for fiscal 1995 was due primarily to an increase in borrowings under the previous loan agreement to fund new store openings. Net income. Net income increased $920,000, or 62.6%, to $2.4 million in fiscal 1995 from $1.5 million in fiscal 1994. This increase as a percentage of net sales was attributable to factors described above. 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 (used in) operating activities has historically been driven by net income levels combined with fluctuations in inventory and accounts payable balances. The Company has increased its inventory levels in each of the last three fiscal years as the number of stores has increased and the four larger Sports & Co. superstores have opened. These inventory increases were primarily financed through increased accounts payable balances in fiscal 1995 but were primarily financed with cash from operations in both fiscal 1996 and fiscal 1997. These activities resulted in cash flows provided by (used in) operating activities of $1.8 million, $(158,000), and $3.2 million in fiscal 1997, fiscal 1996, and fiscal 1995, respectively. With respect to cash flows from investing activities, the Company's proceeds from the sale of property of $5.3 million primarily related to 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 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) fund the Company's working capital requirements. Capital expenditures for fiscal 1997 were $4.3 million compared with $8.2 million in fiscal 1996 and $2.2 million in fiscal 1995. Capital expenditures in fiscal 1997 were primarily used to open 21 new Hibbett Sports stores 14 15 and one Sports & Co. superstore. The higher capital expenditures in fiscal 1996 resulted primarily from the construction of the new headquarters and distribution center for approximately $4.7 million. The Company estimates capital expenditures in fiscal 1998 to be approximately $3.9 million which will fund the opening of approximately 27 Hibbett Sports stores, remodel selected existing stores, and fund headquarters and distribution center-related capital expenditures. Net cash provided by (used in) financing activities was ($539,000), $7.6 million, and ($851,000) in fiscal 1997, fiscal 1996, and fiscal 1995, respectively. In fiscal 1997, the Company used the net proceeds of $32.9 million from the initial public offering to repay long-term debt and revolving loan borrowings. In October 1996, the Company entered into a new unsecured $20 million Revolving Credit Facility (the "Facility") provided by AmSouth Bank of Alabama. Borrowings under the Facility bear interest at the Company's option either at a base rate, a quoted cost of funds rate, or a LIBOR based rate. As of February 1, 1997, the Company had no borrowings outstanding under the Facility which expires October 31, 1999. 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 Facility and cash generated from operations. 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. 15 16 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 February 1, 1997 ------------------------------------------------- First Second Third Fourth (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) ---------- ---------- ---------- ---------- Net sales $20,251 $18,768 $20,618 $26,764 Gross profit 6,216 5,531 6,417 8,220 Operating income 2,429(1) 725(2) 1,543 2,527 Fiscal Year Ended February 3, 1996 ------------------------------------------------- First Second Third Fourth (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) ---------- ---------- ---------- ---------- Net sales $15,001 $14,354 $15,737 $21,985 Gross profit 4,570 4,247 4,875 6,743 Operating income 1,476 1,055 1,322 1,789
Footnotes (dollars in thousands): (1) In the first quarter of the fiscal year ended February 1, 1997, the Company recorded a $513 pre-tax gain on the sale of the Company's former headquarters and distribution facility. Excluding this gain, operating income would have been $1,916. (2) In the second quarter of the fiscal year ended February 1, 1997, the Company recorded a one-time compensation expense of $462 related to the issuance of stock options issued on August 1, 1996. Excluding this expense, operating income would have been $1,187. 16 17 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 (consisting only of normal recurring 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. 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. 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 June 27, 1996, as amended. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements Page - ------------------------------------------ ---- Independent Auditors' Report 18 Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996 19 Consolidated Statements of Operations for the years ended February 1, 1997, February 3, 1996 and January 28, 1995 20 Consolidated Statements of Stockholders' Investment (Deficit) for the years ended February 1, 1997, February 3, 1996 and January 28, 1995 21 Consolidated Statements of Cash Flows for the years ended February 1, 1997, February 3, 1996 and January 28, 1995 22 Notes to Consolidated Financial Statements 23
17 18 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, formerly an Alabama corporation) AND SUBSIDIARIES as of February 1, 1997 and February 3, 1996, and the related consolidated statements of operations, stockholders' investment (deficit), and cash flows for each of the three fiscal years in the period ended February 1, 1997. 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 February 1, 1997 and February 3, 1996, and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 1, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Birmingham, Alabama March 18, 1997 18 19 HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
February 1, February 3, 1997 1996 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,269 $ 31 Accounts receivable, net 2,097 1,341 Inventories 24,521 20,705 Prepaid expenses and other 485 756 Refundable income taxes 128 419 Deferred income taxes 626 538 -------- -------- 30,126 23,790 -------- -------- PROPERTY AND EQUIPMENT: Land 24 748 Buildings 216 4,869 Equipment 5,798 4,581 Furniture and fixtures 4,564 3,470 Leasehold improvements 7,321 5,901 Construction in progress 683 170 -------- -------- 18,606 19,739 Less accumulated depreciation & amortization 8,722 7,605 -------- -------- 9,884 12,134 -------- -------- NONCURRENT ASSETS: Deferred income taxes 321 308 Unamortized debt issuance costs, net -- 434 Other, net 27 36 -------- -------- 348 778 -------- -------- $ 40,358 $ 36,702 ======== ======== LIABILITIES AND STOCKHOLDERS' INVESTMENT (DEFICIT) CURRENT LIABILITIES: Accounts payable $ 10,381 $ 10,371 Accrued income taxes 436 -- Accrued expenses: Payroll-related 1,875 1,079 Other 1,144 887 Related-party 10 546 -------- -------- 13,846 12,883 -------- -------- LONG-TERM DEBT -- 31,912 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' INVESTMENT (DEFICIT): Preferred Stock, $.01 par value, 1,000,000 shares authorized, no shares outstanding -- -- Common Stock, $.01 par value, 12,000,000 shares authorized, 6,134,261 shares issued and outstanding at February 1, 1997; and $.01 par value, 50,000,000 shares authorized, 23,389,000 shares issued and outstanding at February 3, 61 234 Paid-in capital 47,974 14,933 Retained earnings (deficit) (21,523) (23,260) -------- -------- 26,512 (8,093) -------- -------- $ 40,358 $ 36,702 ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE SHEETS. 19 20 HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
February 1, February 3, January 28, 1997 1996 1995 ----------- ---------- ---------- (52 Weeks) (53 Weeks) (52 Weeks) Net sales $ 86,401 $ 67,077 $ 52,266 Cost of goods sold, including warehouse, distribution, and store occupancy costs 60,017 46,642 36,225 ----------- ---------- ---------- Gross profit 26,384 20,435 16,041 Store operating, selling, and administrative expenses 17,339 13,471 10,453 Depreciation and amortization 1,821 1,322 1,066 ----------- ---------- ---------- Operating income 7,224 5,642 4,522 Interest expense 2,642 1,685 654 ----------- ---------- ---------- Income before provision for income taxes and extraordinary item 4,582 3,957 3,868 Provision for income taxes 1,752 1,514 1,479 ----------- ---------- ---------- Income before extraordinary 2,830 2,443 2,389 Extraordinary item, net of income tax benefit of $677 (1,093) -- -- ----------- ---------- ---------- Net income $ 1,737 $ 2,443 $ 2,389 =========== ========== ========== Earnings per common share: Income before extraordinary $ 0.61 $ 0.42 $ 0.37 Extraordinary item, net (0.24) -- -- ----------- ---------- ---------- Net income $ 0.37 $ 0.42 $ 0.37 =========== ========== ========== Weighted average shares outstanding 4,666,173 5,838,267 6,504,521 =========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS. 20 21 HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT (DEFICIT) (DOLLARS IN THOUSANDS)
Common Stock ------------------------- Retained Number of Paid-In Earnings Shares Amount Capital (Deficit) ----------- ------ -------- --------- BALANCE, January 29, 1994 10,256 $ 1 $ 126 $ 5,743 Net income -- -- -- 2,389 Change in par value -- (1) 1 -- Issuance of shares in connection with a 100-for-1 stock split 1,015,344 10 (10) -- ----------- ----- -------- -------- BALANCE, January 28, 1995 1,025,600 10 117 8,132 Net income -- -- -- 2,443 Issuance of shares in connection with a 38.687189-for-1 stock split 38,651,981 387 (387) -- Purchase and retirement of shares (34,220,000) (342) (43) (33,835) Issuance of shares 17,609,000 176 17,433 -- Expenses related to capital transactions 322,419 3 (2,187) -- ----------- ----- -------- -------- 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) =========== ===== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS. 21 22 HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
Fiscal Year Ended ----------------------------------- February 1, February 3, January 28, 1997 1996 1995 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,737 $ 2,443 $ 2,389 -------- -------- ------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Extraordinary item 1,770 -- -- Depreciation and amortization 1,969 1,475 1,124 Deferred income taxes (101) (140) (266) (Gain) loss on disposal of assets (533) 6 4 Interest expense funded through additional debt 14 128 -- (Increase) decrease in assets: Accounts receivable, net (756) (247) (9) Inventories (3,816) (5,969) (3,930) Prepaid expenses and other 271 (644) 71 Refundable income taxes 291 (419) 61 Other noncurrent assets 9 (474) 11 Increase (decrease) in liabilities: Accounts payable 10 2,828 2,978 Accrued income taxes 436 (71) 71 Accrued expenses 517 926 694 -------- -------- ------- Total adjustments 81 (2,601) 809 -------- -------- ------- Net cash provided by (used in) operating activities 1,818 (158) 3,198 -------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,308) (8,172) (2,179) Proceeds from sale of property 5,267 6 26 -------- -------- ------- Net cash provided by (used in) investing activities 959 (8,166) (2,153) -------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common shares in initial public offering 32,868 -- -- Repayment of subordinated and senior subordinated notes payable to stockholders (20,267) -- -- Revolving loan borrowings and repayments, net (12,140) 12,140 -- Repayment of term loan (1,000) -- -- Purchase and retirement of shares in the Recapitalization -- (22,250) -- Issuance of shares in the Recapitalization -- 17,609 -- Expenses related to the Recapitalization -- (2,184) -- Principal payments on long-term debt -- (5,328) (3,251) Proceeds from issuance of long-term debt to stockholders -- 6,641 -- Proceeds from term loan -- 1,000 -- Proceeds from issuance of long-term debt -- -- 4,579 Borrowings (repayments) of short-term debt, net -- -- (2,179) -------- -------- ------- Net cash provided by (used in) financing activities (539) 7,628 (851) -------- -------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,238 (696) 194 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 31 727 533 -------- -------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,269 $ 31 $ 727 ======== ======== ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 3,006 $ 1,038 $ 612 ======== ======== ======= Income taxes, net of refunds $ 846 $ 2,144 $ 1,500 ======== ======== ======= SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES: Issuance of debt (including unamortized debt discount) to stockholders for the purchase of shares in the Recapitalization $ -- $ 13,051 $ -- ======== ======== ======= Issuance of stock as compensation related to capital transactions in the Recapitalization $ -- $ 322 $ -- ======== ======== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS. 22 23 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. 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. 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. 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 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. 23 24 STORE OPENING COSTS Non-capital expenditures incurred in preparation for opening new retail stores are expensed in the period each store opens. FAIR VALUE OF FINANCIAL INSTRUMENTS In preparing disclosures about the fair value of financial instruments, management has assumed 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. The estimated fair values of any long-term debt instruments outstanding at year end are based upon the current interest rate environment and remaining term to maturity. INCOME TAXES The Company accounts for income taxes using the asset and liability method, which generally requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. In addition, the asset and liability method requires the adjustment of previously deferred income taxes for changes in tax rates. EARNINGS PER SHARE Earnings per share for each of the periods presented is calculated by dividing net income by the number of weighted average common shares outstanding. Common stock equivalents in the form of stock options are included in the calculation utilizing the treasury stock method for all periods presented. 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 earnings per share is calculated by dividing net income after adjustment for applicable interest expense of $1,491,000 (net of tax), by the 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 earnings per share before and after an extraordinary item for the fiscal year ended February 1, 1997 was $.70 and $.53, respectively. 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. PRIOR YEAR RECLASSIFICATION Certain prior year amounts have been reclassified to conform to the current year presentation. 24 25 2. STOCKHOLDERS' INVESTMENT TRANSACTIONS In December 1994, the Company's Board of Directors approved an increase in the number of authorized shares of common stock from 20,000 to 3,000,000 shares and a decrease in the par value from $.10 to $.01 per share. In addition, the Company's Board of Directors declared a 100-for-1 stock split in the form of a 100% stock dividend. 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. On October 11, 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 (see Note 3). 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. 25 26 3. LONG-TERM DEBT The Company's long-term debt is as follows:
FEBRUARY 1, FEBRUARY 3, 1997 1996 -------------------------------- Revolving loan agreement $ 0 $ 12,140,000 Term loan agreement, due November 1997, unsecured 0 1,000,000 Subordinated notes payable to stockholders, unsecured, 12%, due November 2002, interest payable quarterly, beginning November 1, 1996 0 16,000,000 Senior subordinated bridge notes payable to stockholders, unsecured, 12%, due November 2000, interest payable quarterly 0 4,253,000 Unamortized debt discount 0 (1,481,000) ----------- ------------ 0 31,912,000 Less current maturities 0 0 ----------- ------------ $ 0 $ 31,912,000 =========== ============
At February 1, 1997, the Company maintained an unsecured revolving credit facility (the "Facility") totaling $20,000,000 which expires October 31, 1999. There were no amounts outstanding under the Facility at February 1, 1997. Under the Facility, the Company may borrow amounts against a base rate, a quoted costs of funds rate, or a LIBOR based rate. The average amount of borrowings outstanding under the Facility during fiscal 1997 was $5,028,000, the maximum amount outstanding was $6,261,000, and the weighted average interest rate was 7.44%. From November 1, 1995 until October 31, 1996, the Company maintained a revolving loan agreement totaling $25,000,000 which was secured by certain levels of the Company's accounts receivable and inventories. In connection with the Company's initial public offering, the amount outstanding under the agreement was repaid and the revolving loan agreement was terminated. The average amount of borrowings outstanding under the revolving loan agreement during fiscal 1997 was $15,996,000, the maximum amount outstanding was $18,522,000, and the weighted average interest rate was 9.0%. The Company's term loan was also repaid in connection with the Company's initial public offering. The interest rate on the amount outstanding at February 3, 1996, was 9.45%. 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. The Company's debt agreement contains certain restrictive covenants common to such agreements. The Company was in compliance with respect to all of its covenants at February 1, 1997. 26 27 During most of fiscal 1996, the Company maintained working capital lines of credit under which the average borrowings outstanding were $5,200,000, and the maximum borrowings outstanding were $6,697,000. The weighted average interest rate was approximately 9.0%. 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 February 1, 1997 are as follows:
FISCAL YEAR ENDING ------------------ 1998 $ 4,807,000 1999 4,683,000 2000 4,527,000 2001 3,760,000 2002 3,378,000 Thereafter 10,805,000 ----------- $31,960,000 ===========
Rental expense for all operating leases consisted of the following:
FISCAL YEAR ENDED -------------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996 1995 -------------------------------------------- Minimum rentals $4,365,000 $3,080,000 $2,469,000 Contingent rentals 682,000 487,000 392,000 ---------- ---------- ---------- $5,047,000 $3,567,000 $2,861,000 ========== ========== ==========
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 27 28 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 1997, 1996, and 1995 was $238,000, $165,000, and $108,000, respectively. 6. RELATED-PARTY TRANSACTIONS Subsequent to November 1, 1995, the Company's new majority shareholder began providing 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 and $50,000 in fiscal 1997 and fiscal 1996, respectively. Prior to November 1, 1995, the Company's previous majority shareholders (now minority shareholders) provided to the Company similar services as discussed above. Fees for these services amounted to $0, $95,000, and $256,000 in fiscal years 1997, 1996, and 1995, respectively. 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. In fiscal 1996, the Company incurred approximately $620,000 of interest expense, of which approximately $492,000 was included in accrued expenses and approximately $128,000 was capitalized into the senior subordinated bridge notes payable at February 3, 1996. In connection with services provided to the Company related to the Recapitalization discussed in Note 2, the Company paid the majority shareholder and minority shareholders approximately $575,000 and $63,000, respectively, and issued to a minority shareholder 322,419 shares (52,855 shares after giving retroactive effect to the 1-for-6.1 reverse stock split discussed in Note 2) of common stock with an aggregate value of approximately $322,000. These costs were recorded as a reduction to paid-in capital. In November 1995, the Company entered into a sublease for one store with an entity that is controlled by a minority shareholder which expires in June 2008. Minimum lease payments were $190,800 and $27,000 in fiscal 1997 and fiscal 1996 respectively. Future minimum lease payments under this noncancelable sublease aggregate $2,178,000. The Company leased its previous warehouse and office facilities under a lease-purchase agreement which 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. On August 1, 1996, the Company entered into an agreement with a minority shareholder which provided for an annual fee of $50,000 and the grant of 70,820 stock options discussed in Note 8 in consideration for his advisory services to the Company. 28 29 7. INCOME TAXES A summary of the components of the provision for income taxes is as follows:
FISCAL YEAR ENDED ----------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996 1995 ----------------------------------------- Federal: Current $ 1,650,000 $ 1,476,000 $ 1,553,000 Deferred (90,000) (126,000) (237,000) ----------- ----------- ----------- 1,560,000 1,350,000 1,316,000 ----------- ----------- ----------- State: Current 203,000 178,000 192,000 Deferred (11,000) (14,000) (29,000) ----------- ----------- ----------- 192,000 164,000 163,000 ----------- ----------- ----------- Provision for income taxes $ 1,752,000 $ 1,514,000 $ 1,479,000 =========== =========== ===========
The provision for income taxes differs from the amounts computed by applying federal statutory rates due to the following:
FISCAL YEAR ENDED ------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996 1995 ------------------------------------- Tax provision computed at the federal statutory rate (34%) $1,558,000 $1,345,000 $1,315,000 Effect of state income taxes, net of benefits 151,000 118,000 127,000 Other 43,000 51,000 37,000 ---------- ---------- ---------- $1,752,000 $1,514,000 $1,479,000 ========== ========== ==========
Temporary differences which create deferred tax assets are detailed below:
FEBRUARY 1, 1997 FEBRUARY 3, 1996 -------------------------------------------- CURRENT NONCURRENT CURRENT NONCURRENT -------------------------------------------- Depreciation $ 0 $321,000 $ 0 $308,000 Inventory 101,000 0 371,000 0 Accruals 539,000 0 153,000 0 Other (14,000) 0 14,000 0 --------- -------- -------- -------- Deferred tax asset, net $ 626,000 $321,000 $538,000 $308,000 ========= ======== ======== ========
The Company has not recorded a valuation allowance for deferred tax assets as realization is considered more likely than not. 29 30 8. STOCK OPTIONS AND STOCK PURCHASE PLANS 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. As of February 1, 1997, options for all 66,352 shares were outstanding. Options outstanding become exercisable 33% at the end of each of the following three successive years for 25,369 shares and 40,983 shares become exercisable 20% at the end of each of the following five successive years. 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 authorizes the granting of stock options for the purchase of up to 238,566 shares of common stock. As of February 1, 1997, a total of 110,370 shares of the Company's authorized and unissued common stock were reserved for future grants under the 1996 Option Plan, and options for 127,914 shares were outstanding at that date. Options outstanding become exercisable 20% at the end of each of the following five successive years. On August 1, 1996, the Company granted options pursuant to the agreement discussed in Note 6 for 70,820 shares which become exercisable six months after, and will expire no later than nine months after October 17, 1996, the closing date of the Company's initial public offering. Compensation expense of $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. Upon exercise of stock options, the excess of the proceeds and accruals over the par value will be credited to paid-in capital. On September 13, 1996, the Company adopted an Employee Stock Purchase Plan and Outside Director Stock Purchase 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 10, 1997, the Company granted 10,000 options under the Outside Director Stock Purchase Plan. The Employee Stock Purchase Plan will become effective on April 1, 1997. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 established financial accounting and reporting standards for stock-based compensation and for transactions in which an entity issues its equity instruments to acquire goods and services for nonemployees. In accordance with SFAS No. 123, the Company continues to account for and record compensation expense under Accounting Principles Board Opinion ("APB") No. 25. However, the Company adopted the disclosure only provisions of SFAS No. 123 as required. If the Company had recorded compensation expense in accordance with SFAS No. 123 under the fair value based method, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
FISCAL YEAR ENDED ------------------------- FEBRUARY 1, FEBRUARY 3, 1997 1996 ------------------------- Net income--as reported $ 1,737 $ 2,443 Net income--pro forma 1,510 2,420 Earnings per share--as reported .37 .42 Earnings per share--pro forma .32 .41
30 31 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in connection with the Black-Scholes model as well as information with respect to stock options is summarized as follows:
ADVISORY OUTSIDE AGREEMENT DIRECTOR ORIGINAL OPTION PLAN 1996 OPTION PLAN (NOTE 6) PLAN ----------------------------------------------------------------- AUGUST NOVEMBER APRIL OCTOBER AUGUST JANUARY 1995 1995 1996 1996 1996 1997 ----------------------------------------------------------------- Weighted average exercise price per share $1.89 $6.10 $6.10 $16.00 $8.48 $12.13 Weighted average fair value of options granted $4.56 $2.89 $7.73 $ 7.76 $7.95 $ 2.46 ASSUMPTIONS FOR BLACK-SCHOLES MODEL: - ------------------------------------ Expected dividend yield 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Expected stock price volatility .45 .45 .45 .45 .45 .45 Risk-free interest rate 6.02% 5.73% 6.14% 6.41% 5.72% 5.82% Expected life of options 3 years 5 years 5 years 5 years 9 months 1 year
9. COMMITMENTS AND CONTINGENCIES Employment Agreement On November 1, 1995, the Company entered into an employment agreement with an employee which provides for a three-year employment period at a base salary plus various incentives. Legal 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. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT Information required by this item 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 24, 1997 (the "Proxy Statement"), which is to be filed with the Securities and Exchange Commission. 31 32 ITEM 11. EXECUTIVE COMPENSATION Information required by this item is incorporated by reference from the section entitled "Executive Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is incorporated by reference from the sections entitled "Security Ownership of Certain Beneficial Owners" and "Directors and Executive Officers." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item 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. Reference is made to the Index to the Consolidated Financial Statements set forth on page 17 of this Form 10-K. 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 Index to Exhibits are filed as part of, or incorporated by reference into, this report. EXHIBITS INDEX Exhibit # 3.1 Certificate of Incorporation of the Company 3.2 Bylaws of the Company 10.1.1 Revolving Credit Facility dated as of October 31, 1996 between the Company, Hibbett Team Sales, Inc. and Amsouth Bank of Alabama 10.2.1* Stockholders Agreement dated as of November 1, 1995 among The SK Equity Fund, L.P., SK Investment Fund, L.P., the Company and certain stockholders of the Company named therein (the "Stockholders Agreement") 10.2.2** Amendment No. 1 to the Stockholders Agreement dated as of June 28, 1996 10.2.3 Amendment No. 2 to the Stockholders Agreement 32 33 10.3* Advisory Agreement dated November 1, 1995 between the Company and Saunders, Karp & Co., L.P. 10.4* Employment and Post-Employment Agreement dated as of November 1, 1995 between the Company and Michael J. Newsome 10.5* Letter from the Company to Michael J. Newsome dated November 1, 1995 re: Incentive Compensation Arrangements 10.6* 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. 10.7** The Company's Stock Option Plan (as amended effective as of October 10, 1996) 10.8** The Company's Amended and Restated 1996 Stock Option Plan ("1996 Plan") 10.9** The Company's Employee Stock Purchase Plan 10.10** The Company's Stock Plan for Outside Directors 10.11.1* Lease Agreement dated as of February 12, 1996 between QRS 12-14 (AL), Inc. and Sports Wholesale, Inc. (the "Lease Agreement") 10.11.2 Landlord's Waiver and Consent re: Lease Agreement dated February 12, 1996 by QRS 12-14 (AL), Inc., 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 Security and Exchange commission July 16, 1996, and incorporated herein by reference 10.12** Letter from the Company to Clyde B. Anderson dated September 13, 1996 re: Consulting Agreement - S-1 11 Statement of Computation of Net Income Per Share 21* List of Company's Subsidiaries 23.1 Consent of Arthur Andersen LLP 27 Financial Data Schedule (for SEC use only). (b) Reports on Form 8-K: No reports on Form 8-K have been filed during the three months ended February 1, 1997. * 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. ** 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. 33 34 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 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 and April 28, 1997 - ------------------------------ Director -------------- Michael J. Newsome /s/ Susan H. Fitzgibbon Principal Financial Officer and April 28, 1997 - ------------------------------ Principal Accounting Officer -------------- Susan H. Fitzgibbon /s/ Clyde B. Anderson Director April 28, 1997 - ------------------------------ -------------- Clyde B. Anderson /s/ H. Ray Compton Director April 28, 1997 - ------------------------------ -------------- H. Ray Compton Director - ------------------------------ -------------- Barry H. Feinberg /s/ F. Barron Fletcher, III Director April 28, 1997 - ------------------------------ -------------- F. Barron Fletcher, III
34 35 /s/ Carl Kirkland Director April 28, 1997 - ------------------------------ -------------- Carl Kirkland /s/ John F. Megrue, Jr. Director April 28, 1997 - ------------------------------ -------------- John F. Megrue, Jr. /s/ Thomas A. Saunders, III Director April 28, 1997 - ------------------------------ -------------- Thomas A. Saunders, III
35 36 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, formerly an Alabama corporation) AND SUBSIDIARIES, included in this Form 10-K and have issued our report dated March 18, 1997. 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 18, 1997 37 HIBBETT SPORTING GOODS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996, AND JANUARY 28, 1995
FISCAL YEAR ENDED ------------------------------------ February 1, February 3, January 28, 1997 1996 1995 --------- -------- -------- Balance of allowance for doubtful accounts at beginning of period $ 86,000 $ 61,000 $ 19,000 Charged to costs and expenses 71,000 62,000 43,000 Write-offs, net of recoveries (23,000) (37,000) (1,000) --------- -------- -------- Balance of allowance for doubtful accounts at end of period $ 134,000 $ 86,000 $ 61,000 ========= ======== ========
EX-3.1 2 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF TRANSITIONAL SPORTING GOODS COMPANY ___________________________________ FIRST: The name of the Corporation is "Transitional Sporting Goods Company." SECOND: The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended ("Delaware Law"). FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 13,000,000, consisting of 12,000,000 shares of Common Stock, par value $.01 per share (the "Common Stock"), and 1,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"). The Board of Directors is hereby empowered to authorize by resolution or resolutions from time to time the issuance of one or more classes or series of Preferred Stock and to fix the designations, powers, preferences and relative, participating, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, if any, with respect to each such class or series of Preferred Stock and the number of shares constituting each such class or series, and to increase or decrease the number of shares of any such class or series to the extent permitted by the Delaware Law. FIFTH: The name and mailing address of the incorporator are: Name Mailing Address ---- --------------- Jina L. Choi c/o Davis Polk & Wardwell 450 Lexington Avenue New York, NY 10017 The power of the incorporator as such shall terminate upon the filing of this Certificate of Incorporation. SIXTH: (a) The business and affairs of the Corporation 2 shall be managed by or under the direction of a Board of Directors consisting of not less than six nor more than nine directors, the exact number of directors to be determined from time to time as provided in the Bylaws of the Corporation. (b) The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. Each director shall serve for a term ending on the date of the third annual meeting of stockholders next following the annual meeting at which such director was elected, provided that directors initially designated as Class I directors shall serve for a term ending on the date of the 1997 annual meeting, directors initially designated as Class II directors shall serve for a term ending on the date of the 1998 annual meeting, and directors initially designated as Class III directors shall serve for a term ending on the date of the 1999 annual meeting. Notwithstanding the foregoing, each director shall hold office until such director's successor shall have been duly elected and qualified or until such director's earlier death, resignation or removal. If the number of directors changes, the Board of Directors shall apportion any newly created directorships among, or reduce the number of directorships in, such class or classes as shall equalize, as nearly as possible, the number of directors in each class. In no event will a decrease in the number of directors shorten the term of any incumbent director. (c) The names and mailing addresses of the persons who are to serve initially as directors of each Class are:
Name Mailing Address ---- --------------- Class I Barry H. Feinberg c/o Saunders Karp & Megrue, L.P. Two Greenwich Plaza Suite 100 Greenwich, CT 06830 F. Barron Fletcher, III c/o Saunders Karp & Megrue, L.P. Two Greenwich Plaza Suite 100 Greenwich, CT 06830 Class II Michael J. Newsome c/o Hibbett Sporting Goods, Inc. 451 Industrial Lane Birmingham, AL 35211
3 Thomas A. Saunders, III c/o Saunders Karp & Megrue, L.P. Two Greenwich Plaza Suite 100 Greenwich, CT 06830 Class III Clyde B. Anderson c/o Books-A-Million, Inc. 402 Industrial Lane Birmingham, AL 35211 John F. Megrue c/o Saunders Karp & Megrue, L.P. Two Greenwich Plaza Suite 100 Greenwich, CT 06830
(d) There shall be no cumulative voting in the election of directors. Election of directors need not be by written ballot unless the Bylaws of the Corporation so provide. (e) Vacancies on the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors may be filled solely by a majority of the directors then in office (although less than a quorum) or by the sole remaining director. Each director elected to fill a vacancy of a former director shall hold office for the remaining term of the former director. Each director elected to fill a newly created directorship shall hold office for a term that coincides with the term of Class to which the director has been assigned. (f) No director may be removed from office by the stockholders except for cause with the affirmative vote of the holders of not less than two-thirds of the total voting power of all outstanding securities of the Corporation then entitled to vote generally in the election of directors, voting together as a single class. (g) Notwithstanding the foregoing, whenever the holders of one or more classes or series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, the election, term of office, filling of vacancies, removal and other features of such directorships shall be governed by the terms of the resolution or resolutions adopted by the Board of Directors pursuant to ARTICLE FOURTH applicable thereto, and such directors so elected shall not be subject to the provisions of this ARTICLE SIXTH unless otherwise provided therein. SEVENTH: The Board of Directors shall have the power to adopt, amend or repeal the Bylaws of the Corporation. 4 The stockholders may adopt, amend or repeal the Bylaws only with the affirmative vote of the holders of not less than two-thirds of the total voting power of all outstanding securities of the Corporation then entitled to vote generally in the election of directors, voting together as a single class. EIGHTH: (1) A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by Delaware Law. (2) Neither the amendment nor repeal of this ARTICLE EIGHTH, nor the adoption of any provision of this Certificate of Incorporation or the Bylaws of the Corporation, nor, to the fullest extent permitted by Delaware Law, any modification of law, shall eliminate or reduce the effect of this ARTICLE EIGHTH in respect of any acts or omissions occurring prior to such amendment, repeal, adoption or modification. NINTH: The Corporation reserves the right to amend this Certificate of Incorporation in any manner permitted by the Delaware Law and all rights and powers conferred upon stockholders, directors and officers herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in ARTICLES SIXTH, SEVENTH, EIGHTH, and this ARTICLE NINTH may not be repealed or amended in any respect, and no other provision may be adopted, amended or repealed which would have the effect of modifying or permitting the circumvention of the provisions set forth in ARTICLES SIXTH, SEVENTH, EIGHTH, and this ARTICLE NINTH, unless such action is approved by the affirmative vote of the holders of not less than two-thirds of the total voting power of all outstanding securities of the Corporation then entitled to vote generally in the election of directors, voting together as a single class. IN WITNESS WHEREOF, I have hereunto signed my name this 23rd day of September 1996. /s/ Jina L. Choi --------------------------- Jina L. Choi 5 CERTIFICATE OF OWNERSHIP AND MERGER OF HIBBETT SPORTING GOODS, INC., AN ALABAMA CORPORATION INTO TRANSITIONAL SPORTING GOODS COMPANY, A DELAWARE CORPORATION (Pursuant to Section 253 of the General Corporation Law of the State of Delaware) ***** The undersigned does hereby certify that: FIRST: The names and state of incorporation of each of the constituent corporations is as follows: Name State of Incorporation ---- ---------------------- Hibbett Sporting Goods, Inc. (the "Alabama Company") Alabama Transitional Sporting Goods Company Delaware (the "Delaware Company") SECOND: The Alabama Company owns of record all of the outstanding shares of common stock, par value $0.01 per share (the "Common Stock"), of the Delaware Company, the Common Stock being the only class of stock of the Delaware Company issued and outstanding. THIRD: At a meeting of the Board of Directors of the Alabama Company, held on September 13, 1996, the Board of Directors of the Alabama Company adopted resolutions, a copy of which is attached hereto as Appendix I and hereby made an integral part hereof, providing for the merger of the Alabama Company into the Delaware Company (the "Merger"), which resolutions have not been amended or rescinded and remain in full force and effect. FOURTH: The Merger has been adopted, approved, certified, executed and acknowledged by the Alabama Company in accordance with the laws of Alabama. FIFTH: Upon the effectiveness of the Merger, the surviving corporation shall be Transitional Sporting Goods Company which hereby amends its Certificate of Incorporation, Article First to read as follows: "The name of the Corporation is `Hibbett Sporting 6 Goods, Inc.'" IN WITNESS WHEREOF, Hibbett Sporting Goods, Inc., an Alabama corporation, has caused this Certificate of Ownership and Merger to be executed in its corporate name by its President this 4th day of October, 1996. HIBBETT SPORTING GOODS, INC. By: /s/ Michael J. Newsome ----------------------------------- Name: Michael J. Newsome Title: President 6 EX-3.2 3 BYLAWS OF THE COMPANY 1 Exhibit 3.2 BYLAWS OF TRANSITIONAL SPORTING GOODS COMPANY * * * ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. Section 3. Books. The books of the Corporation may be kept within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meetings. All meetings of stockholders shall be held at such place, either within or without the State of Delaware, on such date and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a designation by the Board of Directors). Section 2. Annual Meetings. Annual meetings of stockholders, commencing with the year 1997, shall be held to elect one class of the Board of Directors and transact such other business as may properly be brought before the meeting. 2 Section 3. Special Meetings. Special meetings of stockholders may be called by the Board of Directors or the Chairman of the Board of Directors, or upon the demand of the holders of the majority of the total voting power of all outstanding securities of the corporation then entitled to vote at such special meetings and may not be called in any other manner. Such request shall state the purpose or purposes of the proposed meeting. Notwithstanding the foregoing, whenever holders of one or more classes or series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, such holders may call, pursuant to the terms of the resolution or resolutions adopted by the Board of Directors pursuant to ARTICLE FOURTH of the certificate of incorporation, special meetings of holders of such Preferred Stock. Section 4. Notice of Meetings and Adjourned Meetings; Waivers of Notice. (a) Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended ("Delaware Law"), such notice shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to vote at such meeting. Unless these bylaws otherwise require, when a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (b) A written waiver of any such notice signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 5. Quorum. Unless otherwise provided under the certificate of incorporation or these bylaws and subject to Delaware Law, the presence, in person or by proxy, of the holders of a majority of the outstanding capital stock of the Corporation entitled to vote at a meeting of stockholders shall constitute a quorum for the transaction of business. Section 6. Voting. (a) Unless otherwise provided in the 3 certificate of incorporation and subject to Delaware Law, each stockholder shall be entitled to one vote for each outstanding share of capital stock of the Corporation held by such stockholder. Unless otherwise provided in Delaware Law, the certificate of incorporation or these bylaws, the affirmative vote of a majority of the shares of capital stock of the Corporation present, in person or by proxy, at a meeting of stockholders and entitled to vote on the subject matter shall be the act of the stockholders. (b) Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to a corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 7. Action by Consent. (a) Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding capital stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. (b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this Section and Delaware Law to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Section 8. Organization. At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, (or in his absence or if one shall not have been elected, the President) 4 shall act as chairman of the meeting. The Secretary (or in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof. Section 9. Order of Business. The order of business at all meetings of stockholders shall be as determined by the chairman of the meeting. ARTICLE III DIRECTORS Section 1. General Powers. Except as otherwise provided in Delaware Law or the certificate of incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. Section 2. Number, Election and Term of Office. The Board of Directors shall consist of not less than six nor more than nine directors, with the exact number of directors to be determined from time to time solely by resolution adopted by the affirmative vote of a majority of the entire Board of Directors. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. Except as otherwise provided in the certificate of incorporation, each director shall serve for a term ending on the date of the third annual meeting of stockholders next following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director shall hold office until such director's successor shall have been duly elected and qualified or until such director's earlier death, resignation or removal. Directors need not be stockholders. Section 3. Quorum and Manner of Acting. Unless the certificate of incorporation or these bylaws require a greater number, a majority of the total number of directors shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the directors present at meeting at which a quorum is present shall be the act of the Board of Directors. When a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Board of Directors may transact any business which might have been transacted at the original meeting. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 4. Time and Place of Meetings. The Board of 5 Directors shall hold its meetings at such place, either within or without the State of Delaware, and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a determination by the Board of Directors). Section 5. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such place either within or without the State of Delaware, on such date and at such time as shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III or in a waiver of notice thereof signed by any director who chooses to waive the requirement of notice. Section 6. Regular Meetings. After the place and time of regular meetings of the Board of Directors shall have been determined and notice thereof shall have been once given to each member of the Board of Directors, regular meetings may be held without further notice being given. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall be called by the Chairman of the Board, President or Secretary on the written request of three directors. Notice of special meetings of the Board of Directors shall be given to each director at least three days before the date of the meeting in such manner as is determined by the Board of Directors. Section 8. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the bylaws of the Corporation; and unless the resolution of the Board of Directors or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the 6 issuance of stock. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 9. Action by Consent. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 10. Telephonic Meetings. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 11. Resignation. Any director may resign at any time by giving written notice to the Board of Directors or to the Secretary of the Corporation. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 12. Vacancies. Unless otherwise provided in the certificate of incorporation, vacancies on the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors may be filled solely by a majority of the directors then in office (although less than a quorum) or by the sole remaining director. Each director elected to fill a vacancy of a former director shall hold office for the remaining term of the former director. Each director elected to fill a newly created directorship shall hold office for a term that coincides with the term of Class to which the director has been assigned. If there are no directors in office, then an election of directors may be held in accordance with Delaware Law. Unless otherwise provided in the certificate of incorporation, when one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in the filling of the other vacancies. Section 13. Removal. No director may be removed from office by the stockholders except for cause with the affirmative vote of the holders of not less than two-thirds of the total voting power 7 of all outstanding securities of the Corporation then entitled to vote generally in the election of directors, voting together as a single class. Section 14. Compensation. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have authority to fix the compensation of directors, including fees and reimbursement of expenses; provided that each non-employee director shall be entitled to an annual fee of $10,000 plus $500 for each meeting of the Board attended by such director. Section 15. Preferred Directors. Notwithstanding anything else contained herein, whenever the holders of one or more classes or series of preferred Stock shall have the right, voting separately as a class or series, to elect directors, the election, term of office, filling of vacancies, removal and other features of such directorships shall be governed by the terms of the resolutions applicable thereto adopted by the Board of Directors pursuant to the certificate of incorporation, and such directors so elected shall not be subject to the provisions of Sections 2, 12 and 13 of this Article III unless otherwise provided therein. Section 16. Indemnification of Officers, Directors, Employees and Agents; Insurance. (a)(i) Each person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to, or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by Delaware Law. The right to indemnification conferred in this Section 16(a)(i) shall also include the right to be paid by the Corporation the expenses incurred in connection with any such proceeding in advance of its final disposition to the fullest extent authorized by Delaware Law. The right to indemnification conferred in this Section 16(a)(i) shall be a contractual right. (ii) In addition, the Corporation may, by action of its Board of Directors, provide indemnification to such of the employees and agents of the Corporation to such extent and to such effect as the Board of Directors shall determine to be appropriate and authorized by Delaware Law. (b) The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust 8 or other enterprise against any expense, liability or loss incurred by such person in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under Delaware Law. (c) The rights and authority conferred in this Section 16 shall not be exclusive of any other right which any person may otherwise have or hereafter acquire. ARTICLE IV OFFICERS Section 1. Principal Officers. The principal officers of the Corporation shall be a President, one or more Vice Presidents, a Chief Financial Officer and a Secretary who shall have the duty, among other things, to record the proceedings of the meetings of stockholders and directors in a book kept for that purpose. The Corporation may also have such other principal officers, including one or more Controllers, as the Board may in its discretion appoint. One person may hold the offices and perform the duties of any two or more of said offices, except that no one person shall hold the offices and perform the duties of President and Secretary. Section 2. Election, Term of Office and Remuneration. The principal officers of the Corporation shall be elected annually by the Board of Directors at the annual meeting thereof. Each such officer shall hold office until his successor is elected and qualified, or until his earlier death, resignation or removal. The remuneration of all officers of the Corporation shall be fixed by the Board of Directors. Any vacancy in any office shall be filled in such manner as the Board of Directors shall determine. Section 3. Subordinate Officers. In addition to the principal officers enumerated in Section 1 of this Article IV, the Corporation may have one or more Assistant Treasurers, Assistant Secretaries and Assistant Controllers and such other subordinate officers, agents and employees as the Board of Directors may deem necessary, each of whom shall hold office for such period as the Board of Directors may from time to time determine. The Board of Directors may delegate to any principal officer the power to appoint and to remove any such subordinate officers, agents or employees. Section 4. Removal. Except as otherwise permitted with respect to subordinate officers, any officer may be removed, with or without cause, at any time, by resolution adopted by the Board of Directors. Section 5. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors (or to a principal officer if the Board of Directors has delegated to such principal officer the power to appoint and to remove such officer). 9 The resignation of any officer shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 6. Powers and Duties. The officers of the Corporation shall have such powers and perform such duties incident to each of their respective offices and such other duties as may from time to time be conferred upon or assigned to them by the Board of Directors. ARTICLE V GENERAL PROVISIONS Section 1. Fixing the Record Date. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to 10 its registered office in the State of Delaware, its principal place of business, or any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 2. Dividends. Subject to limitations contained in Delaware Law and the certificate of incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, in property or in shares of the capital stock of the Corporation. Section 3. Fiscal Year. The fiscal year of the Corporation shall commence on the Sunday following the Saturday nearest to January 31 and end on the Saturday nearest to January 31 of the following year. Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced. Section 5. Voting of Stock Owned by the Corporation. The Board of Directors may authorize any person, on behalf of the Corporation, to attend, vote at and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock. Section 6. Amendments. The Board of Directors shall have the power to adopt, amend or repeal these bylaws. The stockholders may adopt, amend or repeal the Bylaws only 11 with the affirmative vote of the holders of not less than two-thirds of the total voting power of all outstanding securities of the Corporation then entitled to vote generally in the election of directors, voting together as a single class. EX-10.1.1 4 REVOLVING CREDIT FACILITY 1 EXHIBIT 10.1.1 CREDIT AGREEMENT THIS CREDIT AGREEMENT dated as of October 31, 1996 ("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 OF ALABAMA, an Alabama banking corporation (the "Lender"). RECITALS A. The Borrowers have applied to the Lender for an active revolving credit facility in an aggregate principal amount outstanding not to exceed $12,500,000 (the "Active Facility"), and a reserve revolving credit facility amount in an aggregate principal amount outstanding not to exceed $7,500,000 (the "Reserve Facility; the Active Facility and the Reserve Facility are sometimes together referred to as 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 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 2 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. 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. 2 3 Advance shall mean a borrowing under the Revolving Facility pursuant to Section 2.1. 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. 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. Application shall have the meaning attributed to that term in Section 2.3(b). 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 Advances shall mean Advances that bear interest at rates based upon the Base Rate. Business Day shall mean (a) any day on which commercial banks are not authorized or required to close in Birmingham, Alabama 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 Advance 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. 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. 3 4 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 Loan into another Type of Loan. 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 Lender and arising under the terms of this Agreement, the Notes, the Applications 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 Lender in exercising the rights and remedies described in Section 8.1, all accrued interest on Advances and 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 Lender 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. 4 5 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. 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 or the LIBOR-Based 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 5 6 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 Advance, each period commencing on the date such LIBOR Advance is made or Converted from an Advance of another Type or the last day of the next preceding Interest Period for such Advance and ending on the numerically corresponding day 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 6 7 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; and (b) with respect to any Quoted Cost of Funds Rate Advance, the period commencing on the date such Quoted Cost of Funds Rate Advance is made and ending on any Business Day up to 29 days thereafter, as Hibbett may select as provided in Section 3.2 hereof. Notwithstanding the foregoing: (i) if any Interest Period for any LIBOR Advance 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 Advance, 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 LIBOR Advance shall have a duration of less than one month and, if the Interest Period for any LIBOR Advance would otherwise be a shorter period, such Advance shall not be available hereunder for such period. Letter of Credit Borrowings shall mean as of any date the maximum aggregate amount that the Lender 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. 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 and the Applications with respect to Letters of Credit or drawings made thereunder, including obligations with respect to all principal, interest, fees and other charges related thereto. Letters of Credit shall mean all letters of credit issued on or after the Closing Date by the Lender 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 Advances shall mean Advances on which interest rates are determined on the basis of LIBOR Based Rates. LIBOR-Based Rate shall mean a rate per annum equal to the LIBOR Quote plus 100 basis points. 7 8 LIBOR Quote shall mean, with respect to any time at which the LIBOR-Based Rate is to be determined, the rate of interest determined by the Lender by reference to the Knight-Ridder Money Center reporting service or other comparable financial information reporting service at the time employed by the Lender as of 10:00 a.m. (Birmingham, Alabama time) two (2) Business Days prior to the commencement of the Interest Period, 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. 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 requirements of the Lender (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, the Applications 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, 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 Lender hereunder and thereunder. 8 9 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. Maximum Active Facility Amount shall mean $12,500,000. Maximum Credit Amount shall mean the total of the Maximum Active Facility Amount and the Maximum Reserve Facility Amount. Maximum Reserve Facility Amount shall mean $7,500,000 as such amount may be reduced from time to time pursuant to Section 2.6. Notes shall have the meaning assigned to such term in Section 2.1(a) 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 person 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 9 10 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; (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; 10 11 (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.; (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. 11 12 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 Borrower. Quarterly Payment Date shall have the meaning attributed to that term in Section 2.4. 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 100 basis points. Quoted Cost of Funds Rate Advances shall mean Advances that bear interest at rates based upon the Quoted Cost of Funds Rate. Regulatory Change shall mean on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, 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 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 Advances 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 Lender for amounts theretofore paid by the 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. 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 $20,000,000 as reduced by the Borrower pursuant to Section 2.6 hereof. 12 13 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 October 31, 1999. Type shall have the meaning as assigned to such term in Section 1.2 hereof. SECTION 1.2 TYPES OF ADVANCES. The "Type" of an Advance refers to whether such Advance is a Base Rate Advance, a LIBOR Advance, a Quoted Cost of Funds Rate Advance, 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 difference between (i) the Maximum Credit Amount in effect from 13 14 time to time, and (ii) the sum of the then outstanding (x) Letter of Credit Borrowings and (y) Reimbursement Obligations; provided, however, that no more than seven (7) 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 shall be treated as Advances under the Active Facility until the Maximum Active Facility Amount is exceeded and then as Advances under the Reserve Facility. All Advances made by the Lender to the Borrowers under this Agreement with respect to the Revolving Facility shall be evidenced by promissory notes 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 $20,000,000 (the "Notes"). 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 Notes with respect to the Advances to be evidenced by the Notes. 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) If a draft drawn under any Letter of Credit is paid by the Lender, and the Borrowers fail or refuse to reimburse the Lender for such payment, as required by Section 2.3, on or before the close of business on the next Business Day after demand is made by the Lender on the Borrowers for such reimbursement, the Borrowers hereby authorize the Lender, without the requirement of notice to the Borrowers, to satisfy the Reimbursement Obligation created by the payment of such draft by making Advances to the Borrowers under the Revolving Facility with interest at the Base Rate. Such Advances shall not be subject to the provisions of Section 2.2. (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, 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. 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 14 15 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 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. (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 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. (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 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 15 16 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 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 9.8. 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 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. (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 Lender 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 LOANS. Except as otherwise provided in Section 2.1(b) or except as may be consistent with the provisions of the Control Account Credit Line Service Agreement executed by the Borrowers in favor of the Lender, 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 (x) 11:00 a.m., Birmingham, Alabama time, at least three Business Days prior to the date of any LIBOR Advance and (y) 11:30 a.m., Birmingham, Alabama time, on the day which such Advance is to be made in the case of a Base Rate Advance or Quoted Cost of Funds Rate Advance. 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, the amount of the Advance, if any, attributed to the Reserve Facility and shall provide the interest rate information called for in Section 3.2. The Lender shall accept from the Borrowers telephonic requests for Advances 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 16 17 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 2.2 in connection with a requested Advance or under Section 3.2 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 6.3 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 LETTER OF CREDIT BORROWINGS. (a) From and after the Closing Date to and including thirty (30) Business Days prior to the Termination Date, the Lender shall, upon the terms and subject to the conditions of this Agreement, issue Letters of Credit from time to time 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 Advances, would not exceed the Maximum Credit Amount 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 by the Borrowers for the issuance of a Letter of Credit (an "Application") shall be submitted to the Lender by Hibbett, on behalf of itself and each Participating Entity, at least five Business Days prior to the date the Letter of Credit is to be issued, shall be on the Lender's then standard application form for letters of credit, shall obligate the Borrowers to reimburse the Lender on demand for any amounts drawn under a Letter of Credit and such other sums as may be provided for therein, and shall be executed by a duly authorized officer of Hibbett, on behalf of itself and each Participating Entity. In the event of any conflict between the provisions of any Application and the provisions of this Agreement, the provisions of this Agreement shall govern. (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 2.3; and (iv) 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 Lender. 17 18 (d) The Borrowers shall pay to the Lender a letter of credit fee payable on each Quarterly Payment Date in arrears equal to the rate of one percent (1%) per annum times the average daily aggregate amount of Letter of Credit Borrowings outstanding from time to time during the most recently ended calendar quarter. The Borrowers acknowledge that the Lender as issuer of the Letters of Credit 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. The Borrowers agree to reimburse the Lender promptly for all additional costs incurred by reason of any Regulatory Change that the Lender 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 Lender for such reserves. The Lender shall furnish to the Borrowers, at the time of its 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 Lender administrative and other fees, if any, in connection with the Letters of Credit in such amounts and at such times as the Lender and the Borrowers shall agree from time to time. (e) If a draft drawn under a Letter of Credit is presented to the Lender and the Lender honors such draft, the Borrowers shall, promptly upon demand of the Lender therefor and no later than the Business Day following the date of such demand, reimburse the Lender for the amount of such draft, with interest thereon (i) from the date such draft is honored by the Lender to but not including the date the Lender makes demand on the Borrowers for reimbursement, at the applicable Federal Funds Effective Rate and (ii) if the Borrowers do not reimburse the Lender 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 Lender, at the Base Rate then in effect. SECTION 2.4 PAYMENTS. All interest accrued on Advances and Reimbursement Obligations subject to the Base Rate and Quoted Cost of Funds 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, 1997 and upon payment in full of such Advances and Reimbursement Obligations. All interest accrued on each LIBOR Advance 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 LIBOR Advance 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 LIBOR Advance and (b) the last day of the Interest Period applicable to such LIBOR Advance. The principal amount of Advances and Reimbursement Obligations, 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 18 19 a Business Day, then such due date shall be extended to the next succeeding Business Day (except that, in the case of LIBOR Advances, 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 Lender shall be applied first to expenses, fees and charges, then to accrued interest and finally to principal. SECTION 2.5 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 Lender the amounts required by Section 4.5 hereof. 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, together with the sum of the then outstanding Letter of Credit Borrowings and Reimbursement Obligations, 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, 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 Maximum Credit Amount. SECTION 2.6 REDUCTION IN RESERVE 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 Reserve 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 Reserve Facility 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 subject to the provisions of Section 4.5. Each reduction of the Reserve Facility shall be accompanied by payment of the Loans to the extent that the principal amount of the Advances plus the sum of the then outstanding Letter of Credit Borrowings and Reimbursement Obligations exceed the Reserve Facility after giving effect to such reductions together with accrued and unpaid interest on the amounts prepaid. SECTION 2.7 AVAILABILITY FEE. (a) Until the first day that the sum of the principal amount of the Advances plus the then outstanding Letter of Credit Borrowings and Reimbursement Obligations exceeds the Maximum Active Facility Amount (the "Usage of the Reserve Facility"), the Borrowers shall pay to the Lender, for each day, an availability fee (the "Active Facility Availability Fee") that begins to accrue on the Closing Date and shall be computed at the rate of one-quarter of one percent (.25%) per annum times the difference on such day between (1) the Maximum Active Facility Amount and (2) the sum of (x) the aggregate outstanding principal amount of the Advances made by the Lender, (y) the outstanding Letter of Credit Borrowings and (z) the 19 20 outstanding Reimbursement Obligations on such day. The Active Facility Availability Fee shall be payable in arrears on each Quarterly Payment Date and on the Termination Date, commencing on January 1, 1997. The Active Facility Availability Fee shall not be refundable under any circumstances and shall be calculated on an Actual/360 Basis. (b) The Borrowers shall pay to the Lender, for each day, an additional availability fee (the "Reserve Facility Availability Fee") that begins to accrue on the Closing Date and shall be computed at the rate of one-eighth of one percent (.125%) per annum times the difference on such day between (1) the Maximum Reserve Facility Amount and (2) the greatest amount, if any, of Usage of the Reserve Facility on such or any previous day. The Reserve Facility Availability Fee shall be payable in arrears on each Quarterly Payment Date and on the Termination Date, commencing on January 1, 1997. The Reserve Facility Availability Fee shall not be refundable under any circumstances and shall be calculated on an Actual/360 Basis. (c) If on any day there is a Usage of the Reserve Facility, the Borrowers shall pay to the Lender on the fifth Business Day thereafter an activation fee (the "Activation Fee") that shall be computed at the rate of one eighth of one percent (.125%) of the amount of usage of the Reserve Facility that exceeds the greatest previous amount, if any, of usage of the Reserve Facility on any previous day; provided that in the case of any usage of the Reserve Facility before the first anniversary of the Closing Date the Activation Fee payable shall be an adjusted amount equal to the Activation Fee otherwise determined multiplied by a fraction, the numerator of which is the number of days since the Closing Date and the denominator of which is 360. The Activation Fee shall not be refundable under any circumstances and shall be calculated on an Actual 360/Basis. (d) On and after the first day on which there is any Usage of the Reserve Facility, the Borrowers shall pay to the Lender, for each day, an availability fee that shall be computed at the rate of one-quarter of one percent (.25%) per annum times the difference on such day between (1) the highest amount that has ever been outstanding at any time under the Revolving Facility and (2) the sum of (x) the aggregate outstanding principal amount of the Advances made by the Lender, (y) the outstanding Letter of Credit Borrowings and (z) the outstanding Reimbursement Obligations. This fee shall be payable in arrears on each Quarterly Payment Date and on the Termination Date, commencing on the first Quarterly Payment Date following the calendar quarter in which there is first Usage of the Reserve Facility. This fee shall not be refundable under any circumstances and shall be calculated on an Actual 360/Basis. 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, the Quoted Cost of Funds Rate or at the LIBOR-Based 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. 20 21 The Borrowers' right to elect a LIBOR-Based Rate for a Segment shall be subject to the following requirements: (a) each Segment shall be in the amount of $100,000 or more and in an integral multiple thereof, (b) each such Segment shall have a maturity selected by the Borrower of one, two, three or six months and (c) no more than seven Segments may be outstanding at any time; provided, however, that no such Segment shall have a maturity date later than the Termination Date. The Borrowers' right to elect 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 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 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, Quoted Cost of Funds Rate or a LIBOR-Based Rate and (d) if the interest rate selected is a LIBOR-Based Rate or 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 second Business Day preceding the Business Day that a requested LIBOR-Based Rate is to become applicable or 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 LIBOR-Based Rate or Quoted Cost of Funds Rate, as the case may be, by 11:00 a.m., Birmingham, Alabama time, or as earlier on that day as may be practical in the circumstances. The Lender shall not be required to provide a LIBOR-Based Rate on any day on which a LIBOR Quote is not available. 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 LIBOR- 21 22 Based Rate or 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 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/QUOTED COST OF FUNDS RATE. (a) Each 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 Segment at the LIBOR-Based Rate on an Actual/360 Basis. (b) 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 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 22 23 Agreement for Base Rate Advances. The payment or acceptance of the increased rate provided by this Section 3.5 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 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 the Lender from time to time such amounts as the Lender may determine in good faith to be necessary to compensate it for any costs which the Lender determines are attributable to its making or maintaining any LIBOR Advance or its obligation to make any LIBOR Advances hereunder, or any reduction in any amount receivable by the Lender hereunder in respect of any of such Advances 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 the Lender under this Agreement or its Notes in respect of any of such Advances (other than taxes imposed on or measured by the overall net income of the Lender or of its Principal Office for any of such Advances by the jurisdiction in which the Lender has its Principal 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, the Lender including any change in the LIBOR Reserve Requirement; or (iii) imposes any other condition affecting the interests of the Lender under this Agreement or its LIBOR Advances to the Borrowers. If the Lender requests compensation from the Borrowers in writing under this Section 4.1(a), the Borrowers may, by notice to the Lender, (i) suspend the obligation of the Lender to make or continue LIBOR Advances until the regulatory change giving rise to such request ceases to be in effect or (ii) require the Lender to designate another of its existing facilities as the Principal Office for making LIBOR Advances 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 the Lender's good faith judgment be disadvantageous to the 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 the Lender incurs actual costs associated with any such change. 23 24 (b) Without limiting the effect of the foregoing provisions of this Section 4.1 (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 4.1(b), "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. (c) 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 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 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 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 the Lender under this Section 4.1, 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. 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 Lender 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 by the financial reporting service used by the Lender in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for LIBOR Advances as provided herein; or 24 25 (b) if the Lender determines in good faith (which determination shall be conclusive) 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 Advances for such Interest Period is to be determined are not likely to adequately cover the cost to the Lender of making or maintaining LIBOR Advances for such Interest Period; then the Lender shall give Hibbett notice thereof, and so long as such condition remains in effect, the Lender shall be under no obligation to make additional LIBOR Advances, and the Borrower shall, on the last day(s) of the then-current Interest Period(s) for the outstanding LIBOR Advances, either prepay such Advances or convert such Advances into Base Rate Advances. SECTION 4.3 ILLEGALITY. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for the Lender to honor its obligation to make or maintain LIBOR Advances hereunder, then the Lender shall promptly notify Hibbett and the Lender's obligation to make LIBOR Advances shall be suspended until such time as the Lender may again make and maintain LIBOR Advances. SECTION 4.4 TREATMENT OF AFFECTED LOANS. If the obligation of the Lender to make LIBOR Advances shall be suspended pursuant to Sections 4.1 or 4.3, the Lender's LIBOR Advances shall be automatically converted into Base Rate Advances on the last day(s) of the then-current Interest Period(s) for such outstanding Advances (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 the Lender may specify to Hibbett) and, unless and until the 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 the Lender's LIBOR Advances have been so converted, all payments and prepayments of principal which would otherwise be applied to the Lender's LIBOR Advances shall be applied instead to its Base Rate Advances. SECTION 4.5 COMPENSATION. The Borrowers shall pay to the Lender 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 the Lender determines in good faith is attributable to: (a) any payment, prepayment or conversion of a LIBOR Advance 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 Advance (other than a refusal by the Lender to make such a LIBOR Advance pursuant to this Article 4) from the Lender on the date for such borrowing specified in the relevant Request for Advance or Interest Rate Election. 25 26 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 Advance (or, in the case of a failure to borrow, the Interest Period for such Advance which would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Advance 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 the 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 the 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 imposed on the Lender by the United States or the jurisdiction (or any political subdivision thereof) in which the Lender 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 4.6) 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 4.6) paid by the Lender, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Such indemnification shall be made within five Business Days after the date of receipt of a written demand therefor from the Lender. 26 27 (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. (e) The Lender 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 determination of the Lender, be otherwise disadvantageous to the Lender. To the extent the Lender shall receive a refund of all or a portion of the additional amounts payable pursuant to this Section 4.6, the Lender shall promptly notify and refund to the Borrowers the amount of such refund. 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 February 3, 1996 and a statement of changes in shareholders' equity and the related statements of income and cash 27 28 flow as of the end of fiscal year 1995 and the unaudited consolidated balance sheet of Hibbett and the Consolidated Entities dated as of August 3, 1996 and the related statements of income and cash flow for the seven 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 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. 28 29 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. 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. Section 1251 et seq.), Resource Conservation & Recovery Act (42 U.S.C. Section 6901 et seq.), Safe Water Drinking Act (42 U.S.C. Section 300(f) et seq.), Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), Clean Air Act (42 U.S.C. Section 7401 et seq.) and Comprehensive Environmental Response of Compensation and Liability Act (42 U.S.C. Section 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. 29 30 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 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 Lender's obligation to make each Advance and 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, 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, 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 30 31 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 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 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 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 or Application 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 6.3 (with such changes therein as are appropriate in the circumstances) as to the 31 32 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. SECTION 6.4 INITIAL PUBLIC OFFERING. Hibbett shall have consummated its initial public offering of its common stock with the cash proceeds (net of underwriting discounts and commissions and all other costs and expenses associated therewith) received by Hibbett from such public offering being not less than $22,500,000. 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: 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 32 33 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 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 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. 33 34 (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. 34 35 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 2.0 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 $10,000,000. (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. 35 36 (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 Notes, (B) other Debt to the Lender, (C) purchase money obligations allowed under Section 7.7(7), (D) Debt not exceeding $2,000,000 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. 36 37 (13) Sale-Leaseback. Except for the Lease Agreement between QRS 12-14 (AL), Inc. and SW dated February 12, 1996 (the "QRS Lease"), 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. 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 37 38 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 $2,000,000, 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: (a) default in the due payment of any principal or interest payable on any Advance, 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 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 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 38 39 (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), 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 39 40 (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 or issue Letters of Credit terminated, whereupon the obligation of the Lender to make further Advances or issue Letters of Credit hereunder shall terminate immediately, and (ii) the Lender may 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 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 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 (other than Letter of Credit Borrowings) shall be immediately due and payable without the necessity of any action by the Lender or notice to the Lender; (B) the Borrowers shall, promptly upon demand of the Lender, deposit in cash with the Lender an amount equal to the amount of all Letter of Credit Borrowings then outstanding, as collateral security for the repayment thereof, which deposit shall be held by the Lender under the provisions of Section 9.8; and (C) 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. 40 41 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 Notes, 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 9.1 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 the Lender's right of set-off (under Section 9.3 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 41 42 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 9.2. (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 9.2, 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 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 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 9.3 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 42 43 Documents shall survive the making by the Lender of the Loans and the execution and delivery to the Lender 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 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 9.5 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, 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 9.2; (f) agrees that service in accordance with this Section 9.7 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 43 44 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 9.7 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. If on any date on which the Borrowers wish to pay 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 Lender in its sole discretion, make a cash prepayment to the Lender on such date in an amount equal to the then-outstanding Letter of Credit Borrowings, and the Lender shall hold such prepayment in an interest-bearing cash collateral account in the name and under the sole control of the Lender (which account shall bear interest at the Lender'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 9.8. The Lender 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. 44 45 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; 45 46 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 9.15. 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 9.15, 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. 46 47 (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 9.15 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. 47 48 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: /s/ Susan Fitzgibbon ---------------------------------- Its Chief Financial Officer ---------------------------- HIBBETT TEAM SALES, INC. By: /s/ Susan Fitzgibbon ---------------------------------- Its Chief Financial Officer ---------------------------- SPORTS WHOLESALE, INC. By: /s/ Susan Fitzgibbon ---------------------------------- Its Chief Financial Officer ---------------------------- Hand Delivery Address: 451 Industrial Lane Birmingham, Alabama 35211 FAX: (205) 912-7293 Attention: Chief Financial Officer Mailing Address: Post Office Box ___________ Birmingham, Alabama 35219 FAX: (205) 912-7293 Attention: Chief Financial Officer 49 AMSOUTH BANK OF ALABAMA By: /s/ David A. Simmons ----------------------------------- 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-10.2.3 5 AMENDMENT TO THE STOCKHOLDERS AGREEMENT 1 EXHIBIT 10.2.3 SECOND AMENDMENT TO STOCKHOLDERS AGREEMENT AND WAIVER SECOND AMENDMENT and WAIVER (the "Amendment") dated as of October 5, 1996 to the Stockholders Agreement dated as of November 1, 1995, as amended (the "Agreement"), by and among The SK Equity Fund, L.P. and SK Investment Fund, L.P., each a Delaware limited partnership (the "Funds"), the Stockholders listed an the signature pages thereof (the "Stockholders") and Hibbett Sporting Goods, Inc., a Delaware corporation (the "Company"). WITNESSETH: WHEREAS, the parties hereto desire to amend the Agreement in anticipation of the Company's initial public offering (the "Initial Public Offering") of its Common Stock, par value $.01 per share (the "Common Stock"); NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Definitions. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement has the meaning assigned to such term in the Agreement. SECTION 2. Amendment of Section 2.1(a) of the Agreement. Section 2.1(a) of the Agreement is amended to read in its entirety as follows: "For so long as the number of Shares held by the Anderson Group equals or exceeds 50% of the Original Anderson Shares, the Board shall consist of not less than six nor more than nine directors, one of whom shall be designated by the Anderson Designee (the "Anderson Director") and the rest of whom shall be designated by the Funds (including one director who shall also be an officer of the Company and the two independent directors to be nominated within 90 days of the consummation of the Company's initial public offering of its Common Stock required in connection with a listing of the Common Stock on The Nasdaq National Market). One of the directors designated by the Funds (other than the officer of the Company or any of the two independent directors) shall be elected as Chairman of the Board. After the number of shares held by the Anderson Group falls below 50% of the number of the Original Anderson Shares, all the directors shall be elected in accordance with the Charter, the Bylaws and the applicable provisions of law." SECTION 3. Amendment of Section 2.4(a). The first sentence of Section 2.4(a) of the Agreement is hereby amended to read in its entirety as follows: "A majority of the total number of directors shall constitute a quorum for the transaction of business by the Board; provided that a majority of the directors constituting a 2 quorum must be the designees of the Funds who are not the independent directors required in connection with a listing of the Common Stock on The Nasdaq National Market." SECTION 4. Option Granted to Clyde B. Anderson. The parties hereto agree to waive Sections 2.6(iii), 2.8 and any other provisions of the Agreement to the extent necessary to permit (a) the grant as of August 1, 1996 by the Company to Clyde B. Anderson of an option to acquire 70,820 shares of the Company's Common Stock at an exercise price of $8.48 per share (the "Option Grant") and (b) the issuance of any shares of Common Stock pursuant to the terms of the Option Grant (the "Option Stock Issuance"). Notwithstanding Section 3.5 of the Agreement, the parties hereto agree that neither the Option Grant nor any Option Stock Issuance shall give rise to any preemptive rights under Section 3.5. Each party hereto hereby agrees that the shares of Common Stock issuable to Clyde B. Anderson in the Option Stock Issuance shall be subject to the provisions of Articles IV and V of the Agreement. SECTION 5. Amendment of Section 3.1(e). Section 3.1(e) of the Agreement is hereby amended by inserting at the end thereof a new clause (iii) to read in its entirety as follows: "(iii) Upon payment in full of all amounts outstanding under the Anderson Subordinated Notes, all Callable Shares shall cease to be "Callable Shares" and shall become "Shares" hereunder subject to all the provisions of this Agreement." SECTION 6. Amendment of Section 3.2. Section 3.2 of the Agreement is hereby amended by deleting clause (ii) of the proviso thereto and renumbering clause (iii) thereof as new clause (ii). SECTION 7. Deletion of Section 6.1. Section 6.1 of the Agreement is hereby deleted effective upon the closing of the Initial Public Offering. SECTION 8. Governing Law; Counterparts. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York without regard to the conflicts of law rules of such state. This Amendment may be signed in a number of counterparts which together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. THE SK EQUITY FUND, L.P. By SKM Partners, L.P., the General Partner By: /s/ John F. Megrue --------------------------------- Name: John F. Megrue Title: General Partner 2 3 SK INVESTMENT FUND, L.P., By SKM Partners, L.P., the General Partner By: /s/ John F. Megrue -------------------------------- Name: John F. Megrue Title: General Partner CHARLES C. ANDERSON By: /s/ Charles C. Anderson -------------------------------- Charles C. Anderson JOEL R. ANDERSON By: /s/ Joel R. Anderson -------------------------------- Joel R. Anderson CHARLES C. ANDERSON, JR. By: /s/ Charles C. Anderson, Jr. -------------------------------- Charles C. Anderson, Jr. /s/ Clyde B. Anderson ----------------------------------- Clyde B. Anderson, for himself and as attorney-in fact for each of the following stockholders: Charles C. Anderson, Sr. Charles C. Anderson, Jr. Terrence C. Anderson Clyde B. Anderson Harold M. Anderson Gerald H. Daugherty Martin R. Abroms First Anderson Grandchildren's Trust, f/b/o Charles C. Anderson, III First Anderson Grandchildren's Trust, f/b/o Lauren A. Anderson 3 4 First Anderson Grandchildren's Trust, f/b/o Hayley E. Anderson Second Anderson Grandchildren's Trust, f/b/o Alexandra R. Anderson Third Anderson Grandchildren's Trust, f/b/o Taylor Claire Anderson Fourth Anderson Grandchildren's Trust, f/b/o Carson Caine Anderson Fifth Anderson Grandchildren's Trust, f/b/o Harold M. Anderson, Jr. Sixth Anderson Grandchildren's Trust, f/b/o Bentley Barbour Anderson Seventh Anderson Grandchildren's Trust, f/b/o Olivia Barbour Anderson Sandra B. Cochran The Ashley R. Anderson Trust Joel R. Anderson II Trust Alexandra Ruth Anderson Irrevocable Trust Olivia Barbour Anderson 1995 Trust Clyde Christian Anderson 1996 Trust Carson Caine Anderson 1995 Trust Bentley Barbour Anderson 1995 Trust Keaton Carroll Anderson 1996 Trust Taylor Claire Anderson 1996 Trust Harold M. Anderson, Jr. 1996 Trust /s/ Michael J. Newsome ---------------------------------------- Michael J. Newsome, for himself and as attorney-in-fact for each of the following stockholders: Judy Marie Newsome First Michael J. Newsome Child's Trust Second Michael J. Newsome Child's Trust 4 EX-11 6 STATEMENT OF COMPUTATION 1 HIBBETT SPORTING GOODS, INC. EXHIBIT 11 STATEMENT OF COMPUTATION OF EARNINGS PER SHARE FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996, AND JANUARY 28, 1995
Fiscal Year Ended --------------------------------------- February 1, February 3, January 28, 1997 1996 1995 ----------- ---------- ---------- (52 Weeks) (53 Weeks) (52 Weeks) INCOME BEFORE EXTRAORDINARY ITEM $ 2,830,000 $2,443,000 $2,389,000 EXTRAORDINARY ITEM, NET (3) (1,093,000) 0 0 ----------- ---------- ---------- NET INCOME $ 1,737,000 $2,443,000 $2,389,000 =========== ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (1) : Weighted average shares, excluding effect of stock options 4,552,118 5,820,763 6,504,521 Effect of stock options (2) 114,055 17,504 0 ----------- ---------- ---------- $ 4,666,173 $5,838,267 $6,504,521 =========== ========== ========== EARNINGS PER COMMON SHARE (1) Income before extraordinary item $ 0.61 $ 0.42 $ 0.37 Extraordinary item, net (3) (0.24) 0.00 0.00 ----------- ---------- ---------- Net income $ 0.37 $ 0.42 $ 0.37 =========== ========== ==========
(1) All share and 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 of Notes to Consolidated Financial Statements. (2) Stock options have been included in the above computation utilizing the treasury stock method. (3) During the third quarter ended November 2, 1996, the Company completed its initial public offering with net proceeds of $32,868,000. In connection therewith, a substantial portion of the Company's long-term debt was repaid resulting in a loss of $1,093,000 (net of the applicable tax benefit of $677,000). The loss is classified as an extraordinary item. EX-23.1 7 CONSENT OF ARTHUR ANDERSEN 1 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. 33-07023, 33-21299, 33-21201, 33-21303, and 33-21305. ARTHUR ANDERSEN LLP Birmingham, Alabama April 25, 1997 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF HIBBETT SPORTING GOODS, INC. FOR THE YEAR TO DATE PERIOD ENDED FEBRUARY 1, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR FEB-01-1997 FEB-04-1996 FEB-01-1997 2,269 0 2,231 134 24,521 30,126 18,606 8,722 40,358 13,846 0 0 0 61 26,451 40,358 86,401 86,401 60,017 60,017 19,160 71 2,642 4,582 1,752 2,830 0 (1,093) 0 1,737 0.37 0.37
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