SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: Commission File No.:
May 31, 1997 0-16442
FIRST TEAM SPORTS, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-1545748
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1201 Lund Boulevard
Anoka, Minnesota 55303
(Address of principal executive offices)
Registrant's telephone number, including area code:
(612) 576-3500
--------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
---------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,760,008 shares of Common
Stock, $.01 par value per share, outstanding as of July 10, 1997.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS
May 31, 1997 and February 28, 1997
<TABLE>
<CAPTION>
May 31, February 28,
ASSETS 1997 1997
------------------- --------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $396,540 $381,427
Receivables:
Trade, less allowance for
doubtful accounts of $439,000 at
May 31, 1997 and $565,000 at
February 28, 1997 24,898,481 17,039,679
Refundable income taxes - 258,492
Inventory 19,545,676 20,881,845
Prepaid expenses 659,330 612,880
Deferred income taxes 997,000 997,000
------------------- --------------------
Total current assets $46,497,027 $40,171,323
------------------- --------------------
PROPERTY AND EQUIPMENT, at cost
Land $600,000 $600,000
Building 4,988,680 4,988,680
Production equipment 5,091,883 4,715,979
Office furniture and equipment 1,788,244 1,754,017
Warehouse equipment 329,344 325,361
Vehicles 19,567 19,567
------------------- --------------------
$12,817,718 $12,403,604
Less accumulated depreciation 3,037,354 2,588,404
------------------- --------------------
$9,780,364 $9,815,200
------------------- --------------------
OTHER ASSETS
License agreements, less accumulated
amortization of $3,108,000 at May 31,
1997 and $3,039,000 at February 28,
1997 $1,997,061 $2,065,611
Other 281,383 291,367
------------------- --------------------
$2,278,444 $2,356,978
------------------- --------------------
$58,555,835 $52,343,501
=================== ====================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
May 31, 1997 and February 28, 1997
<TABLE>
<CAPTION>
May 31, February 28,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1997
------------------- --------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to bank $7,159,250 $5,319,250
Current maturities of
long-term debt 923,962 662,414
Accounts payable, trade 5,870,864 4,852,459
Accrued expenses 1,295,918 1,415,511
Income taxes 760,902 -
------------------- --------------------
Total current liabilities $16,010,896 $12,249,634
------------------- --------------------
LONG-TERM DEBT,
less current maturities $6,750,639 $6,217,936
------------------- --------------------
DEFERRED INCOME TAXES $530,000 $530,000
------------------- --------------------
DEFERRED REVENUE $600,000 $600,000
------------------- --------------------
SHAREHOLDERS' EQUITY
Common Stock, par value $.01 per
share; authorized 10,000,000 shares;
issued and outstanding 5,760,008
shares at May 31, 1997, 5,749,796
shares at February 28, 1997 $57,600 $57,498
Additional paid-in capital 9,642,921 9,586,340
Retained earnings 24,963,779 23,102,093
------------------- --------------------
$34,664,300 $32,745,931
------------------- --------------------
$58,555,835 $52,343,501
=================== ====================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
May 31,
1997 1996
------------------ -------------------
Net sales $26,007,262 $30,586,799
Cost of goods sold 19,050,049 21,504,002
------------------ -------------------
Gross profit $6,957,213 $9,082,797
------------------ -------------------
Operating expenses:
Selling $2,041,830 $2,390,553
General and
administrative 1,807,155 1,936,794
------------------ -------------------
$3,848,985 $4,327,347
------------------ -------------------
Operating income $3,108,228 $4,755,450
Other income
(expense):
Interest expense (250,542) (323,260)
Other - -
------------------ -------------------
Income before income
taxes $2,857,686 $4,432,190
Income taxes 996,000 1,577,000
------------------ -------------------
Net income for the
period $1,861,686 $2,855,190
================== ===================
Net income per
common share: $0.32 $0.48
================== ===================
Weighted average
number of common
shares outstanding
including Common
Share equivalents 5,787,328 5,989,214
================== ===================
See Notes to Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Three Months Ended May 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
May 31, May 31,
1997 1996
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $1,861,686 $2,855,190
Adjustments required to reconcile net
income to net cash provided by (used in)
operating activities:
Depreciation 448,950 331,500
Amortization 87,300 144,990
Deferred income taxes - -
Change in assets and liabilities:
Receivables (7,600,310) (9,362,469)
Inventories 1,336,169 (996,203)
Prepaid expenses (46,450) 63,942
Accounts payable 1,018,405 (878,145)
Accrued expenses (119,593) (441,382)
Income taxes 760,902 1,469,303
------------------- -------------------
Net cash provided by
(used in) operating activities ($2,252,941) ($6,813,274)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ($414,114) ($408,602)
Other (8,766) (4,221)
------------------- -------------------
Net cash used in investing activities ($422,880) ($412,823)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) on short-term borrowings $1,840,000 $6,666,250
Proceeds on long-term borrowings $1,000,000
Principal payments on long-term
borrowings (205,749) (222,725)
Net proceeds from
issuances of common stock 1997;
10,169 shares, 1996; 17,750 shares 56,683 91,990
------------------- -------------------
Net cash provided by (used in) financing activities $2,690,934 $6,535,515
------------------- -------------------
Increase (decrease) in cash and
cash equvalents $15,113 ($690,582)
Cash and cash equivalents:
Beginning $381,427 $2,166,863
------------------- -------------------
Ending $396,540 $1,476,281
=================== ===================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1.
The consolidated condensed balance sheet as of May 31, 1997, and the
consolidated statements of operations for the three-month periods ended May 31,
1997 and May 31, 1996 have been prepared by the Company without audit. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the consolidated financial position,
results of operations and cash flows at May 31, 1997 and May 31, 1996 and for
all periods presented have been made. The operating results for the period ended
May 31, 1997 are not necessarily indicative of the operating results to be
expected for the full fiscal year.
Certain information and footnote disclosures normally included in
consolidated financial statements in accordance with generally accepted
accounting principles have been condensed or omitted.
PER SHARE DATA
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted at our fiscal year
end. At that time we will calculate "basic" and "diluted" earnings per share and
restate prior periods. The changes from primary and fully diluted earnings per
share are expected to be negligible.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Net Sales. Net sales were $26 million in the first quarter of fiscal 1998,
a decrease of 15% over the comparable quarter of fiscal 1997 when sales were
$30.6 million. In-line skate sales volume decreases and a decrease in the
average selling price of the Company's Skate Attack line were the principal
factors in the Company's net sales decline in the first quarter of fiscal 1998.
The Company's Skate Attack line is sold primarily through the mass merchant
retail channel and carries a lower average selling price, which continues to be
pressured downward in the first quarter of fiscal 1998.
The Company's product groups consist of in-line skates, ice skates,
accessories and parts (primarily protective wear and replacement wheels and
bearings) and roller hockey products. Within the product groups, the Company
maintains an UltraWheels and Skate Attack line of products. The UltraWheels line
consists of higher quality and higher priced products that are targeted for the
specialty and sporting goods chain store customers, and the Skate Attack line
consists of lower priced products for mass merchant customers.
In-line skate, parts and accessories and roller hockey product sales
decreased 13%, 17% and 50% respectively, from the first quarter of fiscal 1997
to fiscal 1998. Sales of in-line skates accounted for approximately 87% of total
sales in the first quarter of fiscal 1998 compared to 86% in the first quarter
of fiscal 1997. Sales of parts and accessories accounted for approximately 12%
of total sales in the first quarter of fiscal 1998 compared to 12% in the first
quarter of fiscal 1997. Roller hockey equipment sales accounted for less than 1%
of total sales in fiscal 1998 compared to 2% in the first quarter of fiscal
1997.
The Company currently distributes products to more than 62 countries
worldwide. Domestic sales were $16.9 million or 65% of total sales in the first
quarter of fiscal 1998 compared to $19.5 million or 64% in the first quarter of
fiscal 1997. Sales in Canada were $4.3 million or 17% of total sales in the
first quarter of fiscal 1998 compared to $3.5 million or 11% in the first
quarter of fiscal 1997. Sales in Europe were $4.2 million or 16% of total sales
in the first quarter of fiscal 1998 compared to $5 million or 16% in the first
quarter of fiscal 1997. Other international sales were $ .6 million or 2% of
total sales in the first quarter of fiscal 1998 compared to $2.6 million or 9 %
in the first quarter of fiscal 1997.
Several factors contributed to the Company's sales performance in the first
quarter of fiscal 1998. The decrease in domestic sales was a result of a
continuation of some excess inventory in the marketplace, coupled with poor
spring weather conditions throughout some key retail areas. The increase in
Canadian sales was due to a strong acceptance of the Company's made in U.S.A.
intec system skates. The decrease in European sales was primarily a result of
delayed shipments of our new Softec(R) products and adverse spring weather
conditions throughout key European retail areas. The decrease in other
international sales was primarily the result of excess inventory levels in the
South American and Pacific Rim markets.
<PAGE>
Gross Margin. As a percentage of net sales, the gross margin was 26.8% in
the first quarter of fiscal 1998 compared to 29.7% in the first quarter of
fiscal 1997. The decrease in the gross margin percentage was primarily due to
air freight costs associated with the Company's Softec(R) products, continued
excess inventories in the marketplace and continued pricing pressures especially
at the mass merchant level.
The Company's UltraWheels brand of in-line skates accounted for 66% of
total skate sales in the first quarter of fiscal 1998 compared to 53% in the
first quarter of fiscal 1997, while the Company's Skate Attack brand accounted
for 34% of total skate sales in the first quarter of fiscal 1998 compared to 44%
in the first quarter of fiscal 1997. Although the UltraWheels brand consists of
higher priced and higher margin products, the increased gross margin from these
sales was more than offset by the additional freight costs discussed above and
the low margins received on close-out sales.
Operating Expenses. Selling expenses were $2 million or 7.9% of total net
sales in the first quarter of fiscal 1998 compared to $2.4 million or 7.8% in
the first quarter of fiscal 1997. The decrease in selling expenses was primarily
the result of a reduction in endorsement royalties and co-op advertising costs
associated with the decreased sales volume.
General and administrative expenses were $1.8 million or 6.9% of total net sales
in the first quarter of fiscal 1998 compared to $1.9 million or 6.3% in the
first quarter of fiscal 1997. The decrease in general and administrative
expenses was primarily due to a reduction in personnel costs, a reduction in
insurance costs associated with the decreased sales volume and reduced operating
expenditures resulting from management's continued efforts to closely monitor
and control operating expenses.
Other Income and Expense. Interest expense was $251,000 in the first
quarter of fiscal 1998 compared to $323,000 in the first quarter of fiscal 1997.
The decrease of approximately $72,000 or 22% was primarily due to a reduction of
interest expense related to the Company's line of credit facility. With
management's controls and procedures over expenditures and cash management, the
average outstanding balance on the line of credit facility during the first
quarter of fiscal 1998 was substantially reduced over the first quarter of
fiscal 1997.
Net Income. The Company had net income of $1.9 million or $ .32 per share
in the first quarter of fiscal 1998, compared to $2.9 million or $ .48 per share
in fiscal 1997. This decrease can be attributed to the decrease in both the
sales volume and the gross margins as discussed above.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of May 31, 1997, total cash and cash equivalents were $396,540 compared
to $381,427 as of February 28, 1997. The increase in cash and cash equivalents
was a result of $2,252,941 of cash used in operating activities and $422,880 of
cash used in investing activities being offset by $2,690,934 of cash provided by
financing activities.
The net cash used in operating activities was primarily from the increase
in accounts receivables which was offset by net income and the decrease in
inventories. The increase in the accounts receivable balance is the result of
the first quarter sales which are approximately twice as much as fourth quarter
sales. The decrease in inventory levels is the result of management's efforts to
reduce and control inventory purchases.
The net cash used in investing activities was primarily for capital
expenditures relating to new product production tooling.
The net cash provided by financing activities was primarily proceeds
received on the Company's line of credit and new term note. The new note was for
the financing of new production tooling costs.
The Company's debt-to-worth ratio was .7 to 1 as of May 31, 1997 compared
to .6 to 1 as of February 28, 1997. The Company's long-term debt, which consists
primarily of a mortgage note on the Company's facility and obligations under
endorsement license agreements, less current maturities, was $6,750,639 as of
May 31, 1997. As of May 31, 1997, the Company had a revolving line of credit
with a bank that provides for borrowings of up to $15,000,000 of which
$7,159,250 was outstanding. In addition, the Company had a line of credit
established with the bank providing for borrowings of up to $1,000,000 for the
purchase of equipment and improvements. As of May 31, 1997 there was a
$1,000,000 balance outstanding on this credit facility.
The Company believes its current cash position, funds available under
existing bank arrangements and cash generated from profitable operations will be
sufficient to finance the Company's operating requirements through fiscal 1998.
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Exhibit Index immediately following the signature page
of this Form 10-Q.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Registrant during the quarter to which this Form 10-Q relates.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST TEAM SPORTS, INC.
By: /s/ John J. Egart
John J. Egart
President and CEO
and By: /s/ Robert L. Lenius, Jr.
Robert L. Lenius, Jr.
Vice President and CFO
Dated: July 10, 1997
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-Q
For Quarter Ended: Commission File No.: 0-16422
May 31, 1997
-------------------------------------------------------------------
FIRST TEAM SPORTS, INC.
-------------------------------------------------------------------
Exhibit Number Description
- -------------- -----------
3.1 Restated Articles of Incorporation--incorporated by reference
to Exhibit 3.1 to the Company's Form 10-K for the year ended
February 28, 1997
3.2 Bylaws -- incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-18 Reg. No.
33-16345C
4.1 Specimen of Common Stock Certificate--incorporated
by reference to 4.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1991
4.2 Certificate of Designations of Series A Preferred Stock
(included in Restated Articles of Incorporation -- see Exhibit
3.1)
4.3 Rights Agreement dated as of March 15, 1996 between the
Company and Norwest Bank Minnesota, N.A. as Rights Agent --
incorporated by reference to Exhibit 2.1 to the Company's
Registration Statement on Form 8-A, Reg. No. 0-16422
4.4 Form of Right Certificate -- incorporated by
reference to Exhibit 2.2 to the Company's
Registration Statement on Form 8-A, Reg.
No. 0-16422
4.5 Summary of Rights to Purchase Share of Series A Preferred
Stock -- incorporated by reference to Exhibit 2.3 to the
Company's Registration Statement of Form 8-A, Reg. No. 0-16422
<PAGE>
Exhibit Number Description
- -------------- -----------
10.1 Restated revolving credit and term loan agreement dated June
30, 1995, as amended through May 28, 1997 between the Company
and Marquette Capital Bank as agent for itself and LaSalle
National Bank and Firstar Bank Milwaukee, N.A.
10.2 Restated security agreement dated June 30, 1995, as
amended through May 28, 1997 between the Company and
Marquette Capital Bank, LaSalle National Bank and
Firstar Bank Milwaukee, N.A.
27* Financial Data Schedule (included in electronic version only)
RESTATED REVOLVING CREDIT
AND TERM LOAN AGREEMENT
THIS AGREEMENT, made as of the 30th day of June, 1995, by and between FIRST TEAM
SPORTS, INC., a Minnesota corporation (the "Borrower"), and MARQUETTE CAPITAL
BANK, a Minnesota banking association with its main banking house located in
Minneapolis, Minnesota ("Marquette") and, in its capacity as agent for the
"Banks" (hereinafter defined) (the "Agent"), LASALLE NATIONAL BANK, a national
banking association ("LaSalle") and FIRSTAR BANK MILWAUKEE, N.A., a national
banking association ("Firstar") (Marquette, LaSalle and Firstar are sometimes
referred to herein collectively as the "Banks").
W I T N E S S E T H:
WHEREAS, the Borrower and the Banks entered into that certain Restated Revolving
Credit and Term Loan Agreement dated as of March 6, 1995 (the "Original Loan
Agreement"); and
WHEREAS, the Borrower has requested that the Banks increase the Revolving Loan
Amount from $12,000,000 to $15,000,000 and extend the Expiration Date of the
Loan to July 1, 1997; and
WHEREAS, the Borrower and the Banks desire to modify certain terms of the
Original Loan Agreement; and
WHEREAS, this Restated Revolving Credit and Term Loan Agreement constitutes an
amendment and restatement of the Original Loan Agreement; and
WHEREAS, the Borrower has requested and the Banks have agreed to make a
revolving credit facility available to the Borrower, in an aggregate amount not
exceeding $15,000,000 (the "Revolving Loan"); and
WHEREAS, Marquette has also made a term credit facility available to the
Borrower, in an aggregate amount not exceeding $1,000,000 (the "Term Loan") (the
Revolving Loan and the Term Loan are referred to herein collectively as the
"Loans"); and
WHEREAS, the Banks have agreed severally to make the Revolving Loan as follows:
$6,000,000 to Marquette
$6,000,000 to LaSalle, and
$3,000,000 to Firstar; and
WHEREAS, the Banks and the Borrower desire to set forth their respective rights
and obligations relating to the Loans in this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. DEFINED TERMS. As used in this Agreement, the following terms shall have the
meanings set out respectively after each (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
A. Affiliate: any person or entity (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under
common control with, the Borrower or any of its subsidiaries, or (ii) five
percent (5 %) or more of the equity interest of which is held beneficially
or of record by the Borrower or any of its subsidiaries. Control for
purposes of this definition means the possession, directly or indirectly,
of the power to cause the direction of management and policies of a person
or entity, whether through the ownership of voting securities or otherwise.
B. After-tax Net Income: After-tax earnings from continuing operations,
exclusive of special or extraordinary items.
C. Borrowing Base Amount: (i) 80% of Eligible Receivables; (ii) minus
Outstanding Indebtedness; all as reflected by and determined in accordance
with the most recent Borrower's Certificate delivered by the Borrower to
Agent pursuant to Section 7.A. hereof.
D. Borrower's Certificate: The monthly certificate in the form attached
hereto as Exhibit A to be delivered by the Borrower to the Agent, within
thirty (30) days after the end of each calendar month.
E. Borrower Documents: collectively, this Agreement, the Notes, the
Security Agreement and the Financing Statements, and any and all other
documents, instruments and agreements executed by the Borrower and
delivered to the Banks in connection with the financing transactions
contemplated hereby.
F. Borrower Obligations: collectively, the payment and performance of the
Revolving Notes, the Term Note and any and all other liabilities and
indebtedness of the Borrower to the Banks.
G. Collateral: the collateral as defined in the Security Agreement.
H. Eligible Receivables: any and all "Accounts" (which, for purposes of
this section, means the aggregate unpaid obligations of customers and other
account debtors to the Borrower arising out of the sale or lease of goods
or rendition of services by the Borrower on any open account or deferred
payment basis) that, as of the date of determination, are not Ineligible
Receivables.
I. Events of Default: as defined in Section 8 hereof.
<PAGE>
J. Expiration Date: the date that first occurs: (i) July 1, 1997, or (ii)
the occurrence of an Event of Default.
K. Financing Statements: UCC-I Financing Statements naming the Borrower as
debtor and the Banks as secured parties and describing the Collateral as
the property covered thereby.
L. Indebtedness: collectively, (i) all items which, in accordance with
generally accepted accounting principles, would be included in the
liability side of a balance sheet on the date as of which Indebtedness is
to be determined excluding capital stock, surplus capital and earned
surplus, (ii) all indebtedness secured by any mortgage, pledge, security
interest or lien existing on property owned subject to such mortgage,
pledge, security interest or lien whether or not the indebtedness secured
thereby shall have been assumed, and (iii) all amounts representing the
capitalization of rentals in accordance with generally accepted accounting
principles.
M. Ineligible Receivables:
(a) except as specifically set forth in subsection (b) below, those
Accounts which remain unpaid more than 90 days following the due date
specified on the invoice;
(b) any Accounts which remain unpaid more than 180 days past the
invoice date;
(c) those Accounts that are due and owing from any account debtor that
has filed, or has filed against it, a petition under the United States
Bankruptcy Code;
(d) those Accounts that are due and owing from any account debtor who
is a federal, state or local governmental agency or entity;
(e) notes receivable;
(f) except as specifically set forth in subsections (i) and (ii)
below, which Accounts shall be deemed Eligible Receivables, those
Accounts that are due and owing from an account debtor located outside
of the United States of America:
(i) those Accounts that are due and owing from account debtors
that are located in Canada, other than the Province of Quebec;
and
(ii) those Accounts that are due and owing from account debtors
that are located in any other foreign country if, and to the
extent that, such Accounts are secured by a Letter of Credit or
insurance, in form and substance and issued by a financial
institution acceptable to the Banks;
<PAGE>
(g) except as specifically set forth in subsection (h) below, any and
all Accounts of any account debtor of which 10% or more of the
aggregate amount of Accounts payable by such account debtor remain
unpaid more than 90 days following the due date;
(h) any and all Accounts of Target, Wal-Mart, Service Merchandise,
K-Mart, Sears, Canadian Tire and Kinney Shoes/Footlocker
(collectively, such account debtors are referred to herein as the
"Special Account Debtors") of which 50% or more of the aggregate
amount of Accounts payable by such Special Account Debtor remain
unpaid more than 90 days following the due date;
(i) that portion of any Account which is subject to any right of
offset, counterclaim or contra account; and
(j) otherwise Eligible Receivables in an amount equal to the aggregate
credit balance(s) of all customers, whether or not such credits have
been outstanding for more than 90 days.
N. Letters of Credit: collectively, any letters of credit issued by
Marquette, LaSalle or Firstar for the account of the Borrower pursuant to
Section 2.A. hereof.
O. Net Worth: Shareholder's equity computed on the basis of generally
accepted accounting principles specifically excluding officer, director, or
shareholder loans and goodwill and specifically including the value of all
license agreements as identified on the Borrower's financial statements.
P. Notes: collectively, the Revolving Notes and the Term Notes.
Q. Outstanding Indebtedness: the sum of (i) the aggregate outstanding loan
balance under the Revolving Notes plus (ii) the face amount of any
outstanding Letters of Credit.
R. Permitted Interests: those liens and encumbrances listed on Exhibit B
attached hereto.
S. Premises: any real property either owned or leased by the Borrower in
the State of Minnesota.
T. Revolving Commitment of the Banks: the obligation of the Banks to make
loans to the Borrower under Section 2.A. hereof and the Revolving Notes up
to an aggregate principal amount at any one time outstanding equal to the
Revolving Loan Amount but, on a several basis, not to exceed the following
principal amounts:
<PAGE>
Marquette $6,000,000
LaSalle $6,000,000
Firstar $3,000,000
U. Revolving Loan: the $15,000,000 revolving loan of even date herewith
made severally by the Banks to the Borrower and evidenced by the Revolving
Notes.
V. Revolving Loan Amount: the lesser of (i) $15,000,000 and (ii) the
Borrowing Base Amount.
W. Revolving Notes: collectively, that certain promissory note of even date
herewith in the original principal amount of $6,000,000 payable to
Marquette (the "Marquette Note"), that certain promissory note of even date
herewith in the original principal amount of $6,000,000 payable to LaSalle
(the "LaSalle Note") and that certain promissory note of even date herewith
in the original principal amount of $3,000,000 payable to Firstar (the
"Firstar Note") each with a termination date of July 1, 1997.
X. Security Agreement: the Security Agreement of even date herewith
executed by the Borrower and delivered to the Agent, naming the Banks as
secured parties and Marquette as agent for the Banks, and all exhibits and
schedules attached thereto.
Y. Term Loan: the term loans made by Marquette to the Borrower hereunder in
an aggregate amount not to exceed the Term Loan Amount.
Z. Term Loan Amount: up to $1,000,000
AA. Term Notes: collectively or individually, as the context requires, any
promissory note(s) executed by the Borrower in favor of Marquette
evidencing any advance(s) made against the Term Loan pursuant to Section
2.B.
2. LINES OF CREDIT.
A. Revolving Loan. Subject to and upon the terms, covenants and conditions
hereinafter set forth, the Banks hereby severally agree to make loans to
the Borrower under this Section 2.A. from time to time until and including
the Expiration Date (and thereafter until and including July 1 of each
succeeding calendar year if no "Event of Default" has occurred and if this
Agreement is extended in writing by the Banks and the Borrower for
additional one year period(s) pursuant to Section 1 l. J. herein), at such
time and in such amount as to each loan as the Borrower shall request, up
<PAGE>
to but not exceeding in aggregate principal amount at any one time
outstanding the Revolving Loan Amount, nor exceeding on a several basis the
Revolving Commitment of the Banks. In addition, at the request of Borrower,
which request shall be made by the execution and delivery by Borrower to
the Agent of Marquette's, LaSalle's or Firstar's standard form application
for letters of credit duly completed to reflect the letter of credit being
requested, the Banks will severally make advances pursuant to the Revolving
Commitment of the Banks in the form of a letter of credit, the form and
substance of which shall be determined by the Banks, but without limiting
the generality of the foregoing, the Banks may require a draft thereunder
to be accompanied by such documentation as the Banks may deem necessary. In
no event shall the Banks be required to issue any such letter of credit
with a term extending beyond the Expiration Date. Any and all letters of
credit issued by the Banks shall be treated as an advance under the
Revolving Loan. The obligation of Borrower to reimburse the Banks for any
draft(s) submitted under and paid by the Banks pursuant to any such
letter(s) of credit shall be evidenced by the Revolving Notes. In no event
shall the Banks be required to issue any letter(s) of credit hereunder in
an aggregate amount in excess of $2,000,000.00. Subject to the foregoing
and upon the terms and conditions set forth herein, the Borrower may
borrow, repay and re-borrow within the limit of the Revolving Loan Amount
under this Section 2.A. from the date hereof to and including the
Expiration Date.
B. Term Loan. Subject to and upon the terms, covenants and conditions
hereinafter set forth, Marquette may make loans to the Borrower in addition
to the Revolving Loans, in Marquette's sole and absolute discretion
pursuant to this Section 2.B. from time to time until and including the
Expiration Date, at such time and in such amount as to each loan as the
Borrower may request, up to but not exceeding in aggregate principal amount
the Term Loan Amount.
3. PROMISSORY NOTES.
A. Revolving Notes. The obligation of the Borrower to repay any and all
loans made and/or Letters of Credit issued, drawn upon and paid pursuant to
Section 2.A. hereof shall be evidenced by the Revolving Notes. Reference is
hereby made to the Revolving Notes for the terms thereof relating to
maturity, repayment schedule, interest rate and other matters governing the
repayment of the loans made hereunder. Notwithstanding any provision of the
Revolving Notes, however, interest shall be payable at the rate provided
for therein only on such portion of the loan proceeds as actually have been
disbursed hereunder pursuant to Section 2.A. hereof and remain unpaid. The
Banks' records shall be conclusive evidence (absent manifest error) as to
whether the Borrower has authorized any advance made by the Banks hereunder
pursuant to Section 2.A. hereof and as to the amount of advances which have
been made hereunder and remain unpaid.
B. Term Notes. The obligation of the Borrower to repay any and all loans
pursuant to Section 2.B. hereof shall be evidenced by the Term Notes. At
the time any loan is made by Marquette to the Borrower pursuant to Section
2.B. hereof, the Borrower shall execute a Term Note in the original
principal amount equal to the amount of such loan and payable to Marquette,
which Term Note shall be substantially in the form attached hereto as
Exhibit C.
<PAGE>
4. MANNER OF BORROWING. Each time the Borrower desires to obtain a loan advance
pursuant to Section 2.A. or 2.B. hereof, any one of the following people shall
request such loan on behalf of the Borrower either orally or in writing: (i)
John Egart, Robert Lenius; or (ii) any person designated as the Borrower's agent
by the Board of Directors of the Borrower in a writing delivered to the Agent.
Except as otherwise instructed in writing by such officer, agent or person, the
Banks may disburse loan proceeds by depositing such in the Borrower's account at
Marquette. The Borrower shall be obligated to repay all advances notwithstanding
the fact that the person requesting the same was not in fact authorized to do
so.
5. COLLATERAL. As a condition precedent to the establishment of the Revolving
Commitment of the Banks and the agreement of the Banks to make the Revolving
Loan and of Marquette to make the Term Loan, the Borrower agrees as follows:
A. Security Agreement. The Borrower shall have executed and delivered to
the Agent the Security Agreement pursuant to which the Borrower shall have
granted a valid and perfected first security interest (except as expressly
otherwise provided therein) to the Banks in and to the Collateral to secure
the payment and performance of the Notes and any and all other liabilities
and indebtedness of the Borrower to the Banks.
B. Financing Statements. The Borrower shall have executed and delivered to
the Agent for filing with the Secretary of State of the State of Minnesota,
and the appropriate county office or offices in Minnesota and each and
every other state and county in which all or any part of the Collateral is
located, UCC-1 Financing Statements (or equivalent documents) naming the
Borrower as debtor and the Banks as secured parties (and Marquette as the
agent of the Banks) and describing the Collateral as the property covered
thereby, together with any and all other appropriate UCC-1 Financing
Statements and other documents and instruments as the Banks may request in
order to perfect the security interest granted to it in and to the
Collateral pursuant to the Security Agreement.
6. REPRESENTATIONS. In order to induce the Banks to make advances hereunder,
the Borrower hereby warrants and represents to the Banks as follows:
A. Corporate Existence and Power. The Borrower is a corporation duly
organized and validly existing in the State of Minnesota, and is fully
qualified to do business and in good standing in the State of Minnesota,
and in every other jurisdiction wherein the nature of its businesses or the
character of its properties makes such qualification necessary, and has all
requisite power and authority to carry on its businesses as now conducted
and as presently proposed to be conducted.
B. Corporate Authority. The Borrower has full power and authority to
execute and deliver the Borrower Documents and to incur and perform its
obligations hereunder and thereunder; the execution, delivery and
performance by the Borrower of the Borrower Documents and any and all other
documents and transactions contemplated hereby or thereby have been duly
authorized by all necessary corporate action, will not violate any
provision of law or the Articles of Incorporation or Bylaws of the Borrower
or result in the breach of, constitute a default under, or create or give
rise to any lien under, any indenture or other agreement or instrument to
which the Borrower is a party or by which the Borrower or its property may
be bound or affected; and the Borrower Documents have been executed and
delivered to the Banks by the corporate officers of the Borrower who have
been authorized by the Borrower's Board of Directors, and who are
authorized by and specified in the Borrower's Bylaws, to execute and so
deliver such agreements.
<PAGE>
C. Enforceability. The Borrower Documents each constitute the legal, valid
and binding obligations of the Borrower enforceable in accordance with
their respective terms.
D. Financial Condition. The financial statements of the Borrower heretofore
furnished to the Banks are complete and correct in all material respects
and fairly present the financial condition of the Borrower at the dates of
such statements and the results of its operations for the period ended on
said date, and have been prepared m accordance with generally accepted
accounting principles, consistently applied. Since the most recent set of
financial statements delivered by the Borrower to the Banks, there have
been no material adverse changes in the financial condition of the
Borrower.
E. Litigation. Except as disclosed on Exhibit D hereto, there is no action,
suit or proceeding pending or, to the knowledge of the Borrower, threatened
against or affecting the Borrower which, if adversely determined, would
have a material adverse effect on the condition (financial or otherwise),
business, properties or assets of the Borrower or which would question the
validity of the Borrower Documents or any instrument, document or other
agreement related hereto or required hereby, or impair the ability of the
Borrower to perform its obligations under the foregoing agreements.
F. Licenses and Infringement. Except as disclosed on Exhibit D hereto, the
Borrower possesses adequate licenses, permits, franchises, patents,
copyrights, trademarks and trade names, or rights thereto, to conduct its
respective business substantially as now conducted and as presently
proposed to be conducted. There does not exist and there is no reason to
anticipate that there may exist, any liability to the Borrower with respect
to any claim of infringement regarding any franchise, patent, copyright,
trademark or trade name possessed or used by the Borrower.
G. Default. The Borrower is not in default of a material provision under
any material agreement, instrument, decree or order to which it is a party
or by which it or its respective property is bound or affected.
H. Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any governmental
authority or any third party is required in connection with the execution
and delivery of the Borrower Documents, or any of the agreements or
instruments herein mentioned to which the Borrower is a party or the
carrying out or performance of any of the transactions required or
contemplated hereby or thereby or, if required, such consent, approval,
order or authorization has been obtained or such registration, declaration
or filing has been accomplished or such notice has been given prior to the
date hereof and the Banks have been provided with a copy of such consent,
approval, order, authorization, registration, declaration, filing or
notice, as the case may be.
<PAGE>
I. Taxes. The Borrower has filed all tax returns required to be filed and
either paid all taxes shown thereon to be due, including interest and
penalties, which are not being contested in good faith and by appropriate
proceedings, or provided adequate reserves for payment thereof, and the
Borrower has no any information or knowledge of any objections to or claims
for additional taxes in respect of federal income or excess profits tax
returns for prior years.
J. Titles, etc. The Borrower has good title to all of its properties and
assets, including, without limitation, the Collateral, free and clear of
all mortgages, liens and encumbrances, except the Permitted Interests and
those minor irregularities in title which do not interfere with the
occupation, use and enjoyment by the Borrower of such properties and assets
in the normal course of its businesses as presently conducted or materially
impair the value thereof for such businesses ("Minor Irregularities"), and
except such liens and encumbrances as may from time to time be consented to
in writing by the Banks. Except for Permitted Interests, the security
interest granted to the Banks by the Borrower pursuant to the Security
Agreement constitutes a valid and perfected first lien in and to the
Collateral.
K. Pension Plans. The Borrower has not established or maintained, or made
any contributions to, any employee benefit plan which is subject to Part 3
of Subtitle B of Title 1 of ERISA or, if such a plan has been so
established, maintained or contributed to, such plan did not have an
"accumulated funding deficiency" (as that term is defined in Section 302 of
ERISA) as of the date hereof, and, without limiting the generality of the
foregoing, the Borrower has not incurred any material liability to the
Pension Benefit Guaranty Corporation with respect to any such plan.
L. Use of Loans. The Borrower is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System), and no part of
the proceeds of any loan hereunder will be used to purchase or carry any
such margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock.
Each of the foregoing warranties and representations shall be deemed to be
repeated and reaffirmed on and as of the date any loan is made hereunder by the
Banks to the Borrower pursuant to Section 2 hereof.
7. COVENANTS OF THE BORROWER. On and after the date hereof and until the payment
in full of the Notes and all of the other Borrower's Obligations, and the
performance of all other obligations of the Borrower hereunder, and so long as
any portion of the Revolving Commitment of the Banks or the Term Loan remains in
full force and effect, the Borrower agrees that, unless the Banks shall
otherwise consent in writing:
<PAGE>
A. Financial Statements, Other Information. The Borrower shall deliver to
Marquette (and Marquette shall deliver copies to the Banks):
(i) as soon as available, and in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the annual audit
report of the Borrower with the unqualified opinion of independent
certified public accountants selected by the Borrower and reasonably
acceptable to the Banks, which annual report shall include the balance
sheet of the Borrower and the related statements of income, retained
earnings and changes in financial position of the Borrower for the
fiscal year then ended, all in reasonable detail and all prepared in
accordance with generally accepted accounting principles applied on a
basis consistent with the accounting practices applied in the annual
financial statements referred to in Section 6.D., together with (i) a
report signed by such accountants stating that in making the
investigations necessary for such opinion they obtained no knowledge,
except as specifically stated, of any Event of Default hereunder or of
any event or circumstance which with notice or lapse of time or both
would constitute such an Event of Default and all relevant facts in
reasonable detail to evidence, and the computations as to, whether or
not the Borrower is in compliance with the requirements set forth in
Section 7 hereof; (ii) any management letter(s) prepared by the
Borrower's accountants; and (iii) a certificate of the chief financial
officer of the Borrower in the form attached hereto as Exhibit A
stating that such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a
basis consistent with the accounting practices reflected in the annual
financial statements referred to in Section 6.D. and whether or not he
has knowledge of the occurrence of any Event of Default hereunder or
of any event not theretofore reported and remedied which with notice
or lapse of time or both would constitute such an Event of Default
and, if so, stating in reasonable detail the facts with respect
thereto;
(ii) as soon as available and in any event within thirty (30) days
after the end of each calendar month, balance sheets of the Borrower
as of the end of such month and related statements of income and
retained earnings of the Borrower for such monthly period and for the
year to date, in reasonable detail, all prepared in accordance with
generally accepted accounting principles applied on a basis consistent
with the accounting practices reflected in the annual financial
statements referred to in Section 6.D. and certified by the chief
financial officer of the Borrower; subject, however, to year-end audit
adjustments, and accompanied by a certificate of said officer stating
(i) that such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a basis
consistent with the accounting practices reflected in the annual
financial statements referred to in Section 6.D., and (ii) whether or
not he has knowledge of the occurrence of any Event of Default
hereunder or of any event or circumstance which with notice or lapse
of time or both would constitute such an Event of Default and, if so,
stating in reasonable detail the facts with respect thereto and (iii)
all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with
the requirements set forth in Section 7 hereof;
<PAGE>
(iii) within thirty (30) days after the end of each calendar month, a
monthly Borrower's Certificate;
(iv) within fifty-five (55) days after the end of each calendar
quarter, a copy of the quarterly 10-Q Statement filed by the Borrower
with the Securities and Exchange Commission;
(v) prior to each year end, a projection for the following fiscal
year;
(vi) as soon as available, and in any event within one hundred (100)
days after the end of each fiscal year, a copy of the 10-K Statement
filed by the Borrower with the Securities and Exchange Commission and
any and all other filings made at any time by the Borrower with the
Securities and Exchange Commission or any other state or federal
agency;
(vii) within thirty (30) days after the end of each calendar month, an
aggregate listing of the accounts receivable of the Borrower as of the
last day of the immediately preceding calendar month, categorized by
the age of the accounts receivable using the categories 0-30 days past
the due date; 31-60 days past the due date; 61-90 days past the due
date; and more than 90 days past the due date, and accounts receivable
over 120 days past the due date will be designated, which lists shall
be certified by the controller of the Borrower; and
(viii) such other information respecting the financial condition and
results of operations of the Borrower as the Banks may from time to
time reasonably request.
B. Taxes and Claims. The Borrower shall pay and discharge all taxes,
assessments and governmental charges or levies imposed upon it or upon its
respective income or profits, or upon any of its assets or properties,
prior to the date on which penalties attach thereto, and all lawful claims
which, if unpaid, might become a lien or charge upon its respective
property or assets; provided, however, that the Borrower shall not be
required to pay any such tax, assessment, charge, levy or claim the payment
of which is being contested in good faith and by proper proceedings and for
which it shall have set aside on its books adequate reserves therefor.
C. Insurance. The Borrower shall maintain insurance coverage with
responsible insurance companies licensed to do business in the State of
Minnesota (or, in the case of any Collateral located in any other state,
then in such state) in such amounts and against such risks as is reasonably
requested by the Banks or as required by law, including, without
limitation, property, hazard, fire, wind, hail, theft, collapse,
comprehensive general public liability, product liability and business
interruption insurance, and worker's compensation or similar insurance, in
each case naming the Agent as loss payee and additional insured as agent
for the Banks. The Borrower shall furnish to the Agent full information and
written evidence as to the insurance maintained by the Borrower.
<PAGE>
D. Maintenance of Existence; Conduct of Business. The Borrower shall
maintain, its corporate existence and preserve all of its rights,
privileges and franchises necessary in the normal conduct of its business;
conduct its business in an orderly, efficient and regular manner.
E. Maintenance of Properties. The Borrower shall keep all of the assets and
properties necessary in its respective business, including, without
limitation, any tangible Collateral, in good working order and condition,
ordinary wear and tear and the termination of service of obsolete or
unnecessary equipment excepted.
F. Compliance with Applicable Laws. The Borrower shall comply with the
requirements of all applicable state and federal laws, and of all rules,
regulations and orders of any governmental or other authority or agency, a
breach of which would materially and adversely affect its respective
business or credit , except where contested in good faith and by proper
proceedings.
G. Litigation. The Borrower shall promptly provide the Agent notice in
writing of all litigation and of all proceedings by or before any court or
governmental or regulatory agency affecting the Borrower, except litigation
or proceedings which, if adversely determined, would not materially affect
the financial condition or business of the Borrower.
H. Liens. The Borrower will not create, incur, assume or suffer to exist
any mortgage, lease, deed of trust, pledge, lien, security interest, or
other charge or encumbrance of any nature on any of its assets, now owned
or hereafter acquired, securing any indebtedness or obligation to the
Banks, except (1) the Permitted Interests, and Minor Irregularities and (2)
any security interest granted herein or by any document related hereto to
the Banks or consented to in writing by the Banks.
I. Access to Books and Inspection. The Borrower shall at all times keep
proper books of record and accounts for itself, and, upon request of
Marquette, LaSalle, or Firstar, the Borrower shall provide any duly
authorized representative of the Banks access during normal business hours
to, and permit such representative to examine, make extracts or a
reasonable number of copies from, any and all books, records and documents
in the Borrower's possession or control relating to the Borrower's affairs,
to conduct collateral audits from time to time and to inspect any of its
facilities and properties; provided, however, that the Banks shall treat
all such books and records as confidential and shall only be permitted to
disclose the information contained therein to their respective legal
counsel, independent public accountants, any other participating banks, or
in connection with any action to collect the Notes or to enforce this
Agreement with the documents related hereto, or as otherwise permitted or
required by law.
J. Collection of Accounts. Upon the request of the Agent or the Banks, at
any time after the occurrence of an Event of Default, the Borrower shall
notify its account debtors and other obligors to make payment directly to a
post office box specified by and under the sole control of the Agent, and
Marquette, for itself and as agent for LaSalle and Firstar, shall be
entitled to take control of any proceeds thereof.
<PAGE>
K. Sale of Assets. The Borrower will not sell, lease, assign, transfer or
otherwise dispose of all or a substantial part of its assets (whether in
one transaction or in a series of transactions) to any other person or
entity other than in the ordinary course of business.
L. Consolidation and Merger. The Borrower will not consolidate with or
merge into any person or entity, or permit any other person or entity to
merge into it, or acquire (in a transaction analogous in purpose or effect
to a consolidation or merger) all or substantially all of the assets of any
other person or entity, nor liquidate, dissolve, suspend business
operations or sell all or substantially all of its assets.
M. Benefit to Third Persons. Except for credit sales made in the ordinary
course of business, the Borrower shall not lend money to or guaranty the
payment or performance of any liabilities of any third person who is a
shareholder, officer, employee or otherwise related to or closely
associated with the Borrower.
N. Equipment and Operating Leases. The Borrower shall not create, incur,
assume, or suffer to exist any equipment or operating lease obligations
other than lease obligations incurred in the ordinary course of business of
the Borrower as such business is presently conducted.
O. Capital Expenditures. The Borrower shall not pay or incur, or commit to
pay or incur, any capital expenditures (including capitalized lease
obligations) during any fiscal year of the Borrower which exceed $2,000,000
in the aggregate; provided, however, that financing of up to $5,500,000 for
the Borrower's new headquarters facility shall be excluded from this
equation.
P. Loans, Guaranties and Investments. Except for the investments in and
loans to the subsidiaries and affiliates described on Exhibit E hereto, the
Borrower shall not assume, guarantee, endorse, contingently agree to
purchase or otherwise become liable (directly or indirectly, absolutely or
contingently) in connection with the obligations of any other person, firm
or corporation, nor shall the Borrower make or permit to exist any loans or
advances by the Borrower to, or purchase or otherwise acquire all or any
substantial portion of the assets of, or shares of stock or similar
interest in or to any other person, corporation or entity.
Q. Other Borrowings. Except as described on Exhibit E hereto, the Borrower
shall not borrow or obtain any loan or advance from, or otherwise be or
become indebted for money borrowed from, any person, firm, corporation
(including, without limitation, the Banks), partnership, association or
other entity, other than (i) current accounts payable incurred by the
Borrower in the ordinary course of its business, provided that the same
shall be paid when due in accordance with customary trade terms unless
contested by appropriate proceedings; (ii) the endorsement to the Agent of
checks payable to the order of the Borrower in the ordinary course of
business and (iii) capital lease obligations permitted by Section 7.O.
hereof; provided, however, that financing of up to $5,500,000 for the
Borrower's new headquarters facility shall be excluded from this equation.
<PAGE>
R. Financial Covenants. The Borrower will maintain on a consolidated basis:
(i) A ratio of Indebtedness to Net Worth no greater than 2.0:1.0
during the fiscal year ending February 28, 1996 and no greater than
1.5:1.0 at any time thereafter.
(ii) From February 28, 1996, through February 27, 1997, the Borrower
shall maintain a Net Worth of at least $22,000,000 at all times and
from February 28, 1997, and at all times thereafter the Borrower shall
maintain a Net Worth of at least $24,000,000.
(iii) At the end of each of the calendar quarters ended May 31, August
31, November 30, of each year, an After-Tax Net Income of at least
$1.00 and a cumulative After-Tax Net Income of at least $2,000,000 at
fiscal years ending February 28, 1996 and February 28, 1997.
S. Non-Business Assets. The Borrower shall not purchase, lease or otherwise
acquire any right, title or interest in or to, any real or personal
property not directly related to or necessary in connection with the
present operations of the Borrower.
T. Notification. The Borrower shall notify the Agent immediately of a
change in location of any of the Collateral.
U. Redemptions, Dividends. The Borrower shall not purchase or redeem or
agree to purchase or redeem, any of its capital stock nor shall the
Borrower pay or declare any dividends in any calendar year without the
approval of the Banks (other than non-cash dividends) with respect to any
of its capital stock.
V. Access. The Borrower shall grant to the Banks' agents and any entity
authorized by the Banks access to its property at any reasonable time in
order to inspect the Collateral, the Borrower's property and business.
W. Transfer of the Collateral. The Borrower shall not sell, dispose of,
lease, mortgage, assign, sublet or transfer any of its right, title or
interest in or to the Collateral (other than sales of Collateral consisting
of inventory in the ordinary course of Borrower's business) without the
prior written consent of the Banks.
X. Pension Plans. The Borrower shall maintain any pension plan in
compliance with all material requirements of ERISA, the Internal Revenue
Code, and all other applicable laws, rules, regulations and rulings.
8. EVENTS OF DEFAULT AND REMEDIES. Any one or more of the following events
and circumstances shall constitute an Event of Default:
A. the Borrower shall fail to pay when due any amounts required to be paid
by the Borrower under the Notes, the Borrower Documents or any other
indebtedness of the Borrower to the Banks or any material indebtedness to
any third party whether any such indebtedness is now existing or hereafter
arises and whether direct or indirect, due or to become due, absolute or
contingent, primary or secondary or joint or joint and several; or
<PAGE>
B. the Borrower shall fail to observe or perform any covenant, condition or
agreement to be observed or performed by it under any of the Borrower
Documents or any other document related hereto for a period of thirty (30)
days after written notice, specifying such default and requesting that it
be remedied, given to the Borrower by any of the Banks, unless the Banks
shall agree in writing to an extension of such time prior to its
expiration, or for such longer period as may be reasonable necessary to
remedy such default (other than defaults which can be cured by a money
payment) provided that the Borrower is proceeding with reasonable diligence
to remedy the same; or
C. the Borrower shall be in default in the performance of any covenants or
obligation under any other document or instrument heretofore or hereafter
executed and delivered to the Banks by such party in connection with any
other loan or credit transaction(s) and such default is not cured within
the period, if any, allowed by such documents for the cure thereof; or
D. the Borrower shall file a petition in bankruptcy or for reorganization
or for an arrangement pursuant to any present or future state or federal
bankruptcy act or under any similar federal or state law, or shall be
adjudicated to be bankrupt or insolvent, or shall make a general assignment
for the benefit of its creditors, or shall be unable to pay its debts
generally as they become due; or if an order for relief under any present
or future federal bankruptcy act or similar state or federal law shall be
entered against the Borrower; or if a petition or answer requesting or
proposing the entry of such order for relief or the adjudication of the
Borrower as a debtor or to be bankrupt or its reorganization under any
present or future state or federal bankruptcy act or any similar federal or
state law shall be filed in any court and such petition or answer shall not
be discharged or denied within ninety (90) days after the filing thereof;
or if a receiver, trustee or liquidator of the Borrower or of all or
substantially all of the assets of the Borrower; or the Collateral, or any
part thereof, shall be appointed in any proceeding brought against the
Borrower and shall not be discharged within ninety (90) days of such
appointment; or if the Borrower shall consent to or acquiesce in such
appointment; or if any property of the Borrower (including, without
limitation, the estate or interest of the Borrower in the Collateral, or
any part thereof) shall be levied upon or attached in any proceeding; or
E. final judgment(s) for the payment of money in excess of $100,000 and not
covered by insurance shall be rendered against the Borrower and shall
remain undischarged for a period of thirty (30) days during which execution
shall not be effectively stayed; or
F. the Borrower shall be or become insolvent (whether in the equity or
bankruptcy sense); or
<PAGE>
G. any representation or warranty made by the Borrower herein or in any
document related hereto shall prove to be untrue or misleading in any
material respect, or any statement, certificate or report furnished
hereunder or under any of the foregoing documents by or on behalf of the
Borrower shall prove to be untrue or misleading in any material respect on
the date when the facts set forth and recited therein are stated or
certified; or
H. the Borrower shall liquidate, wind up, merge, dissolve, terminate or
suspend its respective business operations, or sell all or substantially
all of its respective assets, without the prior written consent of the
Banks; or
I. the Borrower shall sell, dispose of, lease, mortgage, assign, sublet or
transfer any of its right, title or interest in or to the Collateral
(except as expressly provided herein or in the Security Agreement) without
the prior written consent of the Banks; or
J. the Borrower shall fail to pay, withhold, collect or remit any tax or
tax deficiency when assessed or due or notice of any state or federal tax
lien shall be filed or issued; or
K. any property of the Borrower (including, without limitation, the
Collateral), shall be garnished or attached in any proceeding and such
garnishment or attachment shall remain undischarged for a period of thirty
(30) days during which execution is not effectively stayed; or
L. the outstanding and unpaid loans under Section 2.A. hereof shall exceed
the Borrowing Base Amount and the Borrower shall fail within two (2)
business days following receipt of written notice to the Borrower to pay
such loans down to an amount not greater than the Borrowing Base Amount.
Upon the occurrence of an Event of Default and at any time thereafter, any one
or more of the following remedial steps may be taken by the Agent, on behalf of
the Banks, upon the direction of the Banks:
a) by written notice to the Borrower, declare all or part of the principal
balance of the Notes plus accrued interest thereon to be immediately due
and payable, whereupon the same shall become immediately due and payable by
the Borrower;
b) take whatever action at law or in equity as may appear necessary or
appropriate to collect the amounts then due and thereafter to become due
under the Notes and/or the other Borrower Documents; and
c) take whatever action in law or in equity as may appear necessary or
appropriate to collect any other amounts then due and thereafter to become
due under this Agreement and the documents related hereto and to enforce
performance and observance of any obligation, agreement or covenant of the
Borrower thereunder.
9. TERMINATION. Upon the occurrence of an Event of Default, the Revolving
Commitment of the Banks shall terminate without further notice to the Borrower.
10. NOTICES. All notices, consents, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered by mail, postage prepaid, first class, certified or registered mail,
return receipt requested, to the following address or such other address of
which a party subsequently may give notice to all the other parties:
<PAGE>
IF TO MARQUETTE:
Marquette Capital Bank
4000 Dain Bosworth Plaza
P.O. Box 1000
60 South Sixth Street
Minneapolis, MN 55480-1000
Attention: Todd A. Nieland
IF TO LASALLE:
LaSalle National Bank
135 South LaSalle Street
Chicago, IL 60603
Attention: Jay Goldner
IF TO FIRSTAR:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Peter M. Kronberg
IF TO THE BORROWER:
First Team Sports, Inc.
2274 Woodale Drive
Mounds View, Minnesota 55112-4900
Attention: Robert Lenius
11. MISCELLANEOUS.
A. Waivers, Amendments, etc. No amendment, modification or waiver that
increases the Revolving Loan Amount or "Percentage of Aggregate
Outstandings" of any Bank (as defined in that certain Intercreditor and
Collateral Agency Agreement of even date herewith, entered into by and
among the Banks), (ii) changes the definition of the Borrowing Base Amount
or Eligible Receivables, (iii) reduces the Revolving Loan Amount, (iv)
modifies the interest rate or postpones the date fixed for any payment of
<PAGE>
principal or interest due or to become due hereunder, under the Notes or
under any related documents, (v) releases any material portion of the
Collateral or any other security pledged by the Borrower, except as
contemplated by this Agreement, the Security Agreement, or the other
Borrower Documents, or (vi) amends, modifies or waives one or more of the
financial covenants set forth in Section 7.R. or this Section 11.A., shall
be effective unless such amendment, modification or waiver is in writing
and consented to by all of the Banks. All other provisions of this
Agreement, including the closing conditions set forth herein, and of each
Borrower Document may from time to time be amended, modified or waived,
only if such amendment, modification or waiver is consented to in a writing
executed by at least two of the Banks. Notwithstanding anything to the
contrary herein, no amendment, modification or waiver that increases,
decreases or otherwise affects the Term Loan or the Term Loan Amount shall
be effective unless such amendment, modification or waiver is in writing
and consented to by Marquette. No failure or delay on the part of any Bank
or the holder of any Note in exercising any power or right under this
Agreement, the Security Agreement or any other Borrower Document executed
pursuant hereto shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No notice to
or demand on the Borrower in any case shall entitle it to any notice or
demand in similar or other circumstances. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
B. Expenses. The Borrower shall reimburse the Banks for any and all costs
and expenses, including, without limitation, reasonable attorneys' fees,
paid or incurred by any of the Banks in connection with (i) the preparation
of the Borrower Documents and any other document or agreement related
hereto or thereto, and the transactions contemplated hereby, which amount
shall be paid prior to the making of any advance hereunder; (ii) the
negotiation of any amendments, modifications or extensions to or any of the
foregoing documents, instruments or agreements and the preparation of any
and all documents necessary or desirable to effect such amendments,
modifications or extensions; and (iii) enforcement by the Banks during the
term hereof or thereafter of any of the rights or remedies of the Banks
under any of the foregoing documents, instruments or agreements or under
applicable law, whether or not suit is filed with respect thereto and
whether or not such costs are paid or incurred, or to be paid or incurred,
prior to or after the entry of judgment.
C. Amendments, etc. The Borrower Documents may not be amended or modified,
nor may any of their terms (including, without limitation, terms affecting
the maturity of or rate of interest on the Revolving Notes) be modified or
waived, except by written instruments signed by the Banks and the Borrower.
Terms contained in the Borrower Documents affecting only the maturity of or
rate of interest on the Term Notes may be modified or waived only by
written instruments signed by Marquette and the Borrower.
D. Successors. This Agreement shall be binding upon and inure to the
benefit of the Borrower and the Banks and their respective successors and
assigns; provided, however, that the Borrower may not transfer or assign
its rights to borrow hereunder without the prior written consent of the
Banks.
<PAGE>
E. Offsets. Nothing in this Agreement shall be deemed a waiver or
prohibition of the Banks' rights of banker's lien, offset, or counterclaim,
which right the Borrower hereby grants to the Banks.
F. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement,
and any of the parties hereto may execute this Agreement by signing any
such counterpart.
G. Accounting. Unless otherwise expressly provided herein, or unless the
Banks otherwise consent in writing, all accounting terms used herein which
are not expressly defined in this Agreement shall have the meanings
respectively given to them in accordance with generally accepted accounting
principles and all financial statements and reports furnished to the Agent
hereunder shall be prepared, and all computations and determinations
pursuant hereto shall be made, in accordance with generally accepted
accounting principles and practices, applied on a basis not materially
inconsistent with that applied in preparing the respective financial
statements referred to in Sections 6.D. and 7.A.(i) hereof.
H. Governing Law. The Borrower Documents and all other agreements related
hereto, shall be construed in accordance with and governed by the laws of
the State of Minnesota.
I. Headings. The descriptive headings for the several sections of this
Agreement are inserted for convenience only and shall not define or limit
any of the terms or provisions hereof.
J. Term. Unless sooner terminated by any party pursuant to the provisions
hereof, the original term of this Agreement shall commence as of the date
hereof and continue thereafter until the Notes, and all other Borrower's
Obligations have been paid in full and the Revolving Commitment of the
Banks has expired pursuant to Section 2 hereof, which term may be extended
by written agreement of the parties hereto. Notwithstanding anything to the
contrary contained herein, the Banks shall not be obligated to extend the
term hereof pursuant to this subsection under any circumstances or
conditions whatsoever, and the Borrower hereby acknowledges that the Banks
have not agreed, warranted or represented in any manner whatsoever that
they would extend the Revolving Commitment of the Banks. The Borrower shall
be entitled to terminate the Revolving Commitment of the Banks at any time
the then outstanding and unpaid balance of the Revolving Notes is zero by
giving written notice of said termination to the Banks. The Borrower may
terminate this Agreement by written notice to the Banks at any time the
then unpaid principal balances of the Notes, and any other Borrower's
Obligations are zero and the Revolving Commitment of the Banks has either
expired or been terminated by either the Banks or the Borrower pursuant to
the provisions hereof.
<PAGE>
K. Agent. Borrower hereby acknowledges that, the Banks have appointed
Marquette as Agent to exercise certain rights, remedies and obligations of
the Banks hereunder. The Borrower may rely upon the designations,
appointment and authorization conferred upon the Agent and agrees to
deliver and submit all reports and to make all payments required hereunder
or under any of the Borrower Documents in the manner designated by the
Agent, for the benefit of the Banks. The obligations of the Banks hereunder
are several, and no Bank shall be responsible for the obligations of any
other Bank hereunder, nor will the failure of any other Bank to perform any
of its obligations hereunder relieve the Agent or any other Bank from the
performance of its obligations hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
MARQUETTE CAPITAL BANK,
individually and as Agent
By: /s/ Todd A. Nieland
Its: Vice President
LASALLE NATIONAL BANK
By: /s/ Jay Goldner
Its: Vice President
FIRSTAR BANK MILWAUKEE, N.A.
By: /s/ Peter M. Kronberg
Its: Vice President
FIRST TEAM SPORTS, INC.
By: Robert Lenius Jr.
Its: VP/CFO
<PAGE>
EXHIBIT A
BORROWER'S CERTIFICATE
[TO BE PROVIDED BY MARQUETTE]
<PAGE>
EXHIBIT B
PERMITTED INTERESTS
None
<PAGE>
EXHIBIT C
TERM NOTE
$__________________ Minneapolis, Minnesota
______________, 19____
1. FOR VALUE RECEIVED, FIRST TEAM SPORTS, INC., a Minnesota corporation (the
"Borrower"), hereby promises to pay to the order of MARQUETTE CAPITAL BANK, a
Minnesota banking association ("Bank"), at its banking house located in
Minneapolis, Minnesota, the principal sum of ______________________________ AND
00/100 DOLLARS ($____________), in lawful money of the United States and
immediately available funds, together with interest on the unpaid balance
accruing as of the date hereof at a rate at all times equal to [either (i)
one-fourth percent (1/4%) per annum in excess of the "Prime Rate of Interest"
(as that term is defined below) as the same may change from time to time and be
adjusted in the manner and at the times hereinafter provided for (the "Variable
Rate Option"), or (ii) four percent (4%) in excess of the Bank's cost of funds
(the "Fixed Rate Option"), such rate to be chosen by the Borrower upon execution
of this Note.]
2. Principal and accrued interest on this Note shall be due and payable in
thirty-five (35) equal monthly installments of $________________ each commencing
on _____________ 1, 19___, and continuing on the first (lst) day of each
calendar month thereafter until and including _______________ 1, 199__, and in
one (1) final installment on _____________, 19___ ("Maturity Date") equal to
$_______________.
3. [The term "Prime Rate of Interest" shall mean the prime rate of interest (or
equivalent successor rate) set and announced from time to time by the Bank as a
basis for determining the rate of interest on commercial borrowing, whether or
not the Bank makes loans to other customers at, above or below said Prime Rate
of Interest.]
4. [If the Borrower chooses the Variable Rate Option, the rate of interest due
hereunder shall initially be determined as of the date hereof and shall
thereafter be adjusted, as and when, and on the same day that, the Prime Rate of
Interest changes (each such day hereinafter being referred to as an "Adjustment
Date"). All such adjustments to said rate shall be made and become effective as
of the Adjustment Date and said rate as adjusted shall remain in effect until
and including the day immediately preceding the next Adjustment Date. Under both
the Variable Rate Option and the Fixed Rate Option, interest hereunder shall be
computed on the basis of a year of three hundred sixty (360) days but charged
for actual days principal is unpaid.]
5. All payments and prepayments shall be applied first to costs of collection,
if any, second to any late charges, third to accrued interest and the remainder
thereof to installments of principal in the inverse order of maturity.
6. This Note is issued pursuant to the revolving credit and term loan agreement
("Credit Agreement") of even date herewith by and between the Borrower and the
Bank, and is entitled to all of the benefits provided for in said agreement.
<PAGE>
7. This Note may be prepaid at any time, at the option of the Borrower, either
in whole or in part, without premium or penalty. All payments made by the
Borrower hereunder using proceeds derived from any insurance policy covering any
property securing this Note or from any condemnation award with respect thereto
or from the sale of any collateral securing this Note (whether or not with the
consent of the Bank) shall, unless otherwise agreed in writing, be deemed a
prepayment for purposes of this Note.
8. If any installment of principal or interest due hereunder is not paid within
twenty (20) days of the due date thereof, the Borrower shall pay to the Bank a
late charge equal to two and one-half percent (2.5%) of the amount of such
installment.
9. Upon the occurrence of an Event of Default, and at any time thereafter, the
Bank shall have the right to set off any and all amounts due hereunder by the
Borrower to the Bank against any indebtedness or obligation of the Bank to the
Borrower.
10. The Borrower promises to pay all costs of collection of this Note, including
but not limited to reasonable attorneys' fees, paid or incurred by the Bank on
account of such collection, whether or not suit is filed with respect thereto
and whether or not such cost or expense is paid or incurred, or to be paid or
incurred, prior to or after the entry of judgment.
11. As used herein, the term "Event of Default" shall mean and include any one
or more of the events listed in Section 8 of the Credit Agreement.
12. Upon the occurrence of an Event of Default, and at any time thereafter, the
unpaid principal balance hereof plus accrued interest hereon plus all other
amounts due hereunder shall, at the option of the Bank, be immediately due and
payable, without notice or demand.
13. Demand, presentment, protest and notice of nonpayment and dishonor of this
Note are hereby waived.
14. This Note shall be governed by and construed in accordance with the internal
laws of the State of Minnesota.
FIRST TEAM SPORTS, INC.
By:
Its:
<PAGE>
EXHIBIT D
LITIGATION
<PAGE>
EXHIBIT E
LOANS; GUARANTEES; INVESTMENTS; OTHER BORROWINGS
<PAGE>
FIRST AMENDMENT OF LOAN DOCUMENTS
This Agreement, made as of the 1st day of November 1995, by and between FIRST
TEAM SPORTS, INC., a Minnesota corporation (the "Borrower") and MARQUETTE
CAPITAL BANK, a Minnesota banking association ("Marquette") and, in its capacity
as agent for the "Banks" (hereinafter defined) (the "Agent"), LASALLE NATIONAL
BANK, a national banking association ("LaSalle") and FIRSTAR BANK MILWAUKEE,
N.A., a national banking association ("Firstar") (Marquette, LaSalle and Firstar
are sometimes referred to herein collectively as the "Banks").
W I T N E S S E T H:
WHEREAS, the Banks and the Borrower previously entered into that certain
restated revolving credit and term loan agreement dated as of June 30, 1995, and
as heretofore and hereinafter amended (the "Credit Agreement"); and
WHEREAS, the Banks previously made loans to the Borrower evidenced by the
"Revolving Notes" and Marquette has previously extended a term loan to the
Borrower evidenced by the "Term Notes" referred to and defined in the Credit
Agreement, each executed by the Borrower and payable to the order of the Banks
or Marquette, respectively (collectively, the "Notes"); and
WHEREAS, the Borrower has requested and the Banks have agreed to increase the
maximum amount of capital expenditures for the fiscal year ending February 28,
1996; and
WHEREAS, the Borrower has requested and the Banks have agreed to waive certain
of the Borrower's reporting requirements; and
WHEREAS, the Banks have agreed to such amendments to the Credit Agreement on the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing premises and the covenants and
conditions contained herein, the receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Banks do each hereby agree to amend the
Credit Agreement as follows:
1. Provided no Event of Default has occurred under the Credit Agreement or any
of the other Borrower Documents, the Borrower shall not be required to deliver
to Marquette the financial information required under Sections 7.A.(iii) and
7.A.(vii) of the Credit Agreement.
2. Section 7.O. of the Credit Agreement is hereby deleted in its entirety and
the following shall be substituted therefor:
O. Capital Expenditures. The Borrower shall not pay or incur, or commit
to pay or incur, any capital expenditures (including capitalized lease
obligations) for the fiscal year ending February 28, 1996 which exceed
$3,000,000 in the aggregate; provided, however, that financing of up to
$5,500,000 for the Borrower's new headquarters facility shall be
excluded from this equation. For fiscal year ending February 28, 1997
and each fiscal year thereafter, the Borrower shall not pay or incur,
or commit to pay or incur, any capital expenditures (including
capitalized lease obligations) which exceed $2,000,000 in the
aggregate.
<PAGE>
3. The Borrower hereby restates and reaffirms as of the date hereof all of the
representations, warranties and covenants contained in the Notes, the Credit
Agreement, and any and all other documents related thereto, as if said
representations, warranties, and covenants were fully set forth herein.
4. The Borrower further agrees that, except as expressly amended herein, the
Credit Agreement, Notes, the Borrower Documents (as that term is defined in the
Credit Agreement) and all related documents remain in full force and effect as
of the date hereof in accordance with their original terms, are not subject to
any existing defenses, counterclaims or rights to setoff and fully secure the
Notes.
5. The Borrower hereby agrees to execute such other and further agreements,
documents and instruments as are deemed necessary or advisable by the Banks in
order to effectuate the purposes of the foregoing.
IN WITNESS WHEREOF, the Borrower and the Banks have executed and delivered this
Amendment as of the day and year first above written.
MARQUETTE CAPITAL BANK, FIRSTAR BANK MILWAUKEE, N.A.
individually and as Agent
By: /s/ Todd A. Nieland By: /s/ Peter M. Kronberg
Its Vice President Its: Vice President
LASALLE NATIONAL BANK FIRST TEAM SPORTS, INC.
By: /s/ Jay Goldner By: /s/ Robert Lenius, Jr.
Its Vice President Its: Vice President/CFO
<PAGE>
SECOND AMENDMENT OF LOAN DOCUMENTS
This Agreement, made as of the 1st day of August 1996, by and between FIRST TEAM
SPORTS, INC., a Minnesota corporation (the "Borrower") and MARQUETTE CAPITAL
BANK, a Minnesota banking association ("Marquette") and, in its capacity as
agent for the "Banks" (hereinafter defined) (the "Agent"), LASALLE NATIONAL
BANK, a national banking association ("LaSalle") and FIRSTAR BANK MILWAUKEE,
N.A., a national banking association ("Firstar") (Marquette, LaSalle and Firstar
are sometimes referred to herein collectively as the "Banks").
W I T N E S S E T H:
WHEREAS, the Banks and the Borrower previously entered into that certain
restated revolving credit and term loan agreement dated as of June 30, 1995, and
as heretofore and hereinafter amended (the "Credit Agreement"); and
WHEREAS, the Banks previously made loans to the Borrower evidenced by the
"Revolving Notes" and Marquette has previously extended a term loan to the
Borrower evidenced by the "Term Notes" referred to and defined in the Credit
Agreement, each executed by the Borrower and payable to the order of the Banks
or Marquette, respectively (collectively, the "Notes"); and
WHEREAS, the Borrower has requested and the Banks have agreed to certain
modifications of the Credit Agreement and Notes on the terms and conditions
contained herein.
NOW, THEREFORE, in consideration of the foregoing premises and the covenants and
conditions contained herein, the receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Banks do each hereby agree to amend the
Credit Agreement as follows:
1. The interest rate payable by the Borrower under the Notes is hereby reduced
from "one-fourth percent (.25%) in excess of the Prime Rate of Interest" to
"fifty-five one hundredths percent (55/100%) less than the Prime Rate of
Interest." Each of the Notes is hereby amended to reflect the foregoing interest
rate reduction.
2. The Borrower hereby restates and reaffirms as of the date hereof all of the
representations, warranties and covenants contained in the Notes, the Credit
Agreement, and any and all other documents related thereto, as if said
representations, warranties, and covenants were fully set forth herein.
3. The Borrower further agrees that, except as expressly amended herein, the
Credit Agreement, Notes, the Borrower Documents (as that term is defined in the
Credit Agreement) and all related documents remain in full force and effect as
of the date hereof in accordance with their original terms, are not subject to
any existing defenses, counterclaims or rights to setoff and fully secure the
Notes.
<PAGE>
4. The Borrower hereby agrees to execute such other and further agreements,
documents and instruments as are deemed necessary or advisable by the Banks in
order to effectuate the purposes of the foregoing.
IN WITNESS WHEREOF, the Borrower and the Banks have executed and delivered this
Amendment as of the day and year first above written.
MARQUETTE CAPITAL BANK, FIRSTAR BANK MILWAUKEE, N.A.
individually and as Agent
By: /s/ Todd A .Nieland By: /s/Hunt Gildner
Its Vice President Its: Vice President
LASALLE NATIONAL BANK FIRST TEAM SPORTS, INC.
By: /s/ C. Brant Ahrens By: /s/ Robert Lenius Jr.
Its Loan Officer Its: VP/CFO
<PAGE>
THIRD AMENDMENT OF LOAN DOCUMENTS
This Agreement, made as of the 28th day of May, 1997, by and between FIRST TEAM
SPORTS, INC., a Minnesota corporation (the "Borrower") and MARQUETTE CAPITAL
BANK, a Minnesota banking association ("Marquette") and, in its capacity as
agent for the "Banks" (hereinafter defined) (the "Agent"), LASALLE NATIONAL
BANK, a national banking association ("LaSalle") and FIRSTAR BANK MILWAUKEE,
N.A., a national banking association ("Firstar") (Marquette, LaSalle and Firstar
are sometimes referred to herein collectively as the "Banks").
W I T N E S S E T H:
WHEREAS, the Banks and the Borrower previously entered into that certain
restated revolving credit and term loan agreement dated as of June 30, 1995, and
as heretofore and hereinafter amended (the "Credit Agreement"); and
WHEREAS, the Banks previously made loans to the Borrower evidenced by the
"Revolving Notes," and Marquette has previously extended term loans to the
Borrower, and will in the future extend additional term loans to the Borrower,
as evidenced by the "Term Notes" referred to and defined in the Credit
Agreement, each executed by the Borrower and payable to the order of the Banks
or Marquette, respectively (collectively the "Notes"); and
WHEREAS, the Borrower has requested and the Banks have agreed to certain
modifications of the Credit Agreement and Notes on the terms and conditions
contained herein.
NOW, THEREFORE, in consideration of the foregoing premises and the covenants and
conditions contained herein, the receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Banks do each hereby agree to amend the
Credit Agreement as follows:
1. Section I.J. of the Credit Agreement is hereby deleted in its entirety and
the following shall be substituted therefore:
J. Expiration Date: the date that first occurs: (i) July 1, 1999, or (ii)
the occurrence of an Event of Default.
2. Section 7.O. of the Credit Agreement is hereby deleted in its entirety and
the following shall be substituted therefore:
O. Capital Expenditures. The Borrower shall not pay or incur, or commit to
pay or incur, any capital expenditures (including capitalized lease
obligations) during any fiscal year of the Borrower which exceed $2,000,000
in the aggregate.
3. Section 7.R. of the Credit Agreement is hereby deleted in its entirety and
the following shall be substituted therefore:
<PAGE>
R. Financial Covenants. The Borrower will maintain on a consolidated basis:
(i) A ratio of Indebtedness to Net Worth no greater than 1.5:1.0 on
February 28, 1996 and at all times thereafter.
(ii) From February 27, 1997, through February 27, 1998, the Borrower
shall at all times maintain a Net Worth of at least $31,000,000, and
from February 28, 1998 and at all times thereafter the Borrower shall
maintain a Net Worth of at least $33,000,000.
(iii) A cumulative After-Tax Net Income of at least $2,000,000 for the
fiscal years ending February 28, 1998 and February 28, 1999.
4. The Firstar Bank Milwaukee, N.A. address referred to in Section 10 of the
Credit Agreement is hereby deleted in its entirety and the following shall be
substituted therefore:
IF TO FIRSTAR:
Firstar Bank Milwaukee, N.A.
101 East Fifth Street, 9th Floor
St. Paul, Minnesota 55101
Attention: Hunt W. Gildner
5. Exhibit A to the Credit Agreement is hereby deleted in its entirety and the
new "Borrower's Certificate" attached hereto as Schedule I shall be substituted
therefor.
6. The Banks and the Borrower hereby acknowledge and agree that Marquette is
making a new $1,000,000 term loan to the Borrower under Section 2.B. of the
Credit Agreement, as evidenced by that certain $1,000,000 term note of even date
herewith, executed by the Borrower and payable to the order of Marquette (the
"1997 Term Note"). Accordingly, the Credit Agreement and all related documents
are hereby amended to reflect that the new $1,000,000 term loan evidenced by the
1997 Term Note shall constitute a "Term Loan" under the Credit Agreement and the
terms "Term Loan," "Term Loan Amount" and "Term Notes" contained in the Credit
Agreement shall include and incorporate such loan and the 1997 Term Note.
7. The Banks hereby agree that, except as expressly amended herein, the Credit
Agreement remains in full force and effect as of the date hereof and in
accordance with its original terms.
8. The Borrower hereby acknowledges and agrees that it will pay up to $1,000 of
the Bank's legal expenses incurred in connection with the negotiation,
preparation, delivery and execution of this Amendment and the documents related
hereto.
<PAGE>
9. The Borrower hereby restates and reaffirms as of the date hereof all of the
representations, warranties and covenants contained in the Notes, the Credit
Agreement, and any and all other documents related thereto, as if said
representations, warranties, and covenants were fully set forth herein.
10. The Borrower further agrees that, except as expressly amended herein, the
Credit Agreement, Notes, the Borrower Documents (as that term is defined in the
Credit Agreement) and all related documents remain in full force and effect as
of the date hereof in accordance with their original terms, are not subject to
any existing defenses, counterclaims or rights to setoff and flay secure the
Notes.
11. The Borrower hereby agrees to execute such other and further agreements,
documents and instruments as are deemed necessary or advisable by the Banks in
order to effectuate the purposes of the foregoing.
IN WITNESS WHEREOF, the Borrower and the Banks have executed and delivered this
Amendment as of the day and year first above written.
MARQUETTE CAPITAL BANK, FIRSTAR BANK MILWAUKEE, N.A.
individually and as Agent
By: /s/ Todd A. Nieland By: /s/ Hunt Gildner
Its: Vice President Its Vice President
LASALLE NATIONAL BANK FIRST TEAM SPORTS, INC.
By: /s/ Jay Goldner By: /s/ Robert Lenius Jr.
Its Vice President Its VP/CFO
RESTATED SECURITY AGREEMENT
THIS SECURITY AGREEMENT, is made as of the 30th day of June, 1995, by FIRST TEAM
SPORTS, INC., a Minnesota corporation (the "Debtor") in favor of MARQUETTE
CAPITAL BANK, a Minnesota banking association with its main banking house
located in Minneapolis, Minnesota ("Marquette"), LASALLE NATIONAL BANK, a
national banking association ("LaSalle") and FIRSTAR BANK MILWAUKEE, N.A., a
national banking association ("Firstar") (Marquette, LaSalle and Firstar are
referred to herein collectively and individually, as the context requires, as
the "Secured Party"), with Marquette being appointed as the Agent of the Secured
Party for the purposes of exercising any of the Secured Party's rights and
remedies hereunder (in such capacity the "Agent").
In order to secure the payment of the Term Notes which may be executed from time
to time by the Debtor and payable to the order of Marquette in the maximum
aggregate amount of $1,000,000 (the "Term Notes"), two separate $6,000,000
Amended and Restated Revolving Notes of even date herewith executed by the
Debtor and payable to the order of, respectively, Marquette and LaSalle, and a
$3,000,000 Revolving Note of even date herewith executed by the Debtor and
payable to the order of Firstar, as heretofore and hereinafter amended, (the
"Revolving Notes") (collectively, the Term Notes and the Revolving Notes are
referred to herein as the "Notes"), and each and every other debt, liability and
obligation of every type and description which Debtor may now or at any time
hereafter owe to Secured Party (whether such debt, liability or obligation now
exists or is hereafter created or incurred, whether it arises under or is
evidenced by this Agreement or any other present or future instrument or
agreement or by operation of law, and whether it is or may be direct or
indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or sole, joint, several or joint and several) (said
Notes and all such other debts, liabilities and obligations of Debtor to Secured
Party herein collectively referred to as the "Secured Obligations", Debtor
hereby agrees as follows:
1. SECURITY INTEREST AND COLLATERAL. In order to secure the payment and
performance of the Secured Obligations, Debtor hereby grants to Secured Party a
security interest (the "Security Interest") in and to the following property
(hereinafter collectively referred to as the "Collateral"):
any and all accounts, goods, machinery, equipment, furniture, improvements,
inventory, prepaid insurance, supplies, patents, patent rights, copyrights,
trademarks, trade names, royalty rights, contract rights, instruments,
chattel paper and general intangibles, now owned or hereafter acquired by
Debtor, and wherever located,
together with all substitutions and replacements for and products and proceeds
of any of the foregoing property and, in the case of all tangible Collateral,
together with (i) all accessories, attachments, parts, equipment, accessions and
repairs now or hereafter attached or affixed to or used in connection with any
such goods, and (ii) all warehouse receipts, bills of lading and other documents
of title now or hereafter covering such goods.
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor hereby represents and
warrants to, and covenants and agrees with, Secured Party as follows:
(a) The Collateral will be used for business purposes. The Collateral which
constitutes inventory shall be located at the addresses described on
Exhibit A attached hereto.
(b) If any part or all of the tangible Collateral will become so related to
particular real estate as to become a fixture, the Debtor will promptly
advise Agent as to any real estate concerned and the record owner thereof
and execute and deliver any and all instruments necessary to perfect the
Security Interest therein and to assure that such Security Interest will be
prior to the interest therein of the owner of the real estate.
(c) Debtor's principal place of business and chief executive office is and
will continue to be located at the address specified on Exhibit A. Debtor's
records concerning its accounts are, and will continue to be, kept at such
address. During the preceding one (1) year Debtor has not changed its name
or operated or conducted business under any trade name or "d/b/a" which is
different from its corporate name. Debtor shall promptly notify the Agent
of any change in such name or if it operates or conducts business under any
trade name or "d/b/a" which is different from such name.
(d) Debtor has (or will have at the time Debtor acquires rights in
Collateral hereafter acquired or arising) and will maintain absolute title
to each item of Collateral free and clear of all security interests, liens
and encumbrances, except the Security Interest, and such other security
interests as are permitted under that certain restated revolving credit and
term loan agreement by and between Debtor and Secured Party of even date
herewith ("Credit Agreement") (the Security Interest and the security
interests permitted under the Credit Agreement are hereinafter collectively
referred to as the "Permitted Interests"), and will defend the Collateral
against all claims or demands of all persons other than Secured Party and
those holding Permitted Interests. Debtor will not sell or otherwise
dispose of the Collateral or any interest therein; provided, however, that
until demand for payment is made by Marquette, LaSalle or Firstar under the
Revolving Notes, or by Marquette under the Term Notes, Debtor may sell any
Inventory constituting Collateral to buyers in the ordinary course of its
business.
(e) The tangible Collateral is presently located in the state of Minnesota.
Debtor will not permit any tangible Collateral to be located in any state
(and, if county filing is required, in any county) in which a financing
statement covering such Collateral is required to be, but has not in fact
been, filed.
<PAGE>
(f) All rights to payment and all instruments, documents, chattel papers
and other agreements constituting or evidencing Collateral are (or will be
when arising or issued) the valid, genuine and legally enforceable
obligation, subject to no defense, set-off or counterclaim (other than
those arising in the ordinary course of business) of each account debtor or
other obligor named therein or in Debtor's records pertaining thereto as
being obligated to pay such obligation. Debtor will not agree to any
modification, amendment or cancellation of any such obligation without the
Secured Party's prior written consent, and will not subordinate any such
right to payment to claims of other creditors of such account debtor or
other obligor.
(g) Debtor will (i) keep all tangible Collateral in good repair, working
order and condition, normal depreciation excepted, and will, from time to
time, replace any worn, broken or defective parts thereof; (ii) other than
taxes and other governmental charges contested in good faith and by
appropriate proceedings, promptly pay all taxes and other governmental
charges levied or assessed upon or against any Collateral or upon or
against the creation, perfection or continuance of the Security Interest;
(iii) keep all Collateral free and clear of all security interests, liens
and encumbrances except the Permitted Interests; (iv) at all reasonable
times, permit the Secured Party or their representatives to examine or
inspect any Collateral, wherever located, and to examine, inspect and copy
Debtor's books and records pertaining to the Collateral and its business
and financial condition; (v) keep accurate and complete records pertaining
to the Collateral and pertaining to Debtor's business and financial
condition and will submit to the Agent such periodic reports concerning the
Collateral and Debtor's business and financial condition as the Secured
Party may from time to time reasonably request; (vi) promptly notify the
Agent of any material loss of or material damage to any Collateral or of
any adverse change, known to Debtor, in the prospect of payment of any
material sums due on or under any instrument, chattel paper or account
constituting Collateral; (vii) if Agent at any time so requests promptly
deliver to Agent any instrument, document or chattel paper constituting
Collateral, duly endorsed or assigned by Debtor to Agent for the benefit of
the Secured Party; (viii) at alltimes keep all tangible Collateral insured
against risks of fire (including so called extended coverage), theft,
collision (in case of collateral consisting of motor vehicles) and such
other risks and in such amounts as Agent may reasonably request, and notify
the Bank in writing of any loss or damage to the Collateral or any part;
(ix) from time to time execute such financing statements as Secured Party
may reasonably deem required to be filed in order to perfect the Security
Interest and, if any Collateral is covered by a certificate of title,
execute such documents as may be required to have the Security Interest
<PAGE>
properly noted on a certificate of title; (x) pay when due or reimburse
Marquette and/or LaSalle and/or Firstar, as the case may be, on demand for
all costs of collection of any of the Secured Obligations and all other
out-of-pocket expenses (including in each case all reasonable attorneys'
fees) incurred by such Secured Party in connection with the creation,
perfection, satisfaction or enforcement of the Security Interest or the
execution or creation, continuance or enforcement of this Agreement or any
or all of the Secured Obligations; (xi) execute, deliver or endorse any and
all instruments, documents, assignments, security agreements and other
agreements and writings which Secured Party may at any time reasonably
request in order to secure, protect, perfect or enforce the Security
Interest and Secured Party's rights under this Agreement; (xii) not use or
keep any Collateral, or permit it to be used or kept, for any unlawful
purpose or in violation of any federal, state or local law, statute or
ordinance; and (xiii) not permit any tangible Collateral to become part of
or to be affixed to any real property, without first assuring to the
reasonable satisfaction of Agent that the Security Interest will be prior
and senior to any interest or lien then held or thereafter acquired by any
mortgagee of such real property or the owner or purchaser of any interest
therein. If Debtor at any time fails to perform or observe any agreement
contained in this Section 2(g), and if such failure shall continue for a
period of ten (10) calendar days after Agent gives Debtor written notice
thereof (or, in the case of the agreements contained in clauses (viii) and
(ix) of this Section 2(g), immediately upon the occurrence of such failure,
without notice or lapse of time) Agent may (but need not) perform or
observe such agreement on behalf and in the name, place and stead of Debtor
(or, at Agent's option, in Agent's name for the benefit of Secured Party)
and may (but need not) take any and all other actions which Agent may
reasonably deem necessary to cure or correct such failure (including,
without limitation, the payment of taxes, the satisfaction of security
interests, liens or encumbrances (other than Permitted Interests), the
performance of obligations under contracts or agreements with account
debtors or other obligors, the procurement and maintenance of insurance,
the execution of financing statements, the endorsement of instruments, and
the procurement of repairs, transportation or insurance); and, except to
the extent that the effect of such payment would be to render any loan or
forbearance of money usurious or otherwise illegal under any applicable
law, Debtor shall thereupon pay Agent on demand the amount of all moneys
expended and all costs and expenses (including reasonable attorneys' fees)
incurred by Agent in connection with or as a result of Agent's performing
or observing such agreements or taking such actions, together with interest
thereon from the date expended or incurred by Agent at the rate provided
for in the Notes. To facilitate the performance or observance by Agent of
such agreements of Debtor, Debtor hereby irrevocably appoints Agent for the
benefit of Secured Party, or its delegate, (which appointment is coupled
with an interest) as the attorney-in-fact of Debtor with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file, in the name and on behalf of Debtor, any and all
instruments, documents, financing statements, applications for insurance
and other agreements and writings required to be obtained, executed,
delivered or endorsed by Debtor under this Section 2.
3. ASSIGNMENT OF INSURANCE. Debtor hereby assigns to Agent for the benefit of
Secured Party, as additional security for the payment of the Secured
Obligations, any and all proceeds derived from, or due or to become due under,
any and all policies of insurance in connection with any loss or damage to any
of the Collateral, and Debtor hereby directs the issuer of any such policy to
pay any such moneys to the Agent. Provided no Event of Default has occurred and
is then continuing under the Credit Agreement or the Notes, the Debtor shall
have the right to use the proceeds of the insurance to repair or replace any of
its damaged or destroyed Collateral. Agent may (but need not), in its own name
or in Debtor's name, execute and deliver proofs of claim, receive all such
moneys (subject to Debtor's rights), endorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.
<PAGE>
4. COLLECTION OF ACCOUNTS. Pursuant to Minn. Stat. Section 336.9-502, Agent may,
after the occurrence of an Event of Default under the Credit Agreement or the
Notes, notify any account debtor or any obligor on an instrument to make payment
directly to a post office box specified by and under the sole control of Agent,
whether or not Agent was theretofore making collections with respect thereto,
and Agent shall be entitled to take control of any proceeds thereof, for the
benefit of the Secured Party. If so requested by Agent, Debtor shall insert
appropriate language on each invoice directing its customers to make payment to
such post office box.
5. REMEDIES. Agent, for the benefit of the Secured Party, may exercise any one
or more of the following rights or remedies if any or all of the Secured
Obligations are not paid when due: (i) exercise and enforce any or all rights
and remedies available after default to a secured party under the Uniform
Commercial Code, including but not limited to the right to take possession of
any Collateral, proceeding without judicial process or by judicial process
(without a prior hearing or notice thereof, which Debtor hereby expressly
waives), and the right to sell, lease or otherwise dispose of or use any or all
of the Collateral; (ii) Agent may require Debtor to assemble the Collateral and
make it available to Agent at a place to be designated by Agent which is
reasonably convenient to both parties; and (iii) exercise or enforce any or all
other rights or remedies available to Agent by law or agreement against the
Collateral, against Debtor or against any other person or property. If notice to
Debtor of any intended disposition of Collateral or any other intended action is
required by law in a particular instance, such notice shall be deemed
commercially reasonable if given (in the manner specified in Section 6 hereof)
at least ten (10) calendar days prior to the date of intended disposition or
other action.
6. MISCELLANEOUS. This Agreement does not contemplate a sale of accounts or
chattel paper, and, as provided by law, Debtor is entitled to any surplus and
shall remain liable for any deficiency. This Agreement may be waived, modified,
amended, terminated or discharged, and the Security Interest may be released,
only explicitly in a writing signed by Secured Party. A waiver signed by Secured
Party shall be effective only in the specific instance and for the purpose
given. Mere delay or failure to act shall not preclude the exercise or
enforcement of any of Secured Party's rights or remedies. All rights and
remedies of Secured Party shall be cumulative and may be exercised singularly or
concurrently, at Agent's option, and the exercise or enforcement of any one such
right or remedy shall neither be a condition to nor bar the exercise or
enforcement of any other. All notices to be given to Debtor shall be deemed
sufficiently given if deposited in the United States mails, registered or
certified, postage prepaid, or personally delivered to Debtor at its address set
forth in the Credit Agreement. Agent's duty of care with respect to Collateral
in its possession (as imposed by law) shall be deemed fulfilled if Agent
exercises reasonable care in physically safe keeping such Collateral or, in the
case of Collateral in the custody or possession of a bailee or other third
person, exercises reasonable care in the selection of the bailee or other third
person, and Marquette need not otherwise preserve, protect, insure or care for
any Collateral. Secured Party shall not be obligated to preserve any rights
Debtor may have against any other party, to realize on the Collateral at all or
in any particular manner or order, or to apply any cash proceeds of Collateral
<PAGE>
in any particular order of application. This Agreement shall be binding upon and
inure to the benefit of Debtor and Secured Party and their respective heirs,
representatives, successors and assigns and shall take effect when signed by
Debtor and delivered to Secured Party, and Debtor waives notice of Secured
Party's acceptance hereof. Secured Party may execute this Agreement if
appropriate for the purpose of filing, but the failure of Secured Party to
execute this Agreement shall not affect or impair the validity or effectiveness
of this Agreement. Except to the extent otherwise required by law, this
Agreement shall be governed by the laws of the State of Minnesota and, unless
the context otherwise requires, all terms used herein which are defined in
Articles 1 and 9 of the Uniform Commercial Code, as in effect in said state
(including but not limited to the terms "inventory" and "account") shall have
the meanings therein stated and all capitalized terms used herein which are
defined in the Credit Agreement (including but not limited to "Event of Default"
and "Notes") shall have the meanings therein stated. If any provision or
application of this Agreement is held unlawful or unenforceable in any respect,
such illegality or unenforceability shall not affect other provisions or
applications which can be given effect, and this Agreement shall be construed as
if the unlawful or unenforceable provision or application had never been
contained herein or prescribed hereby. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Secured
Obligations.
7. RESTATEMENT. This Restated Security Agreement constitutes a restatement of
and amendment to, and not a release of, that certain Security Agreement dated
March 6, 1995, executed by Debtor in favor of the Secured Party.
IN WITNESS WHEREOF, Debtor has executed and delivered to Secured Party this
Security Agreement as of the day and year first above written.
FIRST TEAM SPORTS, INC.
By: /s/ Robert L. Lenius, Jr.
Its: VP/CFO
<PAGE>
EXHIBIT A
(Business Locations)
Chief Executive Office:
2274 Woodale Drive
Mounds View, Minnesota 55112
Other Locations:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR PERIOD ENDED MAY 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<EXCHANGE-RATE> 1
<CASH> 396,540
<SECURITIES> 0
<RECEIVABLES> 25,337,481
<ALLOWANCES> 439,000
<INVENTORY> 19,545,676
<CURRENT-ASSETS> 46,497,027
<PP&E> 12,817,718
<DEPRECIATION> 3,037,354
<TOTAL-ASSETS> 58,555,835
<CURRENT-LIABILITIES> 16,010,896
<BONDS> 16,750,639
0
0
<COMMON> 57,600
<OTHER-SE> 34,606,700
<TOTAL-LIABILITY-AND-EQUITY> 58,555,835
<SALES> 26,007,262
<TOTAL-REVENUES> 26,007,262
<CGS> 19,050,049
<TOTAL-COSTS> 19,050,049
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 250,542
<INCOME-PRETAX> 2,857,686
<INCOME-TAX> 996,000
<INCOME-CONTINUING> 1,861,686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,861,686
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
