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.:
August 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: 5,789,499 shares of Common
Stock, $.01 par value per share, outstanding as of October 7, 1997.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS
August 31, 1997 and February 28, 1997
<TABLE>
<CAPTION>
August 31, February 28,
ASSETS 1997 1997
------------------- --------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $686,098 $381,427
Receivables:
Trade, less allowance for
doubtful accounts of $319,000 at
August 31, 1997 and $565,000 at
February 28, 1997 14,333,445 17,039,679
Refundable income taxes 113,675 258,492
Inventory 21,257,549 20,881,845
Prepaid expenses 588,743 612,880
Deferred income taxes 997,000 997,000
------------------- --------------------
Total current assets $37,976,510 $40,171,323
------------------- --------------------
PROPERTY AND EQUIPMENT, at cost
Land $600,000 $600,000
Building 4,988,680 4,988,680
Production equipment 5,265,453 4,715,979
Office furniture and equipment 1,845,310 1,754,017
Warehouse equipment 330,042 325,361
Vehicles 86,606 19,567
------------------- --------------------
$13,116,091 $12,403,604
Less accumulated depreciation 3,486,304 2,588,404
------------------- --------------------
$9,629,787 $9,815,200
------------------- --------------------
OTHER ASSETS
License agreements, less accumulated
amortization of $3,183,000 at August
31, 1997 and $3,039,000 at February
28, 1997 $1,921,842 $2,065,611
Other 269,947 291,367
------------------- --------------------
$2,191,789 $2,356,978
------------------- --------------------
$49,798,086 $52,343,501
=================== ====================
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
August 31, 1997 and February 28, 1997
<TABLE>
<CAPTION>
August 31, February 28,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1997
------------------- --------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to bank $4,294,250 $5,319,250
Current maturities of
long-term debt 937,615 662,414
Accounts payable, trade 1,783,664 4,852,459
Accrued expenses 1,318,057 1,415,511
Income taxes - -
------------------- --------------------
Total current liabilities $8,333,586 $12,249,634
------------------- --------------------
LONG-TERM DEBT,
less current maturities $6,504,266 $6,217,936
------------------- --------------------
DEFERRED INCOME TAXES $530,000 $530,000
------------------- --------------------
DEFERRED REVENUE $600,000 $600,000
------------------- --------------------
SHAREHOLDERS' EQUITY
Series A Preferred, par value $.01 per
share; authorized 680,000 shares; issued
and outstanding none at August 31, 1997
and February 28, 1997 - -
Common Stock, par value $.01 per share;
authorized 10,000,000 shares; issued
and outstanding 5,760,008 shares at August 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 24,129,713 23,102,093
------------------- --------------------
$33,830,234 $32,745,931
------------------- --------------------
$49,798,086 $52,343,501
=================== ====================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
August 31, August 31,
1997 1996 1997 1996
------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Net sales $10,101,611 $15,634,944 $36,108,873 $46,221,743
Cost of goods sold 7,944,438 11,474,675 26,994,488 32,978,677
------------------- ------------------- -------------------- --------------------
Gross profit $2,157,173 $4,160,269 $9,114,385 $13,243,066
------------------- ------------------- -------------------- --------------------
Operating expenses:
Selling $1,214,086 $1,954,914 $3,255,917 $4,345,468
General and
administrative 1,954,404 1,484,564 3,761,558 3,421,357
------------------- ------------------- -------------------- --------------------
$3,168,490 $3,439,478 $7,017,475 $7,766,825
------------------- ------------------- -------------------- --------------------
Operating income ($1,011,317) $720,791 $2,096,910 $5,476,241
Other income
(expense):
Interest expense (272,748) (399,812) (523,290) (723,071)
Other 0 0 0 0
------------------- ------------------- -------------------- --------------------
Income before income
taxes ($1,284,065) $320,979 $1,573,620 $4,753,170
Income taxes (450,000) 110,000 546,000 1,687,000
------------------- ------------------- -------------------- --------------------
Net income (loss) for the
period ($834,065) $210,979 $1,027,620 $3,066,170
=================== =================== ==================== ====================
Net income (loss) per
common share: ($0.14) $0.04 $0.18 $0.52
=================== =================== ==================== ====================
Weighted average
number of common
shares outstanding
including Common
Share equivalents 5,760,008 5,983,901 5,819,933 5,931,080
=================== =================== ==================== ====================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Six Months Ended August 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
August 31, August 31,
1997 1996
------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $1,027,620 $3,066,170
Adjustments required to reconcile net
income to net cash provided by (used
in) operating activities:
Depreciation 897,900 658,000
Amortization 181,269 316,979
Deferred income taxes - -
Change in assets and liabilities:
Receivables 2,706,234 (2,178,988)
Inventories (375,704) (1,214,009)
Prepaid expenses 24,137 273,116
Accounts payable (3,068,795) (6,435,880)
Accrued expenses (97,454) (1,686,235)
Income taxes 144,817 154,156
------------------- --------------------
Net cash provided by
(used in) operating activities $1,440,024 ($7,046,691)
------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ($712,487) ($1,035,719)
Other (16,080) (27,799)
------------------- --------------------
Net cash used in investing activities ($728,567) ($1,063,518)
------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) on short-term borrowings ($1,025,000) $7,086,250
Proceeds on long-term borrowings 1,000,000
Principal payments on long-term
borrowings (438,469) (621,162)
Net proceeds from
issuances of common stock 1997;
10,169 shares, 1996; 17,750 shares 56,683 94,657
------------------- --------------------
Net cash provided by (used in) financing activities ($406,786) $6,559,745
------------------- --------------------
Increase (decrease) in cash and
cash equvalents $304,671 ($1,550,464)
Cash and cash equivalents:
Beginning $381,427 $2,166,863
------------------- --------------------
Ending $686,098 $616,399
=================== ====================
</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 August 31, 1997, and the
consolidated statements of operations for the three-month and six-month periods
ended August 31, 1997 and August 31, 1996 and the consolidated statements of
cash flows for the six-month periods then ended 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 August 31, 1997 and
August 31, 1996 and for all periods presented have been made. The operating
results for the period ended August 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 $10.1 million in the second quarter of fiscal
1998, a decrease of 35% over the comparable quarter of fiscal 1997 when sales
were $15.6 million. Net sales for the first six-months of fiscal 1998 were $36.1
million, compared to $46.2 million for the first six-months of fiscal 1997, a
decrease of 22%. In-line skate sales volume decreases, combined with 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 second quarter and
six-month period 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 continued to be pressured downward in the second 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 skates and parts and accessories sales decreased 31% and 40%,
respectively, from the second quarter of fiscal 1997 to fiscal 1998. Sales of
in-line skates accounted for approximately 82% of total sales in the second
quarter of fiscal 1998 compared to 80% in the second quarter of fiscal 1997.
Sales of parts and accessories accounted for approximately 18% of total sales in
the second quarter of fiscal 1998 compared to 20% in the second of fiscal 1997.
The Company currently distributes products to more than sixty-two countries
worldwide. Domestic sales were $7 million or 69% of total sales in the second
quarter of fiscal 1998 compared to $9.8 million or 63% in the second quarter of
fiscal 1997. Sales in Canada were $1.2 million or 12% of total sales in the
second quarter of fiscal 1998 compared to $200,000 or 1% in the second quarter
of fiscal 1997. Sales in Europe were $1 million or 10% of total sales in the
second quarter of fiscal 1998 compared to $3.6 million or 23% in the second
quarter of fiscal 1997. Other international sales were $900,000 or 9% of total
sales in the second quarter of fiscal 1998 compared to $2 million or 13% in the
second quarter of fiscal 1997.
Several factors contributed to the Company's sales performance in the
second quarter of fiscal 1998. The decrease in domestic sales was a result of a
retail slowdown of in-line skate sales in the later part of the second quarter,
combined with a second consecutive fall season of excess inventory in the
marketplace. The increase in Canadian sales was due to a continued strong
acceptance of the Company's made in USA intec system skates. The decrease in
European sales was primarily a result of adverse spring and summer weather
conditions throughout key European retail areas resulting in a slowdown of
retail sales. 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 21.4% in
the second quarter of fiscal 1998 compared to 26.6% in the second quarter of
fiscal 1997. The decrease in the gross margin was primarily due to competitive
close-out sales, 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 57% of
total skate sales in the second quarter of fiscal 1998 compared to 60% in the
second quarter of fiscal 1997, while the Company's Skate Attack brand account
for 43% of total skate sales in the second quarter of fiscal 1998 compared to
40% in the second quarter of fiscal 1997.
Operating Expenses. Selling expenses were $1.2 million or 12% of total net
sales in the second quarter of fiscal 1998 compared to $2 million or 12.5% in
the second quarter of fiscal 1997. The decrease in selling expenses was
primarily the result of a reduction in commissions, royalties and co-op
advertising costs associated with the decreased sales volume.
General and administrative expenses were $2 million or 19% of total net
sales in the second quarter of fiscal 1998 compared to $1.5 million or 10% in
the second quarter of fiscal 1997. The increase in general and administrative
expenses was primarily due to an increase in expenses associated with the
Company's computer systems, expansion of the Company's European office and
certain occupancy costs, specifically real estate taxes associated with the
Company's facility.
Other Income and Expense. Interest expense was $273,000 in the second
quarter of fiscal 1998 compared to $400,000 in the second quarter of fiscal
1997. The decrease of approximately $127,000 or 32% was primarily due to a
reduction of the interest expense related to the Company's line of credit
facility. Due to management's control over expenditures and cash management
procedures, the average outstanding balance on the Company's line of credit
facility during the second quarter of fiscal 1998 was substantially reduced from
the second quarter of fiscal 1997.
Net Income/(Loss). The Company had a net loss of ($834,000) or ($ .14) per
share in the second quarter of fiscal 1998 compared to net income of $211,000 or
$ .04 per share in fiscal 1997. The 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 August 31, 1997, total cash and cash equivalents were $686,098
compared to $381,427 as of February 28, 1997. The increase in cash and cash
equivalents was a result of $1,440,024 of cash provided by operating activities
being offset by $728,567 of cash used in investing activities and $406,786 of
cash used in financing activities.
The net cash provided by operating activities was primarily from net
income, depreciation and amortization, and a decrease in accounts receivable
being offset by a decrease in accounts payable. The decrease in accounts
receivable is the result of continued collections and a decrease in sales
activities. The decrease in accounts payable is a result of a reduction in
inventory purchases related to the reduced sales volume.
The net cash used in investing activities was primarily for capital
expenditures relating to new product production tooling.
The net cash used in financing activities was primarily for payments on the
Company's line of credit and long-term debt being offset by proceeds received on
a new term note. The new note was for the financing of new production tooling
costs.
The Company's debt-to-worth ratio was .5 to 1 as of August 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 $6,504,266 as
of August 31, 1997. As of August 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
$4,294,250 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 August 31, 1997 there was a
$916,666 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 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held its Annual Meeting on June 17, 1997.
(b) Proxies for the Annual Meeting were solicited pursuant to Regulation
14 under the Securities Exchange Act of 1934. There was no
solicitation in opposition to management's nominees as listed in the
proxy statement, and all of such nominees were elected.
The shareholders set the number of directors at six (6) by a vote of
4,984,710 shares in favor, 82,879 shares against and 34,796 shares
abstaining. The following persons were elected to serve as directors
of the Company until the next annual meeting of shareholders with the
following votes:
Number of Number of
Nominee Votes For Votes Withheld
------- --------- --------------
John J. Egart 4,780,472 321,913
David G. Soderquist 4,778,886 323,499
Joe Mendelsohn 4,779,591 322,794
Timothy G. Rath 4,787,921 314,464
Stanley E. Hubbard 4,784,948 317,437
William J. McMahon 4,778,565 323,820
The shareholders approved an increase in the number of shares reserved
under the Company's 1994 stock option and incentive compensation from
525,000 to 925,000 by a vote of 1,673,068 shares in favor, 727,042
shares against and 52,879 shares abstaining, which votes excluded
2,649,396 shares ("broker non-votes").
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: October 7, 1997
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-Q
For Quarter Ended: Commission File No.: 0-16422
August 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
10.1* 1994 Stock Option and Incentive Compensation Plan, as
amended through June 17, 1997**
10.2* Employment Agreement dated August 18, 1997 between the
Company and Kent Brunner**
27* Financial Data Schedule (included in electronic version
only)
_____________________________
*Filed herewith.
**Management contract or compensatory plan or arrangement.
FIRST TEAM SPORTS, INC.
1994 STOCK OPTION AND INCENTIVE COMPENSATION PLAN
(As Amended through June 17, 1997)
1. Purpose. The purpose of the 1994 Stock Option and Incentive Compensation
Plan (the "Plan") of First Team Sports, Inc. (the "Company") is to increase
shareholder value and to advance the interests of the Company by furnishing a
variety of economic incentives ("Incentives") designed to attract, retain and
motivate employees, officers, directors, consultants and advisors of the
Company. Incentives may consist of opportunities to purchase or receive shares
of Common Stock, $0.01 par value, of the Company ("Common Stock"), monetary
payments or both on terms determined under this Plan.
2. Administration. The Plan shall be administered by the Board of Directors
of the Company (the "Board"), or by a Committee which may be appointed by the
Board from time to time. If the Plan is administered by the Board, each member
of the Board shall be a "disinterested person" as defined in Rule 16b-3, or any
successor provision, of the General Rules and Regulations of the Securities
Exchange Act of 1934 (the "1934 Act"), as amended.
If a Committee is appointed by the Board to administer the Plan, such
Committee shall consist solely of two or more directors of the Company who shall
be appointed from time to time and serve at the pleasure of the Board. Each
member of the Committee shall be a "disinterested person" within the meaning of
Rule 16b-3 of the 1934 Act. The Board may from time to time appoint members of
the Committee in substitution for, or in addition to, members previously
appointed, and may fill vacancies, however caused, in the Committee. If such
Committee is appointed by the Board, the Committee shall select one of its
members as its chairman and shall hold its meetings at such times and places as
it shall deem advisable. A majority of the Committee's members shall constitute
a quorum. All action of the Committee shall be taken by the majority of its
members. Any action may be taken by a written instrument signed by majority of
the members, and actions so taken shall be fully effective as if it had been
made by a majority vote at a meeting duly called and held. The Committee may
appoint a secretary, shall keep minutes of its meetings, and shall make such
rules and regulations for the conduct of its business as it shall deem
advisable.
The Board or the Committee, as the case may be, shall have complete
authority to award Incentives under the Plan, to interpret the Plan, to
prescribe the form and conditions of the respective agreements (which may vary
from participant to participant) evidencing each Incentive awarded under the
Plan, and to make any other determination which it believes necessary and
advisable for the proper administration of the Plan. The Board's or the
Committee's decisions and matters relating to the Plan shall be final and
conclusive on the Company and participants in the Plan. No member of the Board
or the Committee shall be liable for any action taken or determination made in
good faith in connection with the administration of the Plan.
<PAGE>
3. Participants. The Board or the Committee, as the case may be, shall from
time to time, at its discretion and without approval of the shareholders,
designate those employees, directors, officers, consultants and advisors of the
Company or its subsidiaries or affiliates to whom Incentives may be granted
under this Plan; provided, however, that consultants or advisors shall not be
eligible to receive Incentives under the Plan unless such consultant or advisor
renders bona fide services to the Company or its subsidiaries or affiliates and
such services are not in connection with the offer or sale of securities in a
capital raising transaction; and provided, further, that directors who are
responsible for the administration of the Plan shall not be eligible to receive
Incentives under the Plan except pursuant to Section 11 hereof and to the extent
otherwise permitted by Rule 16b-3 of the 1934 Act or any successor provision.
Employees, consultants and advisors may be designated individually or by groups
or categories (for example, by pay grade) as the Board or the Committee deems
appropriate. Participation by officers and directors of the Company or its
subsidiaries or affiliates and any performance objectives relating to such
officers and directors must be approved by the Board or the Committee, as the
case may be. Participation by others and any performance objectives relating to
others may be approved by groups or categories (for example, by pay grade), and
the authority to designate participants who are not officers or directors and to
set or modify such performance objectives may be delegated to such officers of
the Company as the Board or the Committee may, from time to time and at its sole
discretion, deem appropriate.
4. Types of Incentives. Incentives under the Plan may be granted in any one
or a combination of the following forms: (a) incentive stock options and
non-qualified stock options (Section 6 and Section 11); (b) stock appreciation
rights ("SARs") (Section 7); (c) stock awards (Section 8); (d) restricted stock
(Section 8); (e) performance shares (Section 9); and (f) cash awards (Section
10).
5. Shares Subject to the Plan.
5.1. Number of Shares. Subject to adjustment as provided in Section
12.6, the number of shares of Common Stock which may be issued under the
Plan shall not exceed Nine Hundred Twenty-five Thousand (925,000) shares of
Common Stock.
5.2. Cancellation. To the extent that cash in lieu of all or a portion
of the shares of Common Stock is delivered upon the exercise of an SAR
pursuant to Section 7.3, such unissued shares that previously reduced the
available number of shares of Common Stock may again be issued under the
Plan, either pursuant to stock options, SARs or otherwise. If an SAR is
granted with respect to any stock option granted under this Plan, the
Company shall be deemed, for purposes of applying the limitation on the
number of shares, to have issued the greater of the number of shares of
Common Stock which it is entitled to issue upon the exercise of the SAR or
on the exercise of the related option. In the event that a stock option or
SAR granted hereunder expires or is terminated or cancelled unexercised as
to any shares of Common Stock, such shares may again be issued under the
Plan either pursuant to stock options, SARs or otherwise. In the event that
shares of Common Stock are issued as restricted stock or pursuant to a
stock award and thereafter are forfeited or reacquired by the Company
pursuant to rights reserved upon issuance thereof, such forfeited and
reacquired shares may, to the extent permitted by Rule 16b-3, or any
successor provision, of the 1934 Act, again be issued under the Plan,
either as restricted stock, pursuant to stock awards or otherwise. The
Committee may also determine to cancel, and agree to the cancellation of,
stock options in order to make a participant eligible for the grant of a
stock option at a lower price than the option to be cancelled.
<PAGE>
6. Stock Options. A stock option is a right to purchase shares of Common
Stock from the Company. Except as provided in this Section 6, each stock option
granted by the Board or the Committee, as the case may be, under this Plan shall
be subject to such terms and conditions, which may vary from participant to
participant, as the Board or the Committee may, in its sole discretion, deem
appropriate, including but not limited to the extent to which a stock option may
be exercisable (including the participant's right to exercise such stock option
upon the participant's, death, disability, retirement or termination of
employment or other relationship with the Company or its subsidiaries or
affiliates), the manner in which the stock option may be exercised, and the form
of agreement that shall evidence the stock option.
6.1. Price. The option price per share shall be determined by the
Board or the Committee, as the case may be, subject to adjustment under
Section 12.6.
6.2. Number. The number of shares of Common Stock subject to the
option shall be determined by the Board or the Committee, as the case may
be, subject to adjustment as provided in Section 12.6. The number of shares
of Common Stock subject to a stock option shall be reduced in the same
proportion that the participant exercises an SAR if any SAR is granted to
the participant in conjunction with or related to the stock option.
6.3. Duration and Time for Exercise. Subject to earlier termination as
provided in Section 12.4, the term of each stock option shall be determined
by the Board or the Committee, as the case may be, but shall not exceed ten
years and one day from the date of grant. Each stock option shall become
exercisable at such time or times during its term as shall be determined by
the Board or the Committee at the time of grant. The Board or the
Committee, as the case may be, may accelerate the exercisability of any
stock option. Subject to the foregoing and with the approval of the Board
or the Committee, all or any part of the shares of Common Stock with
respect to which the right to purchase has accrued may be purchased by the
participant at the time of such accrual or at any time or times thereafter
during the term of the option.
6.4. Payment of Option Price. The option price per share shall, in the
sole discretion of the Board or the Committee, be payable in United States
dollars upon exercise of a stock option and may be paid by cash, certified
check, bank draft, by the delivery of previously acquired shares of Common
Stock in payment of all or any part of the option price, which shares shall
be valued for this purpose at the Fair Market Value on the date such stock
option is exercised, or in such other manner and subject to such rules as
may be adopted by the Board or the Committee from time to time. For
purposes of this Section 6.4, "previously acquired shares" shall include
shares of Common Stock that are already owned by the participant at the
time of exercise.
6.5. Incentive Stock Options. Notwithstanding anything in the Plan to
the contrary, the following additional provisions shall apply to the grant
of stock options which are intended to qualify as "incentive stock options"
(as such term is defined in Section 422 of the Internal Revenue Code of
1986, and the regulations as amended, or any successor provision):
<PAGE>
(a) Any incentive stock option authorized under the Plan shall
contain such terms and conditions, as the Board or the Committee, as
the case may be, shall deem advisable, but shall in all events be
consistent with and contain such restrictions and limitations as shall
be necessary in order to qualify the options as incentive stock
options.
(b) All incentive stock options must be granted within ten years
from the earlier of the date on which this Plan was adopted by the
Board or the date this Plan was approved by the shareholders.
(c) Unless sooner exercised, all incentive stock options shall
expire no later than ten years after the date of grant; provided,
however, that incentive stock options granted to a participant who
owns stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company or its
subsidiaries or affiliates shall expire no later than five years after
the date of grant.
(d) To the extent required to qualify the stock option as an
incentive stock option, the option price per share for incentive stock
options shall not be less than the Fair Market Value of the Common
Stock subject to the option on the date of grant; provided, however,
that the option price per share for incentive stock options granted to
a participant who owns stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or
its subsidiaries or affiliates shall not be less than 110% of the Fair
Market Value of the Common Stock subject to the stock option on the
date of grant.
6.6 Rights as a Shareholder. Prior to the issuance of shares of Common
Stock upon the exercise of a stock option, a participant shall have no
rights as a shareholder with respect to shares subject to such option.
Except as provided in Section 12.6, no adjustments shall be made for
dividends or other cash distributions or for other rights that have a
record date preceding the date the participant becomes the holder of record
of the shares of Common Stock subject to the stock option.
7. Stock Appreciation Rights. An SAR is a right to receive, without payment
to the Company, a number of shares of Common Stock, cash or any combination
thereof, the amount of which is determined pursuant to the formula set forth in
Section 7.3. An SAR may be granted (a) with respect to any stock option granted
under this Plan, either concurrently with the grant of such stock option or at
such later time as determined by the Board or the Committee (as to all or any
portion of the shares of Common Stock subject to the stock option), or (b)
alone, without reference to any related stock option. Except as provided in this
Section 7, each SAR granted by the Board or the Committee, as the case may be,
under this Plan shall be subject to such terms and conditions, which may vary
from participant to participant, as the Board or the Committee may, in its sole
discretion, deem appropriate, including but not limited to the extent to which
an SAR may be exercisable (including the participant's right to exercise the SAR
upon the participant's death, disability, retirement or termination of
employment or other relationship with the Company or its subsidiaries or
affiliates), the manner in which the SAR may be exercised and the form of
agreement that shall evidence the SAR.
<PAGE>
7.1. Number. Each SAR granted to any participant shall relate to such
number of shares of Common Stock as shall be determined by the Board or the
Committee, as the case may be, subject to adjustment as provided in Section
12.6. In the case of an SAR granted with respect to a stock option granted
to the participant, the number of shares of Common Stock to which the SAR
pertains shall be reduced in the same proportion that the participant
exercises the related stock option.
7.2. Duration. Subject to earlier termination as provided in Section
12.4, the term of each SAR shall be determined by the Board or the
Committee, as the case may be, but shall not exceed ten years and one day
from the date of grant. Unless otherwise provided by the Board or the
Committee, each SAR shall become exercisable at such time or times, to such
extent and upon such conditions as the stock option, if any, to which it
relates is exercisable. The Board or the Committee, as the case may be, may
in its discretion accelerate the exercisability of any SAR.
7.3. Payment. Subject to the right of the Board or the Committee, as
the case may be, to deliver cash in lieu of shares of Common Stock (which,
as it pertains to officers and directors of the Company, shall comply with
all requirements of the 1934 Act), the number of shares of Common Stock
which shall be issuable upon the exercise of an SAR shall be determined by
dividing:
(a) the number of shares of Common Stock as to which the SAR is
exercised multiplied by the amount of the appreciation in such shares
(for this purpose, the "appreciation" shall be the amount by which the
Fair Market Value of the shares of Common Stock subject to the SAR on
the exercise date exceeds (1) in the case of an SAR related to a stock
option, the purchase price of the shares of Common Stock under the
stock option or (2) in the case of an SAR granted alone, without
reference to a related stock option, an amount which shall be
determined by the Committee at the time of grant, subject to
adjustment under Section 12.6); by
(b) the Fair Market Value of a share of Common Stock on the
exercise date.
In lieu of issuing shares of Common Stock upon a participant's
exercise of an SAR, the Board or the Committee, as the case may be, may
elect to pay the participant cash equal to the Fair Market Value on the
exercise date of any or all of the shares which would otherwise be
issuable. No fractional shares of Common Stock shall be issued to the
participant upon the exercise of an SAR; instead, the participant shall be
entitled to receive a cash adjustment equal to the same fraction of the
Fair Market Value of a share of Common Stock on the exercise date or to
purchase the portion necessary to make a whole share at its Fair Market
Value on the date of exercise.
<PAGE>
8. Stock Awards and Restricted Stock. A stock award consists of the
transfer by the Company to a participant of shares of Common Stock, without
other payment therefor, as additional compensation for services to the Company.
A share of restricted stock consists of shares of Common Stock which are sold or
transferred by the Company to a participant at such price (which price shall be
at least equal to the minimum price required by applicable law for the issuance
of a share of Common Stock) and subject to restrictions on their sale or other
transfer by the participant as determined by the Board or the Committee, as the
case may be. Except as provided in this Section 8, the transfer of Common Stock
pursuant to stock awards and the transfer and sale of restricted stock shall be
subject to such terms and conditions, which may vary from participant to
participant, as the Board or the Committee may, in its sole discretion, deem
appropriate, including the form of agreement, if any, that shall evidence the
stock award or restricted stock.
8.1. Number of Shares. The number of shares to be transferred or sold
by the Company to a participant pursuant to a stock award or as restricted
stock shall be determined by the Board or the Committee, as the case may
be.
8.2. Sale Price. The Board or the Committee, as the case may be, shall
determine the price, if any, at which shares of restricted stock shall be
sold to a participant, which may vary from time to time and among
participants and which may be below the Fair Market Value of such shares of
Common Stock at the date of sale.
8.3. Restrictions. All shares of restricted stock transferred or sold
hereunder, including any additional shares of Common Stock received by the
participant as the result of any dividend paid on the shares of restricted
stock or as the result of any stock split, stock distribution or
combination of shares that affects such restricted stock, shall be subject
to such restrictions as the Board or the Committee, as the case may be, may
determine, which may vary from time to time and among participants,
including, without limitation, any or all of the following:
(a) a prohibition against the sale, transfer, pledge, assignment
or other encumbrance of the shares of restricted stock, such
prohibition to lapse at such time or times as the Board or the
Committee, as the case may be, shall determine (whether in annual or
more frequent installments, upon the participant's death, disability,
retirement or termination of employment or other relationship with the
Company or its subsidiaries or affiliates, or otherwise);
(b) a requirement that the participant forfeit or, in the case of
shares sold to the participant, resell back to the Company at his or
her cost, all or a part of such shares in the event of termination of
his or her employment or other relationship with the Company or its
subsidiaries or affiliates during any period in which such shares are
subject to restrictions;
(c) such other conditions or restrictions as the Board or the
Committee, as the case may be, may deem advisable.
<PAGE>
8.4. Escrow. In order to enforce the restrictions imposed by the Board
or the Committee, as the case may be, pursuant to Section 8.3, the
participant receiving restricted stock shall enter into an agreement with
the Company setting forth the conditions of the grant. Shares of restricted
stock shall be registered in the name of the participant and deposited,
together with a stock power endorsed in blank, with the Company. Each such
certificate shall bear a legend in substantially the following form:
The transferability of this certificate and the shares of Common Stock
represented by it are subject to the terms and conditions (including
conditions of forfeiture) contained in the 1994 Stock Option and Incentive
Compensation Plan of First Team Sports, Inc. (the "Company"), and an
agreement entered into between the registered owner and the Company. A copy
of the Plan and the agreement is on file in the office of the secretary of
the Company.
8.5. End of Restrictions. Subject to Section 12.3, at the end of any
time period during which the shares of restricted stock are subject to
forfeiture and restrictions on transfer, such shares will be delivered free
of all restrictions to the participant or to the participant's legal
representative, beneficiary or heir.
8.6. Rights as Shareholder. Subject to the terms and conditions of the
Plan, each participant receiving restricted stock shall have all the rights
of a shareholder with respect to shares of stock during any period in which
such shares are subject to forfeiture and restrictions on transfer,
including without limitation, the right to vote such shares. Dividends paid
in cash or property other than Common Stock with respect to shares of
restricted stock shall be paid to the participant currently.
8.7 Modification of Restrictions. The Board or the Committee, as the
case may be, may, in its sole discretion, modify the manner in which the
prohibition on the sale or other transfer of the shares of restricted stock
awarded to the participant may lapse, subject to such limitations as may be
imposed by the Rule 16b-3, or any successor provision, of the 1934 Act. Any
such modification shall apply only to those shares of Common Stock which
are restricted as of the effective date of the modification, and shall be
reflected, if deemed appropriate by the Board or the Committee, as the case
may be, in an amendment to any agreement with respect to which such
modification applies.
9. Performance Shares. A performance share consists of an award which shall
be paid in cash or shares of Common Stock, as described below. Except as
provided in this Section 9, each grant of performance shares by the Board or the
Committee, as the case may be, under the Plan shall be subject to such terms and
conditions, which may vary from participant to participant, as the Board or the
Committee may, in its sole discretion, deem appropriate, including the number of
performance shares granted to the participant, the valuation of such performance
shares, the extent to which such performance shares may become payable or will
expire (including the payment or expiration of such performance shares upon the
participant's death, disability, retirement, termination of employment or other
relationship with the Company or its subsidiaries or affiliates), and the form
of agreement that shall evidence the grant of performance shares.
<PAGE>
9.1. Performance Objectives. Each grant of performance shares will be
subject to performance objectives for the Company or one of its operating
units, which performance objectives must be achieved by the end of a period
specified in the agreement evidencing such grant. Such performance
objectives may include business or financial objectives relating to the
Company or one of its operating units, whether or not related to any equity
security of the Company, and shall be set forth in the agreement evidencing
the grant of the performance shares. When establishing such performance
objectives, the Board or the Committee, as the case may be, or such other
individual to whom such authority has been delegated pursuant to Section 3
of the Plan, may consider the recommendations of management of the Company
or its subsidiaries or affiliates. If such performance objectives are
achieved, each participant will be paid in shares of Common Stock, cash or
any combination thereof as determined by the Board or the Committee, as the
case may be, and subject to such rules as the Board or the Committee may
adopt from time to time. If such performance objectives are not met, each
grant of performance shares may provide for lesser payments in accordance
with formulas established in the agreement evidencing the grant of
performance shares.
9.2. No Rights as Shareholder. The grant of performance shares to a
participant shall not create any rights in such participant as a
shareholder of the Company, until the payment of shares of Common Stock
with respect to such grant.
9.3. No Adjustments. No adjustment shall be made in performance shares
granted on account of cash dividends which may be paid or other rights
which may be issued to the holders of Common Stock prior to the end of any
period for which performance objectives were established.
9.4 Amendment of Performance Objectives. The Board or the Committee,
as the case may be, may, at any time during the period specified in the
agreement evidencing the grant of the performance shares, suspend, modify
or terminate the grant of such performance shares or adjust the performance
objectives relating to such performance shares upon the occurrence of any
extraordinary event which substantially affects the Company or its
subsidiaries or affiliates, including, but not limited to, a merger,
consolidation, exchange, divestiture (including a spin-off) reorganization
or liquidation of the Company or its subsidiary or affiliate, or the sale
by the Company or its subsidiary or affiliate of substantially all of its
assets and the consequent discontinuance of its business.
10. Cash Awards. A cash award consists of a monetary payment made by the
Company to a participant as additional compensation for his or her services to
the Company or its subsidiaries or affiliates. Payment of a cash award will
normally depend on achievement of performance objectives by the Company or by
the participant. Such performance objectives may include business or financial
objectives relating to the Company or one of its operating units, whether or not
related to any equity security of the Company, and may be adjusted by the Board
or the Committee, as the case may be, upon the occurrence of any extraordinary
event which substantially affects the Company or its subsidiaries or affiliates.
The amount of any monetary payment constituting a cash award shall be determined
by the Board of the Committee, as the case may be, in its sole discretion. Cash
awards may be subject to such terms and conditions, which may vary from time to
time and among participants, as the Board or the Committee, as the case may be,
deems appropriate.
<PAGE>
11. Options to Non-Employee Directors.
11.1 Upon Joining Board. Each person who, after the date this Plan is
adopted by the Board of Directors, is elected or appointed for the first
time as a director of the Company and who is not an employee of, or a paid
consultant or advisor to, the Company or any subsidiary of the Company (a
"Non-Employee Director") shall, as of the date of such initial election or
appointment to the Board, automatically be granted an option to purchase
7,500 shares of the Common Stock at an option price per share equal to 100%
of the fair market value of the Common Stock on the date of such election
or appointment. Such option shall be immediately exercisable to the extent
of twenty percent (1,500 shares) of the total number of shares subject to
such option, and shall be exercisable to the extent of an additional twenty
percent (1,500 shares) on each of the first, second, third, and fourth
anniversaries of the date of grant.
11.2 Upon Re-election to Board. Each Non-Employee Director who, after
the date this Plan is adopted by the Board of Directors, is re-elected as a
director of the Company or whose term of office continues after a meeting
of shareholders at which directors are elected shall, as of the date of
such re-election or shareholder meeting, automatically be granted an option
to purchase 3,000 shares of Common Stock at an option price per share equal
to 100% of the fair market value of the Common Stock on the date of such
re-election or shareholder meeting; provided that a Non-Employee Director
who receives an option pursuant to Section 11.1 above shall not be entitled
to receive an option pursuant to this Section 11.2 until at least ten
months after such Non-Employee Director's initial election to the Board.
Options granted pursuant to this Section 11.2 shall be immediately
exercisable in full.
11.3 General. No director shall receive more than one option to
purchase 3,000 shares pursuant to this Section 11 in any one fiscal year.
No director shall receive an option under this Section if and to the extent
such director receives an option pursuant to Section 19 of the Company's
1987 Stock Option Plan, as amended, in connection with the same election or
re-election to the Board. All options granted pursuant to this Section 11
shall be designated as non-qualified options and shall be subject to the
same terms and provisions as are then in effect with respect to granting of
non-qualified options to officers and employees of the Company, except that
the option shall expire on the earlier of (i) three months after the
optionee ceases to be a director (except by disability or death) and (ii)
ten (10) years after the date of grant. Notwithstanding the foregoing, in
the event disability or death or a Non-Employee Director, any option
granted to such Non-Employee Director may be exercised at any time within
twelve months of the disability or death of such Non-Employee Director or
on the date on which the option, by its terms expire, whichever is earlier.
For purposes of this Section 11, a director's receipt of an annual
retainer, per meeting fees, and/or expense reimbursement shall not cause
such director to be deemed to be a paid advisor or consultant to the
Company for purposes of determining whether such director is a
"Non-Employee Director."
12. General.
12.1. Effective Date. The Plan will become effective upon its adoption
by the Board, subject to approval by the shareholders of the Company within
twelve months following such adoption. If the Plan is not approved by the
shareholders within twelve months after the date of the Plan's adoption by
the Board, the Plan shall not be effective for any purpose, and all
Incentives awarded under the Plan shall be revoked.
<PAGE>
12.2. Duration. The Plan shall remain in effect until all Incentives
granted under the Plan have either been satisfied by the issuance of shares
of Common Stock or the payment of cash or have been terminated under the
terms of the Plan and all restrictions imposed on shares of Common Stock in
connection with their issuance under the Plan have lapsed. No Incentives
may be granted under the Plan after the tenth anniversary of the date the
Plan is adopted by the Board.
12.3. Nontransferability of Incentives. No stock option, SAR,
restricted stock award or performance share award may be transferred,
pledged or assigned by the participant except, in the event of the
participant's death, by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code of 1986, as amended, or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the regulations thereunder, and
the Company shall not be required to recognize any attempted assignment of
such rights by any participant. During a participant's lifetime, an
Incentive may be exercised only by the participant or by his or her
guardian or legal representative.
12.4. Effect of Termination of Employment or Death. In the event that
a participant ceases to be an employee, consultant or advisor of the
Company or its subsidiaries or affiliates for any reason, including death,
any Incentives awarded to the participant may be exercised or shall expire
at such times as may be determined by the Board or the Committee, as the
case may be, and as set forth in the agreement evidencing the Incentive.
12.5. Additional Condition. Notwithstanding anything in this Plan to
the contrary: (a) the Company may, if it shall determine it necessary or
desirable for any reason, at the time of award of any Incentive or the
issuance of any shares of Common Stock pursuant to any Incentive, require
the recipient of the Incentive, as a condition to the receipt thereof or to
the receipt of shares of Common Stock issued pursuant thereto, to deliver
to the Company a written representation of present intention to acquire the
Incentive or the shares of Common Stock issued pursuant thereto for his or
her own account for investment and not for distribution; and (b) if at any
time the Company further determines, in its sole discretion, that the
listing, registration or qualification (or any updating of any such
document) of any Incentive or the shares of Common Stock issuable pursuant
thereto is necessary on any securities exchange or under any federal or
state securities or blue sky law, or that the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of,
or in connection with the award of any Incentive, the issuance of shares of
Common Stock pursuant thereto, or the removal of any restrictions imposed
on such shares, such Incentive shall not be awarded or such shares of
Common Stock shall not be issued or such restrictions shall not be removed,
as the case may be, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Company.
12.6. Adjustment. Unless otherwise provided in the agreement
evidencing the grant of the Incentive, in the event of a sale by the
Company of substantially all of its assets and the consequent
discontinuance of its business, or in the event of a merger, consolidation,
exchange, reorganization, reclassification, extraordinary dividend,
divestiture (including a spin-off) or liquidation of the Company
(collective referred to as a "transaction") after which the Company is not
the surviving corporation, the Board may, in connection with the Board's
adoption of the plan for such transaction, in its sole discretion, provide
for one or more of the following:
(a) The equitable acceleration of the exercisability of any
outstanding stock option or SAR, the termination of any restrictions
on restricted stock awards, or the adjustment of any performance share
objectives;
<PAGE>
(b) The complete termination of this Plan and the cancellation of
outstanding stock options or SARs which are not exercised prior to a
date specified by the Board (which date shall give the participant a
reasonable period of time in which to exercise the options prior to
the effective date of the transaction), the cancellation of any
restricted stock awards for which the restrictions have not lapsed, or
the cancellation of any performance share awards for which the
performance objectives have not yet been achieved;
(c) The continuance of the Plan with respect to the exercise of
stock options or SARs, the lapse of restrictions on restricted stock
awards or the achievement of any performance share objectives which
were outstanding as of the date of adoption by the Board of the plan
for the transaction, and to provide participants the right to receive
an equivalent number of shares of stock of the corporation succeeding
the Company or other securities to which the shareholders of the
Company may be entitled by reason of such transaction.
The grant of any Incentive under this Plan shall not in any way
limit the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure or to merge, exchange or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business
or assets.
In the event of an increase or decrease in the number of shares
of Common Stock resulting from any recapitalization, stock dividend,
stock split, combination of shares or other change in the Common
Stock, the number of shares of Common Stock then subject to the Plan,
including shares subject to restrictions, options or the achievement
of performance share objectives, shall be adjusted in proportion to
the change in outstanding shares of Common Stock. In the event of any
such adjustments, the purchase price of any option, the performance
objectives for any grant of performance shares, and the shares of
Common Stock issuable pursuant to any Incentive shall be adjusted as
and to the extent appropriate, in the discretion of the Board or
Committee, to provide participants with the same relative rights
before and after such adjustment. Additional shares of Common Stock
which may be credited to such Incentives pursuant to this Section 12.6
shall be subject to the same terms and conditions that apply to the
shares with respect to which the adjustment relates.
12.7. Incentive Agreements. The terms of each Incentive shall be
stated in an agreement approved by the Board or the Committee, as the case
may be. The Board or the Committee may, in its sole discretion, also enter
into agreements with participants to reclassify or convert certain
outstanding options, within the terms of the Plan, as incentive stock
options or as non-qualified stock options, or to eliminate SARs with
respect to all or part of such options and any other previously issued
options.
<PAGE>
12.8. Withholding.
(a) The Company shall have the right to withhold from any
payments made under the Plan or to collect as a condition of payment,
any federal, state or local taxes required by law to be withheld upon
the exercise of a stock option, the settlement of an SAR, the grant of
a stock award, the lapse of restrictions on a restricted stock award,
the payment of any performance share award, or the payment of any cash
award. At any time when a participant is required to pay to the
Company an amount required to be withheld under applicable income tax
laws in connection with a distribution of Common Stock or upon
exercise of an option or SAR, the participant may satisfy this
obligation in whole or in part by electing (the "Election") to have
the Company withhold from the distribution shares of Common Stock
having a value up to the amount required to be withheld. The value of
the shares to be withheld shall be based on the Fair Market Value of
the Common Stock on the date that the amount of tax to be withheld
shall be determined ("Tax Date").
(b) Each Election must be made prior to the Tax Date. The Board
or the Committee, as the case may be, may disapprove of any Election,
may suspend or terminate the right to make Elections, may provide that
the right to make Elections shall not apply with respect to any
Incentive and may adopt such rules relating to Elections as it shall
deem appropriate. A participant's Election shall be irrevocable.
(c) If a participant is an officer or director of the Company
within the meaning of Section 16 of the 1934 Act, or any successor
provision, then an Election must comply with all of the requirements
of the 1934 Act.
12.9. No Continued Employment or Right to Corporate Assets. No
participant under the Plan shall have any right, because of his or her
participation, to continue in the employ of the Company or its subsidiaries
or affiliates for any period of time or to any right to continue his or her
present or any other rate of compensation. Nothing contained in the Plan
shall be construed as giving an employee, consultant or advisor, his or her
beneficiaries or any other person any equity or interests of any kind in
the assets of the Company or creating a trust of any kind or a fiduciary
relationship of any kind between the Company or its subsidiaries or
affiliates and any such person.
12.10. Deferral Permitted. Payment of cash or distribution of any
shares of Common Stock to which a participant is entitled under any
Incentive shall be made as provided in the agreement evidencing such
Incentive. Payment of cash may be deferred at the option of the participant
if provided in the Incentive and subject to such rules as the Board or the
Committee may, in its discretion, adopt from time to time.
12.11. Amendment of the Plan. The Board may amend or discontinue the
Plan at any time. However, no such amendment or discontinuance shall,
subject to adjustment under Section 12.6, change or impair, without the
consent of the recipient, an Incentive previously granted. Notwithstanding
the foregoing, no such amendment shall: (a) materially increase the maximum
number of shares of Common Stock which may be issued to all participants
under the Plan, (b) materially increase the benefits that may be granted or
that accrue to participants under the Plan, (c) materially modify the
requirements as to eligibility for participation in the Plan, or (d)
decrease the price at which stock options, SARs or other Incentives may be
granted, unless such amendment is approved by the shareholders of the
Company.
<PAGE>
12.12. Immediate Acceleration of Incentives. Notwithstanding any
provision in this Plan or in any Incentive to the contrary, the
restrictions on all shares of restricted stock awards shall lapse
immediately, all outstanding options and SARs will become exercisable
immediately, and all performance share objectives shall be deemed to be met
and payment made immediately, if, subsequent to the date that the Plan is
approved by the Board, any of the following events occur:
(a) Any person or group of persons, other than the shareholders
of record of the Company as of the date this Plan is adopted by the
Board, becomes the beneficial owner of 25% or more of any equity
security of the Company entitled to vote for the election of
directors;
(b) A change in the composition of the Board within any
consecutive two-year period such that the "Continuing Directors" cease
to constitute a majority of the Board. For purposes of this event, the
"Continuing Directors" shall mean those members of the Board who
either: (i) were directors at the beginning of such two-year period,
or (ii) were elected by, or on nominations or recommendations of, at
least two-thirds of the then-existing Board members;
(c) The consummation of a merger or consolidation (whether or not
the Company is the surviving corporation), other than a merger or
consolidation in which the holders of the Company's stock immediately
prior thereto hold immediately thereafter securities representing more
than 70% of the combined voting power of the voting securities of the
merged or consolidated entity; or
(d) The consummation of a sale or all or substantially all of the
Company's assets or a plan of complete liquidation of the Company.
For purposes of this Section 12.12, beneficial ownership by a person
or group of persons shall be determined in accordance with Regulation 13D
(or any similar successor regulation) promulgated by the Securities and
Exchange Commission pursuant to the 1934 Act. Beneficial ownership of 25%
or more of an equity security may be established by any reasonable method,
but shall be presumed conclusively as to any person who files a Schedule
13D report with the Securities and Exchange Commission reporting such,
ownership. If the restrictions and forfeitability periods are eliminated by
reason of provision (a), the limitations of this Plan shall not become
applicable again should the person cease to own 25% or more of any equity
security of the Company.
<PAGE>
A participant shall not be entitled to the immediate acceleration of
an Incentive as provided in this Section 12.12 if such acceleration would,
with respect to the participant, constitute a "parachute payment" for
purposes of Internal Revenue Code Section 280G, or any successor provision.
The participant shall have the right to designate those Incentives which
would be reduced or eliminated so that the participant will not receive a
"parachute payment."
Prior to one of the events described in (a), (b) or (c) above, the
participant shall have no rights under this Section 12.12, and the Board
shall have the power and right, within its sole discretion, to rescind,
modify or amend this Section 12.12 without any consent of the participant.
In all other cases, and notwithstanding the authority granted to the Board
or the Committee, as the case may be, to exercise discretion in
interpreting, administering, amending or terminating this Plan neither the
Board nor the Committee shall, following one of the events described in
(a), (b) or (c) above, have the power to exercise such authority or
otherwise take any action which is inconsistent with the provisions of this
Section 12.12.
12.13 Definition of Fair Market Value. For purposes of the Plan, the
"Fair Market Value" of the Company's Common Stock as of any applicable date
shall mean: (a) if the Company's Common Stock is reported in the Nasdaq
National Market or is listed upon an established exchange or exchanges, the
reported closing price of such stock in such Nasdaq National Market or on
such stock exchange or exchanges on the date the Incentive is granted or,
if no sale of such stock shall have occurred on that date, on the next
preceding day on which there was a sale of stock; (b) if the Company's
Common Stock is not so reported in the Nasdaq National Market or listed
upon an exchange, the average of the closing "bid" and "asked" prices
quoted on the Nasdaq Small-Cap Market on the date the Incentive is granted,
or if there are no such quoted "bid" and "asked" prices on such date, on
the next preceding date for which there are such quotes; (c) if the
Company's Common Stock is not listed or traded on any securities exchange,
the Nasdaq National Market or the Nasdaq Small-Cap Market, the per share
value determined by a market maker of the Company's Common Stock on the
date the Incentive is granted or, if there is no such market maker, the per
share value determined by the Board or the Committee, in its sole
discretion, by applying principles of valuation with respect to all such
Incentives.
EMPLOYMENT AGREEMENT
THIS AGREEMENT effective as of August 18, 1997, between FIRST TEAM SPORTS,
INC., a Minnesota corporation (the "Company"), and Kent Brunner, a resident of
Minnesota ("Executive").
WITNESSETH
WHEREAS, Executive has been employed as Vice President-Finance since
September 1996; and
WHEREAS, the Company desires to continue to have the benefit of Executive's
experience and loyalty, and Executive is willing to provide Executive's services
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
1. Definitions.
The following capitalized terms used in this Agreement shall be
defined as follows:
"Agreement" shall mean this Agreement between the Company and Executive.
"Base Salary" shall mean the annual base salary payable to Executive
pursuant to Section 4(a) hereof, and "monthly Base Salary" shall mean the Base
Salary divided by twelve (12).
"Board" shall mean the Board of Directors of First Team Sports, Inc.
"Cause" shall mean Executive's (1) gross misconduct, dishonesty or
disloyalty; (2) willful and material breach of this Agreement by Executive; or
(3) conviction or entry of a plea of guilty or nolo contendere to any felony or
to any misdemeanor involving fraud, misrepresentation or theft.
A "Change of Control" shall be deemed to have occurred if (1) any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power (with respect to the election of directors) of
the Company's then outstanding securities; (2) at any time after the execution
of this Agreement, individuals who as of the date of the execution of this
Agreement constitute the Board (and any new director whose election to the Board
or nomination for election to the Board by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office) cease for any reason to constitute a majority of the Board; (3) the
consummation of a merger or consolidation of the Company with or into any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 70% of the combined
voting power (with respect to the election of directors) of the securities of
the Company or of such surviving entity outstanding immediately after such
merger or consolidation; or (4) the consummation of a plan of complete
liquidation of the Company or of an agreement for the sale or disposition by the
Company of all or substantially all of the Company's business or assets.
<PAGE>
"Change of Control Payments" shall mean any payment (including any benefit
or transfer of property) in the nature of compensation, to or for the benefit of
Executive under any arrangement, which is partially or entirely contingent on a
Change of Control, or is deemed to be contingent on a Change of Control for
purposes of Section 280G of the Code. As used in this definition, the term
"arrangement" includes any agreement between Executive and the Company and any
and all of the Company's salary, bonus, incentive, compensation or benefit
plans, programs or arrangements, and shall include this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated thereunder.
A "Commencement Date" shall occur on (1) such date as the Company enters
into negotiations leading toward an agreement in principle or definitive
agreement pursuant to which a Change of Control thereafter occurs; or (2) the
date on which a tender or exchange offer or proxy contest is commenced pursuant
to which a Change of Control thereafter occurs.
"Company" shall mean First Team Sports, Inc., a Minnesota corporation, any
subsidiaries thereof, and any successors or assigns, including any Successor.
"Company Product" means any product, product line or service (including any
component thereof or research to develop information useful in connection with a
product or service) that is being designed, developed, manufactured, marketed or
sold by the Company or with respect to which the Company has acquired
Confidential Information which it intends to use, or uses, in the design,
development, manufacture, marketing or sale of a product or service.
"Competitive Product" means any product, product line or service (including
any component thereof or research to develop information in connection with a
product or service) that is being designed, developed, manufactured, marketed or
sold by anyone other than the Company and is of the same general type, performs
similar functions, or is used for the same purposes as a Company Product.
<PAGE>
"Confidential Information" means any information or compilation of
information that Executive learns or develops during the course of Executive's
employment that derives independent economic value from not being generally
known, or readily ascertainable by proper means, by other persons who can obtain
economic value from its disclosure or use. It includes but is not limited to
trade secrets, inventions, and discoveries, and may relate to such matters as
research and development, manufacturing processes, management systems and
techniques, and sales and marketing plans and information.
"Executive" shall mean Kent Brunner, a resident of Minnesota.
"Good Reason" shall mean (1) a substantial reduction in the nature or
status of Executive's responsibilities hereunder; (2) a reduction by the Company
in the Base Salary of Executive except to the extent permitted under Section
4(a) hereof; (3) the failure by the Company to allow Executive to participate to
the full extent to which Executive is eligible in all plans, programs or
benefits in accordance with Sections 4(b) to (e), inclusive, hereof; or (4)
relocation of Executive's principal office more than 20 miles from its current
location. Notwithstanding the foregoing, "Good Reason" shall be deemed to occur
only if such event enumerated in (1) through (4) above has not been corrected by
the Company within two weeks of receipt of notice from Executive of the
occurrence of such event, which notice shall specifically describe such event.
"Incentive Stock Option Plans" shall mean any such plans within the meaning
of Section 422 of the Code or any successor provision thereof.
"Inventions" means any inventions, discoveries, improvements, ideas, or
works of authorship (whether patentable or not and including those which may be
subject to copyright protection) generated, conceived, authored, or reduced to
practice by Executive alone or in conjunction with others, during or after
working hours, while an employee of the Company, and that:
(i) are derived in whole or in part from, or use, incorporate, or
represent any improvement to any Invention or trade secret of the
Company; or
(ii) result from any work Executive performs for the Company; or
(iii)use any of the Company's equipment, supplies, or facilities, or trade
secret information; or
(iv) otherwise relate to the Company's products or the Company's present or
possible future research or development.
"Permanently Disabled" shall mean permanently disabled in accordance with
the Company's long-term disability plan in effect at the time of commencement of
such permanent disability and as evaluated by sufficient documentation including
doctors statements, etc. as requested by the Company.
"Person" shall mean an individual, partnership, corporation, estate or
trust or other entity.
"Short-Term Plan" shall mean the annual Executive Bonus Plan of the Company
in effect from time to time.
<PAGE>
"Successor" shall be any entity acquiring substantially all of the assets
of the Company or a corporation into which the Company is merged or with which
it is consolidated.
"Term" shall mean the term of Executive's employment including any period
of renewal, under Section 3 hereof.
"Transition Period" shall be that period of time commencing on the earlier
of a Commencement Date or a Change of Control and continuing for 365 days
following a Change of Control.
2. Employment and Duties.
(a) General. The Company hereby employs Executive as Vice President-Finance
upon the terms and conditions set forth in this Agreement. Executive agrees to
serve as Vice President-Finance and perform the duties and responsibilities
normally vested in the Vice President-Finance of a company, and those duties and
responsibilities as may, from time to time, be assigned to Executive by the
Board.
(b) Exclusive Services. Throughout the Term, Executive shall, except as may
from time to time be otherwise agreed in writing by the Company and unless
prevented by ill health, devote his full-time working hours to his duties
hereunder.
(c) No Other Employment. Throughout the Term, Executive shall not, directly
or indirectly, render services to any other person or organization for which he
receives compensation (excluding volunteer services or outside Board activities
with modest time commitments) without the consent of the Board or otherwise
engage in activities which would interfere significantly with the performance of
his duties hereunder.
3. Term of Employment. The Company shall retain Executive and Executive
shall serve in the employ of the Company for a minimum period of one (1) year
commencing as of the date of this Agreement; provided, however, that either
Executive or the Company may terminate the employment of Executive during the
Term or any one-year renewal period in accordance with, and subject to the right
of Executive to receive payments and other benefits that may be due pursuant to,
this Agreement. This Agreement will be subject to automatic renewals for
successive additional one (1)-year periods, unless nonrenewed as provided in
Section 9 of this Agreement or terminated as provided in this Agreement. All
payments and benefits under this Agreement, including termination payments and
benefits, are subject to ordinary withholding and deductions.
4. Compensation and Other Benefits. Subject to the provisions of this
Agreement, the Company shall pay and provide the following compensation and
other benefits to Executive during the Term as compensation for services
rendered hereunder:
<PAGE>
(a) Base Salary. The Company shall pay to Executive a Base Salary at the
rate of $71,000 per annum, payable semi-monthly. The Company shall be entitled
to deduct or withhold all taxes and charges which the Company may be required to
deduct or withhold therefrom. The Base Salary will be reviewed not less than
annually by the Board and may be increased, reduced, or left unchanged;
provided, however, that any reduction shall be permitted only if the Company
then reduces the base compensation of its executive employees generally and
shall not exceed the average percentage reduction for all such executive
employees.
(b) Incentive Compensation. At all times during the Term, unless prohibited
by the Code or other applicable law, Executive shall be entitled to participate
in all incentive compensation plans and programs of the Company, currently
existing or subsequently adopted.
(c) Stock Options. At all times during the Term, Executive shall, unless
prohibited by the Code or other applicable law, be entitled to participate in
all stock option plans and programs of the Company currently existing or
subsequently adopted, unless otherwise agreed to by Executive and the Board or
unless such plan or program is specifically for the Company's non-executive
employees.
(d) Executive Benefit Plans. At all times during the Term, Executive shall,
unless prohibited by the Code or other applicable law, be eligible to
participate in all pension and welfare plans and programs of the Company for
executive employees, currently existing or subsequently adopted, including but
not limited to the following:
(i) all qualified pension plans (e.g., profit sharing and 401(k) plans);
(ii) all long-term disability and life insurance plans and programs;
(iii) all group health insurance plans; and
(iv) all supplemental retirement plans and programs.
5. Termination of Employment for Cause; Resignation Without Good Reason.
(a) Compensation and Benefits. If, prior to the expiration of the Term,
Executive's employment is terminated by the Company for Cause or if Executive
resigns from employment hereunder other than for Good Reason, then Executive
shall not be eligible to receive any compensation or benefits, or to participate
in any benefit plans or programs, under Section 4 hereof with respect to future
periods after the date of such termination or resignation except for the right
to receive any vested benefits in accordance with the terms of such plan or
program, or to continue or convert at Executive's expense group insurance
coverage as provided by law or the terms of such plan or program.
(b) Date of Termination. The date of termination of Executive's employment
by the Company under this Section 5 shall be one (1) month after receipt by
Executive of written notice of termination. The date of resignation by Executive
under this Section 5 shall be one (1) month after receipt by the Company of
written notice of resignation.
<PAGE>
6. Termination of Employment Without Cause or Resignation for Good Reason
Other Than During Change of Control.
(a) Compensation and Benefits. If, other than during a Transition Period,
Executive's employment is terminated by the Company without Cause or Executive
resigns from his employment hereunder for Good Reason, Executive shall be
entitled only to receive the following from the Company promptly following the
Effective Date of termination or cessation of employment with the Company:
(i) The Company shall make a cash payment to Executive equal to the
greater of (A) the sum of Executive's monthly Base Salary times the number
of full calendar months remaining in the Term (without regard to renewals)
under this Agreement, plus a fraction of the incentive bonus earned by
Executive in the prior fiscal year the numerator of which equals the number
of full calendar months remaining in the Term (without regard to renewals)
and the denominator of which equals twelve (12) (i.e., [monthly Base Salary
X full calendar months) + (incentive bonus X full calendar months / 12)],
or (B) one-half (1/2) the sum of Executive's annual Base Salary plus
incentive bonus earned by Executive during the prior fiscal year.
(ii) With respect to any stock options, SARs, restricted stock awards
or performance share awards granted to Executive and outstanding
immediately prior to such termination or resignation, all restrictions
(other than those imposed by law) on all shares of restricted stock awards
shall lapse immediately, all outstanding options and SARs will become
exercisable immediately, and all performance share objectives shall be
deemed to be met.
(iii) Executive shall be entitled to continued participation in the
Company's group health insurance plan as permitted by COBRA and the terms
of such plan. Company shall, for a one-year period following termination of
Executive's employment, continue to pay a portion of Executive's Company
group health insurance premiums equivalent to that portion it pays on
behalf of its employees during such one-year period, subject to Executive
paying the employee portion of such premiums and subject to termination of
participation upon Executive becoming entitled to group health insurance
coverage on subsequent employment or upon Executive's electing not to
continue coverage or termination of such plan by Company.
<PAGE>
(b) Date of Termination. The date of termination of Executive's employment
by the Company under this Section 6 shall be the date specified in the written
notice of termination to Executive, or if no such date is specified therein, the
date on which such notice is given to Executive. The date of resignation by
Executive under this Section 6 shall be two weeks after receipt by the Company
of written notice of resignation, provided that the Good Reason specified in
such notice shall not have been corrected by the Company during such two-week
period.
7. Termination of Employment Without Cause or Resignation With Good Reason
After Change of Control.
(a) Compensation and Benefits. If, prior to the expiration of the Term and
as of a date during a Transition Period, Executive's employment is terminated by
the Company or its Successor without Cause or if Executive resigns from
employment hereunder for Good Reason, Executive shall, subject to subsection (c)
below, be entitled only to receive the following from the Company or its
Successor promptly following the Effective Date of termination or cessation of
employment with the Company:
(i) Subject to paragraph (c) hereof, the Company shall make a cash
payment to Executive equal to the sum of (A) the amount of Executive's Base
Salary at the time of termination of Executive's employment, and (B) the
total amount of any incentive bonuses which, absent termination of
Executive's employment, could have been earned by Executive during the
fiscal year of the Company in which Executive's employment is terminated.
For purposes of clause (B), the computation of the amount of incentive
bonuses shall be based upon the incentive bonus programs in effect at the
time of termination of Executive's employment and such computation shall
assume that target performance levels are satisfied for all purposes during
such fiscal year. Such payment shall be made in cash within fifteen (15)
days from and after termination of Executive's employment.
(ii) Executive shall not be eligible to receive any compensation or
benefits or to participate in any plans or programs with respect to future
periods after the date of such termination or resignation except for the
right to receive any vested benefits in accordance with the terms of such
plan or program or to continue or convert at Executive's expense group
insurance coverage as provided by law or the terms of such plan or program.
With respect to any stock options, SARs, restricted stock awards or
performance share awards granted to Executive and outstanding immediately
prior to such termination or resignation, all restrictions (other than
those imposed by law) on all shares of restricted stock awards shall lapse
immediately, all outstanding options and SARs will become exercisable
immediately, and all performance share objectives shall be deemed to be
met.
<PAGE>
(b) Date of Termination. The date of termination of Executive's employment
by the Company under this Section 7 shall be the date specified in the written
notice of termination to Executive, or if no such date is specified therein, the
date on which such notice is given to Executive. The date of resignation by
Executive under this Section 7 shall be two weeks after receipt by the Company
of written notice of resignation, provided that the Good Reason specified in
such notice shall not have been corrected by the Company during such two-week
period.
(c) Limitation on Change of Control Compensation. In the event that
Executive is a "disqualified individual" within the meaning of Section 280G of
the Code, the parties expressly agree that the payments described in this
Section 7 or in Section 9 shall be considered together with all Change of
Control Payments so that, with respect to Executive, all Change of Control
Payments are collectively subject to an overall maximum limit. Such maximum
limit shall be One Dollar ($1.00) less than the largest amount under which no
portion of the Change of Control Payments is considered a "parachute payment"
within the meaning of Section 280G of the Code. Accordingly, to the extent that
the Change of Control Payments would be considered a "parachute payment" with
respect to Executive, then the portions of such Change of Control payments shall
be reduced or eliminated in the following order until the remaining Change of
Control Payments with respect to Executive is one Dollar ($1.00) less than the
maximum allowable which would not be considered a "parachute payment" under the
Code:
(i) First, any cash payment to Executive;
(ii) Second, any Change of Control Payments not described in this
Agreement; and
(iii) Third, any forgiveness of indebtedness of Executive to the
Company.
Executive expressly and irrevocably waives any and all rights to receive any
Change of Control payments which would be considered a "parachute payment" under
the Code.
8. Termination of Employment by Disability or Death.
(a) Compensation and Benefits. If Executive becomes Permanently Disabled
prior to the expiration of the Term, the Company shall be entitled to terminate
Executive's employment subject to the Company's normal policies in such matters
as applied to all other salaried employees. In the event of such termination of
Executive's employment or termination of Executive's employment by reason of the
death of Executive prior to the expiration of the Term, the Executive (or
Executive's estate, as the case may be) shall be entitled to receive from the
Company only the following:
<PAGE>
(i) In the event of termination after Executive has become Permanently
Disabled, Executive shall be entitled to continued participation in
hospital and medical plans and programs of the Company at Executive's own
expense, as required by COBRA and in accordance with Company policy as it
pertains to disabled salaried employees; that is for the period of said
disability or until normal retirement age subject to rules and practice of
the plan(s). Company may, in its discretion, provide the benefits described
herein under the Company's group plans or under no less favorable insurance
contracts or arrangements secured by the Company.
(ii) Executive (or, in the event of Executive's death, Executive's
estate or Executive's designated beneficiary) shall be entitled to receive
any vested benefits in accordance with the terms of any such benefit plans.
Executive shall be entitled to continued contributions under the Company's
qualified profit sharing and 401(k) plans to the extent permitted in said
plans.
(b) Date of Termination. The date of termination of Executive's employment
under this Section 8 shall be the date Executive becomes Permanently Disabled or
the date of Executive's death as the case may be.
9. Termination of Employment by Written Notice of Nonrenewal.
(a) Notice. This Agreement may be terminated with or without Cause upon
delivery of written notice of nonrenewal by either party to the other between
ninety (90) and sixty (60) days prior to the end of the Term or of any renewal
period.
(b) Compensation and Benefits. If Executive's employment is not renewed
under this Section 9, Executive shall be entitled only to the following
severance benefits:
(i) Unless the notice of nonrenewal is given during a Transition
Period, the Company shall make a cash payment equal to one-half (1/2) of
Executive's Base Salary at the time of termination of employment. Such
payment shall be made in cash within fifteen (15) days from and after the
end of Executive's employment. If the notice of nonrenewal is given during
a Transition Period, then, subject to Section 7(c), the Company shall make
a cash payment to Executive equal to the sum of (A) the amount of
Executive's Base Salary at the time of termination of Executive's
employment and (B) the amount of any incentive bonuses which, absent
termination of Executive's employment, could have been earned by Executive
during the fiscal year of the Company in which Executive's employment under
this Agreement ceases. For purposes of clause (B), the computation of the
amount of incentive bonuses shall be based upon the incentive bonus
programs in effect at the time of termination of Executive's employment and
such computation shall assume that target performance levels are satisfied
for all purposes during such fiscal year. Such payment shall be made in
cash within fifteen (15) days from and after Executive's employment under
this Agreement ceases.
<PAGE>
(ii) Executive shall be entitled to continued participation in
Company's group health insurance plan as permitted by COBRA and the terms
of such plan. Company shall, for a one-year period following termination of
Executive's employment, continue to pay a portion of Executive's Company
group health insurance premiums equivalent to that portion it pays on
behalf of its employees during such one-year period, subject to Executive
paying the employee portion of such premiums and subject to termination of
participation upon Executive becoming entitled to group health insurance
coverage on subsequent employment or upon Executive's electing not to
continue coverage or termination of such plan by Company.
(c) Date of Termination. The date of termination of Executive's employment
by the Company under this Section 9 shall be the date on which the term of
Executive's employment expires.
10. Legal Fees and Expenses. The Company shall pay or reimburse Executive
for all reasonable legal fees and expenses incurred by Executive in seeking to
obtain or enforce any right or benefit provided by this Agreement from or
against the Company in a proceeding before a court of competent jurisdiction.
11. Assignment of Inventions. Executive agrees to promptly disclose to the
Company in writing all Inventions. All such Inventions shall be the exclusive
property of the Company and are hereby assigned by Executive to the Company.
Further, Executive will, at the Company's expense, give the Company all
assistance it reasonably requires to perfect, protect, enforce, and use its
rights to Inventions. In particular, but without limitation, Executive will sign
all documents, do all things, and supply all information that the Company may
deem necessary or desirable to:
(i) transfer or record the transfer of Executive's entire right,
title and interest in Inventions; and
(ii) enable the Company to obtain or enforce patent, copyright or
trademark protection for Inventions anywhere in the world.
<PAGE>
The obligations of this Section shall continue beyond the termination of
employment with respect to Inventions conceived or made by Executive during the
period of Executive's employment and shall be binding upon assigns, executors,
administrators and other legal representatives. For purposes of this Agreement,
any Invention relating to the business of the Company on which Executive files a
patent application within six (6) months after termination of employment with
the Company shall be presumed to cover Inventions conceived by Executive during
the term of Executive's employment, subject to proof to the contrary by good
faith, written and duly corroborated records establishing that such Invention
was conceived and made following termination of employment.
NOTICE: Pursuant to Minnesota Statutes ss. 181.78, Executive is hereby
notified that this Section 11 does not apply to any invention for which no
equipment, supplies, facility, or trade secret information of the Company was
used and which was developed entirely on Executive's own time, and (1) which
does not relate (a) directly to the business of the Company or (b) to the
Company's actual or demonstrably anticipated research or development, or (2)
which does not result from any work performed by the employee for the Company.
12. Confidential Information. Executive agrees not to directly or
indirectly use or disclose Confidential Information for the benefit of anyone
other than the Company, either during or after employment, for as long as the
information retains the characteristics of Confidential Information described in
Section 1 above.
13. Return of Documents and Property. All documents and tangible items
provided to Executive by the Company, or possessed, obtained, or created by
Executive for use in connection with Executive's employment, are the property of
the Company and shall be promptly returned to the Company on termination of
employment together with all copies, recordings, abstracts, notes or
reproductions of any kind made from or about the documents and tangible items or
the information they contain.
14. Noncompetition. In consideration of Executive's rights under this
Agreement, including without limitation Sections 5 through 9 hereof, Executive
agrees that, from and after the Effective Date and continuing until the one-year
anniversary of termination or cessation of Executive's employment with the
Company, Executive will not, alone or in any capacity with another person or
entity:
(i) directly or indirectly, own any interest in, control, be employed
by or associated with, or render services to (including but not limited to
services in research), any person, entity, or subsidiary, subdivision,
division, or joint venture of such entity in connection with the design,
development, manufacture, marketing, or sale of a Competitive Product that
is sold or intended for use or sale in any geographic area in which the
Company actively markets a Company Product or intends to actively market a
Company Product of the same general type or function;
<PAGE>
(ii) directly or indirectly, solicit any of the Company's present or
future employees for the purpose of hiring them or inducing them to leave
their employment with the Company;
(iii) directly or indirectly, solicit, attempt to solicit, interfere,
or attempt to interfere with the Company's relationship with its customers
or potential customers, on behalf of Executive or any other person or
entity engaged in the design, development, manufacture, marketing, or sale
of a Competitive Product; or
(iv) directly or indirectly design, develop, manufacture, market, or
sell any Competitive Product that is sold or intended for use or sale in
any geographic area in which the Company actively markets a Company Product
or intends to actively market a Company Product of the same general type or
function.
15. Breach of Noncompetition Provisions of this Agreement. In addition to
any other relief or remedies afforded by law or in equity, if Executive breaches
Section 14 of this Agreement, Executive agrees that the Company shall be
entitled, as a matter of right, to injunctive relief in any court of competent
jurisdiction plus its costs, including but not limited to its reasonable
attorneys' fees for securing such relief. Executive recognizes and hereby admits
that irreparable damage will result to the Company if Executive violates or
threatens to violate the terms of Section 14 of this Agreement. This Section 15
shall not preclude the granting of any other appropriate relief including,
without limitation, money damages against Executive for breach of Section 14 of
this Agreement.
16. Effect of Other Obligations. It is intended that the obligation of the
parties to perform the terms of this Agreement is unconditional and does not
depend on the performance or non-performance of any terms, duties or obligations
not specifically recited in this Agreement.
17. Binding Agreement. This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto, any Successor to or assigns of the Company,
and Executive's heirs and the personal representative of Executive's estate.
18. Severability. If a Court finds that any provision of this Agreement is
not enforceable, Executive and the Company agree that the Court should modify
the provision to make it enforceable to the maximum extent possible. If the
provision cannot be modified, Executive and the Company agree that the provision
may be severed, and the other provisions of this Agreement shall remain in full
force and effect.
<PAGE>
19. Amendment; Waiver. This Agreement may not be modified, amended or
waived in any manner except by an instrument in writing signed by both parties
hereto. The waiver by either party of compliance with any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any other provision of this Agreement, or of any subsequent breach by such party
of a provision of this Agreement.
20. Governing Law. All matters affecting this Agreement, including the
validity thereof, are to be governed by, interpreted and construed in accordance
with the laws of the State of Minnesota.
21. Notices. Any notice hereunder by either party to the other shall be
given in writing by personal delivery or certified mail, return receipt
requested. If addressed to Executive, the notice shall be delivered or mailed to
Executive at the address specified under Executive's signature hereto, or if
addressed to the Company, the notice shall be delivered or mailed to the Company
at its executive offices to the attention of the Board of Directors of the
Company. A notice shall be deemed given, if by personal delivery, on the date of
such delivery or, if by certified mail, on the date shown on the applicable
return receipt.
22. Supersedes Previous Agreements. This Agreement supersedes all prior or
contemporaneous negotiations, commitments, agreements and writings with respect
to the subject matter hereof, all such other negotiations, commitments,
agreements and writings will have no further force or effect, and the parties to
any such other negotiation, commitment, agreement or writing will have no
further rights or obligations thereunder.
23. Headings; Construction. The headings of Sections and paragraphs herein
are included solely for convenience of reference and shall not control the
meaning or interpretation of any of the provisions of this Agreement. This
Agreement shall be construed without regard to any presumption or other rule
requiring construction hereof against the party causing this Agreement to be
drafted.
24. Benefit. Nothing in this Agreement, expressed or implied, is intended
to confer on any person other than the parties hereto or their respective
successors or assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its officer pursuant to the authority of its Board, and Executive has executed
this Agreement, as of the day and year first written above.
FIRST TEAM SPORTS, INC.
By: /s/ John J. Egart
John J. Egart, President
/s/ Kent Brunner
Kent Brunner
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
FORM 10-Q FOR PERIOD ENDED 8/31/97 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-31-1997
<EXCHANGE-RATE> 1
<CASH> 636,098
<SECURITIES> 0
<RECEIVABLES> 14,652,445
<ALLOWANCES> 319,000
<INVENTORY> 21,257,549
<CURRENT-ASSETS> 37,976,510
<PP&E> 13,116,091
<DEPRECIATION> 3,486,304
<TOTAL-ASSETS> 49,798,086
<CURRENT-LIABILITIES> 8,333,586
<BONDS> 6,504,266
0
0
<COMMON> 57,600
<OTHER-SE> 33,772,634
<TOTAL-LIABILITY-AND-EQUITY> 49,798,086
<SALES> 36,108,873
<TOTAL-REVENUES> 36,108,873
<CGS> 26,994,488
<TOTAL-COSTS> 26,994,488
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 523,290
<INCOME-PRETAX> 1,573,620
<INCOME-TAX> 546,000
<INCOME-CONTINUING> 1,027,620
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,027,620
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
