SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. ____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
FIRST TEAM SPORTS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
FIRST TEAM SPORTS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
June 17, 1997
TO THE SHAREHOLDERS OF FIRST TEAM SPORTS, INC.:
The 1997 Annual Meeting of Shareholders of First Team Sports, Inc. will
be held at the Anoka-Hennepin Technical College, 1355 West Highway 10, Anoka,
Minnesota, at 10:00 a.m. (Minneapolis-time) on Tuesday, June 17, 1997, for the
following purposes:
1. To set the number of members of the Board of Directors at six
(6).
2. To elect members of the Board of Directors.
3. To approve an increase in the number of shares reserved under
the Company's 1994 Stock Option and Incentive Compensation
Plan from 525,000 to 925,000.
4. To take action on any other business that may properly come
before the meeting or any adjournment thereof.
Accompanying this Notice of Annual Meeting is a Proxy Statement, form
of Proxy and the Company's 1997 Annual Report.
Only shareholders of record as shown on the books of the Company at the
close of business on April 21, 1997 will be entitled to vote at the Annual
Meeting or any adjournment thereof. Each shareholder is entitled to one vote per
share on all matters to be voted on at the Annual Meeting.
You are cordially invited to attend the Annual Meeting. Whether or not
you plan to attend the Annual Meeting, please sign, date and mail the enclosed
form of Proxy in the return envelope provided as soon as possible. Your
cooperation in promptly signing and returning your Proxy will help avoid further
solicitation expense to the Company.
BY ORDER OF THE BOARD OF DIRECTORS
May 16, 1997 John J. Egart
Anoka, Minnesota President and Chief Executive Officer
<PAGE>
FIRST TEAM SPORTS, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
to be held
June 17, 1997
The accompanying Proxy is solicited by the Board of Directors of First
Team Sports, Inc. (the "Company") for use at the Annual Meeting of Shareholders
of the Company to be held on Tuesday, June 17, 1997, at the location and for the
purposes set forth in the Notice of Annual Meeting, and at any adjournments
thereof.
The cost of soliciting proxies, including the preparation, assembly and
mailing of the proxies and soliciting material, as well as the cost of
forwarding such material to the beneficial owners of the Company's Common Stock,
will be borne by the Company. Directors, officers and regular employees of the
Company may, without compensation other than their regular remuneration, solicit
proxies personally or by telephone.
Any shareholder giving a Proxy may revoke it any time prior to its use
at the Annual Meeting by giving written notice of such revocation to the
Secretary or other officer of the Company or by filing a later-dated written
Proxy with an officer of the Company. Personal attendance at the Annual Meeting
is not, by itself, sufficient to revoke a Proxy unless written notice of the
revocation or a later-dated Proxy is delivered to an officer of the Company
before the revoked or superseded Proxy is used at the Annual Meeting. Proxies
will be voted as specified by the shareholders.
The presence at the Annual Meeting in person or by proxy of the holders
of a majority of the outstanding shares of the Company's Common Stock entitled
to vote shall constitute a quorum for the transaction of business. If a broker
returns a "non-vote" proxy, indicating a lack of voting instructions by the
beneficial holder and a lack of discretionary authority on the part of the
broker to vote on a particular matter, then the shares covered by such non-vote
shall be deemed present at the meeting for purposes of determining a quorum but
shall not be deemed to be represented at the Annual Meeting for purposes of
calculating the vote with respect to such matter. If a shareholder abstains from
voting as to any matter, then the shares held by such shareholder shall be
deemed present at the Annual Meeting for purposes of determining a quorum and
for purposes of calculating the vote with respect to such matter, but shall not
be deemed to have been voted in favor of such matter. An abstention as to any
proposal will, therefore, have the same effect as a vote against the proposal.
Proxies which are signed but which lack any such specification will be voted in
favor of the proposals set forth in the Notice of Meeting and in favor of the
number and slate of directors proposed by the Board of Directors and listed
herein.
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<PAGE>
The mailing address of the principal executive office of the Company is
1201 Lund Boulevard, Anoka, Minnesota 55303. The Company expects that this Proxy
Statement, the related Proxy and Notice of Meeting will first be mailed to
shareholders on approximately May 16, 1997.
STOCK SPLIT
All information contained herein regarding the Company's Common Stock,
including information regarding options to purchase the Company's Common Stock,
has been adjusted, as necessary, to reflect the 3-for-2 stock split of the
Company's Common Stock which was effected on February 3, 1995.
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed the close of business
on April 21, 1997 as the record date for determining shareholders entitled to
vote at the Annual Meeting (the "Record Date"). Persons who were not
shareholders on the Record Date will not be allowed to vote at the Annual
Meeting. At the close of business on the Record Date, 5,750,096 shares of the
Company's Common Stock, par value $.01 per share, were issued and outstanding.
The Common Stock is the only outstanding class of capital stock of the Company.
Each share of Common Stock is entitled to one vote on each matter to be voted
upon at the Annual Meeting. Holders of Common Stock are not entitled to
cumulative voting rights.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT SHAREHOLDINGS
The following table provides information as of the Record Date
concerning the beneficial ownership of the Company's Common Stock by (i) persons
known to the Company to be the beneficial owners of more than 5% of the
Company's outstanding Common Stock as of the Record Date, (ii) each director and
nominee for director of the Company, (iii) the named executive officers in the
Summary Compensation Table and (iv) all directors and executive officers as a
group.
Name, Position(s)(and Number of shares Percent
Address of 5% Holders) Beneficially Owned(1)(2) of Class(2)
- --------------------- ----------------------- ----------
John J. Egart 439,185(3)(4) 7.5%
President, Chief Executive
Officer and Director
1201 Lund Boulevard
Anoka, MN 55303
David G. Soderquist 387,925(4)(5) 6.6%
Vice Chairman and Director
1201 Lund Boulevard
Anoka, MN 55303
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<PAGE>
Joe Mendelsohn 111,000(6) 1.9%
Chairman and Director
Timothy G. Rath 39,000(7) *
Director
Stanley E. Hubbard 23,750(8) *
Director
William J. McMahon 1,500(9) *
Director
All Executive Officers and 1,107,453(10) 17.8%
Directors as a Group
(9 persons)
*less than 1%
(1) Unless otherwise indicated, each person named or included in the group has
sole power to vote and sole power to direct the disposition of all shares listed
as beneficially owned by him or her.
(2) Under the rules of the SEC, shares not actually outstanding are deemed to be
beneficially owned by an individual if such individual has the right to acquire
the shares within 60 days. Pursuant to such SEC rules, shares deemed
beneficially owned by virtue of an individual's right to acquire them are also
treated as outstanding when calculating the percent of the class owned by such
individual and when determining the percent owned by any group in which the
individual is included.
(3) Includes: 1,521 shares of Common Stock held by Mr. Egart's wife; 17,349
shares of Common Stock held by either Mr. Egart or his wife as custodian for
their children; and 135,000 shares of Common Stock which may be acquired by Mr.
Egart upon exercise of stock options.
(4) Includes 15,500 shares of Common Stock held by a partnership, of which Mr.
Egart and Mr. Soderquist are partners and with respect to which each, as a
partner, shares voting and investment power over the shares.
(5) Includes 120,000 shares of Common Stock which may be acquired by Mr.
Soderquist upon exercise of stock options.
(6) Includes 93,000 shares of Common Stock which may be acquired by Mr.
Mendelsohn upon exercise of stock options.
(7) Includes 15,000 shares of Common Stock which may be acquired by Mr. Rath
upon exercise of stock options.
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<PAGE>
(8) Includes 16,500 shares of Common Stock which may be acquired by Mr. Hubbard
upon exercise of stock options.
(9) Includes 1,500 shares of Common Stock which may be acquired by Mr. McMahon
upon exercise of a stock option.
(10) Includes: 487,168 shares of Common Stock which may be acquired upon the
exercise of stock options; 15,500 shares of Common Stock held by a partnership;
and 19,320 shares of Common Stock held by or for family members of executive
officers.
ELECTION OF DIRECTORS
(Proposals #1 and #2)
The Bylaws of the Company provide that the number of directors shall be
the number set by the shareholders, which shall be not less than one. The Board
of Directors unanimously recommends that the number of directors be set at six,
which is the current number of directors, and that six directors be elected.
Unless otherwise instructed, the Proxies will be so voted.
In the absence of other instruction, the Proxies will be voted for each
of the following individuals. If elected, such individuals shall serve until the
next annual meeting of shareholders and until their successors shall be duly
elected and shall qualify. All of the nominees are currently members of the
Board of Directors. As permitted by the Company's Bylaws, on September 18, 1996,
the Board increased the number of directors from five to six and elected William
J. McMahon as a director. If, prior to the Annual Meeting, it should become
known that any one of the following individuals will be unable to serve as a
director after the Annual Meeting by reason of death, incapacity or other
unexpected occurrence, the Proxies will be voted for such substitute nominee as
is selected by the Board of Directors. Alternatively, the Proxies may, at the
Board's discretion, be voted for such fewer number of nominees as results from
such death, incapacity or other unexpected occurrence. The Board of Directors
has no reason to believe that any of the following nominees will be unable to
serve.
Under applicable Minnesota law, setting the number of directors at six
and the election of each nominee requires the affirmative vote of the holders of
the greater of (i) a majority of the voting power of the shares represented in
person or by proxy at the Annual Meeting with authority to vote on such matter,
or (ii) a majority of the voting power of the minimum number of shares that
would constitute a quorum for the transaction of business at the Annual Meeting.
Name and Age Director
of Nominee Principal Occupations for the Past Five Years Since
John J. Egart - President and Chief Executive Officer of the 1986
47 Company since January 1994; Executive Vice
President of the Company from the Company's
inception in May 1986 until January 1994.
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<PAGE>
David G. Soderquist - Vice Chairman of the Company since January 1994; 1986
48 President and Chief Executive Officer of the
Company from the Company's inception in May
1986 until January 1994.
Joe Mendelsohn - Chairman of the Board of the Company since January 1991
66 1991; consultant to various toy and related product
businesses since January 1987 and to the Company
since July 1988.
Timothy G. Rath - Consultant since February 1996; Chief Executive 1991
51 Officer of Kelly Russell Studios, Inc., a firm
engaged in production and marketing of sports
memorabilia, from October 1995 to February
1996, prior to which he served as Chief
Operating Officer from March 1995 to October
1995 and as General Manager from November
1994 to March 1995; consultant to Anthony
Industries, Inc., a diversified manufacturer
of recreational and industrial products,
from June 1992 to October 1993; Vice
President of Sales & Marketing for
Stearns/Shakespeare Outdoor Products Group,
a manufacturer of outdoor sporting goods,
from October 1988 to May 1992.
Stanley E. Hubbard - Vice President of Hubbard Broadcasting, Inc., a 1992
36 broadcasting company, since July 1984; President
since March 1993 and Chief Executive Officer
since January 1996 of United States
Satellite Broadcasting Company, Inc., a
satellite broadcasting company, prior to
which he served as its Chief Operating
Officer beginning in March 1993. Mr. Hubbard
also serves as a director of United States
Satellite Broadcasting Company, Inc.
William J. McMahon - President and Chief Executive Officer of Lund 1996
50 International Holdings, Inc., a manufacturer of
accessory products for vehicles, since
September 1994; Chief Operating Officer of
Anagram International, Inc., a manufacturer
of Mylar balloons and packaging products,
from 1991 to September 1994. Mr. McMahon
also serves as a director of Lund
International Holdings, Inc.
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<PAGE>
Board and Committee Meetings
During the fiscal year ended February 28, 1997, the Board of Directors
held six meetings. Each director attended at least 75% of the aggregate of the
total number of meetings of the Board of Directors and the total number of
meetings of all committees of the Board on which he served. The Board of
Directors has an Audit Committee, Compensation Committee and Stock Option
Committee. The Board does not have a nominating committee.
The Audit Committee recommends to the Board of Directors the selection
of independent accountants and reviews the activities and reports of the
independent accountants as well as the internal accounting controls of the
Company. The Audit Committee was comprised of Mr. Mendelsohn and Mr. Rath until
January 14, 1997, when Mr. McMahon was also appointed to serve on the Audit
Committee. During fiscal 1997, the Audit Committee held two meetings.
The Compensation Committee recommends the compensation for executive
officers of the Company. The Compensation Committee was comprised of Mr. Rath
and Mr. Hubbard, until January 14, 1997 when Mr. McMahon was also appointed to
serve on the Compensation Committee. During fiscal 1997, the Compensation
Committee held one meeting.
The Stock Option Committee administers the Company's 1987 Stock Option
Plan, 1990 Nonqualified Stock Option Plan, 1993 Employee Stock Purchase Plan and
the 1994 Stock Option and Incentive Compensation Plan. The Stock Option
Committee is comprised of Mr. Rath and Mr. Hubbard. During fiscal 1997, the
Stock Option Committee did not meet, but it took action by unanimous written
consent twice.
Compensation of Directors
Directors' Fees. The Company pays each director who is not an employee
of the Company an attendance fee of $500 per Board of Directors and committee
meeting attended; provided, however, that no director may receive more than $500
per day.
Stock Option Grants. Pursuant to either the Company's 1987 Stock Option
Plan or the Company's 1994 Stock Option and Incentive Compensation Plan, each
member of the Board of Directors who is neither an employee of, nor a paid
advisor or consultant to, the Company (a "Non-Employee Director") receives, upon
initial election to the Board, a nonqualified option to purchase 7,500 shares of
the Company's Common Stock at an option price per share equal to 100% of the
fair market value of the Company's Common Stock on the date of such election.
Such option is immediately exercisable to the extent of 1,500 shares and to the
extent of an additional 1,500 shares on each of the first, second, third and
fourth anniversaries of the date of grant. Each Non-Employee Director who 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 receives a nonqualified
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, which option is immediately exercisable in
full. However, a NonEmployee Director who receives a 7,500-share option upon
initial election to the Board may not receive the 3,000-share option for a
period of at least ten (10) months. All options granted pursuant to these
provisions expire on the earlier of (i) three months after the optionee ceases
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<PAGE>
to be a director (except by disability or death) or (ii) ten (10) years after
the date of grant. In the event of disability or death of a Non-Employee
Director, any option granted to such NonEmployee Director may be exercised at
any time within twelve (12) months of the disability or death of such
Non-Employee Director or prior to the date on which the option, by its terms,
expires, whichever is earlier.
Report of Compensation Committee and Stock Option Committee
The Compensation Committee's executive compensation policies are
designed to enhance the financial performance of the Company, and thus
shareholder value, by significantly aligning the financial interests of the
Company's key executives with those of the Company's shareholders. Compensation
of the Company's executive officers is comprised of four parts: base salary,
annual incentive bonuses, fringe benefits and long-term incentive opportunity in
the form of stock options. The Compensation Committee believes, but has not
conducted any formal survey, that the base salaries of the Company's executive
officers are generally less than executive officers of comparable publicly-held
companies. These relatively low base salaries are combined with the opportunity
to earn substantial cash bonuses if certain Company financial performance goals
are met. Long-term incentives are based on stock performance through stock
options. Although the Company's 1994 Stock Option and Incentive Compensation
Plan ("1994 Plan") also gives the Compensation Committee the flexibility to
grant other types of incentives, including restricted stock, stock appreciation
rights, performance shares and/or cash, only stock options have been granted
under the 1994 Plan. The Compensation Committee believes that stock ownership by
the Company's executive officers is beneficial in aligning management's and
shareholders' interests in the enhancement of shareholder value. Overall, the
intent is to have more significant emphasis on variable compensation components
and less on fixed cost components. The Compensation Committee believes this
philosophy and structure are in the best interests of the Company's
shareholders.
Bonuses. The Compensation Committee recommended, and the Board of
Directors unanimously approved, a fiscal 1997 bonus plan for the Company's
executive officers, as well as other officers and key managers of the Company,
which provided for the creation of a bonus pool ranging from $200,000 to
$650,000 based on the Company attaining pre-tax earnings ranging from
$11,500,000 to $14,260,000 and pre-tax earnings as a percentage of sales from
11.5% to 12.4%. No bonuses were paid pursuant to the bonus plan for fiscal 1997.
For fiscal 1998, the Compensation Committee recommended, and the Board
of Directors unanimously approved, a fiscal 1998 bonus plan for the Company's
executive officers which provides for the creation of a bonus pool ranging from
$150,000 to $750,000 based on the Company attaining pre-tax earnings ranging
from $4,900,000 to $6,076,000 and pre-tax earnings as a percentage of sales from
7.0% to 7.6%. Pursuant to the bonus plan, the following executive officers will
be eligible to receive up to the following percentage of such bonus pool based
on achievement of individual objectives determined by the Compensation
Committee: John Egart - 30.0%; David Soderquist - 16.7%; Robert Lenius - 20.0%;
Susan Joch - 16.7%; and Kent Brunner - 16.7%.
Stock Options and Other Incentives. The Company's stock option program
is the Company's long-term incentive plan for executive officers and key
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<PAGE>
managers. The objectives of the program are to align executive and shareholder
long-term interests by creating a strong and direct link between executive pay
and shareholder return, and to enable executives to develop and maintain a
significant, long-term ownership position in the Company's Common Stock.
The Company's 1987 Stock Option Plan and 1994 Plan authorize the Stock
Option Committee of the Board of Directors to award stock options to executive
officers and other employees. The 1994 Plan also permits the Compensation
Committee to award other forms of long-term incentives, including stock
appreciation rights, stock and restricted stock, performance shares and/or cash.
To date, however, only stock options have been granted under the 1994 Plan.
Stock options are generally granted each year, at an option price equal to the
fair market value of the Company's Common Stock on the date of grant, and vest
over a period of three years. The amount of stock options awarded is generally a
function of the recipient's salary and position in the Company. Awards are
intended to be generally competitive with other companies of comparable size and
complexity, although the Stock Option Committee has not conducted any thorough
comparative analysis.
Benefits. The Company provides the same health and disability insurance
benefits to its executive officers as are available to Company employees
generally, except that executive officers receive additional long-term
disability insurance beyond that available to Company employees generally. The
Company also provides automobiles to Mr. Egart and Mr. Soderquist. The amount of
perquisites, as determined in accordance with the rules of the SEC relating to
executive compensation, did not exceed 10% of salary for fiscal 1996.
Chief Executive Officer Compensation. The Compensation Committee
believes, but has not conducted any formal survey, that Mr. Egart's fiscal 1997
base salary of $175,000 is substantially less than the base salaries of chief
executive officers of comparable publicly-held companies. For fiscal 1998, Mr.
Egart's base salary will remain the same at $175,000. In fiscal 1997, Mr. Egart
did not receive a bonus pursuant to the Company's fiscal 1997 bonus plan due to
the Company's failure to achieve the target set forth in the plan. The stock
options to purchase 45,000 shares of Company Common Stock granted to Mr. Egart
during fiscal 1997 are consistent with the design of the overall compensation
program and are shown in the compensation tables under "Management Compensation"
following this report.
Members of the Compensation Committee
and Stock Option Committee:
Timothy G. Rath
Stanley E. Hubbard
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<PAGE>
MANAGEMENT COMPENSATION
Summary Compensation Table. The following table sets forth certain
information regarding compensation paid or accrued during each of the Company's
last three fiscal years to the Company's Chief Executive Officer and the
Company's only other executive officer whose total annual salary and bonus
exceeded $100,000 during fiscal 1997 (collectively referred to as the "named
executive officers").
<TABLE>
<CAPTION>
Long Term Compensation
Awards Payouts
---------------------- -------
Restricted Options/ LTIP All Other
Name and Principal Fiscal Stock SARs Payouts Compen-
Position Year Annual Compensation Awards ($) (#)(2) ($) sation($)(3)
- ---------------------- ----- ------------------------------------------- ---------- ------ ------ ------------
Salary ($) Bonus ($)(1) Other ($)
---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John J. Egart, 1997 $175,000 -- -- -- 45,000 -- $22,279
President and Chief 1996 $175,000 $120,000 -- -- 45,000 -- $22,500
Executive Officer 1995 $135,000 $128,000 -- -- 45,000 -- $19,483
David G. Soderquist, 1997 $146,155 -- -- -- 30,000 -- $22,279
Vice Chairman 1996 $150,000 $ 60,000 -- -- 30,000 -- $22,500
1995 $135,000 $ 73,000 -- -- 30,000 -- $19,483
</TABLE>
(1) Reflects bonus earned during the fiscal year. In some instances all or a
portion of the bonus was paid during the next fiscal year.
(2) Options to acquire shares of Common Stock.
(3) Represents contributions to the Company's Profit Sharing Plan.
Option Grants During 1997 Fiscal Year. The following table provides
information related to options granted to the named executive officers during
fiscal 1997.
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------
Potential Realizable
% of Total Value at Assumed
Options/ Annual Rates of
Options/ SARs Stock Price
SARs Granted to xercise or Appreciation
Granted Employees in Ease Price Expiration for Option Term (1)
Name (#)(2)(4) Fiscal Year B($/Sh)(3) Date 0% 5% ($) 10% ($)
- --------------------- ---------- ---------------- ------------- ---------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Egart 45,000 19.6% $6.00 01/13/04 -- $109,917 $256,153
David G. Soderquist 30,000 13.1% $6.00 01/13/04 -- $73,278 $170,769
</TABLE>
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior to
the expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options. These
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<PAGE>
numbers do not take into account provisions of certain options providing for
termination of the option following termination of employment,
nontransferability or vesting over periods of up to three years. If the options
are adjusted as set forth in (4) below, the potential realizable value will be
somewhat less.
(2) Options to acquire shares of Common Stock.
(3) The option exercise price may be paid in shares of Common Stock owned by the
executive officer, in cash, or in any other form of valid consideration or a
combination of any of the foregoing, as determined by the Stock Option Committee
in its discretion.
(4) Options become exercisable with respect to one-third of the shares covered
thereby on each of January 14, 1998, 1999 and 2000. However, in the event of a
change of control of the Company, any unexercisable portion of the options will
become immediately exercisable. See "Change of Control Arrangements." The
exercise price was equal to the fair market value of the Common Stock on the
date of grant. If the shareholders do not approve the increase of shares under
the 1994 Stock Option and Incentive Compensation Plan, the options shall be
deemed to be for the purchase of 34,430 shares and 22,955 shares for Messrs.
Egart and Soderquist, respectively. See Proposal #3.
Option Exercises During Fiscal 1997 and Fiscal Year-End Option Values.
The following table provides information related to options and warrants
exercised by the named executive officers during fiscal 1997 and the number and
value of options held at fiscal year-end. The Company does not have any
outstanding stock appreciation rights ("SARs").
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised In-the-Money
Acquired Options/SARs Options/SARs
on Exercise Value at FY-End(#) at FY-End($)(2)
Name (#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
- --------------------- --------------- ------------------ --------------------------------- --------------------------------
<S> <C> <C> <C> <C>
John J. Egart -- -- 129,000 96,000 $20,001 $0
David G. Soderquist -- -- 114,000 66,000 $20,001 $0
</TABLE>
(1) Value is calculated based on the amount, if any, by which the closing price
for the Common Stock as quoted on the Nasdaq National Market on the date of
exercise exceeds the option exercise price, multiplied by the number of shares
to which the exercise relates.
(2) The closing price for the Company's Common Stock as quoted on the Nasdaq
National Market on February 28, 1997 was $6.00. Value is calculated on the basis
of $6.00 minus the option exercise price and multiplying the result (if greater
than zero) by the number of shares of Common Stock underlying the option.
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<PAGE>
Employment Agreements and Severance Arrangements
On January 23, 1996, the Company entered into an Employment Agreement
with each of John Egart, President and Chief Executive Officer, and David
Soderquist, Vice Chairman, each of which Agreement has a three-year term, with
an automatic two-year renewal unless a nonrenewal notice is given by the officer
or the Company. If the Company gives the officer a nonrenewal notice, the
officer is entitled to a payment equal to such officer's annual base salary;
provided, however, if such nonrenewal notice is given within one year after a
change of control, the officer is entitled to an amount equal to two times the
sum of such officer's annual base salary and any bonus such officer could have
earned during the fiscal year in which the officer's employment ceases under the
Agreement. The Agreements provided for an initial annual base salary of $175,000
for Mr. Egart and $150,000 for Mr. Soderquist. Currently, Mr. Egart's annual
base salary continues to be $175,000, and Mr. Soderquist's annual base salary
has been reduced to $130,000. If the Agreement is terminated by the Company
without cause or if the officer resigns for good reason, the officer is entitled
to an amount equal to the greater of (i) salary and bonus for the remainder of
the term of the Agreement or (ii) annual base salary and bonus earned during the
preceding fiscal year; provided, however, if such termination or resignation
occurs within one year after a change of control, the officer is entitled to an
amount equal to the greater of (i) salary and bonus for the remainder of the
term of the Agreement or (ii) two times the annual base salary and bonus earned
during the preceding fiscal year, subject to reduction if total compensation
received upon a change of control would constitute an excess parachute payment
under I.R.C. ss. 280G.
Change of Control Arrangements
1987 Stock Option Plan. In May 1989, the Board of Directors adopted
resolutions amending the Company's 1987 Stock Option Plan (the "1987 Plan") and
providing that all options outstanding thereunder, including options held by the
Company's executive officers, and all nonqualified stock options granted outside
of the 1987 Plan to consultants to the Company, which are not then otherwise
exercisable in full shall become fully exercisable upon the occurrence of any of
the following events: (i) any person or group becomes the beneficial owner of
25% or more of the Company's Common Stock; (ii) at any time during any
consecutive two-year period, the directors of the Company at the beginning of
the period (and any new director whose election to the Board was approved by the
vote of at least two-thirds of the directors still in office) cease to
constitute a majority of the directors then in office; (iii) 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 (iv) the consummation of a sale of all
or substantially all of the Company's assets or a plan of complete liquidation
of the Company.
1994 Stock Option and Incentive Compensation Plan. Following a "change
of control," the 1994 Stock Option and Incentive Compensation Plan (the "1994
Plan") provides that all restrictions on restricted stock awarded under the 1994
Plan will immediately lapse, all performance share objectives for outstanding
performance share or cash Incentives shall be deemed to have been met and all
- 11 -
<PAGE>
outstanding options and stock appreciation rights shall immediately become
exercisable. However, all change of control compensation to a participant must
be less than the amount which would be considered a "parachute payment" under
I.R.C. ss. 280G. Section 280G provides that, if payments which are contingent
upon a change of control equal or exceed three times such participant's "base
amount" (average annual compensation over the five taxable years preceding the
taxable year in which the change of control occurs), then such payments
constitute a "parachute payment" and the excess of such "parachute payment" over
such participant's "base amount" will not be deductible by the Company and will
be subject to an excise tax payable by the participant. To the extent that
change of control compensation would equal or exceed three times a participant's
"base amount," the participant must designate which payments should be reduced
or eliminated so as to avoid receipt of a "parachute payment."
For purposes of these provisions, a "change of control" refers to any
of the following events: (i) the acquisition of at least 25% beneficial
ownership of any of the Company's equity securities by any person or group of
persons other than the Company's current shareholders; (ii) the approval of a
merger, consolidation or sale of substantially all of the Company's assets by
the shareholder, other than a merger or consolidation in which the Company's
shareholders immediately prior to such merger or consolidation hold immediately
thereafter more than 70% of the voting securities of the merged or consolidated
entity, or (iii) certain changes in the composition of the Company's Board of
Directors.
- 12 -
<PAGE>
Stock Performance Chart
The following graph compares the yearly percentage change in the
cumulative total stockholder return on the Company's Common Stock during the
five fiscal years ended February 28, 1997 with the cumulative total return on
the S&P 500 Composite Stock Index and the S&P Leisure Time Composite Index, an
index of leisure product manufacturers. The comparison assumes $100 was invested
on February 29, 1992 in the Company's Common Stock and in each of the foregoing
indices and assumes reinvestment of dividends.
[ GRAPH OMITTED ]
<TABLE>
<CAPTION>
02/29/92 02/28/93 02/28/94 02/28/95 02/29/96 02/28/97
<S> <C> <C> <C> <C> <C> <C>
First Team $100.00 $111.11 $ 82.23 $248.33 $186.67 $ 80.00
Sports, Inc.
S&P Leisure $100.00 $107.44 $143.72 $144.58 $196.38 $217.44
Time Index
S&P 500 $100.00 $110.65 $119.88 $128.70 $173.36 $218.72
Composite
Stock Index
</TABLE>
- 13 -
<PAGE>
Certain Transactions
The Company has a consulting agreement with Joe Mendelsohn, Director
and Chairman of the Board, pursuant to which Mr. Mendelsohn received $3,000 per
month for his consultation with, and advice to, management of the Company during
fiscal 1997. The agreement also provides for a contingent consulting fee
pursuant to which, if the Company achieves certain pre-tax earnings, Mr.
Mendelsohn will receive additional fees. Mr. Mendelsohn did not receive a
contingent consulting fee with respect to the Company's fiscal 1997 performance.
For fiscal 1998, such contingent consulting fee will range from $24,000 to
$120,000 based on the Company attaining pre-tax earnings from $4,900,000 to
$6,076,000, respectively. The agreement, with annual contingent payment target
updates, continues through February 28, 1998.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the period from
March 1, 1996 through February 28, 1997, all filing requirements applicable to
its officers, directors, and greater than ten-percent beneficial owners were
complied with.
APPROVAL OF INCREASE OF SHARES UNDER THE 1994 STOCK OPTION
AND INCENTIVE COMPENSATION PLAN
(Proposal #3)
On May 9, 1994, the Board of Directors adopted the First Team Sports,
Inc. 1994 Stock Option and Incentive Compensation Plan (the "1994 Plan") which
1994 Plan was approved by the shareholders at the 1994 Annual Meeting. On April
9, 1997, the Board increased the shares reserved under the 1994 Plan from
525,000 to 925,000, which increase is subject to approval by the Company's
shareholders. The 1994 Plan provides for the granting of "incentive" stock
options intended to meet the requirements of Internal Revenue Code ("I.R.C.")
Section 422, nonqualified stock options, stock appreciation rights ("SARs"),
stock awards, restricted stock awards, performance share awards and cash awards
(collectively referred to as "Incentives"). Incentives may be granted in any one
or a combination of these forms. No Incentives will be granted under the 1994
Plan after May 9, 2004. To date, all Incentives awarded under the 1994 Plan have
been stock options, none of which has been exercised. The 1994 Plan provides for
the automatic annual grants of nonqualified stock options to "Non-Employee
Directors" as described above in "Election of Directors - Compensation of
Directors."
- 14 -
<PAGE>
As discussed above under "Report of Compensation Committee and Stock
Option Committee," the Company has historically used stock options to provide a
long-term incentive to its officers and key employees, and stock options will
continue to be a primary form of long-term incentive to the Company's officers
and key employees. However, the availability of other types of Incentives under
the 1994 Plan afford the Committee greater flexibility in designing the most
appropriate type of incentive package for the Company and each individual.
The Company adopted the 1994 Plan primarily to afford officers,
directors, advisors, consultants and key employees, upon whose judgment,
initiatives and efforts the Company is largely dependent for the successful
conduct of its business, the opportunity to obtain a proprietary interest in the
growth and performance of the Company. All officers, directors, advisors,
consultants and key employees of the Company or any of the Company's
subsidiaries are eligible to receive awards under the 1994 Plan. The Company
currently has approximately 88 officers, directors, advisors, consultants and
employees. The Company has five executive officers (two of whom are also
directors), one consultant who is also a director, and three NonEmployee
Directors, all of whom are eligible to participate under the 1994 Plan.
A general description of the basic features of the 1994 Plan follows,
but such description is qualified in its entirety by reference to the full text
of the 1994 Plan, a copy of which may be obtained without charge upon written
request to the Company's Chief Financial Officer.
Administration and Types of Incentives
With the exception of the stock options automatically issued on an
annual basis to NonEmployee Directors described in "Election of Directors -
Compensation of Directors" above, the 1994 Plan is administered by the Stock
Option Committee of the Board of Directors, which must approve options and
awards granted under the 1994 Plan. The Committee has broad powers to administer
and interpret the 1994 Plan, including the authority to: (i) establish rules for
the administration of the 1994 Plan; (ii) select the participants in the 1994
Plan; (iii) determine the types of Incentives to be granted and the number of
shares (if any) covered by such Incentives; (iv) set the terms and conditions of
such Incentives; and (v) determine under what circumstances Incentives may be
cancelled or suspended. All determinations and interpretations of the Committee
will be binding on all interested parties.
The total number of shares and the exercise price per share of Common
Stock (if any) that may be issued pursuant to outstanding stock options, SARs,
stock, restricted stock, or performance shares will be subject to adjustment by
the Board of Directors upon the occurrence of stock dividends, stock splits or
other recapitalizations, or because of mergers, consolidations, reorganizations,
or similar transactions in which the Company receives no consideration. The
Board may also provide for the protection of optionees or recipients of
restricted stock or performance shares in the event of a merger, liquidation,
reorganization, divestiture (including a spin-off) or similar transaction after
which the Company is not the surviving corporation.
Options. Options granted under the 1994 Plan may be either "incentive
stock options" within the meaning of I.R.C. ss.422 or "nonqualified" stock
options that do not qualify for special tax treatment under Section 422 or
similar provisions of the I.R.C. No incentive stock option may be granted with a
- 15 -
<PAGE>
per share exercise price less than the fair market value of a share of the
underlying Common Stock on the date the incentive stock option is granted. For
nonqualified stock options, the option price ordinarily will also be the fair
market value of a share of the underlying Common Stock on the date the
nonqualified stock option is granted. The option exercise price must be paid in
cash unless the Committee permits payment in shares of Common Stock. The fair
market value of the Company's Common Stock was $6.25 on May 1, 1997.
An incentive stock option or nonqualified stock option generally
expires seven years after the date it is granted, and ordinarily becomes
exercisable as to one-third of the shares on each of the three succeeding
anniversaries of the date of grant. The Committee may, in its discretion, modify
or impose additional restrictions on the term of exercisability of an option.
The Committee may also determine the effect that an optionee's termination of
employment with the Company or a subsidiary may have on the exercisability of
such option. The Committee may impose additional or alternative conditions and
restrictions on incentive or nonqualified stock options granted pursuant to the
1994 Plan; however, each incentive stock option must contain such limitations
and restrictions upon its exercise as are necessary to ensure that the option
will be an incentive stock option as defined under the I.R.C. Following a
"change of control" as described below, all options granted under the 1994 Plan
will become immediately exercisable and any conditions restricting the
exercisability of the options shall be deemed satisfied. Options may not be
transferred by the optionee except by will or by the laws of descent and
distribution.
Restricted Stock. The Committee is also authorized to grant awards of
restricted stock. Each restricted stock award granted under the 1994 Plan will
be for a number of shares as determined by the Committee. The Committee, in its
discretion, may establish continued employment, vesting, or other conditions
that must be satisfied in order for the restrictions on transferability to
lapse. The Committee, in its discretion, may waive any restrictions applicable
to all or any portion of the shares subject to an outstanding restricted stock
award. While restrictions on transferability remain in effect, the recipient
will have the right to vote the shares of Common Stock and to receive any
dividends or distributions with respect thereto. If the recipient's employment
terminates before the restrictions lapse, shares subject to such restrictions
ordinarily will be forfeited to the Company. Following a "change of control" as
described below, all restrictions on restricted stock awarded under the 1994
Plan will immediately lapse.
Performance Shares. The Committee is also authorized to grant awards of
performance units ("Units") which generally will provide recipients with the
opportunity to receive Company Common Stock or cash if the Company's financial
goals or other business objectives are achieved over a specified performance
period. The Committee will determine the performance goals, the performance
periods, the vesting of Units and how Units will be valued. Generally, the
Committee will set performance goals for threshold, target and maximum levels of
cumulative net sales, cumulative pre-tax profits, or other financial performance
criteria for a three-year performance period. The Committee will determine the
value of the Units that have been awarded by applying a payment percentage that
corresponds to such threshold, target and maximum goals to the recipient's
salary range midpoint. Although the value of such Units ordinarily will be paid
in cash, the Committee has the discretion to pay such value in shares of the
Company's Common Stock, or any combination of cash and Common Stock. Following a
"change of control" as described below, all performance share goals or
objectives shall be deemed to be met and payment shall be made immediately.
- 16 -
<PAGE>
SARs. The Committee is also authorized to grant awards of stock
appreciation rights ("SARs"). Each SAR entitles the recipient to receive shares
of the Company's Common Stock or, if the Committee so elects in its discretion,
cash having a value equal to the amount by which the value of a share of the
Company's Common Stock exceeds the reference price of such SAR. SARs may be
granted either alone or in tandem with stock options previously or concurrently
granted to the same recipient. SARs granted in tandem with stock options will
have a reference price equal to the option exercise price, and the number of
SARs under such grant will automatically be reduced by the number of stock
options exercised. SARs not granted in tandem with stock options will have a
reference price determined by the Committee. The Committee will determine the
number, duration, and vesting of SARs and, upon exercise, whether SARs will be
paid in cash or stock. Following a "change of control" as described below, all
outstanding SARs will become immediately exercisable.
Cash. The Committee is also authorized to grant cash Incentives,
consisting of monetary payments in amounts determined by the Committee from the
Company to a participant as additional compensation for his or her services to
the Company. Payment of a cash Incentive will normally depend on achievement of
single or multi-year performance objectives by the Company or by the
participant, and may be subject to vesting or other requirements. Such
performance objectives may be adjusted by the Committee upon the occurrence of
any extraordinary event which substantially affects the Company. Following a
"change of control" as described below, all outstanding cash Incentives will
become immediately payable.
Change of Control Provisions
Following a "change of control," all options granted under the 1994
Plan will become immediately exercisable, all restrictions on restricted stock
awarded under the 1994 Plan will immediately lapse, all performance share
objectives for outstanding performance share or cash Incentives shall be deemed
to have been met, and all outstanding options and stock appreciation rights
shall immediately become exercisable. However, all change of control
compensation to a participant must be less than the amount which would be
considered a "parachute payment" under I.R.C. ss.280G. Section 280G provides
that if payments which are contingent upon a change of control equal or exceed
three times such participant's "base amount" (average annual compensation over
the five taxable years preceding the taxable year in which the change of control
occurs), then such payments are a "parachute payment" and the excess of such
"parachute payment" over such participant's "base amount" will not be deductible
by the Company and will be subject to an excise tax payable by the participant.
To the extent that change of control compensation would equal or exceed three
times a participant's "base amount," the participant must designate which
payments should be reduced or eliminated so as to avoid receipt of a "parachute
payment."
For purposes of these provisions, a "change of control" refers to any
of the following events: (i) the acquisition of at least 25% beneficial
ownership of any of the Company's equity securities by any person or group of
persons other than the Company's current shareholders; (ii) the approval of a
merger, consolidation or sale of substantially all of the Company's assets by
the shareholder, other than a merger or consolidation in which the Company's
shareholders immediately prior to such merger or consolidation hold immediately
- 17 -
<PAGE>
thereafter more than 70% of the voting securities of the merged or consolidated
entity, or (iii) certain changes in the composition of the Company's Board of
Directors.
Amendment
Except for the provisions of the 1994 Plan relating to the automatic
annual grants of nonqualified stock options to Non-Employee Directors, the Board
of Directors may terminate, modify or amend the 1994 Plan (including the
above-described provisions regarding a "change of control") at any time prior to
a "change of control," except that the terms of Incentives then outstanding may
not be adversely affected without the consent of the individual. The provisions
relating to the automatic annual grants of nonqualified stock options to
Non-Employee Directors may not be amended more frequently than once every six
months, unless the amendment is required to comply with changes in ERISA or the
I.R.C. After a "change of control," neither the Board of Directors nor the
Committee may terminate or amend the 1994 Plan to deny participants the change
of control benefits stated in the 1994 Plan. Neither the Board of Directors nor
the Committee may amend the 1994 Plan without the approval of the Company's
shareholders if the amendment would materially increase the total number of
shares of Common Stock available for issuance under the 1994 Plan, materially
increase the benefits accruing to any individual or materially modify the
requirements as to eligibility for participation in the 1994 Plan.
Federal Income Tax Matters
Options. "Nonqualified" stock options granted under the 1994 Plan are
not intended to and do not qualify for the favorable tax treatment available to
"incentive" stock options under I.R.C. ss.422. Generally, no tax results upon
the grant of a nonqualified stock option under the 1994 Plan. However, in the
year that a nonqualified stock option is exercised, the optionee must recognize
compensation taxable as ordinary income equal to the difference between the
option price and the fair market value of the shares on the date of exercise.
The Company normally will receive a deduction equal to the amount of
compensation the optionee is required to recognize as ordinary income if the
Company complies with any applicable federal withholding requirements.
"Incentive" stock options granted under the 1994 Plan are intended to
qualify for favorable tax treatment under I.R.C. ss.422. Under Section 422, an
optionee realizes no taxable income when an incentive stock option is granted.
Further, the optionee generally will not realize any taxable income when the
incentive stock option is exercised if he or she has at all times from the date
of the option's grant until three months before the date of exercise been an
employee of the Company. The Company ordinarily is not entitled to any deduction
upon the grant or exercise of an incentive stock option. Certain other favorable
tax consequences may be available to the optionee if he or she does not dispose
of the shares acquired upon the exercise of an incentive stock option for a
period of two years from the grant of the option and one year from the receipt
of the shares.
Restricted Stock. Generally, recipients of restricted stock awards are
not required to recognize compensation taxable as ordinary income in the year
that the shares of Common Stock underlying the restricted stock award are
- 18 -
<PAGE>
granted. Instead, recipients will recognize compensation taxable as ordinary
income for the year in which the transfer restrictions lapse in an amount equal
to the fair market value of the shares at that time. Any dividends paid with
respect to restricted stock awards prior to the time the restrictions lapse
ordinarily will be treated as compensation income. The Company will receive a
deduction equal to the amount of compensation income the recipient is required
to recognize as ordinary income if the Company complies with any applicable
federal withholding requirements.
SARs, Performance Shares and Cash. A participant who receives SARs or
who receives a performance share or cash award will also recognize compensation
income (and the Company will be entitled to a tax deduction) in the year in
which the SARs are exercised or payment under the performance share or cash
award is made to the participant, equal to the amount of cash and the fair
market value of any shares of Common Stock received.
Plan Benefits
Because future grants of Incentives are subject to the discretion of
the Committee, the future benefits under the 1994 Plan cannot be determined at
this time, except for the automatic stock option grants to Non-Employee
Directors as set forth above. The table below shows the total number of shares
underlying stock options that have been granted under the 1994 Plan as of April
30, 1997 to the named executive officers and the groups set forth.
Shares of Common Stock
Name and Position/Group Underlying Options Received
John J. Egart 135,000(1)
President and Chief Executive Officer
David G. Soderquist 90,000(2)
Vice Chairman
Current Executive Officers 388,501(3)
as a Group (5 persons)
Current Directors who are not 115,500
Executive Officers as a Group (4 persons)
Current Employees who are not 53,250(4)
Executive Officers or Directors
as a Group (79 persons)
- -------------------
(1) Includes an option to purchase 10,570 shares which will be cancelled if
the shareholders do not approve the increase of shares under the 1994
Plan.
(2) Includes an option to purchase 7,045 shares which will be cancelled if
the shareholders do not approve the increase of shares under the 1994
Plan.
(3) Includes an option to purchase 31,706 shares which will be cancelled if
the shareholders do not approve the increase of shares under the 1994
Plan.
- 19 -
<PAGE>
(4) Includes options to purchase 29,500 shares which will be deemed to be
granted outside the 1994 Plan if the shareholders do not approve the
increase of shares under the 1994 Plan.
Vote Required. The Board of Directors recommends that the shareholders
approve the increase of shares from 525,000 to 925,000 under the 1994 Stock
Option and Incentive Compensation Plan as described herein. Under applicable
Minnesota law, approval of the increase of shares under the 1994 Plan requires
the affirmative vote of the holders of the greater of (i) a majority of the
voting power of the shares represented in person or by proxy at the Annual
Meeting with authority to vote on such matter, or (ii) a majority of the voting
power of the minimum number of shares that would constitute a quorum for the
transaction of business at the Annual Meeting.
INDEPENDENT PUBLIC ACCOUNTANTS
McGladrey & Pullen, LLP provided services in connection with the
Company's registration statement filed with the SEC in August 1987 and has
served as the Company's independent accountants since such time. Representatives
of McGladrey & Pullen, LLP are expected to be present at the Annual Meeting,
will be given an opportunity to make a statement regarding financial and
accounting matters of the Company if they so desire, and will be available to
respond to appropriate questions from the Company's shareholders. The Company
has not selected an accountant for the current fiscal year. The Company is
considering changing its independent accountants to avoid potential future
issues with respect to McGladrey & Pullen's independence under applicable SEC
accounting requirements. Such issues may arise in the future by virtue of the
fact that the spouse of one of the Company's executive officers is employed by
McGladrey & Pullen and could be promoted to a management position. There is no
disagreement between the Company and McGladrey & Pullen.
OTHER BUSINESS
Management knows of no other matters to be presented at the 1997 Annual
Meeting. If any other matter properly comes before the Annual Meeting, the
appointees named in the Proxies will vote the Proxies in accordance with their
best judgment.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 1998 Annual Meeting must be received by the
Company by January 16, 1998, to be included in the Company's proxy statement and
related proxy for the 1998 Annual Meeting.
- 20 -
<PAGE>
FORM 10-K
THE COMPANY WILL PROVIDE AT NO CHARGE A COPY OF ITS ANNUAL REPORT ON
FORM 10-K, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, TO ANY
BENEFICIAL OWNER OF SHARES ENTITLED TO VOTE AT THE 1997 ANNUAL MEETING. PLEASE
ADDRESS YOUR REQUEST TO THE ATTENTION OF ROBERT L. LENIUS, JR., VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER, FIRST TEAM SPORTS, INC., 1201 LUND BOULEVARD,
ANOKA, MINNESOTA 55303. YOUR REQUEST MUST CONTAIN A REPRESENTATION THAT AS OF
APRIL 21, 1997, YOU WERE A BENEFICIAL OWNER OF SHARES ENTITLED TO VOTE AT THE
ANNUAL MEETING OF SHAREHOLDERS.
BY ORDER OF THE BOARD OF DIRECTORS
John J. Egart
President and Chief Executive Officer
Dated: May 16, 1997
Anoka, Minnesota
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<PAGE>
[FRONT] FIRST TEAM SPORTS, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John J. Egart and David G. Soderquist
and each of them, with power to appoint a substitute, to vote all shares the
undersigned is entitled to vote at the Annual Meeting of Shareholders of First
Team Sports, Inc. to be held on June 17, 1997, and at all adjournments thereof,
as specified below on the following matters which are further described in the
Proxy Statement related hereto and, in their discretion, upon any other matters
which may be brought before the meeting.
1. PROPOSAL TO SET THE NUMBER OF DIRECTORS AT SIX (6).
/ / FOR / / AGAINST / / ABSTAIN
2. ELECTION OF DIRECTORS. NOMINEES: John J. Egart, David G. Soderquist,
Joe Mendelsohn, Timothy G. Rath,
Stanley E. Hubbard and William J. McMahon
/ / VOTE FOR all nominees listed above (except vote withheld from the
following nominees, if any, whose names are written below)
----------------------------------------------
/ / WITHHOLD AUTHORITY to vote for all nominees listed above.
3. APPROVE INCREASE OF SHARES RESERVED UNDER THE COMPANY'S 1994 STOCK OPTION
AND INCENTIVE COMPENSATION PLAN FROM 525,000 TO 925,000.
/ / FOR / / AGAINST / / ABSTAIN
(continued and to be dated and signed on other side)
[BACK]
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. This proxy, when properly
executed, will be voted in the manner directed herein by the undersigned
shareholder. If no direction is made, this proxy will be voted for all directors
named in Item 2 and for Proposals 1 and 3.
Please sign exactly as name appears at left.
When shares are held as joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as such. If
a corporation, please have signed in full
corporate name by President or other
authorized officer. If a partnership, please
have signed in partnership name by
authorized person.
-------------------------------------------
Signature
-------------------------------------------
Signature if held jointly
Dated: , 1997
-----------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY, USING THE ENCLOSED ENVELOPE
<PAGE>
FIRST TEAM SPORTS, INC.
1994 STOCK OPTION AND INCENTIVE COMPENSATION PLAN
(As Amended on April 9, 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.
- 1 -
<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.
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<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.
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<PAGE>
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):
(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.
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<PAGE>
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.
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.
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<PAGE>
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.
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);
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<PAGE>
(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.
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.
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<PAGE>
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.
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.
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<PAGE>
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.
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.
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<PAGE>
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 NonEmployee Director may be exercised at any time within twelve
months of the disability or death of such NonEmployee 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.
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.
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<PAGE>
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;
(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.
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<PAGE>
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.
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").
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<PAGE>
(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.
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<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.
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."
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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.
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