SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: Commission File No.:
August 31, 1998 0-16442
FIRST TEAM SPORTS, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-1545748
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1201 Lund Boulevard
Anoka, Minnesota 55303
(Address of principal executive
offices) Registrant's telephone
number, including area code:
(612) 576-3500
--------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_____
---------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,792,240 shares of Common
Stock, $.01 par value per share, outstanding as of October 12, 1998.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS
August 31, 1998 and February 28, 1998
<TABLE>
<CAPTION>
August 31, February 28,
ASSETS 1998 1998
-------------------- ---------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $2,076,327 $1,869,545
Receivables:
Trade, less allowance for
doubtful accounts of $688,000 at
August 31, 1998 and $565,000 at
February 28, 1998 11,452,340 11,417,176
Refundable income taxes 3,823,067 1,678,405
Inventories 10,735,484 22,709,519
Prepaid expenses 827,253 957,903
Deferred income taxes 896,000 896,000
-------------------- ---------------------
Total current assets 29,810,471 39,528,548
-------------------- ---------------------
PROPERTY AND EQUIPMENT,
Land 600,000 600,000
Building 4,988,680 4,988,680
Production equipment 2,106,376 2,132,156
Office furniture and equipment 1,813,460 1,766,911
Warehouse equipment 939,277 820,626
Vehicles 104,614 102,906
-------------------- ---------------------
10,552,407 10,411,279
Less accumulated depreciation 2,619,474 1,993,004
-------------------- ---------------------
7,932,933 8,418,275
-------------------- ---------------------
OTHER ASSETS
License agreements, less accumulated
amortization of $3,213,000 at August
31, 1998 and $3,039,000 at February
28, 1998 1,854,684 1,766,584
Goodwill, less accummulated amortization
of $254,000 at August 31, 1998 and
$64,000 at February 28, 1998. 1,139,299 1,462,291
Other 768,611 986,030
-------------------- ---------------------
3,762,594 4,214,905
-------------------- ---------------------
$41,505,998 $52,161,728
==================== =====================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
August 31, 1998 and February 28, 1998
<TABLE>
<CAPTION>
August 31, February 28,
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1998
-------------------- ---------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to bank $5,055,000 $8,685,000
Current maturities of
long-term debt 1,134,308 978,965
Accounts payable, trade 1,868,542 2,697,675
Accrued expenses 1,983,292 2,115,728
-------------------- ---------------------
Total current liabilities 10,041,142 14,477,368
-------------------- ---------------------
LONG-TERM DEBT,
less current maturities 6,342,177 6,774,496
-------------------- ---------------------
DEFERRED INCOME TAXES 69,000 69,000
-------------------- ---------------------
DEFERRED REVENUE 600,000 600,000
-------------------- ---------------------
SHAREHOLDERS' EQUITY
Common Stock, par value $.01 per
share; authorized 10,000,000
shares; issued and outstanding
5,792,240 shares at August 31, 1998,
and February 28, 1998 57,923 57,923
Additional paid-in capital 9,806,341 9,806,341
Retained earnings 15,190,665 20,492,860
Accumulated other comprehensive income (loss) (601,250) (116,260)
-------------------- ---------------------
24,453,679 30,240,864
-------------------- ---------------------
$41,505,998 $52,161,728
==================== =====================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
August 31, August 31,
1998 1997 1998 1997
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net sales $ 9,239,152 $ 10,101,611 $ 24,354,248 $ 36,108,873
Cost of goods sold 14,126,388 7,944,438 24,906,990 26,994,488
------------ ------------ ------------ ------------
Gross profit (4,887,236) 2,157,173 (552,742) 9,114,385
------------ ------------ ------------ ------------
Operating expenses:
Selling 1,379,795 1,214,086 2,780,156 3,255,917
General and
administrative 2,223,080 1,954,404 3,972,650 3,761,558
------------ ------------ ------------ ------------
3,602,875 3,168,490 6,752,806 7,017,475
------------ ------------ ------------ ------------
Operating income/(loss) (8,490,111) (1,011,317) (7,305,548) 2,096,910
Interest expense (321,769) (272,748) (680,950) (523,290)
------------ ------------ ------------ ------------
Income/(loss) before
income taxes (8,811,880) (1,284,065) (7,986,498) 1,573,620
Income tax
benefit/(expense) 2,966,856 450,000 2,684,303 (546,000)
------------ ------------ ------------ ------------
Net income/(loss) for
the period ($ 5,845,024) ($ 834,065) ($ 5,302,195) $ 1,027,620
============ ============ ============ ============
Net income/(loss) per share:
Basic ($ 1.01) ($ 0.14) ($ 0.92) $ 0.18
Diluted ($ 1.01) ($ 0.14) ($ 0.92) $ 0.18
Shares used in computation of
net income/(loss) per share:
Basic 5,792,240 5,760,008 5,792,240 5,755,664
Diluted 5,792,240 5,760,008 5,792,240 5,819,933
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Six Months Ended August 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
August 31, August 31,
1998 1997
------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income/(Loss) ($5,302,195) $1,027,620
Adjustments required to reconcile net
income/(loss) to net cash provided by
operating activities:
Depreciation 627,722 897,900
Amortization 580,844 181,269
Inventory writedown 6,000,000 -
Change in assets and liabilities:
Receivables (304,290) 2,706,234
Inventories 5,839,980 (375,704)
Prepaid expenses 128,997 24,137
Accounts payable (774,523) (3,068,795)
Accrued expenses (118,734) (97,454)
Income taxes (2,152,891) 144,817
------------------- --------------------
Net cash provided by
operating activities 4,524,910 1,440,024
------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (141,739) (712,487)
Other (261,673) (16,080)
------------------- --------------------
Net cash used in investing activities (403,412) (728,567)
------------------- --------------------
CASH FLOWS USED IN FINANCING ACTIVITIES
Net payments on short-term borrowings (3,630,000) (1,025,000)
Proceeds on long-term borrowings 262,760 1,000,000
Principal payments on long-term
borrowings (540,276) (438,469)
Net proceeds from exercise of stock options - 56,683
------------------- --------------------
Net cash used in financing activities (3,907,516) (406,786)
------------------- --------------------
Increase in cash and
cash equvalents 213,982 304,671
Effect of foreign currency translation (7,200) -
Cash and cash equivalents:
Beginning 1,869,545 381,427
------------------- --------------------
Ending $2,076,327 $686,098
=================== ====================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1.
The consolidated condensed balance sheet as of August 31, 1998, and
the consolidated statements of operations for the three-month and six-month
periods ended August 31, 1998 and August 31, 1997 and the consolidated
statements of cash flows for the six-month periods then ended have been prepared
by the Company without audit. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
consolidated financial position, results of operations and cash flows at August
31, 1998 and August 31, 1997 and for all periods presented have been made. The
operating results for the period ended August 31, 1998 are not necessarily
indicative of the operating results to be expected for the full fiscal year.
Certain information and footnote disclosures normally included in
consolidated financial statements in accordance with generally accepted
accounting principles have been condensed or omitted.
NOTE 2.
As of March 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130 Report Comprehensive Income ("Statement 130"). Statement
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this statement had no impact on the
Company's net income or shareholders' equity. Statement 130 requires the
Company's foreign currency translation, which prior to adoption was reported
separately in shareholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to comform to the
requirements of Statement 130.
During the quarters ended August 31, 1998 and 1997, total comprehensive
income/(loss) amounted to ($6,239,933) and ($834,065), respectively. During the
six-month period ended August 31, 1998 and 1997, total comprehensive
income/(loss) amounted to (($5,903,447) and $1,027,620, respectively.
<PAGE>
NOTE 3.
<TABLE>
<CAPTION>
Basic EPS Diluted EPS
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
(in thousands, except per share data)
THREE MONTHS ENDED AUGUST 31
<S> <C> <C> <C> <C>
Net Income/(Loss) ($5,845) ($ 834) ($5,845) ($ 834)
======= ======= ======= =======
Weighted average common
shares outstanding 5,792 5,760 5,792 5,760
Stock Options -- -- -- --
------- ------- ------- -------
Total common equivalent
shares outstanding 5,792 5,760 5,792 5,760
======= ======= ======= =======
Net Income/(Loss) per share ($ 1.01) ($ .14) ($ 1.01) ($ .14)
SIX MONTHS ENDED AUGUST 31
Net Income/(Loss) ($5,302) $ 1,028 ($5,302) $ 1,028
======= ======= ======= =======
Weighted average common
shares outstanding 5,792 5,756 5,792 5,756
Stock Options -- -- -- 64
------- ------- ------- -------
Total common equivalent
shares outstanding 5,792 5,756 5,792 5,820
======= ======= ======= =======
Net Income/(Loss) per share ($ .92) $ .18 ($ .92) $ .18
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
The Company's product groups consist of in-line skates, in-line
accessories and parts (primarily protective wear and replacement wheels and
bearings), roller hockey products, ice hockey sticks and ice hockey protective
wear and accessories. Within the product groups, the Company maintains
UltraWheels, Skate Attack, Heavy and Third World in-line product lines and a
Hespeler ice hockey line. The UltraWheels, Heavy and Third World lines consist
of higher quality and higher priced products that are targeted for the specialty
and sporting goods chain store customers. The Skate Attack line consists of
lower priced products for the mass merchant customers. The Hespeler ice hockey
line consists of high quality products that are targeted primarily at the
specialty and sporting goods chain stores.
Net Sales. Net sales were $9.2 million in the second quarter of fiscal
1999, a decrease of 9% over the comparable quarter of fiscal 1998 when sales
were $10.1 million. Net sales for the first six months of fiscal 1999 were $24.4
million, compared to $36.1 million for the first six months of fiscal 1998, a
decrease of 32%. In-line skate sales volume decreases, combined with a decrease
in the average selling price of both the Company's Skate Attack and UltraWheels
lines, were the principal factors in the Company's net sales decline in the
second quarter and six-month period of fiscal 1999. The Company experienced
continued pricing pressures from all areas of the market place due primarily to
excess inventory levels and competitive price cutting in the in-line skate
industry.
In-line skate and in-line accessory and part sales decreased 31% and
25%, respectively, from the second quarter of fiscal 1998 to fiscal 1999, and
have decreased 42% and 39%, respectively from the six-month period of fiscal
1998 to fiscal 1999. Sales of in-line skates accounted for approximately 64% and
74%, respectively, of total sales in the second quarter and for the six-month
period of fiscal 1999, compared to 82% and 85%, respectively, in the second
quarter and for the six-month period of fiscal 1998. Sales of in-line
accessories and parts accounted for approximately 15% and 13%, respectively, of
total sales in the second quarter and for the six-month period of fiscal 1999,
compared to 18% and 15%, respectively, in the second quarter and for the
six-month period of fiscal 1998. Sales of ice hockey sticks and ice hockey
protective wear and accessories accounted for approximately 8% and 13%,
respectively, of total sales in the second quarter and 6% and 7%, respectively,
for the six-month period of fiscal 1999. The Company purchased Hespeler Hockey
Company in September 1997, therefore there were no ice hockey product sales
during the first six months of fiscal 1998.
The Company currently distributes products to numerous countries
worldwide. Domestic sales were $5.0 million, or 55% of total sales, in the
second quarter and $13.8 million, or 58% of total sales, for the first six
months of fiscal 1999, compared to $7.0 million or 69% in the second quarter and
$23.9 million or 67% for the six-month period of fiscal 1998. Sales in Canada
<PAGE>
were $3.2 million or 35%, and $7.4 million or 30%, of total sales in the second
quarter and for the six-month period of fiscal 1999, respectively, compared to
$1.2 million or 12%, and $5.5 million or 15%, respectively in fiscal 1998. Sales
in Europe were $500,000 or 5%, and $2.6 million or 11%, respectively, of total
sales in the second quarter and for the six-month period of fiscal 1999 compared
to $1.0 million or 10%, and $5.2 million or 14%, respectively, in fiscal 1998.
Other international sales were $500,000 or 5%, and $500,000 or 1%, respectively,
of total sales in the second quarter and for the six-month period of fiscal 1999
compared to $900,000 or 9% and $1.5 million or 4%, respectively, in fiscal 1998.
Several factors contributed to the Company's reduced sales in the
second quarter and the six-month period of fiscal 1999. The decrease in domestic
sales is the result of continued excess inventory levels in the market place and
competitive price cutting which has continued to plague the in-line skate
industry, as well as certain large mass merchant customers buying in-line
products direct from Pacific Rim manufacturers. The increased sales in Canada
were primarily the result of Hespeler ice hockey product sales and the continued
strong acceptance of the Company's in-line products in Canada. The decrease in
European sales is primarily the result of excess inventory levels in the
European market and an increase in the number of customers buying direct from
Pacific Rim manufacturers. The decrease in other international sales is
primarily the result of continued excess inventory levels in both the Pacific
Rim and South American marketplaces.
Gross Margin As a percentage of net sales, the gross margin was (53%)
in the second quarter of fiscal 1999 compared to 21% in the second quarter of
fiscal 1998. The gross margin as a percentage of net sales for the six-month
period of fiscal 1999 was (2%), compared to 25 % for fiscal 1998.
The negative gross margin in the second quarter and for the six-month
period is primarily due to the Company's decision to write-down questionable
inventory as part of a change in the Company's production philosophy for the
future. In an effort to reduce future product costs, the Company expects to
shift the majority of its in-line skate production to offshore sources. This
decision rendered certain inventory, predominately unfinished goods and
component parts inventories located in the United States, of questionable value.
The total amount of the inventory write-down was approximately $6 million, which
was recorded in cost of goods sold in the second quarter Statement of
Operations.
The Company's UltraWheels brand of in-line skates accounted for
approximately 57% and 62%, respectively, of total in-line skate sales in the
second quarter and for the six-month period of fiscal 1999, compared to 39% and
59% ,respectively in fiscal 1998, while the Company's Skate Attack brand
accounted for 43% and 38%, respectively, of total in-line skate sales in the
second quarter and for the six-month period of fiscal 1999 compared to 61% and
41%, respectively in fiscal 1998.
Operating Expenses. Selling expenses were $1.4 million or 14.9% of
total net sales in the second quarter and $2.8 million or 11.4% of total net
sales for the six-month period of fiscal 1999, compared to $1.2 million or 12.0%
in the second quarter and $3.3 million or 9.0% for the six-month period of
fiscal 1998. The increase in selling expenses for the second quarter and the
increase in the selling expenses as a percentage of net sales in both the second
<PAGE>
quarter and six-month period was primarily due to the Company's continued
efforts to advertise and market the Company's two new subsidiaries Hespeler
Hockey and Mothership Distribution and the Company's new products. The decrease
in the absolute dollar amount of selling expenses for the six-month period in
fiscal 1999 is primarily the result of a reduction in commissions, royalties and
co-op advertising costs associated with the decreased sales volume and
management's efforts to closely monitor and control its expenditures.
General and administrative expenses were $2.2 million or 24.1% of total
net sales in the second quarter and $4.0 million or 16.3% of total net sales for
the six-month period of fiscal 1999 compared to $2.0 million or 19.3 % in the
second quarter and $3.8 million or 10.4% for the six-month period of fiscal
1998. The increase in general and administrative expenses in the second quarter
and in the six-month period of fiscal 1999 was primarily due to the
administrative costs associated with the Company's new offices for its
subsidiaries Hespeler and Mothership, which were purchased in September 1997 and
the administrative costs associated with the Company's European subsidiary which
was opened in August 1997.
In fiscal 1997 the Company purchased a new software system and
appropriate computer hardware. As part of the Company's selection process the
ability to recognize the year 2000 was a major requirement and thus the Company
believes it is prepared for the change. The Company is currently working to
resolve the potential impact of the year 2000 on the processing of date
sensitive information by the Company's computerized information systems, which
might occur due to vendors and/or customers not being ready. Based on
preliminary information, costs of addressing potential problems are currently
not expected to have a material adverse impact on the Company's financial
position, results of operations or cash flows in future periods.
Other Income and Expense. Interest expense was $322,000 in the second
quarter and $681,000 for the six-month period of fiscal 1999 compared to
$273,000 in the second quarter and $523,000 for the six-month period of fiscal
1998. The increase in interest expense for the both the second quarter and the
six-month period is primarily due to an increase in the interest expense related
to the Company's line of credit facility. This interest expense increase is the
result of additional cash required to manage and operate the day to day
activities of the Company's subsidiaries, which has resulted in an increase in
the average outstanding balance on the Company's line of credit facility during
the second quarter and for the six-month period of fiscal 1999 as compared to
the same periods of fiscal 1998.
Provision for Income Taxes. The Company's effective tax rate was 33.7%
and 33.6%, respectively, in the second quarter and the six-month period of
fiscal 1999 compared 35% and 34.7%, respectively, in the second quarter and
six-month period of fiscal 1998. The slight decrease in 1999 is primarily due to
the lower effective state and foreign tax rates and the related percentage of
state and foreign revenues.
<PAGE>
Net Income/(Loss). The Company had a net loss of ($5.8) million or
($1.01) per share in the second quarter of fiscal 1999 compared to a net loss of
($834,000) or ($.14) per share in fiscal 1998. The Company had a net loss of
($5.3) million or ($.92) per share for the six-month period of fiscal 1999
compared to net income of $1 million or $.18 per share in fiscal 1998. The
increase in losses for the both the second quarter and the six-month period can
be attributed to the significant decrease in both the sales volume and the gross
margins, the large write down of inventory, along with the increase in operating
expenses as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
In the six-month period of fiscal 1999, the Company's operations
provided $4.5 million of cash compared to $1.4 million in the six-month period
of fiscal 1998. The increase in the net cash provided by operations is primarily
the result of the Company reducing its inventory balances. While the Company's
inventories have been reduced by approximately 52% since February 1998,
management believes that its inventories need to be controlled and is continuing
its efforts for effectively reducing unneeded inventory.
Net cash used in investing activities was $403,000 in the six-month
period of fiscal 1999 compared to $729,000 in the six-month period of fiscal
1998. The use of cash for this activity was primarily attributable to
expenditures relating to new licensing arrangements and new production tools in
1999.
Net cash used in financing activities was $3.9 million in the six-month
period of fiscal 1999 compared to $407,000 in the six-month period of fiscal
1998. The use of cash for this activity was primarily for paying down the
Company's line of credit facility and long term debt obligations.
The Company's debt to worth ratio was .7 to 1 as of August 31, 1998,
compared to .7 to 1 as of February 28, 1998 and .5 to 1 as of August 31, 1997.
The Company's long-term debt, which consists primarily of a mortgage note on the
Company's facility and obligations under endorsement license agreements, less
current maturities, was $6.3 million as of August 31, 1998. The Company has a
revolving line of credit with a bank that provides for borrowings of up to $15
million, of which $5.1 million was outstanding at August 31, 1998 and $4.5
million at October 6, 1998. In addition, the Company has a line of credit
established with the bank providing for borrowings of up to $1 million for the
purchase of equipment and improvements. As of August 31, 1998 there was a
$583,000 balance outstanding on this credit facility.
In connection with these credit facilities, the Company agreed, among
other things, to maintain certain minimum financial ratios and income levels.
Due primarily to the Company's writedown of inventory, the Company is not in
compliance with certain of these credit facility covenants. The Company is
currently negotiating an amendment to its current credit facility.
The Company believes its current cash position, funds available under
existing and amended bank arrangements and cash generated from operations will
be sufficient to finance the Company's operating requirements through fiscal
1999.
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held its Annual Meeting on July 8, 1998.
(b) Proxies for the Annual Meeting were solicited pursuant to
Regulation 14 under the Securities Exchange Act of 1934. There
was no solicitation in opposition to management's nominees as
listed in the proxy statement, and all of such nominees were
elected.
The shareholders set the number of directors at six (6) by a
vote of 4,949,515 shares in favor, 126,223 shares against and
29,043 shares abstaining. The following persons were elected
to serve as directors of the Company until the next annual
meeting of shareholders with the following votes:
Number of Number of
Nominee Votes For Votes Withheld
------- --------- --------------
John J. Egart 4,945,285 130,453
David G. Soderquist 4,944,465 131,273
Joe Mendelsohn 4,945,215 130,523
Timothy G. Rath 4,943,335 132,403
Stanley E. Hubbard 4,926,935 148,803
William J. McMahon 4,936,215 139,523
The shareholders approved an increase in the number of shares
reserved under the Company's 1994 stock option and incentive
compensation from 925,000 to 1,325,000 by a vote of 1,751,171
shares in favor, 552,457 shares against and 34,916 shares
abstaining, which votes excluded 2,766,237 shares ("broker
non-votes").
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Exhibit Index immediately following the
signature page of this Form 10-Q.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Registrant during the quarter to which this Form 10-Q relates.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST TEAM SPORTS, INC.
By: /s/ John J. Egart
John J. Egart
President and CEO
and By: /s/ Kent A. Brunner
Kent A. Brunner
Vice President and CFO
Dated: October 12, 1998
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-Q
For Quarter Ended: Commission File No.: 0-16422
August 31, 1998
-------------------------------------------------------------------
FIRST TEAM SPORTS, INC.
-------------------------------------------------------------------
Exhibit
Number Description
3.1 Restated Articles of Incorporation -- incorporated by reference to
Exhibit 3.1 to the Company's Form 10-K for the year ended February 28,
1998
3.2 Bylaws -- incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-18 Reg. No. 33-16345C
4.1 Specimen of Common Stock Certificate--incorporated by reference to 4.1
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1991
4.2 Certificate of Designations of Series A Preferred Stock (included in
Restated Articles of Incorporation -- see Exhibit 3.1)
4.3 Rights Agreement dated as of March 15, 1996 between the Company and
Norwest Bank Minnesota, N.A. as Rights Agent -- incorporated by
reference to Exhibit 2.1 to the Company's Registration Statement on
Form 8-A, Reg. No. 0-16422
4.4 Form of Right Certificate -- incorporated by reference to Exhibit 2.2
to the Company's Registration Statement on Form 8-A, Reg. No. 0-16422
4.5 Summary of Rights to Purchase Share of Series A Preferred Stock-
incorporated by reference to Exhibit 2.3 to the Company's Registration
Statement of Form 8-A, Reg. No. 0-16422
10.1* 1994 Stock Option and Incentive Compensation Plan, as amended through
May 27, 1998**
27* Financial Data Schedule (included in electronic version only)
- -----------------
*Filed herewith
** Management contract or compensatory plan or arrangement
FIRST TEAM SPORTS, INC.
1994 STOCK OPTION AND INCENTIVE COMPENSATION PLAN
(As Amended Through May 27, 1998)
1. Purpose. The purpose of the 1994 Stock Option and Incentive
Compensation Plan (the "Plan") of First Team Sports, Inc. (the "Company") is to
increase shareholder value and to advance the interests of the Company by
furnishing a variety of economic incentives ("Incentives") designed to attract,
retain and motivate employees, officers, directors, consultants and advisors of
the Company. Incentives may consist of opportunities to purchase or receive
shares of Common Stock, $0.01 par value, of the Company ("Common Stock"),
monetary payments or both on terms determined under this Plan.
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board"), or by a Committee which may be appointed
by the Board from time to time. If the Plan is administered by the Board, each
member of the Board shall be a "disinterested person" as defined in Rule 16b-3,
or any successor provision, of the General Rules and Regulations of the
Securities Exchange Act of 1934 (the "1934 Act"), as amended.
If a Committee is appointed by the Board to administer the Plan, such
Committee shall consist solely of two or more directors of the Company who shall
be appointed from time to time and serve at the pleasure of the Board. Each
member of the Committee shall be a "disinterested person" within the meaning of
Rule 16b-3 of the 1934 Act. The Board may from time to time appoint members of
the Committee in substitution for, or in addition to, members previously
appointed, and may fill vacancies, however caused, in the Committee. If such
Committee is appointed by the Board, the Committee shall select one of its
members as its chairman and shall hold its meetings at such times and places as
it shall deem advisable. A majority of the Committee's members shall constitute
a quorum. All action of the Committee shall be taken by the majority of its
members. Any action may be taken by a written instrument signed by majority of
the members, and actions so taken shall be fully effective as if it had been
made by a majority vote at a meeting duly called and held. The Committee may
appoint a secretary, shall keep minutes of its meetings, and shall make such
rules and regulations for the conduct of its business as it shall deem
advisable.
The Board or the Committee, as the case may be, shall have complete
authority to award Incentives under the Plan, to interpret the Plan, to
prescribe the form and conditions of the respective agreements (which may vary
from participant to participant) evidencing each Incentive awarded under the
Plan, and to make any other determination which it believes necessary and
advisable for the proper administration of the Plan. The Board's or the
Committee's decisions and matters relating to the Plan shall be final and
conclusive on the Company and participants in the Plan. No member of the Board
or the Committee shall be liable for any action taken or determination made in
good faith in connection with the administration of the Plan.
<PAGE>
3. Participants. The Board or the Committee, as the case may be, shall
from time to time, at its discretion and without approval of the shareholders,
designate those employees, directors, officers, consultants and advisors of the
Company or its subsidiaries or affiliates to whom Incentives may be granted
under this Plan; provided, however, that consultants or advisors shall not be
eligible to receive Incentives under the Plan unless such consultant or advisor
renders bona fide services to the Company or its subsidiaries or affiliates and
such services are not in connection with the offer or sale of securities in a
capital raising transaction; and provided, further, that directors who are
responsible for the administration of the Plan shall not be eligible to receive
Incentives under the Plan except pursuant to Section 11 hereof and to the extent
otherwise permitted by Rule 16b-3 of the 1934 Act or any successor provision.
Employees, consultants and advisors may be designated individually or by groups
or categories (for example, by pay grade) as the Board or the Committee deems
appropriate. Participation by officers and directors of the Company or its
subsidiaries or affiliates and any performance objectives relating to such
officers and directors must be approved by the Board or the Committee, as the
case may be. Participation by others and any performance objectives relating to
others may be approved by groups or categories (for example, by pay grade), and
the authority to designate participants who are not officers or directors and to
set or modify such performance objectives may be delegated to such officers of
the Company as the Board or the Committee may, from time to time and at its sole
discretion, deem appropriate.
4. Types of Incentives. Incentives under the Plan may be granted in any
one or a combination of the following forms: (a) incentive stock options and
non-qualified stock options (Section 6 and Section 11); (b) stock appreciation
rights ("SARs") (Section 7); (c) stock awards (Section 8); (d) restricted stock
(Section 8); (e) performance shares (Section 9); and (f) cash awards (Section
10).
5. Shares Subject to the Plan.
5.1. Number of Shares. Subject to adjustment as provided in
Section 12.6, the number of shares of Common Stock which may be issued
under the Plan shall not exceed One Million Three Hundred Twenty-five
Thousand (1,325,000) 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
<PAGE>
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.
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.
<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.
<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
<PAGE>
exercise date exceeds (1) in the case of an SAR related to a
stock option, the purchase price of the shares of Common Stock
under the stock option or (2) in the case of an SAR granted
alone, without reference to a related stock option, an amount
which shall be determined by the Committee at the time of
grant, subject to adjustment under Section 12.6); by
(b) the Fair Market Value of a share of Common Stock
on the exercise date.
In lieu of issuing shares of Common Stock upon a participant's exercise
of an SAR, the Board or the Committee, as the case may be, may elect to
pay the participant cash equal to the Fair Market Value on the exercise
date of any or all of the shares which would otherwise be issuable. No
fractional shares of Common Stock shall be issued to the participant
upon the exercise of an SAR; instead, the participant shall be entitled
to receive a cash adjustment equal to the same fraction of the Fair
Market Value of a share of Common Stock on the exercise date or to
purchase the portion necessary to make a whole share at its Fair Market
Value on the date of exercise.
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
<PAGE>
stock, shall be subject to such restrictions as the Board or the
Committee, as the case may be, may determine, which may vary from time
to time and among participants, including, without limitation, any or
all of the following:
(a) a prohibition against the sale, transfer, pledge,
assignment or other encumbrance of the shares of restricted
stock, such prohibition to lapse at such time or times as the
Board or the Committee, as the case may be, shall determine
(whether in annual or more frequent installments, upon the
participant's death, disability, retirement or termination of
employment or other relationship with the Company or its
subsidiaries or affiliates, or otherwise);
(b) a requirement that the participant forfeit or, in
the case of shares sold to the participant, resell back to the
Company at his or her cost, all or a part of such shares in
the event of termination of his or her employment or other
relationship with the Company or its subsidiaries or
affiliates during any period in which such shares are subject
to restrictions;
(c) such other conditions or restrictions as the
Board or the Committee, as the case may be, may deem
advisable.
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.
<PAGE>
8.7 Modification of Restrictions. The Board or the Committee,
as the case may be, may, in its sole discretion, modify the manner in
which the prohibition on the sale or other transfer of the shares of
restricted stock awarded to the participant may lapse, subject to such
limitations as may be imposed by the Rule 16b-3, or any successor
provision, of the 1934 Act. Any such modification shall apply only to
those shares of Common Stock which are restricted as of the effective
date of the modification, and shall be reflected, if deemed appropriate
by the Board or the Committee, as the case may be, in an amendment to
any agreement with respect to which such modification applies.
9. Performance Shares. A performance share consists of an award which
shall be paid in cash or shares of Common Stock, as described below. Except as
provided in this Section 9, each grant of performance shares by the Board or the
Committee, as the case may be, under the Plan shall be subject to such terms and
conditions, which may vary from participant to participant, as the Board or the
Committee may, in its sole discretion, deem appropriate, including the number of
performance shares granted to the participant, the valuation of such performance
shares, the extent to which such performance shares may become payable or will
expire (including the payment or expiration of such performance shares upon the
participant's death, disability, retirement, termination of employment or other
relationship with the Company or its subsidiaries or affiliates), and the form
of agreement that shall evidence the grant of performance shares.
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.
<PAGE>
9.3. No Adjustments. No adjustment shall be made in
performance shares granted on account of cash dividends which may be
paid or other rights which may be issued to the holders of Common Stock
prior to the end of any period for which performance objectives were
established.
9.4 Amendment of Performance Objectives. The Board or the
Committee, as the case may be, may, at any time during the period
specified in the agreement evidencing the grant of the performance
shares, suspend, modify or terminate the grant of such performance
shares or adjust the performance objectives relating to such
performance shares upon the occurrence of any extraordinary event which
substantially affects the Company or its subsidiaries or affiliates,
including, but not limited to, a merger, consolidation, exchange,
divestiture (including a spin-off) reorganization or liquidation of the
Company or its subsidiary or affiliate, or the sale by the Company or
its subsidiary or affiliate of substantially all of its assets and the
consequent discontinuance of its business.
10. Cash Awards. A cash award consists of a monetary payment made by
the Company to a participant as additional compensation for his or her services
to the Company or its subsidiaries or affiliates. Payment of a cash award will
normally depend on achievement of performance objectives by the Company or by
the participant. Such performance objectives may include business or financial
objectives relating to the Company or one of its operating units, whether or not
related to any equity security of the Company, and may be adjusted by the Board
or the Committee, as the case may be, upon the occurrence of any extraordinary
event which substantially affects the Company or its subsidiaries or affiliates.
The amount of any monetary payment constituting a cash award shall be determined
by the Board of the Committee, as the case may be, in its sole discretion. Cash
awards may be subject to such terms and conditions, which may vary from time to
time and among participants, as the Board or the Committee, as the case may be,
deems appropriate.
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.
<PAGE>
11.2 Upon Re-election to Board. Each Non-Employee Director
who, after the date this Plan is adopted by the Board of Directors, is
re-elected as a director of the Company or whose term of office
continues after a meeting of shareholders at which directors are
elected shall, as of the date of such re-election or shareholder
meeting, automatically be granted an option to purchase 3,000 shares of
Common Stock at an option price per share equal to 100% of the fair
market value of the Common Stock on the date of such re-election or
shareholder meeting; provided that a Non-Employee Director who receives
an option pursuant to Section 11.1 above shall not be entitled to
receive an option pursuant to this Section 11.2 until at least ten
months after such Non-Employee Director's initial election to the
Board. Options granted pursuant to this Section 11.2 shall be
immediately exercisable in full.
11.3 General. No director shall receive more than one option
to purchase 3,000 shares pursuant to this Section 11 in any one fiscal
year. No director shall receive an option under this Section if and to
the extent such director receives an option pursuant to Section 19 of
the Company's 1987 Stock Option Plan, as amended, in connection with
the same election or re-election to the Board. All options granted
pursuant to this Section 11 shall be designated as non-qualified
options and shall be subject to the same terms and provisions as are
then in effect with respect to granting of non-qualified options to
officers and employees of the Company, except that the option shall
expire on the earlier of (i) three months after the optionee ceases to
be a director (except by disability or death) and (ii) ten (10) years
after the date of grant. Notwithstanding the foregoing, in the event
disability or death or a Non-Employee Director, any option granted to
such Non-Employee Director may be exercised at any time within twelve
months of the disability or death of such Non-Employee Director or on
the date on which the option, by its terms expire, whichever is
earlier. For purposes of this Section 11, a director's receipt of an
annual retainer, per meeting fees, and/or expense reimbursement shall
not cause such director to be deemed to be a paid advisor or consultant
to the Company for purposes of determining whether such director is a
"Non-Employee Director."
12. General.
12.1. Effective Date. The Plan will become effective upon its
adoption by the Board, subject to approval by the shareholders of the
Company within twelve months following such adoption. If the Plan is
not approved by the shareholders within twelve months after the date of
the Plan's adoption by the Board, the Plan shall not be effective for
any purpose, and all Incentives awarded under the Plan shall be
revoked.
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.
<PAGE>
12.3. Nontransferability of Incentives. No stock option, SAR,
restricted stock award or performance share award may be transferred,
pledged or assigned by the participant except, in the event of the
participant's death, by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the
Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the regulations
thereunder, and the Company shall not be required to recognize any
attempted assignment of such rights by any participant. During a
participant's lifetime, an Incentive may be exercised only by the
participant or by his or her guardian or legal representative.
12.4. Effect of Termination of Employment or Death. In the
event that a participant ceases to be an employee, consultant or
advisor of the Company or its subsidiaries or affiliates for any
reason, including death, any Incentives awarded to the participant may
be exercised or shall expire at such times as may be determined by the
Board or the Committee, as the case may be, and as set forth in the
agreement evidencing the Incentive.
12.5. Additional Condition. Notwithstanding anything in this
Plan to the contrary: (a) the Company may, if it shall determine it
necessary or desirable for any reason, at the time of award of any
Incentive or the issuance of any shares of Common Stock pursuant to any
Incentive, require the recipient of the Incentive, as a condition to
the receipt thereof or to the receipt of shares of Common Stock issued
pursuant thereto, to deliver to the Company a written representation of
present intention to acquire the Incentive or the shares of Common
Stock issued pursuant thereto for his or her own account for investment
and not for distribution; and (b) if at any time the Company further
determines, in its sole discretion, that the listing, registration or
qualification (or any updating of any such document) of any Incentive
or the shares of Common Stock issuable pursuant thereto is necessary on
any securities exchange or under any federal or state securities or
blue sky law, or that the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or in
connection with the award of any Incentive, the issuance of shares of
Common Stock pursuant thereto, or the removal of any restrictions
imposed on such shares, such Incentive shall not be awarded or such
shares of Common Stock shall not be issued or such restrictions shall
not be removed, as the case may be, in whole or in part, unless such
listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the
Company.
12.6. Adjustment. Unless otherwise provided in the agreement
evidencing the grant of the Incentive, in the event of a sale by the
Company of substantially all of its assets and the consequent
discontinuance of its business, or in the event of a merger,
consolidation, exchange, reorganization, reclassification,
extraordinary dividend, divestiture (including a spin-off) or
liquidation of the Company (collective referred to as a "transaction")
after which the Company is not the surviving corporation, the Board
may, in connection with the Board's adoption of the plan for such
transaction, in its sole discretion, provide for one or more of the
following:
<PAGE>
(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.
The grant of any Incentive under this Plan shall not in any
way limit the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure or to merge, exchange or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
In the event of an increase or decrease in the number of
shares of Common Stock resulting from any recapitalization, stock
dividend, stock split, combination of shares or other change in the
Common Stock, the number of shares of Common Stock then subject to the
Plan, including shares subject to restrictions, options or the
achievement of performance share objectives, shall be adjusted in
proportion to the change in outstanding shares of Common Stock. In the
event of any such adjustments, the purchase price of any option, the
performance objectives for any grant of performance shares, and the
shares of Common Stock issuable pursuant to any Incentive shall be
adjusted as and to the extent appropriate, in the discretion of the
Board or Committee, to provide participants with the same relative
rights before and after such adjustment. Additional shares of Common
Stock which may be credited to such Incentives pursuant to this Section
12.6 shall be subject to the same terms and conditions that apply to
the shares with respect to which the adjustment relates.
12.7. Incentive Agreements. The terms of each Incentive shall
be stated in an agreement approved by the Board or the Committee, as
the case may be. The Board or the Committee may, in its sole
discretion, also enter into agreements with participants to reclassify
or convert certain outstanding options, within the terms of the Plan,
as incentive stock options or as non-qualified stock options, or to
eliminate SARs with respect to all or part of such options and any
other previously issued options.
<PAGE>
12.8. Withholding.
(a) The Company shall have the right to withhold from
any payments made under the Plan or to collect as a condition
of payment, any federal, state or local taxes required by law
to be withheld upon the exercise of a stock option, the
settlement of an SAR, the grant of a stock award, the lapse of
restrictions on a restricted stock award, the payment of any
performance share award, or the payment of any cash award. At
any time when a participant is required to pay to the Company
an amount required to be withheld under applicable income tax
laws in connection with a distribution of Common Stock or upon
exercise of an option or SAR, the participant may satisfy this
obligation in whole or in part by electing (the "Election") to
have the Company withhold from the distribution shares of
Common Stock having a value up to the amount required to be
withheld. The value of the shares to be withheld shall be
based on the Fair Market Value of the Common Stock on the date
that the amount of tax to be withheld shall be determined
("Tax Date").
(b) Each Election must be made prior to the Tax Date.
The Board or the Committee, as the case may be, may disapprove
of any Election, may suspend or terminate the right to make
Elections, may provide that the right to make Elections shall
not apply with respect to any Incentive and may adopt such
rules relating to Elections as it shall deem appropriate. A
participant's Election shall be irrevocable.
(c) If a participant is an officer or director of the
Company within the meaning of Section 16 of the 1934 Act, or
any successor provision, then an Election must comply with all
of the requirements of the 1934 Act.
12.9. No Continued Employment or Right to Corporate Assets. No
participant under the Plan shall have any right, because of his or her
participation, to continue in the employ of the Company or its
subsidiaries or affiliates for any period of time or to any right to
continue his or her present or any other rate of compensation. Nothing
contained in the Plan shall be construed as giving an employee,
consultant or advisor, his or her beneficiaries or any other person any
equity or interests of any kind in the assets of the Company or
creating a trust of any kind or a fiduciary relationship of any kind
between the Company or its subsidiaries or affiliates and any such
person.
12.10. Deferral Permitted. Payment of cash or distribution of
any shares of Common Stock to which a participant is entitled under any
Incentive shall be made as provided in the agreement evidencing such
Incentive. Payment of cash may be deferred at the option of the
participant if provided in the Incentive and subject to such rules as
the Board or the Committee may, in its discretion, adopt from time to
time.
<PAGE>
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.
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.
<PAGE>
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."
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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> AUG-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,076,327
<SECURITIES> 0
<RECEIVABLES> 12,140,340
<ALLOWANCES> 688,000
<INVENTORY> 10,735,484
<CURRENT-ASSETS> 29,810,471
<PP&E> 10,552,407
<DEPRECIATION> 2,619,474
<TOTAL-ASSETS> 41,505,998
<CURRENT-LIABILITIES> 10,041,142
<BONDS> 6,342,177
0
0
<COMMON> 57,923
<OTHER-SE> 24,395,756
<TOTAL-LIABILITY-AND-EQUITY> 41,505,998
<SALES> 24,354,248
<TOTAL-REVENUES> 24,354,248
<CGS> 24,906,990
<TOTAL-COSTS> 24,906,990
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 680,950
<INCOME-PRETAX> (7,986,498)
<INCOME-TAX> (2,684,303)
<INCOME-CONTINUING> (5,302,195)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,302,195)
<EPS-PRIMARY> (.92)
<EPS-DILUTED> (.92)
</TABLE>
