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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended February 29, 2000 Commission File No: 000-16442
FIRST TEAM SPORTS, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-1545748
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
1201 Lund Boulevard
Anoka, Minnesota 55303
(Address of principal executive offices)
Registrant's telephone number, including area code:
(612) 576-3500
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Preferred Stock Purchase Rights
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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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of May 8, 2000 was approximately $14,395,722 based upon the
closing sale price of the Registrant's Common Stock on such date.
Shares of $.01 par value Common Stock outstanding at May 8, 2000: 5,861,140.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 2000 Annual Meeting are
incorporated by reference into Part III.
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<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business.
First Team Sports, Inc. (the "Company") is engaged in the manufacture
(through independent contract manufacturers) and distribution of in-line roller
skates, ice skates, street hockey equipment, ice hockey sticks and equipment and
related accessory products. In-line skates feature wheels mounted in a straight
line on a light-weight metal or composite plastic frame, functioning much like
the blade on an ice skate. First Team Sports, Inc. was incorporated under
Minnesota law in May 1986 by David G. Soderquist, John J. Egart and Ronald W.
Berg. Mr. Soderquist and Mr. Egart continue to serve as executive officers and
directors of the Company. First Team Sports has the following wholly owned
subsidiaries: Hespeler Hockey Company, a Nova Scotia, Canada unlimited liability
company, Hespeler Hockey Holding, Inc., a Minnesota company, First Team Sports
GmbH, an Austrian company, and First Team Sports Exports, Inc., a U.S. Virgin
Islands corporation. Unless the context otherwise requires, references in this
Form 10-K to the "Company" refer to First Team Sports, Inc. and its
subsidiaries.
(b) Financial Information about Industry Segments.
The Company is engaged at the present time in only one industry
segment, namely the manufacture (through independent contract manufacturers) and
distribution of sporting and athletic goods. Financial information concerning
the Company's business is included in Items #6, #7, #8 and #14.
(c) Narrative Description of Business.
(1) Products.
The Company's principal products are in-line roller skates and ice
hockey sticks marketed under the ULTRAWHEELS(R), SKATE ATTACK(R), and
HESPELER(R) brand names. The Company also supplies in-line roller skates under
various third party labels. UltraWheels brand skates are marketed to specialty
and chain sporting goods dealers. The Skate Attack products are produced for
sales to the mass merchant market. The Hespeler brand is marketed primarily to
specialty and sporting goods chain store customers. The Company's in-line roller
skates consist of a soft mesh and leather boot with internal supports and molded
plastic boots with an integrated frame, or a frame riveted to the bottom of the
boot, and high-density polyurethane wheels mounted on ball bearings.
<PAGE>
(2) Status of products in development
The Company continues to develop products for the recreational, and
fitness categories, as well as, improving upon existing in-line skate models.
The Company also continues to develop products for the growing ice hockey
market, including pro-style sticks and protective equipment.
The Company intends to introduce additional new products as testing is
completed to its satisfaction and when funding is available. There is no
assurance, however, that the Company will be successful in introducing new
products or that such new products will prove commercially acceptable.
(3) Source of Materials.
The Company's products are sourced from independent contract
manufacturers located in the United States and foreign countries. These
suppliers manufacture, assemble and package the Company's products under the
detailed specifications of the Company. The independent contract manufacturers
are responsible for shipment to the Company's warehouse in Minneapolis,
Minnesota or directly to certain major customers' distribution centers and
warehouses.
The components for the Company's products are manufactured by
independent contract manufacturers, also located in the United States and
foreign countries, who have been procured by the Company's suppliers or,
frequently, by management of the Company.
The Company submits purchase orders to its manufacturers for the
production of specific amounts of its products and has not entered into any
long-term contracts for production. All purchase orders are in U.S.
dollars.
(4) Patents, trademarks, licenses, franchises and concessions.
The Company markets its products under a number of trade names and
trademarks, including the following principal trademarks or registered
trademarks of the Company: "UltraWheels", "Skate Attack", "Street Attack",
"Ultra Ice", and "Hespeler". The Company owns numerous United States trademark
registrations and has several pending trademark applications. The Company owns a
large number of foreign trademark registrations, regularly files for
registration of its more important trademarks in the United States and in
numerous foreign countries and has several pending applications. The Company
relies to varying degrees upon its common law rights of trademark ownership,
copyrights and registration of its trademarks. The Company has licenses to use
the names and likeness of various hockey players, and related organizations as
mentioned above. The Company has also filed eleven patent applications covering
various parts of in-line skates and methods of producing its products.
<PAGE>
(5) and (6) Seasonality and Working Capital
The Company's marketing area covers North America, South America,
Europe, Australia and the Far East. This large and diverse marketing area, along
with the acceptance of the Company's products by athletes and recreational
users, has helped reduce the seasonal variations in the Company's sales and in
the demands on the Company's working capital. The Company's products are
primarily used outdoors in the spring and summer months and therefore, are
dependent on weather conditions. With approximately 96% of the Company's sales
occurring in North America and Europe, the Company does have increased sales and
demands on its working capital during the spring selling season.
(7) Major Customers.
The Company believes that its customer relationships are excellent, and
only one customer of the Company has accounted for more than 10% of the
Company's sales in one or more of the past three fiscal years. In fiscal 2000,
1999 and 1998 Wal-Mart, based in Bentonville, Arkansas, accounted for
approximately 12%, 23% and 29%, respectively, of the Company's net sales.
(8) Backlog.
The Company had approximately $7.9 million in unfilled purchase orders
as of May 17, 2000, compared to approximately $7.6 million in unfilled purchase
orders as of May 17, 1999. Approximately $7.0 million of these backlog orders
are a result of spring booking orders to be shipped at future dates and
approximately $887,000 result from orders of products that are temporarily
unavailable. The backlog may be subject to cancellation or other adjustments and
is not necessarily indicative of future sales.
(9) Government contracts.
The Company has no government contracts.
(10) Competition.
The principal competitive factors in the in-line roller skate industry
are name recognition, price and product performance. The main areas of
difference in product performance are in the weight and strength of the boot and
frame, the hardness of the wheels and the quality and lubrication of the wheel
bearings. The Company offers a 90-day warranty on its products, which the
Company believes is an important competitive factor. Beyond such warranty, the
Company does not offer service on its products and does not believe that service
is an important competitive factor.
The Company believes it has a significant share of the in-line roller
skate market. K2 Inc. and Rollerblade, Inc., are considered to be the market
leaders. The Company competes with K2 Inc., and Rollerblade, Inc. in all price
and quality ranges. The Company believes that it would not be difficult for
<PAGE>
other companies, both new enterprises and established members of the sporting
goods industry, to enter the in-line roller skate market, and, in fact, many new
companies have entered this market in recent years.
(11) Research and development.
Research and development expenses for Company-sponsored research
activities relating to the development of new products, services or techniques
or the improvement of existing products, services or techniques were not
material in fiscal 2000, 1999 or 1998.
(12) Effect of environmental regulation.
To the extent that the Company's management can determine, there are no
federal, state or local provisions regulating the discharge of materials into
the environment or otherwise relating to the protection of the environment with
which compliance by the Company has had or is expected to have a material effect
upon the capital expenditures, earnings or competitive position of the Company.
(13) Employees.
As of May 1, 2000, the Company employed 73 full-time employees and 4
part-time employees.
(d) Export Sales.
The Company's wholly owned subsidiary, First Team Sports Exports, Inc.,
was formed in April 1991, which subsidiary has no assets attributable to any
specific foreign geographic area. In fiscal 2000, 1999 and 1998 First Team
Sports Exports, Inc. had export sales of $19.1 million, $16.4 million and $17.9
million representing approximately 42%, 39% and 32%, respectively, of the net
sales of the Company. Canadian net sales were $12.8 million (28% of net sales)
in fiscal 2000, $10.4 million (25% of net sales) in fiscal 1999, and $7.5
million (13% of net sales) in fiscal 1998. Sales outside North America were $6.2
million (14% of net sales) in fiscal 2000, $6.0 million (14% of net sales) in
fiscal 1999, $10.4 million (18% of net sales) in fiscal 1998.
ITEM 2. PROPERTIES
The Company owns and occupies approximately 25,000 square feet of
office space and 180,000 square feet of warehouse space located at 1201 Lund
Boulevard, Anoka, Minnesota, a suburb of Minneapolis, Minnesota. The Company has
a real estate mortgage on the property, which had a balance of approximately
$4,350,000 as of May 1, 2000.
The Company also occupies approximately 2,000 to 4,000 square feet of
office space in Toronto, Canada and Graz, Austria for its subsidiaries, Hespeler
Hockey Company and First Team Sports GmbH respectively. The Company leases these
facilities with the leases having terms of one to four years.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's shareholders during
the quarter ended February 29, 2000.
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth the names and ages of the current executive
officers of the Company in addition to information regarding their positions
with the Company, their periods of service in such positions and their business
experience for the past five years. Executive officers generally serve in office
for terms of approximately one year. There are no family relationships among the
officers named below.
Name and Age of Current Positions with Company and Principal
Executive Officer Occupations for the Past Five Years
John J. Egart, 50 President and Chief Executive Officer of the
Company since January 1994; Director of the
Company since the Company's inception in May
1986; Executive Vice President of the
Company from the Company's inception in May
1986 to January 1994.
David G. Soderquist, 51 Vice Chairman of the Company since January
1994; Director of the Company since the
Company's inception in May 1986; President
and Chief Executive Officer of the Company
from the Company's inception in May 1986 to
January 1994.
Leonard R. Vinson, Jr., 39 Senior Vice President Sales and Marketing of
the Company since March 1, 1999; Senior Vice
President Sales and Marketing for Bravo,
Inc., a sporting goods company, from January
1998 to February 1999; Vice President Sales
and Marketing for Kryptonics, Inc., a
sporting goods company, from October 1995 to
January 1998; Co-founder of Pure Fun Sports,
a sporting goods sales agency, from January
1990 to October 1995.
Kent A. Brunner, 39 Vice President and Chief Financial Officer
of the Company since September 1998; Vice
President/Finance of the Company from
September 1998 to September 1996; Controller
of the Company from November 1994 to
September 1996; Audit Manager for McGladrey
& Pullen, LLP, a national certified public
accounting firm, from June 1988 to November
1994.
<PAGE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
The range of bid quotations for the Company's Common Stock during
fiscal 2000 and fiscal 1999 was as follows:
Quarter Ended High Low
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May 31, 1998 $4.000 $2.437
August 31, 1998 $2.687 $1.281
November 30, 1998 $1.937 $0.750
February 28, 1999 $2.125 $0.812
May 31, 1999 $3.250 $2.437
August 31, 1999 $3.313 $1.281
November 30, 1999 $2.469 $0.750
February 28, 2000 $3.500 $0.812
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "FTSP". The above prices are bid quotations and may not necessarily
represent actual transactions.
(b) Holders.
As of May 2, 2000, there were approximately 411 holders of record of
the Company's Common Stock.
(c) Dividends.
The Company has never paid cash dividends and has no present intention
to pay cash dividends in the foreseeable future. Under the Company's bank line
of credit, the Company may not pay dividends without the bank's consent.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended February 29, 2000, February 28, 1998 and 1997, and February 29, 1996.
--------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations Data:
Net Sales $45,003,424 $42,397,426 $56,336,906 $76,435,022 $97,667,448
Net Income/(Loss) $17,505 ($5,845,104) ($2,609,233) $2,725,282 $7,811,857
Net Income (Loss)
Per Share:
Basic $.00 ($1.01) ($.45) $.47 $1.37
Diluted $.00 ($1.01) ($.45) $.46 $1.30
Cash Dividends Paid
Per Share -- -- -- -- --
Balance Sheet Data:
Total Assets $42,248,508 $39,134,394 $51,690,373 $52,343,501 $55,957,802
Working Capital 19,214,465 17,371,669 25,051,180 27,921,689 24,944,985
Long-Term Debt 5,693,696 5,576,967 6,774,496 6,217,936 6,880,360
Shareholders' Equity 23,787,172 23,927,862 30,240,864 32,745,931 29,830,282
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
First Team Sports, Inc. is a leading manufacturer, designer and
marketer of brand name sporting goods. The Company's product groups consist of
in-line skates, in-line accessories and parts (primarily protective wear and
replacement wheels and bearings), ice hockey sticks and ice hockey protective
wear and accessories. Within the product groups, the Company maintains Ultra
Wheels(TM) and Skate Attack(TM) in-line product lines and a Hespeler(TM) ice
hockey line. The Ultra Wheels line consists 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 for the specialty and sporting goods chain
stores.
<PAGE>
RESULTS OF OPERATIONS:
COMPARISON OF FISCAL 2000 TO 1999
Net Sales. Net sales increased 6% to $45.0 million in fiscal 2000 from $42.4
million in fiscal 1999. The improvement was primarily due to an increase in the
Company's in-line skate unit sales and an increase in the unit sales of the
Company's Hespeler ice hockey products.
A breakdown and analysis of the Company's main product lines is as follows:
(dollar amounts in millions) Fiscal 2000 Fiscal 1999
--------------- --------------
Amount % Amount % Change
------ ---- ------ ---- ------
In-line Skates $32.5 72% $31.1 73% 5%
In-line Accessories And Parts 5.7 13% 5.8 14% (2%)
Ice Hockey Sticks 2.5 6% 2.2 5% 14%
Ice Hockey Protective And Access 4.3 9% 3.3 8% 30%
------ ---- ------ ---- ------
Total Net Sales $45.0 100% $42.4 100% 6%
The Company currently distributes products to numerous countries worldwide. A
geographic breakdown of the Company's net sales is as follows:
(dollar amounts in millions) Fiscal 2000 Fiscal 1999
--------------- ---------------
Amount % Amount % Change
------ ---- ------ ---- ------
Domestic $26.0 58% $26.0 61% --
Canada 12.8 28% 10.4 25% 23%
Europe 4.5 10% 4.9 11% (8%)
Otner International 1.7 4% 1.1 3% 55%
------ ---- ------ ---- ------
Total Net Sales $45.0 100% $42.4 100% 6%
Several factors contributed to the Company's sales performance in fiscal 2000.
Although domestic sales were relatively unchanged, the Company achieved strong
acceptance of its UltraWheels products and significantly increased sales to the
large national sporting goods chains ("big box" retailers). This increase offset
the decline in sales of the Company's Skate Attack products to mass merchant
customers due to their reduction in branded inline skate offerings.
The increase in Canadian sales was the result of continued acceptance of the
Company's in-line products and an increase in sales of Hespeler ice hockey
products. The decrease in European sales was primarily the result of continued
competitive pressures in the European in-line skate market, in-line skate
customers continuing to buy direct from Pacific Rim manufacturers and the effect
of the strong U.S. dollar versus European currencies. The increase in other
international sales is the result of continued efforts by the Company to
increase its international presence and the acceptance of the Company's strong
product lines.
<PAGE>
While the Company believes there are some positive signs that the market
conditions in the in-line industry are improving, the national and international
markets continue to be very competitive and under extreme price competition.
Gross Profit The Company's gross profit increased to $13.1 million (or 29.2 % of
net sales) in fiscal 2000, from $4.3 million (or 10.2% of net sales) in fiscal
1999. The gross profit in fiscal 1999 was net of a $6 million inventory
write-down charge. Excluding the impact of this charge, the gross profit as a
percentage of net sales in fiscal 1999 was 24.4%.
The increase in the gross margin in fiscal 2000 was primarily due to an increase
in the percentage of UltraWheels in-line skate sales as compared to Skate Attack
in-line skate sales, as well as an increase in the percentage of total sales
related to Hespeler products(1). During the second quarter of fiscal 1999, the
Company conducted a thorough review of its in-line business and as a result the
Company wrote down certain inventories, by approximately $6.0 million, which was
recorded in cost of goods sold. The major inventory reduction was in the
Company's unfinished/component parts inventory. As a result of the Company's
restructured production philosophy, the Company shifted the majority of its
in-line skate production to offshore sources in an effort to reduce product
costs.
The Company's UltraWheels brand accounted for approximately 61% of total net
sales in fiscal 2000 compared to 47% in fiscal 1999. The Company's Skate Attack
brand accounted for approximately 24% of total net sales in fiscal 2000 compared
to 40% in fiscal 1999. The Hespeler brand accounted for approximately 15% of
total net sales in fiscal 2000 compared to 13% in fiscal 1999.
Operating Expenses. Selling expenses were $4.5 million (or 10.1% of total net
sales) in fiscal 2000 compared to $4.6 million (or 10.9%) in fiscal 1999. The
decrease in selling expenses in fiscal 2000 was primarily due to management's
efforts to control expenditures which resulted in a reduction of tradeshow and
license costs.
General and administrative expenses were $7.6 million (or 16.9% of total net
sales) in fiscal 2000 compared to $7.4 million (or 17.5 % of total net sales) in
fiscal 1999. The increase in the absolute dollar amount of the general and
administrative expenses was primarily due to increased personnel costs. The
decrease in general and administrative expenses as a percentage of net sales was
primarily due to the increase in the Company's sales volume versus the somewhat
fixed nature of certain general and administrative expenses.
Other Income and Expense. Interest expense was $.9 million in both fiscal 2000
and fiscal 1999. Interest expense is primarily related to the Company's working
capital line of credit and the mortgage note on the Company headquarters.
- ---------------
1 The Company's Skate Attack brand, which is sold to mass merchant customers, is
more of a commodity product in nature and generally has lower gross margin
percentages than the Company's UltraWheel's brand and Hespeler products.
<PAGE>
Provision for Income Taxes. The Company's effective tax rate was 45.4% for
fiscal 2000 compared to 32.4% for fiscal 1999. The increase in fiscal 2000 is
primarily due to the effect of state and foreign tax rates. Management believes
that the deferred tax asset will more likely than not be recognized in future
periods.
Net Income/(Loss). Net income was $17,505 (or .04% of net sales) in fiscal 2000
compared to a net loss of ($5.8) million (or (13.8%) of net sales) in fiscal
1999. The improvement can be attributed to the increase in both the sales volume
and the gross profits as discussed above.
RESULTS OF OPERATIONS:
COMPARISON OF FISCAL 1999 TO 1998
Net Sales. Net sales decreased 25% to $42.4 million in fiscal 1999 from $56.3
million in fiscal 1998. The decline was primarily due to a decrease in the
Company's in-line skate sales volume, combined with a decrease in the average
selling price of both the Company's Skate Attack and UltraWheels in-line skate
brands. The Company also 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.
A breakdown and analysis of the Company's main product lines is as follows:
(dollar amounts in millions) Fiscal 1999 Fiscal 1998
--------------- ---------------
Amount % Amount % Change
------ ---- ------ ---- ------
In-line Skates $31.1 73% $47.0 83% (34%)
In-line Accessories and Parts 5.8 14% 8.8 16% (34%)
Ice Hockey Sticks 2.2 5% 0.3 1% 100%
Ice Hockey Protective and Access 3.3 8% 0.2 0% 100%
------ ---- ------ ---- ------
Total Net Sales $42.4 100% $56.3 100% (25%)
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. A
geographic breakdown of the Company's net sales is as follows:
(dollar amounts in millions) Fiscal 1999 Fiscal 1998
--------------- ---------------
Amount % Amount % Change
------ ---- ------ ---- ------
Domestic $26.0 61% $38.4 68% (32%)
Canada 10.4 25% 7.5 13% 39%
Europe 4.9 11% 7.4 13% (34%)
Other International 1.1 3% 3.0 6% (63%)
------ ---- ------ ---- ------
Total Net Sales $42.4 100% $56.3 100% (25%)
<PAGE>
Several factors contributed to the Company's sales performance in fiscal 1999.
The decrease in domestic sales was the result of competitive price cutting which
continued to plague the in-line skate industry and a reduction in placement with
the mass merchant distribution channels. This was a direct result of the mass
merchants reducing their branded selections as well as a continued decline in
the average price of in-line skates. In addition, as part of the two-year
malaise in the sporting goods industry, there has been a continued reduction of
retail outlets, especially in the specialty area, and this also contributed
significantly to our reduced revenues. 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 was 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 was
primarily the result of continued excess inventory levels in both the Pacific
Rim and South American marketplaces.
Gross Profit The Company's gross profit declined to $4.3 million (or 10.2 % of
net sales) in fiscal 1999, from $12.0 million (or 21.3% of net sales) in fiscal
1998. The gross profit in fiscal 1999 was net of a $6.0 million inventory
write-down. Excluding the impact of this charge, the gross profit as a
percentage of net sales increased to 24.4%.
During the second quarter of fiscal 1999 the Company conducted a thorough review
of its in-line business and as a result the Company wrote down certain
inventories, which was recorded in cost of goods sold. The major inventory
reduction was in the Company's unfinished/component parts inventory. As a result
of the Company's restructured production philosophy, the Company is shifting the
majority of its in-line skate production to offshore sources in an effort to
reduce product costs. The remaining increase in the gross profit was due mainly
to the sales mix, which included a larger portion of Hespeler ice hockey
products.
Operating Expenses. Selling expenses were $4.6 million (or 10.9% of total net
sales) in fiscal 1999 compared to $5.8 million (or 10.3%) in fiscal 1998. The
decrease in the absolute dollar amount of selling expenses in fiscal 1999 was
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 $7.4 million (or 17.5% of total net
sales) in fiscal 1999 compared to $8.1 million (or 14.3 % of total net sales) in
fiscal 1998. The decrease in the absolute dollar amount of the general and
administrative expenses was primarily due to decreases in insurance costs and
bad debt expenses associated with the reduced sales volume. The increase in
general and administrative expenses as a percentage of net sales was primarily
due to the reduction in the Company's sales volume versus the somewhat fixed
nature of certain general and administrative expenses.
Other Income and Expense. Interest expense was $.9 million in fiscal 1999
compared to $1.0 million in fiscal 1998. The decrease in interest expense was
primarily due to a reduction of the interest costs related to the Company's line
of credit facility.
<PAGE>
Provision for Income Taxes. The Company's effective tax rate was 32.4% for
fiscal 1999 compared to 33.7% for fiscal 1998. The slight change in fiscal 1999
is primarily due to the effect of state and foreign tax rates, the percentage of
state and foreign revenues and the level of pre-tax income/(loss).
Net Loss. Net loss was ($5.8) million (or (13.8%) of net sales) in fiscal 1999,
compared to ($2.6) million (or (4.6%) of net sales) in fiscal 1998. The decrease
can be attributed to the decrease in both the sales volume and the gross
profits, and the large write-down of inventory as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations used $1.7 million of cash in fiscal 2000 compared to
providing $6.5 million of cash in fiscal 1999. The cash used in the current year
was primarily the result of an increase in the Company's receivables due to
increased sales volume in the last quarter and increased inventory balances from
improved product shipment by vendors. The large amount of cash provided by
operations in the prior year was primarily the result of the Company's
conversion of old inventory to cash through bargain sales.
Net cash used in investing activities was $.3 million in fiscal 2000 and in
fiscal 1999. The use of cash for this activity was primarily attributable to
expenditures relating to new computer and production equipment and in fiscal
1999 to new licensing arrangements.
Net cash provided by financing activities was $2.2 million in fiscal 2000
compared to net cash used in financing activities of $7.3 million in fiscal
1999. The net cash provided by this activity in fiscal 2000 was primarily for
funding the normal day-to-day operations of the Company. The net use of cash for
this activity in fiscal 1999 was primarily from paying down the Company's line
of credit facility and long-term debt obligations. Effective September 8, 1999,
the Company entered into a new financing package. This package included a new
operating facility and a refinancing of the Company's mortgage note.
The Company's total debt to worth ratio was .8 to 1 as of February 29, 2000,
compared to .6 to 1 as of February 28, 1999. 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 $5.7 million
as of February 29, 2000 (see Note 6 in Notes to Financial Statements).
The Company's primary financing facility is a $10 million revolving credit line,
which is subject to a borrowing base that is calculated monthly and updated
periodically during each month. The borrowing base is based on a percentage of
eligible receivables and inventories. As of February 29, 2000 the borrowing base
limitation was $10 million, of which $4.9 million was outstanding.
In connection with this credit facility, the Company agreed, among other things,
to maintain certain minimum financial ratios and income levels.
<PAGE>
The Company believes its current cash position, funds available under existing
bank arrangements and cash generated from operations will be sufficient to
finance the Company's operating requirements through fiscal 2001.
Outlook: Issues And Uncertainties
The Company does not provide forecasts of future financial performance.
Certain statements contained in this report are based on current expectations.
These statements are forward looking and are subject to certain risks and
uncertainties. The Company's actual results may differ materially from those
projected.
The Company believes that the total number of in-line skating
participants worldwide will continue to remain strong in fiscal 2001, especially
in the younger age categories. The Company believes the innovative new products
currently on the market will continue to intrigue avid participants of in-line
skating and will improve the recruitment of new participants. The Company also
believes that the number of ice hockey participants worldwide, especially in the
United States, will continue to grow in fiscal 2001.
The Company's strategy has been, and continues to be, to introduce
high-quality, innovative, price-valued products designed specifically for the
recreational, fitness and youth market segments, consequently, driving customer
demand toward newer products. In addition, the Company plans to continue its
diversification through synergistic acquisitions. Future production capacity is
planned based on the continued success of the Company's strategy. If the market
does not continue to grow and move toward value-priced products, revenues and
earnings will likely continue to be adversely impacted.
The Company's gross margin is a sensitive function of the product mix
sold, pricing and the market conditions in any given period. As a result of the
Company's Skate Attack brand being sold to the mass merchant customers, the
product is more like a commodity and generally has lower gross margin
percentages than the Company's UltraWheels brand and Hespeler Hockey products.
As a result, future gross margin percentages are difficult to predict.
While management is optimistic about the Company's long-term prospects,
the following issues and uncertainties, among others, should be considered in
evaluating its growth outlook.
Competition. The Company competes with numerous manufacturers of
in-line skates domestically and internationally, and anticipates future
competition from other large and well-established sporting goods manufacturers.
K2 and Rollerblade are the Company's primary competitors and have substantially
greater resources than the Company. The intense price competition in the in-line
skate market has put pressure on the Company's profit margins. The Company's
ability to remain competitive in the in-line skate market depends on several
factors including its ability to: (i) offer innovative products at
commercially-acceptable prices; (ii) develop new innovative products and
generate market demand for such products; and (iii) continue to develop and
expand its international business.
<PAGE>
Dependence on Key Customers. During the fiscal year ended February 29,
2000, sales to Wal-Mart accounted for 12% of the Company's revenues. Increased
competition from other manufacturers, decreased demand for the Company's
products or other circumstances may have an adverse impact upon the Company's
relationship with Wal-Mart and/or other major customers. Decreased orders from
this customer or other major customers would have a material adverse impact on
the Company's financial results.
Other. The Company's products are primarily used outdoors and therefore
adverse weather conditions can have a negative impact on consumer demand.
Because the Company's products are of a recreational nature and not considered
basic necessities, a general decline in overall economic conditions may have a
greater adverse effect on the Company's sales.
Market Risk. The Company's sales and results of operations are subject
to foreign currency fluctuations. The Company's foreign operations are in
countries with fairly stable currencies; therefore, the effect of foreign
currencies has not been significant. The Company attempts to limit its exposure
to translation gains and losses by maintaining and controlling its foreign cash
flows whenever possible.
Considering both the anticipated foreign sales and results of
operations for the next year, a hypothetical 10% weakening of the U.S. dollar
relative to all other currencies would not materially adversely affect expected
fiscal 2001 sales and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market Risk. The Company's sales and results of operations are subject
to foreign currency fluctuations. The Company's foreign operations are in
countries with fairly stable currencies; therefore, the effect of foreign
currencies has not been significant. The Company limits its exposure to
translation gains and losses by maintaining and controlling its foreign cash
flows when possible.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed below are included herein
immediately following the signature page of this Form 10-K on the pages set
forth:
Page
Independent Auditor's Report on Consolidated Financial Statements
and Schedule for the years ended February 29, 2000,
February 28, 1999 and 1998..............................................F-1
Consolidated Balance Sheets as of February 29, 2000 and February 28, 1999....F-2
Consolidated Statements of Operations for the years
ended February 29, 2000 and February 28, 1999 and 1998 .............F-4
Consolidated Statements of Shareholders' Equity for the years ended
February 29, 2000 and February 28, 1999 and 1998....................F-5
Consolidated Statements of Cash Flows for the years ended
February 29, 2000, and February 28, 1999, and 1998 .................F-6
Notes to Consolidated Financial Statements...................................F-7
Schedule II - Reserve Accounts..............................................F-24
All other schedules are omitted since they are not applicable, not
required or the information is presented in the consolidated financial
statements or related notes.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Other than "Executive Officers of the Company", which is set forth at
the end of Part I of this Form 10-K, the information required by Item 10 is
incorporated herein by reference to the sections labeled "Election of Directors"
and "Compliance With Section 16(a) of the Exchange Act", which appear in the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A not
later than 120 days after the close of fiscal 2000 in connection with the
Company's 2000 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to the sections labeled "Management Compensation" and "Election of Directors",
which appear in the Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A not later than 120 days after the close of fiscal 2000 in
connection with the Company's 2000 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 is incorporated herein by reference
to the section labeled "Principal Shareholders and Management Shareholdings,"
which appears in the Company's definitive Proxy Statement to be filed pursuant
to Regulation 14A not later than 120 days after the close of fiscal 2000 in
connection with the Company's 2000 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to the section labeled "Management Compensation," which appears in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A not later than
120 days after the close of fiscal 2000 in connection with the Company's 2000
Annual Meeting of Shareholders.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
(1) Financial Statements. The following financial statements
are included in Part II, Item 8 of this Annual Report on Form 10-K:
Independent Auditor's Report on Consolidated Financial Statements and
Schedule for the years ended February 29, 2000 and February
28, 1999 and 1998.
Consolidated Balance Sheets as of February 29, 2000 and February 28,
1999 and 1998.
Consolidated Statements of Operations for the years ended February 29,
2000 and February 28, 1999, and 1998.
Consolidated Statements of Shareholders' Equity for the years ended
February 29, 2000, and February 28, 1999, and 1998.
Consolidated Statements of Cash Flows for the years ended February 29,
2000 and February 28, 1999, and 1998.
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules. The following is included
in Part II, Item 8, of this Annual Report on Form 10-K:
Schedule II - Reserve Accounts.
All other schedules are omitted since they are not applicable,
not required or the information is presented in the consolidated
financial statements or related notes.
(3) Exhibits.
The following exhibits are included in this reports: See "Exhibit Index
to Form 10-K" beginning at page E-1 immediately following the financial
statements which follow the signature page of this Form 10-K.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter ended
February 29, 2000.
<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.
May 25, 2000 By: /s/ John J. Egart
John J. Egart
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Company,
in the capacities, and on the dates, indicated.
(Power of Attorney)
Each person whose signature appears below constitutes and appoints John
J. Egart as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this Annual Report on
Form 10-K and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorney-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Signature and Title Date
/s/ John J. Egart May 25, 2000
John J. Egart
President/Chief Executive Officer and Director
(Principal executive officer)
/s/ David G. Soderquist May 25, 2000
David G. Soderquist
Vice Chairman and Director
/s/ Joe Mendelsohn May 25, 2000
Joe Mendelsohn
Chairman and Director
(Signatures continued on following page)
<PAGE>
Signature and Title Date
/s/ Timothy G. Rath May 25, 2000
Timothy G. Rath
Director
/s/ Stanley E. Hubbard May 25, 2000
Stanley E. Hubbard
Director
/s/ William J. McMahon May 25, 2000
William J. McMahon
Director
/s/ Kent A. Brunner May 25, 2000
Kent A. Brunner
Vice President and Chief Financial Officer
(Principal financial and accounting officer)
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
First Team Sports, Inc.
We have audited the accompanying consolidated balance sheets of First Team
Sports, Inc. as of February 29, 2000 and February 28, 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended February 29, 2000. Our audit also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the 2000 and 1999 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Team Sports, Inc. at February 29, 2000 and February 28, 1999, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended February 29, 2000, in conformity with accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 14, 2000
F-1
<PAGE>
First Team Sports, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
February 29 2000 February 28 1999
--------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 860,671 $ 723,574
Trade receivables, less allowance for doubtful accounts:
2000--$765,000; 1999--$642,000 15,918,474 12,284,005
Recoverable income taxes - 1,136,858
Inventories 12,079,722 10,047,020
Prepaid expenses 1,331,238 839,777
Deferred income taxes 1,179,000 1,175,000
--------------------------------------
Total current assets 31,369,105 26,206,234
Property, plant and equipment
Land 600,000 600,000
Building 4,988,680 4,988,680
Production equipment 2,382,555 2,278,231
Office furniture and equipment 1,956,004 1,825,257
Warehouse equipment 945,377 937,677
Vehicles 97,007 104,380
--------------------------------------
10,969,623 10,734,225
Less accumulated depreciation 4,411,801 3,316,390
--------------------------------------
6,557,822 7,417,835
Deferred income taxes 1,821,000 1,988,000
Other assets
License agreements, less accumulated amortization:
2000--$4,036,000; 1999--3,687,000 1,330,704 1,680,024
Goodwill, less accumulated amortization:
2000--$463,000; 1999--$329,000 1,029,528 1,119,197
Other 140,349 723,104
--------------------------------------
2,500,581 3,522,325
--------------------------------------
$42,248,508 $39,134,394
======================================
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
February 29, 2000 February 28, 1999
--------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity Current liabilities:
Notes payable to bank $ 4,912,275 $ 2,525,000
Trade accounts payable 4,656,107 3,692,759
Accrued expenses 1,735,399 1,311,043
Current maturities of long-term debt 850,859 1,305,763
--------------------------------------
Total current liabilities 12,154,640 8,834,565
Long-term debt, less current maturities 5,693,696 5,576,967
Deferred income taxes 90,000 195,000
Deferred revenue 523,000 600,000
Shareholders' equity
Common Stock, par value $.01 per share
Authorized 10,000,000 shares
Issued and outstanding: 2000--5,860,140 shares;
1999--5,803,848 shares 58,602 58,039
Additional paid-in capital 9,926,180 9,825,240
Retained earnings 14,665,261 14,647,756
Accumulated other comprehensive loss (862,871) (603,173)
--------------------------------------
23,787,172 23,927,862
--------------------------------------
$42,248,508 $39,134,394
======================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
First Team Sports, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended
February 29, Year ended February 28,
2000 1999 1998
---------------------------------------------------------
<S> <C> <C> <C>
Net sales $45,003,424 $42,397,426 $56,336,906
Cost of goods sold 31,871,379 38,051,179 44,314,320
---------------------------------------------------------
Gross profit 13,132,045 4,346,247 12,022,586
Operating expenses:
Selling 4,532,710 4,619,077 5,826,993
General and administrative 7,621,020 7,420,735 8,056,546
Writedown due to asset impairment - - 974,018
---------------------------------------------------------
12,153,730 12,039,812 14,857,557
---------------------------------------------------------
Operating income (loss) 978,315 (7,693,565) (2,834,971)
Interest expense (946,242) (953,843) (1,009,657)
Other expense, net - - (93,387)
---------------------------------------------------------
Income (loss) before income tax benefit (expense)
32,073 (8,647,408) (3,938,015)
Income tax (expense) benefit (14,568) 2,802,304 1,328,782
=========================================================
Net income (loss) $ 17,505 $ (5,845,104) $ (2,609,233)
=========================================================
Net income (loss) per share:
Basic $.00 $(1.01) $(.45)
Diluted $.00 $(1.01) $(.45)
Shares used in computation of net income (loss) per share:
Basic 5,839,021 5,796,377 5,771,478
Diluted 5,953,730 5,796,377 5,771,478
</TABLE>
See accompanying notes.
F-4
<PAGE>
First Team Sports, Inc.
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Accumulated Other Total
------------------------- Paid-In Retained Comprehensive Shareholders'
Shares Amount Capital Earnings Loss Equity
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1997 5,749,796 $57,498 $9,586,340 $23,102,093 $ - $32,745,931
Exercise of stock options 12,910 129 65,517 - - 65,646
Common stock issued for
acquisitions 29,534 296 154,484 - - 154,780
Comprehensive loss:
Foreign currency - - - - (116,260) (116,260)
translation
Net loss - - - (2,609,233) - (2,609,233)
------------------
Total comprehensive loss (2,725,493)
--------------------------------------------------------------------------------------------
Balance at February 28, 1998 5,792,240 57,923 9,806,341 20,492,860 (116,260) 30,240,864
Exercise of stock options 11,608 116 18,899 - - 19,015
Comprehensive loss:
Foreign currency - - - - (486,913) (486,913)
translation
Net loss - - - (5,845,104) - (5,845,104)
------------------
Total comprehensive loss (6,332,017)
--------------------------------------------------------------------------------------------
Balance at February 28, 1999 5,803,848 58,039 9,825,240 14,647,756 (603,173) 23,927,862
Exercise of stock options 56,292 563 100,940 - - 101,503
Comprehensive loss:
Foreign currency - - - - (259,698) (259,698)
translation
Net income - - - 17,505 - 17,505
------------------
Total comprehensive loss (242,193)
--------------------------------------------------------------------------------------------
Balance at February 29, 2000 5,860,140 $58,602 $9,926,180 $14,665,261 $(862,871) $23,787,172
============================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
First Team Sports, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended
February 29, Year ended February 28,
2000 1999 1998
--------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 17,505 $ (5,845,104) $(2,609,233)
Adjustments required to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation 1,101,379 1,332,718 1,880,137
Amortization 577,557 602,784 468,101
Loss on writedown due to asset impairment - - 974,018
Loss on retirement of equipment - - 93,387
Deferred income taxes 58,000 (2,141,000) (360,000)
Deferred revenue (77,000) - -
Write-down of inventories - 5,435,824 -
Write-off of Mothership goodwill and intangibles - 293,000 -
Change in operating assets and liabilities:
Receivables (3,874,204) (1,272,837) 7,090,703
Inventories (2,040,235) 6,755,720 (966,257)
Prepaid expenses 1,235 116,296 (344,412)
Accounts payable 958,774 1,007,049 (2,377,925)
Accrued expenses 258,365 (333,730) 230,709
Income taxes 1,319,425 541,547 (1,512,753)
--------------------------------------------------
Net cash (used in) provided by operating activities (1,699,199) 6,492,267 2,566,475
Cash flows from investing activities
Purchases of property, plant and equipment (250,986) (330,496) (1,497,979)
Business acquisitions - - (1,917,942)
Other - - (696,328)
--------------------------------------------------
Net cash used in investing activities (250,986) (330,496) (4,112,249)
Cash flows from financing activities
Net proceeds (payments) on short-term borrowings 2,387,275 (6,160,000) 2,402,408
Principal payments on long-term borrowings (4,837,277) (1,134,158) (1,261,377)
Proceeds from long-term borrowings 4,500,000 - 1,849,184
Net proceeds from exercise of stock options 101,503 19,015 65,646
--------------------------------------------------
Net cash provided by (used in) financing activities 2,151,501 (7,275,143) 3,055,861
--------------------------------------------------
Increase (decrease) in cash and cash equivalents 201,316 (1,134,344) 1,510,087
Effect of foreign currency translation (64,219) (32,599) (21,969)
Cash and cash equivalents:
Beginning of year 723,574 1,869,545 381,427
--------------------------------------------------
Ending of year $ 860,671 $ 723,574 $ 1,869,545
==================================================
</TABLE>
F - 6
See accompanying notes.
<PAGE>
First Team Sports, Inc.
Notes to Consolidated Financial Statements
February 29, 2000
1. Nature of Business and Significant Accounting Policies
Nature of Business and Concentration of Credit Risk
The Company, which operates in one business segment, sells in-line roller skates
and related accessories under the brand names UltraWheels(TM), and Skate
Attack(TM), and ice hockey equipment under the brand name Hespeler(TM) to retail
and sporting goods stores. These products are manufactured under outside
production arrangements to the Company's specifications. Net sales to a specific
geographic region for the years ended February 29, 2000 and February 28, 1999
totaled 28% and 25%, respectively, for Canada and 10% and 11%, respectively, for
Europe.
Basis of Financial Statement Presentation and Accounting Estimates
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the balance sheet and
revenues and expenses for the year. Actual results could differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries including First Team Sports Exports, Inc. (a
foreign sales corporation), First Team Sports GmbH, Hespeler Hockey Company and
Mothership Distribution, Inc. All material intercompany accounts and
transactions have been eliminated.
Foreign Currency Translation
The functional currency for foreign operations is the local currency. Foreign
currency financial statements are converted into United States dollars by
translating balance sheet accounts at the current exchange rate at year-end and
statement of operations items at the average exchange rate for the year, with
the resulting translation adjustment included in accumulated other comprehensive
loss in shareholders' equity.
F - 7
<PAGE>
First Team Sports, Inc.
Notes to Consolidated Financial Statements (continued)
1. Nature of Business and Significant Accounting Policies (continued)
Cash and Cash Equivalents
The Company considers all demand deposit accounts and short-term cash
investments with an initial maturity of three months or less at the date of
purchase to be cash equivalents. Short-term investments are classified as
available-for-sale. The carrying value of cash equivalents approximates fair
value at February 29, 2000 and February 28, 1999.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation is computed on
the straight-line method over the estimated useful lives of the assets as
follows:
Building 39 years
Production equipment 2 - 10 years
Office furniture and equipment 3 - 7 years
Warehouse equipment 6 - 10 years
Vehicles 5 years
Other Assets
Costs capitalized related to license agreement's rights are being amortized over
the terms of the agreements on a straight-line method.
Goodwill arising from acquisitions is amortized on a straight-line basis over a
period up to 10 years. Other intangibles, consisting principally of trademarks
and patents, are amortized on a straight-line basis over 5 to 10 years.
F - 8
<PAGE>
1. Nature of Business and Significant Accounting Policies (continued)
Accounting for Long-Lived Assets
The Company periodically reviews its property, plant, equipment, and other
assets to determine potential impairment by comparing their carrying value with
the estimated future net undiscounted cash flows expected to result from the use
of the assets, including cash flows from disposition. Should the sum of the
expected future net cash flows be less than the carrying value, the Company
would recognize an impairment loss at that date. An impairment loss would be
measured by computing the amount by which the carrying value exceeds the fair
value (estimated discounted future cash flows) of the long-lived assets.
Management determined in fiscal 1998 that certain production assets of the
Company had been impaired as a result of the changing in-line skate industry. In
accordance with SFAS Statement 121, "Accounting for the Impairment of Long-lived
Assets and Long-lived Assets to Be Disposed Of," the Company evaluated the
ongoing value of its production tooling equipment. Based upon this evaluation,
the Company determined that production tools with a carrying value of $1,142,172
were impaired and wrote them down by $974,018 to their fair value. Fair value of
the production tools was determined by comparison to outside market value.
Advertising Costs
The costs of advertising are expensed as incurred. Advertising expense for the
fiscal years 2000, 1999, and 1998 was $956,000, $911,000 and $1,755,000,
respectively.
Income Taxes
The Company accounts for income taxes utilizing the liability method. Deferred
income taxes are recorded to reflect the tax consequences of differences between
the tax and financial reporting basis of assets and liabilities.
F - 9
<PAGE>
1. Nature of Business and Significant Accounting Policies (continued)
Net Income (Loss) Per Share
Basic net income (loss) per share is the Company's net income (loss) divided by
the weighted average number of Common Shares outstanding during the period.
Diluted net income (loss) per share reflects the potential dilutive effects of
stock options and warrants.
<TABLE>
<CAPTION>
Basic Diluted
-------------------------------- ---------------------------------
2000 1999 1998 2000 1999 1998
-------------------------------- ---------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 18 $(5,845) $(2,609) $ 18 $(5,845) $(2,609)
================================ =================================
Weighted average common shares
outstanding 5,839 5,796 5,771 5,839 5,796 5,771
Dilutive stock options - - - 115 - -
-------------------------------- ---------------------------------
Total common shares outstanding for
diluted calculation 5,839 5,796 5,771 5,954 5,796 5,771
================================ =================================
Net income (loss) per share $.00 $(1.01) $(.45) $.00 $(1.01) $(.45)
</TABLE>
Fair Value of Financial Instruments
The consolidated financial statements include the following financial
instruments: cash and cash equivalents, trade receivables, notes payable to
bank, trade accounts payable and long-term debt. At February 29, 2000, no
separate comparison for fair values versus carrying values is presented for the
aforementioned financial instruments since their fair values are not
significantly different than their balance sheet carrying amounts. The aggregate
fair values of the financial instruments would not represent the underlying
value of the Company.
F - 10
<PAGE>
1. Nature of Business and Significant Accounting Policies (continued)
Comprehensive Loss
Comprehensive loss consists of the Company's net income (loss) and foreign
currency translation adjustment and is presented in the consolidated statement
of stockholders' equity.
2. Sales Information and Major Suppliers
Major Customers and Credit Risk
Net sales for fiscal years 2000, 1999 and 1998 include sales to one major
customer representing 12%, 23% and 29% of net sales, respectively.
At February 29, 2000, 9% of the Company's trade receivables were due from the
aforementioned customer and 40% were due from customers outside of the United
States. Credit, including foreign credit, is determined on an individual
customer basis. The Company utilizes letter-of-credit arrangements and wire
transfers to minimize its foreign credit risk.
Export Sales
The Company's export sales approximated 42%, 39% and 32% of net sales for fiscal
years 2000, 1999 and 1998, respectively.
Major Suppliers
The Company had 56% of its products produced by three suppliers during fiscal
2000. Management believes that alternative suppliers are available in the event
the Company is unable to obtain services from its three major suppliers.
F - 11
<PAGE>
3. Acquisitions
In September 1997, the Company purchased the net assets of Mothership
Distribution, Inc. (Mothership), a designer, manufacturer and marketer of
aggressive in-line skate accessories and apparel. Subsequently during fiscal
year 1999, Mothership was closed and the related goodwill and intangibles were
written off in accordance with FAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The amount of
the write-off totaled $293,000.
The Company also purchased in September 1997 the common stock of Hespeler Hockey
Company, a designer, manufacturer and marketer of ice hockey sticks, equipment
and related accessories. The combined purchase price of the acquisitions was not
material. These transactions were accounted for using the purchase method of
accounting and the results of operation from those businesses have been included
in the consolidated statements of operations from the respective dates of
acquisition. The pro forma impact of the Mothership acquisition on the Company's
results of operations for all periods presented was not material.
The following summary, prepared on a pro forma basis, combines the consolidated
results of operations as if the Hespeler Hockey operations had been acquired as
of the beginning of the period presented, after including the impact of certain
adjustments such as amortization of intangibles, increased interest expense on
acquisition debt and related income tax effects (fiscal 1997 activity was
immaterial):
Pro forma information (unaudited)
(In thousands, except per share amounts) 1998
-------------------
Net sales $58,124
Loss before income taxes (3,726)
Net Loss (2,487)
Basic and diluted loss per share $(.43)
The pro forma information is provided for informational purposes only. It is
based on historical information and does not necessarily reflect results that
would have occurred had the acquisition been made as of those dates or results
which may occur in the future.
F - 12
<PAGE>
4. Inventories
Inventories consist of the following:
February 29, 2000 February 28, 1999
----------------------------------------
Finished goods $11,103,385 $8,792,169
Component parts 976,337 1,254,851
----------------------------------------
$12,079,722 $10,047,020
========================================
5. Notes Payable
The Company has a line-of-credit agreement with a bank subject to renewal on
August 31, 2002, whereby it may borrow up to $10,000,000. Borrowings bear
interest, payable monthly, at the bank's prime lending rate (8.75% at February
29, 2000). Borrowings under the credit arrangement are collateralized by
substantially all corporate assets, excluding land and building. Outstanding
borrowings under this arrangement totaled $4,912,275 and $2,525,000 at February
29, 2000 and February 28, 1999, respectively.
In connection with the line-of-credit agreement, the Company agreed, among other
things, to maintain a minimum tangible net worth, to not exceed a certain debt
to tangible net worth ratio, to attain a certain net income level, to limit
capital expenditures to certain amounts, and to not pay dividends without the
bank's consent.
F - 13
<PAGE>
6. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
February 29, 2000 February 28, 1999
--------------------------------------
<S> <C> <C>
Obligations under license agreements, due
in varying installments, with
interest imputed at 9.25%, through 2004
(see note 9) $1,468,307 $1,669,937
Mortgage note payable, due in monthly installments
of $18,750 to August 2002, plus interest at the
bank's prime rate (8.75% at February 29, 2000),
secured by the building
4,406,250 -
Mortgage notes payable, refinanced during fiscal 2000 - 3,836,523
Note payable to bank - 426,075
Subordinated convertible exchangeable debentures,
due in principal installments of $200,000 on
March 1, 2000, and $325,000 on October 1, 2002
plus interest at 5%
525,000 725,000
Other 144,999 225,195
--------------------------------------
6,544,556 6,882,730
Less current maturities 850,859 1,305,763
--------------------------------------
$5,693,696 $5,576,967
======================================
</TABLE>
F - 14
<PAGE>
6. Long-Term Debt (continued)
Aggregate future maturities of long-term debt for the next five fiscal years and
the aggregate thereafter are as follows:
2001 $ 850,859
2002 520,240
2003 4,591,607
2004 326,248
2005 255,602
Thereafter -
-------------------
$6,544,556
===================
The subordinated convertible debentures were issued with triggerable warrants
attached which enable the debenture holder to purchase 69,565 shares of common
stock of the Company. The debentures are convertible at any time, in whole or in
part, into shares of common stock of the Company at a conversion price of $5.75
to October 2002.
7. Income Taxes
Net deferred income taxes consist of the following components:
February 29, 2000 February 28, 1999
------------------------------------
Deferred tax assets:
Receivable allowances $ 269,000 $ 261,000
Inventory costs 193,000 286,000
Accrued expenses 317,000 328,000
License and patent agreements 323,000 284,000
Net operating loss carryforwards 2,098,000 2,204,000
------------------------------------
3,200,000 3,363,000
Less: valuation allowance (200,000) (200,000)
Deferred tax liabilities:
Depreciation (90,000) (195,000)
------------------------------------
Net deferred tax assets $2,910,000 $2,968,000
====================================
F - 15
<PAGE>
7. Income Taxes (continued)
The net deferred tax assets have been classified in the accompanying
consolidated balance sheets as follows:
February 29, 2000 February 28, 1999
------------------------------------
Current assets $1,179,000 $1,175,000
Non-current assets 1,821,000 1,988,000
Non-current liabilities (90,000) (195,000)
------------------------------------
$2,910,000 $2,968,000
====================================
For financial reporting purposes, the income (loss) before income tax effect is
as follows:
February 29, February 28,
2000 1999 1998
--------- -------------------------
Income (loss) before income taxes:
Domestic $371,628 $(8,652,382) $(3,490,859)
Foreign (339,555) 4,974 (447,156)
--------- -------------------------
$ 32,073 $(8,647,408) $(3,938,015)
========= =========================
The provisions for income tax (expense)/benefit for fiscal years 2000, 1999 and
1998 are as follows:
2000 1999 1998
------------------------------------------------
Current:
Federal $ (66,568) $ 637,304 $ 698,782
State (5,000) 26,000 68,000
Foreign 115,000 (2,000) 202,000
------------------------------------------------
Total current 43,432 661,304 968,782
Deferred:
Federal (54,000) 1,985,000 330,000
State (4,000) 156,000 30,000
------------------------------------------------
Total deferred (58,000) 2,141,000 360,000
================================================
Total income taxes $ (14,568) $2,802,304 $1,328,782
================================================
F - 16
<PAGE>
7. Income Taxes (continued)
The provisions for income tax expense benefit for fiscal years 2000, 1999 and
1998 differ from the amounts obtained by applying the federal income tax rate to
pretax income (loss) as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-----------------------------------------
<S> <C> <C> <C>
Computed "expected" federal tax
(benefit) expense $(11,000) $3,034,000 $1,378,000
Increase (decrease) in taxes resulting from:
State income taxes or benefit, net of
federal effect (5,000) 173,000 79,000
Other items individually insignificant, net 1,432 (404,696) (128,218)
-----------------------------------------
$(14,568) $2,802,304 $1,328,782
=========================================
</TABLE>
At February 29, 2000, the Company had operating loss carryforwards of $5.7
million that expire through 2019.
8. Shareholders' Equity
Stock Options
The Company has reserved 975,000 common shares for issuance under the First Team
Sports, Inc. 1987 Stock Option Plan (the 1987 Plan) and 1,725,000 common shares
under the First Team Sports, Inc. 1994 Stock Option and Incentive Compensation
Plan (the 1994 Plan). Both plans provide for the granting of incentive stock
options under Section 422 of the Internal Revenue Code and nonqualified options
not meeting the requirements of Section 422. All key employees of the Company
are eligible to receive incentive and nonqualified stock options pursuant to the
1987 and 1994 Plans. Directors of the Company who are not employees may be
granted nonqualified options under the Plans. Options are granted at the
discretion of the Stock Option Committee. Options are nontransferable and
generally granted at a price equal to the quoted market price of the shares at
the date of grant.
F - 17
<PAGE>
8. Shareholders' Equity (continued)
The Company also established the First Team Sports, Inc. 1993 Employee Stock
Purchase Plan (the 1993 Plan) and reserved 300,000 common shares for issuance
thereunder. The 1993 Plan is intended to encourage stock ownership by all
employees and is intended to qualify under Section 423 of the Internal Revenue
Code. All employees are eligible to participate in the 1993 Plan, with the
exception of any employees owning 5% or more of the Company's total voting
stock.
The Company has also issued several nonqualified options to purchase its common
stock in connection with various transactions. In January 1997, the Company
issued incentive stock options covering 68,251 shares that are not covered by
the aforementioned plans.
Transactions involving stock options during fiscal year 2000, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------------------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 1,797,703 $2.70 1,375,703 $3.06 926,020 $9.21
Exercised (30,500) 2.18 - - (6,800) 5.33
Canceled (256,503) 2.54 (9,000) 2.75 (36,517) 8.75
Granted 380,000 2.31 431,000 1.55 493,000 3.62
---------------------------------------------------- -------------------------
Outstanding at end of 1,890,700 $2.62 1,797,703 $2.70 1,375,703 $3.06
year
==================================================== =========================
</TABLE>
Weighted average fair value of options granted during 2000, 1999 and 1998 was
$.91, $.65 and $1.30, respectively.
F - 18
<PAGE>
8. Shareholders' Equity (continued)
As of February 29, 2000 and February 28, 1999 and 1998 options covering
1,468,540, 1,137,369 and 755,697 shares, respectively, were exercisable at a
weighted average exercise price of $2.80, $2.91 and $2.97 per share,
respectively. In addition, the remaining stock options outstanding at February
29, 2000, become exercisable in the following fiscal years:
Shares Price Per Share
-------------------------------------
2001 300,831 $1.125 - $2.75
2002 119,663 1.125 - 2.75
2003 1,666 1.875
The following table summarizes information about stock options outstanding at
February 29, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ -------------------------------
Weighted Average
Remaining Weighted Weighted
Range of Number Contractual Life Average Number Average
Exercise Prices Outstanding (Years) Exercise Price Exercisable Exercise Price
- -------------------------------------- ------------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C>
$1.125 - $2.625 747,000 6.4 $1.85 395,920 $1.83
2.750 - 3.125 918,200 3.0 2.75 847,120 2.75
4.250 - 6.250 225,500 6.9 4.64 225,500 4.64
--------------- ---------------
$1.125 - $6.250 1,890,700 1,468,540
=============== ===============
</TABLE>
In January 1998, the Company's Board of Directors repriced options covering
956,703 shares, representing all of the qualified outstanding options with
exercise prices ranging from $5.33 to $23.38, to an exercise price of $2.75 per
share. The vesting terms of these options remained unchanged.
When stock options are exercised, the par value of the shares issued is credited
to common stock and the excess proceeds over par value are credited to
additional paid-in capital. Under certain circumstances, when shares acquired
through these options are sold, income tax benefits may be realized by the
Company and are recorded as additional paid-in capital.
F - 19
<PAGE>
8. Shareholders' Equity (continued)
In May 1989, the Board of Directors adopted a resolution providing for
accelerated vesting of outstanding options in the event of defined changes in
control of the Company. The resolution provided that all outstanding incentive
and nonqualified options granted under the Plans and all nonqualified stock
options granted to consultants of the Company outside the Plans shall become
fully exercisable upon the occurrence of such a change.
Pro Forma Information
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123). Accordingly, since options have been issued with exercise prices at or
above market value of the Company's stock, no compensation expense has been
recognized for the stock option plans. Had compensation expense for the
Company's stock options been determined based on the fair value at the grant
date for awards in 2000, 1999 and 1998 consistent with the provisions of SFAS
123, the Company's net income (loss) and the net income (loss) per share would
be the pro forma amounts reflected in the following table:
2000 1999 1998
------------------------------------
Net income (loss) - as reported $ 17,505 $(5,845,104) $(2,609,233)
Net income (loss) - pro forma (414,965) (6,515,977) (3,238,483)
Net income (loss) per share - as reported:
Basic $.00 $(1.01) $(.45)
Diluted $.00 $(1.01) $(.45)
Net income (loss) per share - pro forma:
Basic $(.07) $(1.12) $(.56)
Diluted $(.07) $(1.12) $(.56)
The above pro forma effects on net income (loss) and net income (loss) per share
are not likely to be representative of the effects on reported net income for
future years because options vest over several years and additional awards
generally are made each year.
F - 20
<PAGE>
8. Shareholders' Equity (continued)
The fair value of each option grant has been estimated as of the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2000, 1999 and 1998:
2000 1999 1998
-------------------------------------------
Expected dividend yield - - -
Expected stock price volatility 54.4% 54.1% 48.8%
Risk-free interest rate 6.4% 6.4% 6.4%
Expected life of options (years) 3.0 3.0 3.0
Preferred Stock Purchase Rights
In February 1996, the Board of Directors declared a dividend of one preferred
stock purchase right for each outstanding share of Company common stock, which
rights expire on March 14, 2006. The rights are transferable with common stock.
Each right entitles the holder to purchase one one-hundredth of a share of
Series A preferred stock at a price of $55, subject to adjustment. The rights
are not exercisable until ten days after the public announcement that a person
or group of persons has acquired a beneficial interest of at least 15% of the
Company's outstanding common stock or the commencement or announcement of an
intention by a person or group to make a tender or exchange offer whose
consummation would result in the beneficial ownership of at least 15% of the
Company's outstanding common stock. Each right would entitle the rightholder to
receive shares of common stock of the acquiring company upon merger or other
business combination having a market value of twice the exercise price of the
right or, upon exercise, that number of shares of preferred stock having a
market value of twice the exercise price of the right. Preferred stock
purchasable upon exercise of the rights will be entitled to certain voting
privileges, minimum preferential quarterly dividends, an aggregate dividend in
relation to dividends declared on common stock, and minimum preferential
liquidation payments. The rights have no voting privileges and may be redeemed
by the Board of Directors at a price of $.01 per right at any time before they
become exercisable.
F - 21
<PAGE>
9. License Agreements
The Company has entered into agreements with certain well-known celebrities to
endorse the Company's products. The agreements, among other things, require the
Company to make certain guaranteed payments, which have been recorded at their
present value as both assets (license agreements) and liabilities (obligations
under license agreements), and royalty payments based on percentages of sales
for certain products. The Company is only liable to make sales royalty payments
for the amount that sales royalties exceed the guaranteed payments each year.
Total royalties and amortization of license agreements were $355,103, $415,934
and $357,790 during fiscal years 2000, 1999 and 1998, respectively. In March
1997, the main license agreement was extended through 2004. The extension of the
agreement does not require any guaranteed payments in aggregate above those
required under the original agreement.
10. Employee Benefit Plan
The Company has a 401(k) Employee Benefit Plan for qualified employees. Company
contributions to the plan are determined annually at the discretion of the Board
of Directors. The Company's contributions to the plan were $160,000, $156,000
and $174,000 for fiscal years 2000, 1999 and 1998, respectively.
11. Land and Deferred Revenue
In order to induce the Company to relocate its operation facility, the city of
Anoka, Minnesota, gave the Company land in an industrial park with an
approximate fair market value of $600,000. The gift was conditional upon the
Company staying in the new building through December 31, 1999. The land and
corresponding amount of deferred revenue have been recorded at $600,000, the
estimated fair market value of the land. The $600,000 of deferred revenue is
being recognized as a reduction of depreciation over the life of the building,
39 years.
F - 22
<PAGE>
12. Additional Cash Flow Information
Year ended
February 29, Year ended February 28,
2000 1999 1998
-------------- -----------------------
Supplemental disclosures of cash flow
information:
Cash payments for:
Interest $913,799 $1,087,447 $963,009
Income taxes 16,409 9,200 514,700
Non-cash:
License agreement - 262,760 -
F - 23
<PAGE>
SCHEDULE II
FIRST TEAM SPORTS, INC.
RESERVE ACCOUNTS
Years Ended February 29, 2000, February 28, 1999 and 1998
<TABLE>
<CAPTION>
Balance at Additions
Beginning Charged to Balance at
Of Period Expenses Deductions* End of Period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 allowance for doubtful accounts $565,171 $1,215,469 $1,115,137 $665,503
1999 allowance for doubtful accounts 665,503 486,475 509,751 642,227
2000 allowance for doubtful accounts 642,227 266,251 143,693 764,785
</TABLE>
(*) Uncollectible accounts written off, net of recoveries.
F-24
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-K
For the fiscal year ended: Commission File No.: 000 -16422
February 29, 2000
FIRST TEAM SPORTS, INC.
------------------------------------------------------------
Exhibit
Number Description
3.1 Articles of Incorporation, as amended - incorporated by reference to
Exhibit 3.1 to the Company's Annual Report Form 10-K for the year ended
February 28, 1997
3.2 Bylaws -- incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-18 Reg. No. 33-16345C
4.1 Specimen of Common Stock Certificate -- incorporated by reference to
4.1 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1991
4.2 Certificate of Designations of Series A Preferred Stock (included in
Restated Articles of Incorporation -- see Exhibit 3.1)
4.3 Rights Agreement dated as of March 15, 1996 between the Company and
Norwest Bank Minnesota, N.A. as Rights Agent -- incorporated by
reference to Exhibit 2.1 to the Company's Registration Statement on
Form 8-A, Reg. No. 0-16422
4.4 Form of Right Certificate -- incorporated by reference to Exhibit 2.2
to the Company's Registration Statement on Form 8-A, Reg. No. 0-16422
4.5 Summary of Rights to Purchase Share of Series A Preferred Stock -
incorporated by reference to Exhibit 2.3 to the Company's Registration
Statement of Form 8-A, Reg. No. 0-16422
10.1 The Company's 1987 Stock Option, as amended by resolutions dates May
25, 1989 -- incorporated by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the year ended February 28, 1997**
<PAGE>
Exhibit
Number Description
10.2 Amendment dated April 22, 1992 to the Company's 1987 Stock Option Plan
-- incorporated by reference to Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the year ended February 29, 1992**
10.3 Form of Incentive Stock Option Agreement under 1987 Stock Option Plan
-- incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-18, Reg. No. 33-16345C**
10.4 Form of Nonqualified Stock Option Agreement under 1987 Stock Option
Plan -- incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-18, Reg. No. 33-16345C**
10.5 License Agreement between the Company, Wayne Gretzky and Janet Jones
Gretzky dated as of December 1, 1994 -- incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year
ended February 28, 1995
10.6 Amendment dated March 1, 1997 to License Agreement between the Company,
Wayne Gretzky and Janet Jones Gretzky dated December 1, 1994 -
incorporated by reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended February 28, 1997
10.7 License Agreement between the Company and Creative Sports Concepts,
Inc. dated as of October 31, 1994 -- incorporated by reference to
Exhibit 10.11 to the Company's Annual Report Form 10-K for the year
ended February 28, 1995
10.8 Company Bonus Plan for certain executive officers of the Company for
fiscal 2000 -- incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the year ended February 29,
1999**
10.9* Company Bonus Plan for executive officers of the Company for fiscal
2001**
10.10 The Company's 1990 Nonqualified Stock Option Plan, as amended by
resolutions dated May 25, 1989 -- incorporated by reference to Exhibit
10.13 to the Company's Annual Report on Form 10-K for the year ended
February 28, 1991**
10.11 The Company's 1993 Employee Stock Purchase Plan -- incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the year ended February 28, 1993**
- ----------------
*Filed herewith
**Management contract or compensatory plan or arrangement.
<PAGE>
Exhibit
Number Description
10.12 The Company's 1994 Stock Option and Incentive Compensation Plan --
incorporated by reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the year ended February 29, 1994**
10.13 Employment Agreement dated January 23, 1996 between the Company and
John J. Egart -- incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended February 29,
1996**
10.14 Employment Agreement dated January 23, 1996 between the Company and
David G. Soderquist -- incorporated by reference to Exhibit 10.19 to
the Company's Annual Report on Form 10-K for the year ended February
29, 1996**
10.15 1994 Stock Option and Incentive Compensation Plan, as amended through
May 27, 1998 - incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the Quarter ended August
31, 1998**
10.16 Employment Agreement dated August 18, 1997 between the Company and Kent
Brunner incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended August 31, 1997**
10.17 Amendment dated January 1, 1998 to Employment Agreement dated January
23, 1996 between the Company and John J. Egart - incorporated by
reference to Exhibit 10.2 to the Company's quarterly report on form
10-Q for the quarter ended May 31, 1999**
10.18 Amendment dated January 1, 1998 to Employment Agreement dated January
23, 1996 between the Company and David G. Soderquist - incorporated by
reference to Exhibit 10.3 to the Company's quarterly report on form
10-Q for the quarter ended May 31, 1999**
10.19 Amendment dated December 1, 1998 to employment agreement dated August
18, 1997 between the Company and Kent Brunner Incorporated by reference
to Exhibit 10.1 to the Company's quarterly report on form 10-Q for the
quarter ended May 31, 1999**
10.20* Employment agreement dated January 1, 2000 between the Company and
Leonard R. Vinson Jr. **
10.21* $8.5 million Revolving Note agreement dated September 8, 1999 between
the Company and Norwest Bank Minnesota, N.A.
- ----------------
*Filed herewith
**Management contract or compensatory plan or arrangement.
<PAGE>
Exhibit
Number Description
10.22* $1.5 million Revolving Note agreement dated September 8, 1999 between
the Company and Norwest Bank Minnesota, N.A.
10.23* $4.5 million Revolving Tern Note agreement dated September 8, 1999
between the Company and Norwest Bank Minnesota, N.A.
10.24* Credit and Security Agreement dated September 8, 1999 between the
Company and Norwest Bank Minnesota, N.A.
10.25* Mortgage and Security Agreement dated September 8, 1999 between the
Company and Norwest Bank Minnesota, N.A.
21 List of Subsidiaries - incorporated by reference to Exhibit 21 to the
Company's Annual Report on Form 10-K for the year ended February 28,
1998
23.1* Consent of Ernst & Young LLP
24* Power of Attorney of John J. Egart, David G. Soderquist, Joe
Mendelsohn, Timothy G. Rath, Stanley E. Hubbard, William J. McMahon and
Kent A. Brunner included in signature page on this Form 10-K
27.1* Financial Data Schedule for the year ended February 29, 2000 (included
in electronic version only)
- ----------------
*Filed herewith
**Management contract or compensatory plan or arrangement.
FIRST TEAM SPORTS
FISCAL 2001 EXECUTIVE BONUS PLAN
PLAN
o Company bonus plan is based on earnings before tax
o Bonus plan consists of the following levels:
Earnings Before Tax
Lower Level $ 350,000
Middle Level $ 850,000
Higher Level $1,390,000
ELIGIBILITY
% of
Lower Middle Higher Total
John Egart $ 60,000 $150,000 $240,000 40.0%
Kent Brunner $ 41,250 $103,125 $165,000 27.5%
Sonny Vinson $ 41,250 $103,125 $165,000 27.5%
Dave Soderquist $ 7,500 $ 18,750 $ 30,000 5.0%
-------- -------- -------- -----
TOTAL $150,000 $375,000 $600,000 100.0%
BONUS CALCULATIONS
o If earnings before tax goals are met, appropriate bonus dollars will be paid
o If earnings before tax fall between levels, bonus dollars will be pro-rated
accordingly
CRITERIA
o All participants will have objectives established for them to achieve
o Individual achievement of objectives, as judged by the Compensation
Committee, will determine bonus payments
EMPLOYMENT AGREEMENT
THIS AGREEMENT effective as of January 1, 2000, between FIRST TEAM
SPORTS, INC., a Minnesota corporation (the "Company"), and Leonard R. Vinson,
Jr., a resident of Minnesota ("Executive").
WITNESSETH
WHEREAS, Executive has been employed as Senior Vice President of Sales
and Marketing; and
WHEREAS, the Company desires to continue to have the benefit of
Executive's experience and loyalty, and Executive is willing to provide
Executive's services on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Definitions.
The following capitalized terms used in this Agreement shall be defined
as follows:
"Agreement" shall mean this Agreement between the Company and Executive.
"Base Salary" shall mean the annual base salary payable to Executive
pursuant to Section 4(a) hereof, and "monthly Base Salary" shall mean the Base
Salary divided by twelve (12).
"Board" shall mean the Board of Directors of First Team Sports, Inc.
"Cause" shall mean Executive's (1) gross misconduct, dishonesty or
disloyalty; (2) willful and material breach of this Agreement by Executive; or
(3) conviction or entry of a plea of guilty or nolo contendere to any felony or
to any misdemeanor involving fraud, misrepresentation or theft.
A "Change of Control" shall be deemed to have occurred if (1) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
25% or more of the combined voting power (with respect to the election of
directors) of the Company's then outstanding securities; (2) at any time after
the execution of this Agreement, individuals who as of the date of the execution
of this Agreement constitute the Board (and any new director whose election to
the Board or nomination for election to the Board by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
<PAGE>
in office) cease for any reason to constitute a majority of the Board; (3) the
consummation of a merger or consolidation of the Company with or into any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 70% of the combined
voting power (with respect to the election of directors) of the securities of
the Company or of such surviving entity outstanding immediately after such
merger or consolidation; or (4) the consummation of a plan of complete
liquidation of the Company or of an agreement for the sale or disposition by the
Company of all or substantially all of the Company's business or assets.
"Change of Control Payments" shall mean any payment (including any
benefit or transfer of property) in the nature of compensation, to or for the
benefit of Executive under any arrangement, which is partially or entirely
contingent on a Change of Control, or is deemed to be contingent on a Change of
Control for purposes of Section 280G of the Code. As used in this definition,
the term "arrangement" includes any agreement between Executive and the Company
and any and all of the Company's salary, bonus, incentive, compensation or
benefit plans, programs or arrangements, and shall include this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated thereunder.
A "Commencement Date" shall occur on (1) such date as the Company
enters into negotiations leading toward an agreement in principle or definitive
agreement pursuant to which a Change of Control thereafter occurs; or (2) the
date on which a tender or exchange offer or proxy contest is commenced pursuant
to which a Change of Control thereafter occurs.
"Company" shall mean First Team Sports, Inc., a Minnesota corporation,
any subsidiaries thereof, and any successors or assigns, including any
Successor.
"Company Product" means any product, product line or service (including
any component thereof or research to develop information useful in connection
with a product or service) that is being designed, developed, manufactured,
marketed or sold by the Company or with respect to which the Company has
acquired Confidential Information which it intends to use, or uses, in the
design, development, manufacture, marketing or sale of a product or service.
"Competitive Product" means any product, product line or service
(including any component thereof or research to develop information in
connection with a product or service) that is being designed, developed,
manufactured, marketed or sold by anyone other than the Company and is of the
same general type, performs similar functions, or is used for the same purposes
as a Company Product.
"Confidential Information" means any information or compilation of
information that Executive learns or develops during the course of Executive's
employment that derives independent economic value from not being generally
known, or readily ascertainable by proper means, by other persons who can obtain
economic value from its disclosure or use. It includes but is not limited to
trade secrets, inventions, and discoveries, and may relate to such matters as
research and development, manufacturing processes, management systems and
techniques, and sales and marketing plans and information.
<PAGE>
"Executive" shall mean Leonard R. Vinson, Jr., a resident of Minnesota.
"Good Reason" shall mean (1) a substantial reduction in the nature or
status of Executive's responsibilities hereunder; (2) a reduction by the Company
in the Base Salary of Executive except to the extent permitted under Section
4(a) hereof; (3) the failure by the Company to allow Executive to participate to
the full extent to which Executive is eligible in all plans, programs or
benefits in accordance with Sections 4(b) to (e), inclusive, hereof; or (4)
relocation of Executive's principal office more than 20 miles from its current
location. Notwithstanding the foregoing, "Good Reason" shall be deemed to occur
only if such event enumerated in (1) through (4) above has not been corrected by
the Company within two weeks of receipt of notice from Executive of the
occurrence of such event, which notice shall specifically describe such event.
"Incentive Stock Option Plans" shall mean any such plans within the
meaning of Section 422 of the Code or any successor provision thereof.
"Inventions" means any inventions, discoveries, improvements, ideas, or
works of authorship (whether patentable or not and including those which may be
subject to copyright protection) generated, conceived, authored, or reduced to
practice by Executive alone or in conjunction with others, during or after
working hours, while an employee of the Company, and that:
(i) are derived in whole or in part from, or use, incorporate, or represent
any improvement to any Invention or trade secret of the Company; or
(ii) result from any work Executive performs for the Company; or
(iii) use any of the Company's equipment, supplies, or facilities, or trade
secret information; or
(iv) otherwise relate to the Company's products or the Company's present or
possible future research or development.
"Permanently Disabled" shall mean permanently disabled in accordance
with the Company's long-term disability plan in effect at the time of
commencement of such permanent disability and as evaluated by sufficient
documentation including doctors statements, etc. as requested by the Company.
"Person" shall mean an individual, partnership, corporation, estate or
trust or other entity.
"Short-Term Plan" shall mean the annual Executive Bonus Plan of the
Company in effect from time to time.
<PAGE>
"Successor" shall be any entity acquiring substantially all of the
assets of the Company or a corporation into which the Company is merged or with
which it is consolidated.
"Term" shall mean the term of Executive's employment including any
period of renewal, under Section 3 hereof.
"Transition Period" shall be that period of time commencing on the
earlier of a Commencement Date or a Change of Control and continuing for 365
days following a Change of Control.
2. Employment and Duties.
(a) General. The Company hereby employs Executive as Vice
President-Finance upon the terms and conditions set forth in this Agreement.
Executive agrees to serve as Vice President-Finance and perform the duties and
responsibilities normally vested in the Vice President-Finance of a company, and
those duties and responsibilities as may, from time to time, be assigned to
Executive by the Board.
(b) Exclusive Services. Throughout the Term, Executive shall,
except as may from time to time be otherwise agreed in writing by the Company
and unless prevented by ill health, devote his full-time working hours to his
duties hereunder.
(c) No Other Employment. Throughout the Term, Executive shall
not, directly or indirectly, render services to any other person or organization
for which he receives compensation (excluding volunteer services or outside
Board activities with modest time commitments) without the consent of the Board
or otherwise engage in activities which would interfere significantly with the
performance of his duties hereunder.
3. Term of Employment. The Company shall retain Executive and Executive
shall serve in the employ of the Company for a minimum period of two (2) years
commencing as of the date of this Agreement; provided, however, that either
Executive or the Company may terminate the employment of Executive during the
Term in accordance with, and subject to the right of Executive to receive
payments and other benefits that may be due pursuant to, this Agreement. This
Agreement will be subject to automatic renewals for successive additional two
(2)-year periods, unless nonrenewed as provided in Section 9 of this Agreement
or terminated as provided in Section 9 of this Agreement.
4. Compensation and Other Benefits. Subject to the provisions of this
Agreement, the Company shall pay and provide the following compensation and
other benefits to Executive during the Term as compensation for services
rendered hereunder:
(a) Base Salary. The Company shall pay to Executive a Base
Salary at the rate of $120,000 per annum (increasing to $130,000 per annum
effective March 1, 2000), payable semi-monthly. The Company shall be entitled to
deduct or withhold all taxes and charges which the Company may be required to
<PAGE>
deduct or withhold therefrom. The Base Salary will be reviewed not less than
annually by the Board and may be increased, reduced, or left unchanged;
provided, however, that any reduction shall be permitted only if the Company
then reduces the base compensation of its executive employees generally and
shall not exceed the average percentage reduction for all such executive
employees.
(b) Incentive Compensation. At all times during the Term,
unless prohibited by the Code or other applicable law, Executive shall be
entitled to participate in all incentive compensation plans and programs of the
Company, currently existing or subsequently adopted.
(c) Stock Options. At all times during the Term, Executive
shall, unless prohibited by the Code or other applicable law, be entitled to
participate in all stock option plans and programs of the Company currently
existing or subsequently adopted, unless otherwise agreed to by Executive and
the Board or unless such plan or program is specifically for the Company's
non-executive employees.
(d) Executive Benefit Plans. At all times during the Term,
Executive shall, unless prohibited by the Code or other applicable law, be
eligible to participate in all pension and welfare plans and programs of the
Company for executive employees, currently existing or subsequently adopted,
including but not limited to the following:
(i) all qualified pension plans (e.g., profit sharing and
401(k) plans);
(ii) all long-term disability and life insurance plans and
programs;
(iii) all group health insurance plans; and
(iv) all supplemental retirement plans and programs.
5. Termination of Employment for Cause; Resignation Without Good
Reason.
(a) Compensation and Benefits. If, prior to the expiration of
the Term, Executive's employment is terminated by the Company for Cause or if
Executive resigns from employment hereunder other than for Good Reason, then
Executive shall not be eligible to receive any compensation or benefits, or to
participate in any benefit plans or programs, under Section 4 hereof with
respect to future periods after the date of such termination or resignation
except for the right to receive any vested benefits in accordance with the terms
of such plan or program, or to continue or convert at Executive's expense group
insurance coverage as provided by law or the terms of such plan or program.
(b) Date of Termination. The date of termination of
Executive's employment by the Company under this Section 5 shall be one (1)
month after receipt by Executive of written notice of termination. The date of
resignation by Executive under this Section 5 shall be one (1) month after
receipt by the Company of written notice of resignation.
<PAGE>
6. Termination of Employment Without Cause or Resignation for Good
Reason Other Than During Change of Control.
(a) Compensation and Benefits. If, other than during a
Transition Period, Executive's employment is terminated by the Company without
Cause or Executive resigns from his employment hereunder for Good Reason,
Executive shall be entitled only to receive the following from the Company
promptly following the Effective Date of termination or cessation of employment
with the Company:
(i) The Company shall make a cash payment to
Executive equal to the greater of (A) the sum of the highest
monthly Base Salary in effect any time during the three-year
period immediately preceding such termination times the number
of months remaining in the Term (without regard to renewals)
under this Agreement, plus an amount equal to the incentive
bonus earned by Executive in the prior fiscal year multiplied
by the number of months remaining in the Term (without regard
to renewals) divided by twelve (12), or (B) the sum of the
highest annual Base Salary in effect during the three-year
period immediately preceding such termination plus the amount
of incentive bonus earned by Executive during the prior fiscal
year. Such payment shall be made in cash within fifteen (15)
days from and after termination of Executive's employment.
(ii) With respect to any stock options, SARs,
restricted stock awards or performance share awards granted to
Executive and outstanding immediately prior to such
termination or resignation, all restrictions (other than those
imposed by law) on all shares of restricted stock awards shall
lapse immediately, all outstanding options and SARs will
become exercisable immediately, and all performance share
objectives shall be deemed to be met.
(iii) Executive shall be entitled to continued
participation in the Company's group health insurance plan as
permitted by COBRA and the terms of such plan. Company shall,
for a one-year period following termination of Executive's
employment, continue to pay a portion of Executive's Company
group health insurance premiums equivalent to that portion it
pays on behalf of its employees during such one-year period,
subject to Executive paying the employee portion of such
premiums and subject to termination of participation upon
Executive becoming entitled to group health insurance coverage
on subsequent employment or upon Executive's electing not to
continue coverage or termination of such plan by Company.
<PAGE>
(b) Date of Termination. The date of termination of
Executive's employment by the Company under this Section 6 shall be the date
specified in the written notice of termination to Executive, or if no such date
is specified therein, the date on which such notice is given to Executive. The
date of resignation by Executive under this Section 6 shall be two weeks after
receipt by the Company of written notice of resignation, provided that the Good
Reason specified in such notice shall not have been corrected by the Company
during such two-week period.
7. Termination of Employment Without Cause or Resignation With Good
Reason After Change of Control.
(a) Compensation and Benefits. If, prior to the expiration of
the Term and as of a date during a Transition Period, Executive's employment is
terminated by the Company or its Successor without Cause or if Executive resigns
from employment hereunder for Good Reason, Executive shall, subject to
subsection (c) below, be entitled only to receive the following from the Company
or its Successor promptly following the Effective Date of termination or
cessation of employment with the Company:
(i) Subject to paragraph (c) hereof, the Company
shall make a cash payment to Executive equal to the greater of
(A) the sum of the highest monthly Base Salary in effect any
time during the three-year period immediately preceding such
termination times the number of months remaining in the Term
(without regard to renewals) under this Agreement, plus an
amount equal to the incentive bonus earned by Executive in the
prior fiscal year multiplied by the number of months remaining
in the Term (without regard to renewals) divided by twelve
(12), or (B) 2 times the sum of the highest annual Base Salary
in effect any time during the three-year period immediately
preceding such termination, and the amount of incentive
bonuses which, absent termination of Executive's employment,
could have been earned by Executive during the fiscal year of
the Company in which Executive's employment under this
Agreement ceases. For purposes of Clause (B), the computation
of the amount of incentive bonuses shall be based upon the
bonus programs in effect at the time of termination of
Executive's employment and such computation shall assume that
target performance levels are satisfied for all purposes
during such fiscal year. Such payment shall be made in cash
within fifteen (15) days from and after termination of
Executive's employment.
<PAGE>
(ii) Executive shall not be eligible to receive any
compensation or benefits or to participate in any plans or
programs with respect to future periods after the date of such
termination or resignation except for the right to receive any
vested benefits in accordance with the terms of such plan or
program or to continue or convert at Executive's expense group
insurance coverage as provided by law or the terms of such
plan or program. With respect to any stock options, SARs,
restricted stock awards or performance share awards granted to
Executive and outstanding immediately prior to such
termination or resignation, all restrictions (other than those
imposed by law) on all shares of restricted stock awards shall
lapse immediately, all outstanding options and SARs will
become exercisable immediately, and all performance share
objectives shall be deemed to be met.
(b) Date of Termination. The date of termination of
Executive's employment by the Company under this Section 7 shall be the date
specified in the written notice of termination to Executive, or if no such date
is specified therein, the date on which such notice is given to Executive. The
date of resignation by Executive under this Section 7 shall be two weeks after
receipt by the Company of written notice of resignation, provided that the Good
Reason specified in such notice shall not have been corrected by the Company
during such two-week period.
(c) Limitation on Change of Control Compensation. In the event
that Executive is a "disqualified individual" within the meaning of Section 280G
of the Code, the parties expressly agree that the payments described in this
Section 7 or in Section 9 shall be considered together with all Change of
Control Payments so that, with respect to Executive, all Change of Control
Payments are collectively subject to an overall maximum limit. Such maximum
limit shall be One Dollar ($1.00) less than the largest amount under which no
portion of the Change of Control Payments is considered a "parachute payment"
within the meaning of Section 280G of the Code. Accordingly, to the extent that
the Change of Control Payments would be considered a "parachute payment" with
respect to Executive, then the portions of such Change of Control payments shall
be reduced or eliminated in the following order until the remaining Change of
Control Payments with respect to Executive is one Dollar ($1.00) less than the
maximum allowable which would not be considered a "parachute payment" under the
Code:
(i) First, any cash payment to Executive;
(ii) Second, any Change of Control Payments not described
in this Agreement; and
(iii) Third, any forgiveness of indebtedness of Executive
to the Company.
<PAGE>
Executive expressly and irrevocably waives any and all rights to receive any
Change of Control payments which would be considered a "parachute payment" under
the Code.
8. Termination of Employment by Disability or Death.
(a) Compensation and Benefits. If Executive becomes
Permanently Disabled prior to the expiration of the Term, the Company shall be
entitled to terminate Executive's employment subject to the Company's normal
policies in such matters as applied to all other salaried employees. In the
event of such termination of Executive's employment or termination of
Executive's employment by reason of the death of Executive prior to the
expiration of the Term, the Executive (or Executive's estate, as the case may
be) shall be entitled to receive from the Company only the following:
(i) In the event of termination after Executive has
become Permanently Disabled, Executive shall be entitled to
continued participation in hospital and medical plans and
programs of the Company at Executive's own expense, as
required by COBRA and in accordance with Company policy as it
pertains to disabled salaried employees; that is for the
period of said disability or until normal retirement age
subject to rules and practice of the plan(s). Company may, in
its discretion, provide the benefits described herein under
the Company's group plans or under no less favorable insurance
contracts or arrangements secured by the Company.
(ii) Executive (or, in the event of Executive's
death, Executive's estate or Executive's designated
beneficiary) shall be entitled to receive any vested benefits
in accordance with the terms of any such benefit plans.
Executive shall be entitled to continued contributions under
the Company's qualified profit sharing and 401(k) plans to the
extent permitted in said plans.
(b) Date of Termination. The date of termination of
Executive's employment under this Section 8 shall be the date Executive becomes
Permanently Disabled or the date of Executive's death as the case may be.
9. Termination of Employment by Written Notice of Nonrenewal.
(a) Notice. This Agreement may be terminated with or without
Cause upon delivery of written notice of nonrenewal by either party to the other
between ninety (90) and sixty (60) days prior to the end of the Term or of any
renewal period.
(b) Compensation and Benefits. If Executive's employment is
not renewed under this Section 9, Executive shall be entitled only to the
following severance benefits:
<PAGE>
(i) Unless the notice of nonrenewal is given during a
Transition Period, the Company shall make a cash payment equal
to the amount of the highest annual Base Salary in effect any
time during the three-year period immediately preceding
termination of employment. Such payment shall be made in cash
within fifteen (15) days from and after the end of Executive's
employment term. If the notice of renewal is given during a
Transition Period, then, subject to Section 7(c), the Company
shall make a cash payment to Executive equal to two (2) times
the sum of (A) the amount of the highest annual Base Salary in
effect any time during the three-year period immediately
preceding termination of Executive's employment and (B) the
amount of incentive bonuses which, absent termination of
Executive's employment, could have been earned by Executive
during the fiscal year of the Company in which Executive's
employment under this Agreement ceases. For purposes of Clause
(B), the computation of the amount of incentive bonuses shall
be based upon the bonus programs in effect at the time of
termination of Executive's employment and such computation
shall assume that target performance levels are satisfied for
all purposes during such fiscal year. Such payment shall be
made in cash within fifteen (15) days from and after
termination of Executive's employment.
(ii) Executive shall be entitled to continued
participation in Company's group health insurance plan as
permitted by COBRA and the terms of such plan. Company shall,
for a one-year period following termination of Executive's
employment, continue to pay a portion of Executive's Company
group health insurance premiums equivalent to that portion it
pays on behalf of its employees during such one-year period,
subject to Executive paying the employee portion of such
premiums and subject to termination of participation upon
Executive becoming entitled to group health insurance coverage
on subsequent employment or upon Executive's electing not to
continue coverage or termination of such plan by Company.
(c) Date of Termination. The date of termination of
Executive's employment by the Company under this Section 9 shall be the date on
which the term of Executive's employment expires.
10. Legal Fees and Expenses. The Company shall pay or reimburse
Executive for all reasonable legal fees and expenses incurred by Executive in
seeking to obtain or enforce any right or benefit provided by this Agreement
from or against the Company in a proceeding before a court of competent
jurisdiction.
<PAGE>
11. Assignment of Inventions. Executive agrees to promptly disclose to
the Company in writing all Inventions. All such Inventions shall be the
exclusive property of the Company and are hereby assigned by Executive to the
Company. Further, Executive will, at the Company's expense, give the Company all
assistance it reasonably requires to perfect, protect, enforce, and use its
rights to Inventions. In particular, but without limitation, Executive will sign
all documents, do all things, and supply all information that the Company may
deem necessary or desirable to:
(i) transfer or record the transfer of Executive's entire
right, title and interest in Inventions; and
(ii) enable the Company to obtain or enforce patent, copyright
or trademark protection for Inventions anywhere in the world.
The obligations of this Section shall continue beyond the termination
of employment with respect to Inventions conceived or made by Executive during
the period of Executive's employment and shall be binding upon assigns,
executors, administrators and other legal representatives. For purposes of this
Agreement, any Invention relating to the business of the Company on which
Executive files a patent application within six (6) months after termination of
employment with the Company shall be presumed to cover Inventions conceived by
Executive during the term of Executive's employment, subject to proof to the
contrary by good faith, written and duly corroborated records establishing that
such Invention was conceived and made following termination of employment.
NOTICE: Pursuant to Minnesota Statutes ss. 181.78, Executive is hereby
notified that this Section 11 does not apply to any invention for which no
equipment, supplies, facility, or trade secret information of the Company was
used and which was developed entirely on Executive's own time, and (1) which
does not relate (a) directly to the business of the Company or (b) to the
Company's actual or demonstrably anticipated research or development, or (2)
which does not result from any work performed by the employee for the Company.
12. Confidential Information. Executive agrees not to directly or
indirectly use or disclose Confidential Information for the benefit of anyone
other than the Company, either during or after employment, for as long as the
information retains the characteristics of Confidential Information described in
Section 1 above.
13. Return of Documents and Property. All documents and tangible items
provided to Executive by the Company, or possessed, obtained, or created by
Executive for use in connection with Executive's employment, are the property of
the Company and shall be promptly returned to the Company on termination of
employment together with all copies, recordings, abstracts, notes or
reproductions of any kind made from or about the documents and tangible items or
the information they contain.
14. Noncompetition. In consideration of Executive's rights under this
Agreement, including without limitation Sections 5 through 9 hereof, Executive
agrees that, from and after the Effective Date and continuing until the one-year
anniversary of termination or cessation of Executive's employment with the
Company, Executive will not, alone or in any capacity with another person or
entity:
<PAGE>
(i) directly or indirectly, own any interest in, control, be
employed by or associated with, or render services to (including but
not limited to services in research), any person, entity, or
subsidiary, subdivision, division, or joint venture of such entity in
connection with the design, development, manufacture, marketing, or
sale of a Competitive Product that is sold or intended for use or sale
in any geographic area in which the Company actively markets a Company
Product or intends to actively market a Company Product of the same
general type or function;
(ii) directly or indirectly, solicit any of the Company's
present or future employees for the purpose of hiring them or inducing
them to leave their employment with the Company;
(iii) directly or indirectly, solicit, attempt to solicit,
interfere, or attempt to interfere with the Company's relationship with
its customers or potential customers, on behalf of Executive or any
other person or entity engaged in the design, development, manufacture,
marketing, or sale of a Competitive Product; or
(iv) directly or indirectly design, develop, manufacture,
market, or sell any Competitive Product that is sold or intended for
use or sale in any geographic area in which the Company actively
markets a Company Product or intends to actively market a Company
Product of the same general type or function.
15. Breach of Noncompetition Provisions of this Agreement. In addition
to any other relief or remedies afforded by law or in equity, if Executive
breaches Section 14 of this Agreement, Executive agrees that the Company shall
be entitled, as a matter of right, to injunctive relief in any court of
competent jurisdiction plus its costs, including but not limited to its
reasonable attorneys' fees for securing such relief. Executive recognizes and
hereby admits that irreparable damage will result to the Company if Executive
violates or threatens to violate the terms of Section 14 of this Agreement. This
Section 15 shall not preclude the granting of any other appropriate relief
including, without limitation, money damages against Executive for breach of
Section 14 of this Agreement.
16. Effect of Other Obligations. It is intended that the obligation of
the parties to perform the terms of this Agreement is unconditional and does not
depend on the performance or non-performance of any terms, duties or obligations
not specifically recited in this Agreement.
<PAGE>
17. Binding Agreement. This Agreement shall be binding upon, and inure
to the benefit of, the parties hereto, any Successor to or assigns of the
Company, and Executive's heirs and the personal representative of Executive's
estate.
18. Severability. If a Court finds that any provision of this Agreement
is not enforceable, Executive and the Company agree that the Court should modify
the provision to make it enforceable to the maximum extent possible. If the
provision cannot be modified, Executive and the Company agree that the provision
may be severed, and the other provisions of this Agreement shall remain in full
force and effect.
19. Amendment; Waiver. This Agreement may not be modified, amended or
waived in any manner except by an instrument in writing signed by both parties
hereto. The waiver by either party of compliance with any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any other provision of this Agreement, or of any subsequent breach by such party
of a provision of this Agreement.
20. Governing Law. All matters affecting this Agreement, including the
validity thereof, are to be governed by, interpreted and construed in accordance
with the laws of the State of Minnesota.
21. Notices. Any notice hereunder by either party to the other shall be
given in writing by personal delivery or certified mail, return receipt
requested. If addressed to Executive, the notice shall be delivered or mailed to
Executive at the address specified under Executive's signature hereto, or if
addressed to the Company, the notice shall be delivered or mailed to the Company
at its executive offices to the attention of the Board of Directors of the
Company. A notice shall be deemed given, if by personal delivery, on the date of
such delivery or, if by certified mail, on the date shown on the applicable
return receipt.
22. Supersedes Previous Agreements. This Agreement supersedes all prior
or contemporaneous negotiations, commitments, agreements and writings with
respect to the subject matter hereof, all such other negotiations, commitments,
agreements and writings will have no further force or effect, and the parties to
any such other negotiation, commitment, agreement or writing will have no
further rights or obligations thereunder.
23. Headings; Construction. The headings of Sections and paragraphs
herein are included solely for convenience of reference and shall not control
the meaning or interpretation of any of the provisions of this Agreement. This
Agreement shall be construed without regard to any presumption or other rule
requiring construction hereof against the party causing this Agreement to be
drafted.
24. Benefit. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its officer pursuant to the authority of its Board, and Executive has
executed this Agreement, as of the day and year first written above.
FIRST TEAM SPORTS, INC.
By: /s/ John J. Egart
John J. Egart, President
/s/ Leonard R. Vinson, Jr.
Leonard R. Vinson, Jr.
REVOLVING NOTE
$8,500,000 Minneapolis, Minnesota
September 8, 1999
For value received, the undersigned, First Team Sports, Inc., a
Minnesota corporation, Hespeler Hockey Holding, Inc., a Minnesota corporation,
Hespeler Hockey Company, a Nova Scotia unlimited liability company, and First
Team Sports GmbH, an Austrian corporation (collectively, the "Borrower"), hereby
promises to pay on the Termination Date under the Credit Agreement (defined
below), to the order of NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national
banking association (the "Lender"), at its main office in Minneapolis,
Minnesota, or at any other place designated at any time by the holder hereof, in
lawful money of the United States of America and in immediately available funds,
the principal sum of Eight Million Five Hundred Thousand Dollars ($8,500,000)
or, if less, the aggregate unpaid principal amount of all Revolving Advances
made by the Lender to the Borrower under the Credit Agreement (defined below)
together with interest on the principal amount hereunder remaining unpaid from
time to time, computed on the basis of the actual number of days elapsed and a
360-day year, from the date hereof until this Note is fully paid at the rate
from time to time in effect under the Credit and Security Agreement of even date
herewith (as the same may hereafter be amended, supplemented or restated from
time to time, the "Credit Agreement") by and between the Lender and the
Borrower. The principal hereof and interest accruing thereon shall be due and
payable as provided in the Credit Agreement. This Note may be prepaid only in
accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
FIRST TEAM SPORTS, INC.
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: CFO
HESPELER HOCKEY HOLDING, INC.
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: CFO
HESPELER HOCKEY COMPANY
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: CFO
FIRST TEAM SPORTS GmbH
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: Acting Agent
REVOLVING NOTE
$1,500,000 Minneapolis, Minnesota
September 8, 1999
For value received, the undersigned, First Team Sports, Inc., a
Minnesota corporation, Hespeler Hockey Holding, Inc., a Minnesota corporation,
Hespeler Hockey Company, a Nova Scotia unlimited liability company, and First
Team Sports GmbH, an Austrian corporation (collectively, the "Borrower"), hereby
promises to pay on the Termination Date under the Credit Agreement (defined
below), to the order of NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national
banking association (the "Lender"), at its main office in Minneapolis,
Minnesota, or at any other place designated at any time by the holder hereof, in
lawful money of the United States of America and in immediately available funds,
the principal sum of One Million Five Hundred Thousand Dollars ($1,500,000) or,
if less, the aggregate unpaid principal amount of all Revolving Advances made by
the Lender to the Borrower under the Credit Agreement (defined below) together
with interest on the principal amount hereunder remaining unpaid from time to
time, computed on the basis of the actual number of days elapsed and a 360-day
year, from the date hereof until this Note is fully paid at the rate from time
to time in effect under the Credit and Security Agreement of even date herewith
(as the same may hereafter be amended, supplemented or restated from time to
time, the "Credit Agreement") by and between the Lender and the Borrower. The
principal hereof and interest accruing thereon shall be due and payable as
provided in the Credit Agreement. This Note may be prepaid only in accordance
with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
FIRST TEAM SPORTS, INC.
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: CFO
HESPELER HOCKEY HOLDING, INC.
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: CFO
HESPELER HOCKEY COMPANY
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: CFO
FIRST TEAM SPORTS GmbH
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: Acting Agent
TERM NOTE
$4,500,000 Minneapolis, Minnesota
September 8, 1999
For value received, the undersigned, First Team Sports, Inc., a
Minnesota corporation, Hespeler Hockey Holding, Inc., a Minnesota corporation,
Hespeler Hockey Company, a Nova Scotia unlimited liability company, and First
Team Sports GmbH, an Austrian corporation (collectively, the "Borrower"), hereby
promises to pay on the Termination Date under the Credit Agreement (defined
below), to the order of NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national
banking association (the "Lender"), at its main office in Minneapolis,
Minnesota, or at any other place designated at any time by the holder hereof, in
lawful money of the United States of America and in immediately available funds,
the principal sum of Four Million Five Hundred Thousand Dollars ($4,500,000) or,
if less, the aggregate unpaid principal amount of the Term Advance made by the
Lender to the Borrower under the Credit Agreement (defined below) together with
interest on the principal amount hereunder remaining unpaid from time to time,
computed on the basis of the actual number of days elapsed and a 360-day year,
from the date hereof until this Note is fully paid at the rate from time to time
in effect under the Credit and Security Agreement of even date herewith (as the
same may hereafter be amended, supplemented or restated from time to time, the
"Credit Agreement") by and between the Lender and the Borrower. The principal
hereof and interest accruing thereon shall be due and payable as provided in the
Credit Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Term Note referred to in the Credit Agreement. This Note is secured, among other
things, pursuant to the Credit Agreement and the Security Documents as therein
defined, and may now or hereafter be secured by one or more other security
agreements, mortgages, deeds of trust, assignments or other instruments or
agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
FIRST TEAM SPORTS, INC.
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: CFO
HESPELER HOCKEY HOLDING, INC.
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: CFO
HESPELER HOCKEY COMPANY
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: CFO
FIRST TEAM SPORTS GmbH
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: Acting Agent
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CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
FIRST TEAM SPORTS, INC.,
HESPELER HOCKEY HOLDING, INC.,
HESPELER HOCKEY COMPANY,
FIRST TEAM SPORTS GmbH
AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Dated as of: September 8, 1999
[GRAPHIC OMITTED][GRAPHIC OMITTED]
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<PAGE>
CREDIT AND SECURITY AGREEMENT
Dated as of September 8, 1999
First Team Sports, Inc., a Minnesota corporation, Hespeler Hockey
Holding, Inc., a Minnesota corporation, Hespeler Hockey Company, a Nova Scotia
unlimited liability company, and First Team Sports GmbH, an Austrian corporation
(collectively, the "Borrower"), and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, a national banking association (the "Lender"), hereby agree as
follows:
1. Definitions
1.1 Definitions.
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term
is defined in the UCC and the PPSA, including without limitation the
aggregate unpaid obligations of customers and other account debtors to
the Borrower arising out of the sale or lease of goods or rendition of
services by the Borrower on an open account or deferred payment basis.
"Advance" means a Revolving Advance or a Term Advance.
"Affiliate" or "Affiliates" means any Person controlled by,
controlling or under common control with the Borrower, including
(without limitation) any Subsidiary of the Borrower. For purposes of
this definition, "control," when used with respect to any specified
Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as
amended, supplemented or restated from time to time.
"Availability" means the difference of (i) the Borrowing Base
and (ii) the outstanding principal balance of the Revolving Note plus
the L/C Amount.
"Banking Day" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in
Minneapolis, Minnesota.
<PAGE>
"Borrowing Base" means, at any time and subject to change from
time to time in the Lender's commercially reasonable judgment, the
lesser of:
(a) the Maximum Line; or
(b) the sum of:
(i) 100% of the balance of the Custodial Account, as
determined after conversion into U.S. Dollars at Opening
Norwest Spot Price in the North American foreign exchange
session as quoted by Reuters, plus
(ii) 80% of Eligible Accounts, plus
(iii) 35% of Eligible Finished Goods Inventory and
20% of Eligible In-Transit Inventory,
provided that in no event shall Availability
attributable to Eligible In-Transit
Inventory exceed $400,000, provided,
further, that (x) during the period from
February 1 through May 31 in any year,
Advances against Eligible Inventory shall
not exceed $3,500,000, or (y) during the
period from June 1 through January 31 in any
year, Advances against Eligible Inventory
shall not exceed $2,500,000.
"City of Anoka Subordination Agreement" means the
Subordination Agreement of even date herewith, executed by the City of
Anoka, Minnesota in the Lender's favor and acknowledged by the
Borrower.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums on
deposit in the Custodian Account and in any Collateral Account or
Toronto Dominion Collateral Account, and any items in any Lockbox or
Toronto Dominion Lockbox; together with (i) all substitutions and
replacements for and products of any of the foregoing; (ii) proceeds of
any and all of the foregoing; (iii) in the case of all tangible goods,
all accessions; (iv) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection
with any tangible goods; and (v) all warehouse receipts, bills of
lading and other documents of title now or hereafter covering such
goods.
"Collateral Account" has the meaning given in the Collateral
Account Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement of even date herewith by and among the Borrower and the
Lender.
"Commitment" means the Lender's commitment to make Advances to
or for the Borrower's account pursuant to Article 2.
"Credit Facility" means the credit facility being made
available to the Borrower by the Lender pursuant to Article 2.
<PAGE>
"Custodial Pledge Agreement" means the Custodial Pledge and
Security Agreement of even date herewith by and among the Borrower and
the Lender.
"Custodial Account" means those accounts maintained with the
Lender, in the name of the Lender on behalf of the Borrower, to hold
Austrian shillings and Canadian Dollars.
"Dated Accounts" means (i) all Accounts of First Team Sports,
Inc. that have a stated due date of more than thirty (30) days from the
invoice date of such Account and (ii) all Accounts of Hespeler Hockey
Company that have a stated due date of more than forty-five (45) days
from the invoice date of such Account.
"Debt" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be
determined. For purposes of determining a Person's aggregate Debt at
any time, "Debt" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the
earlier of (i) the day when a Default or Event of Default occurs or
(ii) the fifteen day of any month during which a Default or Event of
Default has occurred, and in either case ending on the date the Lender
notifies the Borrower in writing that such Default or Event of Default
has been cured or waived.
"Default Rate" means, with respect to the Revolving Advances,
an annual rate equal to two percent (2%) over the Revolving Floating
Rate, which rate shall change when and as the Revolving Floating Rate
changes and with respect to the Term Advance, an annual rate equal to
two percent (2%) over the Term Floating Rate, which rate shall change
when and as the Term Floating Rate changes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Earnings After Taxes" for a period means, post-tax earnings
from continuing operations for such period.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(i) That portion of (i) Accounts of First Team
Sports, Inc. that have a stated due date of 30 days or less
after the invoice date that are unpaid after the earlier of 60
days or more after such stated due date or 150 days after the
shipping date, or (ii) Accounts of Hespeler Hockey Company
that have a stated due date of 45 days or less after the
invoice date that are unpaid after the earlier of 60 days or
<PAGE>
more after such stated due date or 150 days after the shipping
date, provided, however, that Dated Accounts shall be
ineligible if not paid within 30 days of the stated due date
or 150 days after the shipping date;
(ii) That portion of Accounts that is disputed or
subject to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the
final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government for which the Borrower has provided
evidence satisfactory to the Lender that (A) the Lender has a
first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against such
unit of government under all applicable laws);
(v) Accounts owed by an account debtor located
outside the United States or Canada which are not (A) backed
by a bank letter of credit naming the Lender as beneficiary or
assigned to the Lender, in the Lender's possession and
acceptable to the Lender in all respects, in its sole
discretion, (B) covered by a foreign receivables insurance
policy acceptable to the Lender in its sole discretion;
(vi) Accounts owed by an account debtor that is
insolvent, the subject of bankruptcy proceedings or has gone
out of business;
(vii) Accounts owed by a shareholder, Subsidiary,
Affiliate, officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected
security interest in the Lender's favor or which are subject
to any lien, security interest or claim in favor of any Person
other than the Lender including without limitation any payment
or performance bond;
(ix) That portion of Accounts that has been
restructured, extended, amended or modified;
(x) That portion of Accounts that constitutes
advertising, finance charges, service charges or sales or
excise taxes;
(xi) Accounts owed by an account debtor, regardless
of whether otherwise eligible, if 25% or more of the total
amount due under Accounts from such debtor is ineligible under
clauses (i), (ii) or (ix) above;
(xii) Accounts owed by any one account debtor to the
extent such Accounts exceed 15% of the Borrower's total
Accounts;
<PAGE>
(xiii) Accounts of First Team Sports GmbH;
(xiv) Accounts whose invoice amount equals or exceeds
$50,000, unless the Lender receives copies of such invoices
and corresponding shipping documents and such documents are
deemed acceptable to the Lender in its sole discretion; and
(xv) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Eligible Finished Goods Inventory" means Eligible Inventory
consisting of finished goods ready for sale by Borrower.
"Eligible In-Transit Inventory" means Inventory manufactured
in Asia that the Borrower takes title to immediately after such
Inventory has left its Asian port in route to the United States.
"Eligible Inventory" means all Inventory of the Borrower, at
the lower of cost or market value as determined in accordance with
GAAP; provided, however, that the following shall not in any event be
deemed Eligible Inventory:
(i)
(i) Inventory that is: in-transit (but not including
Eligible In-Transit Inventory as such term is defined herein);
located at any warehouse, job site or other premises not
approved by the Lender in writing; located outside of the
states, or localities, as applicable, in which the Lender has
filed financing statements to perfect a first priority
security interest in such Inventory; covered by any negotiable
or non-negotiable warehouse receipt, bill of lading or other
document of title; on consignment from any Person; on
consignment to any Person or subject to any bailment unless
such consignee or bailee has executed an agreement with the
Lender;
(ii) Supplies, packaging, parts, raw materials or
sample Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, obsolete, slow moving
or not currently saleable in the normal course of the
Borrower's operations;
(v) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or intends
to return to the vendor thereof;
(vi) Inventory that is perishable or live;
(vii) Inventory manufactured by the Borrower pursuant
to a license unless the applicable licensor has agreed in
writing to permit the Lender to exercise its rights and
remedies against such Inventory except that Kablooe Product
<PAGE>
Inc. and Creative Pool Trendscouting GmbH shall be deemed
Eligible Inventory; provided, however, if no Default or Event
of Default has occurred and is continuing hereunder, the
Inventory manufactured by the Borrower pursuant to those
certain license agreements between the Borrower and WDG
Enterprises, Inc. and International Marketing Management,
L.L.C., respectively, shall be deemed to be Eligible Inventory
for a period of ninety (90) days from the date of this
Agreement even though such licensors have not agreed in
writing to permit the Lender to exercise its rights and
remedies against such Inventory;
(viii) Inventory that is subject to a security
interest in favor of any Person other than the Lender;
(ix) Inventory that is located in Canada or Austria;
and
(x) Inventory otherwise deemed ineligible by the
Lender in its sole discretion.
"Environmental Indemnity Agreement" means the Environmental
Indemnity Agreement dated of even date herewith and executed by First
Team Sports, Inc. in favor of the Lender with regard to the Premises.
"Environmental Laws" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such
term is defined in the UCC and the PPSA, whether now owned or hereafter
acquired, including but not limited to all present and future
machinery, vehicles, furniture, fixtures, manufacturing equipment, shop
equipment, office and record-keeping equipment, parts, tools, supplies,
and including specifically (without limitation) the goods described in
any equipment schedule or list herewith or hereafter furnished to the
Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Funding Date" has the meaning given in Section 2.1.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.5.
"General Intangibles" or "Intangibles" means all of the
Borrower's general intangibles, as such term is defined in the UCC and
the PPSA, whether now owned or hereafter acquired, including (without
limitation) all present and future patents, patent applications,
copyrights, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of
the Borrower's business.
"Hazardous Substance" has the meaning given in Section 5.12.
<PAGE>
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC and the PPSA, whether now owned or hereafter
acquired, whether consisting of whole goods, spare parts or components,
supplies or materials, whether acquired, held or furnished for sale,
for lease or under service contracts or for manufacture or processing,
and wherever located.
"Investment Property" means all of the Borrower's investment
property, as such term is defined in the UCC, whether now owned or
hereafter acquired, including but not limited to all securities,
security entitlements, securities accounts, commodity contracts,
commodity accounts, stocks, bonds, mutual fund shares, money market
shares and U.S. Government securities.
"L/C Amount" means the sum of (i) the aggregate undrawn face
amount of any issued and outstanding Letters of Credit and (ii) the
unpaid amount of the Obligation of Reimbursement.
"L/C Application" means an application and agreement for
letters of credit in a form acceptable to the Lender.
"Letter of Credit" has the meaning specified in Section 2.2.
"Life Insurance Assignment" means an Assignment of Life
Insurance Policy as Collateral to be executed by the owner and the
beneficiary thereof, in form and substance satisfactory to the Lender,
granting the Lender a first priority lien on the Life Insurance Policy
to secure payment of the Obligations.
"Life Insurance Policy" has the meaning given in Section 6.11.
"Loan Documents" means this Agreement, the Notes and the
Security Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among
the Borrower and the Lender, of even date herewith.
"Maturity Date" means August 31, 2002.
"Maximum Line" means $10,000,000, unless said amount is
reduced pursuant to Section 2.10, in which event it means the amount to
which said amount is reduced.
"Mortgage" means the Mortgage and Security Agreement and
Fixture Financing Statement dated of even date herewith and executed by
First Team Sports, Inc. in favor of the Lender, granting the Lender a
first priority lien with regard to the Borrower's facility in the
Premises.
<PAGE>
"Net Worth" means the Borrower's fiscal year-to-date after-tax
net worth minus any dividends distributed by the Borrower in such
fiscal year, as determined in accordance with GAAP.
"Note" means the Revolving Note or the Term Note, and "Notes"
means the Revolving Note and the Term Note.
"Obligations" means the Notes and each and every other debt,
liability and obligation of every type and description which the
Borrower may now or at any time hereafter owe to the Lender, whether
such debt, liability or obligation now exists or is hereafter created
or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of the Borrower,
and whether it is direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or sole,
joint, several or joint and several, and including specifically, but
not limited to, all indebtedness of the Borrower arising under this
Agreement, the Notes or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect or hereafter
entered into.
"Obligations of Reimbursement" has the meaning given in
Section 2.3.
"Patent Security Agreement" means the Patent and Trademark
Security Agreement by the Borrower in favor of the Lender of even date
herewith.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained
for the Borrower's employees and covered by Title IV of ERISA.
"PPSA" means the Personal Property Security Act (Ontario), as
in effect from time to time.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including, but not limited
to, the premises legally described in Exhibit D attached hereto.
"Prime Rate" means the rate of interest publicly announced
from time to time by the Lender as its "prime rate" or, if such bank
ceases to announce a rate so designated, any similar successor rate
designated by the Lender.
"Receivables" means each and every right of the Borrower to
the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
<PAGE>
agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently
transfers such person's interest to the Borrower, whether such right to
payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) which the
Borrower may at any time have by law or agreement against any account
debtor or other obligor obligated to make any such payment or against
any property of such account debtor or other obligor; all including but
not limited to all present and future accounts, contract rights, loans
and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
"Reportable Event" shall have the meaning assigned to that
term in Title IV of ERISA.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Floating Rate" means an annual rate equal to the
Prime Rate, which annual rate shall change when and as the Prime Rate
changes.
"Revolving Note" means the Borrower's revolving promissory
notes, payable to the order of the Lender in substantially the form of
Exhibit A hereto and any note or notes issued in substitution therefor,
as the same may hereafter be amended, supplemented or restated from
time to time.
"Security Documents" means this Agreement, the Mortgage, the
Environmental Indemnity Agreement, the Collateral Account Agreement,
the Lockbox Agreement, the Toronto-Dominion Lockbox Agreement, the
Custodial Pledge Agreement, the Patent Security Agreement and any other
document delivered to the Lender from time to time to secure the
Obligations, as the same may hereafter be amended, supplemented or
restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Subordination Agreement" means the City of Anoka
Subordiantion Agreement and any other subordination agreement accepted
by the Lender from time to time, as the same may hereafter be amended,
supplemented or restated from time to time.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of
directors of such corporation, irrespective of whether or not at the
time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Borrower, by the Borrower and
one or more other Subsidiaries, or by one or more other Subsidiaries.
"Term Advance" has the meaning specified in Section 2.4.
<PAGE>
"Term Floating Rate" means an annual rate equal to the Prime
Rate, which annual rate shall change when and as the Prime Rate
changes.
"Term Note" means the Borrower's promissory note, payable to
the order of the Lender in substantially the form of Exhibit B hereto
and any note or notes issued in substitution therefor, as the same may
hereafter be amended, supplemented or restated from time to time.
"Termination Date" means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facility, or
(iii) the date the Lender demands payment of the Obligations.
"Toronto-Dominion Lockbox" has the meaning given in the
Toronto-Dominion Lockbox Agreement.
"Toronto-Dominion Lockbox Agreement" means the Lockbox
Agreement by and among the Borrower and The Toronto-Dominion Bank, of
even date herewith.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.13 as the state whose laws
shall govern this Agreement, or in any other state whose laws are held
to govern this Agreement or any portion hereof.
1.2 Cross References.
All references in this Agreement to Articles, Sections and subsections,
shall be to Articles, Sections and subsections of this Agreement unless
otherwise explicitly specified.
2. Amount and Terms of the Credit Facility
2.1 Revolving Advances.
The Lender agrees to make advances to the Borrower from time to time
from the date all of the conditions set forth in Section 4.1 are satisfied (the
"Funding Date") to the Termination Date, on the terms and subject to the
conditions herein set forth (the "Revolving Advances"). The Lender shall have no
obligation to make a Revolving Advance if, after giving effect to such requested
Revolving Advance, the sum of the outstanding and unpaid Revolving Advances
would exceed the Borrowing Base. The Borrower's obligation to pay the Revolving
Advances shall be evidenced by the Revolving Note and shall be secured by the
Collateral as provided in Article 3 and by the Mortgage, provided, however, that
the amount of Revolving Advances secured by the Mortgage shall be limited to
$1,500,000. Within the limits set forth in this Section 2.1, the Borrower may
borrow, prepay pursuant to Section 2.10 and reborrow. The Borrower agrees to
comply with the following procedures in requesting Revolving Advances under this
Section 2.1:
(a) The Borrower shall make each request for a Revolving
Advance to the Lender before 11:00 a.m. (Minneapolis time) of the day
of the requested Revolving Advance. Requests may be made in writing or
by telephone, specifying the date of the requested Revolving Advance
and the amount thereof. Each request shall be by (i) any officer of the
Borrower; or (ii) any person designated as the Borrower's agent by any
<PAGE>
officer of the Borrower in a writing delivered to the Lender; or (iii)
any person whom the Lender reasonably believes to be an officer of the
Borrower or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in
Article 4, the Lender shall disburse the proceeds of the requested
Revolving Advance by crediting the same to the Borrower's demand
deposit account maintained with the Lender unless the Lender and the
Borrower shall agree in writing to another manner of disbursement. Upon
the Lender's request, the Borrower shall promptly confirm each
telephonic request for an Advance by executing and delivering an
appropriate confirmation certificate to the Lender. The Borrower shall
repay all Advances even if the Lender does not receive such
confirmation and even if the person requesting an Advance was not in
fact authorized to do so. Any request for an Advance, whether written
or telephonic, shall be deemed to be a representation by the Borrower
that the conditions set forth in Section 4.2 have been satisfied as of
the time of the request.
2.2 Letters of Credit.
(a) The Lender agrees, on the terms and subject to the
conditions herein set forth, to issue, from the Funding Date to the
Termination Date, one or more irrevocable standby or documentary
letters of credit (each, a "Letter of Credit") for the Borrower's
account. The Lender shall have no obligation to issue any Letter of
Credit if the face amount of the Letter of Credit to be issued would
exceed the Borrowing Base less the sum of (A) all outstanding and
unpaid Revolving Advances and (B) the L/C Amount.
Each Letter of Credit, if any, shall be issued pursuant to a separate
L/C Application entered into by the Borrower and the Lender and
completed in a manner satisfactory to the Lender. The terms and
conditions set forth in each such L/C Application shall supplement the
terms and conditions hereof, but if the terms of any such L/C
Application and the terms of this Agreement are inconsistent, the terms
hereof shall control.
(b) No Letter of Credit shall be issued with an expiration
date later than the Termination Date in effect as of the date of
issuance.
(c) Any request to cause the Lender to issue a Letter of
Credit under this Section 2.2 shall be deemed to be a representation by
the Borrower that the conditions set forth in Section 4.2 have been
satisfied as of the date of the request.
2.3 Payment of Amounts Drawn Under Letters of Credit; Obligation of
Reimbursement.
The Borrower agrees to pay to the Lender any and all amounts required
to be paid under the applicable L/C Application, when and as required to be paid
thereby, and the amounts designated below, when and as designated:
(a) The Borrower hereby agrees to pay the Lender on the day a
draft is honored under any Letter of Credit a sum equal to all amounts
drawn under such Letter of Credit plus any and all reasonable charges
and expenses that the Lender may pay or incur relative to such draw and
<PAGE>
the applicable L/C Application, plus interest on all such amounts,
charges and expenses as set forth below (the Borrower's obligation to
pay all such amounts is herein referred to as the "Obligation of
Reimbursement").
(b) Whenever a draft is submitted under a Letter of Credit,
the Lender shall make a Revolving Advance in the amount of the
Obligation of Reimbursement and shall apply the proceeds of such
Revolving Advance thereto. Such Revolving Advance shall be repayable in
accordance with and be treated in all other respects as a Revolving
Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when the
Borrower is unable, because a Default Period then exists or for any
other reason, to obtain a Revolving Advance to pay the Obligation of
Reimbursement, the Borrower shall pay to the Lender on demand and in
immediately available funds, the amount of the Obligation of
Reimbursement together with interest, accrued from the date of the
draft until payment in full at the Default Rate. Notwithstanding the
Borrower's inability to obtain a Revolving Advance for any reason, the
Lender is irrevocably authorized, in its sole discretion, to make a
Revolving Advance in an amount sufficient to discharge the Obligation
of Reimbursement and all accrued but unpaid interest thereon.
(d) The Borrower's obligation to pay any Revolving Advance
made under this Section 2.3 shall be evidenced by Revolving Note and
shall bear interest as provided in Section 2.6.
2.4 Term Advance.
The Lender agrees, on the terms and subject to the conditions herein
set forth, to make a single advance to the Borrower (via a title insurance
company) in an amount not to exceed $4,500,000, on or after the Funding Date
(the "Term Advance"). The Borrower's obligation to pay the Term Advance shall be
evidenced by the Term Note and shall be secured by the Mortgage. Upon
fulfillment of the applicable conditions set forth in Article 4, the Lender
shall deposit the proceeds of the Term Advance by crediting the same to the
Borrower's demand deposit account identified in Section 2.1(b), unless the
Lender and the Borrower shall agree in writing to another manner of
disbursement.
2.5 Payment of Term Note.
The outstanding principal balance of the Term Note shall be due and
payable as follows:
(a) Beginning on October 1, 1999, and on the first day of each
month thereafter, in monthly principal installments equal to $18,750,
plus interest.
(b) On the Termination Date, the entire unpaid principal
balance of the Term Note, and all unpaid interest accrued thereon,
shall in any event be due and payable.
<PAGE>
2.6 Interest; Default Interest; Participations; Usury.
Interest accruing on the Notes shall be due and payable in arrears on
the first day of each month.
(a) Revolving Note. Except as set forth in Sections 2.6(c) and
2.6(e), the outstanding principal balance of the Revolving Note shall
bear interest at the Revolving Floating Rate; provided, however, if the
Borrower generates Net Income of no less than $500,000 for its fiscal
year ending February 28, 2000 and no Default or Event of Default has
occurred and is continuing hereunder, the Revolving Note shall bear
interest at the Revolving Floating Rate less one quarter of one percent
(.25%) per annum, effective within thirty (30) days of the Lender's
receipt of the audited financial statements required under Section
6.1(a).
(b) Term Note. Except as set forth in Sections 2.6(c) and
2.6(e), the outstanding principal balance of the Term Note shall bear
interest at the Term Floating Rate; provided, however, if the Borrower
generates Net Income of no less than $500,000 for its fiscal year
ending February 28, 2000 and no Default or Event of Default has
occurred and is continuing hereunder, the Term Note shall bear interest
at the Term Floating Rate less one quarter of one percent (.25%) per
annum, effective within thirty (30) days of the Lender's receipt of the
audited financial statements required under Section 6.1(a).
(c) Default Interest Rate. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its
other rights and remedies, the principal of the Advances outstanding
from time to time shall bear interest at the Default Rate, effective
for any periods designated by the Lender from time to time during that
Default Period.
(d) Participations. If any Person shall acquire a
participation in the Advances under this Agreement, the Borrower shall
be obligated to the Lender to pay the full amount of all interest
calculated under this Agreement, along with all other fees, charges and
other amounts due under this Agreement, regardless if such Person
elects to accept interest with respect to its participation at a lower
rate than the Revolving Floating Rate or the Term Floating Rate, or
otherwise elects to accept less than its pro rate share of such fees,
charges and other amounts due under this Agreement.
(e) Usury. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate
permitted by law.
2.7 Fees.
(a) Origination Fee. The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable origination fee of $34,000,
due and payable upon the execution of this Agreement. The Lender
acknowledges receipt of $19,000 toward payment of this fee and the
fees, costs and expenses described in Sections 2.7(b) and 9.6.
<PAGE>
(b) Unused Line Fee. For the purposes of this Section 2.7(b),
"Unused Amount" means the Maximum Line reduced by outstanding Revolving
Advances and the L/C Amount. The Borrower agrees to pay to the Lender
an unused line fee at the rate of one quarter of one percent (.25%) per
annum on the average daily Unused Amount from the date of this
Agreement to and including the Termination Date, due and payable
monthly in arrears on the first day of the month and on the Termination
Date.
(c) Audit Fees. The Borrower hereby agrees to pay the Lender,
on demand, audit fees in connection with any audits or inspections
conducted by the Lender of any Collateral or the Borrower's operations
or business at the rates established from time to time by the Lender as
its audit fees (which fees are currently $500 per day per auditor or
$62.50 per hour per auditor), together with all actual out-of-pocket
costs and expenses incurred in conducting any such audit or inspection;
provided, however, that except during Default Periods, the Borrower
shall not have to reimburse the Lender for such fees, costs and
expenses to the extent they exceed $5000 per calendar year. For the
purposes of this subsection, the term "audit fees" shall not include
the fees incured by the Lender as a result of due diligence and audit
pick-ups conducted prior to the date of this Agreement, which fees
shall be reimbursed by the Borrower up to the amount of $5000.
2.8 Computation of Interest and Fees; When Interest Due and Payable.
Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be
payable in arrears on the first day of each month and on the Termination Date.
2.9 Capital Adequacy.
If any Related Lender determines at any time that its Return has been
reduced as a result of any Rule Change, such Related Lender may require the
Borrower to pay it the amount necessary to restore its Return to what it would
have been had there been no Rule Change; provided, however, that the Borrower
may prepay without penalty under Section 2.11 or this Section 2.9, all, but not
part, of the Revolving Advances and the Term Advance by obtaining a firm
commitment to lend with terms substantially similar to the terms of the Loan
Facility but, after giving effect to the Rule Change, the loan resulting from
such firm commitment will not subject the Borrower to the costs being required
by such Related Lender to restore its Return. For purposes of this Section 2.9:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital
adequacy, or the interpretation or administration thereof by any
governmental or regulatory authority, central bank or comparable
agency, whether or not having the force of law, that applies to any
Related Lender. Such rules include rules requiring financial
institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters
of credit.
<PAGE>
(b) "Return," for any period, means the return as determined
by such Related Lender on the Advances based upon its total capital
requirements and a reasonable attribution formula that takes account of
the Capital Adequacy Rules then in effect. Return may be calculated for
each calendar quarter and for the shorter period between the end of a
calendar quarter and the date of termination in whole of this
Agreement.
(c) "Rule Change" means any change in any Capital Adequacy
Rule occurring after the date of this Agreement, but the term does not
include any changes in applicable requirements that at the Closing Date
are scheduled to take place under the existing Capital Adequacy Rules
or any increases in the capital that any Related Lender is required to
maintain to the extent that the increases are required due to a
regulatory authority's assessment of the financial condition of such
Related Lender.
(d) "Related Lender" includes (but is not limited to) the
Lender, any parent corporation of the Lender and any assignee of any
interest of the Lender hereunder and any participant in the loans made
hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.9, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
2.10 Voluntary Prepayment; Reduction of the Maximum Line; Termination
of the Credit Facility by the Borrower.
Except as otherwise provided herein, the Borrower may prepay the
Revolving Advances in whole at any time or from time to time in part. The
Borrower may prepay the Term Advance (other than in accordance with Section
2.5), terminate the Credit Facility or reduce the Maximum Line at any time if it
(i) gives the Lender at least 30 days' prior written notice and (ii) pays the
Lender the prepayment, termination or line reduction fees in accordance with
Section 2.11. Any prepayment of the Term Advance (other than in accordance with
Section 2.5) or reduction in the Maximum Line must be in an amount not less than
$100,000 or an integral multiple thereof. If the Borrower reduces the Maximum
Line to zero, all Obligations shall be immediately due and payable. Any partial
prepayments of the Term Note (other than in accordance with Section 2.5) shall
be applied to principal payments due and owing in inverse order of their
maturities. Upon termination of the Credit Facility and payment and performance
of all Obligations, the Lender shall release or terminate the Security Interest
and the Security Documents.
2.11 Termination and Line Reduction Fees; Prepayment Fees.
(a) Termination and Line Reduction Fees. If the Credit
Facility is terminated for any reason as of a date other than the
Maturity Date, or the Borrower reduces the Maximum Line, the Borrower
shall pay to the Lender a fee in an amount equal to a percentage of the
Maximum Line (or the reduction, as the case may be) as follows: (i)
three percent (3%) if the termination or reduction occurs on or before
<PAGE>
the first anniversary of the Funding Date; (ii)two percent (2%) if the
termination or reduction occurs after the first anniversary of the
Funding Date but on or before the second anniversary of the Funding
Date; and (iii) one percent (1%) if the termination or reduction occurs
after the second anniversary of the Funding Date.
(b) Prepayment Fees. If any portion of the Term Note is paid
other than in accordance with Section 2.5, the Borrower shall pay to
the Lender a prepayment fee in an amount equal to a percentage of the
amount so paid as follows: (i) three percent (3%) if the payment occurs
on or before the first anniversary of the Funding Date; (ii) two
percent (2%) if the payment occurs after the first anniversary of the
Funding Date but on or before the second anniversary of the Funding
Date; and (iii) one percent (1%) if the payment occurs after the second
anniversary of the Funding Date. Any partial prepayments of the Term
Note shall be applied to principal payments due and owing in inverse
order of their maturities and must be in a minimum amount of $100,000.
(c) Waiver of Termination, Line Reduction and Prepayment Fees.
The Borrower will not be required to pay the termination, line
reduction and prepayment fees otherwise due under this Section 2.11 if
such termination, line reduction or prepayment is made because of
increased cash flow generated from the Borrower's operations or
refinancing by an affiliate of the Lender.
2.12 Mandatory Prepayment.
Without notice or demand, if the outstanding principal balance of the
Revolving Advances shall at any time exceed the Borrowing Base, the Borrower
shall immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess. Any payment received by the Lender under this Section
2.12 or under Section 2.10 may be applied to the Obligations, in such order and
in such amounts as the Lender, in its discretion, may from time to time
determine; provided that any prepayment under Section 2.10 which the Borrower
designates as a partial prepayment of the Term Note shall be applied to
principal installments of the Term Note in inverse order of maturity.
2.13 Payment.
The Lender from time to time at its discretion shall, after allowing
two (2) Banking Days, apply deposited funds in the Collateral Account to the
payment of the Obligations, in any order or manner of application satisfactory
to the Lender, by transferring such funds to the Lender's general account. All
wire transfer funds received by the Lender on behalf of the Borrower shall be
applied on a same-day basis (provided such funds are received prior to 1:00 p.m.
central standard time). The Lender may hold all payments not constituting
immediately available funds for up to three (3) additional days before applying
them to the Obligations. Notwithstanding anything in Section 2.1, the Borrower
hereby authorizes the Lender, in its discretion at any time or from time to time
without the Borrower's request and even if the conditions set forth in Section
4.2 would not be satisfied, to make a Revolving Advance in an amount equal to
the portion of the Obligations from time to time due and payable.
<PAGE>
2.14 Payment on Non-Banking Days.
Whenever any payment to be made hereunder shall be stated to be due on
a day which is not a Banking Day, such payment may be made on the next
succeeding Banking Day, and such extension of time shall in such case be
included in the computation of interest on the Advances or the fees hereunder,
as the case may be.
2.15 Use of Proceeds.
The Borrower shall use the proceeds of Advances for ordinary working
capital purposes and to payoff loans from its senior lenders.
2.16 Liability Records.
The Lender may maintain from time to time, at its discretion, liability
records as to the Obligations. All entries made on any such record shall be
presumed correct until the Borrower establishes the contrary. Upon the Lender's
demand, the Borrower will admit and certify in writing the exact principal
balance of the Obligations that the Borrower then asserts to be outstanding. Any
billing statement or accounting rendered by the Lender shall be conclusive and
fully binding on the Borrower unless the Borrower gives the Lender specific
written notice of exception within 45 days after receipt.
3. Security Interest; Occupancy; Setoff
3.1 Grant of Security Interest.
The Borrower hereby pledges, assigns and grants to the Lender a
security interest (collectively referred to as the "Security Interest") in the
Collateral, as security for the payment and performance of the Obligations. The
Security Interest created hereby is intended to commence when this Agreement is
executed by the Borrower and delivered to the Lender.
3.2 Notification of Account Debtors and Other Obligors.
The Lender may at any time (whether or not a Default Period then
exists) notify any account debtor or other person obligated to pay the amount
due that such right to payment has been assigned or transferred to the Lender
for security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after the Borrower or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, in the Lender's name or in the Borrower's name, (a) demand,
sue for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as the
Borrower's agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and receive,
open and handle the Borrower's mail, applying all Collateral as permitted under
this Agreement and holding all other mail for the Borrower's account or
forwarding such mail to the Borrower's last known address.
<PAGE>
3.3 Assignment of Insurance.
As additional security for the payment and performance of the
Obligations, the Borrower hereby assigns to the Lender any and all monies
(including, without limitation, proceeds of insurance and refunds of unearned
premiums) due or to become due under, and all other rights of the Borrower with
respect to, any and all policies of insurance now or at any time hereafter
covering the Collateral or any evidence thereof or any business records or
valuable papers pertaining thereto, and the Borrower hereby directs the issuer
of any such policy to pay all such monies directly to the Lender. At any time,
whether or not a Default Period then exists, the Lender may (but need not), in
the Lender's name or in the Borrower's name, execute and deliver proof of claim,
receive all such monies, endorse checks and other instruments representing
payment of such monies, and adjust, litigate, compromise or release any claim
against the issuer of any such policy.
3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default
Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender may in good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all
such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of
any of the Premises; provided, however, that if the Lender does pay or
account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement or
the provisions of this Section 3.4.
3.5 License.
Without limiting the generality of the Patent Security Agreement, the
Borrower hereby grants to the Lender a non-exclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, franchises, trade names,
copyrights and patents of the Borrower for the purpose of selling, leasing or
otherwise disposing of any or all Collateral during any Default Period.
<PAGE>
3.6 Financing Statement.
A carbon, photographic or other reproduction of this Agreement or of
any financing statements signed by the Borrower is sufficient as a financing
statement and may be filed as a financing statement in any state or province to
perfect the security interests granted hereby. The Borrower authorizes the
Lender to file such financing statements and financing change statements as the
Lender may deem appropriate to perfect on an on-going basis and continue the
Security Interest. For this purpose, the following information is set forth:
Name and address of Debtor:
First Team Sports, Inc.
1201 Lund Boulevard
Anoka, Minnesota 55303
Federal Tax Identification No. 41-1545748
Hespeler Hockey Holding, Inc.
1201 Lund Boulevard
Anoka, Minnesota 55303
Federal Tax Identification No. 41-1912022
Hespeler Hockey Company
1201 Lund Boulevard
Anoka, Minnesota 55303
Federal Tax Identification No. 873538193
First Team Sports GmbH
Triester Strasse 391
Graz, Austria 8055
Federal Tax Identification No. 990/9505
Name and address of Secured Party:
Norwest Bank Minnesota, National Association
Norwest Center
Sixth Street and Marquette Avenue
N9312-040
Minneapolis, Minnesota 55479
Federal Tax Identification No. 41-1592157
3.7 Setoff.
The Borrower agrees that the Lender may at any time or from time to
time, at its sole discretion and without demand and without notice to anyone,
setoff any liability owed to the Borrower by the Lender, whether or not due,
against any Obligation, whether or not due. In addition, each other Person
holding a participating interest in any Obligations shall have the right to
appropriate or setoff any deposit or other liability then owed by such Person to
the Borrower, whether or not due, and apply the same to the payment of said
participating interest, as fully as if such Person had lent directly to the
Borrower the amount of such participating interest.
<PAGE>
3.8 Rights and Remedies under PPSA.
In addition to those rights granted herein and in any other agreement
now or hereafter in effect between the Borrower and the Lender and in addition
to any other rights the Lender may have at law or in equity, the Lender shall
have, both before and after any Event of Default, all rights and remedies of a
secured party under the PPSA. However, the Lender shall not be liable or
accountable for any failure to exercise its remedies, take possession of,
collect, enforce, realize, sell, lease, license or otherwise dispose of
Collateral or to institute any proceedings for such purposes.
3.9 Appointment of Receiver.
Upon the occurrence of and during the continuance of any Event of
Default, the Lender may appoint or reappoint by instrument in writing, any
person or persons, whether an officer or officers or an employee or employees of
the Lender or not, to be a receiver or receivers (hereinafter called a
"Receiver," which term when used herein shall include a receiver and manager) of
Collateral (including any interest, income or profits therefrom) and may remove
any Receiver so appointed and appoint another in his/her stead. Any such
Receiver shall, so far as concerns responsibility for his/her acts, be deemed
the agent of the Borrower and not of the Lender and the Lender shall not be in
any way responsible for any misconduct, negligence or non-feasance on the part
of any such Receiver, his/her servants, agents or employees. Subject to the
provisions of the instrument appointing him/her, any such Receiver shall have
power to take possession of Collateral, to preserve Collateral or its value, to
carry on or concur in carrying on all or any part of the business of the
Borrower and to sell, lease, license or otherwise dispose of or concur in
selling, leasing, licensing or otherwise disposing of Collateral. To facilitate
the foregoing powers, any such Receiver may, to the exclusion of all others, to
the extent permitted by law (provided that any limitations under applicable law
shall only apply to the extent that they may not be waived or otherwise varied),
including the Borrower, enter upon, use and occupy all premises owned or
occupied by the Borrower wherein Collateral may be situate, maintain Collateral
upon such premises, borrow money on a secured or unsecured basis and use
Collateral directly in carrying on the Borrower's business or as security for
loans or advances to enable the Receiver to carry on Borrower's business or
otherwise, as such Receiver shall, in its discretion, determine. Except as may
be otherwise directed by the Lender, all Money received from time to time by
such Receiver in carrying out his/her appointment shall be received in trust for
and paid over to the Lender. Every such Receiver may, in the discretion of the
Lender, be vested with all or any of the rights and powers of the Lender. This
Section 3.9 shall only apply to the Collateral of Hespeler Hockey Company
located in Canada.
4. Conditions of Lending
4.1 Conditions Precedent to the Initial Revolving and Term Advance.
The Lender's obligation to make the initial Revolving Advance and Term
Advance hereunder shall be subject to the condition precedent that the Lender
shall have received all of the following, each in form and substance
satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
<PAGE>
(b) The Notes, properly executed by the Borrower.
(c) The Mortgage, properly executed by First Team Sports, Inc.
(d) The Environmental Indemnity Agreement, properly executed
by First Team Sports, Inc.
(e) A commitment for a mortgagee's title insurance policy
regarding the Premises secured by the Mortgage, in form and substance
acceptable to the Lender.
(f) The Life Insurance Assignment, properly executed by the
beneficiary and owner thereof, and the Life Insurance Policy, each in
form and substance satisfactory to the Lender, together with such
evidence as the Lender may request that the Life Insurance Policy is
subject to no assignments or encumbrances other than the Life Insurance
Assignment.
(g) The Collateral Account Agreement, properly executed by the
Borrower.
(h) The Lockbox Agreement, properly executed by the Borrower.
(i) The Toronto-Dominion Lockbox Agreement, properly executed
by the Borrower and The Toronto-Dominion Bank.
(j) The Custodial Pledge Agreement, properly executed by the
Borrower.
(k) The Patent Security Agreement, properly executed by the
Borrower.
(l) The City of Anoka Subordination Agreement, properly
executed by the City of Anoka, Minnesota and acknowledged by the
Borrower.
(m) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in
effect against the Borrower, (ii) no financing statements or
assignments of patents, trademarks or copyrights have been filed and
remain in effect against the Borrower except those financing statements
and assignments of patents, trademarks or copyrights relating to
Permitted Liens or to liens held by Persons who have agreed in writing
that upon receipt of proceeds of the Advances, they will deliver UCC or
PPSA releases and/or terminations and releases of such assignments of
patents, trademarks or copyrights satisfactory to the Lender, and (iii)
the Lender has duly filed all financing statements (including Canadian
financing statements) necessary to perfect the Security Interest, to
the extent the Security Interest is capable of being perfected by
filing.
(n) A certificate of the Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of the Borrower's
directors and, if required, shareholders, authorizing the execution,
delivery and performance of the Loan Documents, (ii) the Borrower's
articles of incorporation and bylaws, and (iii) the signatures of the
Borrower's officers or agents authorized to execute and deliver the
Loan Documents and other instruments, agreements and certificates,
including Advance requests, on the Borrower's behalf.
<PAGE>
(o) A current certificate issued by the Secretary of State or
similar governing authority of the state or jurisdiction where each
Borrower is incorporated, certifying that such Borrower is in
compliance with all applicable organizational requirements of such
state or jurisdiction.
(p) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
(q) A certificate of an officer of the Borrower in his
personal capacity as an officer of the Borrower, confirming, in his
personal capacity, the representations and warranties set forth in
Article 5.
(r) An opinion of counsel to the Borrower, addressed to the
Lender.
(s) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.
(t) After giving effect to the requested initial Revolving
Advance, Availability will still total at least $1,000,000;
(u) Payment of the fees and commissions due through the date
of the initial Advance under Section 2.7 and expenses incurred by the
Lender through such date and required to be paid by the Borrower under
Section 9.6, including all legal expenses incurred through the date of
this Agreement.
(v) Such other documents as the Lender in its sole discretion
may require.
4.2 Conditions Precedent to All Advances.
The Lender's obligation to make each Advance shall be subject to the
further conditions precedent that on such date:
(a) the representations and warranties contained in Article 5
are correct on and as of the date of such Advance as though made on and
as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance which constitutes a Default or an Event of Default.
<PAGE>
5. Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification Number.
First Team Sports, Inc. is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Minnesota, Hespeler
Hockey Holding, Inc. is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Minnesota, Hespeler Hockey Company
is an unlimited liability company, duly organized, validly existing and in good
standing under the laws of Nova Scotia, and First Team Sports GmbH is a
corporation, duly organized, validly existing and in good standing under the
laws of Austria. Each Borrower is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. Each Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During their existence, each Borrower has done business solely under
the names set forth in Schedule 5.1 hereto. The Borrower's chief executive
office and principal place of business is located at the address set forth in
Schedule 5.1 hereto, and all of the Borrower's records relating to its business
or the Collateral are kept at that location. All Inventory and Equipment is
located at that location or at one of the other locations set forth in Schedule
5.1 hereto. Each Borrower's tax identification number is correctly set forth in
Section 3.6 hereto.
5.2 Authorization of Borrowing; No Conflict as to Law or Agreements.
The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof (except for
the Mortgage and fixture financing statements that will be filed by the Lender
after the execution of this Agreement); (iii) violate any provision of any law,
rule or regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System) or of any order, writ, injunction or
decree presently in effect having applicability to the Borrower or of the
Borrower's articles of incorporation or bylaws; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other material agreement, lease or instrument to which the Borrower is a party
or by which it or its properties may be bound or affected; provided, however,
the Borrower makes no representations or warranties under this subsection (iv)
about any license agreements the Borrower may have with any of its licensors
listed in Section 8.1(r); or (v) result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge or encumbrance of any nature (other than the Security Interest and
the Mortgage lien) upon or with respect to any of the properties now owned or
hereafter acquired by the Borrower.
<PAGE>
5.3 Legal Agreements.
This Agreement constitutes and, upon due execution by the Borrower, the
other Loan Documents will constitute the legal, valid and binding obligations of
the Borrower, enforceable against the Borrower in accordance with their
respective terms.
5.4 Subsidiaries.
Except as set forth in Schedule 5.4 hereto, the Borrower has no
Subsidiaries.
5.5 Financial Condition; No Adverse Change.
The Borrower has heretofore furnished to the Lender audited financial
statements of the Borrower for its fiscal year ended February 29, 1999 and
unaudited financial statements of the Borrower for the fiscal year-to-date
period ended June 30, 1999 and those statements fairly present the Borrower's
financial condition on the dates thereof and the results of its operations and
cash flows for the periods then ended and were prepared in accordance with
generally accepted accounting principles. Since the date of the most recent
financial statements, there has been no material adverse change in the
Borrower's business, properties or condition (financial or otherwise).
5.6 Litigation.
Except as set forth in Schedule 5.6 hereto, there are no actions, suits
or proceedings pending or, to the Borrower's knowledge, threatened against or
affecting the Borrower or any of its Affiliates or the properties of the
Borrower or any of its Affiliates before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to the Borrower or any of its Affiliates, would
have a material adverse effect on the financial condition, properties or
operations of the Borrower or any of its Affiliates.
5.7 Regulation U.
The Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System), and no part of the
proceeds of any Advance will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock.
5.8 Taxes.
The Borrower and its Affiliates have paid or caused to be paid to the
proper authorities when due all federal, state, provincial, municipal and local
taxes required to be withheld by each of them. The Borrower and its Affiliates
have filed all federal, state, provincial and local tax returns which to the
knowledge of the officers of the Borrower or any Affiliate, as the case may be,
are required to be filed, and the Borrower and its Affiliates have paid or
caused to be paid to the respective taxing authorities all taxes as shown on
said returns or on any assessment received by any of them to the extent such
taxes have become due.
<PAGE>
5.9 Titles and Liens.
The Borrower has good and absolute title to all Collateral described in
the collateral reports provided to the Lender and all other Collateral,
properties and assets reflected in the latest financial statements referred to
in Section 5.5 and all proceeds thereof, free and clear of all mortgages,
security interests, liens and encumbrances, except for Permitted Liens. No
financing statement naming the Borrower as debtor is on file in any office
except to perfect only Permitted Liens.
5.10 Plans.
Except as set forth in Schedule 5.10 hereto, neither the Borrower nor
any of its Affiliates maintains or has maintained any Plan. Neither the Borrower
nor any Affiliate has received any notice or has any knowledge to the effect
that it is not in full compliance with any of the requirements of ERISA. No
Reportable Event or other fact or circumstance which may have an adverse effect
on the Plan's tax qualified status exists in connection with any Plan. Neither
the Borrower nor any of its Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued
benefits which are or which may become payable to participants or
beneficiaries of any such Plan).
5.11 Default.
The Borrower is in compliance with all provisions of all agreements,
instruments, decrees and orders to which it is a party or by which it or its
property is bound or affected, the breach or default of which could have a
material adverse effect on the Borrower's financial condition, properties or
operations.
5.12 Environmental Matters.
(a) Definitions. As used in this Agreement, the following
terms shall have the following meanings:
(i) "Environmental Law" means any federal, state,
provincial, local or other governmental statute, regulation,
law or ordinance dealing with the protection of human health
and the environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
<PAGE>
(b) Except as provided on Schedule 5.12 hereto, to the
Borrower's best knowledge, there are not present in, on or under the
Premises any Hazardous Substances in such form or quantity as to create
any liability or obligation for either the Borrower or the Lender under
common law of any jurisdiction or under any Environmental Law, and no
Hazardous Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in such a
way as to create any such liability.
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any
liability under any Environmental Law.
(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings,
hearings or litigation, relating in any way to the Premises or the
Borrower, alleging liability under, violation of, or noncompliance with
any Environmental Law or any license, permit or other authorization
issued pursuant thereto. To the Borrower's best knowledge, no such
matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance
with all Environmental Laws and all licenses, permits and other
authorizations required pursuant to any Environmental Law and necessary
for the lawful and efficient operation of such businesses are in the
Borrower's possession and are in full force and effect. No permit
required under any Environmental Law is scheduled to expire within 12
months and there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and
never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state, provincial or local
list, schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's
businesses.
5.13 Submissions to Lender.
All financial and other information provided to the Lender by or on
behalf of the Borrower in connection with the Borrower's request for the credit
facilities contemplated hereby is true and correct in all material respects and,
as to projections, valuations or pro forma financial statements, present a good
faith opinion as to such projections, valuations and pro forma condition and
results.
5.14 Financing Statements.
The Borrower has provided to the Lender signed financing statements, or
has authorized the Lender's agent to file financing statements, sufficient when
filed to perfect the Security Interest and the other security interests created
<PAGE>
by the Security Documents. When such financing statements are filed in the
offices noted therein, the Lender will have a valid and perfected security
interest in all Collateral and all other collateral described in the Security
Documents which is capable of being perfected by filing financing statements.
None of the Collateral or other collateral covered by the Security Documents is
or will become a fixture on real estate, unless a sufficient fixture filing is
in effect with respect thereto.
5.15 Rights to Payment.
Each right to payment and each instrument, document, chattel paper and
other agreement constituting or evidencing Collateral or other collateral
covered by the Security Documents is (or, in the case of all future Collateral
or such other collateral, will be when arising or issued) the valid, genuine and
legally enforceable obligation, subject to no defense, setoff or counterclaim,
of the account debtor or other obligor named therein or in the Borrower's
records pertaining thereto as being obligated to pay such obligation.
6. Borrower's Affirmative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
6.1 Reporting Requirements.
The Borrower will deliver, or cause to be delivered, to the Lender each
of the following, which shall be in form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days
after the end of each fiscal year of the Borrower, the Borrower's
audited financial statements with the unqualified opinion of
independent certified public accountants selected by the Borrower and
acceptable to the Lender, which annual financial statements shall
include the Borrower's balance sheet as at the end of such fiscal year
and the related statements of the Borrower's income, retained earnings
and cash flows for the fiscal year then ended, prepared, if the Lender
so requests, on a consolidating and consolidated basis to include any
Affiliates, all in reasonable detail and prepared in accordance with
GAAP, together with (i) copies of all management letters prepared by
such accountants; (ii) a report signed by such accountants stating that
in making the investigations necessary for said opinion they obtained
no knowledge, except as specifically stated, of any Default or Event of
Default hereunder and all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Sections 6.13 and 6.14;
and (iii) a certificate of the Borrower's chief financial officer
stating that such financial statements have been prepared in accordance
with GAAP and whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder and, if so,
stating in reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 20 days after
the end of each month, an unaudited/internal balance sheet and
statements of income of the Borrower as at the end of and for such
<PAGE>
month and for the year to date period then ended, prepared, if the
Lender so requests, on a consolidating and consolidated basis to
include any Affiliates, in reasonable detail and stating in comparative
form the figures for the corresponding date and periods in the previous
year, all prepared in accordance with GAAP, subject to year-end audit
adjustments; and accompanied by a certificate of the Borrower's chief
financial officer, substantially in the form of Exhibit C hereto
stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments, (ii)
whether or not such officer has knowledge of the occurrence of any
Default or Event of Default hereunder not theretofore reported and
remedied and, if so, stating in reasonable detail the facts with
respect thereto, and (iii) all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Sections 6.13 and 6.14;
(c) within 15 days after the end of each month or more
frequently if the Lender so requires, agings of the Borrower's accounts
receivable and its accounts payable, an inventory certification report,
and a calculation of the Borrower's Accounts, Eligible Accounts,
Inventory and Eligible Inventory as at the end of such month or shorter
time period;
(d) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for
each month of such year, each in reasonable detail, representing the
Borrower's good faith projections and certified by the Borrower's chief
financial officer as being the most accurate projections available and
identical to the projections used by the Borrower for internal planning
purposes, together with such supporting schedules and information as
the Lender may in its discretion require;
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the type
described in Section 5.12 or which seek a monetary recovery against the
Borrower in excess of $100,000;
(f) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains
knowledge of the occurrence of any breach, default or event of default
under any Security Document or any event which constitutes a Default or
Event of Default hereunder, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower of the
steps being taken by the Borrower to cure the effect of such breach,
default or event;
(g) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, the statement of the Borrower's chief
financial officer setting forth details as to such Reportable Event and
the action which the Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event to the
Pension Benefit Guaranty Corporation;
<PAGE>
(h) as soon as possible, and in any event within 10 days after
the Borrower fails to make any quarterly contribution required with
respect to any Plan under Section 412(m) of the Internal Revenue Code
of 1986, as amended, the statement of the Borrower's chief financial
officer setting forth details as to such failure and the action which
the Borrower proposes to take with respect thereto, together with a
copy of any notice of such failure required to be provided to the
Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers exceeding $50,000
individually or $150,000 in the aggregate during any fiscal year; (ii)
credit memos exceeding $100,000; (iii) any goods returned to or
recovered by the Borrower exceeding $100,000; and (iv) any change in
the persons constituting the Borrower's officers and directors;
(j) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any
Collateral or such other collateral or the prospect of payment thereof;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its stockholders;
(l) promptly after the sending or filing thereof, copies of
all regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(m) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; and
(n) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request.
6.2 Books and Records; Inspection and Examination.
The Borrower will keep accurate books of record and account for itself
pertaining to the Collateral and pertaining to the Borrower's business and
financial condition and such other matters as the Lender may from time to time
request in which true and complete entries will be made in accordance with GAAP
and, upon the Lender's request, will permit any officer, employee, attorney or
accountant for the Lender to audit, review, make extracts from or copy any and
all corporate and financial books and records of the Borrower at all times
during ordinary business hours, to send and discuss with account debtors and
<PAGE>
other obligors requests for verification of amounts owed to the Borrower, and to
discuss the Borrower's affairs with any of its directors, officers, employees or
agents. The Borrower will permit the Lender, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral, other collateral
covered by the Security Documents or any other property of the Borrower at any
time during ordinary business hours.
6.3 Account Verification.
The Lender may at any time and from time to time send or require the
Borrower to send requests for verification of Accounts or notices of assignment
to account debtors and other obligors. The Lender may also at any time and from
time to time telephone account debtors and other obligors to verify Accounts.
The Lender will endeavor to use a nominee name when conducting Account
verifications, but is not obligated hereunder to do so.
6.4 Compliance with Laws.
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would
materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and
keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable
Environmental Laws and obtain and comply with all permits, licenses and
similar approvals required by any Environmental Laws, and will not
generate, use, transport, treat, store or dispose of any Hazardous
Substances in such a manner as to create any liability or obligation
under the common law of any jurisdiction or any Environmental Law.
6.5 Payment of Taxes and Other Claims.
The Borrower will pay or discharge, when due, (a) all taxes,
assessments and governmental charges levied or imposed upon it or upon its
income or profits, upon any properties belonging to it (including, without
limitation, the Collateral) or upon or against the creation, perfection or
continuance of the Security Interest, prior to the date on which penalties
attach thereto, (b) all federal, state, provincial, municipal and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and for
which proper reserves have been made.
6.6 Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from
time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.6 shall prevent the
Borrower from discontinuing the operation and maintenance of any of its
<PAGE>
properties if such discontinuance is, in the Lender's judgment,
desirable in the conduct of the Borrower's business and not
disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the
Collateral or any interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security
interests, liens and encumbrances except Permitted Liens.
6.7 Insurance.
The Borrower will obtain and at all times maintain insurance with
insurers believed by the Borrower to be responsible and reputable, in such
amounts and against such risks as may from time to time be required by the
Lender, but in all events in such amounts and against such risks as is usually
carried by companies engaged in similar business and owning similar properties
in the same general areas in which the Borrower operates. Without limiting the
generality of the foregoing, the Borrower will at all times maintain business
interruption insurance including coverage for force majeure and keep all
tangible Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Lender may reasonably request, with
any loss payable to the Lender to the extent of its interest, and all policies
of such insurance shall contain a lender's loss payable endorsement for the
Lender's benefit acceptable to the Lender and a mortgagee clause. All policies
of liability insurance required hereunder shall name the Lender as an additional
insured.
6.8 Preservation of Existence.
The Borrower will preserve and maintain its existence and all of its
rights, privileges and franchises necessary or desirable in the normal conduct
of its business and shall conduct its business in an orderly, efficient and
regular manner.
6.9 Delivery of Instruments.
Upon request by the Lender, the Borrower will promptly deliver to the
Lender in pledge all instruments, documents and chattel papers constituting
Collateral, duly endorsed or assigned by the Borrower.
6.10 Collateral Account.
(a) If, notwithstanding the instructions to debtors to make
payments to the Lockbox, the Borrower receives any payments on
Receivables (other than the Receivables of First Team Sports GmbH), the
Borrower shall deposit such payments into the Collateral Account or
Custodial Account. Until so deposited, the Borrower shall hold all such
payments in trust for and as the property of the Lender and shall not
commingle such payments with any of its other funds or property.
<PAGE>
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the
Obligations. The Lender from time to time at its discretion shall,
after allowing two (2) Banking Days, apply deposited funds in the
Collateral Account to the payment of the Obligations, in any order or
manner of application satisfactory to the Lender, by transferring such
funds to the Lender's general account.
(d) All items deposited in the Collateral Account shall be
subject to final payment. If any such item is returned uncollected, the
Borrower will immediately pay the Lender, or, for items deposited in
the Collateral Account, the bank maintaining such account, the amount
of that item, or such bank at its discretion may charge any uncollected
item to the Borrower's commercial account or other account. The
Borrower shall be liable as an endorser on all items deposited in the
Collateral Account, whether or not in fact endorsed by the Borrower.
6.11 Key Person Life Insurance.
First Team Sports, Inc. shall maintain insurance upon the lives of (i)
John J. Egart, its president and chief executive officer and (ii) David G.
Soderquist, its vice chairman, in both instances with a death benefit thereunder
in an amount not less than $500,000 (collectively, the "Life Insurance Policy").
The right to receive the proceeds of the Life Insurance Policy shall be assigned
to the Lender by the Life Insurance Assignment.
6.12 Performance by the Lender.
If the Borrower at any time fails to perform or observe any of the
foregoing covenants contained in this Article 6 or elsewhere herein, and if such
failure shall continue for a period of ten calendar days after the Lender gives
the Borrower written notice thereof (or in the case of the agreements contained
in Sections 6.5, 6.7, and 6.10, immediately upon the occurrence of such failure,
without notice or lapse of time), the Lender may, but need not, perform or
observe such covenant on behalf and in the name, place and stead of the Borrower
(or, at the Lender's option, in the Lender's name) and may, but need not, take
any and all other actions which the Lender may reasonably deem necessary to cure
or correct such failure (including, without limitation, the payment of taxes,
the satisfaction of security interests, liens or encumbrances, the performance
of obligations owed to account debtors or other obligors, the procurement and
maintenance of insurance, the execution of assignments, security agreements and
financing statements, and the endorsement of instruments); and the Borrower
shall thereupon pay to the Lender on demand the amount of all monies expended
and all costs and expenses (including reasonable attorneys' fees and legal
expenses) incurred by the Lender in connection with or as a result of the
performance or observance of such agreements or the taking of such action by the
Lender, together with interest thereon from the date expended or incurred at the
applicable floating rate. To facilitate the Lender's performance or observance
of such covenants of the Borrower, the Borrower hereby irrevocably appoints the
<PAGE>
Lender, or the Lender's delegate, acting alone, as the Borrower's attorney in
fact (which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.12.
6.13 Minimum Net Worth.
The Borrower's Net Worth, determined as at the end of each month, shall
not decrease by more than $1,750,000 at any time from February 28, 1999 through
the period ending July 31, 2000.
6.14 Minimum Earnings After Taxes.
The Borrower will achieve as of its fiscal year ending February 29,
2000, Earnings After Taxes, of not less than $1.00 and will achieve as of July
31, 2000, Earnings After Taxes of not less than $100,000.
6.15 New Covenants.
On or before July 31, 2000, the Borrower and the Lender shall agree on
new mutually acceptable covenant levels for Sections 6.13 and 6.14 for periods
after such date. The new covenant levels will be based at such a level as to
require the Borrower to maintain sufficient cash flow to service its Debt and
capital expenditures.
7. Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
7.1 Liens.
The Borrower will not create, incur or suffer to exist any mortgage,
deed of trust, pledge, lien, security interest, assignment or transfer upon or
of any of its assets, now owned or hereafter acquired, to secure any
indebtedness; excluding, however, from the operation of the foregoing, the
following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in
Schedule 7.1 hereto, securing indebtedness for borrowed money permitted
under Section 7.2;
<PAGE>
(c) the Security Interest and liens and security interests
created by the Security Documents; and
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower not exceeding
the cost or fair market value thereof and so long as no Default Period
is then in existence and none would exist immediately after such
acquisition.
7.2 Indebtedness.
The Borrower will not incur, create, assume or permit to exist any
indebtedness or liability on account of deposits or advances or any indebtedness
for borrowed money or letters of credit issued on the Borrower's behalf, or any
other indebtedness or liability evidenced by notes, bonds, debentures or similar
obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in accordance
with Section 7.1.
7.3 Guaranties.
The Borrower will not assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
Person, except:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary
course of business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
7.4 Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or
permit to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person, including
specifically but without limitation any partnership or joint venture,
except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one year
or less, commercial paper issued by U.S. corporations rated
"A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by Moody's Investors Service or certificates of deposit
or bankers' acceptances having a maturity of one year or less
issued by members of the Federal Reserve System having
<PAGE>
deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the
Federal Deposit Insurance Corporation);
(ii) travel advances or loans to the Borrower's
officers and employees not exceeding at any one time an
aggregate of $25,000;
(iii) ownership of or advances to a Borrower or a
Subsidiary listed in Schedule 5.4;
(iv) advances not to exceed $50,000 in the aggregate
to vendors of telephone and copier support and credit report
contracts; and
(v) advances in the form of progress payments or
prepaid rent, not exceeding two (2) months or security
deposits.
(b) The Borrower will not create or permit to exist any
Subsidiary, other than the Subsidiaries in existence on the date hereof
and listed in Schedule 5.4.
7.5 Dividends.
Except as set forth below, the Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
7.6 Sale or Transfer of Assets; Suspension of Business Operations.
The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations; provided, however, that the Borrower
may either dissolve Mothership Distribution, Inc. or merge such entity into
First Team Sports, Inc. The Borrower will not in any manner transfer any
property without prior or present receipt of full and adequate consideration.
7.7 Consolidation and Merger; Asset Acquisitions.
The Borrower will not consolidate with or merge into any Person, or
permit any other Person to merge into it, or acquire (in a transaction analogous
in purpose or effect to a consolidation or merger) all or substantially all the
assets of any other Person; provided, however, that the Borrower may merge
Mothership Distribution, Inc. into First Team Sports, Inc.
7.8 Sale and Leaseback.
The Borrower will not enter into any arrangement, directly or
indirectly, with any other Person whereby the Borrower shall sell or transfer
any real or personal property, whether now owned or hereafter acquired, and then
or thereafter rent or lease as lessee such property or any part thereof or any
other property which the Borrower intends to use for substantially the same
purpose or purposes as the property being sold or transferred.
<PAGE>
7.9 Restrictions on Nature of Business.
The Borrower will not engage in any line of business materially
different from that presently engaged in by the Borrower and will not purchase,
lease or otherwise acquire assets not related to its business.
7.10 Accounting.
The Borrower will not adopt any material change in accounting
principles other than as required by GAAP. The Borrower will not adopt, permit
or consent to any change in its fiscal year.
7.11 Discounts.
The Borrower will not, after notice from the Lender, grant any
discount, credit or allowance to any customer of the Borrower or accept any
return of goods sold, or at any time (whether before or after notice from the
Lender) modify, amend, subordinate, cancel or terminate the obligation
constituting an Eligible Account of any account debtor or other obligor of the
Borrower.
7.12 Defined Benefit Pension Plans.
The Borrower will not adopt, create, assume or become a party to any
defined benefit pension plan, unless disclosed to the Lender pursuant to Section
5.10.
7.13 Other Defaults.
The Borrower will not permit any breach, default or event of default to
occur under any note, loan agreement, indenture, lease, mortgage, contract for
deed, security agreement or other contractual obligation binding upon the
Borrower that would have a material adverse effect on the financial condition,
properties or operations of the Borrower.
7.14 Place of Business; Name.
The Borrower will not transfer its chief executive office or principal
place of business, or move, relocate, close or sell any business location. The
Borrower will not permit any tangible Collateral or any records pertaining to
the Collateral to be located in any state or province or area in which, in the
event of such location, a financing statement covering such Collateral would be
required to be, but has not in fact been, filed in order to perfect the Security
Interest. The Borrower will not change its name.
<PAGE>
7.15 Organizational Documents; S Corporation Status.
No Borrower will amend its certificate of incorporation, articles of
incorporation or bylaws. No Borrower will become an S Corporation within the
meaning of the Internal Revenue Code of 1986, as amended.
7.16 Change in Ownership.
Except for First Team Sports, Inc., no Borrower will issue or sell any
of its stock so as to change the percentage of voting and non-voting stock owned
by such Borrower's shareholders, and except for First Team Sports, Inc., no
Borrower will permit or suffer to occur the sale, transfer, assignment, pledge
or other disposition of any or all of the issued and outstanding shares of stock
of such Borrower.
8. Events of Default, Rights and Remedies
8.1 Events of Default.
"Event of Default", wherever used herein, means any one of the
following events:
(a) Default in the payment of the Obligations on demand or on
any portion of the Obligations that otherwise becomes due and payable;
(b) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement; provided,
however, that no Event of Default shall be deemed to exist with regard
to a Default in the performance of Section 6.13 or Section 6.14 unless
such Default continues for a period of thirty (30) days from the
commencement of the Default Period for such Default under Section 6.13
or Section 6.14;
(d) Any Borrower shall be or become insolvent, or admit in
writing its inability to pay its debts as they mature, or make an
assignment for the benefit of creditors; or any Borrower shall apply
for or consent to the appointment of any receiver, trustee, or similar
officer for it or for all or any substantial part of its property; or
such receiver, trustee or similar officer shall be appointed without
the application or consent of such Borrower; or any Borrower shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceeding relating to it
under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against any
Borrower; or any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a substantial part of
the property of any Borrower;
<PAGE>
(e) A petition shall be filed by or against any Borrower under
the United States Bankruptcy Code or the Bankruptcy and Insolvency Act
(Canada) naming such Borrower as debtor;
(f) The Life Insurance Policy shall be terminated, by the
Borrower or otherwise; or the Life Insurance Policy shall be scheduled
to terminate within 30 days and the Borrower shall not have delivered a
satisfactory renewal thereof to the Lender; or the Borrower shall fail
to pay any premium on the Life Insurance Policy when due; or the
Borrower shall take any other action that impairs the value of the Life
Insurance Policy;
(g) Any representation or warranty made by the Borrower in
this Agreement, or by the Borrower (or any of its officers) in any
agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement or any such guaranty shall prove to have
been incorrect in any material respect when deemed to be effective;
(h) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $50,000 and the
continuance of such judgment, decree or order unsatisfied and in effect
for any period of 30 consecutive days without a stay of execution;
(i) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than
the Lender, or under any indenture or other instrument under which any
such evidence of indebtedness has been issued or by which it is
governed, or under any lease of any of the Premises, and the expiration
of the applicable period of grace, if any, specified in such evidence
of indebtedness, indenture, other instrument or lease;
(j) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for
the appointment by the appropriate United States District Court of a
trustee to administer any Plan, shall have occurred and be continuing
30 days after written notice to such effect shall have been given to
the Borrower by the Lender; or a trustee shall have been appointed by
an appropriate United States District Court to administer any Plan; or
the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to administer
any Plan; or the Borrower shall have filed for a distress termination
of any Plan under Title IV of ERISA; or the Borrower shall have failed
to make any quarterly contribution required with respect to any Plan
under Section 412(m) of the Internal Revenue Code of 1986, as amended,
which the Lender determines in good faith may by itself, or in
combination with any such failures that the Lender may determine are
likely to occur in the future, result in the imposition of a lien on
the Borrower's assets in favor of the Plan;
(k) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement securing any
obligations of the Borrower hereunder or under any note;
<PAGE>
(l) Any Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially all of
its assets, without the Lender's prior written consent;
(m) Any Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax
deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books adequate
reserves therefor) or notice of any state or federal tax liens shall be
filed or issued;
(n) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder;
(o) The Borrower shall take or participate in any action which
would be prohibited under the provisions of any Subordination Agreement
or make any payment on the Subordinated Indebtedness (as defined in any
Subordination Agreement) that any Person was not entitled to receive
under the provisions of such Subordination Agreement;
(p) Any event or circumstance with respect to the Borrower
shall occur such that the Lender shall believe in good faith that the
prospect of payment of all or any part of the Obligations or the
performance by the Borrower under the Loan Documents is impaired or any
material adverse change in the business or financial condition of the
Borrower shall occur;
(q) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the
Lender;
8.2 Rights and Remedies.
During any Default Period, the Lender may exercise any or all of the
following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereby the same shall forthwith
terminate.
(b) the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be forthwith due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of which
the Borrower hereby expressly waives;
(c) the Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the
Borrower to the payment of the Obligations;
(d) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC and
the PPSA, including, without limitation, the right to take possession
of Collateral, or any evidence thereof, proceeding without judicial
process or by judicial process (without a prior hearing or notice
thereof, which the Borrower hereby expressly waives) and the right to
<PAGE>
sell, lease or otherwise dispose of any or all of the Collateral, and,
in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both
parties;
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
8.3 Certain Notices.
If notice to the Borrower of any intended disposition of Collateral or
any other intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the manner specified
in Section 9.3) at least ten calendar days before the date of intended
disposition or other action.
9. Miscellaneous
9.1 No Waiver; Cumulative Remedies.
No failure or delay by the Lender in exercising any right, power or
remedy under the Loan Documents shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
under the Loan Documents. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law.
9.2 Amendments.
No amendment, modification, termination or waiver of any provision of
any Loan Document or consent to any departure by the Borrower therefrom or any
release of a Security Interest shall be effective unless the same shall be in
writing and signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No notice to or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.
9.3 Addresses for Notices.
Except as otherwise expressly provided herein, all notices, requests,
demands and other communications provided for under the Loan Documents shall be
in writing and shall be (a) personally delivered, (b) sent by first class United
States or Canadian mail, as the case may be, (c) sent by overnight courier of
<PAGE>
national reputation, or (d) transmitted by telecopy, in each case addressed or
telecopied to the party to whom notice is being given at its address or
telecopier number as set forth below:
If to the Borrower:
First Team Sports, Inc., et al.
1201 Lund Boulevard
Anoka, Minnesota 55303
Telecopier: (612) 576-8000
Attention: Kent Brunner
If to the Lender:
Norwest Bank Minnesota, National Association
Norwest Center
Sixth Street and Marquette Avenue
N9312-040
Minneapolis, Minnesota 55479
Telecopier: (612) 341-2472
Attention: Susan Mack
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article 2 shall not be
effective until received by the Lender.
9.4 Further Documents.
The Borrower will from time to time execute and deliver or endorse any
and all instruments, documents, conveyances, assignments, security agreements,
financing statements and other agreements and writings that the Lender may
reasonably request in order to secure, protect, perfect or enforce the Security
Interest or the Lender's rights under the Loan Documents (but any failure to
request or assure that the Borrower executes, delivers or endorses any such item
shall not affect or impair the validity, sufficiency or enforceability of the
Loan Documents and the Security Interest, regardless of whether any such item
was or was not executed, delivered or endorsed in a similar context or on a
prior occasion).
9.5 Collateral.
This Agreement does not contemplate a sale of accounts, contract rights
or chattel paper, and, as provided by law, the Borrower is entitled to any
surplus and shall remain liable for any deficiency. The Lender's duty of care
with respect to Collateral in its possession (as imposed by law) shall be deemed
fulfilled if it exercises reasonable care in physically keeping such Collateral,
or in the case of Collateral in the custody or possession of a bailee or other
third person, exercises reasonable care in the selection of the bailee or other
<PAGE>
third person, and the Lender need not otherwise preserve, protect, insure or
care for any Collateral. The Lender shall not be obligated to preserve any
rights the Borrower may have against prior parties, to realize on the Collateral
at all or in any particular manner or order or to apply any cash proceeds of the
Collateral in any particular order of application.
9.6 Costs and Expenses.
The Borrower agrees to pay on demand all costs and expenses, including
(without limitation) attorneys' fees, incurred by the Lender in connection with
the Obligations, this Agreement, the Loan Documents, and any other document or
agreement related hereto or thereto, and the transactions contemplated hereby,
including without limitation all such costs, expenses and fees incurred in
connection with the negotiation, preparation, execution, amendment,
administration, performance, collection and enforcement of the Obligations and
all such documents and agreements and the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest.
9.7 Indemnity.
In addition to the payment of expenses pursuant to Section 9.6, the
Borrower agrees to indemnify, defend and hold harmless the Lender, and any of
its participants, parent corporations, subsidiary corporations, affiliated
corporations, successor corporations, and all present and future officers,
directors, employees, attorneys and agents of the foregoing (the "Indemnitees")
from and against any of the following (collectively, "Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by
reason of the execution and delivery of the Loan Documents or
the making of the Advances;
(ii) any claims, loss or damage to which any
Indemnitee may be subjected if any representation or warranty
contained in Section 5.12 proves to be incorrect in any
respect or as a result of any violation of the covenant
contained in Section 6.4(b); and
(iii) any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any
kind or nature whatsoever (including, without limitation, the
reasonable fees and disbursements of counsel) in connection
with the foregoing and any other investigative, administrative
or judicial proceedings, whether or not such Indemnitee shall
be designated a party thereto, which may be imposed on,
incurred by or asserted against any such Indemnitee, in any
manner related to or arising out of or in connection with the
making of the Advances and the Loan Documents or the use or
intended use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
<PAGE>
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
9.8 Participants.
The Lender and its participants, if any, are not partners or joint
venturers, and the Lender shall not have any liability or responsibility for any
obligation, act or omission of any of its participants. All rights and powers
specifically conferred upon the Lender may be transferred or delegated to any of
the Lender's participants, successors or assigns.
9.9 Execution in Counterparts.
This Agreement and other Loan Documents may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
but one and the same instrument.
9.10 Binding Effect; Assignment; Complete Agreement; Exchanging
Information.
The Loan Documents shall be binding upon and inure to the benefit of
the Borrower and the Lender and their respective successors and assigns, except
that the Borrower shall not have the right to assign its rights thereunder or
any interest therein without the Lender's prior written consent. This Agreement,
together with the Loan Documents, comprises the complete and integrated
agreement of the parties on the subject matter hereof and supersedes all prior
agreements, written or oral, on the subject matter hereof. Without limiting the
Lender's right to share information regarding the Borrower and its Affiliates
with the Lender's participants, accountants, lawyers and other advisors, the
Lender, Norwest Corporation, and all direct and indirect subsidiaries of Norwest
Corporation, may exchange any and all information they may have in their
possession regarding the Borrower and its Affiliates, and the Borrower waives
any right of confidentiality it may have with respect to such exchange of such
information.
9.11 Severability of Provisions.
Any provision of this Agreement which is prohibited or unenforceable
shall be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof.
9.12 Headings.
Article and Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
<PAGE>
9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
The Loan Documents shall be governed by and construed in accordance
with the substantive laws (other than conflict laws) of the State of Minnesota.
This Agreement shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Minnesota. The
parties hereto hereby (i) consent to the personal jurisdiction of the state and
federal courts located in the State of Minnesota in connection with any
controversy related to this Agreement; (ii) waive any argument that venue in any
such forum is not convenient, (iii) agree that any litigation initiated by the
Lender or the Borrower in connection with this Agreement or the other Loan
Documents shall be venued in either the District Court of Hennepin County,
Minnesota, or the United States District Court, District of Minnesota, Fourth
Division; and (iv) agree that a final judgment in any such suit, action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. THE PARTIES WAIVE
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO
THIS AGREEMENT.
9.14 Taxes.
All payments of principal of, and interest on, the Notes and all other
amounts payable hereunder shall be made free and clear of and without deduction
for any present or future income, excise, capital, goods and services, use,
stamp or franchise taxes and other taxes, surtaxes, fees, duties, withholdings
or other charges of any nature whatsoever imposed by any governmental authority,
excluding franchise taxes and taxes imposed on or measured by the Lender's net
income or receipts (all non-excluded items being called "Taxes"). If any
withholding or deduction from any payment to be made by any Borrower hereunder
is required in respect of any Taxes pursuant to any applicable law, rule or
regulation, then such Borrowers will:
(1) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(2) promptly forward to the Lender an official receipt or other
documentation satisfactory to the Lender evidencing such
payment to such authority; and
(3) pay to the Lender as additional interest such additional
amount or amounts as is necessary to ensure that the net
amount actually received by the Lender will equal the full
amount the Lender would have received had no such withholding
or deduction been required.
Moreover, if any Taxes are directly asserted against the Lender with respect to
any payment received by the Lender hereunder, the Lender may pay such Taxes and
the Borrower will promptly pay such additional amounts (including any penalty,
interest or expense) as is necessary in order that the net amount received by
the Lender after the payment of such Taxes (including any Taxes on such
additional amount) shall equal the amount the Lender would have received had
such Taxes not been asserted.
<PAGE>
If any Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Lender, the required receipts or other
required documentary evidence, the Borrower shall indemnify the Lender for any
incremental Taxes, interest or penalties that may become payable by the Lender
as a result of any such failure, whether or not such Taxes were correctly or
legally asserted. For purposes of this Section 9.14, a distribution hereunder by
the Lender shall be deemed a payment by the Borrower.
9.15 Joint and Several Liability.
This Agreement and the Notes are executed by more than one Borrower and
each Borrower agrees to be jointly and severally liable hereon, and the release
by the Lender of one or more such Borrowers shall not release or diminish the
liability of the remaining Borrowers hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION FIRST TEAM SPORTS, INC.
By: /s/ Susan N. Mack By: /s/ Kent A. Brunner
Name: Susan N. Mack Name: Kent A. Brunner
Title: Vice President Title: CFO
HESPELER HOCKEY HOLDING, INC.
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: CFO
HESPELER HOCKEY COMPANY
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: CFO
FIRST TEAM SPORTS GmbH
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: Acting Agent
<PAGE>
Table of Contents
1. DEFINITIONS.................................................................1
1.1 Definitions............................................................1
1.2 Cross References......................................................10
2. AMOUNT AND TERMS OF THE CREDIT FACILITY....................................10
2.1 Revolving Advances....................................................10
2.2 Letters of Credit.....................................................11
2.3 Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement...........................................11
2.4 Term Advance..........................................................12
2.5 Payment of Term Note..................................................12
2.6 Interest; Default Interest; Participations; Usury.....................13
2.7 Fees..................................................................13
2.8 Computation of Interest and Fees; When Interest Due and Payable.......14
2.9 Capital Adequacy......................................................14
2.10 Voluntary Prepayment; Reduction of the Maximum Line; Termination
of the Credit Facility by the Borrower...............................15
2.11 Termination and Line Reduction Fees; Prepayment Fees.................15
2.12 Mandatory Prepayment.................................................16
2.13 Payment..............................................................16
2.14 Payment on Non-Banking Days..........................................17
2.15 Use of Proceeds......................................................17
2.16 Liability Records....................................................17
3. SECURITY INTEREST; OCCUPANCY; SETOFF.......................................17
3.1 Grant of Security Interest............................................17
3.2 Notification of Account Debtors and Other Obligors....................17
3.3 Assignment of Insurance...............................................18
3.4 Occupancy.............................................................18
3.5 License...............................................................18
3.6 Financing Statement...................................................18
3.7 Setoff................................................................20
4. CONDITIONS OF LENDING......................................................21
4.1 Conditions Precedent to the Initial Revolving and Term Advance........21
4.2 Conditions Precedent to All Advances..................................23
5. REPRESENTATIONS AND WARRANTIES.............................................23
5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification Number..........24
5.2 Authorization of Borrowing; No Conflict as to Law or Agreements.......24
5.3 Legal Agreements......................................................25
5.4 Subsidiaries..........................................................25
5.5 Financial Condition; No Adverse Change................................25
5.6 Litigation............................................................25
5.7 Regulation U..........................................................25
5.8 Taxes.................................................................25
5.9 Titles and Liens......................................................26
5.10 Plans................................................................26
5.11 Default..............................................................26
5.12 Environmental Matters................................................26
5.13 Submissions to Lender................................................27
5.14 Financing Statements.................................................27
5.15 Rights to Payment....................................................28
6. BORROWER'S AFFIRMATIVE COVENANTS...........................................28
6.1 Reporting Requirements................................................28
6.2 Books and Records; Inspection and Examination.........................30
6.3 Account Verification..................................................31
6.4 Compliance with Laws..................................................31
6.5 Payment of Taxes and Other Claims.....................................31
6.6 Maintenance of Properties.............................................31
6.7 Insurance.............................................................32
6.8 Preservation of Existence.............................................32
6.9 Delivery of Instruments...............................................32
6.10 Collateral Account...................................................32
6.11 Key Person Life Insurance............................................33
6.12 Performance by the Lender............................................33
6.13 Minimum Net Worth....................................................34
6.14 Minimum Earnings After Taxes.........................................34
6.15 New Covenants........................................................34
7. NEGATIVE COVENANTS.........................................................34
7.1 Liens.................................................................34
7.2 Indebtedness..........................................................35
7.3 Guaranties............................................................35
7.4 Investments and Subsidiaries..........................................35
7.5 Dividends.............................................................36
7.6 Sale or Transfer of Assets; Suspension of Business Operations.........36
7.7 Consolidation and Merger; Asset Acquisitions..........................36
7.8 Sale and Leaseback....................................................36
7.9 Restrictions on Nature of Business....................................37
7.10 Accounting...........................................................37
7.11 Discounts............................................................37
7.12 Defined Benefit Pension Plans........................................37
7.13 Other Defaults.......................................................37
7.14 Place of Business; Name..............................................37
7.15 Organizational Documents; S Corporation Status.......................38
7.16 Change in Ownership..................................................38
8. EVENTS OF DEFAULT, RIGHTS AND REMEDIES.....................................38
8.1 Events of Default.....................................................38
8.2 Rights and Remedies...................................................40
8.3 Certain Notices.......................................................41
9. MISCELLANEOUS..............................................................41
9.1 No Waiver; Cumulative Remedies........................................41
9.2 Amendments............................................................41
9.3 Addresses for Notices.................................................41
9.4 Further Documents.....................................................42
9.5 Collateral............................................................42
9.6 Costs and Expenses....................................................43
9.7 Indemnity.............................................................43
9.8 Participants..........................................................44
9.9 Execution in Counterparts.............................................44
9.10 Binding Effect; Assignment; Complete Agreement; Exchanging
Information..........................................................44
9.11 Severability of Provisions...........................................44
9.12 Headings.............................................................44
9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.............45
9.14 Taxes................................................................45
9.15 Joint and Several Liability..........................................46
MORTGAGE
AND
SECURITY AGREEMENT
AND
FIXTURE FINANCING STATEMENT
THIS INDENTURE (hereinafter referred to as the "Mortgage"), made as of
September 8, 1999, between FIRST TEAM SPORTS, INC., a Minnesota corporation
(hereinafter collectively referred to as the "Mortgagor"), whose post office
address is 1201 Lund Boulevard, Anoka, Minnesota 55303, and Norwest Bank
Minnesota, National Association, a national banking association (hereinafter
referred to as the "Mortgagee"), whose post office address is Norwest Center,
Sixth and Marquette, Minneapolis, Minnesota 55479.
THIS MORTGAGE SECURES, AMONG OTHER THINGS, A REVOLVING NOTE, PURSUANT
TO WHICH ADVANCES WILL BE MADE TO THE MORTGAGOR AND SUCH AMOUNTS MAY BE REPAID
AND REBORROWED.
WITNESSETH, that the Mortgagor in consideration of the debt hereinafter
described and the sum of One and 00/100 Dollars ($1.00) to the Mortgagor in hand
paid by the Mortgagee, the receipt whereof is hereby acknowledged, does hereby
MORTGAGE, GRANT, BARGAIN, SELL AND CONVEY unto the Mortgagee, its successors and
assigns, forever, AND GRANTS TO THE MORTGAGEE A MORTGAGE LIEN AND SECURITY
INTEREST IN the following properties (all of the following being hereafter
collectively referred to as the "Premises"):
A. REAL PROPERTY
All the tracts or parcels of real property lying and being in the
County of Anoka, State of Minnesota, all as more fully described in Exhibit "A"
attached hereto and made a part hereof, together with all the estates and rights
in and to the real property and in and to lands lying in streets, alleys and
roads adjoining the real property and all buildings, structures, improvements,
fixtures and annexations, access rights, easements, rights of way or use,
servitudes, licenses, tenements, hereditaments and appurtenances now or
hereafter belonging or pertaining to the real property and all proceeds derived
therefrom; and
B. IMPROVEMENTS, FIXTURES
All buildings, equipment, fixtures, improvements, building supplies and
materials and personal property now or hereafter attached to or necessary to the
use, operation or maintenance of the improvements on the Premises including, but
without being limited to, all machinery, fittings, fixtures, apparatus,
equipment or articles used to supply heating, gas, electricity, air
conditioning, water, light, waste disposal, power, refrigeration, ventilation,
and fire and sprinkler protection, as well as all elevators, escalators,
overhead cranes, hoists and assists, and the like, and all furnishings,
supplies, draperies, maintenance and repair equipment, floor coverings, screens,
storm windows, blinds, awnings, shrubbery and plants, stoves, ranges, ovens,
refrigerators, air conditioners, dishwashers, clothes dryers, washing machines,
disposals and compactors (it being understood that the enumeration of any
specific articles of property shall in no way be held to exclude any items of
property not specifically enumerated), as well as renewals, replacements,
proceeds, additions, accessories, increases, parts, fittings, insurance
payments, awards and substitutes thereof, together with all interest of the
Mortgagor in any such items hereafter acquired, all of which personal property
mentioned herein shall be deemed fixtures and accessory to the freehold and a
part of the realty and not severable in whole or in part without material injury
to the Premises, but excluding therefrom the trade fixtures, inventory,
equipment and removable personal property of any tenant of the Premises; and
<PAGE>
C. RENTS, LEASES AND PROFITS
All rents, issues, income, revenue, receipts, fees, and profits now due
or which may hereafter become due under or by virtue of and together with all
right, title and interest of the Mortgagor in and to any lease, license,
sublease, contract or other kind of occupancy agreement, whether written or
verbal, for the use or occupancy of the Premises or any part thereof; and
D. JUDGMENTS, CONDEMNATION AWARDS
AND INSURANCE PROCEEDS
All awards, compensation or settlement proceeds made by any
governmental or other lawful authorities for the threatened or actual taking or
damaging by eminent domain of the whole or any part of the Premises, including
any awards for a temporary taking, change of grade of streets or taking of
access, together with all insurance proceeds resulting from a casualty to any
portion of the Premises; and
E. LICENSES, PERMITS, EQUIPMENT LEASES
AND SERVICE AGREEMENTS
All right, title and interest of the Mortgagor in and to any licenses,
permits regulatory approvals, government authorizations, franchise agreements
and equipment or chattel leases, service contracts or agreements and all
proceeds therefrom, arising from, issued in connection with or in any way
related to the use, occupancy, operation, maintenance or security of the
Premises, together with all replacements, additions, substitutions and renewals
thereof, which may be assigned pursuant to agreement or law; and
F. ACCOUNTS RECEIVABLE AND GENERAL INTANGIBLES
All accounts receivable, chattel paper, general intangibles,
instruments, and all proceeds therefrom, whether cash or noncash, derived by the
Mortgagor from the use, occupancy or operation of the Premises, including,
without limitation, all third party payments, but excepting the proceeds of any
borrowed funds, and reserving to the Mortgagor a license to collect the same
unless and until an Event of Default occurs under this Mortgage.
AND THE MORTGAGOR for the Mortgagor, the Mortgagor's heirs,
administrators, personal representatives, successors and assigns, covenant with
the Mortgagee, its successors and assigns, that the Mortgagor is lawfully seized
of the Premises and has good right to sell and convey the same; that the
Premises are free from all encumbrances except as may be set forth in Exhibit
"B" attached hereto and made a part hereof (hereinafter referred to as the
"Permitted Encumbrances"); that the Mortgagee, its successors and assigns, shall
quietly enjoy and possess the Premises; and that the Mortgagor will WARRANT AND
DEFEND the title to the same against all lawful claims not specifically excepted
in this Mortgage.
TO HAVE AND TO HOLD THE SAME, together with the possession and right of
possession of the Premises, unto the Mortgagee, its successors and assigns,
forever.
PROVIDED NEVERTHELESS, that if the Mortgagor, the Mortgagor's heirs,
administrators, personal representatives, successors or assigns, shall pay to
the Mortgagee, its successors or assigns, the sum of Six Million Dollars
($6,000,000), according to the terms of that certain Term Note dated of even
date herewith in the principal amount of Four Million Five Hundred Thousand
Dollars ($4,500,000) and that certain Revolving Note dated of even date herewith
in the principal amount of One Million Five Hundred Thousand Dollars
($1,500,000) (hereinafter collectively referred to herein as the "Note"), the
<PAGE>
terms and conditions of which are incorporated herein by reference and made a
part hereof, together with any extensions or renewals thereof, due and payable
with interest thereon at the variable rate set forth therein, executed by the
Mortgagor and payable to the Mortgagee, the balance of said principal sum
together with interest thereon being due and payable in any event on September
30, 2002, and shall repay to the Mortgagee, its successors or assigns, at the
times demanded and with interest thereon at the same rate as specified in the
Note, all sums advanced in protecting the lien of this Mortgage, including
taxes, assessments, charges, claims, fines, impositions, insurance premiums,
amounts due upon prior or superior mortgages and other prior or superior liens,
encumbrances and interests, and legal expenses and attorney's fees and all sums
advanced for any other purpose authorized herein (the Note and all such sums,
together with interest thereon, being hereinafter collectively referred to as
the "Indebtedness Secured Hereby"), and shall keep and perform all of the
covenants and agreements herein contained, then this Mortgage shall become null
and void, and shall be released at the Mortgagor's expense.
AND IT IS FURTHER COVENANTED AND AGREED AS FOLLOWS:
1.
1. GENERAL REPRESENTATIONS AND WARRANTIES
1.1 REPRESENTATIONS AND WARRANTIES. The Mortgagor represents and
warrants as follows:
The Mortgagor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota, is duly qualified to do
business in the State of Minnesota and has all requisite power and authority to
own and operate the Premises, to enter into the Note, this Mortgage, the Credit
and Security Agreement dated of even date herewith (together with all
amendments, supplements and restatements, the "Credit Agreement"), and any other
document securing the Note and to borrow the monies and otherwise assume and
perform as contemplated thereunder, and is in compliance with all laws,
regulations, ordinances and orders of public authorities applicable to it.
Neither the borrowing of the monies nor the execution, delivery of the
Note, this Mortgage, the Credit Agreement, or any other document securing the
Note nor the performance or the provisions of the agreements therein contained
on the part of the Mortgagor will contravene, violate or constitute a default
under the Articles of Incorporation or By-Laws of the Mortgagor, or any
agreement with the shareholders of the Mortgagor, or any creditors of the
Mortgagor, or any law, ordinance, governmental regulation, agreement or
indenture to which the Mortgagor is a party or by which the Mortgagor or the
Mortgagor's properties are bound.
There are no (i) bankruptcy proceedings involving the Mortgagor; (ii)
dissolution proceedings involving the Mortgagor; (iii) unsatisfied judgments of
record against the Mortgagor; or (iv) tax liens filed against the Mortgagor.
The Note, this Mortgage, the Credit Agreement and all other
documentation executed in connection with the loan evidenced by the Note have
been duly executed and delivered by the Mortgagor and constitute the legal,
valid and binding obligations of the Mortgagor, enforceable in accordance with
their terms, except as to enforcement of remedies, as may be limited by
bankruptcy, insolvency or similar laws affecting generally the enforcement of
creditor's remedies.
There are no judgments, suits, actions or proceedings at law or in
equity or by or before any governmental instrumentality or agency now pending
against or, to the best of Mortgagor's knowledge, threatened against the
Mortgagor or its properties, or both, nor has any judgment, decree or order been
<PAGE>
issued against the Mortgagor or its properties, or both, which would have a
material adverse effect on the Premises or the financial condition of the
Mortgagor or Mortgagor's properties.
No consent or approval of any regulatory authority having jurisdiction
over Mortgagor is necessary or required by law as a prerequisite to the
execution, delivery and performance of the terms of the Note, this Mortgage, the
Credit Agreement or any other document securing the Note.
The Premises is free from any mechanics' or materialmen's liens or
claims. There has been no labor or materials furnished to the Premises that has
not been paid for in full.
The Mortgagor has no notice, information or knowledge of any change
contemplated in any applicable law, ordinance, regulation or restriction, or any
judicial, administrative, governmental or quasi-governmental action, or any
action by adjacent land owners, or natural or artificial condition existing upon
the Premises which would limit, restrict, or prevent the contemplated or
intended use and purpose of the Premises.
There is no pending condemnation or similar proceeding affecting the
Premises, or any portion thereof nor, to the best knowledge of the Mortgagor, is
any such action being presently contemplated.
No part of the Premises is being used for agricultural purposes.
The Premises is undamaged by fire, windstorm or other casualty.
The Mortgagor is not, as of the date hereof, in default in the payment
of any of the Mortgagor's obligations.
The Premises complies with all zoning ordinances, energy and
environmental codes, building and use restrictions and codes, and any
requirements with respect to licenses, permits and agreements necessary for the
lawful use and operation of the Premises.
The heating, electrical, sanitary sewer plumbing, storm sewer plumbing,
potable water plumbing and other building equipment, fixtures and fittings are
in good condition and working order, are adequate in quantity and quality for
normal and usual use, and are fit for the purposes intended and the use
contemplated.
1.2 CONTINUING OBLIGATION. All statements made hereunder are true and
correct and all information provided to Mortgagee by the Mortgagor relating to
this transaction has not and does not contain any statement which, at the time
and in the light of the circumstances under which it was made, would be false
and misleading with respect to any material fact, or would omit any material
fact necessary in order to make any such statement contained therein not false
or misleading in any material respect. Should the Mortgagor subsequently obtain
knowledge that such representation was or is untrue, the Mortgagor shall
immediately notify Mortgagee as to the untrue nature of said representation and
agree to take such action as may be necessary to cause such representation to
become true.
2. COVENANTS AND AGREEMENTS
2.1 PAYMENT OF INDEBTEDNESS: OBSERVANCE OF COVENANTS. The Mortgagor
will duly and punctually pay each and every installment of principal and
interest on the Note and all other Indebtedness Secured Hereby, as and when the
same shall become due, and shall duly and punctually perform and observe all of
the covenants, agreements and provisions contained herein, in the Note and any
other instrument given as security for the payment of the Note.
<PAGE>
2.2 MAINTENANCE: REPAIRS. The Mortgagor agrees that it will keep and
maintain the Premises in good condition, repair and operating condition free
from any waste or misuse, and will comply with all requirements of law,
municipal ordinances and regulations, restrictions and covenants affecting the
Premises and their use, and will promptly repair or restore any buildings,
improvements or structures now or hereafter on the Premises which may become
damaged or destroyed to their condition prior to any such damage or destruction
subject to the provisions of Article 5 hereof. The Mortgagor further agrees that
without the prior written consent of the Mortgagee it will not expand any
improvements on the Premises, erect any new improvements or make any material
alterations in any improvements which will alter the basic structure, adversely
affect the market value or change the existing architectural character of the
Premises, and will complete within a reasonable time any buildings now or at any
time in the process of erection on the Premises. The Mortgagor agrees not to
acquiesce in any rezoning classification, modification or restriction affecting
the Premises without the written consent of the Mortgagee. The Mortgagor agrees
that it will not abandon or vacate the Premises. The Mortgagor agrees that it
will provide, improve, grade, surface and thereafter maintain, clean, repair and
adequately light all parking areas within the Premises, together with any
sidewalks, aisles, streets, driveways and sidewalk cuts and sufficient paved
areas for ingress and right-of-way to and from the adjacent public thoroughfare
necessary or desirable for the use thereof.
2.3 PAYMENT OF OPERATING COSTS; LIENS; AND PRIOR INDEBTEDNESS. The
Mortgagor agrees that it will pay all operating costs and expenses of the
Premises; keep the Premises free from mechanics' liens, materialmen's liens,
judgment liens and other liens, executions, attachments or levies (hereinafter
collectively referred to as "Liens"); and will pay when due all permitted
indebtedness which may be secured by mortgage, lien or charge on the Premises
and upon request will exhibit to the Mortgagee satisfactory evidence of such
payment and discharge.
2.4 PAYMENT OF IMPOSITIONS. The Mortgagor will pay when due and before
any penalty all taxes, installments of assessments, water charges, sewer charges
and other fees, taxes, charges and assessments of every kind and nature
whatsoever assessed or charged against or constituting a lien on the Premises or
any interest therein or the Indebtedness Secured Hereby (hereinafter referred to
as the "Impositions"); and will upon demand furnish to the Mortgagee proof of
the payment of any such Impositions. In the event of a court decree or an
enactment after the date hereof by any legislative authority of any law imposing
upon a mortgagee the payment of the whole or any part of the Impositions herein
required to be paid by the Mortgagor, or changing in any way the laws relating
to the taxation of mortgages or debts secured by mortgages or a mortgagee's
interest in mortgaged premises, so as to impose such Imposition on the Mortgagee
or on the interest of the Mortgagee in the Premises, then, in any such event,
the Mortgagor shall bear and pay the full amount of such Imposition, provided
that if for any reason payment by the Mortgagor of any such Imposition would be
unlawful, or if the payment thereof would constitute usury or render the
Indebtedness Secured Hereby wholly or partially usurious, the Mortgagee, at its
option, may declare the whole sum secured by this Mortgage with interest thereon
to be immediately due and payable, without prepayment premium, or the Mortgagee,
at its option, may pay that amount or portion of such Imposition as renders the
Indebtedness Secured Hereby unlawful or usurious, in which event the Mortgagor
shall concurrently therewith pay the remaining lawful and non-usurious portion
or balance of said Imposition.
2.5 CONTEST OF LIENS AND IMPOSITIONS. The Mortgagor shall not be
required to pay, discharge or remove any Liens or Impositions so long as the
Mortgagor shall in good faith contest the same or the validity thereof by
appropriate legal proceedings which shall operate to prevent the collection of
the Liens or Impositions so contested and the sale of the Premises, or any part
thereof to satisfy the same, provided that the Mortgagor shall, prior to any
such contest, have given such security as may be demanded by the Mortgagee to
insure such payments and prevent any sale or forfeiture of the Premises by
<PAGE>
reason of such nonpayment. Any such contest shall be prosecuted with due
diligence and the Mortgagor shall promptly after final determination thereof pay
the amount of any such Liens or Impositions so determined, together with all
interest and penalties, which may be payable in connection therewith.
Notwithstanding the provisions of this Section, the Mortgagor shall (and if the
Mortgagor shall fail so to do, the Mortgagee, may but shall not be required to)
pay any such Liens or Impositions notwithstanding such contest if in the
reasonable opinion of the Mortgagee, the Premises shall be in jeopardy or in
danger of being forfeited or foreclosed.
2.6 PROTECTION OF SECURITY. The Mortgagor agrees to promptly notify the
Mortgagee of and appear in and defend any suit, action or proceeding that
affects the value of the Premises, the Indebtedness Secured Hereby or the rights
or interest of the Mortgagee hereunder. The Mortgagee may elect to appear in or
defend any such action or proceeding and the Mortgagor agrees to indemnify and
reimburse the Mortgagee from any and all loss, damage, expense or cost arising
out of or incurred in connection with any such suit, action or proceeding,
including costs of evidence of title and reasonable attorney's fees.
2.7 REPORTING REQUIREMENTS. During the term of this Mortgage, the
Mortgagor will deliver, or cause to be delivered, to the Mortgagee all
information and reports required pursuant to section 6.1 of the Credit
Agreement.
2.8 ADDITIONAL ASSURANCES. The Mortgagor agrees upon reasonable request
by the Mortgagee to execute and deliver such further instruments, financing
statements under the Uniform Commercial Code and assurances and will do such
further acts as may be necessary or proper to carry out more effectively the
purposes of this Mortgage and, without limiting the foregoing, to make subject
to the lien hereof any property agreed to be subjected hereto or covered by the
granting clause hereof, or intended so to be. The Mortgagor agrees to pay any
recording fees, filing fees, stamp taxes or other charges arising out of or
incident to the filing, the issuance and delivery of the Note, the filing or
recording of the Mortgage or the delivery of such further assurances and
instruments as may be required pursuant to the terms of this Section.
2.9 DUE ON SALE OR MORTGAGING, ETC. In the event:
(a) the Mortgagor sells, conveys, transfers, further mortgages,
changes the form of ownership or encumbers or disposes of the
Premises, or any part thereof, or any interest therein; or
(b) any corporate ownership interest in the Mortgagor is sold,
conveyed, transferred, pledged or encumbered, whether
voluntarily or involuntarily, or there is an agreement so to do
(except as disclosed in the Credit Agreement);
without the written consent of the Mortgagee being first obtained, then
at the sole option of the Mortgagee, the Mortgagee may declare the entire
principal and interest evidenced by the Note due and payable in full and call
for payment of the same at once, together with the prepayment premium then in
effect under the terms of the Note.
2.10 UPDATED APPRAISALS. Mortgagor agrees that upon request of
Mortgagee, it shall pay the costs of any updated appraisal of the Premises in
form and content acceptable to Mortgagee at any time that either (a) an Event of
Default shall have occurred hereunder, or (b) Mortgagee determines in its
commercially reasonable judgment that the security for the loan evidenced by the
Note has been physically or financially impaired in any material manner.
<PAGE>
3. INSURANCE
3.1 INSURANCE. The Mortgagor shall obtain and keep in full force and
effect during the term of this Mortgage at its sole cost and expense the
following insurance:
(a) insurance against loss by fire, lightning and risk customarily
covered by standard extended coverage endorsement, including the
cost of debris removal, together with a vandalism and malicious
mischief endorsement, or all perils endorsements, all in the
amount of not less than the full replacement cost of the
improvements on the Premises, and together with an
inflation-guard endorsement, an agreed-amount endorsement, a
replacement cost endorsement and a waiver of subrogation
endorsement;
(b) Broad Form Boiler and Machinery Insurance on all equipment and
pressure-fired vehicles or apparatus situate on the Premises,
and providing for full repair and replacement cost coverage;
(c) Flood Insurance in such minimal amounts and with such minimal
limits as the Mortgagee may require unless evidence is provided
that the Premises are not within a flood plain as defined by the
Federal Insurance Administration and the Premises is not
designated as being within a flood plain during the term of this
Mortgage;
(d) Comprehensive General Public Liability Insurance covering the
legal liability of the Mortgagor against claims for bodily
injury, death or property damage occurring on, in or about the
Premises in such minimal amounts and with such minimal limits as
the Mortgagee may require;
(e) Sprinkler Insurance, if applicable;
(f) Contingent Liability Insurance and Worker's Compensation
Insurance during the making of any alterations or improvements
to the Premises; and
(g) Such other forms of insurance as the Mortgagee may require or
as may be required by law.
Such insurance policies shall be written on forms and with insurance
companies having a minimum noncontingent rating in Best's Casualty Reports of A,
shall be satisfactory to the Mortgagee, shall name as the insured parties the
Mortgagor and the Mortgagee, as their interests may appear, shall be in amounts
sufficient to prevent the Mortgagor from becoming a co-insurer of any loss
thereunder, and shall bear a satisfactory mortgagee clause in favor of the
Mortgagee with loss proceeds under any such policies to be made payable to the
Mortgagee. All required policies of insurance or acceptable certificates
thereof, together with evidence of the payment of current premiums therefor,
shall be delivered to the Mortgagee and shall provide that the Mortgagee shall
receive at least sixty (60) days' advance written notice prior to cancellation,
amendment or termination of any such policy of insurance. The Mortgagor shall,
within sixty (60) days prior to the expiration of any such policy, deliver other
original policies or certificates of the insurer evidencing the renewal of such
insurance together with evidence of the payment of current premiums therefor.
The Mortgagor shall at its expense furnish evidence of the replacement value of
the improvements on the Premises in form satisfactory to the Mortgagee on
renewal of insurance policies or upon request of the Mortgagee. Insurance
coverage must at all times be maintained in proper relationship to such
replacement value and must always provide for agreed amount coverage. In the
event of a foreclosure of this Mortgage or any acquisition of the Premises by
the Mortgagee, all such policies and any proceeds payable therefrom, whether
payable before or after a foreclosure sale, or during the period of redemption,
if any, shall become the absolute property of the Mortgagee to be utilized at
its discretion. In the event of foreclosure or the failure to obtain and keep
any required insurance, the Mortgagor empowers the Mortgagee to effect insurance
<PAGE>
upon the Premises at the Mortgagor's expense and for the benefit of the
Mortgagee in the amounts and types aforesaid for a period of time covering the
time of redemption prior to foreclosure sale, and if necessary therefor, to
cancel any or all existing insurance policies. The Mortgagor agrees to furnish
the Mortgagee copies of all inspection reports and insurance recommendations
received by the Mortgagor from any insurer. The Mortgagee makes no
representations that the above insurance requirements are adequate protection
for a prudent mortgagor.
4. UNIFORM COMMERCIAL CODE
4.1 SECURITY AGREEMENT. This Mortgage shall constitute a security
agreement as defined in the Uniform Commercial Code (hereinafter referred to as
the "Code"), and the Mortgagor hereby grants to the Mortgagee a security
interest within the meaning of the Code in favor of the Mortgagee on the
Improvements, Fixtures, Equipment and Personal Property, the Rents, Leases and
Profits, the Judgments, Condemnation Awards and Insurance Proceeds, the
Licenses, Permits, Equipment Leases and Service Agreements, and the Accounts
Receivable and General Intangibles described in Granting Clauses B, C, D, E and
F of this Mortgage (hereinafter referred to as the "Collateral").
4.2 FIXTURE FILING. As to those items of Collateral described in this
Mortgage that are, or are to become fixtures related to the real estate
mortgaged herein, it is intended as to those items that THIS MORTGAGE SHALL BE
EFFECTIVE AS A FINANCING STATEMENT FILED AS A FIXTURE FILING from the date of
its filing in the real estate records of the County where the Premises are
situate. The name of the record owner of said real estate is the Mortgagor set
forth in page one to this Mortgage. Information concerning the security interest
created by this instrument may be obtained from the Mortgagee, as secured party,
at its address as set forth in page one of this Mortgage. The address of the
Mortgagor, as debtor, is as set forth in page one to this Mortgage. This
document covers goods which are or are to become fixtures. The Federal tax
identification number of the Mortgagor is 41-1545748.
4.3 REPRESENTATIONS AND AGREEMENTS. (a) The Mortgagor is and will be
the true and lawful owner of the Collateral, subject to no liens, charges,
security interest and encumbrances other than the lien hereof and the Permitted
Encumbrances; (b) the Collateral is to be used by the Mortgagor solely for
business purposes being installed upon the Premises for the Mortgagor's own use
or as the equipment and furnishings leased or furnished by the Mortgagor, as
landlord, to tenants of the Premises; (c) the Collateral will not be removed
from the Premises without the consent of the Mortgagee except in accordance with
Section 4.4 hereof; (d) unless stated otherwise in this Mortgage the only
persons having any interest in the Collateral are the Mortgagor and the
Mortgagee and no financing statement covering any such property and any proceeds
thereof is on file in any public office except pursuant hereto; (e) the remedies
of the Mortgagee hereunder are cumulative and separate, and the exercise of any
one or more of the remedies provided for herein or under the Uniform Commercial
Code shall not be construed as a waiver of any of the other rights of the
Mortgagee including having such Collateral deemed part of the realty upon any
foreclosure thereof; (f) if notice to any party of the intended disposition of
the Collateral is required by law in a particular instance, such notice shall be
deemed commercially reasonable if given at least ten (10) days prior to such
intended disposition and may be given by advertisement in a newspaper accepted
for legal publications either separately or as part of a notice given to
foreclose the real property or may be given by private notice if such parties
are known to the Mortgagee; (g) the Mortgagor will from time to time provide the
Mortgagee on request with itemizations of all such Collateral on the Premises;
(h) the filing of a financing statement pursuant to the Code shall never impair
the stated intention of this Mortgage that all Improvements, Fixtures, Equipment
and Personal Property described in Granting Clause B hereof are, and at all
times and for all purposes and in all proceedings both legal or equitable shall
be regarded as part of the real property mortgaged hereunder irrespective of
whether such item is physically attached to the real property or any such item
is referred to or reflected in a financing statement; (i) the Mortgagor will on
demand deliver all financing statements that may from time to time be required
by the Mortgagee to establish and perfect the priority of the Mortgagee's
<PAGE>
security interest in such Collateral; (j) the Mortgagor shall give advance
written notice of any proposed change in the Mortgagor's name, identity, address
or structure and will execute and deliver to the Mortgagee prior to or
concurrently with such change all additional financing statements that the
Mortgagee may require to establish and perfect the priority of the Mortgagee's
security interest; and (k) the Mortgagor shall renew and pay all expenses of
renewing the financing statement covering the Collateral in the event the
security interest in such Collateral will expire by reason of statutory law
prior to the end of the term of this Mortgage.
4.4 MAINTENANCE OF PROPERTY. Subject to the provisions of this Section,
in any instance where the Mortgagor in its discretion determines that any item
subject to a security interest under this Mortgage has become inadequate,
obsolete, worn out, unsuitable, undesirable or unnecessary for the operation of
the Premises, the Mortgagor may, at its expense, remove and dispose of it and
substitute and install other items not necessarily having the same function,
provided, that such removal and substitution shall not impair the operating
utility and unity of the Premises. All substituted items shall become a part of
the Premises and subject to the lien of the Mortgage. Any amounts received or
allowed the Mortgagor upon the sale or other disposition of the removed items of
property shall be applied only against the cost of acquisition and installation
of the substituted items. Nothing herein contained shall be construed to prevent
any tenant or subtenant from removing from the Premises trade fixtures,
furniture and equipment installed by it and removable by tenant under its terms
of the lease, on the condition, however, that the tenant or subtenant shall at
its own cost and expense, repair any and all damages to the Premises resulting
from or caused by the removal thereof.
5. APPLICATION OF INSURANCE AND AWARDS
5.1 DAMAGE OR DESTRUCTION OF THE PREMISES. The Mortgagor will give the
Mortgagee prompt notice of any damage to or destruction of the Premises, and in
case of loss covered by policies of insurance, the Mortgagee (whether before or
after foreclosure sale) is hereby authorized at its option to settle and adjust
any claim arising out of such policies and collect and receipt for the proceeds
payable therefrom, provided, that the Mortgagor may itself adjust and collect
for any losses arising out of a single occurrence aggregating not in excess of
Twenty-Five Thousand Dollars ($25,000). Any expense incurred by the Mortgagee in
the adjustment and collection of insurance proceeds (including the cost of any
independent appraisal of the loss or damage on behalf of the Mortgagee) shall be
reimbursed to the Mortgagee first out of any proceeds. Except as provided in
Section 5.3 hereof, the proceeds or any part thereof shall be applied to
reduction of the Indebtedness Secured Hereby then most remotely to be paid,
whether due or not, without the application of any prepayment premium, or to the
restoration or repair of the Premises, the choice of application to be solely at
the discretion of the Mortgagee.
5.2 CONDEMNATION. The Mortgagor will give the Mortgagee prompt notice
of any action, actual or threatened, in condemnation or eminent domain and
hereby assigns, transfers and sets over to the Mortgagee the entire proceeds of
any award or claim for damages for all or any part of the Premises taken or
damaged under the power of eminent domain or condemnation, the Mortgagee being
hereby authorized to intervene in any such action and to collect and receive
from the condemning authorities and give proper receipts and acquittances for
such proceeds. The Mortgagor will not enter into any agreements with the
condemning authority permitting or consenting to the taking of the Premises
unless prior written consent of the Mortgagee is obtained. Any expenses incurred
by the Mortgagee in intervening in such action or collecting such proceeds
(including the cost of any independent appraisal) shall be reimbursed to the
Mortgagee first out of the proceeds. Except as provided in Section 5.3 hereof,
the proceeds or any part thereof shall be applied upon or in reduction of the
Indebtedness Secured Hereby then most remotely to be paid, whether due or not,
together with any applicable prepayment premium, or to the restoration or repair
of the Premises, the choice of application to be solely at the discretion of the
Mortgagee.
<PAGE>
5.3 THE MORTGAGEE TO MAKE PROCEEDS AVAILABLE UNDER CERTAIN CONDITIONS.
Notwithstanding the provisions of Section 5.1 and 5.2 above, in the event of any
damage to the improvements on the Premises as a result of an insured casualty or
taking, the Mortgagee agrees to make the proceeds of any insurance or
condemnation award available to the restoration or repair of the improvements on
the Premises in accordance with the provisions of Section 5.4 hereof provided:
(a) the improvements can be rebuilt substantially to the same as those
originally financed and can with restoration and repair continue to be operated
for the purposes utilized prior to such damage or taking; (b) no Event of
Default shall exist under this Mortgage, the Note, or other documents securing
the Note; (c) the appraised value of the Premises after such restoration or
repair shall not have been reduced from its appraised value as of the date
hereof and (d) such restoration or repair shall be completed prior to the
maturity of the Notes and this Mortgage.
5.4 DISBURSEMENT OF INSURANCE AND CONDEMNATION PROCEEDS. Should any
insurance or condemnation proceeds be applied to the restoration or repair of
the Premises in accordance with this Article 5, the restoration or repair shall
be done under the supervision of an architect acceptable to the Mortgagee and
pursuant to site and building plans and specifications approved by the
Mortgagee. The proceeds shall be held by the Mortgagee for such purposes and
will from time to time be disbursed by the Mortgagee to defray the costs of such
restoration or repair under such safeguards and controls as the Mortgagee may
require and in accordance with standard construction loan procedures. Prior to
the payment or application of insurance proceeds or a condemnation or eminent
domain award to the repair or restoration of the improvements upon the Premises,
the Mortgagee shall be entitled to receive the following:
Evidence that no Event of Default exists under any of the terms,
covenants and conditions of this Mortgage, the Note, or other collateral
security documents.
Evidence that all leasing requirements for the Premises as established
by the Mortgagee have been met.
Reasonably satisfactory proof that such improvements have been fully
restored, or that the expenditure of money as may be received from such
insurance proceeds or eminent domain award will be sufficient to repair, restore
or rebuild the Premises, free and clear of all liens, except the lien of this
Mortgage. In the event such insurance proceeds or eminent domain award shall be
insufficient to repair, restore or rebuild the said improvements, the Mortgagor
or its lessee shall deposit with the Mortgagee funds equaling such deficiency,
which, together with the insurance proceeds or eminent domain award, shall be
sufficient to restore, repair and rebuild the Premises.
A statement of the Mortgagor's architect, certifying the extent of the
repair and restoration completed to the date thereof, and that such repairs,
restoration and rebuilding have been performed to date in conformity with the
plans and specifications approved by the Mortgagee, together with appropriate
evidence of payment for labor or materials furnished to the Premises, and total
or partial lien waivers substantiating such payments.
A waiver of subrogation from any insurer who claims that it has no
liability as to the Mortgagor or the then owner or other insured under the
policy of insurance in question.
Such performance and payment bonds, and such insurance, in such
amounts, issued by such company or companies and in such forms and substance, as
are required by the Mortgagee.
In the event the Mortgagor shall fail to restore, repair or rebuild the
improvements upon the Premises within a reasonable time, then the Mortgagee, at
its option, and upon not less than thirty (30) days written notice to the
Mortgagor, may commence to restore, repair or rebuild the said improvements for
<PAGE>
or on behalf of said Mortgagor, and its tenants, and for such purpose, may
perform all necessary acts to accomplish such restoration, repair or rebuilding.
In the event insurance proceeds or an eminent domain award shall exceed the
amount necessary to complete the repair, restoration or the rebuilding of the
improvements upon the Premises, such excess may, at the Mortgagee's option, be
applied on account of the last maturing installments of the Indebtedness Secured
Hereby, irrespective of whether such installments are then due and payable
without application of a prepayment premium, or be returned to the Mortgagor. In
the event the Mortgagor shall fail to restore, repair or rebuild the
improvements upon the Premises within the reasonable time, and if the Mortgagee
does not restore, repair or rebuild the said improvements as herein provided,
then the Mortgagee may, at its option, apply all or any part of the insurance
proceeds or condemnation or eminent domain award on account of the last maturing
installments of the Indebtedness Secured Hereby whether then due or not, without
application of a prepayment premium, or return the same to the Mortgagor.
6. LEASES AND RENTS
6.1 MORTGAGOR TO COMPLY WITH LEASES. The Mortgagor represents and
warrants that there are currently no leases in existence in connection with any
portion of the Premises. The Mortgagor further covenants and warrants that it
shall not enter into leases for any portion of the Premises without obtaining
the prior written consent of the Mortgagee. With reference to any leases
executed in accordance with this Section 6.1, the Mortgagor will, at its own
cost and expense, perform, comply with and discharge all of the obligations of
the Mortgagor under any leases and use its best efforts to enforce or secure the
performance of each obligation and undertaking of the respective tenants under
any such leases and will appear in and defend, at its own cost and expense, any
action or proceeding arising out of or in any manner connected with the
Mortgagor's interest in any leases of the Premises. The Mortgagor will not
modify, extend, renew, terminate, accept a surrender of, or in any way alter the
terms of the leases, nor borrow against, pledge or assign any rentals due under
the leases nor consent to a subordination or assignment of the interest of the
tenants thereunder to any party other than the Mortgagee, nor anticipate the
rents thereunder for more than one (1) month in advance or reduce the amount of
rents and other payments thereunder, nor waive, excuse, condone or in any manner
release or discharge the tenants of or from their obligations, covenants,
conditions and agreements to be performed. Notwithstanding anything to the
contrary herein contained, the Mortgagor may amend or modify any existing leases
without the prior written consent of the Mortgagee provided that such amendments
or modifications are made in the ordinary course of business and do not diminish
any material benefit accruing to the landlord under such lease or reduce either
the length of the term, the rental or the size of the demised premises.
6.2 THE MORTGAGEE'S RIGHT TO PERFORM UNDER LEASES. Should the Mortgagor
fail to perform, comply with or discharge any obligations of the Mortgagor under
any lease or should the Mortgagee become aware of or be notified by any tenant
under any lease of a failure on the part of the Mortgagor to so perform, comply
with or discharge its obligations under said lease, the Mortgagee may, but shall
not be obligated to, and without further demand upon the Mortgagor, and without
waiving or releasing the Mortgagor from any obligation in this Mortgage
contained, remedy such failure, and the Mortgagor agrees to repay upon demand
all sums incurred by the Mortgagee in remedying any such failure together with
interest at the rate then in effect under the terms of the Note. All such sums,
together with interest as aforesaid shall become so much additional Indebtedness
Secured Hereby, but no such advance shall be deemed to relieve the Mortgagor
from any default hereunder.
6.3 ASSIGNMENT OF LEASES AND RENTS. The Mortgagor does hereby sell,
assign and transfer unto the Mortgagee all of the leases, rents and profits now
due and which may hereafter become due under or by virtue of any lease, whether
written or verbal, or any agreement for the use or occupancy of the Premises,
<PAGE>
whether presently in existence or entered into at any time during the term of
this Mortgage, it being the intention of this Mortgage to establish an absolute
transfer and assignment of all such leases and agreements and all of the rents
and profits from the Premises unto the Mortgagee and the Mortgagor does hereby
appoint irrevocably the Mortgagee its true and lawful attorney in its name and
stead, which appointment is coupled with an interest, to collect all of said
rents and profits; provided, the Mortgagor shall have the right to collect and
retain such rents and profits unless and until an Event of Default exists under
this Mortgage.
6.4 REMEDIES. Upon an Event of Default and whether before or after the
institution of legal proceedings to foreclose the lien hereof or before or after
sale thereunder or during any period of redemption, the Mortgagee, without
regard to waste, adequacy of the security or solvency of the Mortgagor, may
revoke the privilege granted the Mortgagor hereunder to collect the rents and
profits, and may, at its option, without notice, either: (a) in person or by
agent, with or without taking possession of or entering the Premises, with or
without bringing any action or proceeding, give, or require the Mortgagor to
give, notice to any or all tenants under any lease authorizing and directing the
tenant to pay such rents and profits to the Mortgagee; collect all of the rents
and profits; enforce the payment thereof and exercise all of the rights of the
landlord under the leases and all of the rights of the Mortgagee hereunder; may
enter upon, take possession of, manage and operate said Premises, or any part
thereof; may cancel, enforce or modify the leases, and fix or modify rents, and
do any acts which the Mortgagee deems proper to protect the security hereof with
or without taking possession of the Premises; or (b) apply for the appointment
of a receiver in accordance with the statutes and law made and provided for,
which receivership the Mortgagor hereby consents to, who shall collect the rents
and profits, and all other income of any kind; manage the Premises so to prevent
waste; execute leases within or beyond the period of receivership, and perform
the terms of this Mortgage and apply the rents and profits as hereinafter
provided.
The entering upon and taking possession of the Premises, the
appointment of a receiver, the collection of such rents and profits and the
application thereof as aforesaid shall not cure or waive any Event of Default
under this Mortgage nor in any way operate to prevent the Mortgagee from
pursuing any other remedy which it may now or hereafter have under the terms of
this Mortgage nor shall it in any way be deemed to constitute the Mortgagee a
mortgagee-in-possession. The rights and powers of the Mortgagee hereunder shall
remain in full force and effect both prior to and after any foreclosure of the
Mortgage and any sale pursuant thereto and until expiration of the period of
redemption from said sale, regardless of whether a deficiency remains from said
sale. The purchaser at any foreclosure sale, including the Mortgagee, shall have
the right, at any time and without limitation as provided in Minnesota Statutes
section 582.03, to advance money to any receiver appointed hereunder to pay any
part or all of the items which the receiver would otherwise be authorized to pay
if cash were available from the Premises and the sum so advanced, with interest
at the rate then in effect under the terms of the Note, shall be a part of the
sum required to be paid to redeem from any foreclosure sale. The rights
hereunder shall in no way be dependent upon and shall apply without regard to
whether the Premises are in danger of being lost, materially injured or damaged
or whether the Premises are adequate to discharge the Indebtedness Secured
Hereby.
6.5 APPLICATION OF RENTS. Any rents collected pursuant to the terms of
Section 6.4 hereof shall be applied in the following order: (a) to payment of
all reasonable fees of any receiver appointed hereunder; (b) to application of
tenant's security deposits as required by Minnesota Statutes section 504.20; (c)
to payment when due of prior or current real estate taxes or special assessments
with respect to the Premises or, if this Mortgage so requires, to the periodic
escrow for payment of the taxes or special assessments then due; (d) to payment
when due of premiums for insurance of the type required by this Mortgage or, if
this Mortgage so requires, to the periodic escrow for the payment of premiums
<PAGE>
then due; and (e) to payment of all expenses for normal maintenance of the
Premises. Any rents remaining after application of the above items shall be
applied to the Indebtedness Secured Hereby on a monthly basis. If the Premises
shall be foreclosed and sold pursuant to a foreclosure sale, then:
(a) if the Mortgagee is the purchaser at the foreclosure sale, the
rents shall be paid to the Mortgagee to be applied to the
extent of any deficiency remaining after the sale, the balance
to be retained by the Mortgagee, and if the Premises be
redeemed by the Mortgagor or any other party entitled to
redeem, to be applied as a credit against the redemption price
with any remaining excess rents to be paid to the Mortgagor,
provided, if the Premises not be redeemed, any remaining
excess rents to belong to the Mortgagee, whether or not a
deficiency exists.
(b) if the Mortgagee is not the purchaser at the foreclosure sale,
the rents shall be paid to the Mortgagee to be applied first,
to the extent of any deficiency remaining after the sale, the
balance to be retained by the purchaser, and if the Premises
be redeemed by the Mortgagor or any other party entitled to
redeem, to be applied as a credit against the redemption price
with any remaining excess rents to be paid to the Mortgagor,
provided, if the Premises not be redeemed any remaining excess
rents shall be paid first, to the purchaser at the foreclosure
sale in an amount equal to the interest accrued upon the sale
price pursuant to Minnesota Statutes section 580.23 or section
581.10, then to the Mortgagee to the extent of any deficiency
remaining unpaid and the remainder to the purchaser.
7. RIGHTS OF THE MORTGAGEE
7.1 RIGHT TO CURE EVENT OF DEFAULT. If the Mortgagor shall fail to
comply with any of the covenants or obligations of this Mortgage, the Mortgagee
may, but shall not be obligated to, without demand upon the Mortgagor, and
without waiving or releasing the Mortgagor from any obligation in this Mortgage
contained, remedy such failure, and the Mortgagor agrees to repay upon demand
all sums incurred by the Mortgagee in remedying any such failure together with
interest at the Default Rate, as defined under the terms of the Credit
Agreement. All such sums, together with interest as aforesaid shall become so
much additional Indebtedness Secured Hereby, but no such advance shall be deemed
to relieve the Mortgagor from any failure hereunder.
7.2 NO CLAIM AGAINST THE MORTGAGEE. Nothing contained in this Mortgage
shall constitute any consent or request by the Mortgagee, express or implied,
for the performance of any labor or services or for the furnishing of any
materials or other property in respect of the Premises or any part thereof, nor
as giving the Mortgagor or any party in interest with the Mortgagor any right,
power or authority to contract for or permit the performance of any labor or
services or the furnishing of any materials or other property in such fashion as
would create any personal liability against the Mortgagee in respect thereof or
would permit the making of any claim that any lien based on the performance of
such labor or services or the furnishing of any such materials or other property
is prior to the lien of this Mortgage.
7.3 INSPECTION. The Mortgagor will permit the Mortgagee's authorized
representatives to enter the Premises at all times during normal business hours
for the purpose of inspecting the same; provided the Mortgagee shall have no
duty to make such inspections and shall not incur any liability or obligation
for making or not making any such inspections.
7.4 WAIVERS; RELEASES; RESORT TO OTHER SECURITY, ETC. Without affecting
the liability of any party liable for payment of any Indebtedness Secured Hereby
or performance of any obligation contained herein, and without affecting the
rights of the Mortgagee with respect to any security not expressly released in
writing, the Mortgagee may, at any time, and without notice to or the consent of
<PAGE>
the Mortgagor or any party in interest with the Premises or the Note: (a)
release any person liable for payment of all or any part of the Indebtedness
Secured Hereby or for performance of any obligation herein; (b) make any
agreement extending the time or otherwise altering the terms of payment of all
or any part of the Indebtedness Secured Hereby or modifying or waiving any
obligation, or subordinating, modifying or otherwise dealing with the lien or
charge hereof; (c) accept any additional security; (d) release or otherwise deal
with any property, real or personal, including any or all of the Premises,
including making partial releases of the Premises; or (e) resort to any security
agreements, pledges, contracts of guarantee, assignments of rents and leases or
other securities, and exhaust any one or more of said securities and the
security hereunder, either concurrently or independently and in such order as it
may determine.
7.5 RIGHTS CUMULATIVE. Each right, power or remedy herein conferred
upon the Mortgagee is cumulative and in addition to every other right, power or
remedy, express or implied, now or hereafter arising, available to the
Mortgagee, at law or in equity, or under the Uniform Commercial Code, or under
any other agreement, and each and every right, power and remedy herein set forth
or otherwise so existing may be exercised from time to time as often and in such
order as may be deemed expedient by the Mortgagee and any such exercise shall
not be a waiver of the right to exercise at any time thereafter any other right,
power or remedy. No delay or omission by the Mortgagee in the exercise of any
right, power or remedy arising hereunder or arising otherwise shall impair any
such right, power or remedy or the right of the Mortgagee to resort thereto at a
later date or be construed to be a waiver of any Event of Default under this
Mortgage or the Note.
7.6 SUBSEQUENT AGREEMENTS. Any agreement hereafter made by the
Mortgagor and the Mortgagee pursuant to this Mortgage shall be superior to the
rights of the holder of any intervening lien or encumbrance.
7.7 WAIVER OF APPRAISEMENT, HOMESTEAD, MARSHALING. The Mortgagor hereby
waives to the full extent lawfully allowed the benefit of any homestead,
appraisement, evaluation, stay and extension laws now or hereinafter in force.
The Mortgagor hereby waives any rights available with respect to marshaling of
assets so as to require the separate sales of any portion of the Premises, or as
to require the Mortgagee to exhaust its remedies against a specific portion of
the Premises before proceeding against the other and does hereby expressly
consent to and authorize the sale of the Premises or any part thereof as a
single unit or parcel.
7.8 BUSINESS LOAN REPRESENTATION. The Mortgagor represents and warrants
to the Mortgagee that the loan evidenced by the Note is a business loan
transacted solely for the purpose of carrying on the business of the Mortgagor
and the Premises does not constitute the homestead of the Mortgagor.
8. EVENTS OF DEFAULT AND REMEDIES
8.1 EVENTS OF DEFAULT. The violation of any provision of this Mortgage
or the occurrence of any Event of Default as defined in the Credit Agreement
shall constitute an Event of Default hereunder ("Event of Default").
8.2 THE MORTGAGEE'S RIGHT TO ACCELERATE. If an Event of Default shall
occur the Mortgagee may immediately and without notice to the Mortgagor declare
the entire unpaid principal balance of the Note together with all other
Indebtedness Secured Hereby to be immediately due and payable and thereupon all
such unpaid principal balance of the Note together with all accrued interest
thereon and all other Indebtedness Secured Hereby shall be and become
immediately due and payable.
<PAGE>
8.3 REMEDIES OF THE MORTGAGEE AND RIGHT TO FORECLOSE. If an Event of
Default shall occur the Mortgagee shall have the right to enforce the provisions
of this Mortgage and may, either with or without entry or taking possession,
proceed by suit or suits at law or in equity or by any other appropriate
proceedings or remedy to enforce payment of the Indebtedness Secured Hereby or
the performance of any other term hereof or any other right and the Mortgagor
hereby authorizes and fully empowers the Mortgagee to foreclose this Mortgage by
judicial proceedings or by advertisement with full authority to sell the
Premises at public auction and convey the same to the purchaser in fee simple,
either in one parcel or separate lots and parcels, all in accordance with and in
the manner prescribed by law, and out of the proceeds arising from sale and
foreclosure to retain the principal and interest due on the Note and the
Indebtedness Secured Hereby together with all such sums of money as the
Mortgagee shall have expended or advanced pursuant to this Mortgage or pursuant
to statute together with interest thereon as herein provided and all costs and
expenses of such foreclosure, including, but not limited to, maximum lawful
attorney's fees, costs of environmental inspections and appraisal costs and
expenses, with the balance, if any, to be paid to the persons entitled thereto
by law.
8.4 RECEIVER. Upon the occurrence of an Event of Default, the Mortgagee
shall be entitled as a matter of right without notice and without giving bond
and without regard to the solvency or insolvency of the Mortgagor, or waste of
the premises or adequacy of the security of the Premises, to apply for the
appointment of a receiver under any statute or law who shall have all the
rights, powers and remedies as provided by such statute or law, including
without limitation the rights of receiver pursuant to Minnesota Statutes section
576.01, as amended, and who shall from the date of his appointment through any
period of redemption existing at law collect the rents, and all other income of
any kind; manage the Premises so as to prevent waste; execute leases within or
beyond the use of receivership; and perform the terms of this Mortgage and apply
the rents, issues and profits to the payment of the expenses enumerated in
Minnesota Statutes section 576.01, subdivision 2 in the priority mentioned
therein and to all expenses for maintenance of the Premises and to the costs and
expenses of the receivership, including reasonable attorneys fees, to the
repayment of the Indebtedness Secured Hereby. The Mortgagor does hereby
irrevocably consent to such appointment.
8.5 RIGHTS UNDER UNIFORM COMMERCIAL CODE. In addition to the rights
available to a mortgagee of real property, the Mortgagee shall also have all the
rights, remedies and recourse available to a secured party under the Uniform
Commercial Code including the right to proceed under the provisions of the
Uniform Commercial Code governing default as to any Collateral as defined in
Section 4.1 of this Mortgage which may be included in the Premises or which may
be deemed nonrealty in a foreclosure of this Mortgage or to proceed as to such
Collateral in accordance with the procedures and remedies available pursuant to
a foreclosure of real estate.
8.6 RIGHT TO DISCONTINUE PROCEEDINGS. In the event the Mortgagee shall
have proceeded to invoke any right, remedy or recourse permitted under this
Mortgage and shall thereafter elect to discontinue or abandon the same for any
reason, the Mortgagee shall have the unqualified right to do so and in such
event the Mortgagor and the Mortgagee shall be restored to their former
positions with respect to the Indebtedness Secured Hereby. This Mortgage, the
Premises and all rights, remedies and recourse of the Mortgagee shall continue
as if the same had not been invoked.
8.7 ACKNOWLEDGMENT OF WAIVER OF HEARING BEFORE SALE. The Mortgagor
understands and agrees that if an Event of Default shall occur, the Mortgagee
has the right, inter alia, to foreclose this Mortgage by advertisement pursuant
to Minnesota Statutes chapter 580, as hereafter amended, or pursuant to any
similar or replacement statute hereafter enacted; that if the Mortgagee elects
to foreclose by advertisement, it may cause the Premises, or any part thereof,
to be sold at public auction; that notice of such sale must be published for six
(6) successive weeks at least once a week in a newspaper of general circulation
and that no personal notice is required to be served upon the Mortgagor. The
<PAGE>
Mortgagor further understands that upon the occurrence of an Event of Default,
the Mortgagee may also elect its rights under the Uniform Commercial Code and
take possession of the Collateral and dispose of the same by sale or otherwise
in one or more parcels provided that at least ten (10) days' prior notice of
such disposition must be given, all as provided for by the Uniform Commercial
Code, as hereafter amended or by any similar or replacement statute hereafter
enacted. The Mortgagor further understands that under the Constitution of the
United States and the Constitution of the State of Minnesota it may have the
right to notice and hearing before the Premises may be sold and that the
procedure for foreclosure by advertisement described above does not insure that
notice will be given to the Mortgagor and neither said procedure for foreclosure
by advertisement nor the Uniform Commercial Code requires any hearing or other
judicial proceeding. THE MORTGAGOR HEREBY EXPRESSLY CONSENTS AND AGREES THAT THE
PREMISES MAY BE FORECLOSED BY ADVERTISEMENT AND THAT THE PERSONAL PROPERTY MAY
BE DISPOSED OF PURSUANT TO THE UNIFORM COMMERCIAL CODE, ALL AS DESCRIBED ABOVE.
THE MORTGAGOR ACKNOWLEDGES THAT IT IS REPRESENTED BY LEGAL COUNSEL; THAT BEFORE
SIGNING THIS DOCUMENT THIS SECTION AND THE MORTGAGOR'S CONSTITUTIONAL RIGHTS
WERE FULLY EXPLAINED BY SUCH COUNSEL AND THAT THE MORTGAGOR UNDERSTANDS THE
NATURE AND EXTENT OF THE RIGHTS WAIVED HEREBY AND THE EFFECT OF SUCH WAIVER.
9. HAZARDOUS MATERIALS
9.1 DEFINITIONS. Any terms used in this Article which are defined in
state or federal statutes and/or regulations promulgated in relation thereto
shall have the meaning subscribed to such terms in said statutes and
regulations.
9.2 REPRESENTATIONS BY THE MORTGAGOR. The Mortgagor hereby represents
to the Mortgagee that: (a) to the best of the Mortgagor's knowledge after due
inquiry, the Premises has never been used either by previous owners or occupants
or by the Mortgagor or current occupants to generate, manufacture, refine,
transport, treat, store, handle or dispose of any toxic material, hazardous
substance or hazardous waste and no such material, substance or waste currently
exists on the Premises or in its soil or groundwater; (b) to the best of the
Mortgagor's knowledge after due inquiry, no portion of the improvements on the
Premises has been constructed with asbestos, asbestos-containing materials, urea
formaldehyde insulation or any other chemical or substance which has been
determined to be a hazard to health and environment; (c) to the best of the
Mortgagor's knowledge after due inquiry, there are no electrical transformers or
other equipment which have dielectric fluid-containing polychlorinated biphenyls
(PCBs) located in, on or under the Premises (the materials, substances and
wastes described in subparagraphs 9.2(a), (b) and (c) above are hereinafter
sometimes collectively referred to as "Hazardous Wastes and Substances"); (d) to
the best of the Mortgagor's knowledge after due inquiry, the Premises has never
contained any underground storage tanks; and (e) the Mortgagor has not received
nor does it have any knowledge of any summons, citation, directive, letter or
other communication, written or oral, from any local, state or federal
governmental agency concerning (i) the existence of Hazardous Wastes and
Substances on the Premises or in the immediate vicinity or (ii) any intentional
or unintentional action or omission on the part of the Mortgagor or any occupant
of the Premises resulting in the releasing, spilling, leaking, pumping, pouring,
emitting, emptying, or dumping of Hazardous Wastes or Substances onto the
Premises or into waters or other lands.
9.3 COVENANTS OF THE MORTGAGOR. The Mortgagor hereby covenants to the
Mortgagee that
(a) the Mortgagor shall (i) comply and shall cause all occupants of
the Premises to comply with all federal, state and local laws,
rules, regulations and orders with respect to the discharge,
generation, removal, transportation, storage and handling of
<PAGE>
Hazardous Wastes and Substances, (ii) remove any Hazardous
Wastes and Substances immediately upon discovery of same, and
(iii) pay or cause to be paid all costs associated with such
removal;
(b) the Mortgagor shall keep the Premises free of any lien imposed
pursuant to any state or federal law, rule, regulation or order
in connection with the existence of Hazardous Wastes and
Substances on the Premises;
(c) the Mortgagor shall not install or permit to be installed or to
exist in or on the Premises any asbestos, asbestos-containing
materials, urea formaldehyde insulation or any other chemical or
substance which has been determined to be a hazard to health and
environment; and
(d) the Mortgagor shall not cause or permit to exist, as a result of
an intentional or unintentional act or omission on the part of
the Mortgagor or any occupant of the Premises, a releasing,
spilling, leaking, pumping, emitting, pouring, emptying or
dumping of any Hazardous Wastes or Substances onto the Premises
or into waters or other lands.
9.4 EVENTS OF DEFAULT AND REMEDIES. It shall constitute an Event of
Default hereunder and the Mortgagee shall be entitled to exercise all remedies
available to it hereunder if: (a) any of the Mortgagor's representations
contained in Section 9.2 hereof prove to be false, inaccurate or misleading; (b)
the Mortgagor shall fail to comply with the covenants contained in Section 9.3
hereof; (c) any Hazardous Wastes or Substances are hereafter found to exist on
the Premises or in its soil or groundwater; or (d) any summons, citation,
directive, letter or other communication, written or oral, shall be issued by
any local, state or federal governmental agency concerning the matters described
in Section 9.2(e)(i) and (ii) above. The Mortgagor hereby grants the Mortgagee
and its employees and agents an irrevocable and non-exclusive license to enter
the Premises, subject to rights of tenants, in order to inspect, conduct testing
and remove Hazardous Wastes and Substances. All costs of such inspection,
testing and removal shall immediately become due and payable to the Mortgagee,
shall be secured by this Mortgage and shall constitute additional Indebtedness
Secured Hereby.
9.5 INDEMNIFICATION. The Mortgagor hereby agrees to defend, indemnify
and hold harmless the Mortgagee, its directors, officers, employees, agents,
contractors, subcontractors, licensees, invitees, successors and assigns
("Indemnified Parties") from and against any and all claims, losses, damages,
liabilities, judgments, costs and expenses (including, without limitation,
reasonable attorneys' fees and costs incurred in the investigation, defense and
settlement of claims) incurred by the Indemnified Parties as a result of or in
connection with the presence or removal of any Hazardous Wastes or Substances or
as a result of or in connection with activities prohibited under this Article.
The Mortgagor shall bear, pay and discharge, as and when the same become due and
payable, any and all such judgments or claims for damages, penalties or
otherwise, against the Indemnified Parties, shall hold the Indemnified Parties
harmless against all claims, losses, damages, liabilities, costs and expenses,
and shall assume the burden and expense of defending all suits, administrative
proceedings, and negotiations of any description with any and all persons,
political subdivisions or government agencies arising out of any of the
occurrences set forth in this Article. This indemnification shall remain in full
force and effect and shall survive the repayment of the Indebtedness Secured
Hereby and the satisfaction of the documents securing the same, as well as the
exercise of any remedy by the Mortgagee hereunder or under the other documents
securing this Mortgage, including a foreclosure of the Mortgage or the
acceptance of a deed in lieu of foreclosure.
<PAGE>
10. MISCELLANEOUS
10.1 RELEASE OF MORTGAGE. When all Indebtedness Secured Hereby has been
paid, this Mortgage and all assignments herein contained shall be void and this
Mortgage shall be released by the Mortgagee at the Mortgagor's expense.
10.2 CHOICE OF LAW. This Mortgage is made and executed under the laws
of the State of Minnesota and is intended to be governed by the laws of said
State.
10.3 SUCCESSORS AND ASSIGNS. This Mortgage and each and every covenant,
agreement, indemnity and other provision hereof shall be binding upon the
Mortgagor and its successors and assigns including without limitation each and
every from time to time record owner of the Premises or any other person having
an interest therein, shall run with the land and shall inure to the benefit of
the Mortgagee and its successors and assigns. As used herein the words
"successors and assigns" shall also be deemed to include the heirs,
representatives, administrators and executors of any natural person who is a
party to this Mortgage.
10.4 UNENFORCEABILITY OF CERTAIN CLAUSES. The unenforceability or
invalidity of any provisions hereof shall not render any other provision or
provisions herein contained unenforceable or invalid.
10.5 CAPTIONS AND HEADINGS. The captions and headings of the various
sections of this Mortgage are for convenience only and are not to be construed
as confining or limiting in any way the scope or intent of the provisions
hereof. Whenever the context requires or permits the singular shall include the
plural, the plural shall include the singular and the masculine, feminine and
neuter shall be freely interchangeable.
10.6 NOTICES. Any notice which any party hereto may desire or may be
required to give to any other party shall be in writing and the mailing thereof
by certified mail to their respective addresses as set forth herein, or to such
other places any party hereto may hereafter by notice in writing designate shall
constitute service of notice hereunder.
10.7 INTEREST LIMITATION. All agreements between the Mortgagor and the
Mortgagee are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the Indebtedness
Secured Hereby or otherwise, shall the amount paid or agreed to be paid to the
Mortgagee for the use, forbearance, loaning or detention of the Indebtedness
Secured Hereby exceed the maximum permissible under applicable law. If from any
circumstances whatsoever, fulfillment of any provisions hereof or of the Note,
the Credit Agreement or any other document securing this Mortgage at any time
given shall involve transcending the limit of validity prescribed by law, then,
the obligation to be fulfilled shall automatically be reduced to the limit of
such validity, and if from any circumstances the Mortgagee should ever receive
as interest an amount which would exceed the highest lawful rate of interest,
such amount which would be in excess of interest shall be applied to the
reduction of the principal balance secured by the Note and not to the payment of
interest thereunder. This provision shall control every other provision of all
agreements between the Mortgagor and Mortgagee and shall also be binding upon
and available to any subsequent holder of the Note.
Nothing herein contained shall affect or impair the liability or
obligation of any guarantor or other person who by separate instrument shall be
or become liable upon the Indebtedness Secured Hereby.
IN WITNESS WHEREOF, the Mortgagor has caused this Mortgage to be
executed as of the date first above written.
FIRST TEAM SPORTS, INC.
By: /s/ Kent A. Brunner
Name: Kent A. Brunner
Title: CFO
ACKNOWLEDGMENT
STATE OF MINNESOTA )
)
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this ____ day of
September, 1999, by _________________________, the __________________________ of
First Team Sports, Inc., a Minnesota corporation on behalf of said corporation.
_________________________
Notary Public
THIS DOCUMENT WAS DRAFTED BY:
OPPENHEIMER WOLFF & DONNELLY LLP
45 South Seventh Street
Suite 3400
Minneapolis, Minnesota 55402
(612) 607-7000
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
Lots 2 and 2A, Block 1, Anoka Enterprise Park Third Addition, according
to the recorded plat thereof, Anoka County, Minnesota.
<PAGE>
EXHIBIT "B"
PERMITTED ENCUMBRANCES
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements on
Forms S-8 of First Team Sports, Inc. pertaining to the 1987 Stock Option Plan
(No. 33-36123), 1987 Stock Option Plan (No. 33-52344), 1990 Nonqualified Stock
Option Plan (No. 33-37308), 1993 Employee Stock Purchase Plan (No. 33-68164) and
the 1994 Stock Option and Incentive Compensation Plan (No. 33-84722) of our
report dated April 14, 2000, with respect to the consolidated financial
statements and schedule of First Team Sports, Inc. included in the Annual Report
(Form 10-K) for the year ended February 28, 2000.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
May 25, 2000
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