SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 1, 1997.
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-10704
SPORT SUPPLY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2241783
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Diplomat Drive, Farmers Branch, Texas 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 484-9484
Not Applicable
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report
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 preceeding 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 []
Indicated below is the number of shares outstanding of each class
of the registrant's common stock as of September 15, 1997.
Title of Each Class of Common Stock Number Outstanding
Common Stock, $0.01 par value 8,074,784 shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Consolidated Financial Statements
Page
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
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<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
UNAUDITED
August 1, November 1,
1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash $ 358,898 $ 435,213
Accounts receivable --
Trade, less allowance for doubtful
accounts of $1,069,000 in 1997 and
$552,000 in 1996 13,531,554 11,836,173
Other 483,021 138,994
Income taxes receivable 2,264,781 1,343,579
Inventories,net 13,587,286 15,320,505
Other current assets 684,609 899,588
Deferred Tax Assets 3,201,594 5,883,341
Total current assets 34,111,743 35,857,393
DEFERRED CATALOG EXPENSES 1,455,733 2,367,875
PROPERTY, PLANT AND EQUIPMENT:
Land 8,663 8,663
Buildings 1,595,228 1,551,723
Machinery and equipment 5,659,804 6,029,845
Furniture and fixtures 2,391,357 2,900,870
Leasehold improvements 2,276,367 2,365,821
11,931,419 12,856,922
Less -- Accumulated Depreciation
and amortization (6,469,297) (6,779,589)
5,462,122 6,077,333
DEFERRED TAX ASSETS 4,492,847 4,492,847
COST IN EXCESS OF TANGIBLE NET ASSETS
ACQUIRED, less accumulated amortization of
$1,113,000 in 1997 and $1,036,000 in 1996 2,976,326 3,053,780
TRADEMARKS, less accumulated amortization
of $901,000 in 1997 and $748,000 in 1996 3,398,688 3,551,801
OTHER ASSETS, less accumulated amortization
of $1,106,000 in 1997 and $1,078,000 in 1996 705,373 761,826
NET NONCURRENT ASSETS OF
DISCONTINUED OPERATIONS - 16,365,572
$52,602,832 $72,528,427
</TABLE>
<PAGE>
<TABLE>
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CURRENT LIABILITIES:
Accounts payable $4,823,408 $ 9,993,049
Accrued property taxes 211,897 370,789
Other accrued liabilities 1,549,760 1,806,334
Notes payable and capital lease
obligations, current portion 564,149 696,955
Net current liabilities of
discontinued oeprations - 6,329,927
Total current liabilities 7,149,214 19,197,054
DEFERRED GAIN 24,099 33,137
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS,
net of current portion 6,413,590 24,135,267
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01,
100,000 shares authorized, no shares
outstanding in 1997 or 1996 - -
Common stock, par value $0.01,
20,000,000 shares authorized, 9,151,899
and 7,551,899 shares issued in 1997 and
1996, 8,087,934 and 6,764,834 shares
outstanding in 1997 and 1996 91,519 75,519
Paid-in capital 58,527,193 46,543,193
Retained deficit (9,690,453) (9,711,358)
Treasury stock, at cost, 1,063,965 shares
in 1997 and 1996 (9,912,330) (7,744,386)
39,015,020 29,162,969
$52,602,832 $72,528,427
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For The Three Months Ended For The Nine Months Ended
August 1, 1997 August 2, 1996 August 1, 1997, August 2, 1996
<S> <C> <C> <C> <C>
Net revenues $23,224,872 $21,919,829 $ 66,116,934 $60,657,144
Cost of sales 13,702,831 13,567,404 39,972,925 37,741,569
Gross profit 9,522,041 8,352,425 26,144,009 22,915,575
Selling,general and
administrative expenses 6,647,385 7,371,792 20,665,050 21,141,661
Nonrecurring charges - - 1,300,000,000 -
Operating profit 2,874,656 980,633 4,178,959 1,773,914
Interest expense (178,937) (290,381) (648,148) (1,062,057)
Other income, net 15,872 2,916 49,461 34,558
Earnings from continuing
operations before provision
for income taxes 2,711,591 693,168 3,580,272 746,415
Provision for income taxes 735,110 249,484 985,368 268,708
Earnings from continuing
operations 1,976,481 443,684 2,594,904 477,707
Discontinued operations:
Loss from operations, net - - - (2,082,143)
Loss on disposal, net - (3,732,480) (2,574,000) (12,170,697)
Loss from discontinued
operations - (3,732,480) (2,574,000) (14,252,840)
Net earnings (loss) $1,976,481 $(3,288,796) $20,904 $(13,775,133)
Earnings (loss) per common
and equivalent share:
Continuing operations $0.24 $0.06 $0.32 $0.07
Discontinued operations 0.00 (0.55) (0.32) (2.10)
Net earnings (loss) $0.24 $(0.49) $0.00 $(2.03)
Weighted average number of
common and common equivalent
shares outstanding 8,334,441 6,776,802 8,138,003 6,772,416
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For The Nine Months Ended
August 1, 1997 August 2, 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 20,904 $(13,775,133)
Adjustments to reconcile net loss
to net cash used in operating activities --
Loss on disposal of discontinued
operations 2,574,000 12,170,697
Depreciation and amortization 1,089,334 1,282,347
Provision for allowances for
accounts receivable - 552,701
Changes in assets and liabilities --
Increase in receivables (2,960,610) (1,630,673)
(Increase) decrease in inventories 1,733,219 (2,104,450
(Increase) decrease in deferred
catalogs and other current assets 3,808,868 (1,162,383)
Increase (decrease) in payables (5,169,641) 2,217,583
Increase (decrease) in accrued
liabilities (415,466) 20,457
(Increase) decrease in other assets (11,078) 116,745
Other (9,038) (27,841)
Discontinued operations - noncash charges
and working capital changes (697,524) 1,903,770
--------- ---------
Total adjustments (57,936) 13,338,953
Net cash used in operating activities (37,032) (436,180)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant & equipment (207,025) (510,273)
Proceeds from sale of investments 31,000 5,078,190
Investing activities of discontinued operations (1,657) (516,400)
Proceeds from sale of discontinued operation 8,160,826 -
Net cash provided by investing activities 7,983,144 4,051,517
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of notes payable 6,722,522 4,342,834
Payments of notes payable and
capital lease obligations (24,577,005) (8,211,737)
Proceeds from common stock issuances 12,000,000 3,878
Purchase of treasury stock (2,167,944) -
Dividends paid to stockholders - (201,650)
Net cash used in financing activities (8,022,427) (4,066,675)
Net change in cash (76,315) (451,338)
Cash, beginning of period 435,213 570,467
Cash, end of period $358,898 $119,129
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
UNAUDITED
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION :
For The Nine Months Ended
August 1, August 2,
1997 1996
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Cash paid during the period for interest $1,131,519 $1,874,881
Cash paid during the period for income taxes $ 10,825 $ 145,000
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES :
During April 1996, the Company reissued 42,599
shares of its common stock previously
held in treasury in connection with
an acquisition completed in 1994 $ - $ 309,383
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
These consolidated financial statements reflect all normal and recurring
adjustments that are, in the opinion of management, necessary to present a
fair statement of Sport Supply Group, Inc.'s (the "Company" or "SSG")
consolidated financial position as of August 1, 1997 and the results of
its operations for the three and nine month periods ended August 1, 1997
and August 2, 1996. In January 1997, the Company changed its financial
reporting year end from October 31 to September 30. Accordingly, fiscal
year 1997 is a transition period consisting of eleven months. The Company
is currently operating on a 52/53 week year ending on the Friday closest
to September 30. Operating results for the interim period ending August
1, 1997 are not necessarily indicative of the results that may be expected
for the eleven month period ending September 26, 1997.
The consolidated financial statements include the accounts of SSG and its
wholly-owned subsidiary, Sport Supply Group International Holdings, Inc.
All significant intercompany accounts and transactions have been
eliminated in consolidation. The consolidated financials also include
estimates and assumptions made by management that affect the reported
amounts of assets and liabilities, the reported amounts of revenues and
expenses, provisions for and the disclosure of contingent assets and
liabilities. Actual results could materially differ from those estimates.
During May 1996, the Company sold substantially all of the assets (other
than cash and accounts receivable) of its Gold Eagle Professional Golf
Products Division (the "Gold Eagle Division"). Subsequent to the sale
of the Gold Eagle Division, the Company adopted a formal plan to dispose
of its remaining retail segment operations (which previously included the
Gold Eagle Division). As a result, the Company's retail segment was reported
as a discontinued operation in the accompanying consolidated
financial statements through March 28, 1997, the date of the disposal of
the remaining retail segment (See Note 6).
Note 1 - Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method for items manufactured by the Company
and weighted-average cost for items purchased for resale. As of August 1,
1997 and November 1, 1996, inventories consisted of the following:
August 1, November 1,
1997 1996
Raw Materials $ 2,592,386 $ 2,255,675
Materials
Work-in-progress 221,980 146,751
Finished and purchased goods 10,772,920 12,918,079
$13,587,286 $15,320,505
<PAGE>
Note 2 - Stockholders' Equity
The Company maintains a stock option plan that provides up to 2,000,000
shares of common stock for awards of incentive and non-qualified stock
options to directors, employees and consultants of the Company. Under the
stock option plan, the exercise price of options will not be less than the
fair market value of the common stock at the date of grant or not less
than 110% of fair market value for incentive stock options granted to
certain employees, as more fully described in the Amended and Restated
Stock Option Plan. Options expire 10 years from the grant date, or 5
years from the grant date for incentive stock options granted to certain
employees, or such earlier date as determined by the Board of Directors of
the Company.
During the nine months ended August 1, 1997, the Company granted a total
of 594,375 options under the stock option plan at exercise prices ranging
from $6.125 to $7.50 per share. 585,000 of these options were granted to
key executive officers of, and a consultant to, the Company at an exercise
price of $7.50 per share. The following table summarizes transactions
under the plan for the nine months ended August 1, 1997 and August 2,
1996:
Nine Months Ended
August 1, August 2,
1997 1996
Options outstanding- beginning of period 685,473 811,772
Options granted 594,375 29,125
Options exercised -- (562)
Options forfeited (218,900) (131,612)
Options outstanding - end of period 1,060,948 708,723
Range of exercise prices $4.80 - $13.125 $4.80 - $14.25
As of August 1, 1997 there were 245,130 non-qualified options outstanding
that were issued outside the plan. Such options have exercise prices
ranging from $6.88 to $15.00 per share.
<PAGE>
On May 28, 1997, the Company approved the repurchase of up to 1,000,000
shares of its issued and outstanding common stock in the open market
and/or privately negotiated transactions. Such purchases are subject to
price and availability of shares, working capital availability and any
alternative capital spending programs of the Company, and maintaining
compliance with the senior credit facility. As of August 1, 1997, the
Company had repurchased approximately 277,000 shares of its issued and
outstanding common stock in the open market.
Note 3 - Notes Payable and Capital Lease Obligations
As of August 1, 1997 and November 1, 1996, notes payable and capital lease
obligations consisted of the following:
August 1, November 1,
1997 1996
Note payable under revolving line
of credit, interest at prime plus 3/4%
(9.25% at August 1, 1997) or LIBOR plus
2-3/4% (8.44% at August 1, 1997), due
October 31, 2000 collateralized by
substantially all assets $5,013,406 $21,811,339
Term loan, interest at prime plus
1.0% (9.5% at August 1, 1997),
payable in quarterly installments
plus accrued interest of $125,000
through October 31, 2000, collateralized
by substantially all assets 1,625,000 2,628,126
Capital lease obligation, interest at
7.4%, payable in monthly installments of
principal and interest totaling $3,159
through December 1998 50,806 75,694
Capital lease obligation, interest at
9.0%, payable in annual installments of
principal and interest totaling $55,000
through August 2005 288,527 317,063
Total 6,977,739 24,832,222
Less - current portion (564,149) (696,955)
Long-term debt and capital
lease obligations, net $ 6,413,590 $24,135,267
The Company has a senior secured credit facility to finance its working
capital requirements. The Company's ability to borrow funds under its
revolving credit facility is based upon certain percentages of eligible
trade accounts receivable and eligible inventories. On September 9,
1997, SSG entered into a Second Amended and Restated Loan and Security
Agreement (``Agreement") that includes a senior credit facility of
$25,000,000 with a maturity date of October 31, 2000. This Agreement
provides for additional loans to be made to SSG for the cost of certain
capital expenditures (up to a maximum of $4,000,000) and reduced interest
rates provided the Company meets a certain minimum pretax income for the
fiscal year ending September 26, 1997. The Agreement also contains
financial and net worth covenants in addition to limits on capital
expenditures.
<PAGE>
Amounts outstanding under the senior credit facility are collateralized
by substantially all assets of the Company. As of August 1, 1997, the
Company had the option of electing the revolving credit facility to bear
interest at the prevailing LIBOR rate plus 2.75% (8.44% at August 1, 1997)
or the Lender's prime rate plus .75% (9.25% at August 1, 1997). The
Company also had the option of electing the term loan to bear interest at
the prevailing LIBOR rate plus 3.0% (8.69% at August 1, 1997) or the
Lender's prime rate plus 1.0% (9.5% at August 1, 1997). Historically,
the Company has elected the lower of the interest rates available under
the facility.
As of August 1, 1997, the Company had borrowings of approximately
$5,013,000 outstanding under the revolver, approximately $483,000 of
letters of credit outstanding for foreign purchases of inventory, and
availability of approximately $12,200,000. In addition, as of August 1,
1997, SSG had borrowings of $1,625,000 under the term loan which is
payable in quarterly installments of principal and accrued interest of
$125,000 through October 31, 1999.
Note 4 - Net Earnings (Loss) Per Common Share
Net earnings (loss) per common share is based upon the weighted average
number of common and common equivalent shares outstanding during the nine
month periods ended August 1, 1997 and August 2, 1996. Outstanding stock
options and common stock purchase warrants are considered common stock
equivalents when dilution results from their assumed exercise.
Note 5 - Change in Control of Management
On December 10, 1996, pursuant to a Securities Purchase Agreement dated
November 27, 1996 between Emerson Radio Corp. and SSG (``the Purchase
Agreement"), Emerson acquired directly from SSG 1,600,000 shares of
newly-issued Common Stock for an aggregate consideration of $11,500,000
and five-year warrants to acquire an additional 1,000,000 shares of
Common Stock at an exercise price of $7.50 per share for an aggregate
consideration of $500,000. In addition, Emerson agreed to arrange for
foreign trade credit financing of $2,000,000 for the benefit of SSG to
supplement SSG's existing credit facilities. Pursuant to the Purchase
Agreement, SSG caused a majority of the members of SSG's Board of
Directors to consist of Emerson's designees.
Note 6 - Discontinued Operations
On May 20, 1996, SSG disposed of substantially all of the assets (other
than cash and accounts receivable) of the Gold Eagle Division to Morris
Rosenbloom & Co., Inc., a privately-held corporation. The sale of the
Gold Eagle Division resulted in a pretax loss of approximately $750,000.
<PAGE>
Subsequent to the sale of the Gold Eagle Division, the Company adopted a
formal plan to dispose of the remaining operations of the Company's
retail segment (which previously included the Gold Eagle Division) and
therefore classified these operations as discontinued. On March 28,
1997, SSG disposed of substantially all of the remaining assets of the
discontinued operation to Nitro Leisure Products, Inc., a Delaware
corporation. Pursuant to the Asset Acquisition Agreement, the total
consideration paid to SSG was $8,161,000 in cash. The following
represents net current liabilities as well as net noncurrent assets of
discontinued operations as of November 1, 1996 and the results of
operations of the discontinued operations for the nine month period ended
August 2, 1996 and the period from November 2, 1997 to the disposal date
of March 28, 1997:
November 1,
1996
Current assets $14,188,152
Current liabilities (20,518,079)
Net current liabilities $(6,329,927)
Noncurrent assets $16,365,572
Noncurrent liabilities --
Net noncurrent assets $16,365,572
For the Period From For the Nine Months Ended
November 2, 1996-March 28, 1997 August 2, 1996
Net revenues $ 1,790,395 $16,311,471
Selling, general,and
administrative expenses 1,235,398 3,806,059
Loss from operations,net of
income taxes -- (2,552,511)
Loss on disposal, net of
income taxes (2,574,000) (12,170,697)
The net loss from discontinued operations for the period from November 2,
1996 to the date of disposal includes allocated interest expense of
approximately $355,000 related to borrowings under the Company's senior
credit facility. Interest expense charged to discontinued operations
was based upon the amount of borrowings that were available based upon
the asset eligibility formulas set forth in the senior secured credit
agreement.
On March 4, 1997, the Company signed a letter of intent for the sale of
the remaining assets of the discontinued retail segment. Based upon
management's estimates at that time of the net proceeds to be received
pursuant to such disposal, the Company recorded a pre-tax charge of $3.9
million ($2.6 million after estimated income tax benefit) during the
quarter ended January 31, 1997. This charge was provided to record the
net assets at estimated net realizable value in accordance with the
purchase price set forth in the letter of intent. On March 28, 1997,
the Company sold the remaining assets of the discontinued segment for
approximately $8.2 million and used the sale proceeds to reduce the
Company's outstanding debt.
<PAGE>
Note 7 - Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per share" which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods
under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact is not expected
to be material for primary or fully diluted earnings per share for the third
quarter ended Augsut 1, 1997 and August 2, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Company's working capital increased approximately $10.3 million during
the nine months ended August 1, 1997, from $16.7 million at November 1,
1996 to $27.0 million at August 1, 1997. The increase in working capital
is primarily a result of: (i) a $5.2 million decrease in accounts payable;
(ii) a $1.7 million increase in trade receivables due to higher revenues
in the third fiscal quarter as compared to the fourth fiscal quarter of
1996; and (iii) a $6.3 million decrease in net current liabilities of
discontinued operations due to the sale of the remaining discontinued
operations on March 28, 1997. The increase in working capital was partially
offset by a $1.7 Million decrease in inventories and a $2.7 Million decrease
in deferred tax assets.
As of August 1, 1997, the Company had total borrowings under its senior
credit facility of approximately $6.6 million including a term loan of
$1,625,000 which is payable in quarterly installments of principal and
accrued interest of $125,000 through October 31, 2000, outstanding letters
of credit for foreign purchases of inventory of approximately $0.5
million, and availability of approximately $12.2 million. The net
decrease of $17.8 million in borrowings under the senior credit facility
and the net decrease of $5.2 million in trade payables compared to
November 1, 1996 reflects a payment of (i) approximately $12.0 million
using the proceeds received by the Company from the sale of 1.6 million
shares of the Company's common stock and 1.0 million common stock
purchase warrants to Emerson Radio Corp. (``Emerson'') and (ii) approximately
$8.2 million using the proceeds received by the Company from the sale of the
remaining assets of the discontinued retail segment.
On November 27, 1996, the Company entered into an agreement with its
senior lender whereby the senior lender amended certain provisions of the
senior secured credit agreement. The amendment included reducing the
credit facility to $25 million, extending the maturity date, and reducing
the number of financial covenants from seven to three as well as modifying
the remaining covenants to only include results from continuing
operations. At August 1, 1997, the Company was in compliance with the debt
covenants as amended and the Company believes it will remain in compliance
with the financial covenants throughout fiscal year 1997. On September 9,
1997, the Company entered into a Second Amended and Restated Loan and Security
Agreement (``Agreement''), which includes a senior credit facility of
$25,000,000 with a maturity date of October 31, 2000. This Agreement
provides for additional loans to be made to SSG for the cost of certain
capital expenditures (up to a maximum of $4,000,000) and reduced interest
rates and fees. The Agreement also contains financial and net worth covenants
in addition to limits on capital expenditures.
<PAGE>
The Company believes it will satisfy its short-term and long-term
liquidity needs from borrowings under its senior credit facility and cash
flows from operations. The proceeds from the sale of the discontinued
operations and proceeds from the Emerson transaction were used to reduce
the Company's outstanding borrowings. The Company anticipates that interest
expense in fiscal 1997 will continue to decrease as compared to fiscal year
1996 due to the lower borrowing levels and reduced interest rates.
On May 28, 1997, the Company approved the repurchase of up to 1,000,000
shares of its issued and outstanding common stock in the open market
and/or privately negotiated transactions. Such purchases are subject to
price and availability of shares, working capital availability and any
alternative capital spending programs of the Company. As of August 1,
1997, the Company repurchased approximately 277,000 shares of its issued and
outstanding common stock in the open market. The Company had no material
commitments for capital expenditures as of August 1, 1997. However, the
Company believes it will be able to satisfy any projected capital
requirements that may arise in the foreseeable future from borrowings
under the senior credit facility and cash flows from operations.
Results of Operations
Net Revenues. Net revenues increased approximately $1.3 million (6.0%)
and $5.5 million (9.0%) for the three and nine month periods ended August
1, 1997 as compared to the same periods of 1996. This increase in net
revenues reflects increases in revenues associated primarily with youth
sports league customers. These increases were partially offset by a
decrease in Government sales. As Government spending continues to be
reduced, the Company will experience a decrease in Government sales in
future periods.
Due to the United Parcel Services ("UPS") strike that occurred in August,
the Company was unable to meet all of its customers' demands for product,
which resulted in cancellation of some orders. As a result of reduced
Government spending, the UPS strike and the recent consolidation of the
Company's BSN, GSC, and Passons catalogs which resulted in fewer catalogs
mailed to customers, the Company may experience a decrease in revenues in
future periods associated with its core business. However, the savings
in catalog costs is expected to more than offset any loss in net income
that the Company may experience from mailing less catalogs.
Gross Profit. Gross profit increased approximately $1.2 million (14.0%)
and $3.2 million (14.1%) for the three and nine month periods ended
August 1, 1997 as compared to the same periods of 1996. As a percentage
of net revenues, gross profit increased from 38.1% to 41.0% and from
37.8% to 39.5% for the three and nine month periods ended August 1, 1997
as compared to the same periods of 1996. The dollar increase in gross
profit as well as the increase in gross profit as a percentage of net
revenues were attributable to, among other factors, the increase in sales
related to SSG's youth league division.
<PAGE>
Selling, General and Administrative Expenses. Operating expenses
decreased approximately $724,000 (9.8%) and decreased approximately
$477,000 (2.3%) for the three and nine month periods ended August 1, 1997
as compared to the same periods of 1996. As a percentage of net revenues,
operating expenses decreased from 33.6% to 28.6% and from 34.9% to 31.3%
for the three and nine month periods ended August 1, 1997 as compared to
the same periods of 1996. The dollar decrease in operating expenses for
the three and nine month periods ended August 1, 1997 was primarily a
result of the following:
(i) A decrease in bad debt expense associated with the Company's
successful collection efforts.
(ii) A decrease in expenses relating to the Company's participation
in the 1996 Olympic games because all expenses related to royalties
and travel were incurred and paid in fiscal year 1996.
(iii) A decrease in depreciation and amortization related to the write-
offs of certain software and forecasting systems recorded in the
fourth quarter of fiscal year 1996.
(iv) A decrease in warehouse expenses associated with the redesign of
certain aspects of the Company's primary distribution facility as
efficiencies have made it possible to eliminate some of the fixed
expenses that occurred in fiscal year 1996.
These decreases in operating expenses were partially offset by the
increase in advertising expenses due to the expansion of the Company's
marketing efforts. Since the Company recently combined its BSN, GSC,
and Passons' catalogs, the Company anticipates a decrease in catalog
expenses for fiscal year 1998.
Nonrecurring Charges. A majority of the nonrecurring pre-tax charge of
$1.3 million for the nine month period ended August 1, 1997 related to
the ``change in control'' of management that occurred on December 10,
1996 (including severance payments to the former CEO of approximately
$680,000). The change in control was the result of a stock purchase
agreement with Emerson. As part of the agreement, Emerson purchased
1,600,000 shares of SSG common stock and 1,000,000 common stock purchase
warrants and caused a majority of the members of SSG's Board of Directors
to consist of Emerson's designees.
Operating Profit. Operating profit for the three and nine month periods
ended August 1, 1997 increased approximately $1,894,000 (193.1%) and
$2,405,000 (135.6%), respectively, which reflects the impact of the (i)
increase in both gross profit dollars as well as gross profit percentages
related to increased sales, and (ii) the decrease in operating expenses
as discussed above.
<PAGE>
Interest Expense. Interest expense decreased approximately $111,000
(38.4%) and $414,000 (39.0%) for the three and nine month periods ended
August 1, 1997 as compared to the same periods of 1996. The decrease in
interest expense resulted from lower borrowing levels as a result of the
equity infusion by Emerson and the sale of the discontinued operations.
See Item 2 "Liquidity and Capital Resources" for a discussion of the
lower borrowing levels associated with the Company's senior credit
facility. The Company anticipates that interest expense in fiscal year
1997 will continue to decrease as compared to fiscal year 1996 due to the
lower borrowing levels and reduced interest rates.
Other Income, Net. Other income increased approximately $13,000 and $15,000
for the three and nine month periods ended August 1, 1997, as compared to
the same periods of 1996. The increase in other income resulted from
services provided to Emerson such as human resources, advertising, warehouse,
and banking functions as provided in a Management Services Agreement between
the Company and Emerson effective May 1997. Other income is expected to
increase in future periods as a result of a full year benefit being realized
from this Agreement.
Provision for Income Taxes. The provision for income taxes increased
approximately $486,000 and $717,000 for the three and nine month periods
ended August 1, 1997 as compared to the same periods of 1996. The
Company's effective tax rate decreased from 36.0% to 27.1% and from 36.0%
to 27.5% for the three and nine month periods ended August 1, 1997 as
compared to the same periods of 1996.
Net Earnings from Continuing Operations. Net earnings from continuing
operations increased approximately $1,533,000 and $2,117,000 for the three
and nine month periods ended August 1, 1997, respectively, as compared to
the same periods of 1996. Net earnings per share from continuing
operations increased from $0.06 to $0.24 and from $0.07 to $0.32 for the
three and nine month periods ended August 1, 1997 as compared to the same
periods of 1996. The three and nine month periods ended August 1, 1997
include an increase of approximately 23.0% and 20.2% in weighted average
shares outstanding related to the sale to Emerson of 1,600,000 shares of
SSG's newly-issued common stock offset by approximately 277,000 shares of
its issued and outstanding common stock purchased in the open market.
Certain Factors that May Affect the Company's Business or Future Operating
Results
This report contains various forward looking statements and information
that are based on Management's beliefs as well as assumptions made by and
information currently available to Management. When used in this report,
the words ``anticipate'', ``estimate'', ``expect'', ``predict'',
`` project'', and similar expressions are intended to identify forward
looking statements. Such statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated,
expected or projected. Among the key factors that may have a direct
bearing on the Company's results are set forth below.
Future trends for revenues and profitability remain difficult to predict.
The Company continues to face many risks and uncertainties, including:
general and specific market economic conditions, United States Government
sales, risk of nonpayment of accounts receivable, competitive factors,
risk of labor strikes by key vendors, and foreign supplier related issues.
The general economic condition in the U.S. could affect pricing on raw
materials such as metals and other commodities used in the manufacturing
of certain products. The Company believes it will be able to pass any
significant price increases on to its customers; however, any price
increases could have an adverse effect on revenues and costs.
<PAGE>
Approximately 7% of the Company's institutional sales are made to the
U.S. Government, a majority of which are made to military installations.
Anticipated reductions in U.S. Government spending could reduce funds
available to various government customers for sports related equipment,
which could adversely affect the Company's results of operations.
Management continues to closely monitor orders and the creditworthiness
of its customers. The Company has not experienced abnormal increases in
losses associated with accounts receivable; however, credit risks
associated with the youth league division are considered by the Company
to be greater than any other division. The Company has made allowances
for the amount it believes to be adequate to properly reflect the risk to
accounts receivable; however, unforeseen market conditions may compel the
Company to increase the allowances.
The sports related equipment market in which the Company participates is
highly competitive. SSG competes principally in the institutional market
with local sporting goods dealers, as well as other direct mail
companies. While large sporting goods companies dominate the market of
sporting goods in the United States, the Company does not compete with
such companies.
The Company derives a significant portion of its revenues from sales of
products purchased directly from foreign suppliers located primarily in
the Far East. In addition, the Company believes many of the products it
purchases from domestic suppliers are produced by foreign manufacturers.
The Company is subject to risks of doing business abroad, including
delays in shipments, adverse fluctuations in currency exchange rates,
increases in import duties, decreases in quotas, changes in custom
regulations and political turmoil. The occurrence of any one or more of
the foregoing could adversely affect the Company's operations.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company from time to time becomes involved in various claims and
lawsuits incident to its business (primarily relating to product liability
issues). In the opinion of management of SSG, any ultimate liability
arising out of currently pending claims and lawsuits will not have a
material effect on the financial condition or the results of operations of
SSG.
Item 2. Changes in Securities
(a) Not applicable.
(b) Not applicable.
Item 3. Defaults Upon Senior Securities
(a) Not applicable.
(b) Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
In November 1995, the Company received a notice from the United States
Securities and Exchange Commission (the SEC) that the SEC was conducting
a non-public, informal inquiry concerning, among other things, trading in
the Company's securities and certain accounting issues raised by the Company's
October 24, 1995 press release. In December 1995,the Company responded to
all of the SEC's requests in connection with this matter and has not been
contacted by the SEC since such time.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Item
(a)(1) Exhibit 3.1 - Amended and Restated Certificate of Incorporation
of the Company (incorporated by reference from
Exhibit 4.1 to the Company's Registration Statement
on Form S-8 (Registration No. 33-80028)).
(a)(2) Exhibit 3.1.1 - Certificate of Amendment of Amended and Restated
Certificate of Incorporation to the Company
(incorporated by reference from Exhibit 4.1 to
the Company's Registration Statement on Form S-8
(Registration No. 33-80028)).
(a)(3) Exhibit 3.2 - Amended and Restated Bylaws of the Company
(incorporated by reference from Exhibit 3.2 to
the Company's Report on Form 10-K for the year
ended November 1, 1996).
(a)(4) Exhibit 4.1 - Specimen of Common Stock Certificate (incorporated
by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (Registration
No. 33-39218)).
(a)(5) Exhibit 4.2 - Warrant Agreement entered into between the Company
and Warrant Agent, including form of Warrant,
relating to the purchase of up to 1,300,000 shares
of the Company's common stock for $25.00 per share,
which expires on December 15, 1998 (incorporated
by reference from Exhibit 4.2 to the Company's
Registration Statement on Form S-3 (Registration
No. 33-71574)).
(a)(6) Exhibit 4.3 - Warrant Agreement entered into between the
Company and Emerson relating to the purchase of up
to 1,000,000 shares of the Company's common stock
for $7.50 per share, which expires on December 10,
2001 (incorporated by reference from Exhibit 4 (a)
to the Company's Report on Form 8-K filed on
December 12, 1996.
<PAGE>
*(a)(7) Exhibit 10.1 - Second Amended and Restated Credit Agreement, dated
September 9, 1997, by and between the Company and
LaSalle Business Credit, Inc.
*(a)(8) Exhibit 10.2 - Management Services Agreement by and between the
Company and Emerson Radio Corp.
*(a)(9) Exhibit 10.3 - Amendment No. 1 to Employment Agreement and Severance
Agreement by and between the Company and Peter S.
Blumenfeld
*(a)(10) Exhibit 10.4 - Employment Agreement by and between the Company and
John P. Walker
*(a)(11) Exhibit 10.5 - Non-Qualified Stock Option Agreement by and between
the Company and Geoffrey P. Jurick
*(a)(12) Exhibit 10.6 - Non-Qualified Stock Option Agreement by and between
the Company and John P. Walker
*(a)(15) Exhibit 11 - Earnings per Common and Common Equivalent Share.
*(a)(16) Exhibit 27 - Financial Data Schedule
(b) - A report on Form 8-K was filed with the
Securities and Exchange Commission on June 26,
1997 to report the change in the Company's
Auditors. The change in Auditors was reported
pursuant to Item 4 of the Form 8-K.
- ----------------------------------
* Filed Herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPORT SUPPLY GROUP, INC.
September 15, 1997 By: /s/ John P. Walker
John P. Walker
Executive Vice President and
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
ITEM
Exhibit 10.1 - Second Amended and Restated Credit Agreement
by and between the Company and LaSalle Business
Credit, Inc.
Exhibit 10.2 - Management Services Agreement by and between
the Company and Emerson Radio Corp.
Exhibit 10.3 - Amendment No. 1 to Employment Agreement and
Severance Agreement by and between the Company
and Peter S. Blumenfeld
Exhibit 10.4 - Employment Agreement by and between the Company
and John P. Walker
Exhibit 10.5 - Non-Qualified Stock Option Agreement by and between
the Company and Geoffrey P. Jurick
Exhibit 10.6 - Non-Qualified Stock Option Agreement by and between
the Company and John P. Walker
Exhibit 11 - Earnings per Common and Common Equivalent Share
Exhibit 27 - Financial Data Schedule
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated as of September ____, 1997
between
SPORT SUPPLY GROUP, INC.,
as Borrower
and
LASALLE BUSINESS CREDIT, INC.,
as Lender
$25,000,000.00
<PAGE>
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
("Agreement") is made as of this 9th day of September, 1997, by and
among LASALLE BUSINESS CREDIT, INC., a Delaware corporation
("LaSalle"), with an office at 120 East Baltimore Street, Suite 1802,
Baltimore, Maryland 21202, and SPORT SUPPLY GROUP, INC., a Delaware
corporation ("Borrower"), with its principal office at 1901 Diplomat
Drive, Farmers Branch, Texas 75234.
<PAGE>
WITNESSETH:
WHEREAS, Borrower is currently indebted to LaSalle in
connection with certain loans, advances and credit accommodations
extended to Borrower by LaSalle pursuant to the Amended and Restated
Loan and Security Agreement dated as of March 23, 1995;
AND WHEREAS, the parties wish to modify in certain respects
the terms and conditions upon which such loans, advances and credit
accommodations shall be made;
NOW, THEREFORE, in consideration of any loans, advances and
credit accommodations (including any loans by renewal or extension)
heretofore and hereafter made to Borrower by LaSalle, and for other
good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by Borrower, the parties agree as follows:
<PAGE>
1. DEFINITIONS.
A. General Definitions
"Account Debtor" shall mean the Person who is obligated on or
under an Account.
"Accounts" shall mean all of Borrower's presently existing and
hereafter arising accounts, accounts receivable, contract rights,
instruments, documents, chattel paper, and all other forms of
obligations owing to Borrower arising out of the sale or lease of
goods or the rendition of services by Borrower, whether or not earned
by performance, and any and all credit insurance, guarantees, letters
of credit and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower, and all products and proceeds
of the foregoing.
"Affiliate" shall mean any Person (1) that directly or
indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with Borrower, (2) that
directly or beneficially owns or holds ten percent (10%) or more of
any class of the voting stock of Borrower, (3) ten percent (10%) or
more of whose voting stock (or in the case of a Person which is not a
corporation, ten percent (10%) or more of the equity interest of
which) is owned directly or beneficially or held by Borrower, or (4)
ten percent (10%) or more of whose voting stock (or in the case of a
Person which is not a corporation, ten percent (10%) or more of the
equity interest of which) is owned directly or beneficially or held
by a Person referred to in (1), (2) or (3) above.
"Bank" shall mean LaSalle National Bank, Chicago, Illinois,
and its successors.
"Basis Point" shall mean one one-hundredth of a percentage
point.
"Borrower's Books" shall mean all of Borrower's books and
records including, but not limited to: minute books; ledgers;
records indicating, summarizing, or evidencing Borrower's assets,
liabilities, the Accounts and all information relating thereto;
records indicating, summarizing, or evidencing Borrower's business
operations or financial condition; records indicating, summarizing,
or evidencing Borrower's compliance with or problems or activities
concerning environmental laws; and all computer programs, disc or
tape files, printouts, runs, and other computer prepared information
and the equipment containing such information and any software
necessary to operate the same, to the extent of Borrower's ownership
interest or other rights in and to all of such property.
"Borrowing Base" shall have the meaning specified in paragraph
2.A.(2) hereof.
"Breakage Costs" shall have the meaning specified in paragraph
5.C.(4) hereof.
<PAGE>
"Business Day" shall mean any day other than a Saturday,
Sunday, or such other day as banks in Illinois are authorized or
required to be closed for business.
"Capital Expenditure Loan" shall have the meaning specified in
paragraph 3.B hereof.
"Capital Expenditure Loan Note" shall have the meaning
specified in paragraph 3.B hereof.
"Capital Expenditures" shall mean, with respect to any period,
the aggregate of all expenditures (whether paid in cash or accrued as
liabilities and including expenditures for capitalized lease
obligations) by Borrower during such period that are required by GAAP
to be included in or reflected by the property, plant or equipment or
similar fixed asset accounts on the balance sheet of Borrower.
"Change of Control" shall mean a change in a majority of the
directors of the Borrower sitting on the Borrower's Board of
Directors as of the date of this Agreement; however, any director
elected after the date of this Agreement shall not be considered a
new director if a majority of the then existing directors propose the
admission of such new director.
"Closing Date" shall mean the date set forth on the first page
of this Agreement.
"Collateral" shall mean all of the personal property and other
assets owned by Borrower, all of the real property, improvements and
other assets owned by Borrower described in the Mortgage and all
other real or personal property owned by any Obligor or any other
Person now or hereafter pledged to LaSalle to secure, either directly
or indirectly, repayment of any of the Obligations, including without
limitation all of the following wherever located and whether now
existing or owned or hereafter created or acquired: the Accounts;
the General Intangibles; the Negotiable Collateral; the Inventory;
Borrower's Books; the Equipment; any money, deposit accounts or other
assets of Borrower in which LaSalle receives a lien or which
hereafter comes into the possession, custody or control of LaSalle or
any bailee of LaSalle; and all products and proceeds of every nature
of any of the foregoing, including, but not limited to, proceeds of
insurance covering the Collateral and any and all Accounts, General
Intangibles, Negotiable Collateral, Inventory, contract rights,
instruments, documents and chattel paper, Equipment, money, deposit
accounts or other tangible and intangible property of Borrower
resulting from the sale or other disposition of the Collateral, and
the proceeds and products thereof.
"Continuation" shall have the meaning specified in paragraph
5.C hereof.
"Conversion" shall have the meaning specified in paragraph 5.C
hereof.
"Default" shall mean an Event Of Default or any event,
condition or default which with the giving of notice, the lapse of
time or both would be an Event Of Default.
<PAGE>
"EBITDA" shall mean, with respect to any period, net income
from Borrower's continuing operations, as reported in Borrower's
Report on Form 10K, after taxes for such period (excluding any after-
tax gains or losses on the sale of assets and excluding other after-
tax extraordinary gains or losses) plus interest expense, income tax
expense, depreciation and amortization for such period, less gains
and plus losses attributable to any fixed asset sales made during
such period, plus any other non-recurring and non-cash charges or
losses, or minus any non-cash gains which have been subtracted or
added in calculating net income after taxes for such period.
"Eligible Account" shall mean an Account owing to Borrower
which is acceptable to LaSalle in LaSalle's reasonable credit
judgment for lending purposes, provided that such Account shall be
considered an Eligible Account if it meets, and so long as it
continues to meet, the following requirements:
(1) it is genuine and in all respects is what it purports to
be;
(2) it is owned by Borrower and Borrower has the right to
subject it to a security interest in favor of LaSalle;
(3) it arises from: (a) the performance of services by
Borrower and such services have been fully performed; or (b)
the sale or lease of Goods by Borrower, and such Goods have
been completed in accordance with the Account Debtor's
specifications (if any) and delivered to and accepted by the
Account Debtor, such Account Debtor has not refused to accept
and has not returned any of the Goods, or has not refused to
accept any of the services, which are the subject of such
Account, and Borrower has possession of, or has delivered to
LaSalle promptly after being requested by LaSalle, and in any
event within ten (10) days after receipt by Borrower, shipping
and delivery receipts evidencing delivery of such Goods;
(4) it is evidenced by an invoice rendered to the Account
Debtor thereunder, is due and payable within thirty (30) days
after the stated invoice date thereof (or sixty (60) days as
to those Account Debtors specified by LaSalle in its
reasonable credit judgment) and does not remain unpaid more
than one hundred twenty (120) days past the original invoice
date thereof (or one hundred fifty (150) days as to those
Account Debtors specified by LaSalle in its reasonable credit
judgment); provided, however, that if more than fifty percent
(50%) of the aggregate dollar amount of invoices owing by a
particular Account Debtor remain unpaid for more than one
hundred twenty (120) days (or one hundred fifty (150) days as
to those Account Debtors specified by LaSalle in its
reasonable credit judgment) past the respective invoice dates
thereof, then all Accounts owing to Borrower by that Account
Debtor shall be deemed ineligible;
(5) it is subject to a perfected, first priority lien and
security interest in favor of LaSalle, and it is not subject
to any prior assignment, claim, lien, security interest or
encumbrance whatsoever, other than Permitted Liens;
<PAGE>
(6) it is not an Account with respect to which Borrower is or
is expected to become liable to the Account Debtor for goods
sold or services rendered by the Account Debtor to Borrower,
to the extent of Borrower's existing or expected liability to
such Account Debtor;
(7) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor thereunder, and is not
subject to setoff, counterclaim, credit, allowance or
adjustment by such Account Debtor, or to any claim by such
Account Debtor denying liability thereunder in whole or in
part;
(8) it does not arise out of a contract or order which fails
in any material respect to comply with the requirements of
applicable law;
(9) the Account Debtor thereunder is not a director, officer,
employee or agent of Borrower, or a Subsidiary, Parent or
Affiliate of Borrower, except with respect to Accounts owing
to Borrower by Emerson under the Management Services
Agreement, for which Accounts in an amount not exceeding One
Hundred Fifty Thousand Dollars ($150,000.00) may constitute
Eligible Accounts so long as they meet the other requirements
set forth herein;
(10) it is not an Account with respect to which the Account
Debtor is the United States of America or any department,
agency or instrumentality thereof, unless Borrower has
directed such Account Debtor to remit all payments directly to
the Lock Box;
(11) it is not an Account with respect to which the Account
Debtor is located in a state which requires Borrower, as a
precondition to commencing or maintaining an action in the
courts of that state, either to: (a) receive a certificate of
authority to do business and be in good standing in such
state, or (b) file a notice of business activities report or
similar report with such state's taxing authority, unless (i)
Borrower has taken one of the actions described in clauses (a)
or (b), (ii) the failure to take one of the actions described
in either clause (a) or (b) may be cured retroactively by
Borrower at its election, or (iii) Borrower has proven, to
LaSalle's satisfaction, that it is exempt from any such
requirements under any such state's laws;
(12) it is an Account which arises out of a sale made in the
ordinary course of Borrower's business;
(13) the Account Debtor is a resident or citizen of, and is
located within, the United States of America or the Canadian
Provinces of Ontario, Manitoba, Saskatchewan, Alberta, or
Yukon, unless the Account is secured by a letter of credit or
credit insurance which has been specifically approved by and
assigned to LaSalle, or LaSalle is otherwise satisfied with
the creditworthiness of the Account Debtor;
<PAGE>
(14) it is not an Account with respect to which the Account
Debtor's obligation to pay is conditional upon the Account
Debtor's approval of the Goods or services or is otherwise
subject to any repurchase obligation or return right (other
than return rights existing in the ordinary course of
Borrower's business), as with sales made on a bill-and-hold,
guaranteed sale, sale on approval, sale or return or
consignment basis;
(15) it is not an Account (a) with respect to which any
representation or warranty contained in this Agreement is
untrue in any material respect or (b) which violates any of
the covenants of Borrower contained in this Agreement;
(16) it is not an Account which, when added to a particular
Account Debtor's other indebtedness to Borrower, exceeds the
greater of ten percent (10%) of the aggregate of Borrower's
Accounts or a credit limit determined by LaSalle in its
reasonable credit judgment for that Account Debtor, provided,
however, that Accounts excluded from Eligible Accounts solely
by reason of this sub-paragraph (16) shall be Eligible
Accounts to the extent of such percentage credit limit; and
(17) it is not an Account with respect to which the prospect
of payment or performance by the Account Debtor is or will be
impaired, as determined by LaSalle in its reasonable credit
judgment, which shall become ineligible twenty (20) calendar
days after LaSalle advises Borrower of such determination.
"Eligible Capital Expenditure" shall mean a capital asset to
be used in the Borrower's normal course of business or computer
hardware, in either case which LaSalle, in its reasonable credit
discretion based upon such information as LaSalle may request from
Borrower, has determined to be eligible for an advance under the
Capital Expenditure Line.
"Eligible Finished Goods" shall mean Eligible Inventory of
Borrower which constitutes finished goods held for sale by Borrower,
normally saleable in the ordinary course of Borrower's business.
"Eligible Foreign Account" shall mean each Eligible Account
which is owed by an Account Debtor which is not a resident or citizen
of, and is not located within, the United States of America or the
Canadian Provinces of Ontario, Manitoba, Saskatchewan, Alberta, or
Yukon, but which is secured by a letter of credit or credit insurance
which has been specifically approved by and assigned to LaSalle or
LaSalle is otherwise satisfied with the creditworthiness of the
Account Debtor.
"Eligible Inventory" shall mean Inventory of Borrower which is
acceptable to LaSalle in its reasonable credit judgment, provided
that such Inventory shall be considered Eligible Inventory if it
meets, and so long as it continues to meet, the following
requirements:
<PAGE>
(1) it constitutes either: (a) raw materials normally used in
the ordinary course of Borrower's business, provided such raw
materials have not become obsolete, or (b) finished goods
held for sale by Borrower, normally and currently saleable in
the ordinary course of Borrower's business, and in either case
it is not tubing, boxes or other packaging materials,
storeroom inventory, customer reserves or work in process;
(2) it is owned by Borrower and Borrower has the right to
subject it to a security interest in favor of LaSalle;
(3) it is located on premises within the United States of
America, and such premises are listed on Schedule 15.B
attached hereto, or it has been paid for in full by Borrower,
Borrower possesses negotiable documents evidencing title
thereto, and it is in transit;
(4) it is subject to a perfected, first priority lien and
security interest in favor of LaSalle, and it is not subject
to any prior assignment, claim, lien, security interest or
encumbrance whatsoever, other than Permitted Liens;
(5) it is held for sale or lease or furnishing under contracts
of service, it is of good and merchantable quality, and it is
new and unused (or otherwise saleable as new) and free from
defects which would, in LaSalle's reasonable credit judgment,
affect its market value;
(6) it is not stored with a bailee, consignee, warehouseman,
processor or similar party unless LaSalle has given its prior
written approval and Borrower has caused any such bailee,
consignee, warehouseman, processor or similar party to issue
and deliver to LaSalle, in form and substance acceptable to
LaSalle, such UCC financing statements, warehouse receipts,
waivers and other documents as LaSalle shall reasonably
require;
(7) it is not located on premises leased by Borrower from a
landlord with whom LaSalle has not entered into a landlord's
waiver on terms reasonably satisfactory to LaSalle;
(8) it is not Inventory covered by a patent or trademark which
could not be sold by LaSalle after an Event of Default without
violating the patent or trademark unless the written consent
of the patent or trademark holder to a liquidation of the
Inventory by LaSalle after an Event of Default under the
patent or trademark has been obtained;
(9) LaSalle has determined in accordance with LaSalle's
reasonable credit judgment that the Inventory is not
unacceptable due to age, type, category or quantity, as
evaluated in accordance with LaSalle's past audit practices;
and
(10) it is not Inventory (a) with respect to which any of the
representations and warranties contained in this Agreement are
untrue in any material respect, or (b) which violates any of
the covenants of Borrower contained in this Agreement.
<PAGE>
"Eligible Raw Materials" shall mean Eligible Inventory of
Borrower which constitutes raw materials normally used in the
ordinary course of Borrower's business, provided such raw materials
have not become obsolete.
"Emerson" shall mean Emerson Radio Corp., a Delaware
corporation.
"Equipment" shall mean all machinery and equipment owned by
Borrower, including without limitation processing equipment, data
processing and computer equipment with software and peripheral
equipment, and all engineering, processing and manufacturing
equipment, office machinery, furniture, materials handling equipment,
tools, molds, dies, attachments, accessories, automotive equipment,
trailers, trucks, motor vehicles, and all other equipment of every
kind and nature, as well as all fixtures, all whether now owned or
hereafter acquired, and wheresoever situated, together with all
additions and accessions thereto, replacements therefor, all parts
therefor, and all manuals, drawings, instructions, warranties, and
rights with respect thereto, and all products and proceeds of the
foregoing, and condemnation awards and insurance proceeds with
respect thereto.
"Event Of Default" shall have the meaning specified in
paragraph 16 hereof.
"Excess Availability" shall mean, as of any date of
determination by LaSalle, the excess, if any, of (1) the Borrowing
Base over (2) the outstanding Revolving Loans, plus forty percent
(40%) of the Letter of Credit Obligations for documentary Letters of
Credit issued for the purchase of Eligible Finished Goods, plus sixty
percent (60%) of the Letter of Credit Obligations for documentary
Letters of Credit issued for Eligible Raw Materials, plus one hundred
percent (100%) of the Letter Of Credit Obligations for stand-by
Letters of Credit, in each case as of the close of business on such
date. For purposes of calculating Borrower's Excess Availability and
the amount of the Borrowing Base relating thereto, LaSalle may, in
the exercise of its reasonable credit judgment, establish a reserve
in an aggregate amount based on Borrower's outstanding trade payables
which are past due in any material respect with stated vendor terms,
as of such date of determination, to the extent thereof.
"Fiscal Quarter" shall mean each fiscal quarter of Borrower,
which shall mean the Borrower's fiscal quarters ending August 1, 1997
and September 26, 1997, and thereafter shall mean Borrower's fiscal
quarters ending on or about each March 31, June 30, September 30 and
December 31.
"GAAP" shall mean generally accepted accounting principles and
policies in the United States as in effect from time to time.
<PAGE>
"General Intangibles" shall mean all of the present and future
general intangibles and other personal property owned by Borrower
(including without limitation, all rights and interests of Borrower
in any and all rights of Borrower to all choses or things in action,
tax refund claims, credits, claims, demands, goodwill, licenses,
franchise agreements, subscription costs, patents, trade names,
trademarks, copyrights, rights to royalties, blueprints, drawings,
customer lists, purchase orders, computer programs, computer discs,
computer tapes, literature, reports, catalogs, methods, sales
literature, video tapes, confidential information and trade secrets,
consulting agreements, employment agreements, leasehold interests in
real and personal property, insurance policies, deposits with
insurers relating to workmen's compensation liabilities, deposit
accounts, tax refunds and proprietary rights in any Equipment), other
than Equipment, Inventory and Accounts, as well as Borrower's Books
relating to any of the foregoing, and all products and proceeds of
the foregoing.
"Government Account Debtor" shall mean any Account Debtor
which is the United States of America or any department, agency or
instrumentality of the United States of America.
"Government Accounts" shall mean all Accounts with respect to
which the person who is obligated on or under such Accounts are
Government Account Debtors.
"Indemnified Party" shall have the meaning specified in
paragraph 18 hereof.
"Interest Period" shall mean for any LIBOR Rate Loan the
period commencing on the date of the borrowing thereof and ending
one, two, three or six months thereafter, provided, however, that
Borrower may not select any Interest Period that ends after the
Original Term, or if applicable, any Renewal Term. Whenever the last
day of an Interest Period would otherwise occur on a day other than a
Business Day, the last day of such Interest Period shall be extended
to occur on the next succeeding Business Day; provided, that if such
extension would cause the last day of such Interest Period to occur
in the next following calendar month, the last day of such Interest
Period shall occur on the next preceding Business Day.<PAGE>
"Inventory" shall mean all present and future inventory in
which Borrower has any ownership interest, including, but not limited
to, goods held by Borrower for sale or lease or to be furnished under
a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, supplies and packing and
shipping materials, wherever located, and any documents of title
representing any of the above.
"Kind" shall mean, with respect to any Loan, whether such Loan
is a Revolving Loan or a Term Loan.
"Letters Of Credit" shall mean all documentary and stand-by
letters of credit issued for Borrower's account in accordance with
the terms of paragraph 2.B hereof.
<PAGE>
"Letter Of Credit Obligations" shall mean, as of any date of
determination, the sum of (1) the aggregate undrawn amount of all
Letters Of Credit, and (2) the aggregate unreimbursed amount of all
drawn Letters Of Credit.
"Liabilities" shall mean at any date all liabilities required
under GAAP to be recorded on a balance sheet as of such date.
"LIBOR Rate" shall mean, with respect to the Interest Period
applicable to the borrowing of a LIBOR Rate Loan, the rate obtained
(rounded upwards to the nearest 1/100 of 1%) by dividing (i) the rate
of interest per annum offered to LaSalle or to Bank, as applicable,
in the London interbank foreign currency deposits market as of
approximately 9:00 A.M. (Chicago time) two (2) Business Days prior to
the commencement of such Interest Period for U.S. dollar deposits of
amounts in immediately available funds comparable to the principal
amount of the LIBOR Rate Loan for which the LIBOR Rate is being
determined with maturities comparable to the Interest Period for
which such LIBOR Rate will apply, by (ii) a percentage equal to 1
minus the stated reserve (expressed as a decimal), if any, required
to be maintained against "Eurocurrency liabilities" as specified in
Regulation D of the Board of Governors of the Federal Reserve System
as from time to time shall be in effect (or against any other
category of liabilities, which includes deposits, by reference to
which the interest rate on LIBOR Rate Loans is determined or any
category of extensions of credit on other assets, which includes
loans by a non-U.S. office of LaSalle or Bank to U.S. Residents). In
the absence of manifest error, each determination by LaSalle of the
applicable LIBOR Rate shall be deemed conclusive.
"LIBOR Rate Loan" shall mean a Revolving Loan or portion of
any Term Loan that bears interest based on the LIBOR Rate.
"LIBOR Rate Revolving Loan" shall mean a Revolving Loan that
bears interest based on the LIBOR Rate.
"LIBOR Rate Term Loan" shall mean that portion of the Term
Loan that bears interest based on the LIBOR Rate.
"Loan" or "Loans" shall mean any and all Revolving Loans, the
Term Loan, and any Capital Expenditure Loan made by LaSalle to
Borrower pursuant to paragraphs 2 and 3 hereof, and all other loans,
advances and financial accommodations made by LaSalle to or on behalf
of Borrower hereunder.
"Lock Box" shall have the meaning specified in paragraph 10.A
hereof.
"Management Services Agreement" shall mean that certain
Management Services Agreement dated July 1, 1997 to be effective as
of March 7, 1997, by and between Borrower and Emerson, together with
any amendments or modifications thereto which have been submitted to
LaSalle.
<PAGE>
"Material Adverse Effect" shall mean with respect to any
event, act, condition or occurrence of whatever nature (including any
adverse determination in any litigation, arbitration or governmental
investigation or proceeding), whether singly or in conjunction with
any other event or events, act or acts, condition or conditions,
occurrence or occurrences, whether or not related, a material adverse
change in, or a material adverse effect upon, the business, property,
assets, operations, condition (financial or otherwise) or prospects
of Borrower considered as a whole, as determined by LaSalle in its
reasonable credit judgment.
"Mortgage" shall mean each mortgage or deed of trust executed
by Borrower in favor of LaSalle to secure the Obligations.
"Negotiable Collateral" shall mean a letter of credit, advice
of credit, instrument, money, negotiable document, warehouse receipt,
bill of lading, certificated security, certificate of title,
certificate of deposit, chattel paper, or similar property, and
proceeds thereof.
"Notes" shall collectively mean the Revolving Note and the
Term Note, and all other promissory notes which from time to time
evidence any of the Loans.
"Obligations" shall mean all loans, advances, overdrafts,
debts, liabilities (including without limitation any and all amounts
charged to Borrower's account pursuant to any agreement authorizing
LaSalle to charge Borrower's loan account), obligations,
reimbursement and indemnity obligations with respect to Letters Of
Credit, covenants, lease payments, guarantees and duties owing by
Borrower to LaSalle or to any parent, affiliate or subsidiary of
LaSalle, of any kind or description (whether advanced pursuant to or
evidenced by this Agreement, by any of the Notes, or by any Other
Agreement), whether direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, and including
without limitation any debt, liability or obligation owing from
Borrower to another Person which LaSalle may have obtained by
assignment (or otherwise as a result of a payment made by LaSalle on
behalf of Borrower as permitted under this Agreement or any Other
Agreement) and further including without limitation all interest, all
fees, costs and expenses which Borrower is required to pay or
reimburse by this Agreement or any Other Agreement, by law or
otherwise.
"Obligor" shall mean Borrower and each Person who is or shall
become primarily or secondarily liable for any of the Obligations,
provided, however, that such term shall not include any Account
Debtor.
<PAGE>
"Original Term" shall have the meaning specified in paragraph
12.A hereof.
"Other Agreements" shall mean all agreements, instruments and
documents including, without limitation, guaranties, Mortgages, trust
deeds, pledges, powers of attorney, consents, assignments, contracts,
notices, security agreements, leases, financing statements and all
other writings heretofore, now or from time to time hereafter
executed by or on behalf of Borrower or any other Obligor and
delivered to LaSalle or to any parent, affiliate or subsidiary of
LaSalle in connection with the Obligations or the transactions
contemplated hereby, including but not limited to the Loans and the
Letters Of Credit.
"Parent" shall mean any Person now or at any time or times
hereafter owning or controlling (alone or with any other Person) not
less than a majority of the issued and outstanding stock of Borrower
or any Subsidiary.
"Permitted Liens" shall mean: (1) statutory liens of
landlords, carriers, warehousemen, mechanics, materialmen or
suppliers incurred in the ordinary course of business and securing
amounts not yet past due or declared to be past due by the claimant
thereunder, unless being contested in good faith by Borrower by
appropriate proceedings so long as (a) the amount so contested is
shown on Borrower's financial statements, if required by GAAP, (b)
the contesting of any such payment does not give rise to a lien of
equal or greater priority to LaSalle's liens, (c) upon the occurrence
of an Event of Default, Borrower at all times has Excess Availability
in an amount which is sufficient to pay such claim and any interest
or penalties that may accrue thereon (or LaSalle may establish a
reserve against availability under the Revolving Loans in such
amount), and (d) if Borrower fails to prosecute such contest with
reasonable diligence, LaSalle may pay such amount on Borrower's
behalf and any such sums advanced shall constitute Revolving Loans
hereunder and, until paid, shall bear interest at the rate then
applicable to the Revolving Loans; (2) liens or security interests in
favor of LaSalle; (3) zoning restrictions and easements, rights of
way, licenses, covenants and other restrictions affecting the use of
real property that do not have a Material Adverse Effect and do not
otherwise, individually or in the aggregate, restrict or impair in
any significant manner the Borrower's ability to use such real
property for its intended purpose in connection with Borrower's
business; (4) liens securing the payment of taxes or other
governmental charges not yet delinquent or being contested in good
faith and by appropriate proceedings, in accordance with the terms
set forth in paragraph 14.F; (5) liens incurred or deposits made in
the ordinary course of Borrower's business in connection with
capitalized leases or purchase money security interests for purchase
of, and applying only to, Equipment permitted as Capital Expenditures
under paragraph 14.L(5), including those existing liens described on
Schedule 13.D attached hereto and other such liens hereafter created
by Borrower so long as the documents relating to such liens are in
form and substance reasonably acceptable to LaSalle; (6) deposits to
secure performance of bids, trade contracts, leases and statutory
obligations (to the extent not excepted elsewhere herein); (7) liens
existing on the date hereof and described on Schedule 13.D attached
hereto, and other liens hereafter specifically permitted by LaSalle
in writing, including without limitation any liens granted by
<PAGE>
Borrower in connection with any financing obtained by Borrower in
accordance with the terms set forth in paragraph 14.G below; (8) any
lien arising out of the refinancing, extension, renewal or refunding
of any indebtedness secured by a lien permitted by any of the
foregoing sections (1) through (7) inclusive provided that (a) such
indebtedness is not secured by any additional assets, and (b) the
principal amount of such indebtedness is not increased; (9) pledges
or deposits in connection with worker's compensation, unemployment
insurance and other social security legislation; (10) grants of
security and rights of setoff in deposit accounts, securities and
other properties held at banks or financial institutions to secure
the payment or reimbursement under overdraft, acceptance and other
facilities; and (11) rights of setoff, banker's lien and other
similar rights arising solely by operation of law.
"Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust,
unincorporated organization, association, corporation, institution,
entity, party or foreign or United States government (whether
federal, state, county, city, municipal or otherwise), including,
without limitation, any instrumentality, division, agency, body or
department thereof.
"Prime Rate" shall mean the publicly announced prime rate of
the Bank, in effect from time to time. The Prime Rate is not
intended to be the lowest or most favorable rate of the Bank in
effect at any time.
"Prime Rate Loan" shall mean a Revolving Loan or portion of
the Term Loan that bears interest based on the Prime Rate.
"Prime Rate Revolving Loan" shall mean a Revolving Loan that
bears interest based on the Prime Rate.
"Prime Rate Term Loan" shall mean that portion of the Term
Loan that bears interest based on the Prime Rate.
"Property" shall mean those parcels of real property owned by
Borrower and located in Calhoun County, Alabama.
"Renewal Term" shall have the meaning specified in paragraph
12.A hereof.
"Revolving Loans" shall have the meaning specified in
paragraph 2.A.(1) hereof.
"Revolving Loan Commitment" shall mean the sum of Twenty-Five
Million Dollars ($25,000,000.00).
"Revolving Note" shall mean the promissory note in the maximum
principal amount of the Revolving Loan Commitment executed by
Borrower to the order of LaSalle, dated as of the Closing Date.
<PAGE>
"Subsidiary" shall mean any corporation of which more than
fifty percent (50%) of the outstanding capital stock having ordinary
voting power to elect a majority of the board of directors of such
corporation (irrespective of whether at the time stock of any other
class of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly
or indirectly, owned by Borrower or by any partnership or joint
venture of which more than fifty percent (50%) of the outstanding
equity interests are at the time, directly or indirectly, owned by
Borrower.
"Tangible Net Worth" shall mean shareholders' equity
(including retained earnings) less the book value of all intangible
assets including but not limited to advances to Affiliates (other
than loans to employees) but excluding prepaid catalogs, determined
by LaSalle on a consistent basis, plus the amount of any debt
subordinated to LaSalle on terms and conditions reasonably acceptable
to LaSalle in its sole judgment, plus pre-tax LIFO reserves, plus any
amount paid by Borrower to purchase treasury stock subsequent to May
2, 1997, in accordance with paragraph 14.J below, all as determined
in accordance with GAAP, consistently applied.
"Term Loan" shall have the meaning specified in paragraph 3
hereof.
"Term Note" shall mean the promissory note in the original
principal amount of One Million Six Hundred Twenty-Five Thousand
Dollars ($1,625,000.00) executed by Borrower to the order of LaSalle,
dated as of the Closing Date.
"Total Credit Facility" shall mean the sum of Twenty-Five
Million Dollars ($25,000,000.00).
"Type" shall mean, with respect to any (i) Revolving Loan,
whether such Revolving Loan is a LIBOR Rate Revolving Loan or a Prime
Rate Revolving Loan and (ii) Term Loan, whether any portion thereof
is a LIBOR Rate Term Loan or a Prime Rate Term Loan.
B. Accounting Terms and Definitions. Unless otherwise
defined or specified herein, all accounting terms used in this
Agreement shall be construed in accordance with GAAP, applied on a
basis consistent in all material respects with the financial
statements delivered by Borrower to LaSalle on or before the Closing
Date. All accounting determinations for purposes of determining
compliance with the financial covenants contained in paragraph 14.L
shall be made in accordance with GAAP as in effect on the Closing
Date and applied on a basis consistent in all material respects with
the audited financial statements delivered to LaSalle by Borrower on
or before the Closing Date. The audited financial statements
required to be delivered hereunder from and after the Closing Date,
and all financial records, shall be maintained in accordance with
GAAP, and the annual financial statements and all monthly financial
statements prepared as of the end of each Fiscal Quarter shall comply
in all respects with the requirements of the Securities and Exchange
Commission. If GAAP shall change from the basis used in preparing
the audited financial statements delivered to LaSalle by Borrower on
or before the Closing Date, the certificates required to be delivered
<PAGE>
pursuant to paragraph 11.I demonstrating compliance with the
covenants contained herein shall include, at the election of Borrower
or upon the request of LaSalle, calculations setting forth the
adjustments necessary to demonstrate how Borrower is in compliance
with the financial covenants based upon GAAP as in effect on the
Closing Date.
<PAGE>
2. REVOLVING LOANS AND LETTERS OF CREDIT.
A. Revolving Loans. Subject to the terms and conditions of
this Agreement and the Other Agreements, during the Original Term and
any Renewal Term, absent the existence of a continuing Default:
(1) LaSalle shall make such revolving loans and advances
(the "Revolving Loans") to Borrower as Borrower shall from time to
time request, in accordance with the terms of paragraph 5.A hereof.
The aggregate unpaid principal amount of all Revolving Loans
outstanding at any one time made to Borrower shall not exceed the
lesser of: (a) the Borrowing Base, minus one hundred percent (100%)
of the Letter Of Credit Obligations for stand-by Letters Of Credit,
forty percent (40%) of the Letter Of Credit Obligations for
documentary Letters Of Credit issued for the purchase of Eligible
Finished Goods, and sixty percent (60%) of the Letter Of Credit
Obligations for documentary Letters Of Credit issued for the purchase
of Eligible Raw Materials, or (b) the Revolving Loan Commitment,
minus the outstanding Letter Of Credit Obligations, and minus the
outstanding principal balance under the Term Loan. All Revolving
Loans shall be repaid in full upon the earlier to occur of (i) the
end of the Original Term or any Renewal Term, if either LaSalle or
Borrower elects to terminate this Agreement as of the end of any such
term, and (ii) the acceleration of the Obligations pursuant to
paragraph 17.A of this Agreement. If at any time the aggregate
outstanding principal balances of the Revolving Loans made to
Borrower exceeds (a) the Borrowing Base, minus one hundred percent
(100%) of the Letter Of Credit Obligations for stand-by Letters Of
Credit and minus forty percent (40%) of the Letter Of Credit
Obligations for documentary Letters Of Credit issued for the purchase
of Eligible Finished Goods, and sixty percent (60%) of the Letter Of
Credit Obligations for documentary Letters Of Credit issued for the
purchase of Eligible Raw Materials, or (b) the Revolving Loan
Commitment, minus the outstanding Letter Of Credit Obligations, and
minus the outstanding principal balance under the Term Loan, then
Borrower shall immediately, and without the necessity of a demand by
LaSalle, pay to LaSalle such amount as may be necessary to eliminate
such excess, and LaSalle shall apply such payment against the
aggregate outstanding principal balances of the Revolving Loans. In
addition, if at any time the sum of (i) the outstanding aggregate
principal balances of the Loans plus (ii) the outstanding Letter Of
Credit Obligations exceeds the Total Credit Facility, Borrower shall
immediately and without the necessity of a demand by LaSalle pay to
LaSalle such amount as may be necessary to eliminate such excess, and
LaSalle shall apply such payment against the outstanding principal
balance of the Revolving Loans. Borrower hereby authorizes LaSalle
to charge any of Borrower's accounts to make any payments of
principal or interest required by this Agreement, and LaSalle will
advise Borrower promptly after charging each such payment to
Borrower's accounts. All Revolving Loans shall, in LaSalle's sole
discretion, be evidenced by one or more promissory notes in form and
substance satisfactory to LaSalle. However, if any Revolving Loans
are not so evidenced, such Revolving Loans may be evidenced solely by
entries upon the books and records maintained by LaSalle.
<PAGE>
(2) LaSalle shall make Revolving Loans to Borrower up to the
lesser of the following amounts:
(a) an amount equal to the sum of: (i) eighty-five
percent (85%) of the face amount of Eligible Accounts and all
Eligible Foreign Accounts, plus, (ii) the lesser of (x) sixty
percent (60%) of the value of Eligible Finished Goods and forty
percent (40%) of the value of Eligible Raw Materials,
calculated on the basis of the lower of cost or market value on
a first-in, first-out basis, or (y) Fifteen Million Dollars
($15,000,000.00),(collectively, the "Borrowing Base"), minus
one hundred percent (100%) of the Letter Of Credit Obligations
for stand-by Letters Of Credit, forty percent (40%) of the
Letter Of Credit Obligations for documentary Letters Of Credit
issued for the purchase of Eligible Finished Goods and sixty
percent (60%) of the Letter Of Credit Obligations for
documentary Letters Of Credit issued for the purchase of
Eligible Raw Materials; or
(b) the Revolving Loan Commitment, minus the
outstanding amount of all Letter Of Credit Obligations, minus
the outstanding principal balance under the Term Loan, and
minus the outstanding principal balance under the Capital
Expenditure Loan.
LaSalle shall have the right to deduct from the Borrowing Base such
reserves as LaSalle deems appropriate from time to time in the
exercise of LaSalle's reasonable credit judgment, which shall be
determined in a manner consistent with LaSalle's past practices.
B. Letters Of Credit. Subject to the terms and conditions of
this Agreement, and the Other Agreements, during the Original Term or
any Renewal Term, LaSalle shall, absent the existence of a continuing
Default, from time to time cause the issuance of and co-sign for,
upon Borrower's request, Letters Of Credit, provided that the
aggregate undrawn amount of all such Letters Of Credit shall at no
time exceed Five Million Dollars ($5,000,000.00), and provided
further that no Letter Of Credit shall have an expiry date (1) more
than 365 days from the date of issuance or (2) beyond five (5) days
prior to the expiration of the Original Term or any Renewal Term, as
the case may be. Borrower's reimbursement obligation to LaSalle in
respect of the Letters Of Credit shall automatically reduce the
amount which Borrower may borrow based upon the Revolving Loan
Commitment and the Borrowing Base, by one hundred percent (100%) of
the Letter Of Credit Obligations for each stand-by Letter Of Credit,
forty percent (40%) of the Letter Of Credit Obligations for each
documentary Letter Of Credit issued for the purchase of Eligible
Finished Goods, and sixty percent (60%) of the Letter Of Credit
Obligations for each documentary Letter Of Credit issued for the
purchase of Eligible Raw Materials. Any payment made by LaSalle to
any Person pursuant to the terms of any Letter Of Credit shall
constitute a Revolving Loan hereunder. Borrower agrees to reimburse
LaSalle and pay to LaSalle all sums or payments made by LaSalle to
any Person on account of any Letter Of Credit. At no time shall the
aggregate sum of direct Revolving Loans by LaSalle to Borrower plus
the contingent liability of LaSalle under the outstanding Letters Of
Credit be in excess of the Revolving Loan Commitment, and at no time
shall the aggregate sum of direct Revolving Loans by LaSalle to
Borrower, plus (i) one hundred percent (100%) of the contingent
liability of LaSalle under stand-by Letters Of Credit, (ii) forty
percent (40%) of the contingent liability of LaSalle under
documentary Letters Of Credit issued for the purchase of Eligible
Finished Goods, and (iii) sixty percent (60%) of the contingent
liability of LaSalle under documentary Letters Of Credit issued for
the purchase of Eligible Raw Materials, be in excess of the Borrowing
Base.
<PAGE>
3. TERM LOAN AND CAPITAL EXPENDITURE LOAN.
A. Existing Term Loan. LaSalle has made a term loan to
Borrower ("Term Loan") in the original principal amount equal to Two
Million Five Hundred Thousand Dollars ($2,500,000.00), and the
outstanding principal balance on the date of this Agreement of One
Million Six Hundred Twenty-Five Thousand Dollars ($1,625,000.00).
The Term Loan shall be evidenced by, and repayable in accordance
with, the Term Note, provided, however, that the entire unpaid
principal balance of the Term Loan shall be due and payable in full
upon the expiration of the Original Term of this Agreement, and
provided further that in the event that the Original Term of this
Agreement is initially or subsequently renewed in accordance with
paragraph 12.A hereof, then Borrower shall continue to make monthly
payments in accordance with the terms of the Term Note, with a final
installment equal to the unpaid principal balance and any other
amounts outstanding due and payable upon the expiration of the
Renewal Term. Notwithstanding anything hereinabove to the contrary,
the entire unpaid principal balance of the Term Loan, and any accrued
and unpaid interest thereon, shall be immediately due and payable
upon the earlier to occur of (a) the last day of the Original Term or
the last day of any Renewal Term, if either LaSalle or Borrower
elects to terminate this Agreement as of the end of any such Original
or Renewal Term and (b) the acceleration of the Obligations pursuant
to paragraph 17.A of this Agreement.
<PAGE>
B. Capital Expenditure Loan. Borrower has requested that
LaSalle extend to Borrower a line of credit for the acquisition of
Capital Expenditures. In the event that LaSalle in its sole
discretion agrees to extend such financing to Borrower, then Borrower
shall execute and deliver to LaSalle a promissory note in the form of
the Capital Expenditure Loan Note attached hereto as Exhibit B
("Capital Expenditure Loan Note"), and subject to the terms and
conditions of this Agreement and the Other Agreements, during the
period set forth below, absent the continuing existence of an Event
of Default, LaSalle shall thereafter make one or more advances to
Borrower in the maximum aggregate principal amount of up to Three
Million Dollars ($3,000,000.00) ("Capital Expenditure Loan") upon the
request of Borrower, for the acquisition of Eligible Capital
Expenditures. Principal payable on account of the Capital
Expenditure Loan shall be payable in accordance with the terms of the
Capital Expenditure Loan Note. Notwithstanding anything herein above
to the contrary, the entire unpaid principal balance of the Capital
Expenditure Loan, and any accrued and unpaid interest thereon, shall
be immediately due and payable upon the earlier to occur of (i) the
last day of the Original Term or the last day of any Renewal Term, if
either LaSalle or Borrower elects to terminate this Agreement as of
the end of the Original or any Renewal Term, or (ii) the acceleration
of the Obligations pursuant to paragraph 18 of this Agreement. If
LaSalle agrees to extend the Capital Expenditure Loan to Borrower,
then advances under the Capital Expenditure Loan shall be made during
the Original Term, for the acquisition of Eligible Capital
Expenditures, the receipt by LaSalle of a written request for such
advance together with invoices to evidence the cost of the capital
asset for which the advance is being requested, and such other
information as LaSalle may request. LaSalle shall have no obligation
to advance to Borrower more than eighty percent (80%) of the net
invoice cost (less the value of all rebates, trade-ins, taxes, labor,
and shipping and installation charges) of any Eligible Capital
Expenditure.
<PAGE>
4. INTEREST, FEES AND CHARGES.
A. Interest Payment Dates. Interest accrued on each of the
Revolving Loans, the Term Loan and, if extended to Borrower by
LaSalle, the Capital Expenditure Loan, shall be due on the earliest
of (1) in the case of a LIBOR Rate Loan, at the end of the Interest
Period applicable thereto and in the case of a Prime Rate Loan, the
first day of each month (for the immediately preceding month),
computed through the last calendar day of the preceding month, (2)
the occurrence and continuance of an Event Of Default in consequence
of which LaSalle elects to accelerate the maturity and payment of the
Obligations, or (3) termination of this Agreement pursuant to
paragraph 12.A hereof.
B. Interest Rates. At Borrower's election, except as
otherwise provided in paragraph 5.C hereof, interest shall accrue
upon: (1) the aggregate unpaid principal balance of the Revolving
Loans outstanding at the end of each day at (a) a fluctuating rate
per annum equal to three-quarters of one per cent (0.75%) above the
Prime Rate or (b) a fixed rate per annum equal to the LIBOR Rate plus
two hundred fifty (250) Basis Points; and (2) the unpaid principal
balance of the Term Loan outstanding at the end of each day at (a) a
fluctuating rate per annum equal to three-quarters of one per cent
(0.75%) above the Prime Rate or (b) a fixed rate per annum equal to
the LIBOR Rate plus two hundred fifty (250) Basis Points. The above-
described rates upon which interest is to accrue upon the Revolving
Loans and the Term Loan shall each be reduced by twenty-five (25)
Basis Points at such time as: (a) there are no Defaults; and (b) the
audited financial statements of Borrower for Borrower's most recent
fiscal year reflect that Borrower and its Subsidiaries achieved net
income before taxes for such fiscal year in an amount equal to or
greater than One Million Dollars ($1,000,000.00). The interest rate
reduction described in the immediately preceding sentence shall not
become effective or be applied to the accrual of interest until the
first day of the month in which LaSalle receives the internally-
prepared year-end financial statements of Borrower for the applicable
fiscal year, demonstrating that Borrower has achieved the above-
described net income before taxes. The adjustment provided herein
shall be subject to the receipt and review by LaSalle of Borrower's
audited financial statements for the applicable fiscal year. In the
event that Borrower's audited financial statements for such fiscal
year end indicate that Borrower did not achieve net income before
taxes in the required amount, the interest rate applicable to the
Loans shall be increased, retroactive to the date of adjustment to
the lower rates, to the original interest rates provided for in this
paragraph.
<PAGE>
C. Changes In Prime Rate; Default Interest Rate. The rate of
interest payable on Prime Rate Loans shall increase or decrease by an
amount equal to any increase or decrease in the Prime Rate, effective
as of the beginning of business on the day that any such change in
the Prime Rate occurs. Upon and after the occurrence of an Event Of
Default, and during the continuation thereof, the unpaid principal
balances of each of the Loans shall bear interest on demand at a rate
per annum equal to the rate or rates of interest otherwise then in
effect plus an additional two hundred (200) Basis Points.
D. Computation of Interest and Fees. Interest and collection
charges hereunder shall be calculated daily and shall be computed on
the actual number of days elapsed over a year consisting of three
hundred and sixty (360) days.
E. Maximum Interest. It is the intent of the parties that
the rate of interest and the other charges to Borrower under this
Agreement shall be lawful; therefore, if for any reason the interest
or other charges payable under this Agreement are found by a court of
competent jurisdiction, to exceed the limit which LaSalle may
lawfully charge Borrower, then the obligation to pay interest and
other charges shall automatically be reduced to such limit and, if
any amount in excess of such limit shall have been paid, then such
amount shall be refunded to Borrower. <PAGE>
F. Letter Of Credit Fees. Borrower shall remit to LaSalle a
Letter Of Credit fee equal to one percent (1.0%) per annum on the
aggregate undrawn face amount of all outstanding Letters Of Credit
issued for the account of Borrower, which fee shall be payable
monthly in arrears on each day that interest is payable hereunder.
Borrower shall also pay on demand the normal and customary
administrative charges for issuance, amendment, negotiation, renewal
or extension of any Letter Of Credit imposed by the bank (including
but not limited to the Bank) issuing such Letter Of Credit. Upon the
occurrence and during the continuance of an Event Of Default, all
Letter Of Credit fees shall be payable at a rate equal to three
percent (3.0%) per annum on the aggregate undrawn face amount
thereof.
G. Servicing Fee. Borrower shall pay to LaSalle a servicing
fee, payable monthly in arrears on the first calendar day of each
month commencing September 1, 1997, each such payment to be in an
amount equal to One Thousand Dollars ($1,000.00).
<PAGE>
H. Unused Line Fee. Borrower shall pay to LaSalle at the end
of each month, in arrears, an unused line fee equal to one-quarter of
one percent (0.25%) per annum on the daily average amount by which
the sum of Seventeen Million Five Hundred Thousand Dollars
($17,500,000.00) exceeds the sum of: (1) the outstanding aggregate
principal balances of the Revolving Loans and the Term Loan, and (2)
the outstanding Letter Of Credit Obligations. The unused line fee
shall accrue from the Closing Date until the last day of the Original
Term, and if applicable, from the first day to the last day of each
Renewal Term.
I. Examination and Appraisal Fees. In addition to the costs
and expenses described in paragraph 14.M hereof, Borrower shall pay
to LaSalle an examination fee of $450.00 per auditor-day for each
examination performed by or at LaSalle's direction of the Borrower's
Books and the Collateral and such other matters as LaSalle shall deem
appropriate in its commercially reasonable judgment, each such fee to
be paid upon the completion of each such examination. Borrower shall
not be charged for the cost of more than two (2) such examinations
per year, except to the extent that at the time of any examination
there existed a Default.
<PAGE>
5. LOAN ADMINISTRATION.
A. Revolving Loan Requests. A request for a Revolving Loan
shall be made or shall be deemed to be made, each in the following
manner: (1) Borrower shall give LaSalle same day notice, no later
than 10:30 A.M. (Chicago time) of such day, of its intention to
borrow a Prime Rate Revolving Loan, and at least one (1) Business
Day's prior notice of its intention to borrow a LIBOR Rate Revolving
Loan, in which notice Borrower shall specify the amount of the
proposed borrowing and the proposed borrowing date, provided,
however, that no such request may be made at a time when there exists
a Default; and (2) the coming due of any amount required to be paid
under this Agreement or any Note, whether on account of interest or
for any other Obligation, shall be deemed irrevocably to be a request
for a Prime Rate Revolving Loan on the due date thereof in the amount
required to pay such interest or other Obligation. As an
accommodation to Borrower, LaSalle may permit telephone requests for
Revolving Loans and electronic transmittal of instructions,
authorizations, agreements or reports to LaSalle by Borrower. Unless
Borrower specifically directs LaSalle in writing not to accept or act
upon telephonic or electronic communications from Borrower, LaSalle
shall have no liability (except in the event of gross negligence or
wilful misconduct on the part of LaSalle) to Borrower for any loss or
damage suffered by Borrower as a result of LaSalle's honoring of any
requests, execution of any instructions, authorizations or agreements
or reliance on any reports communicated to it telephonically or
electronically and purporting to have been sent to LaSalle by an
authorized officer of Borrower (including, without limitation,
Borrower's Controller) and LaSalle shall have no duty to verify the
origin of any such communication or the authority of the Person
sending it. Each notice of borrowing shall be irrevocable by and
binding on Borrower, and if such notice requests the borrowing of a
LIBOR Rate Revolving Loan, such notice shall state the Interest
Period with respect thereto. Borrower, at its option, may choose
Prime Rate Revolving Loans or LIBOR Rate Revolving Loans, provided
that any LIBOR Rate Revolving Loan shall be in a minimum amount of
$1,000,000, and provided further that the right of Borrower to choose
any LIBOR Rate Loan is subject to the provisions of paragraph 5.C
hereof.
B. Disbursements. Borrower hereby irrevocably authorizes
LaSalle to disburse the proceeds of each Revolving Loan requested by
Borrower, or deemed to be requested by Borrower, as follows: (1) the
proceeds of each Revolving Loan requested under paragraph 5.A.(1)
shall be disbursed by LaSalle in lawful money of the United States of
America in immediately available funds, in the case of the initial
borrowing, in accordance with the terms of the written disbursement
letter from Borrower, and in the case of each subsequent borrowing,
by depositing the sums to be advanced into Borrower's operating
account with the Bank or by wire transfer to such bank account as may
be agreed upon by Borrower and LaSalle from time to time, or
elsewhere if pursuant to a written direction from Borrower; and (2)
the proceeds of each Revolving Loan requested under paragraph 5.A.(2)
shall be disbursed by LaSalle by way of direct payment of the
relevant interest or other Obligation.
<PAGE>
C. Notice of Continuation and Notice of Conversion.
(1) Subject to the provisions of clause (3) hereof,
Borrower may elect to maintain any borrowing by it consisting of
the same Kind of LIBOR Rate Loans, or any portion thereof, as a
LIBOR Rate Loan by selecting a new Interest Period for such
borrowing, which new Interest Period shall commence on the last
day of the then existing Interest Period. Each selection of a new
Interest Period (a "Continuation") shall be made on one (1)
Business Day prior notice, given by Borrower to LaSalle not later
than 10:30 A.M. (Chicago time) on the first Business Day preceding
the date of any proposed Continuation. If Borrower elects to
maintain more than one borrowing consisting of LIBOR Rate Loans of
the same Kind by combining such borrowings into one borrowing and
selecting a new Interest Period pursuant to this clause, each of
the borrowings so combined shall consist of Loans of the same Kind
having Interest Periods ending on the same date. If Borrower
shall fail to select a new Interest Period for any borrowing by it
consisting of LIBOR Rate Loans of the same Kind in accordance with
this clause, such LIBOR Rate Loans will automatically convert into
Prime Rate Loans.
(2) Subject to the provisions of clause (3) hereof,
Borrower may on one (1) Business Day prior notice given to LaSalle
convert the entire amount of or a portion of all Loans of the same
Kind and Type into Loans of the same Kind and another Type (a
"Conversion"); provided that no Default shall have occurred and be
continuing, and provided further that any Conversion of any LIBOR
Rate Loans into Prime Rate Loans may only be made on the last day
of the Interest Period for such LIBOR Rate Loans, and upon
Conversion of any Prime Rate Loans into LIBOR Rate Loans, Borrower
shall pay accrued interest to the date of Conversion on the
principal amount converted on the first day of the following
month. Each such notice shall be given not later than 10:30 A.M.
(Chicago time) on the first Business Day preceding the date of any
proposed Conversion. Each Conversion shall be in an aggregate
amount of not less than $1,000,000. Borrower may elect to convert
the entire amount of or a portion of all Loans made to Borrower of
the same Kind and Type comprising more than one borrowing into
Loans of the same Kind and another Type by combining such
borrowings into one borrowing consisting of Loans of the same Kind
and another Type; provided, however, that if the borrowings so
combined consist of LIBOR Rate Loans, such LIBOR Rate Loans shall
have Interest Periods ending on the same date.
<PAGE>
(3) Notwithstanding anything contained in paragraph 5.A
hereof or contained in clauses (1) and (2) above to the contrary:
(a) if LaSalle is unable to determine the LIBOR Rate
for LIBOR Rate Loans comprising any requested borrowing,
Continuation or Conversion, the right of Borrower to select or
maintain LIBOR Rate Loans for such borrowing or any subsequent
borrowing shall be suspended until LaSalle shall notify
Borrower that the circumstances causing such suspension no
longer exist, and each Loan comprising such borrowing shall be
automatically converted into a Prime Rate Loan;
(b) any LIBOR Rate Term Loan shall be in a minimum
amount equal to the lesser of (i) $1,000,000 or (ii) the
outstanding principal amount of the applicable Loan, less any
principal sums to be paid on such Loan during the Interest
Period selected; and
(c) the amount of interest payable by Borrower at the
end of any Interest Period shall be calculated on the full
amount of each LIBOR Rate Loan borrowed by Borrower at the
commencement of the applicable Interest Period, regardless of
any reductions in the principal amount of such LIBOR Rate Loan
which occur during such Interest Period, and Borrower shall
not be credited for any part of such interest until such
interest is actually paid by Borrower. To the extent the
aggregate repayments of principal on Revolving Loans received
by LaSalle during the pendency of an Interest Period
applicable to a then outstanding LIBOR Rate Revolving Loan
exceed the aggregate unpaid principal amount of all Prime Rate
Revolving Loans outstanding during such Interest Period,
LaSalle shall, to the extent of such excess, credit to an
interest-bearing special suspense account the amount of such
repayments received during such Interest Period, and at the
expiration of such Interest Period, LaSalle shall apply all
such amounts credited to such account against the unpaid
principal balance of the LIBOR Rate Revolving Loans then
outstanding.
(4) Each notice of Continuation or Conversion shall be
irrevocable and binding on Borrower. In the case of (a) any
borrowing of a Loan, Continuation, or Conversion that the related
notice of borrowing, notice of Continuation or notice of
Conversion specifies is to be comprised of LIBOR Rate Loans, or
(b) any payment of principal of, or Conversion or Continuation of,
any LIBOR Rate Loan made other than on the last day of the
Interest Period for such Loan as a result of a payment,
prepayment, Conversion or Continuation of such Loan or
acceleration of the maturity of any of the Obligations pursuant to
paragraph 17 hereof, or for any other reason, then in any such
case, upon LaSalle's demand, Borrower shall pay to LaSalle and
indemnify LaSalle from and against the following (collectively
"Breakage Costs"): (i) any loss, cost or expense incurred by
LaSalle as a result of any failure to fulfill, on or before the
date for such borrowing, Continuation or Conversion, the
applicable conditions set forth in paragraph 15 hereof, and (ii)
any additional losses, costs or expenses which it may reasonably
incur as a result of such payment, including, without limitation
in each such case, any loss (excluding loss of anticipated
profits), cost or expense incurred by reason of the liquidation or
redeployment of deposits or other funds acquired by LaSalle to
fund the Loan to be made as part of such borrowing, Continuation
or Conversion.
<PAGE>
6. GRANT OF SECURITY INTEREST TO LASALLE.
A. Grant Of Security Interest. As security for the payment
of all Loans now or in the future made by LaSalle to Borrower
hereunder and for the payment, performance and satisfaction of all
other Obligations, Borrower hereby ratifies and continues the
existing continuing security interest granted to LaSalle, and in
confirmation thereof Borrower hereby assigns to LaSalle and grants to
LaSalle a continuing security interest in and to all of the assets of
Borrower, including but not limited to the following property of
Borrower, whether now or hereafter owned, existing, acquired or
arising and wherever now or hereafter located: (1) all Accounts
(whether or not Eligible Accounts); (2) all Inventory; (3) all
Equipment; (4) all General Intangibles; (5) all deposits and cash and
any other property owned by Borrower now or hereafter in the
possession, custody or control of LaSalle or any agent or any parent,
affiliate or subsidiary of LaSalle or any participant with LaSalle in
the Loans for any purpose (whether for safekeeping, deposit,
collection, custody, pledge, transmission or otherwise); (6) all
Negotiable Collateral; (7) all of Borrower's Books; and (8) all
additions and accessions to, substitutions for, and replacements,
products and proceeds of the foregoing property, including, without
limitation, proceeds of all insurance policies insuring the foregoing
property.
B. Mortgage. As security for the payment and performance of
the Loans and of all Obligations, Borrower shall grant to a trustee
for the benefit of LaSalle a Mortgage upon each parcel of the
Property and all improvements thereon. The Mortgage shall establish
a first priority mortgage lien against the Property and all
improvements thereon.
<PAGE>
7. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY
INTERESTS THEREIN.
Borrower shall, at LaSalle's reasonable request, at any time
and from time to time, execute and deliver to LaSalle such financing
statements, documents and other agreements and instruments (and pay
all reasonable out-of-pocket costs and expenses incurred by LaSalle
in connection with filing or recording the same in all public offices
deemed reasonably necessary by LaSalle) and do such other acts and
things as LaSalle may deem reasonably necessary in order to establish
and maintain a valid, attached and perfected security interest in the
Collateral in favor of LaSalle (free and clear of all other liens,
claims and rights of third parties whatsoever, whether voluntarily or
involuntarily created, except Permitted Liens) to secure payment of
the Obligations, and in order to facilitate the collection of the
Collateral. Borrower irrevocably hereby makes, constitutes and
appoints LaSalle (and all Persons designated by LaSalle for that
purpose) as Borrower's true and lawful attorney and agent-in-fact to
execute such financing statements, documents and other agreements and
instruments and do such other acts and things as may be necessary to
preserve and perfect LaSalle's security interest in the Collateral.
Borrower further agrees that a carbon, photographic, photostatic or
other reproduction of this Agreement or of a financing statement
shall be sufficient as a financing statement.
8. POSSESSION OF COLLATERAL AND RELATED MATTERS.
Until a Default has occurred, Borrower shall have the right,
except as otherwise provided in this Agreement, in the ordinary
course of Borrower's business, to: (1) sell, lease or furnish under
contracts of service any of Borrower's Inventory normally held by
Borrower for any such purpose, and (2) use and consume any raw
materials, work in process or other materials normally held by
Borrower for such purpose, provided, however, that a sale in the
ordinary course of business shall not include any transfer or sale in
satisfaction, partial or complete, of a debt owed by Borrower.
9. DISPOSITION OF EQUIPMENT, PROPERTY OR FIXTURES.
If Borrower sells or alienates any Equipment, Property or
Fixtures, in whole or in part, or if any of the Equipment, Property
or Fixtures, is damaged, destroyed or taken by condemnation, Borrower
shall pay to LaSalle, unless otherwise specifically provided herein
or otherwise agreed to by LaSalle, as and when received by Borrower
and as a mandatory prepayment of the Term Loans (in such proportions
and to such Term Loans as selected by LaSalle), to be applied against
the last maturing installments of principal thereof, in the inverse
order thereof (or, at LaSalle's option, such of the other Obligations
of Borrower as LaSalle may elect), a sum equal to the proceeds
received by Borrower from such sale, provided, however, that without
LaSalle's consent, unless and until a Default has occurred and is
continuing, obsolete or worn out Equipment may be sold or otherwise
disposed of by Borrower and the proceeds thereof may be retained by
Borrower, so long as the fair market value of any such Equipment sold
or otherwise disposed of in any single transaction is less than
$25,000.00, and the fair market value, in the aggregate, of all such
Equipment sold or otherwise disposed of by Borrower during any
twelve-month period is less than $100,000.00.
<PAGE>
10. COLLECTIONS.
A. Lock Box. Borrower shall direct all of its Government
Account Debtors to make all payments upon the Government Accounts
directly to a post office box ("Lock Box") with the Bank, in the name
and under the exclusive control of LaSalle. If Borrower, any
Affiliate or Subsidiary of Borrower, or any shareholder, officer,
director, employee or agent of Borrower or any Affiliate or
Subsidiary, or any other Person acting for or in concert with
Borrower shall receive any monies, checks, notes, drafts or other
payments relating to or as proceeds of any Government Accounts,
Borrower and each such Person shall receive all such items in trust
for, and as the sole and exclusive property of, LaSalle and,
immediately upon receipt thereof, shall remit the same (or cause the
same to be remitted) in kind to the Lock Box. Borrower agrees that
all payments made to the Lock Box or otherwise received by LaSalle,
whether with respect to the Government Accounts, as proceeds of other
Collateral, or otherwise, will be applied on account of the
Obligations of Borrower in accordance with the terms of this
Agreement, provided that so long as no Event of Default has occurred
and is continuing, such payments will be applied to the outstanding
principal balance due under the Revolving Loans. Borrower agrees to
pay all fees, costs and expenses which Borrower incurs in connection
with opening and maintaining a Lock Box. All of such fees, costs and
expenses which remain unpaid by Borrower pursuant to any Lock Box
Agreement with Borrower, to the extent same shall have been paid by
LaSalle hereunder, shall constitute Revolving Loans hereunder, and,
until paid, shall bear interest at the rate then applicable to
Revolving Loans hereunder. All checks, drafts, instruments and other
items of payment or proceeds of Collateral delivered to LaSalle in
kind shall be endorsed by Borrower to LaSalle, and, if that endorse-
ment of any such item shall not be made for any reason, LaSalle is
hereby irrevocably authorized to endorse the same on Borrower's
behalf. For the purpose of this paragraph, Borrower irrevocably
hereby makes, constitutes and appoints LaSalle (and all Persons
designated by LaSalle for that purpose) as Borrower's true and lawful
attorney and agent-in-fact (1) to endorse Borrower's name upon such
items of payment and/or proceeds of Collateral of Borrower and upon
any Chattel Paper, Document, Instrument, invoice or similar document
or agreement relating to any Account of Borrower or goods pertaining
thereto; (2) to take control in any manner of any item of payment or
proceeds thereof; (3) to have access to any lock box or postal box
into which any of Borrower's mail is deposited; and (4) open and
process all mail addressed to Borrower and deposited therein,
provided, however, that LaSalle shall not exercise any such powers
described in clauses (1), (2) and (4) unless an Event Of Default has
occurred and is continuing.
<PAGE>
B. Collection Rights. LaSalle may, at any time and from time
to time after the occurrence and during the continuance of an Event
Of Default, whether before or after notification to any Account
Debtor and whether before or after the maturity of any of the
Obligations, (1) enforce collection of any of Borrower's Accounts or
contract rights by suit or otherwise; (2) exercise all of Borrower's
rights and remedies with respect to proceedings brought to collect
any Accounts; (3) surrender, release or exchange all or any part of
any Accounts of Borrower, or compromise or extend or renew for any
period (whether or not longer than the original period) any
indebtedness thereunder; (4) sell or assign any Account of Borrower
upon such terms, for such amount and at such time or times as LaSalle
deems advisable; (5) prepare, file and sign Borrower's name on any
proof of claim in bankruptcy or other similar document against any
Account Debtor indebted on an Account of Borrower; and (6) do all
other acts and things which are necessary, in LaSalle's sole discre-
tion, to fulfill Borrower's obligations under this Agreement and to
allow LaSalle to collect the Accounts. Upon the taking of any
actions described in the preceding sentence, LaSalle shall promptly
notify Borrower that it has taken such action. In addition to any
other provision hereof, LaSalle may at any time on or after the
occurrence and during the continuance of an Event Of Default, at
Borrower's expense, notify any parties obligated on any of the
Accounts of Borrower to make payment directly to LaSalle of any
amounts due or to become due thereunder, and in such event LaSalle
shall simultaneously forward copies of such notice to Borrower.
C. Application Of Collections. LaSalle shall, within one (1)
Business Day after receipt by LaSalle at its principal executive
office, currently located in Chicago, Illinois, of cash or other
immediately available funds from collections of items of payment and
proceeds of any Collateral, (i) with respect to collections or
proceeds from Collateral consisting of Equipment, Fixtures, or real
property, apply such proceeds to the sums owed in connection with the
Term Loan, and (ii) with respect to collection or proceeds from any
other Collateral, apply such proceeds to sums owed in connection with
the Revolving Loans, provided that at any time during which an Event
of Default has occurred and is continuing, LaSalle may apply the
whole or any part of such collections or proceeds against the
Obligations in such order as LaSalle shall determine in its sole
discretion.
<PAGE>
D. Protection Of Collection Rights. In its reasonable credit
judgment, without waiving or releasing any obligation, liability or
duty of Borrower under this Agreement or the Other Agreements or any
Event Of Default, at any time or times hereafter, LaSalle may (but
shall not be obligated to) pay (except with respect to Permitted
Liens), acquire or accept an assignment of any security interest,
lien, encumbrance or claim asserted by any Person in, upon or against
the Collateral. All sums paid by LaSalle in respect thereof and all
reasonable out-of-pocket costs, fees and expenses (including without
limitation reasonable attorney fees, all court costs and all other
reasonable out-of-pocket charges relating thereto) incurred by
LaSalle shall constitute Revolving Loans, and, until paid, shall bear
interest at the rate then applicable to Revolving Loans hereunder.
E. Delivery Of Collateral. Promptly upon Borrower's receipt
of any portion of the Collateral evidenced by an agreement,
Instrument or Document including, without limitation, any Chattel
Paper, Borrower shall deliver the original thereof to LaSalle
together with an appropriate endorsement or other specific evidence
of assignment thereof to LaSalle (in form and substance acceptable to
LaSalle). If an endorsement or assignment of any such items shall
not be made for any reason, LaSalle is hereby irrevocably authorized,
as Borrower's attorney and agent-in-fact, to endorse or assign the
same on Borrower's behalf.
11. SCHEDULES AND REPORTS. Borrower shall furnish or cause to be
furnished to LaSalle the following:
A. Daily Reports. Borrower shall provide LaSalle with an
executed daily loan report and certificate in LaSalle's then current
form on each day on which Borrower requests a Revolving Loan, and in
any event at least one each week, which shall be accompanied by
copies of Borrower's sales journal, cash receipts journal and credit
memo journal for the relevant period. Such report shall reflect the
activity of Borrower with respect to Accounts for the immediately
preceding week, and shall be in a form and with such specificity as
is satisfactory to LaSalle and shall contain such additional
information as LaSalle may reasonably require concerning Accounts and
Inventory included, described or referred to in such report and any
other documents in connection therewith requested by LaSalle,
including, without limitation, but only if specifically requested by
LaSalle, copies of all invoices prepared in connection with such
Accounts.
<PAGE>
B. Monthly Financial Statements. As soon as practicable and
in any event within thirty (30) days following the end of each
calendar month: (1) statements of income of Borrower for each such
month and for the period from the beginning of the then current
fiscal year of Borrower to the end of such month, (2) balance sheet
of Borrower as of the end of such month, and (3) with respect to such
statements of income and balance sheets, in comparative form, figures
for the corresponding periods in the preceding fiscal year of
Borrower, all in reasonable detail and certified by the chief
financial officer of Borrower that such statements fairly present the
financial condition of Borrower in accordance with GAAP, subject to
changes resulting from normal quarter-end and year-end adjustments
and the absence of footnotes, together with detailed computations of
Borrower's compliance with the covenants set forth in this Agreement.
Borrower shall also deliver to LaSalle, together with each monthly
financial statement for the last month of each Fiscal Quarter, a
statement of cash flow of Borrower for such Fiscal Quarter and for
the period from the beginning of the then current fiscal year of
Borrower to the end of such Fiscal Quarter.
C. Monthly Reports. In addition to any other reports, as
soon as practicable and in any event within ten (10) days after the
end of each month: (1) a detailed aged trial balance of Borrower's
accounts, in form and substance reasonably satisfactory to LaSalle,
including, without limitation, the names and addresses of all Account
Debtors of Borrower, (2) a summary and detail of accounts payable
(such Accounts and accounts payable divided into such time intervals
as LaSalle may reasonably require), including a listing of any held
checks, and (3) the general ledger inventory account balance, a
perpetual inventory report and LaSalle's standard form of Inventory
report then in effect, for Borrower by each category of Inventory,
together with a description of the monthly change in each category of
Inventory.
D. Annual Financial Statements. As soon as practicable and
in any event within ninety (90) days after the end of each fiscal
year of Borrower: (1) statements of income of Borrower for such
fiscal year, and a balance sheet of Borrower as of the end of such
fiscal year, and (2) statements of cash flow of Borrower for such
fiscal year, all setting forth in comparative form, corresponding
figures for the period covered by the preceding annual audit and as
of the end of the preceding fiscal year of Borrower, such statements
to be presented in accordance with Borrower's normal method of
accounting for Inventory and (if Borrower uses the LIFO method)
disclosing all LIFO reserves, all in reasonable detail and in scope
in accordance with audits performed for Borrower in prior years and
examined and certified by independent certified public accountants of
recognized national standing selected by Borrower and satisfactory to
LaSalle, whose opinion shall be in scope in accordance with audits
performed for Borrower in prior years, in form and substance
reasonably satisfactory to LaSalle.
<PAGE>
E. Annual Projections. As soon as practicable and in any
event prior to the beginning of each fiscal year of Borrower,
projected balance sheets, statements of income and cash flow for
Borrower, for each of the twelve (12) months during such fiscal year,
which shall include the assumptions used therein, together with
appropriate supporting details as requested by LaSalle.
F. Accountant's Reports. As soon as practicable and in any
event within ten (10) days of delivery to Borrower, a copy of any
letter issued by Borrower's independent public accountants with
respect to Borrower's financial or accounting systems or controls,
including all so-called "management letters".
G. Other Information. With reasonable promptness, such other
material business or financial data, reports, appraisals and
projections as LaSalle may reasonably request.
H. Accompanying Certifications. All financial statements
delivered to LaSalle pursuant to the requirements of this paragraph
(except where otherwise expressly indicated) shall be prepared in
accordance with GAAP as provided in this Agreement. Together with
each delivery of financial statements required by paragraphs 11.B and
11.D above, Borrower shall deliver to LaSalle an officer's
certificate in the form attached hereto as Exhibit A, which shall
include a calculation of financial covenants in the schedule attached
to such officer's certificate in form satisfactory to LaSalle.
<PAGE>
12. RENEWAL, TERMINATION AND PREPAYMENT.
A. Renewal And Termination. This Agreement shall be in
effect from the date hereof until October 31, 2000 ("Original Term")
and shall automatically renew itself from year to year thereafter
(each such one year renewal being referred to herein as a "Renewal
Term") unless: (1) the due date of the Obligations is accelerated
pursuant to paragraph 17.A hereof; or (2) Borrower elects or LaSalle
elects to terminate this Agreement at the end of the Original Term or
at the end of any Renewal Term by giving the other party written
notice of such election at least ninety (90) days prior to the end of
the Original Term or the then current Renewal Term, in which case
Borrower shall pay all of the Obligations in full on the last day of
such term, or (3) Borrower voluntarily prepays the Obligations in
full and elects to terminate this Agreement on such prepayment date.
If one or more of the events specified in clauses (1), (2) or (3)
occurs, this Agreement shall terminate on the date thereafter that
the Obligations are paid in full, provided, however, that the
security interests and liens created under this Agreement and the
Other Agreements shall not terminate or be considered released until
all of the Obligations have been paid in full. If Borrower is
obtaining new financing from another lender, Borrower shall deliver
such lender's indemnification of LaSalle, in form and substance
reasonably satisfactory to LaSalle, for checks which LaSalle has
credited to Borrower's account, but which subsequently are dishonored
for any reason, for a period of up to sixty (60) days after the date
this Agreement is terminated.
B. Prepayment. Borrower may prepay the Loans, in whole or in
part, at any time, without payment of any prepayment penalty, fee or
additional interest.
13. REPRESENTATIONS AND WARRANTIES.
Borrower hereby represents, warrants and covenants to LaSalle as
follows:
A. Accuracy Of Financial Statements. The financial
statements delivered or to be delivered by Borrower to LaSalle at or
prior to the date of this Agreement and at all times subsequent
thereto accurately reflect the financial condition of Borrower, and
since May 2, 1997, no event or condition has occurred which has had,
or is reasonably likely to have, a Material Adverse Effect.
B. Borrower's Locations. The office where Borrower keeps the
Borrower's Books (or copies thereof) concerning the Collateral, Bor-
rower's principal place of business and all of Borrower's other
places of business, locations of Collateral and post office boxes are
as set forth in Schedule 13.B attached hereto. Borrower shall
promptly (but in no event less than ten (10) days prior thereto)
advise LaSalle in writing of the proposed opening of any new place of
business, the closing of any existing place of business, any change
in the location of Borrower's Books (or copies thereof) or the
opening or closing of any post office box of Borrower.
<PAGE>
C. Locations Of Collateral. The Collateral, excluding
Collateral in transit but including without limitation the Equipment
(except any part thereof which prior to the date of this Agreement
Borrower shall have advised LaSalle in writing consists of Collateral
normally used in more than one state) is and shall be kept, or, in
the case of vehicles, based, only at the addresses set forth on
Schedule 13.B attached hereto, and at other locations within the
continental United States of which LaSalle has been advised by
Borrower in writing. Borrower shall immediately give written notice
to LaSalle of any use of any Collateral in any state other than a
state in which Borrower has previously advised LaSalle such
Collateral shall be used, and such Collateral shall not, unless
LaSalle shall otherwise consent in writing, be used outside of the
continental United States.
D. No Other Liens. No security agreement, financing
statement or analogous instrument exists or shall exist with respect
to any of the Collateral other than any security agreement, financing
statement or analogous instrument evidencing Permitted Liens, which
include those existing liens shown on Schedule 13.D attached hereto.
E. Representations Of Eligibility. Each Account or item of
Inventory which Borrower shall, expressly or by implication, request
LaSalle to classify as an Eligible Account or as Eligible Inventory,
respectively, shall, as of the time when such request is made,
conform in all respects to the requirements of such classification as
set forth in the respective definitions of Eligible Account and
Eligible Inventory and as otherwise established by LaSalle from time
to time, in accordance with LaSalle's customary credit policies, and
Borrower shall promptly notify LaSalle in writing if any such
Eligible Account or Eligible Inventory shall subsequently become
ineligible. LaSalle shall use its best efforts to communicate to the
Borrower promptly any changes in its credit policies that will have a
material effect upon Borrower's availability under the Revolving
Loans.
F. Ownership Of Collateral. Borrower is and shall at all
times during the Original Term or any Renewal Term be the lawful
owner of all Collateral now purportedly owned or hereafter
purportedly acquired by Borrower, free from all liens, claims,
security interests and encumbrances whatsoever, whether voluntarily
or involuntarily created and whether or not perfected, other than the
Permitted Liens.
G. Authority. Borrower has the right and power and is duly
authorized and empowered to enter into, execute and deliver this
Agreement and the Other Agreements to which Borrower is a party, and
to perform its obligations hereunder and thereunder; Borrower's
execution, delivery and performance of this Agreement and the Other
Agreements does not and shall not conflict with the provisions of any
statute, regulation, ordinance or rule of law, or any agreement,
contract or other document which may now or hereafter be binding on
Borrower, and Borrower's execution, delivery and performance of this
Agreement and the Other Agreements shall not result in the imposition
of any lien or other encumbrance upon any of Borrower's property
under any existing indenture, mortgage, deed of trust, loan or credit
agreement or other material agreement or instrument by which Borrower
or any of its property may be bound or affected.
<PAGE>
H. Actions Or Proceedings. There are no actions or
proceedings which are pending or, to the best of Borrower's
knowledge, threatened against Borrower which are reasonably likely to
have a Material Adverse Effect and Borrower shall, promptly upon
becoming aware of any such pending or threatened action or
proceeding, give written notice thereof to LaSalle.
I. Licenses And Authorizations. Borrower has obtained all
licenses, authorizations, approvals and permits, the lack of which
would have a Material Adverse Effect, and Borrower is and shall
remain in compliance in all material respects with all applicable
federal, state, local and foreign statutes, orders, regulations,
rules and ordinances (including, without limitation, statutes,
orders, regulations, rules and ordinances relating to taxes, employer
and employee contributions and similar items, securities, employee
retirement and welfare benefits, employee health and safety or
environmental matters), the failure to comply with which would have a
Material Adverse Effect.
J. Accuracy Of Information. All written information now,
heretofore or hereafter furnished by Borrower to LaSalle is and shall
be true and correct in all material respects as of the date with
respect to which such information was or is furnished (except for
financial projections, which have been prepared in good faith based
upon assumptions which the Borrower believed were reasonable at the
time the projections were submitted to LaSalle).
K. Collateral Not Owned By Affiliates. Borrower is not
conducting, permitting or suffering to be conducted, nor shall it
conduct, permit or suffer to be conducted, any activities pursuant to
or in connection with which any of the Collateral is now, or will
(while any Obligations remain outstanding) be owned by any Affiliate.
Notwithstanding the foregoing, LaSalle acknowledges the existence of
that certain Management Services Agreement, pursuant to which Emerson
has stored certain of its assets at Borrower's location, which assets
are not owned by Borrower and shall not constitute Collateral.
Promptly upon any amendment or modification of the Management
Services Agreement, Borrower shall advise LaSalle thereof and shall
furnish to LaSalle copies of all documents executed in connection
with such amendment or modification.
L. Other Names. During the five (5) years prior to this
Agreement, Borrower's name has always been as set forth on the first
page of this Agreement and Borrower has used no tradenames or
division names in the operation of its business, except as otherwise
set forth on Schedule 13.L. Borrower shall notify LaSalle in writing
within ten (10) days of the change of its name or the use of any
tradenames or division names not previously disclosed to LaSalle in
writing.
<PAGE>
M. Equipment. With respect to Borrower's Equipment: (1)
Borrower has good and merchantable title to all Equipment, subject
only to Permitted Liens; (2) Borrower shall keep and maintain the
Equipment in operating condition and repair and shall make all
necessary replacements thereof and renewals thereto so that the value
and operating efficiency thereof shall at all times be preserved and
maintained, ordinary wear and tear excepted; (3) except in the
ordinary course of Borrower's business, Borrower shall not permit any
such items to become a fixture to real estate (except the Property)
or an accession to other personal property; (4) from time to time
Borrower may sell, exchange or otherwise dispose of obsolete, unused
or worn out Equipment, but only to the extent provided in paragraph 9
hereof; and (5) Borrower, promptly after demand by LaSalle, shall
deliver to LaSalle any and all evidence of ownership of, including,
without limitation, certificates of title and applications of title
to, any of the Equipment.
N. Enforceable Obligations. This Agreement and the Other
Agreements to which Borrower is a party are the legal, valid and
binding obligations of Borrower and are enforceable against Borrower
in accordance with their respective terms, except to the extent that
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
rights of creditors generally.
O. Solvency. Borrower is solvent, is able to pay its debts
as they become due and has capital sufficient to carry on its
business, as of the date hereof owns property having a value both at
fair valuation and at present fair saleable value greater than the
amount required to pay its debts, and will not be rendered insolvent
by the execution and delivery of this Agreement or any of the Other
Agreements or by completion of the transactions contemplated
hereunder or thereunder.
P. Other Obligations. As of the date hereof, Borrower is not
obligated, whether directly or indirectly, for any loans or other
indebtedness for borrowed money other than: (1) the Obligations, (2)
indebtedness disclosed to LaSalle on Schedule 14.G attached hereto,
(3) unsecured indebtedness to trade creditors arising in the ordinary
course of Borrower's business, and (4) unsecured indebtedness arising
from the endorsement of drafts and other instruments for collection,
in the ordinary course of Borrower's business.
Q. No Margin Securities. Borrower does not own any margin
securities, and none of the proceeds of the Loans hereunder shall be
used for the purpose of purchasing or carrying any margin securities
or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase any margin securities or for any
other purpose not permitted by Regulation G or Regulation U of the
Board of Governors of the Federal Reserve System as in effect from
time to time.
<PAGE>
R. Other Relationships. As of the date hereof, Borrower has
no Parents or Subsidiaries, nor is Borrower engaged in any joint
venture or partnership with any other Person, with the exception of
the Subsidiary known as Sport Supply Group International Holdings,
Inc., a Delaware corporation. Such Subsidiary owns no tangible
assets. Borrower covenants and agrees that it will not transfer any
assets to such Subsidiary, and Borrower further covenants and agrees
to dissolve such Subsidiary not later than that date which is one
hundred twenty (120) calendar days after the date of this Agreement.
S. Organization. Borrower is duly organized and in good
standing in its state of organization and Borrower is duly qualified
and in good standing in all states where the nature and extent of the
business transacted by it or the ownership of its assets makes such
qualification necessary, except for such other states in which the
failure to so qualify would not have a Material Adverse Effect.
T. No Defaults. To the best of its knowledge, information
and belief, Borrower is not in default under any material contract,
lease or commitment to which it is a party or by which it is bound,
nor does Borrower know of any dispute regarding any contract, lease
or commitment which is material to the continued operations or
condition (financial or otherwise) of Borrower.
U. No Labor Controversies. There are no controversies
pending or, to the best of Borrower's knowledge, information and
belief, threatened between Borrower and any of its employees, other
than employee grievances arising in the ordinary course of business
which are not, in the aggregate, material to the continued operations
or condition (financial or otherwise) of Borrower, and Borrower is in
compliance in all material respects with all federal and state laws
respecting employment and employment terms, conditions and practices,
except where the failure to so comply would not have a Material
Adverse Effect.
V. Intellectual Properties. To the best of Borrower's
knowledge, information and belief, Borrower possesses, and shall
continue to possess, adequate licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications,
tradestyles and tradenames to continue to conduct its business as
heretofore conducted by it. All rights of Borrower as of the date
hereof, whether as owner, licensee, or otherwise, with respect to
patents, patent applications, copyrights, service marks, trademarks,
trademark applications, tradestyles and tradenames are as set forth
on Schedule 13.V attached hereto, and Borrower shall promptly notify
LaSalle or its counsel in writing of its acquiring of any rights in
any such properties after the date hereof.
<PAGE>
Borrower represents, warrants and covenants to LaSalle that all
representations, warranties and covenants of Borrower contained in
this Agreement (whether appearing in paragraphs 13 or 14 hereof or
elsewhere) shall be true, accurate and complete in all material
respects at the time of Borrower's execution of this Agreement, shall
survive the execution, delivery and acceptance hereof by the parties
hereto and the closing of the transactions described herein or
related hereto, shall remain true until the repayment in full of all
of the Obligations and termination of this Agreement (except with
respect to representations and warranties expressly made as of a
specific date), and shall be remade by Borrower at the time each
Revolving Loan is made and each Letter Of Credit is issued pursuant
to this Agreement (except with respect to representations and
warranties expressly made as of a specific date).
14. COVENANTS.
Until payment or satisfaction in full of all Obligations and
termination of this Agreement, unless Borrower obtains LaSalle's
prior written consent waiving or modifying any of Borrower's
covenants hereunder in any specific instance, Borrower agrees as
follows:
A. Accurate Books And Records. Borrower shall at all times
keep accurate and complete books, records and accounts with respect
to all of Borrower's business activities, in accordance with sound
accounting practices and GAAP, and shall keep such books, records and
accounts, and any copies thereof, only at the addresses indicated for
such purpose on Schedule 13.B attached hereto.
B. Rights Of Access. LaSalle, or any Persons designated by
it, shall have the right, at any time upon reasonable notice, in the
exercise of its commercially reasonable credit judgment, to call at
Borrower's places of business during Borrower's regular business
hours, and, without hindrance or delay, to inspect the Collateral and
to inspect, audit, check and make extracts from Borrower's Books,
including without limitation Borrower's books, records, journals,
orders, receipts and any correspondence and other data relating to
Borrower's business, the Collateral or any transactions between the
parties hereto, and shall have the right to make such verification
concerning Borrower's business as LaSalle may consider reasonable
under the circumstances. Borrower shall furnish to LaSalle such
information relevant to LaSalle's rights under this Agreement as
LaSalle shall at any time and from time to time reasonably request.
Borrower authorizes LaSalle to discuss the affairs, finances and
business of Borrower with any officers or directors of Borrower or
any Affiliate, or, if an Event of Default has occurred and is
continuing, with those employees of Borrower with whom LaSalle has
determined in its commercially reasonable judgment to be necessary or
desirable to converse, and to discuss the financial condition of
Borrower with Borrower's independent public accountants. Any such
discussions shall be without liability to LaSalle or to such
accountants. Borrower shall pay to or reimburse LaSalle for all
reasonable fees, costs, and out-of-pocket expenses incurred by
LaSalle in the exercise of its rights hereunder (in addition to the
fees payable by Borrower pursuant to paragraph 4.I hereof in
connection with LaSalle's examination of the Borrower's Books and the
Collateral) and all of such costs, fees and expenses shall constitute
Revolving Loans hereunder.
<PAGE>
C. Insurance.
(1) Casualty Insurance. Borrower shall keep the
Collateral properly housed and shall keep the Collateral
insured against such risks and in such amounts as are
customarily insured against by Persons engaged in businesses
similar to that of Borrower with such companies, in such
amounts and under policies in such form as shall be reasonably
satisfactory to LaSalle. Originals or certified copies of such
policies of insurance have been or shall be delivered to
LaSalle within fifteen (15) days after the Closing Date,
together with evidence of payment of all premiums therefor, and
shall contain an endorsement, in form and substance acceptable
to LaSalle, showing loss under such insurance policies payable
to LaSalle. Such endorsement, or an independent instrument
furnished to LaSalle, shall provide that the insurance company
shall give LaSalle at least thirty (30) days written notice
before any such policy of insurance is altered or canceled and
that no act, whether willful or negligent, or default of
Borrower or any other Person shall affect the right of LaSalle
to recover under such policy of insurance in case of loss or
damage. Borrower hereby directs all insurers under such
policies of insurance to pay all proceeds payable thereunder
directly to LaSalle. Borrower irrevocably, makes, constitutes
and appoints LaSalle (and all officers, employees or agents
designated by LaSalle) as Borrower's true and lawful attorney
(and agent-in-fact) for the purpose of making, settling and
adjusting claims under such policies of insurance, endorsing
the name of Borrower on any check, draft, instrument or other
item of payment for the proceeds of such policies of insurance
and making all determinations and decisions with respect to
such policies of insurance, provided, however, that LaSalle
shall exercise such rights only upon the occurrence and during
the continuance of an Event of Default. The proceeds of any
insured loss shall be paid to LaSalle and shall be applied by
LaSalle (i) with respect to insurance proceeds from Collateral
consisting of Equipment, Fixtures, or real property, to the
sums owed in connection with the Term Loan, and (ii) with
respect to insurance proceeds from any other Collateral, to
sums owed in connection with the Revolving Loans, provided that
at any time during which an Event of Default has occurred and
is continuing, LaSalle may apply the whole or any part of such
proceeds to the Obligations, in such order of application as
determined by LaSalle, unless LaSalle permits the use thereof
to repair or replace damaged or destroyed Collateral;
<PAGE>
(2) Liability Insurance. Borrower shall maintain, at
its expense, such public liability and third party property
damage insurance as is customary for Persons engaged in
businesses similar to that of Borrower with such companies and
in such amounts, with such deductibles and under policies in
such form as shall be reasonably satisfactory to LaSalle and
originals or certified copies of such policies have been or
shall be delivered to LaSalle within fifteen (15) days after
the Closing Date, together with evidence of payment of all
premiums therefor; each such policy shall contain an endorse-
ment showing LaSalle as additional insured thereunder and
providing that the insurance company shall give LaSalle at
least thirty (30) days written notice before any such policy
shall be altered or canceled;
(3) Business Interruption Insurance. Borrower shall
maintain, at its expense, such business interruption insurance
as is customary for Persons engaged in businesses similar to
that of Borrower with such companies and in such amounts, with
such deductibles and under policies in such form as shall be
reasonably satisfactory to LaSalle and originals or certified
copies of such policies (or binders evidencing the existence of
coverage in compliance with this paragraph) have been or shall
be delivered to LaSalle on or before the Closing Date, together
with evidence of payment of all premiums therefor; each such
policy shall contain an endorsement showing LaSalle as
additional insured and loss payee thereunder and providing that
the insurance company shall give LaSalle at least thirty (30)
days written notice before any such policy shall be altered or
canceled; each such policy shall be assigned to LaSalle
pursuant to LaSalle's standard form of assignment; and
(4) Rights Of LaSalle To Obtain Or Maintain Insurance.
If Borrower at any time or times hereafter shall fail to
obtain or maintain any of the policies of insurance required
above or to pay any premium in whole or in part relating
thereto, then LaSalle, without waiving or releasing any
obligation or default by Borrower hereunder, may (but shall be
under no obligation to) obtain and maintain such policies of
insurance and pay such premiums and take such other actions
with respect thereto as LaSalle deems advisable in its
reasonable credit judgment. All reasonable sums disbursed by
LaSalle in connection with any such actions, including, without
limitation, court costs, expenses, other charges relating
thereto and reasonable attorneys' fees, shall constitute
Revolving Loans hereunder and, until paid, shall bear interest
at the highest rate then applicable to Revolving Loans
hereunder.
<PAGE>
D. Collateral. Borrower shall not use the Collateral, or any
part thereof, in any unlawful business or for any unlawful purpose or
use or maintain any of the Collateral in any manner that does or
could result in material damage to the environment or a violation of
any applicable environmental laws, rules or regulations; Borrower
shall keep the Collateral in the same condition, repair and order as
of the date hereof, ordinary wear and tear excepted; Borrower shall
not permit all or any material part of the Collateral, to be levied
upon under execution, attachment, distraint or other legal process;
Borrower shall not sell, lease, grant a security interest in or
otherwise dispose of any of the Collateral except as expressly
permitted by this Agreement; and Borrower shall not secrete or
abandon any of the Collateral, or remove or permit removal of any of
the Collateral from any of the locations listed on Schedule 13.B
attached hereto or in any written notice to LaSalle pursuant to
paragraph 13.C hereof, except as expressly permitted herein.
E. Indication Of Security Interests. Borrower shall, within
ten (10) days after the request of LaSalle, indicate on its records
concerning the Collateral a notation, in form satisfactory to
LaSalle, of the security interest of LaSalle hereunder, and Borrower
shall not maintain duplicates or copies of such records at any
address other than Borrower's principal place of business set forth
on the first page of this Agreement; provided, however, that
Borrower, in the ordinary course of its business, may furnish copies
of such records to its accountants, attorneys and other agents or
advisors as it may determine to be necessary or desirable, in the
exercise of its commercially reasonable judgment.
F. Taxes. Borrower shall file all required tax returns and
pay all of its taxes when due, including, without limitation, taxes
imposed by federal, state or municipal agencies, and shall cause any
liens for taxes to be promptly released; provided, that Borrower
shall have the right to contest the payment of such taxes in good
faith by appropriate proceedings so long as: (1) the amount so
contested is shown on Borrower's financial statements, if required by
GAAP, (2) the contesting of any such payment does not give rise to a
lien for taxes of equal or greater priority to LaSalle's liens, (3)
upon the occurrence of an Event Of Default, Borrower at all times has
Excess Availability in an amount which is sufficient to pay such
taxes and any interest or penalties that may accrue thereon, or
LaSalle may establish a reserve against availability under the
Revolving Loans in such amount, and (4) if Borrower fails to
prosecute such contest with reasonable diligence, LaSalle may pay
such taxes on Borrower's behalf and any such sums advanced shall
constitute Revolving Loans hereunder and, until paid, shall bear
interest at the rate then applicable to the Revolving Loans. If
Borrower fails to pay any such taxes and in the absence of any such
contest by Borrower, LaSalle may (but shall be under no obligation
to) advance and pay any sums required to pay any such taxes and/or to
secure the release of any lien therefor, and any sums so advanced by
LaSalle shall constitute Revolving Loans hereunder, and, until paid,
shall bear interest at the rate then applicable to Revolving Loans
hereunder.
<PAGE>
G. Other Indebtedness. Borrower shall not: (1) incur,
create, assume or suffer to exist any indebtedness other than (a)
indebtedness arising under this Agreement, (b) unsecured indebtedness
owing in the ordinary course of business to trade suppliers, (c)
indebtedness in effect on the date of this Agreement which has been
disclosed to LaSalle in writing, together with any renewals,
amendments and extensions thereof, (d) subordinated indebtedness
which has been subordinated to the indebtedness arising under this
Agreement pursuant to a written subordination agreement in form and
substance reasonably acceptable to LaSalle, (e) trade credit
financing in an amount not to exceed Two Million Dollars
($2,000,000.00) to be provided by Emerson or another Affiliate, (f)
senior indebtedness in an amount not to exceed Ten Million Dollars
($10,000,000.00), subject to the terms set forth below, and (g)
subordinated indebtedness in an aggregate amount not to exceed
Twenty-Five Million Dollars ($25,000,000.00) provided that such
indebtedness will not, directly or indirectly, cause or result in the
existence of a Default; or (2) assume, guarantee or endorse, or
otherwise become liable in connection with, the obligations of any
Person, except by endorsement of instruments for deposit or
collection or similar transactions in the ordinary course of
business. With respect to the senior indebtedness described above,
LaSalle will agree to subordinate or release its lien in certain
intangible assets of Borrower (including without limitation all of
Borrower's intellectual property) acceptable to LaSalle, in the event
that (i) Borrower obtains additional financing upon terms acceptable
to LaSalle in the amount of Ten Million Dollars ($10,000,000.00),
(ii) the terms of such financing expressly require LaSalle to
subordinate or release its lien in such assets, (iii) no Default
exists, and (iv) LaSalle receives agreements acceptable to LaSalle
and its counsel that will permit LaSalle to use such intangibles to
the full extent necessary to realize upon the Collateral upon the
occurrence of an Event of Default.
H. Mergers Or Organizational Changes. Borrower shall not
enter into any merger or consolidation, or sell, lease or otherwise
dispose of all or substantially all of its assets. Borrower shall
promptly advise LaSalle in the event that it creates any new
Subsidiary or Affiliate, and Borrower shall not transfer or
contribute any assets to any new Subsidiary or Affiliate in excess of
nominal initial capitalization funds which shall exceed, individually
or in the aggregate, Twenty-Five Thousand Dollars ($25,000.00).
Borrower shall not sell or enter into any contract or agreement
providing for the sale of all or any part of the Collateral, except
for the sale of inventory in the ordinary course of Borrower's
business or as otherwise expressly permitted by the terms of this
Agreement, nor shall Borrower permit the Collateral to be encumbered
or charged with a lien or security interest of any kind or nature,
whether voluntary or involuntary, other than Permitted Liens.
<PAGE>
I. Loans And Investments. Without the prior written consent
of LaSalle, which consent will not be unreasonably withheld, Borrower
shall not make any advance, loan, investment or material acquisition
of assets other than: (1) advances made to employees in the ordinary
course of business so long as the aggregate amount of such advances
do not exceed Two Hundred Thousand Dollars ($200,000.00) in the
aggregate outstanding at any time; (2) investments in marketable
securities so long as the aggregate amount of such investments do not
exceed One Hundred Thousand Dollars ($100,000.00) at any time; (3)
investments in short-term direct obligations of the United States
government; (4) investments in negotiable certificates of deposit
issued by a bank satisfactory to LaSalle, payable to the order of
Borrower or to bearer, or (5) investments in commercial paper rated
A-1 or P-1; provided, that with respect to clauses (2), (3), (4), and
(5), Borrower shall assign all such investments in excess of Fifty
Thousand Dollars ($50,000.00) and with a term in excess of ninety
(90) days to LaSalle in form reasonably acceptable to LaSalle.
J. Dividends And Distributions. Borrower shall not: (1)
declare or pay any dividend or other distribution (whether in cash or
in kind) on, purchase, redeem or retire any shares of any class of
its stock, or make any payment on account of, or set apart assets for
the repurchase, redemption, defeasance or retirement of, any class of
its stock, except that (a) Borrower may, from time to time,
repurchase stock at a cost of up to Five Million Dollars
($5,000,000.00) so long as after such purchase Borrower will have
Excess Availability in an amount not less than Four Million Dollars
($4,000,000.00), provided that Borrower may not repurchase stock from
Emerson or any affiliate or successor of Emerson, (b) Borrower may
provide its stockholders with a right to acquire additional shares in
the event that Borrower was the target of an acquisition or in the
event of a change in control, and (c) this provision shall not be
construed as a prohibition on pro rata distributions of shares of
Borrower's stock to its stockholders, or on an increase in the total
number of outstanding shares of Borrower accompanied by a
proportionate reduction in par or stated value; or (2) make any
optional payment or prepayment on or redemption (including without
limitation by making payments to a sinking fund or analogous fund)
or, without the prior written consent of LaSalle, repurchase of any
indebtedness for borrowed money other than indebtedness pursuant to
this Agreement.
K. Changes In Organizational Documents Or Fiscal Year.
Borrower shall not amend its organizational documents or change its
fiscal year, except for a change to a calendar year fiscal period.
L. Financial Covenants. Borrower shall maintain and keep in
full force and effect each of the financial covenants set forth
below. The calculation and determination of each such financial
covenant, and all accounting terms contained therein, shall be so
calculated and construed in accordance with GAAP, applied on a basis
consistent with the financial statements of Borrower delivered most
recently before the Closing Date:
<PAGE>
(1) Consolidated Tangible Net Worth. Borrower and its
Subsidiaries, on a consolidated basis, shall maintain at all
times a Tangible Net Worth of not less than Twenty-Five Million
Dollars ($25,000,000.00).
(2) EBITDA. Borrower and its Subsidiaries, on a
consolidated basis, shall equal or exceed an EBITDA for the
periods set forth below in the amounts set forth below:
Period Minimum EBITDA
Nine months ending 8/1/97 $1,500,000.00
Eleven months ending 9/26/97 $2,500,000.00
Thereafter, measured quarterly
on a rolling twelve-month basis,
as of the end of each Fiscal
Quarter $3,100,000.00
(3) Consolidated Capital Expenditures. Borrower and
its Subsidiaries, on a consolidated basis, shall not make
Capital Expenditures of an aggregate amount of more than One
Million Dollars ($1,000,000.00) during any fiscal year of
Borrower, without the prior written consent of LaSalle, which
consent will not be unreasonably with held; provided, however,
that so long as no Default has occurred and is continuing,
Borrower may make Capital Expenditure in an aggregate amount
not exceeding Three Million Dollars ($3,000,000.00) during the
Original Term with respect to management information systems,
and such Capital Expenditures shall be in addition to the One
Million Dollars ($1,000,000.00) annual limitations set forth
above.
M. LaSalle's Expenses. Borrower shall reimburse LaSalle for
all reasonable costs and expenses including, without limitation,
legal expenses and reasonable attorneys' fees and expenses of outside
counsel, incurred by LaSalle in connection with the documentation and
consummation of this transaction and any other transactions between
Borrower and LaSalle, including, without limitation, Uniform Commer-
cial Code and other public record searches, lien filings, Federal
Express or similar express or messenger delivery, appraisal costs,
surveys, title insurance and environmental audit or review costs, and
in seeking to collect, protect or enforce any rights in or to the
Collateral or incurred by LaSalle in seeking to collect any
Obligations and to administer and enforce any of LaSalle's rights
under this Agreement. Borrower shall also pay all normal service
charges with respect to accounts maintained by LaSalle for the
benefit of Borrower. All such costs, expenses and charges shall
constitute Revolving Loans hereunder, and, until paid, shall bear
interest at the rate then applicable to Revolving Loans hereunder.
N. Compliance With Assignment Of Claims Act. Upon request
from LaSalle at any time or from to time, Borrower shall take all
action necessary to comply with the Assignment of Claims Act of 1940,
as amended (31 U.S.C. Section 203 et seq.) with respect to any
Government Accounts which qualify for assignment under the provisions
thereof.
<PAGE>
O. Maintenance Of Accounts. Except as described in Schedule
14.0 attached hereto, within thirty (30) calendar days after the
Closing Date, Borrower shall transfer all of its operating bank
accounts to, and shall thereafter maintain such accounts with the
Bank in Chicago, Illinois.
15. CONDITIONS PRECEDENT.
A. Conditions Precedent To Closing. The obligation of
LaSalle to fund the initial Revolving Loan, to fund the Term Loan,
and to co-sign as applicant for the initial Letter Of Credit, is
subject to the satisfaction or waiver on or before the Closing Date
of the following conditions precedent:
(1) Receipt of Executed Documents. LaSalle shall have
received each of the documents required to be executed in
connection with the transaction described in this Agreement,
executed by all indicated signatories thereto;
(2) No Material Adverse Event. No event shall have
occurred which has had or could reasonably be expected to have
a Material Adverse Effect;
(3) No Alienation Or Destruction Of Equipment. There
shall have been no sale or other disposition or damage or
destruction of any Equipment, unless such sale or other
disposition or damage or destruction has been fully disclosed
to LaSalle, and LaSalle has in writing agreed to advance the
proceeds of the Term Loan notwithstanding such sale or other
disposition or damage or destruction, provided that in such
event LaSalle, in its sole discretion, may reduce the amount
available to be advanced under the Term Loan by such amount as
LaSalle may deem appropriate;
(4) Receipt Of Opinion Of Counsel. LaSalle shall have
received an opinion of Borrower's general counsel in the form
of Exhibit B attached hereto; and
(5) Execution Of Documentation. The Borrower shall
have executed and delivered to LaSalle all documents which
LaSalle determines are reasonably necessary to consummate the
transactions contemplated hereby.
B. Conditions Precedent To Post-Closing Obligations. After
the Closing Date, the obligation of LaSalle to make any requested
Revolving Loan, or to co-sign as applicant for any requested Letter
Of Credit is subject to the satisfaction of the conditions precedent
set forth below. Each such request shall constitute a representation
and warranty that such conditions are satisfied:
(1) Continuing Accuracy Of Representations And
Warranties. All representations and warranties contained in
this Agreement and the Other Agreements shall be true and
correct in all material respects on and as of the date of such
request, as if then made, other than representations and
warranties that relate solely to an earlier date; and
<PAGE>
(2) No Defaults. No Default or Event Of Default shall
have occurred, or would result from the making of the requested
Revolving Loan or the issuance of the requested Letter Of
Credit, which has not been waived;
16. DEFAULT. The occurrence of any one or more of the following
events shall constitute an "Event Of Default" under this Agreement:
A. Failure To Pay. The failure of any Obligor to pay any of
the Obligations when due, declared due, or demanded by LaSalle in
accordance with the terms of this Agreement or any of the Other
Agreements.
B. Failure To Perform. The failure of any Obligor to
perform, keep or observe any of the covenants, conditions, promises,
agreements or obligations of such Obligor under this Agreement or any
of the Other Agreements, which failure continues for ten (10)
Business Days after notice from LaSalle to Borrower, provided that a
failure by Borrower to perform any obligations under any of the
following paragraphs shall constitute an immediate Event of Default
without Borrower having any notice or cure right: paragraph 9, the
last sentence of paragraph 13B, the last sentence of paragraph 13C,
paragraph 14E, paragraph 14H, paragraph 14J and paragraph 14L.
C. False Representation Or Warranty. The making or
furnishing by any Obligor to LaSalle of any representation, warranty,
certificate, schedule, report or other communication within or in
connection with this Agreement or the Other Agreements or in
connection with any other agreement between such Obligor and LaSalle,
which is untrue or misleading in any material respect, or the failure
of any Obligor to perform, keep or observe any of the covenants,
conditions, promises, agreement of such Obligor under any other
agreement with any Person if such failure has or is reasonably likely
to have a Material Adverse Effect.
D. Other Liens. Except as provided in paragraph 16.G, the
creation (whether voluntary or involuntary) of any lien or other
encumbrance upon any of the Collateral securing an amount in excess
of Two Hundred Fifty Thousand Dollars ($250,000.00), other than the
Permitted Liens, or the making of any levy, seizure or attachment of
any Collateral in connection with a lien or other encumbrance
securing an amount in excess of Two Hundred Fifty Thousand Dollars
($250,000.00).
E. Insolvency Proceedings. The commencement of any
proceedings (1) in bankruptcy by or against Borrower (2) for the
liquidation or reorganization of Borrower, or (3) for the
readjustment or arrangement of Borrower's debts, whether under the
United States Bankruptcy Code or under any other applicable law,
whether state or federal, now or hereafter existing for the relief of
debtors, or the commencement of any analogous statutory or non-
statutory proceedings involving any Obligor; provided, however, that
if such commencement of proceedings against Borrower is involuntary,
such action shall not constitute an Event Of Default unless such
proceedings are not dismissed within sixty (60) days after the
commencement of such proceedings.
<PAGE>
F. Receivership Or Other Proceedings. The appointment of a
receiver or trustee for Borrower or for all or any substantial part
of the Collateral, or the institution of any proceedings for the
dissolution, or the full or partial liquidation, or the merger or
consolidation, of Borrower; provided, however, that if such
appointment or commencement of proceedings against Borrower is
involuntary, such action shall not constitute an Event Of Default
unless such appointment is not revoked or such proceedings are not
dismissed within sixty (60) days after the commencement of such
proceedings.
G. Entry Of A Judgment. The entry of any judgment or order
by a court of competent jurisdiction in excess of Five Hundred
Thousand Dollars ($500,000.00) against any Obligor which remains
unsatisfied or undischarged and in effect for sixty (60) days after
such entry without a stay of enforcement or execution, so long as
such creditor has not commenced enforcement or execution upon such
judgment, unless such judgment is insured and the creditor has not
commenced enforcement or execution upon such judgment.
H. Default By Guarantors. The occurrence and continuance of
an event of default, including the expiration of any applicable grace
or cure period, under, or the revocation or termination of, any
agreement, instrument or document executed and delivered by any
Person to LaSalle pursuant to which such Person, with Borrower's
actual knowledge and consent, has guaranteed to LaSalle the payment
of all or substantially all of the Obligations or has granted LaSalle
a security interest in or lien upon some or all of such Person's real
and/or personal property to secure the payment of all or
substantially all of the Obligations.
I. Cross Default. The occurrence and continuance of an event
of default, including the expiration of any applicable grace or cure
period, under any other agreement or instrument evidencing
indebtedness for borrowed money in excess of Two Hundred Fifty
Thousand Dollars ($250,000.00) executed or delivered by Borrower or
pursuant to which agreement or instrument Borrower or its properties
is or may be bound. A Default with respect to any Loan or Letter Of
Credit is a Default with respect to all Loans and all Letters Of
Credit.
J. Occurrence Of Material Adverse Event. The occurrence of
any event or condition which has or is reasonably likely to have a
Material Adverse Effect, as determined by LaSalle in the exercise of
its commercially reasonable judgment.
<PAGE>
17. REMEDIES UPON AN EVENT OF DEFAULT.
A. Acceleration. Upon the occurrence of an Event Of Default
described in paragraph 16.E or 16.F above, all of the Obligations
shall immediately and automatically be deemed to have been
accelerated and to be due and payable, without notice of any kind.
Upon the occurrence of any other Event Of Default, including the
expiration of any applicable cure period, all of the Obligations may,
at the option of LaSalle be accelerated for immediate payment, and
without demand, notice or legal process of any kind, be declared, and
immediately shall become, due and payable.
B. Remedies Are Cumulative. Upon the occurrence of an Event
Of Default, LaSalle may exercise from time to time any rights and
remedies available to LaSalle pursuant to the Uniform Commercial Code
and any other applicable law in addition to, and not in lieu of, any
rights and remedies expressly granted in this Agreement or in any of
the Other Agreements and all of LaSalle's rights and remedies shall
be cumulative and non-exclusive to the extent permitted by law.
C. Rights To Manage, Sell And Liquidate Collateral. Upon the
occurrence and during the continuance of an Event of Default, LaSalle
may, without notice, demand or legal process of any kind, take
possession of any or all of the Collateral (in addition to Collateral
of which LaSalle already has possession), wherever it may be found,
and for that purpose may pursue the same wherever it may be found,
and may enter into any of Borrower's premises where any of the
Collateral may be, and search for, take possession of, remove, keep
and store any of the Collateral until the same shall be sold or
otherwise disposed of, and LaSalle shall have the right to store the
same at any of Borrower's premises without cost to LaSalle, subject
to the rights of any landlord. At LaSalle's request, Borrower shall,
at Borrower's expense, assemble the Collateral and make it available
to LaSalle at one or more places to be designated by LaSalle and
reasonably convenient to LaSalle and Borrower. Borrower recognizes
that if Borrower fails to perform, observe or discharge any of its
Obligations under this Agreement or the Other Agreements, no remedy
at law will provide adequate relief to LaSalle, and Borrower agrees
that LaSalle shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual
damages. Any notification of intended disposition of any of the
Collateral required by law will be deemed reasonably and properly
given if given at least ten (10) calendar days before such
disposition. Any proceeds of any disposition by LaSalle of any of
the Collateral may be applied by LaSalle to the payment of reasonable
out-of-pocket expenses in connection with the Collateral including,
without limitation, legal expenses and reasonable attorneys' fees and
any balance of such proceeds may be applied by LaSalle toward the
payment of such of the Obligations, and in such order of application,
as LaSalle may from time to time elect.
<PAGE>
18. INDEMNIFICATION.
Borrower agrees to defend (with counsel mutually satisfactory
to Borrower and LaSalle), protect, indemnify and hold harmless
LaSalle, each affiliate or subsidiary of LaSalle, and each of their
respective officers, directors, employees, attorneys and agents (each
an "Indemnified Party") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature
(including, without limitation, the disbursements and the reasonable
fees of one (1) counsel (or more than one (1) counsel if separate
counsel are determined to be desirable based upon conflict of
interest considerations) for the Indemnified Parties in connection
with any investigative, administrative or judicial proceeding,
whether or not the Indemnified Party shall be designated a party
thereto), which may be imposed on, incurred by, or asserted against,
any Indemnified Party (whether direct, indirect or consequential and
whether based on any federal, state or local laws or regulations
including, without limitation, securities, environmental and
commercial laws and regulations, under common law or in equity, or
based on contract or otherwise) in any manner relating to or arising
out of this Agreement or any Other Agreement, or any act, event or
transaction related or attendant thereto, or the use or intended use
of the proceeds of the Loans or any Letters Of Credit; provided,
however, that Borrower shall not have any obligation hereunder to any
Indemnified Party with respect to, and LaSalle agrees to indemnify
and holds harmless Borrower and each of its officers, directors,
employees, attorneys and agents, for losses incurred by Borrower
from, matters caused by or resulting from the willful misconduct or
gross negligence of any Indemnified Party. To the extent that the
undertaking to indemnify set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy,
Borrower shall satisfy such undertaking to the maximum extent
permitted by applicable law. Any liability, obligation, loss,
damage, penalty, cost or expense covered by this indemnity shall be
paid promptly to each Indemnified Party, and, failing prompt payment,
shall, together with interest thereon at the rate then applicable to
Revolving Loans hereunder from the date incurred by each Indemnified
Party until paid by Borrower, be added to the Obligations of Borrower
and be secured by the Collateral. The provisions of this paragraph
shall survive the satisfaction and payment of the other Obligations
and the termination of this Agreement.
<PAGE>
19. NOTICES.
Except as otherwise expressly provided herein, any notice
required or desired to be served, given or delivered hereunder shall
be in the form and manner specified below, and shall be addressed to
the party to the following addresses or to such other address as each
party designates to the other by Notice in the manner herein
prescribed:
If To LaSalle At: LASALLE BUSINESS CREDIT, INC.
120 East Baltimore Street, Suite 1802
Baltimore, Maryland 21202
Attn: J. David Kommalan
First Vice President and
Regional Manager
Facsimile No.: (410) 837-0644
If To Borrower At: SPORT SUPPLY GROUP, INC.
1901 Diplomat Drive
Farmers Branch, Texas 75234
Attn: John P. Walker,
Executive Vice President
and Chief Financial Officer
Facsimile No.: (972) 406-3409
With A Copy To:SPORT SUPPLY GROUP, INC.
1901 Diplomat Drive
Farmers Branch, Texas 75234
Attn: General Counsel
Facsimile No.: (972) 406-3476
Notice shall be deemed given hereunder if: (1) delivered personally
or otherwise actually received, (2) sent by overnight delivery
service, (3) mailed by first-class United States mail, postage
prepaid, registered or certified, with return receipt requested, or
(4) sent via telecopy machine with a duplicate signed copy sent on
the same day as provided in clause (2) above. Notice mailed as
provided in clause (3) above shall be effective upon the expiration
of three (3) Business Days after its deposit in the United States
mail, and notice telecopied as provided in clause (4) above shall be
effective upon receipt of such telecopy if the duplicate signed copy
is sent under clause (4) above. Notice given in any other manner
described in this section shall be effective upon receipt by the
addressee thereof; provided, however, that if any notice is tendered
to an addressee and delivery thereof is refused by such addressee,
such notice shall be effective upon such tender unless expressly set
forth in such notice.
<PAGE>
20. CHOICE OF GOVERNING LAW AND CONSTRUCTION.
This Agreement and the Other Agreements are submitted by
Borrower to LaSalle for LaSalle's acceptance or rejection at
LaSalle's principal place of business as an offer by Borrower to
borrow monies from LaSalle now and from time to time hereafter, and
shall not be binding upon LaSalle or become effective until accepted
by LaSalle, in writing, at said place of business. If so accepted by
LaSalle, this Agreement and the Other Agreements shall be deemed to
have been made at said place of business. THIS AGREEMENT AND THE
OTHER AGREEMENTS SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL
LAWS OF THE STATE OF MARYLAND AS TO INTERPRETATION, ENFORCEMENT,
VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING,
WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER
CHARGES, BUT EXCLUDING PERFECTION OF THE SECURITY INTERESTS IN THE
COLLATERAL, WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE
RELEVANT JURISDICTION. If any provision of this Agreement shall be
held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision
or remaining provisions of this Agreement.
21. FORUM SELECTION AND SERVICE OF PROCESS.
To induce LaSalle to accept this Agreement, Borrower
irrevocably agrees that, subject to LaSalle's sole and absolute
election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER
AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING
SITUS WITHIN THE STATE OF MARYLAND. BORROWER HEREBY CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS
LOCATED WITHIN SAID STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY
HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT
AGAINST BORROWER BY LASALLE IN ACCORDANCE WITH THIS PARAGRAPH.
22. MODIFICATION AND BENEFIT OF AGREEMENT.
This Agreement and the Other Agreements may not be modified,
altered or amended except by an agreement in writing signed by
Borrower and LaSalle. Neither Borrower nor LaSalle may sell, assign
or transfer this Agreement, or the Other Agreements or any portion
thereof including, without limitation, their respective rights,
titles, interest, remedies, powers or duties thereunder, without the
prior written consent of the other party.
23. HEADINGS OF SUBDIVISIONS.
The headings of subdivisions in this Agreement are for
convenience of reference only, and shall not govern the
interpretation of any of the provisions of this Agreement.
24. POWER OF ATTORNEY.
Borrower acknowledges and agrees that Borrower's appointment
of LaSalle as Borrower's attorney and agent-in-fact for the purposes
specified in this Agreement is an appointment coupled with an
interest and shall be irrevocable until all of the Obligations are
paid in full and this Agreement is terminated.
<PAGE>
25. WAIVER OF JURY TRIAL; OTHER WAIVERS; CONFIDENTIALITY.
A. WAIVER OF JURY TRIAL. LASALLE AND BORROWER HEREBY WAIVE
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH
PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, ANY OF THE OTHER
AGREEMENTS, THE OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS
CONDUCT OF BORROWER OR LASALLE OR WHICH, IN ANY WAY, DIRECTLY OR
INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN
BORROWER AND LASALLE. IN NO EVENT SHALL LASALLE BE LIABLE FOR LOST
PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
B. WAIVER OF NOTICE OF REPOSSESSION OR REPLEVIN OF
COLLATERAL. BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING
OF ANY KIND PRIOR TO THE EXERCISE BY LASALLE OF ITS RIGHTS TO
REPOSSESS THE COLLATERAL OF BORROWER WITHOUT JUDICIAL PROCESS OR TO
REPLEVY, ATTACH OR LEVY UPON SUCH COLLATERAL WITHOUT PRIOR NOTICE OR
HEARING.
C. Waiver Of Demand, Presentment, Protest And Notice. Except
as expressly required by the terms of this Agreement, Borrower hereby
waives demand, presentment, protest and notice of nonpayment, and
further waives the benefit of all valuation, appraisal and exemption
laws.
D. No Continuing Waivers By LaSalle. LaSalle's failure, at
any time or times hereafter, to require strict performance by
Borrower of any provision of this Agreement or any of the Other
Agreements shall not waive, affect or diminish any right of LaSalle
thereafter to demand strict compliance and performance therewith.
Any suspension or waiver by LaSalle of an Event Of Default under this
Agreement or any default under any of the Other Agreements shall not
suspend, waive or affect any other Event Of Default under this
Agreement or any other default under any of the Other Agreements,
whether the same is prior or subsequent thereto and whether of the
same or of a different kind or character. No delay on the part of
LaSalle in the exercise of any right or remedy under this Agreement
or any Other Agreement shall preclude other or further exercise
thereof or the exercise of any right or remedy. None of the
undertakings, agreements, warranties, covenants and representations
of Borrower contained in this Agreement or any of the Other
Agreements and no Event Of Default under this Agreement or default
under any of the Other Agreements shall be deemed to have been
suspended or waived by LaSalle unless such suspension or waiver is in
writing, signed by a duly authorized officer of LaSalle and directed
to Borrower specifying such suspension or waiver.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement under seal as of the 9th day of September, 1997.
LASALLE BUSINESS CREDIT, INC.
By:____________________________(SEAL)
Name: ______________________
Title: _____________________
SPORT SUPPLY GROUP, INC.
By:/s/ John P. Walker (SEAL)
Name: John P. Walker
Title: Executive Vice President
and Chief Financial Officer
ACKNOWLEDGMENTS
STATE OF MARYLAND, CITY/COUNTY OF __________________, TO WIT:
I HEREBY CERTIFY that on this ____ day of September, 1997,
before me, the undersigned Notary Public of the State of Maryland, in
and for the City/County of ______________________, personally
appeared ___________________________, and acknowledged himself to be
the ___________________ of LASALLE BUSINESS CREDIT, INC., a Delaware
corporation, and that he, as such ____________________, being
authorized so to do, executed the foregoing instrument for the
purposes therein contained by signing the name of LASALLE BUSINESS
CREDIT, INC., by himself as ____________________.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
______________________
STATE OF TEXAS, COUNTY OF DALLAS, TO WIT:
I HEREBY CERTIFY that on this 9th day of September, 1997, before me,
the undersigned Notary Public of the jurisdiction aforesaid,
personally appeared John P. Walker, and acknowledged himself
to be the Executive Vice President and Chief Financial Officer of
SPORT SUPPLY GROUP, INC., a Delaware corporation, and that he,
as such Executive Vice President and Chief Financial Officer, being
authorized so to do, executed the foregoing instrument for the
purposes therein contained by signing the name of SPORT SUPPLY
GROUP, INC., by himself as Executive Vice President and Chief
Financial Officer.
IN WITNESS MY Hand and Notarial Seal.
/s/ Peggy Rozelle (SEAL)
NOTARY PUBLIC
My Commission Expires:
February 28, 2001
<PAGE>
EXHIBIT A
Officer's Certificate
This Certificate is submitted pursuant to paragraph 11.I of the
Second Amended and Restated Loan and Security Agreement dated
_____________ ("Loan Agreement") between LaSalle Business Credit,
Inc. ("LaSalle") and Sport Supply Group, Inc. ("Borrower").
The undersigned, in his capacity as the _______________________
of the Borrower, hereby certifies to LaSalle that as of the date of
this Agreement:
1. The undersigned is the _________________ of the Borrower.
2. To the best of the undersigned's knowledge, information and
belief, there exists no event or circumstance which is or which with
the passage of time, the giving of notice, or both would constitute
an Event Of Default, as that term is defined in the Loan Agreement,
or, if such an event or circumstance exists, a writing attached
hereto specifies the nature thereof, the period of existence thereof
and the action that Borrower has taken or proposes to take with
respect thereto.
3. To the best of the undersigned's knowledge, information and
belief, no material adverse change in the condition, financial or
otherwise, business, property, or results of operations of Borrower
has occurred since _______ or, if such a change has occurred, a
writing attached hereto specifies the nature thereof and the action
that Borrower has taken or proposes to take with respect thereto.
4. All insurance premiums due as of such date have been paid.
5. All taxes due as of such date have been paid or, for those
taxes which have not been paid, or, if any taxes have not been paid,
a writing attached hereto describes the nature and amount of such
taxes, and sets forth Borrower's rationale for not paying such taxes
and the action that Borrower has taken or proposes to take with
respect thereto.
6. To the best of the undersigned's knowledge, after
appropriate inquiry, except as previously disclosed to LaSalle in
writing, no material litigation, investigation or proceeding, or
injunction, writ or restraining order is pending or threatened
against the Borrower, or, if any litigation, investigation or
proceeding, or injunction, writ or restraining order is pending or
threatened against the Borrower, a writing attached hereto specifies
the nature thereof.
<PAGE>
7. Borrower is in compliance in all material respects with the
representations, warranties and covenants in the Loan Agreement
(except with respect to represents and warranties which are expressly
given as of a specific date), or, if Borrower is not in compliance in
all material respects with any representations, warranties or
covenants in the Loan Agreement, a writing attached hereto specifies
the nature thereof, the period of existence thereof and the action
that Borrower has taken or proposes to take with respect thereto.
8. Attached hereto is a true and correct calculation of the
financial covenants contained in paragraph 14.L of the Loan
Agreement.
SPORT SUPPLY GROUP, INC.
By:
_______________________(SEAL)
Name: _____________________
Title: _____________________
SCHEDULE 13.B
BORROWER'S LOCATIONS
Location of Books and Records:
Principal Place of Business:
Locations of Collateral:<PAGE>
Post Office Boxes:
<PAGE>
SCHEDULE 13.D
EXISTING LIENS
SCHEDULE 13.L
TRADENAMES AND DIVISION NAMES
SCHEDULE 13.V
INTELLECTUAL PROPERTIES
SCHEDULE 14.G
OTHER INDEBTEDNESS
SCHEDULE 14.0
OTHER BANK ACCOUNTS
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement"), is made
and entered into on July 1, 1997 to be effective as of March 7,
1997 (the "Effective Date"), by and between Sport Supply Group, Inc.,
a Delaware corporation (the "Manager"), and Emerson Radio Corp., a
Delaware corporation (the "Company").
WHEREAS, the Company has requested that the Manager provide
various managerial services to the Company for the Company's benefit
and the Company and Manager desire to enter into this Agreement on
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Manager and the Company hereby agree as follows:
ARTICLE I
Management Services
1.1 General Duties. The Company and the Manager hereby
agree that, during the term of this Agreement, the Manager will be
responsible for providing the Company with the following services:
(a) Process payroll and payroll taxes for the
Company's employees and assist Company by enrolling Company
employees in the Company's employee benefit plans, and
process the payment of insurance premiums to the Company's
benefit providers so long as the Company submits the
correct amount of the premium to the Manager on a timely
basis (subject to the Manager receiving from the Company
all of the necessary information, which is not in Manager's
possession, custody or control, required to fulfill these
functions) (collectively, "Human Resource Services"). Such
Human Resources shall be performed on a timely basis in
accordance with industry standards.
(b) Calculate daily borrowing availability with
respect to the Company's secured credit facility, prepare
daily reporting for the Company's banks, prepare forecasts
of cash availability and cash flow, wire funds and set-up
letters of credit as may be requested by an officer of the
Company, or an authorized agent of the Company (including,
without limitation, Ken Corby) for which Manager receives
notice of such authorization from an officer of the Company
from time to time (collectively, the "Banking Services");
<PAGE>
(c) Provide space for the Company's AS 400 Computer
System and provide the system operator services set forth
below (collectively, the "Computer Services");
Daily
Monitor computer messages
Answer and respond to
user requests (EDI problems,
terminal/printer problems, etc.)
Submit nightly batch jobs
Format nightly save tapes
Load nightly save tapes
Start nightly data save to tape
Weekly
Load Payroll tapes
Submit nightly batch jobs
Format save tapes
Load weekend save tapes
Start weekly data save to tape
Manager shall use the Company's AS 400 Computer System solely to
perform the Computer Services.
(d) Process the Company's accounts payables and
process checks to be delivered, approved and signed by an
officer of the Company (collectively, the "Payable
Services");
(e) Provide warehouse storage space (subject to
availability and obtaining the Landlord's consent, and in
no event after the time the Manager ceases to occupy the
warehouse space currently occupied by the Manager at 13700
Benchmark, Farmers Branch, Texas, in which event Manager
shall provide the Company with at least thirty (30) days
prior written notice of vacating such space) for the
Company's archives and product inventory at Manager's
warehouse located at 13700 Benchmark, Farmers Branch,
Texas 75234, or such other mutually agreeable location
(collectively, the "Warehouse Space"); and
(f) Provide office space (subject to availability and
in no event after the time the Manager ceases to occupy the
office space currently occupied by the Manager at 1901
Diplomat Drive, Farmers Branch, Texas, in which event
Manager shall provide the Company with at least thirty (30)
days prior written notice of vacating such space) for
certain employees of the Company at Manager's office
located at 1901 Diplomat Drive, Farmers Branch, Texas
75234, or such other mutually agreeable location
(collectively, the "Office Space").
<PAGE>
(g) Prepare, design and draft publications to be
distributed by the Company, such as owner manuals, service
manuals, warranty text and any additions, modifications and
revisions thereto, relating to products sold by the
Company, all in accordance with the Company's past
practices (the "Design Services"). The Company will be
solely responsible for (and own) all information and
intellectual property included in such publications and any
and all legal requirements relating to such publications.
All reproduction costs for the Design Services will be paid
by the Company. The Design Services will not include any
of the Company's documents that are customarily filed with
the Securities and Exchange Commission, such as Annual
Reports, proxy statements, 10-Qs, 10-Ks, etc.
(h) Until the earlier of (i) the expiration or
termination of this Agreement, or (ii) the date Ken Corby
ceases to be an employee of the Manager, Mr. Corby will
provide financial management services to the Company on an
as needed basis, provided that Mr. Corby will not devote
more than 75% of his working time to the provision of such
services (collectively, the "Financial Management
Services".)
All of the services set forth in this Article shall be
collectively referred to in this Agreement as the "Services".
Notwithstanding the foregoing, Manager will not be responsible for
providing any services to the Company not expressly set forth herein,
including, without limitation, any legal or tax related services;
provided, however, the Manager will provide the necessary data as
reasonably requested by ADP to enable ADP to prepare the Company's
payroll tax returns..
1.2 Company Responsibilities. During the term of this
Agreement the Company will assume the responsibilities and perform
the duties set forth below:
(a) The Company will furnish to the Manager all
information and data, not in Manager's custody or control,
reasonably necessary for Manager to provide the services
described above, including, without limitation, all payroll
files and employee payroll and other information that
Manager may advise the Company it requires to perform its
services under this Agreement. Manager shall be entitled
to rely upon the accuracy and completeness of all
information that it reasonably believes to have been
furnished to it by the Company or at the Company's
direction, and shall have no duty to inquire about such
information. Manager acknowledges no changes to the
Company's corporate payroll records will be made without
the prior written consent of the Company.
<PAGE>
(b) During the term of this Agreement, the Company
will furnish to the Manager the AS400 that is owned by the
Company, which equipment shall remain the property of the
Company. Company shall retain complete financial
responsibility for such equipment, including depreciation,
maintenance, insurance and taxes, if any. Company hereby
appoints the Manager as its sole agent for all matters
pertaining to such equipment and shall promptly notify all
appropriate third parties of such appointment. Company has
sole responsibility for all aspects of the computer data
and its hardware, including without limitation,
uninterruptable power supply, data lines, disaster
recovery, offsite storage and tape back-up.
(c ) The Company shall be solely responsible for
resolving any dispute between the Company and any employee
of the Company and answering any inquiries relating to a
Company employee's rights and entitlements under the
Company's benefit plans. The Company is solely responsible
for the administration of its benefit plans (including,
without limitation, its 401(k) Plan ) and executing and
filing with any governmental authority or other person all
reports or other documents required in connection with such
benefit plans, and the Manager shall have no reporting
obligation in connection with any aspect of the Company's
benefit plans. In addition, the Manager shall not be
deemed a fiduciary or plan administrator of the Company or
any of the Company's benefit plans and shall not have any
responsibility to monitor compliance by the Company with
the terms and conditions of any benefit plan or any law
applicable thereto.
(d) The Company shall cooperate with the Manager by,
among other things, making available, as reasonably
requested by the Manager, management decisions, personnel
information, approvals and acceptances in order that the
work of Manager contemplated hereby may be accomplished.
1.3 Insurance. Manager will not be liable to the Company or
any of the employees or contractors of the Company for damage or loss
to person or property, including theft, burglary, assault, vandalism
or other crimes, unless such damage or loss is caused by the gross
negligence or willful misconduct of the Manager. The Manager will
not be liable to the Company or any of its employees or contractors
for personal injury or for damage to or loss of their personal
property from fire, flood, water leaks, rain, hail, ice, snow, smoke,
lightning, wind, explosions, strike, war, riot, insurrection,
interruption of utilities or other occurrences unless such injury,
loss or damage is caused by the gross negligence or willful
misconduct of the Manager. Company acknowledges that neither the
Warehouse Space nor the Office Space is fireproof. The Company is
strongly urged to secure its own insurance to protect against all of
the above.
1.4 Permissible Activities. Nothing herein shall in any
way preclude the Manager from engaging in any business activities or
from performing services for its own account or for the account of
others.
<PAGE>
ARTICLE II
Compensation
2.1 Service Charges. The Company and the Manager hereby agree
that the Manager will be compensated at the initial rates set forth
below for the services rendered by the Manager to the Company
pursuant to this Agreement:
Services Amount in U.S. Dollars Beginning Date
Human Resource Services $1,000 per pay period March 7, 1997
Banking Services $25,000 per year June 16, 1997
Computer Services $20,000 per year May 31, 1997
Payable Services $12,000 per year June 16, 1997
Warehouse Space $4.00 per square foot May 15, 1997
Office Space $5.00 per square foot June 16, 1997
Design Services $50,000 per year July 1, 1997
Financial Management
Services See Section 2.3 below June 1, 1997
The amount of such service charges may be adjusted from time to time
by the parties' mutual written agreement. Such service charges shall
be payable within ten (10) days of the date an invoice is received.
Partial months shall be prorated accordingly. The Company will also
be responsible for paying all of the Company's out-of-pocket expenses
related to the above services (including, without limitation, copying
charges incurred in connection with the Design Services) and the
Manager's expenses related to the Manager's business, such as
postage, telephone and telecopy bills, telephone lines, office
supplies, transition services, etc. The payment of any expenses
incurred by Manager on the Company's behalf in excess of $1,000
requires the Company's written consent.
2.2 The Manager will reimburse the Company for salary payments
made by the Company to Geoffrey P. Jurick for the benefit of the
Manager, which payments shall be $20,833.33 per month, plus
expenses incurred by Mr. Jurick on behalf of the Manager, subject to
increases approved by the Manager's Board of Directors. Such
reimbursements shall be made on a monthly basis.
2.3 The Company will reimburse the Manager for an amount equal
to 75% times Ken Corby's salary, payroll taxes and all
benefits (including, without limitation, insurance, Manager
contributions to the Manager's 401(k) Plan, automobile
allowances, and fees and expenses relating thereto, etc.) for
the Financial Management Services. Such reimbursements shall
be made on a monthly basis, payable within ten (10) days of
the date an invoice is received.
ARTICLE III
Term and Termination
3.1 Term. This Agreement shall become effective as of the
Effective Date and shall continue in force until terminated pursuant
to the terms of this Agreement or otherwise agreed by the parties.
3.2 Termination. This Agreement may be terminated by either
party on sixty (60) days' prior written notice to the other party.
<PAGE>
3.3 Termination for Nonpayment. Notwithstanding Section 3.2
hereof, in the event that either party defaults in the payment when
due of any amount due to the other hereunder and does not cure such
default within ten (10) days after being given written notice of such
default, then the non-defaulting party may, by giving written notice
thereof to the defaulting party, terminate this Agreement as of the
date specified in such notice of termination.
3.4 Termination for Insolvency. Notwithstanding Section 3.2
hereof, in the event that either party hereto becomes or is declared
insolvent or bankrupt, is the subject of any proceedings relating to
its liquidation, insolvency or for the appointment of a receiver or
similar office for it, makes an assignment for the benefit of all or
substantially all of its creditors, or enters into an agreement for
the composition, extension, or readjustment of all or substantially
all of its obligations, then the other party hereto may, by giving
written notice thereof to such party, terminate this Agreement as of
the date specified in such notice of termination.
3.5 Return of Records. Upon the termination of this Agreement
for any reason, the Manager shall promptly return to the Company all
books, records, documents, information and data (including data
stored in computers or on any computer media or equipment), including
all copies of the foregoing, that belong to the Company.
ARTICLE IV
General Provisions
4.1 Confidentiality. Each party agrees that all information
communicated to it by the other, whether before or after the
Effective Date, was and shall be received in strict confidence and
shall be used only for the purposes of this Agreement, and that no
such information, including, without limitation, the provisions of
this Agreement, shall be disclosed or otherwise used by a party to
this Agreement or its security holders, directors, officers,
employees, or agents, without the prior written consent of the other
party, except as may be necessary by reason of legal, accounting or
regulatory requirements. The requirements and obligations of this
Section 4.1 shall survive the termination of this Agreement.
4.2 Indemnification .
(a) The Manager agrees to indemnify, defend and
hold harmless the Company and its affiliates and their
respective directors, officers, agents, employees and
controlling persons from and against any and all losses,
claims, damages, liabilities and expenses (including the
reasonable cost of investigating and defending against any
claims therefor and reasonable counsel fees and expenses
incurred in connection therewith) that resulted solely from
the willful bad faith or gross negligence of the Manager in
the performance of the Services that are the subject of
this Agreement. No express or implied warranty is made by
Manager in respect to any Service or product provided
hereunder including, without limitation, any implied
warranty or merchantibility or fitness for a particular
purpose.
<PAGE>
(b) The Company agrees to indemnify, defend and hold
harmless the Manager and its affiliates and their
respective directors, officers, agents, employees and
controlling persons from and against any and all losses,
claims, damages, liabilities and expenses (including the
reasonable cost of investigating and defending against any
claims therefor and reasonable counsel fees and expenses
incurred in connection therewith) related to or arising out
of the Services provided hereunder by the Manager
(including, without limitation, Manager's use of the
Company's Brand Names and Marks, as described below),
regardless if such losses, claims, damages, liabilities and
expenses are founded in whole or in part, on the alleged
negligence of the Manager, the Manager's representatives,
or its employees, agents, invitees or licensees. The
Company shall not be obligated to indemnify the Manager,
however, in respect of any losses, claims, damages,
liabilities or expenses that resulted solely from the
willful bad faith or gross negligence of the Manager in the
performance of the Services that are the subject of this
Agreement.
(c) IN NO EVENT WILL EITHER PARTY BE LIABLE FOR
PUNITIVE DAMAGES OR FOR INDIRECT OR CONSEQUENTIAL DAMAGES,
INCLUDING, WITHOUT LIMITATION, LOST PROFITS OF ANY PARTY,
INCLUDING THIRD PARTIES. FURTHER, NO CAUSE OF ACTION WHICH
ACCRUED MORE THAN ONE (1) YEAR PRIOR TO THE FILING OF A
SUIT ALLEGING SUCH CAUSE OF ACTION MAY BE ASSERTED AGAINST
EITHER PARTY.
4.3 Relationship of Parties. It is the express intention and
understanding of the Manager and the Company that the relationship of
the Manager to the Company shall be at all times that of an
independent contractor, with the Manager having full and complete
liberty to use its own free and uncontrolled will, judgment and
discretion as to the method and manner of performing the obligations
of the Manager hereunder. Other than the Services specifically
stated herein to be performed by Manager, Manager does not undertake
by this Agreement or otherwise to perform any regulatory or
contractual obligation of Company, or to assume any responsibility
for Company's business or operations. Nothing herein contained or
done pursuant to this Agreement shall constitute the Manager or its
agents or employees a partner or joint venturer of the Company, or a
fiduciary of (i) the Company, (ii) any benefit plan of the Company,
or (iii) any employee of the Company.
4.4 Notices. All notices that are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall
be sufficient in all respects if given in writing and delivered
personally, by commercial messenger service, or by registered or
certified mail, postage prepaid, to the other party at the following
address or to such other address as either party shall provide to the
other party in writing in accordance with this Section 4.4:
<PAGE>
If to the Manager: If to the Company:
Sport Supply Group, Inc. Emerson Radio Corp.
1901 Diplomat Drive Nine Entin Road
Farmers Branch, Texas 75234 Parsippany, New Jersey 07054
Attn: President Attn: Chief Executive Officer
cc: General Counsel cc: Law Department
4.5 Attorneys' Fees. In the event that attorneys' fees or
other costs are incurred to secure performance of any of the
obligations set forth in this Agreement, to establish damages for the
breach thereof, or to obtain any other appropriate relief, whether by
way or prosecution or defense, the prevailing party (as determined by
the judge in the judge's sole discretion) shall be entitled to
recover reasonable attorneys' fees and costs incurred therein.
4.6 Counterparts. This Agreement may be executed in one or
more counterparts for the convenience of the parties hereto, all of
which together shall constitute one and the same instrument.
4.7 Binding Agreement; Assignment. This Agreement shall be
binding on, and inure to the benefit of, the parties hereto and their
respective representatives, successors, and assigns, but neither this
Agreement nor any of the rights, interests, or obligations hereunder
shall be assigned or delegated by any of the parties hereto, whether
by operation of law or otherwise, without the prior written consent
of the other party (which consent shall not be unreasonably
withheld), nor is this Agreement intended to confer upon any other
person other than the parties hereto any rights or remedies
hereunder. Any assignment or delegation in violation of this
Agreement shall be null and void.
4.8 Waiver. No delay on the part of either party in exercising
any of its respective rights hereunder, nor the failure to exercise
the same, nor the acquiescence in or waiver of a breach of any term,
provision or condition of this Agreement shall be deemed or construed
to operate as a waiver of such rights or acquiescence thereto except
in the specific instance for which given.
4.9 Severability. If any provision of this Agreement is
declared or found to be illegal, unenforceable or void, then each
party will be relieved of its obligations arising under such
provision to the extent such provision is declared or found to be
illegal, unenforceable or void (it being the intent and agreement of
the parties that this Agreement shall be deemed amended by modifying
such provision to the extent necessary to make it legal and
enforceable while preserving its intent or, if that is not possible,
by substituting therefor another provision that is legal and
enforceable and achieves the same objective), and each provision not
so affected will be enforced to the full extent permitted by law.
4.1 0 Entire Agreement. This Agreement contains the entire
understanding of the parties relating to the subject matter of this
Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements and understandings relating to such
subject matter. This Agreement cannot be modified, amended or
terminated except in writing signed by the party against whom
enforcement is sought.
<PAGE>
4.11 Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the substantive laws of
the State of Texas without giving effect to any conflict of laws
principle or rule that might require the application of the laws of
another jurisdiction. Each party agrees that this Agreement is fully
performable in Dallas County, Texas, and that any action, dispute or
proceeding arising out of or related in any way to the subject matter
of this Agreement shall be brought solely in a court of competent
jurisdiction sitting in Dallas, Dallas County, Texas. Each party
hereby irrevocably and unconditionally consents to the jurisdiction
of any such court and hereby irrevocably and unconditionally waives
any defense of an inconvenient forum to the maintenance of any action
or proceeding and any right of jurisdiction on account of the place
of residence or domicile of any party thereto.
4.12 Other Documents. Each party hereto agrees to execute any and
all documents, and to perform such other acts, that may be necessary
or expedient to further the purposes of this Agreement.
4.13 Force Majeure. Each party hereto shall be excused from
performance hereunder for any period and to the extent that it is
prevented from performing any services pursuant hereto, in whole or
in part, as a result of delays caused by the other party or by an act
of God, war, civil disturbance, court order, labor dispute, third
party nonperformance, or other cause beyond its reasonable control,
including without limitation failures or fluctuations in electrical
power, heat, light, air conditioning or telecommunications equipment,
and such nonperformance shall not be a default hereunder or a ground
for termination hereof. Notwithstanding the foregoing, in the event
such condition exists greater than thirty (30) days, either party may
terminate this Agreement by giving the other party written notice of
termination, which termination shall be effective as of the date set
forth in such notice.
4.14 Headings. The section headings used herein are for
reference and convenience only, and shall not enter into the
interpretation hereof.
4.15 Trademarks. Manager shall use its own name or trademarks
in all dealings. It may not use any trademarks or tradenames or
rights to use same belonging to the Company and/or its subsidiaries
or affiliates (other than the Manager's) without the Company's prior
written consent in each instance. To the extent the Company gives
such consent, Manager may use such trademarks and "EMERSON" brand and
product names and such other brand name(s) under which the products
may hereinafter be marketed in the United States by the Company
and/or its subsidiaries or affiliates (other than the Manager's)
(collectively, the "Brand Names and Marks") only in connection with
the performance of its Services. The Company may withdraw such
consent at any time. Thereafter, except as provided below, no
advertising or other use of the Brand Names and Marks may be made by
Manager without the Company's prior written approval in each
instance. All use of the Brand Names and Marks and all goodwill
associated therewith shall inure to the benefit of the Company.
Manager shall have no interest in or rights to the Brand Names or
<PAGE>
Marks or any of them nor shall Manager have or accrue any interest in
or to the goodwill associated therewith. Upon expiration or earlier
termination of this Agreement, Manager shall discontinue all use of
the Brand Names or Marks in advertising or otherwise, and shall
remove all signs and displays relating thereto and shall return to
the Company at Company's expense, all signs, displays and other
writings and materials relating thereto; provided, however, the
foregoing does not apply to any advertising in the process of being
printed or in inventory that also includes the Manager's products
(including, without limitation, catalogs). Manager is not and this
Agreement does not constitute Manager as being a holder of a license
or permitted to use the Brand Names or Marks nor shall this Agreement
be deemed to make Manager a franchisee.
Company shall use its own name or trademarks in all dealings.
It may not use any trademarks or tradenames or rights to use same
belonging to the Manager and/or its subsidiaries or affiliates (other
than the Company's) without the Manager's prior written consent in
each instance.
4.16 No Third Party Beneficiaries. This Agreement and the
rights and obligations hereunder do not and shall not confer any
rights to any third parties and no third parties shall have any
rights under this Agreement.
4.17 Survival. Paragraphs 2.1, 3.5, 4.1, 4.2, 4.4, 4.5, 4.11,
4.15, and 4.16 shall survive the expiration or earlier termination of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
THE MANAGER:
SPORT SUPPLY GROUP, INC.
/s/ Peter S. Blumenfeld
Peter S. Blumenfeld, President
THE COMPANY:
EMERSON RADIO CORP.
/s/ John P. Walker
John P. Walker
Executive Vice President and
Chief Financial Officer
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
AND SEVERANCE AGREEMENT
This Amendment No. 1 to Employment Agreement and Severance
Agreement (this "Amendment"), dated January 23, 1997 to be effective
as of December 11, 1996 (the "Effective Date"), is by and between
Sport Supply Group, Inc., a Delaware corporation ("Employer") and
Peter S. Blumenfeld ("Employee").
WHEREAS, Employer and Employee entered into (i) an Employment
Agreement dated as of February 28, 1991 ("the "Employment
Agreement") and (ii) a Severance Agreement dated as of February 28,
1991 (the "Severance Agreement").
WHEREAS, a Change in Control (as defined in the Severance
Agreement) occurred on or about December 10, 1996 when Emerson Radio
Corp. acquired (i) 1,600,000 shares of Employer's common stock, par
value $.01 per share (the "Common Stock") and (ii) warrants to
acquire up to 1,000,000 shares of Employer's Common Stock for $7.50
per share.
WHEREAS, Employer and Employee desire to amend the terms of the
Employment Agreement and Severance Agreement in accordance with the
terms and provisions of this Amendment.
NOW, THEREFORE, in consideration of the covenants and agreements
of the parties contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Agreement agree as follows:
I. Employment Agreement
1.The last two (2) sentences of Section 1 of the Employment
Agreement relating to the "Term" are deleted in their
entirety. Consequently, the Employment Agreement is
scheduled to expire on February 28, 1998.
2.The following sentence shall be added to the end of Section 2
of the Employment Agreement relating to the "Duties":
"Employee shall report solely to
the Board of Directors, Chairman of
the Board and Chief Executive
Officer of Employer."
3.The reference to $151,500 in Section 3 of the Employment
Agreement relating to "Compensation" is deleted in its
entirety and replaced with $250,000.
<PAGE>
4.Section 4 of the Employment Agreement relating to "Employee
Benefits; Reimbursement of Expenses" is hereby amended as
follows:
(a) The reference to "three weeks of paid vacation" in
the second sentence of Section 4 is deleted and replaced with
"four weeks of paid vacation."
(b) The following sentence is hereby added to the end of
Section 4 of the Employment Agreement:
"Employer will pay or reimburse Employee
$500 per month for monthly country club dues."
5.The following words shall be added to the end of the first
sentence of Section 6 regarding "Non competition": "in the
United States and/or Asia." The following paragraphs are
hereby added to Section 6 of the Employment Agreement
relating to "Noncompetition":
"(d) If Employer terminates Employee other than for Cause
(as defined below) on or prior to December 10, 1999 and
Employee is paid pursuant to the terms of the Severance
Agreement (as defined in Section 8(f)), then Employee
covenants and agrees not to directly or indirectly compete
with Employer in the United States and/or Asia for a period
of three (3) years from the date Employee is paid pursuant to
the Severance Agreement. If, on the other hand, Employer
terminates Employee other than for Cause after December 10,
1999 and Employer continues to pay Employee his monthly
Salary at the time of termination for a period of 18 months,
then Employee covenants and agrees not to directly or
indirectly compete with Employee in the United States and/or
Asia for a period of 18 months from the date of termination.
(e) The provisions of Sections 5, 6, 7, 8(b) and (g), 11,
13 and 16 shall survive termination or expiration of this
Agreement."
6.Section 8(b) of the Employment Agreement is hereby deleted in
its entirety and replaced with the following:
"(b) In the event Employer terminates Employee other than
for Cause on or prior to December 10, 1999, Employer shall be
relieved of any and all of its obligations under this
Agreement so long as Employer pays Employee all amounts owing
to Employee under the Severance Agreement. In the event
Employer terminates Employee other than for Cause after
December 10, 1999, Employer shall pay Salary to Employee for
a period of 18 months (less all amounts required to be
withheld or deducted therefrom and all undisputed amounts
owed or due by Employee to Employer). In the event Employer
terminates Employee other than for Cause at any time prior to
February 28, 1998, Employer shall continue to provide
Employee, for a period of 18 months, health insurance with
coverage no less than coverage available during such period
to Employer's senior executive officers, and Employer shall
have no other obligation hereunder."
<PAGE>
II. SEVERANCE AGREEMENT
7.The following language in Section 1 of the Severance
Agreement relating to "Term" is hereby deleted in its
entirety:
"; provided, however, that on each anniversary of the
Change in Control, the period referenced in Section (i) above
shall automatically be extended for an additional year
unless, not later than 90 calendar days prior to such
anniversary date, the Company shall have given written notice
to the Executive that it does not wish to have the term
extended."
8.The following language shall be added to the end of Section
3(a)(2) of the Severance Agreement regarding "Rights of
Executive Upon Change in Control or Termination":
"Notwithstanding anything herein to the contrary, if all or
substantially all of the assets of the Company's primary
institutional business are transferred, sold or assigned to a
subsidiary or division of the Company and Executive is
elected as President of the subsidiary or division, then the
Executive will not be entitled to any payments under this
Severance Agreement as a result of such transfer, sale or
assignment.
9.The following language shall be added at the end of Section
10 of the Severance Agreement:
"Notwithstanding anything to the contrary contained herein,
Executive covenants and agrees that if Executive is paid
pursuant to the terms of this Severance Agreement, Executive
will not directly or indirectly compete with Employer in the
United States or Asia for a period of 3 years from the date
Executive is paid. For the purposes of this Section, the
following terms shall have the meanings indicated below:
(a) The term "compete" shall mean, with respect to the
business of the Company, engaging in or attempting to engage
in the direct mail marketing of sports related equipment to
institutional customers or any other business which generates
more than 10% of the Company's revenues at the time of
termination, either alone or with any individual,
partnership, corporation, or association.
(b) The words "directly or indirectly" as they modify the
word "compete" shall mean: (i) acting as an agent,
representative, consultant, officer, director, or employee of
any entity or enterprise which is competing (as defined in
this Section) with the business of the Company; (ii)
participating in any such competing entity or enterprise as
an owner, partner, limited partner, joint venturer, creditor,
or stockholder (except as a stockholder holding less than a
five percent (5%) interest in a corporation whose shares are
actively traded on a regional or national securities
<PAGE>
exchange or in the over-the-counter market); (iii)
communicating to any such competing entity or enterprise any
competitive non-public information concerning any past,
present, or identified prospective client or customer of, or
supplier to, the Company; (iv) soliciting the customers,
distributors, dealers, or independent sales persons of the
Company or its Affiliates (as defined below) as of the date
the Executive is paid pursuant to the terms of this Severance
Agreement; or (v) recruiting, hiring, or assisting others in
recruiting or hiring (collectively referred to as "Recruiting
Activity") any person who is, or within the 12-month period
immediately preceding the date of any such Recruiting
Activity was, an employee of the Company or its Affiliates.
For the purposes of this Agreement, the term "Affiliates"
shall mean all subsidiaries of the Company and each entity in
which the Company is an equity investor (or was an equity
investor within the 12-month period preceding the date
Affiliate status is determined) which controls, is controlled
by, or under common control with the Company.
(c) It is the desire and intent of the parties to this
Severance Agreement that the provisions of this Section shall
be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which
enforcement is sought. It is understood and agreed that the
scope of this covenant contained in this Section is
reasonable as to time, area, and persons and is necessary to
protect the proprietary and legitimate business interest of
the Company, and but for such covenant the Company would be
unwilling to enter into the transactions contemplated by this
Severance Agreement. Executive agrees that this covenant is
reasonable in light of the compensation and other benefits
Executive has accepted pursuant to this Severance Agreement,
as amended. It is further agreed that such covenant will be
regarded as divisible and will be operative as to time, area,
and persons to the extent that it may be so operative. If
any part of this Section is declared invalid, unenforceable,
or void as to time, area, or persons, the validity and
enforceability of the remainder will not be affected. Should
a court of competent jurisdiction determine this covenant
unenforceable as written, the court shall modify this
covenant to the extent necessary to make it enforceable. The
alleged breach of any other provision of this Severance
Agreement asserted by Executive shall not be a defense to
claims arising from the Company's enforcement of this
covenant."
III. MISCELLANEOUS
10.Bonus. In the event Employee continues to serve as a full-
time employee of the Employer from the date hereof through
December 10, 1997, the Employer will pay Employee a bonus of
$60,000. The bonus will be subject to deduction and
withholding required by applicable law. Prior to December
10, 1997, the Employee may borrow up to $45,000 as an advance
against this bonus on an interest free basis so long as the
Employee signs a mutually satisfactory promissory note.
Employee agrees that he shall be solely responsible for the
payment of all his federal, state and local taxes, interest
and penalties, if any, which are or may become due as a
result of the bonus and/or loan, and agrees to defend,
indemnify and hold Employer harmless from and against any tax
claims on such bonus and/or loan.
<PAGE>
11.Waiver. No delay or omission by either party to this
Amendment to exercise any right or power under this Amendment
will impair such right or power or be construed as a waiver
thereof. A waiver by either of the parties to this Amendment
of any of the covenants to be performed by the other or any
breach thereof will not be construed to be a waiver of any
succeeding breach thereof or of any other covenant contained
in this Amendment. All remedies provided for in this
Amendment will be cumulative and in addition to and not in
lieu of any other remedies available to either party at law,
in equity, or otherwise.
12.Governing Law. This Amendment will be governed by and
construed in accordance with the laws of the State of Texas
without giving effect to any principle of conflict-of-laws
which would require the application of the law of any other
jurisdiction. All parties hereto hereby irrevocably submit to
the nonexclusive jurisdiction of the state and federal courts
of the State of Texas and agree and consent that service of
process may be made upon it in any proceeding arising out of
this Amendment by service of process as provided by Texas
law. All parties hereto hereby irrevocably waive, to the
fullest extent permitted by law, any objection which it may
now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this
Amendment brought in the District Court of Dallas County,
State of Texas, or in the United States District Court for
the Northern District of Texas, and hereby further
irrevocably waive any claims that any such suit, action or
proceeding brought in any such court has been brought in an
inconvenient forum.
13.Notices. For purposes of this Amendment, notices and all
other communications provided for in this Amendment shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed as follows:
If to Employee: Sport Supply Group, Inc.
Attention: Peter S. Blumenfeld
1901 Diplomat Drive
Farmers Branch, Texas 75234
If to Employer: Sport Supply Group, Inc.
Attention: Chief Executive Officer
1901 Diplomat Drive
Farmers Branch, Texas 75234
or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
<PAGE>
14.Counterparts. This Amendment may be executed in several
counterparts, each of which shall be deemed to be an original
but all of which together will constitute one and the same
instrument.
15.Entire Agreement. This Amendment (and the Employment Agreement
and Severance Agreement) constitutes the entire agreement
between the parties to this Amendment with respect to the
subject matter of this Amendment and there are no understandings
or agreements relative to this Amendment which are not fully
expressed in this Amendment and the Employment Agreement and
Severance Agreement. All prior agreements between the parties
with respect to the subject matter of this Amendment, whether
oral or written, are expressly superseded by this Amendment. No
change, waiver, or discharge of this Amendment will be valid
unless in writing and signed by the party against which such
change, waiver, or discharge is to be enforced. In addition,
the parties hereto expressly acknowledge and agree that no other
agreement nor any breach of or default under any other agreement
shall have any effect on the rights and obligations of the
parties hereto.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties to this Amendment have executed
and delivered this Amendment on the date first above written.
EMPLOYER:
SPORT SUPPLY GROUP, INC.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick,
Chief Executive Officer
EMPLOYEE:
/s/ Peter S. Blumenfeld
Peter S. Blumenfeld
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of
January 23, 1997 to be effective as of December 11, 1996, by and
between Sport Supply Group, Inc., a Delaware corporation
("Employer"), and John P. Walker ("Employee").
RECITALS:
WHEREAS, Employer desires to obtain the services of Employee,
and Employee desires to provide services to Employer in accordance
with the terms, conditions, and provisions of this Agreement;
NOW, THEREFORE, in consideration of the covenants and agreements
of the parties herein contained, the parties to this Agreement agree
as follows:
1. Term. Subject to the terms and conditions set forth in
this Agreement, Employer hereby employs Employee, and Employee hereby
accepts such employment from Employer, for a period commencing on
December 11, 1996 (the "Effective Date") and expiring on March 31,
2000, except as otherwise provided herein. Employer and Employee
agree that any extension of this Agreement shall be negotiated during
the period from July 1, 1998 through December 31, 1998, to be
effective after March 31, 2000.
2. Duties. Employee will be employed as an Executive Vice
President and the Chief Financial Officer of Employer, and in such
capacity will perform the normal duties associated with such position
and such other reasonable duties as may be assigned from time to time
by the Board of Directors of Employer consistent with that of an
Executive Vice President or a Chief Financial Officer. Employer
acknowledges that Employee currently is an Executive Vice President
and Chief Financial Officer of Emerson Radio Corp. ("Emerson"), and
that Employee will devote certain of his time, attention, and
energies, not to exceed 50% of his working time during the term of
this Agreement, to such responsibilities. During the term of this
Agreement, Employee shall devote his full time, attention, and
energies (except for those devoted to the business of Emerson as
contemplated in the immediately preceding sentence hereto) to the
business of Employer to discharge his duties faithfully, diligently,
to the best of his abilities, and in a manner consistent with any and
all policies and guidelines as may be established by Employer from
time to time. Employee shall report solely to the Board of
Directors, Chairman, and Chief Executive Officer of Employer.
<PAGE>
3. Compensation.
(a) Subject to the terms and conditions of this Agreement
and as compensation for the performance of his services
hereunder, Employer will pay Employee a fixed salary at a
minimum annual rate of $190,000 (such initial rate is referred
to herein as the "Initial Salary," and as it may be adjusted
upward from time to time as provided by the Board of Directors
of Employer, is referred to herein as "Salary"). Employee's
Salary will accrue and be payable to Employee in accordance with
the payroll practices of Employer for senior executives in
effect from time to time during the term of this Agreement.
Employer hereby acknowledges that Employee is being separately
compensated by Emerson for his services to be rendered on
Emerson's behalf.
(b) On or before the date of execution hereof, Employee
shall be paid a one-time bonus of $50,000. In addition,
Employee shall be entitled to receive an annual formula bonus
equal to an amount up to thirty percent (30%) of the Salary
based upon attainment of objectives identified in a business
plan for Employer to be adopted by the Board of Employer no
later than March 31, 1997. The annual formula bonus as
described above for the fiscal year ending September 1997 shall,
in any event, and irrespective of attainment of the objectives
described above for such period, be thirty percent (30%) of the
Salary and shall be payable on or before the first anniversary
of the Effective Date. At its sole discretion the Board of
Directors of Employer may develop such other incentive
compensation arrangements, including but not limited to
additional bonus incentives, as may be determined to be
appropriate for the conduct of Employer's business and
Employee's duties in connection therewith.
(c) Employer also will grant to Employee a non-qualified
stock option (the "Option") to purchase 100,000 shares (the
"Option Shares") of Employer's common stock, par value $.01 per
share (the "Common Stock"), at a price per share of $7.50, which
will be granted on or before January 23, 1997 (the "Date of
Grant"), pursuant to the terms and conditions of the stock
option agreement issued in respect of such Option (the "Stock
Option Agreement"). The Option shall be exercisable for a
period of ten (10) years from the Date of Grant, for so long as
Employee is employed by Employer and for a six-month period
thereafter. The Option and the Option Shares shall be subject
to the terms and conditions set forth in the Stock Option
Agreement and shall vest annually in equal installments on the
first three anniversaries of the Date of Grant, if Employee
remains in the employ of Employer through the respective dates.
<PAGE>
As promptly as practicable after the Date of Grant, to the
extent not covered by an existing registration on Form S-8,
Employer will file with the Securities and Exchange Commission a
Registration Statement on Form S-8 to register the offer and
sale of the Option Shares under the Securities Act of 1933, as
amended, and cause such Registration Statement to remain
effective until all of the Option Shares have been sold by
Employee, while Employee remains an employee of Employer and for
a six-month period thereafter. The Stock Option Agreement shall
provide that upon a "change in control," as therein defined, or
if Employee is terminated other than for Cause or in the event
of a Constructive Discharge of Employee (as each such term is
hereinafter defined), all Option Shares shall automatically
vest. The Stock Option Agreement shall also permit Employee to
obtain an interest-free loan for up to six months from Employer,
to be secured by the Option Shares being purchased from the
proceeds of such loan, to permit the purchase of any or all of
the Option Shares.
(d) All payments to Employee pursuant to this Agreement
will be subject to deduction and withholding authorized or
required by applicable law. Employee shall also be paid amounts
as shall equal the federal and state, if applicable, income
taxes (i.e., gross-up for income taxes) which will be payable by
Employee relating to the reimbursement of expenses as set forth
in Section 4 hereof.
4. Employee Benefits; Reimbursement of Expenses. During the
term of this Agreement, Employer shall provide such fringe benefits,
including paid sick leave, paid holidays, participation in health,
dental, and life insurance plans, and other employee benefit plans
which are regularly maintained by Employer for its senior executive
officers in accordance with the policies of Employer in effect from
time to time; provided, however, that to the extent permitted by law,
all requirements under any employee benefit plan pertaining to a
waiting period for eligibility under such plan shall be waived, and
Employee shall be deemed to be immediately eligible under each such
plan to be covered thereby. Notwithstanding the foregoing, Employee
shall be entitled to a minimum of four weeks of paid vacation each
year of this Agreement. In addition, during the term of this
Agreement, Employer shall pay Employee an automobile allowance of
$1,000 per month and reimburse Employee for the cost of liability and
collision insurance on such automobile and all gasoline purchases.
Employer will also pay for the costs of initiation fees, not to
exceed $10,000 per year for up to three years or a total of $30,000,
of a country club selected by Employee in the Dallas/Ft. Worth
metropolitan area as well as pay or reimburse Employee for all
monthly dues, not to exceed $400 per month, at such country club
during the term of this Agreement. Employer will also reimburse
Employee for his travel (including, without limitation, the costs of
first class or business class air travel in those instances in which
Employee does not have upgrade certificates, or upgrades are
unavailable, from coach class air travel, estimated by Employee to be
necessary on approximately 10% of all air travel so taken),
entertainment, and other business expenses incurred in connection
with his employment under this Agreement in accordance with the
policies of Employer in effect from time to time.
<PAGE>
5. Confidentiality.
(a) From the Effective Date of this Agreement and in
consideration for the promises made by Employee herein,
including promises made by Employee in Section 6 below, Employer
promises and agrees to provide Employee certain confidential
information consistent with the job duties of an individual in
his position including, without limitation, customer, supplier,
product and distributor lists, trade secrets, plans,
manufacturing techniques, sales, marketing and expansion
strategies, financial records (including business plans,
financial statements, etc.), and technology and processes of
Employer and/or its affiliates, as they may exist from time to
time, and information concerning the products, services,
production, development, technology and all technical
information, procurement and sales activities and procedures,
promotion and pricing techniques and credit and financial data
concerning customers of, and suppliers to, Employer and/or its
affiliates (collectively _Confidential Information_). In
consideration for Employer's promises herein, Employee
acknowledges and agrees that all Confidential Information
previously provided or known to Employee in the course of his
employment with Employer and all such Confidential Information
made available and provided to Employee pursuant to the terms of
this Agreement will be received in strict confidence and will be
used only for the purposes of performing his duties pursuant to
this Agreement and that no such Confidential Information will
otherwise be used or disclosed by Employee during or after the
term of this Agreement without the prior written consent of
Employer. Employee acknowledges and agrees that upon
termination of Employee's employment hereunder for any reason,
Employee will leave and/or return all Confidential Information
and other documents, records, notebooks, customer lists, mailing
lists, business proposals, contracts, agreements, and other
repositories containing information concerning Employer or its
financial condition or business (including all copies thereof)
in Employee's possession, whether prepared by Employee or
others, will remain with or be returned to Employer.
Notwithstanding the foregoing, this Section shall be inoperative
as to any portion of the Confidential Information which (i) is
or becomes generally available to the public other than as a
result of a disclosure by Employee or (ii) becomes available to
Employee on a non-confidential basis and not in contravention of
Employer's rights or applicable law from a source (other than
Employer) which Employee reasonably believes is entitled to
possess and disclose it.
<PAGE>
(b) Employee acknowledges and agrees that all manuals,
drawings, blueprints, letters, notes, notebooks, financial
records (including, without limitation, budgets, business plans
and financial statements), reports, computers, computer
equipment, computer disks, hard drives, electronic storage
devices, books, procedures, forms, documents, records or paper,
or copies thereof, pertaining to the operations or business of
Employer made or received by Employee or made known to him in
any way in connection with his employment activities or
otherwise and any other Confidential Information are and will be
the exclusive property of Employer. Employee agrees not to copy
or remove any of the above from the premises and custody of
Employer, or disclose the contents thereof to any other person
or entity except in the ordinary course of business consistent
with Employer's policies. Employee acknowledges that all such
papers and records will at all times be subject to the control
of Employer, and Employee agrees to surrender the same upon
request of Employer, and will surrender such no later than any
termination or expiration of this Agreement.
6. Noncompetition. Employee covenants and agrees that, during
the period Employee is employed by Employer, and if Employee's
employment is terminated pursuant to Section 8(a) or Employee resigns
for any reason (other than as a result of a Constructive Discharge),
for a period of one year thereafter, Employee will not directly or
indirectly compete with Employer in the United States. For the
purposes of this Section 6, the following terms shall have the
meanings indicated below:
(a) The term "compete" shall mean, with respect to the
business of Employer, engaging in or attempting to engage in the
direct mail marketing with the use of a catalog of sports
related equipment to institutional customers or any other
business which generates more than 10% of Employer's revenues at
the time of termination, either alone or with any individual,
partnership, corporation, or association.
(b) The words "directly or indirectly" as they modify the
word "compete" shall mean: (i) acting as an agent,
representative, consultant, officer, director, or employee of
any entity or enterprise which is competing (as defined in this
Section 6) with the business of Employer; (ii)
participating in any such competing entity or enterprise as an
owner, partner, limited partner, joint venturer, creditor, or
stockholder (except as a stockholder holding less than a five
percent (5%) interest in a corporation whose shares are actively
traded on a regional or national securities exchange or in the
over-the-counter market); (iii) communicating to any such
competing entity or enterprise any competitive non-public
information concerning any past, present, or identified
prospective client or customer of, or supplier to, Employer;
<PAGE>
(iv) soliciting the customers, distributors, dealers, or
independent sales persons of Employer or its Affiliates (as
defined below) as of Employee's termination date; or (v)
recruiting, hiring, or assisting others in recruiting or hiring
(collectively referred to as "Recruiting Activity") any person
who is, or within the 12-month period immediately preceding the
date of any such Recruiting Activity was, an employee of
Employer or its Affiliates. For the purposes of this Agreement,
the term "Affiliates" shall mean all subsidiaries of Employer
and each entity in which Employer is an equity investor (or was
an equity investor within the 12-month period preceding the date
Affiliate status is determined) which controls, is controlled
by, or under common control with Employer.
(c) Employee understands and agrees that the scope of this
covenant by Employee contained in this Section is reasonable as
to time, area, and persons and is necessary to protect the
proprietary and legitimate business interest of the Employer,
and but for such covenant by Employee the Employer would not
have agreed to enter into the transactions contemplated by this
Agreement. Employee agrees that this covenant is reasonable in
light of the compensation and other consideration Employer has
agreed to provide Employee pursuant to this Agreement. It is
further agreed that such covenant will be regarded as divisible
and will be operative as to time, area, and persons to the
extent that it may be so operative.
7. Injunctive Relief. If Employee breaches any of the
provisions of Sections 5 or 6 hereof, Employer shall be entitled to
specific performance, injunctive relief, or such other legal and/or
equitable remedies as may be appropriate. Nothing contained herein
shall be construed as prohibiting Employer from pursuing any other
remedies available to it for such breach of any of the terms and
provisions of this Agreement, nor limiting its right to the recovery
of damages from Employee or any other person or entity for the breach
or violation of any provision of this Agreement, whether such remedy
be at law or in equity.
8. Termination.
(a) Employer may terminate Employee's employment for Cause
(as defined herein). Notwithstanding the foregoing and with
respect to Section 8(g)(iv), Employer may terminate Employee's
employment for Cause only if such Cause is not cured within 10
days following Employee's receipt of written notice thereof by
Employer to Employee. If Employee's employment is terminated
for Cause, Employee will be paid Salary to the date of such
termination notice and shall be paid Salary for all accrued but
unused personal, vacation, and sick days (less all amounts
required to be withheld or deducted therefrom and all undisputed
amounts owed or due by Employee to Employer).
<PAGE>
(b) If Employer terminates Employee other than for Cause
or in the event of a Constructive Discharge of Employee (as
hereinafter defined) during the term hereof, Employer shall (i)
pay Employee his Initial Salary (A) through the stated term of
this Agreement, if such termination or Constructive Discharge
occurs prior to July 1, 1998, or (B) through a period of 18
months from the date of such termination or Constructive
Discharge, if such termination or Constructive Discharge occurs
on or after July 1, 1998 (in either event Employee shall also
receive all accrued but unused personal, vacation, and sick days
and less all amounts required to be withheld or deducted
therefrom and all amounts owed or due by Employee to Employer),
and (ii) continue to provide Employee, during the period through
which his Initial Salary will be paid, health insurance with
coverage no less than the coverage available during such period
to Employer's senior executive officers, and Employer shall have
no other obligation hereunder. Section 8(b)(i)(B) of this
Agreement shall survive even if this Agreement expires by its
own terms unless Employer and Employee agree in writing to
mutually terminate this Agreement or amend this provision or if
Employer and Employee enter into a new Employment Agreement.
(c) If Employee terminates his employment with Employer
other than as a result of a Constructive Discharge and, if
during the term of this Agreement set forth in Section 1
Employer has not materially breached any provision of this
Agreement, Employee will be paid only Salary as has been earned
to the date of termination and for all accrued but unused
personal, vacation, and sick days (less all amounts required to
be withheld or deducted therefrom and all amounts owed or due by
Employee to Employer).
(d) If no other provision in this Section 8 is applicable
and if this Agreement terminates pursuant to the expiration of
the term set forth in Section 1, Employee will be paid only
Salary as has been earned to the date of termination and for all
accrued but unused personal, vacation, and sick days (less all
amounts required to be withheld or deducted therefrom and all
amounts owed or due by Employee to Employer) or such longer
period as he is entitled pursuant to the provisions of Section
9.
(e) If Employee dies or is disabled, as determined by his
physician, so that he is unable to work for six consecutive
months during the term hereof, this Agreement will terminate,
and Employer will (i) pay to the estate of Employee, or
Employee, as the case may be, the Salary which would otherwise
be payable to Employee up to the end of the month in which his
death or such six-month period occurs and for all accrued but
unused personal, vacation, and sick days (less all amounts
required to be withheld or deducted therefrom and all amounts
owed or due by Employee to Employer), and (ii) provide to
Employee's dependents (including his spouse) and to Employee, in
the case of such a disability, for a period of at least two
years after Employee's death or disability and at no charge to
such dependents or Employee, health and accident insurance with
coverage no less than the coverage available during such time to
<PAGE>
Employer's senior executive officers. Notwithstanding the
foregoing, Employer's obligations under this Section shall be
reduced by the amounts obtained by Employee under any applicable
disability insurance policy.
(f) If this Agreement or the employment of Employee is
terminated, except as otherwise specifically set forth herein,
Employee will not be obligated to mitigate his damages nor the
amount of any payment provided for in this Agreement by seeking
other employment or otherwise, and the acceptance of employment
elsewhere after termination shall in no way reduce the amount of
Salary due hereunder.
(g) For the purposes of this Agreement, "Cause" shall mean
that Employee shall have committed:
(i) an intentional material act of fraud or
embezzlement in connection with his duties or in the course
of his employment with Employer;
(ii) an intentional wrongful material damage to
property of Employer;
(iii) an intentional wrongful disclosure of
material secret processes or material confidential
information of Employer; or
(iv) an intentional and continued failure to perform
his duties as Executive Vice President and Chief Financial
Officer (other than any such failure resulting from
incapacity due to physical injury or illness or mental
illness as such is provided for in Section 9).
(h) For the purposes of this Agreement, "Constructive
Discharge" means a change in office, title, or position from
that reasonably associated with being an Executive Vice
President and Chief Financial Officer, other than a promotion; a
change in reporting of Employee to any person other than the
Chairman, Chief Executive Officer, or the Board of Directors of
Employer; a required relocation to a location in excess of
thirty (30) miles of Employer's current principal location; a
reduced Salary; a material diminution in responsibilities; or
any other material breach of this Agreement by Employer.
(i) The provisions of this Section 8 shall survive
the termination of this Agreement.
9. Disability. If Employee is unable to perform his assigned
duties by reason of illness, injury, or incapacity (other than as a
result of abuse of drugs, alcohol, or other substances), he will be
entitled to receive such disability benefits as are provided by
Employer's disability policies for its other senior executive
officers.
<PAGE>
10. Relocation Expenses. Employee shall permanently relocate
his residence to the location of the Employer's principal office no
later than July 1, 1997. To the extent not covered by existing
policies of Employer and as a supplement to such existing policies,
Employer shall provide the following to Employee:
(a) Temporary residence in the location of Employer's
principal business office pending relocation;
(b) Reasonable round-trip air travel and related expenses
between Dallas, Texas, and Employee's existing principal
residence on a semi-monthly basis, and the reasonable round-trip
air travel and related expenses to Dallas, Texas, for up to two
(2) trips by Employee's wife and child for the purpose of
obtaining a residence, pending final relocation;
(c) Reimbursement of principal, interest, taxes, and
insurance and maintenance on Employee's existing residence for a
period not to exceed six (6) months from the date of Employee's
final relocation pending sale of such property; and
(d) If Employee's existing residence is not sold prior to
closing on Employee's new residence, Employer will either
provide or guarantee an interim bridge loan secured by a lien
against either Employee's existing residence or, if permitted by
applicable law, Employee's new residence, interest-free for the
lesser of twelve (12) months or through the date of sale of
Employee's existing residence. Employee shall also be
reimbursed for all closing, sales, and mortgage related fees and
expenses (including points and real estate commissions) with
respect to the sale of Employee's existing residence and
purchase by Employee of a new residence, but in no event in
excess of $30,000. In addition, Employee will be reimbursed for
all reasonable moving expenses. The amount of the bridge loan
will be no more than the lesser of $75,000 or 100% of the equity
in Employee's existing or new residence, as applicable, and may
be utilized solely for the purpose of acquiring a new residence
at the location of Employer's principal place of business.
11. Binding Nature.
(a) Employer will require any successor and any
corporation or other legal person which is in control of such
successor (as "control" is defined in Regulation 230.405 or any
successor rule or regulation promulgated under the Securities
Act of 1933, as amended) to all or substantially all of the
business and/or assets of Employer (by purchase, merger,
consolidation, or otherwise), by agreement in form and substance
reasonably satisfactory to Employee, to expressly assume and
agree to perform this Agreement in the same manner and to the
same extent that Employer would be required to perform it if no
such succession had taken place. Failure of Employer to obtain
such agreement prior to the effectiveness of any such succession
will be a material breach of this Agreement by Employer.
<PAGE>
Notwithstanding the foregoing, any such assumption shall not, in
any way, affect or limit the liability of the Employer under the
terms of this Agreement or release the Employer from any
obligations hereunder. As used in this Agreement, "Employer"
shall mean Employer as hereinbefore defined and any successor to
its business and/or all or part of its assets as aforesaid which
executes and delivers the agreement provided for in this Section
11 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(b) This Agreement and all the rights of Employee under
this Agreement will inure to the benefit of and will be
enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees, and legatees.
(c) Except as set forth above, neither this Agreement, nor
any of the rights, interests or obligations hereunder shall be
assigned by either party hereto, whether by operation of law or
otherwise, without the prior written consent of the other party,
nor is this Agreement intended to confer upon any other person
other than the parties hereto any rights or remedies hereunder.
12. Severability. If any provision of this Agreement is
declared or found to be illegal, unenforceable, or void, in whole or
in part, then both parties will be relieved of all obligations
arising under such provision, but only to the extent of the portion
of the provision which is illegal, unenforceable, or void. The
intent and agreement of the parties to this Agreement is that this
Agreement will be deemed amended by modifying and/or reforming any
such illegal, unenforceable, or void provision to the extent
necessary to make it legal and enforceable while preserving its
intent, or if such is not possible, by substituting therefor another
provision which is legal and enforceable and achieves the same
objectives. Notwithstanding the foregoing, if the remainder of this
Agreement will not be affected by such declaration or finding and is
capable of substantial performance, then each provision not so
affected will be enforced to the extent permitted by law.
13. Waiver. No delay or omission by either party to this
Agreement to exercise any right or power under this Agreement will
impair such right or power or be construed as a waiver thereof. A
waiver by either of the parties to this Agreement of any of the
covenants to be performed by the other or any breach thereof will not
be construed to be a waiver of any succeeding breach thereof or of
any other covenant contained in this Agreement. All remedies
provided for in this Agreement will be cumulative and in addition to
and not in lieu of any other remedies available to either party at
law, in equity, or otherwise.
<PAGE>
14. Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of Texas without
giving effect to any principle of conflict-of-laws which would
require the application of the law of any other jurisdiction. All
parties hereto hereby irrevocably submit to the nonexclusive
jurisdiction of the state and federal courts of the State of Texas
and agree and consent that service of process may be made upon it in
any proceeding arising out of this Agreement by service of process as
provided by Texas law. All parties hereto agree that the venue for
any and all suits, actions or proceedings arising out of or relating
to this Agreement shall be brought solely in a Court of competent
jurisdiction sitting in Dallas, Dallas County, Texas. All parties
hereto hereby irrevocably waive, to the fullest extent permitted by
law, any objection which such party may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement brought in the District Court of Dallas
County, State of Texas, or in the United States District Court for
the Northern District of Texas, and hereby further irrevocably waive
any claims that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum.
15. Notices. For purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or
mailed by United States registered mail, return receipt requested,
postage prepaid, addressed as follows:
If to Employee: Sport Supply Group, Inc.
Attention: John P. Walker
1901 Diplomat Drive
Farmers Branch, Texas 75234
If to Employer: Sport Supply Group, Inc.
Attention: Chief Executive Officer
1901 Diplomat Drive
Farmers Branch, Texas 75234
or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
16. Attorneys' Fees. If any arbitration or civil action,
whether at law or in equity, is necessary to enforce or interpret any
of the terms of this Agreement, the prevailing party will be entitled
to reasonable attorneys' fees, court costs, and other reasonable
expenses of litigation, in addition to any other relief to which such
party may be entitled.
17. Arbitration. Any dispute arising under this Agreement
shall be submitted to arbitration in Dallas, Texas, in accordance
with the rules of the American Arbitration Association. The decision
of the arbitrator(s) will be binding, conclusive, and nonappealable.
18. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
<PAGE>
19. Entire Agreement. This Agreement constitutes the entire
agreement between the parties to this Agreement with respect to the
subject matter of this Agreement and there are no understandings or
agreements relative to this Agreement which are not fully expressed
in this Agreement. All prior agreements between the parties with
respect to the subject matter of this Agreement, whether oral or
written, are expressly superseded by this Agreement. No change,
waiver, or discharge of this Agreement will be valid unless in
writing and signed by the party against which such change, waiver, or
discharge is to be enforced. In addition, the parties hereto
expressly acknowledge and agree that no other agreement nor any
breach of or default under any other agreement shall have any effect
on the rights and obligations of the parties hereto, including,
without limitation, under any employment or other agreement between
Employee and Emerson.
IN WITNESS WHEREOF, the parties of this Agreement have executed
and delivered this Agreement on the date first above written.
EMPLOYER:
SPORT SUPPLY GROUP, INC.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick,
Chief Executive Officer
EMPLOYEE:
/s/ John P. Walker
John P. Walker
SPORT SUPPLY GROUP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
January 23, 1997
(Effective Date of Grant)
TO: Geoffrey P. Jurick
WHEREAS, Sport Supply Group, Inc. (the "Company") desires to
encourage Geoffrey P. Jurick's (the "Optionee") sense of
proprietorship in the Company by owning shares of the Company's Common
Stock, par value $.01 per share (the "Common Stock");
NOW, THEREFORE, in consideration of the mutual agreements and
covenants contained in this Non-Qualified Stock Option Agreement (this
"Agreement"), the Company hereby grants to Optionee a non-qualified
stock option (the "Option") to purchase up to a total of 300,000
shares of Common Stock, at a price per share of $7.50 (the "Option
Price") on the terms and conditions and subject to the restrictions as
set forth in this Agreement and in the Sport Supply Group, Inc. Stock
Option Plan (the "Plan").
I. DEFINITIONS
a. Acquiring Person: An "Acquiring Person" shall mean any
person (including any "person" as such term is used in Sections
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) that, together with all Affiliates and
Associates of such person, is the beneficial owner of 10% or more of
the outstanding Common Stock. The term "Acquiring Person" shall not
include the Company, any subsidiary of the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or subsidiary of the Company or any person holding Common
Stock for or pursuant to the terms of any such plan, any corporation
owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the
Company, Emerson Radio Corp. and its Affiliates and Associates or
Geoffrey P. Jurick. For the purposes of this Agreement, a person who
becomes an Acquiring Person by acquiring beneficial ownership of 10%
or more of the Common Stock at any time after the date of this
Agreement shall continue to be an Acquiring Person whether or not such
person continues to be the beneficial owner of 10% or more of the
outstanding Common Stock.
b. Affiliate and Associate. "Affiliate" and "Associate" shall
have the respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act in effect on
the date of this Agreement.
<PAGE>
c. Change in Control. A "Change in Control" of the Company
shall have occurred if at any time during the term of this Agreement
any of the following events shall occur:
(i) The Company is merged, consolidated or reorganized into
or with another corporation or other legal person and as a result
of such merger, consolidation or reorganization less than 60% of
the combined voting power to elect each class of directors of the
then outstanding securities of the remaining corporation or legal
person or its ultimate parent immediately after such transaction
is available to be received by all of the Company's stockholders
on a pro rata basis and is actually received in respect of, or in
exchange for, voting securities of the Company pursuant to such
transaction;
(ii) The Company sells all or substantially all of its
assets to any other corporation or other legal person and as a
result of such sale less than 60% of the combined voting power to
elect each class of directors of the then outstanding securities
of such corporation or legal person or its ultimate parent
immediately after such transaction is available to be received by
all of the Company's stockholders on a pro rata basis and is
actually received in respect of, or in exchange for, voting
securities of the Company pursuant to such sale (provided that
this provision shall not apply to a registered public offering of
securities of a subsidiary of the Company, which offering is not
part of a transaction otherwise a part of or related to a Change
in Control);
(iii) Any Acquiring Person has become the beneficial
owner (as the term "beneficial owner" is defined under Rule 13d-3
or any successor rule or regulation promulgated under the
Exchange Act) of securities which when added to any securities
already owned by such person would represent in the aggregate 30%
or more of the then outstanding securities of the Company which
are entitled to vote to elect any class of directors; or
(iv) If, during any period of two consecutive calendar
years, individuals who at the beginning of such period were
members of the Company's Board of Directors cease for any reason
to constitute at least a majority thereof (unless the election,
or the nomination for election by the Company's stockholders of
each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the
beginning of such period).
<PAGE>
II. GENERAL PROVISIONS
Subject to the other terms and provisions hereof, the shares
subject to this Option shall vest annually in equal installments on
March 31, 1998, 1999 and 2000. The right to exercise this Option
shall expire ten years from the Effective Date of Grant as set forth
in the upper right hand corner, except as the right to exercise this
Option is otherwise qualified by the terms of the Plan or this
Agreement. This Option is not transferable otherwise than by will or
the laws of descent and distribution, and is exercisable during the
Optionee's lifetime only by him or her. This Option is not liable for
or subject to, in whole or in part, the debts, contracts, liabilities
or torts of the Optionee nor shall it be subject to garnishment,
attachment, execution, levy or other legal or equitable process.
This Option shall be subject to the provisions of the Plan, which
is a part of the Form S-8 Prospectus (the "Prospectus") covering the
shares granted under this Option, and is incorporated in its entirety
by express reference herein. A copy of the Prospectus, as well as a
copy of the Company's annual report to security holders containing the
information required by Rule 14a-3(b) under the Securities Exchange
Act of 1934 for its latest fiscal year, has been provided to the
Optionee by the Company, and the Optionee hereby acknowledges receipt
of same. Additional copies of these documents are available from the
Company upon request. All defined terms contained herein shall have
the meanings provided in the Plan except to the extent otherwise
provided herein.
The Option granted hereunder shall terminate six (6) months after
the date the Optionee ceases to serve as an officer of the Company or
a Subsidiary (the "Termination Date"), except that in the event the
termination of Optionee's services results from the Optionee's death
or disability, the Option, to the extent it was exercisable on the
Termination Date, shall be exercisable for twelve months from the
Termination Date or until the Option by its terms expires, whichever
first occurs. After the Optionee's death, this Option shall be
exercisable only by the executor or administrator of the Optionee's
estate, or if the Optionee's estate is not in administration, by the
person or persons to whom the Optionee's rights shall have passed by
the Optionee's will or under the laws of descent and distribution of
the state where the Optionee was domiciled at the date of death. The
Company may suspend for a reasonable period or periods the time during
which this Option may be exercised if, in the opinion of the Company,
such suspension is required to enable the Company to remain in
compliance with regulatory requirements relating to the issuance of
shares of Common Stock subject to this Option.
Notwithstanding the provisions set forth herein, in the
event of a Change in Control, then from and after the date of the
Change in Control, all of the Options hereunder shall vest in full and
become immediately exercisable and shall remain exercisable until the
option expires by its terms.
<PAGE>
III. EXERCISE OF OPTION
This Option may be exercised only by written notice (the
"Exercise Notice") by the Optionee to the Company at its principal
executive office. The Exercise Notice shall be deemed given when
deposited in the U. S. mails, postage prepaid, addressed to the
Company at its principal executive office, or if given other than by
deposit in the U.S. mails, when delivered in person to an executive
officer of the Company at that office. The date of exercise of the
Option (the "Exercise Date") shall be the date of the postmark if the
notice is mailed or the date received if the notice is delivered other
than by mail. The Exercise Notice shall state the number of shares in
respect of which the Option is being exercised and, if the shares for
which the Option is being exercised are to be evidenced by more than
one stock certificate, the denominations in which the stock
certificates are to be issued. The Exercise Notice shall be signed by
the Optionee and shall include the complete address of such person,
together with such person's social security number.
This Option may be exercised either by tendering cash in the
amount of the Option Price or by tendering shares of Common Stock
(which may include shares previously acquired upon exercise of options
granted under the Plan). The Exercise Notice shall be accompanied by
payment of the aggregate Option Price of the shares purchased by cash
or check payable to the order of the Company or by delivery of shares
of Common Stock owned by the Optionee, in form satisfactory to the
Company, tendered in full or partial payment of the Option Price. If
shares of Common Stock are used to pay part or all of the Option
Price, the value of such shares for purposes of exercising this Option
shall be the Fair Market Value of the Common Stock on the Exercise
Date. This Option may also be exercised by having shares of Common
Stock having a Fair Market Value on the Exercise Date equal to the
aggregate Option Price withheld by the Company.
In addition to the foregoing, any Option granted under this
Agreement may be exercised by a broker-dealer acting on behalf of the
Optionee if (i) the broker-dealer has received from the Optionee or
the Company a fully- and duly-endorsed agreement evidencing such
Option, together with instructions signed by the Optionee requesting
the Company to deliver the shares of Common Stock subject to such
Option to the broker-dealer on behalf of the Optionee and specifying
the account into which such shares should be deposited, (ii) adequate
provision has been made with respect to the payment of any withholding
taxes due upon such exercise, and (iii) the broker-dealer and the
Optionee have otherwise complied with Section 220.3(e)(4) of
Regulation T, 12 CFR Part 220, or any successor provision.
<PAGE>
The certificates for shares of Common Stock as to which this
Option shall have been so exercised shall be registered in the name of
the Optionee and shall be delivered to the Optionee at the address
specified in the Exercise Notice. In the case of the exercise of the
option by an Optionee who is employed by the Company or a Subsidiary
on the Exercise Date, the Optionee in exercising such option shall
make payment or other arrangements (including, but not limited to,
requesting that the Company withhold shares of Common Stock that were
to be issued to the Optionee upon such exercise) satisfactory to the
Company for withholding federal and state taxes, if applicable, with
respect to the shares acquired upon exercise of the option. In the
case of options exercised when the Optionee is no longer employed by
the Company or a Subsidiary, such option exercise shall be valid only
if accompanied by payment or other arrangement satisfactory to the
Company with respect to the Company's obligations, if any, to withhold
federal and state taxes with respect to the exercise of the option.
In the event the person exercising the Option is a transferee of
the Optionee by will or under the laws of descent and distribution,
the Exercise Notice shall be accompanied by appropriate proof
(satisfactory to the Company) of the right of such transferee to
exercise the Option.
Subject to the limitations expressed herein, this Option may be
exercised with respect to all or a part of the shares of the Common
Stock subject to it.
Neither the Optionee nor any person claiming under or through the
Optionee shall be or have any rights or privileges of a stockholder of
the Company in respect of any of the shares issuable upon the exercise
of the Option, unless and until certificates representing such shares
shall have been issued (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the
Company).
<PAGE>
IV. GOVERNING LAW; JURISDICTION
This Agreement will be governed by and construed in accordance
with the laws of the State of Texas without giving effect to any
principle of conflict-of-laws that would require the application of
the law of any other jurisdiction. Each party agrees that this
Agreement is performable in Dallas, Dallas County, Texas, and that any
action or proceeding arising out of or related in any way to this
Agreement shall be brought solely in a court of competent jurisdiction
sitting in Dallas, Dallas County, Texas. Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the state and
federal courts of the State of Texas and agrees and consents that
service of process may be made upon it in any proceeding arising out
of this Agreement by service of process as provided by Texas law. All
parties hereto hereby irrevocably waive, to the fullest extent
permitted by law, any objection which it may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of
or relating to this Agreement brought in the District Court of Dallas
County, State of Texas, or in the United States District Court for the
Northern District of Texas, and hereby further irrevocably waive any
claims that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum. Optionee
acknowledges that his country of residence or domicile may prohibit or
restrict him or a broker/dealer domiciled in the United States from
engaging in the transactions contemplated by this Agreement and, in
such event, this Agreement shall be enforceable only to the extent
permitted by applicable law.
V. ENTIRE AGREEMENT
Except for the Plan, this Agreement constitutes the entire
agreement between the parties pertaining to the subject matter
contained in it and supersedes all prior and contemporaneous
agreements, representations and understandings of the parties. No
supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by the party to be charged
therewith. No waiver of any of the provisions of this Agreement shall
be deemed, or shall constitute a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing
waiver.
<PAGE>
VI. DUPLICATE ORIGINALS
Duplicate originals of this document shall be executed by both
the Company and the Optionee, each of which shall retain one duplicate
original.
SPORT SUPPLY GROUP, INC.
By: /s/ Peter S. Blumenfeld
Peter S. Blumenfeld
President and Chief Operating
Officer
ACCEPTED:
Geoffrey P. Jurick
Address: Emerson Radio Corp.
Attn: Geoffrey P. Jurick
9 Entin Road
Parsippany, New Jersey 07054
SPORT SUPPLY GROUP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
January 23, 1997
(Effective Date of Grant)
TO: John P. Walker
WHEREAS, Sport Supply Group, Inc. (the "Company") wishes to
encourage John P. Walker's (the "Optionee") sense of proprietorship
in the Company by owning the Common Stock, par value $.01 per share
(the "Common Stock"), of the Company;
NOW, THEREFORE, in consideration of the mutual agreements and
covenants contained herein, the Company hereby grants to the Optionee
a non-qualified stock option to purchase up to a total of 100,000
shares of the Common Stock at a price per share of $7.50 (the "Option
Price") on the terms and conditions and subject to the restrictions
as set forth in this Agreement and in the Sport Supply Group, Inc.
Stock Option Plan (the "Plan").
I. DEFINITIONS
a. Acquiring Person: An "Acquiring Person" shall mean any
person (including any "person" as such term is used in Sections
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) that, together with all Affiliates and
Associates of such person, is the beneficial owner of 10% or more of
the outstanding Common Stock. The term "Acquiring Person" shall not
include the Company, any subsidiary of the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or subsidiary of the Company or any person holding Common
Stock for or pursuant to the terms of any such plan, any corporation
owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the
Company, Emerson Radio Corp. and its Affiliates and Associates or
Geoffrey P. Jurick. For the purposes of this Agreement, a person who
becomes an Acquiring Person by acquiring beneficial ownership of 10%
or more of the Common Stock at any time after the date of this
Agreement shall continue to be an Acquiring Person whether or not
such person continues to be the beneficial owner of 10% or more of
the outstanding Common Stock.
b. Affiliate and Associate. "Affiliate" and "Associate" shall
have the respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act in effect on
the date of this Agreement.
<PAGE>
c. Change in Control. A "Change in Control" of the Company
shall have occurred if at any time during the term of this Agreement
any of the following events shall occur:
(i) The Company is merged, consolidated or reorganized
into or with another corporation or other legal person and as a
result of such merger, consolidation or reorganization less than
60% of the combined voting power to elect each class of
directors of the then outstanding securities of the remaining
corporation or legal person or its ultimate parent immediately
after such transaction is available to be received by all of the
Company's stockholders on a pro rata basis and is actually
received in respect of, or in exchange for, voting securities of
the Company pursuant to such transaction;
(ii) The Company sells all or substantially all of its
assets to any other corporation or other legal person and as a
result of such sale less than 60% of the combined voting power
to elect each class of directors of the then outstanding
securities of such corporation or legal person or its ultimate
parent immediately after such transaction is available to be
received by all of the Company's stockholders on a pro rata
basis and is actually received in respect of, or in exchange
for, voting securities of the Company pursuant to such sale
(provided that this provision shall not apply to a registered
public offering of securities of a subsidiary of the Company,
which offering is not part of a transaction otherwise a part of
or related to a Change in Control);
(iii) Any Acquiring Person has become the beneficial
owner (as the term "beneficial owner" is defined under Rule
13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of securities which when added to any securities
already owned by such person would represent in the aggregate
30% or more of the then outstanding securities of the Company
which are entitled to vote to elect any class of directors; or
(iv) If, during any period of two consecutive calendar
years, individuals who at the beginning of such period were
members of the Company's Board of Directors cease for any reason
to constitute at least a majority thereof (unless the election,
or the nomination for election by the Company's stockholders of
each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the
beginning of such period).
<PAGE>
II. GENERAL PROVISIONS
Subject to the other terms and provisions hereof, the shares
subject to this option shall vest annually in equal installments on
March 31, 1998, 1999 and 2000. The right to exercise this option
shall expire ten years from the Effective Date of Grant as set forth
in the upper right hand corner on page 1 of this Agreement, except as
the right to exercise this option is otherwise qualified by the terms
of the Plan or this Agreement. This option is not transferable
otherwise than by will or the laws of descent and distribution, and
is exercisable during the Optionee's lifetime only by him. This
option is not liable for or subject to, in whole or in part, the
debts, contracts, liabilities or torts of the Optionee nor shall it
be subject to garnishment, attachment, execution, levy or other legal
or equitable process.
This option shall be subject to the provisions of the Plan,
which is a part of the Form S-8 Prospectus (the "Prospectus")
covering the shares granted under this option, and is incorporated in
its entirety by express reference herein. A copy of the Prospectus,
as well as a copy of the Company's annual report to security holders
containing the information required by Rule 14a-3(b) under the
Exchange Act for its latest fiscal year, has been provided to the
Optionee by the Company, and the Optionee hereby acknowledges receipt
of same. Additional copies of these documents are available from the
Company upon request. All defined terms contained herein shall have
the meaning provided in the Plan except to the extent otherwise
provided herein.
Except as otherwise provided herein, the option granted
hereunder shall terminate six (6) months after the date the Optionee
ceases to be an employee of the Company (the "Termination Date") or
until the option by its terms expires, whichever first occurs.
Notwithstanding the foregoing, in the event the termination results
from the Optionee's death or disability, the option, to the extent it
was exercisable on the Termination Date shall be exercisable for
twelve months from the Termination Date or until the option by its
terms expires, whichever first occurs. After the Optionee's death,
this option shall be exercisable only by the executor or
administrator of the Optionee's estate, or if the Optionee's estate
is not in administration, by the person or persons to whom the
Optionee's rights shall have passed by the Optionee's will or under
the laws of descent and distribution of the state where the Optionee
was domiciled at the date of death. The Company may suspend for a
reasonable period or periods the time during which this option may be
exercised if, in the opinion of the Company, such suspension is
required to enable the Company to remain in compliance with
regulatory requirements relating to the issuance of shares of Common
Stock subject to this option.
<PAGE>
Notwithstanding the provisions set forth herein, in the
event (i) of a Change in Control, (ii) Optionee is terminated
other than for Cause (as defined in that Certain Employment Agreement
by and between the Company and the Optionee dated as of January 23,
1997 to be effective as of December 11, 1996, the "Employment
Agreement") or (iii) of a Constructive Discharge (as defined in the
Employment Agreement) of Optionee, then from and after the date of
the Change in Control, the Constructive Discharge or the termination
without Cause, whichever is applicable, all of the Options hereunder
shall vest in full and become immediately exercisable and shall
remain exercisable until the option expires by its terms.
III. EXERCISE OF OPTION
This option may be exercised only by written notice (the
"Exercise Notice") by the Optionee to the Company at its principal
executive office. The Exercise Notice shall be deemed given when
deposited in the U. S. mails, postage prepaid, addressed to the
Company at its principal executive office, or if given other than by
deposit in the U.S. mails, when delivered in person to an executive
officer of the Company at that office. The date of exercise of the
Option (the "Exercise Date") shall be the date of the postmark if the
notice is mailed or the date received if the notice is delivered
other than by mail. The Exercise Notice shall state the number of
shares in respect of which the option is being exercised and, if the
shares for which the option is being exercised are to be evidenced by
more than one stock certificate, the denominations in which the stock
certificates are to be issued. The Exercise Notice shall be signed
by the Optionee and shall include the complete address of such
person, together with such person's social security number.
This option may be exercised either by tendering cash in the
amount of the Option Price or by tendering shares of Common Stock
(which may include shares previously acquired upon exercise of
options granted under the Plan). The Exercise Notice shall be
accompanied by payment of the aggregate Option Price of the shares
purchased by cash or check payable to the order of the Company or by
delivery of shares of Common Stock owned by the Optionee, in form
satisfactory to the Company, tendered in full or partial payment of
the Option Price. If shares of Common Stock are used to pay part or
all of the Option Price, the value of such shares for purposes of
exercising this option shall be the Fair Market Value of the Common
Stock on the Exercise Date.
<PAGE>
In addition to the foregoing, any option granted under this
Agreement may be exercised by a broker-dealer acting on behalf of the
Optionee if (i) the broker-dealer has received from the Optionee or
the Company a fully- and duly-endorsed agreement evidencing such
option, together with instructions signed by the Optionee requesting
the Company to deliver the shares of Common Stock subject to such
option to the broker-dealer on behalf of the Optionee and specifying
the account into which such shares should be deposited, (ii) adequate
provision has been made with respect to the payment of any
withholding taxes due upon such exercise, and (iii) the broker-dealer
and the Optionee have otherwise complied with Section 220.3(e)(4) of
Regulation T, 12 CFR Part 220, or any successor provision.
In addition to the foregoing, the Company agrees to make one or
more loans to Optionee to purchase shares of Common Stock underlying
the Option granted hereunder, subject to the terms and provisions of
applicable laws, including, without limitation, Regulation G
promulgated by the Federal Reserve Board and the Delaware General
Corporation Law. The loan(s) shall be (i) for a period not to
exceed six (6) months, (ii) interest free, (iii) secured by the
shares of Common Stock issued upon exercise and (iv) evidenced by a
mutually satisfactory promissory note. The principal amount of any
such loans shall be equal to (a) the Option Price multiplied by the
number of shares of Common Stock being acquired upon exercise of the
Option plus (b) withholding tax less (c) the par value of the
shares, which par value must be paid by Optionee in cash at the time
of exercise.
The certificates for shares of Common Stock as to which this
option shall have been so exercised shall be registered in the name
of the Optionee and shall be delivered to the Optionee at the address
specified in the Exercise Notice. In the case of the exercise of the
option by an Optionee who is employed by the Company or a Subsidiary
on the Exercise Date, the Optionee in exercising such option shall
make payment or other arrangements (including, but not limited to,
requesting that the Company withhold shares of Common Stock that were
to be issued to the Optionee upon such exercise) satisfactory to the
Company for withholding federal and state taxes, if applicable, with
respect to the shares acquired upon exercise of the option. In the
case of options exercised when the Optionee is no longer employed by
the Company or a Subsidiary, such option exercise shall be valid only
if accompanied by payment or other arrangement satisfactory to the
Company with respect to the Company's obligations, if any, to
withhold federal and state taxes with respect to the exercise of the
option. In the event the person exercising the option is a
transferee of the Optionee by will or under the laws of descent and
distribution, the Exercise Notice shall be accompanied by appropriate
proof of the right of such transferee to exercise this Option.
<PAGE>
Neither the Optionee nor any person claiming under or through
the Optionee shall be or have any rights or privileges of a
stockholder of the Company in respect of any of the shares issuable
upon the exercise of the option, unless and until certificates
representing such shares shall have been issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company).
IV. GOVERNING LAW
This Agreement has been executed in, and shall be deemed to be
performable in, Dallas, Dallas County, Texas. For these and other
reasons, the parties agree that this Agreement shall be governed by
and construed in accordance with the laws of the State of Texas. The
parties further agree that the courts of the State of Texas, and any
courts whose jurisdiction is derivative on the jurisdiction of the
courts of the State of Texas, shall have personal jurisdiction over
all parties to this Agreement.
V. ENTIRE AGREEMENT
Except for the Plan, this Agreement constitutes the entire
agreement between the parties pertaining to the subject matter
contained in it and supersedes all prior and contemporaneous
agreements, representations and understandings of the parties. No
supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by the party to be charged
therewith. No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing
waiver.
VI. DUPLICATE ORIGINALS
Duplicate originals of this document shall be executed by both
the Company and the Optionee, each of which shall retain one
duplicate original.
SPORT SUPPLY GROUP, INC.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chief Executive Officer
ACCEPTED:
/s/ John P. Walker
John P. Walker
1901 Diplomat Drive
Farmers Branch, Texas 75234
<TABLE>
EXHIBIT 11
Earnings Per Common and Common Equivalent Share
Adjusted net earnings and adjusted number of common shares used in the
computation of net earnings per common share were determined as follows :
Three Months Ended Nine Months Ended
August 1, 1997 August 1, 1997
Full Full
Adjusted Net Earnings Primary Dilution (1) Primary Dilution (1)
<S> <C> <C> <C> <C>
Net earnings $1,976,481 $1,976,481 $20,904 $20,904
Add : reduction in interest
expense, net of
income taxes -- -- -- --
Adjusted net earnings $1,976,481 $1,976,481 $20,904 $20,904
Adjusted Number of
Common Shares
Weighted Average Common
Shares Outstanding 8,325,070 8,325,070 8,134,421 8,134,421
Incremental shares for
assumed exercise of
outstanding stock
options and warrants 9,371 51,263 3,582 48,253
Adjusted number of common
shares 8,334,441 8,376,333 8,138,003 8,182,674
Net earnings per common
share $0.24 $0.24 $0.00 $0.00
NOTE (1) :
These calculations are submitted in accordance with Regulation S-K
Item 601(b)(11) although the calculations are not required pursuant
to Paragraph 40 of APB Opinon No. 15 because the effects are less than 3%.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-26-1997
<PERIOD-END> AUG-01-1997
<CASH> 358,898
<SECURITIES> 0
<RECEIVABLES> 17,348,356
<ALLOWANCES> (1,069,000)
<INVENTORY> 13,587,286
<CURRENT-ASSETS> 34,111,743
<PP&E> 11,931,419
<DEPRECIATION> (6,469,297)
<TOTAL-ASSETS> 52,602,832
<CURRENT-LIABILITIES> 7,149,214
<BONDS> 0
0
0
<COMMON> 91,519
<OTHER-SE> 38,924,410
<TOTAL-LIABILITY-AND-EQUITY> 52,602,832
<SALES> 66,116,934
<TOTAL-REVENUES> 66,116,934
<CGS> 39,972,925
<TOTAL-COSTS> 21,965,050
<OTHER-EXPENSES> 49,461
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 648,148
<INCOME-PRETAX> 3,580,272
<INCOME-TAX> 985,368
<INCOME-CONTINUING> 2,594,904
<DISCONTINUED> (2,574,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,904
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
