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 April 2, 1999.
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 May 7, 1999.
Title of Each Class of Common Stock Number Outstanding
Common Stock, $0.01 par value 7,365,774 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
<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF APRIL 2, 1999 AND OCTOBER 2, 1998
<CAPTION>
April 2, October 2,
1999 1998
<S>
CURRENT ASSETS: <C> <C>
Cash $ 1,056,881 $ 1,035,466
Accounts receivable --
Trade, less allowance for
doubtful accounts of $990,000
in 1999 and $372,000 in 1998 20,927,483 16,151,371
Other 811,781 572,234
Inventories, net 20,619,283 14,102,837
Other current assets 906,495 943,521
Deferred tax assets - 904,318
Total current assets 44,321,923 33,709,747
DEFERRED CATALOG EXPENSES 3,323,365 1,916,035
PROPERTY, PLANT AND EQUIPMENT:
Land 8,663 8,663
Buildings 1,605,102 1,595,228
Machinery and equipment 5,969,128 5,585,710
Furniture and fixtures 3,462,212 2,683,122
Leasehold improvements 2,357,789 2,764,384
13,402,894 12,637,107
Less -- Accumulated depreciation
and amortization (8,159,685) (7,574,023)
5,243,209 5,063,084
DEFERRED TAX ASSETS 4,659,189 4,659,189
<PAGE>
COST IN EXCESS OF TANGIBLE NET
ASSETS ACQUIRED, less accumulated
amortization of $1,315,000 in 1999
and $1,240,000 in 1998 8,506,079 3,174,725
TRADEMARKS, less accumulated
amortization of $1,315,000 in 1999
and $1,136,000 in 1998 3,061,878 3,163,290
OTHER ASSETS, less accumulated
amortization of $1,035,000
in 1999 and $994,000 in 1998 5,457,781 3,117,545
$ 74,573,424 $ 54,803,615
CURRENT LIABILITIES:
Accounts Payable $ 10,116,661 $ 6,178,080
Income taxes payable - 87,250
Accrued property taxes - 218,201
Other accrued liabilities 2,880,833 893,598
Deferred Tax Payable 483,775 -
Notes payable and capital lease
obligations, current portion 1,484,160 1,087,809
14,965,429 8,464,938
NOTES PAYABLE AND CAPITAL LEASE
OBLIGATIONS, net of current portion 19,045,005 5,160,965
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01,
100,000 shares authorized, no shares
outstanding in 1999 or 1998 - -
Common stock, par value $0.01,
20,000,000 shares authorized,
9,283,806 and 9,243,195 shares
issued in 1999 and 1998,
7,350,594and 7,754,703 shares
outstanding in 1999 and 1998 92,838 92,432
Paid-in capital 59,280,673 59,100,187
Retained deficit (2,285,471) (4,745,046)
Treasury stock, at cost,
1,933,212 shares in 1999
and 1,488,492 in 1998 (16,525,050) (13,269,861)
40,562,990 41,177,712
$ 74,573,424 $ 54,803,615
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<CAPTION>
For The Three Months Ended For the Six Months Ended
April 2, 1999 April 3, 1998 April 2, 1999 April 3, 1998
<S> <C> <C> <C> <C>
Net revenues $35,476,066 $32,273,245 $50,346,205 $46,385,091
Cost of sales 22,088,985 20,124,427 31,206,154 28,909,119
Gross profit 13,387,081 12,148,818 19,140,051 17,775,972
Selling, general and
administrative expenses 8,277,533 8,355,008 14,987,436 14,905,649
Earnings before interest,
oher income and taxes 5,109,548 3,793,810 4,152,615 2,870,323
Interest Expense (334,298) (156,172) (499,830) (274,791)
Other income, net 74,633 110,379 298,688 389,902
Earnings from continuing
operations before provision
for income taxes 4,849,883 3,748,017 3,951,473 2,985,434
Provision for Income Taxes 1,830,205 1,274,328 1,491,898 1,015,047
Net Earnings $3,019,678 $2,473,689 $2,459,575 $1,970,387
Earnings per common and
common equivalent share:
Net earnings $ 0.41 $ 0.31 $ 0.33 $ 0.24
Net earnings -
assuming dilution $ 0.39 $ 0.30 $ 0.32 $ 0.24
Weighted average number of
common shares outstanding 7,387,852 8,108,135 7,486,263 8,094,284
Weighted average number of
common and common equivalent
shares - assuming dilution 7,748,331 8,324,358 7,637,795 8,263,444
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<CAPTION>
For the Six Months Ended
April 2, 1999 April 3, 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,459,575 $ 1,970,387
Adjustments to reconcile net earnings
to net cash used in operating activities --
Depreciation and amortization 837,262 688,918
Provision for(recovery of)allowances
for accounts receivable (31,185) (52,641)
Changes in assets and liabilities --
Increase in receivables (3,997,044) (441,536)
Decrease in inventories (5,180,694) (2,466,699)
Increase in deferred catalogs and
other current assets (277,766) (1,329,214)
Increase in payables 2,789,688 2,117,538
Decrease (increase)in accrued
Liabilities 73,962 (1,146,475)
(Increase) decrease in other assets (2,355,107) 760,659
Other - (6,025)
Net cash provided by (used in)
operating activities (5,681,309) 94,912
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant
& equipment (801,982) (240,861)
Payments for acquisitions, net of
cash acquired (4,003,548) (1,500,682)
Proceeds from sale of investments 2,160 6,200
Net cash used in investing activities (4,803,370) (1,735,343)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of notes
payable 14,403,169 2,922,599
Payments of notes payable and
capital lease obligations (822,778) (392,539)
Proceeds from common stock issuances 232,167 322,909
Purchase of treasury stock (3,306,464) -
Net cash provided by financing
activities 10,506,094 2,852,969
Net change in cash 21,415 1,212,538
Cash, beginning of period 1,035,466 602,779
Cash, end of period $ 1,056,881 $ 1,815,317
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 397,225 $ 264,587
Cash paid during the period for
income taxes $ 150,000 $ 856
</TABLE>
The accompanying notes are an integral part of these financial
statements.
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 April 2, 1999 and the results of
its operations for the three and six month periods ended April 2, 1999
and April 3, 1998.
The consolidated financial statements include the accounts of SSG and
its wholly-owned subsidiary, Athletic Training Equipment Company, Inc.,
a Delaware corporation ("ATEC"). 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.
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 April 2, 1999 and October 2, 1998, inventories consisted of the
following:
April 2, October 2,
1999 1998
Raw Materials $ 3,109,268 $ 2,761,885
Work-in-progress 327,384 236,466
Finished and purchased goods 19,281,738 11,530,406
22,718,390 14,528,757
Less inventory reserve for
slow moving items (2,099,107) (425,920)
$20,619,283 $14,102,837
<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 and employees 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 (or a Stock Option Committee comprised of members of the
Board of Directors).
Transactions under the plan for the six months ended April 2, 1999 and
April 3, 1998 are summarized as follows:
Six Months Ended
April 2, April 3,
1999 1998
Options outstanding - beginning
of period 860,286 1,040,573
Options granted 13,750 182,300
Options exercised (30,075) (27,050)
Options forfeited (250) (1,175)
Options outstanding - end
of period 843,711 1,194,648
Weighted average prices $ 7.34 $7.31
Stock Options Stock Options
Outstanding Exercisable
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Remaining Exercise Exercise
Range of Exercise Prices Shares Life Price Shares Price
$5.60 - $8.38 843,711 7.5 yrs. $7.34 599,542 $7.25
As of April 2, 1999 there were 100,000 non-qualified options outstanding
that were issued outside the plan. Such options have an exercise price
of $6.88 per share.
<PAGE>
Note 3 - Notes Payable and Capital Lease Obligations
As of April 2, 1999 and October 2, 1998, notes payable and capital lease
obligations consisted of the following:
April 2, October 2,
1999 1998
Note payable under revolving line of
credit, Interest at prime plus 1/2%
(8.25% at April 2, 1999) or LIBOR plus
2-1/4% (7.19% at April 2, 1999), due
October 31, 2000, collateralized by
substantially all assets $ 18,263,606 $ 4,411,967
Term loan, interest at LIBOR plus
2-1/4% (7.19% at April 2, 1999),
payable in quarterly installments plus
accrued interest of $125,000 through
October 31, 2000, collateralized by
substantially all assets 750,000 1,000,000
Promissory note, noninterest bearing,
due June 30, 1999 525,000 525,000
Capital lease obligation, interest at
9.0%, payable in annual installments of
principal and interest totaling $55,000
through August 2005 261,753 261,753
Promissory Note, interest at 7.75%, payable
in monthly installments of $29,167 plus
accrued interest through February 2001 700,000 --
Other 28,806 50,054
Total 20,529,165 6,248,774
Less - current portion (1,484,160) (1,087,809)
Long-term debt and capital lease
obligations, net $ 19,045,005 $ 5,160,965
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. As of April 2, 1999,
the Company was in compliance with the covenants in its former senior
credit facility.
Amounts outstanding under the senior credit facility are collateralized
by substantially all assets of the Company. As of April 2, 1999, the
Company had the option of electing the revolving credit facility and the
term loan to bear interest at the prevailing LIBOR rate plus 2-1/4%
(7.19% at April 2, 1999) or the lender's prime rate plus 1/2% (8.25% at
April 2, 1999). Historically, the Company has elected the lower of the
interest rates available under the facility.
<PAGE>
As of April 2, 1999, the Company had borrowings of approximately
$18,264,000 outstanding under the revolving credit facility,
approximately $500,000 of letters of credit outstanding for foreign
purchases of inventory, and availability of approximately $8,400,000.
In addition, as of April 2, 1999, SSG had borrowings of $750,000 under
the term loan which is payable in quarterly installments of principal
and accrued interest of $125,000 through October 31, 2000.
On April 26, 1999, the Company entered into a new Credit Agreement
("Agreement"), which includes a revolving line of credit of $30,000,000
and term loan of $10,000,000 with a maturity date of April 26, 2002.
The Agreement provides for reduced interest rates and fees as well as
reduced reporting requirements. The Agreement also contains financial
and net worth covenants in addition to limits on capital expenditures.
Note 4 - Capital Structure
In 1997, the Financial Accounting Standards Board issued Statement No.
129, "Disclosure of Information About Capital Structure" which requires
companies to disclose an entity's capital structure including
liquidation preferences of preferred stock, information about rights and
privileges of the outstanding equity securities, and the redemption
amounts for all issues of capital stock. The following information sets
forth all disclosure requirements by Statement No. 129.
As of April 2, 1999, the Company's outstanding capital stock consisted
of common stock. The Company has approximately 844,000 options
outstanding under the stock option plan with exercise prices ranging
from $5.60 to $8.38, 100,000 options outstanding that were issued
outside the plan with an exercise price of $6.88, and approximately 1.0
million warrants outstanding with an exercise price of $7.50. Each
option and warrant is exercisable into one share of common stock. If
the options and warrants were exercised into shares of common stock, all
holders would have rights similar to common shareholders.
Note 5 - Net Earnings (Loss) Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share". Statement No. 128 replaced the previously
reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants,
and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and
where necessary, restated to conform to the Statement No. 128
requirements.
<PAGE>
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
For the Three For the Six
Months Ended Months Ended
<CAPTION>
April 2, April 3 April 2, April 3,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Numerator:
Net earnings from
continuing operations
$3,019,678 $2,473,689 $2,459,575 $1,970,387
Numerator for basic and
diluted earnings per share -
income available to
common stockholders $3,019,678 $2,473,689 $2,459,575 $1,970,387
Denominator:
Denominator for basic earnings
per share -
Weighted average shares 7,387,852 8,108,135 7,486,263 8,094,284
Effect of dilutive securities:
Warrants 177,202 78,262 67,200 61,448
Employee stock options 183,277 137,961 84,332 107,712
Denominator for diluted
earnings per share -
Adjusted weighted average
shares and assumed
conversions 7,748,331 8,324,358 7,637,795 8,263,444
Basic earnings per share $0.41 $0.31 $0.33 $0.24
Diluted earnings per share $0.39 $0.30 $0.32 $0.24
</TABLE>
Note 6 - Acquisitions
During January 1999, the Company acquired the stock of Conlin Bros.,
Inc. ("Conlin"), a distributor of sporting goods equipment for cash.
The Company has accounted for this acquisition using the purchase method
and, as such, its results of operations are combined with the Company's
results of operations subsequent to the acquisition date. No proforma
information is presented herein as it would not materially differ from
actual results.
During February 1999, the Company acquired certain assets of Larry Black
Sporting Goods, Inc. ("Larry Black"), a distributor of sporting goods
equipment for cash, a promissory note and the assumption of certain
liabilities. The Company has accounted for this acquisition using the
purchase method and, as such, its results of operations are combined
with the Company's results of operations subsequent to the acquisition
date. No proforma information is presented herein as it would not
materially differ from actual results.
Note 7 - Recently Issued Accounting Pronouncements
<PAGE>
In 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures About Segments of an Enterprise and Related
Information," which is required to be adopted at the end of fiscal year
1999. As this standard only provides guidance for disclosure of segment
information, its adoption will have no effect on the financial position
or results of operations of the Company.
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 $4.1 million
during the six months ended April 2, 1999, from $25.2 million at October
2, 1998 to $29.4 million at April 2, 1999. The increase in working
capital is primarily a result of: (i) a $6.5 million increase in
inventory associated with the seasonality of the Company's business as
well as the inventory acquired from the acquisitions of Conlin Bros.,
Inc. ("Conlin") in February, 1999 and Larry Black Sporting Goods, Inc.
("Larry Black") in March, 1999; and (ii) a $4.8 million increase in
trade receivables due to higher revenues generated in the second fiscal
quarter of 1999 as compared to the fourth fiscal quarter of 1998. This
increase in working capital was offset by a $3.9 million increase in
accounts payable and a $1.7 million increase in other accrued
liabilities.
As of April 2, 1999, the Company had total borrowings under its senior
credit facility of approximately $19.0 million including a term loan of
$750,000 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
$500,000, and availability of approximately $8.4 million. The net
increase of $13.6 million in borrowings under the senior credit facility
compared to October 2, 1998 reflects the cash payments for the Conlin
and Larry Black acquisitions in February and March of 1999 as well as
the stock purchased under the Company's stock buyback program.
On April 26, 1999, the Company replaced its existing senior credit
facility with a new credit facility. The Credit Agreement
("Agreement"), under the new credit facility includes a revolving line
of credit of $30,000,000 and term loan of $10,000,000 with a maturity
date of April 26, 2002. The Agreement provides for reduced interest
rates and fees as well as reduced reporting requirements. This
Agreement also contains financial and net worth covenants in addition to
limits on capital expenditures.
The Company believes it will satisfy its short-term and long-term
liquidity needs from borrowings under its new credit facility and cash
flows from operations.
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. On October 28, 1998, the
Company approved a second repurchase program of up to an additional
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 April 2, 1999, the Company repurchased approximately
1,172,000 of its issued and outstanding shares of common stock in the
open market under both repurchase programs.
Except as described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Impact of Year 2000 and
System Implementation," the Company does not currently have any material
commitments for capital expenditures.
Impact of Year 2000 and System Implementation
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year.
Some of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a failure or miscalculations
causing disruptions of operations, including the inability to process
transactions or engage in normal business activities. The Company has
replaced significant portions of its software and hardware so that its
computer systems will function properly with respect to dates in the
year 2000 and thereafter. The Company expects that with successful
conversions to new software that are Year 2000 compatible, the Year 2000
Issue will pose no significant operational problems for its computer
systems. However, if such conversions are not made, or are not
successfully completed on a timely basis, the Year 2000 Issue and system
implementation could have a material adverse effect on the Company's
operations. The Company is using internal and external resources to
convert to, test, and implement the new software. The Company is in the
final stages of completing the Year 2000 project and system
implementation. The total cost of the project is estimated to be
approximately $5.0 million. The majority of these costs associated with
the Year 2000 and system implementation project will be capitalized and
amortized.
The Company's Year 2000 compliance is also dependent on the compliance
of third parties such as vendors and customers. The Company is
currently surveying its third parties regarding Year 2000 compliance;
however, due to the diversity and volume of customers and vendors, the
Company can not determine the full extent to which the Company may be
affected if such Year 2000 issues are not resolved by third parties.
<PAGE>
Results of Operations
Net Revenues. Net revenues increased approximately $3.2 million (9.9%)
and $3.7 million (7.8%) for the three and six month periods ended April
2, 1999 as compared to the same periods ended April 3, 1998. This
increase in net revenues reflects increases in revenues associated
primarily with the Company's Youth division as well as the Company's
subsidiary, ATEC. The Company expects to experience an increase in
sales as a result of the Conlin and Larry Black acquisitions that were
completed in February and March of 1999.
Gross Profit. Gross profit increased approximately $1.2 million (10.2%)
and $1.4 million (7.7%) for the three and six month periods ended April
2, 1999 as compared to the same periods ended April 3, 1998. As a
percentage of net revenues, gross profit increased from 37.6% to 37.7%
and decreased from 38.1% to 38.0% for the three and six month periods
ended April 2, 1999 as compared to the same periods ended April 3, 1998.
In the event revenues related to the Conlin and Larry Black acquisitions
as well as the Youth and ATEC divisions represent a larger percentage of
total revenues, the Company may experience a decrease in gross profit as
a percentage of net revenues in future periods.
Selling, General and Administrative Expenses. Operating expenses
decreased approximately $77,000 (0.9%) and increased approximately
$82,000 (0.5%) for the three and six month periods ended April 2, 1999
as compared to the same periods ended April 3, 1998. As a percentage of
net revenues, operating expenses decreased from 25.9% to 23.3% and from
31.9% to 29.8% for the three and six month periods ended April 2, 1999
as compared to the same periods ended April 3, 1998. The dollar
increase in operating expenses for the six month period ended April 2,
1999 was primarily a result of the following:
(i) An increase in operating expenses associated with the Company's
acquisition of Conlin and Larry Black in February and March of 1999.
(ii) An increase in payroll costs associated with the additional
telemarketers and sales road force hired by the Company.
Operating Profit. Operating profit for the three and six month periods
ended April 2, 1999 increased approximately $1.3 million (34.7%) and
$1.3 million (44.7%) as compared to the same periods ended April 3,
1998. This reflects the impact of the (i) increase in gross profit
dollars and (ii) decrease in operating expenses as a percentage of
revenues as discussed above.
Interest Expense. Interest expense increased approximately $178,000 and
$225,000 for the three and six month periods ended April 2, 1999 as
compared to the same periods ended April 3, 1998. The increase in
interest expense resulted from overall higher levels of borrowings. See
Item 2 "Liquidity and Capital Resources". Due to the higher borrowing
levels associated with the stock buyback program, the system implementation,
and the acquisitions of Conlin and Larry Black, the Company anticipates
interest expense to increase in future periods.
<PAGE>
Other Income, Net. Other income decreased approximately $36,000 and
$91,000 for the three and six month periods ended April 2, 1999 as
compared to the same periods ended April 3, 1998. Other income includes
promotional agreements entered into between the Company and certain
corporate sponsors. In addition, other income also includes income generated
from services provided to Emerson Radio Corp. ("Emerson") such as human
resources, advertising, warehousing/distribution, and banking functions
pursuant to a Management Services Agreement between the Company and Emerson
effective May 1997. Due to certain promotional agreements not being renewed,
the Company expects other income to decrease in future periods. In the
event additional promotional agreements with certain corporate sponsors are
not renewed or services provided to Emerson are discontinued or reduced,
the Company would expect a decrease in other income in future periods.
Provision for Income Taxes. The provision for income taxes increased
approximately $556,000 and $477,000 for the three and six month periods
ended April 2, 1999 as compared to the same periods ended April 3, 1998.
The Company's effective tax rate increased from 34% to 37.7% for the
three and six month periods ended April 2, 1999 as compared to the same
periods ended April 3, 1998.
Net Earnings. Net earnings increased approximately $546,000 and
$489,000 for the three and six month periods ended April 2, 1999, as
compared to the same periods ended April 3, 1998. Net earnings per
share increased from $0.31 to $0.41 and from $0.24 to $0.33 for the
three and six month periods ended April 2, 1999 as compared to the same
periods ended April 3, 1998. The three and six month periods ended
April 2, 1999 include a decrease of approximately 8.9% and 7.5% in
weighted average shares outstanding, respectively.
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", "believes," "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, risks
associated with its freight carriers, reduced sales to the United States
Government due to reduced Government spending, risk of nonpayment of
accounts receivable, competitive factors, foreign supplier related
issues, and risks associated with the Year 2000 Issue (including
installing and implementing a new management information system).
The general economic condition in the U.S. could affect pricing on (i)
services provided to the Company (such as freight); (ii) raw materials,
<PAGE>
such as metals and other commodities used in the manufacturing of
certain products; and (iii) finished goods. Any material price
increases to the customer could have an adverse effect on revenues and
any price increases from vendors could have an adverse effect on costs.
The Company ships approximately 50% of its products using United Parcel
Services ("UPS"). As experienced in 1997, a strike by UPS or any of the
Company's major carriers could adversely affect the Company's results of
operations due to not being able to deliver its products in a timely
manner and using other more expensive freight carriers. Although the
Company has analyzed the cost benefit effect of using other carriers,
the Company continues to utilize UPS for the majority of its small
package shipments and another carrier for a majority of its heavy
shipments.
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 and ATEC's retail customer
base 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 and there are no significant barriers to enter this
market. SSG competes principally in the institutional market with local
sporting goods dealers, as well as other direct mail 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, increases in inbound freight, 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.
Advances and changes in available technology can significantly impact
the Company. The Year 2000 Issue and system implementation project (as
described above) creates risks for the Company from unforeseen problems
in its own computer systems and from third parties with whom the Company
deals on a daily basis. Such problems with the Company's and/or third
parties' computer systems could have a material adverse impact on the
Company's ability to conduct its business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
<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.<PAGE>
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
Not applicable
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 10.1 Credit Agreement dated April 26, 1999, by and
between the Company and Comerica Bank.
*(a)(6) Exhibit 10.2 Severance Agreement by and between the Company
and Terrence M. Babilla, dated March 12, 1999.
<PAGE>
*(a)(7) Exhibit 10.3 Severance Agreement by and between the Company
and John P. Walker, dated March 12, 1999.
*(a)(8) Exhibit 10.4 Lease Agreement by and between Athletic Training
Equipment Company and The Northwestern Mutual Life Insurance
Company, dated January 29, 1999
*(a)(9) Exhibit 27 -- Financial Data Schedule
(b) No Reports on Form 8-K were filed during the quarter ended April 2,
1999.
----------------------------------
* Filed Herewith
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.
May 14, 1999 By: /s/ John P. Walker
John P. Walker
President, Chief Operating Officer
And Chief Financial Officer
INDEX TO EXHIBITS
ITEM
Exhibit 10.1 Credit Agreement dated April 26, 1999, by and between the
Company and Comerica Bank.
Exhibit 10.2 Severance Agreement by and between the Company and
Terrence M. Babilla, dated March 12, 1999.
Exhibit 10.3 Severance Agreement by and between the Company and
John P. Walker, dated March 12, 1999.
Exhibit 10.4 Lease Agreement by and between Athletic Training Equipment
Company and The Northwestern Mutual Life Insurance Company,
dated January 29, 1999
Exhibit 27 Financial Data Schedule
CREDIT AGREEMENT
THIS CREDIT AGREEMENT(this "Agreement") is made and delivered effective
as of the 26th day of April, 1999 (the "Effective Date"), by and
between SPORT SUPPLY GROUP, INC., a Delaware corporation ("Borrower"),
and COMERICA BANK - TEXAS, a Texas banking association ("Bank").
RECITALS
A. Borrower desires to obtain certain credit facilities from the Bank,
and the Bank is willing to provide such credit facilities to and in
favor of Borrower.
B. Such credit facilities are subject to the terms and conditions set
forth herein and in every other Loan Document.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, Borrower and Bank agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. The terms as used in this Agreement shall have the
meanings assigned to such terms in the Defined Terms Addendum.
1.2 Accounting Terms. All accounting terms not specifically defined in
this Agreement shall be determined and construed in accordance with
GAAP.
1.3 Singular and Plural. Where the context herein requires, the
singular number shall be deemed to include the plural, the masculine
gender shall include the feminine and neuter genders, and vice versa.
SECTION 2. TERMS, CONDITIONS AND PROCEDURES FOR BORROWING
Subject to the terms, conditions and procedures of this Agreement and
each other Loan Document including, but not limited to, the terms,
conditions and procedures set forth in the Defined Terms Addendum and
Loan Terms, Conditions and Procedures Addendum, Bank agrees to make
credit available to the Borrower on such dates and in such amounts as
the Borrower shall request from time to time or as may otherwise be
agreed to by Borrower and Bank.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants, and such representations and
warranties shall be deemed to be continuing representations and
warranties during the entire life of this Agreement, and so long as Bank
shall have any commitment or obligation to make any Loans, issue any
Letters of Credit or effect any Foreign Exchange Transaction hereunder,
and so long as any Indebtedness remains unpaid and outstanding under any
Loan Document, as follows:
3.1 Authority. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and is duly qualified and authorized to do business in each
other jurisdiction in which the character of its assets or the nature of
its business makes such qualification necessary, except where the
failure to so qualify would not have a Material Adverse Effect.
<PAGE>
3.2 Due Authorization. Each Borrower Party has all requisite power and
authority to execute, deliver and perform its obligations under each
Loan Document to which it is a party or is otherwise bound, all of which
have been duly authorized by all necessary action, and are not in
contravention of law or the terms of any Borrower Party's organizational
or other governing documents.
3.3 Title to Property. Each Borrower Party has good title to all
property and assets purported to be owned by it, including those assets
identified on the Financial Statements most recently delivered by
Borrower to Bank.
3.4 Encumbrances. There are no security interests or other Liens or
encumbrances on, and no financing statements on file with respect to,
any of the property or assets of any Borrower Party, except for
Permitted Encumbrances.
3.5 Subsidiaries. Borrower has no Subsidiaries, except as set forth in
Schedule 3.5 which Schedule sets forth the percentage of ownership of
Borrower in each such Subsidiary as of the date of this Agreement.
3.6 Taxes. Each Borrower Party has filed, on or before their
respective due dates, all federal, state, local and foreign tax returns
which are required to be filed, or has obtained extensions for filing
such tax returns, and is not delinquent in filing such returns in
accordance with such extensions, and has paid all taxes which have
become due pursuant to those returns or pursuant to any assessments
received by any such party, as the case may be, to the extent such taxes
have become due, except to the extent such tax payments are being
actively and diligently contested in good faith by appropriate
proceedings, and if requested by Bank have been bonded or reserved in an
amount and manner satisfactory to Bank.
3.7 No-Defaults. There exists no default (or event which, with the
giving of notice or passage of time, or both, would result in a default)
under the provisions of any instrument or agreement evidencing,
governing, securing or otherwise relating to any Debt of any Borrower
Party or pertaining to any of the Permitted Encumbrances, which, if the
same remained uncured for any applicable cure period, would entitle the
holder of any such Debt to accelerate the maturity thereof or would
otherwise have a Material Adverse Effect.
3.8 Enforceability of Agreement and Loan Documents. Each Loan Document
has been duly executed and delivered by duly authorized officer(s) or
other representative(s) of each Borrower Party, and constitutes the
valid and binding obligations of each Borrower Party, enforceable in
accordance with their respective terms, except to the extent that
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting the
enforcement of creditors' rights generally at the time in effect.
3.9 Non-contravention. The execution, delivery and performance by each
Borrower Party of the Loan Documents to which such Borrower Party is a
party or otherwise bound, are not in contravention of the terms of any
indenture, agreement or undertaking to which any such Borrower Party is
a party or by which it is bound, except to the extent that such terms
have been waived or that failure to comply with any such terms would not
have a Material Adverse Effect.
<PAGE>
3.10 Actions, Suits, Litigation or Proceedings. Except as otherwise
disclosed in the Annual Report of Borrower, Form 10-K, filed as of
November 25, 1998, with the Securities and Exchange Commission, there
are no actions, suits, litigation or proceedings, at law or in equity,
and no proceedings before any arbitrator or by or before any
Governmental Authority, pending, or, to the best knowledge of Borrower,
threatened against or affecting any Borrower Party, which, if adversely
determined, could materially impair the right of any Borrower Party to
carry on its business substantially as now conducted or could have a
Material Adverse Effect. To Borrower's knowledge no Borrower Party is
under investigation by, or is operating under any restrictions imposed
by, any Governmental Authority.
3.11 Compliance with Laws. Each Borrower Party has complied with all
Governmental Requirements, including, without limitation, Environmental
Laws, to the extent that failure to so comply could have a Material
Adverse Effect.
3.12 Consents, Approvals and Filings, Etc. Except as have been
previously obtained or as otherwise expressly provided in this
Agreement, no authorization, consent, approval, license, qualification
or formal exemption from, nor any filing, declaration or registration
with, any Governmental Authority and no material authorization, consent
or approval from any other Person, is required in connection with the
execution, delivery and performance by each Borrower Party of any Loan
Document to which it is a party. All such authorizations, consents,
approvals, licenses, qualifications, exemptions, filings, declarations
and registrations which have previously been obtained or made, as the
case may be, are in full force and effect and are not the subject of any
attack, or to the knowledge of Borrower, any threatened attack, in any
material respect, by appeal, direct proceeding or otherwise.
3.13 Contracts, Agreements and Leases. To Borrower's knowledge, no
Borrower Party is in default (beyond any applicable period of grace or
cure) in complying with any provision of any material contract,
agreement, indenture, lease or instrument to which it is a party or by
which it or any of its properties or assets are bound. To Borrower's
knowledge, each such contract, commitment, undertaking, agreement,
indenture and instrument is in full force and effect and is valid and
legally binding.
3.14 ERISA. Except as shown on Schedule 3.14, no Borrower Party
maintains or contributes to any employee benefit plan subject to Title
IV of ERISA. Furthermore, no Borrower Party has incurred any accumulated
funding deficiency within the meaning of ERISA or incurred any liability
to the PBGC in connection with any employee benefit plan established or
maintained by such Borrower Party, and no reportable event or prohibited
transaction, as defined in ERISA, has occurred with respect to such
plans.
3.15 No Investment Company. No Borrower Party is an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended, nor is any Borrower Party "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
<PAGE>
3.16 No Margin Stock. No Borrower Party is engaged principally, or as
one of its important activities, directly or indirectly, in the business
of extending credit for the purpose of purchasing or carrying margin
stock, and none of the proceeds of any of the Loans will be used,
directly or indirectly, to purchase or carry any margin stock or made
available by any Borrower Party in any manner to any other Person to
enable or assist such Person in purchasing or carrying margin stock, or
otherwise used or made available for any other purpose which might
violate the provisions of Regulations G, T, U, or X of the Board of
Governors of the Federal Reserve System. Terms for which meanings are
provided in Regulation U of said Board of Governors or any regulations
substituted therefor, as are from time to time in effect, are used in
this Section with such meanings, and these representations and
warranties shall be immediately effective.
3.17 Environmental Representations.
(a) To Borrower's knowledge, no Borrower Party has received any notice of
any violation of any Environmental Law(s) which, either singularly or in
the aggregate, could have a Material Adverse Effect; and no Borrower
Party is a party to any litigation or administrative proceeding, nor, so
far as is known by Borrower, is any litigation or administrative
proceeding threatened against any Borrower Party which, in any case,
(i) asserts or alleges that any Borrower Party violated any Environmental
Law(s), (ii) asserts or alleges that any Borrower Party is required to
clean up, remove or take any other remedial or response action due to
the disposal, depositing, discharge, leaking or other release of any
Hazardous Materials, or (iii) asserts or alleges that any Borrower Party
is required to pay all or a portion of any past, present or future
clean-up, removal or other remedial or response action which arises out
of or is related to the disposal, depositing, discharge, leaking or
other release of any Hazardous Materials by any Borrower Party, and
which, either singularly or in the aggregate, could have a Material
Adverse Effect.
(b) To Borrower's knowledge, there are no conditions existing currently
which could subject any Borrower Party to damages, penalties, injunctive
relief or clean-up costs under any applicable Environmental Law(s), or
which require, or are likely to require, clean-up, removal, remedial
action or other response pursuant to any applicable Environmental Law(s)
by any Borrower Party, and which, in any case, either singularly or in
aggregate, could have a Material Adverse Effect.
(c) To Borrower's knowledge, no Borrower Party is subject to any
judgment, decree, order or citation related to or arising out of any
applicable Environmental Law(s), which, either singularly or in the
aggregate, could have a Material Adverse Effect; and, to Borrower's
knowledge, no Borrower Party has been named or listed as a potentially
responsible party by any governmental body or agency in any matter
arising under any applicable Environmental Law(s), except as disclosed
in Schedule 3.17, and, in the event that any such matters are disclosed
in said Schedule 3.17 they will not, either singularly or in the
aggregate, have a Material Adverse Effect.
(d) Each Borrower Party has all permits, licenses and approvals
required under applicable Environmental Laws, where the failure to so
obtain or maintain any such permits, licenses or approvals could have a
Material Adverse Effect.
<PAGE>
3.18 Accuracy of Information. The annual audited Financial Statements
previously furnished to Bank have been prepared in accordance with GAAP
and fairly present the financial condition of Borrower and, as
applicable, the consolidated financial condition of Borrower and such
other Person(s) as such Financial Statements purport to present, and the
results of their respective operations as of the dates and for the
periods covered thereby; and since the date(s) of said Financial
Statements, there has been no material adverse change in the financial
condition of Borrower or any other Person covered by such Financial
Statements. No Borrower Party has any material contingent obligations,
liabilities for taxes, long-term leases or long-term commitments not
disclosed by, or reserved against in, such Financial Statements. Each
Borrower Party is solvent, able to pay its respective debts as they
mature, has capital sufficient to carry on its business and has assets
the fair market value of which exceed its liabilities, and no Borrower
Party will be rendered insolvent, under-capitalized or unable to pay
debts generally as they become due by the execution or performance any
Loan Document to which it is a party or by which it is otherwise bound.
3.19 Equity Ownership. Set forth on the Annual Report of Borrower, Form
10-K, filed as of November 25, 1998, with the Securities and Exchange
Commission is a schedule describing all classes of authorized capital
stock of Borrower and the number of shares of each such class issued and
outstanding, held by Borrower as treasury stock or available for
issuance under any employee benefit plans or stock option plans. Except
as set forth on the Annual Report of Borrower, Form 10-K, filed as of
November 25, 1998, with the Securities and Exchange Commission no shares
of capital stock or other voting securities of Borrower are issued,
reserved for issuance or outstanding. All outstanding shares of capital
stock of Borrower are duly authorized, validly issued, fully paid and
non-assessable and not subject to pre-emptive rights. Except as set
forth on the Annual Report of Borrower, Form 10-K, filed as of November
25, 1998, with the Securities and Exchange Commission there are no
bonds, debentures, notes or other indebtedness of Borrower having the
right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which shareholders of
Borrower may vote. Except as set forth on the Annual Report of
Borrower, Form 10-K, filed as of November 25, 1998, with the Securities
and Exchange Commission there are no outstanding securities, options
(other than employee stock options previously disclosed to Bank),
warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which Borrower or any Subsidiary is a party
or by which such entity is bound, obligating Borrower or any Subsidiary
to issue, deliver, sell or cause to be issued, delivered or sold,
additional shares of any class of securities or other ownership
interests of Borrower or any Subsidiary.
SECTION 4. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as Bank is committed to make
any Loan, issue any Letter of Credit or effect any Foreign Exchange
Transaction under this Agreement, and until all instruments and
agreements evidencing any Loan which is payable on demand or which
conditions advances upon the Bank's discretion are fully discharged and
terminated, and thereafter, so long as any Indebtedness remains
outstanding, it will, and, as applicable, it will cause each Borrower
Party within its control or under common control to:
<PAGE>
4.1 Preservation of Existence, Etc. Preserve and maintain its
existence and except where the failure to do any of the following would
not have a Material Adverse Effect, preserve and maintain such of its
rights, licenses, and privileges as are material to the business and
operations conducted by it; qualify and remain qualified to do business
in each jurisdiction in which such qualification is material to its
business and operations or ownership of its properties, continue to
conduct and operate its business substantially as conducted and operated
during the present and preceding calendar year; at all times maintain,
preserve and protect all of its franchises and trade names and preserve
all the remainder of its property and keep the same in good repair,
working order and condition; and from time to time make, or cause to be
made, all needed and proper repairs, renewals, replacements, betterments
and improvements thereto.
4.2 Keeping of Books. Keep proper books of record and account in which
full and correct entries shall be made of all of its financial
transactions and its assets and businesses so as to permit the
presentation of financial statements (including, without limitation,
those Financial Statements to be delivered to Bank pursuant Section 4.3
hereof) prepared in accordance with GAAP; and permit Bank, or its
representatives, at reasonable times and intervals, at Borrower's cost
and expense, upon reasonable prior notice, to visit any office of a
Borrower Party, discuss its financial matters with its officers,
employees and independent certified public accountants, and by this
provision, Borrower authorizes such officers, employees and accountants
to discuss the finances and affairs of any Borrower Party and to examine
any of its books and other corporate records.
4.3 Reporting Requirements. Furnish to Bank, or cause to be furnished
to Bank, the following:<PAGE>
(a) as soon as possible, and in any event within three (3) Business
Days after becoming aware of the occurrence or existence of each Default
or Event of Default hereunder or any material adverse change in the
financial condition of any Borrower Party, a written statement of the
chief financial officer of Borrower (or in his or her absence, a
responsible senior officer of Borrower), setting forth details of such
Default, Event of Default or change, and the action which Borrower has
taken, or has caused to be taken, or proposes to take, or to cause to be
taken, with respect thereto;
(b) as soon as available, and in any event within one hundred twenty
(120) days after and as of the end of each fiscal year of Borrower,
audited Financial Statements of Borrower and such of the Borrower
Parties as may be required by the Bank, consolidated, as applicable,
including a balance sheet, income statement and statement of cash flows,
for and as of such fiscal year then ending, with comparative numbers for
the preceding fiscal year, and such other comments and financial details
as are usually included in similar reports. Such audited Financial
Statements shall be prepared in accordance with GAAP by independent
certified public accountants of recognized standing selected by Borrower
and approved by Bank and shall contain opinions, which opinions shall
not be "going concern" opinions, as to the fairness of the statements
therein contained.
(c) as soon as available, and in any event within thirty (30) days
after and as of the end of each calendar month, including the last such
<PAGE>
reporting period of each of Borrower's fiscal years, unaudited Financial
Statements of Borrower and such of the Borrower Parties as may be
required by the Bank, consolidated, as applicable, for and as of such
reporting period, including a balance sheet and income statement for and
as of such reporting period then ending and for and as of that portion
of the fiscal year then ending, with comparative numbers for the same
period of the preceding fiscal year, in each case;
(d) upon request by Bank and as soon as available, and in any event
within thirty (30) days after and as of the end of each calendar month,
agings and reports of accounts receivable of Borrower and such of the
Borrower Parties as may be required by the Bank, in form and detail
satisfactory to Bank;
(e) upon request by Bank and as soon as available, and in any event
within thirty (30) days after and as of the end of each calendar month,
agings and reports of accounts payable of Borrower and such of the
Borrower Parties as may be required by the Bank, in form and detail
satisfactory to Bank;
(f) upon request by Bank and as soon as available, and in any event
within thirty (30) days after and as of the end of each calendar month,
a listing of Inventory of Borrower and such of the Borrower Parties as
may be required by the Bank, in form and detail satisfactory to Bank;
(g) as soon as available, and in any event within fifteen (15) days
after and as of the end of each calendar month, a stock status report of
Inventory as is presently prepared by Borrower, and of agings and
reports of both accounts receivable and accounts payable, in the form of
Exhibit F attached to this Agreement;
(h) within forty-five (45) days after and as of the end of each of the
first three (3) fiscal quarters of each year and together with the
annual Financial Statements to be delivered to Bank pursuant to
subsection (b) above, a Compliance Certificate certified as being true
and correct by the chief financial officer or other officer acceptable
to Bank of Borrower and, as applicable, each Borrower Party;
(i) at any time that a Borrowing Base Limitation is in effect, within
thirty (30) days after and as of the end of each calendar month, a
Borrowing Base Certificate certified as being true and correct by the
chief financial officer or other officer acceptable to Bank of Borrower
and, as applicable, each Borrower Party;
(j) promptly upon receipt thereof, copies of all management letters and
other substantive reports submitted to any Borrower Party by independent
certified public accountants in connection with any annual audit of any
such party;
(k) promptly after filing the same, copies of all documents filed with
the Securities and Exchange Commission, including, without limitation,
reports on Forms 10Q, 8K and 10K, and with any national securities
exchange;
(l) promptly after filing the same, a copy of Borrower's annual federal
income tax return; and
(m) promptly, and in form and detail satisfactory to Bank, such other
information as Bank may request from time to time.
<PAGE>
4.4 Financial Covenants. On a consolidated basis, Borrower and its
Subsidiaries will maintain all financial covenants set forth in the
Financial Covenants Addendum.
4.5 Inspections. Permit Bank, through its authorized attorneys,
accountants and representatives, at Borrower's cost and expense, to
examine each Borrower Party's books, accounts, records, ledgers and
assets and properties of every kind and description, wherever located,
at all reasonable times during normal business hours, upon oral or
written request of Bank.
4.6 Further Assurances; Financing Statements. Furnish Bank, at
Borrower's expense, upon Bank's request and in form satisfactory to Bank
(and execute and deliver or cause to be executed and delivered), such
additional pledges, assignments, mortgages, lien instruments or other
security instruments, consents, acknowledgments, subordinations and
financing statements covering any or all of the Collateral pledged,
assigned, mortgaged or encumbered pursuant to any Loan Document, of
every nature and description, whether now owned or hereafter acquired by
Borrower or any other Person providing such Collateral, together with
such other documents or instruments as Bank may require to effectuate
more fully the purposes of any Loan Document.
4.7 Compliance with Leases. Comply with all terms and conditions of
any leases covering any premises or property (real or personal) wherein
any of the Collateral is or may be located, or covering any of the other
material personal or real property now or hereafter owned, leased or
otherwise used by any Borrower Party in the conduct of its business, and
any Governmental Requirement, except where the failure to so comply
would not have a Material Adverse Effect.
4.8 Indemnification. Indemnify, defend and save Bank harmless from any
and all claims, losses, costs, damages, liabilities, obligations and
expenses, including, without limitation, reasonable attorneys' fees,
incurred by Bank by reason of any Default or Event of Default, in
defending or protecting the Liens which secure or purport to secure all
or any portion of the Indebtedness, whether existing under any Loan
Document or otherwise or the priority thereof, or in enforcing the
obligations of Borrower or any other Person under or pursuant to any
Loan Document, or in the prosecution or defense of any action or
proceeding concerning any matter growing out of or connected with the
Collateral or any Loan Document, INCLUDING ANY CLAIMS, LOSSES, COSTS,
DAMAGES, LIABILITIES, OBLIGATIONS, AND EXPENSES RESULTING FROM BANK'S
OWN NEGLIGENCE, except and to the extent but only to the extent caused
by Bank's gross negligence or willful misconduct.
4.9 Governmental and Other Approvals. Apply for, obtain and/or
maintain in effect, as applicable, all authorizations, consents,
approvals, licenses, qualifications, exemptions, filings, declarations
and registrations (whether with any court, governmental agency,
regulatory authority, securities exchange or otherwise) which are
necessary in connection with the execution, delivery and/or performance
by any Borrower Party of any Loan Document to which it is a party.
<PAGE>
4.10 Insurance. Maintain insurance coverage on its physical assets and
against other business risks in such amounts and of such types as are
customarily carried by companies similar in size and nature (including,
without limitation, business interruption insurance), and in the event
of acquisition of additional property, real or personal, or of the
incurrence of additional risks of any nature, increase such insurance
coverage in such manner and to such extent as prudent business judgment
and present practice would dictate; and in the case of all policies
covering property subject to any Loan Document or property in which the
Bank shall have a Lien of any kind whatsoever, other than those policies
protecting against casualty liabilities to strangers, all such insurance
policies shall provide that the loss payable thereunder shall be payable
to Borrower (or other Person providing Collateral) and Bank, with
mortgagee's clauses in favor of and satisfactory to Bank for all such
policies, and such policies shall also provide that they may not be
canceled or changed without thirty (30) days' prior written notice to
Bank. Upon the request of Bank, all of said policies, or copies
thereof, including all endorsements thereon and those required
hereunder, shall be deposited with Bank.
4.11 Compliance with ERISA. In the event that any Borrower Party or any
of its Subsidiaries maintain(s) or establish(es) a Pension Plan subject
to ERISA, (a) comply in all material respects with all requirements
imposed by ERISA as presently in effect or hereafter promulgated,
including, but not limited to, the minimum funding requirements thereof;
(b) promptly notify Bank upon the occurrence of a "reportable event" or
"prohibited transaction" within the meaning of ERISA, or that the PBGC
or any Borrower Party has instituted or will institute proceedings to
terminate any Pension Plan, together with a copy of any proposed notice
of such event which may be required to be filed with the PBGC; and (c)
furnish to Bank (or cause the plan administrator to furnish Bank) a copy
of the annual return (including all schedules and attachments) for each
Pension Plan covered by ERISA, and filed with the Internal Revenue
Service by any Borrower Party not later than thirty (30) days after such
report has been so filed.
4.12 Environmental Covenants.
(a) Comply with all applicable Environmental Laws, and maintain all
permits, licenses and approvals required under applicable Environmental
Laws, where the failure to do so could have a Material Adverse Effect.
(b) Promptly notify Bank, in writing, as soon as Borrower becomes aware
of any condition or circumstance which makes any of the environmental
representations or warranties set forth in this Agreement incomplete,
incorrect or inaccurate in any material respect as of any date; and
promptly provide to Bank, immediately upon receipt thereof, copies of
any material correspondence, notice, pleading, citation, indictment,
complaint, order, decree, or other document from any source asserting or
alleging a violation of any Environmental Laws by any Borrower Party, or
of any circumstance or condition which requires or may require, a
financial contribution by any Borrower Party, or a clean-up, removal,
remedial action or other response by or on behalf of any Borrower Party,
under applicable Environmental Law(s), or which seeks damages or civil,
criminal, or punitive penalties from any Borrower Party or any violation
or alleged violation of Environmental Law(s).
<PAGE>
(c) Borrower hereby agrees to indemnify, defend and hold Bank, and any
of Bank's past, present and future officers, directors, shareholders,
employees, representatives and consultants, harmless from any and all
claims, losses, damages, suits, penalties, costs, liabilities,
obligations and expenses (including, without limitation, reasonable
legal expenses and attorneys' fees) incurred or arising out of any
claim, loss or damage of any property, injuries to or death of any
persons, contamination of or adverse effects on the environment, or
other violation of any applicable Environmental Law(s), in any case,
caused by any Borrower Party or in any way related to any property owned
or operated by any Borrower Party or due to any acts of any Borrower
Party or any of its officers, directors, shareholders, employees,
consultants and/or representatives INCLUDING ANY CLAIMS, LOSSES,
DAMAGES, SUITS, PENALTIES, COSTS, LIABILITIES, OBLIGATIONS OR EXPENSES,
RESULTING FROM BANK'S OWN NEGLIGENCE; provided, however, that the
foregoing indemnification shall not be applicable, and Borrower shall
not be liable for any such claims, losses, damages, suits, penalties,
costs, liabilities, obligations or expenses, to the extent (but only to
the extent) the same arise or result from any gross negligence or
willful misconduct of Bank or any of its agents or employees.
4.13 Year 2000 Compliant. Perform all acts reasonably necessary to
ensure that each Borrower Party become Year 2000 Compliant in a timely
manner. Such acts shall include, without limitation, performing a
comprehensive review and assessment of all of any Borrower Party's
systems and adopting a detailed plan, with itemized budget, for the
remediation, monitoring and testing of such systems. As used in this
Section, "Year 2000 Compliant" shall mean, in regard to any entity, that
all software, hardware, firmware, equipment, goods or systems utilized
by or material to the business operations or financial condition of such
entity, will properly perform date sensitive functions before, during
and after the year 2000. Borrower shall, immediately upon request,
provide to Bank such certifications or other evidence of each Borrower
Party's compliance with the terms of this Section as Bank may from time
to time require.
4.14 Collateral Audits. Permit Bank to conduct audits of any Borrower
Party's Accounts and Inventory as often as Bank deems such audits to be
desirable. Upon Bank's request, Borrower shall reimburse Bank for the
reasonable costs and expenses expended by Bank in connection with such
audits, such expenses not to exceed $5,000.00 per audit. Without
limiting Bank's right to conduct more frequent audits, Bank acknowledges
that it currently intends to conduct one (1) such audit during each 12
month period; provided however, so long as no Event of Default has
occurred and is continuing, any additional audit conducted by Bank shall
be at the sole cost and expense of Bank.
SECTION 5. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as Bank is committed to make
any Loan, issue any Letter of Credit or effect any Foreign Exchange
Transaction under this Agreement and until all instruments and
agreements evidencing any Loan which is payable on demand or which
conditions advances upon the Bank's discretion are fully discharged and
terminated, and thereafter, so long as any Indebtedness remains
outstanding, it will not, and it will not allow any Borrower Party
within its control or under common control to, without the prior written
consent of Bank:
<PAGE>
5.1 Capital Structure, Business Objects or Purpose. Purchase, acquire
or redeem any of its equity ownership interests in excess of the
2,000,000.00 shares of Borrower's common stock which Borrower's board of
directors has authorized to be acquired by Borrower, or enter into any
reorganization or recapitalization or reclassify its equity ownership
interests, or make any material change in its capital structure or
general business objects or purpose.
5.2 Mergers or Dispositions. Change its name, enter into any merger or
consolidation, whether or not the surviving entity thereunder, or sell,
lease, transfer, relocate or dispose of all, substantially all, or any
material part of its assets (whether in a single transaction or in a
series of transactions); provided, however, Borrower may merge or
consolidate with any Subsidiary of Borrower, so long as Borrower is the
surviving entity thereunder.
5.3 Guaranties. Guarantee, endorse, or otherwise become secondarily
liable for or upon the obligations or Debt of others (whether directly
or indirectly), except:
(a) guaranties in favor of and satisfactory to Bank;
(b) endorsements for deposit or collection in the ordinary course of
business; and
(c) guaranties of Debt that are subordinated to the prior payment in
full of the Indebtedness upon terms and conditions approved in writing
by Bank.
5.4 Debt. Become or remain obligated for any Debt, except:
(a) Indebtedness and other Debt from time to time outstanding and owing
to Bank;
(b) current unsecured trade, utility or non-extraordinary accounts
payable arising in the ordinary course of business;
(c) Debt subordinated to the prior payment in full of the Indebtedness
pursuant to a subordination agreement in form and content satisfactory
to Bank;
(d) Debt outstanding as of the date hereof more particularly described
in Schedule 5.4 attached hereto; and
(e) Debt other than as contemplated in Section 5.4(a)-(d) above not
exceeding $500,000 in the aggregate outstanding at any one time.
5.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
upon, or create, suffer or permit to exist any Lien upon any of its
property or assets, whether now owned or hereafter acquired, except for
Permitted Encumbrances.
5.6 Acquisitions. Purchase or otherwise acquire or become obligated
for the purchase of all or substantially all of the assets or business
interests of any Person or any shares of stock or other ownership
interests of any Person or in any other manner effectuate or attempt to
effectuate an expansion of present business by acquisition, except (i)
<PAGE>
in a single transaction in which the aggregate consideration (not
including the issuance of Borrower's capital stock) given by all
Borrower Parties does not exceed $5,000,000; or (ii) up to four (4)
transactions in each fiscal year in which the aggregate consideration
given by all Borrower Parties does not exceed $15,000,000.
5.7 Dividends. Declare or pay dividends on, or make any other
distribution (whether by reduction of capital or otherwise) in respect
of any shares of its capital stock or other ownership interests except
as permitted by Section 5.1.<PAGE>
5.8 Investments. Make or allow to remain
outstanding any investment (whether such investment shall be of the character
of investment in shares of stock, evidences of indebtedness or other
securities or otherwise) in, or any loans, advances or extensions of credit
to, any Person, other than:
(a) Borrower's current ownership interests in those Subsidiaries of
Borrower identified on Schedule 3.5 attached hereto;
(b) any investment in direct obligations of the United States of
America or any agency thereof, or in certificates of deposit issued by
Bank, maintained consistent with Borrower's or such Subsidiary's
business practices prior to the date hereof; provided, that no such
investment shall mature more than ninety (90) days after the date when
made or the issuance thereof; and
(c) investments permitted under Section 5.6.
5.9 Transactions with Affiliates. Enter into any transaction with any
of their stockholders, officers, employees, partners or any of their
Affiliates, except, subject to the terms hereof, transactions in the
ordinary course of business and on terms not less favorable than would
be usual and customary in similar transactions between Persons dealing
at arm's length.
5.10 Defaults on Other Obligations. Fail to perform, observe or comply
duly with any covenant, agreement or other obligation to be performed,
observed or complied with by any Borrower Party, subject to any grace
periods provided therein, which failure could have a Material Adverse
Effect.
5.11 Prepayment of Debt. Prepay any Debt (or take any actions which
impose an obligation to prepay), except, subject to the terms hereof or
thereof, Indebtedness or other Debt payable to Bank.
5.12 Pension Plans. Except in compliance with this Agreement, enter
into, maintain, or make contribution to, directly or indirectly, any
Pension Plan that is subject to ERISA.
5.13 Subordinate Indebtedness. Subordinate any indebtedness due to it
from any Person to indebtedness of other creditors of such Person.
5.14 No Further Negative Pledges. Enter into or become subject to any
agreement (other than this Agreement or the Loan Documents) (a)
prohibiting the guaranteeing by any Borrower Party of any obligations,
(b) prohibiting the creation or assumption of any Lien upon the
properties or assets of any Borrower Party, whether now owned or
hereafter acquired or (c) requiring an obligation to become secured (or
further secured) if another obligation is secured or further secured.
<PAGE>
5.15 Accounts Receivable. Sell or assign any Account, account
receivable, note or trade acceptance, except to the Bank.
5.16 Capital Expenditures. Acquire or expend for, or commit to acquire
or expend for, capital assets by lease (including any Capitalized Lease
Obligations), purchase or otherwise in an aggregate amount that exceeds
$1,000,000.00 in any fiscal year, except for capital expenditures
anticipated to be expended during fiscal year 1999 by Borrower Parties
to upgrade their computer systems (which expenditures shall not be
counted against the $1,000,000 cap).
SECTION 6. EVENTS OF DEFAULT<PAGE>
6.1 Events of Default. The occurrence or
existence of any of the following conditions or events shall constitute an
"Event of Default" hereunder:
(a) upon non-payment of any principal, interest or other sums due under
the terms of this Agreement or under any Note(s), or under any other
instrument or evidence of Indebtedness, whether under this Agreement,
any Note(s), or otherwise, in any case, when due in accordance with the
terms hereof or thereof and the continuation of such non-payment for a
period of five (5) days; or if any Guarantor shall fail to pay, when
due, any indebtedness, obligation or liability whatsoever of any such
Guarantor to Bank;
(b) default in the observance or performance of any of the other
conditions, covenants or agreements of Borrower set forth in this
Agreement and the continuation of such default for a period of twenty
(20) days following receipt of written notice thereof;
(c) any representation or warranty made by any Borrower Party in any
Loan Document shall be untrue or incorrect in any material respect and
the continuation of the breach of such representation or warranty for a
period of twenty (20) days following receipt of written notice thereof;
(d) any default or event of default, as the case may be, in the
observance or performance of any of the conditions, covenants or
agreements of any Borrower Party set forth in any Loan Document and
continuation thereof for a period of twenty (20) days following written
notice thereof;
(e) any default by any Borrower Party, in the payment of any Debt
(other than Debt owing to Bank), or in the observance or performance of
any conditions, covenants or agreements related or given with respect
thereto and, in each such case, continuation thereof beyond any
applicable grace or cure period;
(f) the rendering of one or more judgments or decrees for the payment
of money, against any Borrower Party which is not covered by insurance,
and such judgment(s) or decree(s) shall remain unvacated, unbonded or
unstayed, by appeal or otherwise, for a period of sixty (60) consecutive
days after the date of entry;
(g) if there shall be any change in the management (including, without
limitation, the executive management) or control of Borrower, whether by
reason of incapacity, death, resignation, termination or otherwise,
which, in Bank's sole judgment, shall have a material adverse effect
<PAGE>
upon the future prospects for the successful operation by Borrower, of
its businesses as conducted before such change, or its ability to pay
and perform its liabilities and obligations under this Agreement, the
Indebtedness, or the Loan Documents;
(h) the failure by any Borrower Party, to meet the minimum funding
requirements under ERISA with respect to any Pension Plan established or
maintained by it; the occurrence of any "reportable event", as defined
in ERISA, which could constitute grounds for termination by the PBGC of
any Pension Plan or for the appointment by the appropriate United States
District Court of a trustee to administer such Pension Plan, and such
reportable event is not corrected and such determination is not revoked
within thirty (30) days after notice thereof has been given to the plan
administrator or any Borrower Party, as the case may be; or the
institution of any proceedings by the PBGC to terminate any such Pension
Plan or to appoint a trustee by the appropriate United States District
Court to administer any such Pension Plan;
(i) if any Borrower Party, becomes insolvent or generally fails to pay,
or admits in writing its inability to pay, its debts as they mature, or
applies for, consents to, or acquiesces in the appointment of a trustee,
receiver, liquidator, conservator or other custodian for any Borrower
Party, or a substantial part of its property, or makes a general
assignment for the benefit of creditors; or in the absence of such
application, consent or acquiescence, a trustee, receiver, liquidator,
conservator or other custodian is appointed for any Borrower Party, or
for a substantial part of its property, and the same is not discharged
within thirty (30) days; or any bankruptcy, reorganization, debt
arrangement, or other proceedings under any bankruptcy or insolvency
law, or any dissolution or liquidation proceeding, is instituted by or
against any Borrower Party, and, if instituted against any Borrower
Party, the same is consented to or acquiesced in by any such Borrower
Party or otherwise remains undismissed for thirty (30) days; or any
warrant of attachment is issued against any substantial part of the
property of any Borrower Party, which is not released within thirty (30)
days of service thereof; or
(j) if any Loan Document shall be terminated, revoked, or otherwise
rendered void or unenforceable, in any case, without Bank's prior
written consent.
6.2 Remedies Upon Event of Default. Upon the occurrence and at any
time during the existence or continuance of any Event of Default, but
without impairing or otherwise limiting the Bank's right to demand
payment of all or any portion of the Indebtedness which is payable on
demand, at Bank's option, Bank may give notice to Borrower declaring all
or any portion of the Indebtedness remaining unpaid and outstanding,
whether under the Notes or otherwise, to be due and payable in full
without presentation, demand, protest, notice of dishonor, notice of
intent to accelerate, notice of acceleration or other notice of any
kind, all of which are hereby expressly waived, whereupon all such
Indebtedness shall immediately become due and payable. Furthermore,
upon the occurrence of a Default or Event of Default and at any time
during the existence or continuance of any Default or Event of Default,
but without impairing or otherwise limiting the right of Bank, if
reserved under any Loan Document, to make or withhold financial
<PAGE>
accommodations at its discretion, to the extent not yet disbursed, any
commitment by Bank to make any further loans to Borrower, issue any
further Letters of Credit or effect any further Foreign Exchange
Transactions for Borrower's account under this Agreement shall
automatically terminate; provided, should such Default or Event of
Default be cured to Bank's satisfaction, Bank may, but shall be under no
obligation to, reinstate any such commitment by written notice to
Borrower. Notwithstanding the foregoing, in the case of an Event of
Default under Section 6.1(j), and notwithstanding the lack of any
notice, demand or declaration by Bank, the entire Indebtedness remaining
unpaid and outstanding shall become automatically due and payable in
full, and any commitment by Bank to make any further loans to Borrower,
issue any further Letters of Credit or effect any further Foreign
Exchange Transactions for Borrower's account shall be automatically and
immediately terminated, without any requirement of notice or demand by
Bank upon Borrower, each of which are hereby expressly waived by
Borrower. The foregoing rights and remedies are in addition to any
other rights, remedies and privileges Bank may otherwise have or which
may be available to it, whether under this Agreement, any other Loan
Document, by law, or otherwise.
6.3 Setoff. In addition to any other rights or remedies of Bank under
any Loan Document, by law or otherwise, upon the occurrence and during
the continuance or existence of any Event of Default, Bank may, at any
time and from time to time, without notice to Borrower (any requirements
for such notice being expressly waived by Borrower), setoff and apply
against any or all of the Indebtedness (whether or not then due), any or
all deposits (general, time or demand, provisional or final) at any time
held by Borrower and other indebtedness at any time owing by Bank to or
for the credit or for the account of Borrower, and any property of
Borrower, from time to time in possession or control of Bank,
irrespective of whether or not Bank shall have made any demand hereunder
or for payment of the Indebtedness and although such obligations may be
contingent or unmatured, and regardless of whether any Collateral then
held by Bank is adequate to cover the Indebtedness. The rights of Bank
under this Section are in addition to any other rights and remedies
(including, without limitation, other rights of setoff) which Bank may
otherwise have. Borrower hereby grants Bank a Lien on and security
interest in all such deposits, indebtedness and other property as
additional collateral for the payment and performance of the
Indebtedness.
6.4 Waiver of Certain Laws. To the extent permitted by applicable law,
Borrower hereby agrees to waive, and does hereby absolutely and
irrevocably waive and relinquish, the benefit and advantage of any
valuation, stay, appraisement, extension or redemption laws now existing
or which may hereafter exist, which, but for this provision, might be
applicable to any sale made under the judgment, order or decree of any
court, on any claim for interest on the Notes, or to any security
interest or other Lien contemplated by or granted under or in connection
with this Agreement or the Indebtedness.
6.5 Waiver of Defaults. No Default or Event of Default shall be waived
by Bank except in a written instrument specifying the scope and terms of
such waiver and signed by an authorized officer of Bank, and such waiver
and shall be effective only for the specific time(s) and purpose(s)
given. No single or partial exercise of any right, power or privilege
<PAGE>
hereunder, nor any delay in the exercise thereof, shall preclude other
or further exercise of Bank's rights. No waiver of any Default or Event
of Default shall extend to any other or further Default or Event of
Default. No forbearance on the part of Bank in enforcing any of Bank's
rights or remedies under any Loan Document shall constitute a waiver of
any of its rights or remedies. Borrower expressly agrees that this
Section may not be waived or modified by Bank by course of performance,
estoppel or otherwise.
6.6 Receiver. Bank, in any action or suit to foreclose upon any of the
Collateral, shall be entitled, without notice or consent, and completely
without regard to the adequacy of any security for the Indebtedness, to
the appointment of a receiver of the business and premises in question,
and of the rents and profits derived therefrom. This appointment shall
be in addition to any other rights, relief or remedies afforded Bank.
Such receiver, in addition to any other rights to which he shall be
entitled, shall be authorized to sell, foreclose or complete foreclosure
on Collateral for the benefit of Bank, pursuant to provisions of
applicable law.
6.7 Discretionary Credit. To the extent any Loan Document authorizes
the Bank, at its discretion, to make or to decline to make financial
accommodations to the Borrower, nothing contained in this Agreement or
any other Loan Document shall be construed to limit or impair such
discretion or to commit or otherwise obligate the Bank to make any such
financial accommodation.
6.8 Application of Proceeds of Collateral. Notwithstanding anything to
the contrary set forth in any Loan Document, after an Event of Default,
the proceeds of any of the Collateral, together with any offsets,
voluntary payments, and any other sums received or collected in respect
of the Indebtedness, may be applied in such order and manner as
determined by Bank in its sole and absolute discretion.
SECTION 7. MISCELLANEOUS
7.1 Accounting Principles. Except to the extent expressly stated to the
contrary herein, where the character or amount of any asset or
liability or item of income or expense is required to be determined, or
any consolidation or other accounting computation is required to be made
for purposes of this Agreement, it shall be done in accordance with
GAAP, and all accounting terms not specifically defined in this
Agreement shall be construed in accordance with GAAP.
7.2 Taxes and Fees. Unless otherwise prohibited by applicable law,
should any tax (other than a tax based upon the net income of Bank) or
recording or filing fee become payable in respect of any Loan Document,
any of the Collateral, any of the Indebtedness or any amendment,
modification or supplement hereof or thereof, Borrower agrees to pay
such taxes (or reimburse Bank therefor promptly following demand for
reimbursement), together with any interest or penalties thereon, and
agrees to hold Bank harmless with respect thereto.
7.3 Governing Law. Each Loan Document shall be deemed to have been
delivered in the State of Texas, and shall be governed by and construed
and enforced in accordance with the laws of the State of Texas, except
<PAGE>
to the extent that the Uniform Commercial Code, other personal property
law or real property law of another jurisdiction where Collateral is
located is applicable, and except to the extent expressed to the
contrary in any Loan Document. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall
be prohibited by or invalid under applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions
of this Agreement.
7.4 Costs and Expenses. Borrower shall pay Bank, on demand, all costs
and expenses, including, without limitation, reasonable attorneys' fees
and legal expenses, incurred by Bank in perfecting, revising, protecting
or enforcing any of its rights or remedies against any Borrower Party or
any Collateral, or otherwise incurred by Bank in connection with any
Default or Event of Default or the enforcement of the Loan Documents or
the Indebtedness. Following Bank's demand upon Borrower for the payment
of any such costs and expenses, and until the same are paid in full, the
unpaid amount of such costs and expenses shall constitute Indebtedness
and shall bear interest at the Default Rate.
7.5 Notices. All notices and other communications provided for in any
Loan Document (unless otherwise expressly stipulated therein) or
contemplated thereby, given thereunder or required by law to be given,
shall be in writing (unless expressly provided to the contrary). If
personally delivered, such notices shall be effective when delivered,
and in the case of mailing or delivery by overnight courier, such
notices shall be effective when placed in an envelope and deposited at a
post office or official depository under the exclusive care and custody
of the United States Postal Service or delivered to an overnight
courier, postage prepaid, in each case addressed to the parties as set
forth on the signature page of this Agreement, or to such other address
as a party shall have designated to the other in writing in accordance
with this Section. In the case of mailing, the mailing shall be by
overnight courier or certified or first class mail. The giving of at
least five (5) days' notice before Bank shall take any action described
in any notice shall conclusively be deemed reasonable for all purposes;
provided, that this shall not be deemed to require Bank to give such
five (5) days' notice, or any notice, if not specifically required to do
so in this Agreement.
7.6 Further Action. Borrower, from time to time, upon written request
of Bank, will promptly make, execute, acknowledge and deliver, or cause
to be made, executed, acknowledged and delivered, all such further and
additional instruments, and promptly take all such further action as may
be reasonably required to carry out the intent and purpose of the Loan
Documents, and to provide for the Loans thereunder and payment of the
Notes, according to the intent and purpose therein expressed.
7.7 Successors and Assigns; Participation. This Agreement shall be
binding upon and shall inure to the benefit of Borrower and Bank and
their respective successors and assigns. The foregoing shall not
authorize any assignment or transfer by Borrower, of any of its
respective rights, duties or obligations hereunder, such assignments or
transfers being expressly prohibited. Bank, however, may freely assign,
whether by assignment, participation or otherwise, its rights and
<PAGE>
obligations hereunder, and is hereby authorized to disclose to any such
assignee or participant (or proposed assignee or participant) any
financial or other information in its knowledge or possession regarding
any Borrower Party or the Indebtedness. Notwithstanding the foregoing,
Bank will not assign to any third party more than forty-nine percent
(49%) of its interests in any of the Loans, Notes or obligations to Bank
under the Loan Documents.
7.8 Indulgence. No delay or failure of Bank in exercising any right,
power or privilege hereunder or under any of the Loan Documents shall
affect such right, power or privilege, nor shall any single or partial
exercise thereof preclude any further exercise thereof, nor the exercise
of any other right, power or privilege available to Bank. The rights and
remedies of Bank hereunder are cumulative and are not exclusive of any
rights or remedies of Bank.
7.9 Amendment and Waiver. No amendment or waiver of any provision of
any Loan Document, nor consent to any departure by any Borrower Party
therefrom, shall in any event be effective unless the same shall be in
writing and signed by Bank, and then such waiver or consent shall be
effective only in the specific instance(s) and for the specific time(s)
and purpose(s) for which given.
7.10 Severability. In case any one or more of the obligations of any
Borrower Party under any Loan Document shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining obligations of such Borrower Party shall
not in any way be affected or impaired thereby, and such invalidity,
illegality or unenforceability in one jurisdiction shall not affect the
validity, legality or enforceability of the obligations of such Borrower
Party under any Loan Document in any other jurisdiction.
7.11 Headings and Construction of Terms. The headings of the various
sub-Sections hereof are for convenience of reference only and shall in
no way modify or affect any of the terms or provisions hereof. Where the
context herein requires, the singular number shall include the plural,
and any gender shall include any other gender.
7.12 Independence of Covenants. Each covenant hereunder shall be given
independent effect so that if a particular action or condition is not
permitted by any such covenant, the fact that it would be permitted by
an exception to, or would be otherwise within the limitations of,
another covenant shall not avoid the occurrence of any Default or Event
of Default.
7.13 Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations and warranties of any Borrower
Party made in any Loan Document, or in any certificate, report,
financial statement or other document furnished by or on behalf of any
Borrower Party in connection with any Loan Document, shall be deemed to
have been relied upon by Bank, notwithstanding any investigation
heretofore or hereafter made by Bank or on Bank's behalf, and those
covenants and agreements of Borrower set forth in Sections 4.8 and
4.12 hereof (together with any other indemnities of Borrower contained
elsewhere in any Loan Document) shall survive the termination of this
Agreement and the repayment in full of the Indebtedness.
<PAGE>
7.14 Effective Upon Execution. This Agreement shall become effective
upon the execution hereof by Bank and Borrower, and shall remain
effective until the Indebtedness under this Agreement and each of the
Notes and the related Loan Documents shall have been repaid and
discharged in full and no commitment to extend any credit hereunder
(whether optional or obligatory) remains outstanding.
7.15 Complete Agreement; Conflicts. The Loan Documents contain the
entire agreement of the parties thereto, and none of the parties shall
be bound by anything not expressed in writing. In the event that and to
the extent that any of the terms, conditions or provisions of any of the
other Loan Documents are inconsistent with or in conflict with any of
the terms, conditions or provisions of this Agreement, the applicable
terms, conditions and provisions of this Agreement shall govern and
control.
7.16 Exhibits and Addenda. The following Addenda, Exhibits and
Schedules are attached to this Agreement and are incorporated into this
Agreement by this reference and made a part hereof for all purposes:
Addenda:
Defined Terms Addendum
Financial Covenants Addendum
Loan Terms, Conditions and Procedures Addendum
Exhibits:
Exhibit A - Form of Borrowing Base Certificate
Exhibit B - Form of Compliance Certificate
Exhibit C - Form of Request for Advance
Exhibit D - Form of SAF Note
Exhibit E - Description of Property
Exhibit F - Form of Stock Status Report and Agings of Accounts
Receivable and Accounts Payable
Schedules:
Schedule 3.5 Subsidiaries
Schedule 3.14 Employee Benefit Plans
Schedule 3.17 Environmental Disclosures
Schedule 5.4 Debt
Schedule 5.5 Liens
Loan Terms Schedule 2.3 Debt to be Refinanced
7.17 Separate Loans. Notwithstanding anything to the contrary contained
in this Agreement or any other Loan Document, to the extent the loan
agreement or promissory note which evidences a specified portion of the
Indebtedness (herein referred to as a "Separate Loan"), or any security
agreement, mortgage, deed of trust or other document which specifically
secures such Separate Loan (collectively referred to as the "Separate
Loan Documents"), expressly stipulates that the Separate Loan shall only
be secured by specifically identified collateral or that the collateral
described in the Separate Loan Documents shall not secure any
Indebtedness other than the Separate Loan, the applicable provisions of
the Separate Loan Documents shall control. Furthermore, to the extent
any Separate Loan Document expressly stipulates that a default or event
of default under the Loan Documents shall not, unless otherwise
expressly stipulated in a Separate Loan Document, constitute a default
or event of default with respect to the Separate Loan, the applicable
provisions of the Separate Loan Documents shall control.
<PAGE>
7.18 WAIVER OF JURY TRIAL. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE
RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE
WAIVED. EACH OF THEM, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO
CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY
JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF ANY LOAN DOCUMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS OR ANY COURSE
OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF
EITHER OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN
MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER, EXCEPT BY A
WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.
7.19 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE OTHER "LOAN
AGREEMENTS" (AS DEFINED IN SECTION 26.02(A)(2) OF THE TEXAS BUSINESS &
COMMERCE CODE, AS AMENDED) REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES, AND THIS AGREEMENT AND THE OTHER WRITTEN LOAN AGREEMENTS MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Remainder of the Page
Left Blank Intentionally
Signature Page to Follow
WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK - TEXAS SPORT SUPPLY GROUP, INC.,
a Delaware corporation
By: /s/ Michael Kruse By: /s/ John P. Walker
Michael Kruse John P. Walker
Corporate Banking Officer President
Address: 1601 Elm Street Address: 1901 Diplomat Drive
Dallas, Texas 75201 Farmers Branch, Texas 75234
P.O. Box 650282 Attn: Mr. John P. Walker
Dallas, Texas 75262-0282
Attn: T. Martin Brown
AGREEMENT
THIS AGREEMENT is made as of the 12th day of March, 1999, between
Sport Supply Group, Inc., a Delaware corporation (the "Company"), and
Terrence M. Babilla (the "Employee").
WHEREAS, the Board of Directors of the Company (the "Board")
desires to offer an inducement to the Employee to remain an employee of
the Company;
WHEREAS, the Employee is willing to and does hereby release the Company
from any liabilities to Employee under the Severance Agreement dated as
of March 13, 1995;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained,
this Agreement sets forth benefits which the Company will pay to
Employee in the event a "Change in Control" of the Company.
1. Definitions.
(a) Acquiring Person: An "Acquiring Person" shall mean any person
(as defined in Section 1(c)(iii) of this Agreement) that, together with
all Affiliates and Associates of such person, is the beneficial owner of
15% or more of the outstanding common stock of the Company (the "Common
Stock"). The term "Acquiring Person" shall not include the Company, any
subsidiary of the Company, any 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. For the purposes of this
Agreement, a person who becomes an Acquiring Person by acquiring
beneficial ownership of 15% 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 15% 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 Securities Exchange Act
of 1934, as amended (the "Exchange Act") in effect on the date of this
Agreement.
(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 (who were stockholders
immediately prior to the merger, consolidation or reorganization) on a
pro rata basis and is actually received in respect of or 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
<PAGE>
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 (who
were stockholders immediately prior to the merger, consolidation or
reorganization) on a pro rata basis and is actually received in exchange
for the assets 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 person (including any "person" as such term is
used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) 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 20% or
more of the then outstanding securities of the Company which are
entitled to vote to elect any class of Directors;
(iv) If at any time, the Continuing Directors then serving on
the Board cease for any reason to constitute at least a majority
thereof;
(v) Any occurrence that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A or any successor
rule or regulation promulgated under the Exchange Act; or
(vi) Such other events that cause a change in control of the
Company, as determined by the Board in its sole discretion; provided,
however, that a Change in Control of the Company shall not be deemed to
have occurred as the result of any transaction having one or more of the
foregoing effects if such transaction is proposed by, and includes a
significant equity participation (i.e., an aggregate of at least 20% of
the then outstanding common equity securities of the Company immediately
after such transaction which are entitled to vote to elect any class of
Directors) of executive officers of the Company as constituted
immediately prior to the occurrence of such transaction or any Company
employee stock ownership plan or pension plan.
Notwithstanding anything herein to the contrary, no beneficial
ownership of or other event with respect to Emerson Radio Corp, a
Delaware corporation ("Emerson"), shall cause a Change in Control of the
Company unless and until there is an Emerson Disqualifying Action.
(d) Code. The "Code" shall mean the Internal Revenue Code of
1986, as amended.
(e) Continuing Director. A "Continuing Director" shall mean
a Director of the Company who (i) is a Director of the Company on the
date hereof or (ii) (A) is not an Acquiring Person, an Affiliate or
Associate, or a representative of an Acquiring Person or nominated for
election by an Acquiring Person, and (B) whose initial election or
initial nomination for election by the Company's stockholders was
approved by a majority of the Continuing Directors then on the Board of
Directors of the Company.
<PAGE>
(f) "Emerson Change of Control" means the occurrence of any
of the events set forth in clauses (i) through (vi) of Section 1(c)
except that the term "Company" for this purpose shall mean Emerson.
(g) "Emerson Disqualifying Action" means the occurrence of
any of the events set forth below on or after, or within 90 days before,
an Emerson Change of Control:
(i) Emerson or any of its Affiliates or Associates or any
group (as such term is used in Section 13(d)(3) the Exchange Act)
including any of such persons shall acquire beneficial ownership of more
than 1,000 additional shares of Common Stock (other than as a result of
a stock split or a stock dividend);
(ii) Emerson or any of its Affiliates or Associates or any
group (as such term is used in Section 14(d)(2) of the Exchange Act)
including any of such persons shall commence a tender offer or exchange
offer for the Common Stock; or
(iii) Emerson or any of its Affiliates or Associates or
any group (as such term is used in Section 13(d)(3) of the Exchange Act)
including any of such persons shall (A) solicit or grant proxies or
consents to elect any directors of the Company not nominated by a
majority of the Continuing Directors or to remove any directors of the
Company or (B) solicit or grant proxies or consents or make, vote in
favor of or support or participate in any shareholder proposals with
respect to any matter to be voted on by the holders of the Common Stock
unless the approval of such proposal has been recommended by a majority
of the Continuing Directors.
(h) Special Compensation. The "Special Compensation" shall
be a lump sum amount equal to 299% of the sum of (A) the highest annual
salary of the Employee in effect at any time during the 36 months prior
to the Change in Control, plus (B) the bonus or incentive compensation
of the Employee, based upon the highest dollar amount of bonus or
incentive compensation that the Employee received from the Company for
any of the last three fiscal years preceding the year in which the
Change in Control occurred.
2. Rights of Employee Upon Change in Control; Noncompetition.
(a) For a period of 180 days following a Change of Control,
Employee has the right to elect to receive the Special Compensation.
(b) Immediately upon Employee's election to receive the
Special Compensation, the Company will, subject to any prior notice from
Employee under Section 2(c), pay such amount in full to Employee.
(c) Upon written notice given by the Employee to the Company
prior to the receipt of Special Compensation, the Employee, at his sole
option, may elect to have all or any part of any such amount paid to
him, without interest, on an installment basis selected by him.
(d) The payment of Special Compensation by the Company to the
Employee shall not affect any rights and benefits which the Employee may
have pursuant to any other agreement, policy, plan, program or
arrangement of the Company providing benefits to the Employee prior to
<PAGE>
or after the Change of Control, which rights shall be governed by the
terms thereof, except that the payment of Special Compensation hereunder
shall be in exchange for Employee releasing all of his rights under the
Employment Agreement dated as of January 14, 1998, as amended, by and
between the Company and the Employee (the "Employment Agreement").
Notwithstanding the foregoing, in addition to the Special Compensation,
the Company shall provide or cause to be provided to Employee for 36
months after the Change in Control, health and dental insurance benefits
required by Section 4 of the Employment Agreement except to the extent
comparable benefits are actually received by the Employee during such
36-month period as a result of employment other than with the Company.
(e) The Company shall pay to the Employee all reasonable
legal fees and expenses incurred by him as a result of the enforcement
of any of Employee's rights hereunder within ten business days of the
date such expenses are incurred (including without limitation all such
fees and expenses, if any, incurred in seeking to obtain or enforce any
right or benefit provided by this Agreement in accordance with Section
11 hereof).
(f) The Company shall have no right of set-off or
counterclaim in respect of any claim, debt or obligation against any
payment or benefit to or for the benefit of the Employee provided for in
this Agreement.
(g) Without limiting the rights of the Employee at law or in
equity, if the Company fails to make any payment required to be made
hereunder on a timely basis, the Company shall pay interest on the
amount thereof on demand at an annualized rate of interest equal to 120%
of the then applicable Federal rate determined under Section 1274(d) of
the Code, compounded semi-annually (but in no event shall such interest
exceed the highest lawful rate).
(h) Employee covenants and agrees that in the event the
Special Compensation is paid to Employee pursuant hereto, Employee shall
be bound by the noncompetition provisions set forth in Section 6 of the
Employment Agreement, which are incorporated by reference herein, except
that the words "Employee covenants and agrees that for a period equal to
the longer of (i) 36 months after the Change in Control or (ii) so long
as Employee is employed by the Company and one year after Employee's
employment with the Company is terminated," shall be substituted for the
first three lines thereof.
3. No Mitigation Required. In the event that this Agreement or
the employment of the Employee hereunder is terminated, the Employee
shall 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 except for the termination or reduction of benefits
pursuant to Section 2(d), the acceptance of employment elsewhere after
termination shall in no way reduce the amount of Special Compensation
payable hereunder.
4. Successors; Binding Agreement.
(a) The Company will require any successor and any
corporation or other legal person (including any "person" as defined in
Section 1(c)(iii) of this Agreement) which is in control of such
<PAGE>
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 the Company (by purchase, merger, consolidation or otherwise),
by agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession shall
be a material breach of this Agreement by the Company. Notwithstanding
the foregoing, any such assumption shall not, in any way, affect or
limit the liability of the Company under the terms of this Agreement or
release the Company from any obligation hereunder. As used in this
Agreement, "Company" shall mean the Company as herein before 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 4 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's
personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
5. Notice. The Company shall give written notice to Employee
within ten days after any Change in Control. Failure to give such
notice shall constitute a material breach of this Agreement. For
purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to
have been duly given when delivered or received after being mailed by
United States registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Employee:
Terrence M. Babilla
1901 Diplomat Drive
Farmers Branch, Texas 75234
If to the Company:
Sport Supply Group, Inc.
1901 Diplomat Drive
Farmers Branch, Texas 75234
Attention: Chairman of the Board
or to such other address as any 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.
6. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by the Employee and such
officer as may be specifically designated by the Board. No waiver by
either party hereto of, or compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. No agreements or representations, oral
or otherwise, express or implied, unless specifically referred to
<PAGE>
herein, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this agreement. The
validity, interpretation, construction and performance of this Agreement
shall be governed by the substantive laws of the State of Delaware,
without regard to principles of conflicts of law.
7. Validity. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
8. 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.
9. Employment Rights. Nothing expressed or implied in this
Agreement shall create any right or duty on the part of the Company or
the Employee to have the Employee remain in the employment of the
Company prior to any Change in Control; provided, however, that any
termination of employment of the Employee or removal of the Employee as
an elected officer of the Company following the commencement of any
discussion authorized by the Board of Directors of the Company with a
third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Employee after a Change in
Control for purposes of this Agreement and shall entitle the Employee to
elect to receive all Special Compensation. Notwithstanding any other
provision hereof to the contrary, the Employee may, at any time, upon
the giving of 30 days prior written notice, terminate his employment
with the Company. If this Agreement or the employment of the Employee
is terminated under circumstances in which the Employee is not entitled
to any Special Compensation, the Employee shall have no further
obligation or liability to the Company hereunder or otherwise with
respect to his prior or any future employment by the Company.
10. Withholding of Taxes. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other
taxes as shall be required pursuant to any law or government regulation
or ruling; provided, however, that no withholding pursuant to Section
4999 of the Code shall be made unless, in the opinion of tax counsel
selected by the Company's independent accountants and acceptable to the
Employee, such withholding relates to payments which result in the
imposition of an excise tax pursuant to Section 4999 of the Code.
11. Legal Fees and Expenses. It is the intent of the Company that
the Employee not be required to incur the expenses associated with the
enforcement of his rights under this Agreement by litigation or other
legal action because the cost and expense thereof would substantially
detract from the benefits intended to be extended to the Employee
hereunder. Accordingly, if it should appear to the Employee that the
Company has failed to comply with any of its obligations under the
Agreement or in the event that the Company or any other person takes any
action to declare the Agreement void or unenforceable, or institutes any
litigation designed to deny, or to recover from, the Employee the
benefits intended to be provided to the Employee hereunder, the Company
irrevocably authorizes the Employee from time to time to retain counsel
of his choice, at the expense of the Company as hereafter provided, to
represent the Employee in connection with the initiation or defense of
<PAGE>
any litigation or other legal action, whether by or against the Company
or any director, officer, stockholder or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to the Employee's entering into an
attorney-client relationship with such counsel, and in that connection
the Company and the Employee agree that a confidential relationship
shall exist between the Employee and such counsel. The Company shall
pay and be solely responsible for any and all attorneys' and related
fees and expenses incurred by the Employee as a result of the Company's
failure to perform this Agreement or any provision thereof or as a
result of the Company or any person contesting the validity or
enforceability of this Agreement or any provision thereof as aforesaid.
12. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Employee is intended to be exclusive
of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or
in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective on the date and year first above written.
SPORT SUPPLY GROUP, INC.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick,
Chairman of the Board and
Chief Executive Officer
/s/ Terrence M. Babilla
Terrence M. Babilla
AGREEMENT
THIS AGREEMENT is made as of the 12th day of March, 1999, between
Sport Supply Group, Inc., a Delaware corporation (the "Company"), and
John P. Walker (the "Employee").
WHEREAS, the Board of Directors of the Company (the "Board")
desires to offer an inducement to the Employee to remain an employee of
the Company;
WHEREAS, the Employee is willing to and does hereby release the Company
from any liabilities to Employee under the Severance Agreement dated as
of January 14, 1998;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained,
this Agreement sets forth benefits which the Company will pay to
Employee in the event a "Change in Control" of the Company.
1. Definitions.
(a) Acquiring Person: An "Acquiring Person" shall mean any person
(as defined in Section 1(c)(iii) of this Agreement) that, together with
all Affiliates and Associates of such person, is the beneficial owner of
15% or more of the outstanding common stock of the Company (the "Common
Stock"). The term "Acquiring Person" shall not include the Company, any
subsidiary of the Company, any 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. For the purposes of this
Agreement, a person who becomes an Acquiring Person by acquiring
beneficial ownership of 15% 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 15% 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 Securities Exchange Act
of 1934, as amended (the "Exchange Act") in effect on the date of this
Agreement.
(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 (who were stockholders
immediately prior to the merger, consolidation or reorganization) on a
pro rata basis and is actually received in respect of or exchange for
voting securities of the Company pursuant to such transaction;
<PAGE>
(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 (who
were stockholders immediately prior to the merger, consolidation or
reorganization) on a pro rata basis and is actually received in exchange
for the assets 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 person (including any "person" as such term is
used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) 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 20% or
more of the then outstanding securities of the Company which are
entitled to vote to elect any class of Directors;
(iv) If at any time, the Continuing Directors then serving on
the Board cease for any reason to constitute at least a majority
thereof;
(v) Any occurrence that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A or any successor
rule or regulation promulgated under the Exchange Act; or
(vi) Such other events that cause a change in control of the
Company, as determined by the Board in its sole discretion; provided,
however, that a Change in Control of the Company shall not be deemed to
have occurred as the result of any transaction having one or more of the
foregoing effects if such transaction is proposed by, and includes a
significant equity participation (i.e., an aggregate of at least 20% of
the then outstanding common equity securities of the Company immediately
after such transaction which are entitled to vote to elect any class of
Directors) of executive officers of the Company as constituted
immediately prior to the occurrence of such transaction or any Company
employee stock ownership plan or pension plan.
Notwithstanding anything herein to the contrary, no beneficial
ownership of or other event with respect to Emerson Radio Corp, a
Delaware corporation ("Emerson"), shall cause a Change in Control of the
Company unless and until there is an Emerson Disqualifying Action.
(d) Code. The "Code" shall mean the Internal Revenue Code of
1986, as amended.
(e) Continuing Director. A "Continuing Director" shall mean
a Director of the Company who (i) is a Director of the Company on the
date hereof or (ii) (A) is not an Acquiring Person, an Affiliate or
Associate, or a representative of an Acquiring Person or nominated for
election by an Acquiring Person, and (B) whose initial election or
initial nomination for election by the Company's stockholders was
approved by a majority of the Continuing Directors then on the Board of
Directors of the Company.
<PAGE>
(f) "Emerson Change of Control" means the occurrence of any
of the events set forth in clauses (i) through (vi) of Section 1(c)
except that the term "Company" for this purpose shall mean Emerson.
(g) "Emerson Disqualifying Action" means the occurrence of
any of the events set forth below on or after, or within 90 days before,
an Emerson Change of Control:
(i) Emerson or any of its Affiliates or Associates or any
group (as such term is used in Section 13(d)(3) the Exchange Act)
including any of such persons shall acquire beneficial ownership of more
than 1,000 additional shares of Common Stock (other than as a result of
a stock split or a stock dividend);
(ii) Emerson or any of its Affiliates or Associates or any
group (as such term is used in Section 14(d)(2) of the Exchange Act)
including any of such persons shall commence a tender offer or exchange
offer for the Common Stock; or
(iii) Emerson or any of its Affiliates or Associates or
any group (as such term is used in Section 13(d)(3) of the Exchange Act)
including any of such persons shall (A) solicit or grant proxies or
consents to elect any directors of the Company not nominated by a
majority of the Continuing Directors or to remove any directors of the
Company or (B) solicit or grant proxies or consents or make, vote in
favor of or support or participate in any shareholder proposals with
respect to any matter to be voted on by the holders of the Common Stock
unless the approval of such proposal has been recommended by a majority
of the Continuing Directors.
(h) Special Compensation. The "Special Compensation" shall
be a lump sum amount equal to 299% of the sum of (A) the highest annual
salary of the Employee in effect at any time during the 36 months prior
to the Change in Control, plus (B) the bonus or incentive compensation
of the Employee, based upon the highest dollar amount of bonus or
incentive compensation that the Employee received from the Company for
any of the last three fiscal years preceding the year in which the
Change in Control occurred.
2. Rights of Employee Upon Change in Control; Noncompetition.
(a) For a period of 180 days following a Change of Control,
Employee has the right to elect to receive the Special Compensation.
(b) Immediately upon Employee's election to receive the
Special Compensation, the Company will, subject to any prior notice from
Employee under Section 2(c), pay such amount in full to Employee.
(c) Upon written notice given by the Employee to the Company
prior to the receipt of Special Compensation, the Employee, at his sole
option, may elect to have all or any part of any such amount paid to
him, without interest, on an installment basis selected by him.
(d) The payment of Special Compensation by the Company to the
Employee shall not affect any rights and benefits which the Employee may
have pursuant to any other agreement, policy, plan, program or
arrangement of the Company providing benefits to the Employee prior to
<PAGE>
or after the Change of Control, which rights shall be governed by the
terms thereof, except that the payment of Special Compensation hereunder
shall be in exchange for Employee releasing all of his rights under the
Employment Agreement dated as of January 14, 1998, as amended, by and
between the Company and the Employee (the "Employment Agreement").
Notwithstanding the foregoing, in addition to the Special Compensation,
the Company shall provide or cause to be provided to Employee for 36
months after the Change in Control, health and dental insurance benefits
required by Section 4 of the Employment Agreement except to the extent
comparable benefits are actually received by the Employee during such
36-month period as a result of employment other than with the Company.
(e) The Company shall pay to the Employee all reasonable
legal fees and expenses incurred by him as a result of the enforcement
of any of Employee's rights hereunder within ten business days of the
date such expenses are incurred (including without limitation all such
fees and expenses, if any, incurred in seeking to obtain or enforce any
right or benefit provided by this Agreement in accordance with Section
11 hereof).
(f) The Company shall have no right of set-off or
counterclaim in respect of any claim, debt or obligation against any
payment or benefit to or for the benefit of the Employee provided for in
this Agreement.
(g) Without limiting the rights of the Employee at
law or in equity, if the Company fails to make any payment required to be
made hereunder on a timely basis, the Company shall pay interest on the
amount thereof on demand at an annualized rate of interest equal to 120%
of the then applicable Federal rate determined under Section 1274(d) of
the Code, compounded semi-annually (but in no event shall such interest
exceed the highest lawful rate).
(h) Employee covenants and agrees that in the event the
Special Compensation is paid to Employee pursuant hereto, Employee shall
be bound by the noncompetition provisions set forth in Section 6 of the
Employment Agreement, which are incorporated by reference herein, except
that the words "Employee covenants and agrees that for a period equal to
the longer of (i) 36 months after the Change in Control or (ii) so long
as Employee is employed by the Company and one year after Employee's
employment with the Company is terminated," shall be substituted for the
first three lines thereof.
3. No Mitigation Required. In the event that this Agreement or
the employment of the Employee hereunder is terminated, the Employee
shall 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 except for the termination or reduction of benefits
pursuant to Section 2(d), the acceptance of employment elsewhere after
termination shall in no way reduce the amount of Special Compensation
payable hereunder.
4. Successors; Binding Agreement.
(a) The Company will require any successor and any
corporation or other legal person (including any "person" as defined in
Section 1(c)(iii) of this Agreement) which is in control of such
<PAGE>
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 the Company (by purchase, merger, consolidation or otherwise),
by agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession shall
be a material breach of this Agreement by the Company. Notwithstanding
the foregoing, any such assumption shall not, in any way, affect or
limit the liability of the Company under the terms of this Agreement or
release the Company from any obligation hereunder. As used in this
Agreement, "Company" shall mean the Company as herein before 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 4 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's
personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
5. Notice. The Company shall give written notice to Employee
within ten days after any Change in Control. Failure to give such
notice shall constitute a material breach of this Agreement. For
purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to
have been duly given when delivered or received after being mailed by
United States registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Employee:
John P. Walker
1901 Diplomat Drive
Farmers Branch, Texas 75234
If to the Company:
Sport Supply Group, Inc.
1901 Diplomat Drive
Farmers Branch, Texas 75234
Attention: Chairman of the Board
or to such other address as any 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.
6. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by the Employee and such
officer as may be specifically designated by the Board. No waiver by
either party hereto of, or compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. No agreements or representations, oral
<PAGE>
or otherwise, express or implied, unless specifically referred to
herein, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this agreement. The
validity, interpretation, construction and performance of this Agreement
shall be governed by the substantive laws of the State of Delaware,
without regard to principles of conflicts of law.
7. Validity. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
8. 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.
9. Employment Rights. Nothing expressed or implied in this
Agreement shall create any right or duty on the part of the Company or
the Employee to have the Employee remain in the employment of the
Company prior to any Change in Control; provided, however, that any
termination of employment of the Employee or removal of the Employee as
an elected officer of the Company following the commencement of any
discussion authorized by the Board of Directors of the Company with a
third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Employee after a Change in
Control for purposes of this Agreement and shall entitle the Employee to
elect to receive all Special Compensation. Notwithstanding any other
provision hereof to the contrary, the Employee may, at any time, upon
the giving of 30 days prior written notice, terminate his employment
with the Company. If this Agreement or the employment of the Employee
is terminated under circumstances in which the Employee is not entitled
to any Special Compensation, the Employee shall have no further
obligation or liability to the Company hereunder or otherwise with
respect to his prior or any future employment by the Company.
10. Withholding of Taxes. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other
taxes as shall be required pursuant to any law or government regulation
or ruling; provided, however, that no withholding pursuant to Section
4999 of the Code shall be made unless, in the opinion of tax counsel
selected by the Company's independent accountants and acceptable to the
Employee, such withholding relates to payments which result in the
imposition of an excise tax pursuant to Section 4999 of the Code.
11. Legal Fees and Expenses. It is the intent of the Company that
the Employee not be required to incur the expenses associated with the
enforcement of his rights under this Agreement by litigation or other
legal action because the cost and expense thereof would substantially
detract from the benefits intended to be extended to the Employee
hereunder. Accordingly, if it should appear to the Employee that the
Company has failed to comply with any of its obligations under the
Agreement or in the event that the Company or any other person takes any
action to declare the Agreement void or unenforceable, or institutes any
litigation designed to deny, or to recover from, the Employee the
benefits intended to be provided to the Employee hereunder, the Company
irrevocably authorizes the Employee from time to time to retain counsel
of his choice, at the expense of the Company as hereafter provided, to
<PAGE>
represent the Employee in connection with the initiation or defense of
any litigation or other legal action, whether by or against the Company
or any director, officer, stockholder or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to the Employee's entering into an
attorney-client relationship with such counsel, and in that connection
the Company and the Employee agree that a confidential relationship
shall exist between the Employee and such counsel. The Company shall
pay and be solely responsible for any and all attorneys' and related
fees and expenses incurred by the Employee as a result of the Company's
failure to perform this Agreement or any provision thereof or as a
result of the Company or any person contesting the validity or
enforceability of this Agreement or any provision thereof as aforesaid.
12. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Employee is intended to be exclusive
of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or
in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective on the date and year first above written.
SPORT SUPPLY GROUP, INC.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick,
Chairman of the Board and
Chief Executive Officer
/s/ John P. Walker
John P. Walker
LEASE
THIS LEASE is made as of this 29th day of January, 1999, by and between
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation
(hereinafter called "Landlord") and Athletic Training Equipment Company,
Inc., a Delaware corporation and a wholly owned subsidiary of Sport
Supply Group, Inc. (hereinafter called "Tenant").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the
terms and conditions hereinafter set forth, those premises (the
"Premises") outlined in red on Exhibit A and described in the Basic
Lease Information. The Premises may be all or part of the building (the
"Building'') or of the project (the "Project") which consists of one
building. The Building and Project are outlined in blue and green
respectively on Exhibit A.
2. POSSESSION AND LEASE COMMENCEMENT
A. Construction of Improvements. The term commencement date
("Term Commencement Date") shall be the earlier of the date on which:
(1) Tenant takes possession of some or all of the Premises for the
conduct of Tenant's business, or (2) the Improvements constructed or to
be constructed in the Premises shall have been substantially completed
in accordance with the plans and specifications referenced in Paragraph
39 hereof, whether or not substantial completion of the Building itself
shall have occurred, and a certificate of occupancy is issued for the
Premises. If for any reason Landlord cannot deliver possession of the
Premises to Tenant on the Estimated Term Commencement Date, Landlord
shall not be subject to any liability therefore, nor shall Landlord be
in default hereunder; provided, however, if substantial completion of
the Improvements has not occurred and a certificate of occupancy has not
been issued on or before (i) June 11, 1999, Tenant shall be entitled to
a credit against the first Base Rent otherwise payable hereunder in an
amount equal to $708.33 per day for each day that shall elapse from June
11, 1999 until substantial completion has been achieved and a
certificate of occupancy has been issued for the Premises, and (ii)
October 1, 1999, Tenant shall have the right to terminate this Lease by
written notice to Landlord, in which event this Lease shall terminate
and the parties shall have no further rights or obligations hereunder.
Substantial completion shall have occurred notwithstanding Tenant's
submission of a punch list to Landlord, which Tenant shall submit, if at
all, within thirty (30) days after the Term Commencement Date. Tenant
shall, upon demand, execute and deliver to Landlord a letter of
acceptance of delivery of the Premises. Landlord agrees that it shall
provide Tenant with advance written notice if Tenant will not be able to
have lawful occupancy of (i) the factory portion of the Premises by May
1, 1999 for the purpose of making such portion of the Premises ready for
the conduct of Tenant's business to be conducted therein, and (ii) the
office portion of the Premises by June 1, 1999 for the purpose of making
such portion of the Premises ready for the conduct of Tenant's business
to be conducted therein, such written notice to be provided by Landlord
to Tenant at least 60 days prior to the applicable date set forth in
clause (i) or (ii) as applicable.
<PAGE>
3. TERM
The Term of this Lease shall commence on the Term Commencement Date
and continue in full force and effect for the number of months specified
as the Length of Term in the Basic Lease Information or until this Lease
is terminated as otherwise provided herein. If the Term Commencement
Date is a date other than the first day of the calendar month, the Term
shall be the number of months of the Length of Term in addition to the
remainder of the calendar month following the Term Commencement Date.
4. USE
A. General. Tenant shall use the Premises for the Permitted Use
and for no other use or purpose. Tenant shall control Tenant's
employees, agents, customers, visitors, invitees, licensees,
contractors, assignees and subtenants (collectively, "Tenant's Parties")
in such a manner that Tenant and Tenant's Parties cumulatively do not
exceed the Parking Density at any time. Tenant and Tenant's Parties
shall have the nonexclusive right to use, in common with other parties
occupying the Building or Project, the parking areas and driveways of
the Project, subject to such rules and regulations as Landlord may from
time to time prescribe.
B. Limitations. Tenant shall not permit any odors, smoke, dust,
gas, substances, noise or vibrations to emanate from the Premises, nor
take any action which would constitute a nuisance or would disturb,
obstruct or endanger any other tenants of the Building or Project in
which the Premises are situated or interfere with their use of their
respective premises. Storage outside the Premises of materials,
vehicles or any other items is prohibited. Tenant shall not use or
allow the Premises to be used for any immoral or unlawful purpose, nor
shall Tenant cause or maintain or permit any nuisance in, on or about
the Premises. Tenant shall not commit or suffer the commission of any
waste in, on or about the Premises. Tenant shall not allow any sale by
auction upon the Premises, or place any loads upon the floors, walls or
ceilings which endanger the structure, or place any harmful liquids in
the drainage system of the Building or Project. No waste, materials or
refuse shall be dumped upon or permitted to remain outside the Premises
except in trash containers placed inside exterior enclosures designed
for that purpose by Landlord. Landlord shall not be responsible to
Tenant for the non-compliance by any other tenant or occupant of the
Building or Project with any of the above referenced rules or any other
terms or provisions of such tenant's or occupant's lease or other
contract.
C. Compliance with Regulations. By entering the Premises, Tenant
accepts the Premises, subject to all existing or future applicable
municipal, and federal and other governmental statutes, regulations,
laws and ordinances, including zoning ordinances and regulations
governing and relating to the use, occupancy and possession of the
Premises and the use, storage, generation and disposal of Hazardous
Materials (hereinafter defined) in, on and under the Premises
(collectively "Regulations"). Except for preexisting violations, Tenant
shall, at Tenant's sole expense, strictly comply with all Regulations
now in force or which may hereafter be in force relating to Tenant's
specific use of the Premises (it being understood and agreed that any
such Regulations that are applicable to property owners generally, such
<PAGE>
as sprinklering requirements, shall be complied with by Landlord at its
sole expense) and/or the use, storage, generation of Hazardous Materials
in, on and under the Premises. Tenant shall at its sole cost and
expense obtain all licenses or permits necessary to Tenant's use of the
Premises (other than a certificate of occupancy which shall be
Landlord's obligation). Tenant shall promptly comply with the
reasonable requirements of any board of fire underwriters or other
similar body now or hereafter constituted. Tenant shall not do or
permit anything to be done in, on, or about the Premises or bring or
keep anything which will in any way increase the rate of any insurance
upon the Premises, Building, or Project, or upon any contents therein or
cause a cancellation of said insurance or otherwise affect said
insurance in any manner. Tenant shall indemnify, defend, protect and
hold Landlord harmless from and against any loss, cost, expense, damage,
attorneys' fees or liability arising out of the failure of Tenant to
comply with any applicable law for which Tenant is responsible hereunder
or comply with the requirements as set forth herein.
D. Hazardous Materials. Tenant shall not cause, or allow any of
Tenant's Parties to cause, any Hazardous Materials to be used,
generated, stored or disposed of on or about the Premises, the Building
or the Project (other than materials used in the ordinary course of
Tenant's business which shall be used by Tenant in compliance with all
applicable laws). As used in this Lease, "Hazardous Materials" shall
include, but not be limited to, hazardous, toxic and radioactive
materials and those substances defined as "Hazardous Substances",
"Hazardous Materials", "Hazardous Wastes", "Toxic Substances", or other
similar designations in any federal, state or local law, regulation, or
ordinance. Landlord shall have the right at all reasonable times to
inspect the Premises and to conduct tests and investigations to
determine whether Tenant is in compliance with the foregoing provisions,
the costs of all such inspections, tests and investigations to be borne
by Tenant if it is determined that Tenant is not in compliance with
applicable laws. Tenant shall indemnify, defend, protect and hold
Landlord harmless from and against all liabilities, losses, costs and
expenses, demands, causes of action, claims or judgments directly or
indirectly arising out of the use, generation, storage or disposal of
Hazardous Materials by Tenant or any of Tenant's Parties, which
indemnity shall include, without limitation, the cost of any required or
necessary repair, cleanup or detoxification, and the preparation of any
closure or other required plans, whether such action is required or
necessary prior to or following the termination of this Lease. Neither
the written consent by Landlord to the use, generation, storage or
disposal of Hazardous Materials nor the strict compliance by Tenant with
all laws pertaining to Hazardous Materials shall excuse Tenant from
Tenant's obligation of indemnification pursuant to this Paragraph 4.D.
Tenant's obligations pursuant to the foregoing indemnity shall survive
the termination of this lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with any reasonable
rules and regulations Landlord may from time to time prescribe in
writing for the purpose of maintaining the proper care, cleanliness,
safety, traffic flow and general order of the Premises or Project.
Tenant shall cause Tenant's Parties to comply with such rules and
regulations. Landlord shall not be responsible to Tenant for the non-
compliance by any other tenant or occupant of the Building or Project
with any of the rules and regulations. The rules and regulations are
attached hereto as Exhibit "C" and made a part hereof.
<PAGE>
6. RENT
A. Base Rent. Tenant shall pay to Landlord, without demand
throughout the Term, Base Rent as specified in the Basic Lease
Information, payable in monthly installments in advance on or before the
first day of each calendar month, in lawful money of the United States,
without deduction or offset whatsoever, at the address specified in the
Basic Lease Information or to such other place as Landlord may from time
to time designate in writing. Base Rent for the first full month of the
Term shall be paid by Tenant upon Tenant's execution of this Lease. If
the obligation for payment of Base Rent commences on other than the
first day of a month, then Base Rent shall be prorated and the prorated
installment shall be paid on the first day of the calendar month next
succeeding the Term Commencement Date.
B. Additional Rent. All monies other than Base Rent required to
be paid by Tenant hereunder, including, but not limited to, the interest
and late charge described in Paragraph 26.D., any monies spent by
Landlord pursuant to Paragraph 30, and Tenant's Proportionate Share of
Basic Operating Cost, as specified in Paragraph 7 of this Lease, shall
be considered additional rent ("Additional Rent"). "Rent" shall mean
Base Rent and Additional Rent.<PAGE>
7. BASIC OPERATING COST
A. Basic Operating Cost. In addition to the Base Rent required
to be paid hereunder, Tenant shall pay as Additional Rent, Tenant's
Proportionate Share, as defined in the Basic Lease Information, of Basic
Operating Cost in the manner set forth below. Landlord shall account
for each item of Basic Operating Cost as either a cost attributable to
the Building or to the Project, as determined by Landlord in Landlord's
sole discretion, and unless provided to the contrary in this Lease,
Tenant shall pay the applicable Tenant's Proportionate Share of each
such Basic Operating Cost, as set forth in the Basic Lease Information.
Basic Operating Cost shall mean all reasonable expenses and costs of
every kind and nature which Landlord shall pay or become obligated to
pay, because of or in connection with the management, maintenance,
preservation and operation of the Project and its supporting facilities
(determined in accordance with generally accepted accounting principles,
consistently applied) including but not limited to the following:
(1) Taxes. All real property taxes, possessory interest taxes,
business or license taxes or fees, service payments in lieu of such
taxes or fees, annual or periodic license or use fees, excises, transit
charges, housing fund assessments, open space charges, assessments,
levies, fees or charges, general and special, ordinary and
extraordinary, unforeseen as well as foreseen, of any kind (including
fees "in lieu" of any such tax or assessment) which are assessed,
levied, charged, confirmed, or imposed by any public authority upon the
Project, its operations or the Rent (or any portion or component
thereof) (all of the foregoing being hereinafter collectively referred
to as "real property taxes"), or any tax imposed in substitution,
partially or totally, or any tax previously included within the
definition of real property taxes, or any additional tax the nature of
which was previously included within the definition of real property
taxes except (a) inheritance or estate taxes imposed upon or assessed
against the Project, or any part thereof or interest therein, and (b)
taxes computed upon the basis of net income of Landlord or the owner of
any interest therein, except as otherwise provided in the following
<PAGE>
sentence. Basic Operating Cost shall also include any taxes,
assessments, or any other fees imposed by any public authority upon or
measured by the monthly rental or other charges payable hereunder,
including, without limitation, any gross income tax or excise tax levied
by the local governmental authority in which the Project is located, the
federal government, or any other governmental body with respect to
receipt of such rental, or upon, with respect to or by reason of the
development, possession, leasing, operation, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises or any
portion thereof, or upon this transaction or any document to which
Tenant is a party creating or transferring an interest or an estate in
the Premises. In the event that it shall not be lawful for Tenant to
reimburse Landlord for all or any part of such taxes, the monthly rental
payable to Landlord under this Lease shall be revised to net to Landlord
the same net rental after imposition of any such taxes by Landlord as
would have been payable to Landlord prior to the payment of any such
taxes.
(2) Insurance. All insurance premiums and costs, including but
not limited to, any deductible amounts, premiums and cost of insurance
incurred by Landlord, as more fully set forth in Paragraph 8.A. herein.
(3) Repairs and Improvements. Repairs, replacements and general
maintenance for the Premises, Building and Project (except for those
repairs expressly made the financial responsibility of Landlord pursuant
to the terms of this Lease, repairs to the extent paid for by proceeds
of insurance or by Tenant or other third parties, and alterations
attributable solely to tenants of the Project other than Tenant). Such
repairs, replacements, and general maintenance shall include the cost of
any capital improvements made to or capital assets acquired for the
Project, Building, or Premises before or after the Term Commencement
Date that reduce any other Basic Operating Cost, are reasonably
necessary for the health and safety of the occupants of the Project, or
are made to the Project, Building or Premises by Landlord before or
after the date of this Lease and are required under any governmental
law, regulation, or requirements for project approval pursuant to a law
enacted after the date of this Lease, such costs or allocable portions
thereof to be amortized over such reasonable period as is consistent
with the useful life of the item in question in accordance with
generally accepted accounting principles, together with interest on the
unamortized balance at the "prime rate" charged at the time such
improvement or capital assets are constructed or acquired by Wells Fargo
Bank, N.A. (San Francisco), plus two (2) percentage points, but in no
event more than the maximum rate permitted by law.
(4) Services. All expenses relating to maintenance, janitorial
and service agreements and services, and costs of supplies and equipment
used in maintaining the Premises, Building and Project and the equipment
therein and the adjacent sidewalks, driveways, parking and service
areas, including, without limitation, alarm service, window cleaning,
elevator maintenance, Building exterior maintenance and landscaping.
(5) Utilities. Utilities which benefit all or a portion of the
Premises, Building or Project.
(6) Management Fee. A management and accounting cost recovery fee
equal to 3.25% of the sum of Base Rent and Basic Operating Cost.
<PAGE>
(7) Legal and accounting. Legal and accounting expenses relating
to the Project, including the cost of audits by certified public
accountants.
Notwithstanding the foregoing, Basic Operating Cost shall not
include the following:
(i) amounts for which Landlord is entitled to be reimbursed from
any source (including, but not limited to, warranties provided in
connection with the initial construction of the Building, insurance
proceeds, and tenants of the Building);
(ii) capital expenditures other than as expressly provided above;
(iii) Landlord's expenses in leasing space in the Building
including, without limitation, leasing commissions, tenant improvement
costs and legal fees related to leasing space in the Building;
(iv) promotional and advertising costs;
(v) costs incurred due to Landlord's violation of any lease;
(vi) interest, principal or any other charges related to mortgages
or other debt of Landlord;
(vii) any costs, fines or penalties incurred due to violation
by Landlord of any rule or regulation or legal requirement;
(viii) amounts paid by Landlord to its affiliates, or affiliates
of the management company, which exceed the amounts that would have been
paid for the services or goods in question to an independent third party
in an arm's length transaction;
(ix) Landlord's overhead and general administrative expenses;
(x) costs for items and services which Landlord provides
selectively to one or more tenants of the Building other than Tenant
(provided that repairs performed by Landlord relating to the premises
leased by a particular tenant may be included within Basic Operating
Cost if (i) the tenant in question is not required to reimburse Landlord
for the cost of the repair, and (ii) such repairs are otherwise in the
nature of common area charges and made for the benefit of all tenants of
the Building); and
(xi) tort claims not covered by insurance.
In no event shall Landlord be entitled to recover more than its
actual Basic Operating Cost in any year period. If any expense falls in
more than one category, it shall be counted only once.
Basic Operating Cost shall not include specific costs incurred for
the account of, separately billed to and paid by specific tenants.
B. Payment of Estimated Basic Operating Cost. "Estimated Basic
Operating Cost" for any particular year shall mean Landlord's estimate
of the Basic Operating Cost for such fiscal year made prior to
commencement of such fiscal year as hereinafter provided. Landlord
shall have the right from time to time to revise its fiscal year and
<PAGE>
interim accounting periods so long as the periods as so revised are
reconciled with prior periods in accordance with generally accepted
accounting principles applied in a consistent manner. During the last
month of each fiscal year during the Term, or as soon thereafter as
practicable, Landlord shall give Tenant written notice of the Estimated
Basic Operating Cost for the ensuing fiscal year. Tenant shall pay
Tenant's Proportionate Share of the Estimated Basic Operating Cost with
installment of Base Rent for the fiscal year to which the Estimated
Basic Operating Cost applies in monthly installments on the first day of
each calendar month during such year, in advance. If at any time during
the course of the fiscal year, Landlord determines that Basic Operating
Cost is projected to vary from the then Estimated Basic Operating Cost
by more than ten percent (10%), Landlord may, by written notice to
Tenant, revise the Estimated Basic Operating Cost for the balance of
such fiscal year, and Tenant's monthly installments for the remainder of
such year shall be adjusted so that by the end of such fiscal year
Tenant has paid to Landlord Tenant's Proportionate Share of the revised
Estimated Basic Operating Cost for such year.
C. Computation of Basic Operating Cost Adjustment. "Basic
Operating Cost Adjustment" shall mean the difference between Estimated
Basic Operating Cost and Basic Operating Cost for any fiscal year
determined as hereinafter provided. Within one hundred twenty (120)
days after the end of each fiscal year, as determined by Landlord, or as
soon thereafter as practicable, Landlord shall deliver to Tenant a
statement of Basic Operating Cost for the Fiscal year just ended,
accompanied by a computation of Basic Operating Cost Adjustment. If
such statement shows that Tenant's payment based upon Estimated Basic
Operating Cost is less than Tenant's Proportionate Share of Basic
Operating Cost, then Tenant shall pay to Landlord the difference within
twenty (20) days after receipt of such statement. If such statement
shows that Tenant's payment of Estimated Basic Operating Cost exceeds
Tenant's Proportionate Share of Basic Operating Cost, then (provided
that Tenant is not in default under this Lease) Landlord shall pay to
Tenant the difference within twenty (20) days after delivery of such
statement to Tenant. If this Lease has been terminated or the term
hereof has expired prior to the date of such statement, then the Basic
Operating Cost Adjustment shall be paid by the appropriate party within
twenty (20) days after the date of delivery of the statement. Should
this Lease commence or terminate at any time other than the first day of
the fiscal year, Tenant's Proportionate Share of the Basic Operating
Cost adjustment shall be prorated by reference to the exact number of
calendar days during such fiscal year that this Lease is in effect.
D. Net Lease. This shall be a net Lease and Base Rent shall be
paid to Landlord absolutely net of all costs and expenses, except as
specifically provided to the contrary in this Lease. The provisions for
payment of Basic Operating Cost and the Basic Operating Cost Adjustment
are intended to pass on to Tenant and reimburse Landlord for all costs
and expenses of the nature described in Paragraph 7.A. incurred in
connection with the ownership, maintenance and operation of the Building
or Project in accordance with the terms hereof.
E. Tenant Audit. In the event that Tenant shall dispute the
amount set forth in any statement provided by Landlord under Paragraph
7.B or 7.C. above, Tenant shall have the right, not later than twenty
(20) days following the receipt of such statement and upon the condition
that Tenant shall first deposit with Landlord the full amount in
<PAGE>
dispute, to cause Landlord's books and records with respect to Basic
Operating Cost for such fiscal year to be audited by certified public
accountants selected by Tenant and subject to Landlord's reasonable
right of approval. The Basic Operating Cost Adjustment shall be
appropriately adjusted on the basis of such audit. If such audit
discloses a liability for a refund in excess of five percent (5%) of
Tenant's Proportionate Share of the Basic Operating Cost Adjustment
previously reported, the cost of such audit shall be borne by Landlord:
otherwise the cost of such audit shall be paid by Tenant. If Tenant
shall not request an audit in accordance with the provisions of this
Paragraph 7.E. within twenty (20) days after receipt of Landlord's
statement provided pursuant to Paragraph 7.B. or 7.C., such statement
shall be final and binding for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. Landlord's Insurance. Landlord agrees to maintain insurance
insuring the Building against fire, lightning, vandalism and malicious
mischief (including, if Landlord elects, "All Risk" coverage,
earthquake, and/or flood insurance), in an amount not less than eighty
percent (80%) of the replacement cost thereof, with deductibles and the
form and endorsements of such coverage as selected by Landlord. Such
insurance may also include, at Landlord's option, insurance against loss
of Base Rent and Additional Rent, in an amount equal to the amount of
Base Rent and Additional Rent payable by Tenant for a period of at least
twelve (12) months commencing on the date of loss. Such insurance shall
be for the sole benefit of Landlord and under Landlord's sole control.
Landlord shall not be obligated to insure any furniture, equipment,
machinery, goods or supplies which Tenant may keep or maintain in the
Premises, or any leasehold improvements, additions or alterations within
the Premises. Landlord may also carry such other insurance as Landlord
may deem prudent or advisable, including, without limitation, liability
insurance in such amounts and on such terms as Landlord shall determine.
B. Tenant's Insurance.
(1) Property Insurance. Tenant shall procure at Tenant's sole
cost and expense and keep in effect from the date of this Lease and at
all times until the end of the Term, insurance on all personal property
and fixtures of Tenant and all improvements made by or for Tenant to the
Premises, insuring such property for the full replacement value of such
property.
(2) Liability Insurance. Tenant shall procure at Tenant's sole
cost and expense and keep in effect from the date of this Lease and at
all times until the end of the Term either Comprehensive, General
Liability insurance or Commercial General Liability insurance applying
to the use and occupancy of the Premises and the Building, and any part
of either, and any areas adjacent hereto, and the business operated by
Tenant, or by any other occupant on the Premises. Such insurance shall
include Broad Form Contractual Liability Insurance coverage insuring all
of Tenant's indemnity obligations under this Lease. Such coverage shall
have a general aggregate limit of Two Million Dollars ($2,000,000.00).
In addition, Tenant shall carry umbrella liability coverage of<PAGE>
$25,000,000.
All such policies shall be written to apply to all bodily injury, property
damage or loss, personal injury and other covered loss, however occasioned,
occurring during the policy term, shall be endorsed to add Landlord
and any party holding an interest to which this Lease
<PAGE>
may be subordinated as an additional insured, and shall provide that
such coverage shall be primary and that any insurance maintained by
Landlord shall be excess insurance only. Such coverage shall also
contain endorsements: (i) deleting any employee exclusion on personal
injury coverage, (ii) including employees as additional insured; (iii)
deleting any liquor liability exclusion; and (iv) providing for coverage
of employer's automobile non-ownership liability. All such insurance
shall provide for severability of interests; shall provide that an act
or omission of one of the named insured shall not reduce or avoid
coverage to the other named insured; and shall afford coverage for all
claims based on acts, omissions, injury and damage, which claims
occurred or arose (or the onset of which occurred or arose) in whole or
in part during the policy period. Said coverage shall be written on an
"occurrence" basis, if available. If an "occurrence" basis form is not
available, Tenant must purchase "tail" coverage for the most number of
years available, and Tenant must also purchase "tail" coverage if the
retroactive date of an "occurrence" basis form is changed so as to leave
a gap in coverage for occurrences that might have occurred in prior
years. If a "claims made" policy is ever used, the policy must be
endorsed so that Landlord is given the right to purchase "tail" coverage
should Tenant for any reason not do so or if the policy is to be
canceled for nonpayment of premium.
(3) General Insurance Requirements. All coverages described in
this Paragraph 8.B. shall be endorsed to provide Landlord with thirty
(30) days' notice of cancellation or change in terms. If at any time
during the Term the amount or coverage of insurance which Tenant is
required to carry under this Paragraph 8.B. is, in Landlord's reasonable
judgment, materially less than the amount or type of insurance coverage
typically carried by owners or tenants of properties located in the
general area in which the Premises are located which are similar to and
operated for similar purposes as the Premises, Landlord shall have the
right to require Tenant to increase the amount or change the types of
insurance coverage required under this Paragraph 8.B. All insurance
policies required to be carried under this Lease shall be written by
companies rated A + XII or better in "Best's Insurance Guide" and
authorized to do business in Nevada. Any insurance policy required to be
carried by Tenant hereunder may have a $10,000 deductible. Tenant shall
deliver to Landlord on or before the Term Commencement Date, and
thereafter at least thirty (30) days before the expiration dates of the
expiring policies, certified copies of Tenant's insurance policies, or a
certificate evidencing the same issued by the insurer thereunder,
showing that all premiums have been paid for the full policy period;
and, in the event Tenant shall fail to procure such insurance, or to
deliver such policies or certificates, Landlord may, at Landlord's
option and in addition to Landlord's other remedies in the event of a
default by Tenant hereunder, procure the same for the account of Tenant,
and the cost thereof shall be paid to Landlord as Additional Rent.
C. Indemnification. Landlord shall not be liable to Tenant for
any loss or damage to person or property caused by theft fire, acts of
God, acts of a public enemy, riot, strike, insurrection, war, court
order, requisition or order of governmental body or authority or for any
damage or inconvenience which may arise through repair or alteration of
any part of the Building or Project or failure to make any such repair,
except (i) to the extent attributable to Landlord's negligence, willful
misconduct or breach of its obligations under this Lease or (ii) as
<PAGE>
expressly otherwise provided in Paragraph 10. Tenant shall indemnify,
defend by counsel acceptable to Landlord, protect and hold Landlord
harmless from and against any and all liabilities, losses, costs,
damages, injuries or expenses, including reasonable attorneys' fees and
court costs, arising out of or related to: (1) claims of injury to or
death of persons or damage to property occurring or resulting directly
or indirectly from the use or occupancy of the Premises by Tenant, or
from activities of Tenant, Tenant's Parties or anyone in or about the
Premises or Project, (2) claims for work or labor performed, or for
materials or supplies furnished to or at the request of Tenant in
connection with performance of any work done for the account of Tenant
within the Premises or Project, and (3) claims arising from any breach
or default on the part of Tenant in the performance of any covenant
contained in this Lease. The foregoing indemnity shall not be
applicable to claims arising from the negligence or willful misconduct
of Landlord or from Landlord's breach of its obligations under this
Lease. The provisions of this Paragraph shall survive the expiration or
termination of this Lease with respect to any claims or liability
occurring prior to such expiration or termination.
9. WAIVER OF SUBROGATION
To the extent permitted by law, Landlord and Tenant each waive any
right to recover against the other for (a) damages to property: (b)
damages to the Premises or any part thereof; and (c) claims arising by
reason of the foregoing due to hazards covered by insurance. This
provision is intended to waive fully, and for the benefit of each party,
any rights and/or claims which might give rise to a right of subrogation
in favor of any insurance carrier. The coverage obtained by each party
pursuant to this Lease shall include, without limitation, a waiver of
subrogation by the carrier which conforms to the provisions of the
paragraph. This Paragraph 9 overrides any other provision in this Lease
to the contrary.
10. LANDLORD'S REPAIRS AND SERVICES
Landlord shall at Landlord's expense maintain the structural
soundness of the structural beams of the roof, foundations and exterior
walls of the Building, as well as all other structural components of the
Building, in good repair, reasonable wear and tear excepted. The term
"exterior walls" as used herein shall not include windows, glass or
plate glass, doors, special store fronts or office entries. Landlord
shall perform on behalf of Tenant and other tenants of the Project, as
an item of Basic Operating Cost, the maintenance of the Building,
Project, and public and common areas of the Project, including but not
limited to the roof, pest extermination, the landscaped areas, parking
areas, driveways, the truck staging areas, rail spur areas, fire
sprinkler systems, sanitary and storm sewer lines, utility services,
electric and telephone equipment servicing the Building(s), exterior
lighting, hot water, heating and air conditioning systems and anything
which affects the operation and exterior appearance of the Project,
which determination shall be at Landlord's reasonable discretion.
Except for the expenses directly involving the items specifically
described in the first sentence of this Paragraph 10, Tenant shall
reimburse Landlord for all such costs in accordance with Paragraph 7.
Any damage caused by or repairs necessitated by any act of Tenant may be
repaired by Landlord at Landlord's option and at Tenants expense.
Tenant shall immediately give Landlord written notice of any defect or
<PAGE>
need of repairs after which Landlord shall have a reasonable opportunity
to repair same. Landlord's liability with respect to any defects,
repairs, or maintenance for which Landlord is responsible under any of
the provisions of this Lease shall be limited to the cost of such
repairs or maintenance. All repair and maintenance by Landlord shall be
done by Landlord in a manner consistent with other first-class
industrial properties in the Sparks, Nevada area.
11. TENANT'S REPAIRS
Tenant shall at Tenant's expense maintain all parts of the Premises
in a good, clean and secure condition and promptly make all necessary
repairs and replacements, including but not limited to all windows,
glass, doors, walls and wall finishes, floor covering, heating,
ventilation and air conditioning systems, truck doors, dock bumpers,
dock plates and levers, plumbing work and fixtures, downspouts,
electrical and lighting systems, and fire sprinklers; provided, however,
Tenant shall have no obligation to make any such repairs, maintenance or
replacements which are otherwise Landlord's obligations hereunder; and
provided, further that Tenant shall have no obligation to make any such
repairs, maintenance or replacements as are necessitated due to
construction or material defects in the initial construction of the
Improvements which repairs, maintenance and replacements shall be made
by Landlord at its sole cost and expense . Tenant shall at Tenant's
expense also perform regular removal of trash and debris. If required
by the railroad company, Tenant agrees to sign a joint maintenance
agreement governing the use of the rail spur, if any. Tenant shall, in
the event Landlord does not, as provided for in Paragraph 10 above, at
Tenant's own expense, enter into a regularly scheduled preventive
maintenance/service contract with a maintenance contractor for servicing
all hot water, heating and air conditioning systems and equipment within
or serving the Premises. The maintenance contractor and the contract
must be approved by Landlord (which approval shall not be unreasonably
withheld or delayed). The service contract must include all services
suggested by the equipment manufacturer within the operation/maintenance
manual and must become effective and a copy thereof delivered to
Landlord within thirty (30) days after the Term Commencement Date.
Tenant shall not damage any demising wall or disturb the integrity and
support provided by any demising wall and shall, at its sole expense,
immediately repair any damage to any demising wall caused by Tenant or
Tenant's Parties.
12. ALTERATIONS
Tenant shall not make, or allow to be made, any alterations or
physical additions in, about or to the Premises without obtaining the
prior written consent of Landlord, which consent shall not be
unreasonably withheld with respect to proposed alterations and additions
which: (a) comply with all applicable laws, ordinances, rules and
regulations; (b) are in Landlord's opinion compatible with the Project
and its mechanical, plumbing, electrical, heating/ventilation/air
conditioning systems; and (c) will not interfere with the use and
occupancy of any other portion of the Building or Project by any other
tenant or its invitees. Specifically, but without limiting the
generality of the foregoing, Landlord shall have the right of written
consent for all plans and specifications for the proposed alterations or
additions, construction means and methods, all appropriate permits and
licenses, any contractor or subcontractor to be employed on the work of
<PAGE>
alteration or additions, and the time for performance of such work.
Tenant shall also supply to Landlord any documents and information
reasonably requested by Landlord in connection with Landlord's
consideration of a request for approval hereunder. Tenant shall
reimburse Landlord for all costs which Landlord may incur in connection
with granting approval hereunder. Tenant shall reimburse Landlord for
all costs which Landlord may incur in connection with granting approval
to Tenant for any such alterations and additions, including any costs or
expenses which Landlord may incur in electing to have outside architects
and engineers review said plans and specifications. All such
alterations, physical additions or improvements shall remain the
property of Tenant until termination of this Lease, at which time they
shall be and become the property of Landlord if Landlord so elects;
provided, however, that Landlord may, at Landlord's option, require that
Tenant, at Tenant's expense, remove any or all alterations, additions,
improvements and partitions made by Tenant and restore the Premises by
the termination of this Lease, whether by lapse of time, or otherwise,
to their condition existing prior to the construction of any such
alterations, additions, partitions or leasehold improvements; provided,
however, Tenant shall, in no event, be required to remove any of the
Improvements initially constructed by Landlord pursuant to the terms
hereof. All such removals and restoration shall be accomplished in a
good and workmanlike manner so as not to cause any damage to the
Premises or Project whatsoever. If Tenant fails to so remove such
alterations, additions, improvements and partitions or Tenant's trade
fixtures or furniture Landlord may keep and use them or remove any of
them and cause them to be stored or sold in accordance with applicable
law, at Tenant's sole expense. In addition to and wholly apart from
Tenant's obligation to pay Tenant's Proportionate Share of Basic
Operating Cost, Tenant shall be responsible for and shall pay prior to
delinquency any taxes or governmental service fees, possessory interest
taxes, fees or charges in lieu of any such taxes, capital levies, or
other charges imposed upon, levied with respect to or assessed against
its personal property, on the value of the alterations, additions or
improvements within the Premises, and on Tenant's interest pursuant to
this Lease. To the extent that any such taxes are not separately
assessed or billed to Tenant, Tenant shall pay the amount thereof as
invoiced to Tenant by Landlord. Notwithstanding anything to the
contrary contained herein, Tenant may, without Landlord's consent, make
alterations and additions to the Premises which are nonstructural in
character and the aggregate cost of which does not exceed $10,000 per
project. Tenant agrees to give Landlord written notice of such
alterations promptly following the completion thereof.
13. SIGNS
All signs, notices and graphics of every kind or character, visible
in or from public view or corridors, the common areas or the exterior of
the Premises, shall be subject to Landlord's prior written approval
(which approval shall not be unreasonably withheld). Tenant shall not
place or maintain any banners whatsoever or any window decor in or on
any exterior window or window fronting upon any common areas or service
area or upon any truck doors or man doors without Landlord's prior
written approval. Any installation of signs or graphics on or about the
Premises and Project shall be subject to any applicable governmental
laws, ordinances, regulations and to any other requirements reasonably
imposed by Landlord. Tenant shall remove all such signs and graphics
prior to the termination of this Lease. Such installations and removals
<PAGE>
shall be made in such manner as to avoid injury or defacement of the
Premises, Building or Project and any other improvements contained
therein, and Tenant shall repair any injury or defacement, including
without limitation, discoloration caused by such installation or
removal.
14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice
shall be required, Landlord, and Landlord's agents and representatives,
shall have the right to enter the Premises to inspect the same, to
clean, to perform such work as may be permitted or required hereunder,
to make repairs or alterations to the Premises or Project or to other
tenant spaces therein, to deal with emergencies, to post such notices as
may be permitted or required by law to prevent the perfection of liens
against Landlord's interest in the Project or to exhibit the Premises to
prospective tenants (provided that exhibiting the Premises to
prospective tenants shall be limited to the final 180 days of the Lease
Term), purchasers, encumbrances or others, or for any other purpose as
Landlord may deem necessary or desirable; provided, however, that
Landlord shall use reasonable efforts not to unreasonably interfere with
Tenant's business operations. Tenant shall not be entitled to any
abatement of Rent by reason of the exercise of any such right of entry.
At any time within six (6) months prior to the end of Term, Landlord
shall have the right to erect on the Premises and/or Project a suitable
sign indicating that the Premises are available for lease.
15. UTILITIES<PAGE>
Tenant shall pay directly for all water, gas, heat, air
conditioning, light, power, telephone, sewer, sprinkler charges and
other utilities and services used on or from the Premises, together with
any taxes, penalties, surcharges or the like pertaining thereto, and
maintenance charges for utilities and shall furnish all electric light
bulbs, ballasts and tubes. If any such services are not separately
metered to Tenant, Tenant shall pay a reasonable proportion, as
reasonably determined by Landlord, of all charges jointly serving other
premises. Landlord shall not be liable for any damages directly or
indirectly resulting from nor shall the Rent or any monies owed Landlord
under this Lease herein reserved be abated by reason of: (a) the
installation, use or interruption of use of any equipment used in
connection with the furnishing of any such utilities or services; (b)
the failure to furnish or delay in furnishing any such utilities or
services when such failure or delay is caused by acts of God or the
elements, labor disturbances of any character, or any other accidents or
other conditions beyond the reasonable control of Landlord; or (c) the
limitation, curtailment, rationing or restriction on use of water,
electricity, gas or any other form of energy or any other service or
utility whatsoever serving the Premises or Project. Notwithstanding the
foregoing, in the event of any interruption in the furnishing of any
such utilities or services, Landlord shall use its best efforts to
restore such utilities and services as soon as possible.
Notwithstanding anything to the contrary contained herein, if any such
interruption in the utilities or services is due to Landlord's
negligence or intentional act or omission, and the Premises are rendered
untenantable as a result of such interruption, Tenant shall be entitled
to an abatement of all rent from the time such interruption commenced
until all services and utilities are fully restored. Landlord shall be
entitled to cooperate voluntarily and in a reasonable manner with the
efforts of national, state or local governmental agencies or utility
suppliers in reducing energy or other resource consumption. The
obligation to make services available hereunder shall be subject to the
limitations of any such voluntary, reasonable program.
<PAGE>
16. SUBORDINATION
This Lease shall be subject and subordinate at all times to: (a)
all ground leases or underlying leases which may now exist or hereafter
be executed affecting the Premises and/or the land upon which the
Premises and Project are situated, or both; and (b) any mortgage or deed
of trust which may now exist or be placed upon said Project, land,
ground leases or underlying leases, or Landlord's interest or estate in
any of said items which is specified as security; provided, however, the
subordination of this Lease to any such ground lease, mortgage or deed
of trust hereafter existing is expressly conditioned upon Tenant and the
ground lessor or mortgagee in question entering into a subordination,
non-disturbance and attornment agreement in form and substance
reasonably acceptable to Tenant ("SNDA"). Landlord represents and
warrants that there are no mortgages, deeds of trusts or ground leases
that affect the Building as of the date hereof. Notwithstanding the
foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such
liens to this Lease. In the event that any ground lease or underlying
lease terminates for any reason or any mortgage or deed of trust is
foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any subordination, attorn to and
become the Tenant of the successor in interest to Landlord in accordance
with the terms of the applicable SNDA. Within ten (10) days after
request by Landlord, Tenant shall execute and deliver any additional
documents evidencing Tenant's attornment or the subordination of this
Lease, in accordance with the terms hereof, with respect to any such
ground leases or underlying leases or any such mortgage or deed of
trust, in the form reasonably requested by Landlord or by a ground
landlord, mortgagee, or beneficiary under a deed of trust.
17. FINANCIAL STATEMENTS
At the request of Landlord, Tenant shall provide to Landlord the
current publicly available financial statement of Tenant's parent
entity, Sport Supply Group, Inc., which Landlord shall use solely for
purposes of this Lease and in connection with the ownership, management
and disposition of the Project.
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) days after request
of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, the
date to which Rent has been paid, the unexpired portion of this Lease,
and such other matters pertaining to this Lease as may be reasonably
requested by Landlord. Failure by Tenant to execute and deliver such
certificate shall constitute an acceptance of the Premises and
acknowledgment by Tenant that the statements included are true and
correct without exception. Landlord and Tenant intend that any
statement delivered pursuant to this Paragraph may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser of the
Project or any interest therein. The parties agree that Tenant's
obligation to furnish certificates in a timely fashion is a material
inducement for Landlord's execution of the Lease. Tenant shall be
entitled to make such qualifications to the statements contained in such
estoppel certificate as are necessary to make them factually accurate.
<PAGE>
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of the Lease,
a Security Deposit as stated in the Basic Lease Information, which sum
shall be held by Landlord, without obligation for interest, as security
for the performance of Tenant's covenants and obligations under this
Lease. The Security Deposit is not an advance rental deposit or a
measure of damages incurred by Landlord in case of Tenant's default.
Upon the occurrence of any event of default by Tenant, Landlord may,
from time to time, without prejudice to any other remedy provided herein
or provided by law, use such fund to the extent necessary to make good
any arrears of Rent or other payments due to Landlord hereunder, and any
other damage, injury, expense or liability caused by such event of
default, and Tenant shall pay to Landlord, on demand, the amount so
applied in order to restore the Security Deposit to its original amount.
Although the Security Deposit shall be deemed the property of Landlord,
any remaining balance of such deposit shall be returned by Landlord to
Tenant at such time after termination of this Lease that all of Tenant's
obligations under this Lease have been fulfilled. Landlord may use and
commingle the Security Deposit with other funds of Landlord.
20. TENANT'S REMEDIES
The liability of Landlord to Tenant for any default by Landlord
under the terms of this Lease are not personal obligations of the
individual or other partners, directors, officers and shareholders of
Landlord, and Tenant agrees to look solely to Landlord's interest in the
Project for the recovery of any amount from Landlord, and shall not look
to other assets of Landlord nor seek recourse against the assets of the
individual or other partners, directors, officers, and shareholders of
Landlord. Any lien obtained to enforce any such judgment and any levy
of execution thereon shall be subject and subordinate to any lien,
mortgage or deed of trust on the Project. The foregoing shall not be a
limitation on Tenant's right to exercise any equitable remedies to which
it is entitled or other remedies expressly granted to Tenant under this
Lease. It is agreed that if Landlord fails to perform any of its
obligations hereunder and such failure continues beyond the time
reasonably necessary to cure same following written notice from Tenant
to Landlord, Tenant may take such actions as are necessary to cure such
failure. Landlord agrees to reimburse Tenant upon demand for all sums
expended by Tenant in curing Landlord's failure, together with interest
thereon at the maximum non-usurious rate permitted by applicable law;
provided, however, if Landlord fails to reimburse Tenant for such
amounts, Tenant may offset same against rent due under the Lease.
21. ASSIGNMENT AND SUBLETTING
A. General. Tenant shall not assign or sublet the Premises or
any part thereof without Landlord's prior written approval except as
provided herein. Landlord agrees not to unreasonably withhold or delay
its consent to any proposed assignment or subletting. Notwithstanding
the foregoing, Tenant may, without Landlord's consent (i) assign this
Lease or sublease the Premises to any person or entity that controls, is
controlled by, or is under common control with, Tenant, and (ii) assign
this Lease in connection with the sale of substantially all of the
assets of Tenant as an entirety. In addition, the merger, consolidation
or other change in the ownership or control of the Tenant shall not
constitute an assignment or subletting or require Landlord's consent;
<PAGE>
provided that in case of a merger, the net worth of the surviving entity
immediately following the transaction is equal to or greater than the
net worth of Tenant immediately prior to the transaction. The
transactions described in the immediately preceding two sentences are
hereinafter collectively referred to as the "Permitted Transactions".
If Tenant desires to assign this Lease or sublet any or all of the
Premises (other than in connection with a Permitted Transaction), Tenant
shall give Landlord written notice ten (10) days prior to the
anticipated effective date of the assignment or sublease. Landlord
shall then have a period of five (5) days following receipt of such
notice to notify Tenant in writing that Landlord elects either: (1) to
terminate this Lease as to the space so affected as of the date so
requested by Tenant; or (2) to permit Tenant to assign this Lease or
sublet such space, subject, however, to Landlord's prior written
approval of the proposed assignee or subtenant and any related documents
or agreements associated with the assignment or sublease. If Landlord
should fail to notify Tenant in writing of such election within said
period, Landlord shall be deemed to have waived option (1) above, but
written approval by Landlord of the proposed assignee or subtenant shall
be required. If Landlord does not exercise the option provided in
subitem (1) above, Landlord's consent to a proposed assignment or sublet
shall not be unreasonably withheld. Without limiting the other
instances in which it may be reasonable for Landlord to withhold
Landlord's consent to an assignment or subletting, Landlord and Tenant
acknowledge that it shall be reasonable for Landlord to withhold
Landlord's consent in the following instances: The use of the Premises
by such proposed assignee or subtenant would not be a permitted use or
would increase the Parking Density of the Project; the proposed assignee
or subtenant is a governmental agency; the proposed assignee or
subtenant is a person with whom Landlord is negotiating to lease space
in the Project; the assignment or subletting would entail any
alterations which would lessen the value of the leasehold improvements
in the Premises; or if Tenant is in default of any obligation of Tenant
under this Lease, or Tenant has defaulted under this Lease on three (3)
or more occasions during any twelve (12) months preceding the date that
Tenant shall request consent. Failure by Landlord to approve a proposed
assignee or subtenant shall not cause a termination of this Lease. Upon
a termination under this Paragraph 21.A., Landlord may lease the
Premises to any party, including parties with whom Tenant has negotiated
an assignment or sublease, without incurring any liability to Tenant.
B. Bonus Rent. Any Rent or other consideration realized by
Tenant under any such sublease or assignment in excess of the Rent
payable hereunder, after amortization of a reasonable brokerage
commission, shall be divided and paid, ten percent (10%) to Tenant,
ninety percent (90%) to Landlord. This Paragraph 21(B) shall not be
applicable to any Permitted Transaction.<PAGE>
C. Liability. No assignment or subletting by Tenant shall
relieve Tenant of any obligation under this Lease. Any assignment or
subletting which conflicts with the provisions hereof shall be void.
22. AUTHORITY OF PARTIES
Landlord represents and warrants that it has full right and
authority to enter into the Lease and to perform all of Landlord's
obligations hereunder. Tenant represents and warrants that it has full
right and authority to enter into this Lease and to perform all of
Tenant's obligations hereunder.
<PAGE>
23. CONDEMNATION
A. Condemnation Resulting in Termination. If the whole or any
substantial part of the Project of which the Premises are a part should
be taken or condemned for any public use under governmental law,
ordinance or regulation, or by right of eminent domain, or by private
purchase in lieu thereof, and the taking would prevent or materially
interfere with the Permitted Use of the Premises, this Lease shall
terminate and the Rent shall be abated during the unexpired portion of
this Lease, effective when the physical taking of said Premises shall
have occurred.
B. Condemnation Not Resulting in Termination. If a portion of
the Project of which the Premises are a part should be taken or
condemned for any public use under any governmental law, ordinance, or
regulation, or by right of eminent domain, or by private purchase in
lieu thereof, and this Lease is not terminated as provided in Paragraph
23.A. above, this Lease shall not terminate, but the Rent payable
hereunder during the unexpired portion of the Lease shall be reduced,
beginning on the date when the physical taking shall have occurred, to
such amount as may be fair and reasonable under all of the
circumstances.
C. Award. Landlord shall be entitled to any and all payment,
income, rent, award, or any interest therein whatsoever which may be
paid or made in connection with such taking or conveyance and Tenant
shall have no claim against Landlord or otherwise for the value of any
unexpired portion of this Lease. Notwithstanding the foregoing, any
compensation specifically awarded Tenant for loss of business, Tenant's
personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.
24. CASUALTY DAMAGE
A. General. If the Premises or Building should be damaged or
destroyed by fire, tornado or other casualty, Tenant shall give
immediate written notice thereof to Landlord. Within thirty (30) days
after Landlord's receipt of such notice, Landlord shall notify Tenant
whether in Landlord's opinion such repairs can reasonably be made
either: (1) within ninety (90) days; (2) in more than ninety (90) days
but in less than one hundred eighty (180) days; or (3) in more than one
hundred eighty (180) days from the date of such notice. Landlord's
reasonable determination shall be binding on Tenant.
B. Less than 90 Days. If the Premises or Building should be
damaged by fire, tornado or other casualty but only to such extent that
rebuilding or repairs can in Landlord's estimation be reasonably
completed within ninety (90) days after the date of such damage, this
Lease shall not terminate, and provided that insurance proceeds are
available to fully repair the damage, Landlord shall proceed to rebuild
and repair the Premises in the manner determined by Landlord, except
that Landlord shall not be required to rebuild, repair or replace any
part of the partitions, fixtures, additions and other leasehold
improvements (other than the Improvements constructed by Landlord
pursuant to the terms of this Lease) which may have been placed in on or
about the Premises. If the Premises are untenantable in whole or in
part following such damage, the Rent payable hereunder during the period
in which they are untenantable shall be abated proportionately, but only
to the extent the Premises are unfit for occupancy.
<PAGE>
C. Greater Than 90 Days. If the Premises or Building should be
damaged by fire, tornado or other casualty but only to such extent that
rebuilding or repairs can in Landlord's estimation be reasonably
completed in more than ninety (90) days but in less than one hundred
eighty (180) days, then Landlord shall have the option of either: (1)
terminating the Lease effective upon the date of the occurrence of such
damage, in which event the Rent shall be abated during the unexpired
portion of the Lease; or (2) electing to rebuild or repair the Premises
to substantially the condition in which they existed prior to such
damage, provided that insurance proceeds are available to fully repair
the damage, except that Landlord shall not be required to rebuild,
repair or replace any part of the partitions, fixtures, additions and
other improvements (other than the Improvements constructed by Landlord
pursuant to the terms of this Lease) which may have been placed in, on
or about the Premises. If the Premises are untenantable in whole or in
part following such damage, the Rent payable hereunder during the period
in which they are untenantable shall be abated proportionately, but only
to the extent the Premises are unfit for occupancy. Notwithstanding
anything to the contrary contained herein, in the event that Landlord
should fail to complete any repairs and rebuilding under Section 24(B)
or this Section 24(C) within one hundred eighty (180) days after the
date upon which Landlord is notified by Tenant of such damage, such
period of time to be extended for delays caused by the fault or neglect
of Tenant or because of acts of God, acts of public agencies, labor
disputes, strikes, fires, freight embargoes, rainy or stormy weather,
inability to obtain materials, supplies or fuels, or delays of the
contractors or subcontractors or any other causes or contingencies
beyond the reasonable control of Landlord (but shall not be extended due
to inavailability of insurance proceeds), Tenant may at Tenant's option
within ten (10) days after the expiration of such one hundred eighty
(180) day period (as such may be extended), terminate this Lease by
delivering written notice of termination to Landlord as Tenant's
exclusive remedy, whereupon all rights hereunder shall cease and
terminate thirty (30) days after Landlord's receipt of such termination
notice.
D. Greater Than 180 days. If the Premises or Building should be
so damaged by fire, tornado or other casualty that rebuilding or repairs
cannot in Landlord's estimation be completed within one hundred eighty
(180) days after such damage, this Lease shall terminate and the Rent
shall be abated during the unexpired portion of this Lease, effective
upon the date of the occurrence of such damage.
E. Uninsured Casualty. Notwithstanding anything herein to the
contrary, in the event that the Premises or Building are damaged or
destroyed and are not fully covered by the insurance proceeds received
by Landlord or in the event that the holder of any indebtedness secured
by a mortgage or deed of trust covering the Premises requires that the
insurance proceeds be applied to such indebtedness, then in either case
Landlord shall have the right to terminate this Lease by delivering
written notice of termination to Tenant within thirty (30) days after
the date of notice to Landlord that said damage or destruction is not
fully covered by insurance or such requirement is made by any such
holder, as the case may be, whereupon all rights and obligations
hereunder shall cease and terminate; provided, however, if Landlord does
not so wish to terminate this Lease, Landlord shall rebuild the Building
and the Premises to their condition existing immediately prior to the
occurrence of the casualty in question within a reasonable time and rent
shall be abated proportionately to the extent that the Premises are
unfit for occupancy.
<PAGE>
F. If the fire or other casualty is caused by the negligence of
Tenant, Tenant shall not be entitled to the rent abatement to which
Tenant is otherwise entitled under this Section 24 from and after the
date on which Landlord's rental interruption insurance stops paying
Landlord for the loss of rental arising out of such fire or other
casualty.
25. HOLDING OVER
If Tenant shall retain possession of the Premises or any portion
thereof without Landlord's consent following the expiration of the Lease
or sooner termination for any reason, then Tenant shall pay to Landlord
for each day of such retention 150% of the amount of the daily Base Rent
as of the last month prior to the date of expiration or termination.
Tenant shall also indemnify, defend, protect and hold Landlord harmless
from any loss, liability or cost, including reasonable attorneys' fees,
resulting from delay by Tenant in surrendering the Premises, including,
without limitation, any claims made by any succeeding tenant founded on
such delay. Acceptance of Rent by Landlord following expiration or
termination shall not constitute a renewal of this Lease, and nothing
contained in this Paragraph 25 shall waive Landlord's right of reentry
or any other right. Unless Landlord consents in writing to Tenant's
holding over, Tenant shall be only a Tenant at sufferance, whether or
not Landlord accepts any Rent from Tenant while Tenant is holding over
without Landlord's written consent. Additionally, in the event that
upon termination of the Lease, Tenant has not fulfilled its obligation
with respect to repairs and cleanup of the Premises or any other Tenant
obligations as set forth in this Lease, then Landlord shall have the
right to perform any such obligations as it deems necessary at Tenant's
sole cost and expense, and any time required by Landlord to complete
such obligations shall be considered a period of holding over and the
terms of this Paragraph 25 shall apply.
26. DEFAULT
A. Events of Default. The occurrence of any of the following
shall constitute an event of default on the part of Tenant:
(1) Nonpayment of Rent. Failure to pay any installment of Rent or
any other amount due and payable hereunder upon the date when said
payment is due and the continuation of such failure for a period of ten
(10) days after written notice from Landlord to Tenant.
(2) Other Obligations. Failure to perform any obligation,
agreement or covenant under this Lease other than those matters
specified in subparagraph (1) of this Paragraph 26.A., such failure
continuing for thirty (30) days after written notice of such failure;
provided, however, that if such failure cannot be cured through the
exercise of reasonable diligence within such 30-day period, Tenant shall
have such additional time as is reasonably necessary to cure such
failure so long as Tenant commences its curative efforts within such 30-
day period and diligently prosecutes same to completion.
(3) General Assignment. A general assignment by Tenant for the
benefit of creditors.
(4) Bankruptcy. The filing of any voluntary petition in
<PAGE>
bankruptcy by Tenant, or the filling of an involuntary petition by
Tenant's creditors, which involuntary petition remains undischarged for
a period of 45 days. In the event that under applicable law the trustee
in bankruptcy or Tenant has the right to affirm this Lease and continue
to perform the obligations of Tenant hereunder, such trustee or Tenant
shall, in such time period as may be permitted by the bankruptcy court
having jurisdiction, cure all defaults of Tenant hereunder outstanding
as of the date of the affirmance of this Lease and provide to Landlord
such adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligations under this Lease.
(5) Receivership. The employment of a receiver to take possession
of substantially all of Tenant's assets or the Premises, if such
appointment remains undismissed or undischarged for a period of 45 days
after the order therefore.
(6) Attachment. The attachment, execution or other judicial
seizure of all or substantially all of Tenant's assets or the Premises,
if such attachment or other seizure remains undismissed or undischarged
for a period of 45 days after the levy thereof.
B. Remedies Upon Default.
(1) Termination. In the event of the occurrence of any event of
default, Landlord shall have the right to give a written termination
notice to Tenant, and on the date specified in such notice, Tenant's
right to possession shall terminate, and this Lease shall terminate
unless on or before such date all arrears of rental and all other sums
payable by Tenant under this Lease and all costs and expense incurred by
or on behalf of Landlord hereunder shall have been paid by Tenant and
all other events of default of this Lease by Tenant at the time existing
shall have been fully remedied to the satisfaction of Landlord. At any
time after such termination, Landlord may recover possession of the
Premises or any part thereof and expel and remove therefrom Tenant and
any other person occupying the same, by any lawful means, and again
repossess and enjoy the Premises without prejudice to any of the
remedies that Landlord may have under this Lease, or at law or equity by
reason of Tenant's default or of such termination.
(2) Continuation After Default. Even though an event of default
may have occurred this Lease shall continue in effect for so long as
Landlord does not terminate Tenant's right to possession under Paragraph
26.B. (1) hereof, and Landlord may enforce all of Landlord's rights and
remedies under this Lease, including without limitation, the right to
recover Rent as it becomes due, and Landlord, without terminating this
Lease, may exercise all of the rights and remedies of a landlord. Acts
of maintenance, preservation or efforts to lease the Premises or the
appointment of a receiver upon application of Landlord to protect
Landlord's interest under this Lease shall not constitute an election to
terminate Tenant's right to possession.
C. Damages After Default. Should Landlord terminate this Lease
pursuant to the provisions of Paragraph 26.B. (1) hereof, Landlord shall
have the rights and remedies of a Landlord. Upon such termination, in
addition to any other rights and remedies to which Landlord may be
entitled under applicable law, Landlord shall be entitled to recover
from Tenant: (1) the worth at the time of award of the unpaid Rent and
other amounts which had been earned at the time of termination, (2) the
<PAGE>
worth at the time of award of the amount by which the unpaid Rent which
would have been earned after termination until the time of award exceeds
the amount of such Rent loss the Tenant proves could have been
reasonably avoided; (3) the worth at the time of award of the amount by
which the unpaid Rent for the balance of the Term after the time of
award exceeds the amount of such Rent loss that the Tenant proves could
be reasonably avoided; and (4) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform Tenant's obligations under this Lease or which, in the ordinary
course of things, would be likely to result therefrom. The "worth at
the time of award" of the amounts referred to in (1) and (2), above
shall be computed at the lesser of the "prime rate" as announced from
time to time by Wells Fargo Bank, N.A. (San Francisco), plus five (5)
percentage or the maximum interest rate allowed by law ("Applicable
Interest Rate"). The "worth at the time of award" of the amount
referred to in (3) above shall be computed by discounting such amount at
the Federal Discount Rate of the Federal Reserve Bank of San Francisco
at the time of the award. If this Lease provides for any periods during
the Term during which Tenant is not required to pay Base Rent or if
Tenant otherwise receives a Rent concession, then upon the occurrence of
an event of default, Tenant shall owe to Landlord the full amount of
such Base Rent or value of such Rent concession, plus interest at the
Applicable Interest Rate, calculated from the date that such Base Rent
or Rent concession would have been payable. Upon the occurrence of any
event of default hereunder, Landlord shall use its reasonable efforts to
mitigate its damages arising out of such event of default.
D. Late Charge. If any installment of Rent is not paid promptly
when due, such amount shall bear interest at the Applicable Interest
Rate from the date on which said payment shall be due until the date on
which Landlord shall receive said payment. In addition, Tenant shall
pay Landlord a late charge equal to five percent (5%) of the delinquency
of any Base Rent that is not paid within ten (10) days after its due
date, to compensate Landlord for the loss of the use of the amount not
paid and the administrative cost caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such delinquencies would be
difficult to compute and the amount stated herein represent a reasonable
estimate thereof. This provision shall not relieve Tenant of Tenant's
obligation to pay Rent at the time and in the manner herein specified.
E. Remedies Cumulative. All rights, privileges and elections or
remedies of the patties are cumulative and not alternative, to the
extent permitted by law and except as otherwise provided herein.
27. LIENS
Tenant shall keep the Premises free from Liens arising out of or
related to work performed, materials or supplies furnished or
obligations incurred by Tenant or in connection with work made, suffered
or done by or on behalf of Tenant in or on the Premises or Project. In
the event that Tenant shall not, within ten (10) days following the
imposition of any such lien, cause the same to be released of record by
payment or posting of a proper bond, Landlord shall have, in addition to
all other remedies provided herein and by law, the right, but not the
obligation, to cause the same to be released by such means as Landlord
shall deem proper, including payment of the claim giving rise to such
lien. All sums paid by Landlord on behalf of Tenant and all expenses
incurred by Landlord in connection therefore shall be payable to
<PAGE>
Landlord by Tenant on demand with interest at the Applicable Interest
Rate. Landlord shall have the right at all times to post and keep
posted on the Premises any notices permitted or required by law, or
which Landlord shall deem proper, for the protection of Landlord, the
Premises, the Project and any other party having an interest therein,
from mechanics' and material men's liens, and Tenant shall give Landlord
not less than ten (10) business days prior written notice of the
commencement of any work in the Premises or Project which could lawfully
give rise to a claim for mechanics' or material men's liens.
28. [INTENTIONALLY OMITTED]
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or
a foreclosure by any creditor of Landlord, the same shall operate to
release Landlord from any liability upon any of the covenants or
conditions, express or implied, herein contained in favor of Tenant, to
the extent required to be performed after the passing of title to
Landlord's successor-in-interest. In such event, Tenant agrees to look
solely to the responsibility of the successor-in-interest of Landlord
under this Lease with respect to the performance of the covenants and
duties of "Landlord" to be performed after the passing of title to
Landlord's successor-in-interest. This Lease shall not be affected by
any such sale and Tenant agrees to attorn to the purchaser or assignee.
Landlord's successor(s)-in-interest shall not have liability to Tenant
with respect to the failure to perform all of the obligations of
"Landlord" to the extent required to be performed prior to the date such
successor(s)-in-interest became the owner of the Building.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of
the terms of this Lease shall be performed by Tenant at Tenant's sole
cost and expense and without any abatement of Rent except as otherwise
expressly provided herein. If Tenant shall fail to pay any sum of
money, other than Base Rent and Basic Operating Cost, required to be
paid by Tenant hereunder or shall fail to perform any other act on
Tenant's part to be performed hereunder, and such failure shall continue
for thirty (30) days after notice thereof by Landlord (provided,
however, that if any such failure cannot be cured through the exercise
of reasonable diligence within thirty (30) days, Tenant shall be
entitled to such additional time as is reasonably necessary to cure such
failure so long as Tenant commences its curative efforts within such
thirty (30) day period and diligently prosecutes same to completion),
Landlord may, but shall not be obligated to do so, and without waiving
or releasing Tenant from any obligation of Tenant, make any such payment
or perform any such act on Tenant's part to be made or performed. All
sums, so paid by Landlord and all necessary incidental costs together
with interest thereon at the Applicable Interest Rate from the date of
such payment by Landlord shall be payable to Landlord on demand, and
Tenant covenants to pay such sums, and Landlord shall have, in addition
to any other right or remedy of Landlord, the same right and remedies in
the event of the non-payment thereof by Tenant as in the case of default
by Tenant in the payment of Base Rent and Basic Operating Cost.
<PAGE>
31. WAIVER
If either Landlord or Tenant waives the performance of any term,
covenant or condition contained in this Lease, such waiver shall not be
deemed to be a waiver of any subsequent breach of the same or any other
term, covenant or condition contained herein. The acceptance of Rent by
Landlord shall not constitute a waiver of any preceding breach by Tenant
of any term, covenant or condition of this Lease, regardless of
Landlord's knowledge of such preceding breach at the time Landlord
accepted such Rent. Failure by Landlord or Tenant to enforce any of the
terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or to decrease the right of Landlord or
Tenant to insist thereafter upon strict performance by the other party.
Waiver by Landlord or Tenant of any term, covenant or condition
contained in this Lease may only be made by a written document signed by
the waiving party.
32. NOTICES
Each provision of this Lease or of any applicable governmental
laws, ordinances, regulations and other requirements with reference to
sending, mailing or delivery of any notice or the making of any payment
by Landlord or Tenant to the other shall be deemed to be complied with
when and if the following steps are taken:
A. Rent. All rent and other payments required to be made by
Tenant to Landlord hereunder shall be payable to Landlord at the address
set forth in the Basic Lease Information, or at such other address as
Landlord may specify from time to time by written notice delivered in
accordance herewith. Tenant's obligation to pay Rent and any other
amounts to Landlord under the terms of this Lease shall not be deemed
satisfied until such Rent and other amount have been actually received
by Landlord.
B. Other. All notices, demands, consents and approvals which may
or are required to be given by either party to the other hereunder shall
be in writing and either personally delivered, sent by commercial
overnight courier, or mailed, certified or registered, postage prepaid,
and addressed to the party to be notified at the address for such party
as specified in the Basic Lease Information or to such other place as
the party to be notified may from time to time designate by at least
fifteen (15) days notice to the notifying party. Notices shall be
deemed served upon receipt or refusal to accept delivery. Tenant
appoints as its agent to receive the service of all default notices and
notice of commencement of unlawful detainer proceedings the person in
charge of or apparently in charge of occupying the Premises at the time,
and, if there is no such person, then such service may be made by
attaching the same on the main entrance of the Premises.
33. ATTORNEY'S FEES
In the event that, following an event of default, Landlord places
the enforcement of this Lease, or any part thereof, or the collection of
any Rent due, or to become due hereunder, or recovery of possession of
the Premises in the hands of an attorney, Tenant shall pay to Landlord,
upon demand, Landlord's reasonable attorneys' fees and court costs. In
any action which Landlord or Tenant brings to enforce its respective
rights hereunder, the unsuccessful party shall pay all costs incurred by
<PAGE>
the prevailing party including reasonable attorneys' fees, to be fixed
by the court, and said costs and attorneys' fees shall be a part of the
judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of
Landlord, its successors and assigns, and shall be binding upon and
inure to the benefit of Tenant, its successors, and to the extent
assignment is approved by Landlord hereunder, Tenant's assigns.
35. FORCE MAJEURE
Whenever a period of time is herein prescribed for action to be
taken by Landlord or Tenant, Landlord or Tenant (as applicable) shall
not be liable or responsible for, and there shall be excluded from the
computation for any such period of time, any delays due to strikes,
riots, acts of God, shortages of labor or materials, war, governmental
laws, regulations or restrictions or any other causes of any kind
whatsoever which are beyond the control of Landlord or Tenant (as
applicable).
36. BROKERAGE COMMISSION
Landlord shall pay a brokerage commission to Broker (if any is
named in the Basic Lease Information) in accordance with a separate
agreement between Landlord and Broker. Tenant warrants to Landlord that
Tenant's sole contact with Landlord or with the Premises in connection
with this transaction has been directly with Landlord and the Broker (if
any) identified in the Basic Lease Information, and that no other broker
or finder can properly claim a right to a commission or a finder's fee
based upon contact between the claimant and Tenant with respect to
Landlord or the Premises. Each party shall indemnify, defend by counsel
acceptable to the other party, protect and hold the other party harmless
from and against any loss, cost or expense, including, but not limited
to attorneys' fees and costs, resulting from any claim for a fee or
commission by any broker or finder in connection with the Premises and
this Lease which claim is made by the broker or finder claiming by,
through or under the indemnifying party (other than Broker, whose
commission shall be paid by Landlord).
37. MISCELLANEOUS
A. General. The term "Tenant" or any pronoun used in place
thereof shall indicate and include the masculine or feminine, the
singular or plural number, individuals, firms or corporations, and their
respective successors, executors, administrators and permitted assigns,
according to the context hereof.
B. Time. Time is of the essence regarding this Lease and all of
its provisions.
C. Choice of Law. This Lease shall in all respects be governed
by the laws of the State of Nevada.
D. Entire Agreement. This Lease, together with its Exhibits,
contains all the agreements of the parties hereto and supersedes any
previous negotiations. There have been no representations made by the
Landlord or understandings made between the parties other than those set
forth in this Lease and its exhibits.
<PAGE>
E. Modification. This Lease may not be modified except by a
written instrument by the parties hereto.
F. Severability. If, for any reason whatsoever, any of the
provisions hereof shall be unenforceable or ineffective, all of the
other provisions shall be and remain in full force and effect.
G. Recordation. Tenant shall not record this Lease or a short
form memorandum hereof.
H. Examination of Lease. Submission of this Lease to Tenant does
not constitute an option or offer to lease and this Lease is not
effective otherwise until execution and delivery by both Landlord and
Tenant.
I. Accord and Satisfaction. No payment by Tenant of a lesser
amount than the Rent nor any endorsement on any check or letter
accompanying any check or payment of Rent shall be deemed an accord and
satisfaction of full payment of Rent, and Landlord may accept such
payment without prejudice to Landlord's right to recover the balance of
such Rent or to pursue other remedies.
J. Easements. Landlord may grant easements on the Project and
dedicate for public use portions of the Project without Tenant's
consent, provided that no such grant or dedication shall substantially
interfere with Tenant's use of the Premises. Upon Landlord's demand,
Tenant shall execute, acknowledge and deliver to Landlord documents,
instruments, maps and plats necessary to effectuate Tenant's covenants
hereunder.
K. Drafting and Determination Presumption. The parties
acknowledge that this Lease has been agreed to by both the parties, that
both Landlord and Tenant have consulted with attorneys with respect to
the terms of this Lease and that no presumption shall be created against
Landlord because Landlord drafted this Lease. Except as otherwise
specifically set forth in this Lease, with respect to any consent,
determination or estimation of Landlord required in this Lease or
requested of Landlord, Landlord's consent, determination or estimation
shall be made in Landlord's good faith opinion, whether objectively
reasonable or unreasonable.
L. Exhibits. Exhibits A, B and C attached hereto are hereby
incorporated herein by this reference.<PAGE>
M. No Light, Air or View Easement. Any diminution or shutting
off of light, air or view by any structure which may be erected on lands
adjacent to or in the vicinity of the Building shall in no way affect
this Lease or impose any liability on Landlord.
N. No Third Party Benefit. This Lease is a contract between
Landlord and Tenant and nothing herein is intended to create any third
party benefit.
ADDITIONAL PROVISIONS:
38. MONTHLY RENTAL:
Months 1-60: $18,125.50 per month ($0.29 PSF)
<PAGE>
39. TENANT IMPROVEMENTS
Landlord agrees to provide a Tenant Improvement Allowance of
$360,000 for the plans, permits and construction of approximately 9,000
square feet of Tenant improvements ("Improvements"). The final plan for
these Tenant Improvements must be approved by Landlord (which approval
shall not be unreasonably withheld or delayed). Upon final approval of
such plans and specifications for the Improvements by Landlord and
Tenant, Landlord shall cause the same to be constructed in accordance
with such agreed-to plans and specifications and all applicable laws.
Tenant shall have the right to approve the final cost of constructing
the Improvements, and if Tenant fails to approve same the parties shall
mutually agree to engage in value engineering and otherwise cooperate
with one another so that the final cost of constructing the Improvements
is acceptable to Tenant. Tenant shall not be liable for the payment of
any such costs of construction that it does not approve in writing.
Upon completion of the construction of the Improvements, Landlord shall
assign to Tenant on a non-exclusive basis (it being agreed that Landlord
shall retain the right to itself pursue all such warranties) all
contractors', subcontractors' and manufacturers' warranties in
connection with the construction of the Improvements. If the cost of
constructing the Improvements: (i) exceeds $360,000, Landlord shall pay
the excess cost ("Excess") and in such event the monthly Base Rent shall
be increased by the monthly amount needed to fully amortize the Excess
over the Lease Term (at an interest rate of 10% per annum) in equal
monthly installments (each such installment to include both principal
and interest); or (ii) is less than $360,000, the difference shall be
credited to Base Rent due hereunder over the initial Term of this Lease
in equal monthly amounts; provided, however, in no event shall such
credit reduce Base Rent to an amount less than $0.27 per square foot of
area in the Premises per month. Landlord shall not be entitled to
charge a construction management fee, but it is acknowledged that its
general contractor will charge a contractor's fee in an amount approved
by Landlord and Tenant.
40. RENEWAL OPTION
Provided Tenant is not in default of its obligations or has not
been in default (following the expiration of all notice and cure periods
provided herein), Tenant shall have two (2) five year options to renew
this lease of the entire Premises in "as is" condition on the same terms
and conditions herein, except that Base Rent for the first five (5) year
option period shall be $0.29 per square foot, and for the second five
(5) year option period, Base Rent shall be $.33 per square foot. Notice
of Tenant's intention to exercise this option must be given to Landlord
in writing not less than one hundred eighty (180) prior to the
expiration of the Lease Term or the first renewal term, as applicable.
This option shall apply only to the primary Tenant and not to the
assignee or subtenant of Tenant (other than an assignee or subtenant in
a Permitted Transaction).
41. EARLY OCCUPANCY
Tenant shall have the right to enter the Premises on the date
("Early Occupancy Date") that is the later of (i) the date on which
Tenant can lawfully occupy the Premises for purpose of preparing same
for the conduct of Tenant's business, or (ii) May 1, 1999. All terms
and conditions of the Lease, except the payment of Base Rent shall be in
<PAGE>
full force beginning on the Early Occupancy Date. Landlord waives all
Base Rent that might otherwise be payable hereunder for the first three
(3) months immediately following the Early Occupancy Date. After these
three months have elapsed, and provided that the Term Commencement Date
has occurred, the payment of Base Rent shall commence and the rent
schedule contained in Paragraph 38 shall apply (subject to any accrued
credit against Base Rent that is provided in Paragraph 2(A) of this
Lease). This provision overrides any conflicting provision in the
Lease.
42. RIGHT OF FIRST REFUSAL AND EXPANSION OPTION
(a) If Tenant is not in default of any terms or conditions of this
Lease (following the expiration of all notice and cure periods provided
for herein), Tenant shall have the Right of First Refusal to lease the
approximately twenty thousand square foot space immediately adjacent to
its existing Premises during the initial thirty (30) months of this
Lease. Tenant shall have forty-eight (48) hours after receipt of
written notice from Landlord ("ROFR Notice") to elect to lease the
adjacent space under the same terms offered to a third party. If Tenant
does not elect to lease such space upon such terms, Landlord shall have
the right to lease the space to the third party upon terms that are not
more favorable to the third party than those proposed to Tenant in the
ROFR Notice; provided, however, if Landlord fails to enter into such
lease with the third party, Tenant's rights hereunder shall be
reinstated. Upon the expiration or termination of any lease with the
third party, or the termination of the third party's right of
possession, Tenant's rights hereunder shall be similarly reinstated.
(b) In addition to the right of first refusal provided above,
Tenant shall have the right from time to time during the Term of this
Lease to elect to expand the Premises to include the approximately
20,000 square feet of space immediately adjacent to the Premises, or
portion thereof, upon the same terms and conditions as provided in this
Lease as are applicable to the initial Premises leased hereunder, except
that (i) the Base Rent shall be (A) $0.27 per square foot of area in the
expansion area per month during the initial 5-year Term of this Lease,
(B) $0.29 per square foot of area in the expansion area per month during
the first renewal term, and (C) $0.33 per square foot of area in the
expansion area per month during the second renewal term; and (ii) the
space shall be delivered to Tenant in an "as is" condition. Any such
option shall be exercised by at least 14 days' prior written notice to
Landlord. Notwithstanding the foregoing, it is agreed that (i) if
Landlord delivers a ROFR Notice pursuant to Paragraph 42(a) above, and
if Tenant desires to lease such space within the 48 hour period provided
in said Paragraph 42(a), Tenant shall do so upon the terms set forth in
the ROFR Notice, rather than the terms set forth in this Paragraph
42(b); and (ii) Tenant shall not have the right to exercise its
expansion option under this Paragraph 42(b) if such approximately 20,000
square feet of space has been previously leased to a third party in
accordance with the terms of Paragraph 42(a) above.
43. EARLY TERMINATION
Tenant may terminate this Lease beginning thirty (30) months after
this Lease commences. In order to terminate this Lease, Tenant shall:
1. Have not been in default of the terms of the Lease (following the
expiration of all notice and cure periods provided for herein).
<PAGE>
2. Remit to Landlord the applicable cancellation fee amount pursuant
to the amortization schedule attached hereto as Exhibit "B" and made a
part hereof.
3. Give Landlord one hundred and eighty (180) days written notice of
the option to terminate. Tenant may not deliver this written notice to
Landlord until the 25th month of Tenant's Lease.
4. Tenant shall deliver the herein described Premises to the Landlord
in the condition required by the Lease.
44. GOOD WORKING ORDER
Landlord (i) will deliver all electrical, HVAC, plumbing,
mechanical, sprinkler, life safety and other systems serving the
Premises, which systems existed prior to, and were not constructed or
installed as a part of, the construction of the Improvements pursuant to
paragraph 39 (such as, without limitation, the transformer serving the
Premises), in good working order at the commencement of this Lease and
(ii) shall repair, maintain and/or replace same, as necessary, to keep
same in good working order during the first 90 days of the Term.
45. EXPANSION OPTION
It is hereby understood and agreed that in the event Tenant
requires at least 90,000 square feet and Landlord and Tenant shall have
executed a new Lease Agreement for the larger premises at any Trainor
Associates, or successor, managed property in Reno/Sparks, then this
Lease shall be canceled as of the commencement date of the new lease
covering the larger space, provided that (i) Tenant is not, and has not
been, in default of the terms of this Lease (following the expiration of
all notice and cure periods provided for herein), (ii) Tenant remits to
Landlord any monies due at the time in question pursuant to the
amortization schedule attached hereto as Exhibit "B" and made a part
hereof, (iii) on the commencement date of the new lease, Tenant shall
deliver the herein demised Premises to the Landlord in condition
required by this Lease Agreement, and (iv) Landlord has found a
replacement tenant for the Tenant's original Premises.
Upon such cancellation, both parties shall be released from any
further obligations accrued prior to such cancellation. The terms of
the new Lease shall be at least five (5) years at a rental rate, terms,
and conditions as if offered to other tenants for a comparable space in
a comparable location in Reno/Sparks.
46. LANDLORD'S AGREEMENT. Landlord hereby waives all landlord's liens
whether statutory or otherwise. Concurrently with the execution hereof,
and as a condition to Tenant's obligations hereunder, Landlord shall
execute and deliver to Tenant a "Landlord's Agreement" in the form
required by Tenant's lender (LaSalle Business Credit, Inc.).
47. CONTINGENCY.
Notwithstanding anything to the contrary contained herein,
Landlord's and Tenant's obligations hereunder are contingent upon the
effective termination of the existing lease relating to the Premises
between Landlord and Perfect Fit Industries ("Perfect Fit Lease") within
<PAGE>
3 days after the date on which this Lease is fully executed by Landlord
and Tenant. Landlord shall give Tenant written notice, prior to the
expiration of such 3-day period, if the Perfect Fit Lease has not been
terminated. If the Perfect Fit Lease is not so terminated within such
3-day period, either party may terminate this Lease by written notice to
the other party in which event the security deposit and any prepaid rent
shall be immediately refunded to Tenant, and the parties shall have no
further rights or obligations hereunder; provided, however, if Landlord
fails to give Tenant written notice, within such 3-day period, of the
non-termination of the Perfect Fit Lease (i) the contingency set forth
in this Paragraph 47 shall be deemed to have been satisfied, (ii)
neither party shall have the right to terminate this Lease, and (iii)
this Lease shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this lease the day
and year first above written.
"LESSOR" (LANDLORD)
The Northwestern Mutual Life Insurance Company,
a Wisconsin corporation
By: /s/ Bruce C. Behnke
Bruce C. Behnke Date: January 29, 1999
Its: Director-Field Asset Management
"LANDLORD's AGENT"
Trainor & Associates
By: /s/ John I. Trainor
John I. Trainor Date: January 29, 1999
Its: President
"LESSEE" (TENANT)
Athletic Training Equipment Company, Inc., a Delaware corporation, a
wholly owned subsidiary of the Sport Supply Group, Inc.
By: /s/ Eugene Grant
Eugene Grant Date: January 29, 1999
Its: President
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