-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NKJY8ZPBQ30fEu0vM+nNU1vP3n5MHJIVBCRoSDB321rihrwDjT8Ps1f2oyWCx9Hb p2lOpEZ4ErViVuvhllc0qw== 0000912057-01-517770.txt : 20010530 0000912057-01-517770.hdr.sgml : 20010530 ACCESSION NUMBER: 0000912057-01-517770 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010228 FILED AS OF DATE: 20010529 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST TEAM SPORTS INC CENTRAL INDEX KEY: 0000820242 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 411545748 STATE OF INCORPORATION: MN FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-16442 FILM NUMBER: 1649248 BUSINESS ADDRESS: STREET 1: 1201 LUND BLVD CITY: ANOKA STATE: MN ZIP: 55303 BUSINESS PHONE: 6127804454 MAIL ADDRESS: STREET 1: 1201 LUND BLVD CITY: ANOKA STATE: MN ZIP: 55303-1092 10-K 1 a2050480z10-k.htm 10-K Prepared by MERRILL CORPORATION
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended February 28, 2001

Commission File No: 000-16442

FIRST TEAM SPORTS, INC.
(Exact name of Registrant as specified in its charter)

Minnesota
(State or other jurisdiction
of incorporation or organization)		   41-1545748
(I.R.S. Employer Identification Number)

1201 Lund Boulevard
Anoka, Minnesota 55303
(Address of principal executive offices)

Registrant's telephone number, including area code:
 (763) 576-3500

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Preferred Stock Purchase Rights

    Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

    The aggregate market value of the Common Stock held by non-affiliates of the Registrant as of May 10, 2001 was approximately $6,334,652 based upon the closing sale price of the Registrant's Common Stock on such date.

    Shares of $.01 par value Common Stock outstanding at May 10, 2001: 5,912,342.

DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the Registrant's Proxy Statement for its 2001 Annual Meeting are incorporated by reference into Part III.


PART I

ITEM 1. BUSINESS

    (a) General Development of Business.

    First Team Sports, Inc. (the "Company") is engaged in the manufacture (through independent contract manufacturers) and distribution of in-line roller skates, ice skates, ice hockey sticks and equipment and related accessory products. In-line skates feature wheels mounted in a straight line on a lightweight metal or composite plastic frame, functioning much like the blade on an ice skate. First Team Sports, Inc. was incorporated under Minnesota law in May 1986. First Team Sports has the following wholly owned subsidiaries: Hespeler Hockey Company, a Nova Scotia, Canada unlimited liability company, Hespeler Hockey Holding, Inc., a Minnesota company, and First Team Sports GmbH, an Austrian company. Unless the context otherwise requires, references in this Form 10-K to the "Company" refer to First Team Sports, Inc. and its subsidiaries.

    During February 2001, the Company, in order to reduce costs, decided to close its European office and legally dissolve First Team Sports GMBH.

    (b) Financial Information about Industry Segments.

    The Company is engaged at the present time in only one industry segment, namely the manufacture (through independent contract manufacturers) and distribution of sporting and athletic goods. Financial information concerning the Company's business is included in Items 6, 7, 8 and 14.

    (c) Narrative Description of Business.

        (1) Products.

    The Company's principal products are in-line roller skates and ice hockey sticks marketed under the ULTRAWHEELS®, SKATE ATTACK®, and HESPELER® brand names. The Company also supplies in-line roller skates under various third party labels. UltraWheels brand skates are marketed to specialty and chain sporting goods dealers. The Skate Attack products are produced for sales to the mass merchant market. The Hespeler brand is marketed primarily to specialty and sporting goods chain store customers. The Company's in-line roller skates consist of a boot constructed of either soft mesh and leather with internal supports or molded plastic, a frame that is either molded as an integrated part of the boot, or a frame riveted to the bottom of the boot, and high-density polyurethane wheels mounted on ball bearings.

        (2) Status of products in development.

    The Company continues to develop products for the recreational, and fitness categories, as well as, improving upon existing in-line skate models. The Company also continues to develop products for the ice hockey market, including pro-style sticks and protective equipment.

    From time to time the Company introduces new products as testing is completed to its satisfaction and when funding is available. There is no assurance, however, that the Company will be successful in introducing new products or that such new products will prove commercially acceptable.

        (3) Source of Materials.

    The Company's products are sourced from independent contract manufacturers located in the United States and foreign countries. These suppliers manufacture, assemble and package the Company's products under the detailed specifications of the Company. The independent contract manufacturers are responsible for shipment to the Company's warehouse in Minneapolis, Minnesota or directly to certain major customers' distribution centers and warehouses.

    The components for the Company's products are manufactured by independent suppliers located in the United States and foreign countries, which have been identified by the Company's contract manufacturers or, frequently, by the Company.

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    The Company submits purchase orders to its manufacturers for the production of specific amounts of its products and has not entered into any long-term contracts for production. All purchase orders are in U.S. dollars.

        (4) Patents, trademarks, licenses, franchises and concessions.

    The Company markets its products under a number of trade names and trademarks, including the following principal trademarks or registered trademarks of the Company: "UltraWheels", "Skate Attack", "Street Attack", "Ultra Ice", and "Hespeler". The Company owns numerous trademark registrations and has several pending trademark applications in the United States and numerous foreign countries. The Company also relies to varying degrees upon its common law rights of trademark and copyright ownership. The Company has licenses to use the names and likeness of various hockey players. In addition, the Company has also filed eleven patent applications covering various parts of in-line skates and methods of producing its products.

        (5) and (6) Seasonality and Working Capital.

    The Company markets its products to customers in North America, South America, Europe, Australia and the Far East. This large and diverse marketing area, along with the acceptance of the Company's products by athletes and recreational users, have helped reduce the seasonal variations in the Company's sales, which in turn has reduced the periodic fluctuations in the demand on its working capital. The Company's products are primarily used outdoors in the spring and summer months and therefore, are dependent on weather conditions. With approximately 97% of the Company's sales occurring in North America and Europe, the Company does have increased sales and demands on its working capital during the Spring selling season.

        (7) Major Customers.

    The Company believes that its customer relationships are excellent. Certain customers of the Company have accounted for more than 10% of the Company's sales in one or more of the past three fiscal years.  In fiscal 2001, The Sports Authority, based in Fort Lauderdale, Florida, accounted for approximately 16% of the Company's net sales. In fiscal 2001, Dick's Clothing and Sporting Goods, based in Coraopolis, Pennsylvania, accounted for approximately 11% of the Company's net sales. In fiscal 2000, and 1999 Wal-Mart, based in Bentonville, Arkansas, accounted for approximately 12% and 23% respectively, of the Company's net sales.

        (8) Backlog.

    The Company had approximately $5.1 million in unfilled purchase orders as of May 17, 2001, compared to approximately $7.9 million in unfilled purchase orders as of May 17, 2000. Approximately $4.2 million of these backlog orders are a result of spring booking orders to be shipped at future dates and approximately $900,000 result from orders of products that are temporarily unavailable. The backlog may be subject to cancellation or other adjustments and is not necessarily indicative of future sales.

        (9) Government contracts.

    The Company has no government contracts.

        (10) Competition.

    The principal competitive factors in the in-line roller skate industry are name recognition, price and product performance. The main differences in product performance are in the weight and strength of the boot and frame, the hardness of the wheels and the quality and lubrication of the wheel bearings. The Company offers a 90-day warranty on its products, which the Company believes is an important competitive factor. Beyond such warranty, the Company does not offer service on its products and does not believe that service is an important competitive factor.

    The Company believes it has a significant share of the in-line roller skate market. K2 Inc. and Rollerblade, Inc. are considered to be the market leaders. The Company competes with K2 Inc., and

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Rollerblade, Inc. in all price and quality ranges. The Company believes that it would not be difficult for other companies, both new enterprises and established members of the sporting goods industry, to enter the in-line roller skate market, and, in fact, many new companies have entered this market in recent years.

        (11) Research and development.

    Research and development expenses for Company-sponsored research activities relating to the development of new products, services or techniques or the improvement of existing products, services or techniques were not material in fiscal 2001, 2000, or 1999.

        (12) Effect of environmental regulation.

    To the extent that the Company's management can determine, there are no federal, state or local provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment with which compliance by the Company has had or is expected to have a material effect upon the capital expenditures, earnings or competitive position of the Company.

        (13) Employees.

    As of May 1, 2001, the Company employed 59 full-time employees and 5 part-time employees.

    (d) Export Sales.

    In fiscal 2001, 2000, and 1999 the Company had export sales of $14.6 million, $19.0 million, and $16.4 million representing approximately 33%, 42%, and 39% respectively, of the net sales of the Company. Canadian net sales were $10.8 million (25% of net sales) in fiscal 2001, $12.8 million (28% of net sales) in fiscal 2000, and $10.4 million (25% of net sales) in fiscal 1999.  Sales outside North America were $3.8 million (8% of net sales) in fiscal 2001, $6.2 million (14% of net sales) in fiscal 2000, and $6.0 million (14% of net sales) in fiscal 1999.

ITEM 2. PROPERTIES

    The Company owns and occupies approximately 25,000 square feet of office space and 180,000 square feet of warehouse space located at 1201 Lund Boulevard, Anoka, Minnesota, a suburb of Minneapolis, Minnesota. The Company has a real estate mortgage on the property, which had a balance of approximately $4,125,000 as of May 1, 2001.

    The Company also occupies approximately 2,000 to 4,000 square feet of office space in Graz, Austria for its subsidiary, First Team Sports GmbH. The Company leases this facility through June 2001.

ITEM 3. LEGAL PROCEEDINGS

    In May 2000, Rollerblade, Inc. filed a lawsuit against the Company in U.S. District Court for the District of New Jersey alleging that the Company's Xpander® and Transformer™ models of children's in-line skates infringe a Rollerblade patent. Rollerblade seeks an injunction and monetary damages. The Company filed a counterclaim alleging the invalidity of the patent and the non-infringement thereof. The Company also modified the design of a component of its skates at issue, which strengthens the Company's claim of non-infringement. The Company intends to continue to defend vigorously such suit.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matter was submitted to a vote of the Company's shareholders during the quarter ended February 28, 2001.

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EXECUTIVE OFFICERS OF THE COMPANY

    The following sets forth the names and ages of the current executive officers of the Company in addition to information regarding their positions with the Company, their periods of service in such positions and their business experience for the past five years. Executive officers generally serve in office for terms of approximately one year. There are no family relationships among the officers named below.

Name and Age of
Executive Officer
   Current Positions with Company and Principal
Occupations for the Past Five Years
John J. Egart, 51   President and Chief Executive Officer of the Company since January 1994; Director of the Company since the Company's inception in May 1986; Executive Vice President of the Company from the Company's inception in May 1986 to January 1994.

David G. Soderquist, 52
 
Vice Chairman of the Company since January 1994; Director of the Company since the Company's inception in May 1986; President and Chief Executive Officer of the Company from the Company's inception in May 1986 to January 1994.

Kent A. Brunner, 40
 
Vice President and Chief Financial Officer of the Company since September 1998; Vice President/Finance of the Company from September 1996 to September 1998; Controller of the Company from November 1994 to September 1996; Audit Manager for McGladrey & Pullen, LLP, a national certified public accounting firm, from June 1988 to November 1994.

Richard Jackson, 47
 
Vice President of Production and Product Development of the Company since March 2000; Vice President of Manufacturing of the Company from October 1997 to March 2000; Manufacturing and Product Development Manager of the Company from September 1990 to October 1997.

Thomas W. Schultz, 35
 
Vice President of Sales of the Company since January 2001; Director of Worldwide Sales of the Company from June 1997 to January 2001; Manager of International Sales and Marketing of the Company from September 1994 to June 1997; Assistant Marketing Manager of the Company from January 1992 to September 1994.

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PART II

ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED  STOCKHOLDER MATTERS

    (a) Market Information.

    The range of bid quotations for the Company's Common Stock during fiscal 2001 and fiscal 2000 was as follows:

Quarter Ended
   High
   Low
May 31, 1999   $ 3.250   $ 1.344
August 31, 1999   $ 3.313   $ 1.875
November 30, 1999   $ 2.469   $ 1.500
February 29, 2000   $ 3.500   $ 1.313

May 31, 2000
 
$
3.125
 
$
1.859
August 31, 2000   $ 2.563   $ 1.500
November 30, 2000   $ 2.000   $ 0.906
February 28, 2001   $ 1.625   $ 0.938

    The Company's Common Stock is traded on the Nasdaq National Market under the symbol "FTSP". The above prices are bid quotations and may not necessarily represent actual transactions.

    (b) Holders.

    As of May 1, 2001, there were approximately 404 holders of record of the Company's Common Stock.

    (c) Dividends.

    The Company has never paid cash dividends and has no present intention to pay cash dividends in the foreseeable future. Under the Company's bank line of credit, the Company may not pay dividends without the bank's consent.

ITEM 6. SELECTED FINANCIAL DATA

    Years ended February 28, 2001, February 29, 2000, February 28, 1999, 1998 and 1997.

 
   2001
   2000
   1999
   1998
   1997
Operations Data:                              
Net Sales   $ 43,578,922   $ 45,003,424   $ 42,397,426   $ 56,336,906   $ 76,435,022
Net (Loss)/Income   $ (1,592,730 ) $ 17,505   $ (5,845,104 ) $ (2,609,233 ) $ 2,725,282
Net (Loss)/Income                              
  Per Share:                              
    Basic   $ (.27 ) $ .00   $ (1.01 ) $ (.45 ) $ .47
    Diluted   $ (.27 ) $ .00   $ (1.01 ) $ (.45 ) $ .46
Balance Sheet Data:                              
Total Assets   $ 37,431,468   $ 42,502,008   $ 39,299,894   $ 51,690,373   $ 52,343,501
Working Capital     19,100,582     19,214,465     17,371,669     25,051,180     27,921,689
Long-Term Debt     5,173,456     5,693,696     5,576,967     6,774,496     6,217,936
Shareholders' Equity     22,935,880     24,040,672     24,093,362     30,240,864     32,745,931

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    First Team Sports, Inc. is a leading manufacturer, designer and marketer of brand name sporting goods. The Company's product groups consist of in-line skates; in-line accessories and parts (primarily protective wear and replacement wheels and bearings) ice hockey sticks and ice hockey protective wear and accessories. Within the product groups, the Company maintains UltraWheels® and Skate Attack® in-line skate product lines and a Hespeler® ice hockey line. The UltraWheels line consists of higher quality and higher priced products that are targeted for the specialty and sporting goods chain store customers. The Skate Attack line consists of lower priced products for the mass merchant customers. The Hespeler ice hockey line consists of high quality products that are targeted primarily for the specialty and sporting goods chain stores.

RESULTS OF OPERATIONS:

COMPARISON OF FISCAL 2001 TO 2000

    Net Sales.  Net sales decreased 3% to $43.6 million in fiscal 2001 from $45.0 million in fiscal 2000. The reduction was primarily due to a decrease in the Company's overall in-line skate and accessory unit sales.

    A breakdown and analysis of the Company's main product lines is as follows:

 
   Fiscal 2001
    
   Fiscal 2000
  
(dollar amounts in millions)
    
  
  Amount
   %
   Amount
   %
   Change
  
In-line Skates   $ 30.8   70 % $ 32.5   72 % (5 %)
In-line Accessories And Parts     4.3   10 %   5.7   13 % (25 %)
Ice Skates     .8   2 %   —   —   100 %
Ice Hockey Sticks     2.5   6 %   2.5   6 % — %
Ice Hockey Protective And Access     5.2   12 %   4.3   9 % 21 %
Total Net Sales   $ 43.6   100 % $ 45.0   100 % (3 %)

    The Company currently distributes products to numerous countries worldwide. A geographic breakdown of the Company's net sales is as follows:

 
   Fiscal 2001
   Fiscal 2000
    
  
(dollar amounts in millions)
    
  
  Amount
   %
   Amount
   %
   Change
  
Domestic   $ 29.0   67 % $ 26.0   58 % 12 %
Canada     10.8   25 %   12.8   28 % (16 %)
Europe     2.2   5 %   4.5   10 % (51 %)
Other International     1.6   3 %   1.7   4 % (6 %)
Total Net Sales   $ 43.6   100 % $ 45.0   100 % (3 %)

    Several factors contributed to the Company's sales performance in fiscal 2001. Domestic sales increased due to the strong acceptance of the Company's UltraWheels products and significantly increased sales to the large national sporting goods chains ("big box" retailers). The Company also introduced a limited line of ice skate products in the United States. These increases were offset by the significant decline in sales of the Company's Skate Attack products to mass merchant customers due to their reduction in branded in-line skate offerings.

    The decrease in Canadian sales was primarily the result of poor weather in the Spring and Summer months which resulted in slow sales at retail. The decrease in European sales was primarily the result of continued competitive pressures in the European in-line skate market, in-line skate

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customers continuing to buy direct from Pacific Rim manufacturers and the effects of the strong U.S. dollar versus European currencies.

    The Company believes both the national and international markets continue to be very competitive and subject to extreme price competition.

    Gross Profit.  The Company's gross profit increased to $13.2 million (or 30.2% of net sales) in fiscal 2001, from $13.1 million (or 29.2% of net sales) in fiscal 2000.

    The increase in the gross margin in fiscal 2001 was primarily due to an increase in the percentage of UltraWheels in-line skate sales as compared to Skate Attack in-line skate sales, and secondarily to an increase in the percentage of total sales related to Hespeler products. The Company's Skate Attack brand, which is sold to mass merchant customers, is more of a commodity product in nature and generally has lower gross margin percentages than the Company's UltraWheels' brand and Hespeler products.

    The Company's UltraWheels brand accounted for approximately 71% of total net sales in fiscal 2001 compared to 61% in fiscal 2000. The Company's Skate Attack brand accounted for approximately 9% of total net sales in fiscal 2001 compared to 24% in fiscal 2000. The Hespeler brand accounted for approximately 20% of total net sales in fiscal 2001 compared to 15% in fiscal 2000.

    Operating Expenses.  Selling expenses were $5.3 million (or 12.2% of total net sales) in fiscal 2001 compared to $4.5 million (or 10.1%) in fiscal 2000. The increase in selling expenses in fiscal 2001 was primarily due to an increase in commissions and co-op advertising costs associated with the increased sales volume to the big box retailers.

    General and administrative expenses were $7.8 million (or 17.8% of total net sales) in fiscal 2001 compared to $7.6 million (or 16.9% of total net sales) in fiscal 2000. The increase in the general and administrative expenses was primarily due to a slight increase in various general operating costs.

    Other Income and Expense.  Interest expense was $.9 million in both fiscal 2001 and fiscal 2000. Interest expense is primarily related to the Company's working capital line of credit and the mortgage note on the Company headquarters. The Company also incurred $1.0 million in currency translation charges due to the decline of the Austrian Schilling and the decision to close its European subsidiary.

    Provision for Income Taxes.  The Company's effective tax rate was 11.5% for fiscal 2001 compared to 45.4% for fiscal 2000. The decrease in fiscal 2001 was primarily due to the effect of foreign tax rates.

    Net Income/(Loss).  Net loss was ($1.6) million (or (3.6)% of net sales) in fiscal 2001 compared to a net income of $17,505 (or .04% of net sales) in fiscal 2000. The decline can be attributed to the decrease in the sales volume and the increase in other expenses as discussed above.

RESULTS OF OPERATIONS:

COMPARISON OF FISCAL 2000 TO 1999

    Net Sales.  Net sales increased 6% to $45.0 million in fiscal 2000 from $42.4 million in fiscal 1999. The improvement was primarily due to an increase in the Company's in-line skate unit sales and an increase in the unit sales of the Company's Hespeler ice hockey products.

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    A breakdown and analysis of the Company's main product lines is as follows:

 
   Fiscal 2000
    
   Fiscal 1999
  
(dollar amounts in millions)
    
  
  Amount
   %
   Amount
   %
   Change
  
In-line Skates   $ 32.5   72 % $ 31.1   73 % 5 %
In-line Accessories And Parts     5.7   13 %   5.8   14 % (2 %)
Ice Hockey Sticks     2.5   6 %   2.2   5 % 14 %
Ice Hockey Protective And Access     4.3   9 %   3.3   8 % 30 %
Total Net Sales   $ 45.0   100 % $ 42.4   100 % 6 %

    The Company currently distributes products to numerous countries worldwide. A geographic breakdown of the Company's net sales is as follows:

 
   Fiscal 2000
   Fiscal 1999
    
  
(dollar amounts in millions)
    
  
  Amount
   %
   Amount
   %
   Change
  
Domestic   $ 26.0   58 % $ 26.0   61 % —  
Canada     12.8   28 %   10.4   25 % 23 %
Europe     4.5   10 %   4.9   11 % (8 %)
Otner International     1.7   4 %   1.1   3 % 55 %
Total Net Sales   $ 45.0   100 % $ 42.4   100 % 6 %

    Several factors contributed to the Company's sales performance in fiscal 2000. Although domestic sales were relatively unchanged, the Company achieved strong acceptance of its UltraWheels products and significantly increased sales to the large national sporting goods chains ("big box" retailers). This increase offset the decline in sales of the Company's Skate Attack products to mass merchant customers due to their reduction in branded in-line skate offerings. The increase in Canadian sales was the result of continued acceptance of the Company's in-line products and an increase in sales of Hespeler ice hockey products. The decrease in European sales was primarily the result of continued competitive pressures in the European in-line skate market, in-line skate customers continuing to buy direct from Pacific Rim manufacturers and the effect of the strong U.S. dollar versus European currencies. The increase in other international sales was the result of continued efforts by the Company to increase its international presence and the acceptance of the Company's strong product lines.

    Gross Profit.  The Company's gross profit increased to $13.1 million (or 29.2% of net sales) in fiscal 2000, from $4.3 million (or 10.2% of net sales) in fiscal 1999. The gross profit in fiscal 1999 was net of a $6 million inventory write-down charge. Excluding the impact of this charge, the gross profit as a percentage of net sales in fiscal 1999 was 24.4%.

    The increase in the gross margin in fiscal 2000 was primarily due to an increase in the percentage of UltraWheels in-line skate sales as compared to Skate Attack in-line skate sales, as well as an increase in the percentage of total sales related to Hespeler products. The Company's Skate Attack brand, which is sold to mass merchant customers, is more of a commodity product in nature and generally has lower gross margin percentages than the Company's UltraWheels brand and Hespeler products. During the second quarter of fiscal 1999, the Company conducted a thorough review of its in-line business and as a result the Company wrote down certain inventories, by approximately $6.0 million, which was recorded in cost of goods sold. The major inventory reduction was in the Company's unfinished/component parts inventory. As a result of the Company's restructured production philosophy, the Company shifted the majority of its in-line skate production to offshore sources in an effort to reduce product costs.

    The Company's UltraWheels brand accounted for approximately 61% of total net sales in fiscal 2000 compared to 47% in fiscal 1999. The Company's Skate Attack brand accounted for approximately

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24% of total net sales in fiscal 2000 compared to 40% in fiscal 1999. The Hespeler brand accounted for approximately 15% of total net sales in fiscal 2000 compared to 13% in fiscal 1999.

    Operating Expenses.  Selling expenses were $4.5 million (or 10.1% of total net sales) in fiscal 2000 compared to $4.6 million (or 10.9%) in fiscal 1999. The decrease in selling expenses in fiscal 2000 was primarily due to management's efforts to control expenditures, which resulted in a reduction of tradeshow and license costs.

    General and administrative expenses were $7.6 million (or 16.9% of total net sales) in fiscal 2000 compared to $7.4 million (or 17.5% of total net sales) in fiscal 1999. The increase in the absolute dollar amount of the general and administrative expenses was primarily due to increased personnel costs. The decrease in general and administrative expenses as a percentage of net sales was primarily due to the increase in the Company's sales volume versus the somewhat fixed nature of certain general and administrative expenses.

    Other Income and Expense.  Interest expense was $.9 million in both fiscal 2000 and fiscal 1999. Interest expense is primarily related to the Company's working capital line of credit and the mortgage note on the Company headquarters.

    Provision for Income Taxes.  The Company's effective tax rate was 45.4% for fiscal 2000 compared to 32.4% for fiscal 1999. The increase in fiscal 2000 was primarily due to the effect of state and foreign tax rates.

    Net Income/(Loss).  Net income was $17,505 (or .04% of net sales) in fiscal 2000 compared to a net loss of ($5.8) million (or (13.8%) of net sales) in fiscal 1999. The improvement can be attributed to the increase in both the sales volume and the gross profits as discussed above.

LIQUIDITY AND CAPITAL RESOURCES

    The Company's operations provided $4.6 million of cash in fiscal 2001 compared to using $1.7 million of cash in fiscal 2000. The cash provided by operations in the current year was primarily the result of a decrease in the Company's receivables. The cash used in operations in the prior year was primarily the result of an increase in the Company's receivables and inventory balances.

    Net cash used in investing activities was $.5 million in fiscal 2001 and $.3 million in fiscal 2000. The use of cash for this activity was primarily attributable to expenditures relating to new computer, office and production equipment.

    Net cash used in financing activities was $4.5 million in fiscal 2001 compared to net cash provided by financing activities of $2.2 million in fiscal 2000. The net cash used by this activity for fiscal 2001 was primarily due to the net payments on the Company's credit facility. The net cash provided by this activity in fiscal 2000 was primarily for funding the normal day-to-day operations of the Company.

    The Company's total debt to worth ratio was .6 to 1 as of February 28, 2001, compared to .8 to 1 as of February 29, 2000. The Company's long-term debt, which consists primarily of a mortgage note on the Company's facility and obligations under endorsement license agreements, less current maturities, was $5.2 million as of February 28, 2001 (see Note 6 in Notes to Financial Statements).

    The Company's primary financing facility is a $10 million revolving credit line, which is subject to a borrowing base that is calculated monthly and updated periodically during each month. The borrowing base is based on a percentage of eligible receivables and inventories. As of February 28, 2001 the borrowing base limitation was $10 million, of which $1.1 million was outstanding.

    In connection with this credit facility, the Company agreed, among other things, to maintain certain minimum financial ratios and income levels. The Company has been in compliance or has obtained a waiver for all covenants.

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    The Company believes its current cash position; funds available under existing bank arrangements and cash generated from operations will be sufficient to finance the Company's operating requirements through fiscal 2002.

Outlook: Issues And Uncertainties

    The Company does not provide forecasts of future financial performance. Certain statements contained in this report are based on current expectations. These statements are forward looking and are subject to certain risks and uncertainties. The Company's actual results may differ materially from those projected.

    The Company believes that the total number of in-line skating participants worldwide will continue to remain strong in fiscal 2002, especially in the younger age categories. The Company believes the industry's innovative new products currently on the market will continue to intrigue avid participants of in-line skating and will improve the recruitment of new participants. The Company also believes that the number of ice hockey participants worldwide, especially in the United States, will continue to grow in fiscal 2002.

    The Company's strategy has been, and continues to be, to introduce high-quality, innovative, price-valued products designed specifically for the recreational, fitness and youth market segments. Future production capacity is planned based on the continued implementation of the Company's strategy. If the market does not grow and move toward value-priced products, revenues and earnings will likely be adversely impacted.

    The Company's gross margin is a sensitive function of the product mix sold, pricing and the market conditions in any given period. As a result of the Company's Skate Attack brand being sold to the mass merchant customers, the product is more like a commodity and generally has lower gross margin percentages than the Company's UltraWheels brand and Hespeler Hockey products. As a result, future gross margin percentages are difficult to predict.

    While management is optimistic about the Company's long-term prospects, the following issues and uncertainties, among others, should be considered in evaluating its growth outlook.

    Competition.  The Company competes with numerous manufacturers of in-line skates domestically and internationally, and anticipates future competition from other large and well-established sporting goods manufacturers. K2 and Rollerblade are the Company's primary competitors and each of them has substantially greater resources than the Company. The intense price competition in the in-line skate market continues to put pressure on the Company's profit margins. The Company's ability to remain competitive in the in-line skate market depends on several factors including its ability to: (i) offer innovative products at commercially-acceptable prices; (ii) develop new innovative products and generate market demand for such products; and (iii) continue to develop and expand its international business.

    Dependence on Key Customers.  During the fiscal year ended February 28, 2001, sales to The Sports Authority and Dick's Clothing and Sporting Goods accounted for 16% and 11% of the Company's revenues respectively. Increased competition from other manufacturers, decreased demand for the Company's products or other circumstances may have an adverse impact upon the Company's relationship with The Sports Authority and Dick's Clothing and Sporting Goods and/or other major customers. Decreased orders from these customers or other major customers would have a material adverse impact on the Company's financial results.

    Other.  The Company's products are primarily used outdoors and therefore adverse weather conditions can have a negative impact on consumer demand. Because the Company's products are of a recreational nature and not considered basic necessities, a general decline in overall economic conditions may have a greater adverse effect on the Company's sales.

11

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Market Risk.  The Company's sales and results of operations are subject to foreign currency fluctuations. The Company's foreign operations are in countries with fairly stable currencies; therefore, the effect of foreign currencies has not been significant. The Company attempts to limit its exposure to translation gains and losses by maintaining and controlling its foreign cash flows whenever possible.

    Considering both the anticipated foreign sales and results of operations for the next year, a hypothetical 10% weakening of the U.S. dollar relative to all other currencies would not materially adversely affect expected fiscal 2002 sales and results of operations.

    The Company's line-of-credit agreement and mortgage note payable are at the bank's prime rate of interest, which is subject to federal interest rate fluctuations. While the federal rate is somewhat stable, a material change in this rate could have an adverse effect on the Company's results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The financial statements and schedules listed below are included herein immediately following the signature page of this Form 10-K on the pages set forth:

 
   Page
Independent Auditor's Report on Consolidated Financial Statements and Schedule for the years ended February 28, 2001, February 29, 2000 and February 28, 1999   F-1

Consolidated Balance Sheets as of February 28, 2001 and February 29, 2000
 
F-2

Consolidated Statements of Operations for the years ended February 28, 2001, February 29, 2000 and February 28, 1999
 
F-3

Consolidated Statements of Shareholders' Equity for the years ended February 28, 2001, February 29, 2000 and February 28, 1999
 
F-4

Consolidated Statements of Cash Flows for the years ended February 28, 2001, February 29, 2000 and February 28, 1999
 
F-5

Notes to Consolidated Financial Statements
 
F-6

Schedule II—Reserve Accounts
 
F-16

    All other schedules are omitted since they are not applicable, not required or the information is presented in the consolidated financial statements or related notes.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

    None.

12


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

    Other than "Executive Officers of the Company", which is set forth at the end of Part I of this Form 10-K, the information required by Item 10 is incorporated herein by reference to the sections labeled "Election of Directors" and "Compliance With Section 16(a) of the Exchange Act", which appear in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A not later than 120 days after the close of fiscal 2001 in connection with the Company's 2001 Annual Meeting of Shareholders.

ITEM 11. EXECUTIVE COMPENSATION

    The information required by Item 11 is incorporated herein by reference to the sections labeled "Management Compensation" and "Election of Directors", which appear in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A not later than 120 days after the close of fiscal 2001 in connection with the Company's 2001 Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information required by Item 12 is incorporated herein by reference to the section labeled "Principal Shareholders and Management Shareholdings," which appears in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A not later than 120 days after the close of fiscal 2001 in connection with the Company's 2001 Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required by Item 13 is incorporated herein by reference to the section labeled "Management Compensation," which appears in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A not later than 120 days after the close of fiscal 2001 in connection with the Company's 2001 Annual Meeting of Shareholders.


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

    (a) Documents filed as part of this report.

        (1) Financial Statements. The following financial statements are included in Part II; Item 8 of this Annual Report on Form 10-K:

  Independent Auditor's Report on Consolidated Financial Statements and Schedule for the years ended February 28, 2001, February 29, 2000 and February 28, 1999.    
  Consolidated Balance Sheets as of February 28, 2001 and February 29, 2000.    
  Consolidated Statements of Operations for the years ended February 28, 2001, February 29, 2000, and February 28, 1999.    
  Consolidated Statements of Shareholders' Equity for the years ended February 28, 2001, February 29, 2000, and February 28, 1999.    
  Consolidated Statements of Cash Flows for the years ended February 28, 2001, February 29, 2000, and February 28, 1999.    

Notes to Consolidated Financial Statements

13

        (2) Financial Statement Schedules. The following is included in Part II, Item 8, of this Annual Report on Form 10-K:

    Schedule II—Reserve Accounts.

    All other schedules are omitted since they are not applicable, not required or the information is presented in the consolidated financial statements or related notes.

        (3) Exhibits.

    The following exhibits are included in this reports: See "Exhibit Index to Form 10-K" beginning at page E-1 immediately following the financial statements which follow the signature page of this Form 10-K.

    (b) Reports on Form 8-K.

    The Company filed no reports on Form 8-K during the quarter ended February 28, 2001.

14


SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    FIRST TEAM SPORTS, INC.

May 25, 2001
 
By:
 
/s/ JOHN J. EGART   
John J. Egart
 President and Chief Executive Officer

    Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Company, in the capacities, and on the dates, indicated.

(Power of Attorney)

    Each person whose signature appears below constitutes and appoints John J. Egart as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorney-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

Signature and Title
   Date

 
 
 
/s/ JOHN J. EGART   
John J. Egart
 President/Chief Executive Officer and Director (Principal executive officer)		   May 25, 2001

/s/ DAVID G. SODERQUIST   
David G. Soderquist
 Vice Chairman and Director
 
May 25, 2001

/s/ JOE MENDELSOHN   
Joe Mendelsohn
 Chairman and Director
 
May 25, 2001

/s/ TIMOTHY G. RATH   
Timothy G. Rath
 Director
 
May 25, 2001

/s/ STANLEY E. HUBBARD   
Stanley E. Hubbard
 Director
 
May 25, 2001

15


/s/ WILLIAM J. MCMAHON   
William J. McMahon
 Director
 
May 25, 2001

/s/ KENT A. BRUNNER   
Kent A. Brunner
 Vice President and Chief Financial Officer (Principal financial and accounting officer)
 
May 25, 2001

16


Report of Independent Auditors

Shareholders and Board of Directors
First Team Sports, Inc.

    We have audited the accompanying consolidated balance sheets of First Team Sports, Inc. as of February 28, 2001 and February 29, 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended February 28, 2001. Our audit also included the Financial Statement Schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly, in all material respects the consolidated financial position of First Team Sports, Inc. at February 28, 2001 and February 29, 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended February 28, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related Financial Statement Schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

                        /s/ ERNST & YOUNG LLP

Minneapolis, Minnesota
April 20, 2001

F–1

First Team Sports, Inc.

Consolidated Balance Sheets

 
   February 28,
2001
   February 29,
2000
  
Assets              
Current assets:              
  Cash and cash equivalents   $ 317,978   $ 860,671  
  Trade receivables, less allowance for doubtful accounts:
2001—$948,000; 2000—$765,000		     11,848,775     15,918,474  
  Inventories     13,120,398     12,079,722  
  Prepaid expenses     948,923     1,331,238  
  Deferred income taxes     1,619,000     1,179,000  
   
 
 
Total current assets     27,855,074     31,369,105  
Property, plant and equipment              
Land     600,000     600,000  
Building     4,997,840     4,988,680  
Production equipment     2,140,423     2,382,555  
Office furniture and equipment     2,061,527     1,956,004  
Warehouse equipment     982,740     945,377  
Vehicles     94,211     97,007  
   
 
 
      10,876,741     10,969,623  
Less accumulated depreciation     4,716,737     4,411,801  
   
 
 
      6,160,004     6,557,822  
Deferred income taxes     1,525,500     2,074,500  
Other assets              
License agreements, less accumulated amortization:
2001—$4,385,000; 2000—$4,036,000		     981,424     1,330,704  
Goodwill, less accumulated amortization:
2001—$578,000; 2000—$463,000		     842,994     1,029,528  
Other     66,472     140,349  
   
 
 
      1,890,890     2,500,581  
   
 
 
    $ 37,431,468   $ 42,502,008  
   
 
 
Liabilities and shareholders' equity              
Current liabilities:              
  Notes payable to bank   $ 1,140,095   $ 4,912,275  
  Trade accounts payable     5,347,605     4,656,107  
  Accrued expenses     1,746,552     1,735,399  
  Current maturities of long-term debt     520,240     850,859  
   
 
 
Total current liabilities     8,754,492     12,154,640  
Long-term debt, less current maturities     5,173,456     5,693,696  
Deferred income taxes     60,000     90,000  
Deferred revenue     507,640     523,000  
Shareholders' equity              
Common Stock, par value $.01 per share
Authorized 10,000,000 shares
Issued and outstanding:
2001—5,912,342 shares; 2000—5,860,140 shares		     59,124     58,602  
Additional paid-in capital     10,011,482     9,926,180  
Retained earnings     13,072,531     14,665,261  
Accumulated other comprehensive loss     (207,257 )   (609,371 )
   
 
 
      22,935,880     24,040,672  
   
 
 
    $ 37,431,468   $ 42,502,008  
   
 
 

See accompanying notes.

F–2

First Team Sports, Inc.

Consolidated Statements of Operations

 
   Year ended
  
 
   February 28,
2001
   February 29,
2000
   February 28,
1999
  
Net sales   $ 43,578,922   $ 45,003,424   $ 42,397,426  
Cost of goods sold     30,406,584     31,871,379     38,051,179  
   
 
 
 
Gross profit     13,172,338     13,132,045     4,346,247  
Operating expenses:                    
  Selling     5,311,855     4,532,710     4,619,077  
  General and administrative     7,765,099     7,621,020     7,420,735  
   
 
 
 
      13,076,954     12,153,730     12,039,812  
   
 
 
 
Operating income (loss)     95,384     978,315     (7,693,565 )
Interest expense     (939,990 )   (946,242 )   (953,843 )
Other expense, net     (955,105 )   —     —  
   
 
 
 
(Loss) income before income tax benefit (expense)     (1,799,711 )   32,073     (8,647,408 )
Income tax benefit (expense)     206,981     (14,568 )   2,802,304  
   
 
 
 
Net (loss) income   $ (1,592,730 ) $ 17,505   $ (5,845,104 )
   
 
 
 
Net (loss) income per share:                    
  Basic   $ (.27 ) $ .00   $ (1.01 )
  Diluted   $ (.27 ) $ .00   $ (1.01 )
Shares used in computation of net (loss) income per share:                    
  Basic     5,885,075     5,839,021     5,796,377  
  Diluted     5,885,075     5,953,730     5,796,377  

See accompanying notes.

F–3

First Team Sports, Inc.

Consolidated Statement of Shareholders' Equity

 
   Common Stock
    
    
   Accumulated
Other
Comprehensive
Loss
    
  
 
   Additional
Paid-In
Capital
   Retained
Earnings
   Total
Shareholders'
Equity
  
 
   Shares
   Amount
  
Balance at February 28, 1998   5,792,240   $ 57,923   $ 9,806,341   $ 20,492,860   $ (116,260 ) $ 30,240,864  
  Exercise of stock options   11,608     116     18,899     —     —     19,015  
  Comprehensive loss, net of tax:                                    
    Foreign currency translation   —     —     —     —     (321,413 )   (321,413 )
    Net loss   —     —     —     (5,845,104 )   —     (5,845,104 )
                               
 
  Total comprehensive loss, net of tax                                 (6,166,517 )
   
 
 
 
 
 
 
Balance at February 28, 1999   5,803,848     58,039     9,825,240     14,647,756     (437,673 )   24,093,362  
  Exercise of stock options   56,292     563     100,940     —     —     101,503  
  Comprehensive loss, net of tax:                                    
    Foreign currency translation   —     —     —     —     (171,698 )   (171,698 )
    Net income   —     —     —     17,505     —     17,505  
                               
 
  Total comprehensive loss, net of tax                                 (154,193 )
   
 
 
 
 
 
 
Balance at February 29, 2000   5,860,140     58,602     9,926,180     14,665,261     (609,371 )   24,040,672  
  Exercise of stock options   52,202     522     85,302     —     —     85,824  
  Comprehensive loss, net of tax:                                    
    Foreign currency translation   —     —     —     —     402,114     402,114  
    Net loss   —     —     —     (1,592,730 )   —     (1,592,730 )
                               
 
  Total comprehensive loss, net of tax   —     —     —     —     —     (1,190,616 )
   
 
 
 
 
 
 
Balance at February 28, 2001   5,912,342   $ 59,124   $ 10,011,482   $ 13,072,531   $ (207,257 ) $ 22,935,880  
   
 
 
 
 
 
 

See accompanying notes.

F–4

First Team Sports, Inc.

Consolidated Statements of Cash Flows

 
   Year ended
  
 
   February 28,
2001
   February 29,
2000
   February 28,
1999
  
Cash flows from operating activities                    
Net (loss) income   $ (1,592,730 ) $ 17,505   $ (5,845,104 )
Adjustments required to reconcile net (loss) income to net cash provided by (used in) operating activities:                    
  Depreciation     879,766     1,101,379     1,332,718  
  Amortization     609,692     577,557     602,784  
  Loss on retirement of equipment     35,714     —     —  
  Deferred income taxes     79,000     58,000     (2,141,000 )
  Deferred revenue     (15,360 )   (77,000 )   —  
  Write-down of inventories     —     —     5,435,824  
  Write-off of Mothership goodwill and intangibles     —     —     293,000  
  Foreign Currency Loss     955,105     —     —  
  Change in operating assets and liabilities:                    
    Receivables     3,917,320     (3,874,204 )   (1,272,837 )
    Inventories     (1,216,277 )   (2,040,235 )   6,755,720  
    Prepaid expenses     376,891     1,235     116,296  
    Accounts payable     718,534     958,774     1,007,049  
    Accrued expenses     132,489     258,365     (333,730 )
    Income taxes     (311,333 )   1,319,425     541,547  
   
 
 
 
Net cash provided by (used in) operating activities     4,568,811     (1,699,199 )   6,492,267  
Cash flows from investing activities                    
Purchases of property, plant and equipment     (518,220 )   (250,986 )   (330,496 )
   
 
 
 
Net cash used in investing activities     (518,220 )   (250,986 )   (330,496 )
Cash flows from financing activities                    
Net (payments) proceeds on short-term borrowings     (3,772,180 )   2,387,275     (6,160,000 )
Principal payments on long-term borrowings     (850,717 )   (4,837,277 )   (1,134,158 )
Proceeds from long-term borrowings     —     4,500,000     —  
Net proceeds from exercise of stock options     85,824     101,503     19,015  
   
 
 
 
Net cash (used in) provided by financing activities     (4,537,073 )   2,151,501     (7,275,143 )
   
 
 
 
(Decrease) increase in cash and cash equivalents     (486,482 )   201,316     (1,113,372 )
Effect of foreign currency translation     (56,211 )   (64,219 )   (32,599 )
Cash and cash equivalents:                    
  Beginning of year     860,671     723,574     1,869,545  
   
 
 
 
  Ending of year   $ 317,978   $ 860,671   $ 723,574  
   
 
 
 

See accompanying notes.

F–5


First Team Sports, Inc.

Notes to Consolidated Financial Statements

1.  Nature of Business and Significant Accounting Policies

Nature of Business and Concentration of Credit Risk

    The Company, which operates in one business segment, sells in-line roller skates and related accessories under the brand names UltraWheels®, and Skate Attack®, and ice hockey equipment under the brand name Hespeler® to retail and sporting goods stores. These products are manufactured under outside production arrangements to the Company's specifications. Net sales to a specific geographic region for the years ended February 28, 2001, February 29, 2000 and February 28, 1999 totaled 25%, 28% and 25%, respectively, for Canada and 5%, 10% and 11%, respectively, for Europe.

Basis of Financial Statement Presentation and Accounting Estimates

    The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheet and revenues and expenses for the year. Actual results could differ from those estimates.

Principles of Consolidation

    The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries including First Team Sports Exports, Inc. (a foreign sales corporation), First Team Sports GmbH and Hespeler Hockey Company. All material intercompany accounts and transactions have been eliminated.

Revenue Recognition

    Revenues from sales of product are recorded upon shipment. Allowances are provided for estimated sales returns at the time the sale is recorded based on the Company's historical rate of returns.

    The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Receivables generally are due within sixty days for in-line skates and equipment and within six months for hockey equipment. Credit losses relating to customers consistently have been within management's expectations.

Foreign Currency Translation

    The functional currency for foreign operations is the local currency. Foreign currency financial statements are converted into United States dollars by translating balance sheet accounts at the current exchange rate at year-end and statement of operations items at the average exchange rate for the year, with the resulting translation adjustment included in accumulated other comprehensive loss in shareholders' equity.

Cash and Cash Equivalents

    The Company considers all demand deposit accounts and short-term cash investments with an initial maturity of three months or less at the date of purchase to be cash equivalents. Short-term investments are classified as available-for-sale. The carrying value of cash equivalents approximates fair value at February 28, 2001 and February 29, 2000.

F–6

Inventories

    Inventories are valued at the lower of cost (first-in, first-out method) or market.

Property, Plant and Equipment

    Property, plant and equipment is recorded at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the assets as follows:

Building   39 years
Production equipment   2—10 years
Office furniture and equipment   3—7 years
Warehouse equipment   6—10 years
Vehicles   5 years

Other Assets

    Costs capitalized related to license agreements' rights are being amortized over the terms of the agreements on a straight-line method.

    Goodwill arising from acquisitions is amortized on a straight-line basis over a period up to 10 years. Other intangibles, consisting principally of trademarks and patents, are amortized on a straight-line basis over 5 to 10 years.

Accounting for Long-Lived Assets

    The Company periodically reviews its property, plant, equipment, and other assets to determine potential impairment by comparing their carrying value with the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future net cash flows be less than the carrying value, the Company would recognize an impairment loss at that date. An impairment loss would be measured by computing the amount by which the carrying value exceeds the fair value (estimated discounted future cash flows) of the long-lived assets.

    In September 1997, the Company purchased the net assets of Mothership Distribution, Inc. (Mothership), a designer, manufacturer and marketer of aggressive in-line skate accessories and apparel. Subsequently during fiscal year 1999, Mothership was closed and the related goodwill and intangibles were written off in accordance with FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The amount of the write-off totaled $293,000, which was included in General & Administrative Expenses.

    In August 1997, the Company created a European subsidiary, First Team Sports GmbH, to help improve its operations in Europe. During February 2001 the Company, in order to reduce costs, decided to close its European office and legally dissolve First Team Sports GmbH. As a result, the Company recognized in its fiscal 2001 statement of operations a foreign currency loss of approximately $955,000 and accrued for certain closing costs totaling $56,000, which are included in other expense and general and administrative expenses, respectively.

Advertising Costs

    The costs of advertising are expensed as incurred. Advertising expense for the fiscal years 2001, 2000 and 1999 was $1,506,000, $956,000 and $911,000, respectively.

F–7

Income Taxes

    The Company accounts for income taxes utilizing the liability method. Deferred income taxes are recorded to reflect the tax consequences of differences between the tax and financial reporting basis of assets and liabilities.

Net (Loss) Income Per Share

    Basic net (loss) income per share is the Company's net (loss) income divided by the weighted average number of Common Shares outstanding during the period. Diluted net (loss) income per share reflects the potential dilutive effects of stock options and warrants.

 
   Basic
   Diluted
  
 
   2001
   2000
   1999
   2001
   2000
   1999
  
 
   (In thousands, except per share data)

  
Net (loss) income   $ (1,593 ) $ 18   $ (5,845 ) $ (1,593 ) $ 18   $ (5,845 )
   
 
 
 
 
 
 
Weighted average common shares outstanding     5,885     5,839     5,796     5,885     5,839     5,796  
Dilutive stock options     —     —     —     —     115     —  
   
 
 
 
 
 
 
Total common shares outstanding for diluted calculation     5,885     5,839     5,796     5,885     5,954     5,796  
   
 
 
 
 
 
 
Net (loss) income per share   $ (.27 ) $ .00   $ (1.01 ) $ (.27 ) $ .00   $ (1.01 )

Fair Value of Financial Instruments

    The consolidated financial statements include the following financial instruments: cash and cash equivalents, trade receivables, notes payable to bank, trade accounts payable and long-term debt. At February 28, 2001, no separate comparison for fair values versus carrying values is presented for the aforementioned financial instruments since their fair values are not significantly different than their balance sheet carrying amounts. The aggregate fair values of the financial instruments would not represent the underlying value of the Company.

Comprehensive Loss

    Comprehensive loss consists of the Company's net (loss) income and foreign currency translation adjustment and is presented in the consolidated statement of stockholders' equity, net of taxes.

2.  Sales Information and Major Suppliers

Major Customers and Credit Risk

    Net sales for fiscal years 2001, 2000 and 1999 include sales to certain major customers as follows:

 
   Percent of Net Sales
 
   2001
   2000
   1999
Customer A   16   7   —
Customer B   11   5   3
Customer C   4   12   23

    At February 28, 2001, 24% of the Company's trade receivables were due from the aforementioned customer and 32% were due from customers outside of the United States. Credit, including foreign credit, is determined on an individual customer basis. The Company utilizes letter-of-credit arrangements and wire transfers to minimize its foreign credit risk.

F–8

Export Sales

    The Company's export sales approximated 33%, 42% and 39% of net sales for fiscal years 2001, 2000 and 1999, respectively.

Major Suppliers

    The Company had 66% of its products produced by two suppliers during fiscal 2001. Management believes that alternative suppliers are available in the event the Company is unable to obtain services from its two major suppliers.

3.  Inventories

Inventories consist of the following:

 
   February 28, 2001
   February 29, 2000
Finished goods   $ 12,549,337   $ 11,103,385
Component parts     571,061     976,337
   
 
    $ 13,120,398   $ 12,079,722
   
 

4.  Notes Payable

    The Company has a line-of-credit agreement with a bank subject to renewal on August 31, 2002, whereby it may borrow up to $10,000,000. Borrowings bear interest, payable monthly, at the bank's prime lending rate (8.50% at February 28, 2001). Borrowings under the credit arrangement are collateralized by substantially all corporate assets, excluding land and building. Outstanding borrowings under this arrangement totaled $1,140,095 and $4,912,275 at February 28, 2001 and February 29, 2000, respectively.

    In connection with the line-of-credit agreement, the Company agreed, among other things, to maintain a minimum tangible net worth, to not exceed a certain debt to tangible net worth ratio, to attain a certain net income level, to limit capital expenditures to certain amounts, and to not pay dividends without the bank's consent. The Company has been in compliance or has obtained a waiver for all covenants.

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5.  Long-Term Debt

    Long-term debt consists of the following:

 
   February 28, 2001
   February 29, 2000
Obligations under license agreements, due in varying installments, with interest imputed at 9.25%, through 2004 (see note 8)   $ 1,187,446   $ 1,468,306

Mortgage note payable, due in monthly installments of $18,750 to August 2002, plus interest at the bank's prime rate (8.50% at February 28, 2001), secured by the building
 
 
4,181,250
 
 
4,406,250

Subordinated convertible exchangeable debentures, due in principal installments of $325,000 on October 1, 2002 plus interest at 5%
 
 
325,000
 
 
525,000

Other
 
 
—
 
 
144,999

 
 

 

 
 
 
5,693,696
 
 
6,544,555

Less current maturities
 
 
520,240
 
 
850,859

 
 

 

 
 
$
5,173,456
 
$
5,693,696

 
 

 

    Aggregate future maturities of long-term debt for the fiscal years after February 28, 2001 are as follows:

2002   $ 520,240
2003     4,591,607
2004     326,248
2005     255,601
   
    $ 5,693,696
   

    The subordinated convertible debentures were issued with triggerable warrants attached which enable the debenture holder to purchase 69,565 shares of common stock of the Company. The debentures are convertible at any time, in whole or in part, into shares of common stock of the Company at a conversion price of $5.75.

F–10

6.  Income Taxes

    Net deferred income taxes consist of the following components:

 
   February 28, 2001
   February 29, 2000
  
Deferred tax assets:              
  Receivable allowances   $ 325,000   $ 269,000  
  Inventory costs     240,000     193,000  
  Accrued expenses     704,000     317,000  
  License and patent agreements     257,000     323,000  
  Other comprehensive loss     46,500     253,500  
  Net operating loss carryforwards     1,956,000     2,098,000  
   
 
 
      3,488,500     3,453,500  

Less: valuation allowance
 
 
(384,000
)
 
(200,000
)

Deferred tax liabilities:
 
 
 
 
 
 
 
  Depreciation     (60,000 )   (90,000 )
   
 
 
Net deferred tax assets   $ 3,084,500   $ 3,163,500  
   
 
 

    For financial reporting purposes, the (loss) income before income tax effect is as follows:

 
   February 28,
2001
   February 29,
2000
   February 28,
1999
  
(Loss) income before income taxes:                    
  Domestic   $ (951,742 ) $ 371,628   $ (8,652,382 )
  Foreign     (847,969 )   (339,555 )   4,974  
   
 
 
 
    $ (1,799,711 ) $ 32,073   $ (8,647,408 )
   
 
 
 

    The provisions for income tax (expense) benefit for fiscal years 2001, 2000 and 1999 are as follows:

 
   2001
   2000
   1999
  
Current:                    
  Federal   $ 170,981   $ (66,568 ) $ 637,304  
  State     27,000     (5,000 )   26,000  
  Foreign     70,000     115,000     (2,000 )
   
 
 
 
Total current     267,981     43,432     661,304  

Deferred:
 
 
 
 
 
 
 
 
 
 
  Federal     (55,000 )   (54,000 )   1,985,000  
  State     (6,000 )   (4,000 )   156,000  
   
 
 
 
Total deferred     (61,000 )   (58,000 )   2,141,000  
   
 
 
 
Total income taxes   $ 206,981   $ (14,568 ) $ 2,802,304  
   
 
 
 

F–11

    The provisions for income tax benefit (expense) for fiscal years 2001, 2000 and 1999 differ from the amounts obtained by applying the federal income tax rate to pretax (loss) income as follows:

 
   2001
   2000
   1999
  
Computed "expected" federal tax benefit (expense)   $ 609,000   $ (11,000 ) $ 3,034,000  
(Increase) decrease in taxes resulting from:                    
  State income taxes or benefit, net of federal effect     (5,000 )   (5,000 )   173,000  
  Valuation reserve     (184,000 )   —     (200,000 )
  Foreign     (201,000 )   (18,000 )   (88,000 )
  Other items individually insignificant, net     (12,019 )   19,432     (116,696 )
   
 
 
 
    $ 206,981   $ (14,568 ) $ 2,802,304  
   
 
 
 

    At February 28, 2001, the Company had net operating loss carryforwards of approximately $5.1 million that expire through 2021.

7.  Shareholders' Equity

Stock Options

    The Company has reserved 975,000 common shares for issuance under the First Team Sports, Inc. 1987 Stock Option Plan (the 1987 Plan) and 1,725,000 common shares under the First Team Sports, Inc. 1994 Stock Option and Incentive Compensation Plan (the 1994 Plan). Both plans provide for the granting of incentive stock options under Section 422 of the Internal Revenue Code and nonqualified options not meeting the requirements of Section 422. All key employees of the Company are eligible to receive incentive and nonqualified stock options pursuant to the 1987 and 1994 Plans. Directors of the Company who are not employees may be granted nonqualified options under the Plans. Options are granted at the discretion of the Stock Option Committee. Options are nontransferable and generally granted at a price equal to the quoted market price of the shares at the date of grant.

    The Company also established the First Team Sports, Inc. 1993 Employee Stock Purchase Plan (the 1993 Plan) and reserved 300,000 common shares for issuance thereunder. The 1993 Plan is intended to encourage stock ownership by all employees and is intended to qualify under Section 423 of the Internal Revenue Code. All employees are eligible to participate in the 1993 Plan, with the exception of any employees owning 5% or more of the Company's total voting stock.

    The Company has also issued several nonqualified options to purchase its common stock in connection with various transactions. In January 1997, the Company issued incentive stock options covering 68,251 shares that are not covered by the aforementioned plans.

    Transactions involving stock options during fiscal year 2001, 2000 and 1999 are summarized as follows:

 
   2001
   2000
   1999
 
   Options
   Weighted Average Exercise Price
   Options
   Weighted Average Exercise Price
   Options
   Weighted Average Exercise Price
Outstanding at beginning of year   1,890,700   $ 2.62   1,797,703   $ 2.70   1,375,703   $ 3.06
Exercised   (41,500 )   1.67   (30,500 )   2.18   —     —
Canceled   (184,500 )   2.02   (256,503 )   2.54   (9,000 )   2.75
Expired   191,250     2.75   —     —   —     —
Granted   365,000     1.51   380,000     2.31   431,000     1.55
   
 
 
 
 
 
Outstanding at end of year   1,838,450   $ 2.47   1,890,700   $ 2.62   1,797,703   $ 2.70
   
 
 
 
 
 

F–12

    Weighted average fair value of options granted during 2001, 2000 and 1999 was $.80, $.91 and $.65, respectively.

    As of February 28, 2001, February 29, 2000 and February 28, 1999 options covering 1,557,288, 1,468,540 and 1,137,369 shares, respectively, were exercisable at a weighted average exercise price of $2.63, $2.80 and $2.91 per share, respectively. In addition, the remaining stock options outstanding at February 28, 2001 become exercisable in the following fiscal years:

 
   Shares
   Price Per Share
2002   182,830   $.9375—$2.250
2003   98,332   $.9375—$1.875

    The following table summarizes information about stock options outstanding at February 28, 2001:

 
    
   Options Outstanding
   Options Exercisable
Range of
Exercise Prices
   Number
Outstanding
   Weighted
Average
Remaining
Contractual Life
(Years)
   Weighted
Average
Exercise Price
   Number
Exercisable
   Weighted
Average
Exercise Price
 .9375—2.625   911,500   2.6   1.71   630,338   1.76
2.75  —3.125   701,450   6.2   2.75   701,450   2.75
4.25  —6.250   225,500   5.3   4.64   225,500   4.64
   
         
   
    1,838,450           1,557,288    
   
         
   

    In January 1998, the Company's Board of Directors repriced options covering 956,703 shares, representing all of the qualified outstanding options with exercise prices ranging from $5.33 to $23.38, to an exercise price of $2.75 per share. The vesting terms of these options remained unchanged.

    When stock options are exercised, the par value of the shares issued is credited to common stock and the excess proceeds over par value are credited to additional paid-in capital. Under certain circumstances, when shares acquired through these options are sold, income tax benefits may be realized by the Company and are recorded as additional paid-in capital.

    In May 1989, the Board of Directors adopted a resolution providing for accelerated vesting of outstanding options in the event of defined changes in control of the Company. The resolution provided that all outstanding incentive and nonqualified options granted under the Plans and all nonqualified stock options granted to consultants of the Company outside the Plans shall become fully exercisable upon the occurrence of such a change.

Pro Forma Information

    The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). Accordingly, since options have been issued with exercise prices at or above market value of the Company's stock, no compensation expense has been recognized for the stock option plans. Had compensation expense for the Company's stock options been determined based on the fair value at the grant date for awards in

F–13

2001, 2000 and 1999 consistent with the provisions of SFAS 123, the Company's net (loss) income and the net (loss) income per share would be the pro forma amounts reflected in the following table:

 
   2001
   2000
   1999
  
Net (loss) income—as reported   $ (1,592,730 ) $ 17,505   $ (5,845,104 )
Net (loss)—pro forma   $ (1,959,354     (414,965 )   (6,515,977 )
Net (loss) income per share—as reported:                    
  Basic   $ (.27 ) $ .00   $ (1.01 )
  Diluted   $ (.27 ) $ .00   $ (1.01 )
Net (loss) per share—pro forma:                    
  Basic   $ (.33 ) $ (.07 ) $ (1.12 )
  Diluted   $ (.33 ) $ (.07 ) $ (1.12 )

    The above pro forma effects on net (loss) income and net (loss) income per share are not likely to be representative of the effects on reported net income for future years because options vest over several years and additional awards generally are made each year.

    The fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2001, 2000 and 1999:

 
   2001
   2000
   1999
  
Expected dividend yield   —   —   —  
Expected stock price volatility   56.2 % 54.4 % 54.1 %
Risk-free interest rate   5.0 % 6.4 % 6.4 %
Expected life of options (years)   5.0   3.0   3.0  

Preferred Stock Purchase Rights

    In February 1996, the Board of Directors declared a dividend of one preferred stock purchase right for each outstanding share of Company common stock, which rights expire on March 14, 2006. The rights are transferable with common stock. Each right entitles the holder to purchase one one-hundredth of a share of Series A preferred stock at a price of $55, subject to adjustment. The rights are not exercisable until ten days after the public announcement that a person or group of persons has acquired a beneficial interest of at least 15% of the Company's outstanding common stock or the commencement or announcement of an intention by a person or group to make a tender or exchange offer whose consummation would result in the beneficial ownership of at least 15% of the Company's outstanding common stock. Each right would entitle the rightholder to receive shares of common stock of the acquiring company upon merger or other business combination having a market value of twice the exercise price of the right or, upon exercise, that number of shares of preferred stock having a market value of twice the exercise price of the right. Preferred stock purchasable upon exercise of the rights will be entitled to certain voting privileges, minimum preferential quarterly dividends, an aggregate dividend in relation to dividends declared on common stock, and minimum preferential liquidation payments. The rights have no voting privileges and may be redeemed by the Board of Directors at a price of $.01 per right at any time before they become exercisable.

8.  License Agreements

    The Company has entered into agreements with certain well-known celebrities to endorse the Company's products. The agreements, among other things, require the Company to make certain guaranteed payments, which have been recorded at their present value as both assets (license agreements) and liabilities (obligations under license agreements), and royalty payments based on

F–14

percentages of sales for certain products. The Company is only liable to make sales royalty payments for the amount that sales royalties exceed the guaranteed payments each year. Total royalties and amortization of license agreements were $340,964, $355,103 and $415,934 during fiscal years 2001, 2000 and 1999, respectively. In March 1997, the main license agreement was extended through 2004. The extension of the agreement does not require any guaranteed payments in aggregate above those required under the original agreement.

9.  Employee Benefit Plan

    The Company has a 401(k) Employee Benefit Plan for qualified employees. Company contributions to the plan are determined annually at the discretion of the Board of Directors. The Company's contributions to the plan were $165,000, $160,000 and $156,000 for fiscal years 2001, 2000 and 1999, respectively.

10. Land and Deferred Revenue

    In order to induce the Company to relocate its operation facility, the city of Anoka, Minnesota, gave the Company land in an industrial park with an approximate fair market value of $600,000. The gift was conditional upon the Company staying in the new building through December 31, 1999. The land and corresponding amount of deferred revenue have been recorded at $600,000, the estimated fair market value of the land. The $600,000 of deferred revenue is being recognized as a reduction of depreciation over the life of the building, 39 years.

11. Legal Matters

    The Company is a defendant in various suits, claims and investigations that arise in the normal course of business. In the opinion of the Company's management, the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial position, liquidity or results of operations of the Company.

12. Additional Cash Flow Information

 
   Year ended
 
   February 28,
2001
   February 29,
2000
   February 28,
1999
Supplemental disclosures of cash flow information:                  
  Cash payments for:                  
    Interest   $ 962,869   $ 913,799   $ 1,087,447
    Income taxes     23,955     16,409     9,200
  Non-cash:                  
    License agreement     —     —     262,760

F–15

SCHEDULE II

FIRST TEAM SPORTS, INC.

RESERVE ACCOUNTS

Years Ended February 28, 2001, February 29, 2000 and February 28, 1999

 
   Balance at
Beginning
Of Year
   Additions
Charged to
Expenses
   Deductions*
   Balance at
End of Year
1999 allowance for doubtful accounts   $ 665,503   $ 486,475   $ 509,751   $ 642,227
2000 allowance for doubtful accounts     642,227     266,251     143,693     764,785
2001 allowance for doubtful accounts     764,785     430,067     246,544     948,308
(*)
Uncollectible accounts written off, net of recoveries.

F–16


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

EXHIBIT INDEX TO FORM 10-K

For the fiscal year ended:         Commission File No.: 000 -16422

February 28, 2001

FIRST TEAM SPORTS, INC.

Exhibit Number
   Description
 3.1   Articles of Incorporation, as amended—incorporated by reference to Exhibit 3.1 to the Company's Annual Report Form 10-K for the year ended February 28, 1997
 3.2   Bylaws—incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-18 Reg. No. 33-16345C
 4.1   Specimen of Common Stock Certificate—incorporated by reference to 4.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended February 28, 1991
 4.2   Certificate of Designations of Series A Preferred Stock (included in Restated Articles of Incorporation—see Exhibit 3.1)
 4.3   Rights Agreement dated as of March 15, 1996 between the Company and Norwest Bank Minnesota, N.A. as Rights Agent—incorporated by reference to Exhibit 2.1 to the Company's Registration Statement on Form 8-A, Reg. No. 0-16422
 4.4   Form of Right Certificate—incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on Form 8-A, Reg. No. 0-16422
 4.5   Summary of Rights to Purchase Share of Series A Preferred Stock—incorporated by reference to Exhibit 2.3 to the Company's Registration Statement of Form 8-A, Reg. No. 0-16422
10.1   The Company's 1987 Stock Option, as amended by resolutions dated May 25, 1989—incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended February 28, 1997**
10.2   Amendment dated April 22, 1992 to the Company's 1987 Stock Option Plan—incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended February 29, 1992**
10.3   Form of Incentive Stock Option Agreement under 1987 Stock Option Plan—incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-18, Reg. No. 33-16345C**
10.4   Form of Nonqualified Stock Option Agreement under 1987 Stock Option Plan—incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-18, Reg. No. 33-16345C**
10.5   License Agreement between the Company, Wayne Gretzky and Janet Jones Gretzky dated as of December 1, 1994—incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended February 28, 1995

E–1

10.6   Amendment dated March 1, 1997 to License Agreement between the Company, Wayne Gretzky and Janet Jones Gretzky dated December 1, 1994—incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended February 28, 1997
10.7   License Agreement between the Company and Creative Sports Concepts, Inc. dated as of October 31, 1994—incorporated by reference to Exhibit 10.11 to the Company's Annual Report Form 10-K for the year ended February 28, 1995
10.8   Company Bonus Plan for certain executive officers of the Company for fiscal 2001—incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended February 29, 2000**
10.9   The Company's 1990 Nonqualified Stock Option Plan, as amended by resolutions dated May 25, 1989—incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended February 28, 1991**
10.10   The Company's 1993 Employee Stock Purchase Plan—incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended February 28, 1993**
10.11   Employment Agreement dated January 23, 1996 between the Company and John J. Egart—incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended February 29, 1996**
10.12   Employment Agreement dated January 23, 1996 between the Company and David G. Soderquist—incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended February 29, 1996**
10.13   1994 Stock Option and Incentive Compensation Plan, as amended through May 27, 1998—incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1998**
10.14   Employment Agreement dated August 18, 1997 between the Company and Kent Brunner—incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1997**
10.15   Amendment dated January 1, 1998 to Employment Agreement dated January 23, 1996 between the Company and John J. Egart—incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999**
10.16   Amendment dated January 1, 1998 to Employment Agreement dated January 23, 1996 between the Company and David G. Soderquist—incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999**
10.17   Amendment dated December 1, 1998 to employment agreement dated August 18, 1997 between the Company and Kent Brunner—incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999**
10.18   $8.5 million Revolving Note Agreement dated September 8, 1999 between the Company and Norwest Bank Minnesota, N.A.—incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended February 29, 2000
10.19   $1.5 million Revolving Note Agreement dated September 8, 1999 between the Company and Norwest Bank Minnesota, N.A.—incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended February 29, 2000

E–2

10.20   $4.5 million Revolving Term Note Agreement dated September 8, 1999 between the Company and Norwest Bank Minnesota, N.A.—incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended February 29, 2000
10.21   Credit and Security Agreement dated September 8, 1999 between the Company and Norwest Bank Minnesota, N.A.—incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended February 29, 2000
10.22   Mortgage and Security Agreement dated September 8, 1999 between the Company and Norwest Bank Minnesota, N.A.—incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended February 29, 2000
10.23*   Employment Agreement dated July 12, 2000 between the Company and Richard Jackson**
10.24*   Employment Agreement dated January 10, 2001 between the Company and Thomas W. Schultz**
10.25*   First Amendment to Credit and Security Agreement, effective July 31, 2000 between the Company and Wells Fargo Bank Minnesota, N. A., formerly known as Norwest Bank Minnesota, N. A.
21*   List of Subsidiaries
23.1*   Consent of Ernst & Young LLP
24*   Power of Attorney (included in signature page on this Form 10-K)
*
Filed herewith

**
Management contract or compensatory plan or arrangement.

E–3



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PART I
EXECUTIVE OFFICERS OF THE COMPANY
PART II
PART III
PART IV
SIGNATURES
Report of Independent Auditors
First Team Sports, Inc. Consolidated Balance Sheets
First Team Sports, Inc. Consolidated Statements of Operations
First Team Sports, Inc. Consolidated Statement of Shareholders' Equity
First Team Sports, Inc. Consolidated Statements of Cash Flows
First Team Sports, Inc. Notes to Consolidated Financial Statements
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 EXHIBIT INDEX TO FORM 10-K
 EX-10.23 2 a2050480zex-10_23.htm EXHIBIT 10.23 Prepared by MERRILL CORPORATION
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Exhibit 10.23


EMPLOYMENT AGREEMENT

    THIS AGREEMENT is entered into July 12, 2000 to be effective as of March 1, 2000, between FIRST TEAM SPORTS, INC., a Minnesota corporation (the "Company"), and Richard Jackson, a resident of Minnesota ("Executive").


W I T N E S S E T H

    WHEREAS, the Company desires to promote Executive to the position of Vice President of Production and Product Development effective as of March 1, 2000, and the Board of Directors of the Company elected Executive as Vice President of Production and Product Development on July 12, 2000; and

    WHEREAS, the Company desires to continue to have the benefit of Executive's experience and loyalty, and Executive is willing to provide Executive's services on the terms and conditions set forth herein;

    NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

1.
Definitions.

    The following capitalized terms used in this Agreement shall be defined as follows:

    "Agreement" shall mean this Agreement between the Company and Executive.

    "Base Salary" shall mean the annual base salary payable to Executive pursuant to Section 4(a) hereof, and "monthly Base Salary" shall mean the Base Salary divided by twelve (12).

    "Board" shall mean the Board of Directors of First Team Sports, Inc.

    "Cause" shall mean Executive's (1) gross misconduct, dishonesty or disloyalty; (2) willful and material breach of this Agreement by Executive; or (3) conviction or entry of a plea of guilty or nolo contendere to any felony or to any misdemeanor involving fraud, misrepresentation or theft.

    A "Change of Control" shall be deemed to have occurred if (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power (with respect to the election of directors) of the Company's then outstanding securities; (2) at any time after the execution of this Agreement, individuals who as of the date of the execution of this Agreement constitute the Board (and any new director whose election to the Board or nomination for election to the Board by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office) cease for any reason to constitute a majority of the Board; (3) the consummation of a merger or consolidation of the Company with or into any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 70% of the combined voting power (with respect to the election of directors) of the securities of the Company or of such surviving entity outstanding immediately after such merger or consolidation; or (4) the consummation of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company of all or substantially all of the Company's business or assets.

–1–

    "Change of Control Payments" shall mean any payment (including any benefit or transfer of property) in the nature of compensation, to or for the benefit of Executive under any arrangement, which is partially or entirely contingent on a Change of Control, or is deemed to be contingent on a Change of Control for purposes of Section 280G of the Code. As used in this definition, the term "arrangement" includes any agreement between Executive and the Company and any and all of the Company's salary, bonus, incentive, compensation or benefit plans, programs or arrangements, and shall include this Agreement.

    "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder.

    A "Commencement Date" shall occur on (1) such date as the Company enters into negotiations leading toward an agreement in principle or definitive agreement pursuant to which a Change of Control thereafter occurs; or (2) the date on which a tender or exchange offer or proxy contest is commenced pursuant to which a Change of Control thereafter occurs.

    "Company" shall mean First Team Sports, Inc., a Minnesota corporation, any subsidiaries thereof, and any successors or assigns, including any Successor.

    "Company Product" means any product, product line or service (including any component thereof or research to develop information useful in connection with a product or service) that is being designed, developed, manufactured, marketed or sold by the Company or with respect to which the Company has acquired Confidential Information which it intends to use, or uses, in the design, development, manufacture, marketing or sale of a product or service.

    "Competitive Product" means any product, product line or service (including any component thereof or research to develop information in connection with a product or service) that is being designed, developed, manufactured, marketed or sold by anyone other than the Company and is of the same general type, performs similar functions, or is used for the same purposes as a Company Product.

    "Confidential Information" means any information or compilation of information that Executive learns or develops during the course of Executive's employment that derives independent economic value from not being generally known, or readily ascertainable by proper means, by other persons who can obtain economic value from its disclosure or use. It includes but is not limited to trade secrets, inventions, and discoveries, and may relate to such matters as research and development, manufacturing processes, management systems and techniques, and sales and marketing plans and information.

    "Executive" shall mean Richard Jackson, a resident of Minnesota.

    "Good Reason" shall mean (1) a substantial reduction in the nature or status of Executive's responsibilities hereunder; (2) a reduction by the Company in the Base Salary of Executive except to the extent permitted under Section 4(a) hereof; (3) the failure by the Company to allow Executive to participate to the full extent to which Executive is eligible in all plans, programs or benefits in accordance with Sections 4(b) to (e), inclusive, hereof; or (4) relocation of Executive's principal office more than 20 miles from its current location. Notwithstanding the foregoing, "Good Reason" shall be deemed to occur only if such event enumerated in (1) through (4) above has not been corrected by the Company within two weeks of receipt of notice from Executive of the occurrence of such event, which notice shall specifically describe such event.

    "Incentive Stock Option Plans" shall mean any such plans within the meaning of Section 422 of the Code or any successor provision thereof.

    "Inventions" means any inventions, discoveries, improvements, ideas, or works of authorship (whether patentable or not and including those which may be subject to copyright protection)

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generated, conceived, authored, or reduced to practice by Executive alone or in conjunction with others, during or after working hours, while an employee of the Company, and that:

        (i)  are derived in whole or in part from, or use, incorporate, or represent any improvement to any Invention or trade secret of the Company; or

        (ii) result from any work Executive performs for the Company; or

        (iii)   use any of the Company's equipment, supplies, or facilities, or trade secret information; or

        (iv) otherwise relate to the Company's products or the Company's present or possible future research or development.

    "Permanently Disabled" shall mean permanently disabled in accordance with the Company's long-term disability plan in effect at the time of commencement of such permanent disability and as evaluated by sufficient documentation including doctors statements, etc. as requested by the Company.

    "Person" shall mean an individual, partnership, corporation, estate or trust or other entity.

    "Short-Term Plan" shall mean the annual Executive Bonus Plan of the Company in effect from time to time.

    "Successor" shall be any entity acquiring substantially all of the assets of the Company or a corporation into which the Company is merged or with which it is consolidated.

    "Term" shall mean the term of Executive's employment including any period of renewal, under Section 3 hereof.

    "Transition Period" shall be that period of time commencing on the earlier of a Commencement Date or a Change of Control and continuing for 365 days following a Change of Control.

2.
Employment and Duties.

        (a) General. The Company hereby employs Executive as Vice President of Production and Product Development upon the terms and conditions set forth in this Agreement. Executive agrees to serve as Vice President of Production and Product Development and perform the duties and responsibilities normally vested in such a position, and those duties and responsibilities as may, from time to time, be assigned to Executive by the Board.

        (b) Exclusive Services. Throughout the Term, Executive shall, except as may from time to time be otherwise agreed in writing by the Company and unless prevented by ill health, devote his full-time working hours to his duties hereunder.

        (c) No Other Employment. Throughout the Term, Executive shall not, directly or indirectly, render services to any other person or organization for which he receives compensation (excluding volunteer services or outside Board activities with modest time commitments) without the consent of the Board or otherwise engage in activities which would interfere significantly with the performance of his duties hereunder.

    3.  Term of Employment. The Company shall retain Executive and Executive shall serve in the employ of the Company for a minimum period of two (2) years commencing as of the date of this Agreement; provided, however, that either Executive or the Company may terminate the employment of Executive during the Term in accordance with, and subject to the right of Executive to receive payments and other benefits that may be due pursuant to, this Agreement. This Agreement will be subject to automatic renewals for successive additional two (2)-year periods, unless nonrenewed as provided in Section 9 of this Agreement or terminated as provided in Section 9 of this Agreement.

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    4.  Compensation and Other Benefits. Subject to the provisions of this Agreement, the Company shall pay and provide the following compensation and other benefits to Executive during the Term as compensation for services rendered hereunder:

        (a) Base Salary. The Company shall pay to Executive a Base Salary at the rate of $100,000 per annum, payable semi-monthly. The Company shall be entitled to deduct or withhold all taxes and charges which the Company may be required to deduct or withhold therefrom. The Base Salary will be reviewed not less than annually by the Board and may be increased, reduced, or left unchanged; provided, however, that any reduction shall be permitted only if the Company then reduces the base compensation of its executive employees generally and shall not exceed the average percentage reduction for all such executive employees.

        (b) Incentive Compensation. At all times during the Term, unless prohibited by the Code or other applicable law, Executive shall be entitled to participate in all incentive compensation plans and programs of the Company, currently existing or subsequently adopted.

        (c) Stock Options. At all times during the Term, Executive shall, unless prohibited by the Code or other applicable law, be entitled to participate in all stock option plans and programs of the Company currently existing or subsequently adopted, unless otherwise agreed to by Executive and the Board or unless such plan or program is specifically for the Company's non-executive employees.

        (d) Executive Benefit Plans. At all times during the Term, Executive shall, unless prohibited by the Code or other applicable law, be eligible to participate in all pension and welfare plans and programs of the Company for executive employees, currently existing or subsequently adopted, including but not limited to the following:

          (i)  all qualified pension plans (e.g., profit sharing and 401(k) plans);

          (ii) all long-term disability and life insurance plans and programs;

          (iii)   all group health insurance plans; and

          (iv) all supplemental retirement plans and programs.

    5.  Termination of Employment for Cause; Resignation Without Good Reason.

        (a) Compensation and Benefits. If, prior to the expiration of the Term, Executive's employment is terminated by the Company for Cause or if Executive resigns from employment hereunder other than for Good Reason, then Executive shall not be eligible to receive any compensation or benefits, or to participate in any benefit plans or programs, under Section 4 hereof with respect to future periods after the date of such termination or resignation except for the right to receive any vested benefits in accordance with the terms of such plan or program, or to continue or convert at Executive's expense group insurance coverage as provided by law or the terms of such plan or program.

        (b) Date of Termination. The date of termination of Executive's employment by the Company under this Section 5 shall be one (1) month after receipt by Executive of written notice of termination. The date of resignation by Executive under this Section 5 shall be one (1) month after receipt by the Company of written notice of resignation.

    6.  Termination of Employment Without Cause or Resignation for Good Reason Other Than During Change of Control.

        (a) Compensation and Benefits. If, other than during a Transition Period, Executive's employment is terminated by the Company without Cause or Executive resigns from his employment hereunder for Good Reason, Executive shall be entitled only to receive the following

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    from the Company promptly following the Effective Date of termination or cessation of employment with the Company:

          (i)  The Company shall make a cash payment to Executive equal to the greater of (A) the sum of the highest monthly Base Salary in effect any time during the three-year period immediately preceding such termination times the number of months remaining in the Term (without regard to renewals) under this Agreement, plus an amount equal to the incentive bonus earned by Executive in the prior fiscal year multiplied by the number of months remaining in the Term (without regard to renewals) divided by twelve (12), or (B) the sum of the highest annual Base Salary in effect during the three-year period immediately preceding such termination plus the amount of incentive bonus earned by Executive during the prior fiscal year. Such payment shall be made in cash within fifteen (15) days from and after termination of Executive's employment.

          (ii) With respect to any stock options, SARs, restricted stock awards or performance share awards granted to Executive and outstanding immediately prior to such termination or resignation, all restrictions (other than those imposed by law) on all shares of restricted stock awards shall lapse immediately, all outstanding options and SARs will become exercisable immediately, and all performance share objectives shall be deemed to be met.

          (iii)   Executive shall be entitled to continued participation in the Company's group health insurance plan as permitted by COBRA and the terms of such plan. Company shall, for a one-year period following termination of Executive's employment, continue to pay a portion of Executive's Company group health insurance premiums equivalent to that portion it pays on behalf of its employees during such one-year period, subject to Executive paying the employee portion of such premiums and subject to termination of participation upon Executive becoming entitled to group health insurance coverage on subsequent employment or upon Executive's electing not to continue coverage or termination of such plan by Company.

        (b) Date of Termination. The date of termination of Executive's employment by the Company under this Section 6 shall be the date specified in the written notice of termination to Executive, or if no such date is specified therein, the date on which such notice is given to Executive. The date of resignation by Executive under this Section 6 shall be two weeks after receipt by the Company of written notice of resignation, provided that the Good Reason specified in such notice shall not have been corrected by the Company during such two-week period.

    7.  Termination of Employment Without Cause or Resignation With Good Reason After Change of Control.

        (a) Compensation and Benefits. If, prior to the expiration of the Term and as of a date during a Transition Period, Executive's employment is terminated by the Company or its Successor without Cause or if Executive resigns from employment hereunder for Good Reason, Executive shall, subject to subsection (c) below, be entitled only to receive the following from the Company or its Successor promptly following the Effective Date of termination or cessation of employment with the Company:

          (i)  Subject to paragraph (c) hereof, the Company shall make a cash payment to Executive equal to the greater of (A) the sum of the highest monthly Base Salary in effect any time during the three-year period immediately preceding such termination times the number of months remaining in the Term (without regard to renewals) under this Agreement, plus an amount equal to the incentive bonus earned by Executive in the prior fiscal year multiplied by the number of months remaining in the Term (without regard to renewals) divided by twelve (12), or (B) 2 times the sum of the highest annual Base Salary in effect any time during the three-year period immediately preceding such termination, and the amount of incentive

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      bonuses which, absent termination of Executive's employment, could have been earned by Executive during the fiscal year of the Company in which Executive's employment under this Agreement ceases. For purposes of Clause (B), the computation of the amount of incentive bonuses shall be based upon the bonus programs in effect at the time of termination of Executive's employment and such computation shall assume that target performance levels are satisfied for all purposes during such fiscal year. Such payment shall be made in cash within fifteen (15) days from and after termination of Executive's employment.

          (ii) Executive shall not be eligible to receive any compensation or benefits or to participate in any plans or programs with respect to future periods after the date of such termination or resignation except for the right to receive any vested benefits in accordance with the terms of such plan or program or to continue or convert at Executive's expense group insurance coverage as provided by law or the terms of such plan or program. With respect to any stock options, SARs, restricted stock awards or performance share awards granted to Executive and outstanding immediately prior to such termination or resignation, all restrictions (other than those imposed by law) on all shares of restricted stock awards shall lapse immediately, all outstanding options and SARs will become exercisable immediately, and all performance share objectives shall be deemed to be met.

        (b) Date of Termination. The date of termination of Executive's employment by the Company under this Section 7 shall be the date specified in the written notice of termination to Executive, or if no such date is specified therein, the date on which such notice is given to Executive. The date of resignation by Executive under this Section 7 shall be two weeks after receipt by the Company of written notice of resignation, provided that the Good Reason specified in such notice shall not have been corrected by the Company during such two-week period.

        (c) Limitation on Change of Control Compensation. In the event that Executive is a "disqualified individual" within the meaning of Section 280G of the Code, the parties expressly agree that the payments described in this Section 7 or in Section 9 shall be considered together with all Change of Control Payments so that, with respect to Executive, all Change of Control Payments are collectively subject to an overall maximum limit. Such maximum limit shall be One Dollar ($1.00) less than the largest amount under which no portion of the Change of Control Payments is considered a "parachute payment" within the meaning of Section 280G of the Code. Accordingly, to the extent that the Change of Control Payments would be considered a "parachute payment" with respect to Executive, then the portions of such Change of Control payments shall be reduced or eliminated in the following order until the remaining Change of Control Payments with respect to Executive is one Dollar ($1.00) less than the maximum allowable which would not be considered a "parachute payment" under the Code:

          (i)  First, any cash payment to Executive;

          (ii) Second, any Change of Control Payments not described in this Agreement; and

          (iii)  Third, any forgiveness of indebtedness of Executive to the Company.

    Executive expressly and irrevocably waives any and all rights to receive any Change of Control payments which would be considered a "parachute payment" under the Code.

    8.  Termination of Employment by Disability or Death.

        (a) Compensation and Benefits. If Executive becomes Permanently Disabled prior to the expiration of the Term, the Company shall be entitled to terminate Executive's employment subject to the Company's normal policies in such matters as applied to all other salaried employees. In the event of such termination of Executive's employment or termination of Executive's employment by

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    reason of the death of Executive prior to the expiration of the Term, the Executive (or Executive's estate, as the case may be) shall be entitled to receive from the Company only the following:

          (i)  In the event of termination after Executive has become Permanently Disabled, Executive shall be entitled to continued participation in hospital and medical plans and programs of the Company at Executive's own expense, as required by COBRA and in accordance with Company policy as it pertains to disabled salaried employees; that is for the period of said disability or until normal retirement age subject to rules and practice of the plan(s). Company may, in its discretion, provide the benefits described herein under the Company's group plans or under no less favorable insurance contracts or arrangements secured by the Company.

          (ii) Executive (or, in the event of Executive's death, Executive's estate or Executive's designated beneficiary) shall be entitled to receive any vested benefits in accordance with the terms of any such benefit plans. Executive shall be entitled to continued contributions under the Company's qualified profit sharing and 401(k) plans to the extent permitted in said plans.

        (b) Date of Termination. The date of termination of Executive's employment under this Section 8 shall be the date Executive becomes Permanently Disabled or the date of Executive's death as the case may be.

    9.  Termination of Employment by Written Notice of Nonrenewal.

        (a) Notice. This Agreement may be terminated with or without Cause upon delivery of written notice of nonrenewal by either party to the other between ninety (90) and sixty (60) days prior to the end of the Term or of any renewal period.

        (b) Compensation and Benefits. If Executive's employment is not renewed under this Section 9, Executive shall be entitled only to the following severance benefits:

          (i)  Unless the notice of nonrenewal is given during a Transition Period, the Company shall make a cash payment equal to the amount of the highest annual Base Salary in effect any time during the three-year period immediately preceding termination of employment. Such payment shall be made in cash within fifteen (15) days from and after the end of Executive's employment term. If the notice of renewal is given during a Transition Period, then, subject to Section 7(c), the Company shall make a cash payment to Executive equal to two (2) times the sum of (A) the amount of the highest annual Base Salary in effect any time during the three-year period immediately preceding termination of Executive's employment and (B) the amount of incentive bonuses which, absent termination of Executive's employment, could have been earned by Executive during the fiscal year of the Company in which Executive's employment under this Agreement ceases. For purposes of Clause (B), the computation of the amount of incentive bonuses shall be based upon the bonus programs in effect at the time of termination of Executive's employment and such computation shall assume that target performance levels are satisfied for all purposes during such fiscal year. Such payment shall be made in cash within fifteen (15) days from and after termination of Executive's employment.

          (ii) Executive shall be entitled to continued participation in Company's group health insurance plan as permitted by COBRA and the terms of such plan. Company shall, for a one-year period following termination of Executive's employment, continue to pay a portion of Executive's Company group health insurance premiums equivalent to that portion it pays on behalf of its employees during such one-year period, subject to Executive paying the employee portion of such premiums and subject to termination of participation upon Executive becoming entitled to group health insurance coverage on subsequent employment or upon Executive's electing not to continue coverage or termination of such plan by Company.

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        (c) Date of Termination. The date of termination of Executive's employment by the Company under this Section 9 shall be the date on which the term of Executive's employment expires.

    10.   Legal Fees and Expenses. The Company shall pay or reimburse Executive for all reasonable legal fees and expenses incurred by Executive in seeking to obtain or enforce any right or benefit provided by this Agreement from or against the Company in a proceeding before a court of competent jurisdiction.

    11.   Assignment of Inventions. Executive agrees to promptly disclose to the Company in writing all Inventions. All such Inventions shall be the exclusive property of the Company and are hereby assigned by Executive to the Company. Further, Executive will, at the Company's expense, give the Company all assistance it reasonably requires to perfect, protect, enforce, and use its rights to Inventions. In particular, but without limitation, Executive will sign all documents, do all things, and supply all information that the Company may deem necessary or desirable to:

          (i)  transfer or record the transfer of Executive's entire right, title and interest in Inventions; and

          (ii) enable the Company to obtain or enforce patent, copyright or trademark protection for Inventions anywhere in the world.

    The obligations of this Section shall continue beyond the termination of employment with respect to Inventions conceived or made by Executive during the period of Executive's employment and shall be binding upon assigns, executors, administrators and other legal representatives. For purposes of this Agreement, any Invention relating to the business of the Company on which Executive files a patent application within six (6) months after termination of employment with the Company shall be presumed to cover Inventions conceived by Executive during the term of Executive's employment, subject to proof to the contrary by good faith, written and duly corroborated records establishing that such Invention was conceived and made following termination of employment.

    NOTICE: Pursuant to Minnesota Statutes § 181.78, Executive is hereby notified that this Section 11 does not apply to any invention for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on Executive's own time, and (1) which does not relate (a) directly to the business of the Company or (b) to the Company's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by the employee for the Company.

    12.   Confidential Information. Executive agrees not to directly or indirectly use or disclose Confidential Information for the benefit of anyone other than the Company, either during or after employment, for as long as the information retains the characteristics of Confidential Information described in Section 1 above.

    13.   Return of Documents and Property. All documents and tangible items provided to Executive by the Company, or possessed, obtained, or created by Executive for use in connection with Executive's employment, are the property of the Company and shall be promptly returned to the Company on termination of employment together with all copies, recordings, abstracts, notes or reproductions of any kind made from or about the documents and tangible items or the information they contain.

    14.   Noncompetition. In consideration of Executive's rights under this Agreement, including without limitation Sections 5 through 9 hereof, Executive agrees that, from and after the Effective Date and continuing until the one-year anniversary of termination or cessation of Executive's employment with the Company, Executive will not, alone or in any capacity with another person or entity:

          (i)  directly or indirectly, own any interest in, control, be employed by or associated with, or render services to (including but not limited to services in research), any person, entity, or subsidiary, subdivision, division, or joint venture of such entity in connection with the design,

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      development, manufacture, marketing, or sale of a Competitive Product that is sold or intended for use or sale in any geographic area in which the Company actively markets a Company Product or intends to actively market a Company Product of the same general type or function;

          (ii) directly or indirectly, solicit any of the Company's present or future employees for the purpose of hiring them or inducing them to leave their employment with the Company;

          (iii)   directly or indirectly, solicit, attempt to solicit, interfere, or attempt to interfere with the Company's relationship with its customers or potential customers, on behalf of Executive or any other person or entity engaged in the design, development, manufacture, marketing, or sale of a Competitive Product; or

          (iv) directly or indirectly design, develop, manufacture, market, or sell any Competitive Product that is sold or intended for use or sale in any geographic area in which the Company actively markets a Company Product or intends to actively market a Company Product of the same general type or function.

    15.   Breach of Noncompetition Provisions of this Agreement. In addition to any other relief or remedies afforded by law or in equity, if Executive breaches Section 14 of this Agreement, Executive agrees that the Company shall be entitled, as a matter of right, to injunctive relief in any court of competent jurisdiction plus its costs, including but not limited to its reasonable attorneys' fees for securing such relief. Executive recognizes and hereby admits that irreparable damage will result to the Company if Executive violates or threatens to violate the terms of Section 14 of this Agreement. This Section 15 shall not preclude the granting of any other appropriate relief including, without limitation, money damages against Executive for breach of Section 14 of this Agreement.

    16.   Effect of Other Obligations. It is intended that the obligation of the parties to perform the terms of this Agreement is unconditional and does not depend on the performance or non-performance of any terms, duties or obligations not specifically recited in this Agreement.

    17.   Binding Agreement. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto, any Successor to or assigns of the Company, and Executive's heirs and the personal representative of Executive's estate.

    18.   Severability. If a Court finds that any provision of this Agreement is not enforceable, Executive and the Company agree that the Court should modify the provision to make it enforceable to the maximum extent possible. If the provision cannot be modified, Executive and the Company agree that the provision may be severed, and the other provisions of this Agreement shall remain in full force and effect.

    19.   Amendment; Waiver. This Agreement may not be modified, amended or waived in any manner except by an instrument in writing signed by both parties hereto. The waiver by either party of compliance with any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.

    20.   Governing Law. All matters affecting this Agreement, including the validity thereof, are to be governed by, interpreted and construed in accordance with the laws of the State of Minnesota.

    21.   Notices. Any notice hereunder by either party to the other shall be given in writing by personal delivery or certified mail, return receipt requested. If addressed to Executive, the notice shall be delivered or mailed to Executive at the address specified under Executive's signature hereto, or if addressed to the Company, the notice shall be delivered or mailed to the Company at its executive offices to the attention of the Board of Directors of the Company. A notice shall be deemed given, if

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by personal delivery, on the date of such delivery or, if by certified mail, on the date shown on the applicable return receipt.

    22.   Supersedes Previous Agreements. This Agreement supersedes all prior or contemporaneous negotiations, commitments, agreements and writings with respect to the subject matter hereof, all such other negotiations, commitments, agreements and writings will have no further force or effect, and the parties to any such other negotiation, commitment, agreement or writing will have no further rights or obligations thereunder.

    23.   Headings; Construction. The headings of Sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. This Agreement shall be construed without regard to any presumption or other rule requiring construction hereof against the party causing this Agreement to be drafted.

    24.   Benefit. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

    IN WITNESS WHEREOF, the Company has caused this Employment Agreement to be signed by its officer pursuant to the authority of its Board, and Executive has executed this Employment Agreement, as of the day and year first written above.

    FIRST TEAM SPORTS, INC.

 
 
By:
 
John J. Egart
 President

 
 
 
 
Richard Jackson

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EMPLOYMENT AGREEMENT THIS AGREEMENT is entered into July 12, 2000 to be effective as of March 1, 2000, between FIRST TEAM SPORTS, INC ., a Minnesota corporation (the "Company"), and Richard Jackson , a resident of Minnesota ("Executive").
W I T N E S S E T H
 EX-10.24 3 a2050480zex-10_24.htm EXHIBIT 10.24 Prepared by MERRILL CORPORATION
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Exhibit 10.24


EMPLOYMENT AGREEMENT

    THIS AGREEMENT effective as of January 10, 2001, between FIRST TEAM SPORTS, INC., a Minnesota corporation (the "Company"), and Thomas W. Schultz, a resident of Minnesota ("Executive").

W I T N E S S E T H

    WHEREAS, Executive has been employed as Vice President of Sales; and

    WHEREAS, the Company desires to continue to have the benefit of Executive's experience and loyalty, and Executive is willing to provide Executive's services on the terms and conditions set forth herein;

    NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

    1.  Definitions.

      The following capitalized terms used in this Agreement shall be defined as follows:

    "Agreement" shall mean this Agreement between the Company and Executive.

    "Base Salary" shall mean the annual base salary payable to Executive pursuant to Section 4(a) hereof, and "monthly Base Salary" shall mean the Base Salary divided by twelve (12).

    "Board" shall mean the Board of Directors of First Team Sports, Inc.

    "Cause" shall mean Executive's (1) gross misconduct, dishonesty or disloyalty; (2) willful and material breach of this Agreement by Executive; or (3) conviction or entry of a plea of guilty or nolo contendere to any felony or to any misdemeanor involving fraud, misrepresentation or theft.

    A "Change of Control" shall be deemed to have occurred if (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power (with respect to the election of directors) of the Company's then outstanding securities; (2) at any time after the execution of this Agreement, individuals who as of the date of the execution of this Agreement constitute the Board (and any new director whose election to the Board or nomination for election to the Board by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office) cease for any reason to constitute a majority of the Board; (3) the consummation of a merger or consolidation of the Company with or into any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 70% of the combined voting power (with respect to the election of directors) of the securities of the Company or of such surviving entity outstanding immediately after such merger or consolidation; or (4) the consummation of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company of all or substantially all of the Company's business or assets.

    "Change of Control Payments" shall mean any payment (including any benefit or transfer of property) in the nature of compensation, to or for the benefit of Executive under any arrangement, which is partially or entirely contingent on a Change of Control, or is deemed to be contingent on a Change of Control for purposes of Section 280G of the Code. As used in this definition, the term "arrangement" includes any agreement between Executive and the Company and any and all of the

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Company's salary, bonus, incentive, compensation or benefit plans, programs or arrangements, and shall include this Agreement.

    "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder.

    A "Commencement Date" shall occur on (1) such date as the Company enters into negotiations leading toward an agreement in principle or definitive agreement pursuant to which a Change of Control thereafter occurs; or (2) the date on which a tender or exchange offer or proxy contest is commenced pursuant to which a Change of Control thereafter occurs.

    "Company" shall mean First Team Sports, Inc., a Minnesota corporation, any subsidiaries thereof, and any successors or assigns, including any Successor.

    "Company Product" means any product, product line or service (including any component thereof or research to develop information useful in connection with a product or service) that is being designed, developed, manufactured, marketed or sold by the Company or with respect to which the Company has acquired Confidential Information which it intends to use, or uses, in the design, development, manufacture, marketing or sale of a product or service.

    "Competitive Product" means any product, product line or service (including any component thereof or research to develop information in connection with a product or service) that is being designed, developed, manufactured, marketed or sold by anyone other than the Company and is of the same general type, performs similar functions, or is used for the same purposes as a Company Product.

    "Confidential Information" means any information or compilation of information that Executive learns or develops during the course of Executive's employment that derives independent economic value from not being generally known, or readily ascertainable by proper means, by other persons who can obtain economic value from its disclosure or use. It includes but is not limited to trade secrets, inventions, and discoveries, and may relate to such matters as research and development, manufacturing processes, management systems and techniques, and sales and marketing plans and information.

    "Executive" shall mean Thomas W. Schultz, a resident of Minnesota.

    "Good Reason" shall mean (1) a substantial reduction in the nature or status of Executive's responsibilities hereunder; (2) a reduction by the Company in the Base Salary of Executive except to the extent permitted under Section 4(a) hereof; (3) the failure by the Company to allow Executive to participate to the full extent to which Executive is eligible in all plans, programs or benefits in accordance with Sections 4(b) to (e), inclusive, hereof; or (4) relocation of Executive's principal office more than 20 miles from its current location. Notwithstanding the foregoing, "Good Reason" shall be deemed to occur only if such event enumerated in (1) through (4) above has not been corrected by the Company within two weeks of receipt of notice from Executive of the occurrence of such event, which notice shall specifically describe such event.

    "Incentive Stock Option Plans" shall mean any such plans within the meaning of Section 422 of the Code or any successor provision thereof.

    "Inventions" means any inventions, discoveries, improvements, ideas, or works of authorship (whether patentable or not and including those which may be subject to copyright protection) generated, conceived, authored, or reduced to practice by Executive alone or in conjunction with others, during or after working hours, while an employee of the Company, and that:

          (i)    are derived in whole or in part from, or use, incorporate, or represent any improvement to any Invention or trade secret of the Company; or

          (ii)   result from any work Executive performs for the Company; or

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          (iii)   use any of the Company's equipment, supplies, or facilities, or trade secret information; or

          (vi)   otherwise relate to the Company's products or the Company's present or possible future research or development.

    "Permanently Disabled" shall mean permanently disabled in accordance with the Company's long-term disability plan in effect at the time of commencement of such permanent disability and as evaluated by sufficient documentation including doctors statements, etc. as requested by the Company.

    "Person" shall mean an individual, partnership, corporation, estate or trust or other entity.

    "Short-Term Plan" shall mean the annual Executive Bonus Plan of the Company in effect from time to time.

    "Successor" shall be any entity acquiring substantially all of the assets of the Company or a corporation into which the Company is merged or with which it is consolidated.

    "Term" shall mean the term of Executive's employment including any period of renewal, under Section 3 hereof.

    "Transition Period" shall be that period of time commencing on the earlier of a Commencement Date or a Change of Control and continuing for 365 days following a Change of Control.

    2.  Employment and Duties.

        (a) General. The Company hereby employs Executive as Vice President-Sales upon the terms and conditions set forth in this Agreement. Executive agrees to serve as Vice President-Sales and perform the duties and responsibilities normally vested in the Vice President-Sales of a company, and those duties and responsibilities as may, from time to time, be assigned to Executive by the Board.

        (b) Exclusive Services. Throughout the Term, Executive shall, except as may from time to time be otherwise agreed in writing by the Company and unless prevented by ill health, devote his full-time working hours to his duties hereunder.

        (c) No Other Employment. Throughout the Term, Executive shall not, directly or indirectly, render services to any other person or organization for which he receives compensation (excluding volunteer services or outside Board activities with modest time commitments) without the consent of the Board or otherwise engage in activities which would interfere significantly with the performance of his duties hereunder.

    3.  Term of Employment. The Company shall retain Executive and Executive shall serve in the employ of the Company for a minimum period of two (2) years commencing as of the date of this Agreement; provided, however, that either Executive or the Company may terminate the employment of Executive during the Term in accordance with, and subject to the right of Executive to receive payments and other benefits that may be due pursuant to, this Agreement. This Agreement will be subject to automatic renewals for successive additional two (2)-year periods, unless nonrenewed as provided in Section 9 of this Agreement or terminated as provided in Section 9 of this Agreement.

    4.  Compensation and Other Benefits. Subject to the provisions of this Agreement, the Company shall pay and provide the following compensation and other benefits to Executive during the Term as compensation for services rendered hereunder:

        (a) Base Salary. The Company shall pay to Executive a Base Salary at the rate of $90,000 per annum, payable semi-monthly. The Company shall be entitled to deduct or withhold all taxes and charges which the Company may be required to deduct or withhold therefrom. The Base Salary will be reviewed not less than annually by the Board and may be increased, reduced, or left

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    unchanged; provided, however, that any reduction shall be permitted only if the Company then reduces the base compensation of its executive employees generally and shall not exceed the average percentage reduction for all such executive employees.

        (b) Incentive Compensation. At all times during the Term, unless prohibited by the Code or other applicable law, Executive shall be entitled to participate in all incentive compensation plans and programs of the Company, currently existing or subsequently adopted.

        (c) Stock Options. At all times during the Term, Executive shall, unless prohibited by the Code or other applicable law, be entitled to participate in all stock option plans and programs of the Company currently existing or subsequently adopted, unless otherwise agreed to by Executive and the Board or unless such plan or program is specifically for the Company's non-executive employees.

        (d) Executive Benefit Plans. At all times during the Term, Executive shall, unless prohibited by the Code or other applicable law, be eligible to participate in all pension and welfare plans and programs of the Company for executive employees, currently existing or subsequently adopted, including but not limited to the following:

          (i)    all qualified pension plans (e.g., profit sharing and 401(k) plans);

          (ii)   all long-term disability and life insurance plans and programs;

          (iii)   all group health insurance plans; and

          (iv)   all supplemental retirement plans and programs.

    5.  Termination of Employment for Cause; Resignation Without Good Reason.

        (a) Compensation and Benefits. If, prior to the expiration of the Term, Executive's employment is terminated by the Company for Cause or if Executive resigns from employment hereunder other than for Good Reason, then Executive shall not be eligible to receive any compensation or benefits, or to participate in any benefit plans or programs, under Section 4 hereof with respect to future periods after the date of such termination or resignation except for the right to receive any vested benefits in accordance with the terms of such plan or program, or to continue or convert at Executive's expense group insurance coverage as provided by law or the terms of such plan or program.

        (b) Date of Termination. The date of termination of Executive's employment by the Company under this Section 5 shall be one (1) month after receipt by Executive of written notice of termination. The date of resignation by Executive under this Section 5 shall be one (1) month after receipt by the Company of written notice of resignation.

    6.  Termination of Employment Without Cause or Resignation for Good Reason Other Than During Change of Control.

        (a) Compensation and Benefits. If, other than during a Transition Period, Executive's employment is terminated by the Company without Cause or Executive resigns from his employment hereunder for Good Reason, Executive shall be entitled only to receive the following from the Company promptly following the Effective Date of termination or cessation of employment with the Company:

          (i)    The Company shall make a cash payment to Executive equal to the greater of (A) the sum of the highest monthly Base Salary in effect any time during the three-year period immediately preceding such termination times the number of months remaining in the Term (without regard to renewals) under this Agreement, plus an amount equal to the incentive bonus earned by Executive in the prior fiscal year multiplied by the number of

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      months remaining in the Term (without regard to renewals) divided by twelve (12), or (B) the sum of the highest annual Base Salary in effect during the three-year period immediately preceding such termination plus the amount of incentive bonus earned by Executive during the prior fiscal year. Such payment shall be made in cash within fifteen (15) days from and after termination of Executive's employment.

          (ii)   With respect to any stock options, SARs, restricted stock awards or performance share awards granted to Executive and outstanding immediately prior to such termination or resignation, all restrictions (other than those imposed by law) on all shares of restricted stock awards shall lapse immediately, all outstanding options and SARs will become exercisable immediately, and all performance share objectives shall be deemed to be met.

          (iii)   Executive shall be entitled to continued participation in the Company's group health insurance plan as permitted by COBRA and the terms of such plan. Company shall, for a one-year period following termination of Executive's employment, continue to pay a portion of Executive's Company group health insurance premiums equivalent to that portion it pays on behalf of its employees during such one-year period, subject to Executive paying the employee portion of such premiums and subject to termination of participation upon Executive becoming entitled to group health insurance coverage on subsequent employment or upon Executive's electing not to continue coverage or termination of such plan by Company.

        (b) Date of Termination. The date of termination of Executive's employment by the Company under this Section 6 shall be the date specified in the written notice of termination to Executive, or if no such date is specified therein, the date on which such notice is given to Executive. The date of resignation by Executive under this Section 6 shall be two weeks after receipt by the Company of written notice of resignation, provided that the Good Reason specified in such notice shall not have been corrected by the Company during such two-week period.

    7.  Termination of Employment Without Cause or Resignation With Good Reason After Change of Control.

        (a) Compensation and Benefits. If, prior to the expiration of the Term and as of a date during a Transition Period, Executive's employment is terminated by the Company or its Successor without Cause or if Executive resigns from employment hereunder for Good Reason, Executive shall, subject to subsection (c) below, be entitled only to receive the following from the Company or its Successor promptly following the Effective Date of termination or cessation of employment with the Company:

          (i)    Subject to paragraph (c) hereof, the Company shall make a cash payment to Executive equal to the greater of (A) the sum of the highest monthly Base Salary in effect any time during the three-year period immediately preceding such termination times the number of months remaining in the Term (without regard to renewals) under this Agreement, plus an amount equal to the incentive bonus earned by Executive in the prior fiscal year multiplied by the number of months remaining in the Term (without regard to renewals) divided by twelve (12), or (B) 2 times the sum of the highest annual Base Salary in effect any time during the three-year period immediately preceding such termination, and the amount of incentive bonuses which, absent termination of Executive's employment, could have been earned by Executive during the fiscal year of the Company in which Executive's employment under this Agreement ceases. For purposes of Clause (B), the computation of the amount of incentive bonuses shall be based upon the bonus programs in effect at the time of termination of Executive's employment and such computation shall assume that target performance levels are satisfied for all purposes during such fiscal year. Such payment shall be made in cash within fifteen (15) days from and after termination of Executive's employment.

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          (ii)   Executive shall not be eligible to receive any compensation or benefits or to participate in any plans or programs with respect to future periods after the date of such termination or resignation except for the right to receive any vested benefits in accordance with the terms of such plan or program or to continue or convert at Executive's expense group insurance coverage as provided by law or the terms of such plan or program. With respect to any stock options, SARs, restricted stock awards or performance share awards granted to Executive and outstanding immediately prior to such termination or resignation, all restrictions (other than those imposed by law) on all shares of restricted stock awards shall lapse immediately, all outstanding options and SARs will become exercisable immediately, and all performance share objectives shall be deemed to be met.

        (b) Date of Termination. The date of termination of Executive's employment by the Company under this Section 7 shall be the date specified in the written notice of termination to Executive, or if no such date is specified therein, the date on which such notice is given to Executive. The date of resignation by Executive under this Section 7 shall be two weeks after receipt by the Company of written notice of resignation, provided that the Good Reason specified in such notice shall not have been corrected by the Company during such two-week period.

        (c) Limitation on Change of Control Compensation. In the event that Executive is a "disqualified individual" within the meaning of Section 280G of the Code, the parties expressly agree that the payments described in this Section 7 or in Section 9 shall be considered together with all Change of Control Payments so that, with respect to Executive, all Change of Control Payments are collectively subject to an overall maximum limit. Such maximum limit shall be One Dollar ($1.00) less than the largest amount under which no portion of the Change of Control Payments is considered a "parachute payment" within the meaning of Section 280G of the Code. Accordingly, to the extent that the Change of Control Payments would be considered a "parachute payment" with respect to Executive, then the portions of such Change of Control payments shall be reduced or eliminated in the following order until the remaining Change of Control Payments with respect to Executive is one Dollar ($1.00) less than the maximum allowable which would not be considered a "parachute payment" under the Code:

          (i)    First, any cash payment to Executive;

          (ii)   Second, any Change of Control Payments not described in this Agreement; and

          (iii)   Third, any forgiveness of indebtedness of Executive to the Company.

    Executive expressly and irrevocably waives any and all rights to receive any Change of Control payments which would be considered a "parachute payment" under the Code.

    8.  Termination of Employment by Disability or Death.

        (a) Compensation and Benefits. If Executive becomes Permanently Disabled prior to the expiration of the Term, the Company shall be entitled to terminate Executive's employment subject to the Company's normal policies in such matters as applied to all other salaried employees. In the event of such termination of Executive's employment or termination of Executive's employment by reason of the death of Executive prior to the expiration of the Term, the Executive (or Executive's estate, as the case may be) shall be entitled to receive from the Company only the following:

          (i)    In the event of termination after Executive has become Permanently Disabled, Executive shall be entitled to continued participation in hospital and medical plans and programs of the Company at Executive's own expense, as required by COBRA and in accordance with Company policy as it pertains to disabled salaried employees; that is for the period of said disability or until normal retirement age subject to rules and practice of the plan(s). Company may, in its discretion, provide the benefits described herein under the

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      Company's group plans or under no less favorable insurance contracts or arrangements secured by the Company.

          (ii)   Executive (or, in the event of Executive's death, Executive's estate or Executive's designated beneficiary) shall be entitled to receive any vested benefits in accordance with the terms of any such benefit plans. Executive shall be entitled to continued contributions under the Company's qualified profit sharing and 401(k) plans to the extent permitted in said plans.

        (b) Date of Termination. The date of termination of Executive's employment under this Section 8 shall be the date Executive becomes Permanently Disabled or the date of Executive's death as the case may be.

    9.  Termination of Employment by Written Notice of Nonrenewal.

        (a) Notice. This Agreement may be terminated with or without Cause upon delivery of written notice of nonrenewal by either party to the other between ninety (90) and sixty (60) days prior to the end of the Term or of any renewal period.

        (b) Compensation and Benefits. If Executive's employment is not renewed under this Section 9, Executive shall be entitled only to the following severance benefits:

          (i)    Unless the notice of nonrenewal is given during a Transition Period, the Company shall make a cash payment equal to the amount of the highest annual Base Salary in effect any time during the three-year period immediately preceding termination of employment. Such payment shall be made in cash within fifteen (15) days from and after the end of Executive's employment term. If the notice of renewal is given during a Transition Period, then, subject to Section 7(c), the Company shall make a cash payment to Executive equal to two (2) times the sum of (A) the amount of the highest annual Base Salary in effect any time during the three-year period immediately preceding termination of Executive's employment and (B) the amount of incentive bonuses which, absent termination of Executive's employment, could have been earned by Executive during the fiscal year of the Company in which Executive's employment under this Agreement ceases. For purposes of Clause (B), the computation of the amount of incentive bonuses shall be based upon the bonus programs in effect at the time of termination of Executive's employment and such computation shall assume that target performance levels are satisfied for all purposes during such fiscal year. Such payment shall be made in cash within fifteen (15) days from and after termination of Executive's employment.

          (ii)   Executive shall be entitled to continued participation in Company's group health insurance plan as permitted by COBRA and the terms of such plan. Company shall, for a one-year period following termination of Executive's employment, continue to pay a portion of Executive's Company group health insurance premiums equivalent to that portion it pays on behalf of its employees during such one-year period, subject to Executive paying the employee portion of such premiums and subject to termination of participation upon Executive becoming entitled to group health insurance coverage on subsequent employment or upon Executive's electing not to continue coverage or termination of such plan by Company.

        (c) Date of Termination. The date of termination of Executive's employment by the Company under this Section 9 shall be the date on which the term of Executive's employment expires.

    10. Legal Fees and Expenses. The Company shall pay or reimburse Executive for all reasonable legal fees and expenses incurred by Executive in seeking to obtain or enforce any right or benefit provided by this Agreement from or against the Company in a proceeding before a court of competent jurisdiction.

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    11. Assignment of Inventions. Executive agrees to promptly disclose to the Company in writing all Inventions. All such Inventions shall be the exclusive property of the Company and are hereby assigned by Executive to the Company. Further, Executive will, at the Company's expense, give the Company all assistance it reasonably requires to perfect, protect, enforce, and use its rights to Inventions. In particular, but without limitation, Executive will sign all documents, do all things, and supply all information that the Company may deem necessary or desirable to:

          (i)    transfer or record the transfer of Executive's entire right, title and interest in Inventions; and

          (ii)   enable the Company to obtain or enforce patent, copyright or trademark protection for Inventions anywhere in the world.

    The obligations of this Section shall continue beyond the termination of employment with respect to Inventions conceived or made by Executive during the period of Executive's employment and shall be binding upon assigns, executors, administrators and other legal representatives. For purposes of this Agreement, any Invention relating to the business of the Company on which Executive files a patent application within six (6) months after termination of employment with the Company shall be presumed to cover Inventions conceived by Executive during the term of Executive's employment, subject to proof to the contrary by good faith, written and duly corroborated records establishing that such Invention was conceived and made following termination of employment.

    NOTICE: Pursuant to Minnesota Statutes § 181.78, Executive is hereby notified that this Section 11 does not apply to any invention for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on Executive's own time, and (1) which does not relate (a) directly to the business of the Company or (b) to the Company's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by the employee for the Company.

    12. Confidential Information. Executive agrees not to directly or indirectly use or disclose Confidential Information for the benefit of anyone other than the Company, either during or after employment, for as long as the information retains the characteristics of Confidential Information described in Section 1 above.

    13. Return of Documents and Property. All documents and tangible items provided to Executive by the Company, or possessed, obtained, or created by Executive for use in connection with Executive's employment, are the property of the Company and shall be promptly returned to the Company on termination of employment together with all copies, recordings, abstracts, notes or reproductions of any kind made from or about the documents and tangible items or the information they contain.

    14. Noncompetition. In consideration of Executive's rights under this Agreement, including without limitation Sections 5 through 9 hereof, Executive agrees that, from and after the Effective Date and continuing until the one-year anniversary of termination or cessation of Executive's employment with the Company, Executive will not, alone or in any capacity with another person or entity:

          (i)    directly or indirectly, own any interest in, control, be employed by or associated with, or render services to (including but not limited to services in research), any person, entity, or subsidiary, subdivision, division, or joint venture of such entity in connection with the design, development, manufacture, marketing, or sale of a Competitive Product that is sold or intended for use or sale in any geographic area in which the Company actively markets a Company Product or intends to actively market a Company Product of the same general type or function;

          (ii)   directly or indirectly, solicit any of the Company's present or future employees for the purpose of hiring them or inducing them to leave their employment with the Company;

–8–

          (iii)   directly or indirectly, solicit, attempt to solicit, interfere, or attempt to interfere with the Company's relationship with its customers or potential customers, on behalf of Executive or any other person or entity engaged in the design, development, manufacture, marketing, or sale of a Competitive Product; or

          (iv)   directly or indirectly design, develop, manufacture, market, or sell any Competitive Product that is sold or intended for use or sale in any geographic area in which the Company actively markets a Company Product or intends to actively market a Company Product of the same general type or function.

    15. Breach of Noncompetition Provisions of this Agreement. In addition to any other relief or remedies afforded by law or in equity, if Executive breaches Section 14 of this Agreement, Executive agrees that the Company shall be entitled, as a matter of right, to injunctive relief in any court of competent jurisdiction plus its costs, including but not limited to its reasonable attorneys' fees for securing such relief. Executive recognizes and hereby admits that irreparable damage will result to the Company if Executive violates or threatens to violate the terms of Section 14 of this Agreement. This Section 15 shall not preclude the granting of any other appropriate relief including, without limitation, money damages against Executive for breach of Section 14 of this Agreement.

    16. Effect of Other Obligations. It is intended that the obligation of the parties to perform the terms of this Agreement is unconditional and does not depend on the performance or non-performance of any terms, duties or obligations not specifically recited in this Agreement.

    17. Binding Agreement. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto, any Successor to or assigns of the Company, and Executive's heirs and the personal representative of Executive's estate.

    18. Severability. If a Court finds that any provision of this Agreement is not enforceable, Executive and the Company agree that the Court should modify the provision to make it enforceable to the maximum extent possible. If the provision cannot be modified, Executive and the Company agree that the provision may be severed, and the other provisions of this Agreement shall remain in full force and effect.

    19. Amendment; Waiver. This Agreement may not be modified, amended or waived in any manner except by an instrument in writing signed by both parties hereto. The waiver by either party of compliance with any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.

    20. Governing Law. All matters affecting this Agreement, including the validity thereof, are to be governed by, interpreted and construed in accordance with the laws of the State of Minnesota.

    21. Notices. Any notice hereunder by either party to the other shall be given in writing by personal delivery or certified mail, return receipt requested. If addressed to Executive, the notice shall be delivered or mailed to Executive at the address specified under Executive's signature hereto, or if addressed to the Company, the notice shall be delivered or mailed to the Company at its executive offices to the attention of the Board of Directors of the Company. A notice shall be deemed given, if by personal delivery, on the date of such delivery or, if by certified mail, on the date shown on the applicable return receipt.

    22. Supersedes Previous Agreements. This Agreement supersedes all prior or contemporaneous negotiations, commitments, agreements and writings with respect to the subject matter hereof, all such other negotiations, commitments, agreements and writings will have no further force or effect, and the parties to any such other negotiation, commitment, agreement or writing will have no further rights or obligations thereunder.

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    23. Headings; Construction. The headings of Sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. This Agreement shall be construed without regard to any presumption or other rule requiring construction hereof against the party causing this Agreement to be drafted.

    24. Benefit. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

    IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its officer pursuant to the authority of its Board, and Executive has executed this Agreement, as of the day and year first written above.

    FIRST TEAM SPORTS, INC.

 
 
By:
 
  John J. Egart, President

 
 
 
 
 
   
          Thomas W. Schultz

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 EX-10.25 4 a2050480zex-10_25.htm EXHIBIT 10.25 Prepared by MERRILL CORPORATION
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Exhibit 10.25


FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT
AND LIMITED WAIVER OF DEFAULT

    This FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND LIMITED WAIVER OF DEFAULT ("Amendment"), dated as of November 21, 2000, and effective as of July 31, 2000, is made by and between FIRST TEAM SPORTS, INC., a Minnesota corporation, HESPELER HOCKEY HOLDING, INC., a Minnesota corporation, FIRST TEAM SPORTS GmbH, an Austrian corporation (collectively, the "Borrower"), and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, a national association, formerly known as Norwest Bank Minnesota, National Association (the "Lender").

RECITALS

    The Borrower and the Lender have entered into a Credit and Security Agreement dated as of September 8, 1999 (as the same may be supplemented, modified, amended, or restated from time to time, the "Credit Agreement"). Capitalized terms used in these recitals have the meanings given to them in the Credit Agreement unless otherwise specified.

    The Advances under the Credit Agreement are evidenced by the Borrower's Revolving Note dated as of September 8, 1999, in the maximum principal amount of Eight Million Five Hundred Thousand Dollars ($8,500,000) payable to the order of the Lender ("Revolving Note 1"), the Borrower's Revolving Note dated as of September 8, 1999, in the original principal amount of Four Million Five Hundred Thousand Dollars ($4,500,000), payable to the order of the Lender ("Term Note").

    The Borrower has requested that certain amendments be made to the Credit Agreement, which the Lender is willing to make pursuant to the terms and conditions set forth herein.

    NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows:

    1.  Amendment to Credit Agreement.

        (a) Defined Terms. Capitalized terms used in this Amendment which are defined in the Credit Agreement shall have the same meanings as defined therein, unless otherwise defined herein. In addition, Section 1.1 of the Credit Agreement is amended by adding the following definition:

    "Capital Expenditures" for a period means any expenditure of money for the lease, purchase or other acquisition of any capital asset, or for the lease of any other asset whether payable currently or in the future.

        (b) Minimum Net Worth. Article 6 of the Credit Agreement shall be amended by deleting Section 6.13 and substituting the following in lieu thereof:

          6.13   Minimum Net Worth.

            Commencing August 31,2000, the Borrower's Net Worth, determined as at the end of each month, shall not decrease by more than $1,750,000 from the Borrower's Net Worth at the end of the preceding fiscal year.

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        (c) Minimum Earnings After Taxes. Article 6 of the Credit Agreement shall be amended by deleting Section 6.14 and substituting the following in lieu thereof:

          6.14   Minimum Earnings After Taxes.

            First Team Sports, Inc. will achieve as of its fiscal years ending February 28, 2001 and February 28, 2002 Earnings After Taxes of not less than $100,000. The Borrower's performance of this covenant will be tested by the Lender annually.

        (d) Capital Expenditures: Article 7 of the Credit Agreement shall be amended by inserting a new Section 7.17 governing Capital Expenditures.

          7.17   Capital Expenditures.

            The Borrower will not incur or contract to incur Capital Expenditures of more than $1,000,000 in the aggregate during any fiscal year.

        (e) Compliance Certificate. Exhibit C to the Credit Agreement shall be deleted in its entirety and replaced with the form of Compliance Certificate attached hereto as Exhibit C.

    2.  No Other Changes. Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any advance of letter of credit thereunder.

    3.  Conditions Precedent. This Amendment shall be effective when the Lender shall have received an executed original hereof.

    4.  Representations and Warranties. The Borrower hereby represents and warrants to the Lender as follows:

        (a) The Borrower has all requisite power and authority to execute this Amendment and to perform all if its obligations hereunder, and this Amendment has been duly executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms.

        (b) The execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate action and do not   (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to the Borrower, or the articles of incorporation or by-laws of the Borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected.

        (c) All of the representations and warranties contained in Article 5 of the Credit Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date.

    5.  References. All references in the Credit Agreement to "this Agreement" shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby.

    6.  No Other Waiver. The execution of this Amendment and acceptance of any documents related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Credit Agreement or breach, default or event of default or event of default under any Security Document or

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other document held by the Lender, whether or not known to the Lender and whether or not existing on the date of this Amendment.

    7.  Costs and Expenses. The Borrower hereby reaffirms its agreement under the Credit Agreement to pay or reimburse the Lender on demand for all costs and expenses incurred by the Lender in connection with the Credit Agreement, the Security Documents and all other documents contemplated thereby, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, the Borrower specifically agrees to pay all fees and disbursements of counsel to the Lender for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. The Borrower hereby agrees that the Lender may, at any time or from time to time in its sole discretion and without further authorization by the Borrower, make a loan to the Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses.

    8.  Miscellaneous. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument.

(Signature Page Follows)

–3–

    IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above.

WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION		   FIRST TEAM SPORTS, INC.

By:
 
/s/ GREGORY J. KLINGER   
Name: Gregory J. Klinger
Title: Assistant Vice President
 
By:
 
/s/ KENT BRUNNER   
Name: Kent Brunner
Title: VP and CFO

 
 
 
 
HESPELER HOCKEY HOLDING, INC.

 
 
 
 
By:
 
/s/ KENT BRUNNER   
Name: Kent Brunner
Title: VP and CFO

 
 
 
 
HESPELER HOCKEY COMPANY

 
 
 
 
By:
 
/s/ KENT BRUNNER   
Name: Kent Brunner
Title: VP and CFO

 
 
 
 
FIRST TEAM SPORTS GmbH

 
 
 
 
By:
 
/s/ KENT BRUNNER   
Name: Kent Brunner
Title: Agent

–4–



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FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND LIMITED WAIVER OF DEFAULT
 EX-21 5 a2050480zex-21.htm EXHIBIT 21 Prepared by MERRILL CORPORATION
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Exhibit 21


SUBSIDIARIES
OF
FIRST TEAM SPORTS, INC.

         Name of Subsidiary
   Jurisdiction of Organization
First Team Sports GmbH   Austria
Hespeler Hockey Holding, Inc.   Minnesota
Hespeler Hockey Company*   Nova Scotia
*
Subsidiary of Hespeler Hockey Holding, Inc.


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SUBSIDIARIES OF FIRST TEAM SPORTS, INC.
 EX-23.1 6 a2050480zex-23_1.htm EXHIBIT 23.1 Prepared by MERRILL CORPORATION
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Exhibit 23.1


Consent of Independent Auditors

    We consent to the incorporation by reference in the Registration Statements on Forms S-8 of First Team Sports, Inc. pertaining to the 1987 Stock Option Plan (No. 33-36123), 1987 Stock Option Plan (No. 33-52344), 1990 Nonqualified Stock Option Plan (No. 33-37308), 1993 Employee Stock Purchase Plan (No. 33-68164) and the 1994 Stock Option and Incentive Compensation Plan (No. 33-84722) of our report dated April 20, 2001, with respect to the consolidated financial statements and schedule of First Team Sports, Inc. included in the Annual Report (Form 10-K) for the year ended February 28, 2001.

                        /s/ ERNST & YOUNG LLP

Minneapolis, MN
May 24, 2001



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Consent of Independent Auditors
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