-----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, PxZTFs708aKUdLIiXDGaHmN3EkU3ScxkFwF9DQv2AGCCYlxn5WC+S0ucZID0aZqN TJxHo+XU6tcRbiXdwBW+qQ== 0000914190-96-000146.txt : 19960529 0000914190-96-000146.hdr.sgml : 19960529 ACCESSION NUMBER: 0000914190-96-000146 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960528 SROS: NASD 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-16442 FILM NUMBER: 96572847 BUSINESS ADDRESS: STREET 1: 1201 LUND BLVD CITY: ANOKA STATE: MN ZIP: 55303 BUSINESS PHONE: 6127804454 MAIL ADDRESS: STREET 1: 2274 WOODALE DRIVE CITY: MOUNDS VIEW STATE: MN ZIP: 55112 10-K405 1 FORM 10-K FOR FISCAL YEAR ENDED 2/29/96 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 29, 1996 Commission File No.: 0-16442 FIRST TEAM SPORTS, INC. (Exact name of Registrant as specified in its charter) Minnesota 41-1545748 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 1201 Lund Boulevard Anoka, Minnesota 55303 (Address of principal executive offices) Registrant's telephone number, including area code: (612) 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 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. [X] The aggregate market value of the Common Stock held by non-affiliates of the Registrant as of May 20, 1996 was approximately $76,663,697 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 20, 1996: 5,738,250 shares. ------------------------ DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for its 1996 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 contractors) and distribution of in-line roller skates, ice skates, street hockey equipment and related accessory products. In-line roller skates feature wheels mounted in a straight line on a composite plastic frame, functioning much like the blade on an ice skate. First Team Sports, Inc. was incorporated under Minnesota law in May 1986 by David G. Soderquist, John J. Egart and Ronald W. Berg. Mr. Soderquist and Mr. Egart continue to serve as executive officers and directors of the Company. First Team Sports Exports, Inc., the Company's wholly owned subsidiary, was incorporated in April 1991 as a U.S. Virgin Islands corporation. Unless the context otherwise requires, references in this Form 10-K to the "Company" refer to First Team Sports, Inc. and its subsidiary. (b) Financial Information about Industry Segments. The Company is engaged at the present time in only one industry segment, namely the manufacture (through independent contractors) 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 marketed under the ULTRAWHEELS(R), ULTRAWHEELS GRETZKY 802(R), SKATE ATTACK(R), STREET ATTACK(TM), ROLL USA(TM) and AIRBORNE(TM) brand names. The Company also supplies in-line roller skates under various third party private labels. ULTRAWHEELS brand skates, marketed to the specialty and chain sporting goods dealer, are provided in twenty different models: Millennium(TM), Spectrum(TM), Azure(TM), The Great One(TM), Katarina Allure(TM), Infinity(TM), Infinity LS(TM), Vision(TM), Ultra-Elite(TM), Ultra-Extreme(TM), Ultra-Extreme LS(TM), Pacific Coast Highway One(TM), Impulse(TM), Circuit(TM), Sonic(TM), Lazer(TM), Lite-Mite(TM), Gretzky MVP(TM), Gretzky 802(TM) and Brett Hull Power Play(TM). The twenty different models include styles designed for adult and youth recreational skaters, performance/fitness skaters and in-line roller hockey players. The Skate Attack, Street Attack, Roll USA and Airborne branded products are produced for sales to the mass merchant market. The Skate Attack brand skates are provided in six different models: Profile(TM), Eclipse(TM), Quest(TM), Quattro(TM), Katarina Charm II(TM) and Thunderbolt II. The Roll USA brand consists of three models: Edge(TM), Hawk(TM) and Storm(TM). The Street Attack brand consists of two in-line roller hockey models: Gretzky Street Attack Senior(TM) and Gretzky Street Junior(TM). The Company's in-line roller skates consist of a molded plastic boot with integrated frame, or a frame riveted to the bottom of the boot and high-density polyurethane wheels mounted on ball bearings. The Company's ice skate line consists of one figure skate model and one hockey skate model. The figure skate model is endorsed by figure skating champion, Katarina Witt. The hockey skate model is endorsed by National Hockey League superstar, Brett Hull. - 2 - The Company began shipment of its new high-performance fitness and cross-training skates in February 1996. The Millennium, Spectrum and Azure in-line skates feature the Company's innovative molding process called intec(TM) system technology. This patented technology allows the Company to take a stiff glass-reinforced nylon frame and insert-mold it into a polyurethane boot. The Company believes this allows an integrated boot and frame, each made of ideal materials, to be combined for unparalleled stiffness, durability and power transfer. Also in February 1996, the Company introduced an enhanced version of its award-winning DBS(TM) (disc brake system) called DBS-XT(TM). This enhanced version allows skaters to adjust brake tension and angle based on terrain and personal preferences. DBS-XT was shipped on three UltraWheels models: Millennium, Spectrum and Azure. The DBS brake introduced in 1995 has also been upgraded to include the tension adjustment feature and is marketed as the Adjustable DBS(TM). The Adjustable DBS was shipped on three skates in 1996: Infinity, Infinity LS and Sonic. Another DBS version marketed as DBS-LE(TM) was shipped on the Profile under the Skate Attack brand name. The Company believes that the patented DBS system gives skaters the maneuverability and control they can't get with the traditional friction brake systems and is more durable, far outlasting friction brakes. The Company also began shipment of its new high-performance fitness and cross-training skate, The Millennium, in February 1996. (2) Status of products in development. The Company continues to capitalize on a growing segment of the in-line market, roller hockey, with the increased Gretzky 802 line. The high-performance line features three skates and accessories, including sticks, gloves, knee/shin pads, elbow pads, balls, pucks and nets. Since its introduction in September of 1995, the line has seen revisions including increased component quality and better graphics. All products are currently shipping. The Company has also invested heavily in the growing "aggressive" market with the development of the line which will be marketed under the brand name Sabotage(TM). The Sabotage line will include three aggressive skates: Sabotage ST, Sabotage RP and Sabotage FY. Accessories, including wrist guards, knee pads and helmets, will also be marketed under the Sabotage brand name. Shipments of the line are expected to begin in July 1996. The Company continues to develop new features and styles to its existing line of skates and accessories. The Company also intends to introduce new products as testing is completed to its satisfaction and 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 - (3) Source of Materials. The Company's products are sourced from independent contractors 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 contractors 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 contractors, also located in the United States and foreign countries, who have been procured by the Company's suppliers or, frequently, by management of the Company. The Company submits purchase orders to its manufacturers for the production of specific amounts of its products and has not entered into any long-term contracts for production. All purchase orders are in U.S. Dollars. (4) Patents, trademarks, licenses, franchises and concessions. The Company markets its products under a number of trade names and trademarks, including the following principal trademarks or registered trademarks of the Company: "Ultra-Wheels," "Skate Attack," "Official Skate of Street Hockey," "Euro-Sport," "Euro Rail," "Ultra-Ice" and "Street Attack." The Company owns approximately ten United States trademark registrations and, in addition, has several pending trademark applications. The Company owns a large number of foreign trademark registrations, regularly files for registration of its more important trademarks in the United States and in numerous foreign countries and has several pending applications. The Company relies to varying degrees upon its common law rights of trademark ownership, copyrights and registration of its trademarks. The Company has licenses to use the names and likeness of various hockey players, figure skaters and related organizations as mentioned above. The Company has also filed five patent applications covering various parts of in-line skates and methods of producing its products. (5) and (6) Seasonality and Working Capital. The Company's marketing area covers North America, South America, Europe, Australia and the Far East. This large and diverse marketing area, along with the acceptance of the Company's products by athletes and recreational users, has reduced the seasonal variations in the Company's sales and in the demands on the Company's working capital. (7) Major Customers. Certain customers of the Company have accounted for a more than 10% of the Company's sales in one or more of the past three fiscal years. In fiscal 1996, Wal-Mart, based in Bentonville, Arkansas, accounted for approximately 27% of the Company's total revenues and Target Stores, based in Minneapolis, Minnesota, accounted for approximately 12% of the Company's total revenues. In fiscal 1995, Target Stores accounted for approximately 18% of the Company's total revenues and Wal-Mart accounted for approximately 18% of the Company's total revenues. In fiscal 1994, Target Stores accounted for approximately 30% of the Company's total revenues. - 4 - (8) Backlog. The Company had approximately $10,369,364 in unfilled purchase orders as of May 22, 1996, compared to approximately $17,455,091 in unfilled purchase orders on May 12, 1995. The Company believes that substantially all of these unfilled orders are firm and will be filled in the 1996 fiscal year. Approximately $5,997,952 of these backlog orders is a result of spring booking orders to be shipped at future dates, and approximately $4,371,412 is a result of orders of products that are temporarily unavailable. (9) Government contracts. The Company has no Government contracts. (10) Competition. The principal competitive factors in the in-line roller skate industry are name recognition, price and product performance. The main areas of difference in product performance are in the weight and strength of the boot and frame, the hardness of the wheels and the quality and lubrication of the wheel bearings. The Company offers a 90-day warranty on its products, which the Company believes is an important competitive factor. Beyond such warranty, the Company does not offer service on its products and does not believe that service is an important competitive factor. The Company believes it has a significant share of the in-line roller skate market. Rollerblade, Inc., maker of Rollerblades, is considered to be the market leader. While the Company competes with Rollerblade, Inc. in all price and quality ranges, it is the Company's belief that the majority of other competitors in the in-line roller skate industry offer lower-priced and lower-quality products. 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. Estimated 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 1996, 1995 or 1994. (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. - 5 - (13) Employees. As of May 8, 1996, the Company employed 96 full-time employees and 4 part-time employees. (d) Export Sales. The Company's wholly owned subsidiary, First Team Sports Exports, Inc., was formed in April 1991, which subsidiary has no assets attributable to any specific foreign geographic area. In fiscal 1996, First Team Sports Exports, Inc. had export sales of $25,818,632, which represented 27% of the total fiscal 1996 net sales of the Company. Export sales in fiscal 1995 were approximately 13% of total sales. Canadian net sales were $10,358,169 (11% of total sales) in fiscal 1996, $4,986,591 (6% of total sales) in fiscal 1995 and $1,218,044 (4% of total sales) in fiscal 1994. Sales outside North America were $15,460,463 (16% of total sales) in fiscal 1996, $5,980,846 (7% of total sales) in fiscal 1995 and $1,536,740 (4% of total sales) in fiscal 1994. 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 $4,674,986 as of May 8, 1996. The leases of the Company's former facility, located at 2274 Woodale Drive, Mounds View, Minnesota, which were to expire in August 1997, were terminated on April 11, 1996 through a lease buy-out agreement totaling approximately $375,000. The Company properly accounted for this buy-out in fiscal 1996. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the Company's shareholders during the quarter ended February 29, 1996. - 6 - EXECUTIVE OFFICERS OF THE COMPANY The following sets forth the names and ages of current executive officers of the Company in addition to information regarding their positions with the Company, their periods of service in such positions and their business experience for the past five years. Executive officers generally serve in office for terms of approximately one year. There are no family relationships among the officers named below. Name and Age of Current Positions with Company and Principal Executive Officer Occupations for the Past Five Years John J. Egart President and Chief Executive Officer of the Company since 46 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. Mr. Egart also serves as a director of Kelly Russell Studios, Inc. David G. Soderquist Vice Chairman of the Company since January 1994; Director 47 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. Robert Lenius, Jr. Vice President and Chief Financial Officer of the Company 48 since July 1991; Vice President/Finance of the Company from July 1987 to July 1991. Susan L. Joch Vice President/Marketing of the Company since November 35 1993; Director of Marketing of the Company from July 1991 to November 1993; Product Marketing Manager for Tonka Corporation, a toy manufacturer, from June 1989 to July 1991. Craig Zelinske Vice President/Sales of the Company since December 1994; 43 National Sales Manager of the Company from June 1991 to December 1994; National Sales Manager For Action & Leisure, Inc., a distributor of athletic footwear, from September 1979 to June 1991. - 7 - 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 1995 and fiscal 1996 was as follows: Quarter Ended High* Low* May 31, 1994 $6-1/8 $4-3/8 August 31, 1994 $9-1/2 $5-1/2 November 30, 1994 $11 $8-7/8 February 28, 1995 $26 $9-1/8 May 31, 1995 $25-1/2 $18 August 31, 1995 $31-3/4 $19 November 30, 1995 $21-3/4 $10-3/4 February 29, 1996 $18-3/4 $12-1/4 * Prices have been adjusted to reflect the 3-for-2 stock split implemented on February 3, 1995. 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 20, 1996, there were approximately 406 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. - 8 - ITEM 6. SELECTED FINANCIAL DATA
Years ended February 29, 1996, February 28, 1995, 1994 and 1993, and February 29, 1992 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Operations Data: Net Sales $97,667,448 $85,528,860 $35,534,892 $38,244,144 $27,168,871 Net Income 7,811,857 6,098,757 635,409 2,961,948 1,899,347 Net Income Per Share 1.30 1.07 .12 .54 .35 Cash Dividends Paid Per Share -- -- -- -- -- Balance Sheet Data: Total Assets $55,957,802 $45,863,753 $29,596,443 $20,323,893 $20,601,254 Working Capital 24,944,985 18,109,090 11,589,217 11,175,839 7,931,311 Long-Term Obligations 6,880,360 3,053,494 1,800,072 1,641,248 1,817,314 Shareholders' Equity 29,830,283 20,850,079 13,939,578 13,279,475 9,522,864
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Comparison of Results of Operations Fiscal 1996 to Fiscal 1995 Net Sales. Net sales increased $12.2 million (or 14%) from $85.5 million in 1995 to $97.7 million in 1996. This increase was due principally to increased sales volume. In-line roller skate sales increased 18%, accessories and parts increased 7%, ice skates increased 50%, and roller hockey products decreased 41% from fiscal 1995 to fiscal 1996. Sales of in-line skates accounted for approximately 84% of total sales in fiscal 1996 compared to 82% of total sales in fiscal 1995. Ice skate sales accounted for approximately 2% of total sales in fiscal 1996, compared to 1% of total sales in fiscal 1995. Sales of accessories and parts accounted for approximately 11% of total sales in fiscal 1996 compared to approximately 12% of total sales in fiscal 1995. Street hockey equipment accounted for approximately 3% of total sales in fiscal 1996 compared to 5% in fiscal 1995. Sales to the Company's ten largest accounts accounted for 59% of the Company's total sales in fiscal 1996, compared to 61% of the Company's total sales in fiscal 1995 and 69% in fiscal 1994 (See Note 2 in Notes to Financial Statements). The worldwide markets for the Company's products continue to expand, and, as a result, the Company was able to substantially increase its foreign sales in fiscal 1996. Domestic sales were 73% of total net sales in fiscal 1996 compared to 87% in fiscal 1995, while export sales were 27% of total net sales in fiscal 1996, compared to 13% in fiscal 1995. Sales in Canada were 11% of total net sales in fiscal 1996, compared to 6% of total net sales in fiscal 1995. Sales outside North America were 16% of total net sales in fiscal 1996, compared to 7% of net sales in fiscal 1995. - 9 - The overall increase in net sales during fiscal 1996 resulted from the Company's ability to capitalize on continued industry growth, especially in foreign markets. The lower percentage of domestic sales to total sales was due primarily to a very difficult holiday retail environment and an industry wide excess inventory situation at retail in the last half of fiscal 1996. In addition, during fiscal 1996, the Company made a commitment to improve its product line and to concentrate on increasing its penetration of the specialty shop market. Since the introduction of the Company's new product line, the Company has opened up over 250 new specialty shop accounts. The Company's products continue to be endorsed by major sports figures and celebrities including: Wayne Gretzky, NHL's all-time leading scorer, Janet Jones Gretzky and Brett Hull, one of NHL's prolific goal scorers. Gross Margin. The Company's gross margin increased $3,767,453 (or 15%) between fiscal 1995 and fiscal 1996. Gross margin as a percentage of net sales was 30% in fiscal 1996 and fiscal 1995. The relatively flat gross margin percentage is a result of reduced gross margin percentages on sales of the Company's mass merchant products being offset by an increase in the Company's higher margin, high end UltraWheels product sales and by continued improvement in the Company's inventory control and forecasting procedures. The Company's UltraWheels in-line skate sales and non-UltraWheels in-line skate sales accounted for approximately 42% and 58% of in-line skate sales for fiscal 1996, respectively, and 36% and 64% of in-line skate sales for fiscal 1995, respectively. Operating Expenses. The Company's operating expenses (consisting of selling expenses and general and administrative expenses) were $16,115,256, or 16% of net sales, for fiscal 1996 and $14,940,316, or 17% of net sales, for fiscal 1995. Selling expenses increased $713,501 (or 10%) between fiscal 1995 and fiscal 1996, and were approximately 8% of sales in both fiscal 1996 and 1995. The increase in selling expenses in fiscal 1996 can be attributed to additional endorsement royalties and advertising and promotional expenses associated with the new products and the increased sales volume. General and administrative expenses increased $461,439 (or 6%) between fiscal 1995 and fiscal 1996 and remained relatively constant at approximately 9% as a percentage of net sales in fiscal 1995 and 1996. The increase in general and administrative expenses in fiscal 1996 was the result of increased personnel and occupancy expenses incurred to manage the increased sales volume. In total, the selling and general and administrative expenses as a percentage of net sales decreased as a result of various procedures implemented by management to control spending and expenses. Other Income and Expense. Interest expense for fiscal 1996 was $892,321, or 1% of net sales, compared to $761,074, or 1% of net sales, for fiscal 1995. The increase in interest expense was due to the use of the Company's bank line of credit associated with the construction of the Company's new facility and the effect of the Gretzky license obligation that was amended in December 1994. The other income/(expense) in fiscal 1996 was a result of the Company disposing of retired equipment. - 10 - Net Income. Net income increased $1,713,100 (or 28%) and earnings per share increased $.23 (or 22%) between fiscal 1995 and fiscal 1996. The increase in net income and earnings per share are a result of the factors discussed above. The percentage increase in net income and earnings per share substantially exceeded the percentage increase in net sales as a direct result of the Company's strong commitment to control costs. Comparison of Results of Operations Fiscal 1995 to Fiscal 1994 Net Sales. Net sales increased $50 million (or 141%) from $35.5 million in fiscal 1994 to $85.5 million in fiscal 1995. This increase was due to increased sales volume. In-line roller skate sales increased 144%, accessories and parts increased 103%, and roller hockey products increased from an insignificant amount to 5% of net sales in fiscal 1995 compared to fiscal 1994. In-line skate sales accounted for approximately 82% of total sales in fiscal 1995 and 1994. Ice skate sales accounted for 1% of total sales in fiscal 1995 compared to 3% of total sales in fiscal 1994. Accessories and parts accounted for approximately 12% of total sales in fiscal 1995 compared to 15% of total sales in fiscal 1994. Sales to the Company's ten largest accounts accounted for 61% of the Company's total sales compared to 69% of the Company's total sales in fiscal 1994. Domestic sales were 87% of total net sales in fiscal 1995 compared to 92% in fiscal 1994, while export sales were 13% of total net sales in fiscal 1995 compared to 8% in fiscal 1994. Sales in Canada were 6% of total net sales in fiscal 1995 compared to 4% in fiscal 1994, and sales outside North America were 7% of total net sales in fiscal 1995 compared to 4% in fiscal 1994. Management believes that the Company was able to capitalize on rapid industry growth and gained market share in fiscal 1995. During fiscal 1995, the Company had an increase of approximately 33% in its customer base, which included several large national retailers. Gross Margin. The Company's gross margin increased $15.9 million (or 167%) between fiscal 1994 and fiscal 1995. Gross margin as a percentage of net sales was 30% in fiscal 1995 compared to 27% in fiscal 1994. The increase in gross margin percentage can be attributed to an increase in sales of the Company's Made-In-USA skates as a percentage of the Company's total in-line skate sales and continued improvement in the Company's inventory control procedures. Operating Expense The Company's operating expenses (consisting of selling and general and administrative expenses) were $14,940,316, or 17% of net sales, for fiscal 1995, compared to $8,035,050, or 23% of net sales, for fiscal 1994. Selling expenses increased $3,587,030 (or 103%) between fiscal 1994 and fiscal 1995 and decreased as a percentage of net sales from 10% in fiscal 1994 to 8% in fiscal 1995. The increase in selling expenses can be attributed to additional commissions and advertising expenses associated with the increased sales volume. - 11 - General and administrative expenses increased $3,318,236 (or 73%) between fiscal 1994 and fiscal 1995, and decreased as a percentage of net sales from 13% in fiscal 1994 to 9% in fiscal 1995. The increase in general and administrative expenses was the result of increased personnel and occupancy expenses incurred to manage the increased sales volume. Other Income and Expense. Interest expense was $761,074, or 1% of net sales, in fiscal 1995 compared to $462,419, or 1% of net sales, in fiscal 1994. The increase in interest expense was due to the increased use of the Company's bank line of credit associated with the increased sales volume. The other income/expense in fiscal 1995 was a result of the Company disposing of retired production equipment. Net Income. Net income for fiscal 1995 was $6,098,757, or $1.07 per share, compared to $635,409, or $.12 per share, in fiscal 1994. The increase is a result of the factors discussed above. Liquidity and Capital Resources. The Company's cash and cash equivalents were $2,166,863 as of February 29, 1996, compared to $601,394 as of February 28, 1995. The increase in cash and cash equivalents in fiscal 1996 is a result of $8,535,572 of cash provided by operating activities and $539,169 of cash provided by financing activities being offset by $7,509,272 of cash used in investing activities. The net cash provided by operating activities was primarily from the net effect of the increase in inventories, payables and net income, which can be attributed to the increased sales volume. The net cash provided by financing activities in fiscal 1996 was primarily proceeds received from the exercise of stock options. The net cash used in investing activities was primarily for the purchase of capital assets. The Company had net working capital of $24,944,985 as of February 29, 1996, compared to $18,109,090 as of February 28, 1995. The Company's current ratio at February 29, 1996 was 2.4 to 1 compared to 1.8 to 1 as of February 28, 1995. The improvement in the Company's net working capital was primarily attributable to increases in the Company's cash and inventories and a decrease in the Company's line of credit balance. The Company's debt-to-worth ratio was .9 to 1 as of February 29, 1996, compared to 1.2 to 1 as of February 28, 1995. The Company's long-term debt, which consists primarily of the mortgage note on the Company's new office and warehouse facility and obligations under endorsement license agreements, less current maturities, was $6,880,360 as of February 29, 1996 (see Note 5 in Notes to Financial Statements). As of February 29, 1996, the Company had a revolving line of credit established with a bank that provides for borrowings of up to $15,000,000, of which $5,268,000 was outstanding. In addition, the Company has a line of credit established with the bank providing for borrowings of up to $1,000,000 for the purchase of equipment and improvements. As of February 29, 1996, $215,643 was outstanding on this credit facility. - 12 - The Company believes that its current cash position, funds available under existing bank arrangements and cash generated from profitable operations will be sufficient to finance the cash flows for operating activities at projected levels of sales through fiscal 1997. CAUTIONARY STATEMENTS As provided for under the Private Securities Litigation Reform Act of 1995, the Company wishes to caution investors that the following important factors, among others, in some cases have affected and in the future could affect the Company's actual results of operations and cause such results to differ materially from those anticipated in forward-looking statements made in this document and elsewhere by or on behalf of the Company: 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 good manufacturers. Rollerblade, Inc. is the Company's primary competitor and has substantially greater resources than the Company. The intense competition in the in-line skate market has put pressure on the Company's profit margins. The Company's ability to remain competitive in the in-line skate market depends on several factors including its ability to: (i) control manufacturing costs and offer products at commercially-acceptable prices; (ii) develop new products and generate market acceptance of such products; and (iii) continue to develop and expand its international business. Dependence on Key Customers. During the fiscal year ended February 29, 1996, sales to the Company's two largest customers accounted for 27% and 12%, respectively, of the Company's revenues for fiscal 1996. 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 these customers. Decreased orders from either of these customers could have a material adverse impact on the Company's financial results. Stock Market Volatility. Historically, the Company's stock price has been subject to significant volatility. Any deviation in the Company's actual results from market expectations has often resulted in significant stock price fluctuations, both positive and negative, and the Company has no reason to believe such stock price fluctuations will not continue to occur. Historical Growth. The Company's sales in fiscal 1996 and fiscal 1995 were $97,667,448 and $85,828,860, respectively, representing growth of 14% and 141%, respectively. The Company attributes this growth in large part to the growth of the in-line skate market generally. Any decrease in the rate of growth of the in-line skate market can be expected to negatively impact the sales growth of the Company. The Company has no assurance that its historical sales growth will continue in the future. - 13 - ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and schedules listed below are included herein immediately following the signature page on the pages set forth: Page Independent Auditor's Report on Consolidated Financial Statements ...........................................F-1 Consolidated Balance Sheets as of February 29, 1996 and February 28, 1995 ..........................................F-2 Consolidated Statements of Income for the years ended February 29, 1996 and February 28, 1995 and 1994 .........F-4 Consolidated Statements of Shareholders' Equity for the years ended February 29, 1996 and February 28, 1995 and 1994 .....................................F-5 Consolidated Statements of Cash Flows for the years ended February 29, 1996 and February 28, 1995 and 1994 .....................................F-6 Notes to Consolidated Financial Statements ........................F-7 Independent Auditor's Report on Schedule II ......................F-16 Schedule II - Reserve Accounts ..................................F-17 Schedules I, III, IV and V are omitted for the reason that 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. - 14 - 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 1996 in connection with the Company's 1996 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 1996 in connection with the Company's 1996 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 1996 in connection with the Company's 1996 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 1996 in connection with the Company's 1996 Annual Meeting of Shareholders. - 15 - 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. Consolidated Balance Sheets as of February 29, 1996 and February 28, 1995. Consolidated Statements of Income for the years ended February 29, 1996 and February 28, 1995 and 1994. Consolidated Statements of Shareholders' Equity for the years ended February 29, 1996 and February 28, 1995 and 1994. Consolidated Statements of Cash Flows for the years ended February 29, 1996 and February 28, 1995 and 1994. Notes to Consolidated Financial Statements. (2) Financial Statement Schedules. The following schedule is included in Part II, Item 8, of this Annual Report on Form 10-K: Independent Auditor's Report on Financial Schedule II. Schedule II - Reserve Accounts. Schedules I, III, IV and V are omitted for the reason that 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 report: See "Exhibit Index to Form 10-K" beginning at page E-1 immediately following the financial statements of this Form 10-K. (b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the quarter ended February 29, 1996. - 16 - 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 28, 1996 By /s/ 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 and Robert L. Lenius, Jr. as his true and lawful attorneys-in-fact and agents, each acting alone, 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 attorneys-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 attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. May 28, 1996 /s/ John J. Egart John J. Egart President, Chief Executive Officer and Director (Principal executive officer) May 28, 1996 /s/ David G. Soderquist David G. Soderquist Vice Chairman and Director (Signatures continued on following page) - 17 - May 28, 1996 /s/ Joe Mendelsohn Joe Mendelsohn Chairman and Director May 28, 1996 /s/ Timothy G. Rath Timothy G. Rath Director May 28, 1996 /s/ Stanley E. Hubbard Stanley E. Hubbard Director May 28, 1996 /s/ Robert L. Lenius, Jr. Robert L. Lenius, Jr. Vice President and Chief Financial Officer (Principal financial and accounting officer) - 18 - INDEPENDENT AUDITOR'S REPORT To the Board of Directors First Team Sports, Inc. Anoka, Minnesota We have audited the accompanying consolidated balance sheets of First Team Sports, Inc. and Subsidiary as of February 29, 1996, and February 28, 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three fiscal years in the period ended February 29, 1996. These financial statements 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 generally accepted auditing standards. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Team Sports, Inc. and Subsidiary as of February 29, 1996 and February 28, 1995, and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 29, 1996, in conformity with generally accepted accounting principles. /s/ McGladrey & Pullen, LLP St. Paul, Minnesota April 4, 1996 F-1 FIRST TEAM SPORTS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS February 29, 1996 and February 28, 1995
ASSETS (Notes 4 and 5) 1996 1995 ----------- ----------- Current Assets Cash and cash equivalents $ 2,166,863 $ 601,394 Receivables: Trade, less allowance for doubtful accounts 1996 $489,000; 1995 $562,000 16,228,666 16,854,825 Refundable income taxes 155,146 46,146 Inventory (Note 3) 22,813,850 20,838,171 Prepaid expenses 960,079 888,734 Deferred income taxes (Note 7) 827,000 501,000 ----------- ----------- Total current assets 43,151,604 39,730,270 ----------- ----------- Property and Equipment, at cost Land (Note 11) 600,000 -- Building 4,825,740 -- Production equipment 4,069,078 2,558,748 Office furniture and equipment 1,509,120 650,479 Warehouse equipment 315,509 118,898 Leasehold improvements -- 155,738 Vehicles 46,925 62,306 ----------- ----------- 11,366,372 3,546,169 Less accumulated depreciation and amortization 1,511,689 926,284 ----------- ----------- 9,854,683 2,619,885 ----------- ----------- Other Assets License agreements, less accumulated amortization 1996 $2,459,000; 1995 $1,807,000 (Note 9) 2,645,268 3,296,830 Other 306,247 216,768 ----------- ----------- 2,951,515 3,513,598 ----------- ----------- $55,957,802 $45,863,753 =========== ===========
See Notes to Consolidated Financial Statements. F-2
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995 ----------- ----------- Current Liabilities Note payable to bank (Note 4) $ 5,268,000 $ 9,064,000 Current maturities of long-term debt 943,060 936,644 Trade accounts payable 9,462,883 9,015,376 Accrued expenses 2,532,676 2,605,160 ----------- ----------- Total current liabilities 18,206,619 21,621,180 ----------- ----------- Long-Term Debt, less current maturities (Notes 4 and 5) 6,880,360 3,053,494 ----------- ----------- Deferred Income Taxes (Note 7) 440,000 339,000 ----------- ----------- Deferred Revenue (Note 11) 600,000 -- ----------- ----------- Commitments (Note 9) Shareholders' Equity (Note 8) Common stock, par value $0.01 per share; authorized 10,000,000 shares; issued and outstanding 1996 5,721,000 shares; 1995 5,628,184 shares 57,210 56,282 Additional paid-in capital 9,396,802 8,228,843 Retained earnings 20,376,811 12,564,954 ----------- ----------- 29,830,823 20,850,079 ----------- ----------- $55,957,802 $45,863,753 =========== ===========
F-3 FIRST TEAM SPORTS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended February 29, 1996 and February 28, 1995 and 1994
1996 1995 1994 - -------------------------------------------------------------------------------------------- Net sales (Note 2) $ 97,667,448 $ 85,528,860 $ 35,534,892 Cost of goods sold 68,499,170 60,128,035 26,049,167 ------------ ------------ ------------ Gross profit 29,168,278 25,400,825 9,485,725 ------------ ------------ ------------ Operating expenses: Selling (Note 9) 7,774,248 7,060,747 3,473,717 General and administrative 8,341,008 7,879,569 4,561,333 ------------ ----------- ------------ 16,115,256 14,940,316 8,035,050 ------------ ----------- ------------ Operating income 13,053,022 10,460,509 1,450,675 Other income (expense): Interest expense (892,321) (761,074) (462,419) Other, net (10,844) (175,678) 12,153 ------------ ----------- ------------ Income before income taxes 12,149,857 9,523,757 1,000,409 Federal and state income taxes (Note 7) 4,338,000 3,425,000 365,000 ------------ ------------ ------------ Net income $ 7,811,857 $ 6,098,757 $ 635,409 ============ ============ ============ Net income per common and common equivalent share (Note 8): Primary $ 1.30 $ 1.07 $ 0.12 Fully diluted 1.30 1.03 0.12 Weighted average common and common equivalent shares outstanding: Primary 6,007,004 5,706,932 5,526,456 Fully diluted 6,010,986 5,912,455 5,526,456
See Notes to Consolidated Financial Statements. F-4 FIRST TEAM SPORTS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended February 29, 1996 and February 28, 1995 and 1994
Additional Total Common Stock Paid-In Retained Shareholders' -------------------------- Shares Amount Capital Earnings Equity - ----------------------------------------------------------------------------------------------------------------- Balance, February 28, 1993 5,435,550 $ 54,356 $ 7,394,331 $ 5,830,788 $ 13,279,475 Shares issued upon exercise of stock options and warrants (Note 8) 12,198 121 24,573 -- 24,694 Net income -- -- -- 635,409 635,409 --------- ------------ ------------ ------------ ------------ Balance, February 28, 1994 5,447,748 54,477 7,418,904 6,466,197 13,939,578 Shares issued upon exercise of stock options and warrants (Note 8) 180,479 1,805 810,561 -- 812,366 Payout of fractional shares created by three-for-two stock split (43) -- (622) -- (622) Net income -- -- -- 6,098,757 6,098,757 --------- ------------ ------------ ------------ ------------ Balance, February 28, 1995 5,628,184 56,282 8,228,843 12,564,954 20,850,079 Shares issued upon exercise of stock options (Note 8) 92,816 928 500,959 -- 501,887 Tax benefit recognized from exercise of certain stock options (Note 8) -- -- 667,000 -- 667,000 Net income -- -- -- 7,811,857 7,811,857 --------- ------------ ------------ ------------ ------------ Balance, February 29, 1996 5,721,000 $ 57,210 $ 9,396,802 $ 20,376,811 $ 29,830,823 ========= ============ ============ ============ ============
See Notes to Consolidated Financial Statements. F-5 FIRST TEAM SPORTS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended February 29, 1996 and February 28, 1995 and 1994
1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ Cash Flows From Operating Activities Net income $ 7,811,857 $ 6,098,757 $ 635,409 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 771,045 569,442 256,171 Amortization of license agreements 651,562 557,173 524,062 Loss on retirement of equipment 13,950 174,256 -- Deferred income taxes (225,000) (193,000) -- Noncash tax expense related to option exercise 667,000 -- -- Changes in assets and liabilities: Receivables 626,159 (5,486,640) (3,945,806) Inventory (1,975,679) (8,504,746) (4,000,486) Prepaid expenses (71,345) (19,467) (380,808) Trade accounts payable 447,507 3,193,893 3,686,703 Accrued expenses (72,484) 2,083,381 25,338 Income taxes (109,000) -- (246,909) ----------- ----------- ---------- Net cash provided by (used in) operating activities 8,535,572 (1,526,951) (3,446,326) ----------- ----------- ---------- Cash Flows From Investing Activities Purchases of building and equipment (7,419,793) (871,730) (1,334,436) Other (89,479) (57,321) (72,346) ----------- ----------- ---------- Net cash used in investing activities (7,509,272) (929,051) (1,406,782) ----------- ----------- ---------- Cash Flows From Financing Activities Net proceeds on short-term line of credit note 1,079,000 2,490,000 4,329,000 Principal payments on long-term debt (1,041,718) (662,335) (370,885) Proceeds from exercise of stock options and warrants, net of fractional share payments 501,887 811,744 24,694 Proceeds from long-term borrowings -- -- 999,200 ----------- ----------- ----------- Net cash provided by financing activities 539,169 2,639,409 4,982,009 ----------- ----------- ----------- Increase in cash and cash equivalents 1,565,469 183,407 128,901 Cash and Cash Equivalents Beginning 601,394 417,987 289,086 ----------- ----------- ----------- Ending $ 2,166,863 $ 601,394 $ 417,987 =========== =========== ===========
See Notes to Consolidated Financial Statements (Additional Cash Flow Information--Note 12). F-6 Note 1. Nature of Business and Significant Accounting Policies Nature of business and concentration of credit risk: The Company sells in-line roller skates, ice skates, street hockey equipment, and related accessories under the brand names Ultra-Wheels(TM), Ultra-Ice(TM), Skate Attack(TM), Street Attack(TM), and Roll U.S.A(TM) to retail and sporting goods stores. These products are manufactured under outside production arrangements to the Company's specifications. Basis of financial statement presentation and accounting estimates: The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. 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 period. Actual results could differ from those estimates. Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, First Team Sports Exports, Inc. (a foreign sales corporation). All material intercompany accounts and transactions have been eliminated in consolidation. Cash and cash equivalents: For purposes of reporting cash flows, the Company considers all demand deposit accounts and short-term cash investments with an initial maturity of 90 days or less to be cash equivalents. The Company maintains its cash in bank checking accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. Inventory: Inventory is valued at the lower of cost (first-in, first-out method) or market. Depreciation and amortization: Depreciation of equipment and leasehold improvements is computed on the straight-line method over the following estimated useful lives: Years - ------------------------------------------------------------------------------ Building 39.5 Production equipment 3-6 Office furniture and equipment 5-7 Warehouse equipment 6-10 Leasehold improvements Remaining life of lease Vehicles 5 License agreements: License agreement assets are being amortized over the terms of the agreements on a straight-line basis. F-7 FIRST TEAM SPORTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Nature of Business and Significant Accounting Policies (Continued) The Company reviews its license agreements periodically to determine potential impairment by comparing the carrying value with expected future net cash flows provided by sales of products related to the license agreements. Should the sum of the expected future net cash flows be less than the carrying value, the Company would determine whether an impairment loss should be recognized. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the intangible. Fair value would be determined based on market value. To date, management has determined that no impairment of license agreements exists. Net income per common and common equivalent share: Net income per common share is computed based upon the weighted-average number of common shares and common share equivalents (warrants and options) outstanding during each year. Common share equivalents are included in the computations using the treasury stock method whenever their inclusion has a dilutive effect. Income taxes: Deferred taxes are provided using an asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences, and operating loss or tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the amounts of assets and liabilities recorded for income tax and financial reporting purposes. Deferred tax assets are reduced by a valuation allowance when management determines that it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Fair value of financial instruments: At February 29, 1996, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 107, Disclosures About Fair Value of Financial Instruments, which requires disclosure of fair value information about financial instruments, whether or not recognized on the consolidated balance sheet, for which it is practicable to estimate that value. Statement No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. The aggregate fair values of the financial instruments would not represent the underlying value of the Company. The consolidated financial statements include the following financial instruments: cash and cash equivalents, trade receivables, note payable to bank, trade accounts payable, income taxes payable, and long-term debt. At February 29, 1996, no separate comparison of 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. Recently issued accounting standards: The FASB has issued Statement No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This statement is effective for the Company's year ending February 28, 1997. SFAS 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. Management does not believe this statement will have a material effect on the Company's financial statements. F-8 FIRST TEAM SPORTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Nature of Business and Significant Accounting Policies (Continued) The FASB has issued Statement No. 123 (SFAS 123), Accounting for Stock-Based Compensation. This statement is effective for the Company's year ending February 28, 1997. Management does not believe that the Company's adoption of SFAS 123 will have a material effect on the Company's financial position or results of operations since the Company intends to continue to measure compensation cost of stock option plans using the intrinsic value-based method. However, additional disclosure relative to the impact of not applying SFAS 123 will be required. Reclassifications: Certain amounts reported in the 1995 and 1994 consolidated financial statements have been reclassified to be consistent with the presentation used in 1996. These reclassifications had no effect on previously reported net income or shareholders' equity. Sales Information and Major Suppliers Major customers: Net sales for fiscal years ended February 29, 1996, and February 28, 1995 and 1994, include sales to certain major customers as follows: Percent of Net Sales ----------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------- Customer A 27 % 18 % 30 % Customer B 12 18 * * Sales for the year were less than 10 percent of net sales. At February 29, 1996, 30 percent of the Company's trade receivables were due from two customers and 14 percent were due from customers outside of the United States. Credit, including foreign credit, is determined on an individual customer basis. The Company utilizes letter-of-credit arrangements and wire transfers to minimize its foreign credit risk. Export sales: The Company's export sales approximated 27, 13, and 6 percent of total sales for fiscal years 1996, 1995, and 1994, respectively. Major suppliers: The Company had 44 percent of its products produced by three suppliers during fiscal 1996. Management believes that alternative suppliers are available in the event the Company is unable to obtain services from the three major suppliers. F-9 FIRST TEAM SPORTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3. Inventory Inventory consists of the following: February 29, February 28, 1996 1995 - ------------------------------------- -------------------- -------------------- Component parts $ 8,185,873 $ 5,650,888 Finished goods: Skates 11,346,966 11,553,297 Accessories and replacement parts 3,281,011 3,633,986 ---------------- -------------------- $ 22,813,850 $ 20,838,171 ================ ==================== Note 4. Notes Payable The Company has a line-of-credit arrangement with a bank through July 1, 1997, whereby it may borrow up to $15,000,000. Borrowings bear interest, payable monthly, at the bank's prime lending rate (8.25 percent at February 29, 1996) minus 0.25 percent. Borrowings under the credit arrangement are collateralized by substantially all corporate assets excluding the land and building. Outstanding borrowings under this arrangement totaled $10,143,000 and $9,064,000 at February 29, 1996, and February 28, 1995, respectively. On March 19, 1996, the Company entered into two mortgage notes totaling $4,875,000. The two mortgage notes are payable in monthly installments of principal and interest of $57,638 from May 1, 1996, through April 1, 2006. The notes are collateralized by a mortgage on the building and bear interest at 7.41 percent. The proceeds of the mortgage notes were used to pay down the line of credit. Accordingly, the mortgage notes have been reflected as long-term debt and the outstanding line-of-credit note has been reduced by that amount on the February 29, 1996, balance sheet. In connection with the line-of-credit and term debt agreements, the Company has agreed, among other things, to maintain a minimum tangible net worth, to not exceed a certain debt to tangible net worth ratio, to maintain a certain net income level, to limit capital expenditures to certain amounts, and to not pay dividends without the bank's consent. F-10 FIRST TEAM SPORTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5. Long-Term Debt Long-term debt consists of the following: February 29, February 28, 1996 1995 - ------------------------------------------ ----------------- ---------------- Obligations under license agreements, due in varying installments, with interest imputed at 6.9% to 9.25%, through 2001 (Note 9) $ 2,732,777 $ 3,441,428 Notes payable to bank under a $1,000,000 term credit facility, due in monthly installments of $8,000 to $11,200 to December of 1997, plus interest at the bank's prime rate (8.25% at February 29, 1996), plus 0.25%, collateralized by substantially all corporate assets excluding the land and building 215,643 548,710 Mortgage notes representing line-of-credit debt refinanced as term debt subsequent to year end (Note 4) 4,875,000 -- ----------------- ---------------- 7,823,420 3,990,138 Less current maturities 943,060 936,644 ----------------- ---------------- Long-term portion $ 6,880,360 $ 3,053,494 ================= ================ Aggregate future maturities of long-term debt are as follows: Years ending February: 1997 $ 943,060 1998 895,547 1999 963,271 2000 1,068,744 2001 991,243 Thereafter 2,961,555 ----------------- $ 7,823,420 ================= Note 6. Lease Agreements. The Company leases warehouse space. Under the terms of the leases, the Company is required to pay a portion of the lessors' operating expenses and property taxes. The leases are being accounted for as operating leases. They expire on various dates through August 31, 1997, with an option to extend the term of the primary lease for an additional five years. Rent expense under these leases which includes the Company's share of the lessors' operating expenses and property taxes totaled $697,460, $612,936, and $441,787 for fiscal years 1996, 1995, and 1994, respectively. Subsequent to year end, the Company entered into a lease termination agreement, which released the Company from future payments under the aforementioned leases. Under the terms of the termination agreement, the Company is obligated to make payments approximating $375,000 as compensation for the early termination of the leases. Since the Company does not intend to use the leased space in the future, it has accrued this lease termination liability on its February 29, 1996, balance sheet. F-11 FIRST TEAM SPORTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7. Income Tax Matters Net deferred income taxes consist of the following components: February 29, February 28, 1996 1995 - ------------------------------------------------------------------------------- Deferred tax assets: Receivable allowances $ 163,000 $ 75,000 Inventory costs 308,000 200,000 Accrued expenses 356,000 226,000 License agreements 74,000 50,000 ----------------- ---------------- 901,000 551,000 Deferred tax liabilities: Equipment (514,000) (389,000) ----------------- ---------------- Net deferred assets $ 387,000 $ 162,000 ================= ================ The net deferred tax assets have been classified on the accompanying consolidated balance sheets as follows: February 29, February 28, 1996 1995 - ------------------------------------------------------------------------------- Current assets $ 827,000 $ 501,000 Noncurrent liabilities (440,000) (339,000) ----------------- ---------------- $ 387,000 $ 162,000 ================= ================ The provision for income taxes charged to operations for fiscal years 1996, 1995, and 1994 are as follows: 1996 1995 1994 - ------------------------------------------------------------------------------- Current tax expense $ 4,563,000 $ 3,618,000 $ 365,000 Deferred tax benefit (225,000) (193,000) -- -------------- ------------- -------------- $ 4,338,000 $ 3,425,000 $ 365,000 ============== ============= ============== The provisions for income taxes for fiscal years 1996, 1995, and 1994 differ from the amounts obtained by applying the U.S. federal income tax rate to pretax income as follows: 1996 1995 1994 - --------------------------------------------------- ------------ ------------ ----------- Computed "expected" federal tax expense $ 4,252,000 $ 3,333,000 $ 350,000 Increase (decrease) in taxes resulting from: State income taxes, net of federal benefit 242,000 191,400 34,000 Other items individually insignificant, net (156,000) (99,400) (19,000) ------------ ------------ ----------- $ 4,338,000 $ 3,425,000 $ 365,000 ============ ============ ===========
F-12 FIRST TEAM SPORTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8. Shareholders' Equity Stock split: On February 3, 1995, the Company effected a three-for-two stock split. The effect of this stock split has been reflected in these financial statements and notes for all periods presented. Options: In prior years the Company reserved 975,000 common shares for issuance under the First Team Sports, Inc. 1987 Stock Option Plan (the 1987 Plan). During fiscal 1995, the Company established the First Team Sports, Inc. 1994 Stock Option and Incentive Compensation Plan (the 1994 Plan) and reserved 525,000 common shares for issuance thereunder. 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 fair market value of the shares at the date of grant. In fiscal 1994, the Company 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 percent 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. Transactions involving stock options during fiscal years 1996, 1995, and 1994 are summarized as follows:
Options ------------------------------------------------ 1996 1995 1994 - --------------------------------------------------------------------------------------------- Outstanding at beginning of year ($2.71 to $14.17 per share) 663,171 615,750 330,750 Exercised ($2.71 to $13.65 per share) (92,816) (180,479) (12,198) Canceled ($5.33 to $13.39 per share) (473) (7,380) -- Granted ($12.63 to $23.38 per share) 206,972 235,280 297,198 ------------------------------------------------ Outstanding at end of year ($5.33 to $23.38 per share) 776,854 663,171 615,750 ================================================
When these 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. The Company realized $667,000 of such tax benefits during fiscal 1996. F-13 FIRST TEAM SPORTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8. Shareholders' Equity (Continued) As of February 29, 1996, options covering 312,152 shares were exercisable at a price of $5.33 to $23.38 per share. In addition, the remaining stock options outstanding at February 29, 1996, become exercisable in the following fiscal years: Price Per Shares Share - ------------------------------------------------------------------------------ Years ending February 28: 1997 247,016 $ 5.33 to 14.17 1998 153,014 5.33 to 14.17 1999 64,672 12.63 On May 25, 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 provides 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. Preferred stock purchase rights: On February 28, 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 the 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 percent 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 percent 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 $0.01 per right at any time before they become exercisable. F-14 FIRST TEAM SPORTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9. License Agreements The Company has entered into agreements with certain well-known celebrities to endorse the Company's products. The agreements among other things, require the Company to make certain guaranteed payments, which have been recorded at their present value as both assets (license agreements) and liabilities (obligations under license agreements), and royalty payments based on percentages of sales of 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 $1,583,268, $1,233,981, and $557,543 during fiscal years 1996, 1995, and 1994, respectively. Note 10. Employee Benefit Plan The Company has a 401(k) Employee Benefit Plan for qualified employees. Company contributions to the plan are determined annually at the discretion of the Board of Directors. The Company's contributions to the plan were $236,000, $200,000, and $60,000 for fiscal years 1996, 1995, and 1994, respectively. Note 11. Land and Deferred Revenue In order to induce the Company to relocate its operating facility, the city of Anoka, Minnesota gave the Compan 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 January 1, 2003. At February 29, 1996, the land and a corresponding amount of deferred revenue have been recorded at $600,000, the estimated fair market value of the land. When the Company has satisfied the condition, the $600,000 of deferred revenue will be amortized into income over the then remaining useful life of the building. Note 12. Additional Cash Flow Information
Year Ended February 29, Years Ended February 28 ------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Cash payments for: Interest (including capitalized interest of $110,952 in 1996) $ 971,111 $ 719,425 $ 435,083 Income taxes 3,780,000 3,510,858 759,000 =============== =========== ============== Supplemental schedule of noncash investing and financing activities: License agreement obligation financed by licensor $ -- $ 2,133,870 $ -- Land and corresponding deferred revenue recorded (Note 11) 600,000 -- -- Mortgage notes proceeds applied to line of credit (Note 4) 4,875,000 -- -- =============== =========== =============
F-15 INDEPENDENT AUDITOR'S REPORT To the Board of Directors First Team Sports, Inc. Anoka, Minnesota Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidated supplemental schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. /s/ McGladrey & Pullen, LLP St. Paul, Minnesota April 4, 1996 F-16 SCHEDULE II FIRST TEAM SPORTS, INC. AND SUBSIDIARY RESERVE ACCOUNTS Years Ended February 29, 1996 and February 28, 1995 and 1994
Balance at Additions Beginning Charged to Balance at of Period Expenses Deductions(1) End of Period - -------------------------------------------------------------------------------------------- 1994 allowance for doubtful accounts $ 84,333 $ 236,000 $ 185,342 $ 134,991 1995 allowance for doubtful accounts 134,991 1,185,275 758,744 561,522 1996 allowance for doubtful accounts 561,522 524,746 596,869 489,399
(1) Uncollectible accounts written off, net of recoveries. F-17 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 EXHIBIT INDEX TO FORM 10-K For the fiscal year ended Commission File No.: 0-16442 February 29, 1996 FIRST TEAM SPORTS, INC. Exhibit Number Description 3.1* Articles of Incorporation, as amended 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 Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended February 28, 1991 4.2 Certificate of Designations of Series A Preferred Stock (included in 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 on Form 8-A, Reg. No. 0-16422 10.1 The Company's 1987 Stock Option Plan, 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, 1991** *Filed herewith. **Management contract or compensatory plan or arrangement. E-1 10.2 Amendment dated April 22, 1992 to the Company's 1987 Stock Option Plan -- incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended February 29, 1992** 10.3 Form of Incentive Stock Option Agreement under 1987 Stock Option Plan -- incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-18, Reg. No. 33-16345C** 10.4 Form of Nonqualified Stock Option Agreement under 1987 Stock Option Plan -- incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-18, Reg. No. 33-16345C** 10.5 License Agreement between the Company, Wayne Gretzky and Janet Jones Gretzky dated as of December 1, 1994 -- incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended February 28, 1995 10.6 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 on Form 10-K for the year ended February 28, 1995 10.7 Player Agreement between the Company and Brett Hull dated as of April 7, 1992 -- incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended February 29, 1992 10.8 Company Bonus Plan for certain executive officers of the Company regarding fiscal 1995 -- incorporated by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1994.** 10.9 Company Bonus Plan for certain executive officers of the Company regarding fiscal 1996 -- incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended February 28, 1995** 10.10* Company Bonus Plan for certain executive officers of the Company for fiscal 1997** 10.11 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** *Filed herewith. **Management contract or compensatory plan or arrangement. E-2 10.12 Agreement for consulting services dated August 19, 1992 between the Company and Joe Mendelsohn -- incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended February 28, 1993** 10.13 Amendment to Agreement for consulting services dated May 17, 1994 between the Company and Joe Mendelsohn -- incorporated by reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1994** 10.14 Amendment to Agreement for consulting services dated March 9, 1995 between the Company and Joe Mendelsohn -- incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended February 28, 1995** 10.15* Amendment to Agreement for consulting services dated April 1, 1996 between the Company and Joe Mendelsohn** 10.16 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** 10.17 The Company's 1994 Stock Option and Incentive Compensation Plan-- incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended February 28, 1994** 10.18* Employment Agreement dated January 23, 1996 between the Company and John J. Egart** 10.19* Employment Agreement dated January 23, 1996 between the Company and David G. Soderquist** 10.20* Employment Agreement dated January 23, 1996 between the Company and Robert L. Lenius, Jr.** 10.21* Employment Agreement dated January 23, 1996 between the Company and Susan L. Niles** 10.22* Employment Agreement dated January 23, 1996 between the Company and Craig Zelinske** 10.23* Mortgage Note in the amount of $3,656,250 dated March 19, 1996 in favor of LaSalle National Bank 10.24* Mortgage Note in the amount of $1,218,750 dated March 19, 1996 in favor of Marquette Capital Bank *Filed herewith. **Management contract or compensatory plan or arrangement. E-3 10.25* Mortgage dated March 19, 1996 between Company and LaSalle National Bank as agent for itself and Marquette Capital Bank 21 List of Subsidiaries -- incorporated by reference to Exhibit 22 to the Company's Annual Report on Form 10-K for the year ended February 28, 1994. 23* Consent of Independent Accountants. 24* Power of Attorney of John J. Egart, David G. Soderquist, Joe Mendelsohn, Timothy G. Rath, Stanley E. Hubbard and Robert L. Lenius, Jr. included in signature page on this Form 10-K. 27* Financial Data Schedule (included in electronic version only) *Filed herewith. **Management contract or compensatory plan or arrangement. E-4 EX-3.1 2 RESTATED ARTICLES RESTATED ARTICLES OF INCORPORATION OF FIRST TEAM SPORTS, INC. The undersigned hereby certifies that Restated Articles of Incorporation of First Team Sports, Inc. in the form attached hereto as Exhibit A were adopted on May 16, 1996, by the Board of Directors of the corporation, which Restated Articles only restate the existing Articles and all amendments to them in accordance with Minnesota Statutes Sec. 302A.135, Subd. 5. I swear that the foregoing is true and accurate and that I have the authority to sign this document on behalf of the corporation. Dated: May 22, 1996 /s/ John J. Egart John J. Egart, President EXHIBIT A RESTATED ARTICLES OF INCORPORATION OF FIRST TEAM SPORTS, INC. ARTICLE 1 - NAME 1.1) The name of the corporation shall be First Team Sports, Inc. ARTICLE 2 - REGISTERED OFFICE 2.1) The registered office of the corporation is located at 1201 Lund Boulevard, Anoka, Minnesota 55303. ARTICLE 3 - CAPITAL STOCK 3.1) Authorized Shares. The aggregate number of shares the corporation has authority to issue shall be 12,500,000 shares, which shall have a par value of $.01 per share solely for the purpose of a statute or regulation imposing a tax or fee based upon the capitalization of the corporation, and which shall consist of 10,000,000 common shares and 2,500,000 undesignated shares. The Board of Directors of the corporation is authorized to establish from the undesignated shares, by resolution adopted and filed in the manner provided by law, one or more classes or series of shares, to designate each such class or series (which may include but is not limited to designation as additional common shares), and to fix the relative rights and preferences of each such class or series. 3.2) Issuance of Shares. The Board of Directors of the corporation is authorized from time to time to accept subscriptions for, issue, sell and deliver shares of any class or series of the corporation to such persons, at such times and upon such terms and conditions as the Board shall determine, valuing all nonmonetary consideration and establishing a price in money or other consideration, or a minimum price, or a general formula or method by which the price will be determined. 3.3) Issuance of Rights to Purchase Shares. The Board of Directors is further authorized from time to time to grant and issue rights to subscribe for, purchase, exchange securities for, or convert securities into, shares of the corporation of any class or series, and to fix the terms, provisions and conditions of such rights, including the exchange or conversion basis or the price at which such shares may be purchased or subscribed for. - 1 - 3.4) Issuance of Shares to Holders of Another Class or Series. The Board is further authorized to issue shares of one class or series to holders of that class or series or to holders of another class or series to effectuate share dividends or splits. ARTICLE 4 - RIGHTS OF SHAREHOLDERS 4.1) No Preemptive Rights. No shares of any class or series of the corporation shall entitle the holders to any preemptive rights to subscribe for or purchase additional shares of that class or series of any other class or series of the corporation now or hereafter authorized or issued. 4.2) No Cumulative Voting Rights. There shall be no cumulative voting by the shareholders of the corporation. ARTICLE 5 - LIMITATION OF DIRECTOR LIABILITY 5.1) To the fullest extent permitted by the Minnesota Business Corporation Act, as the same exists or may hereafter be amended, a director of this corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director. ARTICLE 6 - MERGER, EXCHANGE, SALE OF ASSETS AND DISSOLUTION 6.1) Where approval of shareholders is required by law, the affirmative vote of the holders of at least a majority of the voting power of all shares entitled to vote shall be required to authorize the corporation (i) to merge into or with one or more other corporations, (ii) to exchange its shares for shares of one or more other corporations, (iii) to sell, lease, transfer or otherwise dispose of all or substantially all of its property and assets, including its good will, or (iv) to commence voluntary dissolution. ARTICLE 7 - AMENDMENT OF ARTICLES OF INCORPORATION 7.1) Any provision contained in these Articles of Incorporation may be amended, altered, changed or repealed by the affirmative vote of the holders of at least a majority of the voting power of all shares entitled to vote or such greater percentage as may be otherwise prescribed by the laws of the State of Minnesota. - 2 - EX-10.10 3 1997 COMPANY BONUS PLAN FISCAL 1997 EXECUTIVE BONUS PLAN PLAN *Company bonus plan is based on earnings before tax *Bonus plan consists of the following levels: Earnings Before Tax EBT % Lower Level: $11,500,000 11.5% Middle Level: $13,058,000 12.1% Higher Level: $14,260,000 12.4% ELIGIBILITY
1997 1997 1997 % of Lower Middle Higher Total John $ 60,000 $120,000 $190,000 30.0% Dave $ 33,500 $ 67,000 $110,000 16.7% Bob $ 40,000 $ 80,000 $130,000 20.0% Susan $ 32,800 $ 65,000 $110,000 16.7% Craig $ 32,800 $ 65,000 $110,000 16.7% TOTALS $200,000 $400,000 $650,000 100.0%
BONUS CALCULATIONS *If earnings before tax and EBT % goals are met, appropriate bonus dollars will be paid. If only one of these goals are met, it will be the discretion of the Board how the bonus will be paid out. *If earnings before tax fall between the lower level and the higher level, bonus dollars will be pro-rated accordingly. CRITERIA *All participants will have objectives/goals established for them to achieve. *Individual achievement of objectives, as judged by the Compensation Committee, will determine bonus payments. EX-10.15 4 AMENDMENT TO CONSULTING AGMT April 1, 1996 Mr. Joe Mendelsohn 1617 East McMillan Cincinnati, OH 45206 Dear Joe: This letter will confirm the conversations you and I have had in connection with the amendment of your August 19, 1992 Consulting Agreement. Other than the amendments set forth below, your consulting agreement shall remain in full force and effect through fiscal 1998. The fiscal 1998 bonus and option programs will be determined at the end of fiscal 1997. In addition to your monthly consulting fee of $3,000, you will be eligible for a performance payment as follows: Earnings Before Tax EBT % Payment Lower Level $11,500,000 11.5% $32,000 Middle Legal $13,068,000 12.1% $64,000 Higher Level $14,260,000 12.4% $110,000 The above performance payment will be calculated and awarded with the same criteria as the 1996 Executive Bonus Plan. If earnings fall between the three above levels, bonus dollars will be prorated accordingly. In addition, you have been granted a seven-year, nonqualified stock option covering 30,000 shares at $12.625 per share. These options will vest at the rate of 33 1/3% per year over the next three years. If this letter accurately sets forth your understanding of the amendment to the terms of your consulting agreement, please sign both copies where indicated and return a signed copy to me. Very truly yours, /s/ John J. Egart John J. Egart JJE/df I have read the foregoing and am in agreement with the terms set forth therein. April 5, 1996 /s/ Joe Mendelsohn Date Joe Mendelsohn EX-10.18 5 JOHN J. EGART EMPLOYMENT AGMT EMPLOYMENT AGREEMENT THIS AGREEMENT effective as of January 23, 1996, between FIRST TEAM SPORTS, INC., a Minnesota corporation (the "Company"), and JOHN J. EGART, a resident of Andover, Minnesota ("Executive"). WITNESSETH WHEREAS, Executive has been employed as President and Chief Executive Officer of the Company since January 25, 1994 and prior to such date as Executive Vice President of the Company; and WHEREAS, the Company desires to continue to have the benefit of Executive's experience and loyalty, and Executive has indicated his willingness to provide his 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 termination of the Executive's employment with the Company by the Board because of (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. -1- 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 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. 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 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 useful 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. -2- "Confidential Information" means any information or compilation of information that Executive learns or develops during the course of his 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, 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 John J. Egart, 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 in all plans, programs or benefits in accordance with Sections 4(b) to (e), inclusive, hereof; or (4) relocation of Executive's principal office more than 20 miles from its current location. Notwithstanding the foregoing, "Good Reason" shall be deemed to occur only if such event enumerated in (1) through (4) above has not been corrected by the Company within two weeks of receipt of notice from Executive of the occurrence of such event, which notice shall specifically describe such event. "Incentive Stock Option Plans" shall mean any such plans within the meaning of Section 422 of the Code or any successor provision thereof. "Inventions" means any inventions, discoveries, improvements, ideas, or works of authorship (whether patentable or not and including those which may be subject to copyright protection) generated, conceived, authored, or reduced to practice by Executive alone or in conjunction with others, during or after working hours, while an employee of the Company, and that: (i) are derived in whole or in part from, or use, incorporate, or represent any improvement to any Invention or trade secret of the Company; or (ii) result from any work Executive performs for the Company; or (iii) use any of the Company's equipment, supplies, or facilities, or trade secret information; or (iv) otherwise relate to the Company's products or the Company's present or possible future research or development. "Term" shall mean the term of Executive's employment under Section 3 hereof. -3- "Permanently Disabled" shall mean permanently disabled in accordance with the disability policy (as defined by the Company's Long-Term Disability Insurance Plan) of the Company as in effect on the date of this Agreement 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. "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 President and Chief Executive Officer upon the terms and conditions set forth in this Agreement. Executive agrees to serve as President and Chief Executive Officer. In such capacity, Executive shall perform duties substantially the same as the duties heretofore performed by Executive as President and Chief Executive Officer of the Company. (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 three (3) 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 terminated earlier as provided in Section 9 of this Agreement. -4- 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 $175,000 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 or reduced; 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 insofar as plans developed for the benefit of employees other than such executives. (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 the following: (i) all qualified benefit plans and programs (e.q,, defined contribution, supplemental retirement and Section 401(k) plans, long-term disability and life insurance plans and programs); (ii) all hospitalization and medical plans and programs; and (iii) all 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 his employment hereunder other than for Good Reason, then Executive shall not be eligible to receive any compensation or benefits, or to participate in any 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 benefits under any plan or program, to the extent vested, in accordance with the terms of such plan or program and except for benefits provided in accordance with customary practices of the Company at Executive's expense (e.g., hospitalization and medical insurance). -5- (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 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 his monthly Base Salary 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 Executive's annual Base Salary and incentive bonus earned by Executive during the prior fiscal year. Such payment shall be made in cash within fifteen (15) days 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 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 hospital and medical plans and programs of the Company for a one-year period following termination of Executive's employment, subject to Executive paying the employee portion of the cost and subject to termination of participation upon Executive becoming entitled to comparable benefits on subsequent employment. (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. -6- 7. Termination of Employment Without Cause or Resignation With Good Reason During 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 his employment hereunder for Good Reason, Executive shall, subject to subsection (c) below, be entitled 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 his monthly Base Salary 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 Executive's annual Base Salary and incentive bonus earned by Executive during the prior fiscal year. For purposes of clause (B), the computation of the amount of incentive bonuses shall be based upon the incentive 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 benefits under any plan or program, in accordance with the terms of such plan or program and except for benefits provided in accordance with customary practices of the Company at Executive's expense (e.g., hospitalization and medical insurance). 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 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. -7- (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 Internal Revenue 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 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 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). -8- (ii) Executive (or, in the event of his death, Executive's estate or his designated beneficiary) shall be entitled to receive benefits under any other Company plan or program (to the extent Executive is vested) in accordance with the terms of such plan or program. Executive shall be entitled to continued contributions under the Company's qualified profit sharing plan 401(k) to the extent permitted in said Plan. (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 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 Executive's Base Salary at the time of 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 nonrenewal 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 Executive's Base Salary at the time of 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 incentive 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 Executive's employment under this Agreement ceases. (ii) Executive shall be entitled to continued participation in hospital and medical plans and programs of the Company for a one-year period following cessation of Executive's employment, subject to Executive paying the employee portion of the cost and subject to termination of participation upon Executive becoming entitled to comparable benefits on subsequent employment. -9- (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; and all such Inventions shall be the exclusive property of the Company and are hereby assigned by Executive to the Company. Further, Employee will, at the Company's expense, give the Company all assistance it reasonably requires to perfect, protect, 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 his entire right, title and interest in Inventions; and (ii) enable the Company to obtain 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 his 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 his 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 Sec. 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. -10- 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 by or created by Executive for use in connection with his 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 legal 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; (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 himself 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 reasonable attorneys' fees for securing such relief. Executive recognizes and hereby admits that irreparable damage will result to the Company if he 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. -11- 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 the final determination of a court of competent jurisdiction declares, after the expiration of the time within which judicial review (if permitted) of such determination may be perfected, that any term of provision hereof is invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 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. -12- 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. /s/ Robert L. Lenius, Jr. By: Robert L. Lenius, Jr. Its: Chief Financial Officer /s/ John J. Egart John J. Egart -13- EX-10.19 6 DAVID G. SODERQUIST EMPLOYMENT AGMT EMPLOYMENT AGREEMENT THIS AGREEMENT effective as of January 23, 1996, between FIRST TEAM SPORTS, INC., a Minnesota corporation (the "Company"), and DAVID G. SODERQUIST, a resident of Naples, Florida ("Executive"). WITNESSETH WHEREAS, Executive has been employed as Vice Chairman of the Company since January 25, 1994 and prior to such date as President and Chief Executive Officer of the Company; and WHEREAS, the Company desires to continue to have the benefit of Executive's experience and loyalty, and Executive has indicated his willingness to provide his 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 termination of the Executive's employment with the Company by the Board because of (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. - 1 - 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 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. 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 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 useful 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. - 2 - "Confidential Information" means any information or compilation of information that Executive learns or develops during the course of his 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, 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 David G. Soderquist, a resident of Florida. "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 in all plans, programs or benefits in accordance with Sections 4(b) to (e), inclusive, hereof; or (4) relocation of Executive's principal office more than 20 miles from its current location. Notwithstanding the foregoing, "Good Reason" shall be deemed to occur only if such event enumerated in (1) through (4) above has not been corrected by the Company within two weeks of receipt of notice from Executive of the occurrence of such event, which notice shall specifically describe such event. "Incentive Stock Option Plans" shall mean any such plans within the meaning of Section 422 of the Code or any successor provision thereof. "Inventions" means any inventions, discoveries, improvements, ideas, or works of authorship (whether patentable or not and including those which may be subject to copyright protection) generated, conceived, authored, or reduced to practice by Executive alone or in conjunction with others, during or after working hours, while an employee of the Company, and that: (i) are derived in whole or in part from, or use, incorporate, or represent any improvement to any Invention or trade secret of the Company; or (ii) result from any work Executive performs for the Company; or (iii) use any of the Company's equipment, supplies, or facilities, or trade secret information; or (iv) otherwise relate to the Company's products or the Company's present or possible future research or development. "Term" shall mean the term of Executive's employment under Section 3 hereof. - 3 - "Permanently Disabled" shall mean permanently disabled in accordance with the disability policy (as defined by the Company's Long-Term Disability Insurance Plan) of the Company as in effect on the date of this Agreement 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. "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 Chairman upon the terms and conditions set forth in this Agreement. Executive agrees to serve as Vice Chairman. In such capacity, Executive shall perform duties substantially the same as the duties heretofore performed by Executive as Vice Chairman of the Company. (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 three (3) 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 terminated earlier 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: - 4 - (a) Base Salary. The Company shall pay to Executive a Base Salary at the rate of $150,000 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 or reduced; 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 insofar as plans developed for the benefit of employees other than such executives. (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 the following: (i) all qualified benefit plans and programs (e.q,, defined contribution, supplemental retirement and Section 401(k) plans, long-term disability and life insurance plans and programs); (ii) all hospitalization and medical plans and programs; and (iii) all 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 his employment hereunder other than for Good Reason, then Executive shall not be eligible to receive any compensation or benefits, or to participate in any 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 benefits under any plan or program, to the extent vested, in accordance with the terms of such plan or program and except for benefits provided in accordance with customary practices of the Company at Executive's expense (e.g., hospitalization and medical insurance). - 5 - (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 to receive 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 his monthly Base Salary 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 Executive's annual Base Salary and incentive bonus earned by Executive during the prior fiscal year. Such payment shall be made in cash within fifteen (15) days 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 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 hospital and medical plans and programs of the Company for a one-year period following termination of Executive's employment, subject to Executive paying the employee portion of the cost and subject to termination of participation upon Executive becoming entitled to comparable benefits on subsequent employment. (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. - 6 - 7. Termination of Employment Without Cause or Resignation With Good Reason During 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 his employment hereunder for Good Reason, Executive shall, subject to subsection (c) below, be entitled to receive from the Company or its Successor 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 his monthly Base Salary 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 Executive's annual Base Salary and incentive bonus earned by Executive during the prior fiscal year. For purposes of clause (B), the computation of the amount of incentive bonuses shall be based upon the incentive 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 benefits under any plan or program, in accordance with the terms of such plan or program and except for benefits provided in accordance with customary practices of the Company at Executive's expense (e.g., hospitalization and medical insurance). 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 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. - 7 - (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 Internal Revenue 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 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 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). (ii) Executive (or, in the event of his death, Executive's estate or his designated beneficiary) shall be entitled to receive benefits under any other Company plan or program (to the extent Executive is vested) in accordance with the terms of such plan or program. Executive shall be entitled to continued contributions under the Company's qualified profit sharing plan 401(k) to the extent permitted in said Plan. - 8 - (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 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 Executive's Base Salary at the time of 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 nonrenewal 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 Executive's Base Salary at the time of 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 incentive 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 Executive's employment under this Agreement ceases. (ii) Executive shall be entitled to continued participation in hospital and medical plans and programs of the Company for a one-year period following cessation of Executive's employment, subject to Executive paying the employee portion of the cost and subject to termination of participation upon Executive becoming entitled to comparable benefits on subsequent employment. - 9 - (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; and all such Inventions shall be the exclusive property of the Company and are hereby assigned by Executive to the Company. Further, Employee will, at the Company's expense, give the Company all assistance it reasonably requires to perfect, protect, 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 his entire right, title and interest in Inventions; and (ii) enable the Company to obtain 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 his 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 his 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 Sec. 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. - 10 - 13. Return of Documents and Property. All documents and tangible items provided to Executive by the Company, or possessed by or created by Executive for use in connection with his 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 legal 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; (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 himself 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 reasonable attorneys' fees for securing such relief. Executive recognizes and hereby admits that irreparable damage will result to the Company if he 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. - 11 - 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 the final determination of a court of competent jurisdiction declares, after the expiration of the time within which judicial review (if permitted) of such determination may be perfected, that any term of provision hereof is invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 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. - 12 - 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: /s/ John J. Egart John J. Egart, President /s/ David G. Soderquist David G. Soderquist - 13 - EX-10.20 7 ROBERT LENIUS EMPLOYMENT AGMT EMPLOYMENT AGREEMENT THIS AGREEMENT effective as of January 23, 1996, between FIRST TEAM SPORTS, INC., a Minnesota corporation (the "Company"), and ROBERT L. LENIUS, JR., a resident of Ramsey, Minnesota ("Executive"). WITNESSETH WHEREAS, Executive has been employed as Vice President and Chief Financial Officer of the Company since July 1991; and WHEREAS, the Company desires to continue to have the benefit of Executive's experience and loyalty, and Executive has indicated his willingness to provide his 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. - 1 - 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 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. 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 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 useful 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. - 2 - "Confidential Information" means any information or compilation of information that Executive learns or develops during the course of his 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, 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 Robert L. Lenius, Jr., a resident of Minnesota. "Good Reason" shall mean (1) a substantial reduction in the nature or status of Executive's responsibilities hereunder; (2) a reduction by the Company in the Base Salary of Executive except to the extent permitted under Section 4(a) hereof; (3) the failure by the Company to allow Executive to participate to the full extent in all plans, programs or benefits in accordance with Sections 4(b) to (e), inclusive, hereof; or (4) relocation of Executive's principal office more than 20 miles from its current location. Notwithstanding the foregoing, "Good Reason" shall be deemed to occur only if such event enumerated in (1) through (4) above has not been corrected by the Company within two weeks of receipt of notice from Executive of the occurrence of such event, which notice shall specifically describe such event. "Incentive Stock Option Plans" shall mean any such plans within the meaning of Section 422 of the Code or any successor provision thereof. "Inventions" means any inventions, discoveries, improvements, ideas, or works of authorship (whether patentable or not and including those which may be subject to copyright protection) generated, conceived, authored, or reduced to practice by Executive alone or in conjunction with others, during or after working hours, while an employee of the Company, and that: (i) are derived in whole or in part from, or use, incorporate, or represent any improvement to any Invention or trade secret of the Company; or (ii) result from any work Executive performs for the Company; or (iii) use any of the Company's equipment, supplies, or facilities, or trade secret information; or (iv) otherwise relate to the Company's products or the Company's present or possible future research or development. "Term" shall mean the term of Executive's employment under Section 3 hereof. "Permanently Disabled" shall mean permanently disabled in accordance with the disability policy (as defined by the Company's Long-Term Disability Insurance Plan) of the Company as in effect on the date of this Agreement and as evaluated by sufficient documentation including doctors statements, etc. as requested by the Company. - 3 - "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. "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 and Chief Financial Officer upon the terms and conditions set forth in this Agreement. Executive agrees to serve as Vice President and Chief Financial Officer. In such capacity, Executive shall perform duties substantially the same as the duties heretofore performed by Executive as Vice President - Finance of the Company. (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 one (1) year 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 one (1)-year periods, unless terminated earlier 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: - 4 - (a) Base Salary. The Company shall pay to Executive a Base Salary at the rate of $95,200 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 or reduced; 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 insofar as plans developed for the benefit of employees other than such executives. (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 the following: (i) all qualified benefit plans and programs (e.q,, defined contribution, supplemental retirement and Section 401(k) plans, long-term disability and life insurance plans and programs); (ii) all hospitalization and medical plans and programs; and (iii) all 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 his employment hereunder other than for Good Reason, then Executive shall not be eligible to receive any compensation or benefits, or to participate in any 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 benefits under any plan or program, to the extent vested, in accordance with the terms of such plan or program and except for benefits provided in accordance with customary practices of the Company at Executive's expense (e.g., hospitalization and medical insurance). - 5 - (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 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 sum of Executive's annual Base Salary and incentive bonus earned by Executive during the prior fiscal year. Such payment shall be made in cash within fifteen (15) days 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 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 hospital and medical plans and programs of the Company for a one-year period following termination of Executive's employment, subject to Executive paying the employee portion of the cost and subject to termination of participation upon Executive becoming entitled to comparable benefits on subsequent employment. (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. - 6 - (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 his employment hereunder for Good Reason, Executive shall, subject to subsection (c) below, be entitled 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 two (2) times the sum of (A) the amount of Executive's Base Salary at the time of 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 is terminated. For purposes of clause (B), the computation of the amount of incentive bonuses shall be based upon the incentive 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 benefits under any plan or program, in accordance with the terms of such plan or program and except for benefits provided in accordance with customary practices of the Company at Executive's expense (e.g., hospitalization and medical insurance). 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 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. - 7 - (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 Internal Revenue 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 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 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). (ii) Executive (or, in the event of his death, Executive's estate or his designated beneficiary) shall be entitled to receive benefits under any other Company plan or program (to the extent Executive is vested) in accordance with the terms of such plan or program. Executive shall be entitled to continued contributions under the Company's qualified profit sharing plan 401(k) to the extent permitted in said Plan. - 8 - (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 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 Executive's Base Salary at the time of 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 nonrenewal 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 Executive's Base Salary at the time of 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 incentive 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 Executive's employment under this Agreement ceases. (ii) Executive shall be entitled to continued participation in hospital and medical plans and programs of the Company for a one-year period following cessation of Executive's employment, subject to Executive paying the employee portion of the cost and subject to termination of participation upon Executive becoming entitled to comparable benefits on subsequent employment. (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. - 9 - 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; and 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, 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 his entire right, title and interest in Inventions; and (ii) enable the Company to obtain 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 his 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 his 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 Sec. 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. - 10 - 13. Return of Documents and Property. All documents and tangible items provided to Executive by the Company, or possessed by or created by Executive for use in connection with his 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 legal 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; (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 himself 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 reasonable attorneys' fees for securing such relief. Executive recognizes and hereby admits that irreparable damage will result to the Company if he 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. - 11 - 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 the final determination of a court of competent jurisdiction declares, after the expiration of the time within which judicial review (if permitted) of such determination may be perfected, that any term of provision hereof is invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 19. Amendment; Waiver. This Agreement may not be modified, amended or waived in any manner except by an instrument in writing signed by both parties hereto. The waiver by either party of compliance with any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement. 20. Governing Law. All matters affecting this Agreement, including the validity thereof, are to be governed by, interpreted and construed in accordance with the laws of the State of Minnesota. 21. Notices. Any notice hereunder by either party to the other shall be given in writing by personal delivery or certified mail, return receipt requested. If addressed to Executive, the notice shall be delivered or mailed to Executive at the address specified under Executive's signature hereto, or if addressed to the Company, the notice shall be delivered or mailed to the Company at its executive offices to the attention of the Board of Directors of the Company. A notice shall be deemed given, if by personal delivery, on the date of such delivery or, if by certified mail, on the date shown on the applicable return receipt. 22. Supersedes Previous Agreements. This Agreement supersedes all prior or contemporaneous negotiations, commitments, agreements and writings with respect to the subject matter hereof, all such other negotiations, commitments, agreements and writings will have no further force or effect, and the parties to any such other negotiation, commitment, agreement or writing will have no further rights or obligations thereunder. 23. Headings; Construction. The headings of Sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. This Agreement shall be construed without regard to any presumption or other rule requiring construction hereof against the party causing this Agreement to be drafted. - 12 - 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: /s/ John J. Egart John J. Egart, President /s/ Robert L. Lenius, Jr. Robert L. Lenius, Jr. - 13 - EX-10.21 8 SUSAN NILES EMPLOYMENT AGMT EMPLOYMENT AGREEMENT THIS AGREEMENT effective as of January 23, 1996, between FIRST TEAM SPORTS, INC., a Minnesota corporation (the "Company"), and SUSAN L. NILES, a resident of Minneapolis, Minnesota ("Executive"). WITNESSETH WHEREAS, Executive has been employed as Vice President - Marketing of the Company since November 1993; and WHEREAS, the Company desires to continue to have the benefit of Executive's experience and loyalty, and Executive has indicated her willingness to provide her 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. - 1 - 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 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. 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 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 useful 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. - 2 - "Confidential Information" means any information or compilation of information that Executive learns or develops during the course of her 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, 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 Susan L. Niles, 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 in all plans, programs or benefits in accordance with Sections 4(b) to (e), inclusive, hereof; or (4) relocation of Executive's principal office more than 20 miles from its current location. Notwithstanding the foregoing, "Good Reason" shall be deemed to occur only if such event enumerated in (1) through (4) above has not been corrected by the Company within two weeks of receipt of notice from Executive of the occurrence of such event, which notice shall specifically describe such event. "Incentive Stock Option Plans" shall mean any such plans within the meaning of Section 422 of the Code or any successor provision thereof. "Inventions" means any inventions, discoveries, improvements, ideas, or works of authorship (whether patentable or not and including those which may be subject to copyright protection) generated, conceived, authored, or reduced to practice by Executive alone or in conjunction with others, during or after working hours, while an employee of the Company, and that: (i) are derived in whole or in part from, or use, incorporate, or represent any improvement to any Invention or trade secret of the Company; or (ii) result from any work Executive performs for the Company; or (iii) use any of the Company's equipment, supplies, or facilities, or trade secret information; or (iv) otherwise relate to the Company's products or the Company's present or possible future research or development. "Term" shall mean the term of Executive's employment under Section 3 hereof. "Permanently Disabled" shall mean permanently disabled in accordance with the disability policy (as defined by the Company's Long-Term Disability Insurance Plan) of the Company as in effect on the date of this Agreement and as evaluated by sufficient documentation including doctors statements, etc. as requested by the Company. - 3 - "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. "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 Marketing upon the terms and conditions set forth in this Agreement. Executive agrees to serve as Vice President - Marketing. In such capacity, Executive shall perform duties substantially the same as the duties heretofore performed by Executive as Vice President - Marketing of the Company. (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 her full-time working hours to her 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 she 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 her 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 one (1) year 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 one (1)-year periods, unless terminated earlier 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: - 4 - (a) Base Salary. The Company shall pay to Executive a Base Salary at the rate of $85,625 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 or reduced; 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 insofar as plans developed for the benefit of employees other than such executives. (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 the following: (i) all qualified benefit plans and programs (e.q,, defined contribution, supplemental retirement and Section 401(k) plans, long-term disability and life insurance plans and programs); (ii) all hospitalization and medical plans and programs; and (iii) all 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 her employment hereunder other than for Good Reason, then Executive shall not be eligible to receive any compensation or benefits, or to participate in any 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 benefits under any plan or program, to the extent vested, in accordance with the terms of such plan or program and except for benefits provided in accordance with customary practices of the Company at Executive's expense (e.g., hospitalization and medical insurance). - 5 - (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 her employment hereunder for Good Reason, Executive shall be entitled 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 her monthly Base Salary 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) one-half (1/2) the sum of Executive's annual Base Salary plus incentive bonus earned by Executive during the prior fiscal year. (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 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 hospital and medical plans and programs of the Company for a one-year period following termination of Executive's employment, subject to Executive paying the employee portion of the cost and subject to termination of participation upon Executive becoming entitled to comparable benefits on subsequent employment. (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. - 6 - 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 her employment hereunder for Good Reason, Executive shall, subject to subsection (c) below, be entitled 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 sum of (A) the amount of Executive's Base Salary at the time of 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 is terminated. For purposes of clause (B), the computation of the amount of incentive bonuses shall be based upon the incentive 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 benefits under any plan or program, in accordance with the terms of such plan or program and except for benefits provided in accordance with customary practices of the Company at Executive's expense (e.g., hospitalization and medical insurance). 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 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. - 7 - (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 Internal Revenue 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 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 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). (ii) Executive (or, in the event of her death, Executive's estate or her designated beneficiary) shall be entitled to receive benefits under any other Company plan or program (to the extent Executive is vested) in accordance with the terms of such plan or program. Executive shall be entitled to continued contributions under the Company's qualified profit sharing plan 401(k) to the extent permitted in said Plan. - 8 - (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 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 one-half (1/2) of Executive's Base Salary at the time of 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 nonrenewal is given during a Transition Period, then, subject to Section 7(c), the Company shall make a cash payment to Executive equal to the sum of (A) the amount of Executive's Base Salary at the time of 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 incentive 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 Executive's employment under this Agreement ceases. (ii) Executive shall be entitled to continued participation in hospital and medical plans and programs of the Company for a one-year period following cessation of Executive's employment, subject to Executive paying the employee portion of the cost and subject to termination of participation upon Executive becoming entitled to comparable benefits on subsequent employment. (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. - 9 - 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; and 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, 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 her entire right, title and interest in Inventions; and (ii) enable the Company to obtain 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 her 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 her 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 Sec. 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. - 10 - 13. Return of Documents and Property. All documents and tangible items provided to Executive by the Company, or possessed by or created by Executive for use in connection with her 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 legal 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; (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 himself 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 reasonable attorneys' fees for securing such relief. Executive recognizes and hereby admits that irreparable damage will result to the Company if she 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. - 11 - 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 the final determination of a court of competent jurisdiction declares, after the expiration of the time within which judicial review (if permitted) of such determination may be perfected, that any term of provision hereof is invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 19. Amendment; Waiver. This Agreement may not be modified, amended or waived in any manner except by an instrument in writing signed by both parties hereto. The waiver by either party of compliance with any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement. 20. Governing Law. All matters affecting this Agreement, including the validity thereof, are to be governed by, interpreted and construed in accordance with the laws of the State of Minnesota. 21. Notices. Any notice hereunder by either party to the other shall be given in writing by personal delivery or certified mail, return receipt requested. If addressed to Executive, the notice shall be delivered or mailed to Executive at the address specified under Executive's signature hereto, or if addressed to the Company, the notice shall be delivered or mailed to the Company at its executive offices to the attention of the Board of Directors of the Company. A notice shall be deemed given, if by personal delivery, on the date of such delivery or, if by certified mail, on the date shown on the applicable return receipt. 22. Supersedes Previous Agreements. This Agreement supersedes all prior or contemporaneous negotiations, commitments, agreements and writings with respect to the subject matter hereof, all such other negotiations, commitments, agreements and writings will have no further force or effect, and the parties to any such other negotiation, commitment, agreement or writing will have no further rights or obligations thereunder. 23. Headings; Construction. The headings of Sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. This Agreement shall be construed without regard to any presumption or other rule requiring construction hereof against the party causing this Agreement to be drafted. - 12 - 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: /s/ John J. Egart John J. Egart, President /s/ Susan L. Niles Susan L. Niles - 13 - EX-10.22 9 CRAIG ZELINSKE EMPLOYMENT AGREEMENT THIS AGREEMENT effective as of January 23, 1996, between FIRST TEAM SPORTS, INC., a Minnesota corporation (the "Company"), and CRAIG ZELINSKE, a resident of Minnesota ("Executive"). WITNESSETH WHEREAS, Executive has been employed as Vice President - Sales of the Company since December 1994; and WHEREAS, the Company desires to continue to have the benefit of Executive's experience and loyalty, and Executive has indicated his willingness to provide his 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. -1- 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 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. 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 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 useful 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. -2- "Confidential Information" means any information or compilation of information that Executive learns or develops during the course of his 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, 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 Craig Zelinske, 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 in all plans, programs or benefits in accordance with Sections 4(b) to (e), inclusive, hereof; or (4) relocation of Executive's principal office more than 20 miles from its current location. Notwithstanding the foregoing, "Good Reason" shall be deemed to occur only if such event enumerated in (1) through (4) above has not been corrected by the Company within two weeks of receipt of notice from Executive of the occurrence of such event, which notice shall specifically describe such event. "Incentive Stock Option Plans" shall mean any such plans within the meaning of Section 422 of the Code or any successor provision thereof. "Inventions" means any inventions, discoveries, improvements, ideas, or works of authorship (whether patentable or not and including those which may be subject to copyright protection) generated, conceived, authored, or reduced to practice by Executive alone or in conjunction with others, during or after working hours, while an employee of the Company, and that: (i) are derived in whole or in part from, or use, incorporate, or represent any improvement to any Invention or trade secret of the Company; or (ii) result from any work Executive performs for the Company; or (iii) use any of the Company's equipment, supplies, or facilities, or trade secret information; or (iv) otherwise relate to the Company's products or the Company's present or possible future research or development. "Term" shall mean the term of Executive's employment under Section 3 hereof. "Permanently Disabled" shall mean permanently disabled in accordance with the disability policy (as defined by the Company's Long-Term Disability Insurance Plan) of the Company as in effect on the date of this Agreement and as evaluated by sufficient documentation including doctors statements, etc. as requested by the Company. -3- "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. "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. In such capacity, Executive shall perform duties substantially the same as the duties heretofore performed by Executive as Vice President - Sales of the Company. (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 one (1) year 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 one (1)-year periods, unless terminated earlier 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: -4- (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 or reduced; 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 insofar as plans developed for the benefit of employees other than such executives. (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 the following: (i) all qualified benefit plans and programs (e.q,, defined contribution, supplemental retirement and Section 401(k) plans, long-term disability and life insurance plans and programs); (ii) all hospitalization and medical plans and programs; and (iii) all 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 his employment hereunder other than for Good Reason, then Executive shall not be eligible to receive any compensation or benefits, or to participate in any 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 benefits under any plan or program, to the extent vested, in accordance with the terms of such plan or program and except for benefits provided in accordance with customary practices of the Company at Executive's expense (e.g., hospitalization and medical insurance). -5- (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 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 his monthly Base Salary 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) one-half (1/2) the sum of Executive's annual Base Salary plus incentive bonus earned by Executive during the prior fiscal year. (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 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 hospital and medical plans and programs of the Company for a one-year period following termination of Executive's employment, subject to Executive paying the employee portion of the cost and subject to termination of participation upon Executive becoming entitled to comparable benefits on subsequent employment. (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. -6- (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 his employment hereunder for Good Reason, Executive shall, subject to subsection (c) below, be entitled 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 sum of (A) the amount of Executive's Base Salary at the time of 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 is terminated. For purposes of clause (B), the computation of the amount of incentive bonuses shall be based upon the incentive 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 benefits under any plan or program, in accordance with the terms of such plan or program and except for benefits provided in accordance with customary practices of the Company at Executive's expense (e.g., hospitalization and medical insurance). 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 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. -7- (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 Internal Revenue 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 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 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). (ii) Executive (or, in the event of his death, Executive's estate or his designated beneficiary) shall be entitled to receive benefits under any other Company plan or program (to the extent Executive is vested) in accordance with the terms of such plan or program. Executive shall be entitled to continued contributions under the Company's qualified profit sharing plan 401(k) to the extent permitted in said Plan. -8- (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 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 one-half (1/2) of Executive's Base Salary at the time of 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 nonrenewal is given during a Transition Period, then, subject to Section 7(c), the Company shall make a cash payment to Executive equal to the sum of (A) the amount of Executive's Base Salary at the time of 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 incentive 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 Executive's employment under this Agreement ceases. (ii) Executive shall be entitled to continued participation in hospital and medical plans and programs of the Company for a one-year period following cessation of Executive's employment, subject to Executive paying the employee portion of the cost and subject to termination of participation upon Executive becoming entitled to comparable benefits on subsequent employment. (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. -9- 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; and 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, 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 his entire right, title and interest in Inventions; and (ii) enable the Company to obtain 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 his 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 his 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 Sec. 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. -10- 13. Return of Documents and Property. All documents and tangible items provided to Executive by the Company, or possessed by or created by Executive for use in connection with his 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 legal 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; (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 himself 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 reasonable attorneys' fees for securing such relief. Executive recognizes and hereby admits that irreparable damage will result to the Company if he 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. -11- 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 the final determination of a court of competent jurisdiction declares, after the expiration of the time within which judicial review (if permitted) of such determination may be perfected, that any term of provision hereof is invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 19. Amendment; Waiver. This Agreement may not be modified, amended or waived in any manner except by an instrument in writing signed by both parties hereto. The waiver by either party of compliance with any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement. 20. Governing Law. All matters affecting this Agreement, including the validity thereof, are to be governed by, interpreted and construed in accordance with the laws of the State of Minnesota. 21. Notices. Any notice hereunder by either party to the other shall be given in writing by personal delivery or certified mail, return receipt requested. If addressed to Executive, the notice shall be delivered or mailed to Executive at the address specified under Executive's signature hereto, or if addressed to the Company, the notice shall be delivered or mailed to the Company at its executive offices to the attention of the Board of Directors of the Company. A notice shall be deemed given, if by personal delivery, on the date of such delivery or, if by certified mail, on the date shown on the applicable return receipt. 22. Supersedes Previous Agreements. This Agreement supersedes all prior or contemporaneous negotiations, commitments, agreements and writings with respect to the subject matter hereof, all such other negotiations, commitments, agreements and writings will have no further force or effect, and the parties to any such other negotiation, commitment, agreement or writing will have no further rights or obligations thereunder. 23. Headings; Construction. The headings of Sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. This Agreement shall be construed without regard to any presumption or other rule requiring construction hereof against the party causing this Agreement to be drafted. -12- 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: /s/ John J. Egart John J. Egart, President /s/ Craig Zelinske Craig Zelinske -13- EX-10.23 10 MORTGAGE NOTE/LASALLE MORTGAGE NOTE $3,656,250 March 19, 1996 1. FOR VALUE RECEIVED, FIRST TEAM SPORTS, INC., a Minnesota corporation ("Maker"), hereby promises to pay to the order of LASALLE NATIONAL BANK, a national banking association ("Lender"), the principal sum of Three Million Six Hundred Fifty Six Thousand Two Hundred Fifty and No/100 Dollars ($3,656,250), at the place and in the manner hereinafter provided, together with interest thereon at the rates described below. 2. Interest shall accrue on the balance of principal remaining from time to time unpaid under this Note during each calendar month (whether full or partial) prior to the Maturity Date (as hereinafter defined) at an annual rate (the "Loan Rate") equal to 7.41%. Interest shall be computed on the basis of a year consisting of 360 days and having twelve thirty-day months. 3. Payments of principal and interest due under this Note, if not sooner declared to be due in accordance with the provisions hereof, shall be made as follows: (i) On the date the proceeds of the loan evidenced by this Note (the "Loan") are disbursed (the "Closing Date"), interest on the principal balance of this Note that shall accrue during the period commencing on the Closing Date and ending on the last day of the month in which the Closing Date occurs shall be due and payable. (ii) Commencing on May 1, 1996, and on the first day of each month thereafter through and including the month in which the Maturity Date occurs, installments of principal and accrued and unpaid interest thereon in the amount of $43,228.78 each shall be due and payable. (iii) The unpaid principal balance of this Note, if not sooner declared to be due in accordance with the terms hereof, together with all accrued and unpaid interest, shall be due and payable in full on April 1, 2006 (the "Maturity Date"). 4. All payments and prepayments on account of the indebtedness evidenced by this Note shall be first applied to accrued and unpaid interest on the unpaid principal balance of this Note, second, to all other sums (other than principal) then due Lender hereunder or under any of the Loan Documents (as hereinafter defined), third, to the installment of principal due in the month in which the payment or prepayment is made, and the remainder, if any, to the unpaid principal balance of this Note in the inverse order of maturity. Any prepayment on account of the indebtedness evidenced by this Note shall not extend or postpone the due date or reduce the amount of any subsequent monthly installment of principal and interest due hereunder. 5. After maturity or the earlier acceleration of the indebtedness evidenced by this Note, or if said indebtedness has not been accelerated, during any period in which an Event of Default (as hereinafter defined) exists under this Note or any of the Loan Documents, Maker shall pay interest on the balance of principal remaining unpaid during any such period at an annual rate (the "Default Rate") equal to four percent (4%) plus the Loan Rate then in effect under this Note. The interest accruing under this paragraph shall be immediately due and payable by Maker to the holder of this Note and shall be additional indebtedness evidenced by this Note. 6. In the event any payment of interest or principal due hereunder is not made within five days after such payment is due in accordance with the terms hereof, then, in addition to the payment of the amount so due, Maker shall pay to Lender a "late charge" of five cents for each whole dollar so overdue to defray part of the cost of collection and handling such late payment. Maker agrees that the damages to be sustained by the holder hereof for the detriment caused by any late payment is extremely difficult and impractical to ascertain, and that the amount of five cents for each one dollar due is a reasonable estimate of such damages, does not constitute interest, and is not a penalty. 7. (a) Maker may voluntarily prepay the principal balance of this Note in whole, but not in part, at any time, subject to the following conditions: (i) Not less than 14 days prior to the date upon which Maker desires to make such prepayment, Maker shall deliver to Lender written notice of its intention to prepay, which notice shall be irrevocable and state the prepayment amount and the prepayment date; (ii) Maker shall pay to Lender, concurrently with such prepayment, a prepayment premium (the "Prepayment Premium") equal to the greater of (A) the Yield Amount (as hereinafter defined) or (B) 1% of the principal balance being prepaid; (iii) Maker shall pay to Lender all accrued and unpaid interest through the date of such prepayment on the principal balance being prepaid; (iv) Maker shall pay to Lender any other obligations of Maker to Lender then due which remain unpaid; and (v) Concurrently with such prepayment, the Marquette Note (as hereinafter defined) is also prepaid in full. (b) Maker acknowledges that the Loan was made on the basis and assumption that Lender would receive the payments of principal and interest set forth herein for the full term hereof. Therefore, whenever the maturity hereof has been accelerated by Lender by reason of the occurrence of an Event of Default under this Note or any other of the Loan Documents, including an acceleration by reason of sale, conveyance, further encumbrance (except as otherwise permitted by the Loan Documents) or other Event of Default (which acceleration shall be at Lender's sole option), there shall be due, in addition to the outstanding principal balance, accrued interest and other sums due hereunder, a premium equal to the Prepayment Premium that would be payable pursuant to clause (a) above if such principal balance had been voluntarily prepaid by Maker. (c) For purposes of this Note, the "Yield Amount" shall be the amount calculated as follows: (i) There shall first be determined, as of the date fixed for prepayment (the "Prepayment Date"), the yield to maturity percentage (the "Current Yield") for the United States Treasury Note closest in maturity to the Maturity Date (the "Treasury Note") as published in The Wall Street Journal on the fifth business day preceding the Prepayment Date. If (A) publication of The Wall Street Journal is discontinued, or (B) publication of the Current Yield of the Treasury Note in The Wall Street Journal is discontinued, Lender, in its sole discretion, shall designate another daily financial or governmental publication of national circulation to be used to determine the Current Yield; (ii) If the Current Yield exceeds the Loan Rate, then the Yield Amount shall equal zero; (iii) If the Loan Rate exceeds the Current Yield, the Yield Amount shall be calculated by (A) adding the present values of all scheduled principal and interest payments on the Loan remaining to the Maturity Date, including, without limitation, the principal payment due and payable on the Maturity Date, which present values shall be calculated by discounting all such payments at the Current Yield, and (B) subtracting the principal amount being prepaid from the amount calculated pursuant to clause (A); provided that Maker shall not be entitled in any event to a credit against, or a reduction of, the indebtedness being prepaid if the Current Yield exceeds the Loan Rate or for any other reason. (d) Notwithstanding anything herein to the contrary, insurance and condemnation proceeds applied by Lender to the repayment of the Loan pursuant to the terms of Paragraphs 6 and 7 of the Mortgage (as defined below) shall not be subject to the Prepayment Premium. 8. All payments of principal and interest hereunder shall be paid by check or in coin or currency which, at the time or times of payment, is the legal tender for public and private debts in the United States of America and shall be made at such place as Lender or the legal holder or holders of this Note may from time to time appoint. Payment made by check shall be deemed paid on the date Lender receives such check; provided, however, that if such check is subsequently returned to Lender unpaid due to insufficient funds or otherwise, the payment shall not be deemed to have been made and shall continue to bear interest until collected. If payment hereunder becomes due and payable on a Saturday, Sunday or legal holiday under the laws of the State of Illinois or the State of Minnesota, the due date thereof shall be extended to the next succeeding business day, and interest shall be payable thereon at the then applicable Loan Rate during such extension. 9. This Note and any and all other liabilities and obligations and indebtedness of Maker to Lender, whether such liabilities, obligation or indebtedness are now existing or hereafter created, direct or indirect, absolute or contingent, joint or several, due or to become due, howsoever created, arising or evidenced, and howsoever acquired by Lender, are secured by, among other things, the Mortgage (the "Mortgage") of even date herewith made by the Maker to Lender (as agent for itself and Marquette Capital Bank) creating a first mortgage lien on certain real property (the "Premises") legally described in Exhibit A attached to the Mortgage (said security documents and any other document or instrument securing this Note or delivered to induce Lender to disburse the proceeds of the Loan, are hereinafter collectively referred to as the "Loan Documents"). Reference is hereby made to the Loan Documents (which are incorporated herein by reference as fully and with the same effect as if set forth herein at length) for a legal description of the Premises, a statement of the covenants and agreements contained therein, a statement of the rights, remedies, and security afforded thereby, and all matters therein contained. 10. The occurrence of any one or more of the following events shall constitute an "Event of Default" under this Note: (a) the failure by Maker to make payment of any installment of principal and interest or any other amount due to Lender under this Note or any of the other Loan Documents on or before the fifth day following the date when any such payment is due in accordance with the terms hereof or thereof; (b) the occurrence of any one or more of the "Events of Default" under the Mortgage or any of the other Loan Documents; or (c) the occurrence of any one or more of the "Events of Default" under that certain Mortgage Note of even date herewith (the "Marquette Note") made by Maker to the order of Marquette Capital Bank, a Minnesota banking corporation, in the original principal amount of $1,218,750. 11. At the election of the holder hereof, and without notice, the principal balance remaining unpaid under this Note, and all unpaid interest accrued thereon, shall be and become immediately due and payable in full upon the occurrence of any Event of Default. Failure to exercise this option shall not constitute a waiver of the right to exercise same in the event of any subsequent Event of Default. No holder hereof shall, by any act of omission or commission, be deemed to waive any of its rights, remedies or powers hereunder or otherwise unless such waiver is in writing and signed by the holder hereof, and then only to the extent specifically set forth therein. The rights, remedies and powers of the holder hereof, as provided in this Note, the Mortgage and in all of the other Loan Documents are cumulative and concurrent, and may be pursued singly, successively or together against Maker, the Premises and any other security given at any time to secure the repayment hereof, all at the sole discretion of the holder hereof. If any suit or action is instituted or attorneys are employed to collect this Note or any part thereof, Maker promises and agrees to pay all costs of collection, including reasonable attorneys' fees and court costs. Notwithstanding anything herein to the contrary, provided no petition in bankruptcy has been filed by or against Maker which has not been dismissed or discharged, no remedy or action may be pursued or taken by the holder of this Note unless an identical remedy or action is being concurrently pursued or taken by the holder of the Marquette Note. If a petition in bankruptcy has been filed by or against Maker which has not been dismissed or discharged, the holder of this Note and the holder of the Marquette Note may independently pursue their respective rights and remedies against Maker under this Note and the other Loan Documents. 12. Maker and all others who now or may at any time become liable for all or any part of the obligations evidenced hereby, expressly agree hereby to be jointly and severally bound, and jointly and severally: (i) waive and renounce any and all homestead, redemption and exemption rights and the benefit of all valuation and appraisement privileges against the indebtedness evidenced by this Note or by any extension or renewal hereof; (ii) waive presentment and demand for payment, notices of nonpayment and of dishonor, protest of dishonor, and notice of protest; (iii) waive any and all notices in connection with the delivery and acceptance hereof and all other notices in connection with the performance, default, or enforcement of the payment hereof or hereunder; (iv) waive any and all lack of diligence and delays in the enforcement of the payment hereof; (v) agree that the liability of each Maker, guarantor, endorser or obligor shall be unconditional and without regard to the liability of any other person or entity for the payment hereof, and shall not in any manner be affected by any indulgence or forbearance granted or consented to by Lender to any of them with respect hereto; (vi) consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by Lender with respect to the payment or other provisions hereof, and to the release of any security at any time given for the payment hereof, or any part thereof, with or without substitution, and to the release of any person or entity liable for the payment hereof; and (vii) consent to the addition of any and all other makers, endorsers, guarantors, and other obligors for the payment hereof, and to the acceptance of any and all other security for the payment hereof, and agree that the addition of any such makers, endorsers, guarantors or other obligors, or security shall not affect the liability of Maker, any guarantor and all others now liable for all or any part of the obligations evidenced hereby. 13. Maker agrees that the obligation evidenced by this Note is an exempted transaction under the Truth In Lending Act, 15 U.S.C., Section 1601, et seq. 14. Time is of the essence hereof. 15. This Note is governed and controlled as to validity, enforcement, interpretation, construction, effect and in all other respects by the statutes, laws and decisions of the State of Minnesota. This Note may not be changed or amended orally but only by an instrument in writing signed by the party against whom enforcement of the change or amendment is sought. 16. Lender shall in no event be construed for any purpose to be a partner, joint venturer, agent or associate of the Maker or of any lessee, operator, concessionaire or licensee of the Maker in the conduct of their respective businesses. 17. This Note has been made and delivered at Anoka, Minnesota, and all funds disbursed to or for the benefit of Maker will be disbursed in Anoka, Minnesota. 18. The obligations and liabilities of Maker under this Note shall be binding upon and enforceable against Maker and its successors and assigns. This Note shall inure to the benefit of and may be enforced by Lender and its successors and assigns. 19. In the event that any provision of this Note is deemed to be invalid by reason of the operation of law, or by reason of the interpretation placed thereon by any administrative agency or any court, Maker and Lender shall negotiate an equitable adjustment in the provisions of the same in order to effect, to the maximum extent permitted by law, the purpose of this and the validity and enforceability of the remaining provisions, or portions or applications thereof, shall not be affected thereby and shall remain in full force and effect. 20. MAKER HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED BY MAKER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS NOTE OR ANY OF THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS OR, IF LENDER INITIATES SUCH ACTION, THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, OR THE DISTRICT COURT OF ANOKA COUNTY, MINNESOTA, OR THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA. MAKER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH COURTS, AND HEREBY AGREES THAT PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT (OR OTHER PROCESS OR PAPERS ISSUED THEREIN) ON THE PRESIDENT, VICE PRESIDENT OR REGISTERED AGENT OF MAKER, OR SERVICE BY ANY OTHER MEANS PERMITTED BY APPLICABLE LAW, SHALL BE SUFFICIENT. MAKER WAIVES ANY CLAIM THAT CHICAGO, ILLINOIS OR THE NORTHERN DISTRICT OF ILLINOIS IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD MAKER, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF, MAKER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER AGAINST MAKER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR MAKER SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND MAKER HEREBY WAIVES THE RIGHT, IF ANY, TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION. 21. LENDER AND MAKER ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS NOTE OR THE OTHER LOAN DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND THEREFORE, THE PARTIES AGREE THAT ANY COURT PROCEEDING ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. 22. By acceptance of this Note, Lender acknowledges that it shall take no actions in contravention of the terms of that certain Agency Agreement of even date herewith between Lender and Marquette Capital Bank. IN WITNESS WHEREOF, Maker has executed this Note as of the day and year first written above. FIRST TEAM SPORTS, INC., a Minnesota corporation By: /s/ Robert L. Lenius, Jr. Title: VP/CFO EX-10.24 11 MORTGAGE NOTE/MARQUETTE MORTGAGE NOTE $1,218,750 March 19, 1996 1. FOR VALUE RECEIVED, FIRST TEAM SPORTS, INC., a Minnesota corporation ("Maker"), hereby promises to pay to the order of MARQUETTE CAPITAL BANK, a Minnesota banking corporation ("Lender"), the principal sum of One Million Two Hundred Eighteen Thousand Seven Hundred Fifty and No/100 Dollars ($1,218,750), at the place and in the manner hereinafter provided, together with interest thereon at the rates described below. 2. Interest shall accrue on the balance of principal remaining from time to time unpaid under this Note during each calendar month (whether full or partial) prior to the Maturity Date (as hereinafter defined) at an annual rate (the "Loan Rate") equal to 7.41%. Interest shall be computed on the basis of a year consisting of 360 days and having twelve thirty-day months. 3. Payments of principal and interest due under this Note, if not sooner declared to be due in accordance with the provisions hereof, shall be made as follows: (i) On the date the proceeds of the loan evidenced by this Note (the "Loan") are disbursed (the "Closing Date"), interest on the principal balance of this Note that shall accrue during the period commencing on the Closing Date and ending on the last day of the month in which the Closing Date occurs shall be due and payable. (ii) Commencing on May 1, 1996, and on the first day of each month thereafter through and including the month in which the Maturity Date occurs, installments of principal and accrued and unpaid interest thereon in the amount of $14,409.59 each shall be due and payable. (iii) The unpaid principal balance of this Note, if not sooner declared to be due in accordance with the terms hereof, together with all accrued and unpaid interest, shall be due and payable in full on April 1, 2006 (the "Maturity Date"). 4. All payments and prepayments on account of the indebtedness evidenced by this Note shall be first applied to accrued and unpaid interest on the unpaid principal balance of this Note, second, to all other sums (other than principal) then due Lender hereunder or under any of the Loan Documents (as hereinafter defined), third, to the installment of principal due in the month in which the payment or prepayment is made, and the remainder, if any, to the unpaid principal balance of this Note in the inverse order of maturity. Any prepayment on account of the indebtedness evidenced by this Note shall not extend or postpone the due date or reduce the amount of any subsequent monthly installment of principal and interest due hereunder. 5. After maturity or the earlier acceleration of the indebtedness evidenced by this Note, or if said indebtedness has not been accelerated, during any period in which an Event of Default (as hereinafter defined) exists under this Note or any of the Loan Documents, Maker shall pay interest on the balance of principal remaining unpaid during any such period at an annual rate (the "Default Rate") equal to four percent (4%) plus the Loan Rate then in effect under this Note. The interest accruing under this paragraph shall be immediately due and payable by Maker to the holder of this Note and shall be additional indebtedness evidenced by this Note. 6. In the event any payment of interest or principal due hereunder is not made within five days after such payment is due in accordance with the terms hereof, then, in addition to the payment of the amount so due, Maker shall pay to Lender a "late charge" of five cents for each whole dollar so overdue to defray part of the cost of collection and handling such late payment. Maker agrees that the damages to be sustained by the holder hereof for the detriment caused by any late payment is extremely difficult and impractical to ascertain, and that the amount of five cents for each one dollar due is a reasonable estimate of such damages, does not constitute interest, and is not a penalty. 7. (a) Maker may voluntarily prepay the principal balance of this Note in whole, but not in part, at any time, subject to the following conditions: (i) Not less than 14 days prior to the date upon which Maker desires to make such prepayment, Maker shall deliver to Lender written notice of its intention to prepay, which notice shall be irrevocable and state the prepayment amount and the prepayment date; (ii) Maker shall pay to Lender, concurrently with such prepayment, a prepayment premium (the "Prepayment Premium") equal to the greater of (A) the Yield Amount (as hereinafter defined) or (B) 1% of the principal balance being prepaid; (iii) Maker shall pay to Lender all accrued and unpaid interest through the date of such prepayment on the principal balance being prepaid; (iv) Maker shall pay to Lender any other obligations of Maker to Lender then due which remain unpaid; and (v) Concurrently with such prepayment, the LaSalle Note (as hereinafter defined) is also prepaid in full. (b) Maker acknowledges that the Loan was made on the basis and assumption that Lender would receive the payments of principal and interest set forth herein for the full term hereof. Therefore, whenever the maturity hereof has been accelerated by Lender by reason of the occurrence of an Event of Default under this Note or any other of the Loan Documents, including an acceleration by reason of sale, conveyance, further encumbrance (except as otherwise permitted by the Loan Documents) or other Event of Default (which acceleration shall be at Lender's sole option), there shall be due, in addition to the outstanding principal balance, accrued interest and other sums due hereunder, a premium equal to the Prepayment Premium that would be payable pursuant to clause (a) above if such principal balance had been voluntarily prepaid by Maker. (c) For purposes of this Note, the "Yield Amount" shall be the amount calculated as follows: (i) There shall first be determined, as of the date fixed for prepayment (the "Prepayment Date"), the yield to maturity percentage (the "Current Yield") for the United States Treasury Note closest in maturity to the Maturity Date (the "Treasury Note") as published in The Wall Street Journal on the fifth business day preceding the Prepayment Date. If (A) publication of The Wall Street Journal is discontinued, or (B) publication of the Current Yield of the Treasury Note in The Wall Street Journal is discontinued, Lender, in its sole discretion, shall designate another daily financial or governmental publication of national circulation to be used to determine the Current Yield; (ii) If the Current Yield exceeds the Loan Rate, then the Yield Amount shall equal zero; (iii) If the Loan Rate exceeds the Current Yield, the Yield Amount shall be calculated by (A) adding the present values of all scheduled principal and interest payments on the Loan remaining to the Maturity Date, including, without limitation, the principal payment due and payable on the Maturity Date, which present values shall be calculated by discounting all such payments at the Current Yield, and (B) subtracting the principal amount being prepaid from the amount calculated pursuant to clause (A); provided that Maker shall not be entitled in any event to a credit against, or a reduction of, the indebtedness being prepaid if the Current Yield exceeds the Loan Rate or for any other reason. (d) Notwithstanding anything herein to the contrary, insurance and condemnation proceeds applied by Lender to the repayment of the Loan pursuant to the terms of Paragraphs 6 and 7 of the Mortgage (as defined below) shall not be subject to the Prepayment Premium. 8. All payments of principal and interest hereunder shall be paid by check or in coin or currency which, at the time or times of payment, is the legal tender for public and private debts in the United States of America and shall be made at such place as Lender or the legal holder or holders of this Note may from time to time appoint. Payment made by check shall be deemed paid on the date Lender receives such check; provided, however, that if such check is subsequently returned to Lender unpaid due to insufficient funds or otherwise, the payment shall not be deemed to have been made and shall continue to bear interest until collected. If payment hereunder becomes due and payable on a Saturday, Sunday or legal holiday under the laws of the State of Illinois or the State of Minnesota, the due date thereof shall be extended to the next succeeding business day, and interest shall be payable thereon at the then applicable Loan Rate during such extension. 9. This Note and any and all other liabilities and obligations and indebtedness of Maker to Lender, whether such liabilities, obligation or indebtedness are now existing or hereafter created, direct or indirect, absolute or contingent, joint or several, due or to become due, howsoever created, arising or evidenced, and howsoever acquired by Lender, are secured by, among other things, the Mortgage (the "Mortgage") of even date herewith made by the Maker to LaSalle National Bank, as agent for itself and Lender, creating a first mortgage lien on certain real property (the "Premises") legally described in Exhibit A attached to the Mortgage (said security documents and any other document or instrument securing this Note or delivered to induce Lender to disburse the proceeds of the Loan, are hereinafter collectively referred to as the "Loan Documents"). Reference is hereby made to the Loan Documents (which are incorporated herein by reference as fully and with the same effect as if set forth herein at length) for a legal description of the Premises, a statement of the covenants and agreements contained therein, a statement of the rights, remedies, and security afforded thereby, and all matters therein contained. 10. The occurrence of any one or more of the following events shall constitute an "Event of Default" under this Note: (a) the failure by Maker to make payment of any installment of principal and interest or any other amount due to Lender under this Note or any of the other Loan Documents on or before the fifth day following the date when any such payment is due in accordance with the terms hereof or thereof; (b) the occurrence of any one or more of the "Events of Default" under the Mortgage or any of the other Loan Documents; or (c) the occurrence of any one or more of the "Events of Default" under that certain Mortgage Note of even date herewith (the "LaSalle Note") made by Maker to the order of LaSalle National Bank, a national banking association, in the original principal amount of $3,656,250. 11. At the election of the holder hereof, and without notice, the principal balance remaining unpaid under this Note, and all unpaid interest accrued thereon, shall be and become immediately due and payable in full upon the occurrence of any Event of Default. Failure to exercise this option shall not constitute a waiver of the right to exercise same in the event of any subsequent Event of Default. No holder hereof shall, by any act of omission or commission, be deemed to waive any of its rights, remedies or powers hereunder or otherwise unless such waiver is in writing and signed by the holder hereof, and then only to the extent specifically set forth therein. The rights, remedies and powers of the holder hereof, as provided in this Note, the Mortgage and in all of the other Loan Documents are cumulative and concurrent, and may be pursued singly, successively or together against Maker, the Premises and any other security given at any time to secure the repayment hereof, all at the sole discretion of the holder hereof. If any suit or action is instituted or attorneys are employed to collect this Note or any part thereof, Maker promises and agrees to pay all costs of collection, including reasonable attorneys' fees and court costs. Notwithstanding anything herein to the contrary, provided no petition in bankruptcy has been filed by or against Maker which has not been dismissed or discharged, no remedy or action may be pursued or taken by the holder of this Note unless an identical remedy or action is being concurrently pursued or taken by the holder of the LaSalle Note. If a petition in bankruptcy has been filed by or against Maker which has not been dismissed or discharged, the holder of this Note and the holder of the LaSalle Note may independently pursue their respective rights and remedies against Maker under this Note and the other Loan Documents. 12. Maker and all others who now or may at any time become liable for all or any part of the obligations evidenced hereby, expressly agree hereby to be jointly and severally bound, and jointly and severally: (i) waive and renounce any and all homestead, redemption and exemption rights and the benefit of all valuation and appraisement privileges against the indebtedness evidenced by this Note or by any extension or renewal hereof; (ii) waive presentment and demand for payment, notices of nonpayment and of dishonor, protest of dishonor, and notice of protest; (iii) waive any and all notices in connection with the delivery and acceptance hereof and all other notices in connection with the performance, default, or enforcement of the payment hereof or hereunder; (iv) waive any and all lack of diligence and delays in the enforcement of the payment hereof; (v) agree that the liability of each Maker, guarantor, endorser or obligor shall be unconditional and without regard to the liability of any other person or entity for the payment hereof, and shall not in any manner be affected by any indulgence or forbearance granted or consented to by Lender to any of them with respect hereto; (vi) consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by Lender with respect to the payment or other provisions hereof, and to the release of any security at any time given for the payment hereof, or any part thereof, with or without substitution, and to the release of any person or entity liable for the payment hereof; and (vii) consent to the addition of any and all other makers, endorsers, guarantors, and other obligors for the payment hereof, and to the acceptance of any and all other security for the payment hereof, and agree that the addition of any such makers, endorsers, guarantors or other obligors, or security shall not affect the liability of Maker, any guarantor and all others now liable for all or any part of the obligations evidenced hereby. 13. Maker agrees that the obligation evidenced by this Note is an exempted transaction under the Truth In Lending Act, 15 U.S.C., Section 1601, et seq. 14. Time is of the essence hereof. 15. This Note is governed and controlled as to validity, enforcement, interpretation, construction, effect and in all other respects by the statutes, laws and decisions of the State of Minnesota. This Note may not be changed or amended orally but only by an instrument in writing signed by the party against whom enforcement of the change or amendment is sought. 16. Lender shall in no event be construed for any purpose to be a partner, joint venturer, agent or associate of the Maker or of any lessee, operator, concessionaire or licensee of the Maker in the conduct of their respective businesses. 17. This Note has been made and delivered at Anoka, Minnesota, and all funds disbursed to or for the benefit of Maker will be disbursed in Anoka, Minnesota. 18. The obligations and liabilities of Maker under this Note shall be binding upon and enforceable against Maker and its successors and assigns. This Note shall inure to the benefit of and may be enforced by Lender and its successors and assigns. 19. In the event that any provision of this Note is deemed to be invalid by reason of the operation of law, or by reason of the interpretation placed thereon by any administrative agency or any court, Maker and Lender shall negotiate an equitable adjustment in the provisions of the same in order to effect, to the maximum extent permitted by law, the purpose of this and the validity and enforceability of the remaining provisions, or portions or applications thereof, shall not be affected thereby and shall remain in full force and effect. 20. MAKER HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED BY MAKER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS NOTE OR ANY OF THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS OR, IF LENDER INITIATES SUCH ACTION, THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, OR THE DISTRICT COURT OF ANOKA COUNTY, MINNESOTA, OR THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA. MAKER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH COURTS, AND HEREBY AGREES THAT PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT (OR OTHER PROCESS OR PAPERS ISSUED THEREIN) ON THE PRESIDENT, VICE PRESIDENT OR REGISTERED AGENT OF MAKER, OR SERVICE BY ANY OTHER MEANS PERMITTED BY APPLICABLE LAW, SHALL BE SUFFICIENT. MAKER WAIVES ANY CLAIM THAT CHICAGO, ILLINOIS OR THE NORTHERN DISTRICT OF ILLINOIS IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD MAKER, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF, MAKER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER AGAINST MAKER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR MAKER SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND MAKER HEREBY WAIVES THE RIGHT, IF ANY, TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION. 21. LENDER AND MAKER ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS NOTE OR THE OTHER LOAN DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND THEREFORE, THE PARTIES AGREE THAT ANY COURT PROCEEDING ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. 22. By acceptance of this Note, Lender acknowledges that it shall take no actions in contravention of the terms of that certain Agency Agreement of even date herewith between Lender and LaSalle National Bank. IN WITNESS WHEREOF, Maker has executed this Note as of the day and year first written above. FIRST TEAM SPORTS, INC., a Minnesota corporation By: /s/ Robert L.Lenius, Jr. Title: VP/CFO EX-10.25 12 MORTGAGE BETWEEN CO./LASALLE/MARQUETTE M O R T G A G E by FIRST TEAM SPORTS, INC., a Minnesota corporation to and for the benefit of LASALLE NATIONAL BANK, a national banking association (as agent for itself and Marquette Capital Bank) INDEX Paragraph Page 1. Title.....................................................2 2. Maintenance, Repair and Restoration of Improvements, Payment of Prior Liens, etc...............................2 3. Payment of Taxes and Assessments..........................3 4. Tax Deposits..............................................4 5. Mortgagee's Interest In and Use of Deposits...............4 6. Insurance.................................................5 7. Condemnation..............................................6 8. Stamp Tax.................................................7 9. Lease Assignment..........................................7 10. Effect of Extensions of Time..............................7 11. Effect of Changes in Laws Regarding Taxation..............7 12. Mortgagee's Performance of Defaulted Acts and Expenses Incurred by Mortgagee............................8 13. Mortgagee's Reliance on Tax Bills and Claims for Liens....9 14. Event of Default; Acceleration............................9 15. Foreclosure; Expense of Litigation.......................10 16. Application of Proceeds of Foreclosure Sale..............11 17. Appointment of Receiver..................................12 18. Mortgagee's Right of Possession in Case of Default.......12 19. Application of Income Received by Mortgagee..............13 20. Rights Cumulative........................................13 21. Mortgagee's Right of Inspection..........................14 22. Disbursement of Insurance or Eminent Domain Proceeds.....14 23. Release Upon Payment and Discharge of Mortgagor's Obligations..............................................15 24. Notices..................................................16 25. Intentionally Omitted. 26. Waiver of Rights.........................................17 27. Transfer of Premises; Further Encumbrance................17 28. Expenses Relating to Notes and Mortgage..................18 29. Financial Statements.....................................19 30. Statement of Indebtedness................................19 31. Further Instruments......................................19 32. Additional Indebtedness Secured..........................19 33. Indemnity................................................20 34. Intentionally Omitted....................................20 35. Subordination of Property Manager's Lien.................20 36. Fixture Filing...........................................20 37. Compliance with Environmental Laws.......................21 38. Intentionally Omitted....................................21 39. Intentionally Omitted....................................21 40. Miscellaneous............................................21 MORTGAGE THIS MORTGAGE is made as of the 19th day of March, 1996, by FIRST TEAM SPORTS, INC., a Minnesota corporation ("Mortgagor"), to and for the benefit of LASALLE NATIONAL BANK, a national banking association ("LaSalle"), as agent for itself and Marquette Capital Bank, a Minnesota banking corporation ("Marquette") (LaSalle, in its capacity as agent for itself and Marquette, is hereinafter referred to as "Mortgagee"). RECITALS: A. LaSalle and Marquette have agreed to loan to Mortgagor the aggregate principal amount of $4,875,000 (the "Loan"). The Loan shall be evidenced by two Mortgage Notes of even date herewith (the "Notes") made by Mortgagor, one of which is payable to LaSalle in the principal amount of $3,656,250 and the other of which is payable to Marquette in the principal amount of $1,218,750, and each of which is due (unless amended or extended) on April 1, 2006. B. A condition precedent to the extension of the Loan to Mortgagor is the execution and delivery by Mortgagor of this Mortgage. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Mortgagor agrees as follows: Mortgagor hereby mortgages, grants, bargains, sells, assigns, remises, releases, warrants, alienates, transfers, conveys, pledges and confirms to Mortgagee, its successors and assigns, the real estate legally described on Exhibit A attached hereto (the "Real Estate"), together with the other property described in the following paragraph (the Real Estate and property being hereinafter referred to as the "Premises") to secure: (i) the payment of the Loan and all interest, late charges and other indebtedness evidenced by or owing under the Notes or any of the other Loan Documents (as defined in the Notes) and by any extensions, modifications, renewals or refinancings thereof; (ii) the performance and observance of the covenants, conditions, agreements, representations, warranties and other liabilities and obligations of Mortgagor or any other obligor to or benefiting Mortgagee which are evidenced or secured by or otherwise provided in the Notes, this Mortgage or any of the other Loan Documents; and (iii) the reimbursement of Mortgagee for any and all sums expended or advanced by Mortgagee pursuant to any term or provision of or constituting additional indebtedness under or secured by this Mortgage or any of the other Loan Documents, with interest thereon as provided herein or therein. In addition to the Real Estate, the Premises hereby mortgaged includes all buildings, structures and improvements now or hereafter constructed or erected upon or located on the Real Estate, all tenements, easements, rights-of-way and rights used as a means of access thereto, all fixtures and appurtenances thereto now or hereafter belonging or pertaining to the Real Estate, and all rents, issues, royalties, income, revenue, proceeds, profits and other benefits thereof, and any after-acquired title, franchise, or license and the reversions or remainders thereof, for so long and during all such times as Mortgagor may be entitled thereto (which are pledged primarily and on a parity with said Real Estate and not secondarily), and all machinery, apparatus, equipment, appliances, floor covering, furniture, furnishings, supplies, materials, fittings, fixtures and other personal property relating to or necessary for the operation of the Premises and all proceeds thereof, now or hereafter located thereon or therein and which is owned by Mortgagor. All of the land, estate and property hereinabove described, real, personal and mixed, whether or not affixed or annexed, and all rights hereby conveyed and mortgaged are intended so to be as a unit and are hereby understood, agreed and declared, to the maximum extent permitted by law, to form a part and parcel of the Real Estate and to be appropriated to the use of the Real Estate, and shall be for the purposes of this Mortgage deemed to be conveyed and mortgaged hereby; provided, however, as to any of the property aforesaid which does not so form a part and parcel of the Real Estate, this Mortgage is hereby deemed also to be a Security Agreement under the Uniform Commercial Code of the State of Minnesota (the "Code") for purposes of granting a security interest in such property, which Mortgagor hereby grants to Mortgagee, as secured party (as defined in the Code). TO HAVE AND TO HOLD the Premises unto Mortgagee, its successors and assigns, forever, for the purposes and uses herein set forth, together with all right to retain possession of the Premises after any Event of Default (as hereinafter defined). IT IS FURTHER UNDERSTOOD AND AGREED THAT: 1. Title. Mortgagor represents, warrants and covenants that (a) Mortgagor is the holder of the fee simple title to the Premises, free and clear of all liens and encumbrances, except those liens and encumbrances described on Exhibit B attached hereto (the "Permitted Exceptions"); and (b) Mortgagor has legal power and authority to mortgage and convey the Premises. 2. Maintenance, Repair and Restoration of Improvements, Payment of Prior Liens, etc. Mortgagor shall: (a) promptly repair, restore or rebuild any buildings or improvements now or hereafter on the Premises which may become damaged or be destroyed; (b) keep the Premises in good condition and repair, without waste, and free from mechanics' liens or other liens or claims for lien, except that Mortgagor shall have the right to contest by appropriate proceedings the validity or amount of any such lien if and only if Mortgagor shall, within fifteen days after the filing thereof, (i) place a bond with Mortgagee in an amount, form, content and issued by a surety reasonably acceptable to Mortgagee (or provide any other security satisfactory to Mortgagee) for the payment of any such lien or (ii) cause the title company which has issued the loan policy of title insurance to Mortgagee insuring the lien of this Mortgage to issue an endorsement thereto insuring against loss or damage on account of any such lien; (c) immediately pay when due any indebtedness which may be secured by a lien or charge on the Premises superior or inferior to or at parity with the lien hereof (no such superior, inferior or parity lien to be permitted hereunder), and upon request exhibit satisfactory evidence of the discharge of any such lien to Mortgagee (excluding the Junior Mortgage [as defined below] or the indebtedness secured thereby); (d) complete within a reasonable time any buildings or any other improvements now or at any time in process of construction upon the Premises; (e) comply with all requirements of law, municipal ordinances and restrictions of record with respect to the Premises and the use thereof, including without limitation, those relating to building, zoning, environmental protection, health, fire and safety; (f) make no material alterations to the Premises or any buildings or other improvements now or hereafter constructed thereon, without the prior written consent of Mortgagee; (g) not suffer or permit any change in the general nature of the occupancy of the Premises without the prior written consent of Mortgagee; (h) not initiate or acquiesce in any zoning reclassification without the prior written consent of Mortgagee; (i) pay each item of indebtedness secured by this Mortgage when due according to the terms of the Notes and the other Loan Documents; and (j) duly perform and observe all of the covenants, terms, provisions and agreements herein, in the Notes and in the other Loan Documents on the part of Mortgagor to be performed and observed. As used in this Paragraph and elsewhere in this Mortgage, the term "indebtedness" shall mean and include the principal sum evidenced by the Notes, together with all interest thereon and all other amounts payable to Mortgagee thereunder, and all other sums at any time secured by this Mortgage. 3. Payment of Taxes and Assessments. Mortgagor shall pay all general taxes, special taxes, special assessments, water charges, sewer service charges, and all other liens or charges levied or assessed against the Premises, or any interest therein, of any nature whatsoever when due and before any penalty or interest is assessed, and, at the request of Mortgagee, shall furnish to Mortgagee duplicate receipts of payment therefor. If any special assessment is permitted by applicable law to be paid in installments, Mortgagor shall have the right to pay such assessment in installments, so long as all such installments are paid prior to the due date thereof. Notwithstanding anything contained herein to the contrary, Mortgagor shall have the right to protest any taxes assessed against the Premises, so long as such protest is conducted in good faith by appropriate legal proceedings diligently prosecuted and Mortgagor shall furnish to the title insurer such security or indemnity as said insurer requires to induce it to issue an endorsement, in form and substance acceptable to Mortgagee, insuring over any exception created by such protest. 4. Tax Deposits. Mortgagor covenants to deposit with Mortgagee on the first day of each month until the indebtedness secured by this Mortgage is fully paid, a sum equal to one-twelfth (1/12th) of the actual annual taxes and assessments (general and special) on the Premises (or, if such amount is not then known, one-twelfth (1/12th) of 105% of the most recently ascertainable annual tax bill). If requested by Mortgagee, Mortgagor shall also deposit with Mortgagee an amount of money which, together with the aggregate of the monthly deposits to be made pursuant to the preceding sentence as of one month prior to the date on which the next installment of annual taxes and assessments for the current calendar year become due, shall be sufficient to pay in full such installment of annual taxes and assessments, as estimated by Mortgagee. Such deposits are to be used for the payment of taxes and assessments on the Premises next due and payable when they become due. Mortgagee may, at its option, pay such taxes and assessments when the same become due and payable (upon submission of appropriate bills therefor from Mortgagor) or shall release sufficient funds to Mortgagor for the payment thereof. If the funds so deposited are insufficient to pay any such taxes or assessments for any year (or installments thereof, as applicable) when the same shall become due and payable, Mortgagor shall, within ten days after receipt of demand therefor, deposit additional funds as may be necessary to pay such taxes and assessments in full. If the funds so deposited exceed the amount required to pay such taxes and assessments for any year, the excess shall be applied toward subsequent deposits. Said deposits need not be kept separate and apart from any other funds of Mortgagee. Such deposits are to be held in an interest bearing "money market" account with Mortgagee and shall earn interest at Mortgagee's short term money market rate of interest and, provided no Event of Default or event that with the passage of time, the giving of notice, or both would constitute an Event of Default then exists, are to be used for the payment of taxes and assessments on the Premises next due and payable when they become due. Mortgagee makes no representation as to the rate of interest that will accrue on such account. 5. Mortgagee's Interest In and Use of Deposits. Upon the occurrence of an Event of Default, Mortgagee may, at its option, apply any monies at the time on deposit pursuant to Paragraph 4 hereof toward any of the indebtedness secured hereby in such order and manner as Mortgagee may elect. When such indebtedness has been fully paid, any remaining deposits shall be returned to Mortgagor. Such deposits are hereby pledged as additional security for the indebtedness hereunder and shall not be subject to the direction or control of Mortgagor. Mortgagee shall not be liable for any failure to apply to the payment of taxes, assessments and insurance premiums any amount so deposited unless Mortgagor, prior to the occurrence of an Event of Default, shall have requested Mortgagee in writing to make application of such funds to the payment of such amounts, accompanied by the bills for such taxes, assessments and insurance premiums. Mortgagee shall not be liable for any act or omission taken in good faith or pursuant to the instruction of any party. 6. Insurance. (a) Mortgagor shall at all times keep all buildings, improvements, fixtures and articles of personal property now or hereafter situated on the Premises insured against loss or damage by fire and such other hazards as may reasonably be required by Mortgagee, including without limitation: (i) all-risk fire and extended coverage insurance, with vandalism and malicious mischief endorsements, for the full replacement value of the Premises, with agreed upon amount and inflation protection endorsements; (ii) if there are tenants under leases at the Premises, rent and rental value or business loss insurance for the same perils described in clause (i) above payable at the rate per month and for the period specified from time to time by Mortgagee; (iii) broad form boiler and sprinkler damage insurance in an amount reasonably satisfactory to Mortgagee, if and so long as the Premises shall contain a boiler and/or sprinkler system, respectively; (iv) if the Premises are located in a flood hazard area, flood insurance in the maximum amount obtainable up to the amount of the indebtedness hereby secured; and (v) such other insurance as Mortgagee may from time to time require. Mortgagor also shall at all times maintain comprehensive public liability, property damage and workmen's compensation insurance covering the Premises and any employees thereof, with such limits for personal injury, death and property damage as Mortgagee may require. Mortgagor shall be the named insured under such policies and Mortgagee shall be identified as an additional insured party. All policies of insurance to be furnished hereunder shall be in forms, with companies, in amounts and with deductibles reasonably satisfactory to Mortgagee, with mortgagee clauses attached to all policies in favor of and in form satisfactory to Mortgagee, including a provision requiring that the coverage evidenced thereby shall not be terminated or modified without thirty days prior written notice to Mortgagee and shall contain endorsements that no act or negligence of the insured or any occupant and no occupancy or use of the Premises for purposes more hazardous than permitted by the terms of the policies will affect the validity or enforceability of such policies as against Mortgagee. Mortgagor shall deliver all policies, including additional and renewal policies, to Mortgagee, and, in the case of insurance about to expire, shall deliver renewal policies not less than thirty days prior to their respective dates of expiration. (b) Mortgagor shall not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained hereunder unless Mortgagee is included thereon as the loss payee or an additional insured as applicable, under a standard mortgage clause acceptable to Mortgagee and such separate insurance is otherwise acceptable to Mortgagee. (c) In the event of loss, Mortgagor shall give prompt notice thereof to Mortgagee, who, if such loss exceeds $1,000,000, shall have the right to make proof of loss jointly with Mortgagor. If such loss exceeds $1,000,000 or if such loss is $1,000,000 or less and the conditions set forth in clauses (i), (ii) and (iii) of the immediately succeeding sentence are not satisfied, then each insurance company concerned is hereby authorized and directed to make payment for such loss directly and solely to Mortgagee. If and only if (i) such loss is $1,000,000 or less, (ii) no Event of Default or event that with the passage of time, the giving of notice or both would constitute an Event of Default then exists, and (iii) Mortgagee determines that the work required to complete the repair or restoration of the Premises necessitated by such loss can be completed no later than the 60th day prior to the maturity date of the Loan, then Mortgagor may receive such payment directly. Mortgagee shall have the right, at its option and in its sole discretion, to apply any insurance proceeds received by Mortgagee pursuant to the terms of this paragraph after the payment of all of Mortgagee's actual out-of-pocket expenses, either (i) on account of the unpaid principal balance of the Notes, irrespective of whether such principal balance is then due and payable, whereupon Mortgagee may declare the whole of the balance of indebtedness hereby secured to be due and payable, or (ii) to the restoration or repair of the property damaged as provided in Paragraph 22 hereof. If insurance proceeds are delivered to Mortgagor by Mortgagee as hereinafter provided, Mortgagor shall repair, restore or rebuild the damaged or destroyed portion of the Premises so that the condition and value of the Premises are substantially the same as the condition and value of the Premises prior to being damaged or destroyed. Any insurance proceeds applied on account of the unpaid principal balance of the Notes shall not be subject to the Prepayment Premium described in the Notes. In the event of foreclosure of this Mortgage, all right, title and interest of Mortgagor in and to any insurance policies then in force shall pass to the purchaser at the foreclosure sale. At the request of Mortgagee, from time to time, Mortgagor shall furnish Mortgagee, without cost to Mortgagee, evidence of the replacement value of the Premises. 7. Condemnation. If all or any part of the Premises are damaged, taken or acquired, either temporarily or permanently, in any condemnation proceeding, or by exercise of the right of eminent domain, the amount of any award or other payment for such taking or damages made in consideration thereof, to the extent of the full amount of the remaining unpaid indebtedness secured by this Mortgage, is hereby assigned to Mortgagee, who is empowered to collect and receive the same and to give proper receipts therefor in the name of Mortgagor and the same shall be paid forthwith to Mortgagee. Such award or monies shall be applied on account of the unpaid principal balance of the Notes, irrespective of whether such principal balance is then due and payable and, at any time from and after the taking Mortgagee may declare the whole of the balance of the indebtedness hereby secured to be due and payable. Notwithstanding the provisions of this Paragraph to the contrary, if any condemnation or taking of less than the entire Premises occurs and provided that no Event of Default and no event that with the passage of time, the giving of notice or both would constitute an Event of Default then exists, and if after giving effect to such partial condemnation (and any proposed restoration thereof by Mortgagor using the proceeds of such condemnation), the then outstanding principal balance of the Loan is not more than 75% of the appraised value of the Premises as restored, as reasonably determined by Mortgagee, then the award or payment for such taking or consideration for damages resulting therefrom may be collected and received by Mortgagor (provided the same are applied to the restoration of the Premises), and Mortgagee hereby agrees that in such event it shall not declare the whole of the indebtedness hereby secured to be due and payable, if it is not otherwise then due and payable. Any condemnation award applied on account of the unpaid principal balance of the Notes shall not be subject to the Prepayment Premium described in the Notes. 8. Stamp Tax. If, by the laws of the United States of America, or of any state or political subdivision having jurisdiction over Mortgagor, any tax is due or becomes due in respect of the execution and delivery or recording of this Mortgage, the Notes or any of the other Loan Documents, Mortgagor covenants and agrees to pay such tax in the manner required by any such law. Mortgagor further covenants to reimburse Mortgagee for any sums which Mortgagee may expend by reason of the imposition of any such tax. Notwithstanding the foregoing, Mortgagor shall not be required to pay any income or franchise taxes of Mortgagee. 9. Lease Assignment. Mortgagor acknowledges that, concurrently herewith, Mortgagor is delivering to Mortgagee, as additional security for the repayment of the Loan, an Assignment of Rents and Leases (the "Assignment") pursuant to which Mortgagor has assigned to Mortgagee interests in the leases of the Premises and the rents and income from the Premises. All of the provisions of the Assignment are hereby incorporated herein as if fully set forth at length in the text of this Mortgage. Mortgagor agrees to abide by all of the provisions of the Assignment. 10. Effect of Extensions of Time. If the payment of the indebtedness secured hereby or any part thereof is extended or varied or if any part of any security for the payment of the indebtedness is released, all persons now or at any time hereafter liable therefor, or interested in the Premises or having an interest in Mortgagor, shall be held to assent to such extension, variation or release, and their liability and the lien and all of the provisions hereof shall continue in full force, any right of recourse against all such persons being expressly reserved by Mortgagee, notwithstanding such extension, variation or release. 11. Effect of Changes in Laws Regarding Taxation. If any law is enacted after the date hereof requiring (i) the deduction of any lien on the Premises from the value thereof for the purpose of taxation or (ii) the imposition upon Mortgagee of the payment of the whole or any part of the taxes or assessments, charges or liens herein required to be paid by Mortgagor, or (iii) a change in the method of taxation of mortgages or debts secured by mortgages or Mortgagee's interest in the Premises, or the manner of collection of taxes, so as to affect this Mortgage or the indebtedness secured hereby or the holders thereof, then Mortgagor, upon demand by Mortgagee, shall pay such taxes or assessments, or reimburse Mortgagee therefor; provided, however, that Mortgagor shall not be deemed to be required to pay any income or franchise taxes of Mortgagee. Notwithstanding the foregoing, if in the opinion of counsel for Mortgagee it may be unlawful to require Mortgagor to make such payment or the making of such payment might result in the imposition of interest beyond the maximum amount permitted by law, then Mortgagee may declare all of the indebtedness secured hereby to be immediately due and payable. 12. Mortgagee's Performance of Defaulted Acts and Expenses Incurred by Mortgagee. If an Event of Default has occurred, Mortgagee may, but need not, make any payment or perform any act herein required of Mortgagor in any form and manner deemed expedient by Mortgagee, and may, but need not, make full or partial payments of principal or interest on prior encumbrances, if any, and purchase, discharge, compromise or settle any tax lien or other prior lien or title or claim thereof, or redeem from any tax sale or forfeiture affecting the Premises or consent to any tax or assessment or cure any default of Mortgagor in any lease of the Premises. All monies paid for any of the purposes herein authorized and all expenses paid or incurred in connection therewith, including reasonable attorneys' fees, and any other monies advanced by Mortgagee in regard to any tax referred to in Paragraph 8 above or to protect the Premises or the lien hereof, shall be so much additional indebtedness secured hereby, and shall become due and payable by Mortgagor to Mortgagee on the tenth day following demand, and with interest thereon at the Default Rate (as defined in the Notes) then in effect from the date incurred if not paid within such ten day period. In addition to the foregoing, any costs, expenses and fees, including reasonable attorneys' fees, incurred by Mortgagee in connection with (a) sustaining the lien of this Mortgage or its priority, (b) protecting or enforcing any of Mortgagee's rights hereunder, (c) recovering any indebtedness secured hereby, (d) any litigation or proceedings affecting the Notes, this Mortgage, any of the other Loan Documents or the Premises, including without limitation, bankruptcy and probate proceedings, or (e) preparing for the commencement, defense or participation in any threatened litigation or proceedings affecting the Notes, this Mortgage, any of the other Loan Documents or the Premises, shall be so much additional indebtedness secured hereby, and shall be due and payable by Mortgagor to Mortgagee on the tenth day following demand therefor, and with interest thereon at the Default Rate from the date incurred if not paid within such ten day period. The interest accruing under this Paragraph 12 shall be additional indebtedness evidenced by the Notes and secured by this Mortgage. Mortgagee's failure to act shall never be considered as a waiver of any right accruing to Mortgagee on account of any Event of Default. Should any amount paid out or advanced by Mortgagee hereunder, or pursuant to any agreement executed by Mortgagor in connection with the Loan, be used directly or indirectly to pay off, discharge or satisfy, in whole or in part, any lien or encumbrance upon the Premises or any part thereof, then Mortgagee shall be subrogated to any and all rights, equal or superior titles, liens and equities, owned or claimed by any owner or holder of said outstanding liens, charges and indebtedness, regardless of whether said liens, charges and indebtedness are acquired by assignment or have been released of record by the holder thereof upon payment. 13. Mortgagee's Reliance on Tax Bills and Claims for Liens. Mortgagee, in making any payment hereby authorized: (a) relating to taxes and assessments, may do so according to any bill, statement or estimate procured from the appropriate public office without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof; or (b) for the purchase, discharge, compromise or settlement of any other prior lien, may do so without inquiry as to the validity or amount of any claim for lien which may be asserted. 14. Event of Default; Acceleration. Each of the following shall constitute an "Event of Default" for purposes of this Mortgage: (a) (i) Mortgagor fails to pay any installment of principal or interest payable pursuant to either of the Notes within five days after the date on which such payment is due in accordance with the terms thereof, or (ii) Mortgagor fails to pay any other amount payable pursuant to either of the Notes, this Mortgage or any of the other Loan Documents within five days after the date on which Mortgagee demands such payment; (b) Mortgagor fails to promptly perform or cause to be performed any other obligation or observe any other condition, covenant, term, agreement or provision required to be performed or observed by Mortgagor under either of the Notes, this Mortgage or any of the other Loan Documents; provided, however, that Mortgagor shall have a period of ninety days to cure such failure commencing on the date on which Mortgagor obtains knowledge of such failure by written notice from Mortgagee or otherwise, and an Event of Default shall not be deemed to exist during such period, if and only if (i) such failure by its nature can be cured, and (ii) Mortgagor has commenced the cure of such failure and is diligently and in good faith attempting to effect such cure. (c) The existence of any inaccuracy or untruth in any material respect in any representation or warranty contained in this Mortgage or any of the other Loan Documents or of any statement or certification as to facts delivered to Mortgagee by Mortgagor; (d) Mortgagor files a voluntary petition in bankruptcy or is adjudicated a bankrupt or insolvent or files any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal, state, or other statute or law, or seeks or consents to or acquiesces in the appointment of any trustee, receiver or similar officer of Mortgagor or of all or any substantial part of the property of Mortgagor or any of the Premises; (e) The commencement of any involuntary petition in bankruptcy against Mortgagor or the institution against Mortgagor of any reorganization, arrangement, composition, readjustment, dissolution, liquidation or similar proceedings under any present or future federal, state or other statute or law, or the appointment of a receiver, trustee or similar officer for all or any substantial part of the property of Mortgagor which shall remain undismissed or undischarged for a period of sixty days; or (f) Any sale, transfer, lease, assignment, conveyance, financing, lien or encumbrance made in violation of Paragraph 27 of this Mortgage; or (g) the occurrence of any default under any Junior Mortgage (as such term is defined in Paragraph 27 below), any note secured thereby or any other document executed in connection with any Junior Indebtedness (as such term is defined in Paragraph 27 below) which is not cured within any applicable grace or cure period expressly provided for therein. If an Event of Default occurs, Mortgagee may, at its option, declare the whole of the indebtedness hereby secured to be immediately due and payable upon notice to Mortgagor. Notwithstanding anything in this Mortgage or the other Loan Documents to the contrary, provided no petition in bankruptcy has been filed by or against Mortgagor which has not been dismissed or discharged, no remedy or action under this Mortgage or the other Loan Documents may be pursued or taken by or on behalf of a holder of a Note unless an identical remedy or action is being concurrently pursued or taken by or on behalf of the holder of the other Note. If a petition in bankruptcy has been filed by or against Mortgagor which has not been dismissed or discharged, the holders of the Notes may independently pursue their respective rights and remedies against Mortgagor under the Loan Documents. 15. Foreclosure; Expense of Litigation. (a) When all or any part of the indebtedness hereby secured shall become due, whether by acceleration or otherwise, Mortgagee shall have the right to foreclose the lien hereof by judicial proceedings or by advertisement with full power and authority to sell the Premises at public auction and convey the same to the purchaser in fee simple, all in accordance with and in the manner prescribed by law, and/or exercise any right, power or remedy provided in this Mortgage or any of the other Loan Documents. In the event of a foreclosure sale, Mortgagee is hereby authorized, without the consent of Mortgagor, to assign any and all insurance policies to the purchaser at such sale or to take such other steps as Mortgagee may deem advisable to cause the interest of such purchaser to be protected by any of such insurance policies. (b) In any suit to foreclose the lien hereof, there shall be allowed and included as additional indebtedness in the decree for sale (to the extent not prohibited by applicable law) all expenditures and expenses which may be paid or incurred by or on behalf of Mortgagee for reasonable attorneys' fees, appraisers' fees, outlays for documentary and expert evidence, stenographers' charges, publication costs, and costs (which may be estimated as to items to be expended after entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies, and similar data and assurances with respect to the title as Mortgagee may deem reasonably necessary either to prosecute such suit or to evidence to bidders at any sale which may be had pursuant to such decree the true condition of the title to or the value of the Premises. All expenditures and expenses of the nature mentioned in this paragraph and such other expenses and fees as may be incurred in the enforcement of Mortgagor's obligations hereunder, the protection of said Premises and the maintenance of the lien of this Mortgage, including the fees of any attorney employed by Mortgagee in any litigation or proceeding affecting this Mortgage, the Notes, or the Premises, including probate and bankruptcy proceedings, or in preparations for the commencement or defense of any proceeding or threatened suit or proceeding shall be immediately due and payable by Mortgagor, which amount shall be due and payable within ten days after demand therefor and if such amount is not paid within said ten day period, then such amount shall bear interest at the Default Rate from the date incurred by Mortgagee. (c) Mortgagor understands and agrees that if an Event of Default shall occur and be continuing, Mortgagee shall have the right, inter alia, to foreclose this Mortgage by advertisement pursuant to the terms of Minn. Stat. Chapter 580, as hereafter amended; or pursuant to any similar or replacement statute hereafter enacted. Mortgagor further understands that upon the occurrence of an Event of Default, Mortgagee may also elect its rights under the Code and take possession of the Premises and dispose of the same by sale or otherwise in one or more parcels provided that at least ten (10) days prior notice of such disposition must be given, all as provided for in the Code, as hereafter amended or by any similar or replacement statute hereafter enacted. Mortgagor further understands that under the Constitution of the United States and the Constitution of the State of Minnesota it may have the right to notice and hearing before the Premises may be sold and that the procedure for foreclosure by advertisement described above does not insure that notice will be given to Mortgagor and neither said procedure for foreclosure by advertisement nor the Code requires any hearing or other judicial proceeding. MORTGAGOR HEREBY EXPRESSLY CONSENTS AND AGREES THAT THE PREMISES MAY BE FORECLOSED BY ADVERTISEMENT AND THAT THE PERSONAL PROPERTY MAY BE DISPOSED OF PURSUANT TO THE CODE, ALL AS DESCRIBED ABOVE. MORTGAGOR ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED BY LEGAL COUNSEL; THAT BEFORE SIGNING THIS DOCUMENT THIS SECTION AND MORTGAGOR'S CONSTITUTIONAL RIGHTS WERE FULLY EXPLAINED BY SUCH COUNSEL AND THAT MORTGAGOR UNDERSTANDS THE NATURE AND EXTENT OF THE RIGHTS WAIVED HEREBY AND THE EFFECT OF SUCH WAIVER. 16. Application of Proceeds of Foreclosure Sale. The proceeds of any foreclosure sale of the Premises shall be distributed and applied in the following order of priority: first, to all costs and expenses incident to the foreclosure proceedings, including all such items as are mentioned in Paragraph 15 above; second, to all other items which may under the terms hereof constitute secured indebtedness additional to that evidenced by the Notes, with interest thereon as provided herein or in the other Loan Documents; third, to all principal and interest remaining unpaid on the Notes; and fourth, any surplus to Mortgagor, its successors or assigns, as their rights may appear or to any other party legally entitled thereto. 17. Appointment of Receiver. Upon the occurrence and continuance of an Event of Default and after acceleration of repayment of the indebtedness secured hereby, Mortgagee shall be entitled as a matter of right without notice and without giving bond and without regard to the solvency or insolvency of Mortgagor, or waste of the Premises or adequacy of the security of the Premises or any other security for the Loan, to apply for the appointment of a receiver under any applicable statute or law who shall have all the rights, powers and remedies as provided by such statute or law, including, without limitation, the rights of a receiver pursuant to Minn. Stat. Section 576.01, as amended, and who shall from the date of his appointment through any period of redemption existing at law collect the rents, and all other income of any kind; manage the Premises so as to prevent waste; execute leases within or beyond the period of receivership if approved by the court; and perform the terms of this Mortgage and apply the rents, issues and profits to the payment of the expenses enumerated in Minn. Stat. Section 576.01, Subd. 2 in the priority mentioned therein and to all expenses for normal maintenance of the Premises and to the costs and expenses of the receivership, including reasonable attorneys' fees, to the repayment of the indebtedness secured hereby and as further provided in the Assignment described in Paragraph 9 above. Mortgagor does hereby irrevocably consent to such appointment. 18. Mortgagee's Right of Possession in Case of Default. At any time after an Event of Default has occurred, Mortgagor shall, upon demand of Mortgagee, surrender to Mortgagee possession of the Premises. Mortgagee, in its discretion, may, with or without process of law, enter upon and take and maintain possession of all or any part of the Premises, together with all documents, books, records, papers and accounts relating thereto, and may exclude Mortgagor and its employees, agents or servants therefrom, and Mortgagee may then hold, operate, manage and control the Premises, either personally or by its agents. Mortgagee shall have full power to use such measures, legal or equitable, as in its discretion may be deemed proper or necessary to enforce the payment or security of the avails, rents, issues, and profits of the Premises, including actions for the recovery of rent, actions in forcible detainer and actions in distress for rent. Without limiting the generality of the foregoing, Mortgagee shall have full power to: (a) cancel or terminate any lease or sublease for any cause or on any ground which would entitle Mortgagor to cancel the same; (b) elect to disaffirm any lease or sublease which is then subordinate to the lien hereof; (c) extend or modify any then existing leases and to enter into new leases, which extensions, modifications and leases may provide for terms to expire, or for options to lessees to extend or renew terms to expire, beyond the maturity date of the indebtedness secured hereby and beyond the date of the issuance of a deed or deeds to a purchaser or purchasers at a foreclosure sale, it being understood and agreed that any such leases, and the options or other such provisions to be contained therein, shall be binding upon Mortgagor and all persons whose interests in the Premises are subject to the lien hereof and upon the purchaser or purchasers at any foreclosure sale, notwithstanding any redemption from sale, discharge of the mortgage indebtedness, satisfaction of any foreclosure judgment, or issuance of any certificate of sale or deed to any purchaser; (d) make any repairs, renewals, replacements, alterations, additions, betterments and improvements to the Premises as Mortgagee deems are necessary; (e) insure and reinsure the Premises and all risks incidental to Mortgagee's possession, operation and management thereof; and (f) receive all of such avails, rents, issues and profits. 19. Application of Income Received by Mortgagee. Mortgagee, in the exercise of the rights and powers hereinabove conferred upon it, shall have full power to use and apply the avails, rents, issues and profits of the Premises in the manner set forth in Paragraph 8 of the Assignment described in Paragraph 9 above. 20. Rights Cumulative. Each right, power and remedy herein conferred upon Mortgagee is cumulative and in addition to every other right, power or remedy, express or implied, given now or hereafter existing under any of the Loan Documents or at law or in equity, and each and every right, power and remedy herein set forth or otherwise so existing may be exercised from time to time as often and in such order as may be deemed expedient by Mortgagee, and the exercise or the beginning of the exercise of one right, power or remedy shall not be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy, and no delay or omission of Mortgagee in the exercise of any right, power or remedy accruing hereunder or arising otherwise shall impair any such right, power or remedy, or be construed to be a waiver of any Event of Default or acquiescence therein. 21. Mortgagee's Right of Inspection. The holders of the Notes and their respective representatives shall have the right to inspect the Premises and the books and records with respect thereto at all reasonable times, and access thereto shall be permitted for that purpose. 22. Disbursement of Insurance or Eminent Domain Proceeds. (a) Before commencing to repair, restore or rebuild following damage to, or destruction of, all or a portion of the Premises, whether by fire or other casualty or by a taking under the power of eminent domain, Mortgagor shall obtain from Mortgagee its approval of all site and building plans and specifications pertaining to such repair, restoration or rebuilding. (b) Prior to the application to the repair or restoration of the improvements upon the Premises of any insurance proceeds or a condemnation or eminent domain award in the possession of Mortgagee pursuant to the terms of Paragraphs 6 and 7 above (which application may be made, at Mortgagee's option, through an escrow, the terms and conditions of which are satisfactory to Mortgagee and the cost of which is to be borne by Mortgagor), Mortgagee shall be entitled to be satisfied as to the following: (i) An Event of Default has not occurred; (ii) Either (A) such improvements have been fully restored, or (B) the expenditure of money as may be received from such insurance proceeds or condemnation award will be sufficient to repair, restore or rebuild the Premises, free and clear of all liens, claims and encumbrances, except the lien of this Mortgage and the Permitted Exceptions, or, in the event such insurance proceeds or condemnation award shall be insufficient to repair, restore and rebuild the Premises, Mortgagor has deposited with Mortgagee such amount of money which, together with the insurance proceeds or condemnation award, shall be sufficient to restore, repair and rebuild the Premises; and (iii) Prior to each disbursement of any such proceeds held by Mortgagee in accordance with the terms of this Paragraph 22 for the cost of any repair, restoration or rebuilding, Mortgagee shall be furnished with a statement of Mortgagee's architect (the cost of which shall be borne by Mortgagor), certifying the extent of the repair and restoration completed to the date thereof, and that such repairs, restoration, and rebuilding have been performed to date in conformity with the plans and specifications approved by Mortgagee and with all statutes, regulations or ordinances (including building and zoning ordinances) affecting the Premises; and Mortgagee shall be furnished with appropriate evidence of payment for labor or materials furnished to the Premises, and total or partial lien waivers substantiating such payments. (c) Prior to the application to the repair, restoration or rebuilding of the improvements upon the Premises of any insurance proceeds or condemnation award in the possession of Mortgagee pursuant to the terms of Paragraphs 6 and 7 above, there shall have been delivered to Mortgagee the following: (i) A waiver of subrogation from any insurer with respect to Mortgagor or the then owner or other insured under the policy of insurance in question; (ii) Such plans and specifications, such payment and performance bonds and such insurance, in such amounts, issued by such company or companies and in such forms and substance, as are required by Mortgagee. (d) In the event Mortgagor shall fail to restore, repair or rebuild the improvements upon the Premises within a time deemed satisfactory by Mortgagee, then Mortgagee, at its option (but no sooner than five business days after written notice to Mortgagor of Mortgagee's intent), may commence and perform all necessary acts to restore, repair or rebuild the said improvements for or on behalf of Mortgagor. In the event insurance proceeds or condemnation award shall exceed the amount necessary to complete the repair, restoration or rebuilding of the improvements upon the Premises, such excess shall be applied on account of the unpaid principal balance of the Loan irrespective of whether such balance is then due and payable. (e) In the event Mortgagor commences the repair or rebuilding of the improvements located on the Premises, but fails to comply with the conditions precedent to the payment or application of insurance proceeds or a condemnation or eminent domain award set forth in this Paragraph 22, or Mortgagor shall fail to restore, repair or rebuild the improvements upon the Premises within a time deemed satisfactory by Mortgagee, and if Mortgagee does not restore, repair or rebuild the said improvements as provided in subparagraph (d) above, then such failure shall constitute an Event of Default (subject to the cure rights set forth in Paragraph 14 (b) above). 23. Release Upon Payment and Discharge of Mortgagor's Obligations. Mortgagee shall release this Mortgage and the lien hereof by proper instrument upon payment and discharge of all indebtedness secured hereby, including payment of all reasonable out-of-pocket expenses incurred by Mortgagee in connection with the execution and recording of such release, which expenses shall not exceed $500. 24. Notices. Any notices, communications and waivers under this Mortgage shall be in writing and shall be (i) delivered in person, (ii) mailed, postage prepaid, either by registered or certified mail, return receipt requested, or (iii) sent by overnight express carrier, addressed in each case as follows: To Mortgagee: LaSalle National Bank 120 South LaSalle Street Chicago, Illinois 60603 Attn: Mr. Joseph Perri and Marquette Capital Bank 4000 Dain Bosworth Plaza 60 South 6th Street P.O. Box 1000 Minneapolis, Minnesota 55480-1000 Attn: Mr. Todd A. Nieland With copy to: Schwartz Cooper Greenberger & Krauss, Chtd. 180 North LaSalle Street, Suite 2700 Chicago, Illinois 60601 Attn: David Glickstein, Esq. To Mortgagor: First Team Sports, Inc. 2274 Woodale Drive Mounds View, Minnesota 55112 Attn: Mr. Robert Lenius, Vice President and CFO With copy to: Fredrikson & Byron, P.A. 1100 International Centre 900 Second Avenue South Minneapolis, Minnesota 55402 Attn: Charles Diessner, Esq. or to any other address as to any of the parties hereto, as such party shall designate in a written notice to the other party hereto. All notices sent pursuant to the terms of this Paragraph shall be deemed received (i) if personally delivered, then on the date of delivery, (ii) if sent by overnight, express carrier, then on the next federal banking day immediately following the day sent, or (iii) if sent by registered or certified mail, then on the earlier of the third federal banking day following the day sent or when actually received. 25. Intentionally Omitted. 26. Waiver of Rights. Mortgagor hereby covenants and agrees that Mortgagor shall not apply for or avail itself of any appraisement, valuation, stay, extension or exemption laws, or any so-called "Moratorium Laws," now existing or hereafter enacted, in order to prevent or hinder the enforcement or foreclosure of this Mortgage, but hereby waives the benefit of such laws. To the fullest extent permitted by law, Mortgagor, for itself and all who may claim through or under it, waives any and all rights to have the property and estates comprising the Premises marshalled upon any foreclosure of the lien hereof and further agrees that any court having jurisdiction to foreclose such lien may order the Premises sold as an entirety. 27. Transfer of Premises; Further Encumbrance. (a) Except as expressly permitted under the terms and conditions set forth in subparagraph 27(c) below, neither all nor any portion of (i) the Premises or (ii) any interest of Mortgagor in the Premises shall be sold, conveyed, assigned, encumbered or otherwise transferred (nor shall any agreement be entered into to sell, convey, assign, encumber or otherwise transfer same) without, in each instance, the prior written consent of Mortgagee, which consent may be given or withheld in Mortgagee's sole and absolute discretion, and may be conditioned in any manner that Mortgagee desires, including, without limitation, increases in the rate of interest charged on the Loan and payment of assumption fees. Any violation or attempted violation of the provisions of this Paragraph 27 shall be an Event of Default for purposes of all of the Loan Documents. (b) Any consent by Mortgagee, or any waiver by Mortgagee of an Event of Default under this Paragraph 27 shall not constitute a consent to or waiver of any right, remedy or power of Mortgagee upon a continuing or subsequent Event of Default under this Paragraph 27. Mortgagor acknowledges that any agreements, liens, charges or encumbrances created in violation of the provisions of this Paragraph 27 shall be void and of no force or effect. Mortgagor agrees that if any provision of this Paragraph 27 is deemed a restraint on alienation, that such restraint is a reasonable one. (c) Notwithstanding anything to the contrary contained in this Paragraph 27, Mortgagor shall have the right to place a junior mortgage (a "Junior Mortgage") upon the Premises if and only if (i) the sum of the indebtedness secured by such Junior Mortgage (the "Junior Indebtedness") plus the then outstanding principal balance of the Loan does not exceed seventy-five percent (75%) of the then fair market value of the Premises, as determined by Mortgagee, and (ii) the Junior Mortgage shall be subject and subordinate to the lien of this Mortgage and, if requested by Mortgagee, Mortgagee and the holder of the Junior Mortgage shall have entered into a subordination agreement in a form reasonably satisfactory to Mortgagee. 28. Expenses Relating to Notes and Mortgage. (a) Mortgagor will pay all out-of-pocket expenses, charges, costs and fees relating to the Loan or necessitated by the terms of the Notes, this Mortgage or any of the other Loan Documents, including without limitation, Mortgagee's reasonable attorneys' fees in connection with the negotiation, documentation, administration, servicing and enforcement of the Notes, this Mortgage and the other Loan Documents, all filing, registration and recording fees, all other expenses incident to the execution and acknowledgment of this Mortgage and all federal, state, county and municipal taxes, and other taxes (provided Mortgagor shall not be required to pay any income or franchise taxes of Mortgagee), duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of the Notes and this Mortgage. Mortgagor recognizes that, during the term of this Mortgage, Mortgagee: (i) May be involved in court or administrative proceedings, including, without restricting the foregoing, foreclosure, probate, bankruptcy, creditors' arrangements, insolvency, housing authority and pollution control proceedings of any kind, to which Mortgagee shall be a party by reason of the Loan Documents or in which the Loan Documents or the Premises are involved directly or indirectly; (ii) May make preparations following the occurrence of an Event of Default hereunder for the commencement of any suit for the foreclosure hereof, which may or may not be actually commenced; (iii) May make preparations following the occurrence of an Event of Default hereunder for, and do work in connection with, Mortgagee's taking possession of and managing the Premises, which event may or may not actually occur; (iv) May make preparations for and commence other private or public actions to remedy an Event of Default hereunder, which other actions may or may not be actually commenced; (v) May enter into negotiations with Mortgagor or any of its agents, employees or attorneys in connection with the existence or curing of any Event of Default hereunder, the sale of the Premises, the assumption of liability for any of the indebtedness represented by the Notes or the transfer of the Premises in lieu of foreclosure; or (vi) May enter into negotiations with Mortgagor or any of its agents, employees or attorneys pertaining to Mortgagee's approval of actions taken or proposed to be taken by Mortgagor which approval is required by the terms of this Mortgage. (b) All out-of-pocket expenses, charges, costs and fees described in this Paragraph 28 shall be so much additional indebtedness secured hereby, shall bear interest from the date so incurred until paid at the Default Rate and shall be paid, together with said interest, by Mortgagor forthwith upon demand. 29. Financial Statements. Mortgagor hereby represents and warrants that the financial statements for Mortgagor and the Premises previously submitted to Mortgagee are true, complete and correct in all material respects, disclose all actual and contingent liabilities of Mortgagor or relating to the Premises and do not contain any untrue statement of a material fact or omit to state a fact material to such financial statements. No material adverse change has occurred in the financial condition of Mortgagor or the Premises from the dates of said financial statements until the date hereof. Mortgagor hereby covenants that Mortgagee shall be furnished (i) quarterly unaudited financial statements for Mortgagor and the Premises no later than forty-five days after the end of each of the four quarters of each year, all in form, scope and detail satisfactory to Mortgagee and certified by Mortgagor, and (ii) annual audited financial statements for Mortgagor and the Premises no later than 90 days after the end of each year, together with an unqualified accountant's opinion in a form satisfactory to Mortgagee. 30. Statement of Indebtedness. Mortgagor, within seven days after being so requested by Mortgagee, shall furnish a duly acknowledged written statement setting forth the amount of the debt secured by this Mortgage, the date to which interest has been paid and stating either that no offsets or defenses exist against such debt or, if such offsets or defenses are alleged to exist, the nature thereof. 31. Further Instruments. Upon request of Mortgagee, Mortgagor shall execute, acknowledge and deliver all such additional instruments and further assurances of title and shall do or cause to be done all such further acts and things as may reasonably be necessary fully to effectuate the intent of this Mortgage and of the other Loan Documents. 32. Additional Indebtedness Secured. All persons and entities with any interest in the Premises or about to acquire any such interest should be aware that this Mortgage secures more than the stated principal amount of the Notes and interest thereon; this Mortgage secures any and all other amounts which may become due under the Notes or any other document or instrument evidencing, securing or otherwise affecting the indebtedness secured hereby, including, without limitation, any and all amounts expended by Mortgagee to operate, manage or maintain the Premises or to otherwise protect the Premises or the lien of this Mortgage. 33. Indemnity. Mortgagor hereby covenants and agrees that no liability shall be asserted or enforced against Mortgagee in the exercise of the rights and powers granted to Mortgagee in this Mortgage (unless such liability directly arises from the gross negligence or willful misconduct of Mortgagee), and Mortgagor hereby expressly waives and releases any such liability. Mortgagor shall indemnify and save Mortgagee harmless from and against any and all liabilities, obligations, losses, damages, claims, costs and expenses (including attorneys' fees and court costs) (collectively, the "Claims") of whatever kind or nature which may be imposed on, incurred by or asserted against Mortgagee at any time by any third party which relate to or arise from: (a) any suit or proceeding (including probate and bankruptcy proceedings), or the threat thereof, in or to which Mortgagee may or does become a party, either as plaintiff or as a defendant, by reason of this Mortgage or for the purpose of protecting the lien of this Mortgage; (b) the offer for sale or sale of all or any portion of the Premises; and (c) the ownership, leasing, use, operation or maintenance of the Premises, if such Claims relate to or arise from actions taken prior to the surrender of possession of the Premises to Mortgagee in accordance with the terms of this Mortgage; provided, however, that Mortgagor shall not be obligated to indemnify or hold Mortgagee harmless from and against any Claims directly arising from the gross negligence or willful misconduct of Mortgagee. All costs provided for herein and paid for by Mortgagee shall be so much additional indebtedness secured hereby and shall become due and payable within ten days after demand therefor and if such amount is not paid within said ten day period, then such amount shall bear interest at the Default Rate from the date incurred by Mortgagor. 34. Intentionally Omitted. 35. Subordination of Property Manager's Lien. Any property management agreement for the Premises entered into hereafter with a property manager shall contain a "no lien" provision whereby the property manager waives and releases any and all mechanics' lien rights that the property manager or anyone claiming by, through or under the property manager may have and shall provide that Mortgagee may terminate such agreement at any time after the occurrence of an Event of Default hereunder. In addition, if the property management agreement in existence as of the date hereof does not contain a "no lien" provision, Mortgagor shall cause the property manager under such agreement to enter into a subordination of the management agreement with Mortgagee, in recordable form, whereby such property manager subordinates present and future lien rights and those of any party claiming by, through or under such property manager to the lien of this Mortgage. 36. Fixture Filing. As to those items comprising a portion of the Premises described in this Mortgage that are, or are to become, fixtures related to the Real Estate mortgaged herein, it is intended as to those items that THIS MORTGAGE SHALL BE EFFECTIVE AS A FINANCING STATEMENT FILED AS A FIXTURE FILING from the date of its filing in the real estate records of the County where the Real Estate is situated. The name of the record owner of the Real Estate is Mortgagor. Information concerning the security interest created by this instrument may be obtained from Mortgagee, as secured party, at its address as set forth in Paragraph 24 of this Mortgage. The address of Mortgagor, as debtor, is as set forth in Paragraph 24 of this Mortgage. This Mortgage covers goods which are or are to become fixtures. 37. Compliance with Environmental Laws. In addition to all other provisions of this Mortgage, Mortgagor, at its cost and expense, shall comply with all laws, and all rules and regulations of any governmental authority ("Agency") having jurisdiction, concerning environmental matters, including, but not limited to, any discharge (whether before or after the date of this Mortgage) into the air, waterways, sewers, soil or ground water of any substance or "pollutant". Mortgagee and its agents and representatives shall have access to the Premises and to the books and records of Mortgagor and any occupant of the Premises claiming by, through or under Mortgagor for the purpose of ascertaining the nature of the activities being conducted thereon and to determine the type, kind and quantity of all products, materials and substances brought onto the Premises or made or produced thereon. Mortgagor and all occupants of the Premises claiming under Mortgagor shall provide to Mortgagee copies of all manifests, schedules, correspondence and other documents of all types and kinds when filed or provided to any Agency or as such are received from any Agency. Mortgagee and its agents and representatives shall have the right to take samples in quantity sufficient for scientific analysis of all products, materials and substances present on the Premises including, but not limited to, samples of products, materials or substances brought onto or made or produced on the Premises by Mortgagor or an occupant claiming by, through or under Mortgagor or otherwise present on the Premises. 38. Intentionally Omitted. 39. Intentionally Omitted. 40. Miscellaneous. (a) Successors and Assigns. This Mortgage and all provisions hereof shall be binding upon and enforceable against Mortgagor and its assigns and other successors. This Mortgage and all provisions hereof shall inure to the benefit of Mortgagee, its successors and assigns and any holder or holders, from time to time, of the Notes. (b) Invalidity of Provisions; Governing Law. In the event that any provision of this Mortgage is deemed to be invalid by reason of the operation of law, or by reason of the interpretation placed thereon by any administrative agency or any court, Mortgagor and Mortgagee shall negotiate an equitable adjustment in the provisions of the same in order to effect, to the maximum extent permitted by law, the purpose of this Mortgage and the validity and enforceability of the remaining provisions, or portions or applications thereof, shall not be affected thereby and shall remain in full force and effect. This Mortgage is to be construed in accordance with and governed by the laws of the State of Minnesota. (c) Municipal and Zoning Requirements. Mortgagor shall not by act or omission permit any building or other improvement on premises not subject to the lien of this Mortgage to rely on the Premises or any part thereof or any interest therein to fulfill any municipal or governmental requirement, and Mortgagor hereby assigns to Mortgagee any and all rights to give consent for all or any portion of the Premises or any interest therein to be so used. Similarly, no building or other improvement on the Premises shall rely on any premises not subject to the lien of this Mortgage or any interest therein to fulfill any governmental or municipal requirement. Mortgagor shall not by act or omission alter (or permit the alteration of) the zoning classification of the Premises in effect as of the date hereof, nor shall Mortgagor impair the integrity of the Premises as a single zoning lot separate and apart from all other premises. Any act or omission by Mortgagor which would result in a violation of any of the provisions of this subparagraph shall be void. (d) Rights of Tenants. Mortgagee shall have the right and option to commence a civil action to foreclose this Mortgage and to obtain a Decree of Foreclosure and Sale subject to the rights of any tenant or tenants of the Premises having an interest in the Premises prior to that of Mortgagee. The failure to join any such tenant or tenants of the Premises as party defendant or defendants in any such civil action or the failure of any Decree of Foreclosure and Sale to foreclose their rights shall not be asserted by Mortgagor as a defense in any civil action instituted to collect the indebtedness secured hereby, or any part thereof or any deficiency remaining unpaid after foreclosure and sale of the Premises, any statute or rule of law at any time existing to the contrary notwithstanding. (e) Option of Mortgagee to Subordinate. At the option of Mortgagee, this Mortgage shall become subject and subordinate, in whole or in part (but not with respect to priority of entitlement to insurance proceeds or any condemnation or eminent domain award) to any and all leases of all or any part of the Premises upon the execution by Mortgagee of a unilateral declaration to that effect and the recording thereof in the Office of the County Recorder and/or Registrar of Titles in and for the county wherein the Premises are situated. (f) Mortgagee in Possession. Nothing herein contained shall be construed as constituting Mortgagee a mortgagee in possession in the absence of the actual taking of possession of the Premises by Mortgagee pursuant to this Mortgage. (g) Relationship of Mortgagee and Mortgagor. Mortgagee shall in no event be construed for any purpose to be a partner, joint venturer, agent or associate of Mortgagor or of any lessee, operator, concessionaire or licensee of Mortgagor in the conduct of their respective businesses, and, without limiting the foregoing, Mortgagee shall not be deemed to be such partner, joint venturer, agent or associate on account of Mortgagee becoming a mortgagee in possession or exercising any rights pursuant to this Mortgage, any of the other Loan Documents, or otherwise. (h) Time of the Essence. Time is of the essence of the payment by Mortgagor of all amounts due and owing to Mortgagee under the Notes and the other Loan Documents and the performance and observance by Mortgagor of all terms, conditions, obligations and agreements contained in this Mortgage and the other Loan Documents. (i) No Merger. It being the desire and intention of the parties hereto that the Mortgage and the lien hereof do not merge in fee simple title to the Premises, it is hereby understood and agreed that should Mortgagee acquire any additional or other interest in or to the Premises or the ownership thereof, then, unless a contrary intent is manifested by Mortgagee as evidenced by an express statement to that effect in an appropriate document duly recorded, this Mortgage and the lien hereof shall not merge in the fee simple title and this Mortgage may be foreclosed as if owned by a stranger to the fee simple title. (j) INTENTIONALLY OMITTED. (k) JURISDICTION AND VENUE. MORTGAGOR HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED BY MORTGAGOR AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS MORTGAGE, THE NOTES OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS OR, IF MORTGAGEE INITIATES SUCH ACTION, THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, OR THE DISTRICT COURT OF ANOKA COUNTY, MINNESOTA, OR THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA. MORTGAGOR HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY MORTGAGEE IN ANY OF SUCH COURTS, AND HEREBY AGREES THAT PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT (OR OTHER PROCESS OR PAPERS ISSUED THEREIN) ON THE PRESIDENT, VICE PRESIDENT OR REGISTERED AGENT OF MAKER, OR SERVICE BY ANY OTHER MEANS PERMITTED BY APPLICABLE LAW, SHALL BE SUFFICIENT. MORTGAGOR WAIVES ANY CLAIM THAT CHICAGO, ILLINOIS OR THE NORTHERN DISTRICT OF ILLINOIS IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD MORTGAGOR, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF, MORTGAGOR SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY MORTGAGEE AGAINST MORTGAGOR AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR MORTGAGOR SET FORTH IN THIS PARAGRAPH SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY MORTGAGEE, OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY MORTGAGEE, OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND MORTGAGOR HEREBY WAIVES THE RIGHT, IF ANY, TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION. (l) WAIVER OF RIGHT TO JURY TRIAL. MORTGAGEE AND MORTGAGOR ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THE LOAN DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND THEREFORE, THE PARTIES AGREE THAT ANY COURT PROCEEDING ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. IN WITNESS WHEREOF, Mortgagor has executed this instrument the day and year first above written. FIRST TEAM SPORTS, INC., a Minnesota corporation By: /s/ Robert L. Lenius, Jr. Title: VP/CFO STATE OF ) ) SS COUNTY OF ) I, John W. Twiss, a Notary Public in and for said County, in the State aforesaid, do hereby certify that Robert Lenius, the VP/CFO of First Team Sports, Inc., a Minnesota corporation (the "Corporation"), who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such _________________ appeared before me this day in person and acknowledged that he signed and delivered the said instrument as his own free and voluntary act and as the free and voluntary act of the Corporation, for the uses and purposes therein set forth. GIVEN under my hand and notarial seal, this 18th day of March, 1996. /s/ John W. Twiss --------------------------------- Notary Public (SEAL) EXHIBIT A Legal Description of Premises LOTS 2 AND 2A, BLOCK 1, ANOKA ENTERPRISE PARK, THIRD ADDITION, ACCORDING TO THE RECORDED PLAT THEREOF, ANOKA COUNTY, MINNESOTA EXHIBIT B Permitted Exceptions General real estate taxes for the year 1996 and each year thereafter not yet due and payable. EX-23 13 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation of our report dated April 4, 1996, with respect to the consolidated financial statements of First Team Sports, Inc. and Subsidiary and our report dated April 4, 1996, with respect to Schedule II, both included in this Form 10-K, into the Company's previously filed Registration Statements Nos. 33-36123, 33-37308, 33-52344, 33-68164, and 33-84722. St. Paul, Minnesota McGLADREY & PULLEN, LLP May 24, 1996 /s/ McGladrey & Pullen, LLP EX-27 14 ARTICLE 5 FDS FOR YEAR ENDED 2/29/96
5 1 U.S. Dollars YEAR FEB-29-1996 MAR-01-1995 FEB-29-1996 1 2,166,863 0 16,228,666 489,000 22,813,850 43,151,604 11,366,372 1,511,689 55,957,802 18,206,619 6,880,360 0 0 57,210 29,773,613 55,957,802 97,667,448 97,667,448 68,499,170 68,499,170 0 0 892,321 12,149,857 4,338,000 7,811,857 0 0 0 7,811,857 1.30 1.30
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