-----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, KJ0pIOL0aw78Pj2S/D0tbM/0Mn1973FWGDy6W7XPxpIzEcLyoT70Ylsg7EdI4oND oGiNV52eD0t/PpJRNNvNEA== 0000926236-00-000111.txt : 20000922 0000926236-00-000111.hdr.sgml : 20000922 ACCESSION NUMBER: 0000926236-00-000111 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 DATE AS OF CHANGE: 20000906 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPORT SUPPLY GROUP INC CENTRAL INDEX KEY: 0000872855 STANDARD INDUSTRIAL CLASSIFICATION: 5961 IRS NUMBER: 752241783 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10704 FILM NUMBER: 701947 BUSINESS ADDRESS: STREET 1: 1901 DIPLOMAT DRIVE CITY: FARMERS BRANCH STATE: TX ZIP: 75234-8914 BUSINESS PHONE: 9724849484 10-Q 1 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission File Number 1-10704 Sport Supply Group, Inc. (Exact name of registrant as specified in its charter) Delaware 75-2241783 (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No.) 1901 Diplomat Drive, Farmers Branch, Texas 75234 - 8914 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 484-9484 Not Applicable Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicated below is the number of shares outstanding of each class of the registrant's common stock as of August 10, 2000. Title of Each Class of Common Stock Number Outstanding Common Stock, $0.01 par value 7,272,558 shares PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Index to Consolidated Financial Statements Page Consolidated Balance Sheets (Unaudited) 3 Consolidated Statements of Operations (Unaudited) 4 Consolidated Statements of Cash Flows (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6 SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, October 1, 2000 1999 CURRENT ASSETS Cash and equivalents $161,132 $201,911 Accounts receivable: Trade, less allowance for doubtful accounts of $785,000 at June 30, 2000 and $465,000 at Oct. 1, 1999 18,266,498 22,926,169 Other 899,905 975,956 Inventories, net 24,029,730 18,509,262 Other current assets 1,120,252 911,972 Income tax receivable 550,622 0 Deferred tax assets 1,454,112 1,062,188 Total current assets 46,482,251 44,587,458 DEFERRED CATALOG EXPENSES 1,989,791 2,078,262 PROPERTY, PLANT & EQUIPMENT: Land 8,663 8,663 Buildings 1,605,102 1,605,102 Computer equipment and software 1,374,992 10,038,530 Machinery and equipment 6,342,113 6,192,272 Furniture and fixtures 1,487,153 1,286,745 Leasehold improvements 2,422,069 2,368,439 23,240,092 21,499,751 Less -- Accumulated depreciation and amortization (10,542,139) (8,889,925) 12,697,953 12,609,826 DEFERRED TAX ASSETS 1,512,275 2,101,239 COST IN EXCESS OF TANGIBLE NET ASSETS ACQUIRED, less accumulated amortization of $1,678,000 at June 30, 2000 and $1,464,000 at Oct. 1, 1999 7,748,379 7,937,809 TRADEMARKS, less accumulated amortization of $1,495,000 at June 30, 2000 and $1,339,000 at Oct. 1, 1999 3,266,578 3,079,010 OTHER ASSETS, less accumulated amortization of $424,000 at June 30, 2000 and $1,058,000 at Oct. 1, 1999 888,248 855,375 $74,585,475 $73,248,979 CURRENT LIABILITIES: Accounts payable $9,098,532 $7,975,509 Other accrued liabilities 2,038,574 2,328,549 Notes payable and capital lease obligations, current portion 1,782,684 2,410,839 Total current liabilities 12,919,790 12,714,897 NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS, net of current portion 20,033,486 18,425,925 STOCKHOLDERS EQUITY: Preferred stock, par value $0.01, 100,000 shares authorized, no shares outstanding - - Common stock, par value $0.01, 20,000,000 shares authorized, 9,347,340 and 9,333,241 shares issued at June 30, 2000 and Oct. 1, 1999, 7,272,558 and 7,273,899 shares outstanding at June 30, 2000 and Oct. 1, 1999 93,473 93,332 Additional paid-in capital 59,772,291 59,743,384 Accumulated deficit (531,548) (122,207) Treasury stock, at cost, 2,074,782 shares at June 30, 2000 and 2,059,342 at Oct. 1, 2000 (17,702,017) (17,606,352) 41,632,199 42,108,157 $74,585,475 $73,248,979
The accompanying notes are an integral part of these financial statements. SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended June 30, 2000 July 2, 1999 June 30, 2000 July 2, 1999 Net revenues $29,044,822 $ 26,310,019 $82,873,469 $76,656,224 Cost of sales 19,644,337 16,285,236 55,619,114 49,413,114 Gross profit 9,400,485 10,024,783 27,254,355 27,243,110 Selling, general and administrative expenses 9,167,115 6,845,655 25,534,047 19,643,352 Internet expenses 314,793 0 416,115 0 Nonrecurring litigation charges 0 0 605,000 0 Earnings (loss) before interest, other income, and taxes (81,423) 3,179,128 699,193 7,599,758 Interest expense (445,402) (370,774) (1,377,793) (870,604) Other income (expense), net (1,904) 20,785 1 51,458 Earnings (loss) before provision for income taxes (528,729) 2,829,139 (678,599) 6,780,612 Income tax provision (benefit) (200,057) 1,069,899 (269,258) 2,561,797 Net earnings (loss) $ (328,672) $ 1,759,240 $(409,341) $ 4,218,815 Earnings (loss) per share: Net earnings (loss - basic) $ (0.05) $ 0.24 $ (0.06) $ 0.57 Net earnings (loss) - diluted $ (0.05) $ 0.22 $ (0.06) $ 0.55 Weighted average number of common shares outstanding - basic 7,272,558 7,360,364 7,272,532 7,448,658 Weighted average number of common shares outstanding - diluted 7,272,558 7,825,598 7,272,532 7,726,179
The accompanying notes are an integral part of these financial statements. SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
--- The Nine Months Ended --- June 30, 2000 July 3, 1999 CASH FLOWS FROM OPERATING ACTIVITIES : Net earnings (loss) $(409,341) $4,218,815 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,119,170 1,354,261 Provision for (recovery of) allowances for accounts receivable 357,839 (242,645) Changes in assets and liabilities: (Increase) decrease in accounts receivable 5,125,015 (48,047) (Increase) decrease in inventories 4,742,657) (5,968,900) (Increase) decrease in deferred catalog expenses and other current assets (119,809) (381,228) Increase (decrease) in accounts payables 389,260 645,076 (Increase) decrease in income tax receivable (550,622) - Decrease in deferred taxes 197,040 904,318 Increase (decrease) in accrued liabilities (395,804) (216,501) (Increase) decrease in other assets (81,709) (97,499) Net cash used in operating activites 1,888,382 167,650 CASH FLOWS FROM INVESTING ACTIVITIES : Acquisitions of property, plant & equipment (1,712,857) (4,886,237) Payments for acquisitions, net of cash acquired (854,093) (4,260,100) Proceeds from sale of investments - 4,885 Net cash used in investing activities (2,566,950) (9,141,452) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuances of notes payable 2,502,153 13,526,155 Payments of notes payable and capital lease obligations (1,797,747) (1,486,149) Proceeds from common stock issuances 77,570 480,145 Purchase of treasury stock (144,187) (3,367,028) Net cash provided by financing activities 637,789 9,153,123 NET CHANGE IN CASH AND EQUIVALENTS (40,779) 179,321 Cash and equivalents, beginning of period 201,911 1,035,466 Cash and equivalents, end of period $161,132 $1,214,787 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $1,342,249 $ 818,379 Cash paid during the period for income taxes $1,418,377 $ 150,000
The accompanying notes are an integral part of these financial statements. SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 These consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of Sport Supply Group, Inc.'s (the "Company" or "SSG") consolidated financial position as of June 30, 2000 and the results of its operations for the three and nine month periods ended June 30, 2000 and July 2, 1999. The consolidated financial statements include the accounts of SSG and its wholly owned subsidiaries, Athletic Training Equipment Company, Inc., a Delaware corporation and Conlin Bros., Inc., a California corporation. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements also include estimates and assumptions made by management that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, provisions for and the disclosure of contingent assets and liabilities. Actual results could materially differ from those estimates. Certain financial information for fiscal 1999 has been reclassified to conform to fiscal 2000 presentation. Note 1 - Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method for items manufactured by the Company and weighted-average cost for items purchased for resale. As of June 30, 2000 and October 1, 1999, inventories consisted of the following: June 30, October 1, 2000 1999 Raw materials $3,618,950 $3,209,581 Work-in-progress 583,923 435,904 Finished and purchased goods 20,826,113 15,928,680 25,028,986 19,574,165 Less inventory allowance for obsolete or slow moving items (999,256) (1,064,903) Inventories, net $24,029,730 $18,509,262 Note 2 - Stockholders' Equity The Company maintains a stock option plan that provides up to 2,000,000 shares of common stock for awards of incentive and non- qualified stock options to directors and employees of the Company. Under the stock option plan, the exercise price of options will not be less than: (i.) the fair market value of the common stock at the date of grant; or (ii.) 110% of the fair market value for incentive stock options granted to certain employees, as more fully described in the Amended and Restated Stock Option Plan. Options expire 10 years from the grant date, or five years from the grant date for incentive stock options granted to certain employees, or such earlier date as determined by the Board of Directors of the Company (or a Stock Option Committee comprised of members of the Board of Directors). The following table contains transactional data for the Company's stock option plan. For The Nine Months Ended June 30, July 2, 2000 1999 Options outstanding - beginning of period 1,087,799 860,286 Options granted 44,375 116,875 Options exercised (5,000) (58,725) Options forfeited (67,800) (10,912) Options outstanding - end of period 1,059,374 907,524 Weighted average prices $7.78 $7.38 Stock Options Outstanding Stock Options Wtd. Avg. Wtd. Avg. Exercisable Range of Remaining Exercise Exercise Exercise Prices Shares Life Price Shares Price $6.13 - $9.44 1,059,374 5.7 yrs. $7.78 762,706 $7.28 As of June 30, 2000 there were 100,000 non-qualified options outstanding that were issued outside the plan. Such options have an exercise price of $6.88 per share and are scheduled to expire on May 5, 2001. Note 3 - Notes Payable and Capital Lease Obligations As of June 30, 2000 and October 1, 1999, notes payable and capital lease obligations consisted of the following: June 30, October 1, 2000 1999 Note payable under revolving line of credit, Interest at prime minus 1/2% (8.50% at June 30, 2000 and 7.75% at Oct 1, 1999), or LIBOR plus 1-1/4% (6.5175%, 8.0575, and 7.84125%, at June 30, 2000 and 6.52%, 6.96%, 6.44% and 7.13% at Oct 1, 1999) due October 2, 2002, collateralized by substantially all assets. $ 18,784,809 $11,044,264 Term loan, interest at LIBOR plus 1-1/4% (6.5175%, 8.0575% and 7.84125% at June 30, 2000 and 6.52%, 6.96%, 6.44%, and 7.13% at Oct 1, 1999), payable in monthly installments plus accrued interest of $125,000 through October 2, 2002, collateralized by substantially all assets. 2,500,000 9,000,000 Promissory note, interest at 7.75%, payable in monthly installments of $29,167 plus accrued interest through February 2001. 166,714 466,667 Promissory note, interest at 5%, payable in monthly installments of $22,916 plus accrued interest through October 2000. 91,667 - Capital lease obligation, interest at 9.0%, payable in annual installments of principal and interest totaling $55,000 through August 2005. 196,039 230,311 Other 76,941 95,522 Total 21,816,170 20,836,764 Less - current portion (1,782,684) (2,410,839) Long-term notes payable and capital lease obligations, net $ 20,033,486 $18,425,925 The Company has a senior secured credit facility to finance its working capital requirements. The Company's ability to borrow funds under its revolving credit facility is based upon certain percentages of eligible trade accounts receivable and eligible inventories. The terms governing the credit facility includes a revolving line of credit of up to $25.0 million and a term loan of $2.5 million with a maturity date of October 2, 2002. On August 2, 2000 the Company and its Bank entered into a term sheet that modified and restuctured the Company's credit facilities. The amended terms include the following: 1. reducing the facility from $40.0 million to $27.5 million, which more closely represents the available collateral base; 2. reducing the term-loan balance from $7.7 million to $2.5 million with the remaining $5.2 million being added to the revolver; 3. reducing the Fixed Charge Coverage Ratio requirement from 2.0 to 1.0 to 1.0 to 1.0 through March 31, 2001 and to 1.5 to 1.0 after March 31, 2001; 4. reducing the term-loan principal payments from $166,666 per month to $125,000 per month; 5. changing the revolver interest rates from prime minus 0.5% to a range of prime minus 0.25% to prime plus 1.0% based on a debt to EBITDA ratio; 6. changing the term loan interest rate from prime minus 0.5% to prime plus 2.0%; 7. changing the LIBOR interest rates from LIBOR plus 1.25% to a range of LIBOR plus 1.5% to LIBOR plus 4.0% based on a debt to EBITDA ratio; and, 8. extending the term of the facility through October 2, 2002. The amended terms contain financial and net worth covenants; limits on capital expenditures; $75,000 in fees; a provision for a prepayment fee in the case of a change in control; and restrictions on acquisitions and stock repurchases. Although the amended terms are subject to definitive documentation that the Company expects to finalize by August 18, 2000, the amounts reflected in these financial statements and related footnotes reflect balances, classifications and related interest rates as if the amended terms were in place at June 30, 2000. As of June 30, 2000, the Company was in compliance with all the covenants in its senior credit facility. As of June 30, 2000, the Company had borrowings of approximately $21.3 million outstanding under the senior credit facility, and no letters of credit outstanding for foreign purchases of inventory. Note 4 - Capital Structure As of June 30, 2000, the Company's issued and outstanding capital stock consisted solely of common stock. The Company has 1,059,374 options outstanding under the stock option plan with exercise prices ranging from $6.13 to $9.44 per share, and 100,000 options issued outside the plan with an exercise price of $6.88 per share, and 1,000,000 warrants outstanding with an exercise price of $7.50 per share. If the options and warrants were exercised, all holders would have rights similar to common shareholders. Note 5 - Earnings (Loss) Per Common Share Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities to issue common stock were exercised into common stock. The following table sets forth the computation of basic and diluted earnings per share: The following table sets forth the computation of basic and diluted earnings per share: For the Three For the Nine Months Ended Months Ended
June 30, July 2, June 30, July 2, 2000 1999 2000 1999 Numerator: Net earnings (loss) ($328,673) $1,759,240 ($406,341) $4,218,815) Denominator: Weighted average common shares - basic 7,272,558 7,360,364 7,272,532 7,448,658 Effect of dilutive securities: Warrants 0 235,804 0 134,975 Employee stock options 0.0 229,430 0 142,546 Weighted average common shares - diluted 7,272,558 7,825,598 7,272,532 7,726,179 Per Share Calculations: Net earnings - basic ($0.05) $0.24 ($0.06) $0.57 Net earnings - diluted ($0.05) $0.22 ($0.06) $0.55 Securities excluded from weighted average common shares diluted because their effect would be antidilutive 2,159,374 0 2,156,249 0 Note 6 - Acquisitions During October 1999, the Company acquired certain assets of LAKCO, Inc. (located in California) and Spaulding, Inc. (located in Arkansas), both distributors of sporting goods equipment to the institutional market. The purchase price for these acquisitions consisted of cash and the assumption of certain liabilities. Total consideration for these acquisitions was approximately $0.9 million. The Company has accounted for these acquisitions using the purchase method and, as such, their results of operations are combined with the Company's results of operations subsequent to the acquisition dates. The resulting cost in excess of tangible net assets acquired will be amortized on a straight- line basis over a period of 30 years. No proforma information for the above acquisitions is presented herein because the proforma information, individually and in aggregate, would not materially differ from actual results. Note 7 - Recently Announced Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Investments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal quarters in fiscal years beginning after June 15, 2000. SFAS 133 established accounting and reporting standards for derivative instruments embedded in other contracts and for hedging activities. Application of this accounting standard is not expected to have a material impact on the Company's consolidated financial position, results of operations or liquidity. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company's working capital increased approximately $1.2 million during the nine months ended June 30, 2000, from $31.9 million at October 1, 1999 to $33.1 million at June 30, 2000. The increase in working capital is primarily a result of seasonal increases in inventory ($5.5 million), which was partially offset by seasonal decreases in accounts receivable ($4.7 million). As of June 30, 2000, the Company had total borrowings under its senior credit facility of approximately $21.3 million. This balance included a term loan of $2.5 million and a revolver balance of $18.8 million. The term loan is payable in monthly installments of $125,000 principal plus accrued interest. See Note 3-Notes Payable and Capital Lease Obligations. The Company believes it will satisfy its short-term and long-term liquidity needs from borrowings under its senior credit facility and cash flows from operations. The Company has no material commitments for capital expenditures. On May 28, 1997, the Company's Board of Directors approved the repurchase of up to 1,000,000 shares of its issued and outstanding common stock in the open market and/or privately negotiated transactions. On October 28, 1998, the Company's Board of Directors approved a second repurchase program of up to an additional 1,000,000 shares of its issued and outstanding common stock in the open market and/or privately negotiated transactions. As of June 30, 2000, the Company repurchased approximately 1,329,500 shares of its issued and outstanding common stock in the open market and privately negotiated transactions. Presently the amended bank Agreement prohibits any stock repurchases. Results of Operations Net Revenues. Net revenues increased approximately $2.7 million (10.4%) and $6.2 million (8.11%) for the three and nine month periods ended June 30, 2000 as compared to the same periods in fiscal 1999. The increase in net revenues reflects increases in revenues associated primarily with the Company's team dealers, fund raising product sales and in-school and out-of-school sales increases. Gross Profit. Gross profit decreased approximately $624,000 (6.2%) and increased approximately $11,000 (0.04%) for the three and nine month periods as compared to the same periods in fiscal 1999. A portion of the decrease in gross profit is due to $500,000 one-time vendor rebates that were recorded during the quarter ended July 2, 1999. As a percentage of net revenues, gross profit decreased to 32.4% from 38.1% and to 32.9% from 35.5% for the three and nine-month periods ended June 30, 2000 as compared to the same periods in fiscal 1999. The Company expects to experience a lower gross profit as a percentage of net revenue as compared to the previous year due to expected increases in bid-related, fund raising products and team dealer sales, because revenues associated with such customer groups have lower margins than those historically experienced by the Company. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately $2.3 million (33.9%) and $5.9 million (30.0%) for the three and nine month periods ended June 30, 2000 as compared to the same periods in fiscal 1999. As a percentage of net revenues, operating expenses increased from 26.0% to 31.6% and from 25.6% to 30.8% for the three and nine month periods ended June 30, 2000 as compared to the same periods in fiscal 1999. The increase in selling, general and administrative expenses is primarily a result of the following: (i.) An increase in payroll and related costs of approximately $966,000 and $3.0 million for the three and nine month periods, respectively. These increases were primarily a result of the increased number of outside sales employees, the employees of companies acquired during the second quarter of the prior year and temporary help related to increased collection efforts. (ii.) An increase in depreciation and amortization expense of approximately $247,000 and $791,000 for the three and nine month periods, respectively. This is primarily the result of hardware and software acquisitions related to the Company's successful implementation of its SAP/AS400 ERP information system implementation. Currently, the depreciation for the SAP/AS400 is approximately $1.0 million annually. (iii.) An increase in computer related expenses of approximately $536,000 and $571,000 for the three and nine month periods, respectively. This is primarily a result of higher operating costs of maintaining the SAP/AS400 system and support after "go-live." (iv.) An increase in the provision for doubtful accounts receivable of approximately $328,000 and $569,000 for the three and nine month period, respectively. Based on an evaluation of the accounts receivable aging, the Company concluded the need to increase the allowance for doubtful accounts to provide for an increase in estimated write-offs. The Company has also increased collection efforts to improve the accounts receivable outstanding. The Company expects that its operating expenses will continue to be higher in fiscal 2000 as compared to fiscal 1999 as a result of the foregoing factors. Notwithstanding the foregoing, the Company is implementing significant cost reduction programs and certain production efficiencies. The Company is also attempting to reduce future operating expenses by migrating customers to its fully integrated websites. The first two of such websites, bsnsports.com and us-games.com went "live" during August 2000. Internet Expense. The Company incurred internet related expenses of approximately $315,000 and $416,000 for the three and nine month periods in fiscal 2000. These expenses are related to the continued enhancement of the Company's websites and web development to post electronic catalogs on the websites. Interest Expense. Interest expense increased approximately $75,000 (20.1%) and $507,000 (58.3%) for the three and nine month periods ended June 30, 2000 as compared to the same periods in fiscal 1999. The increase in interest expense resulted from overall higher levels of borrowings. See Item 2 "Liquidity and Capital Resources". The higher borrowing levels are a result of the: (i.) cash payments for the acquisitions of Spaulding and LAKCO in October 1999; (ii.) stock repurchased under the Company's stock buyback program; (iii.) cash paid for the SAP/AS400 ERP and internet system implementation and internet technology development; and (iv.) funding the growth of receivables and inventories. Interest expense in fiscal year 2000 is expected to continue to be above interest expense in fiscal year 1999 as the Company experiences the full twelve-month impact of increased borrowing levels. In addition, the Company's borrowing rates will increase as a result the amendments to the Company's credit agreement, as more fully described above. Certain Factors that May Affect the Company's Business or Future Operating Results This report contains various forward looking statements and information that are based on Management's beliefs as well as assumptions made by and information currently available to Management. When used in this report, the words "anticipate", "believe", "estimate", "expect", "predict", "project" and similar expressions are intended to identify forward looking statements. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, expected or projected. Among the key factors that may have a direct bearing on the Company's results are set forth below. Future trends for revenues and profitability remain difficult to predict. The Company continues to face many risks and uncertainties, including: general and specific market economic conditions, reduced sales to the United States Government, risk of nonpayment of accounts receivable, competitive factors, foreign supplier related issues, litigation risks and the impact of the evolving internet. The general economic condition in the U.S. could affect a number of issues, including pricing on raw materials such as metals and other commodities used in the manufacturing of certain products as well as finished goods and interest rates. Any material price increases to the customer could have an adverse effect on revenues and any price increases from vendors could have an adverse effect on the Company's costs. In addition, any material increase in interest rates could materially increase interest expense assuming the Company's borrowing levels remain constant or increase. Approximately 7% of the Company's fiscal year 1999 sales were made to the U.S. Government, a majority of which were made to military installations. Fiscal 2000 government sales are tracking the prior years' volume. However, reductions in U.S. Government spending could reduce funds available to various government customers for sports related equipment, which could adversely affect the Company's results of operations. The Company ships approximately 80% of its products using two freight carriers. A strike by either of these carriers could adversely affect the Company's results of operations due to not being able to deliver its products in a timely manner and using other more expensive freight carriers. Although the Company has analyzed the cost benefit effect of using other carriers, the Company continues to use these two carriers. In addition, increases in freight rates could adversely affect the Company's results of operations. Management continues to closely monitor orders and the creditworthiness of its customers. The Company has not experienced abnormal increases in losses associated with accounts receivable. The aging of accounts receivable has improved over the previous three quarters. The Company has made allowances for the amount it believes to be adequate to properly reflect the risk to accounts receivable; however, unforeseen market conditions may compel the Company to increase the allowances. The sports related equipment market in which the Company participates is highly competitive and there are no significant barriers to enter this market. SSG competes principally in the institutional market with local sporting goods dealers, as well as other direct mail companies. The Company derives a significant portion of its revenues from sales of products purchased directly from foreign suppliers located primarily in the Far East. In addition, the Company believes foreign manufacturers produce many of the products it purchases from domestic suppliers. The Company is subject to risks of doing business abroad, including delays in shipments, adverse fluctuations in foreign currency exchange rates, increases in import duties, decreases in quotas, changes in custom regulations, war, acts of God (such as earthquakes) and political turmoil. The occurrence of any one or more of the foregoing could adversely affect the Company's operations. An adverse outcome in the legal proceedings described in "Part II. Other Information, Item 1. - Legal Proceedings" (such as a termination of the MacGregor License Agreement or a large monetary settlement) could have a material adverse effect on the Company's results of operations and its financial position. On December 7, 1999, the Company's Board of Directors retained PaineWebber, Inc. to explore strategic alternatives. Emerson Radio, who beneficially owns approximately 43% of the Company's issued and outstanding common stock, has indicated that it agrees with the decision of the Company to explore alternatives. No assurance can be made that any transaction or strategic alternative will be consummated by the Company. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no significant changes from items disclosed in Form 10-K for the year ended October 1, 1999. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company from time to time becomes involved in various claims and lawsuits incidental to its business. In management's opinion, any ultimate liability arising out of currently pending product liability claims will not have a material adverse effect on the Company's financial condition or results of operations. However, any claims substantially in excess of the Company's insurance coverage, or any substantial claim that may not be covered by insurance (such as the claims described below) or any significant monetary settlement, could have a material adverse effect on the Company's results of operations and financial condition. On September 29, 1997, the Company terminated Mr. Eugene Davis as Vice Chairman and a Consultant and requested that Mr. Davis resign as a director of the Company. On September 30, 1997, the Company filed a complaint in the United States District Court for the Northern District of Texas, Dallas Division, seeking a declaration as to the existence of an alleged consulting agreement and as to the Company's continuing obligations to make payments to Mr. Davis. Thereafter, Mr. Davis filed a complaint in the Law Division of the Superior Court of New Jersey against the Company for breach of an alleged consulting agreement and against certain officers of the Company for tortious interference with contractual relationships. Mr. Davis and the Company have settled this matter. SSG modifies its disclosure about the circumstances surrounding Mr. Davis' termination and this litigation to state that SSG and Mr. Davis have settled this litigation based on their mutual determination that it was in the best interests of the parties to terminate their business relationship. On June 18, 1999 the Company filed a lawsuit for declaratory relief in the United States District Court for the Northern District of Texas against MacMark Corporation ("MacMark") and Equilink Licensing Corp., both of which are controlled by Riddell Sports, Inc. Subsequently, the Company added Riddell Sports Corp. as a defendant. The lawsuit arises out of a notice delivered by MacMark purportedly terminating the Company's rights under its license to use the MacGregor(r) trademark. The license is perpetual and royalty free subject to certain limited termination rights. MacMark stated in its notice that it considers there to be continuing and material breaches of the license agreement and that such breaches are incurable, all of which the Company disputes. Because the Company has converted a substantial portion of its products to the MacGregor brand, termination of the license agreement could have a material adverse effect on the Company's results of operations and its financial position. The Company believes MacMark has no reasonable basis to terminate this license agreement. The Company intends to vigorously protect its rights under the license agreement and pursue any other rights available against any and all parties. The parties to this lawsuit have entered into a Memorandum of Understanding outlining the primary business terms of a new license agreement that would settle this matter; however, no assurance can be made that the parties will enter into a new license agreement to settle this matter. The parties to this lawsuit are engaged in settlement discussions and have entered into a Memorandum of Understanding and Term Sheet outlining the primary business terms of a potential settlement that would include a restated and amended license; however, no assurance can be made that the parties will enter into a restated and amended license agreement or otherwise settle this lawsuit. Item 2. Changes in Securities (a) Not applicable. (b) Not applicable. Item 3. Defaults Upon Senior Securities (a) Not applicable. (b) Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K Exhibit Nbr. Description of Exhibit (a) (1) Exhibit 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration No. 33-80028)). (a) (2) Exhibit 3.1.1 Certificate of Amendment of Amended and Restated Certificate of Incorporation to the Company (incorporated by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration No. 33-80028)). (a) (3) Exhibit 3.2 Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.2 to the Company's Report on Form 10-K for the year ended November 1, 1996). (a) (4) Exhibit 4.1 Specimen of Common Stock Certificate (incorporated by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-39218)). (a) (5) Exhibit 10.1 (*) Amended Employment Agreement for Terrence M. Babilla dated to be effective as of February 25, 2000 (a) (6) Exhibit 10.2 (*) Amended Employment Agreement for John P. Walker dated to be effective as of February 25, 2000 (a) (7) Exhibit 10.3 (*) Second Amendment (effective July 30, 2000) to Lease Agreement between Acquiport DFWIP, Inc. and Sport Supply Group, Inc. (a) (8) Exhibit 27 (*) Financial Data Schedule. (b) A report on Form 8-K was filed by the Company on May 30, 2000 relating to a press release concerning approval from the New York Stock Exchange for continued listing of Sport Supply Group, Inc. ( * ) = Filed Herewith SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: August 14, 2000 SPORT SUPPLY GROUP, INC. By: /s/ John P. Walker John P. Walker President By: /s/ Robert K. Mitchell Robert K. Mitchell Chief Financial Officer
EX-27 2 0002.txt
5 9-MOS SEP-29-2000 JUN-30-2000 161,132 0 19,951,403 (785,000) 24,029,730 46,482,251 23,240,092 (10,542,139) 74,585,475 12,919,790 0 0 0 93,473 41,538,726 74,585,475 82,873,469 82,873,469 55,619,114 26,555,162 1 0 (1,377,793) (678,599) (269,258) (409,341) 0 0 0 (409,341) (0.06) (0.06)
EX-10.1 3 0003.txt AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement (this "Amendment") is dated to be effectivee aas of February 25, 2000 (the "Effective Date"), by and between Sport Supply Group, Inc., a Delaware corporation ("Employer") and Terrence M. Babilla ("Employee"). WHEREAS, Employer and Employee entered into an Employment Agreement (the "Agreement") dated January 14, 1998, which is scheduled to expire on January 13, 2001. WHEREAS, pursuant to a resolution of the Board of Directors (the "Board"), the Board deemed it to be in the best interest of Employer to extend the termination date of the Agreement to December 31, 2002. NOW, THEREFORE, the parties hereto agree as follows: 1. Section 1 of the Agreement is deleted in its entirety and is replaced with the following: "Term. Subject to the terms and conditions set forth in this Agreement, Employer hereby employs Employee, and Employee hereby accepts such employment from Employer, for a period commencing on January 14, 1998 (the "Effective Date") and expiring on December 31, 2002, except as otherwise provided herein." 2. Section 8(b) of the Agreement is deleted in its entirety and is replaced with the following: "(b) If Employer terminates Employee other than for Cause or in the event of a Constructive Discharge of Employee (as hereinafter defined) during the term hereof, Employer shall (i) pay Employee his Salary (A) through the stated term of this Agreement, if such termination or Constructive Discharge occurs prior to June 30, 2001, or (B) through a period of 18 months from the date of such termination or Constructive Discharge, if such termination or Constructive Discharge occurs on or after June 30, 2001 (in either event Employee shall also receive all accrued but unused personal, vacation, and sick days and less all amounts required to be withheld or deducted therefrom and all amounts owed or due by Employee to Employer), and (ii) continue to provide Employee, during the period through which his Salary will be paid, health insurance with coverage no less than the coverage available during such period to Employer's senior executive officers, and Employer shall have no other obligation hereunder. Notwithstanding anything to the contrary contained herein, if Employee is paid in full pursuant to the terms of that certain Severance Agreement by and between Employer and Employee, then Employee will not be entitled to receive any severance payment under this Section 8(b). Section 8(b)(i)(B) of this Agreement shall survive even if this Agreement expires by its own terms unless Employer and Employee agree in writing to mutually terminate this Agreement or amend this provision or if Employer and Employee enter into a new Employment Agreement." 3. Except as amended herein, the Employment Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties to this Amendment have executed and delivered this Amendment on the date first above written. EMPLOYER: SPORT SUPPLY GROUP, INC. By: /s/ Geoffrey P. Jurick Chairman of the Board and Chief Executive Officer EMPLOYEE: /s/ Terrence M. Babilla Terrence M. Babilla EX-10.2 4 0004.txt AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement (this "Amendment") is dated to be efffective as of Februuaarry 25, 2000 (the "Effective Date"), by and between Sport Supply Group, Inc., a Delaware corporation ("Employer") and John P. Walker ("Employee"). WHEREAS, Employer and Employee entered into an Employment Agreement (the "Agreement") dated January 14, 1998, which is scheduled to expire on January 13, 2001. WHEREAS, pursuant to a resolution of the Board of Directors (the "Board"), the Board deemed it to be in the best interest of Employer to extend the termination date of the Agreement to December 31, 2002. NOW, THEREFORE, the parties hereto agree as follows: 1. Section 1 of the Agreement is deleted in its entirety and is replaced with the following: "Term. Subject to the terms and conditions set forth in this Agreement, Employer hereby employs Employee, and Employee hereby accepts such employment from Employer, for a period commencing on January 14, 1998 (the "Effective Date") and expiring on December 31, 2002, except as otherwise provided herein." 2. Section 8(b) of the Agreement is deleted in its entirety and is replaced with the following: "(b) If Employer terminates Employee other than for Cause or in the event of a Constructive Discharge of Employee (as hereinafter defined) during the term hereof, Employer shall (i) pay Employee his Salary (A) through the stated term of this Agreement, if such termination or Constructive Discharge occurs prior to June 30, 2001, or (B) through a period of 18 months from the date of such termination or Constructive Discharge, if such termination or Constructive Discharge occurs on or after June 30, 2001 (in either event Employee shall also receive all accrued but unused personal, vacation, and sick days and less all amounts required to be withheld or deducted therefrom and all amounts owed or due by Employee to Employer), and (ii) continue to provide Employee, during the period through which his Salary will be paid, health insurance with coverage no less than the coverage available during such period to Employer's senior executive officers, and Employer shall have no other obligation hereunder. Notwithstanding anything to the contrary contained herein, if Employee is paid in full pursuant to the terms of that certain Severance Agreement by and between Employer and Employee, then Employee will not be entitled to receive any severance payment under this Section 8(b). Section 8(b)(i)(B) of this Agreement shall survive even if this Agreement expires by its own terms unless Employer and Employee agree in writing to mutually terminate this Agreement or amend this provision or if Employer and Employee enter into a new Employment Agreement." 3. Except as amended herein, the Employment Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties to this Amendment have executed and delivered this Amendment on the date first above written. EMPLOYER: SPORT SUPPLY GROUP, INC. By: /s/ Geoffrey P. Jurick Chairman ofthe Board and Chief Executive Officer EMPLOYEE: /s/ John P. Walker John P. Walker EX-10.3 5 0005.txt SECOND AMENDMENT TO LEASE AGREEMENT THIS SECOND AMENDMENT TO LEASE AGREEMENT (this "Amendment") is executed on and to be effective as of July 31, 2000, by and between ACQUIPORT DFWIP, INC., a Delaware corporation, as landlord ("Lessor") and SPORT SUPPLY GROUP, INC., a Delaware corporation, as tenant ("Lessee"). R E C I T A L S WHEREAS, Merit Investment Partners, L.P. (predecessor in interest to Lessor) ("Merit") and Lessee entered into that certain Lease Agreement dated July 28, 1989, as amended by that certain First Amendment to Lease dated as of July 13, 1998, by and between Lessor and Lessee (as amended, the "Lease"), pursuant to which Lessee leases from Lessor certain real property more particularly described on Exhibit A to the Lease, together with the improvements thereon, consisting of a 137,670 square foot building located at 1901 Diplomat, Farmers Branch, Texas (the "Premises"); and WHEREAS, Lessee desires to extend the term of the Lease, and Lessor and Lessee desire to set forth the terms and conditions upon which the term of the Lease will be extended. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Lessor and Lessee hereby agree that the Lease should be, and hereby is, amended as follows: 1. Lease Term. The term of the Lease is hereby extended to December 31, 2004. The period of time from August 1, 2001 through December 31, 2004 is referred to herein as the "Extended Term". 2. Minimum Fixed Rent. The minimum fixed rent, as such term is used in the Lease, for the Extended Term, shall be equal to $43,021.88 per month. The minimum fixed rent from August 1, 2000 through July 31, 2001 shall be reduced to $43,021.88 per month. The minimum fixed rent for the period prior to August 1, 2000 shall remain as currently set forth in the Lease. 3. Improvements to Premises. Lessee shall take the Premises in its "as-is" condition for the Extended Term except for certain Leasehold Improvements (herein so called) to the Premises which shall be completed in accordance with the specifications attached hereto as Exhibit A (the "Approved Plans"), which have been approved by both Lessor and Lessee. Lessor shall cause the Leasehold Improvements to be installed or constructed in accordance with the Approved Plans by Lessor's contractor. So long as no Event of Default (or event which with notice or lapse of time could become an Event of Default) has occurred under the Lease, Lessor agrees to provide Lessee an allowance equal to One Hundred Fifty-Three Thousand One Hundred Nineteen and No/100 Dollars ($153,119.00) (the "Improvement Allowance"), which allowance is to be used solely for completion of the Leasehold Improvements in accordance with the Approved Plans, and an additional allowance equal to Three Thousand Two Hundred and No/100 Dollars ($3,200.00) (the "Architectural Allowance"), which allowance is to be used solely for space planning and design services for the Premises. In the event that any alterations or modifications to the Premises are required in order to comply with applicable law, including, without limitation, the Americans with Disabilities Act of 1990, as amended, or the State of Texas equivalent laws and regulations, the cost of any such alterations or modifications shall be satisfied out of the Improvement Allowance. The cost of the Leasehold Improvements and the space planning and design fees is to be paid by Lessor out of the Improvement Allowance and the Architectural Allowance, respectively. Any completed work (labor or materials) outside the scope of the Approved Plans or the cost of which is in excess of the Improvement Allowance or the Architectural Allowance, as the case may be, shall be at Lessee's sole cost and will be billed to Lessee by Lessor and will be due and payable within ten (10) days after Lessee's receipt of an invoice therefor. Notwithstanding the foregoing, Lessee will not be liable for work outside the scope of the Approved Plans or excess costs over the amount of the Improvement Allowance or the Architectural Allowance unless Lessee has consented in writing to such work outside the scope of the Approved Plans or excess costs prior to the commencement of such work or the incurring of such excess costs. Any portion of the Improvement Allowance or the Architectural Allowance remaining upon the completion of the Leasehold Improvements shall be deemed forfeited by Lessee. Lessor further acknowledges and agrees that Section 4.07 of the Lease is hereby amended to provide that Lessee shall not be required to surrender possession of the Premises to Lessor "in the same condition as when received", but rather shall be entitled to surrender possession of the Premises in the same condition as exists upon the completion of the Leasehold Improvements described in Paragraph 3 above, subject to any and all other requirements set forth in Section 4.07 of the Lease. 4. Lessor's Repairs. Section 4.03 is hereby modified by the addition of the following language at the end of the first sentence: "; provided, however, that Lessor shall repair and maintain the structural soundness of the roof (including any necessary replacement as determined by Lessor), exterior walls (excluding windows, window glass, plate glass and doors), and foundation of the Premises, excluding any repair or maintenance to such items (whether structural or nonstructural) resulting from or caused in whole or in part by the negligence or misconduct of Lessee, its agents, employees or contractors." 5. Insurance. Section 5.04 of the Lease is hereby deleted in its entirety and the following is hereby substituted therefor: "Lessee shall keep in force throughout the term of this Lease: (a) a Commercial General Liability insurance policy or policies to protect the Lessor Entities (as hereinafter defined) against any liability to the public or to any invitee of Lessee or a Lessor Entity incidental to the use of or resulting from any accident occurring in or upon the Premises with a limit of not less than $1,000,000.00 per occurrence and not less than $2,000,000.00 in the annual aggregate, covering bodily injury and property damage liability and $1,000,000.00 products/completed operations aggregate; (b) Business Auto Liability covering owned, non- owned and hired vehicles with a limit of not less than $1,000,000.00 per accident; (c) insurance protecting against liability under Worker's Compensation Laws with limits at least as required by statute; (d) Employers Liability with limits of $500,000 each accident, $500,000 disease policy limit, $500,000 disease--each employee; and (e) Business Interruption Insurance with limit of liability representing loss of at least approximately six months of income. In addition, Lessee shall maintain a policy or policies of insurance covering "all risks" perils to the extent of the full replacement cost of the Premises and Lessee's leasehold improvements and personal property situated therein as of the date of the loss (provided that the replacement cost for the building itself shall be provided by Lessor to Lessee from time to time and the replacement cost of Lessee's leasehold improvements, fixtures, inventory, and other business personal property situated in or about the Premises shall be determined by Lessee), with a deductible or self insured retention of no more than $50,000.00. The term "Lessor Entities", as used herein, shall mean Lessor, Lessor's investment manager, and the trustees, boards of directors, officers, general partners, beneficiaries, stockholders, employees and agents of each of them. Each of the aforesaid policies shall (a) be provided at Lessee's expense; (b) name the Lessor and the building management company, if any, as additional insureds; (c) be issued by an insurance company with a minimum Best's rating of "A:VII" during the term of this Lease (provided that if the rate of any insurance company in compliance at the time of issuance of any policy thereafter has a reduction in its rating bel rating below a Best's rating of "A:VII", Lessee shall be provided ninety (90) days to obtain a replacement policy with an insurance company with a Best's rating of "A:VII"); and (d) provide that said insurance shall not be cancelled unless thirty (30) days prior written notice (ten days for non-payment of premium) shall have been given to Lessor; and said policy or policies or certificates thereof shall be delivered to Lessor by Lessee upon the commencement date and at least thirty (30) days prior to each renewal of said insurance. Whenever Lessee shall undertake any alterations, additions or improvements in, to or about the Premises ("Work"), the aforesaid insurance protection must extend to and include injuries to persons and damage to property arising in connection with such Work, without limitation including liability under any applicable structural work act, and such other insurance as Lessor shall require; and the policies of or certificates evidencing such insurance must be delivered to Lessor prior to the commencement of any such Work." 6. Indemnification. Section 6.01 of the Lease is hereby deleted in its entirety and the following is hereby substituted therefor: "None of the Lessor Entities shall be liable and Lessee hereby waives all claims against them for any damage to any property or any injury to any person in or about the Premises by or from any cause whatsoever (including without limiting the foregoing, rain or water leakage of any character from the roof, windows, walls, basement, pipes, plumbing works or appliances, the Premises not being in good condition or repair, gas, fire, oil, electricity or theft), except that Lessor will protect, indemnify and hold the Lessee Entities (as hereinafter defined) harmless from such claims to the extent caused by or arising from the gross negligence or willful misconduct of Lessor or its agents, employees or contractors or any breach or default on the part of Lessor in the performance of any covenant or agreement on the part of Lessor to be performed pursuant to this Lease. Lessee shall protect, indemnify and hold the Lessor Entities harmless from and against any and all loss, claims, liability or costs (including court costs and reasonable attorney's fees) incurred by reason of (a) any damage to any property (including but not limited to property of any Lessor Entity) or any injury (including but not limited to death) to any person occurring in, or about the Premises to the extent that such injury or damage shall be caused by or arise from any actual or alleged act, neglect, fault, or omission by or of Lessee, its agents, servants, employees, invitees, or visitors to meet any standards imposed by any duty with respect to the injury or damage; (b) the conduct or management of any work or thing whatsoever done by the Lessee in or about the Premises or from transactions of the Lessee concerning the Premises; (c) Lessee's failure to comply with any and all governmental laws, ordinances and regulations applicable to the condition or use of the Premises or its occupancy; or (d) any breach or default on the part of Lessee in the performance of any covenant or agreement on the part of Lessee to be performed pursuant to this Lease. The provisions of this Section shall survive the termination of this Lease with respect to any claims or liability accruing prior to such termination. The term "Lessee Entities", as used herein, shall mean Lessee and its directors, officers, general partners, stockholders, employees and agents." 7. Notice. The address of Lessor set forth in Section 9.16 of the Lease is hereby modified to be Acquiport DFWIP, Inc., 1406 Halsey Way, Suite 110, Carrollton, Texas 75007. The address of Lessee set forth in Section 9.16 of the Lease is hereby modified to be Sport Supply Group, Inc., 1901 Diplomat Drive, Farmers Branch, Texas 75234, Attention: President. 8. Hazardous Materials. The following is hereby added to the Lease as Article 12: "ARTICLE 12. HAZARDOUS MATERIALS. Lessee shall not, and shall not direct, suffer or permit any of its agents, contractors, employees, licensees or invitees to at any time handle, use, manufacture, store or dispose of in or about the Premises any flammables, explosives, radioactive materials, hazardous wastes or materials, toxic wastes or materials, or other similar substances, petroleum products or derivatives or any substance subject to regulation by or under any federal, state and local laws and ordinances relating to the protection of the environment or the keeping, use or disposition of environmentally hazardous materials, substances, or wastes, presently in effect or hereafter adopted, all amendments to any of them, and all rules and regulations issued pursuant to any of such laws or ordinances (collectively "Environmental Laws") (all of such items being collectively referred to as "Hazardous Materials"), nor shall Lessee suffer or permit any Hazardous Materials to be used in any manner not fully in compliance with all Environmental Laws, in the Premises or appurtenant land or allow the environment to become contaminated with any Hazardous Materials. Notwithstanding the foregoing, Lessee may (a) store and use on the Premises those items described on Exhibit B attached hereto in the quantities set forth next to such items, and (b) handle, store, use or dispose of products containing small quantities of Hazardous Materials (such as aerosol cans containing insecticides, toner for copiers, paints, paint thinner, paint remover and the like) to the extent customary and necessary for the use of the Premises for general office purposes; provided that Lessee shall always handle, store, use, and dispose of any such Hazardous Materials in a safe and lawful manner and never allow such Hazardous Materials to contaminate the Premises, appurtenant land, or the environment. Lessee shall protect, defend, indemnify and hold each and all of the Lessor Entities harmless from and against any and all loss, claims, liability or costs (including court costs and reasonable attorney's fees) incurred by reason of any actual or asserted failure of Lessee to fully comply with all applicable Environmental Laws, or the presence, handling, use or disposition in or from the Premises of any Hazardous Materials (even though permissible under all applicable Environmental Laws or the provisions of this Lease), or by reason of any actual or asserted failure of Lessee to keep, observe, or perform any provision of this Article." 9. Renewal Options. Any and all renewal options contained in the Lease are hereby deleted in their entirety, and in lieu thereof, Lessee shall have, at its option (the "Renewal Option"), the right to renew and extend this Lease for one term of five (5) years (the "Renewal Term"). The Renewal Term shall commence immediately upon the expiration of the Extended Term by Lessee's giving written notice thereof to Lessor no earlier than nine (9) months, and no later than six (6) months, prior to the expiration of the Extended Term. Once Lessee shall exercise any Renewal Option, Lessee may not thereafter revoke such exercise, except as expressly set forth below. Lessee shall not have the right to exercise the Renewal Option at a time that an Event of Default (or an event which with notice and/or lapse of time could become an Event of Default) under this Lease has occurred and is continuing. Lessee's failure to exercise timely the Renewal Option for any reason whatsoever shall conclusively be deemed a waiver thereof. At Lessor's option, Lessor may adjust the minimum fixed rent for the Renewal Term at an annual rate equal to the Fair Market Value Rate (as hereinafter defined) as of the commencement of the Renewal Term. As used in this Lease, "Fair Market Value Rate" shall mean the fair market value rental rate per square foot of rentable area per year in effect at the commencement of the Renewal Term for comparable tenants taking comparable space in comparable conditions under comparable terms in comparable buildings in the same rental market (hereinafter called "Comparable Buildings"); provided, however, that in no event shall the minimum fixed rent for the Renewal Term be less than ninety percent (90%) of the minimum fixed rent for the last twelve (12) months of the Extended Term. It is also agreed and understood that the Fair Market Value Rate shall include: (a) rent; and (b) rental operating expenses, property tax, and utility and expense adjustments that are being included as part of the terms and conditions of industrial tenant leases for comparable tenants in Comparable Buildings as of the time of determination of the Fair Market Value Rate. Lessor shall advise Lessee within twenty (20) days after Lessee exercises the Renewal Option of the Fair Market Value Rate which shall be in effect as of the commencement date of the Renewal Term. Lessee shall then have fifteen (15) days to notify Lessor of its acceptance or rejection of the Fair Market Value Rate for the Renewal Term and if rejecting the Fair Market Value Rate, of its election to proceed using third-party appraisers, as hereinafter described. In the event Lessee fails to so notify Lessor within such fifteen (15) day period or if Lessee rejects the Fair Market Value Rate and does not elect to proceed using third-party appraisers, Lessee shall be deemed to have rejected the Fair Market Value Rate proposed by Lessor and to have rejected its right to use third-party appraisers to determine the Fair Market Value Rate. Notwithstanding the prohibition on Lessee's right to revoke its exercise of the Renewal Option, in the event Lessee rejects (or is deemed to have rejected) the Fair Market Value Rate proposed by Lessor and rejects (or is deemed to have rejected) its right to use third-party appraisers, Lessee shall be deemed to have revoked the Renewal Option, and the Renewal Option shall be deemed null and void and of no further force or effect. If Lessee notifies Lessor of its election to appoint third-party appraisers to determine the Fair Market Value Rate within the time period set forth above, Lessee may no longer revoke the respective Renewal Option. Lessor and Lessee shall each appoint, by notice to the other within ten (10) business days after Lessee's election to use third-party appraisers, a qualified disinterested MAI appraiser doing business in the area. If the appraisers so appointed are unable to agree upon the Fair Market Value Rate within thirty (30) days after the appointment of the second appraiser, they shall, within ten (10) business days thereafter appoint a third disinterested MAI appraiser and the majority shall decide upon the Fair Market Value Rate for the Renewal Term, such decision to be rendered within forty-five (45) days after the appointment of the third appraiser. If a majority are unable to agree within the allotted time, the two determinations of Fair Market Value Rate nearest to one another in amount shall be added together, divided by two (2), and the resulting quotient shall be the Fair Market Value Rate. If either party fails to appoint its appraiser within the time period provided, the determination of the Fair Market Value Rate shall be made by the other appraiser alone and if the two appraisers are unable to agree upon a third appraiser within the time period and the parties are unable to mutually agree within ten (l0) business days thereafter upon a third appraiser, either party may request the President or equivalent officer of the Dallas Texas Chapter of the American Institute of Real Estate Appraisers or if none, an equivalent body, to appoint the same. Lessor and Lessee shall each pay the cost of the appraiser appointed by each such party, and Lessor and Lessee shall share equally the expense of the third appraiser, if any. The determination of the appraisers shall be final and binding and shall be enforceable by court order. Lessee shall take the Premises "as is" for the Renewal Term and Lessor shall have no obligation to make any improvements or alterations to the Premises. Except as set forth in this paragraph, the leasing of the Premises for the Renewal Term shall be upon the same terms and conditions as the leasing of the Premises for the Extended Term and shall be upon and subject to all of the provisions of this Lease. Any Renewal Option granted to Lessee under this paragraph shall be personal to Lessee and shall not be transferred, encumbered, or assigned by Lessee or in any manner transferred to, or exercised by, any subtenant of Lessee. 10. Brokerage Commissions. Each of the parties hereto represents and warrants to the other that it has not dealt with any broker or finder in connection with this Lease except Cushman & Wakefield of Texas, Inc. and RREEF Management Company. Lessor acknowledges that the commissions of Cushman & Wakefield of Texas, Inc. and RREEF Management Company payable in connection with this Amendment will be paid by Lessor, and Lessor agrees to indemnify and hold Lessee harmless from and against any claims by such brokers for such commissions. 11. Effectiveness. Except as modified herein, all other terms and conditions of the Lease shall remain unchanged and shall continue in full force and effect. 12. Governing Law. The laws of the State of Texas and of the United States of America shall govern the rights, remedies, and duties of the parties hereto and the validity, construction, enforcement, and interpretation hereof. 13. Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 14. Illegality. If any provision of this Amendment is held to be illegal, invalid, or unenforceable under present or future laws, such provision shall be fully severable; this Amendment shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. 15. Limited Liability. Redress for any claims against Lessor under this Amendment or the Lease shall only be made against Lessor to the extent of Lessor's interest in the Premises, including, to the extent received after a final judgment against Lessor has been obtained by Lessee, the proceeds of any sale or refinancing of Lessor's interest in the Premises (net of any actual costs incurred in connection therewith). The obligations of Lessor under this Amendment and the Lease shall not be personally binding on, nor shall any resort be had to the private properties of, any of its trustees or board of directors and officers, as the case may be, the general partners thereof, or any beneficiaries, stockholders, employees or agents of Lessor, or the investment manager. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. LESSOR: ACQUIPORT DFWIP, INC., a Delaware corporation By: /s/ Craig M. Gotthadt Name: Craig M. Gotthardt Title: Vice President LESSEE: SPORT SUPPLY GROUP, INC., a Delaware corporation By: /s/ Terrence M. Babilla Name: Terrence M. Babilla Title: Chief Operating Officer -----END PRIVACY-ENHANCED MESSAGE-----