LEASE AGREEMENT     THISLEASE AGREEMENT (hereinafter referred to as “Lease” or “Agreement),dated this 28th day of July, 1989, is made by and between MERIT INVESTMENT PARTNERS,L.P. , A Delaware limited partnership, hereinafter referred to as“Lessor,” and SPORT SUPPLY GROUP,INC., a Delaware corporation, hereinafter referred to as “Lessee.”     Lessor hereby leases to Lessee, and Lessee does hereby lease from Lessor, subject to the termsand conditions set forth herein, the real property described on Exhibit A attached hereto and madepart hereof, the land, the 137,670 square foot building and other improvements situated on saidproperty and the fixtures attached thereto and owned by Lessor (except those items listed onExhibit B which are owned by BSN Corp.), all of which is hereinafter collectively referred to asthe “Premises” together with all rights, easements,appurtenances belonging or in anyway pertaining to the foregoing. It is the intention of Lessor and Lessee that thisLease be a net Lease and that Lessee shall bear the cost of operating (including taxes, assessmentsand dues), maintaining, repairing and insuring the Premises except as otherwise provided herein.ARTICLE 1. TERM.     1.01 INITIAL TERM.     The term of this Lease shall commence on July 28, 1989, and end on July 31, 1999, unlesssooner terminated as herein provided.ARTICLE 2. FIXED RENT & SECURITY.     2.01MINIMUM FIXED RENT. a. Lessee shall pay to Lessor (at its offices at 14001 DallasParkway, Dallas,Texas 75240, or at such other place as Lessor may from time to time designate inwriting) as fixed rent for the Premises for the initial term of this lease, withoutright of offset or deduction except as herein provided , the sum of Five Million FourHundred Ninety-Three Thousand Thirty-Five and No/100 Dollars ($5,493,035.00), payableas follows:(1) $43,595.50 each month commencing on the date hereof andthereafter on the first day of August, 1989, through July 31, 1994.(2) The minimum fixed rent shall increase during years 6-10 of theterm of this Lease starting August 1, 1994. The increased rent during years 6-10shall be due and payable in the following amounts and for the following periods:August 1,1994, through July 31, 1999, $47,955.08, monthly.If the term hereof commences on a day other than the first day of a calendar month,or ends on a day other than the last day of a calendar month, rent for any suchpartial month following the commencement of preceding the end of the term shall beprorated by days.b.Rent paid after the day of the month on which such rent is due and payable shall bedeemed as late and delinquent. If fixed rent is not paidon or before the fifth(5th) dayafter date on which the same is due and payable (“Grace Period”). Lessee shall pay a latecharge of $1,000.00. Further, Lessee agrees to pay a $25.00 charge for each returned check.All such charges shall be secured as rent.c. All monies received by Lessor shall be applied first to non-fixed rent obligations,then to the fixed rent.d. At its option, Lessor may, at any time following an Event of Default as defined in Article 8,require all rent and other sums be paid by either cash, bank cashier’s check, or money order.Notwithstanding any term or provision hereof, Lessor and Lessee agree that if all Events ofDefault are subsequently cured, Lessee may continue the means of payment by corporate check.
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LESSEE’S RIGHT TO POSSESSION OF THE PREMISES AND ALL OF LESSOR’S OBLIGATIONS ARE EXPRESSLYCONDITIONED UPON THE NON-EXISTENCE OF AN UNCURED EVENT OF DEFAULT. PAYMENT OF RENT AND ALL SUMS SECURED AS RENT, IS ANINDEPENDENT COVENANT.     2.02 SECURITY DEPOSIT.     Lessee shall deposit with Lessor upon execution hereof $10.00 assecurity for Lessee’s faithful performance of Lessee’s obligations hereunder.If an Event of Default should occur, Lessor may use, apply or retain all orany part of the deposit for the payment of any other sum to which Lessor maybecome obligated by reason of such Event of Default, or to compensate Lessorfor any loss or damage which Lessor may suffer thereby. If Lessor souses or applies all or any portion of the deposit. Lessee shallwithin ten (10) daysafter written demand therefore deposit cash with Lessor in an amountsufficient to restore said deposit to the full amount hereinabove stated andLessee’s failure to do so shall be a material breach of this Lease Agreement.Lessor shall not be required to keep the deposit separate from its generalaccounts. If there is not an Event of Default in existence two(2) months prior to the expiration of theinitial term hereof, said deposit shall be credited against therental due hereunder for said last two (2) months of the initial term of the Lease. If Lessor shall file a voluntary petition inbankruptcy or have an involuntary petition in bankruptcy filed against itthen Lessee shall have the right to a credit against Lessee’s obligationshereunder. Any interest accruing on the security deposit shall belong toLessor.     2.03 LESSOR’S LIEN.     Lessor hereby agrees to subordinate its statutory landlord’s lien to thelien of any person or entity providing financing to Lessee from time to time.In furtherance thereof Lessor agrees to promptly execute such subordinationagreements as may be required by any such person or entity to furtherevidence such subordination.ARTICLE 3. USE OF PREMISES.     3.01 IN GENERAL.     Lessee is hereby permitted to use the leased Premises for any lawfulpurpose. In connection with the use of and activities in and about thePremises, Lessee, at its expense, will comply, and will cause its employees,agents, and invitees to comply in all material respects with all applicablelaws and regulations of governmental agencies. Provided no Event of Defaultis in existence, Lessee shall peaceable and quietly hold and enjoy thePremises for the term hereof, without hindrance from Lessor or partiesclaiming by, through or under Lessor.     3.02 NO USE THAT INCREASES INSURANCE RISK.     Lessee shall not use the Premises in any manner that will materiallyincrease risks covered by insurance on the building constituting a portion ofthe Premises beyond the risks existing at this time or to cause cancellationof any insurance policy covering the building. Lessee shall not keep, use,or sell from Premises anything prohibited by the policy of fire insurance.Lessee shall comply, at its own expenses, with all requirements of insurersnecessary to keep in force the fire and public liability insurance coveringthe Premises. Lessee shall provide Lessor with a certificate of Lessee’sliability insurance. Notwithstanding any provision herein, Lessee shallsecure and maintain all insurance coverage required by the terms hereof.     3.03 SIGNS AND AWNINGS.     Lessee agrees that he will not construct or place, or permit to beconstructed or placed, permanent signs, awnings, marquees, or otherstructures projecting from the exterior of the Premises without Lessor’swritten consent thereto (which consent shall not be unreasonably withheld ordelayed by Lessor), other than those signs, awnings, marquees andother structures in place as of the date hereof.
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ARTICLE 4. MAINTENANCE, REPAIR AND ALTERATIONS.     4.01 CONDITIONS OF PREMISES.     Lessee, having inspected the Premises, hereby accepts the Premises in their present condition, “ASIS ,” “WHERE IS,” AND “WITH ALL FAULTS” AND LESSOR DOES NOT WARRANT OR MAKE ANY REPRESENTATION,EXPRESSED OR IMPLIED, AS TO MERCHANTABILITY, QUALITY, CONDITION,SUITABILITY, OR FITNESS FOR ANY PURPOSE WHATSOEVER. Notwithstanding the foregoing, Lessee shall commenceto remedy the items set forth in the correspondence from John H. Haynes & Associates, Incorporatedin Mr. Jeff Howle, Merit Equity Partners, Inc., datedJuly 17, 1989, which items are indicated bythe initials of Lessee and Lessor thereon (collectively, the “Cure Items”), a copy of Suchcorrespondence being attached hereto as Exhibit “C”. Lessee shall commence the remedial action foreach Cure Item within a reasonable time (taking into consideration factors such as the urgency ofremedying the required Cure Item in question, the time period within which John H. Haynes &Associates, Incorporated has recommended such Cure Item be remedied, the creditworthiness of BSNCorp. and Lessee, and the unelapsed portion of the Lease term) after the execution of this Lease.Lessee shall complete the remedial action for each Cure Item, to thereasonable satisfaction of Lessor, within a reasonable period of timeafter the commencement of the remedial action in question.     4.02 LESSEE’S REPAIRS.     Except as provided in paragraph 4.03, Lessee, shall keep the Premises in good condition andrepair (reasonable wear and tear excepted) including without limitation, the maintenance, repairand replacement of such Portions of the Premises as may constitute doors, windows, locks, interiorpartitions, roof, interior and exterior walls, or other structural portions, floor covering,ceilings, light fixtures (including bulbs), glazing, heating and air-conditioning system, plumbing,fire and irrigation sprinklers, pipes, electrical wiring and conduits, parking lots, truck courts,loading areas and any and all other machinery and equipment now or hereafter constituting thePremises. At the expiration or earlier termination of this Lease, Lessee shall deliver thepremises in good order and condition (less normal wear and tear ), broom clean and free of materialcontamination caused by all toxic or hazardous substances from Lessee’s use or occupancy of thePremises. In the event Lessee should neglect to so maintain the Premises, Lessor shall have theright after ten (10) days written notice to Lessee (except in the case of emergency), but not theobligation, to cause such repairs to be made and any reasonable coststherefore shall be paid by the Lessee to Lessor, as additional rent, upon demand, on the nextrental installment date.     4.03LESSOR’S REPAIRS AND RENT ABATEMENT.     See2nd Amendment for changes to this paragraph 4.03     4.04ALTERATIONS, ADDITION AND IMPROVEMENTS.     Lessee shall not make any structural alterations, additions, or improvements to the Premiseswithout the prior written consent of Lessor, which consent shall not be unreasonably withheld ordelayed. Lessee shall have the right at all times to makenon-structural alterations, additions andimprovements without Lessor’s consent, including but notlimited to the right to erect or install furniture and trade fixtures and to remove at thetermination of this lease such items, provided there is no Event of Default in existence, butLessee shall repair any damage cause by such removal, prior to the termination of this lease orpromptly thereafter. Notwithstanding anything to the contrary contained herein, Lessee shall beentitled to remove
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at any time, or at the expiration or earlier termination of this Lease, all personal property,furniture and trade fixtures that can be removed without material damage to the Premises, saidremovable trade fixtures  to include, without limitation, the machinery and equipment utilized byLessee and BSN Corp. in their manufacturing and other operations at the Premises, display racksand similar items used in Lessee’s and BSN Corp.’s business to store, handle or display Lessee’sand BSN Corp.’s goods.     4.05 MECHANIC’S LIENS.     Lessee will not permit any mechanic’s lien to be placed upon the Premises, and in case of thefiling of any affidavit claiming a lien through work commissioned by Lessee, Lessee will cause itto be released or bonded within twenty (20) days after notice thereof from Lessor to Lessee. Ifsuch affidavit of lien remains of record or unbonded for twenty (20) days or more after noticethereof from Lessor, Lessor shall have the option of causing suchclaims to be released, and any amounts so paid shall be due fromLessee to Lessor and shall be repaid toLessor as additional rent, on the next rental installment date.     4.06 LESSOR’S ENTRY.     Lessor reserves the right to enter the Premises at reasonable times upon prior reasonable writtennotice to Lessee (or in case of an emergency, at nay time) to inspect, to perform requiredmaintenance and repair in accordance with the terms hereof, or to display the premises toprospective tenants, lenders, and investors, or to enforce any provision of this Agreement;provided that Lessor agrees to take all such actins withoutunreasonably interfering with Lessee’s and BSN’s (BSN Corp.is also known as “BSN”)business operations.     4.07 SURRENDER.     On the last day of term, or any option period, Lessee shall surrender the Premises to Lessorand those items listed on Exhibit B in the same condition aswhen received, broom clean, ordinarywear and tear and damage by fire or other casualty excepted, provided, however, that with respectto damage by fire or other casualty, if such damage exists as of the last day of term, hereof,Lessor shall receive proceeds from Lessee’s insurance carrier recoverable with respect to repair orrestoration of such restoration required pursuant to the terms hereof and Lessor will execute allinstruments necessary to recover these proceeds.ARTICLE 5. OBLIGATIONS OF LESSOR AND LESSEE.     5.01 TAXES.     Lessee shall be liable for all ad valorem taxes levied or assessed against the Premises andall personal property, furniture, or fixtures placed by Lessee in the Premises (including without limitation, advalorem taxes on the land, building improvements and other property described in Exhibit “B”attached hereto). Lessee shall pay all such taxes to the appropriate taxing authority before suchtaxes become delinquent unless Lesseee elects, at its sole expense, to contest any such taxes byappropriate proceedings diligently conducted on good faith. All suchtaxes shall be prorated by the Lessor and  Lessee with respect to the tax years in which this lease terminates . Lesseewill pay that part of the taxes as is attributable to the portion of the tax year covered by thislease.     5.02 UTILITIES.     Lessee shall pay for all utilities including electricity, gas, water, sanitary sewer, trashremoval and association dues.     5.03 DAMAGE OR DESTRUCTION.     If the premises and/or the property described on Exhibit “B” attached hereto should be totallydestroyed by fire, tornado, or other casualty, of if they should be so damaged that rebuilding orrepairs cannot reasonably be completed within 120 working days from the date of the occurrence ofthe damage, either Lessor or Lessee may terminate this Lease by written notice to the other partygiven within thirty (30) days after the occurrence of the casualtyin question, whereupon this Lease shall terminate and all building
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insurance proceeds payable as it relates to damage to the Premises shall be retained by Lessor andrent shall be abated for the unexpired portion of this Lease, effective as of the date of saidoccurrence. In the event Lessor or Lessee does not terminate, Lessee may retain all insuranceproceeds and shall repair all of the damaged or destroyed portion of the Premises at Lessee’s solecost and expense and the Lease shall continue for the remainder of the unexpired term withabatement of rent during the period the Premises are rendered untenantable.     Each party hereto waives any and every claim which arises or may arise in its favor againstthe other party hereto during the term of this Lease or any renewal or extension thereof for anyand all loss of, or damage to, any of its property located within or upon, or constituting a partof, the Premises, which loss or damage is covered by valid and collectible fire and extendedcoverage insurance policies. Such mutual waivers shall be in additionto, and not in limitation or derogation of, any other waiver orrelease contained in this Leasewith respect to any loss of, or damage to, property of the parties hereto.     Inas much as such mutual waivers will preclude the assignment of any aforesaid claim by way ofsubrogation or otherwise to an insurance company (or any otherperson), each party hereby agreesimmediately to give to each insurance company which has issued to itpolicies of fire and extendedcoverage insurance, written notice of the terms of such mutual waivers, and to cause such insurancepolicies to be property endorsed, if necessary, to prevent the invalidation of such insurancecoverages by reason of such waivers. If the Premises and/or the property described on Exhibit “B”attached hereto should be damaged by fire, tornado or other casualty but such that rebuilding orrepair can reasonably be completed within 120 working days from the date of the occurrence of thedamage, then:          (a) Lesseeshall give immediate notice thereof to Lessor;          (b) all building insurance payable with respect to such damage or casualty shall be madeavailable to Lessor for the purpose of repairing and restoring the portion of the Premises and theproperty described on Exhibit “B” attached hereto sodamaged;          (c) Lessor shall at its sole cost and expense proceed with reasonable diligence to rebuild andrepair such portion of the Premises and the property described on Exhibit “B” attached heretosubstantially the condition in which they existed prior to suchdamage or casualty, except that Lessor shall not be required torebuild, repair or replace any part of thepartitions, fixtures, additions and other improvements which may have been placed in, on or aboutthe Premises by Lessee subsequent to the execution of this Lease; and          (d) Lease shall be entitled to a reasonable abatement of rent during any period when thePremises are untenantable due to said fire, tornado or other casualty. Lessee understands thatLessor will carry no insurance on the Property that will cover the Property or Lessee’s property,and that Lessee shall carry all such insurance.     5.04 INSURANCE.     Notwithstanding the foregoing, througout the term of this Lease, Lessee shall maintaina policy or policies of building insurance naming Lessor as the loss payee with the premiumspaid in advance by Lessee issued byinsurance companies insuring the Premises against all risks of loss equal to the fullreplacement cost of the building as of the date of the loss with a deductible of not morethan $10,000.00.     Throughout the term of this Lease, Lessee shall maintain a policy or policies ofinsurance insuring both Lessee and Lessor for any and all liabilities for injury to or deathof any person or persons and for damage to or destruction of property occasioned by orarising out of or in connection with the use and occupancy of the Premises the limits ofsuch policy or policies to be in an amount of not less than $1,000,00per occurrence in respect of personal injury and in an amount notless than $1,000,000 in respect of propertydamaged or destroyed.     All insurance policies required hereunder shall be written by solvent insurancecompanies reasonably acceptable to Lessor duly licensed o transact business in the State ofTexas, and shall provide for at least ten (10) day’s
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written notice prior to cancellation thereof and Lessee shall provide certificates evidencing the renewalsof each policy at least thirty (30) days prior to the expiration of the respective policyterms.     5.05 CONDEMNATION.     If during the terms of the Lease or any extension or renewal thereof, any portion of thePremises is condemned or held under threat of condemnation, at the option of the Lessor or Lesseethis Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease,effective as of the taking of said taking of said Premises by the condemning authority. Lessorshall receive the entire award from any such taking, and Lessee shall have no claim thereto (exceptfor the value of any property owned by Lessee or BSN), or for the value of any unexpired term ofthis Lease.ARTICLE6. INDEMNITY.     6.01 HOLD HARMLESS.     Lessee agrees to indemnity and hold Lessor harmless against any and all claims, demands,damages, costs and expenses, including reasonable attorney’s fees, arising from the conduct ofLessee’s business or its use of the Premises or from any breach on the part of Lessee of anyconditions of this Lease, or from any act or negligence of Lessee, its agents, servants,contractors, employees, guests, licensees of invitees in or about the Premises, in the case of anyclaim, action or proceeding brought or asserted against Lessor by reason of any such claim. Lessee,upon notice from Lessor, covenants to defend such claim, action or proceeding by counsel acceptableto Lessor. Lessee, as a material part of the consideration to Lessor,hereby assumes all risks ofdamage to property or injury to persons in, upon or about thePremises, from any cause other thanLessor’s negligence or intentional misconduct, or the negligence or intentional misconduct ofLessor’s agents, contractors, licensees, invitees, guests, servants or employees. Lessee herbywaives all claims in respect thereof against Lessor other than claims for which Lessor is liableunder the preceding sentence. Lessee shall give prompt notice toLessor in case of casualty or accidents in the Premises. Lessor, or its agents servants oremployees, shall not be liable for any loss or damage to persons or property resulting from fire,explosion, break-ins, or burglaries, gas, electricity, water or rain which may leak from any partof the building or from the roof, street or subsurface or from any other place resulting fromdampness or any other cause whatsoever except for loss or damage attributable to the negligence orintentional misconduct of Lessor or its agents, servants, employees, contractors, invitees,licensees and /or guests. Lessor shall not be liable for interference with the light or air exceptfor loss or damage attributable to the negligence or intentional misconduct of Lessor or itsagents, servants, employees, contractors, invitees, licensees and/or guests or for any latent defectin the Premises whether known or unknown to Lessor. Lessor agrees to indemnify and hold Lesseeharmless against any and all claims, demands, damages, costs and expenses, including reasonableattorneys’ fees, arising from the activities of Lessor on or about the Premises, and for any breachon the part of Lessor of any conditions of this Lease, and from any act or negligence of Lessor,its agents, servants, contractors, employees, guest, licenses or invitees in or about the Premises,in the case of any claim, action or proceeding brought or asserted against Lessee by reason of anysuch claim. Lessor, upon notice from Lessee covenants to defend such claim, action or proceeding bycounsel acceptable to Lessee.ARTICLE7. ASSIGNMENT AND SUBLEASE.     7.01 LESSOR’S CONSENT REQUIRED:     Except as otherwise provided herein, Lessee shall not voluntarily or by operation of lawassign, transfer, sublet, or otherwise transfer or encumber any part of Lessee’s interest in thisLease or in the Premises, without Lessor’s prior written consent which consent shall not beunreasonably withheld or delayed. Any such attempted assignment, transfer, mortgage, encumbrance orsubletting without such consent shall be void. Notwithstanding anything to the contrary containedherein, Lessee shall have the right to assign this Lease or subject the Premises (or portionthereof), without Lessor’s consent, to any subsidiary or affiliate of Lessee. If there is anassignment or sublease and Lessor approves such assignment or sublease
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in writing in accordance with the terms herein, then the Lessee, in its capacity as Lessee shall be relieved of its obligations hereunder.     7.02 EXPENSE OF LESSOR.     In the event Lessee shall assign or sublet the Premises, other than to asubsidiary or an affiliate of Lessee, or request the consent of Lessor to anyassignment or subletting or if Lessee shall request the consent of Lessor forany act that Lessee proposes to do then Lessee shall pay Lessor’s reasonableout-of-pocket expenses, including Attorney’s fees, incurred in connectiontherewith in the event Lessor shall consent thereto.     7.03 ASSIGNMENT AND TRANSFER BY LESSOR.     Lessor expressly reserves the right to assign, transfer or convey any orall of its interest in this Agreement, the Guaranty and/or the Premises