<PAGE>
As filed with the Securities and Exchange Commission on July 17, 1997
Registration No. 333-
_____________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________
DYNACRAFT GOLF PRODUCTS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
OHIO 5961 31-1040532
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation Classification Code Number) Identification No.)
or organization)
DYNACRAFT GOLF PRODUCTS, INC.
98 JAMES STREET
NEWARK, OHIO 43055
(614) 344-6174
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICERS)
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PLACE OF BUSINESS)
JOSEPH A. ALTOMONTE, JR.
DYNACRAFT GOLF PRODUCTS, INC.
98 JAMES STREET
NEWARK, OHIO 43055
(614) 344-6174
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
_____________________
COPIES TO:
RONALD A. ROBINS, JR.
VORYS, SATER, SEYMOUR AND PEASE
52 EAST GAY STREET, P.O. BOX 1008
COLUMBUS, OHIO 43216-1008
_____________________
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<CAPTION>
_____________________
CALCULATION OF REGISTRATION FEE
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
COMMON SHARES, WITHOUT PAR VALUE 700,000 $5.00 $3,500,000 $700.00
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which specifically states that this registration statement shall
thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
</TABLE>
<PAGE>
Subject to Completion, dated July 17, 1997
700,000 SHARES
(DYNACRAFT LOGO)
DYNACRAFT GOLF PRODUCTS, INC.
COMMON SHARES
All of the 700,000 Common Shares, without par value (the "Common Shares"),
offered by this Prospectus are being sold directly by Dynacraft Golf Products,
Inc. (the "Company"). Before this offering, there has been no public market for
the Company's Common Shares, so the public offering price has been determined by
the Company. The Common Shares have been approved for listing on the Chicago
Stock Exchange under the trading symbol "DYN". See "Risk Factors - Trading
Market for the Shares" and "Shares Eligible for Future Resale."
This offering is being made directly by the Company for at least 300,000
Common Shares (the "Minimum") and not more than 700,000 Common Shares (the
"Maximum"). See "Use of Proceeds." Only until the Minimum is fully subscribed,
all subscription payments will be deposited into an escrow account at Huntington
National Bank. If the Minimum is not subscribed by February 28, 1998, all
proceeds deposited in the escrow account will be promptly refunded in full, with
interest, and without any deduction for expenses. Upon raising the Minimum
amount, the escrow will be terminated, subscribers will become shareowners and
any proceeds from more sales will go directly to the Company. This offering
will end on the earlier of the following: the sale of the Maximum amount,
twelve months after the date of this Prospectus or the date on which the Company
decides to close the offering. A minimum purchase of 100 Common Shares is
required. The Company reserves the right to reject any subscription or share
purchase agreement in full or in part. See "Plan of Distribution."
ANY INVESTMENT IN THE COMMON SHARES OFFERED BY THE PROSPECTUS INVOLVES A HIGH
DEGREE OF RISK. FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE
COMMON SHARES OFFERED HEREBY SEE "RISK FACTORS" ON PAGES 6 AND 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION OT THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share $5.00 None $5.00
- --------------------------------------------------------------------------------------------
Total Minimum (300,000 shares) $ 1,500,000 None $1,500,000
- ---------------------------------------------------------------------------------------------
Total Maximum (700,000 shares) $ 3,500,000 None $3,500,000
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) The shares are being sold directly by the Company through a designated
employee, Howard Van Huffel, who is registered as sales representative,
where required, and will not receive any commission. See "Plan of
Distribution."
(2) Before deducting estimated expenses of $262,500 payable by the Company,
including registration fees, escrow agent fees, legal and accounting fees,
costs of printing, copying and postage and other offering costs.
THE DATE OF THIS PROSPECTUS IS _______, 1997
<PAGE>
The following legend shall run sideways down the front cover of the Prospectus:
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of any offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, THAT INFORMATION AND REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED TO ANY PERSON IN ANY JURISDICTION IN WHICH THAT OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION IN THIS
PROSPECTUS IS CORRECT AS OF ANY DATE LATER THAN THE DATE OF THIS PROSPECTUS.
______________
[DYNACRAFT LOGO]
TABLE OF CONTENTS
PAGE PAGE
Reference Data...............2 Certain Relationships and related
Prospectus Summary...........3 Party Transactions................26
Risk Factors.................6 Description of Common Stock.........27
How We Intend To Use The Shares Eligible for Future Resale...29
Funds From This Offering....9 Plan of Distribution................30
Dilution....................11 Experts.............................31
Management's Discussion and Additional Information..............31
Analysis of Financial Index to Financial Statements.......32
Condition and Results
of Operations..............12
Business....................16
Management..................22
Principal Shareowners.......25
UNTIL _____________ 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
_________________
REFERENCE DATA
Upon the date of this Prospectus, the Company became subject to the
informational filing requirements of the Securities Exchange Act of 1934, as
amended ("Exchange Act") for its current fiscal year. Upon completion of this
offering, the company may be required to register under the Exchange Act and
continue to file required annual and quarterly reports.
The Company intends to furnish its shareowners with annual reports
containing financial statements audited by an independent public accounting firm
after the end of its fiscal year on December 31. In addition, the Company will
send shareowners quarterly reports with unaudited financial information for the
first three quarters of each fiscal year.
The Company was incorporated under the laws of the State of Ohio on July 1,
1982. The Company's corporate offices are located at 98 James Street, Newark,
Ohio 43055. The Company's other addresses are, Voice: (614) 344-1191;
Facsimile: (614) 344-6174; e-mail; [email protected], website:
http://www.dynacraftgolf.com.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL
STATEMENTS OF THE COMPANY, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION PRESENTED IN THIS
PROSPECTUS HAS BEEN ADJUSTED TO REFLECT THE 13:1 SPLIT OF THE COMMON SHARES
PRIOR TO THE OFFERING HEREBY. REFERENCES IN THIS PROSPECTUS TO THE "DYNACRAFT
COMPANIES" OR THE "COMPANY" REFERS COLLECTIVELY TO DYNACRAFT GOLF PRODUCTS, INC.
AND ITS SUBSIDIARIES.
DYNACRAFT GOLF PRODUCTS, INC. AND ITS SUBSIDIARIES
The Dynacraft Companies include Dynacraft Golf Products, Inc., Pal Joey
Custom Golf Inc. (which includes Pal Joey Pro Shop as a division), Dynacraft
Real Estate Holding Inc. and Diamond Golf International Limited. Dynacraft Golf
Products, Inc. owns 100% of all the companies, except Diamond Golf, in which it
is a 51% owner.
The Dynacraft Companies help golfers customize their clubs and equipment to
their own personal specifications. Our customers can design clubs with unique
combinations of loft, lie, weight, face angle, grip type and size, shaft length
and flex and cosmetics. We contract production of our own clubheads and work
with major shaft and grip companies to be within the golf industry's standards
of tolerances. Customer service includes a lifetime warranty on clubheads and a
return/replacement policy on any product.
Dynacraft is owned by its founding family and certain employees through the
Company's Employee Stock Ownership Program (the "ESOP"). We are inviting our
customers and others to join us as shareowners. The investments will be used to
pay for marketing, expanded capacity and working capital. See "How We Intend to
Use the Funds from the Offering."
DYNACRAFT GOLF PRODUCTS, INC. ("Dynacraft") is the parent company and
successor to a business founded in 1980. It is one of the large U.S. supplier
of components for individuals who make clubs for themselves and other golfers.
Dynacraft does not sell finished clubs. We also educate our customers through
the Dynacraft Clubmaking Institute, the golf industry's premier clubmaking and
fitting class facility, and maintains a full-time technical staff. We believe
that our Internet site is the largest of any golf component company and includes
a technical chat room and tutorial for online questions and answers. We publish
an annual catalog of over 150 pages and a quarterly customer magazine,
CLUBMAKERS' DIGEST.
PAL JOEY CUSTOM GOLF INC. ("Pal Joey") was created in 1981 to build clubs
to specific customer requirements for resale. Our market includes golf
professionals, green grass golf shops and specialty off-course golf stores. We
believe that quality, fast turnaround time and the Company's lifetime warranty
provide Pal Joey with a competitive advantage. We have also contracted sourcing
and assembly functions for golf stores.
PAL JOEY PRO SHOP, a division of Pal Joey, opened in 1982 as a store for
golfers to visit for custom clubs and other equipment and golf accessories. It
provides the Company with a model for possible expansion into additional retail
store operations.
DIAMOND GOLF INTERNATIONAL LIMITED ("Diamond Golf") serves Europe with both
component Dynacraft clubs and finished Pal Joey Customer Clubs. Begun as an
acquisition in 1991, it is one of the component suppliers in Europe and will be
renamed "Dynacraft Europe" in 1998. Diamond Golf operates on the same Dynacraft
principles of customer education and technical service, provided by mail order
and on-site custom fitting.
3
<PAGE>
PLANS FOR THE FUTURE
The Company intends to apply approximately $300,000 of the net proceeds of
this offering to improve and expand its assembly facilities, approximately
$120,000 for research and development ($30,000 if only the minimum is reached),
approximately $620,000 for market research and advertising activities ($180,000
if only the minimum is reached), approximately $150,000 for upgrading the
inventory system ($75,000 if only the minimum is reached), approximately
$425,000 to be set aside to fund the repurchase of ESOP shares ($225,000 if only
the minimum is reached) and approximately $430,000 to repay shareholder bank
loans (none if only the minimum is reached). The remaining $1,192,500 ($427,500
if only the minimum is reached) will be used for working capital and general
corporate purposes. See "How We Intend to Use the Funds from the Offering" and
"Certain Relationships and Related Party Tranactions."
BECOMING A SHAREHOLDER
You may become a Dynacraft shareholder by filling out the Share Purchase
Agreement and returning it with your check for the amount of your investment (or
credit card number and signature). When your order has been accepted, you will
receive a signed copy and an acknowledgement letter. After the minimum 300,000
Common Shares have been ordered, you will receive a certificate for your shares.
The Company reserves the right to reject any order.
As a Dynacraft shareholder, you will be entitled to certain shareholder
consideration. You will have priority, for 30 days, to purchase new products
before they are offered to the general public. An Internet site will be
dedicated specifically to shareholder information such as share prices and
volume, new products and other related material. The site will be password
protected so that only shareholders may access this information. Shareholders
will receive priority purchase plans for closeouts and excess inventory in an
effort to increase potential profits for clubmakers who are shareholders. A
special email listing will provide this information to shareholders. In
addition, shareholders will be given priority packing and shipping on any
in-stock Dynacraft product ordered. Further, Dynacraft shareholders will be
eligible for priority registration for all classes at the Dynacraft Clubmaking
Institute
4
<PAGE>
SUMMARY FINANCIAL DATA AND CURRENT POSITION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31 YEARS ENDED DECEMBER 31
-------------- --------------------------------
1996 1997 1995 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales $4,251,706 $4,934,770 $18,963,572 $18,898,498
Gross Profit 1,080,318 1,354,386 5,511,028 5,248,931
Selling and administrative
expense 1,306,487 1,344,962 5,757,157 6,059,312
Operating (loss) profit (226,169) 9,424 (236,129) (810,381)
Other Income or (deductions) 41,713 26,709 222,007 (226,169)
Net (loss) Earnings (184,456) 36,133 271,476 (498,545)
( loss)/Earnings Per Share (.09) .02 .13 (.25)
Common Shares Outstanding 2,033,746 2,033,746 2,033,746 2,033,746
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------------
ACTUAL AS ADJUSTED (1)
------ ---------------
(UNAUDITED)
MINIMUM MAXIMUM
------- -------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital $2,308,108 $2,867,608 $3,931,056
Total current assets 7,520,937 8,080,437 9,045,437
Total assets 9,255,499 10,189,999 11,229,999
Total current liabilities 5,212,829 5,212,829 5,114,381
Long-term debt, less current portion 2,803,046 2,710,046 2,378,494
Shareholder's Equity 1,239,624 2,267,124 3,737,124
</TABLE>
(1) As adjusted to reflect the sale by the Company of the 300,000 Common Shares
(minimum) and 700,000 Common Shares (maximum) of Common Shares offered at an
Offering price of $5.00 and the application of the net proceeds as set forth in
the "How We Intend to Use the Funds from the Offering" and the effect of the
proceeds from Diamond's repayment and reduction of debt as discussed in "Certain
Relationships and Related Party Transactions."
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN DYNACRAFT SHARES INVOLVES A HIGH DEGREE OF RISK AND SHOULD
ONLY BE MADE BY PERSONS WHO CAN AFFORD TO LOSE UP TO THEIR ENTIRE INVESTMENT.
BEFORE PURCHASING SHARES, YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK
FACTORS, IN ADDITION TO OTHER INFORMATION IN THIS PROSPECTUS.
THE COMPANY WAS NOT PROFITABLE LAST YEAR AND HAS HAD DECLINING NET SALES IN EACH
OF THE PAST FIVE YEARS. Dynacraft had a $498,545 loss from its operations in
1996. In addition, the Company's net sales have decreased each year since 1992
in which net sales were $22.6 million. The factors causing the loss and the
decrease in net sales are explained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations: Year Ended December 31, 1996
Compared to year Ended December 31, 1995." While the retained earnings from the
Company's founding through 1996 were $1,472,921, there have been other
unprofitable years. Unaudited results for the first three months of 1997 show a
$36,133 profit, but the results for the full year are unknown, and results for
the first three months should not be considered an indicator of full-year
results.
THE MARKET FOR GOLF CLUB COMPONENTS, WHICH HAS BEEN DYNACRAFT'S PRIMARY
BUSINESS, WAS IN DECLINE FROM 1993 THROUGH 1996. Dynacraft's component sales
grew to $18.3 million by 1993 and then declined to $13.3 million by 1996. This
has been partially offset by Pal Joey's increase in sales of assembled clubs,
from $4.3 million to $6.1 million in the same period. The decline could have
been part of a cycle, in which case component sales could recover, or it could
be a long-term trend in which case such sales could continue to decline. Our
strategy, designed for either case, is described in "Business Marketing and
Strategic Direction."
ONE CUSTOMER GROUP REPRESENTED 16.4% OF LAST YEAR'S SALES. Pal Joey provides
sourcing and assembly work for a brand of golf clubs sold exclusively by a group
of franchised golf stores. This business began in the fall of 1995 and
represented 16.4% of the Company's consolidated 1996 sales. One other customer
accounted for 4.1% of 1996 sales, while the next largest represented less than
1%. All customers are free to discontinue doing business with the Company at
any time. See "Business: The Customer."
MANAGERS PURCHASE LARGE AMOUNTS OF PRODUCT, BASED UPON THEIR ESTIMATE OF WHAT
WILL SELL. Over or under buying of individual components is one of the primary
risks to profitability. We must buy in large quantities, since most components
are manufactured to our own specifications. This means predicting customer
preferences, weather and other factors affecting sales volume. If we under buy,
back orders are created causing nonreimbursed shipping charges and dissatisfied
customers. If we over buy, we sell at discounted prices to move the inventory,
which results in lower profit margins. In both cases, this causes lower
earnings or higher losses.
OUR BUSINESS COULD BE HURT BY THE LOSS OF KEY PEOPLE. Dynacraft relies heavily
on the contributions of our management team, described in the "Management"
section. Loss of any of them could have an adverse effect upon the Company,
until, and unless, a replacement could be found. There is no "key person" life
insurance on any of them.
THE GOLF INDUSTRY IS HIGHLY COMPETITIVE. The Company believes the golf
component, club and equipment sector of the golf industry, in which it operates,
will become even more competitive in the future. The Company competes with
numerous other companies providing similar products. Some of the Company's
present and potential competitors are significantly larger and have or may
obtain, greater financial resources than those of the Company. Consequently,
there can be no assurance the Company will not encounter increased competition
in the future. Such competition could limit the Company's ability to expand its
business and therefore have a material adverse effect on the Company.
WE ARE SUBJECT TO UNAUTHORIZED COPYING OF OUR PRODUCTS, OR TO CLAIMS WE COPIED
OTHERS. We rely primarily on trademark and patent laws to protect the
intellectual property used in our products and services. We could be damaged by
a significant amount of unauthorized copying. We also license third party
intellectual property. Although the Company is not aware that any of its
products and services are
6
<PAGE>
materially infringing the rights of others, it is possible we are. If so, we
could have to modify our products and services, at substantial possible cost,
and we could be subject to claims for substantial damages.
ENVIRONMENTAL RISKS. Federal, state and local environmental laws, ordinances
and regulations potentially require that a current or previous owner or operator
of real property may be held liable for the cost of removal or remediation of
certain hazardous or toxic substances, including asbestos-containing materials,
that could be located on, in or under such property. Such laws and regulations
often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of hazardous or toxic substances. The cost of any
required remediation or removal of these substances could be substantial and the
liability of an owner or operator as to any property is generally not limited
under such laws and regulations and could exceed the property's value and the
aggregate assets of the owner or operator. The presence of these substances or
failure to remediate such substances properly may also adversely affect the
owner's ability to sell or rent the property or to borrow using the property as
collateral. See "Business-Environmental".
THE AMOUNTS PAID FOR SHARES WILL BE KEPT IN A BANK ESCROW UNTIL THE MINIMUM
AMOUNT HAS BEEN SOLD. If the Minimum 300,000 Common Shares have not been
fully subscribed by February 28, 1998, all monies deposited in the escrow
account will be refunded to the subscribers, with interest and without any
deduction for expenses. Until then, purchasers will be subscribers and not
shareowners of the Company, although they will be entitled to certain rights
of shareholders under Ohio law. During the Escrow Period, subscribers will
have no right to a return of their payments. See "Plan of Distribution --
Escrow of Minimum Proceeds."
THE TRADING MARKET FOR THE SHARES MAY BE LIMITED AND THE PRICE COULD GO DOWN.
Dynacraft's shares have been approved for trading on the Chicago Stock
Exchange after the offering is over, but there may not be the active trading
that would allow immediate sale of Common Shares at a quoted market price.
If there are more shares offered for sale than to buy, as a result of
negative events for the Company or any other reason, the price is likely to
go down. The major shareowners have stated that they have no current
intention of selling any of their Shares in the public market for two years
after the date of this prospectus. See "Shares Eligible for Future Resale."
The price of the Common Shares in the future may be volatile. A variety of
events, including quarter-to-quarter variations in operating results, news
announcements, trading volume, general market trends and other factors could
result in wide fluctuations in the price of the Common Shares.
THE "BOOK VALUE" OF COMMON SHARES PURCHASED IN THIS OFFERING WILL BE
SUBSTANTIALLY LESS THAN THE PURCHASE PRICE AND THE PRICE PAID BY EXISTING
SHAREHOLDERS. Purchasers of Common Shares in this offering will realize
immediate substantial "dilution" in the "book value" of their shares equal to
approximately $4.03 per share if the Minimum 300,000 Common Shares are sold and
$3.63 if the Maximum 700,000 Common Shares are sold. This is the difference,
per share, between (a) the amount that would show as "Shareholders' equity" on
the Company's Balance Sheet after the offering and (b) the price paid in this
offering. This dilution results principally from the substantially lower
amounts paid by the present shareowners. See "Dilution" and "Plan of
Distribution -- Determination of Offering Price."
THE COMPANY PRESENTLY INTENDS TO RETAIN ANY EARNINGS AND PAY NO DIVIDENDS. The
Company's loan agreement with its bank restricts the Company's ability to pay
dividends. Therefore, future dividends, if any, will depend on the bank lifting
that restriction, the Company's profitability, financial condition, capital
requirements and other considerations determined by the Board of Directors.
THE BUSINESS MAY NEED MORE CAPITAL, WHICH COULD AFFECT SHAREOWNERS. Money from
this offering, together with any cash generated by operations, may not be enough
to pay for the Company's continued growth and debt retirement. If more Common
Shares are sold to raise cash, the percentage ownership of existing shareholders
would be reduced. If money is borrowed, interest expenses and required cash for
repayment will increase. It is possible that Dynacraft may not be able to raise
additional money, with the result that it would have to limit growth. See
"Business Marketing and Strategic Direction" and "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources."
7
<PAGE>
DYNACRAFT'S FOUNDING FAMILY WILL CONTINUE TO CONTROL THE BUSINESS. After
completion of this offering, Joseph A. Altomonte, Sr. and Joseph A. Altomonte,
Jr. will together control 71% of the Company's Common Shares if the Minimum is
sold and 60% if the Maximum is sold. They will be able to elect a majority of
the Board of Directors and control most corporate decisions, including action
upon any offer to acquire the Company. See "Principal Shareholders."
POTENTIAL ANTI-TAKEOVER EFFECT AND POTENTIAL ADVERSE IMPACT ON MARKET PRICE OF
CERTAIN CHARTER AND CODE OF REGULATIONS PROVISIONS AND THE OHIO GENERAL
CORPORATION LAW. Certain provisions of the Company's Articles of Incorporation
and Code of Regulations and of the Ohio Revised Code (the "Ohio GCL"), together
or separately, could discourage potential acquisition proposals, delay or
prevent a change in control of the Company and limit the price that certain
investors might be willing to pay in the future for the Common Shares. Among
other things, these provisions (i) establish a staggered board; (ii) require
certain supermajority votes; and (iii) establish certain advance notice
procedures for nomination of candidates for election as directors and for
shareholder proposals to be considered at shareholders' meetings.
8
<PAGE>
HOW WE INTEND TO USE THE FUNDS FROM THE OFFERING
The net proceeds available to the Company from the sale of the shares in this
offering are estimated to be approximately $1,237,500 if the minimum is sold and
$3,237,500 if the maximum is sold, after deducting both selling and other
offering expenses, estimated to be $262,500.
The Company expects to use the net proceeds, over the next twelve month
period from the date of this prospectus for the purposes outlined in the table
below. If more than the minimum, but less than the maximum amount is raised,
the Company will adjust its plans accordingly, making the most effective use of
the net proceeds to grow the business.
MINIMUM MAXIMUM
(300,000 SHARES) (700,000 SHARES)
---------------- ----------------
Expansion of Pal Joey assembly, shipping $300,000 $300,000
and warehouse facilities
Research and development 30,000 120,000
Market research and advertising 180,000 620,000
Upgrade Inventory Control Data Processing 75,000 150,000
System
Set aside for repurchase of ESOP shares 225,000 425,000
Repayment of shareholder subordinated - 430,000
Bank loans
Working Capital 427,500 1,192,500
------- ---------
Total use of Net Proceeds $1,237,500 $3,237,500
---------- ----------
---------- ----------
Approximately $300,000 of the net proceeds of this offering is allocated for
improving Pal Joey assembly, shipping and warehouse space to meet anticipated
growth.
The Company is continually seeking to improve the design of its club heads
and is seeking to develop additional golf heads, irons and wedges. Accordingly,
approximately $120,000 of the new proceeds ($30,000 if only the minimum is
achieved) of this offering is allocated for the research and development of new
technologies for golf club design.
Approximately $620,000 of the net proceeds ($180,000 if only the minimum is
achieved) of this offering is allocated to market research and advertising for
purposes of expanding the Company's market nationally and worldwide, including
but not limited to, expansion of the catalog lists of prospective customers,
improvement and expansion of the Company's web site, opening a warehouse
training center/showroom facility in the Western United States, creating Mobile
Training Centers and expanding the number of qualified commissioned
representatives worldwide.
Approximately $150,000 of the net proceeds ($75,000 if only the minimum is
achieved) of this offering is allocated to upgrading the Company's Inventory
Control System. This upgrade will provide management with more specific costing
information that will enable the Company to reduce its inbound freight and
inventory costs in order to improve its cash flow position.
Approximately $425,000 of the net proceeds ($225,000 if only the minimum is
achieved) is to be set aside for the repurchase obligation contained in the
ESOP. The source of funds for the dollar amount, as determined by the Plan
Custodian, not funded by the net proceeds from this offering will be from
internally generated cash flow, or if the allocation from net proceeds is over
the funds needed, the excess funds will be used for working capital. If the
Company's Common Shares becomes readily tradeable after the offering, the
Company's future repurchase obligations could be eliminated or lessened. That
being the case, the allocation from net proceeds would be used for working
capital.
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Approximately $430,000 of the net proceeds (none if only the minimum is
achieved) of this offering is to be used to retire two subordinated shareholder
notes payable. The two shareholders, Joseph A. Altomonte, Sr. and Joseph A.
Altomonte, Jr., borrowed $250,000 each from Huntington Bank as part of the
Company's overall refinancing in June 1996. The borrowed funds were in turn
loaned to the company, to help pay off the existing line of credit, at the same
terms as those of the banks, namely, monthly installments of $4,102 each which
includes interest at an interest rate of 9.625% and a final payment due June 1,
2001. See "Certain Relationships and Related Party Transactions."
The balance of the net proceeds of this offering is allocated for working
capital and general company purposes including, among other things, increase in
inventory.
The Company does not contemplate changes in the proposed allocation of net
proceeds of this offering. However, events may require changes, and the Company
reserves the right to make those changes, if management believes those changes
are in the best interest of the Company.
Proceeds not immediately required for the purposes described above will be
invested in United States Government Securities, short-term Certificates of
Deposit, Money Market funds or other investment grade short-term interest
bearing investment.
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DILUTION
On March 31, 1997, the Company had a net tangible book value of $1,239,624,
or $.61 per share. The net tangible book value per share is equal to the
Company's total tangible assets, less its total liabilities and divided by its
total number of Common Shares outstanding. After giving effect to the sale of
the Minimum and Maximum number of Common Shares offered, at the public offering
price of $5.00 per share, the application of the estimated net offering proceeds
and the recent transaction with Diamond Golf International Limited, the pro
forma net tangible book value of the Company as of March 31, 1997 would have
been $2,267,124 and $3,737,124, respectively, or $.97 per share and $1.37 per
share, respectively. This represents an immediate increase in net tangible book
value of $.36 per share and $.76 per share, respectively, to existing
shareholders and an immediate dilution of $4.03 per share and $3.63 per share,
respectively, to new investors purchasing shares in this offering. The
following table illustrates the per share dilution in net tangible book value
per share to new investors:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
(300,000 SHARES) (700,000 SHARES)
----------------- ----------------
<S> <C> <C> <C> <C>
Public offering price per share $5.00 $5.00
Net Tangible book value per share as of March 31, 1997 $0.61 $0.61
Increase in net tangible book value per share attributed 0.36 0.76
to new investors -------- -----
Pro forma net tangible book value per share as of 0.97 1.37
March 31, 1997 after the offering ---- ----
Net tangible book value dilution per share to new investors $4.03 $3.63
----- -----
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 1997,
the difference between existing shareholders and new investors purchasing shares
in this offering with respect to the number of shares purchased, the total
consideration paid and the average price paid per share, at the Minimum and
Maximum:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
---------------- ------------------- -------------
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Minimum Sold:
Existing Shareholders 2,033,746 87.15% $229,795 13.28% $0.11
New Investors 300,000 12.85% $1,500,000 86.72% $5.00
------- ------ ---------- ------ -----
TOTAL 2,333,746 100.00% $1,729,795 100.00%
--------- ------- ---------- -------
--------- ------- ---------- -------
Maximum Sold:
Existing Shareholders 2,033,746 74.39% $229,795 6.16% $0.11
New Investors 700,000 25.61% $3,500.000 93.84% $5.00
------- ------ ---------- ------ -----
TOTAL 2,733,746 100.00% $3,729,795 100.00%
--------- ------- ---------- -------
--------- ------- ---------- -------
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF RESULTS OF OPERATION AND FINANCIAL CONDITION IS
BASED UPON AND TO BE READ TOGETHER WITH THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO AND OTHER FINANCIAL INFORMATION APPEARING ELSEWHERE
IN THIS PROSPECTUS. OPERATING DATA PRESENTED IN THIS DISCUSSION IS UNAUDITED.
GENERAL BACKGROUND
The business (which later became known as Dynacraft Golf Products, Inc.) was
started in 1980 by Joseph A. Altomonte, Sr. He began the business after a long
career in the golf industry with Faultless Golf Ball Company and its successive
owners, including Rawlings Sporting Goods Division, ATO. The business began in
Mr. Altomonte's garage with the purchase of component golf parts and assembly of
finished clubs.
The component parts distribution and sales to custom golf clubmakers became a
corporation named Dynacraft Golf Products, Inc. The assembly of finished clubs
eventually evolved into a separate company, Pal Joey Custom Golf, Inc. The
corporate separation of Dynacraft and Pal Joey was a function of serving
separate markets. Dynacraft sells to custom clubmakers who sell a finished club
to the golfer. Pal Joey is a clubmaker selling finished clubs to pro shops and
distributors for resale. The same products are not sold by both companies.
Later, Pal Joey Pro Shop, a division of Pal Joey, was formed to serve as a
retail store for finished clubs and other golf accessories. In October 1990,
Pal Joey, became a wholly-owned subsidiary of Dynacraft.
Dynacraft received a 50% equity investment from its principal Taiwanese clubhead
component supplier, Dynamic Precision Casting Mfg. Co, LTD.
In mid 1990, Mr. Altomonte sought greater employee ownership of Dynacraft.
To achieve this he personally made an offer to buy out the four Taiwanese
investors for $1 million dollars. Except for the owner of Dynamic, Chinneng
Lin, who kept an interest which was converted to 100 shares of $1,000 par value,
noncumulative preferred stock, the investors accepted the cash offer. In
January 1991 the Dynacraft ESOP came into existence.
In 1992, Dynacraft completed the purchase of a 51% interest in Diamond Golf for
$221,209. Diamond Golf is an England based component parts distributor serving
Europe.
During 1994, in a series of transactions, Dynacraft issued 51,462 new Common
Shares to the partners of J & J Enterprises, and acquired all the real estate
previously leased to the Company by J & J Enterprises at a value, less
outstanding debt, of $214,269 or $4.16 per share. J & J Enterprises was owned
equally by Joseph Altomonte, Sr. and Jr..
OVERVIEW
Throughout most of Dynacraft's history the market for component parts has
grown at double digit rates. This changed in 1993 and the market has declined
since. Dynacraft's component sales have fallen from a high of $18.3 million
and a net income of $550,000 to $13.3 million and net loss of $337,000 between
1993 and 1996. Management projects 1997 sales will remain at the 1996 level or
slightly less. However, Dynacraft's market share remains as one of the largest
in the industry.
During that same period of time Pal Joey's sales have increased from $4.3
million to $6.1 million and its projected 1997 sales of assembled clubs is $6.8
million. These increases have offset some of the drop in component sales.
The primary investment risk for the Dynacraft Companies is inventory
management and cost controls. The Company's major investment is in inventories.
Over or under buying certain items is one of the
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<PAGE>
primary risks to profitability. Also, both the economy and weather can affect
retail and component sales of golf equipment. In 1995, Dynacraft staffed for a
down sales year and further staff and expense cuts were made in the fall of 1996
as sales remained flat. Management believes that these staffing and expense
cuts have helped the future outlook as have the sales gains recorded by Pal
Joey. Control of expenses in line with sales performance has become a
management priority during this current period and is expected to continue to be
in the future.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
NET SALES
Consolidated net sales increased by $683,064 or 16.1% from $4,251,706 for
the three months ending March 31, 1996 to $4,934,770 for the three months ending
March 31, 1997. Net sales of component golf club equipment and supplies
accounted for $138,209 of the increase, primarily because the 1997 catalog was
sent out two months earlier than last year and because of better weather this
spring. Net sales of assembled custom clubs accounted for the balance of the
increase, primarily because of servicing new accounts that started in mid 1996.
Net Pal Joey Pro Shop sales were down slightly from the prior three month
period.
GROSS PROFIT
Consolidated gross profit increased by $274,068, or 25.4%, from $1,080,318
for the three months ending March 31, 1996 to $1,354,386 for the three months
ending March 31, 1997. This improvement was the result of minor price increases
and better control of the inventory and associated costs.
SELLING AND ADMINISTRATIVE EXPENSES
Consolidated selling and administrative expenses increased by $38,475, or
3%, from $1,306,487 for the three months ending March 31, 1996 to $1,344,962 for
the three months ended March 31, 1997. The staff and expense cuts initiated in
the fall of 1996 were felt in the first quarter of 1997 as over all
administrative expenses were down by approximately $137,000. This decrease was
offset by an increase in commission and royalty expense of approximately
$175,000 because of increased Pal Joey sales over the prior period.
OTHER INCOME, NET OF INTEREST EXPENSE
Consolidated other income net of interest expense decreased $15,004 or 36%
from $41,713 for the three months ending March 31, 1996 to $26,709 for the three
months ended March 31, 1997. Consolidated interest expense was lower during
this first quarter as compared to the first quarter of last year by some $20,000
because a new business loan agreement entered into (see - "Liquidity and Capital
Resources"). However, advertising and golf school revenue were also lower by
some $46,000. The primary reasons for this was that the Digest that the
Company's suppliers advertise in was reduced from a monthly publication to a
quarterly publication and the 1997 school tuition was lowered in an effort to
attract more students who hopefully later on would become customers.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES
Consolidated net sales were $18,898,498 for 1996, a decrease of .3%
compared to consolidated net sales of $18,963,572 in 1995. Management's focus
in 1996 was not necessarily to increase overall sales, but rather was to explore
ways to start to reposition the Company for growth and profitability in 1997 and
future years. The component sales decrease of approximately $1,890,000 in 1996
as compared to 1995 was almost offset by the increase in sales of assembled
clubs by Pal Joey.
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<PAGE>
GROSS PROFIT
Consolidated gross profit was $5,248,931 for 1996, a decrease of 4.8%
compared to consolidated gross profit of $5,511,028 in 1995. This decrease was
attributable to a decrease in component sales gross profit of $977,433 which is
the result of the increasing Taiwan dollar exchange rate, price competition and
shorter product life cycles resulting in more out-of-date inventory which had to
be sold at smaller margins. That decrease was partially offset by increased
gross profit of Pal Joey because of increased sales volume.
SELLING AND ADMINISTRATIVE EXPENSES
Consolidated selling and administrative expenses for 1996 increased 5.5% to
$6,059,312 compared to $5,747,157 in 1995. This increase resulted from an
increase in the commission and royalty expense due to increased Pal Joey sales;
bad debt write offs; professional fees; and utilities and telephone increases
due to more volume and rate hikes. Those increases were partially offset by
significant decreases in salaries and wages and advertising and marketing
expenses.
OTHER INCOME, NET OF INTEREST EXPENSE
Consolidated other income, net of interest expense, decreased to $182,878
for 1996 compared to $222,007 in 1995. Lower interest expense because of a new
business loan agreement was offset by less advertising income due to a reduction
in the numbers of publications produced.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997 the Company had working capital of $2,308,108 as compared
to working capital of $2,236,526 at December 31, 1996. This increase is
primarily due to an increase in accounts receivable and inventory offset by an
increase in accounts payable.
For the year ended December 31, 1996, the Company had net cash provided by
operations, despite a net loss of $498,545. This was the result of an increase
in trade accounts payable which the Company used as a source of financing.
For the three months ended March 31, 1997, the Company had net cash provided
by operations of $69,923 as compared to $183,684 for the three months ended
March 31, 1996. Although inventories increased and accounts receivables
increased substantially in both periods, they were offset by increases in trade
accounts payable.
The Company had accounts receivable, less allowance for doubtful accounts of
$2,276,952 at March 31, 1997. Pal Joey's net accounts receivable were a
$1,621,886 of that total as they have provided extended payment terms to a large
franchise account in order to encourage initial purchases of its clubs. Pal
Joey does not anticipate that it will continue to extend such liberal payment
terms. However, as it continues to expand its activities, it may do so again in
order to increase its market exposure.
In June 1996, the Company entered into a seven year loan with Huntington
National Bank which provided for a $1,860,315 term loan at the U.S. Treasury
constant maturities rate (8.375% as of June 20, 1996 secured by the Company's
accounts receivable and inventories, a second mortgage on real estate and
personal guarantees of Joseph A. Altomonte, Sr. and Joseph A. Altomonte, Jr.
The Loan Agreement contains certain financial and operating covenants including
compliance with certain financial ratios, and restrictions on, among other
things, the Company's ability to pay cash dividends. The proceeds from this
loan were used to payoff two revolving line of credit agreements that had been
established at $2,450,000.
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<PAGE>
Over the last four years, the Company's internally generated cash flow has
not been sufficient to finance operations. This has restricted the Company's
ability to conduct its business as anticipated. As a result, the Company has
been substantially dependent upon loans from its current shareholders in order
to maintain its operations. Upon the closing of the Maximum Offering, these
shareholders will have approximately $430,000 of that debt repayed.
The Company believes that the minimum net proceeds of this offering together
with internally generated cash flow and borrowing availability will be
sufficient to meet its operating working capital and capital expenditures
requirements through the next twelve months. In the event the Company's plans
require more capital than is presently anticipated, the Company's remaining cash
balances may be consumed and additional sources of liquidity, such as debt or
equity financings, may be required to meet capital needs. There can be no
assurances that additional capital beyond the amounts the Company currently
requires will be available on reasonable terms, if at all.
SEASONALITY
The Company's need for working capital is seasonal with the greatest
requirements for working capital occuring from approximately October through the
end of February each year. This period is when sales are the lowest and the
inventories need to be built up to provide product for shipment for the
spring/summer selling season. The Company's sales from May to September
represent approximately 64% of the Company's yearly sales.
CURRENCY FLUCTUATIONS
Diamond, a 51% owned company in England, maintains its books of account in
British Pounds. The Company accounts for this investment under the equity
method. For consolidation purposes, net profit or loss of Diamond is converted
to U.S. dollars at the average month end exchange rate for the year.
All export sales by the Company are U.S. dollar denominated, and ordinarily
there is no currency exchange rate problem for the Company. However, with
respect to export sales to Diamond, they may be at risk. Diamond maintains its
account with the Company in British pounds, but owes the Company in U.S.
dollars. At the end of every accounting period, the debt is adjusted to pounds
by multiplying the indebtedness by the closing dollar pound exchange rate to
ensure that the account has sufficient pounds to meet its dollar obligation.
This remeasurement is either income or expense in Diamond's financial statement.
FORWARD LOOKING INFORMATION
This Prospectus contains forward looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in those forward-looking statements as a result of certain factors,
including those set forth in the section entitled "Risk Factors" and elsewhere
in this Prospectus.
15
<PAGE>
BUSINESS
DYNACRAFT GOLF PRODUCTS, INC.
Dynacraft Golf Products, is one of the largest supplier of component golf
club equipment and supplies for clubmaking. The business was started by Joseph
Altomonte, Sr. in his garage. Dynacraft has grown into a component company with
a presence in Europe and distributorships in Japan, Canada and Australia. The
company offers its worldwide customers a wide selection of club heads, shafts,
grips, tools, and accessories.
Dynacraft strives for quality and playability in its wide variety of head
designs. All clubheads adhere to the industry's standards for tolerances of
such specifications as loft, lie, weight, face angle and cosmetics. Heads can
even be modified for unique fitting situations prior to shipment to the
customer. Nearly all products are developed, tested and reviewed, not only by a
team of our technical experts, but by average, better than average and below
average golfers prior to market introduction. We work closely not only with
foundries that produce our clubheads (visits are made as needed to overseas
foundry suppliers), but with major shaft companies such as True Temper, Rapport,
Fenwick, and Aldila to develop shafts that best match current head designs.
Dynacraft-branded grips are produced to specifications to allow customers to
completely customize their Dynacraft purchases. We maintain a lifetime warranty
on all of our golf club heads and offer what we believe to be the industry's
most comprehensive return/replacement policy on any product we sell.
Dynacraft offers a full range of clubmaking and fitting classes in our
Dynacraft Clubmaking Institute (DCI). The DCI educates both novice and
experienced clubmakers as well as industry experts. Coupled with a full-time
technical staff, the DCI and Dynacraft provide education and information to the
clubmaker. Our internet includes, not only information about our products and
services, but also a technical forum and tutorial where customers may receive
answers to their questions via the Internet.
Dynacraft offers a complementary magazine to its active customers.
CLUBMAKERS' DIGEST is published at least four times a year and includes
up-to-date technical information provided by the technical staff as well as new
products and sale items. We publish our full line catalog once each year, with
over 150 pages showcasing all the products we have developed and carry, in a
design and presentation that have won numerous awards. We have a complete
accessory line of products with the Dynacraft logo, including golf bags in a
variety of sizes and styles, hats, umbrellas, towels, and apparel.
Dynacraft offers its customers a toll free telephone order line, customer
service line and technical information line. The order line is staffed fifteen
hours a day, while the other lines are staffed for nine hours per day. The
Shipping Department runs two shifts when needed to offer timely and accurate
fulfillment. Orders are shipped the same day they are received in most cases;
most orders are shipped within 24 hours. The Customer Service Department deals
with special order items, unique customer requests and any consumer problems
that may arise. All Customer Service and Sales Representatives receive
technical training at the DCI in an effort to make them the most knowledgeable
staff in the business.
PAL JOEY CUSTOM GOLF
Founded in 1981, Pal Joey Custom Golf Inc. offers its customers custom made
and fitted golf equipment at reasonable prices. Pal Joey Custom Golf is a
wholesale operation selling finished goods under the Pal Joey brand name. The
models are unique to Pal Joey and are custom made to order. The custom made
club market, while in its infancy in the early 1980's, has grown rapidly in the
mid-1990's, and we believe that Pal Joey is positioned for a rapid growth in
this area. Clubs manufactured at Pal Joey are built to specific customer
requirements. The clubs are typically sold to golf professionals, to green
grass golf shops, or to upscale off-course golf stores. Our turnaround time is
as short as five days. We offer a lifetime warranty on all Pal Joey clubheads
and have among the most comprehensive repair/replacement policy in the club
manufacturing industry.
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Since fall 1995, Pal Joey has provided sourcing and assembly work, through
a sales representative, to a significant percentage of the franchises of Pro
Golf of America, one of the largest off-course golf store chains in North
America and Pro Golf of America has recommended Pal Joey products to its
franchisees. Such sales represented approximately 16.4% of the Company's total
sales in 1996. We also have several other smaller assembly and/or sourcing
customers. No other customer of the Company accounts for more than .8% of the
Company's sales in any of the past three years, except one and they accounted
for approximately 4% of the Company's total 1996 sales. Pal Joey's 1996 sales
increased 85% over 1995.
PAL JOEY PRO SHOP
The Pal Joey Pro shop was opened as a division of Pal Joey Custom Golf in
1982, allowing local customers to purchase custom made golf equipment and
accessories. It is located on the Dynacraft property and includes a showroom
and two custom fitting areas. We offer custom fitting, which may include Pal
Joey labeled shafts, grips and heads, and prompt delivery in the Central Ohio
area, with some custom-made items deliverable within 24 hours. The Pal Joey Pro
Shop also carries an inventory of brand name clubs such as Cobra, Cleveland,
Callaway, and other golf equipment, attire and accessories. This retail
location has generated sales of nearly one million dollars in each of the past
three years.
DIAMOND GOLF INTERNATIONAL LIMITED
An acquisition of Diamond Golf was begun in 1991 and completed by 1993 to
broaden Dynacraft's presence in Europe. Its name is expected to be changed to
Dynacraft Europe in 1998. One of the two largest component suppliers in Europe,
the company serves the whole of Europe with the same component Dynacraft clubs
and completed Pal Joey Custom clubs, as well as many of the same shafts, grips,
tools and accessories available from the parent. Diamond Golf offers both mail
order and custom fitting on-site.
Diamond Golf also stresses the education of the clubmaker and golf
professional and is staffed to accommodate technical questions, customer service
situations, warehouse and order entry. Chris Treacy, President of Diamond Golf
travels throughout Europe providing quality education to interested customers.
DYNACRAFT REAL ESTATE HOLDING INC.
The Dynacraft Real Estate Holding Inc. "DREHI" includes all of the
properties owned by the Company. These include five commercial buildings, one
of which houses Pal Joey Custom Golf and the Pal Joey Pro Shop The other four
buildings are used by Dynacraft, one for Customer Service and order entry; a
building for office staff, marketing and design; a shipping and receiving
warehouse; and the Dynacraft Clubmaking Institute. All of the buildings are in
fine working order.
DREHI also includes five rental properties, all of which are consistently
occupied. The rental properties generate monthly revenue for the company. All
are well-maintained and are considered to be in fine condition.
COMPANY AND INDUSTRY BACKGROUND
Golf is one of the most rapidly growing sports in the world. Currently
there are more than 25 million golfers in the United States according to The
National Golf Foundation. This number is expected to grow through at least the
year 2000. The National Golf Foundation recently released figures from a five
year study concerning spending and golf. The NGF reported that consumers (both
golfers and non-golfers) spent in excess of $16 billion on golf and golf-related
products in 1995. The study revealed that the average occasional golfer (one
who plays fewer than 8 rounds per year) spends $144.00 per year on equipment and
merchandise. Moderate golfers (8-24 rounds per year)spend $248.00, while avid
players (24 or more rounds per year) spend upwards of $548.00 per year.
Internationally, Japan has 17.5 million golfers and 20 million additional
players who only hit balls at a range but do not actually play golf. Europe,
Asia, and Australia are experiencing a similar growth in the number of golfers
enjoying the game according to The National Golf Foundation.
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The golf club and equipment industry is mostly based upon brand names, sold
through golf and sports stores. Each brand has a limited range of alternatives
and golfers select the one that seems most suited to their specific needs. The
Company markets to the industry segment of golfers who want more customization
of their clubs.
THE CUSTOMER
The Company's customers are those who actively enjoy the game of golf along
with the opportunity to construct their own equipment for that game. Many of
these individuals become skilled enough in the assembly process to begin making
clubs for sale to others and they often become full time clubmakers. Golf Shop
Operations, the leading industry publication, estimated that 500,000 persons
purchased a golf club component part (head, shaft and/or grip) in 1996. Of that
number, 3,500 are full time clubmakers, with some type of store front or retail
space, who earn their living through the trade. Approximately 300,000 are
hobbyists who may work exclusively on their own clubs and the remaining
approximately 200,000 are part-time clubmakers. These people typically work a
"nine to five" job, but supplement their income by building golf clubs. They
may work from their basements or garages and normally do not have a retail
location.
Currently the Company maintains a complete customer file of approximately
65,000 customers. This number includes any customer who has placed an order
with the Company within the past five years. We mail approximately 100,000
catalogs a year to our customers and to people who come to us from magazine and
Internet catalog requests or from word of mouth referrals. Dynacraft's "active
customer" list includes approximately 20,000 names of customers who have
purchased products during the past calendar year. That list has been steadily
growing at over 5% per year.
Pal Joey is a wholesaler, selling to those in the golf business. Its Sales
Representatives regularly call on golf course pro shops throughout the United
States and it maintains several "house accounts" that are serviced by telephone.
The Company maintains approximately 2,500 "active" pro shop accounts. Pal Joey
has recently had rapid growth in accounts from off-course stores and buying
groups, including Pro Golf Discount, Sam's Golf, and Jumbo Sports.
Since fall 1995, Pal Joey has provided sourcing and assembly work, through
a sales representative, to a significant percentage of the franchisees of Pro
Golf of America, one of the largest off-course golf store chains in North
America and Pro Golf of America has recommended Pal Joey products to its
franchisees. Such sales represented approximately 16.4% of the Company's total
sales in 1996. While Pal Joey could still provide such sales to individual
franchisees, if Pro Golf of America ceased to recommend Pal Joey's products or
ceased to provide marketing support, it could have an adverse effect on the
Company. No other customer of the Company accounted for more than .08% of the
Company's sales in any of the past three years, except one and they accounted
for approximately 4% of the Company's total 1996 sales.
CUSTOMER LOYALTY
Most clubmakers and retailers prefer to do business with a "one stop shop"
where they may buy all of the products and services required to assemble and
market a golf club. We try to use the top foundries to produce their club heads
and to distribute only nationally recognized, high quality heads, shafts and
grips. We believe our toll free telephone technical service and the Internet
technical support are among the best in the industry. Dynacraft Clubmaking
Institute attendees form a growing core of customers. In a high percentage of
cases, former students have increased their purchases after attending the
schools. All of these serve to promote customer loyalty and additional
purchases.
MARKETING AND STRATEGIC DIRECTION
With the capital raised in this offering the Company will strive for
continued growth, service and customer satisfaction. Our marketing and
strategic directions include:
FOR DYNACRAFT GOLF PRODUCTS: (1) gather information from current customers and
non-customers on market share, market growth, issues, demographics,
psychographics and perceptions of Dynacraft; (2) study trends in club design and
club technology, so that we can be a leader in new technology and club design,
18
<PAGE>
positioning Dynacraft as a leading edge innovator; (3) extend our customer
training, making a nationwide program; and (4) increase our international market
share.
FOR PAL JOEY: (1) introduce new sets and specialty clubs and add customer
services requested by the market; (2) gain market share in the PGA golf
professional ("green grass") segment; (3) acquire more targeted private label
accounts; (4) hire and train an in-house sales force to serve key accounts in
the private label, retail and "concrete" golf shop markets and (5) consider
increasing the number of Pro Shop retail outlets in Central Ohio.
COMPETITION
Dynacraft competes for customers who want more customization of their clubs
than found in sets sold through most golf and sports stores. During the past
ten years, this segment of the golf market has been dominated by a few major
players, such as Callaway Golf Company, Cobra, Karsten Manufacturing Corporation
(Ping), Taylor-Made Golf Company and Titleist. Many of these companies began as
small, one-club companies. For example, Callaway began as a single wedge
company less than 15 years ago. Odyssey, which sells a putter as its only
product, has grown rapidly over just the past two years. Karsten, which began
in the early 1960's with a single putter that made a "ping" noise when stuck,
has grown to worldwide acceptance. Products selling well recently include
oversized titanium drivers, oversize irons, specialty wedges and uniquely
designed putters.
Dynacraft sells a high percentage of its products to custom club makers.
Pal Joey wholesales custom made clubs to the retailers' specifications. Both
companies have products unique to their markets. For example, Dynacraft offers
a full line of titanium woods and offers many variations on wedges, each suited
to specific player needs. The use of exotic materials, such a beryllium copper,
carbon steel and tungsten, position Dynacraft in specialty niches of the custom
component market. Pal Joey offers forged titanium drivers for less than $150,
compared to some competitors' prices of $650. Pal Joey is also actively
pursuing the "one of a kind" club market, by experimenting with face insert
wedges and tungsten-titanium irons, each of which will be custom made for the
retailer.
FOR DYNACRAFT PRODUCTS: Competition for Dynacraft is principally from other
component suppliers, which have grown in number from 10 in 1982 to over 120 in
1996. Dynacraft's main competition comes from three sources: Golfsmith,
located in Austin, Texas which is the largest golf club component company;
Golfworks, in Newark, Ohio, and the combination of a number of smaller "knock-
off" component companies.
FOR PAL JOEY PRODUCTS. Pal Joey's prime competition comes from approximately
225 small golf club companies located throughout the United States. Both Pal
Joey and many of these companies have staffs of sales representatives visiting
golf shops on a regular basis and competition for business is intense. Some of
the more competitive brands to Pal Joey are MacGregor Golf, Albany, Georgia;
Dunlop in Greenville, South Carolina; Wilson from Morton Grove, Illinois; and
Spalding in Chicopee, Massachusetts. All of these companies have recently
offered lower pricing in order to stay competitive. During the past couple of
years, as custom fitting has experienced a great growth, many large companies,
such as Slazenger, Hogan, Henry-Griffitts, Zevo, to name a few, have
capitalized on the custom fitting segment of the golf market. Pal Joey is able
to effectively compete with these entities by offering the ability to custom
make clubs designed to meet particular customer needs.
The Pal Joey Pro Shop's main competition comes from discount golf stores in
the greater Columbus, Ohio, area. There are a number of on-course pro shops
within a 50 mile radius of the Pal Joey Pro Shop, but most do not stock a wide
selection of equipment, nor do many offer any type of custom fitting. The Pal
Joey Pro Shop maintains its position with little direct competition through
prompt service, custom fitting, delivery and fair pricing.
EMPLOYEES
The Company employs 89 people. Dynacraft includes 36 full time and 22 part
time seasonal workers. Pal Joey Custom Golf includes 26 full time and no part
time/seasonal employees. The Pal Joey Pro Shop has 4 full time and 1 part time
employee. The Company believes that its relations with its employees are
excellent. The Company's work force is not unionized.
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<PAGE>
PROPERTIES/FACILITIES
The Company owns five commercial/industrial facilities and five single
family residences on 3.36 acres in Newark, Ohio. The commercial/industrial
properties include 60,745 sq. ft., broken down as follows:
Office 25,076 sq. ft.
Retail 4,440 sq. ft.
Manufacturing/Warehouse 15,550 sq. ft.
Warehouse 15,679 sq. ft.
--------------
TOTAL 60,745 SQ. FT.
All of the buildings are in close proximity. There are separate buildings
for sales and customer service; marketing and administration; training, research
and development; warehouse and product showroom; manufacturing, warehouse and
pro shop.
All public utilities, including water, sewer, gas, electricity and public
telephone are available to the property through local utility companies. The
five single family residences are rented primarily by employees and generate
monthly rental income to the Company.
In summary, the property located within the Center of the City of Newark in
an area that is primarily residential in nature. It benefits from its location
being in close proximity to two interstate highways, commercial development,
shopping facilities and employment centers. All of the real estate is pledged
as collateral on two bank loans. See Note D to the Company's Consolidated
Financial Statements.
ENVIRONMENTAL
Dynacraft has learned that an Ohio Department of Transportation (ODOT)
garage located geographically upstream from its property dumped paint, solvents,
and other materials and has contaminated the water table under Dynacraft's land.
ODOT has admitted to being responsible for this particular act. Although there
are no recognizable concerns or issues with current Dynacraft operations as a
result of this act, Dynacraft's future ability to utilize its real estate to
secure loans could be impaired until the contamination is removed. Because of
this, Dynacraft is participating in Ohio's Voluntary Action Program "VAP" to
clean up the property. The benefit to Dynacraft for proceeding under the VAP
program is that the property would be "clean" under the eyes of both the state
and federal regulatory authorities and the commercial lending community. In
addition the costs of the VAP program can be recovered from ODOT. The Company
intends to pursue this course of action vigorously.
TRADEMARKS
The Company currently owns 12 trademarks. These are set to expire at
various times between 2000 and 2009. The Company currently intends to renew
each such trademark prior to its expiration. Dynacraft aggressively and actively
preserves its rights to all trademarked and patented material. Among the
trademarked names held by the company and used on golf equipment, including club
heads are: Dynacraft-Registered Trademark-, Pal Joey-Registered Trademark-, the
Pal Joey Kangaroo logo, Copperhead-Registered Trademark-, Genesis-Registered
Trademark-, Accusteel-Registered Trademark-, Greyshadow-Registered Trademark-,
On Line-Registered Trademark-, Outback-Registered Trademark-, TD-1000-Registered
Trademark- and Topaz-Registered Trademark-. The company also has trademarked
its shaft fitting system, the Dynacraft Shaft Fitting Index (DSFI). The Company
is also under license agreement to use the following names: Big Johnson, ESS,
and Mad Dog. All of the Company's trademarks are registered as property of
either Dynacraft Golf Products, Inc., or Pal Joey Custom Golf Inc. Dynacraft
owns U.S. Patent #5,333,871 related to the non-fibrous injection molding process
for golf iron heads.
LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation or legal
proceedings other than with ODOT as described above under "Environmental" and is
not aware of any material litigation or proceeding pending or threatened against
it.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES; QUALIFIED SMALL BUSINESS STOCK
A provision in the "Omnibus Budget Reconciliation Act of 1993" provides, in
certain circumstances, a reduction in the capital gains tax for individuals or
certain other taxpayers who purchase shares at original issue from a "qualified
small business" and dispose of those shares after a holding period of at least
five years. One-half of the gain (up to certain limits) on the stock is
generally excluded from taxable income for regular tax purposes.
A "qualified small business" must have not more than $50 million in gross
assets at any time after August 10, 1993 through the date of issuance of the
shares. In addition, at least 80% of its assets must be used "in the active
conduct of one or more qualified trades or businesses" throughout the holding
period. There are also limitations on the persons who may use any exclusion.
We intend to submit reports to the Internal Revenue Service and to the Company's
shareowners as may be required under the law for use of this exclusion, but we
cannot be sure that the benefits of this provision will be available to you. We
suggest you consult your own tax counsel for further details.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors are as follows:
NAME AGE POSITION
- ---- --- --------
Joseph A. Altomonte, Sr. 73 Chairman of the Board and Director
Joseph A. Altomonte, Jr. 39 Chief Executive Officer and Director
Jeff Jackson 39 President, Dynacraft, and Director
Jack Kehl 56 President, Pal Joey, and Director
Duane R. Egeland 59 Chief Financial Officer and Director
Chris Treacy 52 President of Diamond Golf International
Limited and Director
After the effective time of the Registration Statement of which this
Prospect forms a part, the size of the Board of Directors will be increased to 9
and will be divided into three classes each consisting of approximately one-
third of the total number of directors. On or after the date of the offering,
the existing directors will fill the vacancies in the Board of Directors.
The members of the Board of Directors hold office until the next annual
meeting of stockholders or until their successors have been elected and
qualified. Officers are appointed by, and serve at the pleasure of, the Board
of Directors. The Company expects to add three additional Directors, who will
have no affiliation with the Company, shortly following the consummation of the
Offering. The following is a description of the Company's current Directors and
executive officers.
JOSEPH A. ALTOMONTE, SR.
Mr. Joseph Altomonte, Sr., is Chairman of the Board of the Company. He
founded what is now known as Dynacraft in 1980 and has acted as Chairman of the
Board since that time. Mr. Altomonte presides over all of the Dynacraft
entities, including Dynacraft, Pal Joey, the Pal Joey Pro Shop and
Diamond/Dynacraft.
Mr. Altomonte has been in the golf business for over 35 years, beginning in
a sales position with the Faultless Golf Company. He was responsible for
signing such legendary PGA Tour stars as Lee Trevino, Jerry Heard and Lee Elder
to their first endorsement contracts with Faultless. Australian PGA rookie Bob
Shaw and LPGA star Cynthia Sullivan were also signed by Mr. Altomonte. He
became Executive Vice President of Faultless in 1971 and continued with the
company during their subsequent acquisitions by Abbott Laboratories and Rawlings
Sporting Goods Company.
In 1980, Mr. Altomonte started Dynamic Golf in the basement of his home.
The name of the operation was changed to Dynacraft Golf Products in 1982. As a
result of his efforts, Mr. Altomonte was awarded an Honorable Mention in 1985 by
Governor George Voinovich as Ohio Small Businessman of the Year.
JOSEPH ALTOMONTE, JR.
Joseph Altomonte, Jr., has been Chief Executive Officer of the since 1993.
Prior to that position, Mr. Altomonte served as President of Pal Joey Golf from
1981-1992, a company he helped start in 1981.
Mr. Altomonte was chosen in a nationwide search to be a Sales
Representative for the prestigious Ernie Sabayrac Organization, better known as
Izod, in 1977. Later he was Vice President of a major golf retail franchise
located in Miami, Florida, from 1977-78.
Mr. Altomonte attended Ashland College, Ohio University and The Ohio State
University majoring in Political Science and Art.
22
<PAGE>
JEFF JACKSON
Jeff Jackson has been the President since the fall of 1996. Prior to
holding that position, he was Executive Vice President of Dynacraft from 1993 to
1996. He joined Dynacraft in 1991 as Product Manager. As President of
Dynacraft, Mr. Jackson oversees the day-to-day operations of the all facets of
the company, including product development, technical support, the Dynacraft
Clubmaking Institute, as well as sales, customer service and purchasing.
Mr. Jackson is a respected author and speaker in the golf industry. He has
written two complete texts, "The Modern Guide to Clubmaking" and "Total
Clubfitting." He has developed a video program of each. He is a regular
contributor to many United States' golf publications, including GOLF TIPS,
JUNIOR GOLF MAGAZINE, GOLF FOR WOMEN, TEE TIME GOLF, THE PROFESSIONAL
CLUBMAKERS' SOCIETY JOURNAL, and to the international journals, CLUBMAKER'S
DIGEST and GOLF THE SCIENTIFIC WAY. He is a frequent speaker at PGA educational
seminars, the Canadian Clubmaking Symposium and at the Dynacraft Clubmaking
Institute. In 1997, Mr. Jackson was named Educational Presenter for the
Australian PGA.
Mr. Jackson graduated from Western Maryland College in 1979 with a
Bachelor's Degree and received his Master's Degree from Frostburg State
University in 1983.
JACK KEHL
Jack Kehl has been President of Pal since the fall of 1996. Prior to that
position, he was Vice President of Sales for Pal Joey since rejoining the
Company in 1995. As President of Pal Joey, Mr. Kehl is responsible for all day-
to-day operations including sales, customer service, manufacturing, accounting,
and other divisions. Since rejoining Pal Joey, Mr. Kehl has been instrumental
in increasing sales from $2.8 million in 1995 to $5.3 million at the close of
1996.
Mr. Kehl has been involved in sales and marketing for over 35 years. Of
those years, 32 have been in the golf and/or sporting goods fields. From 1990
to 1995, he was Vice President and Co- Manager of PGI Golf in Loudonville, Ohio,
a major golf ball supplier to the industry.
During his tenure in the golf industry, Mr. Kehl has worked with such
companies as Faultless, Rawlings and Abbott Labs. He has been involved with
sales team development and sales force management, promotional program
development and implementation, international market development, domestic and
international purchasing, product marketing strategies, advertising support, and
product costing and pricing.
Mr. Kehl attended Ashland University in Ashland, Ohio, and has completed
the American Management Association's School of Marketing Program.
DUANE R. EGELAND
Duane R. Egeland, a CPA, is the Chief Financial Officer of the Company.
He joined the Company in the fall of 1996. As CFO, Mr. Egeland coordinates all
financial functions for the Dynacraft Companies, including Diamond/Dynacraft in
England.
Prior to joining the Company, Mr. Egeland was associated with the Knoll
Group Management Company, concentrating on commercial real estate development
and apartment management. Prior to his tenure with the Knoll Group in 1991, Mr.
Egeland was a self-employed financial and business advisor to companies involved
in real estate development and management in Atlanta, Georgia. During this
time, he advised international investors concerning American investment
opportunities. He also became registered with the National Association of
Securities Dealers and the Commission as a Financial and Operational Principal.
Prior to selling it in 1986, Mr. Egeland owned a general securities firm, Harwin
Securities, Inc., which did private placements. Mr. Egeland acted as a general
partner of Belmont Towers Limited Partnership which owned 240 condominium units
in Texas and developed townhouse units in Pensacola, Florida, and a shopping
center in Nashville, Tennessee.
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<PAGE>
Mr. Egeland was an associate of the Chicago office of the international
public accounting firm of Laventahl and Horwath, becoming a partner in 1967. In
1969 he became the managing partner of the firm's Cleveland office and in 1979
assumed similar responsibilities for the Houston office. In 1981, he sold his
interest back to the firm.
CHRIS TREACY
Chris Treacy is President of Diamond Golf International, Limited, a
position he has held since Dynacraft acquired a 51% ownership in that business
in 1991. As such he is responsible for all facets of the European operation,
including, but not limited to, sales and customer service, advertising,
purchasing, inventory management, and education.
Prior to 1991, Mr. Treacy was owner operator of Diamond Golfworks along
with his wife and son, a position he held since 1978. Immediately prior to
that, Mr. Treacy was a golf course manager whose duties included operating a
golf course pro shop and a green fee operation. Mr. Treacy has operated a
repair stand at numerous British Open Championships and is well known to golf
professionals in Europe as well as in the United States. He has done repair and
custom club work for such pros as Tom Watson, Brian Barnes, and Tony Jacklin, to
name a few. He introduced a teaching facility to all of Europe, specializing in
teaching pros and clubmakers the craft of making and repairing all types of golf
clubs. Mr. Treacy currently travels throughout Europe offering expanded
versions of these instructional curricula for those interested in clubmaking.
Mr. Treacy has authored numerous articles in European publications
concerning the assembly, fitting and repair of golf clubs. He is a regular
contributor to the international journal, CLUBMAKER'S DIGEST and has assisted in
authoring at least two international texts, "The Modern Guide to Clubmaking" and
"Total Clubfitting."
AUDIT COMMITTEE
The Board of Directors intends to appoint an audit committee of three non-
management directors. The Audit Committee's responsibilities include reviewing
the results and scope of the audit and other services provided by the Company's
independent accountants and all transactions between the Company and any of its
officers, directors or principal stockholders.
DIRECTOR COMPENSATION
The Company intends to compensate non-employee directors $500 per Board or
committee meeting attended plus any out of pocket expenses.
EXECUTIVE COMPENSATION
The following table sets forth, for the year ended December 31, 1996
compensation, including salary, bonuses and certain other compensation, paid by
the Company to its Chief Executive Officer and each other executive officers
whose annual compensation exceeded $100,000.
ANNUAL COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- ------ ----- ------------
Joseph A. Altomonte, Sr.
Chairman of the Board of Directors
December 31, 1996 $116,176 $38,920 --
Joseph A. Altomonte, Jr.
Chief Executive Officer
December 31, 1996 $127,534 $38,620 --
24
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table shows the beneficial ownership of the Company's
common stock immediately prior to this offering, and as adjusted to reflect the
sale of the shares being offered, for (i) each director and executive officer of
the Company, (ii) each shareowner known by the Company to own beneficially 5% or
more of the outstanding shares of its common stock and (iii) all directors and
officers as a group for each class of capital stock of the Company. The Company
believes that the beneficial owners of the common stock listed below, based on
information they furnished, have sole investment and voting power over their
shares.
COMMON STOCK:
<TABLE>
<CAPTION>
DIRECTORS, SHARES PERCENTAGE OF COMMON SHARES OUTSTANDING:
EXECUTIVE OFFICERS BENEFICIALLY BEFORE OFFERING MINIMUM SOLD MAXIMUM SOLD
AND 5% SHAREHOLDERS OWNED --------------- ------------ ------------
- ------------------------- -----
<S> <C> <C> <C> <C>
Joseph A. Altomonte, Sr. (1)(2) 968,110 47.60% 41.48% 35.41%
Joseph A. Altomonte, Jr. (3)(4) 684,723 33.67% 29.34% 25.05%
Dynacraft Employee Stock 380,913 18.73% 16.32% 13.93%
Ownership Plan
All directors and executive 1,652,833 81.27% 70.82% 60.46%
officers as a group
(6 persons) (5)
</TABLE>
(1) Includes 87,100 Common Shares held in the Joseph A. Altomonte, Sr. 1994
Irrevocable Trust, Ruth E. Altomonte, Trustee.
(2) Does not include, as of December 31, 1995, 11,957.2986 Common Shares
issuable from the ESOP at the close of the plan year in which the ESOP Loan is
repaid in full.
(3) Includes 7,800 Common Shares owned by his wife Gretchen Altomonte.
(4) Does not include, as of December 31, 1995, 10,008.9769 Common Shares
issuable from the ESOP at the close of the Plan year in which the ESOP Loan is
repaid in full.
(5) Does not include, as of December 31, 1995, 25,600.2474 Common Shares
issuable from the ESOP at the close of the Plan year in which the ESOP Loan is
repaid in full.
25
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTION
During 1994, in a series of transactions, Dynacraft issued 51,462 new
Common Shares to the partners of J & J Enterprises, and acquired all the real
estate previously leased to the Company by J & J Enterprises at a value, less
outstanding debt, of $214,269 or $4.16 per share. J & J Enterprises was owned
equally by Joseph Altomonte, Sr. and Jr.
In June 1996, two shareholders, Joseph A. Altomonte, Sr. and Joseph A.
Altomonte, Jr. each personally borrowed $250,000 from Huntington Bank. These
borrowed funds were in turn loaned to the Company, to help pay off the existing
line of credit, at the same terms as those of the banks, namely, monthly
installments of $4,102 each which includes interest at an interest rate of
9.625% and a final payment due June 1, 2001.
In November 1996 to help fund negative cash flow, Joseph A. Altomonte, Sr.
also lent the Company $326,554, taking back three promissory notes. Interest on
$200,000 is at prime plus 1%; at 7% on $90,770 and 7.2% on $35,784. All three
notes are due on demand, but the shareholder has agreed not to call the notes
during the year to end December 31, 1997.
Again in January 1997 to help fund negative cash flow, Joseph A. Altomonte,
Sr. lent the Company $52,500 at 8.25% interest. The principle of this note is
due on demand.
In May 1997, the Company arranged for an Irrevocable Standby Letter of
Credit from Huntington National Bank for 58,000 British pounds or approximately
94,000 US dollars to be used to facilitate the acquisition of a loan for Diamond
Golf International Limited from Lloyds Bank. The proceeds of the loan are to be
used to repay Dynacraft's advance to them of $92,980 plus unpaid interest of
$688 and then Dynacraft will reduce the principal balance on its existing term
note with Huntington National Bank by a like amount. The balance of the
Irrevocable Standby Letter of Credit is to be reduced each three months by 1/12
of the original amount and expires in May 2000. The Letter of Credit is
guaranteed by Joseph A. Altomonte, Sr. and Joseph A. Altomonte, Jr., who
received no consideration for their guarantee.
All future transactions between the Company and its officers, directors and
principal shareowners and their affiliates will be approved by a majority of the
disinterested Directors and will be on terms no less favorable to the Company
than could be obtained from unrelated third parties.
26
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 3,500,000 Common
Shares, without par value, and 100 preferred shares, par value $1000.00 per
share. As of July 17, 1997, 2,033,746 Common Shares were issued and outstanding
and 100 preferred shares were issued and outstanding.
COMMON SHARES
Holders of Common Shares are entitled to one vote for each Common Share
held of record on all matters presented to a vote of shareholders, including the
election of directors. Holders of Common Shares have no cumulative voting rights
and no preemptive rights to purchase or subscribe for any stock or other
securities. There are no conversion rights or redemption or sinking fund
provisions with respect to the Common Shares. Subject to preferences that may be
applicable to the outstanding preferred shares and subject to the applicable
debt instruments of the Company, holders of Common Shares are entitled to
receive such dividends as may be declared by the Board of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up of the affairs of the Company, holders of Common Shares are entitled to share
pro rata in distribution of the assets of the Company remaining after payment or
provision for payment of liabilities and the liquidation payments to holders of
outstanding preferred shares. All outstanding Common Shares are, and the Common
Shares offered hereby when issued and paid for will be, fully paid and
nonassessable.
Application has been made for listing the Common Shares for quotation on
the Chicago Stock Exchange.
PREFERRED SHARES
Holders of preferred shares are not entitled to any votes except as
required by applicable law. Holders of preferred shares are entitled to receive
cash dividends if, as and when declared by the Board of Directors of the
Company. As long as any preferred shares are outstanding, no dividends shall be
paid on the Common Shares until dividends have been paid on the preferred
shares. The Company may, at the option of the Board of Directors, at any time,
or from time to time, redeem all or any part of the preferred shares at the rate
of $1,000.00 per share. In addition, if no dividends have been paid on the
preferred shares for a period of more than two years, the holders of the
preferred shares shall have the right to require the Company to redeem such
shares in whole or in part. The Company has not paid any dividends since
inception and does not intend to pay any dividends in the foreseeable future.
Therefore, as of the date hereof, holders of the preferred shares may seek to
have the Company redeem all, or any part, of the preferred shares at any time,
or from time to time.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is Continental Stock
Transfer and Trust Company.
ESOP
The Company's ESOP was established to encourage stock ownership among the
Company's employees pursuant to the Employees Stock Ownership Plan and Trust
Agreement, date as of January 30, 1991, to be effective as of January 1, 1991,
by and between Dynacraft, Pal Joey and The Huntington Trust Co., N.A. Employees
of Dynacraft and Pal Joey are eligible to participate in the ESOP following six
months of service with the Company. Each year, the Company may make an annual
contribution to the ESOP in the form of cash or Common Shares, although such
contribution is not mandatory. Participants in the ESOP have the right to
instruct the Trustee of the ESOP, confidentially, how to vote such participants'
Common Shares in the ESOP on certain corporate matters affecting the Company.
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<PAGE>
Common Shares in the ESOP are subject to vesting requirements, and non-
vested Common Shares may be forfeited if a participant terminates employment
with Dynacraft and Pal Joey prior to normal retirement age, death or total
disability.
If Common Shares are distributed to ESOP participants, such participants
may either keep such shares or may direct the Company to purchase them at their
fair market value, such payments to be made in substantially equal annual
payments over a period not exceeding five years.
The Company does not plan to distribute vested Common Shares from the ESOP
in connection with this offering.
ANTI-TAKEOVER EFFECTS OF AMENDED AND RESTATED ARTICLES OF INCORPORATION, CODE OF
REGULATIONS AND THE OHIO GENERAL CORPORATION LAW
Certain provisions of the Amended and Restated Articles of Incorporation
and Code of Regulations of the Company and of the Ohio GCL summarized in the
following paragraphs may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a shareholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by shareholders.
CLASSIFIED BOARD OF DIRECTORS
The Company's Code of Regulations provides for the Board of Directors to be
divided into three classes of directors serving staggered three-year terms. As
a result, approximately one-third of the Board of Directors will be elected each
year. Moreover, the Code of Regulations provides that the shareholders may
remove a Director only for cause. This provision, when coupled with ability of
the Board of Directors to fill vacant directorships, will preclude a shareholder
from removing incumbent directors without cause and simultaneously gaining
control of the Board of Directors by filling the vacancies created by such
removal with its own nominees.
NO SHAREHOLDER ACTION BY WRITTEN CONSENT
Section 1701.54 of the Ohio GCL requires that an action by written consent
of the shareholders in lieu of a meeting be unanimous, except that, pursuant to
Section 1701.11, the code of regulations may be amended by an action by written
consent of holders of shares entitling them to exercise two-thirds of the voting
power of the corporation or, if the articles of incorporation or code of
regulations otherwise provide, such greater or lesser amount, but not less than
a majority. The Company's Code of Regulations provides that, upon the closing of
this offering, no action to amend the Code of Regulations may be taken by a
written consent of shareholders without a meeting. This provision may have the
effect of delaying, deferring or preventing a tender offer or takeover attempt
that a shareholder might consider in its best interest.
SUPERMAJORITY VOTING PROVISIONS
The Code of Regulations provides that the provisions relating to the
elimination of shareholder action by written consent to amend the Code of
Regulations, indemnification of directors and supermajority voting may not be
repealed or amended in any respect, and no other provision may be adopted,
amended or repealed which would have the effect of modifying or permitting the
circumvention of such provisions, without the vote of the holders of not less
than 66 2/3% of the total voting power of the Company.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS
The Code of Regulations provides that shareholders seeking to bring
business before an annual meeting of shareholders, or to nominate candidates for
election as directors at an annual or special meeting of shareholders, must
provide timely notice thereof in writing. To be timely, a shareholder's notice
must be
28
<PAGE>
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be received no later than the close
of business on the 10th day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made. The Code of
Regulations also specifies certain requirements for a shareholder's notice to be
in proper written form. These provisions may preclude some shareholders from
bringing matters before the shareholders at an annual or special meeting or from
making nominations for directors at an annual or special meeting; provided that
nothing in such provisions shall prevent any shareholder from submitting a
shareholder proposal in compliance with Rule 14a-8 of the Exchange Act.
29
<PAGE>
SHARES ELIGIBLE FOR FUTURE RESALE
Upon completion of this offering, the Company will have 2,733,746 shares
outstanding at the Maximum (or 2,333,746 shares at the Minimum). The 700,000
Common Shares (at the maximum) or 300,000 Common Shares (at the minimum) sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act unless purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. The remaining 2,033,746 outstanding Common Shares held
by current shareholders constitute either "restricted securities", within the
meaning of Rule 144, or securities held by affiliates and will only be eligible
for sale in the open market after this offering subject to the applicable
requirements of Rule 144. Sales of outstanding Common Shares to residents of
certain states or jurisdictions may only be effected pursuant to a registration
in or applicable exemption from the registration provisions of the securities
laws of those states or jurisdictions.
In general, under Rule 144, as currently in effect, if a period of at least
one year has elapsed between the later of the date on which restricted
securities were acquired from the Company and the date on which they were
acquired from an affiliate, then the holder of such restricted securities
(including an affiliate) is entitled to sell a number of Common Shares within
any three-month period that does not exceed the greater of (1) one percent of
the then outstanding Common Shares or (ii) the average weekly reported volume of
trading of the Common Shares during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain requirements pertaining to the
manner of such sales, notices of such sales and the availability of current
public information concerning the Company. Affiliates also must sell Common
Shares not constituting restricted securities in accordance with the foregoing
volume limitations and other requirements but without regard to the two-year
holding period. Under Rule 144(k), if a period of at least two years has
elapsed between the later of the date on which restricted securities were
acquired from the Company and the date on which they were acquired from an
affiliate, a holder of such restricted securities who is not an affiliate at the
time of the sale and has not been an affiliate for at least three months prior
to the sale would be entitled to sell the Common Shares immediately without
regard to the volume limitations and other conditions described above.
Joseph A. Altomonte, Sr., Joseph A. Altomonte, Jr. and the Dynacraft
Employee Stock Ownership Plan, which together own 81.27% of the shares
outstanding before this offering, have stated that they have no current
intention of selling any of their shares in the public market for two years
after the date of this Prospectus.
Sales of substantial amounts of Common Shares in the public market could
occur, could adversely affect prevailing market prices and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
The post-offering fair value of the Company's Common Shares, whether or not
any secondary trading market develops, is variable and may be impacted by the
business and financial condition of the Company, as well as factors beyond the
Company's control. The price may also vary due to economic conditions and
forecasts and general conditions in the retail and wholesale golf equipment
industry.
The Company's shares have been approved for listing on the Chicago Stock
Exchange, but that does not necessarily mean that an active trading market will
develop or be sustained. The post-offering fair value of the Company's common
stock, whether or not any secondary trading market develops, is variable and may
be impacted by the business and financial condition of the Company, as well as
factors beyond the Company's control. The price may also vary due to economic
conditions and forecasts and general conditions in the retail and wholesale golf
equipment industry.
30
<PAGE>
PLAN OF DISTRIBUTION
GENERAL
Following the declaration of the registration statement of which this
Prospectus is a part effective by the Commission, announcements of this offering
will be communicated to selected persons who are customers or have other
relationships with the Company or its officers and who reside in certain states.
A copy of this Prospectus will be delivered to those who request it, together
with the Subscription Agreement. All Common Shares will be sold at the public
offering price of $5.00 per share and a minimum purchase of 100 shares is
required.
The Company will only effect offers and sales of shares through its
designated sales representative Howard Van Huffel, who also serves as the
Company's Credit Manager. Only Howard Van Huffel will sign Subscription
Agreements on behalf of the Company and will be the only individual who will
conduct activities that involve making oral solicitations or approval of written
communications. Howard Van Huffel will not receive, directly or indirectly, any
commissions or other remuneration based either directly or indirectly on
transactions in securities.
DETERMINATION OF OFFERING PRICE
Prior to this offering there has been no market for the Common Shares of
the Company. The public offering price has been determined by the Company's
Board of Directors. Among factors considered in determining the public offering
price were the Company's results of operations, the Company's current financial
condition, its future prospects, the state of the markets for its products, the
experience of management and the economics of the industry in general.
ESCROW OF MINIMUM PROCEEDS
This offering is being made directly by the Company on a "Minimum/Maximum"
basis subject to subscription and payment for not less than 300,000 shares (the
"Minimum") and not more than 700,000 shares (the "Maximum"). See "How We Intend
to use the Funds From this Offering." All subscription payments will be
deposited into an escrow account at The Huntington National Bank, N.A.. If the
Minimum is not obtained within three months after the date of this Prospectus,
all proceeds deposited in the escrow account will be promptly refunded in full,
with interest, but without any deduction for expenses.
If the Minimum amount is raised, no interest will be paid to subscribers,
and any interest earned during the escrow period will be paid to the Company.
All funds held in the escrow account will be invested in an interest bearing
account. Upon raising the Minimum amount, the escrow shall be terminated,
subscribers will become shareowners and all additional proceeds from the sale of
shares will go directly to the Company.
During the Escrow Period, all subscription payments for shares must be
delivered with a completed Subscription Agreement to the Escrow Agent. A
written confirmation along with a copy of a Share Purchase Agreement will be
mailed by the Company to each subscriber or purchaser until such time as the
funds are released from the escrow account to the Company. Until such time
purchasers will be deemed subscribers and not security holders of the Company.
During the Escrow Period, subscribers will have no right to return of their
payment.
If the Minimum has been fully subscribed on or before February 28, 1998,
the Company will continue to offer the shares, not subject to payment for any
further minimum amount, but not for more than a total of 700,000 Common Shares.
This offering shall be terminated upon the earlier of the following: the sale
of the Maximum amount, twelve months after the date of this Prospectus or the
date on which the Company decides to close the offering. The Company reserves
the right to reject any subscription or share purchase agreement in full or in
part and to terminate the offering at any time prior the sale of 700,000 Common
Shares.
31
<PAGE>
EXPERTS
The Consolidated Financial Statements of the Company as of and for the
years ended December 31, 1995 and December 31, 1996, audited by Wilson, Shannon
& Snow, independent auditors, have been included in this Prospectus in reliance
upon their report appearing elsewhere herein.
LEGAL MATTERS
The validity of the Common Shares offered hereby will be passed upon for
the Company by Vorys, Sater, Seymour and Pease, Columbus, Ohio.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the Common Shares offered hereby has been filed with the Securities
and Exchange Commission. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to the Company and the shares offered hereby, reference is made to such
Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the Commission's
principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549, the
Northeast Regional Office located at 7 World Trade Center, 13th Floor, New York,
New York, 10048, and the Midwest Regional Office located at Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661-2511 and copies of all
or any part thereof may be obtained from the Public Reference Branch of the
Commission upon the payment of certain fees prescribed by the Commission. The
Commission also maintains a site on the World Wide Web at http://www.sec.gov
that contains information regarding registrants that file electronically with
the Commission.
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountant F-1
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-4
Consolidated Statement of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
33
<PAGE>
Board of Directors
Dynacraft Golf Products, Inc. and Subsidiary
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Dynacraft Golf
Products, Inc. (an Ohio corporation) and Subsidiary as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Dynacraft Golf
Products, Inc. as of December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Newark, Ohio
March 5, 1997
F-1
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 1997 December 31
-------------- ------------------------
ASSETS (Unaudited) 1996 1995
-------------- ---- ----
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 300,274 $ 297,192 $ 0
Accounts and notes receivable
Trade - net of allowance for
doubtful accounts of $75,868 in
1996 and $24,439 in 1995 2,276,952 1,363,445 1,097,628
Notes receivable - current portion 356 1,408 11,585
Stockholders and employees 119,060 52,889 49,635
Diamond Golf 95,385 96,125 0
Other 117,978 21,117 63,641
Refundable income taxes 0 46,281 277,468
Inventories
Raw material 1,266,723 1,262,855 860,923
Finished goods 2,933,634 2,362,138 2,493,720
Prepaid expenses 410,575 331,483 174,114
------------ ------------ ------------
Total current assets 7,520,937 5,834,933 5,028,714
PROPERTY AND EQUIPMENT - AT COST
Buildings and improvements 1,961,576 1,961,576 1,926,812
Equipment, furniture and fixtures 1,297,638 1,290,786 1,254,550
Vehicles 13,084 25,318 25,318
------------ ------------ ------------
3,272,298 3,277,680 3,206,680
Less accumulated depreciation 1,847,697 1,821,584 1,673,124
------------ ------------ ------------
1,424,601 1,456,096 1,533,556
Land 73,220 73,220 73,220
------------ ------------ ------------
1,497,821 1,529,316 1,606,776
OTHER ASSETS
Investment in Diamond Golf 217,015 214,892 196,263
Other assets 2,453 2,453 2,453
Notes receivable, less current portion 0 0 1,409
Loan acquisition costs - net 17,273 17,964 0
------------ ------------ ------------
236,741 235,309 200,125
------------ ------------ ------------
$ 9,255,499 $ 7,599,558 $ 6,835,615
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of this prospectus
F-2
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 1997 December 31
-------------- -------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 1996 1995
-------------- ---- ----
<S> <C> <C> <C>
CURRENT LIABILITIES
Bank overdrafts $ 0 $ 0 $ 100,024
Lines of credit payable 0 0 2,260,315
Current maturities of long-term debt 450,121 515,134 252,999
Current maturities of capital leases 39,126 47,484 35,838
Accounts payable
Trade 4,363,188 2,876,415 1,511,268
Amounts withheld from employees 9,465 17,510 12,479
Accrued liabilities
Salaries, wages and commissions 165,743 30,701 19,241
Interest 0 13,040 13,500
Property, payroll and other taxes 52,612 43,410 28,474
Unearned revenue 132,574 54,713 33,469
Income taxes 0 0 42,911
------------ ------------ ------------
Total current liabilities 5,212,829 3,598,407 4,310,518
LONG-TERM DEBT
Notes payable, net of current maturities 2,778,321 2,808,915 951,965
Capital lease obligations, net of current
maturities 24,725 27,776 66,257
------------ ------------ ------------
2,803,046 2,836,691 1,018,222
STOCKHOLDERS' EQUITY
Preferred stock 100,000 100,000 100,000
Common stock 500 500 500
Additional paid-in capital 229,295 229,295 229,295
Retained earnings 1,509,053 1,472,921 1,971,466
Note payable guarantee - ESOP (599,224) (638,256) (794,386)
------------ ------------ ------------
1,239,624 1,164,460 1,506,875
------------ ------------ ------------
$ 9,255,499 $ 7,599,558 $ 6,835,615
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement
F-3
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three month ended March 31 Year ended December 31
-------------------------- ------------------------
1997 1996 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Sales $4,934,770 $4,251,706 $18,898,498 $18,963,572
Cost of goods sold 3,580,384 3,171,388 13,649,567 13,452,544
---------- ---------- ----------- -----------
Gross profit 1,354,386 1,080,318 5,248,931 5,511,028
Selling and administrative expenses 1,344,962 1,306,487 6,059,312 5,747,157
---------- ---------- ----------- -----------
Operating Profit (loss) 9,424 (226,169) (810,381) (236,129)
Other income or (deductions)
Interest income 16,238 10,468 33,514 17,633
Interest expense (58,376) (78,668) (270,586) (318,206)
School 6,125 13,625 52,680 70,511
Advertising 51,498 91,863 331,339 399,413
Rent 4,278 3,625 14,201 15,901
Miscellaneous 753 800 1,147 1,828
Gain on sale of fixed assets 4,071 - 1,954 22,829
Equity in net earnings of Diamond Golf 2,122 - 18,629 12,098
---------- ---------- ----------- -----------
26,709 41,713 182,878 222,007
---------- ---------- ----------- -----------
Operating Profit (Loss) before income
taxes and cumulative effect of a
change in accounting principle
36,133 (184,456) (627,503) (14,122)
Income taxes - currently refundable 0 0 23,147 285,598
---------- ---------- ----------- -----------
Net earnings (loss) before cumulative
effect of a change in accounting
principle 36,133 (184,456) (604,356) 271,476
Cumulative effect on prior years of an
accounting change 0 0 105,811 0
---------- ---------- ----------- -----------
NET EARNINGS (LOSS) $ 36,133 $ (184,456) $ (498,545) $ 271,476
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Earnings (loss) per common share before
cumulative effect of a change in
accounting principle $ 0.23 $ (1.18) $ (3.86) $ 1.74
Earnings per common share on cumulative effect
on prior years of an accounting change 0 0 0.67 0
---------- ---------- ----------- -----------
Net earnings (loss) per common share $ 0.23 $ (1.18) $ (3.19) $ 1.74
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement
F-4
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A
Preferred Stock Common Stock
------------------------ ------------------------- Additional
Shares Shares Paid-in Retained
Outstanding Amount Outstanding Amount Capital Earnings
----------- ------ ----------- ------ ------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 100 $ 100,000 156,442 $ 500 $ 229,295 $1,699,990
Net earnings 0 0 0 0 0 271,476
-------- ---------- -------- -------- ---------- ----------
Balance at December 31, 1995 100 100,000 156,442 500 229,295 1,971,466
Net (loss) 0 0 0 0 0 (498,545)
-------- ---------- -------- -------- ---------- ----------
Balance at December 31, 1996 100 100,000 156,442 500 229,295 $1,472,921
Net Earnings - - - - - $ 36,132
Balance at March 31, 1997
(unaudited) 100 $ 100,000 156,442 $ 500 $ 229,295 $ 1,509,053
-------- ---------- -------- -------- ---------- ----------
-------- ---------- -------- -------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31 Year ended December 31
--------------------------- -------------------------
1997 1996 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) for the year $ 36,132 $ (184,456) $ (498,545) $ 271,476
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities
Depreciation and amortization 36,166 41,656 173,533 202,286
(Gain) on sale of fixed assets (4,071) - (1,954) (22,829)
Equity in net (earnings) of Diamond Golf (2,123) - (18,629) (12,098)
Changes in assets and liabilities
Accounts and notes receivable (1,029,518) (852,274) 1,495 (699,337)
Inventories (575,364) (956,523) (270,350) (194,250)
Prepaid expenses (79,092) (349,021) (157,369) 60,737
Other assets (19,346) (1,143)
Accounts payable 1,478,728 2,287,973 1,370,178 538,076
Accrued liabilities 131,204 71,849 25,936 4,936
Unearned revenue 77,861 124,480 21,244 7,483
Income taxes (42,911) (30,589)
---------- ---------- ---------- ---------
Net cash provided by operating
activities 69,923 183,684 583,282 124,748
Cash flows from investing activities
Proceeds from sale of fixed assets 6,943 - 2,100 22,829
Purchases of fixed assets (6,852) (16,483) (83,813) (76,330)
Payments received on note receivable 1,052 2,171 18,586 10,183
---------- ---------- ---------- ---------
Net cash provided by (used in)
investing activities 1,143 (14,312) (63,127) (43,318)
Cash flows from financing activities
Lines of credit payable - net 0 0 (2,260,315) 510,315
Principal payments on long-term debt (148,107) (63,232) (567,787) (432,444)
Principal payments on capital leases (11,409) (8,300) (37,859) (51,733)
Principal payments on note payable
guarantee - ESOP 39,032 - 156,130 156,129
Proceeds from issuance of long-term debt 52,500 39,032 2,586,892 0
---------- ---------- ---------- ---------
Net cash (used in) provided by
financing activities (67,984) (32,500) (122,939) 182,267
---------- ---------- ---------- ---------
Net increase in cash 3,082 136,872 397,216 263,697
Cash (bank overdrafts) at beginning of Period 297,192 (100,024) (100,024) (363,721)
---------- ---------- ---------- ---------
Cash (bank overdrafts) at end of Period $ 300,274 $ 36,848 $ 297,192 $(100,024)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of this statement
F-6
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
Year ended December 31
----------------------
1996 1995
---- ----
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid (refunded) during the year for:
Interest $ 271,046 $ 304,706
---------- ----------
---------- ----------
Income taxes $ (211,423) $ 24,607
---------- ----------
---------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Equipment acquired by capital lease agreement $ 11,025 $ 0
---------- ----------
---------- ----------
Advance to Diamond Golf paid from proceeds
from issuance of long-term debt $ 99,980 $ 0
---------- ----------
---------- ----------
The accompanying notes are an integral part of this statement
F-7
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND ACCOUNTING POLICIES
Dynacraft Golf Products, Inc. (the Company) is a supplier of component golf
club equipment (golf clubheads, shafts, grips and other accessory golf
products) to clubmakers through its catalog and showroom. The Subsidiary,
Pal Joey Custom Golf, Inc., is a wholesaler of finished golf clubs to golf
distributors for resale. Through its Pro Shop Division it is a retailer of
golf equipment, attire and accessories.
CONSOLIDATION
The consolidated financial statements include the accounts of Dynacraft
Golf Products, Inc. and its wholly-owned subsidiary, Pal Joey Custom Golf,
Inc. Pal Joey Custom Golf, Inc. includes the accounts of its wholly-owned
subsidiary Dynacraft Real Estate Holdings, Inc. All significant
intercompany transactions have been eliminated.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. There were no cash equivalents at
December 31, 1996 and 1995.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any
losses in such accounts. The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents.
INVENTORIES
Inventory consists primarily of golf clubs, golf clubheads, shafts, grips,
golf attire and accessories valued at the lower of absorption costing or
market which approximates the first-in, first-out (FIFO) method.
ADVERTISING COSTS
The Company's policy is to expense advertising costs as incurred, except
for catalog expenses which are capitalized and amortized over their
expected period of future benefits, twelve months.
At December 31, 1996, $180,494 of advertising costs were reported as
prepaid assets and $82,882 at December 31, 1995. Advertising expense was
$287,016 and $438,069 for the years ended December 31, 1996 and 1995,
respectively.
F-8
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - ORGANIZATION AND ACCOUNTING POLICIES - CONTINUED
RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1995 financial
statements to conform with the December 31, 1996 financial statement
presentation. Such reclassifications have had no effect on net income as
previously reported.
PROPERTY AND EQUIPMENT
Major improvements and additions to property and equipment are charged to
the property accounts while replacements, maintenance and repairs which do
not improve or extend the life of the assets are expensed currently.
Upon the sale or retirement of property and equipment, the costs and
related accumulated depreciation are eliminated from the respective
accounts.
DEPRECIATION
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated services lives,
principally on the declining-balance method.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES,
which requires the use of the asset and liability approach of accounting
for deferred income taxes. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts of assets and liabilities and their respective
tax bases.
F-9
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - ACCUMULATED DEPRECIATION
A summary of the accumulated depreciation, including methods and lives, was
as follows at December 31:
Lives
Classification Method (Years) 1996 1995
-------------- ------ ------- ---- ----
Buildings and
improvements Straight-line 10-31 $ 713,575 $ 637,690
Equipment,
furniture and Straight-line and
fixtures declining-balance 5 - 7 1,089,120 1,020,831
Vehicles Declining-balance 5 - 10 18,889 14,603
---------- ----------
$1,821,584 $1,673,124
---------- ----------
---------- ----------
NOTE C - LEASE OBLIGATIONS
The Company leases equipment under various operating leases expiring in
1997 - 1999 and also leases equipment on a short-term basis as needed.
Total rent expense for the years ended December 31, 1996 and 1995 was
$15,905 and $15,783, respectively.
The Company is leasing computer and other equipment under capital lease
agreements. These assets are recorded as equipment on the balance sheet.
Equipment $364,913
Accumulated depreciation 329,866
---------
$ 35,047
---------
F-10
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - LEASE OBLIGATIONS - CONTINUED
Future minimum lease payments under capital leases, together with the
present value of the minimum lease payments as of December 31, 1996, were
as follows:
Year Amount
---- ------
1997 $ 55,876
1998 15,216
1999 13,315
2000 2,854
---------
87,261
Less: Amounts representing interest 12,001
---------
Present value of net lease payments 75,260
Current portion 47,484
---------
Long-term portion $ 27,776
---------
---------
<TABLE>
<CAPTION>
NOTE D - LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
1996 1995
---- ----
<S> <C> <C>
Note payable to a bank in 60 monthly principal
and interest payments of $243 at an interest
rate of 7.11% collateralized by a truck. Final
payment due May 16, 1998 $3,916 $6,454
ESOP note payable to a bank due in monthly
installments of $13,011 plus interest at
prime plus 2.50% (currently 10.75%). The
monthly installment increases to $20,872
on April 31, 1998. Final payment due
January 31, 2000. Collateralized by
inventory, equipment, accounts receivable
and real estate 638,256 794,386
Note payable to a bank due in monthly installments
of $5,833 plus interest at prime plus 1% - 111,252
F-11
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - LONG-TERM DEBT - CONTINUED
Note payable to a bank due in monthly installments
of $7,861 plus interest at prime plus 1%
(currently 9.25%). Final payment due March 30,
1998. The note is collateralized by property and
equipment 106,701 292,872
Note payable to a bank in monthly installments of
$29,344. Interest is at the U.S. Treasury constant
maturities rate (currently 8.375%). Final payment
due June 20, 2003 collateralized by cash, accounts
receivable inventory, intangibles, equipment, and
real estate. 1,781,808 -
Subordinated note payable to a stockholder in
monthly installments of $4,102 which includes
interest at an interest rate of 9.625%. Final
payment due June 1, 2001. 233,407 -
Subordinated note payable to a stockholder in
monthly installments of $4,102 which includes
interest at an interest rate of 9.625%. Final
payment due June 1, 2001. 233,407 -
Note payable to a stockholder on demand.
Interest is at prime plus 1% (currently 9.25%).
The stockholder has agreed not to call the
note during the year to end December 31, 1997. 200,000 -
Note payable to a stockholder on demand. Interest
is at 7.20%. The stockholder has agreed not to
call the note during the year to end December 31,
1997. 35,784 -
Note payable to a stockholder on demand. Interest
is at 7.00%. The stockholder has agreed not to
call the note during the year to end December 31,
1997. 90,770 -
---------- ----------
3,324,049 1,204,964
Less current maturities 515,134 252,999
---------- ----------
---------- ----------
Long-term portion $2,808,915 $ 951,965
---------- ----------
---------- ----------
</TABLE>
F-12
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - LONG-TERM DEBT - CONTINUED
As of December 31, 1996, long-term debt matures as follows:
Year Amount
---- ------
1997 $ 515,134
1998 857,305
1999 566,871
2000 349,647
2001 507,888
Thereafter 527,204
----------
$3,324,049
----------
----------
At December 31, 1995 the Company had two revolving line of credit
agreements with a bank with interest at prime plus 2.50%. Both lines
expired on July 1, 1995. The bank continued to honor the old agreements
while new agreements were negotiated. Under the first agreement, the
Company had a $1,800,000 line of credit of which $1,621,530 was outstanding
at December 31, 1995. Under the second agreement, the Company had a
$650,000 line of credit of which $638,785 was outstanding at December 31,
1995. The lines of credit were refinanced with long-term debt during 1996.
NOTE E - RELATED PARTY TRANSACTIONS
The Company is related to Dynamic Precision Casting Manufacturing Company,
Ltd. (Dynamic), since one of the Company's preferred stockholders is also a
stockholder in Dynamic. During the years ended December 31, 1996 and 1995,
the Company purchased products from Dynamic totaling $2,335,155 and
$2,604,678 respectively. At December 31, 1996 and 1995 the Company had
accounts payable to Dynamic of $838,167 and $295,891, respectively.
The Company paid $1,000 in consulting fees to stockholders during 1995.
The Company has advances of $52,889 and $49,635 to stockholders and
employees at December 31, 1996 and 1995, respectively, which are receivable
upon demand.
F-13
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - STOCKHOLDERS' EQUITY
At December 31, 1996, the Company had 194,900 common shares authorized
without par value with 156,442 shares issued and outstanding, of which
29,301 are shares in the Company's ESOP. In addition, the Company has 100
shares authorized, issued and outstanding of Class A preferred stock with a
par value of $1,000 per share noncumulative and a liquidating preference of
$1,000 per share. The Company is obligated to redeem these shares upon
demand of the stockholder.
NOTE G - PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan. All employees are eligible to
participate on January 1 or July 1 following six months of service. The
Company currently matches 25% of the employee contributions to the plan.
Contributions were $33,022 and $46,069 for the years ended December 31,
1996 and 1995, respectively.
NOTE H - EMPLOYEE STOCK OWNERSHIP PLAN
On January 1, 1991, the Company established an employee stock ownership
plan (ESOP) for purposes of assisting employees who retire.
Under the plan, a stockholder sold to the ESOP 29,301 shares of common
stock for $1,500,000. In order to have the funds available to acquire the
Dynacraft Golf Products, Inc. stock, the Company borrowed $1,500,000 from a
bank and loaned it to the ESOP (see Note D).
In accordance with American Institute of Certified Public Accountants
(AICPA) Statement of Position 76-3, the recording of the note payable
amount is offset by a corresponding reduction of stockholders' equity. Both
amounts are reduced by principal payments made during the year. At December
31, 1996 and 1995, the outstanding principal balance was $638,256 and
$794,386, respectively.
Under the ESOP agreement, each employee who has completed six months of
service may participate in the plan. Participating employees of the Company
are able to acquire shares of the Company stock allocated to them based on
their annual compensation. The shares are held by a trustee and allocated
to the employees based on principal payments made by the Company on the
outstanding loan.
The total amounts contributed to the ESOP for the years ended December 31,
1996 and 1995, were $229,449 and $246,507, respectively, with $156,132
representing the principal portions which were allocated to the
participants' accounts.
F-14
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - INVESTMENT IN FOREIGN COMPANY
The Company has a 51% (32,845 shares) ownership interest in Diamond Golf
International Limited (Diamond Golf). Diamond Golf is a limited company
under English law in Great Britain, which engages in the sale of golf club
components and other golfing-related items throughout the countries of the
European Economic Community.
The Company's investment in Diamond Golf is accounted for under the equity
method. The Company's investment was $214,892 and $196,263 at December 31,
1996 and 1995, respectively. The Company's equity in the gain of Diamond
Golf International Limited was $18,629 and $12,098 for the years ended
December 31, 1996 and 1995, respectively. Diamond Golf had total assets of
$410,851 and total liabilities of $380,037 at December 31, 1996. Net income
for the year ended December 31, 1996 was $36,527.
During the years ended December 31, 1996 and 1995, the Company sold
$275,973 and $295,628, respectively, of products to Diamond Golf. As of
December 31, 1996 and 1995, the Company had accounts receivable from
Diamond Golf International Limited in the amount of $96,125 and none,
respectively.
NOTE J - INCOME TAXES
Deferred income taxes reflect the impact of "temporary differences" between
the amounts of assets and liabilities for financial reporting purposes and
such amounts as determined by tax regulations. These temporary differences
are determined in accordance with SFAS No. 109.
The components of deferred taxes at December 31 are as follows:
1996 1995
---- ----
Inventories $ 60,000 $ 76,200
Bad debt 30,300 9,800
Net operating loss carryforwards 275,700 88,600
Contribution carryforwards 15,000 15,000
Officer wages 1,800 2,200
Depreciation (700) 900
--------- ---------
Total deferred tax assets 382,100 192,700
Less valuation allowance (382,100) (192,700)
--------- ---------
Net deferred income taxes $ - $ -
--------- ---------
--------- ---------
F-15
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE J - INCOME TAXES - CONTINUED
Due to the uncertainty surrounding the realization of these favorable tax
attributes in future tax returns, all of the net deferred tax assets have
been fully offset by a valuation allowance.
Operating loss carryforwards expire as follows: $156,003 in 2005 and
$533,148 in 2011. Charitable contribution carryforwards expire as follows:
$13,742 in 1998, $19,244 in 1999 and $4,610 in 2000.
During the year ended December 31, 1996 a settlement was reached with the
Internal Revenue Service regarding an examination of the Company's federal
income tax returns for 1990, 1991 and 1992. The Company accrued $42,911 at
December 31, 1995 for taxes due on the settlement. Total actual additional
taxes, penalties and interest paid in 1996 amounted to $56,411.
NOTE K - CONTINGENCIES
During the year ended December 31, 1995 it was discovered that the site of
the Company's manufacturing, warehousing and office facility contained
ground water that was deemed to be contaminated. The contamination appears
to have been caused by a neighboring business. No amounts have been accrued
on the balance sheet for the clean up as the cost is not yet estimable, nor
is it probable that the Company will be required to pay for any clean up.
NOTE L - CHANGE IN ACCOUNTING PRINCIPLE
During the year ended December 31, 1996 the Company changed its method for
valuing inventory from lower of average cost or market to lower of
absorption costing or market. Absorption costing is preferable to average
cost for manufacturing and warehousing business.
The effect of this change in 1996 income is an increase of $73,149. In
addition to this effect, a cumulative effect of the accounting change for
prior periods of $105,811 is recognized in the current year. The total
increase in income from the accounting change is $178,960.
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following presents the carrying amounts of the Company's financial
instruments at December 31, 1996. FASB Statement 107, DISCLOSURES ABOUT
FAIR VALUES OF FINANCIAL INSTRUMENTS, defines fair value of financial
instruments as the amount at which the instrument could be exchanged in a
current transaction between willing parties.
F-17
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
Notes receivable, account receivable - Diamond Golf, accounts receivable -
other and refundable income taxes: The carrying amounts approximate fair
value because of the short maturity of these instruments.
Accounts receivable stockholders and employees: It is not practicable to
estimate the fair value. There are no stated repayment terms. However,
interest is charged on the receivable at 7%. It is management's intention
to record the receivable as a bonus to the stockholders if they have not
been repaid during 1997.
Notes payable, capital lease obligations: The carrying amounts approximate
fair value. The notes were negotiated and obtained during the year ended
December 31, 1996. Due to the recent nature of these transactions, the
rates and terms of the notes are comparable to the rates and terms
available to the Company at December 31, 1996. The notes payable carried
over from prior years have interest rates that are adjusted annually and
the carrying amounts approximate fair value.
F-18
<PAGE>
[DYNACRAFT LOGO]
1-800-942-5872
Dynacraft markets a full range of golf components, clubs, tools,
schools, and services to golfers and clubmakers in the U.S., Europe, and
other leading international markets. Offering both its own Dynacraft
products and those of leading part and component suppliers, the company also
provides customers with strong support through its Technical Staff, available
through a toll-free telephone number and Dynacraft's World Wide Web site;
education through the Dynacraft Clubmaking Institute, which offers courses on
clubmaking, repair, fitting, and others; and cutting-edge information on the
golf components industry through the CLUBMAKER'S DIGEST magazine.
<PAGE>
[DYNACRAFT LOGO]
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Division (E) of Section 1701.13 of the Ohio Revised Code governs
indemnification by a corporation and provides as follows:
(E)(1) A corporation may indemnify or agree to indemnify any
person who was or is a party, or is threatened to be made a party, to
any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, other than an
action by or in the right of the corporation, by reason of the fact that
he is or was a director, officer, employee, member, manager, or agent of
the corporation, or is or was serving at the request of the corporation
as a director, trustee, officer, associate, or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited
liability company, or a partnership, joint venture, trust or other
enterprise, against expenses, including attorney's fees, judgments,
fines, and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit, or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to
any criminal action or proceeding, if he had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit,
or proceeding by judgment, order, settlement, or conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create
a presumption that the person did not act in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding,
he had reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person
who was or is a party, or is threatened to be made a party, to any
threatened, pending, or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee, member, manager, or
agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, member, manager,
or agent of another corporation, domestic or foreign, nonprofit or for
profit, a limited liability company, or a partnership, joint venture,
trust, or other enterprise, against expenses, including attorney's fees,
actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be
made in respect of any of the following:
(a) Any claim, issue, or matter as to which such person is
adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless, and only to
the extent that, the court of common pleas or the court in which
such action or suit was brought determines, upon application,
that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court
of common pleas or such other court shall deem proper;
(b) Any action or suit in which the only liability asserted
against a director is pursuant to section 1701.95 of the Revised
Code.
II-1
<PAGE>
(3) To the extent that a director, trustee, officer, employee,
member, manager, or agent has been successful on the merits or otherwise
in defense of any action, suit, or proceeding referred to in division
(E)(1) or (2) of this section, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses, including
attorney's fees, actually and reasonably incurred by him in connection
with the action suit or proceeding
(4) Any indemnification under division (E)(1) or (2) of this
section, unless ordered by a court, shall be made by the corporation
only as authorized in the specific case, upon a determination that
indemnification of the director, trustee, officer, employee, member,
manager, or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in division (E)(1) or (2) of
this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors
of the indemnifying corporation who were not and are not parties
to or threatened by the action, suit, or proceeding referred to
in division (E)(1) or (2) of this section;
(b) If the quorum described in division (E)(4)(a) of this
section is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by
independent legal counsel other than an attorney, or a firm
having associated with it an attorney, who has been retained by
or who has performed services for the corporation or any person
to be indemnified within the past five years;
(c) By the shareholders; or
(d) By the court of common pleas or the court in which such
action, suit or proceeding referred to in division (E)(1) or (2)
of this section was brought.
Any determination made by the disinterested directors under
division (E)(4)(a) or by independent legal counsel under division
(E)(4)(b) of this section shall be promptly communicated to the person
who threatened or brought the action or suit by or in the right of the
corporation under division (E)(2) of this section, and, within ten days
after receipt of such notification, such person shall have the right to
petition the court of common pleas or the court in which such action or
suit was brought to review the reasonableness of such determination.
(5)(a) Unless at the time of a director's act or omission that
is the subject of an action, suit, or proceeding referred to in division
(E)(1) or (2) of this section, the articles or the regulations of a
corporation state, by specific reference to this division, that the
provisions of this division do not apply to the corporation and unless
the only liability asserted against a director in an action, suit, or
proceeding referred to in division (E)(1) or (2) of this section is
pursuant to section 1701.95 of the Revised Code, expenses, including
attorney's fees, incurred by a director in defending the action, suit,
or proceeding shall be paid by the corporation as they are incurred, in
advance of the final disposition of the action, suit, or proceeding,
upon receipt of an undertaking by or on behalf of the director in which
he agrees to both of the following:
(i) Repay such amount if it is proved by clear and
convincing evidence in a court of competent jurisdiction
that his action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury
to the corporation or undertaken with reckless disregard for
the best interests of the corporation;
II-2
<PAGE>
(ii) Reasonably cooperate with the corporation
concerning the action, suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a
director, trustee, officer, employee, member, manager, or agent
in defending any action, suit, or proceeding referred to in
division (E)(1) or (2) of this section, may be paid by the
corporation as they are incurred, in advance of the final
disposition of the action, suit, or proceeding, as authorized by
the directors in the specific case, upon receipt of an
undertaking by or on behalf of the director, trustee, officer,
employee, member, manager, or agent to repay such amount, if it
ultimately is determined that he is not entitled to be
indemnified by the corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to
those seeking indemnification under the articles, the regulations, any
agreement, a vote of shareholders or disinterested directors, or
otherwise, both as to action in their official capacities and as to
action in another capacity while holding their offices or positions, and
shall continue as to a person who has ceased to be a director, trustee,
officer, employee, member, manager, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish
similar protection, including, but not limited to, trust funds, letters
of credit, or self-insurance, on behalf of or for any person who is or
was a director, officer, employee, or agent of the corporation, or is or
was serving at the request of the corporation as a director, trustee,
officer, employee, member, manager, or agent of another corporation,
domestic or foreign, nonprofit or for profit, a limited liability
company, or a partnership, joint venture, trust, or other enterprise,
against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section. Insurance may be purchased from or maintained with
a person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant
to division (E)(1) or (2) of this section does not limit the payment of
expenses as they are incurred, indemnification, insurance, or other
protection that may be provided pursuant to divisions (E)(5), (6), and
(7) of this section. Divisions (E)(1) and (2) of this section do not
create any obligation to repay or return payments made by the
corporation pursuant to division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation"
includes all constituent entities in a consolidation or merger and the
new or surviving corporation, so that any person who is or was a
director, officer, employee, trustee, member, manager, or agent of such
a constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign, nonprofit
or for profit, a limited liability company, or a partnership, joint
venture, trust, or other enterprise, shall stand in the same position
under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same
capacity.
Section 5.01 of the Registrant's Code of Regulations governs
indemnification by Registrant and provides as follows:
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<PAGE>
SECTION 5.01. MANDATORY INDEMNIFICATION. The corporation shall
indemnify any officer or director of the corporation who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, without limitation, any
action threatened or instituted by or in the right of the corporation),
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, member, manager
or agent of another corporation (domestic or foreign, nonprofit or for
profit), limited liability company, partnership, joint venture, trust or
other enterprise, against expenses (including, without limitation,
attorneys' fees, filing fees, court reporters' fees and transcript
costs), judgments, fines and amounts paid in settlement if actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he
had no reasonable cause to believe his conduct was unlawful. A person
claiming indemnification under this Section 5.01 shall be presumed, in
respect of any act or omission giving rise to such claim for
indemnification, to have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal matter, to have had no
reasonable cause to believe his conduct was unlawful, and the
termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, rebut such presumption.
In addition, the Registrant intends to purchase insurance coverage which
will insure directors and officers against certain liabilities which might be
incurred by them in such capacity.
Insofar as indemnification for liabilities arising under the Securities
Act, indemnification may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing section. The Registrant
has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses of the Registrant in connection with the issuance and
distribution of the securities being registered are estimated as follows,
assuming the Maximum offering amount is sold:
Securities and Exchange Commission filing fee...... $ 700
Blue sky fees and expenses......................... 10,000
Accountant's fees and expenses..................... 10,000
Special Counsel's fees and expenses................ 75,000
General Counsel's fees and expenses................ 50,000
Printing........................................... 30,000
Postage............................................ 35,000
Marketing expenses................................. 28,000
Stock exchange listing fees........................ 15,000
Miscellaneous-Increasing authorized shares......... 8,800
-------
Total...................................... $ 262,500
-------
-------
The Registrant will bear all expenses shown above.
II-4
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information is given for all securities that Dynacraft Golf
Products, Inc. (the "Company") sold within the past three years without
registering the securities under the Securities Act:
(a)
Date Title Amount
---- ----- ------
October 26, 1994 Common Stock 51,642 shares
(b) no underwriters were used in connection with any of the issuances of
shares.
The class of persons to whom the company issued shares were
members of the family of the major shareholders of the Company, who were
also owners of J&J Enterprises who owned the real estate leased by the
Company for the operation of its business and certain adjacent
properties.
(c) No underwriters were used in connection with of the issuances of shares so
there were no underwriting discounts or commissions. The transactions and the
types and amounts of consideration received by the Company were:
51,462 Common Shares were issued in exchange for certain assets, real
estate (as shown under "Buildings and Improvements" in the Consolidated Balance
Sheet and described under "Business: Properties/Facilities" in the Prospectus)
and liabilities as follows:
Cash $ 2,617
Accounts Receivable 2,066
Property and Equipment 926,250
Term debt (522,042)
Accounts Payable (194,622)
-----------
$ 214,269
-----------
-----------
The Company and J&J Enterprises were entities under Common Control and as such,
assets and liabilities had been recorded at their historical cost.
(d) The Company claimed exemption from registration under section 4(2) of the
Securities Act as a transaction by an issuer not involving any public offering.
Both of the persons to whom the Company issued shares are active in management
of the Company, or closely related to managers of the business. No resale or
other distribution of the shares has been made, contracted for or is intended.
II-5
<PAGE>
ITEM 27. EXHIBITS
The exhibits listed below are filed as part of this Registration
Statement pursuant to Item 601 of Regulation S-B.
Exhibit
Number Description
- ------- -----------
3.1 Form of Second Amended and Restated articles of Incorporation
3.2 Form of Code of Regulations
4.1 Form of common stock certificate
5 Opinion of Vorys, Sater, Symour and Pease with respect to the
legality of the shares
being registered
9 Lock in Agreement for Shares of the Common Shares of Dynacraft
Golf Products, Inc.
10.1 Bank One-Letter of Agreement-June 4, 1996
10.2 Huntington National Bank-June 20, 1996
a) Loan Agreement
b) Commercial Loan Note
c) Guarantor: Joseph A. Altomonte, Sr. and
Joseph A. Altomonte, Jr.
d) Security Agreement: Dynacraft Golf Products, Inc. and
Pal Joey Custom Golf, Inc.
e) Commercial Loan Note and Subordination Agreement:
Joseph A. Altomonte, Sr. and
Joseph A. Altomonte, Jr.
10.3 Letter of Credit Agreement and Irrevocable Stanby Letter of
Credit
10.4 Modification to June 20, 1996 Loan Agreement
10.5 Four Shareholder Promissory Notes
10.6 401(k) Profit Sharing Plan and Trust
10.7 Employees Stock Ownership Plan and Amendments
18. Letter on change in accounting principles
21. Subsidiaries of Registrant
23.1 Consent of Wilson, Shannon & Snow, Inc.
23.2 Consent of Vorys, Sater, Seymour and Pease (included in
Exhibit 5)
24 Powers of Attorney (included on Signature page)
99.1 Share Purchase Agreement
99.2 Impound Agreement
ITEM 28. UNDERTAKINGS.
(a) The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this
registration statement to:
(i) Include any prospectus required by section 10(a)(3)
of the Securities Act
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
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<PAGE>
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration
statement of the securities offered, and the offering of
the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(e) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that is has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Newark,
State of Ohio, on July , 1997.
By:__________________________________
JOSEPH A. ALTOMONTE, JR., CHIEF EXECUTIVE OFFICER
Each person whose signature appears below appoints Joseph A. Altomonte,
Jr. his or her attorney-in-fact, with full power of substitution and
resubstitution, to sign any and all amendments (including post-effective
amendments) to this registration statement on Form SB-2 of Dynacraft Golf
Products, Inc. and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
or her substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Joseph A. Altomonte, Sr. Chairman of the Board, Director July 17, 1997
- ----------------------------
JOSEPH A. ALTOMONTE, SR.
/s/ Joseph A. Altomonte, Jr. Chief Executive Officer, Director July 17, 1997
- ---------------------------- Principal Executive Officer
JOSEPH A. ALTOMONTE, JR
/s/ Jeff Jackson President of Dynacraft, Director July 17, 1997
- ----------------------------
JEFF JACKSON
/s/ Jack Kehl President of Pal Joey, Director July 17, 1997
- ----------------------------
JACK KEHL
/s/ Duane R. Egeland Chief Financial Officer, Director July 17, 1997
- --------------------------- Principal Financial and Accounting
DUANE R. EGELAND Officer
/s/ Chris Treacy President of Diamond Golf, July 17, 1997
- ---------------------------- Director
CHRIS TREACY
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<PAGE>
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DYNACRAFT GOLF PRODUCTS, INC.
FIRST: The name of the corporation shall be Dynacraft Golf Products,
Inc.
SECOND: The place in Ohio where the principal office of the corporation
is to be located is in the City of Newark, County of Licking.
THIRD: The purpose for which the corporation is formed is to engage in
any lawful act or activity for which corporations may be formed under Sections
1701.01 to 1701.98 of the Ohio Revised Code.
FOURTH:
4.1. AUTHORIZED SHARES.
The maximum number of shares of all classes which the corporation is
authorized to have outstanding is 3,500,100, consisting of 3,500,000 Common
Shares (the "Common Shares") with no par value and 100 Preferred Shares (the
"Preferred Shares") with par value of $1,000.00 each.
4.2 PREFERRED SHARES, PAR VALUE $1,000.00 PER SHARE.
The terms of the Preferred Shares, par value $1,000.00 per share, shall be
as follows:
<PAGE>
The holders of the then outstanding Preferred Shares shall be entitled to
receive cash dividends if, as, and when declared by the board of directors out
of any funds legally available therefor. Dividends shall not be cumulative. As
long as any Preferred Shares are outstanding, no dividends shall be paid with
respect to the Common Shares during any fiscal year of the corporation at a rate
greater than the "applicable rate" at which dividends are paid on the Preferred
Shares, and dividends on the Preferred Shares shall be paid before dividends are
paid on the Common Shares. For purposes of this Article FOURTH, the "applicable
rate" is defined as the rate at which the holder of 100 Preferred Shares will be
entitled to receive the same dividend to which a holder of 26 Common Shares, as
constituted on December 11, 1990, would be entitled. The calculation of such
"applicable rate" shall take into account any stock split or stock dividend
declared on the Common Shares after December 11, 1990. This paragraph applies
only to cash dividends, and the Preferred Shares shall not participate in any
other type of dividend, distribution or exchange involving the Common Shares.
Upon dissolution, liquidation, or winding up of the corporation, whether
voluntary or involuntary, the holders of the Preferred Shares shall be entitled
to receive in cash, out of any assets of the corporation, whether surplus assets
or otherwise, before any payment shall be made to the holders of Common Shares,
the sum of $1,000.00 per share, together with all accrued and unpaid dividends
thereon to the day of payment. After the payment of the entire preferential
amounts provided for in the
2
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preceding sentence, the holders of the Preferred Shares shall not be entitled
to any further participation in any distribution of the assets or funds of
the corporation upon any dissolution, liquidation, or winding up of the
corporation, and the remaining assets and funds of the corporation shall be
divided and distributed among the holders of the Common Shares then
outstanding, according to their respective interests.
Upon any consolidation or merger of the corporation with any other
corporation or corporations, or upon the sale of all or substantially all of the
assets of the corporation, any preferred shareholder who does not expressly
consent thereto shall be entitled to require the corporation to redeem his
Preferred Share or Shares and to receive therefor in cash, out of the assets of
the corporation, whether surplus assets or otherwise, before such consolidation
or merger or such sale shall be consummated, the sum of $1,000.00 per share,
together with all declared and unpaid dividends thereon to the date of payment.
The corporation may, at the option of the board of directors, at any time,
redeem the whole of the Preferred Shares or, from time to time, any part of the
Preferred Shares, by paying to the holder or holders of record $1,000.00 per
share, plus all declared and unpaid dividends thereon to the date of redemption.
If fewer than all of the Preferred Shares are to be redeemed, the shares to be
redeemed shall be selected by such method as the board of directors in its
discretion shall determine, without regard to the limitations of Section 1701.23
of the Ohio Revised Code, or any statute of like tenor or effect which may
hereafter be enacted. Notice of the intention of
3
<PAGE>
the corporation to redeem Preferred Shares and of the date, price, and place
of redemption shall be mailed by first class mail, postage prepaid, not less
than fifteen nor more than sixty days before the date fixed for redemption to
each holder of record of the shares to be redeemed at his last known post
office address as shown by the records of the corporation. If such notice of
redemption shall have been duly given and, if on or before the redemption
date so fixed all funds necessary for such redemption shall have been
deposited or otherwise set apart so as to be available therefor, then on such
date, and regardless of whether or not any certificates for Preferred Shares
so called for redemption shall have been presented for cancellation, all such
shares shall cease to be outstanding, and all rights of the holders with
respect to them shall cease and terminate, except only the right to receive
the amount payable upon redemption, but without interest. Monies deposited
or set apart for the purpose of redemption which shall remain unclaimed at
the end of six years from the date of deposit or setting apart, shall belong
to the corporation, free from any claim of the holders of the Preferred
Shares which have been called for redemption.
If no dividends on the Preferred Shares are paid for a period of more than
two years, the holders of the Preferred Shares shall thereupon become entitled
to redeem the whole of the Preferred Shares or, from time to time, any part of
the Preferred Shares, by notifying the corporation in writing of the intention
to redeem and delivering to the corporation the duly endorsed stock certificate
representing the shares to be redeemed. The corporation shall pay any redeeming
holder of Preferred Shares
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$1,000.00 per share, plus all declared and unpaid dividends thereon to the
date of redemption.
Except as may otherwise be required by the laws of the State of Ohio, all
voting power of the corporation for all purposes is vested exclusively in the
holders of the Common Shares, and the holders of the Preferred Shares shall
not be entitled to vote thereon at meetings of the shareholders of the
corporation, nor to receive notices of such meetings. The holders of Common
Shares shall be entitled to one vote for each Common Share held.
FIFTH: The directors of the corporation shall have the power to cause
the corporation from time to time and at any time to purchase, hold, sell,
transfer or otherwise deal with (A) shares of any class or series issued by
it, (B) any security or other obligation of the corporation which may confer
upon the holder thereof the right to convert the same into shares of any
class or series authorized by the Articles, and (C) any security or other
obligation which may confer upon the holder thereof the right to purchase
shares of any class or series authorized by the Articles. The corporation
shall have the right to repurchase, if and when any shareholder desires to
sell, or on the happening of any event is required to sell, shares of any
class or series issued by the corporation. The authority granted in this
Article FIFTH of these Articles shall not limit the plenary authority of the
directors to purchase, hold, sell, transfer or otherwise deal with shares of
any class or series, securities, or other obligations issued by the
corporation or authorized by these Articles.
5
<PAGE>
SIXTH: No shareholder of the corporation shall have, as a matter of
right, the pre-emptive right to purchase or subscribe for shares of any class,
now or hereafter authorized, or to purchase or subscribe for securities or other
obligations convertible into or exchangeable for such shares or which by
warrants or otherwise entitle the holders thereof to subscribe for or purchase
any such share.
SEVENTH: Notwithstanding any provision of the Ohio Revised Code requiring
for any purpose the vote, consent, waiver or release of the holders of shares of
the corporation entitling them to exercise two-thirds or any other proportion of
the voting power of the corporation or of any class or classes of shares
thereof, such action, unless expressly provided otherwise by statute or by the
regulations of the corporation, may be taken by the vote, consent, waiver or
release of the holders of shares entitling them to exercise not less than a
majority of the voting power of the corporation or of such class or classes.
EIGHTH: Shareholders of the corporation shall not have the right to vote
cumulatively in the election of directors.
NINTH: Chapter 1704 of the Ohio Revised Code shall not apply to the
corporation.
TENTH: Section 1701.831 of the Ohio Revised Code shall not apply to control
share acquisitions of shares of the corporation.
ELEVENTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles in the manner now or hereafter
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prescribed by law and all rights conferred upon officers, directors and
shareholders herein are granted subject to this reservation.
TWELFTH: These Articles take the place of and supersede the existing
Amended and Restated Articles of Incorporation of Dynacraft Golf Products, Inc.
in their entirety.
7
<PAGE>
EXHIBIT 3.2
CODE OF REGULATIONS
OF
DYNACRAFT GOLF PRODUCTS, INC.
(As amended to July ____, 1997)
INDEX
ARTICLE ONE
MEETINGS OF SHAREHOLDERS
Section 1.01. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Calling of Meetings . . . . . . . . . . . . . . . . . . . . 1
Section 1.03. Place of Meetings . . . . . . . . . . . . . . . . . . . . . 1
Section 1.04. Notice of Meetings. . . . . . . . . . . . . . . . . . . . . 1
Section 1.05. Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . 2
Section 1.06. Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.07. Votes Required. . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.08. Order of Business . . . . . . . . . . . . . . . . . . . . . 3
Section 1.09. Shareholders Entitled to Vote . . . . . . . . . . . . . . . 3
Section 1.10. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.11. Inspectors of Election. . . . . . . . . . . . . . . . . . . 3
ARTICLE TWO
DIRECTORS
Section 2.01. Authority and Qualifications. . . . . . . . . . . . . . . . 4
Section 2.02. Number of Directors and Term of Office. . . . . . . . . . . 4
Section 2.03. Election. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.04. Nominations . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.05. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.06. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.07. Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.08. Notice of Meetings. . . . . . . . . . . . . . . . . . . . . 6
Section 2.09. Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . 7
Section 2.10. Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.11. Executive Committee . . . . . . . . . . . . . . . . . . . . 7
Section 2.12. Compensation. . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.13. By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
ARTICLE THREE
OFFICERS
Section 3.01. Officers. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.02. Tenure of Office. . . . . . . . . . . . . . . . . . . . . . 8
Section 3.03. Duties of the Chairman of the Board . . . . . . . . . . . . 8
Section 3.04. Duties of the President . . . . . . . . . . . . . . . . . . 8
Section 3.05. Duties of the Vice Presidents . . . . . . . . . . . . . . . 8
Section 3.06. Duties of the Secretary . . . . . . . . . . . . . . . . . . 9
Section 3.07. Duties of the Treasurer . . . . . . . . . . . . . . . . . . 9
ARTICLE FOUR
SHARES
Section 4.01. Certificates. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.02. Transfers . . . . . . . . . . . . . . . . . . . . . . . . .10
Section 4.03. Transfer Agents and Registrars. . . . . . . . . . . . . . .10
Section 4.04. Lost, Wrongfully Taken or Destroyed Certificates. . . . . .10
Section 4.05. Uncertificated Shares . . . . . . . . . . . . . . . . . . .11
ARTICLE FIVE
INDEMNIFICATION AND INSURANCE
Section 5.01. Mandatory Indemnification . . . . . . . . . . . . . . . . .11
Section 5.02. Court-Approved Indemnification. . . . . . . . . . . . . . .12
Section 5.03. Indemnification for Expenses. . . . . . . . . . . . . . . .12
Section 5.04. Determination Required. . . . . . . . . . . . . . . . . . .12
Section 5.05. Advances for Expenses . . . . . . . . . . . . . . . . . . .13
Section 5.06. Article FIVE Not Exclusive. . . . . . . . . . . . . . . . .13
Section 5.07. Insurance . . . . . . . . . . . . . . . . . . . . . . . . .14
Section 5.08. Certain Definitions . . . . . . . . . . . . . . . . . . . .14
Section 5.09. Venue . . . . . . . . . . . . . . . . . . . . . . . . . . .14
ARTICLE SIX
MISCELLANEOUS
Section 6.01. Amendments. . . . . . . . . . . . . . . . . . . . . . . . .15
Section 6.02. Action by Shareholders or Directors Without a Meeting . . .15
ii
<PAGE>
CODE OF REGULATIONS
OF
DYNACRAFT GOLF PRODUCTS, INC.
(As amended to July ____, 1997)
ARTICLE ONE
MEETINGS OF SHAREHOLDERS
SECTION 1.01. ANNUAL MEETINGS. The annual meeting of the
shareholders for the election of directors, for the consideration of reports
to be laid before such meeting and for the transaction of such other business
as may properly come before such meeting, shall be held on the third Monday
in July in each year or on such other date as may be fixed from time to time
by the directors.
SECTION 1.02. CALLING OF MEETINGS. Meetings of the shareholders
may be called only by the chairman of the board, the president, or, in case
of the president's absence, death, or disability, the vice president
authorized to exercise the authority of the president; the secretary; the
directors by action at a meeting, or a majority of the directors acting
without a meeting; or the holders of at least fifty percent (50%) of all
shares outstanding and entitled to vote thereat.
SECTION 1.03. PLACE OF MEETINGS. All meetings of shareholders
shall be held at the principal office of the corporation, unless otherwise
provided by action of the directors. Meetings of shareholders may be held at
any place within or without the State of Ohio.
SECTION 1.04. NOTICE OF MEETINGS.
(A) Written notice stating the time, place and purposes of a
meeting of the shareholders shall be given either by personal delivery or by
mail not less than seven nor more than sixty days before the date of the
meeting, (1) to each shareholder of record entitled to notice of the meeting,
(2) by or at the direction of the president or the secretary. If mailed,
such notice shall be addressed to the shareholder at his address as it
appears on the records of the corporation. Notice of adjournment of a
meeting need not be given if the time and place to which it is adjourned are
fixed and announced at such meeting. In the event of a transfer of shares
after the record date for determining the shareholders who are entitled to
receive notice of a meeting of shareholders, it shall not be necessary to
give notice to the transferee. Nothing herein
Dynacraft Code of Regulations - As amended to July ___, 1997
<PAGE>
contained shall prevent the setting of a record date in the manner provided
by law, the Articles or the Regulations for the determination of shareholders
who are entitled to receive notice of or to vote at any meeting of
shareholders or for any purpose required or permitted by law.
(B) Following receipt by the president or the secretary of a
request in writing, specifying the purpose or purposes for which the persons
properly making such request have called a meeting of the shareholders,
delivered either in person or by registered mail to such officer by any
persons entitled to call a meeting of shareholders, such officer shall cause
to be given to the shareholders entitled thereto notice of a meeting to be
held on a date not less than seven nor more than sixty days after the receipt
of such request, as such officer may fix. If such notice is not given within
fifteen days after the receipt of such request by the president or the
secretary, then, and only then, the persons properly calling the meeting may
fix the time of meeting and give notice thereof in accordance with the
provisions of the Regulations.
(C) A shareholder seeking to bring business before an annual
meeting of the shareholders shall provide written notice thereof to the
Secretary of the corporation, stating his intent and the subject of business.
Such notice shall be personally delivered to, or mailed by United States
mail, postage prepaid, and received at, the principal executive offices of
the corporation not less than sixty, nor more than ninety days, prior to the
date of the annual meeting. If, however, notice or public disclosure of the
date of the annual meeting is given or made less than seventy days prior to
the annual meeting, then written notice by the shareholder must be received
by the Secretary of the corporation no later than the close of business on
the tenth day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made.
Notwithstanding the provisions of this Division (C) of Section 1.04, a
shareholder's proposal shall be considered timely submitted to the
corporation if it is submitted in accordance with Rule 14a-8 under the
Securities Exchange Act of 1934, as amended, or any successor rule or
regulation. The chairman of the annual meeting may refuse to acknowledge the
proposal of any person to bring business before the annual meeting not made
in compliance with the foregoing procedure and applicable federal securities
laws.
SECTION 1.05. WAIVER OF NOTICE. Notice of the time, place and
purpose or purposes of any meeting of shareholders may be waived in writing,
either before or after the holding of such meeting, by any shareholders,
which writing shall be filed with or entered upon the records of such
meeting. The attendance of any shareholder, in person or by proxy, at any
such meeting without protesting the lack of proper notice, prior to or at the
commencement of the meeting, shall be deemed to be a waiver by such
shareholder of notice of such meeting.
SECTION 1.06. QUORUM. At any meeting of shareholders, the holders
of a majority of the voting shares of the corporation then outstanding and
entitled to vote thereat, present in person or by proxy, shall constitute a
quorum for such meeting. The
Dynacraft Code of Regulations - As amended to July ___, 1997
2
<PAGE>
holders of a majority of the voting shares represented at a meeting, whether
or not a quorum is present, or the chairman of the board, the president, or
the officer of the corporation acting as chairman of the meeting, may adjourn
such meeting from time to time, and if a quorum is present at such adjourned
meeting any business may be transacted as if the meeting had been held as
originally called.
SECTION 1.07. VOTES REQUIRED. At all elections of directors the
candidates receiving the greatest number of votes shall be elected. Any
other matter submitted to the shareholders for their vote shall be decided by
the vote of such proportion of the shares, or of any class of shares, or of
each class, as is required by law, the Articles or the Regulations.
SECTION 1.08. ORDER OF BUSINESS. The order of business at any
meeting of shareholders shall be determined by the officer of the corporation
acting as chairman of such meeting unless otherwise determined by a vote of
the holders of a majority of the voting shares of the corporation then
outstanding, present in person or by proxy, and entitled to vote at such
meeting.
SECTION 1.09. SHAREHOLDERS ENTITLED TO VOTE. Each shareholder of
record on the books of the corporation on the record date for determining the
shareholders who are entitled to vote at a meeting of shareholders shall be
entitled at such meeting to one vote for each share of the corporation
standing in his name on the books of the corporation on such record date.
The directors may fix a record date for the determination of the shareholders
who are entitled to receive notice of and to vote at a meeting of
shareholders, which record date shall not be a date earlier than the date on
which the record date is fixed and which record date may be a maximum of
sixty days preceding the date of the meeting of shareholders.
SECTION 1.10. PROXIES. At meetings of the shareholders, any
shareholder of record entitled to vote thereat may be represented and may
vote by a proxy or proxies appointed by an instrument in writing signed by
such shareholder, but such instrument shall be filed with the secretary of
the meeting before the person holding such proxy shall be allowed to vote
thereunder. No proxy shall be valid after the expiration of eleven months
after the date of its execution, unless the shareholder executing it shall
have specified therein the length of time it is to continue in force.
SECTION 1.11. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the directors may appoint inspectors of election to act at such
meeting or any adjournment thereof; if inspectors are not so appointed, the
officer of the corporation acting as chairman of any such meeting may make
such appointment. In case any person appointed as inspector fails to appear
or act, the vacancy may be filled only by appointment made by the directors
in advance of such meeting or, if not so filled, at the meeting by the
officer of the corporation acting as chairman of such
Dynacraft Code of Regulations - As amended to July ___, 1997
3
<PAGE>
meeting. No other person or persons may appoint or require the appointment
of inspectors of election.
ARTICLE TWO
DIRECTORS
SECTION 2.01. AUTHORITY AND QUALIFICATIONS. Except where the law, the
Articles or the Regulations otherwise provide, all authority of the
corporation shall be vested in and exercised by its directors. Directors
need not be shareholders of the corporation.
SECTION 2.02. NUMBER OF DIRECTORS AND TERM OF OFFICE.
(A) Until changed in accordance with the provisions of the Regulations,
the number of directors of the corporation shall be nine. Directors shall be
divided into three (3) classes each of which shall consist of such number of
directors, not less than three, as may be determined by the shareholders or
directors in the manner described in paragraphs (B) and (C) of this Section.
The number of directors in each class need not be uniform. At the time these
Regulations are adopted, three persons shall be elected to serve as directors
for one year and until their successors are elected, three persons shall be
elected to serve as directors for two years and until their successors are
elected and three persons shall be elected to serve as directors for three
years and until their successors are elected. At each annual meeting of
shareholders beginning with the 1998 annual meeting a class of directors
shall be elected to serve a term of three years to succeed the class of
directors whose terms shall expire in that year so that the term of office of
only one class of directors shall expire in each such year; provided,
however, that each director elected at any time shall hold office until his
successor is duly elected and qualified or until his earlier resignation,
removal from office, or death.
(B) The number of directors may be fixed or changed at a meeting of the
shareholders called for the purpose of electing directors at which a quorum
is present, only by the affirmative vote of the holders of not less than a
majority of the voting shares which are represented at the meeting, in person
or by proxy, and entitled to vote on such proposal.
(C) The directors may fix or change the number of directors and may
fill any director's office that is created by an increase in the number of
directors.
(D) No reduction in the number of directors shall of itself have the
effect of shortening the term of any incumbent director.
Dynacraft Code of Regulations - As amended to July , 1997
4
<PAGE>
SECTION 2.03. ELECTION. At each annual meeting of the shareholders for
the election of directors, the successors to the directors whose term shall
expire in that year shall be elected, but if the annual meeting is not held
or if one or more of such directors are not elected thereat, they may be
elected at a special meeting called for that purpose. The election of
directors shall be by ballot whenever requested by the presiding officer of
the meeting or by the holders of a majority of the voting shares outstanding,
entitled to vote at such meeting and present in person or by proxy, but
unless such request is made, the election shall be viva voce.
SECTION 2.04. NOMINATIONS. Nominations for the election of directors
may be made by the board of directors of the corporation or a committee by
the board or by any shareholder entitled to vote in the election of directors
generally. However, any shareholders entitled to vote in the election of
directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given to the Secretary of the
corporation. Such notice shall be personally delivered to, or mailed by
United States mail, postage prepaid, and received at, the principal executive
offices of the corporation not less than sixty days, nor more than ninety
days, prior to the date of the meeting at which such election is to occur.
If, however, notice or public disclosure of the date of the meeting is given
or made less than seventy days prior to the meeting, then written notice by
the shareholder must be received by the Secretary of the corporation not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure
was made. Each such notice shall set forth: (A) the name and address of the
shareholder who intends to make the nomination and of the person or persons
to be nominated; (B) a representation that the shareholder is a holder of
record of shares of the corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person
or persons specified in the notice; (C) a description of all arrangements or
understandings between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination
or nominations are to be made by the shareholder; (D) such other information
regarding each nominee proposed by such shareholder as would be required to
be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, by the board of directors of the corporation; and
(E) the consent of each nominee to serve as a director of the corporation if
so elected. The chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
SECTION 2.05. REMOVAL. A director or directors may be removed from
office only for cause and only by the vote of the holders of shares entitling
them to exercise not less than a majority of the voting power of the
corporation to elect directors in place of those to be removed. In case of
any removal, a new director may be elected at the same meeting for the
unexpired term of each director removed. Failure to elect a
Dynacraft Code of Regulations - As amended to July , 1997
5
<PAGE>
director to fill the unexpired term of any director removed shall be deemed
to create a vacancy in the board.
SECTION 2.06. VACANCIES. The remaining directors, though less than a
majority of the whole authorized number of directors, may, by the vote of a
majority of their number, fill any vacancy in the board for the unexpired
term. A vacancy in the board exists within the meaning of this Section 2.06
in case the shareholders increase the authorized number of directors but fail
at the meeting at which such increase is authorized, or an adjournment
thereof, to elect the additional directors provided for, or in case the
shareholders fail at any time to elect the whole authorized number of
directors.
SECTION 2.07. MEETINGS. A meeting of the directors shall be held
immediately following the adjournment of each annual meeting of shareholders
at which directors are elected, and notice of such meeting need not be given.
The directors shall hold such other meetings as may from time to time be
called, and such other meetings of directors may be called only by the
chairman of the board, the president, or any two directors. All meetings of
directors shall be held at the principal office of the corporation, or at
such other place within or without the State of Ohio, as the directors may
from time to time determine by a resolution. Meetings of the directors may
be held through any communications equipment if all persons participating can
hear each other and participation in a meeting pursuant to this provision
shall constitute presence at such meeting.
SECTION 2.08. NOTICE OF MEETINGS. Notice of the time and place of each
meeting of directors for which such notice is required by law, the Articles,
the Regulations or the By-Laws shall be given to each of the directors by at
least one of the following methods:
(A) In a writing mailed not less than three days before such meeting and
addressed to the residence or usual place of business of a director,
as such address appears on the records of the corporation; or
(B) By telegraph, cable, radio, wireless, or a writing sent or delivered
to the residence or usual place of business of a director as the same
appears on the records of the corporation, not later than the day
before the date on which such meeting is to be held; or
(C) Personally or by telephone not later than the day before the date on
which such meeting is to be held.
Notice given to a director by any one of the methods specified in the
Regulations shall be sufficient, and the method of giving notice to all
directors need not be uniform.
Dynacraft Code of Regulations - As amended to July , 1997
6
<PAGE>
Notice of any meeting of directors may be given only by the chairman of the
board, the president or the secretary of the corporation. Any such notice
need not specify the purpose or purposes of the meeting. Notice of
adjournment of a meeting of directors need not be given if the time and place
to which it is adjourned are fixed and announced at such meeting.
SECTION 2.09. WAIVER OF NOTICE. Notice of any meeting of directors may
be waived in writing, either before or after the holding of such meeting, by
any director, which writing shall be filed with or entered upon the records
of the meeting. The attendance of any director at any meeting of directors
without protesting, prior to or at the commencement of the meeting, the lack
of proper notice, shall be deemed to be a waiver by him of notice of such
meeting.
SECTION 2.10. QUORUM. A majority of the whole authorized number of
directors shall be necessary to constitute a quorum for a meeting of
directors, except that a majority of the directors in office shall constitute
a quorum for filling a vacancy in the board. The act of a majority of the
directors present at a meeting at which a quorum is present is the act of the
board, except as otherwise provided by law, the Articles or the Regulations.
SECTION 2.11. EXECUTIVE COMMITTEE. The directors may create an
executive committee or any other committee of directors, to consist of not
less than three directors, and may authorize the delegation to such executive
committee or other committees of any of the authority of the directors,
however conferred, other than that of filling vacancies among the directors
or in the executive committee or in any other committee of the directors.
Such executive committee or any other committee of directors shall serve
at the pleasure of the directors, shall act only in the intervals between
meetings of the directors, and shall be subject to the control and direction
of the directors. Such executive committee or other committee of directors
may act by a majority of its members at a meeting or by a writing or writings
signed by all of its members.
Any act or authorization of any act by the executive committee or any
other committee within the authority delegated to it shall be as effective
for all purposes as the act or authorization of the directors. No notice of
a meeting of the executive committee or of any other committee of directors
shall be required. A meeting of the executive committee or of any other
committee of directors may be called only by the president or by a member of
such executive or other committee of directors. Meetings of the executive
committee or of any other committee of directors may be held through any
communications equipment if all persons participating can hear each other and
participation in such a meeting shall constitute presence thereat.
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<PAGE>
SECTION 2.12. COMPENSATION. Directors shall be entitled to receive as
compensation for services rendered and expenses incurred as directors, such
amounts as the directors may determine.
SECTION 2.13. BY-LAWS. The directors may adopt, and amend from time to
time, By-Laws for their own government, which By-Laws shall not be
inconsistent with the law, the Articles or the Regulations.
ARTICLE THREE
OFFICERS
SECTION 3.01. OFFICERS. The officers of the corporation to be elected
by the directors shall be a president, a secretary, a treasurer, and, if
desired, one or more vice presidents and such other officers and assistant
officers as the directors may from time to time elect. The directors may
elect a chairman of the board, who must be a director. Officers need not be
shareholders of the corporation, and may be paid such compensation as the
board of directors may determine. Any two or more offices may be held by the
same person, but no officer shall execute, acknowledge, or verify any
instrument in more than one capacity if such instrument is required by law,
the Articles, the Regulations or the By-Laws to be executed, acknowledged, or
verified by two or more officers.
SECTION 3.02. TENURE OF OFFICE. The officers of the corporation hold
office at the pleasure of the directors. Any officer of the corporation may
be removed, either with or without cause, at any time, by the affirmative
vote of a majority of all the directors then in office; such removal,
however, shall be without prejudice to the contract rights, if any, of the
person so removed.
SECTION 3.03. DUTIES OF THE CHAIRMAN OF THE BOARD. The chairman of the
board, if any, shall preside at all meetings of the directors. He shall have
such other powers and duties as the directors shall from time to time assign
to him.
SECTION 3.04. DUTIES OF THE PRESIDENT. The president shall be the
chief executive officer of the corporation and shall exercise supervision
over the business of the corporation and shall have, among such additional
powers and duties as the directors may from time to time assign to him, the
power and authority to sign all certificates evidencing shares of the
corporation and all deeds, mortgages, bonds, contracts, notes and other
instruments requiring the signature of the president of the corporation. It
shall be the duty of the president to preside at all meetings of shareholders.
SECTION 3.05. DUTIES OF THE VICE PRESIDENTS. In the absence of the
president or in the event of his inability or refusal to act, the vice
president, if any (or in
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the event there be more than one vice president, the vice presidents in the
order designated, or in the absence of any designation, then in the order of
their election), shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all restrictions upon
the president. The vice presidents shall perform such other duties and have
such other powers as the directors may from time to time prescribe.
SECTION 3.06. DUTIES OF THE SECRETARY. It shall be the duty of the
secretary, or of an assistant secretary, if any, in case of the absence or
inability to act of the secretary, to keep minutes of all the proceedings of the
shareholders and the directors and to make a proper record of the same; to
perform such other duties as may be required by law, the Articles or the
Regulations; to perform such other and further duties as may from time to time
be assigned to him by the directors or the president; and to deliver all books,
paper and property of the corporation in his possession to his successor, or to
the president.
SECTION 3.07. DUTIES OF THE TREASURER. The treasurer, or an assistant
treasurer, if any, in case of the absence or inability to act of the treasurer,
shall receive and safely keep in charge all money, bills, notes, choses in
action, securities and similar property belonging to the corporation, and shall
do with or disburse the same as directed by the president or the directors;
shall keep an accurate account of the finances and business of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, stated capital and shares, together with such other accounts as may be
required and hold the same open for inspection and examination by the directors;
shall give bond in such sum with such security as the directors may require for
the faithful performance of his duties; shall, upon the expiration of his term
of office, deliver all money and other property of the corporation in his
possession or custody to his successor or the president; and shall perform such
other duties as from time to time may be assigned to him by the directors.
ARTICLE FOUR
SHARES
SECTION 4.01. CERTIFICATES. Certificates evidencing ownership of shares
of the corporation shall be issued to those entitled to them. Each certificate
evidencing shares of the corporation shall bear a distinguishing number; the
signatures of the chairman of the board, the president, or a vice president, and
of the secretary or an assistant secretary (except that when any such
certificate is countersigned by an incorporated transfer agent or registrar,
such signatures may be facsimile, engraved, stamped or printed); and such
recitals as may be required by law. Certificates
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<PAGE>
evidencing shares of the corporation shall be of such tenor and design as the
directors may from time to time adopt and may bear such recitals as are
permitted by law.
SECTION 4.02. TRANSFERS. Where a certificate evidencing a share or shares
of the corporation is presented to the corporation or its proper agents with a
request to register transfer, the transfer shall be registered as requested if:
(A) An appropriate person signs on each certificate so presented or signs
on a separate document an assignment or transfer of shares evidenced by each
such certificate, or signs a power to assign or transfer such shares, or when
the signature of an appropriate person is written without more on the back of
each such certificate; and
(B) Reasonable assurance is given that the indorsement of each appropriate
person is genuine and effective; the corporation or its agents may refuse to
register a transfer of shares unless the signature of each appropriate person is
guaranteed by a commercial bank or trust company having an office or a
correspondent in the City of New York or by a firm having membership in the New
York Stock Exchange; and
(C) All applicable laws relating to the collection of transfer or other
taxes have been complied with; and
(D) The corporation or its agents are not otherwise required or permitted
to refuse to register such transfer.
SECTION 4.03. TRANSFER AGENTS AND REGISTRARS. The directors may appoint
one or more agents to transfer or to register shares of the corporation, or
both.
SECTION 4.04. LOST, WRONGFULLY TAKEN OR DESTROYED CERTIFICATES. Except as
otherwise provided by law, where the owner of a certificate evidencing shares of
the corporation claims that such certificate has been lost, destroyed or
wrongfully taken, the directors must cause the corporation to issue a new
certificate in place of the original certificate if the owner:
(A) So requests before the corporation has notice that such original
certificate has been acquired by a bona fide purchaser; and
(B) Files with the corporation, unless waived by the directors, an
indemnity bond, with surety or sureties satisfactory to the corporation, in such
sums as the directors may, in their discretion, deem reasonably sufficient as
indemnity against any loss or liability that the corporation may incur by reason
of the issuance of each such new certificate; and
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(C) Satisfies any other reasonable requirements which may be imposed by
the directors, in their discretion.
SECTION 4.05. UNCERTIFICATED SHARES. Anything contained in this Article
FOUR to the contrary notwithstanding, the directors may provide by resolution
that some or all of any or all classes and series of shares of the corporation
shall be uncertificated shares, provided that such resolution shall not apply to
(A) shares of the corporation represented by a certificate until such
certificate is surrendered to the corporation in accordance with applicable
provisions of Ohio law or (B) any certificated security of the corporation
issued in exchange for an uncertificated security in accordance with applicable
provisions of Ohio law. The rights and obligations of the holders of
uncertificated shares and the rights and obligations of the holders of
certificates representing shares of the same class and series shall be
identical, except as otherwise expressly provided by law.
ARTICLE FIVE
INDEMNIFICATION AND INSURANCE
SECTION 5.01. MANDATORY INDEMNIFICATION. The corporation shall indemnify
any officer or director of the corporation who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action threatened or instituted by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, manager or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, member,
manager or agent of another corporation (domestic or foreign, nonprofit or for
profit), limited liability company, partnership, joint venture, trust or other
enterprise, against expenses (including, without limitation, attorneys' fees,
filing fees, court reporters' fees and transcript costs), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful. A person claiming
indemnification under this Section 5.01 shall be presumed, in respect of any act
or omission giving rise to such claim for indemnification, to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal matter, to have
had no reasonable cause to believe his conduct was unlawful, and the termination
of any action, suit or proceeding by judgment, order, settlement or conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself, rebut
such presumption.
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<PAGE>
SECTION 5.02. COURT-APPROVED INDEMNIFICATION. Anything contained in the
Regulations or elsewhere to the contrary notwithstanding:
(A) the corporation shall not indemnify any officer or director of the
corporation who was a party to any completed action or suit instituted by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee, member, manager or agent of another
corporation (domestic or foreign, nonprofit or for profit), limited liability
company, partnership, joint venture, trust or other enterprise, in respect of
any claim, issue or matter asserted in such action or suit as to which he shall
have been adjudged to be liable for acting with reckless disregard for the best
interests of the corporation or misconduct (other than negligence) in the
performance of his duty to the corporation unless and only to the extent that
the Court of Common Pleas of Licking County, Ohio or the court in which such
action or suit was brought shall determine upon application that, despite such
adjudication of liability, and in view of all the circumstances of the case, he
is fairly and reasonably entitled to such indemnity as such Court of Common
Pleas or such other court shall deem proper; and
(B) the corporation shall promptly make any such unpaid indemnification as
is determined by a court to be proper as contemplated by this Section 5.02.
SECTION 5.03. INDEMNIFICATION FOR EXPENSES. Anything contained in the
Regulations or elsewhere to the contrary notwithstanding, to the extent that an
officer or director of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
Section 5.01, or in defense of any claim, issue or matter therein, he shall be
promptly indemnified by the corporation against expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs) actually and reasonably incurred by him in connection therewith.
SECTION 5.04. DETERMINATION REQUIRED. Any indemnification required under
Section 5.01 and not precluded under Section 5.02 shall be made by the
corporation only upon a determination that such indemnification of the officer
or director is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 5.01. Such determination may be made
only (A) by a majority vote of a quorum consisting of directors of the
corporation who were not and are not parties to, or threatened with, any such
action, suit or proceeding, or (B) if such a quorum is not obtainable or if a
majority of a quorum of disinterested directors so directs, in a written opinion
by independent legal counsel other than an attorney, or a firm having associated
with it an attorney, who has been retained by or who has performed services for
the corporation, or any person to be indemnified, within the past five years, or
(C) by the shareholders, or (D) by the Court of Common Pleas of Licking County,
Ohio or (if the corporation is a party thereto) the court in which such action,
suit or
Dynacraft Code of Regulations - As amended to July , 1997
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<PAGE>
proceeding was brought, if any; any such determination may be made by a court
under division (D) of this Section 5.04 at any time including, without
limitation, any time before, during or after the time when any such
determination may be requested of, be under consideration by or have been
denied or disregarded by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by the shareholders under
division (C) of this Section 5.04; and no failure for any reason to make any
such determination, and no decision for any reason to deny any such
determination, by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by shareholders under
division (C) of this Section 5.04 shall be evidence in rebuttal of the
presumption recited in Section 5.01. Any determination made by the
disinterested directors under division (A) or by independent legal counsel
under division (B) of this Section 5.04 to make indemnification in respect of
any claim, issue or matter asserted in an action or suit threatened or
brought by or in the right of the corporation shall be promptly communicated
to the person who threatened or brought such action or suit, and within ten
(10) days after receipt of such notification such person shall have the right
to petition the Court of Common Pleas of Licking County, Ohio or the court in
which such action or suit was brought, if any, to review the reasonableness
of such determination.
SECTION 5.05. ADVANCES FOR EXPENSES. Expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs) incurred in defending any action, suit or proceeding referred to in
Section 5.01 shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding to or on behalf of the officer or
director promptly as such expenses are incurred by him, but only if such officer
or director shall first agree, in writing, to repay all amounts so paid in
respect of any claim, issue or other matter asserted in such action, suit or
proceeding in defense of which he shall not have been successful on the merits
or otherwise:
(A) if it shall ultimately be determined as provided in Section 5.04 that
he is not entitled to be indemnified by the corporation as provided under
Section 5.01; or
(B) if, in respect of any claim, issue or other matter asserted by or in
the right of the corporation in such action or suit, he shall have been adjudged
to be liable for acting with reckless disregard for the best interests of the
corporation or misconduct (other than negligence) in the performance of his duty
to the corporation, unless and only to the extent that the Court of Common Pleas
of Licking County, Ohio or the court in which such action or suit was brought
shall determine upon application that, despite such adjudication of liability,
and in view of all the circumstances, he is fairly and reasonably entitled to
all or part of such indemnification.
SECTION 5.06. ARTICLE FIVE NOT EXCLUSIVE. The indemnification provided by
this Article FIVE shall not be exclusive of, and shall be in addition to, any
other rights to which any person seeking indemnification may be entitled under
the
Dynacraft Code of Regulations - As amended to July , 1997
13
<PAGE>
Articles, the Regulations, any agreement, a vote of shareholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be an officer or director of
the corporation and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
SECTION 5.07. INSURANCE. The corporation may purchase and maintain
insurance or furnish similar protection, including but not limited to trust
funds, letters of credit, or self-insurance, on behalf of any person who is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, or agent of another corporation (domestic or foreign, nonprofit or for
profit), partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
obligation or the power to indemnify him against such liability under the
provisions of this Article FIVE. Insurance may be purchased from or maintained
with a person in which the corporation has a financial interest.
SECTION 5.08. CERTAIN DEFINITIONS. For purposes of this Article FIVE, and
as examples and not by way of limitation:
(A) A person claiming indemnification under this Article FIVE shall be
deemed to have been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 5.01, or in defense of any
claim, issue or other matter therein, if such action, suit or proceeding shall
be terminated as to such person, with or without prejudice, without the entry of
a judgment or order against him, without a conviction of him, without the
imposition of a fine upon him and without his payment or agreement to pay any
amount in settlement thereof (whether or not any such termination is based upon
a judicial or other determination of the lack of merit of the claims made
against him or otherwise results in a vindication of him); and
(B) References to an "other enterprise" shall include employee benefit
plans; references to a "fine" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" within the meaning of that term as used in this Article FIVE.
SECTION 5.09. VENUE. Any action, suit or proceeding to determine a claim
for indemnification under this Article FIVE may be maintained by the person
Dynacraft Code of Regulations - As amended to July , 1997
14
<PAGE>
claiming such indemnification, or by the corporation, in the Court of Common
Pleas of Licking County, Ohio. The corporation and (by claiming such
indemnification) each such person consent to the exercise of jurisdiction over
its or his person by the Court of Common Pleas of Licking County, Ohio in any
such action, suit or proceeding.
ARTICLE SIX
MISCELLANEOUS
SECTION 6.01. AMENDMENTS.
(A) The Regulations may be amended, or new regulations may be adopted, at
a meeting of the shareholders held for such purpose, only by the affirmative
vote of the holders of shares entitling them to exercise not less than a
majority of the voting power of the corporation on such proposal.
(B) Division (A) of this Section 6.01 notwithstanding, the shareholders
shall have no right to (1) amend or repeal, in any respect, Section 2.05,
Article FIVE, this Division (B) of Section 6.01 or Division (B) of Section 6.02
of these Regulations; or (2) adopt, amend or repeal any other provision which
would modify or circumvent Section 2.05, Article FIVE, this Division (B) of
Section 6.01 or Division (B) of Section 6.02 of these Regulations, unless, in
each case, the holders of not less than sixty-six and two-thirds percent (66 2/3
%) of the total voting power of the corporation shall have voted in favor of
such action.
SECTION 6.02. ACTION BY SHAREHOLDERS OR DIRECTORS WITHOUT A MEETING.
(A) Anything contained in the Regulations to the contrary notwithstanding,
except as provided in Division (B) of this Section 6.02, any action which may be
authorized or taken at a meeting of the shareholders or of the directors or of a
committee of the directors, as the case may be, may be authorized or taken
without a meeting with the affirmative vote or approval of, and in a writing or
writings signed by, all the shareholders who would be entitled to notice of a
meeting of the shareholders held for such purpose, or all the directors, or all
the members of such committee of the directors, respectively, which writings
shall be filed with or entered upon the records of the corporation.
(B) Notwithstanding the provisions of Division (A) of this Section 6.02,
from and after the date of the closing of the initial public offering of the
common shares of the corporation registered pursuant to the Securities Act of
1933, as amended, the Regulations may be amended, or new regulations adopted, by
the shareholders only at a meeting of the shareholders held for such purpose.
Dynacraft Code of Regulations - As amended to July , 1997
15
<PAGE>
COMMON STOCK COMMON STOCK
(Dynacraft Logo)
DYNACRAFT GOLF COMPANIES, INC.
Number:
INCORPORATED UNDER SEE REVERSE FOR CERTAIN
THE LAWS OF THE STATE DEFINITIONS AND A STATEMENT
OF OHIO AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS
ON SAVINGS
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $001 PAR
VALUE PER SHARE, OF
DYNACRAFT GOLF COMPANIES, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of the Certificate properly endorsed.
This Certificate is not valid until countersigned by the Transfer Agent
and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
Dated:
SECRETARY (OHIO STATE SEAL) PRESIDENT
COUNTERSIGNED AND REGISTERED:
HUNTINGTON BANK, N.A.
Transfer Agent and Registrar
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Secretary of the Corporation at the principal office of the
Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
COM PROP - as community property
UNIF GIFT MIN ACT - Custodian
------------------------------------
(Cust) (Minor)
Under Uniform Gifts to Minors
Act
--------------------------------
(State)
UNIF TRF MIN ACT - Custodian (until age )
------------ -------
under Uniform Transfers
------------------
(Minor)
To Minors Act
----------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer onto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
_______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated __________________________________
X __________________________________________
X __________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
NOTICE CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By___________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURUSANT TO S.E.C. RULE 17Ad-15
<PAGE>
Exhibit 5
(614) 464-6400
July 15, 1997
Board of Directors
Dynacraft Golf Products, Inc.
98 James Street
Newark, OH 43055
Gentlemen:
We are familiar with the proceedings taken and proposed to be taken by
Dynacraft Golf Products, Inc., an Ohio corporation (the "Company"), in
connection with the issuance and sale by the Company of up to 700,000 of its
common shares, without par value (the "Common Shares"). We have collaborated in
the preparation of the Registration Statement on Form SB-2 ("Registration
Statement") filed by the Company with the Securities and Exchange Commission for
the registration of such Common Shares under the Securities Act of 1933, as
amended. In connection therewith, we have examined, among other things, such
records and documents as we have deemed necessary in order to express the
opinions hereinafter set forth. With respect to the following, we have assumed
that the Second Amended and Restated Articles of Incorporation (the "Articles"),
the form of which has been filed as an exhibit to the Registration Statement,
have been duly authorized by the Board of Directors of the Company and that such
Articles will be approved by the shareholders of the Company in accordance with
Ohio law and that a Certificate of Amendment with respect to such Articles will
be filed with the Secretary of State of the State of Ohio prior to the issuance
of any Common Shares.
Based upon the foregoing, we are of the opinion that the Company is a
duly incorporated and legally existing corporation under the laws of the State
of Ohio. We are also of the opinion, based upon the foregoing and assuming
compliance with applicable federal and state securities laws, that when the
Common Shares to be issued and sold by the Company have been delivered by the
Company against payment of the purchase price therefor, as specified in the
Registration Statement when it shall become effective, said Common Shares will
be validly issued and outstanding, fully paid and non-assessable; PROVIDED, that
we express no opinion with respect to whether Common Shares purchased through
the use of a credit card have been fully paid for prior to the time such credit
card balance has been paid by the holder thereof.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Registration Statement
under the heading "Legal Matters."
Very truly yours,
VORYS, SATER, SEYMOUR AND PEASE
<PAGE>
Lock-in Agreement for Shares of the Common Shares
of Dynacraft Golf Products, Inc.
By this Lock-in Agreement, all officers, directors and post-offering 5%
shareholders (the "Shareholders") of Dynacraft Golf Products, Inc. (the
"Company") agree not to sell or otherwise transfer any shares of the Company's
common stock which are held or come to be held by them (the "Shares") for two
years after the effectiveness of the pending registration statement with the
United States Securities and Exchange Commission (the "Lock-in Period".)
1. This Lock-in Agreement shall cover all Shares, whether held
beneficially or of record, which presently are held or shall come to be held
during the Lock-in Period by virtue of the exercise of any options, warrants or
other rights (including a right of conversion), by the Shareholders, except any
Shares to be purchased in the offering being registered.
2. The Shareholders will cause:
A. A copy of this Lock-in Agreement to be available from the Company or
its transfer agent upon request and without charge.
B. A notice to be placed on the face of each stock certificate covered by
the terms of this Lock-in Agreement stating that the transfer of the Shares
evidenced by the certificate is restricted in accordance with the conditions set
forth on the reverse side of the certificate.
C. A typed legend to be placed on the reverse side of each stock
certificate representing stock covered by the Lock-in Agreement which states
that the sale or transfer of the shares evidenced by the certificate is subject
to certain restrictions until the date upon which the Lock-in Period ends,
pursuant to an agreement between the Shareholders and the Company, which
agreement is on file with the Company and the stock transfer agent from which a
copy is available upon request and without charge.
3. A manually signed copy of this Lock-in Agreement will be filed as part
of the registration documents.
Dynacraft Golf Products, Inc. by ______________________________________,
Duane R. Egeland, its Chief Financial Officer
July______, 1997
Shareholders:
_________________________, July _______, 1997 _______________________,
Joseph A. Altomonte, Sr. Joseph A. Altomonte, Jr.
July _____, 1997
Dynacraft Employee Stock Ownership Plan by __________________, July _____, 1997
its __________________
<PAGE>
June 4, 1996
Mr. Joseph Altomonte, Sr.
Mr. Joseph Altomonte, Jr.
c/o Dynacraft Golf Products, Inc.
Pal Joey Custom Golf, Inc.
Dynacraft Real Estate Holdings, Inc.
71 Maholm Street
Newark, Ohio 43055
Gentlemen:
Please accept this letter as Bank One, Columbus, NA's ("Bank One") agreement to
release its security interest in the accounts receivable and inventory of
Dynacraft Golf Products, Inc. ("Dynacraft") and Pal Joey Custom Golf, Inc. ("Pal
Joey") and subordinate its mortgage on the residence of Joseph Altomonte, Jr. to
a $250,000 mortgage to be recorded by Huntington National Bank, provided that
the following conditions have been met:
1) Bank One has received payment in full on or before June 30, 1996 on the
Business Purpose Revolving Promissory Notes dated as of December 13, 1994, as
amended, executed by Dynacraft and Pal Joey in the original amounts of
$1,800,000 and $650,000 respectively. As of today's date, the combined payoff
amounts of these notes are $2,387,431.31 with an interest per diem of $705.34.
2) The Dynacraft ESOP loan and the J & J Enterprises loans are modified with the
following terms and conditions:
FACILITY I
Borrowers: Dynacraft Golf Products, Inc. and Pal Joey Custom Golf, Inc.
Type: ESOP Term Loan
Principal: $729,331.71 as of the date of this letter
Rate: As set forth in the Term Loan Cognovit Promissory Note dated
January 30, 1991
Maturity: As set forth in the Term Loan Cognovit Promissory Note dated
January 30, 1991
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Amortization:As set forth in the Term Loan Cognovit Promissory Note dated
January 30, 1991 plus $7,861.11 additional principal per month
following repayment of Facility II and Facility III
Collateral: - A first lien on all equipment of Dynacraft and Pal Joey,
whether now owned or hereafter acquired
- First mortgage position in the following properties
comprising the Dynacraft complex:
71 Maholm St., Newark, Ohio
88 James St., Newark, Ohio
84 James St., Newark, Ohio
85 S. Pine St., Newark, Ohio
77 S. Pine St., Newark, Ohio
99 S. Pine St., Newark, Ohio
100 James St., Newark, Ohio
92 James St., Newark, Ohio
99 James St., Newark, Ohio
85 James St., Newark, Ohio
FACILITY II
Borrower: Dynacraft Real Estate Holdings, Inc. ("DREHI"), as successor
to J & J Enterprises, which took title to the real estate
subject to Bank One's valid mortgages and the obligations
set forth therein.
Type: Term Note.
Principal: $282,734.36 as of the date of this letter
Rate: Bank One, Columbus, NA Prime Rate plus one percent (1% ),
floating
Maturity: March 30, 1998
Amortization: $2,027.78 principal plus interest monthly, increasing to
$7,861.11 principal plus interest following repayment of
Facility III
Collateral: - A first lien on all equipment of Dynacraft and Pal Joey,
whether now owned or hereafter acquired
- First mortgage position in the following properties
comprising the Dynacraft complex:
71 Maholm St., Newark, Ohio
88 James St., Newark, Ohio
84 James St., Newark, Ohio
85 S. Pine St., Newark, Ohio
77 S. Pine St., Newark, Ohio
99 S. Pine St., Newark, Ohio
100 James St., Newark, Ohio
92 James St., Newark, Ohio
99 James St., Newark, Ohio
85 James St., Newark, Ohio
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FACILITY III
Borrower: Dynacraft Real Estate Holdings, Inc., as successor to J & J
Enterprises, which took title to the real estate subject to
Bank One's valid mortgages and the obligations set forth
therein.
Type: Term Note.
Principal: $82,085.62 as of the date of this letter
Rate: Bank One, Columbus, NA Prime Rate plus one percent (1% ),
floating
Maturity: August 31, 1997
Amortization: $5,833.33 principal plus interest monthly
Collateral: - A first lien on all equipment of Dynacraft and Pal Joey,
whether now owned or hereafter acquired
- First mortgage position in the following properties
comprising the Dynacraft complex:
71 Maholm St., Newark, Ohio
88 James St., Newark, Ohio
84 James St., Newark, Ohio
85 S. Pine St., Newark, Ohio
77 S. Pine St., Newark, Ohio
99 S. Pine St., Newark, Ohio
100 James St., Newark, Ohio
92 James St., Newark, Ohio
99 James St., Newark, Ohio
85 James St., Newark, Ohio
The above Facilities will be further subject to the following additional
requirements:
TAX REFUND: In addition to the principal payments required above, Borrowers
shall make an additional $276,000 principal payment upon receipt of tax refund
proceeds, but no later than July 31, 1996, which will be applied to repayment of
Facility III with the balance applied to Facility II.
GUARANTORS: Joseph Altomonte, Sr. and Joseph Altomonte, Jr. will provide joint
and several unlimited guarantees of all Dynacraft/Pal Joey/DREHI obligations to
Bank One, Columbus, NA. The guarantees shall be secured with the following:
- - Second mortgages on the residences of Joseph Altomonte, Sr. in Granville, Ohio
and Naples, Florida
- - Fourth mortgage on the residence of Joseph Altomonte, Jr. in Granville, Ohio
- - Assignment of brokerage account #06-01028-2-9 of Joseph Altomonte, Sr.
maintained at The Ohio Company in the net amount of no less than $120,000. No
additional margin loans will be permitted.
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Dynacraft Golf Products, Inc. and Pal Joey Custom Golf, Inc. shall remain
guarantors of Facility II and Facility III.
AFFIRMATIVE COVENANTS: Until all indebtedness of Borrowers have been paid:
MINIMUM TANGIBLE NET WORTH: Dynacraft Golf Products, Inc. and
subsidiaries will maintain a consolidated tangible net worth of at least
$1,100,000 at all times prior to maturity. Tangible Net Worth is defined in
accordance with GAAP and deemed to include the amount of total assets, excluding
the amount of intangible assets, minus the amount of total liabilities,
exclusive of Subordinated debt.
CURRENT RATIO: Dynacraft Golf Products, Inc. and subsidiaries will
maintain a minimum consolidated current ratio of 1.0:1.0 at all times.
Current Ratio is defined in accordance with GAAP as total Current Assets
divided by total Current Liabilities. "Current assets" shall be deemed to
include inventory at lower of cost or current market value less any amount
due from any officer, employee, director, shareholder or related person.
LIABILITIES TO TANGIBLE NET WORTH: Dynacraft Golf Products, Inc. and
subsidiaries agree to maintain a ratio of Debt to Tangible Net Worth of not
more than 5.00:1.0 prior to maturity. "Debt" shall be determined in
accordance with GAAP and shall be deemed to include all liabilities of
Dynacraft Golf Products, Inc. and subsidiaries including but not limited to
accruals, deferrals, capitalized leases.
FINANCIAL STATEMENTS: Dynacraft Golf Products, Inc. and subsidiaries will
submit a consolidated Income Statement and Balance Sheet within 45 days of each
month end.
Dynacraft Golf Products, Inc. and subsidiaries will submit an annual
accountant- prepared reviewed financial statement within 90 days of each fiscal
year end.
Guarantors, Joseph Altomonte, Sr. and Joseph Altomonte, Jr., will submit
updated personal financial statements on not less than an annual basis.
APPROVAL OF DOCUMENTATION: This agreement is subject to the approval of all
documentation in connection with the credit facilities by Bank One and Bank
One's legal counsel. All notes will be cross-defaulted and
cross-collateralized.
OTHER TERMS AND CONDITIONS: This agreement is subject to such other terms and
conditions as Bank One may deem appropriate, and is not intended to set forth
each and every term and condition of the financing transactions.
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BENEFIT: The agreements set forth in this letter are issued for the benefit of
Dynacraft, Pal Joey, DREHI, Joseph Altomonte, Sr. and Joseph Altomonte, Jr. only
and shall not be deemed or construed to create rights in any third person as a
third party beneficiary or otherwise.
EXPIRATION DATE: Bank One's agreements set forth in this letter shall expire if
not accepted by Dynacraft, Pal Joey, DREHI, Joseph Altomonte, Sr., individually,
and Joseph Altomonte, Jr., individually, on or before June 17, 1996.
CLOSING DATE: The financing transaction contemplated hereby shall be closed on
or before June 30, 1996, or Bank One's agreements set forth in this letter shall
terminate.
PREVENTION AND RESOLUTION OF DISPUTES: With respect to any claim arising out of
this letter, Dynacraft Golf Products, Inc., Pal Joey Custom Golf, Inc., DREHI,
Joseph Altomonte, Sr., individually, and Joseph Altomonte, Jr., individually
(jointly and severally the "Obligors") submit, for themselves and their
property, to the nonexclusive jurisdiction and to the laying of venue of the
courts of competent jurisdiction in Franklin County, Ohio. This letter shall in
all respects be construed in accordance with and governed by the laws of the
State of Ohio. This letter constitutes the ONLY agreement and understanding
among Bank One and the Obligors and supersedes any and all prior agreements and
understandings, oral or written, relating to the extension of the credit
facilities described herein. Obligors acknowledge that they have not relied on
any oral promises or representations by Bank One other than those set forth in
this letter. No change in the terms, amendment, modification or waiver of any
provision of this letter shall be effective unless the same shall be in writing
and signed by the Obligors and Bank One.
BANK ONE AND THE OBLIGORS HEREBY VOLUNTARILY, IRREVOCABLY AND UNCONDITIONALLY
WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN BANK ONE AND ANY OF THE
OBLIGORS ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN ANY OF THE OBLIGORS AND BANK ONE IN CONNECTION
WITH THIS LETTER, OR ANY OTHER AGREEMENT OR DOCUMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO. THIS PROVISION IS A
MATERIAL INDUCEMENT TO BANK ONE TO ENTER INTO THE FINANCING TRANSACTION. IT
SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY BANK ONE'S ABILITY TO
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PURSUE ITS REMEDIES INCLUDING, BUT NOT LIMITED TO, ANY CONFESSION OF JUDGMENT OR
COGNOVIT PROVISION CONTAINED IN ANY OTHER DOCUMENT RELATED HERETO.
Please contact me at (614) 248-5177 with any questions.
Sincerely,
Geoffrey A. Huber
Vice President
Managed Assets
The above terms and conditions are acknowledged and accepted this __________
day of , 1996.
Dynacraft Golf Products, Inc.
By: _______________________________ By: __________________________________
Joseph Altomonte, Sr. Joseph Altomonte, Jr.
Chairman of the Board Chief Executive Officer
Pal Joey Custom Golf, Inc.
By: _________________________________ By: __________________________________
Joseph Altomonte, Sr. Joseph Altomonte, Jr.
Chairman of the Board Chief Executive Officer
Individually Individually
Dynacraft Real Estate Holdings, Inc.
By: _________________________________ By: __________________________________
Joseph Altomonte, Sr. Joseph Altomonte, Jr.
Chairman of the Board Chief Executive Officer
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LOAN AGREEMENT
This Loan Agreement is entered this 2O day of June, 1996, at Columbus,
Ohio, by and between THE HUNTINGTON NATIONAL BANK, whose mailing address is 41
South High Street (HCO8lO), Columbus, Ohio 43215, Attention: Commercial Banking
(the "Bank") and Dynacraft Golf Products, Inc., an Ohio corporation whose
mailing address is 98 James Street, Newark, Ohio 43055, and Pal Joey Custom
Golf, Inc., an Ohio corporation whose mailing address is 98 James Street,
Newark, Ohio 43055 ("Pal Joey"). Dynacraft and Pal Joey are sometimes
hereinafter collectively referred to as the "Company".
SECTION 1. AMOUNT OF LOAN; LOAN FORMULA
The Bank agrees to lend to the Company a principal sum not to exceed
$1,860,315.00 (the "Loan"), subject to the terms and conditions of this
Agreement. The Loan is a term loan credit facility payable in accordance with
the terms of this Agreement and the promissory note described in Section 3 of
this Agreement.
At no time during the term of the Loan shall the outstanding principal
balance of the Loan exceed an amount equal to the sum of the following assets
(the "Loan Base"): (i) all cash of the Company; plus (ii) the amount equal to
eighty percent (80%) of Accounts Receivable of the Company evidenced by a valid
invoice less than ninety (90) days old from the invoice date; plus (iii) the
amount equal to fifty percent (50%) of the finished goods Inventory of the
Company; plus (iv) the amount equal to sixty percent (60%) of the shafts and
grips inventory of the Company; plus (v) the amount equal to fifteen percent
(15%) of all other Dynacraft label inventory. If the outstanding principal
balance of the Loan exceeds at any time the Loan Base, such event, at the Bank's
option, shall be an event of default under the Loan and this Agreement.
SECTION 2. INTEREST RATE; DEFAULT RATE.
The Company shall have the option of electing between the One Year
Treasury Rate and the Prime Related Rate to be the "Contract Rate" of interest
to accrue on the outstanding principal balance of the Loan.
THE "ONE YEAR TREASURY RATE" is a rate of interest per annum equal to the
"one year index" plus 250 basis points, rounded up to the nearest one-eighth of
one percent (1/8%). The "one year index" shall be the one year U. S. Treasury
Constant Maturities rate stated in the weekly Federal Reserve Statistical
Release Form H.l5(519) published not less than seven days prior to the
applicable Interest Rate Adjustment Date. Each One Year Treasury Rate elected
by the Company shall be adjusted on the next succeeding anniversary of the Note.
THE "PRIME-RELATED RATE" is a variable rate of interest equal to
seventy-five (75) basis points [100 basis points equals one percent] above the
"Prime Rate" (hereinafter defined) from time to time in effect with each change
in the Prime Rate automatically and immediately adjusting the rate of interest
payable hereunder. For the purposes hereof, the term "Prime Rate" shall mean
that interest rate per annum announced from time to time by the Bank as its
"prime rate", or other similar designation, and it is not necessarily the most
favored rate of the Bank.
THE "INTEREST RATE ADJUSTMENT DATE" shall mean each anniversary of the
date of the Note during the term of the Loan.
THE "ADJUSTMENT ELECTION" shall mean an irrevocable written election to
adjust the Contract Rate accruing on the Loan to either the One Year Treasury
Rate or the Prime Related Rate determined by the Bank to be in effect as of each
Interest Rate Adjustment Date, which election may be exercised not later than
thirty days prior to each Interest Rate Adjustment Date by delivering to the
officer of the Bank who is administering the Loan a written notice of such
election specifying the Contract Rate elected by the Company. If the Company
fails to timely make the Adjustment Election prior to any Interest Rate
Adjustment Date, then in such event the Company shall be deemed to have elected
the Prime Related Rate as the Contract Rate to become effective as of such
Interest Rate Adjustment Date. Each election of the Contract Rate shall
continue in effect until the next succeeding Interest Rate Adjustment Date, upon
which date the Contract Rate shall be adjusted in accordance with the Adjustment
Election made or deemed to have been made by the Company for such date.
Interest shall be calculated on a 360 day year basis and shall be
based on the actual number of days which elapse during the interest
calculation period.
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<PAGE>
Upon the occurrence of any Event of Default and the expiration of any
applicable cure period, interest shall thereafter accrue on the outstanding
principal balance of all advances made pursuant to this Agreement at a rate
equal to the Prime Rate plus two and three quarters percent (2.75%) per annum.
SECTION 3. EVIDENCE OF THE LOAN AND TERMS OF PAYMENT.
The Loan shall be evidenced by a Commercial Loan Note in the form of
EXHIBIT A to this Agreement, or by one or more notes subsequently executed in
substitution therefor (hereinafter referred to as the "Note" or "Notes").
Repayment of the Loan shall be made in accordance with the terms of the Note or
Notes then outstanding pursuant to this Agreement.
SECTION 4. PREPAYMENT.
The Company may, on any business day, upon payment of all accrued
interest, fees and other amounts then due and payable to the Bank and upon at
least five (5) business days prior written notice to the Bank, elect to prepay
all or part of the unpaid balance of the principal sum; provided, however, that
if said prepayment shall be (1) made on or before the date that is six (6)
months prior to any Interest Rate Adjustment Date or the Maturity Date, and (2)
the aggregate amount of the principal portion of all prepayments made during the
calendar year in which said prepayment is made (including the principal portion
of said prepayment) exceeds 10% of the outstanding principal balance due and
payable to the Bank on January 1 of said calendar year or the date of this Note,
whichever date more proximately precedes the date of prepayment, then the
Company shall pay to the Bank on the date of the prepayment a prepayment premium
calculated using the following formula:
Prepayment Premium = % x (AP - AD) x TM
--
12
In such formula:
(i) % equals 3%
(ii) AP is the Amount Paid and means the actual amount of the
principal sum paid on the date of the prepayment; and
(iii) AD is the Amount due and means the total amount of the principal
sum due and payable on the date of the prepayment; and
(iv) TM is the Total Months and means the total number of full months
between the date of the prepayment and the next succeeding
Interest Rate Adjustment Date or the Maturity Date, whichever is
the earlier event.
The prepayment premium shall be due and payable to the Bank regardless of
whether the prepayment results from Borrower's voluntary prepayment or from
the Bank's exercising its rights after default by Borrower through acceleration
of the Loan or otherwise. Unless the Bank shall otherwise agree in writing,
partial prepayments of principal shall be credited to installments of principal
in inverse order of maturity and shall not postpone the due dates of the monthly
installments required hereunder. Notwithstanding the foregoing, in the event of
any prepayment because of foreclosure of the Mortgage or other judicial sale,
there shall be due and payable a prepayment premium in the amount of five
percent (5%) of the amount prepaid.
SECTION 5. USE OF PROCEEDS.
The proceeds of the Loan shall be used by the Company for long term
working capital to refinance existing credit line debt owing to the Bank.
SECTION 6. COSTS AND EXPENSES.
The Company shall pay all costs and expenses incidental to the extension
of credit provided for in this Agreement. Such costs shall include, but not be
limited to, fees and out-of-pocket expenses of the Bank's counsel, title
insurance premiums and costs, recording fees, appraisal fees, survey fees,
inspection fees, revenue stamps and note and mortgage taxes.
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SECTION 7. SECURITY
As security for the Loan, the Company shall grant to the Bank a first
priority security interest in all of the Company's depository accounts at The
Huntington National Bank and in all accounts receivable, inventory, and
intangibles, a second mortgage lien against the Company's real property, and a
second priority security interest in all of the Company's equipment and
fixtures. At the request of the Bank, the Company shall authorize and cause to
be executed any and all documents which the Bank shall require in order to
effect the foregoing.
As further security for the Loan, the Company and or Joseph A. Altomonte,
Jr. shall pledge one or more policies evidencing insurance on the life of Joseph
A. Altomonte, Jr. in an amount of not less than $500,000.00, providing proper
assignments thereof to the Bank and shall pay all premiums thereon as they
become due.
The payment and performance of the obligations of the Loan shall be
guaranteed by Joseph Altomonte, Sr. and Joseph Altomonte, Jr.
SECTION 8. WARRANTIES AND REPRESENTATIONS.
The Company warrants and represents to the Bank:
8.1 SUBSIDIARIES.
Dynacraft has no subsidiaries except Pal Joey, Dynacraft Real Estate
Holdings, Inc. ("DREHI"), and Diamond Golf International Ltd., and Dynacraft
will not create or acquire any subsidiaries without the prior written consent of
the Bank. Pal Joey has no subsidiaries and will not create or acquire any
subsidiaries without the prior written consent of the Bank.
8.2 CORPORATE ORGANIZATION AND AUTHORITY.
The Company:
(a) are both corporations duly organized, validly existing and in good
standing under the laws of the State of Ohio;
(b) have all requisite power and authority and all necessary licenses
and permits to own and operate their respective properties and to
carry on their respective businesses as now conducted and as
presently proposed to be conducted; and
(c) are not doing business or conducting any activity in any jurisdiction
in which it has not duly qualified and become authorized to do
business.
8.3 FINANCIAL STATEMENTS.
The financial statements for the fiscal year ending December 31, 1995 and
interim statements for the month ending April 30, 1996 which have been supplied
to the Bank have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly represent the Company's financial
condition as of such dates. There has been no material adverse change in the
Company's financial condition since the most recent of such dates.
8.4 FULL DISCLOSURE.
The financial statements referred to in Section 8.3 do not, nor does this
Agreement or any written statement furnished by the Company to the Bank in
connection with obtaining the Loan, contain any untrue statement of a material
fact or omit a material fact necessary to make the statements contained therein
or herein not misleading. There is no fact which the Company has not disclosed
to the Bank in writing which materially affects the properties, business,
prospects, profits or condition (financial or otherwise) of the Company or the
ability of the Company to perform the obligations undertaken in this Agreement.
8.5 PENDING LITIGATION.
There are no proceedings pending, or to the knowledge of the Company
threatened, against or affecting the Company in any court or before any
governmental authority or arbitration board or tribunal which, individually or
in the aggregate, involve the possibility of materially and adversely affecting
the properties, business, prospects, profits or condition (financial or
otherwise) of the Company, or the ability of the Company to perform this
Agreement.
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8.6 TITLE TO PROPERTIES.
The Company has good and marketable title to all the property which it
purports to own (except as sold or otherwise disposed of in the ordinary course
of business), free from any liens and encumbrances, except as set forth on
EXHIBIT B to this Agreement.
8.7 BORROWING IS LEGAL AND AUTHORIZED.
(a) The Boards of Directors of the Company have duly authorized the
execution and delivery of this Agreement and of the Note and documents
contemplated herein, and the Note executed in connection with this Agreement
will constitute valid and binding obligations of the Company enforceable in
accordance with its terms.
(b) The execution of this Agreement and the related Note and documents
and the compliance by the Company with all the provisions of this Agreement:
(i) are within the corporate powers of the Company; and
(ii) are legal and will not conflict with, result in any breach in
any of the provisions of, constitute a default under or
result in the creation of any lien or encumbrance upon any
property of the Company under the provisions of, any
agreement, charter instrument, bylaw, or other instrument to
which the Company is a party or by which it may be bound.
(c) There are no limitations in any indenture, mortgage, deed of trust
or other agreement or instrument to which the Company is now a party or by which
the Company may be bound with respect to the payment of principal or interest on
any indebtedness of the Company, including the Note to be executed in connection
with this Agreement.
8.8 NO DEFAULTS.
No event has occurred and no condition exists which, with the giving of
notice or lapse of time, or both, would constitute an Event of Default pursuant
to this Agreement. The Company is not in violation in any material respect of
any term of any agreement, charter instrument, bylaw or other instrument to
which it is a party or by which it may be bound.
8.9 GOVERNMENT CONSENT.
Neither the nature of the Company or of its business or properties, nor
any relationship between the Company and any other entity or person, nor any
circumstance in connection with the execution of this Agreement, is such as to
require a consent, approval or authorization of, or filing, registration or
qualification with, any governmental authority on the part of the Company as a
condition to the execution and delivery of this Agreement and the notes and
documents contemplated herein.
8.10 TAXES.
(a) All tax returns required to be filed by the Company in any
jurisdiction have in fact been filed, and all taxes, assessments, fees and other
governmental charges upon the Company or upon any of its respective properties,
which are due and payable have been paid. The Company does not know of any
proposed additional tax assessment against it.
(b) The provisions for taxes on the books of the Company of its current
fiscal period are adequate.
8.11 COMPLIANCE WITH LAW.
The Company (a) is not in violation of any laws, ordinances, governmental
rules or regulations to which it is subject, and (b) has not failed to obtain
any licenses, permits, franchises or other governmental authorizations necessary
to the ownership of its properties or to the conduct of its business, which
violation or failure to obtain might materially and adversely affect the
business, prospects, profits, properties or condition (financial or otherwise)
of the Company.
8.12 RESTRICTIONS ON COMPANY.
The Company is not a party to any contract or agreement, or subject
to any charter or other corporate restriction, which materially and
adversely affects the business of the Company. The Company is not a party
to any contract or agreement which restricts the right or ability of the
Company to incur indebtedness, other than this Agreement.
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The Company has not agreed or consented to cause or permit in the future (upon
the happening of a contingency or otherwise) any of its property, whether now
owned or hereafter acquired, to be subject to a lien or encumbrance.
8.13 ENVIRONMENTAL PROTECTION
The Company (a) has no actual knowledge of the permanent placement, burial
or disposal of any Hazardous Substances (as hereinafter defined) on the Companys
real property (the "Premises") of any spills, releases, discharges, leaks, or
disposal of Hazardous Substances that have occurred or are presently occurring
on, under, or onto the Premises or of any spills, releases, discharges, leaks or
disposal of Hazardous Substances that have occurred or are occurring off of the
Premises as a result of the Company's improvement, operation, or use of the
Premises which would result in noncompliance with any of the Environmental Laws
(as hereinafter defined), with the exception of contamination flowing from the
neighboring parcel owned by the Ohio Department of Transportation; (b) is and
has been in compliance with all applicable Environmental Laws; (c) knows of no
pending or threatened environmental civil, criminal or administrative
proceedings against the Company relating to Hazardous Substances; (d) knows of
no facts or circumstances that would give rise to any future civil, criminal or
administrative proceeding against the Company relating to Hazardous Substances,
and (e) will not permit any of its employees, agents, contractors,
subcontractors, or any other person occupying or present on the Premises to
generate, manufacture, store, dispose, or release on, about or under the
Premises any Hazardous Substances which would result in the Premises not
complying with the Environmental Laws.
As used herein, "Hazardous Substances" shall mean and include all
hazardous and toxic substances, wastes, materials, compounds, pollutants and
contaminants (including, without limitation, asbestos, polychlorinated
biphenyls, and petroleum products) which are included under or regulated by
the Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601 ET SEQ., the Toxic Substances Control Act, 15
U.S.C. Section 2601, ET SEQ., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, ET SEQ., the Water Quality Act of 1987, 33 U.S.C. Section
1251, ET SEQ., and the Clean Air Act, 42 U.S.C. Section 7401, ET SEQ., and any
state or local statute ordinance, law, code, rule, regulation or order
regulating or imposing liability (including strict liability) or standards of
conduct regarding Hazardous Substances (hereinafter the "Environmental Laws"),
but does not include such substances as are permanently incorporated into a
structure or any part thereof in such a way as to preclude their subsequent
release into the environment, or the permanent or temporary storage or disposal
of household hazardous substances by tenants, and which are thereby exempt from
or do not give rise to any violation of the forementioned Environmental Laws.
The Company hereby indemnifies the Bank and holds the Bank harmless from
and against any loss, damage, cost, expense or liability (including strict
liability) directly or indirectly arising out of or attributable to the
generation, storage, release, threatened release, discharge, disposal or
presence (whether prior to or during the term of the Loan) of Hazardous
Substances on, under or about the Premises (whether by the Company or any
employees, agents, contractor of subcontractors of the Company or any
predecessor in title or any third persons occupying or present on the Premises)
or the breach of any of the representations and warranties regarding the
Premises, including, without limitation: (a) those damages or expenses
arising under the Environmental Laws; (b) the costs of any required or
necessary repair, cleanup or detoxification of the Premises, including the soil
and ground water thereof, and the preparation and implementation of any closure,
remedial or other required plans; (c) damage to any natural resources; and (d)
all reasonable costs and expenses incurred by the Bank in connection with
clauses (a), (b) and (c) including, but not limited to reasonable attorney's
fees.,
The indemnification provided for herein shall not apply to any
losses, liabilities, damages, injuries, expenses or costs which: (i) arise
from the gross negligence or willful misconduct of the Bank, or (ii) relate to
Hazardous Substances placed or disposed of on the Premises after the Bank
acquires title to the Premises through foreclosure or otherwise.,
The Company and DREHI agree to apply for and accept admission into the
"Voluntary Acceptance Program" administered by the Ohio Environmental Protection
Agency at the earliest opportunity.
8.14 REGULATION U.
The Company is not engaged in the business of purchasing or selling margin
stock (as defined in Regulation U of the Board of Governors of the Federal
Reserve
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System) or extending credit to others for the purpose of purchasing or carrying
margin stock and no part of the proceeds of any borrowing hereunder will be used
to purchase or carry any margin stock or for any other purpose which would
violate any of the margin regulations of said Board of Governors.
SECTION 9. COMPANY BUSINESS COVENANTS.
The Company covenants that effective as of the date of this Agreement and
continuing thereafter as long as any of the indebtedness provided for herein
remains unpaid:
9.1 PAYMENT OF TAXES AND CLAIMS.
The Company will pay before they become delinquent:
(a) all taxes, assessments and governmental charges or levies imposed
upon it or its property; and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords, bailees and other like persons which, if
unpaid, might result in the creation of a lien or encumbrance upon
its property,
PROVIDED that items of the foregoing description need not be paid while being
contested in good faith and by appropriate proceedings and PROVIDED further that
adequate book reserves have been established with respect thereto and PROVIDED
further that the Company's title to, and its right to use, its property is not
materially adversely affected thereby. In the case of any item of the foregoing
description involving in excess of the amount which the Company's independent
public accountants shall fix as the threshold of materiality for purposes of
their audit of the then current year, the appropriateness of the proceedings
shall be supported by an opinion of the independent counsel responsible for such
proceedings and the adequacy of such reserves shall be supported by the opinion
of the independent accountants.,
9.2 MAINTENANCE OF PROPERTIES AND CORPORATE EXISTENCE.
The Company shall:
(a) PROPERTY -- maintain its property in good condition and make all
renewals, replacements, additions, betterments and improvements
thereto which are deemed necessary by the Company;
(b) INSURANCE -- maintain, with financially sound and reputable
insurers, insurance with respect to its properties and business
against such casualties and contingencies, of such types (including
but not limited to fire and casualty, public liability, products
liability, larceny, embezzlement or other criminal misappropriation
insurance) and in such amounts as is customary in the case of
corporations of established reputations engaged in the same or a
similar business and similarly situated;
(c) FINANCIAL RECORDS - - keep true books of records and accounts in
which full and correct entries will be made of all its business
transactions, and reflect in its financial statements adequate
accruals and appropriations to reserves, all in accordance with
generally accepted accounting principles;
(d) CORPORATE EXISTENCE AND RIGHTS - - do or cause to be done all things
necessary (i) to preserve and keep in full force and effect its
existence, rights and franchises, and (ii) to maintain its status as
a corporation duly organized and existing and in good standing under
the laws of the State of its incorporation; and
(e) COMPLIANCE WITH LAW -- not be in violation of any laws, ordinances,
or governmental rules and regulations to which it is subject and
will not fail to obtain any licenses, permits, franchises or
other governmental authorizations necessary to the ownership of its
properties or to the conduct of its business, which violation or
failure to obtain might materially and adversely affect the
business, prospects, profits, properties or condition (financial or
otherwise) of the Company.
9.3 SALE OF ASSETS OR MERGER.
(a) SALE OF ASSETS - - The Company will not, except in the ordinary
course of business, sell, convey or dispose of any of its assets;
PROVIDED that the
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foregoing restriction does not apply to the sale of assets for a cash
consideration to one or more persons if the value of all assets so sold in
any twelve-month period (with the assets being valued at the greater of
net book or fair market value) does not exceed five percent (5%) of the
tangible net worth of the Company.
(b) MERGER AND CONSOLIDATION - - The Company will not without the prior
written consent of the Bank consolidate with or merge into any other
entity. In addition, the Company will not without the prior written
consent of the Bank permit any other entity to consolidate with or
merge into it or acquire all or substantially all of the assets or
business of any other company, person or entity.
9.4 LIENS AND ENCUMBRANCES.
(a) NEGATIVE PLEDGE. The Company will not (i) cause or permit or (ii)
agree or consent to cause or permit in the future (upon the
happening of a contingency or otherwise), any of its property,
whether now owned or hereafter acquired, to be subject to a lien or
encumbrance except:
(i) liens securing taxes, assessments or governmental charges or
levies or the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like
persons PROVIDED the payment thereof is not at the time
required by Section 9.1;
(ii) liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation,
unemployment insurance, social security and other like laws;
(iii) attachment, judgment and other similar liens arising in
connection with court proceedings, PROVIDED the execution or
other enforcement of such liens is effectively stayed and the
claims secured thereby are being actively contested in good
faith and by appropriate proceedings;
(iv) inchoate liens arising under ERISA to secure the contingent
liability of the Company;
(v) liens and encumbraces set forth in EXHIBIT B to this
Agreement;
(vi) reservations, exceptions, encroachments, easements, rights of
way, covenants, conditions, restrictions, leases and other
similar title exceptions or encumbrances affecting real
property, PROVIDED they do not in the aggregate materially
detract from the value of said property or materially
interfere with its use in the ordinary conduct of the owning
company's business.,
(vii) purchase money security interests not exceeding in amount
the purchase price of the property purchased.
In addition, the Company will not provide or agree to provide in favor of
any other lender, lessor, creditor, or other third party a negative pledge or
other covenant similar to this Section.,
9.5 OTHER BORROWINGS.
The Company will not create or incur any indebtedness for borrowed money
or advances, including through the execution of capitalized lease agreements,
except in connection with the purchase of property, provided that such
indebtedness does not exceed the purchase price of the property purchased.
9.6 CONTINGENT LIABILITIES.,
The Company will not guarantee, indorse or otherwise become surety for or
upon the obligations of others, except by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business.
9.7 LOANS AND ADVANCES BY THE COMPANY.
The Company will not make any loans or advances to any person, corporation
or entity.
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9.8 CASH DIVIDENDS AND OTHER DISTRIBUTION'S.
The Company shall not declare or pay any cash dividends in any one fiscal
year or make any other distributions of any kind to shareholders.
9.9 ACQUISITION OF CAPITAL STOCK.
The Company shall not redeem or acquire any of its own capital stock
except through the use of the net proceeds from the simultaneous sale of an
equivalent amount of its capital stock, except for ESOP transactions in the
normal course of business.
9.10 INVESTMENTS.
The Company shall not purchase securities of any kind for investment
excepting bonds or other obligations of the United States, certificates of
deposit issued by commercial banks or building and loan associations and
commercial paper rated at least A-l or P-l and having a maturity of not more
than one year.
9.11 SALE OF RECEIVABLES.,
The Company shall not sell any of its account's receivable or notes
receivable, with or without recourse, nor shall it assign or encumber any of
it's accounts receivable or notes receivable.
9.12 LOCK-BOX COLLECTION OF RECEIVABLES: CASH COLLATERAL ACCOUNT.
The Company shall cause all accounts receivable to be collected through a
lock-box arrangement with the Bank. The Company shall establish with the Bank a
cash collateral account over which the Bank shall have exclusive power of
disbursement (the "Cash Collateral Account"). The Cash Collateral Account
shall be the Company's primary operating account. if Company hereafter makes
collections on any of the accounts, Company shall hold the proceeds received
from collections in trust for the Bank, and turn over all checks, drafts, cash
and other remittances and proceeds to the Bank each business day in the exact
form in which they are received, together with a collection report in a form
acceptable to the Bank. Said proceeds shall be deposited in the Cash Collateral
Account. The Bank, in the absence of an Event of Default under this Agreement
shall apply the whole or any part of the collected funds on deposit in the Cash
Collateral Account against the principal of the Loan; and after the occurrence
of an Event of Default such deposited funds may be applied, at the Bank's
option, against the Loan or any other indebtedness or obligation of Company.
Any portion of said funds on deposit in the Cash Collateral Account which the
Bank elects not to apply to the Loan may be paid over and deposited by the Bank
to the Company's commercial depositary account.
After the occurrence of an Event of Default under this Agreement, the Bank
at any time may notify Account Debtors on any accounts receivable of the Company
that such accounts have been assigned to the Bank and shall be paid directly to
the Bank through the lock-box or otherwise. After an Event of Default, upon
request of the Bank at any time, Company shall notify such Account Debtors and
indicate on all billings that the accounts are payable directly to the Bank.,
9.13 TANGIBLE NET WORTH.
The Company shall achieve and maintain a sum of the consolidated tangible
net worth plus subordinated debt of not less than the following amounts on and
after the following described dates:
Date Tangible Net Worth
---- ------------------
6/30/96 $1,500,000.00
12/31/96 $2,200,000.00
6/30/97 $2,400,000.00
12/31/97 $2,600,000.00
6/30/98 $3,000,000.00
12/31/98 $3,250,000.00
9.14 CURRENT RATIO.
The Company shall maintain as of the end of each fiscal quarter a
consolidated ratio of current assets to current liabilities of not less than 1.2
to 1.0.
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9.15 RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH.,
The Company shall maintain as of the end of each fiscal quarter until and
including March 31, 1997 a consolidated ratio of total liabilities to tangible
net worth of not greater than 4.0 to 1.0. Beginning June 30, 1997 and
continuing quarterly thereafter, the Company shall maintain as of the end of
each fiscal quarter a consolidated ratio of total liabilities to tangible net
worth of not greater than 3.0 to 1.0.
9.16 CASH FLOW COVERAGE RATIO.
The Company shall achieve as of December 31, 1996 and maintain as of each
fiscal year end thereafter a ratio of "Adjusted Cash Flow" to "Debt Service
Expense" of not less than 1.20 to 1.0. For purposes of this computation,
"Adjusted Cash Flow" shall be defined as the Company's annual earnings (net
profit) before interest, taxes, depreciation, and amortization expense plus
annual contributions to the Company's Employee Stock Option Plan; and "Debt
Service Expense" shall be defined as the sum of the Company's annual interest
expense plus current maturities of long term debt.,
9.17 ASSET BASED LENDING AUDITS., The Company will make its records,
inventory, equipment, and premises available to the officers or agents of the
Bank to conduct "asset based lending" audits quarterly during the first year of
the term of the Loan., Thereafter, such audits may be performed at such other
times as the Bank may require. The Company shall pay to the Bank the sum of
$500.00 per each day the auditors are performing such audit(s) on the Company's
premises, provided that such charges payable by the Company shall not exceed the
aggregate sum of $4,000.00 per each calendar year.
9.18 ERISA.
The Company shall with respect to their respective pension plans:
(a) at all times make prompt payment of contributions required to meet
the minimum funding standards set forth in Section 302 through 305
of ERISA with respect to its plan,
(b) promptly, after the filing thereof, furnish to the Bank copies of
each annual report required to be filed pursuant to Section 103 of
ERISA in connection with its plan for the plan year, including any
certified financial statements or actuarial statements required
pursuant to said Section 103
(c) notify the Bank immediately of any fact, including, but not limited
to, any "Reportable Event," as that term is defined in Section 4043
of ERISA, arising in connection with the plan which might constitute
grounds for termination thereof by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United States
District Court of a Trustee to administer the plan,
(d) notify the Bank of any "Prohibited Transaction" as that term is
defined in Section 406 of ERISA.
The Company will not:
(e) engage in any "Prohibited Transaction," or
(f) terminate any such plan in a manner which could result in the
imposition of a lien on the property of the Company pursuant to
Section 4068 of ERISA.
9.19 MAINTENANCE OF ACCOUNTS
Company shall maintain all of it's primary operating and deposit accounts
at the Bank.
SECTION 10. INFORMATION AS TO COMPANY
The Company shall deliver the following to the Bank:
(a) within 25 days after the end of each calendar month, financial
statements of both Dynacraft and Pal Joey, including a balance sheet
and 'statements of income and surplus, certified by the president or
treasurer of the Company
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as fairly representing the Company's financial condition as of the
end of such period;
(b) within 10 days after the end of each calendar month, reports of
Dynacraft and Pal Joey signed by their respective president or
treasurer setting forth the number and dollar total of accounts
receivable past due for not more than 30 days, the number and dollar
total past due for not more than 60 days, the number and dollar
total past due for not more than 90 days, and the number and dollar
total past due for more than 90 days;
(c) within 10 days after the end of each calendar month, reports of
Dynacraft and Pal Joey signed by their respective president or
treasurer setting forth the number and dollar total of accounts
payable and the periods past due for such amounts.
(d) within 120 days of the end of each fiscal year, an audited
consolidated financial statement of the Company prepared in
accordance with generally accepted accounting principles
consistently applied by independent public accountants 'satisfactory
to the Bank, containing a balance sheet and statements of income
and surplus, ALONG WITH ANY MANAGEMENT LETTERS WRITTEN BY SUCH
ACCOUNTANTS;
(e) within 30 days after the end of each month, an inventory report in a
form acceptable to the Bank signed by the President or Treasurer of
the Company that describes the value and location of the Company's
inventory;
(f) within 30 days after the end of each month a Certificate of the Loan
Base signed by the President or Treasurer of the Company 'setting
forth and certifying the calculation of the Loan Base as of the end
of such month;
(g) within 120 days of the end of each fiscal year, a statement signed
by the Company's independent public accountants certifying that
nothing has come to their attention that would lead them to believe
that the Company is in violation of the terms of this Agreement;
(h) within thirty days after the end of each calendar year each
guarantor shall furnish to the Bank a signed copy of his financial
statement, including balance sheet, prepared in a manner acceptable
to the Bank.
(i) immediately upon becoming aware of the existence of any condition or
event which constitutes an Event of Default, a written notice
specifying the nature and period of existence thereof and what
action the Company is taking or proposes to take with respect
thereto;
(j) at the request of the Bank, such other information as the Bank may
from time to time reasonably require.
SECTION 11. EVENTS OF DEFAULT
11.1 NATURE OF EVENTS.
An "Event of Default" shall exist if any of the following occurs and is
continuing:
(a) the Company fails to make any payment of principal or interest on
the Loan on or before the date such payment is due;
(b) at the Bank's option, if the outstanding principal balance of the
Loan exceeds the Loan Base at any time;
(c) the Company fails to perform or observe any covenant contained in
Sections 5, 7, 9.1 through 9.18, and 10(a) through 10(h) of this
Agreement;
(d) the Company fails to comply with any other provision of this
Agreement, and such failure continues for more than 30 days after
such failure shall first become known to any officer of the Company;
(e) any warranty, representation or other statement by or on behalf of
the Company contained in this Agreement or in any instrument
furnished in compliance with or in reference to this Agreement is
false or misleading in any material respect;
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(f) the Company becomes insolvent or bankrupt, or makes an assignment
for the benefit of creditors, or consents to the appointment of a
trustee, receiver or liquidator;
(g) bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings are instituted by or against the Company and
remain undismissed for a period of sixty days;
(h) a final judgment or judgments, from which no further right of appeal
exists, for the payment of money aggregating in excess of $25,000.00
is or are outstanding against the Company and any one of such
judgments has been outstanding for more than 30 days from the date
of its entry and has not been discharged in full or stayed;
(i) the Company fails to make any payment or to perform or observe any
covenant owing to the Bank or to any third party pursuant to any
agreement (other than in connection with accounts payable arising in
the ordinary course of business), and any applicable grace period
has expired;
(j) the Bank for any reason in good faith deems itself insecure with
respect to the repayment of the indebtedness provided for herein.
11.2 DEFAULT REMEDIES.,
(a) ACCELERATION -- If an Event of Default exists, the Bank may
immediately exercise any right, power or remedy permitted to the Bank by law,
and shall have in particular, without limiting the generality of the foregoing,
the right to declare the entire principal and all interest accrued on all notes
then outstanding pursuant to this Agreement to be forthwith due and payable,
without any presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived by the Company.
(b) NONWAIVER: REMEDIES CUMULATIVE - -- No course of dealing on the
part of the Bank, nor any delay or failure on the part of the Bank in exercising
any rights, powers or privileges hereunder, shall operate a's a waiver of such
rights, powers or privileges or otherwise prejudice any of the Bank's rights and
remedies hereunder; nor shall any single or partial exercise thereof preclude
any further exercise thereof or the exercise of any other right, power or
privilege by the Bank. No right or remedy conferred upon or reserved to the
Bank under this Agreement is intended to be exclusive of any other right or
remedy, and every right and remedy shall be cumulative and in addition to every
other right or remedy given hereunder or now or hereafter existing under any
applicable law., Every right and remedy given by this Agreement or by
applicable law to the Bank may be exercised from time to time and as often as
may be deemed expedient by the Bank.
(c) RIGHT OF SET-OFF - - Upon the occurrence and during the continuance
of any Event of Default hereunder, the Bank is hereby authorized at any time and
from time to time, without notice to the Company (any such notice being
expressly waived by the Company) and to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by the Bank to or for the credit or the account of the Company against any and
all of the obligations of the Company now or hereafter existing under this
Agreement, irrespective of whether or not the Bank shall have made any demand
hereunder and although such obligations may be unmatured.,
SECTION 12. MISCELLANEOUS
12.1 NOTICES.,
All communications under this Agreement or under the notes executed
pursuant hereto shall be in writing and shall be mailed by first class mail,
postage prepaid to the address of the recipient first set forth above., Any
notice so addressed and mailed by registered mail shall be deemed given when so
mailed.
12 2 REPRODUCTION OF DOCUMENTS.,
This Agreement and all documents relating hereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by the Bank at the closing or otherwise, and
(c) financial statements, certificates and other information previously or
hereafter furnished to the Bank, may be reproduced by the Bank by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process and the Bank may destroy any
11
<PAGE>
original document so reproduced. The Company agrees and stipulates that any
such reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Bank in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.,
12.3 SURVIVAL.,
All warranties, representations, and covenants made by the Company herein
or on any certificate or other instrument delivered by it or on its behalf under
this Agreement shall be considered to have been relied upon by the Bank and
shall survive the closing of the Loan regardless of any investigation made by
the Bank on its behalf., All statements in any such certificate or other
instrument shall constitute warranties and representations by the Company.
12.4 SUCCESSORS AND ASSIGN'S: PARTICIPATIONS.
This Agreement shall inure to the benefit of and be binding upon the
heirs, successors and assigns of each of the parties.
The Bank, at any time, may sell to one or more participants participating
interests in the Loan or any portion thereof, any promissory note held by the
Bank, or any other interest of the Bank hereunder. In the event of any such
sale by the Bank of participating interest to a participant the Bank shall
remain the holder of any such promissory note for all purposes under this
Agreement, and the Company shall continue to deal solely and directly with the
Bank in connection with the Bank's rights and obligations under this Agreement.
The Company agrees that if amounts outstanding under this Agreement in any
promissory notes in connection herewith have become due and payable, whether by
acceleration or otherwise, each participant shall be deemed to have to the
extent permitted by applicable law, the right of set off in respect of its
participating interest in amounts owing under this Agreement or any promissory
note executed in connection herewith to the same extent as if the amount of its
participating interest were owing directly to it under this Agreement or any
promissory note executed in connection herewith. The Company authorizes the
Bank to disclose to any participant or any prospective participant any and all
financial information in the Bank's possession concerning the Company which has
been delivered to the Bank by or on behalf of the Company pursuant to this
Agreement.
12.5 AMENDMENT AND WAIVER.
This Agreement may be amended, and the observance of any term of this
Agreement may be waived, with (and only with) the written consent of the Company
and the Bank.,
12.6 DUPLICATE ORIGINALS.
Two or more duplicate originals of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument.
12.7 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Ohio.
12.8 ACCOUNTING TERMS AND COMPUTATIONS.
Whenever any accounting term shall be used herein or the character or
amount of any asset or liability or item of income or expense is required to be
determined, or any consolidation or other accounting computation is required to
be made, for the purpose of this Agreement, such accounting term, such
determination or computation shall, to the extent applicable and except as
otherwise specified in this Agreement, be defined or made (as the case may be)
in accordance with generally accepted accounting principles in the United States
applied (in the case of determinations or computations) on a basis consistent
with those applied in the preparation of the financial statements referred to in
Section 7.3 hereof.
12.9 CONSENT TO JURISDICTION AND WAIVER OF OBJECTION TO VENUE.
The Company agrees that any legal action or proceeding with respect to
this Agreement or the notes or the transactions contemplated hereby may be
brought in the Court of Common Pleas of Franklin County, Ohio, or in the United
States District Court
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for the Southern District of Ohio, Eastern Division, and the Company hereby
irrevocably submits to and accepts generally and unconditionally the
jurisdiction of those courts with respect to its person, property and revenues
and irrevocable consents to service of process in any such action or proceeding
by the mailing thereof by U.S. mail to the Company at the Company's address set
forth in Section 11.1 hereof.
The Company hereby irrevocably waives any objection to the laying of venue
of any such suit or proceeding in the above described courts, and
unconditionally waives and agrees not to plead or claim that any such suit or
proceeding brought in any such court has been brought in an inconvenient forum,
provided, that this provision shall not preclude the Company from seeking to
consolidate actions brought against it.
Dynacraft Golf Products, Inc.,
By /s/ Joseph Altomonte, Jr.
-------------------------
Its CEO
---
Pal Joey Custom Golf, Inc.
By /s/ Rob Altomonte
-----------------
Its President
---------
The Huntington National Bank
By /s/ Charles T. Bantis, Vice President
--------------------------------------
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COMMERCIAL LOAN NOTE
- --------------------------------------------------------------------------------
CITY OFFICE ________________ DIVISION ___________ BRANCH _________ (XX ) SECURED
ACCOUNT NO. ___________________________ NOTE NO. ______________ ( ) UNSECURED
ACCOUNT NAME: DYNACRAFT GOLF PRODUCTS, INC.; PAL JOEY CUSTOM GOLF, INC.
(XX) CORPORATION ( ) PARTNERSHIP ( ) INDIVIDUAL/PROPRIETORSHIP
BANK APPROVAL OFFICER INITIAL __________ BANK CLOSING OFFICER INITIAL __________
- --------------------------------------------------------------------------------
$ 1,860,315.00 Columbus, Ohio June 20, 1996
FOR VALUE RECEIVED, the undersigned, jointly and severally if more than
one, promise to pay to the order of The Huntington National Bank (the "Bank",
which term shall include any holder hereof) at such place as the Bank may
designate or, in the absence of such designation, at any of the Bank's offices,
the sum of One Million Eight Hundred Sixty Thousand Three Hundred Fifteen
Dollars ($1,860,315.00) or so much thereof as shall have been advanced by the
Bank at any time and not hereafter repaid (hereinafter called the "'Principal
Sum") together with interest as hereinafter provided, and payable at the time(s)
and in the manner hereinafter provided. The undersigned promise to pay the
Principal Sum and the interest thereon at the times and in the manner
hereinafter provided.
This Note is executed in connection with and subject to the covenants and
conditions of a certain Loan Agreement between the Bank and the undersigned,
dated June 20, 1996 (the "Loan Agreement").
INTEREST
Prior to Maturity, interest will accrue on the unpaid balance of the
Principal Sum until paid at a "CONTRACT RATE" OF EITHER THE "ONE YEAR TREASURY
RATE" OR THE "PRIME RELATED RATE" (both of which are hereinafter defined) duly
elected by the undersigned by an Adjustment Election made in the manner
hereinafter provided. After maturity, whether by acceleration, lapse of time,
or otherwise, interest shall accrue on the unpaid balance of the Principal Sum
at a DEFAULT RATE" equal to the Prime Rate (hereinafter defined) plus Two and
Three Quarters percent (2.75%) per annum.
THE "ONE YEAR TREASURY RATE" is a rate of interest per annum equal to the
"one year index" plus 250 basis points, rounded up to the nearest one-eighth of
one percent (1/8%). The "one year index" shall be the one year U. S. Treasury
Constant Maturities rate stated in the weekly Federal Reserve Statistical
Release Form H.l5(5l9) published not less than seven days prior to the
applicable Interest Rate Adjustment Date.
THE "PRIME-RELATED RATE" is a variable rate of interest equal to
seventy-five (75) basis points [100 basis points equals one percent) above the
"Prime Rate" (hereinafter defined) from time to time in effect with each change
in the Prime Rate automatically and immediately adjusting the rate of interest
payable hereunder. For the purposes hereof, the term "Prime Rate" shall mean
that interest rate per annum announced from time to time by the Bank as its
"prime rate", or other similar designation, and it is not necessarily the most
favored rate of the Bank.
THE "INTEREST RATE ADJUSTMENT DATE" shall mean each anniversary of the date
of this Note during the term of this Note.
THE "ADJUSTMENT ELECTION" shall mean an IRREVOCABLE written election to
adjust the Contract Rate due under this Note TO EITHER THE ONE YEAR TREASURY
RATE or the Prime Related ~de terminedb the Bank to be in effect as of each
Interest Rate Adjustment Date, which election may be exercised not later than
thirty days prior to each Interest Rate Adjustment Date by delivering to the
officer of the Bank who is administering the Loan a written notice of such
election SPECIFYING THE CONTRACT RATE elected by the undersigned If the
undersigned fails to timely make the Adjustment Election prior to any Interest
Rate Adjustment Date, then in such event the undersigned shall be deemed TO HAVE
ELECTED THE Prime Related Rate as the Contract Rate to become effective as of
such Interest Rate Adjustment Date. Each election of the Contract Rate shall
continue in effect until the next succeeding Interest Rate Adjustment Date, upon
which date the Contract Rate shall be adjusted in accordance with the Adjustment
Election made or deemed to have been made by the undersigned for such date.
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All interest shall be calculated on the basis of a 360 day year for the
actual number of days the Principal Sum or any part thereof remains unpaid.
There shall be no penalty for prepayment. The amount of any payment shall first
be applied to the payment of any interest which is due.
MANNER OF PAYMENT
The Principal Sum and accrued interest at the Contract Rate shall be due
and payable in eighty-four consecutive monthly installments, beginning on August
1, 1996 and continuing on the first day of each month thereafter until maturity,
whether by acceleration, lapse of time, or otherwise. The Principal Sum portion
of each monthly installment shall be computed in relation to the Contract Rate
in effect for the applicable Adjustment Period, except the final installment
shall be for the entire outstanding balance of the Principal Sum. Accrued
interest shall be payable monthly with the installments of the Principal Sum. If
the Contract Rate is the Prime Related Rate, the monthly installment of interest
shall be due and payable in addition to the monthly installment of the Principal
Sum. Unless sooner paid, the entire outstanding balance of the Principal Sum,
together with all accrued but unpaid interest thereon, shall be due and payable
on July 1, 2003 (the "Maturity Date").
The monthly installment shall initially be the sum of TWENTY NINE THOUSAND
THREE HUNDRED FORTY FOUR DOLLARS ($29,344.05), said amount having been computed
based upon A EIGHTY-FOUR (84) MONTH amortization schedule; provided, however,
that on each Interest Rate Adjustment Date on which the Contract Rate changes to
a Treasury Related Contract Rate the monthly installment of principal and
interest due hereunder shall be increased or decreased, as the case may be, to a
new payment equal to the monthly amount required to fully amortize the
outstanding principal balance of the Loan and accrued interest thereon based
upon (i) the new Contract Rate becoming effective as of such Interest Rate
Adjustment , and (ii) the above referenced amortization period, less the number
of months which have elapsed since July 1 1996. On each Interest Rate
Adjustment Date on which the Contract Rate changes to a Prime Related Contract
Rate, the monthly installment shall be computed as the sum of (i) interest in
arrears accrued during each period of thirty days at the Prime Rate(s) in
effect during such period, plus (ii) a monthly portion of principal computed
by dividing the outstanding balance of the Principal Sum as of such Interest
Rate Adjustment Date by the number of months remaining until the Maturity Date.
The undersigned may, on an business day , upon payment of all accrued
interest, fees and other amounts then due and payable to Lender and upon at
least FIVE (5) BUSINESS DAYS prior written notice to Lender, elect to prepay all
or part of the unpaid balance of the PRINCIPAL SUM; provided, however, that if
said prepayment shall be (1) MADE ON OR BEFORE the date that is six (6) months
prior to any Interest Rate Adjustment Date or the Maturity Date and (2) THE
AGGREGATE AMOUNT OF THE PRINCIPAL portion of all prepayments made during the
calendar year in which said prepayment is made (including the principal
portion of said prepayment) exceeds 10% of the outstanding PRINCIPAL balance due
AND PAYABLE TO LENDER ON JANUARY 1 OF SAID CALENDAR YEAR OR THE DATE OF THIS
NOTE, WHICHEVER date more proximately precedes the date of prepayment, then the
undersigned shall pay to Lender on the date of the prepayment A PREPAYMENT
PREMIUM CALCULATED using the following formula:
Prepayment Premium = % x (AP - AD) x TM
--
12
In such formula:
(i) % equals 3%
(ii) AP is the Amount Paid and means the actual amount of the principal sum
paid on the date of the prepayment; and
(iii) AD is the Amount due and means the total amount of the principal sum
due and payable on the date of the prepayment; and
(iv) TM is the Total Months and means the total number of full months
between the date of the prepayment and the next succeeding Interest
Rate Adjustment Date or the Maturity Date, whichever is the earlier
event.
The prepayment premium shall be due and payable to the Bank regardless of
whether the prepayment results from the undersigned's voluntary prepayment or
from the Bank's exercising its rights after default by the undersigned through
acceleration of the Loan or otherwise. Unless the Bank shall otherwise agree in
writing, partial prepayments of principal shall be credited to installments of
principal in inverse order of maturity and shall not postpone the due dates of
the monthly installments required hereunder. Notwithstanding the foregoing, in
the event of any prepayment because of foreclosure or other judicial sale, there
shall be due and payable a prepayment premium in the amount of five percent (5%)
of the amount prepaid.
2
<PAGE>
LATE CHARGE
Any installment or other payment not made within 10 days of the date such
payment or installment is due shall be subject to a late charge equal to 5% of
the amount of the installment or payment.
SECURITY
As security for the payment of the obligations evidenced hereby, and of all
other obligations and liabilities of the undersigned, and each of them, to the
Bank, whether now existing or hereafter arising, the undersigned hereby grant
Bank a security interest or mortgage in the following property, including all
substitutions and additions thereto, and the proceeds thereof (all, together
with any other property in which the Bank shall at any time be given a security
interest, hereinafter referred to as the "Collateral"):
First security interest in cash, accounts receivable, inventory,
intangibles; Second priority security interest on equipment and fixtures;
Second mortgage lien on the real estate located at 84, 85,88, 92, 98, 99,
and 100 James Street, Newark, Ohio, 77, 85, and 99 S. Pine Street, Newark,
Ohio, and 71 Maholm Street, Newark, Ohio 43055; Assignment of $500,000
life insurance policy insuring the life of Joseph A. Altomonte, Jr.
If, at the time of payment and discharge hereof, any of the undersigned shall be
then directly or contingently liable to the Bank as maker, indorser, surety or
guarantor of any other note, bill of exchange, or other instrument, then the
Bank may continue to hold any of the Collateral as security therefor, even
though this Note shall have been surrendered to the undersigned. The Bank shall
not be bound to take any steps necessary to preserve any rights in the
Collateral against prior parties. If any obligation evidenced by this Note is
not paid when due, the Bank may, at its option, demand, sue for, collect or make
any compromise or settlement it deems desirable with reference to the
Collateral, and shall have the rights of a secured party under the laws of the
State of Ohio, and the undersigned shall be liable for any deficiency.
DEFAULT
Upon the occurrence of any of the following events:
(1) the undersigned fails to pay any installment when due hereunder or to
perform any obligation of the undersigned to the Bank, including without
limitation all obligations set forth in the Loan Agreement;
(2) the undersigned fails to do all things necessary to preserve and
maintain the value and collectibility of the Collateral;
(3) any event occurs and continues which constitutes a default by any of
the undersigned under any other obligation to or agreement with the Bank;
(4) the Collateral declines in value or become unsatisfactory to the Bank
and the undersigned fails to furnish immediately upon demand additional
Collateral satisfactory to the Bank;
(5) any guarantor revokes its guaranty, or any event occurs and continues
which constitutes a default by any guarantor under its guaranty;
(6) the undersigned fails to furnish true and complete financial
statements from time to time on request of the Bank;
(7) the death or dissolution of any of the undersigned, or any indorser,
surety, accommodation party or guarantor;
(8) any representation, warranty or other information given to the Bank by
any of the undersigned, or by an indorser, surety or guarantor proves to be
false, untrue or misleading; or
(9) if the Bank shall for any reason deem itself insecure with respect to
the obligations evidenced hereby;
then Bank may, at its option, without notice or demand, accelerate the maturity
of the obligation evidenced hereby, which obligation shall become immediately
due and payable. In the event the Bank shall institute any action for the
enforcement or
3
<PAGE>
collection of the obligations evidenced hereby, the undersigned agree to pay all
costs and expenses of such actions, including reasonable attorneys' fees, to the
extent permitted by law.
GENERAL PROVISIONS
All of the parties hereto, including the undersigned, and any indorser,
surety, accommodation party, or guarantor, hereby: (1) severally waive
presentment, notice of dishonor, protest, notice of protest, and diligence in
bringing suit against any party hereto; (2) consent that, without discharging
any of them, and without notice, the Bank may (i) extend the time of payment an
unlimited number of times before or after maturity, (ii) grant any other
indulgence at any time and from time to time to any party hereto, (iii) delay in
exercising or omit to exercise any right against, or delay in taking or omit to
take any action to collect from or pursue the Bank's remedies against, any party
hereto, (iv) release or modify any collateral, security, or guaranties; and (3)
severally waive any claim, right or remedy which such party may now have or
hereafter acquire against any other party or parties hereto that arises
hereunder and/or from the performance by such party hereunder, including without
limitation any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification or participation in any claim, right
or remedy of the Bank against the other party or parties, or any security which
the Bank now has or hereafter acquires, whether such claim, right or remedy
arises in equity, under contract, by statute, under common law or otherwise.
The Bank shall not be required to pursue any party hereto, including any
guarantor, or to exercise any rights against any Collateral herefor before
exercising any other such rights.
The obligations evidenced hereby may from time to time be evidenced by
another note or notes given in substitution, renewal or extension hereof. Any
security interest or mortgage which secures the obligations evidenced hereby
shall remain in full force and effect notwithstanding any such substitution,
renewal, or extension.
No waiver of any term or condition of this Note shall be effective unless
in writing and signed by the party giving or granting the waiver. No amendment
of any term or condition of this Note shall be effective unless in writing and
signed by the undersigned and the Bank. No failure or delay on the part of the
Bank in exercising any right, power or privilege under this Note, related loan
documents or law nor any course of dealing, shall operate as a waiver of such
right, power or privilege or preclude any other or further exercise thereof or
of any other right, power or privilege.
The captions used herein are for reference only and shall not be deemed a
part of this Note. If any of the terms or provisions of this Note shall be
deemed unenforceable, the enforceability of the remaining terms and provisions
shall not be affected. This Note shall be governed by and construed in
accordance with the law of the State of Ohio.
The undersigned agree that, to the extent that any of the undersigned make
a payment or payments to the Bank, or the Bank receives any proceeds of
collateral, which payment or payments or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to any of the undersigned, its estate, trustee,
receiver or any other party, including without limitation any guarantor, under
any bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such payment or repayment, the obligations under this Note or the
part hereof which has been paid, reduced or satisfied by such amount shall be
reinstated and continued in full force and effect as of the date such initial
payment, reduction or satisfaction occurred.
WARRANT OF ATTORNEY
Each of the undersigned authorizes any attorney at law to appear in any
Court of Record in the State of Ohio or in any other state or territory of the
United States of America after the above indebtedness becomes due, whether by
acceleration or otherwise, to waive the issuing and service of process, and to
confess judgment against any one or more of the undersigned in favor of the Bank
for the amount then appearing due together with costs of suit, and thereupon to
waive all errors and all rights of appeal and stays of execution. No such
judgment or judgments against less than all of the undersigned shall be a bar to
a subsequent judgment or judgments against any one or more of the undersigned
against whom judgment has not been obtained hereon, this being a joint and
several warrant of attorney to confess judgment. The undersigned waives any
right to move any court for an order having any attorney or firm representing
the Bank removed or disqualified as counsel for the Bank as a result of such
attorney or firm confessing judgment against the under signed in accordance with
this paragraph. The undersigned expressly waives any conflicts of interest
that may now or hereafter exist as a result of any attorney representing the
Bank confessing judgment against the undersigned and expressly consents the
attorney representing the Bank or to any other attorney to confess judgment
against
4
<PAGE>
the undersigned in accordance with this paragraph. The undersigned further
consents and agrees that the Bank may pay any attorney confessing judgment
against the undersigned a reasonable fee for confessing judgment and that any
such fees so paid may be included in the amount of such judgment.
WAIVER OF RIGHT TO TRIAL BY JURY
THE UNDERSIGNED ACKNOWLEDGES THAT, AS TO ANY AND ALL DISPUTES THAT MAY
ARISE WITH RESPECT TO THE COVENANTS AND CONDITIONS OF THIS NOTE, THE COMMERCIAL
NATURE OF THE INDEBTEDNESS EVIDENCED HEREBY WOULD MAKE ANY SUCH DISPUTE
UNSUITABLE FOR TRIAL BY JURY. ACCORDINGLY, THE UNDERSIGNED HEREBY WAIVES ANY
RIGHT TO TRIAL BY JURY AS TO ANY AND ALL DISPUTES THAT MAY ARISE RELATING TO
THIS NOTE, THE INDEBTEDNESS EVIDENCED HEREBY, OR ANY OF THE OTHER INSTRUMENTS OR
DOCUMENTS EXECUTED IN CONNECTION HEREWITH.
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
Dynacraft Golf Products, Inc. , an Ohio corporation
By /s/ Joseph Altomonte, Jr.
-------------------------
Its CEO
---
Pal Joey Custom Golf, Inc. , an Ohio corporation
By /s/ Rob Altomonte
-----------------
Its President
----------
5
<PAGE>
- --------------------------------------------------------------------------------
GUARANTOR:
JOSEPH A. ALTOMONTE, SR.
659 STUBLYN ROAD
GRANVILLE, LICKING COUNTY OHIO 43023
DEBTOR:
DYNACRAFT GOLF PRODUCTS, INC. AND PAL JOEY CUSTOM GOLF, INC.
98 JAMES STRET
NEWARK, OH 43055
- --------------------------------------------------------------------------------
CONTINUING GUARANTY
UNLIMITED
For the purpose of Inducing The Huntington National Bank (hereinafter referred
to as "Bank") to lend money or advance credit to, or renew, extend or forbear
from demanding immediate payment of the Obligations of DYNACRAFT GOLF PRODUCTS,
INC. AND PAL JOEY CUSTOM GOLF, INC. (hereinafter referred to as "Debtor", the
undersigned (hereinafter referred to as "Guarantors" whether one or more),
jointly and severally if more than one (which joint and several liability shall
exist regardless of whether additional Guarantors have evidenced or may in the
future evidence their undertaking by executing this Guaranty, by co-signing one
or more promissory notes or other instruments of indebtedness, by executing one
or more separate agreements of guaranty of any or all of the Obligations
referred to herein, or otherwise), hereby unconditionally guarantee the prompt
and full payment to Bank when due, whether by acceleration or otherwise, of all
Obligations of any kind for which Debtor is now or may hereafter become liable
to Bank In any manner.
The word "Obligations" is used in its most comprehensive sense and includes,
without limitation, all indebtedness, debts and liabilities (including
principal, interest, late charges, collection costs, attorneys' fees and the
like) of Debtor to Bank, either created by Debtor alone or together with another
or others, primary or secondary, secured or unsecured, absolute or contingent,
liquidated or unliquidated, direct or indirect, whether evidenced by note,
draft, application for letter of credit a agreements of guaranty or otherwise,
and any and all renewals of, extensions of or substitutes therefor. The word'
"Obligations" shall include, BUT NOT BE LIMITED TO, all indebtedness owed by
Debtor to Bank by reason of credit extended or to be extended to Debtor in the
principal amount of $1,860,315.00, pursuant to one or more instruments of
indebtedness and related loan documents.
Guarantors, and each of them, hereby promise that if one or more of the
Obligations are not paid promptly when due, they, and each of them, will, upon
request of Bank, pay the Obligations to Bank, irrespective of any action or lack
of action on Bank's part in connection with the acquisition, perfection,
possession, enforcement or disposition of any or all Obligations or any or all
security therefor or otherwise, and further irrespective of any invalidity in
any or all Obligations, the unenforceability thereof or the insufficiency,
invalidity or unenforceability of any security therefor. Furthermore,
Guarantors, and each of them, hereby waive any claim, right or remedy which
Guarantors may now have or hereafter acquire against Debtor that arises
hereunder and/or from the performance by Guarantors, or any of them, hereunder
including, without limitation, any claim, remedy or right of subrogation,
reimbursement, exoneration, contribution, indemnification, or participation in
any claim, right or remedy of Bank against Debtor, or any security which Bank
now has or hereafter acquires, whether such claim, right or remedy arises in
equity, under contract, by statute, under common law or otherwise.
Guarantors waive notice of any and all acceptances of this Guaranty. This
Guaranty is a continuing guaranty, and, in addition to covering all present
Obligations of Debtor to Bank, will extend to all future Obligations of Debtor
to Bank, and this whether such Obligations are reduced or entirely extinguished
and thereafter increased or reincurred. This Guaranty is made and will remain in
effect as to any and all Obligations of Debtor incurred or arising prior to
receipt by the loan officer of Bank who is handling Debtor's Obligations of
written notice of termination of this Guaranty. No revocation will in any way
affect the duties of Guarantors to Bank with respect to Obligations of Debtor
incurred prior to the receipt of such notice by such loan officer of Bank.
Revocation by any one or more of Guarantors will not affect the duties of the
remaining Guarantor or Guarantors.
Guarantors waive presentment, demand, protest, notice of protest, and notice of
dishonor or other non payment of any and all Obligations and further waive
notice of sale or other disposition of any collateral or security now held or
hereafter acquired by Bank. Guarantors agree that no extension of time, whether
one or more, nor any other indulgence granted by Bank to Debtor, or to
Guarantors, or any of them, and no omission or delay on Bank's part in
exercising any right against, or in taking any action to collect from or pursue
Bank's remedies against Debtor or Guarantors, or any of them, will release,
discharge or modify the duties of Guarantors. Guarantors agree that Bank may,
without notice to or further consent from Guarantors, release or modify any
collateral, security or other guaranties, and no such action will release,
discharge or modify the duties of Guarantors hereunder. Guarantors further agree
that Bank will not be required to pursue or exhaust any of its rights or
remedies against Debtor or Guarantors, or any of them, with respect to payment
of any of the Obligations, or to pursue, exhaust or preserve any of Its rights
or remedies with respect to any collateral, security or other guaranties given
to secure the Obligations, or to take any action of any sort, prior to demanding
payment from or pursuing its remedies against Guarantors. Guarantors further
agree that, to the extent that Debtor makes a payment or payments to Bank, or
Bank receives any proceeds of collateral, which payment or payments or proceeds
or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to Debtor, its estate,
trustee, receiver or any other party, including without limitation any
Guarantor, under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such payment or repayment, the
Obligations or the art thereof which has been aid, reduced or satisfied by such
amount shall be reinstated and continued in full force and effect as of the date
such initial payment, reduction or satisfaction occurred.
1
<PAGE>
Guarantors agree to furnish true and complete financial statements from time to
time on request of Bank and agree that failure to furnish such financial
statements may constitute or be deemed to constitute a default or event of
default of the Obligations. Guarantors agree that any legal suit, action or
proceeding arising out of or relating to this Guaranty may be instituted In a
state or federal court of appropriate subject matter jurisdiction in the State
of Ohio; waive any objection which they may have now or hereafter to the venue
of any such suit, action or proceeding; and Irrevocably submit to the
jurisdiction of any such court in any such suit, action or proceeding.
Guarantors hereby authorize any attorney at law to appear for them in any action
on any or all Obligations guaranteed hereby at any time after such Obligations
become due, whether by acceleration or otherwise, in any court of record in or
of the State of Ohio or elsewhere, to waive the issuing and service of process
against, and confess judgment against Guarantors, or any of them, in favor of
Bank for the amount that may be due, including interest, late charges,
collection costs, attorneys' fees and the like as provided for in said
Obligations, and costs of suit, and to waive and release all errors in said
proceedings and judgments, and all petitions in error, and right of appeal from
the judgments rendered. No such judgment or judgments against less than all of
Guarantors shall be a bar to a subsequent judgment or judgments against any one
or more of Guarantors against whom judgment has not been obtained hereon, this
being a joint and several warrant of attorney to confess judgment. The attorney
at law authorized hereby to appear for Guarantors may be an attorney at law also
representing Ban, and Guarantors, and each of them, hereby expressly waive any
conflict of interest that may exist by virtue of such representation.
If any Obligation of Debtor is assigned by Bank, this Guaranty will inure to the
benefit of Bank's assignee, and to the benefit of any subsequent assignee, to
the extent of the assignment or assignments, provided that no assignment will
operate to relieve Guarantors, or any of them, from any duty to Bank hereunder
with respect to any unassigned Obligation. In the event that an one or more of
the provisions contained in this Guaranty or any application thereof shall be
determined to be invalid, illegal or unenforceable In any respect, the validity,
legality and enforceability of the remaining provisions contained herein and any
other applications thereof shall not in any way be affected or impaired thereby.
This Guaranty shall be construed in accordance with the law of the State of
Ohio. As security for payment by Guarantors hereunder, and of all other
liabilities of Guarantors to Bank whether now existing or hereafter arising,
Guarantors hereby grant Bank a security interest in the following property:
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
whether Guarantors' interest therein as owner, co-owner, lessee, consignee,
secured party or otherwise be now owned or existing or hereafter arising or
acquired, and wherever located, together with all substitutions, replacements,
additions and accessions therefor or thereto, alI replacement and repair parts
therefor, all negotiable documents relating thereto, all products thereof and
any and all cash and non-cash proceeds thereof including, but not limited to
notes, drafts, checks, instruments and insurance proceeds (hereinafter the
Collateral"). If at the time of payment of the Obligations and any discharge
hereof, Guarantors shall be then directly or continently liable to Bank as
maker, indorser, surety or guarantor of any other loan or obligation whether the
same shall be evidenced by a note, bill of exchange, agreement of guaranty or
other instrument, then Bank may continue to hold the Collateral as security
therefor, even though this Guaranty shall have been surrendered to Guarantors.
Bank shall not be bound to take any steps necessary to preserve any rights in
the Collateral against prior parties. If any Obligations hereunder are not aid
when due, Bank may, at its option, demand, sue for, collect or make any
compromise or settlement it deems desirable with reference to the Collateral,
and shall have the rights of a secured party under the law of the State of Ohio.
Guarantors shall be liable for any deficiency.
GUARANTORS, AND EACH OF THEM, ACKNOWLEDGE THAT, AS TO ANY AND ALL DISPUTES THAT
MAY ARISE BETWEEN GUARANTORS AND BANK, THE COMMERCIAL NATURE OF THE TRANSACTION
OUT OF WHICH THIS GUARANTY ARISES MAKES ANY SUCH DISPUTE UNSUITABLE FOR TRIAL BY
JURY. ACCORDINGLY, EACH OF THE GUARANTORS HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY AS TO ANY AND ALL DISPUTES THAT MAY ARISE RELATING TO THIS GUARANTY OR TO
ANY OF THE OTHER INSTRUMENTS OR DOCUMENTS EXECUTED IN CONNECTION HEREWITH.
Executed and delivered at COLUMBUS. OHIO on JUNE 20 , 1996 .
WARNING- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TIRAL.
IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR
PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT. OR ANY
OTHER CAUSE.
GUARANTOR(S): JOSEPH A. ALTOMONTE, SR
/s/ Joseph Altomonte, Sr
- ------------------------
JOSEPH A. ALTOMONTE, SR
2
<PAGE>
- --------------------------------------------------------------------------------
GUARANTOR:
JOSEPH A. ALTOMONTE, JR.
195 BRYN DU DRIVE
GRANVILLE, LICKING COUNTY OHIO 43023
DEBTOR:
DYNACRAFT GOLF PRODUCTS, INC. AND PAL JOEY CUSTOM GOLF, INC.
98 JAMES STRET
NEWARK, OH 43055
- --------------------------------------------------------------------------------
CONTINUING GUARANTY
UNLIMITED
For the purpose of Inducing The Huntington National Bank (hereinafter referred
to as "Bank") to lend money or advance credit to, or renew, extend or forbear
from demanding immediate payment of the Obligations of DYNACRAFT GOLF PRODUCTS,
INC. AND PAL JOEY CUSTOM GOLF, INC. (hereinafter referred to as "Debtor" , the
undersigned (hereinafter referred to as "Guarantors" whether one or more),
jointly and severally if more than one (which joint and several liability shall
exist regardless of whether additional Guarantors have evidenced or may in the
future evidence their undertaking by executing this Guaranty, by co-signing one
or more promissory notes or other instruments of indebtedness, by executing one
or more separate agreements of guaranty of any or all of the Obligations
referred to herein, or otherwise), hereby unconditionally guarantee the prompt
and full payment to Bank when due, whether by acceleration or otherwise, of all
Obligations of any kind for which Debtor is now or may hereafter become liable
to Bank In any manner.
The word "Obligations" is used in its most comprehensive sense and includes,
without limitation, all indebtedness, debts and liabilities (including
principal, interest, late charges, collection costs, attorneys' fees and the
like) of Debtor to Bank, either created by Debtor alone or together with another
or others, primary or secondary, secured or unsecured, absolute or contingent,
liquidated or unliquidated, direct or indirect, whether evidenced by note,
draft, application for letter of credit a agreements of guaranty or otherwise,
and any and all renewals of, extensions of or substitutes therefor. The word'
"Obligations" shall include, BUT NOT BE LIMITED TO, all indebtedness owed by
Debtor to Bank by reason of credit extended or to be extended to Debtor in the
principal amount of $1, 860,315.00, pursuant to one or more instruments of
indebtedness and related loan documents.
Guarantors, and each of them, hereby promise that if one or more of the
Obligations are not paid promptly when due, they, and each of them, will, upon
request of Bank, pay the Obligations to Bank, irrespective of any action or lack
of action on Bank's part in connection with the acquisition, perfection,
possession, enforcement or disposition of any or all Obligations or any or all
security therefor or otherwise, and further irrespective of any invalidity in
any or all Obligations, the unenforceability thereof or the insufficiency,
invalidity or unenforceability of any security therefor. Furthermore,
Guarantors, and each of them, hereby waive any claim, right or remedy which
Guarantors may now have or hereafter acquire against Debtor that arises
hereunder and/or from the performance by Guarantors, or any of them, hereunder
including, without limitation, any claim, remedy or right of subrogation,
reimbursement, exoneration, contribution, indemnification, or participation in
any claim, right or remedy of Bank against Debtor, or any security which Bank
now has or hereafter acquires, whether such claim, right or remedy arises in
equity, under contract, by statute, under common law or otherwise.
Guarantors waive notice of any and all acceptances of this Guaranty. This
Guaranty is a continuing guaranty, and, in addition to covering all present
Obligations of Debtor to Bank, will extend to all future Obligations of Debtor
to Bank, and this whether such Obligations are reduced or entirely extinguished
and thereafter increased or reincurred. This Guaranty is made and will remain in
effect as to any and all Obligations of Debtor incurred or arising prior to
receipt by the loan officer of Bank who is handling Debtor's Obligations of
written notice of termination of this Guaranty. No revocation will in any way
affect the duties of Guarantors to Bank with respect to Obligations of Debtor
incurred prior to the receipt of such notice by such loan officer of Bank.
Revocation by any one or more of Guarantors will not affect the duties of the
remaining Guarantor or Guarantors.
Guarantors waive presentment, demand, protest, notice of protest, and notice of
dishonor or other non payment of any and all Obligations and further waive
notice of sale or other disposition of any collateral or security now heId or
hereafter acquired by Bank. Guarantors agree that no extension of time, whether
one or more, nor any other indulgence granted by Bank to Debtor, or to
Guarantors, or any of them, and no omission or delay on Bank's part in
exercising any right against, or in taking any action to collect from or pursue
Bank's remedies against Debtor or Guarantors, or any of them, will release,
discharge or modify the duties of Guarantors. Guarantors agree that Bank may,
without notice to or further consent from Guarantors, release or modify any
collateral, security or other guaranties, and no such action will release,
discharge or modify the duties of Guarantors hereunder. Guarantors further agree
that Bank will not be required to pursue or exhaust any of its rights or
remedies against Debtor or Guarantors, or any of them, with respect to payment
of any of the Obligations, or to pursue, exhaust or preserve any of Its rights
or remedies with respect to any collateral, security or other guaranties given
to secure the Obligations, or to take any action of any sort, prior to demanding
payment from or pursuing its remedies against Guarantors. Guarantors further
agree that, to the extent that Debtor makes a payment or payments to Bank, or
Bank receives any proceeds of collateral, which payment or payments or proceeds
or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to Debtor, its estate,
trustee, receiver or any other party, including without limitation any
Guarantor, under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such payment or repayment, the
Obligations or the art thereof which has been aid, reduced or satisfied by such
amount shall be reinstated and continued in full force and effect as of the date
such initial payment, reduction or satisfaction occurred.
3
<PAGE>
Guarantors agree to furnish true and complete financial statements from time to
time on request of Bank and agree that failure to furnish such financial
statements may constitute or be deemed to constitute a default or event of
default of the Obligations. Guarantors agree that any legal suit, action or
proceeding arising out of or relating to this Guaranty may be instituted In a
state or federal court of appropriate subject matter jurisdiction in the State
of Ohio; waive any objection which they may have now or hereafter to the venue
of any such suit, action or proceeding; and Irrevocably submit to the
jurisdiction of any such court in any such suit, action or proceeding.
Guarantors hereby authorize any attorney at law to appear for them in any action
on any or all Obligations guaranteed hereby at any time after such Obligations
become due, whether by acceleration or otherwise, in any court of record in or
of the State of Ohio or elsewhere, to waive the issuing and service of process
against, and confess judgment against Guarantors, or any of them, in favor of
Bank for the amount that may be due, including interest, late charges,
collection costs, attorneys' fees and the like as provided for in said
Obligations, and costs of suit, and to waive and release all errors in said
proceedings and judgments, and all petitions in error, and right of appeal from
the judgments rendered. No such judgment or judgments against less than all of
Guarantors shall be a bar to a subsequent judgment or judgments against any one
or more of Guarantors against whom judgment has not been obtained hereon, this
being a joint and several warrant of attorney to confess judgment. The attorney
at law authorized hereby to appear for Guarantors may be an attorney at law also
representing Ban, and Guarantors, and each of them, hereby expressly waive any
conflict of interest that may exist by virtue of such representation.
If any Obligation of Debtor is assigned by Bank, this Guaranty will inure to the
benefit of Bank's assignee, and to the benefit of any subsequent assignee, to
the extent of the assignment or assignments, provided that no assignment will
operate to relieve Guarantors, or any of them, from any duty to Bank hereunder
with respect to any unassigned Obligation. In the event that an one or more of
the provisions contained in this Guaranty or any application thereof shall be
determined to be invalid, illegal or unenforceable In any respect, the validity,
legality and enforceability of the remaining provisions contained herein and any
other applications thereof shall not in any way be affected or impaired thereby.
This Guaranty shall be construed in accordance with the law of the State of
Ohio. As security for payment by Guarantors hereunder, and of all other
liabilities of Guarantors to Bank whether now existing or hereafter arising,
Guarantors hereby grant Bank a security interest in the following property:
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whether Guarantors' interest therein as owner, co-owner, lessee, consignee,
secured party or otherwise be now owned or existing or hereafter arising or
acquired, and wherever located, together with all substitutions, replacements,
additions and accessions therefor or thereto, alI replacement and repair parts
therefor, all negotiable documents relating thereto, all products thereof and
any and all cash and non-cash proceeds thereof including, but not limited to
notes, drafts, checks, instruments and insurance proceeds (hereinafter the
Collateral"). If at the time of payment of the Obligations and any discharge
hereof, Guarantors shall be then directly or continently liable to Bank as
maker, indorser, surety or guarantor of any other loan or obligation whether the
same shall be evidenced by a note, bill of exchange, agreement of guaranty or
other instrument, then Bank may continue to hold the Collateral as security
therefor, even though this Guaranty shall have been surrendered to Guarantors.
Bank shall not be bound to take any steps necessary to preserve any rights in
the Collateral against prior parties. If any Obligations hereunder are not aid
when due, Bank may, at its option, demand, sue for, collect or make any
compromise or settlement it deems desirable with reference to the Collateral,
and shall have the rights of a secured party under the law of the State of Ohio.
Guarantors shall be liable for any deficiency.
GUARANTORS, AND EACH OF THEM, ACKNOWLEDGE THAT, AS TO ANY AND ALL DISPUTES THAT
MAY ARISE BETWEEN GUARANTORS AND BANK, THE COMMERCIAL NATURE OF THE TRANSACTION
OUT OF WHICH THIS GUARANTY ARISES MAKES ANY SUCH DISPUTE UNSUITABLE FOR TRIAL BY
JURY. ACCORDINGLY, EACH OF THE GUARANTORS HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY AS TO ANY AND ALL DISPUTES THAT MAY ARISE RELATING TO THIS GUARANTY OR TO
ANY OF THE OTHER INSTRUMENTS OR DOCUMENTS EXECUTED IN CONNECTION HEREWITH.
Executed and delivered at COLUMBUS. OHIO on JUNE 20 , 1996 .
WARNING- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TIRAL.
IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR
PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT. OR ANY
OTHER CAUSE.
GUARANTOR(S): JOSEPH A. ALTOMONTE, JR
/s/ Joseph Altomonte, Jr
- ------------------------
JOSEPH A. ALTOMONTE, JR
4
<PAGE>
EQUIPMENT, FIXTURES, INVENTORY AND RECEIVABLES
PAL JOEY CUSTOM GOLF, INC.
98 JAMES STREET
NEWARK, LICKING COUNTY OHIO 43055
The undersigned (hereinafter called "Debtor" whether one or more), for
valuable consideration, the receipt t and sufficiency of which are hereby
acknowledged, hereby grants, pledges and assigns to The Huntington National Bank
(hereinafter called "Bank"), a security interest in the following property,
whether Debtor's interest therein as owner, co-owner, lessee, consignee, secured
party or otherwise be now owned or existing or hereafter arising or acquired and
wherever located, together with all substitutions, replacements, additions and
accessions therefor or thereto, all replacement and repair parts therefor, all
negotiable documents relating thereto, all products thereof and all cash and
non-cash proceeds thereof including but not limited to, notes, drafts, checks,
instruments, insurance proceeds, indemnity proceeds, warranty and guaranty
proceeds and proceeds arising in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the following property
by any governmental body, authority, bureau or agency (or any person acting
under color of governmental authority):
(a) All of Debtor's machinery, equipment, tools, furniture, furnishings
and fixtures including, but not limited to, all manufacturing, fabricating,
processing, transporting and packaging equipment, power systems, heating,
cooling and ventilating systems, lighting and communication systems, electric,
gas and water distribution systems, food service systems, fire prevention, alarm
and security systems, laundry systems and computing and data processing
systems (hereinafter sometimes called the "Equipment"), some of which Equipment
may be more fully described in the schedule set forth at the end of this
agreement or in a separate schedule attached hereto;
(b) All of Debtor's inventory including, but not limited to, parts,
supplies, raw materials, work in process, finished goods, materials used or
consumed in Debtor's business, repossessed an returned goods (hereinafter
sometimes called the "Inventory"), some or all of which inventory may be more
fully described in the schedule set forth at the end of this agreement or in a
separate schedule attached hereto;
(c) All of Debtor's accounts, accounts receivable, contract rights,
chattel paper, general intangibles, income tax refunds, instruments, negotiable
documents, notes, drafts, acceptances and other forms of obligations and
receivables arising from or in connection with the operation of Debtor's
business including, but not limited to, those arising from or in connection with
Debtor's sale, lease or other disposition of Inventory (hereinafter sometimes
called the "Receivables"); and
(d) All of Debtor's trade names, trademarks, goodwill, patents, patent a
applications, copyrights, deposit accounts, licenses and franchises (all of the
foregoing hereinafter sometimes called the "Collateral").
The security interest hereby granted is to secure the prompt and full
payment and complete performance of all Obligations of Debtor to Bank. The word
"Obligations" is used in its most comprehensive sense and includes, without
limitation, all indebtedness, debts and liabilities (including principal,
interest, late charges, collection costs, attorneys' fees and the like) of
Debtor to Bank, whether now existing or hereafter arising, either created by
Debtor alone or together with another or others, primary or secondary, secured
or unsecured, absolute or contingent, liquidated or unliquidated, direct or
indirect, whether evidenced by note, draft, application for letter of credit or
otherwise, and any and all renewals of or substitutes therefor. The word
"Obligations" s all include, BUT NOT BE LIMITED TO, all indebtedness owed by
Debtor to Bank by reason of a credit extended or to be extended to Debtor in the
principal amount of $1, 860,315.00, pursuant to one or more instruments of
Indebtedness and related loan documents.
It is Debtor's express intention that this agreement and the continuing
security interest granted hereby, in addition to covering all present
Obligations of Debtor to Bank, shall extend to all future Obligations of Debtor
to Bank, whether or not such Obligations are reduced or entirely extinguished
and thereafter increased or reincurred, whether or not such Obligations are
related to the indebtedness identified above by class, type or kind and whether
or not such Obligations are specifically contemplated by Debtor and Bank as of
the date hereof. The absence of any reference to this agreement in any
documents, instruments or agreements evidencing or relating to any Obligation
secured hereby shall not limit or be construed to limit the scope or
applicability of this agreement.
1. GENERAL COVENANTS. Debtor represents, warrants and covenants as
follows:
a) Except for such claims and interests, if any, shown in the schedule
set forth at the end of this agreement or in any schedule he attached hereto and
signed by both Debtor and Bank and the security interest granted hereby, (i)
Debtor is, or as to Collateral arising or to be acquired after the date hereof,
shall be, the sole owner of the Collateral free from any and all liens, security
interests, encumbrances, claims and interests; and (ii) no security agreement,
financing statement, equivalent security or lien instrument or continuation
statement covering any of the Collateral is on file or of record in any public
office.
(b) Debtor shall not create, permit or suffer to exist, and shall take
such action as is necessary to remove, any claim to or interest in or lien or
encumbrance upon the Collateral, other than those, if any, shown in the schedule
set forth at the tend of this agreement or in any schedule attached hereto and
signed by both Debtor and Bank and the security interest granted hereby, and
shall defend the right, title and interest of Bank in and to the Collateral
against all claims and demands of all persons and entities at any time claiming
the same or any interest therein.
<PAGE>
(c) Debtor's principal place of business and chief executive
office/residence is located at the address set forth at the beginning of this
agreement; Debtor has no other place of business/residence, except as shown in
the schedule set forth at the end of this agreement or in any schedule attached
hereto and signed by both Debtor and Bank; and, unless Bank consents in writing
to a change in the location of the Equipment, Inventory or Debtor's records
concerning the Receivables prior to such a change in location, the Equipment,
Inventory and Debtor's records concerning the Receivables shall be kept at that
address or at the locations set forth in such schedules.
(d) At least thirty (30) days prior to the occurrence of any of the
following events, Debtor shall deliver to the loan officer handling
Debtor's Obligations on behalf of Bank written notice of such
impending events: (i) a change in Debtor's principal place of
business, chief executive office and/or residence; (ii) the opening or
closing of any place of business; or (iii) a change in Debtor's name,
identity or corporate structure.
(e) Subject to any limitation stated therein or in connection therewith,
all information furnished by Debtor concerning the Collateral or
otherwise in connection with the Obligations, is or shall be at the
time the same is furnished, accurate, correct and complete in all
material respects.
(f) The Collateral is and shall be used primarily for business purposes.
2. COLLECTION OF RECEIVABLES. Debtor shall, unless otherwise directed by
Bank, collect all of Debtor's Receivables, and whenever Debtor shall receive
payment of any Receivable, Debtor shall hold such payment in trust for Bank and
shall forthwith deliver the same to Bank in the form received by Debtor without
commingling with any funds belonging to Debtor. Debtor authorizes Bank to
indorse the name of Debtor upon any checks or other items received in payment of
any Receivable and to do an and all things necessary in order to reduce the same
to money. All amounts received by Bank representing payment of receivables may
be applied by Bank to the payment of the Obligations in such order or preference
as Bank may determine, or Bank may, at is option, impound all or any portion of
such amounts and retain said amounts as security for the payment of the
Obligations, with the right on the part of debtor, upon approval by Bank, to
obtain the release of all or part of such impounded amounts. Bank may, however,
at any time, without notice, apply all or any part of such impounded amounts as
aforesaid. Debtor also authorizes Bank at any time without notice, to
appropriate and apply any balances, credits, deposits, accounts or money of
Debtor in Bank's possession, custody or control to the payment of any of the
Obligations.
If any of Debtor's Receivables arise out of contracts with or orders from
the United States or any State or any department, a agency or instrumentality
thereof, Debtor shall immediately notify Bank thereof in writing and shall
execute any instrument an take any steps required by Bank in order that all
money due and to become due under such contract or order shall be assigned to
Bank and due notice thereof given to the appropriate governmental agency.
Debtor agrees to execute, deliver, file and record all such notices,
affidavits, assignments, financing statements and other instruments as shall in
the judgment of Bank be necessary or desirable to evidence, validate and perfect
the security interest of Bank in the Receivables. Bank shall have the right to
notify any persons or entities owing any Receivables and to demand and receive
payment, but Bank shall have no duty so to do. Upon request of Bank at any time,
Debtor shall notify such account debtors and shall indicate on all invoices to
such account debtors that the accounts are payable to Bank.
3. INSURANCE. Debtor shall have and maintain insurance at all times with
respect to all Equipment and Inventory (i) insuring against risks of fire
(including so-called extended coverage), explosion, theft, sprinkler leakage and
such other casualties as Bank may designate, and (ii) insuring against liability
for personal injury and property damage relating to the Equipment and Inventory,
containing such terms, in such form, for such periods and written by such
companies as may be satisfactory to Bank, such insurance to be payable to Bank
and Debtor as their interests may appear. All policies of insurance shall
provide for twenty (20) days' written minimum cancellation notice to Bank and,
at request of Bank , shall be delivered to and held by it. Bank may act as
attorney for Debtor in obtaining, adjusting, settling and canceling such
insurance and indorsing any drafts. In the event of failure to provide insurance
as herein provided, Bank may, at its option, provide such insurance and Debtor
shall pay to Bank, upon demand, the cost thereof. Should Debtor fail to pay said
sum to Bank upon demand, interest shall accrue thereon, from the date of demand
until paid in full, at the highest rate set forth in any document or instrument
evidencing any of the Obligations.
4. INSPECTION. Debtor shall at all times keep accurate and complete
records of the Receivables and Debtor shall, at all reasonable times and from
time to time, allow Bank, by or through any of its officers, agents, attorneys
or accountants, to examine, inspect and make extracts from Debtor's books and
records and to arrange for verification of the Receivables directly with account
debtors or by other methods and to examine and inspect the Collateral wherever
located. Debtor shall perform, do, make, execute and deliver all such additional
and further acts, things, deeds, assurances and instruments as Bank may require
to more completely vest in and assure to Bank its rights hereunder and in or to
the Collateral.
5. PRESERVATION AND DISPOSITION OF COLLATERAL.
(a) Except for such claims and interests, if any, shown in the schedule
set forth at the end of this agreement or in any schedule attached hereto and
signed by both Debtor and Bank and the security interest granted hereby, Debtor
shall keep the Collateral free from any and all liens, security interests,
encumbrances, claims and interests. Debtor shall advise Ban promptly, in writing
and in reasonable detail, (i) of any material encumbrance upon or claim asserted
against any of the Collateral; (ii) of any material change in the composition of
the Collateral; and (iii) of the occurrence of any other event that would have a
material effect upon t he aggregate value of the Collateral or upon the security
interest of Bank.
(b) Debtor shall not sell or otherwise dispose of the Collateral; provided,
however, that until default, Debtor may use the Collateral in any lawful manner
not inconsistent with this agreement or with the terms or conditions of any
policy of insurance thereon and may also sell or otherwise dispose of the
Inventory in the ordinary course of Debtor's business. A sale in the ordinary
course of business shall not include the a transfer In partial or total
satisfaction of a debt.
<PAGE>
(c) Debtor shall keep the Collateral in good condition and shall not
misuse, abuse, secrete, waste or destroy any of the same.
(d) Debtor shall not use the Collateral in violation of any statute,
ordinance, regulation, rule, decree or order.
(e) Debtor shall pay promptly when due all taxes, assessments, charges or
levies upon the Collateral or in respect to the income or profits therefrom,
except that no such charge need be paid if (i) the validity thereof is being
contested in good faith by appropriate proceedings; (ii) such proceedings do not
involve an danger of sale, forfeiture or loss of any Collateral or any interest
therein; and (iii) such charge is adequately reserve against in accordance with
generally accepted accounting principles.
(f) At its option, Bank may discharge he taxes, liens, security interests
or other encumbrances at any time levied or placed on the Collateral and may pay
for the maintenance and preservation of the Collateral. Debtor agrees to
reimburse Bank upon demand for any payment made or any expense incurred
(including reasonable attorneys' fees) by Bank pursuant to the foregoing
authorization. Should Debtor fail to pay said sum to Bank upon demand, interest
shall accrue thereon, from the date of demand until paid in full, at the highest
rate set forth in any document or instrument evidencing any of the Obligations.
(g) Upon Bank's request at any time or times, Debtor shall assign and
deliver to Bank any Collateral and shall furnish to Bank additional collateral
of value and character satisfactory to Ban as security for the Obligations.
6. EXTENSIONS AND COMPROMISES. With respect to any Collateral held by
Bank as security for the Obligations, Debtor assents to all extensions or
postponements of the time of payment thereof or any other Indulgence In
connection therewith, to each substitution, exchange or release of Collateral,
to the addition or release of any party primarily or secondarily liable, to the
acceptance of partial payments thereon and to the settlement, compromise or
adjustment thereof, all in such manner and at such time or times as Bank may
deem advisable. Bank shall have no duty as to the collection or protection of
Collateral or any income therefrom, nor as to the preservation of rights against
prior parties, nor as to the preservation of any right pertaining thereto,
beyond the safe custody of Collateral in the possession of Bank.
7. FINANCING STATEMENTS. At the request of Bank, Debtor shall join with
Bank in executing one or more financing statements in a form satisfactory to
Bank and shall pay the cost of filing the same in all public offices wherever
filing is deemed by Bank to be necessary or desirable. A carbon, photographic or
other reproduction of this agreement or of a financing statement shall be
sufficient as a financing statement.
8. BANK'S APPOINTMENT AS ATTORNEY-IN-FACT. Debtor hereby irrevocably
constitutes and a points Bank and any officer or agent thereof, with full power
of substitution, as Debtor's true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Debtor and in the name
of Debtor or in Bank's own name, from time to time in Bank discretion, for the
purpose of carrying out the terms of this agreement, to take any and all
appropriate action and to execute any and all documents and instruments that may
be necessary or desirable to accomplish the purposes of this agreement and,
without limiting the generality of the foregoing, hereby grants to Bank the
power and right, on behalf of Debtor, without notice to or assent y Debtor:
(a) To execute, file and record all such financing statements,
certificates of title and other certificates of registration and of operation
and similar documents and instruments including, but not limited to, those
relating to aircraft or marine vessels, as Bank may deem necessary or desirable
to protect, perfect and validate Bank's security's therein.
(b) Upon the occurrence and continuance of any event of default under
paragraph 9 hereof, (i) to sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts and other
documents relating to the Collateral; (ii) to commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral; (iii) to defend any suit, action or
proceeding described above and, in connection therewith, to make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though Bank were the absolute owner thereof for all purposes, and
to do, at Bank's option and Debtor's expense, at any time or from time to time,
all acts and things which Bank deems necessary to protect, preserve or realize
upon the Collateral and Bank's security interest therein, in order to effect the
intent of this agreement, all as fully and effectively as Debtor might do.
Debtor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
The powers conferred upon Bank hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon Bank to exercise
such powers and neither Bank nor any of its officers, directors, employees or
agents shall be responsible to Debtor for any act or failure to act, except for
Bank's own gross negligence or willful misconduct.
9. DEFAULT. If any event of default in the payment or performance of any
of the Obligations secured by this agreement or the performance of any covenant
contained herein shall occur and be continuing; or if any warranty,
representation or statement made or furnished to Bank by Debtor proves to have
been false in any material respect when made or furnished; or if Bank shall for
any reason deem itself insecure as to the prospect of payment of any of the
Obligations:
(a) Bank may, at its option and without notice, declare the unpaid balance
of any or all of the Obligations immediately due and payable and this agreement
and any or all of the Obligations in default.
(b) All payments received by Debtor under or in connection with any of the
Collateral shall be held by Debtor in trust for Bank, shall be segregated from
other funds of Debtor and shall forthwith upon receipt by Debtor be turned over
to Bank in the same form as received by Debtor (duly indorsed by Debtor to Bank,
if required). Any and all such payments so received by Bank (whether from Debtor
or otherwise) may, in the sole discretion of Bank, be held by Bank as collateral
security for, and/or then or at any time thereafter be applied in whole or in
part by Bank against, all or any part of
<PAGE>
the Obligations in such order as Bank may elect. Any balance of such payments
held by Bank and remaining after payment in full of all the Obligations shall be
paid over to Debtor or to whomsoever may be lawfully entitled to receive the
same. Nothing set forth in this subparagraph b) shall authorize or be construed
to authorize Debtor to sell or otherwise dispose of any Collateral except as
provided in subparagraph 5(b) hereof.
(c) Bank shall have the rights and remedies of a secured party under this
agreement, under any other instrument or agreement securing, evidencing or
relating to the Obligations and under the law of the State of Ohio. Without
limiting the generality of the foregoing, Bank shall have the right to take
possession of the Collateral and all books and records relating to the
Collateral an for that purpose Bank may enter upon, with or without breaking
into, any premises on which the Collateral or books and relating to the
Collateral or any part thereof may be situated and remove the same therefrom.
Debtor expressly agrees that Bank, without demand of performance or other
demand, advertisement or notice of any kind (except the notices specified below
of time and place of public sale or disposition or time after which a private
sale or disposition is to occur) to or upon Debtor or any other person or entity
(all and each of which demands, advertisements and/or notices are hereby
expressly waived), may forthwith collect, receive, appropriate and realize upon
the Collateral, or any part thereof, and/or may forthwith sell, lease, assign,
give option or options to purchase or sell or otherwise dispose of and deliver
the Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any of Bank's offices or
elsewhere at such prices as Bank may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. Bank shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in Debtor. Debtor
further agrees, at Bank's request, to assemble the Collateral and to make it
available to Bank at such places as Bank may reasonably select, whether at
Debtor's premises or elsewhere. Debtor further agrees to allow Bank to use or
occupy Debtor's premises, without charge, for the purpose of effecting Bank's
remedies in respect of the Collateral. Bank shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred in connection
therewith or incidental to the care or safekeeping of any or all of the
Collateral or in any way relating to the rights of Bank hereunder, including
reasonable attorneys' fees and legal expenses, to the payment in whole or in
part of the 0bligations, in such order as Bank may elect, and only after so
paying over such net proceeds and after payment by Bank of any other amount
required by any provision of law, including Ohio Revised Code Section 1
309.47(A)3), need Bank account for the surplus, if any, to Debtor. To the extent
permitted by applicable law, Debtor waives all claims, damages and demands
against Bank arising out of the repossession, retention, sale or disposition of
the Collateral. Debtor agrees that Bank need not give more than five (5) days'
notice (which notification shall be deemed given when mailed, postage prepaid,
addressed to Debtor at Debtor's address set forth at the beginning of this
agreement, or when telecopied or telegraphed to that address or when telephoned
or otherwise communicate orally to Debtor or any agent of Debtor at that
address) of the time and place of any public sale or of the time after which a
private sale may take place and that such notice is reasonable notification of
such matters. Debtor shall remain liable or any deficiency if the proceeds of
any sale or disposition of the Collateral are insufficient to pay all amounts to
which Bank is entitled, Debtor shall also be liable for the costs of collecting
any of the Obligations or otherwise enforcing the terms thereof or of this
agreement including reasonable attorneys' fees.
10. GENERAL. Any provision of this agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. Bank shall not be deemed to have waived any of its rights
hereunder or under any other agreement, instrument or paper signed by Debtor
unless such waiver be in writing and signed by Bank. No delay or omission on the
part of Bank in exercising any right shall operate as a waiver of such right or
any other right. All of Bank's rights and remedies, whether evidenced hereby or
by any other agreement, instrument or paper, shall be cumulative and may be
exercised singularly or concurrently. Any written demand upon or written notice
to Debtor shall be effective when deposited In the mails addressed to Debtor at
the address shown at the beginning of this agreement. This agreement and all
rights and obligations hereunder including matters of construction, validity and
performance, shall be governed by the law of the State of Ohio. The provisions
hereto shall, as the case may require, bind or inure to the benefit of, the
respective heirs, successors, legal representatives and assigns of Debtor and
Bank.
Schedule of Additional Places of Business
No. and Street City County State
IN WITNESS WHEREOF, Debtor has signed this agreement on June 20, 1996.
-------------
DEBTOR(S)*: DYNACRAFT GOLF PRODUCTS, INC.
/s/ Joseph Altomonte, Jr.
- -------------------------
BY: JOSEPH ALTOMONTE, JR. PRESIDENT
- ------------------------------------
<PAGE>
EQUIPMENT, FIXTURES, INVENTORY AND RECEIVABLES
DYNACRAFT GOLF PRODUCTS, INC.
98 JAMES STREET
NEWARK , LICKING COUNTY OHIO 43055
The undersigned (hereinafter called "Debtor" whether one or more), for
valuable consideration, the receipt t and sufficiency of which are hereby
acknowledged, hereby grants, pledges and assigns to The Huntington National Bank
(hereinafter called "Bank"), a security interest in the following property,
whether Debtor's interest therein as owner, co-owner, lessee, consignee, secured
party or otherwise be now owned or existing or hereafter arising or acquired and
wherever located, together with all substitutions, replacements, additions and
accessions therefor or thereto, all replacement and repair parts therefor, all
negotiable documents relating thereto, all products thereof and all cash and
non-cash proceeds thereof including but not limited to, notes, drafts, checks,
instruments, insurance proceeds, indemnity proceeds, warranty and guaranty
proceeds and proceeds arising in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the following property
by any governmental body, authority, bureau or agency (or any person acting
under color of governmental authority):
(a) All of Debtor's machinery, equipment, tools, furniture, furnishings
and fixtures including, but not limited to, all manufacturing, fabricating,
processing, transporting and packaging equipment, power systems, heating,
cooling and ventilating systems, lighting and communication systems, electric,
gas and water distribution systems, food service systems, fire prevention, alarm
and security systems, laundry systems and computing and data processing
systems (hereinafter sometimes called the "Equipment"), some of which Equipment
may be more fully described in the schedule set forth at the end of this
agreement or in a separate schedule attached hereto;
(b) All of Debtor's inventory including, but not limited to, parts,
supplies, raw materials, work in process, finished goods, materials used or
consumed in Debtor's business, repossessed an returned goods (hereinafter
sometimes called the "Inventory"), some or all of which inventory may be more
fully described in the schedule set forth at the end of this agreement or in a
separate schedule attached hereto;
(c) All of Debtor's accounts, accounts receivable, contract rights,
chattel paper, general intangibles, income tax refunds, instruments, negotiable
documents, notes, drafts, acceptances and other forms of obligations and
receivables arising from or in connection with the operation of Debtor's
business including, but not limited to, those arising from or in connection with
Debtor's sale, lease or other disposition of Inventory (hereinafter sometimes
called the "Receivables"); and
(d) All of Debtor's trade names, trademarks, goodwill, patents, patent a
applications, copyrights, deposit accounts, licenses and franchises (all of the
foregoing hereinafter sometimes called the "Collateral").
The security interest hereby granted is to secure the prompt and full
payment and complete performance of all Obligations of Debtor to Bank. The word
"Obligations" is used in its most comprehensive sense and includes, without
limitation, all indebtedness, debts and liabilities (including principal,
interest, late charges, collection costs, attorneys' fees and the like) of
Debtor to Bank, whether now existing or hereafter arising, either created by
Debtor alone or together with another or others, primary or secondary, secured
or unsecured, absolute or contingent, liquidated or unliquidated, direct or
indirect, whether evidenced by note, draft, application for letter of credit or
otherwise, and any and all renewals of or substitutes therefor. The word
"Obligations" s all include, BUT NOT BE LIMITED TO, all indebtedness owed by
Debtor to Bank by reason of a credit extended or to be extended to Debtor in the
principal amount of $1, 860,315.00, pursuant to one or more instruments of
Indebtedness and related loan documents.
It is Debtor's express intention that this agreement and the continuing
security interest granted hereby, in addition to covering all present
Obligations of Debtor to Bank, shall extend to all future Obligations of Debtor
to Bank, whether or not such Obligations are reduced or entirely extinguished
and thereafter increased or reincurred, whether or not such Obligations are
related to the indebtedness identified above by class, type or kind and whether
or not such Obligations are specifically contemplated by Debtor and Bank as of
the date hereof. The absence of any reference to this agreement in any
documents, instruments or agreements evidencing or relating to any Obligation
secured hereby shall not limit or be construed to limit the scope or
applicability of this agreement.
1. GENERAL COVENANTS. Debtor represents, warrants and covenants as follows:
a) Except for such claims and interests, if any, shown in the schedule
set forth at the end of this agreement or in any schedule he attached hereto and
signed by both Debtor and Bank and the security interest granted hereby, (i)
Debtor is, or as to Collateral arising or to be acquired after the date hereof,
shall be, the sole owner of the Collateral free from any and all liens, security
interests, encumbrances, claims and interests; and (ii) no security agreement,
financing statement, equivalent security or lien instrument or continuation
statement covering any of the Collateral is on file or of record in any public
office.
(b) Debtor shall not create, permit or suffer to exist, and shall take such
action as is necessary to remove, any claim to or interest in or lien or
encumbrance upon the Collateral, other than those, if any, shown in the schedule
set forth at the tend of this agreement or in any schedule attached hereto and
signed by both Debtor and Bank and the security interest granted hereby, and
shall defend the right, title and interest of Bank in and to the Collateral
against all claims and demands of all persons and entities at any time claiming
the same or any interest therein.
<PAGE>
(c) Debtor's principal place of business and chief executive
office/residence is located at the address set forth at the beginning of this
agreement; Debtor has no other place of business/residence, except as shown in
the schedule set forth at the end of this agreement or in any schedule attached
hereto and signed by both Debtor and Bank; and, unless Bank consents in writing
to a change in the location of the Equipment, Inventory or Debtor's records
concerning the Receivables prior to such a change in location, the Equipment,
Inventory and Debtor's records concerning the Receivables shall be kept at that
address or at the locations set forth in such schedules.
(d) At least thirty (30) days prior to the occurrence of any of the
following events, Debtor shall deliver to the loan officer handling
Debtor's Obligations on behalf of Bank written notice of such
impending events: (i) a change in Debtor's principal place of
business, chief executive office and/or residence; (ii) the opening or
closing of any place of business; or (iii) a change in Debtor's name,
identity or corporate structure.
(e) Subject to any limitation stated therein or in connection therewith,
all information furnished by Debtor concerning the Collateral or
otherwise in connection with the Obligations, is or shall be at the
time the same is furnished, accurate, correct and complete in all
material respects.
(f) The Collateral is and shall be used primarily for business purposes.
2. COLLECTION OF RECEIVABLES. Debtor shall, unless otherwise directed by
Bank, collect all of Debtor's Receivables, and whenever Debtor shall receive
payment of any Receivable, Debtor shall hold such payment in trust for Bank and
shall forthwith deliver the same to Bank in the form received by Debtor without
commingling with any funds belonging to Debtor. Debtor authorizes Bank to
indorse the name of Debtor upon any checks or other items received in payment of
any Receivable and to do an and all things necessary in order to reduce the same
to money. All amounts received by Bank representing payment of receivables may
be applied by Bank to the payment of the Obligations in such order or preference
as Bank may determine, or Bank may, at is option, impound all or any portion of
such amounts and retain said amounts as security for the payment of the
Obligations, with the right on the part of debtor, upon approval by Bank, to
obtain the release of all or part of such impounded amounts. Bank may, however,
at any time, without notice, apply all or any part of such impounded amounts as
aforesaid. Debtor also authorizes Bank at any time without notice, to
appropriate and apply any balances, credits, deposits, accounts or money of
Debtor in Bank's possession, custody or control to the payment of any of the
Obligations.
If any of Debtor's Receivables arise out of contracts with or orders from
the United States or any State or any department, a agency or instrumentality
thereof, Debtor shall immediately notify Bank thereof in writing and shall
execute any instrument an take any steps required by Bank in order that all
money due and to become due under such contract or order shall be assigned to
Bank and due notice thereof given to the appropriate governmental agency.
Debtor agrees to execute, deliver, file and record all such notices,
affidavits, assignments, financing statements and other instruments as shall in
the judgment of Bank be necessary or desirable to evidence, validate and perfect
the security interest of Bank in the Receivables. Bank shall have the right to
notify any persons or entities owing any Receivables and to demand and receive
payment, but Bank shall have no duty so to do. Upon request of Bank at any time,
Debtor shall notify such account debtors and shall indicate on all invoices to
such account debtors that the accounts are payable to Bank.
3. INSURANCE. Debtor shall have and maintain insurance at all times with
respect to all Equipment and Inventory (i) insuring against risks of fire
(including so-called extended coverage), explosion, theft, sprinkler leakage and
such other casualties as Bank may designate, and (ii) insuring against liability
for personal injury and property damage relating to the Equipment and Inventory,
containing such terms, in such form, for such periods and written by such
companies as may be satisfactory to Bank, such insurance to be payable to Bank
and Debtor as their interests may appear. All policies of insurance shall
provide for twenty (20) days' written minimum cancellation notice to Bank and,
at request of Bank , shall be delivered to and held by it. Bank may act as
attorney for Debtor in obtaining, adjusting, settling and canceling such
insurance and indorsing any drafts. In the event of failure to provide insurance
as herein provided, Bank may, at its option, provide such insurance and Debtor
shall pay to Bank, upon demand, the cost thereof. Should Debtor fail to pay said
sum to Bank upon demand, interest shall accrue thereon, from the date of demand
until paid in full, at the highest rate set forth in any document or instrument
evidencing any of the Obligations.
4. INSPECTION. Debtor shall at all times keep accurate and complete
records of the Receivables and Debtor shall, at all reasonable times and from
time to time, allow Bank, by or through any of its officers, agents, attorneys
or accountants, to examine, inspect and make extracts from Debtor's books and
records and to arrange for verification of the Receivables directly with account
debtors or by other methods and to examine and inspect the Collateral wherever
located. Debtor shall perform, do, make, execute and deliver all such additional
and further acts, things, deeds, assurances and instruments as Bank may require
to more completely vest in and assure to Bank its rights hereunder and in or to
the Collateral.
5. PRESERVATION AND DISPOSITION OF COLLATERAL.
(a) Except for such claims and interests, if any, shown in the schedule
set forth at the end of this agreement or in any schedule attached hereto and
signed by both Debtor and Bank and the security interest granted hereby, Debtor
shall keep the Collateral free from any and all liens, security interests,
encumbrances, claims and interests. Debtor shall advise Ban promptly, in writing
and in reasonable detail, (i) of any material encumbrance upon or claim asserted
against any of the Collateral; (ii) of any material change in the composition of
the Collateral; and (iii) of the occurrence of any other event that would have a
material effect upon t he aggregate value of the Collateral or upon the security
interest of Bank.
(b) Debtor shall not sell or otherwise dispose of the Collateral; provided,
however, that until default, Debtor may use the Collateral in any lawful manner
not inconsistent with this agreement or with the terms or conditions of any
policy of insurance thereon and may also sell or otherwise dispose of the
Inventory in the ordinary course of Debtor's business. A sale in the ordinary
course of business shall not include the a transfer In partial or total
satisfaction of a debt.
<PAGE>
(c) Debtor shall keep the Collateral in good condition and shall not
misuse, abuse, secrete, waste or destroy any of the same.
(d) Debtor shall not use the Collateral in violation of any statute,
ordinance, regulation, rule, decree or order.
(e) Debtor shall pay promptly when due all taxes, assessments, charges or
levies upon the Collateral or in respect to the income or profits therefrom,
except that no such charge need be paid if (i) the validity thereof is being
contested in good faith by appropriate proceedings; (ii) such proceedings do not
involve an danger of sale, forfeiture or loss of any Collateral or any interest
therein; and (iii) such charge is adequately reserve against in accordance with
generally accepted accounting principles.
(f) At its option, Bank may discharge he taxes, liens, security interests
or other encumbrances at any time levied or placed on the Collateral and may pay
for the maintenance and preservation of the Collateral. Debtor agrees to
reimburse Bank upon demand for any payment made or any expense incurred
(including reasonable attorneys' fees) by Bank pursuant to the foregoing
authorization. Should Debtor fail to pay said sum to Bank upon demand, interest
shall accrue thereon, from the date of demand until paid in full, at the highest
rate set forth in any document or instrument evidencing any of the Obligations.
(g) Upon Bank's request at any time or times, Debtor shall assign and
deliver to Bank any Collateral and shall furnish to Bank additional collateral
of value and character satisfactory to Ban as security for the Obligations.
6. EXTENSIONS AND COMPROMISES. With respect to any Collateral held by
Bank as security for the Obligations, Debtor assents to all extensions or
postponements of the time of payment thereof or any other Indulgence In
connection therewith, to each substitution, exchange or release of Collateral,
to the addition or release of any party primarily or secondarily liable, to the
acceptance of partial payments thereon and to the settlement, compromise or
adjustment thereof, all in such manner and at such time or times as Bank may
deem advisable. Bank shall have no duty as to the collection or protection of
Collateral or any income therefrom, nor as to the preservation of rights against
prior parties, nor as to the preservation of any right pertaining thereto,
beyond the safe custody of Collateral in the possession of Bank.
7. FINANCING STATEMENTS. At the request of Bank, Debtor shall join with
Bank in executing one or more financing statements in a form satisfactory to
Bank and shall pay the cost of filing the same in all public offices wherever
filing is deemed by Bank to be necessary or desirable. A carbon, photographic or
other reproduction of this agreement or of a financing statement shall be
sufficient as a financing statement.
8. BANK'S APPOINTMENT AS ATTORNEY-IN-FACT. Debtor hereby irrevocably
constitutes and a points Bank and any officer or agent thereof, with full power
of substitution, as Debtor's true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Debtor and in the name
of Debtor or in Bank's own name, from time to time in Bank discretion, for the
purpose of carrying out the terms of this agreement, to take any and all
appropriate action and to execute any and all documents and instruments that may
be necessary or desirable to accomplish the purposes of this agreement and,
without limiting the generality of the foregoing, hereby grants to Bank the
power and right, on behalf of Debtor, without notice to or assent y Debtor:
(a) To execute, file and record all such financing statements,
certificates of title and other certificates of registration and of operation
and similar documents and instruments including, but not limited to, those
relating to aircraft or marine vessels, as Bank may deem necessary or desirable
to protect, perfect and validate Bank's security's therein.
(b) Upon the occurrence and continuance of any event of default under
paragraph 9 hereof, (i) to sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts and other
documents relating to the Collateral; (ii) to commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral; (iii) to defend any suit, action or
proceeding described above and, in connection therewith, to make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though Bank were the absolute owner thereof for all purposes, and
to do, at Bank's option and Debtor's expense, at any time or from time to time,
all acts and things which Bank deems necessary to protect, preserve or realize
upon the Collateral and Bank's security interest therein, in order to effect the
intent of this agreement, all as fully and effectively as Debtor might do.
Debtor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
The powers conferred upon Bank hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon Bank to exercise
such powers and neither Bank nor any of its officers, directors, employees or
agents shall be responsible to Debtor for any act or failure to act, except for
Bank's own gross negligence or willful misconduct.
9. DEFAULT. If any event of default in the payment or performance of any
of the Obligations secured by this agreement or the performance of any covenant
contained herein shall occur and be continuing; or if any warranty,
representation or statement made or furnished to Bank by Debtor proves to have
been false in any material respect when made or furnished; or if Bank shall for
any reason deem itself insecure as to the prospect of payment of any of the
Obligations:
(a) Bank may, at its option and without notice, declare the unpaid balance
of any or all of the Obligations immediately due and payable and this agreement
and any or all of the Obligations in default.
(b) All payments received by Debtor under or in connection with any of the
Collateral shall be held by Debtor in trust for Bank, shall be segregated from
other funds of Debtor and shall forthwith upon receipt by Debtor be turned over
to Bank in the same form as received by Debtor (duly indorsed by Debtor to Bank,
if required). Any and all such payments so received by Bank (whether from Debtor
or otherwise) may, in the sole discretion of Bank, be held by Bank as collateral
security for, and/or then or at any time thereafter be applied in whole or in
part by Bank against, all or any part of
<PAGE>
the Obligations in such order as Bank may elect. Any balance of such payments
held by Bank and remaining after payment in full of all the Obligations shall be
paid over to Debtor or to whomsoever may be lawfully entitled to receive the
same. Nothing set forth in this subparagraph b) shall authorize or be construed
to authorize Debtor to sell or otherwise dispose of any Collateral except as
provided in subparagraph 5(b) hereof.
(c) Bank shall have the rights and remedies of a secured party under this
agreement, under any other instrument or agreement securing, evidencing or
relating to the Obligations and under the law of the State of Ohio. Without
limiting the generality of the foregoing, Bank shall have the right to take
possession of the Collateral and all books and records relating to the
Collateral an for that purpose Bank may enter upon, with or without breaking
into, any premises on which the Collateral or books and relating to the
Collateral or any part thereof may be situated and remove the same therefrom.
Debtor expressly agrees that Bank, without demand of performance or other
demand, advertisement or notice of any kind (except the notices specified below
of time and place of public sale or disposition or time after which a private
sale or disposition is to occur) to or upon Debtor or any other person or entity
(all and each of which demands, advertisements and/or notices are hereby
expressly waived), may forthwith collect, receive, appropriate and realize upon
the Collateral, or any part thereof, and/or may forthwith sell, lease, assign,
give option or options to purchase or sell or otherwise dispose of and deliver
the Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any of Bank's offices or
elsewhere at such prices as Bank may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. Bank shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in Debtor. Debtor
further agrees, at Bank's request, to assemble the Collateral and to make it
available to Bank at such places as Bank may reasonably select, whether at
Debtor's premises or elsewhere. Debtor further agrees to allow Bank to use or
occupy Debtor's premises, without charge, for the purpose of effecting Bank's
remedies in respect of the Collateral. Bank shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred in connection
therewith or incidental to the care or safekeeping of any or all of the
Collateral or in any way relating to the rights of Bank hereunder, including
reasonable attorneys' fees and legal expenses, to the payment in whole or in
part of the 0bligations, in such order as Bank may elect, and only after so
paying over such net proceeds and after payment by Bank of any other amount
required by any provision of law, including Ohio Revised Code Section 1
309.47(A)3), need Bank account for the surplus, if any, to Debtor. To the extent
permitted by applicable law, Debtor waives all claims, damages and demands
against Bank arising out of the repossession, retention, sale or disposition of
the Collateral. Debtor agrees that Bank need not give more than five (5) days'
notice (which notification shall be deemed given when mailed, postage prepaid,
addressed to Debtor at Debtor's address set forth at the beginning of this
agreement, or when telecopied or telegraphed to that address or when telephoned
or otherwise communicate orally to Debtor or any agent of Debtor at that
address) of the time and place of any public sale or of the time after which a
private sale may take place and that such notice is reasonable notification of
such matters. Debtor shall remain liable or any deficiency if the proceeds of
any sale or disposition of the Collateral are insufficient to pay all amounts to
which Bank is entitled, Debtor shall also be liable for the costs of collecting
any of the Obligations or otherwise enforcing the terms thereof or of this
agreement including reasonable attorneys' fees.
10. GENERAL. Any provision of this agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. Bank shall not be deemed to have waived any of its rights
hereunder or under any other agreement, instrument or paper signed by Debtor
unless such waiver be in writing and signed by Bank. No delay or omission on the
part of Bank in exercising any right shall operate as a waiver of such right or
any other right. All of Bank's rights and remedies, whether evidenced hereby or
by any other agreement, instrument or paper, shall be cumulative and may be
exercised singularly or concurrently. Any written demand upon or written notice
to Debtor shall be effective when deposited In the mails addressed to Debtor at
the address shown at the beginning of this agreement. This agreement and all
rights and obligations hereunder including matters of construction, validity and
performance, shall be governed by the law of the State of Ohio. The provisions
hereto shall, as the case may require, bind or inure to the benefit of, the
respective heirs, successors, legal representatives and assigns of Debtor and
Bank.
Schedule of Additional Places of Business
No. and Street City County State
99 S. Pine Street Newark Licking Ohio
----------------------------------------------------------------------
IN WITNESS WHEREOF, Debtor has signed this agreement on June 20, 1996.
-------------
DEBTOR(S)*: PAL JOEY CUSTOM GOLF, INC.
/s/ Robin Altomonte
- -------------------
BY: ROBIN ALTOMONTE, PRESIDENT
- ------------------------------
<PAGE>
SUBORDINATION AGREEMENT
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, and in consideration of the loans, advances,
discounts, renewals or extensions now or hereafter made by The
Huntington National Bank, its legal representatives, successors and assigns
(hereinafter referred to as "Senior Creditor"), directly or indirectly, to or
for the benefit of DYNACRAFT GOLF PRODUCTS INC. (hereinafter referred to as
"Debtor"), the undersigned, on behalf of the undersigned and the undersigned's
legal representatives, heirs, successors and assigns (hereinafter referred
to as "Subordinated Creditor"), agrees with Senior Creditor as follows:
1. Subordinated Creditor represents to Senior Creditor that Debtor is
indebted to Subordinated Creditor in the amount and manner set forth in
Schedule A to this agreement. Subordinated Creditor further represents
that said indebtedness has not heretofore been subordinated in favor of
or sold, assigned, pledged or otherwise transferred or encumbered, in
whole or in part, to any other person, firm or corporation, and that
Subordinated Creditor holds no security therefor, except as may be set forth in
Schedule B to this agreement.
2. Subordinated Creditor hereby subordinates all present and future
indebtedness of Debtor to Subordinated Creditor (hereinafter referred to as the
"Subordinated Debt") to any and all indebtedness now or hereafter owing
by Debtor to Senior Creditor (hereinafter referred to as the "Senior
Debt") to the extent and in the manner hereinafter set forth, and
Subordinated Creditor agrees not to demand, accept or receive, directly or
indirectly, any payment of principal, premium or interest upon account of the
Subordinated Debt, or any collateral therefor, in contravention hereof:
(a) Payments of principal of or premium, if any, or interest on the
Subordinated Debt, shall not be made by Debtor, directly or indirectly, nor
accepted by Subordinated Creditor until such time as the Senior Debt, including
principal, premium, if any, and interest, have been paid in full, except in
accordance with the terms set forth in Schedule C to this agreement;
(b) In the event of any default or event of default as defined or provided
in any loan or other agreement of Debtor with Senior Creditor, and during the
continuance thereof, no amount shall be paid by Debtor or accepted by
Subordinated Creditor, whether in cash, property, securities or otherwise, in
respect of the principal of or premium, if any, or interest on the Subordinated
Debt; and
(c) In the event of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to Debtor or to its creditors, as such, or to
its properties, or in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of Debtor, whether or not involving insolvency
or bankruptcy, then Senior Creditor shall be entitled to receive payment
in full of all principal of and premium, if any, and interest on the Senior
Debt before Subordinated Creditor is entitled to receive any payment on account
of principal of or premium, if any, or interest on the Subordinated Debt, and to
that end (but subject to the power of a court of competent jurisdiction to make
other equitable provisions reflecting the rights conferred hereby upon the
Senior Debt and Senior Creditor with respect to the Subordinated Debt and
Subordinated Creditor by a lawful plan of reorganization under applicable
bankruptcy law) Senior Creditor shall be entitled to receive for
application in payment thereof any payment or distribution of any kind or
character, whether in cash or property or securities, which may be payable or
deliverable in any such proceedings in respect of the Subordinated Debt, except
securities which are subordinate and junior in right of payment to the payment
of all the Senior Debt then outstanding.
3. Subordinated Creditor shall cause all promissory notes and other
instruments and agreements evidencing any Subordinated Debt to bear an
appropriate legend referring to this agreement and reciting that the payment of
the Subordinated Debt evidenced thereby is subject to the provisions hereof. As
security for the Senior Debt and in order to effectuate the foregoing
subordination, Subordinated Creditor hereby transfers and assigns to Senior
Creditor all claims or demands of Subordinated Creditor against Debtor and all
mortgages, liens, security interests and other property held by Subordinated
Creditor as security for the payment thereof, with full right on the part of
Senior Creditor, in its own name or in its name as attorney-in-fact for
Subordinated Creditor, to enforce and collect said claims by suit, proof of
debt in bankruptcy or other liquidation, reorganization or insolvency
proceedings or otherwise. If requested by Senior Creditor, Subordinated
Creditor will promptly deliver or cause to be delivered to Senior Creditor all
promissory notes and other instruments and agreements evidencing the
Subordinated Debt, all mortgages, security agreements, instruments and other
writings and property evidencing or constituting the security, and all records,
documents and information necessary or convenient to permit Senior Creditor to
enforce and collect said claims.
1
<PAGE>
4. If, prior to the satisfaction of all the Senior Debt, Subordinated
Creditor receives from any source whatsoever including, but not limited to,
receipt resulting from the exercise by any court of its legal or equitable
powers, any payment with respect to any of the Subordinated Debt or any
security for or on account of the Subordinated Debt, Subordinated Creditor
shall forthwith deliver such payment or security to Senior Creditor, in
precisely the form received, except for Subordinated Creditor's indorsement when
necessary, for application on account of the Senior Debt and until so delivered,
such payment or security shall be held in trust by Subordinated Creditor as the
property of Senior Creditor. In the event of the failure of any Subordinated
Creditor to indorse any instrument for the payment of money so received by such
Subordinated Creditor, Senior Creditor is irrevocably appointed attorney for
such Subordinated Creditor with full power to make such indorsement and with
full power of substitution. The provisions of this Section 4 are not intended
to and shall not be construed to constitute consent by Senior Creditor to the
acceptance of payments by Subordinated Creditor.
5. Subordinated Creditor, and Subordinated Creditor's legal
representatives, heirs, successors and assigns, agree for the benefit of the
holders of the Senior Debt that, so long as any part of the Senior Debt remains
outstanding, Subordinated Creditor will not take any action to accelerate or
demand the payment of the security or guaranty given by Debtor to secure or
guarantee the Subordinated Debt prior to the earlier of (i) 180 days after
written notice having been given to Senior Creditor by Subordinated Creditor of
any default by Debtor in the payment of any scheduled installment of principal
of or premium, if any, or interest on the Subordinated Debt which is not
thereafter cured or waived by Subordinated Creditor prior to taking such action,
or (ii) the acceleration of any Senior Debt by Senior Creditor. The foregoing
provisions of this Section 5 are solely for the purpose of defining the relative
rights of the holders of the Senior Debt on the one hand and the holders of the
Subordinated Debt on the other and shall not limit or otherwise affect any
rights which the holders of the Subordinated Debt may have against Debtor under
the terms of any agreement or instrument executed in connection with such
Subordinated Debt.
6. In order to carry out the terms and intent of this agreement more
effectively, Subordinated Creditor will do all acts and execute all further
instruments deemed by Senior Creditor to be necessary or convenient to preserve
for Senior Creditor the benefits of this agreement.
7. No action which Senior Creditor, or Debtor with the consent of Senior
Creditor, may take or refrain from taking with respect to any Senior Debt, or
any note or notes representing the same, or any collateral therefor,
including a waiver or release thereof, or any agreement or agreements
(including guaranties) in connection therewith, shall affect this agreement or
the obligations of Subordinated Creditor hereunder.
8. No waiver shall be deemed to be made by Senior Creditor of any of its
rights hereunder unless the same shall be in writing and then only with respect
to the specific instance involved, and shall in no way impair or offset the
rights of Senior Creditor or the obligations of Subordinated Creditor in any
other respect or at any other time.
9. This agreement shall be binding upon Subordinated Creditor and Debtor
and their respective legal representatives, heirs, successors and assigns and
shall inure to the benefit of Senior Creditor and its respective legal
representatives heirs, successors and assigns (including without limitation
any transferee of any Senior Debt). References herein to the binding effect
of this agreement shall not be deemed to constitute consent or acquiescence in
the sale, assignment, pledge or other transfer or encumbrance of the
Subordinated Debt by Subordinated Creditor, that Subordinated Debt having been
fully transferred and assigned to Senior Creditor as security in Section 3 of
this agreement. This agreement shall be construed and enforced in accordance
with and governed by the law of the State of Ohio.
SCHEDULE A
Schedule of Subordinated Debt
[PROMISSORY NOTE DATED JUNE 21, 1996 IN THE AMOUNT OF $250,000 FROM
DYNACRAFT GOLF PRODUCTS, INC. TO JOSEPH ALTOMONTE,. SR.]
SCHEDULE B
Description of Security Held by Subordinated Creditor
2
<PAGE>
PROMISSORY NOTE
Amount: $250,000.00 Date: June21, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Joseph
Altomonte, Sr. the sum of $250,000.00 with interest from the date hereof on the
unpaid balance of principal at 9.25% per annum. Payments under this note shall
be made as follows:
The Principal Sum shall be due and payable in 60 consecutive monthly
installments, beginning on July 1, 1996. Each installment of the Principal Sum
shall be in the amount of $2,976.19 except the final installment shall be for
the unpaid balance. Accrued interest shall be due and payable on the same dates
as installments of the Principal Sum. All payments shall be first be applied to
accrued interest and then to the unpaid balance of principal. There shall be no
penalty for prepayment.
In the event of non-payment of any installment hereunder, when due, the
entire balance of principal, then remaining unpaid, with accrued interest
thereon, shall at once become due and payable at the option of the holder
hereof, with notice or demand being given to the maker hereof in writing.
Payment of this note is subordinated to the payment Of all obligations of
the maker hereof to the Huntington National Bank pursuant to the terms of
subordination agreement dated June 21, 1996.
Dynacraft Golf Products, Inc.
By /s/ Joseph Altomonte, Jr.
-------------------------
Its CEO
3
<PAGE>
SCHEDULE C
Permitted Payments on Subordinated Debt
Principal and Interest Monthly
IN WITNESS WHEREOF, Subordinated Creditor has executed this agreement on
JUNE 20, 1996
SUBORDINATED CREDITOR: JOSEPH A. ALTOMONTE, JR.
/s/Joseph Altomonte, Jr.
- ------------------------
JOSEPH A. ALTOMONTE,JR.
Debtor hereby acknowledges notice of the within and foregoing Subordination
Agreement and agrees to be bound by all of the terms, Provisions and
conditions hereof.
DEBTOR: DYNACRAFT GOLF PRODUCTS, INC.
/s/ Joseph Altomonte, Jr.
- -------------------------
BY: JOSEPH A. ALTOMONTE, JR., PRESIDENT
4
<PAGE>
SUBORDINATION AGREEMENT
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, and in consideration of the loans, advances,
discounts, renewals or extensions now or hereafter made by The
Huntington National Bank, its legal representatives, successors and assigns
(hereinafter referred to as "Senior Creditor"), directly or indirectly, to or
for the benefit of DYNACRAFT GOLF PRODUCTS INC. (hereinafter referred to as
"Debtor"), the undersigned, on behalf of the undersigned and the undersigned's
legal representatives, heirs, successors and assigns (hereinafter referred
to as "Subordinated Creditor"), agrees with Senior Creditor as follows:
1. Subordinated Creditor represents to Senior Creditor that Debtor is
indebted to Subordinated Creditor in the amount and manner set forth in
Schedule A to this agreement. Subordinated Creditor further represents
that said indebtedness has not heretofore been subordinated in favor of
or sold, assigned, pledged or otherwise transferred or encumbered, in
whole or in part, to any other person, firm or corporation, and that
Subordinated Creditor holds no security therefor, except as may be set forth in
Schedule B to this agreement.
2. Subordinated Creditor hereby subordinates all present and future
indebtedness of Debtor to Subordinated Creditor (hereinafter referred to as the
"Subordinated Debt") to any and all indebtedness now or hereafter owing
by Debtor to Senior Creditor (hereinafter referred to as the "Senior
Debt") to the extent and in the manner hereinafter set forth, and
Subordinated Creditor agrees not to demand, accept or receive, directly or
indirectly, any payment of principal, premium or interest upon account of the
Subordinated Debt, or any collateral therefor, in contravention hereof:
(a) Payments of principal of or premium, if any, or interest on the
Subordinated Debt, shall not be made by Debtor, directly or indirectly, nor
accepted by Subordinated Creditor until such time as the Senior Debt, including
principal, premium, if any, and interest, have been paid in full, except in
accordance with the terms set forth in Schedule C to this agreement;
(b) In the event of any default or event of default as defined or provided
in any loan or other agreement of Debtor with Senior Creditor, and during the
continuance thereof, no amount shall be paid by Debtor or accepted by
Subordinated Creditor, whether in cash, property, securities or otherwise, in
respect of the principal of or premium, if any, or interest on the Subordinated
Debt; and
(c) In the event of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to Debtor or to its creditors, as such, or to
its properties, or in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of Debtor, whether or not involving insolvency
or bankruptcy, then Senior Creditor shall be entitled to receive payment
in full of all principal of and premium, if any, and interest on the Senior
Debt before Subordinated Creditor is entitled to receive any payment on account
of principal of or premium, if any, or interest on the Subordinated Debt, and to
that end (but subject to the power of a court of competent jurisdiction to make
other equitable provisions reflecting the rights conferred hereby upon the
Senior Debt and Senior Creditor with respect to the Subordinated Debt and
Subordinated Creditor by a lawful plan of reorganization under applicable
bankruptcy law) Senior Creditor shall be entitled to receive for
application in payment thereof any payment or distribution of any kind or
character, whether in cash or property or securities, which may be payable or
deliverable in any such proceedings in respect of the Subordinated Debt, except
securities which are subordinate and junior in right of payment to the payment
of all the Senior Debt then outstanding.
3. Subordinated Creditor shall cause all promissory notes and other
instruments and agreements evidencing any Subordinated Debt to bear an
appropriate legend referring to this agreement and reciting that the payment of
the Subordinated Debt evidenced thereby is subject to the provisions hereof. As
security for the Senior Debt and in order to effectuate the foregoing
subordination, Subordinated Creditor hereby transfers and assigns to Senior
Creditor all claims or demands of Subordinated Creditor against Debtor and all
mortgages, liens, security interests and other property held by Subordinated
Creditor as security for the payment thereof, with full right on the part of
Senior Creditor, in its own name or in its name as attorney-in-fact for
Subordinated Creditor, to enforce and collect said claims by suit, proof of
debt in bankruptcy or other liquidation, reorganization or insolvency
proceedings or otherwise. If requested by Senior Creditor, Subordinated
Creditor will promptly deliver or cause to be delivered to Senior Creditor all
promissory notes and other instruments and agreements evidencing the
Subordinated Debt, all mortgages, security agreements, instruments and other
writings and property evidencing or constituting the security, and all records,
documents and information necessary or convenient to permit Senior Creditor to
enforce and collect said claims.
5
<PAGE>
4. If, prior to the satisfaction of all the Senior Debt, Subordinated
Creditor receives from any source whatsoever including, but not limited to,
receipt resulting from the exercise by any court of its legal or equitable
powers, any payment with respect to any of the Subordinated Debt or any
security for or on account of the Subordinated Debt, Subordinated Creditor
shall forthwith deliver such payment or security to Senior Creditor, in
precisely the form received, except for Subordinated Creditor's indorsement when
necessary, for application on account of the Senior Debt and until so delivered,
such payment or security shall be held in trust by Subordinated Creditor as the
property of Senior Creditor. In the event of the failure of any Subordinated
Creditor to indorse any instrument for the payment of money so received by such
Subordinated Creditor, Senior Creditor is irrevocably appointed attorney for
such Subordinated Creditor with full power to make such indorsement and with
full power of substitution. The provisions of this Section 4 are not intended
to and shall not be construed to constitute consent by Senior Creditor to the
acceptance of payments by Subordinated Creditor.
5. Subordinated Creditor, and Subordinated Creditor's legal
representatives, heirs, successors and assigns, agree for the benefit of the
holders of the Senior Debt that, so long as any part of the Senior Debt remains
outstanding, Subordinated Creditor will not take any action to accelerate or
demand the payment of the security or guaranty given by Debtor to secure or
guarantee the Subordinated Debt prior to the earlier of (i) 180 days after
written notice having been given to Senior Creditor by Subordinated Creditor of
any default by Debtor in the payment of any scheduled installment of principal
of or premium, if any, or interest on the Subordinated Debt which is not
thereafter cured or waived by Subordinated Creditor prior to taking such action,
or (ii) the acceleration of any Senior Debt by Senior Creditor. The foregoing
provisions of this Section 5 are solely for the purpose of defining the relative
rights of the holders of the Senior Debt on the one hand and the holders of the
Subordinated Debt on the other and shall not limit or otherwise affect any
rights which the holders of the Subordinated Debt may have against Debtor under
the terms of any agreement or instrument executed in connection with such
Subordinated Debt.
6. In order to carry out the terms and intent of this agreement more
effectively, Subordinated Creditor will do all acts and execute all further
instruments deemed by Senior Creditor to be necessary or convenient to preserve
for Senior Creditor the benefits of this agreement.
7. No action which Senior Creditor, or Debtor with the consent of Senior
Creditor, may take or refrain from taking with respect to any Senior Debt, or
any note or notes representing the same, or any collateral therefor,
including a waiver or release thereof, or any agreement or agreements
(including guaranties) in connection therewith, shall affect this agreement or
the obligations of Subordinated Creditor hereunder.
8. No waiver shall be deemed to be made by Senior Creditor of any of its
rights hereunder unless the same shall be in writing and then only with respect
to the specific instance involved, and shall in no way impair or offset the
rights of Senior Creditor or the obligations of Subordinated Creditor in any
other respect or at any other time.
9. This agreement shall be binding upon Subordinated Creditor and Debtor
and their respective legal representatives, heirs, successors and assigns and
shall inure to the benefit of Senior Creditor and its respective legal
representatives heirs, successors and assigns (including without limitation
any transferee of any Senior Debt). References herein to the binding effect
of this agreement shall not be deemed to constitute consent or acquiescence in
the sale, assignment, pledge or other transfer or encumbrance of the
Subordinated Debt by Subordinated Creditor, that Subordinated Debt having been
fully transferred and assigned to Senior Creditor as security in Section 3 of
this agreement. This agreement shall be construed and enforced in accordance
with and governed by the law of the State of Ohio.
SCHEDULE A
Schedule of Subordinated Debt
[PROMISSORY NOTE DATED JUNE 21, 1996 IN THE AMOUNT OF $250,000 FROM
DYNACRAFT GOLF PRODUCTS, INC. TO JOSEPH ALTOMONTE, SR.]
SCHEDULE B
Description of Security Held by Subordinated Creditor
6
<PAGE>
PROMISSORY NOTE
Amount: $250,000.00 Date: June 21, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Joseph
Altomonte, Sr. the sum of $250,000.00 with interest from the date hereof on the
unpaid balance of principal at 9.25% per annum. Payments under this note shall
be made as follows:
The Principal Sum shall be due and payable in 60 consecutive monthly
installments, beginning on July 1, 1996. Each installment of the Principal Sum
shall be in the amount of $2,976.19 except the final installment shall be for
the unpaid balance. Accrued interest shall be due and payable on the same dates
as installments of the Principal Sum. All payments shall be first be applied to
accrued interest and then to the unpaid balance of principal. There shall be no
penalty for prepayment.
In the event of non-payment of any installment hereunder, when due, the
entire balance of principal, then remaining unpaid, with accrued interest
thereon, shall at once become due and payable at the option of the holder
hereof, with notice or demand being given to the maker hereof in writing.
Payment of this note is subordinated to the payment Of all obligations of
the maker hereof to the Huntington National Bank pursuant to the terms of
subordination agreement dated June 21, 1996.
Dynacraft Golf Products, Inc.
By /s/ Joseph Altomonte, Jr.
-------------------------
Its CEO
7
<PAGE>
SCHEDULE C
Permitted Payments on Subordinated Debt
Principal and Interest Monthly
IN WITNESS WHEREOF, Subordinated Creditor has executed this agreement
on JUNE 20, 1996
SUBORDINATED CREDITOR: JOSEPH A. ALTOMONTE, JR.
/s/ Joseph Altomonte, Sr.
- -------------------------
JOSEPH A. ALTOMONTE, SR.
Debtor hereby acknowledges notice of the within and foregoing Subordination
Agreement and agrees to be bound by all of the terms, Provisions and
conditions hereof.
DEBTOR: DYNACRAFT GOLF PRODUCTS, INC.
/s/ Joseph Altomonte, Jr.
- -------------------------
BY: JOSEPH A. ALTOMONTE, JR., PRESIDENT
8
<PAGE>
HUNTINGTONCOMMERCIAL LOAN NOTE
BANKS Business Purpose
- --------------------------------------------------------------------------------
City Office COLUMBUS Div. BUSINESS BKG Branch HCO8LO
-------- ------------ ------
Account No: ___________ Note No. ________ [x] Secured (YIN)
Acct Name JOSEPH A. ALTOMONTE, JR.
[ ] corporation [ ] partnership [x] individual/proprietorship
[ ] other ___________
- --------------------------------------------------------------------------------
$ 250,000.00 COLUMBUS OHIO June 20, 1996
--------------- -------------- --------------
FOR VALUE RECEIVED, the undersigned, jointly and severally if more than one,
promise to pay to the order of The Huntington National Bank, (hereinafter called
the "Bank", which term shall include any holder hereof), at such place as the
Bank may designate or, in the absence ot such designation, at any of the Bank's
offices, the sum OF TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($
250,000.00 ) (hereinafter called the "Principal Sum") together with interest
as hereinafter provided. The undersigned promise to pay the Principal Sum and
the interest thereon at the time(s) and in the manner(s) hereinafter provided.
INTEREST
Interest will accrue on the unpaid balance of the Principal Sum until paid at
the rate of 9.625% per annum.
All interest shall be calculated on the basis of a 360 day year (or, if marked,
[x] on the basis of a 365 day year (366 days in a leap year)) for the actual
number of days the Principal Sum or any part thereof remains unpaid.
MANNER OF PAYMENT
The Principal Sum and accrued interest shall be due and payable in 60
consecutive MONTHLY installments, beginning on JULY 1, 1996 Each installment
of the Principal Sum and accrued interest shall be in the amount of
$ 4102.02 except the final installment shall be for the unpaid balance.
The undersigned may, on any business day, upon payment of all accrued interest,
fees and other amounts then due and payable to the Bank, and upon at least five
(5) business days prior written notice to the Bank, elect to prepay all or part
of the unpaid balance of the Principal Sum; provided, however, that if (1) said
prepayment shall be made on or before the date that is six (6 months prior to
the last scheduled payment of the Principal Sum (as indicated above), and (2)
the aggregate amount of the principal portion of all prepayments made during
the calendar year in which said prepayment is made (including the principal
portion of said prepayment) is in excess of 10% of the outstanding balance of
the Principal Sum on January 1 st of said calendar year (or, if the outstanding
balance of the Principal Sum on January 1 st of said calendar year is zero
because the prepayment occurs within one year from the date of execution hereof,
10% of the outstanding balance of the Principal Sum due and payable to the Bank
on the date of execution hereof), then the undersigned shall pay to the Bank on
the date of the prepayment a prepayment premium calculated using the following
formula:
TM
Prepayment Premium = % x (AP - AD) x 12
where:
(1) % equals 3% (or, if marked, [X] 1.00%);
(2) AP is the Amount Paid and means the actual amount off the Principal
Sum paid on the date of the prepayment;
(3) AD is the Amount Due and means the principal portion of the
installment payment due and payable on the date of the prepayment in
accordance with the payment schedule above, if any; and
(4) TM is the Total Months and means the number of full months between the
date off the prepayment and the last scheduled payment of the Principal
Sum.
The undersigned further agree that the prepayment premium shall be due and
payable to the Bank regardless of whether the prepayment results from the
undersigned's voluntary prepayment or from the Bank's exercise of its rights
after default by the undersigned, acceleration or otherwise. Unless the Bank
otherwise agrees in writing, partial prepayments of principal shall be credited
to Installments off principal In inverse order of maturity and shall not
postpone the due dates of the installments required hereunder.
9
<PAGE>
LATE CHARGE
Any installment or other payment not made within 10 days of the date such
payment or installment is due shall be subject to a late charge equal to 5% of
the amount of the installment or payment.
SECURITY
As security for the payment of the obligations evidenced hereby, and of all
other obligations and liabilities of the undersigned, and each of them, to the
Bank, whether now existing or hereafter arising, the undersigned hereby grant
the Bank a security interest in the following property, including all
substitutions and additions thereto, and the proceeds thereof (all, together
with any other property in which the Bank shall at any time be given a security
interest, hereinafter referred to as the "Collateral"):
MORTGAGE ON REAL PROPERTY LOCATED AT 677 BRIDGEWAY LANE,
NAPLES, COLLIER COUNTY FLORIDA
If, at the time of payment and discharge hereof, any of the undersigned shall be
then directly or contingently liable to the Bank as maker, indorser, surety or
guarantor of any other note, bill of exchange, or other instrument, then the
Bank may continue to hold any of the Collateral as security therefor, even
though this Note shall have been surrendered to the undersigned. The Bank shall
not be bound to take any steps necessary to preserve any rights in the
Collateral against prior parties. If any obligation evidenced by this Note is
not paid when due, the Bank may, at its option, demand, sue for, collect or make
any compromise or settlement it deems desirable with reference to the
Collateral, and shall have the rights of a secured party under the law of the
State of Ohio, and the undersigned shall be liable for any deficiency.
DEFAULT
Upon the occurrence of any of the following events:
(1) the failure of the undersigned to pay any installment when due
hereunder or to perform any obligation of the undersigned to the Bank;
(2) if the undersigned shall fail to do all things necessary to preserve
and maintain the value and collectibility of the Collateral;
(3) if the Collateral shall decline in value or become unsatisfactory to
the Bank and the undersigned shall fail to furnish immediately upon demand
additional Collateral satisfactory to the Bank;
(4) if the undersigned shall fail to furnish true and complete financial
statements from time to time on request of the Bank;
(5) the death or dissolution of any of the undersigned, or any indorser,
surety, or guarantor;
(6) if any representation, warranty or other information given to the Bank
by any of the undersigned, or by any indorser, surety or guarantor shall prove
to be false, untrue or misleading; or
(7) if the Bank shall for any reason deem itself insecure with respect to
the obligations evidenced hereby;
then Bank may, at its option, without notice or demand, accelerate the maturity
of the obligation evidenced hereby, which obligation shall become immediately
due and payable In the event the Bank shall institute any action for the
enforcement or collection of the obligations evidenced hereby, the undersiqned
agree to pay all costs and expenses of such action, including reasonable
attorneys' fees, to the extent permitted by law.
GENERAL PROVISIONS
All of the parties hereto, including the undersigned, and any indorser,
surety, or guarantor, hereby severally waive presentment, notice of dishonor,
protest, notice of protest, and diligence in bringing suit against any party
hereto, and consent that, without discharging any of them, the time of payment
may be extended an unlimited number of times before or after maturity without
notice. The Bank shall not be required to pursue any party hereto, including any
guarantor, or to exercise any rights against any Collateral herefor before
exercising any other such rights.
The obligations evidenced hereby may from time to time be evidenced by
another note or notes given in substitution, renewal or extension hereof. Any
security interest or mortgage which secures the obligations evidenced hereby
shall remain in full force and effect notwithstanding any such substitution,
renewal, or extension.
No amendment to or waiver of any term or condition of this Note shall be
effective unless in writing and signed by the undersigned and the Bank. No
failure or delay on the part of the Bank in exercising any right, power or
privilege under this Note, related loan documents or law nor any course of
dealing, shall operate as a waiver to such right, power or privilege or preclude
any other or further exercise thereof or of any other right, power or privilege.
The captions used herein are for reference only and shall not be deemed a
part of this Note. If any of the terms or provisions of this Note shall be
deemed unenforceable, the enforceability of the remaining terms and provisions
shall not be affected. This Note shall be governed by and construed in
accordance with the law of the State of Ohio.
10
<PAGE>
WARRANT OF ATTORNEY
Each of the undersigned authorize any attorney at law to appear in any Court of
Record in the State of Ohio or in any other state or territory of the United
States after the above indebtedness becomes due, whether by acceleration or
otherwise, to waive the issuing and service of process, and to confess judgment
against any one or more of the undersigned in favor of the Bank for the amount
then appearing due together with costs of suit, and thereupon to waive all
errors and all rights of appeal and stays of execution. No such judgment or
judgments against less than all of the undersigned shall be a bar to a
subsequent judgment or judgments against any one or more of the undersigned
against whom judgment has not been obtained hereon; this being a joint and
several warrant of attorney to confess judgment.
WARNING
BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU
DO NOT PAY ON TIME A COURT JUDGEMENT CAN BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR
KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS
OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS.
FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER
CAUSE.
BORROWER(S): JOSEPH A. ALTOMONTE, JR.
/s/ Joseph Altomonte, Jr.
-------------------------
JOSEPH A. ALTOMONTE, JR.
11
<PAGE>
HUNTINGTONCOMMERCIAL LOAN NOTE
BANKS Business Purpose
- --------------------------------------------------------------------------------
City Office COLUMBUS Div. BUSINESS BKG Branch HCO8LO
-------- ------------ ------
Account No: ___________ Note No. ________ [x] Secured (YIN)
Acct Name JOSEPH A. ALTOMONTE, JR.
[ ] corporation [ ] partnership [x] individual/proprietorship
[ ] other ___________
- --------------------------------------------------------------------------------
$ 250,000.00 COLUMBUS OHIO JUNE 20, 1996
--------------- -------------- --------------
FOR VALUE RECEIVED, the undersigned, jointly and severally if more than one,
promise to pay to the order of The Huntington National Bank, (hereinafter called
the "Bank", which term shall include any holder hereof), at such place as the
Bank may designate or, in the absence ot such designation, at any of the Bank's
offices, the sum OF TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($
250,000.00 ) (hereinafter called the "Principal Sum") together with interest
as hereinafter provided. The undersigned promise to pay the Principal Sum and
the interest thereon at the time(s) and in the manner(s) hereinafter provided.
INTEREST
Interest will accrue on the unpaid balance of the Principal Sum until paid at
the rate of 9.625% per annum.
All interest shall be calculated on the basis of a 360 day year (or, if marked,
[x] on the basis of a 365 day year (366 days in a leap year)) for the actual
number of days the Principal Sum or any part thereof remains unpaid.
MANNER OF PAYMENT
The Principal Sum and accrued interest shall be due and payable in 60
consecutive MONTHLY installments, beginning on JULY 1, 1996 Each installment
of the Principal Sum and accrued interest shall be in the amount of $ 4102.02
except the final installment shall be for the unpaid balance.
The undersigned may, on any business day, upon payment of all accrued interest,
fees and other amounts then due and payable to the Bank, and upon at least five
(5) business days prior written notice to the Bank, elect to prepay all or part
of the unpaid balance of the Principal Sum; provided, however, that if (1) said
prepayment shall be made on or before the date that is six (6 months prior to
the last scheduled payment of the Principal Sum (as indicated above), and (2)
the aggregate amount of the principal portion of all prepayments made during
the calendar year in which said prepayment is made (including the principal
portion of said prepayment) is in excess of 10% of the outstanding balance of
the Principal Sum on January 1 st of said calendar year (or, if the outstanding
balance of the Principal Sum on January 1 st of said calendar year is zero
because the prepayment occurs within one year from the date of execution hereof,
10% of the outstanding balance of the Principal Sum due and payable to the Bank
on the date of execution hereof), then the undersigned shall pay to the Bank on
the date of the prepayment a prepayment premium calculated using the following
formula:
TM
Prepayment Premium = % x (AP - AD) x 12
where:
(1) % equals 3% (or, if marked, [X] 1.00%);
(2) AP is the Amount Paid and means the actual amount off the Principal
Sum paid on the date of the prepayment;
(3) AD is the Amount Due and means the principal portion of the
installment payment due and payable on the date of the prepayment in
accordance with the payment schedule above, if any; and
(4) TM is the Total Months and means the number of full months between the
date off the prepayment and the last scheduled payment of the Principal
Sum.
The undersigned further agree that the prepayment premium shall be due and
payable to the Bank regardless of whether the prepayment results from the
undersigned's voluntary prepayment or from the Bank's exercise of its rights
after default by the undersigned, acceleration or otherwise. Unless the Bank
otherwise agrees in writing, partial prepayments of principal shall be credited
to Installments off principal In inverse order of maturity and shall not
postpone the due dates of the installments required hereunder.
12
<PAGE>
LATE CHARGE
Any installment or other payment not made within 10 days of the date such
payment or installment is due shall be subject to a late charge equal to 5% of
the amount of the installment or payment.
SECURITY
As security for the payment of the obligations evidenced hereby, and of all
other obligations and liabilities of the undersigned, and each of them, to the
Bank, whether now existing or hereafter arising, the undersigned hereby grant
the Bank a security interest in the following property, including all
substitutions and additions thereto, and the proceeds thereof (all, together
with any other property in which the Bank shall at any time be given a security
interest, hereinafter referred to as the "Collateral"):
MORTGAGE ON REAL PROPERTY LOCATED AT 677 BRIDGEWAY LANE,
NAPLES, COLLIER COUNTY FLORIDA
If, at the time of payment and discharge hereof, any of the undersigned shall be
then directly or contingently liable to the Bank as maker, indorser, surety or
guarantor of any other note, bill of exchange, or other instrument, then the
Bank may continue to hold any of the Collateral as security therefor, even
though this Note shall have been surrendered to the undersigned. The Bank shall
not be bound to take any steps necessary to preserve any rights in the
Collateral against prior parties. If any obligation evidenced by this Note is
not paid when due, the Bank may, at its option, demand, sue for, collect or make
any compromise or settlement it deems desirable with reference to the
Collateral, and shall have the rights of a secured party under the law of the
State of Ohio, and the undersigned shall be liable for any deficiency.
DEFAULT
Upon the occurrence of any of the following events:
(1) the failure of the undersigned to pay any installment when due
hereunder or to perform any obligation of the undersigned to the Bank;
(2) if the undersigned shall fail to do all things necessary to preserve
and maintain the value and collectibility of the Collateral;
(3) if the Collateral shall decline in value or become unsatisfactory to
the Bank and the undersigned shall fail to furnish immediately upon demand
additional Collateral satisfactory to the Bank;
(4) if the undersigned shall fail to furnish true and complete financial
statements from time to time on request of the Bank;
(5) the death or dissolution of any of the undersigned, or any indorser,
surety, or guarantor;
(6) if any representation, warranty or other information given to the Bank
by any of the undersigned, or by any indorser, surety or guarantor shall prove
to be false, untrue or misleading; or
(7) if the Bank shall for any reason deem itself insecure with respect to
the obligations evidenced hereby;
then Bank may, at its option, without notice or demand, accelerate the maturity
of the obligation evidenced hereby, which obligation shall become immediately
due and payable In the event the Bank shall institute any action for the
enforcement or collection of the obligations evidenced hereby, the undersiqned
agree to pay all costs and expenses of such action, including reasonable
attorneys' fees, to the extent permitted by law.
GENERAL PROVISIONS
All of the parties hereto, including the undersigned, and any indorser,
surety, or guarantor, hereby severally waive presentment, notice of dishonor,
protest, notice of protest, and diligence in bringing suit against any party
hereto, and consent that, without discharging any of them, the time of payment
may be extended an unlimited number of times before or after maturity without
notice. The Bank shall not be required to pursue any party hereto, including any
guarantor, or to exercise any rights against any Collateral herefor before
exercising any other such rights.
The obligations evidenced hereby may from time to time be evidenced by
another note or notes given in substitution, renewal or extension hereof. Any
security interest or mortgage which secures the obligations evidenced hereby
shall remain in full force and effect notwithstanding any such substitution,
renewal, or extension.
No amendment to or waiver of any term or condition of this Note shall be
effective unless in writing and signed by the undersigned and the Bank. No
failure or delay on the part of the Bank in exercising any right, power or
privilege under this Note, related loan documents or law nor any course of
dealing, shall operate as a waiver o such right, power or privilege or preclude
any other or further exercise thereof or of any other right, power or privilege.
The captions used herein are for reference only and shall not be deemed a
part of this Note. If any of the terms or provisions of this Note shall be
deemed unenforceable, the enforceability of the remaining terms and provisions
shall not be affected. This Note shall be governed by and construed in
accordance with the law of the State of Ohio.
13
<PAGE>
WARRANT OF ATTORNEY
Each off the undersigned authorize any attorney at law to appear in any Court of
Record in the State of Ohio or in any other state or territory of the United
States after the above indebtedness becomes due, whether by acceleration or
otherwise, to waive the issuing and service of process, and to confess judgment
against any one or more of the undersigned in favor of the Bank for the amount
then appearing due together with costs of suit, and thereupon to waive all
errors and all rights of appeal and stays of execution. No such judgment or
judgments against less than all of the undersigned shall be a bar to a
subsequent judgment or judgments against any one or more of the undersigned
against whom judgment has not been obtained hereon; this being a joint and
several warrant of attorney to confess judgment.
WARNING
BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU
DO NOT PAY ON TIME A COURT JUDGEMENT CAN BE TAKEN AGAINST YOU WITHOUT YOUR
PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS. FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT OR ANY OTHER CAUSE.
BORROWER(S): JOSEPH A. ALTOMONTE, JR.
/s/ Joseph Altomonte, Jr.
-------------------------
JOSEPH A. ALTOMONTE, JR.
14
<PAGE>
The Huntington National Bank
PO Box 155B
Columbus, Ohio 43216
Direct Telephone Number
614- 480-4893
[LOGO]
February 4, 1997
Mr. Duane Egeland, CFO
Dynacraft Golf Products, Inc.
98 James Street
Newark, OH 43055
Dear Duane:
I am pleased to inform you that The Huntington National Bank (the "Bank") has
approved and is willing to commit to the extension of the following credit
facility for Dynacraft Golf Products, Inc. (the "Borrower"). Please note that
this commitment is subject to the terms and conditions outlined below and the
execution of documentation acceptable to the Bank and its attorneys.
Borrower: Dynacraft Golf Products, Inc.
Co-Borrowers: Pal Joey Custom Golf, Inc.
Diamond Golf International Limited
Guarantors: Joseph A. Altomonte, Sr.
Joseph A. Altomonte, Jr.
Amount and Type: Standby letter of credit up to the lesser of 57,000 BRITISH
POUNDS or $93,OOO. The letter of credit is to be used to
facilitate the acquisition of a loan for Co-Borrower
(Diamond Golf) from Lloyds Bank, the proceeds of which are
to be used to reduce the principal balance on the existing
term note in the original amount of $1,860,315 extended to
Dynacraft Golf Products, Inc.
Advance Rate: The outstanding balance of the letter of credit is to be
added to the "Term Loan Outstanding Balance" for the purpose
of calculating Dynacraft's borrowing certificates.
Commission Rate: One and one half percent (1.50%) per annum, subject to a
minimum annual commission charge of $300.
Repayment Schedule: The commission charge is to be paid semi-annually, and
the balance of the letter of credit is to semi-annually
be reduced by 1/6th of the original amount of the
letter of credit.
<PAGE>
Dynacraft Golf Products, Inc.
February 4, 1997
Expiration Date: Three (3) years after closing.
Collateral: Cross-collateralized and cross-defaulted with the existing
term note in the original amount of $1,860,315 extended to
Dynacraft Golf Products, Inc.
Other Fees: The letter of credit will be subject to an issuance fee of
$100. In addition, Borrower is to reimburse HNB for any
other expenses incurred in connection with the documentation
and/or issuance of the proposed letter of credit.
Please note that this commitment will expire and become null and void unless
accepted by the appropriate parties prior to February, 28, 1997. Please indicate
your acceptance by having the appropriate parties sign at the spaces indicated
on the following page and returning this letter to my attention. If this
commitment is allowed to expire, Bank will be under no obligation to renew or
extend it. FOLLOWING THE ACCEPTANCE OF THIS COMMITMENT, BORROWER WILL BE
REQUIRED TO REIMBURSE BANK FOR ANY REASONABLE EXPENSES INCURRED IN CONNECTION
WITH THE DOCUMENTATION OF THIS CREDIT FACILITY EVEN IN THE EVENT THAT THE
TRANSACTION IS NOT CONSUMMATED.
Please contact me at 614-480-4893 with any questions or comments.
Sincerely,
/s/ Thomas Myers
- ----------------
Thomas Myers
Vice President
2
<PAGE>
Dynacraft Golf Products, Inc.
February 4, 1997
ACCEPTANCE
I have read this commitment and agree to be bound by its terms and conditions.
BORROWER
Dynacraft Golf Products, Inc.
By:/s/ Joseph Altomonte, Jr. 2/7/97
-------------------------- ------
Joseph Altomonte, Jr., CEO Date
CO-BORROWER
Pal Joey Custom Golf, Inc.
By:/s/ Joseph Altomonte, Jr. 2/7/97
-------------------------- ------
Joseph Altomonte, Jr., President Date
CO-BORROWER
Diamond Golf International Limited
By:/s/ Joseph Altomonte, Jr. 2/7/97
-------------------------- ------
Joseph Altomonte, Jr Date
GUARANTOR
/s/ Joseph Altomonte, Sr. 2/7/97
-------------------------- ------
Joseph Altomonte, Sr. Date
GUARANTOR
/s/ Joseph Altomonte, Jr. 2/7/97
- -------------------------- ------
Joseph Altomonte, Jr. Date
International Division
S.W.I.F.T. Address
HUNTUS33 Telex 245-475
CABLE CONFIRMATION
3
<PAGE>
The Huntington National Bank
International Operations
41 South High Street
Columbus, OH 43215
Irrevocable Standby Letter of Credit 106884 April 15, 1997
LLOYDS BANK PLC
1 Beach Road
Littlehampton
West Sussex BN17 5HY
England
Beneficiary:
LLOYDS BANK PLC
1 Beach Road
Littlehampton
West Sussex BN17 5HY
England
Gentlemen:
We hereby issue our Irrevocable Standby Letter of Credit 106884
in your favor for the account of DYNACRAFT GOLF PRODUCTS, INC., PAL JOEY CUSTOM,
INC. AND DIAMOND GOLF INTERNATIONAL LTD., 98 JAMES STREET, NEWRK, OH 43055, up
to an aggregate amount of GBP 58,000.00 available by your draft(s) at sight
drawn on The Huntington National Bank Columbus, OH.
Drafts to be accompanied by the following document(s):
+Beneficiary signed statement that Diamond Golf International
Limited has created or caused to be created a
payment default per the terms of an Agreement dated March, 19978
between Beneficiary and Diamond Golf International Limited."
Amount is to be reduced in accordance with the following schedule,
showing amount available for drawing hereunder:
From 4/14/97 to 7/31/97, inclusive 58,000 GBP
From 8/01/97 to 7/31/97, inclusive 53,167 GBP
From 11/01/97 to 1/31/98, inclusive 48,333 GBP
From 2/01/97 to 4/30/98, inclusive 43,500 GBP
From 5/01/97 to 7/31/98, inclusive 38,667 GBP
From 8/01/97 to 10/31/98, inclusive 33,833 GBP
From 11/01/97 to 1/31/99, inclusive 29,000 GBP
From 2/01/97 to 4/30/99, inclusive 24,167 GBP
From 5/01/97 to 7/31/99, inclusive 19,333 GBP
4
<PAGE>
International Division
S.W.I.F.T. Address
HUNTUS33 Telex 245-475
The Huntington National Bank
International Operations
41 South High Street
Columbus, OH 43215
Irrevocable Standby Letter of Credit 106884 April 15, 1997
From 8/01/97 to 10/31/99, inclusive 14,500 GBP
From 11/01/97 to 1/31/00, inclusive 9,667 GBP
From 2/01/97 to 4/30/00, inclusive 4,833 GBP
Expiration Date - 5/01/00
Claims and reimbursements via Swift/Telex are permitted.
Draft(s) must be marked "Drawn under the Huntington National Bank
Credit No. 106884 dated April 15, 19978.
We hereby agree with you that the drafts drawn under and in
compliance with the terms of this credit will be duly honored by us
upon presentation at the office on or before May 1, 2000.
Except as otherwise expressly stated herein, this letter of
Credit is subject to the uniform Customs and Practices for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication
No. 500,
The Huntington National Bank
/s/ C Simpsom
-------------
Authorized Signature
5
<PAGE>
THE HUNTINGTON NATIONAL BANK
PO BOX 1558 [ LOGO-HUNTINGTON
BANKS]
Columbus, Ohio 43216
Direct Telephone Number
614-480-4893
May 15, 1997
Mr. Duane Egeland, CFO
Dynacraft Golf Products, Inc.
98 James Street
Newark, OH 43055
Re: Loan Agreement dated June 20, 1996
Dear Duane:
You have informed the Bank that Dynacraft Golf Products, Inc. (the "Company")
was in default of two of its financial covenants as of the fiscal year ended
December 31, 1996. The specific violations are detailed below:
SECTION 9.13 - TANGIBLE NET WORTH
This covenant states in part that the Company is to maintain a sum of
consolidated tangible net worth plus subordinated debt of not less than
$2,200M as of 12/31/96. However; the actual result totaled $ 1 ,975M.
SECTION 9.16 - CASH FLOW COVERAGE RATIO
This covenant requires that the Company achieve a ratio of its "Adjusted
Cash Flow" to "Debt Service Expense" of not less than 1.20 to 1 as of each
fiscal year end. However; the actual result as of 12/31/96 was 0.18 to 1.
The above violations were a direct result of the $482M net loss reported by the
Company for the 1996 fiscal year. The effect of the net loss was partially
offset by capital contributions in the form of additional subordinated
shareholder debt. A contribution in the amount of $322M occurred in November
1996 and an additional contribution in the amount of $39M occurred in January
1997.
Please accept this letter as your notification of Huntington National Bank's
decision to waive the above-referenced covenant violations PROVIDED THAT THE
MODIFICATIONS TO THE LOAN AGREEMENT DETAILED IN THE REMAINDER OF THIS LETTER ARE
AGREED TO. The implementation of these modifications will be subject to the
execution of documentation acceptable to the Bank and its attorneys.
1
<PAGE>
Dynacraft Golf Products, Inc.
May 15, 1997
The modified covenants are detailed below:
SECTION 9.13 - TANGIBLE NET WORTH
The definition of this covenant is to be unchanged, but the target levels
are to be amended as follows:
Tangible
Date Net Worth
---- ---------
3/31/97 $2,050M
6/30/97 $2,075M
9/30/97 $2,100M
12/31/97 $2,200M
3/31/98 $2,100M
6/30/98 $2,275M
9/30/98 $2,300M
12/31/98 and after $2,400M
SECTION 9.16 - CASH FLOW COVERAGE RATIO
The definition of this ratio is to be unchanged; however; the target ratio
is to be reduced from 1.20 to 1 to 1.10 to 1. In addition, the performance
is to be tested each year on a cumulative annual basis as of the end of the
respective quarters ending 6/30, 9/30 and 12/31.
SECTION 9.15 - RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH
Although this ratio is currently not in default, it appears likely that the
current target level of 3.0 to 1 required as of 6/30/97 will not be
achieved. Therefore, this covenant is to also be amended to include the
following required levels. For clarification purposes, the ratio is to be
defined as Total Liabilities less Subordinated Debt divided by Tangible Net
Worth.
Required
Date Ratio
---- ---------
6/30/97 3.75 to 1
9/30/97 3.75 to 1
12/31/97 3.50 to 1
3/31/98 3.50 to 1
6/30/98 3.25 to 1
9/30/98 3.25 to 1
12/31/98 and after 3.00 to 1
2
<PAGE>
Dynacraft Golf Products, Inc.
May 15, 1997
As indicated previously, this waiver is subject to the acceptance and
satisfactory documentation of the modifications detailed herein. This waiver
is intended to be specific only to Sections 9.13 and 9.16, and is not to be
construed as a permanent waiver, relinquishment or other modification of any
of the rights and remedies of the Bank contained in the above referenced
Agreement. Without limiting the generality of the foregoing, the Bank hereby
expressly reserves the right to immediately exercise any and all remedies
available under the above referenced Agreement, and any related documents or
agreements, as a result of the occurrence of an event of default.
Please note that the commitment to waive the subject covenant violations and
modify the Agreement will expire and become null and void unless acknowledged
and accepted prior to June 15, 1997. Please indicate your acceptance by
signing at the spaces indicated below and returning this letter to my
attention.
Please contact me at 614-480-4893 with any questions or comments.
Sincerely,
/s/ Thomas Myers
- ----------------
Thomas Myers
Vice President
ACCEPTANCE
CO-BORROWER
- -----------
Dynacraft Golf Products, Inc. Pal Joey Custom Golf, Inc.
By: /s/ Joseph Altomonte, Jr. By: /s/ Joseph Altomonte, Jr.
------------------------- -------------------------
Joseph Altomonte, Jr., CEO Joseph Altomonte, Jr., CEO
GUARANTORS
- ----------
/s/ Joseph Altomonte, Sr. /s/ Joseph Altomonte, Jr.
- ------------------------- -------------------------
Joseph Altomonte, Sr. Joseph Altomonte, Jr.
3
<PAGE>
PROMISSORY NOTE
Amount: $200,000.00 Date: November 18, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Joseph
Altomonte, Sr., the sum of $200,000.00 with interest from the date hereof on the
unpaid balance of principal at prime rate plus 1% per annum. Payments under this
note shall be made as follows:
The Prindpal Sum shall be due and payable on demand. Interest shall be due
and payable beginning December 1, 1996 and will continue monthly thereafter
until demand is made for Principal, at which time all principal, unpaid interest
and fees shall be immediately due and payable.
In the event of non-payment of any installment hereunder, when due, the
entire balance of principal, then remaining unpaid, with accrued interest
thereon, shall at once become due and payable at the option of the holder
hereof, with notice or demand being given to the maker hereof in writing.
The parties agree that the repayment of principal and interest on the Note
shall in all respects be identical to the repayment terms in effect at any given
time under the County Savings Loan, No. 04.54.64972, executed by Joseph A.
Altomonte, Sr.
Dynacraft Golf Products Inc.
By /s/ Jeff Jackson
----------------
Its: President
Jeff Jackson
1
<PAGE>
PROMISSORY NOTE
Amount: $90,770.41 Date: November 18, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Joseph
Altomonte, Sr., the sum of $90,770.41 with interest from the date hereof on the
unpaid balance of principal at 7% per annum. Payments under this note shall be
made as follows:
The Principal Sum shall be due and payable on demand. Interest in the
amount of $3,451.71, prepaid to June 1, 1997.
In the event of non-payment of any installment hereunder, when due, the
entire balance of principal, then remaining unpaid, with accrued interest
thereon, shall at once become due and payable at the option of the holder
hereof, with notice or demand being given to the maker hereof in writing.
The parties agree that the repayment of principal and interest on the Note
shall in all respects be identical to the repayment terms in effect at any given
time under the General American Laon Transaction on Policy #1990863..
Dynacraft Golf Products Inc.
By /s/ Jeff Jackson
----------------
Its: President
Jeff Jackson
2
<PAGE>
PROMISSORY NOTE
Amount: $35,784.20 Date: November 18, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Joseph
Altomonte, Sr., the sum of $33,950.21 with interest from the date hereof on the
unpaid balance of principal at 7.2% per annum. Payments under this note shall be
made as follows:
The Principal Sum shall be due and payable on demand. Interest in the
amount of $1,833.99, prepaid to August 2, 1997.
In the event of non-payment of any installment hereunder, when due, the
entire balance of principal, then remaining unpaid, with accrued interest
thereon, shall at once become due and payable at the option of the holder
hereof, with notice or demand being given to the maker hereof in writing.
The parties agree that the repayment of principal and interest on the Note
shall in all respects be identical to the repayment terms in effect at any given
time under the General American Loan Transaction on Policy #1989965.
Dynacraft Golf Products Inc.
By /s/ Jeff Jackson
----------------
Its: President
Jeff Jackson
3
<PAGE>
PROMISSORY NOTE
Amount: $52,500.00 Date: January 2, 1997
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Joseph
Altomonte, Sr., the sum of $52,500.00 with interest from the date hereof on the
unpaid balance of principal at 8.25% per annum. Payments under this note shall
be made as follows:
The Principal Sum shall be due and payable on demand. Interest shall be due
and payable beginning January 31, 1997 and will continue monthly thereafter
until demand is made for Principal, at which time all principal and unpaid
interest shall be immediately due and payable.
In the event of non-payment of any installment hereunder, when due, the
entire balance of principal, then remaining unpaid, with accrued interest
thereon, shall at once become due and payable at the option of the holder
hereof, with notice or demand being given to the maker hereof in writing.
Dynacraft Golf Products Inc.
By /s/ Jeff Jackson
----------------
Its: President
Jeff Jackson
4
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC.
401(K) PROFIT SHARING PLAN AND TRUST
1
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS 20
2.2 DETERMINATION OF TOP HEAVY STATUS 20
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER 24
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY 25
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES 25
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR 25
2.7 RECORDS AND REPORTS 27
2.8 APPOINTMENT OF ADVISERS 27
2.9 INFORMATION FROM EMPLOYER 27
2.10 PAYMENT OF EXPENSES 28
2.11 MAJORITY ACTIONS 28
2.12 CLAIMS PROCEDURE 28
2.13 CLAIMS REVIEW PROCEDURE 28
2
<PAGE>
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OD ELIGIBILITY 29
3.2 APPLICATION FOR PARTICIPATION 30
3.3 EFFECTIVE DATE OF PARTICIPATION 30
3.4 DETERMINATION OF ELIGIBILITY 30
3.5 TERMINATION OF ELIGIBILITY 30
3.6 OMISSION OF ELIGIBLE EMPLOYEE 31
3.7 INCLUSION OF INELIGIBLE EMPLOYEE 31
3.8 ELECTION NOT TO PARTICIPATE 31
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION 31
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION 32
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION 37
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS 37
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS 43
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS 46
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS 48
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS 52
4.9 MAXIMUM ANNUAL ADDITIONS 54
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS 59
4.11 TRANSFERS FROM QUALIFIED PLANS 60
3
<PAGE>
4.12 DIRECTED INVESTMENT ACCOUNT - 62
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND 63
5.2 METHOD OF VALUATION 63
7.11 DIRECT ROLLOVER 90
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT 91
TERMINATION 92
8.3 MERGER OR CONSOLIDATION 93
ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS 93
9.2 ALIENATION 93
9.3 CONSTRUCTION OF PLAN 94
9.4 GENDER AND NUMBER 95
9.5 LEGAL ACTION 95
9.6 PROHIBITION AGAINST DIVERSION OF FUNDS 95
4
<PAGE>
9.7 BONDING 96
9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE 96
9.9 INSURER'S PROTECTIVE CLAUSE 96
9.10 RECEIPT AND RELEASE FOR PAYMENTS 97
9.11 ACTION BY THE EMPLOYER 97
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY 97
9.13 HEADINGS 98
9.14 APPROVAL BY INTERNAL REVENUE SERVICE 98
9.15 UNIFORMITY 99
5
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC.
401(K) PROFIT SHARING PLAN AND TRUST
THIS AGREEMENT, hereby made and entered into this 27th day of December, 1994, by
and between Dynacraft Golf Products, Inc. (herein referred to as the "Employer")
and James B. Holloway, Belle B. Brownlee and Joseph Altomonte, Sr. (herein
referred to as the "Trustee").
W I T N E S S E T H:
WHEREAS, the Employer heretofore established a Profit Sharing Plan and Trust
effective December 31, 1984, (hereinafter called the "Effective Date") known as
Dynacraft Golf Products, Inc. 401(k) Profit Sharing Plan and Trust (herein
referred to as the "Plan") in recognition of the contribution made to its
successful operation by its employees and for the exclusive benefit of its
eligible employees; and
WHEREAS, under the terms of the Plan, the Employer has the ability to amend the
Plan, provided the Trustee joins in such amendment if the provisions of the Plan
affecting the Trustee are amended;
NOW, THEREFORE, effective January 1, 1989, except as otherwise provided, the
Employer and the Trustee in accordance with the provisions of the Plan
pertaining to amendments thereof, hereby amend the Plan in its entirety and
restate the Plan to provide as follows:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
1.2 "Administrator" means the person or entity designated by the Employer
pursuant to Section 2.4 to administer the Plan on behalf of the Employer.
1.3 "Affiliated Employer" means any corporation which is a member of a
controlled group of corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414(c)) with the Employer;
any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section -414(m)) which includes
the Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
6
<PAGE>
1.4 "Aggregate Account" means, with respect to each Participant, the
value of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the provisions of
Section 2.2.
1.5 "Anniversary Date" means December 31st.
1.6 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of Sections
6.2 and 6.6.
1.7 "Code" means the Internal Revenue Code of 1986, as amended or
replaced from time to time.
1.8 "Compensation" with respect to any Participant means such
Participant's wages as defined in Code Section 3401(a) and all other payments of
compensation by the Employer (in the course of the Employer's trade or business)
for a Plan Year for which the Employer is required to furnish the Participant a
written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation
must be determined without regard to any rules under Code Section 3401(a) that
limit the remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for agricultural
labor in Code Section 3401(a)(2)).
For purposes of this Section, the determination of Compensation shall be
made by:
(a) including amounts which are contributed by the Employer pursuant
to a salary reduction agreement and which are not includible in the gross
income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B),
403(b) or 457, and Employee contributions described in Code Section
414(h)(2) that are treated as Employer contributions.
For a Participant's initial year of participation, Compensation shall be
recognized for the entire Plan Year.
Compensation in excess of $200,000 shall be disregarded. Such amount shall
be adjusted at the same time and in such manner as permitted under Code Section
415(d), except that the dollar increase in effect on January 1 of any calendar
year shall be effective for the Plan Year beginning with or within such calendar
year and the first adjustment to the $200,000 limitation shall be effective on
January 1, 1990. For any short Plan Year the Compensation limit shall be an
amount equal to the Compensation limit for the calendar year in which
7
<PAGE>
the Plan Year begins multiplied by the ratio obtained by dividing the number of
full months in the short Plan Year by twelve (12). In applying this limitation,
the family group of a Highly Compensated Participant who is subject to the
Family Member aggregation rules of Code Section 414(q)(6) because such
Participant is either a "five percent owner of the Employer or one of the ten
(10) Highly Compensated Employees paid the greatest "415 Compensation" during
the year, shall be treated as a single Participant, except that for this purpose
Family Members shall include only the affected Participant's spouse and any
lineal descendants who have not attained age nineteen (19) before the close of
the year. If, as a result of the application of such rules the adjusted $200,000
limitation is exceeded, then the limitation shall be prorated among the affected
Family Members in proportion to each such Family Member's Compensation prior to
the application of this limitation, or the limitation shall be adjusted in
accordance with any other method permitted by Regulation.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93
annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
8
<PAGE>
If, as a result of such rules, the maximum "annual addition" limit of
Section 4.9(a) would be exceeded for one or more of the affected Family Members,
the prorated Compensation of all affected Family Members shall be adjusted to
avoid or reduce any excess. The prorated Compensation of any affected Family
Member whose allocation would exceed the limit shall be adjusted downward to the
level needed to provide an allocation equal to such limit. The prorated
Compensation of affected Family Members not affected by such limit shall then be
adjusted upward on a pro rata basis not to exceed each such affected Family
Member's Compensation as determined prior to application of the Family Member
rule. The resulting allocation shall not exceed such individual's maximum
"annual addition" limit. If, after these adjustments, an "excess amount" still
results, such "excess amount" shall be disposed of in the manner described in
Section 4.10(a) pro rata among all affected Family Members.
For purposes of this Section, if the Plan is a plan described in Code
Section 413(c) or 414(f) (a plan maintained by more than one Employer), the
$200,000 limitation applies separately with respect to the Compensation of any
Participant from each Employer maintaining the Plan.
If, in connection with the adoption of this amendment and restatement, the
definition of Compensation has been modified, then, for Plan Years prior to the
Plan Year which includes the adoption date of this amendment and restatement,
Compensation means compensation determined pursuant to the Plan then in effect.
For Plan Years beginning prior to January 1, 1989, the $200,000 limit
(without regard to Family Member aggregation) shall apply only for Top Heavy
Plan Years and shall not be adjusted.
1.9 "Contract" or "Policy" -means any life insurance policy, retirement
income or annuity policy, or annuity contract (group or individual) issued
pursuant to the terms of the Plan.
1.10 "Deferred Compensation" with respect to any Participant means the
amount of the Participant's total Compensation which has been contributed to the
Plan in accordance with the Participant's deferral election pursuant to Section
4.2 excluding any such amounts distributed as excess "annual additions" pursuant
to Section 4.10(a).
9
<PAGE>
1.11 "Early Retirement Date" means any Anniversary Date (prior to the
Normal Retirement Date) coinciding with or following the date on which a
Participant or Former Participant attains age 55 and has completed at least 6
Years of Service with the Employer (Early Retirement Age). A Participant shall
become fully Vested upon satisfying this requirement if still employed at his
Early Retirement Age.
A Former Participant who terminates employment after satisfying the service
requirement for Early Retirement and who thereafter reaches the age requirement
contained herein shall be entitled to receive his benefits under this Plan.
1.12 "Elective Contribution" means the Employer's contributions to the
Plan of Deferred Compensation excluding any such amounts distributed as excess
1,annual additions" pursuant to Section 4.10(a). In addition, any Employer
Qualified Non-Elective Contribution made pursuant to Section 4.6 shall be
considered an Elective Contribution for purposes of the Plan. Any such
contributions deemed to be Elective Contributions shall be subject to the
requirements of Sections 4.2(b) and 4.2(c) and shall further be required to
satisfy the discrimination requirements of Regulation 1.401(k)-1(b)(5), the
provisions of which are specifically incorporated herein by reference.
1.13 "Eligible Employee" means any Employee.
Employees of Affiliated Employers shall not be eligible to participate in
this Plan unless such Affiliated Employers have specifically adopted this Plan
in writing.
1.14 "Employee" means any person who is employed by the Employer or
Affiliated Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and such Leased Employees do not constitute
more than 20% of the recipient's non-highly compensated work force.
1.15 "Employer" means Dynacraft Golf Products, Inc. and any Participating
Employer (as defined in Section 10.1) which shall adopt this Plan; any successor
which shall maintain this Plan; and any predecessor which has maintained this
Plan. The Employer is a corporation, with principal offices in the State of
Ohio.
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1.16 "Excess Aggregate Contributions means, with respect to any Plan
Year, the excess of the aggregate amount of the Employer matching contributions
made pursuant to Section 4.1(b) and any qualified non-elective contributions or
elective deferrals taken into account pursuant to Section 4.7(c) on behalf of
Highly Compensated Participants for such Plan Year, over the maximum amount of
such contributions permitted under the limitations of Section 4.7(a).
1.17 "Excess Contributions" means, with respect to a Plan Year, the excess
of Elective Contributions made on behalf of Highly Compensated Participants for
the Plan Year over the maximum amount of such contributions permitted under
Section 4.5(a). Excess Contributions shall be treated as an "annual addition"
pursuant to Section 4.9(b).
1.18 "Excess Deferred Compensation" means, with respect to any taxable
year of a Participant, the excess of the aggregate amount of such Participant's
Deferred Compensation and the elective deferrals pursuant to Section 4.2(f)
actually made on behalf of such Participant for such taxable year, over the
dollar limitation provided for in Code Section 402(g), which is incorporated
herein by reference. Excess Deferred Compensation shall be treated as an "annual
addition" pursuant to Section 4.9(b) when contributed to the Plan unless
distributed to the affected Participant not later than the first April 15th
following the close of the Participant's taxable year. Additionally, for
purposes of Sections 2.2 and 4.4(h), Excess Deferred Compensation shall continue
to be treated as Employer contributions even if distributed pursuant to Section
4.2(f). However, Excess Deferred Compensation of Non-Highly Compensated
Participants is not taken into account for purposes of Section 4.5(a) to the
extent such Excess Deferred Compensation occurs pursuant to Section 4.2(d).
1.19 "Family Member" means, with respect to an affected Participant, such
Participant's spouse and such Participant's lineal descendants and ascendants
and their spouses, all as described in Code Section 414(g)(6)(B).
"Fiduciary" means any person who (a) exercises any discretionary authority
or discretionary control respecting management of the Plan or exercises any
authority or control respecting management or disposition of its assets, (b)
renders investment advice for a fee or other compensation, direct or indirect,
with respect to any monies or other property of the Plan or has any authority or
responsibility to do so, or (c) has any discretionary authority or discretionary
responsibility in the administration of the Plan, including, but not limited to,
the Trustee, the Employer and its representative body, and the
11
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Administrator.
1.21 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on January 1st of each year and ending the following December 31st.
1.22 "Forfeiture" means that portion of a Participant's Account that is
not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a Terminated
Participant's Account, or
(b) the last day of the Plan Year in which the Participant incurs
five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated Participant
shall be deemed to have received a distribution of his Vested benefit upon his
termination of employment. Restoration of such amounts shall occur pursuant to
Section 6.4(f)(2). In addition, the term Forfeiture shall also include amounts
deemed to be Forfeitures pursuant to any other provision of this Plan.
1.23 "Former Participant" means a person who has been a Participant, but
who has ceased to be a Participant for any reason.
1.24 "415 Compensation" with respect to any Participant means such
Participant's wages as defined in Code Section 3401(a) and all other payments of
compensation by the Employer (in the course of the Employer's trade or business)
for a Plan Year for which the Employer is required to furnish the Participant a
written statement under Code Sections 6041(d), 6051(a)(3) and 6052. "415
Compensation" must be determined without regard to any rules under Code Section
3401(a) that limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as the exception for
agricultural labor in Code Section 3401(a)(2)).
If, in connection with the adoption of this amendment and restatement, the
definition of "415 Compensation" has been modified, then, for Plan Years prior
to the Plan Year which includes the adoption date of this amendment and
restatement, "415 Compensation" means compensation determined pursuant to the
Plan then in effect.
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1.25 "414(s) Compensation" with respect to any Participant means such
Participant's "415 Compensation" paid during a Plan Year. The amount of "414(s)
Compensation" with respect to any Participant shall include "414(s)
Compensation" for the entire twelve (12) month period ending on the last day of
such Plan Year.
For purposes of this Section, the determination of "414(s) Compensation"
shall be made by including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible in the
gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions.
"414(s) Compensation" in excess of $200,000 shall be disregarded. Such
amount shall be adjusted at the same time and in such manner as permitted under
Code Section 415(d), except that the dollar increase in effect on January 1 of
any calendar year shall be effective for the Plan Year beginning with or within
such calendar year and the first adjustment to the $200,000 limitation shall be
effective on January 1, 1990. For any short Plan Year the "414(s) Compensation"
limit shall be an amount equal to the "414(s) Compensation" limit for the
calendar year in which the Plan Year begins multiplied by the ratio obtained by
dividing the number of full months in the short Plan Year by twelve (12). In
applying this limitation, the family group of a Highly Compensated Participant
who is subject to the Family Member aggregation rules of Code Section 414(g)(6)
because such Participant is either a "five percent owner" of the Employer or one
of the ten (10) Highly Compensated Employees paid the greatest "415
Compensation" during the year, shall be treated as a single Participant, except
that for this purpose Family Members shall include only the affected
Participant's spouse and any lineal descendants who have not attained age
nineteen (19) before the close of the year.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction,
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the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93
annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
If, in connection with the adoption of this amendment and restatement, the
definition of "414(s) Compensation" has been modified, then, for Plan Years
prior to the Plan Year which includes the adoption date of this amendment and
restatement, "414(s) Compensation" means compensation determined pursuant to the
Plan then in effect.
1.26 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
(a) Employees who at any time during the
"determination year" or "look-back year" were "five percent
owners" as defined in Section 1.32(c).
(b) Employees who received "415 Compensation" during
the "look-back year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during
the "look-back year" from the Employer in excess of $50,000 and
were in the Top Paid Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" -were
officers of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) and received
"415 Compensation" during the "look-back year" from the Employer
greater than 50 percent of the limit in effect under Code
Section
14
<PAGE>
415(b)(1)(A) for any such Plan Year. The number of officers
shall be limited to the lesser of (i) 50 employees; or (ii) the
greater of 3 employees or 10 percent of all employees. For the
purpose of determining the number of officers, Employees
described in Section 1.55(a), (b), (c) and (d) shall be
excluded, but such Employees shall still be considered for the
purpose of identifying the particular Employees who are
officers. If the Employer does not have at least one officer
whose annual "415 Compensation" is in excess of 50 percent of
the Code Section 415(b)(1)(A) limit, then the highest paid
officer of the Employer will be treated as a Highly Compensated
Employee.
(e) Employees who are in the group consisting of
the 100 Employees paid the greatest "415 Compensation" during
the "determination year" and are also described in (b), (c) or
(d) above when these paragraphs are modified to substitute
"determination year" for "look-back year."
The "look-back year" shall be the calendar year ending with or within the
Plan Year for which testing is being performed, and the "determination year" (if
applicable) shall be the period of time, if any, which extends beyond the
"look-back year" and ends on the last day of the Plan Year for which testing is
being performed (the "lag period"). If the "lag period" is less than twelve
months long, the dollar threshold amounts specified in (b), (c) and (d) above
shall be prorated based upon the number of months in the "lag period."
For purposes of this Section, the determination of "415 Compensation" shall
be made by including amounts which are contributed by the Employer pursuant to a
salary reduction agreement and which are not includible in the gross income of
the Participant under Code Sections 125, 402(e)(3), 402(h)(I)(B), 403(b) or 457,
and Employee contributions described in Code Section 4l4(h)(2) that are treated
as Employer contributions. Additionally, the dollar threshold amounts specified
in (b) and (c) above shall be adjusted at such time and in such manner as is
provided in Regulations. In the case of such an adjustment, the dollar limits
which shall be applied are those for the calendar year in which the
"determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer constituting United States source
income within the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Additionally, all Affiliated Employers shall be taken into account as
a single employer and Leased Employees within the -meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 414(n)(5) and are not
covered in any qualified plan maintained by the Employer. The exclusion of
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<PAGE>
Leased Employees for this purpose shall be applied on a uniform and consistent
basis for all of the Employer's retirement plans. Highly Compensated Former
Employees shall be treated as Highly Compensated Employees without regard to
whether they performed services during the "determination year."
1.27 "Highly Compensated Former Employee" means a former Employee who had
a separation year prior to the "determination year" and was a Highly Compensated
Employee in the year of separation from service or in any "determination year"
after attaining age 55. Notwithstanding the foregoing, an Employee who separated
from service prior to 1987 will be treated as a Highly Compensated Former
Employee only if during the separation year (or year preceding the separation
year) or any year after the Employee attains age 55 (or the last year ending
before the Employee's 55th birthday), the Employee either received "415
Compensation" in excess of $50,000 or was a "five percent owner." For purposes
of this Section, "determination year," "415 Compensation" and "five percent
owner" shall be determined in accordance with Section 1.26. Highly Compensated
Former Employees shall be treated as Highly Compensated Employees. The method
set forth in this Section for determining who is a "Highly Compensated Former
Employee" shall be applied on a uniform and consistent basis for all purposes
for which the Code Section 414(q) definition is applicable.
1.28 "Highly Compensated Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan.
1.29 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period; (2) each
hour for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour for
which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. These hours will be credited to the Employee for the
computation period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement or payment is made.
The same Hours of Service shall not be credited both under (1) or (2), as the
case may be, and under (3).
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Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by or
due from the Employer regardless of whether such payment is made by or due from
the Employer directly, or indirectly through, among others, a trust fund, or
insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
An Hour of Service must be counted for the purpose of determining a Year of
Service, a year of participation for purposes of accrued benefits, a 1-Year
Break in Service, and employment commencement date (or reemployment commencement
date). In addition, Hours of Service will be credited for employment with other
Affiliated Employers. The 'provisions of Department of Labor regulations
2530.200b-2(b) and (c) are incorporated herein by reference.
1.30 "Income" means the income or losses allocable to Excess Deferred
Compensation which amount shall be allocated in the same manner as income or
losses are allocated pursuant to Section 4.4(f).
1.31 "Investment Manager" means an entity that (a) has the power to
manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company.
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1.32 "Key Employee" means an Employee as defined in Code Section 416(i)
and the Regulations thereunder. Generally, any Employee or former Employee (as
well as each of his Beneficiaries) is considered a Key Employee if he, at any
time during the Plan Year that contains the "Determination Date" or any 9f the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is
defined within the meaning of the Regulations under Code Section
416) having annual "415 Compensation" greater than 50 percent of
the amount in effect under Code Section 415(b)(1)(A) for any
such Plan Year.
(b) one of the ten employees having annual "415
Compensation" from the Employer for a Plan Year greater than the
dollar limitation in effect under Code Section 415(c)(1)(A) for
the calendar year in which such Plan Year ends and owning (or
considered as owning within the meaning of Code Section 318)
both more than one-half percent interest and the largest
interests in the Employer.
(c) a "five percent owner" of the Employer. "Five
percent owner" means any person who owns (or is considered as
owning within the meaning of Code Section 318) more than five
percent (5%) of the outstanding stock of the Employer or stock
possessing more than five percent (5%) of the total combined
voting power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than five
percent (5%) of the capital or profits interest in the Employer.
In determining percentage ownership hereunder, employers that
would otherwise be aggregated under Code Sections 414(b), (c),
(m) and (o) shall be treated as separate employers.
(d) a "one percent owner" of the Employer having an
annual "415 Compensation"' from the Employer of more than
$150,000. "One percent owner" means any person who owns (or is
considered as owning within the meaning of Code Section 318)
more than one percent (1%) of the outstanding stock of the
Employer or stock possessing more than one percent (1%) of the
total combined voting power of all stock of the Employer or, in
the case of an unincorporated business, any person who owns more
than one percent (1%) of the capital or profits interest in the
Employer. In determining percentage ownership hereunder,
employers that would otherwise be
18
<PAGE>
aggregated under Code Sections 414(b), (c), (m) and (o) shall be
treated as separate employers. However, in determining whether
an individual has "415 Compensation" of more than $150,000, "415
Compensation" from each employer required to be aggregated under
Code Sections 414(b), (c), (m) and (o) shall be taken into
account.
For purposes of this Section, the determination of "415 Compensation" shall
be made by including amounts which are contributed by the Employer pursuant to a
salary reduction agreement and which are not includible in the gross income of
the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457,
and Employee contributions described in Code Section 414(h)(2) that are treated
as Employer contributions.
1.33 "Late Retirement Date" means the Anniversary Date coinciding with or
next following a Participant's actual Retirement Date after having reached his
Normal Retirement Date.
1.34 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer. A Leased Employee shall not be considered an Employee of the
recipient:
(a) if such employee is covered by a money purchase pension
plan providing:
(1) a non-integrated employer contribution rate
of at least 10% of compensation, as defined in Code
Section 415(c)(3), but including amounts which are
contributed by the Employer pursuant to a salary
reduction agreement and which are not includible in the
gross income of the Participant under Code Sections
125, 402(e)(3), 402(h)(1)(B), 403(b) or 457, and
Employee contributions described in Code Section
414(h)(2) that are treated as Employer contributions.
19
<PAGE>
(2) immediate participation; and
(3) full and immediate vesting; and
(b) if Leased Employees do not constitute more
than 20% of the recipient's non-highly compensated work force.
1.35 "Non-Elective Contribution" means the Employer's contributions to the
Plan excluding, however, contributions made pursuant to the Participant's
deferral election provided for in Section 4.2 and any Qualified Non-Elective
Contribution.
1.36 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
1.37 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.38 "Normal Retirement Age" means the Participant's 65th birthday. A
Participant shall become fully Vested in his Participant's Account upon
attaining his Normal Retirement Age.
1.39 "Normal Retirement Date" means the Anniversary Date nearest the
Participant's Normal Retirement Age.
1.40 "1-Year Break in Service" means the applicable computation period
during which an Employee has not completed more than 500 Hours of Service with
the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
leaves of absence." Years of Service and 1-Year Breaks in Service shall be
measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary cessation from
active 'employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military service, or
any other reason.
A "maternity or paternity leave of absence" means, for Plan Years beginning
after December 31, 1984, an absence from work for any period by reason of the
Employee's pregnancy, birth of the Employee's child, placement of a child with
the Employee in connection with the adoption of such child, or any absence for
the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of -Service shall be credited for
the computation period in which the
20
<PAGE>
absence from work begins, only if credit therefore is necessary to prevent the
Employee from incurring a 1-Year Break in Service, or, in any other case, in the
immediately following computation period. The Hours of Service credited for a
"maternity or paternity leave of absence" shall be those which would normally
have be' en credited but for such absence, or, in any case in which the
Administrator is unable to determine such hours normally credited, eight (8)
Hours of Service per day. The total Hours of Service required to be credited for
a "maternity or paternity leave of absence" shall not exceed 501.
1.41 "Participant" means any Eligible Employee who participates in the
Plan as provided in Sections 3.2 and 3.3, and has not for any reason become
ineligible to participate further in the Plan.
1.42 "Participant's Account" means the account established and maintained
by the Administrator for each Participant with respect to his total interest in
the Plan and Trust resulting from the Employer's Non-Elective Contributions.
A separate accounting shall be maintained with respect to that portion of
the Participant's Account attributable to -Employer matching contributions made
pursuant to Section 4.1(b) and Employer discretionary contributions made
pursuant to Section 4.1(c).
1.43 "Participant's Combined Account" means the total aggregate amount of
each Participant's Elective Account and Participant's Account.
1.44 "Participant's Elective Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's Elective
Contributions. A separate accounting shall be maintained with respect to that
portion of the Participant's Elective Account attributable to Elective
Contributions pursuant to Section 4.2 and any Employer Qualified Non-Elective
Contributions.
1.45 "Plan" means this instrument, including all amendments thereto.
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1.46 "Plan Year" means the Plan's accounting year of twelve (12) months
commencing on January 1st of each year and ending the following December 31st.
1.47 "Qualified Non-Elective Contribution" means the Employer's
contributions to the Plan that are made pursuant to Section 4.6. Such
contributions shall be considered an Elective Contribution for the purposes of
the Plan and used to satisfy the "Actual Deferral Percentage" tests.
In addition, the Employer's contributions to the Plan that are made
pursuant to Section 4.8(h) which are used to satisfy the "Actual Contribution
Percentage" tests shall be considered Qualified Non-Elective Contributions and
be subject to the provisions of Sections 4.2(b) and 4.2(c).
1.48 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.49 "Retired Participant" means a person who has been a Participant, but
who has become entitled to retirement benefits -under the Plan.
1.50 "Retirement Date" means the date as of which a Participant retires
for reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date, Early or Late Retirement Date
(see Section 6.1).
1.51 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.52 "Terminated Participant" means a person who has been a Participant,
but whose employment has been terminated other than by death, Total and
Permanent Disability or retirement.
1.53 "Top Heavy Plan" means a plan described in Section 2.2(a).
1.54 "Top Heavy Plan Year" means a Plan Year during which the Plan is a
Top Heavy Plan.
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1.55 "Top Paid Group" means the top 20 percent of Employees who performed
services for the Employer during the applicable year, ranked according to the
amount of "415 Compensation" (determined for this purpose in accordance with
Section 1.26) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered
Employees unless such Leased Employees are covered by a plan described in Code
Section 414(n)(5) and are not covered in any qualified plan maintained by the
Employer. Employees who are non-resident aliens and who received no earned
income (within the meaning of Code Section 911(d)(2)) from the Employer
constituting United States source income within the meaning of Code Section
861(a)(3) shall not be treated as Employees. Additionally, for the purpose of
determining the number of active Employees in any year, the following additional
Employees shall also be excluded; however, such Employees shall still be
considered for the purpose of identifying the particular Employees in the Top
Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per
week;
(c) Employees who normally work less than six (6)
months during a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer are
covered under agreements the Secretary of Labor finds to be collective
bargaining agreements between Employee representatives and the Employer, and the
Plan covers only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied on a
uniform and consistent basis for all purposes for which the Code Section 414(q)
definition is applicable.
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1.56 "Total and Permanent Disability" means a physical or mental condition
of a Participant resulting from bodily injury, disease, or mental disorder which
renders him incapable of continuing any gainful occupation and which condition
constitutes total disability under the federal Social Security Acts.
1.57 "Trustee" means the person or entity named as trustee herein or in
any separate trust forming a part of this Plan, and any successors.
1.58 "Trust Fund" means the assets of the Plan and Trust as the same shall
exist from time to time.
1.59 "Vested" means the nonforfeitable portion of any account maintained
on behalf of a Participant.
1.60 "Year of Service" means the computation period of twelve (12)
consecutive months, herein set forth, during which an Employee has at least 1000
Hours of Service.
For purposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs an Hour of
Service. The participation computation period beginning after a 1-Year Break in
Service shall be measured from the date on which an Employee again performs an
Hour of Service. The participation computation period shall shift to the Plan
Year which includes the anniversary of the date on which the Employee first
performed an Hour of Service. An Employee who is credited with the required
Hours of Service in both the initial computation period (or the computation
period beginning after a 1-Year Break in Service) and the Plan Year which
includes the anniversary of the date on which the Employee first performed an
Hour of Service, shall be credited with two (2) Years of Service for purposes of
eligibility to participate.
For vesting purposes, the computation period shall be the Plan Year,
including periods prior to the Effective Date of the Plan.
For all other purposes, the computation period shall be the Plan Year.
Notwithstanding the foregoing, for any short Plan Year, the determination
of whether an Employee has completed a Year of Service shall be made in
accordance with Department of Labor regulation 2530.203-2(c). However, in
determining whether an Employee has completed a Year of Service for benefit
accrual
purposes in the short Plan Year, the number of the Hours of Service
required shall be proportionately reduced based on the
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number of full months in the short Plan Year.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special vesting
requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the
special minimum allocation requirements of Code Section 416(c) pursuant to
Section 4.4 of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year
in which, as of the Determination Date, (1) the Present Value of
Accrued Benefits of Key Employees and (2) the sum of the
Aggregate Accounts of Key Employees under this Plan and all plans
of an Aggregation Group, exceeds sixty percent (60%) of the
Present Value of Accrued Benefits and the Aggregate Accounts of
all Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year,
but such Participant was a Key Employee for any prior Plan Year,
such Participant's Present Value of Accrued Benefit and/or
Aggregate Account balance shall not be taken into account for
purposes of determining whether this Plan is a Top Heavy or Super
Top Heavy Plan (or whether any Aggregation Group which includes
this Plan is a Top Heavy Group). In addition, for Plan Years
beginning after December 31, 1984, if a Participant or Former
Participant has not performed any services for any Employer
maintaining the Plan at any time during the five year period
ending on the Determination Date, any accrued benefit for such
Participant or Former Participant shall not be taken into account
for the purposes of determining whether this Plan is a Top Heavy
or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan
Year in which, as of the Determination Date, (1) the Present
Value of Accrued Benefits of Key Employees and (2) the sum of the
Aggregate Accounts of
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Key Employees under this Plan and all plans of an Aggregation
Group, exceeds ninety percent (90%) of the Present Value of
Accrued Benefits and the Aggregate Accounts of all Key and
Non-Key Employees under this Plan and all plans of an Aggregation
Group.
(c) Aggregate Account: A Participant's Aggregate Account as
of the Determination Date is the sum of:
(1) his Participant's Combined Account balance as of
the most recent valuation occurring within a twelve (12)
month period ending on the Determination Date;
(2) an adjustment for any contributions due as of
the Determination Date. Such adjustment shall be the
amount of any contributions actually made after the
valuation date but due on or before the Determination
Date, except for the first Plan Year when such adjustment
shall also reflect the amount of any contributions made
after the Determination Date that are allocated as of a
date in that first Plan Year.
(3) any Plan distributions made within the Plan Year
that includes the Determination Date or within the four
(4) preceding Plan Years. However, in the case of
distributions made after the valuation date and prior to
the Determination Date, such distributions are not
included as distributions for top heavy purposes to the
extent that such distributions are already included in
the Participant's Aggregate Account balance as of the
valuation date. Notwithstanding anything herein t9 the
contrary, all distributions, including distributions made
prior to January 1, 1984, and distributions under a
terminated plan which if it had not been terminated would
have been required to be included in an Aggregation
Group, will be counted. Further, distributions from the
Plan (including the cash value of life insurance
policies) of a Participant's account balance because of
death shall be treated as a distribution for the purposes
of this paragraph.
(4) any Employee contributions, whether voluntary or
mandatory. However, amounts attributable to tax
deductible qualified
26
<PAGE>
voluntary employee contributions shall not be considered
to be a part of the Participant's Aggregate Account
balance.
(5) with respect to unrelated rollovers and
plan-to-plan transfers (ones which are both initiated by
the Employee and made from a plan maintained by one
employer to a plan maintained by another employer), if
this Plan provides the rollovers or plan-to-plan
transfers, it shall always consider such rollovers or
plan-to-plan transfers as a distribution for the purposes
of this Section. If this Plan is the plan accepting such
rollovers or plan-to-plan transfers, it shall not
consider such rollovers or plan-to-plan transfers as part
of the Participant's Aggregate Account balance.
(6) with respect to related rollovers and
plan-to-plan transfers (ones either not initiated by the
Employee or made to a plan maintained by the same
employer), if this Plan provides the rollover or
plan-to-plan transfer, it shall not be counted as a
distribution for purposes of this Section. If this Plan
is the plan accepting such rollover or plan-to-plan
transfer, it shall consider such rollover or plan-to-plan
transfer as part of the Participant's Aggregate Account
balance, irrespective of the date on which such rollover
or plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two
employers are to be treated as the same employer in (5)
and (6) above, all employers aggregated under Code
Section 414(b), (c), (m) and (o) are treated as the same
employer.
(d) "Aggregation Group" means either a Required Aggregation
Group or a Permissive Aggregation Group as hereinafter
determined.
(1) Required Aggregation Group: In determining a
Required Aggregation Group hereunder, each plan of the
Employer in which a Key Employee is a participant in the
Plan Year containing the Determination Date or any of the
four preceding Plan Years, and each other plan' of the
Employer which enables any plan in which a Key Employee
participates to meet the requirements of Code
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Sections 401(a)(4) or 410, will be required to be aggregated.
Such group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each
plan in the group will be considered a Top Heavy Plan if
the Required Aggregation Group is a Top Heavy Group. No
plan in the Required Aggregation Group will be considered
a Top Heavy Plan if the Required Aggregation Group is not
a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may
also include any other plan not required to be included
in the Required Aggregation Group, provided the resulting
group, taken as a whole, would continue to satisfy the
provisions of Code Sections 401(a)(4) and 410. Such group
shall be known as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only
a plan that is part of the Required Aggregation Group
will be considered a Top Heavy Plan if the Permissive
Aggregation Group is a Top Heavy Group. No plan in the
Permissive Aggregation Group will be considered a Top
Heavy Plan if the Permissive Aggregation Group is not a
Top Heavy Group.
(3) Only those plans of the Employer in which the
Determination Dates fall within the same calendar year
shall be aggregated in order to determine whether such
plans are Top Heavy Plans.
(4) An Aggregation Group shall include any
terminated plan of the Employer if it was maintained
within the last five (5) years ending on the
Determination Date.
(e) "Determination Date" means (a) the last day of the
preceding Plan Year, or (b) in the case of the first Plan Year,
the last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a
defined benefit plan, the Present Value of Accrued Benefit for a
Participant other than a Key Employee, shall be as determined
using the single accrual method used for all plans of the
Employer and Affiliated Employers, or if no such single method
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<PAGE>
exists, using a method which results in benefits accruing not
more rapidly than the slowest accrual rate permitted under Code
Section 411(b)(1)(C). The determination of the Present Value of
Accrued Benefit shall be determined as of the most recent
valuation -date that falls within or ends with the 12-month
period ending on the Determination Date except as provided in
Code Section 416 and the Regulations thereunder for the first and
second plan years of a defined benefit plan.
(g) "Top Heavy Group" means an Aggregation Group in which,
as of the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key
Employees under all defined benefit plans included in the
group, and
(2) the Aggregate Accounts of Key Employees under all
defined contribution plans included in the group, exceeds
sixty percent (60%) of a similar sum determined for all
Participants.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove
the Trustee and the Administrator from time to time as it deems
necessary for the proper administration of the Plan to assure
that the Plan is being operated for the exclusive benefit of the
Participants and their Beneficiaries in accordance with the terms
of the Plan, the Code, and the Act.
(b) The Employer shall establish a "funding policy and
method," i.e., it shall determine whether the Plan has a short
run need for liquidity (e.g., to pay benefits) or whether
liquidity is a long run goal and investment growth (and stability
of same) is a more current need, or shall appoint a qualified
person to do so. The Employer or its delegate shall communicate
such needs and goals to the Trustee, who shall coordinate such
Plan needs with its investment policy. The communication of such
a "funding policy and method" shall not, however, constitute a
directive to the Trustee as to investment of the Trust Funds.
Such "funding policy and method" shall be consistent with the
objectives of this Plan and with the requirements of Title I of
the Act.
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(c) The Employer shall periodically review the performance
of any Fiduciary or other person to whom duties have been
delegated or allocated by it under the provisions of this Plan or
pursuant to procedures established hereunder. This requirement
may be satisfied by formal periodic review by the Employer or by
a qualified person specifically designated by the Employer,
through day-to-day conduct and evaluation, or through other
appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person,
including, but not limited to, the Employees of the Employer, shall be eligible
to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an Administrator, shall
promptly designate in writing a successor to this position. If the Employer does
not appoint an Administrator, the Employer will function as the Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the responsibilities
of each Administrator may be specified by the Employer and accepted in writing
by each Administrator. In the event that no such delegation is made by the
Employer, the Administrators may allocate the responsibilities among themselves,
in which event the Administrators shall notify the Employer and the Trustee in
writing of such action and specify the responsibilities of each Administrator.
The Trustee thereafter shall accept and rely upon any documents executed by the
appropriate Administrator until such time as the Employer or the Administrators
file with the Trustee a written revocation of such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the Plan
for the exclusive benefit of the Participants and their Beneficiaries, subject
to the specific terms of the Plan. The Administrator shall administer the Plan
in accordance -with its terms and shall have the power and discretion to
30
<PAGE>
construe the terms of the Plan and to determine all questions arising in
connection with the administration, interpretation, and application of the Plan.
Any such determination by the Administrator shall be conclusive and binding upon
all persons. The Administrator may establish procedures, correct any defect,
supply any information, or reconcile any inconsistency in such manner and to
such extent as shall be deemed necessary or advisable to carry out the purpose
of the Plan; provided, however, that any procedure, discretionary act,
interpretation or construction shall be done in a nondiscriminatory manner based
upon uniform principles consistently applied and shall be consistent with the
intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401(a), and shall comply with the terms of the Act and all
regulations issued pursuant thereto. The Administrator shall have all powers
necessary or appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating
to the eligibility of Employees to participate or remain a
Participant hereunder and to receive benefits under the
Plan;
(b) to compute, certify, and direct the Trustee with
respect to the amount and the kind of benefits to which any
Participant shall be entitled hereunder;
(c) to authorize and direct the Trustee with respect
to all nondiscretionary or otherwise directed disbursements
from the Trust;
(d) to maintain all necessary records for the
administration of the Plan;
(e) to interpret the provisions of the Plan and to
make and publish such rules for regulation of the Plan as
are consistent with the terms hereof;
(f) to determine the size and type of any Contract to
be purchased from any insurer, and to designate the insurer
from which such Contract shall be purchased;
(g) to compute and certify to the Employer and to the
Trustee from time to time the sums of money necessary or
desirable to be contributed to the Plan;
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<PAGE>
(h) to consult with the Employer and the Trustee
regarding the short and long-term liquidity needs of the
Plan in order that the Trustee can exercise any investment
discretion in a manner designed to accomplish specific
objectives;
(i) to prepare and implement a procedure to notify
Eligible Employees that they may elect to have a portion of
their Compensation deferred or paid to them in cash;
(j) to assist any Participant regarding his rights,
benefits, or elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall keep
all other books of account, records, and other data that may be necessary for
proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the Administrator,
may appoint counsel, specialists, advisers, and other persons as the
Administrator or the Trustee deems necessary or desirable in connection with the
administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer shall
supply full and timely information to the Administrator on all matters relating
to the Compensation of all Participants, their Hours of Service, their Years of
Service, their retirement, death, disability, or termination of employment, and
such other pertinent facts as the Administrator may require; and the
Administrator shall advise the Trustee of such of the foregoing facts as may be
pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
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<PAGE>
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless
paid by the Employer. Such expenses shall include any expenses incident to the
functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability of
the Trust Fund. However, the Employer may reimburse the Trust Fund for any
administration expense incurred.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of administrative
authority pursuant to Section 2.5, if there shall be more than one
Administrator, they shall act by a majority of their number, but may authorize
one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be furnished
to the claimant within 90 days after the application is filed. In the event the
claim is denied, the reasons for the denial shall be specifically set forth in
the notice in language calculated to be understood by the claimant, pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation as
to how the claimant can perfect the claim will be provided. In addition, the
claimant shall be furnished with an explanation of the Plan's claims review
procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.12
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator (on a form which may be obtained from
the Administrator) a request for a hearing. Such request, together with a
written statement of the reasons why the claimant believes his claim should be
allowed, shall be filed with the Administrator no later than 60 days after
receipt of the written notification provided for in Section 2.12. The
Administrator shall then conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other representative of his
choosing and at which the
33
<PAGE>
claimant shall have an opportunity to submit written and oral evidence and
arguments in support of his claim. At the hearing (or prior thereto upon S
business days written notice to the Administrator) the claimant or his
representative shall have an opportunity to review all documents in the
possession of the Administrator which are pertinent to the claim at issue and
its disallowance. Either the claimant or the Administrator may cause a court
reporter to attend the hearing and record the proceedings. In such event, a
complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter and
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim shall be
made by the Administrator within 60 days of receipt of the appeal (unless there
has been an extension of 60 days due to special circumstances, provided the
delay and the special circumstances occasioning it are communicated to the
claimant within the 60 day period). Such communication shall be written in a
manner calculated to be understood by the claimant and shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who was employed on December 31, 1984 shall be
eligible to participate and shall enter the Plan as of the first day of such
Plan Year. Any other Eligible Employee who has completed six (6) Months of
Service shall be eligible to participate hereunder as of the date he has
satisfied such requirements. However, any Employee who was a Participant in the
Plan prior to the effective date of this amendment and restatement shall
continue to participate in the Plan. The Employer shall give each prospective
Eligible Employee written notice of his eligibility to participate in the Plan
prior to the close of the Plan Year in which he first becomes an Eligible
Employee.
For purposes of this Section, an Eligible Employee will be deemed to have
completed six (6) Months of Service if he is in the employ of the Employer at
any time six (6) months after his employment commencement date. Employment
commencement date shall be the first day that he is entitled to be credited with
an Hour of Service for the performance of duty.
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<PAGE>
3.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each Eligible Employee shall
make application to the Employer for participation in the Plan and agree to the
terms hereof. Upon the acceptance of any benefits under this Plan, such Employee
shall automatically be deemed to have made application and shall be bound by the
terms and conditions of the Plan and all amendments hereto.
3.3 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as of the earlier
of the first day of the Plan Year or the first day of the seventh month of such
Plan Year coinciding with or next following the date such Employee met the
eligibility requirements of Section 3.1, provided said Employee was still
employed as of such date (or if not employed on such date, as of the date of
rehire if a 1-Year Break in Service has not occurred).
3.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer. Such
determination shall be conclusive and binding upon all persons, as long as the
same is made pursuant to the Plan and the Act. Such determination shall be
subject to review per Section 2.13.
3.5 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a
classification of an Eligible Employee to an ineligible Employee,
such Former Participant shall continue to vest in his interest in
the Plan for each Year of Service completed while a noneligible
Employee, until such time as his Participant's Account shall be
forfeited or distributed pursuant to the terms of the Plan.
Additionally, his interest in the Plan shall continue to share in
the earnings of the Trust Fund.
(b) In the event a Participant is no longer a member of an
eligible class of Employees and becomes ineligible to participate
but has not incurred a 1-Year Break in Service, such Employee
will participate immediately upon returning to an eligible class
of Employees. If such Participant incurs a 1-Year Break in
Service, eligibility will be determined under the break in
service rules of the Plan.
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<PAGE>
3.6 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a Participant
in the Plan is erroneously omitted and discovery of such omission is not made
until after a contribution by his Employer for the year has been made, the
Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
Employer shall not be entitled to recover the contribution made with respect to
the ineligible person regardless of whether or not a deduction is allowable with
respect to such contribution. In such event, the amount contributed with respect
to the ineligible person shall constitute a Forfeiture (except for Deferred
Compensation which shall be distributed to the ineligible person) for the Plan
Year in which the discovery is made.
3.8 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect voluntarily
not to participate in the Plan. The election not to participate must be
communicated to the Employer, in writing, at least thirty (30) days before the
beginning of a Plan Year.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of
all Participants made pursuant to Section 4.2(a), which amount
shall be deemed an Employer's Elective Contribution.
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<PAGE>
(b) On behalf of each Participant who is eligible to share
in matching contributions for the Plan Year, a discretionary
matching contribution equal to a percentage of each such
Participant's Deferred Compensation, the exact percentage to be
determined each year by the Employer, which amount shall be
deemed an Employer's Non-Elective Contribution.
(c) A discretionary amount, which amount shall be deemed an
Employer's Non-Elective Contribution.
(d) Notwithstanding the foregoing, however, the Employer's
contributions for any Plan Year shall not exceed the maximum
amount allowable as a deduction to the Employer under the
provisions of Code Section 404. All contributions by the Employer
shall be made in cash or in such property as is acceptable to the
Trustee.
(e) Except, however, to the extent necessary to provide the
top heavy minimum allocations, the Employer shall make a
contribution even if it exceeds the amount which is deductible
under Code Section 404.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer a portion of his
Compensation which would have been received in the Plan Year
(except for the deferral election) by up to the maximum amount
which will not cause the Plan to violate the provisions of
Sections 4.5(a) and 4.9, or cause the Plan to exceed the maximum
amount allowable as a deduction to the Employer under Code
Section 404. A deferral election (or modification of an earlier
election) may not be made with respect to Compensation which is
currently available on or before the date the Participant
executed such election.
The amount by which Compensation is reduced shall be that
Participant's Deferred Compensation and be treated as an Employer
Elective Contribution and allocated to that Participant's
Elective Account.
(b) The balance in each Participant's Elective Account
shall be fully Vested at all times and shall not be subject to
Forfeiture for any reason.
(c) Amounts held in the Participant's Elective Account may
not be distributable earlier than:
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(1) a Participant's termination of employment, Total
and Permanent Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the termination of the Plan without the
-establishment or existence of a "successor plan," as that
term is described in Regulation 1.401(k)-1(d) (3);
(4) the date of disposition by the Employer to an
entity that is not an Affiliated Employer of substantially
all of the assets (within the meaning of Code Section
409(d)(2)) used in a trade or business of such corporation
if such corporation continues to maintain this Plan after
the disposition with respect to a Participant who continues
employment with the corporation acquiring such assets;
(5) the date of disposition by the Employer or an
Affiliated Employer who maintains the Plan of its interest
in a subsidiary (within the meaning of Code Section
409(d)(3)) to an entity which is not an Affiliated Employer
but only with respect to a Participant who continues
employment with such subsidiary; or
(6) the proven financial hardship of a Participant,
subject to the limitations of Section 6.11.
(d) For each Plan Year beginning after December 31, 1987, a
Participant's Deferred Compensation made under. this Plan and all
other plans, contracts or arrangements of the Employer
maintaining this Plan shall not exceed, during any taxable year
of the Participant, the limitation imposed by Code Section
402(g), as in effect at the .beginning of such taxable year. If
such dollar limitation is exceeded, a Participant will be deemed
to have notified the Administrator of such excess amount which
shall be distributed in a manner consistent with Section 4.2(f).
The dollar limitation shall be adjusted annually pursuant to the
method provided in Code Section 415(d) in accordance with
Regulations.
(e) In the event a Participant has received a hardship
distribution from his Participant's Elective
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Account pursuant to Section 6.11 or pursuant to Regulation
1.401(k)-1(d)(2)(iv)(B) from any other plan maintained by the
Employer, then such Participant shall not be permitted to elect
to have Deferred Compensation contributed to the Plan on his
behalf for a period of twelve (12) months following the receipt
of the distribution. Furthermore, the dollar limitation under
Code Section 402(g) shall be reduced, with respect to the
Participant's taxable year following the taxable year in which
the hardship distribution was made, by the amount of such
Participant's Deferred Compensation, if any, pursuant to this
Plan (and any other plan maintained by the Employer) for the
taxable year of the hardship distribution.
(f) If a Participant's Deferred Compensation under this
Plan together with any elective deferrals (as defined in
Regulation l.402(g)-1(b)) under another qualified cash or
deferred arrangement (as defined in Code Section 401(k)), a
simplified employee pension (as defined in Code Section 408(k)),
a salary reduction arrangement (within the meaning of Code
Section 312l(a)(5)(D)), a deferred compensation plan under Code
Section 457, or a trust described in Code Section 501(c)(18)
cumulatively exceed the limitation imposed by Code Section 402(g)
(as adjusted annually in accordance with the method provided in
Code Section 415(d) pursuant to Regulations) for such
Participant's taxable year, the Participant may, not later than
March 1 following the close of the Participant's taxable year,
notify the Administrator in writing of such excess and request
that his Deferred Compensation under this Plan be reduced by an
amount specified by the Participant. In such event, the
Administrator may direct the Trustee to distribute such excess
amount (and any Income allocable to such excess amount) to the
Participant not later than the first April 15th following the
close of the Participant's taxable year. Distributions in
accordance with this paragraph may be made for any taxable year
of the Participant which begins after December 31, 1986. Any
distribution of less than the entire amount of Excess Deferred
Compensation and Income shall be treated as a pro rata
distribution of Excess Deferred Compensation and Income. The
amount distributed shall not exceed the Participant's Deferred
Compensation under the Plan for the taxable year. Any
distribution on or before the last day of the Participant's
taxable year must satisfy each of the following conditions:
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(1) the distribution must be made after the date on which the Plan
received the Excess Deferred Compensation;
(2) the Participant shall designate the distribution as Excess Deferred
Compensation; and
(3) the Plan must designate the distribution as a distribution of Excess
Deferred Compensation.
Matching contributions which relate to Excess Deferred Compensation which
is distributed pursuant to this Section 4.2(f) shall be forfeited.
(g) Notwithstanding Section 4.2(f) above, a Participant's Excess
Deferred Compensation shall be reduced, but not below zero, by any
distribution of Excess Contributions pursuant to Section 4.6(a) for
the Plan Year beginning with or within the taxable year of the
Participant.
(h) At Normal Retirement Date, or such other date when the
Participant shall be entitled to receive benefits, the fair market
value of the Participant's Elective Account shall be used to provide
additional benefits to the Participant or his Beneficiary.
(i) All amounts allocated to a Participant's Elective Account
may be treated as a Directed Investment Account pursuant to Section
4.12.
(j) Employer Elective Contributions made pursuant to this
Section may be segregated into a separate account for each Participant
in a federally insured savings account, certificate of deposit in a
bank or savings and loan association, money market certificate, or
other short-term debt security acceptable to the Trustee until such
time as the allocations pursuant to Section 4.4 have been made.
(k) The Employer and the Administrator shall implement the
salary reduction elections provided for herein in accordance with the
following:
(1) A Participant may commence making elective deferrals to
the Plan only after first satisfying the eligibility and
participation requirements specified in Article III. However, the
Participant must make his initial salary deferral
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<PAGE>
election within a reasonable time, not to exceed thirty (30)
days, after entering the Plan pursuant to Section 3.3. If the
Participant fails to make an initial salary deferral election
within such time, then such Participant may thereafter make an
election in accordance with the rules governing modifications.
The Participant shall make such an election by entering into a
written salary reduction agreement with the Employer and filing
such agreement with the Administrator. Such election shall
initially be effective beginning with the pay period following
the acceptance of the salary reduction agreement by the
Administrator, shall not have retroactive effect and shall remain
in force until revoked.
(2) A Participant may modify a prior election at any time
during the Plan Year and concurrently make a new election by
filing a written notice with the Administrator within a
reasonable time before the pay period for which such modification
is to be effective. Any modification shall not have retroactive
effect and shall remain in force until revoked.
(3) A Participant may elect to prospectively revoke his
salary reduction agreement in its entirety at any time during the
Plan Year by providing the Administrator with thirty (30) days
written notice of such revocation (or upon such shorter notice
period as may be acceptable to the Administrator). Such
revocation shall become effective as of the beginning of the
first pay period coincident with or next following the expiration
of the notice period. Furthermore, the termination of the
Participant's employment, or the cessation of participation for
any reason, shall be deemed td revoke any salary reduction
agreement then in effect, effective immediately following the
close of the pay period within which such termination or
cessation occurs.
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<PAGE>
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to the
Plan for each Plan Year within the time prescribed by law, including extensions
of time, for the filing of the Employer's federal income tax return for the
Fiscal Year.
However, Employer Elective Contributions accumulated through payroll
deductions shall be paid to the Trustee as of the earliest date on which such
contributions can reasonably be segregated from the Employer's general assets,
but in any event within ninety (90) days from the date on which such amounts
would otherwise have been payable to the Participant in cash. The provisions of
Department of Labor regulations 2510.3-102 are incorporated herein by reference.
Furthermore, any additional Employer contributions which are allocable to the
Participant's Elective Account for a Plan Year shall be paid to the Plan no
later than the twelve-month period immediately following the close of such Plan
Year.
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an
account in the name of each Participant to which the
Administrator shall credit as of each Anniversary Date all
amounts allocated to each such Participant as set forth herein.
(b) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper
allocation of the Employer's contributions for each Plan Year.
Within a reasonable period of time after the date of receipt by
the Administrator of such information, the Administrator shall
allocate such contribution as follows:
(1) With respect to the Employer's Elective
Contribution made pursuant to Section 4.1(a), to each
Participant's Elective Account in an amount equal to each
such Participant's Deferred Compensation for the year.
(2) With respect to the Employer's Non-Elective
Contribution made pursuant to Section 4.1(b), to each
Participant's Account in accordance with Section 4.1(b).
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<PAGE>
Only Participants who have completed a Year of Service
during the Plan Year shall be eligible to share in the
matching contribution for the year.
(3) With respect to the Employer's Non-Elective
Contribution made pursuant to Section 4.1(c), to each
Participant's Account in the same proportion that each such
Participant's Compensation for the year bears to the total
Compensation of all Participants for such year.
Only Participants who have completed a Year of Service
during the Plan Year and are actively employed on the last
day of the Plan Year shall be eligible to share in the
discretionary contribution for the year.
(c) As of each Anniversary Date any amounts which became
Forfeitures since the last Anniversary Date shall first be made
available to reinstate previously forfeited account balances of
Former Participants, if any, in accordance with Section
6.4(f)(2). The remaining Forfeitures, if any, shall be used to
reduce the contribution of the Employer hereunder for the Plan
Year in which such Forfeitures occur in the following manner:
(1) Forfeitures attributable to Employer matching
contributions made pursuant to Section 4.1(b) shall be used
to reduce the Employer's contribution for the Plan Year in
which such Forfeitures occur.
(2) Forfeitures attributable to Employer discretionary
contributions made pursuant to Section 4.1(c) shall be used
to reduce the Employer's contribution for the Plan Year in
which such Forfeitures occur.
(d) For any Top Heavy Plan Year, Non-Key Employees not
otherwise eligible to share in the allocation of contributions as
provided above, shall receive the minimum allocation provided for
in Section 4.4(h) if eligible pursuant to the provisions of
Section 4.4(j).
(e) Notwithstanding the foregoing, Participants who are not
actively employed on the last day of the Plan Year due to
Retirement (Early, Normal or Late),
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<PAGE>
Total and Permanent Disability or death shall share in the
allocation of contributions for that Plan Year.
(f) As of each Anniversary Date or other valuation date,
before the current valuation period allocation of Employer
contributions and after allocation of Forfeitures, any earnings
or losses (net appreciation or net depreciation) of the Trust
Fund shall be allocated in the same proportion that each
Participant's and Former Participant's nonsegregated accounts
bear to the total of all Participants' and Former Participants'
nonsegregated accounts as of such date.
Participants' transfers from other qualified plans deposited
in the general Trust Fund shall share in any earnings and losses
(net appreciation or net depreciation) of the Trust Fund in the
same manner provided above. Each segregated account maintained on
behalf of a Participant shall be credited or charged with its
separate earnings and losses.
(g) Participants' accounts shall be debited for any
insurance or annuity premiums paid, if any, and credited with any
dividends received on insurance contracts.
(h) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the
sum of the Employer's contributions allocated to the
Participant's Combined Account of each Non-Key Employee shall be
equal to at least three percent (3%) of such Non-Key Employee's
"415 Compensation" (reduced by contributions and forfeitures, if
any, allocated to each Non-Key Employee in any defined
contribution plan included with this plan in a Required
Aggregation Group). However, if (1) the sum of the Employer's
contributions allocated to the Participant's Combined Account of
each Key Employee for such Top Heavy Plan Year is less than three
percent (3%) of each Key Employee's "415 Compensation" and (2)
this Plan is not required to be included in an Aggregation Group
to enable a defined benefit plan to meet the requirements of Code
Section 401(a)(4) or 410, the sum of the Employer's contributions
allocated to the Participant's Combined Account of each Non-Key
Employee shall be equal to the largest percentage allocated to
the Participant's Combined Account of any Key Employee. However,
in determining whether a Non-Key Employee has received the
44
<PAGE>
required minimum allocation, such Non-Key Employee's Deferred
Compensation and matching contributions needed to satisfy the
"Actual Contribution Percentage" tests pursuant to Section 4.7(a)
shall not be taken into account.
However, no such minimum allocation shall be required in
this Plan for any Non-Key Employee who participates in another
defined contribution plan subject to Code Section 412 providing
such benefits included with this Plan in a Required Aggregation
Group.
(i) For purposes of the minimum allocations set forth
above, the percentage allocated to the Participant's Combined
Account of any Key Employee shall be equal to the ratio of the
sum of the Employer's contributions allocated on behalf of such
Key Employee divided by the "415 Compensation" for such Key
Employee.
(j) For any Top Heavy Plan Year, the minimum allocations
set forth above shall be allocated to-the Participant's Combined
Account of all Non-Key Employees who are Participants and who are
employed by the Employer on the last day of the Plan Year,
including Non-Key Employees who have (1) failed to complete a
Year of Service; and (2) declined to make mandatory contributions
(if required) or, in the case of a cash or deferred arrangement,
elective contributions to the Plan.
(k) For the purposes of this Section, "415 Compensation"
shall be limited to $200,000. Such amount shall be adjusted at
the same time and in the same manner as permitted under Code
Section 415(d), except that the dollar increase in effect on
January 1 of any calendar year shall be effective for the Plan
Year beginning with or within such calendar year and the first
adjustment to the $200,000 limitation shall be effective on
January 1, 1990. For any short Plan Year the "415 Compensation"
limit shall be an amount equal to the "415 Compensation" limit
for the calendar year in which the Plan Year begins multiplied by
the ratio obtained by dividing the number of full months in the
short Plan Year by twelve (12). However, for Plan Years beginning
prior to January 1, 1989, the $200,000 limit shall apply only for
Top Heavy Plan Years and shall not be adjusted.
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<PAGE>
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the
contrary, for Plan Years beginning on or after January 1, 1994,
the annual Compensation of each Employee taken into account under
the Plan shall not exceed the OBRA '93 annual compensation limit.
The OBRA '93 annual compensation limit is $150,000, as adjusted
by the Commissioner for increases in the cost of living in
accordance with Code Section 401(a)(17)(B). The cost of living
adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA
'93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under Code Section
401(a)(17) shall mean the OBRA '93 annual compensation limit set
forth in this provision.
If Compensation for any prior determination period is taken
into account in determining an Employee's benefits accruing in
the current Plan Year, the Compensation for that prior
determination period is subject to the OBRA '93 annual
compensation limit in effect for that prior determination period.
For this purpose, for determination periods beginning before the
first day of the first Plan Year beginning on or after January 1,
1994, the OBRA '93 annual compensation limit is $150,000.
(l) Notwithstanding anything herein to the contrary,
Participants who terminated employment for any reason during the
Plan Year shall share in the salary reduction contributions made
by the Employer for the year of termination without regard to the
Hours of Service credited.
(m) If a Former Participant is reemployed after five (5)
consecutive 1-Year Breaks in Service, then separate accounts
shall be maintained as follows:
(1) one account for nonforfeitable benefits
attributable to pre-break service; and
46
<PAGE>
(2) one account representing his status in the Plan
attributable to post-break service.
(n) Notwithstanding anything to the contrary, for Plan
Years beginning after December 31, 1989, if this is a Plan that
would otherwise fail to meet the requirements of Code Sections
401(a)(26), 410(b)(1) or 410(b)(2)(A)(i) and the Regulations
thereunder because Employer contributions would not be allocated
to a sufficient number or percentage of Participants for a Plan
Year, then the following rules shall apply:
(1) The group of Participants eligible to share in the
Employer's contribution for the Plan Year shall be expanded
to include the minimum number of Participants who would not
otherwise be eligible as are necessary to satisfy the
applicable test specified above. The specific Participants
who shall become eligible under the terms of this paragraph
shall be those who are actively employed on the last day of
the Plan Year and, when compared to similarly situated
Participants, have completed the greatest number of Hours of
Service in the Plan Year.
(2) If after application of paragraph (1) above, the
applicable test is still not satisfied, then the group of
Participants eligible to share in the Employer's
contribution for the Plan Year shall be further expanded to
include the minimum number of Participants who are not
actively employed on the last day of the Plan Year as are
necessary to satisfy the applicable test. The specific
Participants who shall become eligible to share shall be
those Participants, when compared to similarly situated
Participants, who have completed the greatest number of
Hours of Service in the Plan Year before terminating
employment.
(3) Nothing in this Section shall permit the reduction
of a Participant's accrued benefit. Therefore any amounts
that have previously been allocated to Participants may not
be reallocated to satisfy these requirements. In such event,
the Employer shall make an additional contribution equal to
the amount such affected Participants would have received
had they been included in the allocations, even if it
exceeds the amount which
47
<PAGE>
would be deductible under Code Section 404. Any adjustment
to the allocations pursuant to this paragraph shall be
considered a retroactive amendment adopted by the last day
of the Plan Year.
(4) Notwithstanding the foregoing, for any Top Heavy
Plan Year beginning after December 31, 1992, if the portion
of the Plan which is not a Code Section 401(k) or 401(m)
plan would fail to satisfy Code Section 410(b) if the
coverage tests were applied by treating those Participants
whose only allocation (under such portion of the Plan) would
otherwise be provided under the top heavy formula as if they
were not currently benefiting under the Plan, then, for
purposes of this Section 4.4(n), such Participants shall be
treated as not benefiting and shall therefore be eligible to
be included in the expanded class of Participants who will
share in the allocation provided under the Plan s non top
heavy formula.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year beginning
after December 31, 1986, the annual allocation derived from
Employer Elective Contributions to a Participant's Elective
Account shall satisfy one of the following tests:
(1) The "Actual Deferral Percentage" for the Highly
Compensated Participant group shall not be more than the
"Actual Deferral Percentage" of the Non-Highly Compensated
Participant group multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for
the Highly Compensated Participant group over the "Actual
Deferral Percentage" for the Non-Highly Compensated
Participant group shall not be more than two percentage
points. Additionally, the "Actual Deferral Percentage" for
the Highly Compensated Participant group shall not exceed
the "Actual Deferral Percentage" for the Non-Highly
Compensated Participant group multiplied by 2. The
provisions of Code Section 401(k)(3) and Regulation 1.401(k)
-1(b) are incorporated herein by reference.
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<PAGE>
However, for Plan Years beginning after December 31,
1988, in order to prevent the multiple use of the
alternative method described in (2) above and in Code
Section 40l(m)(9)(A), any Highly Compensated Participant
eligible to make elective deferrals pursuant to Section 4.2
and to make Employee contributions or to receive matching
contributions under this Plan or under any other plan
maintained by the Employer or an Affiliated Employer shall
have his actual contribution ratio reduced pursuant to
Regulation 1.401(m)-2, the provisions of which are
incorporated herein by reference.
(b) For the purposes of this Section "Actual Deferral
Percentage" means, with respect to the Highly Compensated
Participant group and Non-Highly Compensated Participant group
for a Plan Year, the average of the ratios, calculated separately
for each Participant in such group, of the amount of Employer
Elective Contributions allocated to each Participant's Elective
Account for such Plan Year, to such Participant's "414(s)
Compensation" for such Plan Year. The actual deferral ratio for
each Participant and the "Actual Deferral Percentage" for each
group shall be calculated to the nearest one-hundredth of one
percent for Plan Years beginning after December 31, 1988.
Employer Elective Contributions allocated to each Non-Highly
Compensated Participant's Elective Account shall be reduced by
Excess Deferred Compensation to the extent such excess amounts
are made under this Plan or any other plan maintained by the
Employer.
(c) For the purpose of determining the actual deferral
ratio of a Highly Compensated Employee who is subject to the
Family Member aggregation rules of Code Section 414(q)(6) because
such Participant is either a "five percent owner" of the Employer
or one of the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, the following shall
apply:
(1) The combined actual deferral ratio for the family
group (which shall be treated as one Highly Compensated
Participant) shall be determined by aggregating Employer
Elective Contributions and "414(s) Compensation" of all
eligible Family Members (including Highly Compensated
Participants). However, in applying
49
<PAGE>
the $200,000 limit to "414(s) Compensation," for Plan Years
beginning after December 31, 1988, Family Members shall
include only the affected Employee's spouse and any lineal
descendants who have not attained age 19 before the close of
the Plan Year. Notwithstanding the foregoing, with respect
to Plan Years beginning prior to January 1, 1990, compliance
with the Regulations then in effect shall be deemed to be
compliance with this paragraph.
(2) The Employer Elective Contributions and 414(s)
Compensation" of all Family Members shall be disregarded for
purposes of determining the "Actual Deferral Percentage" of
the Non-Highly Compensated Participant group except to the
extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a
member of more than one family group in a plan, all
Participants who are members of those family groups that
include the Participant are aggregated as one family group
in accordance with paragraphs (1) and (2) above.
(d) For the purposes of Sections 4.5(a) and 4.6, a Highly
Compensated Participant and a Non-Highly Compensated Participant
shall include any Employee eligible to make a deferral election
pursuant to Section 4.2, whether or not such deferral election
was made or suspended pursuant to Section 4.2.
(e) For the purposes of this Section and Code Sections
401(a)(4), 410(b) and 401(k), if two or more plans which include
cash or deferred arrangements are considered one plan for the
purposes of Code Section 401(a)(4) or 410(b) (other than Code
Section 410(b)(2)(A)(ii) as in effect for Plan Years beginning
after December 31, 1988), the cash or deferred arrangements
included in such plans shall be treated as one arrangement. In
addition, two or more cash or deferred- arrangements may be
considered as a single arrangement for purposes of determining
whether or not such arrangements satisfy Code Sections 401(a)(4),
410(b) and 401(k). In such a case, the cash or deferred
arrangements included in such plans and the plans including such
arrangements shall be treated as one arrangement and as one plan
for purposes of this Section and Code Sections 401(a)(4), 410(b)
and 401(k).
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<PAGE>
Plans may be aggregated under this paragraph (e) for Plan
Years beginning after December 31, 1989 only if they have the
same plan year.
Notwithstanding the above, for Plan Years beginning after
December 31, 1988, an employee stock ownership plan described in
Code Section 4975(e)(7) or 409 may not be combined with this Plan
for purposes of determining whether the employee stock ownership
plan or this Plan satisfies this Section and Code Sections
401(a)(4), 410(b) and 401(k).
(f) For the purposes of this Section, if a Highly
Compensated Participant is a Participant under two or more cash
or deferred arrangements (other than a cash or deferred
arrangement which is part of an employee stock ownership plan as
defined in Code Section 4975(e)(7) or 409 for Plan Years
beginning after December 31, 1988) of the Employer or an
Affiliated Employer, all such cash or deferred arrangements shall
be treated as one cash or deferred arrangement for the purpose of
determining the actual deferral ratio with respect to such Highly
Compensated Participant. However, for Plan Years beginning after
December 31, 1988, if the cash or deferred arrangements have
different plan years, this paragraph shall be applied by treating
all cash or deferred arrangements ending with or within the same
calendar year as a single arrangement.
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's Elective
Contributions made pursuant to Section 4.4 do not satisfy one of the tests
set-forth in Section 4.5(a) for Plan Years beginning after December 31, 1986,
the Administrator shall adjust Excess Contributions pursuant to the options set
forth below:
(a) On or before the fifteenth day of the third month
following the end of each Plan Year, the Highly Compensated
Participant having the highest actual deferral ratio shall have
his portion of Excess Contributions distributed to him until one
of the tests set forth in Section 4.5(a) is satisfied, or until
his actual deferral ratio equals the actual deferral ratio of the
Highly Compensated Participant having the second highest actual
deferral ratio. This process shall continue until one of the
tests set forth in Section
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<PAGE>
4.5(a) is satisfied. For each Highly Compensated Participant, the
amount of Excess Contributions is equal to the Elective
Contributions on behalf of such Highly Compensated Participant
(determined prior to the application of this paragraph) minus the
amount determined by multiplying the Highly Compensated
Participant's actual deferral ratio (determined after application
of this paragraph) by his "414(s) Compensation." However, in
determining the amount of Excess Contributions to be distributed
with respect to an affected Highly Compensated Participant as
determined herein, such amount shall be reduced by any Excess
Deferred Compensation previously distributed to such affected
Highly Compensated Participant for his taxable year ending with
or within such Plan Year.
(1) With respect to the distribution of Excess
Contributions pursuant to (a) above, such distribution:
(i) may be postponed but not later than the
close of the Plan Year following the Plan Year to which
they are allocable;
(ii) shall cause matching contributions which
relate to such Deferred Compensation to be forfeited;
(iii) shall be adjusted for Income; and
(iv) shall be designated by the Employer as a
distribution of Excess Contributions (and Income).
(2) Any distribution of less than the entire amount of
Excess Contributions shall be treated as a pro rata
distribution of Excess Contributions and Income.
(3) The determination and correction of Excess
Contributions of a Highly Compensated Participant whose
actual deferral ratio is determined under the family
aggregation rules shall be accomplished by reducing the
actual deferral ratio as required herein, and the Excess
Contributions for the family unit shall then be allocated
among the Family Members in proportion to the Elective
Contributions of each Family Member that were combined to
determine the group actual deferral ratio. Notwithstanding
the
52
<PAGE>
foregoing, with respect to Plan Years beginning prior to
January 1, 1990, compliance with the Regulations then in effect
shall be deemed to be compliance with this paragraph.
(b) Within twelve (12) months after the end of the Plan
Year, the Employer may make a special Qualified Non-Elective
Contribution on behalf of Non-Highly Compensated Participants in
an amount sufficient to satisfy one of the tests set forth in
Section 4.5(a). Such contribution shall be allocated to the
Participant's Elective Account of each Non-Highly Compensated
Participant in the same proportion that each Non-Highly
Compensated Participant's Compensation for the year bears to the
total Compensation of all Non-Highly Compensated Participants.
(c) If during a Plan Year the projected aggregate amount of
Elective Contributions to be allocated to all Highly Compensated
Participants under this Plan would, by virtue of the tests set
forth in Section 4.5(a), cause the Plan to fail such tests, then
the Administrator may automatically reduce proportionately or in
the order provided in Section 4.6(a) each affected Highly
Compensated Participant's deferral election made pursuant to
Section 4.2 by an amount necessary to satisfy one of the tests
set forth in Section 4.5(a).
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage" for Plan Years
beginning after December 31, 1986 for the Highly Compensated
Participant group shall not exceed the greater of:
(1) 125 percent of such percentage for the Non-Highly
Compensated Participant group; or
(2) the lesser of 200 percent of such percentage for
the Non-Highly Compensated Participant group, or such
percentage for the Non-Highly Compensated Participant group
plus 2 percentage points. However, for Plan Years beginning
after December 31, 1988, to prevent the multiple use of the
alternative method described in this paragraph and Code
Section 401('m)(9)(A), any Highly Compensated Participant
eligible to make elective deferrals pursuant to Section 4.2
or any
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<PAGE>
other cash or deferred arrangement maintained by the
Employer or an Affiliated Employer and to make Employee
contributions or to receive matching contributions under
this Plan or under any other plan maintained by the Employer
or an Affiliated Employer shall have his actual contribution
ratio reduced pursuant to Regulation 1.401(m)-2. The
provisions of Code Section 401(m) and Regulations
1.401(m)-1(b) and 1.401(m)-2 are incorporated herein by
reference.
(b) For the purposes of this Section and Section
4.8, "Actual Contribution Percentage" for a Plan Year means,
with respect to the Highly Compensated Participant group and
Non-Highly Compensated Participant group, the average of the
ratios (calculated separately for each Participant in each group)
of:
(1) the sum of Employer matching contributions made
pursuant to Section 4.1(b) on behalf of each such
Participant for such Plan Year; to
(2) the Participant's "414(s) Compensation" for such
Plan Year.
(c) For purposes of determining the "Actual Contribution
Percentage" and the amount of Excess Aggregate Contributions
pursuant to Section 4.8(d), only Employer matching contributions
(excluding Employer matching contributions forfeited pursuant to
Sections 4.2(f) and 4.6(a)(1) or forfeited pursuant to Section
4.8(a)) contributed to the Plan prior to the end of the
succeeding Plan Year shall be considered. In addition, the
Administrator may elect to take into account, with respect to
Employees eligible to have Employer matching contributions
pursuant to Section 4.1(b) allocated to their accounts, elective
deferrals (as defined in Regulation 1.402(g)-1(b)) and qualified
non-elective contributions (as defined in Code Section
401(m)(4)(C)) contributed to any plan maintained by the Employer.
Such elective deferrals and qualified non-elective contributions
shall be treated as Employer matching contributions subject to
Regulation 1.401(m)-1(b)(5) which is incorporated herein by
reference. However, for Plan Years beginning after December 31,
1988, the Plan Year must be the same as -the plan year of the
plan to which the elective deferrals and the qualified
non-elective contributions are made.
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(d) For the purpose of determining the actual contribution
ratio of a Highly Compensated Employee who is subject to the
Family Member aggregation rules of Code Section 414(q)(6) because
such Employee is either a "five percent owner" of the Employer or
one of the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, the following shall
apply:
(1) The combined actual contribution ratio for the
family group (which shall be treated as one Highly
Compensated Participant) shall be determined by aggregating
Employer matching contributions made pursuant to Section
4.1(b) and "414(s) Compensation" of all eligible Family
Members (including Highly Compensated Participants).
However, in applying the $200,000 limit to "414(s)
Compensation" for Plan Years beginning after December 31,
1988, Family Members shall include only the affected
Employee's spouse and any lineal descendants who have not
attained age 19 before the close of the Plan Year.
Notwithstanding the foregoing, with respect to Plan Years
beginning prior to January 1, 1990, compliance with the
Regulations then in effect shall be deemed to be compliance
with this paragraph.
(2) The Employer matching contributions made pursuant
to Section 4.1(b) and "414(s) Compensation" of all Family
Members shall be disregarded for purposes of determining the
"Actual Contribution Percentage" of the Non-Highly
Compensated Participant group except to the extent taken
into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a
member of more than one family group in a plan, all
Participants who are members of those family groups that
include the Participant are aggregated as one family group
in accordance with paragraphs (1) and (2) above.
(e) For purposes of this Section and Code Sections
401(a)(4), 410(b) and 401(m), if two or more plans of the
Employer to which matching contributions, Employee contributions,
or both, are made are treated as one plan for purposes of Code
Sections 401(a)(4) or
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410(b) (other than the average benefits test under Code
Section 410(b)(2)(A)(ii) as in effect for Plan Years beginning
after December 31, 1988), such plans shall be treated as one
plan. In addition, two or more plans of the Employer to which
matching contributions, Employee contributions, or both, are made
may be considered as a single plan for purposes of determining
whether or not such plans satisfy Code Sections 401(a)(4), 410(b)
and 401(m). In such a case, the aggregated plans must satisfy
this Section and Code Sections 401(a)(4), 410(b) and 401(m) as
though such aggregated plans were a single plan. Plans may be
aggregated under this paragraph (e) for Plan Years beginning
after December 31, 1988, only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning after
December 31, 1988, an employee stock ownership plan described in
Code Section 4975(e)(7) or 409 may not be aggregated with this
Plan for purposes of determining whether the employee stock
ownership plan or this Plan satisfies this Section and Code
Sections 401(a)(4), 410(b) and 401(m).
(f) If a Highly Compensated Participant is a Participant
under two or more plans (other than an employee stock ownership
plan as defined in Code Section 4975(e)(7) or 409 for Plan Years
beginning after December 31, 1988) which are maintained by the
Employer or an Affiliated Employer to which matching
contributions, Employee contributions, or both, are made, all
such contributions on behalf of such Highly Compensated
Participant shall be aggregated for purposes of determining such
Highly Compensated Participant's actual contribution ratio.
However, for Plan Years beginning after December 31, 1988, if the
plans have different plan years, this paragraph shall be applied
by treating all plans ending with or within the same calendar
year as a single plan.
(g) For purposes of Sections 4.7(a) and 4.8, a Highly
Compensated Participant and Non-Highly Compensated Participant
shall include any Employee eligible to have Employer matching
contributions pursuant to Section 4.1(b) (whether or not a
deferral election was made or suspended pursuant to Section
4.2(e)) allocated to his account for the Plan Year.
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4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that, for Plan Years beginning after
December 31, 1986, the "Actual Contribution Percentage" for the
Highly Compensated Participant group exceeds the "Actual
Contribution Percentage" for the Non-Highly Compensated
Participant group pursuant to Section 4.7(a), the Administrator
(on or before the fifteenth day of the third month following the
end of the Plan Year, but in no event later than the close of the
following Plan Year) shall direct the Trustee to distribute to
the Highly Compensated Participant having the highest actual
contribution ratio, his Vested portion of Excess Aggregate
Contributions (and Income allocable to such contributions) and,
if forfeitable, forfeit such non-Vested Excess Aggregate
Contributions attributable to Employer matching contributions
(and Income allocable to such forfeitures) until either one of
the tests set forth in Section 4.7(a) is satisfied, or until his
actual contribution ratio equals the actual contribution ratio of
the Highly Compensated Participant having the second highest
actual contribution ratio. This process shall continue until one
of the tests set forth in Section 4.7(a) is satisfied.
(b) Any distribution and/or forfeiture of less than the
entire amount of Excess Aggregate Contributions (and Income)
shall be treated as a pro rata distribution and/or forfeiture of
Excess Aggregate Contributions and Income. Distribution of Excess
Aggregate Contributions shall be designated by the Employer as a
distribution of Excess Aggregate Contributions (and Income).
Forfeitures of Excess Aggregate Contributions' shall be treated
in accordance with Section 4.4.
(c) Excess Aggregate Contributions, including forfeited
matching contributions, shall be treated as Employer
contributions for purposes of Code Sections 404 and 415 even if
distributed from the Plan.
Forfeited matching contributions that are reallocated to
Participants' Accounts for the Plan Year in which the forfeiture
occurs shall be treated as an "annual addition" pursuant to
Section 4.9(b) for the Participants to whose Accounts they are
reallocated and for the Participants from whose Accounts they are
forfeited.
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(d) For each Highly Compensated Participant, the amount of
Excess Aggregate Contributions is equal to the Employer matching
contributions made pursuant to Section 4.1(b) and any qualified
non-elective contributions or elective deferrals taken into
account pursuant to Section 4.7(c) on behalf of the Highly
Compensated Participant (determined prior to the application of
this paragraph) minus the amount determined by multiplying the
Highly Compensated Participant's actual contribution ratio
(determined after application of this paragraph) by his "414(s)
Compensation." The actual contribution ratio must be rounded to
the nearest one-hundredth of one percent for Plan Years beginning
after December 31, 1988. In no case shall the amount of Excess
Aggregate Contribution with respect to any Highly Compensated
Participant exceed the amount of Employer matching contributions
made pursuant to Section 4.1(b) and any qualified non-elective
contributions or elective deferrals taken into account pursuant
to Section 4.7(c) on behalf of such Highly Compensated
Participant for such Plan Year.
(e) The determination of the amount of Excess Aggregate
Contributions with respect to any Plan Year shall be made after
first determining the Excess Contributions, if any, to be treated
as voluntary Employee contributions due to recharacterization for
the plan year of any other qualified cash or deferred arrangement
(as defined in Code Section 401(k)) maintained by the Employer
that ends with or within the Plan Year.
(f) If the determination and correction of Excess Aggregate
Contributions of a Highly Compensated Participant whose actual
contribution ratio is determined under the family aggregation
rules, then the actual contribution ratio shall be reduced and
the Excess Aggregate Contributions for the family unit shall be
allocated among the Family Members in proportion to the sum of
Employer matching contributions made pursuant to Section 4.1(b)
and any qualified non-elective contributions or elective
deferrals taken into account pursuant to Section 4.7(c) of each
Family Member that were combined to determine the group actual
contribution ratio. Notwithstanding the foregoing, with respect
to Plan Years beginning prior to January 1, 1990, compliance with
the Regulations then in effect shall be deemed to be compliance
with this paragraph.
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(g) If during a Plan Year the projected aggregate amount of
Employer matching contributions to be allocated to all Highly
Compensated Participants under this Plan would, by virtue of the
tests set forth in Section 4.7(a), cause the Plan to fail such
tests, then the Administrator may automatically reduce
proportionately or in the order provided in Section 4.8(a) each
affected Highly Compensated Participant's projected share of such
contributions by an amount necessary to satisfy one of the tests
set forth in Section 4.7(a).
(h) Notwithstanding the above, within twelve (12) months
after the end of the Plan Year, the Employer may make a special
Qualified Non-Elective Contribution on behalf of Non-Highly
Compensated Participants in an amount sufficient to satisfy one
of the tests set forth in Section 4.7(a). Such contribution shall
be allocated to the Participant's Elective Account of each
Non-Highly Compensated Participant in the same proportion that
each Non-Highly Compensated Participant's Compensation for the
year bears to the total Compensation of all Non-Highly
Compensated Participants. A separate accounting shall be
maintained for the purpose of excluding such contributions from
the "Actual Deferral Percentage" tests pursuant to Section
4.5(a).
4.9 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual
additions" credited to a Participant's accounts for any
"limitation year" shall equal the lesser of: (1) $30,000 (or, if
greater, one-fourth of the dollar limitation in effect under Code
Section 415(b)(1)(A)) or (2) twenty-five percent (25%) of the
Participant's "415 Compensation" for such "limitation year." For
any short "limitation year," the dollar limitation in (1) above
shall be reduced by a fraction, the numerator of which is the
number of full months in the short "limitation year" and the
denominator of which is twelve (12).
(b) For purposes of applying the limitations of Code
Section 415, "annual additions" means the sum credited to a
Participant's accounts for any "limitation year" of (1) Employer
contributions, (2) Employee contributions for "limitation years"
beginning after December 31, 1986, (3) forfeitures,
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(4) amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Code Section 415(l)(2) which is
part of a pension or annuity plan maintained by the Employer and
(5) amounts derived from contributions paid or accrued after
December 31, 1985, in taxable years ending after such date, which
are attributable to post-retirement medical benefits allocated to
the separate account of a key employee (as defined in Code
Section 419A(d)(3)) under a welfare benefit plan (as defined in
Code Section 419(e)) maintained by the Employer. Except, however,
the "415 Compensation" percentage limitation referred to in
paragraph (a) (2) above shall not apply to: (1) any contribution
for medical benefits (within the meaning of Code Section
419A(f)(2)) after separation from service which is otherwise
treated as an "annual addition," or (2) any amount otherwise
treated as an "annual addition" under Code Section 415(l)(1).
(c) For purposes of applying the limitations of Code
Section 415, the transfer of funds from one qualified plan to
another is not an "annual addition." In addition, the following
are not Employee contributions for the purposes of Section
4.9(b)(2): (1) rollover contributions (as defined in Code
Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (2)
repayments of loans made to a Participant from the Plan; (3)
repayments of distributions received by an Employee pursuant to
Code Section 411(a)(7)(B) (cash-outs); (4) repayments of
distributions received by an Employee pursuant to Code Section
411(a)(3)(D) (mandatory contributions); and (5) Employee
contributions to a simplified employee pension excludable from
gross income under Code Section 408(k) (6).
(d) For purposes of applying the limitations of Code
Section 415, the "limitation year" shall be the Plan Year.
(e) The dollar limitation under Code Section 415(b)(1)(A)
stated in paragraph (a)(1) above shall be adjusted annually as
provided in Code Section 415(d) pursuant to the Regulations. The
adjusted limitation is effective as of January 1st of each
calendar year and is applicable to "limitation years' ending with
or within that calendar year.
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(f) For the purpose of this Section, all qualified defined
benefit plans (whether terminated or not) ever maintained by the
Employer shall be treated as one defined benefit plan, and all
qualified defined contribution plans (whether terminated or not)
ever maintained by the Employer shall be treated as one defined
contribution plan.
(g) For the purpose of this Section, if the Employer is a
member of a controlled group of corporations, trades or
businesses under common control (as defined by Code Section
1563(a) or Code Section 414(b) and (c) as modified by Code
Section 415(h)), is a member of an affiliated service group (as
defined by Code Section 414(m)), or is a member of a group of
entities required to be aggregated pursuant to Regulations under
Code Section 414(o), all Employees of such Employers shall be
considered to be employed by a single Employer.
(h) For the purpose of this Section, if this Plan is a Code
Section 413(c) plan, all Employers of a Participant who maintain
this Plan will be considered to be a single Employer.
(i)(1) If a Participant participates in more than one
defined contribution plan maintained by the Employer which have
different Anniversary Dates, the maximum "annual additions" under
this Plan shall equal the maximum "annual additions" for the
"limitation year" minus any "annual additions" previously
credited to such Participant's accounts during the "limitation
year.
(2) If a Participant participates in both a defined
contribution plan subject to Code Section 412 and a defined
contribution plan not subject to Code Section 412 maintained
by the Employer which have the same Anniversary Date,
"annual additions" will be credited to the Participant's
accounts under the defined contribution plan subject to Code
Section 412 prior to crediting "annual additions" to the
Participant's accounts under the defined contribution plan
not subject to Code Section 412.
(3) If a Participant participates in more than one
defined contribution plan not subject to Code Section 412
maintained by the Employer which have
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the same Anniversary Date, the maximum "annual additions"
under this Plan shall equal the product of (A) the maximum
'annual additions" for the "limitation year" minus any
"annual additions" previously credited under subparagraphs
(1) or (2) above, multiplied by (,B) a fraction (i) the
numerator of which is the annual additions" which would be
credited to such Participant's accounts under this Plan
without regard to the limitations of Code Section 415 and
(ii) the denominator of which is such "annual additions" for
all plans described in this subparagraph.
(j) If an Employee is (or has been) a Participant in one or
more defined benefit plans and one or more defined contribution
plans maintained by the Employer, the sum of the defined benefit
plan fraction and the defined contribution plan fraction for any
"limitation year" may not exceed 1.0.
(k) The defined benefit plan fraction for any "limitation
year" is a fraction, the numerator of which is the sum of the
Participant's projected annual benefits under all the defined
benefit plans (whether or not terminated) maintained by the
Employer, and the denominator of which is the lesser of 125
percent of the dollar limitation determined for the "limitation
year" under Code Sections 415(b) and (d) or 140 percent of the
highest average compensation, including any adjustments under
Code Section 415(b).
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first "limitation year"
beginning after December 31, 1986, in one or more defined benefit
plans maintained by the Employer which were in existence on May
6, 1986, the denominator of this fraction will not be less than
125 percent of the sum of the annual benefits under such plans
which the Participant had accrued as of the close of the last
"limitation year" beginning before January 1, 1987, disregarding
any changes in the terms and conditions of the plan after May 5,
1986. The preceding sentence applies only if the defined benefit
plans individually and in the aggregate satisfied the
requirements of Code Section .415 for all "limitation years"
beginning before January 1, 1987.
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(I) The defined contribution plan fraction for any
"limitation year" is a fraction, the numerator of which is the
sum of the annual additions to the Participant's Account under
all the defined contribution plans (whether or not terminated)
maintained by the Employer for the current and all prior
"limitation years" (including the annual additions attributable
to the Participant's nondeductible Employee contributions to all
defined benefit plans, whether or not terminated, maintained by
the Employer, and the annual additions attributable to all
welfare benefit funds, as defined in Code Section 419(e), and
individual medical accounts, as defined in Code Section
415(l)(2), maintained by the Employer), and the denominator of
which is the sum of the maximum aggregate amounts for the current
and all prior "limitation years" of service with the Employer
(regardless of whether a defined contribution plan was maintained
by the Employer). The maximum aggregate amount in any "limitation
year" is the lesser of 125 percent of the dollar limitation
determined under Code Sections 415(b) and (d) in effect under
Code Section 415(c)(1)(A) or 35 percent of the Participant's
Compensation for such year.
If the Employee was a Participant as of the end of the first
day of the first "limitation year" beginning after December 31,
1986, in one or more defined contribution plans maintained by the
Employer which were in existence on May 6, 1986, the numerator of
this fraction will be adjusted if the sum of this fraction and
the defined benefit fraction would otherwise exceed 1.0 under the
terms' of this Plan. Under the adjustment, an amount equal to the
product of (1) the excess of the sum of the fractions over 1.0
times (2) the denominator of this fraction, will be permanently
subtracted from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as of
the end of the last "limitation year" beginning before January 1,
1987, and disregarding any changes in the terms and conditions of
the Plan made after May 5, 1986, but using the Code Section 415
limitation applicable to the first "limitation year" beginning on
or after January '1, 1987. The annual addition for any
"limitation year" beginning before January 1, 1987 shall not be
recomputed to treat all Employee contributions as annual
additions.
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(m) Notwithstanding the foregoing, for any "limitation
year" in which the Plan is a Top Heavy Plan, 100 percent shall be
substituted for 125 percent in Sections 4.9(k) and 4.9(l) unless
the extra minimum allocation is being provided pursuant to
Section 4.4. However, for any "limitation year" in which the Plan
is a Super Top Heavy Plan, 100 percent shall be substituted for
125 percent in any event.
(n) Notwithstanding anything contained in this Section to
the contrary, the limitations, adjustments and other requirements
prescribed in this Section shall at all times comply with the
provisions of Code Section 415 and the Regulations thereunder,
the terms of which are specifically incorporated herein by
reference.
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of a reasonable error in estimating a
Participant's Compensation, a reasonable error in determining the
amount of elective deferrals (within the meaning of Code Section
402(g)(3)) that may be made with respect to any Participant under
the limits of Section 4.9 or other facts and circumstances to
which Regulation 1.415-6(b)(6) shall be applicable, the "annual
additions" under this Plan would cause the maximum "annual
additions" to be exceeded for any Participant, the Administrator
shall (1) distribute any elective deferrals (within the meaning
of Code Section 402(g)(3)) or return any voluntary Employee
contributions credited for the "limitation year" to the extent
that the return would reduce the "excess amount" in the
Participant's accounts (2) hold any "excess amount" remaining
after the return of any elective deferrals or voluntary Employee
contributions in a "Section 415 suspense account" (3) use the
"Section 415 suspense account" in the next "limitation year" (and
succeeding "limitation years" if necessary) to reduce Employer
contributions for that Participant if that Participant is covered
by the Plan as of the end of the "limitation year," or if the
Participant is not so covered, allocate and reallocate the
"Section 415 suspense account" in the next "limitation year" (and
succeeding "limitation years" if necessary) to all Participants
in the Plan before any Employer or Employee contributions which
would constitute "annual additions" are made to the Plan for such
"limitation year" (4) reduce Employer contributions to the Plan
for such "limitation year" by the amount of the "Section
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415 suspense account allocated and reallocated during such
"limitation year."
(b) For purposes of this Article, "excess amount" for any
Participant for a "limitation year" shall mean the excess, if
any, of (1) the "annual additions" which would be credited to his
account under the terms of the Plan without regard to the
limitations of Code Section 415 over (2) the maximum "annual
additions" determined pursuant to Section 4.9.
(c) For purposes of this Section, "Section 415 suspense
account" shall mean an unallocated account equal to the sum of
"excess amounts" for all Participants in the Plan during the
"limitation year." The "Section 415 suspense account" shall not
share in any earnings or losses of the Trust Fund.
4.11 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be
transferred from other qualified plans by Employees, provided
that the trust from which such funds are transferred permits the
transfer to be made and the transfer will not jeopardize the tax
exempt status of the Plan or Trust or create adverse tax
consequences for the Employer. The amounts transferred shall be
set up in a separate account herein referred to as a
"Participant's Rollover Account." Such account shall be fully
Vested at all times and shall not be subject to Forfeiture for
any reason.
(b) Amounts in a Participant's Rollover Account shall be
held by the Trustee pursuant to the provisions of this Plan and
may not be withdrawn by, or distributed to the Participant, in
whole or in part, except as provided in paragraphs (c) and (d) of
this Section.
(c) Except as permitted by Regulations (including
Regulation 1.411(d) -4), amounts attributable to elective
contributions (as defined in Regulation 1.401(k)-1(g)(3)),
including amounts treated as elective contributions, which are
transferred from another qualified plan in a plan-to-plan
transfer shall be subject to the distribution limitations
provided for in Regulation 1.401(k)-1(d).
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(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive
benefits, the fair market value of the Participant's Rollover
Account shall be used to provide additional benefits to the
Participant or his Beneficiary. Any distributions of amounts held
in a Participant's Rollover Account shall be made in a manner
which is consistent with and satisfies the provisions of Section
6.5, including, but not limited to, all notice. and consent
requirements of Code Section 411(a)(11) and the Regulations
thereunder. Furthermore, such amounts shall be considered as part
of a Participant's benefit in determining whether an involuntary
cash-out of benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers
made after a valuation date be segregated into a separate account
for each Participant in a federally insured savings account,
certificate of deposit in a bank or savings and loan association,
money market certificate, or other short term debt security
acceptable to the Trustee until such time as the allocations
pursuant to this Plan have been made, at which time they may
remain segregated or be invested as part of the general Trust
Fund, to be determined by the Administrator.
(f) All amounts allocated to a Participant's Rollover
Account may be treated as a Directed Investment Account pursuant
to Section 4.12.
(g) For purposes of this Section, the term "qualified plan"
shall mean any tax qualified plan under Code Section 401(a). The
term "amounts transferred from other qualified plans" shall mean:
(i) amounts transferred to this Plan directly from another
qualified plan; (ii) distributions from another qualified plan
which are eligible rollover distributions and which are either
transferred by the Employee to this Plan within sixty (60) days
following his receipt thereof or are transferred pursuant to a
direct rollover; (iii) amounts transferred to this Plan from a
conduit individual retirement account provided that the conduit
individual retirement account has no assets other than assets
which (A) were previously distributed to the Employee by another
qualified plan as a lump-sum distribution (B) were eligible for
tax-free rollover to a qualified plan and (C) were
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deposited in such conduit individual retirement account
within sixty (60) days of receipt thereof and other than earnings
on said assets; and (iv) amounts distributed to the Employee from
a conduit individual retirement account meeting the requirements
of clause (iii) above, and transferred by the Employee to this
Plan within sixty (60) days of his receipt thereof from such
conduit individual retirement account.
(h) Prior to accepting any transfers to which this Section
applies, the Administrator may require the Employee to establish
that the amounts to be transferred to this Plan meet the
requirements of this Section and may also require the Employee to
provide an opinion of counsel satisfactory to the Employer that
the amounts to be transferred meet the requirements of this
Section.
(i) This Plan shall not accept any direct or indirect
transfers (as that term is defined and interpreted under Code
Section 401(a)(11) and the Regulations thereunder) from a defined
benefit plan, money purchase plan (including a target benefit
plan), stock bonus or profit sharing plan which would otherwise
have provided for a life annuity form of payment to the
Participant.
(j) Notwithstanding anything herein to the contrary, a
transfer directly to this Plan from another qualified plan (or a
transaction having the effect of such a transfer) shall only be
permitted if it will not result in the elimination or reduction
of any "Section 411(d)(6) protected benefit" as described in
Section 8.1.
4.12 DIRECTED INVESTMENT ACCOUNT
(a) The Administrator, in his sole discretion, may
determine that all Participants be permitted to direct the
Trustee as to the investment of all or a portion of the interest
in any one or more of their individual account balances. If such
authorization is given, Participants may, subject to a procedure
established by the Administrator and applied in a uniform
nondiscriminatory manner, direct the Trustee in writing to invest
any portion of their account in specific assets, specific funds
or other investments permitted under the Plan and the directed
investment procedure. That portion of the account of any
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Participant so directing will thereupon be considered a Directed
Investment Account, which shall not share in Trust Fund earnings.
(b) A separate Directed Investment Account shall be
established for each Participant who has directed an investment.
Transfers between the Participant's regular account and his
Directed Investment Account shall be charged and credited as the
case may be to each account The Directed Investment Account
shall not share in Trust Fund earnings, but it shall be charged
or credited as appropriate with the net earnings, gains, losses
and expenses as well as any appreciation or depreciation in
market value during each Plan Year attributable to such account.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary Date,
and at such other date or dates deemed necessary by the Administrator, herein
called "valuation date," to determine the net worth of the assets comprising the
Trust Fund as it exists on the "valuation date." In determining such net worth,
the Trustee shall value the assets comprising the Trust Fund at their fair
market value as of the "valuation date" and shall deduct all expenses for which
the Trustee has not yet obtained reimbursement from the Employer or the Trust
Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust Fund
which are listed on a registered stock exchange, the Administrator shall direct
the Trustee to value the same at the prices they were last traded on such
exchange preceding the close of business on the "valuation date." If such
securities were not traded on the "valuation date," or if the exchange on which
they are traded was not open for business on the "valuation date," then the
securities shall be valued at the prices at which they were last traded prior to
the "valuation date." Any unlisted security held in the Trust Fund shall be
valued at its bid price next preceding the close of business on the "valuation
date," which bid price shall be obtained from a registered broker or an
investment banker. In determining the fair market value of assets other than
securities for which trading or bid prices can be obtained, the Trustee may
appraise such assets itself, or in its discretion, employ one or more
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appraisers for that purpose and rely on the values established by such appraiser
or appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and retire
for the purposes hereof on his Normal Retirement Date or Early Retirement Date.
However, a Participant may postpone the termination of his employment with the
Employer to a later date, in which event the participation of such Participant
in the Plan, including the right to receive allocations pursuant to Section 4.4,
shall continue until his Late Retirement Date. Upon a Participant's Retirement
Date or attainment of his Normal Retirement Date without termination of
employment with the Employer, or as soon thereafter as is practicable, the
Trustee shall distribute all amounts credited to such Participant's Combined
Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement
Date or other termination of his employment, all amounts credited
to such Participant's Combined Account shall become fully Vested.
The Administrator shall direct the Trustee, in accordance with
the provisions of Sections 6.6 and 6.7, to distribute the value
of the deceased Participant's accounts to the Participant's
Beneficiary.
(b) Upon the death of a Former Participant, the
Administrator shall direct the Trustee, in accordance with the
provisions of Sections 6.6 and 6.7, to distribute any remaining
Vested amounts credited to the accounts of a deceased Former
Participant to such Former Participant's Beneficiary.
(c) Any security interest held by the Plan by reason of an
outstanding loan to the Participant or Former Participant shall
be taken into account in determining the amount of the death
benefit.
(d) The Administrator may require such proper proof of
death and such evidence of the right of any person to receive
payment of the value of the account of a deceased Participant or
Former Participant as the
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Administrator may deem desirable. The Administrator's
determination of death and of the right of any person to receive
payment shall be conclusive.
(e) The Beneficiary of the death benefit payable pursuant
to this Section shall be the Participant's spouse. Except,
however, the Participant may designate a Beneficiary other than
his spouse if:
(1) the spouse has waived the right to be the
Participant's Beneficiary, or
(2) the Participant is legally separated or has been
abandoned (within the meaning of local law) and the
Participant has a court order to such effect (and there is
no "qualified domestic relations order" as defined in Code
Section 414(p) which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be
made on a form satisfactory to the Administrator. A Participant
may at any time revoke his designation of a Beneficiary or change
his Beneficiary by filing written notice of such revocation or
change with the Administrator. However, the Participant's spouse
must again consent in writing to any change in Beneficiary unless
the original consent acknowledged that the spouse had the right
to limit consent only to a specific Beneficiary and that the
spouse voluntarily elected to relinquish such right. In the event
no valid designation of Beneficiary exists at the time of the
Participant's death, the death benefit shall be payable to his
estate.
(f) Any consent by the Participant's spouse to waive any
rights to the death benefit must be in writing, must acknowledge
the effect of such waiver, and be witnessed by a Plan
representative or a notary public. Further, the spouse's consent
must be irrevocable and must acknowledge the specific nonspouse
Beneficiary.
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6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to his
Retirement Date or other termination of his employment, all amounts credited to
such Participant's Combined Account shall become fully Vested. In the event of a
Participant's Total and Permanent Disability, the Trustee, in accordance with
the provisions of Sections 6.5 and 6.7, shall distribute to such Participant all
amounts credited to such Participant's Combined Account as though he had
retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or
subsequent to the termination of a Participant's employment for
any reason other than death, Total and Permanent Disability or
retirement, the Administrator may direct the Trustee to segregate
the amount of the Vested portion of such Terminated Participant's
Combined Account and invest the aggregate amount thereof in a
separate, federally insured savings account, certificate of
deposit, common or collective trust fund of a bank or a deferred
annuity. In the event the Vested portion of a Participant's
Combined Account is not segregated, the amount shall remain in a
separate account for the Terminated Participant and share in
allocations pursuant to Section 4.4 until such time as a
distribution is made to the Terminated Participant.
In the event that the amount of the Vested portion of the
Terminated Participant's Combined Account equals or exceeds the
fair market value of any insurance Contracts, the Trustee, when
so directed by the Administrator and agreed to by the Terminated
Participant, shall assign, transfer, and set over to such
Terminated Participant all Contracts on his life in such form or
with such endorsements so that the settlement options and forms
of payment are consistent with the provisions of Section 6.5. In
the event that the Terminated Participant's Vested portion does
not at least equal the fair market value of the Contracts, if
any, the Terminated Participant may pay over to the Trustee the
sum needed to make the distribution equal to the value of the
Contracts being assigned or transferred, or the Trustee, pursuant
to the Participant's election, may borrow the cash value of the
Contracts from the insurer so that the value of the Contracts is
equal to the Vested portion of the
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Terminated Participant's Account and then assign the
Contracts to the Terminated Participant.
Distribution of the funds due to a Terminated Participant
shall be made on the occurrence of an event which would result in
the distribution had the Terminated Participant remained in the
employ of the Employer (upon the Participant's death, Total and
Permanent Disability, Early or Normal Retirement). However, at
the election of the Participant, the Administrator shall direct
the Trustee to cause the entire Vested portion of the Terminated
Participant's Combined Account to be payable to such Terminated
Participant. Any distribution under this paragraph shall be made
in a manner which is consistent with and satisfies the provisions
of Section 6.5, including, but not limited to, all notice and
consent requirements of Code Section 411(a)(11) and the
Regulations thereunder.
If the value of a Terminated Participant's Vested benefit
derived from Employer and Employee contributions does not exceed
$3,500 and has never exceeded $3,500 at the time of any prior
distribution, the Administrator shall direct the Trustee to cause
the entire Vested benefit to be paid to such Participant in a
single lump sum.
For purposes of this Section 6.4, if the value of a
Terminated Participant's Vested benefit is zero, the Terminated
Participant shall be deemed to have received a distribution of
such Vested benefit.
(b) The Vested portion of any Participant's Account shall
be a percentage of the total amount credited to his Participant's
Account determined on the basis of the Participant's number of
Years of Service according to the following schedule:
Vesting Schedule
Years of Service Percentage
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
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(c) Notwithstanding the vesting schedule above, the Vested
percentage of a Participant's Account shall not be less than the
Vested percentage attained as of the later of the effective date
or adoption date of this amendment and restatement.
(d) Notwithstanding the vesting schedule above, upon the
complete discontinuance of the Employer's contributions to the
Plan or upon any full or partial termination of the Plan, all
amounts credited to the account of any affected Participant shall
become 100% Vested and shall not thereafter be subject to
Forfeiture.
(e) The computation of a Participant's nonforfeitable
percentage of his interest in the Plan shall not be reduced as
the result of any direct or indirect amendment to this Plan. For
this purpose, the Plan shall be treated as having been amended if
the Plan provides for an automatic change in vesting due to a
change in top heavy status. In the event that the Plan is amended
to change or modify any vesting schedule, a Participant with at
least three (3) Years of Service as of the expiration date of the
election period may elect to have his nonforfeitable percentage
computed under the Plan without regard to such amendment. If a
Participant fails to make such election, then such Participant
shall be subject to the new vesting schedule. The Participant's
election period shall commence on the adoption date of the
amendment and shall end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice
of the amendment from the Employer or Administrator.
(f)(1) If any Former Participant shall be reemployed by the
Employer before a 1-Year Break in Service occurs, he shall
continue to participate in the Plan in the same manner as if such
termination had not occurred .
(2) If any Former Participant shall be reemployed by
the Employer before five (5) consecutive 1-Year Breaks IN
Service, and such
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Former Participant had received, or was deemed to have
received, a distribution of his entire Vested interest prior
to his reemployment, his forfeited account shall be
reinstated only if he repays the full amount distributed to
him before the earlier of five (5) years after the first
date on which the Participant is subsequently reemployed by
the Employer or the close of the first period of five (5)
consecutive 1-Year Breaks in Service commencing after the
distribution, or in the event of a deemed distribution, upon
the reemployment of such Former Participant. In the event
the Former Participant does repay the full amount
distributed to him, or in the event of a deemed
distribution, the undistributed portion of the Participant's
Account must be restored in full, unadjusted by any gains or
losses occurring subsequent to the Anniversary Date or other
valuation date coinciding with or preceding his termination.
The source for such reinstatement shall first be any
Forfeitures occurring during the year. If such source is
insufficient, then the Employer shall contribute an amount
which is sufficient to restore any such forfeited Accounts
provided, however, that if a discretionary contribution is
made for such year pursuant to Section 4.1(c), such
contribution shall first be applied to restore any such
Accounts and the remainder shall be allocated in accordance
with Section 4.4.
(3) If any Former Participant is reemployed after a
1-Year Break in Service has occurred, Years of Service shall
include Years of Service prior to his 1-Year Break in
Service subject to the following rules:
(i) If a Former Participant has a 1-Year
Break in Service, his pre-break and post-break service
shall be used for computing Years of Service for
eligibility and for vesting purposes only after he has
been employed for one (1) Year of Service following the
date of his reemployment with the Employer;
(ii) Any Former Participant who under the
Plan does not have a nonforfeitable right to
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any interest in the Plan resulting from Employer
contributions shall lose credits otherwise allowable
under (i) above if his consecutive 1-Year Breaks in
Service equal or exceed the greater of (A) five (5) or
(B)the aggregate number of his pre-break Years of
Service;
(iii) After five (5) consecutive 1-Year Breaks
in Service, a Former Participant's Vested Account
balance attributable to pre-break service shall not be
increased as a result of post-break service;
(iv) If a Former Participant who has not had
his Years of Service before a 1-Year Break in Service
disregarded pursuant to (ii) above completes one (1)
Year of Service for eligibility purposes following his
reemployment with the Employer, he shall participate in
the Plan retroactively from his date of reemployment;
(v) If a Former Participant who has not had
his Years of Service before a 1-Year Break in Service
disregarded pursuant to (ii) above completes a Year of
Service (a 1-Year Break in Service previously occurred,
but employment had not terminated), he shall
participate in the Plan retroactively from the first
day of the Plan Year during which he completes one (1)
Year of Service.
(g) In determining Years of Service for purposes of vesting
under the Plan, Years of Service prior to the vesting computation
period in which an Employee attained his eighteenth birthday
shall be excluded. For Plan Years beginning prior to January 1,
1985, "twenty-second" shall be substituted for "eighteenth" in
the preceding sentence. Only Participants who have completed one
Hour of Service in the first Plan Year beginning after December
31, 1984 shall be retroactively credited with additional Years of
Service for those Years of Service completed between age 18 and
22.
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6.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the election of the
Participant, shall direct the Trustee to distribute to a
Participant or his Beneficiary any amount to which he is entitled
under the Plan in one or more of the following methods:
(1) One lump-sum payment in cash or in property;
(2) Payments over a period certain in monthly,
quarterly, semiannual, or annual cash installments. In order
to provide such installment payments, the Administrator may
(A) segregate the aggregate amount thereof in a separate,
federally insured savings account, certificate of deposit in
a bank or savings and loan association, money market
certificate or other liquid short-term security or (B)
purchase a nontransferable annuity contract for a term
certain (with no life contingencies) providing for such
payment. The period over which such payment is to be made
shall not extend beyond the Participant's life expectancy
(or the life expectancy of the Participant and his
designated Beneficiary).
(b) Any distribution to a Participant who has a benefit
which exceeds, or has ever exceeded, $3,500 at the time of any
prior distribution shall require such Participant's consent if
such distribution commences prior to the later of his Normal
Retirement Age or age 62. With regard to this required consent:
(1) The Participant must be informed of his right to
defer receipt of the distribution. If a Participant fails to
consent, it shall be deemed an election to defer the
commencement of payment of any benefit. However, any
election to defer the receipt of benefits shall not apply
with respect to distributions which are required under
Section 6.5(c).
(2) Notice of the rights specified under this
paragraph shall be provided no less than 30 days and no more
than 90 days before the first day on which all events have
occurred which entitle the Participant to such benefit.
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(3) Written consent of the Participant to the
distribution must not be made before the Participant
receives the notice and must not be made more than 90 days
before the first day on which all events have occurred which
entitle the Participant to such benefit.
(4) No consent shall be valid if a significant
detriment is imposed under the Plan on any Participant who
does not consent to the distribution.
If a distribution is one to which Code Sections
401(a)(11) and 417 do not apply, such distribution may
commence less than 30 days after the notice required under
Regulation 1.411(a)-11(c) is given, provided that: (1) the
Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days
after receiving the notice to consider the decision of
whether or not to elect a distribution (and, if applicable,
a particular distribution option), and (2) the Participant,
after receiving the notice, affirmatively elects a
distribution.
(c) Notwithstanding any provision in the Plan to the
contrary, the distribution of a Participant's benefits made on or
after January 1, 1985 shall be made in accordance with the
following requirements and shall otherwise comply with Code
Section 401(a)(9) and the Regulations thereunder (including
Regulation 1.401(a)(9)-2), the provisions of which are
incorporated herein by reference:
(1) A Participant's benefits shall be distributed
to him not later than April 1st of the calendar year
following the later of (i) the calendar year in which the
Participant attains age 70 1/2 or (ii) the calendar year
in which the Participant retires, provided, however, that
this clause (ii) shall not apply in the case of a
Participant who is a "five (5) percent owner" at any time
during the five (5) Plan Year period ending in the
calendar year in which he attains age 70 1/2 or, in the
case of a Participant who becomes a "five (5) percent
owner" during any subsequent Plan Year, clause (ii) shall
no longer apply and the required beginning date shall be
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the April 1st of the calendar year following the
calendar year in which such subsequent Plan Year ends.
Alternatively, distributions to a Participant must begin no
later than the applicable April 1st as determined under the
preceding sentence and must be made over a period certain
measured by the life expectancy of the Participant (or the
life expectancies of the Participant and his designated
Beneficiary) in accordance with Regulations. Notwithstanding
the foregoing, clause (ii) above shall not apply to any
Participant unless the Participant had attained age 70 1/2
before January 1, 1988 and was not a "five (5) percent
owner" at any time during the Plan Year ending with or
within the calendar year in which the Participant attained
age 66 1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his
Beneficiaries shall only be made in accordance with the
incidental death benefit requirements of Code Section
401(a)(9)(G) and the Regulations thereunder.
Additionally, for calendar years beginning before 1989,
distributions may also be made under an alternative method
which provides that the then present value of the payments
to be made over the period of the Participant's life
expectancy exceeds fifty percent (50%) of the then present
value of the total payments to be made to the Participant
and his Beneficiaries.
(d) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse shall be redetermined
annually in accordance with Regulations. Life expectancy and
joint and last survivor expectancy shall be computed using the
return multiples in Tables V and VI of Regulation 1.72-9.
(e) All annuity Contracts under this Plan shall be
non-transferable when distributed. Furthermore, the terms of any
annuity Contract purchased and distributed to a Participant or
spouse shall comply with all of the requirements of the Plan.
(f) If a distribution is made at a time when a Participant
is not fully Vested in his Participant's Account employment has
not terminated) and the
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Participant may increase the Vested percentage in such account:
(1) a separate account shall be established for the
Participant's interest in the Plan as of the time of the
distribution; and
(2) at any relevant time, the Participant's Vested
portion of the separate account shall be equal to an amount
("X") determined by the formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the Vested
percentage at the relevant time, AB is the account balance
at the relevant time, D is the amount of distribution, and R
is the ratio of the account balance at the relevant time to
the account balance after distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a)(1) The death benefit payable pursuant to Section 6.2
shall be paid to the Participant's Beneficiary within a
reasonable time after the Participant's death by either of the
following methods, as elected by the Participant (or if no
election has been made prior to the Participant's death, by his
Beneficiary) subject, however, to the rules specified in Section
6.6(b):
(i) One lump-sum payment in cash or in
property;
(ii) Payment in monthly, quarterly,
semi-annual, or annual cash installments over a
period to be determined by the Participant or his
Beneficiary. After periodic installments commence,
the Beneficiary shall have the right to direct the
Trustee to reduce the period over which such
periodic installments shall be made, and the Trustee
shall adjust the cash amount of such periodic
installments accordingly.
(2) In the event the death benefit payable pursuant to
Section 6.2 is payable in installments, then, upon the death
of the
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Participant, the Administrator may direct the Trustee
to segregate the death benefit into a separate account, and
the Trustee shall invest such segregated account separately,
and the funds accumulated in such account shall be used for
the -payment of the installments.
(b) Notwithstanding any provision in the Plan to the
contrary, distributions upon the death of a Participant made on
or after January 1, 1985 shall be made in accordance with the
following requirements and shall otherwise comply with Code
Section 401(a)(9) and the Regulations thereunder. If it is
determined pursuant to Regulations that the distribution of a
Participant's interest has begun and the Participant dies before
his entire interest has been distributed to him, the remaining
portion of such interest shall be distributed at least as rapidly
as under the method of distribution selected pursuant to Section
6.5 as of his date of death. If a Participant dies before he has
begun to receive any distributions of his interest under the Plan
or before distributions are deemed to have begun pursuant to
Regulations, then his death benefit shall be distributed to his
Beneficiaries by December 31st of the calendar year in which the
fifth anniversary of his date of death occurs.
However, the 5-year distribution requirement of the
preceding paragraph shall not apply to any portion of the
deceased Participant's interest which is payable to or for the
benefit of a designated Beneficiary. In such event, such portion
shall be distributed over a period not extending beyond the life
expectancy of such designated Beneficiary provided such
distribution begins not later than December 31st of the calendar
year immediately following the calendar year in which the
Participant died. However, in the event the Participant's spouse
(determined as of the date of the Participant's death) is his
Beneficiary, the requirement that distributions commence within
one year of a Participant's death shall not apply. In lieu
thereof, distributions must commence on or before the later of:
(1) December 31st of the calendar year immediately following the
calendar year in which the Participant died; or (2) December 31st
of the calendar year in which the Participant would have attained
age 70 1/2. If the surviving spouse dies before distributions to
such spouse begin, then the 5-year distribution requirement of
this Section shall apply as if the spouse was the Participant.
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(c) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse shall be redetermined
annually in accordance with Regulations. Life expectancy and
joint and last survivor expectancy shall be computed using the
return multiples in Tables V and VI of Regulation 1.72-9.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to make
a distribution or to commence a series of payments on or as of an Anniversary
Date, the distribution or series of payments may be made or begun on such date
or as soon thereafter as is practicable. However, unless a Former Participant
elects in writing to defer the receipt of benefits (such election may not result
in a death benefit that is more than incidental), the payment of benefits shall
begin not later than the 60th day after the close of the Plan Year in which the
latest of the following events occurs: (a) the date on which the Participant
attains the earlier of age 65 or the Normal Retirement Age specified herein; (b)
the 10th anniversary of the year in which the Participant commenced
participation in the Plan; or (c) the date the Participant terminates his
service with the Employer.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so
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distributable shall be treated as a Forfeiture pursuant to the Plan. In the
event a Participant or Beneficiary is located subsequent to his benefit being
reallocated, such benefit shall be restored.
6.10 PRE-RETIREMENT DISTRIBUTION
At such time as a Participant shall have attained the age of 59 1/2 years,
the Administrator, at the election of the Participant, shall direct the Trustee
to distribute all or a portion of the amount then credited to the accounts
maintained on behalf of the Participant. However, no distribution from the
Participant's Account shall occur prior to 100% vesting. In the event that the
Administrator makes such a distribution, the Participant shall continue to be
eligible to participate in the Plan on the same basis as any other Employee. Any
distribution made pursuant to this Section shall be made in a manner consistent
with Section 6.5, including, but not limited to, all notice and consent
requirements of Code Section 411(a)(11) and the Regulations thereunder.
Notwithstanding the above, pre-retirement distributions from a
Participant's Elective Account shall not be permitted prior to the Participant
attaining age 59 1/2 except as otherwise permitted under the terms of the Plan.
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the Participant,
shall direct the Trustee to distribute to any Participant in any
one Plan Year up to the lesser of 100% of his Participant's
Elective Account and his Participant's Account valued as of the
last Anniversary Date or other valuation date or the amount
necessary to satisfy the immediate and heavy financial need of
the Participant. Any distribution made pursuant to this Section
shall be deemed to be made as of the first day of the Plan Year
or, if later, the valuation date immediately preceding the date
of distribution, and the Participant's Elective Account and his
Participant's Account shall be reduced accordingly. Withdrawal
under this Section shall be authorized only if the distribution
is on account of:
(1) Expenses for medical care described in Code
Section 213(d) previously incurred by the Participant, his
spouse, or any of his dependents (as defined in Code Section
152) or necessary for these persons to obtain medical care;
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(2) The costs directly related to the purchase of a
principal residence for the Participant (excluding mortgage
payments);
(3) Payment of tuition and related educational fees
for the next twelve (12) months of post-secondary education
for the Participant, his spouse, children, or dependents; or
(4) Payments necessary to prevent the eviction of the
Participant from his principal residence or foreclosure on
the mortgage of the Participant's principal residence.
(b) No such distribution shall be made from the
Participant's Account until such Account has become fully Vested.
(c) No distribution shall be made pursuant to this Section
unless the Administrator, based upon the Participant's
representation and such other facts as are known to the
Administrator, determines that all of the following conditions
are satisfied:
(1) The distribution is not in excess of the amount of
the immediate and heavy financial need of the Participant.
The amount of the immediate and heavy financial need may
include any amounts necessary to pay any federal, state, or
local income taxes or penalties reasonably anticipated to
result from the distribution;
(2) The Participant has obtained all distributions,
other than hardship distributions, and all nontaxable (at
the time of the loan) loans currently available under all
plans maintained by the Employer;
(3) The Plan, and all other plans maintained by the
Employer, provide that the Participant's elective deferrals
and voluntary Employee contributions will be suspended for
at least twelve (12) months after receipt of the hardship
distribution or, the Participant, pursuant to a legally
enforceable agreement, will suspend his elective deferrals
and voluntary Employee contributions to the Plan and all
other plans maintained by the Employer for at least twelve
(12) months after receipt of the hardship distribution; and
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(4) The Plan, and all other plans maintained by the
Employer, provide that the Participant may not make elective
deferrals for the Participant's taxable year immediately
following the taxable year of the hardship distribution in
excess of the applicable limit under Code Section 402(g) for
such next taxable year less the amount of such Participant's
elective deferrals for the taxable year of the hardship
distribution.
(d) Notwithstanding the above, for Plan Years beginning
after December 31, 1988, distributions from the Participant's
Elective Account pursuant to this Section shall be limited, as of
the date of distribution, to the Participant's Elective Account
as of the end of the last Plan Year ending before July 1, 1989,
plus the total Participant's Deferred Compensation after such
date, reduced by the amount of any previous distributions
pursuant to this Section and Section 6.10.
(e) Any distribution made pursuant to this Section shall be
made in a manner which is consistent with and satisfies the
provisions of Section 6.5, including, but not limited to, all
notice and consent requirements of Code Section 411(a)(11) and
the Regulations thereunder.
6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a Participant in
this Plan shall be subject to the rights afforded to any "alternate payee" under
a "qualified domestic relations order." Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is authorized by a
"qualified domestic relations order," even if the affected Participant has not
separated from service and has not reached the "earliest retirement age" under
the Plan. For the purposes of this Section, "alternate payee," "qualified
domestic relations order" and "earliest retirement age" shall have the meaning
set forth under Code Section 414(p).
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ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) Consistent with the "funding policy and method"
determined by the Employer, to invest, manage, and control the
Plan assets subject, however, to the direction of an Investment
Manager if the Trustee should appoint such manager as to all or a
portion of the assets of the Plan;
(b) At the direction of the Administrator, to pay benefits
required under the Plan to be paid to Participants, or, in the
event of their death, to their Beneficiaries;
(c) To maintain records of receipts and disbursements and
furnish to the Employer and/or Administrator for each Plan Year a
written annual report per Section 7.7; and
(d) If there shall be more than one Trustee, they shall act
by a majority of their number, but may authorize one or more of
them to sign papers on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund
to keep the Trust Fund invested without distinction between
principal and income and in such securities or property, real
or personal, wherever situated, as the Trustee shall deem
advisable, including, but not limited to, stocks, common or
preferred, bonds and other evidences of indebtedness or
ownership, and real estate or any interest therein. The
Trustee shall at all times in making investments of the Trust
Fund consider, among other factors, the short and long-term
financial needs of the Plan on the basis of information
furnished by the Employer. In making such investments, the
Trustee shall not be restricted to securities or other
property of the character expressly authorized by the
applicable law for trust investments; however, the Trustee
shall give due regard to any limitations imposed by the Code
or the Act so that at
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all times the Plan may qualify as a qualified Profit Sharing
Plan and Trust.
(b) The Trustee may employ a bank or trust company pursuant
to the terms of its usual and customary bank agency agreement,
under which the duties of such bank or trust company shall be of
a custodial, clerical and record-keeping nature.
(c) The Trustee, at the direction of the Administrator,
shall ratably apply for, own, and pay premiums on Contracts on
the lives of the Participants. If a life insurance policy is to
be purchased for a Participant, the aggregate premium for
ordinary life insurance for each Participant must be less than
50% of the aggregate of the contributions and Forfeitures to the
credit of the Participant at any particular time. If term
insurance is purchased with such contributions, the aggregate
premium must be less than 25% of the aggregate contributions and
Forfeitures allocated to a Participant's Combined Account. If
both term insurance and ordinary life insurance are purchased
with such contributions, the amount expended for term insurance
plus one-half of the premium for ordinary life insurance may not
in the aggregate exceed 25% of the aggregate contributions and
Forfeitures allocated to a Participant's Combined Account. The
Trustee must convert the entire value of the life insurance
contracts at or before retirement into cash or provide for a
periodic income so that no portion of such value may be used to
continue life insurance protection beyond retirement, or
distribute the Contracts to the Participant. In the event of any
conflict between the terms of this Plan and the terms of any
insurance Contract purchased hereunder, the Plan provisions shall
control.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common law,
statutory authority, including the Act, and other provisions of the Plan, shall
have the following powers and authorities, to be exercised in the Trustee's sole
discretion:
(a) To purchase, or subscribe for, any securities or other
property and to retain the same. In conjunction with the purchase
of securities, margin accounts may be opened and maintained;
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(b) To sell, exchange, convey, transfer, grant options to
purchase, or otherwise dispose of any securities or other
property held by the Trustee, by private contract or at public
auction. No person dealing with the Trustee shall be bound to see
to the application of the purchase money or to inquire into the
validity, expediency, or propriety of any such sale or other
disposition, with or without advertisement;
(c) To vote upon any stocks, bonds, or other securities; to
give general or special proxies or powers of attorney with or
without power of substitution; to exercise any conversion
privileges, subscription rights or other options, and to make any
payments incidental thereto; to oppose, or to consent to, or
otherwise participate in, corporate reorganizations or other
changes affecting corporate securities, and to delegate
discretionary powers, and to pay any assessments or charges in
connection therewith; and generally to exercise any of the powers
of an owner with respect to stocks, bonds, securities, or other
property;
(d) To cause any securities or other property to be
registered in the Trustee's own name or in the name of one or
more of the Trustee's nominees, and to hold any investments in
bearer form, but the books and records of the Trustee shall at
all times show that all such investments are part of the Trust
Fund;
(e) To borrow or raise money for the purposes of the Plan
in such amount, and upon such terms and conditions, as the
Trustee shall deem advisable; and for any sum so borrowed, to
issue a promissory note as Trustee, and to secure the repayment
thereof by pledging all, or any part, of the Trust Fund; and no
person lending money to the Trustee shall be bound to see to the
application of the money lent or to inquire into the validity,
expediency, or propriety of any borrowing;
(f) To keep such portion of the Trust Fund in cash or cash
balances as the Trustee may, from time to time, deem to be in the
best interests of the Plan, without liability for interest
thereon;
(g) To accept and retain for such time as the Trustee may
deem advisable any securities or other property received or
acquired as Trustee hereunder,
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whether or not such securities or other property would
normally be purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other
instruments that may be necessary or appropriate to carry out the
powers herein granted;
(i) To settle, compromise, or submit to arbitration any
claims, debts, or damages due or owing to or from the Plan, to
commence or defend suits or legal or administrative proceedings,
and to represent the Plan in all suits and legal and
administrative proceedings;
(j) To employ suitable agents and counsel and to pay their
reasonable expenses and compensation, and such agent or counsel
may or may not be agent or counsel for the Employer;
(k) To apply for and procure from responsible insurance
companies, to be selected by the Administrator, as an investment
of the Trust Fund such annuity, or other Contracts (on the life
of any Participant) as the Administrator shall deem proper; to
exercise, at any time or from time to time, whatever rights and
privileges may be granted under such annuity, or other Contracts;
to collect, receive, and settle for the proceeds of all such
annuity or other Contracts as and when entitled to do so under
the provisions thereof;
(l) To invest funds of the Trust in time deposits or
savings accounts bearing a reasonable rate of interest in the
Trustee's bank;
(m) To invest in Treasury Bills and other forms of United
States government obligations;
(n) To invest in shares of investment companies registered
under the Investment Company Act of 1940;
(o) To sell, purchase and acquire put or call options if
the options are traded on and purchased through a national
securities exchange registered under the Securities Exchange Act
of 1934, as amended, or, if the options are not traded on a
national securities exchange, are guaranteed by a member firm of
the New York Stock Exchange;
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(p) To deposit monies in federally insured savings accounts
or certificates of deposit in banks or savings and loan
associations;
(q) To pool all or any of the Trust Fund, from time to
time, with assets belonging to any other qualified employee
pension benefit trust created by the Employer or an affiliated
company of the Employer, and to commingle such assets and make
joint or common investments and carry joint accounts on behalf of
this Plan and such other trust or trusts, allocating undivided
shares or interests in such investments or accounts or any pooled
assets of the two or more trusts in accordance with their
respective interests;
(r) To do all such acts and exercise all such rights and
privileges, although not specifically mentioned herein, as the
Trustee may deem necessary to carry out the purposes of the Plan.
(s) Directed Investment Account. The powers granted to the
Trustee shall be exercised in the sole fiduciary discretion of
the Trustee. However, if Participants are so empowered by the
Administrator, each Participant may direct the Trustee to
separate and keep separate all or a portion of his account; and
further each Participant is authorized and empowered, in his sole
and absolute discretion, to give directions to the Trustee
pursuant to the procedure established by the Administrator and in
such form as the Trustee may require concerning the investment of
the Participant's Directed Investment Account. The Trustee shall
comply as promptly as practicable with directions given by the
Participant hereunder. The Trustee may refuse to comply with any
direction from the Participant in the event the Trustee, in its
sole and absolute discretion, deems such directions improper by
virtue of applicable law. The Trustee shall not be responsible or
liable for any loss or expense which may result from the Trustee's
refusal or failure to comply with any directions from the
Participant. Any costs and expenses related to compliance with
the Participant's directions shall be borne by the Participant's
Directed Investment Account.
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7.4 LOANS TO PARTICIPANTS
(a) The Trustee may, in the Trustee's discretion, make
loans to Participants and Beneficiaries under the following
circumstances: (1) loans shall be made available to all
Participants and Beneficiaries on a reasonably equivalent basis;
(2) loans shall not be made available to Highly Compensated
Employees in an amount greater than the amount made available to
other Participants and Beneficiaries; (3) loans shall bear a
reasonable rate of interest; (4) loans shall be adequately
secured; and (5) shall provide for repayment over a reasonable
period of time.
(b) Loans made pursuant to this Section (when added to the
outstanding balance of all other loans made by the Plan to the
Participant) shall be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the
highest outstanding balance of loans fr6m the Plan to the
Participant during the one year period ending on the day
before the date on which such loan is made, over the
outstanding balance of loans from the Plan to the
Participant on the date on which such loan was made, or
(2) one-half (1/2) of the present value of the
non-forfeitable accrued benefit of the Participant under the
Plan.
For purposes of this limit, all plans of the Employer shall
be considered one plan. Additionally, with respect to any loan
made prior to January 1, 1987, the $50,000 limit specified in (1)
above shall be unreduced.
(c) Loans shall provide for level amortization with
payments to be made not less frequently than quarterly over a
period not to exceed five (5) years. However, loans used to
acquire any dwelling unit which, within a reasonable time, is to
be used (determined at the time the. loan is made) as a principal
residence of the Participant shall provide for periodic repayment
over a reasonable period of time that may exceed five (5) years.
Notwithstanding the foregoing, loans made prior to January 1,
1987 which are used to acquire, construct, reconstruct or
substantially rehabilitate any dwelling unit which, within a
reasonable period of
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time is to be used (determined at the time the loan is made)
as a principal residence of the Participant or a member of his
family (within the meaning of Code Section 267(c)(4)) may provide
for periodic repayment over a reasonable period of time that may
exceed five (5) years. Additionally, loans made prior to January
1, 1987, may provide for periodic payments which are made less
frequently than quarterly and which do not necessarily result in
level amortization.
(d) Any loans granted or renewed on or after the last day
of the first Plan Year beginning after December 31, 1988 shall be
made pursuant to a Participant loan program. Such loan program
shall be established in writing and must include, but need not be
limited to, the following:
(1) the identity of the person or positions authorized
to administer the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or
denied;
(4) limitations, if any, on the types and amounts of
loans offered;
(5) the procedure under the program for determining a
reasonable rate of interest;
(6) the types of collateral which may secure a
Participant loan; and
(7) the events constituting default and the steps that
will be taken to preserve Plan assets.
Such Participant loan program shall be contained in a
separate written document which, when properly executed, is
hereby incorporated by reference and made a part of the
Plan. Furthermore, such Participant loan program may be
modified or amended in writing from time to time without the
necessity of amending this Section.
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7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from time to
time, in accordance with the terms of the Plan, make payments out of the Trust
Fund. The Trustee shall not be responsible in any way for the application of
such payments.
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as shall from time
to time be agreed upon in writing by the Employer and the Trustee. An individual
serving as Trustee who already receives full-time pay from the Employer shall
not receive compensation from the Plan. In addition, the Trustee shall be
reimbursed for any reasonable expenses, including reasonable counsel fees
incurred by it as Trustee. Such compensation and expenses shall be paid from the
Trust Fund unless paid or advanced by the Employer. All taxes of any kind and
all kinds whatsoever that may be levied or assessed under existing or future
laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid
from the Trust Fund.
7.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the Anniversary Date
or receipt of the Employer's contribution for each Plan Year, the Trustee shall
furnish to the Employer and Administrator a written statement of account with
respect to the Plan Year for which such contribution was made setting forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust Fund upon
sales or other disposition of the assets;
(c) the increase, or decrease, in the value of the Trust
Fund;
(d) all payments and distributions made from the Trust
Fund; and
(e) such further information as the Trustee and/or
Administrator deems appropriate. The Employer, forthwith upon its
receipt of each such statement of account, shall acknowledge
receipt thereof in writing and advise the Trustee and/or
Administrator of its approval or disapproval thereof. Failure by
the Employer to disapprove any such statement of account within
thirty (30) days after its receipt thereof shall
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be deemed an approval thereof. The approval by the Employer of
any statement of account shall be binding as to all matters
embraced therein as between the Employer and the Trustee to the
same extent as if the account of the Trustee had been settled by
judgment or decree in an action for a judicial settlement of its
account in a court of competent jurisdiction in which the
Trustee, the Employer and all persons having or claiming an
interest in the Plan were parties; provided, however, that
nothing herein contained shall deprive the Trustee of its right
to have its accounts judicially settled if the Trustee so
desires.
7.8 AUDIT
(a) If an audit of the Plan's records shall be required by
the Act and the regulations thereunder for any Plan Year, the
Administrator shall direct the Trustee to engage on behalf of all
Participants an independent qualified public accountant for that
purpose. Such accountant shall, after an audit of the books and
records of the Plan in accordance with generally accepted
auditing standards, within a reasonable period after the close of
the Plan Year, furnish to the Administrator and the Trustee a
report of his audit setting forth his opinion as to whether any
statements, schedules or lists that are required by Act Section
103 or the Secretary of Labor to be filed with the Plan's annual
report, are presented fairly in conformity with generally
accepted accounting principles applied consistently. All auditing
and accounting fees shall be an expense of and may, at the
election of the Administrator, be paid from the Trust Fund.
(b) If some or all of the information necessary to enable
the Administrator to comply with Act Section 103 is maintained by
a bank, insurance company, or similar institution, regulated and
supervised and subject to periodic examination by a state or
federal agency, it shall transmit and certify the accuracy of
that information to the Administrator as provided in Act Section
103(b) within one hundred twenty (120) days after the end of the
Plan Year or by such other date as may be prescribed under
regulations of the Secretary of Labor.
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7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the
Employer, at least thirty (30) days before its effective date a
written notice of his resignation.
(b) The Employer may remove the Trustee by mailing by
registered or certified mail, addressed to such Trustee at his
last-known address, at least thirty (30) days before its
effective date, a written notice of his removal.
(c) Upon the death, resignation, incapacity, or removal of
any Trustee, a successor may be appointed by the Employer; and
such successor, upon accepting such appointment in writing and
delivering same to the Employer, shall, without further act,
become vested with all the estate, rights, powers, discretions,
and duties of his predecessor with like respect as if he were
originally named as a Trustee herein. Until such a successor is
appointed, the remaining Trustee or Trustees shall have full
authority to act under the terms of the Plan.
(d) The Employer may designate one or more successors prior
to the death, resignation, incapacity, or removal of a Trustee.
In the event a successor is so designated by the Employer and
accepts such designation, the successor shall, without further
act, become vested with all the estate, rights, powers,
discretions, and duties of his predecessor with the like effect
as if he were originally named as Trustee herein immediately upon
the death, resignation, incapacity, or removal of his
predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such,
he shall furnish to the Employer and Administrator a written
statement of account with respect to the portion of the Plan Year
during which he served as Trustee. This statement shall be either
(i) included as part of the annual statement of account for the
Plan Year required under Section 7.7 or (ii) set forth in a
special statement. Any such special statement of account should
be rendered to the Employer no later than the due date of the
annual statement of account for the Plan Year. The procedures set
forth in -Section 7.7 for the approval by the Employer of annual
statements of account shall apply to any special
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statement of account rendered hereunder and approval by the
Employer of any such special statement in the manner provided in
Section 7.7 shall have the same effect upon the statement as the
Employer's approval of an annual statement of account. No
successor to the Trustee shall have any duty or responsibility to
investigate the acts or transactions of any predecessor who has
rendered all statements of account required by Section 7.7 and
this subparagraph.
7.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the Trustee at
the direction of the Administrator shall transfer the Vested interest, if any,
of such Participant in his account to another trust forming part of a pension,
profit sharing or stock bonus plan maintained by such Participant's new employer
and represented by said employer in writing as meeting the requirements of Code
Section 401(a), provided that the trust to which such transfers are made permits
the transfer to be made.
7.11 DIRECT ROLLOVER
(a) This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election
under this Section, a distributee may elect, at the time and in
the manner prescribed by the Plan Administrator, to have any
portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct
rollover.
(b) For purposes of this Section the following definitions
shall apply:
(1) An eligible rollover distribution is any
distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover
distribution does not include: any distribution that is one
of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint
life expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten
years or more; any distribution to the extent such
distribution is required under Code Section
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401(a)(9); and the portion of any distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
employer securities).
(2) An eligible retirement plan is an individual
retirement account described in Code Section 408(a), an
individual retirement annuity described in Code Section
408(b), an annuity plan described in Code Section 403(a), or
a qualified trust described in Code Section 401(a), that
accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to
the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity.
(3) A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's
spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code
Section 414(p), are distributees with regard to the interest
of the spouse or former spouse.
(4) A direct rollover is a payment by the plan to the
eligible retirement plan specified by the distributee.
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any time to amend
the Plan, subject to the limitations of this Section. Any such
amendment shall be adopted by formal action of the Employer's
board of directors and executed by an officer authorized to act
on behalf of the Employer. However, any amendment which affects
the rights, duties or responsibilities of the Trustee and
Administrator may only be made with the Trustee's and
Administrator's written consent. Any such amendment shall become
effective as provided therein upon its execution. The Trustee
shall not be required to execute any such amendment unless the
Trust provisions
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contained herein are a part of the Plan and the amendment affects
the duties of the Trustee hereunder.
(b) No amendment to the Plan shall be effective if it
authorizes or permits any part of the Trust Fund (other than such
part as is required to pay taxes and administration expenses) to
be used for or diverted to any purpose other than for the
exclusive benefit of the Participants or their Beneficiaries or
estates; or causes any reduction in the amount credited to the
account of any Participant; or causes or permits any portion of
the Trust Fund to revert to or become property of the Employer.
(c) Except as permitted by Regulations, no Plan amendment
or transaction having the effect of a Plan amendment (such as a
merger, plan transfer or similar transaction) shall be effective
to the extent it eliminates or reduces any "Section 411(d)(6)
protected benefit" or adds or modifies conditions relating to
"Section 411(d)(6) protected benefits" the result of which is a
further restriction on such benefit unless such protected
benefits are preserved with respect to benefits accrued as of the
later of the adoption date or effective date of the amendment.
"Section 411(d)(6) protected benefits" are benefits described in
Code Section 411(d)(6)(A), early retirement benefits and
retirement-type subsidies, and optional forms of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any time to
terminate the Plan by delivering to the Trustee and Administrator
written notice of such termination. Upon any full or partial
termination, all amounts credited to the affected Participants'
Combined Accounts shall become 100% Vested as provided in Section
6.4 and shall not thereafter be subject to forfeiture, and all
unallocated amounts shall be allocated to the accounts of all
Participants in accordance with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer
shall direct the distribution of the assets of the Trust Fund to
Participants in a manner which is consistent with and satisfies
the provisions of Section 6.5. Distributions to a Participant
shall be made in cash or in property or through the purchase of
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irrevocable nontransferable deferred commitments from an
insurer. Except as permitted by Regulations, the termination of
the Plan shall not result in the reduction of "Section 411(d)(6)
protected benefits" in accordance with Section 8.1(c).
8.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or its assets
and/or liabilities may be transferred to any other plan and trust only if the
benefits which would be received by a Participant of this Plan, in the event of
a termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d)(6) protected
benefits" in accordance with Section 8.1(c).
ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in this Plan shall
be deemed to give any Participant or Employee the right to be retained in the
service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect which
such discharge shall have upon him as a Participant of this Plan.
9.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit
which shall be payable out of the Trust Fund to any person
(including a Participant or his Beneficiary) shall be subject in
any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber,
or charge the same shall be void; and no such benefit shall in
any manner be liable for, or subject to, the debts, contracts,
liabilities, engagements, or torts of any such person, nor shall
it be subject to attachment or legal process for or against such
person, and the
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same shall not be recognized by the Trustee, except to such
extent as may be required by law.
(b) This provision shall not apply to the extent a
Participant or Beneficiary is indebted to the Plan, as a result
of a loan from the Plan. At the time a distribution is to be made
to or for a Participant's or Beneficiary's benefit, such
proportion of the amount distributed as shall equal such loan
indebtedness shall be paid by the Trustee to the Trustee or the
Administrator, at the direction of the Administrator, to apply
against or discharge such loan indebtedness. Prior to making a
payment, however, the Participant or Beneficiary must be given
written notice by the Administrator that such loan indebtedness
is to be so paid in whole or part from his Participant's Combined
Account. If the Participant or Beneficiary does not agree that
the loan indebtedness is a valid claim against his Vested
Participant's Combined Account, he shall be entitled to a review
of the validity of the claim in accordance with procedures
provided in Sections 2.12 and 2.13.
(c) This provision shall not apply to a "qualified domestic
relations order" defined in Code Section 414(p), and those other
domestic relations orders permitted to be so treated by the
Administrator under the provisions of the Retirement Equity Act
of 1984. The Administrator shall establish a written procedure to
determine the qualified status of domestic relations orders and
to administer distributions under such qualified orders. Further,
to the extent provided under a "qualified domestic relations
order," a former spouse of a Participant shall be treated as the
spouse or surviving spouse for all purposes under the Plan.
9.3 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the Act
and the laws of the State of Ohio, other than its laws respecting choice of law,
to the extent not preempted by the Act.
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9.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply, and whenever any words are used herein
in the singular or plural form, they shall be construed as though they were also
used in the other form in all cases where they would so apply.
9.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the Trust
and/or Plan established hereunder to which the Trustee or the Administrator may
be a party, and such claim, suit, or proceeding is resolved in favor of the
Trustee or Administrator, they shall be entitled to be reimbursed from the Trust
Fund for any and all costs, attorney's fees, and other expenses pertaining
thereto incurred by them for which they shall have become liable.
9.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically
permitted by law, it shall be impossible by operation of the Plan
or of the Trust, by termination of either, by power of revocation
or amendment, by the happening of any contingency, by collateral
arrangement or by any other means, for any part of the corpus or
income of any trust fund maintained pursuant to the Plan or any
funds contributed thereto to be used for, or diverted to,
purposes other than the exclusive benefit of Participants,
Retired Participants, or their Beneficiaries.
(b) In the event the Employer shall make an excessive
contribution under a mistake of fact pursuant to Act Section
403(c)(2)(A), the Employer may demand repayment of such
excessive contribution at any time within one (1) year
following the time of payment and the Trustees shall return
such amount to the Employer within the one (1) year period.
Earnings of the Plan attributable to the excess contributions
may not be returned to the Employer but any losses
attributable thereto must reduce the amount so returned.
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9.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted by
the Act and regulations thereunder, shall be bonded in an amount not less than
10% of the amount of the funds such Fiduciary handles; provided, however, that
the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of
funds handled shall be determined at the beginning of each Plan Year by the
amount of funds handled by such person, group, or class to be covered and their
predecessors, if any, during the preceding Plan Year, or if there is no
preceding Plan Year, then by the amount of the funds to be handled during the
then current year. The bond shall provide protection to the Plan against any
loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety company (as such
term is used in Act Section 412(a)(2)), and the bond shall be in a form approved
by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary,
the cost of such bonds shall be an expense of and may, at the election of the
Administrator, be paid from the Trust Fund or by the Employer.
9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any Contract issued hereunder or for the failure
on the part of the insurer to make payments provided by any such Contract, or
for the action of any person which may delay payment or render a Contract null
and void or unenforceable in whole or in part.
9.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
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9.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary, or
to any guardian or committee appointed for such Participant or Beneficiary in
accordance with the provisions of the Plan, shall, to the extent thereof, be in
full satisfaction of all claims hereunder against the Trustee and the Employer,
either of whom may require such Participant, legal representative, Beneficiary,
guardian or committee, as a condition precedent to such payment, to execute a
receipt and release thereof in such form as shall be determined by the Trustee
or Employer.
9.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or required
to do or perform any act or matter or thing, it shall be done and performed by a
person duly authorized by its legally constituted authority.
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator and (3) the Trustee. The named Fiduciaries shall have only those
specific powers, duties, responsibilities, and obligations as are specifically
given them under the Plan. In general, the Employer shall have the sole
responsibility for making the contributions provided for under Section 4.1; and
shall have the sole authority to appoint and remove the Trustee and the
Administrator; to formulate the Plan's "funding policy and method"; and to amend
or terminate, in whole or in part, the Plan. The Administrator shall have the
sole responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have the sole
responsibility of management of the assets held under the Trust, except those
assets, the management of which has been assigned to an Investment Manager, who
shall be solely responsible for the management of the assets assigned to it, all
as specifically provided in the Plan. Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary as
being proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended under
the Plan that each named Fiduciary shall be responsible for the proper exercise
of its own powers, duties, responsibilities and
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obligations under the Plan. No named Fiduciary shall guarantee the Trust Fund in
any manner against investment loss or depreciation in asset value. Any person or
group may serve in more than one Fiduciary capacity. In the furtherance of their
responsibilities hereunder, the "named Fiduciaries' shall be empowered to
interpret the Plan and Trust and to resolve ambiguities, inconsistencies and
omissions, which findings shall be binding, final and conclusive.
9.13 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
9.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary,
contributions to this Plan are conditioned upon the initial
qualification of the Plan under Code Section 401. If the Plan
receives an adverse determination with respect to its initial
qualification, then the Plan may return such contributions to the
Employer within one year after such determination, provided the
application for the determination is made by the time prescribed
by law for filing the Employer's return for the taxable year in
which the Plan was adopted, or such later date as the Secretary
of the Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary, except
Sections 3.6, 3.7, and 4.1(e), any contribution by the Employer
to the Trust Fund is conditioned upon the deductibility of the
contribution by the Employer under the Code and, to the extent
any such deduction is disallowed, the Employer may, within one
(1) year following the disallowance of the deduction, demand
repayment of such disallowed contribution and the Trustee shall
return such contribution within one (1) year following the
disallowance. Earnings of the Plan attributable to the excess
contribution may not be returned to the Employer, but any losses
attributable thereto must reduce the around so returned.
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9.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a uniform,
nondiscriminatory manner. In the event of any conflict between the terms of this
Plan and any Contract purchased hereunder, the Plan provisions shall control.
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the consent of the
Employer and Trustee, any other corporation or entity, whether an affiliate or
subsidiary or not, may adopt this Plan and all of the provisions hereof, and
participate herein and be known as a Participating Employer, by a properly
executed document evidencing said intent and will of such Participating
Employer.
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required to
use the same Trustee as provided in this Plan.
(b) The Trustee may, but shall not be required to,
commingle, hold and invest as one Trust Fund all contributions
made by Participating Employers, as well as all increments
thereof. However, the assets of the Plan shall, on an ongoing
basis, be available to pay benefits to all Participants and
Beneficiaries under the Plan without regard to the Employer or
Participating Employer who contributed such assets.
(c) The transfer of any Participant from or to an Employer
participating in this Plan, whether he be an Employee of the
Employer or a Participating Employer, shall not affect such
Participant's rights under the Plan, and all amounts credited to
such Participant's Combined Account as well as his accumulated
service time with the transferor or predecessor, and his length
of participation in the Plan, shall continue to his credit.
(d) All rights and values forfeited by termination of
employment shall inure only to the benefit of the Participants of
the Employer or Participating Employer by which the forfeiting
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Participant was employed, except if the Forfeiture is for an
Employee whose Employer is an Affiliated Employer, then said
Forfeiture shall inure to the benefit of the Participants of
those Employers who are Affiliated Employers. Should an Employee
of one ("First") Employer be transferred to an associated
("Second") Employer which is an Affiliated Employer such transfer
shall not cause his account balance (generated while an Employee
of "First" Employer) in any manner, or by any amount to be
forfeited. Such Employee's Participant Combined Account balance
for all purposes of the Plan, including length of service, shall
be considered as though he had always been employed by the
"Second" Employer and as such had received contributions,
forfeitures, earnings or losses, and appreciation or depreciation
in value of assets totaling the amount so transferred.
(e) Any expenses of the Trust which are to be paid by the
Employer or borne by the Trust Fund shall be paid by each
Participating Employer in the same proportion that the total
amount standing to the credit of all Participants employed by
such Employer bears to the total standing to the credit of all
Participants.
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a party to this Plan;
provided, however, that with respect to all of its relations with the Trustee
and Administrator for the purpose of this Plan, each Participating Employer
shall be deemed to have designated irrevocably the Employer as its agent. Unless
the context of the Plan clearly indicates the contrary, the word "Employer"
shall be deemed to include each Participating Employer as related to its
adoption of the Plan.
10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the Employee
involved shall carry with him his accumulated service and eligibility. No such
transfer shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the Participating Employer from whom the Employee was transferred.
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10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION
Any contribution subject to allocation during each Plan Year shall be
allocated only among those Participants of the Employer or Participating
Employer making the contribution, except if the contribution is made by an
Affiliated Employer, in which event such contribution shall be allocated among
all Participants of all Participating Employers who are Affiliated Employers in
accordance with the provisions of this Plan. On the basis of the information
furnished by the Administrator, the Trustee shall keep separate books and
records concerning the affairs of each Participating Employer hereunder and as
to the accounts and credits of the Employees of each Participating Employer. The
Trustee may, but need not, register Contracts so as to evidence that a
particular Participating Employer is the interested Employer hereunder, but in
the event of an Employee transfer from one Participating Employer to another,
the employing Employer shall immediately notify the Trustee thereof.
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be a
Participating Employer hereunder shall only be by the written action of each and
every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue or revoke
its participation in the Plan. At the time of any such discontinuance or
revocation, satisfactory evidence thereof and of any applicable conditions
imposed shall be delivered to the Trustee. The Trustee shall thereafter
transfer, deliver and assign Contracts and other Trust Fund assets allocable to
the Participants of such Participating Employer to such new Trustee as shall
have been designated by such Participating Employer, in the event that it has
established a separate pension plan for its Employees, provided however, that no
such transfer shall be made if the result is the elimination or reduction of any
"Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). If no
successor is designated, the Trustee shall retain such assets for the Employees
of said Participating Employer pursuant to the provisions of Article VII hereof.
In no such event shall any part of the corpus or income of the Trust as it
relates to such Participating Employer be used for or diverted to purposes other
than for the exclusive benefit of the Employees of such Participating Employer.
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10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary
rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this Article.
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DYNACRAFT GOLF PRODUCTS, INC.
401(K) PROFIT SHARING PLAN AND TRUST
FUNDING POLICY AND METHOD
A pension benefit plan (as defined in the Employee Retirement Income
Security Act of 1974) has been adopted by the company for the purpose of
rewarding long and loyal service to the company by providing to employees
additional financial security at retirement. Incidental benefits are provided in
the case of disability, death or other termination of employment.
Since the principal purpose of the plan is to provide benefits at normal
retirement age, the principal goal of the investment of the funds in the plan
should be both security and long-term stability with moderate growth
commensurate with the anticipated retirement dates of participants. Investments,
other than "fixed dollar" investments, should be included among the plan's
investments to prevent erosion by inflation. However, investments should be
sufficiently liquid to enable the plan, on short notice, to make some
distributions in the event of the death or disability of a participant.
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DYNACRAFT EMPLOYEES STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
This is an Employees Stock Ownership Plan and Trust Agreement made at
Newark, Ohio, on January 30, 1991, by and between Dynacraft Golf Products,
Inc. and Pal Joey Custom Golf, Inc., hereinafter called the "Company" or the
"Companies", and The Huntington Trust Co., N.A., of Columbus, Ohio,
hereinafter called the "Trustee".
PROVISIONS
Section 1. ADOPTION OF PLAN; PURPOSE
Effective January 1, 1991, each Company hereby adopts this Employees
Stock Ownership Plan and Trust Agreement providing payments to those of its
employees who meet the conditions established herein and, under certain
circumstances, to the beneficiaries of such employees. Contemporaneously
with the execution of this Plan, an initial contribution has been made to the
Plan. The foregoing and all future contributions by the Companies to this
Plan, together with the income earned thereon, shall be held, managed and
administered in trust pursuant to the terms of this Plan. The Trustee hereby
agrees to perform the duties stipulated herein and to administer the Plan and
the Trust under the terms hereof.
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The primary purpose of the Plan is to enable eligible employees to acquire
stock ownership interests in the Company. Therefore, the trust established under
the Plan is designed to invest primarily in Company stock. The Plan is hereby
designated as a stock bonus plan under Section 401(a) of the Internal Revenue
Code and an employee stock ownership plan under Section 4975(e)(7) of the
Internal Revenue Code.
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Section 2. DEFINITIONS
Except to the extent the context otherwise requires, the terms defined in
this section shall have the meanings specified herein for all purposes under
this Agreement and any amendments hereto.
PARA2.01. GENDER OF WORDS. Words of the masculine gender shall be deemed
to include correlative words of the feminine and neuter genders.
PARA2.02. SINGULAR AND PLURAL. The singular shall include the plural and
the plural shall include the singular.
PARA2.03. COMPENSATION. "Compensation" means the aggregate of the amounts
paid by all of the Companies directly to an employee, up to a maximum of
$209,200 per year (or such amount in excess of $209,200 as may be established by
the Secretary of the Treasury from time to time pursuant to the provisions of
Section 415(d) of the Internal Revenue Code in order to take into account
increases in the cost of living), as regular or overtime wages, salary, bonuses,
commissions, or amounts deferred pursuant to a salary reduction agreement. It
does not include reimbursements of expenses, contributions made under this or
any other employee benefit or protective plan (except salary reduction
contributions), or any other indirect payments. "Eligible compensation" means
the compensation paid by all of the Companies to an employee in the portion of a
plan year during which the employee is a participant.
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In determining the compensation of a participant, the rules of Section
414(q)(6) of the Internal Revenue Code shall apply, except that in applying such
rules, the term "family" shall include only the spouse of the participant and
any lineal descendants of the participant who have not attained age 19 before
the close of the year. If the $209,200 limitation is exceeded as a result of
the application of the foregoing rules, then such limitation shall be prorated
among the affected individuals in proportion to such individual's compensation,
as determined under this PARA2.03 prior to the application of Section 414(q)
(6).
PARA2.04. HOUR OF SERVICE. "Hour of service" refers to:
(a) Each hour for which an employee is paid, or entitled to payment,
for the performance of duties for the employer These hours shall be
credited to the employee for the computation period or periods in which the
duties are performed; and
(b) Each hour for which an employee is paid or entitled to payment by
the employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship is
terminated) due to vacation, holiday, illness, incapacity (including
disability), lay-off, jury duty, military duty or leave of absence. No
more than 501 hours of service shall be credited under this subparagraph
for any single continuous
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period (whether or not such period occurs in a single computation
period). Hours under this paragraph shall be calculated and credited
pursuant to Section 2530.200b-2 of the Department of Labor Regulations
as now enacted or hereafter amended, which Regulations are incorporated
herein by this reference; and
(c) Each hour for which back pay, irrespective of mitigation
of damages, is either awarded or agreed to by the employer. The same
hours of service shall not be credited under subparagraph (a) or
subparagraph (b), as the case may be, and under this subparagraph (c).
These hours shall be credited to the employee for the computation period
or periods to which the award or agreement pertains rather than the
computation period in which the award, agreement or payment is made; and
(d) Each hour for which an employee is entitled to credit by the
employer on account of an uncompensated leave of absence by reason of
the pregnancy of the employee, the birth of a child of the employee, the
placement of a child with the employee in connection with the adoption
of such child by the employee, or for purposes of caring for a child
immediately following birth or placement. No more than 501 hours of
service shall be credited under this subparagraph for any single event
described herein. The hours of service described in this subparagraph
shall be treated as hours of
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service for the following computation periods: (i) only in the plan year
in which the absence from work begins, if the entire absence occurs in
such year or such treatment is necessary to prevent a break-in-service
in such year; and (ii) in any other case, in the plan year immediately
following the plan year in which the absence from work begins.
PARA2.05. YEAR OF SERVICE. "Year of service" means a plan year during
which an employee performs 1,000 or more hours of service for the Company,
except that for purposes of determining a participant's vested interest in that
portion of Company contributions to the Plan on his behalf which is made after a
1-year break-in-service, and any increments thereto, "year of service" does not
include any such year, as otherwise defined, occurring before the 1 year
break-in - service until the participant has completed a year of service
following the 1-year break-in-service.
PARA2.06. 1-YEAR BREAK-IN-SERVICE. A "1-year break-in-service" shall
consist of a plan year during which an employee performs 500 or less hours of
service for either Company or any combination of Companies. Transfers of
employment from one Company to another Company shall not be taken into account
in determining whether a break-in-service has occurred.
PARA2.07. EFFECTIVE DATE AND ANNIVERSARY DATE. "Effective date" means
January 1, 1991. 'Anniversary date" means each July 1 and January 1 after
January 1, 1991.
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PARA2.08. EMPLOYEE. 'Employee' means any person who bears to either
Company the common law relationship of employee to employer. A person's status
as an employee shall not be deemed terminated by temporary absences from work,
regardless of cause. A leased employee within the meaning of Section 414(n) (2)
of the Internal Revenue Code (as now enacted or hereafter amended) shall be
treated as an employee hereunder.
PARA2.09. EARLY RETIREMENT DATE; NORMAL RETIREMENT DATE. The 'early
retirement date' of each participant shall be the date on which such participant
attains age 55 or completes six (6) years of service, whichever is later. The
'normal retirement date' of each participant shall be the date on which such
participant attains age 65. A participant may remain in the employ of the
Company as long after reaching his or her normal retirement date as is mutually
acceptable to the Company and the participant. A participant who remains in the
employ of the Company after reaching his or her normal retirement date shall be
deemed to retire on the day upon which his or her employment terminates.
PARA2.10. PARTICIPANT. A 'participant' is any person who on the effective
date or any anniversary date shall have met the eligibility requirements for
participation in the Plan and whose interest in the assets of the trust has not
thereafter been terminated as a result of distribution or forfeiture.
PARA2.11. PARTICIPANT'S ACCOUNTS. 'Participant's accounts' means the
separate accounts to be set up by the Trustee in the
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name of each participant to which are to be credited those dollar amounts which
measure the interest of such participant in the assets of the trust.
PARA2.12. PLAN. 'Plan' means the employees stock ownership plan
incorporated in this Agreement and any amendments hereto that hereafter may be
adopted.
PARA2.13. PLAN ADMINISTRATOR. The 'Plan Administrator' shall be Dynacraft
Golf Products, Inc.
PARA2.14. PLAN YEAR; LIMITATION YEAR. The 'plan year' is the Plan's
accounting year of twelve (12) months commencing on January 1 of each year and
ending on the following December 31. The plan year shall also include all
similar periods prior to the effective date of the Plan. It shall be the
computation period for purposes of making all determinations hereunder regarding
years of service. The 'limitation year' is the plan year.
PARA2.15. TOTAL AND PERMANENT DISABILITY. 'Total and permanent
disability' under this Plan means total and permanent disability as defined
under 42 U.S.C.A. Section 423(d) or any statute of like tenor and effect that
may hereafter be enacted (i.e., as defined for Social Security purposes).
However, a participant shall not be considered to be so disabled if his or her
disability shall have resulted directly or indirectly from any injury or disease
which was intentionally self-inflicted or which was sustained or incurred during
any period of service in the armed forces of any country or while engaged in the
commission of
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any felonious act. Any participant or former participant previously determined
to be totally and permanently disabled may be required to submit from time to
time to examination by a physician designated or approved by the Plan
Administrator in order to determine whether he or she continues to be totally
and permanently disabled, but such examinations shall not be required more
frequently than once in any six (6) month period. The findings from physical
examinations shall be considered by the Plan Administrator in determining
whether or not the participant or former participant remains totally and
permanently disabled, but such findings shall not be binding upon the Plan
Administrator. The existence of the total and permanent disability of any
participant or former participant shall be determined by the Plan Administrator
in accordance with uniform principles consistently applied, upon such evidence
as is available to the Plan Administrator. If a participant or former
participant claiming to be totally and permanently disabled refuses to submit to
an examination by a physician as provided above, he or she shall not thereafter
be eligible to receive any disability benefits under the Plan.
PARA2.16. LINEAL DESCENDANTS. 'Lineal descendants' includes all adopted
children of a participant or of descendants by blood or by adoption.
PARA2.17. SECURITY. 'Security' means stock or any other evidence of
ownership of an equity interest in a partnership,
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joint venture, association, corporation or any other form of entity, and a bond,
debenture, note, certificate or any other evidence of indebtedness issued by any
such entity.
PARA2.18. COMPANY STOCK OR COMPANY'S COMMON STOCK. 'Company stock' or
'Company's common stock' means shares of capital stock issued by either Company
which are shares of voting common stock and which constitute 'employer
securities' under Section 409(1) of the Internal Revenue Code.
PARA2.19. AFFILIATE. An 'affiliate' of a Company is any corporation which
is a member of a 'controlled group of corporations' of which either Company is
also a member. For purposes hereof, whether a corporation is a member of a
controlled group of corporations shall be determined by reference to Section
1563 (a) of the Internal Revenue Code (as modified by Sections 414(b), (c) and
(m), or any statutes of like tenor and effect which may hereafter be enacted).
PARA2.20. ANNUAL ADDITION. Except as modified by PARA4.03 hereof, the
'annual addition' for any limitation year means the sum of the following: (a)
the Companies' contributions to the Plan for a participant for such limitation
year; (b) the participant's contributions to the Plan for such limitation year;
(c) the forfeitures credited to the participant for such limitation year; (d)
amounts allocated after March 31, 1984, to an individual medical account, as
defined in Section 415(l) (2) of the Internal Revenue Code, which is part of a
pension or annuity
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plan maintained by either Company; and (e) amounts derived from contributions
paid or accrued after December 31, 1985, in taxable years ending after that
date, which are attributable to post-retirement medical benefits allocated to
the separate account of a key employee, as defined in Section 419(A)(d)(3) of
the Internal Revenue Code, under a welfare benefit fund, as defined in Section
419(e) of the Internal Revenue Code, maintained by either Company. Rollover
contributions to the Plan by a participant, as defined in Sections 402(a)(5),
403(a)(4), 408(d)(3) and 409(b)(3)(C) of the Internal Revenue Code (or any
statutes of like tenor and effect which may hereafter be adopted) shall not be
counted as part of a participant's contributions to the Plan in computing the
participant's annual addition.
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Section 3. ELIGIBILITY
PARA3.01. FULFILLMENT OF CONDITIONS. Each employee who fulfills the
conditions set forth in PARA3.02 on the effective date shall become a
participant on such date. Each other present or future employee shall become a
participant on the anniversary date which coincides with or next follows the
date upon which he or she first fulfills such conditions. An employee who is a
participant at the time his or her employment terminates, regardless of the
reason for such termination, and who is subsequently reemployed, shall become a
participant again on the date of his reemployment.
PARA3.02. NATURE OF CONDITIONS. In order to become a participant, an
employee must have completed at least six (6) months of service with either
Company or any combination of Companies. For purposes of this PARA3.02, a
'month of service' shall commence on the first day on which an employee performs
an hour of service with either Company. An employee shall be credited with a
month of service for each succeeding 30-day period in which he or she performs
an hour of service.
Employees who are nonresident aliens and who receive no earned income
(within the meaning of Section 911(d) (2) of the Internal Revenue Code) from
either Company which constitutes income from sources within the United States
(within the meaning of Section 86l(a)(3) of the Internal Revenue Code) are not
eligible to participate in the Plan.
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PARA3.03. TERMINATION OF ELIGIBILITY. A participant shall cease to be
eligible to participate in the Plan as of the first day of a plan year during
which he or she has a 1-year break-in-service.
PARA3.04. INFORMATION TO BE FURNISHED TO TRUSTEE. Each Company shall
furnish to the Trustee all information respecting participants and their
beneficiaries which may be required for the proper discharge of the Trustee's
duties.
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Section 4. CONTRIBUTIONS
PARA4.01. COMPANY CONTRIBUTIONS. For the plan year ended December 31,
1991, and for each plan year thereafter, each Company shall contribute to the
trust, at such time or times as such Company may select, such amount as its
Board of Directors, in such Board's absolute discretion, may determine by
resolution duly adopted within the time limit prescribed by law for claiming
deductions for contributions to the Plan for such plan year, but in any event
each contribution by a Company shall not exceed an amount equal to the
Companies' maximum permissible deduction for federal tax purposes for the plan
year. Notwithstanding the foregoing provisions of this PARA4.01, the Companies
shall contribute to the trust such amounts as may be required to make principal
and interest payments on loans incurred by the Trustee to finance the
acquisition of Company stock as provided in PARA7.05 hereof.
The Company shall have no right, title or interest in or to any
contributions to the trust made by it, and no part of any such contributions or
any other assets of the trust estate shall ever revert to the Company.
PARA4.02. ALLOCATION OF COMPANY CONTRIBUTIONS AND FORFEITURES. As of the
end of each plan year, the Trustee shall allocate the Company's contributions to
the trust for such plan year (regardless of whether or not such contributions
have then actually been made), and all amounts which have been forfeited
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under the provisions of this Agreement during such plan year, among
participants, as follows:
(a) Allocate an amount equal to three percent (3%) of the eligible
compensation of each participant for the plan year (or such lesser amount
as is available) to each participant.
(b) Allocate the balance (if any) in proportion to the eligible
compensation of participants for the plan year.
(c) Notwithstanding the provisions of subparagraphs (a) and (b),
above, no portion of the Company's contributions to the trust for a plan
year, nor any forfeitures, shall be allocated to any participant who has
not performed at least 500 hours of service during the plan year.
If a shareholder of either Company sells Company stock to the Plan and
elects non-recognition of gain under Section 1042 of the Internal Revenue Code,
no portion of the Company stock purchased in any such transaction (or any
dividends or other income attributable thereto) may be allocated during the
nonallocation period (as hereinafter defined) to the accounts of such
shareholder; the spouse, brothers and sisters (whether by whole blood or half
blood), ancestors and lineal descendants (except as hereinafter limited) of such
shareholder; or any person who bears to such shareholder a relationship that is
described in Section 267(b) of the Internal Revenue Code. In
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addition, no portion of the Company stock purchased in any such transaction (or
any dividends or other income attributable thereto) may thereafter be allocated
to any participant owning (as determined under Section 318 (a) of the Internal
Revenue Code, without regard to Section 3l8(a)(2)(B)(i) of the Internal Revenue
Code) during the entire one-year period preceding the purchase, or on any
valuation date, more than twenty-five percent (25%) of any class of outstanding
Company stock or of the total value of any class of outstanding Company stock.
To the extent that a participant is subject to the allocation restrictions
described in this paragraph, he or she shall not share in the allocation of
Company contributions or forfeitures.
The nonallocation period referred to in the immediately preceding paragraph
is the period beginning on the date of the Plan's purchase of Company stock from
such shareholder and ending on the later of (i) the date which is ten (10) years
after the date of such purchase, or (ii) the date of the plan allocation
attributable to the final payment on any plan loan incurred to finance the
acquisition of such stock.
Except as hereinafter described in this 14.02, the allocation limitation
provided for lineal descendants of a selling shareholder shall not apply to any
such lineal descendant if the aggregate amount allocated to all such lineal
descendants during the nonallocation period (as hereinabove defined) does not
exceed more than five percent (5%) of the Company stock (or
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amounts allocated in lieu thereof) held by the Plan which is attributable to a
sale to the Plan by any person related to such descendants (within the meaning
of Section 267(c)(4) of the Internal Revenue Code) in a transaction to which
Section 1042 of the Internal Revenue Code applied.
In addition to the allocation limitations previously described in this
14.02, if a majority shareholder of either Company sells Company stock to the
Plan, no allocations of any kind shall be made to such selling shareholder or
any related persons to the extent that such allocations would cause (i) the
combined eligible compensation of each such selling shareholder and all related
persons to exceed twenty percent (20%) of the total eligible compensation under
the Plan; (ii) the total of the vested and nonvested account balances of each
such selling shareholder and all related persons to exceed twenty percent (20%)
of the total of all employee vested and nonvested account balances in the Plan;
(iii) the combined vested and nonvested interest of each such selling
shareholder and all related persons in any separately managed fund or account
(if any) within the Plan (not taking into account a separately managed fund or
account within the Plan that at no time may be credited with Company stock) to
exceed twenty percent (20%) of the total net assets in that fund or account; or
(iv) more than one-third of the Company contributions to the Plan to be
allocated to participants who are highly compensated employees (as defined in
PARA4.03 hereof).
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For purposes of the immediately preceding paragraph, the term "majority
shareholder' means any shareholder of either Company who at any time owned more
than fifty percent (50%) of the common stock of either Company. The term
'related persons' means the spouse, parents, grandparents, children and
grandchildren of a majority shareholder.
PARA4.03. LIMITATION ON CONTRIBUTIONS. In no event shall the annual
addition of any participant for all defined contribution plans of the Companies
for any limitation year exceed the lesser of (a) twenty-five percent (25%) of
the participant's eligible compensation for such plan year or (b) $30,000 or
such amount in excess of $30,000 as may be established from time to time
pursuant to the provisions of Section 415 of the Internal Revenue Code (or any
statute of like tenor and effect which may hereafter be enacted) in order to
take into account increases in the cost of living. The Companies shall not make
any contributions to the Plan which will cause the annual addition of any
participant for any limitation year to exceed the foregoing limitation.
Any Company contributions which are used to pay interest on loans to
acquire Financed Shares (as described in PARA7.05 hereof), and any of such
Financed Shares which are allocated as forfeitures, shall not be included as
annual additions; provided, however, that the provisions of this paragraph shall
be applicable for any plan year only if not more than one-third of the Company
contributions applied to pay principal and interest on such loan for the plan
year are allocated to participants who
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are highly compensated employees. For purposes of this paragraph, an 'highly
compensated employee' is an employee who (a) is a five percent (5%) owner, (b)
has eligible compensation in excess of $75,000, (c) has eligible compensation in
excess of $50,000 and is in the top-paid twenty percent (20%) of employees, or
(d) is an officer of either Company and has eligible compensation in excess of
fifty percent (50%) of the amount in effect under Section 415(b) (1) (A) of the
Internal Revenue Code. The foregoing definition is in accordance with Section
414(q) of the Internal Revenue Code and the dollar amounts described therein
shall be increased or decreased, as the case may be, from time to time in the
manner described in Section 414(q).
If either Company by "mistake of fact', as defined in Section
403(c)(2)(A)(i) of ERISA, makes a contribution to the Plan which causes the
annual addition of a participant for any limitation year to exceed the foregoing
limitation, the excess contribution shall be refunded to such Company within one
(1) year after it is made. Otherwise, any excess annual additions shall be used
to reduce Company contributions for the next limitation year (and succeeding
limitation years, as necessary) for that participant if such participant is
still a participant in the Plan as of the end of such succeeding limitation
year. If the participant is no longer a participant in the Plan as of the end
of such succeeding limitation year, then the excess annual addition shall be
held unallocated in a suspense account for such succeeding limitation year and
reallocated in the next limitation
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year to all of the remaining participants in the Plan in accordance with the
rules set forth in Treas. Reg. Section 1.415-6(b) (6) (i) as now enacted or
hereafter amended. Such excess annual addition shall then be used to reduce
Company contributions for the next limitation year (and succeeding limitation
years, as necessary) for all of the remaining participants in the Plan. Excess
annual additions may not be distributed to participants or former participants
except as is otherwise provided in Section 6 of the Plan.
For purposes of this PARA4.03, an excess annual addition must have been
caused by an allocation of forfeitures, a reasonable error in estimating a
participant's annual compensation, or such other facts and circumstances which
the Commissioner finds justifiable under the rules set forth in Treas. Reg.
Section 1.415-6.
PARA4.04. PARTICIPANT ACCOUNTS. The Plan Administrator shall maintain the
following separate accounts for participants:
(a) Company Stock Account. The Company Stock Account maintained for
each participant will be credited annually with such participant's
allocable share of Company stock (including fractional shares) purchased
and paid for or contributed in kind to the trust. It shall also be
credited annually with forfeitures (if any) of Company stock and any stock
dividends paid by the Company on its stock.
(b) Other Investment Account. The Other Investment Account
maintained for each participant will be credited
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annually with such participant's allocable share of all other assets of the
trust.
(c) Loan Suspense Account. Any Financed Shares (as defined in
PARA7.05 hereof) acquired by the trust shall initially be credited to a
Loan Suspense Account and will be allocated to the Company Stock Account of
each participant only as payments on the loan to acquire such shares are
made by the Trustee. The number of Financed Shares to be released from the
Loan Suspense Account for allocation to a participant's Company Stock
Account for each plan year shall be determined by multiplying the total
number of Financed Shares held in the Loan Suspense Account immediately
before such release by a fraction. The numerator of the fraction shall be
the amount of principal and interest paid on the loan to acquire the
Financed Shares for the plan year, and the denominator of the fraction
shall be the sum of the numerator and the total amount of all future
principal and interest payments projected to be paid on the loan to acquire
such shares. For purposes of this subparagraph (c), the interest to be
paid in future years shall be computed by using the interest rate in effect
on the current valuation date.
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Section 5. VESTING
PARA5.01. VESTING OF COMPANY CONTRIBUTIONS. Upon termination of
employment due to death, or total or permanent disability, or upon reaching
normal retirement date, each participant shall have a fully vested interest in
the credit balance in his or her Company contribution account; otherwise, each
participant shall have only the vested interest in the credit balance in his or
her Company contribution account that is set forth in the following table
opposite the number of his or her years of service.
Years Vested Percentage of
of Service Company Contribution Account
---------- ----------------------------
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or More 100%
The vested interest of a participant in the credit balance in his or her Company
contribution account at any time shall be subject to divestment only as is
provided in PARA5.02 and PARA5.03.
If the Plan's vesting schedule is amended or the Plan is amended in any way
that directly or indirectly affects the computation of a participant's vested
interest, each participant with at least three (3) years of service may elect to
have his or her vested interest computed under the Plan without regard to such
amendment. Each such participant shall have the right to make the foregoing
election at any time during the election period. For purposes of this
paragraph, the election period
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shall begin on the date the plan amendment is adopted and shall end no earlier
than the latest of the following dates: (i) the date which is sixty (60) days
after the day the plan amendment is adopted; (ii) the date which is sixty (60)
days after the day the plan amendment becomes effective, or (iii) the date which
is sixty (60) days after the day the participant is issued written notice of the
plan amendment by the Plan Administrator.
PARA5.02. DIVESTMENT UPON TERMINATION OF DISABILITY. If a participant
whose interest in his or her Company contribution account became fully vested by
reason of total and permanent disability is determined according to the
provisions of PARA2.15 to be no longer totally and permanently disabled or
refuses to submit to the physical examinations required by such paragraph, such
participant's vested interest in such account shall be reduced to that
percentage thereof to which he or she would have been entitled under the
provisions of PARA5.01 absent total and permanent disability. There shall be no
obligation on the part of a participant to repay any portion of his or her
Company contribution account which may have been distributed to him or her prior
to the application of the provisions of this paragraph, regardless of whether or
not the result is that he or she will receive a greater percentage of such
account than that to which he or she would have been entitled under the
provisions of PARA5.01 absent total and permanent disability.
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PARA5.03. FORFEITURES. Upon termination of a participant's employment for
any reason other than death, retirement at or after early retirement date or
normal retirement date, or total and permanent disability, or at such time as a
participant is divested of a portion of his vested interest in his or her
Company contribution account by virtue of the provisions of PARA5.02, the
non-vested portion of the participant's Company contribution account shall be
placed in a special suspense account. Each special suspense account, while it
is in existence, shall be treated as though it were a participant's account for
purposes of crediting or debiting any valuation adjustments made pursuant to the
provisions of PARA6.01.
In the event that a participant who has had a portion of his or her Company
contribution account placed in a special suspense account is reemployed by the
Company before he or she has incurred five (5) consecutive '1-year
breaks-in-service" as defined in PARA2.06, there shall be restored to his or her
Company contribution account the portion thereof previously placed in the
special suspense account, plus any increments thereto; provided that, if he or
she received a distribution under the provisions of Section 6 in connection with
the termination of his or her employment, the participant pays back into the
Plan the amount of such distribution before he or she has incurred five (5)
consecutive '1-year breaks-in-service". Otherwise, the portion of a
participant's account which is placed in a special suspense
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<PAGE>
account, plus any increments thereto, shall be deemed forfeited at the end of
the plan year in which the participant incurs five (5) consecutive '1-year
breaks-in-service", as defined in PARA2.06, or dies, whichever is earlier, and
then shall be allocated among the other participant's in accordance with the
provisions of PARA4.02.
To the extent that the amount which a participant pays back into the Plan,
as hereinabove provided in this PARA5.03, is not paid in shares of Company
stock, such amount shall be allocated to such participant's Other Investment
Account.
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Section 6. DETERMINATION AND DISTRIBUTION OF BENEFITS
PARA6.01. VALUATION OF TRUST; ADJUSTMENT OF PARTICIPANT'S ACCOUNTS. The
Trustee shall determine the net worth of the trust as of each December 31 and at
such time or times as may be required or as the Trustee shall deem appropriate.
No determination of benefits shall be based upon a determination of net worth
made more than one (1) year removed from the date as of which such determination
of benefits is to be made. In determining the net worth of the trust, the
Trustee shall value the assets of the trust at their fair market value and may
deduct any taxes and any expenses incurred in connection with the operation of
the trust for which the Trustee is not assured to its satisfaction of obtaining
reimbursement from the Companies. In determining the fair market values of the
assets of the trust, the Trustee shall use such market values as it deems to be
fair, and its judgment with reference thereto shall be binding upon all affected
persons. The fair market value of Company stock shall be based upon a valuation
by an independent appraiser. If at the time of any valuation of the assets of
the trust the Trustee is holding any balance for deferred distribution to any
former participant or his or her beneficiary under any arrangement which
precludes sharing in the earnings and losses of the trust (whether or not such
arrangement calls for the accrual or payment of interest on such balance), such
balance and any interest accrued thereon shall be treated as both an asset and a
liability
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<PAGE>
of the trust. As of each date as of which the Trustee determines the net worth
of the trust, the Trustee shall, except for any balance described in the
preceding sentence, adjust the net credit balance in each account of each
participant upward or downward, PRO RATA, so that the total of such net credit
balances equals the total net worth of the trust. Each such adjustment shall be
effected before the making of any credits to participants' accounts as of the
same date for contributions or forfeitures and by charging taxes or expenses
which the Trustee decides to deduct in accordance with the provisions of this
paragraph solely to those accounts of participants that arise by virtue of
Company contributions.
16.02. DISTRIBUTION OF BENEFITS UPON DEATH; ELECTIONS. Upon being
notified by a Company in writing of the death of a participant (whether or not
still employed immediately prior to death), the Plan Administrator shall
determine the aggregate value of the credit balances of such participant's
various accounts and then shall instruct the Trustee to distribute such value to
the participant's surviving spouse (if any) in one lump sum, unless the
participant's surviving spouse has consented under the provisions of this 16.02
to a distribution to someone else, in which event the Trustee shall distribute
the aforesaid value in accordance with the beneficiary designation to which such
spouse has consented.
If a participant is not married on the date of his or her death and has
made an effective beneficiary description, or if
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<PAGE>
prior to a participant's death, the participant and his or her spouse elected
under the provisions of this PARA6.02 to designate a beneficiary other than the
participant's spouse, the Plan Administrator shall notify the Trustee in writing
of the names and addresses of the participant's designated beneficiary or
beneficiaries. The Trustee shall then distribute an amount equal to each
beneficiary's share of the aggregate value of the credit balances of such
participant's various accounts to such beneficiary in one lump sum.
If a participant is not married at the time of his or her death and does
not have an effective designation of beneficiary on file with the Plan
Administrator at such time, the Trustee shall, upon being notified by the
Company in writing of such fact and the names of such participant's surviving
lineal descendants, if any, distribute such benefits as mav then become due to
the following beneficiary or beneficiaries in one lump sum: if such participant
has surviving lineal descendants, to such descendants, PER STITPES; if such
participant does not have any surviving lineal descendants, to his or her
estate.
Each employee of the Company shall, at the time he or she becomes a
participant in the Plan, designate in writing one or more beneficiaries to
receive the benefits payable under this paragraph. A participant may at any
time revoke or change any designation of beneficiary previously made by him or
her by filing written notice of such revocation or change with the Plan
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Administrator. A participant's spouse must consent in writing to any
beneficiary designation which designates a beneficiary other than the
participant's spouse or would eliminate or reduce the benefits he or she would
otherwise be entitled to receive under the Plan, and such consent must
acknowledge the effect it will have on such spouse and be witnessed by a
representative of the Plan Administrator or a notary public. A beneficiary
designation, designating anyone other than a participant's spouse to receive
benefits hereunder, shall automatically be revoked upon the subsequent marriage
or remarriage of the participant, unless the participant's new spouse consents
to such designation as provided in this 16.02.
16.03. DISTRIBUTION OF BENEFITS UNDER OTHER CIRCUMSTANCES. Upon being
notified by a Company in writing that a participant has terminated employment
for any reason other than death, the Plan Administrator shall determine the
aggregate value of the credit balances of such participant's accounts and his or
her vested interests therein, and then shall instruct the Trustee to distribute
an amount equal to the value of such vested interests to such participant as
follows:
(a) If the credit balance in such participant's accounts is $3,500 or
less, or if (i) the credit balance in such participant's accounts is more than
$3,500 and (ii) such participant and his or her spouse (if any) elect to receive
a lump sum distribution, then in one lump sum;
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<PAGE>
(b) Otherwise, in one lump sum on the date on which the participant
reaches his or her normal retirement date.
PARA6.04. COMMENCEMENT OF DISTRIBUTIONS. Distribution of benefits
pursuant to the provisions of Section 6 shall be made as soon as
administratively feasible after the participant separates from service by reason
of reaching his or her normal retirement date, or in the event of total and
permanent disability (as defined in PARA2.15 hereof) or death. Otherwise,
distribution of benefits shall be made or commence as soon as administratively
feasible after the fifth plan year following the plan year in which the
participant separates from service; provided that, such participant is not
reemployed by a Company before distribution is required to begin hereunder. For
purposes of calculating the value of a participant's benefits under the
provisions of this 6. the account balance of a participant shall not include
Company stock acquired with the proceeds of a plan loan, as described in
PARA7.05 hereof and in Section 404(a)(9) of the Internal Revenue Code, until the
close of the plan year in which such loan is repaid in full.
In any event, distribution of benefits hereunder will commence not later
than the sixtieth (60th) day after the latest of the close of the plan year in
which: (i) the participant attains the age of 65; (ii) occurs the tenth (10th)
anniversary of the year in which the participant commenced participation in the
Plan; or (iii) the participant terminates his service with the Companies.
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<PAGE>
16.05. DISTRIBUTIONS PRIOR TO TERMINATION OF EMPLOYMENT. Distribution of
benefits to a participant who attains age 70-1/2 in a plan year must commence
not later than the April 1st of the next plan year, even if such participant has
not yet terminated employment. Distributions to such participants shall be made
in one lump sum.
A participant who has attained age 55 and completed at least ten (10) years
of participation in the Plan shall be notified of his or her right to elect to
withdraw a portion of his or her Company Stock Account. An election to withdraw
must be made on such forms as are prescribed by the Plan Administrator, and
shall be filed with the Plan Administrator within ninety (90) days after the
close of each plan year in the election period. For purposes of this paragraph,
the "election period" means the period of six (6) consecutive plan years
beginning with the plan year in which the participant first becomes eligible to
make a withdrawal. For each of the first five plan years in the election
period, the participant may elect to withdraw an amount which does not exceed
twenty-five percent (25%) of the balance in his or her Company Stock Account,
less any amounts previously withdrawn under the provisions of this paragraph.
In the sixth plan year in the election period, the participant may elect to
withdraw an amount which does not exceed fifty percent (50%) of the balance in
his or her Company Stock Account, less all amounts previously withdrawn. The
Trustee shall distribute, at the direction of the Plan Administrator, all
amounts
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withdrawn pursuant to the provisions of this paragraph within ninety (90) days
after the end of the applicable election period.
PARA6.06. DISTRIBUTIONS IN KIND; PUT OPTION; RIGHT OF FIRST REFUSAL.
Distribution of benefits pursuant to the provisions of Section 6 shall be made
in the form of Company stock, provided that fractional shares may be converted
to money and distributed in that form. If a terminating participant or his or
her designated beneficiary (as the case may be) desires to sell the Company
stock which has been distributed to him or her, the Company or the trust shall
purchase such stock at any time during the following two put option periods.
The first put option period shall be for sixty (60) days beginning on the date
of distribution. The second put option period shall be for sixty (60) days
beginning after a new determination of fair market value (and notice to the
participant thereof) has been made for the following plan year.
The purchase price for stock which is subject to the put option shall be
its fair market value, as determined under the provisions of PARA6.01. Payment
of the purchase price shall be made in substantially equal annual installments
over a five (5) year period commencing thirty (30) days after the participant
exercises the put option. The deferred portions of the purchase price shall be
adequately secured and shall bear a reasonable rate of interest. The Company or
the trust (as the case may be) shall have the right to prepay the deferred
portions of the purchase price.
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Any shares of Company stock distributed to participants pursuant to the
provisions of this PARA6.06 shall be subject to a right of first refusal. The
right of first refusal shall provide that, prior to any subsequent transfer by
the recipient of such shares, the shares must first be offered for purchase in
writing to the Company, and then to the trust, at its most recent value, as
determined under the provisions of PARA6.01 hereof. The Company and the trust
shall have fourteen (14) days to exercise the right of first refusal.
Any shares of Company stock distributed by the trust may include a legend
restricting the transferability of such shares as hereinabove provided, or as
may be required in order to assure compliance with applicable state and federal
securities laws. Except as is provided in this PARA6.06, no shares of Company
stock held. or distributed by the Trustee mav be subject to a put, call or other
option, or buy-sell or similar arrangement. The restrictions on transferability
provided in this PARA6.06 shall continue to be applicable to Company stock even
if this plan ceases to be an Employees Stock Ownership Plan under Section
4975(e) (7) of the Internal Revenue Code (as now enacted or hereafter amended).
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Section 7. ADMINISTRATION OF THE PLAN AND TRUST
PARA7.01. POWERS AND DUTIES OF PLAN ADMINISTRATOR; APPEALS FROM
DETERMINATIONS. The Plan Administrator shall be a "named fiduciary" within the
meaning of Section 402 of the Employee Retirement Income Security Act of 1974 or
any other statute of like tenor and effect which may hereafter be enacted. It
shall have exclusive responsibility and authority for administering the Plan,
except to the extent that such responsibility and authority are delegated to the
Trustee by the provisions of this Agreement (and only to that extent). It shall
have all powers necessary to carry out the provisions of this Agreement,
including, without limitation, the power to delegate any portion of its
responsibility and authority hereunder to any other individual or entity. It
shall discharge its responsibilities hereunder on a non-discriminatory basis.
Each Company shall pay all expenses of administering the Plan and Trust,
including, without limitation, the compensation of the Trustee and all persons
employed in accordance with the provisions of PARA7.02. However, neither
Company shall pay any income or other tax which may be imposed upon the Trustee
or the trust estate. No compensation or expense of the Plan or Trust shall be a
charge upon the trust estate unless the applicable Company shall fail to pay it
upon demand.
The Trustee shall not be obligated to take any action or appear or
participate in any action which would subject it to
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<PAGE>
expense or liability unless it is first furnished with funds by the applicable
Company sufficient in its judgment to meet such expense or liability.
The Plan Administrator shall resolve all questions concerning the meaning
or validity of this Agreement, including, without limitation, all questions
concerning eligibility to participate hereunder and the distribution of benefits
herefrom. If the Plan Administrator makes any determination hereunder that is
adverse to the interests of any employee, participant or beneficiary, the Plan
Administrator shall notify such employee, participant or beneficiary in writing
of such determination, the reasons there for and his appeal rights in readily
understandable language. Any employee, participant or beneficiary who believes
that any determination hereunder which is adverse to his interests is erroneous
may appeal such determination to the Plan Administrator's Board of Directors by
filing a written statement of appeal with such Board within sixty (60) days
after receiving notification of the determination. Each statement of appeal
shall set forth with particularity the reasons that the appealing party believes
that the determination covered thereby is erroneous. The Plan Administrator's
Board shall, upon request by an appealing party, hold a hearing with respect to
an appeal at which the appealing party shall be entitled to be represented by
counsel. All decisions by the Plan Administrator's Board on any appeal shall be
in writing, shall set forth the reasons for the
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conclusions reached, and shall be binding and conclusive on all interested
parties.
PARA7.02. APPOINTMENT OF AGENTS OR OTHERS. Upon being notified in writing
by the Plan Administrator to do so (but not otherwise), the Trustee shall
appoint to manage the assets of the trust estate such individual or entity as
the Plan Administrator may designate in its notice, provided only that the
individual or entity so designated meets the requirements of an 'investment
manager' set forth in Section 3(38) of the Employees Retirement Income Security
Act of 1974 or any statute of like tenor and effect which may hereafter be
enacted. The Trustee shall not be liable, either jointly or severally, for the
acts or omissions of any investment manager appointed pursuant to the provisions
of this PARA7.02. Moreover, the Trustee shall not be obligated, either jointly
or severally, to invest or otherwise manage any assets of the trust estate which
are under the management of any investment manager appointed pursuant to the
provisions of this PARA7.02.
Except as is otherwise provided in the preceding paragraph, the Plan
Administrator or the Trustee may employ any agents, attorneys-in-fact,
attorneys-at-law, accountants, actuaries, appraisers, brokers, custodians or
other advisers, specialists or assistants whose services are deemed desirable in
connection with the administration of the trust. Neither the Plan Administrator
nor the Trustee shall be liable for any neglect, omission, misconduct or default
of any such person, provided he was selected and retained with reasonable care.
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No employee of either Company who is serving as Trustee hereunder or to
whom the Plan Administrator delegates any portion of its responsibility and
authority hereunder in accordance with the provisions of PARA7.01 shall be paid
any compensation out of the trust estate.
PARA7.03. TRUSTEE'S INVESTMENT POWERS. The Trustee shall have the
investment powers enumerated in this and succeeding sections in addition to, and
not in modification or limitation of, any inherent or implied or statutory
investment powers he may now or hereafter have.
The Trustee shall invest the assets of the trust primarily in shares of the
Company's common stock and may invest up to one hundred percent (100%) of
Company contributions to the trust in such shares, except that the Trustee may
maintain a reasonable cash reserve to facilitate distributions.
The Trustee may carry fractional shares of the Company's common stock in a
participant's account until distribution thereof is required by the provisions
of Section 6.
Except as is otherwise provided in this PARA7.03, the Trustee may make
investments for the Trust having regard to the production of income and the
protection of the purchasing power of principal as well as to the security of
principal. The Trustee shall exercise its investment powers with the care,
skill, prudence and diligence under the circumstances prevailing that a prudent
man acting in like capacity and familiar with such
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matters would use in the conduct of an enterprise of a like character and with
like aims. It shall diversify the investments of the Trust so as to minimize
the risk of large losses, unless under the circumstances it is prudent not to do
so. It shall not be restricted by any statute or rule of law designating
investments eligible for trusts.
Subject only to the limitations set forth above, the Trustee may invest and
reinvest the principal and income of the trust in such securities or property,
real or personal, wherever situated, as it shall deem advisable, including, but
not limited to: stocks, common or preferred, whether or not listed on any
exchange; shares, common or preferred, of investment companies or investment
trusts, whether open-end or closed-end; general and limited partnership
interests; and bonds, notes or other evidences of indebtedness or ownership,
regardless of by whom issued or of when or whether the same shall mature or of
whether the same are secured or unsecured and, if secured, regardless of the
character of the security or of the location of any property constituting the
security. The foregoing powers include the power to invest in obligations and
stocks issued by any government or public corporation, shares or certificates or
other evidences of deposit issued by any federally insured savings and loan
association or building and loan association, and common trust funds maintained
by any financial institution, whether or not such financial institution is
serving as a Trustee hereunder.
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The Trustee may invest and reinvest assets in any common trust fund
maintained by the Trustee for employee benefit trusts. Money and other assets of
the trust invested in any such common trust fund shall be held and administered
in accordance with the terms and provisions of such common trust funds. All of
the terms and provisions of any such common trust fund, as the same shall be
from time to time amended, altered or supplemented, shall be deemed to be
incorporated herein and to be a part hereof at all times when any money or other
assets of the trust are held in any such common trust fund.
The Trustee may invest and reinvest in shares or certificates or other
evidences of deposit issued by, or to deposit funds in, a bank (including the
Trustee, if a bank, and any bank affiliated with the Trustee) organized under
the laws of, or a savings and loan or building and loan association chartered
by, the United States or any state thereof, or the District of Columbia.
PARA7.04. CASH RESERVE. The Trustee may from time to time keep such
portion of the trust estate in cash balances as it believes to be necessary to
provide for anticipated current disbursements, to meet liabilities or for other
purposes. Such cash balances may be deposited in such interest-bearing accounts
as the Trustee may select. For purposes of this PARA7.04, the term
"interest-bearing accounts" shall include, but shall not be limited to, money
market certificates, cash funds, commercial
39
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paper having a maturity date of 280 days or less, and federally insured bank or
savings and loan accounts or certificates of deposit. The Trustee shall not
incur any liability because of any loss of such cash balances if it exercised
reasonably judgment in the selection of such interest-bearing accounts, nor
shall it be liable for loss of any interest thereon.
PARA7.05. POWERS RESPECTING PROPERTY; LOANS TO FINANCE THE ACQUISITION OF
COMPANY STOCK. The Trustee may accept, hold for such time as it may deem
advisable, manage, improve, protect and alter all property delivered or conveyed
to it by any Company or otherwise acquired by it. It may contract to sell or
exchange, sell or exchange at public or private sale or otherwise, or convey,
transfer, release, abandon or otherwise dispose of any property, real or
personal. It may grant options to purchase the whole or any part of any real or
personal property or any interest therein. It may transfer or convey real or
personal property to a successor Trustee or Trustees and grant to him or them
all the title, estate and powers vested in the Trustee with respect to such
property. It may mortgage, pledge or otherwise encumber any real or personal
property, in possession or reversion, and borrow money on the credit of the
trust estate. It may lease, assign and take assignments of leases, contract to
make leases, and grant options to lease and options to renew leases, all
irrespective of the time of commencement of any lease or the duration of the
trust. It may manage, operate, repair,
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<PAGE>
develop, improve or partition any real property constituting a part of the trust
estate. It may grant easements or charges of any kind, and release, convey or
assign any right, title or interest with respect to any easement pertinent to
any real property constituting a part of the trust estate. It may deal with any
real or personal property in any other ways and for any purposes or
considerations that it would be lawful for any person owning such property to
deal with it. It may execute, acknowledge and deliver any deeds, mortgages,
releases, consents, waivers, documents of transfer and conveyance, guarantees
and other instruments of every kind and nature which it deems necessary,
desirable or appropriate in carrying out the provisions of this Agreement. It
may purchase and carry such insurance, including public liability and property
damage insurance, against such hazards to it or to the trust estate, in such
amounts, and in such stock or mutual companies, as it shall deem advisable. It
may consent to change any rate of interest on, or extend the maturity date of,
or make any other modification in the terms of, any debt or obligation due to or
from it. It may renew or extend or participate in the renewal or extension of
any agreement or guarantee upon such terms as it deems advisable. It may agree
to any other modification or change in the terms of any agreement or guarantee
in any manner and to any extent that it deems advisable. It may waive any
default in the performance of any covenant or condition of any
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agreement or guarantee, and it may enforce any such default, in any manner and
to any extent that it deems advisable. It may exercise and enforce any and all
rights of foreclosure, bid in property on foreclosure, or take a deed in lieu of
foreclosure with or without paying a consideration therefor. It may release any
obligation due to it and exercise and enforce in any action, suit or proceeding
at law or in equity any right or remedies in respect of any such obligation. It
may do any and all of the things authorized by this section at any time and from
time to time and for any consideration (including no consideration) and upon any
terms approved by it.
The Plan Administrator may direct the Trustee to incur loans to finance the
acquisition of Company stock (hereinafter called the "Financed Shares"), and in
such event, the proceeds of the loan shall be used solely for such stock
acquisitions. Any such loan shall be for a specific term, shall bear a
reasonable rate of interest and shall not be payable on demand except in the
event of default. The loan may be secured by a pledge of the Financed Shares.
No other trust assets may be pledged as collateral for the loan, and no lender
shall have recourse against trust assets other than the Financed Shares
remaining subject to the pledge. If the lender is a party-in-interest (as
defined by the Employees Retirement Income Security Act), the loan must provide
for a transfer of trust assets to the lender on default only upon and to the
extent of the failure of the trust to meet the payment
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<PAGE>
schedule of the loan. Any pledge of Financed Shares must provide for the
release of the shares so pledged as payment on the loan is made by the Trustee
and the allocation of such Financed Shares to participants' Company Stock
Accounts under PARA4.04 hereof. Payments of principal or interest on any such
loan shall be made by the Trustee only from Company contributions paid in cash
to enable the Trustee to repay such loan, earnings attributable to such Company
contributions, or cash dividends received by the trust on the Financed Shares;
and the payments made with respect to such loan shall not exceed the sum of such
Company contributions and earnings and dividends for that plan year (and prior
plan years), less the amount of payments for prior plan years. If either
Company is the lender with respect to such loan, Company contributions may be
paid in the form of cancellation of indebtedness under such loan. If neither
Company is the lender with respect to such loan, either Company may elect to
make payments on such loan directly to the lender and to treat such payments as
Company contributions.
PARA7.06. POWERS TO MANAGE, VOTE, ETC., SECURITIES. The Trustee may cause
any security to be registered in its name as Trustee hereunder or in the name of
one or more nominees, or place it in the custody of a custodian to be held by
such custodian in any form or name at any place or places acceptable to the
custodian and the Trustee, or take and keep the same unregistered and retain it
in such condition that it will pass by delivery.
43
<PAGE>
Shares of Company stock owned by the Plan shall be voted by the Trustee
only in such manner as shall be directed by the Plan Administrator. With
respect to any corporate matter which involves the voting of shares of Company
stock at a shareholder meeting and which constitutes a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business, or a similar transaction
specified in Section 409(e)(3) of the Internal Revenue Code (and the regulations
promulgated thereunder), each participant or beneficiary will be entitled to
direct the voting of shares of Company stock then allocated to his or her
Company Stock Account. Any allocated shares of Company stock with respect to
which voting directions are not given shall not be voted. Shares of Company
stock held by the Plan which have not yet been allocated to the Company Stock
Account of any participant shall be voted in the manner determined by the Plan
Administrator.
Except as is otherwise provided hereinabove, the Trustee may: attend any
and all corporate meetings, act upon any and all questions that may come before
any such meeting; grant proxies or powers of attorney (which may be general or
special, discretionary, and with or without power of substitution) to authorize
others to vote any stock or other security held in the trust estate in any such
meetings and take any other action or exercise any right which the Trustee
itself could take or exercise if present; exercise or dispose of or waive or
abandon
44
<PAGE>
subscription, conversion and other rights and options accruing with respect to
any stock or other security held in the trust estate; become a party to any
voting-trust agreements respecting any stock or other security held in the trust
estate; oppose or consent to or otherwise participate in any mergers,
consolidations, reorganizations or readjustments of capital structures or other
changes affecting companies or other organizations issuing stock or other
securities held in the trust estate; consent to the sale, mortgage, pledge or
lease of any property of any company or other organization any of the securities
of which may be held in the trust estate; join in any reorganization or
protective plan; serve as members of any stockholders' or bondholders'
protective or other committee; delegate discretionary powers to any such
committee; pay money and incur obligations in connection with anything done
pursuant to this section; execute and deliver any and all instruments which the
Trustee may deem it necessary, desirable or appropriate to execute and deliver
in connection with the ownership or disposition of any security; and generally
have and exercise in dealings with third parties with respect to securities the
rights, powers and privileges of absolute owners.
PARA7.07. SIGNING OF DOCUMENTS AND INSTRUMENTS. At any time when two or
more Trustees are serving hereunder, the act of a majority of the Trustees shall
be the act of all of the Trustees. Any document or instrument to be signed by or
on behalf of the
45
<PAGE>
Trustees may be signed by all of them or, if they so specify in a writing signed
by a majority of them, by any one or more of them or by any one or more other
persons. Any such document or instrument so signed may be fully relied upon by
any interested person as though it had been signed by all of the Trustees.
PARA7.08. OTHER POWERS OF TRUSTEE. The Trustee may generally, in addition
to all of the particular powers elsewhere herein conferred upon it, do all
things for the preservation and enhancement of the trust estate that it may deem
necessary, desirable or appropriate to do. The Trustee may act under this
Agreement without prior notice to any person and without the authority or
approval of any court. Wherever in any provision of this Agreement conferring
power or authority upon the Trustee, "and" or "or" is used in any series of
words, phrases or clauses, it shall be construed as both conjunctive and
disjunctive, the context permitting. All powers of the Trustee shall be
continuing ones; none shall be exhausted by the exercise or repeated exercises
thereof; and a power once exercised may be exercised in a different way and with
a different or inconsistent result upon any subsequent exercise thereof.
PARA7.09. RELIANCE BY TRUSTEE. The Trustee may rely upon any affidavit,
certificate, letter, telegram or other written or oral notice or statement
reasonably believed by it to be genuine. The Trustee may rely upon the
information furnished and directions given to it by either Company or the Plan
Administrator in
46
<PAGE>
accordance with the provisions hereof, and if, by so relying, it makes payments
in excess of those to which a participant or beneficiary is entitled hereunder
or fails to make payments to which a participant or beneficiary is entitled, it
shall be indemnified, and the excess expenditure, if any, from the trust estate
shall be reimbursed by the applicable Company. No successor Trustee shall have
any duty to inquire into the administration of the trust by any predecessor, nor
any liability with respect to such administration or any failure of any
predecessor fully to carry out his obligation as Trustee.
PARA7.10. ACCOUNTS AND AUDITS. As of each valuation date, the Trustee
shall render to the Plan Administrator and each participant a statement of the
condition of the trust and such participant's accounts therein at such date and
of the operations of the trust during the fiscal period ended on such date. The
Plan Administrator may, at any time or times, at its expense, cause an audit to
be made of the books and accounts of the Trustee pertaining to the trust. Upon
the specific written approval by the Plan Administrator of any account rendered
by the Trustee pursuant to this Agreement, the Trustee shall be forever released
and discharged from all liability and accountability to anyone with respect to
the propriety of its acts and transactions as shown in such account. However,
the Trustee is not hereby precluded from having any account judicially settled
by a court of competent jurisdiction.
47
<PAGE>
PARA7.11. SUCCESSOR TRUSTEES. Any Trustee may be removed at any time by
the Board of Directors of the Plan Administrator upon written notice to such
Trustee. Any Trustee may resign at any time by written notice to the Plan
Administrator and the remaining Trustees, if any. There may, at any given time,
be one Trustee or any number of Trustees, as the Board of Directors of the Plan
Administrator shall determine. When a vacancy occurs which the aforesaid Board
desires or is required to fill, such Board shall forthwith appoint a successor
Trustee or two or more successor Co-Trustees. Any person or entity so appointed
shall become a Trustee upon the filing of his acceptance in writing with the
Plan Administrator. If he is removed or resigns, a Trustee shall, immediately
upon request of either Company or any other Trustee, execute all documents
necessary to transfer the trust assets to any successor Trustee or Trustees.
Any successor Trustee or Trustees shall have and exercise all the powers and
authority, discretionary and otherwise, herein conferred upon the original
Trustee, shall be bound by the obligations and duties herein imposed upon the
original Trustee, and shall be entitled to all the privileges and immunities
herein granted to the original Trustee.
PARA7.12. LIABILITY OF TRUSTEE. The Trustee shall not be liable for any
loss to or diminution in value of Company stock held as Trust assets or for any
action it takes or refrains from taking in accordance with proper directions
from the Plan
48
<PAGE>
Administrator. The Plan Administrator shall indemnify the Trustee, to the
extent permitted by law, against liability or expense, except for such liability
or expense as may result by reason of the Trustee's own negligence or willful
misconduct. The Trustee shall not be required to pay interest on any portion of
the Trust assets which is held uninvested at the direction of the Plan
Administrator.
49
<PAGE>
Section 8. AMENDMENT AND TERMINATION OF PLAN
PARA8.01. RIGHT TO REVISE OR AMEND, ETC. Except as herein limited, the
Companies, acting collectively, by action of their Boards of Directors shall
have the right at any time and from time to time, without the consent of
participants or beneficiaries or the Trustee, to amend, in whole or in part, any
or all of the provisions of this Agreement. Any amendment and the date on or
as of which it is to be effective shall be stated in an instrument in writing
signed by an officer of each of the Companies and delivered to the Trustee. As
of such effective date, this Agreement shall be deemed to have been amended as
provided in such instrument, and the parties hereto and all participants and
beneficiaries shall be bound thereby. No amendment shall (a) revest any part of
the trust estate in either Company, (b) make possible the diversion of the trust
estate or any part thereof to any purpose other than the exclusive benefit of
the participants or their beneficiaries, (c) operate to divest any participant's
already vested rights, (d) decrease a participant's account balance, (e)
eliminate an optional form of distribution or an early retirement benefit
available to a participant or beneficiary, or (f) increase the duties or
liabilities of the Trustee without its written consent.
PARA8.02. RIGHT TO TERMINATE. The Companies have established this Plan
with the BONA FIDE expectation and intention that it will be permanent.
However, circumstances not now foreseen or
50
<PAGE>
beyond the control of the Companies may make it either impossible or inadvisable
for a Company or both Companies to continue the Plan as now anticipated The
Board of Directors of all of the Companies acting collectively may, therefore,
terminate the Plan in whole or in part at any time by adopting a resolution of
termination and delivering written notice thereof to the Plan Administrator and
the Trustee. In addition, the Board of Directors of either Company, acting
separately, may terminate its own participation in the Plan. A complete
discontinuation of all contributions to the Plan shall constitute a complete
termination of the Plan.
PARA8.03. DISPOSITION OF TRUST FUNDS UPON TERMINATION. Upon partial or
complete termination of the Plan, the interests of all affected participants in
their respective accounts shall immediately become fully vested and thereafter
shall not be forfeitable for any reason. The Trustee shall reserve such amounts
as it deems necessary to provide for the payment of any expenses, compensation
or claims which it is not reasonably assured will be paid by the Companies
pursuant to the provisions of PARA7.01 and then shall distribute to each such
participant or his beneficiary, as the case may be, in the manner set forth in
Section 6, all of the remaining assets held in or for the benefit of his various
accounts. When the Trustee files a final account with the Plan Administrator
for the period since that covered by its last account under PARA7.10, the
Trustee shall be discharged.
51
<PAGE>
PARA8.04. INTERNAL REVENUE SERVICE APPROVAL. If the Internal Revenue
Service determines that the Plan and the Trust created hereby do not qualify
initially under the provisions of Section 401(a) and Section 501(a),
respectively, of the Internal Revenue Code, and if the Companies fail or refuse
to amend the Plan in such a manner as to make it qualify under such provisions
within thirty (30) days after such determination, the Plan shall terminate, and,
notwithstanding the provisions of PARA8.03, the assets of the trust estate shall
be disposed of as follows: After reserving from Company contribution accounts,
PRO RATA, such amounts as the Trustee deems necessary to provide for the payment
of any expenses, compensation or claims which it is not reasonably assured will
be paid by the Companies pursuant to the provisions of PARA7.01, the Trustee
shall distribute to each participant, former participant or beneficiary that
portion of the remaining assets held in or for the benefit of his or her Company
contribution account that equals his or her vested interest therein immediately
prior to such termination, plus all of the assets held in or for the benefit of
his or her other accounts, and shall distribute to the Companies the balance of
the assets held in the trust estate
Notwithstanding the foregoing provisions of this PARA8.04, any amounts
returned to a Company as hereinabove provided must be returned to that Company
within one (1) year after denial of qualification.
52
<PAGE>
Section 9. MISCELLANEOUS PROVISIONS
PARA9.01. MERGERS WITH OTHER PLANS. This Plan may not be merged or
consolidated with, or have its assets or liabilities transferred to, any other
retirement plan, whether or not qualified under the-applicable provisions of the
Internal Revenue Code as now enacted or hereafter amended, unless immediately
after such merger, consolidation or transfer each participant in this Plan would
receive from the merged, consolidated or transferee plan, if such plan were then
terminated, a benefit equal to or greater than the benefit such participant
would receive from this Plan immediately before such merger, consolidation or
transfer, if this Plan were then terminated.
PARA9.02. CONTINUATION OF PLAN BY SUCCESSOR EMPLOYER. Any successor to
the business of either Company, by whatever form or manner resulting, may
continue this Plan by executing an appropriate supplement hereto. Such
successor shall automatically succeed to all rights, powers and responsibilities
of that Company hereunder. The employment of any employee who continues in the
employ of such successor shall not be deemed to have been interrupted or
terminated for any purpose hereof by virtue of such succession.
PARA9.03. PARTIES TO LEGAL ACTIONS. In any action or proceeding involving
any matter related in any way to the Plan or the Trust or any part of the trust
estate, the Companies, the Plan Administrator and the Trustee shall be the only
necessary
53
<PAGE>
parties, and no employees or former employees of either Company or their
beneficiaries or any other person claiming an interest in the Plan or the Trust
shall be entitled to any notice of process.
PARA9.04. CONFORMITY TO FEDERAL REQUIREMENTS. The Plan Administrator and
the Trustee shall endeavor to act hereunder so as to conform to the provisions
of the Internal Revenue Code, the Employee Retirement Income Security Act of
1974, any similar future laws, and the lawful rules and regulations promulgated
thereunder, to the end that the Plan will be a "qualified" Plan and the Trust
will be a tax-free Trust under such laws, and to the further end that the
contributions made by the Companies will be deductible from their gross income
in computing their net income for income tax purposes. Nothing in this
Agreement shall be construed as authorizing the Trust to engage in a "prohibited
transaction" under the aforesaid laws or any similar future laws, or as
authorizing the Trust to engage in a business so as to cause the Trust to be
classified as a "corporation" or "association" under any such laws. Nothing in
this Agreement shall be deemed to be treated as an acquiescence in or consent to
any improper or extralegal rules or regulations which the Commissioner of
Internal Revenue or the Secretary of the Treasury or the Secretary of Labor may
make, however.
PARA9.05. IMPACT OF PLAN ON EMPLOYMENT RIGHTS. The right of either
Company to discharge, lay off and discipline participants,
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<PAGE>
or otherwise to deal with or control them as employees, shall not be affected by
reason of any of the provisions of this Plan. The adoption and maintenance of
the Plan shall not be deemed to be consideration for or an inducement to or a
condition of the employment of any person, and shall not interfere with either
Company's or any person's right to contract with respect to or to terminate
employment at any time or times. Neither the establishment of the Trust hereby
created, nor any modification thereof, nor the creation of any fund or account,
nor the payment of any benefits, shall be construed as giving to any participant
or other person any legal or equitable right against either Company, the Plan
Administrator or any officer or employee thereof or the Trustees, except as
herein provided.
PARA9.06. NONALIENATION OF BENEFITS. Except as may otherwise be provided
in Section 401 (a) (13) (A) of the Internal Revenue Code (as now enacted or
hereafter amended) with respect to "qualified domestic relations orders", as
defined in Section 414 (p) of the Internal Revenue Code (as now enacted or
hereafter amended)), no portion of or interest in the trust estate payable to or
held for any participant or beneficiary shall be anticipated, alienated, sold,
transferred, assigned, otherwise disposed of, or in any manner pledged, charged
or encumbered by any participant or beneficiary while in the possession and
control of the Trustee.
PARA9.07. SEPARABILITY. Each provision hereof shall be independent of
each other provision. If any provision hereof
55
<PAGE>
proves to be, or is finally held by any court, tribunal, board or authority of
competent jurisdiction to be invalid or not to meet the requirements of Sections
401 and 501 of the Internal Revenue Code or the Employee Retirement Income
Security Act of 1974, or any similar future law and the lawful rules and
regulations promulgated thereunder, so as to disqualify this Trust as a tax-free
Trust, contributions to which are deductible by the Companies in the computation
of their net income for income tax purposes, such invalid or violative provision
shall be disregarded and shall be deemed to be null and void, but nullification
of any such provision shall not otherwise impair or affect this Agreement or any
other provision hereof. Nothing in this paragraph shall be treated or
interpreted so as to work a reversion or diversion of any funds from the Trustee
to either Company .
PARA9.08. CAPTIONS. The captions at the beginnings of the several
sections and paragraphs of this Agreement are not part of its context, but are
only guides or labels to assist in the reading thereof, and are to be ignored in
construing it.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto on the date set forth above.
DYNACRAFT GOLF PRODUCTS, INC.
By: /s/ Joseph Altomonte
--------------------
PAL JOEY CUSTOM GOLF, INC.
By: /s/ Joseph Altomonte,Jr.
------------------------
THE HUNTINGTON TRUST CO., N.A.
COLUMBUS, OHIO, Trustee
By: /s/ Rita K. Edwards, V.P.
-------------------------
57
<PAGE>
FIRST AMENDMENT TO
DYNACRAFT EMPLOYEES STOCK OWNERSHIP
PLAN AND TRUST AGREEMENT
This is an Amendment executed as of March 30, 1993, to the Employees Stock
Ownership Plan and Trust Agreement of Dynacraft Golf Products, Inc. and Pal Joey
Custom Golf, Inc. (hereinafter called the "Plan"), which was executed on January
30, 1991.
Paragraph 2.06 of the Plan is hereby amended to read in its entirety as
follows:
"PARA2.06. ONE-YEAR BREAK-IN-SERVICE. A "one-year break-in-service" is a
twelve (12) consecutive month period (computation period) during which an
employee performs 500 or less hours of service for either Company or any
combination of Companies. Transfers of employment from one Company to
another Company shall not be taken into account in determining whether a
break-in-service has occurred.
For purposes of determining breaks-in-service for purposes of eligibility,
the initial eligibility computation period is the twelve (12) consecutive
month period beginning on the date the employee first performs an hour of
service (employment commencement date). The succeeding twelve (12)
consecutive months periods commence with the first plan year which
commences prior to the first anniversary of the employee's employment
commencement date regardless of whether the employee is entitled to be
credited with more than 500 hours of service during the initial eligibility
computation period. An employee who is credited with more than 500 hours
of service in both the initial eligibility computation period and the first
plan year which commences prior to the first anniversary of the employee's
initial eligibility computation period will be credited with two (2) years
of service for purposes of eligibility to participate.
For purposes of computing an emp1oyee's non-forfeitable right to the
account balance derived from employer contributions, breaks-in-service will
be measured by the plan year."
Subparagraph (a) of PARA6.03 of the Plan is hereby amended to read as
follows:
"PARA6.03. * * *
(a) If the credit balance in such participant's accounts is $3,500.00 or
less, of if (i) the credit balance in such participant's accounts is more than
$3,500.00 (or at the time of any prior distribution exceeded $3,500.00) and (ii)
such participant and his or her spouse (if any) elect to receive a lump sum
distribution, then in one lump sum;"
A new PARA6.07, reading in its entirety as follows, is hereby added to the
Plan:
"PARA6.07. MINIMUM DISTRIBUTION REQUIREMENTS. All distributions required
under this S6 shall be determined and made in accordance with the Proposed
Regulations under S401(a) (9) of the Internal Revenue Code (as now enacted
or hereafter amended), including the minimum distribution incidental
benefit requirement of Sl.401(a)(9)-2 of the Proposed Regulations of the
Internal Revenue Service."
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This Amendment shall be effective January 1, 1991, the effective date of the
Plan. In all other respects, the Plan shall remain in full force and effect as
originally adopted.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date set forth above.
DYNACRAFT GOLF PRODUCTS, INC.
By: /s/ Joseph Altomonte, Jr. CEO
-----------------------------------
PAL JOEY GOLF, INC.
By: /s/ Joseph Altomonte, Jr. President
-----------------------------------
/s/ Kathy Zeller, Trustee
-----------------------------------
/s/ Brian Rapp, Trustee
-----------------------------------
/s/ Jeffrey C. Conner, Trustee
-----------------------------------
/s/ Tiffany Patznick, Trustee
-----------------------------------
59
<PAGE>
SECOND AMENDMENT
TO THE
DYNACRAFT EMPLOYEES STOCK OWNERSHIP PLAN
WHEREAS, Dynacraft Golf Products, Inc., (the "Employer") has adopted a qualified
retirement plan (the "Plan") for the benefit of its eligible employees and their
beneficiaries; and
WHEREAS, Section 8 of the Plan reserves to the Employer the right to amend the
Plan; and
WHEREAS, the Employer desires to amend its Plan;
NOW, THEREFORE, the Employer hereby amends the Plan effective January 1, 1992,
as follows: Section 4.04(c) shall be changed to read as follows:
(c) Loan Suspense Account. Any Financed Shares
(as defined in PARA7.05 hereof) acquired by the trust shall initially be
credited to a Loan Suspense Account of each participant only as payments on the
loan to acquire such shares are made by the Trustee. The number of Financed
Shares to be released from the Loan Suspense Account for allocation to a
participant's Company Stock Account for each plan year shall be determined by
multiplying the total number of Financed Shares held in the Loan Suspense
Account immediately before such release by a fraction The numerator of the
fraction shall be the amount of principal paid on the loan to acquire financed
Shares for the plan year, and the denominator of the fraction shall be the total
amount of all future principal payments projected to be paid on the loan to
acquire such shares.
Executed at Newark, Ohio this 14th day of September, 1993.
Dynacraft Golf Products, Inc.
Employer /s/ Joseph Altomonte, Sr.
-------------------------
Trustee /s/ James B. Holloway Trustee /s/ Kathy Zeller
--------------------- ------------------
Trustee /s/ Tiffany Patznick Trustee /s/ Jeff C. Conner
--------------------- ------------------
Trustee /s/ Brian Rapp
---------------------
60
<PAGE>
THIRD AMENDMENT
TO THE
DYNACRAFT EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, Dynacraft Golf Products, Inc., an Ohio corporation (the "Company"), has
adopted a qualified retirement plan known as the Dynacraft Employees Stock
Ownership Plan (the "Plan") for the benefit of its eligible employees and their
beneficiaries; and
WHEREAS, the Company desires to amend the Plan in accordance with Section 8 of
the Plan;
NOW, THEREFORE, effective as of the dates set forth below, the Company amends
the Plan as follows:
1. The Plan shall be amended effective January 1, 1993 to add Section 2.21 as
follows:
2.21. ELIGIBLE DISTRIBUTEE. "Eligible Distributee" means the
Participant, the Participant's surviving spouse, or the Participant's former
spouse as an alternate payee under a qualified domestic relations order.
2. The Plan shall be amended effective January 1, 1993 to add Section 2.22 as
follows:
2.22. ELIGIBLE RETIREMENT PLAN "Eligible Retirement Plan" means, for a
Participant or for a surviving spouse or former spouse of who is a beneficiary
or alternate payee of a Participant, an individual retirement account described
in Section 408(a) of the Internal Revenue Code or, for a Participant, a
qualified plan that accepts the Participant's Eligible Rollover Distribution.
3. The Plan shall be amended effective January 1, 1993 to add Section 2.23 as
follows:
2.23. ELIGIBLE ROLLOVER DISTRIBUTION. "Eligible Rollover Distribution"
means any distribution of all or any portion of the balance to the credit of an
Eligible Distributee, except that an Eligible Rollover Distribution does not
include: (a) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; (b) any distribution to the extent such
distribution is required under section 401 (a)(9) of the Internal Revenue Code;
and (c) the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
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4. The definition of "Compensation" in Section 2.03 of the Plan shall be
amended effective January 1, 1994 to add the following language:
Notwithstanding the foregoing, for Plan Years beginning after December 31, 1993,
the annual Compensation of each Participant taken into account under the Plan
will not exceed $150,000, as adjusted in accordance with Section 401(a)(17) of
the Internal Revenue Code at the same time and in the same manner as under
Section 415(d) of the Internal Revenue Code.
5. Effective August 5, 1993, the definition of "Hour of Service" in Section
2.04 of the Plan shall be amended to add the following language:
(e) An Employee or Participant who is on a leave of absence to which he or she
is entitled under the Family and Medical Leave Act of 1993 ("FMLA") shall be
credited with Hours of Service under the Plan during any such leave, provided
that such Employee or Participant returns to work at the conclusion of such
leave in a manner consistent with the requirements of FMLA and any
administrative requirements imposed by the Company that are permissible under
FMLA.
6. The Plan shall be amended effective January 1, 1993 to clarify the original
intent of Section 6.05 by replacing the last sentence of the first paragraph of
Section 6.05 of the Plan with the following language:
Distributions to such Participants shall be made in one lump sum every year in
an amount equal to the minimum distribution required under Section 401(a)(9) of
the Internal Revenue Code and the applicable regulations thereunder.
7. The Plan shall be amended effective January 1, 1993 to replace the first
sentence of Section 6.06of the Plan with the following language:
Distribution of benefits pursuant to the provisions of Section 6 of the Plan
will be made in the form of a cash distribution; provided, however, that if a
Participant demands that the distribution of benefits pursuant to the provisions
of Section 6 of the Plan be made in the form of Company stock, such distribution
will be made in the form of Company stock, except that any fractional share in a
Participant's Account will be converted to and distributed in the form of cash.
8. The Plan shall be amended effective January 1, 1993 to add Section 6.08 as
follows:
6.08. ROLLOVER OF PLAN BENEFITS. Notwithstanding any other Plan
provision, any Participant or Eligible Distributee who is eligible to
receive a distribution of an amount equal to $200 or more that is an
Eligible Rollover Distribution may (a) elect to have the entire
distribution directly transferred to an Eligible Retirement Plan
specified by the Participant or other Eligible Distributee, or (b) if
the amount of such distribution is more than $500, elect to have a
portion of the distribution equal to at least $500 directly transferred
to an Eligible Retirement Plan specified by the Participant or other
Eligible Distributee with the balance of such distribution paid in a
single sum to such Participant or Eligible Distributee.
IN WITNESS WHEREOF, the Company has caused this Third Amendment to be
executed as of the 31st day of December, 1993
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<PAGE>
DYNACRAFT GOLF PRODUCTS, INC.
By: /s/ Joseph A. Altomonte, Sr. Chairman of the Board
--------------------------------------------------
PAL JOEY CUSTOM GOLF, INC.
By: /s/ Joseph A. Altomonte, Sr. Chairman of the Board
--------------------------------------------------
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<PAGE>
June 26, 1997
Board of Directors
Dynacraft Golf Products, Inc. and Subsidiary
71 Maholm Street
Newark, Ohio 43055
Re: Change in Accounting Principle
Members:
During the year ended December 31, 1996 Dynacraft Golf Products, Inc. and
Subsidiary changed its method for valuing inventory from lower of average cost
or market to lower of absorption costing or market. Absorption costing is
preferable to average cost for manufacturing and warehousing business.
The effect of this change on 1996 income is an increase of $73,149. In addition
to this effect, a cumulative effect of the accounting change for prior periods
of $105,811 is recognized in the current year. The total increase in income
from the accounting change is $178,960.
Wilson, Shannon & Snow, Inc.
Certified Public Accountants
Ten West Locust Street
Newark, Ohio 43055
(614) 345-6611
Fax (614) 345-5635
<PAGE>
DYNACRAFT GOLF PRODUCTS, INC.
Subsidiaries of the Small Business Issuer
NAME OF SUBSIDIARY INCORPORATED IN DOING BUSINESS AS NAME
- ------------------ --------------- ----------------------
Pal Joey Custom Golf Inc. (A) Ohio Pal Joey and Pal Joey Pro
Shop
Dynacraft Real Estate Holding Inc. (B) Ohio Dynacraft Real Estate
Holding Inc.
Diamond Golf International Limited (C) Great Britain Diamond Golf
International (also)
Diamond/Dynacraft and
next year
Diamond Europe
(A) 100% owed by Dynacraft Golf Products, Inc.
(B) 100% owed by Pal Joey Custom Golf, Inc.
(C) 51% owed by Dynacraft Golf Products, Inc.
<PAGE>
June 26, 1997
Board of Directors
Dynacraft Golf Products, Inc. and Subsidiary
71 Maholm Street
Newark, Ohio 43055
We consent to the use of our report dated March 5, 1997 and to the reference to
our firm under the caption "Experts" in the Registration Statement (Form SB-2)
and related Prospectus of Dynacraft Golf Products, Inc.
Wilson, Shannon & Snow, Inc.
Wilson, Shannon & Snow, Inc.
Certified Public Accountants
Ten West Locust Street
Newark, Ohio 43055
(614) 345-6611
Fax (614) 345-5635
<PAGE>
SHARE PURCHASE AGREEMENT
To: Dynacraft Golf Products, Inc.
98 James Street
Newark, Ohio 43055
(800) 321-4833
Please deposit INTO "HUNTINGTON NATIONAL BANK, ESCROW ACCOUNT
NO.________________ " the attached payment. Upon release of the impound
condition, issue shares of Dynacraft Golf Products, Inc.'s Common Stock in the
amount(s) and name(s) shown below. My signature acknowledges that I have
received the Prospectus by which the shares are offered.
Signature:
-------------------------- -----------------------------
Date
Enclosed is payment for _____ (minimum 100) shares, at $5.00 per share, totaling
$______________.
PLEASE MAKE CHECK PAYABLE TO: HUNTINGTON NATIONAL BANK, ESCROW ACCOUNT
NO.
------------
The only role of Huntington National Bank (the "Bank") in this offering is
that of Impound Agent. The Bank has not reviewed the Prospectus or any of the
offering materials and makes no representation at all as to the nature of this
offering or whether it complies with any applicable state or federal laws, rules
or regulations. The Bank does not represent your interests. Its duties are
limited to those in the Impound Agreement (which you may request from
Dynacraft.).
VISA MASTERCARD
---- ----
Number: Expiration Date: Signature:
---------------------- -------- ----------
Register the shares in the following name(s) and amount(s):
Name(s) Number of shares
-------------------------- ----------------
As (check one): Individual Joint Tenants Trust
-------- ---- ---
Tenants in Common Corporation Other
-- ------- -------
For the person(s) who will be registered shareowner(s):
Mailing Address:
------------------------------------------------------
City, State & Zip Code:
-----------------------------------------------
Telephone Number: Business: ( ) Home: ( )
-----------------------------------------------------
Social Security or Taxpayer ID Number:
--------------------------------
(PLEASE ATTACH ANY SPECIAL MAILING INSTRUCTIONS OTHER THAN SHOWN ABOVE.)
NO SHARE PURCHASE AGREEMENT IS EFFECTIVE UNTIL ACCEPTANCE
(YOU WILL BE MAILED A SIGNED AND NUMBERED COPY OF THIS AGREEMENT TO RETAIN FOR
YOUR RECORDS.)
Share Purchase Agreement accepted by Dynacraft Golf Products, Inc. and its
undersigned sales representative:
- ------------------------------------------- ------------------
Howard Van Huffel, Credit Manager Date
<PAGE>
IMPOUND AGREEMENT
This agreement dated June , 1997 is between Huntington National Bank (the
"Impound Agent") and Dynacraft Golf Products, Inc., an Ohio corporation (the
"Company").
The Company proposes to offer directly for sale to investors (the
"Offering") up to 700,000 shares of its Common Stock (the "Shares") at a price
of $5.00 per share (the "Proceeds") as described in its Prospectus. The
Company desires to establish an escrow account in which funds received from
subscribers will be deposited pending completion of the escrow period.
Huntington Bank agrees to serve as Impound Agent in accordance with the terms
and conditions of this agreement and certifies that it is not affiliated with
the Company.
1. ESTABLISHMENT OF ESCROW ACCOUNT. Effective as of the date of the
commencement of the Offering, the Company establishes an interest bearing escrow
account with the Impound Agent, entitled "_______________________________.
ESCROW ACCOUNT NO. __________" (the "Escrow Account").
2. IMPOUND PERIOD. The Impound Period shall begin with the commencement
of the Offering and shall terminate upon the earlier to occur of: (a) the date
upon which the Impound Agent has received in the Escrow Account gross proceeds
of $1,500,000 in deposited funds (the "Minimum"), (b) February 28, 1998 or (c)
the date upon which a determination is made by the Company to terminate the
offering prior to the sale of the Minimum.
During the escrow period the Company is aware and understands that it is
not entitled to any funds received into escrow, such funds are not assets of the
Company and no amounts deposited in the Escrow Account shall become property of
the Company or any other entity, or be subject to the debts of the Company of
any other entity.
3. DEPOSITS INTO THE ESCROW ACCOUNT. The Company agrees that it shall
properly deliver, within 48 hours of its receipt, all monies received from
subscribers for the payment of the Shares to the Impound Agent for deposit in
the Escrow Account, accompanied with a copy of the attached form of "Share
Purchase Agreement," executed by the Company and the investor. Checks payable
to the Company shall be endorsed by the Company for deposit to the Escrow
Account. If checks are delivered to the Impound Agent unendorsed, the Impound
Agent may supply the Company's endorsement and deposit them into the Escrow
Account. All payments to the Company by reason of credit card purchases of the
Shares shall be forwarded into the Escrow Account. The Company shall date and
number-stamp each Share Purchase Agreement and shall also provide the Escrow
Agent with, and maintain for its own records, a copy of the form of
consideration.
4. DISBURSEMENTS FROM THE ESCROW ACCOUNT. A. In the event the Impound
Agent does not receive the Minimum deposits totaling $1,500,000 prior to the
termination of the Impound Period, the Impound Agent shall promptly refund to
each subscriber the amount received from such subscriber, without deduction,
penalty or expense to such subscriber, and the Impound Agent shall notify the
Company of such distribution. The purchase money returned to each subscriber
shall be free and clear of any and all claims of the Company or any of its
creditors.
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<PAGE>
B. In the event the Impound Agent receives the Minimum prior to the
termination of the Impound Period, the Escrow Amount will not be released to the
Company until such amount is received by the Impound Agent in collected funds
and the release provisions set forth in paragraph C below are complied with.
For purposes of this Agreement, the term "collected funds" shall mean all funds
received by the Impound Agent which have cleared normal banking channels and are
in the form of cash, plus any interest accrued on such funds. The Minimum may
be met by funds that are deposited from the effective date of the offering up to
and including the date on which the contingency must be met.
5. COLLECTION PROCEDURE. The Company agrees that if a deposited check is
returned unpaid for any reason, the Impound Agent may charge the Escrow Account
for the amount of the check. However, the Impound Agent may represent a
returned check for payment by the financial institution on which it is drawn,
but the Impound Agent is not required to do so. The Impound Agent may represent
the check without notifying the Company that it is doing so or that the check
was not paid. Any check returned unpaid to the Impound Agent shall be returned
to the Company.
6. INTEREST ON ESCROW AMOUNT. Refunds to subscribers pursuant to
paragraph 4A shall include each subscriber's pro-rata share of any interest
earned while the subscriber's funds were on deposit.
7. RECORDS TO BE MAINTAINED BY THE IMPOUND AGENT. Records and accounts
of the transactions kept by the Impound Agent shall include records of all
transactions in the Escrow Account and copies of all Share Purchase Agreements.
The Company shall maintain the original Share Purchase Agreements and copies of
all checks, along with any other records of transactions for a period of five
years after the termination of the Impound Period.
8. COMPENSATION OF IMPOUND AGENT. The Company shall pay the Impound
Agent a fee for its escrow services in an amount of $_____. If it is necessary
for the Impound Agent to return funds to subscribers, the Company shall pay to
the Impound Agent an additional amount sufficient to reimburse it for its actual
cost for disbursing such funds.
9. LIABILITY OF THE IMPOUND AGENT. The Impound Agent may conclusively
rely on, and shall be protected, when it acts in good faith upon, any statement,
certificate, notice, request, consent, order or other document which it believes
to be genuine and which has been signed by the proper party. Provided it uses
due care, the Impound Agent shall have no duty or liability to verify any such
statement, certificate, notice, request, consent, order or other document and
its sole responsibility shall be to act only as expressly set forth in this
Agreement. The Impound Agent shall be under no obligation to institute or defend
any action, suit or proceeding in connection with the Agreement unless it is
indemnified to its satisfaction. The Impound Agent may consult counsel in
respect of any questions arising under this Agreement and the Impound Agent
shall not be liable for any action taken, or omitted, in good faith upon advise
of such counsel.
10. This Agreement shall be binding upon, and insure to, the benefit of the
parties hereto, their heirs, successors and assigns.
11. This agreement shall terminate in its entirety when all the Escrow
Amount has been distributed as provided in paragraph 4., above.
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<PAGE>
12. All statements and other notices produced by the Impound Agent related
to the Escrow Account shall be mailed to the Company as follows:
Dynacraft Golf Products, Inc.
98 James Street
Newark, Ohio 43055
Attn: Duane Egeland, Chief Financial Officer
Except for deposits, which shall be made at the ________ office only, all
notices and other communications from the Company shall be made to the Impound
Agent as follows:
Attn:
13. The Impound Agent shall be entitled to rely on all notices and
instructions received from the Company.
14. The Company hereby agrees to defend, indemnify, and to hold the
Impound Agent harmless against, any loss, liability or expense incurred without
gross negligence or bad faith on the part of Impound Agent arising out of or in
connection with its entering into this Agreement and carrying out its duties
hereunder, including the cost and expense of defending itself against any claim
or liability.
15. In the event the Impound Agent shall be uncertain as to its duties or
rights hereunder or it shall receive instructions, claims or demands from any of
the parties hereto or from third parties with respect to the property held
hereunder, which, in its opinion, are in conflict with any provision of this
Agreement, it shall be entitled to refrain from taking any action (other than to
keep safely the funds in the Escrow Account) until it shall be directed to act
by order or judgment of a court of competent jurisdiction.
16. This Agreement shall be governed by Ohio law and any action or
proceeding, including arbitration, arising in connection with this Agreement
shall be brought and held in Ohio.
HUNTINGTON NATIONAL BANK DYNACRAFT GOLF PRODUCTS, INC.
By: By:
---------------------------- ------------------------------
------------------------- Duane Egeland
[title] Chief Financial Officer
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