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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
UNITED GOLF PRODUCTS, INC.
(Name of small business issuer in its charter)
DELAWARE 95-4544101
(State of incorporation) (I.R.S. Employer Identification No.)
20301 NORDHOFF STREET, CHATSWORTH, CALIFORNIA 91311
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (818) 349-3164
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
(Title of Class)
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All statements, other than statements of historical fact, included in
this Form 10-SB, including without limitation the statements under "Management's
Discussion and Analysis" and "Description of Business," are, or may be deemed to
be, "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934 (the "Exchange Act"). Such forward-looking
statements involve assumptions, known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of
United Golf Products, Inc. and its wholly-owned subsidiary, WSL, Inc.
(collectively, the "Company"), to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements contained in this Form 10-SB. Such potential risks
and uncertainties include, without limitation, competition from other golf
equipment manufacturers, economic conditions, consumer spending patterns,
availability of capital, and other risk factors detailed herein and in other of
the Company's filings with the Securities and Exchange Commission. The
forward-looking statements are made as of the date of this Form 10-SB and the
Company assumes no obligation to update the forward-looking statements.
Therefore, readers are cautioned not to place undue reliance on these
forward-looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
The Company designs, develops, assembles and markets golf clubs and golf
accessories which are sold primarily in North America under the RAWLINGS
(Registered Trademark) brand name. The Company has the exclusive, worldwide
right and license to use the RAWLINGS brand name and logo in connection with the
manufacture, distribution, promotion and sale of golf clubs, golf bags, and golf
accessories, and the non-exclusive worldwide right to sell golf hats and golf
balls. RAWLINGS is an established, widely recognized brand name for sports
equipment, uniforms and sports accessories. The Company's products include (i)
full sets of clubs for men, women, seniors, and juniors, (ii) a complete line of
utility clubs, including wedges and putters, and (iii) a full line of golf
accessories, such as golf bags, balls, gloves, headcovers, travel covers,
umbrellas and hats. Until recently, the Company was also engaged in the
wholesale distribution of golf, tennis and other sporting goods that are
manufactured by third parties.
The Company currently markets its golf products nationwide primarily
through mass marketers, including department stores, general discount
warehouses, and general sporting goods outlets. Such mass marketers include
Sears & Roebuck Company, Target Stores, Oshman's Super Stores, Big 5, Pro Golf
of America, and most recently, Wal-Mart and Zellers. However, the Company also
sells its products to approximately 75 off-course golf specialty and other
sporting goods stores. The Company markets its products abroad through a joint
venture in Australia and New Zealand and, to a lesser extent, through
representatives in Japan and Europe. The Company's business strategy is to
market its products to the value-priced segment of the golf club market.
As with most golf club companies, the Company sources the three
principal components of its golf clubs--the clubhead, shaft and grip--from both
U.S. and foreign independent suppliers. The clubs are assembled and packaged by
the Company primarily at its facilities in Chatsworth, California. Other golf
products are manufactured by independent suppliers to the Company's
specifications and then distributed by the Company.
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ORGANIZATION
United Golf Products, Inc. ("United Golf") was incorporated under the
laws of the State of Delaware in August 1995 under the name of Aspen West Group,
Inc. All of the operations of the Company are conducted through WSL, Inc., a
California corporation ("WSL"). WSL is a wholly-owned subsidiary of United Golf.
Unless otherwise specified or indicated by the context, all references in this
Form 10-SB to the "Company" are to both United Golf and WSL.
WSL was founded in 1989 by Warren E. Levy, the current Chief Executive
Officer, President and Chairman of the Board of the Company and currently the
principal shareholder of the Company. Mr. Levy founded WSL for the purpose of
assembling and distributing golf clubs and golf products and distributing other
sporting goods. Aspen West Group, Inc. was formed to engage in the manufacture
and distribution of books on tape. However, Aspen West Group, Inc. never
progressed past the development stage of its business. On February 3, 1997 Aspen
West Group, Inc. acquired from Mr. Levy all of the outstanding shares of WSL's
common stock and Series A convertible redeemable preferred stock in exchange for
2,675,000 shares of Aspen West's common stock, $.001 par value (the "Common
Stock"), and 711,000 shares of United Golf's Series A Redeemable Cumulative
Convertible Preferred Stock, $.001 par value (the "Series A Preferred Stock"),
in a tax free exchange (the "Exchange"). Following the Exchange, Aspen West
Group, Inc. changed its name to United Golf Products, Inc. As a result of the
Exchange, United Golf owns 100% of WSL's outstanding capital stock, and Mr. Levy
owns 57% of the Common Stock and 100% of the Series A Preferred Stock.
The Common Stock is quoted on the OTC Bulletin Board Display Service
operated by the NASD under the symbol "UGLF." See, "Part II Item 1. Market Price
of and Dividends on the Registrant's Common Equity and Related Stockholder
Matters."
The Company's offices are located at 20301 Nordhoff Street, Chatsworth,
California, 90311 (telephone: (818) 349-3164).
INDUSTRY BACKGROUND
According to generally available industry data, in 1997 there were
approximately 24 million golfers in the United States and approximately 25
million outside of the United States. The Company believes that the sport is
growing in popularity, particularly among entry-level, junior, women and senior
players. According to Golf Pro Merchandiser magazine, a trade publication, in
1995 there were approximately 100 domestic and foreign companies that
manufactured golf clubs. According to the National Sporting Goods Association,
sales of golf equipment in the United States have increased from $1.8 billion in
1987 to a projected $3.9 billion in 1997, a 113% increase, and an increase of
11.6% from 1996 to 1997. For the third year in a row, golf has led all other
sports in total sales in the United States.
Historically, most golf clubs and other golf products were sold at pro
shops located at golf courses. It is estimated that 20 years ago approximately
80% of golf sales were generated by pro shops at golf courses. However, the
buying patterns of golfers have changed. According to the National Golf
Foundation, in 1994 only 8% of golf club sales to occasional golfers and only
15% of golf club sales to avid golfers were made at pro shops. By comparison,
64% of sales of golf clubs to occasional golfers and 68% of sales to avid
golfers were made by off-course golf retailers, discount stores, sporting goods
stores and department stores.
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BUSINESS STRATEGY
The Company's business strategy is to enhance its position as a major
provider in the mass market of brand name golf clubs and golf products. Key
elements of its strategy include:
Name Recognition. The Company believes that name recognition is an
important element in marketing sporting goods. Accordingly, as the exclusive
licensee of the RAWLINGS brand name and logo for golf clubs and certain other
golf products, the Company's strategy is to leverage the brand name and
reputation of RAWLINGS in the distribution and sale of its products. The
RAWLINGS brand name is a well recognized name in sporting goods and has a
long-standing reputation for providing quality sporting equipment, including
baseball equipment for the professional baseball leagues, basketballs for the
NCAA, footballs and equipment for the NCAA, and hockey equipment. The Company
believes that consumer recognition of the RAWLINGS brand name enables it to
maintain its current level of recognition for its golf products without engaging
in expensive print or television advertising and without the need for the
endorsement of tour professionals. However, in order to increase recognition of
the RAWLINGS name for golf products, the Company believes that it will be
necessary to increase its marketing efforts.
Market Penetration. The Company believes that the sport of golf is
growing in popularity, particularly among entry-level, junior, women and senior
players. In addition, the Company believes that many of these players,
particularly the junior and entry-level players, do not initially purchase
premium-priced golf clubs. Furthermore, as discussed in the Industry Background
section above, the buying habits of golf players have changed in recent years as
purchases of golf equipment at on- course golf pro shops have decreased and
sales of off-course specialty golf stores, sporting goods stores, discount
stores and department stores have increased. Accordingly, the Company' strategy
is to address this value-priced segment of the golf club market and to sell its
products through department stores, general discount warehouses, general
sporting goods outlets, smaller off-course golf specialty, and other sporting
goods stores. The Company currently sells its products through such mass
marketers as Sears & Roebuck Company, Target Stores, Oshman's Super Stores, Big
5, Dunhams, Academy and, most recently, Wal-Mart and Zellers.
Complete Product Lines. The Company's strategy is to make complete lines
of golf clubs available to both the entry-level golfer and to the average or
more skilled golfer at various price points. Accordingly, the Company markets
complete sets of clubs for men, women, seniors, and juniors, including specially
designed graphite shafted clubs and oversized clubs. In addition, the Company
offers other golf related products such as balls, gloves, carts, bags, and other
accessories, enabling the Company to sell a complete product line to its
customers.
Quality Products. Although the Company does not compete directly in the
premium-priced golf club market, the Company believes that product quality is
also an important factor in the mass market golf club industry. Accordingly, the
Company's strategy is to develop and manufacture high quality golf clubs
consistent with the RAWLINGS brand name. To achieve the desired product quality,
the Company designs all of its own clubs and manufactures the clubs to high
levels of specifications from high quality materials. Due to the increased
availability and the recent decrease in price of certain materials used in the
manufacture of premium-priced golf clubs, the Company's golf products also are
manufactured using such materials as titanium, lightweight alloys, and graphite
shafts.
International Expansion. The Company intends to increase it efforts to
expand the international distribution of its RAWLINGS brand name golf clubs and
golf accessories. In the fiscal year ended July 31, 1997, the Company derived
approximately 5% of its golf club and golf accessories revenue from sales in
foreign countries.
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PRODUCTS
The Company markets a broad range of golf clubs and golf accessories,
including bags, gloves, balls, grips, hats, headcovers, umbrellas, tees and
non-motorized carts. The Company's golf clubs include full sets of clubs for
men, women, seniors, and juniors, and a complete line of utility clubs,
including six models of wedges and six models of putters. The Company sells
substantially all of its golf products under the RAWLINGS brand name, a
registered trademark of Rawlings Sporting Goods Company, Inc. and a trademark
associated with sporting equipment worldwide. The Company does not manufacture
or sell any golf clothing or shoes. The golf clubs offered by the Company are
designed and priced to appeal to golfers ranging from the entry-level player to
the highly-skilled amateur player. Accordingly, the Company's golf clubs are
manufactured using various designs and materials, including titanium, alloy,
copper and stainless steel clubheads, as well as graphite shafts manufactured by
Aldila, Inc. and steel shafts manufactured by True Temper. The Company's clubs
are not, however, designed, marketed or priced to compete directly with the
premium clubs offered by such golf manufacturers such as Callaway Golf Company,
Tommy Armour Golf Company, Taylor Made Golf Company, or Karsten Manufacturing
Corporation (Ping).
The following table sets forth the contribution to net sales (dollars in
thousands and as a percentage of net sales) attributable to the product groups
sold during the fiscal year ended July 31, 1997.
<TABLE>
<CAPTION>
PRODUCT GROUP Sales Percentage
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<S> <C> <C>
Sets of clubs................ $2,204,000 38%
Utility clubs................ $3,422,000 59%
Accessories.................. $174,000 3%
</TABLE>
The Company believes that the foregoing mix of product sales will change during
the current fiscal year as a result of the new licensing agreement the Company
entered into with Rawlings Sporting Goods Company, Inc. effective September 1,
1997, which licensing agreement grants the Company the right and license to sell
additional accessories using the RAWLINGS brand name. See "Rawlings License;
Trademarks," below. In addition, during the prior fiscal year, the Company was
unable to fulfill certain of its golf club orders due to a shortage of working
capital. In April 1997 the Company successfully negotiated a new working capital
credit line. The Company believes that this new credit line will enable it to
supply those products that it could not manufacture, thereby changing the
expected product mix for the current fiscal year. See "Management's Discussion
and Analysis -- Liquidity and Capital Resources."
The Company's line of golf products currently includes complete sets of
clubs as well as individual clubs. The complete sets currently offered by the
Company include the following:
MVP Series. The MVP Series set of clubs consists of 8 irons and 3 woods,
and separate sand wedges and utility wedges. The Company believes that this line
offers the most forgiving game improvement features of any of its lines. These
oversize stainless steel irons and woods are equipped with a dual rail system on
the sole, helping to lift the ball clearly from a lie. The MVP irons are both
perimeter weighted and heel-toe weighted, allowing for a maximum responsive
hitting area and an optimized center of gravity. The "off-set" feature of the
new MVP woods is designed to reduce slices by allowing the golfer to close the
club face at impact. The unique two-tiered sole is designed to help golfers
achieve solid hits from the fairway and easier shots from the rough. The
suggested retail price for the complete set of woods and irons ranges from $325
with steel shafts to $485 with graphite shafts.
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Faultless Line. The Company's Faultless Line of clubs consists of five
woods (1,3,5,7 and 9) and six irons (6 through sand wedge) and is especially
designed for seniors and women. The midsized stainless irons are designed with a
triangular stabilizing bar connecting the sole of the club to the crown of the
cavity back for a solid feel. The shaft is a light-weight, no step steel shaft
designed to give golfers more control. The Faultless Line includes oversized
stainless steel woods with a gradually deepening triangular sole plate. The
Company designed this sole plate to enable average golfers to hit higher, more
consistent shots from longer distances. The suggested retail price for the set
is $400.
Pro 1 Line. The Company designed the Pro 1 line with "forgiveness" as
the objective. The oversized stainless steel iron features a large cavity back
and perimeter weighting for an expanded "sweet spot" and a beveled sole designed
to reduce turf drag. The Pro 1 Bi-Metal woods come in 1,3,5 and 7. All of these
oversized woods consist of a combination of titanium and light alloy metals. Pro
1 clubs come with a choice of True Temper steel shafts or graphite shafts custom
made by Aldila, Inc. for the Company. Left-handed models are also available in
the Pro 1 Line. The suggested retail price for the set is $299 for the steel
shaft line and $475 for the graphite shaft line.
Pure Gold Line. The Company offers several versions of its Pure Gold set
of clubs which consists of three woods and eight irons. The oversize clubheads
are manufactured from a light-weight titanium alloy. Depending on the set, the
shaft of the clubs is either an Aldila graphite shaft or a True Temper steel
shaft. The suggested retail price for the set ranges from $199 with steel shafts
to $400 with graphite shafts.
Tour Stainless. The Tour Stainless line includes 1,3 and 5 woods and a
cavity back stainless steel iron. The Tour Stainless iron features a drag
resistant sole designed for hitting from the fairway rough and for chipping.
Tour line woods feature a slightly raised "RAWLINGS Tour H" sole crafted to
achieve stability and consistent hits from the fairway. All Tour Stainless clubs
are available with True Temper "Dynamic Gold" steel shafts or Aldila graphite
shafts. The suggested retail price for the set ranges from $350 with steel
shafts to $495 with graphite shafts.
Junior Sets. The Company offers a seven piece Junior "MVP" set and
"Junior Pro" sets with seven pieces. The Junior MVP and Junior Pro sets all
include a putter, a bag and headcovers. The Company also recently introduced a
junior combination driver/fairway wood called "Tiger Tail." The junior sets have
a suggested retail price ranging from $100 to $150. The Tiger Tail wood has a
suggested retail price of $44.
The Company also markets a series of woods, irons, wedges, and putters,
as well as other accessories. The following is a summary of certain of these
golf products that are currently offered by the Company.
Tour Titanium. Tour Titanium woods consist of a driver with a head of
280 cc, with a choice of either an 8.5 degree of loft or a 10.5 degree of loft.
These new woods consist of 90% pure titanium. The Company forges its titanium
heads to ensure a strong, uniform wall construction. In addition, these woods
include an Aldila graphite shaft designed to create more power in a golfer's
swing without additional force. Left-handed drivers are also available in this
line. The suggested retail price is $149 per club.
Entry Level Products. The Company sells a full line of clubs with
titanium alloy heads for beginners and mid-level golfers. Of the titanium alloy
clubs, the Ultimate Golf Machine series of woods has been the Company's most
successful product. These versatile woods are designed to be extremely easy to
hit as well as affordable. They are offered in a graphite shaft driver, 3, 5, 7
and 9 wood for both right and left handed players. The suggested retail price is
$49 per club.
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Wedges and Putters. The Company offers six lines of wedges and six lines
of putters. The Company's new Tour Edge Copper Insert wedges feature a milled
copper face that is crafted to add a "soft touch" and increased spin to delicate
shots, while the distinctive weighing and rounded sole offers better control on
pitches from the fairway, around the green or out of the sand. The Company also
offers several distinctive models of putters for every level of golfer. The MVP
milled series of putters utilizes 305 stainless steel to give a soft feel and
the Company's two unique designs are optimized for precision by a computerized
milling process applied to the face of the putter. Insert putters have become
popular among players on the PGA tour as well as recreational golfers, and the
Company has responded to market demand with two distinctive models. Copper Sun
putters feature a milled copper face and a copper insert designed to add feel
and control to putting. Tour Magic Balata putters have a soft balata rubber
insert designed for an even softer touch in putting than copper insert putters.
Accessories. The Company currently offers an extensive line of golf
accessories, including bags, gloves, grips, hats, headcovers, umbrellas, tees
and non-motorized carts. Historically, other than golf bags, the Company has not
marketed most of these accessories. For the fiscal year ended July 31, 1997,
sales of accessories represented only approximately 3% of the Company's total
sales. However, effective September 1, 1997, the Company was granted the right
to use the RAWLINGS brand name for most of these other products. Accordingly,
the Company has commenced selling non- motorized carts, hats, golf balls, gloves
and other accessories under the RAWLINGS brand name.
MARKET SEGMENTS
Men's Products. Approximately 65% of the Company's sales come from the
men's market segment. Most of the Company's products in this category are
designed for the beginner, intermediate and regular recreational golfers. The
Company believes that men in this segment are aware of the RAWLINGS brand name
from the other sporting goods sold by the Rawlings Sporting Goods Company, Inc.
The MVP, Pro I, Tour Stainless and Tour Titanium family of woods and irons are
targeted for this group.
Women's Products. One of the Company's ongoing objectives is to address
the growing women's market by offering distinct product lines designed for women
golfers. According to the National Golf Foundation, the number of women playing
golf has during the past few years been increasing at a rate of 20% annually.
The Company's design efforts for this market segment focus on lines like the
Faultless Line.
Senior Products. Currently, approximately 26% of all golfers in the U.S.
are over 50 years of age. The number of golfers in this segment is expected to
grow as the current generation of baby boomers ages. The Company's Faultless
line of golf products and its other lines of oversized clubs, including the Pure
Gold line, are designed to suit the needs of senior golf players.
Junior Products. The Company designs, assembles and sells equipment for
teenage golfers and children to capitalize on the growing junior market segment.
This market has grown by more than 20% during the past twelve months. The
Company believes that this segment of the market is increasing due, in part, to
the popularity of Tiger Woods.
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RAWLINGS LICENSE; TRADEMARKS
WSL, the Company's wholly owned subsidiary, holds an exclusive worldwide
license (the "License") to use the "RAWLINGS" brand name and logo as well as
certain other related names and marks (collectively, the "Trademarks") in
connection with the manufacture, sale, distribution, promotion and advertising
of golf clubs, golf bags and golf accessories including tees, replacement golf
spikes, head covers, umbrellas, gloves and non-motorized carts. In addition, WSL
has a non-exclusive right and license to manufacture, sell, and promote golf
hats and golf balls. (The golf products subject to the License are herein
collectively referred to as the "Licensed Products"). WSL first acquired a
license to use the RAWLINGS brand name on certain golf products from the
Rawlings Sporting Goods Company, Inc., an unaffiliated company ("Rawlings
Sporting Goods"), in 1990. Effective September 1, 1997, WSL and Rawlings
Sporting Goods entered into a new license agreement (the "License Agreement")
that granted WSL the exclusive world-wide rights to use the Trademarks in
connection with the manufacture, sale, distribution, promotion and advertising
of the Licensed Products for a five-year term running through August 2002 (the
"Initial Term"). The License Agreement grants WSL a renewal option to extend the
term of that agreement for an additional five-year term, provided that during
the Initial Term WSL achieves aggregate net sales of $50,000,000 of Licensed
Products. The non-exclusive, world-wide right to use the Trademarks in
connection with golf hats runs through the Initial Term and the License for golf
balls has a term of one year running through August 1998 (WSL, however, has the
right to extend its license for hats and balls for the remainder of the Initial
Term).
Pursuant to the License Agreement, WSL is obligated to pay Rawlings
Sporting Goods a running royalty of 5% of net sales (as defined in the License
Agreement) on Licensed Products, with minimum annual royalties specified for
each year of the Initial Term. For the first year of the Initial Term WSL, is
required to pay a minimum annual royalty of $425,000. This minimum increases by
$25,000 to $450,000 for the second year, and thereafter, by $50,000 a year for
each of the remaining three years of the Initial Term.
Under the License Agreement, Rawlings Sporting Goods is permitted to
inspect samples of Licensed Products for quality control purposes. The License
Agreement also requires WSL to indemnify Rawlings Sporting Goods for losses,
damages, or expenses arising out of the manufacture, use, sale, labeling or
distribution of Licensed Products if WSL uses any of the Trademarks in a manner
that does not comply with the License. Rawlings Sporting Goods has the right to
terminate the License if, among other things, WSL becomes bankrupt, WSL fails to
make full royalty payments within 60 days after any due date, or WSL misuses the
Trademarks in violation of the License. In addition, if there is a change of
control of WSL, Rawlings Sporting Goods has the option to terminate the License
upon 90 days prior written notice to WSL.
In addition to the RAWLINGS license, the Company currently has twelve
registered trademarks which it uses to market its products. The marks currently
used by the Company include "Faultless," "Tour Magic," "Power Tour," "Revenge,"
and "Magnum Force."
MANUFACTURING AND ASSEMBLY
The components of the Company's golf clubs, primarily clubheads, shafts,
and grips, are manufactured for the Company by suppliers in the United States
and the Far East. Although the Company has long-term relationships with many of
its suppliers, the Company generally does not enter into supply contracts with
such suppliers. Suppliers are selected on the basis of quality of workmanship
and material, coupled with dependability and pricing. The Company designs all of
the
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clubheads used in its equipment and provides the manufacturers with detailed
specifications for the manufacture of the heads. Currently, all of the clubheads
used by the Company are manufactured by four manufacturers located in the Far
East and the loss of certain of these established clubhead suppliers could
result in production delays, which could have a material adverse effect on the
Company's business until such suppliers are replaced. Most of the steel shafts
used in the Company's clubs are supplied by a major United States manufacturer
of shafts, and the graphite shafts are supplied by both United States and Far
East suppliers. The grips and other materials used in the assembly of the clubs
are purchased from United States suppliers. Other than clubheads that are
specifically manufactured to the Company's specifications, most of the
components are generic. The Company believes that its relationships with its
suppliers are good.
The Company finishes and assembles its golf clubs at its 31,600 square
foot facility located in Chatsworth, California. The assembly of the golf clubs
is performed using standard equipment and manual labor. The Company spot checks
the quality specifications of clubheads when they are received. During the
assembly process quality specifications are spot checked at each production
station before the finished product is packaged.
The Company purchases all of its golf gloves, balls, umbrellas and other
accessories from the independent manufacturers in the Far East. All of the
Company's golf bags are manufactured in the United States by three
manufacturers.
MARKETING AND SALES
The Company currently markets its golf products nationwide primarily
through mass marketers, including department stores, general discount
warehouses, and general sporting goods outlets. The following is a list of the
Company's ten largest customers for the fiscal year ended July 31, 1997: Target
Stores, Sears & Roebuck Company, Academy, Oshman's Super Stores, Big 5, Play It
Again Sports, San Diego Golf, B.J.'s Wholesale Club, Copeland's, and NBS. During
the current fiscal year, the Company has received orders from the following
additional customers that it did not sell to last year: Wal-Mart, Zellers, U.S.
Golf and Pro Golf of America. In fiscal 1995, three customers, Target, Sears &
Roebuck, and Oshman's Super Stores accounted for more than one-third of the
Company's golf product sales. In 1996 and 1997, Target and Sears & Roebuck
collectively accounted for 36% and 40% of the Company's golf product sales. No
other customer accounted for more than 10% of golf club sales during fiscal
1997. In fiscal 1997 the Company made sales in excess of $20,000 to a total of
approximately of 20 customers.
The Company employs three full-time in-house salespersons to market its
golf products in the United States. The Company also employs approximately 25
independent sales representatives who generally are assigned individual
territories and are compensated with a commission of 2% to 5% of sales generated
by them. These independent sales representatives primarily sell the Company's
equipment to smaller off-course golf retailers and sporting goods stores. During
the past fiscal year, approximately 40% of the Company's sales were generated by
the Company's in-house sales staff while the remaining 60% were generated by
independent sales representatives.
The Company does not currently engage in any material amount of print
advertising in magazines or trade publications. During the past fiscal year, the
Company spent only approximately $4,100 on such advertising. The Company has not
employed any radio or television advertising and has no plans to do so. In 1996,
the Company engaged a professional golfer to promote and endorse its FT 190
forged titanium driver. The Company has concluded that professional endorsement
marketing strategy was unsuccessful and did not renew the arrangement after its
expiration at the end
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of the year. The Company currently has no plans to use professional athletes to
endorse its products, although the Company may do so in the future.
COMPETITION
The market in which the Company does business is highly competitive,
and is served by a number of well-established and well-financed companies with
recognized brand names. The Company believes that the 10 largest golf equipment
manufacturers account for a substantial majority of wholesale golf equipment
sales. All of these major golf companies, and most of the Company's direct
competitors, have substantially greater capital resources, technical and
manufacturing resources, depth of management, and brand name identification in
the golf business than the Company. Although most of the premium-priced golf
equipment companies (such as Callaway Golf Company, Tommy Armour Golf Company,
Karsten Manufacturing Corporation (Ping), or Taylor Made Golf Company) generally
do not sell their products in general sporting goods stores, department stores,
discount stores or by telemarketing, and therefore do not directly compete with
the Company's products at the same retail outlets, no assurance can be given
that these well-established companies will not in the future directly compete
with the Company.
The Company believes that it competes in its target market through the
brand name, quality and price of its products. The Company believes that its
principal competitors consist of Wilson, Spalding, Arnold Palmer, MacGregor
Golf, Knight, Dunlop Golf, and Northwestern Golf. Most of these competitors have
well established operations and reputations in the golf and/or sporting goods
markets. The Company believes that it is able to compete with these other
companies because of the reputation of the RAWLINGS brand name, the quality of
its products, and its pricing strategy. However, because the market in which the
Company competes is highly price sensitive, and because of the amount of
competition in the Company's target market, the Company operates with small
gross margins. As the Company expands further into the mass retail market and
increases its sales volume, the Company believes that it will be able to lower
its production costs, and, in addition will seek to negotiate more favorable
rates from suppliers.
A golf club manufacturer's ability to compete is in part dependent upon
its ability to satisfy the various subjective requirements of golfers, including
the golf club's look and "feel," and the level of acceptance that the golf club
has among professional and other golfers. The subjective preferences of golf
club purchasers may be subject to rapid and unanticipated changes. While the
Company believes that its club designs and pricing enable it to compete in the
mass retail market, no assurance can be given that the Company will be able to
continue to successfully compete in its current market or that its efforts to
increase its market share in its market will be successful.
SEASONALITY
Because golf is a warm weather sport in most of the United States, the
Company's customers have historically increased inventories in anticipation of
purchases by golfers in the spring and summer, the principal selling season for
golf equipment. As a result, the Company's operating results are highly seasonal
and are affected by seasonal demand for golf clubs. Generally, sales of the
Company's golf products are the highest during its third and fourth quarters.
BACKLOG
As of March 10, 1998, the Company had a backlog of approximately $2.1
million of written purchase orders scheduled for production. The Company
believes that all of its current backlog will
9.
<PAGE> 11
be shipped during its current fiscal year. In addition, the Company's major
retail customers provide the Company with product requirement forecasts for
periods of three to six months, depending upon their individual practices. The
Company uses these projections for planning purposes, and firm purchase orders
are typically written one to four weeks in advance of actual purchases. Orders
can typically be canceled without penalty up to 15 days prior to shipment.
Historically, the Company's backlog has been highest in the third and fourth
fiscal quarters, due in large part to seasonal factors. Due to the timing and
receipt of customer orders, backlog is not necessarily indicative of future
operating results.
NEW ZEALAND JOINT VENTURE
Since March 1994 the Company has been a party to a joint venture
arrangement to manufacture and distribute RAWLINGS branded golf clubs and
accessories in New Zealand and Australia. Under its joint venture agreement, the
Company agreed to supply designs for golf clubs and raw materials to the joint
venture, as needed, and the joint venture partner agreed to provide $30,000 in
start-up money. The Company owns a 50% interest in the equity and the profits of
the joint venture. As of July 31, 1997, the Company had contributed
approximately $71,000 to the joint venture. For the fiscal year ended June 30,
1997 the joint venture reported revenues of approximately $53,000 and had a net
loss of approximately $9,000.
PRODUCT WARRANTY
The Company currently supports all of its golf clubs with a two-year
warranty to the original purchaser against any defects in workmanship or
material, provided that the product has not been subject to abuse or alteration.
To date, the Company has not experienced significant warranty claims, and the
Company believes that it has sufficient reserves for warranty claims. However,
there can be no assurance that the Company will not in the future experience
unusually high incidence of product problems and warranty claims. The Company
also provides a warranty allowance to certain customers from between 1% to 1.5%
of sales to the customers.
RETAIL OUTLET
The Company currently operates one retail store at which it sells its
RAWLINGS branded products as well as other branded and non-branded golf
equipment and accessories. The retail store is located in a shopping mall in
Granada Hills, California. Retail sales accounted for approximately 3% to the
Company's total revenues in the fiscal 1997. As part of the Company's revised
business plan to focus its efforts on its core business, the distribution of
"RAWLINGS" branded golf products through mass marketers, the Company currently
plans to discontinue the retail store operations in 1998.
WHOLESALE DISTRIBUTION OF SPORTING EQUIPMENT
In addition to the sale of its RAWLINGS golf equipment and accessories,
until recently, the Company also engaged in the wholesale distribution of golf
equipment, tennis equipment and certain other sporting goods manufactured by
others. The wholesale products were purchased by the Company from United States
manufacturers and are resold with a small (generally between 5% to 10%) mark-up.
Wholesale products were resold primarily in Asia, with a significant portion of
such sales in Japan. The Company typically arranged for the wholesale products
to be shipped directly from the manufacturer to the purchaser. Therefore, while
the Company took legal title to the goods it sold, it did not take physical
possession of such goods and did not carry any wholesale inventory.
10.
<PAGE> 12
The Company conducted its wholesale operations under the name of "Mission Hills
Golf Co" primarily through two of its full time employees. Wholesale sales
contributed approximately $2,985,000, or approximately 34%, to the Company's net
sales in the fiscal year 1997. Since the end of the 1997 fiscal year, the
Company's wholesale distribution activities have been negatively impacted by the
economic and currency crisis affecting a number of Far East economies, including
Japan, the Company's primary wholesale market. Due in part to the expected
decline of the wholesale business in the Far East, the recent decision to focus
its efforts on its core business (the mass market sale of its "RAWLINGS"
products), and the very slight margins generated by the wholesale operations,
the Company has decided to cease its wholesale export operations. Although the
wholesale distributions of the Company during the past two years materially
contributed to the Company's net sales, because of the small mark-up on such
sales, such sales only generated a very small gross profit and did not
materially contribute to the Company's net income or loss.
EMPLOYEES
As of March 1, 1998, the Company employed 44 full-time and four
part-time employees, including three in sales and marketing, 12 in management,
finance and administration, and 29 in product assembly. None of the Company's
employees belong to a union, and the Company believes that its employee
relations are good.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The following discussion and analysis of the Company's consolidated
financial condition and results of operations for the fiscal years ended July
31, 1997, 1996 and 1995, and for the fiscal quarters ended October 31, 1996 and
1997 should be read in conjunction with the Company's consolidated financial
statements included elsewhere herein.
GENERAL
The Company currently is primarily engaged in the design, development,
assembly, marketing and sale of golf clubs and golf accessories which are sold
mainly in North America under the RAWLINGS brand name. During the fiscal years
ended July 31, 1997 ("fiscal 1997"), July 31, 1996 ("fiscal 1996") and July 31,
1995 ("fiscal 1995") the Company had the exclusive right and license to use the
RAWLINGS brand name and logo only in connection with the manufacture,
distribution, promotion and sale of golf clubs and the non-exclusive rights to
use the trademark for golf bags, gloves and caps. The foregoing license was
limited to the United States and certain foreign countries. Effective September
1997, the foregoing license was replaced by a new agreement that granted the
Company the worldwide rights to use the RAWLINGS trademark in connection with
the sale of golf clubs, golf bags, umbrellas, carts, head covers and other golf
accessories, and the non-exclusive worldwide right to sell golf hats and golf
balls. The Company believes that the additional rights granted to the Company
under the new license agreement will increase the sources of golf- related
revenues, alter the mix of products it sells and increase its overall sales from
its RAWLINGS product sales.
In addition to the sale of its RAWLINGS golf equipment and accessories,
during fiscal 1995, 1996 and 1997, and during the fiscal quarter ended October
31, 1998, the Company also engaged in the wholesale distribution of golf
equipment, tennis equipment and certain other sporting goods manufactured by
others. The wholesale products were purchased by the Company from United States
manufacturers and were resold with a small (generally between 5% to 10%)
mark-up. Because of the small gross margin on the wholesale distribution sales,
these sales did not materially affect the
11.
<PAGE> 13
Company's operating expenses or net income or loss. The Company recently elected
to discontinue its wholesale distribution operations. Sales from the wholesale
distribution of golf, tennis and other sporting equipment manufactured by third
parties accounted for approximately 34%, 50% and 37% of the Company's total
revenues in fiscal 1997, 1996 and 1995, respectively. Accordingly, the
discontinuation of the wholesale operations is expected to significantly reduce
the Company's overall sales in the future. However, because of the small
margins, the discontinuation is not expected to significantly alter the
Company's profits or losses.
RESULTS OF OPERATIONS
YEAR ENDED JULY 31, 1997 COMPARED TO YEAR ENDED JULY 31, 1996
Sales decreased in fiscal 1997 by $1,521,000 (14.8%) to $8,780,000 from
approximately $10,301,000 in fiscal 1996. While total sales decreased by 14.8%,
sales of golf clubs increased $670,000 (12.9%) to $5,772,000. The increase in
golf club sales was offset by a decrease of $2,191,000 (42.2%) in the Company's
wholesale sales primarily due to reduced sales of tennis and other sporting
equipment to its Japanese distributor. The Company believes that its wholesale
operations will continue to represent a smaller portion of the Company's overall
sales in the future.
Gross profit decreased in fiscal 1997 by $254,000 (15.8%) to $1,344,000
from $1,598,000 in fiscal 1996. However, the overall gross margins remained
relatively stable at 15.3% in 1997 and 15.5% in 1996 due to the increase in
sales of golf clubs and accessory. The Company's gross margins on sales of golf
clubs is higher than on sales generated by its wholesale business.
Selling, general and administrative expenses decreased in fiscal 1997 by
$131,000 (6%) to $1,972,000 from $2,103,000 in fiscal 1996. In order to assist
its sales of certain of its products, the Company marketed its products through
print advertisements. During fiscal 1997, the Company ceased such print
advertising. Accordingly, selling expenses decreased $54,000 (97%) during fiscal
1997 from fiscal 1996 due to these reduced advertising expenditures. Other
general and administrative expenses decreased $77,000 (6%) including an $80,000
reduction in bad debt costs. Because of the relatively fixed nature of general
and administrative expenses, with the decline in sales from 1996 to 1997,
selling, did not decrease at the same rate as the reduction in total sales.
Accordingly, general and administrative expenses, as a percentage of sales,
increased from 20.4% in fiscal 1996 to 22.4% in fiscal 1997.
During fiscal 1997, the Company also recognized a non-cash charge of
$165,000 due to stock compensation that was paid to a consultant of the Company.
A tax benefit of approximately $198,000 was recorded in fiscal 1996 and
represented a claim for refund of Federal income taxes paid in prior years made
under the net operating loss carryback provisions of the Federal income tax
laws.
YEAR ENDED JULY 31, 1996 COMPARED TO YEAR ENDED JULY 31, 1995
Sales in fiscal 1996 increased $657,000 (6.8%) to $10,301,000 from
$9,644,000 in fiscal 1995. Although total sales in fiscal 1996 increased by
6.8%, sales of golf clubs and accessories decreased $940,000 (15.5%) due
primarily to a decrease of sales of golf clubs to the Company's principal
Japanese distributor. Wholesale sales increased $1,596,000 (44.3%) primarily due
to increased sales of tennis and other sporting equipment to a Japanese
distributor.
12.
<PAGE> 14
Gross profit decreased $457,000 (22.2%) to $1,598,000 in fiscal 1996
from $2,054,000 in fiscal 1995. Gross profits of golf club and accessory sales
decreased $593,000 because of the sales decrease coupled with a 6.9% decrease in
the gross profit percentage. The decrease in the gross profit percentage was the
result of the combined effect of cost increases, particularly material costs,
and a change in product mix. Gross profits of the wholesale business increased
$136,000 because of the increased sales offset by a 1.5% decrease in the gross
profit percentage. However, because gross margins on wholesale sales are small,
the increase in gross margins due to the increase in revenues from the Company's
wholesale operations was more than offset by the decrease in sales in golf
clubs, which have a higher margin.
Selling, general and administrative expenses increased overall by
$185,000 (9%) to $2,103,000 in fiscal 1996 from $1,918,000 in fiscal 1995.
Selling expenses increased $55,000 (7%) due primarily to increased advertising
expenditures that were offset somewhat by reduced commissions. General and
administrative expenses increased $130,000 (11%) including increases in bad debt
expense of $64,000 and legal expenses of $25,000.
Other expenses increased by $100,000 in 1996 to 17% of sales. Such other
increased expenses include $32,000 of additional interest expense that was
incurred due to additional borrowings in 1996, while other income, consisting of
in part of interest income, decreased $53,000.
FISCAL QUARTER ENDED OCTOBER 31, 1998 COMPARED TO QUARTER ENDED OCTOBER 31, 1997
Sales increased for the fiscal quarter ended October 31, 1998 (the
"Recent Quarter") by approximately $157,000, or 9%, compared to the fiscal
quarter ended October 31, 1997 (the "Prior Quarter"). The increase in sales
reflects an increase in sales of golf products and a material decrease in the
Company's wholesale sales of non-golf products. During the Recent Quarter, sales
of golf products increased to approximately $1.8 million compared to $1.2
million in the Prior Quarter. Wholesale revenues decreased in the Recent Quarter
by 468% from $542,531 in the Prior Quarter to only $95,405 in the Recent
Quarter. The decrease in wholesale revenues is due in part to the currency and
fiscal crisis in the Far East and the Company's decreased efforts to effect
wholesale sales of non-golf products during the Recent Quarter. Since the end of
the Recent Quarter, the Company has discontinued its wholesale export
operations.
Gross profits increased by approximately $70,000 during the Recent
Quarter due to increased sales and the change in the product mix. As a
percentage of sales, gross profits increased from 14.1% to 16.6% due to the
increase in golf club sales that have a larger margin than sales of non-golf
products sold as part of the wholesale operations. The increase in gross profits
due to the change in product mix was offset due to approximately $143,000 of one
time excess air freight charges that the Company incurred during the Recent
Quarter in order to meet certain unexpected larger orders for golf clubs from
its principal clients. The Company incurred the additional costs to maintain its
relationship with its principal clients. In order to avoid these material
increases in shipping costs, the Company is attempting to increase its inventory
of golf components.
Selling, general and administrative expenses increased by approximately
24% due to increased golf club sales in the United States and the Company's
increased efforts to sell its "RAWLINGS" brand products. In addition, the
Company incurred increased rental expenses and legal fees during the Recent
Quarter.
Due primarily to the one-time unexpected air freight expenses and
increased selling, general and administrative expenses, the net loss for Recent
Quarter increased by $46,000, or 24%.
13.
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
During the past two fiscal years, the Company has financed its
operations primarily through cash provided by operations, through various
revolving credit lines, and through sales of its securities.
In February 1997, the Company raised $770,500 through the sale of 385,250
shares of its Common Stock at a price of $2.00 per share. In a private placement
that commenced in December 1997, the Company raised $1,249,000 from the sale of
12,490 shares of its 12% Series B Cumulative Convertible Redeemable Preferred
Stock (the "Series B Preferred Stock") at a price of $1.50 per share.
In April 1997, the Company entered into a Loan and Security Agreement
with Capital Business Credit ("Capital"). The credit facility provides the
Company with a maximum credit line of $2,200,000, which borrowings may consist
of up to 80% of eligible accounts receivable, up to 30% of eligible raw material
inventory and 40% of eligible finished goods inventory. The advances against
inventory cannot exceed (a) $1,100,000 for the period October 1 through March 31
and $750,000 for the period April 1 through September 30 and (b) 50% of the
outstanding loan balance. In October 1997, the Company and Capital entered into
a temporary (three-month) amendment to the credit facility to enable the Company
to purchase components necessary to the manufacture and assemble clubs to meet
the Company's increased volume of holiday season orders. The agreement, as
amended, provides for aggregate maximum borrowings of up to $2,200,000 secured
by up to 90% of eligible accounts receivable. Under the terms of the amendment,
the $2,200,000 may also include up to $1,100,000 secured by up to 50% of
eligible inventory. In December 1997, the original advance rates were reinstated
and the outstanding advances in excess of the original advance rates were
converted to a short-term loan repayable in the amount of $150,000 on each of
January 31, 1998 and February 28, 1998, with the balance, $60,000, repayable on
March 31, 1998. Advances under the line of credit bear interest at a rate per
annum equal to the prime rate plus 3%, with a minimum rate of 8% per annum.
Under the Loan and Security Agreement, prime rate is defined as the highest
variable rate of interest per annum published daily as the "prime rate" in the
Money Rates Section of the Western Edition of the Wall Street Journal. The
unused portion of the credit line bears interest at a rate of .25% per annum. In
addition, the Company must pay an annual fee equal to .75% of the aggregate
maximum amount available under the credit line. As of March 1, 1998, outstanding
borrowings under the line of credit was $1.4 million.
Under the terms of the Loan and Security Agreement, the Company granted
Capital a security interest in all of the Company's existing and after-acquired
accounts, inventory, equipment, general intangibles and negotiable instruments.
In addition, each of Sheila Levy and Warren Levy executed personal guarantees to
guaranty amounts of up to $1,400,000 borrowed by the Company under the credit
line (the "Levy Guarantees").
The initial term of the credit line is two years, with automatic
one-year renewals unless terminated by either party. Events of default under the
agreement include, without limitation, failure to pay interest or principal when
due, breach of representations, warranties or covenants, commencement of an
insolvency or bankruptcy proceeding, defaults in agreements with third parties
or any impairment of the Levy Guarantees. The agreement provides the Company
with a ten-day cure period for any event of default. If such cure period expires
without a cure, Capital may terminate the agreement without prior notice,
accelerate the maturity date of the loans made under the facility and, if the
amounts are not repaid, foreclose on the Company's assets. In December 1997 and
March 1998 the Loan and Security Agreement was amended to revise the covenant in
the agreement regarding the minimum tangible net worth that the Company is
required to maintain. As amended, the Company is required to maintain a tangible
14.
<PAGE> 16
net worth of not less than $1,000,000 until August 1, 1998, and a net tangible
net worth of not less than $1,300,000 thereafter. Although the Company is
currently in compliance with the foregoing net worth requirements, it may not be
able to meet the higher net worth requirements that go into effect later in 1998
unless the Company's operations significantly improve in the future or unless
the Company raises additional capital. No assurance can be given that the
Company will be able to obtain financing in the future or that such financing
will be sufficient to satisfy the higher net worth requirements that become
effective in 1998 under the Loan and Security Agreement.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
The Company's operations and financial results are subject to numerous
risks, some of which are beyond the Company's control. The following discussion
highlights some of those risks:
Financial History; Capitalization. During the past two fiscal years, the Company
has incurred net losses of $485,706 and $945,560, respectively. In addition, the
Company experienced a loss of $239,889 for the first quarter of the current
fiscal year compared to a loss of $193,931 in the comparable quarter of the
prior fiscal year. In the past the Company has experienced cash flow problems,
which resulted in the Company being unable to fulfill certain of its golf club
orders due to a shortage of working capital. The Company, in April 1997,
obtained a new working capital credit line from Capital. The Company believes
that this new credit line, together with the proceeds recently raised from the
sale of the shares of Series B Preferred, will enable it to supply those
products that it could not manufacture in the past and to operate at the current
level. Nevertheless, in order to increase its sales of its golf products, the
Company may need additional capital to increase its inventory levels and to pay
for any additional operating costs. There can be no assurance that the Company
will have sufficient working capital to increase its inventory levels or that
the Company will have sufficient liquidity to conduct its operations in the
future. In addition, there can be no assurance that the Company will be able to
increase its operations to a level where it will generate positive cash flow
from its operations or that the Company will attain or thereafter sustain
profitability in any future period.
Dependence on Rawlings License. Under the License Agreement, Rawlings Sporting
Goods, Inc. has granted WSL, the Company's wholly-owned subsidiary, an exclusive
world-wide license to manufacture, promote and sell golf clubs and certain golf
accessories, and a non-exclusive world-wide license to manufacture, promote and
sell golf hats and golf balls. Substantially all of WSL's current revenues are
derived from the sale of products under the RAWLINGS name. The License Agreement
imposes certain obligations on WSL with respect to the continued use of the
RAWLINGS mark and logos and the quality of the products sold which bear the
marks. The License Agreement may also be terminated by Rawlings Sporting Goods,
Inc. in certain events, including the sale of all or substantially all of the
assets or a majority of the shares or interest of WSL or in the event there is
otherwise a change of control of WSL. No assurance can be given that WSL will be
able to remain a licensee under such agreement. The termination of the License
Agreement or any other loss of such license would have a material adverse effect
on the Company's business, financial condition, results of operations and
prospects. See "Description of Business -- Rawlings License; Trademarks."
Competition; Price Sensitivity. The Company faces intense competition in its
business. The market in which the Company does business is highly competitive,
and is served by a number of well-established and well-financed companies with
recognized brand names. All of the major golf companies, and most of the
Company's direct competitors have substantially greater capital resources,
technical and manufacturing resources, depth of management, and brand name
identification in the golf business than the Company. To a significant extent,
the Company competes with its direct competitors based on price. In addition,
sales in the Company's targeted mass retail market are highly price-sensitive.
As a result of the foregoing factors, the Company does not expect to be able
15.
<PAGE> 17
to increase its margins by raising prices. In addition, increases in labor,
materials, manufacturing or shipping costs could adversely affect the Company's
margins and therefore its financial condition.
See "Description of Business -- Competition."
Liens on Assets. Under the terms of the Company's Loan and Security Agreement
with Capital, Capital has liens on substantially all of the Company's assets,
including existing and after-acquired accounts, inventory, equipment, general
intangibles and negotiable instruments. If the Company should default on its
obligations under the Loan and Security Agreement, Capital would have the right
to foreclose on all of such assets. Although the Company is currently in
compliance with the tangible net worth requirement contained in the Loan and
Security Agreement, the net worth requirements will increase to $1,300,000 after
August 1, 1998. The Company's tangible net worth currently is less than the
$1,300,000 amount that the Company is required to maintain after August 1, 1998.
Accordingly, unless the Company is able to increase its net worth by August 1,
1998, the Company will be in default of the Loan and Security Agreement. In
order to increase its net worth and to provide additional working capital, the
Company currently intends to attempt to raise additional capital in the future.
However, no assurance can be given that any such financing will be effected, or
if completed, that such financing will be sufficient to bring the Company's net
worth into compliance with the requirements of the Loan and Security Agreement.
Although Capital has not, to date, declared an event of default under the
agreement, no assurance can be given that Capital will not declare an event of
default in the future and commence foreclosure against the Company's assets.
Dependence on Discretionary Consumer Spending. The demand for the Company's
products is related to the number of persons playing golf and the number of
rounds of golf played, as well as the amount of discretionary spending by
consumers. Each of these factors may be adversely affected by a downturn in
general economic conditions. A decrease in consumer spending on golf could have
an adverse effect on the Company's business, financial condition, results of
operation and prospects.
Dependence on Limited Number of Component Suppliers. The Company does not
manufacture the components required to assemble its golf clubs. Currently, all
of the clubheads used by the Company are manufactured by four manufacturers
located in the Far East. Most of the steel shafts used in the Company's clubs
are supplied by a single major United States manufacturer of shafts. Although
the Company believes that it could replace each of its component suppliers, the
loss of certain of these suppliers could result in significant production
delays, which could have a material adverse effect on the Company's business,
financial condition, results of operations and prospects until such suppliers
are replaced. The Company has in the past experienced minor delays in obtaining
components for its clubs from its foreign suppliers. No assurance can be given
that it will not experience significant delays in the future or that it will be
able to maintain its current relationships with its major component suppliers.
Reliance on Foreign Suppliers. The Company purchases all of its clubheads and
certain of the graphite shafts, grips and other materials used in the assembly
of the Company's clubs from foreign suppliers. Accordingly, the Company is
subject to all of the risks normally associated with international business,
including changes in currency exchange rates, the imposition of tariffs, import
and export controls, and changes in governmental policies, each of which could
significantly affect the Company's business, financial condition, results of
operations and prospects. In addition, the Company may experience delays in
deliveries of its components due to delays in the shipment of the parts. Because
of the time required to ship components manufactured abroad to the Company's
manufacturing facilities, the Company has to purchase components with sufficient
lead time to allow delivery. As a result, the Company may not be able to respond
to emergency orders from certain of its purchasers for rapid delivery of golf
products. The Company has in the past attempted to
16.
<PAGE> 18
fulfill short delivery orders for certain of its larger customers by shipping
the components from the Far East by air delivery. This practice substantially
increased the total cost of the final products and caused the Company to
experience losses on such orders. Although the Company does not intend to have
its golf parts shipped in from the Far East via air delivery in the future, the
Company may be forced to do so in order to retain certain larger accounts.
ITEM 3. DESCRIPTION OF PROPERTIES.
The Company's principal executive offices are located at 20301 Nordhoff
Street, Chatsworth, California, where it leases approximately 31,600 square feet
of office, warehouse and manufacturing space. The lease runs through February
28, 1999 with an option to renew for an additional two years. The Company
currently pays a base rent of approximately $14,852 per month which will
increase by approximately 4% annually on February 28 of each year for the term
of the lease. The Company believes that its facilities have the capacity to meet
its manufacturing and assembly needs for the foreseeable future.
In addition, the Company leases 3,000 square feet of retail space in a
shopping mall at 10154 Balboa Boulevard, Granada Hills, California, which space
it uses for its sole retail outlet. See "Item 1. Description of Business--Retail
Outlet." The lease expires on May 31, 1999 and requires the Company to pay a
base rent of approximately $3,250 per month.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock, Series A Preferred Stock and
Series B Preferred as of March 1, 1998 by (i) each person who is known by the
Company to own beneficially more than 5% of the Company's outstanding voting
securities; (ii) each of the Company's Directors; (iii) each Named Executive
Officer (as defined in "Item 6. Compensation" below); and (iv) all officers and
directors of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT OF
APPROXIMATE PREFERRED APPROXIMATE
AMOUNT OF COMMON PERCENT OF STOCK AND PERCENTAGE
STOCK AND NATURE OWNERSHIP NATURE OF OWNERSHIP
OF BENEFICIAL OF COMMON OF BENEFICIAL OF PREFERRED
NAME AND ADDRESS(1) OWNERSHIP(2) STOCK OWNERSHIP STOCK
- ------------------------------------- ----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Warren E. Levy ..................... 3,116,500(3) 60.5% 711,000(4) 100%
Sheila Levy ........................ 0 0% 0 0%
Daryl Levy ......................... 0 0% 0 0%
Russell Armstrong .................. 285,250(5) 7.8% 0 0%
David Firestone .................... 425,333(6) 8.7% 0 0%
All executive officers and directors
as a group (4 persons) ........... 3,116,500 60.5% 711,000 100%
</TABLE>
- ----------
(1) Unless otherwise indicated, the address of each person is c/o the Company
at 30201 Nordhoff Street, Chatsworth, California 91311.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options, warrants or convertible securities that are currently
exercisable, or exercisable within 60 days of March 1, 1998, are deemed
outstanding for computing the percentage of the person holding such
options, warrants or convertible securities but are not deemed outstanding
for computing the percentage of any other person. Except as indicated by
footnote and subject to community property laws where applicable, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
17.
<PAGE> 19
(3) Includes the 474,000 shares of Common Stock currently issuable upon the
conversion of all of the 711,000 shares of Series A Preferred Stock owned
by Mr. Levy.
(4) The 711,000 shares of Series A Preferred Stock are currently convertible
into a total of 474,000 shares of Common Stock.
(5) Includes 260,000 shares issuable pursuant to a stock purchase warrant
exercisable within 60 days of March 1, 1998.
(6) Includes 210,000 shares issuable pursuant to a stock purchase warrant
exercisable within 60 days of March 1, 1998 that are owned by a corporation
affiliated with Mr. Firestone.
18.
<PAGE> 20
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------ ----- ---------------------------
<S> <C> <C>
Warren E. Levy 63 Chief Executive Officer,
President and Director
Sheila Levy 58 Secretary and Director
Daryl Levy 31 Director
Richard J. Parent 38 Chief Operating Officer and Chief
Financial Officer
</TABLE>
WARREN E. LEVY is the founder of WSL and has served as Chairman of the
Board, Chief Executive Officer and President since WSL's inception in August
1989. Mr. Levy became the Chairman of the Board, Chief Executive Officer and
President of United Golf in February 1997 in connection with the Exchange. Prior
to founding WSL, Mr. Levy spent over 20 years working in the golf equipment
industry. Mr. Levy holds a B.A. degree from California State University, Los
Angeles. Sheila Levy and Daryl Levy, are the wife and son, respectively, of Mr.
Levy.
SHEILA LEVY has served as a Director and as Secretary of WSL since 1989
and of United Golf since February 1997. Ms. Levy has been involved in all
aspects of the development and management of WSL since its organization. Warren
Levy and Daryl Levy are Sheila Levy's husband and son, respectively.
DARYL LEVY has served as a Director of United Golf since 1997 and as a
Director of WSL since 1995. From 1989 to May 1997, Mr. Levy supervised the
Company's assembly and shipping operations located in Chatsworth, California. He
holds a B.A. degree in Business Administration from California State University,
Northridge. Warren Levy and Sheila Levy are Daryl Levy's father and mother,
respectively.
RICHARD J. PARENT has served as the Chief Operating Officer and as the
Chief Financial Officer of both United Golf and WSL since February 1, 1998.
Prior to joining the Company, Mr. Parent was the Chief Financial Officer of
IndeNet, Inc., a public company engaged in the business of providing support
services and products to the broadcast industry in the United States and
internationally. Prior to joining IndeNet, Inc. in 1993, Mr. Parent was an audit
manager at BDO Seidman, and a audit senior at Kenneth Leventhal & Co. Mr. Parent
received his Bachelor's Degree form the University of Southern California in
1982 and has been a Certified Public Accountant since 1988.
19.
<PAGE> 21
ITEM 6. COMPENSATION.
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no compensation for
serving on the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for
its fiscal years ended July 31, 1997, July 31, 1996 and July 31, 1995 to its
Chief Executive Officer and all other executive officers (collectively, the
"Named Executive Officers") whose total salary and bonus from the Company
exceeded $100,000 in the fiscal year ended July 31, 1997. Other than Mr. Levy,
there are no Named Executive Officers.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
------------------------------------------------------------
Fiscal Year
Name and Ended All Other
Principal Position July 31, Salary Bonus Compensation(3)
- -------------------------- ----------- ---------- --------- -------------------
<S> <C> <C> <C> <C>
Warren E. Levy 1997 $130,000(2) $ -0- $10,889
Chief Executive Officer 1996 $120,000 $ -0- $ 7,947
and President 1995 $120,000 $ -0- $ -0-
</TABLE>
- -----------
(1) The compensation described in this table does not include medical
insurance, retirement benefits and other benefits received by the foregoing
executive officer which are available generally to all employees of the
Company and certain perquisites and other personal benefits received by the
foregoing executive officer of the Company, the value of which did not
exceed the lesser of $50,000 or 10% of the executive officer's cash
compensation in the table.
(2) Mr. Levy's employment agreement with the Company provides for Mr. Levy to
receive an annual salary of $144,000. Because the employment agreement was
entered into during the Company's fiscal 1997 year, Mr. Levy received only
$130,000 for such fiscal year.
(3) Represents primarily payments made on behalf of the Named Executive Officer
or his spouse for use of automobiles. Also includes other prerequisites
that collectively represent less than 25% of such other compensation.
EMPLOYMENT AGREEMENTS
The Company entered into a five-year employment agreement with Warren
E. Levy (the "Levy Employment Agreement"), the Company's Chief Executive Officer
and President, in February 1997. The term of the Levy Employment Agreement
commenced on February 3, 1997 and will expire on February 2, 2002. The Levy
Employment Agreement provides that in consideration for Mr. Levy's services, he
is to be paid a salary of $144,000 during the first year of the agreement. After
the first year of the agreement, Mr. Levy is entitled to receive such increases
in salary as may be determined by the Executive Compensation Committee of the
Board of Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As part of the capitalization of WSL, Mr. Levy made loans (the "Loans")
to WSL in the aggregate principal amount of $711,000. In January 1997, Mr. Levy
converted the Loans into 711,000 shares of WSL's Series A preferred stock. As
part of the Exchange, the shares of WSL's
20.
<PAGE> 22
Series A preferred stock were exchanged for 711,000 shares of United Golf's
Series A Preferred Stock. The terms of the two series of preferred stock were
substantially identical. See "Item 8. Description of Capital Stock--Preferred
Stock--Series A Redeemable Cumulative Convertible Preferred Stock."
Certain products manufactured in the United States are sold overseas by
the Company through an affiliated company. As of July 31, 1996 and 1997, the
Company has receivable balances from its affiliate company of $90,894 and
$175,991, respectively.
ITEM 8. DESCRIPTION OF CAPITAL STOCK.
The authorized capital stock of the Company consists of 10,000,000
shares of Common Stock and 1,000,000 shares of preferred stock.
COMMON STOCK
As of March 1, 1998, 4,673,700 shares of Common Stock were outstanding,
held of record by approximately 150 stockholders. The holders of Common Stock
are entitled to one vote for each share held of record on all matters submitted
to a vote of stockholders. The holders of Common Stock are not entitled to
cumulative voting rights with respect to the election of directors. Accordingly,
the holder of a majority of the Company's outstanding voting stock will be able
to elect all directors, and minority stockholders will not be able to elect
directors on the basis of their votes alone. Subject to preferences applicable
to the currently outstanding shares of Series A Preferred Stock, Series B
Preferred Stock or to any other series of preferred stock that may be issued in
the future, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the Company, holders of the Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and liquidation preference of any
then outstanding preferred stock. Holders of Common Stock have no preemptive
rights and no right to convert their Common Stock into other securities. All
outstanding shares of Common Stock are fully paid and nonassessable.
The transfer agent and registrar for the Company's Common Stock is U.S.
Stock Transfer Corporation, located in Glendale, California.
PREFERRED STOCK
The Board of Directors has authority to issue up to 1,000,000 shares of
preferred stock, $.001 par value, and to fix the rights, preferences, privileges
and restrictions, including voting rights, of those shares without any future
vote or action by the stockholders. The rights of holders of the Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of the Series A Preferred Stock, Series B Preferred Stock and any preferred
stock that may be issued in the future. The issuance of preferred stock could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company, thereby delaying,
deferring or preventing a change in control of the Company. Furthermore, such
preferred stock may have other rights, including economic rights senior to the
Common Stock, and, as a result, the issuance thereof could have a material
adverse effect on the market value of the Common Stock.
SERIES A REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Board of Directors has authorized 711,000 shares of Series A
Redeemable Cumulative Convertible Preferred Stock ("Series A Preferred Stock").
Currently all shares of Series A Preferred
21.
<PAGE> 23
Stock are held by Warren E. Levy, the Company's President. For the purpose of
calculation dividends and amounts payable upon liquidation, dissolution or
winding up, the shares of Series A Preferred Stock have a stated value of $1.00
per share. The holders of Series A Preferred Stock are entitled to cumulative
dividends, payable quarterly, at as annual rate of 10% of the stated value.
Dividends shall be cumulative without interest or additional dividends until
declared and paid. Each share of Series A Preferred Stock is entitled to voting
rights and powers equal to the number of shares of Common Stock issuable upon
conversion of such shares of Series A Preferred Stock. The Company may not,
without the approval of the holders of a majority of the shares of Series A
Preferred Stock outstanding, create any securities with rights and privileges
senior to those of the Series A Preferred Stock or increase the number of shares
of Series A Preferred Stock issued or authorized for issuance.
The shares of Series A Preferred Stock have a liquidation preference
equal to the sum of stated value of each share ($1.00) of Series A Preferred
Stock outstanding (subject to adjustments to reflect stock splits, stock
dividends, stock combinations, recapitalizations, reorganizations and like
occurrences) plus all accrued or unpaid dividends thereon, if any, and the
portion of the quarterly dividends accrued up to the liquidation date. Since
February 3, 1998, the holders of Series A Preferred Stock are entitled to
convert all, but not less than all, of the shares of Series A Preferred Stock
held by such holder into Common Stock. Each share of Series A Preferred Stock
may be converted into the number of shares of Common Stock determined by
dividing $1.00 by the Conversion Price. The Conversion Price is initially $1.50
per share, which price is subject to adjustment in certain events (including the
issuance of Common Stock at a price below the Conversion Price then in effect)
to prevent dilution. Upon conversion, holders of the Series A Preferred Stock
shall have the rights of a holder of Common Stock. All outstanding shares of
Series A Preferred Stock are fully paid and nonassessable.
12% SERIES B CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
The Board of Directors has authorized 20,000 shares of 12% Series B
Cumulative Convertible Redeemable Preferred Stock ("Series B Preferred Stock").
For the purpose of calculation dividends and amounts payable upon liquidation,
dissolution or winding up, the shares of Series B Preferred Stock have a stated
value of $100.00 per share. The holders of Series B Preferred Stock are entitled
to cumulative dividends, payable monthly on the 15th day of each calendar month
following the month for which the dividends are paid. Dividends are payable
when, as and if declared by the Board of Directors out of funds legally
available therefor. Commencing on January 15, 1999 and continuing thereafter
until no shares of Series B Preferred Stock remain outstanding, all dividends
payable with respect to the Series B Preferred Stock may be made, at the option
of the Company, in cash or, in full or in part, by shares of unregistered Common
Stock. For the purposes of determining the value of shares of Common Stock
issued in connection with any dividend payment, each share of Common Stock shall
have a value equal to the conversion price then in effect of the Series B
Preferred Stock.
Upon liquidation, the holders of the Series B Stock will be entitled to
receive an amount equal to the stated value of the Series B Preferred Stock plus
an amount equal to any dividends declared and unpaid thereon, if any. The rights
of the holders of the Series B Preferred Stock to receive dividends and payments
upon liquidation are senior to the rights of the holders of the Common Stock but
junior to the holders of the Series A Preferred Stock and to any other classes
of capital stock the Company may hereafter issue and designate as senior
securities.
The holders of the Series B Preferred Stock are entitled to vote upon
all matters presented to the Company's stockholders, together with the holders
of Common Stock as one class, except as otherwise required by law. Each share of
Series B Preferred Stock entitles the holder thereof to that
22.
<PAGE> 24
number of votes equal to the number of shares of Common Stock into which one
share of Series B Preferred Stock would have been convertible, if such
conversion had taken place on the record date set for determining stockholders
entitled to vote.
The Series B Preferred Stock is convertible into Common Stock at the
option of the holders at any time at an initial nominal conversion price equal
to $1.50 per share. The nominal conversion price will be subject to adjustment
in certain events, including (a) dividends (and other distributions) payable in
Common Stock (other than dividends of Common Stock paid to the holders of the
Series B Preferred Stock); (b) the issuance to all holders of Common Stock of
rights or warrants entitling them to subscribe for the purchase of Common Stock
at less than the then current nominal conversion price per share; (c)
subdivisions, combinations and reclassifications of the Common Stock; and (d)
certain mergers and consolidations of the Company.
Commencing on August 1, 1999, the shares of Series B Preferred Stock
may be redeemed, in whole or in part, at any time at the option of the Company,
for cash at a price of $100 per share plus all declared and unpaid dividends
thereon, if any. In case of the redemption of a part only of the outstanding
shares of Series B Preferred Stock, the shares so to be redeemed shall be
selected pro rata. All currently outstanding shares of Series B Preferred Stock
are validly issued, fully paid and nonassessable.
REGISTRATION RIGHTS
The Company has granted certain demand and piggyback registration
rights to Warren E. Levy, with respect to both the shares of Common Stock
currently owned by Mr. Levy and the shares of Common Stock issuable upon the
conversion of the 711,000 shares of Series A Preferred Stock owned by Mr. Levy.
In addition, the Company has granted certain demand and piggyback registration
rights to the holders of 650,000 shares of Common Stock issuable upon the
exercise of certain outstanding warrants.
23.
<PAGE> 25
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The Common Stock is currently quoted on the OTC Bulletin Board Display
Service operated by the NASD (the "OTC Bulletin Board") under the symbol "UGLF."
The following table sets forth the high and low last sale or bid prices for the
Common Stock for each fiscal quarter, or interim period, in which the Common
Stock has been publicly traded, as reported by the OTC Bulletin Board. These
prices do not reflect retail mark-ups, markdowns or commissions and may not
represent actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
--------------------------- ------------ -----------
<S> <C> <C>
April 30, 1997(1) $ 4.125 $ 1.387
July 31, 1997 $ 1,625 $ 1.125
October 31, 1997 $ 1.60 $ 1.15
January 31, 1998 $ 1.50 $ 0.80
February 1-March 12, 1998 $ 1.525 $ 1.00
</TABLE>
- --------------------
(1) The Exchange occurred on February 3, 1997. Prior thereto, the United
Golf (formerly known a Aspen West Group, Inc.) had no operations and
only a limited amount of assets. Accordingly, although the shares of
Common Stock of Aspen West Group, Inc. were listed on the OTC Bulletin
Board, trading in such shares, if any, prior to February 3, 1997 was
not representative of the trading activity in the Company's Common
Stock.
The closing sales price on March 12, 1998 reported on the OTC Bulletin
Board was $1.125 per share of Common Stock.
There is currently no public market for the Series A Preferred Stock or
Series B Preferred Stock.
The Company has not, to date, paid any cash dividends on its Common
Stock. No dividends may be paid with respect to the Common Stock until all
dividends have been paid with respect to Series A Preferred Stock and the Series
B Preferred Stock. In addition, the Company's current credit facility prohibits
the payment of dividends on the Common Stock. The Company has no current plans
to pay dividends on its Common Stock and intends to retain earnings, if any, for
working capital purposes. Any future determination as to the payment of
dividends on the Common Stock will depend upon the results of operations,
capital requirements, the financial condition of the Company and other relevant
factors.
ITEM 2. LEGAL PROCEEDINGS.
None.
ITEM 3. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
24.
<PAGE> 26
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the organization of United Golf, in August 1995
United Golf issued 95,000 shares of its common stock to its two founders for a
price of $0.105 per share ($9,975). No underwriters were used in connection with
the private placement. The foregoing transaction was an exempt offering pursuant
to Section 4(2) of the Securities Act.
In November 1995, United Golf issued 48,050 shares of its Common Stock
for a total aggregate offering amount of $12,129. The 48,050 shares were sold to
approximately 150 investors in a transaction exempt from registration pursuant
to Rule 504 promulgated under the Securities Act.
No underwriters were used in connection with this transaction.
In June 1996 United Golf issued 6,000 shares to one person in exchange
for services rendered. In August 1996, United Golf issued 20,000 shares to one
other person in exchange for services rendered. The shares issued in the
foregoing transactions were valued at $1.00 per share and were sold in a
transaction exempt from registration under Section 4(2) of the Securities Act.
No underwriter was used in connection with these transactions.
In connection with the Exchange, pursuant to that certain Agreement and
Plan of Reorganization, United Golf issued 2,675,000 shares of its Common Stock
and 711,000 shares of its Series A Preferred Stock to Warren Levy in exchange
for 2,675,000 shares of common stock of WSL and 711,000 shares of Series A
Convertible Redeemable Preferred Stock of WSL. The foregoing transaction was an
exempt offering pursuant to Section 4(2) of the Securities Act. See "Description
of Business -- Organization."
In February 1997, the Company issued three-year warrants to certain
affiliates of Century Financial Partners, Inc., the investment banking firm that
advised United Golf in the Exchange with Mr. Levy, to purchase up to an
aggregate of 650,000 shares of Common Stock at an exercise price per share of
$2.50. The warrants expire on February 3, 2000.
In March 1997, the Company sold 385,250 shares of Common Stock at a
price per share of $2.00 to 30 investors, for a total of $770,500. The offering
was an exempt from the registration rule pursuant to Rule 504 under Regulation D
of the Securities Act. No underwriter was used in connection with the offering
and no discounts or commissions were paid.
As consideration for three loans made to the Company made by three
unaffiliated persons in March 1997, the Company issued three-year warrants to
such persons to purchase up to an aggregate of 5,000 shares of Common Stock at
an exercise price per share of $2.50. The warrants expire on February 4, 2000.
The foregoing issuance of the warrants was an exempt offering pursuant to
Section 4(2) of the Securities Act. No underwriter was used in connection with
the offering and no discounts or commissions were paid.
In a private placement effected pursuant to Section 4(2) and 3(b) or
the Securities Act, and Rules 506 and 505 promulgated thereunder, the Company
sold 12,490 shares of its Series B Preferred to 48 investors, of whom 18 were
"accredited investors" as that term is defined in Rule 501(a). The shares of
Series B Preferred Stock were sold at a price of $1.50 per share. Palm State
Equities, Inc. acted as the placement agent in the private placement and
received a placement fee of 10% of the sales proceeds. In addition, the Company
paid Palm State Equities, Inc. a non-accountable expense allowance of 3% of the
sales price of the shares sold in the private placement and agreed to sell to
the placement agent, for nominal consideration, a three-year warrant to purchase
up to a maximum of 100,000 shares of the Common Stock for an exercise price of
$1.75 per share. The offering was effected by means of a private placement
memorandum, and each investor executed a purchaser
25.
<PAGE> 27
suitability questionnaire, a subscription agreement and a purchaser
representative questionnaire if the subscriber relied on a purchaser
representative in connection with evaluating the merits of the offering.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation law, the Company
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Company's Bylaws also
provide that the Company has the power to indemnify its directors, officers,
employees and other agents to the maximum extent permitted by Delaware law.
The Company's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. The provision does not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Company, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect directors responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Company intends to enter into agreements with its directors and
executive officers that require the Company to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of the Company or any of its affiliated enterprises, provided such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
26.
<PAGE> 28
PART F/S
FINANCIAL STATEMENTS
The following index lists the financial statements of United Golf
Products, Inc. are included in this report:
Report of Independent Accountants
Consolidated Balance Sheets as of July 31, 1996 and 1997 and October 31, 1997
(unaudited)
Consolidated Statements of Operations for the years ended July 31, 1995, 1996
and 1997 and the three months ended October 31, 1996 and 1997 (unaudited)
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
July 31, 1995, 1996 and 1997 and the three months ended October 31, 1997
(unaudited)
Consolidated Statements of Cash Flows for the years ended July 31, 1995, 1996
and 1997 and the three months ended October 31, 1996 and 1997
Notes to Consolidated Financial Statements
27.
<PAGE> 29
UNITED GOLF PRODUCTS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 1995, 1996 AND 1997
TOGETHER WITH AUDITORS' REPORT
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
United Golf Products, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of UNITED GOLF
PRODUCTS, INC. (a Delaware corporation) AND SUBSIDIARY as of July 31, 1996 and
1997, and the related statements of operations, shareholders' equity (deficit)
and cash flows for each of the three years in the period ended July 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United Golf
Products, Inc. and Subsidiary as of July 31, 1996 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended July 31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
December 18, 1997 (except with
respect to the matter discussed
in Note 5, as to which the date
is March 13, 1998)
<PAGE> 31
UNITED GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
July 31
------------------------------ October 31,
1996 1997 1997
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ -- $ 113,476 $ 35,630
Accounts receivable, net of allowance
for doubtful accounts of $34,249
in 1996 and $41,643 in 1997 and
$54,872 at October 31, 1997 1,292,751 1,423,710 1,507,292
Inventories 2,073,148 1,810,356 2,035,979
Prepaids and other 60,430 133,788 190,787
----------- ----------- -----------
Total current assets 3,426,329 3,481,330 3,769,688
----------- ----------- -----------
RECEIVABLE FROM AFFILIATE 90,894 173,591 201,184
PROPERTY AND EQUIPMENT, at cost:
Furniture and fixtures 122,013 144,077 150,634
Machinery and equipment 86,381 90,480 91,833
----------- ----------- -----------
208,394 234,557 242,467
Less--Accumulated depreciation
and amortization (133,579) (150,580) (156,577)
----------- ----------- -----------
74,815 83,977 85,980
----------- ----------- -----------
OTHER ASSETS 86,123 200,123 179,172
----------- ----------- -----------
Total assets $ 3,678,161 $ 3,939,021 $ 4,235,934
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
<PAGE> 32
UNITED GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
July 31
------------------------- October 31,
1996 1997 1997
---------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings $1,269,496 $ 1,123,923 $ 1,666,637
Accounts payable 1,641,251 1,637,158 1,698,440
Accrued expenses 71,432 254,025 204,606
---------- ----------- -----------
Total current liabilities 2,982,179 3,015,106 3,569,683
---------- ----------- -----------
NOTE PAYABLE TO SHAREHOLDER 711,644 - -
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value:
Authorized--10,000,000 shares
Issued and outstanding--2,675,000 shares
at July 31, 1996 and October 31, 1996,
and 4,673,700 shares at July 31, 1996 and
October 31, 1997, respectively 2,675 4,674 4,674
Redeemable Cumulative Preferred Stock,
$.001 par value:
Authorized--1,000,000 shares
Issued and outstanding--711,000 shares
at July 31, 1997 and October 31, 1997,
respectively - 711 711
Additional paid-in capital 7,325 1,919,377 1,919,377
Retained (deficit) (25,662) (1,000,847) (1,258,511)
---------- ----------- -----------
Total shareholders' equity (deficit) (15,662) 923,915 666,251
---------- ----------- -----------
Total liabilities and
shareholders' equity (deficit) $3,678,161 $ 3,939,021 $4,235,934
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
<PAGE> 33
UNITED GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three-Month Period
July 31, Ended October 31,
------------------------------------------------ ------------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $ 9,644,407 $ 10,300,560 $ 8,780,346 $ 1,783,176 $ 1,940,120
COST OF GOODS SOLD 7,590,190 8,702,627 7,436,736 1,532,181 1,619,264
------------ ------------ ------------ ------------ ------------
Gross Profit 2,054,217 1,597,933 1,343,610 250,995 320,856
OPERATING EXPENSES:
Selling 769,386 823,993 769,529 255,801 279,012
General and administrative 1,148,543 1,278,899 1,202,121 144,058 216,815
Non-cash compensation (Note 8) -- -- 165,000 -- --
------------ ------------ ------------ ------------ ------------
Income (loss) from operations 136,288 (504,959) (793,040) (148,864) (174,971)
OTHER (EXPENSE) (78,120) (178,767) (151,720) (45,067) (64,718)
------------ ------------ ------------ ------------ ------------
Net income (loss) before
provision for income taxes 58,168 (683,726) (944,760) (193,931) (239,689)
PROVISION (BENEFIT) FOR INCOME TAXES 9,400 (198,020) 800 -- 200
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 48,768 $ (485,706) $ (945,560) $ (193,931) $ (239,889)
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
STOCK OUTSTANDING 2,675,000 2,675,000 3,674,485 2,675,000 4,673,700
============ ============ ============ ============ ============
NET INCOME (LOSS) PER SHARE $ 0.02 $ (0.18) $ (0.26) $ (0.07) $ (0.05)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 34
UNITED GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Retained
Common Stock Preferred Stock Additional Earnings
-------------------------- -------------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital (Deficit) Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
July 31, 1995 2,675,000 $ 2,675 -- $ -- $ 7,325 $ 460,044 $ 470,044
Net loss -- -- -- -- -- (485,706) (485,706)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE,
July 31, 1996 2,675,000 2,675 -- -- 7,325 (25,662) (15,662)
Shares issued
in exchange
with Aspen
West Group, Inc 1,613,450 1,614 -- -- 266,648 -- 268,262
Issuance of
common stock 385,250 385 -- -- 770,115 -- 770,500
Conversion of
note into
preferred stock -- -- 711,000 711 710,289 -- 711,000
Transfer of shares
by majority
shareholder -- -- -- -- 165,000 -- 165,000
Dividend on
preferred stock -- -- -- -- -- (29,625) (29,625)
Net loss -- -- -- -- -- (945,560) (945,560)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE,
July 31, 1997 4,673,700 4,674 711,000 711 1,919,377 (1,000,847) 923,915
----------- ----------- ----------- ----------- ----------- ----------- -----------
Dividend on
preferred stock -- -- -- -- -- (17,775) (17,775)
(unaudited)
Net loss
(unaudited) -- -- -- -- -- (239,889) (239,889)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE,
October 31, 1997
(unaudited) 4,673,700 $ 4,674 711,000 $ 711 $ 1,919,377 $(1,258,511) $ 666,251
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 35
UNITED GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three-Month Period
July 31, Ended October 31,
------------------------------------- -----------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 48,768 $(485,706) $(945,560) $(193,931) $(239,889)
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Depreciation and amortization 23,397 19,999 23,001 16,279 36,625
Provision for doubtful accounts (10,000) 14,249 7,394 12,600 18,500
Non-cash compensation expense
(Note 8) -- -- 165,000 -- --
Changes in operating assets and
liabilities:
Accounts receivable (504,095) 98,864 (47,094) (107,786) (102,082)
Inventories 96,491 212,877 262,792 109,785 (225,623)
Prepaids and other (23,715) (36,715) (73,358) (48,124) (87,627)
Receivable from affiliate 41,890 (90,894) (82,697) (4,582) (27,593)
Other assets 18,072 8,990 -- 401 20,951
Accounts payable (48,067) 73,718 (4,093) 149,002 61,282
Accrued expenses (64,741) (29,257) 181,949 2,831 (49,419)
--------- --------- --------- --------- ---------
Net cash used in operating
activities (422,000) (213,875) (512,666) (63,525) (594,875)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (14,423) (39,236) (26,163) (3,647) (7,910)
Cash acquired in acquisition -- -- 57,003 -- --
--------- --------- --------- --------- ---------
Net cash provided by (used
in) investing activities (14,423) (39,236) 30,840 (3,647) (7,910)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances (payments) on line of
credit 352,000 242,996 (145,573) 79,744 542,714
Payments of dividends to shareholders -- -- (29,625) -- (17,775)
Payments on note payable to shareholder (501) -- -- -- --
Payments on long-term debt (83,333) -- -- -- --
Issuance of common stock -- -- 770,500 -- --
--------- --------- --------- --------- ---------
Net cash provided by
financing activities 268,166 242,996 595,302 79,744 524,939
--------- --------- --------- --------- ---------
NET (DECREASE) INCREASE IN CASH (168,257) (10,115) 113,476 12,572 (77,846)
CASH, beginning of year 178,372 10,115 -- -- 113,476
--------- --------- --------- --------- ---------
CASH, end of year $ 10,115 $ -- $ 113,476 $ 12,572 $ 35,630
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of These
consolidated financial statements.
<PAGE> 36
UNITED GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of October 31, 1996 and 1997 is unaudited)
1. The Company
United Golf Products, Inc. and its subsidiary (collectively, United Golf or the
Company) designs, develops, assembles, and markets golf clubs and other golf
accessories primarily in North America under the Rawlings (Registered Trademark)
brand name. The Company has the exclusive, worldwide right to use the Rawlings
name and logo in connection with the manufacture, distribution, promotion and
sale of golf clubs, golf bags, and golf accessories, and the non-exclusive
worldwide right to sell golf hats and golf balls. The Company currently markets
its products nationwide primarily through mass marketers, including department
stores, general discount warehouses and general sporting goods outlets. The
Company also is engaged in the wholesale distribution of golf, tennis and other
sporting goods that are manufactured by others.
United Golf, formerly Aspen West Group, Inc. (Aspen), was incorporated under the
laws of the State of Delaware in August 1995. In February 1997, Aspen and WSL,
Inc. (WSL) completed a stock exchange agreement pursuant to which all of the
common stock of WSL was exchanged for a like number of common shares of Aspen
(the "exchange") and the shareholders of WSL became the controlling shareholders
of Aspen. The exchange has been accounted for as a reverse merger using the
purchase method and, accordingly, the consolidated financial statements for the
periods presented show only the operations of WSL. Aspen, which had
approximately $231,000 of assets as of the date of the exchange, had
insignificant operations prior to the exchange and no operations after the
exchange.
2. Summary of Significant Accounting Policies
a. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company, after elimination of all significant intercompany
accounts and transactions. Investments in joint ventures in which the
Company has common stock ownership of 50 percent are accounted for on
the equity method.
b. Use of 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
and disclosure of contingent 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.
<PAGE> 37
-2-
c. Unaudited Quarterly Financial Statements
The unaudited financial statements for the three-month periods ended
October 31, 1996 and 1997, have been prepared in conformity with
generally accepted accounting principles. Certain information and note
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted, although the Company believes that the disclosures
made are adequate to make the information presented not misleading.
These unaudited financial statements reflect, in the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to fairly present the results of operations,
changes in cash flows and financial position as of and for the periods
presented. The unaudited financial statements should be read in
conjunction with the audited financial statements and related notes
thereto. The results for the interim period presented are not
necessarily indicative of results to be expected for the full year.
d. Credit Risk
In fiscal 1995, three customers accounted for 34 percent of sales. In
fiscal 1996 and 1997, one customer accounted for 11 percent and 21
percent of sales, respectively. At July 31, 1996 and 1997, accounts
receivable included approximately $273,000 and $331,000 due from this
customer, respectively.
e. Inventory
Inventory, which includes materials, labor and manufacturing overhead,
is valued at the lower of cost (first-in, first-out) or market and is
summarized as follows:
<TABLE>
<CAPTION>
July 31, July 31,
1996 1997
---------- ----------
<S> <C> <C>
Raw materials $ 952,102 $ 748,845
Work-in-process 30,931 46,856
Finished goods 1,090,115 1,014,655
---------- ----------
$2,073,148 $1,810,356
========== ==========
</TABLE>
f. Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
is computed using the straight-line method over the following estimated
useful lives:
Machinery and equipment 3 to 5 years
Furniture and fixtures 5 to 7 years
When an asset is sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in operations. Repairs and maintenance are
charged to expense as incurred and major replacements or betterments are
capitalized.
<PAGE> 38
-3-
g. Revenue Recognition
The Company recognizes revenue at the time of shipment.
h. Statement of Cash Flows
The Company prepares its statement of cash flows using the indirect
method as described by the Statement of Financial Accounting Standards
No. 95. Supplemental cash flow disclosures are as follows:
<TABLE>
<CAPTION>
July 31
-----------------------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Cash paid during the
year for--
Interest $165,729 $158,885 $ 124,889
Income taxes (refunded) $ (9,526) $ -- $(198,020)
======== ======== =========
</TABLE>
For the three-month period ended October 31, 1996 and 1997, the Company
paid $45,099 and $51,778 for interest, respectively. No cash was paid
for taxes during the three-month period ended October 31, 1996 and 1997.
In connection with the stock exchange agreement (see Note 1), the
Company obtained approximately $231,000 in assets of which approximately
$120,000 represents goodwill. In addition, the Company also converted
the note payable to shareholders into Series A Redeemable Cumulative
Convertible Preferred Stock (see Note 8).
i. Goodwill
In connection with the stock exchange agreement (see Note 1), the
Company obtained approximately $231,000 in assets of which approximately
$120,000 represents goodwill.
Goodwill is amortized over ten years.
j. Stock Based Compensation
The Company adopted SFAS No. 123, "Accounting for Stock Based
Compensation" (SFAS 123) in fiscal 1997. As allowed by SFAS 123, the
Company has elected to continue to measure compensation cost under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25) and comply with the pro forma disclosure
requirements of the new standard (see Note 8).
k. Stock Split
In January 1997, WSL effected a 267.5 for one common stock split and
increased the number of authorized shares of common stock to 10,000,000.
All information in the accompanying financial statements has been
retroactively restated to reflect these changes.
l. Income (Loss) Per Share
Income (loss) per share is based on the weighted average number of
shares outstanding during each year. The weighted average number of
shares used in the computation of income (loss) per share for 1995, 1996
and 1997 was 2,675,000, 2,675,000 and 3,674,485, respectively. The
weighted average number of shares used in the computation of loss per
<PAGE> 39
-4-
share for the periods ended October 31, 1996 and 1997 was 2,675,000 and
4,673,700, respectively.
3. Related-Party Transactions
Notes payable to shareholder represents $711,644 of non-interest bearing notes
advanced by the shareholder to the Company. During fiscal 1997, the note payable
was converted into Series A Redeemable Cumulative Convertible Preferred Stock in
connection with the exchange (see Note 8).
The Company sells products to an affiliate company which is in the business of
selling sporting goods, including golf products. As of July 31 1996 and 1997,
the Company has receivable balances of $90,894 and $173,591 from its affiliate
company, respectively.
4. Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109.
Under SFAS No. 109, deferred income tax assets or liabilities are computed based
on the temporary difference between the financial statement and income tax bases
of assets and liabilities using the current marginal income tax rate. Deferred
income tax expenses or credits are based on the changes in the deferred income
tax assets or liabilities from period to period. At July 31, 1997, the Company
has net operating loss carryforwards available of approximately $900,000 which
will expire through fiscal year 2012.
The components of the deferred income tax assets (liabilities) at July 31 are as
follows:
<TABLE>
<CAPTION>
July 31, July 31,
1996 1997
--------- ---------
<S> <C> <C>
Net operating loss carryforward $ 187,000 $ 477,300
Non-cash compensation -- 66,000
Allowance for doubtful accounts 13,700 16,700
Other (4,000) 8,000
Valuation allowance (196,700) (568,000)
--------- ---------
$ -- $ --
========= =========
</TABLE>
The components of the provision (benefit) for income taxes for the period ended
July 31 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ----
<S> <C> <C> <C>
Current:
Federal $ 9,100 $(198,820) $ --
State 3,800 800 800
Deferred:
Federal (500) -- --
State (3,000) -- --
-------- --------- ----
Provision (benefit) for
income taxes $ 9,400 $(198,020) $800
======== ========= ====
</TABLE>
<PAGE> 40
-5-
Differences between the provision (benefit) for income taxes and income taxes at
the statutory federal income tax rate are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Income tax at statutory
federal rate $ 19,800 $(232,500) $(321,000)
State income taxes, net of
federal benefit 3,500 (41,020) (56,500)
Change in valuation allowance -- 79,400 371,300
Other items, net (13,900) (3,900) 7,000
-------- --------- ---------
$ 9,400 $(198,020) $ 800
======== ========= =========
</TABLE>
Based on the Company's limited operating history and recurring losses from
operations, all of the Company's deferred tax assets are offset by a valuation
allowance as of October 31, 1997. The provision for income taxes for the three
months ended October 31, 1997 consists of the minimum state tax.
5. Short-term Borrowings
The Company has a line-of-credit secured by all of its assets which expires on
April 17, 1999, with an automatic one-year renewal unless terminated by either
party. The line-of-credit provides the Company with maximum borrowings of
$2,200,000. Advances are limited to 80 percent of eligible accounts receivable,
30 percent of eligible raw materials and 40 percent of finished goods. Advances
against inventory for the period from October 1, through March 31 are limited to
$1,100,000 and for the period from April 1 through September 30 to be the lesser
of $750,000 or 50 percent of the outstanding debt. Interest accrues at the
bank's prime rate (7 1/4 percent at July 31, 1997) plus three percent. The
line-of-credit is personally guaranteed by the Company's majority shareholder.
The agreement requires the maintenance of certain financial covenants. The Bank
amended the line-of-credit agreement in December 1997 and in March 1998. The
Company is in compliance with all covenants under the amended line-of-credit
agreement.
6. Joint Venture Agreements
During fiscal year 1994, the Company started joint venture operations in New
Zealand and Australia. In 1997, the two joint venture operations merged. The
Company contributed inventory to these joint ventures in exchange for a 50
percent investment and an equal share of profits. These investments are included
in other long-term assets and total approximately $71,000 as of July 31, 1997.
The joint ventures are engaged in the manufacturing of golf products under the
Rawlings trademark. Royalties are paid to Rawlings Sporting Goods in accordance
with the provisions set forth in the trademark agreement (see Note 7).
<PAGE> 41
-6-
7. Commitments and Contingencies
Leases
The Company leases its administrative office and production facilities
under a lease that expires in 1998. The Company intends to exercise its
option to renew this lease for an additional two years. The Company also
leases a retail store location under a lease that expires in 1999.
Future minimum lease payments are as follows:
<TABLE>
Fiscal year ending July 31,:
<S> <C>
1998 $227,800
1999 231,500
2000 112,800
--------
$572,100
========
</TABLE>
Total rental expense for the years ended July 31, 1995, 1996 and 1997
was approximately $200,150, $231,000 and $236,000, respectively.
Trademark Agreement
The Company sells commercial quality golf equipment using the Rawlings
name and logo under a license agreement with the Rawlings Sporting Goods
Company, Inc. The original agreement which covered the period January 1,
1990 through June 30, 1998 was renegotiated and a new agreement entered
into for the period September 1, 1997 through August 31, 2002. The new
agreement will automatically renew for a second five-year term if WSL's
aggregate net sales of licensed products during the initial five-year
term are at least $50,000,000. If the target sales are not reached, the
parties will negotiate to reach mutually acceptable renewal provisions.
Under both agreements, WSL agreed to pay Rawlings Sporting Goods Company
a royalty of five percent of the net sales of licensed products or a
minimum royalty in accordance with the following schedule:
<TABLE>
<S> <C>
June 30, 1996 $300,000
June 30, 1997 300,000
July to August 1997 50,000
August 31, 1998 425,000
August 31, 1999 450,000
August 31, 2000 500,000
August 31, 2001 550,000
August 31, 2002 600,000
</TABLE>
Substantially all sales made by the Rawlings Golf Division, along with
the Company's joint ventures, consisted of licensed products subject to
the royalty agreement which resulted in approximately $324,000, $285,400
and $318,700 of royalty expense in fiscal years 1995, 1996 and 1997,
respectively.
Employment Agreement
The Company has entered into an employment agreement with a
shareholder/executive. The agreement is for five years and provides for
a minimum salary and a performance bonus.
<PAGE> 42
-7-
8. Shareholders' Equity
Common Stock
In June 1997, the majority shareholder entered into an agreement to
transfer 200,000 shares of restricted common stock to an unrelated party
for services rendered. The fair value of these shares of $165,000 was
recorded as non-cash compensation in fiscal 1997.
Series A Redeemable Cumulative Convertible Preferred Stock
In January 1997, the shareholder of WSL converted his $711,644 note
payable into 711,000 shares of Series A Redeemable Cumulative
Convertible Preferred Stock (Preferred Stock). The Preferred Stock is
entitled to receive quarterly dividends at an annual rate of 10 percent
of the stated value, which for the purpose of calculating dividends, is
$1.00 per share. Dividends are cumulative without interest. As long as
any shares of Preferred Stock are outstanding, no dividends on the
Company's Common Stock can be paid until all current and cumulative
dividends on the Preferred Stock have been paid.
At any time prior to February 3, 1998, the Company, at the option of the
Board of Directors, may redeem all or any part of the outstanding shares
of Preferred Stock for $1.25 per share. Commencing February 3, 1998, the
holders of the Preferred Stock may convert all, but not less than all,
of their shares of Preferred Stock into the Company's Common Stock at a
conversion price of $1.00 per share. The conversion price
is subject to equitable adjustments to reflect stock splits, stock
dividends, recapitalizations, reorganizations, sale of shares below
conversion price and other like occurrences. Each share of Preferred
Stock entitles the holder to voting rights and powers equal to the
number of shares of Common Stock issuable upon conversion of such shares
to Common Stock.
Upon any liquidation or winding up of the Company, the Preferred Stock
shareholders have a liquidation preference over the Common Stock
shareholders equal to the sum of $1.00 per share and all unpaid
dividends.
Stock Warrants
In connection with the sale of its Common Stock in February 1997, the
Company issued warrants to purchase 650,000 shares of common stock to
the placement agent. The warrants vested upon grant and have a term of
three years at an exercise price of $2.50 per share. In addition, the
Company issued warrants to purchase 5,000 shares of Common Stock for
bridge loans made until the funds from the sale of Common Stock were
received. The warrants vested upon grant and have a term of three years
at an exercise price of $2.50 per share.
In February 1997, the Company issued warrants to a consulting firm to
purchase 25,000 shares of Common Stock. The warrants are exercisable for
one year at an exercise price of $4.00.
<PAGE> 43
-8-
Information regarding the Company's warrants is as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Shares Average Average
Under Exercise Fair Aggregate
Warrants Price Value Price
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, July 31, 1996 -- $ -- $ -- $ --
Granted 680,000 2.56 1.81 1,737,500
Canceled -- -- -- --
Exercised -- -- -- --
---------- ---------- ---------- ----------
BALANCE, July 31, 1997 680,000 $ 2.56 $ 1.81 $1,737,500
========== ========== ========== ==========
</TABLE>
Information about the Company's warrants outstanding at July 31, 1997 is
summarized as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Remaining
Exercise Price Outstanding Contractual Life
-------------- ----------- ------------------
<S> <C> <C>
$2.50 655,000 2.5 years
$4.00 25,000 0.5 years
-------
680,000 2.4 years
=======
</TABLE>
The Company accounts for stock warrants granted to non-employees in
accordance with SFAS No. 123 which requires non-cash compensation
expense be recognized over the expected period of benefit. All warrants
issued in fiscal year 1997 were issued in connection with the sale of
Common Stock. The offering costs associated with the warrants
were netted against the proceeds from the sale of Common Stock. The
Company accounts for its stock options granted to employees and
directors under Accounting Principles Board No. 25 (APB 25), under which
no compensation cost has been recognized.
The fair value of each warrant granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions used for grants: risk-free interest rate of 5.6 percent to
7.1 percent; expected lives of one to three years; no expected
volatility and no dividends would be issued during the warrant terms.
<PAGE> 44
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.1 Amended and Restated Certificate of Incorporation of the Company.
2.2 Bylaws of the Company.
4.1 Specimen Common Stock Certificate.
4.2 Certificate of Designations for Series A Preferred Stock.
4.3 Certificate of Designations for Series B Preferred Stock.
4.4 Form of Warrant.
6.1 License Agreement dated as of September 24, 1997 by and between WSL, Inc. and
Rawlings Sporting Goods Company, Inc.
6.2 Loan and Security Agreement dated as of April 17, 1997 by and between the Company and
Capital Business Credit.
6.3 Continuing Limited Guaranty of Warren E. Levy dated as of April 17, 1997 made in favor
of Capital Business Credit.
6.4 Continuing Limited Guaranty of Sheila Levy dated as of April 17, 1997 made in favor of
Capital Business Credit.
6.5 Employment Agreement dated as of February 3, 1997 by and between the Company and
Warren E. Levy.
6.6 Lease dated as of November 9, 1994 by and between the Company and Calmart Limited
Partnership.
6.7 Joint Venture Agreement dated as of March 1994 by and between the Company and Team
Sports.
6.8 Registration Rights Agreement dated as of February 3, 1997 by and between Aspen West
Group, Inc. and Warren E. Levy.
6.9 Registration Rights Agreement dated as of February 3, 1997 by and
between Aspen West Group, Inc. and the Holders named on the signature
page thereto.
8.1 Agreement and Plan of Reorganization dated as of February 3, 1997 by and among Aspen
West Group, Inc. and WSL, Inc. and the sole shareholder of WSL, Inc.
10.1 Consent of Arthur Andersen LLP.
</TABLE>
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
United Golf Products, Inc.
March 13, 1998 By /s/ WARREN E. LEVY
--------------------------------
Warren E. Levy
Chairman of the Board,
Chief Executive Officer and President
<PAGE> 1
EXHIBIT 2.1
CERTIFICATE OF INCORPORATION
OF
ASPEN WEST GROUP, INC.
ARTICLE I
The name of the corporation is ASPEN WEST GROUP, INC.
ARTICLE II
The address of its registered office in the State of Delaware is 32
Loockerman Square, Suite L-100, Dover, Delaware 19001, County of Kent. The name
of its registered agent at such address is The Prentice-Hall Corporation
Systems, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporation may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
The aggregate number of shares which the Corporation shall have the
authority to issue is eleven million (11,000,000) of which ten million
(10,000,000) shares shall be Common Stock, par value $.001 per share, and one
million (1,000,000) shares shall be Preferred Stock, par value $.001.
The Preferred Stock may be issued in any number of series, as determined
by the Board of Directors. The Board may by resolution fix the designation and
number of shares of any such series, and may determine, alter or revoke the
rights, including voting rights, preferences, privileges and restrictions
pertaining to any wholly unissued series. The Board may thereafter in the same
manner increase or decrease the number of shares of any such series (but not
below the number of shares of that series then outstanding).
ARTICLE V
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware, the board of directors is expressly authorized to
make, alter or repeal the bylaws of the Corporation, subject to the power of the
stockholders of the Corporation to alter or repeal any bylaw made by the board
of directors.
ARTICLE VI
Unless and except to the extent that the Bylaws of the Corporation shall
so require, the election of directors of the Corporation need not be by written
ballot.
<PAGE> 2
ARTICLE VII
The name and mailing address of the sole incorporator is:
Sim Parar
20501 Ventura Blvd., Suite 116
Woodland Hills, CA 91364
ARTICLE VIII
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended.
Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omission occurring prior to such
repeal or modification.
ARTICLE IX
The Corporation shall indemnity its officers, directors, employees and
agents to the extent permitted by the General Corporation Law of Delaware.
ARTICLE X
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter by law; and all rights, preferences and privileges of whatsoever
nature conferred upon stockholders, directors or any other persons whomever by
and pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the rights reserved in this article.
I, THE UNDERSIGNED, being the Incorporator hereinabove named, for the
purpose of forming a Corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 8th day of February, 1995.
/s/ Sim Farar
----------------------------
Sim Farar, Sole Incorporator
<PAGE> 3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
ASPEN WEST GROUP, INC. a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: By unanimous Written Consent of the Board of Directors of ASPEN
WEST GROUP, INC. resolutions were duly adopted setting forth proposed amendments
of the Certificate of Incorporation of the Corporation, declaring said
amendments of said corporation for consideration thereof. The resolutions
setting forth the proposed amendments are as follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by restating paragraph 4 to read as follows:
"4.(a) The aggregate number of shares which the
Corporation shall have the authority to issue is eleven million
(11,000,000) of which ten million (10,000,000) shares shall be
Common Stock, par value $.001 per share, and one million
(1,000,000) shares shall be Preferred Stock, par value $.0001.
The Preferred Stock may be issued in any number of series, as
determined by the Board of Directors. The Board may by resolution fix
the designation and number of shares of any such series, and may
determine, alter or revoke the rights, including voting rights,
preferences, privileges and restrictions pertaining to any wholly
unissued series. The Board may thereafter in the same manner increase or
decrease the number of shares of any such series (but not below the
number of shares of that series then outstanding).
RESOLVED FURTHER, that the Certificate of Incorporation of this
corporation be further amended by adding a new paragraph "4.(b)", which
new paragraph will read as follows:
"4.(b) Each one (1) issued and outstanding share of Common
Stock of this Corporation shall hereby be split into ten (10)
shares of validly issued, fully paid and non-assessable Common
Stock par value $.001 per share. Each person as of February 13,
1996 holding of record any issued and outstanding shares of
Common Stock shall receive upon surrender to the Corporation's
transfer agent a stock certificate or certificates to evidence
and represent the number of shares of post-split Common Stock to
which such shareholder is entitled after giving effect to the
consolidation; provided, however, that all fractional shares
resulting therefrom shall be paid in cash."
<PAGE> 4
SECOND: That thereafter, pursuant to resolution of the Board of
Directors, the matters of amending the Certificate of Incorporation was
submitted to and approved by written consent of the shareholders owing the
necessary number of shares required by statute. Written notice of approval of
the amendment by the shareholders was provided to all shareholders of the
Corporation in accordance with Section 228 of the General Corporation Law of the
State of Delaware.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Sim Farar, its authorized officer, this 31 day of January 1996.
/s/ Sim Farar
----------------------------
Sim Farar, President
<PAGE> 5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
ASPEN WEST GROUP, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: By Unanimous Written Consent of the Board of Directors of ASPEN
WEST GROUP, INC., a resolution was duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of the Corporation, declaring said
amendment to be advisable, and proposing that the amendment be submitted to the
stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of Aspen West
Group, Inc. be amended by restating the Article I to read in its
entirety as follows:
"Article I
The name of the corporation is UNITED GOLF PRODUCTS, INC."
SECOND: That thereafter, pursuant to the resolution of the Board of
Directors, the matter of amending the Certificate of Incorporation was submitted
to and approved by written consent of the stockholders owning the necessary
number of outstanding shares required by statute. Written notice of approval of
the amendment by the stockholders was provided to all stockholders of the
Corporation in accordance with Section 228 of the General Corporation Law of the
State of Delaware.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by President, its authorized officer, this 10th day of February 1997.
By: /s/ WARREN E. LEVY
---------------------------------
Warren E. Levy,
President
<PAGE> 1
EXHIBIT 2.2
BYLAWS
OF
ASPEN WEST GROUP, INC.
<PAGE> 2
TABLE OF CONTENTS
TO THE BYLAWS OF
ASPEN WEST GROUP, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - OFFICES................................................................ 1
SECTION 1 - REGISTERED OFFICE............................................... 1
SECTION 2 - PRINCIPAL OFFICE................................................ 1
SECTION 3 - OTHER OFFICES................................................... 1
ARTICLE II - MEETINGS OF SHAREHOLDERS.............................................. 1
SECTION 1 - PLACE OF MEETINGS............................................... 1
SECTION 2 - ANNUAL MEETINGS................................................. 1
SECTION 3 - SPECIAL MEETINGS................................................ 2
SECTION 4 - NOTICE OF SHAREHOLDERS' MEETINGS................................ 3
SECTION 5 - MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................... 3
SECTION 6 - ADJOURNED MEETINGS AND NOTICE THEREOF........................... 4
SECTION 7 - VOTING AT MEETINGS OF SHAREHOLDERS.............................. 4
SECTION 8 - RECORD DATE FOR SHAREHOLDER NOTICE.............................. 5
SECTION 9 - QUORUM.......................................................... 6
SECTION 10 - WAIVER OF NOTICE............................................... 6
SECTION 11 - SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT
MEETING............................................................. 6
SECTION 12 - PROXIES........................................................ 7
SECTION 13 - VOTING PROCEDURES AND INSPECTORS OF ELECTION FOR
CERTAIN CORPORATIONS................................................ 8
SECTION 14 - LIST OF SHAREHOLDERS........................................... 9
ARTICLE III - DIRECTORS............................................................ 9
SECTION 1 - POWERS.......................................................... 9
SECTION 2 - NUMBER OF DIRECTORS............................................. 9
SECTION 3 - ELECTION AND TERM OF OFFICE..................................... 9
SECTION 4 - VACANCIES....................................................... 10
SECTION 5 - REMOVAL OF DIRECTORS............................................ 11
SECTION 6 - RESIGNATION OF DIRECTOR......................................... 11
SECTION 7 - PLACE OF MEETING................................................ 11
SECTION 8 - ANNUAL MEETING.................................................. 12
SECTION 9 - SPECIAL MEETINGS................................................ 12
SECTION 10 - ADJOURNMENT.................................................... 12
SECTION 11 - NOTICE OF ADJOURNMENT.......................................... 12
SECTION 12 - WAIVER OF NOTICE............................................... 12
SECTION 13 - QUORUM AND VOTING.............................................. 13
SECTION 14 - FEES AND COMPENSATION.......................................... 13
SECTION 15 - ACTION WITHOUT MEETING......................................... 13
SECTION 16 - COMMITTEES OF DIRECTORS........................................ 13
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV - OFFICERS.............................................................. 14
SECTION 1 - OFFICERS........................................................ 14
SECTION 2 - ELECTION........................................................ 14
SECTION 3 - SUBORDINATE OFFICERS............................................ 14
SECTION 4 - REMOVAL AND RESIGNATION......................................... 14
SECTION 5 - VACANCIES....................................................... 14
SECTION 6 - CHAIRMAN OF THE BOARD........................................... 15
SECTION 7 - CHIEF EXECUTIVE OFFICER......................................... 15
SECTION 8 - PRESIDENT....................................................... 15
SECTION 9 - VICE-PRESIDENTS................................................. 15
SECTION 10 - SECRETARY...................................................... 15
SECTION 11 - ASSISTANT SECRETARIES.......................................... 16
SECTION 12 - CHIEF FINANCIAL OFFICER (TREASURER)............................ 16
SECTION 13 - ASSISTANT FINANCIAL OFFICERS................................... 17
SECTION 14 - SALARIES....................................................... 17
ARTICLE V - SHARES OF STOCK........................................................ 17
SECTION 1 - SHARE CERTIFICATES.............................................. 17
SECTION 2 - TRANSFER OF SHARES.............................................. 17
SECTION 3 - LOST OR DESTROYED CERTIFICATE................................... 17
ARTICLE VI - INDEMNIFICATION....................................................... 18
SECTION 1 - INDEMNITY OF OFFICERS, DIRECTORS, EMPLOYEES AND
OTHER AGENTS......................................................... 18
SECTION 2 - INSURANCE....................................................... 18
SECTION 3 - NON-EXCLUSIVITY................................................. 18
ARTICLE VII - RECORDS AND REPORTS.................................................. 19
SECTION 1 - MAINTENANCE AND SHAREHOLDER INSPECTION OF
CORPORATE AND SHAREHOLDER RECORDS.................................... 19
SECTION 2 - INSPECTION BY DIRECTORS......................................... 19
ARTICLE VIII - GENERAL PROVISIONS.................................................. 19
SECTION 1 - DIVIDENDS....................................................... 19
SECTION 2 - RESERVES........................................................ 20
SECTION 3 - ANNUAL STATEMENT................................................ 20
ARTICLE IX - MISCELLANEOUS......................................................... 20
SECTION 1 - CHECKS, DRAFTS, ETC............................................. 20
SECTION 2 - CONTRACTS, ETC., HOW EXECUTED................................... 20
SECTION 3 - REPRESENTATION OF SHARES OF OTHER CORPORATIONS.................. 20
ARTICLE X - AMENDMENTS OF BYLAWS................................................... 21
SECTION 1 - AMENDMENT BY SHAREHOLDERS....................................... 21
SECTION 2 - AMENDMENT BY DIRECTORS.......................................... 21
</TABLE>
<PAGE> 4
BYLAWS
OF
ASPEN WEST GROUP, INC.
ARTICLE I - OFFICES
SECTION 1 - REGISTERED OFFICE
The registered office of Aspen West Group, Inc. (hereinafter called the
"Corporation") in the State of Delaware shall be in the City of Dover, County of
Kent, and the name of the registered agent in charge thereof shall be The
Prentice-Hall Corporation System, Inc., at 32 Loockerman Square, Suite L-100,
Dover, Delaware 19001.
SECTION 2 - PRINCIPAL OFFICE
The principal office for the transaction of the business of the
Corporation is hereby fixed and located at 20501 Ventura Blvd., Suite 116,
Woodland Hills, California, 91364.
The board of directors is hereby granted full power and authority to
change said principal office from one location to another.
SECTION 3 - OTHER OFFICES
The Corporation may also have an office or offices at such other place
or places, either within or outside of the State of Delaware, as the board may
from time to time determine or as the business of the Corporation may require.
Branch or subordinate offices may at any time be established by the board of
directors at any place or places where the Corporation is qualified to do
business.
ARTICLE II - MEETINGS OF SHAREHOLDERS
SECTION 1 - PLACE OF MEETINGS
All annual and all other meetings of shareholders shall be held at the
location designated by the board of directors pursuant to a resolution or as set
forth in a notice of the meeting, within or outside the state of Delaware. If no
such location is set forth in a resolution or in the notice of the meeting, the
meeting shall be held at the principal office of the Corporation.
SECTION 2 - ANNUAL MEETINGS
The annual meetings of shareholders shall be held on the third Tuesday
in May of each year at 10:00 a.m. or on such other date or such other time as
may be fixed by the board of directors;
1
<PAGE> 5
provided, however, that should said day fall upon a weekend or legal holiday,
then any such annual meeting of shareholders shall be held at the same time and
place on the next date thereafter ensuing which is not a weekend or legal
holiday. At such meetings, directors shall be elected, reports of the affairs of
the Corporation shall be considered, and any other business may be transacted
which is within the powers of the shareholders.
At an annual meeting of the shareholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) or otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a shareholder. For business to be properly brought before an
annual meeting by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, 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
so received not later than the close of business of the 10th day following the
day on which such notice of the date of the annual meeting was mailed or such
public disclosure was made. A shareholder's notice to the Secretary shall set
forth as to each matter the shareholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the Corporation's books, of
the shareholder proposing such business, (c) the class and number of the shares
of the Corporation which are beneficially owned by the shareholder, and (d) any
material interest of the shareholder in such business. Notwithstanding anything
in the By-Laws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Section 2.
The Chairman of the annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this Section 2, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
SECTION 3 - SPECIAL MEETINGS
Special meetings of the shareholders, for any purpose or purposes
whatsoever, may be called at any time by the President or by the board of
directors or the Chairman of the Board or by one or more shareholders holding
shares in the aggregate entitled to cast not less than ten percent (10%) of the
votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board, the President, the
Executive Vice President or the Secretary of the Corporation. The officer
receiving the request shall cause notice to be promptly given to the
shareholders entitled to vote, in accordance with the provisions of Sections 4
and 5 of this Article II, and the notice shall set forth that a meeting will be
held at the time requested by the person or persons calling the meeting, not
less than thirty-five (35) or more than sixty
2
<PAGE> 6
(60) days after the receipt of the request. If the notice is not given within
twenty (20) days after receipt of the request, the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
SECTION 4 - NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise given
in accordance with Section 5 of this Article II not less than ten (10) nor more
than sixty (60) days before the date of the meeting to each shareholder entitled
to vote at the meeting. The notice shall specify the place, date and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called. The notice of any meeting at which directors are to be
elected shall include the name of any nominee or nominees whom, at the time of
the notice, the board of directors intends to present for election.
SECTION 5 - MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of any shareholders' meeting shall be given in writing and either
delivered personally or by first-class mail by, telegraph, facsimile or other
form of written communication, charges prepaid, sent to each shareholder at the
address of that shareholder appearing on the books of the Corporation or given
by the shareholder to the Corporation for the purpose of notice. If no such
address appears on the Corporation's books or has been so given, notice shall be
deemed to have been given if sent to that shareholder by first-class mail, by
telegraph, facsimile or other written communication to the principal office of
the Corporation, or if published at least once in a newspaper of general
circulation in the county where that office is located. Notice shall be deemed
to have been given at the time when delivered personally, deposited in the mail,
delivered to a common carrier for transmission to the recipient, or actually
transmitted by facsimile or other electronic means to the recipient by the
person giving the notice, or sent by other means of written communication.
Whenever notice is required to be given to any shareholder to whom (i)
notice of two consecutive annual meetings, and all notice of meetings to such
person between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by First Class Mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any person shall deliver to the Corporation a written notice setting
forth his then current address, the requirement that notice be given to such
person shall be reinstated.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting may be executed by the Secretary, Assistant Secretary, or
any transfer agent of the Corporation giving the notice, and filed and
maintained in the minute book of the Corporation.
3
<PAGE> 7
SECTION 6 - ADJOURNED MEETINGS AND NOTICE THEREOF
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares, the holders of which are either present in person or represented by
proxy thereat, but in the absence of a quorum, no other business may be
transacted at such meeting except in the case of the withdrawal of a shareholder
from a quorum as provided in Section 9 of this Article II.
When any shareholders' meeting, either annual or special, is adjourned
to a different date, time or place, notice need not be given of the new date,
time or place if the new date, time or place is announced at the meeting before
adjournment. The board of directors may fix a new record date for the adjourned
meeting. If the meeting is adjourned for more than thirty (30) days, or if after
the adjournment a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at the adjourned meeting in accordance with the provisions of Sections 4
and 5 of this Article II. At any adjourned meetings the Corporation may transact
any business that might have been transacted at the regular meeting.
SECTION 7 - VOTING AT MEETINGS OF SHAREHOLDERS
The shareholders entitled to vote at any meeting of the shareholders
shall be determined in accordance with the provisions of Section 8 of this
Article II.
Each shareholder shall, at each meeting of the shareholders, be entitled
to vote in person or by proxy each share or fractional share of the stock of the
Corporation having voting rights on the matter in question and which shall have
been held by him and registered in his name on the books of the Corporation on
the date fixed pursuant to Section 8 of these Bylaws as the record date for the
determination of shareholders entitled to notice of and to vote at such meeting,
or if no such record date shall have been so fixed, then on the dates set forth
in Section 8.
Shares of its own stock belonging to the Corporation or to another
Corporation, if a majority of the shares entitled to vote in the election of
directors in such other Corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity shall
be entitled to vote such stock. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the Corporation
he shall have expressly empowered the pledgee to vote thereon, in which case
only the pledgee, or his proxy, may represent such stock and vote thereon. Stock
having voting power standing of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants in common, tenants
by entirety or otherwise, or with respect to which two or more persons have the
same fiduciary relationship, shall be voted in accordance with the provisions of
the General Corporation Law of the State of Delaware.
Any such voting rights may be exercised by the shareholder entitled
thereto in person or by his proxy appointed by an instrument in writing,
subscribed by such shareholder or by his attorney thereunto authorized and
delivered to the Secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
shareholder who may theretofore have given a proxy shall
4
<PAGE> 8
not have the effect of revoking the same unless he shall in writing so notify
the Secretary of the meeting prior to the voting of the proxy. At any meeting of
the shareholders all matters, except as otherwise provided in the Certificate of
Incorporation, in these bylaws or by law, shall be decided by the vote of a
majority in voting interest of the shareholders present in person or by proxy
and entitled to vote thereat and thereon, a quorum being present.
The vote at any meeting of the shareholders on any question need not be
by written ballot, unless so directed by the Chairman of the meeting; provided,
however, that any election of directors at any meeting must be conducted by
written ballot. On a vote by ballot each ballot shall be signed by the
shareholder voting, or by his proxy, if there be such proxy, and it shall state
the number of shares voted.
Except as otherwise required by the General Corporation Law for general
corporate action, or the Certificate of Incorporation of this Corporation, or
these bylaws, the affirmative vote of the majority of shares present in person
or represented by proxy at the shareholders meeting, and entitled to vote on the
subject matter, is required.
SECTION 8 - RECORD DATE FOR SHAREHOLDER NOTICE
For purposes of determining the shareholders entitled to notice of any
meeting or to vote, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days or less than ten (10) days before
the date of any such meeting, and in this event only shareholders of record at
the close of business on the date so fixed are entitled to notice and to vote,
notwithstanding any transfer of any shares on the books of the Corporation after
the record date, except as otherwise provided in the Delaware General
Corporation Law. If the board of directors does not so fix a record date, the
record date for determining shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the business day
next preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
For purposes of determining a record date with respect to a dividend,
distribution, allotment of any rights or to determine the shareholders entitled
to exercise any right with respect to any change, conversion or exchange of
stock, or for any other lawful action, the board of directors may fix a record
date subsequent to the date upon which the resolution fixing the date is
adopted, and which date is not more than sixty (60) days prior to the action for
which a record date is being established. In the event no record date is fixed,
the record date for determining shareholders for any such purpose is deemed to
be the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of shareholders
of record entitled to notice of, or to vote at, a meeting of shareholders shall
apply to any adjournment of the meeting.
5
<PAGE> 9
SECTION 9 - QUORUM
A majority of the shares entitled to vote, represented in person or by
proxy, shall constitute a quorum of the shareholders for the transaction of
business at any meeting of the shareholders or any adjournment thereof.
The shareholders present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum and by any greater number of shares otherwise
required to take such action by applicable law or in the certificate of
incorporation. In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by vote of a majority of the shares represented in
person or by proxy, or, in the absence therefrom, any officer entitled to
preside at, or to act as Secretary of, such meeting but no business may be
transacted except as hereinabove provided.
SECTION 10 - WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
Delaware General Corporation Law or the Certificate of Incorporation or bylaws,
a written waiver, signed by the person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice.
Attendance by a person at a meeting shall constitute a waiver of notice
of that meeting, except when the person objects to the Secretary, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters required by
law to be included in the notice of the meeting, but not so included, if that
objection is expressly made at the meeting.
SECTION 11 - SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT
MEETING
Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. If the action taken without a meeting is approved by less
than unanimous written consent, prompt notice of such action shall be given to
those stockholders who have not consented in writing.
Consents to corporate action shall be valid for a maximum of sixty (60)
days after the date of the earliest dated consent delivered to the Corporation
in the manner provided in Section 228(c) of the Delaware General Corporation
Law. Consents may be revoked by written notice (i) to the
6
<PAGE> 10
Corporation, (ii) to the stockholder or stockholders soliciting consents or
soliciting revocations in opposition to action by consent proposed by the
Corporation (the "Soliciting Stockholders"), or (iii) to a proxy solicitor or
other agent designated by the Corporation or the Soliciting Stockholders.
Notwithstanding the foregoing, if independent counsel to the Corporation
delivers to the Corporation a written opinion stating, or a court of competent
jurisdiction determines, that this Section of this Article II, or any portion
thereof, is illegal with respect to any corporate action to be taken by written
consent for which a consent has theretofore been delivered to the Corporation,
in the manner provided in Section 228(c) of the Delaware General Corporation
Law, whether prior or subsequent to the date of the adoption of this Section of
this Article II, then this Section of this Article II, or such portion thereof,
as the case may be, shall after the date of such delivery of such opinion or
such determination be null and void and of no effect with respect to any other
corporate action to be taken by written consent.
SECTION 12 - PROXIES
A shareholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accompanied by the shareholder
or his authorized officer, director, employee or agent signing such writing or
causing his signature to be affixed to such writing by any reasonable means
including, but not limited to, by facsimile signature. A shareholder may
authorize another person or persons to act for him as proxy by transmitting or
authorizing the transmission of a telegram, cablegram, or other means of
electronic transmission to the person who will be the holder of the proxy or to
a proxy solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
transmission, provided that any such telegram, cablegram or other means of
electronic transmission must either set forth or be submitted with information
from which it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the shareholder. If it is determined that such
telegram, cablegram or other electronic transmission is valid, the inspectors,
or, if there are no inspectors, such other persons making that determination
shall specify the information upon which they relied.
Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to this section may be substituted
or used in lieu of the original writing or transmission for any and all purposes
for which the original writing or transmission could be used, provided that such
copy, facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
A validly executed proxy that does not state that it is irrevocable
shall continue in full force and effect unless (i) revoked by the person
executing it by a writing delivered to the Corporation prior to the meeting
stating that the proxy is revoked, or if in attendance at the meeting, by a
writing delivered to the Secretary of the meeting prior to the voting of the
proxy, or by a subsequent proxy executed by the same person and delivered to the
Corporation prior to the meeting or to the Secretary of the meeting prior to the
voting of the proxy; or (ii) written notice of the death or incapacity of the
maker of that proxy is received by the Corporation before the vote pursuant to
that proxy is counted; provided, however, that no proxy shall be valid after the
expiration of three (3) years from the date of the proxy, unless otherwise
provided in the proxy. A duly executed proxy shall be irrevocable if it
7
<PAGE> 11
states that it is irrevocable and if, and only as levy as, it is coupled with an
interest sufficient in law to support an irrevocable power.
SECTION 13 - VOTING PROCEDURES AND INSPECTORS OF ELECTION FOR
CERTAIN CORPORATIONS
If the Corporation is listed on a national securities exchange, is
authorized for quotation on an inter-dealer quotation system or has shares held
of record by more than 2,000 shareholders the following provisions shall apply:
(a) The Corporation shall, in advance of any meeting of shareholders,
appoint one or more inspectors to act at the meeting and make a written report
thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of shareholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares outstanding
and the voting power of each, (ii) determine the shares represented at a meeting
and the validity of proxies and ballots, (ii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.
(c) The date and time of the opening and the closing of the polls for
each matter upon which the shareholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocation
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless the Delaware Court of Chancery upon application by a
shareholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots, the
inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
Section 212(c)(2) of the General Corporation Law of the State of Delaware,
ballots and the regular books and records of the Corporation, except that the
inspectors may consider other reliable information for the limited purpose of
reconciling proxies and ballots submitted by or on behalf of banks, brokers,
their nominees or similar persons which represent more votes than the holder of
a proxy is authorized by the record owner to cast or more votes than the
shareholder holds of record. If the inspectors consider other reliable
information for the limited purpose permitted herein, the inspectors at the time
they make their certification pursuant to subsection (b)(v) of this section
shall specify the precise information considered by them including the person or
persons from whom they obtained the information, when the information was
obtained, the means by which the information was obtained and the basis for the
inspectors' belief that such information is accurate and reliable.
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SECTION 14 - LIST OF SHAREHOLDERS
The Secretary of the corporation shall prepare and make, at least ten
(10) days before every meeting of shareholders, a complete list of the
shareholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each shareholder and the number of shares registered
in the name of each shareholder. Such list shall be open to the examination of
any shareholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any shareholder who is present.
ARTICLE III - DIRECTORS
SECTION 1 - POWERS
Subject to limitations of the Certificate of Incorporation, or the
bylaws, and of the Delaware General Corporation Law as to action which shall be
authorized or approved by the shareholders, by the outstanding shares or by a
less than majority vote of a class or series of preferred shares, and subject to
the duties of directors as prescribed by the bylaws, all corporate powers shall
be exercised by or under the authority of, and the business and affairs of the
Corporation shall be controlled by, the board of directors. The board of
directors may elect a Chairman of the Board from among the members of the board
of directors.
SECTION 2 - NUMBER OF DIRECTORS
The number of directors of the Corporation which shall constitute the
whole board of directors shall be not less than two (2) nor more than five (5)
with the exact number as the board shall from time to time fix by resolution.
Directors need not be shareholders. Each of the directors of the Corporation
shall hold office until his successor shall have been duly qualified or until he
shall resign or shall have been removed in the manner hereinafter provided.
SECTION 3 - ELECTION AND TERM OF OFFICE
At each annual meeting of shareholders, directors shall be elected to
hold office until the next annual meeting. Each director, including the director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified, or until
his earlier resignation or removal.
Only persons who are nominated in accordance with the procedures set
forth in this Section 3 shall be eligible for election as Directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of shareholders by or at the direction of the Board of Directors or
by any shareholder of the Corporation entitled to vote for the election of
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Directors at the meeting who complies with the notice procedures set forth in
this Section 3. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal office of the Corporation
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 so received not 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. Such shareholder's
notice shall set forth (a) as to each person whom the shareholder proposes to
nominate for election or re-election as a Director, (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person; (iii) the class and number of shares of the
Corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including without limitation such persons' written consent to being
named in the proxy statement as a nominee and to serving as a Director if
elected); and (b) as to the shareholder giving the notice (i) the name and
address, as they appear on the Corporation's books, of such shareholder and (ii)
the class and number of shares of the Corporation which are beneficially owned
by such shareholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a Director shall furnish to
the Secretary of the Corporation that information required to be set forth in a
shareholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 3. The Chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the ByLaws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded.
SECTION 4 - VACANCIES
Vacancies in the board of directors may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining director.
Each director so elected shall hold office until the next election of the class
for which such director shall have been chosen until he shall resign or shall
have been removed in the manner hereinafter provided.
A vacancy or vacancies in the board of directors shall be deemed to
exist in case of the death, resignation or removal of any director or if the
authorized number of directors be increased or if the shareholders fail, at any
annual or special meeting of shareholders at which any director or directors are
elected, to elect the full authorized number of directors to be voted for at
that meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors. If the board of directors
accepts the resignation of a director tendered to take effect at a future time,
the board or the shareholders shall have the power to elect a successor to take
office when the resignation is to become effective.
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No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of his term of office.
SECTION 5 - REMOVAL OF DIRECTORS
Any director or the entire board of directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except as follows:
(1) Unless the Certificate of Incorporation otherwise provides, in the
case of a Corporation whose board is classified as provided in the Delaware
General Corporation Law, shareholders may effect such removal only for cause; or
(2) In the case of a Corporation having cumulative voting, if less than
the entire board is to be removed, no director may be removed without cause if
the votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire board of directors, or if there
be classes of directors, at an election of the class of directors of which he is
a part.
Whenever the holders of any class or series are entitled to elect one or
more directors by the Certificate of Incorporation, this subsection shall apply
in respect to the removal without cause of a director or directors so elected,
to the vote of the holders of the outstanding shares of that class or series and
not to the vote of the outstanding shares as a whole.
SECTION 6 - RESIGNATION OF DIRECTOR
Any director may resign effective upon giving written notice to the
Corporation (to a board member or to every board member), unless the notice
specifies a later time for the effectiveness of such resignation. If the
resignation is effective at a future date, a successor may be elected to take
office when the resignation becomes effective.
SECTION 7 - PLACE OF MEETING
Regular meetings of the board of directors shall be held at any place
within or outside the State of Delaware which has been designated from time to
time by resolution of the board or by written consent of all members of the
board. In the absence of such designation, regular meetings shall be held at the
principal office of the Corporation. Special meetings of the board may be held
either at a place so designated or at the principal office. Members of the board
may participate in a meeting through use of a conference telephone or similar
communication equipment, so long as all members participating in such meeting
can hear one another. Participation in a meeting by means of the above-described
procedure shall constitute presence in person at such meeting.
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SECTION 8 - ANNUAL MEETING
Immediately following each annual meeting of shareholders, the board of
directors shall hold a regular meeting for the purpose of organization, election
of officers and the transaction of other business. Notice of such meeting is
hereby dispensed with.
SECTION 9 - SPECIAL MEETINGS
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the Chairman of the Board or the President or any
two directors.
Written notice of the date, time and place of special meetings shall be
delivered personally to each director or sent to each director by first-class
mail, by telegraph, facsimile or by other form of written communication, charges
prepaid, addressed to him at his address as it appears upon the records of the
Corporation or, if it is not so shown or is not readily ascertainable, at the
place in which the meetings of directors are regularly held. The notice need not
state the purpose of the meeting. In case such notice is mailed, it shall be
deposited in the United States mail in the place in which the principal office
of the Corporation is located at least five (5) days prior to the time of the
meeting. In case such notice is delivered personally, transmitted by facsimile
or other electronic means or telegraphed, it shall be so delivered or deposited
with the telegraph company or electronically transmitted at least forty-eight
(48) hours prior to the time of the meeting. Such mailing, delivery,
telegraphing or transmitting, as above provided, shall be due, legal and
personal notice to such director.
SECTION 10 - ADJOURNMENT
A majority of the directors present, whether or not a quorum is present,
may adjourn any directors' meeting to another time and place.
SECTION 11 - NOTICE OF ADJOURNMENT
If a meeting is adjourned for more than twenty-four (24) hours, notice
of any adjournment to another time or place shall be given prior to the time of
the adjourned meeting to the directors who were not present at the time of
adjournment.
SECTION 12 - WAIVER OF NOTICE
The transactions at any meeting of the board of directors, however
called and noticed, or wherever held, shall be as valid as though such
transactions had occurred at a meeting duly held after regular call and notice
if a quorum be present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice of or consent to holding
the meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. The waiver of notice need not state the purpose for
which the meeting is or was held.
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SECTION 13 - QUORUM AND VOTING
A majority of the authorized number of directors shall be necessary to
constitute a quorum for the transaction of business, except to adjourn as
hereinabove provided. Every act or decision done or made by a majority of the
directors at a meeting duly held at which a quorum is present shall be regarded
as an act of the board of directors unless a greater number be required by law
or by the Certificate of Incorporation. However, a meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
SECTION 14 - FEES AND COMPENSATION
Directors shall not receive any stated salary for their services as
directors, but, by resolution of the board, a fixed fee, with or without
expenses of attendance, may be allowed to directors not receiving monthly
compensation for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity, as an officer, agent, employee or otherwise, from receiving
compensation therefor.
SECTION 15 - ACTION WITHOUT MEETING
Any action required or permitted to be taken by the board of directors
under the Delaware General Corporation Law may be taken without a meeting if all
members of the board individually or collectively consent in writing to such
action. Such consent or consents shall be filed with the minutes of the meetings
of the board.
SECTION 16 - COMMITTEES OF DIRECTORS
The board may, by resolution passed by a majority of the whole board,
designate one or more committees, each committee to consist of one (1) or more
of the directors of the Corporation. Any such committee, to the extent provided
in the resolution of the board and except as otherwise limited by law, shall
have and may exercise all the powers and authority of the board in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it. Any
such committee shall keep written minutes of its meetings and report the same to
the board at the next regular meeting of the board. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board to
act at the meeting in the place of any such absent or disqualified member.
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ARTICLE IV - OFFICERS
SECTION 1 - OFFICERS
The officers of the Corporation shall be chosen by the board of
directors and shall be a Chief Executive Officer and/or a President, and a
Secretary and Chief Financial Officer (Treasurer). The board of directors may
also choose a Chairman of the Board, a Chief Operating Officer, one or more
Vice-Presidents, one or more Executive Vice Presidents and one or more Assistant
Secretaries and Assistant Treasurers and such other officers with such titles
and duties as may be appointed in accordance with the provisions of Section 3 of
this Article. Any number of offices may be held by the same person.
SECTION 2 - ELECTION
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Section 3 or Section 5 of this
Article, shall be chosen annually by the board of directors, and each shall hold
his office until he shall resign or shall be removed or otherwise disqualified
to serve or his successor shall be elected and qualified.
SECTION 3 - SUBORDINATE OFFICERS
The board of directors may appoint such other officers as the business
of the Corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the bylaws or as
the board of directors may from time to time determine.
SECTION 4 - REMOVAL AND RESIGNATION
Any officer may be removed, either with or without cause, by a majority
of the directors at the time in office, at any regular or special meeting of the
board, or, except in the case of an officer chosen by the board of directors, by
any officer upon whom such power of removal may be conferred by the board of
directors.
Any officer may resign at any time by giving written notice to the board
of directors or to the Chief Executive Officer, President or to the Secretary of
the Corporation. Any such resignation shall take effect at the date of the
receipt of such notice or any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 5 - VACANCIES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
the bylaws for regular appointments to such office.
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SECTION 6 - CHAIRMAN OF THE BOARD
The Chairman of the Board, if there shall be such an officer, shall, if
present, preside at all meetings of the board of directors and shareholders and
exercise and perform all such other powers and duties as may from time to time
be assigned to him by the board of directors or prescribed by the bylaws.
SECTION 7 - CHIEF EXECUTIVE OFFICER
The Chief Executive Officer, if there shall be such an officer, shall be
the chief executive of the Corporation, shall preside at all meetings of the
shareholders and the board of directors in the absence of a Chairman of the
Board, and shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the board of
directors are carried into effect. The Chief Executive Officer shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
Corporation, except when required or permitted by law to be otherwise signed and
executed and except where the signing and execution thereof shall be expressly
delegated by the board of directors to some other officer or agent of the
Corporation.
SECTION 8 - PRESIDENT
In the event a Chief Executive Officer is not elected, or in the event
that the Chief Executive Officer elected by the board of directors is unable to
act, or refuses to act, the President, if there shall be such an officer, shall
perform the duties of the Chief Executive Officer, and when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the Chief
Executive Officer. The President shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
SECTION 9 - VICE-PRESIDENTS
In the absence or disability of the President and the Chief Executive
Officer, the Executive Vice President or Vice Presidents in order of their rank
as fixed by the board of directors or, if not ranked, the Executive Vice
President shall perform all the duties of the President and, when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President and Chief Executive Officer. Each Vice President shall have such other
powers and shall perform such other duties as from time to time may be
prescribed for him by the board of directors or the bylaws, and the President or
the Chief Executive Officer.
SECTION 10 - SECRETARY
The Secretary shall keep, or cause to be kept, at the principal office
of the Corporation, or such other place as the board of directors may order, a
book of minutes of all meetings of directors and shareholders, with the time and
place of holding, whether regular or special and, if special, how
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authorized, the notice thereof given, the names of those present at directors'
meetings, the number of shares present or represented at shareholders' meeting
and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office
or at the office of the Corporation's transfer agent, a share register or a
duplicate share register showing the names of the shareholders and their
addresses, the number and classes of shares held by each, the number and the
date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and of the board of directors required by the
bylaws or by law to be given, shall keep the seal of the Corporation in safe
custody and shall have such other powers and shall perform such other duties as
from time to time may be prescribed by the board of directors, the bylaws, or
the President or Chief Executive Officer.
SECTION 11 - ASSISTANT SECRETARIES
In the absence or disability of the Secretary, the Assistant secretaries
in order of their rank as fixed by the board of directors or, if not ranked, the
Assistant Secretary designated by the board of directors shall perform all the
duties of the Secretary and, when so acting, shall have all the powers of and be
subject to all the restrictions upon the Secretary. Each Assistant Secretary
shall have such other powers and shall perform such other duties as from time to
time may be prescribed by the board of directors or the bylaws.
SECTION 12 - CHIEF FINANCIAL OFFICER (TREASURER)
The Chief Financial Officer shall be the Treasurer. The Treasurer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
accounts of the properties and business transactions of the Corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, surplus and shares.
The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of the Corporation with such depositories as may be designated
by the board of directors. He shall be responsible for the proper disbursement
of the funds of the Corporation as may be ordered by the board of directors or
the President or Chief Executive Officer and shall render to the President or
board of directors, whenever they request it, an account of all of his
transactions as Treasurer and of the financial condition of the Corporation. The
Treasurer shall prepare a proper annual budget of income and expenses for each
calendar year, revised quarterly, for approval of or revision by the board of
directors and shall be responsible for the handling of finances in connection
therewith. He shall have such other powers and shall perform such other duties
as may be prescribed by the board of directors and the President or Chief
Executive Officer. He shall see that all officers signing checks are bonded in
such amounts as may be fixed from time to time by the board of directors.
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SECTION 13 - ASSISTANT FINANCIAL OFFICERS
In the absence of or disability of the Treasurer, the assistant
financial officers in order of their rank or, if not ranked, the assistant
financial officer designated by the board of directors shall perform all the
duties of the Treasurer and, when so acting, shall have the powers of and be
subject to all the restrictions upon the Treasurer. Each assistant financial
officer shall have such other powers and perform such other duties as from time
to time may be prescribed for him by the board of directors or the bylaws and
the President or Chief Executive Officer.
SECTION 14 - SALARIES
Salaries of officers and other shareholders employed by the Corporation
shall be fixed periodically by the board of directors or established under
agreement with the officers or shareholders approved by the board of directors.
No officer shall be prevented from receiving this salary because he is also a
director of the Corporation.
ARTICLE V - SHARES OF STOCK
SECTION 1 - SHARE CERTIFICATES
The certificates of shares of the capital stock of the Corporation shall
be in such form consistent with the articles of incorporation and the laws of
the State of Delaware as shall be approved by the board of directors. A
certificate or certificates for shares of the capital stock of the Corporation
shall be issued to each shareholder when any of these shares are fully paid, and
the board of directors may authorize the issuance of certificates or shares as
partly paid provided that these certificates shall state the amount of the
consideration to be paid for them and the amount paid. All such certificates
shall be signed by the Chairman of the Board or the President or a Vice
President, and by the Treasurer or an assistant financial officer or the
Secretary or any Assistant Secretary, certifying the number of shares and the
class or series of shares owned by the shareholder. Any or all of the signatures
on the certificate may be by facsimile.
SECTION 2 - TRANSFER OF SHARES
Subject to the provisions of law, upon the surrender to the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
SECTION 3 - LOST OR DESTROYED CERTIFICATE
The holder of any shares of stock of the Corporation shall immediately
notify the Corporation of any loss or destruction of the certificate therefor,
and the Corporation may issue a new certificate in
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the place of any certificate theretofore issued by it alleged to have been lost
or destroyed, upon approval of the board of directors. The board may, in its
discretion, as a condition to authorizing the issue of such new certificate,
require the owner of the lost or destroyed certificate, or his legal
representative, to make proof satisfactory to the board of directors of the loss
or destruction thereof and to give the Corporation a bond or other security, in
such amount and with such surety or sureties as the board of directors may
determine, as indemnity against any claim that may be made against the
Corporation on account of any such certificate so alleged to have been lost or
destroyed.
ARTICLE VI - INDEMNIFICATION
SECTION 1 - INDEMNITY OF OFFICERS, DIRECTORS, EMPLOYEES AND
OTHER AGENTS
The Corporation shall, to the maximum extent permitted by the Delaware
General Corporation Law, have power to indemnify each of its agents against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that any such person is or was an agent of the Corporation and shall have
power to advance to each such agent expenses incurred in defending any such
proceeding to the maximum extent permitted by that law. Any agreement of or
advancement of expenses to any agent may provide rights of indemnification or
advancement of expenses which are broader or otherwise different from those set
forth in these Bylaws but only to the extent permitted by law. For purposes of
this Article, an "agent" of the Corporation includes any person who is or was a
director, officer, employee or other agent of the Corporation; or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise; or was a director, officer, employee or agent of a corporation which
was a predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation.
SECTION 2 - INSURANCE
Upon resolution passed by the board, the Corporation may purchase and
maintain 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, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or as a member of any
committee or similar body 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 the provisions of this Article or applicable law.
SECTION 3 - NON-EXCLUSIVITY
The right of indemnity and advancement of expenses provided herein shall
not be deemed exclusive of any other rights to which any person seeking
indemnification or advancement of expenses from the Corporation may be entitled
under any bylaw, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another
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capacity while holding such office. Any agreement for indemnification of or
advancement of expenses to any director, officer, employee or other person may
provide rights of indemnification or advancement of expenses which are broader
or otherwise different from those set forth herein.
ARTICLE VII - RECORDS AND REPORTS
SECTION 1 - MAINTENANCE AND SHAREHOLDER INSPECTION OF
CORPORATE AND SHAREHOLDER RECORDS
The accounting books and records and minutes of proceedings of the
shareholders and the board of directors and any committee or committees of the
board of directors shall be kept at such place or places designated by the board
of directors, or, in the absence of such designation, at the principal executive
office of the Corporation. The minutes shall be kept in written form, and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form. The Corporation's stock
ledger, a list of its shareholders, and its other books and records shall be
open to inspection and to make copies or extracts therefrom, upon the written
demand of any shareholder of record or holder of a voting trust certificate,
under oath stating the purpose thereof at any reasonable time during usual
business hours. The inspection may be made in person or by an agent or attorney
and shall include the right to copy and make extracts. If the inspection is made
by an agent or attorney, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the shareholder at its principal office. Where the
shareholder seeks to inspect the Corporation's books and records other than its
stock ledger or list of shareholders, he shall first establish that (1) he has
complied with this section respecting the form and manner of making demand for
inspection of such documents, and (2) that the inspection he seeks is for a
proper purpose. The demand under oath shall be directed to the Corporation at
its registered office in Delaware or at its principal place of business.
SECTION 2 - INSPECTION BY DIRECTORS
Any director shall have the right to examine during usual business
hours, the Corporation's stock ledger, a list of its shareholders and its other
books and records for a purpose reasonably related to his position as a
director.
ARTICLE VIII - GENERAL PROVISIONS
SECTION 1 - DIVIDENDS
Dividends upon the capital stock of the Corporation, subject to the
provisions of the certificate of incorporation, if any, may be declared by the
board of directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the Certificate of Incorporation.
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SECTION 2 - RESERVES
Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the board of
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the board of directors may modify or abolish any such reserve
in the manner in which it was created.
SECTION 3 - ANNUAL STATEMENT
The board of directors shall present at each annual meeting, and at any
special meeting of the shareholders when called for by vote of the shareholders,
a full and clear statement of the business and condition of the Corporation.
ARTICLE IX - MISCELLANEOUS
SECTION 1 - CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness, issued in the name of or payable to the Corporation,
shall be signed or endorsed by such person or persons and in such manner as from
time to time shall be determined by resolution of the board of directors.
SECTION 2 - CONTRACTS, ETC., HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances;
and, unless so authorized by the board of directors, no officer, agent or
employee shall have any power or authority to bind the Corporation by any
contract or engagement or to pledge its credit to render it liable for any
purpose or to any amount.
SECTION 3 - REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The President or Chief Executive Officer or, in the event of his absence
or inability to serve, any Vice President and the Secretary or Assistant
Secretary of this Corporation are authorized to vote, represent and exercise, on
behalf of this Corporation, all rights incidental to any and all shares of any
other corporation standing in the name of this Corporation. The authority herein
granted to said officers to vote or represent on behalf of this Corporation any
and all shares held by this Corporation in any other corporation may be
exercised either by such officers in person or by any person authorized to do so
by proxy or power of attorney duly executed by said officers.
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ARTICLE X - AMENDMENTS OF BYLAWS
SECTION 1 - AMENDMENT BY SHAREHOLDERS
New bylaws may be adopted or these bylaws may be amended or repealed by
the vote or written consent of the shareholders entitled to exercise a majority
of the voting power of the Corporation, except as otherwise provided by these
bylaws or the certificate of incorporation.
SECTION 2 - AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 1 of
this Article X, bylaws may be adopted, amended, or repealed by the board of
directors if such power is conferred upon the directors in the Certificate of
Incorporation.
21
<PAGE> 25
CERTIFICATE OF ADOPTION OF BYLAWS
I, Harold S. Fleischman, hereby certify that:
1. I am the Secretary of Aspen West Group, Inc., a Delaware corporation
(the "Corporation"); and
2. The foregoing Bylaws, consisting of twenty-four (24) pages, are a
true and correct copy of the Bylaws of the Corporation as duly adopted by
approval of the Board of Directors of the Corporation by Unanimous Written
consent dated as of September 15, 1995.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Corporation this 15th day of September, 1995.
/s/ HAROLD S. FLEISCHMAN
---------------------------------
Harold S. Fleischman,
Secretary
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
NUMBER SHARES
CWB
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR STATEMENTS RELATING
THE STATE OF DELAWARE TO RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS, IF ANY
CUSIP 204157 10 1
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF NO PAR VALUE
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered
by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ [SEAL] /s/
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
A statement of the rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes or series of shares and upon the
holders thereof as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, and
the number of shares constituting each class and series and the designations
thereof, may be obtained by the holder hereof upon written request and without
charge from the Secretary of the Corporation at its corporate headquarters.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE
OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as through they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______________ Custodian _______________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _________________________
in common (State)
UNIF TRF MIN ACT - _______________ Custodian (until age ____)
(Cust)
__________________ under Uniform Transfers
(Minor)
to Minors Act _________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
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 capital 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 _______________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
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), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 4.2
CERTIFICATE OF DESIGNATION
of
SERIES A REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK
of
ASPEN WEST GROUP, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Aspen West Group, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on January 27, 1997 adopted the
following resolution creating a series of 711,000 shares of Preferred Stock
designated as "Series A Redeemable Cumulative Convertible Preferred Stock".
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions
of the Certificate of Incorporation, a series of Preferred Stock,
par value $.001 per share, of the corporation be and hereby is
created, and that the designation and number of shares thereof
and the voting and other powers, preferences and relative,
participating, optional or other rights of the shares of such
series and the qualifications, limitations and restrictions
thereof are as follows:
SERIES A REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK
1. Designation and Amount. There shall be a series of Preferred Stock
that shall be designated as "Series A Redeemable Cumulative Convertible Stock,"
(referred to hereafter as "Series A Preferred Stock") and the number of shares
constituting such series shall be 711,000. Such number of shares may be
increased (with the approval of stockholders required by paragraph 4(C)(iv)
hereof) or decreased by resolution of the Board of Directors; provided, however,
that no decrease shall reduce the number of shares of Series A Preferred Stock
to less than the number of shares then issued and outstanding plus the number of
shares issuable upon exercise of outstanding rights, options or warrants or upon
conversion of outstanding securities issued by the Corporation.
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<PAGE> 2
2. Ranking. The Series A Preferred Stock shall rank, with respect to
dividend rights and rights on liquidation, dissolution and winding up of the
affairs of the Corporation:
(A) Senior to all classes or series of Common Stock of the
Corporation (referred to herein as "Junior Securities");
(B) Junior to other classes or series of capital stock of the
Corporation now or hereafter issued as determined by the Board of Directors
(collectively referred to as "Senior Securities"); provided, that the
Corporation shall not create, authorize or issue any Senior Securities or
reclassify any class or series of capital stock into Senior Securities without
the approval required by Section 4 below.
3. Dividends and Distribution.
(A) Subject to the prior and superior rights of the holders of
any shares of any class or series of stock of the Corporation ranking prior and
superior to the shares of Series A Preferred Stock with respect to dividends,
the holders of shares of Series A Preferred Stock, in preference to the holders
of shares of any class or series of stock of the Corporation, including all
classes or series of common stock of this Corporation, ranking junior to the
Series A Preferred Stock in respect thereof, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable on each December 31, March 31, June 30
and September 30 of each year at an annual rate of 10% of the stated value per
share, commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share of Series A Preferred Stock. Dividends shall be cumulative
without interest or additional dividends until declared and paid, which
declaration and payment may be for all or part of the then accumulated dividend.
Dividends on account of arrears or past dividends may be declared or paid at any
time, without reference to any regular dividend payment date, to holders of
record. In no event, so long as any shares of Series A Preferred Stock shall be
outstanding, shall any dividend, whether in cash or property, be paid or
declared, or shall any distribution be made, on any class of Junior Securities
or shall any shares of any class of Junior Securities be purchased, redeemed or
otherwise acquired for value, directly or indirectly, by the Corporation or any
subsidiary of the Corporation, unless all accumulated dividends on the Series A
Preferred Stock and the one for the then current period shall have been paid or
declared and a sum sufficient for the payment thereof set apart. The provisions
of this paragraph shall not, however, apply to a redemption, repurchase or other
acquisition of any shares of any class of Junior Securities in exchange for
shares of Junior Securities.
Subject to the foregoing and to any further limitations described in
accordance with the provisions of the Certificate of Incorporation as amended of
the Corporation, the Board of Directors may declare, out of funds legally
available therefore, dividends upon the then outstanding shares of any other
class of shares, including the Common Stock, and no holders of Series A
Preferred Stock shall be entitled to share therein.
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<PAGE> 3
4. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Each share of Series A Preferred Stock shall entitle the
holder thereof to voting rights and powers equal to the number of shares of
Common Stock issuable upon conversion of such shares of Series A Preferred Stock
and will be entitled, not withstanding any provision hereof, to notice of any
shareholders' meeting in accordance with the Bylaws of the Corporation. For the
purposes of this Section 4(A), the Series A Preferred shall, notwithstanding the
first sentence of Section 9.1(A) below, be deemed to be convertible into Common
Stock at all times after the issuance of the shares of Series A Preferred.
(B) Except as set forth below and as required by law and Section
11 hereof, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for taking
any corporate action.
(C) Without the approval of holders of at least a majority of the
shares of Series A Preferred Stock then outstanding, voting or consenting, as
the case may be, as one class, given in person or by proxy, either in writing or
by resolution adopted an annual or special meeting called for the purpose, the
Corporation will not:
(i) create, authorize or issue any Senior Securities or
any warrants, rights, calls or options exercisable or exchangeable for or
convertible into, or any obligations evidencing the right to purchase or acquire
any Senior Securities, including in connection with a merger, consolidation or
other reorganization;
(ii) reclassify any Junior Securities or other outstanding
securities of the Corporation into any Senior Securities or any warrants,
rights, calls or options exercisable or exchangeable for or convertible into, or
any obligations evidencing the right to purchase or acquire any Senior
Securities;
(iii) amend, modify or repeal the Certificate of
Incorporation or Bylaws of the Corporation or this Certificate of Designation or
any other specified designations, rights, preferences or powers of the Series A
Preferred Stock in any manner adverse to holders of the Series A Preferred
Stock; or
(iv) increase the number of shares of Series A Preferred
Stock issued or authorized for issuance.
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<PAGE> 4
5. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 3
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
(either as to dividends or upon liquidation, dissolution or winding up or
otherwise), any shares of stock of any class of Junior Securities;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking an a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A Preferred
Stock, except dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then entitled; or
(B) The provisions of paragraph (A) shall not apply to a
redemption, repurchase or other acquisition of any shares of any class of Junior
Securities in exchange for shares of Junior Securities.
(C) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 5, purchase or otherwise acquire such shares at such time and in
such manner.
6. Reacquired Shares. Any shares of Series A Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired promptly after the acquisition thereof. All such shares shall upon their
retirement become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock to be created by resolutions
of the Board of Directors, subject to any conditions and restrictions on
issuance set forth herein.
7. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation, dissolution or winding up of the
Corporation, voluntary or otherwise, no distribution (whether in the form of
dividends or upon liquidation, dissolution or winding up) shall be made to the
holders of the shares of Junior Securities unless, prior thereto, the holders of
Series A Preferred Stock shall have received an amount per share (the "Series A
Liquidation Preference") equal to the sum of (i) one dollar for each share
outstanding (subject to equitable adjustment to reflect stock splits, stock
dividends, stock combinations, recapitalizations, reorganizations and like
occurrences) and (ii) all accrued or unpaid dividends thereon, if any, and that
portion of the quarterly dividends accrued up to the
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<PAGE> 5
liquidation date, before any payments shall be made or any assets distributed to
the holders of any Junior Securities of the Corporation.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other classes and series of stock of the
Corporation, if any, that rank on a parity with the Series A Preferred Stock in
respect thereof, then the assets available for such distribution shall be
distributed ratably to the holders of Series A Preferred Stock and the holders
of such parity shares in proportion to their respective liquidation preferences.
(C) After payment to the holders of the Series A Preferred Stock
of the full Series A Liquidation Preference amount as aforesaid, the holders of
the Series A Preferred Stock shall, as such, have no right or claim to any of
the remaining assets of the Corporation.
(D) Neither the merger or consolidation of the Corporation into
or with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
7.
8. Redemption.
(A) Redemption. The Corporation, at the option of the Board of
Directors, may, at any time and from time to time prior to February 3, 1998,
redeem all or any part of the outstanding Series A Preferred Stock by paying
therefor in cash $1.25 per share (subject to equitable adjustments to reflect
stock splits, stock dividends, stock combinations, recapitalizations,
reorganizations and like occurrences) plus any unpaid dividends, whether or not
declared, through the date fixed for redemption (together, the "Redemption
Price",). Any partial redemption must be made pro rata among the holders of the
Series A Preferred Stock based on the number of outstanding shares of Series A
Preferred Stock held by each such holder.
(B) Notice. At least thirty (30) days and not more than sixty
(60) days prior to the date fixed for any redemption, written notice (the
"Redemption Notice") shall be mailed, postage prepaid, to each holder of record
of the Series A Preferred Stock at such holder's post office address last shown
on the records of the Corporation. The Redemption Notice shall specify the date
fixed for redemption and the Redemption Price.
(C) Exchange. In the event of a redemption, each holder of shares
of Series A Preferred Stock shall, on or after the date fixed for redemption,
deliver to the Corporation, at its principal office or at such other office or
agency maintained by the Corporation for such purpose, the certificate or
certificates representing the shares of Series A Preferred Stock that are to be
redeemed. As promptly as practicable, and in any event within ten (10) calendar
days after the surrender of each such certificate or certificates, the
Corporation shall deliver or cause to be delivered (i) the Redemption Price of
the shares of Series A Preferred Stock being so
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<PAGE> 6
redeemed and (ii) if less than the full number of shares of Series A Preferred
Stock evidenced by the surrendered certificate or certificates are being
redeemed, a new certificate or certificates, of like tenor, for the number of
shares of Series A Preferred Stock evidenced by such surrendered certificate or
certificates less the number of such shares redeemed. Such redemption shall be
deemed to have been made at the close of business on the date fixed for
redemption, so that the rights of each holder of Series A Preferred Stock as
such shall cease at such time, except for the right thereafter to receive the
Redemption Price in accordance herewith (unless default shall be made by the
Corporation in the payment of the Redemption Price as herein provided, in which
event such rights shall be exercisable until such default is cured), and such
shares shall no longer be deemed to be outstanding, whether or not the
certificate representing such shares has been received by the Corporation. At
any time on or after the date fixed for redemption, a holder of shares of Series
A Preferred Stock shall be entitled to receive the Redemption Price for each
such share owned by such holder upon actual delivery to the Corporation or its
transfer agent of the certificate or certificates formerly representing such
shares.
9. Conversion into Common Stock.
9.1 Conversion.
(A) Conversion Price. At any time and from time to time
commencing February 3, 1998, any holder of Series A Preferred Stock may convert
all, but not less than all, of the shares of the Series A Preferred Stock held
by such holder into the number of shares of the Corporation's Common Stock
determined as follows. Each share of Series A Preferred Stock shall be
convertible into such whole number of duly authorized, validly issued, fully
paid and nonassessable shares of Common Stock determined by dividing $1.00 by
the Conversion Price in effect on the conversion date, subject to the limitation
on issuances of fractional shares set forth in subsection 9.6. The Conversion
Price at which shares of Common Stock shall be initially issuable upon
conversion of the shares of Series A Preferred Stock shall be $1.50. The
Conversion Price shall be subject to further adjustment as set forth in
subsection 9.2. No payment or adjustment shall be made for any dividend or other
distribution that is payable on the Common Stock issued upon such conversion.
(B) Rights of Holder Upon Conversion. Each conversion of
Series A Preferred Stock will be deemed to have been effected as of the close of
business on the date on which the certificate or certificates representing the
Series A Preferred Stock to be converted have been surrendered at the principal
office of the Corporation. At such time as such conversion has been effected,
the rights of the holder of such Series A Preferred Stock as such holder will
cease and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock are to be issued upon such conversion
will be deemed to have become the holder or holders of record of the Shares of
Common Stock represented thereby.
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<PAGE> 7
(C) Deliveries Upon Conversion. As soon as possible after
a conversion has been effected, the Corporation will deliver to the converting
shareholder:
(i) a certificate or certificate representing the
number of shares of Common Stock issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting holder
has specified;
(ii) payment in an amount equal to all accrued
unpaid dividends with respect to each share of Series A Preferred Stock
converted, which have not been paid prior thereto; and
(iii) a certificate representing any shares of
Series A Preferred Stock which were represented by the certificate or
certificates delivered to the Corporation in connection with such conversion but
which were not converted.
(D) Dividends. If for any reason the Corporation is unable
to pay any unpaid dividends on the Series A Preferred Stock being converted, the
Corporation will pay such dividends to the converting shareholder as soon
thereafter as funds of the Corporation are legally available for such payment.
At the request of any such converting shareholder, the Corporation will provide
such shareholder with written evidence of its obligation to such shareholder.
(E) Tax, etc. The issuance of certificates for shares of
Common Stock upon conversion of Series A Preferred Stock will made without
charge to the holders of such Series A Preferred Stock for any issuance tax in
respect thereof or other cost incurred by the Corporation in connection with
such conversion and the related issuance of shares of Common Stock. Upon
conversion of each share of Series A Preferred Stock the Corporation will take
all such actions as are necessary in order to insure that the Common Stock
issuable with respect to such conversion will be validly issued, fully paid and
nonassessable.
(F) Transfer. The Corporation will not close its books
against the transfer of Series A Preferred Stock of Common Stock issued or
issuable upon conversion of Series A Preferred Stock in any manner which
interferes with the timely conversion of Series A Preferred Stock.
9.2 Conversion Price Adjustment. For so long as any shares of
Series A Preferred Stock remain outstanding, the Conversion Price shall be
subject to adjustment from time to time as follows:
(i) Adjustment for Stock Splits and Combinations. If
the Corporation at any time or from time to time files an amendment to the
Certificate of Incorporation effecting a subdivision or combination of the
outstanding Common Stock, the Conversion Price then in effect immediately before
such subdivision or combination shall be multiplied by a fraction: (1) the
numerator of which shall be the total number of shares of Common Stock issued
and
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<PAGE> 8
outstanding immediately prior to the subdivision or combination, and (2) the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately after the subdivision or combination. Any adjustment
under this paragraph (i) shall become effective as of the date that the
Corporation files an amendment to the Certificate of Incorporation effecting the
subdivision or combination.
(ii) Adjustment for Dividends and Distributions Payable
in Common Stock or Convertible Securities. In the event the Corporation at any
time or from time to time shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in shares of Common Stock or convertible securities,
then and in each such event the Conversion Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Conversion Price then in effect by a fraction the numerator of
which shall be the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date and the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately on such record date plus the
number of shares of Common Stock (including Common Stock issuable upon the
exercise of any convertible securities so distributed) issuable in payment of
such dividend or distribution; provided, however, that if such record date shall
have been fixed and such dividend is not fully paid or if such distribution is
not fully made on the date fixed therefor, the Conversion Price shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price shall be adjusted pursuant to this paragraph
(ii) as of the time of actual payment of such dividend or distribution.
(iii) Adjustment for Other Dividends and Distributions.
In the event the Corporation at any time or from time to time shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock or convertible securities,
then and in each such event provision shall be made so that the holders of
shares of Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation which they would have received had their
shares of Series A Preferred Stock been converted into Common Stock immediately
prior to such event and had thereafter, during the period from the date of such
event to and including the Conversion Date, retained such securities receivable
by them as aforesaid during such period, giving application to all adjustments
called for during such period under this paragraph (iii) with respect to the
rights of the holders of shares of Series A Preferred Stock.
(iv) Adjustment for Reclassifications, Exchanges and
Substitutions. If the shares of Common Stock of the Corporation issuable upon
the conversion of Series A Preferred Stock shall be changed into the same or a
different number of shares of any class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above, or a reorganization,
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<PAGE> 9
merger, consolidation or sale or assets provided for elsewhere in this
subsection 9.2), then and in each such event the holder of each share of Series
A Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification or other change, by holders of the
number of shares of Common Stock into which such shares of Series A Preferred
Stock could have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
(v) Adjustment for Reorganizations, Mergers,
Consolidations, and Sales of Assets. If at any time or from time to time there
shall be a capital reorganization of the Common Stock of the Corporation (other
than a subdivision, combination, reclassification or exchange of shares provided
for elsewhere in this subsection 9.2, or a merger or consolidation of the
Corporation with or into another corporation in which the Corporation is the
continuing corporation and which does not result in any change in the Common
Stock), or the sale of all or substantially all of the Corporation's properties
and assets to any other person, then, as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the holders of shares of
Series A Preferred Stock shall thereafter be entitled to receive upon conversion
of Series A Preferred Stock the number of shares of stock or other securities or
property of the Corporation, or of the successor corporation resulting from such
merger or consolidation or sale, which a holder of the number of shares of
Common Stock deliverable upon conversion of Series A Preferred Stock
(immediately prior to the time of such reorganization, reclassification,
consolidation, merger, sale or other disposition) would have been entitled to
receive upon the consummation of such capital reorganization, merger,
consolidation or sale. In any such case, appropriate adjustment shall be made in
the application of the provisions of this subsection 9.2 with respect to the
rights of the holders of shares of Series A Preferred Stock after the
reorganization, merger, consolidation or sale so that such continuing provisions
are as nearly equivalent as is practicable to the provisions of this subsection
9.2 (including adjustment of the Conversion Price then in effect and the number
of shares issuable upon conversion of shares of Series A Preferred Stock)
applicable prior to the event. The provisions of this paragraph (v) shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or other dispositions.
(vi) Issue or Sale of Shares Below Conversion Price.
If and for so long as the original holder of the Series A Preferred Stock and
any affiliates or family members of such holder collectively own beneficially
and of record shares of Common Stock and Series A Preferred Stock representing
in aggregate less than 50% of the aggregate voting power of the Corporation,
then the terms of this subparagraph (vi) shall apply as follows:
(a) In the event the Corporation at any time or
from time to time shall issue or sell (or be deemed to have issued or sold)
additional shares of Common Stock warrants, options or convertible securities,
other than as a dividend in paragraph (ii) above, other than upon a subdivision
or combination of shares of Common Stock as provided in paragraph (i) above and
other than upon the exercise or conversion of a warrant, option or convertible
security for which an appropriate adjustment has already been made, without
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<PAGE> 10
consideration or for a consideration per share less than the then existing
Conversion Price, then and in each case the then existing Conversion Price shall
be reduced, as of the opening of business on the date of such issue or sale, to
a price determined by multiplying that Conversion Price by a fraction: (1) the
numerator of which shall be (A) the number of shares of Common Stock outstanding
at the close of business on the day preceding the date of such issue or sale
plus (B) the number of shares of Common Stock which the aggregate consideration
received by the Corporation for the total number of additional shares of Common
Stock so issued would purchase at such Conversion Price, and (2) the denominator
of which shall be the number of shares of Common Stock outstanding at the close
of business on the date of such issue or sale after giving effect to the
issuance of such additional shares of Common Stock.
(b) For the purpose of making any adjustment in
the Conversion Price or number of shares of Common Stock purchasable on
conversion of Series A Preferred Stock as provided in clause (a) of this
paragraph (vi), the consideration received by the Corporation for any issue or
sale of securities shall, (A) to the extent it consists of cash, be computed at
the gross amount of cash received by the Corporation before deduction of any
expenses payable by the Corporation and any underwriting or similar commissions,
compensations, or concessions paid or allowed by the Corporation in connection
with such issue or sale, (B) to the extent it consists of property other than
cash, be computed at the fair market value of that property as determined in
good faith by the Board of Directors of the Corporation, irrespective of any
accounting treatment; provided, however, that the aggregate fair market value of
such non-cash and cash consideration shall not exceed the Current Market Price
(as hereinafter defined) of the shares of Common Stock being issued, and (C) if
additional shares of Common Stock or convertible securities are issued or sold
together with other stock or securities or other assets of the Corporation for a
consideration which covers both, be computed as the portion of the consideration
so received that may be reasonably determined in good faith by the Board of
Directors of the Corporation to be allocable to such additional shares of Common
Stock or convertible securities.
(c) For the purpose of the adjustment provided
for in clause (a) of this paragraph (vi), if at any time or from time to time
the Corporation shall issue any convertible securities, then, in each case, if
the "Effective Price" (as hereinafter defined) of such convertible securities
shall be less than the then existing Conversion Price of the Series A Preferred
Stock, the Corporation shall be deemed to have issued at the time of the
issuance of such convertible securities the maximum number of additional shares
of Common Stock issuable upon exercise, conversion or exchange thereof and to
have received as consideration for the issuance of such shares an amount equal
to the total amount of the consideration (including the minimum consideration
payable to fully exercise or convert all warrants, options or convertible
securities) received or to be received by Corporation for such issued, or deemed
issued, Common Stock. "Effective Price" for this purpose shall mean the quotient
determined by dividing the total of all of such consideration by such maximum
number of additional shares of Common Stock. No further adjustment of the
Conversion Price adjusted upon the issuance of convertible securities shall be
made as a result of the actual issuance of additional shares of Common Stock on
the exercise of any such convertible securities.
-10-
<PAGE> 11
If any such warrants or options, or the conversion
privilege represented by any convertible securities shall expire without having
been exercised or converted, the Conversion Price adjusted upon the issuance of
such warrants, options or convertible securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only additional shares of Common Stock so issued were the
additional shares of Common Stock, if any, actually issued or sold on the
exercise of such warrants or options or conversion of convertible securities,
and such additional shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise, plus the
consideration, if any, actually received by the Corporation for the granting of
all such warrants or options, whether or not exercised, plus the consideration
received for issuing or selling any convertible securities actually converted
plus the consideration, if any, actually received by the Corporation (other than
by cancellation of liabilities or obligations evidenced by such warrants,
options or convertible securities) on the exercise or conversion of such
warrants, options or convertible securities.
(vii) Calculations. All calculations under the provision
of this Certificate of Designation shall be made to the nearest one-hundredth of
a cent or to the nearest one-hundredth of a share, as the case may be. No
adjustment in the Conversion Price shall be made if the amount of such
adjustment would be less than $0.0001, but any such amount shall be carried
forward and an adjustment with respect thereto shall be made at the time of and
together with any subsequent adjustment which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $0.0001 or more.
(viii) Current Market Price. The Current Market Price at
any date of one share of Common Stock shall be deemed to be the average of the
daily closing prices for the thirty (30) consecutive business days selected by
the Board of Directors ending no more than fifteen (15) days before the day in
question (as adjusted for any stock dividend, split-up, combination or
reclassification that took effect during such thirty (30) business-day period).
The closing price for each day shall be the last reported sales price on such
day or, in case no such reported sales took place on such day, the average of
the last reported bid and asked prices on such day, in either case on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading or as reported in the National Market List of the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") (or if
the Common Stock is not at the time listed or admitted for trading on any such
exchange or reported in such National Market List, then such price shall be
equal to the average of the last reported bid and asked prices, as reported by
Nasdaq on such day, or if, on any day in question, the security shall not be
quoted on Nasdaq, then such price shall be equal to the average of the last
reported bid and asked prices on such day as reported by the National Quotation
Bureau, Inc. or any similar reputable quotation and reporting service, if such
quotation is not reported by the National Quotation Bureau, Inc.); provided,
however, that if the Common Stock is not traded in such manner that the
quotations referred to in this paragraph (viii) are available for the period
required hereunder, the Current Market Price as of the day in question shall be
determined in good faith by the Board of Directors of the Corporation, or if
such determination cannot be made, by a nationally-recognized independent
investment banking firm selected mutually by the
-11-
<PAGE> 12
holders of at least a majority of voting power of the outstanding shares of
Series A Preferred Stock (or, if such selection cannot be made, by a
nationally-recognized independent investment banking firm selected by the
American Arbitration Association in accordance with its rules).
(ix) Notice. In the event the Corporation shall propose to
take any action of the types described in paragraphs (i) through (vi) of
subsection 9.2, the Corporation shall give notice to each holder of shares of
Series A Preferred Stock, which notice shall specify the record date, if any,
with respect to any such action and the date on which such action is to take
place. Such notice shall also set forth such facts with respect thereto as shall
be reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the respective Series A
Preferred Stock Conversion Price and the number, kind or class of shares or
other securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of Series A
Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least twenty (20) calendar days prior
to the date so fixed, and in case of all other action, such notice shall be
given at least thirty (30) calendar days prior to the taking of such proposed
action. Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.
9.3 Voluntary Adjustment. The Corporation may make, but shall not
be obligated to make, such decreases in the Conversion Price so as to increase
the number of shares of Common Stock into which Series A Preferred Stock may be
converted, in addition to those otherwise required by subsection 9.2 above, as
it considers advisable in order to avoid federal income tax treatment as a
dividend of stock or stock rights.
9.4 Reservation of Shares of Common Stock for Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
and unissued shares of Common Stock, free from preemptive rights, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all shares of Series A Preferred Stock that are then outstanding.
9.5 Notice of Adjustment of Conversion Price. Whenever the
Conversion Price is adjusted as herein provided, the Corporation shall forthwith
file with any transfer agent or agents for shares of Series A Preferred Stock
and at the principal office of the Corporation, a statement signed by the
President or a Vice-President and by the Chief Financial Officer or the
Secretary of the Corporation setting forth the adjusted Conversion Price. The
statement so filed shall be open to inspection by any holder of record of shares
of Series A Preferred Stock. The Corporation shall also, at the time of filing
any such statement, mail notice to the same effect to the holders of shares of
Series A Preferred Stock at their addresses appearing on the books of the
Corporation or supplied by such holder to the Corporation for the purpose of
notice.
9.6 No Fractional Shares on Conversion. The Corporation shall
not be required to issue fractions of shares of Common Stock on the conversion
of shares of Series A
-12-
<PAGE> 13
Preferred Stock. If any fraction of a share of Common Stock would be issuable
upon such conversion except for the provisions hereof, the Corporation shall
purchase such fraction for an amount in cash equal to the Conversion Price
multiplied by such fraction. If more than one certificate for shares of Series A
Preferred Stock shall be presented for conversion at any one time by the same
registered holder, the number of shares of Common Stock which shall be issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of shares of Common Stock issuable upon conversion of the shares so presented.
All calculations under this subsection 9.6 shall be made to the nearest
one-hundredth of a share.
9.7 Taxes. The Corporation shall pay all documentary, stamp or
other transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon conversion of any shares of Series A
Preferred Stock.
9.8 Status of Common Stock. All shares of Common Stock which may
be issued in connection with the conversion provisions set forth herein will,
upon issuance by the Corporation, be validly issued, fully paid and
nonassessable, with no personal liability attaching to the ownership thereof,
and free from all taxes, liens or charges with respect thereto.
9.9 No Impairment. The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but shall at
all times in good faith assist in the carrying out of all the provisions of this
section and in the taking of all such action as may be necessary or appropriate
in order to protect the conversion rights of the holders of the Series A
Preferred Stock against impairment.
10. Amendment. At any time that any shares of Series A Preferred Stock
are outstanding, the Certificate of Incorporation of the Corporation shall not
be amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of two-thirds of the
outstanding shares of Series A Preferred Stock, voting separately as a class.
11. Severability. If any right, preference or limitation of the Series A
Preferred Stock set forth in this Certificate of Designation (as may be amended
from time to time) is invalid, unlawful or incapable of being enforced by reason
of any rule of law or public policy, all other rights, preferences and
limitations set forth in this Certificate of Designation which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.
-13-
<PAGE> 14
12. No Other Rights. The holders of shares of Series A Preferred Stock
shall have no preferences, privileges or special rights other than those
preferences, privileges and rights set forth in this Certificate of Designation.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
31st day of January, 1997.
ASPEN WEST GROUP, INC.
By: /s/ HAROLD S. FLEISCHMAN
-----------------------------------------
Name: Harold S. Fleischman
Title: Secretary
-14-
<PAGE> 15
CERTIFICATE OF CORRECTION FILED TO CORRECT
A CERTAIN ERROR IN THE CERTIFICATE OF
DESIGNATION OF UNITED GOLF PRODUCTS, INC.
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON FEBRUARY 3, 1997
United Golf Products, Inc., formerly known as Aspen West Group, Inc., a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware DOES HEREBY CERTIFY:
1. The name of the corporation is United Golf Products, Inc.
2. That a Certificate of Designation was filed by the Secretary of State
of Delaware on February 3, 1997 and that said Certificate of Designation
requires correction as permitted by Section 103 of the General
Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate of Designation to be
corrected is as follows: the stated value of $1.00 per share was
inadvertently omitted.
4. Section 1 of the Certificate of Designation is corrected to read as
follows:
a. Designation and Amount. There shall be a series of Preferred
Stock that shall be designated as "Series A Redeemable Cumulative
Convertible Stock," (referred to hereafter as "Series A Preferred
Stock") and the number of shares constituting such series shall
be 711,000, with a stated value of $1.00 per share for the
purpose of calculating dividends and amounts payable upon
liquidation, dissolution or winding up (the "stated value"). Such
number of shares may be increased (with the approval of
stockholders required by paragraph 4(C)(iv) hereof) or decreased
by resolution of the Board of Directors; provided, however, that
no decrease shall reduce the number of shares of Series A
Preferred Stock to less than the number of such shares then
issued and outstanding plus the number of such shares issuable
upon exercise of outstanding rights, options or warrants or upon
conversion of outstanding securities issued by the Corporation.
IN WITNESS WHEREOF, United Golf Products, Inc., has caused this
Certificate of Correction to be signed by Warren E. Levy, its duly elected
President, this __ day of March, 1997.
By: /s/ Warren E. Levy
-------------------------------------
Warren E. Levy, President
<PAGE> 1
Exhibit 4.3
UNITED GOLF PRODUCTS, INC.
CERTIFICATE OF DESIGNATIONS
-----------------
Pursuant to Section 151
of the General Corporation Law of the State of Delaware
------------------
United Golf Products, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware does
hereby certify that pursuant to the provisions Section 151 of the General
Corporation Law of the State of Delaware, its Board of Directors, by unanimous
written consent dated December 8, 1997 adopted the following resolution, which
resolution remains in full force and effect as of the date hereof:
WHEREAS, the Board of Directors of the Corporation (the "Board of
Directors") is authorized, within the limitations and restrictions stated in the
Corporation's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), to fix by resolution or resolutions the designation, number,
privileges, preferences, restrictions, voting rights and other rights of each
series of preferred stock, and such other subjects or matters as may be fixed by
resolution or resolutions of the Board of Directors under the General
Corporation Law of Delaware; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and fix the terms of a series of preferred
stock and the number of shares constituting such series:
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such
series of preferred stock on the terms and with the provisions herein set forth:
1. DESIGNATION OF SERIES/RANKING. The designation of such series of preferred
stock is 12% Series B Cumulative Convertible Redeemable Preferred Stock ("Series
B Preferred Stock"). The number of shares constituting such series is 20,000,
with a value of $100.00 per share for the purpose of calculating dividends and
amounts payable upon liquidation, dissolution or winding up ("stated value").
Shares of Series B Preferred Stock redeemed or purchased by the Corporation
shall be canceled and shall revert to authorized but unissued shares of
preferred stock undesignated as to series.
The Series B Preferred Stock shall rank, with respect to dividend rights
and rights on liquidation, dissolution and winding up of the affairs of the
Corporation:
(A) Senior to all classes or series of Common Stock of the
Corporation (referred to herein as "Junior Securities");
(B) Junior to the Series A Redeemable Cumulative Convertible
Preferred Stock and to other classes or series of capital stock of the
Corporation now or hereafter
<PAGE> 2
issued as determined by the Board of Directors (collectively referred to as
"Senior Securities").
2. DIVIDENDS. The holders of the outstanding Series B Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, dividends at the annual rate of 12.00% of the
stated value per share of Series B Preferred Stock. Such dividends shall be
payable monthly on the fifteenth day of each calendar month following the month
for which the dividends are paid (each of such dates being a "Dividend Payment
Date"). Commencing with the January 15, 1999 Dividend Payment Date and
continuing thereafter until no shares of Series B Preferred Stock remain
outstanding, all dividend payments made with respect to Series B Preferred Stock
may be made, subject to the terms hereof, at the option of and in the sole
discretion of, the Board of Directors, in cash or, in full or in part, by
issuing fully paid and nonassessable shares of Common Stock such that the value
of the shares of Common Stock plus the amount of cash dividend paid in part, if
any, is equal to the amount of the cash dividend which would otherwise be paid
on such Dividend Payment Date if such dividend were paid entirely in cash. For
the purposes of determining the value of the shares of Common Stock issued as a
dividend hereunder, each share of Common Stock so issued shall have a value
equal to the Conversion Price (as defined in Paragraph 6 below) in effect on
such Dividend Payment Date. The issuance of such shares of Common Stock (plus
the amount of cash dividends, if any, paid together therewith) shall constitute
full payment of such dividend. In no event shall an election by the Board of
Directors to pay dividends, in full or in part, in cash or Common Stock on or
after January 15, 1999 preclude the Board of Directors from electing either such
alternative in respect of all or any portion of any subsequent dividend
payments.
Dividends shall be cumulative without interest or additional dividends
until declared and paid, which declaration and payment may be for all or part of
the then accumulated dividend. Dividends on account of arrears or past dividends
may be declared or paid at any time, without reference to any regular dividend
payment date, to holders of record on the date such dividends are declared. In
no event, so long as any shares of Series B Preferred Stock shall be
outstanding, shall any dividend, whether in cash or property, be paid or
declared, or shall any distribution be made, on any class of Junior Securities
or shall any shares of any class of Junior Securities be purchased, redeemed or
otherwise acquired for value, directly or indirectly, by the Corporation or any
subsidiary of the Corporation, unless all accumulated dividends on the Series B
Preferred Stock and the one for the then current period shall have been paid or
declared and a sum sufficient for the payment thereof set apart. The provisions
of this paragraph shall not, however, apply to a redemption, repurchase or other
acquisition of any shares of any class of Junior Securities in exchange for
shares of Junior Securities.
Subject to the foregoing and to any further limitations described in
accordance with the provisions of the Certificate of Incorporation as amended by
the Corporation, the Board of Directors may declare, out of funds legally
available therefrom, dividends upon the then outstanding shares of any other
class of shares, including the Common Stock, and no holders of Series B
Preferred Stock shall be entitled to share therein.
2.
<PAGE> 3
3. VOTING. The holders of Series B Preferred Stock shall be entitled to vote
upon all matters presented to the stockholders, together with the holders of
Common Stock as one class, except as otherwise required by law. Each share of
Series B Preferred Stock shall entitle the holder thereof to that number of
votes equal to the number of shares of Common Stock into which one share of
Series B Preferred Stock would have been convertible, if such conversion had
taken place on the record date set for determining stockholders entitled to vote
at a meeting or the date of the consent of stockholders if action is being taken
by written consent.
4. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of Series B Preferred Stock shall be entitled to receive out of the
assets of the Corporation, whether such assets are capital or surplus of any
nature, an amount per share of Series B Preferred Stock equal to the stated
value of such share of Series B Preferred Stock and a further amount equal to
any dividends declared and unpaid thereon, if any, as provided in Paragraph 2
hereof, to the date that payment is made available to the holders of Series B
Preferred Stock, and no more, before any payment shall be made or any assets
distributed to the holders of shares of Common Stock or any other Junior
Securities.
If upon such liquidation, dissolution or winding up, the assets thus
distributed among the holders of the Series B Preferred Stock shall be
insufficient to permit the payment to such stockholders of the full preferential
amounts aforesaid, then the entire assets of the Corporation to be distributed
shall be distributed ratably among the holders of Series B Preferred Stock.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, subject to the provisions of the Corporation's
Certificate of Incorporation, as amended, and to all of the preferential rights
of the holders of Series B Preferred Stock on distribution or otherwise, the
holders of Common Stock shall be entitled to receive, ratably, all remaining
assets of the Corporation.
A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation, shall not be deemed to be a liquidation, dissolution or
winding up within the meaning of this Paragraph 4.
5. CONVERSION RIGHTS. The holder of any shares of Series B Preferred Stock shall
have the right at any time commencing from the date of issuance to convert any
of his or her shares of Series B Preferred Stock into duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock of the Corporation
at the Conversion Price, as defined herein, and upon the terms set forth herein.
6. CONVERSION PRICE. Each share of Series B Preferred Stock shall be converted
into a number of shares of Common Stock determined by dividing (i) $100.00 by
(ii) the Conversion Price in effect on the Conversion Date. The Conversion Price
at which shares of Common Stock shall initially be $1.50 per share . The
Conversion Price
3.
<PAGE> 4
shall be subject to further adjustment as set forth in Paragraph 8 hereof. No
payment or adjustment shall be made for any dividend or other distribution that
is payable on the Common Stock issued upon such conversion.
7. CONVERSION PROCEDURE. The holder of any shares of the Series B Preferred
Stock may exercise his or her right to convert such shares into shares of Common
Stock by surrendering for such purpose to the Corporation, at its principal
office or at such other office or agency maintained by the Corporation for that
purpose, a certificate or certificates representing the shares of Series B
Preferred Stock to be converted endorsed for conversion. As promptly as
practicable, and in any event within ten business days after the surrender of
such certificates and the receipt of such notice relating thereto and, if
applicable, payment of all transfer taxes, the Corporation shall deliver or
cause to be delivered (i) certificates representing the number of validly
issued, fully paid and nonassessable shares of Common Stock to which the holder
of the Series B Preferred Stock so converted shall be entitled and (ii) if less
than the full number of shares of the Series B Preferred Stock evidenced by the
surrendered certificate or certificates are being converted, a new certificate
or certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares converted.
Such conversions shall be deemed to have been made at the close of business on
the date of giving of such notice and of such surrender of the certificate or
certificates representing the shares of the Series B Preferred Stock to be
converted so that the rights of the holder thereof shall cease except for the
right to receive Common Stock in accordance herewith, and the converting holder
shall be treated for all purposes as having become the record holder of such
Common Stock at such time.
Shares of the Series B Preferred Stock may not be converted after the
close of business of the fifth business day preceding the date fixed for
redemption of such shares pursuant to Paragraph 13 hereof.
Upon conversion of any shares of the Series B Preferred Stock, the
holder thereof shall not be entitled to receive any accumulated, accrued or
unpaid dividends in respect of the shares so converted, provided that such
holder shall be entitled to receive any dividends on such shares of the Series B
Preferred Stock declared prior to such conversion if such holder held such
shares on the record date fixed for the determination of holders of the Series B
Preferred Stock entitled to receive payment of such dividend.
8. CONVERSION PRICE ADJUSTMENTS. The Conversion Price shall be subject to
adjustment from time to time upon the occurrence of certain events as follows:
a. Stock Dividends, Subdivisions, Reclassifications or Combinations. If
the Corporation shall (i) declare a dividend or make a distribution in shares of
Common Stock (other than a dividend of Common Stock issued to the holders of the
Series B Preferred Stock pursuant to paragraph 2 hereof), (ii) subdivide or
reclassify the outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify the outstanding Common Stock into a
smaller number of shares, the Conversion Price in effect at the time of the
record date of such dividend or distribution on the effective date of such
subdivision, combination or reclassification shall be proportionately adjusted
so
4.
<PAGE> 5
that the holder of any shares of Series B Preferred Stock surrendered for
conversion after such date shall be entitled to receive the number of shares of
Common Stock which he or she would have owned or been entitled to receive had
such Series B Preferred Stock been converted immediately prior to such date.
Successive adjustments in the Conversion Price shall be made whenever any event
specified above shall occur.
b. Other Distributions. In case the Corporation shall fix a record date
for the making of a distribution to all holders of shares of Common Stock, (i)
of shares of any class of capital stock of the Corporation other than shares of
Common Stock, or (ii) of evidences of indebtedness of the Corporation, or (iii)
of assets (excluding cash dividends or distributions, and dividends or
distributions referred to in subparagraph 8(a) hereof), or (iv) of rights or
warrants entitling the holders of Common Stock to subscribe for or purchase
shares of Common Stock at less than the Conversion Price; in each such case, the
Conversion Price in effect immediately prior thereto shall be reduced
immediately thereafter to the price determined by dividing (1) an amount equal
to the difference resulting from (A) the number of shares of Common Stock
outstanding on such record date multiplied by the Conversion Price per share on
such record date, less (B) the fair market value (as determined by the Board of
Directors in their reasonable discretion) of said shares or evidences of
indebtedness or assets or rights or warrants to be so distributed by (2) the
number of shares of Common Stock outstanding on such record date. Such
adjustment shall be made successively whenever such a record date is fixed. In
the event that such distribution is not so made, the Conversion Price then in
effect shall be readjusted, effective as of the date when the Board of Directors
determines not to distribute such shares, evidences of indebtedness, assets,
rights or warrants, as the case may be, to the Conversion Price which was in
effect prior to the fixing of the record date (subject to any adjustments made
pursuant to this Paragraph 8 since such record date).
c. Rounding of Calculations; Minimum Adjustment. All calculations under
this Paragraph 8 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. No adjustment in the Conversion
Price shall be made if the amount of such adjustment would be less than $0.01,
but any such amount shall be carried forward and an adjustment with respect
thereto shall be made at the time of and together with any subsequent adjustment
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $0.01 or more.
d. Adjustments for Consolidation, Merger, etc. In case the Corporation,
(i) shall consolidate with or merge into any other person and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) shall
permit any other person to consolidate with or merge into the Corporation and
the Corporation shall be the continuing or surviving person, but, in connection
with such consolidation or merger, the Common Stock shall be changed into or
exchanged for stock or other securities of any other person or cash or any other
property, (iii) shall transfer all or substantially all of its properties or its
assets to any other person, or (iv) shall effect a capital reorganization or
reclassification of the Common Stock (other than a capital reorganization or
reclassification resulting in the issue of additional shares of Common Stock for
which adjustment is provided in this Paragraph 8); then, and in each such case,
proper provision shall be made so that each share of Series B Preferred Stock
then outstanding shall be converted
5.
<PAGE> 6
into, or exchanged for, one share of preferred stock of the acquiring
corporation entitling the holder thereof to all of the rights (including voting
rights), powers, privileges and preferences with respect to the acquiring
corporation to which the holder of a share of Series B Preferred Stock is
entitled with respect to the Corporation, and being subject with respect to the
acquiring corporation to the qualifications, limitations and restrictions to
which a share of Series B Preferred Stock is subject with respect to the
Corporation.
9. VOLUNTARY ADJUSTMENT. The Corporation may make, but shall not be obligated to
make, such decreases in the Conversion Price so as to increase the number of
shares of Common Stock into which the Series B Preferred Stock may be converted,
in addition to those required by Paragraph 8 hereof, as it considers to be
advisable in order to avoid federal income tax treatment as a dividend of stock
or stock rights.
10. RESERVATION OF SHARES OF COMMON STOCK FOR CONVERSION. The Corporation shall
at all times reserve and keep available out of its authorized and unissued
shares of Common Stock such number of shares of Common Stock as shall from time
to time be sufficient to effect the conversion of all shares of Series B
Preferred Stock that are then outstanding.
11. NOTICE OF ADJUSTMENT OF CONVERSION PRICE. Whenever the Conversion Price is
adjusted as herein provided, the Corporation shall forthwith file with any
transfer agent or agents for the Series B Preferred Stock, if any, and at the
principal office of the Corporation, a statement signed by the President or a
Vice President and by the Chief Financial Officer or the Secretary of the
Corporation setting forth the adjusted Conversion Price. The statement so filed
shall be open to inspection by any holder of record of shares of Series B
Preferred Stock. The Corporation shall also, at the time of filing any such
statement, mail notice to the same effect to the holders of shares of Series B
Preferred Stock at their addresses appearing on the books of the Corporation or
supplied by such holder to the Corporation for the purpose of notice.
12. FRACTIONAL SHARES IN CONVERSION. The Corporation shall not be required to
issue fractions of shares of Common Stock on the conversion of Series B
Preferred Stock. If any fraction of a share of Common Stock would be issuable
upon the conversion of a share, except for the provisions hereof, the
Corporation shall purchase such fraction for an amount in cash equal to the
Conversion Price multiplied by such fraction. If more than one certificate for
shares of Series B Preferred Stock shall be presented for conversion at any one
time by the same registered holder, the number of shares of Common Stock which
shall be issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Common Stock issuable upon conversion of the
shares so presented. All calculations under this Paragraph 12 shall be made to
the nearest one-hundredth of a share.
13. REDEMPTION. Commencing on August 1, 1999, shares of the Series B Preferred
Stock may be redeemed, in whole or in part at any time at the option of the
Corporation by resolution of its Board of Directors, for cash at $100.00 per
share; plus, in each case, all declared and unpaid dividends thereon, if any, to
the redemption date.
6.
<PAGE> 7
In case of the redemption of a part only of the outstanding shares of Series B
Preferred Stock, the shares so to be redeemed shall be selected pro rata.
At least 30 days' previous notice by mail, postage prepaid, shall be
given to the holders of record of the shares of Series B Preferred Stock to be
redeemed, such notice to be addressed to each such stockholder at the address of
such holder appearing on the books of the Corporation or given by such holder to
the Corporation for the purpose of notice, or if no such address appears or is
so given, at the place where the principal office of the Corporation is located.
Such notice shall state the date fixed for redemption and the redemption price
and shall call upon such holder to surrender to the Corporation on said date at
the place designated in the notice such holder's certificate or certificates
representing the shares to be redeemed. On or after the date fixed for
redemption and stated in such notice, each holder of shares of Series B
Preferred Stock called for redemption shall surrender the certificate evidencing
such shares to the Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the redemption price, together with
declared and unpaid dividends, if any, to the date fixed for redemption. If less
than all the shares represented by any such surrendered certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
If such notice of redemption shall have been duly given, and if on the date
fixed for redemption funds necessary for the redemption shall be available
therefor, then, notwithstanding that the certificate evidencing any shares of
Series B Preferred Stock so called for redemption shall not have been
surrendered, all rights pertaining to such shares shall terminate, except only
the right of the holders to receive the redemption price, together with declared
and unpaid dividends thereon, if any, to the date fixed for redemption, without
interest, upon surrender of their certificates therefor.
If, after notice of redemption has been given, the Corporation deposits,
on or prior to any date fixed for redemption of shares of Series B Preferred
Stock, with any bank or trust company in the State of California, as a trust
fund, a sum sufficient to redeem, on the date fixed for redemption thereof, the
shares called for redemption, with irrevocable instructions and authority to the
bank or trust company to give the notice of redemption thereof (or to complete
the giving of such notice if theretofore commenced) and to pay, on or after the
date fixed for redemption or prior thereto, the redemption price of the shares
to their respective holders upon the surrender of their share certificates, then
from and after the date of the deposit (although prior to the date fixed for
redemption), the shares shall no longer be outstanding, and the holders thereof
shall cease to be stockholders with respect to such shares, and shall have no
rights with respect thereto except the right to receive from the bank or trust
company payment of the redemption price of the shares without interest, upon the
surrender of their certificates therefor, and the right to convert said shares
as provided herein at any time up to but not after the close of business on the
fifth business day prior to the date fixed for redemption of such shares. The
deposit shall constitute full payment of the shares to the holders thereof. Any
moneys so deposited on account of the redemption price of Series B Preferred
Stock converted subsequent to the making of such deposit shall be repaid to the
Corporation forthwith upon the conversion of such shares of Series B Preferred
Stock. Any interest accrued on any funds so deposited shall be the property of,
and paid to, the Corporation. If the holders of Series B Preferred Stock so
called for redemption shall not, at the end
7.
<PAGE> 8
of two years from the date fixed for redemption thereof, have claimed any funds
so deposited, such bank or trust company shall thereupon pay over to the
Corporation such unclaimed funds, and such bank or trust company shall
thereafter be relieved of all responsibility in respect thereof to such holders
and such holders shall look only to the Corporation for payment of the
redemption price.
14. MUTILATED OR MISSING PREFERRED STOCK CERTIFICATES. If any of the Series B
Preferred Stock certificates shall be mutilated, lost, stolen or destroyed, the
Corporation shall issue, in exchange and substitution for and upon cancellation
of the mutilated Series B Preferred Stock certificate, or in lieu of and in
substitution for the Series B Preferred Stock certificate lost, stolen or
destroyed, a new Series B Preferred Stock certificate of like tenor and
representing an equivalent amount of shares of Series B Preferred Stock, but
only upon receipt of evidence of such loss, theft or destruction of such Series
B Preferred Stock certificate and indemnity, if requested.
15. REISSUANCE OF PREFERRED STOCK. Shares of Series B Preferred Stock that have
been issued and reacquired in any manner, including shares purchased or redeemed
or exchanged, shall (upon compliance with any applicable provisions of the laws
of the State of Delaware) have the status of authorized and unissued shares of
preferred stock undesignated as to series and may be redesignated and reissued
as part of any series of preferred stock other than the Series B Preferred
Stock.
16. BUSINESS DAY. If any payment, redemption or exchange shall be required by
the terms hereof to be made on a day that banks are not open in the State of
California, such payment, redemption or exchange shall be made on the
immediately succeeding day on which such banks are open.
17. HEADINGS OF SUBDIVISIONS. The headings of various subdivisions hereof are
for convenience of reference only and shall not affect the interpretation of any
of the provisions hereof.
8.
<PAGE> 9
18. SEVERABILITY OF PROVISIONS. If any right, preference or limitation of the
Series B Preferred Stock set forth in these resolutions and the Certificate of
Designations filed pursuant hereto (as such resolution may be amended from time
to time) is invalid, unlawful or incapable of being enforced by reason of any
rule of law or public policy, all other rights, preferences and limitations set
forth in this resolution (as so amended) which can be given effect without the
invalid, unlawful or unenforceable right, preference or limitation shall,
nevertheless, remain in full force and effect, and no right, preference or
limitation herein set forth shall be deemed dependent upon any other such right,
preference or limitation unless so expressed herein.
19. NOTICE TO THE COMPANY.
All notices and other communications required or permitted to be given
to the Corporation hereunder shall be made by courier to the Corporation at its
principal executive offices located at 20301 Nordhoff Street, Chatsworth,
California 91311, Attention: President. Minor imperfections in any such notice
shall not affect the validity thereof.
20. LIMITATIONS.
Except as may otherwise be required by law, the shares of Series B
Preferred Stock shall not have any powers, preferences or relative,
participating, optional or other special rights other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) or otherwise in the Certificate of Incorporation of the Corporation.
IN WITNESS WHEREOF, United Golf Products, Inc., has caused this
certificate to be executed by Warren Levy, as Chief Executive Officer, and
attested by Sheila Levy, as Secretary, this 8th day of December, 1997.
United Golf Products, Inc.
By /s/ Warren Levy
-------------------------------
Name: Warren Levy
Title: Chief Executive Officer
Attest:
/s/ Sheila Levy
- ---------------------------
Name: Sheila Levy
Title: Secretary
9.
<PAGE> 1
EXHIBIT 4.4
FORM OF WARRANT
NEITHER THIS WARRANT, NOR THE SHARES REPRESENTED BY THIS WARRANT, HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE, AND THEREFORE THEY MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR ASSIGNED UNLESS REGISTERED UNDER THE APPLICABLE PROVISIONS OF
SUCH ACTS OR UNLESS THE CORPORATION HAS RECEIVED AN OPINION FROM LEGAL COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT
FOR VALUE RECEIVED, UNITED GOLF PRODUCTS, INC., a Delaware corporation
(the "Corporation"), hereby grants to ______________ or his assigns ("Holder"),
the right to purchase from the Corporation _____________ (_______) shares of the
Common Stock of the Corporation (the "Warrant Shares"), subject to the following
terms and conditions:
1. TERM. Except as provided below, this Warrant may be exercised in
whole, or in part, at any time from the date of issuance of this Warrant through
_____________, (the "Exercise Period").
2. PURCHASE PRICE. The purchase price for each share of the
Corporation's Common Stock purchasable hereunder shall be __________ ($____)
U.S. (the "Warrant Exercise Price").
3. EXERCISE OF WARRANT. The purchase rights represented by this Warrant
may be exercised by the Holder, in whole or in part, at any time and from time
to time before the end of the Exercise Period by the surrender of this Warrant
at the office of the Corporation, at its principal office in Chatsworth,
California (or such other office or agency of the Corporation as it may be
designated by notice in writing to the Holder at the address of the Holder
appearing on the books of the Corporation) either (a) accompanied by payment in
full of the amount of the aggregate purchase price of the Warrant Shares in cash
or by certified check, or any combination thereof; or (b) if in connection with
a registered public offering of the Corporation's securities, accompanied with
notice of arrangements reasonably satisfactory to the Corporation for payment to
the Corporation either by check or from the proceeds of the sale of shares to be
sold by Holder in such public offering of an amount equal to the then applicable
Warrant Exercise Price per share multiplied by the number of Warrant Shares then
being purchased. The Corporation agrees that the Warrant Shares so purchased
shall be issued as soon as practicable thereafter, and in any event within
fifteen (15) business days after receipt of this Warrant by the Corporation; and
that Holder shall be deemed the record owner of such Warrant Shares as of and
from the close of business on the date on which this Warrant shall be
surrendered, together with payment in full as required above. Unless this
Warrant has been fully exercised or expired, a new Warrant representing the
portion of the Warrant Shares, if any, with respect to which this Warrant shall
not then have been exercised, shall also be issued to Holder hereof as soon as
practicable, and in any event, within such fifteen (15) business day period.
4. FRACTIONAL INTEREST. The Corporation shall not be required to issue
any fractional shares up on the exercise of this Warrant.
<PAGE> 2
5. WARRANT CONFERS NO RIGHTS OF SHAREHOLDER; DELIVERY OF FINANCIAL
INFORMATION. The Holder shall not have any rights as a shareholder of the
Corporation with regard to the Warrant Shares prior to actual exercise resulting
in the purchase of the Warrant Shares. So long as the Holder owns of record
(assuming the exercise of this Warrant) shares of the Corporation's capital
stock equal to or exceeding fifty percent (50%) of the number of Warrant Shares,
until an underwritten Initial Public Offering ("IPO") pursuant to an effective
registration Statement under the Securities Act, covering the offering and sale
of shares of the Corporation's Common Stock, the Corporation shall deliver to
Holder (i) within one hundred twenty (120) days after the end of the fiscal year
of the Corporation, a consolidated balance sheet of the Corporation as of the
end of such year, and a consolidated statement of income, retained earnings and
cash flows for such year, which year-end financial reports shall be in
reasonable detail and certified by independent public accountants selected by
the Corporation; and (ii) within forty-five (45) days after the end of each
fiscal quarter other than the most recent fiscal quarter, unaudited consolidated
statements of income, retained earnings and cash flows for such quarter and a
consolidated balance sheet as of the end of such quarter. In addition, the
Corporation shall deliver to Holder any other information or data provided to
the Common Stock shareholders of the Corporation.
6. INVESTMENT REPRESENTATION. Neither this Warrant nor the Warrant
Shares issuable upon the exercise of this Warrant have been registered under the
Securities Act, or under the California Corporate Securities Law of 1968. Holder
acknowledges by acceptance of this Warrant that (a) it has acquired this Warrant
for investment and not with a view toward distribution or resale thereof; (b) it
has a pre-existing personal or business relationship with the Corporation, or
its executive officers, or by reason of its business or financial experience it
has the capacity to protect its own interests in connection with the
transaction; and (c) it is an "accredited investor" as that term is defined in
Regulation D promulgated under the Securities Act. Holder agrees that any
Warrant Shares issuable upon exercise of this Warrant will be acquired for
investment and not with a view toward distribution or resale thereof, and such
Warrant Shares will not be registered under the Securities Act and applicable
state securities laws, and that such Warrant Shares may have to be held
indefinitely unless they are subsequently registered or qualified under the
Securities Act and applicable state securities laws or, based on an opinion of
counsel reasonably satisfactory to the Corporation, an exemption from such
registration and qualification is available. Holder, by acceptance hereof,
consents to the placement of the following restrictive legend, or similar
legend, on each certificate to be issued to Holder by the Corporation in
connection with the issuance of such Warrant Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY
STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR LAWS COVERING SUCH SECURITIES, OR (B) THE HOLDER
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THE SECURITIES
SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND ANY FURTHER
QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE LAW."
<PAGE> 3
7. STOCK FULLY PAID, RESERVATION OF SHARES. All Warrant Shares that may
be issued upon the exercise of the rights represented by this Warrant and Common
Stock will, upon issuance, be fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof. The Corporation
agrees at all times during the Exercise Period to have authorized and reserved,
for the exclusive purpose of issuance and delivery upon exercise of this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented hereby.
8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
The number and kind of securities purchasable under the exercise of the Warrant,
and the Warrant Exercise Price, shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:
a. RECLASSIFICATION OR MERGER. In any case of any
reclassification, change or conversion of securities of the class issuable upon
exercise of this Warrant (other than a change in the par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or in case of any merger of the Corporation with or
into another corporation (other than a merger with another corporation in which
the Corporation is a continuing corporation, and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the assets
of the Corporation, the Corporation, or such successor or purchasing
corporation, as the case may be, shall execute a new Warrant (in form and
substance satisfactory to Holder), providing that the Holder shall have the
right to exercise such new Warrant and, upon such exercise, to receive, in lieu
of each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change or merger by a holder of
one (1) share of Common Stock. Such new Warrant shall provide for adjustment
that shall be as nearly equivalent as may be practicable to the adjustment
provided for in this Section 8. The provisions of this subsection 8.a. shall
similarly apply to successive reclassifications, changes, mergers and transfers.
b. SUBDIVISIONS OR COMBINATIONS OF SHARES. If the Corporation at
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the Warrant Exercise Price, and the number of Shares
issuable upon exercise hereof shall be proportionately adjusted.
c. STOCK DIVIDENDS. If the Corporation at any time while this
Warrant is outstanding and unexpired shall pay a dividend payable in shares of
Common Stock (except as a distribution specifically provided for in the
foregoing subsections 8.a. and 8.b., then the Warrant Exercise Price shall be
adjusted, from and after the date of determination of shareholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Warrant Exercise Price in effect immediately prior to such date of
determination by a fraction (i) the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution, and the number of Warrant Shares subject to this Warrant shall be
proportionately adjusted.
d. NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets,
<PAGE> 4
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 8., and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of Holder against impairment.
e. NOTICE OF ADJUSTMENTS. Whenever the Warrant Exercise Price and
the number of Warrant Shares shall be adjusted pursuant to the provisions
hereof, the Corporation shall within fifteen (15) business days after such
adjustment deliver a certificate signed by its Chief Financial Officer to the
Holder setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Warrant Exercise Price and the number of Warrant Shares,
after giving effect to such adjustment.
9. ADDITIONAL RIGHTS. Unless the Corporation provides Holder with
advance notice of the terms and conditions of a proposed transaction as
described below, the Corporation will not (a) sell, lease, exchange, convey or
otherwise dispose of all or substantially all of its property or business; or
(b) merge into or consolidate with any other corporation (other than a
wholly-owned subsidiary of the Corporation, or effect any transaction (including
a merger or other reorganization) or series of related transactions, in which
more than fifty percent (50%) of the voting power of the Corporation is
disposed; provided, that the obligation of the Corporation to give notice to the
Holder under this Section 9 shall terminate at the termination of the Exercise
Period.
10. REPRESENTATIONS AND WARRANTIES. This Warrant is issued and delivered
on the basis of the following:
a. CORPORATE AUTHORIZATION. This Warrant has been duly authorized
and executed by the Corporation, and when delivered will be the valid and
binding obligation of the Corporation, enforceable in accordance with the terms
hereof, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally or general
principles of equity and equitable remedies (whether in a proceeding at law or
in equity).
b. WARRANT AUTHORIZATION. The Warrant Shares have been duly
authorized and reserved for issuance by the Corporation and, when issued in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable.
c. CERTIFICATE OF INCORPORATION. The rights, preferences,
privileges and restrictions granted to or imposed upon the shares of Common
Stock and the Holder are as set forth in the Corporation's Certificate of
Incorporation, as amended, a true and complete copy of which has been delivered
to the original Warrant Holder.
d. RESERVATION OF SHARES. The Warrant Shares issuable under this
Warrant have been duly authorized and reserved and, when issued in accordance
with the terms of this Warrant and the Corporation's Certificate of
Incorporation, as amended, will be validly issued, fully paid and nonassessable.
<PAGE> 5
e. DELIVERY. The execution and delivery of this Warrant are not,
and the issuance of the Warrant Shares upon exercise of this Warrant in
accordance with the terms hereof will not be, inconsistent with the
Corporation's Certificate of Incorporation or Bylaws, do not and will not
contravene any law, governmental rule or regulation, judgment or order
applicable to the Corporation, and do not and will not contravene any provision
of, or constitute a default under, any indenture, mortgage, contract or other
instrument of which the Corporation is a party, or by which it is bound, or
require the consent or approval of, the giving of notice to, the registration
with or the taking of any action in respect of or by, any federal, state or
local government authority or agency, or other person, other than the filing of
a notice with the California Department of Corporations pursuant to Section
25102(f) of the California Corporations Code.
11. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
12. DESCRIPTIVE HEADINGS. The headings used herein are descriptive only
and for the convenience of identifying provisions, and are not determinative of
the meaning or effect of any such provisions.
Dated: ______________ UNITED GOLF PRODUCTS, INC.
By:_________________________________
(Signature)
_________________________________
(Name and Title)
<PAGE> 1
EXHIBIT 6.1
LICENSE AGREEMENT
THIS AGREEMENT, dated as of the 24th day of July, 1997, is entered
into by and between RAWLINGS SPORTING GOODS COMPANY, INC., a Delaware
corporation located at P.O. Box 22000, 1859 Intertech Drive, St. Louis, Missouri
63126 (hereinafter referred to as "Rawlings"), and WSL, INC., a California
corporation located at 20301 Nordhoff Street, Chatsworth, California 91311
(hereinafter referred to as "WSL").
WHEREAS, Rawlings manufactures, distributes, and sells products relating
to the sporting goods industry and desires to grant a license to WSL in
accordance with this Agreement.
WHEREAS, Rawlings is the Proprietor of the Trademarks set forth in the
attached Schedule I (the "Trademarks").
WHEREAS, Rawlings wishes to grant and WSL wishes to receive, licenses
under the Trademarks, all upon the terms and subject to the conditions set forth
herein.
WHEREAS, Rawlings and WSL (as assignee of Bellmore Sales Corp.)
previously entered into a License Agreement dated March 29, 1990, as amended
(the "Prior Agreement"), in which Rawlings granted WSL a license to Rawlings'
trademarks for commercial quality golf clubs.
WHEREAS, Rawlings and WSL desire to rescind and cancel the Prior
Agreement and substitute this License Agreement therefor as of the Effective
Date herein upon the satisfaction by WSL of all of its obligations under the
Prior Agreement.
NOW, THEREFORE, in consideration of the following terms and mutual
promises and for other good and valuable consideration, the parties agree as
follows:
1. LICENSE GRANT:
1.1 Exclusive License: Rawlings grants to WSL the exclusive right and
license, subject to the terms, covenants and conditions of this
Agreement, for the period from September 1, 1997 (the "Effective Date")
until termination in accordance with paragraphs 3 or 14 below, to use
the Trademarks throughout the World (the "Territory") only in
conjunction with the manufacture, sale, distribution, advertising, and
promotion by WSL of commercial quality licensed products of fully
assembled golf clubs, golf bags, golf accessories including golf tees,
replacement golf spikes, head covers, golf umbrellas, golf gloves and
unmotorized golf carts.
1.2 Non-Exclusive License: Rawlings grants to WSL the non-exclusive
right and license, subject to the terms, covenants and conditions of
this Agreement, for the period from September 1, 1997 until termination
in accordance with paragraphs 3 or 14 below, to use the Trademarks
throughout the World (the "Territory") only in conjunction with the
manufacture, sale, distribution, advertising, and promotion by WSL of
the licensed
<PAGE> 2
products of golf hats and golf balls (collectively with the products
listed in Paragraph 1.1 referred to as the "Licensed Products"). The
non-exclusive rights to golf balls shall be granted for a period of one
(1) year only (i.e. 9/1/97 to 8/31/98) during which time WSL may elect
to maintain the non-exclusive rights to golf balls for the remainder of
the Initial Term and Renewal Term, if applicable, as those terms are
defined below. If WSL so elects, an additional $25,000.00 per Contract
Year shall be added to the Minimum Royalties of Paragraph 4.
1.3 Rawlings represents and warrants that: (A) Rawlings is the owner of,
and has the right to license, the Trademarks listed in Schedule I in
accordance with the terms and conditions of this License Agreement, and
(B) the Trademarks do not infringe any Trademark or other intellectual
property right of any third party of which Rawlings has knowledge, and
no such claim is pending or, to Rawlings' knowledge, threatened or has
been made (other than claims which have been made and finally resolved
in a manner which does not give rise to any present liability on the
part of Rawlings or its licensees).
1.4 Rawlings reserves unto itself all other rights in and to the
Trademarks, including the right to use its Trademarks on products other
than the Licensed Products and to grant licenses and distributorships
thereunder.
1.5 WSL shall use its commercially reasonable efforts to foster and
develop the Licensed Products and to maximize the combined sales of the
Licensed Products. However, in the event that WSL does not use
commercially reasonable efforts to foster and develop the sale of golf
bags, golf accessories, including golf tees, replacement golf spikes,
head covers, golf umbrellas, golf gloves, or unmotorized golf cards
(collectively, the "Additional Products"), Rawlings shall have the
right, exercisable upon 90 days prior written notice to WSL, to withdraw
the license granted hereunder to any individual Additional Product if,
at the end of such 90-day period, Rawlings determines that WSL is not
using commercially reasonable efforts to foster, develop or sell such
Licensed Product. The right to withdraw the license with respect to any
individual Licensed Product shall only apply to the Additional Products
and not to golf clubs, golf hats or golf balls.
1.6 Notwithstanding the commencement date as stated in Paragraph 3
below, WSL shall have the period of time between the execution date and
September 1, 1997 to design, promote, sell and import Licensed Products
for delivery on or after September 1, 1997.
2. SUBLICENSE: WSL is expressly prohibited from granting any sublicense
under this agreement or permitting any party to use or display the
Trademarks or to distribute or represent any Licensed Products, without
the prior written consent of Rawlings. Approval (i) shall not be
unreasonably withheld and (ii) the determination of whether to consent
shall be made within 10 business days of a request by WSL. Any consent
hereunder shall be in writing and shall be sent to WSL by certified
mail, return receipt requested.
- 2 -
<PAGE> 3
3. TERM:
3.1 Initial Term: Unless sooner terminated as herein provided, the
rights granted in paragraph 1.1 shall become effective on September 1,
1997 and expire on August 31, 2002 ("Initial Term"). The first "Contract
Year" shall commence on September 1, 1997 and shall end on August 31,
1998. Each successive twelve (12) month period commencing September 1
and ending August 31 shall be referred to as a "Contract Year."
3.2 Renewal: Provided that (a) WSL has not breached any material term of
this Agreement during the Initial Term, and (b) WSL's aggregate Net
Sales of Licensed Products during the Initial Term is at least Fifty
Million Dollars ($50,000,000.00) (the "Renewal Threshold"), this
Agreement will automatically renew for a second five (5) year term,
ending August 31, 2007 ("Renewal Term"), provided that WSL gives
Rawlings written notice of WSL's intention to renew at least twelve (12)
months before the expiration of the Initial Term. If WSL has not reached
the Renewal Threshold by the expiration of the Initial Term, but has
provided twelve months written notice to Rawlings of its intention to
renew this Agreement and has not breached a material term of the
Agreement, the parties will negotiate to reach mutually acceptable
Renewal Term provisions. Rawlings shall not be obligated, however, to
renew this Agreement if the Renewal Threshold has not been reached on or
before the expiration of the Initial Term of the Agreement. All other
terms and conditions of this Agreement shall continue in full force and
effect during any Renewal Term unless such terms are renegotiated and
agreed to by the parties.
4. ROYALTIES:
4.1 Running Royalty: In consideration of the license herein granted, WSL
agrees to pay Rawlings a running royalty of five percent (5%) of Net
Sales of the Licensed Products. Royalty payments shall be made on a
quarterly basis in accordance with Paragraph 4 and Paragraph 6. The
amount of running royalties paid by WSL each quarter shall be credited
against the portion of the annual minimum royalty payment due each
quarter as set forth in Subparagraph 4.2.
4.2 Minimum Royalty: WSL shall pay Rawlings annual minimum royalties as
follows:
<TABLE>
<CAPTION>
INITIAL TERM
------------
<S> <C> <C>
Contract Year Ending: 8/31/98: $425,000
Contract Year Ending: 8/31/99: $450,000
Contract Year Ending: 8/31/00: $500,000
Contract Year Ending: 8/31/01: $550,000
Contract Year Ending: 8/31/02: $600,000
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
<CAPTION>
RENEWAL TERM
------------
<S> <C> <C>
Option Period Ending: 8/31/03 $TBD
Option Period Ending: 8/31/04 $TBD
Option Period Ending: 8/31/05 $TBD
Option Period Ending: 8/31/06 $TBD
Option Period Ending: 8/31/07 $TBD
</TABLE>
The annual Minimum Royalty amounts for the Renewal Term, as may
become effective pursuant to Paragraph 3.2, shall be mutually agreed
upon by the parties at least twelve (12) months prior to the expiration
of the Second Term.
WSL shall pay the annual Minimum Royalty in equal quarterly
installments in accordance with the provisions of paragraph 6, less any
applicable credit for that Quarter's Running Royalty in accordance with
the provisions of paragraph 4.1 above. The annual Minimum Royalties
shall be non-refundable.
4.3 "Net Sales" Definition: "Net Sales" means the gross amounts actually
billed by or on behalf of WSL from the sale or distribution of Licensed
Products or the cost of such items to WSL, whichever is greater, after
deducting only the returns; sales, excise and value added taxes
(excluding foreign taxes exceeding 10%); and prepaid transportation
charges, if any, paid or allowed by WSL. If WSL shall invoice any
customer at a price reduced to reflect any other adjustment, including
without limitation, any adjustment for discounts or for advertising or
promotion, or, if WSL shall charge any customer a fee separate from and
not included within the price of the Licensed Products, then in
computing Net Sales the amount of such adjustment and/or fee shall be
added back to the invoice price as if such customer had been billed for
the full price that would have been charged had it not been given any
deduction and had WSL's fee been included in the price of the Licensed
Products.
4.4 Sales to Related Entities: WSL agrees that all sales of the Licensed
Products to entities under common control with WSL shall be at the price
regularly charged by WSL to its bona fide, arms length customers without
discount. For purposes of this subparagraph, the term "common control"
shall mean entities of which WSL holds more than a ten percent (10%)
ownership interest or which holds more than a ten percent (10%)
ownership interest in WSL including any foreign "DISC" corporations and
outlet stores owned by WSL at the time of execution of this Agreement.
For purposes of this Agreement, any sale of Licensed Products to foreign
"DISC" corporations or outlet stores under the common control of WSL
shall be at the highest price offered to any entity not under the common
control of WSL.
4.5 Cross-Licensing: WSL agrees that all sales of Licensed Products used
in conjunction with the sale of any other product or service entitles
Rawlings to a royalty pursuant to Paragraph 4.1. Net Sales of such
products shall be calculated as in Paragraph 4.3.
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<PAGE> 5
5. ROYALTY REPORTS AND RECORDS:
5.1 Reports: WSL agrees to send Rawlings within thirty (30) days after
the end of each quarter of each Contract Year ("Contract Quarter"), a
written report on the form in Schedule II setting forth the details
required for calculation of the royalties due for that Contract Quarter.
The royalty report shall be submitted in the manner and form as may
reasonably be prescribed by Rawlings from time to time. The Contract
Quarters shall end on November 30, February 28, May 31, and August 31 of
each Contract Year.
5.2 Records: WSL agrees to keep complete and accurate copies of all
invoices and records of the data and information necessary for the
calculation of royalties payable under this Agreement, and to allow
Rawlings, at Rawlings' expense, during this Agreement and for three (3)
years thereafter to inspect and audit during reasonable business hours
upon notice to WSL and take copies of or extracts from the records, and
any invoices, receipts, papers or documents in the possession of or
under the control of WSL, including any and all distributor agreements,
which may be necessary to enable Rawlings to verify WSL's Net Sales
hereunder. WSL agrees to keep all these accounts, invoices, receipts,
papers, agreements, and documents readily available at its principal
office. If any audit shows that WSL has underpaid royalties, WSL shall
promptly pay such underpaid amount to Rawlings as well as Rawlings'
costs and expenses associated with the audit.
6. PAYMENT:
6.1 Due Date: WSL agrees to pay to Rawlings all royalties due for each
Contract Quarter on or before thirty (30) days after the last day of
each Contract Quarter.
6.2 Late Payments and Collection: Interest shall accrue at the rate of
one and one-half percent (1.5%) per month on all overdue royalties until
paid. All costs incurred by Rawlings in its efforts to collect any
earned but unpaid royalties shall be borne by WSL including, but not
limited to, court costs and reasonable attorneys' fees.
7. MISCELLANEOUS:
7.1 One-time Royalty Payment: In further consideration of the rights
granted hereunder, WSL shall pay $50,000.00 to Rawlings by September 30,
1997. WSL shall then receive a credit for $50,000.00 against the first
$50,000.00 of running royalties otherwise due for the first quarter only
of this Agreement.
8. USE OF TRADEMARKS: WSL agrees to use the Rawlings Trademarks only in the
manner prescribed by Rawlings and only in connection with such Licensed
Products as are approved by Rawlings in accordance with Paragraph 9.1,
and to apply Rawlings Trademarks to such Licensed Products or have
Rawlings Trademarks applied to Licensed Products for it in accordance
with Rawlings' approved specifications, standards and
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<PAGE> 6
procedures. WSL agrees that it will not engage in any conduct with
respect to Rawlings Trademark that adversely affects Rawlings' image,
reputation and quality associated with its Trademarks. Any modernization
or alteration of the Trademarks or the non-stylized RAWLINGS mark
performed after the execution of this Agreement shall be made available
for use by WSL and shall be added to Schedule I as if originally
contained herein. Rawlings shall have the right to require WSL to use
any such modernized or altered trademarks in place of the current
counterparts to ensure an unified approach to the use of the Trademarks
by Rawlings and its Licensees.
9. INSPECTION OF LICENSED GOODS:
9.1 Samples of Goods and Promotional Materials: The Trademarks shall be
applied only to high quality goods. To ensure this standard, prior to
first use, WSL shall submit to Rawlings free of charge for Rawlings'
written approval and retention, samples of all Licensed Products, and
all labels, advertising, and other materials upon which the said
Rawlings Trademarks appear; and WSL specifically undertakes to modify or
amend, prior to first use, any such Licensed Products, labels,
advertising, and other material if necessary to conform to the
specifications, standards and procedures currently approved by Rawlings.
With respect to all written approvals required by Rawlings, each item
submitted by WSL shall be deemed approved if WSL has not received the
written disapproval of Rawlings within thirty (30) days after its
receipt by Rawlings. Rawlings will not unreasonably withhold approvals
required and will set forth in writing the reasons for any such
disapproval. Rawlings reserves the right to, in its sole discretion,
reasonably establish and modify quality control standards and product
specifications for the Licensed Products and all labels, advertising,
and other materials upon which the said Rawlings Trademarks appear.
Rawlings shall notify WSL of the establishment or modification of said
standards and specifications within sixty (60) days of their
establishment.
9.2 Inspection: So long as WSL is licensed to use the Rawlings
Trademarks, Rawlings and its authorized representatives shall have the
right to inspect the Licensed Products manufactured by or for WSL and
the facilities where the Licensed Products are manufactured. Such
inspection shall be conducted so as to not unreasonably interfere with
the business of WSL. In order to facilitate such inspections, Rawlings
shall have the right to request, receive and retain without cost, from
time to time, one (1) sample of the Licensed Product manufactured by or
for WSL, in addition to those samples provided pursuant to Paragraph 9.1
above; however, such right of inspection shall not be limited to such
samples.
9.3 Notice of Non-Compliance: WSL shall accept any reasonable written
notice given by Rawlings that any Licensed Products manufactured by or
on behalf of WSL do not substantially comply with Rawlings' approved
specifications, standards and procedures, or do not substantially
conform to the samples previously approved by Rawlings in accordance
with paragraph 9.1, and WSL shall immediately cease manufacturing,
selling, distributing, advertising and promoting such Licensed Products
until WSL takes such steps
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<PAGE> 7
as may be reasonably necessary to comply with these approved
specifications, standards and procedures and resubmits the Licensed
Products to Rawlings as set forth in Paragraph 9.1 and obtains the
requisite approval. Rawlings shall not be liable for any consequential
damages to WSL caused by Rawlings' notice(s) pursuant to this Paragraph.
10. TRADE SECRETS: With respect to any written or oral information which is
furnished by one party to the other and which is identified to be
"Proprietary" information of the furnishing party, the other agrees to
receive same in confidence and not use or disclose same to any third
party except to the extent permitted or required by the furnishing
party. This obligation shall continue for three (3) years following the
expiration of this Agreement but shall not apply to any information
which: (a) was already known to the receiving party prior to the
disclosure by the disclosing party hereunder without the use of any
confidential information of the disclosing party; (b) becomes known to
the receiving party from another source having a legal right to
disclose; (c) becomes part of the public domain without the fault of the
receiving party; or (d) the receiving party can prove such information
was totally independently developed. This Paragraph is binding on all
officers, directors, employees and affiliates of each party. The parties
may enforce any breach of this Paragraph by obtaining injunctive or
specific relief from a court of competent jurisdiction, without the
necessity of posting bond or proving lack of an adequate remedy at law.
Such remedy shall be cumulative and not exclusive.
11. RECOGNITION OF TRADEMARK RIGHTS: WSL recognizes Rawlings' right and
title to the Rawlings Trademarks in Schedule I and to all applications
and registrations based thereon, and the goodwill relating thereto, and
shall not at any time do or allow to be done any act or thing which will
in any way impair the right or title of Rawlings to such Trademarks or
any trademark applications or registrations based thereon. It is
understood that WSL shall not acquire and shall not claim any title to
the Trademarks because of this license or through WSL's use of the
Trademarks; and WSL will assign to Rawlings, upon request, all the
rights it may obtain in any of the Rawlings Trademarks, it being the
intention of the Parties hereto that all use of the Rawlings Trademarks
by WSL shall at all times inure to the benefit of Rawlings. WSL shall
execute any documents presented to WSL by Rawlings necessary to register
with authorities of the Territory its use of the Rawlings Trademarks and
shall furnish to Rawlings evidence of its use of the Trademarks on
request.
12. INDEMNIFICATIONS:
12.1 WSL agrees to defend, indemnify and hold harmless Rawlings, and its
subsidiaries and related companies, its agents, affiliates, and
assignees from and against all claims and actions for any loss, damage,
or expense, including attorneys' fees, sustained by Rawlings as a result
of or arising out of the manufacture, use, sale, labeling, distribution,
or advertising of the Licensed Products, except for claims and actions
arising out of claimed infringement based only on the use of the
Trademarks in compliance with this Agreement. Further, WSL shall acquire
and maintain at its sole cost and expense throughout the term
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<PAGE> 8
of this Agreement liability insurance providing protection against
claims for bodily injury and property damage in an amount of not less
than one million dollars ($1,000,000.00) per occurrence and two million
dollars ($2,000,000.00) in the aggregate. Such insurance shall be
evidenced by a certificate of coverage and shall include Rawlings as an
additional insured. At Rawlings' request, WSL shall provide said
certificate from time to time.
12.2 Rawlings agrees to defend, indemnify, and hold harmless WSL, its
subsidiaries and related companies, its agents, affiliates, and
assignees against all claims and actions for any loss, damage, or
expense, including attorneys' fees, sustained by WSL as a result of, or
arising out of, any claim by third parties of infringement for use of
the Trademarks by WSL in compliance with this Agreement.
13. ASSIGNABILITY: This Agreement and all rights and duties of WSL are
personal to WSL, and are not assignable or otherwise transferable by WSL
without Rawlings' written consent. Such rights and duties hereunder may
not be mortgaged or otherwise encumbered. If Rawlings consents in
writing to such assignment or transfer, then this Agreement shall be
binding upon and inure to the benefit of the assignee or transferee.
This Agreement may be assigned by Rawlings without restriction or prior
approval.
14. TERMINATION:
14.1 Immediate Termination: Rawlings shall have the right to immediately
terminate this Agreement and the licenses herein granted upon written
notice to WSL in the event that: (a) WSL becomes or is declared bankrupt
or insolvent or files a voluntary case under the Bankruptcy Code or an
involuntary case is filed against WSL under the Bankruptcy Code; (b) WSL
seeks relief from payment of its debts through agreement by creditors or
protection of judicial proceedings; (c) any entity, including WSL or the
government of the United States or a foreign country, attempts to assign
WSL's rights and delegate WSL's duties under this Agreement to any other
entity; (d) liability insurance required by Paragraph 12 is terminated
or lapses without being replaced so as to comply with paragraph 12; (e)
WSL fails to make the full amount of a royalty payment due hereunder
(including any late fees) within sixty (60) days after its due date, or
fails to pay the aggregate Minimum Royalties as stated in Paragraph 3.2
above; (f) WSL attempts to assign its interest under this Agreement in
violation of Paragraph 13; (g) WSL violates Rawlings' standards of
quality; or (h) WSL misuses the Trademarks in violation of this
Agreement.
14.2 Change of Control: In the event there is a sale of all or
substantially all of the assets or a majority of the shares or interest
of WSL or in the event there is otherwise a change of control of WSL,
Rawlings shall have the option to terminate this Agreement by giving
written notice to WSL. The termination shall take effect ninety (90)
days after receipt by WSL of such notice.
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<PAGE> 9
14.3 Breach: If either WSL or Rawlings materially breaches any
provisions of this Agreement and fails to remedy the default within
thirty (30) days after receiving written notice thereof, then the
non-breaching party will have the right to terminate this Agreement upon
giving thirty (30) days written notice to the breaching party.
Notwithstanding the foregoing, if during the term of this Agreement
either party materially breaches any provision of this Agreement more
than one (1) time, the other party shall be entitled to give a written
notice of termination which shall become effective immediately. No
waiver by either party of any terms of this Agreement or any breach
thereof will be effective unless in writing or will obligate such party
thereafter to waive the same term or any subsequent breach.
14.4 Pre-termination Negotiations: If this Agreement is not extended for
a further term, either by automatic renewal or by mutual agreement of
the parties, then, during the one hundred eighty (180) day period prior
to expiration of the Agreement, Rawlings shall be free to negotiate with
any third party to license the Rawlings Trademarks in connection with
the Licensed Products and to grant a license to any such third party
within said one hundred eighty (180) day period; and any third party
licensed by Rawlings shall be free to solicit and accept orders for the
sale of the Licensed Products and to manufacture, or have manufactured,
the Licensed Products during such period but shall not be free to sell
the Licensed Products prior to termination.
14.5 Discontinued Use of Trademarks: Except as provided in Paragraph
14.6, upon the termination or expiration of this Agreement, WSL shall
immediately discontinue any and all use in any manner whatsoever of the
Rawlings Trademarks or any colorable imitations by themselves or in
combination with any other word, symbol, or design.
14.6 Disposition of Inventory: Upon the expiration or termination of
this Agreement, WSL agrees to offer Rawlings its existing inventory of
Licensed Products as of the date of expiration or termination at WSL's
landed cost plus ten percent (10%). Landed cost is defined as the sum of
the cost of goods, freight and any duties. Rawlings shall have the right
to determine within ninety (90) days after the expiration date or notice
of termination, as applicable, whether or not it will exercise its right
to purchase WSL's existing inventory of Licensed Products.
Notwithstanding the expiration or termination of this Agreement, WSL may
simultaneously continue to sell the inventory of Licensed Products in
the Territory until the earlier of: (1) the date on which WSL receives
from Rawlings a written notice to the effect that Rawlings determines to
purchase WSL then remaining uncommitted existing inventory of Licensed
Products, or (2) the expiration of the continuous period of one hundred
eighty (180) days from the date of expiration or termination subject to
the payment by WSL to Rawlings of the running royalty percentage rate
specified in subparagraph 4.1 hereof.
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<PAGE> 10
15. USE OF RAWLINGS' NAME AND ITS TRADEMARKS
15.1 No Use Of Rawlings' Name: WSL is expressly prohibited from using
the name Rawlings in any capacity as its own corporate name. WSL may use
the name "Rawlings" as a d/b/a in the United States of America.
15.2 Use of Trademarks in Corporate Name: It is further agreed that WSL
shall not include any of the Rawlings Trademarks in any corporate or
business name at any time, unless authorized to do so in writing by
Rawlings. If Rawlings authorizes the use of any of the Trademarks in any
corporate or business name by WSL, immediately upon the termination of
this Agreement, WSL will promptly amend said corporate or business name
to remove any Rawlings Trademarks and will promptly file the necessary
amendment papers with the appropriate authorities to correct the
corporate or other records to remove all references to the Rawlings
Trademarks involved.
16. INFRINGEMENTS: Rawlings will use commercially reasonable efforts to
enforce its Trademarks against infringers of which it has knowledge.
WSL, however, shall not be entitled to call upon Rawlings to take any
action or institute any proceedings to prevent infringement or passing
off by third parties, nor shall WSL itself be entitled on its own
account to take any such action or institute any such proceedings
without the receipt of prior written approval from Rawlings. WSL shall
promptly notify Rawlings of any infringement or passing off in
connection with the Licensed Products which comes to its attention, and
subsequent actions or proceedings of any nature on these matters shall
be entirely within the discretion of Rawlings. Rawlings may call upon
WSL, under supervision from and at the cost and expense of Rawlings, to
prosecute the infringing or tortious conduct related to the Licensed
Products; but such supervision shall be limited to control over the
continuing validity and vitality of the Trademarks. WSL hereby agrees to
render to Rawlings free of charge all (other than the reimbursement of
actual costs incurred by WSL) business assistance in connection with any
matter pertaining to the protection of the Trademarks of Rawlings
related to the Licensed Product whether within the courts,
administrative agencies, or otherwise.
17. GOVERNMENT STANDARDS COMPLIANCE: WSL warrants and agrees that the
Licensed Products shall meet or exceed all national or local laws,
statutes, standards, regulations and guidelines pertaining to such
products, including, but not limited to, those relating to health and
product safety.
18. JOINT VENTURE: Nothing contained in this Agreement shall be construed to
place the parties in the relationship of partners or joint venturers, it
being agreed and understood that WSL is an independent contractor and is
not an employee or agent of Rawlings. WSL shall not have the power to
obligate or bind Rawlings to any obligation to any third party and
Rawlings shall not have the power to obligate or bind WSL to any
obligation of any third party. WSL will not take any action that would
cause Rawlings to be deemed to have a permanent establishment in any
foreign country.
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<PAGE> 11
19. FORCE MAJEURE: Any delays in or failure by either party thereto in the
performance of any obligations hereunder shall be excused if and to the
extent caused by occurrences including, but not limited to, Acts of God,
strikes or other labor disturbances, war, whether declared or not,
sabotage, and any other cause or causes, whether similar or dissimilar
to those herein specified, which cannot reasonably be controlled by such
party.
20. AUTHORITY: Rawlings and WSL each warrants that it has the full and sole
power, right and authority to enter into this Agreement, that this
Agreement has been duly and validly authorized and executed by it and
that this Agreement is the valid and binding obligation of such party.
21. COUNTERPARTS: This Agreement may be executed in identical counterparts,
each of which shall have the force and effect of an original.
22. COMPLETE AGREEMENT: This Agreement contains the complete understanding
between Rawlings and WSL and supersedes all previous understandings and
representations regarding the subject matter hereof and may not be
varied, modified or amended except by written agreement signed by both
parties.
23. SEVERABILITY: In the event that any portion(s) of this Agreement are
adjudged invalid or unenforceable, then the surviving portion(s) of this
Agreement shall constitute the Agreement, unless such surviving
portion(s) fail to retain the essential understanding between the
parties, whereupon this Agreement shall be terminated by mutual consent
of the parties.
24. NOTICES: Except as otherwise provided herein, any notices provided in
this Agreement shall be given by hand delivery or nationally recognized
overnight courier and will be deemed to be delivered when delivered by
hand or when properly addressed and posted to the other party at the
applicable address set forth below, such address being subject to change
upon written notice by either party to the other:
If to WSL: Mr. Warren E. Levy
WSL, Inc.
20301 Nordhoff Street
Chatsworth, California 91311
If to Rawlings: Mr. David Brawley
Director of Licensing
Rawlings Sporting Goods Company, Inc.
P.O. Box 22000
1859 Intertech Drive
St. Louis, MO 63126
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<PAGE> 12
25. APPLICABLE LAW: This Agreement will be construed and interpreted in
accordance with the laws of the State of Missouri.
26. DISPUTES: The prevailing party to any controversy or claim arising out
of or relating to this Agreement, or the breach thereof, shall be
entitled to recover from the other its reasonable attorneys' fees and
costs.
27. RESCISSION OF PRIOR AGREEMENT: Upon the receipt by Rawlings of
$58,333.00 due under the Prior Agreement, which constitutes the minimum
royalties due for July and August, 1997, and the satisfaction of all
other obligations of WSL under the Prior Agreement on or before
September 1, 1997, the Prior Agreement shall be rescinded and canceled
effective September 1, 1997, and this Agreement substituted therefor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date written below.
RAWLINGS SPORTING GOODS COMPANY, INC.
By: /s/ PAUL MARTIN
-----------------------------------------
Paul Martin, Chief Financial Officer
Date: 9-24-97
WSL, INC.
By: /s/ Warren E. Levy
-----------------------------------------
Warren E. Levy, Chief Executive Officer
Date: 9-16-97
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<PAGE> 1
EXHIBIT 6.2
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT, dated as of April 17, 1997, is
entered into between CAPITAL BUSINESS CREDIT, a division of CAPITAL FACTORS,
INC., a Florida corporation ("Capital"), and WSL, INC., a California corporation
("Borrower").
The parties agree as follows:
1. DEFINITIONS
In addition to the defined terms contained in the first
paragraph above, as used herein, the following terms shall have the following
definitions:
1.1 "Accounts" means all presently existing and
hereafter arising accounts (as that term is defined in the Code), contract
rights, instruments, notes, drafts, documents, chattel paper and all other forms
of obligations owing to Borrower, and any and all credit insurance, guaranties
and other security therefor, as well as all merchandise returned to or reclaimed
by Borrower.
1.2 "Agreement" means this Loan and Security
Agreement and any supplements, amendments or modifications to this Loan and
Security Agreement.
1.3 "Annual Fee" shall have the meaning set forth in
Section 2.9B.
1.4 "Assignment" means the Assignment of Certain
Rights Under License Agreement to be executed and delivered by Borrower
substantially in the form of Exhibit 1.4, and consented to by Rawlings Sporting
Goods, Inc.
1.5 "Borrowing Base Certificate" means the
certificate, substantially in the form of Exhibit 1.5, with appropriate
insertions, to be submitted to Capital by Borrower pursuant to this Agreement
and certified as true and correct by the Chief Executive Officer or the Chief
Financial Officer of Borrower.
1.6 "Borrower's Books" means all of Borrower's
books and records including, but not limited to: minute books; ledgers; records
indicating, summarizing or evidencing Borrower's assets, liabilities, and the
Accounts; all information relating to Borrower's business operations; and all
computer programs, disc or tape files, printouts, runs, and other computer
prepared information and the equipment containing such information.
<PAGE> 2
1.7 "Capital Expenses" means all of the following:
(i) costs or expenses (including, without limitation, taxes and insurance
premiums) required to be paid by Borrower under this Agreement or any of the
other Loan Documents which are paid or advanced by Capital; (ii) filing,
recording, publication and search fees paid or incurred by Capital; and (iii)
costs, fees (including reasonable attorneys' and paralegals' fees) and expenses
incurred by or charged to Capital: (a) to audit Borrower and the Collateral; (b)
to correct any default or enforce any provision of this Agreement, any of the
other Loan Documents and any guaranty of the Obligations, whether or not
litigation is commenced; (c) in gaining possession of, maintaining, handling,
preserving, storing, shipping, selling, preparing for sale and/or advertising to
sell the Collateral, whether or not a sale is consummated; (d) in collecting the
Accounts and in collecting the Obligations, whether from Borrower, any guarantor
or both; and (e) in structuring, drafting, reviewing, amending, defending or
concerning this Agreement or any of the other Loan Documents.
1.8 "Code" means the California Uniform Commercial
Code, and any and all terms used in this Agreement which are defined in the Code
and are not defined herein shall be construed and defined in accordance with the
definition of such terms under the Code.
1.9 "Collateral" means each and all of the
following:
A. the Accounts;
B. the Equipment;
C. the Inventory;
D. the General Intangibles;
E. the Negotiable Collateral;
F. the Financial Assets;
G. any money, deposit accounts or other
assets of Borrower in which Capital receives a security interest or which
hereafter come into the possession, custody or control of Capital; and
H. the proceeds of any of the foregoing,
including, but not limited to, proceeds of insurance covering the Collateral, or
any portion thereof, and any and all Accounts, Equipment, Inventory, General
Intangibles, Negotiable Collateral, Financial Assets, money, deposit accounts or
other tangible and intangible property resulting from the sale or
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<PAGE> 3
other disposition of the Collateral, or any portion thereof or
interest therein, and the proceeds thereof.
1.10 "Current Ratio" means the ratio of Borrower's
current assets to Borrower's current liabilities. Borrower's current assets and
current liabilities shall be determined in accordance with GAAP consistently
applied.
1.11 "Daily Balance" means the amount determined by
taking the amount of the Obligations owed at the beginning of a given day,
adding any new Obligations advanced or incurred on such date, and subtracting
any payments or collections which are deemed to be paid on that date under the
provisions of this Agreement.
1.12 "Debt to Tangible Net Worth Ratio" means the
figure derived by dividing Borrower's total liabilities, exclusive of
Subordinated Debt, by Borrower's Tangible Net Worth. Borrower's total
liabilities shall be determined in accordance with GAAP consistently applied.
1.13 "EBITDA" means, without duplication, for each
fiscal year of Borrower, the following, each calculated for such fiscal year:
(a) Net Income; plus (b) any provision for (or less any benefit from) income or
franchise taxes included in the determination of Net Income; plus (c) interest
expense deducted in the determination of Net Income; plus (d) amortization and
depreciation deducted in the determination of Net Income; plus (e) losses from
(or less gains from) non-cash items (excluding sales, expenses or losses related
to current assets) included in the determination of Net Income; less (f) after
tax extraordinary gains (or plus after tax extraordinary losses) (in each case
as defined under GAAP).
1.14 "Eligible Accounts" means those Accounts
(i) which have been validly assigned to Capital, (ii) strictly comply with all
of Borrower's warranties and representations to Capital, (iii) contain payment
terms of net sixty (60) days, or less, from the date of invoice, and (iv) are
not past due more than sixty (60) days from the invoice due date; provided,
however, that Eligible Accounts shall not include the following: (a) Accounts
with respect to which the account debtor is an officer, employee or agent of
Borrower; (b) Accounts with respect to which services or goods are placed on
consignment, guaranteed sale, or other terms by reason of which the payment by
the account debtor may be conditional (other than that portion of the Accounts
which are subject to retention); (c) Accounts with respect to which the account
debtor is not a resident of the United States or Canada; (d) Accounts with
respect to which the account debtor is the United States or any department,
agency or instrumentality of the United States; provided, however, that an
Account shall not be deemed ineligible by reason of this clause (d) if Borrower
has
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completed all of the steps necessary to comply with the Federal Assignment of
Claims Act of 1940 (31 U.S.C. Section 203) with respect to such Account; (e)
Accounts with respect to which the account debtor is any state of the United
States or any city, town, municipality, county or division thereof; (f) Accounts
with respect to which the account debtor is a subsidiary of, related to,
affiliated with, or has common officers or directors with Borrower; (g) Accounts
with respect to which Borrower is or becomes liable to the account debtor for
goods sold or services rendered by the account debtor to Borrower; (h) that
portion of the Accounts owed by an account debtor which exceeds thirty five
percent (35%) of all Eligible Accounts; (i) all of the Accounts owed by an
account debtor who is the subject of an Insolvency Proceeding; (j) all of the
Accounts owed by an account debtor listed on Exhibit 1.14 where thirty five
percent (35%) or more of all of the Accounts owed by that account debtor are
past due more than sixty (60) days from the invoice due date, (k) all of the
Accounts owed by an account debtor not listed on Exhibit 1.14 where fifty
percent (50%) or more of all of the Accounts owed by that account debtor are
past due more than sixty (60) days from the invoice due date; and (l) Accounts
for which the services have not yet been rendered to the account debtor or the
goods sold have not yet been delivered to the account debtor (commonly referred
to as "pre-billed accounts").
1.15 "Eligible Foreign Accounts" means Accounts
which satisfy all of the criteria for being an Eligible Account except for the
criteria contained in Section 1.14(c) and which are either (i) fully insured
pursuant to insurance coverage satisfactory to Capital, in its sole discretion;
or (ii) are fully backed by transferable letter of credit issued by a bank
acceptable to Capital in its sole discretion, contains conditions for drawing
which are acceptable to Capital in its sole discretion and which is transferred
to Capital.
1.16 "Eligible Inventory" means all Inventory,
valued at the lower of average cost or market, owned by and in the possession of
Borrower or a lessee of Borrower, and located in the United States of America,
except the following: (a) work-in-process; (b) finished goods which do not meet
the specifications of the purchase order for such goods; (c) Inventory which
Capital determines, in the exercise of reasonable discretion and in accordance
with Capital's or the customary business practices of Borrower, to be
unacceptable for borrowing purposes due to age, quality, type, category and/or
quantity including, without limitation, any Inventory which is obsolete, not in
good condition, or not either currently usable or currently salable in the
ordinary course of the business of Borrower as determined by Capital; (d)
Inventory with respect to which Capital does not have a valid, first priority
and fully perfected security interest; (e) Inventory with respect to which there
exists any security interest, lien or encumbrance in favor of any third party
other than Capital; (f) Inventory produced in
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violation of the Fair Labor Standards Act and subject to the so-called "hot
goods" provisions contained in Title 29 U.S.C. 215 (a)(i); (g) Inventory located
at any location other than the locations listed on Exhibit 1.16; (h) Inventory
consisting of packaging, shipping materials or supplies; and (i) Inventory to
the extent same is in transit. In the event that Inventory ceases to be Eligible
Inventory, Borrower shall notify the Capital thereof immediately.
1.17 "Equipment" means all of Borrower's
present and hereafter acquired machinery, machine tools, motors, equipment,
furniture, furnishings, fixtures, motor vehicles, tools, parts, dies, jigs,
goods, and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions and improvements
thereto, wherever located.
1.18 "Event of Default" means the occurrence of
any one of the events set forth in Section 9.
1.19 "Financial Assets" means all of Borrower's
present and future investment property, financial assets, securities, security
entitlements, securities accounts, commodity accounts and commodity contracts.
1.20 "GAAP" means generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board that
are applicable to the circumstances as of the date of determination.
1.21 "General Intangibles" means all of
Borrower's present and future general intangibles and all other presently owned
or hereafter acquired intangible personal property of Borrower (including,
without limitation, any and all choses or things in action, goodwill, patents,
trade names, trademarks, blueprints, drawings, purchase orders, customer lists,
monies due or recoverable from pension funds, route lists, infringement claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, deposit accounts, tax refunds and tax refund claims) other than goods
and Accounts, as well as Borrower's Books relating to any of the foregoing.
1.22 "Governing Rate" shall have the meaning
set forth in Section 2.4.
1.23 "Guarantor" means individually, and "Guarantors"
means collectively, the following persons and entities:
A. Warren E. Levy.
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B. Sheila Levy.
C. United Golf.
1.24 "Initial Term" shall have the meaning set
forth in Section 3.1.
1.25 "Insolvency Proceeding" means any
proceeding commenced by or against any person or entity under any provision of
the federal Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency law, including, but not limited to, assignments for the benefit of
creditors, formal or informal moratoriums, compositions or extensions generally
with its creditors.
1.26 "Inventory" means and includes all of
Borrower's present and future inventory in which Borrower has any interest,
including, but not limited to, goods held for sale or lease or to be furnished
under a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, and packing and shipping materials,
wherever located, and any documents of title representing any of the above.
1.27 "Judicial Officer or Assignee" means any
trustee, receiver, controller, custodian, assignee for the benefit of creditors
or any other person or entity having powers or duties like or similar to the
powers and duties of a trustee, receiver, controller, custodian or assignee for
the benefit of creditors.
1.28 "Loan Documents" means collectively this
Agreement, the Assignment, the Lock Box Agreement and any other agreements
entered into between Borrower and Capital in connection with this Agreement.
1.29 "Lock Box Agreement" means that certain
Lock Box Agreement, of even date herewith, among Borrower, Capital and either
(i) Union Bank or (ii) Manufacturers Bank.
1.30 "Maximum Credit Line" means Two Million
Two Hundred Thousand Dollars ($2,200,000).
1.31 "Negotiable Collateral" means all of
Borrower's present and future letters of credit, advises of credit, notes,
drafts, instruments, documents, leases, and chattel paper, and Borrower's Books
relating to any of the foregoing.
1.32 "Net Income" means, for each fiscal year
of Borrower, the net income (or loss) of Borrower after provision for or benefit
from income and franchise taxes determined in accordance with GAAP.
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1.33 "Net Worth" means, as of any date, the
total assets of Borrower minus the total liabilities of Borrower calculated in
conformity with GAAP.
1.34 "Obligations" means any and all loans,
advances, debts, liabilities (including, without limitation, any and all amounts
charged to Borrower's account pursuant to any agreement authorizing Capital to
charge Borrower's account), obligations, lease payments, guaranties, covenants
and duties owing by Borrower to Capital of any kind and description (whether
advanced pursuant to or evidenced by this Agreement, any of the other Loan
Documents, or any other instrument, or by any other agreement between Capital
and Borrower and whether or not for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including, without limitation, any debt, liability or
obligation owing from Borrower to others which Capital may have obtained by
assignment or otherwise, and further including, without limitation, all interest
not paid when due and all Capital Expenses which Borrower is required to pay or
reimburse by this Agreement, by law, or otherwise.
1.35 "Over Advance" shall have the meaning set
forth in Section 2.2.
1.36 "P.O. Box" shall have the meaning set
forth in Section 2.7.
1.37 "Prime Rate" means the highest variable
rate of interest, per annum, published daily as the "prime rate" in the Money
Rates Section of the Western Edition of the Wall Street Journal. In the event
that such a rate is no longer published, then the "Prime Rate" shall mean the
variable rate of interest, per annum, most recently announced by Capital Bank at
its headquarters office as its "prime rate," with the understanding that Capital
Bank's "prime rate" is one of its base rates and serves as a basis upon which
effective rates of interest are calculated for loans making reference thereto
and may not be the lowest of Capital Bank's base rates.
1.38 "Renewal Term" shall have the meaning set
forth in Section 3.1.
1.39 "Subordinated Debt" means all of the
indebtedness owed by Borrower to any third parties (including United Golf), the
repayment of which is subordinated to the repayment of the Obligations pursuant
to the terms of a subordination agreement approved by Capital in its sole and
absolute discretion.
1.40 "Tangible Net Worth" means an amount equal
to the Net Worth of Borrower increased by Subordinated Debt.
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1.41 "United Golf" means United Golf Products,
Inc., a Delaware corporation and l00% shareholder of Borrower.
1.42 "Unused Line Fee" shall have the meaning
set forth in Section 2.9A.
1.43 "Working Capital" means the amount determined by
subtracting the aggregate amount of Borrower's current liabilities from the
aggregate amount of Borrower's current assets. Borrower's current liabilities
and current assets shall be determined in accordance with GAAP consistently
applied.
1.44 Other Definitional Provisions. References
to "Sections", "subsections", and "Exhibits" shall be to Sections, subsections,
and Exhibits, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in Section 1 may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference. In this Agreement, words importing any gender include the other
genders; the words "including," "includes" and "include" shall be deemed to be
followed by the words "without limitation"; references to agreements and other
contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement; references to any person includes their respective permitted
successors and assigns or people succeeding to the relevant functions of such
persons; and all references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.
2. LOANS AND TERMS OF PAYMENT
2.1 Advances.
A. Upon the request of Borrower, made at
any time and from time to time during the term of this Agreement, and so long as
no Event of Default has occurred, Capital shall lend to Borrower, up to eighty
percent (80%) of the net amount of Borrower's Eligible Accounts and up to ninety
percent (90%) of the amount of Borrower's Eligible Foreign Accounts (the "net
amount" of Eligible Accounts and Eligible Foreign Accounts means the gross
amount of said Accounts less returns, discounts (based upon the shortest or
longest payment terms, as Capital may elect), credits, or allowances of any
nature at any time issued, owing, claimed by account debtors, granted or
outstanding) based upon the Borrowing Base Certificate which must be submitted
to Capital in connection with such request; provided, however, that in no event
shall Capital be obligated to make advances to Borrower under this Section 2.1A
whenever the aggregate amount of the then
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outstanding advances made pursuant to Sections 2.1A and 2.1B exceeds, or would
exceed as a result of the requested advance, the Maximum Credit Line.
B. Upon the request of Borrower, made at
any time and from time to time during the term of this Agreement, and so long as
no Event of Default has occurred, Capital shall lend to Borrower, up to thirty
percent (30%) of the net amount of Borrower's Eligible Inventory consisting of
raw materials as indicated in the most recently submitted Borrowing Base
Certificate and up to forty percent (40%) of the net amount of Borrower's
Eligible Inventory consisting of finished goods as indicated in the most
recently submitted Borrowing Base Certificate; provided, however, that in no
event shall Capital be obligated to make advances to Borrower under this Section
2.1B whenever the aggregate amount of the then outstanding advances made
pursuant to this Section 2.1B exceeds, or would exceed as a result of the
requested advance, (i) for the period from October 1 through March 31, One
Million One Hundred Thousand Dollars ($1,100,000), and (ii) for the period from
April 1 through September 30, the lesser of (a) Seven Hundred Fifty Thousand
Dollars ($750,000) and (b) fifty percent (50%) of the outstanding Obligations;
provided further, however, that in no event shall Capital be obligated to make
advances to Borrower under this Section 2.1B whenever the aggregate amount of
the then outstanding advances made pursuant to Sections 2.1A and 2.1B exceeds,
or would exceed as a result of the requested advance, the Maximum Credit Line.
2.2 Over Advances. All of the advances made
pursuant to Sections 2.1A and B shall be added to and deemed part of the
Obligations when made. If, at any time and for any reason, the amount of
advances made pursuant to Sections 2.1A and/or B exceeds the percentage or
dollar limitations set forth in those sections, as applicable, or if all of
Borrower's Obligations, at any time and for any reason, exceed the Maximum
Credit Line (an "Over Advance"), then Borrower, upon Capital's election and
demand, shall immediately pay to Capital, in cash, the amount of such excess.
2.3 Authorizations. Capital is hereby
authorized to make the loan and the extensions of credit provided for in this
Agreement based upon telephonic or other instructions and transaction reports
received from any one of the authorized personnel of Borrower identified on
Exhibit 2.3, or, at the discretion of Capital, if such extensions of credit are
necessary to satisfy any Obligations of Borrower to Capital. Although Capital
shall make a reasonable effort to determine the person's identity, Capital shall
not be responsible for determining the exact identity of the person calling and
Capital may act on the instructions of anyone it perceives to be one of the
authorized personnel identified on Exhibit 2.3.
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2.4 Interest Rates. All Obligations owed by
Borrower to Capital shall bear interest, on the average Daily Balance owing, at
a rate three (3) percentage points above the Prime Rate (the "Governing Rate").
Notwithstanding the foregoing, at no time during the term of this Agreement
shall the Governing Rate be less than eight percent (8%), per annum. All
Obligations owed by Borrower to Capital shall bear interest, from and after
written notice by Capital to Borrower of the occurrence of an Event of Default,
and without constituting a waiver of any such Event of Default, on the average
Daily Balance owing, at a rate five (5) percentage points above the Governing
Rate. All interest chargeable under this Agreement shall be computed on the
basis of a three hundred sixty (360) day year for actual days elapsed.
2.5 Payment of Interest. The Prime Rate as of
the date of this Agreement is eight and one-half percent (8.50%) per annum. In
the event that the Prime Rate announced is, from time to time hereafter,
changed, adjustment in the rate of interest payable by Borrower shall be made as
of 12:01 a.m. on the first (1st) day of the calendar month following such change
and shall be based on the Prime Rate in effect as of the last day of the
immediately preceding calendar month. The minimum interest payable by Borrower
under this Agreement shall in no event be less than Two Hundred Fifty and 00/100
Dollars ($250.00) for each month during the term of this Agreement. All interest
payable by Borrower shall be due and payable on the first (1st) day of each
calendar month during the term of this Agreement and Capital shall, at its
option, charge such interest and any and all Capital Expenses to Borrower's loan
account with Capital, which amounts shall thereupon constitute Obligations
hereunder and shall thereafter accrue interest at the rate then provided under
this Agreement.
2.6 Assignment of Accounts, Borrowing Base
Certificates and Collection Reports. Borrower shall deliver to
Capital the following items as indicated below:
A. Immediately following the creation of
each Account, Borrower shall execute and deliver to Capital an assignment
schedule which shall include an assignment of such Account, together with a copy
of the sales journal(s) supporting each Account listed on the assignment
schedule.
B. Immediately following Borrower's
receipt from Union Bank or Manufacturers Bank, as appropriate, of each notice of
the amount collected by Union Bank or Manufacturers Bank from time to time
pursuant to the Lock Box Agreement, Borrower shall execute and deliver to
Capital a fully completed Collection Report in the form of Exhibit 2.6.
C. Concurrent with the execution of this
Agreement by Borrower and concurrent with each request for an
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advance pursuant to Section 2.1A and/or B, the delivery of each assignment
schedule pursuant to Section 2.6A, the delivery of each Collection Report
pursuant to Section 2.6B, and as Capital may from time to time request, but in
any event on the fifteenth (15th) day of each month during the term of this
Agreement, Borrower shall deliver to Capital a fully completed Borrowing Base
Certificate certified by the Chief Executive Officer or Chief Financial Officer
of Borrower as being true and correct as of the last day of the immediately
preceding calendar month. Concurrent with the delivery of the Borrowing Base
Certificate, Borrower shall provide a written report to Capital of all returns
and all material disputes and claims. If Borrower fails to deliver to Capital
the Borrowing Base Certificate on the date when due, then notwithstanding any of
the provisions contained in Sections 2.1A or B, or in any other Loan Document to
the contrary, Capital shall not make any advances to Borrower until the
Borrowing Base Certificate is delivered to Capital.
2.7 Collections. Borrower shall instruct all
of the account debtors to make payments to the post office box (the "P.O. Box")
established pursuant to the Lock Box Agreement. Capital or Capital's designee
may, upon the occurrence of an Event of Default, notify customers or account
debtors of Borrower that the Accounts have been assigned to Capital and that
Capital has a security interest therein, collect them directly, and charge the
collection costs and expenses to Borrower's loan account. In the event any
payment on an Account is paid directly to Borrower, then upon receipt by
Borrower of such payment, Borrower shall immediately send to the P.O. Box such
payment in the form received. Borrower agrees that all payments received by
Borrower in connection with the Accounts and any other Collateral shall be held
in trust for Capital as Capital's trustee. The receipt of any wire transfer of
funds, check, or other item of payment by Capital shall be applied to
conditionally reduce Borrower's Obligations, but shall not be considered a
payment on account unless such wire transfer is of immediately available federal
funds and is made to the appropriate deposit account of Capital or unless and
until such check or other item of payment is honored when presented for payment.
The receipt of any wire transfer, check or other item of payment by Capital
shall be deemed to have been paid to Capital three (3) business days after the
date Capital actually receives possession of such wire transfer of funds, check
or other item of payment.
2.8 Monthly Statements. Capital shall render
monthly statements of the Obligations owing by Borrower to Capital, including
statements of all principal, interest, and Capital Expenses owing, and such
statements shall be conclusively presumed to be correct and accurate and
constitute an account stated between Borrower and Capital unless, within thirty
(30) days after receipt thereof by Borrower, Borrower shall deliver to Capital,
by registered or certified mail, at
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Capital's address indicated in Section 13, written objection thereto specifying
the error or errors, if any, contained in any such statement.
2.9 Fees.
A. Unused Line Fee. As of the last day
of each month during the term of this Agreement, Borrower shall pay to Capital a
monthly unused line fee (the "Unused Line Fee") equal to one-quarter percent
(0.25%) of the average daily unused portion of the Maximum Credit Line during
that month; provided, however, if for any calendar month the aggregate amount of
outstanding Obligations arising as a result of advances made pursuant to Section
2.1B is less than twenty five percent (25%) of all outstanding Obligations for
such month, then the Unused Line Fee shall be waived for such month. Payment of
the Unused Line Fee shall be made as of the due date by charging Borrower's
account with the amount of the Unused Line Fee. The Unused Line Fee shall
represent an unconditional payment to Capital in consideration of Capital's
agreement to extend financial accommodations to Borrower pursuant to this
Agreement and shall not reduce or be a deposit on account of the Obligations.
B. Annual Fee. On the effective date of
this Agreement and on the first day of each Renewal Term thereafter, Borrower
shall pay to Capital an annual fee (the "Annual Fee") in an amount equal to
three quarters percent (0.75%) of the then prevailing Maximum Credit Line.
Payment of the Annual Fee shall be made as of the due date by charging
Borrower's account with the amount of the Annual Fee. The Annual Fee shall
represent an unconditional payment to Capital in consideration of Capital's
agreement to extend financial accommodations to Borrower pursuant to this
Agreement and shall not reduce or be a deposit on account of the Obligations.
3. TERM AND PREPAYMENT
3.1 Term.
A. This Agreement shall have an initial
term (the "Initial Term) of two (2) years commencing on the date hereof and, and
shall thereafter be automatically renewed (a "Renewal Term") for successive
periods of one (1) year unless terminated by either party as set forth below,
which termination shall be effective on an anniversary date of this Agreement.
Notice of such termination shall be effectuated by the mailing of a certified
letter, return receipt requested, not less than sixty (60) days immediately
prior to the effective date of such termination, addressed to the other party in
the manner and the address set forth in Section 13.
B. Notwithstanding such term, upon the
occurrence of an Event of Default, Capital may terminate this
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Agreement without notice. In addition, should either Capital or Borrower become
insolvent or is unable to meet its debts as they mature, then the other party
shall have the right to terminate this Agreement at any time without notice. On
the date of a termination by Borrower or Capital, all Obligations shall become
immediately due and payable without notice or demand and shall be paid to
Capital in cash or by a wire transfer of immediately available funds.
C. When Capital has received payment and
performance in full of all Obligations (whether pursuant to this Section 3.1 or
Section 3.2) and an acknowledgment from Borrower that it is no longer entitled
to request any advances from Capital under this Agreement, Capital shall execute
a termination of all security interests given by Borrower to Capital, upon the
execution and delivery of mutual general releases by Borrower, any guarantor or
surety of Borrower's Obligations, and Capital.
3.2 Prepayment. Borrower may at any time
after the conclusion of the first six (6) months of the initial term hereof, on
thirty (30) days prior written notice, prepay the Obligations and terminate this
Agreement by paying to Capital in cash or by a wire transfer of immediately
available federal funds, (i) the Obligations; plus (ii) an amount equal to the
following: (a) seventy-five percent (75%) of the average monthly interest
hereunder during the immediately preceding six (6) months; multiplied by (b) the
number of months of the unexpired balance of the term of this Agreement.
Notwithstanding the foregoing, in the event the Obligations are prepaid in full
at any time during the final six (6) months of the then current term of this
Agreement and the source of funds utilized by Borrower for such prepayment are
from a financing transaction with Manufacturers Bank, then the amount calculated
pursuant to (ii) in the immediately preceding sentence shall be deemed equal to
zero ($0). When prepaying the Obligations, Borrower shall also pay the interest
accrued on the principal amount being prepaid to the date of such prepayment.
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower
hereby grants to Capital a continuing security interest in all presently
existing and hereafter acquired or arising Collateral in order to secure prompt
repayment of any and all Obligations owed by Borrower to Capital and in order to
secure prompt performance by Borrower of each and all of its covenants and
obligations under this Agreement and otherwise created. Capital's security
interest in the Collateral shall attach to all Collateral without further act on
the part of Capital or Borrower. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrower shall,
immediately upon written request therefor from Capital,
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endorse and assign such Negotiable Collateral over to Capital and deliver actual
physical possession of the Negotiable Collateral to Capital.
4.2 Right to Audit and Inspect. In order to
verify the validity of any Borrowing Base Certificate, Borrower shall, upon the
request of Capital, promptly furnish Capital with copies of Borrower's purchase
orders, sales journals, invoices, chattel paper, customer's purchase orders, or
the equivalent, and original shipping or delivery receipts for all Inventory
purchased and goods sold, and Borrower shall warrant the genuineness thereof. In
addition, Capital shall be entitled to conduct from time to time during the term
of this Agreement audits of Borrower's Books, business operations and Inventory
and to check and test the same as to quality, quantity, value and condition.
Borrower shall pay to Capital as an audit fee Six Hundred Dollars ($600) per
auditor, per eight hour work day (including partial days), up to a maximum of
Seven Thousand Two Hundred Dollars ($7,200) for each consecutive twelve (12)
month period during the term of this Agreement (the foregoing annual cap on
audit fees does not apply to audits conducted after the occurrence of an Event
of Default and for so long as such Event of Default continues), plus all travel
and living expenses in connection with such audits, and the amount charged shall
be deemed included in the "Obligations" when incurred. Capital will invoice
Borrower for such audit charges and Borrower shall pay to Capital the full
amount of such costs and expenses within fifteen (15) calendar days from the
date of invoice.
4.3 Sale of Inventory. Until the occurrence
of an Event of Default by Borrower under this Agreement, Borrower may, subject
to the provisions hereof and consistent herewith, sell or lease the Inventory,
but only in the ordinary course of Borrower's business. A sale or lease of
Inventory in Borrower's ordinary course of business does not include an exchange
or a transfer in partial or total satisfaction of a debt owing by Borrower, nor
does it include an exchange for less than reasonably equivalent value.
4.4 Continuation of Security Interest.
Notwithstanding termination of this Agreement, until all Obligations, contingent
or otherwise, have been fully repaid and performed, Capital shall retain its
security interest in all presently owned and hereafter arising or acquired
Collateral, all account debtors shall continue to be instructed to make payments
to the post office box established pursuant to the Lock Box Agreement, and
Borrower shall continue to immediately deliver to Capital, in kind, all
collections received respecting the Accounts.
4.5 Perfection of Security Interest. Borrower
shall execute and deliver to Capital, concurrent with Borrower's
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execution of this Agreement, and at any time or times hereafter at the request
of Capital, all financing statements, continuation financing statements,
security agreements, assignments, endorsements, affidavits, reports, notices,
schedules of accounts, letters of authority and all other documents that Capital
may reasonably request, in form satisfactory to Capital, to perfect and maintain
perfected Capital's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under this Agreement.
4.6 Access to Borrower's Books. Capital
(through any of its officers, employees or agents) shall have the right, at any
time or times hereafter, during Borrower's usual business hours, or during the
usual business hours of any third party having control over the records of
Borrower, to inspect and verify Borrower's Books in order to verify the amount
or condition of, or any other matter relating to, the Collateral and Borrower's
financial condition.
4.7 Power of Attorney. Borrower hereby
irrevocably makes, constitutes and appoints Capital (and any of Capital's
officers, employees or agents designated by Capital) as Borrower's true and
lawful attorney with power:
A. Upon Borrower's failure or refusal to
comply with its undertakings contained in Section 4.5, to sign the name of
Borrower on any of the documents described in that section or on any other
similar documents which need to be executed, recorded and/or filed in order to
perfect or continue perfected Capital's security interest in the Collateral;
B. To endorse Borrower's name on any
checks, notes, acceptances, money orders, drafts or other forms of payment or
security that may come into Capital's possession;
C. To sign Borrower's name on drafts
against account debtors, on schedules and assignments of
Accounts, and on notices to account debtors;
D. After the occurrence of an Event of
Default, to notify the post office authorities to change the address for
delivery of Borrower's mail to an address designated by Capital, to receive and
open all mail addressed to Borrower, and to retain all mail relating to the
Collateral and forward, within two (2) business days of Capital's receipt
thereof, all other mail to Borrower;
E. To send requests for verification of
Accounts; and
F. To do all things necessary to carry
out this Agreement.
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The appointment of Capital as Borrower's attorney, and
each and every one of Capital's rights and powers, being coupled with an
interest, are irrevocable so long as any Accounts in which Capital has a
security interest remain unpaid and until all of the Obligations have been fully
paid and performed. Neither Capital nor its employees, officers or agents shall
be liable for any acts or omissions or for any error in judgment or mistake of
fact or law made in good faith except for gross negligence or willful
misconduct.
5. CONDITIONS PRECEDENT AND SUBSEQUENT
5.1 Conditions Precedent. As conditions
precedent to any advances by Capital hereunder or any other Loan Agreements,
Borrower shall execute and deliver, or cause to be executed and delivered, to
Capital, in form and substance satisfactory to Capital and its counsel, the
following:
A. Financing statements (form UCC-1) and
fixture filings in form satisfactory for filing and recording with the
appropriate governmental authorities.
B. Certified extracts from the minutes
of the meetings of Borrower's board of directors authorizing the borrowings and
the granting of the security interest provided for herein and authorizing
specific officers to execute and deliver the agreements provided for herein.
C. A certified copy of Borrower's
Articles of Incorporation and any amendments thereto, a certificate of good
standing showing that Borrower is in good standing under the laws of the State
of California and certificates indicating that Borrower has qualified to
transact business and is in good standing in any other state in which the
conduct of its business or its ownership of property requires that it be so
qualified.
D. UCC searches, tax lien and litigation
searches, fictitious business statement filings, insurance certificates, notices
or other similar documents which Capital may require and in such form as Capital
may require, in order to reflect, perfect or protect the priority of Capital's
security interests in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement.
E. A fully completed Borrowing Base
Certificate, dated as of the date of this Agreement, and certified as being true
and correct by the Chief Executive Officer or Chief Financial Officer.
F. A separate general continuing
guaranty of the Obligations of Borrower to Capital, in a form
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acceptable to Capital in its sole discretion, duly executed and delivered by
each of the Guarantors, respectively, to Capital.
G. A security agreement, in a form
acceptable to Capital in its sole discretion, duly executed and delivered by
United Golf to Capital and securing the obligations of United Golf owing to
Capital under United Golf's guaranty of the Obligations.
H. A copy of the license agreement
between Borrower and Rawlings Sporting Goods, Inc., certified by the Chief
Executive Officer of Borrower as being a true and correct copy.
I. A copy of each repayment agreement
between Borrower and one or more of its creditors, certified by the Chief
Executive Officer of Borrower as being a true and correct copy, together with
either (i) an estoppel certificate from each such creditor of Borrower
confirming that Borrower is not in default of the repayment agreement, or (ii)
verification, in form and content satisfactory to Capital in its sole
discretion, of such agreement and Borrower's compliance with the terms thereof.
J. With respect to each Guarantor that
is a corporation, partnership or limited liability company a copy of the
certified extracts from the minutes of the meetings of each of such Guarantor's
board of directors, partners or members, as appropriate authorizing its
continuing guaranty of the Obligations, the granting to Capital of a security
interest in the assets of such Guarantor, and authorizing specific officers,
partners or members to execute and deliver the agreements provided for herein.
K. Evidence satisfactory to Capital that
Borrower has obtained insurance policies or binders, with such insurers and in
such amounts as may be acceptable to Capital, respecting the Inventory,
Equipment and any other tangible personal property comprising the Collateral and
naming Capital as a loss payee on a lender's loss payee endorsement acceptable
to Capital in its sole discretion.
L. Evidence satisfactory to Capital, in
its sole discretion, that Borrower has recorded fictitious business name
statements in the appropriate governmental offices regarding all of the trade
names used by Borrower in its business.
M. The Loan Documents.
N. A subordination agreement, in a form
acceptable to Capital in its sole discretion, duly executed and delivered by
United Golf and acknowledged by Borrower.
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5.2 Condition Subsequent. Notwithstanding any
other provisions of this Agreement or any of the other Loan Documents to the
contrary, and without affecting in any manner the rights of Capital under the
other Sections of this Agreement, Capital shall not continue to make advances
under Section 2.1 and Capital shall be entitled to immediately declare an Event
of Default under this Agreement if Borrower fails to deliver to Capital on or
prior to April 25, 1997, a fully executed and notarized landlord's waiver, in
form and content acceptable to Capital, for each of Borrower's business
premises.
6. BORROWER'S REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and
warranties which shall be deemed to be continuing representations and warranties
so long as any credit hereunder shall be available and until the Obligations
have been repaid in full:
6.1 Existence and Rights.
A. The chief executive office of
Borrower is at the address indicated in Section 13;
B. Borrower is a corporation duly
organized and existing under the laws of the State of California and is
qualified and licensed to do business and is in good standing in any state in
which the conduct of its business or its ownership of property requires that it
be so qualified;
C. Borrower has the right and power to
enter into this Agreement and each of the other Loan Documents;
D. Borrower has the power, authority,
rights and franchises to own its property and to carry on its
business as now conducted;
E. Borrower has no investment in any
other business entity, other than a joint venture with Don MacLeod/Team Sports
in New Zealand.
6.2 Agreement Authorized. The execution,
delivery and performance by Borrower of this Agreement and each of the other
Loan Documents: (a) have been duly authorized and do not require the consent or
approval of any governmental body or other regulatory authority; and (b) shall
not constitute a breach of any provision contained in Borrower's Articles or
Certificate of Incorporation or Bylaws.
6.3 Binding Agreement. This Agreement is the
valid, binding and legally enforceable obligation of Borrower in
accordance with its terms.
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6.4 No Conflict. The execution, delivery and
performance by Borrower of this Agreement and each of the other Loan Documents:
(a) shall not constitute an event of default under any agreement, indenture or
undertakings to which Borrower is a party or by which it or any of its property
may be bound or affected; (b) are not in contravention of or in conflict with
any law or regulation; and (c) do not cause any lien, charge or other
encumbrance to be created or imposed upon any such property by reason thereof
other than the security interests granted to Capital in the Collateral.
6.5 Litigation. Except as set forth on
Exhibit 6.5, there are no actions or proceedings pending by or against Borrower
or any guarantor of Borrower before any court or administrative agency, and
Borrower has no knowledge or belief of any pending, threatened or imminent
litigation, governmental investigations or claims, complaints, actions or
prosecutions involving Borrower or any guarantor of Borrower, except for ongoing
collection matters in which Borrower is the plaintiff and except as heretofore
disclosed, in writing, to Capital. Borrower is not in default with respect to
any order, writ, injunction, decree or demand of any court or any governmental
or regulatory authority.
6.6 Financial Condition. All financial
statements and information relating to Borrower which have been delivered by
Borrower to Capital have been prepared in accordance with generally accepted
accounting principles consistently applied, unless otherwise stated therein, and
fairly and reasonably present Borrower's financial condition. There has been no
material adverse change in the financial condition of Borrower since the date of
the most recent of such financial statements submitted to Capital. Borrower has
no knowledge of any liabilities, contingent or otherwise, which are not
reflected in such financial statements and information, and Borrower has not
entered into any special commitments or contracts which are not reflected in
such financial statements or information which may have a materially adverse
effect upon Borrower's financial condition, operations or business as now
conducted.
6.7 Tax Status. Borrower has no liability for
any delinquent state, local or federal taxes.
6.8 Title to Assets. Borrower has good title
to its assets and the same are not subject to any liens or encumbrances other
than those permitted by Section 6.11A.
6.9 Trademarks and Patents. Borrower, as of
the date hereof, possesses all necessary trademarks, trade names, copyrights,
patents, patent rights and licenses to conduct its business as now operated,
without any known conflict
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with the valid trademarks, trade names, copyrights, patents and license rights
of others.
6.10 Environmental Quality. Borrower has in
the past and is currently in compliance with any and all federal, state and
local statutes, laws and regulations concerning the preservation of the
environment and the use and disposal of hazardous and toxic materials and
substances. Borrower is not aware that it is under investigation by any state or
federal agency designed to enforce any of such laws or regulations.
6.11 Accounts and General Intangibles.
A. Borrower has good and marketable
title to the Accounts and General Intangibles, free and clear of liens, claims,
security interests, or encumbrances (except as held by Capital, and except as
may be specifically consented to, in advance and in writing, by Capital); at the
time of their assignment to Capital the Accounts will be bona fide existing
obligations created by the sale or lease of goods or the rendition of services
to account debtors in the ordinary and usual course of business and will be owed
to Borrower without any known defenses, disputes, offsets or counterclaims, or
any rights of return or cancellation; Borrower shall have received no notice of
actual or imminent bankruptcy or insolvency of any account debtor at the time
the Account due from such account debtor is created; and in accordance with
prudent credit policies, the account debtor shall be able to timely discharge
all of its indebtedness to Borrower;
B. Borrower shall deliver to Capital, as
Capital may from time to time require, original delivery receipts, customer's
purchase orders, shipping instructions, bills of lading and other documentation
respecting shipment arrangements. Absent such a request by Capital, copies of
all such documentation shall be held by Borrower as custodian for Capital;
C. At the time each Eligible Account is
assigned to Capital, such Eligible Account will be due and payable in accordance
with the terms set forth in Section 1.13, or on such other terms approved, in
writing, by Capital in advance of the creation of such Account, and such terms
shall be expressly set forth on the face of the invoice for such Account. No
Eligible Account will be past due at the time it is assigned to Capital.
6.12 Inventory and Equipment.
A. The Inventory and Equipment are
currently located only at the locations identified on Exhibit
1.16;
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B. All Inventory is now and at all times
hereafter shall be of good and merchantable quality, free from
defects;
C. The Inventory and Equipment are and
shall remain free from all liens, claims, encumbrances, and security interests
(except as held by Capital, and except as may be specifically consented, in
advance and in writing, by Capital);
D. The Inventory is not now stored with
a bailee, warehouseman or similar party; and
E. Borrower currently keeps correct and
accurate records itemizing and describing the kind, type, quality and quantity
of the Inventory, and its cost therefor.
6.13 Sales for Resale. Borrower's sales for
ultimate use, as opposed to sales for resale, as of the date of this Agreement
and for the twelve (12) months preceding said date, did not equal or exceed
twenty-five percent (25%) in dollar volume of Borrower's total sales. During
each month of the term of this Agreement, Borrower's sales for ultimate use
shall not equal or exceed twenty-five percent (25%) in dollar volume of
Borrower's total sales in said month.
7. BORROWER'S AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as any
credit hereunder shall be available and until the Obligations have been repaid
in full, unless Capital shall otherwise consent in writing, Borrower shall do
all of the following:
7.1 Assignment Schedules and Invoices.
Borrower shall deliver to Capital: (1) not less than once each week, an
assignment schedule of all Accounts created by Borrower since the delivery of
the immediately preceding assignment schedule required hereunder; and (2) upon
the request of Capital, copies of invoices evidencing such sales and shipping
evidence and proofs of delivery relating thereto.
7.2 Rights and Facilities. Borrower shall
maintain and preserve all rights, franchises and other authority adequate for
the conduct of its business. Borrower shall also maintain its properties,
equipment and facilities in good order and repair and conduct its business in an
orderly manner without voluntary interruption and maintain and preserve its
existence.
7.3 Location of Inventory and Equipment. The
Inventory and Equipment shall be located only at locations listed on Exhibit
1.16 or such other locations as shall have been approved by Capital.
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7.4 Inventory Records. Borrower shall keep
correct and accurate records itemizing and describing the kind, type, quality
and quantity of the Inventory, and its cost therefor, all of which records shall
be available upon demand to any of Capital's officers, agents and employees for
inspection and copying.
7.5 Insurance. Borrower, at its expense,
shall keep and maintain its Inventory and Equipment insured against loss or
damage by fire, theft, explosion, sprinklers and all other hazards and risks
ordinarily insured against by other owners who use such properties in similar
businesses for the full insurable value thereof. Borrower shall deliver to
Capital certified copies of such policies of insurance and evidence of the
payments of all premiums therefor. Borrower shall also keep and maintain
business interruption, public liability, and property damage insurance relating
to Borrower's ownership and use of the Inventory, Equipment and its other
assets. All such policies of insurance shall be in such form, with such
companies, and in such amounts as may be satisfactory to Capital. All such
policies of insurance (except those of public liability and property damage)
shall contain an endorsement in a form satisfactory to Capital showing Capital
as a loss payee thereof, and all proceeds payable thereunder shall be payable to
Capital and, upon receipt by Capital, shall be applied on account of the
Obligations owing to Capital. To secure the payment of the Obligations, Borrower
grants Capital a security interest in and to all such policies of insurance
(except those of public liability and property damage) and the proceeds thereof,
and Borrower shall direct all insurers under such policies of insurance to pay
all proceeds thereof directly to Capital.
7.6 Notice of Litigation. If at any time
during the term of this Agreement any litigation, governmental investigations or
claims, complaints, actions or prosecutions involving Borrower or any guarantor
of Borrower shall be commenced or threatened, Borrower shall immediately notify
Capital in writing of such event.
7.7 Submission of Records and Reports.
A. Borrower shall execute and deliver to
Capital by the fifteenth (15th) day of each month during the term of this
Agreement, each certified by the Chief Executive Officer or Chief Operating
Officer of Borrower as being true and correct, (i) a current detailed aging, by
total and by customer, of Borrower's Accounts, (ii) a current Designation of
Inventory in the form of Exhibit 7.7A, and (iii) a Compliance Certificate in the
form of Exhibit 7.7B from the Chief Executive Officer or Chief Operating Officer
of Borrower certifying that no Event of Default currently exists under this
Agreement, all of which
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shall be set forth in a form and shall contain such information
as is acceptable to Capital;
B. Borrower shall promptly supply
Capital with such other information concerning its affairs as Capital may
request from time to time hereafter, and shall promptly notify Capital of any
material adverse change in Borrower's financial condition and of any condition
or event which constitutes a breach of, or an event which constitutes an Event
of Default under, this Agreement.
7.8 Taxes. All assessments and taxes, whether
real, personal or otherwise, due or payable by, or imposed, levied or assessed
against Borrower or any of its property shall be paid in full, before
delinquency or before the expiration of any extension period. Borrower shall
make due and timely payment or deposit of all federal, state and local taxes,
assessments or contributions required of it by law, and will execute and deliver
to Capital, on demand, appropriate certificates attesting to the payment or
deposit thereof. Borrower will make timely payment or deposit of all F.I.C.A.
payments and withholding taxes required of it by applicable laws, and will, upon
request, furnish Capital with proof satisfactory to Capital indicating that
Borrower has made such payments or deposits.
7.9 Financial Statements.
A. Borrower shall maintain a standard
and modern system of accounting in accordance with generally accepted accounting
principles consistently applied with ledger and account cards and/or computer
tapes, discs, printouts, and records pertaining to the Collateral which contain
information as may from time to time be requested by Capital. Borrower shall not
modify or change its method of accounting or enter into, modify or terminate any
agreement presently existing, or at any time hereafter entered into with any
third party accounting firm and/or service bureau for the preparation and/or
storage of Borrower's accounting records without said accounting firm and/or
service bureau agreeing to provide to Capital information regarding the
Collateral and Borrower's financial condition. Borrower agrees to permit Capital
and any of its employees, officers or agents, upon demand, during Borrower's
usual business hours, or the usual business hours of third persons having
control thereof, to have access to and examine all of Borrower's Books relating
to the Collateral, the Obligations, Borrower's financial condition and the
results of Borrower's operations, and, in connection therewith, permit Capital
or any of its agents, employees or officers to copy and make extracts therefrom.
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B. For each of Borrower's fiscal years
during the term of this Agreement, Borrower shall deliver or cause to be
delivered to Capital:
(i) within forty five (45) days
after the end of each month, a company prepared statement of the financial
condition of Borrower for such monthly period, including, but not limited to, a
balance sheet, a profit and loss statement, and a cash flow statement, and any
other report requested by Capital relating to the Collateral and the financial
condition of Borrower, and a certificate signed by the Chief Executive Officer
or Chief Operating Officer of Borrower, to the effect that all statements and
reports delivered or caused to be delivered to Capital under this subsection,
fairly and thoroughly present the financial condition of Borrower and that there
exists on the date of delivery to Capital no condition or event which
constitutes an Event of Default under this Agreement or which, with the giving
of notice or the passage of time or both, would constitute an Event of Default
under this Agreement;
(ii) within forty five (45) days
after the end of the first three (3) fiscal quarters of each of United Golf's
fiscal years, a copy of United Golf's 10Q statement filed with the Securities
and Exchange Commission ("SEC") for such period, if such a filing is in fact
required by the SEC;
(iii) within ninety (90) days after
the end of each of Borrower's fiscal years, an audited statement of the
financial condition of Borrower for such fiscal year, prepared by independent
certified public accountants acceptable to Capital, including, but not limited
to, a balance sheet, a profit and loss statement, and a cash flow statement, and
any other report requested by Capital relating to the Collateral and the
financial condition of Borrower, and a certificate signed by the Chief Executive
Officer or Chief Operating Officer of Borrower, to the effect that all reports,
statements, computer disc or tape files, printouts, runs, or other computer
prepared information of any kind or nature relating to the foregoing or
documents delivered or caused to be delivered to Capital under this subsection,
fairly and thoroughly present the financial condition of Borrower and that there
exists on the date of delivery to Capital no condition or event which
constitutes an Event of Default under this Agreement or which, with the giving
of notice or the passage of time or both, would constitute an Event of Default
under this Agreement.
(iv) within one hundred twenty days
(120) days after the end of each of United Golf's fiscal years, a copy of United
Golf's 10K statement filed with the Securities and Exchange Commission for such
period, if such a filing is in fact required by the SEC;
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7.10 Financial Covenants. Borrower shall
maintain at all times during the term of this Agreement each of
the following:
A. Current Ratio of not less than 1.00
to 1.00.
B. Tangible Net Worth of not less than
One Million Dollars ($1,000,000) from the effective date of this Agreement
through and including December 21, 1997, and at all time thereafter of not less
than One Million Three Hundred Thousand Dollars ($1,300,000).
7.11 Tax Returns. Borrower shall deliver to
Capital copies of each of Borrower's future federal income tax returns, and any
amendments thereto, within fifteen (15) calendar days following the filing
thereof with the Internal Revenue Service. Upon the written request of Capital,
Borrower further agrees to promptly deliver to Capital copies of all receipts
issued to Borrower for the payment of federal withholding taxes required of it.
7.12 Payment of Debts. Borrower shall be at
all times hereafter solvent and able to pay its debts (including trade debts) as
they mature.
7.13 Compliance with Environmental Laws.
Borrower shall comply with any and all federal, state and local statutes, laws
and regulations concerning the preservation of the environment and the use and
disposal of hazardous and toxic materials and substances.
7.14 Reimbursement for Capital Expenses. Upon
the presentation by Capital to Borrower of a copy of an invoice or any other
statement reflecting Capital Expenses incurred by Capital, Borrower shall
immediately reimburse Capital for all such sums, and Borrower hereby authorizes
and approves all advances and payments by Capital for items constituting Capital
Expenses.
8. BORROWER'S NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any
credit hereunder shall be available and until the Obligations have been repaid
in full, unless Capital shall otherwise consent in writing, Borrower shall not
do any of the following:
8.1 Relocate of Chief Executive Office.
Borrower will not, without thirty (30) days prior written notification to
Capital, relocate its chief executive office.
8.2 Agreements with Account Debtors. After an
Event of Default hereunder, no discount, credit or allowance
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shall be granted by Borrower to any account debtor and no return of merchandise
shall be accepted by Borrower without Capital's consent. Capital may, after an
Event of Default, settle or adjust disputes and claims directly with account
debtors for amounts and upon terms which Capital considers advisable, and in
such cases, Capital will credit Borrower's account with only the net amounts
received by Capital in payment of such disputed Accounts, after deducting all
Capital Expenses incurred or expended in connection therewith.
8.3 Storage of Inventory. The Inventory shall
not at any time or times hereafter be stored with a bailee, warehouseman or
similar party without Capital's prior written consent, and, in such event,
Borrower will, concurrent therewith, cause any such bailee, warehouseman or
similar party to issue and deliver to Capital, in a form acceptable to Capital,
warehouse receipts in Capital's name evidencing the storage of the Inventory.
The provisions of this Section 8.3 shall not apply to Inventory which is, from
time to time, stored with a bailee or warehouseman in connection with sales
shows marketing Borrower's Inventory so long as the aggregate value of all such
Inventory is less than Twenty Thousand Dollars ($20,000).
8.4 Business Structure and Operations.
Borrower shall not, without Capital's prior written consent:
A. Sell, lease, or otherwise dispose of,
move, relocate (except in connection with a relocation of Borrower's business
facility) or transfer, whether by sale or otherwise, any of Borrower's assets
which, in a single transaction or series of related transaction, have a value in
excess of Ten Thousand Dollars ($10,000), except sales of Inventory in the
ordinary and usual course of Borrower's business as presently conducted;
B. Change Borrower's name or form of
entity, or add any new fictitious name;
C. Acquire, merge or consolidate with or
into any other business organization, except in a transaction in which (i) the
Guarantors hold at least fifty percent (50%) of the common stock and other
capital stock of the surviving corporation immediately after such merger or
consolidation, and (ii) Borrower is the surviving corporation;
D. Enter into any transaction not in the
ordinary and usual course of Borrower's business;
E. Guarantee or otherwise become in any
way liable with respect to the obligations of any third party
except by endorsement of instruments or items of payment for
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deposit to the general account of Borrower or which are transmitted or turned
over to Capital;
F. Make any change in the Borrower's
financial structure or in any of its business objectives, purposes or operations
which could adversely affect the ability of Borrower to repay the Obligations;
G. Incur any debts outside the ordinary
and usual course of Borrower's business;
H. Make any advance or loan to any
person or entity;
I. Prepay any existing indebtedness
owing to any third party;
J. Cause, permit or suffer any change,
direct or indirect, in Borrower's capital ownership except as
permitted in Section 8.4C;
K. Make any distribution or declare or
pay any dividends (in cash or in stock) on, or purchase, acquire, redeem or
retire any of its capital stock, of any class, whether now or hereafter
outstanding; provided, however, that so long as no Event of Default shall have
occurred, and is continuing, Borrower may pay an annual dividend on the
preferred stock held by United Golf on the condition that the EBITDA for
Borrower for the fiscal year then ended for which the dividend is to be paid is
not less than one hundred fifty percent (150%) of the amount of the proposed
dividend; provided further, however, that in no event shall the annual dividend
paid to the United Golf for any fiscal year exceed, in the aggregate, Seventy
Seven Thousand Dollars ($77,000).
L. Pay total compensation to those
officers and employees of Borrower listed on Exhibit 8.4L (or any of their
relatives), including salaries, withdrawals, fees, bonuses, commissions, drawing
accounts and other payments, whether directly or indirectly, in money or
otherwise, during the each fiscal year of Borrower during the term of this
Agreement in an aggregate amount for each of such officers and employees in
excess of the amount corresponding to such officers and employees as set forth
on Exhibit 8.4L, provided, however, that Borrower may, upon the prior written
approval of Capital, which approval shall not be unreasonably withheld, increase
the total compensation payable to some or all of such officers and employees of
Borrower so long as such increases are reasonable in the good faith
determination of Borrower's board of directors. Capital may withhold its
approval if, among other things, Capital believes that the increases would have
a materially adverse effect on Borrower's financial condition.
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M. Make any plant or fixed capital
expenditure, or any commitment therefor, in any fiscal year, in
an aggregate amount in excess of Twenty Five Thousand Dollars
($25,000);
N. Suspend or go out of business.
8.5 ERISA.
A. Borrower shall not withdraw from
participation in, permit the termination or partial termination of, or permit
the occurrence of any other event with respect to any deferred compensation plan
maintained for the benefit of Borrower's employees under circumstances that
could result in liability to the Pension Benefit Guaranty Corporation, or any of
its successors or assigns, or to any entity which provides funds for such
deferred compensation plan.
B. Borrower shall not withdraw from any
multi-employer plan described in Section 4001(a)(3) of ERISA which covers
Borrower's employees.
9. EVENTS OF DEFAULT
Any one or more of the following events shall
constitute an Event of Default by Borrower under this Agreement:
9.1 Failure to Pay Obligations. If Borrower
fails to pay when due and payable or when declared due and payable all or any
portion of the Obligations owing to Capital (whether of principal, taxes,
reimbursement of Capital Expenses, or otherwise);
9.2 Failure to Perform. If Borrower fails or
neglects to perform, keep or observe any term, provision, condition, covenant,
agreement, warranty or representation contained in this Agreement, in any of the
other Loan Documents, or in any other present or future agreement between
Borrower and Capital and such failure has a materially adverse effect on the
Collateral or the business operations of Borrower;
9.3 Inaccurate Information. If any
representation, statement, report, or certificate made or delivered by Borrower,
or any of its officers, employees or agents, to Capital is not true and correct
in any material respect, including, but not limited to, any Borrowing Base
Certificate delivered to Capital pursuant to this Agreement;
9.4 Third Party Claim. If all or a material
portion of Borrower's assets are attached, seized, subjected to a writ or
distress warrant, or are levied upon, or come into the possession of any
Judicial Officer or Assignee;
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9.5 Impairment. If there is a material
impairment of the prospect of repayment of all or any portion of the Obligations
owing to Capital or a material impairment of the value or priority of Capital's
security interests in the Collateral;
9.6 Voluntary Insolvency Proceeding. If an
Insolvency Proceeding is commenced by Borrower;
9.7 Involuntary Insolvency Proceeding. If an
Insolvency Proceeding is commenced against Borrower;
9.8 Interruption of Business. If Borrower is
enjoined, restrained or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs;
9.9 Governmental Lien. If a notice of lien,
levy or assessment is filed of record with respect to any or all of Borrower's
assets by the United States Government, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency, or if any tax or debt owing at any time hereafter to any
one or more of such entities becomes a lien, whether choate or otherwise, upon
any or all of the Borrower's assets and the same is not paid on the payment date
thereof;
9.10 Liens. If a judgment or other claim becomes a
lien or encumbrance upon all or a material portion of Borrower's assets;
9.11 Default in Agreement with Third Party. If
there is a default in any loan agreement, mortgage, indenture or other agreement
to which Borrower is a party with third parties and Capital determines that such
default shall have a materially adverse effect on Borrower's business or the
prospects for repayment of the Obligations;
9.12 Payment on Subordinated Debt. If Borrower
makes any payment on Subordinated Debt in violation of the applicable
Subordination Agreement;
9.13 Misrepresentation. If any misrepresentation
exists now or hereafter in any warranty or representation made to Capital by
Borrower or any officer or director of Borrower, or if any such warranty or
representation is withdrawn by Borrower or by any officer or director of
Borrower;
9.14 Impairment of Guaranty. If any guarantor
of Borrower's indebtedness to Capital dies, terminates its guaranty, defaults in
the payment or performance of any
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obligations of guarantor owing to Capital, or becomes the subject of an
Insolvency Proceeding;
9.15 Reportable Event Under ERISA. If any
reportable event, which Capital determines will have a material adverse effect
on the financial condition of Borrower or which Capital determines constitutes
grounds for the termination of any deferred compensation plan by the Pension
Benefit Guaranty Corporation or for the appointment by the appropriate United
States District Court of a trustee to administer any such plan, shall have
occurred and be continuing thirty (30) days after written notice of such
determination shall have been given to Borrower by Capital, or any such Plan
shall be terminated within the meaning of Title IV of ERISA, or a trustee shall
be appointed by the appropriate United States District Court to administer any
such plan, or the Pension Benefit Guaranty Corporation shall institute
proceedings to terminate any plan and in case of any event described in this
Section 9.15, the aggregate amount of the Borrower's liability to the Pension
Benefit Guaranty Corporation under Sections 4062, 4063 or 4064 of ERISA shall
exceed five percent (5%) of Borrower's tangible net worth; or
9.16 Withdrawal from Multi-Employer Plan.
Borrower shall have withdrawn from a multi-employer plan described in Section
4001(a)(3) of ERISA and incurs withdrawal liability as a result thereof.
9.17 Cure Periods. Notwithstanding anything
contained in this Section 9 to the contrary, Capital shall refrain from
exercising its rights and remedies and an Event of Default shall not be deemed
to have occurred by reason of the occurrence of: (i) an event set forth in
Section 9.7 if, within thirty (30) calendar days from the date thereof, the same
is discharged or dismissed, or (ii) any of the events set forth in Sections 9.4
or 9.10 if, within ten (10) calendar days from the date thereof, the same is
released, discharged, dismissed, bonded against or satisfied; provided, however,
if the event is the institution of Insolvency Proceedings against Borrower,
Capital shall not be obligated to make advances to Borrower during such cure
period.
10. CAPITAL'S RIGHTS AND REMEDIES
10.1 Remedies. Upon the occurrence of an Event
of Default by Borrower under this Agreement, Capital may, at its election,
without notice of its election and without demand, do any one or more of the
following, all of which are authorized by Borrower:
A. Declare all Obligations, whether
arising pursuant to this Agreement or otherwise, immediately due
and payable;
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B. Cease advancing money or extending
credit to or for the benefit of Borrower under this Agreement or under any other
agreement between Borrower and Capital;
C. Terminate this Agreement and any of
the other Loan Documents as to any future liability or obligation of Capital,
but without affecting Capital's rights and security interest in the Collateral
and without affecting the Obligations owing by Borrower to Capital;
D. Capital or Capital's designee may
notify customers, account debtors or lessees of Borrower that the Accounts have
been assigned to Capital and that Capital has a security interest therein,
collect them directly, and charge the collection costs and expenses to
Borrower's loan account;
E. Without notice to or demand upon
Borrower or any guarantor, make such payments and do such acts as Capital
considers necessary or reasonable to protect its security interest in the
Collateral. Borrower agrees to assemble the Collateral if Capital so requires,
and to make the Collateral available to Capital as Capital may designate.
Borrower authorizes Capital to enter the premises where the Collateral is
located, take and maintain possession of the Collateral, or any part of it, and
to pay, purchase, contest or compromise any encumbrance, charge or lien which in
the opinion of Capital appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith;
F. Capital is hereby granted a license
or other right to use, without charge, Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale and selling any
Collateral and Borrower's rights under all licenses, and all franchise
agreements shall inure to Capital's benefit;
G. Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale and sell (in the manner
provided for herein) the Collateral;
H. Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms. It is not necessary that the Collateral be present at any such
sale;
I. In connection with any such sale, the
standard of commercial reasonableness will be deemed satisfied if Capital does
the following:
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(i) Location of Sale(s). The
sale(s) may be conducted at Borrower's premises, Capital's premises, the
premises of any third party located in or adjacent to any county in which any of
the collateral is located, or any other location which Capital believes is
reasonably convenient to potential purchasers. The selection of any such
location(s) shall be in the sole and absolute discretion of Capital.
(ii) Notice of Sale. Capital shall
give notice of the disposition of the Collateral as follows:
(a) Capital shall give
Borrower and each holder of a security interest in the Collateral who has filed
with Capital a written request for notice, a notice in writing of the time and
place of public sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the Collateral, the time
on or after which the private sale or other disposition is to be made;
(b) The notice shall be
personally delivered or mailed, postage prepaid, to Borrower as provided in
Section 13, at least ten (10) calendar days before the date fixed for the sale,
or at least ten (10) calendar days before the date on or after which the private
sale or other disposition is to be made, unless the Collateral is perishable or
threatens to decline speedily in value. Notice to persons other than Borrower
claiming an interest in the Collateral shall be sent to such addresses as they
have furnished to Capital;
(c) If the sale is to be a
public sale, Capital shall also give notice of the time and place by publishing
a notice one time at least ten (10) calendar days before the date of the sale in
a newspaper of general circulation in the county in which the sale is to be
held;
J. Capital may credit bid and purchase
at any public sale;
K. Borrower shall pay all Capital
Expenses incurred in connection with Capital's enforcement and exercise of any
of its rights and remedies as herein provided, whether or not suit is commenced
by Capital;
L. Any deficiency which exists after
disposition of the Collateral as provided above will be paid immediately by
Borrower. Any excess will be returned, without interest and subject to the
rights of third parties, to Borrower by Capital.
10.2 Cumulative Rights. Capital's rights and
remedies under this Agreement and all other agreements shall be cumulative.
Capital shall have all other rights and remedies
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not inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by Capital of one right or remedy shall be deemed an election, and no
waiver by Capital of any default on Borrower's part shall be deemed a continuing
waiver. No delay by Capital shall constitute a waiver, election or acquiescence
by it.
11. TAXES AND EXPENSES REGARDING THE COLLATERAL
If Borrower fails to pay any monies (whether
taxes, assessments, insurance premiums, or otherwise) due to third persons or
entities, or fails to make any deposits or furnish any required proof of payment
or deposit, all as required under the terms of this Agreement, then Capital may,
to the extent that it determines in its sole discretion that such failure by
Borrower could have a material adverse change on Capital's interests in the
Collateral, in its discretion and without prior notice to Borrower, (i) make
payment of the same or any part thereof; (ii) set up such reserves in Borrower's
loan account as Capital deems necessary to protect Capital from the exposure
created by such failure; or (iii) both. Any amounts paid or deposited by Capital
shall constitute Capital Expenses, shall be immediately charged to Borrower's
loan account and become additional Obligations owing to Capital, shall bear
interest at the applicable rate set forth in Section 2.4, and shall be secured
by the Collateral. Any payments made by Capital shall not constitute: (i) an
agreement by Capital to make similar payments in the future, or (ii) a waiver by
Capital of any Event of Default under this Agreement. Capital need not inquire
as to, or contest the validity of, any such expense, tax, security interest,
encumbrance or lien, and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
12. WAIVERS
12.1 Application of Payments. Borrower waives
the right to direct the application of any and all payments at any time or times
hereafter received by Capital on account of any Obligations owed by Borrower to
Capital, and Borrower agrees that Capital shall have the continuing exclusive
right to apply and reapply such payments in any manner as Capital may deem
advisable, notwithstanding any entry by Capital upon its books.
12.2 Demand, Protest, Default, Etc. Except as
otherwise provided herein, Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of
nonpayment at maturity, release, compromise, settlement, extension or renewal of
any or all commercial paper, accounts, documents, instruments, chattel paper,
and guarantees at any time held by Capital on which Borrower may in any way be
liable.
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12.3 Maintenance of Collateral. So long as
Capital complies with its obligations, if any, under Section 9207 of the Code,
Capital shall not in any way or manner be liable or responsible for: (a) the
safekeeping of the Inventory and/or Equipment; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any diminution
in the value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency or other person whomsoever. All risk or loss, damage
or destruction of the Inventory and Equipment shall be borne by Borrower.
12.4 Confidential Relationship. Borrower
waives the right to assert a confidential relationship, if any, it may have with
any accounting firm and/or service bureau in connection with any information
requested by Capital pursuant to or in accordance with this Agreement, and
agrees that Capital may contact directly any such accounting firm and/or service
bureau in order to obtain such information.
13. NOTICES
Unless otherwise specifically provided herein,
all notices and service of any process shall be in writing addressed to the
respective party as set forth below and may be personally served, telecopied or
sent by overnight courier service or United States mail and shall be deemed to
have been given: (a) if delivered in person, when delivered; (b) if delivered by
telecopy, on the date of transmission if confirmed and if transmitted on a
Business Day before 4:00 p.m. (Los Angeles time) or, if not, on the next
succeeding Business Day; (c) if delivered by overnight courier, two days after
delivery to such courier properly addressed; or (d) if by U.S. Mail, four
Business Days after depositing in the United States mail, with postage prepaid
and properly addressed.
If to Borrower: WSL, INC.
20301 Nordhoff Street
Chatsworth, California 91311
Attn: Warren E. Levy
Telecopier Number (818) 349-3985
If to Capital: Capital Business Credit,
a division of
CAPITAL FACTORS, INC.
700 S. Flower Street
Suite 2001
Los Angeles, California 90017-4101
Attn: Barbara Nitkin
Telecopier Number (213) 891-1324
The parties hereto may change the address at which they are to
receive notices and the telecopier number at which
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they are to receive telecopies hereunder, by notice in writing in the foregoing
manner given to the other.
14. DESTRUCTION OF BORROWER'S DOCUMENTS
Any documents, schedules, invoices or other
papers delivered to Capital may be destroyed or otherwise disposed of by Capital
four (4) months after they are delivered to or received by Capital, unless
Borrower requests, in writing, the return of the said documents, schedules,
invoices or other papers and makes arrangements, at Borrower's expense, for
their return.
15. CHOICE OF LAW
The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined under, governed by, and construed
in accordance with the laws of the State of California. The parties agree that
all actions or proceedings arising in connection with this Agreement shall be
tried and litigated only in the state and federal courts located in the County
of Los Angeles, State of California. Borrower waives any right it may have to
assert the doctrine of forum non conveniens or to object to such venue and
hereby consents to any court ordered relief.
16. GENERAL PROVISIONS
16.1 Representations and Warranties Repeated.
Each representation, warranty and agreement contained in this Agreement shall be
automatically deemed repeated with each advance and shall be conclusively
presumed to have been relied on by Capital regardless of any investigation made
or information possessed by Capital. The warranties, representations and
agreements set forth herein shall be cumulative and in addition to any and all
other warranties, representations and agreements which Borrower shall give, or
cause to be given, to Capital, either now or hereafter.
16.2 Binding Agreement. This Agreement shall
be binding and deemed effective when executed by Borrower and
accepted and executed by Capital.
16.3 Right to Grant Participations. This
Agreement shall bind and inure to the benefit of the respective successors and
assigns of each of the parties; provided, however , that Borrower may not assign
this Agreement or any rights hereunder without Capital's prior written consent
and any prohibited assignment shall be absolutely void. No consent to an
assignment by Capital shall release Borrower from its Obligations to Capital.
Capital may assign this Agreement and its rights and duties hereunder. Capital
reserves the right to
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sell, assign, transfer, negotiate or grant participations in all or any part of,
or any interest in, Capital's rights and benefits hereunder. In connection
therewith, Capital may disclose all documents and information which Capital now
or hereafter may have relating to Borrower or Borrower's business.
16.4 Indemnification. In consideration of the
execution and delivery of this Agreement and the extension of financial
accommodations by Capital to Borrower pursuant to this Agreement, Borrower
agrees to indemnify, save, exonerate, and hold Capital, and each of the
officers, directors, employees and agents of Capital (herein collectively called
the "Indemnitees" and individually called an "Indemnitee") free and harmless
from and against any and all actions, claims, causes of action, suits, losses,
liabilities, damages, and expenses, including, without limitation, reasonable
attorneys' fees (including allocated costs for in-house legal services provided
and attorneys' fees in all bankruptcy proceedings) and disbursements (herein
collectively called the "Indemnified Liabilities"), which may be incurred by or
asserted against the Indemnitees or any Indemnitee as a result of, or arising
out of, or relating to, or in connection with, any investigation, litigation, or
proceeding related to any use made or proposed to be made by Borrower of the
proceeds of any advance or loan made hereunder, or the consummation of the
transactions contemplated hereby, whether or not any such Indemnitee is a party
thereto, and, if and to the extent that the foregoing undertaking may be
unenforceable for any reason, Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities as is permissible under applicable law.
If any action, suit, or proceeding arising from
any of the foregoing is brought against Capital, or any Indemnitee or affiliate
of an Indemnitee indemnified or intended to be indemnified pursuant to this
Section 16.4, Borrower, to the extent and in the manner directed by the
Indemnitee or intended Indemnitee, shall resist and defend such action, suit, or
proceeding or cause the same to be resisted and defended by counsel designated
by Borrower (which counsel shall be reasonably satisfactory to the Indemnitee or
intended Indemnitee). Each Indemnitee shall use its best efforts to cooperate in
the defense of any such action, writ, or proceeding. Borrower shall have no
obligation to any Indemnitee under this Section 16.4 to the extent that the
Indemnified Liabilities resulted from the gross negligence or willful misconduct
on the part of any Indemnitee. The Obligations of Borrower under this Section
16.4 shall survive the termination of this Agreement and the discharge of the
Borrower's other Obligations hereunder.
16.5 Section Headings. Section headings and
section numbers have been set forth herein for convenience only.
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Unless the contrary is compelled by the context, everything contained in each
section applies equally to this entire Agreement.
16.6 Interpretation. Neither this Agreement
nor any uncertainty or ambiguity herein shall be construed or resolved against
Capital or Borrower, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties and shall be construed
and interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
16.7 Severability. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
16.8 Modification and Merger. This Agreement
cannot be changed or terminated orally. All prior agreements, understandings,
representations, warranties and negotiations, if any, are merged into this
Agreement.
16.9 Good Faith Requirement. The parties
intend and agree that their respective rights, duties, powers, liabilities,
obligations and discretions shall be performed, carried out, discharged and
exercised reasonably and in good faith.
16.10 JURY TRIAL. BORROWER AND CAPITAL HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT, OR ANY OTHER LOAN DOCUMENTS, OR ANY
DEALINGS RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION AND THE BUSINESS
RELATIONSHIP THAT IS BEING ESTABLISHED. BORROWER AND CAPITAL ACKNOWLEDGE THAT
THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
EACH OF US HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND
THAT EACH OF US WILL CONTINUE TO RELY ON THIS WAIVER IN OUR RELATED FUTURE
DEALINGS. BORROWER AND CAPITAL FURTHER WARRANT AND REPRESENT THAT EACH HAS
KNOWINGLY AND VOLUNTARILY WAIVED ITS RESPECTIVE JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.
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IN WITNESS WHEREOF, Borrower has executed this Agreement.
WSL, INC.
a California corporation
By /s/ WARREN E. LEVY
--------------------------------------
Warren E. Levy, President
CAPITAL FACTORS, INC.,
a Florida corporation
By /s/ NATHAN L. HUGG
--------------------------------------
Title Vice President
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EXHIBIT 6.3
CONTINUING LIMITED GUARANTY
THIS CONTINUING LIMITED GUARANTY (the "Guaranty") is entered into as of
April 17, 1997 (the "Effective Date") by WARREN E. LEVY, an individual
("Guarantor") in favor of CAPITAL BUSINESS CREDIT, A DIVISION OF CAPITAL
FACTORS, INC., a Florida corporation ("Lender").
Guarantor, in order to induce Lender to enter into a financing
relationship with WSL, INC., a California corporation ("Borrower"), and for the
benefit of Lender, agrees as set forth below.
1. RECITALS. This Guaranty is executed and delivered to Lender in connection
with the execution of a Loan and Security Agreement, dated of even date
herewith, between Borrower and Lender (the "Loan Agreement"). There are a number
of additional agreements that have been entered into in connection with the Loan
Agreement (collectively, including the Loan Agreement, as amended from time to
time, referred to as the "Loan Documents)". For example, the Loan Documents may
include promissory notes, security agreements, subordination agreements, deeds
of trust and other guaranties.
2. DEFINITIONS. Any capitalized term not otherwise defined in this Guaranty
shall have the meaning given to the term in the Loan Documents.
3. GUARANTY. Guarantor unconditionally guaranties to Lender the timely (whether
as scheduled or upon acceleration) payment and performance by Borrower of all of
the following, whenever and however they may arise (the "Guarantied
Obligations"): (i) the debts, liabilities, obligations, covenants, interest,
commissions, fees, and other charges or amounts due under the Loan Documents;
(ii) the other obligations set forth in or arising out of the Loan Documents;
(iii) any obligations of Borrower owing to any third parties which are assigned
to Lender; (iv) any liabilities, costs or expenses, including attorneys' fees,
incurred by Lender in connection with enforcing Lender's rights under the Loan
Documents; (v) any of the foregoing arising out of, in connection with or
following any renewals (including renewals of obligations which had been
previously satisfied), extensions, modifications, alterations and rearrangements
of any of the Loan Documents; (vi) any of the foregoing arising after Borrower
has commenced or becomes subject to any case under the Bankruptcy Code,
including any advances made to Borrower, any interest that accrues after the
filing of the bankruptcy petition (even if the interest cannot be collected in
the proceeding under the Bankruptcy Code), and attorneys' fees. If Borrower
fails to pay or perform any of the Guarantied Obligations, Guarantor will
<PAGE> 2
immediately pay or perform such Guarantied Obligation. NOTWITHSTANDING ANYTHING
HEREIN TO THE CONTRARY, THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY
IS LIMITED TO THE PRINCIPAL AMOUNT OF ONE MILLION FOUR HUNDRED THOUSAND DOLLARS
($1,400,000.00), PLUS ACCRUED AND UNPAID INTEREST, AND ANY COSTS, EXPENSES AND
FEES OF ENFORCEMENT OF THIS GUARANTY OR THE LOAN DOCUMENTS; PROVIDED, HOWEVER,
THAT IF ANY OF THE GUARANTIED OBLIGATIONS ARISE FROM LENDER MAKING AN ADVANCE
AGAINST ACCOUNTS (AS DEFINED IN THE LOAN AGREEMENT) THAT ARE FRAUDULENT,
SPURIOUS, NOT BONA FIDE OR FROM LENDER'S RELIANCE ON FALSE INFORMATION WHICH WAS
PROVIDED BY BORROWER TO LENDER WHERE BORROWER EITHER KNEW THAT SUCH INFORMATION
WAS FALSE OR BORROWER WAS GROSSLY NEGLIGENT IN PROVIDING SUCH INFORMATION TO
LENDER, THEN THE LIABILITY OF GUARANTOR FOR SUCH GUARANTIED OBLIGATIONS SHALL BE
UNLIMITED. IN CONNECTION WITH THE FOREGOING, GUARANTOR SHALL NOT BE LIABLE FOR
ANY PUNITIVE DAMAGES UNLESS THE GUARANTOR INDIVIDUALLY OR WITH OTHERS CAUSED
SUCH ACCOUNTS (AS DEFINED IN THE LOAN AGREEMENT) TO BE PLEDGED TO LENDER OR
CAUSED SUCH FALSE INFORMATION TO BE PROVIDED TO LENDER. IN THE EVENT THAT
SUBSEQUENT TO THE EFFECTIVE DATE OF THIS GUARANTY ADDITIONAL SHARES OF COMMON
STOCK OF BORROWER ARE ISSUED TO THIRD PARTIES THEREBY LOWERING THE PERCENTAGE OF
GUARANTOR'S OWNERSHIP INTEREST IN BORROWER, THEN, SO LONG AS NO EVENT OF DEFAULT
THEN EXISTS UNDER THE LOAN DOCUMENTS, LENDER AGREES TO CONSIDER A REQUEST FROM
GUARANTOR FOR A REDUCTION IN THE MAXIMUM ONE MILLION FOUR HUNDRED THOUSAND
($1,400,000) OF PRINCIPAL LIABILITY SET FORTH ABOVE TO AN AMOUNT COMMENSURATE
WITH THE RESULTING PERCENTAGE OF GUARANTOR'S OWNERSHIP INTEREST IN BORROWER;
PROVIDED, HOWEVER, THAT IN NO EVENT SHALL THE MAXIMUM PRINCIPAL LIABILITY BE
REDUCED BELOW ONE MILLION DOLLARS ($1,000,000).
4. LENDER'S DIRECT RIGHTS.
4.1 GUARANTY OF PAYMENT. This is a guaranty of payment and performance
and is not a guaranty of collection.
4.2 DIRECT RIGHTS AGAINST GUARANTOR. Upon the occurrence of an Event of
Default (as defined in the Loan Agreement), Lender may enforce its rights under
this Guaranty without first seeking to obtain payment or performance from or
without resorting to: (i) Guarantor (the undersigned), meaning that Lender may
delay, in Lender's sole and complete discretion, in the exercise of rights
against Guarantor; (ii) Borrower; (iii) any other guarantor; or (iv) any
collateral Lender may hold for the Guarantied Obligations; (iv) any other remedy
or right that Lender may have.
4.3 BORROWER'S BANKRUPTCY. Upon the occurrence of an Event of
Default (as defined in the Loan Agreement), Lender may immediately pursue its
rights under this
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Guaranty, even though Lender may be stayed from accelerating or collecting the
Guarantied Obligations from Borrower.
4.4 WAIVER OF PRIORITY OF COLLECTION. Guarantor waives any rights
Guarantor may have to require Lender to proceed against the Borrower or to
pursue any other remedy in Lender's power which Guarantor cannot pursue which
would lighten Guarantor's burden. In addition, Guarantor waives Guarantor's
right to benefit from every security which now or hereafter exists for the
performance of the Guarantied Obligations or for the performance of any other
guarantor's obligations owing to Lender. If Lender decides to proceed first to
exercise any other remedy or right, or to proceed against another person or any
collateral, Lender retains all of Lender's rights under this Guaranty.
5. CONTINUING GUARANTY AND REVOCATION. This Guaranty guaranties the Guarantied
Obligations, including Borrower's existing obligations under the Loan Documents,
as well as all future advances made under the Loan Documents. This Guaranty also
guaranties Borrower's future liability under successive transactions which
either continue the Guarantied Obligations or from time to time renew some or
all of them after having been satisfied and to that extent is a continuing
guaranty of the Guarantied Obligations. Guarantor may not terminate or revoke
this Guaranty. Guarantor irrevocably waives any right he has, including any
rights under California Civil Code Section 2815, to terminate or revoke the
continuing nature of this Guaranty and its application to any Guarantied
Obligations arising after any attempt to terminate this Guaranty.
6. NO NOTICE REQUIRED. Guarantor will not be released or exonerated from
Guarantor's obligations under this Guaranty if Guarantor is not notified by
Lender of these events: (i) Borrower's failure to pay timely any amount owed
under any of the Loan Documents or to pay or perform any of the other Guarantied
Obligations; (ii) Borrower's failure to perform any other obligation under any
of the Loan Documents; (iii) any adverse change in Borrower's financial
condition of business; (iv) Lender's acceptance of this Guaranty; (v) all other
notices to which Guarantor might be entitled.
7. GUARANTOR'S ADDITIONAL WAIVERS. Guarantor waives any right Guarantor may
have to require any of the following acts: demand; presentment; diligence;
protest; notice of dishonor; and any other notice to which Guarantor may be
entitled.
8. NO RELEASE OF GUARANTOR. Lender may do or suffer any of the following, by
action or inaction, without releasing or exonerating Guarantor from any of
Guarantor's obligations under this Guaranty and without notifying Guarantor of
any
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of the following: (i) renew, extend, rearrange, alter, impair, suspend or
otherwise modify any of the other Loan Documents, any of the Guarantied
Obligations or any of the rights or remedies of Lender under the Loan Documents;
(ii) release Borrower or any other guarantor from any of the Guarantied
Obligations; (iii) sell, release, subordinate, impair, suspend, waive or
otherwise fail to obtain, perfect or realize upon (or continue the perfection
of) a security interest in any collateral for any of the Guarantied Obligations,
this Guaranty or any other guaranty of the Guarantied Obligations; (iv) exercise
Lender's rights in any collateral for any of the Guarantied Obligations, this
Guaranty or any other guaranty of the Guarantied Obligations in any order that
Lender may elect in its sole discretion; (v) advance additional funds to or for
the benefit of Borrower; (vi) foreclose on any collateral for the Guarantied
Obligations, or any portion thereof (including the collateral provided under a
deed of trust) or a guaranty of the Guarantied Obligations, or any portion
thereof in a manner that diminishes, impairs or precludes the right of Guarantor
to enjoy any rights of subrogation against Borrower or any other guarantor, or
to obtain reimbursement, performance, or indemnification for payment or
performance under this Guaranty (in this connection, Guarantor waives any rights
and defenses arising out of an election of remedies by Lender, even though that
election of remedies, such as nonjudicial foreclosure with respect to security
for a Guarantied Obligation or any other guaranty, has destroyed Guarantor's
rights of subrogation and reimbursement against Borrower or any other guarantor
by operation of law and, in addition, Guarantor waives any defenses arising
under Uniform Commercial Code Sections 1103 and 9501 et seq.); (vii) permit or
suffer the impairment of any of the Guarantied Obligations in a case under the
Bankruptcy Code by or against Borrower; (viii) make an election under Bankruptcy
Code Section 1111(b)(2) in a case by or against Borrower; (ix) permit or suffer
the creation of secured or unsecured credit or debt under Bankruptcy Code
Section 364 in a case by or against Borrower; (x) permit or suffer the
disallowance, avoidance or subordination of any of the Guarantied Obligations or
collateral for any of the Guarantied Obligations; (xi) fail to exercise any
right or remedy Lender may have with respect to the payment or performance of,
any of the Loan Documents or any of the Guarantied Obligations; or (xii) fail to
obtain a guaranty, other assurance of payment, or credit enhancement from any
other person.
9. WAIVER OF SUBROGATION, REIMBURSEMENT, PERFORMANCE AND INDEMNIFICATION.
Guarantor permanently waives and shall not seek to exercise any of the following
rights that Guarantor may have against Borrower, any other guarantor, or any
collateral provided by Borrower or any other guarantor, for
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any amounts paid by Guarantor, or acts performed by Guarantor under this
Guaranty: (i) all rights that Guarantor may have, upon satisfying the Guarantied
Obligations, or any portion thereof, to enforce any remedies which Lender then
has against Borrower and to require any other guarantor to contribute to the
amount paid by Guarantor in connection with this Guaranty (including, without
limitation, any right of subrogation, whether contractual, under Section 509 of
the Bankruptcy Code, other similar insolvency laws or arrangements, or
otherwise); (ii) all rights that Guarantor may have to the benefit of any
security for the performance of the Guarantied Obligations or the performance by
any other guarantor of the Guarantied Obligations; (iii) all rights of
reimbursement from Borrower for the amounts paid by Guarantor in connection with
the Guarantied Obligations (including costs and expenses); (iv) any right to
compel client to perform the Guarantied Obligations when due; or (v) all rights
of indemnification from Borrower, any other guarantor or any other third party.
Guarantor irrevocably waives and releases Borrower from all "claims" (as defined
in Section 101(4) of the Bankruptcy Code) to which Guarantor is or would be
entitled by virtue of this Guaranty of the Guarantied Obligations or the payment
of all or a portion of the Guarantied Obligations by Guarantor pursuant to this
Guaranty.
10. SUBORDINATION OF GUARANTOR.
10.1 SUBORDINATION OF CLAIMS. Upon the occurrence of a default under
Paragraph 11 hereof or an Event of Default under the Loan Agreement, where such
default pursuant to Paragraph 11 hereof or Event of Default under the Loan
Agreement is not timely cured during any applicable cure period, if any, then at
all times thereafter all principal and interest on all then existing and future
indebtedness, liabilities, and obligations of Borrower, any other guarantor or
any other third party that is also indebted to Lender owing to Guarantor,
whether fixed or contingent, matured or unmatured, and liquidated or
unliquidated (the "Subordinated Debt") shall be subordinated in right of payment
to the payment and performance of the Guarantied Obligations, the obligations of
such other guarantor owing to Lender, or the obligations of such other third
party owing to Lender, as appropriate. The subordination, once effective, shall
be irrevocable so long as the Loan Documents remain in effect or any of the
Guarantied Obligations are outstanding.
10.2 PAYMENTS. In the event the subordination becomes effective pursuant
to Paragraph 10.1 hereof, then Guarantor agrees that:
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A. Guarantor will not thereafter accept any
payments on any of the Subordinated Debt.
B. If Guarantor receives any payment on the Subordinated Debt
following the subordination becoming effective pursuant to
Paragraph 10.1, Guarantor shall immediately deliver the
payment to Lender.
C. If Guarantor receives any payments, security interests, or
other rights in any property of Borrower in violation of
the subordination, such payment or property shall be
received by Guarantor in trust for Lender and shall
immediately be delivered and transferred to Lender.
10.3 ATTORNEY-IN-FACT. Guarantor appoints Lender, conditioned upon the
subordination becoming effective pursuant to Paragraph 10.1 hereof, as
Guarantor's attorney-in-fact to file claims, vote on any plan of reorganization
and receive payments, on behalf of Guarantor with respect to any of the
Subordinated Debt in any case by or against Borrower under the Bankruptcy Code
(including Chapters 7 or 11), any assignment for the benefit of creditors made
by Borrower, or in any other reorganization or insolvency proceeding.
10.4 LIMITATION ON ACTIONS. So long as any of the Guarantied
Obligations remain unpaid, in whole or in part, or so long as the Loan Documents
remain in effect, Guarantor agrees: (i) not to sell, assign, transfer, pledge,
or give a security interest in the Subordinated Debt (except subject expressly
to this Guaranty); (ii) not to enforce or apply, or take any steps to enforce or
apply, any security now or hereafter existing, for the Subordinated Debt; (iii)
not to commence, prosecute or participate in any administrative, legal or
equitable action against Borrower or in any administrative, legal or equitable
action that might adversely affect Borrower; and (iv) not to join in any
petition for bankruptcy, assignment for the benefit of creditors, or creditors'
agreement against Borrower.
11. DEFAULT. Upon the happening of any of the following events: the occurrence
of an Event of Default under the Loan Agreement which is not timely cured during
any applicable cure period, any revocation, breach or termination by Guarantor
of this Guaranty, or suspension of business of Guarantor, or the issuance of any
writ of attachment against any of the property of Guarantor where such writ is
not dismissed or discharged within fifteen (15) days from the date that it was
first issued, or the making by Guarantor of any assignment for the benefit of
creditors,
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or a trustee or receiver being appointed for Guarantor or for any property of
Guarantor, or any proceeding being commenced by or against Guarantor under any
bankruptcy, reorganization, adjustment of debt, insolvency, receivership,
liquidation or dissolution law or statute and, in the case of such a proceeding
being commenced against Guarantor, such proceeding is not dismissed within
thirty (30) days following the commencement date thereof, then and in any such
event and at any time thereafter, Lender may, without notice to Borrower or
Guarantor, declare any or all of the Guarantied Obligations, whether or not then
due, immediately due and payable by Guarantor under this Guaranty, and Lender
shall be entitled to enforce the obligations of Guarantor hereunder.
12. MISCELLANEOUS.
12.1 REVIVAL OF DEBT. Notwithstanding any revocation of this Guaranty,
Guarantor's obligations under this Guaranty shall include and shall be increased
by the amount returned by Lender which was previously paid by Borrower or any
other guarantor of any of the Guarantied Obligations prior to the effectiveness
of such revocation because of the application of the Bankruptcy Code, any
fraudulent transfer law, or any law respecting preferences.
12.2 EFFECT OF COMPLIANCE. Except as is expressly provided in the last
sentence of Paragraph 3 hereof, Guarantor's compliance with any of the
provisions of this Guaranty will not reduce or affect in any manner the
liability of Guarantor under the any of the other provisions of this Guaranty.
12.3 NO MARSHALING. Lender has no obligation to marshal any assets in
favor of Guarantor, or against or in payment of: (i) any of the Guarantied
Obligations, or (ii) any other obligation owed to Lender by Guarantor, Borrower,
or any other person.
12.4 FEES AND COSTS. Guarantor will pay all of Lender's fees and costs
incurred in enforcing this Guaranty, including Lender's reasonable attorneys'
fees (including without limitation any attorneys fees' incurred by Lender in
connection with any probate claim, bankruptcy claim, third-party claim, secured
creditor claim, reclamation complaint, and complaint for relief from any stay
under the U.S. Bankruptcy Code or otherwise).
12.5 ASSIGNMENT. Guarantor may not assign Guarantor's obligations or
liabilities under this Guaranty. Subject to the preceding sentence, this
Guaranty shall be binding upon the parties hereto and their respective heirs,
executors, successors, representatives and assigns and shall
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inure to the benefit of the parties hereto and their respective successors and
assigns. Lender may assign its rights under this Guaranty.
12.6 APPLICABLE LAW. The laws of the State of California will apply to
the interpretation and enforcement of this Guaranty, without regard to
California's internal laws regarding conflicts of law.
12.7 INTEGRATION. This Guaranty is the entire agreement of Guarantor
with respect to the subject matter of this Guaranty.
12.8 RIGHTS CUMULATIVE. All of Lender's rights under this Guaranty are
cumulative. The exercise of any one right does not exclude the exercise of any
other right given in this Guaranty or any other right of Lender not set forth in
this Guaranty.
12.9 RULES OF CONSTRUCTION. The following rules shall apply in
interpreting the meaning of this Guaranty: (i) "Includes" and "including" are
not limiting; (ii) "Or" is not exclusive; and (iii) "All" includes "any" and
"any" includes "all."
12.10 SEVERABILITY. If any provision of this Guaranty is unenforceable,
or otherwise invalid, the remaining provisions of this Guaranty shall be
enforced to the fullest possible extent.
12.11 NOTICES. Any notice given in connection with this Guaranty shall
be in writing addressed to the respective party at its address set forth below
its signature on the last page of this Guaranty and may be personally served,
telecopied or sent by overnight courier service or United States certified mail,
postage prepaid; provided, however, that any notice of revocation of this
Guaranty may only be sent by United States certified mail, postage prepaid.
Notices shall be deemed to have been given: (a) if delivered in person, when
delivered; (b) if delivered by telecopy, on the date of transmission if
confirmed and if transmitted on a business day before 4:00 p.m. or, if not, on
the next succeeding business day; (c) if delivered by overnight courier, two
days after delivery to such courier properly addressed; or (d) if by United
States certified mail, five business days after depositing in the United States
mail, with postage prepaid and properly addressed. The address for notices may
be changes by delivering written notice of such change in accordance with this
Paragraph.
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12.12 JOINT AND SEVERAL LIABILITY. The obligations hereunder of the
persons or entities constituting Guarantor under this Guaranty are joint and
several.
12.13 HEADINGS; NUMBER; GENDER. Paragraph headings used in this Guaranty
are for convenience only. They are not a part of this Guaranty and shall not be
used in construing this Guaranty. Wherever appropriate in this Guaranty, the
singular shall be deemed to also refer to the plural, and the plural to the
singular.
12.14 REVIEW OF DOCUMENTS. Guarantor acknowledges reviewing copies of,
and is fully familiar with, each and every Loan Document.
12.15 COUNTERPARTS. This Guaranty may be executed in counterparts, each
of which shall be deemed an original, but all of which, when taken together,
shall be deemed one and the same agreement.
13. ACKNOWLEDGMENT OF WAIVERS AND LOSS OF DEFENSES.
13.1 Guarantor acknowledges that certain provisions of this Guaranty
operate as waivers of rights that Guarantor would otherwise have under
applicable law. Other provisions permit Lender to take actions that Lender would
otherwise not have a right to take, to fail to take actions that Lender would
otherwise have an obligation to take, or to take actions that may prejudice
Guarantor's rights and obligations under this Guaranty and against the Borrower.
In the absence of these provisions Guarantor might have defenses against
Guarantor's obligations under this Guaranty. These defenses might permit
Guarantor to avoid some or all of Guarantor's obligations under this Guaranty.
13.2 Guarantor intends by the waivers and other provisions of this
Guaranty, including the acknowledgement set forth in this section, to be liable
to the greatest extent permitted by law for all of Borrower's obligations to
Lender. Guarantor intends to have this liability even if the terms of the Loan
Documents change or if Guarantor does not have any rights against Borrower.
13.3 Guarantor acknowledges that (i) Guarantor understands the
seriousness of the provisions of this Guaranty; (ii) Guarantor has had a full
opportunity to consult with counsel of Guarantor's choice; and (iii) Guarantor
has consulted with counsel of Guarantor's choice or has decided not to consult
with counsel.
14. WAIVER OF JURY TRIAL. GUARANTOR AND LENDER EACH WAIVE
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
RELATING TO THIS GUARANTY.
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IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
first above written.
/s/ Warren E. Levy
Warren E. Levy
Address c/o United Golf Products, Inc.
20301 Nordhoff Street
Chatsworth, CA 91311
Phone No. (818) 349-3164
Fax No. (818) 349-3985
Social Security No._______________
LENDER hereby accepts this Guaranty and agrees to the provisions
contained in Paragraph 14.
CAPITAL BUSINESS CREDIT,
A DIVISION OF CAPITAL FACTORS,
INC.,
a Florida corporation
By /s/ Nathan L. Hugg
------------------------------------
Title: Vice President
Address 700 S. Flower Street
Suite 2001
Los Angeles, CA 90017-4101
Fax No. (213) 891-1324
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EXHIBIT 6.4
CONTINUING LIMITED GUARANTY
THIS CONTINUING LIMITED GUARANTY (the "Guaranty") is entered into as of
April 17, 1997 (the "Effective Date") by SHEILA LEVY, an individual
("Guarantor") in favor of CAPITAL BUSINESS CREDIT, A DIVISION OF CAPITAL
FACTORS, INC., a Florida corporation ("Lender").
Guarantor, in order to induce Lender to enter into a financing
relationship with WSL, INC., a California corporation ("Borrower"), and for the
benefit of Lender, agrees as set forth below.
1. RECITALS. This Guaranty is executed and delivered to Lender in connection
with the execution of a Loan and Security Agreement, dated of even date
herewith, between Borrower and Lender (the "Loan Agreement"). There are a number
of additional agreements that have been entered into in connection with the Loan
Agreement (collectively, including the Loan Agreement, as amended from time to
time, referred to as the "Loan Documents)". For example, the Loan Documents may
include promissory notes, security agreements, subordination agreements, deeds
of trust and other guaranties.
2. DEFINITIONS. Any capitalized term not otherwise defined in this Guaranty
shall have the meaning given to the term in the Loan Documents.
3. GUARANTY. Guarantor unconditionally guaranties to Lender the timely (whether
as scheduled or upon acceleration) payment and performance by Borrower of all of
the following, whenever and however they may arise (the "Guarantied
Obligations"): (i) the debts, liabilities, obligations, covenants, interest,
commissions, fees, and other charges or amounts due under the Loan Documents;
(ii) the other obligations set forth in or arising out of the Loan Documents;
(iii) any obligations of Borrower owing to any third parties which are assigned
to Lender; (iv) any liabilities, costs or expenses, including attorneys' fees,
incurred by Lender in connection with enforcing Lender's rights under the Loan
Documents; (v) any of the foregoing arising out of, in connection with or
following any renewals (including renewals of obligations which had been
previously satisfied), extensions, modifications, alterations and rearrangements
of any of the Loan Documents; (vi) any of the foregoing arising after Borrower
has commenced or becomes subject to any case under the Bankruptcy Code,
including any advances made to Borrower, any interest that accrues after the
filing of the bankruptcy petition (even if the interest cannot be collected in
the proceeding under the Bankruptcy Code), and attorneys' fees. If Borrower
fails to pay or perform any of the Guarantied Obligations, Guarantor will
immediately pay or perform such Guarantied Obligation.
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NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE MAXIMUM LIABILITY OF
GUARANTOR UNDER THIS GUARANTY IS LIMITED TO THE PRINCIPAL AMOUNT OF ONE MILLION
FOUR HUNDRED THOUSAND DOLLARS ($1,400,000.00), PLUS ACCRUED AND UNPAID INTEREST,
AND ANY COSTS, EXPENSES AND FEES OF ENFORCEMENT OF THIS GUARANTY OR THE LOAN
DOCUMENTS; PROVIDED, HOWEVER, THAT IF ANY OF THE GUARANTIED OBLIGATIONS ARISE
FROM LENDER MAKING AN ADVANCE AGAINST ACCOUNTS (AS DEFINED IN THE LOAN
AGREEMENT) THAT ARE FRAUDULENT, SPURIOUS, NOT BONA FIDE OR FROM LENDER'S
RELIANCE ON FALSE INFORMATION WHICH WAS PROVIDED BY BORROWER TO LENDER WHERE
BORROWER EITHER KNEW THAT SUCH INFORMATION WAS FALSE OR BORROWER WAS GROSSLY
NEGLIGENT IN PROVIDING SUCH INFORMATION TO LENDER, THEN THE LIABILITY OF
GUARANTOR FOR SUCH GUARANTIED OBLIGATIONS SHALL BE UNLIMITED. IN CONNECTION WITH
THE FOREGOING, GUARANTOR SHALL NOT BE LIABLE FOR ANY PUNITIVE DAMAGES UNLESS THE
GUARANTOR INDIVIDUALLY OR WITH OTHERS CAUSED SUCH ACCOUNTS (AS DEFINED IN THE
LOAN AGREEMENT) TO BE PLEDGED TO LENDER OR CAUSED SUCH FALSE INFORMATION TO BE
PROVIDED TO LENDER. IN THE EVENT THAT SUBSEQUENT TO THE EFFECTIVE DATE OF THIS
GUARANTY ADDITIONAL SHARES OF COMMON STOCK OF BORROWER ARE ISSUED TO THIRD
PARTIES THEREBY LOWERING THE PERCENTAGE OF GUARANTOR'S OWNERSHIP INTEREST IN
BORROWER, THEN, SO LONG AS NO EVENT OF DEFAULT THEN EXISTS UNDER THE LOAN
DOCUMENTS, LENDER AGREES TO CONSIDER A REQUEST FROM GUARANTOR FOR A REDUCTION IN
THE MAXIMUM ONE MILLION FOUR HUNDRED THOUSAND ($1,400,000) OF PRINCIPAL
LIABILITY SET FORTH ABOVE TO AN AMOUNT COMMENSURATE WITH THE RESULTING
PERCENTAGE OF GUARANTOR'S OWNERSHIP INTEREST IN BORROWER; PROVIDED, HOWEVER,
THAT IN NO EVENT SHALL THE MAXIMUM PRINCIPAL LIABILITY BE REDUCED BELOW ONE
MILLION DOLLARS ($1,000,000).
4. LENDER'S DIRECT RIGHTS.
4.1 GUARANTY OF PAYMENT. This is a guaranty of payment and performance
and is not a guaranty of collection.
4.2 DIRECT RIGHTS AGAINST GUARANTOR. Upon the occurrence of an Event of
Default (as defined in the Loan Agreement), Lender may enforce its rights under
this Guaranty without first seeking to obtain payment or performance from or
without resorting to: (i) Guarantor (the undersigned), meaning that Lender may
delay, in Lender's sole and complete discretion, in the exercise of rights
against Guarantor; (ii) Borrower; (iii) any other guarantor; or (iv) any
collateral Lender may hold for the Guarantied Obligations; (iv) any other remedy
or right that Lender may have.
4.3 BORROWER'S BANKRUPTCY. Upon the occurrence of an Event of Default
(as defined in the Loan Agreement), Lender may immediately pursue its rights
under this
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Guaranty, even though Lender may be stayed from accelerating or collecting the
Guarantied Obligations from Borrower.
4.4 WAIVER OF PRIORITY OF COLLECTION. Guarantor waives any rights
Guarantor may have to require Lender to proceed against the Borrower or to
pursue any other remedy in Lender's power which Guarantor cannot pursue which
would lighten Guarantor's burden. In addition, Guarantor waives Guarantor's
right to benefit from every security which now or hereafter exists for the
performance of the Guarantied Obligations or for the performance of any other
guarantor's obligations owing to Lender. If Lender decides to proceed first to
exercise any other remedy or right, or to proceed against another person or any
collateral, Lender retains all of Lender's rights under this Guaranty.
5. CONTINUING GUARANTY AND REVOCATION. This Guaranty guaranties the Guarantied
Obligations, including Borrower's existing obligations under the Loan Documents,
as well as all future advances made under the Loan Documents. This Guaranty also
guaranties Borrower's future liability under successive transactions which
either continue the Guarantied Obligations or from time to time renew some or
all of them after having been satisfied and to that extent is a continuing
guaranty of the Guarantied Obligations. Guarantor may not terminate or revoke
this Guaranty. Guarantor irrevocably waives any right he has, including any
rights under California Civil Code Section 2815, to terminate or revoke the
continuing nature of this Guaranty and its application to any Guarantied
Obligations arising after any attempt to terminate this Guaranty.
6. NO NOTICE REQUIRED. Guarantor will not be released or exonerated from
Guarantor's obligations under this Guaranty if Guarantor is not notified by
Lender of these events: (i) Borrower's failure to pay timely any amount owed
under any of the Loan Documents or to pay or perform any of the other Guarantied
Obligations; (ii) Borrower's failure to perform any other obligation under any
of the Loan Documents; (iii) any adverse change in Borrower's financial
condition of business; (iv) Lender's acceptance of this Guaranty; (v) all other
notices to which Guarantor might be entitled.
7. GUARANTOR'S ADDITIONAL WAIVERS. Guarantor waives any right Guarantor may have
to require any of the following acts: demand; presentment; diligence; protest;
notice of dishonor; and any other notice to which Guarantor may be entitled.
8. NO RELEASE OF GUARANTOR. Lender may do or suffer any of the following, by
action or inaction, without releasing or exonerating Guarantor from any of
Guarantor's obligations under this Guaranty and without notifying Guarantor of
any
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of the following: (i) renew, extend, rearrange, alter, impair, suspend or
otherwise modify any of the other Loan Documents, any of the Guarantied
Obligations or any of the rights or remedies of Lender under the Loan Documents;
(ii) release Borrower or any other guarantor from any of the Guarantied
Obligations; (iii) sell, release, subordinate, impair, suspend, waive or
otherwise fail to obtain, perfect or realize upon (or continue the perfection
of) a security interest in any collateral for any of the Guarantied Obligations,
this Guaranty or any other guaranty of the Guarantied Obligations; (iv) exercise
Lender's rights in any collateral for any of the Guarantied Obligations, this
Guaranty or any other guaranty of the Guarantied Obligations in any order that
Lender may elect in its sole discretion; (v) advance additional funds to or for
the benefit of Borrower; (vi) foreclose on any collateral for the Guarantied
Obligations, or any portion thereof (including the collateral provided under a
deed of trust) or a guaranty of the Guarantied Obligations, or any portion
thereof in a manner that diminishes, impairs or precludes the right of Guarantor
to enjoy any rights of subrogation against Borrower or any other guarantor, or
to obtain reimbursement, performance, or indemnification for payment or
performance under this Guaranty (in this connection, Guarantor waives any rights
and defenses arising out of an election of remedies by Lender, even though that
election of remedies, such as nonjudicial foreclosure with respect to security
for a Guarantied Obligation or any other guaranty, has destroyed Guarantor's
rights of subrogation and reimbursement against Borrower or any other guarantor
by operation of law and, in addition, Guarantor waives any defenses arising
under Uniform Commercial Code Sections 1103 and 9501 et seq.); (vii) permit or
suffer the impairment of any of the Guarantied Obligations in a case under the
Bankruptcy Code by or against Borrower; (viii) make an election under Bankruptcy
Code Section 1111(b)(2) in a case by or against Borrower; (ix) permit or suffer
the creation of secured or unsecured credit or debt under Bankruptcy Code
Section 364 in a case by or against Borrower; (x) permit or suffer the
disallowance, avoidance or subordination of any of the Guarantied Obligations or
collateral for any of the Guarantied Obligations; (xi) fail to exercise any
right or remedy Lender may have with respect to the payment or performance of,
any of the Loan Documents or any of the Guarantied Obligations; or (xii) fail to
obtain a guaranty, other assurance of payment, or credit enhancement from any
other person.
9. WAIVER OF SUBROGATION, REIMBURSEMENT, PERFORMANCE AND INDEMNIFICATION.
Guarantor permanently waives and shall not seek to exercise any of the following
rights that Guarantor may have against Borrower, any other guarantor, or any
collateral provided by Borrower or any other guarantor, for
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any amounts paid by Guarantor, or acts performed by Guarantor under this
Guaranty: (i) all rights that Guarantor may have, upon satisfying the Guarantied
Obligations, or any portion thereof, to enforce any remedies which Lender then
has against Borrower and to require any other guarantor to contribute to the
amount paid by Guarantor in connection with this Guaranty (including, without
limitation, any right of subrogation, whether contractual, under Section 509 of
the Bankruptcy Code, other similar insolvency laws or arrangements, or
otherwise); (ii) all rights that Guarantor may have to the benefit of any
security for the performance of the Guarantied Obligations or the performance by
any other guarantor of the Guarantied Obligations; (iii) all rights of
reimbursement from Borrower for the amounts paid by Guarantor in connection with
the Guarantied Obligations (including costs and expenses); (iv) any right to
compel client to perform the Guarantied Obligations when due; or (v) all rights
of indemnification from Borrower, any other guarantor or any other third party.
Guarantor irrevocably waives and releases Borrower from all "claims" (as defined
in Section 101(4) of the Bankruptcy Code) to which Guarantor is or would be
entitled by virtue of this Guaranty of the Guarantied Obligations or the payment
of all or a portion of the Guarantied Obligations by Guarantor pursuant to this
Guaranty.
10. SUBORDINATION OF GUARANTOR.
10.1 SUBORDINATION OF CLAIMS. Upon the occurrence of a default under
Paragraph 11 hereof or an Event of Default under the Loan Agreement, where such
default pursuant to Paragraph 11 hereof or Event of Default under the Loan
Agreement is not timely cured during any applicable cure period, if any, then at
all times thereafter all principal and interest on all then existing and future
indebtedness, liabilities, and obligations of Borrower, any other guarantor or
any other third party that is also indebted to Lender owing to Guarantor,
whether fixed or contingent, matured or unmatured, and liquidated or
unliquidated (the "Subordinated Debt") shall be subordinated in right of payment
to the payment and performance of the Guarantied Obligations, the obligations of
such other guarantor owing to Lender, or the obligations of such other third
party owing to Lender, as appropriate. The subordination, once effective, shall
be irrevocable so long as the Loan Documents remain in effect or any of the
Guarantied Obligations are outstanding.
10.2 PAYMENTS. In the event the subordination becomes effective pursuant
to Paragraph 10.1 hereof, then Guarantor agrees that:
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A. Guarantor will not thereafter accept any payments on any of
the Subordinated Debt.
B. If Guarantor receives any payment on the Subordinated Debt
following the subordination becoming effective pursuant to Paragraph 10.1,
Guarantor shall immediately deliver the payment to Lender.
C. If Guarantor receives any payments, security interests, or
other rights in any property of Borrower in violation of the subordination, such
payment or property shall be received by Guarantor in trust for Lender and shall
immediately be delivered and transferred to Lender.
10.3 ATTORNEY-IN-FACT. Guarantor appoints Lender, conditioned upon the
subordination becoming effective pursuant to Paragraph 10.1 hereof, as
Guarantor's attorney-in-fact to file claims, vote on any plan of reorganization
and receive payments, on behalf of Guarantor with respect to any of the
Subordinated Debt in any case by or against Borrower under the Bankruptcy Code
(including Chapters 7 or 11), any assignment for the benefit of creditors made
by Borrower, or in any other reorganization or insolvency proceeding.
10.4 LIMITATION ON ACTIONS. So long as any of the Guarantied Obligations
remain unpaid, in whole or in part, or so long as the Loan Documents remain in
effect, Guarantor agrees: (i) not to sell, assign, transfer, pledge, or give a
security interest in the Subordinated Debt (except subject expressly to this
Guaranty); (ii) not to enforce or apply, or take any steps to enforce or apply,
any security now or hereafter existing, for the Subordinated Debt; (iii) not to
commence, prosecute or participate in any administrative, legal or equitable
action against Borrower or in any administrative, legal or equitable action that
might adversely affect Borrower; and (iv) not to join in any petition for
bankruptcy, assignment for the benefit of creditors, or creditors' agreement
against Borrower.
11. DEFAULT. Upon the happening of any of the following events: the occurrence
of an Event of Default under the Loan Agreement which is not timely cured during
any applicable cure period, any revocation, breach or termination by Guarantor
of this Guaranty, or suspension of business of Guarantor, or the issuance of any
writ of attachment against any of the property of Guarantor where such writ is
not dismissed or discharged within fifteen (15) days from the date that it was
first issued, or the making by Guarantor of any assignment for the benefit of
creditors, or a trustee or receiver being appointed for Guarantor or for any
property of Guarantor, or any proceeding being commenced by or against Guarantor
under any bankruptcy,
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reorganization, adjustment of debt, insolvency, receivership, liquidation or
dissolution law or statute and, in the case of such a proceeding being commenced
against Guarantor, such proceeding is not dismissed within thirty (30) days
following the commencement date thereof, then and in any such event and at any
time thereafter, Lender may, without notice to Borrower or Guarantor, declare
any or all of the Guarantied Obligations, whether or not then due, immediately
due and payable by Guarantor under this Guaranty, and Lender shall be entitled
to enforce the obligations of Guarantor hereunder.
12. MISCELLANEOUS.
12.1 REVIVAL OF DEBT. Notwithstanding any revocation of this Guaranty,
Guarantor's obligations under this Guaranty shall include and shall be increased
by the amount returned by Lender which was previously paid by Borrower or any
other guarantor of any of the Guarantied Obligations prior to the effectiveness
of such revocation because of the application of the Bankruptcy Code, any
fraudulent transfer law, or any law respecting preferences.
12.2 EFFECT OF COMPLIANCE. Except as is expressly provided in the last
sentence of Paragraph 3 hereof, Guarantor's compliance with any of the
provisions of this Guaranty will not reduce or affect in any manner the
liability of Guarantor under the any of the other provisions of this Guaranty.
12.3 NO MARSHALING. Lender has no obligation to marshal any assets in
favor of Guarantor, or against or in payment of: (i) any of the Guarantied
Obligations, or (ii) any other obligation owed to Lender by Guarantor, Borrower,
or any other person.
12.4 FEES AND COSTS. Guarantor will pay all of Lender's fees and costs
incurred in enforcing this Guaranty, including Lender's reasonable attorneys'
fees (including without limitation any attorneys fees' incurred by Lender in
connection with any probate claim, bankruptcy claim, third-party claim, secured
creditor claim, reclamation complaint, and complaint for relief from any stay
under the U.S.
Bankruptcy Code or otherwise).
12.5 ASSIGNMENT. Guarantor may not assign Guarantor's obligations or
liabilities under this Guaranty. Subject to the preceding sentence, this
Guaranty shall be binding upon the parties hereto and their respective heirs,
executors, successors, representatives and assigns and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Lender may assign its rights under this Guaranty.
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12.6 APPLICABLE LAW. The laws of the State of California will apply to
the interpretation and enforcement of this Guaranty, without regard to
California's internal laws regarding conflicts of law.
12.7 INTEGRATION. This Guaranty is the entire agreement of Guarantor
with respect to the subject matter of this Guaranty.
12.8 RIGHTS CUMULATIVE. All of Lender's rights under this Guaranty are
cumulative. The exercise of any one right does not exclude the exercise of any
other right given in this Guaranty or any other right of Lender not set forth in
this Guaranty.
12.9 RULES OF CONSTRUCTION. The following rules shall apply in
interpreting the meaning of this Guaranty: (i) "Includes" and "including" are
not limiting; (ii) "Or" is not exclusive; and (iii) "All" includes "any" and
"any" includes "all."
12.10 SEVERABILITY. If any provision of this Guaranty is unenforceable,
or otherwise invalid, the remaining provisions of this Guaranty shall be
enforced to the fullest possible extent.
12.11 NOTICES. Any notice given in connection with this Guaranty shall
be in writing addressed to the respective party at its address set forth below
its signature on the last page of this Guaranty and may be personally served,
telecopied or sent by overnight courier service or United States certified mail,
postage prepaid; provided, however, that any notice of revocation of this
Guaranty may only be sent by United States certified mail, postage prepaid.
Notices shall be deemed to have been given: (a) if delivered in person, when
delivered; (b) if delivered by telecopy, on the date of transmission if
confirmed and if transmitted on a business day before 4:00 p.m. or, if not, on
the next succeeding business day; (c) if delivered by overnight courier, two
days after delivery to such courier properly addressed; or (d) if by United
States certified mail, five business days after depositing in the United States
mail, with postage prepaid and properly addressed. The address for notices may
be changes by delivering written notice of such change in accordance with this
Paragraph.
12.12 JOINT AND SEVERAL LIABILITY. The obligations hereunder of the
persons or entities constituting Guarantor under this Guaranty are joint and
several.
12.13 HEADINGS; NUMBER; GENDER. Paragraph headings
used in this Guaranty are for convenience only. They are
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not a part of this Guaranty and shall not be used in construing this Guaranty.
Wherever appropriate in this Guaranty, the singular shall be deemed to also
refer to the plural, and the plural to the singular.
12.14 REVIEW OF DOCUMENTS. Guarantor acknowledges reviewing copies of,
and is fully familiar with, each and every Loan Document.
12.15 COUNTERPARTS. This Guaranty may be executed in counterparts, each
of which shall be deemed an original, but all of which, when taken together,
shall be deemed one and the same agreement.
13. ACKNOWLEDGMENT OF WAIVERS AND LOSS OF DEFENSES.
13.1 Guarantor acknowledges that certain provisions of this Guaranty
operate as waivers of rights that Guarantor would otherwise have under
applicable law. Other provisions permit Lender to take actions that Lender would
otherwise not have a right to take, to fail to take actions that Lender would
otherwise have an obligation to take, or to take actions that may prejudice
Guarantor's rights and obligations under this Guaranty and against the Borrower.
In the absence of these provisions Guarantor might have defenses against
Guarantor's obligations under this Guaranty. These defenses might permit
Guarantor to avoid some or all of Guarantor's obligations under this Guaranty.
13.2 Guarantor intends by the waivers and other provisions of this
Guaranty, including the acknowledgement set forth in this section, to be liable
to the greatest extent permitted by law for all of Borrower's obligations to
Lender. Guarantor intends to have this liability even if the terms of the Loan
Documents change or if Guarantor does not have any rights against Borrower.
13.3 Guarantor acknowledges that (i) Guarantor understands the
seriousness of the provisions of this Guaranty; (ii) Guarantor has had a full
opportunity to consult with counsel of Guarantor's choice; and (iii) Guarantor
has consulted with counsel of Guarantor's choice or has decided not to consult
with counsel.
14. WAIVER OF JURY TRIAL. GUARANTOR AND LENDER EACH WAIVE
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
RELATING TO THIS GUARANTY.
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IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
first above written.
/s/ SHEILA LEVY
------------------------------------------
Sheila Levy
Address c/o United Golf Products, Inc.
20301 Nordhoff Street
Chatsworth, CA 91311
Phone No. (818) 349-3164
Fax No. (818) 349-3985
Social Security No._______________
LENDER hereby accepts this Guaranty and agrees to the provisions
contained in Paragraph 14.
CAPITAL BUSINESS CREDIT,
A DIVISION OF CAPITAL FACTORS,
INC.,
a Florida corporation
By /s/ Nathan L. Hugg
---------------------------------------
Title: Vice President
------------------------------------
Address 700 S. Flower Street
Suite 2001
Los Angeles, CA 90017-4101
Fax No. (213) 891-1324
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EXHIBIT 6.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of the 3rd day of February 1997
between United Golf Products, Inc., a Delaware corporation (the "Company"), and
Warren Levy ("Executive");
W I T N E S E T H :
1. EMPLOYMENT.
The Company hereby employs Executive to render services as Chief
Executive Officer of the Company. Executive hereby accepts such employment and
agrees to render his services fully, faithfully, and to the best of his ability
subject to the direction and control of the Company's Board of Directors.
Executive's services shall be exclusive to the Company.
2. TERM.
Subject to the provisions of Paragraph 6 below, the term of this
Agreement shall be for a period of five years commencing on February 3, 1997
(the "Commencement Date") and ending on February 2, 2002.
3. PLACE OF SERVICE.
Executive's principal office and normal workplace shall be at the
Company's offices in Chatsworth, California, or at such other location to which
such offices are relocated in los Angeles County.
4. COMPENSATION AND BENEFITS.
(a) Base Salary.
For the services to be rendered by Executive under this
Agreement, the Company shall pay Executive a base salary of not less than
$144,000 per year payable in equal monthly installments, less income tax
withholdings and other normal employee deductions. Executive's annual base
salary shall be subject to increase annually on February 3 or each year
following the Commencement Date by an amount equal to the product of (i) the
annual base salary for the preceding 12 month period and (ii) the percentage
increase in the Consumer Price Index for All Urban Consumers (Los Angeles) for
the preceding 12 month period ending on the immediately preceding January 31.
Such increased salary shall be calculated and communicated to Executive by the
Executive Compensation Committee of the Board within 60 days following each such
February 3 and shall take effect on such February 3.
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(b) Stock Options.
Executive shall participate in incentive compensation programs
and in stock option plans to the extent deemed appropriate by the Board of
Directors.
(c) Other Benefit Plans.
Executive shall participate in and receive benefits under and in
accordance with the provisions of any employee benefit plan adopted or to be
adopted by the Company and which is generally applicable to executives of the
Company.
(d) Discretionary Bonus.
In addition to Executive's annual base salary, the Board of
Directors may grant to Executive a bonus at any time, and from time to time, and
in such amount as shall be determined by the Board of Directors in its sole
discretion.
5. VACATION.
Executive shall be entitled to a paid vacation of four weeks per year.
6. REIMBURSEMENT FOR EXPENSES.
Executive shall be entitled to incur on behalf of the Company reasonable
and necessary expenses in connection with his duties and the Company shall pay
for or reimburse Executive for all such expenses.
7. TERMINATION.
Executive's employment under this Agreement shall terminate:
(i) upon death of Executive;
(ii) upon written notice from the Company to Executive in the
event of an illness or other cause incapacitating him from
performing his duties for six consecutive months; or
(iii) upon written notice from the Company in the event that
Executive commits any felonious act, is guilty of gross
negligence in the performance of his duties or willfully fails or
refuses to comply with the reasonable directions of the Board of
Directors.
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8. UNFAIR COMPETITION.
In the course of his employment, Executive will have access to
confidential records and information of the Company. During his employment by
the Company and thereafter, Executive will not directly or indirectly disclose
or misuse any such information except in accordance with his duties under this
Agreement. This provision of this Paragraph 7 shall survive the expiration or
termination, for any reason, of this Agreement or Executive's employment.
During the term hereof and for a period of two years following
termination of his employment, Executive agrees not to carry on in any state of
the United States of America or in any foreign country in which the Company or
any subsidiary or affiliate thereof is conducting business, either for himself
or as any member of any partnership, or as a stockholder, director, officer,
agent, or employee of another person, firm or corporation or otherwise, any
business similar to that being carried on by the Company (or any subsidiary or
affiliate thereof) if such business carried on by the Executive is materially
detrimental to the Company; provided, however, that the mere ownership by
Executive of not more than 5% of any corporation or similar business venture
shall not be deemed to be a violation of this covenant.
9. MERGER OR REORGANIZATION.
This Agreement shall not be terminated by the voluntary or involuntary
dissolution of the Company or by any merger or consolidation where the Company
is not the surviving or resulting corporation, or upon any transfer of all or
substantially all of the assets of the Company. In the event of any such merger
or consolidation or transfer of assets, the provisions of this Agreement shall
be binding on and shall inure to the benefit of the surviving or resulting
corporation or the corporation to which such assets shall be transferred.
10. ARBITRATION.
Any controversy or claim arising out of or relating to this Agreement,
the breach thereof or the coverage of this arbitration provision shall be
settled by arbitration which shall be in accordance with the Commercial
Arbitration Rules of the American Arbitration Association as such rules shall be
in effect on the date of delivery of demand for arbitration. The arbitration of
such issues, including the determination of the amount of any damages suffered
by either party hereto by reason of the acts or omissions of the other, shall be
to the exclusion of any court of law. The decision of the arbitrators or a
majority of them shall be final and binding on both parties and their respective
heirs, executors, administrators, successors and assigns. There shall be three
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arbitrators, one to be chosen directly by each party at will and the third
arbitrator to be to be selected by the two arbitrators so chosen. Each party
shall pay the fees of the arbitrator selected by him and of his own attorneys
and the expenses of his witnesses and all other expenses connected with the
presentation of his case. All other costs of the arbitration, including the cost
of the record or transcripts thereof, if any, administrative fees, and all other
fees and costs shall be borne equally by the parties.
11. NON-ASSIGNABILITY.
The obligations of Executive hereunder are personal and may not be
assigned or transferred in any manner whatsoever, nor are such obligations
subject to involuntary alienation, assignment or transfer.
12. AMENDMENT.
This instrument contains the entire agreement of the parties. It may not
be changed orally but only by a written agreement executed by both of the
parties hereto.
13. NOTICES.
All notices which a party is required or may desire to give to the other
party under or in connection with this Agreement shall be sufficient if given by
addressing same to the other party at the address listed in the Company's
records or at such other place as may be designated in writing by like notice.
Any notice shall be deemed to have been delivered when addressed as required
herein and deposited, postage prepaid, in the United States Mail.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
hereinabove set forth.
UNITED GOLF PRODUCTS, INC.
By /s/ SHEILA LEVY
----------------------------------
EXECUTIVE
/s/ WARREN LEVY
------------------------------------
Warren Levy
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EXHIBIT 6.6
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- GROSS
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES. This Lease ("Lease"), dated for reference purposes only,
November 9, 1994 is made by and between Calmart Limited Partnership ("Lessor")
and WSL, Inc., a California corporation d.b.a Rawlings Golf and Mission Hills
Golf ("Lessee"), (collectively the "Parties," or individually a "Party").
1.2 PREMISES. That certain real property including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 20301 Nordhoff Street, Chatsworth located in the
County of Los Angeles, State of California and generally described as (describe
briefly the nature of the property) all approximate 31,600 square foot concrete
tilt-up industrial building situated on 49,237 square feet of land. L.A. County
Assessor's Parcel Number 2781-001-018 ("Premises"). (See Paragraph 2 for further
provisions.)
1.3 TERM. Three (3) years and 0 months ("Original Term") commencing
March 1, 1995 ("Commencement Date") and ending February 28, 1998 ("Expiration
Date"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION. ___________________________________ ("Early
Possession Date"). (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT. $13,588.00 per month ("Base Rent"), payable on the first
day of each month commencing on or before March 1995. (See Paragraph 4 for
further provisions.)
[ ] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION. $13,588.00 as Base Rent for the
period March 1995.
1.7 SECURITY DEPOSIT. $13,588.00 on or before March 1, 1995 ("Security
Deposit"). (See Paragraph 5 for further provisions.)
1.8 PERMITTED USE: General offices, sales assembly, warehousing and
distribution of sporting goods and all legal activities related thereto. (See
Paragraph 6 for further provisions.)
1.9 INSURING PARTY. Lessor is the "Insuring Party." $__________ is the
"Base Premium." (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS. The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes): The
Seeley Company represents [ ] Lessor exclusively ("Lessor's Broker"); [X] both
Lessor and Lessee, and represents [ ] Lessee exclusively ("Lessee's Broker");
[ ] both Lessee and Lessor. (See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by ___________________________ ("Guarantor"). (See Paragraph 37 for
further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 53 and Exhibits _____ all of which constitute a part of
this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this
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Lease. Unless otherwise provided herein, any statement of square footage set
forth in this Lease, or that may have been used in calculating rental, is an
approximation which Lessor and Lessee agree is reasonable and the rental based
thereon is not subject to revision whether or not the actual square footage is
more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, the Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, shall be in effect during such period. Any such early possession
shall not affect nor advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date. If one is specified in Paragraph 1.4. or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be
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'
obligated to pay rent or perform any other obligation of Lessee under the terms
of this Lease until Lessor delivers possession of the Premises to Lessee. If
possession of the Premises is not delivered to Lessee within sixty (60) days
after the Commencement Date, Lessee may, at its option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
Parties shall be discharged from all obligations hereunder; provided, however,
that if such written notice by Lessee is not received by Lessor within said ten
(10) day period, Lessee's right to cancel this Lease shall terminate and be of
no further force or effect. Except as may be otherwise provided, and regardless
of when the term actually commences, if possession is not tendered to Lessee
when required by this Lease and Lessee does not terminate this Lease, as
aforesaid, the period free of the obligation to pay Base Rent, if any, that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to what Lessee would otherwise have
enjoyed under the terms hereof, but minus any days of delay caused by the acts,
changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
Lease, Lessee shall; upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. It Lessor elects to withhold such
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consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in, on or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and compliance in
a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as
defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority.
Reportable Use shall also include Lessee's being responsible for the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Law requires that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but in compliance with all Applicable Law,
use any ordinary and customary materials reasonably required to be used by
Lessee in the normal course of Lessee's business permitted on the Premises, so
long as such use is not a Reportable Use and does not expose the Promises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefrom or therefor,
including, but not limited to, the installation (and removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the Premises,
other than as previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor. Lessee shall also immediately give Lessor
a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action or proceeding given to, or received from,
any governmental authority or private party, or persons entering or occupying
the Premises, concerning the presence, spill, release, discharge of, or exposure
to, any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnity, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee
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from its obligations under this Lease with respect to Hazardous Substances or
storage tanks, unless specifically so agreed by Lessor in writing at the time of
such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation. storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation.
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's
warranty as to condition), 2.3 (Lessor's warranty as to compliance with
covenants, etc.), 7.2 (Lessor's obligations to repair), 9 (damage and
destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and
expense and at all times, keep the Premises and every part thereof in good
order, condition and repair, (whether or not such portion of the Premises
requiring repair, or the means of repairing the same, are reasonably or readily
accessible to Lessee, and whether or not the need for such repairs occurs as a
result of Lessees use, any prior use, the elements or the age of such portion of
the Premises), including, without limiting the generality of the foregoing, all
equipment or facilities serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired or
unfired pressure vessels, fire sprinkler and/or standpipe and hose or other
automatic fire extinguishing system, including fire alarm and/or smoke detection
systems and equipment, fire hydrants, fixtures, walls (interior and exterior),
ceilings, floors, windows, doors, plate glass, skylights, landscaping,
driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways
located in, on, about, or adjacent to the Premises, but excluding foundations,
the exterior roof and the structural aspects of the Premises. Lessee shall not
cause or permit any Hazardous Substance to be spilled or released in, on, under
or about the Premises (including through the plumbing or sanitary sewer system)
and shall promptly, at Lessee's expense, take all investigatory and/or remedial
action reasonably recommended, whether or not formally ordered or required, for
the cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements
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surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof coverings [illegible] and (vi) asphalt and parking lot
maintenance.
7.2 LESSOR'S OBLIGATIONS. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5. Lessor shall, at Lessor's expense,
keep the foundations, exterior roof and structural aspects of the Premises in
good order, condition and repair, Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass or the interior surface of exterior walls. Lessor shall
not, in any event, have any obligation to make any repairs until Lessor receives
written notice of the need for such repairs. It is the intention of the Parties
that the terms of this Lease govern the respective obligations of the Parties as
to maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of, any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility
Installations" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security, fire
protection systems, communication systems, lighting fixtures, heating,
ventilating, and air conditioning equipment, plumbing, and fencing in, on or
about the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and
equipment that can be removed without doing material damage to the Premises. The
term "Alterations" shall mean any modification of the improvements on the
Premises from that which are provided by Lessor under the terms of this Lease,
other than Utility Installations or Trade Fixtures, whether by addition or
deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by lessee that are not yet owned
by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations
or Utility Installations in, on, under or about the Premises without Lessor's
prior written consent. Lessee may, however, make non-structural Utility
Installations to the interior of the Premises (excluding the roof), as long as
they are not visible from the outside, do not involve puncturing, relocating or
removing the roof or any existing walls, and the cumulative cost thereof during
the term of this Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond
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in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises as provided by
law. If Lessee shall, in good faith, contest the validity of any such lien,
claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises. If Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal
to one and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorney's fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
or become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
their installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris and
in good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost increase
("Insurance Cost Increase") occurring during the term of this Lease. "Insurance
Cost Increase" is defined as any increase in the actual
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cost of the insurance required under Paragraphs 8.2(b), 8.3(a) and 8.3(b).
("Required Insurance"), over and above the Base Premium, as hereinafter defined,
calculated on an annual basis. "Insurance Cost Increase" shall include, but riot
be limited to, increases resulting from the nature of Lessee's occupancy, any
act or omission of Lessee, requirements of the holder of a mortgage or deed of
trust covering the Premises, increased valuation of the Premises, and/or a
premium rate increase. If the parties insert a dollar amount in Paragraph 1.9,
such amount shall be considered the "Bass Premium." In lieu thereof, if the
Premises have been previously occupied, the "Base Premium" shall be the annual
premium applicable to the most recent occupancy. If the Premises have never been
occupied, the "Base Premium" shall be the lowest annual premium reasonably
obtainable for the Required Insurance as of the commencement of the Original
Term, assuming the most nominal use possible of the Premises. In no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b) (Liability Insurance Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor
within thirty (30) days after receipt by Lessee of a copy of the premium
statement or other reasonable evidence of the amount due. It the insurance
policies maintained hereunder cover other property besides the Premises, Lessor
shall also deliver to Lessee a statement of the amount of such Insurance Cost
Increase attributable only to the Premises showing in reasonable detail the
manner in which such amount was computed. Premiums for policy periods commencing
prior to, or extending beyond, the term of this Lease shall be prorated to
coincide with the corresponding Commencement or Expiration of the Lease term.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss or
damage to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. Lessee Owned Alterations and Utility Installations shall be
insured by Lessee under Paragraph 3.4. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for
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the enforcement of any ordinance or law regulating the reconstruction or
replacement of any undamaged sections of the Premises required to be demolished
or removed by reason of the enforcement of any building, zoning, safety or land
use laws as the result of a covered cause of loss, but not including plate glass
insurance. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual properly insurance
coverage amount by a factor of not less than the adjusted U.S. Department or
Labor Consumer Price index for All Urban Consumers for the city nearest to where
the Premises are located.
(b) RENTAL VALUE. Lessor shall, in addition, obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and Lender(s), insuring the loss of the full rental
and other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. Since Lessor is the Insuring Party,
the Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. Lessee shall
cause to be delivered to Lessor certified copies of, or certificates evidencing
the existence and amounts of, the insurance, and with the additional insureds,
required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor("Waiving Party") each hereby release and relieve the
other, and waive their entire right to recover damages (whether in contract or
in tort) against the other, for loss of or damage to the Waiving Party's
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property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnity, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility Installations
the repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.21(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto,
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including demolition, debris removal and upgrading required by the operation of
applicable building codes, ordinances or laws, and without deduction for
depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage that is an
insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event, however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor does not so elect, then this Lease shall terminate sixty (60)
days following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to Paragraph
9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage that is
not an insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
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9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and
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remediation of such Hazardous Substance Condition totally at Lessee's expense
and without reimbursement from Lessor except to the extent of an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall Provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment. In
such event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in Lessor's
notice of termination. If a Hazardous Substance Condition occurs for which
Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in Paragraph 9.6(a)
for a period of not to exceed twelve (12) months.
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("Tax Increase"). Subject to Paragraph
10.1(b), payment of any such Tax Increase shall be made by Lessee within thirty
(30) days after receipt of Lessor's written statement setting forth the amount
due and the computation thereof. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes to be
paid by Lessee shall cover any period of time prior to or after the expiration
or earlier termination of the term hereof, Lessee's share of such taxes shall be
equitably prorated to cover only the period of time within the tax fiscal year
this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment
after such proration.
(b) ADVANCE PAYMENT. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the right,
at Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Tax Increase to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
amount due, at least twenty (20) days prior to the applicable delinquency date,
or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects
to require payment monthly in advance, the monthly payment shall be that equal
monthly amount which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated Tax Increase to be paid. When the actual amount of the
applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Tax Increase as the same becomes due, Lessee
shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary
to pay such obligation. All moneys paid to Lessor under this Paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at
the option of Lessor, be treated as an additional Security Deposit under
Paragraph 5.
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(c) ADDITIONAL IMPROVEMENTS. Notwithstanding Paragraph 10.1(a)
hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any
increase in Real Property Taxes assessed by reason of Alterations or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the
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time of the execution by Lessor of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net
Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1 (c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's
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remedies against any other person or entity responsible therefor to Lessor, or
any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the current monthly
Base Rent, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph
12.1(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment structure
of the rent payable under this Lease be adjusted to what is then the market
value and/or adjustment structure for property similar to the Premises as then
constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessees obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall
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not be liable for any prepaid rents or security deposit paid by such sublessee
to such sublessor or for any other prior Defaults or Breaches of such sublessor
under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1 (b), (iii) the recession of an unauthorized assignment or
subletting per Paragraph 12.1 (b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non- subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c) above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
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(e) The occurrence of any of the following events: (i) The making
by lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurance or security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the guarantors that existed at the
time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination: (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and
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damages as are recoverable therein, or Lessor may reserve therein the right to
recover all or any part thereof in a separate suit for such rent and/or damages.
If a notice and grace period required under subparagraphs 13.1 (b), (c) or (d)
was not previously given, a notice to pay rent or quit, or to perform or quit,
as the case may be, given to Lessee under any statute authorizing the forfeiture
of leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1 (b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1 (b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of
such overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) consecutive installments of Base Rent, then
notwithstanding
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Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent
shall, at Lessor's option, become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days after such notice
are reasonably required for its performance, then Lessor shall not be in breach
of this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. It more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of
this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $ per agreement) for brokerage services
rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an
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interest, or (e) if Base Rent is increased, whether by agreement or operation of
an escalation clause herein, then as to any of said transactions, Lessor shall
pay said Brokers a fee in accordance with the schedule of said Brokers in effect
at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
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20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or it no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. It any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default,or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted, Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
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26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT, CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non- subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement,
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judgment, or the abandonment by the other Party or Broker of its claim or
defense. The attorney's fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorney's fees
reasonably incurred. Lessor shall be entitled to attorney's fees, costs and
expenses incurred in the preparation and service of notices of Default and
consultations in connection therewith, whether or not a legal action is
subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such
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consent be deemed a waiver of any then existing Default or Breach, except as may
be otherwise specifically stated in writing by Lessor at the time of such
consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the imposition
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor: (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
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39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not
the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Promises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. It Lessee is a corporation, trust or
partnership, Lessee shall, upon execution of leases, deliver to Lessor evidence
satisfactory to Lessor of such authority.
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45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES
AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY
SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A
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STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at____________________________________
on_____________________________________________
by LESSOR:
Calmart Limited Partnership
By_____________________________________________
Name Printed: Joseph J. Martino
Title:_________________________________________
By_____________________________________________
Name Printed: Virginia Halstead
Title:_________________________________________
Address:_______________________________________
Tel. No. (____)_________ Fax No. (___)_________
Executed at_____________________________________
on______________________________________________
by LESSOR:
WSL, Inc., a California corporation
By /s/ WARREN LEVY
---------------------------------------------
Name Printed: Warren Levy
Title: President
By______________________________________________
Name Printed:___________________________________
Title:__________________________________________
Address:________________________________________
________________________________________________
Tel. No. (____)_________ Fax No. (___)_________
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777.
Fax. No. (213) 687-8616.
(C) COPYRIGHT 1990 -- BY AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION.
ALL RIGHTS RESERVED. NO PART OF THESE WORKS MAY BE REPRODUCED IN ANY
FORM WITHOUT PERMISSION IN WRITING.
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - GROSS BY AND
BETWEEN CALMART LIMITED PARTNERSHIP, AS LESSOR, AND WSL, INC., A CALIFORNIA
CORPORATION D.B.A. RAWLINGS GOLF AND MISSION GOLF, AS LESSEE FOR THE PROPERTY
COMMONLY KNOWN AS 20301 NORDHOFF STREET, CHATSWORTH, CALIFORNIA, DATED NOVEMBER
9, 1994
49. RENT SCHEDULES
A. MONTHLY RENTAL SCHEDULE:
March 1, 1995 through February 28, 1996: $13,588.00 per month
March 1, 1996 through February 28, 1997: $14,220.00 per month
March 1, 1997 through February 28, 1998: $14,852.00 per month
B. OPTION RENTAL SCHEDULE:
March 1, 1998 through February 28, 1999: $15,484.00 per month
March 1, 1999 through February 28, 2000: $16,116.00 per month
50. TENANT IMPROVEMENTS
Lessor, at Lessor's sole cost and expense, on or before May 30, 1995
shall install swamp coolers in the warehouse portion of the subject facility in
order to adequately cool said area.
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51. OPTION TO RENEW
Provided that Lessee is not then in default of any of its lease terms
and/or conditions, Lessor shall grant to Lessee the option to renew said lease
for one (1) additional two-year term. Lessee shall exercise its option by
providing Lessor with at minimum six month's notice prior to the expiration of
the original lease term.
52. HAZARDOUS MATERIALS
52.1 HAZARDOUS MATERIALS NOT PERMITTED. Lessee shall not cause or permit
any "Hazardous Material" (as defined in Subparagraph 52.4 below) to be brought
upon, kept, used or disposed of in or about the Premises by Lessee, its agents,
employees, contractors or invitees, other than in a manner which complies with
all applicable laws.
52.2 LESSOR'S DISCLOSURE. To the best of Lessor's knowledge that the
Premises complies with all environment laws, including those laws pertaining to
Hazardous Substances, existing as of the Commencement Date of the lease.
52.3 LESSEE'S INDEMNIFICATION OF LESSOR. Lessee shall indemnify, defend
and hold Lessor harmless from and against any and all claims, judgments,
damages, penalties, fines, costs reliabilities (including without limitations,
diminution in value of the premises, and sums paid in settlement of claims,
attorney's fees, consultant fees and expert fees) which arise as a result of
hazardous materials contamination provided that said hazardous substances are
the result of materials containing hazardous substances that have been placed
onto or introduced to the premises by Lessee and/or Lessee's agent(s) or
designee(s). This indemnification of Lessor by Lessee includes, without
limitation, costs in connection with any investigation of site conditions or any
cleanup, remedial, removal or restoration work required by any federal, state or
local governmental agency or political subdivision, because of hazardous
material present in the soil or ground water provided that said hazardous
substances are the result of materials containing hazardous substances that have
been placed onto or introduced to the premises by Lessee or its agents or
designees.
52.4 DEFINITION OF HAZARDOUS MATERIAL. As used herein, the term
"Hazardous Material" means any hazardous or toxic substance, material or waste
which is or becomes regulated by any local governmental authority, the State of
California or the United States Government. The term "Hazardous Material"
includes, without limitation, any material or substance which is (i) defined as
a "hazardous waste", or "extremely hazardous waste", or "restricted hazardous
waste" under Sections 25115, 25117 or 25122.7, or listed pursuant to Section
25140, of the California Health and Safety Code, Division 20, Chapter 6.5
("Hazardous Waste Control Law), (ii) defined as a "hazardous substance" under
Section 25316 of the California Health and Safety Code, Division 20, Chapter 6.8
(Carpenter-Presley-Tanner Hazardous Substance Account Act), (iii) defined as a
"hazardous material", "hazardous substance", or "hazardous waste" under Section
25501 of the California Health and Safety Code, Division 20, Chapter 6.95
(Hazardous Materials Release Response Plans and Inventory), (iv) defined as a
"hazardous substance" under Section 25281 of the California Health and Safety
Code, Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances),
(v) petroleum, (vi) asbestos, (vii) listed under Article 9 or defined as
hazardous or extremely hazardous pursuant to Article 11 of Title 22 of the
California Administrative Code, Division 4, Chapter 20, (viii) designated as a
"hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act (33 U.S.C. Section 1317), (ix) defined as "hazardous substance"
pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903), or (x) defined as a
"hazardous substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42
U.S.C. Section 9601).
53. SALE AND/OR LEASE HAZARDOUS MATERIAL WARNING AND LIABILITY RELEASE
Seller/Lessor and Buyer/Tenant(s) acknowledge that various materials
utilized in the construction of any improvements to the Property may contain
materials that have been or may in the future be
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determined to be toxic, hazardous or undesirable and may need to be specially
treated, specially handled and/or removed from the Property. For example, some
electrical transformers and other electrical components can contain PCBs, and
asbestos has been used in a wide variety of building components such as
fire-proofing, air duct insulation, acoustical tiles, spray-on acoustical
materials, linoleum, floor tiles, and plaster. Due to current or prior uses, the
Property or improvements may contain materials such as metals, minerals,
chemicals, hydrocarbons, biological or radioactive materials and other
substances which are considered, or in the future may be determined to be, toxic
wastes, hazardous materials or undesirable substances. Such substances may be in
above- and below-ground containers on the Property or may be present on or in
soils, water, building components or other portions of the Property in areas
that may or may not be accessible or noticeable.
Current and future federal, state, and local laws and regulations may
require the clean-up of such toxic, hazardous or undesirable materials at the
expense of those persons who in the past, present or future have had any
interest in the Property including, but not limited to, current, past and future
owners and users of the Property. Sellers/Lessors and Buyer/Tenant(s) must
consult with independent legal counsel of their choice to determine their
potential liability with respect to hazardous, toxic and/or undesirable
substances. Sellers/Lessors and Buyers/Tenant(s) should also consult with such
legal counsel to determine what provisions regarding toxic, hazardous or
undesirable substances they may wish to include in purchase and sale agreements,
leases, options and other legal documentation related to transactions they
contemplate entering into with respect to the Property.
The Seller/Lessor and Buyer/Tenant(s) acknowledge that the real estate
salespersons and brokers in this transaction have no expertise with respect to
toxic wastes, hazardous materials or undesirable substances and that proper
inspections of the Property by qualified experts are an absolute necessity to
determine whether or not there are any current or potential toxic wastes,
hazardous materials or undesirable hazardous materials and undesirable
substances problems that can be extremely costly to correct and that the real
estate salespersons and brokers would refuse to be involved in this transaction
unless Seller/Lessor and Buyer/Tenant(s) relieve the real estate salesperson and
brokers from all liability related hereto. Seller/Lessor and Buyer/Tenant(s)
therefore hereby agree that they shall indemnify and defend and hold the real
estate salesperson and brokers harmless from any claim, liability, damage, cost
or expense, including but not limited to court cost and attorney's fees, arising
out of or in any way related to toxic wastes, hazardous materials and/or
undesirable substances affecting the Property.
This Agreement has been prepared for submission to your attorney for
your attorney's approval. No representation or recommendation is made by The
Seeley Company or its agents or employees as to the legal sufficiency, legal
effect, or tax consequences of this Agreement or the Transaction relating
thereto.
AGREED AND ACCEPTED
LESSOR LESSEE
- ---------------------------------
[Illegible]
- --------------------------------- ---------------------------------
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<PAGE> 1
EXHIBIT 6.7
[COMPANY LETTERHEAD]
This letter is an agreement between WSL, Inc. and Team Sports of New
Zealand.
WSL, Inc. will provide all designs and source of raw and finished
material and provide assembly instructions for all Rawlings Golf products made
in New Zealand or Australia. This is for the purpose of building and
distributing Rawlings Golf products as a joint venture partner, for the
countries of New Zealand and Australia only.
WSL, Inc. will provide $30,000 in cash or raw materials and Team Sports
will provide $30,000 in U.S. currency as start up monies and material for this
new joint venture.
Team Sports will deduct all overhead and normal cost to run the business
and will split all profits. Team Sports will pay quarterly all royalties of all
Rawlings product sold at wholesale at the rate of 5%.
Team Sports will provide full sales information quarterly for all sales
and royalty payments.
By /s/ Don MacLeod By /s/ Warren Levy
---------------------------- ----------------------------
Don Macleod/Team Sports Warren Levy/WSL, Inc.
3-94 3-94
- ------------------------------ ------------------------------
Dated Dated
<PAGE> 1
EXHIBIT 6.8
ASPEN WEST GROUP, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
effective as of February 3, 1997, by and among ASPEN WEST GROUP, INC., a
Delaware corporation (the "Corporation"), and Warren E. Levy (the "Holder").
RECITALS
The Holder is a party to an Agreement and Plan of Reorganization dated
as of even date herewith, by and among the Corporation, Levy and WSL, Inc., a
California corporation (the "Reorganization Agreement"), pursuant to which the
Corporation is obligated to enter into this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties hereto
hereby agree as follows:
1. DEFINITIONS.
a. "CLOSING DATE" means the date of issuance of Exchange Common
Stock and Series A Preferred Stock to the Holder pursuant to the Reorganization
Agreement.
b. "COMMISSION" means the Securities and Exchange Commission or
any other Federal agency at the time administering the "Securities Act."
c. "COMMON STOCK" means any and all (i) shares of Exchange Common
Stock, (ii) shares of common stock of the Corporation issued upon conversion of
the Series A Preferred Stock; (iii) any common stock of the Corporation issued
as a dividend or other distribution with respect to or in replacement of the
Exchange Common Stock, or the Series A Preferred Stock, and (iv) any common
stock issued in any combination or subdivision of the Exchange Common Stock, or
the Series A Preferred Stock; provided that in determining the amount of Common
Stock held by any Person, the sum of (i), (ii), (iii) and (iv) shall be used.
Any reference to "common stock" without initial capital letters shall mean all
<PAGE> 2
other shares of the Corporation's common stock or other equity securities
convertible into shares of such "common stock."
d. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended or any similar Federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
e. "EXCHANGE COMMON STOCK" means the shares of common stock of
the Corporation issued to the Holder pursuant to the Reorganization Agreement.
f. "INITIATING HOLDERS" any holder or holders of no less than
fifty percent (50%) of the then outstanding Registrable Securities.
g. "PERSON" means any individual, corporation, trust,
partnership, association, or other entity.
h. "REGISTRABLE SECURITIES" means the Common Stock.
i. "REGISTER," "REGISTERED," AND "REGISTRATION," mean a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
j. "SECURITIES ACT" means the Securities Act of 1933, as amended,
or any similar Federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
k. "SELLER" means a holder of Registrable Securities selling such
shares.
l. "SERIES A PREFERRED STOCK" means the shares of Series A
Preferred Stock of the Corporation issued to the Holder pursuant to the
Reorganization Agreement.
2. REGISTRATION RIGHTS
2.1 DEMAND REGISTRATION.
a. REGISTRATION COMMENCEMENT. Upon the written
request from Initiating Holders at any time after the earlier to occur of (A)
six months after the Corporation's first registered underwritten offering to the
general public of its securities for its own account or (B) February 3, 1999,
that the Corporation
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<PAGE> 3
effect a registration with respect to all or any portion of the Registrable
Securities, the Corporation will:
i. promptly give written notice of the proposed
registration to all other Persons holding Registrable Securities; and
ii. as soon as practicable, use its diligent
reasonable efforts to effect such registration (including, without limitation,
the execution of an undertaking to file post-effective amendments, appropriate
qualifications under blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act) as may
be so requested and as would permit or facilitate the sale and distribution of
all or such portion of such Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
Person or Persons joining in such request as is specified in a written request
given within thirty (30) days after receipt of such written notice from the
Corporation; provided that the Corporation shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 2.1:
x) In any particular jurisdiction in
which the Corporation would be required to execute a general consent to service
of process in effecting such registration, qualification or compliance unless
the Corporation is already subject to service in such jurisdiction and except as
may be required by the Securities Act;
y) If the Initiating Holders propose to
sell a number of shares of Registrable Securities at an aggregate proposed
offering price (after deduction for underwriter commissions and expenses) to the
public of less than $2,000,000, if the registration is to be effected on Form
S-1, or $500,000 if the registration is to be effected on Form S-3 (or any Forms
that may take the place of such Forms);
z) if the Corporation has previously
undertaken a registration pursuant to this Section 2.1.
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Subject to the foregoing clauses and to Section 2.1(d), the Corporation
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after receipt of the request
from the Initiating Holders.
b. UNDERWRITING. If the Initiating Holders intend
to distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Corporation as part of the request made
pursuant to Section 2.1 and the Corporation shall include such information in
the written notice referred to in Section 2.1(a)i. The right of any Person to
registration pursuant to Section 2.1 shall be conditioned upon such Person's
participation in such underwriting and the inclusion of such Registrable
Securities in the underwriting to the extent requested (unless otherwise
mutually agreed by the Corporation and such Person to the extent provided
herein).
c. CUTBACKS/WITHDRAWALS. The Corporation shall
(together with all Persons proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. The Corporation shall have the right to
approve the managing underwriter(s), which consent shall not be unreasonably
withheld. Notwithstanding any other provision of this Section 2.1, if the
underwriter(s) determine that marketing factors require a limitation of the
number of shares to be underwritten and so advises the Initiating Holders and
the Corporation in writing, then the Corporation shall so advise all Persons
holding Registrable Securities (except those Persons who have indicated to the
Corporation their decision not to distribute any of their Registrable Securities
through such underwriting) and the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among all such Initiating Holders in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Initiating Holders
at the time of filing the registration
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<PAGE> 5
statement. No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
If any Person owning Registrable Securities disapproves of the terms of
the underwriting, such Person may elect to withdraw therefrom by written notice
to the Corporation, the underwriter and the Initiating Holders. The Registrable
Securities and/or other securities so withdrawn from such underwriting shall
also be withdrawn from such registration; provided, however, that, if by the
withdrawal of such Registrable Securities a greater number of Registrable
Securities held by other Persons may be included in such registration (up to the
maximum of any limitation imposed by the underwriters), then the Corporation
shall advise all Persons who have included Registrable Securities in the
registration of the right to include additional Registrable Securities in the
same proportion used in determining the underwriter limitation in this Section
2.1(c).
d. RIGHT TO DELAY A DEMAND REGISTRATION. If, at
the time of any request to register Registrable Securities pursuant to this
Section 2.1, the Corporation is preparing a registration statement for a public
offering (other than a registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 of the Commission is applicable)
and such registration statement in fact is filed and becomes effective within
one hundred twenty (120) days after the request, then the Corporation may at its
option delay such request for a period not more than in excess of one hundred
eighty (180) days from the effective date of such offering or the date of
commencement of such other activity, as the case may be. Such right to delay
shall be exercised by the Corporation not more than once in any twelve (12)
month period. Nothing in this Section 2.1(d) shall preclude a holder of
Registrable Securities from enjoying registration rights which it might
otherwise possess under this Section 2.1.
2.2 PIGGYBACK REGISTRATION.
a. THE CORPORATION'S OBLIGATION TO REGISTER. If
the Corporation at any time proposes to register any of its
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<PAGE> 6
securities under the Securities Act (other than a registration effected solely
to implement an employee benefit plan, a transaction to which Rule 145 of the
Commission is applicable or any other form or type of registration in which
Registrable Securities cannot be included pursuant to Commission regulation,
rule or practice), it will give written notice to all holders of the outstanding
Registrable Securities of its intention to make such registration. If such
registration is proposed to be on a form which permits inclusion of the
Registrable Securities, then upon the written request of any holders of the
Registrable Securities given within thirty (30) days after transmittal by the
Corporation to the holders of such written notice (stating the intended method
and terms of disposition of such securities, including a list of the
jurisdictions in which the Corporation intends to qualify such securities), the
Corporation will, subject to the limits contained in this Section, and not more
than twice with respect to all such holders, use its best efforts to cause such
Registrable Securities of said requesting holders to be registered under the
Securities Act and qualified for sale under any state blue sky law, all to the
extent requisite to permit such sale or other disposition by such holders of the
Registrable Securities so registered.
b. CUTBACKS. Notwithstanding any other provision
of this Section, if the underwriter managing such registration notifies the
holders of Registrable Securities in writing that market or economic conditions
limit the amount of securities which may reasonably be expected to be sold, the
holders of such Registrable Securities will be allowed to register their
Registrable Securities pro rata based on (i)the number of shares of Registrable
Securities held by such holders and (ii) the number of shares of "Registrable
Securities" as such term is defined in the Registration Rights Agreement dated
of even date herewith by and between the Corporation and holders of certain
warrants of the Corporation (the "Warrant Holders Stock"); provided that the
holders of Registrable Securities shall have their Registrable Securities
reduced only so long as the only other shares registered
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<PAGE> 7
(excluding those of the holders of Registrable Securities) are on behalf of the
Corporation and, subject to the pro rata cut backs set forth above, the Warrant
Holders Stock. After the Corporation's initial registered public offering, said
underwriter may limit the amount of the Registrable Securities and Warrant
Holders Stock to be registered to not less than 50% of the aggregate number of
shares so registered, provided that only shares registered on behalf of the
Corporation shall constitute the remaining shares so registered.
2.3 REGISTRATION PROCEDURES. Whenever the Corporation is required
by the provisions of this Agreement to effect the registration of any of its
securities under the Securities Act, the Corporation will, as expeditiously as
possible:
a. prepare and file with the Commission a
registration statement with respect to such securities and use its best
commercial efforts to cause such registration statement to become and remain
effective for the period provided in this Agreement;
b. prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all securities covered by such
registration statement whenever the seller or sellers of such securities shall
desire to sell or otherwise dispose of the same, but only to the extent provided
in this Agreement;
c. furnish to each seller such number of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such seller may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such seller;
c. use reasonable efforts to register or qualify
the securities covered by such registration statement under such other
securities or state blue sky laws of such jurisdictions as
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<PAGE> 8
each seller shall reasonably request, including doing any and all other
reasonable acts and things which the Corporation deems reasonably necessary
under such securities or blue sky laws to enable such seller to consummate the
public sale or other disposition in such jurisdictions of the securities owned
by such seller, except that the Corporation shall not for any such purpose be
required to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified or does not intend to be so qualified prior to
the effective date of the applicable registration statement;
e. before filing the registration statement or
prospectus or amendments or supplements thereto, furnish to one counsel selected
by a majority of the voting interests of the holders of Registrable Securities
copies of such documents proposed to be filed which shall be subject to the
reasonable approval of such counsel;
f. furnish to each prospective seller a signed
counter-part, addressed to the prospective seller, of (i) an opinion of counsel
for the Corporation, dated the effective date of the registration statement, and
(ii) a "comfort" letter signed by the independent public accountants who have
certified the Corporation's financial statements included in the registration
statement, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the accountants' letter) with respect to events subsequent to the date of the
financial statements, as are customarily covered (at the time of such
registration) in opinions of the Corporation's counsel and in accountants'
letters delivered to the underwriters in underwritten public offerings of
securities. Notwithstanding any other provision of this Section 2, the
Corporation shall not in any event be required to maintain the effectiveness of
any such registration statement for a period in excess of 180 days.
2.4 REGISTRATION EXPENSES. As used herein, "Registration
Expenses" shall mean all expenses incurred by the Corporation in complying with
Sections 2.1 and 2.2 hereof,
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<PAGE> 9
including, without limitation, all registration and filing fees; printing
expenses; fees and disbursements of counsel for the Corporation; reasonable fees
and disbursements of one counsel for all the selling shareholders of the
Registrable Securities (which shall not exceed Twenty-five Thousand Dollars
($25,000) for each such registration); blue sky fees and expenses; and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Corporation who
shall be paid in any event by the Corporation); and "Selling Expenses" shall
mean all underwriting discounts and selling commissions applicable to the sales
of Registrable Securities thereunder. The Corporation will pay the described
Registration Expenses in connection with (i) one (1) registration pursuant to
Section 2.1, and (ii) up to two (2) registrations pursuant to Section 2.2. All
Selling Expenses in connection with each registration pursuant to Sections 2.1
and 2.2 shall be borne by the Corporation and the selling shareholders pro rata
in proportion to the securities covered thereby being sold by them.
2.5 INDEMNIFICATION.
a. INDEMNIFICATION BY THE CORPORATION. In the
event of any registration of any of the Corporation's securities under the
Securities Act pursuant to this Section 2, the Corporation shall indemnify and
hold harmless each of the following parties as described in this Agreement: (i)
the seller of such securities; (ii) each underwriter (as defined in the
Securities Act) who makes an underwriting agreement with the Corporation or
Holders pursuant to the foregoing terms of this Agreement; (iii) each other
Person who is a partner or affiliate or agent of such seller and who
participates in the offering of such securities; and (iv) each other Person, if
any, who controls (within the meaning of the Securities Act) such seller,
underwriter or participating Person against any losses, claims, damages or
liabilities (collectively the "liability"), joint or several, to which such
seller, underwriter, participating Person or controlling Person may become
subject under the Securities Act or any other statute or at common law, if such
liability (or action in respect thereof) arises
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out of or is based upon (i) any alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or (ii)
any alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading. Except as
otherwise provided in paragraph (d) of this Section 2.6, the Corporation shall
reimburse each such seller, underwriter, participating Person or such
controlling Person in connection with defending any such liability.
Notwithstanding anything to the contrary herein, however, the Corporation shall
not be liable to any seller, underwriter, participating Person, or controlling
Person in any such case if any such liability arises out of or is based upon any
alleged untrue statement or alleged omission made in such registration
statement, preliminary or final prospectus, or amendment or supplement thereto
(i) in reliance upon and in conformity with information furnished to the
Corporation by such Person specifically for use in such registration statement,
preliminary or final prospectus or amendment or supplement thereto, or (ii)
based on the authority of an "expert" within the meaning of that term as defined
in the Securities Act (but only if the Corporation had no reasonable ground to
believe, and did not believe, that the statements made on the authority of such
expert were untrue or that there was an omission to state a material fact). The
Corporation shall not be required to indemnify any Person against any liability
arising from (i) any untrue or misleading statement or omission contained in any
preliminary prospectus if such deficiency is corrected in the final prospectus
or (ii) for any liability which arises out of the failure of any Person to
deliver a prospectus as required by the Securities Act. The indemnity provided
for in this Section 2.6(a) shall remain in full force and effect for the period
of limitations imposed under California law, regardless of any investigation
made by or on behalf of such seller, underwriter, participating Person or
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controlling Person and shall survive transfer of such securities by
such seller.
b. INDEMNIFICATION BY HOLDERS OF REGISTRABLE
SECURITIES. Each holder of any Registrable Securities shall, by acceptance
thereof, indemnify and hold harmless each other holder of any Registrable
Securities, the Corporation, its directors and officers, each above-described
underwriter who contracts with the Corporation or its agents and each other
Person, if any, who controls the Corporation or such underwriter, against any
liability, joint or several, to which any such other holder, the Corporation,
underwriter or any such director or officer of any such Person may become
subject under the Securities Act or any other statute or at common law, if such
liability (or actions in respect thereof) arises out of or is based upon (i) the
disposition by such holder of such Registrable Securities in violation of the
provisions of this Section 2.6, (ii) any alleged untrue statement of any
material fact contained in any registration statement under which securities
were registered under the Securities Act at the request of such holder, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, or (iii) any alleged omission to state therein a material
fact required to be stated therein or necessary to make statement(s) therein not
misleading. Notwithstanding any other provision of this Section 2.5(b), the
indemnification rights set forth in this Section 2.5(b) shall be given in the
case of clause (ii) or (iii) only if such alleged untrue statement or alleged
omission in such registration statement, preliminary or final prospectus,
amendment or supplement thereto was made (1) in reliance upon and in conformity
with information furnished to the Corporation by such holder expressly stated
for use therein, and (2) not based on the authority of an expert as to when the
holder had no reasonable ground to believe, and did not believe, that (A) the
statements made on the authority of such expert were untrue or (B) there was an
omission to state a material fact. Such holder shall reimburse the Corporation,
such underwriter or such director, officer, other Person or other holder for any
reasonable legal fees
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incurred in investigating or defending any such liability; provided, however,
that no holder of Registrable Securities shall be required to indemnify any
Person against any liability arising from any untrue or misleading statement or
omission contained in any preliminary prospectus if such deficiency was
corrected in the final prospectus or for any liability which arises out of the
failure of any Person to deliver a prospectus as required by the Securities Act;
and provided further, that the obligations of such holder of Registrable
Securities for the indemnity hereunder shall be limited to an amount equal to
the net proceeds received by such holder of Registrable Securities upon
disposition thereof, and shall not extend to any settlement of claims related
thereto without the express written consent of such holder of Registrable
Securities, which consent shall not be unreasonably withheld.
c. FURTHER INDEMNITY. Indemnification similar to
that specified in paragraphs (a) and (b) of this Section 2.5 shall be given by
the Corporation and each holder of any Registrable Securities (with such
modifications as may be appropriate) with respect to any required registration
or other qualification of the Common Stock under any federal or state law or
regulation of governmental authority other than the Securities Act.
d. PROCEDURES; RIGHTS TO SEPARATE COUNSEL. Each
party entitled to indemnification under this Section 2.5 (the "Indemnified
Party") shall give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has received written
notice of any claim as to which indemnity may be sought, and shall tender the
defense of any such claim or any litigation resulting therefrom to the
Indemnifying Party, provided that counsel for the Indemnifying Party who is
conducting the defense of such claim or litigation shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld). The
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 2.6 unless
such failure to give notice shall materially affect the Indemnifying Party in
the defense of any such claim or any such
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litigation. The Indemnified Party shall also have the right to employ separate
counsel in any such action and to participate separately in the defense thereof,
but in such circumstance the fees and expenses of such counsel shall be paid by
the Indemnified Party and not at the expense of the Indemnifying Party. However,
if the Indemnifying Party fails to assume the defense of any properly tendered
claims, then the fees and expenses of such separate counsel shall be borne by
the Indemnifying Party. Except with the consent of any Indemnified Party, no
Indemnifying Party, in the defense of any such claim or litigation, shall
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party a release from all liability in respect of such claim
or litigation.
2.6 TERMINATION OF REGISTRATION RIGHTS. Notwithstanding the
foregoing provisions of this Agreement, the rights to registration and the
designation of Common Stock as Registrable Securities shall terminate as to any
particular securities when such securities shall have been lawfully sold by the
holder thereof to the public pursuant to a registration statement.
2.7 COMPLIANCE WITH RULE 144. With a view to making available the
benefits of certain rules and regulations of the Commission that may permit the
sale of the Registrable Securities to the public without registration, the
Corporation agrees to use its best efforts to:
(a) Make and keep public information regarding the
Corporation available as those terms are understood and defined in Rule 144
under the Securities Act, at all times from and after ninety (90) days following
the effective date of the first registration under the Securities Act filed by
the Corporation for an offering of its securities to the general public;
(b) File with the Commission in a timely manner all
reports and other documents required of the Corporation under the Securities Act
and the Exchange Act at any time after it has become subject to such reporting
requirements;
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(c) So long as a Holder owns more than ten percent
(10%) of any Registrable Securities, furnish to the Holder forthwith upon
written request a written statement by the Corporation as to its compliance with
the reporting requirements of Rule 144 (at any time from and after ninety (90)
days following the effective date of the first registration statement filed by
the Corporation for an offering of its securities to the general public), and of
the Securities Act and the Exchange Act (at any time after it has become subject
to such reporting requirements), a copy of the most recent annual or quarterly
report of the Corporation, and such other reports and documents so filed as a
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing a Holder to sell any such securities without
registration.
2.8 CONSENT TO BE BOUND. Each subsequent holder of Registrable
Securities obtaining rights under Section 2.10 must consent in writing to be
bound by the terms and conditions of this Agreement in order to acquire the
rights granted pursuant to this Agreement.
2.9 AMENDMENTS. The provisions of this Agreement may be amended,
and the Corporation may take any action herein prohibited or omit to perform any
act herein required to be performed by it only if the Corporation has obtained
the written consent of Levy and the Warrant Holders, so long as they each hold
at least 51% of the Registrable Securities originally held by them, but any such
amendment or consent shall be binding upon any Person who has not signed such
amendment.
2.10 ASSIGNABILITY OF REGISTRATION RIGHTS. Subject to Section 2.8
hereof, the registration rights set forth in this Agreement are assignable to
any assignee as to Registrable Securities conveyed in accordance herewith who
acquires no less than (a) fifty percent (50%) of the Corporation's then
outstanding Registrable Securities or (b) at least twenty-five percent (25%) of
the Registrable Securities originally held by such assignor.
2.11 INFORMATION BY HOLDER. The holder or holders of Registrable
Securities included in any registration shall furnish
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to the Corporation such information regarding such holder or holders, the
Registrable Securities held by them, and the distribution proposed by such
holder or holders, as the Corporation may reasonably request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Article.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto, whether so
expressed or not.
3.2 SEVERABILITY. Each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
3.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all of which counterparts when taken together, shall constitute one
and the same Agreement.
3.4 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
3.5 NOTICES. All notices, demands, consents or other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been given when personally delivered or five (5) business days
after deposit in the U.S. Mail (excluding Saturday and Sunday and any legally
recognized Federal holiday) if sent by first class certified mail, return
receipt requested or the next business day if sent by facsimile (receipt
acknowledged), Express Mail, Federal Express or similar service, addressed as
follows, or to such address as any of the below named Persons shall advise the
other parties by notice sent in accordance with this
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Section 3.5 if any named Person shall desire to change such address:
IF TO HOLDER: Warren E. Levy
______________________________
______________________________
______________________________
WITH A COPY TO: Istvan Benko, Esq.
Troy & Gould
1801 Century Park East, 16th Floor
Los Angeles, CA 90067
IF TO THE CORPORATION: Aspen West Group, Inc.
20301 Nordhoff Street
Chatsworth, CA 91311
Attn: President
WITH A COPY TO: Istvan Benko, Esq.
Troy & Gould
1801 Century Park East, 16th Floor
Los Angeles, CA 90067
3.6 GOVERNING LAW. The validity, meaning and effect of this
Agreement shall be determined in accordance with the laws of California,
applicable to contracts made and to be performed entirely within the State of
California.
3.7 LITIGATION COSTS. Subject to Section 2.6, if any legal action
or any arbitration or other proceeding is brought for the enforcement of this
Agreement, or because of a dispute, breach or default in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.
3.8 SPECIFIC PERFORMANCE. Each party's obligation under this
Agreement is unique. If any party should default in its obligations under this
Agreement, the parties each acknowledge that it may be extremely impracticable
to measure the resulting damages; accordingly, the non-defaulting party, in
addition to any other available rights or remedies, may sue in equity for
specific performance, and upon satisfactory proof thereof, it may be entitled to
obtain such specific performance.
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3.9 FINAL AGREEMENT. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter hereof and
supersedes, merges, renders void and terminates all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether oral or
written, with respect thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"CORPORATION" "HOLDER"
ASPEN WEST GROUP, INC.
By:/s/ Sim Farar, President /s/ Warren E. Levy
---------------------------- ----------------------------
(Signature) Warren E. Levy
Sim Farar, President
- -------------------------------
(Print Name and Title)
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EXHIBIT 6.9
ASPEN WEST GROUP, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
effective as of February 3, 1997, by and between ASPEN WEST GROUP, INC., a
Delaware corporation (the "Corporation"), and the entities set forth on the
signature pages attached hereto, (individually, a "Holder" and collectively, the
"Holders").
RECITAL
The Holders are holders of warrants to purchase an aggregate of 650,000
shares of the Corporation's common stock, dated of even date herewith, issued by
the Corporation (the "Warrants"), pursuant to which the Corporation is obligated
to enter into this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties hereto
hereby agree as follows:
1. DEFINITIONS.
a. "CLOSING DATE" means the date of issuance of the
Warrants to the Holders.
b. "COMMISSION" means the Securities and Exchange Commission or
any other Federal agency at the time administering the "Securities Act."
c. "COMMON STOCK" means any and all (a) shares of common stock of
the Corporation issued upon exercise of the Warrants; (b) any common stock of
the Corporation issued as a dividend or other distribution with respect to or in
replacement of the common stock issued upon exercise of the Warrants; and (c)
any common stock issued in any combination or subdivision of the common stock
issued upon exercise of the Warrants; provided that in determining the amount of
Common Stock held by any Person, the sum of (a), (b) and (c) shall be used. Any
reference to "common stock" without initial capital letters shall mean all other
shares of the
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Corporation's common stock or other equity securities convertible into shares of
such "common stock."
d. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended or any similar Federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
e. "INITIATING HOLDERS" any holder or holders of no less than
fifty percent (50%) of the then outstanding Registrable Securities.
f. "PERSON" means any individual, corporation, trust,
partnership, association, or other entity.
g. "REGISTRABLE SECURITIES" means the Common Stock.
h. "REGISTER," "REGISTERED," AND "REGISTRATION," mean a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
i. "SECURITIES ACT" means the Securities Act of 1933, as amended,
or any similar Federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
j. "SELLER" means a holder of Registrable Securities selling such
shares.
2. REGISTRATION RIGHTS
2.1 PIGGYBACK REGISTRATION.
(a) THE CORPORATION'S OBLIGATION TO REGISTER. If the Corporation
at any time proposes to register any of its securities under the Securities Act
(other than a registration effected solely to implement an employee benefit
plan, a transaction to which Rule 145 of the Commission is applicable or any
other form or type of registration in which Registrable Securities cannot be
included pursuant to Commission regulation, rule or practice), it will give
written notice to all holders of the outstanding Registrable Securities of its
intention to make such registration. If such
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registration is proposed to be on a form which permits inclusion of the
Registrable Securities, then upon the written request of any holders of the
Registrable Securities given within thirty (30) days after transmittal by the
Corporation to the holders of such written notice (stating the intended method
and terms of disposition of such securities, including a list of the
jurisdictions in which the Corporation intends to qualify such securities), the
Corporation will, subject to the limits contained in this Section, and not more
than twice with respect to all such holders, use its best efforts to cause such
Registrable Securities of said requesting holders to be registered under the
Securities Act and qualified for sale under any state blue sky law, all to the
extent requisite to permit such sale or other disposition by such holders of the
Registrable Securities so registered.
(b) CUTBACKS. Notwithstanding any other provision of this
Section, if the underwriter managing such registration notifies the holders of
Registrable Securities in writing that market or economic conditions limit the
amount of securities which may reasonably be expected to be sold, the holders of
such Registrable Securities will be allowed to register their Registrable
Securities pro rata based on (i) the number of shares of Registrable Securities
held by such holders, and (ii) the number of shares of "Registrable Securities"
as such term is defined in the Registration Rights Agreement dated of even date
herewith, by and between the Corporation and Warren E. Levy (the "Levy Stock");
provided that the holders of Registrable Securities shall have their Registrable
Securities reduced only so long as the only other shares registered (excluding
those of the holders of Registrable Securities) are on behalf of the Corporation
and, subject to the pro rata cutbacks set forth above, the Levy Stock. After the
Corporation's initial registered public offering, said underwriter may limit the
amount of the Registrable Securities and Levy Stock to be registered to not less
than 50% of the aggregate number of shares so registered, provided that only
shares registered on
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behalf of the Corporation shall constitute the remaining shares so
registered.
2.2 FORM S-3.
(a) OBLIGATION TO REGISTER. The Corporation shall use its best
efforts to qualify for registration on Form S-3 within 18 months after the date
of this Agreement; to that end the Corporation shall, no later than the date
that is six (6) months after the date of this Agreement, use its best efforts to
file and have declared effective by the Securities and Exchange Commission a
registration statement (whether or not required by law to do so) for the
registration of its common stock under Section 12 of the Exchange Act. After the
Corporation has qualified for the use of Form S-3, the Initiating Holders of
Registrable Securities shall have the right to request a registration on Form
S-3 under this Section 2.2 (such request shall be in writing and shall state the
number of shares of Registrable Securities to be disposed of and the intended
method of disposition of such shares by such Person or Persons); provided that
the Corporation shall not be required to effect a registration pursuant to this
Section 2.2 unless the Person or Persons requesting registration propose to
dispose of shares of Registrable Securities which will have an aggregate
offering price (before deduction of underwriting discounts and expenses of sale)
of at least $500,000.
(b) NOTICE. The Corporation shall give written notice to all
holders of Registrable Securities of the receipt of a request for registration
pursuant to this Section 2.2 and shall permit such other holders to participate
in the registration upon their request therefor, so long as such request is
given within twenty (20) days after receipt of such notice from the Corporation.
Subject to the foregoing, the Corporation will use its best efforts to effect
promptly the registration of all shares of Registrable Securities on Form S-3 to
the extent requested by the holders thereof for purposes of disposition.
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2.3 REGISTRATION PROCEDURES. Whenever the Corporation is required by the
provisions of this Agreement to effect the registration of any of its securities
under the Securities Act, the Corporation will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its best commercial efforts to cause
such registration statement to become and remain effective for the period
provided in this Agreement;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
whenever the seller or sellers of such securities shall desire to sell or
otherwise dispose of the same, but only to the extent provided in this
Agreement;
(c) furnish to each seller such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as such seller may reasonably request
in order to facilitate the public sale or other disposition of the securities
owned by such seller;
(d) use reasonable efforts to register or qualify the securities
covered by such registration statement under such other securities or state blue
sky laws of such jurisdictions as each seller shall reasonably request,
including doing any and all other reasonable acts and things which the
Corporation deems reasonably necessary under such securities or blue sky laws to
enable such seller to consummate the public sale or other disposition in such
jurisdictions of the securities owned by such seller, except that the
Corporation shall not for any such purpose be required to qualify to do business
as a foreign corporation in any jurisdiction wherein it is not so qualified or
does not intend to be so
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qualified prior to the effective date of the applicable
registration statement;
(e) before filing the registration statement or prospectus or
amendments or supplements thereto, furnish to one counsel selected by a majority
of the voting interests of the holders of Registrable Securities copies of such
documents proposed to be filed which shall be subject to the reasonable approval
of such counsel;
(f) furnish to each prospective seller a signed counterpart,
addressed to the prospective seller, of (i) an opinion of counsel for the
Corporation, dated the effective date of the registration statement, and (ii) a
"comfort" letter signed by the independent public accountants who have certified
the Corporation's financial statements included in the registration statement,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the
accountants' letter) with respect to events subsequent to the date of the
financial statements, as are customarily covered (at the time of such
registration) in opinions of the Corporation's counsel and in accountants'
letters delivered to the underwriters in underwritten public offerings of
securities. Notwithstanding any other provision of this Section 2, the
Corporation shall not in any event be required to maintain the effectiveness of
any such registration statement for a period in excess of 180 days.
2.4 REGISTRATION EXPENSES. As used herein, "Registration Expenses" shall
mean all expenses incurred by the Corporation in complying with Sections 2.1 and
2.2 hereof, including, without limitation, all registration and filing fees;
printing expenses; fees and disbursements of counsel for the Corporation;
reasonable fees and disbursements of one counsel for all the selling
shareholders of the Registrable Securities (which shall not exceed Twenty-five
Thousand Dollars ($25,000) for each such registration); blue sky fees and
expenses; and the expense of any special audits
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incident to or required by any such registration (but excluding the compensation
of regular employees of the Corporation who shall be paid in any event by the
Corporation); and "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sales of Registrable Securities
thereunder. The Corporation will pay the described Registration Expenses in
connection (i) two (2) registrations pursuant to Section 2.1 and (ii) one
registration pursuant to Section 2.2. All Selling Expenses in connection with
each registration pursuant to Sections 2.1 and 2.2 shall be borne by the
Corporation and the selling shareholders pro rata in proportion to the
securities covered thereby being sold by them.
2.5 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE CORPORATION. In the event of any
registration of any of the Corporation's securities under the Securities Act
pursuant to this Section 2, the Corporation shall indemnify and hold harmless
each of the following parties as described in this Agreement: (i) the seller of
such securities; (ii) each underwriter (as defined in the Securities Act) who
makes an underwriting agreement with the Corporation or Holders pursuant to the
foregoing terms of this Agreement; (iii) each other Person who is a partner or
affiliate or agent of such seller and who participates in the offering of such
securities; and (iv) each other Person, if any, who controls (within the meaning
of the Securities Act) such seller, underwriter or participating Person against
any losses, claims, damages or liabilities (collectively the "liability"), joint
or several, to which such seller, underwriter, participating Person or
controlling Person may become subject under the Securities Act or any other
statute or at common law, if such liability (or action in respect thereof)
arises out of or is based upon (i) any alleged untrue statement of any material
fact contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or (ii)
any alleged omission
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to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading. Except as otherwise provided in
paragraph (d) of this Section 2.5, the Corporation shall reimburse each such
seller, underwriter, participating Person or such controlling Person in
connection with defending any such liability. Notwithstanding anything to the
contrary herein, however, the Corporation shall not be liable to any seller,
underwriter, participating Person, or controlling Person in any such case if any
such liability arises out of or is based upon any alleged untrue statement or
alleged omission made in such registration statement, preliminary or final
prospectus, or amendment or supplement thereto (i) in reliance upon and in
conformity with information furnished to the Corporation by such Person
specifically for use in such registration statement, preliminary or final
prospectus or amendment or supplement thereto, or (ii) based on the authority of
an "expert" within the meaning of that term as defined in the Securities Act
(but only if the Corporation had no reasonable ground to believe, and did not
believe, that the statements made on the authority of such expert were untrue or
that there was an omission to state a material fact). The Corporation shall not
be required to indemnify any Person against any liability arising from (i) any
untrue or misleading statement or omission contained in any preliminary
prospectus if such deficiency is corrected in the final prospectus or (ii) for
any liability which arises out of the failure of any Person to deliver a
prospectus as required by the Securities Act. The indemnity provided for in this
Section 2.5(a) shall remain in full force and effect for the period of
limitations imposed under California law, regardless of any investigation made
by or on behalf of such seller, underwriter, participating Person or controlling
Person and shall survive transfer of such securities by such seller.
(b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. Each
holder of any Registrable Securities shall, by
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acceptance thereof, indemnify and hold harmless each other holder of any
Registrable Securities, the Corporation, its directors and officers, each
above-described underwriter who contracts with the Corporation or its agents and
each other Person, if any, who controls the Corporation or such underwriter,
against any liability, joint or several, to which any such other holder, the
Corporation, underwriter or any such director or officer of any such Person may
become subject under the Securities Act or any other statute or at common law,
if such liability (or actions in respect thereof) arises out of or is based upon
(i) the disposition by such holder of such Registrable Securities in violation
of the provisions of this Section 2.5, (ii) any alleged untrue statement of any
material fact contained in any registration statement under which securities
were registered under the Securities Act at the request of such holder, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, or (iii) any alleged omission to state therein a material
fact required to be stated therein or necessary to make statement(s) therein not
misleading. Notwithstanding any other provision of this Section 2.5(b), the
indemnification rights set forth in this Section 2.5(b) shall be given in the
case of clause (ii) or (iii) only if such alleged untrue statement or alleged
omission in such registration statement, preliminary or final prospectus,
amendment or supplement thereto was made (1) in reliance upon and in conformity
with information furnished to the Corporation by such holder expressly stated
for use therein, and (2) not based on the authority of an expert as to when the
holder had no reasonable ground to believe, and did not believe, that (A) the
statements made on the authority of such expert were untrue or (B) there was an
omission to state a material fact. Such holder shall reimburse the Corporation,
such underwriter or such director, officer, other Person or other holder for any
reasonable legal fees incurred in investigating or defending any such liability;
provided, however, that no holder of Registrable Securities shall
9
<PAGE> 10
be required to indemnify any Person against any liability arising from any
untrue or misleading statement or omission contained in any preliminary
prospectus if such deficiency was corrected in the final prospectus or for any
liability which arises out of the failure of any Person to deliver a prospectus
as required by the Securities Act; and provided further, that the obligations of
such holder of Registrable Securities for the indemnity hereunder shall be
limited to an amount equal to the net proceeds received by such holder of
Registrable Securities upon disposition thereof, and shall not extend to any
settlement of claims related thereto without the express written consent of such
holder of Registrable Securities, which consent shall not be unreasonably
withheld.
(c) FURTHER INDEMNITY. Indemnification similar to that specified
in paragraphs (a) and (b) of this Section 2.5 shall be given by the Corporation
and each holder of any Registrable Securities (with such modifications as may be
appropriate) with respect to any required registration or other qualification of
the Common Stock under any federal or state law or regulation of governmental
authority other than the Securities Act.
(d) PROCEDURES; RIGHTS TO SEPARATE COUNSEL. Each party entitled
to indemnification under this Section 2.5 (the "Indemnified Party") shall give
notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has received written notice of any
claim as to which indemnity may be sought, and shall tender the defense of any
such claim or any litigation resulting therefrom to the Indemnifying Party,
provided that counsel for the Indemnifying Party who is conducting the defense
of such claim or litigation shall be approved by the Indemnified Party (whose
approval shall not be unreasonably withheld). The failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 2.5 unless such failure to give notice
shall materially affect the Indemnifying Party in the defense of any such claim
or any such
10
<PAGE> 11
litigation. The Indemnified Party shall also have the right to employ separate
counsel in any such action and to participate separately in the defense thereof,
but in such circumstance the fees and expenses of such counsel shall be paid by
the Indemnified Party and not at the expense of the Indemnifying Party. However,
if the Indemnifying Party fails to assume the defense of any properly tendered
claims, then the fees and expenses of such separate counsel shall be borne by
the Indemnifying Party. Except with the consent of any Indemnified Party, no
Indemnifying Party, in the defense of any such claim or litigation, shall
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party a release from all liability in respect of such claim
or litigation.
2.6 TERMINATION OF REGISTRATION RIGHTS. Notwithstanding the foregoing
provisions of this Agreement, the rights to registration and the designation of
Common Stock as Registrable Securities shall terminate as to any particular
securities when such securities shall have been lawfully sold by the holder
thereof to the public pursuant to a registration statement.
2.7 COMPLIANCE WITH RULE 144. With a view to making available the
benefits of certain rules and regulations of the Commission that may permit the
sale of the Registrable Securities to the public without registration, the
Corporation agrees to use its best efforts to:
(a) Make and keep public information regarding the Corporation
available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after ninety (90) days following the
effective date of the first registration under the Securities Act filed by the
Corporation for an offering of its securities to the general public;
(b) File with the Commission in a timely manner all reports and
other documents required of the Corporation under the
11
<PAGE> 12
Securities Act and the Exchange Act at any time after it has become
subject to such reporting requirements;
(c) So long as a Holder owns more than ten percent (10%) of any
Registrable Securities, furnish to the Holder forthwith upon written request a
written statement by the Corporation as to its compliance with the reporting
requirements of Rule 144 (at any time from and after ninety (90) days following
the effective date of the first registration statement filed by the Corporation
for an offering of its securities to the general public), and of the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly report of
the Corporation, and such other reports and documents so filed as a Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without registration.
2.8 CONSENT TO BE BOUND. Each subsequent holder of Registrable
Securities obtaining rights under Section 2.10 must consent in writing to be
bound by the terms and conditions of this Agreement in order to acquire the
rights granted pursuant to this Agreement.
2.9 AMENDMENTS. The provisions of this Agreement may be amended, and the
Corporation may take any action herein prohibited or omit to perform any act
herein required to be performed by it only if the Corporation has obtained the
written consent of the holders of 51% or more of the Registrable Securities, but
any such amendment or consent shall be binding upon any Person who has not
signed such amendment.
2.10 ASSIGNABILITY OF REGISTRATION RIGHTS. Subject to Section 2.8
hereof, the registration rights set forth in this Agreement are assignable to
any assignee as to Registrable Securities conveyed in accordance herewith who
acquires no less than (a) five percent (5%) of the Corporation's then
outstanding Registrable Securities or (b) at least fifty percent (50%) of the
Registrable Securities
12
<PAGE> 13
originally held by such assignor. Notwithstanding the foregoing, the
registration rights set forth in this Agreement may be transferred to any
general or limited partner of a Holder or any other affiliated party of such
Holder who is a successor in interest to a Holder regardless of the percentage
of Registrable Securities so transferred.
2.11 RIGHTS WHICH MAY NOT BE GRANTED TO SUBSEQUENT INVESTORS. The
Corporation shall not grant registration rights or enter into any "registration
rights agreement" or similar agreement with any Person after the Closing Date
unless such agreement provides that the holder of such securities may not
participate in any registration requested pursuant to this Agreement without the
consent of holders of a majority of the Registrable Securities and such
registration rights are neither superior to nor in conflict with any rights
conferred under this Agreement.
2.12 INFORMATION BY HOLDER. The holder or holders of Registrable
Securities included in any registration shall furnish to the Corporation such
information regarding such holder or holders, the Registrable Securities held by
them, and the distribution proposed by such holder or holders, as the
Corporation may reasonably request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Article.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto, whether so
expressed or not.
3.2 SEVERABILITY. Each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such
13
<PAGE> 14
prohibition or invalidity, without invalidating the remainder of
this Agreement.
3.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all of which counterparts when taken together, shall constitute one
and the same Agreement.
3.4 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
3.5 NOTICES. All notices, demands, consents or other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been given when personally delivered or five (5) business days
after deposit in the U.S. Mail (excluding Saturday and Sunday and any legally
recognized Federal holiday) if sent by first class certified mail, return
receipt requested or the next business day if sent by facsimile (receipt
acknowledged), Express Mail, Federal Express or similar service, addressed as
follows, or to such address as any of the below named Persons shall advise the
other parties by notice sent in accordance with this Section 3.5 if any named
Person shall desire to change such address:
IF TO HOLDERS: To the Addresses on the
Corporation's Shareholders
List
WITH A COPY TO: Donald C. Reinke, Esq.
Pezzola & Reinke, APC
1999 Harrison, Suite 1300
Oakland, CA 94612
IF TO THE CORPORATION: Aspen West Group, Inc.
20301 Nordhoff Street
Chatsworth, CA 91311
Attn: President
WITH A COPY TO: Istvan Benko, Esq.
Troy & Gould
1801 Century Park East, 16th Floor
Los Angeles, CA 90067
14
<PAGE> 15
3.6 GOVERNING LAW. The validity, meaning and effect of this
Agreement shall be determined in accordance with the laws of California,
applicable to contracts made and to be performed entirely within the State of
California.
3.7 LITIGATION COSTS. Subject to Section 2.5, if any legal action
or any arbitration or other proceeding is brought for the enforcement of this
Agreement, or because of a dispute, breach or default in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.
3.8 SPECIFIC PERFORMANCE. Each party's obligation under this
Agreement is unique. If any party should default in its obligations under this
Agreement, the parties each acknowledge that it may be extremely impracticable
to measure the resulting damages; accordingly, the non-defaulting party, in
addition to any other available rights or remedies, may sue in equity for
specific performance, and upon satisfactory proof thereof, it may be entitled to
obtain such specific performance.
3.9 FINAL AGREEMENT. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter hereof and
supersedes, merges, renders void and terminates all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether oral or
written, with respect thereto.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"CORPORATION" "HOLDERS"
ASPEN WEST GROUP, INC. /s/ Russell Armstrong
-----------------------------
By:/s/ Warren E. Levy Russell Armstrong
-------------------------
(Signature) Address:
- ---------------------------- -----------------------------
(Print Name and Title) -----------------------------
-----------------------------
/s/ David Firestone
-----------------------------
David Firestone
Address:
-----------------------------
-----------------------------
-----------------------------
SANIBEL CAPITAL CORPORATION
By: /s/
--------------------------
(Signature)
-----------------------------
(Print Name and Title)
Address:
-----------------------------
-----------------------------
-----------------------------
16
<PAGE> 1
EXHIBIT 8.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
ASPEN WEST GROUP, INC.,
WSL INC.
AND
THE SOLE SHAREHOLDER OF WSL INC.
FEBRUARY 3, 1997
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered
into effective as of February 3, 1997, by and among Aspen West Group, Inc., a
Delaware corporation ("Aspen"), WSL Inc., a California corporation (the
"Company"), and Warren E. Levy, the sole shareholder of the Company (the
"Shareholder").
RECITALS
A. The Shareholder owns beneficially and of record all of the
outstanding shares of the Common Stock of the Company which comprise 2,675,000
shares (the "Company Common Stock") and all of the outstanding shares of the
Series A Convertible Redeemable Preferred Stock of the Company which comprise
711,000 shares (the "Company Preferred Stock" and, together with the Company
Common Stock, the "Company Shares"), such Company Common Stock and Company
Preferred Stock being the only outstanding shares of the Company.
B. Aspen and the Shareholder desire to exchange, in a tax-free exchange,
2,675,000 shares of Common Stock of Aspen (the "Aspen Common Stock") and
1.
<PAGE> 3
711,000 shares of Series A Convertible Redeemable Preferred Stock of Aspen (the
"Aspen Preferred Stock" and, together with the Aspen Common Stock, the "Aspen
Shares") for all of the Company Shares.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto, intending to be legally bound,
do hereby agree as follows:
ARTICLE I
PLAN OF REORGANIZATION
1. BOARD OF DIRECTORS' AND SHAREHOLDERS' APPROVAL. The respective boards
of directors of Aspen and the Company have duly adopted and approved this
Agreement, and this Agreement has been approved by the vote of the holders of at
least a majority of the Common Stock of Aspen in accordance with the applicable
provisions of the California Corporations Code.
2. THE EXCHANGE. Subject to the terms and conditions hereof, Aspen will
issue to the Shareholder (i) one (1) share of Aspen Common Stock in exchange for
each share of Company Common Stock owned and held of record by the Shareholder,
and (ii) one (1) share of Aspen Preferred Stock in exchange for each share of
Company Preferred Stock owned and held of record by the Shareholder (the
"Exchange").
3. CANCELLATION OF SHARES. Immediately prior to the consummation of the
Exchange, Aspen shall cancel an aggregate of 760,600 shares of its outstanding
Common Stock, such that an aggregate of 1,613,450 shares of Common Stock of
Aspen will be outstanding immediately prior to the Exchange.
2.
<PAGE> 4
4. THE CLOSING; DELIVERY.
a. Closing. Upon the satisfaction or satisfactory waiver of all
conditions set forth in Article VI of this Agreement, the closing (the
"Closing") of the Exchange shall take place at the offices of Troy & Gould, 1801
Century Park East, 16th Floor, Los Angeles, California 90067 at 3:00 p.m. on
February 3, 1997, or such other place, time and date as the Shareholder, Aspen
and the Company may mutually select (with the date of the Closing being referred
to herein as the "Closing Date").
b. DELIVERY OF SHARES. Subject to the terms of this Agreement, at
the Closing, (i) Aspen will deliver to the Shareholder or his representative
duly issued certificate(s) representing the 2,675,000 shares of Aspen Common
Stock to be received by the Shareholder in the Exchange and the 711,000 shares
of Aspen Preferred Stock to be received by the Shareholder in the Exchange, and
(ii) the Shareholder will deliver to Aspen the certificate(s) representing the
2,675,000 shares of Company Common Stock held by the Shareholder and the 711,000
shares of Company Preferred Stock held by the Shareholder, together with duly
executed stock transfer power(s) for such certificates.
5. EXEMPTION FROM REGISTRATION. The Aspen Shares to be issued in
connection with the Exchange will be issued in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and exempt from registration or qualification under the California
Corporate Securities laws and any other applicable state securities laws.
6. DISSENTERS' RIGHTS. Holders of shares of Aspen's Common Stock who
have complied with all requirements for perfecting the dissenters' rights as set
forth in Chapter 13 of the California General Corporation Law are entitled to
their rights under such laws. Aspen shall give the Company and the Shareholder
prompt written notice of any assertions of dissenters' rights or withdrawals of
assertions of dissenters' rights, and any other instrument in respect thereof
received by Aspen and the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal.
7. TAX-FREE REORGANIZATION. The parties intend to adopt this Agreement
as a plan of reorganization within the meaning of Section 354 of the Internal
Revenue Code of 1986, as amended (the "Code"), and to consummate the Exchange in
accordance with Section 368(a)(1)(B) of the Code.
8. ESCROW. 750,000 shares of the Aspen Common Stock (the "Escrow
Shares") shall be held in escrow (the "Escrow"). The Escrow Shares shall be
withheld from the Aspen Common Stock to be received by the Shareholder in the
Exchange. To the extent that Aspen or any other indemnified party under Section
7.2 has a claim for indemnification or for a breach of, or default under this
Agreement or the agreements, instruments or transactions contemplated hereby,
Aspen and such other indemnified parties shall have recourse against the Escrow
Shares in seeking satisfaction of such claims (which recourse shall be an
exclusive remedy, except in the event of fraud or gross negligence) pursuant to
Article VII of this Agreement and pursuant to the terms of an escrow agreement
("Escrow Agreement") substantially in the form attached hereto as Exhibit A.
3.
<PAGE> 5
9. REGISTRATION RIGHTS. The shares of (i) Aspen Common Stock issued to
the Shareholder in the Exchange, and (ii) Aspen Common Stock issuable upon
conversion of the Aspen Preferred Stock shall be subject to certain registration
rights pursuant to the terms of a registration rights agreement ("Registration
Rights Agreement") substantially in the form attached hereto as Exhibit B.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SHAREHOLDER
As an inducement to Aspen to enter into this Agreement, the Company and
the Shareholder hereby make, as of the Closing Date, the following
representations and warranties to Aspen, except as otherwise set forth in a
written disclosure schedule delivered by the Company and the Shareholder to
Aspen concurrently herewith, which is numbered to correspond to the various
sections of this Agreement and which sets forth certain exceptions to the
representations and warranties contained in this Article II and certain other
information called for by this Agreement.
1. ORGANIZATION AND STANDING.
a. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California, has all
requisite corporate power and authority to own, operate and lease its properties
and carry on its business as now conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to so qualify would, individually or in the aggregate, have a
Material Adverse Effect. Whenever used in this Article II, "Material Adverse
Effect" shall mean a material adverse effect on the business, properties,
prospects, condition (financial or otherwise) or results of operations of the
Company.
b. Schedule 2.1 sets forth a complete and accurate list of (i)
each location where the Company maintains an office or personnel or owns or
leases real property, and (ii) each state or other jurisdiction in which the
Company is legally qualified to transact business.
c. The Company has delivered to Aspen complete and accurate
copies of its Articles of Incorporation and Bylaws and minutes of all of its
directors' and shareholders' meetings. The stock books of the Company provided
to Aspen are complete and accurate as of the date hereof.
2. CAPITALIZATION.
a. There are 2,675,000 outstanding shares of Company Common
Stock, and 711,000 outstanding shares of Company Preferred Stock, all of which
shares are owned beneficially and of record by the Shareholder. The Shareholder
is the only holder of any of the capital stock of the Company. Except as set
forth in this Section 2.a., there are no outstanding
4.
<PAGE> 6
shares of capital stock of the Company and there exist no (i) outstanding
options, warrants or other rights to purchase or subscribe for any equity
securities or other ownership interests of the Company, (ii) indebtedness or
securities directly or indirectly convertible into or exchangeable for any
equity securities of the Company, or (iii) any other obligations, rights,
agreements or arrangements, whether absolute or contingent, with respect to the
issuance of any equity securities of the Company.
b. Except as set forth on Schedule 2.2: (i) all of the issued and
outstanding shares of Company Common Stock and Company Preferred Stock have been
duly authorized and validly issued, are fully paid and non-assessable, and were
issued in full compliance with all applicable federal and state laws, rules and
regulations and were not issued in violation of any preemptive rights; (ii) the
Company has no obligation, whether absolute or contingent, to repurchase any of
the issued and outstanding shares of Company Common Stock or Company Preferred
Stock.
c. Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, co-sale right,
right of participation, right of first offer, option or other restriction on
transfer applicable to any shares of Company Common Stock or Company Preferred
Stock. Neither the Company nor the Shareholder is a party to, or is subject to,
any agreement that affects or relates to the voting or giving of written consent
with respect to any shares of Company Common Stock or Company Preferred Stock.
3. SUBSIDIARIES AND JOINT VENTURES. Except as set forth in Schedule 2.3,
the Company does not own, directly or indirectly, any interest in any
corporation, partnership, joint venture, business, trust or other entity. There
exist no obligations of the Company, whether absolute or contingent, to purchase
or acquire any equity security or other ownership interest in any other business
entity.
4. AUTHORITY, APPROVAL AND ENFORCEABILITY.
a. The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under and to approve this
Agreement, and all corporate action on its part necessary for such execution,
delivery and performance has been duly taken.
b. The execution and delivery by the Company of this Agreement
does not, and the performance and consummation of the transactions contemplated
by this Agreement (collectively, together with the transactions contemplated by
the Escrow Agreement and the Registration Rights Agreement, the "Transactions")
will not, result in or give rise to (with or without the giving of notice or the
lapse of time, or both) any conflict with, breach or violation of, or default,
termination, forfeiture or acceleration of obligations under, any terms or
provisions of (i) its Articles of Incorporation or Bylaws, (ii) any statute,
rule or regulation, or any judicial, governmental, regulatory or administrative
decree, order or judgment applicable to the Company, or (iii) except as set
forth on Schedule 2.4, any material agreement, lease or other instrument to
which it is a party or by which it or any of its assets may be bound.
5.
<PAGE> 7
c. No consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or any
other governmental or administrative body which has not been obtained is
required on the part of the Company for the consummation by it of the
Transactions.
d. This Agreement is a legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and subject to
general equitable principles.
5. LICENSES AND PERMITS. The Company has, and at all times has held, all
permits, licenses, orders, authorizations, registrations, qualifications,
approvals and other analogous instruments (collectively, "Permits") (and each is
in full force and effect) as required by applicable law for the purpose of
conducting its business or owning its properties or both, in each jurisdiction
in which it does business or owns property or in which such Permits are
otherwise required and where the failure to have such Permits would have a
Material Adverse Effect. The Company is in compliance with all such Permits
except where non-compliance will not have a Material Adverse Effect. There are
no proceedings, pending or threatened, to revoke or terminate any such presently
existing Permits and the Shareholder and the Company know of no reason why any
such Permit would not be renewed in the ordinary course. The Company has made
all filings and registrations and the like necessary or required by law to
conduct its business, except where the failure to maintain such permits and
other instruments or to make such filings and registrations would not have a
Material Adverse Effect.
6. FINANCIAL STATEMENTS.
a. The Company has delivered to Aspen complete copies of its
unaudited balance sheet as of July 31, 1996 and the related unaudited statement
of income (loss) and retained earnings (deficit) for the 12 months then ended,
together with its unaudited balance sheet as of October 31, 1996, and the
related unaudited statements of income (loss) and retained earnings (deficit)
for the period then ended (collectively, the "Company Financials"). Except as
set forth on Schedule 2.6, the Company Financials (i) have been prepared from
the books and records of the Company in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis with prior periods,
and (ii) are complete and correct and present fairly the financial position of
the Company as of the respective dates and the results of its operations and
cash flows for the periods then ended.
b. Except as set forth on Schedule 2.6, there is no material
outstanding claim, liability or obligation of any nature, whether absolute,
accrued, contingent or otherwise, other than the liabilities and obligations
reflected on the Company Financials, except for (i) liabilities and obligations
incurred in the ordinary course of business since the most recent date of the
Company Financials and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under GAAP to be reflected
in the Company Financials.
6.
<PAGE> 8
c. All of the accounts receivable reflected on the Company
Financials and all accounts receivable incurred since that date are or have been
fully collectible in the normal course of business and there are no known or
asserted claims or other rights of set-off against any thereof, except to the
extent of any reserves set forth therefor on the Company Financials and except
as set forth on Schedule 2.6. Schedule 2.6 sets forth the aggregate amount of
accounts receivable outstanding as of the date hereof by more than 90 and 120
days, respectively. Except as set forth on Schedule 2.6, as of the date hereof,
there is (i) no account debtor whose obligation to the Company is reflected on
the Company Financials that has refused (or, to the best knowledge of the
Company and the Shareholder, threatened to refuse) to pay its obligations for
any reason, (ii) to the best knowledge of the Company and the Shareholder, no
account debtor whose obligation to the Company is reflected on the Company
Financials that is insolvent or bankrupt, and (iii) no account receivable that
is pledged to any third party by the Company.
d. Schedule 2.6 sets forth the aggregate amount of accounts
payable more than 90 and 120 days due, respectively, other than delinquencies
having to do with normal trade disputes, none of which exceed $5,000
individually or $25,000 in the aggregate as of the date hereof.
e. Except as set forth in Schedule 2.6, since the most recent
date of the Company Financials, the Company has continued to replenish
inventories in a normal and customary manner consistent with past practices. The
Company has not received written or oral notice that it will experience in the
foreseeable future any difficulty in obtaining, in the desired quantity and
quality and at a reasonable price and upon reasonable terms and conditions, the
raw materials, supplies or component products required for the manufacture,
assembly or production of its products. Except as set forth in Schedule 2.6, the
values at which inventories are carried reflect the inventory valuation policy
of the Company that is consistent with its past practice and in accordance with
GAAP applied on a consistent basis.
7. MATERIAL CHANGES. Since October 31, 1996, except as is set forth on
Schedule 2.7, there has not occurred:
a. Any material adverse change in the assets, liabilities,
business, prospects, condition (financial or otherwise), or operating results of
the Company from that reflected in the Company Financials or any one or more
adverse changes that have resulted or may result in a loss to the Company of
more than $10,000 in the aggregate;
b. Any material increase in the indebtedness or liabilities of
the Company over the level thereof as reflected on the most recent balance sheet
included in the Company Financials, or any mortgage, pledge or encumbrance on
any of the assets of the Company;
c. Any amendment or modification of any Material Agreement (as
defined below), or any termination of any agreement that would have been a
Material Agreement were such agreement in existence on the date hereof;
7.
<PAGE> 9
d. Any creation of any written or oral agreement, contract,
commitment or transaction involving the Company that extends beyond the first
anniversary of the date hereof or that involves obligations thereunder in excess
of $5,000;
e. Any increase in the compensation (including, without
limitation, the rate of commissions) payable to, or any payment of a cash salary
bonus to, any officer, director or employee of, or consultant to, the Company;
f. Any transaction by the Company, whether or not covered by the
foregoing, not in the ordinary course of business, including, without
limitation, any purchase or sale of any asset;
g. Any material alteration in the manner of keeping the books,
accounts or records of the Company or in the accounting practices therein
reflected;
h. Any declaration or payment of any dividends or distributions
by the Company, any acquisition or redemption by the Company of any of its
equity securities or any loan by the Company to any of its security holders;
i. Any loss or threatened loss of a material customer; or
j. Any agreement to do any of the things described in subsections
(a) through (i) of this Section 2.7.
8. RETURNS. Except as set forth on Schedule 2.8, since October 31, 1996,
the Company has not had any of its products returned by a purchaser or user
thereof, other than for minor, nonrecurring warranty problems, stock balancing,
overstock and version changes and upgrades. The Company is not aware of any
pending warranty claims other than those that arise in the ordinary course of
business and that are not expected to require a bulk recall of products
currently sold to customers or in the distribution channel.
9. ASSETS AND PROPERTIES.
a. Except as set forth in Schedules 2.9(a) or (b) or Schedule
2.12, the Company has good title to, valid leasehold interests in, or other
right to use all of the assets used in its operations prior to the date of this
Agreement, including, without limitation, the assets reflected on the Company
Financials (except for assets sold since the date of the balance sheet included
in the Company Financials), free and clear of any mortgages, pledges, security
interests, encumbrances, material restrictions or adverse claims. Except as set
forth in Schedule 2.9(a), all of such assets are in good operating condition,
normal wear and tear excepted, and are adequate and suitable for the purposes
for which they are presently being used.
b. Except as set forth in Schedule 2.9(a), since the most recent
date of the Company Financials, there has not occurred any transfer of title
from the Company (other than in the ordinary course of business), any
abandonment, any pilferage or any other material loss by the Company with
respect to any of its property, plant or equipment.
8.
<PAGE> 10
c. Schedule 2.9(b) sets forth a complete and correct list of each
parcel of real property (collectively, the "Real Property") leased to the
Company or otherwise used by the Company (a "Lease"). The Company does not own
any real property. Except as set forth in Schedule 2.9(b):
i. Each Lease is a valid and binding obligation of the
Company, and the Shareholder and the Company do not have any knowledge that any
of such Leases are not valid and binding obligations of each of the other
parties thereto;
ii. Neither the Company nor any other party to a Lease is
in default with respect to any material term or condition thereof, and no event
has occurred that, with the passage of time or the giving of notice or both,
would constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance upon
any asset of the Company;
iii. All of the buildings, fixtures and other improvements
located on the Real Property are in good operating condition and repair, and the
operation thereof as presently conducted is not in violation of any material
applicable code, zoning ordinance or other applicable law or regulation;
iv. The Company holds valid and effective certificates of
occupancy, underwriters' certificates relating to electrical work, zoning,
building, housing, safety, fire and health approvals and all other permits and
licenses required by applicable laws relating to the operation of the Real
Property, except where the lack of any such permits or licenses will not have a
Material Adverse Effect;
v. To the knowledge of the Company and the Shareholder, no
portion of the Real Property (A) contains or has been used in any manner at any
previous time for the storage, disposal, treatment, processing, production,
refinement, generation or other handling of waste contamination, PCBs, asbestos,
or other hazardous or toxic substance and there is no contamination, whether of
soil, ground water, or otherwise, or other condition that violates any
applicable federal, state, local, or other law, regulation, code, order, or rule
(an "Environmental Protection Law"), or requires reporting to any governmental
authority; (B) contains underground tanks of any type, or any materials
containing PCBs or any asbestos; or (C) contains any surface or sub-surface
conditions that constitute, or that through the physical effects of the passage
of time may constitute, a public or private nuisance;
vi. To the knowledge of the Company and the Shareholder,
no portion of the Real Property has been designated, listed, or identified in
any manner by the United States Environmental Protection Agency (the "EPA") or
under and pursuant to any Environmental Protection Law as a hazardous waste or
hazardous substance disposal or removal site, Superfund or clean-up site or
candidate for removal or closure pursuant to any Environmental Protection Law;
and
vii. The Company has not received at any time prior to the
date hereof a summons, citation, notice, directive, letter or other
communication, written or oral, from the
9.
<PAGE> 11
EPA or any other federal, state, local or other governmental agency or
instrumentality, authorized pursuant to an Environmental Protection Law,
concerning any intentional or unintentional action or omission (except any
pertaining to emissions of fugitive dust and other non-hazardous particulates
that are routinely corrected) by the Company constituting a violation or
potential violation of any Environmental Protection Law, including, without
limitation, violations relating to the releasing, spilling, leaking, pumping,
pouring, emitting, emptying, dumping or otherwise disposing of hazardous waste
or hazardous substance into the environment resulting in damage thereto or to
the fish, shellfish, wildfish, biota and other natural resources, and there
exist no facts that would be the basis for a finding of such a violation.
10. INSURANCE. Schedule 2.10 sets forth a list of the insurance policies
held by the Company. To the best knowledge of the Company and the Shareholder,
the Company is in compliance with each of such policies such that none of the
coverages provided under such policies has been invalidated.
11. MATERIAL AGREEMENTS AND RELATIONSHIPS.
a. Except as set forth on Schedule 2.3, 2.9 or 2.11(a), the
Company is not a party to or subject to any oral or written:
i. agreement presently in effect for the purchase of
inventory, supplies, equipment or other real or personal property, or the
procurement of services, except individual purchase orders or aggregate purchase
orders to a single vendor involving payments of less than $10,000;
ii. lease presently in effect relating to equipment,
machinery or other personal property involving aggregate annual payments in
excess of $10,000;
iii. agreement presently in effect for the sale or lease
of products or furnishing of its services, except individual purchase orders or
aggregate purchase orders from a single customer involving payments of less than
$10,000;
iv. joint venture, partnership or other contract or
arrangement presently in effect involving the sharing of profits other than
license agreements;
v. agreement presently in effect relating to the purchase
or acquisition, by merger or otherwise, of a significant portion of its
business, assets or securities by any other person, or of any other person by
it, other than as contemplated herein;
vi. agreement presently in effect containing a covenant or
covenants which purport to limit its ability or right to engage in any lawful
business activity material to it or to compete with any person or entity in a
business material to it;
vii. agreement presently in effect pursuant to which it
has appointed any organization or person to act as its distributor or sales
agent or pursuant to which it has been appointed a distributor or sales agent by
any third party (and, except as specified on Schedule 2.11(a), none of such
agreements is an exclusive relationship);
10.
<PAGE> 12
viii. agreement presently in effect with any of its
officers, directors, shareholders, any family relative of any of the foregoing,
or any business or entity controlled by any of the foregoing or in which any of
the foregoing has a material financial stake (excluding publicly traded
companies in which the foregoing cumulatively hold less than a 5% equity
interest);
ix. agreement presently in effect for the license (whether
as licensor or licensee) of any patent, copyright, trade secret or other
proprietary information;
x. agreement presently in effect involving payments to or
obligations of it in excess of $10,000, not otherwise described in this Section
2.11;
xi. agreement of indebtedness or capital equipment leases
presently in effect in excess of $10,000;
xii. agreement that relates to the borrowing or lending by
the Company of any money;
xiii. agreement that creates or continues any material
claim, lien, charge or encumbrance against, or right of any third party with
respect to, any material asset of the Company;
xiv. agreement or commitment relating to commission
arrangements with others;
As used in this Section 2.11, the word "agreement" includes both oral and
written contracts, leases, understandings, arrangements and all other
agreements. The term "Material Agreements" means the agreements of the Company
required to be disclosed on Schedule 2.11(a) and those that would have been
required to be so disclosed but for their being specifically identified in other
Schedules hereto.
b. To the best knowledge of the Company and the Shareholder,
except as set forth on Schedule 2.11(a), no party to any Material Agreement has
committed a breach thereof or a default thereunder or intends to cancel,
withdraw, modify or amend such Material Agreement.
c. The Company has performed all material obligations required to
be performed by it on or prior to the date hereof under each Material Agreement
to which it is a party, except for such failures to perform, defaults, breaches,
or violations under such instruments or obligations that would not have a
Material Adverse Effect. Except as disclosed in Schedule 2.11(c), the
Shareholder and the Company have no reason to believe that the Company will not
be able to fulfill, when due, all of its obligations under the Material
Agreements that remain to be performed after the date hereof.
12. INTELLECTUAL PROPERTY RIGHTS.
a. Except as set forth on Schedule 2.12: (i) the Company has full
title and ownership of or rights to utilize all trademarks, license rights,
service marks, trade names,
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<PAGE> 13
copyrights, trade secrets, proprietary rights, information and processes and all
patents used in its business as now conducted (collectively, "Intellectual
Property") without any infringement of the rights of others; (ii) to the best
knowledge of the Company and the Shareholder, all Intellectual Property is
valid, subsisting, unexpired, enforceable and has not been abandoned; (iii)
except for agreements and licenses entered into in the ordinary course of
business, there are no outstanding options, licenses, liens, encumbrances or
agreements of any kind relating to the foregoing; (iv) the Company has not
received any communications nor is the Company or the Shareholder aware of any
entity alleging that the Company has infringed or, by conducting its business as
currently conducted, would infringe any intellectual property right of any other
person or entity; (v) the Company and the Shareholder are not aware of any
infringement of the Intellectual Property by third parties; (vi) the Company has
not received any communication from any governmental agency stating that the
Company is not entitled to register, or receive patents for, any of its
Intellectual Property; (vii) the Company is not aware that any of the employees
or consultants of the Company is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of his or her best efforts to promote and secure
the Intellectual Property of the Company or that would conflict with its
business as conducted; (viii) neither the execution nor delivery of this
Agreement, nor the carrying on of its business by its employees or consultants,
nor the conduct of its business as currently conducted, will, to the best
knowledge of the Company and the Shareholder, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees or
consultants of the Company is now obligated; (ix) to the best knowledge of the
Company and the Shareholder, each of the employees and consultants of the
Company who participate in the creation of Intellectual Property, past and
present, have executed, enforceable agreements with the Company assigning or
licensing his or her rights in any Intellectual Property to the Company; (x) the
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees or consultants (or persons it currently intends to hire as
service providers) made prior to their employment by it (except for inventions
that the Company currently owns or has a right to utilize and which are set
forth on Schedule 2.11(a) or Schedule 2.12). Schedule 2.12 also sets forth a
complete and correct list of (x) all material patents, patent applications and
trademarks (registered or unregistered) owned or licensed by the Company that
are necessary for or used in its business as now conducted, and (y) all
independent contractor or consulting agreements pursuant to which the Company
provided consulting services which agreements require a consent or waiver to
consummate the Transactions. All royalty obligations of the Company on current
products are listed on Schedule 2.12. No unlicensed invention that is shown as
being owned by any employee or consultant of the Company is necessary for the
conduct of the business of the Company as presently conducted.
b. To the best knowledge of the Company and the Shareholder, the
Company is not making unauthorized use of any confidential information of third
parties or any confidential information in which any of its present or past
employees or other service providers has claimed a proprietary interest; and the
Company is not aware of any facts that would give rise to such a claim.
12.
<PAGE> 14
c. Without limiting the generality of the foregoing
representations, except as set forth on Schedule 2.12:
i. to the knowledge of the Company and the Shareholder,
the Company has satisfied all material obligations required to be satisfied on
or prior to the date hereof pursuant to any and all consulting agreements
pursuant to which the Company provided consulting services, and the Company is
not using nor has it developed any derivatives or modifications pursuant to such
consulting agreements, except as expressly authorized under such agreements;
ii. neither the Company nor the Shareholder is aware of
any event that has occurred which would give rise to any present or future
liability under any agreement to provide indemnification for infringement of any
third party rights or otherwise; and
iii. the Company is not in arrears in the payment of any
royalty obligations pursuant to any license agreements with third parties
concerning the Intellectual Property.
13. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFITS.
a. Except as set forth on Schedule 2.13, there are no employment,
consulting, severance pay, continuation pay, termination pay or indemnification
agreements or other similar agreements of any nature whatsoever (collectively,
"Employment Agreements") between the Company on the one hand, and any current or
former stockholder, officer, director, consultant, or agent of the Company on
the other hand, that are currently in effect. Except as set forth on Schedule
2.13, there are no Employment Agreements or any other similar agreements to
which the Company is a party under which the transactions contemplated by this
Agreement (i) will require any payment by the Company or Aspen, or any consent
or waiver from any stockholder, officer, director, employee, consultant or agent
of the Company or Aspen, or (ii) will result in any change in the nature of any
rights of any stockholder, officer, director, employee, consultant or agent of
the Company under any such Employment Agreement or other similar agreement.
b. Schedule 2.13 lists all Employee Benefit Plans of the Company.
The Company has made true and correct copies of all governing instruments and
related agreements pertaining to such benefit plans available to Aspen.
c. Neither the Company nor any of its ERISA Affiliates sponsors
or has ever sponsored, maintained, contributed to, or incurred an obligation to
contribute to, any Employee Pension Benefit Plan.
d. No individual shall accrue or receive additional benefits,
service or accelerated rights to payments of benefits under any Employee Benefit
Plan, including the right to receive any parachute payment, as defined in
Section 280G of the Code, or become entitled to severance, termination allowance
or similar payments as a direct result of the transactions contemplated by this
Agreement.
13.
<PAGE> 15
e. No Employee Benefit Plan has participated in, engaged in or
been a party to any non-exempt Prohibited Transaction, and neither the Company
nor any of its ERISA Affiliates has had asserted against it any claim for taxes
under Chapter 43 of Subtitle A of the Code Section 5000 of the Code, or for
penalties under ERISA Section 502(c), (i) or (l), with respect to any Employee
Benefit Plan nor is there a basis for any such claim. No officer, director or
employee of the Company has committed a material breach of any responsibility or
obligation imposed upon fiduciaries by Title I of ERISA with respect to any
Employee Benefit Plan.
f. Other than routine claims for benefits, there is no claim
pending or, to the knowledge of the Company or the Shareholder, threatened,
involving any Employee Benefit Plan by any person against such plan or the
Company or any ERISA Affiliate. There is no pending or, to the knowledge of the
Company or the Shareholder, threatened proceeding involving any Employee Benefit
Plan before the Internal Revenue Service, the U.S. Department of Labor or any
other governmental authority.
g. There is no violation of any reporting or disclosure
requirement imposed by ERISA or the Code with respect to any Employee Benefit
Plan.
h. Each Employee Benefit Plan has at all times prior hereto been
maintained in all material respects, by its terms and in operation, in
accordance with ERISA and the Code. The Company and its ERISA Affiliates have
made full and timely payment of all amounts required to be contributed under the
terms of each Employee Benefit Plan and applicable law or required to be paid as
expenses under such Employee Benefit Plan, and the Company and its ERISA
Affiliates shall continue to do so through the Closing. Each Employer Benefit
Plan intended to be qualified under Code Section 401(a) has received a
determination letter to that effect from the Internal Revenue Service and no
event has occurred and no amendment has been made that would adversely affect
such qualified status.
i. With respect to any group health plans maintained by the
Company or its ERISA Affiliates, whether or not for the benefit of the employees
of the Company, the Company and its ERISA Affiliates have complied in all
material respects with the provisions of Part 6 of Title I of ERISA and 4980B of
the Code. The Company is not obligated to provide health care benefits of any
kind to its retired employees pursuant to any Employee Benefit Plan, including
without limitation any group health plan, or pursuant to any agreement or
understanding.
j. The Company has made available to Aspen a copy of the three
(3) most recently filed Federal Form 5500 series and accountant's opinions, if
applicable, for each of its Employee Benefit Plans and all applicable Internal
Revenue Service determination letters.
k. For purposes of this Section 2.13, the following definitions
shall apply:
i. "Benefit Arrangement" means any material benefit
arrangement that is not an Employee Benefit Plan, including without limitation
(i) each employment or consulting agreement, (ii) each arrangement providing for
insurance coverage or workers' compensation benefits, (iii) each incentive bonus
or deferred bonus arrangement, (iv) each arrangement providing termination
allowance, severance or similar benefits, (v) each equity compensation plan,
14.
<PAGE> 16
(vi) each deferred compensation plan, and (vii) each compensation policy and
practice maintained by the Company or any ERISA Affiliate covering the
employees, former employees, directors and former directors of the Company and
the beneficiaries of any of them.
ii. "COBRA" means the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, as set forth in Section 4980B of the
Code and Part 6 of Title I of ERISA.
iii. "Code" means the Internal Revenue Code of 1986, as
amended.
iv. "Employee Benefit Plan" means any employee benefit
plan, as defined in Section 3(3) of ERISA, that is sponsored or contributed to
by the Company or any ERISA Affiliate covering employees or former employees of
the Company.
v. "Employee Pension Benefit Plan" means any employee
pension benefit plan, as defined in Section 3(2) of ERISA, that is subject to
Title IV of ERISA.
vi. "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
vii. "ERISA Affiliate" of any person means any other
person that, together with such person as of the relevant measuring date under
ERISA, was or is required to be treated as a single employer under Section 414
of the Code.
viii. "Prohibited Transaction" means a transaction that is
prohibited under Section 4975 of the Code or Section 406 of ERISA and not exempt
under Section 4975 of the Code or Section 408 of ERISA, respectively.
14. LABOR AND EMPLOYMENT MATTERS.
a. Except as set forth on Schedule 2.14, no collective bargaining
agreement exists that is binding on the Company and, except as described on
Schedule 2.14, no petition has been filed or proceedings instituted by an
employee or group of employees with any labor relations board seeking
recognition of a bargaining representative. Schedule 2.14 describes any
organizational effort currently being made or threatened by or on behalf of any
labor union to organize any employees of the Company.
b. Except as set forth on Schedule 2.14, (i) there is no labor
strike, dispute, slow down or stoppage pending or threatened, against or
directly affecting the Company, (ii) no grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is pending, and no
claims therefor exist; and (iii) the Company has not received notice and has no
knowledge of any threatened labor or civil rights dispute, controversy or
grievance or any other unfair labor practice proceeding or breach of contract
claim or action with respect to claims of, or obligations to, any employee or
group of employees of the Company.
15.
<PAGE> 17
c. If required under the Workers Adjustment and Retraining
Notification Act or applicable state law regulating plant closing or mass
layoffs, the Company has timely caused there to be filed or distributed, as
appropriate, all required filings and notices with respect to employment losses
occurring through the Closing Date.
d. The Company has complied and is currently complying, in
respect of all employees of the Company, with all applicable laws respecting
employment and employment practices and the protection of the health and safety
of employees, from whatever source such law may be derived, including, without
limitation, statutes, ordinances, laws, rules, regulations, policies, standards,
judicial or administrative precedents, judgments, orders, decrees, awards,
citations, licenses, official interpretations and guidelines , except for such
instances which are not, in the aggregate, material.
e. All individuals who are performing or have performed services
for the Company and are or were classified by the Company as "independent
contractors" qualify for such classification under Section 530 of the Revenue
Act of 1978 or Section 1706 of the Tax Reform Act of 1986, as applicable, except
for such instances which are not, in the aggregate, material.
15. ENVIRONMENTAL AND SAFETY LAWS. The Company has, in all material
respects, complied and is in compliance with all applicable local, state and
federal environmental laws, regulations, ordinances and administrative and
judicial orders relating to the generation, recycling, use, sale, storage,
handling, transfer and disposal of any Hazardous Substances, and the Company has
not been alleged to be in violation of, or been subject to any administrative,
judicial or regulatory proceeding pursuant to, such laws or regulations. As used
herein, "Hazardous Substances" shall mean any asbestos, petroleum or any
substance or material defined or designated as hazardous or toxic waste,
hazardous or toxic material, hazardous or toxic substance, or other similar
term, by any federal, state or local environmental statute, regulation or
ordinance presently in effect, including, without limitation, any material or
substance which is designated or defined as a "hazardous substance," "hazardous
waste" or "toxic substance" in (i) the Federal Water Pollution Control Act, 33
U.S.C. S 1251 et seq., and any amendments thereto, (ii) the Federal Resource
Conservation and Recovery Act 42 U.S.C. SS 6901 et seq., and any amendments
thereto, (iii) the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. S 9601 et seq., and any amendments thereto, or (iv) the
Hazardous Material Transportation Act, 49 U.S.C. S 1801 et seq., and any
amendments thereto.
16. COMPLIANCE WITH LAWS. Except as set forth in Schedule 2.16, the
Company has complied in all material respects with all foreign, federal, state,
local and county laws, ordinances, regulations, judgments, orders, decrees or
rules of any court, arbitrator or governmental, regulatory or administrative
agency or entity applicable to its business, except where non-compliance will
not have a Material Adverse Effect. Except as set forth on Schedule 2.16, the
Company has not received any governmental notice of any violation by the Company
of any such laws, rules, regulation or orders.
17. ABSENCE OF LITIGATION. Except as set forth on Schedule 2.17, the
Company is not a party to any litigation, claim, arbitration, investigation or
other proceeding, nor, to the best
16.
<PAGE> 18
knowledge of the Company or the Shareholder, is there any such litigation,
claim, arbitration, investigation or other proceeding threatened against the
Company. Neither the Company nor, to the best knowledge of the Company or the
Shareholder, any of the Company's officers or directors is bound by any
judgment, decree, injunction, ruling or order of any court, governmental,
regulatory or administrative department, commission, agency or instrumentality,
arbitrator or any other person that relates to the Company or its business.
18. NO BROKERS. Except as set forth in Schedule 2.18, neither the
Company or the Shareholder is obligated for the payment of fees or expenses of
any broker or finder in connection with the origin, negotiation or execution of
this Agreement or in connection with any transaction contemplated hereby or
thereby.
19. TAXES.
a. Definitions. For purposes of this Agreement:
i. the term "Taxes" means (A) all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B) any liability
for payment of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law and (C) liability
for the payment of amounts described in clauses (A) or (B) as a result of any
tax sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other person; and the term "Tax" means any
one of the foregoing Taxes; and
ii. the term "Returns" means all returns, declarations,
reports, statements and other documents required to be filed in respect of
Taxes, and the term "Return" means any one of the foregoing Returns.
b. Except as set forth in Schedule 2.19, the Company has
completed and filed on a timely basis and in materially correct form all Returns
required to be filed. As of the time of filing, the filed Returns did not
materially misstate the facts regarding the income, business, assets,
operations, activities, status or other matters of the Company or any other
information required to be shown thereon and none of such Returns contains (or
were required to contain in order to avoid the imposition of a penalty) a
disclosure statement under Section 6662 of the Code (or any predecessor
provision or comparable provision of state, local or foreign law). The Company
will complete and file on a timely basis and in a materially correct manner all
Returns required to be filed after the date of this Agreement and on or prior to
the Closing, and will provide Aspen the reasonable opportunity to review and
comment on any such Return prior to its filing.
c. Except as set forth in Schedule 2.19, with respect to all
amounts in respect of Taxes imposed upon the Company, or for which the Company
is liable, whether to taxing
17.
<PAGE> 19
authorities (as, for example, under law) or to other persons or entities (as,
for example, under tax allocation agreements), with respect to all taxable
periods or portions of periods ending on or before the date of Closing, all
applicable Tax laws and agreements have been complied with in all material
respects, and all such amounts required to be paid by the Company to taxing
authorities or others have been paid or, if due but remain payable without
penalty or interest, have been adequately reserved for. The Company does not owe
any Taxes on compensation paid to any of its employees, other than Taxes that
are not yet due and payable. No director, officer or employee of the Company
having responsibility for tax matters is in discussions with tax authorities or
has reason to believe that any tax authority has valid grounds to claim or
assess any additional Tax with respect to the Company in excess of the amounts
shown on the balance sheet dated October 31, 1996.
d. Except as set forth on Schedule 2.19: (i) the Returns of the
Company have not been audited nor are such Returns under audit by any tax
authority, and the Company has not received notice of a forthcoming audit of its
Returns; (ii) no claim has been made by a Tax authority in a jurisdiction where
the Company does not file Returns that the Company is or may be subject to Tax
by that jurisdiction; (iii) no extensions or waivers of statutes of limitations
with respect to the Returns have been given by or requested from the Company;
and (iv) no power of attorney granted by the Company with respect to Taxes is in
force.
e. There are no liens for Taxes (other than for current Taxes not
yet due and payable) upon the assets of the Company.
f. The Company is not a party to or bound by any tax indemnity,
tax sharing or tax allocation agreement.
g. The Company has never been a member of an affiliated group of
corporations, within the meaning of Section 1504 of the Code, or a member of
combined, consolidated or unitary group for state, local or foreign Tax
purposes. The Company has not made an election under Section 1361 of the Code or
any predecessor provision or any similar provision for state, local or other Tax
purposes. The Company has not filed a consent pursuant to the collapsible
corporation provisions of Section 341(f) of the Code (or any corresponding
provision of state, local or foreign income Tax law) or agreed to have Section
341(f)(2) of the Code (or any corresponding provision of state, local or foreign
income Tax law) apply to any disposition of any asset owned by it. The Company
has not made nor will it make a consent dividend election under Section 565 of
the Code.
h. The Company has not agreed to make, nor is it required to
make, any adjustment under Sections 481(a) or 263A of the Code or any comparable
provision of state or foreign tax laws by reason of a change in accounting
method or otherwise. The Company has always used and continues to use the
accrual method of accounting for federal and state income and franchise Tax
purposes. The Company has not taken any action that is not in accordance with
past practice that could defer a liability for Taxes of the Company or the
Shareholder from any taxable period ending on or before the Closing Date to any
taxable period ending after such date. The Company is not a party to or bound by
any closing agreement, offer in compromise or similar agreement with any Taxing
authority.
18.
<PAGE> 20
i. The Company is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code, due to the Exchange or any change of control of the
Company or any other transaction contemplated by this Agreement.
j. The Company is not, and has never been, a United States real
property holding corporation (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
k. The Shareholder is a United States person within the meaning
of the Code.
l. Except as set forth in Schedule 2.19, the Company does not
have, and never has had, a permanent establishment in any foreign country, as
defined in any applicable Tax treaty or convention between the United States and
such foreign country, and the Company has not engaged in a trade or business
within any foreign country. The Company has not made a "waters-edge election"
pursuant to California Revenue and Tax Code Section 25110.
m. Except as set forth in Schedule 2.19, the Company is not a
party to any joint venture, partnership, or other arrangement or contract which
could reasonably be expected to be treated as a partnership for federal income
tax purposes.
n. Except as set forth on Schedule 2.19, the unpaid Taxes of the
Company as of the date hereof are not materially in excess of the unpaid
liability for Taxes reflected on the most recent Company Financials heretofore
provided to Aspen. No material Tax liability of the Company has been incurred
since October 31, 1996 other than in the ordinary course of business.
o. Schedule 2.19 sets forth all state, local or foreign
jurisdictions in which the Company is or at any time during the past five years
has been subject to Tax.
20. COMPLIANCE WITH INSTRUMENTS. Except as set forth in Schedule 2.20,
the Company is not (and would not be with the giving of notice or the passage of
time or both) in violation of, conflict with, breach of or default under any
term or provision of its Articles of Incorporation or Bylaws, or any agreement,
arrangement, contract, lease or other instrument to which it or its properties
is subject except where such would not have a Material Adverse Effect.
21. RELATED PARTY TRANSACTIONS. Except for matters arising in the
ordinary course of business or as set forth in Schedule 2.21, (a) no employee,
officer or director of the Company or the Shareholder, any family relative of
any of the foregoing, or any business or entity controlled by any of the
foregoing or in which any of the foregoing has a material financial stake
(excluding publicly traded companies in which the foregoing cumulatively hold
less than a 5% equity interest) (collectively, "Related Parties"), is indebted
to the Company, (b) the Company is not indebted (or committed to make loans or
extend or guarantee credit) to any Related Party, and (c) the Company has not
engaged in any transaction with any Related Party in which the amount involved
exceeds $10,000, since the beginning of the two most recently completed fiscal
years of the Company prior to the date hereof. To the knowledge of the Company
and the
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Shareholder, Schedule 2.21 sets forth a complete and correct list of all
businesses and entities constituting Related Parties with which the Company has
either a business relationship or competes.
22. NO POWERS OF ATTORNEY OR SURETYSHIPS. Except as set forth on
Schedule 2.22 hereto, (a) the Company has not granted any general or special
powers of attorney and (b) the Company has no obligation or liability (whether
actual, contingent or otherwise) as guarantor, surety, consignor, endorser,
co-maker, indemnitor, obligor on an asset or income maintenance agreement or
otherwise in respect of the obligation of any person, corporation, partnership,
joint venture, association, organization or other entity.
23. CORPORATE BOOKS. The corporate minute books of the Company are
complete, each of the minutes contained therein accurately reflect the actions
that were taken at the meeting for which the minutes were taken, the meetings of
directors or shareholders referred to in the minutes were duly called and held,
and the signatures contained on all documents in the minute books are the true
signatures of the persons purporting to have signed the same.
24. ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company nor any
employee, agent or other person acting on behalf of the Company, including, but
not limited to, the Shareholder, has, directly or indirectly, given or agreed to
give any gift or similar benefit to any customer, supplier, competitor or
governmental employee or official (domestic or foreign) (a) that would subject
the Company to any damage or penalty in any civil, criminal or governmental
litigation or proceeding or (b) that, if not given in the past, would have had a
material adverse effect on the assets, liabilities (whether absolute, accrued,
contingent or otherwise), condition (financial or otherwise), results of
operations, business or prospects of the Company.
25. DISCLOSURE; ACCURACY OF DOCUMENTS AND INFORMATION; SCHEDULES. The
Company and the Shareholder have disclosed all events, conditions and facts
materially affecting the business and prospects of the Company. No
representation, warranty or statement made by or on behalf of the Company or the
Shareholder in this Agreement, or any document furnished by the Company or the
Shareholder pursuant to the terms of this Agreement or otherwise provided to
Aspen, when taken together with this Agreement in its entirety and all such
documents, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Notwithstanding
specific cross references in the Schedules herein, any disclosure under any
Schedule shall be deemed to be a disclosure applicable to all representations
and warranties of the Company and the Shareholder under this Agreement and under
all other Schedules. To the extent that the Schedules contain exceptions to the
representations and warranties set forth in Article II and III of this
Agreement, the inclusion of an item in any Schedule shall not be deemed an
admission by the Company or the Shareholder that such item is material to the
Company or such Shareholder or that it will have a material adverse effect on
the business, condition, results of operations or prospects of the Company.
20.
<PAGE> 22
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDER
As an inducement to Aspen to enter into this Agreement, the Shareholder
hereby makes, as of the date of the Closing, the following representations and
warranties to Aspen:
1. AUTHORITY, APPROVAL AND ENFORCEABILITY.
a. The Shareholder has full power and authority to execute,
deliver and perform his obligations under this Agreement and the Escrow
Agreement and to consummate the Transactions, and all action on his part
necessary for such execution, delivery, performance and consummation has been
duly taken.
b. The execution and delivery by such Shareholder of this
Agreement does not, and the performance and consummation of the Transactions
will not, result in or give rise to (with or without the giving of notice or the
lapse of time, or both) any conflict with, breach or violation of, or default,
termination, forfeiture or acceleration of obligations under, any statute, rule,
regulation, judicial, governmental, regulatory or administrative decree, order
or judgment applicable to such Shareholder, or any agreement or other instrument
to which he is a party or to which any of his assets is subject.
c. This Agreement and the Escrow Agreement are the Shareholder's
legal, valid and binding obligations, enforceable against him in accordance with
the respective terms hereof and thereof, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and subject to general
equitable principles.
d. The Shareholder is the record and beneficial owner of all of
the 2,675,000 outstanding shares of Company Common Stock and all of the 711,000
outstanding shares of Company Preferred Stock, free and clear of any and all
claims, liens, encumbrances or security interests.
2. INVESTMENT INTENT. The Shareholder is acquiring the shares of Aspen
Common Stock and Aspen Preferred Stock to be issued in the Exchange for
investment purposes for his own account and without a view to distribution or
resale thereof.
3. NO FAIRNESS DETERMINATION. The Shareholder is aware that no federal,
state or other agency has made any finding or determination as to the fairness
of the Exchange, nor made any recommendation or endorsement of the Aspen Shares.
4. KNOWLEDGE AND EXPERIENCE. The Shareholder has such knowledge and
experience in financial and business matters, including investments in other
start-up companies, that he is capable of evaluating the merits and risks of the
investment in the Aspen Shares, and
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<PAGE> 23
he is able to bear the economic risk of such investment. Further, the
Shareholder has knowledge and experience in financial and business matters that
he has the capacity to protect his own financial interests in connection with
the Exchange, of evaluating the merits and risks of an investment in the Aspen
Shares and of making an informed investment decision with respect to the Aspen
Shares.
5. ACCREDITED. The Shareholder represents that he is an accredited
investor as that term is defined under Regulation D promulgated by the
Securities and Exchange Commission.
6. LIMITED PUBLIC MARKET; RESTRICTED SECURITIES. The Shareholder is
aware that Aspen's shares of common stock are traded in the over-the-counter
market and are not listed or quoted on any exchange or on Nasdaq. There is
currently only a very limited public market for Aspen's securities. The
Shareholder understands that the Aspen Shares are restricted securities and
cannot be sold or transferred without an exemption from or registration under
applicable state and federal securities laws. The Shareholder further
understands that the shares of Aspen Common Stock and Aspen Preferred Stock will
be characterized as "restricted securities" under federal securities laws
inasmuch as they are being acquired from Aspen in a transaction not involving a
public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act only in
certain limited circumstances. In this connection, the Shareholder represents
that he is familiar with SEC Rule 144, as presently in effect, and understands
the resale limitations imposed thereby and by the Securities Act. The
Shareholder is aware that the certificates representing the Aspen Common Stock
and Aspen Preferred Stock will bear a legend regarding such restrictions on
resale.
7. ACCESS TO DATA. The Shareholder has had an opportunity to discuss
Aspen's business, management and financial affairs with Aspen's management and
to obtain any additional information the Shareholder has deemed necessary or
appropriate for deciding whether or not to enter into this Agreement. The
Shareholder acknowledges that no warranties or representations, oral or written,
have been made to him by Aspen or any of its officers, directors, or other
affiliates except as expressly set forth in this Agreement.
8. NO OPERATIONS; NO ASSURANCE OF CONSUMMATION OF REORGANIZATION. The
Shareholder acknowledges that he is aware that Aspen currently conducts no
operations except in connection with Aspen's plan to effect a reorganization
with the Company hereunder. In addition, the investment in the Aspen Shares will
constitute a substantial risk in that there can be no assurance that such
transactions contemplated under this Agreement will result in profitable
operations of the combined entities.
9. RELIANCE AND INDEMNIFICATION. The Shareholder is aware that Aspen is
relying on the accuracy of the above representations to establish compliance
with Federal and state securities laws.
22.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
ASPEN
As an inducement to the Company and the Shareholder to enter into this
Agreement, Aspen hereby makes, as of the Closing Date, the following
representations and warranties to the Company and the Shareholder, except as
otherwise set forth in a written disclosure schedule delivered by Aspen to the
Company and the Shareholder concurrently herewith, which is numbered to
correspond to the various sections of this Agreement and which sets forth
certain exceptions to the representations and warranties contained in this
Article IV and certain other information called for by this Agreement.
1. ORGANIZATION AND STANDING. Aspen is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has all requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted, and is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a Material Adverse
Effect. Whenever used in this Article IV, "Material Adverse Effect" shall mean a
material adverse effect on the business, properties, prospects, condition
(financial or otherwise) or results of operations of Aspen.
2. CAPITALIZATION.
a. Immediately prior to the Closing and immediately prior to the
cancellation of 760,600 shares of Aspen's Common Stock, Aspen's authorized
capital stock shall include only two authorized classes of capital stock,
consisting of one million (1,000,000) shares of Preferred Stock, $.001 par value
per share, of which no shares shall be outstanding, and ten million (10,000,000)
shares of a sole class of Common Stock, $.001 par value per share, of which
2,374,050 shares shall be outstanding. All such shares of Common Stock have been
issued in transactions exempt from registration under the Securities Act, and
1,388,050 of such shares of Common Stock were issued pursuant to Rule 504 of
Regulation D under the Securities Act and are not "restricted" shares as defined
in Rule 144 under the Securities Act. There are approximately 170 holders of
shares of the Common Stock of Aspen. Except as contemplated in this Agreement
and as set forth in this Section 4.a., there are no outstanding shares of
capital stock of Aspen and there exist no (i) outstanding options, warrants, or
other rights to purchase or subscribe for any equity securities or other
ownership interests of Aspen, (ii) indebtedness or securities directly or
indirectly convertible into or exchangeable for any equity securities of Aspen,
or (iii) any other obligations, rights, agreements or arrangements, whether
absolute or contingent, with respect to the issuance of any equity securities of
Aspen.
b. Except as set forth on Schedule 4.2, (i) all of the issued and
outstanding shares of Aspen Common Stock have been duly authorized and validly
issued, are fully paid and non-assessable, and were issued in full compliance
with all applicable federal and state laws, rules and regulations and were not
issued in violation of any preemptive rights; and (ii) Aspen has no
23.
<PAGE> 25
obligation, whether absolute or contingent, to repurchase any of the issued and
outstanding shares of Aspen Common Stock.
c. Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, co-sale right,
right of participation, right of first offer, option or other restriction on
transfer applicable to any shares of Aspen Common Stock. Aspen is not a party
to, nor is Aspen subject to, any agreement that affects or relates to the voting
or giving of written consent with respect to any shares of Aspen Common Stock.
3. AUTHORITY, APPROVAL AND ENFORCEABILITY.
a. Subject to obtaining the required approval of Aspen's
stockholders, which approval shall be obtained prior to the Closing Date, Aspen
has all requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement and the Escrow Agreement (as defined
herein), as the case may be, and all corporate action on its part necessary for
such execution, delivery and performance has been duly taken.
b. The execution and delivery by Aspen of this Agreement and the
Escrow Agreement do not, and the performance and consummation of the
Transactions will not, result in or give rise to (with or without the giving of
notice or the lapse of time, or both) any conflict with, breach or violation of,
or default, termination, forfeiture or acceleration of obligations under, any
terms or provisions of its (i) Certificate of Incorporation or Bylaws, (ii) any
statute, rule, regulation or any judicial, governmental, regulatory or
administrative decree, order or judgment applicable to it, or (iii) any material
agreement, lease or other instrument to which Aspen is a party or to which it or
any of its assets may be bound.
c. No consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or any
other governmental or administrative body is required on the part of Aspen for
the consummation by Aspen of the Transactions, except any approvals or filings
required under state "blue sky" laws.
d. This Agreement and the Escrow Agreement are the legal, valid
and binding obligations of Aspen, enforceable against Aspen in accordance with
the respective terms hereof and thereof, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and subject to general
equitable principles.
4. FINANCIAL STATEMENTS AND REPORTS. Aspen has delivered to the Company
and the Shareholder complete copies of its audited balance sheet as of June 30,
1996, and the related audited statement of income (loss) and retained earnings
(deficit) for the period commencing September 29, 1995 and ended June 30, 1996,
together with its unaudited balance sheet as of January 15, 1997 (collectively,
the "Aspen Financials"). Except as set forth on Schedule 4.4, the Aspen
Financials (i) have been prepared from the books and records of Aspen in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis with prior periods, and (ii) are complete and correct and
present fairly the financial position of the Company
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<PAGE> 26
as of the respective dates and the results of its operations and cash flows for
the periods then ended.
5. MATERIAL CHANGES. Aspen is engaged in no active business and conducts
no active operations. Since June 30, 1996, there has been no material change in
Aspen's financial condition, assets or liabilities, except as set forth in
Schedule 4.5.
6. ASPEN SHARES. The Aspen Shares to be issued to the Shareholder as
contemplated hereunder are (i) duly authorized, and (ii) when issued and
exchanged pursuant to the terms of this Agreement, will be validly issued, fully
paid, non-assessable and not subject to any preemptive rights.
7. LITIGATION. There are no (a) actions, proceedings or investigations
pending or threatened, or verdicts or judgments entered against Aspen before any
court or before any administrative agency or officer or (b) violations by Aspen
of any foreign, federal, state or local laws, regulations or orders, including
but not limited to laws pertaining to workplace safety and environmental
clean-up.
8. TAX RETURNS AND PAYMENTS. Aspen has timely filed or caused to be
filed and accurately prepared all federal and state income tax returns and all
other federal and state tax returns which are required to be filed by Aspen.
Aspen has no knowledge that the federal and state tax returns of Aspen are now
being or have ever been audited by the Internal Revenue Service or the
California Franchise Tax Board or State Board of Equalization, respectively, and
no waivers of the applicable statute of limitations have been executed.
9. MATERIAL LICENSES, AGREEMENTS, RELATED PARTY AGREEMENTS. As of the
date of this Agreement, except as set forth in Schedule 4.9, Aspen is not a
party to, nor is its property bound by, any written or oral, express or implied
agreement, contract, or any other contractual obligation including without
limitation any real or personal property leases, any employment agreements, any
license agreements, any consulting agreements, any personal services agreements,
any franchises, or any other agreements that require Aspen to pay any monies or
deliver any assets or services.
10. REGISTRATION RIGHTS. Except as contemplated in this Agreement, Aspen
is not a party to any "registration rights agreement" or any similar agreement
pursuant to which any person or entity would have the right to cause, under any
circumstances, the registration of Aspen's securities under the Securities Act.
11. LIABILITIES. Aspen does not have any debt, liability or obligation
of any nature, whether accrued, absolute or contingent, and whether due or to
become due, which exceeds $12,000, either individually or in the aggregate.
12. NO BROKERS. Except as set forth in Schedule 4.12, Aspen is not
obligated for the payment of fees or expenses of any broker or finder in
connection with the origin, negotiation or execution of this Agreement or in
connection with any transaction contemplated hereby or thereby.
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<PAGE> 27
13. TAX-FREE REORGANIZATION. Aspen has not engaged in any transaction
which it believes would preclude the transactions contemplated hereby from
constituting a "reorganization" within the meaning of Section 368 of the Code.
14. ACCESS TO DATA. Aspen has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and to obtain any additional information Aspen has deemed necessary
or appropriate for deciding whether or not to enter into this Agreement. Aspen
acknowledges that no warranties or representations, oral or written, have been
made to it by the Shareholder, the Company, or any of the Company's officers,
directors, or other affiliates except as expressly set forth in this Agreement.
15. DISCLOSURE; ACCURACY OF DOCUMENTS AND INFORMATION; SCHEDULES. Aspen
has disclosed all events, conditions and facts materially affecting the business
and prospects of Aspen. No representation, warranty or statement made by Aspen
in this Agreement, or any document furnished by Aspen pursuant to the terms of
this Agreement or otherwise provided to the Company, when taken together with
this Agreement in its entirety and all such documents, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Notwithstanding specific cross references in the
Schedules herein, any disclosure under any Schedule shall be deemed to be a
disclosure applicable to all representations and warranties of Aspen under this
Agreement and under all other Schedules. To the extent that the Schedules
contain exceptions to the representations and warranties set forth in Article IV
of this Agreement, the inclusion of an item in any Schedule shall not be deemed
an admission by Aspen that such item is material to Aspen or that it will have a
material adverse effect on the business, condition, results of operations or
prospects of Aspen.
16. RULE 15c2-11 DISCLOSURE. All information provided by Aspen to
broker-dealers or others pursuant to Rule 15c2-11 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or otherwise was, at the time such
information was disseminated, accurate in all material respects. Aspen has filed
all Rule 15c2-11 information required to be filed as of the Closing Date for the
Aspen Common Stock to be quoted on the over-the-counter market as of the Closing
Date.
17. EMPLOYEES AND ASSETS. Aspen has no employees other than its two
officers and owns no assets or property other than the assets listed on its
January 15, 1997, balance sheet.
ARTICLE V
POST-CLOSING COVENANTS
1. CONFIDENTIALITY. All information relating to the Company obtained by
Aspen and its authorized representatives pursuant to this Agreement, and all
information relating to Aspen obtained by the Company or the Shareholder and
their authorized representatives pursuant to this Agreement, shall be kept
confidential by the obtaining party and shall not be publicly disclosed or used
by it without the written consent of the other party for any purpose other than
in connection with the transactions contemplated by this Agreement; provided,
however, that the
26.
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foregoing shall not apply to (i) any information generally available to the
public on the date hereof or that becomes generally available to the public
through no fault of the obtaining party, but only from and after the date such
information becomes so available, (ii) any information obtained by the obtaining
party from a third party having the right to disclose such information, or (iii)
information required to be disclosed to comply with any federal or state
securities laws. The terms of this Section 5.1 shall survive termination of this
Agreement.
2. FURTHER ASSURANCES. After the Closing, each party hereto shall
execute and deliver such further instruments and take such further actions as
any other party hereto may reasonably request in order to carry out the intent
of this Agreement.
3. ASPEN POST-CLOSING COVENANTS. The parties hereto agree to the
following covenants to Aspen's operation after the Closing:
a. Aspen shall not conduct a reverse stock split for a period of
two years after the Closing Date unless such a reverse split is required by the
underwriters in a registered public offering of Aspen's capital stock; or such
reverse split is necessary to obtain approval for quotation of Aspen's stock on
Nasdaq.
b. Aspen shall maintain an independent transfer agent for a
period of at least one year after the Closing Date;
c. After the Closing, Aspen shall be obligated to continue to
comply with disclosure information required by Rule 15c2-11 under the Exchange
Act (unless Aspen shall become subject to the reporting requirements of Section
13 of the Exchange Act), and Standard and Poor's and/or Moody's listing
requirements for a period of at least three years after the Closing Date so as
to permit Aspen's eligible unrestricted stock to be traded over-the-counter on
the NASD electronic bulletin board.
d. After the Closing, the authorized number of Board members of
Aspen shall be five (5), and the Board members of Aspen as of the time of the
Closing shall promptly appoint to the Board of Aspen the two members of the
Board of the Company immediately prior to the Closing to fill two of the
vacancies on the Aspen Board and shall immediately thereafter resign from the
Aspen Board.
e. Immediately after the Closing, Aspen shall enter into an
Employment Agreement with the Shareholder in substantially the form attached
hereto as Exhibit C.
ARTICLE VI
CONDITIONS TO EXCHANGE
1. CONDITIONS TO OBLIGATIONS OF ASPEN, THE SHAREHOLDER AND THE COMPANY.
The respective obligations of Aspen, the Shareholder and the Company to
consummate the transactions contemplated hereby are subject to satisfaction (or
waiver by each party whose obligation is subject to such condition) of the
following conditions:
27.
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a. The parties hereto shall have obtained all consents and
approvals of shareholders and third parties (including governmental authorities)
required to consummate the Transactions.
b. Consummation of the Transactions shall not violate: (i) any
order, decree or judgment of any court or governmental body having jurisdiction,
or (ii) any contract, agreement or other obligation of any party hereto.
c. Aspen shall have obtained all necessary Blue Sky approvals for
the issuance of the Aspen Shares required to be obtained prior to the Effective
Time.
d. The Escrow Agreement and the Registration Rights Agreement
shall be executed and delivered by the parties thereto.
e. Aspen and the Company shall collaborate on the preparation and
dissemination of an offer, which the Company shall approve and recommend, to the
Shareholder, to exchange the outstanding shares of the Company Common Stock and
Company Preferred Stock for a like number of shares of Aspen Common Stock and
Aspen Preferred Stock.
f. The parties shall have made best efforts to structure the
Exchange to qualify as a tax-free reorganization under Section 368(a)(1)(B) of
the Code.
2. CONDITIONS TO OBLIGATIONS OF ASPEN. The obligations of Aspen to
consummate the transactions contemplated hereby are subject to satisfaction (or
waiver by them) of the following conditions:
a. All representations and warranties of the Company and the
Shareholder made herein shall be true and correct in all material respects as of
the date made and as of the Closing Date as if made on and as of the Closing
Date. Each of the Company and the Shareholder shall have performed in all
material respects all obligations and agreements undertaken to be performed by
them at or prior to the Closing.
b. Aspen shall have received at the Closing an opinion of counsel
to the Company and the Shareholder in a form satisfactory to Aspen.
c. Rawlings Sporting Goods Company shall have provided the
Company with a commitment to enter into a new exclusive license agreement with
the Company (dba Rawlings Golf) to, among other things, extend the term of the
existing exclusive License Agreement dated March 29, 1990, to August 31, 2002.
d. Each officer and director of the Company shall have entered
into proprietary information agreements with the Company on terms acceptable to
Aspen.
3. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDER. The
obligations of the Company and the Shareholder to consummate the transactions
contemplated hereby are subject to satisfaction (or waiver by them) of the
following conditions:
28.
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a. All representations and warranties of Aspen made herein shall
be true and correct in all material respects as of the date made and as of the
Closing Date. Aspen shall have performed in all material respects all
obligations and agreements undertaken to be performed by it at or prior to the
Closing.
b. Aspen shall have caused 760,600 of its outstanding shares of
Common Stock to be cancelled such that at the time of the Closing there shall be
an aggregate of 1,613,450 shares of Common Stock outstanding.
c. Aspen shall have in its bank account at least $50,000 in cash
at the time of the Closing.
d. The Company and the Shareholder shall have received at the
Closing an opinion of counsel to Aspen substantially in a form satisfactory to
the Company and the Shareholder.
ARTICLE VII
INDEMNITY
1. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS; NO SUBROGATION.
a. All representations, warranties, covenants and agreements of
Aspen, the Company and the Shareholder contained in this Agreement shall survive
the execution and delivery of this Agreement, the Closing and the consummation
of the Transactions for a period of one (1) year from the date of this
Agreement, except that (i) the representations contained in Section 2.2
(Capitalization) shall survive beyond such one year period, and (ii) in the case
of fraud or gross negligence, the representations and warranties shall survive
beyond such one year period. All representations and warranties of each party
set forth in this Agreement shall be deemed to have been made again by such
party at and as of the Closing Date.
b. The Escrow Shares shall be withheld from the Shareholder and
shall be delivered into Escrow on the Closing Date pursuant to the Escrow
Agreement, and, except in the case of fraud or gross negligence on the part of
the Shareholder, and except with respect to the representations contained in
Section 2.2 (Capitalization), the liability of the Shareholder under this
Agreement shall be limited to the return of Escrow Shares in the manner
determined pursuant to the Escrow Agreement.
c. If the Shareholder is determined to be liable, or make any
payment or forfeit Escrow Shares, in respect of an alleged breach by the Company
or the Shareholder of, or default by the Company or the Shareholder under, this
Agreement or any of the agreements or transactions contemplated hereby, then (i)
the Shareholder shall not be subrogated, and hereby waives any right of
subrogation, to the rights of Aspen against the Company in respect thereof, and
(ii) the Shareholder hereby waives any right to indemnification or contribution
from the Company in respect thereof.
29.
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2. INDEMNIFICATION OF ASPEN AND THE ESCROW DEPOSIT OF ASPEN SHARES.
a. INDEMNITY. For a period of one (1) year from the Closing Date
(the "Indemnity Period"), the Shareholder agrees to indemnify, defend and hold
harmless Aspen, and its directors and officers, and each other person, if any,
who controls Aspen within the meaning of the Securities Act, and their
respective affiliates, successors, assigns, agents and representatives, as such
persons existed immediately prior to the Closing (collectively, the "Indemnified
Parties") against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, remedies and penalties (including,
without limitation, interest, penalties, settlement costs and any legal,
accounting or other fees and expenses for investigating or defending any claims
or threatened actions) (collectively, "Losses") that any of the Indemnified
Parties may incur or suffer, together with interest on cash disbursements in
connection therewith at the rate of ten percent (10%) per annum from the date
such cash disbursements were made until paid by the Shareholder, in connection
with each and all of the following:
(i) Any misrepresentation in or inaccuracy of any
of the representations or warranties of the Company or the Shareholder contained
in Article II or Article III of this Agreement or in any written statement or
certificate furnished by or on behalf of the Company or the Shareholder pursuant
to this Agreement; or
(ii) Any breach of or default under any
covenant, agreement or obligation of the Company or the Shareholder contained in
this Agreement or in any other agreement or instrument contemplated by this
Agreement.
Notwithstanding the foregoing, the Indemnity Period shall extend beyond
one year in the case of (i) fraud or gross negligence, and (ii) any
misrepresentation in or inaccuracy of the representations contained in Section
2.2 (Capitalization).
No claim, demand, suit or cause of action shall be brought against the
Shareholder under this Section 7.2(a) unless and until the aggregate amount of
claims under this Section 7.2(a) exceeds $50,000, in which event each of the
Indemnified Parties shall be entitled to indemnification from the Shareholder
for all claims under this Section 7.2(a) relating back to the first dollar.
b. Escrow.
(i) The Escrow Shares shall be fully available for
satisfaction of all claims of the Indemnified Parties under Section 7.2(a) which
they may have thereunder, whether in connection with third party claims or
otherwise. If any Indemnified Party under this Section 7.2 elects to make any
claim against the Shareholder, it shall promptly give written notice thereof to
the Escrow Agent (as defined in the Escrow Agreement) and the Shareholder,
including in such notice a brief description of the facts upon which such claim
is based and the amount thereof. If the Shareholder objects to the allowance of
any such claims, he shall give written notice to such Indemnified Party and the
Escrow Agent within twenty (20) days following receipt of such notice of claim,
advising such Indemnified Party and the Escrow
30.
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Agent that it does not consent to the delivery of any or some of the Escrow
Shares out of escrow for application to such claims. If no such written notice
is provided by the Shareholder and received by such Indemnified Party and the
Escrow Agent within twenty (20) days following the Escrow Agent's receipt of
such notice of claim (the "Notice Period"), the Escrow Agent shall, within five
business days after the expiration of the Notice Period, deliver out of Escrow
the lesser of: (i) the number of the Escrow Shares (in whole shares) that have
an aggregate market value (determined as provided below) most nearly equal to
the amount of the claim or claims thus to be satisfied, or (ii) all of the
Escrow Shares. If the Shareholder provides such Indemnified Party and the Escrow
Agent with written notice within the Notice Period that the Shareholder objects
to such application of the Escrow Shares after a claim has been made, the Escrow
Agent shall hold in Escrow the number of the Escrow Shares (in whole shares)
that have an aggregate market value (determined as provided below) most nearly
equal to the amount of the claim or claims then made until the rights of the
respective parties have been agreed upon between the Shareholder and Aspen in
accordance with the Escrow Agreement and the Escrow Agent receives written
notice accordingly.
(ii) For purposes of the indemnification set
forth in this Article VII as it relates to the Escrow Shares, the fair market
value of one Aspen Share shall be equal to $2.00.
(iii) The Escrow shall terminate (except to
the extent that claims against the Escrow Shares have been submitted or notice
of the claim has been provided during such escrow period) one year after the
Closing Date (referred to herein as the "Escrow Termination Date").
c. No Waiver. In any case in which claims have been asserted or
are pending prior to the Escrow Termination Date, all parties agree that the
indemnity obligations of the Shareholder with respect to such matters shall
continue in full force and effect until such matters have been settled by
agreement of the parties or by resolution of such matters in accordance with the
terms of this Agreement and/or the Escrow Agreement. No disclosure by the
Company or the Shareholder other than as set forth in this Agreement or the
Schedules hereto nor any investigation made by or on behalf of Aspen with
respect to the Company or the Shareholder nor any disclosure made to Aspen
pursuant to this Agreement shall be deemed to affect Aspen's reliance on the
representations and warranties made by the Company or the Shareholder contained
in this Agreement and shall not constitute a waiver of Aspen's rights to
indemnity as herein provided for the misrepresentations in or inaccuracy of any
of the Company's or the Shareholder's representations or warranties under this
Agreement.
3. INDEMNIFICATION OF THE COMPANY AND THE SHAREHOLDER.
a. Indemnity. During the Indemnity Period, Aspen agrees to
indemnify, defend and hold harmless the Company and the Shareholder, and their
respective successors, assigns, agents and representatives, (collectively, the
"Company Indemnified Parties") against and in respect of any Losses that the
Company Indemnified Parties may incur or suffer, together with interest on cash
disbursements in connection therewith at the rate of ten percent (10%) per annum
from the date such cash disbursements were made until paid by Aspen, in
connection with each and all of the following:
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(i) Any misrepresentation in or inaccuracy of any
of Aspen's representations or warranties contained in Article IV of this
Agreement or in any written statement or certificate furnished by or on behalf
of Aspen pursuant to this Agreement; or
(ii) Any breach of or default under any covenant,
agreement or obligation of Aspen contained in this Agreement or any other
agreement or instrument contemplated by this Agreement.
b. NO WAIVER. In any case in which claims have been asserted or
are pending, all parties agree that the indemnity obligations of Aspen with
respect to such matters shall continue in full force and effect until such
matters have been settled by agreement of the parties or by resolution of such
matters in accordance with the terms of this Agreement. No disclosure by Aspen
other than as set forth in this Agreement or the schedules hereto nor any
investigation made by or on behalf of the Shareholder with respect to Aspen
shall be deemed to affect the Shareholder's reliance on the representations and
warranties made by Aspen contained in this Agreement and shall not constitute a
waiver of the Shareholder's rights to indemnity as herein provided for the
misrepresentations in or inaccuracy of any of Aspen's representations or
warranties under this Agreement.
4. PROCEDURE FOR INDEMNIFICATION OF ASPEN WITH RESPECT TO NON-THIRD
PARTY CLAIMS. Whenever any claim shall arise for indemnification by the
Shareholder pursuant to Section 7.2 (but excluding claims resulting from the
assertion of liability by third parties) and such claim is, under the terms
hereof, to be asserted, in whole or in part, against the Shareholder (whether in
addition to claims against, or after exhaustion of, the Escrow Shares) pursuant
to Section 7.2, Aspen shall promptly give written notice thereof to the
Shareholder, including in such notice a brief description of the facts upon
which such claim is based and the amount thereof. If the Shareholder, within
twenty (20) days after receipt of Aspen's notice of claim, does not give written
notice to Aspen announcing his intent to contest such assertion of Aspen, such
assertion shall be deemed accepted and the amount of claim shall be deemed a
valid claim and the Shareholder shall, within fifteen (15) days after expiration
of the prior notice period, deliver to Aspen the amount of the claim in the
manner provided in Section 7.2. In the event, however, that the Shareholder
contests the assertion of a claim by giving such written notice to Aspen within
said period, then the parties shall act in good faith to reach agreement
regarding such claim.
5. PROCEDURE FOR INDEMNIFICATION OF THE SHAREHOLDER WITH RESPECT TO
NON-THIRD PARTY CLAIMS. Whenever any claim shall arise for indemnification by
Aspen pursuant to Section 7.3 (but excluding claims resulting from the assertion
of liability by third parties), the Shareholder shall promptly give written
notice thereof to Aspen, including in such notice a brief description of the
facts upon which such claim is based and the amount thereof. If Aspen, within
twenty (20) days after receipt of the Shareholder's notice of claim, does not
give written notice to the Shareholder announcing its intent to contest such
assertion of the Shareholder, such assertion shall be deemed accepted and the
amount of claim shall be deemed a valid claim and Aspen shall, within fifteen
(15) days after expiration of the prior notice period, deliver to the
Shareholder the amount of the claim. In the event, however, that Aspen contests
the assertion
32.
<PAGE> 34
of a claim by giving such written notice to the Shareholder within said period,
then the parties shall act in good faith to reach agreement regarding such
claim.
6. PROCEDURE FOR INDEMNIFICATION OF ASPEN WITH RESPECT TO THIRD-PARTY
CLAIMS. If Aspen or any other Indemnified Party under Section 7.2 determines to
seek indemnification with respect to a claim resulting from the assertion of
liability by third parties, it shall follow the procedures set forth in Section
7.2. Aspen shall select and employ counsel in such case (which counsel shall be
subject to the reasonable approval of the Shareholder, which approval shall not
be unreasonably withheld), and Aspen shall be reimbursed for the fees and
expenses of such counsel as such fees and expenses accrue, in accordance with
procedures set forth in Section 7.2 for the satisfaction of claims. Aspen shall
not, without the Shareholder's written consent (which consents shall not be
unreasonably withheld), settle or compromise any such claim or consent to entry
of any judgment in respect thereof.
7. PROCEDURE FOR INDEMNIFICATION OF THE SHAREHOLDER WITH RESPECT TO
THIRD-PARTY CLAIMS.
a. If the Shareholder determines to seek indemnification under
Section 7.3 with respect to a claim resulting from the assertion of liability by
third parties, the Shareholder shall promptly give notice to Aspen of facts upon
which any such claim will be based; the notice shall set forth such material
information with respect thereto as is then reasonably available to the
Shareholder. In case any such liability is asserted against the Shareholder, and
the Shareholder notifies Aspen thereof, Aspen will be entitled, if Aspen so
elects by written notice delivered to the Shareholder within ten business days
after receiving the Shareholders' notice, to assume the defense thereof with
counsel reasonably satisfactory to the Shareholder. Notwithstanding the
foregoing, (i) the Shareholder shall also have the right to employ its own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of the Shareholder unless the Shareholder shall reasonably determine
that there is a conflict of interest between the Shareholder on the one hand,
and Aspen on the other hand, with respect to such claim, in which case the fees
and expenses of such counsel will be borne by Aspen and (ii) the rights of the
Shareholder to be indemnified hereunder in respect of claims resulting from the
assertion of liability by third parties shall not be adversely affected by their
failure to give notice pursuant to the foregoing unless, and, if so, only to the
extent that, Aspen is materially prejudiced thereby. With respect to any
assertion of liability by a third party that results in an indemnifiable claim,
the parties hereto shall make available to each other all relevant information
in their possession material to any such assertion.
b. In the event that Aspen, within ten business days after
receipt of the aforesaid notice of a claim, fails to assume the defense of the
Shareholder against such claim, the Shareholder shall have the right to
undertake the defense, compromise, or settlement of such action on behalf of and
for the account, expense, and risk of Aspen.
c. Notwithstanding anything in this Article VII to the contrary,
if there is a reasonable probability that a claim may materially adversely
affect the Shareholder, the Shareholder shall have the right to participate (at
the Shareholder's expense) in such defense, compromise, or settlement and Aspen
shall not, without the Shareholder's written consent (which
33.
<PAGE> 35
consent shall not be unreasonably withheld), settle or compromise any such claim
or consent to entry of any judgment in respect thereof unless such settlement,
compromise, or consent includes as an unconditional term thereof the giving by
the claimant or the plaintiff to the Shareholder a release from all liability in
form and substance satisfactory to the Shareholder in respect of such claim. If
Aspen notifies the Shareholder that it wishes to accept a bona fide written
offer from any such claimant or plaintiff (which offer includes a release of the
Shareholder from all liability in respect of such claim), and the Shareholder
does not consent to such settlement, Aspen shall not be liable under this
Section 7.7 for the amount by which any Losses from any subsequent settlement or
judgment with respect to such claim exceeds such bona fide written settlement
offer.
ARTICLE VIII
CLOSING
1. CLOSING OF TRANSACTION. The Closing of the Exchange (the "Closing
Date") shall take place simultaneously with the signing of this Agreement,
unless another date shall be mutually agreed upon by the parties. The Closing
shall take place at the offices of Troy & Gould, 1801 Century Park East, 16th
Floor, Los Angeles, CA 90067.
2. DELIVERIES AT SIGNING OF AGREEMENT. Prior to executing this
Agreement, Aspen and the Company shall provide respective Board Minutes
approving the terms of this Agreement and the transaction contemplated herein.
3. DELIVERIES AT CLOSING BY THE COMPANY. The Company shall deliver or
cause to de delivered to Aspen at the Closing:
a. a copy of a consent of the Company's Board of Directors
authorizing the Company to take the necessary steps toward closing the
transaction described by this Agreement;
b. a copy of a Certificate of Good Standing for the Company
issued not more than fifteen days prior to Closing by the California Secretary
of State;
c. a certificate signed by the Company's Chief Financial Officer
dated as of the Closing Date stating that the Company's financial statements, as
determined in accordance with generally accepted accounting principles ("GAAP"),
as of the Closing Date continue accurately to reflect the financial condition of
the Company as of the time periods covered, and that nothing has occurred since
the last balance sheet date (October 31, 1996) which would render such financial
statements to be misleading or incorrect; and
d. an opinion rendered by legal counsel to the Company.
4. DELIVERIES AT CLOSING BY ASPEN. Aspen shall deliver to the
Shareholder, at Closing:
34.
<PAGE> 36
a. certificates representing the Aspen Shares, in the name of the
Shareholder, or any nominee as may be designated by the Shareholder, each in the
appropriate denomination, requested by the Shareholder, with the aggregate
amount being as described in Section 1.4(b).
b. Aspen shall deliver to the new Aspen Board, appointed pursuant
to Section 5.3(e) above, at Closing:
(i) all of Aspen's corporate records;
(ii) executed bank forms for Aspen's bank accounts
reflecting a change in management and signatories to said bank accounts; and
(iii) certificate(s) of Aspen Common Stock
representing 760,600 shares marked as cancelled.
c. Aspen shall deliver or cause to be delivered to the Company,
at the Closing:
(i) a copy of consent of Aspen's Board of
Directors authorizing Aspen to take the necessary steps toward Closing the
transaction described by this Agreement;
(ii) a copy of a Certificate of Good Standing for
Aspen issued not more than fifteen days prior to the Closing by the Delaware
Secretary of State; and
(iii) an originally signed Notice of Sale Pursuant
to California Corporations Code Section 25102(f) relating to this transaction;
(iv) certificates representing 810,000 shares of
the Common Stock of Aspen pledged to Aspen pursuant to that certain Pledge
Agreement dated January 21, 1997;
(v) an opinion rendered by legal counsel to Aspen;
and
(vi) a Registration Rights Agreement and Escrow
Agreement signed by Aspen.
5. DELIVERIES AT CLOSING BY SHAREHOLDER. The Shareholder shall deliver
to Aspen at the Closing:
a. certificates representing all shares of the Company Common
Stock and Company Preferred Stock as described in Section 1.4(b), together with
stock powers endorsed in blank by the Shareholder;
b. an agreement from the Shareholder exchanging his shares of the
Company and agreeing to a restriction on the transfer of the Aspen Shares as
described in Section 3.6 above; and
35.
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c. a certificate representing 750,000 shares of Aspen Common
Stock to be deposited in the Escrow Account as set forth in Section 1.8.
d. an Escrow Agreement signed by the Shareholder.
ARTICLE IX
MISCELLANEOUS
1. NOTICES. Any notice given hereunder shall be in writing and shall be
deemed effective upon the earlier of personal delivery (including personal
delivery by facsimile, provided that such facsimile is followed the same day by
the mailing of such notice by certified or registered mail, postage prepaid (a
"Mailing")) or the third day after a Mailing, as follows:
(i) If to Aspen:
Aspen West Group, Inc.
20501 Ventura Boulevard, Suite 116
Woodland Hills, CA 91364
Facsimile: 818-702-9439
With a copy to:
Roger Linn, Esq.
Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, CA 95814
Facsimile: 916-442-3442
(ii) If to the Company:
WSL Inc.
20301 Nordhoff Street
Chatsworth, CA 91311
Attention: Warren Levy
Facsimile: 818-700-6489
With a copy to:
Istvan Benko, Esq.
Troy & Gould
1801 Century Park East, 16th Floor
Los Angeles, CA 90067
Facsimile: 310-201-4746
36.
<PAGE> 38
(iii) If to the Shareholder:
Warren E. Levy
c/o WSL Inc.
20301 Nordhoff Street
Chatsworth, CA 91311
Facsimile: 818-700-6489
or to such other address as any party may have furnished in writing to the other
parties in the manner provided above.
2. ENTIRE AGREEMENT; MODIFICATIONS; WAIVER. This Agreement and the
exhibits and schedules hereto and the documents referred to herein constitute
the final, exclusive and complete understanding of the parties with respect to
the subject matter hereof and supersede any and all prior agreements,
understandings and discussions with respect thereto, including, without
limitation, the Term Sheet dated January 6, 1997, by and among Aspen, the
Company and Century Financial Partners, Inc. No variation or modification of
this Agreement and no waiver of any provision or condition hereof, or granting
of any consent contemplated hereby, shall be valid unless in writing and signed
by the party against whom enforcement of any such variation, modification,
waiver or consent is sought. The rights and remedies available to Aspen, the
Company and the Shareholder pursuant to this Agreement and all exhibits
hereunder shall be cumulative.
3. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one agreement.
4. SUCCESSORS AND ASSIGNS. Neither the Shareholder nor the Company,
without the prior express written consent of Aspen, may assign this Agreement in
whole or in part. Aspen may assign this Agreement, in whole or in part;
provided, that Aspen shall remain obligated hereunder. This Agreement shall be
binding upon and inure to the benefit of the respective successors and permitted
assigns of the parties hereto.
5. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California as applied to contracts
between California residents made and to be performed entirely within the State
of California.
6. EXPENSES. WSL shall pay all fees of WSL's counsel in connection with
this transaction. Immediately prior to the Closing, Aspen shall pay (i) $10,000
of the fees of Aspen's counsel incurred in connection with this Agreement, and
(ii) $10,000 of the costs incurred by Century Financial Partners, Inc.
("Century") in connection with the Agreement. In addition, Aspen shall execute
and deliver to Century at the Closing a promissory note in the principal amount
of $20,000 in payment of fees of Century's counsel incurred in connection with
this Agreement. Each party hereto shall pay all other fees and expenses incurred
by it in connection with this Agreement and the Transactions.
37.
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7. ATTORNEYS' FEES. In the event of any suit or other proceeding to
construe or enforce any provision of this Agreement or any other agreement to be
entered into pursuant hereto, or otherwise in connection with this Agreement,
the prevailing party's or parties' reasonable attorneys' fees and costs (in
addition to all other amounts and relief to which such party or parties may be
entitled) shall be paid by the other party or parties.
8. ARBITRATION. Any controversy or claim arising from or relating to
this Agreement, or its making, performance, or interpretation, will be settled
by binding arbitration before one arbitrator mutually acceptable to all parties
in Los Angeles, California, under the commercial arbitration rules of the
American Arbitration Association then existing. Judgment on the arbitration
award may be entered in any court having jurisdiction over the subject matter of
the controversy.
9. CONSENT TO SERVICE OF PROCESS. The parties hereto irrevocably consent
to the jurisdiction of the courts of the State of California and of any Federal
court located in such state in connection with any action, suit or other
proceeding arising out of or relating to this Agreement.
10. COVENANT NOT TO COMPETE. The Shareholder agrees that for a period of
five (5) years from the Closing Date, he shall not, except as an officer
employee, director or shareholder of the Company or Aspen, directly or
indirectly, as principal, agent, employee, employer, consultant, stockholder,
partner or in any other individual or representative capacity, to engage in the
manufacture, assembly or sales of golf clubs (the "Competitive Business")
wherever the Company conducts such business. Notwithstanding anything to the
contrary herein, the Shareholder may, without violating the provisions of this
Section 9.10, purchase and hold up to 5% of any entity whose shares are publicly
traded on NASDAQ or any U.S. stock exchange, whether or not such entity is
engaged in a Competitive Business. Any provision of this Section 9.10 which is
deemed invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this paragraph be ineffective to the extent of such
invalidity or unenforceability, without affecting in any way the remaining
provisions of this paragraph in such jurisdiction or rendering that or any other
provisions of this Agreement invalid or unenforceable in any other jurisdiction.
If any covenant should be deemed invalid or unenforceable because of its scope,
geographical area or duration, or any combination thereof, such covenant shall
be modified and reformed so that the scope, geographic area and duration of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid and enforceable.
11. GENDER AND NUMBER. In this Agreement, unless the context otherwise
requires, the masculine, feminine and neuter genders and the singular and the
plural include one another.
12. CONSTRUCTION OF AGREEMENT. No party hereto, nor its respective
counsel, shall be deemed the drafter of this Agreement for purposes of
construing the provisions of this Agreement, and all provisions of this
Agreement shall be construed in accordance with their fair meaning, and not
strictly for or against any party hereto.
38.
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IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first above written.
THE COMPANY ASPEN
WSL INC. ASPEN WEST GROUP, INC.
By: /s/Warren E. Levy By: /s/ Sim Farar
---------------------------- ----------------------------
- -------------------------------
Title: President Title: President
------------------------- -------------------------
THE SHAREHOLDER:
/s/ Warren E. Levy
- -------------------------------
Warren E. Levy
39.
<PAGE> 1
Exhibit 10.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of
our report dated December 18, 1997 in this Form 10-SB and to all references to
our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 13, 1998
