U. S. 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
GOLFGEAR INTERNATIONAL, INC.
(Name of Small Business Issuer in its charter)
Nevada 43-1627555
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5481-A Commercial Drive, Huntington Beach, California 92649
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (714) 899-4274
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
None
(Title of Class)
PART I.
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development.
GolfGear International, Inc., a Nevada corporation ("Company"),
formerly Harry Hurst Jr., Inc. ("HHI"), was incorporated under
the laws of the State of Nevada on October 9, 1997. The Company
is the successor entity resulting from a November 20, 1997
reorganization between GolfGear International, Inc. ("GGI"),
which, through its predecessors, has been active in the golf
business since 1990, and HHI, a non-operating public corporation
(by the filing of Articles of Merger with the Nevada Secretary of
State). HHI changed its name to GolfGear International, Inc. (by
the filing of an Amendment to Articles of Incorporation filed on
December 1, 1997) and GGI changed its name to GGI, Inc. and
remains a wholly-owned subsidiary of the Company. Each share of
common stock of GGI was exchanged for 3.5235 shares of common
stock of HHI. The shareholders of GGI, constituting 90% of the
then outstanding shares of common stock, became the controlling
shareholders of the Company. A one for two reverse stock split
of the Company's issued and outstanding shares is reflected in an
Amendment to Articles of Incorporation filed on December 4, 1997.
Each of these filed documents is attached as an Exhibit to this
Form 10-SB.
The Company's executive offices are located at 5481A Commercial
Drive, Huntington Beach, California 92649, and its telephone
number is (714) 899-4274. The Company's fiscal year ends on
December 31. Currently, the Company has seven full time
employees (four in administration and three in support services)
and six independent sales representatives. None of the Company's
employees is subject to a collective bargaining agreement..
Business of the Company.
(a) The Company.
The Company designs, develops and markets innovative premium
golf clubs intended to improve the quality and performance of a
golfer's game. Utilizing patented revolutionary forged face
insert technology, the Company has created the next generation of
metal woods, rendering most other metal woods obsolete in the
process. The Company believes that the forged face metal wood combines
the accuracy and forgiveness of the investment cast metal wood with
the feeling, strength and power that can only come from forged
metal. The Company has also applied this same technology to re-invent the
iron, creating a state-of-the-art forged face iron that features the same
forged face metal insert bonded to a cavity-back, investment-cast club head.
This technology produces clubs that have a solid sweet spot which produces
maximum energy transfer providing consistent distance and accuracy, even if
mis-hit.
The Company has developed and sells a full line of patented
metal woods and irons marketed under the name "Ti-Gear", which
were first introduced in 1997. The Company offers both mid-size
and over-size models. The next generation of forged face woods
and irons have just been introduced and are expected to go into
production in January 2000. The Company will attempt to utilize
its patented technology and combine it with a media/infomercial
campaign in an attempt to enjoy some of the success that
companies such as Orlimar Golf Company and Adams Golf Co. have
recently experienced.
All of the Company's products are intended to offer
retailers a substantial profit margin, unlike many of the
competitive golf products currently offered for sale at off
course retailers and discounters. Several of the major companies
in the golf hardware industry have moved to capture market share
by sacrificing their retailers' margins. These companies are
selling through discounters and through warehouse stores. This
offers a substantial area of opportunity to the Company, since
its proprietary products can provide better margins to retailers.
The Company's objective is to become a leading manufacturer
of forged insert technology for drivers, irons and wedges. To
achieve this objective, the Company is focusing its market
strategy on enhancing the reputation of its products, increasing
its market penetration of its products and continuing the
development of innovative clubs and the refinement and
improvement of existing technology. An integral part of this
strategy is the expansion of the Company's marketing and
advertising efforts to target both domestic and international
sales. The Company's domestic marketing strategy is to create
product awareness through infomercials, print advertising,
television commercials and other promotional activities such as
on-course golf pro shop demonstrations. An important feature of
the Company's overall marketing strategy is the endorsement of
its products by touring professional golfers who will demonstrate
the effectiveness of the forged metal technology and provide
valuable exposure. The Company also intends to expand its line
of clubs by developing, acquiring or licensing its technologies
to other golf manufacturers.
(b) Industry Background.
There are approximately 25 million golfers in the United
States today playing an estimated 500 million rounds of golf per
year. The sport is popular with both men and women. Industry
experts estimate that two million people enter the sport each
year. Its popularity is gaining around the world. It is one of
the few sports in which players spend more money as they get
older. Golf products account for nearly $3 billion in annual
revenue.
A 1995 institutional research report by the investment
banking firm of Hambrecht & Quist noted that the U.S. golf
equipment market is continuing to grow. Three factors are
fueling sales: the increasing popularity of premium-priced
oversized irons, recently introduced innovations in metal woods,
and continuing interest in the sport among new players.
The industry comprises several types of golfers - avid,
medium, new and casual. Avid golfers play frequently and spend
significantly larger amounts for brand name equipment. Medium
golfers play more frequently, are less brand conscious and play
with either graphite or steel shafted clubs. Casual golfers play
several games a month and represent the largest group with the
potential upward movement from one category to another. New
golfers as beginners typically use lower cost steel shafted
clubs, with a smaller number using graphite shafted clubs.
Market leaders follow a similar pattern. Each established a
market niche. Callaway introduced the oversize metal wood to the
market. Cobra set the stage for oversize perimeter weighted
irons, having sold more than 400,000 sets. Each incorporates
brand identity, product innovation and tour validation, from the
PGA Tour to the LPGA Tour to the Senior Tour.
The Company's niche in the global market is the forged face
metal insert. Over the past several years, clubs have become
larger, longer and lighter. Inserts offer a more dense sweet-
spot, superior weight distribution and cutting-edge technology.
All-titanium drivers are becoming common because of the move to
the larger size heads. However, there is a cost factor involved
in this transition. Fairway woods do not need to be made
completely of titanium. A stainless steel shell can be used with
a forged titanium insert, making these woods more affordable: the
customer can purchase a competitively priced GolfGear fairway
wood, and it can be purchased for 25% less than all-titanium
woods.
Because management has first-hand experience working with
touring professionals, the Company believes it will be able to
obtain product exposure from the various tours and anticipates
major touring professional exposure.
In the later half of the 1998 season, it appeared that
market leaders were beginning to weaken. Some of the market
leaders were dependent upon the Asian markets, which experienced
a significant downturn during the past five years and which
dramatically impacted retail golf sales. The Asian markets are
not expected to recover for some time. The Company sees
opportunity in these markets as they have become heavily
saturated with product from the major brands over the last five
years. The Company is preparing to move into these markets, and
gradually add a fresh new brand with a story of technology, and
not just marketing (see "International Business," below).
In the United States market, there are evident signs of
major brand burnout taking place as the so-called "Big Boxes" or
discounters take on name brand goods at very attractive prices.
Competition will be intense at this level until this inventory
glut is absorbed into the market place. This cycle should be
completed by the end of 1999. On the other hand, the consumer
is now ready for something new. Most of the sets sold by the
major club manufacturers in the last six years are now aging and
there is a substantial replacement market developing. Even the
average golfer needs to upgrade and replace certain clubs on a
regular basis. The Company believes that it has the opportunity
to be a major candidate to fit into the void that is building
among both the average and affluent golfers. The Company's brand
name remains underdeveloped while other brands have begun to
erode as a result of having sold their popular models "down
market."
(c) Competition
Spalding, MacGregor, and Hogan are well recognized old line
names in golf equipment. Names currently dominating the
industry's premium-brand sector are Callaway, Cobra, Taylor Made,
Ping and Tommy Armour. Obsolete are the old-line companies of
the 1960s and 1970s, which the Company believes today offer lackluster
equipment using other sports to promote their names in golf. Today,
companies such as Callaway, Karsten Manufacturing (Ping) and American
Brands (Cobra) are leading a wave of golf-focused idealism among
consumers. The dominating golf companies are innovative, having
created new equipment categories or having already established a
market leadership position in a particular category, such as
oversized metal woods or irons.
(d) Business Strategy.
The Company competes in the premium quality segment of the
golf club industry, a growing and highly competitive area. At
the present time, the Company is sub-contracting its golf club
assembly. This enables management to concentrate on sales and
marketing efforts while keeping overhead costs low.
The Company has leased a 6,800 square foot facility to house
sales, marketing and distribution activities. This facility is
expected to serve the Company's anticipated needs until a
decision is reached to bring assembly in-house. It is the
Company's intention to maintain low overhead levels by continuing
to sub-contract assembly operations until its brand name products
are established in the market, and sales have increased to a
level sufficient to justify bringing assembly in-house. At that
point in the Company's development, currently projected to occur
in late 1999, the Company plans to upgrade into additional space
to provide for larger and more extensive sales offices, customer
service operations, telemarketing operations facilities, as well
as space for assembly, finished goods inventory product staging
and shipping.
While the Company competes with as many as 100 other
domestic golf club equipment companies, many of which have
greater manufacturing, marketing and capital resources than the
Company, the Company believes that its superior patented insert
technology will enable it to gain a significant presence in the
market based on developing demand for this proprietary technology.
(e) Marketing and Sales
(1) Overall Strategy.
The Company recently retained the services of Parker Smith
to oversee marketing and public relations. Mr. Smith has over
thirty-five years of experience in the golf industry and was
responsible for pioneering the introduction of the first metal
woods made by Taylor Made, and was also responsible for launching
the "Big Bertha" oversize metal wood for Callaway Golf.
The Company intends to concentrate its marketing efforts in
television infomercials and direct marketing techniques which has
evolved in recent years as a successful medium for marketing golf
products.
Today, there is much greater direct access to the golf
consumer. In the not too distant past, if a company wanted to
sell golf clubs, its salesmen visited on course pro shops to make
the sale. These shops are limited in the number of clubs they
can stock and in the funds available to purchase stock. The
growth of the off course golf shops changed the way golf clubs
are sold and advertised. It is now standard industry practice to
sell via direct advertising as well as to the on and off course
shops.
The Company initially focused its sales efforts on
advertising in trade publications to reach the on and off course
shop buyers, then advertised in the consumer publications such as
Golf Digest, Golf World, Golf Tips, PGA Magazine and GolfWeek.
Its distributors advertised overseas in similar publications.
The Company expends a substantial amount of effort selling clubs
in foreign markets with the objective to have 50% of sales from
foreign markets.
The golf club industry is highly seasonal, with most
companies experiencing up to 60% of sales between February and
June with an additional 20% of sales occurring between October
and December (the Christmas buying season). Accordingly, the
majority of product introductions are scheduled for January at
the Florida International PGA Show with additional products
introduced in September at the Las Vegas International PGA Show.
The Company attends nearly every major industry trade show.
The Company's management has given numerous trade industry press
conferences around the world, maintaining a high profile and high
degree of respect in the industry press. The Company will also
be attending more consumer-oriented shows to extend more brand
awareness. These shows have become very popular on a nationwide
basis, and can be a key element is broadening distribution in
these markets.
The Company is becoming increasingly active at key demo
days. Most companies have used some sort of demo program to gain
exposure at golf courses, and private country clubs. In 2000 the
Company will expand its demo campaign not only in key United
States markets but internationally as well. Subject to
financing, the Company intends to launch one or more tour vans
that will be scheduled across the country, focusing on the most
prestigious facilities. The Company is technology driven and
the consumer has shown a desire for more technical information at
recent demo events. The Company has performed extremely well
when in direct competition with the biggest competitors in the
business. At several events in 1998 the Company outsold the
competition. The demo programs are intended to supplement the
infomercial program, as well as the print media campaign.
(2) Product and Name Endorsement.
The Company utilizes touring professionals and former golf
professionals to represent the entire line of the Company's golf
products. The Company currently employs Bobby Stroble and Gerry
James. Mr. Stroble has been a touring professional for thirty
years and had eight top ten finishes in 1998, with approximately
$500,000 in earnings. Gerry James is a PGA professional and is
one of the longest ball hitters in the world (he currently has
pending in the Guinness Book of World Records a 473 yard drive).
Mr. James appears for the Company in its infomercial and also
appears at PGA events. The Company also utilized Donnie
Hammond, a touring professional, to represent the Company's
products in its infomercial.
(3) Infomercials and Other Marketing.
The value of infomercials lies in the creation of millions
of interested, informed and qualified prospects wanting to buy
featured products in stores. In addition to selling products
from television, infomercials can be an excellent source of leads
for telemarketing, for promoting a brand's image and "pushing"
the retail store activity. In conjunction with a production
company named "Script to Screen, Inc.", the Company finished its
first infomercial in May 1998. The Company is reviewing the
possibility of revamping it, which is based on available funds.
The Company is planning a second infomercial of perhaps a shorter
format to be produced in early 2000, again based on available
funds.
An infomercial is typically a 30-minute program that is used
to introduce, market and sell a product at the same time. The
infomercial has been a popular way to save years of conventional
marketing and selling methods, and is a faster and more efficient
way to provide the consumer with technical information that may
lead to a purchase. An infomercial campaign is also supported by
conventional selling methods.
The Company has a sales force consisting of 6 independent
sales representatives, which enables them to sell other non-
competing lines such as shoes or clothing. In some areas the
Company will have sub reps that will assist the sales force with
demo days and seminars. Management is very active in the field
as well. Management works weekends at demo days in order to get
feedback from the consumer. This feedback is important and
provides direct input that is incorporated at sales meetings and
seminars. The Company intends to support the infomercial with 60
second spots that enhance the Company's exposure. The Company
will also run a print media campaign in the leading golfing
publications. The Company also intends to run ads in the Wall
Street Journal, and USA Today. There are nearly 6 million
golfers that read these publications on a daily basis. The
typical golf magazine reaches approximately 1,500,000 to
2,000,000 readers at a similar cost.
(f) International Business.
The Company has shipped golf clubs all over the world. The
Company is currently not dependent upon selling the European or
Asian markets, however it is the Company's objective that 35% to
50% of revenue be generated in foreign markets. This strategy
provides a broader market opportunity and can help offset the
effects of regional recessions and market trends. The Company's
clubs will be sold through distributors in most countries, but in
some cases the Company will sell direct to retailers. The
Company also intends to promote its infomercial campaign in
Europe, Japan and Korea.
On September 28, 1999, the Company announced completion of a
Distribution Agreement encompassing all of Southeast Asia with
M.C. Corporation of Tokyo, Japan (see Exhibit 10.1 to this Form
10-SB). This agreement establishes M.C. Corporation as the
exclusive Asian distributor (other than the Korean market) for
the Company's full line of proprietary golf equipment and
accessories. This alliance gives the Company sales, marketing
and distribution throughout the Asian marketplace with a strong
financial partner (this agreement excludes South Korea, where
GolfGear already has a distribution agreement in place - see
below). M.C. Corporation has 325 employees and interests in real
estate and construction, as well as alliances throughout Asia.
In connection with this agreement, M.C. Corporation also made a
$2,000,000 equity investment in the Company through a Binding
Subscription for Purchase of Equity Securities agreement
(attached as Exhibit 4.3 to this Form 10-SB). This financing was
completed on October 29, 1999 under the terms of that agreement,
which provides that the financing is in exchange for 210,526
shares of convertible preferred stock in the Company; there is
the right under this agreement to convert the 210,526 shares of
preferred stock into 2,105,260 shares of common stock, which
right expires in October 2001; there are also warrants issued in
connection with said agreement to purchase 330,000 shares of
common stock at an exercise price of $1.00 per share, which
warrants expire in October 2002). After two years from the
issuance of the preferred stock, it will be automatically converted
into common stock. Other material provisions of this agreement
include the folloiwng: (1) one vote per share; vote on an
"as if converted" basis; (2) the common stock into which the
preferred stock is convertible shall have ulimited piggyback
rights; (3) no new shares of preferred stock senior or equal to
the preferred tosck may be issued for so long as any of the
preferred stock is outstanding; (4) for the one year period after
the issuance of the preferred stock, should the Company issue any
securities at an effective price per common share of less than
$0.95, then the Company will adjust the conversion rate of the
preferred stock into common stock to reflect the reduction in
the effective price per common share; (5) M.C. Corporation shall
have the right to elect one member of the board of directors for
so long as the preferred stock is outstanding, and for a period
of two years subsequent to conversion of the preferred stock
into common stock; (6) for the five year period after issuance
of the preferred stock, if the Company should sell any shares
of common stock or other securities convertible into common
stock in any private or public transaction, then M.C. Corporation
shall have the right to purchase a sufficient number of the
securities that are being sold under the same terms and conditions
in order to maintain its 14.3% equity interest in the Company;
(7) upon conversion of the preferred stock into common stock,
as long as the common stock continues to be held by M.C.
Corporation during the five year period after the issuance of the
preferred stock, the firm shall have the same anti-dilution rights
as if it was still holding the preferred stock.
On January 14, 1999, the Company entered into a Distribution
Agreement with GolfGear Korea, Ltd., a South Korean corporation
(not affiliated with the Company) (see Exhibit 10.2 to this Form
10-SB). Under the terms of this agreement, this South Korean
firm will have the exclusive rights to distribute products of the
Company in that country for a period of three years. Certain
sales performance goals are set forth in Schedule A to that
agreement.
(g) Technology.
Almost the entire line of Company clubs features its multi-
patented forged insert technology that was invented and developed
by Company founder Donald A. Anderson - a technology that
reinvented the metal wood. The Company currently has eight
patents on its forged face insert technology and three patents on
its putter technology. See Patents and Know-How.
The Company, drawing on twenty years of research, did what
had never been done before: it installed a solid forged face
metal insert into the hitting area of an investment-cast shell.
The Company's forged face clubs combined the density, power and
distance of solid forged metals with the weight distribution,
forgiveness and accuracy possible only in investment cast woods
and irons. The result is a club that gives measurably superior
performance because it has a much more solid hitting area with
more weight around the perimeter to provide an extra large sweet-
spot.
The Company had the foresight to begin patenting insert
technology in 1989, in the United States and in major
international markets, before the January 1, 1992 rule change by
the United States Golf Association (USGA) and the Royal and
Ancient (R&A) Golf Club of St. Andrews, Scotland, which legalized
insert technology in both metal woods and irons. As a result,
the Company believes that its patent portfolio is the most
comprehensive intellectual property protection package of any
participant in the golf club industry.
The Company believes that no other company or individual has
secured more coverage, either in the number of patents or in the
scope of claims. This patent technology forms the basis of the
Company's business plan to exploit insert technology as the next
wave of golf club design. The Company also expects that there
will be a significant opportunity to generate royalties by
selectively licensing this technology to major golf club
manufacturers.
By attaching a solid forged face metal insert into the
cavity of a cast club, the Company believes that it has created
the most solid hitting surface in golf and put 50% more club head
mass where it counts - in the hitting area. When more mass meets
the ball at impact and the mass is forged, not cast, maximum
energy is transferred to the ball and shots travel significantly
farther. Forged metal can do this because it is more dense and
has a more solid molecular structure than cast metals.
Investment castings contain gas voids and parasites that can
cause hairline cracks or cave-ins and create dead spots. Also,
their porous finish and inconsistent internal structure can
affect playability.
Management believes that its patents are strong enough to
make the Company a significant player in the golf industry. On
January 1, 1992, the face of golf equipment changed forever when
a USGA and R&A rule was changed to allow metal woods and irons
with inserts. The Company was founded in 1990 to prepare for the
changes it anticipated in golf equipment design, and the
introduction of its patented forged face woods and irons marked
one of the most significant advancements in metal innovation and
technology since the invention of the original metal wood more
than 20 years earlier.
After creating and patenting the solid steel forged face
insert, the Company has continued to stake out new ground,
securing multiple domestic and international patents for designs
and inserts in several other materials such as forged titanium,
steel, aluminum, beryllium copper and related alloys. The
Company has continued to retain and expand its position as the
world leader in insert technology with the introduction of its
Ti-Gear Irons, Ti-Gear Woods, Ti-Gear All Titanium Woods,
Arrowline Series of putters, and Tsunami titanium woods.
Forged Face insert technology offers significant performance
advantages. The Company's equipment offers levels of performance
that golfers all over the world look for in a club, such as:
Greater distance
Huge sweet-spot
Pin-point control
Greatly reduced vibration
Increased velocity, accuracy and forgiveness
Product identity
The Company's TourGear Forged Face Metal Wood ranked at the
top in a 1994 evaluation by ALBA, one of Japan's most respected
golf magazines. The evaluation included ten over-sized metal
woods, judged by distance, accuracy, feel and appearance. Most
major competitors participated except for Callaway's Big Bertha.
The Company's TourGear Forged Face Metal Wood was the only
product to have received an "A" ranking in all four categories.
The Company's Ti-Gear driver finished second in overall driving
on the senior PGA tour in 1998.
(h) Product Line.
The Company's core product line is the Ti-Gear woods and
irons. Both woods and irons feature forged titanium inserts that
are inset into stainless steel shells, which incorporate the
latest in graphite shafts and grips. The Company has completed
the tooling for a new Ti-Gear all-titanium driver in a 9-degree
loft, to be named "Tsunami," to compliment the existing 9.5-
degree loft Ti-Gear driver. At 300 cc in volume, the Tsunami
will be the Company's entry in the super-size driver category.
The main body of the all-titanium Ti-Gear driver is cast
from aerospace-certified 6AL4V titanium and the face is fitted
with a solid forged Beta titanium insert. With many competitors
working on some sort of new titanium driver, the Ti-Gear is the
only club with the Company's patented forged-face insert welded
to the main head face.
The Company's patented insert technology is unique because
it can be applied to any new trend in golf clubs such as size or
shape. The Company already has developed prototypes of several
additional irons using this technology. Although brand name golf
equipment companies become known by their general consumer
acceptance, golfers today have a tendency to be attracted more by
performance and technology and less by a name brand. Companies
can become even more well known for their technological
superiority.
Golfers around the world are looking for an individual club
that will assist them when their skill level is overmatched.
Many golfers search for a more compromising sand wedge, putter,
driver, or trouble club (such as the #7 wood). The Company is
prepared to add a full collection of trouble clubs and short game
clubs. Insert technology can be applied to any club. The
Company will be expanding its Arrowline Series of putters
featuring the Arrowline patented alignment concept. The Company
has successfully marketed the original Arrowline putter series
for several years. The Company also plans to expand into a full
line of utility clubs. The Company believes that the single club
market will continue to grow and the Company's insert technology
will play a major role in gaining identity in this niche market.
While the current line being sold is the Ti-Gear woods and
irons, the Company has introduced a new product to supplement its
Ti-Gear line. The "Ti" in Ti-Gear is the symbol for titanium.
The Company over the years has used names such a TourGear,
Precision Gear, Gear Collection, Master Gear, etc. In this case
the name represents Titanium Gear, or abbreviated Ti-Gear. This
new line is called AM-G3. The new line features clubs with a new
insert material which will be an option in the current Ti-Gear
product line. Part of this new line was introduced at the
International PGA Show in January 1999 in Orlando, Florida. This
new product line initially consists of a new line of fairway
woods. The new iron (An-G3) will be a new lower profile design.
The Company has does not intend to delete any product line at
this time. Production on this new line will commence in January
2000. The Company also intends to introduce a new titanium
driver named "Tsunami" in early 2000.
(1) Bel Air Golf Companies Acquisition.
The Company has entered into an agreement to acquire all of
the operating assets of Bel Air Golf Companies, including the
"Bel Air Golf" and "Players Golf" tradenames (attached as Ehxibit
10.2 to this Form 10-SB). The Bel Air Golf Companies were
acquired by new management in 1997 and had consolidated unaudited
revenues of approximately $2,000,000 for the year ended December
31, 1998. Players Golf offers a full line of junior golf clubs,
and Bel Air Golf is known primarily for golf glove products that
offer both value and quality. Bel Air Golf and Players Golf will
be operated as a separate division of GolfGear.
In consideration for acquiring these assets, the Company
will assume liabilities of approximately $50,000, and will issue
a minimum of 250,000 shares of its restricted common stock, and
up to an additional 400,000 shares, depending on the satisfactory
resolution of certain contingencies. The Company will also issue
255,000 warrants exercisable at $1 per share for a period of six
months from closing, and 100,000 warrants exercisable at $1 per
share, 100,000 warrants exercisable at $2 per share and 100,000
warrants exercisable at $3 per share, vesting and exercisable
only if net revenues from Bel Air Golf and Players Golf reach
$1.5 million, $2 million and $2.5 million in 2000, 2001 and 2002,
respectively. This transaction is expected to close during the
later part of 1999.
(2) Rugg Acquisition.
On May 16, 1998, the Company entered into an Agreement for
Sale and Purchase of Assets with Douglas Rugg for the acquisition
of certain assets (attached as Exhibit 10.4 to this Form 10-SB).
This agreement covers: (i) all rights and interest in and to the
design of golf bags and a golf bag carrying case, identified on
Schedules A and B respectively, which includes technology know-
how, and all documentation thereto; (ii) the design to all eye-
wear which is currently in development; (iii) the name "Executive
Trail Blazer Golf Bag"; (iv) all books, records and customer and
supplier lists used in his business; (v) all rights and interest
in and to patents, trademarks, rights under contracts, leases,
and claims or causes of action related to these assets or the
business; (vi) all inventory relating to golf bags and
sunglasses, including "in process", "finished" and parts
therefor; and (vii) all machinery and equipment relating to the
assembly and/or shipping of the inventory.
In consideration for acquiring these assets, the Company paid the
following: (i) the sum of $10,000; (ii) 125,000 shares of the
Company's common stock (valued at $1.00 per share), which is
Rule 144 stock subject to no more than a one-year restriction and
subject to "piggyback" registration rights; and (iii) a three percent
royalty on gross sales of all the merchandise and products
covered by this agreement which is sold by the Company after the
date of this Agreement (the royalty to be paid to on a quarterly
basis commencing September 30, 1998). In connection with this
acquisition, Mr. Rugg agreed to furnishing certain consulting
services to the Company (as set forth in a Consulting Agreement
attached to said agreement).
(i) Source of Supply.
There are five primary components that are necessary to
produce a golf club. The Company currently purchases heads from
two suppliers, and has access to several manufacturers that are
able to produce the same technology with the same quality
standards with competitive pricing. The Company will continue to
test components produced by other vendors in the event that they
will be needed as product demand increases. The Company is not
dependent on one supplier. The Company is constantly working on
new materials and sources of supply in the event that additional
vendors are necessary.
(j) Patents and Know-How.
The Company's ability to compete effectively with other golf
companies may be dependent, to a large degree, upon the
proprietary nature of its technologies. The Company has eight
United States patents and one international patent relating to
the forged face technology and four patents relating to the
Company's putter technology. The Company also has several patent
applications pending. The patents for insert technologies
represent an evolution that took place over a period of several
years. The first patents cover simple combinations of forged and
cast elements brought together to form a golf club head. Later
filed patents have been directed toward alternative mechanisms
for holding the component parts together and alternative versions
using various combinations of metals including titanium.
Titanium is now recognized throughout the industry as a superior
metal for use in golf clubs. The patented putters include
several devices that provide an alignment mechanism. A "virtual
ball" marker allows the user to visualize the hit before the club
is swung. This enables the club to be aligned to the ball,
allowing the user to hit from the "sweet spot" of the club.
Additionally, the putter clubs have heel and toe weighting to
minimize club head rotation on impact, ensuring a straighter
shot.
In general, the level of protection afforded by a patent is
directly proportional to the ability of the patent owner to
protect and enforce his rights under the patent. Since the
financial resources of the Company are limited, and patent
litigation can be both expensive and time-consuming, there can be
no assurance that the Company will be able to successfully
prosecute an infringement claim in the event that a competitor
utilizes a technology that infringes on one or more of the
patents owned by the Company. The Company also relies, to an
extent, on unpatented know-how, trade secrets and technology, and
there can be no assurance that other companies may not
independently develop substantially identical technologies, or
obtain unauthorized access to the Company's technologies.
The Company received its eighth domestic patent (patent No.
5,720,673) on insert technology on February 4, 1998. The new
patent further broadens the scope of the Company's insert patent
portfolio. The new patent has a primary function of providing a
means of affixing the face insert to a cast club head. The
insert is set into a recess, and locked into place by material
being pushed over the edge of the insert thus locking it
permanently into place. The Company has also received a patent
which was issued in Taiwan. The Company has several other
patents pending both domestically as well as internationally.
The Company will continue to focus on expanding its patent
coverage on insert technology. See Exhibit 99.1 for a complete
list of these patents. See Exhibit 99.2 for a complete list of
the Company's trademarks.
(k) Licensing of Technology.
On August 12, 1998, the Company entered into a license
agreement with Confidence Golf, Inc., whereby the Company
licensed Confidence Golf, Inc. to use its forged insert
technology (attached as Exhibit 10.5 to this Form 10-SB). See
Certain Relationships and Related Transaction for a complete
description of this agreement.
On November 19, 1998, the Company entered into a similar
licensing agreement with Wilson Sporting Goods Company to also
use the Company's forged insert technology (attached as Exhibit
10.6 to this Form 10-SB). Under the terms of this agreement,
Wilson agreed to pay royalties as follows: (a) for irons: $1.00
per club for the first 250,000 sold, $0.75 per club for the next
250,000 up to 500,000, and $0.50 for over 500,000; and (b) for
woods: $1.00 per club for the first 500,000 and $0.75 per club
over 500,000. The Company intends to continue licensing its
patented technology to other companies as such opportunities
become available.
(l) Description of Property.
The Company's executive office, marketing and warehouse is
located in 6,800 square feet of leased space in Huntington Beach,
California, pursuant to a three-year lease agreement terminating
in December 1999. The Company is currently seeking larger facilities to
incorporate assembly of clubs with distribution of all of its products.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Overview
The following management's discussion and analysis of
financial condition and results of operations reviews the
financial performance of the Company for the years ended December
31, 1997 and 1998, and the six months ended June 30, 1999, and
should be read in conjunction with the Company's consolidated
financial statements and notes thereto for the respective periods
set forth as an Exhibit to this Form 10-SB.
For accounting purposes, the acquisition of GGI by Harry Hurst, Jr., Inc.
has been treated as a reverse acquisition of GGI with GGI considered
the acquiror. The historical financial statements prior to December 5, 1997
are those of GGI. All information in the financial statements has
been retroactively restated to reflect his transaction.
The consolidated financial statements include the accounts
of the Company, its wholly-owned subsidiary, GGI, Inc. and GGI,
Inc.'s wholly-owned subsidiaries, Gear Fit Golf Company, Inc. and
Pacific Golf Holdings, Inc. All significant intercompany
transactions and balances have been eliminated in consolidation.
Consolidated Results of Operations
(a) Six Months Ended June 30, 1999 and 1998.
Net sales increased to $1,362,235 in 1999 from $751,394 in
1998, an increase of $610,841 or 81.29%, primarily due to
increased selling and marketing activities that the Company was
able to conduct in 1999 as a result of the proceeds from the
Company's previous private placements of its securities.
Gross profit increased to $662,501 in 1999 from $353,600 in
1998, and increased as a percentage of net sales to 48.63% in
1999 from 47.06% in 1998. The increase in gross profit margin in
1999 as compared to 1998 was due to a change in the sales mix in
1999 to higher margin products.
Selling and marketing expenses decreased to $278,167 in 1999
from $297,961 in 1998, as a result of increased cost awareness in
the selling and marketing activities in the Company's efforts to
build a marketing infrastructure. Tour and pro contract expenses
decreased by $64,303 in 1999 as compared with 1998. General and
administrative expenses increased to $524,797 in 1999 from
$473,070 in 1998, as a result of an increase in business
activities and the costs of operating a public company.
Depreciation and amortization decreased to $21,210 in 1999
from $36,950 in 1998, as a result of decreased depreciation and
amortization recorded relating to property and equipment and
patents and trademarks. Interest expense increased to $20,068 in
1999 from $4,202 in 1998, as a result of an increase in the level
of interest-bearing debt incurred to finance operations.
The Company recorded a provision for bad debts of $115,000 in
1999, as compared with $13,500 in 1998. This was based on
management's estimate of uncollectible accounts receivable.
Net loss was $438,755 for the six months ended June 30,
1999, as compared to a net loss of $676,400 for the six months
ended June 30, 1998.
(b) Years ended December 31, 1998 and 1997.
Net sales increased to $1,244,119 in 1998 from $420,619 in
1997, an increase of $823,500 or 295.90%, primarily due to
increased selling and marketing activities that the Company was
able to conduct in 1998 as a result of the proceeds from the
Company's private placements of its securities.
Gross profit increased to $306,385 in 1998 from $101,105 in
1997, and increased as a percentage of net sales to 24.62% in
1998 from 24.04% in 1996. The slight increase in gross profit
margin in 1998 as compared to 1997 was due to the relative
stability in the sales mix in 1998 as compared to 1997.
Selling and marketing expenses increased to $657,853 in 1998
from $202,608 in 1997, as a result of increased selling and
marketing activities and the Company's efforts to build a
marketing infrastructure. Tour and pro contract expenses
increased by $463,665 in 1998 as compared to 1997, as a result
of increased marketing efforts. General and administrative expenses
increased to $1,130,242 in 1998 from $754,012 in 1997, as a
result of an increase in business activities and capital raising
efforts.
Depreciation and amortization decreased to $56,659 in 1998
from $58,454 in 1997 as a result of decreased depreciation and
amortization recorded relating to property and equipment and
patents and trademarks. Interest expense decreased to
$34,225 in 1998 from $91,512 in 1997, as a result of a decrease
in the level of interest-bearing debt incurred to finance
operations.
The Company recorded a provision for bad debts of $39,448 in
1998, as compared with $3,500 in 1997. This was based on
management's estimate of uncollectible accounts receivable.
Net loss was $2,730,170 for the year ended December 31,
1998, as compared to a net loss of $999,877 for the year ended
December 31, 1997.
Liquidity and Capital Resources.
During the years ended December 31, 1998 and 1997, and the
six months ended June 30, 1999, the Company has financed its
working capital requirements principally from the private
placement of its common stock. During the year ended December
31, 1998 and the six months ended June 30, 1999, gross proceeds
from the sale of common stock were $1,587,500 and $50,000,
respectively. Such funds have periodically been supplemented
with short-term borrowings under the Company's bank line of
credit and other private sources.
During the years ended December 31, 1998 and 1997, the
Company's operations utilized cash of $ 1,512,887 and $735,364,
respectively. As of December 31, 1998, the Company had a working
capital deficiency of $187,659, as compared to a working capital
of $414,044 at December 31, 1997. The Company's current ratio
was 0.80:1 at December 31, 1998, as compared to 2.04:1 at
December 31, 1997.
During the six months ended June 30, 1999 and 1998, the
Company's operations utilized cash of $111,153 and $893,589,
respectively. As of June 30, 1999, the Company had working a
capital deficiency of $336,108, and the Company's current ratio was
0.70:1.
The Company did not have any capital expenditure commitments
outstanding at June 30, 1999, although the Company anticipates
making capital expenditures in the ordinary course of business
commensurate with an expected increase in the Company's business
operations in subsequent periods and new facilities at the end of
1999.
During the year ended December 31, 1998, the Company
incurred aggregate costs of $503,567 with respect to the
preparation and filming of an infomercial. The Company reviewed
the recoverability of infomercial costs and due to a lack of
funds made a determination resulting in the Company choosing to
write off all production costs in 1999.
During April 1998, the Company entered into a letter of
intent to purchase a golf accessories business and made an
advance payment of $10,000. The Company completed this
transaction during the later part of 1998 by issuing 125,000
shares of common stock valued at $125,000. See Exhibit 10.4 to this
Form 10-SB. The Company reviewed the recoverability of these
costs and made a determination resulting in the Company chosing to
write off all these costs as of December 31, 1998.
The Company will require substantial additional operating
capital during the remainder of 1999 and into 2000 to broadcast
its infomercial, establish its own assembly facility, and finance
the expansion of its operations. In this regard, the Company has
entered into a Binding Subscription for Purchase of Equity
Securities with M.C. Corporation of Tokyo, Japan. The Company
completed this transaction on October 29, 1999 and $2 million has
been paid to the Company in exchange for 210,526 shares of
preferred stock in the Company. Should adequate working capital
not be available in the future on a timely basis to fund the
Company's operations, the Company may have to substantially
reduce its operations to a level consistent with its available
working capital resources. See "Business of the Company -
International Business."
Risk Factors Connected with Financial Condition and Results of
Operations.
(a) History of Losses; Accumulated Deficit; Working Capital
Deficiency.
The Company has incurred losses of $450,985, $224,667,
$999,877, and $2,730,170 for the years ended December 31, 1995,
1996, 1997, and 1998, respectively. The likelihood of the
success of the Company must be considered in the light of the
problems, expenses, difficulties, complications, and delays
frequently encountered in connection with the expansion of a
business and the competitive environment in which the Company
operates. Unanticipated delays, expenses and other problems such
as setbacks in product development, and market acceptance are
frequently encountered in connection with the expansion of a
business. (See "Need for Additional Financing" below.) As a
result of the fixed nature of many of the Company's expenses, the
Company may be unable to adjust spending in a timely manner to
compensate for any unexpected delays in the development and
marketing of the Company's products or any capital raising or
revenue shortfall. Any such delays or shortfalls will have an
immediate adverse impact on the Company's business, operations
and financial condition. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
(b) Significant Working Capital Requirements.
The working capital requirements associated with the
manufacture and sale of the Company's golf clubs have been and
will continue to be significant. The Company is currently not
generating sufficient cash flow to fund its operations and growth
and is dependent on the proceeds from the sale of its shares to
continue its operations and implement its sales and marketing
strategy. The Company anticipates, based on currently proposed
plans and assumptions relating to its operations (including with
respect to costs and expenditures and projected cash flow from
operations), that it will need financing of at least $1,500,000
during the year 2000 in order to pay current debt, revamp and
market its infomercial and increase inventory. In the event that
the Company's plans change or its assumptions change or prove to
be inaccurate or if the proceeds from the sale of its shares or
cash flow from operations proves to be insufficient to fund
operations (due to unanticipated expenses, technical
difficulties, problem or otherwise), the Company would be
required to seek additional financing sooner than currently
anticipated or may be required to significantly curtail or cease
its operations.
In connection with a Distribution Agreement, M.C. Corporation also made
a $2 million equity investment in the Company's preferred stock on
October 29, 1999 through a Binding Subscription for Purchase of Equity
Securities agreement (attached as Exhibit 4.3 to this Form 10-SB).
This financing should provide adequate working capital for the Company for
thenext twelve months. Other than this source of financing, the
Company has no current arrangements with respect to, or sources
of, additional financing, and it is not anticipated that existing
shareholders will provide any portion of the Company's future
financing requirements. There can be no assurance that any
additional financing will be available to the Company on a timely
basis and on acceptable terms or at all. Any such financing may
involve substantial dilution to the interests of the Company's
then existing shareholders.
(c) Seasonal Business; Quarterly Fluctuations.
Golf is primarily a warm weather sport and the
purchasing decisions of most customers are typically made in the
fall and a vast majority of sales are expected to occur during
the first six months of the year. In addition, quarterly results
may vary from year to year due to the timing of new product
introductions, orders and sales, advertising expenditures,
promotional periods and shipments. Accordingly, comparisons of
quarterly information of the Company's results of operations may
not be indicative of the Company's overall annual performance.
See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Business - Sales and
Marketing."
(d) Competition.
The market for the manufacture, distribution and sale
of premium quality golf clubs, accessories and other related
products is intensely competitive. The Company faces strong
existing competition for similar products and expects to face
significant competition from new companies or existing companies
with new products. Many of these companies may be better
financed, have better name recognition and consumer goodwill,
have more marketing expertise and capabilities, have a large and
loyal customer base, along with other attributes that may enable
them to compete more effectively. The golf equipment industry is
currently dominated by four companies, Callaway Golf Company,
Titleist/Cobra, Karsten Manufacturing (Ping) and Taylor Made,
which in the aggregate, account for approximately one half of the
golf clubs sold in the United States. Many purchasers of premium
clubs desire golf clubs that feature the most recent technology,
innovative designs and recognized brand names. Recently, Adams
Golf Co. and Orlimar Golf Company have become competitive factors
in fairway woods and drivers.
Additionally, purchases are often made based upon
highly subjective decisions that may be influenced by numerous
factors, many of which are out of the Company's control.
Golfers' subjective preferences are subject to rapid and
unanticipated changes. As a result, the Company expects to face
substantial competition from existing and new companies that
market golf clubs which are perceived to enhance performance, are
visually appealing or appeal to other consumer preferences.
Further, the golf club industry is subject to rapid and
widespread imitation of golf club designs which, notwithstanding
the existence of any proprietary rights, could further hamper the
Company's ability to compete. The Company faces competition on
the basis of price, reputation and qualitative distinctions among
available products. There can be no assurances as to the market
acceptance of the Company's golf clubs in relation to its
competition. See "Business of the Company - Competition."
(e) Uncertainty of Market Penetration.
The golf equipment industry is currently dominated by
several companies which have strong brand name recognition. As a
result, the market demand for new products from new companies is
subject to a high level of uncertainty. Achieving significant
market penetration and consumer recognition for the Company's
products will require significant efforts and expenditures by the
Company to inform potential customers about the Company's
products. Although the Company intends to use a substantial
portion of its working capital for marketing and advertising, there
can be no assurance that the Company will be able to penetrate existing
markets for golf equipment and related accessories on a broad basis,
position its products to appeal to a broad base of customers, or that any
marketing efforts undertaken by the Company will result in any
increased demand for or greater market acceptance of the Company's
products. See "Business of the Company."
(f) Consumer Preferences and Industry Trends.
The golf equipment industry is characterized by
frequent introductions of new products and innovations and is
subject to rapidly changing consumer preferences and industry
trends such as the introduction of titanium clubs and oversized
club heads, which may adversely affect the Company's ability to
plan for future design, development and marketing of its
products. Because of rapidly changing consumer preferences and
industry trends, most golf club models and designs have short
product life cycles. In addition, new club models and basic
designs are frequently introduced and often rejected by
customers. The Company's success will depend on its ability to
anticipate and respond to these factors and introduce products
that meet or exceed consumer expectations. There can be no
assurance that the Company will be able to anticipate and respond
to changing consumer preferences and industry trends or that
competitors will not develop and commercialize new innovations
that render the Company's proprietary technology or its golf
clubs obsolete. See "Business of the Company - Competition."
The Company's future operating results are also likely
to be dependent upon the continuing popularity of golf as a sport
and leisure activity. Although golf has gained increasing
popularity over the last several years, there can be no assurance
that its popularity as a sport and leisure activity will
continue. Any significant decline in the popularity of golf
could materially adversely affect the Company. Moreover, golf,
as a leisure activity, is affected by a number of factors
relating to discretionary consumer spending, including general
economic conditions affecting disposable consumer income, such as
employment and business conditions, interest rates and taxation.
Any significant change in general economic conditions or
uncertainties regarding future economic prospects that adversely
affect discretionary consumer spending generally, and golfers
specifically, could have a material adverse effect on the
Company. See "Business of the Company - Industry Background."
(g) Direct Response Television Marketing.
The Company intends to expand its direct marketing
efforts to include direct response television, including
infomercials and direct response commercials. The success of
direct response television is uncertain and depends upon numerous
factors, including the Company's ability to produce infomercials
and commercials which attract and retain viewer interest, feature
products that appeal to viewers and generate revenues sufficient
to offset their cost of production and air time. Industry
sources estimate that only one out of eight infomercials
generates a level of sales sufficient to offset the costs
associated with their production and broadcasting and obtaining
desirable broadcast time slots. The Company has limited
experience in utilizing direct response television to market its
products, having only test marketed one infomercial in mid 1998.
The production and broadcasting of infomercials and commercials
also requires up-front cash expenditures. The Company expects
that a typical infomercial will cost approximately $250,000 to
$500,000 to produce and a typical direct response commercial will
cost approximately $30,000 to $80,000 to produce. Media
broadcast time, the largest expense in marketing through
infomercials and commercials, must be paid for in advance and
typically accounts for a substantial portion of the total costs
associated with the marketing of products through direct response
television, depending upon the broadcast markets and hours at
which the infomercial or commercial airs. Media costs have
increased recently and greater demand for broadcast time could
result in increased costs, as well as the unavailability of
preferred hours and channels for broadcast and the unwillingness
of broadcasters to air the Company's advertisements. See
"Business of the Company - Marketing and Sales."
(h) Dependence on a Limited Number of Suppliers.
The Company does not manufacture the components
required to assemble its golf clubs. The Company relies on
several suppliers for club heads and graphite shafts. The
Company does not have binding long-term supply contracts with any
of its suppliers. Therefore, the Company's success will depend
on maintaining its relationships with these suppliers and
developing relationships with new suppliers. Any significant
delay or disruption in the supply of club heads or graphite
shafts caused by manufacturers' production limitations, material
shortages, quality control problems, labor interruptions,
shipping problems or other reasons would materially adversely
effect the Company's business. The delays in receiving such
supplies from alternative sources would cause the Company to
sustain at least temporary shortages of materials to assemble its
clubs, which could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company currently purchases its club heads from two
sources, its shafts from two sources and its grips from three
sources. The Company purchases its components pursuant to
purchase orders placed from time to time and, except for those
purchase orders, none of its suppliers is obligated to deliver
specified quantities of components or to deliver components for
any specified period. Accordingly, the Company is substantially
dependent on the ability of its suppliers to provide adequate
inventories of golf club components on a timely basis and on
acceptable terms. The Company's suppliers also produce
components for certain of the Company's competitors, as well as
other large customers, and there can be no assurance that any
such supplier will have sufficient production capacity to satisfy
the Company's inventory or scheduling requirements during any
period of sustained demand or that the Company will not be
subject to the risk of price fluctuations and periodic delays.
Although the Company believes that its relationships with its
suppliers are satisfactory and that alternative sources of each
of the components are currently available, the loss of the
services of a supplier or substantial price increases imposed by
a supplier could result in production delays, thereby causing
cancellation of orders by customers and/or price increases
resulting in reduced revenues and margins, respectively.
(i) Dependence on Certain Suppliers; Foreign Suppliers.
The Company imports most of its club heads from
companies in Asia. As a result, the supply of the materials
required to assemble the Company's clubs is subject to additional
cost and risk factors, many of which are out of the Company's
control, including political instability, import duties, trade
restrictions, work stoppages and foreign currency fluctuations.
An interruption or material increase in the cost of supply would
materially adversely effect the Company's business, operating
results and financial condition.
(j) Uncertainty Regarding Patents and Proprietary Rights.
The Company seeks patent protection for its proprietary
products and technologies where appropriate. The Company
currently has eight United States patents and one international
patent relating to its forged face technology and four patents
relating to the Company's putter technology. The Company also
has several foreign patents pending. Corresponding foreign
patent applications with respect to the Company's pending United
States applications have been filed in the appropriate foreign
jurisdictions. However, there can be no assurance that the
Company's pending patents will be awarded or will provide the
Company with significant protection against competitors.
Litigation has been necessary and may be necessary in the future
to protect the Company's patents, and there can be no assurance
that the Company will have the financial or managerial resources
necessary to pursue such litigation or otherwise to protect its
patent rights. In addition to pursuing patent protection in
appropriate cases, the Company also relies on trade secret
protection for its unpatented proprietary technology. However,
trade secrets are difficult to protect. There can be no
assurance that other companies will not independently develop
substantially equivalent proprietary information and techniques
or otherwise gain access to the Company's trade secrets, that
such trade secrets will not be disclosed or that the Company can
effectively protect its rights to unpatented trade secrets. The
Company pursues a policy of having its employees and consultants
execute non-disclosure agreements upon commencement of employment
or consulting relationships with the Company, which agreements
provide that all confidential information developed or made known
to the individual during the course of employment shall be kept
confidential except in specified circumstances. There can be no
assurance, however, that these agreements will provide meaningful
protection for the Company's trade secrets or other proprietary
information.
(k) Dependence on Relationships with Retailers.
The Company principally relies upon its relationships
with its retailers to market the Company's products. The
Company's account base consists of select golf shops throughout
the United States. The Company maintains its relationship with
such retailers both directly and through its independent sales
representatives. International sales are generally conducted
through the use of foreign distributors in specific countries.
Although the Company intends to market its products competitively
and to develop business relationships with new retailers, there
can be no assurances that the Company can successfully expend its
retailer base to a level sufficient to reach profitable
operations. See "Business of the Company - Source of Supply."
(l) Technological Innovation; New Products; USGA Regulation.
The technology utilized in the Company's golf clubs is
relatively new, compared to the majority of golf clubs currently
being marketed. The Company believes it has extensive patent
protection for most of its golf club heads, but there can be no
assurance that it will be successful in defending and/or
exploiting such patents. Efforts to develop new technology and
new products similar to or better than the Company's clubs are
continuing to evolve at a rapid pace. It is expected that
competitors will attempt to develop alternative golf clubs that
apply existing and/or new technology. Such new technological
innovations could have an adverse impact on the Company's
business, operating results and financial condition. There is no
assurance that the Company will be able to design technologically
innovative golf clubs or golf products that achieve market
acceptance. Further, the Company's existing clubs that have been
designed and marketed may be rendered obsolete within a
relatively short period of time. See "Business of the Company -
Patents and Know How."
The design and sales of golf clubs are also greatly
influenced by the rules and regulations of the United States Golf
Association ("USGA"). Although the USGA's equipment standards
only apply to USGA sanctioned events, it is critical for new
clubs and existing clubs to comply with USGA standards. To the
extent that the Company's clubs are ruled ineligible by the USGA,
the Company's business, operating results and financial condition
would be materially adversely affected. Although the Company
believes that all of its current clubs comply with USGA standards
and its proprietary technology is not inconsistent with USGA
standards, there is no assurance that any newly developed clubs
will be deemed to comply with USGA standards or that existing
USGA standards and regulations will not be amended to make the
Company's existing clubs ineligible for use in USGA sanctioned
events.
(m) Influence of Other External Factors.
The golf hardware industry in general is a speculative venture
necessarily involving some substantial risk. There is no
certainty that the expenditures to be made by the Company will
result in commercially profitable business. The marketability of
its products will be affected by numerous factors beyond the
control of the Company. These factors include market
fluctuations, and the general state of the economy (including the
rate of inflation, and local economic conditions), which can
affect peoples' discretionary spending. Factors which leave less
money in the hands of potential customers of the Company will
likely have an adverse effect on the Company. The exact effect
of these factors cannot be accurately predicted, but the
combination of these factors may result in the Company not
receiving an adequate return on invested capital.
(n) Regulatory Factors.
Possible future consumer legislation, regulations and actions
could cause additional expense, capital expenditures, restrictions
and delays in the activities undertaken in connection with the
golf hardware industry, the extent of which cannot be predicted.
The exact effect of such legislation cannot be predicted until it
is proposed.
(o) Lack of Diversification.
The size of the Company makes it unlikely that the Company will
be able to commit its funds to diversify the business until it
has a proven track record, and the Company may not be able to
achieve the same level of diversification as larger entities
engaged in this type of business.
(p) Reliance on Management.
The Company's success is dependent on its key management,
especially Donald A. Anderson, the loss of whose services could
significantly impede the achievement of the Company's planned
development objectives. The Company currently does not maintain
key man life insurance on Mr. Anderson. In addition, none of the
officers or directors, or any of the other key personnel, except
for Mr. Anderson, has any employment agreement with the Company.
Therefore, there can be no assurance that these personnel will
remain employed by the Company. The success of the Company's
business objectives will require substantial additional expertise
in such areas as finance, manufacturing and marketing, among
others. Competition for qualified personnel among golf companies
is intense, and the loss of key personnel, or the inability to
attract and retain the additional, highly skilled personnel
required for the expansion of the Company's activities, could
have a material adverse effect on the Company's business and
results of operations.
In addition, all decisions with respect to the management of
the Company will be made exclusively by the officers and
directors of the Company. Investors will only have rights
associated with minority ownership interest to make decisions
which effect the Company. The success of the Company, to a large
extent, will depend on the quality of the directors and officers
of the Company.
(q) Control of the Company by Officers and Directors.
The Company's officers and directors beneficially own
approximately 29% of the outstanding shares of the Company's
common stock. As a result, such persons, acting together, have
the ability to exercise significant influence over all matters
requiring stockholder approval. Accordingly, it could be
difficult for the investors hereunder to effectuate control over
the affairs of the Company. Therefore, it should be assumed that
the officers, directors, and principal common shareholders who
control the majority of voting rights will be able, by virtue of
their stock holdings, to control the affairs and policies of the
Company.
(r) Limitations on Liability, and Indemnification, of Directors and Officers.
The Company's Articles of Incorporation include
provisions to eliminate, to the fullest extent permitted by the
Nevada Revised Statutes as in effect from time to time, the
personal liability of directors of the Company for monetary
damages arising from a breach of their fiduciary duties as
directors. The By-Laws include provisions to the effect that the
Company may, to the maximum extent permitted from time to time
under applicable law, indemnify any director, officer, or
employee to the extent that such indemnification and advancement
of expense is permitted under such law, as it may from time to
time be in effect. Any limitation on the liability of any
director, or indemnification of directors, officer, or employees,
could result in substantial expenditures being made by the
Company in covering any liability of such persons or in
indemnifying them.
(s) Conflicts of Interest.
The officers and directors have other interests to which they
devote time, either individually or through partnerships and
corporations in which they have an interest, hold an office, or
serve on boards of directors, and each will continue to do so
notwithstanding the fact that management time may be necessary to
the business of the Company. As a result, certain conflicts of
interest may exist between the Company and its officers and/or
directors which may not be susceptible to resolution.
In addition, conflicts of interest may arise in the area of
corporate opportunities which cannot be resolved through arm's
length negotiations. All of the potential conflicts of interest
will be resolved only through exercise by the directors of such
judgment as is consistent with their fiduciary duties to the
Company. It is the intention of management, so as to minimize
any potential conflicts of interest, to present first to the
Board of Directors to the Company, any proposed investments for
its evaluation.
(t) Investment Valuation Determined by the Board of Directors.
The Company's Board of Directors is responsible for valuation of
the Company's investments. There are a wide range of values which
are reasonable for an investment for the Company's services.
Although the Board of Directors can adopt several methods for an
accurate evaluation, ultimately the determination of fair value
involves subjective judgment not capable of substantiation by
auditing standards. Accordingly, in some instances it may not be
possible to substantiate by auditing standards the value of the
Company's investments. The Company's Board of Directors will
serve as the valuation committee, responsible for valuing each of
the Company's investments. In connection with any future
distributions which the Company may make, the value of the
securities received by investors as determined by the Board may
not be the actual value that the investors would be able to
obtain even if they sought to sell such securities immediately
after a distribution. In addition, the value of the distribution
may decrease or increase significantly subsequent to the
distributee shareholders' receipt thereof, notwithstanding the
accuracy of the Board's evaluation.
(u) No Assurance of Continued Public Trading Market; Risk
of Low Priced Securities.
Since December 9, 1997, there has been only a limited
public market for the common stock of the Company. The common
stock of the Company is currently quoted on the Over the Counter
Bulletin Board. As a result, an investor may find it difficult
to dispose of, or to obtain accurate quotations as to the market
value of the Company's securities. In addition, the common stock
is subject to the low-priced security or so called "penny stock"
rules that impose additional sales practice requirements on
broker-dealers who sell such securities. The Securities
Enforcement and Penny Stock Reform Act of 1990 ("Reform Act")
requires additional disclosure in connection with any trades
involving a stock defined as a penny stock (generally, according
to recent regulations adopted by the U.S. Securities and Exchange
Commission, any equity security that has a market price of less
than $5.00 per share, subject to certain exceptions), including
the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the
risks associated therewith. The regulations governing low-
priced or penny stocks sometimes limit the ability of broker-
dealers to sell the Company's common stock and thus, ultimately,
the ability of the investors to sell their securities in the
secondary market.
(v) Effects of Failure to Maintain Market Makers.
If the Company is unable to maintain a National
Association of Securities Dealers, Inc. member broker/dealers as
market makers, the liquidity of the common stock could be
impaired, not only in the number of shares of common stock which
could be bought and sold, but also through possible delays in the
timing of transactions, and lower prices for the common stock
than might otherwise prevail. Furthermore, the lack of market
makers could result in persons being unable to buy or sell shares
of the common stock on any secondary market. There can be no
assurance the Company will be able to maintain such market
makers.
(w) Cash Dividends Unlikely.
The Company has never declared or paid dividends on its
common stock and currently does not anticipate or intend to pay
cash dividends on its common stock in the future. The payment of
any such cash dividends in the future will be subject to
available retained earnings and will be at the discretion of the
Board of Directors.
(x) Potential Status as a Pseudo California Corporation.
Section 2115 of the California General Corporation Law
subjects certain foreign corporations doing business in
California to various substantive provisions of the California
General Corporation Law in the event that the average of its
property, payroll and sales is more than 50% in California and
more than one-half of its outstanding voting securities are held
of record by persons residing in the State of California. Some
of the substantive provisions include laws relating to annual
election of directors, removal of directors without cause,
removal of directors by court proceedings, indemnification of
officers and directors, directors standard of care and liability
of directors for unlawful distributions. The aforesaid Section
does not apply to any corporation which, among other things, has
outstanding securities designated as qualified for trading as a
national market security on NASDAQ if such corporation has at
least eight hundred holders of its equity securities as of the
record date of its most recent annual meeting of shareholders.
It is currently anticipated that the Company may be subject to
Section 2115 of the California General Corporation Law which, in
addition to other areas of the law, will subject the Company to
Section 708 of the California General Corporation Law which
mandates that shareholders have the right of cumulative voting at
the election of directors.
(y) Forward-Looking Statements.
This Registration Statement contains "forward looking
statements" within the meaning of Section 27A of the Act, and
Section 21E of the Securities Act of 1934, as amended, and as
contemplated under the Private Securities Litigation Reform Act
of 1995, including statements regarding, among other items, the
Company's business strategies, continued growth in the Company's
markets, projections, and anticipated trends in the Company's
business and the industry in which it operates. The words
"believe," "expect," "anticipate," "intends," "forecast,"
"project," and similar expressions identify forward-looking
statements. These forward-looking statements are based largely
on the Company's expectations and are subject to a number of
risks and uncertainties, certain of which are beyond the
Company's control. The Company cautions that these statements are
further qualified by important factors that could cause actual
results to differ materially from those in the forward looking
statements, including those factors described under "Risk
Factors" and elsewhere herein. In light of these risks and
uncertainties, there can be no assurance that the forward-looking
information contained in this Form 10-SB will in fact transpire
or prove to be accurate. All subsequent written and oral
forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by
this section.
(z) Uncertainty Due to Year 2000 Problem.
The Year 2000 issue arises because many computerized systems
use two digits rather than four to identify a year. Date
sensitive systems may recognize the year 2000 as 1900 or some
other date, resulting in errors when information using the year
2000 date is processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 issue
may be experienced before, on, or after January 1, 2000, and if
not addressed, the impact on operations and financial reporting
may range from minor errors to significant system failure which
could affect the Company's ability to conduct normal business
operations. This creates potential risk for all companies, even
if their own computer systems are Year 2000 compliant. It is not
possible to be certain that all aspects of the Year 2000 issue
affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully
resolved.
The Company currently believes that its systems are Year 2000
compliant in all material respects, its current systems and
products may contain undetected errors or defects with Year 2000
date functions that may result in material costs. Although
management is not aware of any material operational issues or
costs associated with preparing its internal systems for the Year
2000, the Company may experience serious unanticipated negative
consequences (such as significant downtime for one or more of
its suppliers) or material costs caused by undetected errors or
defects in the technology used in its internal systems.
Furthermore, the purchasing patterns of consumers may be affected
by Year 2000 issues. The Company does not currently have any
information about the Year 2000 status of its potential material
suppliers. The Company's Year 2000 plans are based on
management's best estimates.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company currently owns approximately $120,000 in general
office equipment and furniture, as reflected in the last
financial statement on the Company (see Exhibit 13 to this Form
10-SB).
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the
beneficial ownership of shares of common stock as of October 29,
1999 (issued and outstanding common stock of 12,592,194, options
for 1,252,015 shares which are presently exercisable, warrants
for 1,747,755 shares which are presently exercisable, and
convertible preferred stock which is presently convertible into
2,105,260 shares, for a total of 17,709,224 shares) by (i) all
stockholders known to the Company to be beneficial owners of more
than 4% of the outstanding common stock; and (ii) all officers
and directors of the Company (each person has sole voting power
and sole dispositive power as to all of the shares shown as
beneficially owned by them):
Title of Name and Address of Amount of Percent of
Class Beneficial Owner Beneficial Class
Ownership
Common Stock Donald A. Anderson 3,037,525 17.15%
5481-A Commercial Dr
Huntington Beach, CA
92649
Common Stock M.C. Corporation 2,435,260 13.75%
Terasiosu Bldg., 6-7-2
Minami Aoyama,
Minato-ku, Tokyo, Japan
107-0062
Common Stock Berkeley Investment 2,043,630 11.54%
Group, Ltd., AV.
Libertador, Piso 3
OFC 3-7, Caracas,
Venezuela
Common Stock Robert J. Williams 1,442,521 8.15%
62-156 Corporate Way
Thousand Oaks, CA 92276
Common Stock Frank X. McGarvey 965,940 5.45%
5481-A Commercial Drive
Huntington Beach, CA 92649
Common Stock Yeon Park 867,000 4.90%
16582 Gothard Street
Huntington Beach, CA 92646
Common Stock Robert N. Weingarten 807,849 4.56%
5481-A Commercial Drive
Huntington Beach, CA 92649
Common Stock Marc R. Tow 187,500 1.06%
3900 Birch Street, Suite 113
Newport Beach, CA 92660
Common Stock Parker Smith 150,000 0.85%
5481-A Commercial Drive
Huntington Beach, CA 92649
Common Stock Naoya Kinoshita 75,000 0.42%
Terasiosu Bldg., 6-7-2
Minami Aoyama, Minato-ku,
Tokyo, Japan 107-0062
Common Stock Shares of all directors and 5,223,814 29.50%
executive officers as a
group (6 persons)
Other than as footnoted, none of these security holders has
the right to acquire any amount of the Shares within sixty days
from options, warrants, rights, conversion privilege, or similar
obligations.
Includes options to purchase 234,900 of shares of common stock at
an exercise price of $.68 per share; 117,450 shares of that total
are exercisable starting in October 2000 (these options expire in
October 2002). Also includes options to purchase 150,000 shares
of common stock at an exercise price of $0.25 per share; these
options expire in August 2001 (the exercise price may be paid by
a promissory note, payable in full five years from the exercise
date, with interest accruing at 9% per annum).
Reflects the right to convert 210,526 shares of convertible
preferred stock into 2,105,260 shares of common stock, which
right expires in October 2001. Also includes warrants to
purchase 318,000 shares of common stock at an exercise price of
$1.00 per share; these warrants expire in October 2002
Includes warrants to purchase 1,162,755 shares of common stock at
an exercise price of $.28 per share; these warrants expire in
October 2000.
Includes options to purchase 140,940 shares of common stock at an
exercise price of $.62 per share; these options expire in October
2002. Also includes options to purchase 75,000 shares of common
stock at an exercise price of $0.25 per share; these options
expire in August 2001 (the exercise price may be paid by a
promissory note, payable in full five years from the exercise
date, with interest accruing at 9% per annum).
Includes warrants to purchase 217,000 shares of common stock
at $2.00 per share; these warrants expire in March 2001.
Includes options to purchase 176,175 shares of common stock
at an exercise price of $.62 per share. The options expire in
October 2002. Also includes options to purchase 75,000 shares of
common stock at an exercise price of $0.25 per share; these
options expire in August 2001 (the exercise price may be paid by
a promissory note, payable in full five years from the exercise
date, with interest accruing at 9% per annum).
Includes options to purchase 100,000 shares of common stock
at an exercise price of $1.50 per share; these options expire in
October 2002 (the exercise price may be paid by a promissory
note, payable in full five years from the exercise date, with
interest accruing at 9% per annum). Also includes options to
purchase 75,000 shares of common stock at an exercise price of
$0.25 per share; these options expire in August 2001 (the
exercise price may be paid by a promissory note, payable in full
five years from the exercise date, with interest accruing at 9%
per annum).
Includes warrants to purchase 50,000 shares of common stock
at $2.00 per share; these warrants expire in October 2003. Also
includes options to purchase 75,000 shares of common stock at an
exercise price of $0.25 per share; these options expire in August
2001 (the exercise price may be paid by a promissory note,
payable in full five years from the exercise date, with interest
accruing at 9% per annum).
Naoya Kinoshita is President of M.C Corporation. He has
options to purchase 75,000 shares of common stock at an exercise
price of $0.25 per share; these options expire in August 2001
(the exercise price may be paid by a promissory note, payable in
full five years from the exercise date, with interest accruing at
9% per annum).
ITEM 5. DIRECTORS, OFFICERS, PROMOTERS, AND CONTROL PERSONS.
The names, ages, and respective positions of the directors,
officers, and key employees of the Company are set forth below.
There are no other persons which can be classified as a promoter
or controlling person of the Company.
Officers and Directors.
(a) Donald A. Anderson, President/Director.
Mr. Anderson, age 48, began working with golf clubs at the
young age of 12. He taught golf at his home course at 19, and
played as a golf professional in local events. He became
director of sales and marketing of R.A.C.O. Manufacturing, a
foundry in Whittier, California. R.A.C.O. under Mr. Anderson's
direction became one of the largest golf putter manufacturers in
the world by 1978. The company produced putters for nearly every
major golf club maker in the industry including the Ben Hogan
Company, Spalding, Wilson Sporting Goods, MacGregor, H and B,
Northwestern Golf and Pinseeker to name a few. In 1980 Mr.
Anderson moved to Chicago to become director of sales for the
Northwestern Golf Club Company, which at the time was the world's
largest exclusive manufacture of golf clubs. While at
Northwestern, the company pioneered the original metal wood, and
worked to engage several touring professionals to the staff. Mr.
Anderson signed Nancy Lopez, Tom Weiskopf, Jim Thorpe, Judy
Rankin, Marlene Hagge, Tom Shaw, Bob Murphy, J. C. Snead, George
Low, Hubert Green to name a new. Sales grew dramatically while
at Northwestern from 1980 to 1986. In 1986 Mr. Anderson became
a consultant for the Slotline Golf Company.
In 1987, Mr. Anderson became the vice president of the Stan
Thompson Golf Club Company. The Stan Thompson Golf Club Company
was the maker of the best selling utility club of all time, the
"Ginty." While at Stan Thompson, the company was stabilized and
made profitable once again. In 1988, Stan Thompson had its 50th
anniversary of making golf clubs. After completing a three year
contract at Stan Thompson in December of 1989, Mr. Anderson
founded the Company.
(b) Robert N. Weingarten, Secretary/CFO/Director.
Mr. Weingarten, age 46, has served as Chief Financial
Officer of the Company since October 1997. From July 1992 to the
present, he has been the sole shareholder of Resource One Group,
Inc., a financial consulting and advisory company. From January
1, 1997 through July 31, 1997, Mr. Weingarten was a principal in
Chelsea Capital Corporation, a merchant banking firm. Since
1979, Mr. Weingarten has served as a consultant with numerous
public companies in various stages of development, operation or
reorganization. Mr. Weingarten received an M.B.A. in Finance
from the University of Southern California and a B.A. in
Accounting from the University of Washington. Mr. Weingarten is
an officer of Casmyn Corp., a publicly held mineral resource
development company.
(c) Frank X. McGarvey, Director.
Mr. McGarvey, age 55, specializes in financial consulting
for emerging growth companies. He is also a director and the
chief operating officer of Colori Inc., which operates under a
joint venture agreement with Gi Picco's Cosmetics SRL, a large
European cosmetic company. He also was associated with
Jefferson Research of Portland, Oregon, a company engaged in
equities research for money management firms. He was the co-
founder of Stoller Chemical Company and founder of Micron Corp.
He holds a B.S. degree in Chemical Engineering from the
University of Pennsylvania. Mr. McGarvey was appointed a
Director of the Company in October 1997.
(d) Marc R. Tow, Director.
Mr. Tow, age 48, is a practicing attorney, auctioneer and
real estate broker. He has practiced law since 1977. He has
acted as an attorney for companies and individual investors. As
an attorney, Mr. Tow's practice has emphasized reorganizations,
recapitalizations, insolvency, real estate, and business laws.
He is a member of the State Bar of California, Public Investors
Bar Association, Orange County Bar Association, American
Bankruptcy Institute, Orange County Bankruptcy Forum and
California Lawyers. Mr. Tow has served as an arbitrator for the
American Arbitration Association and Judge Pro Tem for the
Municipal Court of California. He has lectured extensively on
real estate restructuring and litigation matters.
Mr. Tow is President of United Equities Corporation, a
California corporation that conducts turnaround management and
operates an on-line auction web site. This company assists in
reorganizing distressed real estate, renegotiates debt and
markets real estate on the Internet. Mr. Tow is a member of the
Internet Developers Society and Creative Alliance Partner with
AT&T in web development. He was appointed a Director of the
Company in September 1998. Mr. Tow also holds the following
positions: (1) President and a Director of Mt. McKinley Gold,
Inc.; (2) President and a Director of Mesa Verde Financial, Inc.;
(3) President and a Director of Government Property Advisors,
Inc.; (4) President and a Director of National Auction
Properties; and (5) Secretary and a Director of One Touch Total
Communications, Inc.
(e) Parker Smith, Director.
Mr. Smith, age 54, has been involved in all aspects of
golfing for over thirty years. From 1971 to 1973, he was Editor
of Golf Magazine. In 1974, Mr. Smith founded Sports
Opportunities International (The Publicity Group), a company
which specializes in publicity, marketing, promotions and
coordinating advertising campaigns. Since then, he has been
involved in the marketing and promotion of dozens of golf
companies and golf clubs, including Taylor Made Golf from 1979
through 1983 (where he helped launch the introduction of "metal
woods" which have revolutionized the game of golf).
Additionally, Mr. Smith has worked with Callaway Golf Company
during the introduction of the Big Bertha line of clubs. He has
acted as the media specialist for the opening of the Dunhill Cup,
PGA West, TPC at Sawgrass, the Lodge at Koele, Bali Golf and
Country Club, The Ocean Golf Course at Kiawah, Treetops Resort,
Kapalua International Golf Tournament and Brays Island
Development in South Carolina. He joined the Company in October
1998. Mr. Smith holds a B.A. Degree from Memphis State
University.
Naoya Kinoshita, Director.
Mr. Kinoshita, age 34, is President of M.C. Corporation, which he
founded in 1990 and is involved in real estate development and
management. In 1995, Mr. Kinoshita began development,
construction, and sales of generational housing; that is housing
for two generations of family (parents and offspring under one
roof), as well as imported housing sales from outside Japan.
During the same year he started an internet service provider
business. In 1996, Mr. Kinoshita combined his experience in real
estate development and the internet to construct and sell the
first internet line pre-installed condominium in Japan. More
recently, he commenced the design, construction, and sales of 2x4
housing which utilized fewer chemicals, and more natural
materials to promote healthy living for the resident. Mr.
Kinoshita has extensive expertise in real estate development,
information processing, sales, management, and distribution. Mr.
Kinoshita has served as a Director since October 1999.
Key Employees.
(a) Nathan A. Lopez, Vice President of Sales and Marketing.
Mr. Lopez, age 41, has nearly fifteen years experience in
pioneering new material technologies in the golf industry. From
1986 to 1992 Mr. Lopez served as the head design and material
expert at Aldila Inc. where he successfully developed the second
generation of advanced composite golf shafts that propelled
companies like Taylor Made and Callaway Golf into their
respective leadership of golf hard goods. From 1992 to 1995 Mr.
Lopez directed Easton Aluminum in the development, marketing and
sales of the second generation aluminum and aluminum/carbon golf
shafts into the OEM and custom club maker market. He joined Winn
Grips in 1995 and is credited with pioneering the market niche
for this new advanced polymer golf grip. Within three years,
Winn Grips had become the premium golf grip in the golf industry.
Mr. Lopez joined the Company in October 1998.
(b) Rhonda Jurs, Director of Sales.
Ms. Jurs, age 35, comes to the Company with more than
fourteen years in the golf industry, and possesses a solid
background in telemarketing sales. She began her golf career at
Slotline Golf in the production department and gained first-hand
knowledge of club manufacturing. She quickly moved into
marketing where she developed Slotline's customer service
department. For the past twelve years, Ms. Jurs has been a
leader in Slotline's telemarketing department. As Key Accounts
Manager, she worked with the volume retailers, and supervised the
inside sales team. In addition, Ms. Jurs implemented sales
programs that more than quadrupled the company's account base.
She joined the Company in January 1998.
(c) Brian Jacobsen, Controller.
Mr. Jacobsen, age 55, has over 20 years of experience in
financial management. His previous background includes five years
with Ram Golf Corporation and six years with Confidence Golf
Corporation. He brings the Company a strong financial background
with a hands-on understanding of the golf industry. Mr. Jacobsen
joined the Company in May 1998.
(d) Mark Collins, Director of Manufacturing.
Mark Collins, age 38, began his industry career in 1983.
While working as machinist for a California tooling company, Mark
built what is believed to be the first putter with a "milled
face." After honing his skills as a golf club craftsman at
Quality Golf Products of Fountain Valley, California, Mr. Collins
joined Daiwa Golf in 1992. At Daiwa, a recognized leader in the
golf equipment industry, Mr. Collins combined his knowledge of
advanced metal alloys and graphite shafts with expertise in
precision manufacturing to build clubs for well known PGA
professionals such as Fuzzy Zoeller, Pete Jordan, Jerry Kelly,
and LPGA notables Amy Alcot and Luciana Benevenuti. He joined
the Company in April 1998.
Board of Advisors.
The following individuals serve as non-compensated advisors
to the Company for the purpose of providing advice and counsel to
management:
Douglas J. Rugg.
Mr. Rugg, a Chicago native whose father was a professional
golfer has been involved in golf since the age of five. Upon
moving to California he learned the surfing business and became active in
product design. Mr. Rugg designs and develops golf bags and other
accessories for such names as Black Flys; Modern Amusement; Hard
Rock Hotel and Casino; Palmilla Hotel in Cabo San Lucas, Mexico;
and Tommy Hilfiger. Doug brings a combined experience in golf and
the youth market.
(b) J. Scott Schmidt.
Mr. Schmidt is the former President and Chief Executive
Officer of Thompson Newspapers Corporation, West Group, President
and Publisher of American Collegiate Network, Inc.; President and
Chief Executive, Hilton/Schmidt, a media consulting firm;
President and Chief Executive Officer, California Fashion
Publications; President and Chief Executive of Van Nuys
Publishing. Before launching a career in publishing he served in
various senior editorial posts with the Chicago Tribune and
Chicago Today. Mr. Schmidt attended Bradley University and
Northwestern University.
(c) John Zebelean.
Mr. Zebelean is the inventor and patent holder for the
original investment cast metal wood, which subsequently became
Taylor Made and created a multi-billion dollar industry. He has
since designed metal woods for Pinseeker, Confidence Golf,
Northwestern, Pebble Beach, and Spalding. He holds a Ph.D. in
Physics and is currently involved with classified projects.
ITEM 6. EXECUTIVE COMPENSATION.
Cash Compensation.
Other than Donald A. Anderson, the President of the Company, no
other officer or director of the Company is receiving any
remuneration at this time in excess of $50,000. Mr. Anderson is
currently receiving an annual salary of $90,000. This amount
does not include a bonus granted to Mr. Anderson by the Board of
Directors for the year in the amount of $50,000 for the year
ending December 31, 1997.
Employment Contract.
The Company has entered into an employment agreement with
Donald A. Anderson, dated July 1, 1998, which expires on December
31, 2002 (see Exhibit 10.10 to this Form 10-SB). This agreement
has an automatic renewal provision which allows renewal for a one
year period on the same terms and conditions unless either party
gives notice to the other party of at least ninety (90) days
prior to the expiration of the term of their intention to renew
the agreement. The agreement may only be terminated by the
Company if there is a willful breach or habitual neglect of
duties relating to performing terms of the agreement or there are
acts of dishonesty, fraud and misrepresentation. The agreement
provides for a base salary of $90,000 per year and an automobile
expense allowance of $750 per month. In addition to the fixed
salary, Mr. Anderson is to receive under the terms of this
agreement a sum equal to five percent (5%) of the net earnings,
as defined, of the Corporation for each fiscal year (provided,
however, such additional compensation for any fiscal year will
not exceed $200,000). Since the date of this agreement, there
have been no net earnings upon which to pay such additional amount.
Additionally, effective October 15, 1997, the Company granted certain
stock options to Mr. Anderson (as discussed below).
Stock Option Plan.
In October of 1997, the Board of Directors of the Company
approved a stock option plan entitled "GolfGear International,
Inc. 1997 Stock Incentive Plan" ("Plan") (attached as Exhibit
10.11 to this Form 10-SB). This Plan is intended to allow
designated officers and employees and certain non-employees of
the Company to receive stock options to purchase the Company's
common stock and to receive grants of common stock subject to
certain restrictions as more fully described in the Plan. The
Plan has reserved 2,642,625 shares of common stock, subject to
adjustments that may be issued under the Plan.
The Plan provides for the granting to employees (including
employees who are also directors and officers) of options
intended to qualify as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended
("Code"), and for the granting of nonstatutory stock options to
directors, employees and consultants. The Plan is currently
administered by the Board of Directors of the Company.
The exercise price per share of incentive stock options
granted under the Plan must be at least equal to the fair market
value of the common stock on the date of grant. With respect to
any participant who owns shares representing more than 10% of the
voting power of all classes of the Company's outstanding capital
stock, the exercise price of any incentive or nonstatutory stock
option must be equal to at least 110% of the fair market value of
the grant date, and the maximum term of the option must not
exceed five years. The terms of all other options granted under
the Plan may not exceed ten years. Upon a merger of the Company,
the options outstanding under the Plan will terminate unless
assumed or substituted by the successor corporation. To date,
724,231 options have been granted under the Plan. Mr. Anderson
was been granted 353,350 common stock options for the year ended
December 31, 1997; these options are exercisable at $0.62 and
expire on October 2002.
Annuity, Pension, and Retirements Plans.
There are no annuity, pension or retirement benefits proposed to
be paid to officers, directors, or employees of the corporation
in the event of retirement at normal retirement date pursuant to
any presently existing plan provided or contributed to by the
corporation or any of its subsidiaries.
Other Plans.
No remuneration is proposed to be paid in the future directly or
indirectly by the Company to any officer or director under any
other plan which is presently existing.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as set forth in this Item 7, there are no
relationships, transactions, or proposed transactions to which
the registrant was or is to be a party, in which any of the named
persons set forth in Item 5 had or is to have a direct or
indirect material interest.
Finder's Fee.
In July of 1998, the Board of Directors approved the payment
of $65,000 as a finders fee to Donai Anderson, the wife of Donald
A. Anderson. As of December 31, 1998 and June 30, 1999, of the $65,000
fee, $26,000 had been paid and the balance of $39,000 remains to be paid.
The Company also sold products to a company partially owned by the
wife of Mr. Anderson. During 1997, she sold her interest in this
company. Sales to this company totaled approximately $36,000 in
1996 and $50,000 in 1997.
Financial Services Agreement.
On June 7, 1997, the Company entered into a Financial
Services Agreement with Bridgewater Capital Corporation
("Bridgewater") whereby Bridgewater agreed to arrange and help
consummate a merger between the Company and a public shell
corporation and also assist the Company to analyze, negotiate and
advise on obtaining equity capital or debt financing (see Exhibit
10.7 to this Form 10-SB). Upon the successful completion of the
$500,000 financing in October 1997, the Company paid Bridgewater
a fee of $70,000 and issued 499,002 Shares of the Company's
common stock, representing 4.99% of the post-reorganization with
Harry Hurst Jr., Inc. The Financial Services Agreement required
that Bridgewater be paid a consulting fee of $72,000, payable
$6,000 monthly, have the right to appoint one person to the Board
of Directors for two years, and be paid a 10% finder's fee and 2%
unaccountable expense allowance on all capital, cash, equity or
debt infused into the Company by or through Bridgewater. This
agreement expired in October 1998. Mr. Peschong, a former
Director of the Company, is an officer and shareholder of
Bridgewater. The Company also paid $6,900 to Bridgewater as a
capital raising fee during the year ended December 31, 1998.
On January 27, 1999, the Company executed a letter of
understanding with Bridgewater whereby, among other things, the
Company agreed to issue a promissory note to Bridgewater in the
amount of $50,000 all due and payable no later than April 1, 1999
and to issue common stock warrants entitling Bridgewater to
purchase 105,705 Shares of common stock at $0.62 per Share which
expire October, 2002 (included under Exhibit 10.7 to this Form
10-SB). The agreement to issue the promissory note and warrants
arise out of ostensible obligations under the Financial Services
Agreement. The execution of the letter of understanding was in
anticipation of and contingent upon anticipated equity financing
which did not materialize. The Company has asserted a claim against
Bridgewater for certain damages that the Company has suffered,
which the Company believes were occasioned by Bridgewater's
malfeasance. Based on this, on April 8, 1999, the Company issued
a stop order relating to all of the 499,002 Shares previously
issued. The Company expects that these claims will be resolved
within the next ninety days.
Consulting Agreement.
On October 1, 1998, the Company executed a Consulting
Agreement with Sports Opportunities International, a South
Carolina corporation, owned by Parker Smith, one of the Directors
of the Company (see Exhibit 10.9 to this Form 10-SB). This
agreement requires a payment of $40,000 a year to be paid in four
equal quarterly installments which commenced on January 1, 1999.
The Consulting Agreement also granted stock options entitling the
purchase of 50,000 shares of common stock at $2.00 per share,
20,000 of which vested upon execution of this agreement; 15,000
of which vest six months of execution of this agreement, and the
remaining 15,000 which vest one year after execution of this
agreement. The Consulting Agreement also provides for a $0.25
royalty to be paid for each golf club sold through companies or
distributors introduced to the Company by Mr. Smith. The
Agreement has a term of one year, and expired without being
renewed on October 1, 1999.
License Agreement.
On August 12, 1998, the Company executed a License Agreement
with Confidence Golf, Inc., a California corporation formerly
owned by Robert J. Williams, who is a former Officer and a
Director, and currently a major stockholder of the Company (see
Exhibit 10.5 to this Form 10-SB). Confidence Golf, Inc. was
purchased by Family Golf Centers, Inc. in December 1997.
Pursuant to the License Agreement, the Company has licensed to
Confidence Golf, Inc. a non-exclusive worldwide right to utilize
the Company's patented forged insert technology in the
manufacture and sale of golf clubs. The License Agreement
provides for royalties to be paid at the rate of $2.00 per iron
and $2.50 per wood for each golf club, component made, used or
sold worldwide. The License Agreement expires upon termination
of all patents and patent applications, or in the event that
royalty payments are not timely made or there is a material
breach of this agreement.
ITEM 8. DESCRIPTION OF SECURITIES.
General Description.
(a) Common Stock.
The Articles of Incorporation authorize the issuance of
50,000,000 shares of common stock, with a par value of $0.01. As
of the date of this Form 10-SB, the Company had 12,592,194 shares
of common stock issued and outstanding. The holders of the
Shares: (a) have equal ratable rights to dividends from funds
legally available therefore, when, as, and if declared by the
Board of Directors of the Company; (b) are entitled to share
ratably in all of the assets of the Company available for
distribution upon winding up of the affairs of the Company; and
(c) are entitled to one non-cumulative vote per share on all
matters on which shareholders may vote at all meetings of
shareholders. These securities do not have any of the following
rights: (a) special voting rights; (b) preference as to dividends
or interest; (c) preemptive rights to purchase in new issues of
Shares; (d) preference upon liquidation; or (e) any other special
rights or preferences. In addition, the Shares are not
convertible into any other security. There are no restrictions
on dividends under any loan other financing arrangements or
otherwise. See a copy of the Articles of Incorporation, and
amendments thereto, and Bylaws of the Company, attached as
Exhibits to this Form 10-SB.
(b) Preferred Stock.
The Articles of Incorporation authorize the issuance of
10,000,000 shares of preferred stock, $0.01 par value. By a
Certificate of Determination filed with the Nevada Secretary of
State on October 21, 1999, the Company has designated 3,000,000
of these preferred shares to be "Series A Convertible Preferred
Stock" with certain rights to convert to common stock in the
Company (see Exhibit 4.4 to this Form 10-SB). Under the terms of
a Binding Subscription for Purchase of Equity Securities
agreement (attached as Exhibit 4.3 to this Form 10-SB), 210,526
shares of convertible preferred stock in the Company have been
issued. See "Business of the Company - International Business."
(c) Common Stock Options.
From time to time, the Company has issued options to
purchase its common stock to consultants, investment advisors,
and others. As of October 1, 1999, in addition to the 724,231
stock options granted to employees under the Stock Option Plan
and 600,000 stock options granted in August and September 1999
outside that Plan (as set forth under the footnotes to the
ownership chart - one person not a Director of the Company was
included in this grant), the Company has issued an aggregate
total of 1,359,905 options at exercise prices ranging from $0.62
to $1.50 and expiration dates in October 2002.
(d) Common Stock Warrants.
From time to time, the Company has issued warrants to
purchase its common stock to consultants, investment advisors and
other. As of October 1, 1999, the Company has issued an
aggregate total of 1,685,604 warrants at exercise prices ranging
from $0.28 to $2.00 and expiration dates ranging from October
1997 to December 2002.
(e) Stock and Warrant Purchase Agreement.
In September 1997, the Company executed a Stock and Warrant
Purchase Agreement with Berkeley Investment Group, Ltd., whereby
the Company sold 880,875 shares of its common stock and 1,057,050
warrants to acquire common stock of the Company for a total
purchase price of $0.56 per share (including the warrants) for a
total consideration of $500,000 (see Exhibit 4.1 to this Form 10-
SB) (these figures reflect the merger transaction of December
1997 and the issuance of new shares of common stock). The
warrants are exercisable at the price of $0.28 per share and
expire in October 2000. The Stock and Warrant Purchase Agreement
contains demand registration rights and imposes certain penalties
on the Company for failure to register the common stock and
common stock underlying the Warrants.
Effective February 15, 1998, the Stock and Warrant Purchase
Agreement was amended to reflect changes to registration rights
and penalties related thereto. This amendment grants piggy-back
registration rights and, commencing October 1, 1999, allows
cashless exercise of common stock warrants issued to Berkeley
Investment Group, Ltd. This amendment also provides for demand
registration in the event the Company does not obtain equity
financing in the amount of at least $1,200,000 by October 1,
1999, in which case, the Company has agreed to issue to Berkeley
common stock in the amount of 6,000 shares per month for each
thirty days that the Company fails to register Berkeley's
securities, unless said securities can be sold in reliance on
Rule 144 of the Securities Act (since more than one year has
passed since Berkeley obtained these warrants, it would now be
permitted to sell a portion of the underlying shares without
restrictions under Rule 144(d)). Additionally, the Amendment
granted Berkeley warrants to purchase an additional 105,075 (post
merger) shares of common stock at an exercise price of $0.28 per
share which expire in October, 2000.
(f) Magnum Financial Group, LLC
On June 30, 1998, the Company executed a letter of engagement with
Magnum Financial Group, LLC fo the purpose of having this firm
provide financial advisory and communication services (see Exhibit
10.8 to this Form 10-SB). Pursuant to this agreement, the
Company agreed to pay Magnum $4,000 per month and agreed to issue
Magnum warrants to purchase up to 150,000 shares of the Company's
common stock. Of these warrants, 50,000 vested on July 1, 1998
and are exercisable at $1.50 per share; 50,000 vest on January 1,
1999 and are exercisable at $2.00 per share; and the remaining
50,000 warrants vest on July 1, 1999 and are exercisable at $3.00
per share. These warrants are exercisable two years from the
date of issuance, provide for cashless exercise and also provide
for piggyback registration rights. This agreement expired on
June 30, 1999.
(g) Warrant Agreement.
In March 1998, the Company executed a Warrant Agreement with
Yeon Park whereby the Company granted warrants to purchase
217,000 shares of its common stock (see Exhibit 4.2 to this Form
10-SB). The warrants are exercisable at the price of $2.00 per
share and expire in March 2001.
Non-Cumulative Voting.
The holders of Shares of common stock of the Company do not have
cumulative voting rights, which means that the holders of more
than 50% of such outstanding Shares, voting for the election of
directors, can elect all of the directors to be elected, if they
so choose. In such event, the holders of the remaining Shares
will not be able to elect any of the Company's directors.
Dividends.
The Company does not currently intend to pay cash dividends. The
Company's proposed dividend policy is to make distributions of
its earnings, if any, to its stockholders when the Company's
Board of Directors deems such distributions appropriate. Because
the Company does not intend to make cash distributions, potential
shareholders would need to sell their shares to realize a return
on their investment. There can be no assurances of the projected
values of the shares, nor can there be any guarantees of the
success of the Company.
Any stock dividend will be made only when, in the judgment of the
Company's Board of Directors, it is in the best interest of the
Company's stockholders to do so. The Board of Directors will
review, among other things, the investment quality and
marketability of the securities considered for distribution; the
impact of a distribution of the investee's securities on its
customers, joint venture associates, management contracts, other
investors, financial institutions, and the company's internal
management, plus the tax consequences and the market effects of
an initial or broader distribution of such securities.
Possible Anti-Takeover Effects of Authorized but Unissued Stock.
The Company's authorized but unissued capital stock consists
of 37,407,806 Shares of common stock. One effect of the existence
of authorized but unissued capital stock may be to enable the
Board of Directors to render more difficult or to discourage an
attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest, or otherwise, and thereby to protect
the continuity of the Company's management. If, in the due
exercise of its fiduciary obligations, for example, the Board of
Directors were to determine that a takeover proposal was not in
the Company's best interests, such shares could be issued by the
Board of Directors without stockholder approval in one or more
private placements or other transactions that might prevent, or
render more difficult or costly, completion of the takeover
transaction by diluting the voting or other rights of the
proposed acquiror or insurgent stockholder or stockholder group,
by creating a substantial voting block in institutional or other
hands that might undertake to support the position of the
incumbent Board of Directors, by effecting an acquisition that
might complicate or preclude the takeover, or otherwise.
Transfer Agent.
The Company has engaged the services of Pacific Stock Transfer,
Inc., 5844 South Pecos Road, Suite D, Las Vegas, Nevada 89120, to
act as transfer agent and registrar for the Company.
PART II.
ITEM 1. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market Information.
The Company's Shares are traded in the Over-the-Counter Bulletin
Board (symbol GEAR) and the range of closing bid prices shown
below is as reported by this market. The quotations shown
reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ending on December 31, 1999
High Low
First Quarter 2.00 0.875
Second Quarter 1.25 0.75
Third Quarter 0.875 0.25
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended December 31, 1998
High Low
First Quarter * 6.19 2.50
Second Quarter 2.50 1.50
Third Quarter 3.00 1.25
Fourth Quarter 2.375 0.937
*The Shares only traded on three days in January 1998.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended December 31, 1997
High Low
Fourth Quarter ** 4.187 3.625
** The Shares commenced trading on the Bulletin Board on
December 11, 1997 and only traded on eight days in December 1997.
(b) Holders of Common Equity.
As of October 29, 1999, there were 177 shareholders of record of
the Company's common stock.
(c) Dividend Information.
The Company has neither declared nor paid a cash dividend to
stockholders. The Board of Directors presently intends to retain
any earnings to finance Company operations and does not expect to
authorize cash dividends in the foreseeable future. Any payment
of cash dividends in the future will depend upon the Company's
earnings, capital requirements and other factors.
ITEM 2. LEGAL PROCEEDINGS.
Other than as set forth below, the Company is not a party to any
material pending legal proceedings and, to the best of its
knowledge, no such action by or against the Company has been
threatened. On July 16, 1999, ParValu filed an action against
the Company for alleged non-delivery of product, and alleged
copyright infringement. On July 21, 1999, the Company filed a
counter action against ParValu for non-payment of invoices for
product received in the total amount of $197,750. These actions
are currently on-going. In the opinion of management the
ultimate outcome of this matter will not have a material adverse
effect of the Company's consolidated financial position, results
of operations, or cash flow.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
During the Company's two most recent fiscal years and during
fiscal year 1999, the principal independent accountant neither
resigned (or declined to stand for re-election) or was dismissed.
The independent accountant for the Company is Hollander, Lumer &
Co., 15260 Ventura Boulevard, Suite 940, Sherman Oaks, California
91403 (successor to Hollander, Gilbert & Co.).
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Other than as set forth below, the Company has not sold any
of its other shares within the past three years.
From January 1, 1999 through October 29, 1999, the Company
issued 66,667 shares to an investor for $50,000 pursuant to an
agreement to sell up to 500,000 shares to this investor (no
discounts or commission were paid in connection with this sale).
On August 31, 1999 this agreement expired with no further sales
of shares. In addition, the Company issued 210,526 shares of its
convertible preferred stock on October 29, 1999 for the sum of
$2,000,000 in connection with a Binding Subscription for Purchase
of Equity Securities agreement (see "Business of the Company -
International Business). The following fees will be paid in
connection with this later financing: (a) a finder's fee in the
amount of $200,000, (b) warrants to purchase 20,000 shares of
common stock at $1.00 per share, and (c) 1% of all royalties to
be received by the Company in connection with the Distribution
Agreement between M.C. Corporation and the Company (see Finder's
Fee and Royalty Agreement, attached to Exhibit 4.3 to this Form
10-SB).
During 1998, the Company raised gross proceeds of $1,587,500
from private placements of 1,587,500 shares of its common stock
at a price of $1.00 per share. In connection with these private
placements, the Company paid commissions and fees of $12,450,
issued 160,000 shares of common stock valued at $160,000 for
services rendered and issued warrants to purchase 217,000 shares
of common stock exerciseable at $2.00 per share through March 1,
2001, and warrants to purchase 31,050 shares of common stock
exerciseable at $1.20 per share through December 12, 2000.
During 1997, the Company raised gross proceeds of $1,037,500
from private placements of its common stock that commenced on
September 1, 1997 at a price of $.57 per share and $50,000 from
private placements that commenced on December 12, 1997 at a price
of $1.00 per share. In connection with these private placements,
the Company paid commissions and fees of $101,250, issued 499,002
shares of common stock valued at $282,000 for services rendered
and issued warrants to purchase 1,057,500 shares of common stock
exercisable at $.28 per share through October 1, 2002, and
warrants to purchase 5,000 shares of common stock exercisable at
$1.20 per share through October 1, 2002.
These offerings were undertaken pursuant to the limited offering
exemption from registration under the Securities Act of 1933 as
provided in Rule 506 under Regulation D as promulgated by the
U.S. Securities and Exchange Commission, and offers and sales
were made only to "accredited investors." These offerings met
the requirements of Rule 506 in that: (a) there are no more than
or the issuer reasonably believes that there are no more than 35
purchasers of securities from the issuer in any offering under
this section; and (b) each purchaser who is not an accredited
investor is a "sophisticated investor," that is, the investor
either alone or with his purchaser representative(s) has such
knowledge and experience in financial and business matters that
he is capable of evaluating the merits and risks of the
prospective investment, or the issuer reasonably believes
immediately prior to making any sale that such purchaser comes
within this description.
Under Rule 506, an accredited investor is not counted in the
number of investors permitted. An accredited investor includes:
(a) any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase
exceeds $1,000,000; and (b) any natural person who had an
individual income in excess of $200,000 in each of the two most
recent years or joint income with that person's spouse in excess
of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current
year.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
No director of the Company will have personal liability to the
Company or any of its stockholders for monetary damages for
breach of fiduciary duty as a director involving any act or
omission of any such director since provisions have been made in
the Articles of Incorporation limiting such liability. The
foregoing provisions shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or, which involve intentional
misconduct or a knowing violation of law, (iii) under applicable
Sections of the Nevada Revised Statutes, (iv) the payment of
dividends in violation of Nevada Revised Statutes 78.300 or, (v)
for any transaction from which the director derived an improper
personal benefit.
The By-laws provide for indemnification of the directors,
officers, and employees of the Company in most cases for any
liability suffered by them or arising out of their activities as
directors, officers, and employees of the Company if they were
not engaged in willful misfeasance or malfeasance in the
performance of his or her duties; provided that in the event of a
settlement the indemnification will apply only when the Board of
Directors approves such settlement and reimbursement as being for
the best interests of the Corporation. The Bylaws, therefore,
limit the liability of directors to the maximum extent permitted
by Nevada law (Nevada Revised Statutes 78.751).
The officers and directors of the Company are accountable to the
Company as fiduciaries, which means they are required to exercise
good faith and fairness in all dealings affecting the Company.
In the event that a shareholder believes the officers and/or
directors have violated their fiduciary duties to the Company,
the shareholder may, subject to applicable rules of civil
procedure, be able to bring a class action or derivative suit to
enforce the shareholder's rights, including rights under certain
federal and state securities laws and regulations to recover
damages from and require an accounting by management..
Shareholders who have suffered losses in connection with the
purchase or sale of their interest in the Company in connection
with such sale or purchase, including the misapplication by any
such officer or director of the proceeds from the sale of these
securities, may be able to recover such losses from the Company.
PART F/S.
Audited Consolidated Financial Statements, and Unaudited
Consolidatedd Financial Statements, for the years ended
December 31, 1998 and 1997, and Interim Unaudited Financial
Statements, for the six months ended June 30, 1999 and 1998, are
set forth in Exhibit 13 to this Form 10-SB.
PART III.
ITEMS 1 and 2. INDEX TO EXHIBITS; DESCRIPTION OF EXHIBITS.
The Exhibits required by Item 601 of Regulation S-B, and an index
thereto, are attached to this Form 10-SB.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
GOLFGEAR INTERNATIIONAL, INC.
Date: October 29, 1999. By:/s/Donald A. Anderson
Donald A. Anderson, President
Special Power of Attorney
The undersigned constitute and appoint Donald A. Anderson their
true and lawful attorney-in-fact and agent with full power of
substitution, for him and in his name, place, and stead, in any
and all capacities, to sign any and all amendments, including
post-effective amendments, to this Form 10-SB Registration
Statement, and to file the same with all exhibits thereto, and
all documents in connection therewith, with the U.S. Securities
and Exchange Commission, granting such attorney-in-fact the full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that such
attorney-in-fact may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this registration statement has been signed by the
following persons in the capacities and on the dates indicated:
Signature Title Date
/s/ Donald A. Anderson President, Chairman of the October 29, 1999
Donald A. Anderson Board
/s/ Robert N. Weingarten Secretary, Chief Financial October 29, 1999
Robert N. Weingarten Officer (principal financial
and accounting officer),
Director
/s/ Frank X. McGarvey Director October 29, 1999
Frank X. McGarvey
/s/ Parker Smith Director October 29, 1999
Parker Smith
/s/ Marc R. Tow Director October 29, 1999
Marc R. Tow
/s/ Naoya Kinoshita Director October 29, 1999
Naoya Kinoshita
EXHIBIT INDEX
Exhibit Method of
Number Description Filing
3.1 Articles of Incorporation See Below
3.2 Certificate of Amendment of Articles of
Incorporation See Below
3.3 Certificate of Amendment of Articles of
Incorporation See Below
3.4 Articles of Merger See Below
3.5 Bylaws See Below
4.1 Stock and Warrant Purchase Agreement
(Berkeley Investment Group) See Below
4.2 Warrant Agreement (Yeon Park) See Below
4.3 Binding Subscription Agreement for Purchase
of Equity Securities (M.C. Corporation) See Below
4.4 Certificate of Determination See Below
10.1 Distribution Agreement (M.C. Corporation) See Below
10.2 Distribution Agreement (GolfGear Korea, Ltd.) See Below
10.3 Acquisition Agreement (Bel Air Golf Companies)See Below
10.4 Agreement for Sale and Purchase of Assets (and
accompanying Consulting Agreement) (Douglas
Rugg) See Below
10.5 License Agreement (Confidence Golf, Inc.) See Below
10.6 License Agreement (Wilson Sporting Goods
Company) See Below
10.7 Financial Services Agreement (Bridgewater
Capital Corporation) See Below
10.8 Letter of Engagement - Advisory Services
(Magnum Financial Group) See Below
10.9 Consulting Agreement (Sports Opportunities
International) See Below
10.10 Employment Agreement (Donald A. Anderson) See Below
10.11 GolfGear International, Inc. 1997 Stock
Incentive Plan See Below
13 Combined Audited and Interim Unaudited
Financial Statements See Below
21 Subsidiaries of the Registrant See Below
24 Special Power of Attorney See Signature
Page
27 Financial Data Schedule See Below
99.1 Patents See Below
99.2 Trademarks See Below
ARTICLES OF INCORPORATION
OF
HARRY HURST, JR., INC.
Know all men by these present that the undersigned has this day
for the purpose of forming a corporation under and pursuant to
the provisions of Nevada Revised Statutes 78.010 to Nevada
Revised Statues 78.090 inclusive, as amended, states and
certifies that the articles of incorporation are as follows:
First: Name.
The name of the corporation is Harry Hurst, Jr., Inc. (the
"Corporation").
Second: Registered Agent and Address.
The address of the registered office of the Corporation in the
State of Nevada is 1600 East Desert Inn Road, Suite 206A, in the
City of Las Vegas, County of Clark. The name and address of the
Corporation's registered agent in the State of Nevada is Shawn F.
Hackman of said address, until such time as another agent is duly
authorized and appointed by the Corporation.
Third: Purpose and Business.
The purpose of the Corporation is to engage in any lawful
act or activity for which Corporations may now or hereafter be
organized under the Nevada Revised Statutes of the State of
Nevada, including, but not limited to the following:
(a) The Corporation may at any time exercise such rights,
privileges, and powers, when not inconsistent with the purposes
and object for which this Corporation is organized;
(b) The Corporation shall have power to have succession by its
corporate name in perpetuity, or until dissolved and its affairs
wound up according to law;
(c) The Corporation shall have power to sue and be sued in any court
of law or equity;
(d) The Corporation shall have power to make contracts;
(e) The Corporation shall have power to hold, purchase and convey
real and personal estate and to mortgage or lease any such real
and personal estate with its franchises. The power to hold real
and personal estate shall include the power to take the same by
devise or bequest in the State of Nevada, or in any other state,
territory or country;
(f) The Corporation shall have power to appoint such officers and
agents as the affairs of the Corporation shall requite and allow
them suitable compensation;
(g) The Corporation shall have power to make bylaws not inconsistent
with the constitution or laws of the United States, or of the
State of Nevada, for the management, regulation and government of
its affairs and property, the transfer of its stock, the
transaction of its business and the calling and holding of
meetings of stockholders;
(h) The Corporation shall have the power to wind up and dissolve
itself, or be wound up or dissolved;
(i) The Corporation shall have the power to adopt and use a common
seal or stamp, or to not use such seal or stamp and if one is
used, to alter the same. The use of a seal or stamp by the
Corporation on any corporate documents is not necessary. The
Corporation may use a seal or stamp, if it desires, but such use
or non-use shall not in any way affect the legality of the
document;
(j) The Corporation shall have the power to borrow money and contract
debts when necessary for the transaction of its business, or for
the exercise of its corporate rights, privileges or franchises,
or for any other lawful purpose of its incorporation; to issue
bonds, promissory notes, bills of exchange, debentures and other
obligations and evidence of indebtedness, payable at a specified
time or times, or payable upon the happening of a specified event
or events, whether secured by mortgage, pledge or otherwise, or
unsecured, for money borrowed, or in payment for property
purchased, or acquired, or for another lawful object;
(k) The Corporation shall have the power to guarantee, purchase,
hold, sell, assign, transfer, mortgage, pledge or otherwise
dispose of the shares of the capital stock of, or any bonds,
securities or evidence in indebtedness created by any other
corporation or corporations in the State of Nevada, or any other
state or government and, while the owner of such stock, bonds,
securities or evidence of indebtedness, to exercise all the
rights, powers and privileges of ownership, including the right
to vote, if any;
(l) The Corporation shall have the power to purchase, hold, sell
and transfer shares of its own capital stock and use therefor its
capital, capital surplus, surplus or other property or fund;
(m) The Corporation shall have to conduct business, have one or
more offices and hold, purchase, mortgage and convey real and
personal property in the State of Nevada and in any of the
several states, territories, possessions and dependencies of the
United States, the District of Columbia and in any foreign
country;
(n) The Corporation shall have the power to do all and
everything necessary and proper for the accomplishment of the
objects enumerated in its articles of incorporation, or any
amendments thereof, or necessary or incidental to the protection
and benefit of the Corporation and, in general, to carry on any
lawful business necessary or incidental to the attainment of the
purposes of the Corporation, whether or not such business is
similar in nature to the purposes set forth in the articles of
incorporation of the Corporation, or any amendment thereof;
(o) The Corporation shall have the power to make donations for
the public welfare or for charitable, scientific or educational
purposes; and
(p) The Corporation shall have the power to enter partnerships,
general or limited, or joint ventures, in connection with any
lawful activities.
Fourth: Capital Stock.
1. Classes and Number of Shares. The total number of shares of
all classes of stock, which the Corporation shall have authority
to issue is Sixty Million (60,000,000), consisting of Fifty
Million (50,000,000) shares of Common Stock, par value of $0.001
per share (the "Common Stock") and Ten Million (10,000,000)
shares of preferred stock, which have a par value of $0.001 per
share (the "Preferred Stock").
2. Powers and Rights of Common Stock.
(a) Preemptive Right. No shareholders of the Corporation
holding common stock shall have any preemptive or other right to
subscribe for any additional un-issued or treasury shares of
stock or for other securities of any class, or for rights,
warrants or options to purchase stock, or for scrip, or for
securities of any kind convertible into stock or carrying stock
purchase warrants or privileges unless so authorized by the
Corporation.
(b) Voting Rights and Powers. With respect to all matters upon
which stockholders are entitled to vote or to which stockholders
are entitled to give consent, the holders of the outstanding
shares of the Common Stock shall be entitled to cast thereon one
(1) vote in person or by proxy for each share of the Common Stock
standing in his/her name.
(c) Dividends and Distributions.
(i) Cash Dividends. Subject to the rights of holders of
Preferred Stock, holders of Common Stock shall be entitled to
receive such cash dividends as may be declared thereon by the
Board of Directors from time to time out of assets of funds of
the Corporation legally available therefor;
(ii) Other Dividends and Distributions. The Board of Directors
may issue shares of the Common Stock in the form of a
distribution or distributions pursuant to a stock dividend or
split-up of the shares of the Common Stock;
(iii) Other Rights. Except as otherwise required by the
Nevada Revised Statutes and as may otherwise be provided in these
Articles of Incorporation, each share of the Common Stock shall
have identical powers, preferences and rights, including rights
in liquidation;
3. Preferred Stock. The powers, preferences, rights,
qualifications, limitations, and restrictions pertaining to the
Preferred Stock, or any series thereof, shall be such as may be
fixed, from time to time, by the Board of Directors in its sole
discretion, authorization to do so being hereby expressly vested
in such Board.
4. Issuance of the Common Stock and Preferred Stock. The Board
of Directors of the Corporation may from time to time authorize
the issuance of any or all shares of Common Stock and the
Preferred Stock herein authorized in accordance with the terms
and conditions set forth in these Articles Of incorporation for
such purposes, in such amounts, to such persons, corporations or
entities, for such consideration and in the case of the Preferred
Stock, in one or more series, all as the Board of Directors in
its discretion may determine and without any vote or other action
by the stockholders, except as otherwise required by law. The
Board of Directors, from time to time, also may authorizes, by
resolution, options. warrants and other rights convertible into
Common or Preferred stock (collectively, "securities"). The
securities must be issued for such consideration, including cash,
property, or services, as the Board or Directors may deem
appropriate, subject to the requirement that the value of such
consideration be no less than the par value of the shares issued.
Any shares issued for which the consideration so fixed has been
paid or delivered shall be fully paid stock and the holder of
such shares shall not be liable for any further call or
assessment or any other payment thereon, provided that the actual
value of such consideration is not less that the par value of the
shares so issued. The Board Of Directors may issue shares of the
Common Stock in the form of a distribution or distributions
pursuant to a stock divided or split-up of the shares of the
Common Stock only to the then holders of the outstanding shares
of the Common Stuck.
5. Cumulative Voting. Except as otherwise required by
applicable law, there shall be no cumulative voting on any matter
brought to a vote of stockholdors of the Corporation.
Fifth: Adoption of Bylaws.
In the furtherance and not in limitation of the powers
conferred by statute and subject to Article Sixth hereof, the
Board of Directors is expressly authorized to adopt, repeal,
rescind, alter or amend in any respect the Bylaws of the
Corporation ("Bylaws").
Sixth: Shareholder Amendment of Bylaws.
Notwithstanding Article Fifth hereof, the bylaws may also be
adopted, repealed, rescinded, altered or amended in any respect
by the stockholders of the Corporation, but only by the
affirmative vote of the holders of not less than seventy-five
percent (75%) of the voting power of all outstanding shares of
voting stock, regardless of class and voting together as a single
voting class.
Seventh: Board of Directors.
The business and affairs of the Corporation shall be managed by
and under the direction of the Board of Directors. Except as may
otherwise be provided pursuant to Section 4 or Article Forth
hereof in connection with rights to elect additional Directors
under specified circumstances, which may be granted to the
holders of any class or series of Preferred Stock, the exact
number of Directors of the Corporation shall be determined from
time to time by a bylaw or amendment thereto, providing that the
number of Directors shall not be reduced to less that two (2).
The Directors holding office at the time of the filing of these
Articles of Incorporation shall continue as Directors until the
next annual meeting and/or until their successors are duly
chosen.
Eighth: Term of Board of Directors.
Except as otherwise required by applicable law, each Director
shall serve for a term ending on the date of the third Annual
Meeting of Stockholders of the Corporation (the "Annual Meeting")
following the Annual Meeting at which such Director was elected.
All Directors, shall have equal standing.
Not withstanding the foregoing provisions of this Article Eighth,
each Director shall serve until his successor is elected and
qualified or until his death, resignation or removal; no decrease
in the authorized number of Directors shall shorten the term of
any incumbent Director; and additional Directors, elected
pursuant to Section 4 or Article Forth hereof in connection with
rights to elect such additional Directors under specified
circumstances, which may be granted to the holders of any class
or series of Preferred Stock, shall not be included in any class,
but shall serve for such term or terms and pursuant to such other
provisions as are specified in the resolution of the Board or
Directors establishing such class or series
Ninth: Vacancies on Board of Directors.
Except as may otherwise be provided pursuant to Section 4 of
Article Forth hereof in connection with rights to elect
additional Directors under specified circumstances, which may be
granted to the holders of any class or series of Preferred Stock,
newly created Directorships resulting from any increase in the
number of Directors, or any vacancies on the Board of Directors
resulting from death, resignation, removal, or other causes,
shall be filled solely by the quorum of the Board of Directors.
Any Director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of Directors
in which the new Directorship was created or the vacancy occurred
and until such Director's successor shall have been elected and
qualified or until such Director's death, resignation or removal,
whichever first occurs.
Tenth: Removal of Directors.
Except as may otherwise be provided pursuant to Section 4 or
Article Fourth hereof in connection with rights to elect
additional Directors under specified circumstances, which may be
granted to the holders of any class or series of Preferred Stock,
any Director may be removed form office only for cause and only
by the affirmative vote of the holders of not less than seventy-
five percent (75%) of the voting power of all outstanding shares
of voting stock entitled to vote in connection with the election
of such Director, provided, however, that where such removal is
approved by a majority of the Directors, the affirmative vote of
a majority of the voting power of all outstanding shares of
voting stock entitled to vote in connection with the election of
such Director shall be required for approval of such removal.
Failure of an incumbent Director to be nominated to serve an
additional term of office shall not be deemed a removal from
office requiring any stockholder vote.
Eleventh: Stockholder Action.
Any action required or permitted to be taken by the stockholders
of the Corporation must be effective at a duly called Annual
Meeting or at a special meeting of stockholders of the
Corporation, unless such action requiring or permitting
stockholder approval is approved by a majority of the Directors,
in which case such action may be authorized or taken by the
written consent of the holders of outstanding shares of Voting
Stock having not less than the minimum voting power that would be
necessary to authorize or take such action at a meeting of
stockholders at which all shares entitled to vote thereon were
present and voted, provided all other requirements of applicable
law these Articles have been satisfied.
Twelfth: Special Stockholder Meeting.
Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by a majority of
the Board of Directors or by the Chairman of the Board or the
President. Special meeting may not be called by any other person
or persons. Each special meeting shall be held at such date and
time as is requested by the person or persons calling the
meeting, within the limits fixed by law.
Thirteenth: Location of Stockholder Meetings.
Meetings of stockholders of the Corporation may be held within or
without the State of Nevada, as the Bylaws may provide. The books
of the Corporation may be kept (subject to any provision of the
Nevada Revised Statutes) outside the State of Nevada at such
place or places as may be designated from time to time by the
Board of Directors or in the Bylaws.
Fourteenth: Private Property of Stockholders.
The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever and the
stockholders shall not be personally liable for the payment of
the Corporation's debts.
Fifteenth: Stockholder Appraisal Rights in Business
Combinations.
To the maximum extent permissible under the Nevada Revised
Statutes of the State of Nevada, the stockholders of the
Corporation shall be entitled to the statutory appraisal rights
provided therein, with respect to any business combination
involving the Corporation and any stockholder (or any affiliate
or associate of any stockholder), which required the affirmative
vote of the Corporation's stockholders.
Sixteenth: Other Amendments.
The Corporation reserves the right to adopt, repeal, rescind,
alter or amend in any respect any provision contained in these
Articles of Incorporation in the manner now or hereafter
prescribed by applicable law and all rights conferred on
stockholders herein granted subject to this reservation.
Seventeenth: Term of Existence.
The term of the Corporation shall be perpetual.
Eighteenth: Liability of Directors.
No Director of this Corporation shall have personal liability to
the Corporation or any of its stockholders for monetary damages
for breach of fiduciary duty as a Director involving any act or
omission of any such Director. The foregoing provision shall not
eliminate or limit the liability of a Director (i) for any breach
of the Director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or,
which involve intentional misconduct or a knowing violation of
law, (iii) under applicable Sections of the Nevada Revised
Statutes, (iv) the payment of dividends in violation of Section
78.300 of the Nevada Revised Statutes or, (v) for any transaction
from which the Director derived an improper personal benefit. Any
repeal or modification of this Article by the stockholders of the
Corporation shall be prospective only and shall not adversely
affect any limitation on the personal liability of a Director or
officer of the Corporation for acts or omissions prior to such
repeal or modification.
Nineteenth: Name and Address of first Director and
Incorporator.
The name and address of the Incorporator of the Corporation and
the first Director of the Board of Directors of the Corporation
which shall be one (1) in number is as follows:
Brian F. Faulkner, Esq.
3900 Birch Street, Suite 113
Newport Beach, California 92660
I, Brian F. Faulkner, Esq., being the Director and Incorporator
herein before named, for the purpose of forming a Corporation
pursuant to the Nevada Revised Statutes of the State of Nevada,
do make these Articles, 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 9th day of October,
1997.
/s/Brian F. Faulkner
Brian F. Faulkner
Verification
State of Nevada
SS
County of Clark
On this 9th day of October, 1997, before me, the
undersigned, a Notary Public in and for said State, personally
appeared Shawn F. Hackman, Esq. personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person who
subscribed his name to the Articles of Incorporation and
acknowledged to me that he executed the same freely and
voluntarily and for the use and purposes therein mentioned.
By: /s/
Notary Public in and for said
County and State
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF
HARRY HURST, JR., INC.
Harry Hurst, Jr. certifies that:
1. The original article were filed with the Office of the
Secretary of State on October 9,1997.
2. As of the date of this certificate, 2,000,000 shares of
stock of the corporation have been issued.
3. Pursuant to a shareholders' meeting at which in excess of 51
% voted in favor of the following amendment, the corporation
hereby adopts the following amendments to the Articles of
Incorporation of this corporation:
First: Name
The name of the corporation is GolfGear International, Inc. (the
"Corporation").
/s/ Harry Hurst, Jr.
Harry Hurst, Jr., President/Director
State of Nevada
SS
County of Clark
On December 2, 1997, personally appeared before me, a Notary
Public, Harry Hurst, Jr., who acknowledged that he executed the
above instrument.
By: /s/
Notary Public in and for said County and State
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF
GOLFGEAR INTERNATIONAL, INC.
Harry Hurst, Jr. certifies that:
1. The original article were filed with the Office of the
Secretary of State on October 9,1997.
2. As of the date of this certificate, 2,000,000 shares of
stock of the corporation have been issued.
3. Pursuant to a shareholders' meeting at which in excess of 51
% voted in favor of the following amendment, the corporation
hereby adopts the following amendments to the Articles of
Incorporation of this corporation:
First: Name
The name of the corporation is GolfGear International, Inc. (the
"Corporation").
4. On December 1, 1997, the corporation executed a reverse
2 for 1 stock split changing the issued and outstanding shares
from 2,000,000 to 1,000,000 shares.
/s/ Harry Hurst, Jr.
Harry Hurst, Jr., President/Director
/s/ Bobby Combs
Bobby Combs, Vice President/Director
State of Nevada
SS
County of Clark
On December 1, 1997, personally appeared before me, a Notary
Public, Harry Hurst, Jr. and Bobby Combs, who acknowledged that
they executed the above instrument.
By: /s/
Notary Public in and for said County and State
ARTICLE OF MERGER OF FOREIGN CORPORATION INTO
HARRY HURST, JR., INC.
Pursuant to the provisions of the State of Nevada Revised
Statutes, the undersigned domestic and foreign corporations adopt
the following articles of merger for the purpose of merging them
into one of such corporations:
First: The names of the undersigned corporations and the
states3 under the laws of which they are respectively organized
are:
Harry Hurst, Jr., Inc. -Delaware
Harry Hurst, Jr., Inc. - Nevada
Second: The laws of the state under which such foreign
corporation is organized permit such a
merger.
Third: The name of surviving corporation is Harry Hurst, Jr.,
Inc., and it is to be governed by the laws of the state of
Nevada.
Fourth: The following plan of merger was approved by the
shareholders of the undersigned domestic corporation in the
manner prescribed by the Nevada Revised Statutes, and was
approved by the undersigned foreign corporation in the manner
prescribed by the laws of the state under which it is organized.
Fifth: As to each of the undersigned corporations, the number of
shares outstanding and the designation and number of outstanding
shares of each class entitled to vote as a class on such plan,
are as follows:
Harry Hurst, Jr., Inc. -Nevada - No shares outstanding.
Harry Hurst, Jr., Inc. -Delaware - 2,100,000 common shares issued
and outstanding.
Sixth: As to each of the undersigned corporations, the total
number of shares voted for and against such plan, respectively,
and, as to each class entitled to vote thereon as a class, the
number of shares of such class voted for and against such plan,
respectively, are as follows:
Harry Hurst, Jr., Inc. -Nevada - With no shares outstanding, the
sole director and incorporator voted in favor of the merger.
There were no votes against.
Harry Hurst, Jr., Inc. -Delaware - 2,100,000 common shares voted
in favor of the merger. No votes against.
Seventh: If the surviving corporation is to be governed by the
laws of any other state, such surviving corporation hereby: (a)
agrees that it may be served with process in the state of Nevada
in any proceeding for the enforcement of any obligation of the
undersigned domestic corporation and in any proceeding for the
enforcement of the rights of a dissenting shareholder of such
domestic corporation against the surviving corporation; (b)
irrevocably appoints the Secretary of State of Nevada as its
agent to accept service of process in any such proceeding; and
(c) agrees that it will promptly pay to the dissenting
shareholders of such domestic corporation the amount, if any, to
which they shall be entitled under the provisions of the Nevada
Revised Statutes with respect to the rights of dissenting
shareholders.
Dated: 10/31/97
Harry Hurst Jr., Inc.
By: /s/ Shawn F. Hackman
Shawn F. Hackman, President/Secretary
Harry Hurst Jr., Inc.
By: /s/ Bobby Combs
Bobby Combs, Vice President/Director
Verification
State of Nevada
SS
County of Clark
On this 31st day of October, 1997, before me, the
undersigned, a Notary Public in and for said State, personally
appeared Shawn F. Hackman and Bobby Combs, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the
persons who subscribed their names to the Articles of Merger and
acknowledged to me that they executed the same freely and
voluntarily and for the use and purposes therein mentioned.
By: /s/
Notary Public in and for said County and State
BY-LAWS OF GOLFGEAR INTERNATIONAL, INC.
ARTICLE I - OFFICES
The office of the Corporation shall be located in the City and
State designated in the Articles of Incorporation. The
Corporation may also maintain offices at such other places within
or without the United States as the Board of Directors may, from
time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
Section I - Annual Meetings:
The annual meeting of the shareholders of the Corporation shall
be held within five months after the close- of the fiscal year of
the Corporation, for the purpose of electing directors, and
transacting such other business as may properly come before the
meeting.
Section 2- Special Meetings:
Special meetings of the shareholders may be called at any time by
the Board of Directors or by the President, and shall be called
by the President or the Secretary at the written request of the
holders of ten per cent (10%) of the shares then outstanding and
entitled to vote thereat, or as otherwise required under the
provisions of the Business Corporation Act.
Section 3 - Place of Meetings:
All meetings of shareholders shall be held at the principal
office of the Corporation, or at such other places as shall be
designated in the notices or waivers of notice of such meetings.
Section 4 - Notice of Meetings:
(a) Except as otherwise provided by Statute, written notice of
each meeting of shareholders, whether annual or special, stating
the time when and place where it is to be held, shall be served
either personally or by mail, not less than ten or more than
fifty days before the meeting, upon each shareholder of record
entitled to vote at such meeting, and to any other shareholder to
whom the giving of notice may be required by law. Notice of a
special meeting shall also state the purpose or purposes for
which the meeting is called, and shall indicate that it is being
issued by, or at the direction of, the person or persons calling
the meeting. If, at any meeting, action is proposed to be taken
that would, if taken, entitle shareholders to receive payment for
their shares pursuant to Statute, the notice of such meeting
shall include a statement of that purpose and to that effect. If
mailed, such notice shall be directed to each such shareholder at
his address, as it appears on the records of the shareholders of
the Corporation, unless he shall have previously filed with the
Secretary of the Corporation a written request that notices
intended for him be mailed to the address designated in such
request.
(b) Notice of any meeting need not be given to any person who
may become a shareholder of record after the mailing of such
notice and prior to the meeting, or to any shareholder who
attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver
of notice either before or after such meeting. Notice of any
adjourned meeting of shareholders need not be given, unless
otherwise required by statute.
Section 5 - Quorum:
(a) Except as otherwise provided herein, or by statute, or in
the Certificate of Incorporation (such Certificate and any
amendments thereof being hereinafter collectively referred to as
the "Certificate of Incorporation"), at all meetings of
shareholders of the Corporation, the presence at the commencement
of such meetings in person or by proxy of shareholders holding of
record a majority of the total number of shares of the
Corporation then issued and outstanding and entitled to vote,
shall be necessary and sufficient to constitute a quorum for the
transaction of any business. The withdrawal of any shareholder
after the commencement of a meeting shall have no effect on the
existence of a quorum, after a quorum has been established at
such meeting.
(b) Despite the absence of a quorum at any annual or special
meeting of shareholders, the shareholders, by a majority of the
votes cast by the holders of shares entitled to vote thereon, may
adjourn the meeting. At any such adjourned meeting at which a
quorum is present, any business may be transacted at the meeting,
as originally called if a quorum had been present.
Section 6 - Voting:
(a) Except as otherwise provided by statute or by the
Certificate of Incorporation, any corporate action, other than
the election of directors to be taken by vote of the
shareholders, shall be authorized by a majority of votes cast at
a meeting, of shareholders by the holders of shares entitled to
vote thereon.
(b) Except as otherwise provided by statute or by the
Certificate of Incorporation, at each meeting of shareholders,
each holder of record of stock of the Corporation entitled to
vote thereat, shall be entitled to one vote for each share of
stock registered. in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or
dissent without a meeting, may do so by proxy; provided, however,
that the instrument authorizing such proxy to act shall have been
executed in writing, by the shareholder himself, or by his
attorney-in-fact thereunto duly authorized in writing. No proxy
shall be valid after the expiration of eleven months from the
date of its execution, unless the persons executing it shall have
specified therein the length of time it is to continue in force.
Such instrument shall be exhibited to the Secretary at the
meeting and shall be filed with the records of the Corporation.
(d) Any resolution in writing, signed by all of the shareholders
entitled to vote thereon, shall be and constitute action by such
shareholders to the effect therein expressed, with the same force
and effect as if the same had been duly passed by unanimous vote
at a duly called meeting of shareholders and such resolution so
signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III - BOARD OF DIRECTORS
Section I - Number, Election and Term of Office:
(a) The number of the directors of the Corporation shall be f
our (4), unless and until otherwise determined by vote of a
majority of the entire Board of Directors. The number of
Directors shall not be less than three, unless all of the
outstanding shares are owned beneficially and of record by less
than three shareholders, in which event the number of directors
shall not be less than the number of shareholders permitted by
statute.
(b) Except as may otherwise be provided herein or in the
Certificate of Incorporation, the members of the Board of
Directors of the Corporation, who need not be shareholders, shall
be elected by a majority of the votes cast at a meeting of
shareholders, by the holders of shares, present in person or by
proxy, entitled to vote in the election.
(c) Each director shall hold office until the annual meeting of
the shareholders next succeeding his election, and until his
successor is elected and qualified, or until his prior death,
resignation or removal.
Section 2 - Duties and Powers:
The Board of Directors shall be responsible for the control and
management of the affairs, property and interests of the
Corporation, and may exercise all powers of the Corporation,
except as are in the Certificate of Incorporation or by statute
expressly conferred upon or reserved to the shareholders.
Section 3 - Annual and Regular Meetings; Notice:
(a) A regular annual meeting of the Board of Directors shall be
held immediately following the annual meeting of the
shareholders, at the place of such annual meeting of
shareholders.
(b) The Board of Directors, from time to time, may provide by
resolution for the holding, of other regular meetings of the
Board of Directors, and may fix the time and place thereof.
(c) Notice of any regular meeting of the Board of Directors
shall not be required to be
given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix
or chance the time or place of any regular meeting, notice of
such action shall be given to each director who shall not have
been present at the meeting at which such action was taken within
the time limited, and in the manner set forth in paragraph (b) of
Section 4 of this Article 111, with respect to special meetings,
unless such notice shall be waived in the manner set forth in
paragraph (c) of such Section 4.
Section 4 - Special Meetings; Notice:
(a) Special meetings of the Board of Directors shall be held
whenever called by the President or by one of the directors, at
such time and place as may be specified in the respective notices
or waivers of notice thereof.
(b) Except as otherwise required by statute, notice of special
meeting shall be mailed directly to each director, addressed to
him at his residence or usual place of business, at least two (2)
days before the day on which the meeting is to be held, or shall
be sent to him at such place by telegram, radio or cable, or
shall be delivered to him personally or given to him orally, not
later than the day before the day on which the meeting is to be
held. A notice, or waiver of notice, except as required by
Section 8 of this Article 111, need not specify the purpose of
the meeting.
(c) Notice of any special meeting shall not be required to be
given to any director who shall attend such meeting without
protesting prior thereto or at its commencement, the lack of
notice to him, or who submits a signed waiver of notice, whether
before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairman:
At all meetings of the Board of Directors the Chairman of the
Board, if any and if present, shall preside. If there shall be
no Chairman, or he shall be absent, then the President shall
preside, and in his absence, a Chairman chosen by the directors
shall preside.
Section 6 - Quorum and Adjournments:
(a) At all meetings of the Board of Directors, the presence of a
majority of the entire Board shall be necessary and sufficient to
constitute a quorum for the transaction of business, except as
otherwise provided by law, by the Certificate of Incorporation,
or by these By-Laws.
(b) A majority of the directors present at the time and place of
any regular or special meeting, although less than a quorum, may
adjourn the same from time to time without notice, until a quorum
shall be present.
Section 7 - Manner of Acting:
(a) At all meetings of the Board of Directors, each director
present shall have one vote, irrespective of the number of shares
of stock, if any, which he may hold.
(b) Except as otherwise provided by statute, by the Certificate
of Incorporation, or these By-Laws, the action of a majority of
the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. Any action
authorized in writing, by all of the directors entitled to vote
thereon and filed with the minutes of the corporation shall be
the act of the Board of Directors with the same force and effect
as if the same had been passed by unanimous vote at a duly called
meeting of the Board.
Section 8 - Vacancies:
Any vacancy in the Board of Directors occurring by reason of an
increase in the number of directors, or by reason of the death,
resignation, disqualification, removal (unless a vacancy created
by the removal of a director by the shareholders shall be filled
by the shareholders at the meeting at which the removal was
effected) or inability to act of any director, or otherwise,
shall be filled for the unexpired portion of the term by a
majority vote of the remaining directors, though less than a
quorum, at any regular meeting or special meeting of the Board of
Directors called for that purpose.
Section 9 - Resignation:
Any director may resign at any time by giving written notice to
the Board of Directors, the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice,
such resignation shall take effect upon receipt thereof by the
Board of Directors or such officer, and the acceptance of such
resignation shall not be necessary to make it effective.
Section 10 - Removal:
Any director may be removed with or without cause at any time by
the affirmative vote of shareholders holding of record in the
aggregate at least a majority of the outstanding shares of the
Corporation at a special meeting of the shareholders called for
that purpose, and may be removed for caused by action of the
Board.
Section 11 - Salary:
No stated salary shall be paid to directors, as such, for their
services, but by resolution of the Board of Directors a fixed sum
and expenses of attendance, if any, may be allowed for attendance
at each regular or special meeting of the Board; provided,
however, that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 12 - Contracts:
(a) No contract or other transaction between this Corporation
and any other Corporation shall be impaired, affected or
invalidated, nor shall any director be liable in any way by
reason of the fact that any one or more of the directors of this
Corporation is or are interested in, or is a director or officer,
or are directors or officers of such other Corporation, provided
that such facts are disclosed or made known to the Board of.
Directors.
(b) Any director, personally and individually, may be a party to
or may be interested in any contract or transaction of this
Corporation, and no director shall be liable in any way by reason
of such interest, provided that the fact of such interest be
disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify
such contract or transaction by the vote (not counting the vote
of any such director) of a majority of a quorum, notwithstanding
the presence of any such director at the meeting at which such
action is taken. Such director or directors may be counted in
determining the presence of a quorum at such meeting. This
Section shall not be construed to impair or invalidate or in any
way affect any contract or other transaction which would
otherwise be valid under the law (common, statutory or otherwise)
applicable thereto.
Section 13 - Committees:
The Board of Directors, by resolution adopted by a majority of
the entire Board, may from time to time designate from among its
members an executive committee and such other committees, and
alternate members thereof, as they deem desirable, each
consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in
such resolution. Each such committee shall serve at the pleasure
of the Board.
ARTICLE IV - OFFICERS
Section 1 - Number, Qualifications, Election and Term of Office:
(a) The officers of the Corporation shall consist of a
President, a Secretary, a Treasurer, and such other officers,
including a Chairman of the Board of Directors, and one or more
Vice Presidents, as the Board of Directors may from time to time
deem advisable. Any officer other than the Chairman of the Board
of Directors may be, but is not required to be, a director of the
Corporation. Any two or more offices may be held by the same
person.
(b) The officers of the Corporation shall be elected by the
Board of Directors at the regular annual meeting of the Board
following the annual meeting of shareholders.
(e) Each officer shall hold office until the annual meeting of
the Board of Directors next succeeding his election, and until
his successor shall have been elected and qualified, or until his
death, resignation or removal.
Section 2 - Resignation:
Any officer may resign at any time by giving written notice of
such resignation to the Board of Directors, or to the President
or the Secretary of the Corporation. Unless otherwise specified
in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or by such officer, and
the acceptance of such resignation shall not be necessary to make
it effective.
Section 3 - Removal:
Any officer may be removed, either with or without cause, and a
successor elected by a majority of the Board of Directors at any
time.
Section 4 - Vacancies:
A vacancy in any office by reason of death, resignation,
inability to act, disqualification, or any other cause, may at
any time be filled for the unexpired portion of the term by the
Board of Directors.
Section 5 - Duties of Officers:
Officers of the Corporation shall, unless otherwise provided by
the Board of Directors, each have such powers and duties as
generally pertain to their respective offices as well as such
powers and duties as may be set forth in these By-laws, or may
from time to time be specifically conferred or imposed by the
Board of Directors. The President shall be the chief executive
officer of the Corporation.
Section 6 - Sureties and Bonds:
In case the Board of Directors shall so require, any officer,
employee or agent of the Corporation shall execute to the
Corporation a bond in such sum, and with such surety or sureties
as the Board of Directors may direct, conditioned upon the
faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all
property, funds or securities of the Corporation which may come
into his hands.
Section 7 - Shares of Other Corporations:
Whenever the Corporation is the holder of shares of any other
Corporation, any right or power of the Corporation as such
shareholder (including the attendance, acting and voting at
shareholders' meetings and execution of waivers, consents,
proxies or other instruments) may be exercised on behalf of the
Corporation by the President, any Vice President, or such other
person as the Board of Directors may authorize.
ARTICLE V - SHARES OF STOCK
Section I - Certificate of Stock:
(a) The certificates representing shares of the Corporation
shall be in such form as shall be adopted by the Board of
Directors, and shall be numbered and registered in the order
issued. They shall bear the holder's name and the number of
shares, and shall be signed by (i) the Chairman of the Board or
the President or a Vice President, and (ii) the Secretary or
Treasurer, or any Assistant Secretary or Assistant Treasurer, and
shall bear the corporate seal.
(b) No certificate representing shares shall be issued until the
full amount of consideration therefor has been paid, except as otherwise
permitted by law.
(c) To the extent permitted by law, the Board of Directors may
authorize the issuance of certificates for fractions of a share
which shall entitle the holder to exercise voting, rights,
receive dividends and participate in liquidating distributions,
in proportion to the fractional holdings; or it may authorize the
payment in cash of the fair value of fractions of a share as of
the time when those entitled to receive such fractions are
determined; or it may authorize the issuance, subject to such
conditions as may be permitted by law, of scrip in registered or
bearer form over the signature of an officer or agent of the
Corporation, exchangeable as therein provided for full shares,
but such scrip shall not entitle the holder to any rights of a
shareholder, except as therein provided.
Section 2 - Lost or Destroyed Certificates:
The holder of any certificate representing shares of the
Corporation shall immediately notify the Corporation of any loss
or destruction of the certificate representing the same. The
Corporation may issue a new certificate in the place of any
certificate theretofore issued by it, alleged to have been lost
or destroyed. On production of such evidence of loss or
destruction as the Board of Directors in its discretion may
require, the Board of Directors may, in its discretion, require
the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as
the Board may direct, and with such surety or sureties as may be
satisfactory to the Board, to indemnify the Corporation against
any claims, loss, liability or damage it may suffer on account of
the issuance of the new certificate. A new certificate may be
issued without requiring any such evidence or bond when, in the
judgment of the Board of Directors, it is proper so to do.
Section 3 - Transfers of Shares:
(a) Transfers of shares of the Corporation shall be made on the
share records of the Corporation only by the holder of record
thereof, in person or by his duly authorized attorney, upon
surrender for cancellation of the certificate or certificates
representing such shares, with an assignment or power of transfer
endorsed thereon or delivered therewith, duly executed, with such
proof of the authenticity of the signature and of authority to
transfer and of payment of transfer taxes as the Corporation or
its agents may require.
(b) The Corporation shall be entitled to treat the holder of
record of any share or shares as the absolute owner thereof for
all purposes and, accordingly, shall not be bound to recognize
any legal, equitable or other claim to, or interest in, such
share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as
otherwise expressly provided by law.
Section 4 - Record Date:
In lieu of closing the share records of the Corporation, the
Board of Directors may fix, in advance, a date not exceeding
fifty days, nor less than ten days, as the record date for the
determination of shareholders entitled to receive notice of, or
to vote at, any meeting of shareholders, or to consent to any
proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividends, or
allotment. of any rights, or for the purpose of any other action.
If no record date is fixed, the record date for the determination
of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if no notice is
given, the day on which the meeting is held; the record date for
determining shareholders for any other purpose shall be at the
close of business on the day on which the resolution of the
directors relating thereto is adopted. When a determination of
shareholders of record entitled to notice of or to vote at any
meeting of shareholders has been made as provided for herein,
such determination shall apply to any adjournment thereof, unless
the directors fix a new record date for the adjourned meeting.
ARTICLE VI - DIVIDENDS
Subject to applicable law, dividends may be declared and paid out
of any funds available therefor, as often, in such amounts, and
at such time or times as the Board of Directors may determine.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors from time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be
approved from time to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
Section 1 - By Shareholders:
All by-laws of the Corporation shall be subject to alteration or
repeal, and new by-laws may be made, by the affirmative vote of
shareholders holding of record in the aggregate at least a
majority of the outstanding shares entitled to vote in the
election of directors at any annual or special meeting of
shareholders, provided that the notice or waiver of notice of
such meeting shall have summarized or set forth in full therein,
the proposed amendment.
Section 2 - By Directors:
The Board of Directors shall have power to make, adopt, alter,
amend and repeal, from time to time, by-laws of the Corporation;
provided, however, that the shareholders entitled to vote with
respect thereto as in this Article IX above-provided may alter,
amend or repeal by-laws made by the Board of Directors, except
that the Board of Directors shall have no power to change the
quorum for meetings of shareholders or of the Board of Directors,
or to change any provisions of the by-laws with respect to the
removal of directors or the filling of vacancies in the Board
resulting from the removal by the shareholders. If any by-law
regulating an impending election of directors is adopted, amended
or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of shareholders for the
election of directors, the by-law so adopted, amended or
repealed, together with a concise statement of the changes made.
ARTICLE X - INDEMNITY
(a) Any person made a party to any action, suit or proceeding,
by reason of the fact that he, his testator or intestate
representative is or was a director, officer or employee of the
Corporation, or of any Corporation in which he served as such at
the request of the Corporation, shall be indemnified by the
Corporation against the reasonable expenses, including attorney's
fees, actually and necessarily incurred by him in connection with
the defense of such action, suit or proceedings, or in connection
with any appeal therein that such officer, director or employee
is liable for negligence or misconduct in the performance of his
duties.
(b) The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which any officer or director or
employee may be entitled apart from the provisions of this
section.
(c) The amount of indemnity to which any officer or any director
may be entitled shall be fixed by the Board of Directors, except
that in any case where there is no disinterested majority of the
Board available, the amount shall be fixed by arbitration
pursuant to then existing rules of the American Arbitration
Association.
The undersigned Incorporator certifies that he has adopted the
foregoing bylaws as the first by-laws of the Corporation.
Dated: 10/26/96
Incorporator: /s/ Nancy A. Gaches
Nancy A. Gaches
STOCK AND WARRANT PURCHASE AGREEMENT
This Stock and Warrant Purchase Agreement, dated as of September
15, 1997, is by and between Berkeley Investment Group, Ltd.
("PURCHASER") and GolfGear International, Inc., a Nevada
corporation ("SELLER").
WITNESSETH
WHEREAS, SELLER desires to sell 250,000 shares (the "Shares") of
the "restricted" common stock of SELLER to PURCHASER on the terms
and conditions set forth in this Stock and Warrant Purchase
Agreement (hereinafter called "Agreement");
WHEREAS, SELLER desires to sell 300,000 warrants to acquire
common stock of SELLER to PURCHASER on the terms and conditions
set forth in this Agreement (the "Warrants"); and
WHEREAS, PURCHASER desires to buy the Shares and the Warrants on
the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the promises and respective
mutual agreements herein contained, it is agreed by and between
the parties hereto as follows:
ARTICLE 1
SALE AND PURCHASE OF THE SHARES AND WARRANTS
1.1 Sale of the Shares. Upon the execution of this Agreement as
provided in Section 3.1 hereto (the "Closing"), subject to the
terms and conditions herein set forth, and on the basis of the
representations, warranties and agreements herein contained,
SELLER shall sell to PURCHASER, and PURCHASER shall purchase from
SELLER, the Shares.
1.2 Issuance of the Warrants, In. addition, at the Closing,
subject to the terms and conditions herein set forth, and on the
basis of the representations, warranties and agreements herein
contained, SELLER shall sell to PURCI-IASER, and PURCHASER shall
purchase from SELLER, the Warrants, each entitling its holder to
acquire one (1) share of common stock of SELLER at a price of
$1.00 per share, expiring three years from the date of this
Agreement. The Warrants shall be issued pursuant to the terms of
that certain Warrant Agreement between SELLER and PURCHASER of
even date herewith, a copy of which is attached as Exhibit A
hereto. The terms and conditions of the Warrant Agreement are
incorporated herein by reference.
1.3 Instruments of Conveyance and Transfer. Within 30 days from
the Closing, SELLER shall deliver or cause to be delivered a
certificate or certificates representing 250,000 Shares to
PURCHASER, in form and substance satisfactory to PURCHASER, as
shall be effective to vest in PURCHASER all right, title and
interest in and to all, of the Shares, as set forth in Section 3
herein. In addition, SELLER shall deliver 300,000 warrants as
described herein.
1.4 Consideration and Payment for the Shares and Warrants. In
consideration for the Shares and the Warrants, PURCHASER shall
pay the purchase price equal to $2.00 per share (including said
Warrants), for the total purchase price of $500,000 ("Purchase
Price"). The Purchase Price shall be forwarded by PUCHASER in
immediately available funds to the client trust account of
counsel for SELLER as escrow agent on the Closing Date.
1.5 Additional Terms and Conditions. SELLER and PURCHASER
hereby agree to the following additional terms and conditions:
(a) The SELLER shall, within 90 days of the date the common
stock of SELLER commences trading on the Nasdaq over-the-counter
market, the Nasdaq "pink sheets", the. Nasdaq Small Cap market
or any other nationally recognized market for the trading of the
common stock of Seller (collectively, a "Trading Market"), file a
registration statement with the United States Securities and
Exchange Commission (the "SEC") to cause the Shares, as well as
the shares of common stock issuable upon exercise of the Warrants
(the "Warrants Shares"), to be registered under the Securities
Act of 1933, as amended (the "Act"), all to the extent requisite
to permit the sale or other disposition by the PURCHASER of the
Shares and/or the Warrant Shares so registered; provided,
however, that the SELLER may, as a condition precedent to such
registration, require PURCHASER to agree with the SELLER and the
managing underwriter or underwriters of the offering to be made
by the SELLER in connection with such registration that such
PURCHASER will not sell any securities of the same class or
convertible Into the same class as those registered by the SELLER
(including any class into which the securities registered by the
SELLER are convertible) for such reasonable period after such
registration becomes effective (not exceeding 90 days) as shall
then be specified in writing by such underwriter or underwriters
if in the opinion of such underwriter or underwriters the
SELLER's offering would be Materially adversely affected in the
absence of such an agreement. All expenses incurred by SELLER
in complying with this Section, including without limitation all
registration and filing fees, listing fees, printing expenses,
fees and disbursements of all independent accountants, or counsel
for the SELLER and the expense of any special audits incident to
or required by any such registration and the expenses of
complying with the securities or blue sky laws of any
jurisdiction shall be paid by the SELLER. Notwithstanding the
foregoing, PURCHASER shall pay all underwriting discounts or
commissions with respect to shares sold by the PURCHASER. In the
event that SELLER does not file the Registration Statement within
90 days of the common stock commencing trading on a Trading
Market, SELLER shall pay to PURCHASER a penalty in the amount of
five percent (5%) of the Purchase Price, payable either in cash
or in corrunon stock (at $2.00 per share) of the SELLER, at the
SELLER's discretion, for each 30 days that SELLER fails to comply
herewith, said penalty to be due and payable at the end of each
30 days in which SELLER has not complied. The parties hereto
shall have the right to agree to extend the 90 day period without
the payment of the foregoing penalty for 30 days upon mutual
written consent.
(b) In connection with any registration of securities pursuant
to this Section, SELLER and PURCHASER covenant and agree as
follows:
(i) SELLER shall use its best efforts to cause the Registration
Statement to be declared effective at the earliest possible time,
and shall furnish PURCHASER such number of prospectuses as
PURCHASER shall reasonably request. SELLER shall cause the
Registration Statement to remain effective, and shall file all
post-effective amendments necessary, to cause the Registration
Statement to remain effective for a period of nine months
following the effective date of such registration.
(ii) SELLER shall pay all costs, fees and expenses incurred by
SELLER in connection with the Registration Statement and the
offering thereunder including, without limitation, SELLER's legal
and accounting fees, printing expenses and blue sky fees and
expenses (but excluding discounts or selling commissions of any
underwriter or broker-dealer acting on behalf of PURCHASER).
(iii) SELLER shall use its best efforts to take all necessary
action which may be reasonably required in qualifying or
registering the securities included in the Registration Statement
for offering and sale under the securities or blue sky laws of
states reasonably requested by PURCHASER, provided that SELLER
shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(iv) SELLER shall indemnify PURCHASER and each person, if any,
who controls PURCHASER within the meaning of Section 15 of the
Act or Section 20(a) of the Securities and Exchange Act of 1934,
as amended (the "Exchange Act"), against all loss, claims,
damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any
claim whatsoever) to which any of them may become subject under
the Act, the Exchange Act or otherwise, arising from the
Registration Statement, in accordance with the terms and
conditions set forth herein.
(v) PURCHASER shall indemnify SELLER, its officers and directors
and each person, if any, who controls SELLER within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act,
against all loss, claim, damage, expense or liability (including
all expenses reasonably incurred in investigation, preparing or
defending against a claim) to which they may become subject under
the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of PURCHASER for specific inclusion in
the Registration Statement, in accordance with the terms and
conditions set forth herein,
(vi) SELLER shall, as soon as practicable after the effective
date of the Registration Statement, and in any event within
fifteen (15) months thereafter, make "generally available to its
security holders" (within the meaning of Rule 158 under the Act)
an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least twelve
(12) consecutive months beginning after the effective date of the
Registration Statement.
(vii) SELLER shall cause all securities of PURCHASER
registered pursuant to a Registration Statement to be listed on
any national securities exchange or quoted on any automated
quotation system on which similar securities of the Company then
listed or quoted.
(c) If, within 180 days of the date of this Agreement, the
SELLER's common stockis not trading in a Trading Market, then
SELLER shall pay to PURCHASER a penalty in the amount of five
percent (5%) of the Purchase Price for each 30 days that SELLER
fails to comply herewith, payable either in cash or in common
stock (at $2.00 per share) of the SELLER, at the SELLER's
discretion, said penalty to be due and payable at the end of each
30days in which SELLER has not complied. The parties hereto
shall have the right to agree to extend the 180 day period
without the payment of the foregoing penalty for 30 days upon
mutual written consent.
ARTICLE 2
REPRESENTATIONS AND COVENANTS OF SELLER AND PURCHASER
2.1 The SELLER hereby represents and warrants that:
(a) The Shares and Warrants have been duly authorized by the
appropriate corporate action of SELLER.
(b) It shall transfer title, in and to the Shares and the
Warrants, to the PURCHASER free and clear of all liens, security
interests, pledges, encumbrances, charges, restrictions, demands
and claims, of any kind and nature whatsoever, whether direct or
indirect or contingent, except as set forth in Paragraph 2.2
herein.
2.2 On the Closing Date as defined herein itt Section 3.1, the
SELLER shall deliver to the PURCHASER certificates representing
the Shares and the Warrants subject to no liens, security
interests, pledges, encumbrances, charges, restrictions, demands
or claims in any other party whatsoever, except as set forth in
the legend on the certificate(s), which legend shall provide as
follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF FOR A PERIOD OF ONE YEAR FROM THE ISSUANCE THEREOF
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND ANY APPLICABLE STATE LAWS OR (ii) UPON THE EXPRESS
WRITTEN AGREEMENT OF THE COMPANY AND COMPLIANCE, TO THE EXTENT
APPLICABLE, WITH RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE
UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES).
2.3. The PURCHASER hereby represents and warrants that:
(a) PURCHASER acknowledges that the Shares and, the Warrants
will be "restricted securities" (as such term is defined in Rule
144 promulgated under the Securities Act of 1933, as amended
("Rule 144")), that the Shares and the Warrants will include the
foregoing restrictive legend, and, except as otherwise set forth
in this Agreement, that the Shares and the Warrants cannot be
sold for a period of one year from the date of issuance unless
registered with the SEC and qualified by appropriate state
securities regulators, or unless PURCHASER obtains written
consent from the SELLER and otherwise complies with an exemption
from. such registration and qualification (including, without
limitation, compliance with Rule 144).
(b) The PURCHASER has the full right, power and authority to
enter into this Agreement and to carry out and consummate the
transaction contemplated herein. This Agreement constitutes the
legal, valid and binding obligation of PURCHASER.
(c) The PURCHASER acknowledges that investment in the Shares and
Warrants involves substantial. risks and is suitable only for
persons of adequate financial means who can bear the economic
risk of an investment in the Shares and Warrants for an
indefinite period of time. PURCHASER further represents that
PURCHASER:
(i) It has adequate means of providing for its current needs and
possible personal contingencies, has no need for liquidity in its
investment in the Shares and Warrants, is able to bear the
substantial economic risks of an investment in the Shares and
Warrants for an indefinite period, and, at the present time, can
afford a complete loss of its investment;
(ii) It is an "Accredited Investor" as that term is defined in
Section 501(a) of Regulation, D promulgated under the Securities
Act of 1933, as amended (the "Act"), in that (i) PURCHASER is a
natural person whose individual net worth, or joint net worth
with PURCHASER's spouse, exceeds $l,000,000 and either he or she
is able to bear the economic risk of investment in the proposed
investments or the proposed investments will not exceed 10% of
his or her net worth or joint net worth with PURCHASER's spouse,
and/or (ii) PURCHASER is a natural person who had individual
income in excess of $200,000 in each of the two most recent
years, or joint income with such investor's spouse in excess of
$300,000 in each of those years and reasonably expects to reach
the same income level in the current year, and either PURCHASER
is able to bear the economic risk of investment in the proposed
investments or the proposed investments will not exceed 10% of
his or her net worth or joint net worth with PURCHASER's spouse;
(iii) Does not have an overall commitment to investments
which are not readily marketable that is disproportionate to its
net worth, and that its investment in the Shares and Warrants
will not cause such overall commitment to become excessive;
(iv) Is acquiring the Shares and Warrants for its own account,
for investment purposes only and not with a view toward resale,
assignment or distribution thereof, and no other person has a
direct or indirect, beneficial interest, in whole or in part, in
such Shares and Warrants;
(v) Has such knowledge and experience in financial, tax and
business matters that its is capable of evaluating the merits and
risks of an investment in the Shares and Warrants;
(vi) Has been given the opportunity to ask questions of and to
receive answers from persons acting on the SELLERS' behalf
concerning the terms and conditions of this transaction and also
has been given the opportunity to obtain any additional
information which the SELLER's possesses or can acquire without
unreasonable effort or expense. As a result, PURCHASER is
cognizant of the financial condition, capitalization, use of
proceeds from this financing and the operations and financial
condition of SELLER, has available full information concerning
their affairs and has been able to evaluate the merits and risks
of the investment in the Shares and Warrants; and
(vii) The funds provided for the PURCHASER's purchase are
either separate property, community property over which the
signatory(ies) hereto has or have the right of control or are
otherwise funds as to which the undersigned has the sole right of
management.
ARTICLE 3
CLOSING AND DELIVERY OF DOCUMIENTS
3.1 Closing. The Closing shall be deemed to have occurred upon
the date of signing of this Agreement. Subsequent to the
signing, the following shall occur as a single integrated
transaction:
3.2 Delivery by SELLER. SELLER shall deliver to the PURCHASER
the stock certificates, Warrants, and any and all other
instruments of conveyance and transfer required by Section l,4).
3.3 Delivery by PURCHASER
(a) The PURCHASER shall deliver the Purchase Price as required
in Section 1,4.
(b) The PURCHASER shall deliver, or cause to be delivered, to
SELLER suchinstruments, documents and certificates as required to be
delivered by the PURCHASER or its representatives pursuant to the
provisions of this Agreement.
ARTICLE 4
TERMINATION, WAIVER AND AMENDMENT
4.1 Termination. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement may be terminated and
the transactions contemplated hereby may be abandoned at any time
prior to delivery of the Purchase Price solely by the mutual
consent of all of the parties with no further obligation or cost
to either party.
4.2 Waiver and Amendment. Any term, provision, covenant,
representation, warranty or condition of this Agreement may be
waived, but only by a written instrument signed by the party
entitled to the benefits thereof. The failure or delay of any
party at any time or times to require performance of any
provision hereof or to exercise its rights with respect to any
provision hereof shall in no manner operate as a waiver of or
affect such party's right at a later time to enforce the same.
No waiver by any party of any condition, or of the breach of any
term, provision, covenant, representation or warranty contained
in this Agreement, in any one or more instances, shall be deemed
to be or construed as a further or continuing waiver of any such
condition or breach or waiver of any other condition or of the
breach of any other term, provision, covenant, representation or
warranty. No modification or amendment of this Agreement shall
be valid and binding unless it be in writing and signed by all
parties hereto.
ARTICLE 5
MISCELLANEOUS
5.l Board of Directors. As a material term of this Agreement,
SELLER agrees that PURCHASER will be offered one (1) seat for its
representative on SELLER's Board of Directors, subject to the
terms and conditions set forth in the Bylaws of SELLER, and that
SELLER will cause such representative to be elected to the Board
of Directors of SELLER for a period of two (2) years.
5.2 Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to
the transactions contemplated hereby, and supersedes all prior
agreements arrangements and understandings related to the subject
matter hereof No understanding, promise, inducement, statement of
intention, representation, warranty, covenant or condition,
written or oral, express or implied, whether by statute or
otherwise, has been made by any party hereto which is not
embodied in this Agreement or the written statements,
certificates, or other documents delivered pursuant hereto or in
connection with the transactions contemplated hereby, and no
party hereto shall be bound by or liable for any alleged
understanding, promise, inducement, statement, representation,
warranty, covenant or condition not so set forth.
5.3 Notices. All notices provided for in this Agreement shall
be in writing signed by the party giving such notice, and
delivered personally or sent by overnight courier or messenger or
sent by registered or certified mail (air mail if overseas),
return receipt requested, or by telex, facsimile transmission,
telegram or similar means of communication. Notices shall be
deemed to have been received on the date of personal delivery,
telex, facsimile transmission, telegram or similar means of
communication, or if sent by overnight courier or messenger,
shall be deemed to have been received on. the next delivery day
after deposit with the courier or messenger, or if sent by
certified or registered mail, return. receipt requested, shall be
deemed to have been received on the third business day after the
date of mailing. Notices shall bc sent to the addresses set
forth below:
If to SELLER:
GolfGear International, Inc.
5481-A Commercial Drive
Huntington Beach, CA 92649
Attention: Don Anderson
Facsimile (714) 899-4284
With a copy to
Lam, Offices of William B. Barnett, Esq,
Transworld Bank Plaza
15233 Ventura Blvd, Suite 1110
Sherman Oaks, CA 91403
Facsimile No.: (818) 789-2680
And a copy to
The Law Offices of M. Richard Cutler, Esq.
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Attn: M. Richard Cutler, Esq.
Facsimile (714) 719-1988
If to PURCHASER:
Berkeley Investment Group, Ltd.
AV. Libertador
Piso 3 OFC 3-7
Caracas, Venezuela
Attention: Carlos Mijares
5.4 Choice of Law. This Agreement and the rights of the parties
hereunder shall be governed by and construed in accordance with
the laws of the State of California including all matters of
construction, validity, performance, and enforcement and without
giving effect to the principles of conflict of laws.
5.5 Jurisdiction. The parties submit to the jurisdiction of the
Courts of the State of California or a Federal Courts located in
the State of California for the resolution of all legal disputes
arising under the terms of this Agreemen4 including, but not
limited to, enforcement of any arbitration award.
5.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all
of which shall together constitute one and the same instrument.
5.7 Attorneys' Fees. In the event of any litigation arising
between the parties, the prevailing party shall be reimbursed by
the nonprevailing party for all reasonable expenses incurred in
resolving such dispute, including reasonable attorneys' fees,
exclusive of such amount of attorneys' fees as shall be a premium
for result or for risk of loss under a contingency fee
arrangement.
5.8 Tax. Any income taxes required to be paid in connection with
the payments due hereunder, shall be borne by the party required
to make such payment. Any withholding taxes in the nature of a
tax on income shall be deducted from payments due, and the party
required to withhold such tax shall furnish to the party
receiving such payment all documentation necessary to prove the
proper amount to withhold of such taxes and to prove payment to
the tax authority of such required withholding.
IN WITNESS WHERFOF, the parties hereto have executed this
Agreement, as of the day first written hereinabove.
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald A. Anderson
Donald A. Anderson, President
BERKELEY INVESTMENT GROUP, LTD.
By: /s/ Carlos Mijares
Carlos Mijares, President
EXHIBIT A
WARRANT AGREEMIENT
This Warrant Agreement, dated as of September 15, 1997, is by and
between Berkeley Investment Group, Ltd. ("Warrantholder") and
GolfGear International, Inc., a Nevada corporation ("Company").
WHEREAS, the Company proposes to issue to Warrantholder 300,000
warrants (the "Warrants"), each such Warrant entitling the holder
thereof to purchase one share of Common Stock, par value $.001
per share, of the Company (the "Shares" or the "Common Stock") at
$1.00 exercise price per share.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Warrant Certificates. The warrant certificates to
be delivered pursuant to this Agreement (the "Warrant
Certificates") shall be in the form set forth in Exhibit A,
attached hereto and made a part hereof. The warrant certificates
shall be executed on behalf of the Company by its Chief Executive
Officer, President or any Vice President under its corporate seal
reproduced thereon and attested by its corporate secretary or one
of its assistant secretaries. Warrant Certificates may be
exchanged at the Warrantholder's option, when surrendered to the
Company for another Warrant Certificate or other Warrant
Certificates of like tenor and representing in the aggregate a
like number of Warrants.
SECTION 2. Right to Exercise Warrants. Each Warrant maybe
exercised from the date of this Agreement until 11:59 P.M . (Los
Angeles time) on the date that is three years after the date of
this Agreement (the "Expiration Date"). Each Warrant not
exercised on or before the Expiration Date shall expire. Subject
to the provisions of this Warrant Agreement, including Section 10
hereof, the holder of each Warrant shall have the right to
purchase from the Company, and the Company shall issue and sell
to each such Warrantholder, at an initial price of $1.00 per
Share, subject to adjustment as provided herein (the "Exercise
Price"), one fully paid and nonassessable Share upon surrender to
the Company of the Warrant Certificate evidencing such Warrant
with the form of election to purchase duly completed and signed
and evidence of payment of the Exercise Price.
Upon surrender of such Warrant Certificate and payment of the
Exercise Price, the Company shall cause to be issued and
delivered promptly to the Warrantholder a Certificate for the
Shares issuable upon the exercise of the Warrant or Warrants
evidenced by such Warrant Certificate. The Warrants evidenced by
a Warrant Certificate shall be exercisable at the election of the
Warrantholder thereof, either as an entirety or from time to time
for less than all of the number of Warrants specified in the
Warrant Certificate.
SECTION 3. Right to Call Exercise of Warrants. In the event
that the closing bid price of the Company's common stock on a
nationally-recognized and reported stock market equals or exceeds
$4.00 per share for 20 consecutive trading days, the Company
shall have the right to notify Warrantholder of the Company's
requirement that Warrantholder exercise the Warrants. Company
shall provide notice to Warrantholder of such event as set forth
herein and Warrantholder shall have 20 trading days from the
effectiveness of such notice to exercise the Warrants as set
forth in Section 2 herein. In the event Warrantholder fails to
exercise the Warrants during such period, the Company shall have
the right to redeem any and all Warrants which remain outstanding
at the redemption price of $.05 per Warrant.
SECTION 4. Reservation of Shares. The Company will at all
times reserve and keep available, free from preemptive rights,
out of the aggregate of its authorized but unissued Shares or its
authorized and issued Shares held in its treasury for the purpose
of enabling it to satisfy any obligation to issue Shares upon
exercise of Warrants, the full number of Shares deliverable upon
the exercise of all outstanding Warrants. The Company covenants
that all Shares which may be issued upon exercise of Warrants
will be validly issued, fully paid and nonassessable outstanding
Shares of the Company.
SECTION 5. Registration under the Securities Act of 1933.
Purchaser represents and warrants to the Company that Purchaser
is acquiring the Warrants for investment and with no present
intention of distributing or reselling any of the Warrants. The
Shares and the certificate or certificates evidencing any such
Shares shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF FOR A PERIOD OF ONE YEAR FROM THE ISSUANCE THEREOF
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND ANY APPLICABLE STATE LAWS OR (ii) UPON THE EXPRESS
WRITTEN AGREEMENT OF THE COMPANY AND COMPLIANCE, TO THE EXTENT
APPLICABLE, WITH RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE
UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES).
Certificates for Shares without such legend shall be issued if
such shares are sold pursuant to an effective registration
statement under the Act or if the Company has received an opinion
from counsel reasonably satisfactory to counsel for the Company,
that such legend is no longer required under the Act.
Certificates for Warrants or Shares sba.11 also bear such legends
as may be required from time to time by law.
SECTION 6. Registration Rights. The Common Stock issuable
upon exercise of the Warrants shall have such registration rights
as set forth in that certain Stock and Warrant Purchase Agreement
between the Company and Purchaser of even date herewith.
SECTION 7. Rule 144. If the Company shall be subject to the
reporting requirements of Section 13 of the 1934 Act, the Company
will use its best efforts to timely file all reports required to
be filed from time to time with the U.S. Securities and Exchange
Commission (including but not limited to the reports under
Section 13 and 15(d) of the 1934 Act referred to in subparagraph
(c)(1) of Rule 144 adopted by the Commission under the Act). If
there is a public market for any Shares of the Company at any
time that the Company is not subject to the reporting
requirements of either of said Section 13 or 15(d), the Company
will, upon the request of any holder of any Shares or Warrants,
use its best efforts to make publicly available the information
concerning the Company referred to in subparagraph (c)(2) of said
Rule 144. The Company will furnish to each holder of any shares
or Warrants, promptly upon request, (i) a written statement of
the Company's compliance with the requirements of subparagraphs
(c)(1) or (c)(2), as the case may be, of said Rule 144, and (ii)
written information concerning the Company sufficient to enable
such holder to complete any Form 144 required to be filed with
the Commission pursuant to said Rule 144.
SECTION 8. Adjustment of Exercise Price and Number of Shares
and Class of Capital Stock Purchasable. The Exercise Price and
the number of Shares and classes of capital stock of the Company
purchasable upon the exercise of each Warrant are subject to
adjustment from time to time as set forth in this Section 8.
(a) Adjustment for Changes to Capital Stock. If the Company:
(1) pays a dividend or makes a distribution on its Common Stock,
in each case, in shares of its Common Stock, (2) subdivides its
outstanding shares of Common Stock into a greater number of
shares; (3) combines its outstanding shares of Common Stock into
a smaller number of shares; (4) makes a distribution on its
Common Stock in shares of its capital stock other than Common
Stock; or (5) issues by reclassification of its shares of Common
Stock any shares of its capital stock; then the number and
classes of shares purchasable upon exercise of each Warrant in
effect immediately prior to such action shall be adjusted so that
the holder of any Warrant thereafter exercised may receive the
number and classes of shares of capital stock of the Company
which such holder would have owned immediately following such
action if such holder had exercised the Warrant immediately prior
to such action.
(b) Adjustment for Other Distributions. If the Company
distributes to all holders of shares of its Common Stock any of
its assets or debt securities or any rights or warrants to the
purchase assets, debt securities or other securities of the
Company, the Company shall, at the option of each Warrantholder,
either:
(1) distribute to each Warrantholder, on the date of
distribution, to the shareholders, the amount of such assets or
debt securities or the number of such rights or warrants, pro
rata, determined in accordance the following formula.,
X' = X x W
O + W
where
X' = the amount of assets or debt securities or the number of
rights or warrants to be distributed to such Warrantholder, as
the case may be.
X = the total amount of assets or debt securities or the total
number of rights or warrants to be distributed, as the case may
be.
W = the number of shares of Common Stock purchasable upon
exercise of the Warrant held by such Warrantholder outstanding on
the record date set forth below. or
(2) adjust the Exercise Price in accordance with the
following formula:
C' = C x (O x M) - F
O x M
where
C' = the adjusted Exercise Price.
C = the Exercise Price on the record date set forth below.
O = the number of shares of Common Stock outstanding on the
record date set forth below.
M = the Current Market Price per share of Common Stock on the
date set forth below.
F = the fair market value on the record date of the distribution
of the assets, securities, rights or warrants. The Board of
Directors of the Company shall in good faith determine such fair
market value.
(c) Consolidation, Merger or Sale of the Company. If the
Company is a party to a consolidation, merger or transfer of
assets which reclassifies or changes its outstanding Common
Stock, the successor corporation (or corporation controlling the
successor corporation or the Company, as the case may be) shall
by operation of law assume the Company's obligations under this
Warrant Agreement. Upon consummation of such transaction the
Warrants shall automatically become exercisable for the kind and
amount of securities, cash or other assets which the holder of a
Warrant would have owned immediately after the consolidation,
merger or transfer if the holder had exercised the Warrant
immediately before the effective date of such transaction. As a
condition to the consummation of such transaction, the Company
shall arrange for the person or entity obligated to issue
securities or deliver cash or other assets upon exercise of the
Warrant to, concurrently with the consummation of such
transaction, assume the Company's obligations hereunder by
executing an instrument so providing and further providing for
adjustments which shall be as nearly equivalent as may be
practical to the adjustments provided for in this Section.
SECTION 9. Notices. Any notice or demand authorized by this
Agreement to be given or made by any registered holder of any
Warrant Certificate to or on the Company shall be sufficiently
given or made if sent by registered mail, postage prepaid,
addressed (until another address is filed in writing by the
Company with the holders) to the Company as follows:
GolfGear International, Inc.
5481A Commercial Drive
Huntington Beach, CA 92649
Attention: Don Anderson
Facsimile No.: (714) 899-4284
Copy to:
Law Offices of William B. Barnett, Esq.
Transworld Bank Plaza
15233 Ventura Blvd., Suite 1110
Sherman Oaks, CA 91403
Facsimile No.: (818) 789-2680
Berkeley Investment Group, Ltd.
AV. Libertador
Piso 3 OFC 3-7
Caracas, Venezuela
Attention: Carlos Mijares
Any notice pursuant to this Agreement to be given by the Company
to Purchaser shall be sufficiently given if sent by registered
mail, postage prepaid, addressed (until another address is filed
in writing by Purchaser with the Company) to Purchaser as
follows:
SECTION 10. Supplements and Amendments. The Company and
Purchaser may from time, to time supplement or amend this
Agreement without the approval of any Warrantholders (other than
Purchaser) in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective
or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder
which the Company and Purchaser may deem necessary or desirable
and which the Company and Purchaser deem shall not adversely
affect the interests of the Warrantliolders.
SECTION 11. Successors, All the covenants and provisions of
this Agreement by or for the benefit of the Company or Purchaser
shall bind and inure to the benefit of their respective
successors and assigns hereunder.
SECTION 12. Governing Law. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of California and for all
proposes shall be governed by and construed in accordance with
the laws of said State.
SECTION 13. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall
for all proposes be deemed to be an original, and such
counterparts shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, as of the date and year first above written.
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald A. Anderson
Donald A. Anderson, President
BERKELEY INVESTMENT GROUP, LTD.
By: /s/ Carlos Mijares
Carlos Mijares, President
SCHEDULE A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK (OR OTHER SECURITIES) ISSUABLE UPON EXERCISE THEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993. THE
WARRANTS, SHARES OR OTHER SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF
COUNSEL THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
EXERCISABLE FROM 12:00 P.M. LOS ANGELES TIME,
ON SEPTEMBER 15, 1997 UNTIL
11:59 P.M., LOS ANGELES TIME ON SEPTEMBER 15, 2000
300,000 Warrants
WARRANT CERTIFICATE
GOLFGEAR INTERNATIONAL, INC.
This Warrant Certificate certifies that Berkeley Investment
Group, Ltd. ('Purchaser") or registered assigns, is the
registered holder of 300,000 Warrants (the "Warrants") expiring
September 15, 2000, (the "Expiration Date"), to purchase Common
Stock, par value $.001 per share (the "Common Stock') of GolfGear
International, Inc., a Nevada corporation (the "Company"). Each
Warrant entities the holder to purchase from the Company before
11:59 p.m. (Los Angeles time) on the "Expiration Date" one fully
paid and nonassessable share of the Common Stock of the Company
at the initial exercise price for each Warrant, subject to
adjustment in certain events (the "Exercise Price"), of $1.00
upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but only
subject to the terms and conditions set forth herein and in the
Warrant Agreement. As used herein, "Share" or "Shares" refers to
the Common Stock of the Company and, where appropriate, to the
other securities or property issuable upon exercise of a Warrant
as provided for in the Warrant Agreement upon the happening of
certain events. The Exercise,, Price and the number of Shares
and classes of capital stock purchasable upon exercise of the
Warrants are subject to adjustment upon the occurrence of certain
events set forth in the Warrant Agreement. In the event that
upon any exercise of Warrants evidenced hereby, the number of
Warrants exercised shall be less than the total number of
Warrants evidenced hereby, there shall be issued to the holder
hereof or his or her assignee a new Warrant Certificate
evidencing the number of Warrants not exercised, No adjustment
shall be made for any cash dividends on any Shares issuable upon
exercise of this Warrant.
No Warrant may be exercised after 11:59 P.M. (Los Angeles Time)
on the Expiration Date- All Warrants evidenced hereby shall
thereafter be void.
The Company may deem and treat the person(s) registered in the
Company's register as the absolute owner(s) of this Warrant
Certificate (notwithstanding any notation of ownership or other
writing hereon made by anyone), for the purpose of any exercise
hereof, and of any distribution to the bolder(s) hereof, and for
all purposes, and the Company shall not be affected by any notice
to the contrary,
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meaning assigned to them in
the Warrant Agreement.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF FOR A PERIOD OF ONE YEAR FROM THE ISSUANCE THEREOF
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND ANY APPLICABLE STATE LAWS OR (ii) UPON THE EXPRESS
WRITTEN AGREEMENT OF THE COMPANY AND COMPLIANCE, TO THE EXTENT
APPLICABLE, WITH RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE
UNDER THE ACT RFLATRNG TO THE DISPOSITION OF SECURITIES.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: September 15, 1997
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald A. Anderson
Donald A. Anderson, President
SCHEDULE B
[FORM OF ELECTION TO PURCHASE]
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right
represented by this Shares and herewith delivers in payment for
such all in accordance with the terms hereof. The undersigned
requests that certificates for such Shares be registered in the
name of whose address is and that such certificates be delivered
to _______________________________________, whose address is
____________________________________________. If said number of
Shares is less than all of the Shares purchasable hereunder, the
undersigned requests that a new Warrant Certificate representing
the remaining balance of the Shares be registered in the name of
_________________________________, whose address is
___________________________and that such Certificates be
delivered to ________________________________________, whose
address is ____________________________________________.
Dated:
Signature:
(Signature must conform in all respects to name of holder as
specified on a the face of the Warrant Certificate)
AMENDMENT TOSTOCK AND WARRANT PURCHASE AGREEMENT
AND WARRANT AGREEMENT
This Amendment to the Stock and Warrant Purchase Agreement and
Warrant Agreement is made effective this 15th day of February,
1998, by and between Berkeley Investment Group, Ltd.
("PURCHASER") and GolfGear International, Inc. ("SELLER"), a
Nevada corporation, based on the following recitals, conditions
and covenants:
WHEREAS, on or about September 15, 1998 PURCHASER AND SELLER
executed a document entitled "Stock and Warrant Purchase
Agreement";
WHEREAS, on or about September 15, 1997, SELLER executed a
document entitled "Warrant Agreement" in favor of PURCHASER
entitling PURCHASER to purchase up to three hundred thousand
(300,000) shares of common stock of SELLER at one dollar ($ 1.00)
per share;
WHEREAS, PURCHASER desires to amend the Stock and Warrant
Purchase Agreement and the Warrant Agreement;
WHEREAS, SELLER desires to amend the Stock and Warrant Purchase
Agreement and the Warrant Agreement;
WHEREAS, it is the intention of the parties to delete any demand
registration lights and penalties associated with the Stock and
Warrant Purchase Agreement and the Warrant Agreement; and
WIIEREAS, it is the intention of the parties to grant to
PURCHASER piggyback registration rights with respect to the Stock
and Warrant Purchase Agreement and the Warrant Agreement.
NOW, THEREFORE, in consideration of the promises and valuable
consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Amendment to Stock and Warrant Purchase Agreement.
Article 1, Paragraph 1.5 entitled "Additional Terms and
Conditions", including all subparagraphs, shall be deleted in its
entirely relating to demand registration rights and penalties
relating thereto. In place of Article 1, Paragraph 1.5, the
following shall be inserted:
(a) Registration Rights. If, any time after the issuance of the
Shares or Warrant Shares, the Company shall determine to register
any of its securities either for its own account or the account
of the PURCHASER, except for a registration relating solely to
employee benefit plans, a registration relating solely to a Rule
145 transaction, registration statement S-8, a registration oil
any registration form that would not permit secondary sales of
any Common Stock issued hereunder or acquired through the
exercise of the Warrant (the "Registrable Shares") or a
registration filed more than five years after the date of the
Shares or Warrant Shares, the Company will, in such instance: (i)
promptly give to PURCHASER written notice thereof; (ii) use its
best efforts to include in such registration (and any related
qualification under blue sky laws or other compliance), except as
set forth in l(b) below, and in any underwriting involved
therein, all the Registrable Shares specified in a written
request or requests made by PURCHASER within fifteen (15) days
after the written notice from the Company described in clause (i)
above is given to PURCHASER. Such written request may specify
all or a part of PURCHASER's Registrable Shares.
(b) Underwritten Offering. If the registration of which the
Company gives notice is for a registered public offering
involving an underwriting, the Company shall so advise PURCHASER
as a part of the written notice given pursuant to Section
1.5(a)(i). In such event, the right of PURCHASER to registration
pursuant to this Section 1.5(a) shall be conditioned upon
PURCHASER's participation in such underwriting and the inclusion
of PUCHASER's Registrable Shares in the underwriting to the
extent provided herein. If PURCHASER proposes to distribute its
securities through the underwriting, it shall (together with the
Company and any other persons proposing to distribute its
securities through the underwriting) enter into all underwriting
agreement in customary form with the representative of the
underwriter(s) selected by the Company. Notwithstanding any
other provision of this Section 1.5(a), if the representative of
the underwriter(s) advises the Company in writing that marketing
factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the limitations
set forth below) limit the number of Registrable Shares to be
included in the registration and underwriting. The Company shall
so advise PURCHASER if PURCHASER requests to participate in the
registration and the number of shares that may be included in the
registration and underwriting shall be allocated: First, to the
Company for securities being sold for its own account; second,
among Registrable Shares held by PURCHASER who has requested
inclusion in the registration in proportion, as nearly as
practicable, to the respective amounts of Registrable Shares held
by PURCHASER and property requested to be included at the time of
filing the registration statement; and then to shares being sold
for the accounts of other persons. Any Registrable Shares so
excluded from the underwriting by reason of the representative's
limitation shall be withdrawn from such registration. To
facilitate the allocation of shares in accordance with the above
provisions, the Company or the representative of the
underwriter(s) may round the number of shares allocated to
PURCHASER or other shareholder to tile nearest 100 shares. If
PURCHASER has requested inclusion in the registration does not
agree to the terms of the underwriting, PURCHASER's shares may be
excluded from the underwriting by written notice from the Company
or the representative of the underwriter(s) and the shares so
excluded shall be withdrawn from the registration. If shares are
so excluded from the underwriting because of a failure to agree
to its terms and the number of shares of Registrable Shares to be
included in the underwriting was previously reduced as a result
of marketing factors pursuant to this Section 1.5(b), then, with
the permission of the representative of the underwriter(s), the
Company shall offer to PURCHASER to include Registrable Shares in
the underwriting, the right to include additional Registrable
Shares in ail aggregate amount equal to the number of shares so
excluded. The registration of such additional Registrable Shares
shall be allocated to PURCHASER pro rata in accordance with the
numbers of its Registrable Shares which are otherwise to be
included in the registration.
(c) Registration Expenses. The Company will pay the costs and
expenses incident to the performance of its obligations under
this Paragraph 1.5(a), including the fees and expenses of its
counsel, the fees and expenses of its accountants, and all other
costs and expenses incident to the preparation, printing and
filing under the Securities Act of 1933, as amended, of any such
Registration Statement, each prospectus and all amendments and
supplements thereof, the costs incurred in connection with the
qualification of the securities under the laws of various
jurisdictions (including fees and disbursements of counsel to the
Company), the cost of' furnishing to PURCHASER copies of any such
Registration Statement, each preliminary prospectus, the final
prospectus and each amendment and supplement thererto, all
expenses incident to delivery of the security to any
underwriter(s), but not any underwriting commissions or discounts
or non-accountable expense allowances charged to PURCHASER.
(d) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it
under this Section 1.5(a) prior to the registration's
effectiveness, whether or not PURCHASER has elected under this
Section 1.5(a) to include shares in the registration.
2. Net Issue Exercise
Notwithstanding any provisions in this Warrant to the contrary,
in lieu of exercising this Warrant for cash, the Holder shall
have the right, upon its written request delivered or transmitted
to the Company together with this Warrant, to exchange, this
Warrant, in whole or in part at any time or from time to time on
or prior to the Expiration Date, for a number of shares of Common
Stock having an aggregate fair market value on the date of such
exchange equal to the difference between (i) the aggregate fair
market value on the date of such exchange of the number of
Warrant Shares designated by the Holder to be canceled and (ii)
the aggregate Exercise Price the Holder would have paid to the
Company to purchase such designated number of Warrant Shares,
and, if a balance of purchasable Warrant Shares remains after
such exchange, the Company shall execute and deliver to the
Holder a new Warrant evidencing the right of the Holder to
purchase such balance of Warrant Shares. No payment of any cash
or other consideration shall be required. Such exchange shall be
effective upon the date of receipt by the Company of the original
Warrant surrendered for cancellation and a written request from
the Holder that the exchange pursuant to this subsection be made,
or at such later date as may be specified in such request.
3. Amendment to Warrant Agreement and Warrant Certificate.
The Warrant Agreement and Warrant Certificate shall entitle
PURCHASER to an additional 330,000 warrants.
All other terms, conditions, and obligations of the Stock and
Warrant Purchase Agreement, Warrant Agreement and Warrant
Certificate shall remain the same.
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald A. Anderson
Donald A. Anderson, President
BERKELEY INVESTMENT GROUP, LTD.
By: /s/ Carlos Mijares
Carlos Mijares, President
WARRANT AGREEMENT TO PURCHASE COMMON STOCK OF
GOLFGEAR INTERNATIONAL, INC.
(Expiring March 1, 2001)
This Agreement, dated as of March 2, 1998, is between GolfGear
International, Inc., a Nevada corporation (the "Company"), and
Yeon Park (the "Warrantholder").
The Company hereby grants a Warrant to purchase up to 217,000
shares of its Common Stock, $0.001 par value, at any time after
March 2, 1998, (hereinafter called the "Commencement Date"), at
the purchase price of $2.00 per share (hereinafter called the
"Purchase Price"), subject to adjustment as to the number of
shares of Common Stock, and to exercise the other appurtenant
rights, powers and privileges, all on the terms and conditions
hereinafter provided.
Section 1. Certain Definitions.
For all purposes of this Warrant, unless the context otherwise
requires:
"Commission" shall mean the Securities and Exchange Commission,
or any other Federal agency then administering the Securities
Act.
"Common Stock" shall mean and include the Company's authorized
Common Stock as the same existed on March 2, 1998.
"Company" shall mean GolfGear International, Inc. and any other
corporation assuming the obligations under the Warrant.
"Warrantholder" shall mean the person(s) to whom this Warrant or
the Warrant Stock is originally issued or is transferred in
accordance with Section 4.
"Securities Act" shall mean the Securities Act of 1933, 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.
"Transfer", as used in Section 4, shall include any disposition
of this Warrant or the Warrant Stock, or of any interest in
either thereof, which would constitute a sale thereof within the
meaning of the Securities Act.
"Warrant" shall mean this Warrant evidencing the rights to
purchase 217,000 shares of Common Stock.
"Warrant Stock" and/or "Shares" shall mean the shares of Common
Stock purchaseable or purchased by the holder of this Warrant
upon the exercise thereof pursuant to Section 2.
Section 2. Exercise and Redemption of Warrant.
Unless the Warrants have been redeemed as provided in this
Section 2, the holder of this Warrant may, at any time after the
Commencement Date and not later than 5 P.M. Los Angeles time, on
the Expiration Date, exercise this Warrant in whole or in part
(but not as to a fractional share of Common Stock) at any time
for the purchase of the 217,000 shares of Common Stock at the
Purchase Price specified in the first sentence of this Warrant.
In order to exercise this Warrant, the holder hereof shall
deliver to the Company (i) a written notice of such holder's
election to exercise this Warrant, which notice shall be in
substantially the form of the Purchase Form appearing at the end
of the Warrant Certificate attached to this Warrant as Exhibit A,
and (ii) shall make payment of the aggregate purchase price of
the shares of Common Stock being purchased, such payment to be
made by the delivery to the Company of a certified check or
checks payable to the Company in an amount equal to such Purchase
Price. The Company shall, as promptly as practicable, and in any
event within 30 days thereafter, execute and deliver or cause to
be executed and delivered, in accordance with said notice, a
certificate or certificates representing the aggregate number of
shares of Common Stock as relate to the Warrant Stock so
purchased upon the exercise of this Warrant. The stock
certificate or certificates so delivered shall be in the
denomination of 1,000 shares of each or such greater denomination
as may be specified in said notice and shall be registered in the
name of such holder or in such other name as shall be designated
in such notice. Such certificate of certificates shall be deemed
to have been issued and such holder or any other person so
designated to be named therein shall be deemed for all purposes
to have become a holder of record of such shares as of the date
said notice is received by the Company as aforesaid. The Company
shall pay all expenses, taxes and other charges payable in
connection with the preparation, issuance and delivery of stock
certificates under this Section.
All Shares of Common Stock issued upon the exercise of this
Warrant shall be validly issued, fully paid and nonassessable.
The Company shall not be required upon any exercise of this
Warrant to issue a certificate representing any fraction of a
share of Common Stock, but, in lieu thereof, shall pay to the
holder of this Warrant cash in an amount equal to a fraction
corresponding to the fraction of a share involved (calculated to
the nearest 1/100 of a share) of the current market price of one
share of Common Stock as of the date of receipt by the Company of
notice of exercise of this Warrant.
The Warrants outstanding at the time of a redemption may be
redeemed at the option of the Company, on 30 days' prior written
notice, in whole or in part, at any time commencing two years
from the Commencement Date or on such earlier date as the closing
bid price of the Common Stock as quoted in the over-the-counter
market or on NASDAQ or any other Stock Exchange, equals or
exceeds 200% of the Purchase Price of the shares for five
consecutive trading days, at a price equal to $0.50 per Warrant
(the "Redemption Price"); provided, however, that the Company
shall have no right to redeem the outstanding Warrants unless
there is on file with the Securities and Exchange Commission a
current registration statement with respect to the Warrants that
enables the holders thereof to exercise the Warrants during the
redemptino notice period specified in subsection D, below. Such
redemption right shall alson be subject to the additional
requirement that the Company expend reasonable efforts to qualify
the exercise of the Warrants in the State of California. On the
redemption date of the holder of record of redeemed Warrants
shall be entitled to payment of the Redemption Price upon
surrender of such redeemed Warrants to the Company at its
principal office.
Notice of redemption of Warrants shall be given at least 30 days
prior to the redemption date by mailing a copy of such notice to
all of the holders of record of Warrants at their respective
addresses appearing on the books or transfer records of the
Company.
From and after the redemption date, all rights of the
Warrantholders (except the right to receive the Redemption Price)
shall terminate, but only if (i) no later than one day prior to
the redemption date the Company shall have irrevocably deposited
in a special account a sufficient amount to pay on the redemption
date the Redemption Price for all Warrants called for redemption,
and (ii) the notice of redemptions shall have stated the
intention of the Company to deposit such amount in a special
account no later than one day prior to the redemption date.
The Company shall pay to the holders of record of redeemed
Warrants all monies received by the Company for the redemption of
Warrants to which the holders of record of such redeemed Warrants
who shall have surrendered their Warrants are entitled.
Any amounts deposited in the special account that are not
required for redemption of Warrants may be withdrawn by the
Company after six months after the redemption date. The Company
shall be entitled to the interest, if any, on funds deposited in
the special account and the holders of redeemed Warrants shall
have no right to any such interest.
Section 3. Transfer, Division and Combination.
This Warrant and all rights hereunder are transferable. Any such
permitted transfer shall be entered on the books of the Company
to be maintained for such purpose, upon surrender of this Warrant
at the principal office of the Company, together with a written
assignment of this Warrant duly executed by the holder hereof or
his agent or attorney and funds sufficient to pay any stock
transfer taxes payable upon the making of such transfer. Upon
such surrender and payment the Company shall execute and deliver
a new Warrant or Warrants, dated as of the date of issuance
thereof, in the name of the assignee or assignees and in the
denominations specified in such instrument of assignment, and
this Warrant shall promptly be cancelled.
The Company shall pay all expenses, taxes (other than stock
transfer taxes) and other charges payable in connection with the
preparation, issue and delivery of Warrants under this section.
The Company agrees to maintain at its principal office books for
the registration and transfer of the Warrants.
Section 4. Compliance with Securities Act; Registration
Thereunder.
A. No Transfer in Violation of Securities Act. The holder of
the Warrant agrees not to transfer the related Warrant Stock in
any manner which would result in a violation of the registration
provisions of the Securities Act, and the Company shall not be
required to take any action hereunder which would result in a
violation of such provisions.
Representations and Covenants of the Holder. The Holder
represents and warrants to the Company that the Warrant and the
Warrant Stock will be acquired by the Holder for its own account
for investment and not with a view to the distribution thereof,
except that this sentence shall not be deemed to prohibit or
restrict transactions not in violation of this Agreement. As a
condition to transfer of the Warrant or exercise of it the Holder
will be required to acknowledge that this Warrant and the Warrant
Stock are being issued by the Company without registration under
the Securities Act of 1933, as amended (the "Securities Act"),
and may not be offered or sold unless registered or exempt from
registration under the Securities Act. The Holder will be
required to covenant and agree that no Warrants or Warrant Stock
will be offered or sold by or for the account of the Holder
except (i) pursuant to an exemption from registration under the
Securities Act (which exemption is confirmed in a written opinion
of the Holder's counsel addressed to the Company and satisfactory
in form and substance to the Company's counsel) or (ii) pursuant
to an effective registration statement under the Securities Act.
Each certificate representing shares shall bear a legend making
appropriate reference to the foregoing restrictions.
Unless and until removed as provided below, each Warrant
Certificate and the certificates evidencing Warrant Stock shall
bear a legend in substantially the following form:
"The Securities have not been registered under the Securities Act
of 1933, as amended, and may not be sold, pledged or otherwise
transferred unless (A) covered by an effective registration
statement under the Securities Act of 1933, as amended, (B) in
compliance with Rule 144 under such Act, or (C) the Company has
been furnished with an opinion of counsel reasonably acceptable
to the Company to the effect that no registration is required by
such transfer."
The Company shall issue a new certificate which does not contain
such legend if (i) the shares represented by such certificate are
sold pursuant to a registration statement (including a current
Prospectus) which has become and is effective under the
Securities Act, or (ii) the staff of the Securities and Exchange
Commission (or any other Federal agency at the time administering
the Securities Act) (the "Commission") shall have issued a "no
action" letter, reasonably satisfactory to counsel for the
Company, to the effect that such shares may be freely sold and
thereafter traded publicly without registration under the
Securities Act, or (iii) counsel acceptable to the Company shall
have rendered an opinion satisfactory to the Company to the
effect that such shares may be freely sold and thereafter traded
publicly without registration under the Securities Act.
Section 5. Adjustments.
The number of shares of Warrant Stock shall be subject to
adjustment from time to time as follows:
A. Adjustment of Exercise Price in the Event of Stock
Dividends, Stock Splits and Reverse Stock Splits. Anything in
this Section to the contrary notwithstanding, in case the Company
shall at any time issue Common Stock or Convertible Securities by
way of dividend or other distribution on any stock of the Company
of effect a stock split or reverse stock split of the outstanding
shares of Common Stock, the Exercise Price shall be
proportionately decreased in the case of such stock split or
increased in the case of such reversed stock split (on the date
that such stock split or reverse stock split shall become
effective), by multiplying the Exercise Price in effect
immediately prior to the stock dividend, stock split or reverse
stock split by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately prior to such
stock dividend, stock split or reverse stock split, and the
denominator of which is the number of shares of Common Stock
outstanding immediately after such stock dividend, stock split or
reverse stock split.
B. No Adjustment for Small Amounts. Anything in this
Section to the contrary notwithstanding, the Company shall not be
required to give effect to any adjustment in the Exercise Price
unless and until the net effect of one or more adjustments,
determined as above provided, shall have required a change of the
Exercise Price by at least $.05, but when the cumulative net
effect of more than one adjustment so determined shall be to
change the actual Exercise Price by at least %.05, such change in
the Exercise Price shall thereupon be given effect.
C. Number of shares Adjusted. Upon any adjustment of the
Exercise Price, the Holder shall thereafter (until another such
adjustment) be entitled to purchase, at the new Exercise Price,
the number of shares, calculated to the nearest full share,
obtained by multiplying the number of shares of Warrant Stock
initially issuable upon exercise of any of the Warrants by the
Exercise Price in effect on the date hereof and dividing the
product so obtained by the new Exercise Price.
D. Statement on Warrants. Irrespective of any adjustments in
the Exercise Price or the number of kind of shares purchasable
upon the exercise of the Warrants, the Warrant Certificates
theretofore or thereafter issued may continue to express the same
price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
Section 6. Officer's Certificate.
Whenever the Exercise Price shall be adjusted as required by the
provision of Section 5 hereof, the Company shall forthwith file
in the custody of its Secretary or an Assistant Secretary at its
principal office, an officer's certificate showing the adjusted
Exercise Price determined as herein provided and setting forth in
reasonable detail the facts requiring such adjustment. Each such
officer's certificate shall be made available at all reasonable
times for inspection by the Holders and the Company shall,
forthwith after each such adjustment, deliver a copy of such
certificate to each of the Holders. Such certificate shall be
conclusive as to the correctness of such adjustment.
Section 7. Notices to Warrantholders.
So long as any Warrant shall be outstanding and unexercised (a)
if the Company shall pay any dividend or make any distribution
upon the Common Stock or (b) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any
shares of stock of any class or any other rights or (c) if any
capital reorganization of the Company, reclassification of the
capital stock of the Company, consolidation or merger of the
Company with or into another corporation, sale, lease or transfer
of all or substantially all of the property and assets of the
Company to another corporation, or voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be
effected, then, in any such case, the Company shall cause to be
delivered to the Holders, at lease 30 days prior to the date
specified in (i) or (ii) below, as the case may be, a notice
containing a brief description of the proposed action and stating
the date on which (i) a record is to be taken for the purpose of
such dividend, distribution or rights, or (ii) such
reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to
take place and the date, if any as of which the holders of Common
Stock for securities or other property deliverable upon
reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
Section 8. Closing of Transfer Books.
The Company will not at any time (except on dissolution,
liquidation or winding up of the Company) close its transfer
books against the transfer of any shares of Common Stock issued
or issuable upon exercise of the Warrant in any manner which
interferes with the timely exercise of the Warrant.
Section 9. Transfer of Warrant; Warrant Ledger.
Subject to the provisions of this Agreement, the Warrant and all
rights hereunder are transferable, in whole or in part (but not
as to a fractional share of Common Stock), by written assignment
with appropriate notice to the Company of any such transfer.
The Company shall at all times maintain a ledger indicating the
ownership of the Warrant and the number of shares of Common Stock
as to which the Warrant has been exercised and the date of such
exercise (the "Warrant Ledger"). Upon any transfer of any
interest in the Warrant by the Holder or by a transferee of the
Holder as provided in this Section 9, the Company shall (i) note
such transfer on the Warrant Ledger, (ii) issue and deliver a new
Warrant Certificate (substantially in the form of Exhibit A with
the blanks appropriately completed) evidencing such transferee's
interest in the Warrant and (iii) if the Warrant Certificate
surrendered in connection with such transfer evidenced the right
to acquire a greater number of shares of Common Stock than the
interest which was transferred, issue a new Warrant Certificate
(substantially in the form of Exhibit A with the blanks
appropriately completed) evidencing the right to acquire share of
Common Stock which was not transferred.
Section 10. Payment of Taxes.
The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of the shares of Warrant
Stock upon the exercise of Warrants; provided, however, that the
Company shall not be required to pay any tax or taxes which may
be payable in respect of any transfer involved in the issue or
delivery of the Warrant Certificates of the certificates for the
shares of Warrant Stock in a name other than that of the
registered Warrantholder in respect of which such Warrants or
shares of Warrant Stock are issued.
Section 11. Mutilated or Missing Warrant Certificates.
In case any Warrant Certificate shall be mutilated, lost, stolen
or destroyed, the Company shall, at the request of the holder of
such certificate, issue and deliver, in exchange and substitution
for and upon cancellation of the mutilated certificate or
certificates lost, stolen or destroyed, a new Warrant Certificate
or Certificates of like tenor and representing an equivalent
right or interest; but only upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction of such Warrant
Certificate or Certificates, and indemnity, if requested, also
satisfactory (as to form and amount) to the Company. An
application for such a substitute Warrant Certificate or
Certificates shall also comply with such other reasonable
regulation and pay such other reasonable charges as the Company
may prescribe.
Section 12. Reservation of Shares of Warrant Stock.
There has been reserved, and the Company shall at all times keep
reserved so long as any of the Warrants remain outstanding, out
of its authorized Common Stock a number of shares of Common Stock
sufficient to provide for the exercise of the rights of purchase
represented by the outstanding Warrants. The transfer agent for
the Common Stock and every subsequent transfer agent for any
shares of the Company'' capital stock issuable upon the exercise
of any of the rights of purchase aforesaid will be irrevocably
authorized and directed at all times to reserve such number of
authorized as shall be requisite for such purpose. The Company
will keep a copy of this Agreement on file with the transfer
agent for any shares of the Company's capital stock issuable upon
the exercise of the rights of purchase represented by the
Warrants. The Company will supply such transfer agent with duly
executed stock certificates for such purpose and will provide or
otherwise make available any cash which may be payable as
provided in Section 13 hereof. All Warrant Certificates
surrendered in exercise of the rights thereby evidenced shall be
cancelled by the Company.
Section 13. Fractional Shares.
No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of the Warrants. With respect
to any fraction of a share called for upon the exercise of any
Warrant, the Company shall pay to the Warrantholder an amount in
cash equal to such fraction multiplied by the current market
value of such fractional share, determined as follows:
If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange, the
current value shall be the last reported sale price of the Common
Stock on such exchange on the last business day prior to the date
of exercise of the Warrant or if no such sale is made on such
day, the average closing bid and asked prices for such day on
such exchange; or
If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current value shall be the mean of the
last reported bid and asked prices reported by the National
Association of Securities Dealers Quotation System ("NASDAQ"),
(or, if not so quoted by NASDAQ, by the National Quotation
Bureau, Inc.) on the last business day prior to the date of the
exercise of the Warrant; or
If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported,
the current value shall be an amount, not less than the book
value, determined in such reasonable manner as may be prescribed
by the board of directors of the Company, such determination to
be final and binding on the Warrantholder.
Section 14. Applicable Law.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State
of California and for all purposes shall be construed in
accordance with the laws of said state.
Section 15. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Holder any
legal or equitable right, remedy or claim under this Agreement
and this Agreement shall be for the sole and exclusive benefit of
such persons, the Company and Holder.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first
above-written.
GOLFGEAR INTERNATIONAL, INC.
ATTEST:
/s/ Robert N. Weingarten By: /s/ Donald A. Anderson
Robert N. Weingarten, Donald A. Anderson,
Secretary President
/s/ Yeon Park
Yeon Park
Warrantholder
GOLFGEAR INTERNATIONAL, INC.
BINDING SUBSCRIPTION FOR PURCHASE
OF EQUITY SECURITIES
September 1, 1999
The undersigned subscriber ("Purchaser") hereby agrees to
purchase the following securities of GolfGear International, Inc.
(the "Company"), a Nevada corporation, on the terms and
conditions stated herein.
1. SECURITY: Series A Senior Convertible Preferred Stock, par
value $.001 (the "Preferred Stock"); stated value $9.50 per
share.
2. INVESTMENT: $2,000,000 cash to purchase 210,526 shares of
Preferred Stock, which represent the equivalent of 2,105,260
shares of common stock, currently equal to 14.3% of Company.
3. REGULATORY COMPLIANCE: Preferred Stock to be sold to qualified
investor (the "Purchaser") in a transaction exempt from the
registration requirements of the United States Securities and
Exchange Commission; transaction will comply with any applicable
state regulatory requirements; subject to preparation of
appropriate legal documentation by the Company.
4. VOTING RIGHTS: One vote per share; votes on an "as if
converted" basis.
5. CONVERSION RATE: One share of Preferred Stock shall be
convertible into ten shares of common stock. The common stock to
be issued shall be considered "restricted securities" pursuant to
Rule 144 as that term is defined under the Securities Act of
1933, as amended.
6. REGISTRATION RIGHTS: The common stock into which the
Preferred Stock is convertible shall have unlimited piggyback
rights.
7. CONVERSION PERIOD: The Preferred Stock is convertible, in
whole or in part, at any time after issuance, into common stock
for a period of two years from the date of issuance, and
automatically converts into common stock on the second
anniversary of the date of issuance.
8. SENIORITY: No new shares of Preferred Stock senior or equal
to the Preferred Stock may be issued for so long as any of the
Preferred Stock is outstanding.
9. DIVIDEND: 6% annual dividend, payable quarterly, in cash or
additional shares of Preferred Stock, at the option of the
Company.
10. RIGHT TO REQUIRE CONVERSION: Should the Company's common
stock be listed on the NASDAQ SmallCap Market or the American
Stock Exchange, or trade at or above $4.00 per share for twenty
consecutive trading days, then the Company shall have the right
to require conversion of the Preferred Stock into common stock.
11. RESET PROVISION: For the one year period after the
issuance of the Preferred Stock, should the Company issue any
securities at an effective price per common share of less than
$.95, then the Company will adjust the conversion rate of the
Preferred Stock into common stock to reflect the reduction in the
effective price per common share.
12. USE OF PROCEEDS: To fund operations, fund preparation and
filing of Form 10-SB Registration Statement with the United
States Securities and Exchange Commission, purchase inventory,
support sales, marketing and tour relations programs, pay
accounts payable, bank line of credit and notes payable.
13. SALE RESTRICTIONS: The Company and Purchaser will determine
appropriate sale restrictions on the underlying common stock
commencing when such stock can be sold in open market
transactions.
14. BOARD OF DIRECTORS: Purchaser shall have the right to elect
one member of the board of directors for so long as the Preferred
Stock is outstanding, and for a period of two years subsequent to
conversion of the Preferred Stock into common stock.
15. VOTING RIGHTS AGREEMENT: The Company and Purchaser will
determine an appropriate voting rights agreement with respect to
the Preferred Stock and the common stock into which the Preferred
Stock is convertible.
16. DEADLINE FOR FUNDING: The $2,000,000 shall be paid to the
Company by October 31, 1999, or such other time period as the
parties may agree to.
17. ANTI-DILUTION PROVISION: For the five year period after
issuance of the Preferred Stock, if the Company should sell any
shares of common stock or other securities convertible into
common stock in any private or public transaction, then the
Purchaser of the Preferred Stock shall have the right to purchase
a sufficient number of the securities that are being sold under
the same terms and conditions in order to maintain its 14.3%
equity interest in the Company. Upon conversion of the Preferred
Stock into common stock, as long as the common stock continues to
be held by the Purchaser during the five year period after the
issuance of the Preferred Stock, the Purchaser shall have the
same anti-dilution ri-lit as if it was still holding tile
Preferred Stock.
18. WARRANTS: Upon issuance of the Preferred Stock,
the Company shall also issue to the Purchaser common stock
purchase warrants entitling the holder to purchase 330,000 shares
of common stock. Such warrants shall be exercisable at a price
of $1.00 per share for a period of three years and shall have
unlimited piggyback registration rights.
19. DISTRIBUTION AGREEMENT: Upon issuance of the Preferred Stock
and the signing of the Distribution Agreement, the Company shall
terminate all negotiations with other parties regarding
distribution rights in Japan.
Agreed and Approved:
COMPANY:
By: /s/ Donald A. Anderson Date: September 1, 1999
Donald A. Anderson
President/Chairman
GolfGear International, Inc.
DISTRIBUTOR:
By: /s/ Naoya Kinoshita Date: September 1, 1999
Naoya Kinoshita
President, M.C. Corporation
October 21, 1999
Keizaikai USA, Inc.
600 Mamaroneck Avenue
Fourth Floor
Harrison, New York 10528
Attention: Yuzo Kura
RE: Finder's Fee and Royalty Agreement
Dear Mr. Kura:
This will confirm that GolfGear International, Inc. (the
"Company") has agreed to pay you the following compensation for
acting as a finder and introducing the Company to M.C. Corporation:
1. Ten percent (10%) fee for all funds raised as a direct
result of your efforts in introducing the Company to M.C.
Corporation or others.
2. Common Stock warrants to purchase up to 20,000 shares of
Common Stock of the Company at $1.00 per share. These warrants
shall expire January 1, 2002.
3. Expenses such as travel, lodging, meals and other expense
relating to this financing.
In addition to the above compensation, the Company will also pay
you one percent (1%) of all royalties received by the Company
from M.C. Corporation under the Distribution Agreement dated
September 1, 1999 by and between the Company and M.C.
Corporation. This royalty shall be for the sale of all golf
bags, apparel and golf related accessories.
Please provide us with banking information or wire instructions
on making the above payments.
We greatly appreciate your efforts in assisting the on-going
endeavors of the Company and look forward to a long term
prosperous relationship.
Sincerely,
/s/ Donald A. Anderson
Donald A. Anderson
President, Chairman of the Board
CERTIFICATE OF DETERMINATION OF GOLFGEAR INTERNATIONAL, INC.
The undersigned, Donald A. Anderson, President, and Robert N.
Weingarten, Secretary, certify that:
Donald A. Anderson is the President, and Robert N. Weingarten is
the Secretary, of GolfGear International, Inc., a Nevada
corporation (the "Company").
By action of the Board of Directors of the Company on October 18,
1999, at the Company's office located at 5481-A Commercial Drive,
city of Huntington Beach, County of Orange, and State of
California, the following resolution was adopted by unanimous
written consent of the Directors:
WHEREAS, Article 4 (Fourth) of the Articles of Incorporation of
the Company authorizes the Company to issue Sixty Million
(60,000,000) shares, consisting of Fifty Million (50,000,000)
shares of common stock, par value of $.001 per share (the "Common
Stock), and Ten Million (10,000,000) shares of preferred stock,
par value $.001 per share (the "Preferred Stock"); and
WHEREAS, the shares of Preferred Stock were authorized to be
issued from time to time in one or more series as expressly
authorized by the Board of Directors to determine or alter the
rights, preferences, privileges, and restrictions granted to or
imposed on any wholly unissued class of shares or any wholly
tissues series of any class of shares, and the number of shares
constituting any unissued series of Preferred Stock as well as
the designations of the series, or any or all of them.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does
hereby provide for the issue of undesignated Preferred shares of
the Company and does hereby fix and determine the rights,
preferences, privileges, and restrictions of, and other matters
relating to, that series, as follows:
1. Three Million (3,000,000) shares of undesignated Preferred
Shares shall be designated and known as "Series A Convertible
Preferred Stock", par value $0.0l, with the powers, preferences,
rights, restrictions, and other matters as follows.
(1) DIVIDENDS. The holders of the Series A Convertible
Preferred Stock shall be entitled to receive mandatory dividends,
payable either in cash or additional shares of Preferred Stock,
at the option of the Company, at the rate of six percent (6%)
annually out of funds legally available therefore, payable in
arrears quarterly on the last day of September, December, March
and June of each year.
(2) LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of Series A
Convertible Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the company to the
holder of Common Stock or other junior equity security by reason of their
ownership thereof, an amount equal to the sum of (i) $9.50 for
each outstanding share of Series A Convertible Preferred Stock
(the "Original Issue Price"), and (ii) an amount equal to all
declared but unpaid dividends on each such share. If upon the
occurrence of such event, the assets and funds thus distributed
among the holders of the Series A Convertible Preferred Stock
shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then the entire assets
and funds of the Company legally available for distribution shall
be distributed ratably among the holders of the Series A
Convertible Preferred Stock in proportion to the product of the
liquidation preference of each such share and the number of such
shares owned by each such holder.
(b) After the distribution described in subsection (a)
above has been paid, the remaining assets of the Company
available for distribution to stockholders shall be distributed
among the holders of Common Stock pro rata based on the number of
shares of Common Stock held by each.
(c) For purposes of this Section 2, (i) any acquisition of the
Company by means of merger or other form of corporate
reorganization in which the, shareholders of the Company do not
own a majority of the outstanding shares of the surviving Company
or (ii) a sale of all or substantially all of the assets of the
Company shall be treated as a liquidation, dissolution or winding
up of the Company and shall entitle the holders of Series A
Convertible Preferred Stock and Common Stock to receive at the
closing cash, securities or other property as specified in
Sections 2(a) and 2(b) above.
(d) Any securities to be delivered to the holders of Series
A Convertible Preferred Stock and Common Stock pursuant to
Section 2(c) above shall be valued as follows.:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
(A) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities
on such exchange over the thirty (30) day period ending three (3)
days prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid and asked prices over
the thirty (30) day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the
Company and the holders of not less than a majority of the then
outstanding shares of Serics A Convertible Preferred Stock.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to
make, an appropriate discount from the market value determined as
above in clauses (i)(A), (B) or (C) to reflect the approximate
fair market value thereof, as mutually determined by the Company
and the holders of a majority of the then outstanding shares of
Series A Convertible Preferred Stock,
(e) The Company shall give each holder of record of Series
A Convertible Preferred Stock written notice of such impending
transaction not later than twenty (20) days prior to the
stockholders' meeting called to approve such transaction, or
twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of
such notices shall describe the material terms and conditions of
the impending transaction and the provisions of this Section 2,
and the Company shall thereafter give such holders prompt notice
of any material changes. The transaction shall in no event take
place earlier than twenty (20) days after the Company has given
the first notice provided for herein or earlier than ten (10)
days after the Company has given notice of any material changes
provided for herein- provided, however, that such periods may be
shortened upon the written consent of the holders of a majority
of the shares of Series A Convertible Preferred Stock then
outstanding.
(3) CONVERSION. The holders of Series A Convertible Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert by the Company. Subject to subsection
(d), each share of outstanding Series A Convertible Preferred
Stock shall be convertible, at the option of the Company, at any
time after the date that the Company's Common Stock is listed on
the NASDAQ Small Cap Market or on the American Stock Exchange, or
traded at a price above Four Dollars ($4.00) per share for twenty
(20) consecutive trading days, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing
the Original Issue Price by the Conversion Price in effect at the
time for the Series A Convertible Preferred Stock (the
"Conversion Price"). The initial Conversion Price per share for
shares of Series A Convertible Preferred Stock shall be the
Original Issue Price, subject to adjustment as set forth in
subsection (d).
(b) Automatic Conversion/Conversion by the Holder. Subject
to subsection (d), each share of outstanding Series A Convertible
Preferred Stock shall be convertible, at the option of the
holder, at any time during the first two (2) years, and shall
automatically convert at two (2) years into such number of fully
paid and nonassessable shares of Common Stock as is determined by
dividing the Original Issue Price by the Conversion Price in
effect at the time for the Series A Convertible Preferred Stock
(the "Conversion Price"). The initial Conversion Price per share
for shares of Series A Convertible Preferred Stock shall be the
Original Issue Price, subjects to adjustment as set forth in
subsection (d).
(c) Mechanics of Conversion.
(i) Before any holder of Series A Convertible Preferred
Stock shall be entitled voluntarily to convert the same into
shares of Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the
Company or of any transfer agent for such stock, and shall give
written notice to the Company at such office that he elects to
convert the same and shall state therein the number of shares to
be converted and the name or names in which he wishes the
certificate Or Certificates for shares of Common Stock to be
issued. The Company shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Series A
Convertible Preferred Stock, a certificate or certificates for
the number of shares of Common Stock to which he shall be
entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date or
surrender of the shares of Series A Convertible Preferred Stock
to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such
shares of Common Stock on such date.
(ii) If the conversion is in connection with an
underwritten offering of securities pursuant to the Securities
Act, the conversion may, at the option of any holder tendering
shares of Series A Convertible Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the
person(s) entitled to receive the Common Stock upon conversion of
the Series A Convertible Preferred Stock shall not be deemed to
have converted such Series A Convertible Preferred Stock until
immediately prior to the closing of such sale of securities.
(d) Adjustments to Conversion Prices for Stock Dividends
and for Combinations or Subdivisions of Common Stock. In the
event that the Company at any time or from time to time after the
first date of any issuance of Series A Convertible Preferred
Stock (the "Original Issue Date") shall declare or pay, without
consideration, any dividend on the Common Stock payable in Common
Stock or in any right to acquire Common Stock for no
consideration, or shall effect a subdivision of the outstanding
shares of Common Stock into a greater number of shares of Common
Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any right to acquire
Common Stock), or in the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then
the Conversion Price in effect immediately prior to such client
shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. In the
event that the Company shall declare or pay, without
consideration, any dividend on the Common Stock payable in any
right to acquire Common Stock for no consideration, then the
Company shall be deemed to have made. a dividend payable in
Common Stock in an amount of shares equal to the maximum number
of shares issuable upon exercise of such rights to acquire common
Stock.
(e) Adjustments for Reclassification and Reorganization. If the Common
Stock issuable upon conversion of the Series A Convertible Preferred
Stock shall be changed into the same or a different number of shares of
any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares provided for in Section 3(d) above or a merger or other
reorganization referred to in Section 2(d) above), the Conversion
Price then in effect shall, concurrently with the effectiveness
of such reorganization or reclassification, be proportionately
adjusted so that the Series A Convertible Preferred Stock shall
be convertible into, in lieu of the number of shares of Common
Stock which the holders would otherwise have been entitled to
receive, a number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion
of the Series A Convertible Preferred Stock immediately before
that change.
(f) No Impairment. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization,
transfer of assets, 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 Company, but will at all
times in good faith assist in the carrying out of all the
provisions of this Section 3 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 Convertible
Preferred Stock against impairment.
(g) Certificates as to Adjustments. Upon the occurrence
of each adjustment or readjustment of any Conversion Price
pursuant to this Section 3, the Company, at its expense shall
promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of
Series A Convertible Preferred Stock a certificate executed by
the Company's President or Chief Financial Officer setting forth
such adjustment or readjustment and showing in detail the facts
upon which the Company shall, upon the written request at any
time of any holder of Series A Convertible Preferred Stock,
furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stuck and the amount if any, of other
property which at the time would be received upon the conversion
of the Series A Convertible Preferred Stock.
(h) Notices of Record Date. In the event that the Company
shall propose at any time: (i) to declare any dividend or
distribution upon its Common Stock, whether in cash, property,
stock or other securities. whether or not a regular cash dividend
and whether or not out of earnings or earned surplus; (ii) to
offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class
or series or other rights; (iii) to effect any reclassification
or recapitalization of its Common Stock outstanding involving a
change in the Common Stock; or (iv) to merge or consolidate with
or into any other corporation, or sell, lease or convey all or
substantially all of its assets, or to liquidate, dissolve or
wind up; then, in connection with each such event, the Company
shall send to the holders of Series A Convertible Preferred
Stock:
(A) At least twenty (20) days prior written notice of
the date on which a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date on
which the holders of Common Stock shall be entitled thereto) or
for determining rights to vote, if any, in respect of the matters
referred to in (iii) and (iv) above; and
(B) In the case of the matters referred to in (iii) and
(iv) above, at least twenty (20) days prior written notice of the
date when the same shall take place (and specifying the date on
which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable
upon the occurrence of such event).
(i) Reservation of Stock lssuable Upon Conversion. The
Company shall at all times reserve and keep available out of its
authorized but unissued shoes of Common Stock, solely for the
purpose of effecting the conversion of the shares of the Series A
Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of
all outstanding shares of the Series A Convertible Preferred
Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series A
Convertible Preferred Stock, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain
the Requisite stockholder approval of any necessary amendment to
this Certificate.
(j) Fractional Shares. No fractional share shall be issued
upon the conversion of any share or shares of Series A
Convertible Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more
than one share of Series A Convertible Preferred Stock by a
holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share
of Common Stock, the Company shall, in lieu of issuing any
fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (as determined in good faith
by the Board of Directors).
(k) Notices. Any notice required by the provisions of this
Section 3 to be given to the holders of shares of Series A
Convertible Preferred Stock shall be deemed given if deposited
iii the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of
the Company.
(4) VOTING RIGHTS. The holder of each share of Series A
Convertible Preferred Stock shall have the right to one vote for
each share of Common Stock into which such share of Series A
Convertible Preferred Stock could be converted on the record date
for the vote or written consent of stockholders. In all cases
any fractional share, determined on an aggregate conversion
basis, shall be rounded to the nearest whole share. With respect
to such vote, such holder shall have full voting rights and
powers equal to the voting rights and powers of the holders of
Common Stock, and shall be entitled, notwithstanding any
provision hereof, to notice of any stockholders meeting in
accordance with the bylaws of the Company, and shall be entitled
to vote, together with holders, of Common Stock, with respect to
any question upon which holders of Common Stock have the right to
vote.
(5) STATUS OF CONVERTED STOCK. In the event any shares of
Series A Convertible Preferred Stock shall be converted pursuant
to Section 3 hereof, the shares so converted shall be cancelled
and shall not be issuable by the Company, and all such shares
shall be canceled, retired and eliminated from the shares which
tile Company is authorized to issue.
(6) SENIORITY OF SERIES A CONVERTIBLE PREFERRED STOCK. No
additional shares of Series A Convertible Preferred Stock shall
be authorized or issued that have rights, privileges and
preferences equal to or senior to the Series A Convertible
Preferred Stock as long as any Series Convertible Preferred Stock
is outstanding.
(7) RESTRICTIONS AND LIMITATIONS. So long as any shares of
Series Convertible Preferred Stock remain outstanding, the
Company shall not, without the vote or written consent by the
holders of at least a majority of the then outstanding shares of
Series A Convertible Preferred Stock, amend the Articles of
Incorporation if such amendment would adversely affect any of the
rights, preferences or privileges provided for herein for the
benefit of the Series A Convertible Preferred Stock.
RESOLVED FURTHER, that the Secretary of the Company is hereby
authorized and directed to prepare, execute, verify and file, in
the office of the Nevada Secretary of State, a Certificate of
Determination in accordance with this resolution as required by
law.
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald A. Anderson Date: October 20, 1999
Donald A. Anderson, President
By: /s/ Robert N. Weingarten Date: October 20, 1999
Robert N. Weingarten,
Secretary
Acknowledgment
State of California
SS
County of Orange
On this 20th day of October, 1999, before me, the undersigned,
a Notary Public in and for said State, personally appeared
Donald A. Anderson, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person who
name is subscribed to the within instrument, and acknowledged to
me that he executed the same in his capacity, and that by his
signature on the instrument the person, or entity on behalf of
which the person acted, executed the within instrument.
WITNESS my hand and official seal.
By: /s/
Notary Public in and for said County and State
Acknowledgment
State of California
SS
County of Los Angeles
On this 20th day of October, 1999, before me, the
undersigned, a Notary Public in and for said State, personally
appeared Robert N. Weingarten, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person who
name is subscribed to the within instrument, and acknowledged to
me that he executed the same in his capacity, and that by his
signature on the instrument the person, or entity on behalf of
which the person acted, executed the within instrument.
WITNESS my hand and official seal.
By: /s/
Notary Public in and for said County and State
DISTRIBUTION AGREEMENT
This Agreement, made and entered into on September 1, 1999 by and
between GolfGear International, Inc., a Nevada corporation,
having its main office and place of business at 5481A Commercial
Drive, Huntington Beach, California 92649 (hereinafter referred
to as the "Company") and M.C. Corporation of Japan Terasiosu
Bldg. 6-7-2 Minami Aoyama, Minato-ku 107-0062 Tokyo Japan
(hereinafter referred to as "Distributor").
WITNESSETH
WHEREAS, Company manufacturers and sells products;
WHEREAS, Distributor desires to perform certain services on
behalf of Company with respect to selling products;
NOW THEREFORE, in consideration of mutual conditions and
obligations hereinafter set forth, the parties hereto have agreed
as follows:
1. PRODUCTS.
Company hereby appoints Distributor, and Distributor hereby
accepts appointment as Company's exclusive sales Distributor in
Japan to promote and assist in the sales of products as listed
below:
All Golf Clubs and Parts produced by Company; All Golf
accessories produced by Company. (hereinafter referred to as
"Products").
2. TERRITORY.
The sales territory designated herein is the geographic area of
Japan as well as any area mutually agreed upon in the future, for
which Distributor shall have sales responsibility and in which
Distributor will exert its best effort for sales of the Products.
Distributor is expressly forbidden to export GolfGear product to
other markets. M.C. Corporation/GolfGear Japan will have the
option to appoint or assign distributors within their territory.
Appointees/Assignees must be approved by GolfGear International,
Inc. Distributor may not carry competing products without the
Company's permission. Should this territory be broadened to
encompass all of Asia except for Korea, GolfGear may sell direct
to customers while M.C. Corporation/GolfGear Japan would be in
the process of organizing such distribution. While this
transition is in process, M.C. Corporation/GolfGear Japan would
be paid a ten percent (10%) commission in all territories with
the exception of Korea and Japan.
3. MAJOR REPONSIBILITY OF DISTRIBUTOR.
Generate and stimulate interests in the Products and furnish
information to Company with regard to market trend and
prospective purchasers of the Products.
Participate in the sales promotion activities and trade shows to
benefit sales of Products and assist and advise Company in this
regard.
The Distributor will be responsible for all marketing efforts,
such as advertising, promotion, etc.
4. MAJOR RESPONSIBILITY OF COMPANY.
Endeavor to maintain the delivery conditions on all orders
accepted by Company.
Provide Distributor to the full extent with sales and technical
information and assistance regarding the Products.
Keep Distributor informed of specification changes of Products.
5. TERMS OF SALES.
Terms will be irrevocable letter of credit to be drawn only to
GolfGear International, Inc. as per Pro-forma invoices. F.O.B.
Huntington Beach, California, U.S.A.
6. PURCHASE ORDER AND DELIVERY.
Distributor can issue purchase orders on behalf of purchasers in
the territory and Company shall ship and deliver Products by
virtue of purchase orders. GolfGear International, Inc. requires
a 90-120 day lead time on products produced for M.C.
Corporation/GolfGear Japan on an exclusive basis. Products that
are considered "in-line" goods could be shipped in a shorter
period of time, to be determined when orders are placed.
7. RELATIONSHIP OF PARTIES.
Company shall not deal directly with customers in the territory
and in case Company is contacted by any customer in the
territory, the Company shall notify and consult with Distributor.
8. ASSIGNMENT OF AGREEMENT.
Neither this agreement nor any rights or obligations hereunder
may be assigned by Distributor without the prior written consent
of Company.
9. DURATION AND TERMINATION.
This agreement shall be effective for a initial period of five
(5) years from the effective date of this agreement, and shall be
extended automatically for a period of five (5) years unless
there is written notice from either party not less than 90 days
prior to expiration date. Upon completion of the aforementioned
two (2) five (5) year periods, there will be two additional five
(5) year periods.
If either party hereto continues in default of any obligation
imposed on it herein for more than 60 days after written notice
by the other party has been dispatched requesting the party in
default to remedy such default, the other party may terminate by
registered mail to the party in default and this agreement shall
terminate on the date of dispatch of such notice.
In the event of bankruptcy, receivership, insolvency or
assignment for the benefit of creditors or either party hereto,
the other party may terminate this agreement effective
immediately by giving written notice to that effect.
10. PRODUCT LIABILITY INSURANCE.
During the term of this agreement, the Company will maintain a
minimum of $1,000,000 each occurrence and $2,000,000 aggregate of
product liability insurance covering the sale and distribution of
its products throughout the world, and shall name the Distributor
as an additional insured under such policy. A copy of our policy
will be provided to show proof of insurance on a world-wide
basis.
11. PRODUCT WARRANTY.
All products sold by the Company shall be fully warranted against
defects in workmanship for the life of the product, and any
products identified by the Distributor as defective will be
replaced by the Company without charge, including freight and
related direct costs.
12. QUALITY CONTROL.
During the term of this agreement, the Company will maintain
documented quality control systems and procedures that meet or
exceed industry standards. Both parties will set a mutually
agreed upon standard for quality control, as to what is
acceptable and what would not be acceptable in terms of the
definition of "defective".
13. EFFECTIVE DATE.
This Agreement shall become effective as of the day and date
first written above.
14. APPLICABLE LAW.
This Agreement shall be governed by the law of State of California.
15. ENTIRETY.
This instrument constitutes the entire agreement and
understanding between the parties hereto relative to the subject
matter hereof and there are no understandings, agreements,
conditions or representations, oral or written, expressed or
implied, with reference to the subject matter hereof, that are
merged herein or superseded hereby. No modification hereof shall
be of any force or effect unless reduced to writing and signed by
the parties claimed to be bound thereby and no modification shall
be effected by the acknowledgment of acceptance of any order
containing different conditions.
16. CONFIDENTIALITY.
The Company and Distributor will execute a Confidentiality/Non-
Disclosure Agreement.
17. NON-TRADING.
During the term of this agreement, Distributor agrees not to
engage in any open market purchases or sales of the Company's
common stock, without the prior written consent of the Company.
18. COMPREHENSIVE AGREEMENT.
Parties may elect to prepare a more comprehensive distribution
agreement subsequent to the execution of this agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their authorized representatives as of the date first
above written:
COMPANY:
By: /s/ Donald A. Anderson Date: September 1, 1999
Donald A. Anderson
President/Chairman
GolfGear International, Inc.
DISTRIBUTOR:
By: /s/ Naoya Kinoshita Date: September 1, 1999
Naoya Kinoshita
President, M.C. Corporation
SCHEDULE A
Sales Performance Agreement.
This Twenty (20) year agreement of four (4) five (5) year periods
includes a sales performance agreement that is structured as
follows:
ANNUAL FORECAST AMOUNT:
In Year No. 1: Beginning January 1, 2000 total annual purchases
from Company shall exceed $500,000.00 USD.
In Year No. 2: total annual purchases from Company shall exceed
$1,000,000.00 USD.
In Year No. 3: total annual purchases from Company shall exceed
$2,000,000.00 USD.
In Year No. 4: total annual purchases from the Company shall
exceed $5,000,000 USD.
In Year No. 5: total annual purchases from the Company shall
exceed $7,500,000 USD.
There will be a minimum purchase guarantee after year one of
$750,000.00 USD. There will be a one-time grace period for one
year after year two. This grace period can be used at anytime
within the first ten (10) years, after year two (2). Both parties
agree to meet annually to review the $750,000.00 USD minimum
requirement on goods purchased.
TERM:
This agreement is for two (2) five (5) year options, with two (2)
additional five (5) year options, for a total period of twenty
(20) years. This agreement may be extended as mutually agreed
upon. Unless both parties notify the other, this agreement will
automatically renew for the next five (5) year period.
LICENSE:
It is understood that M.C. Corporation will purchase all fully
assembled hard goods (clubs, putters, wedges, etc.) from GolfGear
International, Inc.
M.C. Corporation will have the right to license the name brand
"GolfGear" and any other brands that GolfGear has used or may use
in the future, for use on apparel, bags, shoes, and other
accessories for a six (6) percent royalty based on the price that
the Distributor pays for such goods. Such royalty shall be paid
on a quarterly basis, and GolfGear International, Inc. shall have
the right to audit royalty payments from time to time.
Royalties are only to be paid on goods intended for resale. For
example, no royalty is required on goods used for promotional
items, give-aways, etc. Goods purchased directly from GolfGear
International, Inc. are exempt from royalties.
EXPORT PRICING:
Terms will be by Irrevocable Letter of Credit, F.O.B. Huntington
Beach, California U.S.A. See attached Schedule B for year 2000 pricing.
SCHEDULE B
Year 2000 Confidential Export Price List. (Subject to change
after December 31, 2000)
Export Price
Tsunami Driver #1 Wood 9 deg $195.00
TG-3 Driver #1 9,10 degree lofts $205.00
Ti-Gear Woods - 9, 10, 12 degree lofts $112.50
Ti-Gear Left Hand Driver - 9 degree loft $112.50
Ti-Gear Offset Woods - 10, 12 degree lofts $112.50
Ti-Gear Low Profile Woods (Fairway Gear)
degree (driver), 13 and 15 degree (3 woods),
19 degree (5 wood), 22 degree (7 wood) $112.50
Ti-Gear Irons (3-SW) Graphite Shaft $495.00
Ti-Gear LW, #1 Iron $ 55.00
Ti-Gear Irons (3-SW) Steel Shaft $324.00
Ti-Gear LW, #1 Iron $ 36.00
TourGear Irons - Steel Shaft $324.00
WedgeGear Wedges $ 20.00
Tour Select Putter $ 17.50
Precision Gear Putter $ 16.00
SofTec Putter $ 26.00
/s/ Donald A. Anderson September 28, 1999
Donald A. Anderson Date
President/Chairman
GolfGear International, Inc.
AGREEMENT
This Agreement, made and entered into on January 14, 1999 of by
and between Golf Gear International, a Nevada corporation, having
its main office and place of business at 5481A Commercial Drive,
Huntington Beach, CA. 92649 (hereinafter referred to as
"Company") and GolfGear Korea, Ltd. (hereinafter referred to as
"Representative").
WITNESSETH
WHEREAS, Company manufacturers and sells products; and
WHEREAS, Representative desires to perform certain services on
behalf of Company with respect to selling products;
NOW THEREFORE, in consideration of mutual conditions and
obligations hereinafter set forth, the parties hereto have agreed
as follows:
1. PRODUCTS
Company hereby appoints Representative, and Representative hereby
accepts appointment as Company's exclusive sales representative
in Republic of Korea to promote and assist in the sales of
products as list below:
All Golf Clubs and Parts produced by Company; All Golf
accessories produced by Company. (hereinafter referred to as
"Products").
2. TERRITORY
The sales territory designated herein is the geographic area of
the Republic of Korea as well as the area mutually agreed upon
for which Representative shall have sales responsibility and in
which Representative will exert its best effort for sales of the
Products.
3. MAJOR REPONSIBILITY OF REPRESENTATIVE
3.1 Generate and stimulate interests in the Products and furnish
information to Company with regard to market trend and
prospective purchasers of the Products.
3.2 Participate in the sales promotion activities and trade
shows to benefit sales of Products and assist and advise Company
in this regard.
4. MAJOR RESPONSIBILITY OF COMPANY
Endeavor to maintain the delivery conditions on all orders
accepted by Company; provide Representative to the full extent
with sales and technical information and assistance regarding the
Products; and keep Representative informed of specification
changes of Products.
5. TERMS OF SALES
Terms will be irrevocable letter of credit to be drawn only to
GolfGear International as per Pro-forma invoices.
6. PURCHASE ORDER AND DELIVERY
Representative can issue purchase order on behalf of purchasers
in the territory and Company shall ship and deliver Products by
virtue of purchase orders.
7. RELATIONSHIP OF PARTIES
Company shall not deal directly with customers in the territory
and in case Company will be contacted by any customer in the
territory, Company shall notify and consult with Representative
8. ASSIGNMENT OF AGREEMENT
Neither this agreement nor any rights or obligations hereunder
may be assigned by Representative without prior written consent
of Company
9. DURATION & TERMINATION
9.1 This agreement shall be effective for a initial period of
three (3) years from the effective date of this agreement, and
shall be extended automatically for a period of one year unless
there is written notice from either party not less than 30 days
prior to expiration date.
9.2 If either party hereto continues in default of any
obligation imposed on it herein for more than 60 days after
written notice by the other party has been dispatched requesting
the party in default to remedy such default, the other party may
terminate by requested mail to the party in default and this
agreement shall terminate on the date of dispatch of such notice.
9.3 In the event of bankruptcy, receivership, insolvency or
assignment for the benefit of creditors or either party hereto,
the other party may terminate this agreement effective
immediately by giving the written notice to that effect.
10. EFFECTIVE DATE
This Agreement shall become effective as of the day and date
first written above.
11. APPLICABLE LAW
This Agreement shall be governed by the law of State of California.
12. ENTIRETY
This instrument constitutes the entire agreement and
understanding between the parties hereto relative to the subject.
matter hereof and there are no understanding, agreement's
conditions or representations, oral or written, expressed or
implies, with reference to the subject matter hereof that are
merged herein or superseded hereby. No modification hereof shall
be of any force or effect unless reduced to writing and signed by
the parties claimed to be bound thereby and no modification shall
be effected by the acknowledgment of acceptance of any order
containing different conditions.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their authorized representatives as of the date first
above written:
COMPANY:
By: /s/ Donald A. Anderson
Donald A. Anderson
President/Chairman
GolfGear International, Inc.
REPRESENTATIVE:
By: /s/ Kim In Sae
Kim In Sae
President, GolfGear Korea, Ltd.
SCHEDULE A
Sales Performance Agreement.
This three (3) year agreement includes a sales performance
agreement that is structured as follows:
In Year No. 1: Beginning January 14, 1999 total annual purchases
from Company should exceed $500,000.00 USD.
In Year No. 2: total annual purchases from Company should exceed
$750,000.00 USD.
In Year No. 3: total annual purchase from Company should exceed
$1,000,000.00 USD.
GOLFGEAR INTERNATIONAL, INC.
TERM SHEET
ACQUISITION OF ASSETS OF BEL AIR GOLF COMPANIES
October 1, 1999
1. Description of transaction: GolfGear International, Inc.
("GolfGear") will acquire, either directly or through a newly-
formed, wholly-owned subsidiary, substantially all of the assets
of the Bel Air Golf Companies ("Bel Air"), both tangible and
intangible, free and clear of any and all liens, claims,
royalties encumbrances or obligations. Unless otherwise
specified, all of the assets of Bel Air are being sold to
GolfGear. The assets being sold to GolfGear include, but are not
limited to, the following:
machinery and equipment;
tooling, molds and dies;
copyrights and trade names;
inventory;
packaging supplies;
customer lists, supplier and vendor lists;
sales order backlog;
accounts receivable (excluding accounts receivable pledged or
sold to Heller Financial, Inc.); and prepaids and deposits.
2. Purchase consideration: In consideration for the acquisition of the
assets of Bel Air, GolfGear will pay the following purchase consideration:
Assume, pay, restructure or otherwise settle the note to Finer
with a principal balance of $50,000;
Issue a maximum of 650,000 shares of its common stock ($.001 par
value), as follows:
At the first closing, Bel Air will deliver to GolfGear the right
to immediately begin to conduct business under the Bel Air
tradenames, utilize the Bel Air sales backlog, and otherwise
legally conduct the business of Bel Air, free and clear of any
and all claims of any other party, and in return, GolfGear will
issue 250,000 shares of its restricted common stock to Bel Air or
to its designees.
Should Bel Air deliver to GolfGear its assets that are currently
under the control of R & M Golf Company dba Triumph Golf
("Triumph") by the dates specified below, GolfGear will issue
additional shares of its restricted common stock to Bel Air or
its designees at a second closing, as follows: by December 31,
1999 - 400,000 shares; from January 1, 2000 through March 31,
2000 - 300,000 shares; from April 1, 2000 through September 30,
2000 - 200,000 shares. If the assets are delivered subsequent to
September 30, 2000, the amount of shares to be issued for
delivery of the assets shall be determined by negotiation between
the parties. Bel Air will use its best efforts to reacquire the
assets currently under the control of Triumph and to deliver such
assets to GolfGear.
GolfGear shall have no obligation to proceed with the transaction
contemplated herein if at any time there is any uncertainty
whatsoever (arising from the current bankruptcy proceedings of
Triumph or otherwise) as to who owns the Bel Air assets or who
has the right to conduct the business of Bel Air.
GolfGear shall issue to Bel Air or to its designees the following
additional consideration: (a) warrants to purchase 255,000 shares
of restricted common stock, exercisable at $1.00 per share for a
period of six months from the initial closing, 5,000 of which
shall be issued to Dennis Iden; (b) warrants to purchase 100,000
shares of restricted common stock exercisable at $1.00 per share
for a period of three years, only if the Bel Air business
generates net revenues of at least $1,500,000 during 2000; (c)
warrants to purchase 100,000 shares of restricted common stock
exercisable at $2.00 per share for a period of three years, only
if the Bel Air business generates net revenues of at least
$2,000,000 during 2001; and (d) warrants to purchase 100,000
shares of restricted common stock exercisable at $3.00 per share
for a period of three years, only if the Bel Air business
generates net revenues of at least $2,500,000 during 2002. The
warrants will not have cashless exercise provisions.
3. Regulatory compliance: The shares of GolfGear common stock
and the common stock purchase warrants will be issued in a
transaction exempt from the registration requirements of the
United States Securities and Exchange Commission (the "SEC"). The
transaction will comply with applicable state regulatory
requirements.
4. Legal documentation: The transaction will be subject to
preparation of appropriate legal documentation by GolfGear.
5. Audit: Bel Air will make available to GolfGear all of the
accounting and corporate records in its possession or under its
control and will, to the best of its ability, cooperate with
GolfGear in conducting an audit of Bel Air in order to comply
with the rules and regulations of the SEC. The cost of such audit
will be the responsibility of GolfGear. To the extent that
GolfGear is unable to audit such records and prepare a financial
statement to comply with the filing requirements as promulgated
by the SEC, GolfGear will have the option of rescinding the
transaction, with such right, if not sooner exercised,
terminating on April 30, 2000. However, on April 30, 2000, if
GolfGear has a registration statement pending with the SEC, or is
in discussions with the SEC on the issue of auditing Bel Air's
historical financial statements, such deadline shall be
automatically extended during the period of time that such
registration statement is pending or such discussions continue.
Upon the conclusion of discussions with the SEC, GolfGear shall
have 30 days to determine whether to exercise the recision
option. In no event will the recision option continue after
December 31, 2000. In the event of a recision, GolfGear will
provide an accounting to Bel Air of the net cash disbursed to or
on behalf of Bel Air's operations, and the net cash generated by
Bel Air's operations, and the parties will then negotiate a
mutually agreeable resolution of the net amount owed or owing.
6. Registration rights: The common stock issued and issuable
upon exercise of the common stock purchase warrants will have
unlimited piggyback rights.
7. Sale restrictions: In addition to any legal restrictions,
the shares of common stock of GolfGear to be issued herein,
including the shares issuable upon exercise of the common stock
purchase warrants, will be restricted for a period of two years
from the date of issuance, and will then be saleable (in the
aggregate) in open market transactions at the rate of 1% of the
outstanding shares of common stock per quarter.
8. Consulting agreement: In conjunction with the acquisition
of the Bel Air assets, GolfGear will negotiate a mutually
agreeable compensation package with Dennis Iden, which is
anticipated to include both cash and non-cash components.
9. Deadline: A letter of intent will be prepared and executed
by both parties on or before October 4, 1999, or such other date
that the parties may agree to. Such letter of intent will specify
that (a) the first closing (as herein described) must take place
no later than October 31, 1999, unless the parties agree to
another date, and (b) the effective date of the transaction
described herein shall be as of October 1, 1999. Upon execution
of a letter of intent by Bel Air, GolfGear shall have received
confirmation, in form and content acceptable to it, that holders
of at least 70% of the shares of Bel Air have irrevocably
approved the transaction contemplated herein.
10. Exclusive right: Upon execution of a letter of intent, Bel
Air shall cease negotiations with any other potential acquirers
until the transaction contemplated herein is either completed or
terminated.
Agreed and approved:
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald Anderson
Donald Anderson, President
Date: 10/5/99
BEL AIR GOLF COMPANIES
By: /s/ Dennis Iden
Dennis Iden, President
Date: 10/4/99
AGREEMENT FOR SALE AND PURCHASE OF ASSETS
BETWEEN DOUGLAS J. RUGG AND GOLFGEAR INTERNATIONAL, INC.
1. Preamble. This Agreement for Sale and Purchase of Assets
("Agreement") is made effective May 8, 1998 between DOUGLAS J.
RUGG, an individual (hereinafter referred to as "SELLtR"), and
GOLFGEAR INTERNATIONAL, INC., a Nevada corporation (hereinafter
referred to as ("PURCHASER").
SELLER wishes to sell to PURCHASER, and PURCHASER wishes to
purchase, certain assets of SELLER, relating to SELLER's business
located at 125 Industrial Way, Costa Mesa, California 92627, as
specified in this Agreement.
THEREFORE, the parties agree as follows:
2. Sale Agreement. SELLER agrees to sell and convey to
PURCHASER, and PURCHASER agrees to purchase upon execution of
this Agreement as specified in Paragraph 1, the properties,
rights and interests enumerated in Paragraph 3.
3. Assets to be Sold. The assets to be conveyed to PURCHASER
("Assets") are:
(a) All SELLER's rights and interest in and to the design of a
golf bag and a golf bag carrying case, identified on Schedules A
and B respectively, which shall include technology know-how, and
all documentation thereto;
(b) The design to all eye-wear which is currently in development;
(c) The name "Executive Trail Blazer Golf Bag";
(d) All books, records and customer and supplier lists used in
SELLER's business;
(e) All SELLER's rights and interest in and to patents,
trademarks, rights under contracts, leases, and claims or causes
of action related to the Assets or SELLER's business, as set
forth in Schedules A and B attached hereto;
(f) All inventory relating to golf bags and sunglasses,
including "in process", "finished" and parts therefor; and
(g) All machinery and equipment relating to the assembly and/or
shipping of the inventory.
4. Purchase Price. In consideration for the sale of the
property described in Paragraph 3, PURCHASER shall deliver, after
execution of this Agreement, to SELLER the following:
(a) The sum of $10,000.00, prior receipt of which is hereby
acknowledged by SELLER.
(b) Shares of PURCHASER's Common Stock equal to $250,000.00,
which will be valued at the average closing bid price for the
five trading days prior to the execution of this Agreement and
which will be Rule 144 stock subject to no more than a one-year
restriction and subject to "piggyback" registration rights to be
granted to SELLER.
(c) PURCHASER shall pay to SELLER a three percent (3 %) royalty
on gross sales of all SELLER's merchandise and products sold by
PURCHASER after the date of this Agreement; said royalty to be
paid to SELLER on a quarterly basis commencing September 30,
1998.
5. Consulting Agreement. The PURCHASER, or its wholly-owned
subsidiary, shall enter into a consulting agreement with SELLER
in the form attached hereto as Schedule C.
6. SELLERS's Representations and Warranties.
(a) Title to Assets. SELLER represents that he has good and
clear title to all assets being transferred hereunder and that
there are no liens, encumbrances, security interests, threatened
litigation, pending litigation or any other potential title which
would effect the assets in any manner.
(b) Authorization. The execution and delivery of this agreement
by SELLER and the conveyance provided in it have been duly authorized by
all necessary action, and is avalid and binding agreement on SELLER.
(c) Ownership of Assets. SELLER is the owner of the Assets and
has fullpower to transfer the Assets free and clear of all liens,
encumbrances, security interests, equities, options, claims, charges,
and restrictions.
(d) Actions and Proceedings. There are no actions, suits, or
proceedings pending or, to SELLER's knowledge, threatened against
SELLER before any court, administrative agency, or other judicial
body affecting or relating to the Assets.
(e) Technology Know-How. SELLER represents and warrants that he
is and has been the owner of the technological know-how which is
the subject of this Agreement; that he is the developer of the
technology and holds no patents or copyrights on the technology
know-how, and that SELLER knows of no competing patents or
copyrights of others which relate to the technology know-how
covered by this Agreement. However, SELLER has not undertaken
any infringement search and, therefore, makes no warranty or
representation concerning the existence of any such patents or
copyrights. As used herein, "technology know-how" shall mean
confidential software, documentation describing hardware and
software used by SELLER, for the practice of the design and
manufacture of golf bags and sunglasses, the designs and
operating or manufacturing information on such drawings and
related documents, which SELLER represents are the confidential
and proprietary information and property of SELLER and are
subject to copyright protection as unpublished works under Title
17 United States Code; and all other information of SELLER in
tangible form which is useful or necessary for the practice of
design and manufacture of SELLER's products.
(f) Covenant Not to Compete. SELLER agrees, for a period of
four (4) years from execution of this Agreement, not to compete
with PURCHASER in the business of manufacture or design of golf
bags, golf travel bags or sunglasses which are the subject of
this Agreement.
(g) Compliance With Laws. Neither the execution and delivery of
this Agreement, nor any instrument or agreement to be delivered
by SELLER to PURCHASER pursuant to this Agreement, nor the
compliance with the terms and provisions thereof by SELLER, will
result in the breach of any applicable statute or regulation
promulgated thereunder, or any administrative or court order or
decree nor will such compliance conflict with, or result in the
breach of any agreement or other instrument to which SELLER is a
party, or by which SELLER is or may be bound, or constitute an
event of default or default thereunder, or with the lapse of time
or the giving of notice or both constitute an event of default
thereunder.
(h) Representation and Warranties. No representation by SELLER
in this Agreement or any documents provided hereunder contains or
will contain any untrue statement or omits or will omit to state
any material fact necessary to make the statements contained
herein not misleading. All representations and warranties made
by SELLER in this Agreement and any documents provided hereunder
are true and correct.
(i) Investment Representations. SELLER acknowledges that
PURCHASER's Common Stock (hereinafter referred to as the
"Securities") to be received in exchange for the sale of SELLER's
Assets has not been registered under the Securities Act of 1933,
as amended (the "1933 Act") or qualified under the California
Securities Law of 1968, as amended (the "California Securities
Law") on the ground that no distribution or public offering of
the SELLER's Securities is to be effected, and that in this
connection PURCHASER is relying in part on the representations of
the SELLER set forth herein.
(1). SELLER is receiving the Securities for its own account for
investment purposes and not as nominee or agent for any other
persons.
(2). By reason of its business or financial experience and/or by
reason of SELLER's pre-existing relationship with PURCHASER,
SELLER has the capacity to protect its own interests in
connection with the transactions contemplated hereunder and is
able to bear the risks of an investment in PURCHASER.
(3). SELLER has acquired sufficient information about PURCHASER
to reach an informed decision to acquire the SELLER's Securities.
(4). SELLER represents that it is acquiring the Securities for
its own account for investment purposes and not with a view to,
or for sale in connection with, any distribution thereof in a
manner contrary to Section 5 of the 1933 Act or of the California
Securities Law and Rules and Regulations of the California
Commission of Corporations thereunder.
(j) Transfer of Securities. None of the Securities to be
acquired by the SELLER pursuant to this Agreement shall be
transferable except upon the conditions specified in this
Paragraph, which conditions are intended to insure compliance with the
provisions of the 1933 Act in respect to the transfer of such Securities.
(k) Legend. Unless and until otherwise permitted by this Paragraph, each
certificate or other document evidencing any of the PURCHASER's Securities
shall be endorsed with a legend substantially in the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 9133, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 9133, AS AMENDED,
(B) IN COMPLIANCE WITH RULE 144 UNDER SUCH ACT, OR (C) THE COMPANY HAS
BEEN FURNISHED WITH AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY TO THE EFFECT THAT NO REGISTRATION IS REQUIRED BY SUCH TRANSFER."
(l) Restriction on Transfer. None of the securities shall be
transferred, and PURCHASER shall not be required to register any
such transfer on the books of PURCHASER, unless and until one of
the following events shall have occurred:
(1) PURCHASER shall have received an opinion of counsel, in form
and substance reasonably acceptable to PURCHASER and its counsel,
stating that the contemplated transfer is exempt from
registration under the 1933 Act as then in effect, and the Rules
and Regulations of the Securities and Exchange Commission (the
"Commission") thereunder. Within five business days after
delivery to PURCHASER and its counsel of such an opinion,
PURCHASER either shall deliver to the proposed transferor a
statement to the effect that such opinion is not satisfactory in
the reasonable opinion of its counsel (and shall specify in
detail the legal analysis supporting any such conclusion) or
shall authorize PURCHASER's transfer agent to make the requested
transfer;
(2) PURCHASER shall have been furnished with a letter from the
Commission in response to a written request in form and substance
acceptable to counsel for PURCHASER setting forth all of the
facts and circumstances surrounding the contemplated transfer,
stating that the Commission will take no action with regard to
the contemplated transfer;
(3) The Securities are transferred pursuant to a registration
statement which has been filed with the Commission and has become
effective; or
(4) The Securities are transferred pursuant to and in accordance
with Rule 144 promulgated by the Commission under the 1933 Act.
(m) Registration of Securities. So long as SELLER or its
transferees shall hold any of the Securities of PURCHASER,
PURCHASER agrees that if, at any time after six months from
execution of this Agreement and prior to a date which is twelve
(12) months following the execution, the PURCHASER shall take
action to register any of its securities under the Securities Act
of 1933, as amended, other than on Form S-8 or Form S-4, it will
give SELLER or its transferees written notice promptly of its
intention in that regard, and if registration, other than on Form
S-8 or Form S-4, of any such Securities held by SELLER or its
transferees is then possible under the then applicable laws and
regulations and practices of the Securities and Exchange
Commission, and subject to the approval of the underwriter, and
if SELLER or its transferees shall within 15 days after receipt
of any such notice request PURCHASER to do so, PURCHASER will, at
its own expense, take action to register such Securities which it
shall have been requested to register at the same time, and it
will use its best efforts that such registration of such
Securities shall become effective and to the end that no "Stop
Order" with respect to such registration shall be issued.
Commissions and other Underwriter's costs and expenses, if any,
shall be paid by SELLER on any of the Securities it sells through
the registration.
In addition to the rights above-provided, the PURCHASER will
cooperate with the then holders of the Securities in preparing
and signing any registration statement in addition to the
registration statement discussed above, required in order to sell
or transfer the Securities and will supply all information
required therefor, but such additional registration statement
shall be at the then holders' expense, unless the PURCHASER
elects to register or qualify additional shares of the
PURCHASER's common stock, in which case the cost and expense of
such registration statement will be pro-rated between the
PURCHASER and the holders of the Securities to the aggregate
sales price of all the securities being issued.
7. PURCHASER's Representations and Warranties. PURCHASER
represents and warrants that:
(a) Corporate Organization. PURCHASER is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Nevada and is duly qualified to do business in
the State of California. If PURCHASER forms a corporation to
take title to certain of the Assets, such corporation will be
duly organized, validly existing and in good standing under the
laws of the State of California and the corporation will have
full power and authority to enter into this Agreement and perform
the transactions contemplated herein. The corporation will be
duly qualified to do business in the State of California.
(b) Binding Nature. This Agreement shall be, when duly executed
and delivered, a legal and binding obligation of PURCHASER,
enforceable in accordance with its terms.
(c) Representations and Warranties. No representation or
warranty by PURCHASER in this Agreement contains or will contain
any untrue statement or omits or will omit to state a material
fact necessary to make the statements contained herein not
misleading. All representations and warranties made by PURCHASER
in this Agreement shall be true and correct as of execution of
this Agreement with the same force and effect as if they had been
made on and as of such date.
(d) Compliance With Laws. Neither the execution and delivery of
this Agreement, nor any instrument or agreement to be delivered
by SELLER to PURCHASER pursuant to this Agreement, nor the
compliance with the terms and provisions thereof by SELLER, will
result in the breach of any applicable statute or regulation
promulgated thereunder, or any administrative or court order or
decree nor will such compliance conflict with, or result in the
breach of any agreement or other instrument to which SELLER is a
party, or by which SELLER is or may be bound, or constitute an
event of default or default thereunder, or with the lapse of time
or the giving of notice or both constitute an event of default
thereunder.
(e) Valid Issuance. The common stock to be delivered to SELLER will be,
when issued, duly authorized, validly issued, fully paid and nonassessable.
8. Liabilities.
(a) No Assumption of Liabilities.
(1) SELLER acknowledges that PURCHASER is acquiring SELLER's
Assets hereunder without any assumption of SELLER's liabilities
except to the extent herein expressly provided;
(2) SELLER agrees to hold PURCHASER harmless against any and all
claims, demands and expense of any nature relating to product,
service, and professional liability against PURCHASER arising
prior to execution of this Agreement; and
(3) There are no undisclosed liabilities relating to the Assets
other than as stated in this Agreement or Schedules annexed hereto.
9. Items to be Delivered by SELLER. SELLER hereby delivers to
PURCHASER:
(a) Transfer Documents. Assignments, bills of sale, and such
other instruments in form reasonably satisfactory to PURCHASER,
as ate required to grant PURCHASER title to, or SELLER's interest
in, the Assets as provided in this Agreement.
(b) Records and Customer Lists. All books, records, and customer and
supplier lists used in SELLER's business other than corporate books
and records.
(c) Indemnification. SELLER agrees to indemnify and hold
PURCHASER harmless from and against any loss, cost, claim,
liability, or expense suffered or incurred by PURCHASER from and
after execution of this Agreement arising from or connected with
SELLER's ownership of the Assets or operation of its business
prior to execution of this Agreement.
10. Items to be Delivered by PURCHASER. PURCHASER herewith
delivers to SELLER:
(a) Purchase Price. A check in the amount of $10,000, made
payable to SELLER, receipt of which is hereby acknowledged by
SELLER, together with Certificates of PURCHASER's Common Stock in
the name of SELLER in an amount equal to $250,000.00 pursuant to
the terms and conditions of valuation in Paragraph 4(2) above.
(b) Indemnification. PURCHASER agrees to indemnify and hold
SELLER harmless from and against any loss, cost, claim, liability, or
expense suffered or incurred by SELLER from the execution of this
Agreement arising from or connected with PURCHASER's ownership of
Assets or operation of PURCHASER's business after the execution
of this Agreement.
11. Brokerage. Each party hereto represents and warrants to the
other than no broker is entitled to any commission, or similar
fee, in connection with the making and carrying out of this
Agreement.
12. Effectiveness. This Agreement supersedes any and all
agreements, if any, previously made between the parties relating
to the subject matter hereof, and there are no understandings or
agreements other than those included herein.
13. Notices and Communications. All notices, requests, demands,
and othercommunications under this Agreement shall be in writing and
delivered in person or sent bycertified mail, postage prepaid or by telefax
and properly addressed as follows:
To the SELLER:
Douglas J. Rugg, President
125 Industrial Way
Costa Mesa, CA 92627
Telefax (949) 722-1370
To the PURCHASER:
Donald A. Anderson, President
GolfGear International, Inc.
5481-A Commercial Drive
Huntington Beach, CA 92647
Telefax (714) 899-4284
Any party may from time to time change its address for the
purpose of notices to that party by a similar notice specifying a
new address, but no such change shall be deemed to have been
given until it is actually received by the respective party
hereto.
14. Non-waiver. No delay or failure on the part of either party
in exercising any right hereunder, and no partial or single
exercise thereof, will constitute a waiver of such right or of
any other right hereunder.
15. Headings. Headings in this Agreement are for convenience
only and are not to be used for interpreting or construing any
provision hereof.
16. PURCHASER's Designees. PURCHASER intends to cause a
corporation to be organized prior to the execution of this
Agreement to take title to certain of SELLER's Assets. PURCHASER
shall have the right to designate such corporation as the party
to which any of SELLER's Assets shall be conveyed and transferred
by SELLER at the execution of this Agreement, but no such designation
shall relieve PURCHASER of any liabilities and obligations hereunder.
17. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of California against both parties
to this Agreement.
18. Independent Legal Counsel. Each party has had his or its
attorney review this Agreement and/or give advice with respect
to, among other things, the legal and tax consequences of
executing this Agreement and the subsequent transactions
contemplated hereunder. Attorney for Purchaser (Gary C. Wykidal)
does not represent Seller and has not given Seller legal, tax or
any other advice with respect to this Agreement or the
transactions contemplated hereunder.
19. Arbitration. Any dispute arising out of or concerning this
Agreement shall be handled in accordance with the Rules and
Regulations of the American Arbitration Association. Said
arbitration shall be held in Orange County, California and shall
be binding. The prevailing party shall be entitled to, among
other relief, attorney fees and costs.
20. Counterparts. This Agreement may be executed in one or more
counterparts, of which may be deemed an original, but all of
which together, shall constitute one and the same instrument.
21. Binding Nature. The provisions of this Agreement shall be
binding upon and inure to the benefit of each of the parties
hereto and their respective successors and assigns.
22. Survival of Representations and Warranties. Except as
otherwise expressly limited in this Agreement or the Schedules
annexed, the representations and warranties of PURCHASER and
SELLER extended hereunder shall survive for a period of twelve
(12) months after the execution of this Agreement. Each party
against whom liability is asserted under the provisions of this
Agreement shall be given the opportunity to participate, directly
or through its authorized representative, at its cost and
expense, in the conduct of any negotiations relating to the
settlements of any liability or any other proceeding instituted
by any third party against either SELLER or PURCHASER, as the
case may be, giving rise to the alleged breach.
23. Expenses. Except as otherwise expressly provided herein,
each party shall pay all of its own expenses incidental to the
negotiation and preparation of the documentation and financial
statements relating to this Agreement and for entering into and
carrying out the terms and conditions of this Agreement and
consummating the transactions, irrespective of whether the
transactions contemplated shall be consummated.
24. Amendment; Successors and Assigns. This Agreement shall not
be altered or otherwise amended except pursuant to any instrument
in writing signed by all of the affected parties hereto. Neither
party may assign any of its rights, obligations, or liabilities
arising hereunder without the prior written consent of the other,
except as otherwise provided herein, any such assignment or
attempted assignment shall be null and void.
25. Third Party Beneficiaries. Except for their proper heirs,
successors, and assigns, the parties hereto intend that no third
party shall have any rights or claims by reason of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed on the date first above-written.
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald Anderson
Donald Anderson
President
DOUGLAS J. RUGG
/s/ Douglas J. Rugg
Douglas J. Rugg
SCHEDULE A
(Drawings Showing Design of Golf Bag)
SCHEDULE B
(Drawings Showing Design of Golf Bag Carrying Case)
SCHEDULE C
SELLER CONSULTING AGREEMENT
This Consulting Agreement is made and entered into as of the 8th
day of May, 1998, by and between GOLFGEAR INTERNATIONAL, INC., a
Nevada corporation (the "Company") and DOUGLAS J. RUGG, an
individual (the "Consultant").
RECITALS
WHEREAS, the Company has developed certain proprietary technology
relating to the design and manufacturing of golf clubs;
WHEREAS, the Company is in the business of manufacturing and
selling golf clubs and golf accessories (hereinafter collectively
referred to as the "Products");
WHEREAS, Consultant is experienced in the design of golf bags and
related products and wishes to provide consulting services to the
Company with respect to the Company's marketing endeavors;
WHEREAS, the Company desires to utilize the services of
Consultant.
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, and with reference to the above Recitals, the
parties hereby agree as follows:
1. Services.
a. Design and Marketing Services. Consultant shall provide
services with respect to advising the Company on matters relating
to the marketing and design of the Company and its colf bag line
of products. This shall include interfacing with media,
developing an overall marketing plan which shall include
introduction to and coordinating colf event promotions and ba-
distribution. These services shall also include attendance at
promotional events. Compensation for actual attendance at
promotional events shall be acreed upon on a case by case basis.
b. General Duties of Consultant. During the term of this
Agreement, Consultant shall have the full and complete obligation
and responsibility for the performance of the duties as
contemplated under this Agreement. Consultant shall devote,
during the term of this Agreement, such of his time, energy and
skill as is necessary in the performance of his duties as
contemplated hereunder. It is anticipated that Consultant will
work no more than eight (8) hours per month in fulfilling
obligations imposed pursuant to this Agreement.
c. Assignment. Consultant may not assign the consulting
obligations hereunder to an entity or person.
2. Compensation. Consultant shall be compensated for services
contemplated pursuant to the consideration paid under the
Agreement for Sale and Purchase of Assets dated the same date
hereof. Additionally consultant shall be compensated as follows:
a. Finder's Fee. In addition to the compensation above, the
Company shall pay Consultant a finder's fee in the amount of ten
percent (10%) of any equity financing received as a result of
introductions made by the direct efforts of Consultant.
b. Compensation for actual attendance at promotional events
shall be agreed upon on a case by case basis.
3. Term of the Agreement. This Agreement shall be effective
until December 31, 1999. At the end of this period, the parties
may renew this Agreement for a one year period (or other agreed
upon period) under mutually agreeable terms and conditions. This
Agreement may be terminated by the Company in the event
Consultant fails to provide services as contemplated herein. hi
such event, the Company shall give Consultant written notice
identifying the reason for proposed termination and allow
Consultant a reasonable opportunity to cure any such breach.
4. Cooperation. The Company agrees that it shall cooperate
with Consultant to the extent that is reasonably necessary to
allow Consultant to perform any of the applicable services set
forth in Paragraph 1 above.
5. No Authority to Bind. It is understood and agreed that
Consultant is not acting as an agent for or on behalf of the
Company and nothing contained in this Agreement shall be
construed as authority for Consultant to bind the Company or
obligate the Company to any agreement or contract.
6. Exclusivity. During the term of this Agreement, Consultant
agrees not to consult with or advise, either formally or
informally, directly or indirectly, with any other golf companies
or golf products that compete with, or tend to compete with, the
Company's Products.
7. Confidentiality/Covenant Not To Unfairly Compete.
Consultant understands that he may, during the relationship as
contemplated under this Agreement, become aware of or develop certain
business and/or marketing practices, business plans, methods of
operations and other similar information which the Company deems proprietary
and confidential. Consultant hereby acknowledges that such
information is in fact proprietary and agrees not to directly or
indirectly disclose this information or compete with the business
of the Company, or the proposed business of the Company that may
exist from time to time without the prior written consent of the Company.
8. Independent Contractor. At all times during the term of this
Agreement, the Consultant is and shall be an independent contractor
in providing the consulting services hereunder, with the sole right to
supervise, manage, operate, control, and direct the performance incident
to such consulting services. Nothing contained in this Agreement shall
be deemed or construed to create a partnership or joint venture, to
create the relationships of employee/employer or principal/agent, or
otherwise create any liability whatsoever as partners, joint
venturers, employer, employee, principal, or agent for either the
Company or the Consultant with respect to the indebtedness, liabilities,
or obligations of each other or of any other person or entity.
9. Responsibility for Payment of Taxes. Consultant shall be
responsible for any and all withholding tax including income tax
or other employment taxes that may be required to be withheld
and/or paid as the result of any cash or non-cash compensation
received under this Agreement.
10. Attorneys' Fees. In the event of any litigation to interpret or
enforce any provisions of this Agreement, a court of competent
jurisdiction may award the prevailing party reasonable attorneys'
fees and costs.
11. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the state of California
applicable to agreements made and to be performed therein.
12. Independent Counsel. Consultant acknowledges that this
Agreement has been prepared by counsel to the Company, and said
counsel does not represent Consultant. Consultant. has been
advised to consult with an independent attorney of his own choice
for the purpose of reviewing this Agreement and giving legal
advice on behalf of Consultant with respect thereto.
13. Arbitration. In the event of any controversy or dispute
arising out of this Agreement including, without limitation, the
interpretation of any of the provisions hereof, any party shall
give a Notice to other parties advising each of them of such
controversy or dispute in reasonable detail. Upon receipt of
such Notice by all of the parties, the parties shall work
together in good faith for thirty (30) days from the date of
receipt of such Notice by each party to resolve such controversy
or dispute. In the event that such controversy or dispute is not
resolved within said time period, such controversy or dispute
shall be submitted to neutral, binding arbitration in Orange
County, California, before the American Arbitration Association
under the commercial arbitration rules then in effect. Any award
or decision obtained from any such arbitration proceeding shall
be final and binding. Any arbitration award or decision and any
judgment thereon may be entered and enforced in any court having
jurisdiction thereof. No action at law or in equity based upon
any claim arising out of or related to this Agreement shall be
instituted in any court except (a) an action to compel
arbitration pursuant to this subsection; or (b) an action to
enforce an award obtained in an arbitration proceeding in
accordance with this section.
14. Severability. The holding of any provision of this Agreement to be
invalid or unenforceable by a court of competent jurisdiction shall not
affect any other provision of this Agreement, which shall remain in full
force and effect.
15. Notices. Any notices required or permitted to be given
hereunder shall be sufficient if in writing, and if delivered by
hand, or sent by certified mail, return receipt requested, to the
addresses set forth below or such other address as either party
may from time to time designate in writing to the other, and
shall be deemed given as of the date of the delivery, or mailing.
IF TO COMPANY: Don Anderson
GolfGear International, Inc.
5481-A Commercial Drive
Huntington Beach, CA 92649
Telefax (714) 899-4284
IF TO CONSULTANT: Douglas J. Rugg
125 Industrial Way
Costa Mesa, CA 92627
Telefax (949) 722-1370
16. Waiver or Breach. It is agreed that a waiver by either
party of a breach of any provision of this Agreement shall not
operate, or be construed, as a waiver of any subsequent breach by
that same party.
17. Entire Agreement and Binding Effect. This Agreement,
contains the entire agreement between the parties hereto with
respect to the subject matter hereof and shall be binding upon
and inure to the benefit of the parties hereto and their
respective legal representatives, heirs, distributes, successors
and assigns.
18. Assignment. This Agreement may not be transferred or assigned by
either party without the prior written consent of the other party.
19. Headings. The section headings appearing in this Agreement
are for purposes of easy reference and shall not be considered a
part of this Agreement or in any way modify, amend or affect its
provisions.
20. Amendments. This Agreement may not be amended except by a
writing si-ned by all the parties hereto.
21. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and all
of which together shall constitute an Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the dateand year written above.
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald Anderson
Donald Anderson
President
DOUGLAS J. RUGG
/s/ Douglas J. Rugg
Douglas J. Rugg
LICENSE AGREEMENT
This LICENSE AGREEMENT ("Agreement") is dated as of August 12,
1996 ("Effective Date"), between Pacific Golf Holdings, Inc., a
California corporation, 5481-A Commercial Drive, Huntington
Beach, California 92649 ("Licensor"), and Confidence Golf. Inc.,
75-150 Sheryl Avenue, Suite B, Palm Desert, California 92211
("Licensee").
RECITALS
WHEREAS, Licensor owns certain patent rights relating to golf
club technology;
WHEREAS, Licensor has agreed to grant a license to licensee to
use such technology covered by Licensor's patent rights under the
terms and conditions set forth in this Agreement.
THEREFORE, the Licensor and the Licensee agree as follows;
1. Definitions.
1.1 "Affiliate" shall mean any person or entity in which a party
or a direct or indirect parent of a party owns, directly or,
indirectly, stock or other indicia of ownership representing at
least 50% of the voting control over such person or entity.
1.2 "Licensed Patent Rights" shall mean the United States and
foreign patents and patent applications of the Licensor listed in
the attached Schedule 1, which Is Incorporated as an integral
part of this Agreement, and any continuations, continuations-in-
part, divisions, reissues, re-examinations, extensions, additions
and foreign or other counterparts thereof.
1.3 "Licensed Product" shall mean a golf club, component of a
golf club or component made by a method coming within a claim of
any patent or patent application under the Licensed Patent
Rights.
1.4 "Net Selling Price" shall mean Licensee's Invoiced price of all
Licensed Products to a customer who is not an Affiliate, minus any returns.
2. License Grant.
2.1 Licensor hereby grants to Licenses a non-exclusive worldwide
license, with no right to grant sublicenses, to make, have made,
use, sell, Offer to sell and otherwise dispose of Licensed
Products utilizing the, Licensed Patent Rights. Such license of Licensed
Parent Rights shall be subject to the royalties provided in Section 3.
2.2 Licensor warrants that It Is the exclusive owner of the Licensed
Patent Rights, which are not encumbered in any way, and that it has
full power to enter into this Agreement and make the grants set forth above.
2.3 Licensor makes no warranties or representations that any
Licensed Products do not infringe any patents of third parties.
3. Compensation.
3.1 Advance Payment. Licensee shall make an advance payment to
Licensor upon the signing of this Agreement by both parties, of
$25,000. This, payment shall not be credited against any amounts
payable as royalties under paragraph 3.2 or paragraph 3.3.
3.2 Royalties. Licensee shall pay Licensor a royalty of $2.00
per iron and $2.50 per wood, for each golf club component made,
used, sold or offered by Licenses or on its behalf in a
geographical area where such activity would constitute an
infringement of a Licensed Patent Right in that area.
3.3 Minimum Royalties. In any year during which any Licensed
Patent Rights remain in effect and Licenses makes, uses, sells or
offers to sell any Licensed Products in a geographical area In
which such activity constitutes an infringement of a Licensed
Patent Right in that area, Licensee shall make a minimum annual
royalty payment of $25,000 to Licensor based upon the sale of
Licensed Products for such year at the applicable royalty rate
for Licensed Products (which minimum amount, shall be pro rated
for any partial year during which the minimum applies).
3.4 Royalties Not Refundable. Any payments or royalties paid by
Licensee under this Agreement shall not be refundable for any reason.
3.5 Termination of Royalties. The obligation. to pay royalties
for Licensed Products payable under this Agreement shall be
terminated for a patent in the event that the United States
Patent and Trademark Office or a court of competent jurisdiction
holds that a patent under the Licensed Patent Rights is invalid
and/or unenforceable, in a decision from which no further rights
of appeal are available, and when such event occurs no further
royalties shall be due under that patent.
3.6 Royalty Payments. Licensee shall pay the royalties required
hereunder within thirty (30) days (allowing each calendar quarter
after the Effective Date of this Agreement, except for minimum
royalties, which shall be paid at the end of each calendar year.
3.7 Reports. On or before each royalty payment date, Licensee
shall render to Licensor a written statement setting forth the
quantity of Licensed Products sold during the previous royalty
period, together with a statement of the amount of royalties due
for such products. During any period that royalties are payable
hereunder, Licensee shall keep written records with respect to
such products so the royalties payable hereunder may be
accurately established and determined and Licensee shall permit
such records to be inspected no more than once during any
calendar year by a Certified Public Accountant appointed by the
Licensor at any reasonable time during regular business hours,
upon written notice to Licensee at least five (5) working days In
advance of the inspection, to verify compliance with this
Agreement. It an underpayment of royalties is verified of more
than 10% of the amount due for any year, Licensee shall pay the
cost of the inspection, not to exceed $5,000.
3.8 Future Products of Licensee. For future products of
Licensee, that (a) employ an Insert which uses a Licensed Patent
Right or (b) employ a forged metallic face with a cast body, If
Licensee believes such a product Is not a Licensed Product
because It does not come within a claim of any patent or potent
application under the Licensed Patent Rights, Licensee shall
identify such product and provide a detailed explanation of the
basis of its belief, A failure to comply with this section shall
constitute a material breach of this Agreement.
4. Term and Termination.
4.1 The terms, conditions and obligations of this Agreement
become effective as of the Effective Date of this Agreement.
4.2 This Agreement shall remain In effect from and after the Effective
Date and shall expire automatically upon the expiration or termination
of all patents and patent applications under Licensed Patent Rights.
4.3 This Agreement May be terminated by Licensor prior to its
expiration, by prior written notice to the Licensee, for failure
to materially comply with any obligation hereunder; provided,
however, that the Licensee shall have sixty (60) days from the
date of delivery of such notice within which to remedy such breach.
4.4 Not withstanding any other provisions of this Agreement,
this Agreement will automatically terminate prior to its
expiration in the event that Licensee falls to make the minimum
annual royalty payment set forth In paragraph 3.3 and paragraph
3.6 within thirty (30) days of the end of each calendar year.
5. Consequence of Termination.
5.1 Termination of the Agreement for any reason shall not
relieve Licensee of its obligation to pay royalties accrued, due
or payable up to the date of such termination.
6 Miscellaneous.
6.1 Governing Law. This License Agreement shall be governed and
construed accordance with the laws of the State of California.
6.2 Assignment. All rights of Licensor under this Agreement can
be assigned without, any prior notice to or consent by the
Licensee, Other than to an affiliate of Licensee, Licensee shall
have no right to assign any of its rights or obligations under
this Agreement without the prior written consent of the Licensor.
Subject to such restrictions, this Agreement shall be binding
upon and inure to the benefit of the parties, their successors
and assigns.
6.3 Notices. Any notice or other communication provided for
herein or given hereunder to a party hereto shall be in writing
and shall be hand-delivered or mailed by first class registered
or certified mail, postage prepaid, or sent by facsimile
telephone transmission or telegram addressed to the attention of
the person specified below, in each case addressed or sent as
follows:
If to Licensor:
Pacific Golf Holdings, Inc.
c/o GolfGear International, Inc.
5481 A Commercial Drive
Huntington Beach, CA 92649
Attention: President
Facsimile Telephone Number: (714) 899-4284
If to Licensee:
Confidence Golf, Inc.
75-150 Sheryl Avenue
Suite B
Palm Desert, CA 92211
Attn: President
Facsimile Telephone Number (760) 341-7700
or to such Other address, or number, or the attention of such
other person, with, respect to either party as such party shall
have Communicated to the other by written notice given in
accordance with this section.
6.4 Waiver and Other Action. No party may waive any of the
terms or conditions of this Agreement except by a duly signed
writing referring to the specific provisions to be waived.
6.5 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions of this
Agreement shall continue in full force and effect and shall in no
way be affected, impaired or invalidated.
6.6 Counterparts. This Agreement may be executed In two or more
counterparts, each, of which shall be deemed an original but all
of which shall constitute but one instrument. Telecopy versions
of signed documents shall be deemed to be original documents for
purposes for this Agreement.
6.7 Entire Agreement, This Agreement constitutes the entire
Agreement between the parties, or any of them, with respect to
the subject matter hereof and supersedes any and all prior
agreements or understandings with respect thereto.
6.8 Relationship. It is expressly agreed that the parties
intend by this Agreement to establish between Licensor and
Licensee the relationship of independent contractors. It is
further agreed that a party has no authority to create or assume
in the other party's name or on behalf of the other Party for any
Purpose whatsoever. Neither Licensor nor Licensee is the
employer, employee, agent, partner or co-venturer of or with the
other, each being independent.
IN WITNESS WHEREOF, the parties to this Agreement have caused
this Agreement to be executed as of the date first above written.
PACIFIC GOLF HOLDINGS, INC.
By: /s/ Donald Anderson
Donald Anderson, President
CONFIDENCE GOLF, INC.
By: /s/ Robert Williams
Robert Williams, President
Pacific Golf Holdings, Inc.
5481-A Commercial Drive
Huntington Beach, California. 92649
(714) 899-4274
March 17, 1998
Mr. Robert Williams, President
Confidence Golf, Inc.
75-150 Sheryl Avenue, Suite B
Palm Desert, California 92211
RE: Waiver of certain terms of License Agreement dated August
12, 1996 between Pacific Golf Holdings, Inc. and Confidence Golf,
Inc.
Dear Mr. Williams:
Pursuant to our recent conversations, this letter will formally
waive certain terms and conditions of the License Agreement dated
August 12, 1996 between Pacific Golf Holdings, Inc. and
Confidence Golf, Inc., as follows:
Paragraph 3.1 - Advance Payment: The advance payment of,
$25,000 is waived.
Paragraph 3.2 - Royalties: Royalties through December 31, 1997
are waived.
Paragraph 3.3 - Minimum Royalties: The minimum royalty
payments of $25,000 through December 31, 1997 are waived.
Please signify your acknowledgement of such waiver by signing
where indicated below.
Sincerely,
/s/ Donald A. Anderson
Donald A. Anderson, President
Agreed and Acknowledged:
By: /s/ Robert Williams
Robert Williams, President
Confidence Golf, Inc.
Date: March 20, 1998
SCHEDULE 1
LICENSED PATENT RIGHTS
Jurisdiction Title Number Date
USA Golf Club Head 5,024,437 6/18/91
USA Golf Club Head and Method of
Forming Same 5,094,383 3/10/92
USA Golf Club Head and Method of
Forming Same 5,261,663 11/16/93
USA Golf Club Head and Method of
Forming Same 5,261,664 11/16/93
USA Golf Club Head and Method of
Forming Same 5,255,918 10/26/93
USA Golf Club Head and Method of
Forming Same 5,344,140 9/6/94
USA Golf Club with Recessed Non
Metallic Outer Face Plate 5,417,419 5/23/95
USA Structure and Process for
Affixing a Golf Club Insert
to a Golf Club Head 5,720,673 2/24/98
LICENSE AGREEMENT
This LICENSE AGREEMENT ("Agreement") is dated as of November 19,
1998 ("Effective Date"), between GolfGear International, Inc., a
Nevada corporation, 5481A Commercial Drive, Huntington Beach, CA
92649 ("Licensor"), and Wilson Sporting Goods Co., 8700 W. Bryn
Mawr, Chicago, Illinois 60631 ("Licensee");
RECITALS
WHEREAS, Licensor owns certain patent rights relating to golf
club technology;
WHEREAS, Licensor has agreed to grant a license to Licensee, to
use such technology covered by Licensor's patent rights under the
terms and conditions set forth in this Agreement.
THEREFORE, the Licensor and the Licensee agree as follows:
1. Definitions
1.1 "Affiliate" shall mean any person or entity in which a party
or a direct or indirect parent of a party owns, directly or
indirectly, stock or other indicia of ownership representing at
least 50% of the voting control over such person or entity.
1.2. "Licensed Patent Rights" shall mean the United States and
foreign patents and patent applications of the Licensor listed in
attached Schedule 1, which is incorporated as an integral part of
this Agreement, and any continuations, continuities-in-part,
divisions, reissues, re-examination, extensions, additions, and
foreign or other counterparts thereof
1.3. "Licensed Product" shall mean a golf club, component of a
golf club, or golf club or component made by a method coming
within a claim of any patent or patent application which issues
into a patent under the Licensed Patent Rights.
1.4. "Net Selling Price" shall mean Licensee's invoiced price of
all Licensed Products to a customer who is not an Affiliate,
minus any returns.
2. License Grant
2.1. Licensor hereby grants to Licensee a non-exclusive,
worldwide license, with no right to grant sublicenses, to make,
have made, use, sell, offer to sell and otherwise dispose of
Licensed Products utilizing the Licensed Patent Rights. Such
license of Licensed Patent Rights shall be subject to the
royalties provided in Section 3. Wilson agrees to limit sales of
its currently designed Pro Staff insert irons to 1,200 sets, in
jurisdictions where Licensor has a patent within the Licensed
Patent Rights.
2.2. Licensor warrants that it is the exclusive owner of the
Licensed Patent Rights, which are not encumbered in any way, and
that it has the full power to enter into this Agreement and make
the grants set forth above.
2.3. Licensor makes no warranties or representations that any
Licensed Products do not infringe any patents of third parties.
3. Compensation
3.1. Advance Payment. Licensee shall make an advance payment to
Licensor upon the signing of this Agreement by both parties as
specified in attached Schedule 2. This payment shall not be
credited against any amounts payable as royalties under paragraph
3.2 or paragraph 3.3.
3.2. Royalties. Licensee shall pay Licensor a royalty as
specified in attached Schedule 2, for each golf club or golf club
component made, used, sold or offered by Licensee or on its
behalf in a geographical area where such activity would
constitute an infringement of a Licensed Patent Right in that
area.
3.3. Minimum Royalties. In any year during which any Licensed
Patent Rights remain in effect and Licensee makes, uses, sells or
offers to sell any Licensed Products in a geographical area in
which such activity constitutes an infringement of a Licensed
Patent Right in that area, Licensee shall make a minimum annual
royalty payment to Licensor as specified in attached Schedule 2
(which minimum amount shall be pro rated for any partial year
during which the minimum applies).
3.4. Royalties Not Refundable. Any Payments or royalties paid by
Licensee under this Agreement shall not be refundable for any
reason.
3.5. Termination of Royalties. The obligation to pay royalties
for Licensed Products payable under this Agreement shall be
terminated for a patent in the event that the United States
Patent and Trademark Office or a court of competent jurisdiction
holds that a patent under the Licensed Patent Rights is invalid
and/or unenforceable, in a decision from which no further rights
of appeal are available, and when such event occurs no father
royalties shall be due under that patent.
3.6. Royalty Payments. Licensee shall pay the royalties
required hereunder within thirty (30) days following each
calendar quarter after the Effective Date of this Agreement,
except for minimum royalties which shall be paid at the end of
each calendar year.
3.7. Reports. On or before each royalty payment date,
Licensee shall render to Licensor a written statement setting
forth the quantity of Licensed Products sold during the previous
royalty period, together with a statement of the amount of
royalties due for such products. During any period that
royalties are payable hereunder, Licensee shall keep written
records respecting such products so the royalties payable
hereunder may be accurately established and determined, and
Licensee shall permit such records to be inspected no more than
once during any calendar year by a Certified Public Accountant
appointed by the Licensor at any reasonable time during regular
business hours, upon written notice to Licensee at least five (5)
working days in advance of the inspection, to verify compliance
with this Agreement. If an underpayment of royalties is verified
of more than 5% of the amount due for any year, Licensee shall
pay the cost of the inspection.
3.8 Future Products of Licensee. For future products of
Licensee that (a) employ an insert as disclosed by the Licensed
Patent Rights or (b) employ a forged face with a cast body, if
Licensee believes such a product is not a Licensed Product
because it does not come within a claim of any patent or patent
application under the Licensed Patent Rights, Licensee shall
identify such product and provide a detailed explanation of the
basis of its belief. A failure to comply with this section shall
constitute a breach of this Agreement.
4. Term and Termination
4.1. The terms, conditions and obligations of this Agreement
become effective as of the Effective Date of this Agreement.
4.2. This Agreement shall remain in effect for five years from
and after the Effective Date with Licensee's option to renew for
an additional five years.
4.3. This Agreement may be terminated by Licensor prior to its
expiration, by prior written notice to the Licensee, for failure
to comply with any obligation hereunder; provided, however, that
the Licensee shall have thirty (30) days from the date of
delivery of such notice within which to remedy such breach.
5. Consequence of Termination
5.1. Termination of the Agreement for any reason shall not
relieve Licensee of its obligation to pay royalties accrued, due
or payable up to the date of such termination.
6. Miscellaneous
6.1. Governing Law. This License Agreement shall be governed and
construed in accordance with the laws of the State of California.
6.2. Assignment. All rights of Licensor under this Agreement can
be assigned without any prior notice to or consent by the
Licensee. Licensee shall have no right to assign any of its
rights or obligations under this Agreement without the prior
written consent of the Licensor. Subject to such restrictions,
this Agreement shall be binding upon and inure to the benefit of
the parties, their successors and assigns.
6.3. Notices. Any notice or other communication provided for
herein or given hereunder to a party hereto shall be in writing
and shall be hand-delivered or mailed by first class registered
or certified mail, postage prepaid, or sent by facsimile
telephone transmission or telex addressed to the attention of the
person specified below, in each case addressed or sent as follows:
If to Licensor:
Pacific Golf Holdings, Inc.
c/o GolfGear International, Inc.
5481A Commercial Drive
Huntington Beach, CA 92649
Attention: President
Facsimile Telephone Number: (714) 899-4284
If to Licensee:
Wilson Sporting Goods Co.
8700 W. Bryn Mawr
Chicago, Illinois 60631
Attention: Director of Technology, Golf Division
Facsimile Telephone Number: (773) 714-6575
or to such other address or number, or the attention of such other
person, with respect to either party as such party shall have
communicated to the other by written notice given in accordance with
this section.
6.4. Waiver and Other Action. No party, may waive any of
the terms or conditions of this Agreement except by a duly signed
writing referring to the specific provisions to be waived.
6.5. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions of this
Agreement shall continue in full force and effect and shall in no
way be affected, impaired or invalidated.
6.6. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but
all of which shall constitute but one instrument. Telecopy
versions of signed documents shall be deemed to be original
documents for purposes of this Agreement.
6.7. Entire Agreement. This Agreement constitutes the entire
agreement between the parties, or any of them, with respect to
the subject matter hereof and supersedes any and all prior
agreements or understandings with respect thereto.
6.8. Relationship. It is expressly agreed that the parties
intend by this Agreement to establish between Licensor and
Licensee the relationship of independent contractors. It is
further agreed that a party has no authority to create or assume
in the other party's name or on behalf of the other party for any
purpose whatsoever. Neither Licensor nor Licensee is the
employer, employee, agent, partner or co-venturer of or with the
other, each being independent.
IN WITNESS WHEREOF, the parties to this Agreement have caused
this Agreement to be executed on the date first above written.
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald Anderson
Donald Anderson, President
WILSON SPORTING GOODS CO.
By: /s/ Frank Garrett, Jr.
Frank Garrett, Director of Research and Development
SCHEDULE 1
LICENSED PATENT RIGHTS
Jurisdiction Title Number Date of Patent
United States Golf Club Head and
Method of Forming Same 5,024,437 6/18/91
United States Golf Club Head and
Method of Forming Same 5,094,383 3/10/92
United States Golf Club 5,255,918 10/26/93
United States Golf Club Head and
Method of Forming Same 5,261,663 11/16/93
United States Golf Club with Recessed
Non-Metallic Outer Face Plate 5,261,664 11/16/93
United States Golf Club Head and Method
of Forming Same 5,344,140 9/6/94
United States Golf Club with recessed,
Non-Metallic Outer Face
Plate 5,417,419 5/23/95
United States Structure and Process for
Affixing a Golf Club Head
Insert to a Golf Club Head
Body 5,720,673 2/24/98
SCHEDULE 2
PAYMENTS
Advanced Payment. The advance payment under paragraph 3.1 is:
$25,000.00 (contrary to paragraph 3.1, this is to be credited against
advanced royalty payments)
Royalties. The royalty under paragraph 3.2 per golf club or golf
club component is:
for irons:
$1.00/club for first 250,000
$.75/club for next 250,000 to 500,000
$.50/club for 500,000 up
for woods:
$1.00/club for first 500,000
$.75/club for 500,000 up
Minimum Royalties. The minimum royalty per year is: $15,000.00
FINANCIAL SERVICES AGREEMENT
This Financial Services Agreement ("Agreement") is entered into
on this 17th day of June, 1997 by and between BRIDGEWATER CAPITAL
CORPORATION (hereinafter "BCC") and GOLFGEAR INTERNATIONAL, INC.,
a Corporation (hereinafter "Client"),
HEREAFTER, the Client and BCC are referred to collectively as
"Parties", and singularly as "Party".
WHEREAS, the Parties desire to set forth the terms and conditions
under which the said services shall be performed.
NOW, THEREFORE, in consideration of the promises of the mutual
covenants herein, the Parties hereto agree as follows:
ARTICLE I-SCOPE OF SERVICES
BCC agrees to perform for the Client, beginning immediately on
the date this Agreement is signed by all Parties, the financial
services described as follows:
(a) BCC will arrange for and help consummate the merger between
Client and a publicly traded "shell" corporation.
(b) BCC will assist the Client to analyze, negotiate and advise
on equity capital, debt financing, bridge loans etc.
(c) BCC will perform Investment banking activities including,
but not limited to, assisting in locating merger candidates,
acquisition candidates, divestiture opportunities, spin-off
opportunities, strategic alliances or partnerships, any other
opportunities to enhance shareholder value, advise company on
financial public relations firms, services, techniques, press
releases, shareholder letters etc,
(d) BCC will advise Client and perform research on specific
investment opportunities which may come to the attention of BCC
or Client and provide research on general market conditions.
Client agrees that BCC will not advise Client on the
appropriateness of an investment, but merely collect, analyze and
summarize data.
(9) RCC will also perform other duties from time to time as
requested by Client, provided that in no event will BCC perform
the services of an investment adviser.
(f) In rendering these services, BCC may develop creative works
for Client, Including but not limited to inventions, discoveries,
improvements, developments, processes, drawings, computer
software or other work which may be protectable by copyright,
patent or trade secrecy law. BCC agrees that all such work shall
be considered to be work for hire" and that all ownership and
rights of copyright, patent, or trade secrecy pertaining to such
work shall become the property of the Client. BCC agrees to
assign and does hereby assign all its rights in and to the
foregoing, whether or not patentable or copyrightable, to the
Client. BCC agrees that all information disclosed to ft about
the Client's products, processes and services are the sole
property of the Client and BCC will not assert any rights to any
confidential or proprietary information or material, nor will BCC
directly or indirectly, except as required In the conduct of
their duties under this Agreement, disseminate or disclose any
such confidential information.
(e) Additional special projects, such as annual reports,
quarterly reports, video presentations, personal presentations,
financial public relations etc. will be performed and billed
separately as mutually agreed upon by all Parties.
ARTICLE II-PERIOD OF PERFORMANCE
The period of performance under this Agreement shall begin
immediately upon a $500,000 (gross) capital infusion into Client
and will continue for a primary twelve (12) month term. If this
Agreement Is terminated by Client prior to twelve months, then
all payments due and payable under this Agreement will become
immediately due and payable to BCC.
ARTICLE III-CONTRACTUAL RELATIONSHIP
In performing the services under this agreement, BCC shall
operate as, and have the status of, and independent contractor.
BCC shall not have authority to enter into any contract binding
the Client, or create any obligations on the part of the Client,
except as shall be specifically authorized by the Client. The
Client and BCC will be mutually responsible for determining the
means and the methods for performing the services described In
ARTICLE 1.
ARTICLE IV-COMPENSATION
As full consideration for the performance of the basic services
described above, the Client shall pay BCC compensation, only upon
a $500,000 gross capital infusion into Client, as follows:
(a) Upon successful completion of the merger, or the $500,000
gross capital infusion, whichever comes later, BCC shall be
entitled to 4.99% of the stock of the post merged public company.
Said stock shall be registered under S-8, or any similar
registration statement, or as may be applicable and also shall
have piggyback registration rights, if needed.
(b) $6,000 per month consulting fees due and payable in cash or
S-8/504 stock of Client, if available (at BCC's option). The
initial payment of $6,000 is due and payable upon the $500,000
gross infusion of capital and then the subsequent eleven payments
of $6,000 are due monthly on the corresponding anniversary dates.
The first six (6) months of payments shall be escrowed from the
initial infusion of capital and released from escrow accordingly.
(c) Client shall grant to BCC the right to represent the Client
exclusively, for the services described in Article 1, without
competition or interference for a period of one hundred eighty
(180) days from the date this Agreement is signed by all Parties.
(d) Client shall grant to BCC the right to appoint one person to
the Client's Board of Directors for a period of two (2) years
from the date this Agreement is signed by both Parties.
(e) A finders fee on any mergers or acquisitions of Client by,
of or through contacts introduced by or through BCC, calculated
using the Lehman Formula (See attached Exhibit A). This fee is
due and payable in common stock of Client at said merger date.
The Lehman Formula will be calculated using the total value of
the amount(s) paid for the Acquisition whether in stock, cash,
notes, warrants etc.
(f) A 10% Finders Fee and a 2% non accountable Expense
Allowance on any and all capital, cash, equity or debt, infused
into Client only by or through a contact Introduced by BCC. If
such capital comes from a source not introduced to Client by or
through BCC then no Finders Fee will be due to BCC however the
Expense Allowance will be due and payable to BCC, on all capital
raised excluding mergers & acquisitions not introduced by BCC.
(g) Upon presentation of Invoices from BCC, Client shall
reimburse BCC for any and ail reasonable and normal business
expenses incurred by SCO in connection with the performance of
the services provided herein up to the sum of $1,500 per month;
provided, however, any expenditures in excess of $1,500 per month
will also be reimbursed to BCC as long as BCC has, prior to such
expenditure, received the approval of the Client to incur such
expenses.
ARTICLE V-COMPANY INFORMATION
Since BCC must at all times rely upon the accuracy and
completeness of information supplied to it by the Client's
officers, directors, agents, and employees, the Client agrees to
Indemnify, hold harmless, and defend BCC, its officers, agents or
employees at the Clients expense, in any proceeding or suit which
may arise out of and/or due to any inaccuracy or incompleteness
of such material supplied by the Client to BCC.
ARTICLE VI-ASSIGNMENT
This Agreement is intended to be binding upon and shall inure to
the benefit of the Parties, their successors and assigns,
Specifically, if the reverse merger occurs, this Agreement
continues as an obligation of the new entity.
ARTICLE VII-REPRESENTATIVE AND NOTICES
Notices provided for hereunder shall be in writing and may be
served personally to the Client's representative and BCC's
representative at their respective place of business or by
registered mail to the address of each Party or be transmitted by fax.
ARTICLE VIII-ARBITRATION/JURISDICTION OF COURT
Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration
in the County of Orange, California, U.S.A., in accordance with
the rules of the American Arbitration Association there in
effect, except that the Parties thereto shall have any right to
discovery as would be permitted by the Federal Rules of Civil
Procedure and the prevailing Party shall be entitled to,
reasonable costs and reasonable attorney's fees from arbitration
or any other civil action. Judgment upon the award rendered
therein may be entered in any Court having jurisdiction thereof.
Jurisdiction for any legal action is stipulated between the
Parties to lie In the County of Orange, California, U.S.A.
ARTICLE IX-MISCELLANEOUS
This Agreement constitutes the entire agreement between the
Client and BCC relating to providing financial services. It
supersedes all prior or contemporaneous communications,
representations or agreements, whether oral or written, with
respect to the subject matter hereof and has been induced by no
representations, statements or agreements other than those
expressed herein. No agreements hereafter made between the
Parties shall be binding on either Party unless reduced to
writing and signed by an authorized officer of the Party bound
thereby.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement
to be executed by their duly authorized officers.
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald Anderson
Donald Anderson, President
BRIDGEWATER CAPITAL CORPORATION
By: /s/ Jack Thomsen
Jack Thomsen, Chief Financial Officer
GOLFGEAR INTERNATIONAL, INC.
Amount: $500,000
Instrument: 2 year Senior Convertible Debenture
Registration: Underlying common stock to be registered pursuant
to an applicable form of registration (i.e. S-3, SB-2, 504, S-1).
The company shall use it's best efforts to file an applicable
registration statement within 60 days after the company begins trading.
Coupon: 10% annualized, payable quarterly, due on all
unconverted debentures as of the quarterly payment dates. The
payment can be, made at the company's discretion either in cash
or stock. The underlying stock would be issued at a 30% discount
from the previous 5 day average closing bid price on the date of
the quarterly calculation. The stock will also have piggyback
registration rights.
Proposed Structure: The debenture will be convertible at the
lesser of, a share price using shares valued at a private company
valuation of $6,000,000 (pre-investment), or a 40% discount from
the previous 5 day, from the date of conversion, average closing
bid price of the common stock.
Buyback Provision: Anytime prior to the 9 month anniversary date
from the signed subscription agreement, the Company shall have
the right, in whole or part, to purchase any unconverted
debentures from the investor(s) at a 12.5% premium of par value
and any accrued interest. If the company redeems the debenture
then warrants to purchase $250,000 worth of common stock (on a
pro-rata basis), at the original valuation price, shall be issued
to the investor(s). The common stock underlying the warrants
will have piggyback registration rights.
Closing: ASAP
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald Anderson
Donald Anderson, President
Dated: June 17, 1997
Law Offices of
GARY C. WYKIDAL & ASSOCIATES
Gary C. Wykidal 245 Fischer Avenue, Suite A-1
Of Counsel Costa Mesa, California 92626
Alan M. Reedy (714) 751-8505 Telefax (714) 751-5428
Julie A. Duncan
January 27, 1999
Jack A. Thomsen
Bridgewater Capital Corporation
4675 McArthur Court, Suite 1570
Newport Beach, California 92660
Re: GolfGear International, Inc.
Letter of Understanding
Dear Mr. Thomsen:
This letter, when signed by you, shall serve as an agreement regarding
the material terms that have been reached between Bridgewater Capital
Corporation ("BCC") and GolfGear International, Inc. (the "Company")
with respect to the matters contained herein. The material terms of the
agreement that has been reached are as follows:
The Company will issue (no later than February 28, 1999) warrants in the
amount of 105,705 shares exercisable at $.62 per share which expire in
October, 2002.
The Company will execute a promissory note, non interest bearing,
in the amount of Fifty Thousand Dollars ($50,000) in favor of
BCC, all due and payable no later than April 1, 1999. In the
event that the Company reaches minimum financing of Two Million
Two Hundred Fifty Thousand Dollars ($2,250,000) as currently
contemplated through the proposed offering of the Company's
Series A Convertible Preferred Stock, prior to April 1, 1999, the
Company will pay Fifty Thousand Dollars ($50,000) to BCC upon
reaching that minimum amount. In the event that the Company fails
to timely pay the Fifty Thousand Dollars ($50,000) when due, this
Agreement shall be considered null and void, and all remaining
shares that are the subject of this Agreement shall be forthwith
returned to BCC without limitation or conditions.
On or before February 28, 1999, if, and only if, the promissory
note and the warrants referred to above have been delivered to
BCC, BCC will deposit into a mutually acceptable escrow account
(to be held in street name, without restrictive legend, which
will be approved by the Company without delay) all of its common
stock of the Company (474,002 shares) to be distributed in
accordance with the following terms:
Commencing on May 1, 1999, Ten Thousand (10,000) shares per
month, or more at the Company's investment banker's discretion,
at a forty percent (40%) discount to the average closing bid
price (to be calculated based on the five (5) previous trading
days prior to the date of sale).
Commencing November 1, 1999, through February 29, 2000, the
purchase discount rate shall be ten percent (10%).
Commencing March 1, 2000, any remaining unsold shares shall be
transferred to BCC without limitations or discounts.
There will be no initial, subsequent or ongoing cost to BCC for
this escrow.
If this basic Agreement meets with your approval and is acceptable,
please sign where indicated below and I will commence preparing
the necessary documents which will consist primarily of a promissory
note for the Fifty Thousand Dollars ($50,000) and escrow agreement
regarding the Four Hundred Seventy Four Thousand and Two (474,002)
shares. Notwithstanding the fact that formal documents will be prepared,
this Agreement shall be considered binding upon BCC and the Company
when signed by you.
Thank you for your patience and cooperation in this regard. I am
authorized to execute this Agreement on behalf of the Company.
Very truly yours,
/s/ Gary C. Wykidal
Gary C. Wykidal
AGREED AND ACCEPTED:
BRIDGEWATER CAPITAL CORPORATION
By: /s/ Jack A. Thomsen
Jack A. Thomsen, Chief Financial Officer
July 1, 1998
Mr. Don Anderson
GolfGear International, Inc.
5481-A Commercial Drive
Huntington Beach, California 92649
RE: LETTER OF ENGAGEMENT
Commencement of Financial Communications
Dear Mr. Anderson:
We are prepared to embark upon a program of financial
communications activities on behalf of GolfGear International,
Inc. ("GolfGear" or "the Company"). By separate cover and
documentation previously submitted, entitled, "GolfGear
International, Inc. Financial Communications Program
Recommendations," we have detailed our intended activities.
The objective of such Program is broaden the awareness of the
Company in the U.S. through a methodical, disciplined and proven
system of financial communications thereby generating interest in
the Company's securities with a goal of achieving the highest
sustainable market value for those securities.
The official commencement date of our activities shall be July 1,
1998, subject to the mutual acceptance of the terms and
conditions outlined herein and our receipt of the first month's
retainer of $4,000 less a 5% prompt payment discount (not
$3,800). Retainers in subsequent months under this agreement can
also be reduced by five percent (5%) to $3,800 if paid by the
15th of each month.
In this relationship, Magnum Financial Group, LLC ("Magnum")
agrees to comply fully with all federal and state securities laws
and regulations, industry guidelines and applicable corporate
law. Additionally, our firm shall maintain the confidentiality
of all information of GolfGear not cleared by the Company for
public release.
Magnum represents and warrants that at no time prior to this date
has the firm, nor any of its principals, members, or employees,
been a party to any violation of securities laws, indictment,
conviction or investigation of same. Magnum further warrants
that if during the term of this agreement, any of its
principals, members, or employees become party to a violation of
such laws, then Magnum shall notify GolfGear within one (01) day
from the time authorities notify Magnum. GolfGear, may at its
option, elect to terminate immediately if these representations
and warranties are breached.
GolfGear agrees to indemnify and hold harmless Magnum, including
its principals, members, and employees from and against any and
all losses, claims, damages, expenses and/or liabilities which
Magnum may incur arising out Magnum's reliance upon and approved
use of information, reports, and data furnished by and
representations made by GolfGear, with respect to itself, whereby
Magnum in turn distributes and convey such information, reports,
and data to the public in the normal course of representing
GolfGear in financial communications activities. Such
indemnification shall include, but not be limited to, expenses
(including all attorney's fees), judgments, and amounts paid in
settlement actually and reasonably incurred by Magnum in
connection with an action, suit or proceeding brought against
Magnum and/or its principals, members, or employees.
As consideration for the services Magnum has agreed to provide
GolfGear, Magnum shall receive a $4,000 monthly retainer, which
can be reduced by five percent (5%) to $3,800 monthly if paid by
the 15th of each month.
In addition to the monthly retainer, GolfGear shall issue to
Magnum warrants for 150,000 shares of the Company's common
shares. Of those warrants, 50,000 shall vest immediately and be
exercisable at $2.00/share. Another 50,000 of the Warrants shall
vest at the six month anniversary of this agreement and be
exercisable at $2.50/share. The remaining 50,000 Warrants shall
vest at the 12-month anniversary of this agreement and be
exercisable at $3.00/sliare. The Warrants carry 2-year terms from
date(s) of issue, provide for cashless exercise, and provide for
"piggyback" registration rights of which cost for such
registration shall be born by GolfGear.
As typical with the rendering of professional services, we shall
invoice GolfGear for a prorata share of indirect costs for
telephone, on-line information services, and relevant reference
materials. These additional charges normally run approximately
$300-$350 per month. In addition, GolfGear will normally incur
other direct costs for printing, postage, 35mm color slides,
color and black & white reproductions, Wire distribution
services, meetings, and monthly maintenance of the contact
database we develop for you. It is the policy of Magnum to pass
through these additional direct and indirect costs without
markup, and to have them billed directly to the client, where
practicable.
Monthly expenses incurred while engaging in financial
communications and investor relations activities on behalf of
GolfGear shall be itemized and invoiced at the end of each month
hereafter and due within fifteen (15) days of receipt. The
purchase of goods and services by vendors and others outside of
Magnum related to our carrying out the subject activities for
GolfGear shall first be approved by GolfGear and then billed
directly to GolfGear.
Our retainer fees are designed to provide a planned financial
communications program that is implemented consistently over a
period of time based on a reasonable estimate of the hours of
work required to effect that plan. For reasons beyond our
control, particularly in times of client crisis (proxy fights,
auditor resignations, class-action litigation, suspension of
trading, delisting of securities, frenzied trading activity, etc)
the client may require our involvement beyond the scope of our
Agreement. In such situations, with approval by GolfGear, we
will provide additional services for additional fees billed on an
hourly basis at the rate of $200.00 per hour.
Further, while our scope of work traditionally interfaces with
investment bankers and investment funds in the financial
community, we do not engage in corporate finance. Our services
are defined as financial communications and investor relations,
and our fees are structured to cover only these services. Should
GolfGear require any form of financing, we would be more than
pleased to introduce you to the appropriate banking firms for
those services.
This engagement shall become effective directly following the
signing of this Agreement and receipt of the first month's
retainer, and shall continue for a duration of one (01) year and
continue thereafter on a month-to-month basis. This engagement
may be terminated by either party after the initial one year
period by providing one (1) month written notice to the other and
delivering same by registered mail.
Should the terms and conditions outlined herein meet with your
approval, please sign, and enter the date as provided for below.
Retain a copy of this Agreement for your files and forward an
original of same to us along with a check in the amount of $3,800
as the first month's retainer.
On behalf of the principals and entire staff at Magnum Financial
Group, we wish to thank you for your confidence in retaining our
firm. Your account team looks forward to working with you now
and in the future toward mutually beneficial goals.
Respectfully:
MAGNUM FINANCIAL GROUP, LLC
/s/ Michael Manahan /s/ Steven Johnson
Michael Manahan Steven Johnson
Principal Principal
In full agreement and acceptance of the terms and conditions herein:
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald Anderson
Donald Anderson, President
Dated: July 6, 1998
CONSULTING AGREEMENT
This Consulting Agreement is made and entered into as of the 1st
day of October, 1998, by and between GOLFGEAR INTERNATIONAL,
INC., a Nevada corporation (the "Company") and SPORTS
OPPORTUNITIES INTERNATIONAL, a South Carolina corporation (the
"Consultant").
RECITALS
WHEREAS, the Company has developed certain proprietary technology
relating to the design and manufacture of golf clubs;
WHEREAS, the Company is in the business of manufacturing and
selling golf clubs and golf accessories (hereinafter collectively
referred to as the "Products");
WHEREAS, Consultant, is experienced in the marketing of golf
products and golf companies and wishes to provide consulting services
to the Company with respect to the Company's marketing endeavors;
WHEREAS, Consultant, by and through Parker Smith, also desires to
serve as a member of the Board of Directors of the Company; and
WHEREAS, the Company desires to utilize the services of Consultant.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and with reference to the above Recitals, the parties hereby
agree as follows:
1. Services.
a. Marketing Services. Consultant shall provide services with
respect to advising the Company on matters relating to the
marketing of the Company and its Products. This shall include
interfacing with media, developing an overall marketing plan
which shall include introduction to and coordinating golf event
promotions and golf club distribution. These services shall not
include attendance at promotional events. Compensation for
actual attendance at promotional events shall be agreed upon on a
case by case basis.
b. Board of Directors. During the term of this Agreement,
Parker Smith agrees to act as and accept the position on the
Board of Directors of the Company. This position shall be
subject to removal in accordance with the bylaws of the Company
and/or the Nevada Revised Statutes.
c. General Duties of Consultant. During the term of this
Agreement, Consultant shall have the, fill and complete
obligation and responsibility for the performance of the duties
as contemplated under this Agreement. Consultant shall devote,
during the term of this Agreement, such time, energy and skill as
is necessary in the performance of his duties as contemplated
hereunder, and shall periodically, or at such time that the
Company may require. lt is anticipated that Consultant will work
approximately forty (40) hours per month in fulfilling
obligations imposed pursuant to this Agreement.
d. Assignment. Consultant (including Parker Smith) may not
assign the consulting obligations hereunder to an entity or person.
2. Compensation. Consultant shall be compensated for services
contemplated hereunder as follows:
a. Annual Compensation. Forty Thousand Dollars ($40,000) per
year with Ten Thousand Dollars ($10,000) to be paid upon
execution of this Agreement and Ten Thousand Dollars ($10,000) to
be paid each consecutive quarter from execution hereof commencing
on January 1, 1999.
b. Stock Compensation. In addition to the annual compensation
above, Consultant shall receive twenty-five (25,000) shares of
common stock of the Company upon execution of this Agreement,
which shall be restricted pursuant to Rule 144 of the
Securities Act of 1933, as amended (the "Securities Act"). Said
shares shall be subject to the lock-up restrictions identified in
Schedule A attached hereto and made a part hereof.
c. Compliance with Rule 144. Shares issued pursuant to
this Agreement or received upon exercise of stock options have
not been registered under the Securities Act or qualified under
the California Corporate Securities Law of 1968, as amended.
Consultant understands that securities issued hereunder have been
acquired for investment purposes and not with a view to or for
sale in connection with any distribution hereof within the
meaning of the Securities Act. Securities issued hereunder may
not be sold or offered for sale in the absence of an effective
registration statement under the Securities Act and compliance
with the California Securities Law or an opinion of counsel
satisfactory to the Company to the effect that said registration
and compliance is not required.
d. Stock Options. Stock options allowing Consultant to
purchase 50,000 shares of common stock of the Company at $2.00
per share. Said options shall vest as follows:
(i) 20,000 upon execution of this Agreement.
(ii) 15,000 after six months of execution of this Agreement.
(iii) 15,000 one year after execution of this Agreement.
e. Distribution Override. Twenty five cents ($0.25) per
golf club sold through distributors introduced to the Company by
Consultant. Nothing contained in this subparagraph shall
obligate the Company to enter into a distribution agreement with
any distributor introduced to the Company by Consultant. Any
obligation to pay compensation under this Paragraph 2(c) shall
survive the termination of this Agreement and shall remain in
full force and effect for five (5) years from the date any
distribution agreement is entered into as the result of
Consultant's efforts. All payments due to Consultant shall be
paid within ten (10) business days of receipt by the Company and
shall be subject to adjustment for sales returns and allowances.
f. Finder's Fee. In addition to the compensation above, the
Company shall pay Consultant a finder's fee in the amount of ten
percent (10%) of any equity financing received as a result of
introductions made by the direct efforts of Consultant.
3. Term of the Agreement. This Agreement shall be effective
until December 31, 1999. At the end of this period, the parties
may renew this Agreement for a one year period (or other agreed
upon period) under mutually agreeable terms and conditions. This
Agreement may be terminated by the Company in the event
Consultant becomes insolvent or files for bankruptcy or fails to
provide services as contemplated herein (which shall include the
death or incapacity of Parker Smith). In such event, the Company
shall give Consultant written notice identifying the reason for
proposed termination and allow Consultant a reasonable
opportunity to cure any such breach.
4. Cooperation. The Company agrees that it shall cooperate
with Consultant to the extent that is reasonably necessary to
allow Consultant to perform any of the applicable services as set
forth in Paragraph 1 above.
5. No Authority to Bind. It is understood and agreed that
Consultant is not acting as an agent for or on behalf of the
Company and nothing contained in this Agreement shall be
construed as authority for Consultant to bind the Company or
obligate the Company to any agreement or contract. In this
regard, Consultant agrees not to use any business card,
stationary or other correspondence, which utilizes the name or
logo of the Company in connection with services being tendered
hereunder by Consultant.
6. Exclusivity. During the term of this Agreement, Consultant
agrees not to consult with or advise, either formally or
informally, directly or indirectly, with any other golf companies
or golf products that compete with, or tend to compete with, the
Company's Products.
7. Confidentiality/Covenant Not to Unfairly Compete. Consultant
understands that he may, during the relationship as contemplated under
this Agreement, become aware of or develop certain business and/or
marketing practices, business plans, methods of operations and other
similar information which the Company deems proprietary and confidential.
Consultant hereby acknowledges that such information is in fact
proprietary and agrees not to directly or indirectly disclose this
information or compete with the business of the Company, or the proposed
business of the Company that my exist from time to time, without
the prior written consent of the Company.
8. Independent Contractor. At all times during the term of
this Agreement, the Consultant is and shall be an independent
contractor in providing the consulting services hereunder, with
the sole right to supervise, manage, operate,. control, and
direct the performance incident to such consulting services.
Nothing contained in this Agreement shall be deemed or construed
to create a partnership or joint venture, to create the
relationship of employer/employee or principal/agent, or
otherwise create any liability whatsoever as partners, joint
venturers, employer, employee, principal, agent, for either the
Company or the Consultant with respect to the indebtedness,
liabilities, or obligations of each other or of any other person
or entity.
9. Responsibility for Payment of Taxes. Consultant shall be
responsible for any and all withholding tax (including income tax) or
other employment taxes that may be required to be' withheld and/or paid
as the result of any cash or non-cash compensation received under this
Agreement.
10. Attorneys' Fees. In the event of any litigation to interpret or
enforce any provision(s) of this Agreement, a court of competent
jurisdiction may award the prevailing party reasonable attorneys' fees
and costs.
11. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California
applicable to agreements made and to be performed therein.
12. Independent Counsel. Consultant acknowledges that this
Agreement hag beenprepared by counsel to the Company, and said counsel
does not represent Consultant. Consultant has been advised to consult
with an independent attorney of his own choice for the purpose of
reviewing this Agreement and giving legal advice on behalf of
Consultant with respect thereto.
13. Arbitration. In the event of any controversy or dispute
arising out of this Agreement including, without limitation, the
interpretation f any of the provisions hereof, any party shall
give a Notice to other parties advising each of them of such
controversy or dispute in reasonable detail. Upon receipt of
such Notice by all of the parties, the parties shall work
together in good faith for thirty (30) days from the, date of
receipt of such Notice by each party to resolve such controversy
or dispute. In the event that such controversy or dispute is not
resolved within said time period, such controversy or dispute
shall be submitted to neutral, binding arbitration in Orange
County, California, before the American Arbitration Association
under the commercial arbitration rules then in effect. Any award
or decision obtained from any such arbitration proceeding shall
be final and binding. Any arbitration award or decision and any
judgment thereon may be entered and enforced in any court having
jurisdiction thereof. No action at law or in equity based upon
any claim arising out of or related to this Agreement shall be
instituted in any court except (a) an action to compel
arbitration pursuant to this subsection; or (b) an action to
enforce all award obtained in an arbitration proceeding in
accordance with this section.
14. Severability. The holding of any provision of this
Agreement to be invalid or unenforceable by a court of competent
jurisdiction shall not effect any other provision of this
Agreement, which shall remain in full force and effect.
15. Notices. Any notices required or permitted to be given
hereunder shall be sufficient if in writing, and if delivered by
hand, or sent by certified mail, return receipt requested, to the
addresses set forth below or such other address as either party
may from time to time designate in writing to the other, and
shall be deemed given as of the date of the delivery or mailing.
IF TO COMPANY: Don Anderson
GolfGear International, Inc.
5481-A Commercial Drive
Huntington Beach, CA 92649
IF TO CONSULTANT: Parker Smith
Sports Opportunities International
1106 South Palmway
Lake Worth, Florida 33460
16. Waiver or Breach. It is agreed that a waiver by either
party of a breach of anyprovision of this Agreement shall not operate,
or be construed, as a waiver of any subsequent breach by that same Party.
17. Entire Agreement and Binding Effect. This Agreement contains the
entire agreement between the parties hereto with respect to the subject
matter hereof and shall be binding upon and inure to the benefit of
the parties hereto and their respective legal representatives, heirs,
distributes, successors, and assigns.
18. Assignment. This Agreement may not be transferred or assigned by
either partywithout the prior written consent of the other party.
19. Headings. The section headings appearing in this Agreement
are for purposes of easy reference and shall not be considered a
part of this Agreement or in any way modify, amend or affect its
provisions.
20. Amendments. This Agreement may not be amended except by a
writing signed by all parties hereto.
21. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and all
of which together shall constitute an Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the dateand year first above written.
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald Anderson
Donald Anderson
President
SPORTS OPPORTUNITES INTERNATIONAL
By: /s/ Parker Smith
Parker Smith
EMPLOYMENT AGREEMENT PRIVATE
This Employment Agreement (the "Agreement") is entered into
as of the 1st day of July, 1998 between GOLFGEAR INTERNATIONAL,
INC., a Nevada corporation (the "Corporation"), and DONALD A.
ANDERSON ("Employee").
WHEREAS, the Board of Directors of the Corporation believes
that the continuation of the services of Employee as Chief
Executive Officer and President of the Corporation would be of
great value to the Corporation, and the Corporation is desirous of
retaining Employee's services for an additional number of years as
set forth in this Agreement; and
WHEREAS, Employee is willing to accept such continued employment by
the Corporation upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and the
mutual covenants herein contained and of the mutual benefits
herein provided, the Corporation and Employee hereby agree as follows:
TERM OF EMPLOYMENT
1.01 Specified Period. The Corporation hereby employs
Employee and Employee hereby accepts employment with the
Corporation for a further period of five (5) years, beginning on
July 1, 1998 and ending on June 30, 2003.
1.02 Automatic Renewal. This Agreement shall be
renewed automatically for succeeding terms of one (1) year each on
the same terms and conditions unless either party gives notice to
the other at least ninety (90) days prior to the expiration of any
term of his or its intention not to renew this Agreement.
DUTIES AND OBLIGATIONS OF EMPLOYEE
2.01 General Duties. Employee shall serve as the Chief
Executive Officer and President of the Corporation, and in such
capacity he shall continue to be responsible for the same services
and acts as he has been in the past, subject at all times to the
policies set by the Corporation's Board of Directors.
2.02 Devotion to Corporation's Business. Employee shall devote
substantially all of his working time and energy to the interest and
business of the Corporation, and shall, to the best of his skill and
ability, use his best efforts and endeavors to promote the business of
the Corporation and protect its goodwill, both as now enjoyed and
hereafter acquired. So long as no material detraction from the above
services occurs, Employee may from time to time, as is reasonable,
devote time to personal investments and projects, and to charitable and
other community activities.
2.03 Competitive Activities. During the term of this Agreement
Employee shall not, directly or indirectly, either as an
employee, employer, consultant, agent, principal, partner,
stockholder, officer, director, or in any other individual or
representative capacity, engage or participate in any business that is in
competition in my manner whatsoever with the business of the Corporation.
2.04 Trade Secrets.
(a) The parties acknowledge and agree that during
the term of this Agreement and in the course of discharge of his
duties hereunder, Employee shall have access to and become
acquainted with information concerning the operation and processes
of the Corporation, including, without limitation, financial,
sales marketing and personnel information that is owned by the
Corporation and regularly used in the operation of its business,
and that such information constitutes the Corporation's trade secrets.
(b) Employee specifically agrees that he shall not misuse,
misappropriate, or disclose any such trade secrets, directly or
indirectly, to any other person or use them in any way, either during
the term of this Agreement or at any time thereafter, except as is
required in the course of his employment hereunder.
(c) Employee further agrees that all files, records, documents,
equipment and similar materials relating to the Corporation's business,
whether prepared by Employee or others, are and shall remain exclusively
the property of the Corporation, and upon termination of this Agreement
for any reason all such items then in Employee's possession shall be
returned to the Corporation.
OBLIGATIONS OF THE CORPORATION
3.01 General. The Corporation shall provide Employee with the
compensation, benefits and business expense reimbursements specified
elsewhere in this Agreement, and with a private office, secretarial help,
office equipment and other facilities and services suitable to
Employee's position and adequate for the performance of his duties.
3.02 Indemnification. The Corporation shall, and hereby does
indemnify Employee for all losses sustained by Employee in direct
consequence of the discharge of his duties on the Corporation's behalf.
Such indemnification includes the duty to defend Employee against any
actions or claims that may be asserted against him by reason of or
related to his discharge of such duties.
3.03 Reorganization. The Corporation shall not merge or consolidate
with any other corporation until such corporation expressly assumes the
duties and obligations of the Corporation herein set forth.
COMPENSATION OF EMPLOYEE
4.01 Annual Salary.
(a) As compensation for the services to be performed hereunder, Employee
shall receive a salary at the rate of $90,000.00 per annum, payable not
less than once per month during the term of employment.
(b) Employee shall receive annual increases in salary of not less than
ten percent (10%) and further increases as may be determined by the
Corporation's Board of Directors in its sole discretion at its annual
meeting or at any specially called meeting.
4.02 Additional Compensation. In addition to the fixed
salary enumerated above, the Corporation will pay Employee a sum
equal to five percent (5%) of the net earnings of the Corporation
for each fiscal year (provided, however, such additional
compensation for any fiscal year will not exceed $200,000). "Net
earnings" for purposes of this paragraph will mean gross income
(not including non-recurring capital gains not arising in the
ordinary course of business) less expenses deducted from such sum
in accordance with generally accepted accounting principles to
arrive at net income except for the following items, which will
not be deducted to arrive at this figure: (1) all federal, state
and local taxes, (2) depreciation, (3) profit participations, (4)
non-recurring capital expenditures not arising in the ordinary
course of business, (5) write-offs, and (6) capital reserves.
The computation of net earnings and Employee's additional compensation
payable under this clause will be calculated by the Corporation's
independent auditors or such other independent accounting firm as the
Corporation may designate. The calculation will be completed on or
before 90 days after the end of the fiscal year. Such calculation is
final and binding on both parties. The Corporation will thereafter
promptly send, or cause to be sent, a copy of such calculation to
Employee, and will pay the sum stated in such calculation on or before
30 days after the close of the applicable year.
4.03 Death Benefit. Should Employee die during the
term of this Agreement, the Agreement shall terminate as of the
last day of the month of his death. Corporation shall pay to his
legal representatives, or to his surviving widow (provided that
Employee has so instructed Corporation in writing prior to his
death) the fixed salary specified in Item 4.01(a) above herein for
six (6) months following his death. This amount shall be paid
either in a lump sum or in equal monthly payments, as the Board of
Directors shall determine.
4.04 Tax Withholding. The Corporation shall have the
right to deduct or withhold from the compensation due to Employee
under Item 4.01 above any and all sums required for federal income
and Social Security taxes and all state or local taxes now
applicable or that may be enacted and become applicable in the
future. No withholdings shall be made from the consulting fee
described in Item 4.02 above since Employee, at that time, shall
be acting as an independent contractor.
EMPLOYEE BENEFITS
5.01 Annual Vacation. Employee shall be entitled to
twenty-one (21) days vacation time each year without loss of
compensation. In the event that Employee is unable for any reason
to take the total amount of vacation time authorized herein during
any year, he may accrue up to eleven (11) days and add it to
vacation time for any following year.
5.02 Illness. Employee shall be entitled to seven (7)
days per year as sick leave with full pay. Any unused sick leave
at the end of any year shall be paid to Employee as compensation
on a per diem basis.
5.03 Medical Coverage. The Corporation agrees to include Employee
in the coverage of its medical insurance, including, if applicable,
dental insurance, and to pay all premiums for such coverage of Employee.
BUSINESS EXPENSES
6.01 Automobile Expenses. The Corporation shall
promptly reimburse Employee for all expenses incurred by Employee
with respect to the use by Employee of his personal automobile in
connection with the business of the Corporation, including,
without limitation, gasoline costs, insurance premiums and
expenses of maintenance and repair, but in no event shall such
reimbursable expenses exceed $750 per month.
6.02 Other Business Expenses. the Corporation shall
promptly reimburse Employee for all other reasonable business
expenses incurred by Employee in connection with the business of
the Corporation, including, without limitation, travel, gifts and
entertainment expenses. As an alternative to the reimbursement of
such expenses, the Corporation may furnish Employee with credit
cards issued in the name of the Corporation for use by Employee
for direct payment of such authorized business expenses.
TERMINATION OF EMPLOYMENT
7.01 Termination for Cause.
(a) The Corporation reserves the right to terminate this Agreement
by written notice to Employee if Employee willfully breaches or
habitually neglects the duties which he is required to perform under
the terms of this Agreement; or commits such acts of dishonesty,
fraud, misrepresentation or other acts of moral turpitude as would
prevent the effective performance of his duties.
(b) The notice of termination required by Item 7.01(a) above shall
specify the ground for the termination and shall be supported by a
statement of all relevant facts. Termination under this Item 7.01 shall
be considered "for cause" for the purposes of this Agreement.
7.02 Termination Without Cause.
(a) This Agreement shall be terminated on the death of Employee.
(b) The Corporation reserves the right to terminate this Agreement
within ninety (90) days after Employee suffers any physical or
mental disability that would prevent the performance of his duties
under this Agreement. Such a termination shall be effected by giving
ten (10) days written notice of termination to Employee.
GENERAL PROVISIONS
8.01 Notices. Any notices to be given hereunder by any
party to another party shall be in writing and may be transmitted
by personal delivery or by certified mail return receipt
requested. Mailed notices shall be addressed to a party at the
address appearing below such party's signature, but a party may
change that address by written notice in accordance with this
Item. Notices delivered personally shall be deemed communicated
on the date of receipt; mailed notices shall be deemed
communicated on the second day after the date of mailing.
8.02 Attorneys' Fees. If any legal action is instituted to enforce
or interpret any term of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements
in addition to any other relief to which that party may be entitled.
8.03 Entire Agreement. This Agreement supersedes any
and all other agreements, written or oral, with respect to the
employment of Employee by the Corporation and contains all of the
covenants and agreements with respect to such employment. Any
modification of this Agreement will be effective only if in
writing and signed by the party to be charged.
8.04 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
8.05 Invalidity. If any provision hereof is held by a
court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions shall continue in full
force and effect without impairment.
8.06 Waiver. The failure of a party to insist on strict compliance with
any term or condition hereof by the other party shall not be deemed a
waiver of that term or condition, nor shall any waiver or relinquishment
of any right or power at any one time or times be deemed a waiver or
relinquishment of that right or power for all or any other times.
Executed as of the date first written above.
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Robert N. Weingarten
Robert N. Weingarten, Secretary
DONALD A. ANDERSON
/s/ Donald A. Anderson
Donald A. Anderson
GOLFGEAR INTERNATIONAL, INC. PRIVATE
1997 STOCK INCENTIVE PLAN
1. GENERAL PROVISIONS
1.1 Purpose.
The 1997 Stock Incentive Plan (the "Plan") is intended to allow
designated officers and employees (all of whom are sometimes
collectively referred to herein as "Employees") and certain
Non-Employee Directors of GolfGear International, Inc.
("GGI") and its Subsidiaries which it may have from time to time
(GGI and such Subsidiaries are referred to herein as the
"Company") to receive certain options ("Stock Options") to
purchase GGI's common stock, $.001 par value ("Common Stock"), and
to receive grants of Common Stock subject to certain restrictions
("Awards"). As used in this Plan, the term "Subsidiary" shall
mean each corporation which is a "subsidiary corporation" of GGI
within the meaning of Section 424(f) of the Internal Revenue Code
of 1986, as amended (the "Code"). The purpose of this Plan is to
provide Employees with equity-based compensation incentives to
make significant and extraordinary contributions to the long-term
performance and growth of the Company, and to attract and retain
Employees of exceptional ability.
1.2 Administration.
1.2.1 The Plan shall be administered by the
Compensation Committee (the "Committee") of, or appointed by, the
Board of Directors of GGI (the "Board"). Each member of the
Committee shall be a "disinterested person" as that term is
defined in Rule 16b-3 promulgated by the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Exchange
Act of 1934 (the "Exchange Act"), but no action of the Committee
shall be invalid if this requirement is not met. The Committee
shall select one of its members as Chairman and shall act by vote
of a majority of a quorum, or by unanimous written consent. A
majority of its members shall constitute a quorum. The Committee
shall be governed by the provisions of GGI's By-Laws and of
Delaware law applicable to the Board, except as otherwise provided
herein or determined by the Board.
1.2.2 The Committee shall have full and complete
authority, in its discretion, but subject to the express provi-
sions of the Plan: to approve the Employees nominated by the
management of the Company to be granted Awards or Stock Options;
to determine the number of Awards or Stock Options to be granted
to an Employee; to determine the time or times at which Awards or
Stock Options shall be granted; to establish the terms and
conditions upon which Awards or Stock Options may be exercised; to
remove or adjust any restrictions and conditions upon Awards or
Stock Options; to specify, at the time of grant, provisions
relating to exercisability of Stock Options and to accelerate or
otherwise modify the exercisability of any Stock Options; and to
adopt such rules and regulations and to make all other
determinations deemed necessary or desirable for the administration
of the Plan. All interpretations and constructions of the
Plan by the Committee, and all of its actions hereunder, shall
be binding and conclusive on all persons for all purposes.
1.2.3 The Company hereby agrees to indemnify and
hold harmless each Committee member and each employee of the
Company, and the estate and heirs of such Committee member or
employee, against all claims, liabilities, expenses, penalties,
damages or other pecuniary losses, including legal fees, which
such Committee member or employee, his or her estate or heirs may
suffer as a result of his or her responsibilities, obligations or
duties in connection with the Plan, to the extent that insurance,
if any, does not cover the payment of such items. No member of
the Committee or the Board shall be liable for any action or
determination made in good faith with respect to the Plan or any
Award or Stock Option granted pursuant to the Plan.
1.3 Eligibility and Participation.
Employees eligible under the Plan shall be approved by the Committee
from those Employees who, in the opinion of the management of the
Company, are in positions which enable them to make significant and
extraordinary contributions to the long-term performance and growth
of the Company. In selecting Employees to whom Stock Options or
Awards may be granted, consideration shall be given to factors such
as employment position, duties and responsibilities, ability, productivity,
length of service, morale, interest in the Company and
recommendations of supervisors. No member of the Committee shall
be eligible to participate under the Plan or under any other
Company plan if such participation would contravene the standard
of paragraph 1.2.1 above relating to "disinterested persons."
1.4 Shares Subject to the Plan.
The maximum number of shares of Common Stock that
may be issued pursuant to the Plan shall be 750,000, subject to
adjustment pursuant to the provisions of paragraph 4.1. If shares
of Common Stock awarded or issued under the Plan are reacquired by
the Company due to a forfeiture or for any other reason, such
shares shall be cancelled and thereafter shall again be available
for purposes of the Plan. If a Stock Option expires, terminates
or is cancelled for any reason without having been exercised in
full, the shares of Common Stock not purchased thereunder shall
again be available for purposes of the Plan.
2. PROVISIONS RELATING TO STOCK OPTIONS
2.1 Grants of Stock Options.
The Committee may grant Stock Options in such amounts,
at such times, and to such Employees nominated by the management
of the Company as the Committee, in its discretion, may determine.
Stock Options granted under the Plan shall constitute "incentive
stock options" within the meaning of Section 422 of the Code, if
so designated by the Committee on the date of grant. The
Committee shall also have the discretion to grant Stock Options
which do not constitute incentive stock options, and any such
Stock Options shall be designated non-statutory stock options by
the Committee on the date of grant. The aggregate fair market
value (determined as of the time an incentive stock option is
granted) of the Common Stock with respect to which incentive stock
options are exercisable for the first time by any Employee during
any one calendar year (under all plans of the Company and any
parent or Subsidiary of the Company) may not exceed the maximum
amount permitted under Section 422 of the Code (currently
$100,000.00). Non-statutory stock options shall not be subject to
the limitations relating to incentive stock options contained in
the preceding sentence. Each Stock Option shall be evidenced by a
written agreement (the "Option Agreement") in a form approved by
the Committee, which shall be executed on behalf of the Company
and by the Employee to whom the Stock Option is granted, and which
shall be subject to the terms and conditions of this Plan. In the
discretion of the Committee, Stock Options may include provisions
(which need not be uniform), authorized by the Committee in its
discretion, that accelerate an Employee's rights to exercise Stock
Options following a "Change in Control," upon termination of such
Employee employment by the Company without "Cause" or by the
Employee for "Good Reason," as such terms are defined in paragraph
3.1 hereof. The holder of a Stock Option shall not be entitled to
the privileges of stock ownership as to any shares of Common Stock
not actually issued to such holder.
2.2 Purchase Price.
The purchase price (the "Exercise Price") of shares of
Common Stock subject to each Stock Option ("Option Shares") shall
equal the fair market value ("Fair Market Value") of such shares
on the date of grant of such Stock Option. Notwithstanding the
foregoing, the Exercise Price of Option Shares subject to an
incentive stock option granted to an Employee who at the time of
grant owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of any
parent or Subsidiary shall be at least equal to 110% of the Fair
Market Value of such shares on the date of grant of such Stock
Option. The Fair Market Value of a share of Common Stock on any
date shall be equal to the closing price (or if no closing price
is reported, the average of the last bid and asked prices) of the
Common Stock for the last preceding day on which GGI's shares were
traded, and the method for determining the closing price shall be
determined by the Committee.
2.3 Option Period.
The Stock Option period (the "Term") shall commence on
the date of grant of the Stock Option and shall be ten years or
such shorter period as is determined by the Committee. Notwith-
standing the foregoing, the Term of an incentive stock option
granted to an Employee who at the time of grant owns stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of any parent or Subsidiary
shall not exceed five years. Each Stock Option shall provide that
it is exercisable over its term in such periodic installments as
the Committee in its sole discretion may determine. Such
provisions need not be uniform. Notwithstanding the foregoing,
but subject to the provisions of paragraphs 1.2.2 and 2.1, Stock
Options granted to Employees who are subject to the reporting
requirements of Section 16(a) of the Exchange Act ("Section 16
Reporting Persons") shall not be exercisable until at least six
months and one day from the date the Stock Option is granted.
2.4 Exercise of Options.
2.4.1 Each Stock Option may be exercised in whole
or in part (but not as to fractional shares) by delivering it for
surrender or endorsement to the Company, attention of the
Corporate Secretary, at the principal office of the Company,
together with payment of the Exercise Price and an executed Notice
and Agreement of Exercise in the form prescribed by paragraph
2.4.2. Payment may be made (i) in cash, (ii) by cashier's or
certified check, (iii) by surrender of previously owned shares of
the Company's Common Stock valued pursuant to paragraph 2.2 (if
the Committee authorizes payment in stock in its discretion), (iv)
by withholding from the Option Shares which would otherwise be
issuable upon the exercise of the Stock Option that number of
Option Shares having an aggregate fair market value (determined in
the manner prescribed by paragraph 2.2) as of the date of the
exercise of the Stock Option equal to the exercise price of the
Stock Option, if such withholding is authorized by the Committee
in its discretion, or (v) in the discretion of the Committee, by
the delivery to the Company of the optionee's promissory note
secured by the Option Shares, bearing interest at a rate
sufficient to prevent the imputation of interest under Sections
483 or 1274 of the Code, and having such other terms and
conditions as may be satisfactory to the Committee.
2.4.2 Exercise of each Stock Option is conditioned
upon the agreement of the Employee to the terms and conditions of
this Plan and of such Stock Option as evidenced by the Employee's
execution and delivery of a Notice and Agreement of Exercise in a
form to be determined by the Committee in its discretion. Such
Notice and Agreement of Exercise shall set forth the agreement of
the Employee that: (a) no Option Shares will be sold or otherwise
distributed in violation of the Securities Act of 1933 (the
"Securities Act") or any other applicable federal or state
securities laws, (b) each Option Share certificate may be im-
printed with legends reflecting any applicable federal and state
securities law restrictions and conditions, (c) the Company may
comply with said securities law restrictions and issue "stop
transfer" instructions to its Transfer Agent and Registrar without
liability, (d) if the Employee is a Section 16 Reporting Person,
the Employee will furnish to the Company a copy of each Form 4 or
Form 5 filed by said Employee and will timely file all reports
required under federal securities laws, and (e) the Employee will
report all sales of Option Shares to the Company in writing on a
form prescribed by the Company.
2.4.3 No Stock Option shall be exercisable unless
and until any applicable registration or qualification
requirements of federal and state securities laws, and all other
legal requirements, have been fully complied with. The Company
will use reasonable efforts to maintain the effectiveness of a
Registration Statement under the Securities Act for the issuance
of Stock Options and shares acquired thereunder, but there may be
times when no such Registration Statement will be currently
effective. The exercise of Stock Options may be temporarily
suspended without liability to the Company during times when no
such Registration Statement is currently effective, or during
times when, in the reasonable opinion of the Committee, such
suspension is necessary to preclude violation of any requirements
of applicable law or regulatory bodies having jurisdiction over
the Company. If any Stock Option would expire for any reason
except the end of its term during such a suspension, then if
exercise of such Stock Option is duly tendered before its expira-
tion, such Stock Option shall be exercisable and exercised (unless
the attempted exercise is withdrawn) as of the first day after the
end of such suspension. The Company shall have no obligation to
file any Registration Statement covering resales of Option Shares.
2.5 Continuous Employment.
Except as provided in paragraph 2.7 below, an Employee may not
exercise a Stock Option unless from the date of grant to the
date of exercise such Employee remains continuously in the
employ of the Company. For purposes of this paragraph 2.5,
the period of continuous employment of an Employee with the
Company shall be deemed to include (without extending the term of
the Stock Option) any period during which such Employee is on
leave of absence with the consent of the Company, provided that
such leave of absence shall not exceed three months and that such
Employee returns to the employ of the Company at the expiration of
such leave of absence. If such Employee fails to return to the
employ of the Company at the expiration of such leave of absence,
such Employee's employment with the Company shall be deemed
terminated as of the date such leave of absence commenced. The
continuous employment of an Employee with the Company shall also
be deemed to include any period during which such Employee is a
member of the Armed Forces of the United States, provided that
such Employee returns to the employ of the Company within 90 days
(or such longer period as may be prescribed by law) from the date
such Employee first becomes entitled to discharge. If an Employee
does not return to the employ of the Company within 90 days (or
such longer period as may be prescribed by law) from the date such
Employee first becomes entitled to discharge, such Employee's
employment with the Company shall be deemed to have terminated as
of the date such Employee's military service ended.
2.6 Restrictions on Transfer.
Each Stock Option granted under this Plan shall be
transferable only by will or the laws of descent and distribution.
No interest of any Employee under the Plan shall be subject to
attachment, execution, garnishment, sequestration, the laws of
bankruptcy or any other legal or equitable process. Each Stock
Option granted under this Plan shall be exercisable during an
Employee's lifetime only by such Employee or by such Employee's
legal representative.
2.7 Termination of Employment.
2.7.1 Upon an Employee's Retirement, Disability or death
(a) all Stock Options to the extent then presently exercisable
shall remain in full force and effect and may be exercised
pursuant to the provisions thereof, including expiration at the
end of the fixed term thereof, and (b) unless otherwise provided
by the Committee, all Stock Options to the extent not then
presently exercisable by such Employee shall terminate as of the
date of such termination of employment and shall not be exercisable
thereafter.
2.7.2 Upon the termination of the employment of an
Employee with the Company for any reason other than the reasons
set forth in paragraph 2.7.1 hereof, (a) all Stock Options to the
extent then presently exercisable by such Employee shall remain
exercisable only for a period of 90 days after the date of such
termination of employment (except that the 90-day period shall be
extended to 12 months if the Employee shall die during such 90-day
period), and may be exercised pursuant to the provisions thereof,
including expiration at the end of the fixed term thereof, and (b)
unless otherwise provided by the Committee, all Stock Options to
the extent not then presently exercisable by such Employee shall
terminate as of the date of such termination of employment and
shall not be exercisable thereafter.
2.7.3 For purposes of this Plan:
(a) "Retirement" shall mean an Employee's retirement from the employ of
the Company on or after the date on which such Employee attains the age
of sixty-five (65) years; and
(b) "Disability" shall mean total and permanent incapacity of an
Employee, due to physical impairment or legally established mental
incompetence, to perform the usual duties of such Employee's
employment with the Company, which disability shall be determined:
(i) on medical evidence by a licensed physician designated by the
Committee, or (ii) on evidence that the Employee has become entitled
to receive primary benefits as a disabled employee under the Social
Security Act in effect on the date of such disability.
2.8 Grants of Options to Non-Employee Directors.
Each member of the Board who is not an Employee (a "Non-Employee
Director:), whether or not such member is a member of the Committee,
shall automatically be granted non-statutory Stock Options to purchase
10,000 shares of Common Stock on each anniversary of such Non-Employee
Director's continuous service on the Board. The term of each such Stock
Option granted to a Non-Employee Director shall commence on the date of
grant and shall be for ten years thereafter. Each such Stock Option granted
to a Non-Employee Director shall first be exercisable six months
and one day from the later of the date of grant or the date of
shareholder approval of this Plan, and thereafter shall be
exercisable at any time until the expiration of its term, whether
or not the Non-Employee Director is a member of the Board at the
time of exercise or later enters the employ of the Company.
Notwithstanding the foregoing or any other provision of this Plan,
all unexercised Stock Options held by a Non-Employee Director
shall automatically terminate as of the date his or her
directorship is terminated, if such directorship is terminated on
account of any act of fraud, embezzlement, misappropriation or
conversion of assets or opportunities of the Company. Upon
termination of such Stock Options, such Non-Employee Director
shall forfeit all rights and benefits under this Plan. Notwith-
standing the provisions of paragraph 4.4, the provisions of this
paragraph 2.8 may not be amended more than once every six months,
other than to comport with changes in the Code or the regulations
thereunder. The Committee shall not grant any Awards to Non-
Employee Directors and shall have no discretion as to (a) the
selection of Non-Employee Directors to whom Stock Options may be
granted, (b) the number of Stock Options granted to any Non-
Employee Director, (c) the times at which or the periods within
which Stock Options may be granted to, or exercised by, Non-
Employee Directors, or (d) except to the limited extent provided
in paragraph 2.2, the price at which any Stock Option granted to a
Non-Employee Director may be exercised. Except as specifically
set forth in this paragraph 2.8, Stock Options granted to Non-
Employee Directors will be governed by all of the other terms and
provisions of this Plan.
3. PROVISIONS RELATING TO AWARDS
3.1 Grant of Awards.
Subject to the provisions of the Plan, the
Committee shall have full and complete authority, in its
discretion, but subject to the express provisions of this Plan, to
(i) grant Awards pursuant to the Plan, (ii) determine the number
of shares of Common Stock subject to each Award ("Award Shares"),
(iii) determine the terms and conditions (which need not be
identical) of each Award, including the consideration (if any) to
be paid by the Employee for such Common Stock, which may, in the
Committee's discretion, consist of the delivery of the Employee's
promissory note meeting the requirements of paragraph 2.4.1, (iv)
establish and modify performance criteria for Awards, and (v) make
all of the determinations necessary or advisable with respect to
Awards under the Plan. Each award under the Plan shall consist of
a grant of shares of Common Stock subject to a restriction period
(after which the restrictions shall lapse), which shall be a
period commencing on the date the award is granted and ending on
such date as the Committee shall determine (the "Restriction
Period"). The Committee may provide for the lapse of restrictions
in installments, for acceleration of the lapse of restrictions
upon the satisfaction of such performance or other criteria or
upon the occurrence of such events as the Committee shall
determine, and for the early expiration of the Restriction Period
upon an Employee's death, Disability or Retirement as defined in
paragraph 2.7.3, or, following a Change of Control, upon
termination of an Employee's employment by the Company without
"Cause" or by the Employee for "Good Reason," as those terms are
defined herein. For purposes of this Plan:
"Change of Control" shall be deemed to occur (a)
on the date the Company first has actual knowledge that any person
(as such term is used in Sections 13(d) and 14(d) (2) of the
Exchange Act) has become the beneficial owner (as defined in Rule
13(d)-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 40% or more of the combined
voting power of the Company's then outstanding securities, or (b)
on the date the shareholders of the Company approve (i) a merger
of the Company with or into any other corporation in which the
Company is not the surviving corporation or in which the Company
survives as a subsidiary of another corporation, (ii) a
consolidation of the Company with any other corporation, or (iii)
the sale or disposition of all or substantially all of the
Company's assets or a plan of complete liquidation.
"Cause," when used with reference to termination of the employment
of an Employee by the Company for "Cause," shall mean:
(a) the Employee's continuing willful and material breach of his or her
duties to the Company after he or she receives a demand from the Chief
Executive of the Company specifying the manner in which he or she has
willfully and materially breached such duties, other than any such failure
resulting from Disability of the Employee or his or her
resignation for "Good Reason," as defined herein; or
(b) the conviction of the Employee of a felony; or
(c) the Employee's commission of fraud in the course of his or her
employment with the Company, such as embezzlement or other material
and intentional violation of law against the Company; or
(d) the Employee's gross misconduct causing material harm to the Company.
"Good Reason" shall mean any one or more of the following, occurring
following or in connection with a Change of Control and within 90
days prior to the Employee's resignation, unless the Employee shall
have consented thereto in writing:
(a) the assignment to the Employee of duties
inconsistent with his or her executive status prior to the Change
of Control or a substantive change in the officer or officers to
whom he or she reports from the officer or officers to whom he or
she reported immediately prior to the Change of Control; or
(b) the elimination or reassignment of a majority of the duties and
responsibilities that were assigned to the Employee immediately prior
to the Change of Control; or
(c) a reduction by the Company in the Employee's annual base salary
as in effect immediately prior to the Change of Control; or
(d) the Company's requiring the Employee to be based anywhere outside
a 35-mile radius from his or her place of employment immediately prior
to the Change of Control, except for required travel on the Company's
business to an extent substantially consistent with the Employee's
business travel obligations immediately prior to the Change of Control; or
(e) the failure of the Company to grant the Employee a performance
bonus reasonably equivalent to the same percentage of salary the
Employee normally received prior to the Change of Control, given
comparable performance by the Company and the Employee; or
(f) the failure of the Company to obtain a satisfactory Assumption
Agreement (as defined in paragraph 4.12 of the Plan) from a successor,
or the failure of such successor to perform such Assumption Agreement.
3.2 Incentive Agreements.
Each Award granted under the Plan shall be evidenced by a written
agreement (an "Incentive Agreement") in a form approved by the
Committee and executed by the Company and the Employee to whom the
Award is granted. Each Incentive Agreement shall be subject to the
terms and conditions of the Plan and other such terms and conditions
as the Committee may specify.
3.3 Waiver of Restrictions.
The Committee may modify or amend any Award under the
Plan or waive any restrictions or conditions applicable to such
Awards; provided, however, that the Committee may not undertake
any such modifications, amendments or waivers if the effect
thereof materially increases the benefits to any Employee, or
adversely affects the rights of any Employee without his or her
consent.
3.4 Terms and Conditions of Awards.
3.4.1 Upon receipt of an Award of shares of Common
Stock under the Plan, even during the Restriction Period, an
Employee shall be the holder of record of the shares and shall
have all the rights of a shareholder with respect to such shares,
subject to the terms and conditions of the Plan and the Award.
3.4.2 Except as otherwise provided in this paragraph 3.4, no
shares of Common Stock received pursuant to the Plan shall be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed
of during the Restriction Period applicable to such shares. Any
purported disposition of such Common Stock in violation of this
paragraph 3.4.2 shall be null and void.
3.4.3 If an Employee's employment with the Company
terminates prior to the expiration of the Restriction Period for
an Award, subject to any provisions of the Award with respect to
the Employee's death, Disability or Retirement, or Change of
Control, all shares of Common Stock subject to the Award shall be
immediately forfeited by the Employee and reacquired by the
Company, and the Employee shall have no further rights with
respect to the Award. In the discretion of the Committee, an
Incentive Agreement may provide that, upon the forfeiture by an
Employee of Award Shares, the Company shall repay to the Employee
the consideration (if any) which the Employee paid for the Award
Shares on the grant of the Award. In the discretion of the
Committee, an Incentive Agreement may also provide that such
repayment shall include an interest factor on such consideration
from the date of the grant of the Award to the date of such
repayment.
3.4.4 The Committee may require under such terms
and conditions as it deems appropriate or desirable that (i) the
certificates for Common Stock delivered under the Plan are to be
held in custody by the Company or a person or institution
designated by the Company until the Restriction Period expires,
(ii) such certificates shall bear a legend referring to the
restrictions on the Common Stock pursuant to the Plan, and (iii)
the Employee shall have delivered to the Company a stock power
endorsed in blank relating to the Common Stock.
4. MISCELLANEOUS PROVISIONS
4.1 Adjustments Upon Change in Capitalization.
4.1.1 The number and class of shares subject to
each outstanding Stock Option, the Exercise Price thereof (but not
the total price), the maximum number of Stock Options that may be
granted under the Plan, the minimum number of shares as to which a
Stock Option may be exercised at any one time, and the number and
class of shares subject to each outstanding Award, shall
be proportionately adjusted in the event of any increase or
decrease in the number of the issued shares of Common Stock which
results from a split-up or consolidation of shares, payment of a
stock dividend or dividends exceeding a total of 5% for which the
record dates occur in any one fiscal year, a recapitalization
(other than the conversion of convertible securities according to
their terms), a combination of shares or other like capital
adjustment, so that (i) upon exercise of the Stock Option, the
Employee shall receive the number and class of shares such
Employee would have received had such Employee been the holder of
the number of shares of Common Stock for which the Stock Option is
being exercised upon the date of such change or increase or
decrease in the number of issued shares of the Company, and (ii)
upon the lapse of restrictions of the Award Shares, the Employee
shall receive the number and class of shares such Employee would
have received if the restrictions on the Award Shares had lapsed
on the date of such change or increase or decrease in the number
of issued shares of the Company.
4.1.2 Upon a reorganization, merger or consolidation of the Company
with one or more corporations as a result of which GGI is not the
surviving corporation or in which GGI survives as a wholly-owned
subsidiary of another corporation, or upon a sale of all or
substantially all of the property of the Company to another corporation,
or any dividend or distribution to shareholders of more than 10% of
the Company's assets, adequate adjustment or other provisions shall be made
by the Company or other party to such transaction so that there shall
remain and/or be substituted for the Option Shares and Award Shares
provided for herein, the shares, securities or assets which would have been
issuable or payable in respect of or in exchange for such Option
Shares and Award Shares then remaining, as if the Employee had
been the owner of such shares as of the applicable date. Any
securities so substituted shall be subject to similar successive
adjustments.
4.2 Withholding Taxes.
The Company shall have the right at the time of
exercise of any Stock Option, the grant of an Award, or the lapse
of restrictions on Award Shares, to make adequate provision for
any federal, state, local or foreign taxes which it believes are
or may be required by law to be withheld with respect to such
exercise ("Tax Liability"), to ensure the payment of any such Tax
Liability. The Company may provide for the payment of any Tax
Liability by any of the following means or a combination of such
means, as determined by the Committee in its sole and absolute
discretion in the particular case: (i) by requiring the Employee
to tender a cash payment to the Company, (ii) by withholding from
the Employee's salary, (iii) by withholding from the Option Shares
which would otherwise be issuable upon exercise of the Stock
Option, or from the Award Shares on their grant or date of lapse
of restrictions, that number of Option Shares or Award Shares
having an aggregate fair market value (determined in the manner
prescribed by paragraph 2.2) as of the date the withholding tax
obligation arises in an amount which is equal to the Employee's
Tax Liability or (iv) by any other method deemed appropriate by
the Committee. Satisfaction of the Tax Liability of a Section 16
Reporting Person may be made by the method of payment specified in
clause (iii) above only if the following two conditions are satisfied:
(a) the withholding of Option Shares or Award Shares and the
exercise of the related Stock Option occur at least six months and
one day following the date of grant of such Stock Option or Award; and
(b) the withholding of Option Shares or Award Shares is made either
(i) pursuant to an irrevocable election ("Withholding Election") made
by such Employee at least six months in advance of the withholding of
Options Shares or Award Shares, or (ii) on a day within a ten-day
"window period" beginning on the third business day following the date
of release of the Company's quarterly or annual summary statement of
sales and earnings.
Anything herein to the contrary notwithstanding, a Withholding
Election may be disapproved by the Committee at any time.
4.3 Relationship to Other Employee Benefit Plans.
Stock Options and Awards granted hereunder shall
not be deemed to be salary or other compensation to any Employee
for purposes of any pension, thrift, profit-sharing, stock
purchase or any other employee benefit plan now maintained or
hereafter adopted by the Company.
4.4 Amendments and Termination.
The Board of Directors may at any time suspend, amend or terminate
this Plan. No amendment, except as provided in paragraph 2.8, or
modification of this Plan may be adopted, except subject to stockholder
approval, which would: (a) materially increase the benefits accruing to
Employees under this Plan, (b) materially increase the number of
securities which may be issued under this Plan (except for adjustments
pursuant to paragraph 4.1 hereof), or (c) materially modify the
requirements as to eligibility for participation in the Plan.
4.5 Successors in Interest.
The provisions of this Plan and the actions of the Committee shall be
binding upon all heirs, successors and assigns of the Company and of
Employees.
4.6 Other Documents.
All documents prepared, executed or delivered in
connection with this Plan (including, without limitation, Option
Agreements and Incentive Agreements) shall be, in substance and
form, as established and modified by the Committee; provided,
however, that all such documents shall be subject in every respect
to the provisions of this Plan, and in the event of any conflict
between the terms of any such document and this Plan, the
provisions of this Plan shall prevail.
4.7 No Obligation to Continue Employment.
This Plan and grants hereunder shall not impose any obligation on the
Company to continue to employ any Employee. Moreover, no provision of
this Plan or any document executed or delivered pursuant to this Plan
shall be deemed modified in any way by any employment contract between
an Employee (or other employee) and the Company.
4.8 Misconduct of an Employee.
Notwithstanding any other provision of this Plan, if an Employee
commits fraud or dishonesty toward the Company or wrongfully uses or
discloses any trade secret, confidential data or other information
proprietary to the Company, or intentionally takes any other action
materially inimical to the best interests of the Company, as determined
by the Committee, in its sole and absolute discretion, such Employee
shall forfeit all rights and benefits under this Plan.
4.9 Term of Plan.
This Plan was adopted by the Board effective December 13, 1997.
No Stock Options or Awards may be granted under this Plan after
December 12, 2007.
4.10 Governing Law.
This Plan shall be construed in accordance with, and governed by,
the laws of the State of California.
4.11 Shareholder Approval.
No Stock Option shall be exercisable, or Award granted, unless and until
the Shareholders of the Company have approved this Plan and all other
legal requirements have been fully complied with.
4.12 Assumption Agreements.
The Company will require each successor, (direct
or indirect, whether by purchase, merger, consolidation or
otherwise), to all or substantially all of the business or assets
of the Company, prior to the consummation of each such
transaction, to assume and agree to perform the terms and
provisions remaining to be performed by the Company under each
Incentive Agreement and Stock Option and to preserve the benefits
to the Employees thereunder. Such assumption and agreement shall
be set forth in a written agreement in form and substance
satisfactory to the Committee (an "Assumption Agreement"), and
shall include such adjustments, if any, in the application of the
provisions of the Incentive Agreements and Stock Options and such
additional provisions, if any, as the Committee shall require and
approve, in order to preserve such benefits to the Employees.
Without limiting the generality of the foregoing, the Committee
may require an Assumption Agreement to include satisfactory
undertakings by a successor:
(a) to provide liquidity to the Employees at the end of the
Restriction Period applicable to Common Stock awarded to them under
the Plan, or on the exercise of Stock Options;
(b) if the succession occurs before the expiration of any period
specified in the Incentive Agreements for satisfaction of performance
criteria applicable to the Common Stock awarded thereunder, to
refrain from interfering with the Company's ability to satisfy such
performance criteria or to agree to modify such performance criteria
and/or waive any criteria that cannot be satisfied as a result of
the succession;
(c) to require any future successor to enter into an Assumption
Agreement; and
(d) to take or refrain from taking such other actions as the
Committee may require and approve, in its discretion.
The Committee referred to in this paragraph 4.12 is the Committee
appointed by a Board of Directors in office prior to the
succession then under consideration.
4.13 Compliance With Rule 16B-3.
Transactions under the Plan are intended to comply
with all applicable conditions of Rule 16b-3. To the extent that
any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted
by law and deemed advisable by the Committee.
IN WITNESS WHEREOF, this Plan has been executed effective as
of the 15th day of October, 1997.
GOLFGEAR INTERNATIONAL, INC.
By: /s/ Donald A. Anderson
Donald A. Anderson, President
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
GolfGear International, Inc.
We have audited the accompanying consolidated balance sheets of
GolfGear International, Inc. and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
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
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of GolfGear International, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
HOLLANDER, LUMER & CO.
Los Angeles, California
September 11, 1999
GOLFGEAR INTERNATIONAL, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31, June 30,
1998 1997 1999
____________ ____________ ________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 31,771 $ 188,395 $ 8,444
Accounts receivable, net of
allowance for doubtful accounts
of $42,000 in 1998, $3,500 in
1997 and $134,000 in 1999 280,241 76,609 524,421
Inventories 424,420 281,796 257,905
Prepaid expenses 12,495 73,797 1,319
TOTAL CURRENT ASSETS 748,927 620,597 792,089
PROPERTY AND EQUIPMENT, Net 116,967 68,686 117,883
OTHER ASSETS
Patents and trademarks, net 173,380 173,311 165,292
Deposits 10,126 6,900 10,126
TOTAL OTHER ASSETS 183,506 180,211 175,418
$1,049,400 $869,494 $1,085,390
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Bank credit line payable $ 47,261 $ 42,492 $ 65,328
Notes payable to shareholders 78,397 39,397 78,397
Notes payable 16,203 25,000 50,000
Accounts payable and accrued
expenses 674,048 191,837 819,532
Accrued product warranties 43,904 48,068 35,487
Accrued interest 11,753 5,759 14,453
Accrued officer's compensation 65,000 50,000 65,000
TOTAL CURRENT LIABILITIES $ 936,566 $402,553 $1,128,197
COMMITMENT AND CONTINGENCIES
SHAREHOLDERS' EQUITY
(DEFICIENCY)
Preferred stock, $.001 par value;
authorized - 10,000,000 shares;
issued and outstanding - none
Common stock, $.001 par value;
authorized - 50,000,000 shares
issued and outstanding -
12,497,027 shares in 1998,
10,250,876 in 1997 and
12,587,194 shares in 1999 12,497 10,251 12,587
Additional paid-in capital 5,633,949 3,260,132 5,916,973
Accumulated deficit (5,533,612) (2,803,442) (5,972,367)
TOTAL SHAREHOLDERS' EQUITY 112,834 466,941 (42,807)
(DEFICIENCY)
$1,049,400 $ 869,494 $1,085,390
See accompanying Notes To Consolidated Financial Statements.
GOLFGEAR INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended Year Ended 6 Months Ended 6 Months Ended
December 31 December 31 June 30 June 30
1998 1997 1999 1998
___________ ___________ ______________ ______________
(Unaudited) (Unaudited)
SALES $1,244,119 $ 420,619 $1,362,235 $ 751,394
COST OF GOODS
SOLD 937,734 319,514 699,734 397,794
__________ ___________ __________ ___________
GROSS PROFIT 306,385 101,105 662,501 353,600
__________ ___________ __________ ___________
EXPENSES
Selling and
marketing 657,853 202,608 278,167 297,961
Tour and pro
contracts 479,561 15,896 142,014 206,317
Infomercial 503,567 - - -
Product development 135,000 - - -
Bad debt expense 39,448 3,500 115,000 3,500
General and
administrative 1,130,242 729,012 524,797 473,070
Depreciation and
amortization 56,659 58,454 21,210 36,950
Interest expense 34,225 91,512 20,068 4,202
TOTAL EXPENSES $3,036,555 $1,100,982 $1,101,256 $1,022,000
NET LOSS $(2,730,170) $ (999,877) $ (438,755) $ (668,400)
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES
OUTSTANDING 11,558,995 7,543,000 12,510,777 11,003,629
BASIC AND DILUTED
LOSS PER SHARE
Net loss $(0.24) $(0.13) $(0.03) $(0.06)
See accompanying Notes To Consolidated Financial Statements.
GOLFGEAR INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended 6 Months Ended 6 Months Ended
December 31 December 31 June 30 June 30,
1998 1997 1999 1998
___________ ___________ ______________ _____________
(Unaudited) (Unaudited)
CASH FLOWS FROM
OPERATING
ACTIVITIES
Net loss $(2,730,170) $ (999,877) $ (438,755) $ (668,400)
Adjustments to
reconcile net
loss to net cash
used in operating
activities:
Depreciation and
amortization 56,659 58,454 21,210 36,950
Common stock
issued for services 275,635 95,506 17,070 26,500
Common stock issued
by directors on
behalf of Company - 60,500 - -
Common stock issued
for product
development 125,000 - - -
Fair value of
options and warrants
issued to non-
employees 449,128 290,720 216,044 163,003
Changes in operating
assets and
liabilities:
(Increase) decrease
in:
Accounts receivable (203,632) (57,819) (244,180) (419,656)
Inventories (142,624) (135,413) 166,515 (449,921)
Prepaid expenses 61,302 (68,172) 11,176 5,108
Deposits (3,226) - - (17,500)
Increase (decrease)
in:
Accounts payable 582,211 (91,101) 145,484 440,747
Accrued product
warranties (4,164) (1,932) (8,417) (583)
Accrued interest 5,994 3,770 2,700 183
Accrued officer's
compensation 15,000 110,000 - -
NET CASH USED IN
OPERATING
ACTIVITIES
(1,512,887) (735,364) (111,153) (893,569)
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchases of
property and
equipment (88,654) (44,564) (13,688) (48,789)
Additions to
patents and
trademarks (16,355) (18,429) (350) (16,356)
Additions to
infomercial costs - - - (503,567)
NET CASH USED IN
INVESTING ACTIVITIES
(105,009) (62,993) (14,038) (568,712)
CASH FLOWS FROM
FINANCING ACTIVITIES
Sale of equity
securities in
private placements
net 1,415,050 986,250 50,000 1,414,106
Increase in stock
subscription
receivable - - - (65,000)
Exercise of stock
options 11,250 - - 11,250
Net increase
(decrease) in bank
credit line 4,769 (5,654) 18,067 (3,016)
Proceeds from
short-term
borrowings 65,000 106,379 50,000
Repayments on
short-term
borrowings (34,797) (105,000) (16,203) (4,806)
NET CASH PROVIDED
BY FINANCING
ACTIVITIES 1,461,272 981,975 101,864 1,352,534
NET INCREASE
(DECREASE)
IN CASH (156,624) 183,618 (23,327) (109,747)
CASH BEGINNING
OF PERIOD 188,395 4,777 31,771 188,395
CASH END OF
PERIOD $ 31,771 $188,395 $ 8,444 $ 78,648
CASH PAID FOR:
Interest $ 16,553 $ 19,742 $ 17,368 $ 4,019
Income taxes - 4,000 - -
NON-CASH INVESTING
AND FINANCING
ACTIVITIES:
Conversion of
accounts payable
into common stock $ 100,000 $ 89,983 - -
Conversion of note
payable into
common stock - 10,000 - -
Purchase of
automobile from
officer - 7,818 - -
Conversion of
accounts payable
into note payable - 25,000 - -
Conversion of
accrued officer's
salaries into
common stock - 115,770 - -
See accompanying Notes To Consolidated Financial Statements.
GOLFGEAR INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DEFICIENCY)
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
Additional
Common Paid-In Accumulated
Stock Amount Capital Deficit Total
Balance
December 31, 1996 6,375,335 $ 6,374 $1,615,280 $(1,803,565) $(181,911)
Conversion of
accounts payable into
common stock 157,204 157 89,826 89,983
Conversion of note
payable into common
stock 17,710 18 9,982 10,000
Issuance of common
stock for services 159,927 160 95,346 95,506
Shares of common
stock issued by
directors on behalf
of Company 60,500 60,500
Fair value of options
and warrants issued
to non-employees 290,720 290,720
Issuance of common
stock in private
placements, net 2,386,340 2,388 983,862 986,250
Issuance of common
stock in reverse
merger 1,000,000 1,000 (1,000) -
Conversion of
accrued officer's
salary into common
stock 154,360 154 115,616 115,770
Net loss for the
year (999,877) (999,877)
_________ ______ __________ __________ _________
Balance
December 31, 1997 10,250,876 10,251 3,260,132 (2,803,442) 466,941
Conversion of
accounts payable into
common stock 100,000 100 99,900 100,000
Issuance of common
stock for services 256,033 256 275,379 275,635
Issuance of common
stock for product
development 125,000 125 124,875 125,000
Fair value of
options and warrants
issued to non-
employees 449,128 449,128
Issuance of common
stock in private
placements, net 1,747,500 1,747 1,413,303 1,415,050
Exercise of stock
options 17,618 18 11,232 11,250
Net loss for the
year (2,730,170) (2,730,170)
Balance
December 31, 1998 12,497,027 12,497 5,633,949 (5,533,612) 112,834
Issuance of common
stock for services 23,500 23 17,047 17,070
Issuance of common
stock in private
placements, net 66,667 67 49,933 50,000
Fair value of
options and warrants
issued to non-
employees 216,044 216,044
Net loss for the
six months end
June 30, 1999 (438,755) (438,755)
Balance
June 30, 1999
(Unaudited) 12,587,194 12,587 5,916,973 (5,972,367) (42,807)
See accompanying Notes To Consolidated Financial Statements.
GOLFGEAR INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997AND JUNE 30, 1999 (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Description of Business - GolfGear International, Inc. and its
subsidiaries (collectively, "GolfGear" or the "Company") designs,
develops and markets premium golf clubs. GolfGear, formerly
Harry Hurst Jr., Inc. ("HHI"), was incorporated under the laws of
the State of Nevada on October 9, 1997. The Company is the
successor entity resulting from a December 5, 1997 reorganization
between GolfGear International, Inc. ("GGI"), which has been
active in the golf business since 1990, and HHI, a non-operating
public shell corporation. HHI changed its name to GolfGear
International, Inc. and GGI changed its name to GGI, Inc. and
remains a wholly-owned subsidiary of the Company. Each share of
common stock of GGI was exchanged for 3.5235 shares of common
stock of HHI. The shareholders of GGI, constituting 90% of the
then outstanding common stock, became the controlling
shareholders of the Company.
For accounting purposes, the acquisition of GGI by HHI has been
treated as a reverse acquisition of GGI with GGI considered the
acquiror. The historical financial statements prior to December
5, 1997 are those of GGI. All information in the accompanying
financial statements has been retroactively restated to reflect
this transaction. The Company operates in one business segment.
Principles of Consolidation - The consolidated financial
statements include the accounts of the Company, its wholly-owned
subsidiary, GGI, Inc., and GGI, Inc.'s wholly-owned subsidiaries,
GearFit Golf Company and Pacific Golf Holdings, Inc. All
significant intercompany transactions and balances have been
eliminated in consolidation.
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
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Inventories - Inventories are stated at lower of cost (average)
or market.
Property and Equipment - Property and equipment are stated at
cost. Depreciation is computed on the straight-line method over
the estimated useful lives of the assets which range from five to
seven years. Leasehold improvements are amortized on the
straight-line method over the term of the lease or the useful
life of the asset, whichever is shorter.
Property and equipment are reviewed for impairment whenever
events or circumstances indicate that the asset's nondiscounted
expected cash flows are not sufficient to recover its carrying
amount. The Company measures an impairment loss by comparing the
fair value of the asset to its carrying amount. Fair value of an
asset is calculated as the present value of expected future cash
flows.
Patents and Trademarks - Patents and trademarks are being
amortized on the straight-line method over a seventeen and ten-
year life, respectively.
License Agreements
On August 12, 1998, the Company executed a License Agreement with
Confidence Golf, Inc., a California corporation formerly owned by
Robert J. Williams, who is a former Officer and a Director, and
currently a major stockholder of the Company (see Exhibit 10.5 to
this Form 10-SB). Confidence Golf, Inc. was purchased by Family
Golf Centers, inc. in December 1997. Pursuant to the License
Agreement, the Company has licensed to Confidence Golf, Inc. a
non-exclusive worldwide right to utilize the Company's patented
forged insert technology in the manufacture and sale of golf clubs.
The License Agreement provides for royalties to be paid at the rate
of $2.00 per iron and $2.50 per wood for each golf club, component
made, used or sold worldwide. The License Agreement expires upon
termination of all patents and patent applications, or in the
event that royalty payments are not timely made or there is a
material breach of this agreement.
On November 19, 1998, the Company entered into a similar licensing
agreement with Wilson Sporting Goods Company to also use the
Company's forged insert technology (attached as Exhibit 10.6 to this
Form 10-SB). Under the terms of this agreement, Wilson agreed to
pay royalties as follows: (a) for irons: $1.00 per club for the
first 250,000 sold, $0.75 per club for the next 250,000 up to
500,000, and $0.50 for over 500,000; and (b) for woods: $1.00 per
club for the first 500,000 and $0.75 per club over 500,000. The
Company intends to continue licensing its patented technology to
other companies as such opportunities become available.
Revenue Recognition - Revenue is recognized when products are
shipped to customers. The Company generally provides a lifetime
warranty against defects. The Company makes a provision for
warranty costs in the period of sale. The Company periodically
reviews the adequacy of the accrued product warranties.
Stock-Based Compensation - The Company elected to account for
employee stock options based on the provisions of APB Opinion No.
25, "Accounting for Stock Issued to Employees" and adopted only
the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation".
Income Taxes - The Company accounts for income taxes utilizing
the asset and liability approach, which requires the recognition
of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the basis of
assets and liabilities for financial reporting purposes and tax
purposes.
Net Loss Per Common Share - Effective December 31, 1997, the
Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"), which establishes
standards for computing and presenting earnings per share. SFAS
No. 128 replaces the presentation of primary earnings per share
and fully diluted earnings per share with basic earnings per
share and diluted earnings per share, respectively. Basic
earnings per share excludes the dilutive effects of options and
convertible securities, if any, and is computed by dividing net
income (loss) available to common stockholders by the weighted
average number of common shares outstanding during the period.
Diluted earnings per share is computed assuming the exercise or
conversion of common equivalent shares, if dilutive, consisting
of unissued shares under stock options, warrants and debt
instruments. In accordance with SFAS No. 128, all prior periods
presented have been restated to conform to the new presentation.
At December 31, 1998 and 1997, potential dilutive securities
representing 3,345,509 and 2,425,077 shares of common stock,
respectively, were not included in the earnings per share
calculation since their effect would be anti-dilutive. At
December 31, 1998, potential dilutive securities consisted of
1,359,905 outstanding stock options and 1,685,604 outstanding
common stock purchase warrants. At December 31, 1997, potential
dilutive securities consisted of 1,l37,523 outstanding stock
options and 1,287,554 outstanding common stock purchase warrants.
At June 30, 1999 and 1998, potential dilutive securities
representing 3,115,509 and 2,845,509 shares of common stock,
respectively, were not included in the earnings per share
calculation since their effect would be anti-dilutive. At June
30, 1999, potential dilutive securities consisted of 1,359,905
outstanding stock options and 1,755,604 outstanding common stock
purchase warrants. At June 30, 1998, potential dilutive
securities consisted of 1,309,905 outstanding stock options and
1,535,604 outstanding common stock purchase warrants.
Basic and diluted earnings per share are the same for all periods
presented.
Concentration of Credit Risk - The Company maintains its accounts
with a financial institution with a high credit rating. As of
December 31, 1998, the Company had an account in one bank with a
balance of $188,395, which exceed the Federally insured limit.
Allowance for Doubtful Accounts - The Company makes periodic
evaluations of the creditworthiness of its customers and
generally does not require collateral. As of the balance sheet
dates presented, management has determined that an adequate
provision has been made for doubtful accounts.
Dependence on Major Suppliers - The Company is dependent on two
major suppliers for the production of golf club heads and tooling
used to produce the heads. However, management believes that the
risk is mitigated due to the large number of alternative
suppliers.
Major Customers - Two customers accounted for approximately 49%
of total sales in 1998. Three customers accounted for
approximately 49% of total sales in 1997. During the six months
ended June 30, 1999 and 1998, 64% and 53% of total sales were
accounted for by three and two customers, respectively.
Reclassifications - Certain prior period balances have been
reclassified to conform with current year's presentation.
Infomercial Costs - During 1998, the Company incurred aggregate
costs of $503,567 with respect to the preparation and filming of
an infomercial. At December 31, 1998, management reviwed the
Company's infomercial program and determined it to be unsuccessful
and such costs were charged to operations during 1998.
Comprehensive Income - A statement of comprehensive income is not
presented for the Company because the Company has no items of
comprehensive income.
2. INVENTORIES.
Inventories consisted of the following at December 31, 1998 and
1997 and June 30, 1999:
1998 1997 1999
____ ____ ____
(Unaudited)
Component parts $274,319 $198,011 $120,782
Finished goods 150,101 83,785 137,123
_________ __________ _________
$ 424,420 $ 281,796 $257,905
3. PROPERTY AND EQUIPMENT.
Property and equipment consisted of the following at December 31,
1998 and 1997 and June 30, 1999:
1998 1997 1999
____ ____ ____
(Unaudited)
Machinery and equipment $ 5,850 $ 4,801 $ 5,850
Office equipment 6,056 3,048 12,521
Computers and software 50,111 37,158 51,110
Furniture and fixtures 40,295 36,020 40,295
Automobile 7,818 7,818 7,818
Trade show booths 64,824 4,046 67,999
Tooling 164,626 158,036 167,676
Leasehold improvements 1,913 1,913 1,913
$341,493 $252,840 $355,182
Less accumulated
depreciation and
amortization 224,526 184,154 237,299
$116,967 $ 68,686 $117,883
4. BANK CREDIT LINE PAYABLE.
At December 31, 1997, Company had an unsecured $50,000 bank line
of credit that was increased to $70,000 in November 1998. The
line originally matured in April 1998, and was renewed with
maturity date of November 1999. Interest is payable monthly at
the rate of prime plus 3% (11.25% at December 31, 1998).
Outstanding borrowings at December 31, 1998 and 1997 amounted to
$47,261 and $42,492, respectively. The line is personally
guaranteed by the Company's President and Chief Executive
Officer. At June 30, 1999 outstanding borrowings were $65,328.
5. NOTES PAYABLE.
The Company issued a subordinated convertible note on November
12, 1996. The face value of the note was $10,000 with a stated
interest rate of 10% and a maturity date of August 12, 1997. The
note was converted during 1997 into 17,710 shares of common stock.
The Company had notes payable to shareholders totaling $78,397
and $39,397 as of December 31, 1998 and 1997 ($78,397 at June 30,
1999). The notes bear interest at 10% and are payable on demand.
In October 1997, a certain creditor converted the balance of its
account payable into a note payable in the amount of $25,000. The
note bears interest at 10% and is payable in 24 equal monthly
installments of $1,154 beginning in February 1998. The note
becomes immediately due upon the Company completing one or more
debt or equity financings aggregating $1,000,000. As of December
31, 1997, this condition had been met. As of December 31, 1998
the note had an outstanding balance of $16,203 which was paid-off
in 1999.
On January 8, 1999, the Company borrowed $50,000 from a third-
party at 9% interest, due on April 8, 1999. In connection
therewith, the Company issued a warrant to purchase 20,000 shares
of common stock exerciseable at $1.06 per share through January
8, 2004. At June 30, 1999 the outstanding balance was $40,000.
The Company is negotiating a final payment of this promissory
note.
On February 3, 1999, the Company borrowed $10,000 from a third-
party at 9% interest, due on February 3, 2000. At June 30, 1999
the original balance remained outstanding.
6. COMMITMENTS AND CONTINGENCIES.
Operating Lease - The Company leases its office and warehouse
facilities under a 36 month operating lease beginning December
15, 1996. The lease is personally guaranteed by the Company's
President and Chief Executive Officer.
Rent expense charged to operations was $40,550 in 1998 and
$36,000 in 1997. Rent expense charged to operations during the
six months ended June 30, 1999 and 1998 was $19,470 and $18,117,
respectively.
Financial Services Agreement - On June 7, 1997, the Company entered into
a Financial Services Agreement with Bridgewater Capital Corporation
("Bridgewater") whereby Bridgewater agreed to arrange and help
consummate a merger between the Company and a public shell corporation
and also assist the Company to analyze, negotiate and advise on
obtaining equity capital or debt financing (see Exhibit 10.7 to this
Form 10-SB). Upon the successful completion of the $500,000
financing in October 1997, the Company paid Bridgewater a fee of
$70,000 and issued 499,002 of the Company's common stock, representing
4.99% of the post-reorganization with Harry Hurst Jr., Inc. The
Financial Services Agreement required that Bridgewater be paid a
consulting fee of $72,000, payable $6,000 monthly, have the right to
appoint one person to the Board of Directors for two years, and be
paid a 10% finder's fee and 2% unaccountable expense allowance on
all caapital, cash, equity or debt infused into the Company by or
through Bridgewater. This agreement expired in October 1998. Mr.
Peschong, a former Director of the Company, is an officer and
shareholder of Bridgewater. The Company also paid $6,900 to
Bridgewater, of which a former director of the Company is an
officer and shareholder, as a capital raising fee during the year
ended December 31, 1998.
On January 27, 1999, the Company executd a letter of understanding
with Bridgewater whereby, among other things, the Company agreed to
issue a promissory note to Bridgewter in the amount of $50,000 all
due and payable no later than April 1, 1999 and to issue common
stock warrants entitling Bridgewater to purchase 105,705 Shares of
common stock at $0.62 per Share whcih expire October, 2002. The
agreement to issue the promissory note and warrants arise out of
ostensible obligations under the Financial Services Agreement. The
execution of th eletter of understanding was in anticipation of and
contingent upon anticipated equity financing which did not
materialize.
Consulting Agreement - On October 1, 1998, the Company executed a
Consulting Agreement with Sports Opportunities International, a
South Carolina corporation, owned by Parker Smith, one of the
Directors of the Company (see Exhibit 10.9 to this Form 10-SB).
This agreement requires a payment of $40,000 a year to be paid in
four equal quarterly installments which commenced on January 1,
1999. The Consulting Agreement also granted stock options
entitling the purchase of 50,000 shares of common stock at $2.00
per share, 20,000 of which vested upon execution of this agreement;
15,000 of which vest six months of execution of this agreement,
and the remaining 15,000 which vest one year after execution of
this agreement. The Consulting Agreement also provides for a
$0.25 royalty to be paid for each golf club sold through
companies or distributors introduced to the Company by Mr. Smith.
The agreement has a term of one year, and expired without being
renewed on October 1, 1999.
Employment Agreements - Effective July 1, 1998, the Company
entered into an employment agreement with its president and major
shareholder for a period of three years with an initial base
salary of $90,000 per year.
Corporate Development Agreement - In October 1997, the Company
entered into a Corporate Development Agreement with The Michelson
Group, Inc.("Michelson") whereby Michelson would perform certain
corporate advisory services. During 1998, the Company issued
160,000 shares of its common stock pusuant to and in full
satisfaction of this agreement.
Legal Proceedings - From time to time, the Company is involved in
litigation arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Company's
consolidated financial position, results of operations and cash
flows.
7. RELATED PARTY TRANSACTIONS.
On June 17, 1997, the Company entered into a Financial Services
Agreement with Bridgewater Capital Corporation ("Bridgewater")
whereby Bridgewater would arrange and help consummate a merger
between the Company and a public shell corporation and also
assist the Company to analyze, negotiate and advise on obtaining
equity capital or debt financing. Upon the successful completion
of the $500,000 financing in October 1997, the Company paid
Bridgewater a fee of $70,000 and issued 499,002 shares of the
Company's common stock, representing 4.99% of the post-
reorganized public company. In December 1997, the Company
completed a reorganization with Harry Hurst Jr., Inc.(see Note
1). The Financial Services Agreement also requires that
Bridgewater be paid a consulting fee of $72,000, payable $6,000
monthly, have the right to appoint one person to the Board of
Directors for two years, and be paid a 10% finder's fee and 2%
unaccountable expense allowance on all capital, cash, equity or
debt infused into the Company by or through Bridgewater. This
agreement expired in October 1998. Mr. Peschong, a former
director of the Company, is an officer and shareholder of
Bridgewater.
On January 27, 1999, the Company executed a letter of understanding
with Bridgewater whereby, among other things, the Company agreed to
issue a promissory note to Bridgewater in the amount of $50,000
all due and payable no later than April 1, 1999 and to issue common
stock warrants entitling Bridgewater to purchase 105,705 Shares of
common stock at $0.62 per Share which expires October, 2002. The
agreement to issue the promissory note and warrants arise out of
ostensible obligations under the Financial Services Agreement.
The execution of the letter of understanding was in anticipation
of and contingent upon anticipated equity financing which did not
materialize.
The Company sold products to a company partially owned by the
spouse of the Company's President and Chief Executive Officer.
During 1997, the spouse's ownership interest in the company was
divested. Sales to the company totaled approximately $50,000 in
1997.
During 1997, two directors of the Company transferred an
aggregate of 60,500 shares of the Company's common stock that
they owned to certain third parties on behalf of the Company. As
a result, the Company recognized non-cash compensation expense
and a corresponding increase to additional paid-in capital of $60,500.
In March of 1998, the Company recorded a liability of $65,000 to
the spouse of the Company's President and major shareholder as a
finder's fee with respect to a $650,000 equity investment in the
Company during 1998. As of December 31, 1998 and June 30, 1999,
the balance remaining on the $65,000 obligation was $39,000 and
is included in notes payable to shareholders.
During 1998, the Company also paid $6,900 to an company of which
a former director of the Company is an officer and shareholder as
a capital raising fee.
8. INCOME TAXES.
As of December 31, 1998, the Company has net operating loss
carryforwards of approximately $3,778.000, which can be used to
offset future taxable income. The utilization of such
carryforwards will be limited by Internal Revenue Code due to the
change in ownership of the Company. No deferred assets benefit
for these operating losses has been recognized in the financial
statements due to the uncertainty as to the realizability of
these in the future periods.
9. SHAREHOLDERS' EQUITY.
On June 16, 1999, the Company sold 66,667 shares of its common
stock to an investor for $50,000 pursuant to an agreement to sell
up to 500,000 shares to that same investor. On August 31, 1999,
the agreement expired with no further sales being made.
During 1998, the Company raised gross proceeds of $1,587,500 from
private placements of 1,587,500 shares of its common stock at a
price of $1.00 per share. In connection with these private
placements, the Company paid commissions and fees of $12,450,
issued 160,000 shares of common stock valued at $160,000 for
services rendered and issued warrants to purchase 217,000 shares
of common stock exerciseable at $2.00 per share through March 1,
2001, and warrants to purchase 31,050 shares of common stock
exerciseable at $1.20 per share through December 29, 2000.
During 1997, the Company raised gross proceeds of $1,037,500 from
private placements of its common stock that commenced on
September 1, 1997 at a price of $.57 per share and $50,000 from
private placements that commenced on December 12, 1997 at a price
of $1.00 per share. In connection with these private placements,
the Company paid commissions and fees of $101,250, issued 499,002
shares of common stock valued at $282,000 for services rendered
and issued warrants to purchase 1,057,500 shares of common stock
exerciseable at $.28 per share through October 1, 2002, and
warrants to purchase 5,000 shares of common stock exerciseable at
$1.20 per share through December 29, 2000.
During 1998 and 1997, accounts payable in the aggregate amount of
$100,000 and $89,983 were converted into 100,000 shares and
157,204 shares, respectively, of the Company's common stock.
During 1998, the Company paid $10,000 in cash and issued 125,000
shares of its common stock valued at $125,000 for the purchase of
a golf accessory business.
During 1997, the Company's President and Chief Executive Officer
converted his accrued salaries of $115,770 into 154,360 shares of
the Company's common stock at $.75 per share.
During 1998 and 1997, the Company issued 256,033 shares valued
at $275,635 and 159,927 shares valued at $95,506, respectively,
for services received. During the six months ended June 30,
1999, 23,500 shares valued at $17,070 were issued for services
received.
During 1999, 1998, and 1997, warrants to purchase 50,000 shares,
150,000 shares, and 119,799 shares, respectively, at prices
ranging from $0.28 to $2.00 per share were issued to non-
employees for services rendered. During the six month period ended
June 30, 1999, warrants to purchase 70,000 Shares at prices
ranging from $1.06 to $2.00 per share were issued to non-
employees for services rendered.
Information regarding the Company's warrants is as follows:
Weighted
Shares Average Weighted Aggregate
Underlying Exercise Average Exercise
Warrants Price Fair Value Price
__________ ________ __________ _________
BALANCE
DECEMBER 31, 1996
Granted 1,287,554 $ .31 $ .48 $ 398,800
Canceled
Exercised
BALANCE
DECEMBER 31, 1997 1,287,554 $ .31 $ .48 $ 398,800
Granted 398,050 1.87 2.75 746,260
Canceled
Exercised
BALANCE
DECEMBER 31, 1998 1,685,604 $ .68 $ 1.02 $1,145,060
Granted 70,000 1.73 .75 121,200
Canceled
Exercised
BALANCE
JUNE 30, 1999 1,755,604 $ 1.01 $ .48 $1,266,260
(Unaudited)
The following table summarizes the information about warrants
outstanding at December 31, 1998:
Number of Weighted Average
Shares Remaining
Exercise Price Outstanding Contractual Life
______________ ___________ ________________
$ .28 1,197,990 3.7 years
$ .62 84,564 3.2 years
$ 1.20 36,050 4 years
$ 1.75 100,000 1.5 years
$ 2.00 267,000 2 years
_________
1,685,604
The Company accounted for 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. During
1998 and 1997, the Company recognized non-cash compensation
expense of $76,000 and $104,720 for warrants to purchase 150,000
shares and 225,504 shares, respectively, of common stock. The
remaining 248,050 warrants in 1998 and 1,062,050 warrants in 1997
were issued in connection with the sale of common stock. The
offering costs associated with these warrants were netted against
the proceeds from the sale of common stock.
Information regarding the Company's stock options is as follows:
Weighted
Shares Average Weighted Aggregate
Underlying Exercise Average Exercise
Warrants Price Fair Value Price
__________ ________ __________ _________
BALANCE
DECEMBER 31, 1996 70,472 $ .64 $ 45,000
Granted 1,067,051 .62 .46 657,500
Canceled
Exercised
_________ ________ __________ __________
BALANCE
DECEMBER 31, 1997 1,137,523 $ .62 $ .43 $ 702,500
Granted 240,000 3.78 2.35 907,500
Canceled
Exercised (17,618) .64 - (11,250)
__________ _____ _________ ___________
BALANCE
DECEMBER 31, 1998
AND JUNE 30, 1999
(Unaudited) 1,359,905 $1.18 $ .78 $1,598,750
The following table summarizes the information about stock
options outstanding at December 31, 1998:
Number of Weighted Average
Shares Remaining
Exercise Price Outstanding Contractual Life
$ .64 52,854 2.7 years
$ .57 704,701 3.7 years
$ .62 352,350 3.7 years
$ 2.00 50,000 0.8 years
$ 3.75 10,000 4 years
$ 4.25 190,000 1 year
1,359,905
The Company accounted for stock options granted to employees,
officers and directors under APB Opinion No. 25, "Accounting for
Stock Issued to Employees", under which no compensation cost has
been recognized. Options granted to non-employee directors are
accounted for in accordance with SFAS No. 123. Had the
compensation cost for the options been determined based upon the
fair value at the grant date consistent with the methodology
prescribed under SFAS No. 123, the Company's net loss and basic
and diluted loss per share in 1998 would have been increased by
approximately $48,000 and $.004 per share, respectively,
($306,000 and $.04 per share, respectively, in 1997).
The fair value of the warrants and options granted is estimated
on the date of grant using the Black-Scholes option pricing model
with following weighted average assumptions: dividend yield of
0%, volatility of 100%, risk-free interest rate of 6.7% and an
expected life of five years.
The effect of applying SFAS No. 123 in this pro forma disclosure
is not indicative of future results.
10. STOCK OPTION PLAN
In October of 1997, the Board of Directors of the Company approved a
stock option plan entitled "GolfGear International, Inc. 1997 Stock
Incentive Plan"("Plan") (attached as Exhibit 10.11 to this Form 10-SB).
This Plan is intended to allow designated officers and employees and
certain non-employees of the Company to receive stock options to
purchase the Company's common stock and to receive grants of common
stock subject to certain restrictions as more fully described in
the Plan. The Plan has reserved 2,642,625 shares of common stock,
subject to adjustments that may be issued under the Plan.
The Plan provides for the granting to employees (including employees
who are also directors and officers) of options intended to qualify
as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended ("Code"), and for the
granting of nonstatutory stock options to directors, employees and
consultants. The Plan is currently administered by the Board of
Directors of the Company.
The exercise price per share of incentive stock options granted under
the Plan must be at least equal to the fair market value of the
common stock on the date of grant. With respect to any participant
who owns shares representing more than 10% of the voting power of
all classes of the Company's outstanding capital stock, the exercise
price of any incentive or nonstatutory stock option must be equal
to at least 110% of the fair market value of the grant date, and
the maximum term of the option must not exceed five years. The
terms of all other options granted under the Plan may not exceed
ten years. Upon a merger of the Company, the options outstanding
under the Plan will terminate unless assumed or substituted by
the successor corporation. As of June 30, 1999, 724,231 options
have been granted under the Plan. Mr. Anderson has been granted
353,350 common stock options for the year ended December 31, 1997;
these options are exercisable at $0.62 and expire in October 2002.
SUBSIDIARIES OF THE REGISTRANT
Gear Fit Golf Company
5481-A Commercial Drive
Huntington Beach, California 92649
California corporation
Pacific Golf Holdings, Inc.
5481-A Commercial Drive
Huntington Beach, California 92649
California corporation
GolfGear International, Inc.
5481-A Commercial Drive
Huntington Beach, California 92649
Nevada corporation
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S DECEMBER 31, 1998 AND JUNE 30, 1999 FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THESE
FINANCIAL STATEMENTS.
<MULTIPLIER> 1
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<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN 1-1998 JAN-1-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 31,771 8,444
<SECURITIES> 0 0
<RECEIVABLES> 322,241 658,421
<ALLOWANCES> 42,000 134,000
<INVENTORY> 424,420 257,905
<CURRENT-ASSETS> 748,927 792,089
<PP&E> 116,967 117,883
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,049,400 1,085,390
<CURRENT-LIABILITIES> 936,566 1,128,197
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0 0
0 0
<COMMON> 12,497 12,587
<OTHER-SE> (5,633,612) (5,972,367)
<TOTAL-LIABILITY-AND-EQUITY 1,049,400 1,085,390
<SALES> 1,244,119 1,362,235
<TOTAL-REVENUES> 1,244,119 1,362,235
<CGS> 937,734 699,734
<TOTAL-COSTS> 937,734 699,734
<OTHER-EXPENSES> 3,036,554 1,101,256
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
INCOME-PRETAX> (2,730,170) (438,755)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,730,170) (438,755)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,730,170) (438,755)
<EPS-BASIC> (.24) (.03)
<EPS-DILUTED> (.24) (.03)
[TEXT]
</TABLE>
United States Patent 4,762,324
Abstract
A golf putter has a head defining a ball striking front face, a
bottom surface, a top surface, a rear surface, a heel and a toe;
and includes:
(a) the head top surface having first, second and third regions
respectively near the toe, mid-extent of the head and heel,
(b) the first and third regions having two recess respectively
sunk downwardly therein,
(c) metallic weights received downwardly in such recesses, the
outlines of said recesses being visible from above said top
surface.
The third region may define a recess in which a forward marker or
markers and a virtual ball section, are located, the marker or
markers and virtual ball section located to be downwardly
visible.
United States Patent 4,913,438
Abstract
A golf putter has a head defining a ball striking front face, a
bottom surface, a top surface, a rear surface, a heel and a toe;
and includes:
(a) the head top surface having first, second and third regions
respectively near the toe, mid-extant of the head and heel,
(b) the first and third regions having two recess respectively
sunk downwardly therein,
(c) metallic weights received downwardly in such recesses, the
outlines of said recesses being visible from above said top
surface.
The third region may define a recess in which a forward marker or
markers and a virtual ball section, are located, the marker or
markers and virtual ball section located to be downwardly
visible.
United States Patent 4,915,385
Abstract
A golf putter has a head defining a ball striking front face, a
bottom surface, a top surface, a rear surface, a heel and a toe;
and includes:
(a) the head top surface having first, second and third regions
respectively near the toe, mid-extant of the head and heel,
(b) the first and third regions having two recess respectively
sunk downwardly therein,
(c) metallic weights received downwardly in such recesses, the
outlines of said recesses being visible from above said top
surface.
The third region may define a recess in which a forward marker or
markers and a virtual ball section, are located, the marker or
markers and virtual ball section located to be downwardly
visible.
United States Patent 5,024,437
Abstract
A golf club head has a main body portion formed by investment
casting of material such as stainless steel, beryllium copper,
titanium, or aluminum. The face plate of the head is formed of a
forged metal such as forged carbon steel, this plate being welded
to the face portion of the casting to form an integral assembly
therewith. The forged metal faceplate affords a more solid impact
and feel to the club which provides better control.
United States Patent 5,094,383
Abstract
A golf club head has a main body portion formed by an investment
casting of material such as stainless steel, beryllium copper,
titanium, and aluminum. The face plate of the head is formed of a
forged metal, such as forged carbon steel, this plate being
welded to the face portion of the casting to form an integral
assembly therewith. The forged metal faceplate affords a more
solid impact and feel to the club which provides better control.
Also, it has very high strength. Preferably, the head consists of
cast stainless steel, and the face plate of forged stainless
steel, both steels being of the same composition.
United States Patent 5,255,918 Taiwan Patent
336,518
Abstract
A golf club head comprising a main body portion formed by a steel
casting; a face plate formed of forged steel, and having a
periphery, a ball striking front face, and a rear side;
provisions for joining the periphery of the face plate at the
main body portion to form a high strength, forged face plate for
the golf club head; and the main body portion forming a first
rearwardly reentrant recess directly communicating with the face
plate rear side over the major area of the rear side. The face
plate may alternatively consist of consolidated metal powder.
United States Patent 5,261,663
Abstract
A golf club head has a main body portion formed by an investment
casting of material such as stainless steel, beryllium copper,
titanium, and aluminum. The face plate of the head is formed of a
forged metal, such as forged carbon steel, this plate being
welded to the face portion of the casting to form an integral
assembly therewith. The forged metal face plate affords a more
solid impact and feel to the club which provides better control.
Also, it has very high strength. Preferably, the head consists of
cast stainless steel, and the face plate of forged stainless
steel, both steels being of the same composition. Face plate
metal is preferably re-distributed toward the toe and heel of the
head.
United States Patent 5,261,664
Abstract
A golf club head comprising a main body portion formed by an
investment casting of a first metallic material; a face plate
formed of a second high-strength metallic material; and structure
including fasteners joining the periphery of the face plate to
ledges on the main body portion to form a high strength, face
plate for the golf club head.
United States Patent 5,344,140
Abstract
A golf club head, comprising a main body portion formed by an
investment casting of a first metallic material; a face plate
formed of a second metallic material which is forged and is
substantially softer than the first material; joining the
periphery of the face plate to the main body portion to form a
high strength, forged face plate for the golf club head, and the
metallic materials for the face plate and main body portion being
of substantially the same composition.
United States Patent 5,417,419
Abstract
A golf club head that comprises a main body portion formed by an
investment casting of a first metallic material, and forming a
cavity; a face reinforcement plate formed of metallic material,
only the periphery of the face reinforcement plate is integral
with the main body portion to support the plate, the plate
forming a recess bounded by a peripheral lip; and a non-metallic
ball striking second plate received in a recess and retained
therein.
United States Patent 5,720,673
Abstract
A golf club head consisting of more than one piece has a joint
which holds the pieces together. Characterized by a mechanical
interlock. The joint of the invention is formed by preparing a
specialized insert with a recess long the periphery of the front
side. In addition, a specialized golf club head body includes a
ridge of malleable material about a opening operable for
receiving the insert. After the insert is placed into the seat in
the body, the ridge of malleable material is pushed over and into
the recess of the insert. The insert is held fast to the club
body and forever and permanently integrated therewith. The joint
provides a stronger, cosmetically more attractive, and
inexpensive club.
U.S. PATENT & TRADEMARK OFFICE
Word Mark GOLFGEAR
Owner Name (Registrant) Gear Fit Golf, Inc. d.b.a. Golf
Gear International
Owner Address 5481-A Commercial Drive, Huntington Beach,
California 92649
Attorney of Record William W. Haefliger
Serial Number 75-454956
Registration
Number 2244626
Filing Date 03/23/1998
Registration Date 05/11/1999
Design Search Code 26.01.21; 26.11.03- 26.11.21; 27.03.01
Mark Drawing (3) Design plus words, letters, and/or numbers
Code
Disclaimer NO CLAIM IS MADE TO THE EXCLUSIVE RIGHT TO
USE "GOLFGEAR" APART FROM THE MARK AS SHOWN
Register Principal
Other Registration
Info. 1799489
Published for
Opposition 02/16/1999
Type of Mark Trademark
International Class 028
Goods and Services golf clubs and golf bags; date of first use:
1989.06.03; date of first use in commerce: 1989.06.20
U.S. PATENT & TRADEMARK OFFICE
Word Mark GOLFGEAR INTERNATIONAL
Owner Name (Registrant) Gear Fit Golf, Inc, a.k.a. Golf
Gear International
Owner Address 5445 Oceanus Avenue, Suite 115 Huntington Beach ,
California 92649
Attorney of Record William W. Haefliger
Serial Number 74-259598
Registration
Number 1799489
Filing Date 03/27/1992
Registration Date 10/19/1993
Design Search
Code 26.01.21: 26.11.03
Mark Drawing (3) Design plus words, letters, and/or numbers
Code
Disclaimer NO CLAIM IS MADE TO THE EXCLUSIVE RIGHT TO USE
"GOLF GEAR INTERNATIONAL" APART FROM THE MARK AS SHOWN
Register Principal
Other Registration
Info. 1641799
Published for
Opposition 07/27/1993
Type of Mark Trademark
International Class 028
Goods and Services golf clubs, golf balls and golf bags; date of
first use: 1989.12.04; date of first use in commerce: 1989.12.04
U.S. PATENT & TRADEMARK OFFICE
Word Mark KAHUNA
Owner Name (Registrant) Gear Fit Golf, Inc.
Owner Address 5445 Oceanus Avenue, Suite 115, Huntington Beach,
California 92649
Attorney of Record William W. Haefliger
Serial Number 74-237407
Registration
Number 1773758
Filing Date 01/13/1992
Registration Date 05/25/1992
Mark Drawing (5) words, letters, and/or numbers in stylized
form
Register Principal
Published for 06/23/1992
Opposition
Type of Mark Trademark
International Class 028
Goods and Services golf clubs; date of first use: 1990.01.00;
date of first use in commerce: 1990.02.00
U.S. PATENT & TRADEMARK OFFICE
Word Mark REVERS A CORD
Pseudo Mark reversible cord
Owner Name (Registrant) Gear Fit Golf, Inc.
Owner Address 5481 A. Commercial Drive Huntington Beach,
California 92649
Attorney of Record William W. Haefliger
Serial Number 74-131767
Registration
Number 1737705
Filing Date 01/22/1991
Registration Date 12/01/1992
Mark Drawing (1) typed drawing
Register Principal
Published for
Opposition 10/01/1991
Type of Mark Trademark
International Class 028
Goods and Services hand grips for golf clubs; ate of first use:
1990.03.00; date of first use in commerce: 1990.03.00
U.S. PATENT & TRADEMARK OFFICE
Word Mark CREATORS OF THE ORIGINAL FORGED FACE METAL WOOD
Owner Name (Registrant) GolfGear International, Inc.
Owner Address 5481 A. Commercial Drive, Huntington Beach,
California 92649
Attorney of Record William W. Haefliger
Serial Number 74-075496
Registration
Number 1709575
Filing Date 07/05/1990
Registration Date 08/18/1992
Mark Drawing (1) typed drawing
Register ` Supplemental
Type of Mark Trademark
Amended
Supplemental
Registration 05/19/1992
International Class 028
Goods and Services golf clubs, golf balls and golf bags; date of
first use: 1990.01.10; date of first use in commerce: 1990.01.26
U.S. PATENT & TRADEMARK OFFICE
Word Mark TSUNAMI
Owner Name (Applicant) Gear Fit Golf, Inc. d.b.a. Golf
Gear International
Owner Address 5481 A Commercial Drive, Huntington Beach,
California 92649
Attorney of Record William W. Haefliger
Serial Number 75-422419
Filing Date 01/23/1998
Design Search Code 01. 15.13
Mark Drawing (3) design plus words, letters, and/or numbers
Register Principal
Published for
Opposition 10/13/1998
Type of Mark Trademark
International Class 028
Goods and Services golf clubs; date of first use: 1998.06.01;
date of first use in commerce: 1998.06.01
US PATENT & TRADEMARK OFFICE
Word Mark AVID
Owner Name (Applicant) Gear Fit Golf, Inc. d.b.a. Golf
Gear International
Owner Address 5481 A Commercial Drive, Huntington Beach,
California 92649
Attorney of Record William W. Haefliger
Serial Number 75-563326
Filing Date 10/10/1998
Mark Drawing (1) typed drawing
Register Principal
Type of Mark Trademark
International Class 028
Goods and Services golf clubs; date of first use: 1990.06.01;
date of first use in commerce: 1990.06.01
