<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 4, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
ADAMS GOLF, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3949 75-2320087
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
</TABLE>
300 DELAWARE AVENUE, SUITE 548
WILMINGTON, DELAWARE 19801
(302) 427-5892
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
B.H. (BARNEY) ADAMS
CHIEF EXECUTIVE OFFICER
300 DELAWARE AVENUE, SUITE 548
WILMINGTON, DELAWARE 19801
(302) 427-5892
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
JOSEPH A. HOFFMAN KENNETH L. GUERNSEY
J. DAVID WASHBURN KARYN R. SMITH
Arter & Hadden LLP Cooley Godward LLP
1717 Main Street, Suite 4100 One Maritime Plaza, 20th Floor
Dallas, Texas 75201 San Francisco, California 94111
(214) 761-2100 (415) 693-2000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective Registration Statement for the same offering. / /
- ---------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ---------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ---------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.001 par value..................................................... $110,000,000 $32,450
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
Subject to Completion, dated May 4, 1998
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
----------------
Of the shares of common stock, par value $.001 per share (the "Common
Stock"), being offered hereby are being offered by Adams Golf, Inc. (the
"Company") and are being offered by certain stockholders of the Company
(the "Selling Stockholders"). The Company will not receive any of the proceeds
from the sale of shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
Prior to the offering made hereby (the "Offering"), there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price of the Common Stock will be between $ and
$ per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price of the Common Stock.
Application has been made to have the Common Stock listed on the Nasdaq National
Market under the symbol "ADGO."
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO SELLING
PUBLIC AND COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
Total(3)................. $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the Offering payable by the Company
of $ .
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to an aggregate of additional shares of Common Stock on
the same terms and conditions as set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Selling
Stockholders will be $ , $ and $ , respectively. See
"Underwriting."
---------------------
The shares of Common Stock offered by this Prospectus are offered severally
by the Underwriters, subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
Underwriters and to certain further conditions. It is expected that delivery of
the certificates for the shares of Common Stock will be made at the offices of
Lehman Brothers Inc., New York, New York, on or about June , 1998.
---------------------
LEHMAN BROTHERS
NATIONSBANC MONTGOMERY SECURITIES LLC
FERRIS, BAKER WATTS
INCORPORATED
, 1998
<PAGE>
[ON THIS PAGE APPEAR SEVERAL PHOTOGRAPHS OF THE COMPANY'S PRODUCTS AND CERTAIN
PERSONS AFFILIATED WITH THE COMPANY INCLUDING B. H. (BARNEY) ADAMS, NICK FALDO
AND HANK HANEY. CERTAIN OF THE PHOTOGRAPHS CONTAIN CAPTIONS INDICATING THE
CONTENTS THEREOF.]
------------------------
The Company intends to furnish to its stockholders annual reports containing
audited consolidated financial statements and quarterly reports containing
unaudited consolidated financial information for each of the first three
quarters of each fiscal year.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
The Company has registered the trademarks Adams-Registered Trademark- (with
triangle design), Tight Lies-Registered Trademark- and Assault-Registered
Trademark-, and currently has pending trademark applications for registration of
a configuration of the heel portion of a golf club head, and an overall
configuration of a golf club head. This Prospectus also includes trademarks of
companies other than the Company.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY AND SHOULD
BE READ IN CONJUNCTION WITH THE MORE DETAILED INFORMATION AND THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL SHARE AMOUNTS, PER
SHARE AMOUNTS AND OTHER INFORMATION IN THIS PROSPECTUS HAVE BEEN ADJUSTED TO
GIVE RETROACTIVE EFFECT TO A 2-FOR-1 STOCK SPLIT OF THE COMMON STOCK AND ASSUME
NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. REFERENCES IN THIS
PROSPECTUS TO THE "COMPANY" OR "ADAMS" ARE, UNLESS THE CONTEXT OTHERWISE
REQUIRES, TO ADAMS GOLF, INC., A DELAWARE CORPORATION, AND ITS SUBSIDIARIES.
THE COMPANY
Adams designs, manufactures and markets premium quality, technologically
innovative golf clubs. The Company's design objective is to produce golf clubs
that deliver meaningful performance benefits and inspire player confidence. The
Company believes that its most successful product line to date, the Tight Lies
fairway woods, meets this objective by providing golfers with the ability to hit
the ball from virtually any lie while maximizing distance. The patented Tight
Lies fairway woods feature an upright trapezoidal head, a shallow face and a
lower center of gravity as compared to conventional fairway woods. The complete
Tight Lies line of products includes the original, Strong 3, Strong 5, Strong 7
and Strong 9 fairway woods. The success of the Tight Lies line of products is
evidenced by the increase in the Company's net sales from $3.5 million for 1996
to $36.7 million for 1997 and from $1.5 million for the three months ended March
31, 1997 to $24.5 million for the three months ended March 31, 1998.
Adams has developed a marketing model that integrates direct response and
traditional image-based advertising to generate brand awareness and drive retail
sales. The Company's advertising includes a 30-minute informative television
commercial ("infomercial") and print advertising in publications such as GOLF
DIGEST, USA TODAY and the WALL STREET JOURNAL. For the three months ended March
31, 1998, approximately 79% of the Company's sales occurred at the retail level.
To preserve the integrity of its image and reputation, the Company currently
limits its distribution to retailers that market premium quality golf equipment
and provide a high level of customer service and technical expertise. The
Company currently sells its products to on- and off-course golf shops and
selected sporting goods retailers. The Company believes its selective retail
distribution helps its retailers to maintain profitable margins and maximize
sales of Adams' products.
Another important element of the Company's success to date has been its
sales and customer service infrastructure. Rather than relying on independent
sales representatives, as do many other golf equipment companies, Adams
maintains an inside sales department that currently consists of 25 employees who
are in regular telephone contact with the Company's over 8,000 retailers. These
sales representatives are supported by six field-based Regional Account
Coordinators who maintain personal contact with the Company's retailers
nationwide. The Company believes that using and carefully managing its own sales
force enables it to significantly reduce selling expenses. Adams also has a
separate 30-seat customer call center that provides customer service to
retailers and consumers. The majority of the Company's sales and customer
service personnel are experienced golfers, including a number of former
collegiate and professional golfers. The Company believes interaction with its
knowledgeable representatives promotes customer satisfaction and helps to
strengthen the Adams brand.
In 1997, wholesale sales of golf equipment in the U.S. reached an estimated
$2.4 billion. Wholesale sales of golf clubs increased at an estimated compound
annual growth rate of approximately 13% over the 5-year period from 1992 to
1997. The Company believes that a number of trends are likely to further
increase the demand for Adams' products. These trends include: (i) significant
growth in the number of golf courses; (ii) increasing interest in golf from
women, junior and minority golfers; (iii) the large numbers of golfers entering
their 40s and 50s, the age when most golfers begin to play more often and
increase their spending on the sport; (iv) the correspondingly large population
of "Echo Boomers," who are beginning to
3
<PAGE>
enter their 20s, the age when golfers generally take up the sport; and (v) the
rapid evolution of golf club designs and materials.
The Company recently established a relationship with internationally
recognized, professional golfer Nicholas A. Faldo, who currently uses the Tight
Lies fairway woods. Mr. Faldo will be inducted into the World Golf Hall of Fame
in May 1998 and has won more major championships in the 1990s than any other
golfer. Mr. Faldo has agreed to work closely with the Company to assist in the
design and testing of future golf clubs and other equipment. The Company
believes that Mr. Faldo's comprehensive knowledge of the game of golf and
reputation for technical excellence complement the Company's capabilities and
strong brand identity.
The Company intends to develop proprietary new technologies and product
designs that provide golfers with meaningful performance benefits. Capitalizing
on the technical knowledge and expertise gained through the Tight Lies fairway
woods, the Company is currently developing a new driver. This new product is
expected to combine the distance of a driver with the playability of a fairway
wood. The Company is working with Mr. Faldo to design and test this new driver
as well as other potential new products.
The Company's goal is to establish itself as a leading developer of
technologically innovative, performance-oriented golf clubs. To achieve this
goal the Company intends to (i) build its share of the premium fairway woods
market; (ii) leverage the success, performance and reputation of the Tight Lies
fairway woods; (iii) expand international sales; and (iv) develop new
technologies and product designs.
The address of the Company's principal executive office is 300 Delaware
Avenue, Suite 548, Wilmington, Delaware 19801. The Company's telephone number at
this address is (302) 427-5892. Adams' principal manufacturing and management
headquarters are located at 2801 East Plano Parkway, Plano, Texas 75074 and its
telephone number at this location is (972) 673-9000. The Company's World Wide
Web site is located at www.adamsgolf.com. The contents of the Company's Web site
shall not be deemed to be part of this Prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company.......................................... shares
The Selling Stockholders............................. shares
Total Common Stock Offered......................... shares
Common Stock to be outstanding after the Offering(1)... shares
Use of net proceeds to the Company..................... Working capital and general
corporate purposes
Proposed Nasdaq National Market Symbol................. ADGO
</TABLE>
- ------------------------
(1) Excludes 423,664 shares of Common Stock issuable upon the exercise of
outstanding stock options.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary consolidated financial data of the
Company and should be read in conjunction with the Consolidated Financial
Statements and related Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1):
Net sales................................................. $ 1,125 $ 3,522 $ 36,690 $ 1,475 $ 24,511
Gross profit.............................................. 369 1,932 26,699 888 18,649
Operating expenses (excluding stock compensation and bonus
award).................................................. 613 1,709 15,826 823 9,777
Stock compensation and bonus award(2)..................... -- 214 14,842 -- --
--------- --------- --------- --------- ---------
Operating income (loss)................................... (244) 9 (3,969) 65 8,872
Net income (loss)......................................... $ (243) $ 13 $ (4,654) $ 45 $ 5,642
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income (loss) per common share(3):
Basic................................................... $ (.05) $ -- $ (.37) $ -- $ .32
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted................................................. $ (.05) $ -- $ (.37) $ -- $ .31
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares(3):
Basic................................................... 4,423 11,238 12,519 11,873 17,662
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted................................................. 4,423 11,238 12,519 11,873 18,374
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(4)
--------- --------------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 602 $
Working capital...................................................................... 12,299
Total assets......................................................................... 25,793
Total debt (including current maturities)............................................ 1,135
Stockholders' equity................................................................. 14,667
</TABLE>
- ------------------------
(1) This table excludes summary financial information for the fiscal years ended
December 31, 1993 and 1994 because operations in those years were not
comparable in size or scope to current operations.
(2) Consists primarily of a stock award to the Company's founder, Chief
Executive Officer and President. See Note 9 of Notes to Consolidated
Financial Statements.
(3) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the calculation of income (loss) per common share and weighted
average common shares outstanding.
(4) Gives effect to the sale of shares offered by the Company hereby and
the application of the estimated net proceeds therefrom (based on an assumed
initial public offering price of $ per share). See "Use of Proceeds" and
"Capitalization."
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE PURCHASERS OF COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE FOLLOWING FACTORS IN ADDITION TO OTHER INFORMATION IN THIS
PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY SUCH FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS DISCUSSED IN THIS PROSPECTUS,
INCLUDING THE FACTORS SET FORTH BELOW AND IN "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS."
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS; UNCERTAIN CONSUMER ACCEPTANCE
During the years ended December 31, 1996 and 1997 and the three months ended
March 31, 1998, approximately 47.2%, 94.3% and 97.3%, respectively, of the
Company's net sales were derived from the sale of Tight Lies fairway woods.
Sales of this product line are expected to account for a substantial portion of
the Company's net sales for some time. A decline in demand for, or average
selling prices of, the Tight Lies line of products would have a material adverse
effect on the Company's business, operating results and financial condition.
Accordingly, the Company's continued growth and success depend, in large part,
on its ability to successfully develop and introduce new products accepted in
the marketplace. Historically, a large portion of new golf club technologies and
product designs have been met with consumer rejection. No assurance can be given
that the new driver currently under development will meet with market acceptance
or that the Company will be able to continue to design, manufacture and
introduce new products that will meet with market acceptance. Failure by the
Company to identify and develop innovative new products that achieve widespread
market acceptance would adversely affect the Company's future growth and
profitability. Additionally, successful technologies, designs and product
concepts are likely to be copied by competitors. Accordingly, the Company's
operating results could fluctuate as a result of the amount, timing and market
acceptance of new product introductions by the Company or its competitors. The
design of new golf clubs is also greatly influenced by the rules and
interpretations of the U.S. Golf Association ("USGA"). Although the golf
equipment standards established by the USGA generally apply only to competitive
events sanctioned by that organization, the Company believes that it is critical
for its future success that new clubs introduced by the Company comply with USGA
standards. No assurance can be given that any new products will receive USGA
approval or that existing USGA standards will not be altered in ways that
adversely affect the sales of the Company's products.
LIMITED HISTORY OF PROFITABILITY
The Company has a limited history of profitability. The Company generated
net income for the first time during the year ended December 31, 1996. There can
be no assurance that the Company will be able to sustain profitability on a
quarterly or annual basis in the future. The Company's prospects must be
considered in light of the significant risks, challenges and difficulties
frequently encountered by companies experiencing rapid growth. To address these
risks, the Company must, among other things, successfully increase the scope of
its operations, respond to competitive and technological developments, continue
to attract, retain and motivate qualified personnel and continue to develop and
obtain market acceptance of its products. There can be no assurance that the
Company will be successful in addressing these risks and challenges. See
"--Dependence on New Product Introductions; Uncertain Consumer Acceptance," "--
Ability to Manage Growth," "--Highly Competitive Industry," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
The Company's ability to compete effectively in the golf club market will
depend, in large part, on its ability to maintain the proprietary nature of its
technologies and products. The Company currently holds six U.S. patents relating
to certain of its products and proprietary technologies and has two patent
applications pending. There can be no assurance, however, as to the degree of
protection afforded by these
6
<PAGE>
patents or as to the likelihood that patents will be issued from the pending
patent applications. Moreover, these patents may have limited commercial value
or may lack sufficient breadth to adequately protect the aspects of the
Company's products to which the patents relate. The Company does not hold any
foreign patents and no foreign patent applications are pending. The U.S. patents
held by the Company do not preclude competitors from developing or marketing
products similar to the Company's products in international markets.
There can be no assurance that competitors, many of which have substantially
greater resources than the Company and have made substantial investments in
competing products, will not apply for and obtain patents that will prevent,
limit or interfere with the Company's ability to make and sell its products. The
Company is aware of numerous patents held by third parties that relate to
products competitive to the Company's, including products competitive with the
Tight Lies fairway woods. There is no assurance that these patents would not be
used as a basis to challenge the validity of one or more of the Company's patent
rights, to limit the scope of the Company's patent rights or to limit the
Company's ability to obtain additional or broader patent rights. A successful
challenge to the validity of the Company's patents may adversely affect the
Company's competitive position. Moreover, there can be no assurance that such
patent holders or other third parties will not claim infringement by the Company
with respect to current and future products. Because U.S. patent applications
are held and examined in secrecy, it is also possible that presently pending
U.S. applications will eventually issue with claims that will be infringed by
the Company's products or technologies. The defense and prosecution of patent
suits is costly and time-consuming, even if the outcome is favorable. This is
particularly true in foreign countries where the expenses associated with such
proceedings can be prohibitive. An adverse outcome in the defense of a patent
suit could subject the Company to significant liabilities to third parties,
require the Company to cease selling products or require disputed rights to be
licensed from third parties. Such licenses may not be available on satisfactory
terms, or at all. The Company also relies on unpatented proprietary technology.
Third parties could develop the same or similar technology or otherwise obtain
access to the Company's proprietary technology. See "Business--Patents."
ABILITY TO MANAGE GROWTH
The Company has recently experienced a period of rapid growth that has
resulted in new and increased responsibilities for existing management
personnel. Further, the Company has recently employed a number of additional
senior management personnel and, accordingly, numerous members of the management
team have worked together for only a short time. The Company's growth has
placed, and is expected to continue to place, a significant strain on the
Company's management, operating and financial systems and resources. To
accommodate this recent growth and to compete effectively and manage future
growth, if any, the Company will be required to continue to implement and
improve its operational, financial and management information systems,
procedures and controls on a timely basis and to expand, train, motivate and
manage its workforce. There can be no assurance that the Company's personnel,
systems, procedures and controls will be adequate to support its existing or
future operations. Any failure to implement and improve the Company's
operational, financial and management systems or to expand, train, motivate or
manage employees could have a material adverse effect on the Company's business,
operating results or financial condition. See "Business--Information Technology"
and "Management."
DEPENDENCE ON KEY PERSONNEL AND ENDORSEMENTS
The Company's success depends to a significant extent upon the performance
of its senior management team, particularly the Company's founder, Chief
Executive Officer and President, B. H. (Barney) Adams. In addition to his
direction and supervision of the day-to-day affairs of the Company, Mr. Adams
spearheads the Company's product development efforts. The loss or unavailability
of Mr. Adams would adversely affect the Company's business and prospects. None
of the Company's officers or employees, including Mr. Adams, is bound by an
employment agreement and the relationships of such officers and
7
<PAGE>
employees are, therefore, at will. The Company has a $2.0 million key man life
insurance policy on the life of Mr. Adams; however, there can be no assurance
that the proceeds of such policy could adequately compensate the Company for the
loss of his services. In addition, there is strong competition for qualified
personnel in the golf club industry, and the inability to continue to attract,
retain and motivate other key personnel could adversely affect the Company's
business, operating results or financial condition.
The Company has recently entered into an agreement with Nick Faldo, an
internationally recognized professional golfer and winner of numerous U.S. and
international championships. This agreement requires the Company to make certain
significant payments to Mr. Faldo, whether or not his endorsement results in
increased sales of the Company's products. The Company believes that the future
success of its international marketing strategy may be affected by the continued
professional success of Mr. Faldo. The inability of the Company to maintain its
relationship with Mr. Faldo or the inability of Mr. Faldo to maintain an
acceptable level of professional success, could have a material adverse effect
on the Company's business, operating results or financial condition. See
"Business--Business Strengths," "-- Growth Strategy" and "--Marketing."
HIGHLY COMPETITIVE INDUSTRY
The market for golf clubs is highly competitive. The Company's competitors
include a number of established companies, many of which have greater financial
and other resources than the Company. The purchasing decisions of many golfers
are often the result of highly subjective preferences, which can be influenced
by many factors, including, among others, advertising, media, promotions and
product endorsements. The Company could therefore face substantial competition
from existing or new competitors that introduce and successfully promote golf
clubs that achieve market acceptance. Further, there can be no assurance that
the Company's marketing strategy will not be emulated by others, thereby
diluting the Company's message or forcing the Company to adopt a new marketing
strategy. Such competition could result in significant price erosion or
increased promotional expenditures, either of which could have a material
adverse effect on the Company's business, operating results and financial
condition. There can be no assurance that Adams will be able to compete
successfully against current and future sources of competition or that its
business, operating results or financial condition will not be adversely
affected by increased competition in the markets in which it operates. See
"Business--Competition."
SOURCES OF SUPPLY
The Company relies on a limited number of suppliers for a significant
portion of the component parts used in the manufacture of its golf clubs,
including the manufacture of its Tight Lies line of fairway woods. The Company
could in the future experience shortages of components or periods of increased
price pressures, which could have a material adverse effect on the Company's
business, operating results or financial condition. In addition, failure to
obtain adequate supplies or fulfill customer orders on a timely basis could have
a material adverse effect on the Company's business, operating results or
financial condition. See "Business--Manufacturing and Assembly."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The Company intends to use the net proceeds of this Offering for working
capital and general corporate purposes, including capital expenditures,
expansion of the Company's product development efforts, additional advertising
and expansion of the Company's international sales efforts. In addition, the
Company may use all or a portion of the net proceeds derived from the Offering
for possible acquisitions. Accordingly, management will have broad discretion
with respect to the expenditure of such proceeds. Purchasers of shares of Common
Stock in the Offering will be entrusting their funds to the Company's
management, upon whose judgment they must depend, with limited information
concerning the specific purposes to which the funds will ultimately be applied.
See "--Risks Associated with Acquisitions" and "Use of Proceeds."
8
<PAGE>
RISKS ASSOCIATED WITH ACQUISITIONS
While the Company has no current agreements or negotiations underway with
respect to any acquisition, the Company may make acquisitions of complementary
services, technologies, product designs or businesses in the future. There can
be no assurance that any future acquisition will be completed or that, if
completed, any such acquisition will be effectively assimilated into the
Company's business. Acquisitions involve numerous risks, including, among
others, loss of key personnel of the acquired company, the difficulty associated
with assimilating the personnel and operations of the acquired company, the
potential disruption of the Company's ongoing business, the maintenance of
uniform standards, controls, procedures and policies, and the impairment of the
Company's reputation and relationships with employees and customers. In
addition, any future acquisitions could result in the issuance of dilutive
equity securities, the incurrence of debt or contingent liabilities, and
amortization expenses related to goodwill and other intangible assets, any of
which could have a material adverse effect on the Company's business, operating
results or financial condition.
SEASONALITY AND QUARTERLY FLUCTUATIONS; DISCRETIONARY CONSUMER SPENDING
Golf generally is regarded as a warm weather sport and sales of golf
equipment historically have been strongest during the second and third quarters,
with the weakest sales occurring during the fourth quarter. In addition, sales
of golf clubs are dependent on discretionary consumer spending, which may be
affected by general economic conditions. A decrease in consumer spending
generally could result in decreased spending on golf equipment, which could have
a material adverse effect on the Company's business, operating results and
financial condition. In addition, the Company's future results of operations
could be affected by a number of other factors, such as unseasonal weather
patterns; demand for and market acceptance of the Company's existing and future
products; new product introductions by the Company's competitors; competitive
pressures resulting in lower than expected average selling prices; and the
volume of orders that are received and that can be fulfilled in a quarter. Any
one or more of these factors could result in the Company failing to achieve its
expectations as to future sales or net income.
Because most operating expenses are relatively fixed in the short term, the
Company may be unable to adjust spending sufficiently in a timely manner to
compensate for any unexpected sales shortfall, which could materially adversely
affect quarterly results of operations. If technological advances by competitors
or other competitive factors require the Company to invest significantly greater
resources than anticipated in research and development or sales and marketing
efforts, the Company's business, operating results or financial condition could
be materially adversely affected. Accordingly, the Company believes that period-
to-period comparisons of its results of operations should not be relied upon as
an indication of future performance. In addition, the results of any quarter are
not indicative of results to be expected for a full fiscal year. As a result of
fluctuating operating results or other factors discussed above and below, in
certain future quarters the Company's results of operations may be below the
expectations of public market analysts or investors. In such event, the market
price of the Company's Common Stock would be materially adversely affected. See
"--Absence of Public Market for Common Stock and Volatility" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CERTAIN RISKS OF CONDUCTING BUSINESS ABROAD
The Company imports a significant portion of its component parts, including
heads, shafts, headcovers and grips, from companies in Taiwan, China and Mexico.
In addition, the Company is rapidly increasing its international sales efforts.
As a result, the Company's business is subject to the risks generally associated
with doing business abroad, such as foreign government regulations, foreign
consumer preferences, import and export control, political unrest, disruptions
or delays in shipments and changes in economic conditions and exchange rates in
countries in which the Company purchases components or sells its products.
9
<PAGE>
CONTROL BY PRINCIPAL STOCKHOLDERS
Following the closing of the Offering, the Company's existing stockholders,
certain of whom are directors, officers or employees of the Company, will own
approximately % of the outstanding Common Stock (approximately % if the
Underwriters' over-allotment option is exercised in full), without giving effect
to any purchases of Common Stock in the Offering by such persons. As a result,
the existing stockholders will be in a position to exercise control of matters
submitted to the Company's stockholders, including the election of directors.
See "Management" and "Principal and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE; ISSUANCE OF ADDITIONAL SHARES
Future sales of shares of Common Stock by the Company and its stockholders
could adversely affect the prevailing market price of the Common Stock. The
Company's directors, officers and certain stockholders, including the Selling
Stockholders, holding an aggregate of shares of Common Stock have agreed
not to sell, offer, contract to sell, grant any option or right for the sale of
or otherwise dispose of any Common Stock or any securities convertible,
exercisable or exchangeable into shares of Common Stock, nor any options or
right to acquire any shares of Common Stock, including any sale pursuant to Rule
144 or Rule 144A promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), for a period of 180 days after the date of this Prospectus
without the prior written consent of Lehman Brothers Inc. (the "Lock-up
Agreement"). After such time, approximately shares of Common Stock will
be eligible for sale pursuant to Rule 144 promulgated under the Securities Act.
In addition, the Company has granted registration rights that will be
effective after the Offering to stockholders holding an aggregate of
shares of Common Stock. These stockholders have the right, subject to
certain conditions, to demand that their stock be registered under the
Securities Act on any three occasions commencing generally one year after the
date of this Prospectus. The stockholders also have certain additional piggyback
registration rights, and subject to certain conditions, may participate in
future registrations by the Company of shares of Common Stock under the
Securities Act.
Pursuant to its Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation"), the Company has the authority to issue
additional shares of Common Stock. The issuance of such shares could result in
the dilution of the voting power of Common Stock purchased in the Offering.
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales may occur, could have a material adverse effect on
the market price of the Common Stock. See "Shares Eligible for Future Sale,"
"Underwriting" and "Description of Capital Stock."
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Amended and Restated Bylaws
(the "Bylaws") contain, among other things, provisions establishing a classified
Board of Directors, authorizing shares of preferred stock with respect to which
the Board of Directors of the Company has the power to fix the rights,
preferences, privileges and restrictions without any further vote or action by
the stockholders, requiring that all stockholder action be taken at a
stockholders' meeting and establishing certain advance notice requirements in
order for stockholder proposals or director nominations to be considered at such
meetings. In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law (the "DGCL"). In general,
this statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Such provisions could delay, deter or prevent a merger, consolidation, tender
offer, or other business combination or change of control involving the Company
that some or a majority of the Company's stockholders might consider to be in
its best interest, including offers or attempted takeovers that might otherwise
result in such stockholders receiving a premium over the market price for the
Common Stock. The potential issuance of
10
<PAGE>
preferred stock may have the effect of delaying, deferring or preventing a
change of control of the Company, may discourage bids for the Common Stock at a
premium over the market price of the Common Stock and may adversely affect the
market price of and the voting and other rights of the holders of the Common
Stock. The Company has not issued, and currently has no plans to issue, shares
of preferred stock. See "Description of Capital Stock--Preferred Stock" and
"--Delaware Law and Certain Charter and Bylaw Provisions."
ABSENCE OF PUBLIC MARKET FOR COMMON STOCK AND VOLATILITY
Prior to the Offering there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained after the Offering. The initial public offering price of the Common
Stock offered hereby will be determined through negotiations among the Company,
the Selling Stockholders and the Underwriters, and may not be indicative of the
market price for the Common Stock after the Offering. The market price for
shares of the Common Stock may be volatile depending on a number of factors,
including business performance, industry dynamics, news announcements or changes
in general market conditions. See "Underwriting."
DILUTION
The initial public offering price is substantially higher than the book
value per share of Common Stock. Investors purchasing shares of Common Stock in
the Offering will therefore incur immediate and substantial dilution in net
tangible book value per share of $ . To the extent outstanding options to
purchase the Company's Common Stock are exercised, there will be further
dilution. See "Dilution."
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" including statements
containing the words "believes," "anticipates," "expects" and words of similar
import. All statements other than statements of historical fact included in this
Prospectus, including without limitation, such statements under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and located elsewhere
herein, regarding the Company or any of the transactions described herein,
including the timing, financing, strategies and effects of such transactions,
are forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from
expectations are disclosed in this Prospectus, including, without limitation, in
conjunction with the forward-looking statements in this Prospectus and/or under
"Risk Factors." The Company does not intend to update these forward-looking
statements.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company hereby, after deducting estimated Offering
expenses payable by the Company and the underwriting discounts and commissions,
are estimated to be approximately $ million. The principal purposes of the
Offering are to increase the Company's working capital and equity base, to
provide a public market for its Common Stock and to provide liquidity for its
stockholders. The Company intends to use the net proceeds for working capital
and general corporate purposes, including capital expenditures, expansion of the
Company's product development efforts, additional advertising and expansion of
the Company's international sales efforts. In addition, the Company may use all
or a portion of the net proceeds from the Offering for possible acquisitions.
The Company has no current agreements or specific plans with respect to any
acquisition, but will consider acquisition opportunities as they arise. Company
management will have broad discretion with respect to the proceeds of this
Offering. Pending such uses, the Company intends to invest the net proceeds of
this Offering in short-term, interest-bearing, investment-grade securities. The
Company will not receive any of the proceeds from the sale of Common Stock by
the Selling Stockholders. See "Risk Factors--Broad Management Discretion in Use
of Proceeds," "--Risks Associated with Acquisitions" and "Principal and Selling
Stockholders."
DIVIDEND POLICY
The Company has not paid cash dividends in the past and has no present
intention of declaring or paying any dividends in the foreseeable future. The
Company anticipates that any earnings will be retained for the foreseeable
future for use in the operations of the business. Any future determinations as
to the payment of dividends will be at the discretion of the Company's Board of
Directors and will depend on the Company's results of operations, financial
condition, contractual restrictions and other factors deemed relevant by the
Board of Directors. The Company's ability to pay dividends is restricted by
certain covenants set forth in its Revolving Credit Agreement with NationsBank
of Texas, N.A. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
12
<PAGE>
DILUTION
At March 31, 1998, the Company's net tangible book value was $14,654,000 or
$0.81 per share. Net tangible book value per share represents the amount of the
Company's total tangible assets less the Company's total liabilities, divided by
the number of shares of Common Stock outstanding. Without taking into account
any other changes in such net tangible book value after March 31, 1998, other
than to give effect to the sale of shares of Common Stock offered by the
Company hereby (after deduction of expenses payable by the Company and estimated
underwriting discounts and commissions), the net tangible book value of the
Company on March 31, 1998 would have been $ or $ per share. This
represents an immediate increase in net tangible book value of approximately
$ per share to the Company's existing stockholders and an immediate
dilution in net tangible book value of $ per share to new investors in the
Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share....................................... $
Net tangible book value per share before the Offering....................... $ 0.81
Increase in net tangible book value per share attributable to new
investors.................................................................
Net tangible book value per share after the Offering..........................
---------
Dilution per share to new investors........................................... $
---------
---------
</TABLE>
The following table sets forth, at March 31, 1998, the difference between
existing stockholders and the new investors in the Offering with respect to the
number of shares purchased from the Company, the total consideration paid and
the average price per share paid.
<TABLE>
<CAPTION>
SHARES PURCHASED
FROM THE COMPANY TOTAL CONSIDERATION AVERAGE
------------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................................... 18,199,282 % $ 4,838,636 % $ 0.27
New investors........................................... $
------------ ----- ------------ -----
Total................................................. 100.0% 100.0%
------------ ----- ------------ -----
------------ ----- ------------ -----
</TABLE>
The above computations exclude 313,664 shares of Common Stock issuable upon
exercise of outstanding stock options. An additional 1,358,000 shares of Common
Stock are reserved for issuance under the Company's 1998 Stock Incentive Plan
(the "Incentive Plan"). To the extent that any outstanding options are
exercised, or additional options are issued, there will be further dilution to
new investors in the Offering. See "Management--Benefit Plans," "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Underwriting."
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1998 and as adjusted as of that date to give effect to the sale of
shares of Common Stock by the Company in the Offering and the application of the
estimated net proceeds therefrom. See "Use of Proceeds." This table should be
read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
------------------------
ACTUAL AS ADJUSTED
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................................................. $ 602 $
--------- -----
--------- -----
Note payable--current..................................................................... $ 913 $
Note payable--non-current................................................................. 222 --
--------- -----
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; none outstanding.......... -- --
Common stock, $.001 par value, 25,000,000 shares authorized; 18,199,282 shares (actual)
and shares (as adjusted) issued(1)............................................ 18
Additional paid-in capital.............................................................. 16,032
Common stock subscription............................................................... (231)
Deferred compensation................................................................... (981)
Accumulated deficit..................................................................... (171)
Total stockholders' equity............................................................ 14,667
--------- -----
Total capitalization................................................................ $ 16,404 $
--------- -----
--------- -----
</TABLE>
- ------------------------
(1) Excludes 313,664 shares subject to outstanding options.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected financial data at and for the fiscal years ended
December 31, 1995, 1996 and 1997 are derived from the Consolidated Financial
Statements of the Company, which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The selected financial information for
the three months ended March 31, 1997 and 1998 are derived from unaudited
Consolidated Financial Statements of the Company. In the opinion of management,
all adjustments consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations, have been
included in such unaudited Consolidated Financial Statements. Results for the
three months ended March 31, 1998 may not be indicative of the results expected
for the year ended December 31, 1998. The Consolidated Financial Statements at
December 31, 1996 and 1997 and for each of the years in the three-year period
ended December 31, 1997, and the independent auditors' report are included
elsewhere in this Prospectus. The selected financial data should be read in
conjunction with the Consolidated Financial Statements, the related Notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included elsewhere
herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1):
Net sales................................................. $ 1,125 $ 3,522 $ 36,690 $ 1,475 $ 24,511
Cost of goods sold........................................ 756 1,590 9,991 587 5,862
Gross profit.............................................. 369 1,932 26,699 888 18,649
Operating expenses (excluding stock compensation and bonus
award).................................................. 613 1,709 15,826 823 9,777
Stock compensation and bonus award(2)..................... -- 214 14,842 -- --
--------- --------- --------- --------- ---------
Operating income (loss)................................... (244) 9 (3,969) 65 8,872
Income (loss) before taxes................................ (243) 13 (4,071) 61 8,772
Net income (loss)......................................... $ (243) $ 13 $ (4,654) $ 45 $ 5,642
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income (loss) per common share(3):
Basic................................................... $ (.05) $ -- $ (.37) $ -- $ .32
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted................................................. $ (.05) $ -- $ (.37) $ -- $ .31
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares(3):
Basic................................................... 4,423 11,238 12,519 11,873 17,662
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted................................................. 4,423 11,238 12,519 11,873 18,374
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 243 $ 855 $ 1,956 $ 760 $ 602
Working capital........................................... 575 1,475 6,915 1,558 12,299
Total assets.............................................. 658 2,559 17,360 3,116 25,793
Total debt (including current maturities)................. -- 230 -- 479 1,135
Stockholders' equity...................................... 615 1,978 8,325 2,024 14,667
</TABLE>
- ------------------------
(1) This table excludes financial information for the fiscal years ended
December 31, 1993 and 1994 because operations in those years were not
comparable in size or scope to current operations.
(2) Consists primarily of a stock award to the Company's founder, Chief
Executive Officer and President. See Note 9 of Notes to Consolidated
Financial Statements.
(3) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the calculation of income (loss) per common share and weighted
average common shares outstanding.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition
and results of operations addresses the performance of the Company for the three
months ended March 31, 1997 and 1998, and the years ended December 31, 1995,
1996 and 1997, and should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
OVERVIEW
Adams designs, manufactures and markets premium quality, technologically
innovative golf clubs. Founded in 1987, the Company operated initially as a
components supplier and contract manufacturer. Thereafter, the Company
established its custom fitting operation which currently services a network of
over 100 certified custom fitting accounts. In the fall of 1995, the Company
introduced the original Tight Lies fairway wood and, in December 1996, the
Company extended the Tight Lies line to include the Tight Lies Strong 3, Strong
5 and Strong 7, with the Tight Lies Strong 9 being introduced in January 1998.
Sales of the Tight Lies line of products increased significantly subsequent to
the second quarter of 1997 when the Company launched an infomercial relating to
the original Tight Lies fairway wood.
The Company's net sales are primarily derived from sales to on- and
off-course golf shops and selected sporting goods retailers and, to a much
lesser extent, direct sales to consumers, international distributors and the
Company's custom fitting accounts. The Company defines net sales as gross sales
less returns. The Company recognizes sales and an allowance for returns is
estimated at the time products are shipped. The Company's net sales increased to
$36.7 million for 1997 from $1.1 million for 1995 and to $24.5 million for the
three months ended March 31, 1998 from $1.5 million for the three months ended
March 31, 1997. The Company's net sales are based on orders for immediate
delivery and backlog is not, therefore, necessarily indicative of future net
sales.
The Company does not currently manufacture the components required to
assemble its golf clubs, relying instead on component suppliers. Costs of the
Company's Tight Lies fairway woods consist primarily of component parts,
including the head, shaft and grip. To a lesser extent, the Company's cost of
goods sold includes labor and occupancy costs in connection with the inspection,
testing and assembly of component parts at its facility in Plano, Texas.
Operating expenses are composed primarily of selling and royalty expenses,
general and administrative expenses, and to a lesser extent, research and
development expenses. Selling and royalty expenses include advertising and
marketing expenses, salaries and commissions, royalties related to the Company's
infomercial and independent consulting fees. During the year ended December 31,
1997 and the first three months of 1998, royalties were approximately 6% of net
sales of the Company's original Tight Lies fairway wood, excluding international
and custom fitting sales. The Company expects royalties to increase as a
percentage of net sales as a result of the agreement reached with Nick Faldo.
General and administrative expense includes salaries and benefits for corporate
management, accounting, administrative support staff, bad debts, independent
consulting and professional services, and office rent and utilities. Expenses
associated with research and development efforts include salaries and
independent consulting fees.
The Company was incorporated in Texas in 1987 and reincorporated in Delaware
in 1990. The Company completed an internal reorganization in 1997 and now
conducts its operations through several direct and indirect wholly-owned
subsidiaries, including (i) Adams Golf Holding Corp., a Delaware corporation,
which holds limited partnership interests of certain indirect subsidiaries of
the Company; (ii) Adams Golf GP Corp., a Delaware corporation, which holds
capital stock or limited partnership interests, as applicable, of certain
indirect subsidiaries of the Company; (iii) Adams Golf Direct Response, Ltd., a
Texas limited partnership, which operates the call-center and advertising
activities; (iv) Adams Golf, Ltd., a Texas limited partnership, which operates
the golf club design, assembly and sales business; (v) Adams Golf IP, L.P., a
Delaware limited partnership, which holds the intellectual property
16
<PAGE>
rights of the Company; and (vi) Adams Golf Management Corp., a Delaware
corporation, which provide management and consulting services to certain of the
Company's indirect subsidiaries.
RESULTS OF OPERATIONS
The following table sets forth operating results expressed as a percentage
of net sales for the periods indicated. Results for any one or more periods are
not necessarily indicative of annual results or continuing trends. See
"--Quarterly Results and Seasonality," below.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA 1995 1996 1997 1997 1998
- ----------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................................... 67.2 45.1 27.2 39.8 23.9
--------- --------- --------- --------- ---------
Gross profit............................................. 32.8 54.9 72.8 60.2 76.1
Operating expenses......................................... 54.5 54.6 83.6 55.8 39.9
--------- --------- --------- --------- ---------
Operating income (loss).................................. (21.7) 0.3 (10.8) 4.4 36.2
Interest expense........................................... -- -- 0.2 .9 --
Other income (expense)..................................... 0.1 0.1 (0.1) 0.6 (0.4)
--------- --------- --------- --------- ---------
Income (loss) before income taxes........................ (21.6) 0.4 (11.1) 4.1 35.8
--------- --------- --------- --------- ---------
Income tax expense......................................... -- -- 1.6 1.0 12.8
Net income (loss).......................................... (21.6)% 0.4% (12.7)% 3.0% 23.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Net sales increased to $24.5 million for the three months ended March 31,
1998 from $1.5 million for the comparable period of 1997, primarily due to the
continued market acceptance of the Company's Tight Lies line of fairway woods,
and, to a lesser extent, a price increase effective January 1, 1998. Net sales
of the Tight Lies line of fairway woods increased to $23.8 million from $1.1
million for the comparable period of 1997, and increased as a percentage of net
sales to 97.3% from 75.8%, respectively. Sales of the Tight Lies fairway woods
increased subsequent to the Company's introduction of an infomercial marketing
its original Tight Lies fairway wood in the second quarter of 1997. Net sales of
other product lines for the three months ended March 31, 1998 increased to $0.7
million from $0.4 million for the comparable period of 1997, but decreased as a
percentage of net sales to 2.7% from 24.2%, respectively. Net sales of the
Company's products outside the U.S. increased to $1.4 million for the three
months ended March 31, 1998 from $0.2 million for the three months ended March
31, 1997, but decreased as a percentage of net sales to 5.7% from 11.0%,
respectively. The increase in international sales in absolute dollars was due to
increased market acceptance of the Tight Lies fairway woods and expanded
international marketing efforts in the last half of 1997.
Gross profit increased to $18.6 million for the three months ended March 31,
1998 from $0.9 million for the comparable period of 1997, and increased as a
percentage of net sales to 76.1% from 60.2%, respectively. Gross profit for the
three months ended March 31, 1998 was favorably affected by an increased
percentage of sales attributable to the higher margin Tight Lies fairway woods
and the inherent cost savings associated with buying components in large volumes
and assembling them on a substantially increased scale.
Operating income increased to $8.9 million for the three months ended March
31, 1998 from $65,000 for the comparable period of 1997 due to increased sales.
Total operating expenses increased to $9.8 million for the three months ended
March 31, 1998 from $0.8 million for the comparable period of 1997, principally
as a result of increased selling and advertising costs related to the promotion
of the Tight Lies
17
<PAGE>
fairway woods and increased administrative costs resulting primarily from the
hiring of additional employees and slightly higher occupancy costs. As a
percentage of net sales, operating expenses decreased for the three months ended
March 31, 1998 to 39.9% from 55.8% for the comparable period of 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales increased to $36.7 million for 1997 from $3.5 million for 1996,
primarily due to increased market acceptance of the Company's Tight Lies fairway
woods. Net sales of the Tight Lies fairway woods increased to $34.5 million for
1997, from $1.7 million for 1996, and increased as a percentage of net sales to
94.3% from 47.2%, respectively. Net sales of other product lines increased to
$2.1 million for 1997 compared to $1.8 million for 1996, but decreased as a
percentage of net sales to 5.7% for 1997 from 52.8% for 1996.
Gross profit increased to $26.7 million for 1997 from $1.9 million for 1996,
and increased as a percentage of net sales to 72.8% from 54.9%, respectively.
Gross profit for 1997 was favorably affected by an increased percentage of sales
attributable to the higher margin Tight Lies fairway woods and the inherent cost
savings associated with buying components in large volumes and assembling them
on a substantially increased scale.
The Company experienced an operating loss of $4.0 million for 1997 as
compared to an operating income of $9,000 for 1996. Total operating expenses
increased to $30.7 million for 1997 from $1.9 million for 1996. Of the $30.7
million of operating expenses for 1997, $14.8 million, or 48.4%, of expenses
related to stock compensation and bonus awards to the Company's founder, Chief
Executive Officer and President. See Note 9 of Notes to Consolidated Financial
Statements. The expense recognized in 1996 in conjunction with these awards was
$0.2 million, or 11.1% of operating expenses. In 1997, the Company also incurred
higher expenses for selling and royalties and provision for bad debts, in each
case due principally to increased sales of the Tight Lies fairway woods. General
and administrative expenses also increased in 1997 due to the hiring of
additional employees, and research and development expenses.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales increased to $3.5 million for 1996 from $1.1 million for 1995,
primarily due to the introduction of the original Tight Lies fairway wood in the
fall of 1995. Net sales of the original Tight Lies fairway wood increased to
$1.7 million for 1996 from $0.1 million for 1995, and increased as a percentage
of net sales to 47.2% from 9.6%, respectively. Net sales of other products
increased to $1.8 million for 1996 from $1.0 million for 1995, but decreased as
a percentage of net sales to 52.8% from 90.4%, respectively. The increase in
sales of other products in absolute dollars was due to increased sales of custom
fitted golf clubs resulting from increased number of teaching professionals who
became certified Adams Golf club fitters during 1996.
Gross profit increased to $1.9 million for 1996 from $0.4 million for 1995,
and increased as a percentage of net sales to 54.9% from 32.8%, respectively.
The increase in gross profit was due to higher sales of the Company's products
in 1996, specifically the higher margin original Tight Lies fairway wood.
Operating income was $9,000 for 1996 compared to an operating loss of $0.2
million for 1995. Total operating expenses increased to $1.9 million for 1996
from $0.6 million for 1995 and remained relatively flat as a percentage of net
sales. Of the $1.9 million of operating expenses in 1996, $0.2 million, or
11.1%, of expenses were related to a bonus award to the Company's founder, Chief
Executive Officer and President. The Company also incurred additional selling
and general and administrative expenses in 1996 as a result of increased sales
and hiring additional employees.
18
<PAGE>
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth certain unaudited quarterly financial
operational data for the five most recent quarters.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------
SEPT. 30, DEC. 31,
MARCH 31, 1997 JUNE 30, 1997 1997 1997 MARCH 31, 1998
--------------- ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 1,475 $ 3,974 $ 14,236 $ 17,005 $ 24,511
Gross profit........................ 888 2,418 10,633 12,759 18,649
Operating income (loss)............. 65 4 4,212 (8,250) 8,872
Net income (loss)................... 45 (4) 3,144 (7,839) 5,642
</TABLE>
Golf generally is regarded as a warm weather sport and sales of golf
equipment historically have been strongest during the second and third quarters,
with the weakest sales occurring during the fourth quarter. Although the
Company's rapid growth has offset this trend in recent periods, no assurances
can be given that the Company's growth will continue to offset the impact of
seasonality, and therefore results for any one or more quarters are not
necessarily indicative of annual results or continuing trends. In addition,
sales of golf clubs are dependent on discretionary consumer spending, which may
be affected by general economic conditions. A decrease in consumer spending
generally could result in decreased spending on golf equipment, which could have
a material adverse effect on the Company's business, operating results and
financial condition. In addition, the Company's future results of operations
could be affected by a number of other factors, such as unseasonal weather
patterns; demand for and market acceptance of the Company's existing and future
products; new product introductions by the Company's competitors; competitive
pressures resulting in lower than expected average selling prices; and the
volume of orders that are received and that can be fulfilled in a quarter. Any
one or more of these factors could result in the Company failing to achieve its
expectations as to future sales or net income.
Because most operating expenses are relatively fixed in the short term, the
Company may be unable to adjust spending sufficiently in a timely manner to
compensate for any unexpected sales shortfall, which could materially adversely
affect quarterly results of operations. If technological advances by competitors
or other competitive factors require the Company to invest significantly greater
resources than anticipated in research and development or sales and marketing
efforts, the Company's business, operating results or financial condition could
be materially adversely affected. Accordingly, the Company believes that period-
to-period comparisons of its results of operations should not be relied upon as
an indication of future performance. In addition, the results of any quarter are
not indicative of results to be expected for a full fiscal year. As a result of
fluctuating operating results or other factors discussed above and below, in
certain future quarters the Company's results of operations may be below the
expectations of public market analysts or investors. In such event, the market
price of the Company's Common Stock would be materially adversely affected.
STOCK-BASED COMPENSATION
In December 1997, the Board of Directors of the Company approved a stock
compensation award of 2,000,000 shares of Common Stock to the Company's founder,
Chief Executive Officer and President. The Company agreed to pay all income
taxes due by the officer relating to such stock award and related tax bonus. As
a result, compensation expense of approximately $12.5 million was charged to
operations in 1997. In addition, this officer notified the Company of his intent
to exercise stock options and an additional compensation expense of
approximately $2.3 million was recorded in 1997. With respect to certain stock
options granted to employees, the Company recorded deferred compensation of
$981,000 in the first quarter of 1998. The Company will begin amortizing
deferred compensation in the second quarter of 1998 over the vesting period,
generally four years. See Note 9 of Notes to Consolidated Financial Statements.
19
<PAGE>
YEAR 2000 COMPLIANCE
Many existing computer systems and applications and other control devices
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. As a result, as year 2000
approaches, computer systems and applications used by many companies may need to
be upgraded to comply with "Year 2000" requirements. The Company relies on its
systems in operating and monitoring many significant aspects of its business,
including financial systems (such as general ledger, accounts payable, accounts
receivable, inventory and order management), customer services, infrastructure
and network and telecommunications equipment. The Company also relies directly
and indirectly on the systems of external business enterprises such as
customers, suppliers, creditors, financial organizations and domestic and
international governments. The Company currently estimates that its costs
associated with Year 2000 compliance, including any costs associated with the
consequences of incomplete or untimely resolution of Year 2000 compliance
issues, will not have a material adverse effect on the Company's business,
financial condition or results of operations. However, the Company has not
exhaustively investigated and does not believe it has fully identified the
impact of Year 2000 compliance and has not concluded that it can resolve any
issues that may arise in complying with Year 2000 without disruption of its
business or without incurring significant expense. In addition, even if the
Company's internal systems are not materially affected by Year 2000 compliance
issues, the Company could be affected through disruption in the operation of the
enterprises with which the Company interacts.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations principally through
internally generated funds and funds from the private placement of equity
securities. Such funds have been supplemented from time to time with short-term
borrowings under the Company borrowing facilities. Primarily as a result of tax
payments made by the Company in the first quarter of 1998, for the three months
ended March 31, 1998 net cash used in operating activities was $1.5 million. Net
cash provided by operating activities was $1.1 million for the year ended
December 31, 1997.
Working capital totaled $12.3 million at March 31, 1998 compared to $6.9
million at December 31, 1997. Net trade accounts receivable amounted to $14.7
million at March 31, 1998 compared to $7.7 million at December 31, 1997. The
increase was primarily due to increased net sales in the first three months of
1998. Inventory totaled $5.6 million at March 31, 1998 and $4.5 million at
December 31, 1997.
The Company has a $10.0 million revolving credit facility, which expires on
December 31, 1998. At March 31, 1998, the Company had no outstanding borrowings
under this facility. Borrowings under the Company's revolving credit facility
agreement are at interest rates based on the lending bank's general refinance
rate of interest or certain LIBOR rates of interest. Obligations under the
revolving credit facility loan agreement are collateralized by substantially all
of the accounts receivable, inventory and equipment of the Company. During the
first quarter of 1998, the Company borrowed approximately $1.1 million in the
form of a note payable to the Company's founder, Chief Executive Officer and
President. The remaining principal amount of the note ($534,899 at April 30,
1998) is payable in two installments on December 15, 1998 and April 14, 1999 at
an interest rate of 5.39%.
The Company's capital expenditures amounted to $1.7 million, $0.8 million
and $0.1 million for the three months ended March 31, 1998 and the years ended
December 31, 1997 and 1996, respectively. The Company anticipates making capital
expenditures in the ordinary course of business and is currently implementing a
customer management information system at an estimated cost of $1.7 million for
the year ending December 31, 1998.
The Company believes that the cash flow from operations, the net proceeds of
the Offering and the Company's $10.0 million credit facility will be sufficient
to meet operating needs and capital expenditures for at least the next 12
months.
20
<PAGE>
BUSINESS
GENERAL
Adams designs, manufactures and markets premium quality, technologically
innovative golf clubs. The Company's design objective is to produce golf clubs
that deliver meaningful performance benefits and inspire player confidence. The
Company believes that its most successful product line to date, the Tight Lies
fairway woods, meets this objective by providing golfers with the ability to hit
the ball from virtually any lie while maximizing distance. The patented Tight
Lies fairway woods feature an upright trapezoidal head, a shallow face and a
lower center of gravity as compared to conventional fairway woods. Adams has
developed a marketing model that integrates direct response and traditional
image-based advertising to generate brand awareness and drive retail sales. The
complete Tight Lies line of products includes the original, Strong 3, Strong 5,
Strong 7 and Strong 9 fairway woods. The success of the Tight Lies line of
products is evidenced by the increase in the Company's net sales from $3.5
million for 1996 to $36.7 million for 1997 and from $1.5 million for the three
months ended March 31, 1997 to $24.5 million for the three months ended March
31, 1998.
The Company's growth strategy is to continue to increase its share of the
fairway woods market, leverage consumer acceptance of the Tight Lies brand,
expand international sales and develop new technologies and product designs.
GOLF INDUSTRY OVERVIEW
According to the National Golf Foundation ("NGF"), there are approximately
49 million golfers worldwide, including approximately 25 million in the U.S. In
1997, golfers in the U.S. played an estimated 547 million rounds of golf and,
according to the National Sporting Goods Association, are estimated to have
spent $5.8 billion on golf equipment, apparel and accessories. Of the 25 million
U.S. golfers, about 5.2 million, characterized by the NGF as "avid golfers,"
play over 25 rounds of golf per year. The Company believes that avid golfers are
the first to seek out performance-oriented golf equipment and generally drive
golf club product trends.
In 1997, wholesale sales of golf equipment in the U.S. reached an estimated
$2.4 billion. Wholesale sales of golf clubs increased at a compound annual
growth rate of approximately 13% over the 5-year period from 1992 to 1997. The
Company believes that sales of golf clubs will continue to grow in the future
due to a number of factors including:
INCREASING AVAILABILITY OF GOLF FACILITIES. According to the NGF,
approximately 900 new golf courses, the vast majority of which will be available
to the public, are expected to open in the U.S. by the year 2000. The Company
believes that these additional facilities will make golf more accessible and
convenient, leading to a further increase in golf participation rates.
INCREASING INTEREST FROM NON-TRADITIONAL GOLFERS. The game of golf has
become increasingly attractive to segments of the population that have not
historically been well-represented among golfers. Most notably, Tiger Woods has
made golf more appealing to junior and minority golfers. According to the NGF,
the total number of beginning and junior golfers increased by over 40% in 1997
compared to the previous year. In addition, the success of the Ladies
Professional Golf Association (the "LPGA") Tour and such female golfers as
Annika Sorenstam of Sweden have increased the appeal of the sport to women.
FAVORABLE POPULATION TRENDS. The Company believes that two population
trends are likely to benefit the golf industry over the next several years: (i)
the aging of Baby Boomers (those born between 1946 and 1964) and (ii) the
emergence of the Echo Boom generation (those born between 1977 and 1995). As
golfers age, they tend to play golf more often and spend more money on the
sport, particularly in the over-50 age group. Accordingly, because a majority of
Baby Boomers are entering their 40s and 50s, the Company expects interest in and
spending on golf to increase. Further, because Echo Boomers are
21
<PAGE>
beginning to enter their 20s, the age most golfers begin to play the sport, the
Company believes they will further increase their participation in and spending
on golf.
NEW PRODUCT INNOVATIONS. In recent years, the golf equipment industry has
made significant advances in product designs and technologies to enhance
golfers' performance and overall enjoyment of the game. The Company believes
that this rapid evolution of golf clubs accelerates the rate at which golfers
purchase new or additional clubs.
GROWTH IN FAIRWAY WOODS. The Company believes that sales of fairway woods
are growing for a number of reasons. Fairway woods have proven to be more
versatile and dependable than long irons (specifically, the 1-4 irons), which
many golfers find inherently difficult to hit. In addition, an increasing number
of professional golfers on each of the Professional Golf Association ("PGA"),
LPGA, Senior PGA and Nike Tours are carrying multiple fairway woods in
competition, thereby validating the use of fairway woods as an accepted
substitute for long irons. Finally, changes in course architectures and turf
maintenance techniques are placing a premium on shots that fly higher and land
softer (I.E., the types of shots typically produced by fairway woods).
COMPANY HISTORY
Barney Adams founded the Company in 1987. After an initial period of
supplying components and performing contract manufacturing, the Company
established a custom fitting operation at the Hank Haney Golf Ranch in McKinney,
Texas, a well-known teaching and practice facility. As a result of the knowledge
and experience gained through custom fitting, Mr. Adams concluded that the
greatest difference in skill between a professional golfer and an amateur golfer
is the ability to successfully hit the long second shot to the green. A similar
conclusion had previously been reached by Alastair Cochran and John Stobbs in
their book "THE SEARCH FOR THE PERFECT SWING." After a period of further
research, development and testing, the Company introduced a patented club head
design to assist golfers with this shot. The resulting product, the original
Tight Lies fairway wood, incorporates an upright trapezoidal head, a shallow
face, a low center of gravity and 16 DEG. of loft to assist the golfer in
getting the ball airborne quickly and efficiently from a variety of lies while
maximizing distance. In late 1996, Adams extended the Tight Lies line of fairway
woods to include the Strong 3, Strong 5 and Strong 7 and, one year later, the
Strong 9.
In an effort to generate maximum exposure and retail sell-through of the
original Tight Lies fairway wood, the Company debuted its professionally
produced infomercial in April 1997. This 30-minute informational commercial is
hosted by veteran golf announcer Jack Whitaker and features former PGA Teacher
of the Year Hank Haney, former British Open Champion Bill Rogers and LPGA Hall
of Famer Carol Mann. Demand for the Tight Lies fairway woods increased
significantly after the introduction of the infomercial. To meet this demand,
the Company increased its distribution capacity by expanding its network of on-
and off-course golf shops and selected sporting goods retailers.
The International Network of Golf, an 800-member organization of leading
media and golf industry executives, named the original Tight Lies fairway wood
the "Breakthrough Product of the Year" in 1996. In addition, the Tight Lies
fairway wood received the 1997/98 Certificate of Excellence from the Golf
Industry Association. Since the introduction of the original Tight Lies fairway
wood in late 1995, more than 50 professionals on the PGA, LPGA and Senior PGA
Tours have carried one or more Tight Lies fairway woods in competition, none of
whom were then under contract with or paid by the Company.
22
<PAGE>
BUSINESS STRENGTHS
The Company has developed the following business strengths that it believes
provide it with a competitive advantage over many other golf club manufacturers:
STRENGTH OF THE TIGHT LIES BRAND. The Company believes that it has
established a significant presence in the premium quality fairway woods market
category. As reported in the March 1998 issue of GOLF SHOP OPERATIONS ("GSO"), a
widely recognized industry trade publication, the Tight Lies fairway wood is one
of the top selling golf equipment items among those retailers polled from GSO's
list of "America's 100 Best Golf Shops." The Company believes that the strength
of its brand is further demonstrated by the rapid acceptance of the expanded
line of Tight Lies fairway woods. Although at the time the Company only
advertised the original Tight Lies fairway wood, sales of the expanded line
represented 48.8% of net sales for the three months ended March 31, 1998.
INNOVATIVE MARKETING MODEL AND STRONG RETAIL DISTRIBUTION. Adams has
developed a marketing model that integrates direct response and traditional
image-based advertising to generate brand awareness and drive retail sales. For
the three months ended March 31, 1998, approximately 79% of the Company's sales
occurred at the retail level. To preserve the integrity of its image and
reputation, the Company currently limits its distribution to retailers that
market premium quality golf equipment and provide a high level of customer
service and technical expertise. The Company currently sells its products to on-
and off-course golf shops and selected sporting goods retailers. The Company
does not sell its products through price sensitive general discount warehouses,
department stores or membership clubs. The Company believes its selective retail
distribution helps its retailers to maintain profitable margins and maximize
sales of Adams products. The Company further believes it is well-positioned to
utilize its marketing model and retail distribution for future products.
RELATIONSHIP WITH NICK FALDO. The Company has recently entered into a
relationship with Nick Faldo. Mr. Faldo will be inducted into the World Golf
Hall of Fame in May 1998 and has won more major championships in the 1990s than
any other golfer. In addition to numerous other domestic and international
championships, Mr. Faldo has won the Masters three times (1989, 1990 and 1996)
and the British Open three times (1987, 1990 and 1992). Mr. Faldo uses the Tight
Lies fairway woods in competition and has agreed to work closely with the
Company to assist in the design and testing of future golf clubs and other
equipment. The Company believes that Mr. Faldo's comprehensive knowledge of the
game of golf and reputation for technical excellence complements the Company's
capabilities and strong brand identity.
SALES AND CUSTOMER SERVICE INFRASTRUCTURE. Adams has committed significant
resources to developing its sales and customer service infrastructure. Rather
than relying on independent sales representatives, as do many other golf
equipment companies, Adams maintains an inside sales department currently
consisting of 25 employees who are in regular telephone contact with the
Company's over 8,000 retailers. These sales representatives are supported by six
field-based Regional Account Coordinators who maintain personal contact with the
Company's retailers nationwide. The Company believes that using and carefully
managing its own sales force enables it to significantly reduce selling
expenses. Adams also has a separate 30-seat customer call center that provides
customer service to retailers and consumers. The majority of the Company's sales
and customer service personnel are experienced golfers, including a number of
former collegiate and professional golfers. The Company believes interaction
with its knowledgeable representatives promotes customer satisfaction and helps
to strengthen the Adams brand.
EMPHASIS ON QUALITY. Due in large part to its heritage in custom club
fitting, Adams emphasizes quality control and precise adherence to design
specifications. The Company has redundant sources of supply for each of the
component parts used in the manufacture of its golf clubs and has established a
quality assurance program at those manufacturing facilities located in Taiwan
and China that are collectively responsible for producing substantially all of
the Company's performance club heads. Upon arrival at the Company's
manufacturing facilities in Plano, Texas, each component used in the Company's
clubs is again checked to ensure consistency with strict design specifications.
Components are then sorted to identify variations in characteristics, such as
head weight and shaft flexibility, that, although within the
23
<PAGE>
specified manufacturing tolerances, may affect club performance. The Company
uses its patented variable moment of inertia ("VMI") formula to combine
compatible components to produce a consistent swing feel across an entire set of
clubs.
GROWTH STRATEGY
The Company's goal is to establish itself as a leading developer of
technologically innovative, performance-oriented golf clubs. The Company's
strategy to achieve this goal includes the following elements:
BUILDING MARKET SHARE IN FAIRWAY WOODS. The Company's first priority is to
build its share of the premium fairway woods market. The Company believes it can
increase its market share by (i) continuing to build demand using the Company's
marketing model; (ii) assisting existing retailers to increase their sales of
the Tight Lies fairway woods by maintaining the relatively high margins
currently enjoyed by such retailers; and (iii) increasing the number of on- and
off-course golf shops and selected sporting goods retailers that distribute the
Tight Lies fairway woods.
LEVERAGING CONSUMER ACCEPTANCE OF TIGHT LIES BRAND. The Company intends to
leverage acceptance of the Tight Lies brand to develop and sell additional
products, a strategy that has proven effective in marketing the Company's
expanded line of Tight Lies fairway woods. For the three months ended March 31,
1998, sales of the expanded line of Tight Lies fairway woods exceeded sales of
the original club. The Company believes that the success and performance of its
Tight Lies fairway woods have earned Adams a reputation as a manufacturer of
technologically innovative, performance-oriented golf clubs among its customers
and avid golfers. The Company further believes that it will be able to
efficiently introduce new products to this customer base through its recent
investments in infrastructure, thereby generating sales and receiving valuable
product feedback.
EXPANDING INTERNATIONAL SALES. Until recently, the Company has focused on
developing sales domestically. Accordingly, the Company's sales to date have
been achieved without significant contribution from international markets.
Beginning in late 1997, the Company began leveraging its domestic strength to
attract qualified international distributors. The Company currently has a
network of 33 distributors located in 39 countries including Canada, Japan and
the United Kingdom and expects to continue to build its international
distribution. Toward this end, the Company has recently hired a Director of
International Sales who has significant international golf equipment sales
experience. Additionally, the Company believes that Nick Faldo's worldwide
reputation will help drive international demand for the Company's products.
DEVELOPING NEW TECHNOLOGIES AND PRODUCT DESIGNS. The Company engages
continuously in the process of developing new technologies and product designs
that, when incorporated into golf clubs, are expected to provide golfers with
meaningful performance benefits. Capitalizing on the technical knowledge and
expertise gained through the Tight Lies fairway woods, the Company is currently
developing a new driver. This new product is expected to combine the distance of
a driver with the playability of a fairway wood. The Company is working with Mr.
Faldo to design and test this new driver as well as other potential new
products. To the extent that any new technology or product design can be
developed to the point of commercial viability, the Company intends to introduce
such technology or design into a single product and, if the product is well
received by consumers, develop a broader product line around the core club
category. The Company believes that the affiliation, endorsement and support of
Nick Faldo will provide important credibility in the development and marketing
of new technologies and product designs.
The Company's continued growth and success depend, in large part, on its
ability to successfully develop and introduce new products that achieve
widespread market acceptance. Failure by the Company to identify and develop
innovative new technologies and product designs could adversely affect the
Company's future growth and profitability. See "Risk Factors--Dependence on New
Product Introductions; Uncertain Consumer Acceptance."
24
<PAGE>
PRODUCTS
The Company currently offers the following products:
ORIGINAL TIGHT LIES FAIRWAY WOOD. The original Tight Lies fairway wood has
an innovative upright trapezoidal or "upside down" head shape that incorporates
a distinctive shallow face, a low center of gravity and 16 DEG. of loft. The
Company believes that this club is ideal for getting the ball airborne quickly
and efficiently with optimum spin to maximize distance from the critical scoring
area of 185 to 225 yards from the green. The Company further believes that the
Tight Lies fairway woods are particularly effective from virtually any lie on
the course including the rough, hard pan, fairway bunkers and divots.
EXPANDED LINE OF TIGHT LIES FAIRWAY WOODS. In late 1996, based on initial
consumer acceptance of the original Tight Lies fairway wood, the Company
expanded its line to include the Tight Lies Strong 3 (13 DEG. loft), the Tight
Lies Strong 5 (19 DEG. loft) and the Tight Lies Strong 7 (24 DEG. loft). In
January 1998, the Company expanded the line again to include the Tight Lies
Strong 9 (28 DEG. loft). The expanded line of Tight Lies fairway woods
incorporates the same design innovations as the original club while providing
golfers with increased flexibility to play these clubs from different distances
on the course. For the three months ended March 31, 1998, sales of the expanded
line of Tight Lies fairway woods exceeded sales of the original club.
OTHER CLUB LINES. The Company's other clubs include the Air Assault Driver
and the Assault-VMI irons. The Air Assault Driver was the Company's first
product to incorporate the patented upright trapezoidal head. The Company's
Assault-VMI irons are perimeter-weighted, cavity-backed, slightly offset irons
which incorporate the Company's patented VMI design formula producing consistent
swing feel across an entire set of clubs. The Company markets the Assault-VMI
irons to professional and avid golfers exclusively through its network of over
100 certified custom fitting accounts. The Company believes that its custom
fitting activities provide Adams with an in-depth understanding of golf club
design and credibility in the golf industry.
Each golf club manufactured by the Company is available in a variety of
shaft lengths and flexes to accommodate both men and women golfers of all ages
and ability levels. In addition, once a club has received a certain degree of
market acceptance, the Company has historically introduced a left-handed model.
Currently, the Company offers each of its golf clubs in a left-handed model,
with the exception of the recently introduced Tight Lies Strong 9.
The following table indicates the percentage of net sales in each major
product group for the years ended December 31, 1996 and 1997 and the three
months ended March 31, 1998. Historical percentages may not be indicative of the
Company's future product mix.
PERCENTAGE OF NET SALES BY PRODUCT GROUP
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------------------ ENDED MARCH 31,
PRODUCT GROUP 1996 1997 1998
- ------------------------------------------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Original Tight Lies................................... 45.6% 55.9% 48.5%
3, 5, 7 and 9 Tight Lies.............................. 1.6 38.4 48.8
Other Club Lines...................................... 52.8 5.7 2.7
----- ----- -----
Total............................................... 100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
</TABLE>
The Company supports each of its products with a two-year warranty. The
warranty provides for repair or replacement of the golf club, except in the case
of abuse. The Company has not experienced material amounts of breakage with
respect to its golf clubs.
DESIGN AND DEVELOPMENT
The Company's design and development team is responsible for developing,
testing and introducing new technologies and product designs. This team is
currently spearheaded by Barney Adams, the founder of the Company and inventor
of the Tight Lies fairway wood; Richard H. Murtland, Vice President--
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<PAGE>
Research and Development; Mr. Nick Faldo and, independent consultants, Robert R.
Bush and Dr. Michael M. Carroll. Mr. Bush has over 30 years of experience in
golf club development, most notably, as Director of Technical Services for True
Temper Sports, a leading shaft manufacturer, where from 1966 to 1993, he was
responsible for testing all golf club shafts. Mr. Bush was instrumental in the
development of "Iron Byron," the industry standard for the mechanical testing of
golf clubs and balls. Mr. Bush is currently a member of the Technical Advisory
Panel for GOLF DIGEST. Dr. Michael M. Carroll is Dean of the George R. Brown
School of Engineering at Rice University in Houston, Texas. Dr. Carroll holds
doctorate degrees in both physics and mathematics and is an avid golfer. Dr.
Carroll has worked with the Adams design and development team since April 1,
1998 and is responsible for the scientific analysis of each new product under
development by the Company.
The design and development team engages in a five-step process to create new
products.
CONCEPT DEVELOPMENT. During concept development, Adams' design and
development team identifies specific desirable ball flight objectives. In
addition, the Company considers new ideas from professional golfers, inventors,
distributors and others. The Company expects that Nick Faldo will play a
significant role in future concept development.
DESIGN SPECIFICATIONS. The Company's product design and development team
determines design specifications for the club, including shaft length, flex and
weight, head design, loft and overall club weight. Throughout the design
specifications process, the Company refers to and incorporates the golf
equipment standards developed by the USGA. Although the standards set by the
USGA only apply to competitive events sanctioned by that organization, the
Company believes it is critical for new clubs to comply with these standards. At
this time, the product design and development team also determines the optimal
materials to use in the club. The Company will not use higher cost materials,
such as titanium or other alloys, unless such expensive materials provide
meaningful performance benefits.
PATENT REVIEW. The Company considers patent protection for its technologies
and product designs to be an important part of its development strategy. The
Company and its patent attorneys conduct a search of prior art and existing
products to determine whether a new product idea may be covered by an existing
patent.
PRODUCT DESIGN AND ENGINEERING REVIEW. If a product concept continues past
the patent review stage, the Company translates design parameters into working
designs. When appropriate, these designs are modeled and developed using
computer aided design technologies and subjected to rigorous engineering review
to validate the effectiveness of the technology or design. Dr. Carroll is
expected to play a key role in this stage of product development.
TESTING. Once a specific design has been decided upon, the Company creates
and tests one or more prototypes. The Company has a testing facility at the Hank
Haney Golf Ranch in McKinney, Texas. As part of the testing process, the Company
records, analyzes and interprets data associated with each prototype including
ball flight, distance, spin and accuracy. Using feedback from these tests, the
Company modifies its designs to achieve its performance objective. Additionally,
the Company applies for official USGA approval of the resulting club at this
time. Upon approval of a new product from the USGA, it becomes considered for
commercial release.
The Company's research and development expenses were $18,516, $51,101 and
$557,513 during 1995, 1996 and 1997, respectively.
MARKETING
The goals of the Company's marketing efforts are to build its brand identity
and drive sales through its retail distribution channel. To accomplish these
goals, Adams utilizes direct response and traditional image-based advertising,
engages in promotional activities and capitalizes on its relationship with Nick
Faldo and other well known golf figures.
ADVERTISING. The Company uses a combination of direct response and
traditional image-based advertising.
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- DIRECT RESPONSE ADVERTISING. The Company intends to continue to build
brand awareness and stimulate product demand through its direct response
advertising, which includes a variety of mediums including television,
radio, print and direct mail. Direct response advertising, in which
consumers may order products directly from the Company by calling a
toll-free telephone number, provides a cost-effective vehicle enabling
Adams to communicate a compelling product story and build brand
recognition while generating consumer sales revenue. In April 1997, Adams
debuted a 30-minute Tight Lies infomercial, which has contributed
significantly to the Company's recent growth. This infomercial received
the award for "Best Infomercial Demonstration Show" from the National
Infomercial Marketing Association in September 1997. The Tight Lies
infomercial routinely runs on The Golf Channel, regional sports stations,
national networks and local, market-specific broadcast stations. In
addition, the Company utilizes 30- and 60-second direct response
television commercials as well as radio advertising. The Company
advertises regularly in major golf and industry publications, general
consumer magazines and local newspapers nationwide. These include GOLF
DIGEST, GOLF MAGAZINE, SPORTS ILLUSTRATED, THE WALL STREET JOURNAL and USA
TODAY. Finally, the Company engages in regularly scheduled direct mail
advertising campaigns.
- TRADITIONAL IMAGE-BASED ADVERTISING. The Company's direct response sales
revenue has enabled Adams to broaden its advertising efforts to include
traditional image-based advertising. This advertising includes a series of
30-second commercials which run during major golf tournaments and golf
related programs; newspaper, magazine and radio ad campaigns; sponsorship
of selected golf tournaments; exclusive sponsorship of The Golf Channel's
weekly instructional program, "LIVING ROOM LESSONS" and a recently updated
and professionally redesigned web site located at www.adamsgolf.com.
The Company has received extensive editorial coverage in golf, consumer and
trade publications as well as general consumer magazines and newspapers
worldwide.
PROMOTIONAL ACTIVITIES. The Company engages in a variety of promotional
activities to sell and market its products. Such activities include (i) consumer
sweepstakes like the Company's "Ramble in the Bramble," where the winner will
receive an all expense paid, luxury tour for two of Scotland's most legendary
golf courses: (ii) promotional giveaways with certain purchases, including items
such as instructional videos and audio tapes; and (iii) promotional campaigns
like the "90-Day Challenge," in which the Company advertises its 90-day return
policy.
RELATIONSHIP WITH NICK FALDO AND OTHERS. The Company has recently formed a
relationship with Nick Faldo, an internationally recognized professional golfer
and winner of numerous U.S. and international championships, including three
Masters (1989, 1990 and 1996) and three British Opens (1987, 1990 and 1992). Mr.
Faldo led the Official World Golf Ranking for 81 weeks during 1993 and 1994. Mr.
Faldo also has made the most Ryder Cup appearances in the history of golf. Adams
expects Nick Faldo to be actively and directly involved in the design, testing
and development of new technologies and products. Mr. Faldo is noted for his
precise play as a golfer and his reputation as a perfectionist. The Company
believes that by aligning itself with Mr. Faldo, it can further promote the
Adams brand, while at the same time demonstrating the Company's ability to
deliver golf clubs that satisfy the specific and demanding requirements of tour
professionals.
The Company has also obtained endorsements from Hank Haney, Bill Rogers and
Carol Mann. Mr. Haney was named the 1993 PGA Teacher of the Year and is a
five-time recipient of the Northern Texas Section PGA Teacher of the Year Award.
Mr. Haney has instructed over 100 touring professionals from the PGA, LPGA,
European, Japanese and Asian Tours along with several top rated junior golfers.
Mr. Haney is a member of the advisory staff for GOLF DIGEST. Mr. Rogers won the
British Open championship in 1981 and was the 1991 PGA Player of the Year. Ms.
Mann is a member of the LPGA Hall of Fame.
27
<PAGE>
SALES AND CUSTOMER SUPPORT
The Company sells its products through on- and off-course golf shops and
selected sporting goods retailers, direct sales to consumers, international
distributors and the Company's custom fitting accounts.
SALES TO RETAILERS. The Company sells a significant majority of its
products to selected retailers. To maintain its high quality reputation and
generate retailer loyalty, the Company does not sell its products through price
sensitive general discount warehouses, department stores or membership clubs.
The Company believes its selective retail distribution strategy helps its
retailers to maintain profitable margins and maximize sales of Adams products.
In the three months ended March 31, 1998, sales to retailers accounted for 78.9%
of the Company's total sales.
Adams maintains an inside sales department that currently consists of 25
employees who are in regular contact with the Company's over 8,000 retailers.
These sales representatives are supported by six field-based Regional Account
Coordinators who maintain personal contact with the Company's retailers
nationwide. The Company generally has been successful in delivering product to
its retailers within one week of a placed order. The Company believes its prompt
delivery of products enables its retail accounts to maintain smaller quantities
of inventory than may be required with other golf equipment manufacturers.
CUSTOMER SUPPORT AND DIRECT SALES. Adams believes that superior customer
service can significantly enhance its marketing efforts. Accordingly, the
Company maintains an in-house customer call center whose representatives provide
technical assistance to Adams' customers and field calls resulting from the
Company's direct response advertising. The Company also outsources a portion of
its call center activities. The Company provides its staff with computerized
access to its retailer database enabling call center representatives to guide
consumers to their nearest Adams retailer.
INTERNATIONAL SALES. International sales are made in over 39 countries
(including Japan, Canada and the United Kingdom) through approximately 33
independent distributors. The international distributors sell to retailers for
end sale to the consumer. International sales have increased from $0.7 million
for 1996 to $0.9 million for 1997 and $0.2 million for the first three months of
1997 to $1.4 million for the first three months of 1998. The Company recently
expanded its international sales staff to include a Director of International
Sales to identify, develop, engage and support the Company's worldwide
distributor base.
CUSTOM FITTING SALES. The Company employs six sales representatives who
manage the Company's custom fitting sales and support division and administer
Adams' custom fitting training program for golf professionals. Adams' custom
fitting training program has received PGA certification and provides continuing
education credits for PGA Member Professionals. Since 1992, the Company has
certified in excess of 300 golf professionals to custom fit its Assault-VMI
irons, which are sold exclusively through its over 100 custom fitting accounts.
Custom fitters measure data relating to swing and ball flight characteristics.
Based on the interpretation of the data, a set of clubs is manufactured that is
specifically tailored to that golfer.
The majority of the Company's sales and customer service personnel are
experienced golfers, including a number of former collegiate and professional
golfers. Further, each of the Company's new employees attends an 8-hour,
in-house seminar which provides training on club specifications, performance,
design and manufacturing. Adams believes interaction with its knowledgeable
representatives promotes customer satisfaction and helps to strengthen the Adams
brand image.
MANUFACTURING AND ASSEMBLY
The Company manages all stages of manufacturing, from sourcing to assembly,
in order to maintain a high level of product quality and consistency. The
Company establishes product specifications, selects the materials used to
produce the components and tests the specifications of all components received
by the Company. In addition, the Company has redundant sources of supply for
each of the component parts used in the manufacture of its golf clubs and has
established a quality assurance program at those manufacturing facilities
located in Taiwan and China that are collectively responsible for producing
substantially all of the Company's performance club heads. Upon arrival at the
Company's manufacturing
28
<PAGE>
facilities in Plano, Texas, each component used in the Company's clubs is again
checked to ensure consistency with strict design specifications. Components are
then sorted to identify variations in characteristics, such as head weight and
shaft flexibility, that, although within the specified range, may affect club
performance. Golf clubs are then built by the Company's manufacturing personnel
using the appropriate component parts and the Company's patented VMI technology.
See "Risk Factors--Sources of Supply."
PATENTS
The Company's ability to compete effectively in the golf club market will
depend, in large part, on the ability of the Company to maintain the proprietary
nature of its technologies and products. The Company currently holds six U.S.
patents relating to certain of its products and proprietary technologies and has
two patent applications pending. The Company has been awarded patents with
respect to the design of the Tight Lies fairway wood and the VMI design formula.
There can be no assurance, however, as to the degree of protection afforded by
these or any other patents held by the Company or as to the likelihood that
patents will be issued from the pending patent applications. Moreover, these
patents may have limited commercial value or may lack sufficient breadth to
adequately protect the aspects of the Company's products to which the patents
relate. The Company does not hold any foreign patents and no foreign patent
applications are pending. The U.S. patents held by the Company do not preclude
competitors from developing or marketing products similar to the Company's
products in international markets.
There can be no assurance that competitors, many of which have substantially
greater resources than the Company and have made substantial investments in
competing products, will not apply for and obtain patents that will prevent,
limit or interfere with the Company's ability to make and sell its products. The
Company is aware of numerous patents held by third parties that relate to
products competitive to the Company's, including products competitive with the
Tight Lies fairway woods. There is no assurance that these patents would not be
used as a basis to challenge the validity of the Company's patent rights, to
limit the scope of the Company's patent rights or to limit the Company's ability
to obtain additional or broader patent rights. A successful challenge to the
validity of the Company's patents may adversely affect the Company's competitive
position. Moreover, there can be no assurance that such patent holders or other
third parties will not claim infringement by the Company with respect to current
and future products. Because U.S. patent applications are held and examined in
secrecy, it is also possible that presently pending U.S. applications will
eventually issue with claims that will be infringed by the Company's products or
technologies. The defense and prosecution of patent suits is costly and
time-consuming, even if the outcome is favorable. This is particularly true in
foreign countries where the expenses associated with such proceedings can be
prohibitive. An adverse outcome in the defense of a patent suit could subject
the Company to significant liabilities to third parties, require the Company and
others to cease selling products or require disputed rights to be licensed from
third parties. Such licenses may not be available on satisfactory terms, or at
all.
INFORMATION SYSTEMS
The Company believes that a comprehensive and integrated infrastructure of
information technology, systems and services is a significant factor in
maintaining and improving its competitive position. Systems in place, including
order fulfillment and distribution, financial and decision support and
operational planning, have supported the growth of the Company to date. The
Company is aggressively enhancing its current capabilities to meet the demands
of the Company's growth. Special emphasis is being placed on systems for
customer management, supply chain management and business analysis and planning.
The Company believes that its current and enhanced computer systems, along with
normal upgrades and extensions, will be sufficient to accommodate the Company's
anticipated growth of sales and planned expansion for the foreseeable future.
There can be no assurance that any upgrades of its information systems will be
completed in a timely manner, that any such upgrades will be adequate to meet
the needs of the Company or that these upgrades will not strain the Company's
financial resources.
29
<PAGE>
COMPETITION
The Company competes with a number of established golf club manufacturers,
many of which have greater financial and other resources than the Company.
Adams' competitors include Callaway Golf Company, adidas-Salomon AG (Taylor
Made) and Fortune Brands, Inc. (Titleist and Cobra). The Company competes
primarily on the basis of performance, brand name recognition, quality and
price. The Company believes that its ability to market its products through
multiple distribution channels, including on- and off-course golf shops,
selected sporting goods retailers and through direct response advertising, is
important to its ability to compete.
The golf club industry is generally characterized by rapid and widespread
imitation of popular technologies, designs and product concepts. Due to the
success of the Tight Lies fairway woods, the Company expects that one or more
competitors may introduce products similar to the Tight Lies fairway woods. The
buying decisions of many purchasers of golf clubs are often the result of highly
subjective preferences which can be influenced by many factors, including, among
others, advertising media, promotions and product endorsements. The Company may
face competition from manufacturers introducing other new or innovative products
or successfully promoting golf clubs that achieve market acceptance. The failure
to compete successfully in the future could result in a material deterioration
of customer loyalty and the Company's image and could have a material adverse
effect on the Company's business, operating results or financial condition. See
"Risk Factors--Dependence on New Product Introductions; Uncertain Consumer
Acceptance" and "--Highly Competitive Industry."
EMPLOYEES
At April 30, 1998, the Company had 234 full-time employees, including 104
engaged in manufacturing and assembly, 21 in research and development and
quality control, 75 in sales support and 34 in management and administration.
Adams' employees are not unionized. Management believes its relations with its
employees are good.
PROPERTIES
The Company's administrative offices and manufacturing facilities currently
occupy approximately 65,000 square feet of space in Plano, Texas. This facility
is leased by the Company pursuant to a lease agreement expiring in 2004 and may
be extended for an additional five years. The Company maintains the right to
terminate the lease if it moves to a larger facility owned by the current
lessor. The Company has also leased an additional 33,000 square feet of space
and expects to take possession of the additional space in June 1998 pursuant to
the terms of a lease also expiring in 2004. The Company believes that these
facilities will be sufficient through at least the end of 1999.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company, as of May 4, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- ----------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
B. H. (Barney) Adams......... 59 Chairman of the Board, Chief Executive Officer and President
Darl P. Hatfield............. 51 Senior Vice President--Finance and Administration and Chief
Financial Officer
Richard H. Murtland.......... 57 Vice President--Research and Development, Secretary, Treasurer
and Director
James E. Farrell............. 39 Vice President--Finance
Mark D. Gonsalves............ 38 Vice President--Sales and Marketing, Retail
Steven P. Sanazaro........... 49 Vice President--Information Technology
Paul F. Brown, Jr............ 51 Director
Roland E. Casati............. 67 Director
Finis F. Conner.............. 54 Director
Mark R. Mulvoy............... 56 Director
Stephen R. Patchin........... 39 Director
</TABLE>
The Company's Certificate of Incorporation was amended and restated
effective May 1, 1998 to provide, among other things, that the Board of
Directors be divided into three classes, each of whose members serve for
staggered three-year terms. Commencing with the 1999 Annual Meeting of
Stockholders, one class of directors will be elected each year for a three-year
term. Messrs. Conner and Patchin are members of Class I, the term of which
expires at the 1999 Annual Meeting of Stockholders, Messrs. Murtland and Casati
are members of Class II, the term of which expires at the 2000 Annual Meeting of
Stockholders and Messrs. Adams, Brown and Mulvoy are members of Class III, the
term of which expires at the 2001 Annual Meeting of Stockholders. See
"Description of Capital Stock--Delaware Law and Certain Charter and Bylaw
Provisions."
The number of members of the Board of Directors of the Company is currently
fixed at nine and, as a result, the Board presently has two vacancies. The
Company intends to fill these vacancies as soon as practicable after the
completion of the Offering. Under the terms of the agreement between the Company
and Nick Faldo, the Company has agreed that, for so long as royalties remain
payable to Mr. Faldo, it will use commercially reasonable efforts to cause a
designee of Mr. Faldo to be nominated for, and elected to, the Board. As of the
date of this Prospectus, Mr. Faldo has not notified the Company of his designee
to the Board.
Certain additional information concerning the directors and executive
officers is set forth below.
B. H. (BARNEY) ADAMS. Mr. Adams founded the Company in 1987 and has served
as Chairman of the Board, Chief Executive Officer and President since that time.
Mr. Adams is the inventor of the Tight Lies fairway wood. Prior to founding the
Company, Mr. Adams served as President of Intertest, Inc. (a manufacturer of
semiconductor testing equipment), Senior Vice President of Margaux Controls,
Inc. (a manufacturer of energy control systems) and Executive Vice President of
Maytex Manufacturing Co., Inc. (a manufacturer of store fixtures). Mr. Adams has
authored several magazine articles concerning the technical aspects of golf
equipment and is a frequent PGA section speaker.
DARL P. HATFIELD. Mr. Hatfield joined the Company as Senior Vice
President--Finance and Administration and Chief Financial Officer in May 1998.
Prior to joining the Company, Mr. Hatfield was a partner
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<PAGE>
with KPMG Peat Marwick LLP ("KPMG") from July 1977 to April 1998. Mr. Hatfield
has 30 years of experience in accounting and auditing and is a Certified Public
Accountant.
RICHARD H. MURTLAND. Mr. Murtland joined the Company in 1994 as Vice
President--Operations and has been a director of the Company since August 1995.
He became Vice President--Research and Development in April 1998. Mr. Murtland
has approximately 30 years of experience in operations and engineering, most
recently serving as Project Manager with ARCO International Oil and Gas Company
(an international oil exploration and production company) from June 1976 to
March 1994.
JAMES E. FARRELL. Mr. Farrell joined the Company as Vice President--Finance
in September 1997. From June 1995 to September 1997, Mr. Farrell served as a
Manager for The Pittson Company (a diversified holding company), where he was
responsible for financial review and re-engineering in the security services and
air freight divisions. From May 1994 to June 1995, Mr. Farrell was employed by
ADT Security Systems, Inc. as a Manager of Planning and Marketing. Prior
thereto, he served as Director of Accounting for Brinks Home Security, Inc. from
September 1986 to December 1993. Mr. Farrell has over 15 years of business
experience and is a Certified Public Accountant.
MARK D. GONSALVES. Mr. Gonsalves joined the Company in July 1995 as Vice
President--Sales and Marketing and now serves as Vice President--Sales and
Marketing, Retail. Prior to joining the Company, Mr. Gonsalves was President and
Chief Executive Officer of In-Sync Sport International, Inc. (a sports
psychology company founded by Mr. Gonsalves) from January 1992 to July 1995. He
was a professional golfer from 1990 to 1992. Mr. Gonsalves has 16 years of sales
and marketing experience.
STEVEN P. SANAZARO. Mr. Sanazaro joined the Company as Vice
President--Information Technology in January 1998. Prior to joining Adams, Mr.
Sanazaro served as Director, Information Technology for Sprint Corporation from
June 1987 to November 1992, as Vice President, Information Technology for
Pepsico, Inc. from May 1996 to January 1998 and as Vice President, Research and
Development and Chief Technology Officer for Harbinger Corporation (a supplier
of electronic commerce software and network services) from August 1993 to May
1996. Mr. Sanazaro has approximately 30 years of business technology experience.
PAUL F. BROWN, JR. Mr. Brown became a director of the Company in August
1995. Mr. Brown has been Vice President--Finance and Chief Financial Officer of
Royal (a holding company with diversified interests) since 1990. Mr. Brown has
29 years of experience in accounting, auditing, and finance and is a Certified
Public Accountant.
ROLAND E. CASATI. Mr. Casati became a director of the Company in November
1995. He has been engaged in the development of residential and commercial real
estate and diversified personal investments for over 30 years. Mr. Casati's
investments have involved original investments in communications, retail and
manufacturing, including two previous investments in sports equipment
manufacturers. Mr. Casati is a director of Zeigler Coal Holding Co. (one of the
largest coal producers in the U.S.).
FINIS F. CONNER. Mr. Conner became a director of the Company in October
1996. From 1985 to February 1996, Mr. Conner was Chairman of the Board and Chief
Executive Officer of Conner Peripherals, Inc. (a manufacturer of disk drives for
personal computers founded by Mr. Conner in 1986) which, in February 1996,
merged with Seagate Technology, Inc. ("Seagate") (a publicly traded manufacturer
of computer components co-founded by Mr. Conner in 1979). Mr. Conner served as
Vice-Chairman of Seagate from 1979 to 1985. Since February 1996, Mr. Conner has
been a principal of the Conner Group, an independent consulting organization,
and Chairman of the Board of Virtual Visits, Inc., a company engaged in the
design of Internet web sites for the promotion of golf products. Mr. Conner is
also a director of Box Hill Systems Corp., a manufacturer of high performance
data storage systems.
MARK R. MULVOY. Mr. Mulvoy became a director of the Company in April 1998.
Mr. Mulvoy is a retired executive of Sports Illustrated magazine, where he was
employed from 1965 to 1998. Mr. Mulvoy was Managing Editor of Sports Illustrated
from 1984 through 1996 and Publisher from 1990 to 1992.
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<PAGE>
Mr. Mulvoy has written 12 books including "GOLF - THE PASSION AND THE
CHALLENGE." He is also a director of Tosco Corporation (the largest independent
refiner and marketer of petroleum products in the U.S.).
STEPHEN R. PATCHIN. Mr. Patchin became a director in October 1993. He has
been President and Chief Executive Officer of Royal Oil and Gas Corp., an oil
and gas exploration and production company and wholly owned subsidiary of Royal,
since June 1985 and President and Chief Executive Officer of Royal since
February 1990.
Executive officers of the Company are elected by and serve at the discretion
of the Board of Directors.
KEY MANAGEMENT EMPLOYEES
The following table sets forth certain information with respect to certain
additional key management employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- ----------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Walter G. DeVault............ 47 Director of Customer Service and Consumer Sales
Cindy A. Herington........... 36 Director of Advertising and Direct Response Marketing
</TABLE>
Certain additional information concerning these individuals is set forth
below.
WALTER G. DEVAULT. Mr. DeVault joined the Company as Director of Customer
Service and Consumer Sales in February 1998. He has worked in the home security
industry for the last eight years. Mr. DeVault served as Director of Sales for
X-Truder, Inc. (a home security company) from February 1992 to July 1994 and as
National Sales Director for Brink's Home Security, Inc. from August 1994 to
February 1998. Mr. DeVault has over 25 years of sales and sales management
experience.
CINDY A. HERINGTON. Ms. Herington joined the Company as Director of Special
Projects in May 1997. Ms. Herington became Director of Advertising and Direct
Response Marketing in April 1998. Prior to joining the Company, Ms. Herington
had been employed from August 1987 to May 1997 by The Neiman Marcus Group, Inc.
in a variety of sales management positions. Ms. Herington is the daughter of Mr.
Adams, the Company's Chairman of the Board, Chief Executive Officer and
President.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has two standing committees: the
Compensation/Plan Committee and the Audit Committee. The Compensation/Plan
Committee is responsible for the recommendation to the Board of Directors of
annual salaries for senior management as well as the administration and grant of
awards under the Company's Incentive Plan and the Company's Bonus Plan (the
"Bonus Plan"). The Compensation/Plan Committee is comprised of Messrs. Casati,
Mulvoy and Patchin.
The Audit Committee is responsible for meeting periodically with
representatives of the Company's independent public accountants to review the
general scope of audit coverage, including consideration of the Company's
accounting practices and procedures and system of internal accounting controls,
and to report to the Board of Directors with respect thereto. The Audit
Committee also makes recommendations to the Board of Directors with respect to
appointment of the Committee's independent auditors. The Audit Committee is
comprised of Messrs. Brown and Conner.
33
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation received by the Company's
Chief Executive Officer and the executive officers whose total annual salary and
bonus exceeded $100,000 during the fiscal year ended December 31, 1997
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
- ------------------------------------------------ --------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
B. H. Adams
Chairman of the Board, Chief Executive Officer
and President................................. 1997 $ 162,940 $ 10,015,000(1) $ 2,541,688(2) $ 4,185(3)
Richard H. Murtland
Vice President-Research and Development,
Secretary and Treasurer....................... 1997 72,548 40,000 -- --
Mark D. Gonsalves
Vice President--Sales and Marketing, Retail... 1997 62,400 352,144(4) -- --
</TABLE>
- ------------------------
(1) Represents (a) $15,000 cash bonus and (b) value of 2,000,000 shares of
Common Stock granted on December 31, 1997 having a fair market value, as
determined by the Board of Directors, of $5.00 per share on the date of
grant.
(2) Represents reimbursement of income taxes associated with the grant of
certain restricted shares of Common Stock.
(3) Comprised of premiums for a life insurance policy for which members of Mr.
Adams' family are the beneficiaries.
(4) Represents bonus earned in 1997 pursuant to the terms of a sales commission
agreement which expired by its terms on December 31, 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS MONEY OPTIONS AT
AT FISCAL YEAR-END(#) FISCAL YEAR END($)(1)
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------ ------------- ------------- ------------- -------------
B. H. Adams........................................... 1,520,768 0 $ 7,033,552 --
Richard H. Murtland................................... 222,214 0 1,027,739 --
Mark D. Gonsalves..................................... 333,320 0 1,541,605 --
</TABLE>
- ------------------------
(1) Calculated by determining the difference between the fair market value of
the Common Stock underlying the options at December 31, 1997 ($5.00 per
share), as determined by the Board of Directors, and the exercise price of
such options. Each of the options referred to herein was exercised by the
respective option holder during January 1998.
BENEFIT PLANS
1998 STOCK INCENTIVE PLAN. In February 1998, the Company adopted the 1998
Stock Incentive Plan. The purpose of the Incentive Plan is to provide incentives
and rewards for participating employees and consultants of the Company (i) to
support the execution of the Company's business strategies and the achievement
of its goals and (ii) to associate the interests of such persons with those of
the Company's stockholders. In furtherance of this purpose, the Incentive Plan
authorizes the granting of stock options, including incentive stock options
(within the meaning of Section 422 of the Internal Revenue Code of
34
<PAGE>
1986, as amended) (the "Code"), stock appreciation rights, restricted and
performance shares, restricted and performance share units, performance stock
awards, dividend or equivalent rights, or other awards that are valued in whole
or in part by reference to, or otherwise based on, the Common Stock of the
Company (each, an "Award"). A total of 1,800,000 shares of Common Stock have
been reserved for issuance upon the exercise of Awards granted under the
Incentive Plan, subject to adjustment in accordance with the terms of the
Incentive Plan.
Upon consummation of the Offering, the Incentive Plan will be administered
by the Compensation/ Plan Committee comprised of Messrs. Casati, Mulvoy and
Patchin. The Compensation/Plan Committee has discretion to select the persons to
whom Awards will be granted (each, a "Participant"), to determine the type, size
and terms and conditions applicable to each Award and the authority to
interpret, construe and implement the provisions of the Incentive Plan. Each
Award under the Incentive Plan shall be evidenced by an Award Agreement.
Under the Incentive Plan, the Company may grant, in addition to other
Awards, incentive or nonqualified stock options. The exercise price of any
option granted under the Incentive Plan must be at least equal to the fair
market value of the Common Stock on the date of the grant, and in the case of a
grant of an incentive stock option to any Participant who owns stock
representing more than 10% of the Common Stock, the exercise price shall at
least equal 110% of the fair market value of the shares at the time the
incentive stock option is granted. In addition, no incentive stock option is
exercisable more than 10 years from the date of grant (5 years if such option is
granted to a Participant who owns in excess of 10% of the Common Stock) and the
aggregate fair market value, determined on the date of grant, of the Common
Stock as to which such incentive stock options are exercisable for the first
time by any Participant in the Incentive Plan shall be limited to $100,000 per
calendar year. The Incentive Plan also permits the grant of stock appreciation
rights (rights to receive the excess of the fair market value of a share of
Common Stock on the date the Award is exercised over the fair market value of a
share of Common Stock on the date of grant for such period as the
Compensation/Plan Committee may determine); restricted and performance shares (a
transfer of shares of Common Stock to a Participant, subject to such
restrictions on transfer or other incidents of ownership, or subject to
specified performance standards as the Compensation/Plan Committee may
determine); restricted or performance share units (fixed or variable share or
dollar-denominated units subject to conditions of vesting, performance and time
of payment as the Compensation/Plan Committee may determine, which may be paid
in shares of Common Stock, cash or a combination of both); dividend or
equivalent rights (rights to receive dividends or their equivalent in value in
shares of Common Stock, cash or in a combination of both with respect to any new
or previously existing Award); performance stock awards (rights to receive
restricted shares that will not be issued until after the end of the applicable
performance period, subject to the satisfaction of specified performance goals);
and other Common Stock-based Awards, in each case, as set forth in the Incentive
Plan.
At April 30, 1998, the Company had granted Awards consisting only of options
to purchase an aggregate of 442,000 shares of Common Stock under the Incentive
Plan, none of which are exercisable at such date.
If a Participant terminates his or her service for reasons other than
retirement, permanent and total disability or death, the Participant may
exercise, no later than the date of termination, only those stock options vested
as of the date of termination. Upon retirement, a Participant's options
immediately vest and such Participant may exercise nonqualified stock options
within one year of retirement and incentive stock options within three months of
such retirement. In order to retire under the Incentive Plan, a Participant must
have attained the age of 62 and have had 10 years of continuous employment with
the Company. In the case of termination as a result of permanent and total
disability, a Participant's options will immediately vest and such Participant
will have one year from termination to exercise any outstanding options. If a
Participant who was granted stock options dies while employed by the Company, or
during the period which options may be exercised following termination of
employment due to retirement or permanent and total disability, all stock
options granted under the Incentive Plan immediately vest and must be exercised
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by the Participant's estate no later than the termination date of such option.
Except to the extent permitted by the Code and the rules and regulations
promulgated under Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (i) no Award under the Incentive Plan is assignable or
transferable except by will, by the laws of descent and distribution or pursuant
to a qualified domestic relations order and (ii) during the lifetime of a
Participant, the Award will be exercisable only by such Participant or such
Participant's guardian, legal representative or assignee pursuant to a qualified
domestic relations order.
The Incentive Plan provides that, in the event of a "change of control" (as
defined below), the following may, in the sole discretion of the
Compensation/Plan Committee, occur with respect to any and all Awards
outstanding as of such change of control:
(i) automatic maximization of performance standards, lapse of all
restrictions and acceleration of any time periods relating to the exercise,
realization or vesting of such Awards so that such Awards may be immediately
exercised, realized or vested in full on or before the relevant date fixed
in the applicable Award Agreement;
(ii) performance shares or performance units shall be paid entirely in
cash;
(iii) upon the exercise of a stock option during the 60-day period from
and after the date of the change of control, the Participant exercising the
option may in lieu of the receipt of Common Stock upon exercise, elect by
written notice to the Company to receive an amount in cash equal to the
excess of the aggregate Value (as hereinafter defined) of the shares of
Common Stock covered by the option or portion thereof surrendered,
determined on the date the option is exercised, over the aggregate exercise
price of the option (the "Aggregate Spread"). However, if the end of such 60
day period is within six months of the date of grant of the option held by a
Participant subject to the reporting requirements of Section 16 of the
Exchange Act, such option shall be canceled in exchange for a cash payment
to the participant equal to the Aggregate Spread on the day which is six
months and one day after the date of grant of such option. "Value," as more
fully defined in the Incentive Plan, means the higher of (i) the highest
fair market value during the 60-day period after the date of a change of
control and (ii) if the change of control is the result of a transaction
described in paragraphs (i) or (iii) under the definition of a change of
control, the highest price per share of the Common Stock paid in such
transaction.
(iv) if a Participant's employment or engagement terminates for any
reason other than retirement or death following a change of control, any
options held by such Participant may be exercised by such Participant until
the earlier of three months after the termination of employment or
engagement or the expiration date of such options; and
(v) all Awards become non-cancellable.
For purposes of the Incentive Plan, "change of control" is defined, in
general, to mean the occurrence of any of the following events: (i) the
acquisition, other than from the Company, by an individual, entity or group
(other than Royal or B. H. Adams) of beneficial ownership of thirty percent
(30%) or more of either the then outstanding shares of Common Stock or the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in election of directors, (ii) the ceasing, for any
reason, of individuals who, as of January 1, 1998, constitute the Board of
Directors to constitute at least a majority of the Board, provided that any
individual becoming a director subsequent to such date whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors then comprising the incumbent Board shall
be considered as though such individual were a member of the incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the directors of the Company; (iii) approval by the
stockholders of the Company of a reorganization, merger or consolidation of the
Company, in each case, whereby the individuals who were
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the respective beneficial owners of the Common Stock and voting securities of
the Company immediately prior to such reorganization, merger or consolidation do
not, following such reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than sixty percent (60%) of the then outstanding
shares of Common Stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in election of directors, as the
case may be, of the corporation resulting from such reorganization, merger or
consolidation, or complete liquidation or dissolution of the Company or the sale
or other disposition of all or substantially all of the assets of the Company.
The Incentive Plan terminates on February 25, 2008.
1996 STOCK OPTION PLAN. In April 1996, the Company adopted a stock option
plan (the "1996 Plan") providing for the issuance to certain officers,
directors, employees and advisors of the Company of incentive stock options
within the meaning of Section 422 of the Code and stock options that are
nonqualified for federal income tax purposes. A total of 800,000 shares of
Common Stock have been reserved for issuance upon the exercise of options
granted under the 1996 Plan, subject to adjustment in accordance with such plan.
At April 30, 1998, options to purchase an aggregate of 659,694 shares of Common
Stock had been granted under the 1996 Plan, of which 618,030 had been exercised.
All such stock options were granted at an exercise price that was, at the time
of grant, equal to the fair market value of a share of Common Stock, as
determined by the Board of Directors. The Company currently does not anticipate
making additional grants under the 1996 Plan.
401(K) PLAN. In February 1998, the Company adopted the Adams Golf, Inc.
401(k) Retirement Plan. Generally, all employees of the Company or its
subsidiaries who are 18 years of age and who have completed three months of
service during which they worked at least 480 hours are eligible for
participation in the Retirement Plan.
The Retirement Plan is a defined contribution plan intended to qualify under
Section 401 of the Code, such that participants generally may elect to defer, on
a pretax basis, between 1% and 15% of their compensation in the form of
voluntary payroll deductions up to a statutorily prescribed annual limit
($10,000 in 1998). ("Voluntary Contributions"). The Company makes matching
contributions equal to 50% of the first 6% of a participant's compensation
contributed as salary deferral. The Company may from time to time make
additional matching discretionary contributions at the sole discretion of the
Compensation/ Plan Committee of the Board of Directors. Collectively, the
mandatory matching contributions and discretionary matching contributions
("Discretionary Company Contributions") are referred to as the "Company
Contributions." The Discretionary Company Contributions, if any, are allocated
to participants' accounts based on a discretionary percentage of the
participants' respective salary deferrals.
Participants who are employed by the Company at May 1, 1998 are immediately
vested in all Company Contributions. Participants who were not employed by the
Company on May 1, 1998 are gradually vested in all Company Contributions over a
period of three years of credited service, vesting 33 1/3% a year for each full
year of service beginning with the participant's first anniversary, and becoming
fully vested after three years of service or upon death, total and permanent
disability, retirement under the Retirement Plan or Retirement Plan termination.
Participants are always fully vested in their Voluntary Contributions.
COMPANY BONUS PLAN. In February 1998, the Company adopted the Bonus Plan to
become effective for the fiscal quarter commencing January 1, 1998. The Bonus
Plan is administered by the Compensation/ Plan Committee. Participation is based
upon individual selection by the Compensation/Plan Committee from among key
employees who, in the judgment of the Compensation/Plan Committee, make
significant contributions to the performance of the Company and whose decisions
and actions most significantly affect the growth, profitability and efficient
operations of the Company. It is anticipated that approximately 22 individuals
will initially participate in the Bonus Plan. The aggregate amount of any awards
paid with respect to calendar year 1998 to any participant under the Bonus Plan
shall not exceed 8% of the Company's net pre-tax operating profits.
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Awards are based upon the extent to which the Company's financial
performance (measured in terms of financial goals or objectives as may be
determined by the Compensation/Plan Committee) during the appropriate
measurement period for each award (e.g., the calendar year, calendar quarter,
etc.) has met or exceeded certain performance goals specified by the
Compensation/Plan Committee. Some performance goals applicable to participants
in the Bonus Plan may include elements which specify individual achievement
objectives directly related to such individual's area of responsibility. The
Compensation/Plan Committee may, in its discretion, decrease, but not increase,
the amount of any award granted under the Bonus Plan. Additionally, the
Compensation/Plan Committee may alternatively grant discretionary bonuses.
Because the performance goals under the Bonus Plan are determined by the
Compensation/Plan Committee in its discretion, it is not possible to determine
the benefits and amounts that will be received by any individual participant or
group of participants in the future. The Board of Directors may terminate,
modify or suspend the Bonus Plan, in whole or in part, at any time; provided
that no such termination or modification may impair any rights which may have
accrued under such Bonus Plan.
COMPENSATION OF DIRECTORS
Prior to the Offering, directors did not receive compensation to serve as
directors of the Company but did receive reimbursement for expenses traveling to
and from meetings of the Board of Directors. The Company intends to continue to
reimburse directors for their reasonable expenses associated with attending
meetings. The Company is also considering the adoption of a Director Plan to
further incentivize the directors and align their interests with those of the
stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware provides that a
corporation's certificate of incorporation may contain a provision eliminating
or limiting the personal liability of directors for monetary damages for breach
of their fiduciary duties as directors, except for liability (i) for any breach
of their 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) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the DGCL or (iv)
for any transaction from which a director derives an improper personal benefit.
The Company's Certificate of Incorporation and Bylaws provide that the
Company will indemnify, to the fullest extent permitted by applicable law as
from time to time may be in effect, any person against all liability and expense
(including attorneys' fees and settlement costs) incurred by reason of the fact
that he is or was a director or officer of the Company. Expenses (including
reasonable attorneys' fees) incurred in defending any proceeding or prosecution
will be paid by the Company in advance of the final disposition of such
proceeding or suit upon receipt of a written affirmation by the director or
officer of his or her good faith belief that he or she has met the standard of
conduct necessary for indemnification and a written undertaking by such person
to repay such amount if it is ultimately determined that he or she is not
entitled to indemnification. The Company may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted against and incurred
by such person in any such capacity or arising out of such person's position,
whether or not the Company would have the power to indemnify against such
liability under the provisions of the Certificate of Incorporation or Bylaws of
the Company.
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The indemnification provided by the Certificate of Incorporation is not
deemed to be exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement or vote of stockholders or disinterested
directors, or otherwise, and inures to the benefit of their heirs, executors and
administrators. Further, such indemnification shall continue as to a person who
has ceased to be a director or officer. The provisions of the Bylaws
specifically permit the Company to indemnify other persons from similar or other
expenses and liabilities as the Board of Directors may determine. Insofar as
indemnification for liabilities under the Securities Act may be permitted to
directors, officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
The Company is not aware of any pending litigation or proceeding involving
any director, officer, employee or agent of the Company where indemnification
will be required or permitted, nor any threatened litigation or proceeding that
might result in a claim for such indemnification.
The foregoing description of certain provisions of the Company's Certificate
of Incorporation and Bylaws is qualified in its entirety by the actual
Certificate of Incorporation and Bylaws filed as exhibits to the Registration
Statement of which this Prospectus is a part.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to April 29, 1998, the Company did not have a Compensation Committee
or other committee of the Board of Directors performing similar functions.
Decisions concerning compensation of executive officers have generally been made
by Mr. Adams in consultation with the other members of the Board of Directors.
None of the executive officers of the Company currently serves on the
Compensation Committee of another entity or on any other committee of the Board
of Directors of another entity performing similar functions.
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CERTAIN TRANSACTIONS
In September 1995, the Company effected a reorganization (the
"Reorganization") pursuant to which it (i) distributed to its stockholders the
shares of common stock of Supershafts, Inc., a Texas corporation
("Supershafts"), held by the Company and constituting a minority interest in
Supershafts, (ii) issued four shares of Common Stock in exchange for each share
of Supershafts Common Stock then outstanding and (iii) reclassified, on a 1 for
1 basis, all of the outstanding Series A Preferred Stock and Series B Preferred
Stock of the Company as Common Stock. As a result of the Reorganization, the
Company issued an aggregate of 5,827,406 shares of Common Stock, Supershafts
became a wholly-owned subsidiary of the Company and the Common Stock became the
only class of capital stock of the Company outstanding. Mr. Adams and Royal
received 820,000 and 3,706,382 shares of Common Stock, respectively, in the
Reorganization.
In 1996 and 1997, the Company borrowed an aggregate of $450,000 from Royal
of which $250,000 was advanced in 1997, to finance the production of the
Company's infomercial. Such advances bore interest at the prime rate. In
September 1997, the Company paid accrued interest of $29,233 on this debt and
issued 900,000 shares of Common Stock (at a rate of $.50 of principal
indebtedness per share) to Royal in cancellation of the principal amount.
In December 1997, the Board of Directors of the Company granted to Mr.
Adams, the Company's Chairman of the Board, Chief Executive Officer and
President, 2,000,000 shares of Common Stock as a bonus for services rendered.
The Board of Directors also provided Mr. Adams with a cash payment of
$2,541,688, an amount equal to the federal income tax and Medicare tax liability
associated with such grant and bonus. In the first quarter of 1998, Mr. Adams
loaned $1.1 million of such funds back to the Company pursuant to an unsecured
promissory note at an interest rate of 5.39% per annum. The Company repaid
$600,142 of the note on April 14, 1998 and the remaining principal amount of the
note ($534,899) is payable in installments of $312,500 and $222,399 on December
15, 1998 and April 14, 1999, respectively.
KPMG, a public accounting firm in which Mr. Hatfield was a partner until
April 30, 1998, has provided accounting and auditing services to the Company
during 1997 and 1998. The amounts paid to KPMG for services rendered during 1997
and 1998 were $112,887 and $403,520, respectively. Mr. Hatfield is currently
Senior Vice President--Finance and Administration and Chief Financial Officer of
the Company.
In April 1998, the Company entered into an agreement with Mr. Hatfield that
provides that, upon Mr. Hatfield's termination without cause following certain
change of control events, Mr. Hatfield's stock options will become fully vested
and Mr. Hatfield will be paid an amount equal to one year of his base salary.
From January 1, 1998 through April 30, 1998, the Company paid Virtual
Visits, Inc. ("Virtual Visits"), a company engaged in the design of Internet Web
sites for the promotion of golf products, a total of $29,342 and the Company
committed to pay up to an aggregate of $75,000 to Virtual Visits during 1998.
Mr. Conner and Mr. Casati, directors of the Company, are also directors and
significant stockholders of Virtual Visits.
In January 1998, the Company made loans of $83,330 and $125,000 to Mr.
Murtland and Mr. Gonsalves, respectively, to finance the aggregate exercise
price of stock options then exercised by such individuals. The loans bore
interest at the rate of 5% per annum and were due January 14, 2001. The loan to
Mr. Murtland was repaid in April 1998. Messrs. Murtland and Gonsalves are each
executive officers of the Company.
The Company has granted options to purchase the Company's Common Stock to
certain of its officers and directors. See "Management--Benefit Plans" and
"Principal and Selling Stockholders."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table and the notes thereto set forth certain information
regarding the beneficial ownership of the Common Stock as of May 4, 1998, by (i)
each person known by the Company to own beneficially more than 5% of the
outstanding shares of the Common Stock, (ii) each director of the Company, (iii)
each Named Executive Officer, (iv) all directors and executive officers of the
Company as a group, and (v) each Selling Stockholder. Unless otherwise noted in
the notes to the table, the Company believes the executive officers and
directors can be contacted at the principal offices of the Company.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK
PRIOR TO THE OF COMMON STOCK AFTER THE
OFFERING(1) TO BE SOLD(2) OFFERING(1)(2)
-------------------------- ----------------- -----------------------
NAME OF BENEFICIAL OWNERS NUMBER PERCENT NUMBER NUMBER PERCENT
- -------------------------------------------- ------------ ------------ ----------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS
B. H. Adams............................... 4,640,768 24.3%
Richard H. Murtland....................... 333,952 1.7
Mark D. Gonsalves......................... 333,320 1.7
Paul F. Brown, Jr.(3)(4).................. 7,405,438 38.8
Roland E. Casati.......................... 1,838,600 9.6
Finis F. Conner........................... 1,942,776 10.2
Mark R. Mulvoy............................ -- -- -- -- --
Stephen R. Patchin(3)(4).................. 7,405,438 38.8
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A
GROUP (11 PERSONS)(4)(5).................. 16,539,734 86.4
BENEFICIAL OWNERS OF 5% OR MORE OF THE
COMPANY'S COMMON STOCK
Royal Holding Company, Inc.(3)(4) 7,405,438 38.8
OTHER SELLING STOCKHOLDERS
</TABLE>
- ------------------------
* Less than one percent.
(1) Applicable percentage of ownership is based on 19,099,282 shares of Common
Stock outstanding on May 4, 1998, and shares of Common Stock to be
outstanding upon completion of the Offering. Common Stock is the only class
of equity securities outstanding. Beneficial ownership is determined in
accordance with the rules of the Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options that are presently exercisable or exercisable within 60 days of
May 4, 1998 are deemed to be beneficially owned by the person holding such
options for the purpose of computing the beneficial ownership of such
person, but are not treated as outstanding for the purpose of computing the
beneficial ownership of any other person.
(2) Does not give effect to the exercise of the Underwriters' over-allotment
option or to purchases in the Offering, if any. See "Underwriting."
(3) The address for Messrs. Patchin and Brown and for Royal is c/o Royal Holding
Company, Inc., 300 Delaware Avenue, Suite 306, Wilmington, Delaware 19801.
(4) Includes 7,405,438 shares of Common Stock owned directly by Royal. Messrs.
Patchin and Brown, directors of the Company, are the (i) Chief Executive
Officer and President and (ii) Chief Financial Officer and Vice
President--Finance, respectively, of Royal and, by virtue of their positions
with Royal, may be deemed to share the power to vote or direct the vote of,
and to share the power to dispose or direct the disposition of, these shares
of Common Stock. Each of Messrs. Patchin and Brown disclaim beneficial
ownership of the shares of Common Stock held by Royal.
(5) Includes 45,000 shares of Common Stock subject to options exercisable by
Darl P. Hatfield, an executive officer of the Company, within 60 days of May
4, 1998.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $.001 par value per share, and 5,000,000 shares of Preferred
Stock, $.01 par value per share (the "Preferred Stock"). The following
description of certain characteristics of the capital stock of the Company does
not purport to be complete and is subject to, and qualified in its entirety by,
the provisions of the Certificate of Incorporation, Bylaws and the Registration
Rights Agreement, as defined below, each of which is included as an exhibit to
the Registration Statement of which this Prospectus is a part, and by the
provisions of applicable law.
COMMON STOCK
As of May 4, 1998, there were 19,099,282 shares of Common Stock outstanding
held of record by 44 stockholders. The holders of Common Stock are entitled to
share pro rata in dividends and distributions, if any, with respect to the
Common Stock when, as and if declared by the Board of Directors, from funds
legally available therefor. See "Dividend Policy". Holders of Common Stock are
entitled to one vote per share, are not entitled to cumulative voting in the
election of directors and have no preemptive, subscription, redemption or
conversion rights. Upon the liquidation, dissolution or winding up of the
Company, the assets of the Company remaining after payment of or provision for
liabilities and payment to the holders of Preferred Stock of such preferential
amounts that they are entitled to receive will be distributed pro rata on a
share-for-share basis among the holders of Common Stock. All outstanding shares
of Common Stock are, and the shares to be issued and sold in the Offering will
be, duly authorized, validly issued, fully paid and non-assessable. The rights,
preferences and privileges of holders of Common Stock are subject to any series
of Preferred Stock that the Company may issue in the future.
The Company effected a two-for-one stock split on May 1, 1998 in
contemplation of this Offering. The Company had 9,549,641 shares of Common Stock
issued and outstanding immediately prior to the stock split.
PREFERRED STOCK
The Company's Board of Directors is authorized, without further action by
the stockholders, to divide the Preferred Stock into series and, with respect to
each series, to determine the preferences and rights, and the qualifications,
limitations or restrictions thereof, including the dividend rights, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
sinking fund provisions, the number of shares constituting the series and the
designation of such series. The Board of Directors could, without stockholder
approval, issue Preferred Stock with voting and other rights that could
adversely affect the voting power of the holders of Common Stock and could have
certain anti-takeover effects. The Company has no present plans to issue any
shares of Preferred Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy contest or otherwise by making
such attempts more costly or difficult to achieve.
REGISTRATION RIGHTS
Pursuant to the terms of that Registration Rights Agreement dated April 30,
1998 (the "Registration Rights Agreement") by and among the Company and certain
stockholders of the Company holding an aggregate of shares of Common
Stock, the Company has granted certain registration rights to such stockholders.
Specifically, under the terms of the Registration Rights Agreement, the
stockholders holding in excess of 40% of the Common Stock covered by such
agreement have a right commencing at any time not earlier than the latter of (i)
the expiration of any of the "lock-up" period prescribed by the Lock-up
Agreement and (ii) the date on which the Company shall become eligible to use
the Form S-3 Registration Statement (or any successor to such form) for the
purpose of registering outstanding securities for the account of any person
other than the Company, to demand that the shares of the
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Common Stock held by them be registered under the Securities Act. However, if
the Board of Directors determines, in its good faith, that such registration
would be detrimental to the Company and, as a result, that it is necessary to
defer the filing of such registration statement at such time, the Company may
defer such registration for a period not to exceed 180 days. The Company has
agreed to pay all costs and expenses necessary to effect the registration of the
shares of Common Stock to be sold by the stockholders in this first registration
statement (other than underwriting and brokerage commissions, if any, and legal
fees incurred by the selling holders). If, after the Company has effected the
first such registration statement, it shall receive a request for registration
from the stockholders holding a majority of the shares of Common Stock subject
to the Registration Rights Agreement not previously registered, the Company
shall file a second or third registration statement for the purpose of
registering such shares under the Securities Act; however, the Company and such
stockholders have agreed to defer the filing of such registration statements in
the same manner and on the same basis as the first registration. The
stockholders having shares registered in such subsequent registration statements
have agreed to pay all costs and expenses related thereto including the
Company's fees and expenses relating to counsel, accountants and filing under
the Securities Act.
The Registration Rights Agreement also grants certain piggy-back
registration rights to the stockholders. Accordingly, whenever the Company
proposes to register any shares of Common Stock under the Securities Act (other
than registrations on Form S-4 or S-8), certain of the stockholders have the
right to include the shares of Common Stock held by them in any such
registration. However, if the managing underwriter of such registration advises
the Company in writing that, in its opinion, the total number or dollar amounts
of securities requested to be included in such registration exceeds the number
or dollar amount of shares of Common Stock that can be sold in such offering,
the Company may exclude certain shares from the offering. In such a case, the
order of priority in which shares are to be included in the proposed offering
will be as follows: first, all shares of Common Stock that the Company proposes
to sell; and second, up to the full number or dollar amount of shares of Common
Stock requested by the stockholders to be included in such registration in
excess of the number or dollar amount of shares of the Common Stock the Company
proposes to sell which, in the opinion of such underwriter, can be sold,
allocated pro rata among the participating stockholders on the basis of the
number of shares of Common Stock requested to be included therein by each. The
Company generally is obligated to bear the expenses, other than underwriting
discounts and sales commissions, of the registration of such shares. Any
exercise by the holders of such incidental registration rights may hinder
efforts by the Company to arrange future financings and may have an adverse
impact on the market price of the Common Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Following the consummation of the Offering, the Company will be subject to
Section 203 of the DGCL, the "business combinations" statute. In general, such
statute prohibits a publicly held Delaware corporation from engaging in various
"business combinations" with any "interested stockholder" for a period of three
years after the time that such stockholder became an "interested stockholder,"
unless (i) the business combination or the transaction by which such stockholder
became an "interested stockholder" was approved by the Board of Directors prior
to such time, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested stockholder"
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding for purposes of determining the number
of shares outstanding those shares owned by (a) persons who are directors and
also officers and (b) certain employee stock ownership plans) or (iii) on or
subsequent to such time the "business combination" is approved by the Board of
Directors and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least 66b% of the outstanding voting stock which is not
owned by the "interested stockholder." A "business combination" includes
mergers, asset sales and other transactions resulting in financial benefit to a
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years, did own) 15% or
more of a corporation's outstanding voting stock. The
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statute could prohibit or delay mergers or other takeover or change in control
attempts with respect to the Company and, accordingly, may discourage attempts
to acquire the Company.
In addition, certain provisions of the Company's Certificate of
Incorporation and Bylaws summarized in the following paragraphs may be deemed to
have an anti-takeover effect and may delay, defer or prevent an attempt to
obtain control of the Company by means of a proxy contest, tender offer, merger
or other transaction that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.
CLASSIFIED BOARD OF DIRECTORS. The Company's Certificate of Incorporation
provides for the Board of Directors to be divided into three classes of
directors serving staggered three-year terms. As a result, approximately
one-third of the Board of Directors will be elected each year. Moreover, under
the DGCL, in the case of a corporation having a classified board, stockholders
may remove a director only for cause. This provision, when coupled with the
provision of the Bylaws authorizing the Board of Directors to fill vacant
directorships, may preclude a stockholder from removing incumbent directors
without cause and simultaneously gaining control of the Board of Directors by
filling the vacancies created by such removal with its own nominees.
SPECIAL MEETING OF STOCKHOLDERS. The Company's Bylaws provide that special
meetings of stockholders of the Company may be called only by the Board of
Directors, or the Executive Committee of the Board of Directors, if any, or the
President. This provision will make it more difficult for stockholders to take
actions opposed by the Board of Directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT. The Company's Certificate of
Incorporation provides that no action required or permitted to be taken at any
annual or special meeting of the stockholders of the Company may be taken
without a meeting, and the power of stockholders of the Company's to consent in
writing, without a meeting, for the taking of any action is specifically denied.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or special meeting of stockholders, must provide
timely notice thereof in writing. In order to be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Company no later than 90 days prior to the meeting; provided, however,
that in the event that less than 100 days notice or prior public disclosure of
the date of the meeting is given and made to stockholders, notice by the
stockholder must be received no later than the close of business on the tenth
day following the earlier of the day on which such notice of the date of the
meeting was mailed or such public disclosure was made in order to be timely. The
Bylaws specify certain requirements for a stockholder's notice to be in proper
form. These provisions may preclude some stockholders from bringing matters
before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
The Company believes the foregoing provisions are necessary to attract and
retain qualified persons as directors and officers.
MARKET INFORMATION
Prior to the Offering, there has been no established public trading market
for the Common Stock. The Company has made application to list the Common Stock
on the Nasdaq National Market under the symbol "ADGO."
TRANSFER AGENT AND REGISTRAR
The Company has appointed the Bank of New York as the transfer agent and
registrar for the Common Stock.
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have shares of
Common Stock outstanding. Of these shares, the shares sold by the Company
and the shares sold by the Selling Stockholders in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act unless held by an "affiliate" of the Company (as that term is
defined below). Any such affiliate will be subject to the resale limitations of
Rule 144 adopted under the Securities Act. The remaining shares of Common
Stock currently outstanding are "restricted securities" for purposes of Rule
144. Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701
promulgated under the Securities Act. As a result of contractual restrictions
and the provisions of Rule 144 and Rule 701, additional shares will be available
for sale in the public market as follows: (i) Restricted Shares will be
eligible for immediate sale on the date of this Prospectus; (ii) Restricted
Shares will be eligible for sale 90 days after the date of this Prospectus; and
(iii) Restricted Shares will be eligible for sale upon expiration of the
Lock-up Agreements, 180 days after the date of this Prospectus.
After the expiration of the Lock-up Agreements, the Company may file a
Registration Statement on Form S-8 under the Securities Act to register the
shares of Common Stock reserved for issuance to its employees, officers,
directors and consultants under its employee benefit plans. Upon the effective
date of such Registration Statement, shares of Common Stock issued upon exercise
of options granted under the plans generally will be available for sale in the
open market. As of the date of this Prospectus, the Company has granted
outstanding options to purchase up to 423,664 shares of Common Stock to certain
employees, officers, directors and consultants under the 1996 Plan and the
Incentive Plan, of which options to purchase shares were then
exercisable.
In general under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell within any three-month period a number of shares beneficially
owned for at least one year that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock (approximately shares immediately
after the Offering) or (ii) the average weekly trading volume of the outstanding
shares of Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner of
sale, notice and the availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not an
"affiliate" of the Company during the 90 days immediately preceding a proposed
sale by such person and who has beneficially owned "restricted securities" for
at least two years is entitled to sell such shares under Rule 144(k) without
regard to the volume, manner of sale or notice requirements. As defined in Rule
144, an "affiliate" of an issuer is a person that directly or indirectly
controls, or is controlled by, or is under common control with such issuer. In
general, under Rule 701 under the Securities Act as currently in effect, any
employee, consultant or advisor of the Company who purchases shares from the
Company in connection with a compensatory stock or option plan or other written
agreement related to compensation is eligible to resell such shares 90 days
after the effective date of the offering in reliance on Rule 144, but without
compliance with certain restrictions contained in Rule 144.
Prior to this Offering, there has been no public market for the Common Stock
of the Company and no predictions can be made of the effect, if any, that future
sales of shares of Common Stock, and options to acquire shares of Common Stock,
or the availability of shares for future sale, will have on the market price
prevailing from time to time. Sales of substantial amounts of Common Stock in
the public market, or the perception that such sales could occur, could
adversely affect prevailing market prices of the Common Stock.
45
<PAGE>
UNDERWRITING
Subject to certain terms and conditions contained in the Underwriting
Agreement, Lehman Brothers Inc., NationsBanc Montgomery Securities LLC and
Ferris, Baker Watts, Incorporated (the "Underwriters") have severally agreed to
purchase from the Company and the Selling Stockholders, and the Company and the
Selling Stockholders have agreed to sell to each of the Underwriters, the number
of shares of Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- -------------------------------------------------------------------------------- ------------
<S> <C>
Lehman Brothers Inc. ...........................................................
NationsBanc Montgomery Securities LLC...........................................
Ferris, Baker Watts, Incorporated...............................................
------------
Total.......................................................................
------------
------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to various conditions. The nature of the Underwriters'
obligations are such that they are committed to take and pay for all of the
shares offered hereby if any are purchased.
The Company and the Selling Stockholders have been advised by the
Underwriters that they propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page hereof and to certain
selected dealers (who may include the Underwriters) at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial offering, the public offering price,
the concession to selected dealers and the reallowance to other dealers may be
changed by the Underwriters.
The Selling Stockholders have granted to the Underwriters an option to
purchase up to an additional shares of Common Stock, at the public offering
price less the underwriting discounts and commissions shown on the cover page of
this Prospectus, solely to cover over-allotments, if any. Such option may be
exercised at any time up to 30 days after the date of this Prospectus. To the
extent that the Underwriters exercise such option, each of the Underwriters will
be committed, subject to certain conditions, to purchase a number of additional
shares that is proportional to such Underwriter's initial commitment.
The Company's directors, officers and certain stockholders of the Company
including the Selling Stockholders have agreed that they will not, without the
prior written consent of Lehman Brothers, Inc., during the 180 days following
the date of this Prospectus, directly or indirectly, (1) offer for sale, sell,
pledge or otherwise dispose of (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition by any person at
any time in the future of) any shares of Common Stock (including, without
limitation, in the case of Selling Stockholders, shares of Common Stock that may
be deemed to be beneficially owned in accordance with the rules and regulations
of the Securities and Exchange Commission and shares of Common Stock that may be
issued upon exercise of any option or warrant) or securities convertible into or
exchangeable for Common Stock (other than the shares of Common Stock to be sold
in the Offering), or (2) enter into any swap or other derivatives transaction
that transfers to another, in whole or in part, any of the economic benefits or
risks of ownership of such shares of Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or other securities, in cash or otherwise (other than, in the case of the
Company, the grant of options pursuant to option plans existing on the date
hereof).
Until the distribution of the shares of Common Stock is completed, rules of
the Commission may limit the ability of the Underwriters and certain selling
group members to bid for and purchase shares of Common Stock. As an exception to
these rules, the Underwriters are permitted to engage in certain
46
<PAGE>
transactions that stabilize the price of the Common Stock. Such transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
In addition, if the Underwriters over-allot (I.E., if they sell more shares
of Common Stock than are set forth on the cover page of this Prospectus), and
thereby create a short position in the Common Stock in connection with the
Offering, the Underwriters may reduce that short position by purchasing Common
Stock in the open market. The Underwriters also may elect to reduce any short
position by exercising all or part of the over-allotment option described
herein.
The Underwriters also may impose a penalty bid on certain dealers and
certain selling group members. This means that if the Underwriters purchase
shares of Common Stock in the open market to reduce the Underwriter short
position to stabilize the price of the Common Stock, they may reclaim the amount
of selling concession from such dealers and the selling group who sold shares as
part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security, to
the extent that it were to discourage resales of the security by purchasers in
the Offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Company and each of the Selling Stockholders have agreed to indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
Prior to the sale of shares in the Offering, there has been no active public
market for the Common Stock of the Company. The initial public offering price of
the shares of Common Stock will be determined by negotiation among the Company,
the Selling Stockholders and the Underwriters. Among the factors that will be
considered in determining the initial public offering price will be the
prospects of the Company and its industry in general, the Company's past and
present operations, the Company's position in the industry, an assessment of the
Company's management, the general condition of securities markets at the time of
the Offering and the demand for similar securities.
At the request of the Company, the Underwriters have reserved up to
shares of Common Stock offered hereby for sale to certain officers, directors,
employees, business associates and related parties of the Company at the initial
public offering price set forth on the cover page of this Prospectus. Such
persons must commit to purchase no later than the close of business on the day
following the date hereof. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares.
47
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Arter & Hadden LLP, Dallas, Texas. Certain legal matters
in connection with the Offering will be passed upon for the Underwriters by
Cooley Godward LLP, San Francisco, California.
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company as of December 31, 1996 and 1997, and for each of the years in the
three-year period ended December 31, 1997, have been included herein and
elsewhere in the Registration Statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein and in the Registration Statement, and upon the authority of such firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus constitutes a part of the Registration Statement and does not
contain all of the information set forth therein and in the exhibits thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and exhibits. Statements contained in this Prospectus as
to the contents of any document are not necessarily complete and in each
instance are qualified in their entirety by reference to the copy of the
appropriate document filed with the Commission. The Registration Statement,
including the exhibits thereto, may be examined without charge at the
Commission's public reference facility at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: 7 World Trade Center, New York, NY 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60601. Copies of
such material may be obtained from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fees prescribed by the Commission. Copies of such
material are also available through the Commission's website located at http://
www.sec.gov.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998
(unaudited)........................................................................ F-3
Consolidated Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 and 1998 (unaudited)................ F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1995, 1996 and 1997 and the three months ended March 31, 1998 (unaudited).......... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 and 1998 (unaudited)................ F-6
Notes to Consolidated Financial Statements........................................... F-7
Financial Statement Schedule:
II--Valuation and Qualifying Accounts for the years ended December 31, 1995, 1996
and 1997 and the three months ended March 31, 1998 (unaudited)................... F-16
</TABLE>
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Adams Golf, Inc. and subsidiaries:
We have audited the consolidated financial statements of Adams Golf, Inc.
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we have also audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Adams Golf,
Inc. and subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
January 16, 1998, except for note 9(f)
which is as of April 29, 1998
F-2
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents......................................... $ 854,543 $ 1,955,563 $ 602,290
Trade receivables net of allowance for doubtful accounts of
$26,199, $698,341 and $1,126,831 (unaudited) in 1996, 1997 and
1998, respectively (note 7)..................................... 497,787 7,670,960 14,708,636
State income taxes refundable..................................... -- 221,637 221,637
Inventories (notes 2 and 7)....................................... 674,737 4,486,563 5,559,699
Prepaid expenses.................................................. 28,007 509,350 1,106,635
Deferred income tax assets (note 8)............................... -- 390,164 650,626
Other current assets.............................................. -- 715,670 352,795
------------- ------------- -------------
Total current assets............................................ 2,055,074 15,949,907 23,202,318
Property and equipment, net (note 3)................................ 123,950 603,823 2,094,794
Deferred income tax assets (note 8)................................. -- 182,621 209,942
Other assets, net (note 4).......................................... 379,697 623,728 285,705
------------- ------------- -------------
Total assets.................................................... $ 2,558,721 $ 17,360,079 $ 25,792,759
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable..................................................... $ 230,406 $ -- $ --
Note payable to shareholder (note 7).............................. -- -- 912,642
Accounts payable.................................................. 17,526 377,622 2,732,215
Federal income taxes payable...................................... -- 1,020,980 2,940,390
Accrued expenses (note 5)......................................... 332,423 7,636,157 4,317,926
------------- ------------- -------------
Total current liabilities....................................... 580,355 9,034,759 10,903,173
------------- ------------- -------------
Notes payable to shareholder, less current portion (note 7)......... -- -- 222,399
------------- ------------- -------------
Total liabilities............................................... 580,355 9,034,759 11,125,572
------------- ------------- -------------
Stockholders' equity (note 9):
Common stock, $.001 par value. Authorized 25,000,000 shares;
11,873,234, 15,719,338 and 18,199,282 (unaudited) shares issued
and outstanding at December 31, 1996 and 1997 and March 31,
1998, respectively.............................................. 11,873 15,719 18,199
Additional paid-in capital........................................ 3,126,073 14,123,398 16,031,896
Common stock subscription......................................... -- -- (230,459)
Deferred compensation............................................. -- -- (981,000)
Accumulated deficit............................................... (1,159,580) (5,813,797) (171,449)
------------- ------------- -------------
Total stockholders' equity...................................... 1,978,366 8,325,320 14,667,187
Commitments (note 6)................................................
------------- ------------- -------------
$ 2,558,721 $ 17,360,079 $ 25,792,759
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
-------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................... $ 1,125,115 $ 3,521,788 $ 36,690,090 $ 1,474,940 $ 24,510,808
Cost of goods sold.......................... 756,400 1,589,696 9,991,132 586,538 5,862,255
----------- ----------- ------------ ----------- ------------
Gross profit.......................... 368,715 1,932,092 26,698,958 888,402 18,648,553
----------- ----------- ------------ ----------- ------------
Operating expenses:
Research and development expenses......... 18,516 51,101 557,513 -- 196,997
Selling and royalty expenses.............. 312,785 625,897 13,093,174 418,737 6,248,196
General and administrative expenses:
Stock compensation and bonus award (note
9).................................... -- 213,760 14,841,711 -- --
Provision for bad debts................. 12,791 51,306 738,805 75,768 466,213
Other................................... 268,518 981,219 1,436,995 328,727 2,865,198
----------- ----------- ------------ ----------- ------------
Total operating expenses.............. 612,610 1,923,283 30,668,198 823,232 9,776,604
----------- ----------- ------------ ----------- ------------
Operating income (loss)............... (243,895) 8,809 (3,969,240) 65,170 8,871,949
Other income (expense):
Interest income........................... 1,226 3,938 15,325 4,451 10,550
Interest expense.......................... -- -- (69,731) (13,090) (9,362)
Other..................................... -- -- (47,808) 4,350 (100,621)
----------- ----------- ------------ ----------- ------------
Income (loss) before income taxes..... (242,669) 12,747 (4,071,454) 60,881 8,772,516
Income tax expense (note 8)................. -- -- 582,763 15,586 3,130,168
----------- ----------- ------------ ----------- ------------
Net income (loss)..................... $ (242,669) $ 12,747 $ (4,654,217) $ 45,295 $ 5,642,348
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Income (loss) per common share:
Basic..................................... $ (.05) $ .00 $ (.37) $ .00 $ .32
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Diluted................................... $ (.05) $ .00 $ (.37) $ .00 $ .31
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND THE
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES OF SHARES OF ADDITIONAL
PREFERRED PREFERRED COMMON COMMON PAID-IN COMMON STOCK DEFERRED
STOCK STOCK STOCK STOCK CAPITAL SUBSCRIPTION COMPENSATION
----------- ----------- ----------- ----------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994
(unaudited).............. 772,551 $ 773 1,066,514 $ 1,067 $ 1,327,799 $ -- $ --
Conversion of preferred
stock to
common stock (note 9).... (772,551) (773) 1,545,102 1,545 (772) -- --
Sale of stock.............. -- -- 4,168,988 4,169 453,507 -- --
Stock distribution (note
9)....................... -- -- 4,282,304 4,282 (4,282) -- --
Net loss................... -- -- -- -- -- -- --
----------- ----- ----------- ----------- ------------ ------------- --------------
Balance, December 31,
1995..................... -- $ -- 11,062,908 11,063 1,776,252 -- --
----------- -----
----------- -----
Sale of stock.............. 1,581,126 1,581 1,594,362 -- --
Common stock repurchased
and retired (note 9)..... (770,800) (771) (244,541) -- --
Net income................. -- -- -- -- --
----------- ----------- ------------ ------------- --------------
Balance, December 31,
1996..................... 11,873,234 11,873 3,126,073 -- --
Stock compensation award
(note 9)................. 2,000,000 2,000 9,998,000 -- --
Exercise of stock options.. 946,104 946 550,225 -- --
Exchange of debt for common
stock
(note 9)................. 900,000 900 449,100 -- --
Net loss................... -- -- -- -- --
----------- ----------- ------------ ------------- --------------
Balance, December 31,
1997..................... 15,719,338 15,719 14,123,398 -- --
Issuance of stock options.. -- -- 981,000 -- (981,000)
Exercise of stock options.. 2,479,944 2,480 927,498 (230,459) --
Net income................. -- -- -- -- --
----------- ----------- ------------ ------------- --------------
Balance, March 31, 1998
(unaudited).............. 18,199,282 $ 18,199 $ 16,031,896 $ (230,459) $ (981,000)
----------- ----------- ------------ ------------- --------------
----------- ----------- ------------ ------------- --------------
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------- --------------
<S> <C> <C>
Balance, December 31, 1994
(unaudited).............. $ (929,658) $ 399,981
Conversion of preferred
stock to
common stock (note 9).... -- --
Sale of stock.............. -- 457,676
Stock distribution (note
9)....................... -- --
Net loss................... (242,669) (242,669)
------------- --------------
Balance, December 31,
1995..................... (1,172,327) 614,988
Sale of stock.............. -- 1,595,943
Common stock repurchased
and retired (note 9)..... -- (245,312)
Net income................. 12,747 12,747
------------- --------------
Balance, December 31,
1996..................... (1,159,580) 1,978,366
Stock compensation award
(note 9)................. -- 10,000,000
Exercise of stock options.. -- 551,171
Exchange of debt for common
stock
(note 9)................. -- 450,000
Net loss................... (4,654,217) (4,654,217)
------------- --------------
Balance, December 31,
1997..................... (5,813,797) 8,325,320
Issuance of stock options.. -- --
Exercise of stock options.. -- 699,519
Net income................. 5,642,348 5,642,348
------------- --------------
Balance, March 31, 1998
(unaudited).............. $ (171,449) $ 14,667,187
------------- --------------
------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)............................. $ (242,669) $ 12,747 $(4,654,217) $ 45,295 $ 5,642,348
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization............... 8,291 19,278 302,589 16,374 218,959
Loss on retirement of fixed assets.......... -- -- 134,009 -- 100,617
Stock compensation and bonus award.......... -- -- 10,000,000 -- --
Deferred income taxes....................... -- -- (572,785) -- (137,657)
Allowance for doubtful accounts............. -- 26,199 672,142 71,207 1,126,831
Changes in assets and liabilities:
Trade and other receivables............... (93,649) (374,228) (8,066,952) (399,963) (8,164,507)
Inventories............................... (81,470) (476,467) (3,811,826) (103,962) (1,073,136)
Prepaid assets............................ (27,589) (418) (481,343) 406 (597,285)
Other current assets...................... 2,860 -- (715,670) (257,186) 362,875
Other assets.............................. (4,873) (361,916) (390,442) 67,478 248,822
Accounts payable.......................... 40,252 (22,726) 360,096 60,688 991,832
Accrued expenses.......................... 2,728 329,302 7,303,734 187,607 (2,105,596)
Federal income taxes payable.............. -- -- 1,020,980 15,586 1,919,410
----------- ----------- ----------- ---------- -----------
Net cash provided by (used in) operating
activities............................ (396,119) (848,229) 1,100,315 (296,470) (1,466,487)
----------- ----------- ----------- ---------- -----------
Cash flow from investing activities--purchase of
equipment..................................... (9,287) (121,444) (770,060) (46,277) (1,721,347)
----------- ----------- ----------- ---------- -----------
Cash flows from financing activities:
Proceeds from notes payable and line of
credit...................................... -- 230,406 1,050,000 250,000 4,635,041
Repayment of line of credit borrowings........ -- -- (800,000) -- (3,500,000)
Repayment of notes payable.................... -- -- (30,406) (1,494) --
Issuance of common stock...................... 457,676 1,350,631 551,171 -- 699,520
----------- ----------- ----------- ---------- -----------
Net cash provided by financing
activities............................ 457,676 1,581,037 770,765 248,506 1,834,561
----------- ----------- ----------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents................................... 52,270 611,364 1,101,020 (94,241) (1,353,273)
Cash and cash equivalents at beginning of
period........................................ 190,909 243,179 854,543 854,543 1,955,563
----------- ----------- ----------- ---------- -----------
Cash and cash equivalents at end of period...... $ 243,179 $ 854,543 $ 1,955,563 $ 760,302 $ 602,290
----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ---------- -----------
Supplemental disclosure of cash flow
information:
Interest paid................................. $ -- $ -- $ 69,731 $ 13,090 $ 9,362
----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ---------- -----------
Income taxes paid............................. $ -- $ -- $ 356,204 $ -- $ 1,293,820
----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ---------- -----------
Supplemental disclosure of financing activity--
exchange of debt for common stock............. $ -- $ -- $ 450,000 $ -- $ --
----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
Adams Golf, Inc. (the "Company") was founded in 1987. The Company designs,
manufactures, markets and distributes golf clubs and provides custom golf club
fitting technology. The Company's primary products are fairway woods that are
marketed under the trademark "Tight Lies."
The consolidated financial statements include the accounts of Adams Golf,
Inc. and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The consolidated financial statements of the Company as of March 31, 1998
and for the three months ended March 31, 1997 and 1998 are unaudited, but in the
opinion of management reflect all adjustments (consisting only of normal
recurring accruals) which are necessary for a fair statement of the results of
the interim periods presented. Results for interim periods are not necessarily
indicative of the results to be expected for a full year due in part to the
Company's growth.
(b) INVENTORIES
Inventories are valued at the lower of cost or market and primarily consists
of completed golf clubs and component parts. Cost is determined using the
first-in, first-out method.
(c) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the respective
assets, which range from three to seven years.
(d) REVENUE RECOGNITION
The Company records revenue as earned, which generally occurs when the
product is shipped.
(e) OTHER ASSETS AND RELATED AMORTIZATION EXPENSE
Other assets consist primarily of the cost of obtaining patents, development
costs of an infomercial and various deposits. Patent amortization is computed on
the straight-line method over the estimated useful lives of the assets, which
range from 5 to 15 years.
(f) RESEARCH AND DEVELOPMENT
Research and development costs consist of all costs incurred in planning,
designing and testing of golf equipment, including salary costs related to
research and development, and are expensed as incurred.
(g) ADVERTISING COSTS
Advertising media costs, other than infomercial costs, are expensed as
incurred. Production costs are charged to expense ratably in relation to sales
over the year in which incurred. Advertising costs other than infomercials were
$35,300, $33,503 and $8,651,420 for the years ended December 31, 1995, 1996 and
1997, respectively, and $59,049 (unaudited) and $2,333,406 (unaudited) for the
three months ended March 31, 1997 and 1998, respectively.
Infomercial costs are amortized based on revenues generated compared to
total estimated revenues expected to result from the airing of such infomercial
generally over an 18 month period. Amortization expense for the years ended
December 31, 1995, 1996 and 1997 was $3,161, $3,738 and $146,411, respectively,
and $89,200 (unaudited) for the three months ended March 31, 1998.
F-7
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) PRODUCT WARRANTY AND SALES RETURNS
The Company's golf equipment is sold under warranty against defects in
material and workmanship for a period of two years. In addition, the Company has
a 90 day "no questions asked" return policy. An allowance for estimated future
warranty and sales return costs is recorded in the period products are sold.
(i) INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(j) INCOME (LOSS) PER SHARE
The weighted average common shares used for determining basic net income
(loss) per common share was 4,423,146, 11,237,794 and 12,519,392, for the years
ended December 31, 1995, 1996 and 1997, respectively, and 11,873,234 (unaudited)
and 17,662,189 (unaudited) for the three months ended March 31, 1997 and 1998,
respectively. The effect of dilutive stock options added 712,092 (unaudited)
shares for the three months ended March 31, 1998 for the computation of diluted
income (loss) per common share. Stock options outstanding for the years ended
December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 were
not considered in the computation of net income (loss) per common share since
their effect is immaterial or antidilutive.
(k) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(l) FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, and accrued expenses and note payable to stockholder
approximates fair value due to the short maturity of these instruments.
(m) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF, on January 1, 1996. This Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such
F-8
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption of this Statement
did not impact the Company's financial position, results of operations, or
liquidity.
(n) STATEMENTS OF CASH FLOWS
The Company considers all short-term highly liquid instruments, with an
original maturity of three months or less, to be cash equivalents.
(o) NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
The Company adopted the reporting and disclosure requirements of SFAS No.
130, REPORTING COMPREHENSIVE INCOME, on January 1, 1998. This Statement requires
the display of comprehensive income and its components in a financial statement
that is displayed in equal prominence with other financial statements. As the
Company has not had any comprehensive income components, the reporting and
disclosure requirements of this statement have not altered the consolidated
financial statements presented herein.
Effective January 1, 1998, the Company adopted Statement of Position (SOP)
98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE, which was issued in March 1998. The SOP requires that certain
costs related to the development or purchase of internal-use software be
capitalized and amortized over the estimated useful life of the software. The
SOP also requires that costs related to the preliminary project stage and the
post-implementation/operations stage of an internal-use computer software
development project be expensed as incurred.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1997
---------- ------------ MARCH 31,
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods.................................................. $ 41,323 $ 2,063,803 $ 2,526,767
Component parts................................................. 633,414 2,422,760 3,032,932
---------- ------------ ------------
$ 674,737 $ 4,486,563 $ 5,559,699
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
F-9
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------- MARCH 31,
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
Manufacturing equipment.......................................... $ 70,728 $ 142,137 $ 151,979
Office and computer equipment.................................... 100,368 660,145 2,237,891
Accumulated depreciation......................................... (47,146) (198,459) (295,076)
---------- ----------- ------------
$ 123,950 $ 603,823 $ 2,094,794
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
(4) OTHER ASSETS, NET
Other assets, net, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Deposits, including amounts for fixed assets purchased.......................... $ 97,498 $ 380,836
Infomercial costs............................................................... 267,677 233,365
Patents......................................................................... 14,522 9,527
---------- ----------
$ 379,697 $ 623,728
---------- ----------
---------- ----------
</TABLE>
(5) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ------------ MARCH 31,
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
Payroll, bonuses and commissions (see note 9)................... $ 277,810 $ 5,576,134 $ 1,115,699
Sales, property and state income taxes.......................... 4,604 271,225 204,501
Royalties....................................................... -- 392,541 477,163
Advertising..................................................... -- 470,500 795,260
Product warranty and sales returns.............................. -- 449,200 732,100
Professional services........................................... 9,807 340,389 220,491
Other........................................................... 40,202 136,168 772,712
---------- ------------ ------------
$ 332,423 $ 7,636,157 $ 4,317,926
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
F-10
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(6) COMMITMENTS
The Company is obligated under certain noncancelable leases for office
space. A summary of the minimum rental commitments under noncancellable leases
is as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------------------------------------------------------------------
<S> <C>
1998.................................................................. $ 368,700
1999.................................................................. 456,000
2000.................................................................. 480,400
2001.................................................................. 488,500
2002.................................................................. 512,900
Thereafter............................................................ 651,400
</TABLE>
Rent expense was $32,540, $45,603, $104,480 $26,694 (unaudited) and $64,075
(unaudited) for the years ended December 31, 1995, 1996 and 1997, and the three
months ended March 31, 1997 and 1998, respectively.
The Company had outstanding commitments (denominated in U.S. dollars ) on
letters of credit of $459,167 at December 31, 1997, and $989,419 (unaudited) at
March 31, 1998 for the purchase of inventory from foreign vendors.
(7) DEBT
The Company entered into a $1,500,000 revolving line of credit agreement
with a bank on May 30, 1997. The line of credit is secured by trade receivables
and inventories, matures on May 15, 1998 and bears interest, payable quarterly,
at the bank's prime rate (8.5% at December 31, 1997). At December 31, 1997,
there was no balance outstanding on this line of credit. The Company pays an
annual commitment fee of 0.5% on the unused portion of the line of credit.
On February 27, 1998, the Company entered into a new $10,000,000 revolving
credit facility with a bank which replaced the existing $1,500,000 line of
credit. The facility is secured by trade receivables, inventories and equipment,
matures on December 31, 1998 and bears interest, payable monthly, at the bank's
prime rate of interest minus 25 basis points (8.25% at March 31, 1998) or LIBOR
rates plus 2.5% interest. At March 31, 1998, there was no balance outstanding on
this credit facility. The Company pays an annual commitment fee of 0.25% on the
unused portion of the credit facility.
During the first quarter of 1998, the Company borrowed $1,135,041 in the
form of an unsecured note payable to the Chief Executive Officer. The principal
balance is payable in three installments, matures on April 14, 1999, and bears
interest at 5.39%.
F-11
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(8) INCOME TAXES
Income tax expense (benefit) for the year ended December 31, 1997 consists
of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------
CURRENT DEFERRED TOTAL
------------ ----------- ----------
<S> <C> <C> <C>
Federal................................................ $ 1,020,980 $ (572,785) $ 448,195
State.................................................. 134,568 -- 134,568
------------ ----------- ----------
$ 1,155,548 $ (572,785) $ 582,763
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
Actual income tax expense differs from the "expected" income tax expense
(benefit) (computed by applying the U.S. federal corporate tax rate of 34% to
income (loss) before income taxes) for the years ended December 31, 1995, 1996
and 1997 as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- --------- ---------------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)...................... $ (82,507) $ 4,334 $ (1,384,294)
State income taxes, net of federal tax benefit................. -- -- 88,815
Stock compensation and bonus award............................. -- -- 2,159,000
Change in valuation allowance for deferred tax assets.......... 81,352 (4,334) (337,558)
Other.......................................................... 1,155 -- 56,800
---------- --------- ---------------
$ -- $ -- $ 582,763
---------- --------- ---------------
---------- --------- ---------------
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
----------- ---------- MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for bad debts........................................ $ 8,908 $ 237,436 $ 394,391
Research and development costs................................. 7,563 974 --
Bonus compensation............................................. 72,678 -- --
Product warranty and sales returns............................. -- 152,728 256,235
Net operating tax loss carryforwards........................... 389,528 311,100 320,250
----------- ---------- -----------
Total gross deferred tax assets.............................. 478,677 702,238 970,876
Less valuation allowance....................................... (387,667) (50,109) (59,259)
----------- ---------- -----------
Net deferred tax assets...................................... 91,010 652,129 911,617
Deferred tax liabilities--infomercial costs...................... (91,010) (79,344) (51,049)
----------- ---------- -----------
Net.......................................................... $ -- $ 572,785 $ 860,568
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
In assessing the realizability of deferred income tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. The ultimate realization of
deferred income tax assets is dependent upon the generation of future taxable
income during
F-12
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(8) INCOME TAXES (CONTINUED)
the periods in which those temporary differences become deductible. Based upon
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely than not that the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowance at December 31, 1997.
The valuation allowance for deferred tax assets at December 31, 1996 and
1997 was $387,667 and $50,109, respectively. The net change in the total
valuation allowance for the years ended December 31, 1996 and 1997 were
decreases of $4,334 and $337,558, respectively.
At December 31, 1997, the Company has net operating tax loss carryforwards
for federal income tax purposes of approximately $915,000 which are available to
offset future federal taxable income through 2010. The availability of the net
operating loss carryforwards to reduce future taxable income is subject to
certain limitations. As a result of a change in ownership, the Company believes
utilization of its net operating tax loss carryforwards is limited to
approximately $62,000 per year for the remaining life of the net operating
losses.
(9) STOCKHOLDERS' EQUITY
(a) STOCK OPTION PLANS
In April 1996, the Company adopted the 1996 Stock Option Incentive Plan
("the Stock Option Plan"), pursuant to which stock options covering an aggregate
of 800,000 shares of the Company's common stock may be granted. Options awarded
under the Stock Option Plan (i) are generally granted at prices that equate to
or are above fair market value on the date of the grant; (ii) generally become
exercisable over a period of one to four years; and (iii) generally expire five
years subsequent to award.
At December 31, 1997 and March 31, 1998, there were 140,310 shares available
for grant under the Plan. The per share weighted-average fair value of stock
options granted during 1995 and 1996 was $0.25 and $0.06, respectively, on the
date of grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: Risk-free interest rate, 6%; expected life,
two-five years and expected dividend yield, 0%.
In connection with an employment agreement entered into in September 1995
with the Company's chief executive officer and founder, the Company granted the
chief executive officer options to acquire 1,520,766 shares of common stock at
$.375 per share, the market price at date of grant. Vesting of the stock options
was conditioned upon meeting certain revenue and earnings requirements, which
were met during 1996 and 1997. Also, the agreement provided for a bonus to be
paid to the officer in an amount equal to the exercise price of the options plus
any related income tax due by the officer upon exercise of the options. The
officer notified the Company of his intent to exercise the options in December
1997 and the shares were issued in January 1998. Compensation expense of
$213,760 and $2,300,023 was charged to operations in 1996 and 1997,
respectively, to recognize the bonus due to the officer.
In conjunction with a 1996 stock purchase agreement, the Company granted
options to a shareholder to acquire an aggregate of 942,632 shares of common
stock at option exercise prices ranging from $0.375, the market price at date of
grant, to $0.625 per share. During 1997, the shareholder exercised the options
for an aggregate exercise price of $549,869.
F-13
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(9) STOCKHOLDERS' EQUITY (CONTINUED)
In February 1998, the Company adopted the 1998 Stock Incentive Plan ("the
1998 Stock Option Plan"), pursuant to which stock options covering an aggregate
of 1,800,000 shares of the Company's common stock may be granted. The Company
granted 218,000 options to employees on February 26, 1998 at $2.50 per share.
For financial statement reporting purposes, the grant was deemed to have a fair
market value of $7.00 per share at the date of grant. Accordingly, the Company
has recorded deferred compensation of $981,000 at March 31, 1998.
The Company applies Accounting Principles Board Opinion 25 in accounting for
its stock plans and, accordingly, no compensation cost has been recognized for
its stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income (loss) would have been
adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1995 1996 1997
----------- ---------- -------------
<S> <C> <C> <C>
Net income (loss):
As reported................................................... $ (242,669) $ 12,747 $ (4,654,217)
Pro forma..................................................... (242,669) (13,361) (4,743,744)
Diluted income (loss) per common share:
As reported................................................... $ (0.05) $ 0.00 $ (0.37)
Pro forma..................................................... (0.05) (0.00) (0.38)
</TABLE>
Pro forma net loss reflects only options granted in 1995, 1996 and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the respective options vesting
periods of up to four years.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
----------- -------------
<S> <C> <C>
Options outstanding at December 31, 1994......................... -- $ --
Options granted.................................................. 1,520,766 0.375
Options outstanding at December 31, 1995......................... 1,520,766 0.375
Options granted.................................................. 1,946,948 0.50
Options outstanding at December 31, 1996......................... 3,467,714 0.44
Options exercised................................................ (946,104) 0.583
Options outstanding at December 31, 1997......................... 2,521,610 0.375
Options granted.................................................. 272,000 2.50
Options exercised................................................ (2,479,944) 0.375
----------- ------
Options outstanding at March 31, 1998 (unaudited)................ 313,666 $ 2.22
----------- ------
----------- ------
</TABLE>
At December 31, 1997, the exercise price and weighted-average remaining
contractual life of outstanding options was $0.375 and 3.5 years, respectively.
At December 31, 1996 and 1997, the number of options exercisable was 467,970
and 2,114,492, respectively, and the weighted-average exercise price of those
options was $0.375.
F-14
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(9) STOCKHOLDERS' EQUITY (CONTINUED)
(b) STOCK DISTRIBUTION
In connection with the acquisition of a related entity, the Company
distributed 4,282,304 shares of common stock to its shareholders during the year
ended December 31, 1995. As a result of the common control existing between the
Company and the related entity, the transaction was accounted for in a manner
similar to a pooling of interests. Accordingly, the transaction resulted in no
increase to stockholders' equity since the recorded net asset value of the
related entity was not material. The resulting subsidiary has been inactive
during the three years ended December 31, 1997 and has no assets or liabilities.
(c) STOCK COMPENSATION AWARD
In December 1997, the Board of Directors of the Company approved a stock
compensation award of 2,000,000 shares of common stock to its chief executive
officer and founder of the Company. In addition, the Company agreed to pay all
income taxes payable by the officer relating to such stock award and related tax
bonus. Aggregate compensation of $12,541,688 (including $2,541,688 for estimated
taxes) was recorded by the Company during the year ended December 31, 1997 based
on the fair market value of the stock.
(d) NOTE WITH STOCKHOLDER CONVERTED TO STOCK
The Company borrowed $200,000 from a stockholder in October 1996 and an
additional $250,000 from the same stockholder in 1997. The aggregate notes
payable balance of $450,000 was converted into 900,000 shares of the Company's
stock in September 1997.
(e) STOCK CONVERSION
During 1995, the Company amended its Certificate of Incorporation to provide
the authority to issue up to 25,000,000 shares of $.001 per share par value
stock. All such shares were to be designated as common stock and, accordingly,
all stockholders of preferred stock surrendered such shares for an equivalent
number of shares of common stock.
(f) STOCK SPLIT AND AUTHORIZED CLASSES OF STOCK
Effective April 29, 1998, the stockholders of the Company authorized a
two-for-one stock split for holders of record on May 1, 1998. The stock split
has been reflected in the accompanying consolidated financial statements and,
accordingly, all applicable dollar, share and per share amounts have been
restated to reflect the stock split. In addition, the stockholders of the
Company also approved an increase in the number of authorized shares of Common
Stock to 50,000,000 and established a class of preferred stock with a par value
of $.01 per share and authorized shares of 5,000,000.
(10) SUBSEQUENT EVENTS (UNAUDITED)
Effective May 1, 1998, the Company entered into an agreement with Nicholas
A. Faldo, a professional golfer (the "Agreement"). The Agreement with Faldo,
provides the Company with Faldo's endorsement and use of Adams products, as well
as the design, development and testing of new technologies and products. As
consideration for such services, Faldo will receive 900,000 shares of the
Company's common stock which will be recorded and amortized over the estimated
period benefited. In addition, Mr. Faldo will receive royalty payments
representing 5% of net sales outside the U.S., with a minimum annual amount of
$1,500,000 beginning in 1999 and increasing ratably to $4,000,000 in 2004. Under
certain conditions, including the failure by the Company to effect an initial
public offering by December 31, 1998, Faldo has the right to require the Company
to repurchase the shares for $5,000,000 at which point the Company would have
the right to terminate the agreement.
F-15
<PAGE>
SCHEDULE II
ADAMS GOLF, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1995, 1996
AND 1997 AND THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS CHARGED TO:
BALANCE AT -------------------------- BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES OTHER DEDUCTIONS(1) PERIOD
- -------------------------------------------- ---------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995.............. $ -- $ 12,791 $ -- $ 12,791 $ --
---------- ------------ ------------ ------------- ------------
---------- ------------ ------------ ------------- ------------
Year ended December 31, 1996.............. $ -- $ 51,306 $ -- $ 25,107 $ 26,199
---------- ------------ ------------ ------------- ------------
---------- ------------ ------------ ------------- ------------
Year ended December 31, 1997.............. $ 26,199 $ 738,805 $ -- $ 66,663 $ 698,341
---------- ------------ ------------ ------------- ------------
---------- ------------ ------------ ------------- ------------
Three months ended March 31, 1998
(unaudited)............................. $ 698,341 $ 466,213 $ -- $ 37,723 $ 1,126,831
---------- ------------ ------------ ------------- ------------
---------- ------------ ------------ ------------- ------------
Product Warranty and Sales Returns:
Year ended December 31, 1995.............. $ -- $ -- $ -- $ -- $ --
---------- ------------ ------------ ------------- ------------
---------- ------------ ------------ ------------- ------------
Year ended December 31, 1996.............. $ -- $ 1,733 $ -- $ 1,733 $ --
---------- ------------ ------------ ------------- ------------
---------- ------------ ------------ ------------- ------------
Year ended December 31, 1997.............. $ -- $ 1,808,154 $ -- $ 1,358,954 $ 449,200
---------- ------------ ------------ ------------- ------------
---------- ------------ ------------ ------------- ------------
Three months ended March 31, 1998
(unaudited)............................. $ 449,200 $ 1,078,407 $ -- $ 795,507 $ 732,100
---------- ------------ ------------ ------------- ------------
---------- ------------ ------------ ------------- ------------
</TABLE>
- ------------------------
(1) Represents uncollectible accounts charged against the allowance for doubtful
accounts and actual costs incurred for warranty repairs and sales returns.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
ON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH STATE. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Disclosure Regarding Forward-Looking
Statements................................... 11
Use of Proceeds................................ 12
Dividend Policy................................ 12
Dilution....................................... 13
Capitalization................................. 14
Selected Financial Information................. 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 16
Business....................................... 21
Management..................................... 31
Certain Transactions........................... 40
Principal and Selling Stockholders............. 41
Description of Capital Stock................... 42
Shares Eligible for Future Sale................ 45
Underwriting................................... 46
Legal Matters.................................. 48
Experts........................................ 48
Additional Information......................... 48
Index to Financial Statements.................. F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
COMMON STOCK
-------------------
PROSPECTUS
, 1998
---------------------
LEHMAN BROTHERS
NATIONSBANC MONTGOMERY SECURITIES LLC
FERRIS, BAKER WATTS
INCORPORATED
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below are the expenses in connection with the issuance and
distribution of the securities being registered hereby other than the
underwriting discounts and commissions. All amounts are estimated except the
Securities and Exchange Commission, Nasdaq National Market and NASD fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........................ $ 32,450
---------
Nasdaq National Market listing and application fee......................... 95,000
NASD filing fee............................................................ 11,500
Legal fees and expenses (other than Blue Sky fees and expenses)............ *
Blue Sky fees and expenses................................................. 5,000
Printing and engraving expenses............................................ *
Accounting fees and expenses............................................... *
Transfer Agent and Registrar fees and expenses............................. 10,000
Miscellaneous.............................................................. *
---------
Total.................................................................... *
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment.
The Company will bear all of the foregoing fees and expenses.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII of the Registrant's Certificate of Incorporation provides that
the Company shall indemnify its directors and officers to the fullest extent
permitted by the DGCL.
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
such directors, officers, employees or agents acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. In a derivative action
(I.E., one by or in the right of the corporation), indemnification may be made
only for expenses actually and reasonably incurred by directors, officers,
employees or agents in connection with the defense or settlement of an action or
suit, and only with respect to a matter as to which they shall have acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation, except that no indemnification shall be
made if such persons shall have been adjudged liable to the corporation, unless
and only to the extent that the court in which the action or suit was brought
shall determine upon application that the defendant directors, officers,
employees or agents are fairly and reasonably entitled to indemnity for such
expenses, despite such adjudication of liability.
Section 102(b)(7) of the DGCL permits a corporation organized under Delaware
law to eliminate or limit the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director subject to certain limitations. Article IX of the Certificate
of Incorporation includes the following provision:
A director of this corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach
II-1
<PAGE>
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 Section 174 of the
DGCL or (iv) for any transaction from which the director derived an improper
personal benefit. If the DGCL is hereafter amended to authorize corporate
action further eliminating or limiting the personal liability of directors,
then the liability of a director of the corporation shall be eliminated or
limited to the fullest extent permitted by the DGCL, as so amended. Any
repeal or modification of the foregoing provisions of this Article IX by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such
repeal or modification.
The Company may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee, fiduciary, or agent of the Company
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the Company
would have the power to indemnify against such liability under the provisions of
the Certificate of Incorporation or Bylaws of the Company.
The Underwriting Agreement, the proposed form of which is filed herewith,
contains provisions by which the Underwriters agree to indemnify the Registrant,
each person who controls the Registrant within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, each director of the
Registrant, and each officer of the Registrant who signs this Registration
Statement which respect to information relating to such Underwriter furnished in
writing by such Underwriter for use in the Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1995, the Registrant has sold or issued the following
securities:
1. From March 1995 through December 1995, the Registrant issued an
aggregate of 266,478 shares of Common Stock to Faris McMullin, Richard Murtland
and Hank Haney for services to the Company.
2. In September 1995, in connection with the Reorganization the Registrant
issued an aggregate of 4,282,304 shares of Common Stock to the shareholders of
Supershafts, Inc. ("Supershafts") in exchange for all of the then issued and
outstanding shares of common stock of Supershafts.
3. In September 1995, in connection with the Reorganization the Registrant
issued an aggregate of 1,545,102 shares of Common Stock to the holders of the
Company's then outstanding Series A and Series B Preferred Stock in exchange
therefor.
4. In September 1995, the Registrant sold an aggregate of 40,000 shares of
Common Stock to Steve Adams for an aggregate purchase price of $15,000.
5. In September and October 1995, the Registrant sold an aggregate of
2,000,000 shares of Common Stock to Royal for an aggregate purchase price of
$750,000.
6. In December 1995, the Registrant sold 2,000,000 shares of Common Stock
to Roland Casati for $750,000.
7. In June, 1996, the Registrant sold an aggregate of 770,000 shares of
Common Stock to Royal, Roland Casati and Clyde and Peggy Smith for an aggregate
purchase price of $246,400.
8. In October, 1996, the Registrant sold 699,526 shares of Common Stock to
Finis Conner for an aggregate purchase price of $349,763.
9. In September 1997, the Registrant issued 900,000 shares of Common Stock
(at a rate of $.50 of principal indebtedness per share) to Royal in cancellation
of certain indebtedness of the Registrant to Royal.
II-2
<PAGE>
10. In September, 1997, the Registrant issued 942,632 shares of Common Stock
to Finis Conner upon exercise of stock options for an aggregate exercise price
of $549,869 and subsequently, the Registrant issued an additional 344,618 shares
of Common Stock to Mr. Conner upon exercise of stock options for an aggregate
exercise price of $129,232.
11. In December 1997, the Registrant issued 2,000,000 shares to Barney Adams
for his services to the Company.
12. From April 1996 to the date of this Registration Statement, the
Registrant has issued 2,138,798 shares of Common Stock to employees who
exercised options for an aggregate exercise price of $802,049.
13. As of the date of this Registration Statement, the Company has granted
options to purchase up to 343,664 shares of Common Stock at a weighted average
exercise price of $ that have not been exercised.
14. Pursuant to an agreement between the Registrant and Nick Faldo dated
April 22, 1998, the Registrant issued 900,000 shares to Nick Faldo in
consideration for, among other things, Mr. Faldo's endorsement of certain
products of the Registrant and his license of certain intellectual property
rights to the Registrant.
All transactions described above were effected in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act, as transactions by
an issuer not involving any public offering. The recipients of securities in
each such transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation of the Registrant
3.2 Amended and Restated Bylaws of the Registrant
4.1 1998 Stock Incentive Plan of the Registrant dated February 26, 1998
4.2 1996 Stock Option Plan dated April 10, 1996
4.3 Registration Rights Agreement dated April 30, 1998, among the Registrant and certain
stockholders of the Registrant
5.1 Opinion of Arter & Hadden LLP as to legality of securities being offered*
10.1 Agreement between the Registrant and Nick Faldo, dated April 22, 1998*
10.2 Revolving Credit Agreement dated February 27, 1998, between Adams Golf Direct
Response, Ltd., Adams Golf, Ltd. and NationsBank of Texas, N.A.
10.3 Commercial Lease Agreement dated December 5, 1997, between Jackson-Shaw Technology
Center II, Ltd. and the Registrant*
10.4 Commercial Lease Agreement dated April 6, 1998 between Jackson-Shaw Technology Center
II, Ltd. and the Registrant*
21.1 Subsidiaries of the Registrant
23.1 Consent of Arter & Hadden LLP (included in their opinion filed as Exhibit 5.1)*
23.2 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney (included on Page II-6)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by Amendment.
(b) Financial Statement Schedules
Set forth below is a list of the financial statements included as part of
this Registration Statement:
Schedule II--Valuation and Qualifying Accounts
All other schedules have been intentionally omitted because they are either
not required or the information has been included in the Notes to the
Consolidated Financial Statements included as part of this Registration
Statement.
ITEM 17. UNDERTAKINGS.
(F) EQUITY OFFERINGS OF NONREPORTING REGISTRANTS. The undersigned
registrant hereby undertakes to provide to the underwriters at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
(H) REQUEST FOR ACCELERATION OF EFFECTIVE DATE. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the
II-4
<PAGE>
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(I) RULE 430A. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Plano,
State of Texas, on May 1, 1998.
<TABLE>
<S> <C> <C>
ADAMS GOLF, INC.
By: /s/ B. H. ADAMS
-----------------------------------------
B. H. (Barney) Adams
CHIEF EXECUTIVE OFFICER AND PRESIDENT
</TABLE>
POWER OF ATTORNEY
Know all persons by these presents that each individual whose signature
appears below constitutes and appoints B. H. Adams, Richard H. Murtland and Darl
P. Hatfield and each of them, his true and lawful attorneys-in-fact and agents,
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 registration statement, and to sign any registration
statement for the same offering covered by this registration statement that is
to be effective upon filing pursuant to Rule 462 promulgated under the
Securities Act, and all post-effective amendments thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, 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 to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on the 1st day of May, 1998, below by or
on behalf of the following persons in the capacities indicated.
SIGNATURE TITLE
- ------------------------------ --------------------------
Chairman of the Board,
/s/ B.H. ADAMS Chief Executive Officer,
- ------------------------------ and President (PRINCIPAL
B.H. (Barney) Adams EXECUTIVE OFFICER)
Senior Vice
President--Finance and
/s/ DARL P. HATFIELD Administration and Chief
- ------------------------------ Financial Officer
Darl P. Hatfield (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
Vice President--Research
/s/ RICHARD H. MURTLAND and Development,
- ------------------------------ Secretary, Treasurer and
Richard H. Murtland Director
/s/ PAUL F. BROWN, JR.
- ------------------------------ Director
Paul F. Brown, Jr.
II-6
<PAGE>
SIGNATURE TITLE
- ------------------------------ --------------------------
/s/ ROLAND E. CASATI
- ------------------------------ Director
Roland E. Casati
/s/ FINIS F. CONNER
- ------------------------------ Director
Finis F. Conner
- ------------------------------ Director
Mark R. Mulvoy
/s/ STEPHEN R. PATCHIN
- ------------------------------ Director
Stephen R. Patchin
II-7
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ADAMS GOLF, INC.
-------------------------------------
ARTICLE I
The name of this corporation is ADAMS GOLF, INC.
ARTICLE II
The address of the registered office of this corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington and the County of New Castle. The name of its registered agent at
such address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes of this corporation to be
conducted or promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State
of Delaware (the "DGCL").
ARTICLE IV
The aggregate number of shares of all classes of stock which the
corporation shall have authority to issue is Fifty Five Million (55,000,000)
shares, consisting of (A) Fifty Million (50,000,000) shares of common stock,
par value $0.001 per share (the "Common Stock"), and (B) Five Million
(5,000,000) shares of preferred stock, par value $0.01 per share (the
"Preferred Stock").
The designations, powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions thereof with respect to the Common Stock and the Preferred Stock
are as follows:
(A) COMMON STOCK.
Each holder of the Common Stock of the corporation shall be entitled to
one vote for every share of Common Stock outstanding in his name on the
books of the corporation. Except for and subject to those rights expressly
granted to the holders of the Preferred Stock or except as may be provided
by the laws of the State of Delaware, the holders of Common Stock shall
have exclusively all other rights of stockholders including, without
limitation, (i) the right to receive dividends, when and as declared by the
Board of Directors out of assets legally available therefor, and (ii) in
the event of any distribution of assets upon liquidation, dissolution or
winding up of the corporation or
<PAGE>
otherwise, the right to receive ratably and equally with all holders of
all Common Stock all the assets and funds of the corporation remaining
after the payment to the holders of the Preferred Stock of the specific
amounts that they are entitled to receive upon such liquidation,
dissolution or winding up of the corporation, if any.
(B) PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated in the resolution or
resolutions providing for the establishment of such series adopted by the
Board of Directors of the corporation as hereinafter provided. Except as
otherwise expressly stated in the resolution or resolutions providing for
the establishment of a series of Preferred Stock, any shares of Preferred
Stock that may be redeemed, purchased or acquired by the corporation may be
reissued except as otherwise expressly provided by law. Different series
of Preferred Stock shall not be construed to constitute different classes
of stock for the purpose of voting by classes unless expressly provided in
the resolution or resolutions providing for the establishment thereof. The
Board of Directors of the corporation is hereby expressly authorized to
issue, from time to time, shares of Preferred Stock in one or more series,
and, in connection with the establishment of any such series by resolution
or resolutions, to determine and fix the number of shares constituting that
series and the distinctive designation of that series and to determine and
fix such voting powers, full or limited, or no voting powers, and such
other powers, designations, preferences and relative, participating,
optional and other rights, and the qualifications, limitations and
restrictions thereof, including, without limitation, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as
shall be stated in such resolution or resolutions, all to the fullest
extent permitted by the DGCL. Without limiting the generality of the
foregoing, the resolution or resolutions providing for the establishment of
any series of Preferred Stock may, to the extent permitted by law, provide
that such series shall be superior to, rank equally with or be junior to
the Preferred Stock of any other series. Except as otherwise expressly
provided in the resolution or resolutions providing for the establishment
of any series of Preferred Stock, no vote of the holders of shares of
Preferred Stock or Common Stock shall be a prerequisite to the issuance of
any shares of any series of the Preferred Stock authorized by and complying
with the conditions of this Amended and Restated Certificate of
Incorporation.
(C) STOCK SPLIT.
Upon the filing of this Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware:
A. each share of the corporation's Common Stock theretofore
outstanding shall, without any action on the part of the holder
thereof, be automatically converted into and reconstituted as two (2)
shares of Common Stock; and
2.
<PAGE>
B. each holder of the outstanding shares of stock so converted and
reconstituted pursuant to the immediately preceding clause (1) shall
be entitled to receive, in exchange for the certificate or
certificates representing the outstanding shares so converted and
reconstituted in such holder's name, a new certificate or certificates
representing such shares as so converted registered in such holder's
name; PROVIDED, HOWEVER, that the failure of any such holder to so
exchange such holder's certificate or certificates shall in no way
affect the conversion and reconstitution of such holder's shares as
aforesaid.
ARTICLE V
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation and of its directors and stockholders, it is further
provided:
(A) In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized and empowered:
A. to make, alter, amend or repeal the Bylaws in any manner not
inconsistent with the laws of the State of Delaware or this Amended and
Restated Certificate of Incorporation;
B. without the assent or vote of the stockholders, to authorize
and issue securities and obligations of the corporation, secured or
unsecured, and to include therein such provisions as to redemption,
conversion or other terms thereof as the Board of Directors in its sole
discretion may determine, and to authorize the mortgaging or pledging, as
security therefor, of any property of the corporation, real, personal or
mixed, including after-acquired property;
C. to determine whether any, and if any, what part, of the net
profits of the corporation or of its surplus shall be declared in dividends
and paid to the stockholders, and to direct and determine the use and
disposition of any such net profits or such surplus; and
D. to fix from time to time the amount of net profits of the
corporation or of its surplus to be reserved as working capital or for any
other lawful purpose.
In addition to the powers and authorities herein or by statue expressly
conferred upon it, the Board of Directors may exercise all such powers and do
all such acts and things as may be exercised or done by the corporation,
subject, nevertheless, to the provisions of the laws of the State of Delaware,
this Amended and Restated Certificate of Incorporation and the Bylaws of the
corporation.
3.
<PAGE>
(B) Any director or any officer elected or appointed by the
stockholders or by the Board of Directors may be removed at any time in
such manner as shall be provided in the Bylaws of the corporation.
(C) From time to time any of the provisions of this Amended and
Restated Certificate of Incorporation may be altered, amended or repealed,
and other provisions authorized by the laws of the State of Delaware at the
time in force may be added or inserted, in the manner and at the time
prescribed by said laws, and all rights at any time conferred upon the
stockholders of the corporation by this Amended and Restated Certificate of
Incorporation are granted subject to the provisions of this paragraph (C).
ARTICLE VI
The members of the Board of Directors shall be classified, with respect to
the time for which they severally hold office, into three (3) classes, as nearly
equal in number as possible, and shall be provided in the manner specified in
the corporation's Bylaws, one class to hold office initially for a term expiring
at the Annual Meeting of Stockholders to be held in 1999, another to hold office
initially for a term expiring at the Annual Meeting of Stockholders to be held
in 2000, and another to hold office initially for a term expiring at the Annual
Meeting of Stockholders to be held in 2001, with the members of each new class
to hold office until their successors have been duly elected and have qualified.
At each Annual Meeting of the Stockholders of the corporation, the successors to
the class of directors whose term expires at the meeting shall be elected to
hold office for a term expiring at the Annual Meeting held in the third year
following the year of their election. Election of directors need not be by
written ballot unless the Bylaws of the corporation shall so provide.
ARTICLE VII
The corporation shall, to the fullest extent permitted by Section 145 of
the DGCL, as the Section may be amended and supplemented from time to time,
indemnify any director or officer of the corporation (and any director, trustee
or officer of any corporation, business trust or other entity to whose business
the corporation shall have succeeded) which it shall have power to indemnify
under that Section against any expenses, liabilities or other matter referred to
in or covered by that Section. The indemnification provided for in this Article
VII, shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any Bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (b)
shall continue as to a person who has ceased to be a director or officer and (c)
shall inure to the benefit of the heirs, executors and administrators of such
person. To assure indemnification under this Article of all such persons who are
determined by the corporation or otherwise to have been "Fiduciaries" of any
employee benefit plan of the corporation that may exist from time to time and
that is governed by the Act of Congress entitled "Employee Retirement Income
Security Act of 1974," as amended from time to time, such Section 145 shall, for
the purposes of this Article, be interpreted as follows: an "other enterprise"
shall be deemed to include such an
4.
<PAGE>
employee benefit plan; the corporation shall be deemed to have requested a
person to serve an employee benefit plan with the performance by such person
of his duties to the corporation also imposes duties on, or otherwise
involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to
any employee benefit plan pursuant to such Act of Congress shall be deemed
"fines;" and action taken or omitted by a person with respect to an employee
benefit plan in the performance of such person's duties for a purpose
reasonably believed by such person to be in the best interest of the
participants and beneficiaries of the plan shall be deemed to be for a
purpose that is not opposed to the best interests of the corporation.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE IX
A director of this corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (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 Section 174 of the DGCL, or (iv) for any
transaction from which the director derived any improper personal benefit. If
the DGCL is hereafter amended to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended. Any repeal or modification of the
foregoing provisions of this Article IX by the stockholders of the corporation
shall not adversely affect any right or protection of a director of the
corporation existing at the time of such repeal or modification.
ARTICLE X
Whenever a compromise or arrangement is proposed between this corporation
and its creditors or any class of them and/or between this corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the
5.
<PAGE>
case may be, to be summoned in such manner as said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
corporation as the case may be, and also on this corporation.
ARTICLE XI
No action required to be taken or which may be taken at any annual or
special meeting of stockholders of the corporation may be taken without a
meeting, and the power of stockholders to consent in writing, without a
meeting, to the taking of any action is specifically denied.
ARTICLE XII
Notwithstanding anything contained in this Amended and Restated
Certificate of Incorporation to the contrary, the affirmative vote of at
least 66-2/3% of the outstanding shares of the Common Stock or the corporation
shall be required to amend or repeal Articles VI, VII, XI or XII of this
Amended and Restated Certificate of Incorporation or to adopt any provision
inconsistent therewith. Further, the affirmative vote of at least 66-2/3% of
the outstanding shares of the Common Stock of the corporation shall be required
to amend or repeal the Bylaws of the corporation, if the stockholders of the
corporation are required by the DGCL, the Amended and Restated Certificate of
Incorporation or the Bylaws to vote thereon.
ARTICLE XIII
Except as provided herein, the corporation reserves the right to amend,
alter, change or repeal any provision contained in this Amended and Restated
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the provisions
set forth in Articles VI, VII, XI and XII may not be repealed or amended in
any respect unless such repeal or amendment is approved as specified in
Article XII herein.
6.
<PAGE>
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AMENDED AND RESTATED BYLAWS
OF
ADAMS GOLF, INC.
(A DELAWARE CORPORATION)
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<PAGE>
AMENDED AND RESTATED BYLAWS
OF
ADAMS GOLF, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1.1. The registered office of the Corporation shall be in the
City of Wilmington, County of New Castle, State of Delaware.
SECTION 1.2. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. ANNUAL MEETINGS. The annual meeting of the stockholders
for the election of directors and for the transaction of such other business
as may properly come before the meeting shall be held at such place within or
without the State of Delaware, and on such date and at such hour of the day
as the Board of Directors shall determine.
SECTION 2.2. SPECIAL MEETINGS. Special meetings of the stockholders
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by order of the President, and
shall be called by the President or Secretary at the request in writing of a
majority of the Board of Directors or the whole Executive Committee. Special
meetings of the stockholders of the Corporation may not be called by any
other person or persons. Special meetings of the stockholders shall be held
at such place within or without the State of Delaware, on such date, and at
such time as may be designated by the person or persons calling the meeting.
SECTION 2.3. NOTICE OF MEETINGS. Written notice of every meeting of
stockholders, stating the time, place and purposes thereof, shall be given
personally or by mail at least ten (10), but not more than sixty (60), days
(except as otherwise provided by law) before the date of such meeting to each
person who appears on the stock transfer books of the Corporation as a
stockholder and who is entitled to vote at such meeting. If such notice is
mailed, it shall be directed to such stockholder at his address as it appears
on the stock transfer books of the Corporation.
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AMENDED AND RESTATED BYLAWS - PAGE 1
(ADAMS GOLF, INC.)
<PAGE>
SECTION 2.4. QUORUM. At any meeting of the stockholders the holders of a
majority of the shares of the Corporation entitled to vote at such meeting,
present in person or represented by proxy, shall constitute a quorum for all
purposes, except where otherwise provided by law or in the Certificate of
Incorporation. A quorum, once established, shall not be broken by the
withdrawal of enough votes to leave less than a quorum and the votes present may
continue to transact business until adjournment, provided that any action (other
than adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
SECTION 2.5. ADJOURNMENTS. If at any meeting of stockholders a quorum
shall fail to attend in person or by proxy, the holders of a majority of the
shares present in person or by proxy and entitled to vote at such meeting may
adjourn the meeting from time to time until a quorum shall attend, and
thereupon any business may be transacted which might have been transacted at
the meeting as originally called. Notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which
the adjournment is taken; provided, however, that if the adjournment is for
more than thirty (30) days or if after the adjournment a new record date is
fixed, notice of the adjourned date shall be given.
SECTION 2.6. ORGANIZATION; MEETING RULES. The Chairman of the Board,
if one is elected, and in his absence the President, and in their absence the
Vice President, shall call meetings of the stockholders to order and shall
act as chairman thereof. The Secretary or an Assistant Secretary of the
Corporation shall act as secretary at all meetings of the stockholders when
present, and, in the absence of both, the presiding officer may appoint any
person to act as secretary. The chairman of any meeting of stockholders
shall determine the order of business and the rules and procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as he may deem appropriate in his discretion.
SECTION 2.7. VOTING. At each meeting of the stockholders, each holder
of the shares of Common Stock shall be entitled to one vote on such matter
for each such share and may exercise such voting right either in person or by
proxy appointed by an instrument in writing subscribed by such stockholder or
his duly authorized attorney. No such proxy shall be voted or acted upon
after eleven (11) months from its date unless the proxy provides for a longer
period. Voting need not be by ballot. All elections of directors shall be
decided by a plurality vote and all questions decided and actions authorized
by a majority vote, except as otherwise required by law.
SECTION 2.8. INSPECTORS. At any meeting of stockholders, inspectors
of election may be appointed by the presiding officer of the meeting for the
purpose of opening and closing the polls, receiving and taking charge of the
proxies, and receiving and counting the ballots or the vote of stockholders
otherwise given. The inspectors shall be appointed by the presiding officer
of the meeting, shall be sworn to faithfully perform their duties, and shall
in writing certify to the returns. No candidate for election as director
shall be appointed or act as inspector.
SECTION 2.9. STOCKHOLDER LIST. At least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares
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AMENDED AND RESTATED BYLAWS - PAGE 2
(ADAMS GOLF, INC.)
<PAGE>
registered in the name of such stockholder, shall be prepared and held open
to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours for said ten (10) days either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 2.10. BUSINESS TO BE TRANSACTED AT MEETINGS. At a meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before a special
meeting, business must be specified in the notice of the meeting (or any
supplement thereto). To be properly brought before an annual meeting,
business must be (a) specified in the notice of the meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the direction of
the Board of Directors or (c) otherwise properly brought before the meeting
by a stockholder. For business to be properly brought before an annual
meeting by a stockholder, the stockholder must, in addition to any
requirements imposed by federal securities law or other laws, have given
timely notice thereof in writing to the secretary of the Corporation. To be
timely for an annual meeting, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, no
later than ninety (90) days prior to the scheduled meeting, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, if less than one hundred (100) days notice or prior public
disclosure of the date of the scheduled meeting is given, notice by the
stockholders must be so delivered or received not later than the close of
business on the tenth (10th) day following the earlier of the day on which
such notice of the date of the scheduled annual meeting was mailed or the day
on which public disclosure was made. A stockholder's notice to the secretary
with regard to an annual meeting shall set forth as to each matter that the
stockholder proposes to bring before the meeting, (a) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's books, of the stockholders supporting such
proposal, (c) the class and number of shares of the Corporation that are
beneficially owned by the supporting stockholders on the date of the
presenting stockholders' notice and (d) any material interest of the
presenting or supporting stockholders in such business. The Chairman of the
meeting may refuse to bring before a meeting any business not properly
brought before the meeting in compliance with this section.
ARTICLE III
DIRECTORS
SECTION 3.1. FUNCTIONS AND NUMBER. The property, business and affairs of
the Corporation shall be managed and controlled by a Board of Directors, who
need not be stockholders, citizens of the United States or residents of the
State of Delaware. The number of members which shall constitute the Board of
Directors shall be determined from time to time by resolution of the Board of
Directors or by the stockholders at an annual or special meeting held for that
purpose, but no decrease in the Board of Directors shall have the effect of
shortening the term of an incumbent director. Upon approval of these Amended
and Restated Bylaws, the
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AMENDED AND RESTATED BYLAWS - PAGE 3
(ADAMS GOLF, INC.)
<PAGE>
Board of Directors shall consist of nine (9) members, such number to
constitute the whole Board. The use of the phrase "whole Board" herein refers
to the total number of directors which the Corporation would have if there
were no vacancies. Except as otherwise provided by law or in these Bylaws or
in the Certificate of Incorporation, the directors shall be elected by the
stockholders entitled to vote at the annual meeting of stockholders of the
Corporation. Subject to law, to the Certificate of Incorporation and to the
other provisions of these Bylaws, each director shall hold office until his
or her term of office expires and until his or her successor shall have been
elected and qualified. The directors shall be divided, with respect to the
terms for which they severally hold office, into three (3) classes, hereby
designated as Class I, Class II and Class III. Each class shall have at least
three (3) directors and the three (3) classes shall be as nearly equal in
number as possible. The initial term of office of the Class I, Class II and
Class III directors, elected at the 1998 annual meeting of stockholders,
shall expire at the next succeeding annual meeting of stockholders, the
second succeeding annual meeting of stockholders and the third succeeding
annual meeting of stockholders, respectively. At each annual meeting of
stockholders after 1999, the successors of the class of directors whose term
expires at that meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders to be held in the third year following
the year of their election.
SECTION 3.2. REMOVAL. Any director may be removed by the affirmative
vote of the holders of a majority of the then outstanding shares of Common
Stock only for cause.
SECTION 3.3. VACANCIES. Unless otherwise provided in the Certificate
of Incorporation or in these Bylaws, vacancies among the directors, whether
caused by resignation, death, disqualification, removal, an increase in the
authorized number of directors or otherwise, may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director. Vacancies that occur on the Board of Directors during the
year may be filled by the Board of Directors as hereinabove provided for the
unexpired term of the vacating directors predecessor in office.
SECTION 3.4. PLACE OF MEETING. The directors may hold their meetings
and may have one or more offices and keep the books of the Corporation
(except as otherwise may at any time be provided by law) at such place or
places within or without the State of Delaware as the Board may from time to
time determine.
SECTION 3.5. ANNUAL MEETING. The newly elected Board may meet for the
purpose of organization, the election of officers and the transaction of
other business, at such time and place within or without the State of
Delaware as shall be fixed as provided in Section 3.7 of this Article for
special meetings of the Board of Directors.
SECTION 3.6. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and place within or without the State of
Delaware as the Board of Directors shall from time to time by resolution
determine and no notice of such regular meetings shall be required.
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AMENDED AND RESTATED BYLAWS - PAGE 4
(ADAMS GOLF, INC.)
<PAGE>
SECTION 3.7. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by the direction of the President or
of one-third of the directors then in office. The Secretary or some other
officer or director of the Corporation shall give notice to each director of
the time and place of each special meeting by mailing the same at least three
(3) days before the meeting or by telexing, telegraphing or telephoning the
same not later than the day before the meeting, at the residence address of
each director or at his usual place of business. Special meetings of the
Board shall be held at such place within or without the State of Delaware as
shall be specified in the call for the meeting. Unless expressly required by
statute, by the Certificate of Incorporation or by the Bylaws, neither the
business to be transacted at, nor the purpose of, any special meeting of the
Board of Directors need be specified in the notice of a meeting.
SECTION 3.8. QUORUM. Except as otherwise provided by law or in the
Certificate of Incorporation, a majority of the directors in office shall
constitute a quorum for the transaction of business. A majority of those
present at the time and place of any regular or special meeting, if less than
a quorum be present, may adjourn from time to time without notice, until a
quorum be had. The act of a majority of directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise provided by law or in the Certificate of Incorporation.
SECTION 3.9. COMPENSATION. The Board of Directors shall have the
authority to fix by resolution the compensation of directors.
SECTION 3.10. ORGANIZATION. At all meetings of the Board of Directors,
the President, or in his absence the Vice President if he is a member of the
Board, or in their absence, a chairman chosen by the directors shall preside.
The Secretary or an Assistant Secretary of the Corporation shall act as
secretary at all meetings of the Board of Directors when present, and, in the
absence of both, the presiding officer may appoint any person to act as
secretary.
SECTION 3.11. TELEPHONE MEETINGS. Any member of the Board of Directors
may participate in any meeting of such Board by means of conference telephone
or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in any
meeting pursuant to this provision shall constitute presence in person at
such meeting.
SECTION 3.12. INFORMAL ACTION. Any action required or permitted to be
taken at any meeting of the Board of Directors, or any committee thereof,
may be taken without a meeting if all the members of the Board consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board.
SECTION 3.13. NOMINATION OF DIRECTOR CANDIDATES. Subject to the rights
of the holders of Preferred Stock or any other class of capital stock of the
Corporation (other than Common Stock) or any series of any of the foregoing
that has been outstanding, nominations for the election of directors may be
made by the Board of Directors, by any duly appointed committee thereof or by
any stockholder entitled to vote for the election of directors. Any
stockholder entitled to vote for the election of directors at any meeting may
nominate persons for
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AMENDED AND RESTATED BYLAWS - PAGE 5
(ADAMS GOLF, INC.)
<PAGE>
election as directors only if written notice of such stockholder's intent to
make such nomination is given, either by personal delivery or by United
States Mail, postage prepaid, to the Secretary of the Corporation not later
than ninety (90) days prior to the scheduled meeting, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
PROVIDED, HOWEVER, if less than one hundred (100) days notice or prior public
disclosure of the date of the scheduled meeting is given, notice by the
stockholders must be so delivered or received not later than the close of
business on the tenth (10th) day following the earlier of the day on which
such notice of the date of the scheduled annual meeting was mailed or the day
on which public disclosure was made. Each such notice shall set forth: (a)
the name, age, business address and residence address of the person or
persons intended to be nominated; (b) a representation that the stockholder
is a holder of record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of
all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the stockholder; (d)
such other information regarding each nominee proposed by such stockholder as
would have been required to be included in a proxy statement filed pursuant
to the proxy rules of the Securities and Exchange Commission had such
requirements been applicable and each nominee been nominated, or intended to
be nominated, by the Board of Directors; and (e) the consent of each nominee
to serve as a director of the Corporation if so elected. The Chairman of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with this section.
ARTICLE IV
COMMITTEES
SECTION 4.1. EXECUTIVE COMMITTEE. The Board of Directors, by a
resolution passed by a vote of a majority of the whole Board, may appoint an
Executive Committee of one or more directors, which to the extent permitted
by law and in said resolution shall, during the intervals between the
meetings of the Board of Directors, in all cases where special directions
shall not have been given by the Board, have and exercise the powers of the
Board of Directors, including those powers enumerated in these Bylaws which
are not specifically reserved to the Board of Directors, in the management of
the property, business and affairs of the Corporation; provided, however,
that the Executive Committee shall not have any power or authority to amend
the Certificate of Incorporation, to adopt any agreement of merger or
consolidation, to recommend to the stockholders the sale, lease or exchange
of all or substantially all of the Corporation's property and assets, to
recommend to the stockholders a dissolution of the Corporation or a
revocation of dissolution, to amend the Bylaws of the Corporation, to declare
a dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger. The Executive Committee shall have power to authorize
the seal of the Corporation to be affixed to all papers which may require it.
The Board of Directors shall appoint the Chairman of the Executive
Committee. The members of the Executive Committee shall receive such
compensation and fees as from time to time may be fixed by the Board of
Directors.
SECTION 4.2. ALTERNATES AND VACANCIES. The Board of Directors may
designate one or more directors as alternate members of the Executive
Committee who may replace any
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AMENDED AND RESTATED BYLAWS - PAGE 6
(ADAMS GOLF, INC.)
<PAGE>
absent or disqualified member at any meeting of the Executive Committee. In
the absence or disqualification of a member of the Executive Committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. All other vacancies in the
Executive Committee shall be filled by the Board of Directors in the same
manner as original appointments to such Committee.
SECTION 4.3. COMMITTEES TO REPORT TO BOARD. The Executive Committee
shall keep regular minutes of its proceedings and all action by the Executive
Committee shall be reported to the Board of Directors at its meeting next
succeeding such action.
SECTION 4.4. PROCEDURE. The Executive Committee shall fix its own
rules of procedure, and shall meet where and as provided by such rules or by
resolution of the Board of Directors. The presence of a majority of the then
appointed number of each committee created pursuant to this Article IV shall
constitute a quorum and in every case an affirmative vote by a majority of
the members of the committee present and not disqualified from voting shall
be the act of the committee.
SECTION 4.5. OTHER COMMITTEES. From time to time the Board of
Directors by a resolution adopted by a majority of the whole Board may
appoint any other committee or committees for any purpose or purposes, to the
extent lawful, which shall have such powers as shall be determined and
specified by the Board of Directors in the resolution of appointment.
SECTION 4.6. TERMINATION OF COMMITTEE MEMBERSHIP. In the event any
person shall cease to be a director of the Corporation, such person shall
simultaneously therewith cease to be a member of any committee appointed by
the Board of Directors, or any subcommittee thereof.
ARTICLE V
OFFICERS
SECTION 5.1. EXECUTIVE OFFICERS. The executive officers of the
Corporation may consist of a Chairman of the Board, a President and Chief
Executive Officer, one or more Vice Presidents, a Treasurer and a Secretary,
all of whom shall be elected annually by the Board of Directors. Unless
otherwise provided in the resolution of election, each officer shall hold
office until the next annual election of directors and until his successor
shall have been qualified. Any two of such offices may be held by the same
person.
SECTION 5.2. SUBORDINATE OFFICERS. The Board of Directors may appoint
one or more Assistant Secretaries, one or more Assistant Treasurers and such
other subordinate officers and agents as it may deem necessary or advisable,
for such term as the Board of Directors shall fix in such appointment, who
shall have such authority and perform such duties as may from time to time be
prescribed by the Board.
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(ADAMS GOLF, INC.)
<PAGE>
SECTION 5.3. COMPENSATION. The Board of Directors shall have the
power to fix the compensation of all officers, agents and employees of the
Corporation, which power, as to other than elected officers, may be delegated
as the Board of Directors shall determine.
SECTION 5.4. REMOVAL. All officers, agents and employees of the
Corporation shall be subject to removal, with or without cause, at any time
by affirmative vote of the majority of the whole Board of Directors whenever,
in the judgment of the Board of Directors, the best interests of the
Corporation will be served thereby. The power to remove agents and
employees, other than officers or agents elected or appointed by the Board of
Directors, may be delegated as the Board of Directors shall determine.
SECTION 5.5. CHAIRMAN OF THE BOARD. If a Chairman of the Board is
elected, he shall be chosen from among the members of the Board of Directors
and shall preside at all meetings of the directors and the stockholders of
the Corporation. The Chairman of the Board shall, in general, have
supervisory power over the Chief Executive Officer and all other officers of
the Corporation.
SECTION 5.6. THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall be the chief operating officer of the Corporation and shall be
responsible for insuring that the President of the Corporation is capable of
fulfilling his duties to the Corporation and shall perform such other duties
as the Board of Directors shall prescribe.
SECTION 5.7. THE PRESIDENT. The President shall have the general
powers and duties of supervision and management of the Corporation, shall
report directly to the Chief Executive Officer, and shall see that all orders
and resolutions of the Board of Directors are carried into effect. The
President shall preside at all meetings of the stockholders and directors at
which he is present. The President shall also perform such other duties as
may from time to time be assigned to him by the Board of Directors.
SECTION 5.8. VICE PRESIDENTS. Each Vice President shall perform such
duties and shall have such authority as from time to time may be assigned to
him by the Board of Directors or the President.
SECTION 5.9. THE TREASURER. The Treasurer shall have the general care
and custody of all the funds and securities of the Corporation which may come
into his hands and shall deposit the same to the credit of the Corporation in
such bank or banks or depositaries as from time to time may be designated by
the Board of Directors or by an officer or officers authorized by the Board
of Directors to make such designation, and the Treasurer shall pay out and
dispose of the same under the direction of the Board of Directors. He shall
have general charge of all securities of the Corporation and shall in general
perform all duties incident to the position of Treasurer.
SECTION 5.10. THE SECRETARY. The Secretary shall keep the minutes of
all proceedings of the Board of Directors and the minutes of all meetings of
the stockholders and also, unless otherwise directed by such committee, the
minutes of each standing committee, in books provided for that purpose, of
which he shall be the custodian; he shall attend to the giving
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AMENDED AND RESTATED BYLAWS - PAGE 8
(ADAMS GOLF, INC.)
<PAGE>
and serving of all notices for the Corporation; he shall have charge of the
seal of the Corporation, of the stock certificate books and such other books
and papers as the Board of Directors may direct; and he shall in general
perform all the duties incident to the office of Secretary and such other
duties as may be assigned to him by the Board of Directors.
SECTION 5.11. VACANCIES. All vacancies among the officers for any cause
shall be filled only by the Board of Directors.
SECTION 5.12. BONDING. The Board of Directors shall have power to require
any officer or employee of the Corporation to give bond for the faithful
discharge of his duties in such form and with such surety or sureties as the
Board of Directors may deem advisable.
ARTICLE VI
STOCK
SECTION 6.1. FORM AND EXECUTION OF CERTIFICATES. The shares of stock of
the Corporation shall be represented by certificates in such form as shall be
approved by the Board of Directors; provided that the Board of Directors of the
Corporation may provide by resolution that some or all of any or all classes or
series of its stock (other than the Common stock of the Corporation) shall be
uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
Corporation; and, notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and every holder
of uncertificated shares shall be entitled to a certificate or certificates
representing his shares upon delivery of a written request therefor to the
Secretary of the Corporation. The certificates shall be signed by the
President or the Vice President and the Treasurer or the Secretary or an
Assistant Treasurer or Assistant Secretary, except that where any such
certificates shall be countersigned by a transfer agent and by a registrar, the
signatures of any of the officers above specified, and the seal of the
Corporation upon such certificates, may be facsimiles, engraved or printed. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of its issue.
SECTION 6.2. REGULATIONS. The Board of Directors may make such rules and
regulations consistent with any governing statute as it may deem expedient
concerning the issue, transfer and registration of certificates of stock and
concerning certificates of stock issued, transferred or registered in lieu or
replacement of any lost, stolen, destroyed or mutilated certificates of stock.
SECTION 6.3. FIXING OF RECORD DATE. For the purpose of determining the
stockholders entitled to notice of, and to vote at, any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
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(ADAMS GOLF, INC.)
<PAGE>
exchange of stock, or for the purpose of any other lawful action, the Board
of Directors may fix, in advance, a date as the record date for any such
determination of stockholders, and all persons who are stockholders of record
on the date so fixed, and no others, shall be entitled to notice of, and to
vote at, such meeting or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise any
rights in respect of any change, conversion or exchange of stock or to take
any other lawful action, as the case may be. Such record date shall not be
more than sixty (60) days nor less than ten (10) days before the date of any
such meeting, nor more than sixty (60) days prior to any other action,
provided that any record date established by the Board of Directors may not
precede the date of the resolution establishing the record date. The record
date for determining stockholders entitled to consent to corporate actions in
writing shall not be more than ten (10) days after the date upon which the
resolution fixing the record date was adopted. If no record date is
established prior to an action undertaken by consent, the record date shall
be, if no action of the Board of Directors is required, the first date on
which a signed written consent setting forth the action taken is delivered to
the corporation. If action by the Board of Directors is required, the record
date shall be the close of business on the day the board adopts the
resolution taking the prior action.
SECTION 6.4. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint a transfer agent or transfer agents and a registrar or registrars for
any or all classes of the capital stock of the Corporation, and may require
stock certificates of any or all classes to bear the signature of either or
both.
ARTICLE VII
SEAL
SECTION 7.1. SEAL. The seal of the Corporation shall be circular in
form and contain the name of the Corporation, the year of its organization,
and the words "CORPORATE SEAL, DELAWARE", which seal shall be in charge of
the Secretary to be used as directed by the Board of Directors.
ARTICLE VIII
FISCAL YEAR
SECTION 8.1. FISCAL YEAR. The fiscal year of the Corporation shall be
the calendar year unless otherwise fixed by resolution of the Board of
Directors.
ARTICLE IX
WAIVER OF NOTICE
SECTION 9.1. WAIVER OF NOTICE. Any person may waive any notice
required to be given by law, in the Certificate of Incorporation or under
these Bylaws by attendance in person, or by proxy if a stockholder, at any
meeting, except when such person attends a meeting
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AMENDED AND RESTATED BYLAWS - PAGE 10
(ADAMS GOLF, INC.)
<PAGE>
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened, or by a writing signed by the person or persons entitled to said
notice, whether before or after the time stated in said notice, which waiver
shall be deemed equivalent to such notice. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee appointed by the Board of
Directors need be specified in any written waiver of notice.
ARTICLE X
CHECKS, NOTES, DRAFTS, CONTRACTS, VOTING OF SECURITIES, ETC.
SECTION 10.1. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
SECTION 10.2. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of
Directors may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation, to enter into or execute and deliver any
and all deeds, bonds, mortgages, contracts and other obligations or
instruments, and such authority may be general or confined to specific
instances.
SECTION 10.3. PROVISION REGARDING CONFLICTS OF INTERESTS. No contract
or transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be
void or voidable solely for this reason, or solely because the director or
officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction,
or solely because his or their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
(c) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof, or the shareholders.
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AMENDED AND RESTATED BYLAWS - PAGE 11
(ADAMS GOLF, INC.)
<PAGE>
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
SECTION 10.4. VOTING OF SECURITIES OWNED BY THE CORPORATION. Subject
always to the specific directions of the Board of Directors, any share or
shares of stock or other securities issued by any other corporation and owned
or controlled by the Corporation may be voted, whether by written consent as
set forth hereinbelow or at any meeting of such other corporation, by the
President of the Corporation, or in the absence of the President, by any Vice
President of the Corporation who may be present at such meeting or available
to sign such written consent. Whenever in the judgment of the President, or
in his absence, of any Vice President, it shall be desirable for the
Corporation to execute a proxy or give a consent with respect to any share or
shares of stock or other securities issued by any other corporation and owned
by the Corporation, such proxy or consent shall be executed in the name of
the Corporation by the President or one of the Vice Presidents of the
Corporation without necessity of any authorization by the Board of Directors.
Any person or persons so designated as the proxy or proxies of the
Corporation shall have full right, power and authority to vote the share or
shares of stock or other securities issued by such other corporation and
owned by the Corporation.
ARTICLE XI
INDEMNIFICATION AND INSURANCE
SECTION 11.1. THIRD-PARTY ACTIONS. The Corporation shall indemnify and
hold harmless any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed proceeding (other than an
action by or in the right of the Corporation) by reason of the fact that he
or she is or was a director or officer of the Corporation, against expenses
(including reasonable attorneys' fees), judgments, fines, liabilities, losses
and amounts paid in settlement actually and reasonably incurred by him or her
in connection with such proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal proceeding,
had no reasonable cause to believe his or her conduct was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interest of the Corporation, and, with respect to any criminal proceeding,
had reasonable cause to believe that his or her conduct was unlawful.
SECTION 11.2. DERIVATIVE ACTIONS. The Corporation shall indemnify and
hold harmless any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed proceeding by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact
that he or she is or was a director or officer of the Corporation, against
expenses (including reasonable attorneys' fees) actually and reasonably
incurred by him or her in connection with the defense or settlement of such
proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of
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AMENDED AND RESTATED BYLAWS - PAGE 12
(ADAMS GOLF, INC.)
<PAGE>
the Corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that
the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses that the court shall deem proper.
SECTION 11.3. RIGHT TO INDEMNIFICATION OF EXPENSES. To the extent that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any proceeding referred to in Sections 11.1 and 11.2 or
in defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including reasonable attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.
SECTION 11.4 DETERMINATION OF INDEMNIFICATION. Any indemnification under
Sections 11.1 and 11.2 (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he or she has meet the applicable standards of conduct set forth in
Sections 11.1 and 11.2. Such determination shall be made (A) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, (B) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion or (C) by the
stockholders.
SECTION 11.5 EXPENSES OF CONTESTED INDEMNIFICATION CLAIMS. If a claim
under Section 11.1 or 11.2 is not paid in full by the Corporation within thirty
(30) days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall also be entitled to be paid the expenses of prosecuting such
claim.
SECTION 11.6 ADVANCEMENT OF EXPENSES. Expenses (including reasonable
attorneys' fees) incurred by a director or officer in defending any proceeding
or prosecuting a claim under Section 11.5 shall be paid by the Corporation in
advance of the final disposition of such proceeding or suit upon receipt of a
written affirmation by the director or officer of his or her good faith belief
that he or she has met the standard of conduct necessary for indemnification and
a written undertaking by or on behalf of the director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation as authorized in this Article.
SECTION 11.7 INDEMNIFICATION NOT EXCLUSIVE. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the Certificate
of Incorporation, any other bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
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AMENDED AND RESTATED BYLAWS - PAGE 13
(ADAMS GOLF, INC.)
<PAGE>
SECTION 11.8 SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such person.
SECTION 11.9 EMPLOYEES, AGENTS AND OTHERS. The Corporation may, to the
fullest extent of the provisions of this Article with respect to directors and
officers and to the extent authorized from time to time by the Board of
Directors, grant rights of indemnification and advancement of expenses to any
employee or agent of the Corporation or any other person who is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
SECTION 11.10 CONTRACT RIGHT. Each of the rights of indemnification and
advancement of expenses provided by, or granted pursuant to, this Article shall
be a contract right and any repeal or amendment of the provisions of this
Article shall not adversely affect any such right of any person existing at the
time of such repeal or amendment with respect to any act or omission occurring
prior to the time of such repeal or amendment, and further, shall not apply to
any proceeding, irrespective of when the proceeding is initiated, arising from
the service of such person prior to such repeal or amendment.
SECTION 11.11 INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify him or her against such liability under the
provisions of this Article.
SECTION 11.12 CERTAIN REFERENCES UNDER ARTICLE XI. For purposes of
this Article, the following references shall have the following meanings:
(A) "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger that, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent
corporation if its separate existence had continued;
(B) "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan;
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AMENDED AND RESTATED BYLAWS - PAGE 14
(ADAMS GOLF, INC.)
<PAGE>
(C) a person who acted in good faith and in a manner he or she
reasonably believed to be in the best interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation;"
(D) "other enterprises" shall include employee benefit plans;
(E) "proceeding" shall include any pending or completed action,
suit or proceeding, whether formal or informal or civil, criminal,
administrative, arbitrative or investigative, any appeal in such an action,
suit or proceeding, and any inquiry or investigation that could lead to such
an action, suit or proceeding;
(F) "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation that
imposes duties on, or involves services by, such director, officer, employee
or agent with respect to an employee benefit plan, its participants or
beneficiaries.
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AMENDED AND RESTATED BYLAWS - PAGE 15
(ADAMS GOLF, INC.)
<PAGE>
ADAMS GOLF, INC.
1998 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of the ADAMS GOLF, INC. 1998 STOCK INCENTIVE PLAN is to
provide incentives and rewards for Employees and Consultants of the
Corporation and its Subsidiaries (i) to support the execution of the
Corporation's business strategies and the achievement of its goals and (ii)
to associate the interests of Employees and Consultants with those of the
Corporation's stockholders.
2. DEFINITIONS
"Award" includes, without limitation, stock options (including incentive
stock options within the meaning of Section 422 of the Code), stock
appreciation rights, restricted and performance shares, restricted and
performance share units, Performance Stock Awards, dividend or equivalent
rights, or other awards that are valued in whole or in part by reference to,
or are otherwise based on, the Common Stock ("other Common Stock-based
Awards"), all on a stand alone, combination or tandem basis, as described in
Section 6 and granted pursuant to this Plan.
"Award Agreement" means a written agreement entered into between the
Corporation and a Participant setting forth the terms and conditions of an
Award made to such Participant under this Plan, in the form prescribed by the
Committee.
"Board" means the Board of Directors of the Corporation.
"Change of Control" shall have the meaning specified in Section 12(b)
hereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Committee, if any, appointed by the Board which
shall consist of two or more members, each of whom shall be an "outside
director" within the meaning of Section 162(m) of the Code and the applicable
regulations promulgated thereunder.
"Common Stock" means the common stock of the Corporation, par value of
$.001 per share.
"Consultants" means a consultant of the Corporation or a Subsidiary.
"Corporation" means ADAMS GOLF, INC., a Delaware corporation.
"Employee" means an employee of the Corporation or a Subsidiary.
1998 STOCK INCENTIVE PLAN - PAGE 1
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" of the Common Stock on any date of reference shall
be the closing price on the business day immediately preceding such date.
For this purpose, the closing price of the Common Stock on any business day
shall be (i) if the Common Stock is listed or admitted for trading on any
United States national securities exchange, the last reported sale price of
the Common Stock on such exchange, as reported in any newspaper of general
circulation, (ii) if actual transactions in the Common Stock are included in
the Nasdaq National Market or are reported on a consolidated transaction
reporting system, the closing sales price of the Common Stock on such system,
(iii) if the Common Stock is otherwise quoted on the Nasdaq system, or any
similar system of automated dissemination of quotations of securities prices
in common use, the mean between the closing high bid and low asked quotations
for such day of the Common Stock on such system, (iv) if none of clause (i),
(ii) or (iii) is applicable, the mean between the high bid and low asked
quotations for the Common Stock as reported by the National Daily Quotation
Service if at least two securities dealers have inserted both bid and asked
quotations for the Common Stock on at least five (5) of the ten (10)
preceding days and (v) if none of clause (i), (ii), (iii) or (iv) is
applicable, the most recent valuation price for the Common Stock as adjusted
by the Board in the exercise of its good faith discretion.
"Negative Discretion" means other factors to be applied by the Committee
in reducing the number of restricted shares to be issued pursuant to a
Performance Stock Award if the Performance Goals have been met or exceeded
if, in the Committee's sole judgment, such application is appropriate in
order to act in the best interests of the Corporation and its stockholders.
The Negative Discretion factors include, but are not limited to, the
achievement of measurable individual performance objectives established by
the Committee and communicated to the Employee in advance of the Performance
Period, and competitive pay practices.
"Participant" means an Employee or a Consultant who has been granted an
Award under this Plan.
"Performance Goals" means, with respect to any Performance Period,
performance goals based on any of the following criteria established by the
Committee prior to the beginning of such Performance Period or performance
goals based on any of the following criteria established by the Committee
after the beginning of such Performance Period that, if appropriate, meet the
requirements to be considered pre-established performance goals under Section
162(m) of the Code: earnings or earnings growth; return on equity, assets or
investment; sales; expenses; stock price; market share; or any other
performance goal established by the Committee. Such Performance Goals may be
particular to an Employee or to a Consultant or the division, department,
branch, line of business, Subsidiary or other unit in which the Employee
works or which has engaged the Consultant, or may be based on the performance
of the Corporation generally.
1998 STOCK INCENTIVE PLAN - PAGE 2
<PAGE>
"Performance Period" means the period of time designated by the
Committee applicable to a Performance Stock Award during which the
Performance Goal(s) shall be measured.
"Performance Stock Award" shall have the meaning specified in Section
6(g).
"Plan" means this ADAMS GOLF, INC. 1998 STOCK INCENTIVE PLAN.
"Plan Year" means a twelve-month period beginning with January 1 of each
year.
"Reporting Person" means an officer or director of the Corporation, if
any, subject to the reporting requirements of Section 16 of the Exchange Act.
"Subsidiary" means any corporation or other entity, whether domestic or
foreign, in which the Corporation has or obtains, directly or indirectly, a
proprietary interest of more than fifty percent (50%) by reason of stock
ownership or otherwise.
3. ELIGIBILITY
Any Employee or Consultant selected by the Committee is eligible to
receive an Award.
4. PLAN ADMINISTRATION
(a) This Plan shall be administered by the Committee; provided, however,
that if no Committee is appointed, the Board shall administer this Plan and
in such case all references to the Committee shall be deemed references to
the Board. The Committee shall periodically make determinations with respect
to the participation of Employees or Consultants in this Plan and, except as
otherwise required by law or this Plan, establish the grant terms of Awards
including vesting schedules, price, performance standards (including
Performance Goals), length of relevant performance, restriction or option
period, dividend rights, post-retirement and termination rights, payment
alternatives such as cash, stock, contingent awards or other means of payment
consistent with the purposes of this Plan, and such other terms and
conditions as the Committee deems appropriate. The Committee shall maintain
written minutes of its meetings including minutes regarding Performance Goals
established by the Committee, and any certification regarding satisfaction of
the Performance Goals made pursuant to Section 7 hereof. Except as otherwise
required by this Plan, the Committee shall have authority to interpret and
construe the provisions of this Plan and the Award Agreements and make
determinations pursuant to any Plan provision or Award Agreement, which shall
be final and binding on all persons.
(b) The Committee may designate persons other than its members to carry
out its responsibilities under such conditions or limitations as it may set,
other than its authority with regard to Awards granted to Reporting Persons.
1998 STOCK INCENTIVE PLAN - PAGE 3
<PAGE>
5. STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN
(a) The stock subject to the provisions of this Plan shall either be
shares of authorized but unissued Common Stock, shares of Common Stock held
as treasury stock or previously issued shares of Common Stock reacquired by
the Corporation, including shares purchased on the open market. Subject to
adjustment in accordance with the provisions of Section 10, and subject to
Section 5(d), an aggregate of 900,000 shares of Common Stock shall be
available for grants of Awards (including, without limitation, Awards of
restricted and performance shares) under the Plan.
(b) Subject to adjustment in accordance with Section 10, and subject to
Section 5(a), the total number of shares of Common Stock available for grants
of Awards in any Plan Year to any Participant shall not exceed 500,000.
(c) For purposes of calculating the total number of shares of Common
Stock available for grants of Awards, (i) the grant of a performance or
restricted share unit Award shall be deemed to be equal to the maximum number
of shares of Common Stock which may be issued under the Award and (ii) where
the value of an Award is variable on the date it is granted, the value shall
be deemed to be the maximum limitation of such Award. Awards payable solely
in cash will not reduce the number of shares of Common Stock available for
Awards granted under this Plan.
(d) There shall be carried forward and be available for Awards under
this Plan in each succeeding Plan Year, in addition to shares of Common Stock
available for grant under paragraph (a) of this Section 5, all of the
following: (i) shares of Common Stock represented by Awards which have been
cancelled, forfeited, surrendered, terminated or expire unexercised; and (ii)
the excess amount of variable Awards which become fixed at less than their
maximum limitations.
6. AWARDS UNDER THIS PLAN
As the Committee may determine, the following types of Awards may be
granted under this Plan to Employees or Consultants on a stand alone,
combination or tandem basis:
(a) STOCK OPTION. A right to buy a specified number of shares of Common
Stock at a fixed exercise price during a specified period of time (which
shall not exceed ten (10) years from the date of grant), all as the Committee
may determine; provided that the exercise price of any option shall not be
less than 100% of the Fair Market Value of the Common Stock on the date of
grant of the Award and, notwithstanding the foregoing, in the case of a
Participant who owns stock representing more than 10% of the total combined
voting power of all classes of stock of the Corporation or of its parent or
any subsidiary (as defined in Section 424 of the Code) at the time an
incentive stock option is granted, the option price shall not be less than
110% of the fair
1998 STOCK INCENTIVE PLAN - PAGE 4
<PAGE>
market value of the shares at the time the incentive stock option is granted
and such option shall not be exercisable more than 5 years from its date of
grant.
(b) INCENTIVE STOCK OPTION. An award in the form of a stock option
which shall comply with the requirements of Section 422 of the Code or any
successor Section as it may be amended from time to time provided that no
incentive stock option shall be exercisable more than 10 years from its date
of grant and further provided that the aggregate fair market value,
determined as of the date of grant, of the Common Stock as to which such
incentive stock options are exercisable for the first time by a Participant
shall be limited to $100,000 per calendar year. Non-qualified stock options
may be exercised by a Participant without regard to the foregoing limitation.
(c) STOCK APPRECIATION RIGHT. A right to receive the excess of the Fair
Market Value of a share of Common Stock on the date the stock appreciation
right is exercised over the Fair Market Value of a share of Common Stock on
the date the stock appreciation right was granted.
(d) RESTRICTED AND PERFORMANCE SHARES. A transfer of shares of Common
Stock to a Participant, subject to such restrictions on transfer or other
incidents of ownership, or subject to specified performance standards, for
such periods of time as the Committee may determine.
(e) RESTRICTED AND PERFORMANCE SHARE UNIT. A fixed or variable share or
dollar denominated unit subject to conditions of vesting, performance and
time of payment as the Committee may determine, which may be paid in shares
of Common Stock, cash or a combination of both.
(f) DIVIDEND OR EQUIVALENT RIGHT. A right to receive dividends or their
equivalent in value in shares of Common Stock, cash or in a combination of
both with respect to any new or previously existing Award.
(g) PERFORMANCE STOCK AWARDS. A right to receive restricted shares (as
defined in Section 6(d) hereof) that shall not be issued until after the end
of the related Performance Period, subject to satisfaction of the Performance
Goals for such Performance Period.
(h) OTHER COMMON STOCK-BASED AWARDS. Other Common Stock-based Awards
which are related to or serve a similar function to those Awards set forth in
this Section 6.
In addition to granting Awards for purposes of incentive compensation,
Awards may also be made in tandem with or in lieu of current or deferred
compensation of a Participant.
7. PERFORMANCE STOCK AWARDS.
(a) ADMINISTRATION. Performance Stock Awards may be granted either
alone or in addition to other Awards granted under this Plan. The Committee
shall determine the Employees or Consultants to whom Performance Stock Awards
shall be awarded for any Performance
1998 STOCK INCENTIVE PLAN - PAGE 5
<PAGE>
Period, the duration of the applicable Performance Period, the number of
restricted shares to be awarded at the end of a Performance Period if the
Performance Goals are met (in whole or in part) or exceeded and the terms and
conditions of the Performance Stock Award in addition to those contained in
this Section 7.
(b) PAYMENT OF AWARD. After the end of a Performance Period, the
relevant financial performance during such Performance Period shall be
measured against the Performance Goals. If the Performance Goals are not met,
no restricted shares shall be issued pursuant to the Performance Stock Award.
If the Performance Goals are met (in whole or in part) or exceeded, the
Committee shall certify that fact in writing in the Committee minutes or
elsewhere and certify the number of restricted shares to be issued under each
Performance Stock Award in accordance with the related Award Agreement. The
Committee may, in its sole discretion, apply Negative Discretion to reduce
the number of restricted shares to be issued under a Performance Stock Award.
(c) REQUIREMENT OF EMPLOYMENT OR ENGAGEMENT. To be entitled to receive
a Performance Stock Award, a Participant must remain in the continuous
employment of or engagement by the Corporation or a Subsidiary through the
end of the Performance Period, except that the Committee may provide for
partial or complete exceptions to this requirement as it deems equitable in
its sole discretion.
8. OTHER TERMS AND CONDITIONS
(a) ASSIGNABILITY. Except to the extent, if any, as may be permitted
by the Code and rules promulgated under Section 16 of the Exchange Act, (i)
no Award shall be assignable or transferable except by will, by the laws of
descent and distribution or pursuant to a qualified domestic relations order
as defined by the Code and (ii) during the lifetime of a Participant, the
Award shall be exercisable only by such Participant or such Participant's
guardian, legal representative or assignee pursuant to a qualified domestic
relations order.
(b) AWARD AGREEMENT. Each Award under this Plan shall be evidenced by
an Award Agreement.
(c) RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein or in
any Award Agreement, a Participant shall have no rights as a shareholder with
respect to shares of Common Stock covered by an Award until the date the
Participant or his nominee (which, for purposes of this Plan, shall include
any third party agent selected by the Committee to hold such shares on behalf
of a Participant), guardian or legal representative is the holder of record
of such shares.
(d) NO OBLIGATION TO EXERCISE. The grant of an Award shall impose no
obligation upon the Participant to exercise the Award.
(e) PAYMENTS BY PARTICIPANTS. The Committee may determine that Awards
for which a payment is due from a Participant may be payable: (i) in U.S.
dollars by personal check, bank draft or money order payable to the order of
the Corporation, by money transfers or direct
1998 STOCK INCENTIVE PLAN - PAGE 6
<PAGE>
account debits; (ii) through the delivery or deemed delivery based on
attestation to the ownership of shares of Common Stock with a Fair Market
Value equal to the total payment due from the Participant; (iii) by a
combination of the methods described in (i) and (ii) above; or (iv) by such
other methods as the Committee may deem appropriate.
(f) EXERCISE OF STOCK OPTIONS BY EMPLOYEES.
(i) By an Employee During Continuous Employment. An
Employee who has been continuously employed by the Corporation
or a subsidiary since the date the stock option was granted is
eligible to exercise all such options which are then
exercisable up to the termination date of such options as
provided by the Committee at the time of grant. The Committee
will decide in each case, subject to the limitations set forth
in Section 422 of the Code applicable to incentive stock
options, to what extent leaves of absence for government or
military service, illness, temporary disability, or other
reasons shall not for this purpose be deemed interruptions of
continuous employment.
(ii) By a Former Employee. An Employee who terminates employment with
the Corporation and its subsidiaries for reasons other than
retirement, permanent and total disability or death, must
exercise all stock options previously awarded on or prior to the
date of his termination of employment (but no later than the
termination date of such stock options). A stock option may be
exercised on or prior to the date of such termination of
employment only for the number of shares for which it could have
been exercised at the time the Employee terminated employment
with the Corporation and its subsidiaries. The failure to
exercise all stock options by a Participant on or prior to the
date of his termination of employment will result in the
forfeiture of all unexercised options.
(iii) In Case of Retirement. Upon retirement (as hereafter
defined), the nonqualified stock options of an Employee must be
exercised within one (1) year of such retirement and the
incentive stock options must be exercised within three (3) months
of such retirement (but in either case no later than the
termination date of such option). For purposes of the Plan,
"retirement" shall mean that the Employee as of the date of
termination of employment has attained age 62 with 10 years of
continuous employment with the Corporation and its subsidiaries.
If the Employee should die within the one (1) year or three (3)
month period following retirement, as applicable, the provisions
contained in subsection (v) below shall apply. The
exercisability of all stock options granted to such an Employee
shall be accelerated and such options shall become immediately
exercisable without regard to the number of shares for which it
otherwise could have been exercised on the date of retirement.
1998 STOCK INCENTIVE PLAN - PAGE 7
<PAGE>
(iv) In Case of Permanent and Total Disability. If an Employee who
was granted a stock option terminates employment with the
Corporation and its subsidiaries because of permanent and total
disability and is eligible for benefits under the Corporation
disability plan, or successor plan, upon termination of
employment, all stock options previously awarded must be
exercised within one (1) year of such date of termination of
employment (but no later than the termination date of such
options). If the Employee should die during such one (1) year
period, as applicable, the provisions contained in subsection (v)
below shall apply. The exercisability of all stock options
granted to such an Employee shall be accelerated and such options
shall become immediately exercisable without regard to the number
of shares for which it could otherwise have been exercised on the
date of termination of employment.
(v) In Case of Death. If an Employee who was granted a stock option
dies while employed by the Corporation or a subsidiary, or during
the one (1) year or three (3) month period following retirement
or during the one (1) year period following termination of
employment due to permanent or total disability, as applicable,
all options previously awarded must be exercised no later than
the termination date of such option by the Employee's estate or
by a person who acquires the right to exercise such option by
bequest or inheritance. The exercisability of all options
granted to the deceased Employee shall be accelerated and the
options shall become immediately exercisable without regard to
the number of shares for which it otherwise could have been
exercised on the date of death of the Employee.
(vi) Committee Discretion. Notwithstanding the foregoing, the
Committee at the time of grant of such Award may determine such
effects of a termination of employment or the termination of an
engagement with respect to any stock option or other Award.
(g) TAX WITHHOLDING. The Corporation shall have the right to withhold
from any payments made under this Plan, or to collect as a condition of
payment, any taxes required by law to be withheld. At any time when a
Participant is required to pay to the Corporation an amount required to be
withheld under applicable income tax laws in connection with a distribution
of shares of Common Stock pursuant to this Plan, the Participant may satisfy
this obligation in whole or in part by electing to have the Corporation
withhold from the amount of such distribution that whole number of shares of
Common Stock having a Fair Market Value equal to the amount required to be
withheld, and any remaining tax withholding obligation shall be satisfied by
an appropriate cash payment. The value of the shares of Common Stock to be
withheld shall be based on the Fair Market Value of the Common Stock on the
date that the amount of tax to be withheld shall be determined (the "Tax
Date"). Any such election is subject to the following restrictions: (i) the
election must be made on or prior to the Tax Date; (ii) the
1998 STOCK INCENTIVE PLAN - PAGE 8
<PAGE>
election must be irrevocable; and (iii) the election must be subject to the
disapproval of the Committee.
(h) RESTRICTIONS ON SALE AND EXERCISE. With respect to Reporting
Persons, and if and only if required to comply with rules promulgated under
Section 16 of the Exchange Act, (i) no Award providing for exercise, a
vesting period, a restriction period or the attainment of performance
standards shall permit unrestricted ownership of shares of Common Stock by
the Participant for at least six months from the date of grant, and (ii)
shares of Common Stock acquired pursuant to this Plan (other than shares of
Common Stock acquired as a result of the granting of a "derivative security")
may not be sold or otherwise disposed of for at least six months after
acquisition.
(i) REQUIREMENTS OF LAW. The granting of Awards and the issuance of
shares of Common Stock upon the exercise of Awards shall be subject to all
applicable requirements imposed by federal and state securities and other
laws, rules and regulations and by any regulatory agencies having
jurisdiction, and by any stock exchanges or trading or quotation systems upon
which the Common Stock may be listed. As a condition precedent to the issuer
of shares of Common Stock pursuant to the grant or exercise of an Award, the
Corporation may require the Participant to take any reasonable action to meet
such requirements.
9. AMENDMENTS
(a) Except as otherwise provided in this Plan, the Board may at any time
terminate and, from time to time, may amend or modify this Plan. Any such
action of the Board may be taken without the approval of the Corporation's
stockholders, but only to the extent that such shareholder approval is not
required by applicable law or regulation.
(b) No amendment, modification or termination of this Plan shall in any
manner adversely affect any Awards theretofore granted to a Participant under
this Plan without the consent of such Participant.
10. RECAPITALIZATION
The aggregate number of shares or securities as to which Awards may be
granted to Participants, the number of shares or securities thereof covered
by each outstanding Award, and the price per share or security thereof in
each such Award, shall all be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split, stock dividend, combination or exchange of shares, exchange for
other securities, reclassification, reorganization, redesignation, spinoff,
split off, merger, consolidation, recapitalization or other such change. Any
such adjustment may provide for the elimination of fractional shares.
1998 STOCK INCENTIVE PLAN - PAGE 9
<PAGE>
11. NO RIGHT TO EMPLOYMENT OR ENGAGEMENT
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right to
be retained in the employ of or under contract with the Corporation or a
Subsidiary. Nothing in this Plan shall interfere with or limit in any way the
right of the Corporation or any Subsidiary to terminate any Participant's
employment or engagement at any time, nor confer upon any Participant any
right to continue in the employ of or under contact with the Corporation or
any Subsidiary.
12. CHANGE OF CONTROL
1. Notwithstanding anything contained in this Plan or any Award
Agreement to the contrary, in the event of a Change of Control, as defined
below, the following may, in the sole discretion of the Committee, occur with
respect to any and all Awards outstanding as of such Change of Control:
(a) automatic maximization of performance standards, lapse of all
restrictions and acceleration of any time periods relating to the exercise,
realization or vesting of such Awards so that such Awards may be
immediately exercised, realized or vested in full on or before the relevant
date fixed in the Award Agreement;
(b) performance shares or performance units shall be paid entirely in
cash;
(c) upon exercise of a stock option or an incentive stock option
(collectively, an "Option") during the 60-day period from and after the
date of a Change of Control, the Participant exercising the Option may in
lieu of the receipt of Common Stock upon the exercise of the Option, elect
by written notice to the Corporation to receive an amount in cash equal to
the excess of the aggregate Value (as defined below) of the shares of
Common Stock covered by the Option or portion thereof surrendered
determined on the date the Option is exercised, over the aggregate exercise
price of the Option (such excess is referred to herein as the "Aggregate
Spread"); provided, however, and notwithstanding any other provision of
this Plan, if the end of such 60-day period from and after the date of a
Change of Control is within six months of the date of grant of an Option
held by a Participant who is a Reporting Person, such Option shall be
cancelled in exchange for a cash payment to the Participant equal to the
Aggregate Spread on the day which is six months and one day after the date
of grant of such Option. As used in this Section 12(a)(iii) the term
"Value" means the higher of (i) the highest Fair Market Value during the
60-day period from and after the date of a Change of Control and (ii) if
the Change of Control is the result of a transaction or series of
transactions described in paragraphs (i) or (iii) of the definition of
Change of Control, the highest price per share of the Common Stock paid in
such transaction or series of transactions (which in the case of paragraph
(i) shall be the highest price per share of the Common Stock as reflected
in a Schedule 13D filed by the person having made the acquisition);
1998 STOCK INCENTIVE PLAN - PAGE 10
<PAGE>
(d) if a Participant's employment or engagement terminates for any
reason other than retirement or death following a Change of Control, any
Options held by such Participant may be exercised by such Participant until
the earlier of three months after the termination of employment or
engagement or the expiration date of such Options: and
(e) all Awards become non-cancellable.
2. A "Change of Control" of the Corporation shall be deemed to have
occurred upon the happening of any of the following events:
(a) the acquisition, other than from the Corporation, by any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) other than Royal Holding Company, Inc. or
B.H. Adams of beneficial ownership of thirty percent (30%) or more of
either the then outstanding shares of Common Stock of the Corporation or
the combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors;
PROVIDED, HOWEVER, that any acquisition by the Corporation or any of its
Subsidiaries, or any employee benefit plan (or related trust) of the
Corporation or its Subsidiaries, or any corporation with respect to which,
following such acquisition, more than fifty percent (50%) of, respectively,
the then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Common Stock and voting securities of the Corporation immediately
prior to such acquisition in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the then outstanding
shares of Common Stock of the Corporation or the combined voting power of
the then outstanding voting securities of the Corporation entitled to vote
generally in the election of directors, as the case may be, shall not
constitute a Change of Control;
(b) individuals who, as of January 1, 1998, constitute the Board as
of the date thereof (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any individual
becoming a director subsequent to such date whose election, or nomination
for election by the Corporation's stockholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the
Corporation (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act); or
(c) approval by the stockholders of the Corporation of a
reorganization, merger or consolidation of the Corporation, in each case,
with respect to which the individuals and entities who were the respective
beneficial owners of the Common Stock and voting securities of the
Corporation immediately prior to such reorganization, merger or
consolidation do not, following such reorganization, merger
1998 STOCK INCENTIVE PLAN - PAGE 11
<PAGE>
or consolidation, beneficially own, directly or indirectly, more than sixty
percent (60%) of, respectively, the then outstanding shares of Common Stock
and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such reorganization, merger or
consolidation, or a complete liquidation or dissolution of the Corporation
or of the sale or other disposition of all or substantially all of the
assets of the Corporation.
13. GOVERNING LAW
To the extent that federal laws do not otherwise control, this Plan shall
be construed in accordance with and governed by the law of the State of
Delaware.
14. INDEMNIFICATION
Each person who is or shall have been a member of the Committee or of the
Board shall be indemnified and held harmless by the Corporation against and from
any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act under this Plan and against and from any
and all amounts paid by him in settlement thereof, with the Corporation's
approval, or paid by him in satisfaction of any judgment in any such action,
suit or proceeding against him, provided he shall give the Corporation an
opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Corporation's Certificate of
Incorporation or Code of Regulations, as a matter of law, or otherwise, or any
power that the Corporation may have to indemnify them or hold them harmless.
15. SAVINGS CLAUSE
This Plan is intended to comply in all aspects with applicable law and
regulation, including, with respect to those Participants who are Reporting
Persons, Rule 16b-3 under the Exchange Act. In case any one or more of the
provisions of this Plan shall be held invalid, illegal or unenforceable in any
respect under applicable law and regulation (including Rule 16b-3), the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby and the invalid, illegal or
unenforceable provision shall be deemed null and void; however, to the extent
permissible by laws, any provision which could be deemed null and void shall
first be construed, interpreted or revised retroactively to permit this Plan to
be construed in compliance with all applicable laws (including Rule 16b-3) so as
to foster the intent of this Plan. Notwithstanding anything in this Plan to the
contrary, the Committee, in its sole and absolute discretion, may bifurcate this
Plan so as to restrict, limit or condition the use of any
1998 STOCK INCENTIVE PLAN - PAGE 12
<PAGE>
provision of this Plan to Participants who are Reporting Persons without so
restricting, limiting or conditioning this Plan with respect to other
Participants.
16. EFFECTIVE DATE AND TERM
The effective date of this Plan is February 26, 1998, subject to its
approval by the Corporation's stockholders at their next annual meeting or at
any adjournment thereof, within twelve months following the date of its
adoption by the Board. This Plan shall remain in effect for ten (10) years
from the date the Plan is adopted or the date the Plan received stockholder
approval, whichever is earlier unless terminated earlier by the Board as
provided herein.
1998 STOCK INCENTIVE PLAN - PAGE 13
<PAGE>
1996 STOCK OPTION PLAN
OF
ADAMS GOLF, INC.
1. PURPOSE OF THE PLAN. This 1996 Stock Option Plan (the "Plan") is
intended to encourage ownership of the common stock of Adams Golf, Inc. (the
"Company") by certain officers, directors, employees and advisors of the
Company, including, without limitation, any division of the Company, or any
Subsidiary or Subsidiaries of the Company (as hereinafter defined), in order
to reward certain individuals for past services to the Company, to provide
additional incentive for such persons to promote the business of the Company
or its Subsidiaries and to encourage them to remain in the employ of the
Company or its divisions or Subsidiaries by providing such persons
opportunities to benefit from appreciation of the common stock of the Company
through the issuance of stock options in accordance with the terms of this
Plan.
It is further intended that options granted pursuant to this Plan shall
constitute either incentive stock options (the "Incentive Options") within
the meaning of Section 422 (formerly Section 422A) of the Internal Revenue
Code of 1986, as amended (the "Code"), or options which do not constitute
Incentive Options (the "Nonqualified Options"), as determined by the
Committee (as hereinafter defined) at the time of issuance of such options.
Incentive Options and Nonqualified Options are herein sometimes referred to
collectively as "Options". As used herein, the term "Subsidiary" or
"Subsidiaries" shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Options, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
2. STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in
Section 10 hereof, there will be reserved for the use upon the exercise of
Options to be granted from time to time under the Plan an aggregate of Four
Hundred Thousand (400,000) shares of the common stock of the Company (the
"Common Stock"), which shares in whole or in part shall be authorized, but
unissued, shares of the Common Stock or issued shares of Common Stock which
shall have been reacquired by the Company as determined from time to time by
the Board of Directors of the Company (the "Board of Directors").
To determine the number of shares of Common Stock available at any time
for the granting of Options under the Plan, there shall be deducted from the
total number of reserved shares of Common Stock, the number of shares of
Common Stock in respect of which Options have been granted pursuant to the
Plan which remain outstanding or
1996 STOCK OPTION PLAN - Page 1
<PAGE>
which have been exercised. If and to the extent that any Option to purchase
reserved shares shall not be exercised by an Optionee (as hereinafter
defined) for any reason or if such Option to purchase shall terminate as
provided herein, such shares which have not been so purchased hereunder shall
again become available for the purposes of the Plan unless the Plan shall
have been terminated, but such unpurchased shares shall not be deemed to
increase the aggregate number of shares specified above to be reserved for
purposes of the Plan (subject to adjustment as provided in Section 10 hereof).
3. ADMINISTRATION OF THE PLAN.
(a) GENERAL. The Plan shall be administered by a Compensation
Committee (the "Committee") appointed by the Board of Directors, which
Committee shall consist of not less than three (3) members of the Board of
Directors. If at any time there shall be less than three (3) members of the
Board of Directors who are qualified to serve on the Committee, then the Plan
shall be administered by the full Board of Directors. All references in this
Plan to the Committee shall be deemed to refer instead to the full Board of
Directors at any time there is not a Committee consisting of at least three
(3) members of the Board of Directors qualified to act hereunder.
The Board of Directors may from time to time appoint members of the
Committee in substitution for or in addition to members previously appointed
and may fill vacancies, however caused, in the Committee. If the Board of
Directors does not designate a Chairman of the Committee, the Committee shall
select one of its members as its Chairman.
The Committee shall hold its meetings at such times and places as it
shall deem advisable. A majority of its members shall constitute a quorum.
Any action of the Committee shall be taken by a majority vote of its members
at a meeting at which a quorum is present. Notwithstanding the preceding,
any action of the Committee may be taken without a meeting in person by a
written consent signed by all of the members, and any action so taken shall
be deemed fully as effective as if it had been taken by a vote of the members
present in person at the meeting duly called and held. The Committee may
appoint a Secretary, shall keep minutes of its meetings, and shall promulgate
such rules and regulations for the conduct of its business as it shall deem
advisable.
(b) PLAN INTERPRETATION AND ADMINISTRATION. The Committee shall have
the sole authority and power, subject to the express provisions and
limitations of the Plan, to construe the Plan and Option Agreements (as
hereinafter defined) granted hereunder, and to adopt, prescribe, amend, and
rescind rules and regulations relating to the Plan, and to make all
determinations necessary or advisable for administering the Plan, including,
but not limited to, (i) the designated individual person or persons (the
1996 STOCK OPTION PLAN - Page 2
<PAGE>
"Optionees") who shall be granted Options under the Plan, (ii) the terms of
each Option, (iii) the number of shares covered by such Option, (iv) whether
such Option shall constitute an Incentive Option or a Nonqualified Option,
(v) the exercise price ("Purchase Price") for the purchase of the shares of
the Common Stock covered by such Option, (vi) the period during which such
Option may be exercised, and (vii) the time or times at which Options shall
be granted. The Committee's determinations under the Plan, including the
above enumerated determinations, need not be uniform and may be made by it
selectively among the persons who receive, or are eligible to receive,
Options under the Plan, whether or not such persons are similarly situated.
The interpretation by the Committee of any provision of the Plan or of
any Option Agreement entered into pursuant to the Plan with respect to any
Incentive Option shall be in accordance with Section 422 of the Code and the
regulations issued thereunder, and as such section or regulations may be
amended from time to time, in order that the rights granted hereunder and
pursuant to such Option Agreements shall constitute "incentive stock options"
within the meaning of such section of the Code. The interpretation and
construction by the Committee of any provision of the Plan or of any Option
granted hereunder shall be final and conclusive, unless otherwise determined
by the Board of Directors. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted pursuant to the Plan. Upon
issuing each Option under the Plan, the Committee shall report to the Board
of Directors the name of the person granted such Option, whether such Option
is an Incentive Option or a Nonqualified Option, the number of shares of
Common Stock covered by such Option, and the terms and conditions of such
Option.
(c) CHANGES IN APPLICABLE LAW. If the laws relating to Incentive
Options or Nonqualified Options are changed, altered or amended during the
term of the Plan, the Board of Directors shall have full authority and power
to alter or amend the Plan with respect to Incentive Options or Nonqualified
Options, respectively, to conform to such changes in applicable law without
the necessity of obtaining further shareholder approval thereof, unless any
such change shall require such approval.
4. PERSONS TO WHOM OPTIONS SHALL BE GRANTED.
(a) NONQUALIFIED OPTIONS. Nonqualified Options shall be granted only
to officers, directors, employees and advisors of the Company or a Subsidiary
who, in the judgment of the Committee, are responsible for or contribute to
the management or success of the Company or a Subsidiary and who, at the time
of the granting of such Nonqualified Options, are either officers, directors,
employees or advisors of the Company or a Subsidiary.
1996 STOCK OPTION PLAN - Page 3
<PAGE>
(b) INCENTIVE OPTIONS. Incentive Options shall be granted only to
employees of the Company or a Subsidiary who, in the judgment of the Committee,
are responsible for or contribute to the management or success of the Company or
a Subsidiary and who, at the time of the granting of such Incentive Option are
either an employee of the Company or a Subsidiary. Except as set forth in
Section 7(g) hereof, no person shall be granted an Incentive Option who,
immediately before such Incentive Option was granted, would own more than ten
percent (10%) of the total combined voting power or value of all classes of
capital stock of the Company (a "10% Shareholder").
5. FACTORS TO BE CONSIDERED IN GRANTING OPTIONS. In making any
determination as to individual persons to whom Options shall be granted and
the number of shares to be covered by such Options, the Committee shall take
into account the duties and responsibilities of the respective officers,
directors, employees, or advisors, their current and potential contributions
to the success of the Company or a Subsidiary, and such other factors as the
Committee shall deem relevant for purposes of accomplishing the intents and
purpose of the Plan.
6. TIME OF GRANTING OPTIONS. Neither any provision contained in the
Plan nor any resolution adopted or to be adopted by the Board of Directors or
the Shareholders of the Company or a Subsidiary nor any action taken by the
Committee shall constitute the granting of any Option. The granting of an
Option shall be effected only pursuant to a written option agreement (the
"Option Agreement") acceptable in form and substance to the Committee,
subject to the terms and conditions hereof, including, without limitation,
those provisions set forth in Section 7 hereof, and shall have been duly
executed and delivered by or on behalf of the Company and the person to whom
such Option shall be granted. No person shall have any rights under the Plan
until such time, if any, as a written Option Agreement shall have been duly
executed and delivered as set forth in this Section 6.
7. TERMS AND CONDITIONS OF OPTIONS. All Options granted pursuant to
this Plan must be granted within ten (10) years from the date the Plan is
adopted by the Board of Directors of the Company. Each Option Agreement
governing an Option granted hereunder shall be subject to the following
minimum terms and conditions, and shall contain such other terms and
conditions, not inconsistent therewith, that the Committee shall deem
appropriate:
(a) NUMBER OF SHARES. Each Option shall state the number of shares of
Common Stock covered and represented thereby.
(b) TYPE OF OPTION. Each Option shall state whether it is intended to
be an Incentive Option or a Nonqualified Option.
1996 STOCK OPTION PLAN - Page 4
<PAGE>
(c) OPTION PERIOD.
(i) GENERAL. Each Option shall state the date upon which it is
granted ("Grant Date"). Each Option shall be exercisable in whole or in
part during such period as is provided under the terms of the Option,
subject to any vesting period set forth in the Option, but in no event
shall an Option be exercisable either in whole or in part after the
expiration of ten (10) years from the Grant Date; provided, however, if an
Incentive Option is granted to a 10% Shareholder, such Incentive Option
shall not be exercisable more than five (5) years from the Grant Date.
(ii) TERMINATION OF EMPLOYMENT. No Option shall be exercisable after
the Optionee who is an employee of the Company or a Subsidiary ceases to be
employed by the Company or such Subsidiary for any reason including
voluntary or involuntary termination, death, or disability.
(iii) CESSATION OF SERVICE AS DIRECTOR OR ADVISOR. No Option
shall be exercisable after the Optionee who was a director or advisor of
the Company or a Subsidiary ceases to be a director or advisor of the
Company or such Subsidiary for any reason including voluntary or
involuntary resignation, death or disability.
(d) OPTION PRICES.
(i) NONQUALIFIED OPTIONS. The Purchase Price per share of any
Nonqualified Option shall be the price determined by the Committee.
(ii) INCENTIVE OPTION. The Purchase Price per share of any Incentive
Option offered to any person under the Plan shall be not less then one
hundred percent (100%) of the fair market value of the Common Stock on the
Grant Date, or such greater Purchase Price as may be determined by the
Committee on the Grant Date; provided, however, if an Incentive Option is
granted to a 10% Shareholder, the Purchase Price of the shares of Common
Stock covered by such Incentive Option shall not be less than one hundred
ten percent (110%) of the fair market value of such shares on the Grant
Date. If there is no market price for the Common Stock, then the Board of
Directors and the Committee may, after taking all relevant facts into
consideration, determine the fair market value of the Common Stock.
(e) EXERCISE OF OPTIONS. To the extent that a holder of an Option has a
current right to exercise, such Option shall be deemed exercised when the
Company has received written notice of such exercise at its principal place of
business. Such notice shall state the election to exercise the Option, the
number of whole shares in respect of which it is being exercised, shall be
signed
1996 STOCK OPTION PLAN - Page 5
<PAGE>
by the person or persons so exercising the Option, and shall contain any
investment representation required by Section 7(i) hereof. Such notice shall
be accompanied by payment of the full Purchase Price of such shares in cash
or by tender of shares of Common Stock of the Company, or both, and by the
Option Agreement evidencing the Option. The Company shall deliver a
certificate or certificates representing such shares as soon as practicable
after the aforesaid notice and payment of such shares shall be received. The
certificate or certificates for the shares as to which the Option shall have
been so exercised shall be registered in the name of the person or persons so
exercising the Option. If the Optionee shall so request in the written
notice exercising the Option, the certificates for the Shares issued by the
Company may be registered in the name of the Optionee and another person
jointly, with the right of survivorship, and shall be delivered as provided
above. In the event the Option shall not be exercised in full, the Secretary
of the Company shall endorse or cause to be endorsed on the Option Agreement
the number of shares which has been exercised thereunder and the number of
shares that remain exercisable under the Option and return such Option
Agreement to the holder thereof.
(f) NONTRANSFERABILITY OF OPTIONS. An Option granted pursuant to the
Plan shall be exercisable only by the Optionee during the Optionee's lifetime
and shall not be assignable or transferable by the Optionee otherwise than by
Will or the laws of descent and distribution. An Option granted pursuant to
the Plan and all Shares purchased by exercise of the Option shall not be
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise other than by Will or the laws of descent and distribution),
without the prior written consent of the Company, and shall not be subject to
execution, attachment, or similar process. Any attempted transfer,
assignment, pledge, hypothecation, or other disposition of any Option or of
any rights granted thereunder contrary to the foregoing provisions of this
Section 7(f), or the levy of any attachment or similar process upon an
Option or such rights, shall be null and void.
(g) LIMITATIONS ON 10% SHAREHOLDERS. No Incentive Option may be granted
under the Plan to any 10% Shareholder unless (i) such Incentive Option is
granted at an option price not less than one hundred ten percent (110%) of
the fair market value of the shares on the date such Incentive Option is
granted, and (ii) such Incentive Option expires on a date not later than five
(5) years from the date such Incentive Option is granted.
(h) LIMITS ON VESTING OF INCENTIVE OPTIONS. An individual may be granted
one or more Incentive Options, provided that the aggregate fair market value (as
determined on the Grant Date) of the Common Stock with respect to which
Incentive Options are exercisable for the first time by such individual during
any calendar year shall not exceed One Hundred Thousand Dollars ($100,000.00).
To the extent the One Hundred Thousand Dollars
1996 STOCK OPTION PLAN - Page 6
<PAGE>
($100,000.00) limitation in the preceding sentence is exceeded, such Option
shall be treated as a Nonqualified Option.
(i) COMPLIANCE WITH SECURITIES LAWS. The Plan and the grant and
exercise of the rights to purchase of Common Stock hereunder, and the
Company's obligations to sell and deliver shares of Common Stock upon the
exercise of rights to purchase shares, shall be subject to all applicable
federal and state laws and related rules and regulations, and to such
approvals by any regulatory or governmental agency as may, in the opinion of
counsel for the Company, be required, and shall also be subject to all
applicable rules and regulations of any stock exchange or consolidated
trading system upon which the Common Stock of the Company may then be listed.
At the time of exercise of any Option, the Company may require the Optionee
to execute any documents or take any action which may be then necessary to
comply with the Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations promulgated thereunder, or any other applicable
federal or state laws regulating the sale and issuance of securities, and the
Company may, if it deems it necessary, include provisions in the Option
Agreements to assure such compliance. The Company may, from time to time,
change its requirements with respect to enforcing compliance with federal and
state securities laws, including the request for and enforcement of letters
of investment intent, such requirements to be determined by the Company,
acting in the judgment of and through the Committee, as necessary from time
to time during the term of the Plan to assure compliance with such laws.
Such changes may be made with respect to any particular Option or Common
Stock issued upon exercise thereof. Without limiting the generality of the
foregoing, if the Common Stock issuable upon exercise of an Option granted
under the Plan is not registered under the Securities Act, the Company at the
time of exercise will require that the registered owner execute and deliver
an investment representation agreement to the Company in form acceptable to
the Company and its counsel, and the Company will place a legend on the
certificate evidencing such Common Stock restricting the transfer thereof,
which legend shall be substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES
LAWS. THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE MADE SUBJECT TO A
SECURITY INTEREST, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE
SECURITIES ACT OF 1933 OR STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL FOR THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH
ACT OR STATE SECURITIES LAWS. THESE SHARES ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND A RIGHT OF REPURCHASE BY THE COMPANY AS
SET FORTH IN THE STOCK OPTION AGREEMENT
1996 STOCK OPTION PLAN - Page 7
<PAGE>
BETWEEN THE SHAREHOLDERS OF THE COMPANY, A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY."
(j) ADDITIONAL PROVISIONS. Each Option Agreement authorized under the
Plan shall contain such other provisions as the Committee shall deem
advisable, including, without limitation, restrictions upon the exercise of
such Option. Any such Option Agreement with respect to an Incentive Option
shall contain such limitations and restrictions upon the exercise of such
Incentive Option as shall be necessary in order that the Option will be an
"incentive stock Option" as defined in Section 422 of the Code.
8. MEDIUM AND TIME OF PAYMENT. The Purchase Price of the shares of
Common Stock as to which an Option shall be exercised shall be paid in full
either (i) in cash at the time of exercise of such Option, (ii) by tendering
to the Company shares of Common Stock having a fair market value (as of the
date of receipt of such shares by the Company) equal to the purchase price
for the number of shares of Common Stock purchased, or (iii) partly in cash
and partly in shares of Common Stock valued at fair market value as of the
date of receipt of such shares by the Company. Cash payment for the shares
of the Common Stock purchased upon exercise of any Option shall be in the
form of either a cashier's check, certified check or money order. Personal
checks may be submitted, but will not be considered as payment for the shares
of Common Stock purchased and no certificate evidencing such shares will be
issued until the personal check clears payment through normal banking
channels. If a personal check is not paid upon presentment by the Company,
then the attempted exercise of the Option will be deemed null and void. In
the event the Optionee tenders shares of Common Stock in full or partial
payment for the shares being purchased pursuant to exercise of an Option, the
shares of Common Stock so tendered shall be accompanied by fully executed
stock power(s) endorsed in favor of the Company with the signature on such
stock power(s) being guaranteed. If an Optionee tenders shares, such
Optionee shall thereupon assume sole and full responsibility for the tax
consequences, if any, to such Optionee arising therefrom, including the
possible application of Section 424(c) of the Code, or its successor Code
section, which negates nonrecognition of income with respect to such
transferred shares, if such transferred shares have not been held for the
minimum statutory holding period to qualify for preferential tax treatment.
9. RIGHTS AS A SHAREHOLDER. The holder of an Option shall have no
rights as a shareholder with respect to the shares covered by the Option
until the due exercise of the Option, and the date of issuance of one or more
stock certificates to such holder evidencing such shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date such stock certificate is issued, except as
provided in Section 11 hereof.
1996 STOCK OPTION PLAN - Page 8
<PAGE>
10. RECLASSIFICATION, CONSOLIDATION, OR MERGER. In the event of any
change in the capital structure of the Company through merger, consolidation,
reorganization, recapitalization, stock split, reverse split, stock dividend,
stock issuance (public or private) or other change in the corporate
structure, appropriate adjustment shall be made in the number or purchase
price of the Shares subject to this Agreement and the Purchase Price per
share; provided, however, that a new Option may be substituted for the Option
granted hereunder, or such Option may be assumed by the Company or a parent
or subsidiary of such corporation, in connection with any transaction to
which such Option is applicable.
Without limiting the generality of the foregoing, no adjustment shall be
made with respect to the number or price of the Shares subject to this
Agreement upon the occurrence of any of the following events:
(a) The grant or exercise of any other options which may be granted or
exercised under any Incentive Option or nonqualified stock option plan or
under any other employee benefit plan of the Company whether or not such
options were outstanding on the Grant Date of the Option or thereafter
granted;
(b) The issuance, sale or exchange of Company stock to any private
investor or corporate entity for investment or acquisition purposes;
(c) The issuance, sale or exercise of any warrants to purchase Shares
of common stock whether or not such warrants were outstanding on the Grant
Date of the Option or thereafter issued.
Upon the dissolution or liquidation of the Company other than in
connection with a transaction to which this Section 10 is applicable, the
Option granted under this Agreement shall be terminated and become null and
void, but the Optionee shall have the right subject to any other conditions
set out in the Plan, immediately prior to such dissolution or liquidation to
exercise the Option granted hereunder to the full extent not before exercised.
To the extent that the adjustments set forth in the foregoing paragraphs
of this Section 10 relate to the capital stock or securities of the Company,
such adjustments, if any, shall be made by the Committee, whose determination
in that respect shall be final, binding and conclusive, provided that each
Incentive Option granted pursuant to this Plan shall not be adjusted in a
manner that causes the Incentive Option to fail to continue to qualify as an
"incentive stock option" within the meaning of Section 422 of the Code. The
Company shall give timely notice of any adjustments made to each holder of an
Option under this Plan and such adjustments shall be effective and binding on
the Optionee.
1996 STOCK OPTION PLAN - Page 9
<PAGE>
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge
or to consolidate or to dissolve, liquidate or sell, or transfer all or any
part of its business or assets.
11. INVESTMENT PURPOSE. Each Option under the Plan shall be granted on
the condition that the purchase of the shares of Common Stock thereunder
shall be for investment purposes, and not with a view to resale or
distribution thereof; provided, however, that in the event the shares of
stock subject to such Option are registered under the Securities Act or in
the event a resale of such shares of stock without such registration would
otherwise be permissible, such condition shall be inoperative if in the
opinion of counsel for the Company such condition is not required under the
Securities Act or any other applicable law or regulation, or rule of any
governmental agency.
12. NO OBLIGATION TO EXERCISE OPTION. The granting of an Option
pursuant to the Plan shall impose no obligation upon the Optionee to exercise
such Option.
13. NO RIGHT TO CONTINUED EMPLOYMENT. All Options granted hereunder
shall be in addition to regular salaries, pension, life insurance or other
benefits related to employment with the Company or its Subsidiaries. Neither
the Plan nor any Option granted hereunder shall confer upon any person any
right to continuance of employment by the Company or its Subsidiaries.
14. MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS. Subject to the
terms and conditions and within the limitations of the Plan, the Committee
and the Board of Directors may modify, extend or renew outstanding Options
granted under the Plan, or accept the surrender of outstanding Options, if
applicable, each to the extent not theretofore exercised. Notwithstanding the
foregoing, however, no modification of an Option shall, without the consent
of the Optionee, alter or impair any rights or obligations under any Option
theretofore granted under the Plan.
15. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective on the
date of execution hereof, which date is the date the Board of Directors
approved and adopted the Plan (the "Effective Date"); provided, however, if
the Shareholders of the Company shall not have approved the Plan by the
requisite vote of the Shareholders within twelve (12) months after the
Effective Date, then the Plan shall terminate and all Options theretofore
granted under the Plan shall terminate and be null and void.
16. TERMINATION OF THE PLAN. This Plan shall terminate as of the
expiration of ten (10) years from the Effective Date. Options may be granted
under this Plan at any time and from time to time prior to its termination.
Any Option outstanding under the Plan at
1996 STOCK OPTION PLAN - Page 10
<PAGE>
the time of its termination shall remain in effect until the Option shall
have been exercised or shall have expired.
17. AMENDMENT OF THE PLAN. The Plan may be terminated at any time by
the Board of Directors of the Company. The Board of Directors may at any
time and from time to time without obtaining the approval of the Shareholders
of the Company or a Subsidiary, modify or amend the Plan (including the forms
of Option Agreement hereinabove mentioned) in such respects as it shall deem
advisable; provided, however, any amendment to the Plan shall be approved by
the Shareholders of the Company if the amendment would (i) materially
increase the benefits accruing to participants under the Plan, (ii)
materially increase the number of securities which may be issued under the
Plan, except as provided in Section 11 hereof, or (iii) materially modify the
requirements as to eligibility for participation in the Plan. Without
limiting the generality of the foregoing, the Board of Directors may at any
time and from time to time without obtaining the approval of the Shareholders
of the Company modify or amend the Plan (including the forms of Option
Agreements hereinabove mentioned) to (i) comport with changes in the Code,
the Employee Retirement Income Security Act of 1974 ("ERISA"), or the rules
and regulations thereunder or other applicable laws as amended, (ii) increase
the number of securities issuable to participants under the Plan by less than
ten percent (10%) based on the amount of securities of the Company reserved
and issuable under the Plan as most recently expressly approved by the
Shareholders of the Company, and (iii) adjust the terms of Options previously
granted to reflect a restructuring transaction, such as a holding company
formation, stock split or stock dividend, extraordinary dividend, spin-off or
issuance of repurchase rights. The termination or any modification or
amendment of the Plan shall not, without the consent of the Optionee, affect
such Optionee's rights under any Option theretofore granted to such Optionee.
with the consent of the Optionee to whom such Option was granted, an
outstanding Option may be modified or amended by the Committee in such manner
as it may deem appropriate and consistent with the requirements of the Plan
applicable to the grant of a new Option on the date of modification or
amendment.
18. TAX WITHHOLDING. Whenever an Optionee shall recognize compensation
income as a result of the exercise of any Option granted under the Plan, such
Optionee shall remit in cash to the Company or a Subsidiary the minimum
amount of federal income and employment tax withholding which the Company or
such Subsidiary is required to remit to the Internal Revenue Service in
accordance with the then applicable provisions of the Code. The full amount
of such withholding shall be paid by the Optionee simultaneously with the
exercise of an Option.
19. INDEMNIFICATION OF COMMITTEE. In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against all
the reasonable expenses,
1996 STOCK OPTION PLAN - Page 11
<PAGE>
including, without limitation, attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan or any Option granted thereunder, and against all amounts paid
by them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member is liable for negligence or misconduct
in the performance of his duties; provided that within sixty (60) days after
institution of any such action, suit or proceeding a Committee member shall
in writing offer the Company the opportunity, at its own expense, to pursue
and defend the same.
20. APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of Common Stock pursuant to Options granted hereunder will be used
for general corporate purposes.
21. GOVERNING LAW. Except to the extent governed by the applicable
provisions of the Code or Federal securities laws, this Plan shall be
governed by and construed in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, this Plan is executed by the undersigned officer of
Adams Golf, Inc., being hereunto duly empowered and authorized, on this 10th day
of April, 1996.
ADAMS GOLF, INC.
By: /s/ B. H. Adams
------------------------------
B. H. Adams, President
1996 STOCK OPTION PLAN - Page 12
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as
of the ____ day of April, 1998, by and among ADAMS GOLF, INC., a Delaware
corporation (the "Company"), and the undersigned stockholders of the Company
(collectively, the "Stockholders").
IN CONSIDERATION OF the agreement by the Stockholders to terminate the
Stockholder's Agreement dated December 20, 1995 (the "Stockholder's
Agreement") by and among the Stockholders and the Company and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company hereby grants (1) to the Stockholders listed on
ANNEX A attached hereto certain rights to include shares of the Company's
common stock, par value $.001 per share (the "Common Stock"), held by such
Stockholders on the date hereof in the Company's initial underwritten public
offering (the "IPO") and (2) to each of the Stockholders, certain demand and
piggyback registration rights arising after, and existing for a period of
five (5) years from, the closing of the IPO with respect to the shares of
Common Stock held by the undersigned on the date hereof, in each case, on the
terms and conditions set forth below. As used in this Agreement, the term
"Holders" (whether singular or plural) includes only the Stockholders holding
Registrable Shares (as hereinafter defined) and other persons holding
Registrable Shares to whom registration rights have been transferred in
compliance with Section 4(c) hereof. Additionally, as used herein,
"Registrable Shares" shall mean (i) shares of Common Stock held by the
Stockholders on the date hereof (or subsequently transferred pursuant to
Section 4(c) hereof) and (ii) any Common Stock issued as a dividend or other
distribution with respect to or in exchange for or in replacement of the
shares referenced in (i) above; PROVIDED, HOWEVER, that Registrable Shares
shall not include any shares of Common Stock (x) which have previously been
registered or which have been sold to the public either pursuant to a
registration statement or Rule 144 promulgated under the Securities Act of
1933, as amended (the "Act"), (y) which are held by a Stockholder and whose
aggregate number is less than the amount of securities that may be sold in
any three month period in reliance upon Rule 144 (e) promulgated under the
Act, irrespective of whether the other requirements of Rule 144 have been
satisfied to allow for the sale of such shares thereunder or (z) which have
been sold in a private transaction in which the transferor's rights under
this Agreement are not assigned.
1. REQUESTED REGISTRATIONS.
(a) If the Company shall receive from any Holder or Holders who in
the aggregate hold not less than Forty Percent (40%) of the outstanding
Registrable Shares (the "Initiating Holders") at any time not earlier than
the latter of (i) the expiration of any applicable "lock-up" period
prescribed by the underwriters in connection with an IPO and (ii) the date on
which the Company shall become eligible to use the Form S-3 registration
statement (or any successor to such form) for the purpose of registering
outstanding securities for the account of any person other than the Company,
a written request that the Company effect any registration with respect to
all or a part of the Registrable Shares, the Company will:
<PAGE>
(i) promptly give written notice of the proposed registration to
all other Holders; and
(ii) as soon as practicable, use reasonable commercial efforts to
effect such registration (including, without limitation, filing post-
effective amendments, appropriate qualifications under applicable blue
sky or other state securities laws, and appropriate compliance with
the Act) as would permit or facilitate the sale and distribution of
all or such portion of such Registrable Shares as are specified in
such request, together with all or such portion of the Registrable
Shares of any Holder or Holders joining in such request as are
specified in a written request received by the Company within twenty
(20) days after such written notice from the Company is mailed or
delivered.
(b) The Company shall not be obligated to effect, or to take any
action to effect, any registration pursuant to Section 1(a):
(i) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in
effecting such registration, qualification, or compliance, unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Act;
(ii) after the Company has initiated one (1) such registration
pursuant to Section 1(a) (counting for this purpose only a
registration statement which has been declared or ordered effective by
the U.S. Securities and Exchange Commission (the "Commission") and
maintained for a period of seventy-five (75) total days);
(iii) during the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred eighty (180) days after the effective
date of, a Company-initiated registration; provided that the Company
is actively employing in good faith all commercially reasonable
efforts to cause such registration statement to become effective; or
(iv) if the Company has given a Notice of Incidental Registration
Rights (as defined in Section 2(a) below).
(c) Subject to clauses (i) - (iv) of Section 1(b) above, the
Company shall file a registration statement covering the Registrable Shares
so requested to be registered as soon as practicable after receipt of the
request of the Initiating Holders; PROVIDED, HOWEVER, that if (i) in the good
faith judgment of the Board of Directors of the Company, such registration
would be detrimental to the Company and the Board of Directors of the Company
concludes, as a result, that it is necessary to defer the filing of such
registration statement at such time, and (ii) the Company shall furnish to
such Holders a certificate signed by the President of the Company
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<PAGE>
stating that in the good faith judgment of the Board of Directors of the
Company, it would be detrimental to the Company for such registration
statement to be filed in the near future and that it is, therefore, necessary
to defer the filing of such registration, then the Company shall have the
right to defer such filing for a period of not more than one hundred eighty
(180) days after receipt of the request of the Initiating Holders.
(d) The registration statement filed pursuant to the request of the
Initiating Holders may include other securities of the Company, with respect
to which registration rights have been granted, and may include securities of
the Company being sold for the account of the Company.
(e) The Company will pay all costs and expenses necessary to effect
the registration of Registrable Shares pursuant to Section 1(a), including
the fees and expenses of its counsel, the fees and expenses of its
accountants, all other costs and expenses incident to the preparation,
printing and filing under the Act of any such registration statement, each
prospectus and all amendments and supplements thereof, the cost of furnishing
to the Holders copies of such registration statement, each preliminary
prospectus, the final prospectus and each amendment and supplement thereto,
all expenses incident to delivery of the Registrable Shares to any
underwriter or underwriters, but the Company will not pay any underwriting
commissions and discounts and brokerage commissions and fees payable with
respect to Registrable Shares by any Holder or any legal fees and expenses
incurred by any Holder.
(f) If, after the Company has effected the registration specified
in Section 1(a) (as determined in accordance with Section 1(b)(ii) hereof),
the Company shall receive from any Holder or Holders who in the aggregate
hold not less than Fifty Percent (50%) of the then outstanding Registrable
Shares (the "Triggering Holders"), a written request that the Company effect
any registration with respect to all or a part of the Registrable Shares, the
Company will:
(i) promptly give written notice of the proposed registration to
all other Holders; and
(ii) as soon as practicable, use reasonable commercial efforts to
effect such registration (including, without limitation, filing post-
effective amendments, appropriate qualifications under applicable blue
sky or other state securities laws, and appropriate compliance with
the Act) as would permit or facilitate the sale and distribution of
all or such portion of such Registrable Shares as are specified in
such request, together with all or such portion of the Registrable
Shares of any Holder or Holders joining in such request as are
specified in a written request received by the Company within twenty
(20) days after such written request from the Company is mailed or
delivered.
(g) The Company shall not be obligated to effect, or take any
action to effect, any registration pursuant to Section 1(f):
3
<PAGE>
(i) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in
effecting such registration, qualification, or compliance, unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Act;
(ii) after the Company has initiated two (2) such registrations
pursuant to Section 1(f) (counting for this purpose only registration
statements which have been declared or ordered effective by the
Commission and maintained for a period of 75 total days);
(iii) during the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred eighty (180) days after the effective
date of, a Company-initiated registration; provided that the Company
is actively employing in good faith all commercially reasonable
efforts to cause such registration statement to become effective; or
(iv) if the Company has given a Notice of Incidental
Registration.
(h) Subject to clauses (i) - (iv) of Section 1(g) above, the
Company shall file a registration statement covering the Registrable Shares
so requested to be registered as soon as practicable after receipt of the
request of the Triggering Holders; PROVIDED, HOWEVER, that if (i) in the good
faith judgment of the Board of Directors of the Company, such registration
would be detrimental to the Company and the Board of Directors of the Company
concludes, as a result, that it is necessary to defer the filing of such
registration statement at such time, and (ii) the Company shall furnish to
such Holders a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company it
would be detrimental to the Company for such registration statement to be
filed in the near future and that it is, therefore, necessary to defer the
filing of such registration, then the Company shall have the right to defer
such filing for a period of not more than one hundred eighty (180) days after
receipt of the request of the Triggering Holders.
(i) Each of the registration statements filed pursuant to the
request of the Triggering Holders may include other securities of the
Company, with respect to which registration rights have been granted, and may
include securities of the Company being sold for the account of the Company.
(j) The Triggering Holders, together with the other Holders joining
in such registration, shall, on a pro rata basis, pay all costs and expenses
necessary to effect the registrations of Registrable Shares pursuant to
Section 1(f), including the fees and expenses of the Company's counsel, the
fees and expenses of the Company's accountants, all of the costs and expenses
incident to the preparation, printing and filing under the Act of any such
registration statement, each prospectus and all amendments and supplements
thereof, the cost of furnishing to the Holders copies of such registration
statement, each preliminary prospectus, the final
4
<PAGE>
prospectus and each amendment and supplement thereto, all expenses incident
to delivery of the Registrable Shares to any underwriter or underwriters, any
underwriting commissions and discounts and brokerage commissions and fees
payable with respect to Registrable Shares sold by any Holder or any legal
fees and expenses incurred by any Holder. The Company may require, as a
precondition to commencing work on any registration statement filed in
accordance with Section 1(f) hereof, that the Triggering Holders, together
with the other Holders joining therein, provide a reasonable and customary
retainer to the Company and/or its advisors in order to offset certain of the
expenses contemplated hereby.
2. INCIDENTAL REGISTRATIONS.
(a) If at any time during the five (5) calendar years after the
consummation (which shall mean closing and funding) of an IPO of the Company,
the Company shall propose to register any Common Stock under the Act,
pursuant to a registration statement other than on Form S-4 or S-8 or any
successor to such forms (and specifically excluding the registration
statement relating to an IPO and all prospectus supplements and
post-effective amendments relating thereto) the Company shall give written
notice (the "Notice of Incidental Registration Rights") of such proposed
registration to all Holders as then reflected on its records. The Company
agrees to use reasonable commercial efforts to include in any such
registration statement the Registrable Shares held by any Holder who shall
deliver to the Company, not more than ten (10) days after receipt of the
Notice of Incidental Registration Rights, a written request for such
inclusion. Such written request may specify all or a part of a Holder's
Registrable Shares.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the Notice of Incidental Registration Rights
given pursuant to Section 2(a). In such event, the right of any Holder to
registration pursuant to this Section 2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Shares in the underwriting to the extent provided
herein. All Holders proposing to distribute their Registrable Shares through
such underwriting shall (together with the Company) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company. If the managing
underwriter of such registration advises the Company in writing that in its
opinion the total number or dollar amount of securities requested to be
included in such registration exceeds the number or dollar amount of shares
of Common Stock that can be sold in such offering, the Company will include
in such offering: (i) first, all shares of Common Stock the Company proposes
to sell; (ii) second, up to the full number or dollar amount of Registrable
Shares requested by Holders to be included in such registration in excess of
the number or total dollar amount of shares of Common Stock the Company
proposes to sell which, in the opinion of such underwriter, can be sold,
allocated pro rata among the Holders on the basis of the number of
Registrable Shares requested to be included therein by each such Holder.
5
<PAGE>
(c) Upon the occurrence of each proposed registration under Section
2(a), unless the Company shall determine to terminate the same, the Company
will:
(i) as soon as practicable, use reasonable commercial efforts to
effect such registration (including, without limitation, filing post-
effective amendments, appropriate qualifications under applicable blue
sky or other state securities laws, and appropriate compliance with
the Act) as would permit or facilitate the sale and distribution of
the Registrable Shares which the Company has been requested to
register; and
(ii) use reasonable commercial efforts to have such registration
statement declared effective.
(d) The Company will pay all costs and expenses necessary to effect
the registration of Registrable Shares pursuant to Section 2(a), including
the fees and expenses of its counsel, the fees and expenses of its
accountants, all other costs and expenses incident to the preparation,
printing and filing under the Act of any such registration statement, each
prospectus and all amendments and supplements thereof, the cost of furnishing
to the Holders copies of such registration statement, each preliminary
prospectus, the final prospectus and each amendment and supplement thereto,
all expenses incident to delivery of the Registrable Shares to any
underwriter or underwriters, but the Company will not pay any underwriting
commissions and discounts and brokerage commissions and fees payable with
respect to Registrable Shares sold by any Holder or any legal fees and
expenses incurred by any Holder.
3. REGISTRATION IN CONNECTION WITH IPO.
(a) The Company hereby agrees to use reasonable commercial efforts
to permit the Stockholders to include up to that number of shares of Common
Stock listed next to each such Stockholder's name on ANNEX A attached hereto
("Secondary Shares") in the registration statement relating to the Company's
IPO.
(b) Each of the Stockholders hereby acknowledges and agrees that
the registration relating to the IPO involves an underwriting. As such, each
of the Stockholder's right to participation pursuant to this Section 3 shall
be conditioned upon such Stockholder's participation in such underwriting and
the inclusion of such Stockholder's Secondary Shares in the underwriting to
the extent provided herein. All Stockholders agree to enter into an
underwriting agreement in form acceptable to the Company with the
representative of the underwriters selected by the Company. If the managing
underwriter of such registration advises the Company in writing that in its
opinion the total number or dollar amount of securities requested to be
included in such registration exceeds the number or dollar amount of shares
of Common Stock that can be sold in the IPO or that the aggregate number of
Secondary Shares to be included in such registration exceeds the number that
should be sold in the IPO given the current state of the market or such other
factors as the managing underwriter deems relevant, the Company will include
in such offering: (i) first, all shares of Common Stock the Company
6
<PAGE>
proposes to sell; and (ii) second, up to the whole number of Secondary Shares
held by the Stockholders in excess of the number of shares of Common Stock
the Company proposes to sell which, in the sole opinion of such underwriter,
can or should be sold, allocated pro rata among the Stockholders on the basis
of the number of Secondary Shares held by each Stockholder.
(c) Upon the occurrence of the proposed IPO, unless the Company
shall determine to terminate the IPO, the Company will (i) as soon as
practicable, use reasonable commercial efforts to effect such registration
(including, without limitation, filing post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws, and
appropriate compliance with the Act) as would permit or facilitate the sale
and distribution of the Secondary Shares; and (ii) use reasonable commercial
efforts to have such registration statement declared effective.
(d) The Company will pay all costs and expenses necessary to
effect the registration of the Secondary Shares in the IPO pursuant to this
Section 3, including the fees and expenses of its counsel, the fees and
expenses of its accountants, all other costs and expenses incident to the
preparation, printing and filing under the Act of any such registration
statement, each prospectus and all amendments and supplements thereof, the
cost of furnishing to the Stockholders copies of such registration statement,
each preliminary prospectus, the final prospectus and each amendment and
supplement thereto, all expenses incident to delivery of the Secondary Shares
to any underwriter or underwriters, but the Company will not pay any
underwriting commissions and discounts and brokerage commissions and fees
payable with respect to the Secondary Shares sold by any Stockholder or any
legal fees and expenses incurred by any Stockholder.
4. ADDITIONAL AGREEMENTS REGARDING REGISTRATION.
(a) In addition to the obligations set forth elsewhere herein, the
Company shall (in connection with any registration effected under Sections 1(a),
1(f), 2(a) or 3(a) hereof):
(i) notify the Holders participating therein, of the time when
the registration statement has been declared effective;
(ii) prepare and promptly file with the Commission and promptly
notify the Holders of the filing of such amendment or supplement to
such registration statement or prospectus as may be necessary to
correct any statement or omission, if at any time when a prospectus
relating to any security is required to be delivered under the Act,
any event shall have occurred as a result of which any such prospectus
or any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
7
<PAGE>
(iii) in case the Holders or any underwriter for the Holders is
required to deliver a prospectus, at a time when the prospectus then
in effect may no longer be used under the Act, prepare such amendment
or amendments to such registration statement and such prospectus or
prospectuses as may be necessary to permit compliance with the
requirements of Section 10 of the Act;
(iv) advise the Holders promptly after it shall receive notice or
obtain knowledge thereof of the issuance of any stop order by the
Commission suspending the effectiveness of any such registration
statement or of the initiation or threatening of any proceeding for
that purpose; and
(v) furnish to the Holders as soon as available one copy of any
such registration statement and such reasonable number of copies of
each preliminary or final prospectus, or supplement required to be
prepared pursuant to this Agreement that each Holder may request.
(b) Each Holder who has any Registrable Shares included in any
registration statement (whether the Registrable Shares are included under
Sections 1(a), 1(f), 2(a) or 3(a) hereof) agrees by acquisition of such
Registrable Shares as follows:
(i) To furnish to the Company, in writing, such appropriate
information and covenants regarding the proposed methods of sale or
other disposition of the Registrable Shares as the Company, any
underwriter, the Commission and/or any state or other regulatory
authority may request;
(ii) To execute, deliver and/or file with or supply to the
Company, any underwriter, the Commission and/or any state or other
regulatory authority such information, documents, representations,
undertakings and/or agreements (A) necessary to carry out the
provisions of this Agreement, (B) necessary to effect the registration
or qualification of the Registrable Shares under the Act and/or any of
the laws and regulations of any jurisdiction, and (C) as the Company
may reasonably require to ensure the transfer or disposition of the
Registrable Shares is not in violation of the Act or any applicable
state securities laws;
(iii) To furnish to the Company, not later than every thirty (30)
days after the date of effectiveness of the applicable registration
statement, a report of the number of Registrable Shares sold during
such previous thirty-day (30) period;
(iv) To cancel any orders to sell and/or to reverse any sales of
Registrable Shares which, in the reasonable belief of the Company,
based upon the opinion of legal counsel experienced in securities law
matters, orders and/or sales were effected in violation of the Act or
any applicable state securities laws;
8
<PAGE>
(v) That, upon actual receipt of any notice from the Company (A)
of the happening of any event of the kind described in
Section 4(a)(iv); (B) regarding the suspension of the qualification or
exemption from qualification of a registration statement or any of the
Registrable Shares in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose; (C) of the happening
of any event, the existence of any condition or any information
becoming known (including, without limitation, pending corporate
developments, acquisitions, public filings or other material
non-public information) that requires the making of any changes in or
amendments or supplements to the registration statement so that it
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which
they were made, not misleading; or (D) of the determination by the
Company that a prospectus supplement or post-effective amendment to
the registration statement would be appropriate, THEN, and in each
such event, such Holder will forthwith discontinue disposition of such
Registrable Shares covered by such registration statement until such
Holder's receipt of the Company's written notice that the use of the
prospectus forming a part of the registration statement may be
resumed; and
(vi) That, without in any way limiting the Company's right to
suspend the effectiveness or usefulness of any registration statement
pursuant to Section 4(b)(v) above, the Company has no obligation to
keep any registration statement filed hereunder effective for any
period longer than seventy five (75) total days.
(c) The rights to cause the Company to register securities granted
to a Holder by the Company under either Section 1 or Section 2 may be
transferred or assigned by a Holder only to a transferee or assignee of not
less than 50,000 Registrable Shares (as presently constituted and subject to
subsequent adjustments for stock splits, stock dividends, reverse stock
splits, and the like), provided that the Company is given written notice at
the time of or within a reasonable time after said transfer or assignment,
stating the name and address of the transferee or assignee and identifying
the securities with respect to which such registration rights are being
transferred or assigned, and, provided further, that the transferee or
assignee of such rights assumes in writing the obligations of such Holder
under this Agreement.
5. [Intentionally Omitted]
6. INDEMNIFICATION.
(a) The Company will indemnify and hold harmless each Holder and
any underwriter (as defined in the Act) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the Act
against any losses, claims, damages or liabilities (or actions in respect
thereof), joint or several, to which such Holder or underwriter or such
controlling person may become subject, under the Act or otherwise, insofar as
such losses,
9
<PAGE>
claims, damages or liabilities (or actions in respect thereof) are caused by
any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which the Registrable Shares
were registered under the Act, any prospectus contained therein, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and will reimburse
the Holder, underwriter and each such controlling person for any legal or
other expenses reasonably incurred by such Holder, underwriter or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or actions in respect thereof; PROVIDED, HOWEVER, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage, liability or action in respect thereof arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with written information furnished by
such Holder or underwriter in writing for use in the preparation thereof.
(b) Each Holder will indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed said registration
statement and each underwriter, and each person, if any, who controls (within
the meaning of the Act) the Company or any underwriter against any losses,
claims, damages or liabilities (or actions in respect thereof) to which the
Company, or any such director, officer, underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) are caused by any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said prospectus, or amendment or amendments or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statement therein, in light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made or not made in reliance
upon and in conformity with written information furnished by the Holder for
use in the preparation thereof; and will reimburse any legal or other expense
reasonably incurred by the Company or any such director, officer, underwriter
or controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party pursuant hereto
of notice of any claims to which indemnity would apply or the commencement of
any action, such indemnified party will, if a claim thereof is to be made
against the indemnifying party pursuant hereto, notify the indemnifying party
of the commencement thereof; but the omission so to notify the indemnifying
party will not relieve the indemnifying party from any liability which it may
have to any indemnified party except to the extent the indemnifying party is
prejudiced from said failure to notify. In the event such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party.
10
<PAGE>
(d) If the indemnification provided for in this Section 6 is held
by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred
to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim, damage,
or expense in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and the indemnified party on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(e) Notwithstanding the foregoing, and to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with any underwritten public offering
are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
7. TRANSFER WITHOUT REGISTRATION. The Common Stock shall not be
transferred, and the Company shall not be required to register any transfer
of any shares of the Common Stock on the books of the Company, unless the
Company shall have been provided with an opinion of counsel satisfactory to
it prior to such transfer that registration under the Act and applicable
state securities laws is not required in connection with the transaction
resulting in such transfer; PROVIDED, HOWEVER, that no such opinion of
counsel shall be required in order to effectuate a transfer pursuant to an
effective registration of the Registrable Shares. Each certificate issued
upon any transfer of the Common Stock transferred as above provided shall
bear an appropriate restrictive legend, except that such certificate shall
not bear such restrictive legend if the opinion of counsel referred to above
is to the further effect that such legend is not required in order to
establish compliance with the provisions of the Act or if such transfer is
made in accordance with the provisions of Rule 144 promulgated under the Act.
8. EXPIRATION. This Agreement and all registration rights granted to
the Holders hereunder will expire on the fifth anniversary of the date of
closing of am IPO of the Company unless terminated sooner or extended
pursuant to Section 9 hereof.
9. MODIFICATION AND TERMINATION. This Agreement shall not be modified
or extended, or terminated prior to the expiration hereof, except by a
written agreement signed by the parties hereto.
10. SURVIVAL. The indemnification provisions contained in Section 6 of
this Agreement will survive the expiration or earlier termination of this
Agreement for a period of time not to exceed the limitation period under
applicable statutes of limitation barring actions arising out of this
Agreement or the transactions contemplated hereby.
11
<PAGE>
11. COUNTERPARTS. This Agreement may be executed in multiple original
counterparts, each of which shall serve as an original for all purposes, but
all such counterparts together shall constitute one and the same Agreement.
[SIGNATURE PAGE FOLLOWS]
12
<PAGE>
EXECUTED as of the ______ day of _______________, 1998.
COMPANY:
ADAMS GOLF, INC.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
STOCKHOLDERS:
ROYAL HOLDING COMPANY, INC.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
------------------------------------
B. H. (BARNEY) ADAMS
------------------------------------
FINIS CONNER
------------------------------------
ROLAND E. CASATI
S-1
<PAGE>
------------------------------------
RICHARD URDAHL
LINCOLN TRUST COMPANY
By:
---------------------------------
Custodian FBO Richard Urdahl
------------------------------------
CLYDE B. SMITH
------------------------------------
PEGGY SMITH
------------------------------------
STEVE ADAMS
ADDITIONAL SELLING STOCKHOLDERS:
------------------------------------
(SIGNATURE)
Name:
---------------------------------
Address:
---------------------------------
---------------------------------
S-2
<PAGE>
ANNEX A
-------
STOCKHOLDERS
<TABLE>
NAME SHARES OF COMMON STOCK (PRE-SPLIT)
- ---- ----------------------------------
<S> <C>
Royal Holding Company, Inc. 3,702,719
Roland Casati 919,300
B. H. Adams 2,320,384
Finis Conner 971,388
Clyde and Peggy Smith 300,579
Steve Adams 125,000
Lincoln Trust Company, Custodian FBO
Richard Urdahl 58,296
Richard Murtland 166,976
Mark D. Gonsalves 166,660
Faris McMullin 55,869
Hank Haney 44,413
Carleen C. Casati 40,000
Rolanda H. & Kevork M. Derderian 40,000
Lauralee C. & Brandt T. Pfeifer 35,000
Nick Aquilino 29,553
Patty Walsh 13,552
Max Puglielli 12,152
Joni LaBauve 11,456
Rod Grettler 8,400
Don Hall 5,600
August F. and Evelyn Machura 5,000
Damon Troutman 5,000
James and Linda Conner 5,000
Lauralee C. Pfeifer, cust. for Allison C. Pfeifer 5,000
Lauralee C. Pfeifer, cust. for Brandt E. Pfeifer 5,000
Lauralee C. Pfeifer, cust. for Katelyn M. Pfeifer 5,000
Rolanda H. Derderian, cust. for Kevork Gregory Derderian 5,000
Rolanda H. Derderian, cust. for Tiana E. Derderian 5,000
Royce and Cherly Conner 5,000
William and Lurla Conner 5,000
Pete Cassady 4,200
Jim Beard 3,472
Mark Puglielli 3,472
Kim Calhoun 2,800
Carleen C. Casati, cust. for Andrea Boyd 2,500
Carleen C. Casati, cust. for Lydia Boyd 2,500
Richard Urdahl 1,400
Kevin and Lucia Machura 1,000
Kevin Machura as Trustee for Kyle Machura 500
Kevin Machura as Trustee for Stephen Machura 500
</TABLE>
<PAGE>
The parties hereto agree that the number of Secondary Shares to be
included by each of the Stockholders in the IPO shall be determined by
reference to the following:
(SxP) x (N divided by T), where:
S = the aggregate number of shares of Common Stock (including Company
shares and Secondary Shares) to be sold to the Underwriters in the
IPO;
P = the percentage of Secondary Shares included in the IPO, as determined
by the Underwriters and the Company in their reasonable discretion;
N = the number of shares of Common Stock requested to be included by such
Stockholder pursuant to that Waiver, Participation Notice and Consent
signed by the Stockholder; and
T = the total number of shares of Common Stock requested to be
included by all Stockholders.
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT (this "AGREEMENT") is entered into as
of the 27th day of February, 1998 by and between ADAMS GOLF DIRECT RESPONSE,
LTD., a Texas limited partnership, and ADAMS GOLF, LTD., a Texas limited
partnership (each a "BORROWER" and collectively, "BORROWERS"), and
NATIONSBANK OF TEXAS, N.A., a national banking association ("LENDER").
W I T N E S S E T H:
1. Borrowers have requested that Lender provide Borrowers with a
revolving credit and letter of credit facility to fund operating capital and
for other lawful general corporate purposes.
2. Lender is willing to provide such a facility to Borrowers upon the
terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises herein contained
and for other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITION OF TERMS
1.1 DEFINITIONS. As used in this Agreement, all exhibits and schedules
hereto and in any note, certificate, report, or other Loan Documents made or
delivered pursuant to this Agreement, the following terms have the respective
meanings assigned to them in this SECTION 1 or in the SECTION or recital
referred to below:
"ADJUSTED EURODOLLAR RATE" means, with respect to any Interest Period,
an interest rate per annum (rounded upwards, if necessary, to the next 1/16th
of 1%) equal to the quotient of (a) the Eurodollar Rate with respect to such
Interest Period, DIVIDED BY (b) the remainder of 1.00 MINUS the Eurodollar
Reserve Requirement in effect on such date.
"ADVANCE" means (a) the disbursement by Lender of a sum or sums lent to
any Borrower pursuant to this Agreement, (b) the conversion of a Borrowing
from one type of Borrowing to another type of Borrowing pursuant to SECTION
2.14, and (c) the continuation of a Eurodollar Borrowing to a new Interest
Period pursuant to SECTION 2.14.
"ADVANCE DATE" has the meaning set forth in SECTION 2.2(a).
"AFFILIATE" of any Person means any other Person directly or indirectly,
controlling, controlled by, or under common control with, such Person.
"AFTER-ACQUIRED SUBSIDIARY" has the meaning set forth in SECTION 6.13.
"AGI" means Adams Golf, Inc., a Delaware corporation.
REVOLVING CREDIT AGREEMENT
<PAGE>
"AGREEMENT" means this Revolving Credit Agreement, including the
SCHEDULES and EXHIBITS hereto, as the same may be renewed, extended, amended,
or modified from time-to-time.
"APPLICABLE MARGIN" means, at the time of determination thereof, the
interest margin over the Base Rate or the Adjusted Eurodollar Rate, as the
case may be, as follows:
<TABLE>
APPLICABLE MARGIN
APPLICABLE MARGIN EURODOLLAR
BASE RATE BORROWINGS BORROWINGS
-------------------- ----------
<S> <C>
- 0.25% 1.75%
</TABLE>
"BASE RATE" means the variable rate of interest established from
time-to-time by Lender as its general reference rate of interest (which rate
of interest may not be the lowest rate charged by Lender on similar loans).
Each change in the Base Rate shall become effective without prior notice to
Borrowers automatically as of the opening of business on the date of such
change in the Base Rate.
"BASE RATE BORROWING" means any portion of the Principal Debt with
respect to which the interest rate is calculated by reference to the Base
Rate.
"BORROWING" means a Eurodollar Borrowing or a Base Rate Borrowing.
"BUSINESS DAY" means (a) for all purposes, any day OTHER THAN a
Saturday, Sunday, or day on which national banks are authorized to be closed
under the laws of the State of Texas, and (b) for purposes of any Eurodollar
Borrowing, a day that satisfies the requirements of CLAUSE (a) and is a day
when commercial banks are open for domestic or international business in
London.
"CAPITAL LEASE" means, for any Person, any capital lease or sublease
that has been (or under GAAP should be) capitalized on a balance sheet of
such Person.
"CASH INTEREST EXPENSE" means (without duplication), for the Companies
for any period, total interest expense in respect of Indebtedness actually
paid or that is payable during such period, including, without limitation,
all commissions, discounts, and other fees and charges with respect to
letters of credit, but excluding interest expense not payable in cash, all as
determined in accordance with GAAP.
"CHANGE IN CONTROL" means (a) AGI shall cease to own, directly or
indirectly, one hundred percent (100%) of all of the issued and outstanding
capital Stock of each other Company, or (b) except as a result of an initial
public offering of AGI's Common Stock, Persons owning Stock in AGI as of the
date hereof shall cease to own at least fifty-one percent (51%) of the issued
and outstanding Stock in AGI.
"CODE" means the INTERNAL REVENUE CODE OF 1986, as amended, and all
regulations promulgated and rulings issued thereunder.
"COLLATERAL" has the meaning set forth in SECTION 3.1.
REVOLVING CREDIT AGREEMENT -2-
<PAGE>
"COLLATERAL DOCUMENTS" means all security agreements, pledge agreements,
guaranty agreements, and other agreements or documents executed or delivered
to secure repayment of the Obligation or any part thereof.
"COMMITMENT USAGE" means, as of any date, THE SUM OF (a) the Principal
Debt PLUS (b) the LC Exposure.
"COMPANIES" means Borrowers and Guarantors, and "COMPANY" means any one
of the Companies.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of EXHIBIT A, executed by an authorized officer of each Borrower, stating
that a review of the activities of the Companies during the subject period
has been made under such Person's supervision and that the Companies have
performed each and every obligation and covenant contained herein and the
other Loan Documents and are not in default under any of the same or, if any
such default shall have occurred, then specifying the nature and status
thereof, and setting forth a computation in reasonable detail as of the end
of the period covered by such statements, of compliance with SECTIONS 7.15,
7.16 and 7.17.
"CONSOLIDATED ADJUSTED NET INCOME" means, for the Companies for any
period, consolidated net earnings (after income taxes) determined in
accordance with GAAP, but excluding (a) extraordinary gains, (b) gains due to
sales or write-up of assets, (c) earnings of any Person newly acquired, if
earned prior to acquisition, or (d) gains due to acquisitions of any Stock of
any Company.
"CONSOLIDATED TANGIBLE NET WORTH" means, as of any date, the total
shareholder's equity of the Companies LESS the aggregate book value of all
Intangible Assets of the Companies.
"CONSTITUENT DOCUMENTS" means, with respect to any Person, its articles
or certificate of incorporation, bylaws, partnership agreements,
organizational documents, limited liability company agreements, trust
agreement, or such other document as may govern such Person's formation,
organization, and management.
"CONTRACT RATE" means (a) with respect to a Base Rate Borrowing, the
Base Rate PLUS the Applicable Margin, and (b) with respect to a Eurodollar
Borrowing, the Adjusted Eurodollar Rate PLUS the Applicable Margin.
"DEBTOR LAWS" means all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency,
reorganization, or similar laws from time-to-time in effect affecting the
rights of creditors generally.
"DIVIDENDS" means, with respect to any Stock issued by any Person, (a)
the retirement, redemption, purchase, or other acquisition for value of such
Stock by such Person, (b) the declaration or payment of any dividend or
distribution on or with respect to such Stock by such Person, and (c) any
other payment by such Person with respect to such Stock.
"ENVIRONMENTAL LAWS" means any Legal Requirements pertaining to air,
emissions, water discharge, noise emissions, solid or liquid waste disposal,
hazardous waste or materials, industrial hygiene, or other environmental,
health, or safety matters or conditions on, under or about real property or
any portion thereof, and similar laws of any Governmental Authority having
jurisdiction over real property as
REVOLVING CREDIT AGREEMENT -3-
<PAGE>
such Legal Requirements may be amended or supplemented from time-to-time, and
regulations promulgated and rulings issued pursuant to such laws.
"EQUITY ISSUANCE" means the issuance or sale by any Company of any
Stock, or any options, warrants, or other rights to subscribe for or
otherwise acquire Stock, of such Company.
"ERISA" means the EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, as
amended, and the regulations and published interpretations thereunder.
"ERISA AFFILIATE" means any Subsidiary or trade or business (whether or
not incorporated) which is a member of a group of which any Company is a
member and which is under common control with any Company within the meaning
of SECTION 414 of the Code.
"EURODOLLAR BORROWING" means any portion of the Principal Debt with
respect to which the interest rate is calculated by reference to the Adjusted
Eurodollar Rate for a particular Interest Period.
"EURODOLLAR RATE" means, for any Eurodollar Borrowing for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of one percent) equal to the rate appearing on the Dow Jones
Markets Page 3750 (or any successor page) as the London interbank offered
rate for deposits in Dollars at approximately 11:00 a.m. (London time) two
(2) Business Days prior to the first (1st) day of such Interest Period for a
term comparable to such Interest Period. If for any reason such rate is not
available, then such rate shall be the rate appearing on the Reuters Screen
LIBO Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two (2) Business Days prior to the
first (1st) day of the such Interest Period for a term comparable to such
Interest Period; PROVIDED, HOWEVER, if more than one rate is specified on the
Reuters Screen LIBO Page, then the applicable rate shall be the arithmetic
mean of all such rates. If neither of such rates are available, then such
rate shall be determined on the basis of the rates at which deposits in
United States dollars are offered by Lender at approximately 11:00 a.m.
(London time) on the day that is two (2) Business Days preceding the first
(1st) day of the relevant Interest Period to prime banks in the London
interbank market and for a period equal to such Interest Period commencing on
the first (1st) day of such Interest Period.
"EURODOLLAR RESERVE REQUIREMENT" means, on any day, that percentage
(expressed as a decimal fraction) that is in effect on such day, as provided
by the Board of Governors of the Federal Reserve System (or any successor
governmental body) applied for determining the maximum reserve requirements
(including, without limitation, basic, supplemental, marginal and emergency
reserves) under REGULATION D with respect to "EUROCURRENCY LIABILITIES" as
currently defined in REGULATION D, or under any similar or successor
regulation with respect to Eurocurrency liabilities or Eurocurrency funding.
Each determination by Lender of the Eurodollar Reserve Requirement shall, in
the absence of manifest error, be conclusive and binding.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.1.
"FIXED CHARGES" means, for the Companies, for any period, the sum of (a)
Cash Interest Expense, (b) operating lease expenses, and (c) rent expenses.
"FUNDING LOSS" has the meaning set forth in SECTION 2.16(e).
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<PAGE>
"GAAP" means those generally accepted accounting principles and
practices, applied on a consistent basis, which are recognized as such by the
American Institute of Certified Public Accountants acting through its
Accounting Principles Board and the Financial Accounting Standards Board
and/or their respective successors and which are applicable in the
circumstances as of the date in question.
"GOVERNMENTAL AUTHORITY" means, with respect to any Person, any
government (or any political subdivision or jurisdiction thereof), court,
bureau, agency, or other governmental authority having jurisdiction over such
Person or any of its business, operations, or properties.
"GOVERNMENTAL AUTHORIZATION" means any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise
made available by or under the authority of any Governmental Authority or
pursuant to any Legal Requirement.
"GUARANTORS" means AGI, Adams Golf Holding Corp., a Delaware
corporation, Adams Golf GP Corp., a Delaware corporation, Adams Golf
Management Corp., a Delaware corporation, Adams Golf IP, L.P., a Delaware
limited partnership, and each other After-Acquired Subsidiary of AGI.
"GUARANTY" of any Person means any contract or understanding of such
Person pursuant to which such Person guarantees, or in effect guarantees, any
Indebtedness of any other Person (the "PRIMARY OBLIGOR") in any manner,
whether directly or indirectly, including agreements to assure the holder of
the Indebtedness of the Primary Obligor against loss in respect thereof;
PROVIDED THAT "GUARANTY" shall not include endorsements, in the ordinary
course of business, of negotiable instruments or documents for deposit or
collection.
"HAZARDOUS MATERIAL" means any hazardous, toxic, or dangerous waste,
substance, or material defined as such in or for the purpose of any
Environmental Law.
"INDEBTEDNESS" means, for any Person, all Liabilities of such Person,
excluding accounts payable, deferred taxes, deferred liabilities, and accrued
expenses in each case incurred in the ordinary course of business and the
payment of which is not past-due (unless payment is being contested in good
faith by appropriate proceedings diligently conducted and for which adequate
reserves are maintained in accordance with GAAP).
"INTANGIBLE ASSETS" of any Person means those assets of such Person
which are (a) deferred assets, OTHER THAN prepaid insurance and prepaid
taxes, (b) patents, copyrights, trademarks, tradenames, franchises, goodwill,
experimental expenses, and other similar assets which would be classified as
intangible assets on a balance sheet of such Person, (c) unamortized debt
discount and expense, and (d) assets located, and notes and receivables due
from obligors domiciled, outside of the United States of America.
"INTANGIBLE RIGHTS" means, for any Person, any permits, franchises,
licenses, patents, trademarks, trade names, intellectual property rights,
technology, know-how, and processes of such Person.
"INTEREST PERIOD" means, with respect to a Eurodollar Borrowing, a
period commencing:
(a) on the Advance Date thereof; or
(b) on the conversion date pertaining to such Eurodollar Borrowing, if
such Eurodollar Borrowing is made pursuant to a conversion as described in
SECTION 2.13; or
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<PAGE>
(c) on the last day of the preceding Interest Period in the case of a
rollover to a successive Interest Period;
and ending one (1) month or three (3) or six (6) months thereafter, as
Borrowers shall elect in accordance with SECTION 2.13 or SECTION 2.14,
PROVIDED THAT:
(i) any Interest Period that would otherwise end on a day which is not
a Business Day shall be extended to the next succeeding Business Day, UNLESS
such Business Day falls in another calendar month in which case such Interest
Period shall end on the next preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month or at the end of such Interest Period) shall,
subject to CLAUSE (i) above, end on the last Business Day of a calendar
month; and
(iii) if the Interest Period for any Eurodollar Borrowing would
otherwise end after the final maturity date of the Note, then such Interest
Period shall end on the final maturity date of the Note.
"INVESTMENT" in any Person means any investment, whether by means of
Stock purchase, loan, advance, extension of credit, capital contribution, or
otherwise, in or to such Person, the Guaranty of any Indebtedness of such
Person, or the subordination of any claim against such Person to other
Indebtedness of such Person.
"LC" means a documentary or standby letter of credit issued for the
account of Borrowers by Lender under this Agreement and under an LC Agreement.
"LC AGREEMENT" means a letter of credit application and agreement (in
form and substance satisfactory to Lender) executed by Borrowers and
submitted to Lender for an LC for the account of Borrowers.
"LC EXPOSURE" means, without duplication, the SUM of (a) the total face
amount of all undrawn and uncancelled LCs PLUS (b) the total unpaid
reimbursement obligations of Borrowers under drawings under any LC.
"LC REQUEST" means a request substantially in the form of EXHIBIT B
executed by a responsible officer of each Borrower.
"LC SUB-FACILITY" means a sub-facility of the Revolving Credit
Commitment for the issuance of LCs, as described in SECTION 2.3, under which
the LC Exposure (a) may never collectively exceed $5,000,000, and (b)
TOGETHER WITH the Principal Debt may never exceed the Revolving Credit
Commitment.
"LEGAL REQUIREMENT" means any federal, state, local, municipal, foreign,
international, multi-national, or other administrative order, constitution,
law, ordinance, principle of common law, regulation, statute, or treaty as in
effect on the date in question.
"LIABILITIES" means (without duplication), with respect to any Person,
all indebtedness, obligations, and liabilities of such Person, including
without limitation (a) all "LIABILITIES" which would be reflected on a
balance sheet of such Person, (b) all obligations of such Person in respect
of any Guaranty, letter of credit, or bankers' acceptance, (c) all
obligations of such Person in respect of any Capital Lease, (d) all
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<PAGE>
obligations, indebtedness, and liabilities secured by any lien or any
security interest on any property or assets of such Person, and (e) any
obligation to redeem or repurchase any of such Person's Stock.
"LIEN" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness,
whether arising by agreement or under any statute or law, or otherwise.
"LOAN DOCUMENTS" means this Agreement, the Note, the Collateral
Documents, and any agreements, documents (and with respect to this Agreement,
and such other agreements and documents, any renewals, extensions,
amendments, or supplements thereto), or certificates at any time executed or
delivered pursuant to the terms of this Agreement.
"MATERIAL ADVERSE EFFECT" means any material adverse changes in, or
effect upon, (a) the validity, performance or enforceability of any Loan
Documents, (b) the financial condition or business operations of any Company,
or (c) the ability of any Company to fulfill its obligations under the Loan
Documents.
"MAXIMUM RATE" means the highest non-usurious rate of interest (if any)
permitted from day to day by applicable law. Lender hereby notifies and
discloses to Borrowers that, for purposes of Tex. Rev. Civ. Stat. Ann. art.
5069-1D.001 (codified in the TEXAS FINANCE CODE Section 303.001), as it may
from time to time be amended, the "APPLICABLE CEILING" shall be the "MONTHLY
CEILING" from time to time in effect as limited by article 5069-1D.009
(codified in the TEXAS FINANCE CODE Section 303.305); PROVIDED, HOWEVER,
that to the extent permitted by applicable law, Lender reserves the right to
change the "APPLICABLE CEILING" from time to time by further notice and
disclosure to Borrowers.
"MULTI-EMPLOYER PLAN" means a multi-employer plan as defined in SECTIONS
3(37) or 4001(a)(3) of ERISA or SECTION 414 of the Code to which any Company
or any ERISA Affiliate is making, or has made, or is accruing, or has
accrued, an obligation to make contributions.
"NET PROCEEDS" means, with respect to any Equity Issuance by any
Company, the amount of cash received by such Company in connection with such
transaction after deducting therefrom the aggregate, without duplication, of
the following amounts to the extent properly attributable to such
transaction: (a) reasonable brokerage commissions, attorneys' fees, finder's
fees, financial advisory fees, accounting fees, underwriting fees, investment
banking fees, and other similar commissions and fees (and expenses and
disbursements of any of the foregoing), in each case, to the extent paid by
such Company; (b) printing and related expenses and filing, recording, or
registration fees or charges or similar fees or charges paid by such Company;
and (c) taxes paid or payable by such Company to any Governmental Authority
as a result of such transaction.
"NOTE" means the Revolving Credit Note executed by Borrowers and
delivered pursuant to the terms of this Agreement, together with any
renewals, extensions, or modifications thereof.
"NOTICE OF BORROWING" means a notice in the form of EXHIBIT C attached
hereto.
"OBLIGATION" means all present and future Indebtedness, obligations, and
Liabilities and all renewals and extensions thereof, or any part thereof, now
or hereafter owed to Lender by Borrowers, whether arising pursuant to any of
the Loan Documents, or otherwise, and all modifications, amendments,
renewals, extensions, and restatements thereof, together with all interest
accruing thereon and costs, expenses, and attorneys' fees incurred in the
enforcement or collection thereof.
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<PAGE>
"OTHER TAXES" has the meaning set forth in SECTION 2.17.
"PBGC" means the Pension Benefit Guaranty Corporation, and any successor
to all or any of the Pension Benefit Guaranty Corporation's functions under
ERISA.
"PERSON" shall include an individual, corporation, joint venture,
general or limited partnership, trust, unincorporated organization, or
government, or any agency or political subdivision thereof.
"PERMITTED LIENS" means (a) Liens in favor of Lender to secure the
Obligation, (b) pledges or deposits made to secure payment of worker's
compensation (or to participate in any fund in connection with worker's
compensation), unemployment insurance, pensions, or social security programs,
(c) Liens imposed by mandatory provisions of law such as for materialmen's,
mechanic's, warehousemen's, and other like Liens arising in the ordinary
course of a Company's business, securing Indebtedness whose payment is not
yet due, (d) Liens for taxes imposed upon a Person or upon such Person's
income, profits, or property, if the same are not yet due and payable or if
the same are being contested in good faith and for which adequate reserves
are maintained in accordance with GAAP, (e) good faith deposits in connection
with leases, real estate bids or contracts (OTHER THAN contracts involving
the borrowing of money), pledges or deposits to secure (or in lieu of)
surety, stay, appeal, or customs bonds and deposits to secure the payment of
taxes, assessments, customs, duties, or other similar charges, (f)
encumbrances consisting of zoning restrictions, easements, or other
restrictions on the use of real property, PROVIDED THAT such encumbrances do
not impair the use of such property for the uses intended, and none of which
is violated by existing or proposed structures or land use, and (g) Liens
described on EXHIBIT F, and Liens resulting from the refinancing of the
related Indebtedness secured thereby, PROVIDED THAT the Indebtedness secured
thereby shall not be increased and the Liens shall not cover additional
assets of any Company.
"PLAN" means an employee benefit plan or other plan maintained by any
Company or any ERISA Affiliate and which is covered by TITLE IV of ERISA or
subject to the minimum funding standards under SECTION 412 of the Code, as
amended.
"PLANO FACILITY" means the Companies new facility located at 2801 East
Plano Parkway, Plano, Texas.
"POTENTIAL DEFAULT" means the occurrence of any event which with passage
of time or giving of notice or both would become an Event of Default.
"PRINCIPAL DEBT" means, as of any date, the sum of the outstanding
principal balance of all outstanding Borrowings hereunder as of such date.
"REPORTABLE EVENT" has the meaning assigned to that term in TITLE IV of
ERISA, but shall not include an event with respect to which the PBGC has
waived the reporting requirement by regulation.
"REPRESENTATIVES" means representatives, officers, directors, employees,
attorneys, and agents.
"REVOLVING CREDIT COMMITMENT" means $10,000,000.00, as the same may be
decreased by Borrowers pursuant to SECTION 2.1 or terminated by Lender
pursuant to SECTION 8.2.
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<PAGE>
"SOLVENT" means, as to a Person, that (a) the aggregate fair market
value of its assets exceeds its Liabilities, (b) such Person is able to pay
and is paying its Liabilities as they mature, and (c) it does not have
unreasonably small capital to conduct its businesses.
"STOCK" means all shares, options, warrants, general or limited
partnership interests, membership interests, or other ownership interests
(regardless of how designated) of or in a corporation, partnership, limited
liability company, trust, or other entity, whether voting or nonvoting,
including common stock, preferred stock, or any other "EQUITY SECURITY" (as
such term is defined in RULE 3a11-1 of the GENERAL RULES AND REGULATIONS
promulgated by the Securities and Exchange Commission under the SECURITIES
EXCHANGE ACT OF 1934, as amended).
"SUBSIDIARY" means any corporation of which more than fifty percent
(50%) (in number of votes) of the issued and outstanding Stock having
ordinary voting power for the election of at least a majority of the
directors is owned or controlled, directly or indirectly, by AGI, any
Subsidiary of AGI, or any combination thereof.
"TAXES" has the meaning set forth in SECTION 2.17.
"TEMPORARY CASH INVESTMENT" means any Investment (a) in direct
obligations of the United States of America or any agency thereof, or
obligations fully guaranteed by the United States of America or any agency
thereof, PROVIDED THAT such obligations mature within one (1) year of the
date of acquisition thereof, (b) commercial paper rated in the highest grade
by two (2) or more national credit rating agencies and maturing not more than
180 days from the date of creation thereof, and (c) time deposits with, and
certificates of deposit and bankers' acceptances issued by, Lender or any
United States bank having capital surplus and undivided profits aggregating
at least $1,000,000,000.00.
"TERMINATION DATE" means the earlier of (a) December 31, 1998, (b) the
date Lender's commitment to fund Advances hereunder is terminated pursuant to
SECTION 8.2, or (c) the date that Lender's commitment to fund Advances
hereunder is reduced to zero pursuant to SECTION 2.1.
"UNUSED COMMITMENT" means, as of any date, (a) the Revolving Credit
Commitment, MINUS (b) the Commitment Usage.
1.2 ACCOUNTING TERMS. As used in this Agreement, and in any
certificate, report, or other document made or delivered pursuant to this
Agreement, accounting terms not defined in SECTION 1.1, and accounting terms
partly defined in SECTION 1.1 to the extent not defined, have, as of any
date, the respective meanings given to them under GAAP and all references to
balance sheets or other financial statements means such statements, prepared
in accordance with GAAP as of such date.
1.3 RULES OF CONSTRUCTION. When used in this Agreement: (a) "OR" is
not exclusive; (b) a reference to a law includes any amendment or
modification to such law; (c) a reference to a Person includes its permitted
successors and permitted assigns; (d) except as provided otherwise, all
references to the singular shall include the plural and VICE VERSA; (e)
except as provided in this Agreement, a reference to an agreement,
instrument, or document shall include such agreement, instrument, or document
as the same may be amended, modified, renewed, extended, restated, or
supplemented from time to time in accordance with its terms and as permitted
by the Loan Documents; (f) all references to SECTIONS, SCHEDULES, or EXHIBITS
shall be to Sections, Schedules, or Exhibits of this Agreement, unless
otherwise indicated; (g) all EXHIBITS to this Agreement shall be incorporated
into this Agreement; (h) the words
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<PAGE>
"INCLUDE," "INCLUDES," and "INCLUDING" shall be deemed to be followed by the
phrase "WITHOUT LIMITATION;" and (i) except as otherwise provided herein, in
the computation of time from a specified date to a later specified date, the
word "FROM" means "FROM AND INCLUDING" and words "TO" and "UNTIL" each mean
"to but excluding."
1.4 JOINT AND SEVERAL.
(a) All representations contained herein shall be deemed individually
made by each Borrower, and each of the covenants, agreements, and obligations
set forth herein shall be deemed to be the joint and several covenants,
agreements, and obligations of each Borrower. Any notice, request, consent,
report, or other information or agreement delivered to Lender by any Borrower
shall be deemed to be ratified by, consented to, and also delivered by each
other Borrower. Each Borrower recognizes and agrees that each covenant and
agreement of a "BORROWER" and "BORROWERS" in this Agreement and in any other
Loan Document shall create a joint and several obligation of such entities,
which may be enforced against such entities jointly or against each entity
separately.
(b) Each Borrower hereby irrevocably and unconditionally agrees: (i)
that it is jointly and severally liable to Lender for the full and prompt
payment of the Obligation and the performance by each other Borrower of its
obligations hereunder in accordance with the terms hereof; (ii) to fully and
promptly perform all of its obligations hereunder with respect to the
Obligation; and (iii) as a primary obligation to indemnify Lender on demand
for and against any loss incurred by Lender as a result of any of the
obligations of any one or more of Borrowers being or becoming void, voidable,
unenforceable, or ineffective for any reason whatsoever, whether or not known
to Lender or any Person, the amount of such loss being the amount which
Lender would otherwise have been entitled to recover from any one or more
Borrowers.
SECTION 2
THE REVOLVING CREDIT LOAN
2.1 THE REVOLVING CREDIT COMMITMENT. Subject to the terms and
conditions of this Agreement, Lender agrees to extend to Borrowers, from the
date hereof through the Termination Date, a revolving line of credit which
shall not exceed at any one time outstanding the then-current Revolving
Credit Commitment. Within the limits of this SECTION 2.1, during such period,
Borrowers may borrow, repay, and reborrow the Unused Commitment in accordance
with this Agreement. Borrowers shall have the right, upon three (3) Business
Days' prior written notice to Lender, to permanently reduce the unutilized
portion of the Revolving Credit Commitment; PROVIDED THAT if any such
reduction does not reduce the Revolving Credit Commitment to $0.00, then any
partial reduction shall be in the minimum amount of $1,000,000.00 or a
greater integral multiple of $500,000.00.
2.2 MANNER OF BORROWING.
(a) NOTICE OF BORROWING. Borrowers may request an Advance by
submitting to Lender a Notice of Borrowing (in writing or by telephone
followed by written notice within one (1) Business Day), which is irrevocable
and binding on Borrowers. Each Notice of Borrowing must be received by
Lender no later than 10:00 a.m. (Dallas, Texas time) on the third (3rd)
Business Day before the date on which funds are requested (the "ADVANCE
DATE") for any Advance that will be a Eurodollar Borrowing or no later
REVOLVING CREDIT AGREEMENT -10-
<PAGE>
than 10:00 a.m. (Dallas, Texas time) on the Advance Date for any Advance that
will be a Base Rate Borrowing.
(b) MINIMUM ADVANCES. Each Advance under the Revolving Credit
Commitment shall be in an amount of $100,000.00 or a greater integral
multiple of $50,000.00.
(c) FUNDING. Subject to the terms and conditions in this Agreement,
by not later than 2:00 p.m., Dallas, Texas time, on the date specified,
Lender shall make available to Borrowers, at Lender's offices in Dallas,
Texas, the amount of a requested Advance under the Revolving Credit
Commitment in immediately available funds.
2.3 LETTERS OF CREDIT.
(a) CONDITIONS. Subject to the terms and conditions of this Agreement,
Lender agrees, if requested by Borrowers, to issue LCs upon Borrowers' making
or delivering an LC Request and delivering an LC Agreement, both of which
must be received by Lender no later than the third (3rd) Business Day before
the Business Day on which the requested LC is to be issued, PROVIDED THAT (i)
no LC may expire after a date that is one (1) month before the Termination
Date, (ii) the LC Exposure may not exceed the limitations set forth in the
definition of LC Sub-facility, and (iii) each LC must expire no later than
one (1) year following the date of its issuance.
(b) REIMBURSEMENT OBLIGATION. To induce Lender to issue and maintain
LCs, Borrowers agree, jointly and severally, to pay or reimburse Lender (i)
on the first (1st) Business Day after Lender notifies Borrowers that Lender
has made payment under an LC, the amount paid by Lender, and (ii) within
three (3) Business Days after demand, the amount of any additional fees
Lender customarily charges for amending LCs Agreements, for honoring drafts
under LCs, and for taking similar action in connection with letters of
credit. If Borrowers have not reimbursed Lender for any drafts paid by the
date on which reimbursement is required under this SECTION, then Lender is
irrevocably authorized to fund Borrowers' reimbursement obligations as a Base
Rate Borrowing if the conditions in this Agreement for such a Borrowing
(OTHER THAN any notice requirements or minimum funding amounts) have been
satisfied. The proceeds of such Borrowing shall be advanced directly to
Lender to pay Borrowers' unpaid reimbursement obligations. If funds cannot
be advanced as a result of Borrowers' failure to satisfy any condition
precedent set forth in SECTION 4, then Borrowers' reimbursement obligation
shall constitute a demand obligation. Borrowers' obligations under this
SECTION are absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim, or defense to payment that any
Borrower may have at any time against Lender or any other Person. From the
date that Lender pays a draft under a LC until Borrowers either reimburse or
are obligated to reimburse Lender for such draft under this SECTION, the
amount of such draft bears interest payable to Lender at the rate then
applicable to Base Rate Borrowings. From the due date of the respective
amounts due under this SECTION, to the date paid (including any payment from
proceeds of a Base Rate Borrowing), unpaid reimbursement amounts accrue
interest that is payable on demand at the default rate set forth in SECTION
2.10.
(c) GENERAL. Lender shall promptly notify Borrowers of the date and
amount of any draft presented for honor under any LC (but failure to give
notice will not affect Borrowers' obligations under this Agreement). Lender
shall pay the requested amount upon presentment of a draft unless presentment
on its face does not comply with the terms of the applicable LC. When making
payment, Lender may disregard (i) any default or potential default that
exists under any other agreement, and (ii) obligations under any other
agreement that have or have not been performed by the beneficiary or any
other Person
REVOLVING CREDIT AGREEMENT -11-
<PAGE>
(and Lender is not liable for any of those obligations). Borrowers'
reimbursement obligations to Lender under this SECTION are absolute and
unconditional irrespective of, and Lender is not responsible for, (i) the
validity, enforceability, sufficiency, accuracy, or genuineness of documents
or endorsements (even if they are in any respect invalid, unenforceable,
insufficient, inaccurate, fraudulent, or forged), (ii) any dispute by any
Company with or any Company's claims, setoffs, defenses, counterclaims, or
other rights against Lender or any other Person, or (iii) the occurrence of
any Potential Default or Event of Default. However, nothing in this
Agreement constitutes a waiver of Borrowers' rights to assert any claim or
defense based upon the gross negligence or willful misconduct of Lender or
its Representatives.
(d) DUTIES OF LENDER. Lender and each Borrower agree that, in paying
any draft under any LC, Lender has no responsibility to obtain any document
(OTHER THAN any documents expressly required by the respective LC) or to
ascertain or inquire as to any document's validity, enforceability,
sufficiency, accuracy, or genuineness or the authority of any Person
delivering it. Neither Lender nor its Representatives will be liable to any
Company for any LC's use or for any beneficiary's acts or omissions
(INCLUDING, WITHOUT LIMITATION, ANY ACTS OR OMISSIONS CONSTITUTING ORDINARY
NEGLIGENCE). Any action, inaction, error, delay, or omission taken or
suffered by Lender or any of its Representatives in connection with any LC,
applicable drafts or documents, or the transmission, dispatch, or delivery of
any related message or advice, if in good faith and in conformity with
applicable Legal Requirements and in accordance with the standards of care
specified in the UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS (1993
REVISION), INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 500 (as amended
or modified), is binding upon the Companies and Lender and, except as
provided in SECTION 2.3(d), does not place Lender or any of its
Representatives under any resulting liability to any Company. Lender is not
liable to any Company for any action taken or omitted, in the absence of
gross negligence or willful misconduct, by Lender or its Representative in
connection with any LC.
(e) CASH COLLATERAL. On the Termination Date and if requested by
Lender while a Potential Default or Event of Default exists, then Borrowers
shall provide Lender cash collateral in an amount to equal the then-existing
LC Exposure.
(f) INDEMNIFICATION. EACH BORROWER SHALL PROTECT, INDEMNIFY, PAY, AND
SAVE LENDER AND ITS REPRESENTATIVES, HARMLESS FROM AND AGAINST ANY AND ALL
CLAIMS, DEMANDS, LIABILITIES, DAMAGES, COSTS, CHARGES, AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES) WHICH ANY OF THEM MAY INCUR OR BE
SUBJECT TO AS A CONSEQUENCE OF THE ISSUANCE OF ANY LC, ANY DISPUTE ABOUT IT,
OR THE FAILURE OF LENDER TO HONOR A DRAW REQUEST UNDER ANY LC AS A RESULT OF
ANY ACT OR OMISSION (WHETHER RIGHT OR WRONG) OF ANY PRESENT OR FUTURE
GOVERNMENTAL AUTHORITY. ALTHOUGH LENDER AND ITS REPRESENTATIVES HAVE THE
RIGHT TO BE INDEMNIFIED UNDER THIS AGREEMENT FOR ITS OR THEIR OWN ORDINARY
NEGLIGENCE, NO PERSON IS ENTITLED TO INDEMNITY UNDER THE FOREGOING FOR ITS
OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(g) LC AGREEMENTS. Although referenced in any LC, terms of any
particular agreement or other obligation to the beneficiary are not
incorporated into this Agreement in any manner. The fees and other amounts
payable with respect to each LC are as provided in this Agreement, drafts
under each LC are part of the Obligation, only the events specified in this
Agreement as a Default shall constitute a default under any LC or LC
Agreement, and the terms of this Agreement control any conflict between the
terms of this Agreement and any LC Agreement.
REVOLVING CREDIT AGREEMENT -12-
<PAGE>
2.4 COMMITMENT FEES.
(a) UNUSED FEE. Borrowers agree to pay to Lender a commitment fee
equal to one-quarter of one percent (0.25%) per annum on the daily Unused
Commitment. Such commitment fee shall be payable quarterly in arrears on the
last day of each March, June, September, and December during the term hereof,
commencing on March 31, 1998, and continuing regularly thereafter so long as
the Revolving Credit Commitment is in effect, and on the Termination Date.
(b) LC FEES. Borrowers agree to pay to Lender, as a condition
precedent to the issuance (including the extension) of each LC, an issuance
fee payable on the date of issuance equal to (i) two percent (2%) per annum
of the face amount of such LC on the date of issuance for a standby LC, and
(ii) the greater of (A) $125.00, and (B) one-quarter of one percent (0.25%)
per annum of the face amount of such LC on the date of issuance, for a
documentary LC.
(c) GENERALLY. Borrowers acknowledge that the commitment fees payable
hereunder are bona fide commitment fees and are intended as reasonable
compensation to Lender for committing to make funds available to Borrowers as
described herein and for no other purposes.
2.5 NOTE. The Principal Debt shall be evidenced by the Note in form
and substance satisfactory to Lender executed by Borrowers, which Note shall
be (a) dated the date hereof, (b) in the amount of $10,000,000.00, and (c)
payable to the order of Lender.
2.6 INTEREST AND PRINCIPAL PAYMENTS.
(a) INTEREST PAYMENTS. Accrued interest on each Eurodollar Borrowing
shall be due and payable on the last day of its respective Interest Period.
If any Interest Period is a period greater than three (3) months, then
accrued interest shall also be due and payable on the date ending each three
(3) month period after the commencement of the Interest Period. Accrued
interest on each Base Rate Borrowing shall be due and payable on the last day
of each March, June, September, and December during the term hereof,
commencing on March 31, 1998, with a final scheduled interest payment on all
Borrowings on the Termination Date; PROVIDED, HOWEVER, that accrued interest
on each Base Rate Borrowing shall also be due and payable upon conversion of
such Base Rate Borrowing to a Eurodollar Borrowing pursuant to SECTION 2.14.
(b) PRINCIPAL PAYMENTS. The unpaid Principal Debt shall be due and
payable on the Termination Date.
(c) OPTIONAL PREPAYMENTS. Borrowers shall have the right, from
time-to-time, to prepay the unpaid Principal Debt, in whole or in part,
without premium or penalty (EXCEPT FOR any Funding Loss), upon the payment of
accrued interest on the amount prepaid to and including the date of payment;
PROVIDED, HOWEVER, that partial prepayments of principal shall be in an
amount equal to $100,000.00 or a greater integral multiple of $50,000.00 (or,
if less, the unpaid Principal Debt).
2.7 MANNER AND APPLICATION OF PAYMENTS. All payments and prepayments
by Borrowers on account of principal, interest, and fees hereunder shall be
made in immediately available funds. All such payments shall be made to
Lender at its principal office in Dallas, Texas, not later than 12:00 noon,
Dallas, Texas time, on the date due and funds received after that hour shall
be deemed to have been
REVOLVING CREDIT AGREEMENT -13-
<PAGE>
received by Lender on the next following Business Day. If any payment is
scheduled to become due and payable on a day which is not a Business Day,
then such payment shall instead become due and payable on the immediately
following Business Day and interest on the principal portion of such payment
shall be payable at the then applicable rate during such extension. All
payments made on the Note shall be applied first to accrued interest and then
to principal (in the inverse order of maturity in the case of prepayments).
2.8 INTEREST OPTIONS. Except where specifically otherwise provided,
Borrowings bear interest at an annual rate equal to the lesser of EITHER (a)
THE SUM OF (i) the Base Rate or the Adjusted Eurodollar Rate (in each case as
designated or deemed designated by Borrowers), as the case may be, PLUS (ii)
the Applicable Margin, OR (b) the Maximum Rate. Each change in the Base Rate
and the Maximum Rate is effective, without notice to Borrowers or any other
Person, upon the effective date of change.
2.9 QUOTATION OF RATES. A responsible officer of Borrowers may call
Lender before delivering a Notice of Borrowing to receive an indication of
the interest rates then in effect, but the indicated rates do not bind Lender
or affect the interest rate that is actually in effect when Borrowers deliver
a Notice of Borrowing.
2.10 DEFAULT RATE. If permitted by law, all past-due principal of and
accrued interest on the Note bears interest from maturity (stated or by
acceleration) at the Maximum Rate, or if there is no Maximum Rate in effect,
then fourteen percent (14%) per annum, until paid, regardless whether payment
is made before or after entry of a judgment.
2.11 INTEREST RECAPTURE. If the Contract Rate applicable to any
Borrowing exceeds the Maximum Rate, then the interest rate on that Borrowing
is limited to the Maximum Rate, but any subsequent reductions in the Contract
Rate shall not reduce the interest rate thereon below the Maximum Rate until
the total amount of accrued interest equals the amount of interest that would
have accrued if Contract Rate had always been in effect. If at maturity
(stated or by acceleration) the total interest paid or accrued is less than
the interest that would have accrued if the Contract Rates had always been in
effect, then, at that time and to the extent permitted by law, Borrowers
shall pay an amount equal to the difference between (a) the lesser of the
amount of interest that would have accrued if the Contract Rates had always
been in effect and the amount of interest that would have accrued if the
Maximum Rate had always been in effect, and (b) the amount of interest
actually paid or accrued on the Note.
2.12 INTEREST CALCULATIONS.
(a) Interest shall be calculated on the basis of actual number of days
(including the first day but excluding the last day) elapsed but computed as
if each calendar year consisted of 360 days (unless the calculation would
result in an interest rate greater than the Maximum Rate, in which event
interest will be calculated on the basis of a year of 365 or 366 days, as the
case may be). All interest rate determinations and calculations by Lender
are conclusive and binding absent manifest error.
(b) The provisions of this Agreement relating to calculation of the
Base Rate and the Eurodollar Rate are included only for the purpose of
determining the rate of interest or other amounts to be paid under this
Agreement that are based upon those rates. Lender may fund and maintain its
funding of all or any part of each Borrowing as it selects.
REVOLVING CREDIT AGREEMENT -14-
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2.13 SELECTION OF INTEREST OPTION. On making a Notice of Borrowing under
SECTION 2.2(a), Borrowers shall advise Lender as to whether the Advance shall be
(a) a Eurodollar Borrowing, in which case Borrowers shall specify the applicable
Interest Period therefor, or (b) a Base Rate Borrowing. Notwithstanding
anything to the contrary contained herein, (a) no more than three (3) Interest
Periods shall be in effect at any one time with respect to Eurodollar
Borrowings, (b) Borrowers shall have no right to request a Eurodollar Borrowing
if the interest rate applicable thereto would exceed the Maximum Rate in effect
on the first day of the Interest Period applicable to such Borrowing, and (c)
each Eurodollar Borrowing shall be in the amount of $250,000.00 or a greater
integral multiple of $50,000.00.
2.14 ROLLOVERS AND CONVERSIONS. Borrowers may (a) convert a Eurodollar
Borrowing on the last day of the applicable Interest Period to a Base Rate
Borrowing, (b) convert a Base Rate Borrowing at any time to a Eurodollar
Borrowing, and (c) elect a new Interest Period for a Eurodollar Borrowing, by
giving a Notice of Borrowing to Lender no later than 12:00 noon on the third
(3rd) Business Day before the conversion date or the last day of the Interest
Period, as the case may be (for conversion to a Eurodollar Borrowing or election
of a new Interest Period), and no later than 12:00 noon one (1) Business Day
before the last day of the Interest Period (for conversion to an Base Rate
Borrowing); PROVIDED THAT each Eurodollar Borrowing shall be in the amount of
$250,000.00 or a greater integral multiple of $50,000.00. Absent Borrowers'
Notice of Borrowing, a Eurodollar Borrowing shall be deemed converted to a Base
Rate Borrowing effective when the applicable Interest Period expires.
2.15 BOOKING BORROWINGS. To the extent permitted by law, Lender may make,
carry, or transfer its Borrowings at, to, or for the account of any of its
branch offices or the office of any of its Affiliates. However, no Affiliate is
entitled to receive any greater payment under SECTION 2.16(b) than Lender would
have been entitled to receive with respect to those Borrowings. Lender agrees
that it will use its reasonable efforts (consistent with its internal policies
and applicable law) to make, carry, maintain, or transfer its Borrowings with
its Affiliates or branch offices in an effort to eliminate or reduce to the
extent possible the aggregate amounts due to it under SECTIONS 2.16(b) and
2.16(c) if, in its reasonable judgment, such efforts will not be disadvantageous
to it.
2.16 SPECIAL PROVISIONS FOR EURODOLLAR BORROWINGS.
(a) BASIS UNAVAILABLE OR INADEQUACY OF EURODOLLAR LOAN PRICING. If with
respect to an Interest Period for any Eurodollar Borrowing, (a) Lender
determines that, by reason of circumstances affecting the interbank eurodollar
market generally, deposits in Dollars (in the applicable amounts) are not being
offered to or by Lender in the interbank eurodollar market for such Interest
Period, or (b) Lender determines that the Eurodollar Rate as determined by
Lender will not adequately and fairly reflect the cost to Lender of maintaining
or funding the Eurodollar Borrowing for such Interest Period, then Lender shall
forthwith give notice thereof to Borrowers, whereupon until Lender notifies
Borrowers that the circumstances giving rise to such suspension no longer exist,
(i) the obligation of Lender to make Eurodollar Borrowings shall be suspended,
and (ii) Borrowers shall either (A) repay in full the then-outstanding principal
amount of the Eurodollar Borrowings, together with accrued interest thereon on
the last day of the then current Interest Period applicable to such Eurodollar
Borrowings, or (B) convert such Eurodollar Borrowings to Base Rate Borrowings in
accordance with SECTION 2.14 on the last day of the then-current Interest Period
applicable to each such Eurodollar Borrowing.
(b) ILLEGALITY. If, after the date of this Agreement, the adoption of any
applicable law, rule, or regulation, or any change therein, or any change in the
interpretation or administration thereof by any Governmental Authority, central
bank, or comparable agency charged with the interpretation or
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administration thereof, or compliance by Lender with any request or directive
(whether or not having the force of law) of any such authority, central bank,
or comparable agency shall make it unlawful or impossible for Lender to make,
maintain or fund Eurodollar Borrowings, then Lender shall so notify
Borrowers. Before giving any notice pursuant to this SECTION, Lender shall
designate a different Eurodollar lending office if such designation will
avoid the need for giving such notice and will not be otherwise
disadvantageous to any non-trivial extent to Lender (as determined in good
faith by Lender). Upon receipt of such notice, Borrowers shall either (i)
repay in full the then outstanding principal amount of all Eurodollar
Borrowings, together with accrued interest thereon, or (ii) convert each
Eurodollar Borrowing to a Base Rate Borrowing, on either (A) the last day of
the then-current Interest Period applicable to such Eurodollar Borrowing if
Lender may lawfully continue to maintain and fund such Eurodollar Borrowing
to such day or (B) immediately if Lender may not lawfully continue to fund
and maintain such Eurodollar Borrowing to such day, PROVIDED THAT Borrowers
shall be liable for any Funding Loss arising pursuant to such conversion.
(c) INCREASED COSTS FOR EURODOLLAR BORROWINGS. If any Governmental
Authority, central bank, or other comparable authority, shall at any time
impose, modify, or deem applicable any reserve (including, without limitation,
any imposed by the Board of Governors of the Federal Reserve System but
excluding any reserve requirement included in the Eurodollar Reserve
Requirement), special deposit, or similar requirement against assets of,
deposits with, or for the account of, or credit extended by, Lender, or shall
impose on Lender (or its Eurodollar lending office) or the interbank eurodollar
market any other condition affecting its Eurodollar Borrowings, the Note, or its
obligation to make Eurodollar Borrowings; and the result of any of the foregoing
is to increase the cost to Lender of making or maintaining Eurodollar
Borrowings, or to reduce the amount of any sum received or receivable by Lender
under this Agreement, or under the Note, by an amount deemed by Lender to be
material, then, within five (5) days after demand by Lender, Borrowers shall pay
to Lender such additional amount or amounts as will compensate Lender for such
increased cost or reduction. Lender will promptly notify Borrowers of any event
of which it has knowledge, occurring after the date hereof, which will entitle
Lender to compensation pursuant to this SECTION. No failure by Lender to
immediately demand payment of any additional amounts payable hereunder shall
constitute a waiver of Lender's right to demand payment of such amounts at any
subsequent time. A certificate of Lender claiming compensation under this
SECTION and setting forth the additional amount or amounts to be paid to it
hereunder, together with a description in reasonable detail of the manner in
which such amounts have been calculated, shall be delivered by Lender to
Borrower within one hundred eighty (180) days after the incurrence thereof and
shall be conclusive in the absence of manifest error. If Lender demands
compensation under this SECTION, then Borrowers may at any time, upon at least
five (5) Business Days' prior notice to such Lender, either convert such
Eurodollar Borrowings to Base Rate Borrowings in accordance with the provisions
of this Agreement; PROVIDED, HOWEVER, that Borrowers shall be liable for any
Funding Loss arising pursuant to such actions.
(d) EFFECT ON BASE RATE BORROWINGS. If notice has been given pursuant to
SECTION 2.16(a) or SECTION 2.16(b) requiring that Eurodollar Borrowings to be
repaid or converted, then unless and until Lender notifies Borrowers that the
circumstances giving rise to such repayment no longer apply, all Borrowings
shall be Base Rate Borrowings. If Lender notifies Borrowers that the
circumstances giving rise to such repayment no longer apply, then Borrowers may
thereafter select Borrowings to be Eurodollar Borrowings in accordance with
SECTION 2.13 and SECTION 2.14.
(e) FUNDING LOSSES. Borrowers shall jointly and severally indemnify
Lender against any loss or reasonable expense (such loss or expense is referred
to herein as a "FUNDING LOSS," such term
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<PAGE>
including, but not limited to, any loss or reasonable expense sustained or
incurred or to be sustained or incurred in liquidating or reemploying
deposits from third parties acquired to effect or maintain such Borrowing or
any part thereof as a Eurodollar Borrowing) with respect to Eurodollar
Borrowings which Lender may sustain or incur as a consequence of (i) any
failure by Borrowers to fulfill on the date of any Borrowing hereunder the
applicable conditions set forth in SECTION 4, (ii) any failure by Borrowers
to borrow hereunder or to convert Borrowings hereunder after a Conversion
Notice has been given, (iii) any payment, prepayment, or conversion of a
Eurodollar Borrowing required or permitted by any other provisions of this
Agreement, including, without limitation, payments made due to the
acceleration of the maturity of the Borrowings pursuant to SECTION 8.2, or
otherwise made on a date OTHER THAN the last day of the applicable Interest
Period, (iv) any default in the payment or prepayment of the principal amount
of any Eurodollar Borrowing or any part thereof or interest accrued thereon,
as and when due and payable (at the due date thereof, by notice of prepayment
or otherwise), or (v) the occurrence of a Potential Default or an Event of
Default. The term "FUNDING LOSS" includes, without limitation, an amount
equal to the excess, if any, as determined by Lender of (A) its cost of
obtaining the funds for the Borrowing being paid, prepaid, or converted or
not borrowed or converted (based on the Adjusted Eurodollar Rate applicable
thereto) for the period from the date of such payment, prepayment, or
conversion or failure to borrow or convert to the last day of the Interest
Period for such Borrowing (or, in the case of a failure to borrow or convert,
the Interest Period for the Borrowing which would have commenced on the date
of such failure to borrow or convert) over (B) the amount of interest (as
estimated by Lender) that would be realized by Lender in reemploying the
funds so paid, prepaid or converted or not borrowed or converted for such
period or Interest Period, as the case may be. A certificate of Lender
setting forth any amount or amounts which Lender is entitled to receive
pursuant to this SECTION 2.16(e), together with a description in reasonable
detail of the manner in which such amounts have been calculated, shall be
delivered to Borrowers and shall be conclusive, absent manifest error.
Borrowers shall pay to Lender the amount shown as due on any certificate
within five (5) days after its receipt of the same. Notwithstanding the
foregoing, in no event shall Lender be permitted to receive any compensation
hereunder constituting interest in excess of the Maximum Rate. Without
prejudice to the survival of any other obligations of Borrowers hereunder,
the obligations of Borrowers under this SECTION 2.16(e) shall survive the
termination of this Agreement and/or the payment or assignment of the Note.
2.17 TAXES.
(a) Any and all payments by Borrowers hereunder or under the Note shall be
made free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges, or withholdings, and all
liabilities with respect thereto (hereinafter referred to as "TAXES"), excluding
taxes imposed on Lender's income, and franchise taxes imposed on Lender, by the
jurisdiction under the laws of which Lender is organized or is or should be
qualified to do business or any political subdivision thereof and, taxes imposed
on Lender's income, and franchise taxes imposed on Lender by the jurisdiction of
Lender's lending office or any political subdivision thereof. If Borrowers
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder or under the Note to Lender, then (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
SECTION 2.17) Lender receives an amount equal to the sum it would have received
had no such deductions been made, (ii) Borrowers shall make such deductions, and
(iii) Borrowers shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, Borrowers agree to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges, or similar
levies which arise from any payment made
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hereunder or under the Loan Documents or from the execution, delivery, or
registration of, or otherwise with respect to, this Agreement or the other
Loan Documents (hereinafter referred to as "OTHER TAXES").
(c) Borrowers shall indemnify Lender for the full amount of Taxes or Other
Taxes (including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this SECTION 2.17) paid by Lender or any
liability (including penalties and interest) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. This indemnification shall be made within five (5) days from the date
Lender makes written demand therefor.
(d) Within thirty (30) days after the date of any payment of Taxes,
Borrowers shall furnish to Lender, at its address referred to in SECTION 9.4,
the original or a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement of Borrowers
hereunder, the agreements and obligations of Borrowers contained in this
SECTION 2.17 shall survive the payment in full of principal and interest
hereunder and under the other Loan Documents.
SECTION 3
COLLATERAL AND GUARANTIES
3.1 COLLATERAL. To secure the payment and performance of the Obligation,
the Companies shall grant to Lender a perfected, first priority (except for
Permitted Liens), Lien in all assets of the Companies, including accounts
receivable, inventory, equipment, general intangibles (other than patents,
trademarks, and copyrights) of the Companies (the "COLLATERAL"), as described in
the Collateral Documents.
3.2 GUARANTIES. Payment of the Obligation shall be unconditionally
guaranteed by Guarantors.
SECTION 4
CONDITIONS PRECEDENT
4.1 INITIAL ADVANCE. The obligation of Lender to make the initial Advance
or issue the initial LC hereunder is subject to the conditions precedent that,
on or before the date of such Advance or issuance of such LC, (a) Borrowers
shall have paid to Lender (i) all fees to be received by Lender pursuant to this
Agreement or any other Loan Document and (ii) an amount equal to the estimated
costs and out-of-pocket expenses of Lender's counsel incurred in connection with
the preparation, execution, and delivery of the Loan Documents and the
consummation of the transactions contemplated thereby, and (b) Lender shall have
received duly executed copies of each of the documents listed on EXHIBIT E, each
dated as of the date of such Advance, and each in form and substance
satisfactory to Lender.
4.2 ALL ADVANCES. The obligation of Lender to make any Advance and issue
each LC under this Agreement (including the initial Advance or LC) shall be
subject to the conditions precedent that, as of the date of such Advance or
issuance of such LC and after giving effect thereto: (a) there exists no
Potential Default or Event of Default; (b) no change that would cause a Material
Adverse Effect has occurred since the date of the financial statements
referenced in SECTION 5.6; (c) Lender shall have received from Borrowers a
Notice of Borrowing or LC Request, as appropriate, dated as of the date of such
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Advance or issuance of such LC, as appropriate, and all of the statements
contained in such Notice of Borrowing or LC Request, as the case may be, shall
be true and correct; (d) the representations and warranties contained in each of
the Loan Documents shall be true in all respects as though made on the date of
such Advance or issuance of such LC; and (e) the Maximum Rate exceeds the
Contract Rate.
SECTION 5
REPRESENTATIONS AND WARRANTIES
To induce Lender to make Advances and issue LCs hereunder, Borrowers
represent and warrant to Lender that:
5.1 ORGANIZATION AND GOOD STANDING. Each Company is duly organized,
validly existing, and in good standing under the laws of the state of its
incorporation or formation, is duly qualified and is in good standing in all
states in which it is doing business (except where the failure to be so
qualified and maintain good standing could not have a Material Adverse Effect),
has the power and authority to own its properties and assets and to transact the
business in which it is engaged in each jurisdiction in which it operates, and
is or will be qualified in those states wherein it proposes to transact business
in the future (except where the failure to be so qualified could not have a
Material Adverse Effect).
5.2 AUTHORIZATION AND POWER. Each Company has full power and authority to
execute, deliver, and perform the Loan Documents to be executed by such Person,
all of which has been duly authorized by all proper and necessary action.
5.3 NO CONFLICTS OR CONSENTS. Neither the execution and delivery of the
Loan Documents, nor the consummation of any of the transactions therein
contemplated, nor compliance with the terms and provisions thereof, will
contravene or materially conflict with any Legal Requirement to which any
Company is subject, any Governmental Authorization applicable to any Company,
any indenture, loan agreement, mortgage, deed of trust, or other agreement or
instrument binding on any Company, or any provision of the Constituent Documents
of any Company. No consent, approval, authorization, or order of any court,
Governmental Authority, stockholder, or third party is required in connection
with the execution, delivery, or performance by any Company of any of the Loan
Documents.
5.4 ENFORCEABLE OBLIGATIONS. The Loan Documents have been duly executed
and delivered by each Company, as appropriate, and are the legal and binding
obligations of each Company, as appropriate, enforceable in accordance with
their respective terms, except as limited by Debtor Laws.
5.5 NO LIENS. Except for the Permitted Liens, all of the properties and
assets of each Company are free and clear of all Liens and other adverse claims
of any nature, and each Company has good and marketable title to such properties
and assets.
5.6 FINANCIAL CONDITION. Borrowers have delivered to Lender copies of the
financial statements of the Companies, as of December 31, 1997; such financial
statements are true and correct, fairly represent the financial condition of the
Companies as of such date, and have been prepared in accordance with GAAP; as of
the date hereof, there are no obligations, Liabilities, or Indebtedness
(including contingent and indirect Liabilities) of the Companies which are
material and are not reflected in such financial statements; no Material Adverse
Effect has occurred since the date of such financial statements.
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5.7 FULL DISCLOSURE. There is no fact known to any Borrower that such
Borrower has not disclosed to Lender which could have a Material Adverse Effect.
No certificate or statement delivered by any Borrower to Lender in connection
with this Agreement contains any untrue statement of a material fact or omits to
state any material fact necessary to keep the statements contained herein or
therein from being misleading.
5.8 NO POTENTIAL DEFAULT. No event has occurred and is continuing which
constitutes a Potential Default or an Event of Default.
5.9 MATERIAL AGREEMENTS. No Company is in default in any material respect
under any contract or agreement to which it is a party or by which any of its
properties is bound, except where such default could not have a Material Adverse
Effect.
5.10 NO LITIGATION. Except as disclosed on SCHEDULE 5.10, there are no
actions, suits, or legal, equitable, arbitration, or administrative proceedings
pending, or to the knowledge of any Borrower threatened, against any Company
that could, if adversely determined, have a Material Adverse Effect.
5.11 USE OF PROCEEDS; MARGIN STOCK. The proceeds of each Advance will be
used by each Borrower solely for the purposes specified in the preamble. None
of such proceeds will be used for the purpose of purchasing or carrying any
"MARGIN STOCK" as defined in REGULATIONS G, T, U, or X of the Board of Governors
of the Federal Reserve System or for any other purpose which might constitute
this transaction a "PURPOSE CREDIT" within the meaning of such Regulations. If
requested by Lender, then Borrowers shall furnish to Lender a statement in
conformity with the requirements of the Federal Reserve Form U-1 referred to in
said REGULATION U to the foregoing effect. No part of the proceeds of any
Advance will be used for any purpose which violates, or is inconsistent with,
the provisions of REGULATION X.
5.12 TAXES. All tax returns required to be filed by each Company in any
jurisdiction have been filed and all taxes (including mortgage recording taxes),
assessments, fees, and other governmental charges upon each Company or upon any
of its properties, income, or franchises have been paid EXCEPT FOR taxes being
contested in good faith by appropriate proceedings diligently projected and for
which adequate reserves are maintained in accordance with GAAP. To the best of
each Borrower's knowledge, there is no proposed tax assessment against any
Company, and all tax Liabilities of each Company are adequately provided for.
No income tax liability of any Company has been asserted by the Internal Revenue
Service for taxes in excess of those already paid.
5.13 PRINCIPAL OFFICE, ETC. The principal office, chief executive office,
and principal place of business of each Company are set forth on EXHIBIT D.
Each Company maintains its principal records and books at such address.
5.14 COMPLIANCE WITH LAW.
(a) Except as disclosed on SCHEDULE 5.14-1: (i) each Company is in
compliance with its respective Constituent Documents and all Legal Requirements
which are applicable to it or to the conduct or operation of its business or the
ownership or use of any of its assets, except where such non-compliance could
not have a Material Adverse Effect; and (ii) no Company has received any notice
or other communication from any Governmental Authority or other Person of any
event or circumstance that could constitute a violation of, or failure to comply
with, any Legal Requirement.
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(b) Except as disclosed on SCHEDULE 5.14-1: (i) each Company is in
compliance with all of the terms and requirements of each Governmental
Authorization held by such Person, except where such non-compliance could not
have a Material Adverse Effect; (ii) no Company has received any notice or other
communication from any Governmental Authority or other Person of any event or
circumstance which could constitute a violation of, or failure to comply with,
any term or requirement of any Governmental Authorization, or of any actual or
potential revocation, withdrawal, cancellation, or termination of, or material
modification to, any Governmental Authorization; (iii) all applications required
to have been filed for the renewal of any required Governmental Authorizations
have been duly filed on a timely basis with the appropriate Governmental
Authorities, and all other filings required to have been made with respect to
such Governmental Authorizations have been duly made on a timely basis with the
appropriate Governmental Authorities; (iv) upon consummation of the transactions
contemplated hereby, each Company will lawfully hold all such Governmental
Authorizations; and (v) none of the Governmental Authorizations of any Company
will terminate upon consummation of the transactions contemplated hereby.
(c) Set forth on SCHEDULE 5.14-2 is a list of each of the Governmental
Authorizations of each Company: (i) necessary to permit each such Person to
lawfully conduct and operate its respective business in the manner it currently
conducts and operates such business and to permit such Person to own and use its
assets in the manner in which it currently owns and uses such assets; and
(ii) necessary to permit each such Person, upon a consummation of the
transactions contemplated hereby, to lawfully conduct and operate its business
and to permit each such Person to own and use its assets.
5.15 SUBSIDIARIES. Set forth on EXHIBIT D hereto is a complete and
accurate list of all Subsidiaries as of the date hereof, showing as of such date
(as to each such Subsidiary) the jurisdiction of its incorporation, the owner of
the outstanding Stock of such Subsidiary, and the jurisdictions in which such
Subsidiary is qualified to do business as a foreign corporation. To the extent
applicable, all of the outstanding Stock of all Subsidiaries has been validly
issued, is fully paid and nonassessable, and is owned by AGI or a Subsidiary
free and clear of all Liens.
5.16 CASUALTIES. Neither the business nor the properties of any Company
are affected by any environmental hazard, fire, explosion, accident, strike,
lockout, or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God, or other casualty (whether or not covered by insurance), which could
have a Material Adverse Effect.
5.17 SUFFICIENCY OF CAPITAL. Each Company is, and after consummation of
this Agreement and after giving effect to all Indebtedness incurred and Liens
created by the Companies in connection herewith will be, Solvent.
5.18 COLLATERAL DOCUMENTS; DESCRIPTION AND LOCATION OF ASSETS. The
Collateral Documents contain a description of all of the Collateral sufficient
to grant to Lender perfected Liens therein pursuant to applicable law. Upon the
filing by Lender of all Collateral Documents to be filed or recorded, Lender
will have a perfected first priority Lien in the Collateral subject only to
Permitted Liens. All assets of the Companies are located at the addresses
listed on EXHIBIT D hereto except for inventory that is, in the ordinary course
of the Companies' business, in transit. No asset of any Company will be kept at
any other address.
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5.19 CORPORATE NAME. No Company has, during the preceding five (5) years,
(a) used any other corporate name or tradename, or (b) been the surviving
corporation of a merger or consolidation or acquired all or substantially all of
the assets of any Person.
5.20 LEASES. Except as set forth on SCHEDULE 5.20, no Company is the
lessee of any real or personal property.
5.21 ERISA. Each Company and each ERISA Affiliate has fulfilled its
obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code, and has not incurred any
liability to the PBGC or a Plan under TITLE IV of ERISA.
5.22 LABOR MATTERS. There are no controversies pending between any Company
and any of their employees which could have a Material Adverse Effect.
5.23 BURDENSOME CONTRACTS. No Company is a party to any contract, the
breach, violation, or termination of which could result in a Material Adverse
Effect.
5.24 PERMITS, FRANCHISES, INTELLECTUAL PROPERTY, AND OTHER INTANGIBLE
RIGHTS. Each Company owns, holds, and has the lawful right to use, all material
Intangible Rights used in or necessary for the conduct of its business as
currently conducted or proposed to be conducted.
5.25 FULL DISCLOSURE OF RIGHTS AND CLAIMS. Except as disclosed on SCHEDULE
5.10, no claims are pending, or, to the best of any Borrower's knowledge,
threatened, that any Company is infringing or otherwise adversely affecting the
Intangible Rights of any other Person. The consummation of the transactions
contemplated by the Loan Documents will not impair the ownership of, or rights
with respect to, any material Intangible Rights of any Company.
5.26 REPRESENTATIONS AND WARRANTIES. Each Notice of Borrowing shall
constitute, without the necessity of specifically containing a written
statement, a representation and warranty by Borrowers that no Potential Default
or Event of Default exists and that all representations and warranties contained
in this SECTION 5 or in any other Loan Document are true and correct on and as
of the date the requested Advance is to be made.
5.27 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties by Borrowers herein shall survive delivery of the Note and the making
of each Advance, and any investigation at any time made by or on behalf of
Lender shall not diminish Lender's right to rely thereon.
SECTION 6
AFFIRMATIVE COVENANTS
So long as Lender has any commitment to make Advances or issue LCs
hereunder, and until payment in full of the Obligation and termination of all
LCs, Borrowers agree that (unless Lender shall otherwise consent in writing):
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6.1 FINANCIAL STATEMENTS, REPORTS, AND DOCUMENTS. Borrowers shall deliver
to Lender each of the following:
(a) PERIODIC STATEMENTS.
(i) At any time when AGI's financial statements are not periodically
filed with the Securities and Exchange Commission, as soon as available,
and in any event within thirty (30) days after the last day of each
calendar month of each fiscal year of the Companies, copies of the
consolidated balance sheet of the Companies as of the end of such month,
and statements of income, retained earnings, and changes in cash flow of
the Companies for that monthly period and for the portion of the fiscal
year ending with such period, all in reasonable detail, and certified by
the chief financial officer of AGI as being true and correct and as having
been prepared in accordance with GAAP, subject to year-end audit
adjustments;
(ii) At any time when AGI's financial statements are periodically
filed with the Securities and Exchange Commission, as soon as available,
and in any event within forty-five (45) days after the last day of each
fiscal quarter of each fiscal year of the Companies, copies of the
consolidated balance sheet of the Companies as of the end of such fiscal
quarter, and statements of income, retained earnings, and changes in cash
flow of the Companies for that fiscal period and for the portion of the
fiscal year ending with such period, all in reasonable detail, and
certified by the chief financial officer of AGI as being true and correct
and as having been prepared in accordance with GAAP, subject to year-end
audit adjustments;
(b) ANNUAL STATEMENTS. As soon as available and in any event within one
hundred and twenty (120) days after the last day of each fiscal year of the
Companies, copies of the consolidated balance sheet of AGI as of the close of
such fiscal year and statements of income, retained earnings, and changes in
cash flow of AGI for such fiscal year, in each case setting forth in comparative
form the figures for the preceding fiscal year, all in reasonable detail and
accompanied by an opinion thereon (which shall not be qualified by reason of any
limitation imposed by any Company) of independent public accountants of
recognized national standing selected by AGI and satisfactory to Lender, to the
effect that (i) such consolidated financial statements have been prepared in
accordance with GAAP (EXCEPT FOR changes in which such accountants concur), (ii)
the examination of such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing standards and,
accordingly, includes such tests of the accounting records and such other
auditing procedures as were considered necessary under the circumstances, and
(iii) in making their audit, such accountants have not become aware of any
condition or event which would constitute a Potential Default or an Event of
Default under any of the terms or provisions of this Agreement (insofar as any
such terms or provisions pertain to accounting matters) and, if any such
condition or event then exists, specifying the nature and period of existence
thereof;
(c) COMPLIANCE CERTIFICATE. Contemporaneously with the delivery of the
financial statements required by SECTION 6.1(a), a compliance Certificate and an
accounts receivable aging report; and
(d) OTHER INFORMATION. Such other information concerning the business,
properties or financial condition of any Company as Lender shall reasonably
request including audit reports, registration statements, or other reports or
notices provided to shareholders of AGI and, if applicable, filed with the
Securities and Exchange Commission.
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6.2 PAYMENT OF TAXES AND OTHER INDEBTEDNESS. Borrowers shall, and shall
cause each of the other Companies to, pay and discharge (a) all taxes,
assessments, and governmental charges or levies imposed upon it or upon its
income or profits, or upon any property belonging to it, before delinquent,
(b) all lawful claims (including claims for labor, materials, and supplies),
which, if unpaid, might give rise to a Lien upon any of its property, and
(c) all of its other Indebtedness, except as prohibited under the Loan
Documents; PROVIDED, HOWEVER, that the Companies shall not be required to pay
any such tax, assessment, charge, or levy if and so long as the amount,
applicability, or validity thereof shall currently be contested in good faith by
appropriate proceedings and appropriate accruals and appropriate reserves have
been established in accordance with GAAP.
6.3 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS. Borrowers
shall, and shall cause each of the other Companies to, preserve and maintain its
existence and all of its rights, privileges, and franchises (including
Intangible Rights) necessary or desirable in the normal conduct of its business,
and conduct its business in an orderly and efficient manner consistent with good
business practices and in accordance with all Legal Requirements of any
Governmental Authority, except where the failure to so preserve or maintain
could not have a Material Adverse Effect.
6.4 NOTICE OF DEFAULT. Borrowers shall furnish to Lender, immediately
upon becoming aware of the existence of any condition or event which constitutes
a Potential Default or an Event of Default, written notice specifying the nature
and period of existence thereof and the action which Borrowers are taking or
proposes to take with respect thereto.
6.5 OTHER NOTICES. Borrowers shall, and shall cause each of the other
Companies to, promptly notify Lender of (a) any material adverse change in its
financial condition or its business, (b) any default under any material
agreement, contract, or other instrument to which it is a party or by which any
of its properties are bound, or any acceleration of the maturity of any
Indebtedness owing by any Company, (c) any material adverse claim against or
affecting any Company or any of its properties, and (d) the commencement of, and
any material determination in, any litigation with any third party or any
proceeding before any Governmental Authority affecting any Company.
6.6 OPERATIONS AND PROPERTIES. Borrowers shall, and shall cause each of
the other Companies to, (a) act prudently and in accordance with customary
industry standards in managing and operating its assets and properties, and (b)
keep in good working order and condition, ordinary wear and tear excepted, all
of its assets and properties which are necessary to the conduct of its business.
6.7 BOOKS AND RECORDS; ACCESS. Borrowers shall, and shall cause each of
the other Companies to, give any representative of Lender access upon reasonable
notice and during all business hours to, and permit such representative to
examine, copy, or make excerpts from, any and all books, records, and documents
in the possession of any Company and relating to its affairs, and to inspect any
of the properties of any Company. Borrowers shall, and shall cause each of the
other Companies to, maintain complete and accurate books and records of its
transactions in accordance with good accounting practices.
6.8 COMPLIANCE WITH LAW. Borrowers shall, and shall cause each of the
other Companies to, comply with all applicable Legal Requirements of any
Governmental Authority, a breach of which could have a Material Adverse Effect.
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6.9 INSURANCE. Borrowers shall, and shall cause each of the other
Companies to, keep all insurable property, real and personal, adequately insured
at all times in such amounts and against such risks as are customary for Persons
in similar businesses operating in the same vicinity, specifically to include a
policy of hazard, casualty, fire, and extended coverage insurance covering all
assets, business interruption insurance (where feasible), liability insurance,
and worker's compensation insurance, in every case under a policy with a
financially sound and reputable insurance company and with only such deductibles
as are customary, and all to contain a mortgagee or loss payee clause naming
Lender as its interest may appear.
6.10 AUTHORIZATIONS AND APPROVALS. Borrowers shall, and shall cause each
of the other Companies to, promptly obtain, from time to time at its own
expense, all Governmental Authorizations as may be required to enable it to
comply with its obligations hereunder and under the other Loan Documents.
6.11 FURTHER ASSURANCES. Borrowers shall, and shall cause each of the
other Companies to, make, execute, and deliver or file or cause the same to be
done, all such notices, additional agreements, mortgages, assignments, financing
statements, or other assurances, and take any and all such other action, as
Lender may, from time to time, deem reasonably necessary or proper in connection
with any of the Loan Documents, the obligations of any Company thereunder.
6.12 INDEMNITY BY BORROWERS. Borrowers shall indemnify, defend, and hold
harmless Lender and its Representatives (individually, an "INDEMNITEE" and
collectively, the "INDEMNITEES") from and against any and all loss, liability,
obligation, damage, penalty, judgment, claim, deficiency, and expense (including
interest, penalties, attorneys' fees, and amounts paid in settlement) to which
any Indemnitee may become subject arising out of this Agreement and the other
Loan Documents OTHER THAN those which arise by reason of the gross negligence or
willful misconduct of Lender, BUT SPECIFICALLY INCLUDING ANY LOSS, LIABILITY,
OBLIGATION, DAMAGE, PENALTY, JUDGMENT, CLAIM, DEFICIENCY, OR EXPENSE ARISING OUT
OF THE SOLE OR CONCURRENT NEGLIGENCE OF LENDER OR ANY OF ITS REPRESENTATIVES.
Borrowers shall also indemnify, protect, and hold each Indemnitee harmless from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, proceedings, costs, expenses (including
without limitation all reasonable attorneys' fees and legal expenses whether or
not suit is brought), and disbursements of any kind or nature whatsoever which
may at any time be imposed on, incurred by, or asserted against such Indemnitee,
with respect to or as a direct or indirect result of the violation by any
Company of any Environmental Law; or with respect to or as a direct or indirect
result of any Company's use, generation, manufacture, production, storage,
release, threatened release, discharge, disposal, or presence of a Hazardous
Material on, under, from, or about real property. The provisions of and
undertakings and indemnifications set forth in this SECTION 6.12 shall survive
(a) the satisfaction and payment of the Obligation and termination of this
Agreement, and (b) the release of any Liens held by Lender on real property or
the extinguishment of such Liens by foreclosure or action in lieu thereof;
PROVIDED, HOWEVER, that the indemnification set forth herein shall not extend to
any act or omission by Lender with respect to any property subsequent to Lender
becoming the owner of such property and with respect to which property such
claim, loss, damage, liability, fine, penalty, charge, proceeding, order,
judgment, action, or requirement arises subsequent to the acquisition of title
thereto by Lender.
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6.13 AFTER-ACQUIRED SUBSIDIARIES. Concurrently upon the formation or
acquisition by any Company of any Subsidiary after the date hereof (an
"AFTER-ACQUIRED SUBSIDIARY"), Borrowers shall, and shall cause each of the
other Companies to, deliver Constituent Documents for such After-Acquired
Subsidiary and such opinions as Lender shall require and shall cause the
After-Acquired Subsidiary to execute a guaranty in favor of Lender and such
Collateral Documents as shall be required by Lender to create first priority
Liens (subject to Permitted Liens) in favor of Lender in such After-Acquired
Subsidiary's assets.
6.14 ERISA COMPLIANCE. Borrowers shall, and shall cause each of the other
Companies and each ERISA Affiliate to: (a) at all times, make prompt payment of
all contributions required under all Plans and required to meet the minimum
funding standards set forth in ERISA with respect to its Plan; (b) within thirty
(30) days after the filing thereof, furnish to Lender copies of each annual
report/return (FORM 5500 series), as well as all schedules and attachments
required to be filed with the Department of Labor and/or the Internal Revenue
Service pursuant to ERISA, and the regulations promulgated thereunder, in
connection with each of its Plans for each Plan year; (c) notify Lender
immediately of any fact including but not limited to, any Reportable Event
arising in connection with any of its Plans, which might constitute grounds for
termination thereof by the PBGC or for the appointment by the appropriate United
States District Court of a trustee to administer such Plan, together with a
statement, if requested by Lender, as to the reason therefor and the action, if
any, proposed to be taken with respect thereto; and (d) furnish to Lender upon
its request, such additional information concerning any of its Plans as may be
reasonably requested.
6.15 INTANGIBLE RIGHTS LITIGATION.
(a) Borrowers shall, within thirty (30) days after the date hereof,
provide to Lender evidence reasonably satisfactory to Lender (including, without
limitation, opinions of counsel) that no Company is infringing upon the
Intangible Rights of any of the adverse parties to the litigation described on
SCHEDULE 5.10.
(b) If any Person files an action, suit, or legal, equitable, arbitration,
or administrative proceeding against any Company asserting that such Company is
infringing or otherwise adversely affecting the rights of such Person with
respect to any Intangible Rights, then Borrowers shall, within sixty (60) days
after the filing of such action, suit, or proceeding, provide to Lender evidence
reasonably satisfactory to Lender (including, without limitation, opinions of
counsel) that such Company is not infringing upon the Intangible Rights of any
Person.
SECTION 7
NEGATIVE COVENANTS
So long as Lender has any commitment to make Advances or issue LCs
hereunder, and until payment in full of the Obligation and termination of all
LCs, Borrowers agree that (unless Lender shall otherwise consent in writing):
7.1 LIMITATION ON INDEBTEDNESS. Borrowers shall not, and shall not permit
any of the other Companies to, incur, guarantee, or otherwise be or become,
directly or indirectly, liable in respect of any Indebtedness, except
(a) Indebtedness arising out of this Agreement, (b) Indebtedness secured by the
Permitted Liens (EXCEPT FOR Indebtedness incurred, borrowed, or guaranteed after
the date hereof), and any
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renewals and extensions (but not increases) thereof, (c) Indebtedness not to
exceed $750,000.00 in the aggregate at any time outstanding to finance the
purchase or lease of telecommunications equipment and furnishings and
fixtures to be used in the Plano Facility, (d) Indebtedness payable by Adams
Golf, Ltd. to Barney Adams in the aggregate principal amount of approximately
$1,100,000.00, (e) Indebtedness of any Company owed to any other Company, and
(f) other Indebtedness not to exceed $250,000.00 in the aggregate at any time
outstanding; PROVIDED THAT the Indebtedness permitted under (C) and (F) shall
not exceed $900,000.00 in the aggregate at any time outstanding.
7.2 NEGATIVE PLEDGE. Borrowers shall not, and shall not permit any of the
other Companies to, create, incur, permit, or suffer to exist any Lien upon any
of its property or assets, now owned or hereafter acquired, EXCEPT FOR
(a) Permitted Liens and (b) Liens securing the Indebtedness described in
SECTION 7.1(c) and (f).
7.3 NEGATIVE PLEDGE AGREEMENTS. Borrowers shall not, and shall not permit
any of the other Companies to, enter into any agreement (excluding this
Agreement or any other Loan Documents) prohibiting the creation or assumption of
any Lien upon any of its property, revenues, or assets, whether now owned or
hereafter acquired, or the ability of any Subsidiary to make any payments,
directly or indirectly, to AGI by way of Dividends, advances, repayments of
loans, repayments of expenses, accruals, or otherwise.
7.4 RESTRICTIONS ON DIVIDENDS. AGI shall not, if an Event of Default
exists, declare or make, or incur any liability to make, any Dividend. Borrower
shall not, and shall permit any of the other Companies to, declare or make, or
incur any liability to make, any Dividend except to another Company.
7.5 LIMITATION ON INVESTMENTS. Borrowers shall not, and shall not permit
any of the other Companies to, make or have outstanding any Investments in any
Person, EXCEPT FOR (a) the Companies' ownership of Stock of Subsidiaries,
(b) Temporary Cash Investments and such other "CASH EQUIVALENT" investments as
Lender may from time to time approve in writing, (c) advances to employees and
third parties not to exceed $250,000.00 in the aggregate at any time
outstanding, (d) acquisitions of stock or other assets in the sports equipment
and accessories business from any Person PROVIDED THAT the aggregate purchase
price of such acquisitions do not exceed $2,000,000.00 in any calendar year, and
(e) advances by any Company to another Company.
7.6 CERTAIN TRANSACTIONS. Borrowers shall not, and shall not permit any
of the other Companies to, enter into any transaction with, or pay any
management fees to, any Affiliate; PROVIDED, HOWEVER, that the Companies may
enter into transactions with (a) any other Company, and (b) with Affiliates
(other than the Companies) upon terms not less favorable to the Companies than
would be obtainable at the time in comparable, arms-length transactions with
Persons OTHER THAN Affiliates.
7.7 EXECUTIVE PERSONNEL. Borrowers shall not, and shall not permit any of
the other Companies to, permit Barney Adams to cease to be involved in its
present executive management.
7.8 LIMITATION ON SALE OF PROPERTIES. Borrowers shall not, and shall not
permit any of the other Companies to (a) sell, assign, exchange, lease, or
otherwise dispose of any of its properties, rights, assets, or business, whether
now owned or hereafter acquired, except in the ordinary course of its business
and for a fair consideration, or (b) sell, assign, or discount any accounts
receivable.
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7.9 ACQUISITIONS; SUBSIDIARIES. Borrowers shall not, and shall not permit
any of the other Companies to, (a) form, incorporate, acquire, or make any
Investment in any Subsidiary, except the Subsidiaries listed on EXHIBIT D and
wholly-owned After-Acquired Subsidiaries formed in accordance with SECTION 6.13,
or (b) acquire all or substantially all of the assets or Stock of any class of
any other Person, except for Investments permitted under SECTION 7.5.
7.10 LIQUIDATION, MERGERS, CONSOLIDATIONS, AND DISPOSITIONS OF SUBSTANTIAL
ASSETS. Borrowers shall not, and shall not permit any of the other Companies
to, dissolve or liquidate, or become a party to any merger or consolidation, or
acquire by purchase, lease, or otherwise all or substantially all of the assets
or Stock of any Person, or sell, transfer, lease, or otherwise dispose of all or
any substantial part of its property or assets or business; PROVIDED, HOWEVER,
that any Company may merge with any other Company.
7.11 LINES OF BUSINESS; RECEIVABLES POLICY. Borrowers shall not, and shall
not permit any of the other Companies to, directly or indirectly, engage in any
business OTHER THAN the sports equipment and accessories business, or
discontinue any of its material existing lines of business. Borrowers shall
not, and shall not permit any of the other Companies to, make any material
change in its credit and collection policy, which change would materially impair
the collectibility of its receivables, or rescind, cancel, or modify any
receivable, except in the ordinary course of business.
7.12 GUARANTIES. Borrowers shall not, and shall not permit any of the
other Companies to, become or be liable in respect of any Guaranty.
7.13 SALE AND LEASEBACK. Borrowers shall not, and shall not permit any of
the other Companies to, enter into any arrangement with any Person pursuant to
which any Company will lease, as lessee, any property which it owned as of the
date hereof and which it sold, transferred, or otherwise disposed of to such
other Person.
7.14 MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Borrowers shall not permit
Consolidated Tangible Net Worth, as of any date, to be less than the sum of
(a) $5,000,000.00, PLUS (b) seventy-five percent (75%) of the Net Proceeds of
each Equity Issuance after the date hereof, PLUS (c) fifty percent (50%) of
Consolidated Adjusted Net Income from the date hereof through the last day of
the fiscal quarter ending prior to or on the determination date.
7.15 FIXED CHARGES COVERAGE. Borrowers shall not, as of any date, permit
the ratio of (a) the sum of Consolidated Adjusted Net Income, PLUS federal,
state, local, and foreign income taxes deducted from Consolidated Adjusted Net
Income in accordance with GAAP, PLUS Fixed Charges, to (b) Fixed Charges, for
(i) the fiscal quarter ending on March 31, 1998, (ii) the two (2) fiscal
quarters ending on June 30, 1998, (iii) the three (3) fiscal quarters ending on
September 30, 1998, (iv) the four (4) fiscal quarters ending on December 31,
1998 and each succeeding fiscal quarter thereafter, to be less than 3.0 to 1.0.
7.16 LEVERAGE RATIO. Borrowers shall not permit, as of any date, the ratio
of (a) all Liabilities of the Companies to (b) Consolidated Tangible Net Worth,
to exceed 1.5 to 1.0.
7.17 FISCAL YEAR. Borrowers shall not, and shall not permit any of the
other Companies to, change its fiscal year or method of accounting.
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SECTION 8
EVENTS OF DEFAULT
8.1 EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist if any one or
more of the following events (herein collectively called "EVENTS OF DEFAULT")
shall occur and be continuing:
(a) any Company shall fail to pay when due the Obligation or any part
thereof; or
(b) any representation or warranty made under this Agreement, or any of
the other Loan Documents, shall prove to be untrue or inaccurate in any material
respect as of the date on which such representation or warranty is made or
deemed to have been made; or
(c) default shall occur in the performance of (i) any of the covenants or
agreements of any Company contained in SECTION 6.1 and SECTION 7, or (ii) any
other covenants or agreements of any Company contained herein or in any of the
other Loan Documents and, in the case of (ii), such failure shall continue for
thirty (30) days after written notice thereof from Lender to Borrower; or
(d) default shall occur in the payment of any material Indebtedness (OTHER
THAN the Obligation) of any Company or default shall occur in respect of any
note or credit agreement relating to any such Indebtedness and such default
shall continue for more than the period of grace, if any, specified therein; or
(e) any of the Loan Documents shall cease to be legal, valid, and binding
agreements enforceable against the Person executing the same in accordance with
its terms, shall be terminated, become or be declared ineffective or inoperative
or cease to provide the respective liens, security interests, rights, titles,
interests, remedies, powers, or privileges intended to be provided thereby; or
any Company shall deny that such Company has any further liability or obligation
under any of the Loan Documents; or
(f) any Company shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian, intervenor, or liquidator of itself or of all or a
substantial part of such Person's assets, (ii) file a voluntary petition in
bankruptcy, admit in writing that such Person is unable to pay such Person's
debts as they become due, or generally not pay such Person's debts as they
become due, (iii) make a general assignment for the benefit of creditors,
(iv) file a petition or answer seeking reorganization of an arrangement with
creditors or to take advantage of any bankruptcy or insolvency laws, (v) file an
answer admitting the material allegations of, or consent to, or default in
answering, a petition filed against such Person in any bankruptcy,
reorganization, or insolvency proceeding, or (vi) take corporate or partnership
action for the purpose of effecting any of the foregoing; or
(g) an involuntary proceeding shall be commenced against any Company
seeking bankruptcy or reorganization of such Person or the appointment of a
receiver, custodian, trustee, liquidator, or other similar official of such
Person, or all or substantially all of such Person's assets, and such proceeding
shall not have been dismissed within sixty (60) days of the filing thereof; or
an order, order for relief, judgment, or decree shall be entered by any court of
competent jurisdiction or other competent authority approving a petition or
complaint seeking reorganization of any Company or appointing a receiver,
custodian, trustee,
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<PAGE>
liquidator, or other similar official of such Person, or of all or
substantially all of such Person's assets; or
(h) any final judgment(s) for the payment of money in excess of the sum of
$100,000.00 in the aggregate shall be rendered against any Company and such
judgment(s) shall not be satisfied or discharged at least ten (10) days prior to
the date on which any of such Person's assets could be lawfully sold to satisfy
such judgment; or
(i) a Change in Control shall occur.
8.2 REMEDIES UPON EVENT OF DEFAULT. If any Event of Default shall occur
and be continuing, then Lender may, without notice, exercise any one or more of
the following rights and remedies, and any other remedies provided in any of the
Loan Documents, as Lender in its sole discretion may deem necessary or
appropriate: (a) terminate Lender's commitment to lend hereunder, (b) declare
the Obligation or any part thereof to be forthwith due and payable, whereupon
the same shall forthwith become due and payable without presentment, demand,
protest, notice of default, notice of acceleration or of intention to
accelerate, or other notice of any kind, all of which Borrowers hereby expressly
waive, anything contained herein or in the Note to the contrary notwithstanding,
(c) reduce any claim to judgment, or (d) without notice of default or demand,
pursue and enforce any of Lender's rights and remedies under the Loan Documents,
or otherwise provided under or pursuant to any applicable law or agreement;
PROVIDED, HOWEVER, if any Event of Default specified in SECTIONS 8.1(f) or (g)
shall occur, then the Obligation shall thereupon become due and payable
concurrently therewith, and Lender's obligation to lend shall immediately
terminate hereunder, without any further action by Lender and without
presentment, demand, protest, notice of default, notice of acceleration or of
intention to accelerate, or other notice of any kind, all of which Borrowers
hereby expressly waive.
8.3 PERFORMANCE BY LENDER. If any Company fails to perform any covenant,
duty, or agreement contained in any of the Loan Documents, then Lender may
perform or attempt to perform such covenant, duty, or agreement on behalf of
such Company. In such event, Borrowers shall, at the request of Lender,
promptly pay any amount expended by Lender in such performance or attempted
performance to Lender at its principal office in Dallas, Texas together with
interest thereon at the Maximum Rate from the date of such expenditure until
paid. Notwithstanding the foregoing, it is expressly understood that Lender
shall not assume any liability or responsibility for the performance of any
duties of any Company hereunder or under any of the Loan Documents and none of
the covenants or other provisions contained in this Agreement shall, or shall be
deemed to, give Lender the right or power to exercise control over the
management and affairs of any Company.
8.4 ORDER OF APPLICATION.
(a) NO DEFAULT. If no Event of Default exists, then except as
specifically provided in the Loan Documents, any payments shall be applied to
the Obligation in the order and manner as Borrowers direct.
(b) DEFAULT. If an Event of Default exists, then any payment (including
proceeds from the exercise of any rights and remedies in the Collateral) shall
be applied in the following order:
(i) to all fees and expenses which Lender has not been paid or
reimbursed in accordance with the Loan Documents;
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<PAGE>
(ii) to accrued interest on the Principal Debt;
(iii) to the remaining Obligation in the order and manner as
Lender deems appropriate; and
(iv) as a deposit with Lender as security for the payment of any LC
Exposure.
SECTION 9
MISCELLANEOUS
9.1 ACCOUNTING REPORTS. All financial reports or projections furnished by
any Person to Lender pursuant to this Agreement shall be prepared in such form
and such detail as shall be satisfactory to Lender, shall be prepared on the
same basis as those prepared by such Person in prior years, and, where
applicable, shall be the same financial reports and projections as those
furnished to such Person's officers and directors.
9.2 WAIVER. No failure to exercise, and no delay in exercising, on the
part of Lender, any right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right. The rights of Lender under the Loan
Documents shall be in addition to all other rights provided by law. No
modification or waiver of any provision of any Loan Document, nor consent to
departure therefrom, shall be effective unless in writing and no such consent or
waiver shall extend beyond the particular case and purpose involved. No notice
or demand given in any case shall constitute a waiver of the right to take other
action in the same, similar, or other instances without such notice or demand.
9.3 PAYMENT OF EXPENSES. Borrowers agree to pay Lender on demand all out-
of-pocket costs and expenses of Lender (including, without limitation, the
reasonable attorneys' fees of Lender's counsel) incurred in connection with the
preservation and enforcement of Lender's rights under the Loan Documents, and
all reasonable costs and expenses of Lender (including without limitation the
reasonable fees and expenses of Lender's counsel) in connection with the
negotiation, preparation, execution, delivery, and administration of the Loan
Documents.
9.4 NOTICES. Any communications required or permitted to be given by any
of the Loan Documents must be (a) in writing and personally delivered or mailed
by prepaid certified or registered mail, or (b) made by facsimile transmission
delivered or transmitted, to the party to whom such notice of communication is
directed, to the address of such party shown opposite its name on the signature
pages hereof. Any such communication shall be deemed to have been given
(whether actually received or not) on the day it is personally delivered or, if
transmitted by facsimile transmission, on the day that such communication is
transmitted as aforesaid subject to telephone confirmation of receipt; PROVIDED,
HOWEVER, that any notice received by Lender after 10:00 a.m. Dallas, Texas time
on any day from Borrowers pursuant to SECTION 2.2 (with respect to a Notice of
Borrowing) or SECTION 2.3 (with respect to an LC Request) shall be deemed for
the purposes of such SECTION to have been given by Borrowers on the next
succeeding day, or if mailed, on the third (3rd) day after it is marked as
aforesaid. Any party may change its address for purposes of this Agreement by
giving notice of such change to the other parties pursuant to this SECTION 9.4.
REVOLVING CREDIT AGREEMENT -31-
<PAGE>
9.5 GOVERNING LAW. THIS AGREEMENT HAS BEEN PREPARED, IS BEING EXECUTED
AND DELIVERED, AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS AND THE
SUBSTANTIVE LAWS OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED
STATES OF AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT, AND
INTERPRETATION OF THIS AGREEMENT AND ALL OF THE OTHER LOAN DOCUMENTS.
9.6 CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION. Any
suit, action, or proceeding against Borrowers with respect to this Agreement,
the Note, or other Loan Documents, or any judgment entered by any court in
respect thereof, may be brought in the courts of the State of Texas, County of
Dallas, or in the United States courts located in the State of Texas as Lender
in its sole discretion may elect and Borrowers hereby irrevocably submit to the
nonexclusive jurisdiction of such courts for the purpose of any such suit,
action, or proceeding. Borrowers hereby irrevocably consent to the service of
process in any suit, action, or proceeding in said court by the mailing thereof
by Lender by registered or certified mail, postage prepaid, to each Borrower's
address shown opposite its name on the signature pages hereof. Nothing herein
or in any of the other Loan Documents shall affect the right of Lender to serve
process in any other manner permitted by law or shall limit the right of Lender
to bring any action or proceeding against Borrowers or with respect to any of
its property in courts in other jurisdiction. Borrowers hereby irrevocably
waive any objections which it may now or hereafter have to the laying of venue
of any suit, action, or proceeding arising out of or relating to this Agreement,
the Note, or any other Loan Documents brought in the courts located in the State
of Texas, County of Dallas, and hereby further irrevocably waive any claim that
any such suit, action, or proceeding brought in any such court has been brought
in any inconvenient forum. Any action or proceeding by any Borrower against
Lender shall be brought only in a court located in Dallas County, Texas.
9.7 INVALID PROVISIONS. Any provision of any Loan Document held by a
court of competent jurisdiction to be illegal, invalid or unenforceable and
shall not invalidate the remaining provisions of such Loan Document which shall
remain in full force and the effect thereof shall be confined to the provision
held invalid or illegal.
9.8 MAXIMUM INTEREST RATE. Regardless of any provision contained in any
of the Loan Documents, Lender shall never be entitled to receive, collect, or
apply as interest (whether termed interest herein or deemed to be interest by
operation of law or judicial determination) on the Note any amount in excess of
interest calculated at the Maximum Rate, and, in the event that any Lender ever
receives, collects, or applies as interest any such excess, then the amount
which would be excessive interest shall be deemed to be a partial prepayment of
principal and treated hereunder as such; and, if the principal amount of the
Obligation is paid in full, then any remaining excess shall forthwith be paid to
Borrowers. In determining whether or not the interest paid or payable under any
specific contingency exceeds interest calculated at the Maximum Rate, Borrowers
and Lender shall, to the maximum extent permitted under applicable law:
(a) characterize any non-principal payment as an expense, fee, or premium rather
than as interest; (b) exclude voluntary prepayments and the effects thereof; and
(c) amortize, prorate, allocate, and spread, in equal parts, the total amount of
interest throughout the entire contemplated term of the Note; PROVIDED THAT, if
the Note is paid and performed in full prior to the end of the full contemplated
term thereof, and if the interest received for the actual period of existence
thereof exceeds interest calculated at the Maximum Rate, then Lender shall
refund to Borrowers the amount of such excess or credit the amount of such
excess against the principal amount of the Note and, in such event, Lender shall
not be subject to any penalties provided by any laws for contracting for,
charging, taking, reserving, or receiving interest in excess of interest
calculated at the Maximum Rate.
REVOLVING CREDIT AGREEMENT -32-
<PAGE>
9.9 NON-LIABILITY OF LENDER. The relationship between the Companies and
Lender is, and shall at all times remain, solely that of borrower and lender and
Lender has no fiduciary or other special relationship with any Company.
9.10 OFFSET. Borrowers hereby grant to Lender the right of offset, to
secure repayment of the Obligation, upon any and all moneys, securities, or
other property of Borrowers and the proceeds therefrom, now or hereafter held or
received by or in transit to Lender or its agents, from or for the account of
Borrowers or any Guarantor, whether for safe keeping, custody, pledge,
transmission, collection, or otherwise, and also upon any and all deposits
(general or special) and credits of each Borrower, and any and all claims of
Borrowers against Lender at any time existing.
9.11 SUCCESSORS AND ASSIGNS. The Loan Documents shall be binding upon and
inure to the benefit of Borrowers and Lender and their respective successors,
assigns, and legal representatives; PROVIDED, HOWEVER, that Borrowers may not,
without the prior written consent of Lender, assign any rights, powers, duties,
or obligations thereunder. Lender reserves the right to sell all or a portion
of its interest in the Loan Documents, and Lender shall have the right to
disclose any information in its possession regarding any Company, or any assets
pledged to Lender in connection herewith to any potential transferee of the Note
or any part thereof.
9.12 TEXAS FINANCE CODE. Borrowers and Lender hereby agree that the
provisions of CHAPTER 346 of the TEXAS FINANCE CODE, as amended (regulating
certain revolving credit loans and revolving tri-party accounts), shall not
apply to the Loan Documents.
9.13 HEADINGS. SECTION headings are for convenience of reference only and
shall in no way affect the interpretation of this Agreement.
9.14 SURVIVAL. All representations and warranties made by Borrowers herein
shall survive delivery of the Note and the making of the Loan.
9.15 PARTICIPATIONS. Lender shall have the right to enter into
participation agreements with other banks with respect to the Note, and grant
participations in the rate of other loan documents but such participation shall
not affect the rights and duties of such Lender hereunder vis-a-vis Borrowers.
Each actual or proposed participant shall be entitled to receive all information
received by Lender regarding the creditworthiness of Borrowers, including,
without limitation, information required to be disclosed to a participant
pursuant to BANKING CIRCULAR 181 (REV., AUGUST 2, 1984), issued by the
Comptroller of the Currency (whether the actual or proposed participant is
subject to the circular or not).
9.16 NO THIRD PARTY BENEFICIARY. The parties do not intend the benefits of
this Agreement to inure to any third party, nor shall any Loan Document or any
course of conduct by any party hereto be construed to make or render Lender or
any of its officers, directors, agents, or employees liable (a) to any
materialman, supplier, contractor, subcontractor, purchaser, or lessee of any
property owned by any Borrower, or (b) for debts or claims accruing to any such
Persons against any Borrower.
9.17 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, BORROWERS HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY
JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT,
TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF LENDER IN THE
NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
REVOLVING CREDIT AGREEMENT -33-
<PAGE>
9.18 CAPITAL ADEQUACY. If, after the date hereof, Lender shall have
determined that either (a) the adoption of any applicable law, rule, regulation,
or guideline regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any Governmental Authority,
central bank, or comparable agency charged with the interpretation or
administration thereof, or (b) compliance by Lender (or any lending office of
Lender) with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank, or comparable
agency, has or would have the effect of reducing the rate of return on Lender's
capital as a consequence of its or Borrowers' obligations hereunder to a level
below that which Lender could have achieved but for such adoption, change, or
compliance (taking into consideration Lender's policies with respect to capital
adequacy) by an amount deemed by Lender to be material, then from time-to-time,
within ten (10) days after demand by Lender, Borrowers shall pay to Lender such
additional amount or amounts as will adequately compensate Lender for such
reduction. Lender will promptly notify Borrowers of any event of which it has
actual knowledge, occurring after the date thereof, which will entitle Lender to
compensation pursuant to this SECTION 9.18. A certificate of Lender claiming
compensation under this SECTION 9.18 and setting forth the additional amount or
amounts to be paid to it hereunder, together with the description of the manner
in which such amounts have been calculated, shall be conclusive in the absence
of manifest error. In determining such amount, Lender may use any reasonable
averaging and attribution methods.
9.19 MULTIPLE COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
agreement, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
9.20 ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF
(J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(a) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
BORROWERS' DOMICILE AT THE TIME OF THIS AGREEMENT'S EXECUTION AND ADMINISTERED
BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP
TO AN ADDITIONAL 60 DAYS. THE PARTIES SHALL REQUEST THAT THE ARBITRATOR SHALL
MAKE FINDINGS OF FACT AND CONCLUSIONS OF LAW IN CONNECTION WITH SUCH ARBITRATION
PROCEEDING, PROVIDED THAT SUCH FINDINGS OF FACT AND CONCLUSIONS OF LAW SHALL NOT
AFFECT THE FINALITY OF THE ARBITRATOR'S DECISION.
REVOLVING CREDIT AGREEMENT -34-
<PAGE>
(b) RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION
OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY
LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. Section 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF LENDER HERETO
(A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SET-OFF, OR (B)
TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF OR THE APPOINTMENT OF A RECEIVER. LENDER MAY EXERCISE SUCH
SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. AT LENDER'S OPTION, FORECLOSURE
UNDER A DEED OF TRUST OR MORTGAGE MAY BE ACCOMPLISHED BY ANY OF THE FOLLOWING:
THE EXERCISE OF A POWER OF SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY
JUDICIAL SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL FORECLOSURE.
NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE
OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY
SUCH ACTION TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
(c) CONFIDENTIALITY. ANY ARBITRATION PROCEEDING, AWARD, FINDINGS OF FACT,
CONCLUSIONS OF LAW, OR OTHER INFORMATION CONCERNING SUCH ARBITRATION MATTERS
SHALL BE HELD IN CONFIDENCE BY THE PARTIES AND SHALL NOT BE DISCLOSED EXCEPT TO
EACH PARTIES EMPLOYEES OR AGENTS AS SHALL BE REASONABLY NECESSARY FOR SUCH PARTY
TO CONDUCT ITS BUSINESS; PROVIDED, HOWEVER, THAT EITHER PARTY MAY DISCLOSE SUCH
INFORMATION FOR AUDITING PURPOSES BY INDEPENDENT CERTIFIED ACCOUNTANTS, FOR
COMPLYING WITH APPLICABLE GOVERNMENTAL LAWS, REGULATIONS OR COURT ORDERS, OR
THAT IS OR BECOMES PART OF THE PUBLIC DOMAIN THROUGH NO BREACH OF THIS
AGREEMENT.
9.21 ENTIRETY. THIS AGREEMENT, THE NOTE, AND THE OTHER LOAN DOCUMENTS
REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO
AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
ORAL AGREEMENTS AMONG THE PARTIES HERETO. THE PROVISIONS OF THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS TO WHICH ANY BORROWER IS A PARTY MAY BE AMENDED OR
WAIVED ONLY BY AN INSTRUMENT IN WRITING SIGNED BY THE PARTIES HERETO.
9.22 CONFIDENTIALITY. Lender agrees to keep confidential any information
furnished or made available to it by any Company pursuant to this Agreement that
is marked confidential; PROVIDED THAT nothing herein shall prevent Lender from
disclosing such information (a) to any Affiliate of Lender, or any officer,
director, employee, agent, or advisor of Lender or any Affiliate of Lender,
(b) to any other Person if reasonably incidental to the administration of the
credit facility provided herein, (c) as required by any Legal Requirement,
(d) upon the order of any court or administrative agency, (e) upon the request
or demand of any Governmental Authority, (f) that is or becomes available to the
public or that otherwise becomes available to Lender other than as a result of a
disclosure by Lender prohibited by this Agreement, (g) in connection with any
litigation to which Lender or any of its Affiliates may be a party, (h) to the
REVOLVING CREDIT AGREEMENT -35-
<PAGE>
extent necessary in connection with the exercise of any remedy under this
Agreement or any other Loan Document, and (i) subject to provisions
substantially similar to those contained in this SECTION, to any actual or
proposed participant or assignee.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGES TO FOLLOW]
REVOLVING CREDIT AGREEMENT -36-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
BORROWERS:
Address for Notice: ADAMS GOLF DIRECT RESPONSE, LTD.,
Prior to April 1, 1998 By: ADAMS GOLF GP CORP., a Delaware
c/o Adams Golf, Inc. corporation, General Partner
2901 Summit, Suite 100
Plano, Texas 75074
Attention: Mr. James Farrell, Chief By: /s/ ILLEGIBLE
Financial Officer ---------------------------
Telecopy No: 972-424-0721 Name: ILLEGIBLE
----------------------
After April 1, 1998 Title: V.P. Operations
c/o Adams Golf, Inc. ---------------------
2801 East Plano Parkway
Plano, Texas 75074
Attention: Mr. James Farrell, Chief
Financial Officer
Telecopy No: 972-424-0721
Address for Notice: ADAMS GOLF, LTD., a Texas limited
partnership
Prior to April 1, 1998
c/o Adams Golf, Inc. By: ADAMS GOLF GP CORP., a Delaware
2901 Summit, Suite 100 corporation, General Partner
Plano, Texas 75074
Attention: Mr. James Farrell, Chief
Financial Officer By: /s/ ILLEGIBLE
Telecopy No: 972-424-0721 ---------------------------
Name: ILLEGIBLE
After April 1, 1998 ----------------------
c/o Adams Golf, Inc. Title: V.P. Operations
2801 East Plano Parkway ---------------------
Plano, Texas 75074
Attention: Mr. James Farrell, Chief
Financial Officer
Telecopy No: 972-424-0721
Address for Notice: LENDER:
901 Main Street, 7th Floor NATIONSBANK OF TEXAS, N.A., a national
P.O. Box 831000 banking association
Dallas, Texas 75202
Attention: Mr. Russell P. Hartsfield By: /s/ Russell P. Hartsfield
Telecopy No.: (214) 508-3139 --------------------------------
Russell P. Hartsfield
Senior Vice President
REVOLVING CREDIT AGREEMENT -37-
<PAGE>
EXHIBITS
Exhibit A - Compliance Certificate
Exhibit B - LC Request
Exhibit C - Notice of Borrowing
Exhibit D - Companies, Principal Office, Chief Executive Office, and Location
of Assets
Exhibit E - Closing Documents
Exhibit F - Scheduled Permitted Liens
SCHEDULES
Schedule 5.14-1 Governmental Disclosures
Schedule 5.14-2 Governmental Authorizations
Schedule 5.10 Litigation
Schedule 5.20 Real Property Leases
REVOLVING CREDIT AGREEMENT -38-
<PAGE>
EXHIBIT 21.1
Subsidiaries of Adams Golf, Inc.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
COMPANY NAME* JURISDICTION OF INCORP./ORGAN. TYPE OF ENTITY
-------------------------------- ----------------------------- -------------------
<S> <C> <C> <C>
1. Adams Golf Holding Corp. Delaware Corp.
2. Adams Golf GP Corp. Delaware Corp.
3. Adams Golf Management Corp. Delaware Corp.
4. Adams Golf Direct Response, Ltd. Texas Limited Partnership
5. Adams Golf, Ltd. Texas Limited Partnership
7. Adams Golf IP, L.P. Delaware Limited partnership
8. Supershafts, Inc. Texas Corp.
* None of the Subsidiaries listed does business under a name other than its actual name.
</TABLE>
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Adams Golf, Inc. and subsidiaries:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Selected Consolidated Financial Information" and
"Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Dallas, Texas
May 4, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AS OF DECEMBER 31, 1997 AND MARCH 31, 1998 (UNAUDITED) AND
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 1,955,563 602,290
<SECURITIES> 0 0
<RECEIVABLES> 8,369,301 15,835,467
<ALLOWANCES> 698,341 1,126,831
<INVENTORY> 4,486,563 5,559,699
<CURRENT-ASSETS> 15,949,907 23,202,318
<PP&E> 802,282 2,389,870
<DEPRECIATION> 198,459 295,076
<TOTAL-ASSETS> 17,360,079 25,792,759
<CURRENT-LIABILITIES> 9,034,759 10,903,173
<BONDS> 0 222,399
0 0
0 0
<COMMON> 15,719 18,199
<OTHER-SE> 8,309,601 14,648,988
<TOTAL-LIABILITY-AND-EQUITY> 17,360,079 25,792,759
<SALES> 36,690,090 24,510,808
<TOTAL-REVENUES> 36,690,090 24,510,808
<CGS> 9,991,132 5,862,255
<TOTAL-COSTS> 13,093,174 6,248,196
<OTHER-EXPENSES> 16,836,219 3,062,195
<LOSS-PROVISION> 738,805 466,213
<INTEREST-EXPENSE> 69,731 9,362
<INCOME-PRETAX> (4,071,454) 8,772,516
<INCOME-TAX> 582,763 3,130,168
<INCOME-CONTINUING> (4,654,217) 5,642,348
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,654,217) 5,642,348
<EPS-PRIMARY> (.37) .32
<EPS-DILUTED> (.37) .31
</TABLE>
