<PAGE>
As filed with the Securities and Exchange Commission on May 27, 1998
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
GARY PLAYER GOLF, INC.*
(Name of Small Business Issuer in its Charter)
Delaware 3949 95-4553128
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation Classification Code Number) Identification No.)
or Organization
2811 Airpark Drive
Santa Maria, California 93455
(805) 346-1600
(Address and Telephone Number of Principal Executive Offices)
---------------------
2811 Airpark Drive
Santa Maria, California 93455
(805) 346-1600
(Address of Principal Place of Business or Intended Principal
Place of Business)
---------------------
Alfonso J. Cervantes, Jr., Chief Executive Officer
Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, California 93455
(805) 346-1600
(Name, Address and Telephone number of Agent for Service)
---------------------
Copies of all communications to:
ALAN B. SPATZ, ESQ. ROBERT J. MITTMAN, ESQ.
JOHN J. MCILVERY, ESQ. Tenzer Greenblatt LLP
Troop Meisinger Steuber & Pasich, LLP The Chrysler Building
10940 Wilshire Boulevard 405 Lexington Avenue
Los Angeles, California 90024 New York, New York 10174
Telephone: (310) 824-7000 Telephone: (212) 885-5000
Facsimile: (310) 443-7599 Facsimile: (212) 885-5001
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
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 the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
================================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount to Proposed Maximum Proposed Maximum
Title of Each Class of be Offering Price Aggregate Offering Amount of
Securities to be Registered Registered Per Security(1) Price(1) Registration Fee
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value
per share ........................ 1,955,000(2) $ 8.00 $15,640,000 $4,614
Underwriter's Warrants, each to
purchase one share of Common
Stock ............................ 170,000 $ 0.001 $ 170 (3)
Common Stock, $0.001 par value,
issuable upon exercise of
Underwriter's Warrants ........... 170,000(4) $ 13.20 $ 2,244,000 $ 662
Total ..................................................................................... $5,276
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 255,000 shares of Common Stock issuable upon exercise of an option
granted to the Underwriter to cover over-allotments of shares, if any.
(3) Pursuant to Rule 457(g), no separate registration fee for the warrants is
required.
(4) Consists of shares issuable upon exercise of warrants to be granted to the
Underwriter, together with such indeterminate number of shares of Common
Stock as may be issuable by reason of the anti-dilution provisions
contained therein.
---------------------
*As disclosed on page 3 of the Prospectus included as part of this
Registration Statement, the Prospectus gives effect to a name change to be
effected on or prior to the effective date of the Registration Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<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.
PRELIMINARY PROSPECTUS DATED MAY 27, 1998
SUBJECT TO COMPLETION
[LOGO]
1,700,000 Shares
GARY PLAYER GOLF, INC.
Common Stock
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that any such market will develop. It is
anticipated that the Common Stock will be quoted on the Nasdaq SmallCap Market
under the symbol "PLYR." For a discussion of the factors considered in
determining the initial public offering price, see "Underwriting."
---------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO
CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
COMMENCING ON PAGE 7 AND "DILUTION" ON PAGE 16.
---------------------
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.
================================================================================
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Share ......... $8.00 $.72 $7.28
- --------------------------------------------------------------------------------
Total (3) ......... $13,600,000 $1,224,000 $12,376,000
================================================================================
(1) In addition, the Company has agreed to pay to the Underwriter a 3%
nonaccountable expense allowance, to sell the Underwriter warrants (the
"Underwriter's Warrants") to purchase 170,000 shares of Common Stock and to
retain the Underwriter as a financial consultant. The Company has also
agreed to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses, including the nonaccountable expense allowance
in the amount of $408,000, estimated at $992,000 payable by the Company.
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to an aggregate of
255,000 additional shares of Common Stock on the same terms as set forth
above, solely for the purpose of covering over-allotments, if any. If the
Underwriter's over-allotment option is exercised in full, the price to
public, underwriting discounts and commissions and proceeds to Company will
be $15,640,000, $1,407,600 and $14,232,400, respectively. See
"Underwriting."
The shares of Common Stock are offered, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter, and subject to approval of
certain legal matters by counsel and to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify the offering and to
reject any order in whole or in part. It is expected that delivery of the
certificates representing the shares of Common Stock will be made against
payment therefor at the offices of the Underwriter, 650 Fifth Avenue, New York,
New York 10019, on or about , 1998.
---------------------
Whale Securities Co., L.P.
The date of this Prospectus is , 1998
<PAGE>
[PICTURES]
Inside Front Cover of Prospectus:
A full page head shot of Gary Player holding a Gary Player Black Knight Ti
162 iron.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS,
ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH STABILIZE,
MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SPECIFICALLY, THE
UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND
PURCHASE SHARES OF COMMON STOCK AND WARRANTS IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES SEE "UNDERWRITING."
<PAGE>
[PICTURES]
Inside Fold Out Spread (2 pages) of Prospectus:
A collage of pictures which include a picture of Gary Player accepting a trophy;
2 pictures of the Gary Player Black Knight titanium drivers; Gary Player holding
a trophy; a program from the Memorial Golf Tournament with Gary Player featured
on the cover and the line "A courageous style of play fired by a fiercely
competitive nature" to the left of the program cover; 3 different pictures of
Gary Player swinging a golf club; Gary Player holding an umbrella with the Black
Knight logo on it; 2 pictures of Gary Player holding a golf club; 5 sporting
magazine covers with Gary Player pictured on the front; and the cover of 3 of
the Company's golf club brochures. The Gary Player Black Knight logo is situated
in 3 different spots in the collage. On the bottom right corner of the first
page in the reversing out of solid black is the title Mission Statement with
text underneath that reads: Gary Player Golf is committed to creating a mutually
rewarding relationship with our customers through the sale of premium
direct-marketed Gary Player Black Knight golf products at sensible prices. Our
commitment reflects the attributes which Gary Player embodies of integrity,
superior quality and excellence.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Except with respect to historical financial
statements and unless the context indicates otherwise, all information in this
Prospectus, including per share data and information relating to the number of
shares outstanding (i) has been adjusted to give retroactive effect to the
1-for-2 reverse stock split effected by the Company prior to the date of this
Prospectus; (ii) gives effect to the Player Acquisition (as hereinafter
defined); (iii) reflects the change of the Company's name from "Golf One
Industries, Inc." to "Gary Player Golf, Inc." immediately prior to the date of
this Prospectus; and (iv) assumes no exercise of the Underwriter's
over-allotment option to purchase 255,000 additional shares of Common Stock. The
statements which are not historical facts contained in this Prospectus are
forward-looking statements that involve risks and uncertainties, including those
described under "Risk Factors." The Company's actual results may differ
materially from the results discussed in the forward-looking statements.
The Company
The Company is engaged primarily in the direct marketing of Gary Player(R)
brand golf clubs through telemarketing, direct response television, the Internet
and direct mail. To date, substantially all of the Company's sales have been
generated through telemarketing activities conducted at the Company's three call
centers and direct response television. By marketing its clubs directly to
consumers, the Company believes it offers its clubs at lower price points than
comparable products offered by competitors through retail outlets, such as golf
pro shops and specialty golf stores.
Prior to the offering, the Company marketed its Gary Player golf clubs
pursuant to an agreement with the Gary Player Group, Inc. ("GPG") which
authorized the Company to sell golf clubs, accessories and apparel only through
direct marketing channels in the United States and Canada. On the date of this
Prospectus, the Company purchased the assets of the golf equipment operations of
GPG (the "Player Acquisition"), including two licenses (the "Player Licenses")
which together give the Company the perpetual, worldwide, exclusive right to use
the name and likeness of Gary Player, the professional golfer, and ancillary
marks, including Black Knight(TM) and the Knight's Head logo, in connection
with the manufacture, marketing and distribution of golf clubs, accessories and
apparel. In connection with the Player Acquisition, Gary Player became Chairman
of the Board of Directors of the Company.
Golf is popular both as a professional sport and a leisure activity.
According to the National Golf Foundation ("NGF"), the number of persons age 12
and older playing at least one round of golf per year in the United States
increased from approximately 20 million in 1986 to 25 million in 1996, while the
total number of rounds of golf played in the United States increased from
approximately 400 million to 477 million during the same period. In 1994,
golfers in the United States spent an estimated $15.1 billion on golf equipment,
related merchandise and greens fees, compared to $7.8 billion in 1986. Wholesale
shipments of golf clubs, balls, bags, gloves and shoes in the United States
increased from approximately $1.6 billion in 1991 to $2.9 billion in 1996.
During 1996, approximately two million persons in the United States played a
round of golf for the first time. The Company believes that the popularity of
golf and sales of golf equipment and related merchandise will rise in the future
due to the increasing interest in golf of the aging "baby boom" population.
The Company's principal product line is the Gary Player Black Knight line
of titanium irons, titanium driver and woods, and specialty clubs. These clubs
feature lightweight graphite shafts, oversized club heads with larger "sweet
spots" and a low center of gravity, and are designed to achieve increased lift,
distance and accuracy. The Company custom assembles each set of golf clubs based
upon the customer's physical attributes, golfing ability and personal
preferences elicited from the customer upon placement of the order. Custom
specifications include length and flex of shaft, overall club weight and grip
preference. The Company uses heads and shafts manufactured to the Company's
specifications by various golf component manufacturers, which currently include
Aldila, Inc. (shafts), and grips manufactured by Eaton Golf Pride.
3
<PAGE>
The Company's objective is to increase sales by capitalizing on the
increasing popularity of golf and Gary Player's knowledge, reputation and
achievements as a professional golfer. The Company's strategy to increase sales
includes:
o Increase telemarketing sales by establishing additional telemarketing call
centers and adding telemarketers to its existing call centers.
o Increase direct response television marketing by producing and broadcasting
additional infomercials and direct response commercials.
o Sublicense the right to use the Gary Player trademarks in connection with
the manufacturing, marketing and sale of a wide variety of golf
accessories, such as golf bags, gloves and headwear, and apparel, such as
outerwear, rain gear and casual golf wear in various markets throughout the
world.
o Create and distribute mail order catalogs offering Gary Player brand golf
clubs, accessories and apparel sold by the Company and its sublicensees.
o Increase advertising of its Internet web site and create or acquire
additional content for its web site to increase sales via the Gary Player
Pro Shop, the Company's online store, and to generate leads for
telemarketing and direct mail.
o Establish international marketing operations, either directly or through
sublicensing or joint venture arrangements.
o Increase consumer awareness of the Company and its products through print
advertising in golf and golf-related publications and participation in golf
and direct marketing industry trade shows.
Since its inception, the Company has incurred significant losses. Following
the Player Acquisition and this offering, the Company intends to expand its
operations by increasing its telemarketing activities and commencing other forms
of direct marketing, and by sublicensing rights to the Gary Player trademarks to
third parties. The Company has limited experience implementing a multi-faceted
marketing strategy, expects to incur significant up-front expenditures and
operating costs in connection with expanding its operations, and could continue
to incur losses for the foreseeable future. There can be no assurance that the
Company will be able to capitalize on the expanded scope of the Player Licenses,
implement its marketing strategies, achieve market acceptance for the Gary
Player trademarks or achieve profitable operations.
The Company was incorporated under the laws of the State of Delaware in
October 1995. Unless the context requires otherwise, all references to the
"Company" include the Company's wholly-owned subsidiaries, Gran Prix Marketing,
Inc. and Rhino Marketing, Inc. Gary Player(R), Black Knight(TM), Par Saver(TM)
and the Knight's Head logo are trademarks owned by Gary Player and are used
by the Company pursuant to the Player Licenses. The Company's principal
executive offices are located at 2811 Airpark Drive, Santa Maria, California
93455, its telephone number is (805) 346-1600, and its Internet web site address
is http://www.garyplayerdirect.com.
4
<PAGE>
The Offering
Common Stock offered..... 1,700,000 shares
Common Stock to be
outstanding after this
offering(1)............. 4,128,583 shares
Use of Proceeds.......... The Company intends to use the net proceeds of
this Offering to repay outstanding indebtedness; for
marketing and advertising; to purchase and maintain
an increased level of inventory; for the Player
Acquisition, including the payment of certain
indebtedness and account payables assumed by the
Company; and for working capital and general
corporate purposes. See "Use of Proceeds."
Risk Factors............. The shares of Common Stock offered hereby are
speculative and involve a high degree of risk and
immediate substantial dilution and should not be
purchased by investors who cannot afford the loss of
their entire investment. See "Risk Factors" and
"Dilution."
Proposed Nasdaq Symbol... "PLYR"
- -------------
(1) Does not include (i) 170,000 shares of Common Stock reserved for issuance
upon exercise of the Underwriter's Warrants; and (ii) 333,250 shares of
Common Stock reserved for issuance upon exercise of options granted or
available for future grant under the Company's 1998 Stock Option Plan (the
"1998 Plan") and other non-plan options. See "Management -- Stock Option
Plan," "Shares Eligible for Future Sale" and "Underwriting."
5
<PAGE>
Summary Financial Information
The summary financial information set forth below is derived from and
should be read in conjunction with the Consolidated Financial Statements and
notes thereto and with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" appearing elsewhere in this Prospectus.
During 1997, the Company changed its fiscal year end from December 31 to
March 31.
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended Three Months Ended Year Ended
December 31, 1996 March 31, 1997 March 31, 1998
------------------- -------------------- ---------------
<S> <C> <C> <C>
Net sales ....................................... $ 4,424,544 $ 909,718 $ 4,768,032
Cost of goods sold .............................. 1,619,568 422,983 1,973,105
Gross profit .................................... 2,804,976 486,735 2,794,927
Operating expenses .............................. 6,197,358 1,059,455 6,568,875
Other expenses .................................. 666,289 73,881 1,850,566
Net loss ........................................ (4,058,671) (646,601) (5,624,514)
Net loss per share(1) ........................... $ (4.22) $ (.55) $ (3.89)
Weighted average shares of Common Stock
outstanding ................................... 965,529 1,243,634 1,484,147
Pro forma net loss(2) ........................... $ (5,921,412)
Pro forma net loss per share(1)(2) .............. $ (3.27)
Pro forma weighted average shares outstanding(2) 1,859,147
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------------------
Actual Pro Forma(3) As Adjusted(4)
----------------- ----------------- ---------------
<S> <C> <C> <C>
Working capital (deficit) .............. $ (6,400,540) $ (6,015,210) $ 4,350,908
Total assets ........................... 1,630,675 6,998,871 13,758,347
Total liabilities ...................... 7,090,746 8,365,442 5,368,799
Stockholders' equity (deficit) ......... (5,460,071) (1,366,571) 8,389,548
</TABLE>
- -------------
(1) The net loss per share is computed after deduction for preferred dividend
requirements. See Consolidated Financial Statements.
(2) Gives effect to the net loss incurred by GPG for the twelve months ended
March 31, 1998 and attributable to the assets acquired by the Company in
the Player Acquisition, adjusted to account for intercompany transactions
between the Company and GPG, amortization expenses related to the Player
Licenses, and the issuance of 375,000 shares of Common Stock and a
promissory note in the amount of $750,000 to GPG pursuant to the Player
Acquisition. See Consolidated Financial Statements -- Pro Forma
Consolidated Financial Statements.
(3) Gives effect to: (i) the Player Acquisition, pursuant to which the Company
acquired certain assets (including the Player Licenses) in exchange for
375,000 shares of Common Stock, a promissory note in the principal amount
of $750,000 and the assumption of liabilities in the aggregate amount of
$750,000 (of which $200,000 will be converted into 35,714 shares of Common
Stock upon consummation of this offering pursuant to an agreement with the
creditor); (ii) the incurrence of $1,500,000 of short-term debt and the
issuance of 93,750 shares of Common Stock in connection therewith; (iii)
the conversion of the outstanding shares of Series B Convertible Preferred
Stock into 286,325 shares of Common Stock; (iv) the issuance of 159,938
shares of Common Stock in exchange for outstanding warrants and the
cancellation of $75,000 in outstanding indebtedness; (v) the extension of
the maturity of $917,500 principal amount of indebtedness to a date 13
months following the consummation of this offering; (vi) cancellation of
$68,500 of accounts payable and accrued liabilities; and (vii)
cancellation of 222,914 shares of Common Stock (collectively, the "Pro
Forma Adjustments"). See "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and Consolidated Financial
Statements -- Pro Forma Consolidated Financial Statements.
(4) Gives effect to: (i) the Pro Forma Adjustments: (ii) the sale of 1,700,000
shares of Common Stock offered hereby and the application of the estimated
net proceeds therefrom; and (iii) $262,975 of deferred offering costs and
non-recurring charges of $1,627,881 representing loan discounts and costs.
See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
The securities offered hereby are highly speculative and involve a high
degree of risk and therefore should not be purchased by anyone who cannot afford
a loss of his or her entire investment. Each prospective investor should
carefully consider the following risk factors before purchasing shares of Common
Stock offered by this Prospectus.
Limited Relevant Operating History; Significant and Continuing Losses. The
Company was organized in October 1995, commenced marketing of a now discontinued
line of golf clubs in November 1995, and commenced marketing of its Gary Player
Gran Prix and Gary Player Black Knight lines of golf clubs in February 1997 and
November 1997, respectively. Following the date of this Prospectus, the Company
will begin marketing its Gary Player brand golf clubs through additional direct
marketing techniques and begin marketing Gary Player golf accessories and
apparel. Accordingly, the Company has a limited relevant operating history upon
which an evaluation of its prospects and future performance can be made. The
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered in the operation and expansion of a new
business and commercialization of new products. The Company has incurred net
losses of $4,058,671 for the year ended December 31, 1996, $646,601 for the
three months ended March 31, 1997 and $5,624,514 for the year ended March 31,
1998. At March 31, 1998, the Company had an accumulated deficit of $11,107,817.
The Company expects to incur substantial up-front capital expenditures and
operating costs in connection with the expansion of its marketing efforts and
product lines, which may result in significant losses for the foreseeable
future. The Company will also incur non-recurring charges during the fiscal year
ending March 31, 1999 of approximately $1,630,000 relating to loan discounts and
costs. There can be no assurance that the Company will ever achieve profitable
operations. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and Consolidated Financial Statements.
Significant Capital Requirements; Working Capital Deficit; Dependence on
Proceeds for Implementation of Business Strategy; Continuing Need for Additional
Financing. Since inception, the Company's cash requirements have exceeded its
cash flows from operations and, at March 31, 1998, the Company had a working
capital deficit of $6,400,540. As a result, the Company has depended on loans
and sales of securities to fund its operations. The Company must increase its
net sales to obtain sufficient cash flows from operations to meet its cash
requirements. The Company is dependent upon the proceeds of this offering to
implement its growth strategy and finance its short-term working capital
requirements. If the net proceeds of this offering and projected revenues prove
to be insufficient to fund the implementation of the Company's growth plan or
working capital requirements, the Company could be required to seek additional
financing sooner. The Company has no current arrangements with respect to any
additional financing, and it is not anticipated that existing stockholders will
provide any portion of the Company's future financing requirements.
Consequently, there can be no assurance that any additional financing will be
available to the Company when needed, on commercially reasonable terms, or at
all. Any inability to obtain additional financing when needed would have a
material adverse effect on the Company, requiring it to curtail and possibly
cease its operations. In addition, any additional equity financing may involve
substantial dilution to the interests of the Company's then existing
stockholders. See "Use of Proceeds" and "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
Dependence on Player Licenses and Gary Player. Pursuant to the Player
Licenses, the Company has the perpetual worldwide, exclusive right to use Gary
Player's name and likeness and certain ancillary marks in connection with the
manufacture, marketing and distribution of golf clubs, accessories and apparel.
The Company expects to derive all of its revenues for the foreseeable future
from exploitation of its rights under the Player Licenses. The Company is
required to make certain minimum payments during the first ten years of the
Player Licenses (ranging from $150,000 in the first year to $350,000 in each of
the last six years), to pay royalties of up to 3% of net receipts from sales of
licensed products, and to obtain the licensors' approval to the specific manner
in which the Gary Player name is used in connection with the Company's marketing
efforts and on the Company's products. Failure to make any required payment
under, or other material breach of, the Player Licenses could result in
termination of the licenses which would have a material adverse effect on the
Company. In addition, the Company may not assign the Player Licenses except in
connection with a sale of all or substantially all of the assets of the Company
to, or a merger of the Company with, a person or entity other than a person or
entity whose sales of golf clubs exceed 10% of the total sales of golf clubs
during the calendar year,
7
<PAGE>
whose name includes the name of a recognized professional golfer or has over 25%
of its capital stock owned by a recognized professional golfer. Gary Player and
his son, Marc B. Player, as the Chairman of the Board and a Director of the
Company, respectively, would be in a conflict of interest position with the
Company on any matter presented to the Board of Directors which could adversely
affect the Player Licenses or the revenues derived under the Player Licenses.
See "Business -- Player Licenses."
The Company is also dependent upon the reputation of Gary Player and his
continuing services to the Company, primarily his availability to appear in
infomercials and commercials. Failure or any significant delay in Gary Player
being available for the Company, his death, disability or retirement from
tournament play or any significant decline in the level of his tournament play
could have a material adverse effect on the Company. In addition, the commission
by Gary Player of any serious crime, act of moral turpitude or other serious act
which adversely affects his reputation could also have an adverse effect on the
Company. While the Company has obtained "key-man" insurance on the life of Gary
Player in the amount of $5,000,000, there can be no assurance that the proceeds
of this policy will be sufficient to offset the loss to the Company in the event
of the death of Gary Player.
Uncertainty of Market Penetration. The golf equipment industry is currently
dominated by several companies which have strong brand name recognition. As a
result, the market demand for new products from new companies is subject to a
high level of uncertainty. Achieving significant market penetration and consumer
recognition for the Company's products will require significant efforts and
expenditures by the Company to inform potential customers about the Company's
products. Although the Company intends to use a substantial portion of the net
proceeds of this offering for marketing and advertising, there can be no
assurance that the Company will be able to penetrate existing markets for golf
equipment and related accessories on a broad basis, position its products to
appeal to a broad base of customers, or that any marketing efforts undertaken by
the Company will result in any increased demand for or greater market acceptance
of the Company's products. See "Business."
Competition. The markets for the Company's golf clubs and accessories are
highly competitive and contain limited barriers to entry. The Company competes
primarily on the basis of providing higher quality products at its products'
price points. The Company competes with golf equipment manufacturers and
marketers as well as manufacturers and marketers of other sporting equipment
that offer consumers products with similar entertainment or recreational value,
such as ski and tennis equipment. Many of these competitors are well established
companies with broad consumer recognition and greater financial, marketing,
distribution, personnel and other resources than the Company. The golf equipment
industry is currently dominated by four companies, Callaway Golf Company,
Titleist/Cobra Golf, Karsten Manufacturing (Ping) and Taylor Made, which, in the
aggregate, accounted for approximately 50% of the golf clubs sold in the United
States in 1997. In addition, the Company is aware of a number of companies which
use infomercials to sell golf clubs (principally specialty clubs). Competition
in the market for golf apparel is also extremely competitive. The Company
intends to compete in this market by attempting to establish the Gary Player
brand and offering, principally through sublicensees, a variety of products at
various price and quality levels. In the golf apparel market, the Company will
compete with a large number of manufacturers and retailers of golf and other
sports apparel and casual and outerwear. There can be no assurance that the
Company will be able to compete successfully.
Risks Relating to Telemarketing Activities. To date, substantially all of
the Company's sales have been generated through telemarketing. The success of
telemarketing companies is subject to a number of risks and uncertainties,
including the ability to obtain the number of customer "leads" with an
acceptable rate of successful sales ("quality leads"). The proposed expansion of
the Company's telemarketing efforts will require the Company to obtain a greater
number of quality leads. While the Company has no reason to believe that it will
not be able to acquire the increasing numbers of quality leads it will require
at acceptable prices, the unavailability of quality leads could result in
incremental marketing costs without corresponding increased sales. Moreover, the
Company also believes that sales through telemarketing result in higher product
return rates than sales through retail stores. See"Business -- Direct Marketing
- -- Telemarketing" and "--Product Returns; Warranty."
Risks Relating to Direct Response Television Marketing. The Company intends
to expand its direct marketing efforts to include direct response television,
including infomercials and direct response commercials. The success of direct
response television is speculative and will depend upon numerous factors,
including the Company's ability to produce infomercials and commercials which
attract and retain viewer interest, feature products
8
<PAGE>
that appeal to viewers and generate revenues sufficient to offset their cost of
production and broadcast. Industry sources estimate that only one out of eight
infomercials generate a level of sales sufficient to offset the costs associated
with their production and broadcast. The Company has limited experience in
utilizing direct response television to market its products, having only
broadcast one infomercial in 1996, test marketed another infomercial in 1997 and
test marketed two direct response commercials in June 1998. The infomercial test
marketed in 1997 did not result in consumer acceptance and was discontinued. The
production and broadcast of infomercials and commercials also require up-front
cash expenditures. The Company expects that a typical infomercial will cost
approximately $200,000 to $300,000 to produce and a typical direct response
commercial will cost approximately $25,000 to $50,000 to produce. Media
broadcast time, the largest expense in marketing through infomercials and
commercials, must be paid for in advance and typically accounts for a
substantial portion of the total costs associated with the marketing of products
through direct response television, depending upon the broadcast markets and
hours at which the infomercial or commercial airs. Media costs have increased
recently and greater demand for broadcast time could result in increased costs,
as well as the unavailability of preferred hours and channels for broadcast and
the unwillingness of broadcasters to air the Company's advertisements. See
"Business -- Direct Marketing -- Direct Response Television."
Product Returns. The Company currently accepts returns of golf clubs for
any reason generally 60 days following delivery of the clubs. As is typical of
companies which market products primarily through telemarketing, the Company has
experienced high product return rates. The Company recorded allowances for
returns of 45%, 40% and 50% of gross sales for the year ended December 31, 1996,
the three months ended March 31, 1997 and the year ended March 31, 1998,
respectively. The Company believes that its product return rate has been high
because, until the introduction of the Gary Player Black Knight line of golf
clubs in the quarter ended December 31, 1997, the Company offered only steel
clubs at a time when the market increasingly demanded titanium clubs. Although
the Company believes that its product return rate will decline as the Company
currently features titanium clubs and as its market recognition increases, the
Company expects to continue to experience a high product return rate because its
direct marketing customers do not have the opportunity to examine the Company's
golf clubs before they are purchased. A continuing high product return rate or
product returns which significantly exceed the Company's allowances for returns
will adversely affect the Company's operating results. Moreover, the Company
offers returned products as demonstration models at significantly reduced
prices, after cleaning and refurbishing the products. Any inability to resell
returned products could result in a significant buildup of inventory which may
become obsolete and could otherwise adversely affect operating results. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Business -- Product Returns; Warranty."
Consumer Preferences and Industry Trends. The golf equipment industry is
characterized by frequent introductions of new products and innovations and is
subject to rapidly changing consumer preferences and industry trends (such as
the recent introduction of titanium clubs and oversized club heads), which may
adversely affect the Company's ability to plan for future design, development
and marketing of its products. Because of rapidly changing consumer preferences
and industry trends, most golf club models and designs have short product life
cycles. In addition, new club models and basic designs are frequently introduced
and often rejected by customers. Although the Company does not devote
significant resources to product design and does not strive to be a market
innovator in club design, the Company's success will depend on its ability to
anticipate and respond to these factors and introduce products that meet
consumer expectations. There can be no assurance that the Company will be able
to anticipate and respond to changing consumer preferences and industry trends
or that competitors will not develop and commercialize new innovations that
render the Company's golf clubs less marketable. See "Business -- Competition."
The Company's future operating results are also likely to be dependent upon
the continuing popularity of golf as a sport and leisure activity. Although golf
has gained increasing popularity over the last several years, there can be no
assurance that its popularity as a sport and leisure activity will continue. Any
significant decline in the popularity of golf could materially adversely affect
the Company. Moreover, golf, as a leisure activity, is affected by a number of
factors relating to discretionary consumer spending, including general economic
conditions affecting disposable consumer income such as employment and business
conditions, interest rates and taxation. Any significant change in general
economic conditions or uncertainties regarding future economic prospects that
adversely affect discretionary consumer spending generally, and golfers
specifically, could have a material adverse effect on the Company. See "Business
- -- The Golf Industry."
9
<PAGE>
Risks Relating to Sublicensing. The Company's growth strategy includes
sublicensing to third parties the right to manufacture and market various types
of golf accessories and apparel under the Gary Player trademarks. In connection
with the Player Acquisition, the Company assumed several sublicenses granted by
GPG, some of which historically have not satisfied minimum purchase requirements
or generated material revenues. While the Company believes that sublicensees
will devote sufficient resources to successfully commercialize products
using the Company's trademarks, the time and resources devoted to these
activities generally will be contributed and controlled by the sublicensees and
not the Company. The Company does not expect that its sublicensing agreements
will prohibit sublicensees from selling competitive products. There can be no
assurance that the Company will be able to enter into any additional sublicenses
or that any sublicensing arrangements will result in material revenues for the
Company. See "Business -- Sublicensing."
Risks Relating to Operation of a Web Site and Advertising on the Internet.
One element of the Company's growth strategy is to expand its Internet web site
and increase Internet and online computer service advertising. Accordingly, the
satisfactory performance, reliability and availability of the Company's web
site, transaction-processing systems and network infrastructure will be
important to the Company's reputation and its ability to attract visitors to its
web site and maintain adequate customer service levels. Because the Company's
web site is an integrated element of the Company's growth strategy, any system
interruptions that result in the unavailability of the Company's web site or
reduced order fulfillment performance could reduce the volume of golf clubs,
accessories and apparel sold and could adversely affect consumer perception of
the Company and the Company's web site, either of which could have a material
adverse effect on the Company. The Company's Internet web site relies on
encryption and authentication technology licensed from third parties to provide
the security and authentication necessary to effect secure transmission of
confidential information, such as customer credit card numbers. Any compromise
of the Company's security could have a material adverse effect on the Company.
See "Business -- Direct Marketing -- Internet Web Site."
Dependence on Continued Growth of Online Commerce. The success of the
Company's marketing efforts through the Internet will be substantially dependent
upon the widespread acceptance and use of the Internet and online services as an
effective medium of commerce by consumers. Rapid growth in the use of and
interest in the Internet and online services is a recent phenomenon, and there
can be no assurance that acceptance and use will continue to develop or that a
sufficiently broad base of consumers will adopt and continue to use the Internet
and online services as a medium of commerce. Demand and market acceptance for
recently introduced services and products over the Internet are subject to a
high level of uncertainty. Moreover, critical issues concerning the commercial
use of the Internet, such as ease of access, security, reliability, cost and
quality of service, remain unresolved and may affect the growth of Internet use
or the attractiveness of conducting commerce online. In addition, the Internet
and online services may not be accepted as a viable commercial marketplace for a
number of reasons, including potentially inadequate development of the necessary
network infrastructure or delayed development of enabling technologies and
performance improvements. To the extent that the Internet and online services
continue to experience significant growth, there can be no assurance that the
infrastructure of the Internet and online services will prove adequate to
support increased user demands. If use of the Internet and online services does
not continue to grow or grows more slowly than expected, if the infrastructure
for the Internet and online services does not effectively support growth that
may occur, or if the Internet and online services do not become a viable
commercial marketplace, the success of the Company's Internet related efforts
would be materially adversely affected.
Dependence on a Limited Number of Suppliers. The Company currently
purchases its club heads from one source, its shafts from two sources and its
grips from one source. The Company purchases its components pursuant to purchase
orders placed from time to time and, except for those purchase orders, none of
its suppliers is obligated to deliver specified quantities of components or to
deliver components for any specified period. Accordingly, the Company is
substantially dependent on the ability of its suppliers to provide adequate
inventories of golf club components on a timely basis and on acceptable terms.
The Company's suppliers also produce components for certain of the Company's
competitors, as well as other large customers, and there can be no assurance
that any such supplier will have sufficient production capacity to satisfy the
Company's inventory or scheduling requirements during any period of sustained
demand or that the Company will not be subject to the risk of price fluctuations
and periodic delays. Although the Company believes that its relationships with
its
10
<PAGE>
suppliers are satisfactory and that alternative sources of each of the
components are currently available, the loss of the services of a supplier or
substantial price increases imposed by a supplier could result in production
delays, thereby causing cancellation of orders by customers and/or price
increases resulting in reduced margins. See "Business -- Supply, Assembly and
Delivery."
Dependence on Credit Card Processor. Substantially all of the Company's
sales are paid for by credit card. The Company has entered into an agreement
with Cardservice International, Inc. ("CSI") pursuant to which CSI provides to
the Company credit card processing services. The Company is dependent upon CSI
to timely process, collect and accurately report customer payments to avoid
delays in collection. Failure by CSI to perform its services in accordance with
the Company's requirements could result in collection delays which could
adversely affect the Company's operating results and financial condition.
Although the Company believes that alternate sources for such services are
available, the unavailability or interruption of services from CSI would result
in a material interruption of the Company's operations. In addition, CSI has the
right to withhold all or a portion of the proceeds from sales as a reserve
against customer charge-backs and returns. Currently, CSI does not withhold any
amount from the Company and if it elects to do so in the future to any
significant extent, the Company's cash flow would be adversely affected. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
Fluctuations in Operating Results. The Company's operating results vary
significantly from period to period as a result of customer purchasing patterns,
new product introductions by the Company and its competitors, product returns
and pricing. Since golf is a warm weather sport and demand for golf equipment
declines during the colder months, sales of the Company's products are seasonal,
with the Company typically experiencing lower sales from December through
February (during the Company's third and fourth fiscal quarters). The Company
also expects that its operating results will vary in the future due to the
timing and success of proposed direct response marketing activities. Unexpected
events, including delays in securing adequate supplies of golf club components
or shipping orders (either of which could result in increased cancellations),
increased product return rates or delays or failure of direct response
marketing, particularly during periods of peak sales, could result in material
losses. There can be no assurance that the foregoing factors will not have an
adverse effect on the Company's future operating results. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
Government Regulation. The Company's direct marketing operations are
subject to numerous Federal and state regulations, as well as general public
scrutiny. The Federal Telephone Consumer Protection Act of 1991 limits the
hours during which telemarketers may call consumers to between 8:00 a.m. and
9:00 p.m., and prohibits the use of automated telephone dialing equipment to
call certain telephone numbers. The Federal Telemarketing and Consumer Fraud and
Abuse Prevention Act of 1994, and the Federal Trade Commission ("FTC")
regulations promulgated thereunder, prohibit deceptive, unfair or abusive
practices in telemarketing sales. Both the FTC and state attorneys general have
authority to prevent telemarketing activities that constitute "unfair or
deceptive acts or practices." Additionally, some states have enacted laws and
others are considering enacting laws targeted directly at telemarketing
practices, and there can be no assurance that any such laws, if enacted, will
not adversely affect or limit the Company's current or future operations. The
infomercial industry is also regulated by the FTC, the Consumer Product Safety
Commission, the Federal Communications Commission, various states' attorneys
general and other state and local consumer protection agencies. The Company's
marketing activities and/or products may become subject to the scrutiny of each
of these regulatory agencies. Compliance with regulations promulgated by these
agencies is generally the responsibility of the Company, and the Company could
be subject to a variety of enforcement or private actions for any failure to
comply with such regulations. Noncompliance by the Company with any rules and
regulations enforced by a Federal or state consumer protection authority may
subject the Company or its management to fines or various forms of civil or
criminal prosecution, any of which could materially adversely affect the
Company's business, financial condition and results of operations.
Dependence Upon Key Personnel; Need for Qualified Personnel. The success of
the Company will be largely dependent on the personal efforts of Joseph J.
White, its Chief Executive Officer, and Alfonso J. Cervantes, Jr., its
President. Although the Company has entered into two-year employment agreements
with each of Messrs. White and Cervantes, the loss of the services of either of
such officers could have a material adverse
11
<PAGE>
effect on the Company's business and prospects. While the Company has obtained
"key-man" insurance on the lives of Messrs. White and Cervantes in the amount of
$2,000,000 each, there can be no assurance that the proceeds of these policies
will be sufficient to offset the loss to the Company in the event of the death
of either of these executives. The success of the Company will also be dependent
upon its ability to hire and retain additional qualified marketing, industry,
technical and financial personnel. The Company faces considerable competition
from other sporting equipment manufacturers and direct marketers for such
personnel, many of which have significantly greater resources than the Company.
There can be no assurance that the Company will be able to attract and retain
additional qualified personnel, and any inability to do so could have a material
adverse effect on the Company. See "Management."
Influence by Management. Upon consummation of this offering, the Company's
officers and directors will beneficially own, in the aggregate, approximately
16.4% of the outstanding Common Stock. Accordingly, such persons will continue
to exert influence over the outcome of all matters submitted to a vote of the
holders of Common Stock, including the election of directors, amendments to the
Company's Certificate of Incorporation and approval of significant corporate
transactions. Such consolidation of voting power could also have the effect of
delaying, deterring or preventing a change in control of the Company that might
be beneficial to other stockholders. See "Management" and "Principal
Stockholders."
Use of Proceeds to Repay Indebtedness; Broad Discretion in Application of
Proceeds. The Company has allocated approximately $4,102,500 (36%) of the net
proceeds of this offering to repay outstanding indebtedness, including
liabilities assumed by the Company in the Player Acquisition. Accordingly, such
proceeds will not be available for other corporate purposes. In addition,
approximately $2,931,500 (25.8%) of the net proceeds of this offering has been
allocated to working capital and general corporate purposes. Management will
have broad discretion as to the application of such proceeds. See "Use of
Proceeds."
Immediate and Substantial Dilution. This offering will result in an
immediate and substantial dilution of $7.03 per share (or 87.9%) between the
adjusted net tangible book value per share of Common Stock after this offering
and the initial public offering price per share. See "Dilution."
No Dividends. The Company has never paid any cash dividends on its Common
Stock and does not anticipate paying cash dividends in the foreseeable future.
The Company currently intends to retain net income for use in connection with
the expansion of its business and for general corporate purposes. The
declaration and payment of future dividends, if any, will be at the sole
discretion of the Company's Board of Directors and will depend upon the
Company's profitability, financial condition, cash requirements, future
prospects and other factors deemed relevant by the Board of Directors. See
"Dividend Policy" and "Description of Securities -- Common Stock."
Shares Eligible for Future Sale; Registration Rights. Upon the consummation
of this offering, the Company will have 4,128,583 shares of Common Stock
outstanding, of which the 1,700,000 shares being offered hereby will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"). All of the remaining 2,428,583
shares of Common Stock outstanding are "restricted securities", as that term is
defined in Rule 144 promulgated under the Securities Act, and in the future may
be sold publicly only pursuant to an effective registration statement under the
Securities Act, in compliance with the exemption provisions of Rules 144 or 701
or pursuant to another exemption under the Securities Act. Of the 2,428,583
restricted shares, an aggregate of 1,323,244 shares have piggyback registration
rights, and the Company has granted the Underwriter demand and piggyback
registration rights with respect to the shares of Common Stock issuable upon
exercise of the Underwriter's Warrants. No prediction can be made as to the
effect, if any, that sales of such securities or the availability of such
securities for sale will have on the market prices prevailing from time to time.
While stockholders (including the Company's officers and directors) holding an
aggregate of 2,307,154 shares of Common Stock have agreed not to (i) sell or
otherwise dispose of any shares of Common Stock in any public market transaction
(including pursuant to Rule 144) or (ii) exercise any registration rights for a
period of 12 months following the date of this Prospectus without the
Underwriter's prior written consent, the possibility that a substantial number
of the Company's securities may be sold in the public market may adversely
affect prevailing market prices for the Common Stock and could impair the
Company's ability to raise capital through the sale of its equity securities.
See "Description of Securities" and "Shares Eligible for Future Sale."
12
<PAGE>
No Assurance of Public Market; Arbitrary Determination of Offering Price;
Possible Volatility of Market Price of Common Stock. Prior to this offering,
there has been no public trading market for the Common Stock. There can be no
assurance that a regular trading market for the Common Stock will develop after
this offering or that, if developed, it will be sustained. The initial public
offering price of the Common Stock has been determined arbitrarily by
negotiation between the Company and the Underwriter and is not necessarily
related to the assets, book value or potential earnings of the Company or any
other recognized criteria of value and may not be indicative of the prices that
may prevail in the public market. In addition, the market price for the Common
Stock following this offering may be highly volatile as has been the case with
the securities of other companies in emerging businesses. Factors such as the
Company's operating results, announcements by the Company or its competitors,
introduction of new products by the Company or its competitors, and various
factors affecting the golf equipment and direct marketing industries generally,
may have a significant impact on the market price of the Common Stock.
Additionally, in recent years, the stock market has experienced a high level of
price and volume volatility and market prices for the stock of many companies,
particularly of small and emerging growth companies, the common stock of which
trade in the over-the-counter market, have experienced wide price fluctuations
which have not necessarily been related to the operating performance of such
companies. See "Underwriting."
Possible Delisting of Securities from Nasdaq System; Risks Relating to
Low-Priced Stocks. It is currently anticipated that the Common Stock will be
eligible for listing on Nasdaq upon the completion of this offering. In order to
continue to be listed on Nasdaq, however, the Company must maintain $2,000,000
in net tangible assets (total assets, other than goodwill, less total
liabilities), and a $1,000,000 market value of the public float. In addition,
continued inclusion requires two market-makers, a minimum bid price of $1.00 per
share and adherence to certain corporate governance provisions. The failure to
meet these maintenance criteria in the future may result in the delisting of the
Common Stock from Nasdaq, and trading, if any, in the Common Stock would
thereafter be conducted in the non-Nasdaq over-the-counter market. As a result
of such delisting, an investor could find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of the Common Stock.
In addition, if the Common Stock were to become delisted from trading on
Nasdaq and the trading price of the Common Stock were to fall below $5.00 per
share, trading in the Common Stock would also be subject to the requirements of
certain rules promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny stock
(generally, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
defined as an investor with a net worth in excess of $1,000,000 or annual income
exceeding $200,000 individually or $300,000 together with a spouse). For these
types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to the sale. The broker-dealer also must
disclose the commissions payable to the broker-dealer, current bid and offer
quotations for the penny stock and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Such information must be provided to the
customer orally or in writing before or with the written confirmation of trade
sent to the customer. Monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The additional burdens imposed upon
broker-dealers by such requirements could, in the event the Common Stock were
deemed to be a penny stock, discourage broker-dealers from effecting
transactions in the Common Stock which could severely limit the market liquidity
of the Common Stock and the ability of purchasers in this offering to sell the
Common Stock in the secondary market.
Adverse Effect of the Authorization of Preferred Stock; Anti-Takeover
Provisions Affecting Stockholders. The Company's Certificate of Incorporation
authorizes the Company's Board of Directors to issue 4,249,250 shares of "blank
check" Preferred Stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares, without further
stockholder approval. The rights of the holders of Common Stock will be subject
to and may be adversely affected by the rights of holders of any Preferred Stock
that
13
<PAGE>
may be issued in the future. The ability to issue Preferred Stock without
stockholder approval could have the effect of making it more difficult for a
third party to acquire a majority of the voting stock of the Company, thereby
delaying, deferring or preventing a change in control of the Company. Moreover,
following the consummation of this offering, the Company will be subject to the
State of Delaware's "business combination" statute, which prohibits a
publicly-traded Delaware corporation from engaging in various business
combination transactions with any of its 15% stockholders for a period of three
years after the date of the transaction in which the person became an
"interested stockholder," unless certain approvals are obtained or other events
occur. The stat-ute could prohibit or delay mergers or other attempted takeovers
or changes in control with respect to the Company and, accordingly, may
discourage attempts to acquire the Company. See "Description of Securities."
Limitations on Liability of Directors and Officers. The Company's
Certificate of Incorporation includes provisions to eliminate, to the fullest
extent permitted by the Delaware General Corporation Law as in effect from time
to time, the personal liability of directors of the Company for monetary damages
arising from a breach of their fiduciary duties as directors. The Certificate of
Incorporation and By-Laws also include provisions to the effect that the Company
may, to the maximum extent permitted from time to time under applicable law,
indemnify any director or officer to the extent that such indemnification and
advancement of expense is permitted under such law, as it may from time to time
be in effect. The Company has also entered into indemnity agreements with each
director and executive officer of the Company pursuant to which the Company has
agreed to indemnify, to the maximum extent permitted under the law of the State
of Delaware, each such director or executive officer for any amounts which he
becomes legally obligated to pay in connection with any claim against him based
upon any action or inaction which he may commit, omit or suffer while acting in
his capacity as a director and/or officer of the Company or its subsidiaries.
See "Management -- Limitation of Liability and Indemnification Matters."
Tax Loss Carryforward. The Company's net operating loss carryforwards
("NOLs") expire in the years 2000 to 2013. Under Section 382 of the Internal
Revenue Code of 1986, as amended, utilization of prior NOLs is limited after an
ownership change, as defined in Section 382, to an annual amount equal to the
value of the corporation's outstanding stock immediately before the date of the
ownership change multiplied by the federal long-term exempt tax rate. The
Company has experienced an ownership change, and is limited in its use of its
prior NOLs. In the event the Company achieves profitable operations, these
limitations would have the effect of increasing the Company's tax liability and
reducing net income and available cash reserves. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and Note G of
Notes to Consolidated Financial Statements.
Forward-Looking Statements. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause this possible difference include, but are
not limited to, those discussed in this "Risk Factors" section.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,700,000 shares
offered hereby are estimated to be approximately $11,384,000 ($13,179,200 if the
Underwriter's over-allotment option is exercised in full). The Company expects
to use the net proceeds (assuming no exercise of the over-allotment option)
approximately as follows:
<TABLE>
<CAPTION>
Percentage of
Approximate Approximate
Application of Net Proceeds Dollar Amount Dollar Amount
- -------------------------------------------------------- --------------- --------------
<S> <C> <C>
Repayment of indebtedness(1) ........................... $ 3,552,500 31.2%
Marketing and advertising(2) ........................... 2,600,000 22.8
Inventory(3) ........................................... 1,500,000 13.2
Player Acquisition costs(4) ............................ 800,000 7.0
Working capital and general corporate purposes ......... 2,931,500 25.8
----------- -----
Total .............................................. $11,384,000 100.0%
=========== =====
</TABLE>
- ------------------
(1) Represents amounts to be used for the repayment of (i) $2,400,000 principal
amount of indebtedness, plus accrued and unpaid interest thereon of
approximately $80,000, pursuant to promissory notes which bear interest at
the rate of 13.5% per annum; (ii) $692,500 principal amount of
indebtedness, plus accrued and unpaid interest thereon of approximately
$230,000, pursuant to promissory notes which bear interest at the rate of
11.0% per annum; and (iii) $150,000 principal amount of indebtedness,
pursuant to a promissory note which bears interest at the rate of 9.5% per
annum. All of such indebtedness which is repaid with the proceeds of this
offering is due and payable within three days following the consummation of
this offering. The net proceeds of all of this short-term indebtedness
incurred by the Company within one year prior to the date of this
Prospectus were used primarily to retire other indebtedness, for the
purchase of inventory, for sales related expenses, to pay costs associated
with this offering and for working capital and general corporate purposes.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Financial Condition and Liquidity."
(2) Represents amounts to be used to (i) establish two additional telemarketing
call centers and hire additional golf consultants and other telemarketing
personnel; (ii) complete the post-production of an infomercial, develop and
produce a second infomercial and broadcast these infomercials; (iii)
design, print and mail catalogs of Gary Player brand golf clubs and
golf-related products; (iv) create and acquire additional content for the
Company's web site and Internet and online advertising; (v) commence print
advertising; and (vi) establish sublicensing and retail divisions. See
"Business."
(3) Represents amounts to be used to maintain an increased inventory of golf
club components in order to reduce the delivery time to fill orders.
(4) Represents amounts to be used to pay $250,000 of the note delivered to pay
a portion of the purchase price to GPG for the assets acquired by the
Company in the Player Acquisition and $550,000 of indebtedness and accounts
payable of GPG assumed by the Company in the Player Acquisition.
If the Underwriter's over-allotment option is exercised in full, the
Company will realize additional net proceeds of approximately $1,795,200 which
will be allocated to working capital and general corporate purposes.
The allocation of the net proceeds from this offering set forth above
represents the Company's best estimate based on its currently proposed plans and
assumptions relating to its operations and certain assumptions regarding general
economic conditions. The amounts actually expended for each use of the proceeds,
if any, are at the discretion of the Company and may vary significantly
depending upon a number of factors, including, among other things, requirements
for launching new product lines, marketing, advertising and working capital to
support growth. Accordingly, the Company reserves the right to reallocate the
proceeds of this offering as it deems appropriate. The Company may also use a
portion of the net proceeds to acquire businesses, products or proprietary
rights; however, the Company currently has no commitments or agreements relating
to any of these types of transactions other than those disclosed in this
Prospectus. Pending such uses, the Company intends to invest the net proceeds
from this offering in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest bearing
investments.
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<PAGE>
The Company anticipates, based on currently proposed plans and assumptions
relating to the implementation of its business strategy (including the timetable
of costs and expenses associated with, and success of, its marketing efforts),
that the net proceeds of this offering, together with projected revenues from
operations, will be sufficient to satisfy the Company's operations and capital
requirements for at least twelve months following the consummation of this
offering. If the Company's plans change or its assumptions change or prove to be
inaccurate (due to unanticipated expenses, difficulties, delays or otherwise) or
the net proceeds of this offering and projected revenues otherwise prove to be
insufficient to fund the implementation of the Company's growth plan or working
capital requirements, the Company could be required to seek additional financing
sooner than currently anticipated.
DILUTION
The difference between the initial public offering price per share of
Common Stock and the pro forma net tangible book value per share of Common Stock
after this offering constitutes the dilution to investors in this offering. Net
tangible book value per share is determined by dividing the net tangible book
value (total tangible assets less total liabilities) of the Company by the
number of shares of Common Stock outstanding.
At March 31, 1998, the net tangible book deficit of the Company was
$(5,753,773), or $(3.38) per share of Common Stock. After giving effect to the
Pro Forma Adjustments (see footnote 2 of "Prospectus Summary -- Summary
Financial Information"), the pro forma net tangible book deficit of the Company
at March 31, 1998 would have been $(6,261,326), or ($2.58) per share. After also
giving effect to the sale by the Company of the 1,700,000 shares of Common Stock
offered hereby and the receipt of the estimated net proceeds therefrom (after
deducting underwriting discounts and commissions and estimated expenses of this
offering), the pro forma net tangible book value of the Company as of March 31,
1998 would have been $4,004,792, or $.97 per share of Common Stock, representing
an immediate increase in net tangible book value of $3.55 per share to existing
stockholders and an immediate dilution of $7.03 (87.9%) per share to new
investors. The following table illustrates the foregoing information with
respect to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Initial public offering price ............................................ $ 8.00
Net tangible book deficit per share before Pro Forma Adjustments ........ $(3.38)
Increase per share attributable to Pro Forma Adjustments ................ .80
------
Pro forma net tangible book deficit before this offering ................ (2.58)
Increase attributable to investors in this offering ..................... 3.55
------
Adjusted net tangible book value per share after this offering ........... .97
------
Dilution per share to new investors ...................................... $ 7.03
======
</TABLE>
The following table sets forth, with respect to existing stockholders
(including stockholders who were issued shares in connection with the Pro Forma
Adjustments) and new investors in this offering, a comparison of the number of
shares of Common Stock issued by the Company, the percentage ownership of such
shares, the total consideration paid, the percentage of total consideration
paid and the average price per share.
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Paid
----------------------- ------------------------- Price
Number Percent Amount Percent Per Share
----------- --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 2,428,583 58.8% $ 9,741,246 41.7% $ 4.01
New investors ................. 1,700,000 41.2 13,600,000 58.3 8.00
--------- ----- ----------- -----
Total ......................... 4,128,583 100.0% $23,341,246 100.0%
========= ===== =========== =====
</TABLE>
- ------------------
The above table assumes no exercise of the Underwriter's over-allotment
option. If this option is exercised in full, new investors will have paid
$15,640,000 for 1,955,000 shares of Common Stock, representing approximately
61.6% of the total consideration for 44.6% of the total number of shares of
Common Stock outstanding. In addition, the foregoing table assumes no exercise
of outstanding options.
16
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and the capitalization
of the Company (i) as of March 31, 1998; (ii) on a pro forma basis after giving
effect to the Pro Forma Adjustments (see footnote 2 of "Prospectus Summary --
Summary Financial Information"); and (iii) as adjusted to give effect to the
sale of the 1,700,000 shares of Common Stock offered hereby and the anticipated
application of the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
March 31, 1998
------------------------------------------------------
Actual Pro Forma As Adjusted
---------------- ---------------- ----------------
<S> <C> <C> <C>
Current portion of notes payable, net of unamortized
discount .......................................... $ 2,306,643 $ 2,702,032 $ 250,000
============= ============= =============
Notes payable, less current portion, net of unamor-
tized discount .................................... -- 1,007,500 1,007,500
------------- ------------- -------------
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value -- 5,000,000
shares authorized (actual) and 4,249,250 shares
authorized (pro forma and as adjusted):
Series B Convertible Preferred Stock; 750,750
shares authorized (actual) and no shares
authorized (pro forma and as adjusted);
572,649 shares outstanding (actual) and no
shares outstanding (pro forma and as
adjusted) ...................................... 573 -- --
Common Stock, $0.001 par value -- 10,000,000
shares authorized; 1,700,770 shares outstanding
(actual); 2,428,583 shares outstanding (pro
forma); 4,128,583 shares outstanding (as
adjusted)(1) .................................... 1,701 2,429 4,129
Additional paid-in capital ........................ 5,645,472 9,738,817 21,121,117
Accumulated deficit ............................... (11,107,817) (11,107,817) (12,735,698)
------------- ------------- -------------
Total stockholders' equity (deficit) ............ (5,460,071) (1,366,571) 8,389,548
------------- ------------- -------------
Total capitalization ........................... $ (5,460,071) $ (359,071) $ 9,397,048
============= ============= =============
</TABLE>
- ------------
(1) Does not include (i) 170,000 shares of Common Stock reserved for issuance
to the Underwriter upon exercise of the Underwriter's Warrants, and (ii)
333,250 shares of Common Stock reserved for issuance upon exercise of
options granted or available for future grant under the 1998 Plan and
other non-plan options.
DIVIDEND POLICY
The Company has never paid any dividends on its Common Stock. The Board of
Directors has no current intention to declare dividends on the Common Stock in
the foreseeable future and intends to follow a policy of retaining earnings, if
any, to finance the growth of the Company's business. Any future determination
to declare dividends will be at the discretion of the Board of Directors and
will be dependent on the Company's results of operations, financial condition,
contractual and legal restrictions and other factors deemed relevant by the
Board of Directors at that time. In addition, the payment of cash dividends on
the Common Stock in the future could be limited or prohibited by the terms of
financing agreements that may be entered into by the Company (e.g., a bank line
of credit or an agreement relating to the issuance of other debt securities of
the Company) or by the terms of any Preferred Stock that may be authorized and
issued. See "Description of Securities."
17
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical and pro forma financial
and operating data for the Company for the periods indicated. The following
selected statements of operations data for the year ended March 31, 1998, the
three months ended March 31, 1997 and the year ended December 31, 1996, and the
selected balance sheet data as of March 31, 1998 are derived from the financial
statements and notes thereto included elsewhere herein. During 1997, the
Company changed its fiscal year end from December 31 to March 31. The following
data should be read in conjunction with the Consolidated Financial Statements
and with "Management's Discussion and Analysis of Results of Operations and
Financial Condition" appearing elsewhere in this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended Three Months Ended Year Ended
December 31, 1996 March 31, 1997 March 31, 1998
------------------- -------------------- -----------------
<S> <C> <C> <C>
Gross sales ........................................... $ 8,116,323 $ 1,509,453 $ 9,567,902
Less allowances for returns ........................... 3,691,779 599,735 4,799,870
------------- ----------- -------------
Net sales ............................................. 4,424,544 909,718 4,768,032
Cost of goods sold .................................... 1,619,568 422,983 1,973,105
------------- ----------- -------------
Gross profit .......................................... 2,804,976 486,735 2,794,927
Telemarketing and infomercial expenses ................ 2,924,568 529,407 3,142,639
Selling, general and administrative expenses .......... 2,731,721 525,707 3,366,014
Other operating expenses .............................. 541,069 4,341 60,222
------------- ----------- -------------
Operating loss ........................................ (3,392,382) (572,720) (3,773,948)
Interest expense ...................................... 356,484 73,881 179,536
Non-cash interest expense ............................. 182,011 -- 1,681,763
Other expenses, net ................................... 127,794 -- (10,733)
------------- ----------- -------------
Net loss .............................................. $ (4,058,671) $ (646,601) $ (5,624,514)
============= =========== =============
Net loss per share(1) ................................. $ (4.22) $ (.55) $ (3.89)
============= =========== =============
Weighted average shares outstanding ................... 965,529 1,243,634 1,484,147
============= =========== =============
Pro forma net loss(2) ................................. $ (5,921,412)
=============
Pro forma net loss per share(1)(2) .................... $ (3.27)
=============
Pro forma weighted average shares outstanding (2) ..... 1,859,147
=============
</TABLE>
Balance Sheet Data:
March 31,
1998
-----------------
Working capital (deficit) ......... $ (6,400,540)
Total assets ...................... 1,630,675
Total liabilities ................. 7,090,746
Stockholders' deficit ............. (5,460,071)
- ------------
(1) The net loss per share is computed after deduction for preferred dividend
requirements. See Consolidated Financial Statements.
(2) Gives effect to the net loss incurred by GPG for the twelve months ended
March 31, 1998 and attributable to the assets acquired by the Company in
the Player Acquisition, adjusted to account for intercompany transactions
between the Company and GPG and amortization expense related to the Player
Licenses, and the issuance of 375,000 shares of Common Stock and a
promissory note in the amount of $750,000 to GPG pursuant to the Player
Acquisition. See Consolidated Financial Statements -- Pro Forma
Consolidated Financial Statements.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the other financial data included
elsewhere in this Prospectus. The statements which are not historical facts
contained in this Section are forward-looking statements that involve risks and
uncertainties, including those described under "Risk Factors." The Company's
actual results may differ materially from the results discussed in the
forward-looking statements.
General
The Company is engaged primarily in the direct marketing of Gary Player
brand golf clubs. Prior to this offering, the Company marketed its Gary Player
golf clubs pursuant to an agreement with GPG which authorized the Company to
sell Gary Player golf products for up to 20 years through direct marketing in
the United States and Canada and which required payment of a royalty of 6% to 7%
of net receipts. On the date of this Prospectus, the Company purchased the
assets of the golf equipment operations of GPG (the "Player Acquisition"),
including the Player Licenses which together give the Company the perpetual,
worldwide, exclusive right to sell Gary Player golf products for a royalty of up
to 3% of net receipts. See "Business -- Player Licenses."
The Player Acquisition purchase price was: (i) 375,000 shares of Common
Stock; (ii) a promissory note in the principal amount of $750,000 which bears
interest at a rate of 6% per annum and is due and payable in three equal
installments of $250,000, the first of which is due within three days following
the consummation of this offering and the next two of which are due on the last
day of the 11th and 22nd months following the date of this Prospectus, and (iii)
the assumption by the Company of $750,000 of liabilities of GPG (of which
$200,000 will be converted into 35,714 shares of the Common Stock upon
consummation of this offering).
Substantially all of the Company's sales are paid for by credit card. As a
result, the Company receives the payment generally within two business days
after the Company receives the order. However, it is the Company's policy not to
recognize revenues with respect to an order until shipment of the product.
Amounts which the Company collects in advance of shipment are recorded as
deferred revenues, which were $723,459 at March 31, 1998. Pursuant to its
agreement with its credit card processor, the credit card processor has the
right to withhold all or a portion of the proceeds from sales as a reserve
against customer charge-backs and returns. Currently, the credit card processor
does not withhold any amount from the Company and if it elects to do so in the
future to any significant extent, the Company's cash flow would be adversely
affected.
The Company's current policy is to accept returns of golf clubs for a full
refund (excluding shipping and handling charges) for any reason generally within
60 days of delivery of the clubs to the customer. As is typical of companies
which market products primarily through telemarketing, the Company has
experienced high product return rates. The Company's allowance for product
returns was 45% and 50% of gross sales for the years ended December 31, 1996 and
March 31, 1998, respectively. The Company believes that its historic rate of
return has been high because, until the introduction of the Gary Player Black
Knight line of golf clubs, the Company offered only steel-faced clubs at a time
when the market increasingly demanded clubs with titanium-face inserts. Although
the Company believes that its product return rate will decline as the Company
currently features a line of clubs with titanium-face inserts and as its market
recognition increases, the Company expects to continue to experience a high
return rate because its direct marketing customers do not have the opportunity
to inspect or try the Company's golf clubs before they are purchased. A
continuing high product return rate or product returns which significantly
exceed the Company's reserves will adversely affect the Company's operating
results. Moreover, the Company offers returned products as demonstration models
at significantly reduced prices, after cleaning and refurbishing the products.
The Company's gross margin was substantially the same in the years ended
December 31, 1996 and March 31, 1998 because the products sold (primarily the
Gary Player Gran Prix clubs in the year ended March 31, 1998 and the now
discontinued lines of clubs in the year ended December 31, 1996) had similar
prices and cost of goods sold. In the quarter ended December 31, 1997, the
Company introduced the Gary Player Black Knight titanium clubs, and the Company
expects that most of its net sales during fiscal year 1999 will consist of sales
of these clubs. The Gary Player Black Knight clubs have a higher list price than
the Gary Player Gran Prix
19
<PAGE>
clubs, and also a higher cost because of the higher cost of club heads with
titanium-face inserts. Accordingly, the Company anticipates that, although the
gross profit (at current price and cost levels) is higher for each set of
titanium clubs, its gross margin percentage will decrease. In addition, the
Company's gross margin in any period is affected by the percentage of gross
sales during the period which represent sales of returned clubs. These returned
clubs are sold by the Company at prices ranging from 65% to 75% of the club's
original prices.
The Company's operating results vary significantly from period to period as
a result of purchasing patterns of customers, introduction of new products by
the Company and its competitors, product returns and pricing. Since golf is a
warm weather sport and demand for golf equipment declines during the cold
weather months, sales of the Company's products are seasonal, with the Company
typically experiencing weaker sales from December through February (during the
Company's third and fourth fiscal quarters). The Company also expects that its
operating results will vary in the future due to the timing and success of
proposed direct response marketing activities. Unexpected events, including
delays in securing adequate supplies of golf club components or shipping orders
(either of which could result in increased cancellations), increased product
return rates or delays or failure of direct response marketing, particularly
during periods of peak sales could result in material losses.
Results of Operations
During 1997, the Company changed its fiscal year end from December 31 to
March 31. For this reason, the following discussion compares the fiscal year
ended December 31, 1996 to the fiscal year ended March 31, 1998. Information
with respect to the quarter ended March 31, 1997 is also discussed to the extent
it is material to an understanding of the Company's results of operations since
January 1, 1996. Except as otherwise specifically noted, results of operations
for the quarter ended March 31, 1997 were consistent with the results of
operations in the fiscal years ended December 31, 1996 and March 31, 1998.
Year Ended March 31, 1998 Compared to Year Ended December 31, 1996
Net sales for the year ended March 31, 1998 were $4,768,032, an increase of
8% as compared to net sales of $4,424,544 for the year ended December 31, 1996.
Net sales were derived from gross sales of $9,567,902 for the year ended March
31, 1998, and $8,116,323 for the year ended December 31, 1996. Sales in the year
ended December 31, 1996 consisted entirely of sales of now discontinued lines of
golf clubs. Approximately 75% of net sales in the year ended March 31, 1998 were
derived from sales of Gary Player Gran Prix golf clubs (which were introduced in
February 1997), and the remaining sales were derived primarily from sales of
Gary Player Black Knight golf clubs which were introduced in the quarter ended
December 31, 1997. Net sales of $909,718 in the three months ended March 31,
1997 were derived from gross sales of $1,509,453, which were lower on an
annualized basis than net sales for the fiscal years presented because of the
seasonality of the Company's business (with generally lower sales in winter) and
the transition to the Gary Player Gran Prix line. Substantially all sales
through March 31, 1998 were generated by telemarketing, except for approximately
$1,400,000 of gross sales in the year ended December 31, 1996 which were
generated through an infomercial.
The Company recorded allowances for returns of 50% and 45% of net sales
for the years ended March 31, 1998 and December 31, 1996, respectively. The
Company establishes allowances for returns at the time of recording sales based
on the Company's historical return rates.
Cost of goods sold was $1,973,105 for the year ended March 31, 1998, an
increase of 22% as compared to cost of goods sold of $1,619,568 for the year
ended December 31, 1996, resulting in a gross margin of 59% and 63%,
respectively, during these fiscal years.
Telemarketing and infomercial expenses were $3,142,639 for the year ended
March 31, 1998, an increase of 7% as compared to telemarketing and infomercial
expenses of $2,924,568 for the year ended December 31, 1996. Telemarketing
expenses consist primarily of wages, commissions, benefits and payroll taxes for
telemarketing personnel, salaries and benefits of non-commissioned personnel
located at the Company's telemarketing call centers, and telephone expenses.
Telemarketing expenses almost doubled in the year ended March 31, 1998 due
principally to increased number of telemarketing personnel at existing call
centers and at a call center established in Ventura in August 1997. The Company
incurred infomercial expenses of $1,372,798 in the year ended December 31, 1996
in connection with an infomercial relating to a now discontinued line of golf
clubs. The Company recorded no infomercial expenses in the year ended March 31,
1998.
20
<PAGE>
Selling expenses were $1,685,291 for the year ended March 31, 1998, an
increase of 61% from selling expenses of $1,045,567 for the year ended December
31, 1996. Selling expenses include royalties and related fees, salaries, wages
and benefits of management personnel involved in sales and marketing, customer
service and sales support, fees paid to the credit card processor and lead
generation costs. Selling expenses increased primarily due to increases in
royalties and related fees, lead generation costs and additional customer
service and support personnel. Royalties and related fees increased because the
royalty rate and related fees under the previous agreement with GPG were greater
than the royalty rate under the license for the now discontinued product lines.
General and administrative expenses were $1,680,723 for the year ended
March 31, 1998, as compared to general and administrative expenses of $1,686,154
for the year ended December 31, 1996. General and administrative expenses
include primarily salaries and benefits of executive officers and administrative
personnel, consulting fees, rent and utilities.
During the year ended December 31, 1996, the Company incurred $306,128 of
costs in settlement of litigation, including litigation with several former
employees and a supplier. See Note L of Notes to Consolidated Financial
Statements.
During the year ended December 31, 1996, the Company recorded a $200,000
loss on impaired assets relating to its computer system which became inoperable
due to a malfunction. See Note P of Notes to Consolidated Financial Statements.
Interest expense was $179,536 for the year ended March 31, 1998, a
decrease of 50% as compared to interest expense of $356,484 for the year ended
December 31, 1996. This decrease was due to the reduction in the amount of
outstanding indebtedness during the period resulting from the repayment of
certain debt and conversion of certain debt to Common Stock. Non-cash interest
expense increased from $182,011 for the year ended December 31, 1996 to
$1,681,763 for the year ended March 31, 1998 due to the amortization of
original issue discount and debt issuance costs incurred in connection with
various financings. Other expenses for the year ended December 31, 1996 were
$127,794.
As a result of the foregoing, the Company incurred a net loss of $5,624,514
for the year ended March 31, 1998, an increase of 39% from the net loss of
$4,058,671 for the year ended December 31, 1996. After giving effect to the net
loss incurred by GPG during the twelve months ended March 31, 1998 and
attributable to the assets acquired by the Company in the Player Acquisition,
the pro forma net loss for the year ended March 31, 1998 would have been
$5,921,412. See Consolidated Financial Statements--Pro Forma Consolidated
Financial Statements. The net loss was $646,601 for the three months ended March
31, 1997.
Financial Condition and Liquidity
Since inception, the Company's cash requirements have exceeded its cash
flows from operations and, at March 31, 1998, the Company had a working capital
deficit of $6,400,540. As a result, the Company has depended on loans and sales
of securities to fund its operations. The Company must increase its net sales to
obtain sufficient cash flows from operations to meet its cash requirements. The
Company is dependent upon the proceeds of this offering to implement its growth
strategy and finance its short-term working capital requirements.
During the year ended March 31, 1998, the Company raised an aggregate of
$3,050,654, net of offering costs, through borrowings and the sale of capital
stock, as follows: (i) the Company issued 169,900 shares of Common Stock at a
price of $5.00 per share; (ii) the Company issued 52,375 shares of Common Stock
at a price of $8.00 per share; (iii) the Company issued 25,902 shares of Series
B Convertible Stock for $3.33 per share; (iv) the Company issued promissory
notes in the aggregate amount of $880,000 bearing interest at a rate of 11.0%
per annum and issued 44,000 shares of Common Stock to the lenders in connection
with this loan; (v) the Company borrowed an aggregate of $74,000 at a rate of
11.0% per annum and issued 3,400 shares of Common Stock to the lender in
connection with this loan; and (vi) the Company borrowed $1,000,000 secured by
the assets of the Company pursuant to notes in the principal amount of
$1,000,000 bearing interest at a rate of 13.5% per annum and issued 76,250
shares of Common Stock to the lenders in connection with this loan.
21
<PAGE>
At March 31, 1998, the Company had outstanding borrowings of $3,097,500
(including the unamortized discount on debt of $790,857), of which the Company
was in default on $1,017,500 principal amount. Subsequent to March 31, 1998, the
Company retired $350,000 of the outstanding indebtedness and incurred an
additional $1,500,000 of indebtedness. The Company intends to use approximately
$3,552,500 of the proceeds of this offering to retire a portion of the
outstanding indebtedness. In addition, the Company has extended the maturity of
approximately $917,500 of these notes to a date thirteen months following the
consummation of this offering, and as of the date of this Prospectus is not in
default on any of this indebtedness. These notes bear interest at a rate of
11.0% per annum.
The Company has paid a portion of the purchase price of the Player
Acquisition by delivery of a promissory note in the principal amount of $750,000
bearing interest at a rate of 6% per annum. The first $250,000 payment on this
note will be paid from the proceeds of this offering. The balance is payable in
two installments of $250,000 payable at end of the 11th and 22nd months,
respectively, following the date of this Prospectus.
At March 31, 1998, the Company had customer refunds payable of $937,517,
deferred revenue of $723,459 and an allowance for returns of $617,503.
Other assets at March 31, 1998 included principally deferred direct
response advertising costs of $301,099, deferred costs associated with this
offering and certain debt issuances of $279,999, and a note with an outstanding
balance (principal and interest) of $168,872 from a corporation owned by Alfonso
J. Cervantes, a director and executive officer of the Company. See Note D to
Notes to Consolidated Financial Statements.
The Company anticipates, based on currently proposed plans and assumptions
relating to the implementation of its growth strategy (including the timetable
of costs and expenses associated with, and success of, its marketing efforts),
that the net proceeds of this offering, together with projected revenues from
operations, will be sufficient to satisfy the Company's operations and capital
requirements for at least twelve months following the consummation of this
offering. If the Company's plans change or its assumptions change or prove to be
inaccurate (due to unanticipated expenses, difficulties, delays or otherwise) or
the net proceeds of this offering and projected revenues otherwise prove to be
insufficient to fund the implementation of the Company's growth plan or working
capital requirements, the Company could be required to seek additional financing
sooner than currently anticipated. The Company has no current arrangements with
respect to, or potential sources of, any additional financing, and it is not
anticipated that existing stockholders will provide any portion of the Company's
future financing requirements. Consequently, there can be no assurance that any
additional financing will be available to the Company when needed, on
commercially reasonable terms, or at all. Any inability to obtain additional
financing when needed would have a material adverse effect on the Company,
requiring it to curtail and possibly cease its operations. In addition, any
additional equity financing may involve substantial dilution to the interests of
the Company's then existing stockholders.
Inflation
Inflation has not had any material impact on the Company's results of
operations.
Year 2000 Issue
The inability of computer systems to recognize and properly process date
fields with a two digit year reference such as "00" for the year 2000 is
commonly referred to as the Year 2000 issue. The Company currently does not
anticipate that any material modifications or expenditures will be required to
address the Year 2000 issue.
22
<PAGE>
BUSINESS
General
The Company is engaged primarily in the direct marketing of Gary Player
brand golf clubs through telemarketing, direct response television, the
Internet and direct mail. To date, substantially all of the Company's sales
have been generated through telemarketing activities conducted at the Company's
three call centers and direct response television. By marketing its clubs
directly to consumers, the Company believes it offers its clubs at lower price
points than comparable products offered by competitors through retail outlets,
such as golf pro shops and specialty golf stores.
The Company's principal product line is the Gary Player Black Knight line
of titanium irons, titanium driver and woods, and specialty clubs. These clubs
feature lightweight graphite shafts, oversized club heads with larger "sweet
spots" and a low center of gravity, and are designed to achieve increased lift,
distance and accuracy. The Company custom builds each set of golf clubs based
upon the customer's physical attributes, golfing ability and personal
preferences elicited from the customer upon placement of the order. Custom
specifications include length and flex of shaft, weight of the club head and
grip preference. The Company uses heads and shafts manufactured to the
Company's specifications by various golf component manufacturers, which
currently include Aldila, Inc. (shafts), and grips manufactured by Eaton Golf
Pride.
The Company was incorporated in Delaware in October 1995. In November
1995, the Company acquired Rhino Marketing, Inc., which was engaged in the
direct marketing of golf clubs and accessories. In November 1996, the Company
entered into a direct marketing agreement with GPG pursuant to which the
Company obtained the exclusive right to market and sell golf clubs and golf
accessories and apparel under the name "Gary Player" on a direct marketing
basis in the United States and Canada. The Company introduced its line of Gary
Player Gran Prix golf clubs and related accessories in February 1997, and
shortly thereafter discontinued the sale of all other lines of golf clubs. The
Company acquired on the date of this Prospectus the assets of the golf
equipment operations of GPG, including the Player Licenses which together give
the Company the perpetual, worldwide, exclusive right to use the name and
likeness of Gary Player and ancillary marks, including Black Knight and the
Knights Head logo, in connection with the manufacture, marketing and
distribution of golf clubs, accessories and apparel.
The Golf Industry
Golf is popular both as a professional sport and a leisure activity.
According to the National Golf Foundation ("NGF"), the number of persons age 12
and older playing at least one round of golf per year in the United States
increased from approximately 20 million in 1986 to 25 million in 1996, while
the total number of rounds of golf played in the United States increased from
approximately 400 million to 477 million during the same period. In 1994,
golfers in the United States spent an estimated $15.1 billion on golf
equipment, related merchandise and greens fees, compared to $7.8 billion in
1986. Wholesale shipments of golf clubs, balls, bags, gloves and shoes in the
United States increased from approximately $1.6 billion in 1991 to $2.9 billion
in 1996. During 1996, approximately two million persons in the United States
played a round of golf for the first time. The Company believes that the
popularity of golf and sales of golf equipment and related merchandise will
rise in the future due to the increasing interest in golf of the aging "baby
boom" population. All golf industry data in this Prospectus was obtained from
the NGF.
Consumer spending on golf-related equipment, merchandise, accessories,
green fees and miscellaneous items has been categorized by the NGF on the
following golfer frequency segments: avid golfer, a golfer aged 18 or older who
played 25 rounds or more of golf during the survey year; moderate golfer, a
golfer aged 18 or older who played between eight and 24 rounds of golf during
the survey year; and occasional golfer, a golfer aged 18 or older who played
between one and seven rounds of golf during the survey year. The Company's
customers are primarily occasional and moderate golfers. The following table
23
<PAGE>
sets forth the number of golfers, the average age, average years played and
average household income per golfer segment for 1996:
<TABLE>
<CAPTION>
Occasional Moderate Avid
------------- ------------ ------------
<S> <C> <C> <C>
Number of golfers ................. 11,626,000 6,084,000 5,266,000
Average age ....................... 39 41 50
Average years played .............. 13 15 22
Average household income .......... $ 57,500 $ 61,500 $ 62,500
</TABLE>
Over the past thirty years, golf club design and manufacturing processes
have evolved rapidly. Improved materials, technologies and testing and
manufacturing processes have resulted in new club designs that have been
successfully introduced to the marketplace. Some of the industry's most
significant product innovations have been graphite shafts and cavity back or
perimeter weighted and oversized club heads, innovations which are integrated
into many of the Company's golf clubs. A recent technological breakthrough has
been the introduction of titanium alloy components. Titanium heads are lighter
and stronger than steel heads and enable manufacturers to increase head size
and lengthen the shaft of the club without increasing the club's weight. The
Company's Gary Player Black Knight irons and woods feature club heads with
titanium-face inserts.
Growth Strategy
The Company's objective is to increase sales of its Gary Player brand golf
clubs and golf-related accessories and apparel by capitalizing on the
increasing popularity of golf and Gary Player's reputation and achievements as
a professional golfer. The Company's strategy to increase sales includes:
o Increase Telemarketing Activities. Virtually all of the Company's sales
have been generated through telemarketing. The Company believes it can increase
telemarketing sales by establishing additional telemarketing call centers and
adding telemarketers to its three existing call centers. The Company currently
plans to establish two additional telemarketing call centers within 12 months
following this offering. See "-- Direct Marketing -- Telemarketing."
o Increase Direct Response Television Marketing. The Company believes
that direct response television will generate additional sales. Direct response
television includes infomercials and direct response commercials. This direct
market channel generates sales through customers calling the Company as
compared to telemarketing, where the Company initiates the call. In addition to
generating sales, direct response television is expected to increase consumer
awareness of the Company's products and brand name, thereby enhancing the
effectiveness of other marketing activities. Pursuant to the Player Licenses,
Gary Player has agreed to be available to the Company at no charge for up to
six days per year for infomercials and other promotional activities. The
Company recently completed two one-minute direct response commercials featuring
Gary Player and began test marketing these commercials nationwide on The Golf
Channel(TM). In addition, the Company has completed principal photography for a
28 1/2-minute infomercial which the Company will complete and test market if
its initial direct response commercials receive a favorable response. See "--
Direct Marketing -- Direct Response Television."
o Sublicensing. The Player Licenses permit marketing and distribution of
golf clubs, accessories and apparel through all marketing and sales channels,
whereas the Company's prior agreement with GPG permitted the marketing of these
products only through direct marketing channels. In connection with the Player
Acquisition, the Company acquired GPG's rights as licensor under several
sublicenses for the distribution of headwear, outerwear, other apparel and golf
balls in various markets. The Company intends to identify additional potential
sublicensees for Gary Player golf apparel and accessories in various markets
and enter into sublicenses with third parties whom the Company believes will
maintain the integrity of the Company's brand names. See "-- Direct Marketing
- -- Sublicensing."
o Create and Distribute Mail Order Product Catalogs. The Company believes
that it can increase sales through targeted mailings of product catalogs to
existing and potential customers. The Company anticipates that its catalogs
will feature products of both the Company and its sublicensees. See "-- Direct
Marketing -- Mail Order Product Catalogs."
o Increase Internet Advertising. The Company intends to increase
advertising of its Internet web site and create or acquire additional content
for its web site to increase sales of the Company's and its sublicensees'
products via the Gary Player Pro Shop, the Company's online store, and to
generate a customer list for its telemarketing and mail order catalog
activities. See "-- Direct Marketing -- Internet Web Site."
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o Establish International Marketing Operations. The Company's marketing
of Gary Player products was limited to the United States and Canada under its
prior agreement with GPG. The Player Licenses permit the Company to market and
distribute Gary Player products worldwide. The Company expects that its
international marketing efforts will focus on entering into sublicensing, joint
venture and other arrangements for the marketing and distribution of Gary
Player golf products on a territory and/or product specific basis. The Company
believes that Gary Player's international reputation will be valuable in
creating international interest in the Company's products.
o Increase Advertising and Trade Show Participation. The Company believes
that its overall sales efforts will be enhanced by greater consumer recognition
of the Company and its products. The Company intends to increase its
expenditures on print advertising in various golf and golf-related publications
and golf and direct marketing industry trade shows to create consumer
awareness.
Products
The Company's principal products are golf clubs sold under the Gary Player
Black Knight and Gary Player Gran Prix trademarks. The Company intends to
commence marketing Gary Player Par Saver and Gary Player Ti-360 Aluminum Bronze
golf clubs which were marketed by GPG prior to the Player Acquisition.
The Company custom assembles each set of golf clubs based upon the
customer's physical attributes, golfing ability and personal preferences. The
Company obtains this information from a 20-point survey completed with the
customer at the time of order. The survey elicits information about the
customer's physical attributes, such as his or her gender, age, height, weight,
arm length and hand size, as well as information about the customer's golfing
ability, such as handicap, swing speed and the number of years playing golf.
Using this information, the Company chooses the appropriately weighted club
head, the flex and length of the club shaft, and the customer's preferred grip
to fit a golf club to the particular needs of the customer. The Company offers
a variety of grips to its customers which vary as to gender and size, as well
as by special need, such as arthritic grips.
Gary Player Black Knight Clubs
The Company's principal line of golf clubs is the Gary Player Black Knight
line, which is available for men, women, seniors and juniors. The Gary Player
Black Knight line currently consists of titanium irons, titanium driver and
woods, and specialty clubs.
Black Knight Ti-162 Titanium Irons. The Company introduced the Black
Knight Ti-162 irons in November 1997. A set of Ti-162 irons includes 8 clubs,
consisting of the 3 through 9 irons and a pitching wedge, and has a list price
of $699. The Company also markets a 1 iron and a 2 iron which have a list price
of $87.50 per club. The Ti-162 irons feature club heads with titanium-face
inserts which are oversized, deep cavity backed and perimeter weighted to
provide the most forgiveness for off-center hits. The club heads have a low
center of gravity to promote increased lift, distance and accuracy. The club
shafts are made from lightweight 100% high modulus graphite for greater
strength.
Black Knight Titanium Driver. The Black Knight titanium driver, which was
introduced in December 1997, features an oversized, perimeter-weighted club
head which is 25% larger than most oversize metal woods and provides a larger
"sweet spot" and increased hitting area. The driver's 58 gram graphite shaft is
25% lighter than standard graphite shafts. The lower overall weight and design
of the titanium driver promotes increased swing speed and reduces twisting on
off-center hits. The Black Knight titanium driver has a list price of $269.
Black Knight Ti-162 Titanium Woods. The Company intends to introduce its
Black Knight Ti-162 3 and 5 woods in June 1998 at a list price of $299 per
club, or both for $569. These woods feature titanium club heads developed
exclusively for the Company by Tom Stites, a well known golf club designer. The
club heads feature a low profile which currently is a popular design for woods.
Black Knight Specialty Clubs. The Company's Black Knight line also includes
two specialty clubs, a 56-degree sand wedge and a 60-degree lob wedge, which
have a list price of $87.50 per club. The sand wedge and the lob wedge feature
stainless steel club heads.
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Gary Player Ti-360 Aluminum Bronze Titanium Irons
The Ti-360 irons include the 3 through 9 irons and pitching, sand and lob
wedges. These clubs are substantially identical to the Black Knight Ti-162
irons except that the club head, other than the titanium face, is made of
aluminum bronze instead of steel. A set of the Ti-360 irons is expected to have
a list price of $1,200.
Gary Player Par Saver Wedges
The Par Saver wedges are available in six different lofts. The wedges
feature aluminum bronze club heads and steel or graphite shafts and have list
prices of $129 (steel shafts) and $149 (graphite shafts).
Gary Player Gran Prix Clubs
The Gary Player Gran Prix line of golf clubs consists of irons and woods
featuring graphite shafts and steel heads. The Company currently plans to phase
out sales of this line in 1998 as its focuses its efforts on marketing its
titanium clubs.
Golf Apparel and Accessories
Following this offering, the Company intends to market Gary Player brand
golf apparel and accessories directly or through sublicensing arrangements with
third parties. On the date of this Prospectus, the Company acquired from GPG
several sublicensing agreements granting third parties the right to
manufacture, among other things, headwear, outerwear, golf bags and golf balls
under the name Gary Player and certain ancillary marks. The Company intends to
enter into additional sublicensing agreements to provide for the manufacture of
a broader range of Gary Player golf products, including casual and golf
clothing, shoes and gloves. The Company may sell some or all of these products
directly to consumers. See "-- Direct Marketing -- Sublicensing."
Direct Marketing
Sales through direct marketing have grown steadily in the United States
during the past several years as consumer buying preferences have shifted to
take advantage of the convenience offered by home shopping and technological
advances in telecommunications, information systems, multimedia and computing.
The Direct Marketing Association ("DMA") estimates that consumer sales
resulting from all forms of direct marketing were approximately $685 billion in
1997 and that business-to-business direct marketing sales were approximately
$542 billion in 1997.
By marketing its clubs directly to consumers, the Company believes it
offers its clubs at lower price points than comparable products offered by
competitors through retail outlets, such as golf pro shops and specialty golf
stores. To date, the Company has marketed its products primarily by
telemarketing and direct response television. The Company also maintains a web
site on the Internet to advertise the Company and its products, generate
telemarketing leads, and receive orders. The Company intends to utilize
additional direct marketing methods, including direct response television and
mail order product catalogs, and expand its web site.
<PAGE>
Telemarketing
Virtually all of the Company's sales have been generated through
telemarketing. The Company operates three telemarketing call centers located in
Santa Maria, San Luis Obispo, and Ventura, California. At March 31, 1998, the
Company had approximately 166 employees engaged in telemarketing.
The Company utilizes dialers who initiate contact with potential
customers, Company "golf consultants" to whom the customer is transferred if
the customer expresses an interest in purchasing golf clubs and verifiers who
confirm customer purchases. The golf consultants, acting pursuant to a script
developed by the Company, are responsible for educating the customer as to the
characteristics of the golf clubs and completing sales. Each call center has a
manager and assistant manager who oversee telemarketing operations at the call
center.
On weekdays, sales calls are made only in the evenings and, in accordance
with applicable laws and regulations, are not made after 9:00 p.m. local time
of the potential customer. The Company currently has the capacity to place
approximately 6,000 to 7,500 connected calls each day. The Company intends to
use a portion of the
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proceeds of this offering to add telemarketers in its existing call centers and
to establish two additional call centers in California within 12 months
following consummation of this offering. The two new call centers are expected
to increase the Company's calling capacity by as much as 4,000 to 5,000
connected calls each day.
The Company obtains leads for its telemarketing operations from third
party customer lists and visitors to its web site. The Company presently
engages Direct Media, Inc., one of the nation's largest list brokers and
managers, to obtain lists of potential customers, which are obtained from golf
publications, golf societies and other organizations based on the geographic,
economic and other criteria specified by the Company. New leads are compared to
a data base of previously called leads to eliminate duplicate names. The
Company also compiles a list of potential customers from visitors to its web
site, and contacts former customers for new or additional products. In the
future, the Company intends to obtain leads from sublicensees of Gary Player
brand products. The Company believes that it will be able to continue to
acquire sufficient leads for its telemarketing operations for the foreseeable
future.
Direct Response Television
The Company intends to increase its emphasis on marketing through direct
response television. Direct response television includes infomercials and
direct response commercials. Infomercials are long-form television commercials,
28 1/2 minutes in length that are typically broadcast on cable and local
broadcast stations. Direct response commercials are short-form infomercials
that typically range from one to two minutes in length.
In May 1998, the Company completed two one-minute direct response
commercials which the Company plans to test market nationwide in June 1998.
Both commercials feature Gary Player and retired professional baseball player,
Steve Garvey, advertising the Company's Gary Player Black Knight Ti-162
titanium irons. One commercial includes price points and offers comparisons to
competitors' products, while the other commercial is designed to generate leads
by inviting the viewing audience to contact the Company for more information
about the advertised product. The Company has completed principal photography
of a long-form infomercial for the Black Knight Ti-162 titanium irons featuring
Gary Player and Steve Garvey. If the direct response commercials are
successful, the Company intends to complete the infomercial and broadcast it
nationwide commencing in Summer 1998.
The Company also intends to produce a long-form infomercial featuring Gary
Player marketing another line of the Company's golf clubs, such as the Gary
Player Par Saver wedges or Gary Player Black Knight Ti-162 woods. Pursuant to
the Player Licenses, Gary Player has agreed to be available to the Company at
no charge six days per year for infomercials and other promotional activities.
The Company intends to utilize Mr. Player's services during the first year
following this offering primarily for the production of infomercials. The cost
of producing this infomercial is estimated to be approximately $200,000. The
Company will also incur significant costs in purchasing broadcast time for the
infomercial on local and cable broadcast stations. Accordingly, the Company
intends to test market this infomercial and future infomercials it develops in
selected markets prior to incurring material commitments for broadcast time.
During Spring 1997, the Company produced a 28 1/2 minute infomercial
featuring the Company's Gary Player Gran Prix line of golf clubs. The
infomercial was test-marketed and generated few sales, therefore, the Company
discontinued broadcasting the infomercial as a result of the poor test market
results. The Company attributes the poor response to the infomercial to the
type of golf clubs (steel club heads) being marketed, and not to the
effectiveness of infomercials as a means to sell golf clubs. At the time the
Company broadcast the infomercial, club heads with titanium-face inserts of
titanium were being introduced into the market.
In addition to generating direct sales, the Company believes that direct
response television will build consumer awareness of the Company's products and
help establish the Gary Player brand name. The Company believes that these
activities may aid database development for telemarketing and mail order
product catalog marketing and may reduce the product return rate.
Mail Order Product Catalogs
The Company expects to increase sales through targeted mailings of product
catalogs to existing and potential customers. The Company is in the process of
creating its first catalog, which the Company intends to test market during the
first quarter following consummation of this offering. The initial test catalog
will consist of 8
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to 10 pages and will have a limited distribution to between 50,000 and 100,000
homes. If the Company receives a favorable response, it intends to produce
additional catalogs on a quarterly basis which will feature Gary Player golf
products marketed by the Company as well as those marketed by its sublicensees.
The Company anticipates that each catalog will consist of 16 to 18 pages. The
Company intends to retain an outside firm to assist in producing the catalogs,
which will be designed to capture the reader's interest through the use of
distinctive covers, colorful product presentations and product descriptions
that highlight significant features.
Internet Web Site
The Company established a web site in 1996. The Company's web site is fully
interactive, using audio, video and secured shopping cart technology to educate
consumers as to the quality, design and performance of the Company's products,
expand the Company's data base for possible telemarketing follow up, promote the
Company and its products, provide customer service and, through the Gary Player
Pro Shop, the Company's online store, sell the Company's golf clubs and other
products directly to consumers. Although product orders can be placed through
its web site, to date, the Company has received few orders.
The Company has implemented a number of web-based promotional programs
designed to generate telemarketing leads. These programs, which include
sweepstakes and product giveaways, are carried on the Company's web site as
well as on other golf and non-golf web sites. The Company sponsors an annual
Gary Player sweepstakes which invites visitors to the Company's web site to
enter for a chance to win golf clubs, other golf products and, for first place
winners, the opportunity to play 9 holes of golf with Gary Player. The
information obtained from the sweepstakes entry form is used by the Company in
its telemarketing efforts and will contribute to a mailing list for the
Company's catalogs.
The Company intends to use a portion of the proceeds of this offering to
increase advertising of its web site and create or obtain additional content
for its web site to increase sales via the Internet and to generate a customer
list for its telemarketing and mail order operations.
Sublicensing
The Company intends to sublicense the rights to use the Gary Player
trademarks to third parties to market a wide variety of golf accessories, such
as golf bags, gloves and headwear, and apparel, such as outerwear, rain gear
and casual wear. The Company anticipates that sublicenses will be entered into
principally for golf accessories and apparel, although the Company may enter
into sublicenses outside the United States for golf clubs.
The Company currently plans to develop three brands which it intends to
sublicense for distribution of golf accessories and apparel in three market
segments as follows:
o Gary Player Signature: The Gary Player Signature line is expected to
be the Company's premier line of golf apparel and accessories and will be
licensed for distribution in golf pro shops and better golf specialty stores.
o Gary Player: Products bearing the Gary Player trademark are expected
to be licensed for sale in golf specialty stores and better department stores.
o Black Knight: The Black Knight line is expected to be licensed for
distribution in golf specialty stores, department stores, mass merchandise
retail stores and through direct marketing.
In connection with the Player Acquisition, the Company acquired several
sublicenses pursuant to which GPG licensed to third parties the rights to
manufacture, market and distribute products under the Gary Player trademarks.
The sublicenses authorize the manufacture, distribution and sale in specified
territories of one or more golf accessories, including golf bags, gloves, balls
and headwear, apparel, such as outerwear, rain gear and casual wear, and golf
clubs for juniors. The sublicenses generally provide for the payment to the
Company of royalties on the sale of products, grant the Company approval rights
with respect to the quality and advertising of the licensed products, and
provide exclusivity to the sublicensees with respect to the specific products
in the specified territories. To date, there have been no significant sales
under any of these sublicensing arrangements, and the Company does not
anticipate royalties from these existing sublicenses to contribute
significantly to its revenues in fiscal year 1999.
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The Company intends to enter into sublicenses when it believes such
arrangements will allow products sold under the Gary Player trademarks to be
manufactured, marketed and distributed most effectively without compromising
quality. In determining whether to bring a new product to market on its own or
through a sublicensee, the Company will consider various factors, including the
potential terms of a sublicense, the potential profit and expense (if marketed
by the Company) and the financial, marketing and other resources available to
the Company at such time.
A principal goal of the Company will be to maintain the integrity of the
trademarks under which it markets its products. The Company strives to provide
consumers with high quality products and to maintain a consistent image in all
of its advertising and marketing programs. In entering into sublicenses, the
Company will seek to preserve the integrity of the Gary Player trademarks by
closely monitoring and/or controlling the design and quality of the products
manufactured by sublicensees.
Other Marketing and Advertising
The Company will attempt to capitalize upon Gary Player brand awareness
generated by its direct marketing efforts by selling its products on a limited
basis in retail outlets upon achieving consumer awareness of its products.
Although the Company intends to hire a vice president of retail sales within 30
to 60 days following consummation of this offering to develop and oversee the
Company's retail operations, the Company does not currently intend to devote
substantial funds or resources to build a retail marketing infrastructure. The
Company believes that retail sales will complement its direct marketing efforts
by increasing brand awareness.
The Company believes that its overall sales efforts will be enhanced by
greater consumer recognition of the Company and its products. The Company
intends to increase its expenditures on print advertising in various golf and
golf-related publications and golf and direct marketing industry trade shows to
create consumer awareness.
Player Licenses
The Player Licenses grant to the Company the perpetual, worldwide,
exclusive right to use the name and likeness of Gary Player and ancillary marks
in connection with the manufacture, marketing, distribution and exploitation
(including sublicensing ) of golf clubs, accessories and apparel. The Player
Licenses do not cover golf instruction products, biographical products about
Gary Player, or other of Gary Player's businesses, including golf course design
and management services.
Under the terms of the Player Licenses, the Company will be obligated to
pay an annual license fee during the first ten years of the licenses,
increasing from $150,000 during the first year up to a maximum of $350,000 per
year commencing in the fifth year. The Company's obligation to pay the license
fee will terminate earlier if Gary Player does not play in at least ten
internationally televised professional golf tournaments during any twelve-month
period and is no longer Chairman of the Board of the Company (unless he is no
longer Chairman because of his removal without cause or failure to be
re-elected) prior to the end of the fifth year. The Company may offset against
the license fee any cash compensation or fee paid or payable to Gary Player as
a director or officer of the Company. In addition to the license fee, the
Company must pay royalties of (i) 3% of net receipts between $10 million and
$20 million from sales of endorsed products through direct marketing during any
year, (ii) 2% of net receipts in excess of $20 million from sales of endorsed
products through direct marketing during any year, and (iii) 3% of net receipts
from endorsed products which are sold other than through direct marketing
(including royalties from sublicensing arrangements). The Company is not
required to pay royalties on the first $10 million of net receipts from sales
of endorsed products through direct marketing during any year.
All uses of the Gary Player name and likeness are subject to the prior
approval of the licensors which may not be unreasonably withheld. The Player
Licenses may be terminated as a result of a material breach or default under
either license by the Company which is not cured within 30 days of notice of
the breach. The Company may not assign the Player Licenses except in connection
with a sale of all or substantially all of the assets of the Company to, or a
merger of the Company with, a person or entity other than a person or entity
whose sales of golf clubs exceed 10% of the total sales of golf clubs during
the calendar year, whose name includes the name of a recognized professional
golfer or has over 25% of its capital stock owned by a recognized professional
golfer.
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Supply, Assembly and Delivery
The Company's golf clubs are assembled by the Company at its Santa Maria
facility using components (heads, shafts and grips) purchased from third-party
manufacturers. The Company, in collaboration with Gary Player, selects the
heads, shafts and grips for its clubs from prototypes designed and developed by
component manufacturers based on aesthetics and features popular in the market
at the time. The Company generally does not design its own golf club
components; rather, with input from Gary Player, it works closely with its
component manufacturers to modify their proprietary components when necessary
to meet the Company's specifications. Accordingly, the Company has incurred
immaterial product development expenditures to date.
The Company, however, recently commissioned Tom Stites, a well known golf
club designer, to develop club head molds for the Gary Player Black Knight
Ti-162 woods. The Company expects to release these clubs in June 1998. The club
heads feature a low profile that is very popular in today's market. The Company
may commission the development of club components in the future if it believes
that components with broad consumer acceptance are not being made available to
the Company by its manufacturers.
The Company selects its suppliers primarily on the basis of quality,
price, payment terms and delivery capability. Currently, the Company purchases
club heads from Magic Mechanical Co. Ltd., shafts primarily from Aldila and
also from Grafalloy, and grips from Eaton Golf Pride. Aldila is a leading
manufacturer of graphite shafts worldwide and a supplier of many of the largest
golf club manufacturers, and Eaton Golf Pride is a leading manufacturer of golf
club grips worldwide. The Company believes that the use of components from
manufacturers with wide brand-name recognition and favorable consumer
perception facilitates sales of its golf clubs and maintains quality.
Historically, because of its financial condition, the Company generally
has been required to pay for components upon shipment which has resulted in
delays in filling orders. The Company intends to use a portion of the proceeds
of this offering to purchase and maintain an increased inventory of golf club
components. Golf clubs currently are shipped directly to customers via three
day air delivery service generally within two to three weeks from the date of
order. The Company believes that increasing its inventory of components will
enable the Company to fill orders more quickly which could reduce order
cancellations.
Product Returns; Warranty
The Company believes that because it markets its golf clubs through direct
marketing channels which do not allow customers to examine and handle the golf
clubs prior to purchase, the Company must offer customers a meaningful right to
return the clubs. Under the Company's current policy, customers may return golf
clubs for a full refund (excluding shipping and handling charges) generally
within 60 days after they are received.
The Company recorded allowances for product returns of approximately 45%,
40% and 50% of gross sales for the year ended December 31, 1996, the three
months ended March 31, 1997 and the year ended March 31, 1998, respectively.
The Company believes that its historic rate of return has been high primarily
as a result of selling through direct marketing channels. Direct marketing
customers do not have the opportunity to examine the clubs before they are
purchased. The Company also believes that its product return rates have been
high because, until the introduction of the Gary Player Black Knight line of
golf clubs, the Company offered clubs with steel heads at a time when the
market increasingly demanded club heads with titanium-face inserts. The Company
believes that its product return rate will decline as the Company currently
offers a line of clubs with titanium-face inserts and graphite shafts and as
its market recognition increases. However, the Company does not strive to be a
market innovator in the style or technology of its golf clubs and may from time
to time lag behind market trends, which could lead to high levels of product
returns.
The Company offers returned products as demonstration models at
significantly reduced prices, after cleaning and refurbishing the products.
Demonstration models are sold at prices generally ranging from 65% to 75% of
the clubs' original price, and accounted for approximately 18% of gross sales
for the year ended March 31, 1998.
The Company provides a lifetime warranty that the clubs will be free from
defects in materials and workmanship. To date, the Company has not experienced
material warranty expense.
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Competition
The markets for the Company's golf clubs and accessories are highly
competitive and contain limited barriers to entry. The Company competes
primarily on the basis of providing higher quality products at lower price
points. The Company competes with golf equipment manufacturers and marketers as
well as manufacturers and marketers of other sporting equipment that offer
consumers products with similar entertainment or recreational value, such as
ski and tennis equipment. Many of these competitors are well established
companies with broad consumer recognition and greater financial, marketing,
distribution, personnel and other resources than the Company. The golf
equipment industry is currently dominated by four companies, Callaway Golf
Company, Titleist/Cobra Golf, Karsten Manufacturing (Ping) and Taylor Made,
which in the aggregate, accounted for approximately 50% of the golf clubs sold
in the United States in 1997. In addition, the Company is aware of a number of
companies which use infomercials to sell golf clubs (principally specialty
clubs). Competition in the market for golf apparel is also extremely
competitive. The Company intends to compete in this market by attempting to
establish the Gary Player brand and offering, principally through sublicensees,
a variety of products at various price and quality levels. In the golf apparel
market, the Company will compete with a large number of manufacturers and
retailers of golf and other sports apparel and casual and outerwear. There can
be no assurance that the Company will be able to compete successfully.
Government Regulation
The Company's direct marketing operations are subject to numerous Federal
and state regulations, as well as general public scrutiny. The Federal
Telephone Consumer Protection Act of 1991 limits the hours during which
telemarketers may call consumers to between 8:00 a.m. and 9:00 p.m., and
prohibits the use of automated telephone dialing equipment to call certain
telephone numbers. The Federal Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994, and the Federal Trade Commission ("FTC") regulations
promulgated thereunder, prohibit deceptive, unfair or abusive practices in
telemarketing sales. Both the FTC and state attorneys general have authority to
prevent telemarketing activities that constitute "unfair or deceptive acts or
practices." Additionally, some states have enacted laws and others are
considering enacting laws targeted directly at telemarketing practices, and
there can be no assurance that any such laws, if enacted, will not adversely
affect or limit the Company's current or future operations. The infomercial
industry is also regulated by the FTC, as well as by the Consumer Product
Safety Commission, the Federal Communications Commission, various states'
attorneys general and other state and local consumer protection agencies. The
Company's marketing activities and/or products may become subject to the
scrutiny of each of these regulatory agencies. Compliance with regulations
promulgated by these agencies is generally the responsibility of the Company,
and the Company could be subject to a variety of enforcement or private actions
for any failure to comply with such regulations. Noncompliance by the Company
with any rules and regulations enforced by a Federal or state consumer
protection authority may subject the Company or its management to fines or
various forms of civil or criminal prosecution, any of which could materially
adversely affect the Company's business, financial condition and results of
operations.
Employees
At March 31, 1998, the Company had 215 full-time employees, including 175
in sales and marketing (of which 166 are in telemarketing), 9 in customer
service and support, 13 in warehouse operations and shipping and 18 in general
administration and finance. None of the employees of the Company is covered by
a collective bargaining agreement. The Company considers its relationship with
its employees to be good.
Properties
The Company's headquarters are located in Santa Maria, California,
approximately 150 miles north of Los Angeles. The Company's headquarters occupy
approximately 23,000 square feet of administrative, telemarketing and
production assembly and fulfilment space pursuant to a sublease agreement which
expires on October 31, 1998 and provides for a current annual rental of
approximately $124,200. The Company is currently negotiating a renewal of this
lease.
Legal Proceedings
From time to time the Company expects to be subject to legal proceedings
and claims in the ordinary course of its business. Such claims, even if lacking
merit, could result in the expenditure of significant financial and managerial
resources. The Company is not currently a party to any pending legal
proceedings that it believes will have, individually or in the aggregate, a
material adverse effect on the Company or on its financial condition or results
of operations.
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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 the date of this
Prospectus:
Name Age Position
- -------------------------------- ----- -------------------------------------
Gary Player .................... 62 Chairman of the Board
Joseph J. White ................ 51 Chief Executive Officer and Director
Alfonso J. Cervantes, Jr. ...... 48 President and Director
Joseph A. DePanfilis ........... 43 Chief Financial Officer
James Braden ................... 45 Vice President
Robert J. Friedland ............ 41 Director
Marc B. Player ................. 39 Director
Steven O. Sparks ............... 51 Director
Gary Player has agreed to serve as Chairman of the Board of the Company
commencing on the date of this Prospectus. Mr. Player is a professional golfer
and one of only four golfers ever to win all four major golf championships. Mr.
Player's nine major titles include three Masters, three British Opens, two PGA
Championships and one U.S. Open. Mr. Player's accomplishments also include 21
American PGA Tour victories and 23 worldwide titles in his first five years in
Seniors competition. In winning the Senior British Open in 1988, he became the
first man to complete the "Grand Slam" of Senior golf. Since 1984, Mr. Player
has served as Chairman of Gary Player Group, Inc., a company he formed to manage
a number of businesses, including Gary Player Golf Academies, a company engaged
in worldwide golf instruction, Gary Player Enterprises, the licensing and
endorsement company of the group for non-golf related matters, and Gary Player
Design Company which has designed over 140 internationally acclaimed golf
courses worldwide. Mr. Player also owns the Gary Player Stud Farm, a breeder of
top thoroughbred horses. Mr. Player also instituted and chairs the Gary Player
Foundation, a philanthropic organization dedicated to educating poor rural
children of South Africa.
Joseph J. White has agreed to serve as Chief Executive Officer of the
Company commencing on the date of this Prospectus. Mr. White was President of
Gary Player Golf Equipment from July 1996 until the date of this Prospectus and
President and a Director of Gary Player Group, Inc. from January 1997 until the
date of this Prospectus. From September 1993 to March 1996, Mr. White was Vice
President- Sports and ISP World-Wide Managing Director for The Portman Companies
based in Atlanta, Georgia, where he participated in the initiation and
development of the International Sports Plaza in conjunction with the 1996
Atlanta Olympic Games. From 1989 to 1993, Mr. White was President of Zett USA,
Inc., a joint venture he created with Zett Corporation, Japan's largest
wholesale sporting goods company. Zett USA marketed high end, high technology
golf and baseball equipment. Mr. White is a member of the National Golf
Foundation, has recently served on the Board of Directors of the Golf
Manufacturers and Distributors Association and has been a member of the National
Sporting Goods Association and the Sporting Goods Manufacturers Association. In
addition, Mr. White currently serves on the Board of Directors for Clark Atlanta
University's Graduate School of Sports and Entertainment.
Alfonso J. Cervantes, Jr. co-founded the Company in October 1995 and has
served as a director since its inception. He has also served in various
executive officer capacities since July 1996, and has been the Chief Executive
Officer and President since November 1997. Mr. Cervantes has agreed to resign
as Chief Executive Officer commencing on the date of this Prospectus. Mr.
Cervantes also serves as President and Chief Executive Officer of Trilogy
Capital Group, Inc. ("Trilogy"), a position he has held since he formed that
company in January 1991. Trilogy, which is not currently active, is a venture
capital and consulting firm principally engaged in
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<PAGE>
the reorganization and recapitalization (through Chapter 11 of the U.S.
Bankruptcy Code or otherwise) of distressed small to middle market companies. In
this capacity, Mr. Cervantes has developed and implemented reorganization plans
for a number of companies, including three for which he served as director and
Chief Executive Officer and for which he was instrumental in filing Chapter 11
plans, including International Paging Corporation in February 1994, Mediacom
Industries, Inc. in March 1994 and Pearce Systems International, Inc. in March
1996 (which was converted to Chapter 7). Mr. Cervantes also serves as President
of All Children Count, Inc., a non-profit corporation which he founded in 1991,
that provides services to HIV-infected children and their families. Mr.
Cervantes' employment contract provides that he will devote his full time
business efforts to the Company's business during the term of the contract.
Joseph A. DePanfilis has served as Executive Vice President of the Company
since December 1997 and Chief Financial Officer of the Company since September
1997. Mr. DePanfilis will no longer serve as Executive Vice President as of the
date of this Prospectus. From April 1996 until joining the Company, Mr.
DePanfilis served as Vice President-Finance and Administration and Chief
Financial Officer of Gateway Worldwide Communications, Inc., a provider of
international communications services in 25 countries. From 1990 until April
1996, Mr. DePanfilis was Financial Controller of RF Technology, Inc., a
manufacturer of microwave communications equipment used in the television and
broadcast industries.
James Braden has been Vice President of the Company since December 1997.
He is responsible for recruitment, training and supervision of the sales
personnel of the Company. He has served in the capacity of Director of Sales
and Marketing since the formation of Rhino Marketing, Inc., the Company's
predecessor company, which was incorporated in January 1995. From 1994 until
joining the Company, Mr. Braden served as Sales Manager for Bob Mann Golf, Inc.
Mr. Braden is a former PGA golf professional.
Robert J. Friedland has served as a director of the Company since July
1996. Mr. Friedland is President and Chief Executive Officer of Kittrich
Corporation, a company he formed in 1978. Kittrich Corporation manufactures and
distributes various consumer products, including shelf and window coverings,
stationery products and insecticidal products.
Marc B. Player has agreed to serve as a director of the Company commencing
on the date of this Prospectus. Mr. Player has served as Chief Executive
Officer and a director of GPG since 1984. Mr. Player also served as President
of Sports International, a company he formed in 1986. Sports International
served as the exclusive representative in South Africa of International
Management Group, one of the foremost sports management firms in the world.
Sports International was acquired by International Management Group in 1991.
Mr. Player is the son of Gary Player.
Steven O. Sparks has served as a director of the Company since May 1997.
In 1995, Mr. Sparks co-founded Sherwood Financial Group, a money management
firm, and served as its President from June 1995 to May 1996 and Managing
Director from June 1996 to June 1997. From 1991 to June 1995, Mr. Sparks served
as a Vice President of Paine Webber, a stock brokerage firm. From January 1993
to July 1994, Mr. Sparks also served as President of H.S.H., Inc., a company
engaged in the marketing and distribution of the Loomis golf club shaft. In
1993, Mr. Sparks served as General Partner of Tom Kite Golf Center Limited
Partnership, a California limited partnership engaged in the development of the
Tom Kite Golf Center.
Directors are elected at each annual meeting of stockholders and hold
office until the following annual meeting and their successors are duly elected
and qualified. Executive officers of the Company serve at the discretion of the
Board of Directors and until their successors are duly elected and qualified.
The Company will appoint one additional independent director prior to the date
of this Prospectus.
Audit Committee
The Board of Directors intends to establish an Audit Committee of two or
more independent directors following the consummation of this offering. The
Audit Committee's functions will include recommending to the Board of Directors
the engagement of the Company's independent certified public accountants,
reviewing with those accountants the plan and results of their audit of the
financial statements and determining the independence of the accountants.
33
<PAGE>
Director Compensation
The Company does not compensate as directors the Chairman of the Board or
directors who are also employees of the Company. The Company pays non-employee
directors a fee of $4,000 per year, plus $300 for their personal attendance at
any meeting of the Board and $150 for attendance at any telephonic meeting of
the Board or at any meeting of a committee of the Board. As additional
consideration for their services as directors, the Company granted to Messrs.
Friedland, Sparks and Marc Player options under the Company's 1998 Plan to
purchase 12,000, 12,000 and 9,000 shares of Common Stock, respectively, at an
exercise price of $8.00 per share. All of these options vest on April 1, 1999.
Executive Compensation
The following table sets forth compensation paid by the Company to each
person (the "Named Executive Officers") who served as the Chief Executive
Officer of the Company during the fiscal year ended March 31, 1998 (no other
executive officer received compensation in excess of $100,000 during such
year):
Summary Compensation Table
Annual Compensation
--------------------------------------
Other
Name and Principal Position Salary Bonus Compensation
- ------------------------------ ---------- ------- ---------------
Alfonso J. Cervantes ......... $98,654 $-- $ 1,540(1)
Chief Executive Officer(2)
John Pike (3) ................ $55,385 $-- $ 2,088(1)
Chief Executive Officer
- ------------
(1) Represents an automobile allowance.
(2) Mr. Cervantes served as Senior Vice President prior to becoming Chief
Executive Officer in November 1997.
(3) Mr. Pike served as Chief Executive Officer from July 1996 to November 1997.
Mr. Cervantes served as Chief Executive Officer from November 1997 through
the end of the fiscal year.
Employment and Consulting Agreements
The Company has entered into an employment agreement with Joseph J. White
to serve as Chief Executive Officer for two years following the date of this
Prospectus. Pursuant to his employment agreement, Mr. White will receive a
salary of $165,000 for the first year and $181,500 for the second year, a bonus
of $25,000 upon commencement of employment and a bonus, not to exceed 20% of
Mr. White's base salary per year, equal to 10% of the pre-tax earnings of the
Company in excess of $3,000,000 (for the year ending March 31, 1999) and the
greater of $5,000,000 or 150% of pre-tax earnings of the Company for the year
ending March 31, 1999 (for the year ending March 31, 2000). Mr. White will also
receive certain other benefits, including a $1,000 per month automobile
allowance and up to $25,000 of the initiation fee for a corporate membership in
a golf country club. The Company will reimburse Mr. White for his expenses in
relocating his home from South Carolina to California and the brokerage
commissions on the sale of his South Carolina home. In addition, if Mr. White
is unable to sell his residence in South Carolina by October 21, 1998, the
Company has agreed to pay interest until the end of his employment term on a
new loan obtained by Mr. White to purchase a residence near the Company's
executive offices.
The Company has entered into an employment agreement with Alfonso J.
Cervantes, Jr. to serve as President for two years following the date of this
Prospectus. Pursuant to his employment agreement, Mr. Cervantes will receive a
salary of $150,000 for the first year and $165,000 for the second year and
certain benefits, including an automobile and related expenses up to a $12,000
per year. The Company will also reimburse Mr. Cervantes for any expenses in
relocating from Los Angeles, California to Santa Maria, California.
34
<PAGE>
The Company has entered into an employment agreement with Joseph A.
DePanfilis to serve as Chief Financial Officer for one year following the date
of this Prospectus. Pursuant to his employment agreement, Mr. DePanfilis will
receive a salary of $90,000, a bonus of $5,000 upon the date of this Prospectus
and certain benefits, including an automobile and related expenses up to
$6,000 per year.
The Company may, under the terms of each of the employment agreements,
terminate the employee's employment at any time with or without cause. Upon
termination without cause, the Company must continue to pay the employee's
salary and certain other benefits for the duration of the employment term. In
addition, each employee may terminate his employment upon a change of control
of the Company (as defined) and receive a lump sum payment equal to the
remaining salary due under his employment agreement and continuation of certain
other benefits for the duration of the employment term.
In October 1996, the Company entered into a consulting agreement with
Robert Friedland, a director of the Company. Pursuant to this agreement (as
amended), Mr. Friedland provided management services to the Company related to
the manufacture and shipment of its products, order processing and fulfillment,
financial analysis and labor matters. As compensation for these services, the
Company granted to Mr. Friedland warrants to purchase 22,500 shares of Common
Stock at an exercise price of $4.00 per share. Mr. Friedland exchanged his
warrants for 7,500 shares of Common Stock prior to the consummation of this
offering. The Company and Mr. Friedland have entered into a new consulting
agreement pursuant to which Mr. Friedland will continue to provide these types
of management services to the Company for one year following the consummation
of this offering. For these services, Mr. Friedland received an option under
the 1998 Plan to purchase 10,000 shares of Common Stock at an exercise price of
$8.00 per share.
The Company and Sparks Financial, Inc. ("Sparks Financial"), a company
owned by Steven Sparks, a director of the Company, have entered into a
consulting agreement pursuant to which Sparks Financial has agreed to perform
various services for the Company for one year following the consummation of
this offering, including services related to the identification of new golf
club features and design trends and the development by the Company of
relationships with strategic partners. For these consulting services, Sparks
Financial has received an option under the 1998 Plan to purchase 25,000 shares
of Common Stock at an exercise price of $8.00 per share.
The Company and Marc B. Player, a director of the Company, have entered
into a consulting agreement pursuant to which Mr. Player has agreed for a
period of one year following consummation of this offering to provide services
to the Company relating to investor relations, strategic planning, development
of new product lines and identification and development of domestic and foreign
business opportunities. For these services, Mr. Player will receive a
consulting fee of $5,000 per month during the term of the agreement.
Stock Option Plan
The Company has a Stock Option Plan (the "1998 Plan") which provides for
the issuance of up to 312,500 shares of Common Stock pursuant to options
granted from time to time to directors, officers, employees and consultants.
Unless extended or terminated sooner by the Board of Directors, the 1998 Plan
will terminate in 2008.
The 1998 Plan may be administered by the Company's Board of Directors or,
at the discretion of the Board, a committee of two or more directors (the
"Administrator"). Subject to the provisions of the 1998 Plan, the Administrator
will have full and final authority to select persons to whom options will be
granted and to determine the terms and conditions of the options.
Options granted under the 1998 Plan may, at the discretion of the
Administrator, either be "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
options which do not qualify as "incentive stock options." The exercise price
of an option granted under the 1998 Plan may not be less than the fair market
value of a share of Common Stock on the date of grant. No participant may
receive options representing more than 50% of the aggregate number of shares of
Common Stock that may be issued pursuant to all options under the 1998 Plan. An
option may provide for the issuance of Common Stock for any lawful
consideration, including services rendered or, to the extent permitted by
applicable state law, to be rendered. Currently, Delaware law does not permit
the issuance of common stock for services to be rendered.
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<PAGE>
An option granted under the 1998 Plan may include a provision conditioning
or accelerating the receipt of benefits, either automatically or in the
discretion of the Administrator, upon the occurrence of specified events,
including a change of control of the Company, an acquisition of a specified
percentage of the voting power of the Company or a dissolution, liquidation,
merger, reclassification, sale of substantially all of the property and assets
of the Company or other significant corporate transaction.
An option under the 1998 Plan may permit the recipient to pay all or part
of the purchase price of the shares or other property issuable pursuant to the
option, and/or to pay all or part of the recipient's tax withholding
obligations with respect to such issuance, by delivering previously owned
shares of capital stock of the Company or other property, or by reducing the
amount of shares or other property otherwise issuable pursuant to the option.
If an option granted under the 1998 Plan permitted the recipient to pay for the
shares issuable pursuant thereto with previously owned shares, the option may
grant the recipient the right to "pyramid" his or her previously owned shares,
i.e., to exercise the option in successive transactions, starting with a
relatively small number of shares and, by a series of exercises using shares
acquired from each transaction to pay the purchase price of the shares acquired
in the following transaction, to exercise the option for a larger number of
shares with no more investment than the original share or shares delivered.
The Board of Directors may amend the 1998 Plan at any time and in any
manner, subject to the following: (i) no recipient of any option may, without
his or her consent, be deprived thereof or of any of his or her rights
thereunder or with respect thereto as a result of such amendment or
termination; and (ii) if any rule or regulation promulgated by the Securities
and Exchange Commission, the Internal Revenue Service or any national
securities exchange or quotation system upon which any of the Company's
securities are listed requires that any such amendment be approved by the
Company's stockholders, then such amendment will not be effective until it has
been approved by the Company's stockholders.
Options to purchase an aggregate of 280,500 shares of Common Stock at an
exercise price of $8.00 per share have been granted under the 1998 Plan. These
options include options to purchase an aggregate of 33,000 shares granted as
compensation to the Company's directors, and options to purchase 150,000,
50,000, 12,500, 25,000 and 10,000 shares granted to Messrs. White, Cervantes,
DePanfilis, Sparks and Friedland, respectively.
Limitation of Liability and Indemnification Matters
The Company's Certificate of Incorporation and its Bylaws provide that the
Company may indemnify each director, officer and employee of the Company to the
full extent permitted by law, as the same exists or may hereafter be amended.
Section 145 of the Delaware General Corporation Law provides in relevant part
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person 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 expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person 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 expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
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 Delaware Court
of Chancery or the court in which such
36
<PAGE>
action or suit 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
which the Delaware Court of Chancery or such other court shall deem proper.
Delaware law further provides that nothing in the above-described provisions
shall be deemed exclusive of any other rights to indemnification or advancement
of expenses to which any person may otherwise be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
The Company's Certificate of Incorporation also provides that a director
of the Company shall not be liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director. Section 102(b)(7)
of the Delaware General Corporation Law provides that a provision so limiting
the personal liability of a director shall not eliminate or limit the liability
of a director for, among other things: breach of the duty of loyalty; acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; unlawful payment of dividends; and transactions
from which the director derived an improper personal benefit.
The Company has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director of the Company and certain of
its officers (the "Indemnitees"). Pursuant to the terms and conditions of the
Indemnity Agreements, the Company has agreed to indemnify, to the maximum
extent permitted under applicable law, each Indemnitee against any amounts
which he becomes legally obligated to pay in connection with any claim against
him based upon any action or inaction which he may commit, omit or suffer while
acting in his capacity as a director and/or officer of the Company or its
subsidiaries, provided, however, that Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action, had no
reasonable cause to believe Indemnitee's conduct was unlawful.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus and as adjusted to reflect the sale by the Company of 1,700,000
shares of Common Stock offered hereby (based on information obtained from the
persons named below), relating to the beneficial ownership of shares of Common
Stock by (i) each person or entity who is known to the Company to beneficially
own more than 5% of the outstanding Common Stock, (ii) each of the Company's
directors, (iii) each of the Named Executive Officers, and (iv) all directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned(2)
----------------------
Number of Shares Before After
Name and Address of Beneficial Owner(1) Beneficially Owned(2) Offering Offering
- ------------------------------------------ -------------------------- ---------- ---------
<S> <C> <C> <C>
Gary Player Group, Inc ................... 346,875(3) 14.3% 8.4%
3930 RCA Boulevard, #3001 ...............
Palm Beach Gardens, FL 33410 ............
Gary Player .............................. 346,875(3) 14.3 8.4
Marc B. Player ........................... 346,875(3)(4) 14.3 8.4
Alfonso J. Cervantes Jr. ................. 213,283(5) 8.8 5.2
Norman A. Kunin .......................... 186,408(6) 7.7 4.5
Steven O. Sparks ......................... 47,582(7) 2.0 1.2
Joseph J. White .......................... 28,125(8) 1.2 *
Robert Friedland ......................... 26,404(9) 1.1 *
James Braden ............................. 9,167(10) * *
Joseph A. DePanfilis ..................... 5,900(11) * *
All of the directors and executive
officers as a group (8 persons) ......... 677,336(10)(12) 27.9% 16.4%
</TABLE>
- ------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner is in the
care of the Company, 2811 Airpark Drive, Santa Maria, California 93455.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities which may be acquired by such person within
60 days from the date of this Prospectus upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options, warrants or convertible
securities that are held by such person (but not those held by any other
person) and which are exercisable or convertible within 60 days of this
Prospectus have been exercised or converted. Assumes a base of 2,428,583
shares of Common Stock outstanding prior to this offering and a base of
4,128,583 shares of Common Stock outstanding immediately after this
offering, before any consideration is given to other outstanding options.
(3) These shares are held of record by GPG. By virtue of their positions with
and control of GPG, Gary Player and Marc B. Player share investment and
voting power with respect to these shares.
(4) Does not include 9,000 shares of Common Stock issuable upon exercise of
stock options exercisable commencing April 1, 1999.
(5) Includes 5,000 shares of Common Stock pledged to the Company to secure the
obligations of Trilogy Capital, Inc., a corporation wholly-owned by Mr.
Cervantes, to the Company pursuant to a promissory note. Does not include
50,000 shares of Common Stock issuable upon exercise of stock options
exercisable commencing one year from the date of this Prospectus. See
"Certain Transactions."
(6) Includes (i) 125,000 shares of Common Stock held by Ace Investors, LLC, a
limited liability company of which Mr. Kunin is the manager, and (ii)
12,500 shares of Common Stock held by Mr. Kunin's spouse.
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<PAGE>
(7) Includes 22,000 shares of Common Stock held by Sparks Financial, Inc., a
corporation of which Mr. Sparks is the sole stockholder. Does not include
37,000 shares of Common Stock issuable upon exercise of stock options
exercisable at various times commencing April 1, 1999.
(8) Does not include 150,000 shares of Common Stock issuable upon exercise of
stock options exercisable commencing one year from the date of this
Prospectus.
(9) Does not include 22,000 shares of Common Stock issuable upon exercise of
stock options exercisable at various times commencing April 1, 1999.
(10) Includes 7,500 shares of Common Stock issuable upon exercise of stock
options that are currently exercisable.
(11) Does not include 12,500 shares of Common Stock issuable upon exercise of
stock options exercisable commencing one year from the date of this
Prospectus.
(12) Does not include 280,500 shares of Common Stock issuable upon exercise of
stock options exercisable at various times commencing April 1, 1999.
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<PAGE>
CERTAIN TRANSACTIONS
In March 1996, the Company made a loan of $142,160 to Trilogy, a venture
capital and consulting firm owned by Alfonso J. Cervantes, Jr., in lieu of fees
payable to Trilogy for services rendered in connection with the Company's
formation and the acquisition of Rhino Marketing, Inc. and financing activities.
Mr. Cervantes was a director of the Company at the time of the loan. The loan is
evidenced by a promissory note which bears interest at the rate of 1% over the
prime rate (8.5% as of April 30, 1998), and is due and payable as follows: (i)
twelve months of accrued interest only is payable on December 31, 1998; (ii)
principal and accrued interest are payable monthly commencing January 1, 1999
based on a 10-year amortization schedule until December 31, 2002; and (iv) the
remaining balance of principal and accrued interest is payable on December 31,
2002. Mr. Cervantes pledged 5,000 shares of his Common Stock as collateral for
the loan.
In October 1996, Alfonso J. Cervantes, Jr. transferred an aggregate of
27,083 shares of Common Stock owned by him to certain of the Company's lenders
in consideration of their agreement to extend the maturity date of a loan in
the principal amount of $400,000 to the Company.
Sparks Financial, Inc. ("Sparks Financial"), a company owned by Steven
Sparks, a director of the Company, and Mr. Sparks have served as consultants to
the Company in connection with sales by the Company of its securities, for
which they received an aggregate of 44,000 shares of Common Stock and warrants
to purchase 10,745 shares of Common Stock at an exercise price of $4.00 per
share. Mr. Sparks and Sparks Financial have exchanged their warrants for 3,581
shares of Common Stock prior to consummation of this offering.
Alfonso J. Cervantes, Jr. has personally guaranteed the repayment by the
Company of certain indebtedness in the aggregate principal amount of $750,000.
In November 1997, as consideration for his personal guarantee, the Company
issued 17,500 shares of Common Stock to Mr. Cervantes.
In November 1997, the Company entered into an agreement with GPG, pursuant
to which the Company acquired on the date of this Prospectus the assets of the
golf equipment operations of GPG, including the Player Licenses, which,
directly or indirectly are granted by Gary Player. Gary Player, the Company's
Chairman of the Board, Joseph White, the Chief Executive Officer and a director
of the Company, and Marc Player, a director of the Company, are executive
officers and directors of GPG, and Gary Player and Marc Player are beneficial
stockholders of GPG. Messrs. White, Gary Player and Marc Player were not
officers, directors or stockholders of the Company at the time the agreement
was negotiated and entered into with GPG. The purchase price for these assets
is (i) 375,000 shares of Common Stock, (ii) a promissory note in the principal
amount of $750,000 which bears interest at the rate of 6% per annum and is due
and payable in three equal installments of $250,000, the first within three
days following the closing of this offering and the next two on the last day of
the 11th and 22nd months following the date of this Prospectus, and (iii) the
assumption by the Company of up to $750,000 of liabilities of GPG. The Company
has advanced $250,000 to GPG. The first installment of the promissory note
issued to GPG will be repaid by canceling the $250,000 advance made by the
Company to GPG. Pursuant to an agreement between Joseph White and GPG, Mr.
White received 28,125 shares of Common Stock issued by the Company to GPG in
the Player Acquisition. See "Business -- Player Licenses."
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<PAGE>
DESCRIPTION OF SECURITIES
General
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $0.001 per share, and 4,249,250 shares of Preferred Stock, par value
$0.001 per share. As of the date of this Prospectus, there are 2,428,583 shares
of Common Stock outstanding held by approximately 103 holders of record and no
shares of Preferred Stock outstanding.
Common Stock
Holders of Common Stock are entitled to one vote for each share held of
record on all matters on which the holders of Common Stock are entitled to
vote, and holders of Common Stock may cumulate votes in the election of
directors. The holders of Common Stock are entitled to receive ratable
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled, subject to the
rights of holders of Preferred Stock issued by the Company, if any, to share
ratably in all assets remaining available for distribution to them after
payment of liabilities and after provision is made for each class of stock, if
any, having preference over the Common Stock. The holders of Common Stock have
no preemptive or conversion rights and they are not subject to further calls or
assessments by the Company. There are no redemption or sinking fund provisions
applicable to the Common Stock. The outstanding shares of Common Stock are, and
the Common Stock issuable pursuant to this Prospectus will be, when issued,
fully paid and nonassessable.
Preferred Stock
The Company is authorized to issue "blank check" Preferred Stock in one or
more series from time to time with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting or other rights
which adversely affect the voting power or other rights of the holders of the
Company's Common Stock. In the event of issuance, the Preferred Stock could be
utilized, under certain circumstances, as a way of discouraging, delaying or
preventing an acquisition or change in control of the Company. The Company does
not currently intend to issue any shares of its Preferred Stock.
Section 203 of the Delaware General Corporation Law
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. That section provides, with certain exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate, or associate of such person, who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (i) the transaction resulting
in a person becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquires 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An "interested
stockholder" is defined as any person that is (a) the owner of 15% or more of
the outstanding voting stock of the corporation or (b) an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
Registration Rights
The holders of 1,323,244 shares of Common Stock are entitled to piggyback
registration rights with respect to such shares under the Securities Act. If
the Company proposes to register any of its securities under the Securities Act
at least 180 days subsequent to this offering, these holders are entitled to
notice of such registration
41
<PAGE>
and are entitled to include their shares in such registration, provided, among
other conditions, that the underwriters of any offering have the right to limit
the number of shares included in such registration. All holders of registration
rights have agreed to waive such rights in connection with this offering and to
not exercise any such rights for one year from the date of this Prospectus
without the Underwriter's prior written consent.
In connection with this offering, the Company has agreed to grant to the
Underwriter certain demand and piggyback registration rights in connection with
the 170,000 shares of Common Stock issuable upon exercise of the Underwriter's
Warrants. See "Underwriting."
Transfer Agent
The Company's transfer agent and registrar for its Common Stock is
American Stock Transfer and Trust Company, 40 Wall Street, New York, New York
10005.
Reports to Stockholders
The Company has registered its Common Stock under the provisions of
Section 12(g) of the Exchange Act. Such registration will require the Company
to comply with periodic reporting, proxy solicitation and certain other
requirements of the Exchange Act. The Company intends to furnish its
stockholders with annual reports containing audited financial statements and
such other periodic reports as the Company may deem to be appropriate or as may
be required by law, and to make available copies of quarterly reports for the
first three quarters of each fiscal year containing unaudited interim financial
information.
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have 4,128,583 shares
of Common Stock outstanding, of which the 1,700,000 shares of Common Stock
offered hereby will be freely tradable without restriction or further
registration under the Securities Act, except for any shares purchased by an
"affiliate" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 2,428,583 shares of Common Stock held by existing
stockholders are "restricted" securities within the meaning of Rule 144 under
the Securities Act. Restricted securities may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144 or 701 promulgated under the Securities Act, which rules are summarized
below.
In general, under Rule 144, restricted securities which have been
outstanding for at least two years are freely transferrable by persons who are
not affiliates of the Company. Restricted securities which have been
outstanding for at least one year but less than two years are transferrable in
the public market only if the Company is current in its public reporting
obligations and subject to the following limitations: (i) the holder may not
sell an amount of restricted shares which exceeds the greater of (A) 1% of the
then outstanding shares of Common Stock (approximately 41,300 shares
immediately following this offering) or (B) the average weekly trading volume
of the Common Stock during the prior four calendar weeks; and (ii) the shares
must be sold in "brokers' transactions" or directly to a market maker.
Affiliates may sell shares (restricted shares and unrestricted shares) in
public transactions only in compliance with the Rule 144 limitations applicable
to restricted securities outstanding less than two years. In general, under
Rule 701 under the Securities Act as currently in effect, any non-affiliate
employee, consultant or advisor of the Company who acquires 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 date of this Prospectus in reliance on Rule 144, but without
compliance with certain restrictions contained in Rule 144.
In addition, stockholders (including all officers and directors) holding
an aggregate of 2,307,154 shares of Common Stock have agreed with the
Underwriter that without the prior consent of the Underwriter, they will not
sell or contract to sell any shares of Common Stock, or any options or warrants
to purchase Common Stock, or otherwise dispose of or transfer any shares of
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock, of the Company for one year after the date of this
Prospectus. Further, each officer, director and 5% stockholder has agreed, for
a period of one year commencing on the first anniversary of the date of this
Prospectus, not to sell during any three-month period shares of Common Stock in
excess of the amount such person would be permitted to sell if they were deemed
an "affiliate" of the Company within the meaning of Rule 144 under the
Securities Act.
The Company has reserved an aggregate of 312,500 shares of Common Stock
for issuance pursuant to the 1998 Plan. The Company intends to file a
registration statement under the Securities Act to register the 312,500 shares
of Common Stock reserved for issuance under the 1998 Plan. This registration
statement will become effective immediately upon filing with the Securities and
Exchange Commission. Shares issued under the 1998 Plan generally will be
available for sale to the public without restriction after the effective date
of such registration statement, except for the one-year lock-up provisions and
shares issued to affiliates of the Company, which will remain subject to the
volume and manner of sale limitations of Rule 144.
43
<PAGE>
UNDERWRITING
Whale Securities Co., L.P. (the "Underwriter"), has agreed, subject to the
terms and conditions contained in the underwriting agreement between the
Company and the Underwriter, to purchase 1,700,000 shares of Common Stock from
the Company. The Underwriter is committed to purchase and pay for all of the
shares of Common Stock offered hereby if any of such securities are purchased.
The Common Stock is being offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter and subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus. The Underwriter may allow certain dealers
who are members of the NASD concessions not in excess of $____ per share of
Common Stock, of which not in excess of $ ___ per share may be reallowed to
other dealers who are members of the NASD.
The Company has granted to the Underwriter an option, exercisable during
the 45-day period from the date of this Prospectus, to purchase from the
Company up to 255,000 additional shares of Common Stock at the public offering
price set forth on the cover page of this Prospectus, less underwriting
discounts and commissions. The Underwriter may exercise this option in whole,
or from time to time, in part, solely for the purpose of covering
over-allotments, if any, made in connection with the sale of the shares of
Common Stock offered hereby.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the gross proceeds of the offering of which $50,000 has been
paid as of the date of this Prospectus. The Company has also agreed to pay all
expenses in connection with qualifying the shares of Common Stock offered
hereby for sale under the laws of such states as the Underwriter may designate,
including expenses of counsel retained for such purpose by the Underwriter.
The Company has agreed to sell to the Underwriter and its designees, for
an aggregate of $170, warrants (the "Underwriter's Warrants") to purchase up to
170,000 shares of Common Stock at an exercise price equal to 165% of the
initial public offering price per share. The Underwriter's Warrants may not be
sold, transferred, assigned or hypothecated for one year from the date of this
Prospectus, except to officers and partners of the Underwriter and members of
the selling group, and are exercisable during the five-year period commencing
on the date of this Prospectus (the "Warrant Exercise Term"). During the
Warrant Exercise Term, the holders of the Underwriter's Warrants are given, at
nominal cost, the opportunity to profit from a rise in the market price of the
Company's Common Stock. To the extent that the Underwriter's Warrants are
exercised, dilution of the interests of the Company's stockholders will occur.
Further, the terms on which the Company will be able to obtain additional
equity capital may be adversely affected since the holders of the Underwriter's
Warrants can be expected to exercise them at any time when the Company would,
in all likelihood, be able to obtain any needed capital on terms more favorable
to the Company than those provided in the Underwriter's Warrants. Any profit
realized by the Underwriter on the sale of the Underwriter's Warrants or the
underlying shares of Common Stock may be deemed additional underwriting
compensation. Subject to certain limitations and exclusions, the Company has
agreed, at the request of the holders of a majority of the Underwriter's
Warrants, at the Company's expense, to register the Underwriter's Warrants and
the shares of Common Stock issuable upon exercise of the Underwriter's Warrants
under the Securities Act on one occasion during the Warrant Exercise Term and
to include the Underwriter's Warrants and such underlying shares in any
appropriate registration statement which is filed by the Company during the
seven years following the date of this Prospectus.
The Company has also agreed, for a period of three years from the date of
this Prospectus, at the option of the Underwriter, to elect a designee of the
Underwriter to the Company's Board of Directors or, at the Underwriter's
option, as a non-voting adviser to the Company's Board of Directors. The
Underwriter has not yet exercised its right to designate such a person.
Stockholders of the Company (including the Company's officers and
directors) beneficially owning an aggregate of 2,307,154 shares of Common Stock
have agreed not to sell or otherwise dispose of any securities of the Company
beneficially owned by them for a period of twelve months from the date of this
Prospectus, without the prior written consent of the Underwriter.
The Underwriter has advised the Company that it does not expect sales of
the shares offered hereby to discretionary accounts to exceed 1% of the
securities offered hereby.
44
<PAGE>
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act.
Prior to the offering, there has been no public trading market for the
Company's Common Stock. Consequently, the initial public offering price of the
Common Stock has been determined by negotiations between the Company and the
Underwriter. Among the factors considered in determining the offering price of
the Common Stock were the Company's financial condition and prospects, market
prices of similar securities of comparable publicly traded companies, certain
financial and operating information of companies engaged in activities similar
to those of the Company and the general condition of the securities market.
In order to facilitate the offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriter may over-allot in connection with
the offering, creating a short position in the Common Stock for its own
account. In addition, to cover over-allotments or to stabilize the price of the
Common Stock, the Underwriter may bid for, and purchase, shares of Common Stock
in the open market. The Underwriter may also reclaim selling concessions
allowed to a dealer for distributing the Common Stock in the offering, if the
Underwriter repurchases previously distributed Common Stock in transactions to
cover short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriter is not required to engage in these
activities, and may end any of these activities at any time.
45
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Troop Meisinger Steuber & Pasich, LLP, Los Angeles, California.
Certain legal matters will be passed upon for the Underwriter by Tenzer
Greenblatt LLP, New York, New York.
EXPERTS
The following financial statements have been audited by Grant Thornton
LLP, independent certified public accountants, as set forth in their reports
appearing elsewhere in this Prospectus and Registration Statement: (i) the
financial statements of the Company at March 31, 1998, and for the year ended
December 31, 1996, three months ended March 31, 1997 and year ended March 31,
1998; and (ii) the financial statements of Gary Player Golf Equipment (a
division of GPG) at December 31, 1997 and for the years ended December 31, 1996
and 1997. These financial statements are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C., a Registration Statement under the
Securities Act for the shares offered by this Prospectus. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and
with respect to any contract or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement is qualified in its
entirety by this reference. For further information about the Company and the
shares offered by this Prospectus, reference is hereby made to the Registration
Statement and exhibits included with the Registration Statement. a copy of the
Registration Statement, including exhibits, may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following regional offices of the
Commission: Offices located at 7 World Trade Center, Suite 1300, New York, New
York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of the material can be obtained at prescribed rates by writing to the
Securities and Exchange Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, the Company is required to file
electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering Analysis and Retrieval (EDGAR) system.
The Commission maintains an Internet web site which contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission, including the Company, at
http://www.sec.gov.
46
<PAGE>
GARY PLAYER GOLF, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Gary Player Golf, Inc
Report of Independent Certified Public Accountants .................................... F-2
Consolidated Balance Sheet as of March 31, 1998 ....................................... F-3
Consolidated Statements of Operations for the year ended December 31, 1996, the three
months ended March 31, 1997 and the year ended March 31, 1998 ........................ F-4
Consolidated Statement of Stockholders' Deficit for the year ended December 31, 1996,
the three months ended March 31, 1997 and the year ended March 31, 1998 .............. F-5
Consolidated Statements of Cash Flows for the year ended December 31, 1996, the three
months ended March 31, 1997 and the year ended March 31, 1998 ........................ F-7
Notes to Consolidated Financial Statements ............................................ F-9
Gary Player Golf Equipment (A division of Gary Player Group, Inc.)
Report of Independent Certified Public Accountants .................................... F-18
Statements of Assets, Liabilities and Division Deficit as of March 31, 1998 (unaudited)
and December 31, 1997 ................................................................ F-19
Statements of Operations and Changes in Division Deficit for the three months ended
March 31, 1998 and 1997(unaudited) and for the years ended December 31, 1997 and
1996 ................................................................................. F-20
Statements of Cash Flows for the three months ended March 31, 1998 and 1997(unaudited)
and for the years ended December 31, 1997 and 1996 ................................... F-21
Notes to Financial Statements ......................................................... F-22
Gary Player Golf, Inc. Pro Forma Consolidated Financial Statements
Notes to Pro Forma Consolidated Financial Statements .................................. F-25
Pro Forma Consolidated Balance Sheet as of March 31, 1998 ............................. F-26
Pro Forma Consolidated Statement of Operations for the year ended March 31, 1998 ...... F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Gary Player Golf, Inc.
We have audited the accompanying consolidated balance sheet of Gary Player
Golf, Inc. and Subsidiaries as of March 31, 1998, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the year
ended March 31, 1998, the three months ended March 31, 1997 and the year ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Gary Player
Golf, Inc. and Subsidiaries as of March 31, 1998, and the consolidated results
of their operations and their consolidated cash flows for the year ended March
31, 1998, the three months ended March 31, 1997 and the year ended December 31,
1996, in conformity with generally accepted accounting principles.
Los Angeles, California
April 24, 1998 (except for Note P, item 1 as to which the date is May 20, 1998,
and Note P, items 2 and 3 as to which the date is _________, 1998)
- --------------------------------------------------------------------------------
The foregoing report is in the form which will be signed upon consummation of
the transactions described in Note P, items 2 and 3 to the financial
statements.
Grant Thornton LLP
Los Angeles, California
April 24, 1998
F-2
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash ................................................................................... $ 129,008
Accounts receivable, less allowance for returns of $26,184 ............................. 49,284
Inventories ............................................................................ 408,491
Prepaid expenses and other ............................................................. 103,423
-------------
Total current assets .............................................................. 690,206
PROPERTY AND EQUIPMENT, net ............................................................. 158,486
OTHER ASSETS ............................................................................ 781,983
-------------
$ 1,630,675
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities ............................................... $ 2,505,624
Notes payable, net of unamortized discount of $790,857 ................................. 2,306,643
Customer refunds payable, deferred revenue and allowance for returns ................... 2,278,479
-------------
Total current liabilities ......................................................... 7,090,746
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, par value $.001 per share -- authorized, 5,000,000 shares
Series B Convertible Preferred Stock -- authorized 750,750 shares; 572,649 shares issued
and outstanding ...................................................................... 573
Common stock, par value $.001 per share -- authorized, 10,000,000 shares, issued and
outstanding 1,700,770 shares ......................................................... 1,701
Capital in excess of par value ......................................................... 5,645,472
Accumulated deficit .................................................................... (11,107,817)
-------------
(5,460,071)
-------------
$ 1,630,675
=============
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended Three months ended Year ended
December 31, March 31, March 31,
1996 1997 1998
---------------- -------------------- ---------------
<S> <C> <C> <C>
Gross sales ................................................. $ 8,116,323 $1,509,453 $ 9,567,902
Less allowances for returns ................................. 3,691,779 599,735 4,799,870
------------ ---------- ------------
Net sales ............................................. 4,424,544 909,718 4,768,032
Cost of goods sold .......................................... 1,619,568 422,983 1,973,105
------------ ---------- ------------
Gross profit .......................................... 2,804,976 486,735 2,794,927
Operating expenses
Telemarketing and infomercial expenses ..................... 2,924,568 529,407 3,142,639
Selling expenses ........................................... 1,045,567 157,979 1,685,291
General and administrative ................................. 1,686,154 367,728 1,680,723
Depreciation and amortization .............................. 34,941 4,341 34,028
Litigation settlements ..................................... 306,128 -- 26,194
Loss on impaired assets .................................... 200,000 -- --
------------ ---------- ------------
Total operating expenses .............................. 6,197,358 1,059,455 6,568,875
------------ ---------- ------------
Operating loss ........................................ (3,392,382) (572,720) (3,773,948)
Other expenses
Interest expense ........................................... 356,484 73,881 179,536
Non-cash interest expense .................................. 182,011 -- 1,681,763
Other, net ................................................. 127,794 -- (10,733)
------------ ---------- ------------
Total other expenses .................................. 666,289 73,881 1,850,566
------------ ---------- ------------
NET LOSS .............................................. $ (4,058,671) $ (646,601) $ (5,624,514)
============ ========== ============
Net loss attributable to common shares
Net loss ................................................... $ (4,058,671) $ (646,601) $ (5,624,514)
Preferred dividends ........................................ (19,250) (32,080) (155,799)
------------ ---------- ------------
$ (4,077,921) $ (678,681) $ (5,780,313)
============ ========== ============
Weighted average shares of common stock outstanding ......... 965,529 1,243,634 1,484,147
============ ========== ============
Net loss per share -- Basic and diluted ..................... $ (4.22) $ (0.55) $ (3.89)
============ ========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
MARCH 31, 1998, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
Preferred stock Common stock
------------------------ -----------------------
Shares Amount Shares Amount
------------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 .................. 191,579 $ 192 724,099 $ 724
Common stock warrants issued ................ -- -- -- --
Issuance of common stock through con-
version of Series A preferred stock ........ (191,579) (192) 402,027 402
Issuance of common stock in connection
with employment agreement .................. -- -- 50,000 50
Issuance of common stock as debt issu-
ance incentives ............................ -- -- 50,000 50
Issuance of common stock in connection
with guarantee of Company obligations -- -- 25,000 25
Issuance of common stock to extend
accounts payable terms ..................... -- -- 2,500 3
Issuance of Series B preferred stock, net
of issuance costs of $494,596 .............. 356,165 356 -- --
Conversion of notes payable to preferred
stock ...................................... 92,533 93 -- --
Writeoff of note receivable in connection
with litigation settlement ................. -- -- -- --
Net loss for the year ....................... -- -- -- --
-------- ------- ------- -------
Balance at December 31, 1996 ................ 448,698 449 1,253,626 1,254
Common stock cancelled in connection
with litigation settlement ................. -- -- (53,523) (54)
Common stock issued in connection with
litigation settlement ...................... -- -- 20,000 20
Common stock issued as payment for con-
sulting fees ............................... -- -- 7,285 8
Issuance of Series B preferred stock ........ 88,074 88 -- --
Conversion of notes payable to preferred
stock ...................................... 9,975 10 -- --
Common stock subscriptions .................. -- -- -- --
Net loss for the period ..................... -- -- -- --
-------- ------- --------- -------
Balance at March 31, 1997 ................... 546,747 547 1,227,388 1,228
<CAPTION>
Common stock Capital in excess Note Accumulated
subscriptions of par value receivable deficit
--------------- ------------------- ------------ ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 .................. $ -- $ 404,450 $ (20,703) $ (778,031)
Common stock warrants issued ................ -- 47,125 -- --
Issuance of common stock through con-
version of Series A preferred stock ........ -- (210) -- --
Issuance of common stock in connection
with employment agreement .................. -- 50 -- --
Issuance of common stock as debt issu-
ance incentives ............................ -- 50 -- --
Issuance of common stock in connection
with guarantee of Company obligations -- 25 -- --
Issuance of common stock to extend
accounts payable terms ..................... -- 2 -- --
Issuance of Series B preferred stock, net
of issuance costs of $494,596 .............. -- 691,077 -- --
Conversion of notes payable to preferred
stock ...................................... -- 308,042 -- --
Writeoff of note receivable in connection
with litigation settlement ................. -- -- 20,703 --
Net loss for the year ....................... -- -- -- (4,058,671)
--------- ----------- --------- -------------
Balance at December 31, 1996 ................ -- 1,450,611 -- (4,836,702)
Common stock cancelled in connection
with litigation settlement ................. -- (53) -- --
Common stock issued in connection with
litigation settlement ...................... -- 20 -- --
Common stock issued as payment for con-
sulting fees ............................... -- 7 -- --
Issuance of Series B preferred stock ........ -- 293,199 -- --
Conversion of notes payable to preferred
stock ...................................... -- 33,207 -- --
Common stock subscriptions .................. 275,000 -- -- --
Net loss for the period ..................... -- -- -- (646,601)
--------- ----------- --------- -------------
Balance at March 31, 1997 ................... 275,000 1,776,991 -- (5,483,303)
</TABLE>
F-5
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT--(Continued)
MARCH 31, 1998, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
Preferred stock Common stock
-------------------- ------------------------
Shares Amount Shares Amount
---------- -------- ------------ ----------
<S> <C> <C> <C> <C>
Class A common stock
warrants issued in
connection with Series B
preferred stock issuance,
common stock issuances,
as employee incentives
and in exchange for
consulting services .......... -- -- -- --
Class B common stock
warrants issued in
connection with
extensions of notes
payable ...................... -- -- -- --
Issuance of Series B
preferred stock, net of
issuance costs of
$20,932 ...................... 25,902 26 -- --
Issuance of common stock at
$5.00 per share, net of
issuance costs of
$247,387 ..................... -- -- 225,400 226
Issuance of common stock at
$8.00 per share, net of
issuance costs of
$67,050 ...................... -- -- 52,625 52
Issuance of common stock in
connection with notes
payable ...................... -- -- 228,900 229
Issuance of common stock
as payment for consulting
fees ......................... -- -- 12,250 12
Common stock cancelled in
connection with litigation
settlement ................... -- -- (45,793) (46)
Net loss for the year ......... -- -- -- --
------ -- ------- ---
Balance at March 31, 1998 ..... 572,649 $573 1,700,770 $1,701
======= ==== ========= ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Common stock Capital in excess Note Accumulated
subscriptions of par value receivable deficit
--------------- ------------------- ------------ -----------------
<S> <C> <C> <C> <C>
Class A common stock
warrants issued in
connection with Series B
preferred stock issuance,
common stock issuances,
as employee incentives
and in exchange for
consulting services .......... -- 223,898 -- --
Class B common stock
warrants issued in
connection with
extensions of notes
payable ...................... -- 435,000 -- --
Issuance of Series B
preferred stock, net of
issuance costs of
$20,932 ...................... -- 65,296 -- --
Issuance of common stock at
$5.00 per share, net of
issuance costs of
$247,387 ..................... (275,000) 879,387 -- --
Issuance of common stock at
$8.00 per share, net of
issuance costs of
$67,050 ...................... -- 353,898 -- --
Issuance of common stock in
connection with notes
payable ...................... -- 1,830,971 -- --
Issuance of common stock
as payment for consulting
fees ......................... -- 79,988 -- --
Common stock cancelled in
connection with litigation
settlement ................... -- 43 -- --
Net loss for the year ......... -- -- -- (5,624,514)
-------- --------- -- ----------
Balance at March 31, 1998 ..... $ -- $5,645,472 $ -- $ (11,107,817)
=========== ========== ===== =============
</TABLE>
F-6
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended Three months ended Year ended
December 31, March 31, March 31,
1996 1997 1998
---------------- -------------------- ----------------
<S> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net loss ............................................ $ (4,058,671) $ (646,601) $ (5,624,514)
Adjustments to reconcile net loss to net cash
used in operating activities:
Allowance for obsolete inventory ................. -- -- 87,270
Allowance for uncollectible receivables .......... 7,458 (5,765) (36,489)
Depreciation and amortization .................... 34,941 4,341 34,028
Loss on impared assets ........................... 200,000 -- --
Amortization of discount on debt ................. 182,011 -- 1,681,763
Issuance of Class A warrants
for consulting services ........................ -- -- 129,750
Issuance of common stock
for consulting services ........................ -- -- 80,000
Changes in assets and liabilities
Decrease in accounts receivable ................ 6,569 23,820 112,924
(Increase) decrease in inventories ............. (224,138) 164,598 (302,334)
Decrease (increase) in prepaid expenses
and other ..................................... 29,269 4,872 (92,628)
Increase in other assets ....................... (99,986) (48,032) (493,309)
Increase in accounts payable
and accrued liabilities ....................... 1,043,759 79,571 567,088
Increase in customer refunds payable, deferred
revenue and allowance for returns ............. 942,137 25,916 1,147,176
------------ ---------- ------------
Net cash used in operating activities ......... (1,936,651) (397,280) (2,709,275)
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Year ended Three months ended Year ended
December 31, March 31, March 31,
1996 1997 1998
-------------- -------------------- --------------
<S> <C> <C> <C>
Cash flows from investing activities:
Purchases of equipment ................................. $ (176,871) $ (1,934) $ (163,542)
Cash flows from financing activities:
Proceeds from notes payable ............................ 1,550,000 49,361 2,030,639
Payments on notes payable .............................. (172,000) (5,854) (364,056)
Proceeds from common and preferred stock ............... 755,433 293,287 1,020,015
Proceeds from common stock subscriptions ............... -- 275,000 --
---------- -------- ----------
Net cash provided by financing activities ......... 2,133,433 611,794 2,686,598
---------- -------- ----------
Net increase (decrease) in cash ................... 19,911 212,580 (186,219)
Cash at beginning of period ............................. 82,736 102,647 315,227
---------- -------- ----------
Cash at end of period ................................... $ 102,647 $315,227 $ 129,008
========== ======== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ............... $ 32,658 $ 450 $ 93,147
========== ======== ==========
Supplemental disclosure of noncash financing activity:
Conversion of notes payable into Series B
Convertible preferred stock .......................... $ 308,135 $ 33,217 $ --
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Gary Player Golf, Inc. (the "Company"), is engaged principally in the
direct marketing of Gary Player brand golf clubs pursuant to an exclusive
license from the Gary Player Group, Inc. ("GPG"). The Company golf clubs are
currently marketed and sold under the names Gary Player Black Knight and Gary
Player Gran Prix.
The Company was incorporated in Delaware in October 1995. In November
1995, the Company acquired Rhino Marketing, Inc. ("Rhino"), which was engaged
in the direct marketing of golf clubs and accessories. In November 1996, the
Company entered into a 20-year direct marketing agreement (the "Player
Licensing Agreement") with GPG, pursuant to which the Company obtained the
exclusive right to market and sell golf clubs and golf accessories and apparel
under the name "Gary Player" on a direct marketing basis in the United States
and Canada. The Company introduced the line of Gary Player Gran Prix golf clubs
and related accessories in February 1997 through its newly organized operating
subsidiary Gran Prix Marketing, Inc. ("Gran Prix"), a California corporation.
Shortly after introducing the Gary Player Gran Prix line of golf clubs, the
Company discontinued the sale of all other lines. Consequently, the Company has
wound down substantially all the operations of Rhino.
The Company changed its fiscal year end from December 31 to March 31
during 1997.
1. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
2. Inventories
Inventories consist of golf club components and finished golf clubs, which
are all stated at the lower of cost or market. Cost is determined principally
by the first-in, first-out method.
3. Depreciation and Amortization
Property and equipment are stated at cost. For financial and tax reporting
purposes, depreciation is provided using the straight-line method over the
estimated useful lives of the related assets (3 to 5 years). Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or estimated useful life of the asset. Expenditures for
maintenance and repairs are charged to operations as incurred, while renewals
and betterments are capitalized.
4. Income Taxes
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 at currently enacted rates when such amounts are expected to be realized
or settled.
5. Revenue Recognition
The Company recognizes revenue when products are shipped. Amounts which
the Company has collected in advance of shipment are recorded as deferred
revenues. The Company generally allows customers to return items purchased
within sixty days of receipt. Allowances for returns are recorded at the time
of recording the sale based upon historical return rates experienced by the
Company. It is at least reasonably possible that these estimates will change in
the near term due to future events.
F-9
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE A -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES -- (Continued)
6. Direct Response Advertising
The Company capitalizes costs relating to direct-response advertising.
These costs are amortized over the expected period of future benefits based
upon current and expected future revenues. Direct-response advertising for the
year ended March 31, 1998, the three months ended March 31, 1997 and the year
ended December 31, 1996 was approximately $0, $48,000 and $1,373,000,
respectively.
7. Deferred Offering Costs
Costs incurred in connection with the proposed initial public offering
(IPO) of common stock have been deferred. If the offering is completed, such
costs will be charged against the proceeds received. If the offering is not
completed, such costs will be charged to operations at that time.
8. Deferred Debt Issuance Costs
Costs incurred in connection with the issuance of debt are deferred and
amortized over the expected life of the debt.
9. Basic and Diluted Loss Per Share
Basic and diluted loss per share are based upon the weighted average
number of common shares outstanding. The preferred dividend requirements on the
Series B Convertible Preferred Stock are deducted in computing basic and
diluted loss per share. The effect of outstanding warrants is antidilutive for
all periods presented.
10. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
11. Financial Statement Reclassifications
Certain amounts reflected in the consolidated statement of operations for
the year ended December 31, 1996 and the consolidated statements of cash flows
for the year ended December 31, 1996 and the three months ended March 31, 1997
have been reclassified to conform to the presentation for the year ended March
31, 1998.
NOTE B -- GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate continuation
of the Company as a going concern. However, the Company has incurred
substantial recurring losses from operations since inception. In addition, the
Company has used, rather than provided, cash in its operations and at March 31,
1998, the Company has a deficit in working capital of $6,400,540. As disclosed
in the accompanying notes, the Company is also in default on the payment terms
of certain notes payable.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn, is dependent upon the Company's ability to meet its
financing requirements on a continuing basis, to maintain present financing,
and to succeed in its future operations. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue in existence.
F-10
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE B -- GOING CONCERN -- (Continued)
Management has taken the following steps to revise its operating and
financial requirements, which it believes are sufficient to provide the Company
with the ability to continue in existence at least until March 31, 1999:
The Company is undertaking an IPO to sell 1.7 million shares of common
stock at $8.00 per share. The Company has also closed loans of $1.5 million,
subsequent to March 31, 1998, to provide working capital and repay certain
indebtedness (See Note P1).
On November 1, 1997, the Company entered into an agreement to acquire the
assets of Gary Player Golf Equipment, a division of GPG. In connection with the
acquisition, the Company will acquire licenses which provide the perpetual,
worldwide, exclusive right to use the name "Gary Player" and ancillary marks in
connection with the manufacture, marketing and distribution of golf clubs,
accessories and apparel. The Company anticipates a reduction of royalty expense
with respect to the royalties paid as a licensee upon completion of this
acquisition and the IPO.
The Company also intends to implement a new marketing plan, including (i)
the expansion of the existing call centers with additional personnel, (ii) the
production of a new infomercial featuring Gary Player and Steve Garvey
promoting the custom fitted Gary Player Black Knight Ti-162 (Titanium) irons
which the Company anticipates will air nationally commencing June 1998, and
(iii) the introduction of new products such as the Gary Player Black Knight
Titanium Driver and woods, the Gary Player Black Knight Ti-162 Titanium irons
and Gary Player Parsaver wedges and the Gary Player Ti-360 (aluminum and
bronze) golf clubs.
The Company also intends to reduce its costs through (i) the
implementation of a new compensation program which management believes will
reduce commissions paid on the sale of golf clubs, (ii) the renegotiation of
the prices paid to current suppliers of golf club components resulting in
reduced costs for these products and (iii) the reduction of outbound freight
costs and telephone costs.
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
Office equipment and fixtures .......................... $ 120,958
Production equipment and fixtures ...................... 9,944
Computer software and hardware ......................... 147,940
Telemarketing equipment and fixtures ................... 22,294
----------
301,136
Less accumulated depreciation and amortization ......... (142,650)
----------
$ 158,486
==========
NOTE D -- OTHER ASSETS
Other assets are comprised of the following:
Note receivable (see Note J) ........................... $168,872
Deferred direct-response advertising costs ............. 301,099
Deferred offering costs ................................ 162,975
Deferred debt issuance costs ........................... 117,024
Other .................................................. 32,013
--------
$781,983
========
F-11
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE E -- NOTES PAYABLE
Notes payable consist of the following:
11% notes (1) .......................................... $ 417,500
12% collateralized note (2) ............................ 200,000
11% note (3) ........................................... 250,000
11% notes (4) .......................................... 200,000
Bank loan (5) .......................................... 150,000
11% note (6) ........................................... 880,000
13.5% collateralized note (7) .......................... 1,000,000
Less unamortized discount on debt ...................... (790,857)
----------
$2,306,643
==========
- ------------
(1) During 1995 and 1996, the Company borrowed $800,000 from unrelated parties
pursuant to notes bearing interest at 11% per annum and due and payable on
the earlier of November 8, 1996 or the completion of the private placement
of Series B Convertible Preferred Stock. As additional consideration for
the original borrowings, the Company issued warrants to purchase 5,883
shares of common stock at $2.21 per share for each $25,000 borrowed. These
warrants were valued at $60,190 and recorded as a discount on debt and
amortized over the expected life of the debt. During the three months
ended March 31, 1997 and the year ended December 31, 1996, principal and
interest amounting to $33,217 and $308,135 was converted to approximately
10,000 and 93,000 shares of Series B Convertible Preferred Stock,
respectively. At March 31, 1998, the Company was delinquent on the
outstanding balances of these notes. As consideration for an extension of
these notes in 1997, the Company issued warrants to purchase 36,250 shares
of common stock during January 1997.
(2) In 1996, the Company borrowed $400,000 from several lenders pursuant to a
note bearing interest at a rate of 12% per annum and due and payable
November 30, 1996. An affiliate of one of these lenders later became, but
no longer is, a director of the Company. During 1996, the Company reached
an agreement with the lenders to extend the maturity of the note to
November 30, 1997. As part of the agreement, the lenders were granted a
first security interest in all of the assets of the Company. At March 31,
1998, the Company was delinquent on the outstanding balance of this note.
(3) In 1996, the Company borrowed $250,000 from an unrelated party pursuant to
a note bearing interest at a rate of 11% per annum, due on the earlier of
December 31, 1996 or ten days after the Company's IPO. As additional
consideration for the original borrowing under this note, the Company
issued 25,000 shares of common stock which were valued at par value. The
Company was delinquent on this note at March 31, 1998. As consideration
for an extension of the maturity of this note, the Company issued 12,500
shares of common stock which were valued at $100,000 and recorded as a
discount on debt. This additional consideration results in an effective
interest rate of 171%. Provisions of the note increase the interest rate
by 4% per annum in the event of default. The note is collateralized by
100% of the stock of Rhino.
(4) In 1996, the Company borrowed $150,000 from an unrelated lender pursuant to
a note bearing interest at a rate of 11% per annum and due at the earlier
of June 1, 1997 or the sale of a minimum of $250,000 of the Series B
Convertible Preferred Stock. In 1997, the Company reached an agreement
with the lender to extend the maturity of the note to the earlier of June
30, 1998 or the closing of the Company's IPO. As consideration for this
extension, the Company issued 20,000 shares of common stock which were
valued at $160,000 and recorded as a discount on debt. This additional
consideration results in an effective interest rate of 171%.
In 1997, the Company borrowed $50,000 from an unrelated lender pursuant to a
note bearing interest at a rate of 11% per annum and due at the earlier of
December 31, 1997 or the closing of the Company's IPO. Later that year, the
maturity date was extended to the tenth day of the thirteenth month
following the closing of the Company's IPO.
F-12
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE E -- NOTES PAYABLE -- (Continued)
(5) This loan is with a bank bearing interest at the bank's prime rate (8.50%
at March 31, 1998) plus one percent. The Company was delinquent on this
note at March 31, 1998.
(6) In fiscal 1998, the Company borrowed $880,000 from unrelated parties under
notes bearing interest at 11% per annum and due at the earlier of six
months from the date of the notes or the closing of the Company's IPO. As
additional consideration for the notes, the Company issued 44,000 shares
of common stock which were valued at $352,000 and issued 44,000 shares of
common stock which were valued at $352,000 to a consultant/director who
located investors in the offering, all of which were recorded as a
discount on debt. This additional consideration results in an effective
interest rate of 171%. The maturity of the notes ranges from April 13,
1998 through July 21, 1998.
(7) In March 1998, the Company borrowed $1,000,000 from an unrelated party
pursuant to a note bearing interest at a rate of 13.5% per annum and
maturing on the earlier of the third business day after the closing of the
IPO or December 31, 1998. The obligation is collateralized by all assets
of the Company. The interest rate increases to 15% on and after August 1,
1998 and the Company must issue 6,250 shares of common stock on the first
day of each calendar month commencing August 1998 that the loan is not
repaid. As additional consideration for the note, the Company issued
76,250 shares of common stock which were valued at $610,000 and recorded
as a discount on debt. The agreement stipulates that the number of shares
shall be adjusted so as to equal $610,000 divided by the IPO price. This
additional consideration results in an effective interest rate of 223%.
NOTE F -- CUSTOMER REFUNDS PAYABLE, DEFERRED REVENUE AND ALLOWANCE FOR RETURNS
Customer refunds payable, deferred revenue and allowance for returns is
comprised of the following:
Customer refunds payable ......... $ 937,517
Deferred revenue ................. 723,459
Allowance for returns ............ 617,503
----------
$2,278,479
==========
NOTE G -- INCOME TAXES
Through March 31, 1998, the Company incurred net operating losses for tax
purposes of approximately $8,691,000 which may be used to reduce federal
taxable income through 2013. Net operating loss carryforwards for the State of
California are approximately $4,346,000 and are generally available to reduce
taxable income through 2003.
The availability of the Company's net operating loss carryforwards are
subject to an annual limitation. Internal Revenue Code Section 382 limits the
use of a Company's net operating loss if there is a greater than 50% change in
the ownership of the Company's common stock. This annual limitation is equal to
the value of the Company's outstanding common stock immediately before the
change multiplied by the federal long-term tax exempt rate.
As of March 31, 1998, the Company has experienced an ownership change
under Internal Revenue Code Section 382. Therefore, the use of the Company's
net operating loss, on an annual basis, will be severely limited.
F-13
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE G -- INCOME TAXES -- (Continued)
Deferred income taxes result from the effect of transactions that are
recognized in different periods for financial and tax reporting purposes. They
relate primarily to net operating losses and allowances for returns. The
Company had total deferred tax assets of approximately $3,340,000 at March 31,
1998. These deferred tax assets were fully offset by a valuation allowance, as
the realization cannot be reasonably assured.
NOTE H -- COMMITMENTS AND CONTINGENCIES
Litigation
The Company was a party to litigation related to the termination of
employment of several employees in 1996. Agreements were reached to settle
these matters which (i) required the Company to make payments to former
employees (including the former Chief Executive Officer) (ii) included the
surrender of shares of common stock owned by these individuals and (iii) the
settlement of other amounts owed by the employees to the Company. In addition,
the Company reached an agreement in 1996 with a supplier and has accrued
amounts in 1998 with a trade creditor for settlement of disputes. All amounts
provided have been included in the statement of operations as litigation
expense in the year settled. Any amounts unpaid as of March 31, 1998, are
included in accounts payable and accrued liabilities.
Management of the Company believes that the settlement of current
litigation will not have a material effect on the Company's financial position
or results of operations.
Leases
The Company conducts a portion of its operations and warehouses certain of
its products in leased facilities classified as operating leases. The following
is a schedule of the future minimum rental payments under such operating
leases, which expire at various dates through December 2000.
Year ending March 31,
-----------------------
1999 .................................. $130,000
2000 .................................. 39,000
2001 .................................. 27,000
--------
$196,000
========
Rent expense for the year ended March 31, 1998, the three months ended
March 31, 1997, and the year ended December 31, 1996 was approximately
$189,000, $34,500 and $138,000, respectively.
Acquisition
The Company has entered into an agreement to purchase the assets of Gary
Player Golf Equipment (a division of Gary Player Group, Inc.). The agreement
calls for the Company to (i) issue a note in the amount of $750,000 with
interest at a rate of 6% per annum and payable in three installments of
$250,000, (ii) issue 375,000 shares of common stock of the Company and (iii)
assume $750,000 of liabilities (of which $200,000 will be converted into 35,714
shares of common stock of the Company).
NOTE I -- EQUITY TRANSACTIONS
During the fiscal year ended March 31, 1998, the Company issued 224,900
and 52,375 shares of common stock at $5.00 and $8.00 per share, respectively.
These issuances had associated offering costs of $247,387 and $67,050,
respectively. Shares of common stock aggregating 228,900 were issued in
connection with the notes payable described in Note E and 12,250 shares were
issued as payment for consulting fees.
From July 1996 through March 1997, the Company issued 127,500 shares of
its common stock as incentives to various individuals. The Company has recorded
the stock at its par value as management believes that
F-14
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE I -- EQUITY TRANSACTIONS -- (Continued)
this approximates its fair value at the time of issuance. The following
summarizes the issuances:
<TABLE>
<S> <C>
Shares issued to an officer as an employment incentive ........... 50,000
Shares issued to individuals as debt issuance incentives ......... 50,000
Shares issued in connection with guarantee of Company obliga-
tions ........................................................... 25,000
Shares issued to extend account payable terms .................... 2,500
------
Total shares issued .............................................. 127,500
=======
</TABLE>
The Company has authorized 5,000,000 shares of preferred stock and has
designated 191,579 shares as Series A Convertible Preferred Stock and 750,750
shares as Series B Convertible Preferred Stock.
In August 1996, all outstanding Series A Convertible Preferred stock was
converted into common stock at the rate of approximately 4.2 common shares for
each share of Series A Convertible Preferred Stock. The Company issued 402,027
common shares. During the fiscal year ended March 31, 1998, 45,793 of these
shares were cancelled.
Since 1996, the Company has issued a total of 572,649 shares of Series B
Convertible Preferred stock at $3.33 per share. Of the total shares issued,
102,508 shares were issued through the conversion of certain notes payable
described in Note E.
Series B Convertible Preferred Stock is cumulative, non-participating
convertible stock. The dividend rate on these shares is $0.2667 per share. Each
preferred share may be converted, at the option of the holder at any time, and
is automatically converted with a public offering by the Company into one share
of common stock, subject to adjustment. Cumulative dividends in arrears were
$207,129 at March 31, 1998.
Class A warrants were issued in connection with the Series B Convertible
Preferred Stock issuances, certain common stock issuances, as employee
incentives and in exchange for consulting services. These warrants are
exercisable through various dates at $2.21 to $4.00 per share.
Class B warrants were issued in connection with extensions of notes
payable described in Note E and loan guarantee fees. These warrants are
exercisable through various dates at $0.20 per share.
The following summarizes the Class A and Class B warrants:
Class A Class B
--------- --------
Balance at January 1, 1996 ............ 290,811 --
Issued ................................ 308,206 --
------- --
Balance at December 31, 1996 .......... 599,017 --
Issued ................................ 78,442 15,000
------- ------
Balance at March 31, 1997 ............. 677,459 15,000
Issued ................................ 64,240 75,000
------- ------
Balance at March 31, 1998 ............. 741,699 90,000
======= ======
NOTE J -- RELATED PARTY TRANSACTIONS
In March 1996, the Company advanced $142,160 to an affiliated company
which is wholly-owned by one of the Company's directors. This advance bore
interest at 9% per annum through October 31, 1997 and bears interest at the
prime rate (8.50% at March 31, 1998) plus one percent thereafter. The maturity
date is December 31, 2002, with the note receivable collateralized by 5,000
shares of the Company's common stock. The outstanding balance, including unpaid
interest, was approximately $169,000 at March 31, 1998.
See Note E for related party notes payable and finder's fees given to a
director of the Company.
F-15
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE K -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash, accounts receivable and accounts payable and
accrued liabilities approximates their carrying value due to their short
maturity. The fair value of the notes payable can not be determined because it
is impracticable to estimate their fair value, due to the fact that many of the
notes are in default and contain features for which market quotes are not
available.
NOTE L -- STOCK-BASED COMPENSATION
Management has determined to continue to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25),
and adopt only the pro forma disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based
Compensation. Pro forma disclosures have not been provided since the provisions
of SFAS 123 have no pro forma impact on the reported results of operations.
NOTE M -- UNAUDITED FINANCIAL INFORMATION
Unaudited results of operations for the three months ended March 31, 1996
are as follows:
Gross sales ............................... $1,608,080
Less allowances for returns ............... 605,259
----------
Net sales .............................. 1,002,821
Cost of goods sold ........................ 263,614
----------
Gross profit ........................... 739,207
Operating and other expenses, net ......... 887,875
----------
Net loss ............................... $ (148,668)
==========
Weighted average shares of common stock
outstanding .............................. 724,099
==========
Net loss per share ........................ $ (.21)
==========
NOTE N -- EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting
Comprehensive Income, which prescribes standards for reporting comprehensive
income and its components. Comprehensive income consists of net earnings or
loss for the current period and other comprehensive income (income, expenses,
gains and losses that currently bypass the income statement and are reported
directly in a separate component of equity). SFAS 130 is effective for
financial statements issued for periods beginning after December 15, 1997. The
Company has determined that the adoption of SFAS 130 will not have a material
effect on the Company's financial statements.
In June 1997, the FASB also issued SFAS 131, Disclosures about Segments of
an Enterprise and Related Information, which prescribes standards for reporting
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial reports issued to shareholders. SFAS 131 is effective for financial
statements issued for periods beginning after December 15, 1997. The Company
has determined that the adoption of SFAS 131 will not have a material effect on
the Company's financial statements.
F-16
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE O -- IMPAIRED ASSETS
During 1996, the Company experienced a malfunction in its computer system
that rendered the hardware and related software inoperable. The cost of the
equipment and related software was approximately $293,000, and had a net book
value of $200,000. Management believes that the value of these assets was
impaired and wrote off the remaining book value as a loss on impaired assets in
1996.
NOTE P -- SUBSEQUENT EVENTS
1. Cancellation of Common Stock and Issuance of Additional Notes Payable
Effective May 7, 1998, the Company reached an agreement with a shareholder
to cancel 105,382 shares of common stock previously outstanding. In addition, in
May, 1998, the Company borrowed $1,500,000 pursuant to short-term notes bearing
interest at 13.5% that are due and payable on the earlier of the third business
day after the closing of the IPO, subject to certain conditions, or December 31,
1998. As additional consideration for these notes, the Company issued 93,750
shares of common stock which were valued at $750,000 and recorded as a discount
on debt.
2. Stock Split
Effective _________, 1998, the Company effected a 1-for-2 reverse stock
split. All loss per share amounts and references to common stock in the
consolidated financial statements have been retroactively restated for all
periods presented to reflect the decreased number of common shares outstanding
and give effect to the reverse stock split.
3. Name Change
Effective _________, 1998, the Company changed its name from Golf One
Industries, Inc. to Gary Player Golf, Inc.
F-17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Gary Player Golf, Inc.
We have audited the accompanying statement of assets, liabilities and division
deficit of Gary Player Golf Equipment (a division of Gary Player Group, Inc., a
Florida corporation) as of December 31, 1997, and the related statements of
operations and changes in division deficit, and cash flows for the years ended
December 31, 1997 and 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities, and division deficit of Gary
Player Golf Equipment (a division of Gary Player Group, Inc.) as of December
31, 1997 and the results of its operations and its cash flows for the years
ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Los Angeles, California
April 8, 1998
F-18
<PAGE>
GARY PLAYER GOLF EQUIPMENT
(A DIVISION OF GARY PLAYER GROUP, INC.)
STATEMENTS OF ASSETS, LIABILITIES AND DIVISION DEFICIT
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ................................................ $ 20,648 $ 24,522
Accounts receivable, Gary Player Golf, Inc. ......... 188,304 144,217
Inventories ......................................... 55,378 65,008
------------ ------------
Total current assets ............................. 264,330 233,747
PROPERTY AND EQUIPMENT, net .......................... 14,617 20,791
OTHER ................................................ -- 9,875
------------ ------------
$ 278,947 $ 264,413
============ ============
LIABILITIES AND DIVISION DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities ............ $ 584,611 $ 600,526
Note payable ........................................ 524,102 520,701
Shareholder loans ................................... 1,924,653 1,924,653
Due to affiliates ................................... 1,060,716 1,097,200
------------ ------------
Total current liabilities ........................ 4,094,082 4,143,080
CONTINGENCIES ........................................ -- --
DIVISION DEFICIT ..................................... (3,815,135) (3,878,667)
------------ ------------
$ 278,947 $ 264,413
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
GARY PLAYER GOLF EQUIPMENT
(A DIVISION OF GARY PLAYER GROUP, INC.)
STATEMENTS OF OPERATIONS AND CHANGES IN DIVISION DEFICIT
<TABLE>
<CAPTION>
Three months ended March 31, Year ended December 31,
--------------------------------- ---------------------------------
1998 1997 1997 1996
--------------- --------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
Revenues
License and royalty income .................. $ 181,377 $ 100,000 $ 663,773 $ 110,000
Sales of golf clubs and accessories ......... 15,000 20,648 116,955 512,936
------------ ------------ ------------ ------------
196,377 120,648 780,728 622,936
Costs and expenses
Cost of goods sold .......................... 10,333 6,524 74,119 303,590
Selling expenses ............................ 23,171 55,401 128,341 151,673
General and administrative .................. 89,515 143,889 714,150 741,646
Depreciation ................................ 6,174 7,537 30,296 28,941
------------ ------------ ------------ ------------
129,193 213,351 946,906 1,225,850
------------ ------------ ------------ ------------
Operating income (loss) .................. 67,184 (92,703) (166,178) (602,914)
Interest expense .............................. 3,652 26,966 94,079 135,779
------------ ------------ ------------ ------------
NET INCOME (LOSS) ........................ 63,532 (119,669) (260,257) (738,693)
Division deficit, beginning of period .......... (3,878,667) (3,618,410) (3,618,410) (2,879,717)
------------ ------------ ------------ ------------
Division deficit, end of period ................ $ (3,815,135) $ (3,738,079) $ (3,878,667) $ (3,618,410)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
GARY PLAYER GOLF EQUIPMENT
(A DIVISION OF GARY PLAYER GROUP, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31, Year ended December 31,
---------------------------- ------------------------------
1998 1997 1997 1996
------------ -------------- -------------- --------------
(Increase (decrease) in cash: (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................. $ 63,532 $ (119,669) $ (260,257) $ (738,693)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation ............................................... 6,174 7,537 30,296 28,941
Allowance for doubtful accounts ............................ -- -- 171,211 15,637
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ............... (60,316) (10,358) (313,580) 15,674
Decrease (increase) in inventories ....................... 9,630 (23,655) 62,539 159,438
Decrease (increase) in prepaids .......................... 9,875 23,967 14,092 (5,967)
(Increase) decrease in accounts payable and accrued
liabilities ............................................. 3,715 (514,512) (501,587) (144,505)
(Decrease) increase in due to affiliates ................. (36,484) 141,048 323,300 340,746
--------- ---------- ---------- ----------
Net cash used in operating activities ................... (3,874) (495,642) (473,986) (328,729)
Cash flows from investing activities:
Purchases of equipment ........................................ -- -- (27,050) --
Proceeds from the sale of equipment ........................... -- -- -- 3,466
--------- ---------- ---------- ----------
Net cash (used in) provided by investing activities ..... -- -- (27,050) 3,466
Cash flows from financing activities:
Proceeds from note payable .................................... -- 500,000 500,000 --
Payments on note payable ...................................... -- -- -- (316,835)
Proceeds from shareholder loans ............................... -- 17,478 17,478 641,504
--------- ---------- ---------- ----------
Net cash provided by financing activities ............... -- 517,478 517,478 324,669
--------- ---------- ---------- ----------
Net (decrease) increase in cash ......................... (3,874) 21,836 16,442 (594)
Cash at beginning of period .................................... 24,522 8,080 8,080 8,674
--------- ---------- ---------- ----------
Cash at end of period .......................................... $ 20,648 $ 29,916 $ 24,522 $ 8,080
========= ========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ...................... $ 3,652 $ 26,966 $ 94,079 $ 165,128
========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE>
GARY PLAYER GOLF EQUIPMENT
(A DIVISION OF GARY PLAYER GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE A -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Gary Player Golf Equipment (the "Company"), a division of Gary Player
Group, Inc. (GPG), a Florida corporation, manufactures and distributes golf
clubs and golf accessories to customers throughout the United States. The
Company has also entered into a variety of licensing and royalty agreements.
The Company intends to sell its assets to Gary Player Golf, Inc. (Player)
in accordance with an Asset Purchase Agreement which was executed in November
1997. Player currently distributes products endorsed by the Company in
accordance with some of the aforementioned licensing and royalty agreements.
The Company earned license and royalty income of $176,328 and $358,077 from
Player for the three months ended March 31, 1998 and for the year ended
December 31, 1997, respectively.
Insofar as these financial statements and notes relate to information at
March 31, 1998 and for the three-month periods ended March 31, 1998 and 1997,
they are unaudited. In the opinion of management, such unaudited financial
statements and notes thereto reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the assets,
liabilities and division deficit, operations and cash flows for such periods.
The financial position at March 31, 1998 and results of operations for the
three months then ended are not necessarily indicative of the financial
position that may be expected at December 31, 1998 or results of operations
that may be expected for the year ending December 31, 1998.
1. Revenue Recognition
The Company recognizes revenue for product sales when products are
shipped. Licensing and royalty income is recorded when earned. Discounts and
allowances for returns are recorded at the time of recording the sale.
2. Inventories
Inventories primarily consist of golf accessories, golf club components
and finished golf clubs, which are all stated at the lower of cost or market.
Cost is determined principally by the first-in, first-out method.
3. Property and equipment
Property and equipment are carried at cost less accumulated depreciation.
For financial and tax reporting purposes, depreciation is provided using the
straight-line method over the estimated useful lives of the related assets (2
to 5 years).
4. Income Taxes
GPG allocates income taxes among divisions. No tax benefit is allocated by
GPG in periods where losses are incurred. Losses are, however, used by the
Company to offset income when earned.
5. Advertising Expense
The Company expenses advertising costs when the advertisement occurs.
Total advertising expense amounted to $0, $3,781, $21,893 and $57,290 for the
three months ended March 31, 1998 and 1997 and the years ended December 31,
1997 and 1996, respectively.
6. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-22
<PAGE>
GARY PLAYER GOLF EQUIPMENT
(A DIVISION OF GARY PLAYER GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consist of the following:
Office equipment ...................... $ 4,087
Computer equipment .................... 48,280
Furniture and fixtures ................ 9,588
Tools and warehouse equipment ......... 49,223
--------
111,178
Less accumulated depreciation ......... 90,387
--------
$ 20,791
========
The amount of depreciation included in costs and expenses was $6,174,
$7,537, $30,296 and $28,941 for the three months ended March 31, 1998 and 1997
and the years ended December 31, 1997 and 1996, respectively.
NOTE C -- NOTE PAYABLE
During 1997, the Company borrowed $500,000 from a related party (Gary
Player's London management company) under an uncollateralized promissory note
bearing interest at LIBOR (approximately 5.5% at December 31, 1997) plus 2
percent per annum with no stated maturity. Such borrowing is due and payable at
the completion of the initial public offering by Player as stipulated in the
Asset Purchase Agreement. Interest amounted to $3,401 and $20,701 for the three
months ended March 31, 1998 and the year ended December 31, 1997, respectively.
NOTE D -- SHAREHOLDER LOANS
The Company's ultimate sole shareholder has provided funding to the
Company that is interest-free and has no stated maturity. The outstanding loans
are uncollateralized.
NOTE E -- DUE TO AFFILIATES
The Company entered into a management agreement with Gary Player Group,
RSA (the "Group"). The agreement provides for the allocation of group expenses
to the Company. The Company recognized $75,000, $53,200, $368,980 and $223,400
for the three months ended March 31, 1998 and 1997 and the years ended December
31, 1997 and 1996, respectively, in expense associated with this agreement, all
of which was included in "Due to affiliate" in the accompanying balance sheet.
Since inception, affiliated companies have provided funds to the Company
for its operations. These transactions are generally non-interest bearing, have
no stated maturity date and are payable on demand. Advances from one affiliated
company bears interest at the South African Economy Rate (approximately 17% at
December 31, 1997).
NOTE F -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash, accounts receivable and accounts payable and
accrued liabilities approximates their carrying value due to their short
maturity. The fair value of the note payable, shareholder loans and amounts due
to affiliates can not be determined because it is impracticable to estimate
their fair value due to the related party nature of these financial
instruments.
NOTE G -- LITIGATION
There are lawsuits pending and unasserted claims against the Company.
Although the ultimate outcome of these lawsuits cannot be determined at this
time, and liabilities of indeterminate amounts may be imposed upon
F-23
<PAGE>
GARY PLAYER GOLF EQUIPMENT
(A DIVISION OF GARY PLAYER GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE G -- LITIGATION -- (Continued)
the Company, it is the opinion of management that the resolution of these
lawsuits will not have a material adverse effect on the financial position and
results of operations of the Company. Therefore, no provision for any liability
that may result has been reflected in the financial statements. However, it is
at least reasonably possible that the Company's estimates of loss contingencies
may change in the near term.
F-24
<PAGE>
GARY PLAYER GOLF, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(unaudited)
The unaudited pro forma consolidated financial statements presented herein
are derived from the historical consolidated financial statements of Gary
Player Golf, Inc. and Subsidiaries (the "Company"), and Gary Player Golf
Equipment ("GPGE", a division of Gary Player Group, Inc.) The unaudited pro
forma balance sheet as of March 31, 1998 gives pro forma effect to the Pro
Forma Adjustments (see footnote 2 of "Prospectus Summary -- Summary Financial
Information"). The unaudited pro forma consolidated statement of operations for
the year ended March 31, 1998 gives pro forma effect to the Player acquisition
as if it had occurred on April 1, 1997.
The unaudited pro forma financial statements give effect to the
acquisition described above under the purchase method of accounting and are
based on the assumptions and adjustments described in the accompanying notes to
the unaudited pro forma financial statements presented on the following pages.
The allocation of the total purchase price for the acquisition presented is
based on preliminary estimates and are subject to final allocation adjustments.
The unaudited pro forma financial statements do not purport to represent
what the Company's results of operations or financial condition would have
actually been or what operations would be if the transactions that give rise to
the pro forma adjustments had occurred on the dates assumed. The unaudited pro
forma financial statements presented below should be read in conjunction with
the audited and unaudited historical consolidated financial statements and
related notes thereto of the Company and GPGE, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere.
F-25
<PAGE>
GARY PLAYER GOLF, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
Gary Player Pro Forma
Golf, Inc. GPGE Adjustments Pro Forma
---------------- --------------- -------------------- ----------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash ............................................. $ 129,008 $ 20,648 $1,370,000 e $ 726,156
(793,500) j
Accounts receivable .............................. 49,284 188,304 (188,304) a 49,284
Inventories ...................................... 408,491 55,378 463,869
Prepaid expenses and other ....................... 103,423 -- 103,423
------------- ------------ ------------ -------------
Total current assets ........................... 690,206 264,330 388,196 1,342,732
PROPERTY AND EQUIPMENT, net ....................... 158,486 14,617 173,103
OTHER ASSETS ...................................... 781,983 -- 4,371,053 c 5,483,036
130,000 e
200,000 j
------------- ------------ ------------ -------------
$ 1,630,675 $ 278,947 $ 5,089,249 $ 6,998,871
============= ============ ============ =============
LIABILITIES AND STOCKHOLDERS DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities ......... $ 2,505,624 $ 584,611 $ (188,304) a $ 2,452,431
(181,000) j
(68,500) i
(200,000) c
Notes payable .................................... 2,306,643 3,509,471 (2,994,082) b 2,702,032
500,000 c
(75,000) g
(200,000) d
750,000 e
(757,500) h
(337,500) j
Customer refunds payable, deferred revenue
and allowance for returns ...................... 2,278,479 (75,000) j 2,203,479
------------- ------------ ------------ -------------
Total current liabilities ...................... 7,090,746 4,094,082 (3,826,886) 7,357,942
LONG TERM DEBT .................................... 250,000 c 1,007,500
757,500 h
STOCKHOLDERS DEFICIT
Series B Convertible Preferred ................... 573 (573) f --
Common stock ..................................... 1,701 375 c 2,429
36 d
94 e
286 f
160 g
(223) k
Capital in excess of par value ................... 5,645,472 2,999,625 c 9,738,817
199,964 d
749,906 e
287 f
(160) g
68,500 i
75,000 g
223 k
Accumulated deficit .............................. (11,107,817) (3,815,135) 2,994,082 b (11,107,817)
821,053 c
------------- ------------ ------------ -------------
(5,460,071) (3,815,135) 7,908,635 (1,366,571)
------------- ------------ ------------ -------------
$ 1,630,675 $ 278,947 $ 5,089,249 $ 6,998,871
============= ============ ============ =============
</TABLE>
F-26
<PAGE>
Description of Pro Forma Adjustments
- ------------
a Elimination of intercompany receivable / payable
b Elimination of GPGE liabilities not assumed in purchase
c Record purchase price of GPGE
d Record conversion of assumed liabilities to 35,714 shares of common stock
e Record additional short term debt in the amount of $1,500,000 and issuance
of 93,750 shares in connection therewith and related costs
f Conversion of Series B Preferred stock into 286,325 shares of common stock
g Issuance of common stock in exchange for cancellation of warrants and
$75,000
h Extend the maturity date of debt and related unamortized discount
i Cancellation of amounts due to former stockholder
j Use of proceeds from short term debt in (e)
k Cancellation of 222,914 shares of common stock
F-27
<PAGE>
GARY PLAYER GOLF INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Gary Player Pro Forma
Golf, Inc. GPGE Adjustments Pro Forma
--------------- ------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Gross sales ........................ $ 9,567,902 $ 856,457 $ (434,405) l $ 9,989,954
Less allowances for returns ........ 4,799,870 4,799,870
------------ --------- ------------ ------------
Net sales ....................... 4,768,032 856,457 (434,405) 5,190,084
Cost of goods sold ................. 1,973,105 77,928 2,051,033
------------ --------- ------------ ------------
Gross profit .................... 2,794,927 778,529 (434,405) 3,139,051
Operating expenses ..............
Telemarketing and infomercial
expenses ........................ 3,142,639 3,142,639
Selling expenses .................. 1,685,291 96,111 (434,405) l 1,346,997
General and administrative ........ 1,680,723 659,776 2,340,499
Depreciation and amortization ..... 34,028 28,933 174,842 m 237,803
Litigation settlements ............ 26,194 26,194
Loss on impaired assets ........... --
------------ --------- ------------ ------------
Total operating expenses ........ 6,568,875 784,820 (259,563) 7,094,132
------------ --------- ------------ ------------
Operating loss .................. (3,773,948) (6,291) (174,842) (3,955,081)
Other expenses
Interest expense .................. 179,536 70,765 45,000 n 295,301
Non-cash interest expense ......... 1,681,763 1,681,763
Other, net ........................ (10,733) (10,733)
------------ --------- ------------ ------------
Total other expenses ............ 1,850,566 70,765 45,000 1,966,331
------------ --------- ------------ ------------
NET LOSS ........................ $ (5,624,514) $ (77,056) $ (219,842) $ (5,921,412)
============ ========= ============ ============
Net loss attributable to common
shares
Net loss .......................... $ (5,624,514) $ (5,921,412)
Preferred dividends ............... (155,799) (155,799)
------------ ------------
$ (5,780,313) $ (6,077,211)
============ ============
Weighted average shares of com-
mon stock outstanding ............. 1,484,147 375,000 1,859,147
============ ============
Net loss per share - Basic and
diluted ........................... $ (3.89) $ (3.27)
============ ============
</TABLE>
Description of Pro Forma Adjustments
- ------------
l Elimination of intercompany license fees
m Record amortization of asset acquired over estimated life of twenty five
years
n Record interest on $750,000 note issued
F-28
<PAGE>
[Inside Back Cover Fold Out Spread (2 pages) of Prospectus:]
A marketing brochure with the line "Gary Player's New Black Knight Ti 162
Titanium Irons" in the upper left corner and a depiction of 2 Black Knight Ti
162 titanium irons with accompanying copy and diagrams describing the design and
engineering features of the Black Knight Ti 162 titanium irons. The Left of the
brochure is a picture of Gary Player Swinging a golf club and the line "WHAT DID
WE GET WHEN WE COMBINED THE WORLDS BEST "PLAYER" WITH THE WORLD'S BEST DESIGNED
IRONS?" placed above it.
<PAGE>
[Inside Back Cover:]
A collage of some of the Company's marketing images from its direct response
television commercials, telesales, direct mail brochures and Internet website.
The Gary Player Black Knight logo appears in the top left corner.
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer made in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the securities offered by this Prospectus, or an offer to sell or a
solicitation of an offer to buy any securities by anyone in any jurisdiction in
which such offer or solicitation is not authorized or is unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information herein is correct as
of any time subsequent to the date hereof.
-----------------------------------
TABLE OF CONTENTS
Page
---------
Prospectus Summary ....................... 3
Risk Factors ............................. 7
Use of Proceeds .......................... 15
Dilution ................................. 16
Capitalization ........................... 17
Dividend Policy .......................... 17
Selected Financial Data .................. 18
Management's Discussion and Analysis
of Results of Operations and Financial
Condition ............................. 19
Business ................................. 23
Management ............................... 33
Principal Stockholders ................... 39
Certain Transactions ..................... 41
Description of Securities ................ 42
Shares Eligible For Future Sale .......... 44
Underwriting ............................. 45
Legal Matters ............................ 47
Experts .................................. 47
Additional Information ................... 47
Index to Financial Statements ............ F-1
-----------------------------------
Until , 1998 (25 days after the date of this Prospectus) all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments of
subscriptions.
================================================================================
================================================================================
GARY PLAYER GOLF, INC.
1,700,000 Shares
Common Stock
--------------------------------------------
PROSPECTUS
--------------------------------------------
Whale Securities Co., L.P.
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Registrant's Certificate of Incorporation and its Bylaws provide that
the Registrant may indemnify each director, officer and employee of the
Registrant to the full extent permitted by law, as the same exists or may
hereafter be amended. Section 145 of the Delaware General Corporation Law
provides in relevant part that a corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that such person 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 expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person 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 expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
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 Delaware Court
of Chancery or the court in which such action or suit 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 which the Delaware Court of Chancery or
such other court shall deem proper. Delaware law further provides that nothing
in the above-described provisions shall be deemed exclusive of any other rights
to indemnification or advancement of expenses to which any person may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
The Registrant's Certificate of Incorporation provides that a director of
the Registrant shall not be liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director. Section 102(b)(7)
of the Delaware General Corporation Law provides that a provision so limiting
the personal liability of a director shall not eliminate or limit the liability
of a director for, among other things: breach of the duty of loyalty; acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; unlawful payment of dividends; and transactions
from which the director derived an improper personal benefit.
The Registrant has entered into separate but identical indemnity
agreements (the "Indemnity Agreements") with each director of the Registrant
and certain officers of the Registrant (the "Indemnitees"). Pursuant to the
terms and conditions of the Indemnity Agreements, the Registrant indemnified
each Indemnitee against any amounts which he or she becomes legally obligated
to pay in connection with any claim against him or her based upon any action or
inaction which he or she may commit, omit or suffer while acting in his or her
capacity as a director and/or officer of the Registrant or its subsidiaries,
provided, however, that Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Registrant and, with respect to any criminal action, had no reasonable
cause to believe Indemnitee's Conduct was unlawful.
II-1
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
Document Exhibit Number
- ---------------------------------------------------------------- --------------
Registrant's Amended and Restated Certificate of Incorporation . 3.1
Registrant's Bylaws ............................................ 3.2
Registrant's Form of Indemnification Agreement ................. 10.1
Item 25. Other Expenses of Issuance and Distribution
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the securities being
registered. All the amounts shown are estimates except the Securities and
Exchange Commission registration fee, the NASD filing fee, the Nasdaq Small Cap
fee and the Pacific Stock Exchange fee:
Registration fee -- Securities and Exchange Commission ......... $ 5,276
NASD filing fee ................................................ 2,288
Nasdaq SmallCap fee ............................................ 7,125
Pacific Stock Exchange fee ..................................... 20,500
Accounting fees and expenses ................................... 120,000
Legal fees and expenses (other than blue sky) .................. 200,000
Blue sky fees and expenses, including legal fees ............... 45,000
Printing; stock certificates ................................... 110,000
Transfer agent and registrar fees .............................. 5,000
Consulting fees ................................................ 60,000
Non-accountable expense allowance .............................. 408,000
Miscellaneous .................................................. 8,811
--------
Total ..................................................... $992,000
========
Item 26. Recent Sales of Unregistered Securities
All shares of Common Stock and the exercise price of warrants and options
have been adjusted to reflect a 1.810246525-for-1 stock split in August 1996
and a 1-for-2 reverse stock split to be effected prior to the effective date of
this Registration Statement.
In November 1995, the Company issued (i) 181,024 shares of Common Stock
for $250.00 to each of Alfonso J. Cervantes, Jr., Peter W. Damisch, Barry
Dickstein and Norman A. Kunin and (ii) an aggregate of 191,579 shares of Series
A Convertible Preferred Stock to six shareholders (the "Rhino Stockholders") of
Rhino Marketing, Inc. ("Rhino") in exchange for 100% of the outstanding capital
stock of Rhino, all in connection with the initial capitalization of the
Company. In connection with the offering, (i) each of the stockholders
represented to the Company that he was an "Accredited Investor" (as that term
is defined under Regulation D promulgated under the Securities Act), (ii) the
certificates representing the securities contain an appropriate restrictive
legend regarding resale, and (iii) the Company did not engage in any general
solicitation or general advertisement. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering.
In November 1995, the Company issued warrants to purchase an aggregate
271,536 shares of Common Stock at an exercise price of $2.21 per share to
Robert Murphy Living Trust, Gargoyle Productions Ltd., Retirement Trust, Futura
Investments Inc., Defined Benefit Pension Plan and Forest Lake Associates.
These warrants were issued as additional consideration for a loan made to the
Company by these persons through Futura Investments, Inc. (the "Futura Loan")
in the principal amount of $210,000. In connection with the offering, (i) each
II-2
<PAGE>
of these persons has represented to the Company that it was an Accredited
Investor, (ii) the certificates representing the securities contain appropriate
restrictive legends regarding resale, and (iii) the Company did not engage in
any general solicitation or general advertisement. The issuance and sale of
these securities was made in reliance on Section 4(2) of the Securities Act as
a transaction not involving any public offering.
From December 1995 through April 1996, the Company issued to 22 purchasers
units (the "Rhino Acquisition Units") comprised of an aggregate of $800,000 in
notes and warrants to purchase an aggregate of 188,265 shares of Common Stock
at an exercise price of $2.21 per share. The Rhino Acquisition Units were
issued to raise capital to satisfy a condition subsequent (the "Post Closing
Conditions") to which the Company agreed in connection with its acquisition of
Rhino. In January 1997, the Company issued 72,500 Class A Warrants to 15 of the
purchasers who purchased the Rhino Acquisition Units as consideration for their
agreement to extend the maturity date of the promissory notes included in the
Rhino Acquisition Units. Each "Class A Warrant" represents the right to
purchase one-half share of Common Stock for $4.00 per share. In connection with
the offering, (i) each of the purchasers represented to the Company that it was
an Accredited Investor, (ii) the certificates representing the securities
contain appropriate restrictive legends regarding resale, and (iii) the Company
did not engage in any general solicitation or general advertisement. The
issuance and sale of these securities was made in reliance on Section 4(2) of
the Securities Act as a transaction not involving any public offering.
In connection with the offering of Rhino Acquisition Units, the Company
issued warrants to purchase 51,795 shares of Common Stock at an exercise price
of $2.21 per share to eight consultants who assisted the Company in locating
investors in the offering. The certificates representing the securities issued
to the consultants contain appropriate restrictive legends regarding resale.
The issuance and sale of these securities was made in reliance on Section 4(2)
of the Securities Act as a transaction not involving any public offering.
In April 1996, the Company issued warrants to purchase 12,671 shares of
Common Stock at an exercise price of $2.21 per share to John McKey as
compensation for consulting services performed for the Company consisting of
the promotion of the Company's business and the investigation of strategic
acquisitions. Mr. McKey has represented to the Company that he is an Accredited
Investor, and the certificate representing the securities issued to Mr. McKey
contains an appropriate restrictive legend regarding resale. The issuance and
sale of these securities was made in reliance on Section 4(2) of the Securities
Act as a transaction not involving any public offering.
In June 1996, the Company issued an aggregate of 402,027 shares of Common
Stock upon the automatic conversion of outstanding Series A Convertible
Preferred Stock in accordance with the Company's Certificate of Incorporation.
The issuance of these securities was made without payment to the Company of any
additional consideration and therefore was not a "sale" within the meaning of,
and not subject to, Section 5 of the Securities Act.
In June 1996, the Company issued an aggregate of 26,378 shares of Common
Stock to the Rhino Stockholders in consideration of their agreement to extend
the date by which the Company was required to satisfy the Post Closing
Conditions. The issuance and sale of these securities was made in reliance on
Section 4(2) of the Securities Act as a transaction not involving any public
offering.
In June 1996, the Company issued options to purchase an aggregate of
20,750 shares of Common Stock to six employees at an exercise price of $4.00
per share. The certificates representing these options contain an appropriate
restrictive legend regarding resale. The issuance and sale of these securities
was made in reliance on Section 3(b) (pursuant to Rule 701) as securities
issued pursuant to a written compensation contract and Section 4(2) of the
Securities Act as a transaction not involving any public offering.
From June 1996 to August 1997, the Company issued an aggregate of
572,649.25 shares of Series B Convertible Preferred Stock at a price of $3.33
per share to 76 purchasers, of which 85,937 shares were purchased through the
conversion of $286,170 of outstanding indebtedness (the "Series B Offering").
In connection with the Series B Offering, each of the purchasers represented
that he is a "Qualified Purchaser" (as that term is defined under Section
25102(n) of the California Corporations Code), and the certificates
representing the securities issued to the purchasers contain an appropriate
restrictive legend regarding resale. The issuance and sale of these securities
was made in reliance on Section 3(b) of the Securities Act and Regulation CE
promulgated thereunder.
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<PAGE>
In connection with the Series B Offering, the Company issued as
compensation to consultants who assisted the Company in locating investors in
the offering (i) an aggregate of 2,500 shares of Common Stock to Andrew Pollet
valued at $5, and (ii) 131,570 Class A Warrants to 18 consultants. The
certificates representing the securities issued to the consultants contain
appropriate restrictive legends regarding resale. The issuance and sale of
these securities was made in reliance on Section 4(2) of the Securities Act as
a transaction not involving any public offering.
In July 1996, the Company issued 25,000 shares of Common Stock valued at
$50 to American Growth Fund I L.P. ("American Growth") as additional
consideration for a $250,000 loan (the "AGF Loan") made by American Growth to
the Company. In April 1997, the Company issued an additional 12,500 shares of
Common Stock valued at $100,000 to American Growth in consideration of the
extension of the maturity date of the AGF Loan. American Growth represented to
the Company that it was an Accredited Investor, and the certificates
representing the securities issued to American Growth contain an appropriate
restrictive legend regarding resale. The issuance and sale of these securities
was made in reliance on Section 4(2) of the Securities Act as transactions not
involving any public offering.
In July and October 1996, the Company issued an aggregate of 50,000 shares
of Common Stock valued at $100 to John Pike, the Company's then Chief Executive
Officer, as compensation for employment services. The certificates representing
these securities contain an appropriate restrictive legend regarding resale.
The issuance and sale of these securities was made in reliance on Section 4(2)
of the Securities Act as a transaction not involving any public offering.
In July 1996, the Company issued 10,000 Class A Warrants to Robert Rein as
additional consideration for a $100,000 loan made to the Company by Mr. Rein.
Mr. Rein has represented to the Company that he is an Accredited Investor, and
the certificates representing these securities contain an appropriate
restrictive legend regarding resale. The issuance and sale of these securities
was made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering.
From August 1996 to October 1996, the Company issued an aggregate of
75,000 Class A Warrants to John Pike, Marco Garcia, James Braden and William
Bennetti, employees of the Company, as compensation for employment services.
The certificates representing the securities issued to the employees contain an
appropriate restrictive legend regarding resale. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering, and Section 3(b) of the
Securities Act and Rule 701 as securities issued pursuant to a written
compensation contract.
In October 1996, the Company issued 10,000 Class A Warrants to Alex Trebek
as compensation for his appearance as a spokesperson in a corporate video
produced by the Company. Mr. Trebek represented to the Company that he was an
Accredited Investor, and the certificate representing these securities contains
an appropriate restrictive legend regarding resale. The issuance and sale of
these securities was made in reliance on Section 4(2) of the Securities Act as
a transaction not involving any public offering.
In December 1996, the Company issued 22,500 Class A Warrants to Racada
Corporation, a corporation owned by Robert Rein, a stockholder of the Company
who has represented to the Company that he is an Accredited Investor. The
warrants were issued as compensation for consulting services performed for the
Company by Racada Corporation. The certificates representing these securities
contain an appropriate restrictive legend regarding resale. The issuance and
sale of these securities was made in reliance on Section 4(2) of the Securities
Act as a transaction not involving any public offering and Section 3(b) of the
Securities Act and Rule 701 as securities issued pursuant to a written
compensation contract.
In December 1996, the Company issued an aggregate of 25,000 shares of
Common Stock valued at $50 to Futura Investments Inc. Defined Benefit Pension
Plan, Robert Murphy IRA, City National Bank Custodian, and Gargoyle Productions
Ltd. Retirement Trust (the "BMT Stockholders") in consideration of an extension
of the maturity date of a promissory note evidencing a loan (the "BMT Loan") in
the principal amount of $400,000 made by the BMT Stockholders to the Company in
June 1996. In August and October 1997, the Company issued an aggregate of
50,000 Class B Warrants valued at $240,000 and 25,000 Class B Warrants valued
at $195,000, respectively, to Forest Lake Associates, Alex Trebek, Trustee of
the Gargoyle Productions, Ltd. Retirement Trust
II-4
<PAGE>
and City National Bank, Trustee for the Murphy Living Trust, all affiliates of
the BMT Stockholders, in consideration of two additional extensions of the
maturity date of the BMT Loan. Each "Class B Warrant" entitles the holder to
purchase one-half share of Common Stock for $.20. Each of the BMT Stockholders
has represented to the Company that it is an Accredited Investor, and the
certificates representing the securities issued to the BMT Stockholders and
their affiliates contain an appropriate restrictive legend regarding resale.
The issuance and sale of these securities was made in reliance on Section 4(2)
of the Securities Act as transactions not involving any public offering.
In December 1996 and March 1997, the Company issued an aggregate of 25,000
shares of Common Stock valued at $50 to John Pike, the Company's then Chief
Executive Officer, as consideration for Mr. Pike's personal guaranty of the
Company's obligations under an agreement with its credit card processor. The
certificate representing these securities contains an appropriate restrictive
legend regarding resale. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering.
In January 1997, the Company issued 7,500 shares of Common Stock valued at
$15 to Rescor, Inc. as compensation for consulting services provided by Rescor,
Inc. to the Company consisting of administrative and management services. The
certificate representing these securities contains an appropriate restrictive
legend regarding resale. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering.
In March 1997, the Company issued an aggregate of 15,000 Class B Warrants
to Forest Lake Associates, Alex Trebek and the Robert Murphy Living Trust as
consideration for their guaranties of the Company's obligations under a
promissory note evidencing a loan made to the Company by City National Bank in
March 1997. Each of these purchasers has represented to the Company that it is
an Accredited Investor, and the certificates representing the securities issued
to the purchasers contain an appropriate restrictive legend regarding resale.
The issuance and sale of these securities was made in reliance on Section 4(2)
of the Securities Act as a transaction not involving any public offering.
In April 1997, the Company issued 6,000 shares of Common Stock to Steve
Garvey for $120 and for promotional services provided by Mr. Garvey to the
Company valued at $30,000. Mr. Garvey has represented to the Company that he is
an Accredited Investor, and the certificate representing the securities issued
to Mr. Garvey contains an appropriate restrictive legend against resale. The
issuance and sale of these securities was made in reliance on Section 4(2) of
the Securities Act as a transaction not involving any public offering.
From May 1997 to September 1997, the Company issued an aggregate of
224,900 shares of Common Stock at a price of $5.00 per share to 23 purchasers
(the "May 1997 Offering"). In connection with the offering, (i) each of these
purchasers represented to the Company that it was a Qualified Purchaser, (ii)
the certificates representing the securities issued to the purchasers contain
an appropriate restrictive legend regarding resale, and (iii) the Company did
not engage in any general solicitation or general advertisement. The issuance
and sale of these securities was made in reliance on Section 4(2) of the
Securities Act as a transaction not involving any public offering and Section
3(b) of the Securities Act and Regulation CE promulgated thereunder.
In connection with the May 1997 Offering, the Company issued as
compensation to consultants who assisted the Company in locating investors in
the offering (i) an aggregate of 42,980 Class A Warrants valued at $21,490 to
Steven Sparks, a director of the Company, and Private Equity Partners, L.L.C.,
and (ii) 500 shares of Common Stock valued at $2,500 to Michael Freilich and
Arnold Cooperman. The certificates representing these securities contain an
appropriate restrictive legend regarding resale. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering.
In June 1997, the Company issued 12,500 Class A Warrants valued at $6,250
to Richard Casey as compensation for business and financial consulting services
performed for the Company. Mr. Casey has represented to the Company that he is
an Accredited Investor, and the certificate representing the securities issued
to Mr. Casey contains an appropriate restrictive legend regarding resale. The
issuance and sale of these securities was made in reliance on Section 4(2) of
the Securities Act as a transaction not involving any public offering.
II-5
<PAGE>
In June 1997 and November 1997, the Company issued an aggregate of 45,000
Class A Warrants valued at $67,500 to Robert Friedland, a director of the
Company, as compensation for management services performed for the Company. The
certificates representing the securities issued to Mr. Friedland contain an
appropriate restrictive legend regarding resale. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Securities Act as
transactions not involving any public offering.
From September 1997 to April 1998, the Company issued an aggregate of
52,375 shares of Common Stock at a price of $8.00 per share to 20 purchasers
(the "September 1997 Offering"). In connection with the September 1997
Offering, (i) each of the stockholders represented to the Company that it was a
Qualified Purchaser, (ii) the certificates representing these securities
contain an appropriate restrictive legend regarding resale, and (iii) the
Company did not engage in any general solicitation or general advertisement.
The issuance and sale of these securities was made in reliance on Section 3(b)
of the Securities Act and Regulation CE promulgated thereunder and Section 4(2)
of the Securities Act as a transaction not involving any public offering.
In connection with the September 1997 Offering, the Company issued 250
shares of Common Stock valued at $2,000 to Monte A. Stern as consideration for
assistance to the Company in locating investors in the offering. Mr. Stern has
represented to the Company that he is an Accredited Investor, and the
certificate representing these securities contains an appropriate restrictive
legend regarding resale. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering.
In November 1997, the Company issued 6,250 shares of Common Stock valued
at $50,000 to Anthony Tesoro as compensation for corporate finance and new
business development services performed for the Company. Mr. Tesoro has
represented to the Company that he is an Accredited Investor, and the
certificate representing these securities contains an appropriate restrictive
legend regarding resale. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering.
In November 1997, the Company issued 10,000 Class A Warrants valued at
$20,000 to James Robertson for computer modeling services performed for the
Company. The certificate representing these securities contains an appropriate
restrictive legend regarding resale. The issuance and sale of these securities
was made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering.
In November 1997, the Company issued 20,000 shares of Common Stock valued
at $160,000 to Robert Rein as consideration for his agreement to extend the
maturity date of two promissory notes evidencing loans made to the Company by
Mr. Rein in June and October 1996. Mr. Rein represented to the Company that he
was an Accredited Investor, and the certificate representing these securities
contains an appropriate restrictive legend regarding resale. The issuance and
sale of these securities was made in reliance on Section 4(2) of the Securities
Act as a transaction not involving any public offering.
In November 1997, the Company issued 15,000 Class A Warrants to Joseph
DePanfilis, the Company's Chief Financial Officer, as compensation for
employment services. The certificate representing these securities contains an
appropriate restrictive legend regarding resale. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering, and Section 3(b) of the
Securities Act and Rule 701 as securities issued pursuant to a written
compensation contract.
From November 1997 through March 1998, the Company obtained loans (the
"1998 Loans") from ten lenders in the aggregate amount of $880,000. In
connection with the loans, the Company issued to the lenders an aggregate of
44,000 shares of Common Stock which the Company valued at $352,000. In
connection with these loans, (i) each of the lenders represented to the Company
that he was an Accredited Investor, (ii) the certificates representing these
securities contain an appropriate restrictive legend regarding resale, and
(iii) the Company did not engage in any general solicitation or general
advertisement. The issuance and sale of these securities was made in reliance
on Section 4(2) of the Securities Act as a transaction not involving any public
offering.
In connection with the 1998 Loans, the Company issued an aggregate of
44,000 shares of Common Stock valued at $352,000 to Steven Sparks, a director
of the Company, and Sparks Financial, Inc., a corporation
II-6
<PAGE>
wholly-owned by Mr. Sparks, as consideration for assistance to the Company in
locating the lenders. The certificates representing these securities contain an
appropriate restrictive legend regarding resale. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering.
In November 1997, the Company issued 17,500 shares of Common Stock valued
at $140,000 to Alfonso J. Cervantes, Jr., the Company's Chief Executive
Officer, and 8,750 shares of Common Stock valued at $70,000 to Norman A. Kunin,
a founder and former executive officer of the Company, as consideration for
their personal guarantees of the Company's obligations under certain promissory
notes evidencing amounts owed by the Company in the aggregate principal amount
of $750,000 for Mr. Cervantes and $450,000 for Mr. Kunin. The certificates
representing these securities contain an appropriate restrictive legend
regarding resale. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering.
In November 1997, the Company issued 2,500 shares of Common Stock valued
at $20,000 to Robert Friedland, a director of the Company, in connection with a
loan made to the Company by Mr. Friedland in the principal amount of $40,000.
The certificate representing these securities contains an appropriate
restrictive legend regarding resale. The issuance and sale of these securities
was made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering.
In January 1998, the Company issued 3,000 Class A Warrants to Sharna
Dixon, the Company's Controller, as compensation for employment services. The
certificate representing these securities contains an appropriate restrictive
legend regarding resale. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering, and Section 3(b) of the Securities Act and Rule 701
thereunder as a transaction pursuant to a written compensation contract.
In March 1998, the Company issued 3,400 shares of Common Stock valued at
$27,200 to Joseph DePanfilis, the Company's Chief Financial Officer, as
consideration for loans aggregating of $34,000 made to the Company by Mr.
DePanfilis. The certificate representing these securities contains an
appropriate restrictive legend regarding resale. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering.
In March 1998, the Company obtained a secured loan in the amount of
$1,000,000 from Jack Cancellieri. In connection with the loan, the Company
issued 76,250 shares of Common Stock to Mr. Cancellieri which the Company
valued at $610,000. If the number of shares issued to Mr. Cancellieri (as
adjusted for any stock dividend, reverse stock split or stock split prior to
the Offering) multiplied by the initial public offering price shall be
different than $610,000, Mr. Cancellieri and the Company have agreed to adjust
the number of shares so that the number of shares shall equal $610,000 divided
by the initial public offering price. In addition, the Company has agreed to
issue an additional 6,250 shares of Common Stock on the last day of each
calendar month, commencing the month of August 1998, that the loan shall not
have been repaid. In connection with the offering, (i) Mr. Cancellieri
represented to the Company that he was an Accredited Investor, (ii) the
certificates representing the securities issued to Mr. Cancellieri contain an
appropriate restrictive legend regarding resale, and (iii) the Company did not
engage in any general solicitation or general advertisement. The issuance and
sale of these securities was made in reliance on Section 4(2) of the Securities
Act as a transaction not involving any public offering. The Company paid a
finder's fee of $125,000 to Barry Grumman in connection with this loan.
In May 1998, the Company obtained secured loans in the aggregate amount of
$1,500,000 from Thomas Gallagher, Ritch Gaiti, Augustine Fund, LP., IAC,
Higgins Family LP., Corporate Communications Network, Inc., Stephen E. Hoffman,
Marc Roberts and William Schuler. In connection with these loans, the Company
issued an aggregate of 93,750 shares of Common Stock to the lenders which the
Company valued at $750,000. If the number of shares issued to lenders (as
adjusted for any stock dividend, reverse stock split or stock split prior to
the public offering) multiplied by the initial public offering price shall be
different than $750,000, the lenders and the Company have agreed to adjust the
number of shares so that the number of shares shall equal $750,000 divided by
the initial public offering price. In addition, the Company has agreed to issue
an additional 10,626 shares of Common Stock on September 30, 1998 and November
30, 1998 if the loans shall not have been repaid. In connection with these
loans, (i) each lender represented to the Company that he was an Accredited
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<PAGE>
Investor, (ii) the certificates representing the securities issued to the
lenders contain an appropriate restrictive legend regarding resale, and (iii)
the Company did not engage in any general solicitation or general
advertisement. The issuance and sale of these securities was made in reliance
on Section 4(2) of the Securities Act as a transaction not involving any public
offering. The Company paid a finder's fee of $130,000 to Stone Pine Capital in
connection with these loans.
Item 27. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- -------- -------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Underwriter's Warrant Agreement, including form of warrant certificate.
2.1 Asset Purchase Agreement, dated November 1, 1997, by and between the Registrant and the Gary
Player Group, Inc., as amended.
3.1 Proposed Form of Amended and Restated Certificate of Incorporation of Registrant.*
3.2 Bylaws of Registrant.
4.1 Specimen Stock Certificate of Common Stock of Registrant.*
5.1 Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP.*
10.1 Form of Indemnification Agreement.
10.2 Standard Sublease Agreement, dated as of January 20, 1995, between Comstream Corporation and
Rhino Marketing Inc.
10.3 1998 Stock Option Plan*.
10.4 Employment Agreement between Registrant and Alfonso J. Cervantes, Jr.*
10.5 Employment Agreement between Registrant and Joseph J. White.*
10.6 Employment Agreement between Registrant and Joseph A. DePanfilis.*
10.7 Consulting Agreement, dated November 1, 1997, between Sparks Financial, Inc. and the
Registrant.*
10.8 Consulting Agreement, dated November 1, 1997, between Robert Friedland and the Registrant.*
10.9 Consulting Agreement between Marc B. Player and the Registrant.*
10.10 Player License Agreement, dated as of November 1, 1997, between Gary Player Group, Inc. and
Gary Player.*
10.11 WSE License Agreement, dated as of November 1, 1997, between Gary Player Group, Inc. and
World Services Establishment.*
10.12 Promissory Note, dated as of March 4, 1996, from Trilogy Capital Group, Inc. to the Registrant.
21.1 List of Subsidiaries of Registrant.
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its opinion to be filed as Exhibit
5.1 hereto).*
23.2 Consent of Grant Thornton LLP.
24.1 Power of Attorney (included in signature page).
27.1 Financial Data Schedule.*
99.1 Consent of Gary Player to be named in the Registration Statement.
99.2 Consent of Joseph J. White to be named in the Registration Statement.
99.3 Consent of Marc Player to be named in the Registration Statement.
</TABLE>
- ------------
* To be filed by Amendment.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(a) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(b) 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,
II-8
<PAGE>
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. 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 of
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, the registrant will, unless
in the opinion of its counsel the matter has been settled by a 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.
(c) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as 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 the purpose 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-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on May 19, 1998.
GARY PLAYER GOLF, INC.
By: /s/ Alfonso J. Cervantes, Jr.
-----------------------------------
Alfonso J. Cervantes, Jr.
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Alfonso
J. Cervantes, Jr. and Joseph A. DePanfilis, and each of them, as his true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and his name, place and stead, in any and all
capacities, to sign any or all amendments (including post effective amendments)
to this Registration Statement and a new Registration Statement filed pursuant
to Rule 462(b) of the Securities Act of 1933 and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-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
foregoing, 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 either of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------------- ---------------------------------------- -------------
<S> <C> <C>
/s/ Alfonso J. Cervantes, Jr. President, Chief Executive Officer and May 19, 1998
- -------------------------------------- Director
Alfonso J. Cervantes, Jr.
/s/ Joseph A. DePanfilis Chief Financial Officer and Secretary May 19, 1998
- -------------------------------------- (Principal Financial and Accounting
Joseph A. DePanfilis Officer)
/s/ Robert J. Friedland Director May 20, 1998
- --------------------------------------
Robert J. Friedland
/s/ Steven O. Sparks Director May 19, 1998
- --------------------------------------
Steven O. Sparks
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- -------- -------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Underwriter's Warrant Agreement, including form of warrant certificate.
2.1 Asset Purchase Agreement, dated November 1, 1997, by and between the Registrant and the Gary
Player Group, Inc., as amended.
3.1 Proposed Form of Amended and Restated Certificate of Incorporation of Registrant.*
3.2 Bylaws of Registrant.
4.1 Specimen Stock Certificate of Common Stock of Registrant.*
5.1 Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP.*
10.1 Form of Indemnification Agreement.
10.2 Standard Sublease Agreement, dated as of January 20, 1995, between Comstream Corporation and
Rhino Marketing Inc.
10.3 1998 Stock Option Plan*.
10.4 Employment Agreement between Registrant and Alfonso J. Cervantes, Jr.*
10.5 Employment Agreement between Registrant and Joseph J. White.*
10.6 Employment Agreement between Registrant and Joseph A. DePanfilis.*
10.7 Consulting Agreement, dated November 1, 1997, between Sparks Financial, Inc. and the
Registrant.*
10.8 Consulting Agreement, dated November 1, 1997, between Robert Friedland and the Registrant.*
10.9 Consulting Agreement between Marc B. Player and the Registrant.*
10.10 Player License Agreement, dated as of November 1, 1997, between Gary Player Group, Inc. and
Gary Player.*
10.11 WSE License Agreement, dated as of November 1, 1997, between Gary Player Group, Inc. and
World Services Establishment.*
10.12 Promissory Note, dated as of March 4, 1996, from Trilogy Capital Group, Inc. to the Registrant.
21.1 List of Subsidiaries of Registrant.
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its opinion to be filed as Exhibit
5.1 hereto).*
23.2 Consent of Grant Thornton LLP.
24.1 Power of Attorney (included in signature page).
27.1 Financial Data Schedule.*
99.1 Consent of Gary Player to be named in the Registration Statement.
99.2 Consent of Joseph J. White to be named in the Registration Statement.
99.3 Consent of Marc Player to be named in the Registration Statement.
</TABLE>
- ------------
* To be filed by Amendment.
<PAGE>
GARY PLAYER GOLF, INC.
1,700,000 Shares of Common Stock
(Par Value $.001 Per Share)
UNDERWRITING AGREEMENT
Whale Securities Co., L.P New York, New York
650 Fifth Avenue ___________, 1998
New York, New York 10019
Dear Sirs:
Gary Player Golf, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to Whale Securities Co., L.P. (the
"Underwriter") 1,700,000 shares of common stock, par value $.001 per share (the
"Offered Shares"), which Offered Shares are presently authorized but unissued
shares of the common stock, par value $.001 per share (individually, a "Common
Share" and collectively the "Common Shares"), of the Company. In addition, the
Underwriter, in order to cover over-allotments in the sale of the Offered
Shares, may purchase up to an aggregate of 255,000 Common Shares (the "Optional
Shares"; the Offered Shares and the Optional Shares are hereinafter sometimes
collectively referred to as the "Shares"). The Shares are described in the
Registration Statement, as defined below. The Company also proposes to issue and
sell to the Underwriter for its own account and the accounts of its designees,
warrants to purchase an aggregate of 170,000 Common Shares at an exercise price
of $13.20 per share (the "Underwriter's Warrants"), which sale will be
consummated in accordance with the terms and conditions of the form of
Underwriter's Warrant filed as an exhibit to the Registration Statement (as
hereinafter defined).
The Company hereby confirms its agreement with the Underwriter
as follows:
1. Purchase and Sale of Offered Shares. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company hereby agrees to sell the Offered
Shares to the Underwriter, and the Underwriter agrees to purchase the Offered
Shares from the Company, at a purchase price of $ per share. The Underwriter
plans to offer the Shares to the public at a public offering price of $___ per
Offered Share.
2. Payment and Delivery.
(a) Payment for the Offered Shares will be made to
the Company by wire transfer or certified or official bank check or checks
payable to its order in New York Clearing House funds, at the offices of the
Underwriter, Whale Securities Co., L.P., 650 Fifth Avenue, New York, New York
10019, against delivery of the
<PAGE>
Offered Shares to the Underwriter. Such payment and delivery will be made at
______________, New York City time, on the third business day following the
Effective Date (the fourth business day following the Effective Date in the
event that trading of the Offered Shares commences on the day following the
Effective Date), the date and time of such payment and delivery being herein
called the "Closing Date." The certificates representing the Offered Shares to
be delivered will be in such denominations and registered in such names as the
Underwriter may request not less than two full business days prior to the
Closing Date, and will be made available to the Underwriter for inspection,
checking and packaging at the office of the Company's transfer agent or
correspondent in New York City, American Stock Transfer & Trust Company, 40 Wall
Street, New York, New York 10005 not less than one full business day prior to
the Closing Date.
(b) On the Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to the designees of the Underwriter
limited to officers and partners of the Underwriter, members of the selling
group and/or their officers or partners (collectively, the "Underwriter's
Designees"). The Underwriter's Warrants will be in the form of, and in
accordance with, the provisions of the Underwriter's Warrant attached as an
exhibit to the Registration Statement. The aggregate purchase price for the
Underwriter's Warrants is $170.00. The Underwriter's Warrants will be restricted
from sale, transfer, assignment or hypothecation for a period of one year from
the Effective Date, except to the Underwriter's Designees. Payment for the
Underwriter's Warrant Agreement will be made to the Company by check or checks
payable to its order on the Closing Date against delivery of the certificates
representing the Underwriter's Warrants. The certificates representing the
Underwriter's Warrants will be in such denominations and such names as the
Underwriter may request prior to the Closing Date.
3. Option to Purchase Optional Shares.
(a) For the purposes of covering any overallotments
in connection with the distribution and sale of the Offered Shares as
contemplated by the Prospectus, the Underwriter is hereby granted an option to
purchase all or any part of the Optional Shares from the Company. The purchase
price to be paid for the Optional Shares will be the same price per Optional
Share as the price per Offered Share set forth in Section 1 hereof. The option
granted hereby may be exercised by the Underwriter as to all or any part of the
Optional Shares at any time within 45 days after the Effective Date. The
Underwriter will not be under any obligation to purchase any Optional Shares
prior to the exercise of such option.
(b) The option granted hereby may be exercised by the
Underwriter by giving oral notice to the Company, which must be confirmed by a
letter, telex or telegraph setting forth the number
-2-
<PAGE>
of Optional Shares to be purchased, the date and time for delivery of and
payment for the Optional Shares to be purchased and stating that the Optional
Shares referred to therein are to be used for the purpose of covering
over-allotments in connection with the distribution and sale of the Offered
Shares. If such notice is given prior to the Closing Date, the date set forth
therein for such delivery and payment will not be earlier than either two full
business days thereafter or the Closing Date, whichever occurs later. If such
notice is given on or after the Closing Date, the date set forth therein for
such delivery and payment will not be earlier than two full business days
thereafter. In either event, the date so set forth will not be more than 15 full
business days after the date of such notice. The date and time set forth in such
notice is herein called the "Option Closing Date." Upon exercise of such option,
the Company will become obligated to convey to the Underwriter, and, subject to
the terms and conditions set forth in Section 3(d) hereof, the Underwriter will
become obligated to purchase, the number of Optional Shares specified in such
notice.
(c) Payment for any Optional Shares purchased will be
made to the Company by wire transfer or certified or official bank check or
checks pay-able to its order in New York Clearing House funds, at the office of
the Underwriter, against delivery of the Optional Shares purchased to the
Underwriter. The certificates representing the Optional Shares to be delivered
will be in such denominations and registered in such names as the Underwriter
requests not less than two full business days prior to the Option Closing Date,
and will be made available to the Underwriter for inspection, checking and
packaging at the aforesaid office of the Company's transfer agent or
correspondent not less than one full business day prior to the Option Closing
Date.
(d) The obligation of the Underwriter to purchase and
pay for any of the Optional Shares is subject to the accuracy and completeness
(as of the date hereof and as of the Option Closing Date) of and compliance in
all material respects with the representations and warranties of the Company
herein, to the accuracy and completeness of the statements of the Company or its
officers made in any certificate or other document to be delivered by the
Company pursuant to this Agreement, to the performance in all material respects
by the Company of its obligations hereunder, to the satisfaction by the Company
of the conditions, as of the date hereof and as of the Option Closing Date, set
forth in Section 3(b) hereof, and to the delivery to the Underwriter of
opinions, certificates and letters dated the Option Closing Date substantially
similar in scope to those specified in Section 5, 6(b), (c), (d) and (e) hereof,
but with each reference to "Offered Shares" and "Closing Date" to be,
respectively, to the Optional Shares and the Option Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
-3-
<PAGE>
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full power and authority, corporate and other, to own or lease and operate,
as the case may be, its properties, whether tangible or intangible, and to
conduct its business as described in the Registration Statement and to execute,
deliver and perform this Agreement and the Underwriter's Warrant Agreement and
to consummate the transactions contemplated hereby and thereby. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in all jurisdictions wherein such qualification is necessary and failure so to
qualify could have a material adverse effect on the financial condition, results
of operations, business or properties of the Company. The Company has no
subsidiaries other than Gran Prix Marketing, Inc. and Rhino Marketing, Inc.
(collectively, the "Subsidiaries"), and the Company has no equity interests in
any entity other than the Subsidiaries.
Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the state of California,
with full power and authority, corporate or other, to own or lease and operate,
as the case may be, its respective properties, whether tangible or intangible,
and to conduct its respective business as described in the Registration
Statement. Each Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure to so qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of such Subsidiary.
The Company owns all of the issued and outstanding
shares of capital stock of each Subsidiary, free and clear of any security
interests, liens, encumbrances, claims and charges, and all of such shares have
been duly authorized and validly issued and are fully paid and nonassessable.
There are no options or warrants for the purchase of, or other rights to
purchase, or outstanding securities convertible into or exchangeable for, any
capital stock or other securities of any Subsidiary.
(b) This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, and each of the Underwriter's Warrant Agreement and the Consulting
Agreement described in Section 5(r) hereof (the "Consulting Agreement"), when
executed and delivered by the Company on the Closing Date, will be the valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms. The execution, delivery and performance
of this Agreement, the Consulting Agreement and the Underwriter's Warrant
Agreement by the Company, the consummation by the Company of the transactions
herein and therein contemplated and the compliance by the Company with the terms
of this Agreement, the Consulting Agreement and the Underwriter's Warrant
Agreement have been duly authorized by all necessary corporate action and do not
and will not, with or without the giving of notice or the lapse of
-4-
<PAGE>
time, or both, (i) result in any violation of the Certificate of Incorporation
or By-Laws, each as amended, of the Company; (ii) result in a breach of or
conflict with any of the terms or provisions of, or constitute a default under,
or result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Subsidiary pursuant to any indenture,
mortgage, note, contract, commitment or other agreement or instrument to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties or assets is or may be bound or
affected; (iii) violate any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their respective
properties or businesses; or (iv) have any effect on any permit, certification,
registration, approval, consent order, license, franchise or other authorization
(collectively, the "Permits") necessary for the Company or any Subsidiary to own
or lease and operate their respective properties and to conduct their respective
businesses or the ability of the Company to make use thereof.
(c) No Permits of any court or governmental agency or
body, other than under the Securities Act of 1933, as amended (the "Act"), the
Regulations (as hereinafter defined) and applicable state securities or Blue Sky
laws, are required (i) for the valid authorization, issuance, sale and delivery
of the Shares to the Underwriter, and (ii) the consummation by the Company of
the transactions contemplated by this Agreement, the Consulting Agreement or the
Underwriter's Warrant Agreement.
(d) The conditions for use of a registration
statement on Form SB-2 set forth in the General Instructions to Form SB-2 have
been satisfied with respect to the Company, the transactions contemplated herein
and in the Registration Statement. The Company has prepared in conformity with
the requirements of the Act and the rules and regulations (the "Regulations") of
the Securities and Exchange Commission (the "Commission") and filed with the
Commission a registration statement (File No. 333- ) on Form SB-2 and has filed
one or more amendments thereto, covering the registration of the Shares and the
Warrant Shares under the Act, including the related preliminary prospectus or
preliminary prospectuses (each thereof being herein called a "Preliminary
Prospectus") and a proposed final prospectus. Each Preliminary Prospectus was
endorsed with the legend required by Item 501(a)(5) of Regulation S-B of the
Regulations and, if applicable, Rule 430A of the Regulations. Such registration
statement including any documents incorporated by reference therein and all
financial schedules and exhibits thereto, as amended at the time it becomes
effective, and the final prospectus included therein are herein, respectively,
called the "Registration Statement" and the "Prospectus," except that, (i) if
the prospectus filed by the Company pursuant to Rule 424(b) of the Regulations
differs from the
-5-
<PAGE>
Prospectus, the term "Prospectus" will also include the prospectus filed
pursuant to Rule 424(b), and (ii) if the Registration Statement is amended or
such Prospectus is supplemented after the date the Registration Statement is
declared effective by the Commission (the "Effective Date") and prior to the
Option Closing Date, the terms "Registration Statement" and "Prospectus" shall
include the Registration Statement as amended or supplemented.
(e) Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
(f) The Registration Statement when it becomes
effective, the Prospectus (and any amendment or supplement thereto) when it is
filed with the Commission pursuant to Rule 424(b), and both documents as of the
Closing Date and the Option Closing Date, referred to below, will contain all
statements which are required to be stated therein in accordance with the Act
and the Regulations and will in all material respects conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, on such
dates, will 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 under which they were made, not
misleading, except that this representation and warranty does not apply to
statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Company in connection with the Registration
Statement or Prospectus or any amendment or supplement thereto by the
Underwriter expressly for use therein.
(g) The Company had at the date or dates indicated in
the Prospectus a duly authorized and outstanding capitalization as set forth in
the Registration Statement and the Prospectus. Based on the assumptions stated
in the Registration Statement and the Prospectus, the Company will have on the
Closing Date the adjusted stock capitalization set forth therein. Except as set
forth in the Registration Statement or the Prospectus, on the Effective Date and
on the Closing Date, there will be no options to purchase, warrants or other
rights to subscribe for, or any securities or obligations convertible into, or
any contracts or commitments to issue or sell shares of the Company's capital
stock or any such warrants, convertible securities or obligations. Except as set
forth in the Prospectus, no holders of any of the Company's securities has any
rights, "demand," "piggyback" or otherwise, to have such securities registered
under the Act.
(h) The descriptions in the Registration Statement
and the Prospectus of contracts and other documents are accurate and present
fairly the information required to be disclosed, and
-6-
<PAGE>
there are no contracts or other documents required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement under the Act or the Regulations which have not been so
described or filed as required.
(i) Grant Thornton LLP, the accountants who have
certified certain of the consolidated financial statements filed and to be filed
with the Commission as part of the Registration Statement and the Prospectus,
are independent public accountants within the meaning of the Act and
Regulations. The consolidated financial statements and schedules and the notes
thereto filed as part of the Registration Statement and included in the
Prospectus are complete, correct and present fairly the financial position of
the Company as of the dates thereof, and the results of operations and changes
in financial position of the Company for the periods indicated therein, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved except as otherwise stated in the
Registration Statement and the Prospectus. The selected financial data set forth
in the Registration Statement and the Prospectus present fairly the information
shown therein and have been compiled on a basis consistent with that of the
audited [and unaudited] financial statements included in the Registration
Statement and the Prospectus.
(j) The Company and each Subsidiary has filed with
the appropriate federal, state and local governmental agencies, and all
appropriate foreign countries and political subdivisions thereof, all tax
returns, including franchise tax returns, which are required to be filed or has
duly obtained extensions of time for the filing thereof and has paid all taxes
shown on such returns and all assessments received by it to the extent that the
same have become due; and the provisions for income taxes payable, if any, shown
on the consolidated financial statements filed with or as part of the
Registration Statement are sufficient for all accrued and unpaid foreign and
domestic taxes, whether or not disputed, and for all periods to and including
the dates of such consolidated financial statements. Except as disclosed in
writing to the Underwriter, neither the Company nor any Subsidiary has executed
or filed with any taxing authority, foreign or domestic, any agreement extending
the period for assessment or collection of any income taxes and is not a party
to any pending action or proceeding by any foreign or domestic governmental
agency for assessment or collection of taxes; and no claims for assessment or
collection of taxes have been asserted against the Company or any Subsidiary.
(k) The outstanding Common Shares and shares of
Series B Convertible preferred stock, par value $.001 per share (the "Preferred
Shares") of the Company, and outstanding options and warrants to purchase Common
Shares have been duly authorized and validly issued. The outstanding Common
Shares and Preferred Shares are fully paid and nonassessable. The outstanding
options and warrants to purchase Common Shares constitute the valid and
-7-
<PAGE>
binding obligations of the Company, enforceable in accordance with their terms.
None of the outstanding Common Shares, Preferred Shares or options or warrants
to purchase Common Shares has been issued in violation of the preemptive rights
of any shareholder of the Company. None of the holders of the outstanding Common
Shares or Preferred Shares is subject to personal liability solely by reason of
being such a holder. The offers and sales of the outstanding Common Shares and
Preferred Shares and outstanding options and warrants to purchase Common Shares
were at all relevant times either registered under the Act and the applicable
state securities or Blue Sky laws or exempt from such registration requirements.
The authorized Common Shares and Preferred Shares and outstanding options and
warrants to purchase Common Shares conform to the descriptions thereof contained
in the Registration Statement and Prospectus. Except as set forth in the
Registration Statement and the Prospectus, on the Effective Date and the Closing
Date, there will be no outstanding options or warrants for the purchase of, or
other outstanding rights to purchase, Common Shares or securities convertible
into Common Shares.
(l) No securities of the Company have been sold by
the Company or by or on behalf of, or for the benefit of, any person or persons
controlling, controlled by, or under common control with the Company within the
three years prior to the date hereof, except as disclosed in the Registration
Statement.
(m) The issuance and sale of the Shares have been
duly authorized and, when the Shares have been issued and duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The Shares
will not be subject to preemptive rights of any shareholder of the Company.
(n) The issuance and sale of the Common Shares
issuable upon exercise of the Underwriter's Warrants have been duly authorized
and, when such Common Shares have been duly delivered against payment therefor,
as contemplated by the Underwriter's Warrant Agreement, such Common Shares will
be validly issued, fully paid and nonassessable. Holders of Common Shares
issuable upon the exercise of the Underwriter's Warrants will not be subject to
personal liability solely by reason of being such holders. Neither the
Underwriter's Warrants nor the Common Shares issuable upon exercise thereof will
be subject to preemptive rights of any shareholder of the Company. The Common
Shares issuable upon exercise of the Underwriter's Warrants have been duly
reserved for issuance upon exercise of the Underwriter's Warrants in accordance
with the provisions of the Underwriter's Warrant Agreement. The Underwriter's
Warrants conform to the descriptions thereof contained in the Registration
Statement and the Prospectus.
-8-
<PAGE>
(o) Neither the Company nor any Subsidiary is in
violation of, or in default under, (i) any term or provision of its Certificate
of Incorporation or By-Laws, each as amended; (ii) any material term or
provision or any financial covenants of any indenture, mortgage, contract,
commitment or other agreement or instrument to which it is a party or by which
it or any of its property or business is or may be bound or affected; or (iii)
any existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of the Company's or any Subsidiary's properties
or business. The Company and each Subsidiary owns, possesses or has obtained all
governmental and other (including those obtainable from third parties) Permits,
necessary to own or lease, as the case may be, and to operate its properties,
whether tangible or intangible, and to conduct the business and operations of
the Company as presently conducted and all such Permits are outstanding and in
good standing, and there are no proceedings pending or, to the best of the
Company's knowledge, threatened, or any basis therefor, seeking to cancel,
terminate or limit such Permits.
(p) Except as set forth in the Prospectus, there are
no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, pending, or, to the best of
the Company's knowledge, threatened against the Company or any Subsidiary or
involving the Company's or any Subsidiary's properties or business which, if
determined adversely to the Company or any Subsidiary, would, individually or in
the aggregate, result in any material adverse change in the financial position,
shareholders' equity, results of operations, properties, business, management or
affairs of the Company or any Subsidiary or which question the validity of the
capital stock of the Company or this Agreement or of any action taken or to be
taken by the Company pursuant to, or in connection with, this Agreement; nor, to
the best of the Company's knowledge, is there any basis for any such claim,
action, suit, proceeding, arbitration, investigation or inquiry. There are no
outstanding orders, judgments or decrees of any court, governmental agency or
other tribunal naming the Company or any Subsidiary and enjoining the Company or
any Subsidiary from taking, or requiring the Company or any Subsidiary to take,
any action, or to which the Company or any Subsidiary, or the Company's or any
Subsidiary's properties or businesses is bound or subject.
(q) Neither the Company nor any of its affiliates has
incurred any liability for any finder's fees or similar payments in connection
with the transactions herein contemplated.
(r) The Company and each of the Subsidiaries owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, rights, trade secrets,
confidential information, processes and formulations
-9-
<PAGE>
used or proposed to be used in the conduct of their businesses as described in
the Prospectus (collectively the "Intangibles"); to the best of the Company's
knowledge, neither the Company nor any Subsidiary has infringed nor is
infringing upon the rights of others with respect to the Intangibles; and
neither the Company nor any Subsidiary has received any notice of conflict with
the asserted rights of others with respect to the Intangibles which could,
singly or in the aggregate, materially adversely affect its business as
presently conducted or the prospects, financial condition or results of
operations of the Company or any Subsidiary, and the Company knows of no basis
therefor; and, to the best of the Company's knowledge, no others have infringed
upon the Intangibles of the Company or any Subsidiary.
(s) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus and the
Company's latest consolidated financial statements, neither the Company nor any
Subsidiary has incurred any material liability or obligation, direct or
contingent, or entered into any material transaction, whether or not incurred in
the ordinary course of business, and has not sustained any material loss or
interference with its business from fire, storm, explosion, flood or other
casualty, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree; and since the respective dates as
of which information is given in the Registration Statement and the Prospectus,
there have not been, and prior to the Closing Date referred to below there will
not be, any changes in the capital stock or any material increases in the
long-term debt of the Company or any material adverse change in or affecting the
general affairs, management, financial condition, shareholders' equity, results
of operations or prospects of the Company or any Subsidiary, otherwise than as
set forth or contemplated in the Prospectus.
(t) The Company does not own any real property. The
Company and each Subsidiary has good title to all personal property (tangible
and intangible) owned by it, free and clear of all security interests, charges,
mortgages, liens, encumbrances and defects, except such as are described in the
Registration Statement and Prospectus or such as do not materially affect the
value or transferability of such property and do not interfere with the use of
such property made, or proposed to be made, by the Company or any Subsidiary.
The leases, licenses or other contracts or instruments under which the Company
and each Subsidiary leases, holds or is entitled to use any property, real or
personal, are valid, subsisting and enforceable only with such exceptions as are
not material and do not interfere with the use of such property made, or
proposed to be made, by the Company or any Subsidiary, and all rentals,
royalties or other payments accruing thereunder which became due prior to the
date of this Agreement have been duly paid, and neither the Company nor any
Subsidiary, nor, to the best of the Company's knowledge, any other party is in
default thereunder and, to the best of the Company's knowledge, no event has
occurred
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which, with the passage of time or the giving of notice, or both, would
constitute a default thereunder. Neither The Company nor any Subsidiary has
received notice of any violation of any applicable law, ordinance, regulation,
order or requirement relating to its owned or leased properties. The Company and
each Subsidiary has adequately insured its properties against loss or damage by
fire or other casualty and maintains, in adequate amounts, such other insurance
as is usually maintained by companies engaged in the same or similar businesses
located in its geographic area.
(u) Each contract or other instrument (however
characterized or described) to which the Company or any Subsidiary is a party or
by which their properties or businesses are or may be bound or affected and to
which reference is made in the Prospectus has been duly and validly executed, is
in full force and effect in all material respects and is enforceable against the
parties thereto in accordance with its terms, and none of such contracts or
instruments has been assigned by the Company or any Subsidiary, and neither the
Company nor any Subsidiary, nor, to the best of the Company's knowledge, any
other party, is in default thereunder and, to the best of the Company's
knowledge, no event has occurred which, with the lapse of time or the giving of
notice, or both, would constitute a default thereunder.
None of the material provisions of such contracts or
instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company or any Subsidiary or any of their respective assets or businesses,
including, without limitation, those promulgated by the Federal Trade
Commission, including, without limitation, the Federal Telephone Consumer
Protection Act of 1991 and the Federal Telemarketing and Consumer Fraud and
Abuse Prevention Act of 1994 and the rules and regulations promulgated
thereunder.
(v) The employment, consulting and confidentiality
agreements between the Company and between each Subsidiary and its officers,
employees and consultants, described in the Registration Statement, are binding
and enforceable obligations upon the respective parties thereto in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to principles of
equity.
(w) Except as set forth in the Prospectus, the
Company has no employee benefit plans (including, without limitation, profit
sharing and welfare benefit plans) or deferred compensation arrangements that
are subject to the provisions of the Employee Retirement Income Security Act of
1974.
(x) To the best of the Company's knowledge, no labor
problem exists with any of the Company's or any Subsidiary's
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employees or is imminent which could adversely affect the Company or any
Subsidiary.
(y) The Company has not, directly or indirectly, at
any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(z) The Shares have been approved for listing on the
Nasdaq SmallCap Market.
(aa) The Company has provided to Tenzer Greenblatt
LLP, counsel to the Underwriter ("Underwriter's Counsel"), all agreements,
certificates, correspondence and other items, documents and information
requested by such counsel's Corporate Review Memorandum dated January 28, 1998.
Any certificate signed by an officer of the Company
or of any Subsidiary and delivered to the Underwriter or to Underwriter's
Counsel shall be deemed to be a representation and warranty by the Company to
the Underwriter as to the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the Underwriter as follows:
(a) The Company will not at any time, whether before
the Effective Date or thereafter during such period as the Prospectus is
required by law to be delivered in connection with the sales of the Shares by
the Underwriter or a dealer, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Underwriter has not been
previously advised and furnished a copy, or to which the Underwriter shall
object in writing.
(b) The Company will use its best efforts to cause
the Registration Statement to become effective and will advise the Underwriter
immediately, and, if requested by the Underwriter, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information; and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary
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Prospectus, or of the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, or of the initiation of any proceedings for any of
such purposes. The Company will use its best efforts to prevent the issuance of
any such stop order or of any order preventing or suspending such use and to
obtain as soon as possible the lifting thereof, if any such order is issued.
(c) The Company will deliver to the Underwriter,
without charge, from time to time until the Effective Date, as many copies of
each Preliminary Prospectus as the Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to the Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as the Underwriter may
reasonably request. The Company has furnished or will furnish to the Underwriter
two signed copies of the Registration Statement as originally filed and of all
amendments thereto, whether filed before or after the Registration Statement
becomes effective, two copies of all exhibits filed therewith and two signed
copies of all consents and certificates of experts.
(d) The Company will comply with the Act, the
Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder so as to permit the continuance
of sales of and dealings in the Offered Shares and in any Optional Shares which
may be issued and sold. If, at any time when a prospectus relating to the Shares
is required to be delivered under the Act, any event occurs as a result of which
the Registration Statement and Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend or
supplement the Registration Statement and Prospectus to comply with the Act or
the regulations thereunder, the Company will promptly file with the Commission,
subject to Section 5(a) hereof, an amendment or supplement which will correct
such statement or omission or which will effect such compliance.
(e) The Company will furnish such proper informa-
tion as may be required and otherwise cooperate in qualifying the Shares for
offering and sale under the securities or Blue Sky laws relating to the offering
in such jurisdictions as the Underwriter may reasonably designate, provided that
no such qualification will be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
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<PAGE>
(f) The Company will make generally available to its
security holders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Underwriter and Underwriter's Counsel as soon as practicable and
in any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
(g) For a period of five years from the Effective
Date, the Company will deliver to the Underwriter and to Underwriter's Counsel
on a timely basis (i) a copy of each report or document, including, without
limitation, reports on Forms 8-K, 10-C, 10-K (or 10-K SB), 10-Q (or 10-Q SB) and
10-C and exhibits thereto, filed or furnished to the Commission, any securities
exchange or the National Association of Securities Dealers, Inc. (the "NASD") on
the date each such report or document is so filed or furnished; (ii) as soon as
practicable, copies of any reports or communications (financial or other) of the
Company mailed to its security holders; (iii) as soon as practicable, a copy of
any Schedule 13D, 13G, 14D-1 or 13E-3 received or prepared by the Company from
time to time; (iv) monthly statements setting forth such information regarding
the Company's results of operations and financial position (including balance
sheet, profit and loss statements and data regarding outstanding purchase
orders) as is regularly prepared by management of the Company; and (v) such
additional information concerning the business and financial condition of the
Company as the Underwriter may from time to time reasonably request and which
can be prepared or obtained by the Company without unreasonable effort or
expense. The Company will furnish to its shareholders annual reports containing
audited financial statements and such other periodic reports as it may determine
to be appropriate or as may be required by law.
(h) Neither the Company nor any person that con-
trols, is controlled by or is under common control with the Company will take
any action designed to or which might be reasonably expected to cause or result
in the stabilization or manipulation of the price of the Common Shares.
(i) If the transactions contemplated by this
Agreement are consummated, the Underwriter shall retain the $50,000 previously
paid to it, and the Company will pay or cause to be paid the following: all
costs and expenses incident to the performance of the obligations of the Company
under this Agreement, including, but not limited to, the fees and expenses of
accountants and counsel for the Company; the preparation, printing, mailing and
filing of the Registration Statement (including financial statements and
exhibits), Preliminary Prospectuses and the Prospectus, and any amendments or
supplements thereto; the printing and mailing of the Selected Dealer Agreement,
the issuance and delivery of the Shares to the Underwriter; all taxes, if any,
on
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the issuance of the Shares; the fees, expenses and other costs of qualifying the
Shares for sale under the Blue Sky or securities laws of those states in which
the Shares are to be offered or sold, including fees and disbursements of
counsel in connection therewith, and including those of such local counsel as
may have been retained for such purpose; the filing fees incident to securing
any required review by the NASD and either the Boston Stock Exchange or Pacific
Stock Exchange; the cost of printing and mailing the "Blue Sky Survey", the cost
of furnishing to the Underwriter copies of the Registration Statement,
Preliminary Prospectuses and the Prospectus as herein provided; the costs of
placing "tombstone advertisements" in any publications which may be selected by
the Underwriter; and all other costs and expenses incident to the performance of
the Company's obligations hereunder which are not otherwise specifically
provided for in this Section 5(i).
In addition, at the Closing Date or the Option
Closing Date, as the case may be, the Underwriter will deduct from the payment
for the Offered Shares or any Optional Shares three percent (3%) of the gross
proceeds of the offering (less the sum of $50,000 previously paid to the
Underwriter), as payment for the Underwriter's nonaccountable expense allowance
relating to the transactions contemplated hereby, which amount will include the
fees and expenses of Underwriter's Counsel (other than the fees and expenses of
Underwriter's Counsel relating to Blue Sky qualifications and registrations,
which, as provided for above, shall be in addition to the three percent (3%)
nonaccountable expense allowance and shall be payable directly by the Company to
Underwriter's Counsel on or prior to the Closing Date).
(j) If the transactions contemplated by this
Agreement or related hereto because the Company decides not to proceed with the
offering for any reason or because the Underwriter decides not to proceed with
the offering as a result of a breach by the Company of its representations,
warranties or covenants in the Agreement or as a result of adverse changes in
the affairs of the Company, then the Company will be obligated to reimburse the
Underwriter for its accountable out-of-pocket expenses up to the sum of $75,000,
inclusive of $50,000 previously paid to the Underwriter by the Company. In all
cases other than those set forth in the preceding sentence, if the Company or
the Underwriter decide not to proceed with the offering, the Company will only
be obligated to reimburse the Underwriter for its accountable out-of-pocket
expenses up to $50,000, and inclusive of $50,000 previously paid to the
Underwriter by the Company. In no event, however, will the Underwriter, in the
event the offering is terminated, be entitled to retain or receive more than an
amount equal to its actual accountable out-of-pocket expenses.
(k) The Company intends to apply the net proceeds
from the sale of the Shares for the purposes set forth in the Pro- spectus. The
Company will file with the Commission all required
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reports on Form S-R in accordance with the provisions of Rule 463 promulgated
under the Act and will provide a copy of each such report to the Underwriter and
its counsel.
(l) During the period of twelve (12) months from the
Effective Date, (i) neither the Company nor any of its officers, directors or
securityholders will offer for sale or sell or otherwise dispose of, directly or
indirectly, any securities of the Company, in any manner whatsoever, whether
pursuant to Rule 144 of the Regulations or otherwise (the "Lock-Up Period"),
except that, notwithstanding the foregoing, a group of securityholders, each of
which securityholders beneficially owns less than one percent (1%) of the
outstanding Common Shares and all of which securityholders, in the aggregate,
beneficially own less than five percent (5%) of the outstanding Common Shares
(such shareholders being referred to herein as the "Minority Securityholders")
may be excluded from the provisions of this clause, and (ii) no holder of
registration rights relating to securities of the Company will exercise any such
registration rights, in either case, without the prior written consent of the
Underwriter. In addition, for a period of twelve (12) months following the
Lock-Up Period, no officer, director or securityholder beneficially owning 5% or
more of the outstanding Common Shares of the Company (calculated in accordance
with Rule 13d-3(d)(1) under the Exchange Act) (each, a "Principal Shareholder")
may, without the Underwriter's prior written consent, sell any of its Common
Shares during any three (3) month period in excess of the amount that the
Principal Shareholder would be allowed to sell if it were deemed an "affiliate"
of the Company and its shares were deemed "restricted," as those terms are
defined in Rule 144 promulgated under the Act, i.e., in general, no more than
the greater of (a) 1% of the then outstanding Common Shares, and (b) the average
weekly trading volume of the Common Shares during the four calendar weeks
preceding such sale. The Company will deliver to the Underwriter the foregoing
agreements of its officers, directors, securityholders (other than the Minority
Securityholders) and registration rights holders to such effect prior to the
Closing Date.
(m) The Company will not file any registration
statement relating to the offer or sale of any of the Company's securities,
including any registration statement on Form S-8, during the twelve (12) months
from the Effective Date, without the Underwriter's prior written consent.
(n) The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
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recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(o) For a period of five (5) years from the Effective
Date, the Company will, unless and until the holders of a majority of the Common
Shares following the consummation of the Company's initial public offering of
securities vote otherwise, use its best efforts to maintain the listing of the
Shares on NASDAQ and, if so qualified, list the Shares, and maintain such
listing for so long as qualified, on the NASDAQ National Market System.
(p) The Company will, concurrently with the Effective
Date, register the class of equity securities of which the Shares are a part
under Section 12(g) of the Exchange Act and the Company will maintain such
registration for a minimum of five (5) years from the Effective Date.
(q) Subject to the sale of the Offered Shares, the
Underwriter and its successors will have the right to designate a nominee for
election, at its or their option, either as a member of or a non-voting advisor
to the Board of Directors of the Company (which Board, during such period, shall
be comprised of five (5), seven (7) or nine (9) persons, a majority of the
members of which Board must, during such period, be persons not otherwise
affiliated with the Company, its management or its founders), and the Company
will use its best efforts to cause such nominee to be elected and continued in
office as a director of the Company or as such advisor until the expiration of
three (3) years from the Effective Date. Following the election of such nominee
as a director or advisor, such person shall receive no more or less compensation
than is paid to other non-officer directors of the Company for attendance at
meetings of the Board of Directors of the Company and shall be entitled to
receive reimbursement for all reasonable costs incurred in attending such
meetings including, but not limited to, food, lodging and transportation. The
Company agrees to indemnify and hold such director or advisor harmless, to the
maximum extent permitted by law, against any and all claims, actions, awards and
judgments arising out of his service as a director or advisor and, in the event
the Company maintains a liability insurance policy affording coverage for the
acts of its officers and directors, to include such director or advisor as an
insured under such policy. The rights and benefits of such indemnification and
the benefits of such insurance shall, to the extent possible, extend to the
Underwriter insofar as it may be or may be alleged to be responsible for such
director or advisor.
If the Underwriter does not exercise its option to
designate a member of or advisor to the Company's Board of Directors, the
Underwriter shall nonetheless have the right to send a representative (who need
not be the same individual from meeting to meeting) to observe each meeting of
the Board of Directors. The Company agrees to give the Underwriter notice of
each such meeting
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and to provide the Underwriter with an agenda and minutes of the meeting no
later than it gives such notice and provides such items to the directors.
(r) The Company agrees to employ the Underwriter or a
designee of the Underwriter as a financial consultant on a non-exclusive basis
for a period of two (2) years from the Closing Date, pursuant to a separate
written consulting agreement between the Company and the Underwriter and/or such
designee (the "Consulting Agreement"), at an annual rate of Thirty Thousand
Dollars ($30,000) (exclusive of any accountable out-of-pocket expenses) payable
in full, in advance on the Closing Date. In addition, the Consulting Agreement
shall provide that the Company will pay the Underwriter a finder's fee in the
event that the Underwriter originates a financing, merger, acquisition, joint
venture or other transaction to which the Company is a party. The Company
further agrees to deliver a duly and validly executed copy of said Consulting
Agreement, in form and substance acceptable to the Underwriter, on the Closing
Date.
(s) The Company shall retain a transfer agent for the
Common Shares, reasonably acceptable to the Underwriter, for a period of three
(3) years from the Effective Date. In addition, for a period of three (3) years
from the Effective Date, the Company, at its own expense, shall cause such
transfer agent to provide the Underwriter, if so requested in writing, with
copies of the Company's daily transfer sheets, and, when requested by the
Underwriter, a current list of the Company's securityholders, including a list
of the beneficial owners of securities held by a depository trust company and
other nominees.
(t) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to the Underwriter and Underwriter's Counsel,
within a reasonable period from the date hereof, four bound volumes, including
the Registration Statement, as amended or supplemented, all exhibits to the
Registration Statement, the Prospectus and all other underwriting documents.
(u) The Company shall, as of the date hereof, have
applied for listing in Standard & Poor's Corporation Records Service (including
annual report information) or Moody's Industrial Manual (Moody's OTC Industrial
Manual not being sufficient for these purposes) and shall use its best efforts
to have the Company listed in such manual and shall maintain such listing for a
period of five years from the Effective Date.
(v) For a period of five (5) years from the Effective
Date, the Company shall provide the Underwriter, on a not less than annual
basis, with internal forecasts setting forth projected results of operations for
each quarterly and annual period in the two (2) fiscal years following the
respective dates of such forecasts. Such forecasts shall be provided to the
Underwriter more frequently than annually if prepared more
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frequently by management, and revised forecasts shall be prepared and provided
to the Underwriter when required to reflect more current information, revised
assumptions or actual results that differ materially from those set forth in the
forecasts.
(w) For a period of five (5) years from the Effective
Date, or until such earlier time as the Common Shares are listed on the New York
Stock Exchange or the American Stock Exchange, the Company shall cause its legal
counsel to provide the Underwriter with a list, to be updated at least annually,
of those states in which the Common Shares may be traded in non-issuer
transactions under the Blue Sky laws of the 50 states.
(x) For a period of three (3) years from the
Effective Date, the Company shall continue to retain Grant Thornton LLP (or such
other nationally recognized accounting firm acceptable to the Underwriter) as
the Company's independent public accountants.
(y) For a period of three (3) years from the
Effective Date, the Company, at its expense, shall cause its then independent
certified public accountants, as described in Section 5(x) above, to review (but
not audit) the Company's financial statements for each of the first three fiscal
quarters prior to the announcement of quarterly financial information, the
filing of the Company's 10-Q (or 10-QSB) quarterly report (or other equivalent
report) and the mailing of quarterly financial information to shareholders.
(z) For a period of twenty-five (25) days from the
Effective Date, the Company will not issue press releases or engage in any other
publicity without the Underwriter's prior written consent, other than normal and
customary releases issued in the ordinary course of the Company's business or
those releases required by law.
(aa) The Company will not increase or authorize an
increase in the compensation of its five (5) most highly paid (determined as of
the Effective Date) employees greater than those increases provided for in their
employment agreements with the Company in effect as of the Effective Date and
disclosed in the Registration Statement without the prior written consent of the
Underwriter, for a period of three (3) years from the Effective Date.
(ab) For a period of three (3) years from the
Effective Date, the Company will promptly submit to the Underwriter copies of
accountant's management reports and similar correspondence between the Company's
accountants and the Company.
(ac) For a period of three (3) years from the
Effective Date, the Company will not offer or sell any of its
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securities pursuant to Regulation S promulgated under the Act without the prior
written consent of the Underwriter.
(ad) For a period of three (3) years from the
Effective Date, the Company will provide to the Underwriter ten day's written
notice prior to any issuance by the Company or its subsidiaries of any equity
securities or securities exchangeable for or convertible into equity securities
of the Company, except for (i) shares of Common Stock issuable upon exercise of
currently outstanding options and warrants or conversion of currently
outstanding convertible securities, (ii) options available for future grant
pursuant to any stock option plan in effect on the Effective Date and the
issuance of shares of Common Stock upon the exercise of such options and (iii)
securities issuable upon exercise or conversion of securities for which notice
pursuant to this Paragraph 5(ad) was previously given to the Underwriter.
(ae) Prior to the Effective Date and for a period of
three (3) years thereafter, the Company will retain a financial public relations
firm reasonably acceptable to the Underwriter.
(af) For a period of three (3) years from the
Effective Date, the Company will cause its Board of Directors to meet, either in
person or telephonically, a minimum of four (4) times per year and will hold a
shareholder's meeting at least once per annum.
(ag) Prior to the Effective Date, the Company shall
have obtained directors' and officers' insurance naming the Underwriter as an
additional insured party, in an amount equal to twenty-five percent (25%) of the
gross proceeds of the offering, and the Company will maintain such insurance for
a period of at least three (3) years from the Closing Date.
6. Conditions of the Underwriter's Obligation to Purchase
Shares from the Company. The obligation of the Underwriter to purchase and pay
for the Offered Shares which it has agreed to purchase from the Company is
subject (as of the date hereof and the Closing Date) to the accuracy of and
compliance in all material respects with the representations and warranties of
the Company herein, to the accuracy of the statements of the Company or its
officers made pursuant hereto, to the performance in all material respects by
the Company of its obligations hereunder, and to the following additional
conditions:
(a) The Registration Statement will have become
effective not later than .M., New York City time, on the day following the date
of this Agreement, or at such later time or on such later date as the
Underwriter may agree to in writing; prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement will have been issued
and no proceedings for that purpose will have been initiated or will be pending
or, to the best of the Underwriter's or the Company's knowledge, will be
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contemplated by the Commission; and any request on the part of the Commission
for additional information will have been complied with to the satisfaction of
Underwriter's Counsel.
(b) At the time that this Agreement is executed and
at the Closing Date, there will have been delivered to the Underwriter a signed
opinion of Troop Meisinger Steuber & Pasich, LLP, counsel for the Company
("Company Counsel"), dated as of the date hereof or the Closing Date, as the
case may be (and any other opinions of counsel referred to in such opinion of
Company Counsel or relied upon by Company Counsel in rendering their opinion),
reasonably satisfactory to Underwriter's Counsel, to the effect that:
(i) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full power and authority, corporate and other, and with all
Permits necessary to own or lease, as the case may be, and operate its
properties, whether tangible or intangible, and to conduct its business as
described in the Registration Statement. The Company is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
wherein such qualification is necessary and failure so to qualify could have a
material adverse effect on the financial condition, results of operations,
business or properties of the Company. To the best of Company Counsel's
knowledge, other than the Subsidiaries, the Company has no subsidiaries and no
equity interests in any entity other than the Subsidiaries.
Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the state of
California, with full power and authority, corporate or other, to own or lease
and operate, as the case may be, its respective properties, whether tangible or
intangible, and to conduct its respective business as described in the
Registration Statement. Each Subsidiary is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure to so qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of such Subsidiary.
The Company owns all of the issued and
outstanding shares of capital stock of each Subsidiary, free and clear of any
security interests, liens, encumbrances, claims and charges, and all of such
shares have been duly authorized and validly issued and are fully paid and
nonassessable.
(ii) The Company has full power and
authority, corporate and other, to execute, deliver and perform this Agreement,
the Consulting Agreement and the Underwriter's Warrant Agreement and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement, the Consulting Agreement and the
Underwriter's
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Warrant Agreement by the Company, the consummation by the Company of the
transactions herein and therein contemplated and the compliance by the Company
with the terms of this Agreement, the Consulting Agreement and the Underwriter's
Warrant Agreement have been duly authorized by all necessary corporate action,
and this Agreement [Note: for Closing Date opinion add:] [and each of the
Consulting Agreement and the Underwriter's Warrant Agreement] has been duly
executed and delivered by the Company. This Agreement is (assuming for the
purposes of this opinion that it is valid and binding upon the other party
thereto) and, when executed and delivered by the Company on the Closing Date,
each of the Consulting Agreement and] the Underwriter's Warrant Agreement will
be, valid and binding obligations of the Company, enforceable in accordance with
their respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and except that enforceability of the indemnification provisions set
forth in Section 7 hereof and the contribution provisions set forth in Section 8
hereof may be limited by the federal securities laws or public policy underlying
such laws.
(iii) The execution, delivery and perfor-
mance of this Agreement, the Consulting Agreement and the Underwriter's Warrant
Agreement by the Company, the consummation by the Company of the transactions
herein and therein contemplated and the compliance by the Company with the terms
of this Agreement, the Consulting Agreement and the Underwriter's Warrant
Agreement do not, and will not, with or without the giving of notice or the
lapse of time, or both, (A) result in a violation of the Certificate of
Incorporation or By-Laws, each as amended, of the Company or any Subsidiary, (B)
result in a breach of or conflict with any terms or provisions of, or constitute
a default under, or result in the modification or termination of, or result in
the creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company or any Subsidiary pursuant
to any indenture, mortgage, note, contract, commitment or other material
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any of the Company's or any Subsidiary's
properties or assets are or may be bound or affected; (C) violate any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any Subsidiary or any of the Company's or any Subsidiary's properties or
business; or (D) have any effect on any Permit necessary for the Company or any
Subsidiary to own or lease and operate its their respective properties or
conduct their businesses or the ability of the Company to make use thereof.
(iv) To the best of Company Counsel's
knowledge, no Permits of any court or governmental agency or body (other than
under the Act, the Regulations and applicable state
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securities or Blue Sky laws) are required for the valid authorization, issuance,
sale and delivery of the Shares or the Underwriter's Warrants to the
Underwriter, and the consummation by the Company of the transactions
contemplated by this Agreement, the Consulting Agreement or the Underwriter's
Warrant Agreement.
(v) The Registration Statement has become
effective under the Act; to the best of Company Counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been instituted or are pending,
threatened or contemplated under the Act or applicable state securities laws.
(vi) The Registration Statement and the
Prospectus, as of the Effective Date, and each amendment or supplement thereto
as of its effective or issue date (except for the financial statements and other
financial data included therein or omitted therefrom, as to which Company
Counsel need not express an opinion) comply as to form in all material respects
with the requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.
(vii) The descriptions in the Registration
Statement and the Prospectus of statutes, regulations, government
classifications, contracts and other documents (including opinions of such
counsel); and the response to Item 13 of Form SB-2 have been reviewed by Company
Counsel, and, based upon such review, are accurate in all material respects and
present fairly the information required to be disclosed, and there are no
material statutes, regulations or government classifications, or, to the best of
Company Counsel's knowledge, material contracts or documents, of a character
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement, which are not so described
or filed as required.
None of the material provisions of the
contracts or instruments described above violates any existing applicable law,
rule, regulation, judgment, order or decree of any governmental agency or court
having jurisdiction over the Company or any Subsidiary or any of their assets or
businesses, including, without limitation, those promulgated by the Federal
Trade Commission, including, without limitation, the Federal Telephone Consumer
Protection Act of 1991 and the Federal Telemarketing and Consumer Fraud and
Abuse Prevention Act of 1994 and the rules and regulations promulgated
thereunder.
(viii) The outstanding Common Shares and
Preferred Shares and outstanding options and warrants to purchase Common Shares
have been duly authorized and validly issued. The outstanding Common Shares and
Preferred Shares are fully paid and nonassessable. The outstanding options and
warrants to purchase
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Common Shares constitute the valid and binding obligations of the Company,
enforceable in accordance with their terms. None of the outstanding Common
Shares, Preferred Shares or options or warrants to purchase Common Shares has
been issued in violation of the preemptive rights of any stockholder of the
Company. None of the holders of the outstanding Common Shares or Preferred
Shares is subject to personal liability solely by reason of being such a holder.
The offers and sales of the outstanding Common Shares and Preferred Shares and
outstanding options and warrants to purchase Common Shares were at all relevant
times either registered under the Act and the applicable state securities or
Blue Sky laws or exempt from such registration requirements. The authorized
Common Shares and Preferred Shares and outstanding options and warrants to
purchase Common Shares conform to the descriptions thereof contained in the
Registration Statement and Prospectus. To the best of Company Counsel's
knowledge, except as set forth in the Prospectus, no holders of any of the
Company's securities has any rights, "demand", "piggyback" or otherwise, to have
such securities registered under the Act.
(ix) The issuance and sale of the Shares
have been duly authorized and, when the Shares have been issued and duly
delivered against payment therefor as contemplated by this Agreement, the Shares
will be validly issued, fully paid and nonassessable, and the holders thereof
will not be subject to personal liability solely by reason of being such
holders. The Shares are not subject to preemptive rights of any shareholder of
the Company. The certificates representing the Shares are in proper legal form.
(x) The issuance and sale of the Common
Shares issuable upon exercise of the Underwriter's Warrants have been duly
authorized and, when such Common Shares have been duly delivered against payment
therefor, as contemplated by the Underwriter's Warrant Agreement, such Common
Shares will be validly issued, fully paid and nonassessable. Holders of Common
Shares issuable upon exercise of the Underwriter's Warrants will not be subject
to personal liability solely by reason of being such holders. Neither the
Underwriter's Warrants nor the Common Shares issuable upon exercise thereof will
be subject to preemptive rights of any shareholder of the Company. The Warrant
Shares issuable upon exercise of the Underwriter's Warrants have been duly
reserved for issuance upon exercise of the Underwriter's Warrants in accordance
with the provisions of the Underwriter's Warrant Agreement. The Underwriter's
Warrants conform to the descriptions thereof in the Registration Statement and
Prospectus.
(xi) Upon delivery of the Offered Shares to
the Underwriter against payment therefor as provided in this Agreement, the
Underwriter (assuming it is a bona fide purchaser within the meaning of the
Uniform Commercial Code) will acquire good title to the Offered Shares, free and
clear of all liens, encumbrances, equities, security interests and claims.
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(xii) Assuming that the Underwriter exer-
cises the over-allotment option to purchase any of the Optional Shares and makes
payment therefor in accordance with the terms of this Agreement, upon delivery
of the Optional Shares to the Underwriter hereunder, the Underwriter (assuming
it is a bona fide purchaser within the meaning of the Uniform Commercial Code)
will acquire good title to such Optional Shares, free and clear of any liens,
encumbrances, equities, security interests and claims.
(xiii) To the best of Company Counsel's
knowledge, there are no claims, actions, suits, proceedings, arbitrations,
investigations or inquiries before any governmental agency, court or tribunal,
foreign or domestic, or before any private arbitration tribunal, pending or
threatened against the Company or any Subsidiary, or involving the Company's or
any Subsidiary's properties or businesses, other than as described in the
Prospectus, such description being accurate, and other than litigation incident
to the kind of business conducted by the Company which, individually and in the
aggregate, is not material.
(xiv) The Company and each Subsidiary each
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, rights, trade secrets,
confidential information, processes and formulations used or proposed to be used
in the conduct of its business as described in the Prospectus (collectively the
"Intangibles"); to the best of Company Counsel's knowledge, neither the Company
nor any Subsidiary has infringed nor is infringing with the rights of others
with respect to the Intangibles; and, to the best of Company Counsel's
knowledge, neither the Company nor any Subsidiary has received any notice that
it has or may have infringed, is infringing upon or is conflicting with the
asserted rights of others with respect to the Intangibles which might, singly or
in the aggregate, materially adversely affect its business, results of
operations or financial condition and such counsel is not aware of any licenses
with respect to the Intangibles which are required to be obtained by the
Company. The opinions described in this Section 6(b)(xiv) may be given by
Company Counsel in reliance on the opinion of an attorney, reasonably acceptable
to Underwriter's Counsel, practicing in the patent area.
(xv) Company Counsel has participated in
reviews and discussions in connection with the preparation of the Registration
Statement and the Prospectus, and in the course of such reviews and discussions
and such other investigation as Company Counsel deemed necessary, no facts came
to its attention which lead it to believe that (A) the Registration Statement
(except as to the financial statements and other financial data contained
therein, as to which Company Counsel need not express an opinion), on the
Effective Date, contained any untrue statement of a material fact required to be
stated therein or omitted to state any material fact required to be stated
therein or necessary to
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make the statements therein, in light of the circumstances under which they were
made, not misleading, or that (B) the Prospectus (except as to the financial
statements and other financial data contained therein, as to which Company
Counsel need not express an opinion) contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering its opinion pursuant to this
Section 6(b), Company Counsel may rely upon the certificates of government
officials and officers of the Company as to matters of fact, provided that
Company Counsel shall state that they have no reason to believe, and do not
believe, that they are not justified in relying upon such opinions or such
certificates of government officials and officers of the Company as to matters
of fact, as the case may be.
The opinion letter delivered pursuant to
this Section 6(b) shall state that any opinion given therein qualified by the
phrase "to the best of our knowledge" is being given by Company Counsel after
due investigation of the matters therein discussed.
(c) At the Closing Date, there will have been
delivered to the Underwriter a signed opinion of Underwriter's Counsel, dated as
of the Closing Date, to the effect that the opinions delivered pursuant to
Section 6(b) hereof appear on their face to be appropriately responsive to the
requirements of this Agreement, except to the extent waived by the Underwriter,
specifying the same, and with respect to such related matters as the Underwriter
may require.
(d) At the Closing Date (i) the Registration State-
ment and the Prospectus and any amendments or supplements thereto will contain
all material statements which are required to be stated therein in accordance
with the Act and the Regulations and will conform in all material respects to
the requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
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 under which they were made, not misleading; (ii)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicate might occur after the Effective Date; (iii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have been no material transaction, contract
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or agreement entered into by the Company, other than in the ordinary course of
business, which would be required to be set forth in the Registration Statement
and the Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
knowledge, threatened against the Company which is required to be set forth in
the Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or finding would materially adversely affect the business, property,
financial condition or results of operations of the Company, other than as set
forth in the Registration Statement and the Prospectus. At the Closing Date,
there will be delivered to the Underwriter a certificate signed by the Chairman
of the Board or the President or a Vice President of the Company, dated the
Closing Date, evidencing compliance with the provisions of this Section 6(d) and
stating that the representations and warranties of the Company set forth in
Section 4 hereof were accurate and complete in all material respects when made
on the date hereof and are accurate and complete in all material respects on the
Closing Date as if then made; that the Company has performed all covenants and
complied with all conditions required by this Agreement to be performed or
complied with by the Company prior to or as of the Closing Date; and that, as of
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or, to the best of his knowledge, are contemplated or threatened. In
addition, the Underwriter will have received such other and further certificates
of officers of the Company as the Underwriter or Underwriter's Counsel may
reasonably request.
(e) At the time that this Agreement is executed and
at the Closing Date, the Underwriter will have received a signed letter from
Grant Thornton LLP, dated the date such letter is to be received by the
Underwriter and addressed to it, confirming that it is a firm of independent
public accountants within the meaning of the Act and Regulations and stating
that: (i) insofar as reported on by them, in their opinion, the financial
statements of the Company included in the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the Act and the
applicable Regulations; (ii) on the basis of procedures and inquiries (not
constituting an examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim financial statements
of the Company, if any, appearing in the Registration Statement and the
Prospectus and the latest available unaudited interim financial statements of
the Company, if more recent than that appearing in the Registration Statement
and Prospectus, inquiries of officers of the Company responsible for financial
and accounting matters as to the transactions and events subsequent to the date
of the latest audited financial statements of the Company, and a reading of the
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minutes of meetings of the shareholders, the Board of Directors of the Company
and any committees of the Board of Directors, as set forth in the minute books
of the Company, nothing has come to their attention which, in their judgment,
would indicate that (A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three business days prior to the date of such
letter, there have been any decreases in net current assets or net assets as
compared with amounts shown in such financial statements or decreases in net
sales or decreases [increases] in total or per share net income [loss] compared
with the corresponding period in the preceding year or any change in the
capitalization or long-term debt of the Company, except in all cases as set
forth in or contemplated by the Registration Statement and the Prospectus, and
(B) the unaudited interim financial statements of the Company, if any, appearing
in the Registration Statement and the Prospectus, do not comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Regulations or are not fairly presented in conformity with generally
accepted accounting principles and practices on a basis substantially consistent
with the audited financial statements included in the Registration Statement or
the Prospectus; and (iii) they have compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel) with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(f) There shall have been duly tendered to the
Underwriter certificates representing the Offered Shares to be sold on the
Closing Date.
(g) The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the Shares
by the Underwriter.
(h) No action shall have been taken by the Commission
or the NASD the effect of which would make it improper, at any time prior to the
Closing Date or the Option Closing Date, as the case may be, for any member firm
of the NASD to execute transactions (as principal or as agent) in the Shares,
and no proceedings for the purpose of taking such action shall have been
instituted or shall be pending, or, to the best of the Underwriter's or the
Company's knowledge, shall be contemplated by the
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Commission or the NASD. The Company represents at the date hereof, and shall
represent as of the Closing Date or Option Closing Date, as the case may be,
that it has no knowledge that any such action is in fact contemplated by the
Commission or the NASD.
(i) The Company meets the current and any existing
and proposed criteria for inclusion of the Shares in Nasdaq.
(j) All proceedings taken at or prior to the Closing
Date or the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares shall be reasonably satisfactory
in form and substance to the Underwriter and to Underwriter's Counsel, and such
counsel shall have been furnished with all such documents, certificates and
opinions as they may request for the purpose of enabling them to pass upon the
matters referred to in Section 6(c) hereof and in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of the
Company, the performance of any covenants of the Company, or the compliance by
the Company with any of the conditions herein contained.
(k) As of the date hereof, the Company will have
delivered to the Underwriter the written undertakings of its officers, directors
and securityholders and/or registration rights holders, as the case may be, to
the effect of the matters set forth in Sections 5(l).
If any of the conditions specified in this Section
6 have not been fulfilled, this Agreement may be terminated by the Underwriter
on notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless
the Underwriter, each officer, director, partner, employee and agent of the
Underwriter, and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Underwriter
and each such person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement, in any Preliminary Prospectus or in the
Prospectus (or the Registration Statement or Prospectus as from time to time
amended or supplemented) or (ii) in any application or other document executed
by the Company, or based upon written information furnished by or
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on behalf of the Company, filed in any jurisdiction in order to qualify the
Shares under the securities laws thereof (hereinafter "application"), 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 in order to make the
statements therein not misleading, in light of the circumstances under which
they were made, unless such untrue statement or omission was made in such
Registration Statement, Preliminary Prospectus, Prospectus or application in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by the Underwriter or any such person through
the Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 7(a) with respect to any Preliminary
Prospectus will not inure to the benefit of the Underwriter (or to the benefit
of any other person that may be indemnified pursuant to this Section 7(a)) if
(A) the person asserting any such losses, claims, damages, expenses or
liabilities purchased the Shares which are the subject thereof from the
Underwriter or other indemnified person; (B) the Underwriter or other
indemnified person failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation of the sale of such Shares to
such person; and (C) the Prospectus did not contain any untrue statement or
alleged untrue statement or omission or alleged omission giving rise to such
cause, claim, damage, expense or liability.
(b) The Underwriter agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions in respect thereof), to which they or
any of them may become subject under the Act or under any other statute or at
common law or otherwise, and, except as hereinafter provided, will reimburse the
Company and each such director, officer or controlling person for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application (including any application for registration of the Shares under
state securities or Blue Sky laws), 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 in order to make the statements therein not
misleading, in light of the circumstances under which they were made, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by the Underwriter expressly for use therein.
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(c) Promptly after receipt of notice of the
commencement of any action in respect of which indemnity may be sought against
any indemnifying party under this Section 7, the indemnified party will notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party will, subject to the provisions hereinafter stated, assume
the defense of such action (including the employment of counsel satisfactory to
the indemnified party and the payment of expenses) insofar as such action
relates to an alleged liability in respect of which indemnity may be sought
against the indemnifying party. After notice from the indemnifying party of its
election to assume the defense of such claim or action, the indemnifying party
shall no longer be liable to the indemnified party under this Section 7 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the reasonable judgment of the
indemnified party or parties, it is advisable for the indemnified party or
parties to be represented by separate counsel, the indemnified party or parties
shall have the right to employ a single counsel to represent the indemnified
parties who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the indemnified parties thereof against the
indemnifying party, in which event the fees and expenses of such separate
counsel shall be borne by the indemnifying party. Any party against whom
indemnification may be sought under this Section 7 shall not be liable to
indemnify any person that might otherwise be indemnified pursuant hereto for any
settlement of any action effected without such indemnifying party's consent,
which consent shall not be unreasonably withheld.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 7 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for indemnification may not be enforced, even though
this Agreement expressly provides for indemnification in such case; or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including, for this purpose, any
contribution made by or on behalf of any director of the Company, any officer of
the Company who signed the Registration Statement and any controlling person of
the Company) as one entity and the Underwriter (including, for this purpose, any
contribution by or on behalf of each person, if any, who controls the
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and each officer, director, partner, employee and agent of the
Underwriter) as a second entity, shall contribute to the losses, liabilities,
claims, damages and expenses whatsoever to which any of them may be subject, so
that the Underwriter is responsible for the proportion thereof equal to the
percentage which the underwriting discount per Share set forth on the cover page
of the Prospectus represents of the initial public offering price per Share set
forth on the cover page of the
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Prospectus and the Company is responsible for the remaining portion; provided,
however, that if applicable law does not permit such allocation, then, if
applicable law permits, other relevant equitable considerations such as the
relative fault of the Company and the Underwriter in connection with the facts
which resulted in such losses, liabilities, claims, damages and expenses shall
also be considered. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission or
alleged omission relates to information supplied by the Company or by the
Underwriter, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement, alleged statement,
omission or alleged omission. The Company and the Underwriter agree that it
would be unjust and inequitable if the respective obligations of the Company and
the Underwriter for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages and expenses or
by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 8. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and each officer, director, partner, employee and
agent of the Underwriter will have the same rights to contribution as the
Under-writer, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 8 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act or the Exchange
Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Shares.
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10. Termination of Agreement.
(a) The Company, by written or telegraphic notice to
the Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Shares for public offering. The time when the
Underwriter "releases the Offered Shares for public offering" for the purposes
of this Section 10 means the time when the Underwriter releases for publication
the first newspaper advertisement, which is subsequently published, relating to
the Offered Shares, or the time when the Underwriter releases for delivery to
members of a selling group copies of the Prospectus and an offering letter or an
offering telegram relating to the Offered Shares, whichever will first occur.
(b) This Agreement, including without limitation, the
obligation to purchase the Shares and the obligation to purchase the Optional
Shares after exercise of the option referred to in Section 3 hereof, are subject
to termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares or such
Optional Shares, as the case may be, if, prior to such time, any of the
following shall have occurred: (i) the Company withdraws the Registration
Statement from the Commission or the Company does not or cannot expeditiously
proceed with the public offering; (ii) the representations and warranties in
Section 4 hereof are not materially correct or cannot be complied with; (iii)
trading in securities generally on the New York Stock Exchange or the American
Stock Exchange will have been suspended; (iv) limited or minimum prices will
have been established on either such Exchange; (v) a banking moratorium will
have been declared either by federal or New York State authorities; (vi) any
other restrictions on transactions in securities materially affecting the free
market for securities or the payment for such securities, including the Offered
Shares or the Optional Shares, will be established by either of such Exchanges,
by the Commission, by any other federal or state agency, by action of the
Congress or by Executive Order; (vii) trading in any securities of the Company
shall have been suspended or halted by any national securities exchange, the
NASD or the Commission; (viii) there has been a materially adverse change in the
condition (financial or otherwise), prospects or obligations of the Company;
(ix) the Company will have sustained a material loss, whether or not insured, by
reason of fire, flood, accident or other calamity; (x) any action has been taken
by the government of the United States or any department or agency thereof
which, in the judgment of the Underwriter, has had a material adverse effect
upon the market or potential market for securities in general; or (xi) the
market for securities in general or political, financial or economic conditions
will have so materially adversely changed that, in the judgment of the
Underwriter, it will be impracticable to
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<PAGE>
offer for sale, or to enforce contracts made by the Underwriter for the resale
of, the Offered Shares or the Optional Shares, as the case may be.
(c) If this Agreement is terminated pursuant to
Section 6 hereof or this Section 10 or if the purchases provided for herein are
not consummated because any condition of the Underwriter's obligations hereunder
is not satisfied or because of any refusal, inability or failure on the part of
the Company to comply with any of the terms or to fulfill any of the conditions
of this Agreement, or if for any reason the Company shall be unable to or does
not perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this
Agreement.
11. Information Furnished by the Underwriter to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and
8 hereof, the only information given by the Underwriter to the Company for use
in the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Shares, the information
in the __ paragraph on page __ with respect to concessions and reallowances, and
the information in the ___ paragraph on page ___ with respect to the
determination of the public offering price, as such information appears in any
Preliminary Prospectus and in the Prospectus.
12. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telegraphed to, the
following addresses: if to the Underwriter, to Whale Securities Co., L.P.,
Attention: William G. Walters, 650 Fifth Avenue, New York, New York 10019, with
a copy to Tenzer Greenblatt LLP, Attention: Robert J. Mittman, Esq., 405
Lexington Avenue, New York, New York 10174; if to the Company, addressed to it
at Gary Player Golf, Inc., Attention: Joseph J. White, President and Chief
Executive Officer, 2811 Airpark Drive, Santa Maria, California 93455, with a
copy to Troop Meisinger Steuber & Pasich, LLP, Attention: Alan B. Spatz, Esq.,
10940 Wilshire Boulevard, Los Angeles, California 90024.
This Agreement shall be deemed to have been made and
delivered in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United
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<PAGE>
States District Court for the Southern District of New York, (2) waives any
objection which the Company may have now or hereafter to the venue of any such
suit, action or proceeding, and (3) irrevocably consents to the jurisdiction of
the New York State Supreme Court, County of New York, and the United States
District Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company mailed by certified mail to the Company's address shall
be deemed in every respect effective service of process upon the Company, in any
such suit, action or proceeding.
13. Parties in Interest. This Agreement is made solely for the
benefit of the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares from the
Underwriter, as such purchaser.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
GARY PLAYER GOLF, INC.
By: ______________________________
Name:
Title:
Confirmed and accepted in New York, N.Y., as of the date first above written:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By: _______________________________
Name:
Title:
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<PAGE>
SCHEDULE A
(Subsidiaries of the Company)
1. Rhino Marketing, Inc.
c/o Gary Player Golf, Inc.
2811 Airpark Drive
Santa Maria, California 93455
(805) 346-1600
2. Gran Prix Marketing, Inc.
c/o Gary Player Golf, Inc.
2811 Airpark Drive
Santa Maria, California 93455
(805) 346-1600
<PAGE>
WARRANT AGREEMENT dated as of ______, 1998 between Gary Player
Golf, Inc., a Delaware corporation with executive offices located at 2811
Airpark Drive, Santa Maria, California 93455 (the "Company"), and Whale
Securities Co., L.P., with executive offices located at 650 Fifth Avenue, New
York, New York 10019 (hereinafter referred to as the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter
warrants (the "Warrants") to purchase up to 170,000 (as such number may be
adjusted from time to time pursuant to Article 8 of this Agreement) shares (the
"Shares") of common stock, par value $.001 per share (the "Common Stock"), of
the Company; and
WHEREAS, the Underwriter has agreed, pursuant to the
underwriting agreement (the "Underwriting Agreement") dated ____________, 1998
between the Underwriter and the Company, to act as the underwriter in connection
with the Company's proposed public offering (the "Public Offering") of 1,700,000
shares of Common Stock (the "Public Shares") at an initial public offering price
of $8.00 per Public Share; and
WHEREAS, the Warrants issued pursuant to this Agreement are
being issued by the Company to the Underwriter or to its designees who are
officers and partners of the Underwriter or to members of the selling group
participating in the distribution of the Public Shares to the public in the
Public Offering and/or their respective officers or partners (collectively, the
"Designees"), in consideration for, and as part of the Underwriter's
compensation in
<PAGE>
connection with, the Underwriter acting as the Underwriter pursuant to the
Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Underwriter to the Company of ONE HUNDRED SEVENTY DOLLARS ($170.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant.
The Underwriter, and/or the Designees are hereby granted the
right to purchase, at any time from __________, 1998 until 5:00 P.M., New York
time, on _______, 2003 (the "Warrant Exercise Term"), up to 170,000 fully-paid
and non-assessable Shares at an initial exercise price (subject to adjustment as
provided in Article 8 hereof) of $13.20 per Share.
2. Warrant Certificates.
The warrant certificates delivered and to be delivered
pursuant to this Agreement (the "Warrant Certificates") shall be in the form set
forth in Exhibit A attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. Exercise of Warrant.
3.1. Cash Exercise. The Warrants initially are
exercisable at a price of $13.20 per Share, payable in cash or by check to the
order of the Company, or any combination thereof, subject to adjustment as
provided in Article 8 hereof. Upon surrender of the Warrant Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of the
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<PAGE>
Exercise Price (as hereinafter defined) for the Shares purchased, at the
Company's principal offices (currently located at 2811 Airpark Drive, Santa
Maria, California 93455), the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional Shares). In the case of the purchase
of less than all the Shares purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Shares purchasable thereunder.
3.2. Cashless Exercise. At any time during the
Warrant Exercise Term, the Holder may, at the Holder's option, exchange, in
whole or in part, the Warrants represented by such Holder's Warrant Certificate
(a "Warrant Exchange"), into the number of Shares determined in accordance with
this Section 3.2, by surrendering such Warrant Certificate at the principal
office of the Company or at the office of its transfer agent, accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Warrants to be so exchanged and the date on which the Holder requests that such
Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall
take place on the date specified in the Notice of Exchange or, if later, the
date the Notice of Exchange is received by the Company (the "Exchange Date").
Certificates for the Shares issuable upon such Warrant
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<PAGE>
Exchange and, if applicable, a new Warrant Certificate of like tenor
representing the Warrants which were subject to the surrendered Warrant
Certificate and not included in the Warrant Exchange, shall be issued as of the
Exchange Date and delivered to the Holder within three (3) days following the
Exchange Date. In connection with any Warrant Exchange, the Holder shall be
entitled to subscribe for and acquire (i) the number of Shares (rounded to the
next highest integer) which would, but for the Warrant Exchange, then be
issuable pursuant to the provision of Section 3.1 above upon the exercise of the
Warrants specified by the Holder in its Notice of Exchange (the "Total Number")
less (ii) the number of Shares equal to the quotient obtained by dividing (a)
the product of the Total Number and the existing Exercise Price (as hereinafter
defined) by (b) the Market Price (as hereinafter defined) of a Public Share on
the day preceding the Warrant Exchange. "Market Price" at any date shall be
deemed to be the last reported sale price, or, in case no such reported sales
takes place on such day, the average of the last reported sale prices for the
last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading or as reported in the NASDAQ National market System, or, if the Common
Stock is not listed or admitted to trading on any national securities exchange
or quoted on the NASDAQ National Market System, the closing bid price as
furnished by (i) the National Association of Securities Dealers, Inc. through
NASDAQ or (ii) a similar organization if NASDAQ is no longer reporting such
information.
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<PAGE>
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of
certificates for the Shares purchased shall be made forthwith (and in any event
within three (3) business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Article 5 hereof) be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the
Shares shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman or Vice Chairman of the Board of
Directors, Chief Executive Officer or President or Vice President of the Company
under its corporate seal reproduced thereon, attested to by the manual or
facsimile signature of the present or any future Secretary or Assistant
Secretary of the Company. Warrant Certificates shall be dated the date of
execution by the Company
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<PAGE>
upon initial issuance, division, exchange, substitution or transfer.
Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares shall bear a legend substantially similar
to the following:
"The securities represented by this certificate have not been
registered for purposes of public distribution under the Securities Act
of 1933, as amended (the "Act"), and may not be offered or sold except
(i) pursuant to an effective registration statement under the Act, (ii)
to the extent applicable, pursuant to Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of securities),
or (iii) upon the delivery by the holder to the Company of an opinion
of counsel, reasonably satisfactory to counsel to the Company, stating
that an exemption from registration under such Act is available."
5. Restriction on Transfer of Warrants.
The Holder of a Warrant Certificate, by the Holder's
acceptance thereof, covenants and agrees that the Warrants are being acquired as
an investment and not with a view to the distribution thereof, and that the
Warrants may not be sold, transferred, assigned, hypothecated or otherwise
disposed of, in whole or in part, for a period of one (1) year from the date
hereof, except to the Designees.
6. Price.
6.1. Initial and Adjusted Exercise Price. The initial
exercise price of each Warrant shall be $13.20 per Share. The adjusted exercise
price per Share shall be the price which shall result from time to time from any
and all adjustments of the initial exercise price per Share in accordance with
the provisions of Article 8 hereof.
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<PAGE>
6.2. Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
7. Registration Rights.
7.1. Registration Under the Securities Act of 1933.
None of the Warrants or Shares have been registered for purposes of public
distribution under the Securities Act of 1933, as amended (the "Act").
7.2. Registrable Securities. As used herein the term
"Registrable Security" means each of the Warrants, the Shares and any shares of
Common Stock issued upon any stock split or stock dividend in respect of such
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the Act and
disposed of pursuant thereto, (ii) registration under the Act is no longer
required for the subsequent public distribution of such security or (iii) it has
ceased to be outstanding. The term "Registrable Securities" means any and/or all
of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 7.
-7-
<PAGE>
7.3. Piggyback Registration. If, at any time during
the seven years following the effective date of the Public Offering, the Company
proposes to prepare and file one or more post-effective amendments to the
registration statement filed in connection with the Public Offering or any new
registration statement or post-effective amendments thereto covering equity or
debt securities of the Company, or any such securities of the Company held by
its shareholders (in any such case, other than in connection with a merger,
acquisition or pursuant to Form S-8 or successor form), (for purposes of this
Article 7, collectively, the "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at least thirty
(30) business days prior to the filing of each such Registration Statement, to
all holders of the Registrable Securities. Upon the written request of such a
holder (a "Requesting Holder"), made within twenty (20) business days after
receipt of the Notice, that the Company include any of the Requesting Holder's
Registrable Securities in the proposed Registration Statement, the Company
shall, as to each such Requesting Holder, use its best efforts to effect the
registration under the Act of the Registrable Securities which it has been so
requested to register ("Piggyback Registration"), at the Company's sole cost and
expense and at no cost or expense to the Requesting Holders.
7.4. Demand Registration.
(a) At any time during the Warrant Exercise Term, any
"Majority Holder" (as such term is defined in Section 7.4(c) below) of the
Registrable Securities shall have the right
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<PAGE>
(which right is in addition to the piggyback registration rights provided for
under Section 7.3 hereof), exercisable by written notice to the Company (the
"Demand Registration Request"), to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, at the
sole expense of the Company (except as provided in Section 7.5(b) hereof), a
Registration Statement and such other documents, including a prospectus, as may
be necessary (in the opinion of both counsel for the Company and counsel for
such Majority Holder), in order to comply with the provisions of the Act, so as
to permit a public offering and sale of the Registrable Securities by the
holders thereof. The Company shall use its best efforts to cause the
Registration Statement to become effective under the Act, so as to permit a
public offering and sale of the Registrable Securities by the holders thereof.
Once effective, the Company will use its best efforts to maintain the
effectiveness of the Registration Statement until the earlier of (i) the date
that all of the Registrable Securities have been sold or (ii) the date that the
holders of the Registrable Securities receive an opinion of counsel to the
Company that all of the Registrable Securities may be freely traded (without
limitation or restriction as to quantity or timing and without registration
under the Act) under Rule 144(k) promulgated under the Act or otherwise.
(b) The Company covenants and agrees to give
written notice of any Demand Registration Request to all holders of the
Registrable Securities within ten (10) business days from the date of the
Company's receipt of any such Demand Registration
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<PAGE>
Request. After receiving notice from the Company as provided in this Section
7.4(b), holders of Registrable Securities may request the Company to include
their Registrable Securities in the Registration Statement to be filed pursuant
to Section 7.4(a) hereof by notifying the Company of their decision to have such
securities included within ten (10) days of their receipt of the Company's
notice.
(c) The term "Majority Holder" as used in
Section 7.4 hereof shall mean any holder or any combination of holders of
Registrable Securities, if included in such holders' Registrable Securities are
that aggregate number of shares of Common Stock (including Shares already issued
and Shares issuable pursuant to the exercise of outstanding Warrants) as would
constitute a majority of the aggregate number of Shares (including Shares
already issued and Shares issuable pursuant to the exercise of outstanding
Warrants) included in all the Registrable Securities.
7.5. Covenants of the Company With Respect to
Registration. The Company covenants and agrees as follows:
(a) In connection with any registration
under Section 7.4 hereof, the Company shall file the Registration Statement as
expeditiously as possible, but in any event no later than twenty (20) days
following receipt of any demand therefor, shall use its best efforts to have any
such Registration Statement declared effective at the earliest possible time,
and shall furnish each holder of Registrable Securities such number of
prospectuses as shall reasonably be requested.
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<PAGE>
(b) The Company shall pay all costs, fees
and expenses (other than underwriting fees, discounts and nonaccountable expense
allowance applicable to the Registrable Securities and the fees and expenses of
counsel retained by the holders of Registrable Securities) in connection with
all Registration Statements filed pursuant to Sections 7.3 and 7.4(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, and blue sky fees and expenses.
(c) The Company will take all necessary
action which may be required in qualifying or registering the Registrable
Securities included in the Registration Statement for offering and sale under
the securities or blue sky laws of such states as are reasonably requested by
the holders of such securities.
(d) The Company shall indemnify any holder
of the Registrable Securities to be sold pursuant to any Registration Statement
and any underwriter or person deemed to be an underwriter under the Act and each
person, if any, who controls such holder or underwriter or person deemed to be
an underwriter within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), against all
loss, claim, damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement to the same extent and with
the same effect as the provisions pursuant to which the Company has agreed to
indemnify the Underwriter as set forth in Section 7 of the
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<PAGE>
Underwriting Agreement and to provide for just and equitable contribution as set
forth in Section 8 of the Underwriting Agreement.
(e) Any holder of Registrable Securities to
be sold pursuant to a registration statement, and such Holder's successors and
assigns, shall severally, and not jointly, indemnify, the Company, its officers
and directors and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
all loss, claim, damage or expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such holder, or
such Holder's successors or assigns, for specific inclusion in such Registration
Statement to the same extent and with the same effect as the provisions pursuant
to which the Underwriter has agreed to indemnify the Company as set forth in
Section 7 of the Underwriting Agreement and to provide for just and equitable
contribution as set forth in Section 8 of the Underwriting Agreement.
(f) Nothing contained in this Agreement
shall be construed as requiring any Holder to exercise the Warrants held by such
Holder prior to the initial filing of any registration statement or the
effectiveness thereof.
(g) If the Company shall fail to comply with
the provisions of this Article 7, the Company shall, in addition to any other
equitable or other relief available to the holders of
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<PAGE>
Registrable Securities, be liable for any or all incidental, special and
consequential damages sustained by the holders of Registrable Securities,
requesting registration of their Registrable Securities.
(h) The Company shall not permit the
inclusion of any securities other than the Registrable Securities to be included
in any Registration Statement filed pursuant to Section 7.4 hereof, without the
prior written consent of the Majority Holders, which consent shall not be
unreasonably withheld.
(i) The Company shall promptly deliver
copies of all correspondence between the Commission and the Company, its counsel
or auditors and all memoranda relating to discussions with the Commission or its
staff with respect to the Registration Statement to each holder of Registrable
Securities included for such registration in such Registration Statement
pursuant to Section 7.3 hereof or Section 7.4 hereof requesting such
correspondence and memoranda and to the managing underwriter, if any, of the
offering in connection with which such Holder's Registrable Securities are being
registered and shall permit each holder of Registrable Securities and such
underwriter to do such reasonable investigation, upon reasonable advance notice,
with respect to information contained in or omitted from the Registration
Statement as it deems reasonably necessary to comply with applicable securities
laws or rules of the National Association of Securities Dealers, Inc. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
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<PAGE>
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such holder of Registrable Securities or underwriter shall
reasonably request.
8. Adjustments of Exercise Price and Number of Shares.
8.1. Computation of Adjusted Price. In case the
Company shall at any time after the date hereof pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, then upon such
dividend or distribution the Exercise Price in effect immediately prior to such
dividend or distribution shall forthwith be reduced to a price determined by
dividing:
(a) an amount equal to the total number of
shares of Common Stock outstanding immediately prior to such dividend or
distribution multiplied by the Exercise Price in effect immediately prior to
such dividend or distribution, by
(b) the total number of shares of Common
Stock outstanding immediately after such issuance or sale.
For the purposes of any computation to be made in accordance
with the provisions of this Section 8.1, the Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the date following
the date fixed for the determination of stockholders entitled to receive such
dividend or other distribution.
8.2. Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be
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<PAGE>
proportionately decreased in the case of subdivision or increased in the case of
combination.
8.3. Adjustment in Number of Shares. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Article 8,
the number of Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full number by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
8.4. Reclassification, Consolidation, Merger, etc. In
case of any reclassification or change of the outstanding shares of Common Stock
(other than a change in par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holders were the owners of the shares of
Common Stock
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<PAGE>
underlying the Warrants immediately prior to any such events at a price equal to
the product of (x) the number of shares of Common Stock issuable upon exercise
of the Holder's Warrants and (y) the Exercise Price in effect immediately prior
to the record date for such reclassification, change, consolidation, merger,
sale or conveyance as if such Holders had exercised the Warrants.
8.5. Determination of Outstanding Shares of Common
Stock. The number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares of Common Stock issued and the aggregate
number of shares of Common Stock issuable upon the exercise of options, rights,
warrants and upon the conversion or exchange of convertible or exchangeable
securities.
8.6. Dividends and Other Distributions with Respect
to Outstanding Securities. In the event that the Company shall at any time prior
to the exercise of all Warrants make any distribution of its assets to holders
of its Common Stock as a liquidating or a partial liquidating dividend, then the
holder of Warrants who exercises its Warrants after the record date for the
determination of those holders of Common Stock entitled to such distribution of
assets as a liquidating or partial liquidating dividend shall be entitled to
receive for the Warrant Price per Warrant, in addition to each share of Common
Stock, the amount of such distribution (or, at the option of the Company, a sum
equal to the value of any such assets at the time of such distribution as
determined by the Board of Directors of the Company in good faith) which would
have been payable to such holder had he been the holder
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<PAGE>
of record of the Common Stock receivable upon exercise of his Warrant on the
record date for the determination of those entitled to such distribution. At the
time of any such dividend or distribution, the Company shall make appropriate
reserves to ensure the timely performance of the provisions of this Subsection
8.6.
8.7. Subscription Rights for Shares of Common Stock
or Other Securities. In the case that the Company or an affiliate of the Company
shall at any time after the date hereof and prior to the exercise of all the
Warrants issue any rights, warrants or options to subscribe for shares of Common
Stock or any other securities of the Company or of such affiliate to all the
shareholders of the Company, the Holders of unexercised Warrants on the record
date set by the Company or such affiliate in connection with such issuance of
rights, warrants or options shall be entitled, in addition to the shares of
Common Stock or other securities receivable upon the exercise of the Warrants,
to receive such rights, warrants or options shall be entitled, in addition to
the shares of Common Stock or other securities receivable upon the exercise of
the Warrants, to receive such rights at the time such rights, warrants or
options that such Holders would have been entitled to receive had they been, on
such record date, the holders of record of the number of whole shares of Common
Stock then issuable upon exercise of their outstanding Warrants (assuming for
purposes of this Section 8.7), that the exercise of the Warrants is permissible
immediately upon issuance).
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<PAGE>
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon
the surrender thereof by the registered Holder at the principal executive office
of the Company, for a new Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of
securities in such denominations as shall be designated by the Holder thereof at
the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrant Certificate, if mutilated, the Company will make and deliver a new
Warrant Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of Shares, nor shall it be required to issue scrip or pay
cash in lieu of fractional interests, it being the intent of the parties that
all fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of Shares.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number
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<PAGE>
of shares of Common Stock as shall be issuable upon the exercise thereof. The
Company covenants and agrees that, upon exercise of the Warrants and payment of
the Exercise Price therefor, all Shares issuable upon such exercise shall be
duly and validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any shareholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed on or
quoted by NASDAQ or listed on such national securities exchange, in the event
the Common Stock is listed on a national securities exchange.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as
conferring upon the Holder or Holders the right to vote or to consent or to
receive notice as a shareholder in respect of any meetings of shareholders for
the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the
holders of its shares of Common Stock for the purpose of
entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as
indicated by the accounting
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<PAGE>
treatment of such dividend or distribution on the books
of the Company; or
(b) the Company shall offer to all the
holders of its Common Stock any additional shares of capital
stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up
of the Company (other than in connection with a consolidation
or merger) or a sale of all or substantially all of its
property, assets and business as an entirety shall be
proposed; or
(d) reclassification or change of the
outstanding shares of Common Stock (other than a change in par
value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), consolidation of
the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the
Company is the surviving corporation and which does not result
in any reclassification or change of the outstanding shares of
Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as
aforesaid), or a sale or conveyance to another corporation of
the property of the Company as an entirety is proposed; or
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<PAGE>
(e) The Company or an affiliate of the
Company shall propose to issue any rights to subscribe for
shares of Common Stock or any other securities of the Company
or of such affiliate to all the shareholders of the Company;
then, in any one or more of said events, the Company shall give written notice
to the Holder or Holders of such event at least fifteen (15) days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, options or
warrants, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to give such notice or any
defect therein shall not affect the validity of any action taken in connection
with the declaration or payment of any such dividend or distribution, or the
issuance of any convertible or exchangeable securities or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the
Warrants, to the address of such Holder as shown on the books
of the Company; or
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<PAGE>
(b) If to the Company, to the address set
forth in Section 3 of this Agreement or to such other
address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments.
The Company and the Underwriter may from time to time
supplement or amend this Agreement without the approval of any Holders of
Warrant Certificates in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem not to
adversely affect the interests of the Holders of Warrant Certificates.
15. Successors.
All the covenants and provisions of this Agreement by or for
the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
16. Termination.
This Agreement shall terminate at the close of business on
__________, 2006. Notwithstanding the foregoing, this Agreement will terminate
on any earlier date when all Warrants have been exercised and all the Shares
issuable upon exercise of the Warrants have been resold to the public; provided,
however, that the provisions of Section 7 shall survive any termination pursuant
to this Section 16 until the close of business on _________, 2009.
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<PAGE>
17. Governing Law.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State.
18. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Underwriter and any other
registered holder or holders of the Warrant Certificates, Warrants or the Shares
any legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Underwriter and any other holder or holders of the Warrant Certificates,
Warrants or the Shares.
19. Counterparts.
This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the same
instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] GARY PLAYER GOLF, INC.
By:________________________________
Name:
Title:
Attest:
_______________________________
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By:_______________________
Name:
Title:
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<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED FOR PURPOSES OF PUBLIC
DISTRIBUTION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144
UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _________, 2003
No. W- 170,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Whale Securities Co.,
L.P. or registered assigns, is the registered holder of 170,000 Warrants to
purchase, at any time from _______, 1998 until 5:00 P.M. New York City time on
________, 2003 ("Expiration Date"), up to 170,000 fully-paid and non-assessable
shares ("Shares") of common stock, par value $.001 per share (the "Common
Stock"), of Gary Player Golf, Inc., a Delaware corporation (the "Company"), at
the initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $13.20 per Share upon surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of ____________, 1998 between the Company and Whale
Securities Co., L.P. (the "Warrant Agreement"). Payment of the Exercise Price
may be made in cash, or by certified or official bank check in New York Clearing
House funds payable to the order of the Company, or any combination thereof.
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to in a description of the rights,
limitation of rights,
<PAGE>
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax, or
other governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: ___________, 1998 GARY PLAYER GOLF, INC.
[SEAL] By:__________________________
Name:
Title:
Attest:
__________________________
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _________ shares of
Common Stock and herewith tenders in payment for such securities cash or a
certified or official bank check payable in New York Clearing House Funds to the
order of Gary Player Golf, Inc. in the amount of $ , all in accordance with the
terms hereof. The undersigned requests that a certificate for such securities be
registered in the name of _____________________________________________________
___, whose address is __________________, and that such Certificate be delivered
to __________________, whose address is _____________.
Dated: Signature: ____________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
_______________________________________
_______________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________________________
hereby sells, assigns and transfers unto
______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature: ____________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
_______________________________________
_______________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
Exhibit 2.1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is made and entered
into as of the 1st day of November, 1997 by and between Golf One Industries,
Inc., a Delaware corporation (the "Company"), and Gary Player Group, Inc., a
Florida corporation (the "Seller"), with reference to the following facts:
A. On the terms and subject to the conditions of this Agreement, Seller
desires to sell to the Company, and the Company desires to purchase from Seller,
certain assets of Seller.
B. The Company intends to effect a public offering of its Common Stock
and change its name to Gary Player Golf, Inc.
NOW, THEREFORE, with reference to the foregoing facts, the Company and
Seller agree as follows:
1. Definitions.
All terms defined in this Agreement shall have the defined meanings
when used herein or in any agreement, note, certificate, report, or other
document made or delivered pursuant hereto, unless otherwise defined or the
context otherwise requires. The following terms shall have the following
meanings:
"Action" means any litigation, action, suit, proceeding, arbitration or
claim before any court or Governmental Authority, or investigation by any
Governmental Authority.
"Advances" shall have the meaning set forth in Section 5(d) of this
Agreement.
"Affiliate" shall mean, with respect to any specifIied Person, (a) any
other Person who, directly or indirectly, owns or controls, is under common
ownership or control with, or is owned or controlled by, such specified Person,
(b) any other Person who is a director, officer, partner or trustee of the
specified Person or a Person described in clause (a) of this definition or any
spouse of the specified Person or any such other Person, (c) any relative of the
specified Person or any other Person described in clause (b) of this definition,
or (d) any Person of which the Specified Person and/or any one or more of the
Persons specified in clause (a),(b) or (c) of this definition, individually or
in the aggregate, beneficially own 10% or more of any class of voting securities
or otherwise have a substantial beneficial interest.
"Artwork" shall mean photographs, film footage and video footage of
Player participating in golf tournaments, exhibitions and other public
appearances in his capacity as a golf professional.
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<PAGE>
"Assets" shall mean those certain assets of Seller identified in
Exhibit A to this Agreement.
"Assumed Contracts" shall mean the Contracts identified as "Assumed
Contracts" in Exhibit B to this Agreement.
"Assumed Liabilities" shall mean those certain liabilities and
obligations of Seller identified in Exhibit C to this Agreement.
"Best Knowledge" with respect to any Person shall mean and include (i)
actual knowledge of the Person, including, the actual knowledge of any of the
officers or directors of such Person and the administrators of any of the
facilities operated by such Person or any of its Subsidiaries and (ii) that
knowledge which a prudent businessperson could have obtained in the management
of his business after making due inquiry, and after exercising due diligence,
with respect thereto.
"Black Knight" which is the Black Knight Trust, a Guernsey Trust.
"Business Condition" of any Person shall mean the condition, earnings,
results of operations, business, properties or prospects of such Person.
"Closing" shall mean the closing of the transactions contemplated by
this Agreement.
"Common Stock" shall mean the common stock, $.001 par value per share,
of the Company.
"Company" shall mean Golf One Industries, Inc., a Delaware corporation.
"Company Contract" shall mean any Contract to which any Company Party
is a party or otherwise bound, or to which any asset or property of any Company
Party is subject.
"Company Current Balance Sheet" shall mean the consolidated balance
sheet of the Company as of August 31, 1997.
"Company Financial Statements" shall mean: (i) the audited consolidated
balance sheets of the Company as of March 31, 1997, December 31, 1996 and
December 31, 1995 and related statements of operations, cash flows and
stockholders' equity for the periods then ended; and (ii) the unaudited
consolidated balance sheet of the Company as of August 31, 1997 and related
statement of operations five-months then ended.
"Company Material Contract" shall mean any Contract pursuant to which
the Company: (i) licenses the right to use a trademark, tradename, patent or
copyright (other than from Seller); (ii) employs an officer; (iii) has
2
<PAGE>
outstanding Indebtedness in excess of $50,000; (iv) has agreed to sell assets of
the Company (other than inventory in the ordinary course of business) with an
aggregate fair market value in excess of $100,000; and (v) has leased real or
personal property requiring monthly payments after the date hereof in excess of
$10,000, unless such Contract may be cancelled by the Company without penalty
upon not more than 60 days prior written notice.
"Company Party" shall mean the Company and any Subsidiary of the
Company.
"Contract" shall mean any written or oral note, bond, debenture,
mortgage, license, agreement, commitment, contract or understanding.
"Costs" shall mean out-of-pocket costs and expenses including without
limitation attorneys' fees and disbursements and court costs.
"DM Agreement" shall mean that certain Direct Marketing Agreement dated
October 30, 1996 by and between Seller and the Company.
"Equity Securities" of any Person shall mean the capital stock of such
Person and/or any Stock Equivalents of such Person.
"Exhibit" shall mean to produce, transmit, broadcast, telecast, cable
cast, display, exhibit, project, perform, reproduce, publicize, or otherwise
use.
"Exploit" shall mean use, promote, advertise, affix, copy, Exhibit,
distribute, manufacture, sell, market, rent, modify, create derivative works
from, practice or otherwise exploit in all forms in any and all media.
"Exploitation" shall have a correlative meaning.
"Golf Equipment" shall mean golf clubs (including woods, and irons) and
hats, apparel, towels, umbrellas, bags, balls, videos and other products
pertaining to the playing of golf or the marketing, sale and distribution of
golf clubs.
"Golf Training Business" shall mean the business and operations of the
Gary Player Golf Academy and any other live golf instruction and/or training
business in which Seller from time to time engages.
"Governmental Authority" shall mean any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"GPGE" shall mean golf equipment operations of Seller.
"Indebtedness" of a Person shall mean (a) indebtedness of such Person
for money borrowed whether secured or unsecured, (b) the undrawn face amount of,
and unpaid reimbursement obligations in respect of, all letters of credit issued
for the account of such Person, (c) all indebtedness of the types referred to in
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<PAGE>
clauses (a) and (b) above of another Person which is guaranteed directly or
indirectly by such Person or secured by the assets of such Person and (g)
renewals, extensions, refundings, deferrals, restructurings, amendments and
modifications of any such indebtedness, obligation or guarantee.
"IPO" shall mean the initial public offering of Common Stock by the
Company pursuant to a registration statement filed with, and declared effective
by, the SEC under the Securities Act.
"IPO Price" shall mean the initial public offering price of a share of
Common Stock in the IPO.
"Law" shall mean any federal, state or local statute, law, rule,
regulation, ordinance, order, code, policy or rule of common law, now or
hereafter in effect, and in each case as amended, and any judicial or
administrative interpretation thereof by a Governmental Authority or otherwise,
including any judicial or administrative order, consent, decree or judgment.
"Lien" shall mean any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement or
preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction to evidence
any of the foregoing).
"Note" shall mean a promissory note of the Company delivered by the
Company to Seller at the Closing, which note shall be dated the date of the
Closing, shall be in the principal amount of $750,000 and shall be substantially
in the form of the note attached as Exhibit D to this Agreement.
"Person" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, Governmental Authority or other entity.
"Player" shall mean Gary Player.
"Player Acknowledgement and Agreement" shall mean that certain letter
dated the date hereof from Gary Player to the Company relating to certain
matters in connection with the Player Agreement and this Agreement.
"Player Agreement" shall mean that certain Agreement dated the date
hereof by and between Seller and Gary Player pursuant to which Player has
granted to Seller the exclusive perpetual right to use the Player Name (as
defined in such Agreement) in the Exploitation of Endorsed Products (as defined
in such Agreement).
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<PAGE>
"Purchase Price" shall have the meaning set forth in 2(b) of this
Agreement.
"SEC" shall mean the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the SEC
thereunder.
"Seller" shall mean Gary Player Group, Inc., a Florida corporation.
"Seller Contract" shall mean any Contract to which any Seller Party is
a party or otherwise bound, or to which any property or asset of any Seller
Party is subject.
"Seller Current Balance Sheet" shall mean the unaudited balance sheet
of GPGE as of June 30, 1997, as provided to the Company.
"Seller Financial Statements" shall mean: (i) the balance sheets of
GPGE as of December 31, 1996 and December 31, 1995 and related statements of
operations and cash flows for the years then ended; and (ii) the unaudited
balance sheet of GPGE as of June 30, 1997 and related statement of operations
and cash flows for the six-months then ended.
"Seller Party" shall mean Seller and any Subsidiary of Seller.
"Shares" shall mean the shares of Common Stock issued to Seller as part
of the Purchase Price.
"Stock Equivalents" of any Person shall mean options, warrants, calls,
rights, commitments, convertible securities and other securities pursuant to
which the holder, directly or indirectly, has the right to acquire (with or
without additional consideration) capital stock or equity of such Person.
"Subsidiary" of any Person shall mean any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are owned
directly or indirectly by such Person.
"Transfer" shall mean sell, assign, transfer, pledge, grant a security
interest in, or otherwise dispose of, with or without consideration.
5
<PAGE>
"WSE Agreement" shall mean that certain WSE License Agreement dated the
date hereof by and between Seller and World Services Entertainment ("WSE")
pursuant to which WSE has granted to Seller the exclusive perpetual right to use
the Player Name (as defined in such Agreement) in the Exploitation of Endorsed
Products (as defined in such Agreement) in the world except for the United
States and its possessions, Canada and Great Britain.
2. Agreement of Purchase and Sale; Closing.
(a) On the terms and subject to the conditions of this Agreement,
Seller agrees to sell the Assets to the Company at the Closing, the Company
agrees to purchase the Assets from the Seller at the Closing (the
"Acquisition").
(b) The purchase price (the "Purchase Price") for the Assets shall be:
(i) a number of shares of the Common Stock equal to $3,000,000
divided by the IPO Price (the "Shares");
(ii) the Note; and
(iii) the assumption of the Assumed Liabilities (provided that
in no event shall the amount of Assumed Liabilities exceed $1,100,000 less any
Advances used to offset such Liabilities as contemplated by Section 5(d) of this
Agreement).
(c) The Closing shall be held at the offices of Troop Meisinger Steuber
& Pasich, LLP, 10940 Wilshire Boulevard, Los Angeles, California 90024 to be
effective as of the effectiveness of the registration statement filed under the
Securities Act with respect to the IPO. At the Closing:
(i) The Company shall deliver to Seller a certificate or
certificates evidencing the Shares;
(ii) Seller shall deliver to the Company such assignments,
bills of sale and other documents or instruments of transfer as the Company may
reasonably request in order to Transfer the Assets to the Company; and
(iii) the Company will execute and deliver to the Seller such
documents and instruments as Seller may reasonably request to evidence the
assumption of the Assumed Liabilities by the Company.
3. Representations and Warranties of Seller.
Except as set forth in the Seller Disclosure Schedule delivered by
Seller to the Company concurrently herewith, Seller represents and warrants to
the Company as follows (which representations and warranties shall survive for a
period of three years from the Closing, except for the representations and
warranties contained in Sections 3(a), (b), (e), (h) and (j), which shall
survive indefinitely):
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(a) Organization and Capitalization of Seller.
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida and has all requisite corporate
power and corporate authority to own, lease and operate its properties and
assets and to carry on its business as now being conducted. Complete and correct
copies of Seller's current Articles of Incorporation and Bylaws have been
delivered to the Company or its attorneys. Black Knight is the sole stockholder
of Seller.
(b) Authority; Enforceability.
(i) This Agreement has been duly authorized by all necessary
corporate action of Seller, including, without limitation, the authorization and
approval by Black Knight. This Agreement has been duly executed and delivered by
Seller and, assuming it is duly executed and delivered by the Company,
constitutes a valid and legally binding obligation of Seller enforceable against
Seller in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other similar
laws relating to or affecting creditors' rights generally, or the availability
of equitable remedies.
(ii) The execution and delivery by Seller of this Agreement do
not, and compliance by Seller with the provisions hereof will not, (A) conflict
with or result in a breach or default under any of the terms, conditions or
provisions of any Seller Contract; or (B) violate any Law applicable to any
Seller; or (C) result in the creation or imposition of any Lien on any asset of
any Seller.
(c) Assets.
(i) Seller has good and marketable title to the Assets, free
and clear of all Liens except for (A) Liens that are reflected in the Seller
Current Balance Sheet; (B) Liens for current taxes not yet delinquent; (C)
assets sold or transferred in the ordinary course of business and consistent
with prudent business practice since the date of the Seller Current Balance
Sheet; (D) restrictions imposed by Law; and (E) easements and restrictions which
are neither individually nor in the aggregate material to Seller. At the
Closing, the Company shall receive good and marketable title to the Assets, free
and clear of all Liens (other than Liens created by the Company and the Liens
contemplated by clauses (A) and (E) above (collectively, the "Permitted Liens").
(ii) The inventory included in the Assets will be current and
readily merchantable and does not contain and will not contain any amount of
obsolete or damaged goods which have not been written down or reserved to their
market value in accordance with generally accepted accounting principles.
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<PAGE>
(iii) All accounts receivable reflected in the Current Balance
Sheet: (A) constitute bona fide and valid rights of Seller to collect payments
from other Persons; (B) represent credit extended in a manner consistent with
Seller's trade practices; (C) are not subject to any defense, counterclaim or
offset; and (D) except for reserves for returns and bad debts set forth in the
Seller Current Balance Sheet, to the knowledge of Seller are fully collectable.
(iv) Except pursuant to the Assumed Contracts, no Person has
the right or license to use the name "Gary Player," or the image or likeness of
Gary Player, in the Exploitation of Golf Equipment, either directly in
connection with the Exploitation of Golf Equipment, or indirectly through the
use of the name "Gary Player" as a corporate, partnership, association, trust,
limited liability company, joint venture, dba or tradename which engages in the
Exploitation of Golf Equipment.
(d) Assumed Contracts.
(i) True and correct copies of each Assumed Contract,
including all amendments and modifications thereof and waivers thereunder, have
been delivered to the Company or its counsel. The Assumed Contracts constitute
all Contracts pursuant to which any Seller Party receives income or revenues
from GPGE's business and/or the Transfer of the right to use the name "Gary
Player," or the logo, image or likeness of Gary Player. Each Assumed Contract is
in full force and effect, and is the valid and binding obligation of Seller and
each other party to the Contract. Seller has performed all of the obligations
required to be performed by it to date under each Assumed Contract, and Seller
is not in breach of or default under any Assumed Contract. To the Best Knowledge
of Seller, each other party to each Assumed Contract has performed all of the
obligations required to be performed by it to date under such Contract and is
not in breach of or in default under such Contract, and no event has occurred or
circumstance exists which, with notice or lapse of time or both, would
constitute a breach of or default under any Assumed Contract.
(ii) Schedule 3(e) to this Agreement sets forth the revenues
from each Assumed Contract during each calendar quarter from the calendar
quarter ended March 31, 1995 to the calendar quarter ended September 30, 1997,
and, to the knowledge of Seller, the amounts owed to Seller under each Assumed
Contract as of September 30, 1997.
(e) Player Agreement and WSE Agreement.
(i) The Player Agreement has been duly executed and delivered
by Seller and Player and constitutes a valid and legally binding obligation of
Seller and Player enforceable against Seller and Player, respectively, in
accordance with its terms. Neither Seller nor Player is in breach of or default
under the Player Agreement, and no event has occurred or circumstance exists
which, with notice or lapse of time or both, would constitute a breach of or
default under the Player Agreement.
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<PAGE>
(ii) The WSE Agreement has been duly executed and delivered by
Seller and WSE and constitutes a valid and legally binding obligation of Seller
and WSE enforceable against Seller and WSE, respectively, in accordance with its
terms. Neither Seller nor WSE is in breach of or default under the WSE
Agreement, and no event has occurred or circumstance exists which, with notice
or lapse of time or both, would constitute a breach of or default under the WSE
Agreement.
(f) Financial Statements. The Seller Financial Statements are complete
and correct, have been prepared from the books and records of Seller in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except for changes specified therein and except
that unaudited financial statements are not accompanied by notes, and present
fairly the financial position of GPGE as of the dates thereof and the results of
operations and cash flows of GPGE for the periods specified therein.
(g) Litigation and Proceedings. There is no pending or, to the
knowledge of Seller, threatened Action (or basis for any Action) to which Seller
is a party or involving any of the Assets, and Seller is not subject to any
judgment, order, writ, injunction, decree or regulatory directive or agreement,
which Action could have a material adverse effect on the Business Condition of
GPGE.
(h) Brokers. Seller has not retained or otherwise engaged or employed
any broker, finder or any other person, or paid or agreed to pay any fee or
commission to any agent, broker, finder or other person, for or on account of
acting as a finder or broker in connection with this Agreement or the
transactions contemplated hereby.
(i) Creditor Issues. The Transfer of the Assets to the Company is not
being made with the actual intent to hinder, delay or defraud any creditor of
Seller. Seller believes it is receiving reasonably equivalent value in exchange
for the Transfer of the Assets. Seller is not engaged or about to engage in a
business or a transaction following the Closing for which the remaining assets
of Seller would be unreasonably small in relation to the business or
transaction, and Seller has not incurred, and does not believe that it would
incur, debts beyond its ability to pay them as they become due. Seller is not
insolvent and will not become insolvent as a result of the transactions
contemplated by this Agreement.
(j) Securities Matters.
(i) Seller has been advised that the Shares will be neither
registered under the Securities Act nor qualified under any state securities
law, on the ground that no distribution or public offering of the Shares is to
be effected, and that in this connection the Company is relying in part on the
representations of Seller and Player set forth in this Section 3. Seller
understands that the Shares may not be resold unless they are registered under
the Securities Act or an exemption from registration is available.
9
<PAGE>
(ii) Seller will acquire the Shares solely for its own
account, for investment purposes, and not with a view to or for sale in
connection with any distribution of the Shares.
(iii) Seller is able to bear the economic risk of an
investment in the Shares.
(iv) Seller (i) is an experienced and sophisticated investor,
is able to fend for itself in the transactions contemplated by this Agreement,
and has such knowledge and experience in financial and business matters that it
is capable of evaluating the risks and merits of acquiring the Shares, or (ii)
by reason of the business or financial experience of its professional advisors
who are unaffiliated with the Company, could be reasonably assumed to have the
capacity to protect its own interests in connection with an investment in the
Shares.
(v) Seller has had, during the course of this transaction, the
opportunity to ask questions of, and receive answers from, the Company and its
management concerning the business of the Company Group and acknowledges that it
and its representatives have received all such information as it considers
necessary for evaluating the risks and merits of acquiring the Shares and for
verifying the accuracy of any information furnished to them or to which they had
access.
(vi) Seller is an "accredited investor" for purposes of
Regulation D promulgated by the SEC under the Securities Act.
10
<PAGE>
(k) Material Misstatements and Omissions. No representations and
warranties by Seller in this Agreement, nor any exhibit, schedule or certificate
furnished by Seller to the Company pursuant to this Agreement, contains or will
contain any untrue statement of material fact or omits or will omit to state any
material fact necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(l) Assumed Liabilities. The amount of the Assumed Liabilities at the
Closing will not exceed $1,100,000 less any Advances used to offset such
Liabilities as contemplated by Section 5(d) of this Agreement.
4. Representations and Warranties of the Company.
The Company represents and warrants to Seller as follows (which
representations and warranties shall survive for a period of three years from
the Closing, except for the representations and warranties contained in Sections
4(a)(i), (b), (c) and (h), which shall survive indefinitely):
(a) Organization and Capitalization of Company.
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and corporate authority to own, lease and operate
its properties and assets and to carry on its business as now being conducted.
Complete and correct copies of Company's current Certificate of Incorporation
and Bylaws have been delivered to the Company or its attorneys.
(ii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions where the nature of its
properties and business requires such qualification.
(iii) The authorized capital stock of the Company consists
solely of 10,000,000 shares of Common Stock, of which 2,955,575 shares are
outstanding at the date of this Agreement, and 5,000,000 shares of Preferred
Stock, of which 191,579 shares have been designated "Series A Convertible
Preferred Stock," none of which are outstanding, and 750,750 shares have been
designated "Series B Convertible Preferred Stock," of which 568,895 shares are
outstanding on the date hereof.
(b) Authority; Enforceability.
(i) This Agreement has been duly authorized by all necessary
corporate action of Company. This Agreement has been duly executed and delivered
by Company and constitutes a valid and legally binding obligation of Company and
enforceable against Company respectively in accordance with its terms, subject
to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws relating to or affecting creditors' rights
generally, or the availability of equitable remedies.
11
<PAGE>
(ii) The execution and delivery by Company of this Agreement
do not, and compliance by Company with the provisions hereof will not, (A)
conflict with or result in a breach or default under any of the terms,
conditions or provisions of any Company Contract; or (B) violate any Law
applicable to any Company Party; or (C) result in the creation or imposition of
any Lien on any asset of any Company Party.
(c) The Shares. The Shares have been authorized and upon issuance in
accordance with this Agreement will be validly issued, fully paid and
non-assessable free and clear of all Liens (other than Liens which have been
created by Seller).
(d) Subsidiaries. Rhino Marketing, Inc. and Gran Prix Marketing, Inc.
are Subsidiaries of Company. Except for those two capacities so identified,
Company does not own, directly or indirectly, any interest or investment
(whether equity or debt) in any other Person and no Company Contract obligates
or gives any Company Party the right to make any such investment.
(e) Financial Statements. The Company's Financial Statements are
complete and correct, have been prepared from the books and records of the
Company in accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except for changes specified therein
and except that unaudited financial statements are not accompanied by notes, and
present fairly the financial position of the Company and its consolidated
Subsidiaries as the dates thereof and the results of operations and cash flows
of the Company and its consolidated Subsidiaries for the periods specified
therein.
(f) Litigation and Proceedings. Except as separately disclosed to
Seller in writing, there is no pending or, to the knowledge of the Company,
threatened Action (or basis for any Action) to which any Company Party is a
party or otherwise involving any Company Party, and no Company Party is subject
to any judgment, order, writ, injunction, decree or regulatory directive or
agreement, which Action could have a material adverse effect on the Business
Condition of the Company.
(g) Contracts. The Company has separately provided to Seller a list of
all Company Material Contracts and true and correct copies of such Contracts.
(h) Brokers. The Company has not retained or otherwise engaged or
employed any broker, finder or any other person, or paid or agreed to pay any
fee or commission to any agent, broker, finder or other person, for or on
account of acting as a finder or broker in connection with this Agreement or the
transactions contemplated hereby.
(i) Material Misstatements and Omissions. No representations and
warranties by the Company in this Agreement, nor any exhibit, schedule or
certificate furnished by the Company to Seller pursuant to this Agreement
contains or will contain any untrue statement of material fact or omits or will
omit any material fact necessary to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
12
<PAGE>
5. Pre-Closing Covenants.
(a) Conduct of Business. Prior to the Closing, except as contemplated
by this Agreement, unless the Company has consented in writing thereto, Seller
agrees to:
(i) conduct its operations with respect to GPGE according to
its ordinary and usual course of business;
(ii) not to Transfer any Assets, except any inventory in the
ordinary course of business at the customary prices for such inventory, without
discount except discounts in the ordinary course of business;
(iii) not to amend, modify or terminate, or grant any waiver
of any right under, any Assumed Contract, the Player Agreement or the WSE
Agreement, and not to make any payment under the Player Agreement or WSE
Agreement which is not required to be made strictly in accordance with the terms
of the Player Agreement or WSE Agreement;
(iv) comply with all of its obligations and duties under any
Assumed Contract and the Player Agreement and not to create or permit to exist
any default or event of default on behalf of any Seller Party under any Assumed
Contract, the Player Agreement or the WSE Agreement or any event or circumstance
which, with lapse of time or notice, or both, would constitute a default under
an Assumed Contract, the Player Agreement or the WSE Agreement;
(v) not to enter any Contract to Exploit, or Exploit any of
its rights under, the Player Agreement or the WSE Agreement, or other rights to
use the name of "Gary Player" in connection with the Exploitation of Golf
Equipment;
(vi) with respect to GPGE, use its best efforts to preserve
intact its business organization and goodwill, keep available the services of
its officers and employees and maintain satisfactory relationships with those
Persons having business relationships with it; and
(vii) not incur any Indebtedness other than in the ordinary
course of business.
(b) Inspection of Records. From the date hereof to the Closing, Seller
and the Company shall allow the duly authorized officers, attorneys, accountants
and other representatives of the other access at all reasonable times to the
records and files, correspondence, audits and properties, as well as to all
information in each case relating the business and affairs of GPGE and the
Company, respectively.
(c) IPO. Seller shall provide to the Company such information
reasonably requested by the Company in order for the Company to complete the
registration statement in connection with the IPO. If it is necessary to audit
the financial statements of Seller in connection with the IPO: (i) such audit
13
<PAGE>
will be at the expense of the Company; and (ii) Seller will cooperate fully with
the auditors and will cause its management to make such representations and
warranties regarding its financial information as the auditors may reasonably
request to complete the audit. Seller represents to the Company that it knows of
no reason why its financial statements for 1995, 1996 and 1997 could not be
audited.
(d) Advances to Seller. Upon the request of Seller, the Company will
make advances (the "Advances") to Seller of up to an aggregate of $250,000 upon
the terms and subject to the conditions of this Section 5(d). The Advances will
be evidenced by a Note in form and substance reasonably satisfactory to the
Company. Advances repaid cannot be reborrowed. The Company will advance up to
$50,000 per month commencing with one month following the date of this
Agreement; provided, however that each Advance must be in an integral multiple
of $10,000; and provided. further, however, that if the Company issues Equity
Securities to obtain "bridge financing" for IPO from institutional investor
generating net proceeds of not less than $1,000,000 after the date hereof, the
monthly limitation will not be applicable (although the aggregate limitation
will remain applicable. The Company shall not be obligated to make an Advance if
Seller is in breach of or in default under this Agreement. The Advances will
accrue interest at a rate of 6% per annum from the date advanced. Seller will
use the proceeds of the Advances: (i) up to $100,000 of the Advances may be used
to pay operating expenses of GPGE; and (ii) the balance of the Advance shall be
used to repay Assumed Liabilities. The amount of Assumed Liabilities shall be
reduced by the amount of the Advances used to reduce Assumed Liabilities. The
Advances (including interest) shall be repaid as follows: (i) if this Agreement
terminates without the occurrence of the Closing, the Advances shall be repaid
by offsets of payment obligations under the DM Agreement; and (ii) if the
Closing occurs, the Advances shall be repaid: (A) to the extent the Advances
were used to reduce the Assumed Liabilities, by the corresponding reduction in
the amount of Assumed Liabilities; and (B) to the extent the Advances were not
used to reduce Assumed Liabilities, through offset against the first payment(s)
due on the Note. Notwithstanding the foregoing, the Advances shall become
immediately due and payable if Seller: (i) Transfers its rights under the DM
Agreement, either voluntarily or involuntarily upon foreclosure of a security in
the DM Agreement; or (ii) breaches or defaults in any of its representations,
warranties, covenants or agreements under this Agreement. Repayment of the
Advances will be subordinate to repayment of the loan in the amount of $500,000
from Mercator International Limited bearing interest at a rate of LIBOR, as such
loan presently exists (but not to any additional loans or advances from Mercator
after the date hereof) (the "Mercator Loan"), and the Company may make any
payments due under the DM Agreement directly to Mercator to be applied against
reduction of the Mercator Loan.
The obligation to make the Advances shall terminate upon the
termination of this Agreement or the Closing.
(e) Assumed Liabilities. Seller and the Company will attempt to have
some or all of the Assumed Liabilities converted into Common Stock effective as
of the Closing; provided, however, that the terms and conditions of such
conversion shall be within the sole and absolute discretion of Company.
14
<PAGE>
(f) Use of Player Name. On and after the Closing, the Company may amend
its corporate name to "Gary Player Golf, Inc." Seller shall, and shall cause
Player to, execute and deliver such consents and approvals as the Company may
reasonably request to permit Company to qualify to do business in such
jurisdictions as the Company requests under the name "Gary Player Golf, Inc."
(g) Acquisition Proposals. During the period from the date hereof and
extending through the earlier of termination of the this Agreement or the
Closing, Seller agrees that (i) Seller shall direct and cause Seller's officers,
directors, employees, shareholders, agents and representatives (including,
without limitation, any investment banker, attorney or accountant) not to,
initiate, solicit, intentionally encourage or accept the submission of any
proposal or offer with respect to a merger, acquisition, sale, consolidation or
similar transaction involving the Assets (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or engage in any
negotiations or discussions concerning, or provide any confidential information
or data to, any Person relating to an Acquisition Proposal and (i) Seller will
notify the Company immediately if any such inquiries or proposals are received
by, any such information is received from, or any such negotiations or
discussions are sought to be initiated or continued with, Seller.
(h) DM Agreement. Seller and the Company agree that as of the Closing,
the DM Agreement shall be terminated and cancelled; provided, however, that such
termination and cancellation shall not accelerate repayment of the Advances.
(i) Right of First Refusal. Seller hereby grants to the Company a right
of first refusal to purchase the Golf Training Business and/or its material
assets. To effect this right of first refusal, Seller agrees not to sell,
transfer or assign the Golf Training Business (including any material assets of
such Business) without first offering to sell, transfer or assign such Business
and assets to the Company. Each such offer shall: (i) be in writing; (ii) shall
remain open for at least 30 days from the date of transmittal; (iii) shall state
its exact termination date; (iv) shall state the price (which must be payable in
cash, promissory note and/or common stock of the Company), closing date and all
of the terms and conditions of the proposed sale, transfer of assignment; and
(v) shall make reference to this Section 5(i).
The Company may accept the offer by delivering written notice of
acceptance to Seller prior to the termination date of the offer. The notice of
acceptance shall set forth a date for the closing of the purchase and sale,
which date shall be a business day not later than 30 days after the Company
delivers notice of acceptance to Seller. Seller shall make customary
representations and warranties regarding the Golf Training Business and/or
assets, as applicable (similar to the representations and warranties made in
this Agreement) or any more stringent representations, warranties and/or
indemnities if set forth in the offer. The Closing shall take place at the
principal offices of the Company.
If the offer is not accepted, Seller shall be free for a period of 90
days thereafter to dispose of the Golf Training Business at the same or higher
price and upon the terms and conditions specified in such offer (including no
less favorable representations, warranties and indemnities). If Seller does not
dispose of the Golf Training Business within the 90-day period, such Business
shall again be subject to all provisions of this Section 5(i).
15
<PAGE>
The rights of the Company shall terminate if this Agreement is
terminated with the occurrence of the Closing.
6. Closing Conditions of the Company.
The obligation of Company to complete the Acquisition is subject to the
satisfaction of the following conditions, unless waived in writing by the
Company at or prior to the Closing:
(a) The representations and warranties of Seller shall be true and
correct in all material respects as of the Closing as if made at and as of the
Closing;
(b) Seller shall have complied in all material respects with its
covenants and agreements under this Agreement;
(c) The Company shall have received good and marketable title to the
Assets, free and clear of all Liens (other than Liens created by the Company and
the Permitted Liens);
(d) The amount of the Assumed Liabilities shall not exceed $1,100,000
less any Advances used to offset such Liabilities as contemplated by Section
5(d) of this Agreement.
(e) Seller shall have taken all actions required of Seller to terminate
the DM Agreement.
7. Closing Conditions of Seller.
The obligation of Seller to complete the Acquisition is subject to the
satisfaction of the following conditions, unless waived in writing by Seller on
or prior to the Closing:
(a) The representations and warranties of the Company shall be true and
correct in all material respects as of the Closing as if made at and as of such
date;
(b) The Company shall have complied in all material respects with its
covenants and agreements under this Agreement;
(c) The registration statement filed by the Company under the
Securities Act in connection with the IPO shall have been declared effective by
the SEC; and
(d) Gary Player, Joseph J. White and Marc B. Player shall have been
appointed as directors of the Company, and Gary Player shall have been appointed
Chairman of the Board of the Company, each appointment to be effective
immediately following the Closing.
16
<PAGE>
8. Post Closing Covenants.
(a) Restrictions on Transfer of Shares. Seller agrees not to Transfer
any Shares except pursuant to an effective registration statement under the
Securities Act or an exemption from registration. As a further condition to any
such Transfer, except in the event that such Transfer is made pursuant to an
effective registration statement under the Securities Act, if in the reasonable
opinion of counsel any Transfer of the Securities by the contemplated transferee
thereof would not be exempt from the registration and prospectus delivery
requirements of the Securities Act, the Company may require the contemplated
transferee to furnish an investment letter setting forth such information and
agreements as may be reasonably requested by the Company to ensure compliance by
such transferee with the Securities Act. Each certificate evidencing the Shares
will bear the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE ISSUER AND THE
REGISTERED HOLDER OF THE SECURITIES, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER."
(b) Following the closing of the IPO, without the written consent of
Player, the Company agrees to maintain directors and officers liability
insurance in an amount not less than $5,000,000 until the earlier to occur of
the third anniversary of the closing of the IPO and the date Gary Player is no
longer a director of the Company. The Company will use commercially reasonable
efforts to have a commitment for such insurance in place as of the Closing.
(c) To the extent that Seller has (and has all necessary rights to) any
Artwork which the Company believes would be useful in the Exploitation of
Endorsed Products (as defined in the Player Agreement and the WSE Agreement,
Seller shall furnish such Artwork to the Company on a royalty-free basis. The
Company shall be responsible for all shipping charges in connection with the
transportation of such Artwork for the Company, shall safekeep such Artwork and
shall be responsible for it while in transit, and after use of such Artwork, the
Company shall return such Artwork to Seller. It is understood that such Artwork
may not be reproduced for sale but just used in connection with the
advertisement and promotion of Endorsed Products. Any use of such Artwork is
subject to Seller's prior approval.
9. Termination.
This Agreement may be terminated prior to the Closing and without
consummation of the Acquisition, under the following circumstances:
17
<PAGE>
(a) Seller may terminate this Agreement if there is a material breach
or default by the Company of any representation, warranty, covenant or agreement
under this Agreement, which breach or default is not cured or corrected within
30 days after written notice thereof from Seller;
(b) The Company may terminate this Agreement if there is a material
breach or default by Seller of any representation, warranty, covenant or
agreement under this Agreement, which breach or default is not cured or
corrected within 30 days after written notice thereof from the Company;
(c) Seller or the Company may terminate this Agreement if the Closing
shall not have occurred on or prior to March 31, 1998; provided that a party may
not terminate this Agreement if the Closing fails to occur by March 31, 1998
because of its breach or default.
Any termination of this Agreement must be by written notice to the
other party. The termination of this Agreement shall not relieve any party from
liability for any breach or default arising prior to termination.
10. Miscellaneous.
(a) Notices. All notices, requests, demands and other communications
(collectively, "Notices") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission
(which must be confirmed) or by United States first class, registered or
certified mail, postage prepaid, addressed to the party at the address set forth
on the signature page of this Agreement. Any Notice, other than a Notice sent by
registered or certified mail, shall be effective when received; a Notice sent by
registered or certified mail, postage prepaid return receipt requested, shall be
effective on the earlier of when received or the third day following deposit in
the United States mails . Any party may from time to time change its address for
further Notices hereunder by giving notice to the other party in the manner
prescribed in this Section.
(b) Entire Agreement. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein.
(c) Assignment. No party may assign this Agreement, and any attempted
or purported assignment or any delegation of any party's duties or obligations
arising under this Agreement to any third party or entity shall be deemed to be
null and void, and shall constitute a material breach by such party of its
duties and obligations under this Agreement. This Agreement shall inure to the
benefit of and be binding upon any successors of each party by way of merger or
consolidation.
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<PAGE>
(d) Waiver and Amendment. No provision of this Agreement may be waived
unless in writing signed by all the parties to this Agreement, and waiver of any
one provision of this Agreement shall not be deemed to be a waiver of any other
provision. This Agreement may be amended only by a written agreement executed by
all of the parties to this Agreement.
(e) Governing Law. This Agreement has been made and entered into in the
State of California and shall be construed in accordance with the laws of the
State of California without giving effect to the principles of conflicts of law
thereof.
(f) Severability. Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
(g) Captions. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(h) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(i) Attorneys' Fees. If any action, suit, arbitration or other
proceeding is instituted to remedy, prevent or obtain relief from a default in
the performance by any party to this Agreement of its obligations under this
Agreement, the prevailing party shall recover all of such party's attorneys'
fees incurred in each and every such action, suit, arbitration or other
proceeding, including any and all appeals or petitions therefrom. As used in
this Section, attorneys' fees shall be deemed to mean the full and actual costs
of any legal services actually performed in connection with the matters involved
calculated on the basis of the usual fee charged by the attorney performing such
services and shall not be limited to "reasonable attorneys' fees" as defined in
any statute or rule of court.
(j) Further Assurances. The parties to this Agreement shall upon
request take any and all actions and execute any and all documents reasonably
necessary to effectuate the terms and intent of this Agreement.
(k) Judicial Interpretation. Should any provision of this Agreement
require judicial interpretation, it is agreed that a court interpreting or
construing the same shall not apply a presumption that the terms hereof shall be
more strictly construed against any Person by reason of the rule of construction
that a document is to be construed more strictly against the Person who itself
or through its agent prepared the same, it being agreed that all parties have
participated in the preparation of this Agreement.
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(l) Force Majeure. If any party to this Agreement is delayed in the
performance of any of its obligations under this Agreement or is prevented from
performing any such obligations due to causes or events beyond its control,
including, without limitation, acts of God, fire, flood, earthquake, strike or
other labor problem, injunction or other legal restraint, present or future law,
governmental order, rule or regulation, then such delay or nonperformance shall
be excused and the time for performance thereof shall be extended to include the
period of such delay or nonperformance.
(m) Arbitration. All disputes, controversies or differences which are
not settled by common accord shall be conclusively settled by arbitration in Los
Angeles, California, in accordance with the rules of the American Arbitration
Association, and judgment and the award rendered by the arbitration panel may be
entered in any court or tribunal of competent jurisdiction. In any arbitration
proceeding conducted pursuant to this Section, both parties shall have the right
to discovery, to call witnesses and to cross-examine the other party's witnesses
(either through legal counsel, expert witnesses or both). All decisions of the
arbitration panel shall be final, conclusive and binding upon all parties, and
shall not be subjected to judicial review.
(n) Damages. If the Closing occurs, any damages, costs or other amounts
payable by Seller hereunder (other than repayment of the Advances) may be paid
by cash, by surrender to the Company of a number of Shares having a then current
fair market value equal to such damages, costs or amounts, of a combination of
the foregoing.
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IN WITNESS WHEREOF, this Agreement has been made and entered into as of
the date and year first above written.
GOLF ONE INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Alfonso J. Cervantes
------------------------
Its: President
------------------------
GARY PLAYER GROUP, INC.,
a Florida corporation
By: /s/ Joseph White
------------------------
Its: President
------------------------
Agreed to by The Black Knight Trust, a
Guernsey Trust, the sole shareholder of Seller
By:
------------------------------------------
, Trustee
- ------------------------------------
21
<PAGE>
EXHIBIT A
ASSETS
1. Player Agreement
2. WSE Agreement
3. Assumed Contracts
4. Inventory as of the Closing
5. Accounts receivable as of the Closing
6. Office furniture and fixtures, computer equipment and production
equipment as of Closing
1
<PAGE>
EXHIBIT B
ASSUMED CONTRACTS
1. Agreement, dated January 1, 1996, by and between Gary Player Golf
Equipment Inc. and YGM Marketing Pte Ltd.
2. Agreement, dated November 15, 1996, by and between Gary Player Golf
Equipment Inc. and Toppoint Corporation Limited.
3. Licensing Agent Agreement, dated September 24, 1996, by and between
Gary Player Golf Equipment Inc. and International Apparel Marketing
Corporation.
4. Agreement, dated January 17, 1997, by and between Gary Player Golf
Equipment Inc. and Scorpion Asia Pacific Pte., Ltd.
5. Agreement, dated October 1, 1996, by and between Gary Player Golf
Equipment Inc. and Robern Skiwear Inc.
6. Licensing Agreement, dated July 1, 1997, by and between Gary Player
Group, Inc., dba Gary Player Golf Equipment, and Cali-Fame of Los
Angeles, Inc.
7. Agreement, dated July 1, 1997, by and between Gary Player Group, Inc.,
dba Gary Player Golf Equipment, and PT. Bintoro Agung.
2
<PAGE>
EXHIBIT C
ASSUMED LIABILITIES
1. Accounts Payable of GPGE incurred in the ordinary course of business of
GPGE and existing as of the Closing, but not including any accounts
payable to any Affiliate of GPGE.
2. The Mercator Loan (as defined in Section 5(d) of this Agreement).
<PAGE>
EXHIBIT D
PROMISSORY NOTE
$750,000.00 __________________, 199_
Santa Maria, California
FOR VALUE RECEIVED, the undersigned Golf One Industries, Inc., a
Delaware corporation ("Payor"), promises to pay to Gary Player Group, Inc., a
Florida corporation ("GPG"), or order ("Payee"), in lawful money of the United
States, the aggregate principal amount of Seven Hundred Fifty Thousand Dollars
($750,000.00), together with interest on the unpaid principal amount from time
to time outstanding at a rate equal to 6.0% per annum. This Note is delivered is
pursuant to that certain Asset Purchase Agreement dated November 1, 1997 by and
between Payor and GPG.
This Note shall be paid as follows:
(1) $250,000.00 shall be paid on [the date one day following the
closing of the IPO];
(2) $250,000.00 plus accrued and unpaid interest shall be paid on [the
end of the 11th month following the closing of the IPO]; and
(3) The balance of the Note, including accrued and unpaid interest,
shall be paid on [the end of the 22nd month following the closing of the IPO].
All payments on this Note shall be applied first to the payment of
accrued and unpaid interest at the date of such payment and the balance, if any,
shall be applied to the payment of principal. All payments shall be made at 3930
RCA Boulevard, Suite 3001, Palm Beach Gardens, Florida 33410, or such other
address as the Payee from time to time notifies the Payor in writing.
The Payor agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the Payee in enforcing the obligations
of the Payor under this Note.
No delay or omission on the part of the Payee in exercising any rights
under this Note shall operate as a waiver of such right or of any other right of
such Payee, nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of the same or any other right on any future occasion.
The Payor and every endorser or guarantor of this Note regardless of the time,
order or place of signing waives presentment, demand, protest and notice of
every kind and assents to any extension or postponement of the time of payment
or any other indulgence, to any substitution, exchange or release of collateral,
and to the addition or release of any other party or person primarily or
secondarily liable.
<PAGE>
ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
IN WITNESS WHEREOF, the Payor has duly executed and delivered this Note
as of the date and year first above written.
GOLF ONE INDUSTRIES, INC.
By:
-----------------------------------
Its:
<PAGE>
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
This Amendment No. 1 to Asset Purchase Agreement (this "Amendment") is
made and entered into as of the 13th day of March, 1998 by and between Golf One
Industries, Inc., a Delaware corporation (the "Company"), and Gary Player Group,
Inc., a Florida corporation ("Seller"), with reference to the following facts:
(a) The Company and Seller are parties to that certain Asset Purchase
Agreement dated November 1, 1997 (the "Purchase Agreement").
(b) Section 9(c) of the Purchase Agreement provides that either Seller
or the Company may terminate the Purchase Agreement if the Closing (as defined
therein) shall not have occurred on or prior to March 31, 1998.
(c) The Seller and the Company desire to amend Section 9(c) to change
the date to July 31, 1998.
NOW THEREFORE, with reference to the foregoing facts, the Company and
the Seller agree as follows:
(i) Amendment to Section 9(c).
Section 9(c) is hereby amended by changing the date set forth
therein from "March 31, 1998 to "July 31, 1998."
(ii) No Other Amendments.
Except as set forth in this Amendment, all the terms and
provisions of the Purchase Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this Amendment is made and entered as of
the date and the year first above written.
GOLF ONE INDUSTRIES, INC., GARY PLAYER GROUP, INC.,
a Delaware corporation a Florida corporation
By: /s/ Alfonso J. Cervantes By: /s/ Joseph White
----------------------------- ------------------------------
Alfonso J. Cervantes, Joseph White
Chief Executive Officer President
<PAGE>
BYLAWS
OF
GOLF ONE INDUSTRIES, INC.
1
<PAGE>
BYLAWS
OF
GOLF ONE INDUSTRIES, INC.
A Delaware Corporation
Page
ARTICLE I - CORPORATE OFFICES
Section 1. Registered Office 2
Section 2. Principal Office 2
Section 3. Other Offices 2
ARTICLE II - STOCKHOLDERS MEETINGS
Section 1. Place of Meeting 2
Section 2. Annual Meetings 2
Section 3. Special Meetings 2
Section 4. Notice of Meetings 3
Section 5. Quorum 4
Section 6. Adjourned Meeting 4
Section 7. Voting 4
Section 8. Proxies 6
Section 9. Stockholder List 6
Section 10. Consent of Stockholders in
Lieu of Meeting 6
Section 11. Inspectors of Election 7
Section 12. Record Date 7
Section 13. Procedures for Meetings 8
Section 14. Opening and Closing of Polls 8
i
<PAGE>
ARTICLE III - BOARD OF DIRECTORS
Section 1. Powers 8
Section 2. Number and Qualifications 9
Section 3. Election and Term of Office 9
Section 4. Vacancies 9
Section 5. Place of Meeting 10
Section 6. Regular Meetings 11
Section 7. Special Meetings 11
Section 8. Meetings by Communication Equipment 11
Section 9. Quorum and Manner of Acting 11
Section 10. Validation of Defectively Called
or Noticed Meetings 12
Section 11. Action Without Meeting 12
Section 12. Compensation of Directors 12
Section 13. Committees 12
ARTICLE IV - OFFICERS
Section 1. Officers 13
Section 2. Election of Officers 13
Section 3. Subordinate Officers 13
Section 4. Removal and Resignation of Offices 13
Section 5. Vacancies in Offices 13
Section 6. Chairman of the Board 13
Section 7. Chief Executive Officer 14
Section 8. President 14
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<PAGE>
Section 9. Vice Presidents 14
Section 10. Secretary 14
Section 11. Chief Financial Officer 15
ARTICLE V - INDEMNIFICATION OF DIRECTORS,
OFFICERS. EMPLOYEES AND OTHER AGENTS
Section 1. Agents, Proceedings and Expenses 15
Section 2. Actions Other Than By The Corporation 15
Section 3. Actions by the Corporation 16
Section 4. Successful Defense by Agent 16
Section 5. Required Approval 17
Section 6. Advance of Expenses 17
Section 7. Contractual Rights 17
Section 8. Limitations 17
Section 9. Insurance 17
Section 10. Constituent Corporations 18
Section 11. Definitions 18
ARTICLE VI - MISCELLANEOUS
Section 1. Inspection of Books and Records by
Stockholders 18
Section 2. Inspection of Books and Records by
Directors 19
Section 3. Checks, Drafts, Evidences of
Indebtedness 19
Section 4. Corporate Contracts and Instruments;
How Executed 19
Section 5. Certificates for Shares 19
iii
<PAGE>
Section 6. Transfer of Shares 19
Section 7. Lost, Stolen or Destroyed
Certificates 20
Section 8. Representation of Shares of Other
Corporations 20
Section 9. Construction and Definitions 20
Section 10. Amendments 20
Section 11. Conformance to the Law 21
Section 12. Seal 21
Section 13. Fiscal Year 21
Section 14. Dividends; Surplus 21
iv
<PAGE>
BYLAWS
OF
GOLF ONE INDUSTRIES, INC.
A Delaware Corporation
ARTICLE I
CORPORATE OFFICES
Section 1. Registered Office. The registered office
of the Corporation in the State of Delaware is hereby located at
1013 Centre Road, City of Wilmington, County of New Castle,
Delaware 19805.
Section 2. Principal Office. The principal office of the
Corporation is hereby located at: 11111 Santa Monica Boulevard, Los Angeles,
California. The Board of Directors (herein referred to as the "Board") is hereby
granted the full power and authority, by a resolution of a majority of the
directors, to change the principal office from one location to another. Any such
change shall be noted in these Bylaws opposite this section, and this section
may be amended to state the new location.
Section 3. Other Offices. The Corporation may establish any
additional offices, at any place or places, as the Board may designate, or as
the business of the Corporation shall require.
ARTICLE II
STOCKHOLDERS MEETINGS
Section 1. Place of Meeting. Meetings of the Stock holders of
the Corporation shall be held at the principal office or at such place, within
or without the State of Delaware, as may from time to time be designated for
that purpose either by the Board or by the written consent of all persons
entitled to vote thereat and not present at the meeting, given either before or
after the meeting and filed with the Secretary of the Corporation.
Section 2. Annual Meetings. The annual meeting of the
Stockholders shall be held on such date and at such time designated, from time
to time, by resolution of the Board, or, in the absence of such designation, on
the 1st day in May at 12:00 p.m., California time; provided, however, that if
such day is a legal holiday, then at the same time and place on the next day
thereafter which is a full business day.
Section 3. Special Meetings. Special meetings of the
Stockholders for the purpose of taking any action which the Stockholders are
permitted to take under the General Corporation Law of the State of Delaware
(herein, as the same may from time to
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<PAGE>
time be amended, referred to as the "General Corporation Law") may be called at
any time by a majority of the Board of Directors, the Chairman of the Board or
the Chief Executive Officer or President of the Corporation, or by any
Stockholder or Stockholders of the Corporation holding an aggregate of ten
percent (10%) of the total voting power of the Corporation.
Section 4. Notice of Meetings. Except as otherwise provided by
statute, written or printed notice of each meeting of the Stockholders of the
Corporation, whether annual or special, shall be given not less than ten nor
more than sixty days prior to the date upon which the meeting is to be held to
each stockholder entitled to vote at such meeting by leaving such notice with
him personally at, or by transmitting such notice with confirmed delivery
(including telex, telegraph, cable or other form of recorded communication,
provided that delivery of such notice in written form is confirmed in a writing)
to, his residence or usual place of business. If mailed, such notice shall be
deemed delivered when deposited in the United States mail in a sealed envelope
addressed to the stockholder at his address as it appears on the stock records
of the Corporation, with postage thereon prepaid. Such notice shall state the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. If a meeting is adjourned
to another time or place, 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 and, at the adjourned meeting, such business may be transacted as might
properly have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder of record entitled to vote at the meeting.
Notice of a Stockholders' meeting or adjournment thereof is
waived upon the occurrence of the following:
(a) A Stockholders' meeting is adjourned and a time and place
for readjournment is announced at the meeting at which the adjournment is taken,
and such date of readjustment is no more than 30 days from the date of
adjournment.
(b) Receipt by the Corporation of a written notice of waiver,
signed by the person entitled to notice before or after the time stated therein.
(c) Attendance by the person entitled to notice and failure of
such person to object to the transaction of any business because the meeting is
not lawfully called or convened.
Whenever notice is required to be given under any statute or
the Certificate of Incorporation or these Bylaws to any Stockholder to whom (a)
notice of two consecutive annual meetings,
2
<PAGE>
and all notices of meetings or of the taking of action by written consent
without a meeting to such person during the period between such two consecutive
annual meetings or (b) all, and at least two, payments (if sent by first class
mail) of dividends or interest on securities during a twelve month period, have
been mailed addressed to such person at his address as shown on the records of
the Corporation and have been returned undeliverable, the giving of notice to
such person shall not be required. Any action or meeting which shall be taken or
held without notice to such person shall have the same force and effect as if
such notice had been duly given. If any such person shall deliver to the
Corporation a written notice setting forth his then current address, the
requirement that notice be given to such person shall be reinstated. In the
event that the action taken by the Corporation is such as to require the filing
of a certificate under any of the other sections of the General Corporation Law,
the certificate need not state that notice was not given to persons to whom
notice was not required to be given pursuant to this Section 4.
Section 5. Quorum. On all questions, the presence of the
holders of a majority of the shares entitled to vote, in person or by proxy,
shall constitute a quorum for the transaction of business at any meeting of the
Stockholders. On all questions, the Stockholders present at a duly called or
held meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough Stockholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
Section 6. Adjourned Meeting. Any Stockholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned by vote
of a majority of the shares present, either in person or by proxy, but in the
absence of a quorum no other business may be transacted at such meeting, except
as expressly provided in Section 5 of this Article.
Section 7. Voting.
(a) The Stockholders entitled to notice of any meeting or to
vote at such meeting shall only be persons whose names stand on the stock
records of the Corporation on the record date determined in accordance with the
provisions of Section 12 of this Article, provided, however, that if no such
record date shall be fixed by the Board, only persons in whose names shares
stand on the stock records of the corporation at the close of business on the
business day next preceding the day on which notice of the meeting is given or
if such notice is waived, at the close of business on the business day next
preceding the day on which the meeting of Stockholders is held, shall be
entitled to vote at such meeting, and such day shall be the record date for such
meeting.
(b) Voting shall in all cases be subject to the provisions of
Sections 217 and 218 of the Delaware Corporation law
3
<PAGE>
(relating to voting of shares held by fiduciaries, or pledges, held in joint
ownership, and voting of shares by voting trusts or in accordance with other
voting agreements).
(c) At each meeting of the stockholders of the Corporation,
holders of a majority of the voting power of the Corporation entitled to vote
thereat, present either in person or by proxy, shall constitute a quorum for the
transaction of business. In the absence of quorum, the Stockholders of the
Corporation present in person or by proxy and entitled to vote at the meeting
may, by majority vote, or, in the absence of all Stockholders, any officer
entitled to preside or act as Secretary at such meeting, shall have the power to
adjourn the meeting from time to time until Stockholders holding the requisite
amount of stock shall be present in person or by proxy. At any such adjourned
meeting at which a quorum may be present, any business may be transacted which
might have been transacted at the meeting as originally called.
(d) On all questions, other than election of directors, each
Stockholder of the Corporation entitled to vote on such ques tions shall be
entitled to vote in person or by proxy one vote for each share of Common Stock
of the Corporation held by such Stockholder. Unless otherwise provided in the
Certificate of Incorporation or by statute, the affirmative vote of a majority
of the shares represented and voting at a duly held meeting at which a quorum is
present shall be the act of the Stockholders. Unless demanded by a Stockholder
present in person or by proxy at any meeting and entitled to vote thereat, the
vote on any question need not be by ballot. Upon demand for a vote by ballot
upon any question by any Stockholder present in person or by proxy at any
meeting and entitled to vote thereat, such vote shall be taken by ballot. On any
vote taken by ballot, each ballot shall be signed by the Stockholder voting, or
by his lawful proxy, and shall state the number and kind of shares voted.
(e) Notwithstanding Section 7(d) hereinabove, every
Stockholder complying with the provisions of this Section 7(e) and entitled to
vote at any election of directors may cumulate his votes and shall be entitled
to as many votes as shall equal the number of votes which (except for this
provision as to cumulative voting) he would be entitled to cast for the election
of directors to be elected by him, and he may cast all of such votes for a
single candidate for director or may distribute them among the number to be
voted for, or for any two or more of them, as he may see fit. No Stockholder
shall be entitled to cumulate votes and cast them for a candidate for director
unless such candidate's name shall have been placed in nomination prior to the
voting and the Stockholder shall have given notice at the meeting prior to the
voting for directors of the Stockholder's intention to cumulate his votes. If
any one Stockholder has given such notice, all
4
<PAGE>
Stockholders may cumulate their votes for candidates in nomination.
Section 8. Proxies. Each Stockholder entitled to vote at a
meeting of Stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for him
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of such meeting, at or prior to the time designated
in the order of business for so delivering such proxies. A duly elected proxy
shall be irrevocable if it states that it is irrevocable and if, and only so
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally.
Section 9. Stockholder List. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten 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 registered in the name of each
Stockholder. Such list shall be open to the examination of any Stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any Stockholder
who is present.
Section 10. Consent of Stockholders in Lieu of Meeting. Any
action required to be taken, or that may be taken, at any annual or special
meeting of the Stockholders of the Corporation, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action to be taken, shall have been signed by the holders of outstanding
stock, eligible to vote on such action, having not less than the minimum number
of votes of each class of stock that would be necessary to authorize or take
such action at a meeting at which all shares of each class of stock entitled to
vote thereon were present and voted.
The Secretary shall give prompt notice of the taking of any
corporate action without a meeting by less than unanimous written consent to
those Stockholders who have not consented in writing.
5
<PAGE>
Section 11. Inspectors of Election. In advance of any meeting
of the Stockholders, the Board shall appoint at least one person, other than
nominees for office as inspectors of election to act at such meeting or any
adjournment thereof. The number of such inspectors of election shall be one or
three. In case any person appointed as inspector fails to appear or refuses to
act, the vacancy shall be filled by appointment by the Board in advance of the
meeting, or at the meeting by the chairman of the meeting. If there are three
inspectors of election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all.
The duties of each such inspector shall include: determining
the number of shares outstanding and voting power of each; determining the
shares represented at the meeting; determining the existence of a quorum;
determining the authenticity, validity and effect of proxies; receiving votes,
ballots or consents; hearing and determining all challenges and questions in any
way arising in connection with the right to vote; retaining for a reasonable
period the disposition of any challenges made to the inspector's determinations;
counting and tabulating all votes; determining when the polls shall close;
determining the result of any election; certifying the determination of the
number of shares represented at the meeting, and the count of all votes and
ballots; certifying any information considered in determining the validity and
counting of proxies and ballots if that information is used for the purpose of
reconciling proxies and ballots submitted by or on behalf of banks, brokers,
their nominees or similar persons which represent more votes than the
Stockholder holds of record; and performing such acts as may be proper to
conduct the election or vote with fairness to all Stockholders.
Section 12. Record Date. In order that the Corpora tion may
determine the Stockholders entitled to notice of or to vote at any meeting of
Stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining Stockholders entitled to
notice of or to vote at a meeting of Stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held;
6
<PAGE>
(b) The record date for determining Stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board is necessary, shall be the day on which the first written
consent is expressed;
(c) The record date for determining Stockholders for any other
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto.
A determination of Stockholders of record entitled to notice
of or to vote at a meeting of Stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
Section 13. Procedures for Meetings. All meetings of
Stockholders shall be conducted according to such rules and pro cedures as the
Board of Directors may establish by resolution from time to time as being in the
best interests of the Stockholders and as may be deemed appropriate for insuring
that such meetings are conducted in a fair and orderly manner and in accordance
with the Certificate of Incorporation and these Bylaws.
Section 14. Opening and Closing of Polls. An announcement
shall be made at each meeting of the Stockholders by the Chairman of the meeting
of the date and time of the opening and closing of polls for each matter upon
which the Stockholders will vote at the meeting. No ballot, proxies or votes,
nor any revocations thereof or changes thereto, shall be accepted by the
inspectors after the closing of the polls unless the Delaware Court of Chancery
upon application by a Stockholder shall determine otherwise.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. The business and affairs of the Corporation
shall be managed by, or under the direction of the Board, except as may be
otherwise provided by the General Corpo ration Law or in the Certificate of
Incorporation or these Bylaws. Without prejudice to such powers, but subject to
the same limitation, it is hereby expressly declared that the directors shall
have the following powers in addition to other powers enumerated in these
Bylaws:
(a) To select and remove all officers, agents and employees of
the Corporation; prescribe any powers and duties for them that are consistent
with law, with the Certificate of Incorporation, and with these Bylaws; fix
their compensation; and require from them security for faithful service;
7
<PAGE>
(b) To conduct, manage and control the affairs and business of
the Corporation, and to make rules and regulations therefor consistent with law,
with the Certificate of Incorporation and with these Bylaws;
(c) To change the offices of the Corporation from one location
to another; to fix and locate from time to time one or more other offices of the
Corporation within or without the State of Delaware; to cause the Corporation to
be qualified to do business and to conduct business in any other state,
territory, dependency or country; and to designate any place within or without
the State of Delaware for the holding of any Stockholders meeting or meetings,
including annual meetings;
(d) To adopt, make and use a corporate seal; to pre scribe the
forms and certificates of stock; and to alter the form of the seal and
certificates;
(e) To authorize the issuance of shares of stock of the
Corporation from time to time, upon such terms and for such consideration as may
be lawful;
(f) To borrow money and incur indebtedness for the purposes of
the Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, and other evidences of debt and securities therefor.
Section 2. Number and Qualifications. The number of directors
of the Corporation shall be between two and seven. Directors need not be
Stockholders of the Corporation unless required by the Certificate of
Incorporation.
Section 3. Election and Term of Office. Members of the initial
Board of Directors shall hold office until the first annual meeting of
Stockholders and until their successors have been elected and qualified. The
directors of the Corporation shall be elected at the annual meeting of the
Stockholders, but if such annual meeting is not held or the directors are not
elected thereat the directors may be elected at a special meeting held for that
purpose. Each director shall hold office until the next annual meeting and until
a successor is elected and qualified.
Section 4. Vacancies.
(a) Unless otherwise provided in the Certificate of
Incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
Stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
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(b) If at any time, by reason of death or resignation or other
cause, the Corporation should have no directors in office, then any officer or
any Stockholder or an executor, administrator, trustee or guardian of a
Stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a Stockholder, may call a special meeting of Stockholders in
accordance with the provisions of the Certificate of Incorporation and the
Bylaws or may apply to the Delaware Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation Law.
(c) If, at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole Board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
Stockholder or Stockholders holding at least 10 percent of the total number of
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office as aforesaid, which election shall be governed by Section 211 of the
General Corporation Law.
(d) Unless otherwise provided in the Certificate of
Incorporation, when one or more directors shall resign from the Board, effective
at a future date, a majority of the directors then in office, including those
who have so resigned, shall have power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in these
Bylaws.
(e) Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that if less than the
entire Board is to be removed, no director may be removed without cause if the
votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire Board of Directors.
(f) Any director may resign effective upon giving written
notice to the Chairman of the Board, the President, the Secretary or the Board,
unless the notice specifies a later date for the effectiveness of such
resignation.
Section 5. Place of Meeting. Unless otherwise provided in the
Certificate of Incorporation, or by unanimous written consent of all acting
directors, meetings, both regular and special, of the Board shall be held at the
Corporation's principal executive offices within the State of California or at
such other place or places within or without the State of Delaware, as the Board
may from time to time determine.
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Section 6. Regular Meetings. Immediately following each annual
meeting of the Stockholders the Board shall hold a regular meeting at the same
place at which such Stockholders' meet ing is held, or any other place as may be
fixed from time to by the Board of Directors. Notice of such meeting need not be
given.
Other regular meetings of the Board shall be held without call
at such time and place as the Board may from time to time by resolution
determine. If any day fixed for a regular meeting shall be a legal holiday at
the place where the meeting is to be held, then the meeting which would
otherwise be held on that day shall be held at the same hour on the next
succeeding business day not a legal holiday. Notice of a regular meeting need
not be given.
Section 7. Special Meetings. Except as otherwise provided in
the Certificate of Incorporation, special meetings of the Board for any purpose
or purposes may be called at any time by the Chairman of the Board, the
President, the Secretary or by any three directors.
Written notice of the time and place of special meetings shall
be delivered personally to each director or communicated to each director by
telephone or telegraph or telex or cable or mail or other form of recorded
communication, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the Corporation or, if it is not so
shown on such records or is not readily ascertainable, at that director's
residence or usual place of business. In case such notice is mailed, it shall be
deposited in the United States mail at least seven days prior to the time of the
holding of the meeting. In case such notice is delivered personally or by other
form of written communication, it shall be delivered at least 48 hours before
the time of the holding of the meeting. The notice shall state the time of the
meeting, but need not specify the place of the meeting if the meeting is to be
held at the principal executive office of the Corporation. The notice need not
state the purpose of the meeting unless expressly provided otherwise by statute.
Section 8. Meetings by Communication Equipment. Members of the
Board of the Corporation, or any committee designated by the Board, may
participate in a meeting of the Board or committee by means of conference
telephone or similar communica tions equipment by means of which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this section shall constitute presence in person at such meeting.
Section 9. Quorum and Manner of Acting. The presence of a
majority to the total number of directors shall constitute a quorum for the
transaction of business, and the act of a majority of the directors present at a
meeting duly held shall be the act of the Board. In the absence of a quorum, a
majority of the directors
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present may adjourn any meeting from time to time until a quorum is present.
Notice of an adjourned meeting need not be given.
Section 10. Validation of Defectively Called or Noticed
Meetings. The transactions of any meeting of the Board, however called and
noticed or wherever held, shall be as valid as though made or performed at a
meeting duly held after regular call and notice, if, either before or after the
meeting, each of the directors not present or who, though present, has prior to
the meeting or at its commencement protested the lack of proper notice to such
director, signs a written waiver of notice or a consent to holding such meeting
or approval of the minutes thereof. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
Section 11. Action Without Meeting. Any action re quired or
permitted to be taken at any meeting of the Board, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 12. Compensation of Directors. Directors and members
of committees may receive such compensation, if any, for their services, and
such reimbursement for expenses incurred by them, as may be fixed or determined
by resolution of the Board of Directors.
Section 13. Committees. The Board may, by resolution passed by
a majority of the directors, designate one or more com mittees, each committee
to consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the Stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
Stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the Bylaws of the Corporation; and, unless the resolution expressly
so provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock or to adopt a certificate of
ownership and merger. Any director may be removed from a committee with or
without cause by the affirmative vote of a majority of the entire Board of
Directors.
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ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the Corporation shall be
a Chairman, a Chief Executive Officer, a President, a Chief Financial Officer
and a Secretary. The Corporation may also have, at the discretion of the Board,
one or more Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Financial Officers, and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article. Any number of
offices may be held by the same person.
Section 2. Election of Officers. The officers of the
corporation, except such officers as may be appointed in accordance with the
provisions of Section 3 or Section 5 of this Article, shall be chosen annually
by the Board, and each shall serve at the pleasure of the Board, subject to the
rights, if any, of an officer under any contract of employment.
Section 3. Subordinate Officers. The Board may appoint, and
may empower the Chief Executive Officer to appoint, such other officers as the
business of the Corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in these
Bylaws or as the Board or Chief Executive Officer may from time to time
determine.
Section 4. Removal and Resignation of Offices. Without
prejudice to the rights, if any, of an officer under any contract of employment,
any officer may be removed, either with or without cause, by the Board, at any
regular or special meeting of the Board, or by any officer upon whom such power
of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to
the Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; the acceptance of the
resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the Corporation under any contract
to which the officer is a party.
Section 5. Vacancies in Offices. A vacancy in any office
because of death, resignation, removal, disqualification or any other cause
shall be filled in the manner prescribed in these Bylaws for regular election or
appointment to such office.
Section 6. Chairman of the Board. The Chairman of the Board,
if such an officer be elected, shall, if present, preside at all meetings of the
Board and exercise and perform such other powers and duties as may be from time
to time assigned to him by the Board.
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Section 7. Chief Executive Officer. Subject to such
supervisory powers, if any, as may be given by the Board to the Chairman of the
Board, the Chief Executive Officer, if such an officer be elected, shall,
subject to the control of the Board and the Chairman, have general supervision,
direction and control of the business and the officers of the Corporation. The
Chief Executive Officer shall preside at all meetings of the Stockholders and,
in the absence of the Chairman of the Board, or if there be none, at all
meetings of the Board. The Chief Executive Officer shall exercise and perform
such other powers and duties as may be from time to time assigned to him by the
Board.
Section 8. President. Subject to such supervisory powers, if
any, as may be given by the Board to the Chairman of the Board and the Chief
Executive Officer, if there be such officers, the President shall be the chief
operating officer of the Corporation and shall, subject to the control of the
Board, have general supervision, direction, and control of the business and the
officers of the Corporation (other than the Chairman and Chief Executive
Officer). The President shall preside at all meetings of the Stockholders in the
absence of the Chairman and the Chief Executive Officer, and, in the absence of
the Chairman and the Chief Executive Officer, at all meetings of the Board. The
President shall have the general powers and duties of management usually vested
in the office of president and general manager of a Corporation, and shall have
such other powers and duties as may be prescribed by the Board and the Chief
Executive Officer.
Section 9. Vice Presidents. In the absence or disability of
the Chairman, the Chief Executive Officer and the President, the Vice
Presidents, if any, in order of their rank as fixed by the Board, or, if not
ranked, the Vice President desig nated by the Board shall perform all the duties
of such officer, and when so acting shall have all the powers of, and be subject
to all the restrictions upon, such offices. The Vice Presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board, the Chief Executive Officer or
the President.
Section 10. Secretary. The Secretary shall keep, or cause to
be kept, at the principal executive office or such other place as the Board may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and Stock holders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at directors' meetings or committee meet ings, the number of
shares present or represented at Stockholders' meetings, and the proceedings.
The Secretary shall give, or cause to be given, notice of all
meetings of the Stockholders and of the Board required by the Bylaws or by law
to be given, and he shall keep the seal of the
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Corporation, if one be adopted, in safe custody, and shall have such other
powers and perform such other duties as may be prescribed by the Board.
Section 11. Chief Financial Officer. The Chief Financial
Officer shall keep and maintain, or cause to be kept and maintained, adequate
and correct books and records of accounts of the properties and business
transactions of the Corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained earnings and shares,
and shall send or cause to be sent to the Stockholders of the Corporation such
financial statements and reports as are by law or these Bylaws required to be
sent to them. The books of account shall at all reasonable times be open to
inspection by any director.
The Chief Financial Officer shall deposit all monies and other
valuables in the name or to the credit of the Corporation with such depositories
as may be designated by the Board. The Chief Financial Officer shall disburse
the funds of the Corporation as may be ordered by the Board, shall render to the
President and directors, whenever they request it, an account of all
transactions undertaken as Chief Financial Officer and of the financial
condition of the Corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board.
ARTICLE V
INDEMNIFICATION OF DIRECTORS,
OFFICERS. EMPLOYEES AND OTHER AGENTS
Section 1. Agents, Proceedings and Expenses. For the purposes
of this Article, "agent" means any person who is or was a director, officer,
employee or other agent of the corporation, or is or was a director, officer,
employee or other agent of the corporation as a director, officer, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation; "proceeding" means any threatened, pending or complete action or
proceeding, whether civil, criminal, administrative, or investigative; and
"expenses" includes, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under Section 2 or Section 3 of this
Article.
Section 2. Actions Other Than By The Corporation. The
Corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than a action by or in the right of the Corporation) by reason of the
fact that he
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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 expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or 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 which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 3. Actions by the Corporation. The Corpora tion shall
have power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee 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 expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation 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 for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit 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 which the Court of Chancery or such other court shall deem proper.
Section 4. Successful Defense by Agent. To the ex tent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 2 and 3, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
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Section 5. Required Approval. Any indemnification under
Sections 1 and 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, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 2 and 3. Such determination shall be made (a) by the Board by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (b) if such disinterested directors so direct, by
independent legal counsel in a written opinion, or (c) by the affirmative vote
of a majority of Stockholders.
Section 6. Advance of Expenses. Expenses incurred in defending
a civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board in the specific case upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Corporation as authorized in this Article. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the Board deems appropriate.
Section 7. Contractual Rights. The indemnification provided by
this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any agreement, vote of
Stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 8. Limitations. No indemnification or advance shall be
made under this Article, except as provided in Section 4, in any circumstances
where it appears:
(a) That it would be inconsistent with a provision of the
Certificate of Incorporation, a resolution of the Stockholders or an agreement
in effect at the time of accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 9. Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
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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 and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article.
Section 10. Constituent Corporations. For purposes of this
Article, references to "the Corporation" shall include, in addition to the
Corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, 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
would have with respect to such constituent corporation if its separate
existence had continued.
Section 11. Definitions. For purposes of this Article,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the 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" as referred to in
this Article.
ARTICLE VI
MISCELLANEOUS
Section 1. Inspection of Books and Records by Stock holders.
Any Stockholder of record, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during the
usual hours for business to inspect for any proper purpose the Corporation's
stock ledger, a list of its Stockholders, and its other books and records, and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a Stockholder. In every instance
where an attorney or other agent
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shall be the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the Stockholder.
The demand under oath shall be directed to the Corporation at its registered
office in the State of Delaware or at its principal place of business.
Section 2. Inspection of Books and Records by Direc tors. Any
director shall have the right to examine the Corpora tion's stock ledger, a list
of its Stockholders and its other books and records for a purpose reasonably
related to his position as a director. Such right to examine the records and
books of the Corporation shall include the right to make copies and extract
therefrom.
Section 3. Checks, Drafts, Evidences of Indebtedness. All
checks, drafts, or other orders for payment of money, notes, or other evidences
of indebtedness, issued in the name of or payable to the Corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the Board.
Section 4. Corporate Contracts and Instruments; How Executed.
The Board, except as otherwise provided in these Bylaw, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the Corporation, and this authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the Board or within the agency power of an officer, no officer,
agent, or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or for any amount.
Section 5. Certificates for Shares. Every holder of stock in
the Corporation shall be entitled to have a certificate signed by, or in the
name of the Corporation by the Chairman or the President or a Vice President,
and by the Chief Financial Officer or an Assistant Financial Officer, or the
Secretary or an Assistant Secretary of the Corporation representing the number
of shares owned by him in the Corporation. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
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 issue.
Section 6. Transfer of Shares. Transfers of shares of the
capital stock of the Corporation shall be made only on the books of the
Corporation by the holder thereof, or by his attorney thereunto authorized by a
power of attorney duly executed and filed with the Secretary of the Corporation
or a transfer agent of the
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Corporation, if any, and on surrender of the certificate or certificates for
such shares properly endorsed. A person in whose name shares of stock and on the
books of the Corporation shall be deemed the owner thereof as regards the
Corporation, and upon any transfer of shares of stock the person or persons into
whose name or names such shares shall have been transferred, with respect to all
rights, privileges and obligations of holders of stock of the Corporation and as
against the Corporation or any other person or persons. The term "person" or
"persons" wherever used herein shall be deemed to include any partnership,
corporation, association or other entity. Whenever any transfer of shares shall
be made for collateral security, and not absolutely, such fact, if known to the
Secretary or to such transfer agent, shall be so expressed in the entry of
transfer.
Section 7. Lost, Stolen or Destroyed Certificates. The
Corporation may issue a new certificate of stock in the place of any certificate
theretofore issued by it, alleged to have been lost, stolen or destroyed, and
the Corporation may require the owner of the lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
Section 8. Representation of Shares of Other Corporations. The
Chairman of the Board, the President, or any vice president or any person
designated by any of such officers, is authorized, in the absence of
authorization by the Board, to vote on behalf of the Corporation any and all
shares of any other corporation or corporations, foreign or domestic, for which
the Corporation has the right to vote. The authority granted to these officers
to vote or represent on behalf of the Corporation any and all shares held by the
Corporation in any other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by proxy duly
executed by these officers.
Section 9. Construction and Definitions. Unless the context
requires otherwise, the general provisions, rules of construction, and
definitions in the General Corporation Law shall govern the construction of
these Bylaws. Without limiting the generality of this provision, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes both a corporation and a natural person.
Section 10. Amendments. Unless otherwise provided in the
Certificate of Incorporation, the power to adopt, amend or repeal any Bylaws of
the Corporation shall be in the Stockholders of the Corporation entitled to
vote.
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Section 11. Conformance to the Law. In the event that it is
determined that these Bylaws, as now written or as amended, conflict with the
General Corporation Law, or any other applicable law, as now enforced or as
amended, these Bylaws shall be deemed amended, without action of the Board or
the Stockholders, to conform with such law. Such amendment to be so interpreted
as to bring these Bylaws within minimum compliance. For purposes of this section
"amendment" shall include a repeal of, or a change in interpretation of, the
relevant compendium.
Section 12. Seal. The Board of Directors shall provide a
corporate seal, which shall be in the form of a circle and shall have inscribed
thereon the name of the Corporation, the year of its incorporation and the words
"Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 13. Fiscal Year. The fiscal year of the Corporation
shall begin on the first day of October of each year.
Section 14. Dividends; Surplus. Subject to the provi sions of
the Certificate of Incorporation and any restrictions imposed by statute, the
Board of Directors may declare dividends out of the net assets of the
Corporation in excess of its capital or, in case there shall be no such excess,
out of the net profits of the Corporation for the fiscal year then current
and/or the preceding fiscal year, or out of any funds at the time legally
available for the declaration of dividends (hereinafter referred to as "surplus
or net profits") whenever, and in such amounts as, in its sole discretion, the
conditions and affairs of the Corporation shall render advisable. The Board of
Directors in its sole discretion may, in accordance with law, from time to time
set aside from surplus or net profits such sum or sums as it may think proper as
a reserve fund to meet contingencies, or for equalizing dividends, or for the
purpose of maintaining or increasing the property or business of the
Corporation, or for any other purpose as it may think conducive to the best
interests of the Corporation.
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Exhibit 10.1
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this _____ day
of _____, 199_, by and between ____________________, a Delaware corporation
(the "Company"), and __________________ ("Indemnitee").
RECITALS
A. The Company and Indemnitee recognize the increasing difficulty
in obtaining liability insurance for directors, officers, employees and agents,
the significant increases in the cost of such insurance and the general
reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, and agents to expensive litigation risk at the same time that the
availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available
as adequate under the present circumstances, and Indemnitee and other directors,
officers, employers and agents of the Company may not be willing to continue to
serve as directors, officers, employees and agents without additional
protection.
D. The Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as directors,
officers, employees and agents of the Company and to indemnify its directors,
officers, employees and agents so as to provide them with the maximum protection
permitted by law.
AGREEMENT
The Company and Indemnitee hereby agree as follows:
1. Agreement to Serve. Indemnitee agrees to serve and/or
continue to serve the Company, at the Company's will (or under separate written
agreement approved by the Board of Directors of the Company, if such agreement
exists), in the capacity Indemnitee currently serves the Company, as long as
Indemnitee is duly appointed or elected and qualified in accordance with the
applicable provisions of the Bylaws of the Company or any subsidiary of the
Company or (subject to any employment agreement between Indemnitee and the
Company) until such time as Indemnitee tenders a written resignation or is
removed in accordance with the Bylaws; provided, however, that nothing contained
in this Agreement is intended to or shall create any right (express or implied)
to continued employment by Indemnitee.
<PAGE>
2. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while a
director, officer, employee or agent, or by reason of the fact that Indemnitee
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 expenses (including, without limitation, attorneys' fees,
disbursements and retainers, accounting and witness fees, travel and deposition
costs, and expenses of investigations), judgments, fines and amounts paid in
settlement (if such settlement is approved in advance by the Company) actually
and reasonably incurred by Indemnitee in connection with such action, suit or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) Proceedings by or in the Right of the Company. The
Company shall indemnify Indemnitee if Indemnitee was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company or any subsidiary of the Company to
procure a judgment in its favor by reason of the fact that Indemnitee is or was
a director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while a
director, officer, employee or agent, or by reason of the fact that Indemnitee
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 expenses (including, without limitation, attorneys' fees,
disbursements and retainers, accounting and witness fees, travel and deposition
costs, and expenses of investigations) and, to the fullest extent permitted by
law, amounts paid in settlement, in each case to the extent actually and
reasonably incurred by Indemnitee in connection with the defense or settlement
of such action or suit (i) if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company and its stockholders, except that no indemnification shall be made
in respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of Indemnitee's duty to
the Company and its stockholders unless and only to the extent that the court in
which such action or suit is or was pending shall determine upon application
that, in view of all the circumstances of the case, Indemnitee is fairly and
reasonably
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<PAGE>
entitled to indemnity for expenses and then only to the extent that the court
shall determine; (ii) if Indemnitee is a director, to the extent that the action
or contemplated action seeks monetary damages for breach of Indemnitee's duties
to the Company and its stockholders in circumstances under which Indemnitee's
personal liability therefor has been eliminated as a result of the provisions of
Section 102(b)(7) of the Delaware General Corporation Law; or (iii) if
Indemnitee is an agent other than a director, to the extent that, were
Indemnitee a director, Indemnitee would have the right to be indemnified under
Section 2(b)(ii), above; and in the case of Section 2(b)(ii) and 2(b)(iii)
above, indemnification shall include, to the extent not prohibited by law,
indemnification against all judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee in connection with such action,
suit or proceeding.
(c) Mandatory Payment of Expenses. To the extent that
Indemnitee has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 2(a) or (b) or in defense of
any claim, issue or matter therein, Indemnitee shall be indemnified against
expenses (including, without limitation, attorneys' fees, disbursements and
retainers, accounting and witness fees, travel and deposition costs, and
expenses of investigations) actually and reasonably incurred by Indemnitee in
connection therewith.
(d) Indemnification for Serving as a Witness.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of Indemnitee's status as a director, officer, employee
or agent of the Company, a witness in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, Indemnitee shall be
indemnified against expenses actually and reasonably incurred by Indemnitee in
connection therewith.
3. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance
all reasonable expenses incurred by Indemnitee in connection with the
investigation, defense, settlement or appeal of any civil, criminal,
administrative or investigative action, suit or proceeding referenced in Section
2(a) or (b) hereof (but not amounts actually paid in settlement of any such
action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall,
as a condition precedent to his right to be indemnified under this Agreement,
give the Company notice, in accordance with Section 14 hereof, of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
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(c) Procedure. Any indemnification and advances provided
for in Section 2 and this Section 3 shall be made no later than 30 days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within 30 days after a written request for payment thereof has first
been received by the Company, Indemnitee may, but need not, at any time
thereafter bring an action against the Company to recover the unpaid amount of
the claim and, subject to Section 13 of this Agreement, Indemnitee shall also be
entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee. Indemnitee shall be entitled to receive
interim payments of expenses pursuant to Section 3(a) unless and until such
defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the intention of the parties that if the
Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt
of a notice of a claim pursuant to Section 3(b) hereof, the Company has director
and officer liability insurance in effect, the Company shall give prompt notice
of the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall
be obligated under Section 3(a) hereof to pay the expenses of any proceedings
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ separate counsel in any such proceeding at
Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there
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may be a conflict of interest between the Company and Indemnitee in the conduct
of any such defense, or (C) the Company shall not, in fact, have employed
counsel to assume the defense of such pro ceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
4. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the event
of any change in any applicable law, statute or rule which narrows the right of
a Delaware corporation to indemnify a member of its board of directors or its
officers, employees or agents, such change, to the extent not otherwise required
by such law, statute or rule to be applied to this Agreement, shall have no
effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested Directors, the Delaware
General Corporation Law or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though he may have ceased to serve in such capacity at the time of any action,
suit or other covered proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors, officers, employees
and/or agents under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. If the Company does not maintain a
policy or policies of officers and directors liability insurance with a
reputable insurance company(ies), upon written
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request of Indemnities, the Company shall, from time to time, make the good
faith determination whether or not it is practicable for the Company to obtain
and maintain such a policy or policies of insurance. Officers and directors
liability insurance would cover, among other things, coverage for losses from
wrongful acts and/or to ensure the Company's performance of its obligations
under this Agreement. The Company shall not be obligated to make such
determination more than once in any 12-month period based on written requests
from Indemnities and any other persons with similar rights. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all such policies
of liability insurance, Indemnitee shall be named as an insured in such a manner
as to provide Indemnitee the same rights and benefits as are accorded to the
most favorably insured of the Company's directors, if Indemnitee is a director;
or of the Company's officers, if Indemnitee is not a director of the Company but
is an officer; or of the Company's employees, if Indemnitee is not a director or
officer but is an employee; or of the Company's agents, if Indemnitee is not a
director, officer or employee but is an agent. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit, or if Indemnitee
is covered by similar insurance maintained by a subsidiary or parent of the
Company.
8. Severability. Nothing in this Agreement is intended to require
or shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or
advance expenses to Indemnitee with respect to proceedings or claims initiated
or brought voluntarily by Indemnitee and not by way defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or otherwise as required under Section 145
of the Delaware General Corporation Law, but such indemnification or advancement
of expenses may be provided by the Company in specific cases if the Board of
Directors has approved the initiation or bringing of such suit;
(b) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret
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<PAGE>
this Agreement, if a court of competent jurisdiction determines that each of the
material assertions made by the Indemnitee in such proceeding was not made in
good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses
or liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance or other policy of insurance
maintained by the Company;
(d) Claims Under Section 16(b). To indemnify Indemnitee
for expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute;
(e) Unlawful Claims. To indemnify Indemnitee in any
manner which is contrary to public policy or which a court of competent
jurisdiction has finally determined to be unlawful;
(f) Failure to Settle Proceeding. To indemnify Indemnitee
for liabilities in excess of the total amount at which settlement reasonably
could have been made, or for any cost and/or expenses incurred by Indemnitee
following the time such settlement reasonably could have been effected, if
Indemnitee shall have unreasonably delayed, refused or failed to enter into a
settlement of any action, suit or proceeding (or investigation or appeal
thereof) recommended in good faith, in writing, by the Company; or
(g) Breach of Employment Agreement. To indemnify
Indemnitee for any breach by Indemnitee of any employment agreement between
Indemnitee and the Company or any of its subsidiaries.
10. Construction of Certain Phrases.
For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees
and/or agents, so that if Indemnitee 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,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
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For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company or
any subsidiary of the Company which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interest of the
Company" as referred to in this Agreement.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Successors and Assigns. This Agreement shall be binding upon
the Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (i) if delivered by hand and receipted for by the party addressee, on the
date of such receipt, or (ii) if mailed by domestic certified or registered mail
with postage prepaid, on the third business day after the date postmarked.
Addresses for notice to either party are as shown on the signature page of this
Agreement, or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
California for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be brought only in the state courts of the State of
California, or in Federal courts located in such State.
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<PAGE>
16. Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of Delaware.
17. California Law. To the extent that the Company is subject to
the provisions of Section 317 of the California General Corporation Law pursuant
to Section 2115 of the California General Corporation Law, nothing in this
Agreement shall be deemed to require the Company to take any action which would
cause it to be in violation of Section 317 of the California General Corporation
Law.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
____________________, a ___________
corporation, as the Company
By: _______________________________________
Name:__________________________________
Title:_________________________________
Notice Address:
_______________________________________
_______________________________________
_______________________________________
AGREED TO AND ACCEPTED:
INDEMNITEE:
________________________
________________________
Notice Address:
________________________
________________________
________________________
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Exhibit 10.2
STANDARD SUBLEASE
American Industrial Real Estate Association
1. Parties. This Sublease, dated, for reference purposes only, January 20,
1995, is made by and between Comstream Corporation, a California Corporation
(herein called "Sublessor") and Rhino Marketing Inc., a California Corporation
(herein called "Sublessee").
2. Premises. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Santa Barbara State of California, commonly known as a portion of 2811
Airpark Drive; Santa Maria, California and described as approximately 23,000
square feet of office/industrial space ("Subleased Premises") in a larger
two-story building known as County Assessor's Parcel Number 111-230-64 ("Master
Leased Premises"). See Exhibit A. Said real property, including the land and all
improvements thereon, is hereinafter called the "Premises".
3. Term.
3.1 Term. The term of this Sublease shall be for approximately
forty-five (45) months commencing on February 1, 1995 and ending on October 31,
1998 unless sooner terminated pursuant to any provision hereof.
3.2 Delay in Commencement. Notwithstanding said commencement date, if
for any reason Sublessor cannot deliver possession of the [premises] to
Sublessee on said date. Sublessor shall not be subject to any liability
therefore, not shall such failure affect the validity of this Lease or the
obligations of Sublessee hereunder or extend the term hereof, but in such case
Sublessee shall not be obligated to pay rent until possession of the Premises is
tendered to Sublessee; provided, however, that if Sublessor shall not have
delivered possession of the Premises within sixty (60) days from said
commencement date. Sublessee may, at Sublessee's option, by notice in writing to
Sublessor within ten (10) days thereafter, cancel its Sublease, in which event
the parties shall be discharged from all obligations thereunder. If Sublessee
occupies the Premises prior to said commencement date, such occupancy shall be
subject to all provisions hereof, such occupancy shall not advance the
termination date and Sublessee shall pay rent for such period at the initial
monthly rates set forth below.
4. Rent. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of $10,350.00 in advance on the first day of each month of the
term hereof. Sublessee shall pay Sublessor upon the execution hereof $0.00 as
rent for N/A (See Addendum Paragraph A for Rent Schedule) Rent for any period
during the term hereof which is for less than one month shall be a prorata
portion of the monthly installment Rent shall be payable in lawful money of the
United States to Sublessor at the address stated herein or to such other persons
or at such other places as Sublessor may designate in writing.
<PAGE>
5. Security Deposit. Sublessee shall deposit with Sublessor upon execution
hereof $10,350.00 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. If Sublessee fails to pay rent or other
charges due hereunder, or otherwise defaults with respect to any provision of
this Sublease, Sublessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Sublessor may become obligated by reason of
Sublessee's default, or to compensate Sublessor for any loss or damage which
Sublessor may suffer thereby. If Sublessor so uses or applies all or any portion
of said deposit, Sublessee shall within ten (10) days after written demand
therefore deposit cash with Sublessor in an amount sufficient to restore said
deposit to the full amount hereinabove stated and Sublessee's failure to do so
shall be a material breach of this Sublease. Sublessor shall not be required to
keep said deposit separate from its general accounts. If Sublessee performs all
of Sublessee's obligations hereunder, said deposit, or so much thereof as has
not heretofore been applied by Sublessor, shall be returned, without payment of
interest or other increment for its use to Sublessee (or at Sublessor's option,
to the last assignee, if any, of Sublessee's interest hereunder) at the
expiration of the term hereof, and after Sublessee has vacated the premises. No
trust relationship is created herein between Sublessor and Sublessee with
respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for offices,
telemarketing and manufacturing as permitted under the zoning designation and
applicable laws and for no other purpose.
6.2 Compliance with Law.
(a) Sublessor warrants to Sublessee that the Premises, in its
existing state, but without regard to the use for which Sublessee will use the
premises, does not violate any applicable building code regulation or ordinance
at the time that this Sublease is executed. In the event that it is determined
this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole
expense, rectify any such violation. In the event that Sublessee does not give
to Sublessor written notice of the violation of this warranty within _______ the
commencement of the term of this Sublease, it shall be conclusively deemed that
such violation did not exist and the correction of the same will be the
obligation of the Sublease.
(b) Except as provided in paragraph 6.2(a), Sublessee shall,
at Sublessee's expense, comply promptly with all applicable statutes,
ordinances, rules, regulations, orders, restrictions of record, and requirements
in effect during the term or any part of the term hereof regulating the by
Sublessee of the Premises. Sublessee shall not use or permit the use of the
Premises in any manner that will tend to create waste or a nuisance or, if there
shall be more than one tenant of the building containing the Premises, which
shall tend to disturb such other tenants.
6.3 Condition of Premises. Except as provided in paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the
execution hereof, subject to all applicable zoning, municipal, county and state
laws, ordinances, and regulations governing and regulating
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use of the Premises, and accepts this Sublease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto Sublessee
acknowledges that neither Sublessor nor Sublessor's agents have made any
representation or warranty as to the suitability of the premises for the conduct
of Sublessee's business.
7. Master Lease.
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto _____ Exhibit 1, dated October 10, 1991 wherein Gordon E. Evans, Trustee,
Sublessor, hereinafter referred to as the "Master Lessor."
7.2 This Sublease is and shall be at all times subject and
subordinate to the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor
and Sublessee to each other under this Sublease shall be the terms and
conditions of the Master Lease except for those provisions of the Master Lease
which are directly contradicted by this Sublease in which event the terms of
this Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the "Lessor" is used it
shall be deemed to mean the Sublessor herein and wherever in the Master Lease
the word "Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods
subsequent for obligations which have arisen prior to the termination of this
Sublease, Lessee does hereby expressly assume and agree to perform and comply
with, for the benefit of Sublessor and Master Lessor, each and every obligation
of Sublessor under the Master Lease except for the following paragraphs which
are excluded therefrom Paragraphs 8.3 (Property Insurance) and 10.1 (Real
Property Taxes) except that Sublessee shall pay to Sublessor any increases in
the preceding over first year of the Sublease ("Base Year"). (See also Sublease
Paragraph B).
7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations."
7.6 Sublessee shall hold Sublessor free and harmless of and from
all liability, judgments, costs, damages, claims or demands, including
reasonable attorneys fees, arising out of Sublessee's failure to comply with or
perform Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the
entire term of this Sublease, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in
full force and effect and that no default exists on the part of any party to the
Master Lease.
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8. Assignment of Sublease and Default.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the rents accruing
under this Sublease. However, if Sublessor shall default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee,
upon receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease
without the consent of Master Lessor.
9. Consent of Master Lessor.
9.1 In the event that the Master Lease requires that Sublessor
obtain the consent of Master Lessor to any subletting by Sublessor then the
Sublease shall not be effective unless, within 10 days hereof, Master Lessor
signs this Sublease thereby giving its consent to the subletting.
9.2 In the event that the obligations of the Sublessor under the
Master Lease have been guaranteed by third parties then this Sublease, not the
Master Lessor's consent, shall not be effective unless, within 10 days of the
date hereof, said guarantors sign this Sublease thereby giving guarantors
consent to this Sublease and the terms hereof.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations
or alter the primary liability of Sublessor to pay the rent and perform and
comply with all of the obligations of Sublessor to be performed under the Master
Lease.
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(b) The acceptance of rent by Master Lessor from Sublessee or
any one else liable under the Master Lease shall not be deemed a waiver by
Master Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a
consent to any subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
any one else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor nor any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its
obligations under the Master Lease, then Master Lessor, at its option and
without being obligated to do so, may require Sublessee to attorn to Master
Lessor in which event Master Lessor shall undertake the obligations of Sublessor
under this Sublease from the time of the exercise of said option to termination
of this Sublease but Master Lessor shall not be liable for any prepaid rents nor
any security deposit paid by Sublessee, nor shall Master Lessor be liable for
any other defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of
Sublessor at the end of this document shall constitute their consent to the
terms of this Sublease.
9.5 Master Lessor acknowledges that, to the best of Master
Lessor's knowledge, no default presently exists under the Master Lease of
obligations to be performed by Sublessor and that the Master Lease is in full
force and effect.
9.6 In the event that Sublessor defaults under its obligations to
be performed under the Master Lease by Sublessor, Master Lessor agrees to
deliver to Sublessee a copy of any such notice of default Sublessee shall have
the right to cure any default of Sublessor described in any notice of default
within ten days after service of such notice of default on Sublessee. If such
default is cured by Sublessee then Sublessee shall have the right of
reimbursement and offset from and against Sublessor.
10. Brokers Fee.
10.1 Upon execution hereof by all parties, Sublessor shall pay to
Beaver-Free Corp. licensed real estate broker, (herein called "Broker"), a fee
as set forth in a separate agreement between Sublessor and Broker, or in the
event there is no separate agreement between Sublessor and Broker, the sum of
$ separate agreement for brokerage services rendered by Broker to Sublessor
in this transaction.
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10.2 Sublessor agrees that if Sublessee exercises any option or
right of first refusal granted by Sublessor herein, or any option or right
substantially similar thereto, either to extend the term of this Sublease, to
renew this Sublease, to purchase the Premises, or to lease or purchase adjacent
property which Sublessor may own or in which Sublessor has an interest, or if
Broker is the procuring cause of any lease, sublease, or sale pertaining to the
Premises or any adjacent property which Sublessor may own or in which Sublessor
has an interest, then as to any of said transactions Sublessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of the execution of this Sublease. Notwithstanding the foregoing,
Sublessor's obligation under this Paragraph 10.2 is limited to a transaction in
which Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to renew
the Master Lease, to purchase the Premises or any part thereof, or to lease or
purchase adjacent property which Master Lessor may own or in which Master Lessor
has an interest, or if Broker is the procuring cause of any other lease or sale
entered into between Sublessee and Master Lessor pertaining to the Premises, any
part thereof, or any adjacent property which Master Lessor owns or in which it
has an interest, then as to any of said transactions Master Lessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of its consent to this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be
due and payable upon the exercise of any option to extend or renew, as to any
extension or renewal, upon the execution of any new lease, as to a new lease
transaction or the exercise of a right of first refusal to lease, or at the
close of escrow, as to the exercise of any option to purchase or other sale
transaction.
10.5 Any transferee of Sublessor's interest in this Sublease, or of
Master Lessor's interest in the Master Lease, by accepting an assignment
thereof, shall be deemed to have assumed the respective obligations of Sublessor
or Master Lessor under this Paragraph 10. Broker shall be deemed to be a
third-party beneficiary of this paragraph 10.
11. Attorney's Fees. If any party or the Broker named herein brings an
action to enforce the terms hereof or to declare rights hereunder, the
prevailing party in any such action, on trial and appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
Court. The provision of this paragraph shall inure to the benefit of the Broker
named herein who seeks to enforce a right hereunder.
12. Additional Provisions. If there are no additional provisions draw a
line from this point to the next printed word after the space left here. If
there are additional provisions place the same here 1.
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ADDENDUM
A. RENT SCHEDULE:
2/1/95 - 2/28/95 $.0.00/month
3/1/95 - 1/31/96: $10,350.00/month
2/1/96 - 1/31/97: $11,500.00/month
2/1/97 - 10/31/98: $12,650.00/month
Sublessee will pay Rent on the first of the month, when due. Occupancy
for the month of February, 1995 shall be Rent free.
B. INDUSTRIAL GROSS SUBLEASE:
It is the Intent of the parties that this is an Industrial Gross
Sublease. Sublessor shall remain responsible for the Base Year Property
Insurance, Base Year Real Property Taxes, and maintenance for all
portions of the Master Leased Premises excluding the Subleased
Premises. The Subleased Premises shall include Sublessee's proportion
share (63%) of the existing parking area with individual spaces to
remain unreserved and un-assigned.
C. SECURITY SYSTEM AND TELEPHONE EQUIPMENT:
Sublessee shall have the use of the existing telephone switch and
equipment (in its current condition) and the existing security system
throughout the term of the sublease.
D. TENANT IMPROVEMENTS:
Prior to commencement, Sublessor, at Sublessor's cost, shall repair all
roof leaks and water damage and deliver the existing improvements clean
and free of debris with utility systems in working order.
Exhibit A (Site Plan), attached.
Exhibit 1 (Master Lease), attached.
If this Sublease has been filled in it has been prepared for submission
to your attorney for his approval. No representation or recommendation
is made by the real estate
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broker or its agents or employees as to the legal sufficiency, legal
effect, or tax consequences of this Sublease or the transaction
relating thereto.
Comstream Corporation
Executed at Mississangu, Ontario a California Corporation
------------------------- ------------------------
on 2/25/95 By /s/
---------------------------------- -----------------------------------
address c/o Comstream By____________________________________
-----------------------------
10130 Barnes Canyon Road "Sublessor" (Corporate Seal)
- -------------------------------------
San Diego, CA 92121
- -------------------------------------
Rhino Marketing, Inc.
Executed at _________________________ a California Corporation
--------------------------------------
on 1/25/95 By /s/ Jeffrey Fischer
----------------------------------- ------------------------------------
Its President
address 2511 Airpark Drive
Santa Monica, CA By ___________________________________
- -------------------------------------
"Sublessee" (Corporate Seal)
Executed at _________________________ Gordon E. Evans, Trustee
--------------------------------------
on___________________________________ By ___________________________________
address______________________________ By ___________________________________
_____________________________________ By ___________________________________
"Master Lessor" (Corporate Seal)
Executed at Mississaugu, Ontario ______________________________________
--------------------------
on 2/20/95 Spar Aerospace Inc.
--------------------------------- --------------------------------------
address 5090 Explorer Drive a Delaware Corporation
------------------------------ --------------------------------------
Mississaugu, Ontario L4W 4X6 /s/
- ------------------------------------- --------------------------------------
"Guarantors"
8
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NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
current form. AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa
Street, M I, Los Angeles, CA 90071 (213) 687-8777.
American Industrial Real Estate Association 1978
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Exhibit 10.12
TRILOGY CAPITAL GROUP, INC.
Promissory Note
Los Angeles, California As of March 4, 1996
FOR VALUE RECEIVED, Trilogy Capital Group, Inc., a California corporation (the
"Company"), hereby promises to pay to Golf One Industries, Inc., a Delaware
corporation (the "Holder"), in lawful money in the United States of America, in
lieu of fees in connection with the Company's financing and formation of Holder,
the sum of advances made from time to time in the aggregate amount of One
Hundred Forty Two Thousand One Hundred Sixty Dollars ($142,160), together with
simple interest at the rate of nine percent (9%) per annum through October 31,
1997 and thereafter one percent (1%) over the Prime Rate per annum on the unpaid
balance payable as indicated below.
Maturity Date. December 31, 2002
Payment. Payment of interest only on December 31, 1998 for the twelve month
period from January 1, 1998 to December 31, 1998; thereafter, monthly payments
of principal and interest based upon a ten year amortization schedule until
December 31, 2002 whereupon the entire remaining balance of principal and
accrued interest is payable in full. All payments of this Note shall be made to
the Holder at such address within the United States as the Holder shall from
time to time notify the Company in writing.
Collateral. Ten Thousand (10,000) shares of Golf One Industries, Inc. Common
Stock owned by Company.
Default. Holder must notify Company in writing via certified mail of any default
in the terms of this Note. Company will have thirty (30) days to cure such
default.
Legal Fees. If an action shall be commenced for the collection of this Note,
then the prevailing party shall be entitled to all attorney fees and costs.
Governing Law. This Note and the legal relations between the Holder and the
Company shall be governed by and construed in accordance with the internal laws
of the State of California without taking into account provisions regarding
choice of law.
TRILOGY CAPITAL GROUP, INC.
By: /s/ Alfonso J. Cervantes, Jr.
------------------------------------
Its: President
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF GARY PLAYER GOLF, INC.
1. Gran Prix Marketing, Inc.
2. Rhino Marketing, Inc.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have included our report dated April 24, 1998, accompanying the financial
statements of Gary Player Golf, Inc. and Subsidiaries contained in the
Registration Statement and Prospectus of Gary Player Golf, Inc., which will be
signed upon consummation of the transactions described in Note P, items 2 and 3
to the financial statements. We have also issued our report dated April 8, 1998,
accompanying the financial statements of Gary Player Golf Equipment (a division
of Gary Player Group, Inc.) contained in the Registration Statement and
Prospectus of Gary Player Golf, Inc. We consent to the use of the aforementioned
reports in the Registration Statement and Prospectus, and to the use of our name
as it appears under the caption "Experts."
GRANT THORNTON LLP
Los Angeles, California
May 27, 1998
<PAGE>
EXHIBIT 99.1
May 1, 1998
Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, CA 93455
Re: Consent to be Named a Nominee for Director
Dear Ladies and Gentlemen:
The undersigned does hereby consent to being named as a nominee for the
position of director of Golf One Industries, Inc., a Delaware corporation (the
"Company"), in the Company's Registration Statement on Form SB-2 (the
"Registration Statement"). I understand that the Registration Statement is being
filed with the Securities and Exchange Commission in connection with the
Company's initial public offering of Common Stock.
Sincerely,
/S/ Gary Player
--------------------------
Gary Player
<PAGE>
Exhibit 99.2
May 1, 1998
Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, CA 93455
Re: Consent to be Named a Nominee for Director
Dear Ladies and Gentlemen:
The undersigned does hereby consent to being named as a nominee for the
position of director of Golf One Industries, Inc., a Delaware corporation (the
"Company"), in the Company's Registration Statement on Form SB-2 (the
"Registration Statement"). I understand that the Registration Statement is being
filed with the Securities and Exchange Commission in connection with the
Company's initial public offering of Common Stock.
Sincerely,
/S/ Joseph J. White
---------------------------
Joseph J. White
<PAGE>
Exhibit 99.3
May 1, 1998
Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, CA 93455
Re: Consent to be Named a Nominee for Director
Dear Ladies and Gentlemen:
The undersigned does hereby consent to being named as a nominee for the
position of director of Golf One Industries, Inc., a Delaware corporation (the
"Company"), in the Company's Registration Statement on Form SB-2 (the
"Registration Statement"). I understand that the Registration Statement is being
filed with the Securities and Exchange Commission in connection with the
Company's initial public offering of Common Stock.
Sincerely,
/S/ Marc B. Player
---------------------------
Marc B. Player
